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
___________________________________
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| ☐ | Preliminary Proxy Statement | ||||
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| ☒ | Definitive Proxy Statement | ||||
| ☐ | Definitive Additional Materials | ||||
| ☐ | Soliciting Material Pursuant to §240.14a-12 | ||||
The Travelers Companies, Inc.
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485 Lexington Avenue
New York, New York
10017
April 7, 2023
 | Dear Shareholders: Please join us for The Travelers Companies, Inc. Annual Meeting of Shareholders on Wednesday, May 24, 2023, at 9:00 a.m. (Eastern Daylight Time) at the Hartford Marriott Downtown, 200 Columbus Boulevard, Hartford, Connecticut 06103. Attached to this letter are a Notice of Annual Meeting of Shareholders and Proxy Statement, which describe the business to be conducted at the meeting. At this year’s meeting, you will be asked to: •Elect the 14 director nominees listed in the Proxy Statement; •Ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2023; •Consider a non-binding vote on the frequency of future votes to approve executive compensation; •Consider a non-binding vote to approve executive compensation; •Approve The Travelers Companies, Inc. 2023 Stock Incentive Plan; •Consider five shareholder proposals, if presented at the Annual Meeting; and •Consider such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof. The Board of Directors recommends that you vote FOR each of the nominees listed in the Proxy Statement, FOR the ratification of KPMG LLP, for every “1 YEAR” for the frequency of future votes to approve executive compensation, FOR the non-binding vote to approve executive compensation, FOR the approval of the 2023 Stock Incentive Plan and AGAINST each of the shareholder proposals described in the Proxy Statement. Your vote is important. Whether you own a few shares or many, and whether or not you plan to attend the Annual Meeting in person, it is important that your shares be represented and voted at the meeting. You may vote your shares by proxy on the Internet, by telephone, or by completing a paper proxy card and returning it by mail. You may also vote in person at the Annual Meeting. Thank you for your continued support of Travelers. Sincerely,  Alan D. Schnitzer Chairman and Chief Executive Officer | ||||
Notice of Annual Meeting of Shareholders
| Items of Business | ||||||||||||||||||||
Logistics  DATE AND TIME May 24, 2023 9:00 a.m. (Eastern Daylight Time)  LOCATION* Hartford Marriott Downtown 200 Columbus Boulevard Hartford, Connecticut 06103  WHO CAN VOTE — RECORD DATE You may vote your shares if you were a shareholder of record or held shares through Travelers’ 401(k) Savings Plan or through a broker or nominee at the close of business on March 28, 2023. Shares held of record or through a broker or nominee may be voted in person at the Annual Meeting to be held on May 24, 2023 (the “Annual Meeting”). | ||||||||||||||||||||
| Board Vote Recommendation | ||||||||||||||||||||
| Elect the 14 director nominees listed in the Proxy Statement. |  | FOR each director nominee | ||||||||||||||||||
| Ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2023. | | FOR | ||||||||||||||||||
| Consider a non-binding vote on the frequency of future votes to approve executive compensation. | | for every “1 YEAR” | ||||||||||||||||||
| Consider a non-binding vote to approve executive compensation. | | FOR | ||||||||||||||||||
| Approve The Travelers Companies, Inc. 2023 Stock Incentive Plan. | | FOR | ||||||||||||||||||
| Consider five shareholder proposals, if presented at the Annual Meeting. |  | AGAINST | ||||||||||||||||||
Voting by Proxy To ensure your shares are voted, you may vote your shares by proxy on the Internet, by telephone or by completing a paper proxy card and returning it by mail. Internet and telephone voting procedures are described in the General Information About the Meeting section of the Proxy Statement and on the proxy card. Shareholders will also consider such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof. By Order of the Board of Directors,  Wendy C. Skjerven Corporate Secretary | ||||||||||||||||||||
Advance Voting Methods  INTERNET www.proxyvote.com You will need the 16-digit number included on your Notice or on your proxy card.  TELEPHONE (800) 690-6903 You will need the 16-digit number included on your Notice or on your proxy card.  MAIL Mark, sign, date and promptly mail your proxy card in the postage-paid envelope, if you have received paper materials. | ||||||||||||||||||||
*As part of our precautions for circumstances that could arise, we are planning for the possibility that the Annual Meeting may be held virtually over the Internet. If we take this step, we will announce the decision in advance, and details on how to participate will be available on our website at www.travelers.com under the “Investors” heading. | ||||||||||||||||||||
Advance Voting Deadlines If you are a shareholder of record or hold shares through a broker or bank and are voting by proxy, your vote must be received by 11:59 p.m. (Eastern Daylight Time) on May 23, 2023, to be counted. If you hold shares through Travelers’ 401(k) Savings Plan, your vote must be received by 11:59 p.m. (Eastern Daylight Time) on May 22, 2023, to be counted. Those votes cannot be changed or revoked after that time, and those shares cannot be voted in person at the Annual Meeting. | ||||||||||||||||||||
This Notice of Annual Meeting and the accompanying Proxy Statement are being distributed or made available, as the case may be, on or about April 7, 2023. | ||||||||||||||||||||
Proxy Statement
Table of Contents
| Corporate Governance | |||||||||||||||||
| Audit Committee Matters | |||||||||||||||||
| Executive Compensation | |||||||||||||||||
2022 Overview | |||||||||||||||||
| WHERE TO OBTAIN FURTHER INFORMATION | |||||||||||||||||
We make available, free of charge on our website, all of our filings that are made electronically with the Securities and Exchange Commission (“SEC”), including Forms 10-K, 10-Q and 8-K. To access these filings, go to our website at www.travelers.com and click on “SEC Filings” under “Financial Information” under the “Investors” heading. Copies of our Annual Report on Form 10-K for the year ended December 31, 2022, including financial statements and schedules thereto, filed with the SEC, are also available without charge to shareholders upon written request addressed to: Corporate Secretary The Travelers Companies, Inc. 485 Lexington Avenue New York, NY 10017 | |||||||||||||||||
| Shareholder Proposals | |||||||||||||||||
| Other Information | |||||||||||||||||
| This Proxy Statement includes several website addresses and references to additional materials found on those websites. These websites and materials are not incorporated by reference herein. | |||||||||||||||||
A-1 | |||||||||||||||||
B-1 | |||||||||||||||||
SUMMARY
Proxy Statement Summary
This summary highlights certain information contained in this Proxy Statement, but does not contain all of the information you should consider when voting your shares. Please read the entire Proxy Statement carefully before voting.
ITEM 1 | Election of Directors |  | Your Board recommends a vote FOR each director nominee. | ||||||||
 | See Page 11 | ||||||||||
Director Nominees
 | Alan L. Beller INDEPENDENT Senior Counsel of Cleary Gottlieb Steen & Hamilton LLP Committees: Audit, Risk Director Since: 2007 |  | Elizabeth E. Robinson INDEPENDENT Global Treasurer of The Goldman Sachs Group, Inc. (retired) Committees: Compensation, Executive, Investment and Capital Markets (Chair), Nominating and Governance Director Since: 2020 | ||||||||
 | Janet M. Dolan INDEPENDENT President of Act 3 Enterprises, LLC Committees: Compensation, Investment and Capital Markets, Nominating and Governance Director Since: 2001 |  | Philip T. Ruegger III INDEPENDENT Chairman of the Executive Committee of Simpson Thacher & Bartlett LLP (retired) Committees: Compensation, Executive, Investment and Capital Markets, Nominating and Governance (Chair) Director Since: 2014 | ||||||||
 | Russell G. Golden INDEPENDENT Chairman of Financial Accounting Standards Board (retired) Director Nominee |  | Rafael Santana INDEPENDENT President and CEO of Westinghouse Air Brake Technologies Corporation Committees: Compensation, Investment and Capital Markets, Nominating and Governance Director Since: 2022 | ||||||||
 | Patricia L. Higgins INDEPENDENT President and Chief Executive Officer of Switch and Data Facilities, Inc. (retired) Committees: Audit, Risk Director Since: 2007 |  | Todd C. Schermerhorn INDEPENDENT Senior Vice President and Chief Financial Officer of C. R. Bard, Inc. (retired) Independent Lead Director Committees: Audit, Executive, Risk (Chair) Director Since: 2016 | ||||||||
 | William J. Kane INDEPENDENT Audit Partner with Ernst & Young (retired) Committees: Audit (Chair), Executive, Risk Director Since: 2012 |  | Alan D. Schnitzer Chairman and Chief Executive Officer of Travelers Committees: Executive (Chair) Director Since: 2015 | ||||||||
 | Thomas B. Leonardi INDEPENDENT Executive Vice President of American International Group, Inc. and Vice Chairman of AIG Life Holdings, Inc. (retired) Committees: Compensation, Investment and Capital Markets, Nominating and Governance Director Since: 2021 |  | Laurie J. Thomsen INDEPENDENT Co-Founder and Partner of Prism Venture Partners (retired) Committees: Audit, Risk Director Since: 2004 | ||||||||
 | Clarence Otis Jr. INDEPENDENT Chairman and Chief Executive Officer of Darden Restaurants, Inc. (retired) Committees: Compensation (Chair), Executive, Investment and Capital Markets, Nominating and Governance Director Since: 2017 |  | Bridget van Kralingen INDEPENDENT Partner, Motive Partners Committees: Audit, Risk Director Since: 2022 | ||||||||
2023 Proxy Statement | The Travelers Companies, Inc.  | 1 | ||||
SUMMARY
The nominees represent a broad range of expertise, experience, viewpoints and backgrounds, as well as a mix of tenure of service on the Board.
INDEPENDENCE 13 of 14  AGE ~64 years average  | Recent Board Refreshment | |||||||||||||||||||||||||||||||||||||
 | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2021 | 2022 | ||||||||||||||||||||||||||||||||||||
| 1 | 1 | 2 | ||||||||||||||||||||||||||||||||||||
new director added üElizabeth Robinson | new director added üThomas Leonardi 1 director retired | new directors added üRafael Santana üBridget van Kralingen | ||||||||||||||||||||||||||||||||||||
TENURE | DIVERSITY | |||||||||||||||||||||||||||||||||||||
~9 years average | ~50% diverse | |||||||||||||||||||||||||||||||||||||
 |  | |||||||||||||||||||||||||||||||||||||
For a discussion of the specific considerations with respect to these nominees, see “Director Nominations—Specific Considerations Regarding the 2023 Nominees” on page 23. | ||||||||||||||||||||||||||||||||||||||
Corporate Governance Highlights | ||
The Board of Directors (the “Board”) of The Travelers Companies, Inc. (the “Company”) is committed to high standards of corporate governance. Highlights include:
| Board Composition and Accountability | •All committees other than the Executive Committee are comprised solely of independent directors •Engaged independent Lead Director •Regular executive sessions of independent directors •Active risk oversight •Director education on matters relevant to the Company, its business plan and risk profile •Annual Board evaluations | ||||
| Shareholder Rights | •Annually elected directors •Majority voting standard for director elections •Single voting class •Proxy access •No poison pill | ||||
| Board Compensation | •Robust director stock ownership guidelines •Non-management directors currently receive more than 50% of their annual board and committee compensation in the form of deferred stock units •Biennial review to assess the appropriateness of the Director Compensation Program | ||||
2 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
SUMMARY
ITEM 2 | Ratification of Independent Registered Public Accounting Firm | | Your Board recommends a vote FOR this Item. | ||||||||
| See Page 34 | ||||||||||
ITEM 3 | Non-Binding Vote on the Frequency of Future Votes to Approve Executive Compensation | | Your Board recommends a vote for every 1 YEAR on this Item. | ||||||||
| See Page 36 | ||||||||||
ITEM 4 | Non-Binding Vote to Approve Executive Compensation | | Your Board recommends a vote FOR this Item. | ||||||||
| See Page 37 | ||||||||||
| Executive Compensation Highlights | ||
With our pay-for-performance philosophy and compensation objectives as our guiding principles, we deliver annual executive compensation through the following elements:
Element | CEO Compensation Mix | Other NEOs | ||||||||||||||||||
 | Base Salary Page 51 | •Base salaries are appropriately aligned with Compensation Comparison Group. |  |  | ||||||||||||||||
 | Annual Cash Bonus Page 52 | •The Compensation Committee evaluates a broad range of financial and non-financial metrics in awarding performance-based incentives. •Core return on equity is a principal factor in the Committee’s evaluation of the Company’s performance. The Committee also considers other metrics, including core income and core income per diluted share, and the metrics that contribute to those results. |  |  | ||||||||||||||||
 | Long-Term Stock Incentives Page 58 | •Annual awards of stock-based compensation are typically in the form of stock options and performance shares. Because our performance shares only vest if specified core return on equity thresholds are met, and because stock options provide value only if our stock price appreciates, the Compensation Committee believes that such compensation is all performance-based. •The mix of long-term incentives for the CEO and other named executive officers is approximately 60% performance shares and 40% stock options, based on the grant date fair value of the awards. |  |  | ||||||||||||||||
2023 Proxy Statement | The Travelers Companies, Inc. | 3 | ||||
SUMMARY
The Compensation Committee has adopted the following practices, among others:
 What We DO |  What We DO NOT Do | |||||||
 Provide for a maximum cash bonus opportunity with regard to our Chief Executive Officer Maintain a robust share ownership requirement Maintain a clawback policy with respect to cash and equity incentive awards to our executive officers Prohibit hedging transactions as specified in our securities trading policy Prohibit pledging shares without the consent of the Company (no pledges have been made) Engage in extensive outreach and maintain a regular dialogue with shareholders relating to the Company’s governance, compensation and sustainability practices Engage an independent consultant that works directly for the Compensation Committee and does not work for management |  No excise tax “gross-up” payments in the event of a change in control No tax “gross-up” payments on perquisites for named executive officers No repricing of stock options and no buy-out of underwater options No excessive or unusual perquisites No dividends or dividend equivalents paid on unvested performance shares No above-market returns provided for in deferred compensation plans No guaranteed equity awards or bonuses for named executive officers | |||||||
ITEM 5 | The Travelers Companies, Inc. 2023 Stock Incentive Plan | | Your Board recommends a vote FOR this Item. | ||||||||
| See Page 81 | ||||||||||
ITEMS 6-10 | Shareholder Proposals |  | Your Board recommends a vote AGAINST these Items. | ||||||||
 | See Pages 87–111 | ||||||||||
4 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
SHAREHOLDER ENGAGEMENT AND BOARD RESPONSIVENESS
Shareholder Engagement and Board Responsiveness
Shareholder Engagement Highlights
Since 2009, the Nominating and Governance Committee has overseen a comprehensive shareholder engagement program. Under this program, at the direction of the Nominating and Governance Committee, management reaches out to the Company’s largest shareholders throughout the year to facilitate a dialogue with respect to the Company’s financial results, corporate strategy, compensation practices and environmental, social and governance (ESG) matters.
Management reports on the conversations with those investors to the Nominating and Governance Committee and, as appropriate, to the Compensation Committee (as described in “Shareholder Engagement” in the
“Compensation Discussion and Analysis” section of this Proxy Statement).
Travelers has long understood and valued the importance of a comprehensive shareholder outreach program to solicit investor feedback and perspectives on topics that are important to the Company and its shareholders. Our shareholder engagement program continues to influence and inform the Company’s policies, practices and disclosures. For example, in the past few years, based in part on investor input, the Company has taken the following actions:
2023 Proxy Statement | The Travelers Companies, Inc. | 5 | ||||
SHAREHOLDER ENGAGEMENT AND BOARD RESPONSIVENESS
In 2022, the Company again took an integrated approach to its shareholder engagement efforts, including with respect to its financial results, corporate strategy, compensation practices and ESG matters. Throughout the year, we also sought additional opportunities to connect directly with our investors to discuss current and emerging trends and to hear investor feedback.
| With whom we engaged | Since our 2022 Annual Meeting of Shareholders (the “2022 Annual Meeting”), the Company sought to meet with shareholders representing approximately 50% of its outstanding shares and engaged with shareholders representing more than 44% of its outstanding shares. As part of our extensive outreach program, we met with many of our large shareholders multiple times. Since the 2022 Annual Meeting, we: •sought to meet with each of our top 20 shareholders and met with nine of our top 10 shareholders and 15 of our top 20 shareholders; and •met with four of our top 10 shareholders three or more times and seven of our top 20 shareholders two or more times. | |||||||||||||
Our representatives | Members of the Company’s senior management participated in our extensive engagements. Participants included, as appropriate, Travelers’: | |||||||||||||
•CEO and Chairman of the Board •Independent Lead Director •Chief Underwriting Officer •Co-Chief Investment Officer | •Corporate Secretary •Chief Sustainability Officer •Chief Ethics and Compliance Officer •Senior Vice President, Investor Relations | |||||||||||||
Topics discussed | Topics discussed included, among others: •the shareholder proposals submitted at the 2022 Annual Meeting and Travelers’ proposed responses; •our comprehensive climate strategy; •our thoughtful risk/reward approach to underwriting; •our thoughtful investment philosophy that focuses on stable and appropriate risk-adjusted returns; | •the robust governance, processes and controls we have in place with respect to underwriting and pricing; •our compensation programs; •our long-term approach to human capital management, including our numerous diversity and inclusion initiatives; •our unique corporate culture; and •board composition. | ||||||||||||
Response to feedback | Based in part on investor feedback from these engagements, the Company: •Fully implemented the lobbying proposal submitted to a vote at the 2022 Annual Meeting to the satisfaction of the proponent by providing the requested disclosure – namely, disclosure of trade associations and social welfare organizations to which the Company pays more than $25,000 and the amount of such payments allocated to lobbying. •This disclosure is publicly available on the Investors page of the Company’s website at investor.travelers.com; •Implemented a maximum cash bonus opportunity for its CEO; •Amended its executive stock ownership policy to: (i) increase the target stock ownership level for its CEO from 500% to 600% of base salary, and (ii) exclude certain unvested and unexercised awards from the stock ownership calculation for its named executive officers; •As discussed further below, provided increased disclosure regarding the Company’s comprehensive underwriting governance and controls designed to ensure that its rating factors comply with all applicable laws and do not consider race or other legally protected characteristics; and •As described in more detail below, significantly enhanced the disclosures contained in its TCFD Report. | |||||||||||||
6 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
SHAREHOLDER ENGAGEMENT AND BOARD RESPONSIVENESS
2022 Nonbinding Shareholder Proposal on GHG Emissions: Shareholder Outreach, Feedback and Travelers’ Responsiveness
At our 2022 Annual Meeting, a nonbinding shareholder proposal regarding GHG emissions received the support of approximately 55% of our shareholders. That proposal related to measuring, disclosing and reducing the GHG emissions associated with the Company’s underwriting, insuring and investment activities in alignment with the Paris Agreement’s 1.5°C goal, requiring net zero emissions. In recognition of shareholder support for this proposal and the focus on climate issues among many of our shareholders, we engaged in extensive outreach over the last year to gain a better understanding of the perspectives of our shareholders and other interested parties.
Since the 2022 Annual Meeting, we had climate-related discussions with proxy advisory firms ISS and Glass Lewis, academics, non-governmental organizations and climate advocacy groups, among others. We also met with As You Sow, the proponent of the 2022 nonbinding GHG emissions proposal. In discussions with the proponent, the proponent acknowledged that its proposal seeks to restrict and circumscribe the types of products and services offered by the Company. In addition, the proponent suggested that the Company alter its pricing strategies based on the emission levels of the automobiles that it
insures. The proponent further suggested that the Company should terminate clients based on their GHG emissions activity. The proponent continued to hold these views despite the Company’s explanation that its suggestions would likely have disproportionate impacts on lower socio-economic communities and/or lead to the inability of certain consumers to purchase insurance at all with respect to certain products.
In our engagements with shareholders after the 2022 Annual Meeting, we discussed and solicited feedback on the Company’s approach, plans and strategies with respect to changing climate conditions and, more specifically, the Company’s proposed approach in response to the 2022 nonbinding GHG emissions proposal. The Company shared that the Board believes that the Company’s proposed approach, which involves significantly enhanced disclosure, is as responsive to the proposal as advisable and practical, given the specific nature of the Company’s business.
The following summarizes our shareholder engagement efforts, feedback we received and our responsiveness to that feedback.
Shareholder Engagements | ||
•We engaged with shareholders representing more than 44% of our outstanding shares. As discussed above, we met with four of our top 10 shareholders three or more times and seven of our top 20 shareholders two or more times.
•Our engagement efforts regarding the 2022 nonbinding GHG emissions proposal included the participation of numerous senior executives, including the Company’s: Chairman and Chief Executive Officer, Chief Underwriting Officer, Co-Chief Investment Officer, Chief Sustainability Officer, Chief Ethics & Compliance Officer, Senior Vice President of Investor Relations and Corporate Secretary.
•Our Chairman and Chief Executive Officer participated in meetings with ISS and Glass Lewis and with
shareholders representing nearly 40% of our outstanding shares.
•Our independent lead director of the Board participated in meetings with ISS and Glass Lewis and with shareholders representing more than 26% of our outstanding shares.
•We engaged with As You Sow, the proponent of the 2022 nonbinding GHG emissions proposal.
•Based, in part, on the Company’s extensive engagements with its shareholders, the Company believes that more than a majority of its shareholders support its approach of increased disclosure in response to the 2022 GHG emissions proposal.
2023 Proxy Statement | The Travelers Companies, Inc. | 7 | ||||
SHAREHOLDER ENGAGEMENT AND BOARD RESPONSIVENESS
Climate Topics Discussed with our Shareholders | ||
In our shareholder engagements, we discussed the following climate-related topics, among others:
•The Board’s effective oversight of climate-related risks and opportunities.
•The Company’s proposed actions in response to the 2022 GHG emissions proposal, which involved significantly enhancing the Company’s annual report consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”).
•The impossibility of implementing the proposal’s request given: (i) the unavailability of GHG emissions data with respect to the vast majority of the Company’s underwriting portfolio and the substantial majority of the Company’s investment portfolio; and (ii) the methodology limitations with respect to measuring the GHG emissions associated with the Company’s underwriting and investment activities.
•The significant risks to Travelers associated with implementing the proposal’s request, including:
•Business risks associated with making underwriting decisions based on factors other than those actuarially predictive of risk;
•Business risks associated with making investment decisions not aligned with the Company’s thoughtful investment philosophy, which focuses on stable and appropriate risk-adjusted returns; and
•Heightened regulatory and litigation risks associated with making net zero commitments, particularly where the relevant GHG emissions data remains unavailable.
•Travelers’ comprehensive strategy for managing climate-related risks and opportunities, including:
•The composition of the Company’s underwriting and investment portfolios and the integration of climate-related considerations into Travelers’ underwriting and investment strategies, as appropriate;
•The Company’s use of proprietary and third-party computer models to incorporate weather and climate variability into its underwriting and pricing decisions;
•Travelers’ support for the over-time transition to a lower carbon economy, including through the Company’s growing renewable energy practice, as well as products and services that incentivize environmentally responsible behavior; and
•Travelers’ commitment to be carbon neutral across its owned operations by 2030.
•Travelers’ industry-leading climate scenario analyses, conducted by independent, third-party firms with respect to the Company’s investment portfolio and certain aspects of its underwriting portfolio to test the resilience of the Company’s strategy in the face of changing climate conditions.
•The effectiveness of the Company’s climate strategy, as evidenced by the fact that, over the past six years, the Company’s share of property catastrophe losses has been meaningfully lower than the Company’s corresponding market share.
•Travelers’ comprehensive climate-related disclosures, including its annual TCFD Report.
Shareholder Feedback | ||
•Based on the Company’s extensive engagements with its shareholders, the Company believes that more than a majority of its shareholders support Travelers’ approach of increased disclosure in response to the 2022 GHG emissions proposal. Specifically, many investors shared that:
•they understand the inherent data and methodology limitations with respect to collecting the GHG emissions data requested by the proposal, and, accordingly, the Company’s inability to commit to reducing the GHG emissions associated with its underwriting and investment portfolios;
•they value verifiable data and are not seeking commitments that are aspirational in nature;
•votes for the 2022 GHG emissions proposal did not generally reflect support for the proposal’s specific request, but rather, signaled an interest in increased climate-related disclosure as it relates to our underwriting and investment portfolios;
•as fiduciaries to their clients, they assess climate-related shareholder proposals within the context of value creation and are, therefore, not interested in the Company taking action that would compromise its ability to create value for its shareholders or risk putting the Company at a competitive disadvantage; and
•Travelers’ approach to addressing the 2022 GHG emissions proposal is appropriate, reasonable and responsive.
•More generally, we’ve received overwhelmingly positive feedback from our institutional investors with respect to our approach to sustainability, our thoughtful ESG-related initiatives and our robust sustainability reporting, including with respect to climate-related risks and opportunities. Our annual sustainability reporting, including our TCFD Report, has been widely acclaimed among investors of all types and sizes as best-in-class.
8 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
SHAREHOLDER ENGAGEMENT AND BOARD RESPONSIVENESS
Response to Shareholder to Feedback | ||
In light of the shareholder feedback we obtained from our extensive engagements, we significantly expanded our TCFD Report to provide additional disclosure regarding both our underwriting and investment portfolios. In particular, in addition to discussing our comprehensive approach to managing climate-related risks and opportunities, our newly updated TCFD Report provides, among other things:
•enhanced disclosure with respect to the composition of the Company’s investment portfolio, a quantification of the GHG emissions for the portion of our portfolio where some data is available and a discussion of the Company’s multi-pronged approach to addressing the financial risks posed by GHG emissions on its investment portfolio;
•enhanced disclosure with respect to the composition of the Company’s business mix, particularly as it relates to the energy industry. Specifically, the Company disclosed that:
•individuals and small and mid-sized businesses comprise more than 95% of the Company’s customers;
•GHG emissions data is available only with respect to approximately 0.003% of the Company’s total customers;
•only 1.7% of Travelers total annual premium is related to the energy industry, and the percentage of Travelers premiums generated from the energy sector has meaningfully decreased in recent years;
•the Company’s oil and gas industry-related business currently represents only 0.9% of Travelers annual
total premium and has meaningfully declined over time; and
•over the past three years, the Company’s Global Renewable Energy Practice grew at a compound annual growth rate of 43%, with revenue up more than 104% since 2020;
•an alternative view to understanding the GHG emissions related to the Company’s underwriting portfolio, by disclosing the Company’s premiums over time with respect to the four most carbon-intensive sectors as classified by Standard & Poor’s (S&P), which have consistently represented a very low percentage of the Company’s underwriting portfolio and have meaningfully declined over time; and
•a statement that we will continue to stay abreast of developments regarding the availability and accuracy of information with respect to the GHG emissions relating to our underwriting and investment portfolios and expect to further enhance our disclosures as more relevant and accurate information becomes available.
For additional detail, we encourage you to review our newly enhanced TCFD Report, available at https://sustainability.travelers.com.
We will continue to take proactive action on climate-related issues and respond thoughtfully to shareholder feedback as we continue to engage with our shareholders on this important topic.
2023 Proxy Statement | The Travelers Companies, Inc. | 9 | ||||
SHAREHOLDER ENGAGEMENT AND BOARD RESPONSIVENESS
2022 Nonbinding Shareholder Proposal Regarding a Racial Equity Audit: Shareholder Outreach, Feedback and Travelers’ Responsiveness
At the 2022 Annual Meeting, a nonbinding shareholder proposal regarding a racial equity audit received significant, though not majority, support. That proposal called for a third-party audit that would assess and produce recommendations for improving the racial impacts of, among other things, the Company’s insurance products and services. In recognition of the level of support for this proposal, as discussed above, we engaged in extensive outreach over the last year to gain a better understanding of the perspectives of our shareholders.
Since the 2022 Annual Meeting, we have discussed this proposal with proxy advisory firms ISS and Glass Lewis. In addition, we met multiple times with Trillium Asset Management, the proponent of the 2022 proposal. As noted above, we also engaged with shareholders representing more than 44% of our outstanding shares. As part of our shareholder engagements, we discussed and solicited feedback with respect to the Company’s proposed actions in response to the proposal, including increased disclosure with respect to the Company’s existing and robust governance, processes and controls designed to ensure that its rating factors are actuarially sound, comply with all applicable laws and do not consider race or other protected characteristics.
Among other things, we discussed the following points with respect to the 2022 proposal:
•Consistent with its legal obligations and sound business practices, the Company does not collect or use data on the race or other protected characteristics of its insureds in its insurance business.
•The proposal’s request is impossible to implement without violating the insurance laws of the vast majority of states.
•Travelers operates in a highly regulated industry and is subject to regulatory oversight from 50 state regulators that conduct market conduct exams on the Company, including to ensure that rates are “adequate,” not “excessive,” and not “unfairly discriminatory,” as those or similar terms are defined under each state’s laws.
•The proposal’s request is inconsistent with risk-based underwriting and pricing, which are foundational to the insurance industry.
•The proposal’s request risks prejudicing the Company in potential future litigation in which insurers are routinely involved, since it would remove a significant defense of the Company in some of these actions – namely, that the Company does not possess or otherwise utilize racial data on its insureds.
•The issue of race in insurance is an industrywide issue that must be addressed by regulators on an industrywide basis and is, in fact, currently being actively evaluated and addressed by the applicable regulatory authorities.
•Travelers’ existing and robust governance, processes and controls designed to ensure that it does not discriminate on the basis of race or other legally protected characteristics in its insurance business.
In addition, we discussed with our shareholders our proposed enhanced disclosures with respect to the governance, processes and controls discussed above. In light of these discussions, the Company has recently updated its sustainability reporting to include significantly enhanced disclosure regarding the governance, controls and processes it has in place to help ensure that it does not take race or other legally protected characteristics into account in its underwriting and pricing. For more information, we encourage you to review the Ethics & Responsible Business Practices section of our sustainability report, available at https://sustainability.travelers.com.
Based, in part, on the Company’s engagements with its shareholders, the Company believes that more than a majority of its shareholders support Travelers’ approach of increased disclosure.
10 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
CORPORATE GOVERNANCE
ITEM 1 | Election of Directors | | Your Board recommends you vote FOR the election of all director nominees. | ||||||||
There are currently 13 members of the Board. On February 8, 2023, the Board, upon recommendation of its Nominating and Governance Committee, unanimously nominated the 13 directors listed below for re-election to the Board at the Annual Meeting. In addition, the Board unanimously nominated Russell G. Golden, who is not currently a director, for election to the Board at the Annual Meeting.
The directors elected at the Annual Meeting will hold office until the 2024 annual meeting of shareholders and until their successors are duly elected and qualified. Unless otherwise instructed, the persons (the “proxyholders”) named in the form of proxy card attached to this Proxy Statement, as filed with the SEC, intend to vote the proxies held by them for the election of the 14 nominees named below. The proxies cannot be voted for more than 14 candidates for director. The Board knows of no reason why these nominees would be unable or unwilling to serve, but if that would be the case, proxies received will be voted for the election of such other persons, if any, as the Board may designate.
Nominees for Election of Directors
Alan L. Beller INDEPENDENT | ||||||||
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BACKGROUND Mr. Beller, age 73, is Senior Counsel of the law firm of Cleary Gottlieb Steen & Hamilton LLP (“Cleary”), based in the New York City office. Mr. Beller joined Cleary in 1976 and was a partner in the firm from 1984 through 2001. From 2002 to 2006, he served as the Director of the Division of Corporation Finance of the SEC and as Senior Counselor to the SEC. He returned to Cleary in August 2006 and was a partner in the firm until 2014 when he became Senior Counsel. OTHER BOARD SERVICE Mr. Beller does not currently serve on any other public company boards. Mr. Beller is a member of the Board of Directors of the Value Reporting Foundation. NOMINATION CONSIDERATIONS The Board and the Nominating and Governance Committee considered in particular Mr. Beller’s senior-level public service and his significant experience and expertise in the areas of law, risk management oversight and corporate governance. In addition, the Committee considered Mr. Beller’s significant experience and expertise with respect to financial reporting, financial accounting, auditing, audit quality and audit committee matters and their regulation and his expertise in the area of sustainability standards, sustainability governance and disclosure. | ||||||||
Director Since: 2007 Committees: Audit, Risk | ||||||||
Janet M. Dolan INDEPENDENT | ||||||||
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BACKGROUND Ms. Dolan, age 73, has been President of Act 3 Enterprises, LLC, a consulting services company, since August 2006. She served as President and Chief Executive Officer of Tennant Company, a manufacturer of nonresidential floor maintenance equipment and products, from April 1999 until her retirement in December 2005, and she had served in a number of senior executive positions with Tennant Company from 1986 until April 1999. Prior to joining Tennant Company, Ms. Dolan was a director of the Minnesota Lawyers’ Professional Responsibility Board. OTHER BOARD SERVICE Ms. Dolan does not currently serve on any other public company boards. Ms. Dolan was a director of Wenger Corporation until December 2018. NOMINATION CONSIDERATIONS The Board and the Nominating and Governance Committee considered in particular Ms. Dolan’s experience as a public company CEO and her significant experience and expertise in management and in legal and compliance matters. | ||||||||
Director Since: 2001 Committees: Compensation, Investment and Capital Markets, Nominating and Governance | ||||||||
2023 Proxy Statement | The Travelers Companies, Inc. | 11 | ||||
CORPORATE GOVERNANCE
Russell G. Golden INDEPENDENT | ||||||||
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BACKGROUND Mr. Golden, age 52, served as Chairman of the Financial Accounting Standards Board (“FASB”) from 2013 until his retirement in 2020. Mr. Golden joined the FASB in 2004 and served as Chair of its Emerging Issues Task Force from 2007 to 2010. Prior to joining the FASB, from 1992 to 2003, Mr. Golden served in various roles at Deloitte & Touche LLP, including as a partner. Mr. Golden currently serves as the Chairman of the PricewaterhouseCoopers Assurance Quality Advisory Committee and is a member of the faculty of the W.P. Carey School of Business at Arizona State University. OTHER BOARD SERVICE Mr. Golden does not currently serve on any other public company boards. NOMINATION CONSIDERATIONS The Board and the Nominating and Governance Committee considered in particular Mr. Golden’s experience as a leader of the U.S. accounting standards setting organization, experience as an audit partner of a registered public accounting firm and his significant experience and expertise in financial reporting, auditing, audit quality and sustainability disclosure. | ||||||||
Director Nominee | ||||||||
Patricia L. Higgins INDEPENDENT | ||||||||
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BACKGROUND Ms. Higgins, age 73, served as President and Chief Executive Officer of Switch and Data Facilities, Inc., a provider of neutral interconnection and collocation services, from September 2000 until her retirement in February 2004. In 1999 and 2000, Ms. Higgins served as Executive Vice President of the Gartner Group and Chairman and Chief Executive Officer of the Research Board, a segment of the Gartner Group. From 1997 to 1999, she served as Corporate Vice President and Chief Information Officer of Alcoa Inc., and from 1995 to 1997, she served as Vice President and President (Communications Market Business Unit) of Unisys Corporation. From 1977 to 1995, she served in various managerial positions, including as Corporate Vice President and Group Vice President (State of New York) for Verizon (NYNEX) and Vice President, International Sales Operations (Lucent) for AT&T Corporation/Lucent. OTHER BOARD SERVICE Ms. Higgins does not currently serve on any other public company boards. Ms. Higgins was a director of CoreSite Realty Corporation until December 2021, Dycom Industries until May 2021, Barnes & Noble, Inc. until August 2019 and Internap Corporation until June 2018. NOMINATION CONSIDERATIONS The Board and the Nominating and Governance Committee considered in particular Ms. Higgins’ experience as a public company Chief Information Officer and her significant experience and expertise in management, as well as information technology strategy and operations. | ||||||||
Director Since: 2007 Committees: Audit, Risk | ||||||||
William J. Kane INDEPENDENT | ||||||||
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BACKGROUND Mr. Kane, age 72, served as an audit partner with Ernst & Young for 25 years until his retirement in 2010, during which time he specialized in providing accounting, auditing and consulting services to the insurance and financial services industries. Prior to that, he served in various auditing roles with Ernst & Young. OTHER BOARD SERVICE Mr. Kane does not currently serve on any other public company boards. Mr. Kane is a director of Transamerica Corporation. NOMINATION CONSIDERATIONS The Board and the Nominating and Governance Committee considered in particular Mr. Kane’s experience as an audit partner of a registered public accounting firm and his significant experience and expertise in financial controls, financial reporting, management and the insurance industry. | ||||||||
Director Since: 2012 Committees: Audit (Chair), Executive, Risk | ||||||||
12 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
CORPORATE GOVERNANCE
Thomas B. Leonardi INDEPENDENT | ||||||||
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BACKGROUND Mr. Leonardi, age 69, served as Executive Vice President of American International Group, Inc. and Vice Chairman of AIG Life Holdings, Inc. (now known as Corebridge Financial) from November 2017 until his retirement in May 2020, where he was responsible for Government Affairs, Public Policy, Communications and Sustainability. From January 2015 to October 2017, he was a Senior Advisor to Evercore Inc., a global investment banking advisory firm. Previously, Mr. Leonardi was Commissioner of the Connecticut Insurance Department from February 2011 to December 2014. For 22 years prior to his appointment as Commissioner, he was Chairman and Chief Executive Officer of Northington Partners Inc., a venture capital and investment banking firm. Before Northington, he was head of the investment banking and venture capital divisions of Conning & Company and President of Beneficial Corporation’s insurance subsidiaries. He began his career as a litigation attorney in Connecticut. OTHER BOARD SERVICE Mr. Leonardi does not currently serve on any other public company boards. Mr. Leonardi is a director of Athene Co-Invest Reinsurance Affiliate, Ltd and is a member of the Apollo/Athene International Regulatory Advisory Group. NOMINATION CONSIDERATIONS The Board and the Nominating and Governance Committee considered in particular Mr. Leonardi’s experience as an insurance commissioner and his significant experience and expertise in management, investments, finance, mergers and acquisitions and the insurance industry. | ||||||||
Director Since: 2021 Committees: Compensation, Investment and Capital Markets, Nominating and Governance | ||||||||
Clarence Otis Jr. INDEPENDENT | ||||||||
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BACKGROUND Mr. Otis, age 66, served as Chairman and Chief Executive Officer of Darden Restaurants, Inc., the largest company-owned and operated full-service restaurant company in the world. He became Darden’s Chief Executive Officer in 2004, assumed the additional role of Chairman in 2005 and served in both capacities until his retirement in 2014. Mr. Otis joined Darden Restaurants, Inc. in 1995 and served in various roles with Darden, including Vice President and Treasurer, and Senior Vice President and Chief Financial Officer. OTHER BOARD SERVICE Mr. Otis is a director of Verizon Communications, Inc., VF Corporation and MFS Mutual Funds. NOMINATION CONSIDERATIONS The Board and the Nominating and Governance Committee considered in particular Mr. Otis’s experience as a public company CEO and his significant experience and expertise in operations, financial oversight and risk management. | ||||||||
Director Since: 2017 Committees: Compensation (Chair), Executive, Investment and Capital Markets, Nominating and Governance | ||||||||
Elizabeth E. Robinson INDEPENDENT | ||||||||
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BACKGROUND Ms. Robinson, age 54, served as Global Treasurer, Partner and Managing Director of The Goldman Sachs Group, Inc., the global financial services company, from 2005 to 2015. Prior to that, she served in various roles within Corporate Treasury of The Goldman Sachs Group, Inc., including Americas Treasurer and Managing Director, and in the Financial Institutions Group within the Investment Banking Division of Goldman Sachs. OTHER BOARD SERVICE Ms. Robinson is a director of The Bank of New York Mellon Corporation and the non-executive Chairman of the Board of Directors of BNY Mellon Government Securities Services Corp. Ms. Robinson is also a director of Russell Reynolds Associates, a trustee and Chairman of the Board of Williams College, and a Trustee of Every Mother Counts, St. Luke’s University Health Network and Blair Academy. NOMINATION CONSIDERATIONS The Board and the Nominating and Governance Committee considered in particular Ms. Robinson’s experience as treasurer of a large global financial institution, a position she held during the 2008 financial crisis, her significant experience in managing a financial services company through challenging financial conditions and her expertise in finance, risk management, capital management and strategic transactions. | ||||||||
Director Since: 2020 Committees: Compensation, Executive, Investment and Capital Markets (Chair), Nominating and Governance | ||||||||
2023 Proxy Statement | The Travelers Companies, Inc. | 13 | ||||
CORPORATE GOVERNANCE
Philip T. (Pete) Ruegger III INDEPENDENT | ||||||||
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BACKGROUND Mr. Ruegger, age 73, served as Chairman of the Executive Committee of the law firm Simpson Thacher & Bartlett LLP from 2004 until his retirement in 2013. He was a member of the firm’s executive committee from 1993 through 2013. Mr. Ruegger joined Simpson Thacher & Bartlett LLP in 1974 and became a partner in 1981. At Simpson Thacher & Bartlett LLP, he advised clients on mergers and acquisitions, corporate governance, investigations, corporate finance and general corporate and securities law matters. OTHER BOARD SERVICE Mr. Ruegger does not currently serve on any other public company boards. Mr. Ruegger is Chairman of the Executive Committee of the Henry Street Settlement, a New York City based not-for-profit organization. NOMINATION CONSIDERATIONS The Board and the Nominating and Governance Committee considered in particular Mr. Ruegger’s experience as the leader of a large international corporate law firm and his significant experience and expertise in mergers and acquisitions and other corporate transactional matters, as well as risk management. | ||||||||
Director Since: 2014 Committees: Compensation, Executive, Investment and Capital Markets, Nominating and Governance (Chair) | ||||||||
Rafael Santana INDEPENDENT | ||||||||
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BACKGROUND Mr. Santana, age 51, is President and Chief Executive Officer of Westinghouse Air Brake Technologies Corporation (“Wabtec”), a leading global provider of equipment, systems, digital solutions, and value-added services for the freight and transit rail sectors. Previously, from November 2017 to February 2019, Mr. Santana served as President and Chief Executive Officer of GE Transportation, a division of General Electric Company. Mr. Santana joined GE in 2000 and held a variety of global leadership roles in the transportation, power, and oil and gas businesses, including President and Chief Executive Officer of GE, Latin America, President and Chief Executive Officer of GE Oil and Gas Turbomachinery Solutions, Chief Executive Officer of GE Gas Engines and Chief Executive Officer of GE Energy Latin America. OTHER BOARD SERVICE Mr. Santana is a director of Wabtec. NOMINATION CONSIDERATIONS The Board and the Nominating and Governance Committee considered in particular Mr. Santana’s experience as a public company CEO and his significant experience and expertise in management, international operations and financial oversight. | ||||||||
Director Since: 2022 Committees: Compensation, Investment and Capital Markets, Nominating and Governance | ||||||||
Todd C. Schermerhorn INDEPENDENT | ||||||||
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BACKGROUND Mr. Schermerhorn, age 62, served as Senior Vice President and Chief Financial Officer of C. R. Bard, Inc., a multinational developer, manufacturer and marketer of life-enhancing medical technologies, from 2003 until his retirement in 2012. Prior to that, he had been Vice President and Treasurer of C. R. Bard from 1998 to 2003. From 1985 to 1998, Mr. Schermerhorn held various other management positions with C. R. Bard. OTHER BOARD SERVICE Mr. Schermerhorn is a director of Metabolon, Inc. and LivaNova PLC. NOMINATION CONSIDERATIONS The Board and the Nominating and Governance Committee considered in particular Mr. Schermerhorn’s experience as a public company Chief Financial Officer and his significant experience and expertise in management, accounting and business operations, including international operations. | ||||||||
Lead Director Director Since: 2016 Committees: Audit, Executive, Risk (Chair) | ||||||||
14 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
CORPORATE GOVERNANCE
Alan D. Schnitzer | ||||||||
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BACKGROUND Mr. Schnitzer, age 57, is Chairman and Chief Executive Officer of Travelers. He was previously the Company’s Vice Chairman and Chief Executive Officer, Business and International Insurance from July 2014 to December 2015. He joined Travelers as Vice Chairman and Chief Legal Officer in April 2007, and between that time and July 2014 he held operating and functional positions of increasing responsibility. Prior to joining the Company, he was a partner at Simpson Thacher & Bartlett LLP. OTHER BOARD SERVICE Mr. Schnitzer does not currently serve on any other public company boards. Mr. Schnitzer serves as a trustee of the University of Pennsylvania and Memorial Sloan Kettering Cancer Center, and as a director of New York City Ballet and ReadyCT. NOMINATION CONSIDERATIONS The Board and the Nominating and Governance Committee considered in particular Mr. Schnitzer’s position as Chief Executive Officer of the Company and his significant experience in the management of the Company in various roles, including as Chief Executive Officer of Business and International Insurance, the Company’s largest business segment, as well as his significant experience and expertise in management, finance and law. | ||||||||
Chairman of the Board Director Since: 2015 Committees: Executive (Chair) | ||||||||
Laurie J. Thomsen INDEPENDENT | ||||||||
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BACKGROUND Ms. Thomsen, age 65, served as an Executive Partner of New Profit, Inc., a venture philanthropy firm, from 2006 to 2010, and she served on its board from 2001 to 2006. Prior to that, from 1995 to 2004, she was a co-founder and General Partner of Prism Venture Partners, a venture capital firm investing in healthcare and technology companies. From 1984 until 1995, she worked at the venture capital firm Harbourvest Partners in Boston, where she was a General Partner from 1988 until 1995. Ms. Thomsen was in commercial lending at U.S. Trust Company of New York from 1979 until 1984. OTHER BOARD SERVICE Ms. Thomsen is a director of Dycom Industries and MFS Mutual Funds. She is also an emeritus Trustee of Williams College. NOMINATION CONSIDERATIONS The Board and the Nominating and Governance Committee considered in particular Ms. Thomsen’s experience as a general partner of a venture capital firm and her significant experience and expertise in investments, finance and the development of emerging businesses. | ||||||||
Director Since: 2004 Committees: Audit, Risk | ||||||||
2023 Proxy Statement | The Travelers Companies, Inc. | 15 | ||||
CORPORATE GOVERNANCE
Governance of Your Company
| Governance Highlights | ||
Our commitment to good corporate governance is reflected in our Governance Guidelines, which describe the Board’s views on a wide range of governance topics. These Governance Guidelines are reviewed annually by the Nominating and Governance Committee, and any changes deemed appropriate by the Committee in light of emerging practices or otherwise are submitted to the full Board for consideration. Our Governance Guidelines can be found on the Corporate Governance page of the “Investors” section on our website at www.travelers.com.
| Board Composition and Accountability | |||||
| Independence | All of our director nominees other than our Chief Executive Officer are independent. | ||||
| Committee independence | All committees are comprised of independent directors other than the Executive Committee on which our Chief Executive Officer serves. | ||||
Independent Chair or independent Lead Director | The Board has an independent Chair or independent Lead Director whenever the Chair is a member of management or not otherwise independent. | ||||
| Executive session | Independent members of the Board and each of the committees regularly meet in executive session with no member of management present. | ||||
| Risk oversight | The Board and committees annually review their oversight of risk and the allocation of risk oversight among the committees. | ||||
| Director education | The Nominating and Governance Committee oversees educational sessions for directors on matters relevant to the Company, its business plan and risk profile. | ||||
| Board evaluation | The Board and each of its committees evaluate and discuss their respective performance and effectiveness every year. | ||||
Diversity of skills and experience | The composition of the Board encompasses a broad range of skills, expertise, experience and backgrounds and includes five women and two racially/ethnically diverse directors. | ||||
| Board tenure | The Board’s balanced approach to refreshment results in an appropriate mix of long-serving and new directors. | ||||
| Shareholder Rights | |||||
| Annually elected directors | The annual election of directors reinforces the Board’s accountability to shareholders. | ||||
Majority voting standard for director elections | Directors must be elected under a “majority voting” standard in uncontested elections — a director who receives fewer votes “For” his or her election than “Against” must promptly tender his or her resignation to the Board. | ||||
| Single voting class | Our common stock is the only class of shares outstanding. | ||||
| Proxy access | Each shareholder, or a group of up to 20 shareholders, owning 3% or more of our common stock continuously for at least three years may, in accordance with the terms specified in our bylaws, nominate and include in our proxy materials director nominees constituting the greater of two directors or 20% of the Board. | ||||
| Special meetings | Special meetings may be called at any time by a shareholder or shareholders holding 10% of voting power of all shares entitled to vote or 25% where the meeting relates to a business combination. | ||||
| Poison pill | The Company does not have a poison pill. | ||||
| Board Compensation | |||||
| Director stock ownership | Non-employee directors are required to accumulate and retain a level of ownership of our equity securities to align the interests of non-employee directors and shareholders. | ||||
| Deferred stock units | Non-employee directors currently receive more than 50% of their annual board and committee compensation in the form of deferred stock units, and the shares underlying these units are not distributed to a director until at least six months after the director leaves the Board. | ||||
| Compensation review | The Nominating and Governance Committee reviews the appropriateness of the Director Compensation Program at least once every two years. | ||||
16 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
CORPORATE GOVERNANCE
Governance Structure of the Board – Chairman and Lead Director | ||
Our bylaws provide that the Board, at its regular meeting each year following the annual shareholders meeting, shall elect a Chairman of the Board. The Board maintains the flexibility to determine whether the roles of Chairman and Chief Executive Officer should be combined or separated, based on what it believes is in the best interests of the Company at a given point in time. The Board believes that this flexibility is in the best interest of the Company and that a one-size-fits-all approach to corporate governance, with a mandated independent Chairman, would not result in better governance or oversight. Our Governance Guidelines provide for the position of Lead Director whenever the Chairman of the Board is a director who does not qualify as an independent director.
Our Current Board Leadership Structure
Alan D. Schnitzer CHAIRMAN AND CHIEF EXECUTIVE OFFICER | ||||||||
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Mr. Schnitzer serves as Chairman of the Board and Chief Executive Officer. The combined role of Chairman and Chief Executive Officer, in the case of the Company, means that the Chair of the Board has longstanding experience with property and casualty insurance and ongoing executive responsibility for the Company. In the Board’s view, this enables the Board to better understand the Company and work with management to enhance shareholder value. In addition, the Board believes that this structure enables it to better fulfill its risk oversight responsibilities and enhances the ability of the Chief Executive Officer to effectively communicate the Board’s view to management. | ||||||||
Todd C. Schermerhorn INDEPENDENT LEAD DIRECTOR | ||||||||
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The independent directors elected Mr. Schermerhorn to serve as independent Lead Director of the Board. Among other things, under our Governance Guidelines, the independent Lead Director has the authority to: •convene, set the agendas for and chair the regular executive sessions of the independent directors; •convene and chair other meetings of the independent directors as deemed necessary; •approve the Board meeting schedules and meeting agenda items and review information to be sent to the Board; •act as a liaison between the independent directors, committee chairs and senior management; •receive and review correspondence sent to the Company’s office addressed to the Board or independent directors and, together with the CEO, to determine appropriate responses if any; and •in concert with the chairs of the Board’s committees, recommend to the Board the retention of consultants and advisors who directly report to the Board, without consulting or obtaining the advance authorization of any officer of the Company. In addition, in accordance with our Governance Guidelines, the Lead Director is responsible for coordinating the efforts of the independent and non-management directors “in the interest of ensuring that objective judgment is brought to bear on sensitive issues involving the management of the Company and, in particular, the performance of senior management”. | ||||||||
The Board believes that its current leadership structure is appropriate for the Company at this time. The Board believes that the responsibilities of the independent Lead Director help to assure appropriate oversight of the Company’s management by the Board and optimal functioning of the Board. The effectiveness of the independent Lead Director is enhanced by the Board’s independent character. In addition, as described in more detail in the biographies in “Nominees for Election of
Directors”, the independent Lead Director and the independent directors have substantial experience with public company management and governance, in general, and the Company, in particular. This structure facilitates the continued strong communication and coordination between management and the Board and enables the Board to fulfill its risk oversight responsibilities. A complete description of the role of the independent Lead Director is set forth in our Governance Guidelines.
2023 Proxy Statement | The Travelers Companies, Inc. | 17 | ||||
CORPORATE GOVERNANCE
Committees of the Board and Meetings | ||
There are six standing committees of the Board: the Audit Committee; the Compensation Committee; the Executive Committee; the Investment and Capital Markets Committee; the Nominating and Governance Committee; and the Risk Committee.
The Board has adopted a written charter for each of these committees, copies of which are posted on our website at www.travelers.com under “Investors: Corporate Governance: Governance Documents”. Each committee reviews its charter annually and, when appropriate, presents to the Nominating and Governance Committee and the Board any recommended amendments for consideration and approval.
Executive sessions of the Board are chaired by the independent Lead Director. Each of the committees also meets regularly in executive session.
DIRECTOR INDEPENDENCE •The Board has determined that each person nominated for election at the Annual Meeting is independent, other than Mr. Schnitzer, who currently serves as our Chairman and Chief Executive Officer. •Each committee of the Board, other than the Executive Committee on which Mr. Schnitzer serves, is composed solely of independent directors, consistent with our Governance Guidelines, the applicable New York Stock Exchange (“NYSE”) listing standards and the applicable rules of the SEC. | BOARD MEETINGS AND ATTENDANCE •The Board held five meetings in 2022. •Each director attended 75% or more of the total number of meetings of the Board and of the committees on which each such director served during 2022. •Directors are encouraged and expected, but not required, to attend each annual meeting of shareholders. All of the directors serving at the time of last year’s annual meeting attended last year’s annual meeting of shareholders. | ||||
Audit Committee
MEMBERS ALL INDEPENDENT | Alan L. Beller Patricia L. Higgins | William J. Kane (Chair) Todd C. Schermerhorn | Laurie J. Thomsen Bridget van Kralingen | Meetings in 2022: 9 | ||||||||||
FINANCIAL LITERACY AND FINANCIAL EXPERTISE
The Board has determined that all members of the Audit Committee meet the financial literacy requirements of the NYSE. The Board also has determined that Mr. Kane’s extensive experience as an audit partner with Ernst & Young for 25 years qualifies him as an audit committee financial expert. In addition, the Board designated Mr. Schermerhorn as an audit committee financial expert after considering his experience as Senior Vice President and Chief Financial Officer with C. R. Bard, Inc. from 2003 to 2012, his service as Vice President and Treasurer of C. R. Bard, Inc. from 1998 to 2003 and his service on the audit committees of other public companies. The Board also designated Ms. Higgins as an audit committee financial expert after considering her experience as Chief Executive Officer of Switch and Data Facilities, Inc., during which she supervised its principal financial officer, and her experience serving as an audit committee financial expert of other public companies.
PRIMARY RESPONSIBILITIES
The responsibilities of the Audit Committee include the following:
•assist the Board in exercising its oversight of the Company’s accounting and financial reporting process and audits of the Company’s financial statements;
•appoint our independent registered public accounting firm and review its qualifications, performance and independence;
•review and pre-approve the audit and permitted non-audit services and proposed fees of the independent registered public accounting firm;
•review the adequacy of the work performed by our internal audit group;
•review reports from management, the internal auditors and the independent registered public accounting firm with respect to the adequacy of the Company’s internal controls; and
•oversee the Company’s compliance with legal and regulatory requirements.
With respect to reporting and disclosure matters, the duties and responsibilities of the Audit Committee include reviewing our audited financial statements and recommending to the Board that they be included in our Annual Report on Form 10-K in accordance with applicable rules and regulations of the SEC.
18 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
CORPORATE GOVERNANCE
Compensation Committee
MEMBERS ALL INDEPENDENT | Janet M. Dolan Thomas B. Leonardi | Clarence Otis Jr. (Chair) Elizabeth E. Robinson | Philip T. Ruegger III Rafael Santana | Meetings in 2022: 5 | ||||||||||
In addition to satisfying all other applicable independence requirements, all members of the Compensation Committee qualify as “non-employee directors” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
PRIMARY RESPONSIBILITIES
The responsibilities of the Compensation Committee include the following:
•review and approve the performance goals and objectives for our CEO and those members of our Management Committee who are executive officers or report directly to the CEO (together with the CEO, the “Committee Approved Officers”);
•review the performance and approve the salaries and incentive compensation of the Committee Approved Officers;
•review and approve policies with respect to perquisites of the CEO and other members of management;
•approve and monitor compliance with stock ownership guidelines applicable to the CEO and other members of management;
•review and approve our compensation philosophy and objectives and recommend to the Board for approval compensation and benefit programs determined by the Compensation Committee to be appropriate;
•review the operation of our overall compensation program to evaluate its objectives and its execution and recommend to the Board steps to modify our compensation programs to better conform them with the established compensation objectives;
•review and approve any new equity compensation plans and material amendments to existing plans where shareholder approval has not been obtained and oversee management’s administration of such plans;
•review our regulatory compliance with respect to compensation matters;
•review and approve any severance or similar termination payments proposed to be made to any current or former executive officer;
•review and approve all stock option, restricted stock, restricted stock unit, performance share and similar stock-based grants;
•conduct an independence assessment prior to selecting any compensation consultant, legal counsel or other adviser that will provide advice to the Compensation Committee; and
•evaluate, at least annually, whether any work provided by the Compensation Committee’s compensation consultant raised any conflict of interest.
With respect to reporting and disclosure matters, the responsibilities of the Compensation Committee include reviewing and discussing the “Compensation Discussion and Analysis” with management and recommending to the Board that it be included in our annual proxy statement and Annual Report on Form 10-K in accordance with applicable rules and regulations of the SEC. The Compensation Committee may, in its discretion, delegate any of its responsibilities to a subcommittee of the Compensation Committee.
ESTABLISHMENT OF ANNUAL BONUS AND EQUITY AWARDS
The Compensation Committee approves the individual salary, annual bonus and equity awards for the Committee Approved Officers. In addition, the Compensation Committee approves the aggregate annual bonuses and equity awards to employees who are not Committee Approved Officers.
The Compensation Committee considered recommendations from the CEO regarding compensation for each of the executive officers named in the “Summary Compensation Table” and other Committee Approved Officers.
DELEGATION OF AUTHORITY FOR “OFF-CYCLE” EQUITY GRANTS
The Compensation Committee has delegated limited authority to the CEO to make equity grants outside of the annual equity grant process, or “off-cycle grants”, to employees and new hires who are not Committee Approved Officers. The delegation is subject to maximum grant date values of equity that can be granted to any one person. These grants can only be made on the grant dates established by our Governance Guidelines for “off-cycle” equity awards. Any grants made “off-cycle” are reported to the Compensation Committee at the next regularly scheduled quarterly meeting following such awards.
COMPENSATION CONSULTANT
The Compensation Committee has the authority under its charter to retain outside consultants or advisors as it deems necessary or advisable. In accordance with this authority, the Compensation Committee has engaged Frederic W. Cook & Co. (“FW Cook”) as its independent outside compensation consultant to provide it with objective and expert analyses, advice and information with respect to executive compensation. All executive compensation services provided by FW Cook are conducted under the direction or authority of the Compensation Committee, and all work performed by FW Cook must be pre-approved by the Compensation Committee or the Chair of the Compensation Committee. Neither FW Cook nor any of its affiliates maintains any
2023 Proxy Statement | The Travelers Companies, Inc. | 19 | ||||
CORPORATE GOVERNANCE
other direct or indirect business relationships with the Company or any of its affiliates, other than advising the Nominating and Governance Committee with respect to non-employee director compensation. In November 2022, the Compensation Committee evaluated whether any work provided by FW Cook raised any conflict of interest and determined that it did not.
As requested by the Compensation Committee, FW Cook’s services to the Compensation Committee in 2022 included, among other things:
•advising with respect to the Compensation Committee meeting materials;
•evaluating potential changes to incentive plans;
•advising with respect to individual compensation for the Committee Approved Officers;
•reviewing and discussing possible aggregate levels of corporate-wide bonus payments and equity awards;
•preparing comparative analyses of executive compensation levels and design at peer group companies;
•advising as to how actions taken by the Compensation Committee compare to the pay and performance of our peer group companies; and
•advising in connection with the preparation of certain of the information included in the proxy statement.
An FW Cook representative participated in each of the five Compensation Committee meetings in 2022.
In addition to the independent outside compensation consultant discussed above, our corporate staff (including Finance, Human Resources and Legal staff members) supports the Compensation Committee in its work. Other than with respect to the CEO’s recommendations regarding compensation to be paid to the other Committee Approved Officers, no executive officer determines or recommends to the Compensation Committee the amount or form of executive compensation to be paid to an executive officer.
Executive Committee
| MEMBERS | William J. Kane Clarence Otis Jr. | Elizabeth E. Robinson Philip T. Ruegger III | Todd C. Schermerhorn Alan D. Schnitzer (Chair) | Meetings in 2022: 0 | ||||||||||
PRIMARY RESPONSIBILITIES
The Board has granted to the Executive Committee, subject to certain limitations set forth in its charter, the broad responsibility of exercising the authority of the Board in the oversight of our business during the intervals
The Board has granted to the Executive Committee, subject to certain limitations set forth in its charter, the broad responsibility of exercising the authority of the Board in the oversight of our business during the intervals
between Board meetings in order to provide a degree of flexibility and ability to respond to time-sensitive business and legal matters. The Executive Committee meets only as necessary.
Investment and Capital Markets Committee
MEMBERS ALL INDEPENDENT | Janet M. Dolan Thomas B. Leonardi | Clarence Otis Jr. Elizabeth E. Robinson (Chair) | Philip T. Ruegger III Rafael Santana | Meetings in 2022: 5 | ||||||||||
PRIMARY RESPONSIBILITIES
The Investment and Capital Markets Committee assists the Board in exercising its oversight of the Company’s management of its investment portfolios (including credit risk monitoring) and certain financial affairs of the Company, and its responsibilities include the following:
The Investment and Capital Markets Committee assists the Board in exercising its oversight of the Company’s management of its investment portfolios (including credit risk monitoring) and certain financial affairs of the Company, and its responsibilities include the following:
•monitor the Company’s financial structure and approve or recommend appropriate Board action with respect to debt and equity financing;
•review and recommend appropriate Board action with respect to the Company’s capital management policies and activities, including repurchases of Company securities, dividends and stock splits;
•monitor the Company’s capital needs and financing arrangements, the Company’s ability to access capital markets (including the Company’s debt ratings) and management’s financing plans;
•review and approve or recommend appropriate Board action with respect to transactions exceeding certain dollar thresholds, including the establishment of bank lines of credit or letters of credit, certain purchases and dispositions of real property, and acquisitions and divestitures of assets;
•review reports of management regarding material transactions approved by officers of the Company pursuant to authority granted to such officers;
•review and approve capital expenditure budgets not otherwise approved by the Board;
•review the Company’s policies and procedures for investment risk management and monitor the credit risk of the Company’s investment portfolios; and
•monitor the Company’s financial strategies regarding risk (currency and interest rate exposure and use of derivatives).
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Nominating and Governance Committee
MEMBERS ALL INDEPENDENT | Janet M. Dolan Thomas B. Leonardi | Clarence Otis Jr. Elizabeth E. Robinson | Philip T. Ruegger III (Chair) Rafael Santana | Meetings in 2022: 4 | ||||||||||
PRIMARY RESPONSIBILITIES
The responsibilities of the Nominating and Governance Committee include the following:
The responsibilities of the Nominating and Governance Committee include the following:
•establish criteria for the selection of candidates to serve on the Board;
•identify and recommend director candidates for election or re-election to the Board;
•identify and recommend directors for appointment to serve on the committees of the Board and as chair of such committees;
•recommend adjustments, from time to time, to the size of the Board or of any Board committee;
•establish procedures for the annual evaluation of Board and director performance;
•oversee continuing education of directors;
•review the director compensation program and policies and recommend changes to the Board;
•establish and review our Governance Guidelines;
•review the Code of Business Conduct and Ethics (the “Code of Conduct”) applicable to directors and employees and recommend changes to the Board when appropriate;
•develop and recommend to the Board standards for determining the independence of directors and the absence of material relationships between the Company and a director;
•review succession plans for our CEO and the direct reports to the CEO;
•review and approve or ratify all related person transactions under our Related Person Transaction Policy;
•review the Company’s public policy initiatives;
•review and discuss with the Company’s head of Government Relations the Company’s participation in the political process, including political contributions and lobbying expenditures;
•review and discuss with the Company’s senior management the Company’s strategies and initiatives relating to diversity and inclusion;
•review the Company’s strategies and initiatives relating to community relations and charitable giving; and
•recommend to the Board any guidelines for the removal of directors, as it determines appropriate.
Risk Committee
MEMBERS ALL INDEPENDENT | Alan L. Beller Patricia L. Higgins | William J. Kane Todd C. Schermerhorn (Chair) | Laurie J. Thomsen Bridget van Kralingen | Meetings in 2022: 4 | ||||||||||
PRIMARY RESPONSIBILITIES
The Risk Committee assists the Board in exercising its oversight of the Company’s operational activities and the identification and review of those risks that could have a material impact on us, and its responsibilities include oversight of management’s risk management activities in the following areas:
•our enterprise risk management program;
•the underwriting of insurance;
•the settlement of claims;
•the management of catastrophe exposure;
•the retention of insured risk and appropriate levels and types of reinsurance;
•the credit risk in our insurance operations and ceded reinsurance program;
•our information technology operations, including cyber risk and information security; and
•the business continuity and executive crisis management for the Company and its business operations.
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Board and Committee Evaluations | ||
Every year, the Board and each of its committees evaluate and discuss their respective performance and effectiveness, as required by the Governance Guidelines. These evaluations cover a wide range of topics, including, but not limited to, the fulfillment of the Board and committee responsibilities identified in the Governance Guidelines and committee charters. The evaluations address the Board’s knowledge and understanding of, and performance with respect to, the Company’s business, strategy, values and mission, the appropriateness of the
Board’s structure and composition, the communication among the directors and between the Board and management and the Board’s meeting process. Each committee reviews, among other topics, how the committee has satisfied the responsibilities contained in its charter in the past year as well as the organization of the committee, the committee meeting process and the committee’s oversight. Each committee reports the results of its evaluation to the Board.
Director Nominations | ||
Process and Criteria Generally
The Nominating and Governance Committee is responsible for recommending to the Board nominees for election as director, and the Board is responsible for selecting nominees for election.
The Nominating and Governance Committee and the Board seek to ensure that the Board is composed of members whose particular expertise, qualifications, attributes and skills, when taken together, allow the Board to satisfy its oversight responsibilities effectively. Our Governance Guidelines specify that, when selecting new nominees, the Board should consider the following criteria:
•personal qualities and characteristics, accomplishments and reputation in the business community;
•current knowledge and contacts in the communities in which the Company does business and in the Company’s industry or other industries relevant to the Company’s business;
•ability and willingness to commit adequate time to Board and committee matters;
•the fit of the individual’s skill and personality with those of other directors and potential directors in building a Board that is effective, collegial and responsive to the needs of the Company; and
•diversity of viewpoints, background, experience and other demographics.
The evaluation of these criteria involves the exercise of careful business judgment. Accordingly, although the Nominating and Governance Committee and the Board at a minimum assess each candidate’s ability to satisfy any applicable legal requirements or listing standards, his or her strength of character, judgment, working style, specific areas of expertise and his or her ability and willingness to commit adequate time to Board and committee matters, the Nominating and Governance Committee and the Board do not have specific minimum qualifications that are applicable to all director candidates.
Diversity
As discussed above, the Nominating and Governance Committee and the Board include diversity of “viewpoints, background, experience and other demographics” as part of several criteria that they consider in connection with selecting candidates for the Board. While neither the Board nor the Nominating and Governance Committee has a formal diversity policy, one of many factors that the Board and the Nominating and Governance Committee carefully consider is the importance to the Company of racial/ethnic and gender diversity in board composition. Moreover, when considering director candidates, the Nominating and Governance Committee and the Board seek individuals with backgrounds and qualities that, when combined with those of our incumbent directors, enhance the Board’s effectiveness and, as required by the Governance Guidelines, result in the Board having “a broad range of skills, expertise, industry knowledge, diversity of opinion and contacts relevant to the Company’s business”. As part of its annual self-evaluation, the Board assesses and confirms compliance with this governance guideline.
Director Search
In identifying prospective director candidates for the Board, the Nominating and Governance Committee may seek referrals from other members of the Board, management, shareholders and other sources. The Nominating and Governance Committee also may, but need not, retain a professional search firm in order to assist it in these efforts. The Nominating and Governance Committee and the Board utilize the same criteria for evaluating candidates regardless of the source of the referral. Mr. Golden, who has been nominated by the Board for election at the Annual Meeting, was initially identified as a candidate for the Board of Directors by one of the Company’s independent directors. After reviewing Mr. Golden’s qualifications, in light of the skills and qualifications appropriate for the Board, each of our CEO, Chair of the Nominating and Governance Committee and independent Lead Director met with Mr. Golden. Members of the Nominating and Governance Committee
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met with Mr. Golden and discussed his potential nomination at a meeting of the Nominating and Governance Committee and voted unanimously to recommend Mr. Golden to the Board of Directors as a nominee. Mr. Golden met with the Board prior to the Board nominating him for election by the shareholders. No fees were paid with respect to the nomination of Mr. Golden.
Shareholder Recommendations
The Nominating and Governance Committee will consider director candidates recommended by shareholders. Shareholders wishing to propose a candidate for consideration may do so by submitting the proposed candidate’s full name and address, resume and biographical information to the attention of the Corporate Secretary, The Travelers Companies, Inc., 485 Lexington Avenue, New York, New York 10017. All recommendations for nomination received by the Corporate Secretary that satisfy our bylaw requirements
relating to such director nominations will be presented to the Nominating and Governance Committee for its consideration.
Proxy Access
Our bylaws permit a shareholder, or a group of up to 20 shareholders, that has continuously owned for three years at least 3% of the Company’s outstanding common shares, to nominate and include in the Company’s annual meeting proxy materials up to the greater of two directors or 20% of the number of directors serving on the Board, provided that the shareholder(s) and the nominee(s) satisfy the requirements specified in our bylaws, which are posted on our website at www.travelers.com. Shareholder requests to include shareholder-nominated directors in the Company’s proxy materials for the 2024 annual meeting of shareholders must be received by the Company no earlier than November 9, 2023, and no later than December 9, 2023.
RECENT BOARD REFRESHMENT
SINCE 2020: 4 new independent directors | 2 new women directors | 1 new ethnically diverse director | 2020  Elizabeth Robinson | 2021  Thomas Leonardi | 2022  Rafael Santana |  Bridget van Kralingen | |||||||||||||||||
Specific Considerations Regarding the 2023 Nominees | ||
In considering the 14 director nominees named in this Proxy Statement and proposed for election at the Annual Meeting, the Nominating and Governance Committee and the Board evaluated and considered, among other factors.
•each nominee’s experiences, qualifications, attributes and skills, in light of the Governance Guidelines’ criteria for nomination, including the specific skills identified by the Board as relevant to the Company;
•the ability and willingness to commit adequate time to Board and committee matters;
•the diversity of viewpoints, background, experience and other demographics of the director nominees;
•the contributions of those directors recommended for re-election in the context of the Board self-evaluation process and other needs of the Board;
•the tenure of individual directors;
•the mix of long-serving and new directors on the Board; and
•the specific needs of the Company given its business and industry.
The Board and the Nominating and Governance Committee, in considering each nominee, principally focused on the background and experiences of the nominee, as described in the biographies in “Nominees for Election of Directors” in Item 1 – Election of Directors. The Board and the Nominating and Governance Committee considered that each nominee has experience serving in senior positions with significant responsibility, where each has gained valuable expertise in a number of areas relevant to the Company and its business. The Board and the Nominating and Governance Committee also considered that a number of directors have gained valuable experience and skills through serving as a director of other public and private companies. The nominees represent a broad range of expertise, experience, viewpoints and backgrounds, as well as a mix of tenure of service on the Board. The independence, age, tenure and diversity of the nominees as a group are as follows:
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INDEPENDENCE 13 of 14 | AGE ~64 years average | ||||
 |  | ||||
TENURE ~9 years average | DIVERSITY ~50% diverse | ||||
 |  | ||||
Director Age Limit | ||
The Governance Guidelines provide that no person who will have reached the age of 74 on or before the date of the next annual shareholders meeting will be nominated for election at that meeting without an express waiver by the Board.
The Board believes that waivers of this policy should not be automatic and should be based upon the needs of the Company and the individual attributes of the director.
Director Independence and Independence Determinations | ||
Under our Governance Guidelines and NYSE rules, a director is not independent unless the Board affirmatively determines that he or she does not have a direct or indirect material relationship with the Company. In addition, the director must meet the bright-line test for independence set forth by the NYSE rules.
The Board has established categorical standards of director independence to assist it in making independence determinations. These standards, which are included in our Governance Guidelines, set forth certain relationships between the Company and the directors and their immediate family members, or entities with which they are affiliated, that the Board, in its judgment, has determined to be material or immaterial in assessing a director’s independence. The Nominating and Governance Committee annually reviews the independence of all directors and reports its determinations to the full Board.
In the event a director has a relationship with the Company that is relevant to his or her independence and is not addressed by the categorical independence standards, the independent members of the Board determine in their judgment whether such relationship is material.
Our Governance Guidelines require that:
•all members of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee be independent; and
•no more than two members of the Board may concurrently serve as officers of the Company.
The Board, upon recommendation of its Nominating and Governance Committee, has determined that all of its current directors and director nominees are independent, other than our Chairman and Chief Executive Officer, Mr. Alan Schnitzer. Consequently, assuming election of all the
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nominees included in this Proxy Statement, approximately 93% of the directors on the Board will be independent.
In making its independence determinations, the Nominating and Governance Committee and the Board reviewed various commercial, charitable and employment transactions and relationships (including those identified through annual directors’ questionnaires) that exist
between us and our subsidiaries and the entities with which certain of our directors or members of their immediate families are, or have been, affiliated and determined that the transactions identified were not material and did not affect the independence of any of our non-employee directors under either the Company’s Governance Guidelines or the applicable NYSE rules.
Sustainability and Risk Management | ||
Sustained Value Creation
At Travelers, our simple and unwavering mission for creating shareholder value is to: deliver superior core return on equity by leveraging our competitive advantages; generate earnings and capital substantially in excess of our growth needs; and thoughtfully rightsize capital and grow book value per share over time. Executing our long-term strategy requires that we fulfill what we call “The Travelers Promise” — our promise to take care of our customers, our communities and our employees, agents and brokers. For this reason, we take an integrated approach to sustained value creation.
We regularly engage with our investors, customers, employees, agents and brokers, regulators, rating agencies and other stakeholders on business issues and environmental, social and governance (“ESG”) topics. We
also provide robust and detailed disclosure on our website, https://sustainability.travelers.com, updated on an annual basis, with respect to our comprehensive approach to creating shareholder value over time and the many Travelers initiatives that contribute to our sustainability. Our sustainability reporting is aligned with the Sustainability Accounting Standards Board (“SASB”) standards for the insurance industry, the recommendations of the Task Force on Climate-related Financial Disclosure (“TCFD”), the International Integrated Reporting Council <IR> framework and the Global Reporting Initiative standards.
Our sustainability reporting is focused on 16 topics that we have determined, through extensive engagements with our investors as well as a formal prioritization exercise, to be most relevant to our industry, our business and our stakeholders.
•Business Strategy & Competitive Advantages •Capital and Risk Management •Climate Strategy •Community •Governance Practices •Customer Experience •Data Privacy & Cybersecurity •Disaster Preparedness & Response | •Diversity & Inclusion •Eco-Efficient Operations •Ethics & Values •Human Capital Management •Innovation •Investment Management •Public Policy •Safety & Health | ||||
Oversight of Corporate Strategy, Sustainability/ESG and Allocation of
Risk Oversight
Risk Oversight
The Board regularly reviews the Company’s long-term business strategy and works with management to set the short-term and long-term strategic objectives of the Company and to monitor progress on those objectives. In setting and monitoring strategy, the Board, along with management, considers the risks and opportunities that impact the long-term sustainability of the Company’s business model, including risks and opportunities often labeled as “ESG”. The Board also considers whether the
strategy is consistent with the Company’s risk appetite. The Board regularly reviews the Company’s progress with respect to its strategic goals, the risks that could impact the long-term sustainability of our business and the related opportunities that could enhance the Company’s long-term sustainability. The Board oversees these efforts in part through its various committees based on each Committee’s responsibilities and expertise. Each Committee regularly reports to the Board regarding its areas of responsibility.
The Board has allocated and delegated risk oversight responsibility to various committees of the Board in accordance with the following principles:
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| Committee | Responsible for Oversight of: | ||||
| Audit | •Risks related to the integrity of the Company’s financial statements, including oversight of financial reporting principles and policies and internal controls. •The Company’s process for establishing insurance reserves. •Risks related to regulatory and compliance matters. | ||||
| Risk | •The Company’s Enterprise Risk Management activities. •Risks related to the Company’s business operations, including insurance underwriting and claims; reinsurance; catastrophe risk and the impact of changing climate conditions; credit risk in insurance operations; information technology, including cybersecurity. •The Company’s Business continuity plans. | ||||
| Compensation | •The Company’s pay-for-performance philosophy and practices designed to ensure equitable pay across the organization. •Risks related to the Company’s compensation programs, including formulation, administration and regulatory compliance with respect to compensation matters. | ||||
| Investment and Capital Markets | •Risks related to the Company’s investment portfolio (including valuation and credit risks), capital structure, financing arrangements and liquidity. | ||||
Nominating and Governance | •Risks related to corporate governance matters, including succession planning, director independence and related person transactions. •The Company’s workforce diversity and inclusion efforts, public policy initiatives and community relations. | ||||
Each committee is also responsible for monitoring reputational risk to the extent arising out of its area of responsibility. | ||
As a result, each committee charter contains specific risk oversight functions delegated by the Board, consistent with the principles set forth above. In that way, monitoring of strategic objectives, risk oversight responsibilities and oversight of the Company’s sustainability more generally are shared by all committees of the Board, with each committee assigned responsibility for oversight of matters most applicable to its charter responsibilities and meeting regularly with management members responsible for such matters. Further, we believe that allocating responsibility to a committee with relevant knowledge and experience improves the oversight of risks and opportunities.
The allocation of risk oversight responsibility may change, from time to time, based on the evolving needs of the Company. On at least an annual basis, the Board reviews significant risks that management, through its Enterprise Risk Management efforts, has identified. The Board then evaluates, and may change, the allocation among the various committees of oversight responsibility for each identified risk. Further, each committee periodically reports to the Board on its risk oversight activities. In addition, at least annually, the Company’s Chief Risk Officer conducts a review of the interrelationships of risks and reports the results to the Risk Committee and the Board. These reports and reviews are intended to inform the Board’s annual evaluation of the allocation of risk oversight responsibility.
Enterprise Risk Management
Enterprise Risk Management (“ERM”) is a Company-wide initiative that involves the identification and assessment of a broad range of risks that could affect our ability to fulfill our business objectives as well as the development of plans to mitigate their effects. Our Board of Directors oversees our ERM process. The Risk Committee and the other committees of the Board, as well as our separate management-level enterprise risk and underwriting risk committees, are key elements of our ERM structure and help to establish and reinforce our strong culture of risk management. For example, having both a Board Risk Committee that oversees operational risks and our ERM activities, and a management-level enterprise risk committee that reports regularly to the Board Risk Committee, enables a high degree of coordination between management and the Board.
We describe our ERM function in more detail in our Annual Report on Form 10-K, under “Business—Enterprise Risk Management” and on the Capital and Risk Management section of our sustainability website. We also discuss the alignment of our executive compensation with our risk management below.
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Risk Management and Compensation | ||
Our compensation structure is intended to encourage a careful balance of risk and reward, both on an individual risk basis and in the aggregate on a Company-wide basis, and promote a long-term perspective.
As discussed in more detail under “Compensation Discussion and Analysis” in this Proxy Statement, consistent with our goal of achieving a core return on equity in the mid-teens over time, the Compensation Committee selected adjusted core return on equity as the quantitative performance measure for the performance share portion of our stock-based long-term incentive program and as a material factor, although not the only factor, in determining amounts paid under our annual cash bonus program. Because core return on equity is a function of both core income and shareholders’ equity, it encourages senior executives, as well as other employees with management responsibility, to focus on a variety of performance objectives that are important for creating shareholder value, including the quality and profitability of our underwriting and investing activities and capital management.
In addition, the long-term nature of our stock-based incentive awards (which generally do not vest until three years after the award is granted), our significant executive
stock ownership requirements and the fact that more than 50% of our named executive officers’ total direct compensation in the aggregate was in the form of stock-based long-term incentives, all encourage prudent enterprise risk management and discourage excessive risk taking to achieve short-term gains.
Moreover, neither the long-term incentive awards nor annual cash bonuses require growth in revenues or earnings in order for our executives to be rewarded, and none of our executives are paid based on a formulaic percentage of revenues or profits. As a result of this and the mix of short- and long-term performance criteria across our compensation programs, among other factors, we believe that our compensation practices and policies are not reasonably likely to have a material adverse effect on the Company.
Furthermore, the Compensation Committee’s independent compensation consultant evaluates and advises the Compensation Committee as to the design and risk implications of our incentive plans and other aspects of our compensation programs to ensure that the mix of compensation, the balance of performance measures and the overall compensation framework all support our short-and long-term objectives.
Dating and Pricing of Equity Grants | ||
The Board has adopted a governance guideline establishing fixed grant dates for the grant of equity awards made at times other than at a regularly scheduled meeting of the Compensation Committee, so as to avoid the appearance that equity grant dates have been established with a view to benefiting recipients due to the timing of material public announcements. The Compensation Committee typically makes annual awards of equity at its first regularly scheduled meeting of the year, which is usually held in early February. This meeting date is typically set a few years in advance as part of the Board’s annual calendar of scheduled meetings.
In addition, to further ensure the integrity of our equity awards process, the Compensation Committee requires that the exercise price of all stock options granted, and the fair value of all equity awards made, must be determined by reference to the closing price for a share of our common stock on the NYSE on the date of any such grant or award. Under the Company’s stock plans, the Compensation Committee may not take any action with respect to any stock option that would be treated as a “repricing” of such stock option, unless such action is approved by the Company’s shareholders in accordance with applicable rules of the NYSE.
Code of Business Conduct and Ethics | ||
We maintain a Code of Business Conduct and Ethics, which is applicable to all of our directors, officers and employees, including our CEO, Chief Financial Officer, Controller and other senior financial officers. The Code of Conduct provides a framework for sound ethical business decisions and sets forth our expectations on a number of topics, including conflicts of interest, compliance with laws, use of our assets and business ethics. The Code of Conduct may be found on our website at www.travelers.com under “Investors: Corporate Governance: Code of Conduct”. Our Chief Ethics and Compliance Officer is responsible for
overseeing compliance with the Code of Conduct as part of fulfilling her responsibility for overseeing our ethics and compliance functions throughout the organization. Our Chief Ethics and Compliance Officer also assists in the communication of the Code of Conduct and oversees employee education regarding its requirements through the use of global, computer-based training, supplemented with focused in-person sessions where appropriate. All employees and directors are required to certify annually that they have reviewed, understand and agree to comply with the contents of the Code of Conduct.
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Ethics Helpline | ||
We maintain an Ethics Helpline, which is administered by an independent third party, through which employees can report integrity concerns or seek guidance regarding a policy or procedure. The Ethics Helpline is available seven days a week, 24 hours a day and can be accessed by individuals online or through a toll-free number. In either case, employees can report concerns anonymously. We maintain a formal non-retaliation policy that prohibits retaliation against, or discipline of, an employee who raises an ethical concern in good faith.
Trained professionals investigate each concern and, where appropriate, escalate the concern internally. Any ethics- or
compliance-related issues are addressed by the Ethics and Compliance Office. Our Chief Ethics and Compliance Officer provides the Audit Committee with quarterly summaries of matters reported through the Ethics Helpline and more frequent compliance updates as appropriate. Additionally, the Audit Committee receives reports on all matters reported to the Chief Ethics and Compliance Officer that involve accounting, internal control or audit matters, or any fraud involving persons with a significant role in our internal controls.
Communications with the Board | ||
As described on our website at www.travelers.com, interested parties, including shareholders, who wish to communicate with a member or members of the Board, including the Lead Director of the Board, the Nominating and Governance Committee, the non-employee directors as a group or the Audit Committee may do so by addressing their correspondence as follows: if intended for the full Board or one or more non-employee directors, to the Lead Director; if intended for the Lead Director, to the Lead Director; and if intended for the Audit Committee or
the Nominating and Governance Committee, to the Chair of such Committee.
All such correspondence should be sent c/o Corporate Secretary, The Travelers Companies, Inc., 385 Washington Street, Saint Paul, Minnesota 55102. The office of the Corporate Secretary will forward such correspondence as appropriate.
Transactions with Related Persons | ||
General
The Board has adopted a written Related Person Transaction Policy to assist it in reviewing, approving and ratifying related person transactions and to assist us in the preparation of related disclosures required by the SEC. This Related Person Transaction Policy supplements our other policies that may apply to transactions with related persons, such as our Governance Guidelines and Code of Conduct.
The Related Person Transaction Policy provides that all related person transactions covered by the policy are prohibited, unless approved or ratified by the Board or by the Nominating and Governance Committee. Our directors and executive officers are required to provide prompt and detailed notice of any potential Related Person Transaction (as defined in the policy) to the Corporate Secretary, who in turn must promptly forward such notice and information to the Chair of the Nominating and Governance Committee and to our counsel for analysis, to determine whether the particular transaction constitutes a Related Person Transaction requiring compliance with the policy. The analysis and recommendation of counsel are then presented to the Nominating and Governance Committee for consideration at its next regular meeting.
In reviewing Related Person Transactions for approval or ratification, the Nominating and Governance Committee will consider the relevant facts and circumstances, including:
•the commercial reasonableness of the terms;
•the benefit (or lack thereof) to the Company;
•opportunity costs of alternate transactions;
•the materiality and character of the related person’s interest, including any actual or perceived conflicts of interest; and
•with respect to a non-employee director or nominee, whether the transaction would compromise the director’s independence under our Governance Guidelines, the NYSE rules (including those applicable to committee service) and Rule 10A-3 of the Exchange Act, if such non-employee director serves on the Audit Committee, or status as a “non-employee director” under Rule 16b-3 of the Exchange Act, if such non-employee director serves on the Compensation Committee.
The Nominating and Governance Committee will not approve or ratify a Related Person Transaction unless, after considering all relevant information, it has determined that the transaction is in, or is not inconsistent
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with, the best interests of the Company and our shareholders.
Generally, the Related Person Transaction Policy applies to any current or proposed transaction in which:
•the Company was or is to be a participant;
•the amount involved exceeds $120,000; and
•any related person had or will have a direct or indirect material interest.
A copy of our Related Person Transaction Policy is available on our website at www.travelers.com under “Investors: Corporate Governance: Governance Documents”.
In addition to the Related Person Transaction Policy, our Code of Conduct requires that all employees, officers and directors avoid any situation that involves or appears to involve a conflict of interest between their personal and professional relationships. Our Audit Committee provides oversight regarding compliance with our Code of Conduct and discusses any apparent conflicts of interest with senior management. The policies of the Company also require that all employees seek approval from our Chief Ethics and Compliance Officer prior to accepting a position as a director or officer of any unaffiliated for-profit company or organization.
Third-Party Transactions
We engage many service providers, nationally and internationally, as part of our daily business operations. For more than 10 years, a number of our offices across the country engaged GJ Sullivan Co. Reinsurance (“GJS”) in connection with the placement of reinsurance for the Company’s Business Insurance segment in the ordinary course of business and on an arm’s-length basis. In 2022, in connection with those reinsurance placements, we estimate that GJS received commissions from reinsurers of approximately $1.44 million in the aggregate. Jeffrey P. Klenk is Executive Vice President and President of our Bond & Specialty Insurance segment, and his father-in-law, Mr. Jerry Sullivan, is owner, Chairman and President of GJS. Mr. Klenk has been an executive officer of the Company since September 2021 and has not had, and has explicitly recused himself from, any involvement with respect to our engagement of, or payments to, GJS.
From time to time, institutional investors, such as large investment management firms, mutual fund management organizations and other financial organizations, become beneficial owners (through aggregation of holdings of their affiliates) of 5% or more of voting securities of the Company and, as a result, are considered a “related person” under the Related Person Transaction Policy. These organizations may provide services to the Company or its benefit plans. In addition, the Company may provide insurance coverage to these organizations. In 2022, the following transactions occurred with investors who
reported beneficial ownership of 5% or more of the Company’s voting securities:
•In 2022, BlackRock, Inc. (“BlackRock”) paid premiums of approximately $2.24 million for insurance policies with subsidiaries of the Company in the ordinary course of business and on substantially the same terms as those offered to other customers, and subsidiaries of the Company have paid, or may pay, claims in the ordinary course of business in connection with such insurance policies. In addition, an affiliate of BlackRock provides investment management services to the Company’s Canadian Savings Plan, and pursuant to that agreement, the participants in the Canadian Savings Plan paid management fees to BlackRock in 2022. The investment management agreement was entered into on an arm’s-length basis. Also, in 2022, the Company paid approximately $258,000 to a subsidiary of BlackRock for a software license. The software license was entered into on an arm’s-length basis, prior to the acquisition of the subsidiary by BlackRock.
•In 2022, FMR LLC (“Fidelity”) paid premiums of approximately $1.66 million for insurance policies with subsidiaries of the Company in the ordinary course of business and on substantially the same terms as those offered to other customers, and subsidiaries of the Company have paid, or may pay, claims in the ordinary course of business in connection with such insurance policies. Also, the Company has entered into agreements on an arm’s-length basis with affiliates of Fidelity for services related to certain of the Company’s benefit plans. An affiliate of Fidelity serves as the administrator of the Company’s equity compensation programs under an agreement originally entered into with the Company in November 2009. Pursuant to such agreement, the Company paid such affiliate approximately $183,000 in 2022. Further, an affiliate of Fidelity has provided trust, recordkeeping and administrative services for the 401(k) Savings Plan since 1998. Pursuant to the current agreement for such services, which was last restated in July 2022, Fidelity was paid approximately $1.3 million in 2022 for recordkeeping of the 401(k) Savings Plan trust. Participants in the 401(k) Savings Plan paid management fees in 2022 to affiliates of Fidelity that provide investment management services to funds included in the 401(k) Savings Plan. In addition, an affiliate of Fidelity provides administrative services for health savings accounts for employees of the Company under an agreement that became effective in October 2013, and the Company paid approximately $22,000 in fees for such services in 2022. Finally, the Company paid approximately $2,900 in fees to affiliates of Fidelity in 2022 for administrative services under the Benefit Equalization Plan, Deferred Compensation Plan and Executive Savings Plan, each as defined below under “Post-Employment Compensation”, and the Deferred Compensation Plan for Non-Employee Directors,
2023 Proxy Statement | The Travelers Companies, Inc. | 29 | ||||
CORPORATE GOVERNANCE
pursuant to agreements that date back to December 1997.
•In 2022, an affiliate of State Street Corporation (“State Street”) paid premiums of approximately $277,000 for insurance policies with subsidiaries of the Company in the ordinary course of business and on substantially the same terms as those offered to other customers, and subsidiaries of the Company have paid, or may pay, claims in the ordinary course of business in connection with such insurance policies. In addition, State Street provides investment management services to funds included in the 401(k) Savings Plan. Participants in the 401(k) Savings Plan paid management fees to such affiliate of State Street in 2022. The investment management agreement was entered into on an arm’s-length basis.
•In 2022, The Vanguard Group (“Vanguard”) paid premiums of approximately $1.42 million for insurance policies with subsidiaries of the Company in the ordinary course of business and on substantially the same terms as those offered to other customers, and subsidiaries of the Company have paid, or may pay, claims in the ordinary course of business in connection with such insurance policies. In addition, Vanguard provides investment management services to funds included in the qualified and non-qualified pension plans and the 401(k) Savings Plan. In 2022, the Company paid approximately $872,000 in management fees to Vanguard in connection with these plans and participants in the 401(k) Savings Plan also paid management fees to Vanguard. The investment management agreements were entered into on an arm’s-length basis.
30 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
CORPORATE GOVERNANCE
Non-Employee Director Compensation
The Nominating and Governance Committee of the Board recommends to the full Board for approval the amount and composition of Board compensation for non-employee directors. Directors who are our employees are not compensated for their service on the Board. In accordance with the Company’s Governance Guidelines, the Nominating and Governance Committee reviews the significance and appropriateness of each of the components of the Director Compensation Program at least once every two years. The Compensation Committee’s independent compensation consultant, FW Cook, advises the Nominating and Governance Committee with respect to director compensation.
The objectives of the Nominating and Governance Committee are to compensate directors in a manner that closely aligns the interests of directors with those of our shareholders, to attract and retain highly qualified directors and to structure and set total compensation in such a manner and at such levels that will not call into question any director’s objectivity. The Committee works with its independent compensation consultant to ensure that its compensation program is consistent with current market practices. It is the Board’s practice to provide a mix of cash and equity-based compensation to non-employee directors, as discussed below.
Elements of Non-Employee Director Compensation | ||
| Element | Timing | |||||||||||||||||||
 | ||||||||||||||||||||
| Annual Retainer | Each non-employee director receives an annual retainer of $135,000. | Annual retainers and committee chair fees are paid in quarterly installments, in arrears at the end of each quarter, either: (1) in cash or (2) if the director so elects, in common stock units credited to his or her deferred compensation account (discussed under “Director Deferral Plan” below) and distributed at a later date designated by the director. | ||||||||||||||||||
 | ||||||||||||||||||||
| Committee Chair Fees and Lead Director Retainer | The chairs of certain committees are paid additional fees in cash in connection with their services as follows: •Audit Committee - $30,000 •Compensation Committee - $30,000 •Nominating and Governance Committee - $25,000 •Investment and Capital Markets Committee - $25,000 •Risk Committee - $30,000 The Lead Director is paid an additional $50,000 annual cash retainer. | |||||||||||||||||||
 | ||||||||||||||||||||
| Annual Deferred Stock Award | Under the Director Compensation Program, during 2022, each non-employee director nominated for re-election to the Board was awarded $180,000 in deferred stock units. The deferred stock units were granted under our Amended and Restated 2014 Stock Incentive Plan (the “2014 Stock Incentive Plan”) and vest in full one day prior to the date of the annual shareholder meeting occurring in the year following the year of the date of grant so long as the non-employee director continuously serves on the Board through that date. The value of deferred stock units rises or falls as the price of our common stock fluctuates in the market. Dividend equivalents (in an amount equal to the dividends paid on shares of our common stock) on the deferred stock units are deemed “reinvested” in additional deferred stock units. Directors are subject to a stock ownership target as described under “Director Stock Ownership” below. | The accumulated deferred stock units, including associated dividend equivalents, in a director’s account are distributed in the form of shares of our common stock either in a lump sum or in annual installments, at the director’s election, beginning at least six months following termination of his or her service as a director. | ||||||||||||||||||
2023 Proxy Statement | The Travelers Companies, Inc. | 31 | ||||
CORPORATE GOVERNANCE
Director Deferral Plan | ||
In addition to receiving the annual deferred stock award in the form of deferred stock units, non-employee directors may elect to have all or any portion of their annual retainer and any lead director or committee chair fees paid in cash or deferred through our Deferred Compensation Plan for Non-Employee Directors. Deferrals of the annual retainer and any lead director or committee chair fees are notionally “invested” in common stock units. Any director who elects to have any of his or her fees credited to his or her deferred compensation plan account as common stock units will be deemed to have purchased shares on the date the fees would otherwise have been paid in cash, based on the closing market price of our common stock on such date.
The value of common stock units rises or falls as the price of our common stock fluctuates in the market. In addition, dividend equivalents (in an amount equal to the dividends paid on shares of our common stock) on the units are deemed “reinvested” in additional common stock units. The accumulated common stock units, including associated dividend equivalents, in a director’s account are distributed in the form of shares of our common stock on pre-designated dates. Shares of common stock issued in payment of the deferred fees are awarded under our 2014 Stock Incentive Plan.
Director Stock Ownership | ||
The Board believes its non-employee directors should accumulate and retain a level of ownership of our equity securities to align the interests of the non-employee directors and the shareholders. Accordingly, the Board has established an ownership target for each non-employee director equal to four times the director’s most recent annual deferred stock award. Each new director is expected to meet or exceed this target within four years of his or her initial election to the Board, except that, if the annual deferred stock award for any of those four years is less than the most recent previous annual deferred stock award, the director is expected to meet or exceed the higher target within five years of his or her initial election to the Board.
All of our current non-employee directors have achieved stock ownership levels in excess of the target amount or have joined the board within the last five years and are expected to meet the target within the required time period. Non-employee directors currently receive more than 50% of their annual board and committee compensation in the form of deferred stock units. The shares underlying these units are not distributed to a director until at least six months after the director leaves the Board. Accordingly, all of our non-employee directors hold equity interests that they cannot sell for so long as they serve on the Board and at least six months afterwards.
32 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
CORPORATE GOVERNANCE
Director Compensation for 2022 | ||
The 2022 compensation of non-employee directors is displayed in the table below.
| Name | Fees Earned or Paid in Cash(1) ($) | Stock Awards(2) ($) | All Other Compensation ($) | Total ($) | ||||||||||
| Alan L. Beller | 135,000 | 179,918 | — | 314,918 | ||||||||||
| Janet M. Dolan | 145,027 | 179,918 | — | 324,945 | ||||||||||
| Patricia L. Higgins | 135,000 | 179,918 | — | 314,918 | ||||||||||
| William J. Kane | 165,000 | 179,918 | — | 344,918 | ||||||||||
| Thomas B. Leonardi | 135,000 | 179,918 | — | 314,918 | ||||||||||
| Clarence Otis Jr. | 165,000 | 179,918 | — | 344,918 | ||||||||||
| Elizabeth E. Robinson | 149,973 | 179,918 | — | 329,891 | ||||||||||
| Philip T. Ruegger III | 160,000 | 179,918 | — | 339,918 | ||||||||||
| Rafael Santana | 135,000 | 179,918 | — | 314,918 | ||||||||||
| Todd C. Schermerhorn | 215,000 | 179,918 | — | 394,918 | ||||||||||
| Laurie J. Thomsen | 135,000 | 179,918 | — | 314,918 | ||||||||||
| Bridget van Kralingen | 135,000 | 179,918 | — | 314,918 | ||||||||||
(1)The fees earned for non-employee directors consist of an annual retainer along with committee chair fees and a lead director annual retainer, to the extent applicable. All of the non-employee directors, other than Ms. Robinson, received all of their fees in cash. Ms. Robinson elected to receive the 2022 annual retainer and committee chair fees in the form of common stock units, which will be accumulated in her deferred compensation plan account and distributed, together with associated dividend equivalents, at a later date (873 common stock units). The table above does not include a value for dividend equivalents attributable to the common stock units received in lieu of cash fees because they are earned at the same rate as the dividends on the Company’s common stock and are not preferential.
(2)The dollar amounts represent the grant date fair value of deferred stock units granted in 2022, calculated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 718, Compensation-Stock Compensation (“ASC Topic 718”), without taking into account estimated forfeitures, based on the closing market price on the NYSE of our common stock on the grant date. The dividend equivalents attributable to the annual deferred stock unit awards are deemed “reinvested” in additional deferred stock units and are distributed, together with the underlying deferred stock units, in the form of shares of our common stock beginning at least six months following termination of service as a director. In accordance with the SEC’s rules, dividend equivalents on stock awards are not required to be reported because the amounts of future dividends are factored into the grant date fair value of the awards. For a discussion of annual deferred stock awards, see “Elements of Non-Employee Director Compensation – Annual Deferred Stock Award” above.
On February 8, 2022, each non-employee director nominated for re-election to the Board at that time was granted 1,043 deferred stock units (determined by dividing $180,000 by the closing market price on the NYSE of our common stock of $172.50 on February 8, 2022). Each award is subject to forfeiture if a director leaves the Board before May 23, 2023 (the day prior to the Annual Meeting).
The following table provides information with respect to aggregate holdings of common stock units and unvested and vested deferred stock units beneficially owned by our non-employee directors at December 31, 2022. The amounts below include dividend equivalents credited (in the form of additional common stock units or deferred stock units, respectively) on common stock units and deferred stock units.
| Name | Unvested Deferred Stock Units (#) | Common Stock Units and Vested Deferred Stock Units (#) | ||||||
| Alan L. Beller | 1,065 | 39,176 | ||||||
| Janet M. Dolan | 1,065 | 52,983 | ||||||
| Patricia L. Higgins | 1,065 | 39,176 | ||||||
| William J. Kane | 1,065 | 19,151 | ||||||
| Thomas B. Leonardi | 1,065 | 1,145 | ||||||
| Clarence Otis Jr. | 1,065 | 11,910 | ||||||
| Elizabeth E. Robinson | 1,065 | 4,974 | ||||||
| Philip T. Ruegger III | 1,065 | 13,522 | ||||||
| Rafael Santana | 1,065 | — | ||||||
| Todd C. Schermerhorn | 1,065 | 9,113 | ||||||
| Laurie J. Thomsen | 1,065 | 54,160 | ||||||
| Bridget van Kralingen | 1,065 | — | ||||||
2023 Proxy Statement | The Travelers Companies, Inc. | 33 | ||||
AUDIT COMMITTEE MATTERS
ITEM 2 | Ratification of Independent Registered Public Accounting Firm | | Your Board recommends you vote FOR the ratification of KPMG LLP as our independent registered public accounting firm for 2023. | ||||||||
The Audit Committee is responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit the Company’s financial statements. The Audit Committee has selected KPMG LLP (“KPMG”) to serve as our independent registered public accounting firm for 2023.
Although ratification is not required by our bylaws or otherwise, the Board is submitting the selection of KPMG to our shareholders for ratification because we value our shareholders’ views on the Company’s independent registered public accounting firm. If our shareholders fail to ratify the selection, it will be considered notice to the Board and the Audit Committee to consider the selection of a different firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.
Travelers Property Casualty Corp. (“TPC”) and The St. Paul Companies, Inc. (“The St. Paul”) merged in 2004 (the “Merger”) to form the Company. KPMG has continuously served as the independent registered public accounting
firm of TPC since 1994. KPMG had continuously served as the independent registered public accounting firm of The St. Paul and its subsidiaries from 1968 through the time of the Merger, when TPC was deemed the acquirer for accounting purposes.
As part of the evaluation of its independent registered public accounting firm, the Audit Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm. In addition, in conjunction with the mandated rotation of the independent registered public accounting firm’s lead audit partner, the Audit Committee and the Audit Committee Chairman are directly involved in the selection of KPMG’s lead audit partner. The Audit Committee and the Board of Directors believe that the continued retention of KPMG to serve as the Company’s independent registered public accounting firm is in the best interests of the Company and its shareholders.
Representatives of KPMG are expected to be present at the Annual Meeting. They also will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
Audit and Non-Audit Fees
In connection with the audit of the 2022 financial statements, we entered into an agreement with KPMG which sets forth the terms by which KPMG would perform audit services for the Company. The following table presents fees for professional services rendered by KPMG for 2022 and 2021:
| 2022 | 2021 | ||||||||||
Audit fees(1) | $ | 10,063,900 | $ | 9,448,800 | |||||||
Audit-related fees(2) | 838,200 | 774,100 | |||||||||
Tax fees(3) | 164,500 | 156,100 | |||||||||
| Total | $ | 11,066,600 | $ | 10,379,000 | |||||||
(1)Fees paid were for audits of financial statements, reviews of quarterly financial statements and related reports and reviews of registration statements and certain periodic reports filed with the SEC.
(2)Services primarily consisted of audits of employee benefit plans and reports on internal controls not required by applicable regulations.
(3)Tax fees related primarily to tax return preparation and assistance services, as well as domestic and international tax compliance-related services.
The Audit Committee of the Board considered whether providing the non-audit services included in this table was
compatible with maintaining KPMG’s independence and concluded that it was.
Consistent with SEC policies regarding auditor independence and the Audit Committee’s charter, the Audit Committee has responsibility for appointing, setting compensation for and reviewing the performance of the independent registered public accounting firm. In exercising this responsibility, the Audit Committee preapproves all audit and permitted non-audit services provided by the independent registered public accounting firm. Each year, the Audit Committee approves an annual budget for such permitted non-audit services and requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year. The Audit Committee has authorized our Chief Auditor to approve KPMG’s commencement of work on such permitted services within that budget, although the Chair of the Audit Committee must approve any such permitted non-audit service within the budget if the expected cost for that service exceeds $100,000. During the year, circumstances may arise that make it necessary to engage the independent registered public accounting firm for additional services that would
34 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
AUDIT COMMITTEE MATTERS
exceed the initial budget. The Audit Committee has delegated the authority to the Chair of the Audit Committee to review such circumstances and to grant
approval when appropriate. All such approvals are then reported by the Audit Committee Chair to the full Audit Committee at its next meeting.
Report of the Audit Committee
The Audit Committee operates pursuant to a charter which is reviewed annually by the Audit Committee. Additionally, a brief description of the primary responsibilities of the Audit Committee is included under the heading “Governance of Your Company—Committees of the Board and Meetings—Audit Committee” in this Proxy Statement. Under the Audit Committee charter, management is responsible for the preparation, presentation and integrity of the Company’s financial statements, the application of accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles. In addition, the independent registered public accounting firm is responsible for auditing and expressing an opinion on the Company’s internal controls over financial reporting.
In the performance of its oversight function, the Audit Committee reviewed and discussed the audited financial
statements of the Company with management and with the independent registered public accounting firm. The Audit Committee also received information regarding, and discussed with the independent registered public accounting firm, the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC, including matters concerning the independence of the independent registered public accounting firm.
Based upon the review and discussions described in the preceding paragraph, the Audit Committee recommended to the Board that the audited financial statements of the Company be included in the Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC.
Submitted by the Audit Committee of the Company’s Board of Directors:
| William J. Kane (Chair) | Todd C. Schermerhorn | ||||
| Alan L. Beller | Laurie J. Thomsen | ||||
| Patricia L. Higgins | Bridget van Kralingen | ||||
2023 Proxy Statement | The Travelers Companies, Inc. | 35 | ||||
EXECUTIVE COMPENSATION
ITEM 3 | Non-Binding Vote on the Frequency of Future Votes to Approve Executive Compensation | | Your Board recommends you vote for every “1 YEAR” with respect to the frequency of non-binding shareholder votes to approve executive compensation. | ||||||||
Pursuant to Section 14A of the Exchange Act, every six years, shareholders are entitled to indicate, on a non-binding basis, their preference as to how frequently they would like to cast a non-binding vote to approve the compensation of our named executive officers. Shareholders may indicate whether they would prefer such vote occur every one, two or three years or abstain from voting. While the Board intends to consider carefully the results of this vote, the vote is advisory in nature and is not binding on the Company or the Board.
At the Company’s 2011 and 2017 annual meetings of shareholders, our shareholders indicated their preference to hold a non-binding vote to approve the compensation of our named executive officers each year, and since 2011, the Board of Directors has annually submitted to a vote of the shareholders such non-binding proposal to approve the compensation of our named executive officers. The Board of Directors believes that a non-binding vote on executive compensation every year is appropriate for the Company and its shareholders based on a number of considerations, including the views previously expressed by our shareholders. It is expected that the next non-binding vote on the frequency of future votes on executive compensation will be held at the Company’s 2029 Annual Meeting of Shareholders.
36 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
EXECUTIVE COMPENSATION
ITEM 4 | Non-Binding Vote to Approve Executive Compensation | | Your Board recommends you vote FOR approval of named executive officer compensation. | ||||||||
The Company is requesting, pursuant to Section 14A of the Exchange Act, that shareholders vote, on a non-binding basis, to approve the compensation of our named executive officers as discussed in the “Compensation Discussion and Analysis” and the tabular executive compensation disclosure, including the “Summary Compensation Table” and accompanying narrative disclosure. The Company currently intends to hold such votes annually. The next vote to approve the compensation of our named executive officers is expected to be held at the Company’s 2024 Annual Meeting of Shareholders. While the Board intends to consider carefully the results of this vote, the final vote is advisory in nature and is not binding on the Company or the Board.
The Board recommends that shareholders vote “FOR” the following resolution:
RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the “Compensation Discussion and Analysis”, compensation tables and related narrative discussion, is hereby APPROVED.
As described in the “Compensation Discussion and Analysis”, our executive compensation programs are structured consistent with our longstanding pay-for-performance philosophy and utilize performance measures that are intended to align compensation with the creation of shareholder value and to reinforce a long-term perspective.
In deciding how to vote on this proposal, the Board encourages you to read the “Compensation Discussion and Analysis”, particularly the “2022 Overview”. In making compensation decisions for the 2022 performance year, the Compensation Committee considered the Company’s strong results in 2022 and over time on both an absolute basis and relative to our peers, as well as the financial metrics and other factors described in the “Compensation Discussion and Analysis”.
2023 Proxy Statement | The Travelers Companies, Inc. | 37 | ||||
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
2022 Overview | ||
This overview summarizes performance highlights from this year and over time that the Compensation Committee considered when awarding variable compensation to our named executive officers in February 2023 with respect to the 2022 performance year.
Another Year of Very Strong Financial Performance
With respect to this year’s performance, the Compensation Committee considered the Company’s strong top- and bottom-line results, despite the significant industrywide headwinds that impacted our Personal Insurance segment and an elevated level of catastrophe losses for the year.
Net Income of $2.8 billion and Net Income per Diluted Share of $11.77 | Core Income* of $3.0 billion and Core Income per Diluted Share* of $12.42 | Return on Equity of 12.2% and Core Return on Equity* of 11.3% | Returned more than $2.9 billion in capital to shareholders through dividends and share buybacks, while continuing to make strategic investments in our business | |||||||||||||||||
| Underwriting | We are pleased to have generated an underwriting gain* of $1.3 billion pre-tax, particularly in light of the industry-wide headwinds that impacted our Personal Insurance segment and an elevated level of catastrophe losses. Despite the challenging environment, we delivered an underlying underwriting gain* (which is our underwriting gain excluding the impact of catastrophes and net prior year reserve development) of $2.1 billion after-tax. To put this result in context, the average underlying underwriting gain for the prior years of the decade was $1.5 billion. | ||||||||||||||||
| Expense Ratio | Our expense ratio decreased by 90 basis points to a record low 28.5%. Over the past five years, we have reduced our expense ratio more than 200 basis points, or 7%, even after making important investments in ongoing and new strategic initiatives as we delivered on our objective of improving productivity and efficiency through technology investments and workflow enhancements. Importantly, at the same time, we have meaningfully increased our overall technology spend and improved the mix of our technology spend. Over the past five years, we have increased our spending on strategic initiatives by nearly 70%, while holding routine but necessary expenditures about flat. | ||||||||||||||||
| Execution of Our Marketplace Strategy | Net written premiums increased by 11% to a record $35.4 billion. Each of our operating segments contributed to this growth, with Business Insurance growing 10%, Bond & Specialty Insurance growing 11% and Personal Insurance growing 12%. | ||||||||||||||||
| Investment Performance | Our disciplined strategy and well-constructed portfolio positioned us to deliver very strong pre-tax net investment income of $2.6 billion. | ||||||||||||||||
| Book Value per Share | Book Value per Share decreased by 22% to $92.90 due to the impact of the significant increase in interest rates on the value of our fixed income portfolio during the year; Adjusted Book Value per Share* increased by 4% to $114.00, while, at the same time, we continued to make strategic investments in our business and return substantial excess capital to shareholders. | ||||||||||||||||
| Total Shareholder Return (TSR) | Our total return to shareholders in 2022 was approximately 22% for the year as compared to (18%) for the S&P 500 Index and 4% for the Compensation Comparison Group, placing the Company at the 87th percentile for the Compensation Comparison Group. For the three-year and five-year periods ended December 31, 2022, our total return to shareholders were 47%, and 55%, respectively. These returns placed the Company at the 67th and 45th percentile of our Compensation Comparison Group for the three-year and five-year periods, respectively. | ||||||||||||||||
* See “Annex A–Reconciliation of GAAP Measures to Non-GAAP Measures and Selected Definitions” on page A-1.
38 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
EXECUTIVE COMPENSATION
A Decade of Very Strong and Consistent Financial Performance
In addition to the factors discussed above and consistent with how we manage our business with a long-term perspective, in setting this year’s compensation, the Compensation Committee considered that our strong results this year and over the past few years cap off a decade of very strong and consistent performance. Over the past six years as compared to the prior years in the decade, we doubled our rate of growth, sustained strong underlying underwriting margins and lowered our expense ratio. That has resulted in higher underlying underwriting gains, stronger cash flows and higher levels of invested assets. In addition, we have posted a double-digit return on equity in every year over the last decade, except for 2017, a difficult catastrophe year for the industry (with three hurricanes and wildfires in California), in which we posted a 9% return on equity. In every one of those years, our returns comfortably covered our cost of equity. Over the last ten years, we have also meaningfully grown both book value per share and adjusted book value per share (which excludes the after-tax impact of unrealized gains and losses on investments) while, at the same time, continuing to invest meaningfully in our competitive advantages and to return substantial excess capital to shareholders. Our strong and consistent performance this year and over recent years, through different and often challenging economic and market conditions, is the result of a sound strategy and the successful achievement of our strategic objectives.
Another Year of Delivering on the Travelers Promise
Our long-term success depends not only on our business strategy and competitive advantages but also on keeping our promise to be there for our customers, communities and employees – or what we call the Travelers Promise. For this reason, we take an integrated approach to sustained value creation. Here are some of the ways we delivered on the Travelers Promise in 2022:
| Customers | Communities | Employees | ||||||||||||||||||
•Responded to 1.7 million claims or more than three claims per minute. •Closed more than 90% of all property claims arising out of catastrophe events within 30 days. •Responded to more than 85% of our customers’ social media posts within 45 minutes or less. | •Donated nearly $24 million to our communities and a total of more than $230 million over the past decade. •Employees donated nearly $2.8 million to our communities through company-wide programs. •Celebrated the 15th anniversary of our Travelers EDGE program, empowering students from historically underrepresented backgrounds. | •$117,000 median pay for full-time employees (in the United States). •$18/hour minimum wage (in the United States). •52,000 individuals covered under Travelers’ medical plans. •More than $600 million and $225 million spent on retirement and medical costs, respectively. •Industry-leading average tenure. •54% women and 27% people of color in our U.S. workforce. •In each of the last 10 years, increased the percentage of people of color in our workforce and increased the percentage of women and people of color in management positions. | ||||||||||||||||||
2023 Proxy Statement | The Travelers Companies, Inc. | 39 | ||||
EXECUTIVE COMPENSATION
2022 Performance-Based Compensation
When making the compensation decisions described below, the Compensation Committee considered the factors discussed above under “2022 Overview” and the substantial contributions made by the named executive officers in achieving the results, as well as that our named executive officers individually performed at superior levels. In addition to the performance of the Company and the significant contributions made by each of our named executive officers, the Compensation Committee considered relevant compensation information for our Compensation Comparison Group, the individual executive’s experience and skill set and other relevant factors.
| Element | CEO Outcomes | Other NEO Considerations | |||||||||||||||
| Annual Bonus | •Mr. Schnitzer’s cash bonus increased from $6.5 million to $6.8 million year-over-year, an increase of 4.6%. | •The average annual cash bonus for each of Messrs. Frey, Kess and Toczydlowski increased by an average of 4.2% year-over-year. •Mr. Klein’s bonus was consistent with the prior year, reflecting the significant impact on Personal Insurance’s results of the unanticipated inflationary pressures on the industry, including Travelers, while also acknowledging Mr. Klein’s effective leadership, Personal Insurance’s excellent marketplace execution during this challenging environment and the strategic accomplishments of Personal Insurance during the year. | ||||||||||||||
| |||||||||||||||||
| Long-Term Incentives | •Mr. Schnitzer’s annual equity award increased from $12.9 million to $14.25 million year-over-year, an increase of 10.5%. | •Consistent with the prior year, the annual equity awards for each of Messrs. Frey and Kess were set at 3.0 times base salary. •Consistent with the prior year, the annual equity awards for each of Messrs. Toczydlowski and Klein were set at approximately 4.0 times base salary. | |||||||||||||||
40 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
EXECUTIVE COMPENSATION
Consistent Performance Over Time
Our very strong results in 2022 build upon our exceptional results over the past decade. These results demonstrate the continued successful execution of our long-term financial strategy to create shareholder value.
 | ||||||||||||||||||||
| STRATEGIC OBJECTIVE | TRAVELERS TEN-YEAR PERFORMANCE | |||||||||||||||||||
| Deliver superior returns on equity by leveraging our competitive advantages |  Produced industry-leading return on equity with an industry-low level of volatility Increased dividends per share at an average annual rate of approximately 7% Returned approximately $29 billion of excess capital to our shareholders Increased our book value per share by 38% and our adjusted book value per share by 93% Delivered a total return to shareholders of 229% | |||||||||||||||||||
| Generate earnings and capital substantially in excess of our growth needs | ||||||||||||||||||||
| Thoughtfully rightsize capital and grow book value per share over time | ||||||||||||||||||||
The Company’s successful execution of this long-term financial strategy is demonstrated by the results we have achieved over time as discussed below.
Continued Profitability and Quality Underlying Underwriting Results
•Our business starts with risk selection, underwriting and pricing segmentation. •Our 2022 underlying underwriting gain (or “underwriting margin” excluding the impact of catastrophes and net prior year reserve development) was $2.1 billion after-tax. Despite the challenging environment, 2022 was the third year in a row that underlying underwriting gain has exceeded $2.0 billion. Through higher business volumes and continued strong profitability, we have driven underwriting gain to a new, higher level and sustained it at that level. •This result reflects the success we have had executing on our innovation strategy and demonstrates the quality of our underwriting and the discipline with which we run our business. | UNDERLYING UNDERWRITING GAIN(1) (in billions, after-tax) | |||||||
 (1)Excludes the impact of catastrophes and prior year reserve development. | ||||||||
The results we deliver are due to our deliberate and consistent approach to creating shareholder value. Our consistently articulated objective is to produce an appropriate return on equity for our shareholders over time. We emphasize that the objective is measured over time because we recognize that a long-term perspective is especially important in the property and casualty insurance industry where a short-term focus could create incentives for management to relax underwriting or investment standards to increase revenue and reported profit in the near term but create excessive risk for shareholders over the longer term. Moreover, results in the property and casualty insurance industry can vary significantly when measured year-to-year due to a variety of factors, including interest rates, reserve developments and weather, and success can only be measured over time and in the context of periods of financial crises, natural and man-made catastrophes, pandemics and other anticipated and unanticipated developments impacting loss trends and through both general economic cycles and more extreme economic conditions. Accordingly, we believe that the right way to manage our business is with a long-term perspective and to create value over time. The Compensation Committee believes that our compensation program should continue to reinforce this long-term perspective, as it has historically.
2023 Proxy Statement | The Travelers Companies, Inc. | 41 | ||||
EXECUTIVE COMPENSATION
Strategic Focus in Light of Forces of Change
Shortly after Mr. Schnitzer was appointed Chief Executive Officer in 2015, the leadership team identified the forces of change impacting our industry – namely, changing consumer expectations, emerging technology trends, more sophisticated data and analytics and evolving distribution models. In light of these trends, the Company established key innovation priorities and invested in capabilities to advance those priorities. These investments are largely geared toward positioning the Company to grow the top-line at attractive returns and improve operating leverage.
While the primary measure that we use for managing the business is core return on equity, any strategy to deliver a leading return on equity over time requires a strategy to grow over time. To that end, we laid out a strategy to position the Company for profitable growth. We have faithfully and consistently executed on this strategy through various economic and market conditions.
The charts below illustrate this strategy at work and its compounding, multi-year benefit. We have doubled our rate of growth, sustained strong underlying underwriting margins and lowered our expense ratio. That has resulted in higher underlying underwriting gains, stronger cash flows and higher levels of invested assets.
| ACCELERATING NET WRITTEN PREMIUM GROWTH | IMPROVING UNDERLYING COMBINED RATIO(3)(4) | ||||
 |  | ||||
| IMPROVING EXPENSE RATIO | INCREASING UNDERLYING UNDERWRITING GAIN (AFTER-TAX)(4) | ||||
 |  | ||||
INCREASING CASH FLOW FROM OPERATIONS | GROWING INVESTED ASSETS(5) | ||||
 |  | ||||
(1)Represents growth from 2012 through 2016.
(2)Represents growth from 2016 through 2022.
(3)The combined ratio is used as an indicator of the Company’s underwriting discipline, efficiency in acquiring and servicing its business and overall underwriting profitability. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.
(4)Excludes the impact of catastrophes and prior year reserve development.
(5)Invested assets excludes net unrealized investment gains (losses).
42 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
EXECUTIVE COMPENSATION
Achieved a Superior Return on Equity
Our return on equity has meaningfully outperformed the average return on equity for the property and casualty industry in each of the past ten years.
•Our 2022 return on equity of 12.2% substantially exceeded the average return on equity for the domestic property and casualty industry in 2022 of approximately 1.6%, as estimated by Conning, Inc., a global investment management firm. •Our average return on equity over the past decade of 12.1% exceeded the average return on equity for the domestic property and casualty industry of 6.8% and the average return on equity for the property and casualty companies in our Compensation Comparison Group of 10.2%. We have posted a double-digit return on equity in every year over the last decade, except for 2017, a difficult catastrophe year for the industry (with three hurricanes and wildfires in California), in which we posted an 9% return on equity. In every one of those years, we comfortably covered our cost of equity. •Our average return on equity over the past decade has been accompanied by less volatility as compared to all of the property and casualty insurers who are members of our Compensation Comparison Group. We believe that our performance over time demonstrates the value of our competitive advantages and the discipline with which we run our business. | RETURN ON EQUITY  (1)2022 Forecast: © 2023 Conning, Inc., as published in Conning’s Property-Casualty Forecast & Analysis by Line of Insurance, 2022 Q4 edition. Used with permission. Historical data: © 2023 S&P Global Market Intelligence LLC. Used with permission. | |||||||
2023 Proxy Statement | The Travelers Companies, Inc. | 43 | ||||
EXECUTIVE COMPENSATION
Increased Adjusted Book Value Per Share and Returned Significant Excess Capital to Our Shareholders
Over the last ten years, we meaningfully grew both book value per share and adjusted book value per share (which excludes the after-tax impact of unrealized gains and losses on investments) while at the same time continuing to invest meaningfully in our competitive advantages and returning substantial excess capital to shareholders.
•During 2022, our book value per share decreased 22%, due to the impact of the significant increase in interest rates on the value of our fixed income portfolio during the year. Because we generally hold our fixed income investments to maturity and maintain a very high-quality investment portfolio, we manage based on adjusted book value per share. Our adjusted book value per share increased by 4% during 2022, while, at the same time, we continued to make strategic investments in our business and to return a significant amount of excess capital to our shareholders through dividends and share repurchases. •Over the last 10 years, the compound annual growth rate of our book value per share was 3% and the compound annual growth rate of our adjusted book value per share was approximately 6%. •During 2022, we returned more than $2.9 billion in capital to shareholders through dividends of $0.9 billion and share repurchases of $2.0 billion. •Over the last 10 years, we have increased our dividend each year and increased dividends per share at an average annual rate of 7%. •Since we began our current share repurchase program in 2006, we have returned approximately $53 billion of excess capital to shareholders through dividends and share repurchases (at an average price per share of $72.50). | GROWING ADJUSTED BOOK VALUE PER SHARE(1) | |||||||
 | ||||||||
(1)Excludes net unrealized investment gains (losses), net of tax, included in shareholder's equity. | ||||||||
| GROWING DIVIDENDS PER SHARE | ||||||||
 | ||||||||
44 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
EXECUTIVE COMPENSATION
Achieved Superior Total Return to Shareholders Over Time
Strong financial results have led to outstanding total returns to shareholders over time (measured as the change in stock price plus the cumulative amount of dividends, assuming dividend reinvestment on the respective dividend payment dates).
•Our total return to shareholders in 2022 was approximately 22% for the year as compared to (18%) for the S&P 500 Index and 4% for the Compensation Comparison Group, placing the Company at the 87th percentile for the Compensation Comparison Group. •For the three-year and five-year periods ended December 31, 2022, our shareholder returns were 47%, and 55%, respectively. These returns placed the Company at the 67th and 45th percentile of our Compensation Comparison Group for the three-year and five-year periods, respectively. •As demonstrated by the accompanying chart, for the period beginning January 1, 2008 (prior to the 2008 financial crisis) and ending December 31, 2022, our total shareholder return of more than 400% exceeded that of our Compensation Comparison Group, the Dow 30 Index, the S&P 500 and the S&P 500 Financials. | TOTAL RETURN TO SHAREHOLDERS(1)  (1) Represents the change in stock price plus the cumulative amount of dividends, assuming dividend reinvestment. For each year on the chart, total return is calculated with January 1, 2008 as the starting point and December 31 of the relevant year as the ending point. © Bloomberg Finance L.P. Used with permission of Bloomberg. | |||||||
We measure our success in executing on our financial strategy over time. This long-term perspective is especially important in the property and casualty insurance industry where a short-term focus could create incentives for management to relax underwriting or investment standards to increase revenue and reported profit in the near term but create excessive risk for shareholders over the longer term. Moreover, results in the property and casualty insurance industry can vary significantly when measured year-to-year due to a variety of factors, and success can only be measured over time and in the context of periods of financial crises, natural and man-made catastrophes, pandemics and other anticipated and unanticipated developments impacting loss trends and through both general economic cycles and more extreme economic conditions. Accordingly, we believe that the right way to manage our business is with a long-term perspective and to create value over time. Consequently, in assessing total shareholder return, the Compensation Committee generally gives greater weight to performance over a longer period of time.
2023 Proxy Statement | The Travelers Companies, Inc. | 45 | ||||
EXECUTIVE COMPENSATION
Pay-for-Performance Philosophy | ||
Our compensation program, the objectives and structure of which have been stable over time and aligned with our articulated financial strategy, is designed to reinforce a long-term perspective and align the interests of our executives with those of our shareholders. We measure our success in executing on our financial strategy over time. As noted above, this long-term perspective is especially important in the property and casualty insurance industry where a short-term focus could create incentives for management to relax underwriting or investment standards to increase revenue and reported profit in the near term but creating excessive risk for shareholders over the longer term. Moreover, results in the property and casualty insurance industry can vary significantly when measured year-to-year due to a variety of factors, and success can only be measured over time and in the context of periods of financial crises, natural and man-made catastrophes, pandemics and other anticipated and unanticipated developments impacting loss trends and through both general economic cycles and more extreme economic conditions. Accordingly, we believe that the right way to manage our business is with a long-term perspective and to create value over time.
| Consistent with our longstanding pay-for-performance philosophy, the Compensation Committee believes that: | In addition, to a greater extent than many of the companies included in our Compensation Comparison Group, due to the absence of time-based restricted stock in our ongoing program, the ultimate value of our named executive officer compensation is performance-based and is tied to operating results and increases in shareholder value over time. | ||||||||||||||||
 | When we generally exceed our performance goals and the named executive officers individually perform at superior levels in achieving that performance, total compensation for our executive officers should be set at superior levels compared to the compensation levels for equivalent positions in our Compensation Comparison Group. | ||||||||||||||||
 | When we do not generally exceed our performance goals or the named executive officers individually do not perform at superior levels, total compensation for these executives should be set at lower levels. | ||||||||||||||||
While the objectives and structure of our compensation program have been stable over time, compensation levels vary significantly from year-to-year and correlate with our results. The following chart illustrates the directional relationship for the past ten performance years (“PY”) between total direct compensation (consisting of paid salary, cash bonus and the fair value at grant of long-term incentives as reflected in the Supplemental Table on page 68 for the Chief Executive Officer and the Company’s performance, as reflected by core return on equity (“ROE”)).
As explained under “—Objectives of Our Executive Compensation Program” below, the Compensation Committee believes that the effective management of catastrophes can only be evaluated over a longer period of time and that compensation levels should encourage a long-term perspective. Therefore, the Compensation Committee believes that, while catastrophe losses (“CATs”) should impact compensation levels, compensation levels should not be as volatile from year-to-year as changes in financial results due to catastrophe losses.
46 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
EXECUTIVE COMPENSATION
CEO TOTAL DIRECT COMPENSATION AND ADJUSTED CORE ROE WITH CATS AT AVERAGE LEVEL
AND AS REPORTED(1)
(1)The chart is intended to facilitate a year-to-year comparison of core return on equity by showing core return on equity both as reported and as adjusted to reflect the average level of catastrophe losses for the ten-year period ended December 31, 2022 in order to eliminate the volatility that undermines the comparison of period-to-period results. The average annual after-tax catastrophe losses for the ten-year period presented was $930 million (reflecting a U.S. corporate income tax rate of 21% for the five years ended December 31, 2022 and a U.S. corporate income tax rate of 35% for the prior five years). Actual catastrophe losses for each year are presented in Annex A.
(2)The total direct compensation for the CEO reflects the compensation paid to Mr. Schnitzer, our current Chief Executive Officer, for the performance years 2016 through 2022, and the compensation paid to Mr. Fishman, our former Chief Executive Officer, until December 2015, for the performance years 2013 through 2015.
Differences between total direct compensation for each performance year in the chart above and information included in the “Summary Compensation Table” are discussed in “—Total Direct Compensation for 2020-2022 (Supplemental Table)” and “—The Differences Between this Supplemental Table and the Summary Compensation Table” on page 68.
2023 Proxy Statement | The Travelers Companies, Inc. | 47 | ||||
EXECUTIVE COMPENSATION
Objectives of Our Executive Compensation Program | ||
With our overarching pay-for-performance philosophy in mind, the Compensation Committee has approved the following five primary objectives of our executive compensation program.
| Objective | |||||
Link compensation to the achievement of our short- and long-term financial and strategic objectives | The Compensation Committee believes that a properly structured compensation system should measure and reward performance on multiple bases. To ensure an appropriate degree of balance in the program, the compensation system is designed to measure short- and long-term financial and operating performance, the efficiency with which capital is employed in the business, the effective management of risk, the achievement of strategic initiatives and the individual performance of each executive. The Compensation Committee further believes that the most senior executives, who are responsible for the development and execution of our strategic and financial plans, should have the largest portion of their compensation tied to performance-based incentives, including stock-based compensation, the ultimate value of which is dependent on the performance of our stock price over time and on our three-year core return on equity. Accordingly, the proportion of total compensation that is performance-based increases with successively higher levels of responsibility. In addition, in evaluating the Company’s overall performance, the Compensation Committee considers that our business is subject to year-to-year volatility outside of management’s control, including natural and man-made catastrophic events. The Compensation Committee believes that, because the impact of catastrophes in any given year can produce significant volatility, the effective management of catastrophes can only be evaluated over a longer period of time. As a result, although the Compensation Committee believes that the impact of catastrophes on the Company’s financial results should be reflected in its executive compensation decisions, the Compensation Committee does not believe it is appropriate for compensation levels to be subject to as much volatility year-to-year as may be caused by actual catastrophes. | ||||
Provide competitive compensation opportunities to attract, retain and motivate high-performing executive talent | Our overall compensation levels are designed to attract and retain the best executives in light of the competition for executive talent. We recognize that to continue to produce industry-leading results over time, we need to continuously cultivate that talent. We do so with competitive compensation programs that are designed to attract, motivate and retain our best people, development programs that foster personal and professional growth, and a focus on diversity and inclusion as a business imperative. In addition, the Compensation Committee believes that, when we generally exceed our performance goals and the named executive officers individually perform at superior levels in achieving that performance, total compensation for these executive officers should be set at superior levels compared to the compensation levels for equivalent positions in our Compensation Comparison Group. When we do not generally exceed our performance goals or the named executive officers individually do not perform at superior levels, total compensation for these executives should be set at lower levels. The Compensation Committee may also consider other relevant facts and circumstances in awarding compensation in order to attract, retain and motivate high-performing talent. | ||||
48 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
EXECUTIVE COMPENSATION
| Objective | |||||
Align the interests of management and shareholders by paying a substantial portion of total compensation in stock-based incentives and ensuring that executives accumulate meaningful stock ownership stakes over their tenure | The Compensation Committee believes that the interests of executives and shareholders should be aligned. Accordingly, a significant portion of the total compensation for the named executive officers is in the form of stock-based compensation. The components of the annual stock-based compensation granted to the named executive officers in 2023 and 2022 were stock options and performance shares. Stock options provide value only if our stock appreciates, and performance shares vest only if specified core return on equity thresholds are met. In addition, as discussed below, senior executives are expected to achieve specified stock ownership targets. Both the portion of total compensation attributable to stock-based programs and the expected level of executive stock ownership increase with successively higher levels of responsibility. | ||||
Maximize, to the extent equitable and practicable, the financial efficiency of the overall compensation program | As part of the process of approving the initial design of incentive plans, or any subsequent modifications made to such plans, and determining awards under the plans, the Compensation Committee evaluates the aggregate economic costs and dilutive impact to shareholders of such compensation, the expected tax and accounting treatment and the impact on our financial results. The Compensation Committee attempts to balance the various financial implications of each program to ensure that the system is as efficient as possible and that unnecessary costs are avoided. | ||||
Reflect established and evolving corporate governance standards | The Compensation Committee, with the assistance of our Human Resources Department and the Compensation Committee’s independent compensation consultant, stays abreast of current and developing corporate governance standards and trends with respect to executive compensation and adjusts the various elements of our executive compensation program, from time to time, as it deems appropriate. | ||||
As a result of this process, the Compensation Committee has adopted the following practices, among others:
What We DO | What We DO NOT Do | |||||||
| Provide for a maximum cash bonus opportunity with regard to our Chief Executive Officer Maintain a robust share ownership requirement Maintain a clawback policy with respect to cash and equity incentive awards to our executive officers Prohibit hedging transactions as specified in our securities trading policy Prohibit pledging shares without the consent of the Company (no pledges have been made) Engage in extensive outreach and maintain a regular dialogue with shareholders relating to the Company’s governance, compensation and sustainability practices Engage an independent consultant that works directly for the Compensation Committee and does not work for management | No excise tax “gross-up” payments in the event of a change in control No tax “gross-up” payments on perquisites for named executive officers No repricing of stock options and no buy-out of underwater options No excessive or unusual perquisites No dividends or dividend equivalents paid on unvested performance shares No above-market returns provided for in deferred compensation plans No guaranteed equity awards or bonuses for named executive officers | |||||||
For a description of the duties of the Compensation Committee and its use of an independent compensation consultant, see “Governance of Your Company—Committees of the Board and Meetings—Compensation Committee” on page 19.
2023 Proxy Statement | The Travelers Companies, Inc. | 49 | ||||
EXECUTIVE COMPENSATION
Compensation Elements and Decisions | ||
With our pay-for-performance philosophy and compensation objectives discussed above as our guiding principles, we deliver annual executive compensation through the following elements:
2022 Compensation Mix(1)
CEO
OTHER NEO AVERAGE
(1)Pay mix of total direct compensation for the 2022 performance year as reported in the Supplemental Table on page 68.
| CASH-BASED COMPENSATION | STOCK-BASED COMPENSATION | |||||||||||||||||||
The Compensation Committee has determined that is appropriate for the allocation of compensation between performance-based annual cash bonus and stock-based long-term incentives to be somewhat more heavily weighted towards cash bonus as compared to our Compensation Comparison Group. The Compensation Committee believes that this allocation is appropriate in light of the fact that a higher percentage of the named executive officers’ total compensation (and total direct compensation) is performance-based as compared to the peer average and peer median of the Compensation Comparison Group. In particular, unlike a number of other companies in our Compensation Comparison Group that grant time-vesting restricted stocks, annual equity awards made to the named executive officers are typically all performance-based. | Annual awards of stock-based compensation are typically in the form of performance shares and stock options. Because our performance shares only vest if specified core return on equity thresholds are met, and because stock options provide value only if our stock price appreciates, the Compensation Committee believes that such compensation is all performance-based; that is, the compensation typically awarded annually to our Chief Executive Officer and other named executive officers generally does not include awards that are earned solely due to the passage of time without regard to performance. | |||||||||||||||||||
The following chart illustrates the mix of performance-based compensation to non-performance-based compensation of our Chief Executive Officer, compared to the chief executive officers of our Compensation Comparison Group.
50 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
EXECUTIVE COMPENSATION
Travelers CEO Pay Mix(1) and Peer Average CEO Pay Mix(2)
TRAVELERS CEO
PEER CEO AVERAGE
(1)Pay mix of total direct compensation for the 2022 performance year as reported in the Supplemental Table on page 68.
(2)Peer Average CEO Pay Mix reflects the pay mix of total direct compensation for our Compensation Comparison Group for their 2021 performance year (the most recent year for which data was publicly available) and was calculated by the Company using data provided by the Compensation Committee’s independent compensation consultant. As part of that calculation, the independent compensation consultant annualized special non-recurring long-term incentive grants (for example, new hire, retention and promotion awards) to reflect an estimate of “per year” value when appropriate.
We also provide benefits and modest perquisites. In addition, from time to time, the Compensation Committee may make special cash or equity awards to one or more of our named executive officers. No special cash or equity awards were made to our named executive officers for the 2022 performance year.
Base Salary
METRICS The Compensation Committee’s philosophy is to generally set base salary for executive officers at a level that is intended to be on average at or near the 50th percentile for equivalent positions in our Compensation Comparison Group. Individual salaries may range above or below the median based on a variety of factors, including the potential impact of the executive’s role at the Company, the terms of the executive’s employment agreement, if any, the tenure and experience the executive brings to the position and the performance and potential of the executive in his or her role. Because salaries for executive officers are typically changed infrequently, at the time the Compensation Committee increases the salaries of executives, such salaries on average may initially, and for a period of time following such increases, be higher than the 50th percentile of our Compensation Comparison Group on the basis that over time the average is expected to be at, or near, approximately the 50th percentile. Base salaries are reviewed annually, and adjustments are made from time to time as the Compensation Committee deems appropriate to recognize performance, changes in duties and/or changes in the competitive marketplace. | LINK TO STRATEGY The Compensation Committee’s base salary positioning supports the attraction and retention of high-quality talent, ensures an affordable overall cost structure and mitigates excessive risk taking. | |||||||||||||||||||
2023 Proxy Statement | The Travelers Companies, Inc. | 51 | ||||
EXECUTIVE COMPENSATION
Base Salaries
At its February 2023 meeting, the Compensation Committee increased Mr. Schnitzer’s base salary by $150,000 in order to position Mr. Schnitzer’s base salary more competitively when compared to the other chief executive officers in our Compensation Comparison Group. Prior to the adjustment made to Mr. Schnitzer’s salary in February 2023, his base salary was at the approximately 30th percentile of our Compensation Comparison Group, based on the most recently available data as provided by the Compensation Committee’s independent compensation consultant. After the February 2023 increase, the base salary for Mr. Schnitzer is approximately 6.6% above the median dollar amount of our Compensation Comparison Group, based on the most recently available data as provided by the compensation consultant.
Other than the change to Mr. Schnitzer’s base salary, no changes were made to the base salaries of the other named executive officers at the Compensation Committee’s February 2023 meeting.
At its February 2022 meeting, the Compensation Committee made the following changes to base salaries of the named executive officers other than Mr. Schnitzer:
•increased the base salary of Mr. Frey by $50,000 in order to position Mr. Frey’s base salary more competitively when compared to the other chief
financial officers in our Compensation Comparison Group;
•increased the base salary of Mr. Kess by $50,000, his first increase in 36 months; and
•increased the base salary of each of Messrs. Klein and Toczydlowski by $100,000 to position their total direct compensation at levels more comparable to those of similarly situated executives of the companies in our Compensation Comparison Group.
The current base salaries for the named executive officers other than the Chief Executive Officer are on average approximately 6.4% above the median dollar amount of our Compensation Comparison Group, based on the most recently available data as provided by the Compensation Committee’s independent compensation consultant.
Because salaries for executive officers are typically changed infrequently, at the time the Compensation Committee increases the salaries of executives who have not received an increase in several years, such salaries on average may initially, and for a period of time following such increases, be higher than the 50th percentile of our Compensation Comparison Group indicated by the most recently available data on the basis that over time the average is expected to be at, or near, approximately the 50th percentile.
Annual Cash Bonus
The named executive officers are eligible to earn performance-based annual cash bonuses. The annual bonuses are based on the performance of the Company as a whole, taking into consideration performance against predetermined metrics as approved by the Board at the beginning of the year, as well as the individual performance of each executive. The annual cash bonuses are designed to further our goals described under “—Objectives of Our Executive Compensation Program”, including motivating and promoting the achievement of our short- and long-term financial and strategic objectives.
52 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
EXECUTIVE COMPENSATION
2023 Proxy Statement | The Travelers Companies, Inc. | 53 | ||||
EXECUTIVE COMPENSATION
Factors Considered in Awarding 2022 Bonuses
In determining the actual annual bonuses awarded, the Compensation Committee considered a number of factors, including:
another year of strong top- and bottom-line results, despite the significant industrywide headwinds that impacted our Personal Insurance segment and an elevated level of catastrophe losses for the year; the Company’s successful execution of its marketplace strategies, including the growth of net written premiums by 11% to a record $35.4 billion, with each of our operating segments contributing to this growth. Business Insurance grew 10%, Bond & Specialty Insurance grew 11% and Personal Insurance grew 12%;that even as we have improved our expense ratio to a record low 28.5%, we continued to successfully execute on our long-term strategy to “transform” Travelers into the insurance company of the future through our ambitious innovation agenda. Our ongoing investments in improving productivity and efficiency have allowed us to meaningfully increase the amount we spend on technology and direct significantly more of our technology dollars to strategic technology initiatives while holding routine but necessary expenditures flat; the successful execution of the Company’s long-term strategic plan for continued success in light of the forces of change the Company has identified as impacting the industry, as described under “—Strategic Focus in Light of Forces of Change”; the consolidated, business segment and/or investment results relative to the various financial measures set forth in our 2022 business plan that was established and approved by the Board at the end of 2021;the effective management over time of our exposure to catastrophes. Over the past six years, our share of property catastrophe losses relative to total property catastrophe losses for the domestic P&C industry have declined significantly compared to the earlier years in the decade. Our property catastrophe losses over the past six years have also been meaningfully lower than our corresponding market share. In addition, we estimate that had we not taken the actions we did to manage our exposure in Florida, our losses in 2022 from Hurricane Ian would have been nearly three times the amount we actually incurred; our Claim organization’s excellent performance in delivering for our customers, including exceeding our objective of closing 90% of all claims arising out of catastrophe events within 30 days; our success in establishing Travelers as a thought leader in the ESG space, including our comprehensive ESG reports and disclosures, which are consistent with the standards and recommendations of the TCFD and SASB; our successful execution of our comprehensive human capital management strategies as evidenced by our high employee tenure and lower employee turnover compared to our industry peers during a time of historically high industrywide attrition, as well as progress on the Company’s diversity and inclusion initiatives;
our performance relative to the companies in our Compensation Comparison Group and other companiesin the property and casualty insurance industry, with a particular emphasis on core return on equity;
compensation market practices as reflected by the Compensation Comparison Group in the most recent publicly available data; the performance of the executive; the tenure and compensation history of the executive; and the demonstration of leadership and teamwork and a commitment to a culture of collaboration.In addition, in connection with Mr. Schnitzer’s compensation for the 2022 performance year, the Compensation Committee also considered: (i) the successful execution over the past seven years of the Company’s strategic plan for continued success in light of the forces of change impacting the industry, and (ii) the assumption by Mr. Schnitzer of a leadership role in the property and casualty insurance industry, including his recent election as the Chairman of the American Property and Casualty Insurance Association (APCIA), the primary national trade association for home, auto and business insurers.
The Compensation Committee generally weighs financial performance measures, particularly core return on equity and core income, and comparable compensation information more heavily than other factors. In particular, when assessing results, the Compensation Committee considers the Company’s overall financial performance relative to prior years’ performance, the financial plan, the performance of industry peers and, in the case of core return on equity, the Company’s cost of equity and the risk-free rate.
The achievement, or inability to achieve, any particular financial or operational measure in a given year neither guarantees, nor precludes, the payment of an award, but is considered by the Compensation Committee as one of several factors among the other factors noted above and any additional information available to it at the time, including market conditions in general. The Compensation Committee does not use a formula or assign any particular relative weighting to any performance measure.
As discussed under “—Annual Cash Bonus—Metrics” on page 53, the Compensation Committee believes that a formulaic approach to compensation is not appropriate in the property and casualty insurance industry and is not an appropriate substitute for the Compensation Committee’s
54 | The Travelers Companies, Inc. | 2023 Proxy Statement | ||||
EXECUTIVE COMPENSATION
informed and thorough deliberation and the application of its reasoned business judgment as it would not allow the Compensation Committee to assess the quality of the performance results and could result in negative unintended consequences. For example, a formulaic bonus plan tied to revenue growth (a common metric used in formulaic bonus plans) could create an incentive for management to relax underwriting or investment standards to increase revenue and reported profit on a short-term basis, thereby driving higher short-term bonuses, but creating excessive risk for shareholders over the longer term. This is of particular concern in the property and casualty insurance industry due to the fact that the “cost of goods sold” (that is, the amount of insured losses) is not known at the time of sale and develops over time — in some cases over many years. Based in part on investor feedback, beginning in 2022, the Compensation Committee implemented a maximum cash bonus opportunity for our Chief Executive Officer of $10 million.
2022 Financial Metrics,
Including Core Return on Equity Target
In evaluating the foregoing factors, the Compensation Committee reviewed management’s progress in meeting a broad range of financial and operational metrics included in the 2022 financial plan approved by the Board in December 2021. As discussed above, of the various financial metrics evaluated by the Compensation Committee, the Compensation Committee considered core return on equity to be the most important metric in its evaluation of the Company’s annual performance, and it reviewed other metrics in light of their contribution to the Company’s core return on equity goals.
Core Return on Equity Target
In February 2022, the Compensation Committee established specific targets for both: (1) core return on equity and (2) adjusted core return on equity, which excludes catastrophes and prior year reserve development, if any, related to asbestos and environmental coverages. In particular, the 2022 financial plan targeted: (1) a core return on equity of 11.6% and (2) an adjusted core return on equity of 16.4%.
One of management’s important responsibilities is to produce an appropriate return on equity for our
shareholders and to develop and execute financial and operational plans consistent with our financial goal of achieving a superior core return on equity over time. We emphasize that the objective is measured over time because we recognize that interest rates, reserve development and weather, among other factors, impact our results from year to year, and that there are years — or longer periods — and environments in which a mid-teens return is not attainable and other years in which we expect we will achieve or exceed a mid-teens return. In all environments, the Company aspires to generate a core return on equity that is industry leading.
The targeted returns for 2022 reflect fixed interest rates at historically low levels and assumed that catastrophes would be consistent with normalized levels reflecting long-term historical experience. In addition, in evaluating the appropriateness of the targets set for core return on equity, the Compensation Committee considers our return on equity relative to the Compensation Comparison Group, the U.S. property and casualty insurance industry generally and our estimated cost of equity. This relationship to industry returns, over time, is described in the chart on page 43. As a result, when the Board approved our 2022 financial plan, both management and the Board believed the plan to be reasonably difficult to achieve.
Notably, the Company’s financial plan—and thus its targets—did not budget for any prior year reserve development, positive or negative. The Company’s actuarial estimates always reflect management’s best estimates of ultimate loss as of the relevant date. As a result, when developing financial plans, the Company does not budget for, or target, prior year reserve development. Adjustments to actual adjusted core return on equity for prior year reserve development related to asbestos and environmental coverages are made because, to a significant degree, those items relate to policies that were written decades ago and, particularly in the case of asbestos, arise to a significant extent as a result of court decisions and other trends that have attempted to expand insurance coverage far beyond what we believe to be the intent of the original parties. Accordingly, their financial impact is largely beyond the control of current management.
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FACTORS CONSIDERED BY THE COMPENSATION COMMITTEE WHEN ESTABLISHING TARGETS FOR 2022 In setting the targets for 2022 set forth in the following chart, the Compensation Committee considered that net investment income in 2022 was expected to be significantly lower than in 2021 due to the exceptional returns of our alternative investment portfolio in 2021. In addition, for the reasons discussed above, the targets for 2022 for each of core return on equity and adjusted core return on equity did not include any prior year reserve development, either positive or negative. For 2021, core return on equity and adjusted core return on equity included 170 basis points and 250 basis points of prior year reserve development, respectively. | |||||||||||
For 2022, our core return on equity and adjusted core return on equity compared to our targets were as follows:
| CORE RETURN ON EQUITY | ADJUSTED CORE RETURN ON EQUITY(2) | ||||
 |  | ||||
(1)For the reasons discussed above, the 2022 targets for core return on equity and adjusted core return on equity did not include any prior year reserve development, either positive or negative.
(2)Excludes catastrophes and prior year reserve development related to asbestos and environmental coverages.
When evaluating these results, the Compensation Committee considered these results relative to the U.S. property and casualty insurance industry as a whole. In particular, the Company’s 2022 return on equity of 12.2% substantially exceeded the average return on equity for the domestic property and casualty industry in 2022 of approximately 1.6%, as estimated by Conning.
When evaluating these results, the Compensation Committee also considered that inflation during 2022 (as measured by the consumer price index) was significantly higher than anticipated when the 2022 financial plan was approved by the Board of Directors at the end of 2021 and that the adverse variances to the plan were overwhelmingly the result of unanticipated inflationary pressures on the labor and material components of loss costs in Personal Insurance, which were not readily apparent until the first quarter of 2022. In addition to not being easily foreseeable, the Compensation Committee considered that the increase in loss costs has been an industrywide challenge, not specific to the Company, and that the Company responded aggressively to the significant change in circumstances.
Other Financial Metrics
In determining annual cash bonuses to be paid to the named executive officers, the Compensation Committee evaluates the Company’s performance with respect to not only core return on equity, but also a broad range of other financial metrics including, among other things, core income and core income per diluted share and other metrics that contribute to those amounts, such as written and earned premiums, investment income and expense management. In 2022, none of these other financial metrics was individually material to 2022 compensation decisions. The relevant targets for these other financial metrics were included in the 2022 financial plan approved
by the Board at the end of 2021. The following charts show actual 2022 core income, core income per diluted share and adjusted core income (excluding prior year reserve development related to asbestos and environmental (“A&E”) and catastrophes) compared to the 2021 results and the corresponding metrics contained in the Company’s 2022 financial plan. Core income was consistent with the Company’s financial plan, while Core income per diluted share was just slightly lower than the Company’s financial plan, primarily due to the factors discussed above. Core income before A&E and catastrophes exceeded the respective goal in the Company’s financial plan.
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FACTORS CONSIDERED BY THE COMPENSATION COMMITTEE WHEN ESTABLISHING TARGETS FOR 2022 In setting the targets for 2022 set forth in the following chart, the Compensation Committee considered that net investment income in 2022 was expected to be significantly lower than in 2021 due to the exceptional returns of our alternative investment portfolio in 2021. In addition, for the reasons discussed above, the targets for 2022 for each of core income, core income per diluted share and core income before A&E did not include any prior year reserve development, either positive or negative. For 2021, core income, core income per diluted share and core income before A&E and catastrophes included $424 million, $1.68 and $673 million of positive prior year reserve development, respectively. | |||||||||||
| CORE INCOME | CORE INCOME PER DILUTED SHARE | CORE INCOME BEFORE A&E AND CATASTROPHES | ||||||
| in billions | in billions | |||||||
 |  |  | ||||||
(1)For the reasons discussed above, the 2022 target for each of core income, core income per diluted share and core income before A&E and catastrophes did not include any prior year reserve development, either positive or negative.
Amount of 2022 Annual Cash Bonuses
At its February 2023 meeting, in light of the quantitative and qualitative factors described above and the substantial contributions made by the named executive officers in achieving our very strong 2022 operating and financial results despite the significant industrywide headwinds that impacted our Personal Insurance segment and an elevated level of catastrophe losses for the year, and to recognize that all of the named executive officers individually performed at superior levels, the Compensation Committee determined in its judgment to set the amounts of the named executive officers’ 2022 cash bonuses at the levels described below:
| Annual cash bonus | Change in annual cash bonus compared to 2021 | |||||||
| Mr. Schnitzer | $6.8 million | Increased by 4.6%. | ||||||
| Mr. Frey | $2.4 million | The average annual cash bonus for each of Messrs. Frey, Kess and Toczydlowski increased by an average of 4.2% year-over-year. | ||||||
| Mr. Kess | $3.1 million | |||||||
| Mr. Toczydlowski | $2.8 million | |||||||
| Mr. Klein | $2.5 million | Consistent with the prior year, reflecting the significant impact on Personal Insurance’s results of the unanticipated inflationary pressures on the industry, including Travelers, while acknowledging Mr. Klein’s effective leadership, Personal Insurance’s excellent marketplace execution during this challenging industrywide environment and the strategic accomplishments of Personal Insurance during the year. | ||||||
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Long-Term Stock Incentives
The Compensation Committee believes that the interests of executives and shareholders should be closely aligned. Accordingly, a significant portion of the total compensation for the named executive officers is in the form of stock-based long-term incentive awards.
METRICS In determining the size of the total long-term incentive opportunity, the Compensation Committee considers a number of factors, including the factors applied with regard to the determination of the annual cash bonus award. Once the performance share award has been granted, the number of shares that a named executive officer will receive upon vesting, if any, depends on the Company’s attainment of specific financial targets related to core return on equity. These targets, which are described on page 61, are specified at the time the awards are granted and, unlike the practice of most companies, disclosed in advance to shareholders to enable a full evaluation of the rigor of our performance goals and how the performance schedule compares to our cost of equity. The value provided by the stock options is determined solely on the appreciation of the stock price subsequent to the time of the award. | LINK TO STRATEGY Long-term stock-based incentives ensure that our executive officers have a continuing stake in our long-term success and manage the business with a long-term, risk-adjusted perspective. In addition, senior executives are encouraged to focus on executing the Company’s ambitious innovation agenda to position the Company for continued success. | |||||||
Guidelines for the Allocation of Annual Equity Grants
The Compensation Committee, with advice from its independent compensation consultant, has developed guidelines for the allocation of annual grants of equity compensation between performance shares and stock options. Under the guidelines, the mix of long-term incentives, for the named executive officers, based on the grant date fair value of the awards, is approximately:
 | These allocations are intended to result in a mix of annual long-term incentives that is sufficiently performance-based and will result in: •a large component of total compensation being tied to the achievement of specific, multi-year operating performance objectives and changes in shareholder value (performance shares); and •an appropriate portion being tied solely to changes in shareholder value (stock options). | ||||
The mix of annual long-term incentive compensation reflects the Compensation Committee’s judgment as to the appropriate balance of these incentives to achieve its objectives. While the aggregate grant date fair values of equity awards granted to the named executive officers consider both individual and Company performance, the mix of equity incentives awarded annually is fixed and generally does not vary from year-to-year. For a description of the equity awards granted in fiscal year 2022, refer to “—Grants of Plan-Based Awards in 2022” on page 71.
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Annual Equity Grants
At its February 2023 meeting, the Compensation Committee determined to grant the named executive officers’ stock-based long-term incentive awards as described in the chart below. In making that determination, the Compensation Committee recognized that all of the named executive officers individually performed at superior levels and contributed substantially to our very strong 2022 operating and financial results despite the significant industrywide headwinds that impacted our Personal Insurance segment and an elevated level of catastrophe losses for the year. The Compensation Committee also considered the fact that a higher percentage of the named executive officers’ total compensation (and total direct compensation) is performance-based as compared to the peer average and peer median of the Compensation Comparison Group.
| Stock-based long-term incentive award grant date fair value | Change in grant date fair value compared to awards granted in 2022 | |||||||
| Mr. Schnitzer | $14.25 million | Increased by $1.35 million (10% higher). | ||||||
| Messrs. Frey and Kess | 3.0 times base salary | Consistent with the prior year. | ||||||
| Messrs. Toczydlowski and Klein | 4.0 times base salary | Consistent with the prior year. | ||||||
These equity awards approved for the named executive officers at the February 2023 meeting will be reflected in the “Summary Compensation Table” in our Proxy Statement for our 2024 annual meeting.
At its February 2022 meeting, the Compensation Committee granted the following stock-based long-term incentive awards:
| Stock-based long-term incentive award grant date fair value | Change in grant date fair value compared to awards granted in 2021 | |||||||
| Mr. Schnitzer | $12.9 million | Increased by $1.4 million (12% higher). | ||||||
| Messrs. Frey and Kess | 3.0 times base salary | Consistent with the prior year. | ||||||
| Messrs. Toczydlowski and Klein | 4.0 times base salary | Increased from 3.0 times base salary to approximately 4.0 times base salary to position their total direct compensation at levels more comparable to those of similarly situated executives of the companies in our Compensation Comparison Group. | ||||||
These equity awards, approved at the February 2022 meeting, are reflected in the Summary Compensation Table on page 69.
The ultimate value of stock-based long-term incentive awards at the time of vesting or, in the case of stock options, exercise may be greater than or less than the grant date fair value, depending upon our operating performance and changes in the value of our stock price. The grant date fair values of long-term incentive awards are computed in accordance with the accounting standards described in footnote (1) to the “Summary Compensation Table” on page 69.
Consistent with our historical practice, 60% of the stock-based long-term incentive awards were granted in the form of performance shares and 40% of the stock-based long-term incentive awards were granted in the form of stock options in each of 2023 and 2022.
Performance Shares
Under our program for granting performance shares, we may grant performance shares to certain of our employees who hold positions of vice president (or its equivalent) or above, including the named executive officers. These awards provide the recipient with the right to receive a variable number of shares of our common stock based upon our attainment of specified performance goals. The performance goals for performance share awards granted
in 2023 and 2022 are based upon our attaining various adjusted returns on equity over three-year performance periods commencing January 1, 2023 and ending December 31, 2025, and commencing January 1, 2022 and ending December 31, 2024, respectively (in each case, “Performance Period Return on Equity”).
Performance Period Return on Equity represents the average of the “Adjusted Return on Equity” for each of the three calendar years in the performance period. The “Adjusted Return on Equity” for each calendar year is determined by dividing “Adjusted Operating Income” by “Adjusted Shareholders’ Equity” for the year, each as defined in the Performance Share Awards Program and described below. “Adjusted Core Income”, as defined in the performance share awards granted in 2022 and 2023, excludes the after-tax effects of:
•specified losses from officially designated catastrophes;
•asbestos and environmental reserve charges or releases;
•net realized investment gains or losses in the fixed maturities and real estate portfolios;
•items that are unusual or infrequently occurring (or both); and
•the cumulative effect of accounting changes and federal income tax rate changes, charges for amortization of
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goodwill to the extent goodwill is amortized and exit or disposal costs, each as defined by GAAP and each as disclosed in our financial statements (including accompanying footnotes and management’s discussion and analysis);
and is then reduced by the after-tax dollar amount for expected “normal” catastrophe losses. In the first year of the performance period, such expected “normal” catastrophe losses are represented by a fixed amount set forth in the terms of the performance shares ($1.37 billion for 2022). In the two subsequent years of the performance period, such fixed amount for catastrophes is adjusted up or down by formula to reflect any increases or decreases, as the case may be, in written premiums in specified catastrophe-exposed commercial and personal lines.
“Adjusted Core Income” is also reduced by an amount reflecting the historical level of credit losses (on an after-tax basis) associated with our fixed-income investments. The Compensation Committee believes this reduction of Adjusted Core Income is appropriate because credit losses in our fixed-income portfolio are part of reported net income but not core income and thus, absent making this reduction, would not be reflected in Adjusted Core Income. Specifically, for performance share awards granted in February 2023 and February 2022, the annual reduction is determined by multiplying a fixed factor (expressed as 2.25 basis points) by the amortized cost of the fixed maturity investment portfolio at the beginning of each quarter during the relevant year in the performance period and adding such amounts (on an after-tax basis) for each year in the performance period.
“Adjusted Shareholders’ Equity” for each year in the performance period is defined in the Performance Share Awards Program as the sum of our total common shareholders’ equity, as reported on our balance sheet as of the beginning and end of the year (excluding net unrealized appreciation or depreciation of investments and adjusted as set forth in the immediately following sentence), divided by two. In calculating Adjusted Shareholders’ Equity, our total common shareholders’ equity as of the beginning and end of the year is adjusted to remove the cumulative after-tax impact of the following items during the performance period: (1) discontinued operations and (2) the adjustments and reductions made in calculating Adjusted Core Income.
The Compensation Committee selected Performance Period Return on Equity as the performance measure in the Performance Share Plan because the Compensation Committee believes it is the best measure of return to shareholders and efficient use of capital over a multi-year period, as described further above under “—Pay-for-Performance Philosophy” and “Objectives of Our Executive Compensation Program”.
The Compensation Committee seeks to establish the Performance Period Return on Equity standards such that 100% vesting requires a level of performance over the
performance period that is expected to be in the top tier of the industry.
In considering what would constitute such top tier performance over a future three-year period, the Compensation Committee considered:
•Recent and historical trends in return on equity for the domestic property and casualty insurance industry, including industry peers included in the Company’s Compensation Comparison Group;
•Recent and historical trends in core return on equity for the Company;
•Current and expected underwriting and investment market conditions;
•The Company’s business plan and the Company’s cost of equity;
•That performance is measured over a three-year period and the plan and related award agreements do not provide for adjustments to be made during the performance period (other than in the case of specifically enumerated events, such as changes in corporate income tax rates and accounting changes). Accordingly, there is uncertainty, particularly in the second and third years of the performance period, and what actually constitutes top-tier performance during the performance period may differ from expectations due to factors that impact the Company’s performance objectives and are both difficult to forecast in advance and are outside of the control of management. These factors include, among others, changes in the level of economic activity, interest rates and the competitive environment for pricing;
•That, while interest rates increased during 2022: (i) such increase will take a number of years to earn into the fixed income portfolio, with less than 10% of fixed income portfolio maturing each year; (ii) our financial goal of achieving a mid-teens core return on equity over time will depend on interest rates returning to more normal levels by historical standards; and (iii) the ongoing objective of achieving an industry-leading core return on equity over any period, and in particular a short-or medium-term period such as three years, would, in its view, be reasonably difficult to achieve; and
•That the Company’s actuarial estimates reflect management’s best estimates of ultimate loss as of the relevant date and, accordingly, the Company’s financial plans do not include any prior year reserve development, positive or negative.
Accordingly, while the Compensation Committee does not implement a formulaic calculation based on relative performance, which it believes could result in over or under compensation, it does set the Performance Period Return on Equity standards after considering the level of historical and expected performance that would constitute superior returns relative to other companies in the
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industry, including industry peers included in our Compensation Comparison Group.
For performance shares granted in 2023 and 2022, the number of shares that vest, if any, is contingent upon our attaining Performance Period Return on Equity as indicated on the following chart. Performance falling between any of the identified points in the applicable chart below will result in an interpolated vesting percentage (for example, a Performance Period Return on Equity of 9% will yield a vesting of 83.3%).
PERFORMANCE PERIOD RETURN ON EQUITY STANDARDS
Vesting Percentage | Performance Period Return on Equity for Performance Shares in 2023 and 2022 | |||||||
| Threshold | 0 | % | <8.0% | |||||
| 50 | % | 8.0 | % | |||||
| 75 | % | 8.5 | % | |||||
| 100 | % | 10.0 | % | |||||
| 110 | % | 10.5 | % | |||||
| 120 | % | 11.0 | % | |||||
| 130 | % | 11.5 | % | |||||
| 140 | % | 12.0 | % | |||||
| 150 | % | 12.5 | % | |||||
| 160 | % | 13.0 | % | |||||
| 180 | % | 14.5 | % | |||||
| Maximum | 200 | % | 16.0 | % | ||||
In setting the Performance Period Return on Equity of 10.0% that is required for 100% vesting, the Compensation Committee considered that, in each case, a Performance Period Return on Equity of 10% would meaningfully exceed the average return on equity for the domestic property and casualty insurance industry of 6.6% for 2021, and 1.6% for 2022, respectively. In addition, the Compensation Committee considered that a Performance Period Return on Equity of 10% would exceed our cost of equity and meaningfully exceed the actual average return on equity for the domestic property and casualty industry for the immediately preceding ten years. See the chart on page 43 which shows the historical returns on equity for the Company and the domestic property and casualty insurance industry.
Because the performance shares are a long-term incentive intended to align a significant portion of our executives’ compensation with return on equity objectives over time, the Compensation Committee generally seeks to maintain consistency in the Performance Period Return on Equity standards from year-to-year. However, the Compensation Committee does from time to time make adjustments if it determines that there have been significant changes in the returns that it expects will constitute top-tier performance.
In setting the Performance Period Return on Equity levels for the performance shares granted in February 2023 and 2022, the Compensation Committee decided not to make any changes to the Performance Period Return on Equity standards as compared to the levels for the performance shares granted in the prior year.
To support our recruitment and retention objectives and to encourage a long-term focus on our operations, the performance shares vest subject to both the satisfaction of the requisite performance goals and the participant meeting specified service period criteria. The program provides for accelerated vesting and/or waiver of service requirements in the event of death, disability or a qualifying “retirement,” as defined in the awards.
In the event of a participant’s voluntary termination for “good reason” or involuntary termination without “cause” within 24 months following a change in control of the Company, the service vesting requirements with respect to the performance share grants will be waived.
Further, under his employment agreement, Mr. Schnitzer is entitled to conversion of all of his performance shares into time-vesting awards upon a change in control and he is entitled to accelerated vesting of all of his equity awards if his equity awards are not assumed by the surviving entity following a change in control or in the event of a voluntary termination for “good reason” or an involuntary termination without “cause” (each as defined in his employment letter) within 24 months following a change in control of the Company. These provisions are included to minimize the potential influence of the treatment of these equity awards in connection with a change in control on Mr. Schnitzer’s and our other executives’ decision-making processes and to conform the terms of our program more closely to compensation practices among our peers. The Compensation Committee believes that these provisions will enhance Mr. Schnitzer’s and our other executives’ independence and objectivity when considering a potential transaction. These provisions are described in more detail under “—Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements—Mr. Schnitzer’s Employment Letter”.
New performance share cycles commence annually and overlap one another, helping to foster retention and reduce the impact of the volatility in compensation associated with changes in our annual return on equity performance. Dividend equivalent shares are paid only when and if performance shares vest, and are paid, in shares, at the same vesting percentage as the underlying performance shares.
Payment of Performance Shares Granted for the 2020-2022 Period
In February 2023, the Compensation Committee reviewed and subsequently certified the results for the performance shares granted to the named executive officers in 2020.
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Payout of shares under these performance share awards was subject to attaining specified adjusted returns on equity over the three-year performance period commencing on January 1, 2020 and ending on December 31, 2022. The adjusted return on equity for such performance period was 13.3%, which resulted in the vesting of the performance shares at 109.4%.
No discretionary adjustments were made by the Committee to modify the performance share payouts due to factors related to the pandemic.
Stock Options
All stock options are granted with an exercise price equal to the closing price of the underlying shares on the date of grant. Our annual award of stock options generally vests 100% three years after the date of grant and has a maximum expiration date of ten years from the date of grant. The named executive officers are entitled to accelerated vesting of their stock options following a qualified retirement, death or disability or in the event of a voluntary termination for “good reason” or involuntary termination without “cause” within 24 months following a change in control of the Company. For a description of other vesting events see “—Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control”.
Other Compensation
Pension Plans
We provide retirement benefits as part of a competitive pay package to retain employees. Specifically, we currently offer U.S. employees a tax-qualified defined benefit plan with a cash-balance formula, with some legacy participants accruing benefits under a final average pay formula. Also, a number of employees and executives participate or have accrued benefits in other pension plans which are frozen as to new participants and/or new accruals. Under the cash-balance formula, each enrolled employee has a hypothetical account balance, which grows with interest and pay credits each year.
In addition, we sponsor a non-qualified excess benefit retirement plan that covers U.S. employees whose tax-qualified plan benefit is limited by the Internal Revenue Code with respect to the amount of compensation that can be taken into account under a tax-qualified plan. The non-qualified plan makes up for the benefits that cannot be provided by the qualified plan as a result of those Internal Revenue Code limits by using the same cash-balance pension formula that applies under the qualified plan. The purpose of this plan is to ensure that employees who receive retirement benefits only through the qualified cash-balance plan and employees whose qualified plan benefit is limited by the Internal Revenue Code are treated substantially the same. The details of the existing plans are described more fully under “—Post-Employment Compensation—Pension Benefits for 2022” on page 74.
Deferred Compensation
In the United States, we offer a tax-qualified 401(k) plan to employees and a non-qualified deferred compensation plan to employees who hold positions of vice president or above. Both plans are available to the named executive officers.
The non-qualified deferred compensation plan allows an eligible employee to defer receipt of a portion of his or her salary and/or annual bonus until a future date or dates elected by the employee. This plan provides an additional vehicle for employees to save for retirement on a tax-deferred basis. The deferred compensation plan is not funded by us and does not provide preferential rates of return. Participants have only an unsecured contractual commitment by us to pay amounts owed under that plan.
For further details, see “—Post-Employment Compensation—Non-Qualified Deferred Compensation for 2022” on page 76.
Other Benefits
We also provide other benefits described below to our named executive officers, which are not tied to any performance criteria. Rather, these benefits are intended to support objectives related to the attraction and retention of highly skilled executives and to ensure that they remain appropriately focused on their job responsibilities without unnecessary distraction.
Personal Security
We have established a security policy in response to a study prepared by an outside consultant that analyzed security risks to our Chief Executive Officer based on a number of factors, including travel patterns and past security threats. This security policy is periodically reviewed by an outside security consultant. In accordance with the security policy, a Company car and driver or other ground transportation arrangements are provided to our Chief Executive Officer for business and personal travel. These ground transportation services provide the necessary security for, and maintain the health and safety of, our Chief Executive Officer and enable him to conduct business on behalf of the Company while in transit. The methodologies we use to value the personal use of a Company car and driver and other ground transportation arrangements as a perquisite are described in footnote (5) to the “Summary Compensation Table”. In 2022, the aggregate incremental cost for personal use of a Company car and driver and other ground transportation provided pursuant to our security policy for our Chief Executive Officer was $10,642.
Pursuant to the security policy, our Chief Executive Officer uses our aircraft for business and personal air travel. Use of our Company aircraft provides the necessary security for, and maintains the health and safety of, our Chief Executive Officer and enables him to be immediately available to respond to business priorities from any location and to use his travel time productively for the
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Company’s benefit. Our Chief Executive Officer reimburses the Company for personal travel on our aircraft in an amount equal to the incremental cost to the Company associated with such personal travel, provided that the amount does not exceed the maximum amount legally payable under FAA regulations, in which case our Chief Executive Officer reimburses such maximum amount.
In addition, under the security policy described above, we provide our Chief Executive Officer with additional home security enhancements and other protections. The methodology we use to value the incremental costs of providing additional home security enhancements and other protections to our Chief Executive Officer is the actual cost to us of home security and other equipment or other personal security protection and any other incremental related expenses. In 2022, the aggregate incremental cost of security for our Chief Executive Officer was $3,125 as shown in footnote (5) to the “Summary Compensation Table”.
Our Chief Executive Officer is responsible for all taxes due on any income imputed to him in connection with his personal use of Company-provided transportation and other security related protections.
Other Transportation on Company Aircraft
We also on occasion provide transportation on Company aircraft for spouses or others, although under SEC rules, such spousal or other travel may not always be considered to be directly and integrally related to our business. Consistent with past practice, we only reimburse the named executive officers for any tax liabilities incurred with respect to travel by spouses or others if such travel is considered directly and integrally related to business.
Health Benefits; Treatment of Higher Paid and Lower Paid Employees
We subsidize health benefits more heavily for lower paid employees as compared to higher paid employees, such as the named executive officers. Accordingly, our higher paid employees pay a significantly higher percentage of the cost of their health benefits than our lower paid employees.
Financial and Tax Planning
We offer financial and tax planning services to our named executive officers. In addition to ensuring that management attention is preserved for Company business, providing tax and financial planning services to executives promotes compliance with tax reporting.
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Additional Compensation Information | ||
Compensation Comparison Group
| Our Compensation Comparison Group includes: | ||||||||
Key competitors in the property and casualty insurance industry — | General financial services and life and health insurance companies of relatively similar size and complexity — | |||||||
•American International Group, Inc. •Allstate Corporation •Chubb Ltd. •Hartford Financial Services Group •Progressive Corporation | •Aflac •American Express •Bank of New York Mellon •Humana | •Lincoln National •Marsh & McLennan •MetLife Inc. •Prudential Financial Inc. | ||||||
| We regard these companies as potential competition for executive talent. | ||||||||
As of December 31, 2022, the Company’s net income and revenue were at approximately the 60th percentile and the 39th percentile of the Compensation Comparison Group, respectively, and its market cap was at 94% of the median of the Compensation Comparison Group. The Compensation Committee reviews the composition of our peer group annually to ensure that the companies constituting the peer group continue to provide meaningful and relevant compensation comparisons. The Compensation Committee did not make any changes to our Compensation Comparison Group in 2022 as a result of this review.
Non-Competition Agreements
All members of our Management Committee, including the named executive officers, have signed non-competition agreements. The agreements provide that, upon an executive’s termination of employment, we may elect to, and in the event of Mr. Schnitzer’s voluntary termination for “good reason” or involuntary termination without “cause” within the 24-month period following a change in control, we have elected to, impose a six-month non-competition obligation upon the executive that would preclude the executive, subject to limited exceptions, from (1) performing services for or having any ownership interest in any entity or business unit that is primarily engaged in the property and casualty insurance business or (2) otherwise engaging in the property and casualty insurance business. This restriction will apply in the United States and any other country where we are physically present and engaged in the property and casualty insurance business as of the executive’s termination date.
If we elect to enforce the non-competition terms, and the executive complies with all of the obligations under the agreement, then the executive will be entitled to:
•receive a lump sum payment at the end of the six-month restricted period equal to the sum of (1) six-months’ base salary plus (2) 50% of the executive’s average annual bonus for the prior two years plus (3) 50% of the aggregate grant date fair value of the executive’s average annual equity awards for the prior two years; and
•reimbursement for the cost of continuing health benefits on similar economic terms as in place immediately prior to the executive’s termination date during the six-month non-competition period or payment of an equivalent amount, payable at the end of the six-month restricted period.
Timing and Pricing of Equity Grants
The Compensation Committee typically makes annual awards of equity at its first regularly scheduled meeting of the year, which is usually held in early February. This meeting date is typically set a few years in advance as part of the Board’s annual calendar of scheduled meetings. The Compensation Committee has in the past, and may in the future, make limited grants of equity on other dates in order to retain key employees, to compensate an employee in connection with a promotion or to compensate newly hired executives for equity or other benefits lost upon
termination of their previous employment or to otherwise induce them to join us.
Under our Governance Guidelines, the Compensation Committee may make off-cycle equity grants only on previously determined dates in each calendar month, which will be either (1) the date of a regularly scheduled Board or Compensation Committee meeting, (2) the next succeeding 15th day of the calendar month (or if the 15th is not a business day, the business day immediately
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EXECUTIVE COMPENSATION
preceding the 15th) or (3) in the case of grants in connection with new hires and/or promotions, on, or within 15 days of, the first day of employment or other personnel change. The grant date of equity grants to executives is the date of Compensation Committee approval. As discussed above, the exercise price of stock option grants is the closing market price of our common stock on the date of grant.
As discussed under “Governance of Your Company—Committees of the Board and Meetings—Compensation Committee” on page 19, the Compensation Committee has delegated to the Chief Executive Officer, subject to the prior written consent of our Executive Vice President and General Counsel, the authority to make limited “off-cycle” grants to employees who are not Committee Approved Officers on the grant dates established by our Governance Guidelines. For these grants, as discussed above, the grant
date is the date of such approval, and the exercise price of all stock options is the closing market price of our common stock on the date of grant.
Under the 2014 Stock Incentive Plan, stock options cannot be “repriced” unless such repricing is approved by our shareholders. See “Governance of Your Company—Dating and Pricing of Equity Grants” on page 27.
We monitor and periodically review our equity grant policies to ensure compliance with plan rules and applicable law. We do not have a program, plan or practice to time our equity grants in coordination with the release of material, non-public information. In 2022, we did not grant equity awards to any of our named executive officers within four business days before or one business day after the release of material, non-public information.
Severance and Change in Control Agreements
All of our current senior executives, other than Mr. Schnitzer, are covered by our severance plan. Mr. Schnitzer’s letter agreement, discussed at greater length below under “—Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements” on page 80, contains severance benefits that are triggered under some circumstances, incl