On May 10, 2022 the shareholders approved The Hanover Insurance Group 2022 Long-Term Incentive Plan (the “2022 Stock Plan”). With respect to new share-based issuances, the 2022 Stock Plan replaced The Hanover Insurance Group, Inc. 2014 Long-Term Incentive Plan (the “2014 Stock Plan”) and authorized the issuance of 3,380,000 shares in a new share pool plus any shares subject to outstanding awards under the 2014 Stock Plan that may become available for reissuance as a result of the cash settlement, forfeiture, expiration or cancellation of such awards. The 2022 Stock Plan provides for the granting of the same types of awards as the 2014 Stock Plan, which includes stock options and stock appreciation rights ("SARS"), restricted and unrestricted stock, stock units, performance-based stock awards and cash awards. In accordance with the 2022 Stock Plan, the issuance of one share of common stock in the form of an option or SAR will reduce the share pool by one share, whereas the issuance of one share of common stock for the other types of stock awards provided by the plan will reduce the pool by 3.2 shares. As of December 31, 2023, there were 2,920,544 shares available for grants under the 2022 Stock Plan.

On May 9, 2023, shareholders approved The Hanover Insurance Group 2023 Employee Stock Purchase Plan (the “ESPP Plan”) authorizing the issuance of 1,250,000 shares under such plan. As of December 31, 2023, 1,241,215 shares were available for grant under the ESPP Plan.

Compensation cost for the years ended December 31, 2023, 2022 and 2021 totaled $31.1 million, $29.0 million and $22.9 million, respectively. Related tax benefits were $6.5 million, $6.1 million and $4.8 million, respectively.

Under the 2022 Stock Plan, options may be granted to eligible employees, directors or consultants at an exercise price equal to the market price of the Company’s common stock on the date of grant. Option shares may be exercised subject to the terms prescribed by the Compensation and Human Capital Committee of the Board of Directors (the “Committee”) at the time of grant. Options granted in 2023, 2022 and 2021 generally vest over 3 years with 33 1/3% vesting in each year. Options must be exercised not later than ten years from the date of grant.

Information on the Company’s stock options is summarized below.


YEARS ENDED DECEMBER 31	2023					2022					2021
(in whole shares and dollars)	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of year		1,080,852		$	107.07		1,230,211		$	99.14		1,282,278		$	93.64
Granted		135,019			140.01		140,339			139.51		178,040			115.35
Exercised		(56,645	)		88.10		(279,499	)		87.95		(225,338	)		80.24
Forfeited or cancelled		(22,184	)		125.15		(10,199	)		121.39		(4,769	)		118.01
Outstanding, end of year		1,137,042		$	111.57		1,080,852		$	107.07		1,230,211		$	99.14
Exercisable, end of year		864,186		$	104.16		755,953		$	98.82		845,429		$	91.10

Cash received for options exercised for the years ended December 31, 2023, 2022 and 2021 was $4.2 million, $11.1 million and $18.0 million, respectively. The intrinsic value of options exercised for the years ended December 31, 2023, 2022 and 2021 was $2.6 million, $16.0 million and $12.2 million, respectively.

The excess tax benefit realized from options exercised for the years ended December 31, 2023, 2022 and 2021 was $0.3 million, $2.4 million and $2.0 million, respectively. The aggregate intrinsic value at December 31, 2023 for shares outstanding and shares exercisable was $16.0 million and $15.7 million, respectively. At December 31, 2023, the weighted average remaining contractual life for shares outstanding and shares exercisable was 5.6 years and 4.7 years, respectively. Additional information about employee options outstanding and exercisable at December 31, 2023 is included in the following table:


		Options Outstanding						Options Currently Exercisable
Range of Exercise Prices		Number		Weighted Average Remaining Contractual Lives		Weighted Average Exercise Price		Number		Weighted Average Exercise Price
$	54.61 to $74.30		96,817		0.83	$	62.43		96,817	$	62.43
$	77.91 to $85.87		144,241		2.83		82.42		144,241		82.42
$	92.68 to $113.32		156,587		4.18		104.26		156,587		104.26
$	115.35		154,720		7.16		115.35		101,558		115.35
$	117.22 to $118.54		320,469		5.79		118.04		320,469		118.04
$	139.51 to $140.01		264,208		8.66		139.76		44,514		139.51

The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. For all options granted through December 31, 2023, the exercise price equaled the market price on the grant date. Compensation cost related to options is based upon the grant date fair value and expensed on a straight-line basis over the service period for each separately vesting portion of the option as if the option was, in substance, multiple awards.

The weighted average grant date fair value of options granted during the years ended December 31, 2023, 2022 and 2021 was $31.55, $28.54 and $20.96, respectively.

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


	2023			2022			2021
Dividend yield	2.314		%		2.150	%	2.427		%
Expected volatility	24.429% to 28.803		%	24.254% to 32.174		%	24.115% to 31.315		%
Weighted average expected volatility		26.05	%		28.08	%		27.45	%
Risk-free interest rate	4.008% to 4.613		%	1.562% to 1.803		%	0.194% to 1.046		%
Expected term, in years	2.5 to 7.0			2.5 to 7.0			2.5 to 6.5

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

The fair value of shares that vested during the years ended December 31, 2023 and 2022 was $2.9 million and $4.5 million, respectively. As of December 31, 2023, the Company had unrecognized compensation expense of $1.5 million related to unvested stock options that is expected to be recognized over a weighted average period of 1.4 years.

Stock grants may be awarded to eligible employees at a price established by the Committee (which may be zero). Under the 2022 Stock Plan, the Company may award shares of restricted stock, restricted stock units, as well as shares of unrestricted stock. Restricted stock grants may vest based upon performance criteria, market criteria or continued employment and be in the form of shares or units. Vesting periods are established by the Committee.

The Company granted both market-based and performance-based restricted share units in 2023, 2022 and 2021. These units generally vest after three years of continued employment and after the achievement of certain performance targets. The Company also granted time-based restricted stock units to eligible employees in 2023, 2022 and 2021 that generally vest after three years of continued employment.

The following table summarizes information about employee restricted stock units:


YEARS ENDED DECEMBER 31	2023					2022					2021
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Time-based restricted stock units:
Outstanding, beginning of year		378,256		$	124.88		380,100		$	117.60		350,480		$	116.37
Granted		155,645			137.59		151,193			138.52		173,963			115.69
Vested		(136,971	)		118.70		(123,158	)		119.48		(119,645	)		111.30
Forfeited		(20,304	)		131.30		(29,879	)		123.60		(24,698	)		117.17
Outstanding, end of year		376,626		$	132.04		378,256		$	124.88		380,100		$	117.60
Performance and market-based restricted stock units:
Outstanding, beginning of year		119,163		$	122.81		113,848		$	115.92		97,043		$	119.59
Granted		50,115			137.90		47,954			140.36		62,143			114.66
Vested		(44,781	)		114.14		(39,338	)		122.42		(43,506	)		122.27
Forfeited		(3,993	)		109.19		(3,301	)		120.66		(1,832	)		116.90
Outstanding, end of year		120,504		$	132.76		119,163		$	122.81		113,848		$	115.92

In 2023, 2022 and 2021, the Company granted market-based awards totaling 21,789, 19,057, and 37,848, respectively, to certain members of senior management, which are included in the table above as performance and market-based restricted stock activity. The vesting of these stock units is based on the relative total shareholder return (“TSR”) of the Company. This metric is generally based on relative TSR for a three-year period as compared to a group of Property and Casualty peer companies. The fair value of market-based awards was estimated at the date of grant using a valuation model. These units have the potential to range from 0% to 150% of the shares disclosed.

In 2023, 2022 and 2021, the Company also granted performance-based restricted stock units totaling 28,326, 28,897 and 21,401, respectively to certain members of senior management, which are included in the table above as performance and market-based restricted stock activity. The vesting of these stock units is determined through the use of a performance-based metric (return on equity) and has the potential to range from 0% to 150% of the shares disclosed. Increases above the 100% target level are reflected as granted in the period after which performance-based stock unit goals are achieved. Decreases below the 100% target level are reflected as forfeited.

In 2023, 5,961 performance-based restricted stock units were included as granted due to completion levels in excess of 100% for units granted in 2020. The weighted average grant date fair value of these awards was $118.54. In 2022, included in the amounts granted above are 7,988 shares related to 2019 performance-based awards that achieved a payout in excess of 100%. The weighted average grant date fair value of these awards was $119.36. In 2021, 14,501 market-based restricted stock units were included as granted due to completion levels in excess of 100% for units granted in 2018. The weighted average grant date fair value of these awards was $122.27.

Included in 2023 are 2,836 market-based restricted stock units which were included as forfeited due to completion levels less than 100% for units granted in 2020. The weighted average grant date fair value of these awards was $108.15. Included in 2022 are 1,282 market-based restricted stock units which were included as forfeited due to completion levels less than 100% for units granted in 2019. The weighted average grant date fair value of these awards was $133.44. During 2023, 2022 and 2021, there were 598 shares, 1,043 shares, and 932 shares, respectively, of market-based awards that forfeited. Also, during 2023, 2022 and 2021 there were 559 shares, 976 shares, and 900 shares, respectively, of performance-based awards that forfeited.

The increase in fair value from grant date of restricted stock and restricted stock units that vested during the years ended December 31, 2023, 2022 and 2021 was $2.7 million, $2.5 million and $1.2 million, respectively. The increase in the fair value from grant date for performance and market-based restricted stock units that vested in 2023 and 2022 were $1.1 million and $0.6 million, respectively; however, for 2021 there was no increase in fair value from grant date.

At December 31, 2023, the fair value of outstanding restricted stock units was $49.7 million and the weighted average remaining contractual life was 1.2 years. The fair value of outstanding performance and market-based restricted stock units was $16.0 million and the weighted average remaining contractual life was 1.2 years. As of December 31, 2023, there was $32.9 million of total unrecognized compensation cost related to unvested restricted stock units and performance and market-based restricted stock units. The cost is expected to be recognized over a weighted average period of 1.6 years. Compensation cost associated with restricted stock, restricted stock units and performance and market-based restricted stock units is generally calculated based upon grant date fair value, which is determined using current market prices.