DEF 14A 1 hartfordproxy2017.htm DEF 14A Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
 
(Rule 14a-101)
 
INFORMATION REQUIRED IN PROXY STATEMENT
 
SCHEDULE 14A INFORMATION
 
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Securities Exchange Act of 1934 (Amendment No. )
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Definitive Proxy Statement
 
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Definitive Additional Materials
 
 
The Hartford Financial Services Group, Inc.
 
 
hartford_logocolora01.jpg
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NOTICE OF 2017 ANNUAL MEETING OF SHAREHOLDERS
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Date and Time
Wednesday, May 17, 2017
12:30 p.m. EDT
 
 
Location
One Hartford Plaza
Hartford, CT 06155
On behalf of the Board of Directors, I am pleased to invite you to attend the Annual Meeting of Shareholders of The Hartford Financial Services Group, Inc. to be held in the Wallace Stevens Theater at our Home Office at 12:30 p.m. EDT.
 
 
Voting Items
 
 
Shareholders will vote on the following items of business:
 
 
1.
Elect a Board of Directors for the coming year;
2.
Ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017;
3.
Consider and approve, on a non-binding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement; and
4.
Act upon any other business that may properly come before the Annual Meeting or any adjournment thereof.
 
 
Record Date
 
 
You may vote if you were a shareholder of record at the close of business on March 20, 2017. The Hartford’s proxy materials are available via the internet, which allows us to reduce printing and delivery costs and lessen adverse environmental impacts.
We hope that you will participate in the Annual Meeting, either by attending and voting in person or by voting through other means. For instructions on voting, please refer to page 59 under “How do I vote my shares?”
We urge you to review the proxy statement carefully and exercise your right to vote.
 
 
Dated: April 6, 2017
By order of the Board of Directors,
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Donald C. Hunt
Vice President and Corporate Secretary
 
VOTING
 
 
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By internet
www.proxyvote.com
 
By toll-free telephone 
1-800-690-6903
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By mail
Follow instructions on your proxy card
 
In person 
At the Annual Meeting
IMPORTANT INFORMATION IF YOU PLAN TO ATTEND THE MEETING IN PERSON: 
Please remember your ticket and government issued ID! Shareholders can obtain an admission ticket and directions to the meeting by contacting our Investor Relations Department at:
Email: InvestorRelations@TheHartford.com
Telephone: (860) 547-2537
Mail: The Hartford
Attn: Investor Relations
One Hartford Plaza (TA1-1)
Hartford, CT 06155
If you hold your shares of The Hartford through a brokerage account (in “street name”), your request for an admission ticket must include a copy of a brokerage statement reflecting stock ownership as of the record date.
You can also join our meeting webcast at http://ir.thehartford.com.
 
 
 


 
2017 Proxy Statement
1


LETTER FROM OUR CHAIRMAN & CEO
 
Dear fellow shareholders:

I am proud of the successes we achieved in 2016 as we navigated through challenging market conditions. We delivered strong results in Commercial Lines and Group Benefits in the face of intensifying competition, through disciplined underwriting and by leveraging the fundamental strengths of our franchise. Our Mutual Funds business grew assets under management by over 6 percent, and we continued to efficiently manage the run-off of our legacy life and annuity operation.

Personal auto results, however, were disappointing due to higher auto liability loss costs, impacted by an increase in miles driven, distracted driving and higher mortality rates on the road. In response, we have taken a number of pricing, distribution and underwriting actions, and we are confident these actions will deliver improved profitability in 2017.

During the year, we took measures to address our legacy P&C exposures, which have generated substantial adverse development over the past several years. In addition, as good stewards of shareholder capital, we returned approximately $1.7 billion to shareholders through equity repurchases and common dividends, and continued to reduce debt outstanding.

We delivered these results, while investing in the capabilities that will help us realize our strategic goals of becoming a broader, deeper risk player and a more efficient, customer-focused company. We entered the excess and surplus space, expanded our multi-national capabilities, launched a dedicated energy practice and expanded our suite of voluntary benefits products. As a result, we are now able to offer a total risk management solution to more of our customers. Investments in technology, data and digital capabilities have enabled us to better meet the needs and expectations of customers for speed and ease, while improving our own productivity - and we have only just begun.

At The Hartford, we recognize that a company’s reputation for doing business the right way is essential to sustained success. We are honored to have received several accolades that highlight the strength of our character and integrity - including being named one of the “World’s Most Ethical Companies” by the Ethisphere® Institute for the ninth time, being included in the Dow Jones Sustainability Indecies for a fifth consecutive year, and in cities throughout the country, being rated by our employees as a Top Workplace.

Let me express how proud I am of what we accomplished in 2016, and offer my sincere thanks to our employees, agents, customers and investors, as well as my fellow directors, for their continued support and confidence. We have a clear strategy for the future that is focused on a core set of businesses with leading market positions. We have the benefit of a strong balance sheet, capital flexibility, a robust national distribution network, a trusted brand, and a highly engaged workforce. Our employee engagement scores consistently rank in the top quartile of global companies as measured by the IBM® Kenexa® Survey. All these factors put us in a strong position from which to grow and create shareholder value.

As we execute in 2017, we remain focused on increasing core earnings, return on equity, and book value per share by maintaining strong margins in Commercial Lines and Group Benefits and improving auto profitability. By staying true to our strategic objectives, operating efficiently, adapting quickly to the changing operating environment and maintaining our focus on meeting the needs of our customers, we are confident in our ability to create long-term value for our shareholders, customers and distribution partners.

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Sincerely,
 
 
swift_sig.jpg
 
 
Christopher J. Swift
 
 
Chairman and Chief Executive Officer
 


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LETTER FROM OUR PRESIDING DIRECTOR
 
Dear fellow shareholders:
The Hartford’s Board believes that effective corporate governance and independent oversight of the company’s strategic and operational initiatives help create and protect long-term shareholder value. We continually review our practices and policies, and make changes we believe will improve governance. I want to take this opportunity to highlight some of our work in 2016.
Responsiveness to Shareholders
The Board strives to understand the perspectives of the company’s shareholders. In addition to routinely meeting with analysts and investors, the company has maintained an annual shareholder engagement program since 2011 focused on governance and compensation issues. In the fall, management reaches out to the company’s largest shareholders and reports their feedback directly to the Nominating and Corporate Governance Committee and the Compensation and Management Development Committee at their December meetings. One of the most significant topics discussed with shareholders over the course of 2015 and 2016 was proxy access. Many of The Hartford’s shareholders expressed their opinion that proxy access is a fundamental shareholder right and an important accountability mechanism. The Board considered this feedback, as well as best practices and trends among other large public companies, and, consistent with our long-standing commitment to strong corporate governance and responsiveness to shareholders, proactively adopted a proxy access By-law in July.
Board Effectiveness
The Board understands that it operates in a dynamic environment, and must remain vigilant to ensure it is discharging its duties effectively. To that end, we have improved the process by which we assess the Board’s performance. As described in last year’s proxy statement, commencing in 2016, I began leading individual one-on-one discussions with directors and a mid-year review of progress against goals. While, overall, there was agreement that the Board was functioning well, candid discussions did identify areas that we have leveraged to improve our effectiveness, including enhanced communication with management both during and between meetings, off-cycle communications on the status of initiatives and market developments, and even greater use of metrics, competitor analysis and benchmarking. As a result, the Board is more consistently discussing the company's strategic direction and priorities with management and receiving more frequent updates and greater visibility into management's execution of those plans. For my part, I am partnering more closely with the Chairman and CEO, and we are communicating more frequently than ever before.
Board Refreshment
The Board must also remain vigilant to ensure it has the right mix of skills and perspectives. We have had great success in recent years in on-boarding talented new directors with diverse perspectives, including the addition since 2010 of four female directors who bring valuable insights from distinguished careers in corporate finance, operations and technology, investment banking, and law. We like the mix of skills and perspectives we currently have; however, two of our directors will reach mandatory retirement age and be unable to stand for re-election in May 2018. In October, we launched a succession planning process to proactively anticipate retirements while aligning Board skills with the company’s long-term strategy and major risks. We are taking stock of the skills and attributes the Board currently has, skills that are needed, and those skills that may be needed in the future. We look forward to sharing the outcome of our process.
As always, I am proud to work closely with the Chairman and CEO and my fellow independent directors as we strive to create greater shareholder value. On behalf of the entire Board, thank you for your continued support.
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renyi_letterquote.jpg
 
 
 
 
 
 
 
 
 
Sincerely,
 
 
renyi_sig.jpg
 
 
Thomas A. Renyi
 
 
Presiding Director
 

 
2017 Proxy Statement
3


TABLE OF CONTENTS
PROXY SUMMARY
BOARD AND GOVERNANCE HIGHLIGHTS
PERFORMANCE HIGHLIGHTS
COMPENSATION HIGHLIGHTS
BOARD AND GOVERNANCE MATTERS
GOVERNANCE PRACTICES AND FRAMEWORK
COMMITTEES OF THE BOARD
THE BOARD’S ROLE AND RESPONSIBILITIES
SELECTION OF NOMINEES FOR ELECTION TO THE BOARD
DIRECTOR COMPENSATION
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMMUNICATING WITH THE BOARD
DIRECTOR NOMINEES
AUDIT MATTERS
REPORT OF THE AUDIT COMMITTEE
FEES OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
COMPENSATION DISCUSSION AND ANALYSIS
EXECUTIVE SUMMARY
COMPONENTS OF COMPENSATION PROGRAM
PROCESS FOR DETERMINING SENIOR EXECUTIVE COMPENSATION (INCLUDING NEOs)
PAY FOR PERFORMANCE
COMPENSATION POLICIES AND PRACTICES
EFFECT OF TAX AND ACCOUNTING CONSIDERATIONS ON COMPENSATION DESIGN
REPORT OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
EXECUTIVE COMPENSATION TABLES
INFORMATION ON STOCK OWNERSHIP
DIRECTORS AND EXECUTIVE OFFICERS
CERTAIN SHAREHOLDERS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
INFORMATION ABOUT THE HARTFORD’S ANNUAL MEETING OF SHAREHOLDERS
HOUSEHOLDING OF PROXY MATERIALS
FREQUENTLY ASKED QUESTIONS
OTHER INFORMATION
APPENDIX A: RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES


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PROXY SUMMARY
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.
ITEM 1
 
ELECTION OF DIRECTORS
þ The Board recommends a vote FOR each director nominee
Each director nominee has an established record of accomplishment in areas relevant to overseeing our businesses and possesses qualifications and characteristics that are essential to a well-functioning and deliberative governing body.
BOARD NOMINEES
Name
Age
 
Director since
 
Present or Most Recent Experience
 
Independent
 
Current
Committee Memberships(1)
 
Other Current
Public Company Boards
Yes
 
No
 
Robert B. Allardice III
70
 
2008
 
Former regional CEO, Deutsche Bank Americas
 
 
 
 
Audit
FIRMCo*
 
Ellington Residential Mortgage REIT
GasLog Partners
Trevor Fetter
57
 
2007
 
Chairman, President and CEO, Tenet Healthcare
 
 
 
 
Comp
FIRMCo
 
Tenet Healthcare
Kathryn A. Mikells
51
 
2010
 
CFO, Diageo plc
 
 
 
 
Audit
FIRMCo
 
Diageo plc
Michael G. Morris
70
 
2004
 
Former Chairman, President and CEO, American Electric Power Company
 
 
 
 
Audit
FIRMCo
NCG
 
Alcoa
L Brands
Spectra Energy
Thomas A. Renyi(2)
71
 
2010
 
Former Executive Chairman, Bank of New York Mellon; former Chairman and CEO, Bank of New York Company
 
 
 
 
Comp
FIRMCo
 
Public Service Enterprise Group
Royal Bank of Canada
Julie G. Richardson
53
 
2014
 
Former Partner, Providence Equity Partners
 
 
 
 
Audit*
FIRMCo
 
Arconic Inc.
VEREIT, Inc.
Yext, Inc.(3)
Teresa W. Roseborough
58
 
2015
 
Executive Vice President, General Counsel and Corporate Secretary, The Home Depot
 
 
 
 
Comp
FIRMCo
NCG
 
 
Virginia P. Ruesterholz
55
 
2013
 
Former Executive Vice President, Verizon Communications
 
 
 
 
Comp*
FIRMCo
NCG
 
Frontier Communications
Charles B. Strauss
74
 
2001
 
Former President and CEO, Unilever U.S.
 
 
 
 
Audit
FIRMCo
NCG*
 
 
Christopher J. Swift
56
 
2014
 
Chairman and CEO, The Hartford
 
 
 
 
FIRMCo
 
 
H. Patrick Swygert
74
 
1996
 
President Emeritus and professor emeritus, Howard University
 
 
 
 
Comp
FIRMCo
NCG
 
United Technologies Corporation
*
Denotes committee chair
(1)
Full committee names are as follows:
Audit – Audit Committee
Comp – Compensation and Management Development Committee
FIRMCo – Finance, Investment and Risk Management Committee
NCG – Nominating and Corporate Governance Committee
(2)
Mr. Renyi serves as the presiding director. For more details on the presiding director’s role, see page 11
(3)
On March 13, 2017, Yext, Inc. filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission relating to the proposed initial public offering of shares of its common stock


 
2017 Proxy Statement
5

PROXY SUMMARY
 
 

BOARD AND GOVERNANCE HIGHLIGHTS

BOARD OVERVIEW
boardoverview_piechart.jpg

2016 BOARD ACTIONS
As a result of shareholder feedback received in 2016 and prior years, and an analysis of governance trends and best practices, the Board took several important actions in 2016 to enhance the company's corporate governance practices.
What we heard from Shareholders
 
Actions Taken
Proxy access is a fundamental shareholder right and an important accountability mechanism
Proactively adopted a proxy access By-law, which provides that a shareholder, or group of up to 20 shareholders, may nominate a director and have the nominee included in the company’s proxy statement. The shareholder, or group collectively, must have held at least 3% of the company’s common stock for three years in order to make a nomination; and the shareholder, or group, may nominate as many as two directors, or a number of directors equal to 20% of the board, whichever is greater.
Directors must have sufficient time to devote to their Board responsibilities
Amended the company's Corporate Governance Guidelines to reduce the total number of public company boards (including The Hartford) on which directors may serve from six to five for non-CEOs, and from three to two for sitting CEOs.

GOVERNANCE BEST PRACTICES
The Board and management regularly review best practices in corporate governance and modify our governance policies and practices as warranted. Our current best practices are highlighted below.
Independent Oversight
Majority independent directors
All independent key committees (Audit, Compensation, Nominating)
Strong and engaged independent presiding director role
Engaged Board /Shareholder Rights
Directors elected annually 
Majority vote standard (with plurality carve-out for contested elections)
Proxy access right
Director resignation policy
Robust over-boarding policy
Rigorous Board and committee self-assessments conducted annually
Meaningful Board education and training on recent and emerging governance and industry trends
Robust stock-ownership guidelines
Annual shareholder engagement program to obtain valuable feedback on our compensation and governance programs
Good Governance
Diverse Board membership in terms of experience, tenure, age and gender
Annual review of CEO succession plan by the independent directors with the CEO
Annual Board review of senior management long-term and emergency succession plans
Nominating Committee oversight of environmental, sustainability and corporate social responsibility activities
Annual Nominating Committee review of the company’s political and lobbying policies and expenditures

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PROXY SUMMARY


ITEM 2
 
RATIFICATION OF
INDEPENDENT REGISTERED
ACCOUNTING FIRM
þ The Board recommends a vote FOR this item
As a matter of good corporate governance, the Board is asking shareholders to ratify the selection of Deloitte & Touche LLP as our independent registered public accounting firm for 2017.
ITEM 3
 
ADVISORY VOTE TO
APPROVE EXECUTIVE
COMPENSATION
þ The Board recommends a vote FOR this item
The Board is asking shareholders to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this proxy statement. Our executive compensation program is designed to promote long-term shareholder value creation and support our strategy by (1) encouraging profitable growth consistent with prudent risk management, (2) attracting and retaining key talent, and (3) appropriately aligning pay with short- and long-term performance.

PERFORMANCE HIGHLIGHTS

2016 FINANCIAL RESULTS
In 2016, The Hartford produced strong financial results in many of its businesses, particularly in light of challenging market conditions; however, actions taken to address our legacy property and casualty asbestos and environmental ("A&E") exposures and challenging loss trends in Personal Lines auto resulted in a 47% decrease in net income.
financialresultsa09.jpg
2016 BUSINESS PERFORMANCE
For the year, we delivered strong results in Commercial Lines and Group Benefits, while Personal Lines performance remained under pressure from higher frequency and severity of automobile accidents. P&C net investment income was up slightly from 2015, and in Talcott Resolution, our legacy life insurance and annuity business, we continued to effectively serve our customers and efficiently manage the run-off of the book. Moreover, we continued to make progress on our strategy to broaden our risk appetite.







* Denotes a non-GAAP financial measure. For definitions and reconciliations to the most directly comparable GAAP measure, see Appendix A.

 
2017 Proxy Statement
7

PROXY SUMMARY
 
 

TOTAL SHAREHOLDER RETURNS
The following chart shows The Hartford’s total shareholder returns ("TSR") relative to the S&P 500, S&P 500 Insurance Composite, and S&P P&C indices. On a one-year and three-year basis, the company’s total shareholder returns were 11.8% and 38.9%, respectively.
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COMPENSATION HIGHLIGHTS

2016 COMPENSATION DECISIONS
Decision
Rationale
The Compensation Committee approved an annual incentive plan (“AIP”) funding level of 70% of target. (page 39)
Performance against pre-established financial targets resulted in a formulaic AIP funding level of 70% of target. The Compensation Committee undertook a qualitative review of performance and concluded that the formulaic AIP funding level appropriately reflected 2016 performance. Accordingly, no adjustments were made.
The Compensation Committee certified a 2014-2016 performance share award payout at 52% of target. (page 41)
The company's TSR during the performance period was at the 52nd percentile relative to nine peer companies, resulting in a payout of 104% of target for the TSR component. Because the company's Compensation Core ROE during the performance period was below threshold, there was no payout for that component.
The Compensation Committee certified an October 2013 performance share award payout of 0%. (page 41)
The company's Compensation Core ROE during the performance period was below the threshold required to receive any payout.

2016 NEO COMPENSATION SUMMARY
The table below reflects the 2016 compensation package (base salary, AIP award and long-term incentive (“LTI”) award) for each NEO. Although this table is not a substitute for the Summary Compensation Table information beginning on page 44, we believe it provides a simple and concise picture of 2016 compensation decisions.
Compensation Component
C. Swift
 
B. Bombara
 
D. Elliot
 
B. Johnson
 
R. Rupp
Base Salary Rate
$
1,100,000

 
$
700,000

 
$
925,000

 
$
525,000

 
$
600,000

2016 AIP Award
$
1,925,000

 
$
770,000

 
$
1,295,000

 
$
1,100,000

 
$
1,000,000

2016 LTI Award
$
7,150,000

 
$
1,750,000

 
$
4,625,000

 
$
1,350,000

 
$
1,400,000

Total 2016 Compensation Package
$
10,175,000

 
$
3,220,000

 
$
6,845,000

 
$
2,975,000

 
$
3,000,000


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PROXY SUMMARY

COMPENSATION BEST PRACTICES
The Compensation Committee regularly reviews best practices in executive compensation. Our current best practices and policies include the following:
What We Do
Approximately 90% of current CEO target annual compensation and 84% of other NEO target annual compensation are variable based on performance, including stock price performance
Senior Executives are eligible for the same benefits as full-time employees generally, including health, life insurance, disability and retirement benefits
Cash severance benefits payable upon a change of control do not exceed 2x the sum of base pay plus target bonus, and are only paid upon a valid termination following a change of control ("double trigger")
Double trigger requirement for vesting of equity awards upon change of control (so long as the awards are assumed or replaced with substantially equivalent awards)
Independent Board compensation consultant does not provide services to the company
Comprehensive risk mitigation in plan design and annual review of compensation plans, policies and practices
All employees and directors are prohibited from engaging in hedging, monetization, derivative and similar transactions with company securities
Senior Executives are prohibited from pledging company securities
Executive perquisites are limited
Stock ownership guidelines for directors and Senior Executives; compliance with guidelines is reviewed annually
Compensation peer groups are evaluated periodically to align with investor expectations and changes in market practice or our business mix
Competitive burn rate and dilution for equity program
What We Don't Do
û
No excise tax gross-up upon a change of control or income tax gross-up for perquisites
û
No individual employment agreements
û
No granting of stock options with an exercise price less than the fair market value of our common stock on the date of grant
û
No re-pricing (reduction in exercise price) of stock options
û
No underwater cash buy-outs
û
No reload provisions in any stock option grant
û
No payment of dividends on unvested performance shares


 
2017 Proxy Statement
9


BOARD AND GOVERNANCE MATTERS
GOVERNANCE PRACTICES AND FRAMEWORK
At The Hartford, we aspire to be an exceptional company celebrated for financial performance, character, and customer value. We believe that good governance practices and responsible corporate behavior are central to this vision and contribute to our long-term performance. Accordingly, the Board and management regularly review best practices in corporate governance and modify our governance policies and practices as warranted. Our current best practices include:
Independent Oversight
Majority independent directors
All independent key committees (Audit, Compensation, Nominating)
Strong and engaged independent presiding director role
Engaged Board /Shareholder Rights
Directors elected annually 
Majority vote standard (with plurality carve-out for contested elections)
Proxy access right
Director resignation policy
Robust over-boarding policy
Rigorous Board and committee self-assessments conducted annually
Meaningful Board education and training on recent and emerging governance and industry trends
Robust stock-ownership guidelines
Annual shareholder engagement program to obtain valuable feedback on our compensation and governance programs
Good Governance
Diverse Board membership in terms of experience, tenure, age and gender
Annual review of CEO succession plan by the independent directors with the CEO
Annual Board review of senior management long-term and emergency succession plans
Nominating Committee oversight of environmental, sustainability and corporate social responsibility activities
Annual Nominating Committee review of the company’s political and lobbying policies and expenditures
The fundamental responsibility of our directors is to exercise their business judgment to act in what they reasonably believe to be the best interests of The Hartford and its shareholders. The Board fulfills this responsibility within the general governance framework provided by the following documents:
Articles of Incorporation
By-laws
Corporate Governance Guidelines (compliant with the listing standards of the NYSE and including guidelines for determining director independence and qualifications)
Charters of the Board’s committees
Code of Ethics and Business Conduct
Code of Ethics and Business Conduct for Members of the Board of Directors
Code of Ethics and Political Compliance
Copies of these documents are available on our investor relations website at http://ir.thehartford.com or upon request sent to our Corporate Secretary (see page 61 for details).
DIRECTOR INDEPENDENCE
The Board annually reviews director independence under standards stated in our Corporate Governance Guidelines, the listing standards of the NYSE, and other applicable legal and regulatory rules. In addition, per our Corporate Governance Guidelines, in order to identify potential conflicts of interest and to monitor and preserve the independence of those directors who meet the criteria for independence required under applicable law and by the NYSE, any director who wishes to become a director of another for-profit entity must obtain the pre-approval of the Nominating and Corporate Governance Committee.
The Board has affirmatively determined that all nominees for director other than Mr. Swift are independent.

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BOARD AND GOVERNANCE MATTERS

BOARD LEADERSHIP STRUCTURE
The roles of CEO and Chairman of the Board (“Chairman”) are held by Christopher Swift. Mr. Swift has served as CEO since July 1, 2014; he was also appointed Chairman on January 5, 2015. In late 2014, prior to Mr. Swift assuming the role of Chairman, the Board deliberated extensively on the company’s board leadership structure, seeking feedback from shareholders and considering extensive corporate governance analysis. The Board concluded then, and continues to believe, that the company's historical approach of combining the roles of CEO and Chairman while maintaining strong independent Board leadership is the optimal leadership structure from which to carry out its oversight of the company's strategy, business operations and risk management. The CEO, as the principal leader of business operations, is uniquely positioned to identify and communicate key strategic and operational issues and the interests of the company’s stakeholders to the Board. In addition, Mr. Swift’s experience and qualifications enable him to fulfill the responsibilities of both roles and effectively lead the company with a unified vision.
The Board believes that other elements of the company’s corporate governance structure ensure that independent directors can perform their role as independent fiduciaries in the Board’s oversight of management and the company’s business, and minimize any potential conflicts that may result from combining the roles of CEO and Chairman. As noted above, all directors other than Mr. Swift are independent. Whenever the chairman of the Board is not independent, our Corporate Governance Guidelines require the independent directors to elect from among them a presiding director. At each regularly scheduled in-person meeting of the Board, the presiding director leads a meeting in executive session of the independent directors. In 2016, the independent directors met five times in executive session. The presiding director has the following responsibilities:
presiding at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors;
serving as a liaison between the Chairman and CEO and the non-management directors;
approving information sent to the Board;
approving meeting agendas for the Board;
approving meeting schedules to help ensure there is sufficient time for discussion of agenda items;
calling and presiding over meetings of the independent directors; and
if requested by shareholders, being available, when appropriate, for consultation and direct communication.
As part of its evaluation process, the Board has committed to undertaking an annual review of its board leadership structure to ensure it serves the best interests of shareholders and positions the company for future success.
BOARD TENURE AND REFRESHMENT
The Nominating Committee strives for a Board that includes a mix of varying perspectives and breadth of experience. Newer directors bring fresh ideas and perspectives, while longer tenured directors bring extensive knowledge of our complex operations. As part of its annual self-assessment process, the Board evaluates its overall composition, including director tenure. In addition, as noted above, the Board considers the independence of its members under applicable laws, regulations and the NYSE listing standards on an annual basis and does not believe the independence of any director nominee is compromised due to Board tenure. The Board has a formal director retirement policy at age 75, which contributes to Board renewal.
Among the current director nominees, four have fewer than five years of service, three nominees have between five and ten years of tenure, and the remaining four have over 10 years of service. The average tenure of the Board nominees is 8.4 years.
As part of our continuing efforts to bring diverse perspectives to the Board, since 2010 we have added four female directors. In 2016, two went on to become chairs of our Audit Committee and Compensation and Management Development Committee, significantly increasing female leadership on the Board.
directortenurediversitypiech.jpg


 
2017 Proxy Statement
11

BOARD AND GOVERNANCE MATTERS
 
 

TALENT DEVELOPMENT AND SUCCESSION PLANNING
Talent development and succession planning have been, and will continue to be, important parts of the Board’s governance responsibilities. The CEO and independent directors conduct a review, at least annually, of succession and continuity plans for the CEO. Succession planning includes the identification and development of potential successors, policies and principles for CEO selection, and plans regarding succession in the case of an emergency or the retirement of the CEO. In addition, each year, the Compensation and Management Development Committee reviews succession and continuity plans for the CEO and each member of the executive leadership team that reports to the CEO. The Compensation and Management Development Committee’s charter requires that it discuss the results of these reviews with the independent directors and/or the CEO. However, given the importance of the topic and the engagement of the full Board on the issue, all directors are invited to these sessions. The full Board routinely meets with employees who have been identified as potential future leaders of the company.
In recent years, the Board's robust talent development and succession planning efforts have resulted in the seamless and well-managed transition of internal candidates into the company’s most senior roles.
COMMITTEES OF THE BOARD
The Board has four standing committees: the Audit Committee; the Compensation and Management Development Committee; the Finance, Investment and Risk Management Committee; and the Nominating and Corporate Governance Committee. The Board has determined that all of the members of the Audit Committee, the Compensation and Management Development Committee and the Nominating and Corporate Governance Committee are “independent” directors within the meaning of the SEC’s regulations, the listing standards of the NYSE and our Corporate Governance Guidelines. Each committee conducts a self-evaluation of its performance on an annual basis.

In May 2016, we rotated the chairs for all of our committees, bringing independent, fresh perspectives to each committee's oversight responsibilities, including the elevation of two female directors to leadership positions, with Julie Richardson serving as Audit Committee Chair and Virginia Ruesterholz as Compensation and Management Development Committee Chair.

The current members of the Board, the committees on which they serve and the primary functions of each committee are identified below:
 
 
 
 
AUDIT COMMITTEE*
Members
R. Allardice
K. Mikells
M. Morris
J. Richardson (Chair)
C. Strauss
Meetings in 2016: 9
“In 2016, the Audit Committee continued its focus on monitoring the control environment over significant financial reporting, operational and compliance risks with a particular emphasis on IT risk management and the process for estimating loss reserves.”
Julie G. Richardson, Committee Chair since 2016
Roles and Responsibilities
     Monitors the integrity of our financial statements 
     Oversees our accounting, financial reporting and disclosure processes and the adequacy of management’s systems of internal control over financial reporting
     Monitors the independent registered public accounting firm’s qualifications and independence
     Monitors the performance of our internal audit function and independent registered public accounting firm
     Monitors our compliance with legal and regulatory requirements and our Code of Ethics and Business Conduct
     Discusses with management policies with respect to risk assessment and risk management
*
All members are “financially literate” within the meaning of the listing standards of the NYSE and “audit committee financial experts” within the meaning of the SEC’s regulations.
 
 
 
 



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COMPENSATION
AND MANAGEMENT
DEVELOPMENT COMMITTEE
Members
T. Fetter
T. Renyi
T. Roseborough
V. Ruesterholz (Chair)
H. Swygert
Meetings in 2016: 7
“While the Compensation Committee is always focused on paying for performance, in 2016 the rotation of committee leadership and a new compensation consultant allowed us to take a fresh look at incentive plan design and key metrics.”
Virginia Ruesterholz, Committee Chair since 2016
Roles and Responsibilities
     Oversees executive compensation and assists us in defining an executive total compensation policy
     Works with management to develop a clear relationship between pay levels, performance and returns to shareholders and to align our compensation structure with our objectives
     Has the ability to delegate, and has delegated to the Executive Vice President, Human Resources, or her designee, responsibility for the day-to-day operations of our compensation plans and programs
     Has sole authority to retain, compensate and terminate any consulting firm used to evaluate and advise on executive compensation matters
     Considers independence standards required by the NYSE or applicable law in regards to compensation consultants, accountants, legal counsel or other advisors, prior to their retention
     In consultation with a senior risk officer, meets annually to discuss and evaluate whether incentive compensation arrangements create material risks to the company
     Retains responsibility for compensation actions and decisions with respect to certain senior executives, as described in the Compensation Discussion and Analysis beginning on page 30
 
 
 
 
 
 
 
 
FINANCE, INVESTMENT
AND RISK MANAGEMENT
COMMITTEE
Members
R. Allardice (Chair)
T. Fetter
K. Mikells
M. Morris
T. Renyi
J. Richardson
T. Roseborough
V. Ruesterholz
C. Strauss
C. Swift
H. Swygert
Meetings in 2016: 5
“In 2016, FIRMCo continued its focus on cyber risks and the potential impact both on The Hartford and its clients, as well as enhanced stress testing of financial, insurance and operational risks. In addition, we focused on emerging macro events that could affect our investment portfolio, including global market volatility and uncertainty around Brexit, China, commodities, and U.S. monetary policy.”
Robert B. Allardice III, Committee Chair since 2016
Roles and Responsibilities
     Reviews and recommends changes to enterprise policies governing management activities relating to major risk exposures such as market risk, liquidity and capital requirements, insurance risks and cybersecurity
     Reviews our overall risk appetite framework, which includes an enterprise risk appetite statement, risk preferences, risk tolerances, and an associated limit structure for each of our major risks
     Reviews and recommends changes to our financial, investment and risk management guidelines
     Provides a forum for discussion among management and the entire Board of key financial, investment, and risk management matters
 
 
 





 
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BOARD AND GOVERNANCE MATTERS
 
 

 
 
 
 
NOMINATING AND
CORPORATE GOVERNANCE
COMMITTEE
Members
M. Morris
T. Roseborough
V. Ruesterholz
C. Strauss (Chair)
H. Swygert
Meetings in 2016: 4
“After an extensive review of shareholder feedback, best practices and trends among other large public companies, the Nominating Committee recommended that the Board proactively adopt a proxy access By-law, consistent with our long-standing commitment to strong corporate governance and responsiveness to shareholders.”
Charles B. Strauss, Committee Chair since 2016
Roles and Responsibilities
     Advises and makes recommendations to the Board on corporate governance matters
     Considers potential nominees to the Board 
     Makes recommendations on the organization, size and composition of the Board and its committees
     Considers the qualifications, compensation and retirement of directors
     Reviews our policies and reports on political contributions
     Reviews policies and programs that relate to our social responsibility, sustainability and environmental stewardship
 
 
 
 
THE BOARD’S ROLE AND RESPONSIBILITIES
BOARD RISK OVERSIGHT
The Board as a whole has ultimate responsibility for risk oversight. The company has a formal enterprise risk appetite framework that is reviewed by the Board at least annually. The risk appetite framework includes an enterprise risk appetite statement and risk preferences, tolerances, and limits.
The Board exercises its oversight function through its standing committees, each of which has primary risk oversight responsibility for all matters within the scope of its charter. Annually, each committee reviews and reassesses the adequacy of its charter and the Nominating Committee reviews all charters and recommends any changes to the Board for approval. The table below provides examples of each committee’s risk oversight responsibilities.
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The Finance, Investment and Risk Management Committee ("FIRMCo"), which is comprised of all members of the Board, oversees the investment, financial, and risk management activities of the company and has oversight of all risks that do not fall within the oversight responsibility of any other standing committee. FIRMCo meets at each regular Board meeting and is briefed on the company's risk profile and risk management activities. In addition, the Audit Committee discusses with management policies with respect to risk assessment and risk management.

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To assist the Board in discharging its oversight function, from time to time, the Board deems it advisable to form either a special committee or a working group to lead oversight of key strategic matters. Beginning in 2012, the Board established a Talcott Resolution Board Working Group to discuss risks and mitigation strategies related to the company’s runoff life insurance and annuity businesses. This group, consisting of Robert Allardice, Julie Richardson, Virginia Ruesterholz and Charles Strauss, met eight times in 2016.

For a detailed discussion of management's day-to-day management of risks, including sources, impact and management of specific categories of risk, see Part II - Item 7. Management's Discussion and Analysis in the company's annual report of Form 10-K for the year ended December 31, 2016.
BUSINESS ETHICS AND CONDUCT
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Striving to do the right thing every day and in every situation is fundamental to our culture, and we are proud that we have been recognized nine times, including in 2017, by The Ethisphere® Institute as one of the “World’s Most Ethical Companies.” We have adopted a Code of Ethics and Business Conduct, which applies to all of our employees, including our principal executive officer, principal financial officer and principal accounting officer. We have also adopted a Code of Ethics and Business Conduct for Members of the Board of Directors (the “Board Code of Ethics”) and a Code of Ethics and Political Compliance. These codes require that all of our employees and directors engage in honest and ethical conduct in performing their duties, provide guidelines for the ethical handling of actual or apparent conflicts of interest, and provide mechanisms to report unethical conduct. Directors certify compliance with the Board Code of Ethics annually.
We provide our employees with a comprehensive educational program, including courses on our Code of Ethics and Business Conduct, potential conflicts of interest, privacy and information protection, marketplace conduct, and ethical decision-making. Hotlines and online portals have been established for employees, vendors, or others to raise ethical concerns and employees are encouraged to speak up whenever they have an ethics-oriented question or problem.
SHAREHOLDER ENGAGEMENT
In addition to routinely meeting with analysts and investors, the company has maintained an annual shareholder engagement program since 2011 focused on governance and compensation issues. In the fall of each year, management contacts the company’s largest shareholders and reports their feedback directly to the Nominating and Corporate Governance Committee and the Compensation and Management Development Committee.
In the fall of 2016, management contacted shareholders representing approximately 50% of shares outstanding and had discussions with shareholders representing approximately 30% of shares outstanding. Many shareholders opted not to participate in calls, noting that they had no material concerns.
As a result of shareholder feedback received in 2016 and prior years, and an analysis of governance trends and best practices, the Board took several important actions in 2016 to enhance the company's corporate governance practices.
What we heard from Shareholders
 
Actions Taken
Proxy access is a fundamental shareholder right and an important accountability mechanism

Proactively adopted a proxy access By-law, which provides that a shareholder, or group of up to 20 shareholders, may nominate a director and have the nominee included in the company’s proxy statement. The shareholder, or group collectively, must have held at least 3% of the company’s common stock for three years in order to make a nomination; and the shareholder, or group, may nominate as many as two directors, or a number of directors equal to 20% of the board, whichever is greater.
Directors must have sufficient time to devote to their Board responsibilities
Amended the company's Corporate Governance Guidelines to reduce the total number of public company boards (including The Hartford) on which directors may serve from six to five for non-CEOs, and from three to two for sitting CEOs.

 
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BOARD AND GOVERNANCE MATTERS
 
 

ANNUAL BOARD SELF-ASSESSMENT PROCESS
The Nominating Committee oversees Board evaluation, leveraging a multi-step process to ensure an ongoing, rigorous assessment of the Board’s effectiveness. In response to shareholders’ interest for a robust and candid self-evaluation process, commencing in 2016, the Board augmented its self-evaluation process with individual one-on-one discussions led by the presiding director and a mid-year review by the Board of progress against its established goals.
Component
Actions
Annual Corporate Governance Review / Shareholder Engagement Program
(October to December)
The Nominating Committee performs an annual review of the company’s corporate governance policies and practices in light of best practices, recent developments and trends. In addition, the Nominating Committee reviews feedback on governance issues provided by shareholders during the company’s annual shareholder engagement program.
Board Self-Assessment Questionnaires
(February)
The governance review and shareholder feedback informs the Nominating Committee’s review and approval of written questionnaires that the Board and its standing committees use to help guide self-assessment. The Board’s questionnaire covers a wide range of topics, including the Board’s:
  fulfillment of its responsibilities under the Corporate Governance Guidelines;
  effectiveness in overseeing the company’s business plan, strategy and risk management;
  leadership structure and composition, including mix of experience, skills, diversity and tenure;
  relationship with management; and
  processes to support the Board’s oversight function.
The Board engages in a discussion guided by the self-assessment questionnaire and develops goals for the coming year.
One-on-One Discussions
(February to May)
The presiding director meets individually with each independent director on Board effectiveness, dynamics and areas for improvement.
Board Evaluation and
Development of Goals
(July)
The presiding director leads a Board evaluation discussion in executive session guided by the Board’s self-assessment questionnaire and the key themes identified through the one-on-one discussions. The Board identifies successes and areas for improvement from the prior Board year and establishes formal goals for the year ahead.
Interim Review of Goals
(December)
The presiding director leads an interim review of progress made against the goals established during the Board evaluation discussion in May.
When the Presiding Director led the Board evaluation session in July, 2016, there was agreement that the Board was functioning well. However, the Board established three formal goals to improve efficiency for the 2016-2017 Board year:
1.
Further enhance communication with management both during and between meetings, including more opportunities to communicate one-on-one with the CEO and off-cycle communications on the status of initiatives and market developments
2.
Use metrics, competitor analysis and benchmarking to an even greater extent; and
3.
Leverage executive sessions both at the beginning and end of Board meetings.
In addition to the full Board evaluation process, the standing committees of the Board undertake separate self-assessments based on written questionnaires, generally between February and July.
BOARD AND SHAREHOLDER MEETING ATTENDANCE
The Board met seven times during 2016 and each of the directors attended 75% or more of the aggregate number of meetings of the Board and the committees on which he or she served. We encourage our directors to attend the Annual Meeting of Shareholders, and all of our directors attended the Annual Meeting of Shareholders held on May 18, 2016.
POLITICAL ACTIVITIES
The Nominating Committee reviews the company's political and lobbying policies and reports of political contributions annually. As part of our Code of Ethics and Business Conduct, we do not make corporate contributions to political candidates or parties, and we require that no portion of our dues paid to trade associations be used for political contributions. We do allow the use of corporate resources for non-partisan political activity, including voter education and registration. We have two political action committees (“PACs”), The Hartford Advocates Fund and The Hartford Advocates Federal Fund. The PACs are solely funded by voluntary contributions from eligible employees in management level roles. The PACs support candidates for federal and state office who are interested in understanding insurance issues and engage in developing public policy to address them. Our website includes information on: (1) contributions made by The Hartford's PACs; (2) our policy on corporate contributions for political purposes; and (3) annual dues, assessments and contributions of $25,000 or more to trade associations and coalitions. To learn more, please access our 2016 Political Activities Report, at https://ir.thehartford.com/corporate-governance/political-engagement.

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ENVIRONMENT AND SUSTAINABILITY
The Hartford is a leader in sustainability and we are committed to operating in a socially responsible manner. As an eco-friendly insurance company, we recognize the clear consensus within the scientific community that climate change is of real and increasing concern. As an insurer, investor, employer, property owner and responsible corporate citizen, we are committed to understanding, managing and mitigating the risks associated with global climate change. In the past few years, we have undertaken a number of initiatives that exemplify our commitment, including installing electric vehicle charging stations to support electric car use, switching to more fuel efficient fleet vehicles, reducing our paper consumption and planting a community garden on The Hartford’s campus.
As a result of our efforts to operate in an environmentally and socially responsible manner, in 2016 the company received the following national recognitions:
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To learn more about The Hartford’s corporate responsibility and sustainability efforts, please access our latest Sustainability Report, which presents our sustainability goals and provides data as well as examples of our efforts to achieve those goals, at https://www.thehartford.com/about-us/corporate-sustainability.
SELECTION OF NOMINEES FOR ELECTION TO THE BOARD
CRITERIA FOR NOMINATION TO THE BOARD OF DIRECTORS
The Nominating Committee is responsible for identifying and recommending to the Board candidates for Board membership. At the request of the Nominating Committee, we have retained an outside search firm to identify prospective Board nominees. The Nominating Committee also considers candidates suggested by its members, other Board members, management and shareholders.
The Nominating Committee evaluates candidates against the standards and qualifications set forth in our Corporate Governance Guidelines as well as other relevant factors as it deems appropriate, including the current composition of the Board and each candidate’s:
experience and its relevance to our business and objectives;
financial and accounting expertise;
ability to meet the required independence criteria and avoid conflicts of interest;
personal and professional ethics, integrity and values; and
availability to attend Board meetings and to devote appropriate time to preparation for such meetings.
In addition, the Nominating Committee considers the candidate’s potential contribution to the diversity of the Board. The Board believes that a diverse membership with varying perspectives and breadth of experience is an important attribute of a well-functioning board and will contribute positively to robust discussion at meetings. The Nominating Committee considers diversity in the context of the Board as a whole and takes into account considerations relating to race, gender, ethnicity and the range of perspectives that the directors bring to their Board work. As part of its consideration of prospective nominees, the Board and the Nominating Committee monitor whether the directors as a group meet The Hartford’s criteria for the composition of the Board, including diversity considerations.

 
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BOARD AND GOVERNANCE MATTERS
 
 

Board Nomination Process
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SHAREHOLDER PROPOSED NOMINEES
The Nominating Committee will consider director candidates recommended by shareholders using the same criteria described above. Shareholders may also directly nominate someone at an annual meeting. Nominations for director candidates are closed for 2017. To nominate a candidate at our 2018 Annual Meeting, notice must be received by our Corporate Secretary at the address below by February 16, 2018 and must include the information specified in our By-laws, including, but not limited to, the name of the candidate, together with a brief biography, an indication of the candidate’s willingness to serve if elected, and evidence of the nominating shareholder’s ownership of our Common Stock.
Pursuant to our proxy access By-law, a shareholder, or group of up to 20 shareholders, may nominate a director and have the nominee included in our proxy statement. The shareholder, or group collectively, must have held at least 3% of our Common Stock for three years in order to make a nomination, and may nominate as many as two directors, or a number of directors equal to 20% of the board, whichever is greater, provided that the shareholder(s) and the nominee(s) satisfy the requirements in our By-laws. Notice of proxy access director nominees for inclusion in our 2018 proxy statement must be received by our Corporate Secretary at the address below no earlier than November 7, 2017 and no later than December 7, 2017.
In each case, submissions must be delivered or mailed to Donald C. Hunt, Vice President and Corporate Secretary, The Hartford Financial Services Group, Inc., One Hartford Plaza, Hartford, CT 06155.
DIRECTOR COMPENSATION
We use a combination of cash and stock-based compensation to attract and retain qualified candidates to serve on the Board. Members of the Board who are employees of The Hartford or its subsidiaries are not compensated for service on the Board or any of its committees.
For the 2016-2017 Board service year, non-management directors received an annual cash retainer of $100,000 and a $160,000 annual equity grant of restricted stock units (“RSUs”).
ANNUAL CASH FEES
Cash compensation for the 2016-2017 Board service year beginning on May 18, 2016, the date of the 2016 Annual Meeting of Shareholders, and ending on May 17, 2017, the date of the 2017 Annual Meeting, is set forth below:
Annual Cash Compensation(1)
Director Compensation Program
Annual Retainer
$100,000
Chair Retainer
$25,000 – Audit Committee
$25,000 – Finance, Investment and Risk Management Committee
$25,000 – Compensation and Management Development Committee
$10,000 – Nominating Committee
Presiding Director Retainer
$25,000
Talcott Resolution Board Working Group Stipend(2)
$10,000
(1)
Directors may elect to defer all or part of the annual Board cash retainer and any Committee Chair or presiding director cash retainer into RSUs, to be distributed as common stock following the end of the director’s Board service.
(2)
An annual amount paid to a group of directors dedicated to discussing with management ongoing activities to effectively manage the run-off of our variable annuity business. See page 15 for more details.
ANNUAL EQUITY GRANT
In 2016, directors received an annual equity grant of $160,000, payable solely in RSUs pursuant to The Hartford 2014 Incentive Stock Plan. Outstanding RSUs are credited with dividend equivalents equal to dividends paid to holders of our common stock.
The RSUs vest and will be distributed as common stock at the end of the Board service year, unless the director has elected to defer distribution until the end of Board service. Directors may not sell, exchange, transfer, pledge, or otherwise dispose of the RSUs awarded. Resignation from the Board will result in a forfeiture of all unvested RSUs at the time of such resignation unless otherwise determined by the Compensation and Management Development Committee.  However, RSUs will automatically vest upon the occurrence of any of the following events: (a) retirement from service on the Board in accordance with our Corporate Governance Guidelines, (b) death

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of the director, (c) total disability of the director, as defined in the 2014 Incentive Stock Plan, (d) resignation by the director under special circumstances where the Compensation and Management Development Committee, in its sole discretion, consents to waive the remaining vesting period, or (e) a “change of control,” as defined in the 2014 Incentive Stock Plan.
OTHER
We provide each director with $100,000 of group life insurance coverage and $750,000 of accidental death and dismemberment and permanent total disability coverage while he or she serves on the Board. We also reimburse directors for travel and related expenses they incur in connection with their Board and committee service.
STOCK OWNERSHIP GUIDELINES AND RESTRICTIONS ON TRADING
The Board has established stock ownership guidelines for each director to obtain, by the third anniversary of the director’s appointment to the Board, an ownership position in our common stock equal to five times his or her total annual cash retainer (including cash retainers paid for committee chair or presiding director responsibilities). All directors with at least three years of Board service met the stock ownership guidelines as of December 31, 2016.
Our insider trading policy prohibits all hedging activities by directors, and permits directors to engage in transactions involving The Hartford's equity securities only through (1) a pre-established trading plan pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, or (2) during “trading windows” of limited duration following the filing with the SEC of our periodic reports on Forms 10-K and 10-Q and following a determination by the company that the director is not in possession of material non-public information. In addition, our insider trading policy grants us the ability to suspend trading of our equity securities by directors.
DIRECTOR SUMMARY COMPENSATION TABLE
We paid the following compensation to directors for the fiscal year ended December 31, 2016.
Name
Fees Earned or
Paid in Cash
($)

 
Stock Awards
($)(1)

 
All Other
Compensation
($)

 
Total
($)

Robert Allardice(2)
135,000

 
160,000

 
2,826

 
297,826

Trevor Fetter

 
260,000

 
870

 
260,870

Kathryn A. Mikells

 
260,000

 
630

 
260,630

Michael G. Morris
100,000

 
160,000

 
2,826

 
262,826

Thomas Renyi

 
285,000

 
2,826

 
287,826

Julie G. Richardson(2)
10,000

 
285,000

 
630

 
295,630

Teresa W. Roseborough
100,000

 
160,000

 
870

 
260,870

Virginia P. Ruesterholz(2)
10,000

 
285,000

 
870

 
295,870

Charles B. Strauss(2)
120,000

 
160,000

 
2,826

 
282,826

H. Patrick Swygert
100,000

 
160,000

 
2,826

 
262,826

(1)
The amounts shown in this column reflect the aggregate grant date fair value of RSU awards granted during the fiscal year ended December 31, 2016. For directors Fetter, Mikells, Renyi, Richardson and Ruesterholz, the amounts shown reflect both the 2016-2017 annual equity award and the grant date value of vested RSUs each director elected to receive in lieu of fees paid in cash.
(2)
A $10,000 stipend for service in the Talcott Resolution Board Working Group was paid to directors Allardice, Richardson, Ruesterholz and Strauss.


 
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DIRECTOR COMPENSATION TABLE—OUTSTANDING EQUITY
The following table shows the number and value of unvested equity awards outstanding as of December 31, 2016. The value of these unvested awards is calculated using a market value of $47.65, the NYSE closing price per share of our common stock on December 30, 2016. The numbers have been rounded to the nearest whole dollar or share.
 
 
 
Stock Awards

 
 

Name
Stock
Grant Date
(1)
 
Number
of Shares or
Units of Stock
That Have Not
Vested (#)
(2) 

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

Robert Allardice 
8/1/2016
 
4,019

 
191,505

Trevor Fetter 
8/1/2016
 
4,019

 
191,505

Kathryn A. Mikells 
8/1/2016
 
4,019

 
191,505

Michael G. Morris 
8/1/2016
 
4,019

 
191,505

Thomas Renyi 
8/1/2016
 
4,019

 
191,505

Julie G. Richardson 
8/1/2016
 
4,019

 
191,505

Teresa W. Roseborough 
8/1/2016
 
4,019

 
191,505

Virginia P. Ruesterholz 
8/1/2016
 
4,019

 
191,505

Charles B. Strauss 
8/1/2016
 
4,019

 
191,505

H. Patrick Swygert 
8/1/2016
 
4,019

 
191,505

(1)
The RSUs were granted on August 1, 2016, the first day of the scheduled trading window following the filing of our Form 10-Q for the quarter ended June 30, 2016.
(2)
The number of RSUs of each award was determined by dividing $160,000 by $40.01, the closing price of our common stock as reported on the NYSE on the date of the award. The RSUs will vest on May 17, 2017, and will be distributed at that time in shares of the company’s common stock unless the director had previously elected to defer distribution of all or a portion of his or her annual RSU award until the end of Board service.  Directors Fetter, Mikells, Morris, Renyi, Richardson, Ruesterholz and Swygert have made elections to defer distribution of 100% of their award.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Board has adopted a Policy for the Review, Approval or Ratification of Transactions with Related Persons. This policy requires our directors and Section 16 executive officers to promptly disclose any actual or potential material conflict of interest to the Chair of the Nominating Committee and the Chairman of the Board for evaluation and resolution. If the transaction involves a Section 16 executive officer or an immediate family member of a Section 16 executive officer, the matter must also be disclosed to our General Auditor or Director of Compliance for evaluation and resolution.
We did not have any transactions requiring review under this policy during 2016.
COMMUNICATING WITH THE BOARD
Shareholders and other interested parties may communicate with directors by contacting Donald C. Hunt, Vice President and Corporate Secretary of The Hartford Financial Services Group, Inc., One Hartford Plaza, Hartford, CT 06155. The Corporate Secretary will relay appropriate questions or messages to the directors. Only items related to the duties and responsibilities of the Board will be forwarded.
Anyone interested in raising a complaint or concern regarding accounting issues or other compliance matters directly with the Audit Committee may do so anonymously and confidentially by contacting EthicsPoint:
By internet
By telephone
By mail
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Visit 24/7
www.ethicspoint.com
1-866-737-6812 (U.S. and Canada)
1-866-737-6850 (all other countries)
The Hartford c/o EthicsPoint
P.O. Box 230369
Portland, Oregon 97281
 

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DIRECTOR NOMINEES
Eleven individuals will be nominated for election as directors at the Annual Meeting. The terms of office for each elected director will run until the next annual meeting of shareholders and until his or her successor is elected and qualified, or until his or her earlier death, retirement, resignation or removal from office.
In accordance with our Corporate Governance Guidelines, each director has submitted a contingent, irrevocable resignation that the Board may accept if the director fails to receive more votes “for” than “against” in an uncontested election. In that situation, the Nominating Committee (or another committee comprised of at least three non-management directors) would make a recommendation to the Board about whether to accept or reject the resignation. The Board, not including the subject director, will act on this recommendation within 90 days from the date of the Annual Meeting, and we will publicly disclose the Board's decision promptly thereafter.
If for any reason a nominee should become unable to serve as a director, either the shares of common stock represented by valid proxies will be voted for the election of another individual nominated by the Board, or the Board will reduce the number of directors in order to eliminate the vacancy.
The Nominating Committee believes that each director nominee has an established record of accomplishment in areas relevant to our business and objectives, and possesses the characteristics identified in our Corporate Governance Guidelines as essential to a well-functioning and deliberative governing body, including integrity, independence and commitment. Other experience, qualifications and skills the Nominating Committee looks for include the following:
Experience / Qualification
Relevance to The Hartford
Leadership
Experience in significant leadership positions provides us with new insights, and demonstrates key management disciplines that are relevant to the oversight of our business.
Financial Services Industry
Extensive experience in the financial services industry provides an understanding of the complex regulatory and financial environment in which we operate and is highly important to strategic planning and oversight of our business operations.
Corporate Governance
An understanding of organizations and governance supports management accountability, transparency and protection of shareholder interests.
Risk Management
Risk management experience is critical in overseeing the risks we face today and those emerging risks that could present in the future.
Finance and Accounting
Finance and accounting experience is important in understanding and reviewing our business operations, strategy and financial results.
Business Operations and Strategic Planning
An understanding of business operations and processes, and experience making strategic decisions, are critical to the oversight of our business, including the assessment of our operating plan and business strategy.
Regulatory
An understanding of laws and regulations is important because we operate in a highly regulated industry and we are directly affected by governmental actions.
Talent Management
We place great importance on attracting and retaining superior talent, and motivating employees to achieve desired enterprise and individual performance objectives.
The Nominating Committee believes that our current Board is a diverse group whose collective experiences and qualifications bring a variety of perspectives to the oversight of The Hartford. All of our directors hold, or have held, senior leadership positions in large, complex corporations, educational institutions and/or charitable and not-for-profit organizations. In these positions, they have demonstrated their leadership, intellectual and analytical skills and gained deep experience in core disciplines significant to their oversight responsibilities on our Board. Their roles in these organizations also permit them to offer senior management a diverse range of perspectives about the issues facing a complex financial services company like The Hartford. Key qualifications, skills and experience our directors bring to the Board that are important to the oversight of The Hartford are identified and described below.


 
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21

BOARD AND GOVERNANCE MATTERS
 
 

ROBERT B. ALLARDICE, III
 
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Age: 70
Director since: 2008
Independent
Committees: Audit; Finance, Investment and Risk Management (Chair)
Other Public Company Directorships:
Ellington Residential Mortgage REIT (2013-present); GasLog Partners LP (2014-present)
Skills and Qualifications Relevant to The Hartford:
Mr. Allardice has served as a senior leader for multiple large, complex financial institutions, including as regional chief executive officer of Deutsche Bank Americas Holding Corporation, North and South America. He brings to the Board over 35 years of experience in the financial services industry, including at the senior executive officer level. His experience leading capital markets-based businesses is relevant to the oversight of our investment management company and corporate finance activities. In addition, Mr. Allardice has experience in a highly regulated industry, including interfacing with regulators and establishing governance frameworks relevant to the oversight of our business. He has extensive corporate governance experience from service as a director and audit committee member for several large companies, including seven years as Chairman of the Board's Audit Committee. 
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TREVOR FETTER
 
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Age: 57
Director since: 2007
Independent
Committees: Compensation and Management Development; Finance, Investment and Risk Management
Other Public Company Directorships:
Tenet Healthcare Corporation (2003-present)
Skills and Qualifications Relevant to The Hartford:
Mr. Fetter currently serves as chairman, president and chief executive officer of Tenet Healthcare Corporation. As a seasoned chief executive officer, Mr. Fetter has demonstrated his ability to lead the management, strategy and operations of a complex organization. He brings to the Board significant experience in corporate finance and financial reporting acquired through senior executive finance roles, including as a chief financial officer of a publicly-traded company. He has experience navigating complex regulatory frameworks as the president and chief executive officer of a highly-regulated, publicly-traded healthcare company. He also has extensive corporate governance expertise from service as director of large public companies, including four years as Chairman of the Board’s Nominating and Corporate Governance Committee.
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BOARD AND GOVERNANCE MATTERS

KATHRYN A. MIKELLS
 
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Age: 51
Director since: 2010
Independent
Committees: Audit; Finance, Investment and Risk Management
Other Public Company Directorships:
Diageo plc (2015-present)
Skills and Qualifications Relevant to The Hartford:
Ms. Mikells has extensive experience in a variety of executive management positions, with a focus on leading the finance function of global organizations. She has significant experience in corporate finance and financial reporting acquired through senior executive roles in finance, including as a chief financial officer of multiple publicly-traded companies. Ms. Mikells brings to the Board strong management and transformational skills, demonstrated during ADT’s successful transition into an independent company, as well as significant mergers and acquisitions experience acquired through the sale of Naclo to Ecolab and the merger of United Airlines with Continental Airlines. She has demonstrated risk management skills as a leader responsible for financial and corporate planning for domestic and international organizations. In addition, Ms. Mikells has strong talent development skills acquired through years leading global finance divisions.

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MICHAEL G. MORRIS
 
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Age: 70
Director since: 2004
Independent
Committees: Audit; Finance, Investment and Risk Management; Nominating and Corporate Governance
Other Public Company Directorships:
Alcoa Corporation (2002-present); American Electric Power Company, Inc. (2004-2014); L Brands, Inc. (2012-present); Spectra Energy (2013-present)
Skills and Qualifications Relevant to The Hartford:
Mr. Morris has over two decades of experience as chief executive officer and president of multiple publicly-traded companies in the highly regulated energy industry. He brings to the Board significant experience as a senior leader responsible for the strategic direction and management of complex business operations. In addition, he has experience overseeing financial matters in his roles as chairman, president and CEO of AEP, and as chairman, president and CEO of Northeast Utilities. He has proven skills interacting with governmental and regulatory agencies acquired through years of leading various multi-national organizations in the energy and gas industries, serving on the U.S. Department of Energy’s Electricity Advisory Board, the National Governors Association Task Force on Electricity Infrastructure, the Institute of Nuclear Power Operations and as Chair of the Business Roundtable’s Energy Task Force. In addition, he has corporate governance expertise from service as a director and member of the audit, compensation, finance, risk management and nominating/governance committees of various publicly-traded companies.
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BOARD AND GOVERNANCE MATTERS
 
 

THOMAS A. RENYI
 
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Age: 71
Director since: 2010
Independent
Committees: Compensation and Management Development; Finance, Investment and Risk Management
Other Public Company Directorships:
Public Service Enterprise Group (2003-present); Royal Bank of Canada (2013-present)
Skills and Qualifications Relevant to The Hartford:
Mr. Renyi has over 40 years of experience in the financial services industry, both domestic and global, including serving as Chairman and Chief Executive Officer of The Bank of New York Company, Inc. and the Bank of New York for 10 years. As a senior leader of complex financial services companies, Mr. Renyi managed operations, set strategic direction, and led the successful integration initiatives related to two major mergers. Mr. Renyi serves as The Hartford's presiding director, providing strong independent Board leadership. In addition, Mr. Renyi brings to the Board strong financial expertise acquired through key leadership roles at financial services companies, including in areas such as credit policy, securities servicing, capital markets and domestic and international banking. He also has corporate governance expertise from service as chairman and director of large, public financial services companies.
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JULIE G. RICHARDSON
 
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Age: 53
Director since: 2014
Independent
Committees: Audit (Chair); Finance, Investment and Risk Management
Other Public Company Directorships:
Stream Global Services, Inc. (2009-2012); VEREIT, Inc. (2015-present); Yext, Inc. (2015-present)*; Arconic Inc. (2016-present)
Skills and Qualifications Relevant to The Hartford:
Ms. Richardson has over 25 years of financial services experience as a banker and investment professional at some of the world’s largest financial services firms. Previously, she led management of Providence Equity Partners' New York Office as partner and headed JPMorgan's Global Telecommunications, Media and Technology group. In these roles, Ms. Richardson demonstrated skills leading and managing large, global teams. Ms. Richardson has significant experience in financial analysis and capital markets acquired as a senior leader at global financial services institutions. She also has extensive risk management skills acquired through a long and distinguished career leading both private and public financial investment organizations.
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* On March 13, 2017, Yext, Inc. filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission relating to the proposed initial public
offering of shares of its common stock

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BOARD AND GOVERNANCE MATTERS

TERESA WYNN ROSEBOROUGH
 
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Age: 58
Director since: 2015
Independent
Committees: Compensation and Management Development; Finance, Investment and Risk Management; Nominating and Corporate Governance
Other Public Company Directorships:
None
Skills and Qualifications Relevant to The Hartford:
Ms. Roseborough has over two decades of experience as a senior legal advisor in government, law firm and corporate settings. She has experience as a senior leader responsible for corporate compliance matters at large-cap publicly-traded companies and as an attorney focused on complex litigation matters, including before the U.S. Supreme Court. She brings to the Board extensive regulatory experience acquired as a government attorney providing legal counsel to the White House and all executive branch agencies, as well as corporate governance expertise from service as General Counsel and Corporate Secretary of a publicly-traded company. Ms. Roseborough also has in depth knowledge of the financial services industry gained through senior legal positions at MetLife, Inc., a major provider of insurance, annuities and employee benefits.

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VIRGINIA P. RUESTERHOLZ
 
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Age: 55
Director since: 2013
Independent
Committees: Compensation and Management Development (Chair); Finance, Investment and Risk Management; Nominating and Corporate Governance
Other Public Company Directorships:
Frontier Communications Corporation (2013-present)
Skills and Qualifications Relevant to The Hartford:
Ms. Ruesterholz has held a variety of senior executive positions, including as Executive Vice President at Verizon Communications and President of the former Verizon Services Operations. As a senior leader of a Fortune 100 company, she has held principal oversight responsibility for key strategic initiatives, navigated the regulatory landscape of large-scale operations, and led an organization with over 25,000 employees. Ms. Ruesterholz brings to the Board vast experience in large-scale operations, including sales and marketing, customer service, technology and risk management. Ms. Ruesterholz also brings to the Board substantial financial and strategic expertise acquired as president of various divisions within Verizon and most recently as Chair of the Finance Committee and Member of the Audit Committee at Stevens Institute of Technology.

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BOARD AND GOVERNANCE MATTERS
 
 

CHARLES B. STRAUSS
 
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Age: 74
Director since: 2001
Independent
Committees: Audit; Finance, Investment and Risk Management; Nominating and Corporate Governance (Chair)
Other Public Company Directorships:
Aegis Group plc (2003-2013); The Hershey Company (2007–2009)
Skills and Qualifications Relevant to The Hartford:
Mr. Strauss has nearly two decades of domestic and global leadership experience as an executive in the consumer products industry, including as President and Chief Executive Officer of Unilever United States, Inc. As a senior leader responsible for a company with large-scale global operations, Mr. Strauss demonstrated skills in risk management, strategic planning and leading business operations, including management and oversight of expansive distribution channels. In addition to overseeing financial matters in his role as president of Unilever, Mr. Strauss has served on the audit committees of several publicly traded companies, including the Board’s Audit Committee. He also has corporate governance expertise acquired through service as director of several large, publicly-traded companies.
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CHRISTOPHER J. SWIFT
 
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Age: 56
Director since: 2014
Committees: Finance, Investment and Risk Management
Other Public Company Directorships:
None
Skills and Qualifications Relevant to The Hartford:
Mr. Swift has over 30 years of experience in the financial services industry, with a focus on insurance. As Chairman and CEO of The Hartford, he brings to the Board unique insight and knowledge into the complexities of our businesses, relationships, competitive and financial positions, senior leadership and strategic opportunities and challenges. Mr. Swift leads the execution of our strategy, directs capital management actions and strategic investments, and oversees the continuous strengthening of the company’s leadership pipeline. As CFO, he led the team that developed the company’s go-forward strategy. He is a certified public accountant with experience working at a leading international accounting firm, including serving as head of its Global Insurance Industry Practice.
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BOARD AND GOVERNANCE MATTERS

H. PATRICK SWYGERT
 
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Age: 74
Director since: 1996
Independent
Committees: Compensation and Management Development; Finance, Investment and Risk Management; Nominating and Corporate Governance
Other Public Company Directorships:
United Technologies Corporation (2001-present)
Skills and Qualifications Relevant to The Hartford:
Mr. Swygert has nearly two decades of service as the president of two major universities. He brings to the Board significant experience in strategic planning and organizational operations gained by leading the academic and financial revitalization of both Howard University and the University of Albany, SUNY. He has signficant regulatory experience acquired through service as a director of highly regulated publicly-traded companies and as president of a state university. Further, he has demonstrated his ability to develop a diverse workforce and a high-performance culture needed for the achievement of academic goals. Mr. Swygert’s leadership roles at educational, governmental and cultural organizations provide him with a unique perspective on civic and cultural issues and regulatory affairs. In addition, Mr. Swygert has corporate governance expertise acquired through service as director of several large, publicly-traded companies.

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ITEM 1
 
ELECTION OF DIRECTORS
checkbox.jpg The Board recommends that shareholders vote “FOR” all nominees for election as directors.
The Nominating Committee believes that the director nominees possess qualifications, skills and experience that are consistent with the standards for the selection of nominees for election to the Board set forth in our Corporate Governance Guidelines described on pages 17-18 and that they have demonstrated the ability to effectively oversee The Hartford’s corporate, investment and business operations. Biographical information for each director nominee is set forth above, including the principal occupation and other public company directorships (if any) held in the past five years and a description of the specific experience and expertise that qualifies each nominee to serve as a director of The Hartford.


 
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AUDIT MATTERS
REPORT OF THE AUDIT COMMITTEE
The Audit Committee currently consists of five independent directors, each of whom is “financially literate” within the meaning of the listing standards of the NYSE and an “audit committee financial expert” within the meaning of the SEC’s regulations. The Audit Committee oversees The Hartford's financial reporting process on behalf of the Board. Management has the primary responsibility for establishing and maintaining adequate internal financial controls, for preparing the financial statements and for the public reporting process. Deloitte & Touche LLP (“D&T”), our independent registered public accounting firm for 2016, is responsible for expressing opinions that (1) our consolidated financial statements present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with generally accepted accounting principles and (2) we maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016.
In this context, the Audit Committee has:
(1)
reviewed and discussed the audited financial statements for the year ended December 31, 2016 with management;
(2)
discussed with D&T the matters required to be discussed by Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 1301, Communications with Audit Committees; and
(3)
received the written disclosures and the letter from D&T required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with D&T the independent accountant’s independence.
Based on the review and discussions described in this report, the Audit Committee recommended to the Board that the audited financial statements should be included in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 for filing with the SEC.
Report Submitted: February 22, 2017
Members of the Audit Committee:
Julie G. Richardson, Chair
Robert B. Allardice, III
Kathryn A. Mikells
Michael G. Morris
Charles B. Strauss
FEES OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The following table presents fees for professional services provided by D&T, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, the “Deloitte Entities”) for the years ended December 31, 2016 and 2015.
 
Year Ended December 31, 2016

 
Year Ended December 31, 2015

Audit fees
$
14,457,000

 
$
14,679,000

Audit-related fees(1)
$
591,000

 
$
336,000

Tax fees(2)
$
474,000

 
$
693,000

All other fees(3)
$
69,000

 
$
244,000

Total
$
15,591,000

 
$
15,952,000

(1)
Fees for the years ended December 31, 2016 and 2015 principally consisted of procedures related to regulatory filings and acquisition or divestiture related services.
(2)
Fees for the years ended December 31, 2016 and 2015 principally consisted of tax compliance services.
(3)
Fees for the year ended December 31, 2016 consisted of a benchmarking survey. Fees for the year ended December 31, 2015 consisted of an enterprise risk project.
The Audit Committee reviewed the non-audit services provided by the Deloitte Entities during 2016 and 2015 and concluded that they were compatible with maintaining the Deloitte Entities’ independence.

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AUDIT MATTERS

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee has established policies requiring pre-approval of audit and non-audit services provided by the independent registered public accounting firm. These policies require that the Audit Committee pre-approve specific categories of audit and audit-related services annually.
The Audit Committee approves categories of audit services and audit-related services, and related fee budgets. For all pre-approvals, the Audit Committee considers whether such services are consistent with the rules of the SEC and the PCAOB on auditor independence. The independent registered public accounting firm and management report to the Audit Committee on a timely basis regarding the services rendered by, and actual fees paid to, the independent registered public accounting firm to ensure that such services are within the limits approved by the Audit Committee. The Audit Committee’s policies require specific pre-approval of all tax services, internal control-related services and all other permitted services on an individual project basis.
As provided by its policies, the Audit Committee has delegated to its Chair the authority to address any requests for pre-approval of services between Audit Committee meetings, up to a maximum of $100,000 for non-tax services and up to a maximum of $5,000 for tax services. The Chair must report any pre-approvals to the full Audit Committee at its next scheduled meeting.

ITEM 2
 
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
checkboxa01.jpg The Board recommends that shareholders vote “FOR” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017
In accordance with its Board-approved charter, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent external audit firm retained to audit the company’s financial statements. The Audit Committee has appointed Deloitte & Touche LLP (“D&T”) as the company’s independent registered public accounting firm for the fiscal year ending December 31, 2017. D&T has been retained as the company’s independent registered public accounting firm since 2002. In order to assure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm.

In selecting D&T for fiscal year 2017, the Audit Committee carefully considered, among other items:
      the professional qualifications of D&T, the lead audit partner and other key engagement partners;
      D&T’s depth of understanding of the company’s businesses, accounting policies and practices and internal control over financial reporting;
      D&T’s quality controls and its processes for maintaining independence; and
      the appropriateness of D&T’s fees for audit and non-audit services.
The Audit Committee oversees and is ultimately responsible for the outcome of audit fee negotiations associated with the company’s retention of D&T. In addition, in conjunction with the mandated rotation of the audit firm’s lead engagement partner, the Audit Committee and its chairperson are involved in the selection of D&T’s new lead engagement partner. The members of the Audit Committee and the Board believe that the continued retention of D&T to serve as the company’s independent external auditor is in the best interests of the company and its investors.

Although shareholder ratification of the appointment of D&T is not required, the Board requests ratification of this appointment by shareholders. If shareholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain D&T.

Representatives of D&T will attend the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.

 
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COMPENSATION DISCUSSION AND ANALYSIS
This section explains our compensation philosophy, summarizes our compensation programs and reviews compensation decisions for the Named Executive Officers (“NEOs”) listed below. It also describes programs that apply to the CEO and all of his executive direct reports, other than senior executives directly supporting our mutual funds business who have an independent compensation program (collectively, “Senior Executives”).
Name
Title
Christopher Swift
Chairman and Chief Executive Officer
Beth Bombara
Executive Vice President and Chief Financial Officer
Douglas Elliot
President of The Hartford
Brion Johnson
Executive Vice President and Chief Investment Officer; President of HIMCO and Talcott Resolution
Robert Rupp
Executive Vice President and Chief Risk Officer
EXECUTIVE SUMMARY
PERFORMANCE HIGHLIGHTS
2016 Financial Results
In 2016, The Hartford produced strong financial results in many of its businesses, particularly in light of challenging market conditions; however, actions taken to address our legacy property and casualty asbestos and environmental ("A&E") exposures and challenging loss trends in Personal Lines auto resulted in a 47% decrease in net income.
During 2016, we entered into a reinsurance transaction covering up to $1.5 billion of adverse reserve development on our legacy A&E book. Our A&E exposures, most of which were underwritten prior to 1985, have generated substantial adverse development over the past several years, and created uncertainty for investors and others about the ultimate cost of these policy liabilities. The transaction reduces that uncertainty, while allowing us to continue to handle both claims and reinsurance recoveries, which we believe will enable us to achieve the best possible resolution for these long-tail exposures. The transaction resulted in a $423 million after-tax charge in 2016, which represented more than half of the decrease in net income for the year.
Core earnings*, which does not include the charge for the A&E reinsurance transaction, declined 19%, primarily the result of Personal Lines auto losses and prior accident year development on the company’s A&E book that was incurred prior to the reinsurance agreement.
Personal Lines auto losses, prior accident year A&E development and the after-tax charge for the A&E reinsurance transaction also reduced net income return on equity ("ROE"), which was 5.2% in 2016 versus 9.3% in 2015. Core earnings ROE* was 7.6% in 2016, down from 9.2% in 2015, primarily due to Personal Lines auto and prior accident year development on the A&E book.
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* Denotes a non-GAAP financial measure. For definitions and reconciliations to the most directly comparable GAAP measure, see Appendix A.

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COMPENSATION DISCUSSION & ANALYSIS

2016 Business Performance
In 2016, we delivered strong results in Commercial Lines and Group Benefits, while Personal Lines performance remained under pressure from higher frequency and severity of automobile accidents. P&C net investment income was up slightly from 2015, and in Talcott Resolution, our legacy life insurance and annuity business, we continued to effectively serve our customers and efficiently manage the run-off of the book. Moreover, we continued to make progress on our strategy to broaden our risk appetite.
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As we enter 2017, the Board and management are confident we are taking the right steps in competitive markets as we continue to invest for long-term growth and shareholder value creation.
Total Shareholder Returns
The following chart shows The Hartford’s total shareholder returns ("TSR") relative to the S&P 500, S&P 500 Insurance Composite, and S&P P&C indices. On a one-year and three-year basis, the company’s total shareholder returns were 11.8% and 38.9%, respectively.
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31

COMPENSATION DISCUSSION & ANALYSIS
 
 

2016 COMPENSATION HIGHLIGHTS
Decision
Rationale
The Compensation Committee approved an annual incentive plan (“AIP”) funding level of 70% of target. (page 39)
Performance against pre-established financial targets resulted in a formulaic AIP funding level of 70% of target. The Compensation Committee undertook a qualitative review of performance and concluded that the formulaic AIP funding level appropriately reflected 2016 performance. Accordingly, no adjustments were made.
The Compensation Committee certified a 2014-2016 performance share award payout at 52% of target. (page 41)
The company's TSR during the performance period was at the 52nd percentile relative to nine peer companies, resulting in a payout of 104% of target for the TSR component. Because the company's Compensation Core ROE during the performance period was below threshold, there was no payout for that component.
The Compensation Committee certified an October 2013 performance share award payout of 0%. (page 41)
The company's Compensation Core ROE during the performance period was below the threshold required to receive any payout.
The table below reflects the 2016 compensation package (base salary, AIP award and long-term incentive (“LTI”) award) for each NEO. Although this table is not a substitute for the Summary Compensation Table information beginning on page 44, we believe it provides a simple and concise picture of 2016 compensation decisions.
Compensation Component
C. Swift
 
B. Bombara
 
D. Elliot
 
B. Johnson
 
R. Rupp
Base Salary Rate
$
1,100,000

 
$
700,000

 
$
925,000

 
$
525,000

 
$
600,000

2016 AIP Award
$
1,925,000

 
$
770,000

 
$
1,295,000

 
$
1,100,000

 
$
1,000,000

2016 LTI Award
$
7,150,000

 
$
1,750,000

 
$
4,625,000

 
$
1,350,000

 
$
1,400,000

Total 2016 Compensation Package
$
10,175,000

 
$
3,220,000

 
$
6,845,000

 
$
2,975,000

 
$
3,000,000

“SAY-ON-PAY” RESULTS
At last year’s Annual Meeting, shareholders voted 94% in favor of our “Say-on-Pay” proposal. The Compensation Committee considered the vote to be an endorsement of the company’s executive compensation programs and policies, and took the strong level of support into account in reviewing those programs and policies. The company also discussed the vote, along with aspects of its executive compensation and corporate governance practices, during its annual shareholder outreach program to gain a deeper understanding of shareholders’ perspectives.
2016
“Say-on-Pay”
Support
94%
OVERVIEW OF COMPENSATION PROGRAM
Our executive compensation program is designed to promote long-term shareholder value creation and support our strategy by: (1) encouraging profitable growth consistent with prudent risk management, (2) attracting and retaining key talent, and (3) appropriately aligning pay with short- and long-term performance.


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COMPENSATION DISCUSSION & ANALYSIS

COMPENSATION BEST PRACTICES
Our current compensation best practices include the following:
What We Do
Approximately 90% of current CEO target annual compensation and 84% of other NEO target annual compensation are variable based on performance, including stock price performance
Senior Executives are eligible for the same benefits as full-time employees generally, including health, life insurance, disability and retirement benefits
Cash severance benefits payable upon a change of control do not exceed 2x the sum of base pay plus target bonus, and are only paid upon a valid termination following a change of control ("double trigger")
Double trigger requirement for vesting of equity awards upon change of control (so long as the awards are assumed or replaced with substantially equivalent awards)
Independent Board compensation consultant does not provide services to the company
Comprehensive risk mitigation in plan design and annual review of compensation plans, policies and practices
All employees and directors are prohibited from engaging in hedging, monetization, derivative and similar transactions with company securities
Senior Executives are prohibited from pledging company securities
Executive perquisites are limited
Stock ownership guidelines for directors and Senior Executives; compliance with guidelines is reviewed annually
Compensation peer groups are evaluated periodically to align with investor expectations and changes in market practice or our business mix
Competitive burn rate and dilution for equity program
What We Don't Do
û
No excise tax gross-up upon a change of control or income tax gross-up for perquisites
û
No individual employment agreements
û
No granting of stock options with an exercise price less than the fair market value of our common stock on the date of grant
û
No re-pricing (reduction in exercise price) of stock options
û
No underwater cash buy-outs
û
No reload provisions in any stock option grant
û
No payment of dividends on unvested performance shares
PAY MIX
NEO compensation is weighted towards variable compensation (annual and long-term incentives), where actual amounts earned may differ from targeted amounts based on company and individual performance. Each NEO has a target total compensation opportunity that is reviewed annually by the Compensation Committee (and by the independent directors, in the case of the CEO) to ensure alignment with our compensation objectives and market practice.
Approximately 90% of CEO target annual compensation and approximately 84% of other NEO target annual compensation are variable based on performance, including stock price performance:
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COMPENSATION DISCUSSION & ANALYSIS
 
 

COMPONENTS OF COMPENSATION PROGRAM
Each Senior Executive has a target total compensation opportunity comprised of both fixed (base salary) and variable (annual and long-term incentives) compensation. In addition, Senior Executives are eligible for benefits available to employees generally. This section describes the different components of our compensation program for Senior Executives, and lays out the framework in which compensation decisions are made. For a discussion of the 2016 compensation decisions made within this framework, see Pay for Performance beginning on page 39.
BASE SALARY
Each Senior Executive’s base salary is reviewed by the Compensation Committee (and, in the case of the CEO, the independent directors) annually, upon promotion, or following a change in job responsibilities, based on market data, internal pay equity and level of responsibility, expertise and performance.
ANNUAL INCENTIVE PLAN AWARDS
Our employees, including the Senior Executives, are eligible to earn cash awards under the annual incentive plan ("AIP") based on company and individual performance. Each employee has a target AIP opportunity that is set as a percentage of base salary. The Compensation Committee uses the following process to determine individual Senior Executive AIP awards. Actual results for 2016 are described on pages 39-41.
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The AIP funding level is based primarily on core earnings performance against the annual operating plan reviewed by the Board prior to the start of the performance/fiscal year. The Compensation Committee selected core earnings because:
the Committee felt it best reflects annual operating performance;
it is a metric investment analysts commonly look to when evaluating annual performance;
it is prevalent among peers; and
all employees can impact it.
Certain adjustments are made to core earnings for compensation purposes to ensure management is held accountable for operating decisions made that year, and is neither advantaged nor disadvantaged for the effect of certain items outside its control. At the beginning of the year, the Compensation Committee approves a definition of "Compensation Core Earnings." The definition lists adjustments that will be made to core earnings at year-end in order to arrive at "Compensation Core Earnings," such as accounting changes, catastrophe losses above or below budget, and unusual or non-recurring items. The 2016 definition and a reconciliation from GAAP net income to Compensation Core Earnings are provided in Appendix A.
As illustrated below, target performance (i.e., achievement of the operating plan) results in an AIP funding level of 100% of target. The Compensation Committee also establishes a threshold performance level, below which no AIP awards are earned, as well as a maximum funding level for performance significantly exceeding target.
 
 
Both the Board and management deem our annual fiscal year operating plan and the associated AIP financial target to be achievable only with strong performance across our businesses. The operating plan relies on the company achieving key business metrics such as combined ratios and P&C net investment income. The outlook for these metrics are announced to investors at the beginning of each year, which helps align the interests of our Senior Executives with our shareholders, as meeting or exceeding the outlooks are the major determinants of strong core earnings generation.

 
aipscenario1a09.jpg
 
 
 
 
 
 
 
 
 
 


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COMPENSATION DISCUSSION & ANALYSIS

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To ensure a holistic review of performance, the Compensation Committee also considers a number of qualitative factors, including achievements that cannot be measured formulaically, or are not yet evident in our financial performance. As a result of this qualitative review, the Compensation Committee may decide to adjust the formulaic AIP funding level up or down to arrive at an AIP funding level more commensurate with company performance in light of these additional factors. Among the qualitative factors the Compensation Committee considers are the following broad performance categories:
Performance Criteria and Metrics
 
Rationale
Non-financial and Strategic Objectives: e.g., diversity, employee engagement, risk management and compliance
These achievements are critical for long-term success, but are not reflected in current year-end financials
Quality of Earnings: earnings driven by current accident year activity, including policyholder retention, new business, underwriting profitability and expense management
An assessment of how current accident year activity drove financial performance informs current year compensation decisions
Peer-relative Performance: performance relative to peers on metrics such as stock price and earnings
How the company performed on a relative basis across the industry is not captured in the quantitative formula
The Compensation Committee believes that grounding the AIP funding level in formulaic financial performance against targets, but retaining the flexibility to adjust the funding level to reflect qualitative factors, allows it to arrive at a final AIP funding level that best reflects holistic performance and is aligned with shareholder interests. Historically, the Compensation Committee has, at times, used the qualitative review to both increase and decrease the AIP funding to a level more commensurate with overall company performance.
For the past 3 years, the Compensation Committee has determined that no adjustments were necessary
stepthreeindperf.jpg
For each Senior Executive, the company AIP funding level multiplied by the Senior Executive’s target AIP opportunity produces an initial AIP award amount. Where appropriate, the Committee (and, in the case of the CEO, the independent directors) may adjust the Senior Executive’s AIP award amount up or down based on his or her performance in leading a business or function.
LONG-TERM INCENTIVE AWARDS
The long-term incentive ("LTI") program is designed to drive long-term performance and encourage share ownership among Senior Executives, aligning their interests with those of shareholders. LTI awards are granted on an annual basis following an assessment of individual performance, potential, and market data. 2016 LTI awards for Senior Executives consist of performance shares (50% of the award value) and stock options (50% of the award value). This mix provides LTI awards that appropriately blend actual stock price performance, comparative stock price performance, and actual operating performance.
Performance Shares (50% of LTI Award)
Performance shares are designed to reward and retain Senior Executives by allowing them to earn shares of our common stock based on pre-determined performance criteria. Performance shares have a three-year performance period and are settled in shares of common stock ranging from 0% to 200% of the number of performance shares granted depending upon the performance achieved on the following metrics:
Performance Metric
 
Rationale
Compensation Core ROE
(50% weighting)
 Important strategic measure that drives shareholder value creation
Peer-relative TSR
(50% weighting)
Important measure of our performance against peers that are competing investment choices in the capital markets
Compensation Core ROE
For 50% of the performance share award, payouts at the end of the performance period, if any, will depend upon achieving a target average annual Compensation Core ROE over a three-year measurement period. The Compensation Committee's definition of Compensation Core ROE for 2016 performance share awards is provided in Appendix A. Threshold, target and maximum Compensation Core ROE values were established in February 2016 based on the company’s 2016-2018 operating plan. There is no payout for performance below threshold. Achieving target payout of 100% requires management to significantly improve margins in Personal Lines and maintain margins in Commercial Lines in an increasingly competitive market, while continuing to manage the Talcott Resolution book of business in runoff and exercise prudent capital management. The maximum Compensation Core ROE payout of 200% reflects ambitious, longer term goals that require performance significantly beyond target.


 
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COMPENSATION DISCUSSION & ANALYSIS
 
 

Peer-Relative TSR
For 50% of the performance share award, payouts at the end of the performance period, if any, will be made based on company TSR performance relative to a Performance Peer Group at the end of the three-year performance period. The Performance Peer Group represents industry specific public companies against which we benchmark performance for compensation purposes. While there is some overlap, the Performance Peer Group is distinct from the Corporate Peer Group described on page 38, which includes mutual companies where financial data is not publicly available, as well as companies that compete with us for talent. The Compensation Committee believes that the Performance Peer Group should be limited to companies that (1) publish results against which to measure our performance, and (2) are competing investment choices in capital markets. The Compensation Committee reviews the composition of the Performance Peer Group annually and did not make any changes to the group used for the 2016 performance share awards.
For each company in the Performance Peer Group, TSR will be measured using a 20-day stock price average at the beginning and the end of the performance period in order to smooth out any volatility. As illustrated in the graph below, there would be no payout for performance below the 30th percentile, 50% payout for performance at the 30th percentile, 100% payout for median performance, and 200% payout if our TSR performance ranks ahead of all companies in the Performance Peer Group.
2016 Performance Peer Group(1)
 
Three-Year Relative TSR Ranking
Alleghany Corp.
 
threeyeartsra08.jpg
Allstate Corp.
American Financial Group, Inc.
Aon plc
Arthur J. Gallagher & Co.
The Chubb Corp.
Cincinnati Financial Corp.
Everest Re Group, Ltd.
Marsh & McLennan Companies, Inc.
Mercury General Corp.
MetLife, Inc.
Old Republic International Corp.
The Progressive Corp.
Prudential Financial, Inc.
The Travelers Companies, Inc.
Unum
W.R. Berkley Group
XL Group plc
(1)
While the peer group approved by the Compensation Committee consisted of 20 companies, ACE Limited subsequently acquired The Chubb Corporation and adopted the Chubb name, and Meiji Yasuda Life Insurance Company acquired StanCorp Financial Group, Inc., resulting in a 2016 performance peer group of 18 companies.
Stock Options (50% of LTI Awards)
The use of stock options directly aligns the interests of our Senior Executives with those of shareholders because options only have value if the price of our common stock on the exercise date exceeds the stock price on the grant date. The stock options are granted at fair market value, vest in three equal installments over three years, and have a 10-year term.
EXECUTIVE BENEFITS AND PERQUISITES
Senior Executives are eligible for the same benefits as full-time employees generally, including health, life insurance, disability and retirement benefits. Non-qualified savings and retirement plans provide benefits that would otherwise be provided but for the Internal Revenue Code limits that apply to tax-qualified benefit plans.
We provide limited additional perquisites to Senior Executives, including reimbursement of costs for annual physicals and associated travel, relocation benefits (when a move is required), and occasional use of tickets for sporting and special events previously acquired by the company when no other business use has been arranged and there is no incremental cost to the company. The CEO also has the use of a company car and driver to allow for greater efficiency while commuting.
We own a fractional interest in a corporate aircraft to allow Senior Executives to safely and efficiently travel for business purposes. Corporate aircraft enables Senior Executives to use travel time productively by providing a confidential environment in which to conduct business and eliminating the schedule constraints imposed by commercial airline service. Our aircraft usage policy prohibits our Senior Executives from engaging in personal travel via corporate aircraft, except in extraordinary circumstances. No such extraordinary circumstances existed in 2016.

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From time to time, a Senior Executive’s expenses for a purpose deemed important to the business may not be considered “directly and integrally related” to the performance of the Senior Executive’s duties as required by applicable SEC rules. These expenses are considered perquisites for disclosure purposes. Examples of such expenses may include attendance at conferences, seminars or award ceremonies, as well as attendance of a Senior Executive’s spouse or guest at business events or dinners where spousal or guest attendance is expected. We attribute income to Senior Executives for these expenses when required to do so under Internal Revenue Service regulations, and the Senior Executive is responsible for the associated tax obligation.
PROCESS FOR DETERMINING SENIOR EXECUTIVE COMPENSATION (INCLUDING NEOs)
COMPENSATION COMMITTEE
The Compensation Committee is responsible for reviewing the performance of and approving compensation awarded to those executives who either report to the CEO or who are subject to the filing requirements of Section 16 of the Securities Exchange Act of 1934 (other than the CEO). The Compensation Committee also evaluates the CEO’s performance and recommends his compensation for approval by the independent directors. With this input from the Compensation Committee, the independent directors review the CEO’s performance and determine his compensation level in the context of the established goals and objectives for the enterprise and his individual performance. The Compensation Committee and the independent directors typically review performance and approve annual incentive awards for the prior fiscal year at their February meetings, along with annual LTI awards and any changes to base salary and target bonus. To assist in this process, they review tally sheets for each NEO to understand how each element of compensation relates to other elements and to the compensation package as a whole, including historical compensation, perquisites and potential payments upon termination or change of control.
COMPENSATION CONSULTANT
Meridian Compensation Partners, LLP is the Compensation Committee’s independent compensation consultant and has regularly attended Compensation Committee meetings since its engagement. Pursuant to the Compensation Committee's charter, Meridian has not provided services to the company other than consulting services provided to the Compensation Committee and, with respect to CEO and director compensation, the Board.
In 2016, following a review of its records and practice guidelines, Meridian provided the Compensation Committee a report that confirmed its conformity with independence factors under applicable SEC rules and the listing standards of the NYSE.
ROLE OF MANAGEMENT
Our Human Resources department supports the Compensation Committee in the execution of its responsibilities. The Executive Vice President, Human Resources supervises the development of the materials for each Compensation Committee meeting, including market data, tally sheets, individual and company performance metrics and compensation recommendations for consideration by the Compensation Committee. No member of our management team, including the CEO, has a role in determining his or her own compensation.
BENCHMARKING
On an annual basis, the Compensation Committee reviews and considers a number of factors in establishing or recommending a target total compensation opportunity for each individual including, but not limited to, market data, tenure in position, experience, sustained performance, and internal pay equity. Although the Compensation Committee strives for total compensation to be at median, it does not target a specific market position. This section describes the various sources of compensation information the Compensation Committee uses to determine the competitive market for our executive officers.

 
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COMPENSATION DISCUSSION & ANALYSIS
 
 

2016 Corporate Peer Group
The Compensation Committee reviews the peer group used for compensation benchmarking periodically or upon a significant change in business conditions for the company or its peers. As part of its review, the Compensation Committee considers many factors, including market capitalization, revenues, assets, lines of business and sources and destinations of talent. For 2016, the Compensation Committee did not make any changes to the peer group.
Data in millions – as of 12/31/2016(1) 
Company Name(2)
Revenues

 
Assets

 
Market Cap

Aetna Inc.
$
63,155

 
$
69,146

 
$
43,515

Allstate Corp
$
36,128

 
$
108,610

 
$
27,294

Berkley (W. R.) Corp.
$
7,555

 
$
23,365

 
$
8,072

CNA Financial Corp.
$
9,211

 
$
55,233

 
$
11,225

Chubb Ltd.
$
31,587

 
$
159,786

 
$
61,481

Cigna Corp.
$
39,668

 
$
59,360

 
$
34,246

Cincinnati Financial Corp.
$
5,449

 
$
20,386

 
$
12,480

Lincoln National Corp.
$
13,255

 
$
261,627

 
$
15,147

Marsh & McLennan Companies Inc.
$
13,200

 
$
18,190

 
$
34,849

Metlife Inc.
$
63,110

 
$
898,764

 
$
59,232

Principal Financial Group Inc.
$
12,161

 
$
228,014

 
$
16,645

Progressive Corp.
$
23,417

 
$
33,428

 
$
20,586

Prudential Financial Inc.
$
58,884

 
$
783,962

 
$
44,746

Travelers Companies Inc.
$
27,499

 
$
100,245

 
$
34,775

Unum Group
$
11,047

 
$
61,942

 
$
10,197

Voya Financial Inc.
$
10,762

 
$
214,235

 
$
7,633

XL Group Ltd.
$
10,475

 
$
58,434

 
$
10,025

25TH PERCENTILE
$
10,762

 
$
55,233

 
$
11,225

MEDIAN
$
13,255

 
$
69,146

 
$
20,586

75TH PERCENTILE
$
36,128

 
$
214,235

 
$
34,849

THE HARTFORD
$
18,167

 
$
223,432

 
$
17,999

PERCENT RANK
53
%
 
79
%
 
46
%
(1)
Peer data provided by S&P Capital IQ. The amounts shown in the “Revenues” column reflect S&P Capital IQ adjustments to facilitate comparability across companies.
(2)
An additional four non-public companies are included in the Corporate Peer Group as they submit data to relevant compensation surveys utilized in determining appropriate pay levels for Senior Executives: Liberty Mutual, MassMutual, Nationwide Financial, and State Farm. Several non-P&C and life insurance companies are included in the peer group because of their geographic footprint, organizational complexity and/or because we compete with them for talent.
Use of Corporate Peer Group Compensation Data
When evaluating and determining individual pay levels, the Compensation Committee reviews compensation data prepared annually by Aon Hewitt showing the 25th, 50th and 75th percentiles of various pay elements for the companies listed above. As noted previously, the Compensation Committee does not target a specific market position in pay. The Corporate Peer Group includes both insurance and financial services companies because the functional responsibilities of most executives are not specific to the insurance industry. Two of our NEOs, our Chief Risk Officer and our Chief Investment Officer and President of HIMCO and Talcott Resolution, were also benchmarked against similar roles at a broader group of financial services companies within the standard McLagan Risk Management and Investment Management surveys, respectively.
The Compensation Committee also reviews general industry survey data published by third parties as a general indicator of relevant market conditions and pay practices, including perquisites. Neither the Compensation Committee nor management has any input into companies included in these general industry or financial services company surveys.

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COMPENSATION DISCUSSION & ANALYSIS

PAY FOR PERFORMANCE
2016 AIP PERFORMANCE
Based on the assessment of performance described below, the Compensation Committee established an AIP funding level of 70% of target for the 2016 performance year.
steponefundinglevela01.jpg
Compensation Core Earnings for 2016 was $1,496 million measured against an AIP target of $1,642 million. Highlighted below are the minimum threshold, target and maximum Compensation Core Earnings levels against actual results for 2016. As discussed on page 34, Compensation Core Earnings will differ from the earnings numbers provided in our financial statements due to pre-determined adjustments made to ensure that AIP award payments reflect the operating performance within management's control.
a2016compearningschart.jpg
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In assessing overall performance and arriving at the 2016 AIP funding level, the Compensation Committee undertook a qualitative review focused on the following:
Qualitative criteria
 
Results considered
Quality of earnings
The company’s earnings were below operating plan, primarily driven by unfavorable Personal Lines results. Other sources of variance included increased life and long-term disability loss ratios in the Group Benefits business and unfavorable Mutual Funds results due to transaction and investment costs and lower assets under management, partially offset by net investment income that exceeded the operating plan.
Risk & Compliance
The company was named one of the world's most ethical companies by Ethisphere® Institute for the eighth time in 2016, reflecting a strong ethics and compliance program that emphasizes leadership accountability and prevention of ethical lapses and compliance issues.
Peer Relative Performance
The company's performance matched the S&P 500, while underperforming the S&P 500 Insurance Index, and the S&P 500 P&C Index.
Expense management
The company exceeded its 2016 expense reduction targets.
Non-financial and strategic objectives
The company continued productivity improvements; made strategic investments in data analytics capabilities; and executed on its capital management program, returning value to shareholders.
The Compensation Committee felt that the formulaic AIP funding level of 70% of target appropriately reflected 2016 performance and determined that no adjustment was necessary.

 
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COMPENSATION DISCUSSION & ANALYSIS
 
 

2016 NAMED EXECUTIVE OFFICERS' COMPENSATION AND PERFORMANCE
stepthreeindperf04.jpg
Christopher Swift
Mr. Swift has served as CEO since July 1, 2014; he was also appointed Chairman on January 5, 2015. For 2016, the independent directors approved a base salary of $1,100,000 effective April 1, 2016, an AIP target of $2,750,000, and a 2016 LTI award of $7,150,000 granted in the form of 50% stock options and 50% performance shares on March 1, 2016.
Based on the process outlined above, the independent directors approved an AIP award of $1,925,000 (70% of target), taking into account that under Mr. Swift’s leadership, the company:
Successfully closed two acquisitions and entered into a strategic partnership that will serve to expand the market opportunities for the Commercial Lines and Mutual Funds businesses
Continued to invest in initiatives to enhance technology platforms and digital capabilities to improve the ease of doing business for customers and distribution partners, while tightening expenses
Negotiated and executed a reinsurance deal to cover up to $1.5 billion in adverse reserve development on our legacy asbestos and environmental book
Continued focus on talent management, diversity, and inclusion, maintaining employee engagement scores that are in the top quartile of the market, as measured by the IBM® Kenexa® survey of global companies
Beth Bombara
Ms. Bombara has served as CFO since July 1, 2014. For 2016, the Compensation Committee approved a base salary of $700,000 effective April 1, 2016, an AIP target of $1,100,000, and a 2016 LTI award of $1,750,000 granted in the form of 50% stock options and 50% performance shares on March 1, 2016.
Based on the process outlined above, the Compensation Committee approved an AIP award of $770,000 (70% of target), taking into account that Ms. Bombara:
Delivered on a capital management plan that reduced debt by $416 million and returned approximately $1.7 billion of capital to our shareholders
Initiated a multi-year expense initiative to improve our overall expense ratio
Furthered external engagement with investors, rating agencies and bankers
Continued focus on talent management, diversity, and inclusion maintaining employee engagement scores that are in the top quartile of the market
Douglas Elliot
Mr. Elliot has served as President of The Hartford since July 1, 2014. For 2016, the Compensation Committee approved a base salary of $925,000 effective April 1, 2016, an AIP target of $1,825,000, and a 2016 LTI award of $4,625,000 granted in the form of 50% stock options and 50% performance shares on March 1, 2016.
Based on the process outlined above, the Compensation Committee approved an AIP award of $1,295,000 (70% of target), taking into account that Mr. Elliot:
Delivered strong performance in the Commercial Lines and Group Benefits businesses
Led the expansion of product capabilities and investment in technology to enhance the agent and customer experience
Demonstrated strong leadership, continuing to focus the business on driving sustainable growth through achievement of pricing target goals
Significantly strengthened organizational talent through key new hires while maintaining top quartile employee engagement and diversity results
Brion Johnson
Mr. Johnson has served as Chief Investment Officer and President of HIMCO since May 16, 2012 and President of Talcott Resolution since August 1, 2014. For 2016, the Compensation Committee approved a base salary of $525,000 (unchanged from 2015), an AIP target of $1,200,000 and a 2016 LTI award of $1,350,000 granted in the form of 50% stock options and 50% performance shares on March 1, 2016.
Based on the process outlined above, the Compensation Committee approved an AIP award of $1,100,000 (92% of target), taking into account that Mr. Johnson:
Delivered strong financial results for HIMCO in a tumultuous environment, resulting in net investment income that exceeded the annual operating plan and contributed to overall company performance
Produced excellent operational results in Talcott Resolution, outperforming core earnings goals while reducing expenses
Demonstrated strong leadership by making the decision to exit the institutional business, yielding significant savings and efficiency gains


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Led improvement across employee engagement and enablement to achieve top quartile results, despite additional restructuring
Robert Rupp
Mr. Rupp has served as Chief Risk Officer since November 2, 2011. For 2016, the Compensation Committee approved a base salary of $600,000 (unchanged from 2015), an AIP target of $1,200,000 and an LTI award of $1,400,000 granted in the form of 50% stock options and 50% performance shares on March 1, 2016.
Based on the process outlined above, the Compensation Committee approved an AIP award $1,000,000 (83% of target), taking into account that Mr. Rupp:
Delivered an S&P Enterprise Risk Management rating of “Strong” as a result of diligent execution of improving processes, strengthening the risk leadership team and implementing new tools and technologies
Effectively managed market and credit risk during another volatile market cycle, partnering with HIMCO on portfolio optimization
Furthered efforts to manage cyber risk both internally and externally
Continued focus on talent management, diversity, and inclusion and helped maintain employee engagement scores that are in the top quartile of the market
CERTIFICATION OF PREVIOUSLY GRANTED AWARDS
2014-2016 PERFORMANCE SHARE AWARDS
On March 4, 2014, the Compensation Committee granted Senior Executives performance shares tied 50% to TSR performance relative to a peer group of nine companies* and 50% to achievement of Compensation Core ROE goals for the calendar year 2016. These performance shares vested as of December 31, 2016, the end of the three-year performance period, and results were certified by the Compensation Committee on February 20, 2017. The company’s TSR during the performance period was at the 52nd percentile, resulting in a payout of 104% of target for the TSR component of the awards. There was no payout for the Compensation Core ROE component of the award because the company's Compensation Core ROE during 2016 was 8.5%, which was below the threshold performance of 9.25% required to receive any payout. Achievement of Compensation Core ROE of 9.25%, 9.5% and 10% as of December 31, 2016 would have resulted in payouts of 50%, 100% and 200% of target, respectively.
Details of the 2014 performance shares are given on page 44 of our 2015 Proxy Statement filed with the Securities and Exchange Commission on April 8, 2015.
*While the peer group at the time of the grant consisted of ten companies, ACE Limited subsequently acquired The Chubb Corporation, resulting in a 2014 performance peer group of nine companies.
OCTOBER 2013 EQUITY GRANTS
On October 30, 2013, the Compensation Committee granted special equity awards to the NEOs and certain other Senior Executives under the 2010 Incentive Stock Plan. The current NEOs received grants with half of the value of the award in Restricted Stock Units and the other half in performance shares. Vesting of the performance shares was tied to (1) achievement of Compensation Core ROE goals on December 31, 2016, and (2) continued service through October 30, 2018. There will be no payout on the performance shares because the company's Compensation Core ROE during the performance period was 8.5%, which was below the threshold performance of 9% required to receive any payout.
Details of the 2013 special equity grants are given on page 44 of our 2014 Proxy Statement filed with the Securities and Exchange Commission on April 10, 2014.
COMPENSATION POLICIES AND PRACTICES
STOCK OWNERSHIP AND RETENTION GUIDELINES
Senior Executives are expected to meet or exceed certain levels of stock ownership to align their interests with those of shareholders. The Compensation Committee has established the following ownership guidelines for the CEO and other NEOs:
Level
(As a multiple of base salary)
CEO
6x
Other NEOs
4x
The Compensation Committee reviews ownership levels annually. NEOs are generally expected to meet these ownership guidelines within five years of appointment to position. As of March 20, 2017, the CEO and each of the NEOs met their respective guideline.
TIMING OF EQUITY GRANTS
Equity grants may be awarded four times per year, on the first day of a quarterly trading window following the filing of our Form 10-Q or 10-K for the prior period. Our practice is to grant annual equity awards during the first quarterly trading window of the year.

 
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COMPENSATION DISCUSSION & ANALYSIS
 
 

This timing ensures that grants are made at a time when the stock price reflects the most current public data regarding our performance and financial condition as is reasonably possible.
RECOUPMENT POLICY
We have a recoupment policy that allows for the recoupment of any incentive compensation (cash or equity) paid or payable at any time to the extent such recoupment either (i) is required by applicable law or listing standards, or (ii) is determined by the company to be necessary or appropriate in light of business circumstances or employee misconduct.
RISK MITIGATION IN PLAN DESIGN
Management has concluded that our compensation policies and practices are not reasonably likely to have a material adverse effect on the company. Our Enterprise Risk Management function performs a risk review of any new incentive compensation plans or any material changes to existing plans annually and completes a comprehensive review of all incentive compensation plans every five years. In 2016, Enterprise Risk Management conducted its annual review and discussed the results of that review with the Compensation Committee. Enterprise Risk Management concluded that current incentive plans do not promote inappropriate risk-taking or encourage the manipulation of reported earnings.
The following features of our executive compensation program guard against excessive risk-taking:
Feature
Rationale
Pay Mix
       A mix of fixed and variable, annual and long-term, and cash and equity compensation encourages strategies and actions that are in the company’s long-term best interests
       Long-term compensation awards and overlapping vesting periods encourage executives to focus on sustained company results and stock price appreciation
Performance Metrics
       Incentive awards based on a variety of performance metrics diversify the risk associated with any single indicator of performance
Equity Incentives
      Stock ownership guidelines align executive and shareholder interests
      Equity grants are made only during a trading window following the release of financial results
      No reload provisions are included in any stock option awards
Plan Design
       Incentive plans are not overly leveraged, cap the maximum payout, and include design features intended to balance pay for performance with an appropriate level of risk-taking
       The 2014 Incentive Stock Plan does not allow:
- stock options with an exercise price less than the fair market value of our common stock on the grant date
- re-pricing (reduction in exercise price) of stock options
- single trigger vesting of awards upon a Change of Control if awards are assumed or replaced with substantially equivalent awards
Recoupment
       We have a broad incentive compensation recoupment policy in addition to claw-back provisions under the 2014 Incentive Stock Plan
HEDGING AND PLEDGING COMPANY SECURITIES
We prohibit our employees and directors from engaging in hedging, monetization, derivative and similar transactions involving company securities. In addition, Senior Executives are prohibited from pledging company securities.
POTENTIAL SEVERANCE AND CHANGE OF CONTROL PAYMENTS
The company does not have individual employment agreements. NEOs are covered under a common severance pay plan that provides severance in a lump sum equal to 2x the sum of annual base salary plus target bonus, whether severance occurs before or after a change of control (no gross-up is provided for any change of control excise taxes that might apply). As a condition to receiving severance, Senior Executives must agree to restrictive covenants covering such items as non-competition, non-solicitation of business and employees, non-disclosure and non-disparagement.
The company maintains change of control benefits to ensure continuity of management and to permit executives to focus on their responsibilities without undue distraction related to concerns about personal financial security if the company is confronted with a contest for control. These benefits are also designed to ensure that in any such contest, management is not influenced by events that could occur following a change of control.
The 2014 Incentive Stock Plan provides for “double trigger” vesting on a change of control. If an NEO terminates employment for “Good Reason” or his employment is terminated without “Cause” (see definitions on page 54) within 2 years following a change of control, then any awards that were assumed or replaced with substantially equivalent awards would vest. If the awards were not assumed or replaced with substantially equivalent awards, then they would vest immediately upon the change of control.

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COMPENSATION DISCUSSION & ANALYSIS

EFFECT OF TAX AND ACCOUNTING CONSIDERATIONS ON COMPENSATION DESIGN
In designing our compensation programs, we consider the tax and accounting impact of our decisions. In doing so, we strive to strike a balance between designing appropriate and competitive compensation programs for our executives while also maximizing the deductibility of such compensation, avoiding adverse accounting effects and ensuring that any accounting consequences are appropriately reflected in our financial statements.
Principal among the tax considerations is the potential impact of Section 162(m) of the Internal Revenue Code, which generally denies a publicly traded company a federal income tax deduction for compensation in excess of $1 million paid to the CEO or any of the next three most highly compensated executive officers (other than the CFO) as determined as of the last day of the applicable year (the “Covered Officers”), unless the amount of such excess is payable based solely upon the attainment of objective performance criteria. For this reason, where applicable, our variable compensation, including 2016 annual incentive awards and performance share payouts, is generally designed to qualify as exempt performance-based compensation. The Compensation Committee may, however, in certain circumstances, approve incentive awards or other payments that do not qualify as exempt performance-based compensation and may not be deductible.
Other tax considerations are factored into the design of our compensation programs, including compliance with the requirements of Section 409A of the Internal Revenue Code, which can impose additional taxes on participants in certain arrangements involving deferred compensation, and Sections 280G and 4999 of the Internal Revenue Code, which affect the deductibility of, and impose certain additional excise taxes on, certain payments that are made upon or in connection with a change of control.
REPORT OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on our review and discussion with management, we have recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and in the company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Report submitted as of March 24, 2017 by:
Members of the Compensation and Management Development Committee:

Virginia P. Ruesterholz, Chair
Trevor Fetter
Thomas A. Renyi
Teresa W. Roseborough
H. Patrick Swygert
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of the date of this proxy statement, the Compensation and Management Development Committee consists of directors Ruesterholz (Chair), Fetter, Renyi, Roseborough and Swygert, all of whom are independent non-management directors. None of the Compensation and Management Development Committee members has served as an officer or employee of The Hartford and none of the The Hartford’s executive officers has served as a member of a compensation committee or board of directors of any other entity that has an executive officer serving as a member of The Hartford’s Board.

 
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COMPENSATION DISCUSSION & ANALYSIS
 
 

EXECUTIVE COMPENSATION TABLES
SUMMARY COMPENSATION TABLE
The table below reflects total compensation paid to or earned by each NEO.
Name and Principal
Position
Year
 
Salary
($)

 
Bonus
($)

 
Stock
Awards
($)(1)

 
Option
Awards
($)(2)

 
Non-Equity
Incentive Plan
Compensation
($)(3)

 
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(4)

 
All Other
Compensation
($)(5)

 
Total
($)

Christopher Swift
Chairman and Chief Executive Officer
2016
 
1,075,000

 

 
3,404,473

 
3,575,000

 
1,925,000

 
17,769

 
81,879

 
10,079,121

2015
 
1,000,000

 

 
3,289,280

 
3,200,000

 
2,450,000

 
5,764

 
77,375

 
10,022,419

2014
 
912,500

 

 
1,119,030

 
1,100,000

 
2,139,000

 
45,913

 
76,341

 
5,392,784

Beth Bombara
Executive Vice President and Chief Financial Officer
2016
 
687,500

 

 
833,263

 
875,000

 
770,000

 
13,122

 
65,300

 
3,244,185

2015
 
643,750

 

 
848,018

 
825,000

 
1,200,000

 

 
65,300

 
3,582,068

2014
 
560,000

 

 
508,650

 
500,000

 
1,350,000

 
44,171

 
65,200

 
3,028,021

Douglas Elliot
President of The Hartford
2016
 
918,750

 

 
2,202,194

 
2,312,500

 
1,295,000

 
8,490

 
67,368

 
6,804,302

2015
 
900,000

 

 
2,261,380

 
2,200,000

 
2,000,000

 
3,101

 
67,006

 
7,431,487

2014
 
825,000

 

 
1,017,300

 
1,000,000

 
1,800,000

 
21,126

 
69,297

 
4,732,723

Brion Johnson
Chief Investment Officer and President, HIMCO and Talcott Resolution
2016
 
525,000

 

 
642,803

 
675,000

 
1,100,000

 
3,393

 
68,050

 
3,014,246

2015
 
518,750

 

 
616,740

 
600,000

 
1,400,000

 
1,286

 
65,300

 
3,202,076

2014
 
458,333

 

 
559,515

 
550,000

 
1,450,000

 
8,336

 
62,600

 
3,088,784

Robert Rupp
Executive Vice President and Chief Risk Officer
2016
 
600,000

 

 
666,610

 
700,000

 
1,000,000

 
3,117

 
65,300

 
3,035,027

2015
 
600,000

 

 
719,530

 
700,000

 
1,400,000

 
2,443

 
65,300

 
3,487,273

2014
 
600,000

 

 
712,110

 
700,000

 
1,600,000

 
4,649

 
66,893

 
3,683,652

(1)
This column reflects the full aggregate grant date fair value calculated in accordance with FASB ASC Topic 718 for the fiscal years ended December 31, 2016, 2015 and 2014 for performance shares. Detail on 2016 grants is provided in the Grants of Plan Based Awards Table on page 46. Amounts in this column are not reduced for estimated forfeiture rates during the applicable vesting periods. Other assumptions used in the calculation of these stock award amounts are included in the Company's Annual Reports on Form 10-K for 2016 (footnote 19), 2015 (footnote 17) and 2014 (footnote 18).
In addition, performance share award amounts included in this column reflect the target award value, adjusted to reflect the probable outcome of the performance conditions and the lack of dividends. The number of shares payable under these awards will be based on the actual results as compared to pre-established performance conditions and can range from 0-200% of the target award. Performance share award amounts assuming the highest possible outcomes of performance conditions to which the awards are subject, determined at the time of grant (200% of the target award), and reflecting an adjustment for no payment of dividends on unvested performance shares, would in total be:
NEO
2016 Performance
Shares
(March 1, 2016 grant date)

 
2015 Performance
Shares
(March 3, 2015 grant date)

 
2014 Performance
Shares
(March 4, 2014 grant date)

Mr. Swift
$
6,739,911

 
$
6,067,995

 
$
2,090,738

Ms. Bombara
$
1,649,599

 
$
1,564,400

 
$
950,336

Mr. Elliot
$
4,359,731

 
$
4,171,707

 
$
1,900,671

Mr. Johnson
$
1,272,557

 
$
1,137,710

 
$
1,045,335

Mr. Rupp
$
1,319,729

 
$
1,327,393

 
$
1,330,470

Under the 2010 and 2014 Incentive Stock Plans, no more than 500,000 shares in the aggregate can be earned by an individual employee with respect to RSUs and performance share awards made in a single calendar year. As a result, the number of shares ultimately distributed to an employee (or former employee) with respect to awards made in the same year will be reduced, if necessary, so that the number does not exceed this limit.
(2)
This column reflects the full aggregate grant date fair value for the fiscal years ended December 31, 2016, 2015 and 2014 calculated in accordance with FASB ASC Topic 718; amounts are not reduced for forfeitures during the applicable vesting periods. Other assumptions used in the calculation of these amounts are included in the company's Annual Reports on Form 10-K for 2016 (footnote 19), 2015 (footnote 17) and 2014 (footnote 18).
(3)
This column reflects cash AIP awards paid for the respective years.
(4)
This column reflects the actuarial increase, if any, in the present value of the accumulated benefits of the NEOs under all pension plans established by the company. The amounts were calculated using discount rate and form of payment assumptions consistent with those used in the company’s GAAP financial statements. Actuarial assumptions for 2016 are described in further detail in the footnote to the Pension Benefits Table on page 48. For Ms. Bombara, the change in pension value for 2015 was ($217) and therefore is not reported in this table.
(5)
This column reflects amounts described in the Summary Compensation Table—All Other Compensation.

44
www.thehartford.com

 
 
COMPENSATION DISCUSSION & ANALYSIS

Summary Compensation Table - All Other Compensation
This table provides more details on the amounts presented in the “All Other Compensation” column in the Summary Compensation Table on page 44 for the NEOs.
Name
Year
 
Perquisites
($)

 
 
Contributions or other
allocations to defined
contribution plans
($)(1)

 
Total
($)

Christopher Swift
2016
 
16,579

(2) 
 
65,300

 
81,879

Beth Bombara
2016
 

 
 
65,300

 
65,300

Douglas Elliot
2016
 
2,068

(3) 
 
65,300

 
67,368

Brion Johnson
2016
 
2,750

(4)