Stock-based Compensation

9 Months Ended

Sep. 30, 2024

Share-Based Payment Arrangement [Abstract]

9. Stock-based Compensation

As of September 30, 2024, there were 2,356,776 and 1,229,903 shares available for grant under The Hanover Insurance Group 2022 Long-Term Incentive Plan and 2023 Employee Stock Purchase plan, respectively.

Compensation cost for the Company’s stock-based awards and the related tax benefits were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2024			2023			2024			2023
Stock-based compensation expense	$	8.7		$	8.6		$	23.5		$	23.9
Tax benefit		(1.8	)		(1.8	)		(4.9	)		(5.0	)
Stock-based compensation expense, net of taxes	$	6.9		$	6.8		$	18.6		$	18.9

Stock Options

Information on the Company’s stock option activity for the nine months ended September 30, 2024 and 2023 is summarized below.


	Nine Months Ended September 30,
	2024					2023
(in whole shares and dollars)	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of period		1,137,042		$	111.57		1,080,852		$	107.07
Granted		150,731			134.26		135,019			140.01
Exercised		(131,891	)		88.87		(40,544	)		92.39
Forfeited or cancelled		(2,642	)		134.99		(22,184	)		125.15
Outstanding, end of period		1,153,240			117.08		1,153,143			111.09

Restricted Stock Units

The Company currently issues time-based, market-based and performance-based restricted stock units to eligible employees, all of which generally vest after three years of continued employment.

The following table summarizes activity information about employee restricted stock units:


	Nine Months Ended September 30,
	2024					2023
(in whole shares and dollars)	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Time-based restricted stock units:
Outstanding, beginning of period		376,626		$	132.04		378,256		$	124.88
Granted		158,460			133.30		149,509			138.35
Vested		(123,973	)		116.25		(132,086	)		118.21
Forfeited		(21,705	)		135.85		(19,132	)		131.14
Outstanding, end of period		389,408			137.36		376,547			132.25
Performance-based and market-based restricted stock units:
Outstanding, beginning of period		120,504		$	132.76		119,163		$	122.81
Granted		53,336			132.27		50,115			137.90
Vested		(41,290	)		112.36		(44,781	)		114.14
Forfeited		(6,339	)		108.06		(3,993	)		109.19
Outstanding, end of period		126,211			140.47		120,504			132.76

In the first nine months of 2024 and 2023, the Company granted market-based awards totaling 25,414 shares and 21,789 shares, 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 pre-selected group of property and casualty 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. Included in the amount forfeited above in 2024 and 2023 are 6,339 shares and 2,836 shares, respectively, related to market-based awards that achieved a payout below 100%. These awards were forfeited in the first quarter of 2024 and 2023, respectively.

The Company also granted performance-based restricted stock units in 2024 and 2023, totaling 27,922 shares and 28,326 shares, respectively, which are based upon the Company’s achievement of return on equity objectives. These units have 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. Included in the amounts granted above in 2024 and 2023 are 2,615 shares and 5,961 shares, respectively, related to performance-based awards that achieved a payout in excess of 100%. These awards vested in the first quarter of 2024 and 2023, respectively.