DEF 14A 1 hartford_def14a.htm DEFINITIVE PROXY STATEMENT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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The Hartford Financial Services Group, Inc.

 

NOTICE OF 2016 ANNUAL MEETING OF SHAREHOLDERS

 

Date and Time

Wednesday, May 18, 2016
12:30 p.m. EDT

Location

Wallace Stevens Theater at
The Hartford Financial Services Group, Inc.’s Home Office

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, One Hartford Plaza, Hartford, CT 06155 at 12:30 p.m. EDT.

Voting Items

Shareholders will vote on the following items of business:

1.

To elect a Board of Directors for the coming year;

2.

To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016;

3.

To consider and approve, on a non-binding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement;

4.

To select, on a non-binding, advisory basis, the preferred frequency for the advisory vote on named executive officer compensation; and

5.

To 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 21, 2016. 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 75 under “How do I vote my shares?”

We urge you to review the proxy statement carefully and exercise your right to vote.
  

Dated: April 7, 2016

By order of the Board of Directors,


Donald C. Hunt

Vice President and Corporate Secretary

 

VOTING

 

We hope that you will participate in the Annual Meeting, either by attending and voting in person or by voting through other means.

By internet

By toll-free telephone
1-800-690-6903

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:

Don’t forget 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.

Please leave all cameras, recording devices and other electronic devices at home. You can also join

our meeting webcast at http://ir.thehartford.com.

 

 

 

2016 Proxy Statement

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Q&A WITH OUR CHAIRMAN & CEO AND PRESIDING DIRECTOR


Q. What are your thoughts as you reflect on the year 2015 at The Hartford?

Chris Swift: First and foremost, I am proud of our employees for their commitment to disciplined execution of our long-term strategy. Despite an increasingly competitive market and a less favorable investment environment, we delivered strong financial results and increased our top line momentum. The Hartford’s core earnings per diluted share* increased 15 percent; core earnings return on equity* rose to 9.2 percent from 8.4 percent; and book value per diluted share*(1) grew 7 percent. In addition, we returned $1.6 billion of capital to shareholders in the form of dividends and share repurchases. At the same time, we invested in the operating capabilities and talent that are making us a broader, deeper risk player and a more efficient, customer focused company that can deliver sustained, profitable growth.

Tom Renyi: I share Chris’s pride in the strong results delivered in 2015 and the commitment to executing on our long-term strategy. I know my fellow directors and I feel good about the collaborative dynamic we have with this management team on strategic initiatives, risk management, and attracting and retaining talent. We remain committed to protecting shareholder value through best-in-class governance practices and were very pleased to be recognized by the New York Stock Exchange in 2015 with an award for best governance, risk management and compliance program for a large cap company. We also continue to solicit and consider shareholder feedback on the company’s governance programs. One of the major themes that emerged from the company’s 2015 shareholder engagement program was the importance of a rigorous board evaluation process. We are responding to that feedback by further enhancing our disclosures and augmenting the evaluation process with individual director interviews on Board effectiveness led by me as the presiding director.

Q. Can you comment on your plans for 2016 and beyond?

Chris Swift: We’re focused squarely on our market leading Property & Casualty, Group Benefits and Mutual Funds businesses. Our strategy for continuing to achieve profitable growth is based on what we call the “five pillars.” The first pillar is product; we want to become a broader risk player by expanding our risk appetite and product offerings. The second pillar is distribution; our goal is to maximize the great distribution system that we enjoy today. Third is customer experience; putting the customer at the center of everything we do so that it is easier for the customer to interact with the company. The fourth pillar is operating capabilities, most notably improving technology and data analytics, areas where we’re making big investments. Finally, talent; we have over 17,000 very talented employees, but we're always looking to attract additional talent that would enhance our ability to compete in the marketplace. We believe that our focus on these areas will create long-term shareholder value by achieving continued improvement in our core earnings return on equity(2) and generating total value creation, measured by dividends and growth in book value per diluted share(3).


*Denotes financial measure not calculated in accordance with generally accepted accounting principles (“GAAP”)
(1)Excluding accumulated other comprehensive income (“AOCI”)
(2)Excluding Talcott
(3)Excluding AOCI
 

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The Hartford Financial Services Group, Inc.

Tom Renyi: I would add that the Board continues to be very engaged in each of these strategic areas. At each Board meeting, we do a deep dive into one of the business segments and have a thoughtful discussion on strategy with that business’ senior leader. We also hold an annual meeting with the extended leadership team where we spend two days discussing and evaluating the strategic priorities. Through these discussions, the Board is able to gain a deeper understanding of the company’s long-term strategy, as well as test and challenge it as necessary. The result is a more refined strategic vision that is well understood and fully supported by the Board.

Q: What are your views on capital management?

Chris Swift: As we consider management of excess capital in the future, we will prioritize opportunities that accelerate our premium growth and operating capabilities. In the event we do not find opportunities that meet our strategic and financial objectives, we will continue to return excess capital to shareholders. As I mentioned, our primary focus continues to be on the profitable growth of our Property and Casualty, Group Benefits and Mutual Funds businesses, which have been strong generators of excess capital.

Tom Renyi: The Board has fully supported management’s thoughtful approach to excess capital deployment in recent years. As we look ahead, we agree that placing a high priority on revenue generating opportunities is a sound approach in today’s competitive environment.

Q. What are the challenges you expect to face in executing on your strategy and what are the risks that the Board is particularly focused on now?

Chris Swift: I’ll describe the challenges and let Tom address the risks. While we enter 2016 with a strong foundation, we are very mindful of the challenges we face. Consolidation across our industry; IT challenges and opportunities; potential disruptors such as big data and autonomous cars; and new capital entering the market, all contribute to increasing competition. Despite these headwinds, we are confident that with a stable management team and a clear strategy, we can maintain our underwriting discipline, expense control and capital flexibility at a time when some of our industry peers are facing strategic or financial challenges.

Tom Renyi: The Board spends substantial time on risk management. The Harford has an exceptional Enterprise Risk Management (“ERM”) organization that has developed cutting edge tools and processes for the identification, assessment, and, when appropriate, response to internal and external risks to the company's operations and business objectives. Like most companies, we are particularly focused on cyber risks. The Board receives two formal standing reports on cyber each year, but the topic comes up more frequently than that. In addition to modeling the financial impacts of potential cyber events on The Hartford under various scenarios, The Hartford retains third parties to conduct cyber-attack simulations. These simulations use real-world scenarios and help The Hartford identify and address potential vulnerabilities and enhance response protocols.

Q. What is The Hartford’s philosophy on community engagement and social responsibility?

Chris Swift: Character is central to our company’s vision to be exceptional. We want to be known not only for our financial performance and our value to customers, but also for being the best neighbor we can be. Improving our communities is a big part of that. In 2015, the company and our employees contributed more than $10 million to the community, giving through time, talent and donations. Our national philanthropic program, Communities with HART, reached more than 14,500 U.S. students in 2014-2015 as a title sponsor of Junior Achievement’s JA Company Program, which provides basic economic education for high school students, and dispersed 60 micro-finance loans to small business owners in four markets.

Tom Renyi: We’re also committed to environmental stewardship – as an employer, insurer, investor, property owner and responsible corporate citizen. Our efforts have won a number of accolades over the years that we have highlighted in our proxy statement disclosures, but those accolades don’t tell the full story of the incredible work and countless hours that go into our sustainability initiatives, which include everything from installing electric vehicle charging stations to support electric car use, switching to more fuel efficient fleet vehicles, reducing our paper consumption and even planting a community garden on The Hartford’s campus. Each year, the company puts together, and the Board reviews, a comprehensive sustainability report, which is available on The Hartford’s website and tells this larger story.

Q. Any final thoughts?

Tom Renyi: As stewards of the company, the Board is committed to helping The Hartford deliver superior returns for our shareholders and protecting that value over the long-term. I know I speak for the Board when I say what a privilege it is to serve this great company and its shareholders.

Chris Swift: We have a clear strategy, an experienced and stable management team, a powerful national distribution network, differentiated products and a brand that stands for strength and integrity. As we enter 2016, we remain focused on building strength as a larger player across a broader spectrum of risk, product, distribution and geography. In addition to the profitable growth of our businesses, I believe that our increased focus on the customer, process excellence and continuous improvement will drive greater operating efficiency and effectiveness and continue to create shareholder value in the future. I am proud of what we have accomplished in 2015 and I am confident in our ability to navigate this dynamic and competitive environment and continue to create shareholder value.

 

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TABLE OF CONTENTS

       

PROXY SUMMARY

  

 

BOARD AND GOVERNANCE HIGHLIGHTS

  

 

PERFORMANCE HIGHLIGHTS

  

 

2015 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

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

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

Experience

Independent

Current
Committee Memberships(1)

Other Current
Public Company Boards

Yes

No

Robert B.
Allardice III

69

2008

Former regional CEO, Deutsche Bank Americas

 

Audit*

FIRMCo

Ellington Residential Mortgage REIT

GasLog Partners

Trevor Fetter

56

2007

President and CEO, Tenet Healthcare

 

Comp*

FIRMCo

Tenet Healthcare

Kathryn A. Mikells

50

2010

CFO, Diageo plc

 

Audit

FIRMCo

Diageo plc

Michael G. Morris

69

2004

Former Chairman, President and CEO, American Electric Power Company

 

Audit

FIRMCo

NCG

Alcoa

L Brands

Spectra Energy

Thomas A. Renyi(2)

70

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

52

2014

Former Partner, Providence Equity Partners

 

Audit

FIRMCo

VEREIT, Inc.

 

Teresa W. Roseborough

57

2015

Executive Vice President, General Counsel and Corporate Secretary, The Home Depot

 

FIRMCo

NCG

 

Virginia P. Ruesterholz

54

2013

Former Executive Vice President, Verizon Communications

 

Comp

FIRMCo

NCG

Frontier Communications

Charles B. Strauss

73

2001

Former President and CEO, Unilever U.S.

 

Audit

FIRMCo*

NCG

 

Christopher J. Swift

55

2014

Chairman and CEO, The Hartford

 

FIRMCo

 

H. Patrick Swygert

73

1996

President Emeritus and professor emeritus, Howard University

 

Comp

FIRMCo

NCG*

United Technologies Corporation

 

*

Denotes committee chairman

(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 13

 

 

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BOARD AND GOVERNANCE HIGHLIGHTS

BOARD HIGHLIGHTS

Board Overview


2015 Board Actions

As a result of shareholder feedback and an analysis of industry trends and best practices, in 2015 the Nominating and Corporate Governance Committee took several important actions to enhance the company's corporate governance practices.


 

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Proxy Summary

GOVERNANCE HIGHLIGHTS

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

Engaged Board/Shareholder Rights

Good Governance

Majority independent directors

 

All independent key committees (Audit, Compensation and Management Development, Nominating and Corporate Governance)

 

Strong and engaged independent presiding director role

 

Directors elected annually

 

Majority vote standard (with plurality carve-out for contested elections)

 

Director resignation policy

 

Over-boarding policy

 

Rigorous Board and committee self-assessments conducted annually

 

Robust stock-ownership guidelines

 

Annual shareholder engagement program to obtain valuable feedback on our compensation and governance programs

 

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

 

 

ITEM 2

 

RATIFICATION OF
INDEPENDENT REGISTERED
ACCOUNTING FIRM

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 2016.

 

ITEM 3

 

ADVISORY VOTE TO
APPROVE EXECUTIVE
COMPENSATION

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 (“NEOs”) 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.

 

 

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PERFORMANCE HIGHLIGHTS

EXECUTING ON OUR STRATEGY

2015 was a successful year for The Hartford. Despite an increasingly competitive market and a less favorable investment environment, we achieved strong financial results, continued to improve profitability and returned capital to our shareholders. Our financial strength, operating performance and strong balance sheet were recognized through rating upgrades by A.M. Best, Moody’s and Standard & Poor’s. We achieved these financial results while investing in operating capabilities and talent that are making us a broader, deeper risk player and a more efficient and customer-focused company. Highlighted below are some of our key accomplishments in 2015. We entered 2016 with a strong foundation and with confidence that we can maintain our underwriting discipline, expense control and capital flexibility in the face of increased competition.


DELIVERING LONG-TERM SHAREHOLDER RETURN

We have achieved strong financial performance and executed capital management initiatives, while continuing to make significant investments in our businesses, which helped drive shareholder returns. Book value per diluted share, excluding AOCI, rose 7%, equating to total value creation of 9% per share, including common dividends per share in 2015. Moreover, we have significantly outperformed relevant benchmarks, including the S&P 500 P&C, S&P 500 and S&P Insurance Composite indices over three years.

 

 

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Proxy Summary

The chart below illustrates key actions we have taken since 2013 to drive shareholder return.


 
 

2015 COMPENSATION HIGHLIGHTS

Decision

Rationale

The Compensation Committee approved an annual incentive plan (“AIP”) funding level of 116% of target. (page 49)

Performance against pre-established financial targets resulted in a formulaic AIP funding level of 116% of target. The Compensation Committee undertook a qualitative review of performance and concluded that the formulaic AIP funding level appropriately reflected 2015 performance. Accordingly, no adjustments were made.

For 2015 performance share grants, the Compensation Committee expanded the Company’s Performance Peer Group from 10 to 20 companies. (page 45)

The Compensation Committee believes that the Performance Peer Group should include companies that, in the aggregate, represent our current mix of business and are competing investment choices in the capital markets. The new group, which includes nine of the 10 companies from the prior Performance Peer Group, consists of companies that meet these criteria and have market characteristics and historical stock performance similar to the company’s.

For 2015 performance share grants, the company revised its methodology for measuring ROE to use the average annual ROE over the three year measurement period. (page 44)

While the prior methodology was appropriate given the challenges of setting annual ROE targets during the company’s transformation from a diversified financial services company to one focused on Property & Casualty, Group Benefits, and Mutual Funds businesses, with the transformation now essentially complete, the Compensation Committee believed that it was appropriate to migrate to a measure that reflects each year's performance in the overall outcome.

 

 

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2015 NEO COMPENSATION SUMMARY

The table below reflects the 2015 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 55, we believe it provides a simple and concise picture of compensation decisions made for the NEOs in 2015.

                     

Compensation Component

C. Swift

B. Bombara

D. Elliot

B. Johnson

R. Rupp

Base Salary Rate

$

1,000,000

 

$

650,000

 

$

900,000

 

$

525,000

 

$

600,000

 

2015 AIP Award

$

2,450,000

 

$

1,200,000

 

$

2,000,000

 

$

1,400,000

 

$

1,400,000

 

2015 LTI Award(1)

$

6,400,000

 

$

1,650,000

 

$

4,400,000

 

$

1,200,000

 

$

1,400,000

 

Total 2015 Compensation Package(2)

$

9,850,000

 

$

3,500,000

 

$

7,300,000

 

$

3,125,000

 

$

3,400,000

 

 

(1)

Reflects the dollar amount of the award approved by the Compensation Committee rather than the fair value (calculated in accordance with FASB ASC Topic 718) shown in the Summary Compensation Table.

(2)

Excludes items shown under “Change in Pension Value and Nonqualified Deferred Compensation Earnings” and “All Other Compensation” columns in the Summary Compensation Table.

COMPENSATION BEST PRACTICES

The Compensation Committee regularly reviews best practices in executive compensation. Our current best practices and policies include the following:

Program Features

Risk Mitigation

Pay for Performance

Severance benefits payable upon a change of control do not exceed 2x the sum of base pay plus target bonus

 

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)

 

No excise tax gross-up upon a change of control

 

Competitive burn rate and dilution for equity program

 

Senior Executives eligible for the same benefits as full-time employees, including health, life insurance, disability and retirement benefits

 

Executive perquisites are limited; no tax gross-ups are provided on perquisites

 

No individual employment agreements

 

No inclusion of reload provisions in any stock option grant

 

Board compensation consultant is independent and 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 prohibited from engaging in hedging, monetization, derivative and similar transactions with company securities

 

Senior Executives prohibited from pledging company securities

 

Stock ownership guidelines for directors and Senior Executives; compliance with guidelines reviewed annually

 

Approximately 89% of current CEO target annual compensation and 84% of other NEO target annual compensation variable based on performance, including stock price performance

 

Compensation peer groups evaluated periodically to align with investor expectations and changes in market practice or our business mix

 

No underwater cash buy-outs

 

No payment of dividends on unvested performance shares

 

No granting of stock options with an exercise price less than the fair market value of our common stock on the date of grant

 

No re-pricing (reduction in exercise price) of stock options

 

 

 

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Proxy Summary

 

ITEM 4

 

SELECTION OF FREQUENCY
OF ADVISORY VOTE TO
APPROVE EXECUTIVE
COMPENSATION ON
ADVISORY BASIS

The Board recommends a vote of every “1 year” for this item

The Board is asking shareholders to vote for the option of every “1 year” as the frequency with which shareholders are provided an opportunity to vote on NEO compensation. An annual advisory vote will enable shareholders to provide direct input to the company regarding its compensation philosophy, policies and practices as disclosed in the proxy statement each year.

 

 

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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

Engaged Board/Shareholder Rights

Good Governance

Majority independent directors

 

All independent key committees (Audit, Compensation and Management Development, Nominating and Corporate Governance)

 

Strong and engaged independent presiding director role

 

Directors elected annually

 

Majority vote standard (with plurality carve-out for contested elections)

 

Director resignation policy

 

Over-boarding policy

 

Rigorous Board and committee self-assessments conducted annually

 

Robust stock-ownership guidelines

 

Annual shareholder engagement program to obtain valuable feedback on our compensation and governance programs

 

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 77 for details).

 

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Board and Governance Matters

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.

BOARD LEADERSHIP STRUCTURE

The roles of CEO and Chairman of the Board (“Chairman”) are held by Christopher Swift. Mr. Swift has held these roles since January 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 that the company's historical approach of combining the roles of CEO and Chairman while maintaining strong independent Board leadership continues to be 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 2015, 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.

 

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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, four nominees have between five and ten years of tenure, and the remaining three have over 10 years of service. The average tenure of the Board nominees is 7.6 years. Since 2010, we have added four female directors to the Board; they each bring fresh ideas and unique skills to the Board.


TALENT DEVELOPMENT AND SUCCESSION PLANNING

Talent development and succession planning have been and will continue to be one of the most 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 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.

PROVEN SUCCESSION PLAN

In 2014, the Board oversaw a number of critical internal promotions, most notably the elevation of the company’s chief financial officer to the role of CEO. In addition, the head of the company’s life run-off operations and former controller was promoted to chief financial officer and the leader of the company’s Commercial Markets business assumed the role of president of The Hartford. This trend continued in 2015 when two internal candidates assumed the roles of General Counsel and Chief Marketing and Communications Officer.

 

 

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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.

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 (Chair)
K. Mikells
M. Morris
J. Richardson
C. Strauss

Meetings in 2015: 9

In 2015, the Audit Committee focused on monitoring the control environment over significant financial reporting, operational and compliance risks with a particular focus on strategic internal IT investment initiatives aimed at positioning the Company for expanded growth in its core businesses.

Robert B. Allardice, III, Committee Chair since 2009

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 (Chair)
T. Renyi
V. Ruesterholz
H. Swygert

Meetings in 2015: 7

“Talent development and succession planning remained top of mind in 2015 as we supported management on a number of key internal promotions, including a new General Counsel and a Chief of Marketing and Communications.”

Trevor Fetter, Committee Chair since 2013

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 37

 

 

FINANCE, INVESTMENT
AND RISK MANAGEMENT
COMMITTEE

Members

R. Allardice
T. Fetter
K. Mikells
M. Morris
T. Renyi
J. Richardson
T. Roseborough
V. Ruesterholz
C. Strauss (Chair)
C. Swift
H. Swygert

Meetings in 2015: 5

“In 2015, FIRMCo continued its focus on cyber risks and the potential impact both on The Hartford and its clients. In addition, we focused on macro events that affect our investment portfolio, including the decline in oil prices, the slowdown in China and the political crisis in Greece.”

Charles B. Strauss, Committee Chair since 2009

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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NOMINATING AND
CORPORATE GOVERNANCE
COMMITTEE

Members

M. Morris
T. Roseborough
V. Ruesterholz
C. Strauss
H. Swygert (Chair)

Meetings in 2015: 3

“In response to feedback we received from shareholders during our annual engagement program, the Committee decided to further strengthen its Board evaluation process to include individual interviews with each director facilitated by the presiding director.”

H. Patrick Swygert, Committee Chair since 2013

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, environmental stewardship, and political contributions

 

 

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THE BOARD’S ROLE AND RESPONSIBILITIES

BOARD RISK OVERSIGHT

The Board as a whole has ultimate responsibility for risk oversight. It 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.


In addition to the risks identified above, the Finance, Investment and Risk Management Committee has responsibility for oversight of all risks that do not fall within the oversight responsibility of any other standing committee. The Audit Committee discusses with management policies with respect to risk assessment and risk management.

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 (formerly known as the “Variable Annuity 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 five times in 2015.

At the management level, we have established an Enterprise Risk and Capital Committee (“ERCC”), which oversees the risk profile, capital management and risk management practices of the company. The ERCC reports to the Board primarily through the Finance, Investment and Risk Management Committee and also through interactions with the Audit Committee.

ERCC Members

 

CEO (Chair)

President

Chief Financial Officer

Chief Risk Officer

Chief Investment Officer

General Counsel

Others as deemed necessary by the ERCC Chair

 

 

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BUSINESS ETHICS AND CONDUCT


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 eight times, including in 2015, 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. Effective in 2015, directors began to certify compliance with the Board Code of Ethics.

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 the fall of 2015, as part of the annual shareholder outreach program begun in 2011, management contacted shareholders representing approximately 50% of shares outstanding and had discussions with shareholders representing approximately 26% of shares outstanding. More shareholders declined calls than prior years, which we believe reflects lack of concern with our governance and compensation programs. As a result of shareholder feedback and an analysis of industry trends and best practices, the Nominating Committee took several important actions to enhance the company's corporate governance practices.


 

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ANNUAL BOARD SELF-ASSESSMENT PROCESS

The Nominating Committee oversees the Board evaluation process, 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 of progress against 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.

New for 2016

 

One-on-One Discussions
(February to May)

In response to shareholder feedback received during the fall of 2015, the Board decided to augment its self-assessment process by introducing one-on-one candid discussions between the presiding director and each independent director on Board effectiveness, dynamics and areas for improvement. The presiding director meets with the Chairman of the Board and the Chairman of the Nominating Committee to discuss key themes that emerged during the discussions.

Board Evaluation and
Development of Goals
(May)

The presiding director leads a Board evaluation discussion in executive session guided by the Board’s self-assessment questionnaire and the key themes emerging from his one-on-one discussions. The Board identifies successes and areas for improvement from the prior Board year and establishes written 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.

In addition to the full Board evaluation process set forth above, the standing committees of the Board undertake separate self-assessments based on written questionnaires, generally between February and July.

POLITICAL CONTRIBUTIONS AND LOBBYING EXPENDITURES

The Nominating Committee reviews the company's political and lobbying policies and reports of political contributions and expenditures consistent with the company’s Code of Conduct. As part of this Code, we do not give 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. Our website includes our policy for political contributions for political purposes and information on annual dues, assessments and contributions of $25,000 or more to trade associations and coalitions. To access our policy and report of 2015 contributions, please go to http://ir.thehartford.com under the heading “Corporate Governance” — “Governance Documents” — “Code of Ethics” — “Code of Ethics and Political Compliance.”

 

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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 2015 the company received the following national recognitions:


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/environment.

BOARD AND SHAREHOLDER MEETING ATTENDANCE

The Board met seven times during 2015 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. The average attendance of all directors at Board and committee meetings was approximately 92%. 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 20, 2015, except Ms. Mikells, who had a scheduling conflict.

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.

 

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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.

BOARD NOMINATION PROCESS


SHAREHOLDER PROPOSED NOMINEES

The Nominating Committee will consider director candidates recommended by shareholders using the same criteria described above. Nominations for director candidates are closed for 2016. To recommend a candidate for our 2017 Annual Meeting, shareholders must deliver or mail their nomination submission to Donald C. Hunt, Vice President and Corporate Secretary, The Hartford Financial Services Group, Inc., One Hartford Plaza, Hartford, CT 06155. Nominations must be received by February 17, 2017 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 stock.

DIRECTOR COMPENSATION

We use a combination of cash and stock-based compensation to attract and retain qualified candidates to serve on the Board, as described below. 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 2015-2016 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 2015-2016 Board service year beginning on May 20, 2015, the date of the 2015 Annual Meeting of Shareholders, and ending on May 18, 2016, the date of the 2016 Annual Meeting, is set forth below:

Annual Cash Compensation(1)

Director Compensation Program

Annual Retainer(2)

$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(3)

$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)

Directors who join the Board during the Board service year receive a pro rata portion of the annual cash retainer.

(3)

A group of directors dedicated to discussing with management ongoing activities to effectively manage the run-off of our variable annuity business. See page 18 for more details.

 

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ANNUAL EQUITY GRANT

In 2015, 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 were granted on July 29, 2015, the first day of the scheduled trading window following the filing of our Form 10-Q for the quarter ended June 30, 2015. The number of RSUs of each award was determined by dividing $160,000 by $47.67, the closing price of our common stock as reported on the NYSE on the date of the award. Directors who join the Board during the Board service year receive a pro rata portion of the annual RSU award.

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 of the director, (c) total disability of the director, as defined in the 2014 Incentive Stock Plan, (d) resignation by the director under cases of 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, 2015.

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.

 

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DIRECTOR SUMMARY COMPENSATION TABLE

We paid the following compensation to directors for the fiscal year ended December 31, 2015.

                 

Name

Fees Earned or
Paid in Cash
($)

Stock Awards
($)(1)

All Other
Compensation
($)

Total
($)

Robert Allardice(2)

 

135,000

   

160,000

   

2,001

   

297,001

 

Trevor Fetter

 

125,000

   

160,000

   

870

   

285,870

 

Kathryn A. Mikells

 

-

   

260,000

   

753

   

260,753

 

Michael G. Morris

 

-

   

260,000

   

2,001

   

262,001

 

Thomas Renyi

 

-

   

285,000

   

1,878

   

286,878

 

Julie G. Richardson(2)

 

10,000

   

260,000

   

630

   

270,630

 

Teresa W. Roseborough(3)

 

116,700

   

186,700

   

864

   

304,264

 

Virginia P. Ruesterholz(2)

 

10,000

   

260,000

   

630

   

270,630

 

Charles B. Strauss(2)

 

135,000

   

160,000

   

2,826

   

297,826

 

H. Patrick Swygert

 

110,000

   

160,000

   

2,949

   

272,949

 

 

(1)

The amounts shown in this column reflect the aggregate grant date fair value of restricted stock and RSU awards granted during the fiscal year ended December 31, 2015. On April 29, 2015, following her appointment to the Board, Ms. Roseborough received a pro-rated restricted stock grant for the 2014-2015 Board service year valued at $26,700 based on the closing stock price of $41.37. This award vested and distributed on May 20, 2015 at the same time as the other director grants for the 2014-2015 Board service year. All other grants occurred on July 29, 2015 and consisted of RSUs, valued based on the closing stock price of $47.67. For directors Mikells, Morris, Renyi, Richardson and Ruesterholz, the amounts shown reflect both the 2015-2016 annual equity awards and the grant date value of vested RSUs each director elected to receive in lieu of fees paid in cash. These units will earn dividend equivalents and be distributed as shares of the company's common stock at the end of the director's Board service.

(2)

A $10,000 stipend for service in the Talcott Resolution Board Working Group was paid to directors Allardice, Richardson, Ruesterholz and Strauss.

(3)

Ms. Roseborough received a pro-rated annual cash retainer of $16,700 upon her appointment to the Board on April 1, 2015 for the 2014-2015 Board service year.

DIRECTOR COMPENSATION TABLE—OUTSTANDING EQUITY

The following table shows the number and value of unvested equity awards outstanding as of December 31, 2015. The value of these unvested awards is calculated using a market value of $43.46, the NYSE closing price per share of our common stock on December 31, 2015. The numbers have been rounded to the nearest whole dollar or share.

             

 

 

Stock Awards

 

Name

Stock
Grant Date

Number
of Shares or
Units of Stock
That Have Not
Vested (#)(1) 

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

Robert Allardice 

 

7/29/2015

   

3,372

   

146,547

 

Trevor Fetter 

 

7/29/2015

   

3,372

   

146,547

 

Kathryn A. Mikells 

 

7/29/2015

   

3,372

   

146,547

 

Michael G. Morris 

 

7/29/2015

   

3,372

   

146,547

 

Thomas Renyi 

 

7/29/2015

   

3,372

   

146,547

 

Julie G. Richardson 

 

7/29/2015

   

3,372

   

146,547

 

Teresa W. Roseborough 

 

7/29/2015

   

3,372

   

146,547

 

Virginia P. Ruesterholz 

 

7/29/2015

   

3,372

   

146,547

 

Charles B. Strauss 

 

7/29/2015

   

3,372

   

146,547

 

H. Patrick Swygert 

 

7/29/2015

   

3,372

   

146,547

 

 

(1)

The annual RSU award granted on July 29, 2015 will vest on the earlier of (i) the last day of the Board service year or (ii) the first anniversary of the award grant date, 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.

 

 

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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 2015.

COMMUNICATING WITH THE BOARD

Shareholders and other interested parties may communicate with directors by contacting the Corporate Secretary at 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

Visit 24/7

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 disclose the Board's decision publicly 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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Board and Governance Matters

 

ROBERT B. ALLARDICE, III

 

Age: 69

Director Since: 2008

Independent

Committees: Audit (Chair); Finance, Investment and Risk Management

Other Public Company Directorships:
Ellington Residential Mortgage REIT (2013-present); GasLog Partners LP (2014-present)

Select Qualifications and Skills:

Leadership: 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.

Financial Services Industry: Over 35 years of experience in the financial services industry, including at the senior executive officer level.

Finance and Accounting: Experience leading capital markets-based businesses relevant to the oversight of our investment management firm and corporate finance activities. The Board has determined that Mr. Allardice meets the SEC’s criteria of an audit committee “financial expert.”

Regulatory: Experience in a highly regulated industry, including interfacing with regulators and establishing governance frameworks relevant to the oversight of our business.

Corporate Governance: Director and audit committee member for several large companies including Vanguard Car Rental; Carlyle Capital Corp.; Citibank (South Dakota), NA; Ellington Housing, Inc. REIT; Ellington Residential Mortgage REIT; and GasLog Partners LP. Has served as chairman of the Board’s Audit Committee since 2009.


TREVOR FETTER

 

Age: 56

Director since: 2007

Independent

Committees: Compensation and Management Development (Chair); Finance, Investment and Risk Management

Other Public Company Directorships:
Tenet Healthcare Corporation (2003-present)

Select Qualifications and Skills:

Leadership: Over a decade of experience as the president and chief executive officer of Tenet Healthcare Corporation, a publicly-traded healthcare company.

Finance and Accounting: Significant experience in corporate finance and financial reporting acquired through senior finance roles, including as a chief financial officer of a publicly-traded company.

Business Operations and Strategic Planning: Seasoned chief executive officer with responsibility for leading the strategy and managing the operations of a complex organization.

Regulatory: Experience navigating complex regulatory frameworks as the president and chief executive officer of a highly-regulated, publicly-traded healthcare company.

Corporate Governance: 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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KATHRYN A. MIKELLS

 

Age: 50

Director since: 2010

Independent

Committees: Audit; Finance, Investment and Risk Management Committee

Other Public Company Directorships:
Diageo plc (2015-present)

Select Qualifications and Skills:

Leadership: Experience in a variety of executive management positions, with a focus on leading the finance function of global organizations.

Finance and Accounting: 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. The Board has determined that Ms. Mikells meets the SEC’s criteria of an audit committee “financial expert.”

Business Operations and Strategic Management: Strong management and transformational skills demonstrated during ADT’s successful transition into an independent company and significant mergers and acquisitions experience acquired through the sale of Naclo to Ecolab and the merger of United Airlines with Continental Airlines.

Risk Management: Demonstrated risk management skills as leader responsible for financial and corporate planning for domestic and international organizations.

Talent Management: Strong talent development skills acquired through years leading global finance divisions.


MICHAEL G. MORRIS

 

Age: 69

Director since: 2004

Independent

Committees: Audit; Finance, Investment and Risk Management; Nominating and Corporate Governance

Other Public Company Directorships:
Alcoa, Inc. (2002-present); American Electric Power Company, Inc. (2004-2014); L Brands, Inc. (2012-present); Spectra Energy (2013-present)

Select Qualifications and Skills:

Leadership: Over two decades of experience as chief executive officer and president of multiple publicly-traded companies in the highly regulated energy industry.

Finance and Accounting: In addition to overseeing financial matters in his roles as chairman, president and CEO of AEP, and as chairman, president and CEO of Northeast Utilities, has served on the audit committees of several publicly traded companies including The Hartford and Alcoa. The Board has determined that Mr. Morris meets the SEC’s criteria of an audit committee “financial expert.”

Business Operations and Strategic Planning: Significant experience as a senior leader responsible for the strategic direction and management of complex business operations in the energy and gas industry.

Regulatory: Proven skills interacting with governmental and regulatory agencies acquired through years of leading various multi-national organizations in energy and gas industry, 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.

Corporate Governance: 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

 

Age: 70

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)

Select Qualifications and Skills:

Leadership: Served as chief executive officer of a global banking organization for nearly a decade.

Financial Services Industry: 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.

Finance and Accounting: 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.

Business Operations and Strategic Planning: Managed operations and set strategic direction as a senior leader of complex financial services companies; led the successful integration initiatives related to two major mergers.

Corporate Governance: Corporate governance expertise from service as chairman and director of large, financial public companies.


JULIE G. RICHARDSON

 

Age: 52

Director since: 2014

Independent

Committees: Audit; Finance, Investment and Risk Management

Other Public Company Directorships:
Stream Global Services, Inc.(2009-2012); VEREIT, Inc. (2015-present)

Select Qualifications and Skills:

Leadership: Previously led management of Providence Equity Partners' New York Office as partner and headed JPMorgan's Global Telecommunications, Media and Technology group.

Financial Services Industry: Over 25 years of financial services experience as a banker and investment professional at some of the world’s largest financial services firms.

Finance and Accounting: Significant experience in financial analysis and capital markets acquired as a senior leader at global financial services institutions. The Board has determined that Ms. Richardson meets the SEC’s criteria of an audit committee “financial expert.”

Risk Management: Extensive risk management skills acquired through a long and distinguished career leading both private and public financial investment organizations.

Talent Management: Experience leading and managing large, global teams at multiple organizations.


 

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TERESA WYNN ROSEBOROUGH

 

Age: 57

Director since: 2015

Independent

Committees: Finance, Investment and Risk Management; Nominating and Corporate Governance

Other Public Company Directorships:
None

Select Qualifications and Skills:

Leadership: Over two decades of experience as a senior legal advisor in government, law firm and corporate settings.

Risk Management: Significant 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.

Regulatory: Extensive regulatory experience acquired as a government attorney providing legal counsel to the White House and all executive branch agencies.

Corporate Governance: Corporate governance expertise from service as General Counsel and Corporate Secretary of a publicly-traded company.

Financial Services Industry: 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.


VIRGINIA P. RUESTERHOLZ

 

Age: 54

Director since: 2013

Independent

Committees: Compensation and Management Development Committee; Finance, Investment and Risk Management; Nominating and Corporate Governance

Other Public Company Directorships:
Frontier Communications Corporation (2013-present)

Select Qualifications and Skills:

Leadership: Held variety of senior executive positions, including as Executive Vice President at Verizon Communications and President of the former Verizon Services Operations.

Business Operations and Strategic Planning: Vast experience in large scale operations including sales and marketing, customer service, technology and risk management. Held principal oversight responsibility for key strategic initiatives at a Fortune 100 company.

Finance and Accounting: 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.

Regulatory: Senior leader with extensive experience navigating the regulatory landscape of large-scale operations at a Fortune 100 company.

Talent Management: Significant talent management skills as the president of an organization with over 25,000 employees.


 

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Board and Governance Matters

 

CHARLES B. STRAUSS

 

Age: 73

Director since: 2001

Independent

Committees: Finance, Investment and Risk Management (Chair); Audit; Nominating and Corporate Governance

Other Public Company Directorships:
Aegis Group plc (2003-2013); The Hershey Company (2007–2009)

Select Qualifications and Skills:

Leadership: 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.

Finance and Accounting: In addition to overseeing financial matters in his role as chairman and president of Unilever, has served on the audit committees of several publicly traded companies, including the Board’s Audit Committee. The Board has determined that Mr. Strauss meets the SEC’s criteria of an audit committee “financial expert.”

Business Operations and Strategic Planning: Demonstrated skills in strategic planning and leading business operations, including management and oversight of expansive distribution channels, acquired as a senior leader responsible for a company with large-scale global operations.

Risk Management: Experience overseeing risk management initiatives as a senior leader of a global organization; has served as chairman of the Board’s Finance, Investment and Risk Management Committee since its inception in 2009.

Corporate Governance: Corporate governance expertise acquired through service as director of several large, publicly-traded companies.


CHRISTOPHER J. SWIFT

 

Age: 55

Director since: 2014

Committees: Finance, Investment and Risk Management

Other Public Company Directorships:
None

Select Qualifications and Skills:

Leadership: Chairman and CEO of a publicly-traded financial services company; previous experience in senior leadership roles at AIG and head of the Global Insurance Industry Practice at KPMG.

Finance and Accounting: During his CFO tenure, Mr. Swift was responsible for finance, treasury, capital, accounting, and investor relations. He previously held finance roles at AIG. In addition, Mr. Swift is a certified public accountant with experience working at a leading international accounting firm.

Financial Services Industry: Over 30 years of experience in the financial services industry, with a focus on insurance; broad insight and knowledge into the complexities of our businesses, relationships, competitive and financial positioning, senior leadership and strategic opportunities and challenges.

Business Operations and Strategic Planning: 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.

Risk Management: As Chairman and CEO, has ultimate responsibility for the company’s risk management, including initiatives related to managing the run-off of our variable annuity book of business.


 

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H. PATRICK SWYGERT

 

Age: 73

Director since: 1996

Independent

Committees: Nominating and Corporate Governance (Chair); Compensation and Management Development; Finance, Investment and Risk Management

Other Public Company Directorships:
United Technologies Corporation (2001-present)

Select Qualifications and Skills:

Leadership: Leadership roles at educational, governmental and cultural organizations provide him with a unique perspective on civic and cultural issues and regulatory affairs.

Business Operations and Strategic Planning: 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.

Regulatory: Regulatory experience acquired through service as a director of highly regulated publicly traded companies and as President of a state university.

Corporate Governance: Corporate governance expertise acquired through service as director of several large, publicly-traded companies; currently serves as Chairman of the Board’s Nominating and Corporate Governance Committee.

Talent Management: As the president of two major universities, Howard University and University at Albany, SUNY, nearly two decades developing a diverse workforce and a high-performance culture needed for the achievement of academic goals.


 

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Board and Governance Matters

ITEM 1

 

ELECTION OF DIRECTORS

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 21-22 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 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 2015, 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, 2015.

In this context, the Audit Committee has:

(1) reviewed and discussed the audited financial statements for the year ended December 31, 2015 with management;

(2) discussed with D&T the matters required to be discussed by Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 16, 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, 2015 for filing with the SEC.

Report Submitted: February 24, 2016

Members of the Audit Committee:

Robert B. Allardice, III, Chairman
Kathryn A. Mikells
Michael G. Morris
Julie G. Richardson
Charles B. Strauss

 

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Audit Matters

FEES OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The following table presents fees for professional services provided by Deloitte, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, the “Deloitte Entities”) for the years ended December 31, 2015 and 2014.

                 

 

Year Ended
December 31, 2015

Year Ended
December 31, 2014

Audit fees

$

 

   

14,242,000

 

$

 

   

15,188,000

 

Audit-related fees(1)

 

 

   

336,000

   

 

   

1,048,000

 

Tax fees(2)

 

 

   

693,000

   

 

   

1,070,000

 

All other fees(3)

 

 

   

244,000

   

 

   

134,000

 

Total

$

 

   

15,515,000

 

$

 

   

17,440,000

 

 

(1)

Fees for the years ended December 31, 2015 and 2014 principally consisted of procedures related to regulatory filings and divestiture related services.

(2)

Fees for the years ended December 31, 2015 and 2014 principally consisted of tax compliance services and tax examination assistance.

(3)

Fees for the years ended December 31, 2015 and 2014 principally consisted of an enterprise risk project.

The Audit Committee reviewed the non-audit services provided by the Deloitte Entities during 2015 and 2014 and concluded that they were compatible with maintaining the Deloitte Entities’ independence.

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 Chairman 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 Chairman must report any pre-approvals to the full Audit Committee at its next scheduled meeting.

 

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ITEM 2

 

RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2016

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, 2016. 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 2016, 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

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

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

DELIVERING STRONG FINANCIAL RESULTS

In 2015, The Hartford achieved strong financial results with core earnings increasing 7% over 2014 and core earnings return on equity rising to 9.2% from 8.4% in 2014. In our Property & Casualty (“P&C”) business, written premiums increased and the combined ratio before catastrophes and prior year development improved. In Group Benefits, we grew fully insured ongoing premiums and increased core earnings. Mutual Funds generated meaningful positive net flows while increasing sales and delivering solid relative fund performance. Talcott Resolution, our life and annuity run-off operations, returned $1.0 billion of capital to the holding company and continued to run-off its variable annuity and fixed annuity contract counts, further reducing the size of those exposures. Moreover, several of our ratings were upgraded by A.M. Best, Moody's and Standard & Poor's, an affirmation of our improved balance sheet, operating performance and financial flexibility. We accomplished these strong results despite a less favorable investment environment and an increasingly competitive market.

USING OUR FINANCIAL STRENGTH TO RETURN CAPITAL, REDUCE DEBT AND INVEST IN OUR BUSINESSES

Because of our strong financial position, in 2015, The Hartford was able to expand its 2014-2016 capital management plan, increasing the total authorization by $1.6 billion to $4.375 billion for equity repurchases and by $275 million to $1.431 billion for debt management actions. In 2015, we returned approximately $1.6 billion of capital to our shareholders in share repurchases and common stock dividends, reduced debt by $750 million, and, in September, increased the quarterly dividend rate by 17%.

We also deployed capital to invest in our businesses to drive profitable growth. We made significant investments in our systems, including new systems for P&C claims, Group Benefits enrollment and Middle Market underwriting, to continue to improve operating efficiency and agent and customer experience. In addition, we continued to attract strong talent to the company, helping to develop a broader and deeper risk profile. We also made marketing investments that have increased the visibility of our brand, including our sponsorship of Major League Baseball, which fully rolls out in 2016, as well as the extension of our 20+ year relationship with U.S. Paralympics to 2020.

FOCUSING ON THE FUTURE

We have a strong portfolio of businesses and capital flexibility. We remain focused on organically growing each of our businesses while maintaining underwriting discipline, and will tightly manage expenses to support ongoing investment in the capability and talent needed to be a top-of-mind company for the products we offer. We will explore acquisitions that can help us accelerate our profitable growth strategy and that meet our financial and strategic objectives. Through strong business performance and effective capital management that returns excess capital to shareholders, we are confident in our ability to create long-term shareholder value. As we look at 2016 and beyond, our primary financial goals are to:

 

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continue to expand our core earnings ROE, excluding Talcott Resolution;

efficiently manage the run-off and return of capital from Talcott Resolution, while maintaining its capital self-sufficiency;

redeploy the excess capital generated by our businesses to create greater shareholder value; and

generate average total value creation of at least 9% annually, as measured by common dividends paid plus growth in book value per share, excluding accumulated other comprehensive income (“AOCI”).

With our strategic and financial transformation essentially complete, The Hartford has a strong foundation and, despite increasing competition, we are confident we can maintain underwriting discipline, expense control and capital flexibility.


DELIVERING LONG-TERM SHAREHOLDER RETURN

We have achieved strong financial performance and executed capital management initiatives while continuing to make significant investments in our businesses, all of which helped drive shareholder returns. Book value per diluted share, excluding AOCI, rose 7%, equating to total value creation of 9% per share, including common dividends per share in 2015. Moreover, we have significantly outperformed relevant benchmarks, including the S&P 500 P&C, S&P 500 and S&P Insurance Composite indices over three years.

 

 

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Compensation Discussion and Analysis

The chart below illustrates key actions we have taken since 2013 to drive shareholder return.


 
 

2015 COMPENSATION HIGHLIGHTS

Decision

Rationale

The Compensation Committee approved an annual incentive plan (“AIP”) funding level of 116% of target. (page 49)

Performance against pre-established financial targets resulted in a formulaic AIP funding level of 116% of target. The Compensation Committee undertook a qualitative review of performance and concluded that the formulaic AIP funding level appropriately reflected 2015 performance. Accordingly, no adjustments were made.

For 2015 performance share grants, the Compensation Committee expanded the company’s Performance Peer Group from 10 to 20 companies. (page 45)

The Compensation Committee believes that the Performance Peer Group should include companies that, in the aggregate, represent our current mix of business and are competing investment choices in the capital markets. The new group, which includes nine of the 10 companies from the prior Performance Peer Group, consists of companies that meet these criteria and have market characteristics and historical stock performance similar to the company’s.

For 2015 performance share grants, the company revised its methodology for measuring ROE to use the average annual ROE over the three-year measurement period. (page 44)

While the prior methodology was appropriate given the challenges of setting annual ROE targets during the company’s transformation from a diversified financial services company to one focused on Property & Casualty, Group Benefits, and Mutual Funds businesses, with the transformation now essentially complete, the Compensation Committee believed that it was appropriate to migrate to a measure that reflects each year's performance in the overall outcome.

 

 

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The table below reflects the 2015 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 55, we believe it provides a simple and concise picture of compensation decisions made for the NEOs in 2015.

                                                         

Compensation Component

 

C. Swift

 

 

B. Bombara

 

 

D. Elliot

 

 

B. Johnson

 

 

R. Rupp

Base Salary Rate

$

 

   

1,000,000

   

 

 

$

 

   

650,000

   

 

 

$

 

   

900,000

   

 

 

$

 

   

525,000

   

 

 

$

 

   

600,000

 

2015 AIP Award

$

 

   

2,450,000

   

 

 

$

 

   

1,200,000

   

 

 

$

 

   

2,000,000

   

 

 

$

 

   

1,400,000

   

 

 

$

 

   

1,400,000

 

2015 LTI Award(1)

$

 

   

6,400,000

   

 

 

$

 

   

1,650,000

   

 

 

$

 

   

4,400,000

   

 

 

$

 

   

1,200,000

   

 

 

$

 

   

1,400,000

 

Total 2015 Compensation Package(2)

$

 

   

9,850,000

   

 

 

$

 

   

3,500,000

   

 

 

$

 

   

7,300,000

   

 

 

$

 

   

3,125,000

   

 

 

$

   

3,400,000

 

 

(1)

Reflects the dollar amount of the award as approved by the Compensation Committee rather than the fair value (calculated in accordance with FASB ASC Topic 718) shown in the Summary Compensation Table.

(2)

Excludes items shown under “Change in Pension Value and Nonqualified Deferred Compensation Earnings” and “All Other Compensation” columns in the Summary Compensation Table.

“SAY-ON-PAY” RESULTS

At last year’s Annual Meeting, shareholders voted 95% in favor of our “Say-on-Pay” proposal. Over the past few years, the Compensation Committee has implemented a number of best practices and, in the fall of 2015, as part of our annual shareholder outreach program, shareholders confirmed that our compensation policies and practices are sound and aligned with shareholders’ interests. For 2016, the Compensation Committee did not make any material changes to the compensation plan design.

2015
“Say-on-Pay”
Support

95%

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 and Analysis

COMPENSATION BEST PRACTICES

Program Features

Risk Mitigation

Pay for Performance

Severance benefits payable upon a change of control do not exceed 2x the sum of base pay plus target bonus

 

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)

 

No excise tax gross-up upon a change of control

 

Competitive burn rate and dilution for equity program

 

Senior Executives eligible for the same benefits as full-time employees, including health, life insurance, disability and retirement benefits

 

Executive perquisites are limited; no tax gross-ups are provided on perquisites

 

No individual employment agreements

 

No inclusion of reload provisions in any stock option grant

 

Board compensation consultant is independent and 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 prohibited from engaging in hedging, monetization, derivative and similar transactions with company securities

 

Senior Executives prohibited from pledging company securities

 

Stock ownership guidelines for directors and Senior Executives; compliance with guidelines reviewed annually

 

Approximately 89% of current CEO target annual compensation and 84% of other NEO target annual compensation variable based on performance, including stock price performance

 

Compensation peer groups evaluated periodically to align with investor expectations and changes in market practice or our business mix

 

No underwater cash buy-outs

 

No payment of dividends on unvested performance shares

 

No granting of stock options with an exercise price less than the fair market value of our common stock on the date of grant

 

No re-pricing (reduction in exercise price) of stock options

 

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 assessed 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.

As the following charts show, approximately 89% 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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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 2015 compensation decisions made within this framework, see Pay for Performance beginning on page 49 and 2015 Named Executive Officers Compensation and Performance beginning on page 50.

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 (“AIP”) AWARDS

Our employees, including the Senior Executives, are eligible to earn cash awards under the AIP based on company and individual performance. Each employee has a target AIP opportunity that is set as a percentage of base salary. At the conclusion of each year, the Compensation Committee establishes an annual AIP funding level that is derived through a holistic review of company performance. The AIP funding level is the main driver in determining the amount of individual AIP awards. The Compensation Committee uses the following three-step process to determine individual Senior Executive AIP awards. Actual company performance results for 2015 are described on pages 49 and 50.


Financial performance against target is the primary factor in determining the AIP funding level. Core earnings is the basis for measuring financial performance. 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;

all employees can impact it; and

it is prevalent among peers.

At the beginning of each year, the Compensation Committee approves a definition of “Compensation Core Earnings” that specifies in advance certain items that will be adjusted at the end of that year, such as accounting changes, catastrophe losses above or below budget, or unusual or non-recurring items. The Compensation Committee excludes the impact of these items because it believes they do not reflect the performance of our underlying businesses, and it wants to ensure that management is held accountable for performance it controls and is neither advantaged nor disadvantaged for the effect of certain items outside its control. The Compensation Committee’s definition of Compensation Core Earnings for 2015 is provided in Appendix A. The Compensation Committee also sets a Compensation Core Earnings target, which is consistent with the annual operating plan reviewed by the Board prior to the start of the fiscal year. The 2015 AIP financial target is set forth under 2015 AIP Performance on page 49. If the company performs at target, the formulaic AIP funding level is 100% of target.

In addition to setting a target, the Compensation Committee establishes a threshold performance level, below which no AIP awards are earned, as well as a maximum funding level for performance significantly exceeding target. Actual company performance in relation to target results in a formulaic AIP funding level, as illustrated below.

 

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Because the operating plan forms the basis for both our annual fiscal year earnings outlook communicated to investors and the AIP financial targets, the interests of our Senior Executives in achieving strong earnings are aligned with those of our shareholders. Both the Board and management deem our annual fiscal year earnings outlook and the associated AIP financial target to be achievable only with strong performance across our businesses.


Once the formulaic AIP funding level is determined, the Compensation Committee reviews 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 its qualitative review, the Compensation Committee may, if it deems appropriate, adjust the formulaic AIP funding level up or down to arrive at an AIP funding level more commensurate with company performance in light of factors than cannot be captured by an exclusively formulaic approach. Among the qualitative factors the Compensation Committee considers are the following broad performance categories:


The Compensation Committee believes that grounding the AIP funding level in formulaic financial performance against targets, but retaining the flexibility to adjust it to reflect qualitative factors, allows it to arrive at a final AIP funding level that (1) best reflects holistic performance, (2) is aligned with shareholder interests, and (3) provides

 

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the ability to attract, retain and incentivize employees who contribute to the long-term value of the company. Historically, the Compensation Committee has used the qualitative review to both increase and decrease the AIP funding level to levels more commensurate with overall company performance, but, in recent years, has determined no adjustments were necessary to achieve that result.



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 initial AIP award amount up or down based on his or her performance in leading a business or function. The adjustments made based on 2015 performance are described beginning on page 49.

LONG-TERM INCENTIVE (“LTI”) AWARDS

The LTI program is designed to encourage share ownership among Senior Executives, further aligning their interests with those of shareholders to promote shareholder value creation. LTI awards are granted on an annual basis following an assessment of individual performance, potential, and market data. 2015 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 offering them the opportunity to receive shares of our stock upon achieving pre-determined performance criteria. The performance shares have a three-year performance period and are settled in common stock based on the following metrics:

Performance Metric

Rationale

Compensation Core ROE
(50% weighting)

Important strategic measure of shareholder value creation

Peer-relative TSR
(50% weighting)

Important measure of our performance against peers that are competing investment choices in the capital markets

Shares of common stock ranging from 0% to 200% of the number of performance shares granted may be payable depending upon the performance achieved.

Compensation Core ROE

For 50% of the performance share award, payouts at the end of the performance period, if any, will depend upon achieving an average annual Compensation Core ROE over a three-year measurement period. The Compensation Committee's definition of Compensation Core ROE for 2015 performance share awards is provided in Appendix A. Threshold, target and maximum Compensation Core ROE values were established in February 2015 based on the company’s 2015-2017 operating plan. There is no payout for performance below threshold. Achieving target payout of 100% requires meaningful growth in core earnings, increased profitability and prudent capital

 

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management. The maximum Compensation Core ROE payout of 200% reflects ambitious, longer-term goals that require performance significantly above and beyond target.

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, 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 the capital markets. The Compensation Committee reviews the composition of the Performance Peer Group annually.

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.

2015 Performance Peer Group

ACE Ltd.

Mercury General Corp.

Alleghany Corp.

MetLife, Inc.

Allstate Corp.

Old Republic International Corp.

American Financial Group, Inc.

The Progressive Corp.

Aon plc

Prudential Financial, Inc.

Arthur J. Gallagher & Co.

StanCorp Financial Group, Inc.

The Chubb Corp.

The Travelers Companies, Inc.

Cincinnati Financial Corp.

Unum

Everest Re Group, Ltd.

W.R. Berkley Group

Marsh & McLennan Companies, Inc.

XL Group plc

For 2015, the Compensation Committee revised the Performance Peer Group to include companies that, in the aggregate, represent the current mix of business and are competing investment choices in the capital markets. The new group of 20 companies includes companies that meet these criteria and have market characteristics and historical stock performance similar to the company’s.

Three-year Relative TSR Ranking

 

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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.

PERIODIC RETENTION AWARDS AND SPECIAL EQUITY GRANTS

The Compensation Committee periodically provides cash or equity awards on a selective basis to executives based on business need. Recipients are generally those identified as critical talent and/or who have high potential to move into key roles. No such awards were made to NEOs in 2015.

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 to better focus their time, attention and capabilities on our business, consistent with market practice. Such perquisites generally include 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 fractional interests in a corporate aircraft to allow Senior Executives to safely and efficiently travel for business purposes. This allows Senior Executives to be more efficient while traveling than if commercial flights were utilized, as the aircraft provides a confidential and more productive environment in which to conduct business and eliminates 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 2015.

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 under applicable SEC rules and, thus, would be considered a perquisite 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

 

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a whole. The tally sheets summarize the total compensation opportunity, including fixed and variable compensation, perquisites and potential payments upon termination or change of control. In addition, the tally sheets include a summary of historical compensation.

COMPENSATION CONSULTANT

Until 2015, Exequity, LLP served as the Compensation Committee’s independent consultant and regularly attended Compensation Committee meetings. In October 2015, Meridian Compensation Partners, LLP became the Compensation Committee’s independent compensation consultant and has regularly attended Compensation Committee meetings since its engagement. Pursuant to the Compensation Committee's charter, during their respective engagements, neither Exequity nor Meridian has provided services to the company other than consulting services provided to the Compensation Committee and, with respect to CEO and director compensation, the Board. Each firm has provided market data, analysis, and advice regarding executive and director compensation.

In 2015, following a review of its records and practice guidelines, both Exequity and 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 to be at the 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.

Peer Group Development

The Compensation Committee reviews peer groups 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 2015, the Compensation Committee did not make any changes to the peer group.

 

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2015 Corporate Peer Group

Data in millions – as of 12/31/15(1)

             

Company Name(2)

Revenues

Assets

Market Cap

Aetna Inc.

$

60,227

 

$

53,424

 

$

37,701

 

Allstate Corp (The)

$

35,326

 

$

104,656

 

$

24,048

 

CNA Financial Corp

$

9,009

 

$

55,047

 

$

9,500

 

Chubb Limited(3)

$

19,067

 

$

102,366

 

$

37,881

 

Cigna Corp

$

37,876

 

$

57,088

 

$

37,695

 

Cincinnati Financial Corporation

$

5,142

 

$

18,888

 

$

9,695

 

Lincoln National Corp

$

13,484

 

$

251,937

 

$

12,438

 

Marsh & McLennan Companies, Inc.

$

12,856

 

$

18,216

 

$

28,925

 

MetLife, Inc.

$

69,905

 

$

877,933

 

$

53,591

 

Principal Financial Group, Inc.

$

11,799

 

$

218,686

 

$

13,168

 

Progressive Corp (The)

$

20,834

 

$

29,819

 

$

18,578

 

Prudential Financial Inc

$

57,252

 

$

757,388

 

$

36,553

 

Travelers Companies Inc (The)

$

26,800

 

$

100,184

 

$

34,334

 

Unum Group

$

10,731

 

$

60,590

 

$

8,104

 

Voya Financial, Inc.

$

11,341

 

$

218,250

 

$

7,948

 

W.R. Berkley Corporation

$

7,144

 

$

21,731

 

$

6,750

 

XL Group

$

9,236

 

$

58,683

 

$

11,666

 

25TH PERCENTILE

$

10,731

 

$

53,424

 

$

9,695

 

MEDIAN

$

13,484

 

$

60,590

 

$

18,578

 

75TH PERCENTILE

$

35,326

 

$

218,250

 

$

36,553

 

THE HARTFORD

$

18,150

 

$

228,348

 

$

17,802

 

PERCENT RANK

 

55%

   

83%

   

49%

 

 

(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.

(3)

“Chubb Limited” is the new name of the Swiss-incorporated holding company previously known as “ACE Limited.” On January 14, 2016, ACE Limited acquired The Chubb Corporation and changed its name to Chubb Limited. The information presented herein is that of legacy ACE Limited. While The Hartford also included The Chubb Corporation in its 2015 Corporate Peer Group, due to the acquisition, The Chubb Corporation did not file an annual report disclosing information used to populate this table.

 

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 (“CRO”) 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 and Analysis

PAY FOR PERFORMANCE

2015 AIP PERFORMANCE

Based on the assessment of performance described below, the Compensation Committee established an AIP funding level of 116% of target for the 2015 performance year.

As described on pages 42-44, we have a three-step process for determining AIP awards.


Compensation Core Earnings for 2015 was $1,645 million measured against an AIP target of $1,605 million. The calculation of Compensation Core Earnings started with 2015 GAAP net income and was adjusted as set forth on Appendix A pursuant to the definition of Compensation Core Earnings approved by the Compensation Committee at the beginning of the performance year. The Compensation Committee approved a definition of Compensation Core Earnings that provides for pre-determined adjustments to ensure that AIP award payments represent the results achieved in the underlying business and are not unduly inflated or deflated due to the effect of items that do not directly reflect company or management performance. As a result, actual Compensation Core Earnings will differ from the earnings numbers provided in our financial statements.

As discussed on page 42, the financial target for 2015 Compensation Core Earnings was set based on our annual operating plan as reviewed by the Board prior to the start of the fiscal year. Highlighted below are the minimum threshold, target and maximum Compensation Core Earnings levels against actual results for 2015. Compensation Core Earnings of $1,645 million against a target of $1,605 million resulted in a formulaic AIP funding level of 116%.

 

2015 Compensation Core Earnings

 
 


The Compensation Committee undertook a qualitative review focused on the following:

Qualitative criteria

 

Results considered

Quality of earnings:

Despite challenging market conditions, the company’s businesses performed well, including a return to growth in Group Benefits and improved combined ratios in Commercial P&C, a reduction in costs and favorable expenses in the run-off business and net investment income that exceeded the operating plan.

Risk & Compliance:

The company achieved ratings upgrades from the rating agencies, and received New York Stock Exchange recognition for best-in-class risk management and governance.

Peer Relative Performance:

The company outperformed various benchmarks, including the S&P 500 Index and S&P 500 Insurance Index.

Expense management:

The company achieved its 2015 expense reduction targets.

Non-financial and strategic objectives:

The company made strategic technology investments, hired key talent and returned value to shareholders through its capital management program.

 

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The Compensation Committee felt that, while the company performed well in these qualitative criteria, the formulaic AIP funding level of 116% of target appropriately reflected strong 2015 performance. Accordingly, the Compensation Committee concluded that no adjustment to the formulaic AIP funding level was necessary.

2015 Named Executive Officers Compensation and Performance


Christopher Swift

Mr. Swift has served as CEO since July 1, 2014; he was also appointed Chairman on January 5, 2015. For 2015, the independent directors approved a base salary of $1,000,000, an AIP target of $2,100,000, and a 2015 LTI award of $6,400,000 granted in the form of 50% stock options and 50% performance shares on March 3, 2015.

Based on the process outlined beginning on page 49, the independent directors approved an AIP award of $2,450,000 (117% of target), close to the company AIP funding level, taking into account that under Mr. Swift’s leadership, the company:

Delivered strong financial performance and exceeded the annual operating plan; improved core earnings and ROE compared to prior year, achieved 7% growth in book value per diluted share (excluding AOCI), and outperformed both the S&P 500 and the S&P 500 Insurance Composite indices on one-year TSR.

Furthered external engagement with investors, government officials, and distribution partners.

Continued focus on talent management, diversity, and inclusion, resulting in employee engagement scores that are in the top decile 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 2015, the Compensation Committee approved a base salary of $650,000, an AIP target of $1,000,000, and a 2015 LTI award of $1,650,000 granted in the form of 50% stock options and 50% performance shares on March 3, 2015.

Based on the process outlined beginning on page 49, the Compensation Committee approved an AIP award of $1,200,000 (120% of target), slightly above the company AIP funding level, taking into account that Ms. Bombara:

Delivered on a capital management plan that reduced debt by $750 million and returned $1.6 billion of capital to our shareholders, while the company received financial strength rating upgrades from A.M. Best, Moody’s and Standard and Poor’s.

Expanded relationships with key external stakeholders, including investors, rating agencies and bankers.

Drove improved employee engagement and diversity and inclusion results and retained all key talent within her organization.

Douglas Elliot

Mr. Elliot has served as President of The Hartford since July 1, 2014. For 2015, the Compensation Committee approved a base salary of $900,000, an AIP target of $1,700,000, and a 2015 LTI award of $4,400,000 granted in the form of 50% stock options and 50% performance shares on March 3, 2015.

Based on the process outlined beginning on page 49, the Compensation Committee approved an AIP award of $2,000,000 (118% of target), close to the company AIP funding level, taking into account that Mr. Elliot:

Exceeded core earnings plans across Commercial Lines, Personal Lines, and Group Benefits and delivered strong combined ratios within the commercial businesses.

Led the expansion of product, distribution, and underwriting capabilities and investment in technology enhancements to reduce cycle times and enhance the agent and customer experience.

Significantly strengthened organizational talent through key new hires and led improvement across employee engagement, diversity and inclusion, and talent retention metrics.

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 2015, the Compensation Committee approved a base salary of $525,000, an AIP target of $1,200,000 and an LTI award of $1,200,000 granted in the form of 50% stock options and 50% performance shares on March 3, 2015.

 

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Compensation Discussion and Analysis

Based on the process outlined beginning on page 49, the Compensation Committee approved an AIP award of $1,400,000 (117% of target), close to the company AIP funding level, taking into account that Mr. Johnson:

Produced strong financial results for HIMCO in a volatile market, resulting in net investment income that exceeded annual operating plan.

Delivered excellent operational results in Talcott Resolution, outperforming its core earnings plan and reducing expenses.

Initiated and executed a significant HIMCO organizational restructuring to better position the firm for the future and increased employee engagement results in the midst of restructuring.

Successfully recruited key strategic external hires and expanded diversity of top leadership.

Robert Rupp

Mr. Rupp has served as Chief Risk Officer since November 2, 2011. For 2015, the Compensation Committee approved a base salary of $600,000, 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 3, 2015.

Based on the process outlined beginning on page 49, the Compensation Committee approved an AIP award $1,400,000 (117% of target), close to the company funding level, taking into account that Mr. Rupp:

Effectively managed market and credit risk during a tumultuous market cycle, partnering with HIMCO on portfolio optimization.

Increased cyber risk mitigation efforts internally and with vendors, undertaking a thorough assessment.

Received significant external recognition in 2015, including being named Chief Risk Officer of the Year by Risk magazine, and playing a key role in the company's receipt of the NYSE Governance Services' Leadership Award for best governance, risk and compliance programs at a large-cap company.

Added key external talent and improved overall scores on employee engagement and diversity and inclusion metrics.

 

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CERTIFICATION OF PERFORMANCE SHARE AWARDS FOR THE 2013-2015 PERFORMANCE PERIOD

On March 5, 2013, the Compensation Committee granted Senior Executives performance shares tied to relative TSR against a peer group of 10 companies. These performance shares vested as of December 31, 2015, the end of the three-year performance period for the award. The company’s TSR during the performance period ranked ahead of all 10 peer companies. This performance resulted in a payout of 200% of target as certified by the Compensation Committee on February 22, 2016.

Details of the 2013 performance shares are given on page 37 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 21, 2016, 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. 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 2015, 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:

 

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Compensation Discussion and Analysis

 

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 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 all of 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.

We maintain change of control benefits to ensure continuity of management and to permit each of these individuals to focus on his or her responsibilities without undue distraction related to concerns about personal financial security if we are 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.

Our 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” (each term as defined on page 68) within 2 years following the 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.

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.

 

2016 Proxy Statement

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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 2015 annual incentive awards and performance share payouts, is generally designed to qualify as exempt performance-based compensation. At last year's Annual Meeting, in order to comply with Section 162(m), shareholders approved the material terms of the annual executive bonus program under which the maximum annual bonus that may be paid to any of the Covered Officers for any given year is the lesser of 300% of the annual target bonus in effect for the Covered Officer's position at the beginning of the year, as approved by the Compensation Committee, or $5,000,000. 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, 2015.

Report submitted as of March 23, 2016 by:

Members of the Compensation and Management Development Committee:

Trevor Fetter, Chairman
Thomas A. Renyi
Virginia P. Ruesterholz
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 Messrs. Fetter (Chairman), Renyi and Swygert and Ms. Ruesterholz, 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 The Hartford’s Board.

 

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Compensation Discussion and Analysis

EXECUTIVE COMPENSATION TABLES

SUMMARY COMPENSATION TABLE

The table below reflects total compensation paid to or earned by each NEO beginning in the later of the fiscal year ended December 31, 2013 or the year the individual first became an 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

 

 

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

 
 

2013

   

825,000

   

 

   

3,100,000

   

1,100,000

   

1,850,000

   

-

   

96,818

   

6,971,818

 

Beth Bombara
Executive Vice President and Chief Financial Officer

 

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

  

 

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

 
 

2013

   

750,000

   

 

   

3,000,000

   

1,000,000

   

1,700,000

   

-

   

84,835

   

6,534,835

 

Brion Johnson
Chief Investment Officer and President, HIMCO and Talcott Resolution

 

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

 

2015

   

600,000

   

 

   

719,530

   

700,000

   

1,400,000

   

2,443

   

65,300

   

3,487,