UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No. )
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The Hartford Financial Services Group, Inc.
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Specified In Its Charter) |
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Dear Fellow
Shareholders:
2014 was an outstanding
year for The Hartford. Thanks to the commitment and hard work of more than
17,000 employees, we accelerated the transformation of the company and delivered
strong financial results. The Hartfords core earnings* grew 9%, or 16% on a
diluted per share basis. Net income was $798 million, or $1.73 per diluted
share, and our core earnings return on equity* increased a full percentage
point.
We continued to focus on
increasing shareholder value in 2014. Our accomplishments included expanding
core earnings and increasing return on equity in our Property & Casualty,
Group Benefits and Mutual Funds businesses; selling the Japan annuity business
and thereby substantially reducing the risk in our legacy life and annuity
runoff business, known as Talcott Resolution; returning more than $2 billion of
capital to shareholders through share repurchases and dividends; and, executing
a seamless leadership transition.
No discussion of 2014 would
be complete without an expression of our deepest gratitude to Liam McGee and his
family. Liam stepped down as Chairman, President and Chief Executive Officer and
The Hartford was deeply saddened by his loss in February 2015. Liam was a great
leader and made an indelible impression on The Hartford. He restored the
company's financial strength and set us on a path to achieve our vision: to be
an exceptional company, celebrated for financial performance, character and
customer value.
In my previous role as The
Hartfords Chief Financial Officer, I worked in partnership with Liam and in my
new role as Chairman and Chief Executive Officer, I will continue to execute the
strategy we developed for creating shareholder value: 1) profitably grow the
companys focused portfolio of businesses, 2) further reduce the size and risk
of the legacy annuity liabilities, and 3) deliver more customer value while
increasing operating effectiveness and efficiency.
In 2014, we made
significant progress in each of these three areas and our strategic and
financial transformation is essentially complete. We have placed greater focus
on our portfolio of businesses and continue to make important investments for
future growth, including investments in products, capabilities, technology and
talent.
I am confident that the
company is well positioned to create value for our shareholders on a consistent
and sustained basis.
Sincerely,
Christopher J.
Swift
Chairman and Chief Executive
Officer
* Denotes non-GAAP
financial measure. See The Hartfords Investor Supplement for the fourth quarter
of 2014 available at http://ir.thehartford.com for more information, including
reconciliations to the most directly comparable GAAP financial
measures.
The Hartford Financial Services Group,
Inc. 1
Dear Fellow
Shareholders:
As fiduciaries of The
Hartford, it is the responsibility of the Board to ensure its good governance
and to oversee its strategic and operational initiatives in a manner that helps
create and protect long-term shareholder value. To that end, the Board focused
on a number of key initiatives in 2014, including:
Talent
Development and Succession Planning
Talent development and
succession planning have been and will continue to be vital components of this
Boards governance responsibilities. Accordingly, we routinely discuss key
talent indicators with management, meet with potential future leaders of the
company, and engage in rigorous succession planning. In 2014, upon Liam McGees
decision to step down as CEO, we realized the return on our investment in talent
development and succession planning. It is gratifying that we were in a position
to elevate our CFO, Chris Swift, to the role of CEO and appoint from within the
company a seasoned leadership team of the caliber we have leading the execution
of our strategy.
Strategy
and Risk Management
In 2014, the Board remained
highly engaged in the companys strategic approach to creating shareholder
value. In addition to overseeing the sale of the companys Japan annuity
business, a key strategic milestone that significantly reduces the companys
risk profile, the Board devoted significant time and discussion throughout the
year to intensive review of the companys plans and investments for driving
future profitable growth and of its uses of excess capital. The Board also
devoted substantial time to risk management. The business and financial
operations of The Hartford remain complex, notwithstanding the narrowing of its
business model. Risk-taking is an essential part of an insurance business, and
the Board worked closely with Chris and his executive leadership team to enable
informed judgments on risk within appropriate limitations and
oversight.
Executive Compensation
The Board remains committed
to establishing transparent executive compensation programs that effectively
align the interests of our executive leadership team with the companys
shareholders. Accordingly, our programs are designed to be linked to company
strategy and provide incentives that correlate with company performance. We
regularly review best practices and solicit feedback from our shareholders,
which resulted in several changes to the design of our compensation program in
2014.
The members of The
Hartfords Board bring a diverse set of skills and perspectives to the oversight
of this great company. I am proud to work side-by-side with my fellow directors
as the Boards independent presiding director, to serve our
shareholders.
Sincerely,
Thomas A.
Renyi
Presiding
Director
2 www.thehartford.com
PROXY SUMMARY
This summary highlights
information contained in our 2015 Notice of Annual Meeting and 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.
Annual Meeting of
Shareholders
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Time and
Date: |
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Wednesday, May 20,
2015 at 12:30 p.m. |
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Place: |
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Wallace Stevens
Theater The Hartford Financial Services Group, Inc. One Hartford
Plaza Hartford, CT 06155 |
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Record
Date: |
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March 23,
2015 |
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Voting:
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Shareholders as of
the record date are entitled to vote by Internet at www.proxyvote.com;
telephone at 1-800-690-6903; completing and returning their proxy card or
voter instruction card; or in person at the annual meeting (street holders
must obtain a legal proxy from their broker, banker or trustee granting
the right to vote). |
Voting Matters
Agenda Item |
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Board
Vote Recommendation |
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Proxy Statement Page
Reference (for more detail) |
1. Election of
Directors 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. |
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FOR each
Director Nominee |
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31 |
2. Ratification of
Independent Registered Public Accounting Firm 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
2015. |
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FOR |
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35 |
3. Advisory Vote
to Approve Executive Compensation 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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FOR |
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71 |
The Hartford Financial Services Group,
Inc. 3
Performance Summary
Executing on our
Strategy |
We achieved outstanding
performance in 2014. We continued to transform our business to improve
profitability and reduce risk, we used our financial strength to return capital
to our shareholders, and we underwent a seamless leadership transition.
Highlighted below are some of our key accomplishments in 2014. We view
the
transformation we began in
2012 as essentially complete, and we are focused on the future. Our primary
objectives are to improve return on equity and grow book value per share to
drive top quartile shareholder returns. While there is still work to be done,
the Board and management are pleased with the progress we made in
2014.
Key Accomplishments in
2014
Improved
Profitability |
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Reduced Risk |
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Returned
Capital |
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Transitioned
Leadership |
●Increased core earnings by 9%
●Achieved significant margin improvement in
P&C and Group Benefits* |
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●Sold Japan annuities business
●Reduced variable annuity policy count by
13%
●Reduced fixed annuity policy count by
18% |
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●Repurchased $1.8 billion of common
shares
●Reduced debt by $200 million
●Increased quarterly dividend by
20% |
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●Executed a seamless leadership transition
following Liam McGees decision to step down
●All members of the new leadership team were
internal candidates |
* Combined ratio, excluding
catastrophes and prior year loss reserve development for P&C; after-tax core
earnings margin for Group Benefits
Delivering Superior
Shareholder Returns |
Strong financial
performance, a significantly improved risk profile and the financial flexibility
to return capital to shareholders while continuing to invest in our businesses
have helped drive superior shareholder returns. In 2014, we outperformed
relevant benchmarks, including the S&P 500, S&P 500 P&C and S&P
Insurance Composite indices, as illustrated on the right. We significantly
outperformed these indices over three years as well. The chart on the following
page illustrates our performance, and the transformative actions we have taken,
beginning in 2012.
One-Year Total
Shareholder Return*
*Includes reinvestment of dividends. Data provided
by S&P Capital IQ.
4 www.thehartford.com
Three-Year Total
Shareholder Return and Key Management Actions*
*Timeline not to
scale.
**Total capital
management plan authorization for 2014-2015: $2.775 billion in equity
repurchases; $1.156 billion in debt reduction; and 20% increase to quarterly
dividend.
Board and Governance
Highlights
Decision |
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Rationale |
Upon Liam McGees
resignation as CEO and President on July 1, 2014, he retained his position
as Chairman of the Board. |
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● |
The Board determined
that it was in the best interests of the company and its shareholders for
Mr. McGee to continue his services as Chairman for a transitional
period. |
Upon Mr. McGees
resignation from the Board on January 5, 2015, our CEO Christopher Swift
was vested with the responsibilities of Chairman. |
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● |
Mr. Swift is uniquely
positioned to identify and communicate key strategic and operational
issues and the interests of the companys stakeholders to the
Board. |
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● |
The Board has strong,
diverse and active independent directors of varying
tenures. |
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● |
Elements of the
companys corporate governance structure, including a strong presiding
director role and mandatory meetings of the non-management directors,
effectively protect against any potential conflicts that may result from
combining the roles of CEO and Chairman. |
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● |
Mr. Swift
demonstrated strong leadership both during his tenure as CFO and
subsequently as CEO. |
Appointed Teresa
Roseborough to the Board, effective April 1, 2015. |
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● |
Ms. Roseborough is a
seasoned executive with significant business, regulatory, compliance, risk
management and legal expertise; in addition, she brings insurance industry
experience from her time spent as a senior legal executive at a Fortune
100 insurance company. |
The Hartford Financial Services Group,
Inc. 5
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Director since |
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Independent |
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Current Committee Memberships(1) |
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Other Current Public Company
Boards |
Name |
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Age |
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Experience |
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Yes |
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No |
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Robert B. Allardice III |
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68 |
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2008 |
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Former regional CEO, Deutsche Bank Americas |
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✓ |
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●Audit*
●FIRMCo |
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●Ellington Residential Mortgage REIT
●GasLog Partners |
Trevor
Fetter |
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55 |
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2007 |
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President and CEO,
Tenet Healthcare |
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✓ |
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●Comp*
●FIRMCo |
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●Tenet Healthcare |
Kathryn A. Mikells |
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49 |
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2010 |
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CFO,
Xerox |
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✓ |
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●Comp
●FIRMCo |
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Michael G.
Morris |
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68 |
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2004 |
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Former Chairman,
President and CEO, American Electric Power Company |
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✓ |
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●Audit
●FIRMCo
●NCG |
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●Alcoa
●L Brands
●Spectra Energy |
Thomas A. Renyi(2) |
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69 |
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2010 |
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Former Executive Chairman, Bank of New York Mellon; former
Chairman and CEO, Bank of New York Company |
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✓ |
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●Comp*
●FIRMCo |
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●Public Service Enterprise
Group
●Royal Bank of Canada |
Julie G.
Richardson |
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52 |
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2014 |
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Former Partner,
Providence Equity Partners |
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✓ |
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●Audit
●FIRMCo |
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●American Realty Capital
Partners |
Teresa W. Roseborough |
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56 |
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2015 |
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Executive Vice President, General Counsel and Corporate
Secretary, The Home Depot |
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✓ |
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●NCG
●FIRMCo |
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Virginia
P. Ruesterholz |
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53 |
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2013 |
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Former Executive
Vice President, Verizon Communications |
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✓ |
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●Audit
●FIRMCo
●NCG |
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●Frontier Communications |
Charles B. Strauss |
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72 |
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2001 |
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Former President and CEO, Unilever U.S. |
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✓ |
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●Audit
●FIRMCo*
●NCG |
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Christopher J.
Swift |
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54 |
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2014 |
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Chairman and CEO,
The Hartford |
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✓ |
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●FIRMCo |
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H.
Patrick Swygert |
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72 |
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1996 |
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President Emeritus and professor emeritus,
Howard University |
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✓ |
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●Comp
●FIRMCo
●NCG* |
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●United
Technologies Corporation |
* |
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Denotes committee
chairman |
(1) |
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Full committee
names are as follows: Audit Audit Committee |
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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 directors
role, see page 13 of our proxy statement |
6 www.thehartford.com
Governance Best
Practices |
The Board and management
regularly review best practices in corporate governance and modify our
governance policies and practices as warranted. Our current best practices
include:
✓ |
Majority independent
directors |
✓ |
All independent key
committees (Audit, Compensation and Management Development, Nominating and
Corporate Governance) |
✓ |
Strong independent
presiding director role |
✓ |
Directors elected
annually |
✓ |
Majority vote
standard (with plurality carve-out for contested elections)
|
✓ |
Director resignation
policy |
✓ |
Over-boarding policy |
✓ |
Board and committee self-assessments conducted annually |
✓ |
Robust
stock-ownership guidelines |
✓ |
Diverse Board
membership in terms of background, experience and tenure |
✓ |
Annual shareholder
engagement program to obtain valuable feedback on our compensation and
governance programs |
✓ |
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 |
Compensation Highlights
2014 Compensation
Decisions |
Decision |
|
Rationale |
The Compensation
Committee approved an annual incentive plan (AIP) funding factor of
138%, making no adjustments to the formulaic calculation. (page 47 of our
proxy statement) |
|
Performance against
pre-established financial targets resulted in a formulaic AIP funding
factor of 138% of target. The Compensation Committee undertook a
qualitative review of performance and concluded that the formulaic AIP
funding factor appropriately reflected 2014 performance. Accordingly, no
adjustments were made. |
The independent
directors approved a transition agreement providing compensation terms for
Liam McGee in his role as an advisor during the leadership transition.
(page 51 of our proxy statement) |
|
In order to ensure an
orderly transition, the independent directors felt that it was important
to retain Mr. McGee's services beyond his resignation as President and
CEO. |
The Board promoted a
new leadership team consisting entirely of internal candidates and the
Compensation Committee (and, in the case of the CEO, the independent
directors) determined target total compensation levels for their new
roles. (page 50 of our proxy statement) |
|
Our robust talent
development program provided a deep bench of internal talent. The target
total compensation opportunity was increased for each promoted executive
to reflect their new roles and was determined using the process described
in the Benchmarking
section beginning on page
46 of our proxy statement. No additional LTI was granted at the time of
their promotions. |
The Hartford Financial Services Group,
Inc. 7
2014 Active NEO Compensation
Summary |
The table below reflects
the 2014 compensation package (base salary, AIP award and long-term incentive
(LTI) award) for each active NEO. Although this table is not a substitute for
the Summary Compensation Table
information beginning on page 55
of our proxy statement, we believe it provides a simple and concise picture of
compensation decisions made for the active NEOs in 2014.
Compensation Component |
|
|
C. Swift |
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B. Bombara |
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D. Elliot |
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B. Johnson |
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R. Rupp |
Base
Salary Rate(1) |
|
$ |
1,000,000 |
|
$ |
625,000 |
|
$ |
900,000 |
|
$ |
500,000 |
|
$ |
600,000 |
2014
AIP Award |
|
$ |
2,139,000 |
|
$ |
1,350,000 |
|
$ |
1,800,000 |
|
$ |
1,450,000 |
|
$ |
1,600,000 |
2014
LTI Award(2) |
|
$ |
2,200,000 |
|
$ |
1,000,000 |
|
$ |
2,000,000 |
|
$ |
1,100,000 |
|
$ |
1,400,000 |
Total 2014 Compensation
Package(3) |
|
$ |
5,339,000 |
|
$ |
2,975,000 |
|
$ |
4,700,000 |
|
$ |
3,050,000 |
|
$ |
3,600,000 |
(1) |
Reflects base
salary rate at 12/31/2014 following promotion of Messrs. Swift, Elliot and
Johnson and Ms. Bombara. |
(2) |
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), which is shown in the Summary Compensation Table. |
(3) |
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:
✓ |
Approximately 88% of
current CEO target annual compensation and 83% of other NEO target annual
compensation variable based on performance, including stock price
performance |
✓ |
Senior Executives
eligible for the same benefits as full-time employees, including health,
life insurance, disability and retirement benefits |
✓ |
Severance benefits
payable upon a change of control do not exceed 2x the sum of base pay plus
target bonus |
✓ |
Double trigger
requirement for change of control benefits and vesting of equity awards
(so long as the awards are assumed or replaced with substantially
equivalent awards) |
✓ |
No excise tax
gross-up upon a change of control |
✓ |
No individual
employment agreements |
✓ |
Independent
compensation consultant performs services only for the Compensation
Committee |
✓ |
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 |
✓ |
Executive perquisites
are limited; no tax gross-ups are provided on perquisites
|
✓ |
Stock ownership
guidelines for directors and Senior Executives; compliance with guidelines
reviewed annually |
✓ |
Compensation peer
groups evaluated periodically to align with investor expectations and
changes in market practice or our businesses |
✓ |
Competitive burn rate
and dilution for equity
program |
In furtherance of our
commitment to best practices, our 2014 Incentive Stock Plan does not allow the
following:
✕ |
Granting of stock
options with an exercise price less than the fair market value of our
common stock on the date of grant |
✕ |
Re-pricing (reduction
in exercise price) of stock options |
✕ |
Underwater cash
buy-outs |
✕ |
Inclusion of reload
provisions in any stock option grant |
✕ |
Payment of dividends
on unvested performance
shares |
8 www.thehartford.com
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