UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrantx
Filed by a Party other than the Registrant¨
Check the appropriate box:
| ¨ | Preliminary proxy statement |
| ¨ | Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| x | Definitive Proxy Statement |
| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material Pursuant to §240.14a-12 |
SELECTIVE INSURANCE GROUP, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| x | No fee required. |
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| (1) | Title of each class of securities to which transaction applies: | |
| (2) | Aggregate number of securities to which transactions applies: | |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |
| (4) | Proposed maximum aggregate value of transaction: | |
| (5) | Total fee paid: |
| ¨ | Fee paid previously with preliminary materials. |
| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| (1) | Amount Previously Paid: | |
| (2) | Form, Schedule or Registration Statement No.: | |
| (3) | Filing Party: | |
| (4) | Date Filed: |
40 Wantage Avenue
Branchville, New Jersey 07890
March 25, 202024, 2021
NOTICE OF 20202021 ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
Wednesday, April 28, 2021
Wednesday, April 29, 2020
Attending the Annual Meeting The 2021 Annual Meeting of Stockholders (the “Annual Meeting”) of Selective Insurance Group, Inc. (“Selective”) will be held on Wednesday, April 28, 2021, at 9:00 AM Eastern Time. Due to the COVID-19 pandemic, the Annual Meeting will be held as a live audiocast format only to provide a safe experience for our stockholders and employees. To attend, vote, and submit questions during the Annual Meeting, please visit www.virtualshareholdermeeting.com/SIGI2021 and enter the 16-digit control number included on your Notice of Internet Availability or proxy card. Even if you plan on attending the Annual Meeting, we encourage you to vote your shares in advance online, or if you requested printed copies of the proxy materials, by phone or by mail, to ensure that your vote will be represented at the Annual Meeting. |
At the meeting, we will ask stockholders to:
| 1. | Elect |
| 2. | Approve, on an advisory basis, the |
| 3. | Approve the amended and restated Selective Insurance Group, Inc. Employee Stock Purchase Plan (2021); and |
| 4. | Ratify the appointment of KPMG LLP as Selective’s independent registered public accounting firm for the fiscal year ending December 31, |
We plan a brief business meeting focused on these items and we will attend to any other business properly brought before the meeting and at any adjournments or postponements of the meeting. After the meeting, we will offer time for your comments and questions. Enclosed for your review in anticipation of the meeting is Selective’s 20192020 Annual Report to Stockholders.
The Board of Directors recommends that you vote: (i) “FOR” all of the director nominees in Proposal 1; and (ii) “FOR” Proposals 2, 3, and 3.4. These proposals are further described in the Proxy Statement.
Selective stockholders of record at the close of business on Friday, March 6, 2020,5, 2021, are entitled to notice of, and the right to vote at, the meeting and any adjournment or postponement of it. A quorum is a majority of outstanding shares in attendance or represented by proxy.
YOUR VOTE IS IMPORTANT. VOTE YOUR SHARES BY:BY (I) CALLING THE TOLL-FREE TELEPHONE NUMBER LISTED ON THE PROXY CARD;CARD, (II) ACCESSING THE INTERNET WEBSITE LISTED ON THE PROXY CARD;CARD, OR (III) COMPLETING, DATING, AND SIGNING THE PROXY CARD AND RETURNING IT IN THE ENCLOSED ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE THE TIME IT IS VOTED AT THE 20202021 ANNUAL MEETING THROUGH THE PROCESSES DESCRIBED IN THE PROXY STATEMENT. IF YOU HOLD SHARES THROUGH A BROKER OR OTHER CUSTODIAN, PLEASE SEE THE VOTING INSTRUCTIONS PROVIDED TO YOU BY THAT BROKER OR CUSTODIAN.
Very truly yours,
John J. Marchioni
President and Chief Executive Officer
By Order of the Board of Directors:
Robyn P. Turner
Corporate Secretary
Table of ContentsTABLE OF CONTENTS
-i-
FOR THE 20202021 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, APRIL 29, 202028, 2021
GENERAL INFORMATION ABOUT SELECTIVE’S ANNUAL MEETING
WHEN AND WHERE IS THE ANNUAL MEETING?
The 20202021 Annual Meeting of Stockholders (the “Annual Meeting”) of Selective Insurance Group, Inc. (“Selective” or “we”) will be held on Wednesday, April 29, 2020,28, 2021, at 9:00 AM Eastern Time in the auditorium at Selective’s principal offices at 40 Wantage Avenue, Branchville, New Jersey 07890. Directions toexclusively via live audiocast. As the Annual Meeting arewill be a completely “virtual meeting” of stockholders, there will not be a physical location for the Annual Meeting and you will not be able to attend the meeting in person. You will be able to participate, vote, and submit your questions during the Annual Meeting by visiting www.virtualshareholdermeeting.com/SIGI2021 and entering your 16-digit control number included on your proxy card. See below for additional information regarding the back of this Proxy Statement. Our telephone number is (973) 948-3000.virtual meeting format.
WHEN IS THIS PROXY STATEMENT BEING MAILED?
This Proxy Statement and proxy card are first being mailed or given to Selective stockholders on March 25, 2020.24, 2021.
WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
Anyone who owned Selective common stock as of the close of business on March 6, 2020,5, 2021, is entitled to one vote per share owned. There were 59,707,54560,023,567 shares outstanding at the close of business on that date.
WHO IS SOLICITING MY PROXY TO VOTE MY SHARES AND WHEN?
Selective’s Board of Directors (“Board of Directors” or the “Board”) is soliciting your proxy, meaning your authorization for our named proxies, Terrence W. CavanaughLisa Rojas Bacus and H. Elizabeth Mitchell,Stephen C. Mills, to vote your shares.
Unless revoked by you, your proxy will be effective for the Annual Meeting and for any adjournments or postponements of that meeting.
WHAT IS THE COST OF SOLICITING PROXIES AND WHO IS PAYING FOR THE COST?
Selective is bearing the entire cost of soliciting proxies. Proxies will be solicited principally through the mail, but they also may be solicited in person, in writing, by telephone, e-mail, or facsimile, or otherwise by Selective directors or officers, or employees of a Selective subsidiary, who will receive no additional compensation. Selective has engaged Innisfree M&A Incorporated, a proxy solicitation firm (“Innisfree”), to assist in the solicitation ofsoliciting proxies and the distribution ofdistributing proxy materials. Innisfree will provide such services for an estimated fee of approximately $15,000, plus expenses. Selective will reimburse banks, brokerage firms, and other custodians, nominees, and fiduciaries for reasonable expenses incurred by them in sending proxy materials to their customers or principals who are the beneficial owners of shares of Selective common stock.
WHAT ARE THE REQUIREMENTS FOR BUSINESS TO BE CONDUCTED AT THE ANNUAL MEETING?
For business to be conducted at the Annual Meeting, owners of 29,853,77430,011,785 shares of Selective common stock (a majority of the issued and outstanding shares entitled to vote), constituting a quorum, must be in attendance by virtual participation or represented by proxy. Our common stock is our only class of voting securities.
HOW DO STOCKHOLDERS ATTEND THE VIRTUAL ANNUAL MEETING?
The Annual Meeting will be held exclusively via live audiocast. We are pleased to use virtual stockholder meeting technology to (i) provide ready access and cost savings for Selective and its stockholders, and (ii) promote social distancing pursuant to guidance provided by the Centers for Disease Control and Prevention and the U.S. Securities and Exchange Commission (“SEC”) due to the novel coronavirus. The meeting format allows attendance from any location in the world.
Page 1
To be admitted to the Annual Meeting at www.virtualshareholdermeeting.com/SIGI2021, you must enter the 16-digit control number on the proxy card you previously received. You will be able to vote online, submit your questions, and examine Selective’s stockholder list by following the instructions provided on the meeting website during the Annual Meeting.
The meeting will begin promptly at 9:00 AM Eastern Time on April 28, 2021. Online access will begin at 8:45 AM Eastern Time. We encourage you to access the meeting prior to the start time to ensure sufficient time to complete the check-in procedures. If you are not a stockholder, you may still access the meeting as a guest, but you will not be able to vote or ask questions.
The virtual meeting platform is fully supported across browsers (Internet Explorer, Firefox, Chrome, and Safari) and devices (desktops, laptops, tablets, and cell phones) running the most updated version of applicable software and plugins. If you encounter any technical difficulties logging onto www.virtualshareholdermeeting.com/SIGI2021 or during the meeting, there will be a toll-free number and international number available on the website to help you. Technicians will be ready to assist you with any technical difficulties you may have, beginning at 8:45 AM Eastern Time through the conclusion of the Annual Meeting. You will have the ability to test the system before the Annual Meeting starts.
HOW DO STOCKHOLDERS ASK QUESTIONS AT THE 2021 ANNUAL MEETING?
The 2021 Annual Meeting will include a question and answer session. We will answer questions relevant to the company and meeting matters that are submitted in accordance with the meeting rules posted on the meeting website (www.virtualshareholdermeeting.com/SIGI2021). Stockholders will have an opportunity to submit written questions via the Internet at any time during the meeting by following the instructions that will be available on the meeting website. Stockholders must have their control number to ask a question. There is no limit on the number of questions a stockholder can ask. Substantially similar questions will be answered once to avoid repetition and allow more time for other questions.
PROPOSALS FOR STOCKHOLDER VOTE AND APPROVAL REQUIREMENTS
Management is presenting threefour proposals for a stockholder vote.
PROPOSAL 1. ELECTION OF DIRECTORS
| PROPOSAL 1. | ELECTION OF DIRECTORS |
THE BOARD IS SUBJECT TO ANNUAL ELECTION BY THE STOCKHOLDERS. THE BOARD RECOMMENDS THAT YOU VOTE “FOR”“FOR” THE FOLLOWING 1317 NOMINATED DIRECTORS FOR A TERM OF ONE YEAR:
| H. ELIZABETH MITCHELL | |||
| LISA ROJAS BACUS | MICHAEL J. MORRISSEY | ||
| JOHN C. BURVILLE | GREGORY E. MURPHY | ||
| TERRENCE W. CAVANAUGH | CYNTHIA S. NICHOLSON | ||
| WILLIAM M. RUE | |||
| JOHN S. SCHEID | |||
| J. BRIAN THEBAULT | |||
| PHILIP H. URBAN | |||
| STEPHEN C. MILLS |
You can find information about these nominees, Selective’s Board of Directors, its committees, and other related matters in the section entitled, “Information about Proposal 1” of this Proxy Statement.
Page 2
New Jersey law and Selective’s By-Laws govern the vote on Proposal 1, on which you may:
| § | Vote “FOR” all of the nominees; |
| § | Vote “AGAINST” all of the nominees; |
| § | Vote “FOR” or “AGAINST” specific nominees; or |
| § | Abstain from voting |
Under our By-Laws and assuming a quorum is present, a director nominee in an uncontested election must be elected by a majority of votes cast. A majority exists when the number of votes cast “for” a director nominee exceeds the number of votes cast “against” the director nominee. A director nominee who fails to receive a majority of votes cast in an uncontested election is required to tender his or her resignation from the Board of Directors within five days following the certification of the election results. In that event: (i) the Corporate Governance and Nominating Committee must recommend to the Board of Directors whether it should accept the resignation; and (ii) the Board of Directors must decide whether to accept the resignation and disclose its decision-making process.
Stockholders may not cumulate their votes. Abstentions and broker non-votes (shares held in “street name” by a broker, bank, or other nominee that does not have authority, either express or discretionary, to vote on a non-routine matter, such as Proposals 1, 2, and 2)3) will not be taken into account in determining the outcome of the vote, consistent with New Jersey law and the proxy rules of the United States Securities and Exchange Commission (“SEC”).SEC.
| APPROVAL, ON AN ADVISORY BASIS, OF THE 2020 COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS |
PROPOSAL 2. APPROVAL, ON AN ADVISORY BASIS, OF THE 2019 COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL, ON AN ADVISORY BASIS, OF THE 20192020 COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS DISCLOSED IN THIS PROXY STATEMENT.
You can find information about the compensation of our named executive officers in the section entitled, “Executive Compensation” and about Proposal 2 in the section entitled, “Information about Proposal 2” of this Proxy Statement.
New Jersey law and Selective’s By-Laws govern the vote on Proposal 2, on which you may:
| § | Vote “FOR” Proposal 2; |
| § | Vote “AGAINST” Proposal 2; or |
| § | Abstain from |
Assuming a quorum is present, Proposal 2 will pass if approved by an affirmative vote of a majority of the votes cast at the Annual Meeting. Abstentions and broker non-votes will not be taken into account in determining whether the proposal has received the requisite number of affirmative votes, consistent with New Jersey law and the SEC’s proxy rules.
PROPOSAL 3. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| PROPOSAL 3. | APPROVAL OF AMENDED AND RESTATED SELECTIVE INSURANCE GROUP, INC. EMPLOYEE STOCK PURCHASE PLAN (2021) |
THE BOARD RECOMMENDS THAT YOU VOTE “FOR”FOR” THE RATIFICATIONAPPROVAL OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020.AMENDED AND RESTATED SELECTIVE INSURANCE GROUP, INC. EMPLOYEE STOCK PURCHASE PLAN (2021).
You can find information about Selective’s relationship with KPMG LLPthe Amended and Restated Selective Insurance Group, Inc. Employee Stock Purchase Plan (2021) in the section entitled, “Information about Proposal 3” of this Proxy Statement.
Page 3
New Jersey law and Selective’s By-Laws govern the vote on Proposal 3, on which you may:
| § | Vote “FOR” Proposal 3; |
| § | Vote “AGAINST” Proposal 3; or |
| § | Abstain from |
Assuming a quorum is present, Proposal 3 will pass if approved by an affirmative vote of a majority of the votes cast at the Annual Meeting. Abstentions and broker non-votes will not be taken into account in determining whether the proposal has received the requisite number of affirmative votes, consistent with New Jersey law and the SEC’s proxy rules.
| PROPOSAL 4. | RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2021.
You can find information about Selective’s relationship with KPMG LLP in the section entitled, “Information about Proposal 4” of this Proxy Statement. New Jersey law and Selective’s By-Laws govern the vote on Proposal 4, on which you may:
| § | Vote “FOR” Proposal 4; |
| § | Vote “AGAINST” Proposal 4; or |
| § | Abstain from voting on Proposal 4. |
Assuming a quorum is present, Proposal 4 will pass if it receives an affirmative vote of a majority of the votes cast at the Annual Meeting. Abstentions will not be taken into account in determining whether the proposal has received the requisite number of affirmative votes, consistent with New Jersey law and the SEC’s proxy rules. Proposal 34 is considered a “routine” matter on which brokers may cast a vote.
OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING
The Board of Directors is unaware of any other business to be presented for a vote at the Annual Meeting. If any other matters are properly presented for a vote, the individuals named as proxies will have discretionary authority to vote on such matters according to their best judgment to the extent permitted by applicable law and NASDAQNasdaq Stock Market (“NASDAQ”Nasdaq”) and SEC rules and regulations.
The ChairmanChairperson of the Annual Meeting may refuse to allow the presentation of a proposal or nominee for the Board of Directors if the proposal or nominee is not properly submitted. The requirements for submitting proposals and nominations for this year’s Annual Meeting are detailed in Selective’s By-Laws.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This Proxy Statement contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements may be identified by words like “anticipate,” “expect,” “project,” “believe,” “plan,” “may,” “estimate,” “intend,” and other similar words. These forward-looking statements are based on our beliefs, assumptions, and estimates using information available to us at the time and are not intended to be guarantees of future events or performance. Factors that may cause actual results to differ materially from those contemplated by the statements in this Proxy Statement can be found in our most recent Annual Report on Form 10-K filed with the SEC and in the Quarterly Reports on Form 10-Q we have filed or will fileour other filings with the SEC hereafter under the headings “Risk Factors” and “Forward-Looking Statements.”
Page 4
You are cautioned not to place undue reliance on any of our forward-looking statements. We disclaim any intention or obligation to publicly update or revise any forward-looking statements, except as required by law. This cautionary statement applies to all forward-looking statements contained in this document.
HOW DO I VOTE?
You can vote four ways:
| 1. | BY MAIL (PROXY CARD MUST BE RECEIVED BEFORE THE ANNUAL MEETING): |
| § | Mark your voting instructions on your proxy card; |
| § | Sign your name exactly as it appears on your proxy card; |
| § | Date your proxy card; and |
| § | Mail your proxy card to us in the provided postage-paid envelope. |
Timing is important, so please mail your proxy card promptly. We must receive it before the beginning of the Annual Meeting. If you do not give voting instructions on your signed and mailed proxy card, the named proxies will vote your shares FOR each of the director nominees, and FOR Proposals 2, 3, and 3.4. If any other matters requiring a vote arise during the meeting, the named proxies will exercise their discretion using their best judgment to the extent permitted by applicable law and NASDAQNasdaq and SEC rules and regulations.
| 2. | BY TELEPHONE (MAY BE DONE AT ANY TIME UNTIL TUESDAY, APRIL |
| § | Call the toll-free number on your proxy card; and |
| § | Follow the instructions on your proxy card and the voice prompts. |
| § | IF YOU VOTE BY TELEPHONE, YOU DO NOT NEED TO RETURN YOUR PROXY CARD. |
| 3. | BY INTERNET (MAY BE DONE AT ANY TIME UNTIL TUESDAY, APRIL |
| § | Go to the website listed on your proxy card; and |
| § | Follow the instructions on your proxy card and the website. |
| § | IF YOU VOTE BY INTERNET, YOU DO NOT NEED TO RETURN YOUR PROXY CARD. |
| 4. |
| § |
Page 5
HOW DO I REVOKE MY PROXY OR CHANGE MY VOTING INSTRUCTIONS?
You may revoke your proxy at any time before the proxy is exercised at the Annual Meeting by:
| § | Submitting a new vote by telephone, via the Internet, or by returning a properly executed new proxy card bearing a later date. Any subsequent timely and valid vote by any voting method will change your prior vote. For example, if you voted by telephone, a subsequent Internet vote will change your vote. The vote counted will be the last vote received before 11:59 PM Eastern Time on Tuesday, April |
| § | Writing to Selective’s Corporate Secretary, Robyn P. Turner, at 40 Wantage Avenue, Branchville, New Jersey 07890 (such revocation must be received prior to the Annual Meeting); and |
| § |
HOW WILL PROXIES BE VOTED IF I GIVE MY AUTHORIZATION?
If you:you (i) properly execute your proxy card and return it to Selective;Selective, or (ii) submit your proxy by telephone or via the Internet and do not subsequently revoke your proxy, your shares of common stock will be voted at the Annual Meeting according to your instructions.
In the absence of voting instructions, the named proxies will vote your shares FOR each of the director nominees and FOR Proposals 2, 3, and 3.4. If other matters properly come before the Annual Meeting, the named proxies will vote on such matters using their best judgment to the extent permitted by applicable law and NASDAQNasdaq and SEC rules and regulations.
WHAT IF MY SHARES ARE NOT REGISTERED IN MY NAME?
If the Selective stock you own is held in the name of a bank, broker, or other nominee (commonly referred to as holding shares in “street name”), you should have received access to these proxy materials from your bank, broker, or other nominee should have provided you access to these proxy materials by mail or e-mail with information on how to submit your voting instructions. Unless you provide voting instructions to your bank, broker, or other nominee, your shares will not be voted on the election of directors (Proposal 1); and the advisory (non-binding) vote on the 20192020 compensation of Selective’s named executive officers (Proposal 2); and the approval of the amended and restated Selective Insurance Group, Inc. Employee Stock Purchase Plan (2021) (Proposal 3). In contrast, brokers may, at their discretion, vote uninstructed shares on the ratification of the appointment of our independent registered public accounting firm (Proposal 3)4), which is a “routine” proposal. Broker non-votes count toward a quorum, but otherwise do not affect the outcome of any proposal.
HOW WILL VOTES BE COUNTED?
The inspectors of election appointed for the Annual Meeting by the Board of Directors will separately tabulate affirmative and negative votes, abstentions, and broker non-votes. Shares represented by proxies that reflect abstentions and broker non-votes are counted for determining whether there is a quorum.
Approval of Proposals 1, 2, 3, and 34 requires the affirmative vote of a majority of votes cast at the Annual Meeting. For Proposal 1, abstentions and broker non-votes will not be considered in determining whether director nominees have received more “for” votes than “against” votes. Abstentions and broker non-votes are not considered votes cast for the foregoing purpose and therefore do not affect Proposal 2.Proposals 2 and 3. Abstentions do not affect Proposal 3.4.
IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON WEDNESDAY, april 29, 2020APRIL 28, 2021
This Proxy Statement and our 20192020 Annual Report to Stockholders are available on
Selective’s Internet website atwww.Selective.com.
Page 6
Election of Directors
Under our By-Laws, directors in uncontested elections must be elected by a majority of votes cast. A majority exists when the number of votes cast “for” a director nominee exceeds the number of votes cast “against” that director nominee. For more information on our majority voting policy, please see the section entitled, “Corporate Governance – Majority Voting for Directors in Uncontested Elections” of this Proxy Statement.
All directors stand for election for a one-year term. In all cases, each director will hold office until a successor has been elected and qualified, or until the director’s earlier resignation or removal.
The Board of Directors currently has 1417 members, 13all of whom are standing for re-electionelection at the Annual Meeting, as Ronald L. O’Kelley will be retiring at the time of the Annual Meeting. Under Selective’s Amended and Restated Certificate of Incorporation and By-Laws, Selective may have a minimum of seven and a maximum of 20 directors. By majority vote, the Board of Directors may set the number of directors within this range at any time.
Process for Review and Nomination of Director Candidates
We believe that the Board’s composition should encompass a broad range of skills, expertise, industry knowledge, and diversity of opinion. Directors should possess the highest personal and professional ethics, integrity, and values, and must be committed to representing the long-term interests of Selective and its stockholders.
The Corporate Governance and Nominating Committee is responsible for the reviewreviewing and nomination ofnominating candidates to the Board of Directors. The Corporate Governance and Nominating Committee reviews all director candidates for possible nomination and election to the Board and seeks such candidates from any source, including:
| § | Directors and management; |
| § | Third-party search firms that the Corporate Governance and Nominating Committee may engage from time to time for a fee to identify and assess candidates; and |
| § | Stockholders. |
Any stockholder proposing one or more Board candidates must submit in writing all applicable information required by Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Selective’s By-Laws to the Chairperson of the Corporate Governance and Nominating Committee, c/o Corporate Secretary, Selective Insurance Group, Inc., 40 Wantage Avenue, Branchville, New Jersey 07890.
The Corporate Governance and Nominating Committee evaluates all candidates, including those recommended by stockholders, based on, among other things, the following standards:
| § | Personal and professional ethics, integrity, character, and values; |
| § | Professional and personal experience; |
| § | Business judgment; |
| § | Skills and expertise; |
| § | Industry knowledge; |
| § | Independence and avoidance or limitation of potential or actual conflicts of interest; |
| § | Dedication and commitment to representing the long-term interests of Selective and its stockholders; |
| § | Willingness to dedicate and devote sufficient time to Board duties and activities; |
Page 7
| § | Other appropriate and relevant factors, including the qualifications and skills of the current members of the Board; and |
| § |
Although Selective does not have a formal Board diversity policy, ourDuring 2020, the Corporate Governance Guidelines provideand Nominating Committee conducted a director recruiting process consistent with Selective’s Corporate Governance Guidelines. Then current independent directors and corporate advisers identified qualified potential director candidates through their professional contacts and networks. After identifying a pool of diverse director candidates, the Corporate Governance and Nominating Committee reviewed individual candidate qualifications and interviewed Ainar D. Aijala, Jr., Lisa Rojas Bacus, Wole C. Coaxum, and Stephen C. Mills. Based on each candidate’s varied talents and expertise, the Corporate Governance and Nominating Committee recommended that the composition ofBoard appoint each as a director. The Board interviewed the Board should encompass a broadfour candidates and, given their caliber and wide range of skills expertise, industry knowledge, and experience, decided to expand the number of directors to 17 in connection with succession planning efforts and appoint all four as new independent directors effective September 23, 2020. These new director appointments reflect Selective’s commitment to director succession, enhancing diversity, building a culture of innovation and creativity, and delivering a superior customer experience.
Page 8
The table below summarizes the range of skills and experiences we find relevant to our business that each director brings to the Board. As a summary, it does not include every skill, experience, and qualification that each director offers, and the fact that a particular experience, skill, or qualification is not listed does not mean that a director does not possess it. All of our directors exhibit high integrity, an appreciation for diversity of opinion. Accordingly,background and thought, innovative thinking, a proven record of success, and knowledge of corporate governance requirements and best practices.
| ATTRIBUTES, EXPERTISE & SKILLS | AINAR D. AIJALA, JR. | LISA ROJAS BACUS | JOHN C. BURVILLE | TERRENCE W. CAVANAUGH | WOLE C. COAXUM | ROBERT KELLY DOHERTY | JOHN J. MARCHIONI | THOMAS A. MCCARTHY | STEPHEN C. MILLS | H. ELIZABETH MITCHELL | MICHAEL J. MORRISSEY | GREGORY E. MURPHY | CYNTHIA S. NICHOLSON | WILLIAM M. RUE | JOHN S. SCHEID | J. BRIAN THEBAULT | PHILIP H. URBAN |
| INSURANCE INDUSTRY EXPERIENCE | x | x | x | x | x | x | x | x | x | x | x | x | |||||
| FINANCIAL STATEMENT/AUDIT/PUBLIC DISCLOSURE | x | x | x | x | x | x | x | x | x | x | x | x | x | x | x | ||
| FINANCE/CAPITAL MANAGEMENT EXPERTISE/M&A | x | x | x | x | x | x | x | x | x | x | x | ||||||
| INVESTMENT | x | x | x | x | x | x | x | x | x | x | |||||||
| PUBLIC COMPANY EXECUTIVE EXPERIENCE | x | x | x | x | x | x | x | x | x | x | x | ||||||
| ACTUARIAL | x | x | x | x | x | x | x | x | |||||||||
| HUMAN CAPITAL MANAGEMENT EXPERIENCE | x | x | x | x | x | x | x | x | x | x | x | x | x | x | |||
| RISK MANAGEMENT EXPERTISE, INCLUDING ESG AND SUSTAINABILITY | x | x | x | x | x | x | x | x | x | x | x | x | x | x | x | x | |
| TECHNOLOGY/CYBER | x | x | x | x | x | x | x | x | x | ||||||||
| LEGAL OR REGULATORY EXPERIENCE | x | x | x | x | x | x | x | x | x | x | x | x | x | ||||
| MARKETING/BRANDING | x | x | x | x | x | x | x | x | x | x | |||||||
| AGENCY DISTRIBUTION | x | x | x | x | x | x | x | x |
Page 9
Diversity
In addition to the skills and characteristics described above, in evaluating the suitability of individual director nominees, the Corporate Governance and Nominating Committee considers diversity, of thought, experience,including gender, race, and ethnic background are considered greatlyculture, along with personal expertise in areas expected to contribute to the director evaluation process.Board’s effectiveness, such as general operations, technology, finance, marketing, financial reporting, and human resources, among others.
Six of our 17 nominees for election to the Board self-identify as diverse. Three nominees self-identify as female; three nominees self-identify as underrepresented minorities (meaning an individual who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or two or more races or ethnicities); and two nominees self-identify as LGBTQ+.
Director Nominees
No family relationships exist among any of Selective’s current directors, executive officers, and persons nominated by Selective to become a director.
The Board ratified the Corporate Governance and Nominating Committee’s nomination of the 1317 director nominees listed below to stand for election at the Annual Meeting for terms expiring at the 20212022 Annual Meeting or until a successor has been duly elected and qualified. Ronald L. O’Kelley will be retiring at the Annual Meeting. The Board thanks Mr. O’Kelley for his service.
All 1317 director nominees have consented to be named in this Proxy Statement and to serve if elected. The Board does not know any reason why any nominee would decline or be unable to serve if elected. If a director nominee becomes unavailable or unable to serve before the Annual Meeting, the Board can reduce its size or designate a substitute nominee. If the Board designates a substitute nominee, proxies that would have been cast for the original nominee will be cast for the substitute nominee unless contrary instructions are given.
Page 10
| NOMINEES OF THE BOARD OF DIRECTORS | |
| Name, Age, Position | Background Information |
Ainar D. Aijala, Jr., 64 Independent Director Director since 2020 | § Retired. § Senior Advisor to the Global CEO and other senior level positions, including Chief Global Corporate Development Officer and Global Managing Partner of Consulting and Human Capital, Deloitte, 1982 to May 2020. § Senior Manager, Coopers & Lybrand Consulting, 1977 to 1982. § Enrolled Actuary pursuant to the Employee Retirement Income Security Act of 1974, since 1982. § Member, Board of Governors, Junior Achievement Worldwide, since 2003, and Junior Achievement USA, since 2015; member of the Executive Compensation Committee, since 2003, and past Chairman of Junior Achievement Worldwide, 2006 to 2009. § University of Michigan at Ann Arbor (B.S.). |
Discussion of individual experience, qualifications, attributes, and skills. | Mr. Aijala has significant experience as an actuary and corporate development and human capital executive. As a senior global advisor and managing partner at Deloitte for several decades, he has extensive experience advising public companies on various strategic issues, many relevant to Selective. In addition to his human capital professional experience, Mr. Aijala has devoted considerable time over a long period to educating primary and secondary school students about entrepreneurship, work readiness, and financial literacy through Junior Achievement Worldwide. Training in and exposing students to these areas is vital to developing potential interest in the insurance industry, which is essential in producing skilled talent. |
Lisa Rojas Bacus, 57 Independent Director Director since 2020 | § Retired. § Executive Vice President, Global Chief Marketing Officer, Cigna Corporation (“Cigna”), 2013 to 2019. § Executive Vice President and Chief Marketer, American Family Insurance Group, 2008 to 2013. § Executive Director, Global Marketing Strategy and other senior positions, Ford Motor Company, 1986 to 2008. § Board Member, Culver’s Franchising System, Inc., since 2010. § Board Member, Teradata Corporation, since 2015. § Board Member, Douglas Dynamics, Inc., since October 2020. § Board Member, PetSmart Charities Inc., since 2019. § Northern Arizona University (B.S.) and Duke University (M.B.A.). |
Discussion of individual experience, qualifications, attributes, and skills. | Ms. Bacus has more than 30 years of marketing and senior leadership experience in Fortune 100 global companies in the insurance and automotive industries. She has extensive property and casualty marketing experience, including developing relationships with independent agents. She is a strategic thinker and highly regarded customer experience expert, and we believe her marketing, digital, and analytics experience will contribute significantly to Selective’s strategies. Ms. Bacus is an advocate for environmental, social, and governance (“ESG”) issues, and gender and ethnic diversity matters. |
Page 11
| NOMINEES OF THE BOARD OF DIRECTORS | |
| Name, Age, Position | Background Information |
John C. Burville, Independent Director Director since 2006 | § Retired. § Insurance Consultant to the Bermuda Government, 2003 to 2007. § Chief Actuary and Senior Rating Agency Manager of ACE Limited, 1992 to 2003. § Member, Bermuda Insurance Advisory Committee, 1985 to 2003. § Fellow of the Institute of Actuaries. § Member, American Academy of Actuaries. § Leicester University, United Kingdom (B.Sc. and Ph.D.). |
| Discussion of individual experience, qualifications, attributes, and skills. | Mr. Burville has extensive insurance industry knowledge and served as chief actuary of one of the world’s largest property and casualty insurance companies. He is knowledgeable about both life and property and casualty actuarial techniques and reserving. |
Terrence W. Cavanaugh, Director since 2018 | § Founding partner, Accretive Consulting LLC, since 2017. § President and Chief Executive Officer, Erie Indemnity Company, 2008 to 2016. § Chief Operating Officer of Chubb Surety & Trade Credit, Chubb Group of Insurance Companies, 2002 to 2007; Chief Marketing Officer, Chubb Group, 1998 to 2001; various underwriting and field management roles, 1975 to § Director, Highmark Health, since 2013. § Director, Property Casualty Insurance Association, 2008 to 2017; Chairman, 2014 to 2015. § Trustee, The Institutes, 2010 to 2016. § Director, Insurance Information Institute, 2011 to 2016; Chairman, 2015 to 2016. § Board Member, Florida Lions Eye Clinic, since January 2021. §University of Notre Dame (B.B.A.). § Harvard Business School (Program for Management Development). |
| Discussion of individual experience, qualifications, attributes, and | Mr. Cavanaugh has more than 40 years of insurance expertise, including serving for eight years as chief executive officer of a Fortune 500 insurer. He has extensive experience growing property and casualty direct premiums written and increasing policyholder surplus, delivering profitability, and developing relationships with independent agents. Mr. Cavanaugh has significant customer experience and talent development knowledge and expertise. |
Wole C. Coaxum, 50 Independent Director Director since 2020 | § Founder and Chief Executive Officer, Mobility Capital Finance (MoCaFi), since 2016. § Managing Director and other senior management positions, JPMorgan Chase & Company, 2007 to 2015. § President and Chief Executive Officer, Willis Canada, 2005 to 2007; Chief Operating Officer and Chief Finance Officer, Willis North America, 2002 to 2005. § Vice President, Corporate and Investment Bank, and other various positions, Citigroup, 1992 to 2002. § Trustee, Phillips Exeter Academy, since 2012. § Director, Roosevelt Institute, since 2016; Board Treasurer, since 2019. § Williams College (B.A.) and New York University’s Stern School of Business (M.B.A.). |
| Discussion of individual experience, qualifications, attributes, and skills. | Mr. Coaxum is the president and chief executive officer of a digital banking platform he founded to support underserved communities. His experience in FinTech is relevant to Selective’s InsurTech strategies, as is his senior management, financial services, and insurance experience at JPMorgan, Willis Group, and Citigroup to influencing our overall strategies. Mr. Coaxum’s experience providing underserved communities with financial services will help Selective evaluate its geographic expansion and diversity, equity, and inclusion (“DE&I”) strategies. Mr. Coaxum is an executive with large public company and FinTech experience with keen insights into DE&I issues. |
Page 12
| NOMINEES OF THE BOARD OF DIRECTORS | |
| Name, Age, Position | Background Information |
Robert Kelly Doherty, Director since 2015 | § Managing Partner and Founder, Caymen Advisors and Caymen Partners, since 1999. § Vice Chairman, Bankers Trust Company and Bankers Trust New York Corporation, 1997 to 1998; various positions in global trading and investment operations, 1982 to 1997. § Director, Harding Loevner Funds, Inc., since 2004; Lead Director, since 2014. § Director, Cyota, Inc., 2000 to 2005; Non-Executive Chairman, 2002 to 2005. § Princeton University (B.A.). |
| Discussion of individual experience, qualifications, attributes, and skills. | Mr. Doherty has significant investment experience in both public and private companies. He plays a key advisory role in contributing to Selective’s investment strategies, particularly in the private equity sector, and is knowledgeable about fixed income products. Mr. Doherty also has significant senior management experience with a large financial services company and is familiar with the issues that Selective’s senior management faces. |
John J. Marchioni, Employee Director Director since 2019 | §President and Chief Executive Officer, Selective, since February 2020. § President and Chief Operating Officer, Selective, 2013 to January 2020. § Executive Vice President, Insurance Operations, Selective, 2010 to 2013. § Executive Vice President, Chief Underwriting and Field Operations Officer, Selective, 2008 to 2010. § Executive Vice President, Chief Field Operations Officer, Selective, 2007 to 2008. § Senior Vice President, Director of Personal Lines, Selective, 2005 to 2007. § Various insurance operations and government affairs positions, Selective, 1998 to 2005. § Director, The American Property Casualty Insurance Association, since July 2020. §Director, Commerce and Industry Association of New Jersey, since 2015. § Chartered Property Casualty Underwriter (CPCU). § Princeton University (B.A.). § Harvard University (Advanced Management Program). |
| Discussion of individual experience, qualifications, attributes, and | Mr. Marchioni was appointed President and Chief Executive Officer of Selective effective February 2020, prior to which he served as our President and Chief Operating Officer since 2013. Mr. Marchioni has been an employee of Selective for |
Thomas A. McCarthy, Independent Director Director since 2018 | § Retired. §Executive Vice President and Chief Financial Officer, Cigna, § Trustee, American University of Rome, since 2018. § Director, Habitat for Humanity of Montgomery & Delaware Counties, since 2017. § Carnegie Mellon University (M.B.A.). § Wharton School of the University of Pennsylvania (B.S.). |
| Discussion of individual experience, qualifications, attributes, and | Mr. McCarthy retired from Cigna in 2017 after more than 30 years with the company. While at Cigna, he was responsible for |
Page 13
| NOMINEES OF THE BOARD OF DIRECTORS | |
| Name, Age, Position | Background Information |
Stephen C. Mills, 61 Independent Director Director since 2020 | § Retired. § President and General Manager, New York Knicks, 2013 to February 2020. § Founding Partner and Chief Executive Officer, Athletes & Entertainers Wealth Management, LLC, 2010 to 2013. § President and Chief Operating Officer, MSG Sports, and previously Executive Vice President, Franchise Operations, New York Knicks, Madison Square Garden, 2000 to 2009. § Member, Board of Trustees and Audit Committee, Ariel Investments, since 2015. § Director, Madison Square Garden Sports, since April 2020. § Director, Madison Square Garden Networks, since October 2020. § Director, Harlem Junior Tennis, since 2017. § Member, Board of Advisors, Hospital for Special Surgery, since 2011. § Director, Princeton University Varsity Club, since 2010. § Princeton University (B.A.). |
| Discussion of individual experience, qualifications, attributes, and skills. | Mr. Mills has extensive general management, marketing, brand communication, and human capital experience after three decades in senior positions with Madison Square Garden Sports, the New York Knicks, the National Basketball Association, and his own sports agency. As an investment fiduciary on the Mutual Fund Board of Trustees of Ariel Investments, he can contribute insights to our investment strategies. Mr. Mills has been active with several prominent charities, and these experiences and his knowledge of media-intensive public companies will further our marketing and ESG strategies. Mr. Mills has strong general management, marketing, and investment credentials. He is very involved with ESG and DE&I issues. |
H. Elizabeth Mitchell, Independent Director Director since 2018 | § Retired. § President, CEO and Director, Renaissance Reinsurance U.S. Inc., 2015 to 2016. § President, Platinum Underwriters Reinsurance, Inc., 2005 to 2015; Chief Executive Officer, 2007 to 2015; Chief § Executive Vice President, St. Paul Reinsurance, Inc., 1998 to 2002; Senior Vice President, 1998; Vice President, § Board of Advisors, Hudson Structured Capital Management Ltd., since 2018. § Director, StanCorp Financial Group, Inc., since 2017. § Chairperson, Weston Insurance Holdings, since September 2020. §Board of Overseers, St. John’s University School of Risk Management and Actuarial Science, 2007 to 2016. § Trustee, The Institutes, 2010 to 2016. § Board Member, Reinsurance Association of America, 2002 to 2007; 2014 to 2016. § Board Member, Broker and Reinsurance Market Association, 2002 to 2016; Chair of the Board, 2007 to 2008; § Fellow of the Casualty Actuarial Society. § Member, American Academy of Actuaries. § Member, § College of the Holy Cross (B.A.). |
| Discussion of individual experience, qualifications, attributes, and | Ms. Mitchell is a well-respected insurance industry executive with a proven record of accomplishment leading an organization with sustained profitability. In addition to her extensive senior management experience in the property and casualty insurance and reinsurance industries, Ms. Mitchell is an actuary and very knowledgeable about risk, actuarial science, insurance operations, mergers and acquisitions, and operational reorganization matters. |
Page 14
| NOMINEES OF THE BOARD OF DIRECTORS | |
| Name, Age, Position | Background Information |
Michael J. Morrissey, Independent Director Director since 2008 | § § Chairman, Legeis Capital, since November 2020. §Senior Advisor to the United Nations, since 2014. § Chairman and Chief Executive Officer, Firemark Investments, 1983 to 2009. § Director, CGA Group, Ltd., 1998 to 2009. § Member, Board of Overseers, St. John’s University School of Risk Management, Insurance and Actuarial § Steering Committee Member, Insurance Development Forum, since 2016. § Board Member, Protective Life Corporation, since May 2020. §Member, World Economic Forum Insurance & Asset Management Council. § Chartered Financial Analyst. § Boston College (B.A.). § Dartmouth College (M.B.A.). § Harvard University Graduate School of Business Administration (Corporate Financial Management Program). |
| Discussion of individual experience, qualifications, attributes, and skills. | Mr. Morrissey has |
Gregory E. Murphy,
Director since 1997 | § Retired. § Non-Executive Chairperson, Selective, since February 2021. §Executive Chairman, Selective, § Chairman and Chief Executive Officer, Selective, 2013 to January 2020. § Chairman, President and Chief Executive Officer, Selective, 2000 to
§ Certified Public Accountant (New Jersey) (Inactive). §
§ Director, The American Property Casualty Insurance Association, 2019 to July 2020. § Director, American Insurance Association, 2014 to 2019. § Director, Property and Casualty Insurers Association of America, 2008 to 2014. §Boston College (B.S.). § Harvard University (Advanced Management Program). § M.I.T. Sloan School of Management. |
| Discussion of individual experience, qualifications, attributes, and skills. | Having previously served as Chief Executive Officer since 1999, and having worked at Selective for over 40 years, Mr. Murphy possesses the greatest institutional knowledge of the Directors. We consider his service on the Board extremely valuable to informed business and strategic decision-making. He has broad experience and knowledge in the areas of reinsurance, insurance pricing, loss reserving, industry fundamentals, and |
Page 15
| NOMINEES OF THE BOARD OF DIRECTORS | |
| Name, Age, Position | Background Information |
Cynthia S. Nicholson, Independent Director Director since 2009 | § Advisor, § Chief Marketing Officer, Softcard®, 2013 to 2015. § Executive Vice President and Chief Marketing Officer, Equinox Holdings, Inc., 2010 to 2012. § Advisor, GamesThatGive, Inc., 2010 to 2011; Principal Strategist and Director, 2009 to 2010. § Senior Vice President and Chief Marketing Officer, Pepsi-Cola North America, a division of PepsiCo, Inc., 2005 § Member of Advisory Board, Lavit, LLC, since 2017. §Director, Heartland Consumer Products Investments Holdings, 2016 to §
§ University of Illinois (B.S.). § Kelley School of Business, Indiana University (M.B.A.). |
| Discussion of individual experience, qualifications, attributes, and skills. | Ms. Nicholson is a marketing expert with over 30 years of experience in various industries. She served as chief marketing officer at both Equinox Holdings, Inc. and Pepsi-Cola North America. Ms. Nicholson has extensive experience with brand building, advertising, media buying, promotions, digital and social media, and direct marketing. Her strong consumer marketing and branding experience is beneficial to our efforts to expand our brand with distribution partners, businesses, and consumers in the property and casualty insurance markets. |
William M. Rue, Non-Independent Director Director since 1977 | § Chairman, Rue Insurance, an insurance agency, since 2013; President and former Executive Vice President, Rue Insurance, 1969 to 2013. § Chairman, Rue Holding Company, since January 2020. § Manager, Rue Investment Company, LLC, since January 2020. §President, Rue Financial Services, Inc., 2002 to 2012. § Director, 1st Constitution Bank, since 1989; Secretary of the Board, since 2005. § Director, 1st Constitution Bancorp, § Director, Robert Wood Johnson University Hospital at Hamilton, since 1994; Chairman, 2015 to § Director, Robert Wood Johnson University Hospital Foundation, 1999 to 2012. § Director, Robert Wood Johnson Health Care Corp., 2011 to 2016. § Trustee, Rider University, 1993 to 2012 and since 2013. § Member, Independent Agents & Brokers Association. § Member, Society of Chartered Property and Casualty Underwriters. § Member, Professional Insurance Agents Association. § Member, Management Committee, PL Services, LLC. § Certified Insurance Counselor. § Associate in Risk Management (ARM™). § Director and President, The Rue Foundation, since 2004. § Rider College (B.S.). |
| Discussion of individual experience, qualifications, attributes, and skills. | Mr. Rue has been one of our independent agents for over 50 years and was the chief executive of his agency for 31 years. Because we principally distribute our products through independent agents, it is extremely valuable to the Board to have the benefit of his knowledge of property and casualty insurance products and services distribution, agency operations, and the competitive market for informed business and strategic decisions. |
Page 16
| NOMINEES OF THE BOARD OF DIRECTORS | |
| Name, Age, Position | Background Information |
John S. Scheid, Independent Director Director since 2014 | § Owner and sole member, Scheid Investment Group, LLC, since 2013. §
§ Director, Extraordinary Re Holdings LTD and Extraordinary Reinsurance Bermuda, since 2018. § Director, Groupware Technologies Holdings, Inc., since March 2021. § Director, Catholic Relief Services, since January 2021. § Director, Dynamis Software Corporation, 2014 to 2018. § Director, Messmer Catholic Schools, since 2013; Chairman, since 2016. § Member, Finance Council for the Archdiocese of Milwaukee, since 2016. § Chairman, Accounting Examining Board, State of Wisconsin, 2013 to 2019. § Member, Golden Angels Investment Group, since 2013. § Director, University of Wisconsin-Milwaukee Foundation, 2002 to 2011; Emeritus Director, since 2011. § Investment Committee Member, Marquette University High School, since 2011. §Member, Board of Governors, Junior Achievement Worldwide, 2004 to 2019; Audit Committee Chair, 2004 to § Certified Public Accountant (Wisconsin). § University of Notre Dame (B.B.A.). |
| Discussion of individual experience, qualifications, attributes, and skills. | Mr. Scheid retired after 36 years at PricewaterhouseCoopers LLP, most recently serving as a senior partner, primarily in the insurance and asset management industries. He has extensive experience in finance and insurance, financial management, public company governance, corporate transactions, and strategic leadership. |
J. Brian Thebault, Lead Independent Director Director since 1996 | § Partner, Thebault Associates, since 1987. § Chairman, Earth-Thebault, 2007 to 2009. § Chairman and Chief Executive Officer, L.P. Thebault Company, 1998 to 2007; President and Chief Executive § Director, Curex Group Holdings LLC, since 2010. § Trustee, The Peck School, 1994 to 2010. § Trustee, The Delbarton School, 1990 to 2007. § University of Southern California (B.S.). |
| Discussion of individual experience, qualifications, attributes, and skills. | |
Philip H. Urban, Independent Director Director since 2014 | § Retired. §President and Chief Executive Officer, Grange Insurance, 1999 to 2010. § President, Personal Lines, Guaranty National Insurance Company, 1996 to 1999. § Senior Vice President, Great American Insurance Company, 1990 to 1996. § Chairman, Integrity Insurance, 2002 to 2010. § Chairman, The Grange Bank, 1999 to 2007. § Director, The Jeffrey Company, since 2005; Member, Audit and Risk Committee, since 2005. § Miami University of Ohio (B.A.). § Ohio State University (M.B.A.). |
Page 17
| NOMINEES OF THE BOARD OF DIRECTORS | |
| Name, Age, Position | Background Information |
| Discussion of individual experience, qualifications, attributes, and skills. | Mr. Urban has a wealth of property and casualty insurance experience, both as a senior executive and as a board member. He has first-hand knowledge of the independent agent distribution channel, geographic market expansion, |
Board Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” EACH OF THE DIRECTOR NOMINEES.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Security Ownership of Management and the Board of Directors
The following table shows, as of February 18, 2020:17, 2021:
| § | The number of shares of Selective common stock beneficially owned by each director, the Chief Executive Officer (the “CEO”), and the other named executive |
| § | The number of shares of Selective common stock beneficially owned by our directors and executive officers as a group. |
| Number of Shares | ||||
| Name of Beneficial Owner | Common Stock | Options Exercisable Within 60 Days of February 18, 2020 | Total Shares Beneficially Owned(1) | Percent of Class |
| Burville, John C. | 78,226 | 0 | 78,226 | * |
| Cavanaugh, Terrence W. | 4,339 | 0 | 4,339 | * |
| Doherty, Robert Kelly | 19,327 | 0 | 19,327 | * |
| Lanza, Michael H. | 30,364 | 0 | 30,364 | * |
| Marchioni, John J. | 146,146 | 0 | 146,146 | * |
| McCarthy, Thomas A. | 5,078 | 0 | 5,078 | * |
| Mitchell, H. Elizabeth | 3,645 | 0 | 3,645 | * |
| Morrissey, Michael J. | 19,075 | 0 | 19,075 | * |
| Murphy, Gregory E. | 287,769 | 0 | 287,769 | * |
| Nicholson, Cynthia S. | 19,869 | 0 | 19,869 | * |
| O’Kelley, Ronald L. | 70,624 | 7,953 | 78,577 | * |
| Rue, William M. | 378,070(2) | 0 | 378,070 | 1% |
| Scheid, John S. | 17,771 | 0 | 17,771 | * |
| Thebault, J. Brian | 62,506 | 0 | 62,506 | * |
| Urban, Philip H. | 17,413 | 0 | 17,413 | * |
| Wilcox, Mark A. | 29,966 | 0 | 29,966 | * |
| All directors and executive officers, as a group (16 persons) | 1,140,549 | 7,953 | 1,148,502 | 2% |
None of the directors, CEO, or named executive officers held any stock options exercisable within 60 days of February 17, 2021.
| Name of Beneficial Owner | Total Shares of Common Stock Beneficially Owned(1) | Percent of Class |
| Aijala, Ainar D., Jr.(2) | 0 | * |
| Bacus, Lisa Rojas(2) | 0 | * |
| Burville, John C. | 81,823 | * |
| Cavanaugh, Terrence W. | 8,936 | * |
| Coaxum, Wole C.(2) | 0 | * |
| Doherty, Robert Kelly | 21,082 | * |
| Lanza, Michael H. | 28,293 | * |
| Marchioni, John J. | 140,620 | * |
| McCarthy, Thomas A. | 8,675 | * |
| Mills, Stephen C.(2) | 0 | * |
| Mitchell, H. Elizabeth | 7,242 | * |
| Morrissey, Michael J. | 22,211 | * |
| Murphy, Gregory E. | 256,248 | * |
| Nicholson, Cynthia S. | 23,466 | * |
| Rue, William M. | 398,186(3) | 1% |
| Scheid, John S. | 21,369 | * |
| Thebault, J. Brian | 66,103 | * |
| Urban, Philip H. | 20,458 | * |
| Wilcox, Mark A. | 26,727 | * |
| All directors and executive officers, as a group (19 persons) | 1,131,439 | 2% |
* Less than 1% of the common stock outstanding.
Page 18
(1) No directors or executive officers hold Selective common stock in margin accounts or have Selective common stock pledged for a loan or stock purchase.
(2) Messrs. Aijala, Coaxum, and Mills, and Ms. Bacus were appointed to Selective’s Board effective as of September 23, 2020.
(3) Includes: (i) 44,772 shares held by Rue Investment Company, LLC (see the section entitled, “Transactions with Related Persons” of this Proxy Statement for more information); and (ii) 5,226 shares held by Mr. Rue’s wife.
Security Ownership of Certain Beneficial Owners
The following table lists the only persons or groups Selective knows to be the beneficial owners of more than 5% of any class of Selective’s voting securities as of December 31, 2019,2020, based on Schedules 13G/A filed by the beneficial owners on February 4, 2020 and February 12, 2020, respectively, with the SEC.
| Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class |
| Common Stock | BlackRock, Inc.
|
| |
| Common Stock | The Vanguard Group,Inc.
|
|
(1) BlackRock, Inc. (“BlackRock”) filed an amended Schedule 13G with the SEC on January 27, 2021 reporting that it is deemed to be the beneficial owner of an excess of 5% of the outstanding shares of Selective common stock. BlackRock reported that it has sole voting power with respect to 6,579,699 shares, shared voting power with respect to 0 shares, sole dispositive power with respect to 6,678,257 shares, and shared dispositive power with respect to 0 shares.
(2) Vanguard Group, Inc. (“Vanguard”) filed an amended Schedule 13G with the SEC on February 10, 2021 reporting that it is deemed to be the beneficial owner of an excess of 5% of the outstanding shares of Selective common stock. Vanguard reported that it has sole voting power with respect to 0 shares, shared voting power with respect to 58,855 shares, sole dispositive power with respect to 5,235,032 shares, and shared dispositive power with respect to 106,546 shares.
The names of our executive officers and their ages, positions, and biographies are set forth below. Our executive officers are appointed by and serve at the discretion of our Board of Directors.
| EXECUTIVE OFFICERS | |
| Name, Age, Position | Background Information |
|
|
John J. Marchioni, President and Chief Executive Officer | §For information regarding Mr. Marchioni, please see the section entitled, “Information about Proposal 1 – |
Mark A. Wilcox, Executive Vice President and Chief Financial Officer | §Present position since 2017. §Senior Vice President, Corporate Controller and Chief Accounting Officer of RenaissanceRe Holdings Ltd., 2005 to 2016. §Vice President and Internal Auditor, RenaissanceRe Holdings Ltd. §Senior Manager, Audit and Business Advisory Services – Insurance Practice, PricewaterhouseCoopers LLP, 2001 to 2003; various positions, 1997 to 2001. §Certified Public Accountant (Washington, D.C.). §Chartered Financial Analyst. §University of South Florida (B.S.). §Georgetown University (M.B.A.). §Oxford University, Graduate Summer Program in International Management. |
Page 19
| EXECUTIVE OFFICERS | |
| Name, Age, Position | Background Information |
Michael H. Lanza, Executive Vice President, General Counsel, and Chief Compliance Officer | §Present position since 2007. §Senior Vice President and General Counsel, Selective, 2004 to 2007. §Trustee, Newton Medical Center Foundation, since 2014. §Member, Society of Corporate Secretaries and Corporate Governance Professionals. §Member, National Investor Relations Institute. §University of Connecticut (B.A.). §University of Connecticut School of Law (J.D.). |
TRANSACTIONS WITH RELATED PERSONS
Director William M. Rue is Chairman, and owns more than 10% of the equity, of Rue Holding Company, which owns 100% of Chas. E. Rue & Son, Inc., t/a Rue Insurance, ana general independent retail insurance agency that(“Rue Insurance”). Rue Insurance has been appointed to do business on behalfas a distribution partner of Selective’s insurance subsidiaries since 1928. Mr. Rue has two children who are employed by Rue Insurance: a daughter; and a son, who also serves as president of the agency and owns more than 10% of the equity of Rue Insurance. The appointment of Rue Insurance as an independent agent was made1928, on similar terms and conditions assimilar to those of the other agentsdistribution partners of Selective’s insurance subsidiaries, and includes the right to: (i) receive commissions for policies placed; and (ii) participate in the Amended and Restated Selective Insurance Group, Inc. Stock Purchase Plan for Independent Insurance Agencies (2010), Amended and Restated as of February 1, 2017. Mr. Rue has two children who are employed by Rue Insurance: a daughter, who owns less than 10% of the equity of Rue Holding Company; and a son, who serves as president of Rue Insurance, and owns more than 10% of the equity of Rue Holding Company.
In 2019,2020, Rue Insurance placed insurance policies for its customers and itself with Selective’s insurance subsidiaries and earned $2.0standard market commissions, including supplemental commissions, of $1.8 million of commissions on direct premiums written of $11.0$11 million. Selective expects the relationship with Rue Insurance will continue in 2020.2021. All contracts and transactions with Rue Insurance were consummated in the ordinary course of business on an arm’s-length basis. For additional information regarding
Mr. Rue, see the section entitled, “Information about Proposal 1 – Director Nominees” of this Proxy Statement.
In 2005, we established a private foundation, now named The Selective Insurance Group Foundation (the “Foundation”), under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). The board of directors of the Foundation is comprised of some of the officers of Selective and its insurance subsidiaries. We made $1.3$0.5 million in charitable contributions to the Foundation in 2019.2020.
BlackRock, a leading publicly-traded investment management firm, has purchased our common shares in the ordinary course of its investment business and has previously filed Schedules 13G/A with the SEC. On February 4, 2020,January 27, 2021, BlackRock filed a Schedule 13G/A reporting beneficial ownership as of December 31, 2019,2020 of 11.7%11.2% of our outstanding common stock. In connection with purchasing our common shares, BlackRock filed the necessary filings with insurance regulatory authorities. On the basis of those filings, BlackRock is deemed not to be a controlling person for the purposes of applicable insurance law.
We are required to disclose related party information for our transactions with BlackRock. BlackRock is highly regulated, serves its clients as a fiduciary, and has a diverse platform of active (alpha) and index (beta) investment strategies across asset classes that enables it to tailor investment outcomes and asset allocation solutions for clients. BlackRock also offers the BlackRock Solutions® investment and risk management technology platform, Aladdin®, risk analytics, advisory, and technology services and solutions to a broad base of institutional and wealth management investors. We incurred expenses related to BlackRock for services rendered of $2.2$2.0 million in 2019.2020. Amounts payable for such services at December 31, 20192020, were $1.1$1.3 million.
As part of our overall investment diversification, we invest in various BlackRock funds from time to time. These funds accounted for less than 1% of our invested assets at December 31, 2019.2020. During 2019,2020, with regard to BlackRock funds, we (i) purchased $21.7$62.2 million, (ii) sold $59.5recognized net unrealized losses of $0.2 million, and (iii) recognized a $5.7 million net realized and unrealized gain, and (iv) recorded $0.8$0.4 million in income. We did not make any sales for BlackRock funds in 2020. There were no amounts payable on the settlement of these investment transactions at December 31, 2019.2020.
Page 20
Our pension plan’s investment portfolio contained investments in BlackRock funds of $144.2$191.8 million at December 31, 2019.2020. During 2019,2020, with regard to BlackRock funds, our pension plan (i) purchased $19.7$56.7 million, (ii) sold $44.1$44.9 million, and (iii) recorded net investment income of $36.7$35.8 million. In addition, our employee deferred compensation plan and defined contribution plan may offer our employees the option to invest in various BlackRock funds. All contracts and transactions with BlackRock were consummated in the ordinary course of business on an arm’s-length basis.
As of December 31, 2019, the Vanguard Group ("Vanguard") held 9.4% of our common stock. Vanguard, one of the world’s largest investment management companies, has purchased our common shares in the ordinary course of its investment business and has previously filed Schedules 13G/A with the SEC. Vanguard offers low cost mutual funds and exchange-traded funds, (“ETFs”), as well as other investment related services. On February 12, 2020,10, 2021, Vanguard filed a Schedule 13G/A reporting beneficial ownership as of December 31, 2019,2020, of 9.37% of our common stock. On January 10, 2019, Vanguard filed a Schedule 13G/A reporting beneficial ownership as of December 31, 2018, of 10.1%8.93% of our common stock. In connection with purchasing our common shares, Vanguard filed the necessary filings with insurance regulatory authorities. On the basis of those filings, we do not expect Vanguard to be deemed a controlling person for the purposes of applicable insurance law.
As part of our overall investment diversification, we may invest in various Vanguard funds from time to time. As of December 31, 2019,2020, we had no investments totaling $156.2 million in Vanguard funds. During 2019,2020, we sold $11.8 million of a Vanguard exchange-traded fund (“ETF”), recorded dividend income of $0.2$2.4 million on these funds. We also purchased Vanguard private placement corporate bonds during 2020, which as of December 31, 2020, had an aggregate valuation of $4.9 million, and recorded capital gainsrelated interest income accruals and receivables of $1.3 million from such ETF, with no amounts receivable on the settlement of this transaction at December 31, 2019.
$500,000. Our pension plan’s investment portfolio contained no investments in Vanguard funds at December 31, 2019, and had no transactions with Vanguard in 2019. In addition, our deferred compensation plan andoffers our employees investment options based on the notional value of various Vanguard funds. Our defined contribution plan may offeroffers our employees the option to invest in variousa Vanguard funds, or investments based on the notional value of Vanguard funds.fund. All transactions with Vanguard are consummated in the ordinary course of business on an arm’s-length basis.
Review, Approval, or Ratification of Transactions with Related Persons
Selective has a written Related Person Transactions Policy and Procedures (the “Related Person Policy”).
The Related Person Policy defines “Related Person Transactions” as any transaction, arrangement, or relationship in which Selective or any of its subsidiaries was, is, or will be a participant and the amount involved exceeds $20,000, and in which any “Related Person” had, has, or will have a direct or indirect interest. A “Related Person” under the Related Person Policy is generally: (i) any director, executive officer, or nominee to become director of Selective or an immediate family member of such person; (ii) a beneficial owner of more than 5% of Selective’s common stock or an immediate family member of such beneficial owner; and (iii) any firm, corporation, or other entity in which any person included in (i) or (ii) is employed or is a general partner or principal or in a similar position or in which such person hasis a 5% or greater beneficial ownership interest in Selective’s common stock.owner.
Under the Related Person Policy, the Audit Committee (or Chairperson of the Audit Committee if between meetings) must approve Related Person Transactions. In its review, the Audit Committee considers all available relevant facts and circumstances of the proposed transaction, including:including (i) the benefits to Selective;Selective, (ii) the impact on a director’s independence;independence, (iii) the availability of other sources for comparable products and services;services, (iv) the terms of the transaction;transaction, and (v) the terms available to unrelated third parties or to employees generally. No Audit Committee member may participate in any review, consideration, or approval of any Related Person Transaction in which such director or any of his or her immediate family members is the Related Person. The Audit Committee only approves those Related Person Transactions that it considers are in, or not inconsistent with, the best interests of Selective and its stockholders.
Director Independence
Our securities are listed on the NASDAQ Global Select MarketNasdaq, and we use the standards of "independence"“independence” prescribed by rules set forth by NASDAQ.Nasdaq. Under NASDAQNasdaq rules, a majority of a listed company'scompany’s board of directors must be comprised of independent directors. Under NASDAQNasdaq rules, a director will only qualify as an "independent director"“independent director” if, in the opinion of that company'scompany’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board of Directors has determined that all directors and director nominees are independent under
NASDAQ Nasdaq and SEC rules and regulations – other than
Page 21
Messrs. Marchioni, Murphy, and RueRue.1. In making its determination, the Board considered disclosures made by the directors related to various transactions, relationships, or arrangements involving Selective. Disclosures by the following four directors required analysis:
John C. Burville: In determining that Mr. Burville is an independent director, the Board considered that Mr. Burville’s daughter is an analyst for AXA XL Bermuda (“AXA”), an organization with which our insurance subsidiaries have a commercial relationship. However, the Board determined that the commercial relationship is not material principally because:because (i) theour payments to AXA were approximately 0.003% of the consolidated gross revenues of AXA;AXA, and (ii) neither Mr. Burville nor his daughter havehas any involvement with these transactions. Accordingly, the Board determined that this arrangement does not affect Mr. Burville’s independence.
Terrence W. Cavanaugh: In determining that Mr. Cavanaugh is an independent director, the Board considered that Mr. Cavanaugh’s son is employed as Director, Corporate Risk and Broking of Willis Towers Watson (“WTW”), an organization with which our insurance subsidiaries and employee benefit plans have commercial relationships, although we have not engaged the services of the division for which Mr. Cavanaugh’s son works.
Additionally, Mr. Cavanaugh’s daughter is employed by Hyatt Hotels Corporation as an Event Planning Manager. We have commercial relationships with various Hyatt branded entities. However, the Board has determined that these commercial relationships are not material principally because:because (i) the payments made were approximately 0.021%0.035% of the consolidated gross revenues of WTW, and 0.004% of the consolidated gross revenues of Hyatt; and (ii) neither Mr. Cavanaugh’s son nor daughter had anyno involvement with the transactions with WTW and Hyatt.
As:WTW. As (i) neither Mr. Cavanaugh nor his son or daughter havehas any involvement in the above transactions;these transactions, and (ii) nearly the entire scope of our relationships with WTW and Hyatt pre-dates the commencement of Mr. Cavanaugh’s service on our Board; and (iii) the amount of revenue generated for WTW and Hyatt through these arrangements is not material to WTW, or Hyatt, the Board determined these arrangements do not affect Mr. Cavanaugh’s independence.
H. Elizabeth Mitchell:Mitchell: In determining that Ms. Mitchell is an independent director, the Board considered that Ms. Mitchell’s spouse, Marvin Pestcoe, joined the Board of Directors of Hamilton Insurance Group, Ltd. (“HIG”) effective February 14, 2020. In 2019,2020, our insurance subsidiaries ceded approximately $208,000$71,000 in premiumpremiums to Hamilton Re, Ltd. (“Hamilton Re,” and together with HIG, the “Hamilton Group”), a subsidiary of HIG, in relation to Hamilton Re’s 0.25% participation on our mainprimary and underlying layers of our property catastrophe (“CAT”) program. This represents 0.036%0.010% of the gross premiums written of the Hamilton Group in 2018 (20192019 (2020 figures are not yet available). Given that:that (i) neither Ms. Mitchell nor her husband havehas had any involvement in these transactions;transactions, (ii) our relationship with Hamilton Re pre-dates Mr. Pestcoe’s HIG board membership;membership, and (iii) the relative magnitudeinsignificance of these transactions for us and the Hamilton Group, the Board determined that this arrangement does not affect Ms. Mitchell’s independence.
Ronald L. O’Kelley: In determining that Mr. O’Kelley is an independent director, the Board considered that Mr. O’Kelley’s daughter is Managing Director of State Street Global Markets, LLC, a subsidiary of State Street Corporation (“State Street”), with which we have a commercial relationship. However, the Board determined that the commercial relationship is not material principally because: (i) the payments were approximately 0.002% of the consolidated gross revenues of State Street; and (ii) Mr. O’Kelley’s daughter has no involvement with these transactions. Accordingly, the Board determined that these arrangements do not affect Mr. O’Kelley’s independence.
John S. Scheid: In determining that Mr. Scheid is an independent director, the Board considered that we currently provide insurance coverage to the Messmer Catholic Schools (“Messmer”), a charitable organization of which Mr. Scheid has been a director since 2013 and chairman since 2016. We provide insurance coverage to Messmer on terms no more favorable than to other third parties. As:As (i) Mr. Scheid has no involvement in the securing of such insurance policy coverage;coverage, (ii) his relationship with Messmer pre-dates his membership on our Board;Board, and (iii) our business relationship with Messmer pre-dates Mr. Scheid’s appointment to Selective’sour Board, the Board determined that this arrangement does not affect Mr. Scheid’s independence.
1 For a description of the transactions, relationships, or arrangements related to Mr. Rue, see the section entitled, “Transactions with Related Persons.”
Corporate Governance Guidelines
Selective has established Corporate Governance Guidelines that are available for review in the Corporate Governance subsection of the Investors section of Selective’s website,www.Selective.com. The Corporate Governance Guidelines provide for the election of a Lead Independent Director, who supervises meetings of Selective’s independent directors that occur at least semi-annually. J. Brian Thebault is presently our Lead Independent Director. In 2019,2020, Selective’s independent directors met four times outside the presence of management.
All members of the Audit Committee, the Corporate Governance and Nominating Committee, and the Salary and Employee Benefits Committee are independent directors under applicable NASDAQNasdaq and SEC rules and regulations.
1 For a description of the transactions, relationships, or arrangements related to Mr. Rue, see the section entitled, “Transactions with Related Persons.”
Page 22
Majority Voting for Directors in Uncontested Elections
Selective’s Board of Directors has adopted a majority voting policy for uncontested elections of incumbent directors. To be re-elected to the Board, an incumbent director must receive a majority vote by stockholders, unless the Corporate Secretary determines that the number of nominees exceeds the number of directors to be elected. If any incumbent director nominee receives less than a majority of votes cast, the following process must be followed:
| § | The incumbent director must tender his or her resignation to the |
| § | Within 45 days after the stockholders’ meeting, the Corporate Governance and Nominating Committee will make a recommendation to the Board regarding whether to accept the director’s resignation. In determining and making its recommendation to the Board, the Corporate Governance and Nominating Committee may consider any factors it deems relevant and a range of possible alternatives concerning the director’s tendered resignation. |
| § | Within 90 days after the stockholders’ meeting, the Board of Directors shall formally act on the Corporate Governance and Nominating Committee’s recommendation and, within four business days of doing so, shall file with the SEC a Form 8-K in which it discloses its decision, the rationale for its decision, and the process it followed in reaching the decision to accept or reject the director’s tendered resignation. |
| § | Any incumbent director who fails to receive a majority of votes cast and tenders a resignation may not participate or vote in the deliberations of the Corporate Governance and Nominating Committee or the Board related to his or her resignation. If every member of the Corporate Governance and Nominating Committee fails to receive a majority vote at the same stockholders’ meeting, then the independent directors who received a majority vote and any independent directors who did not stand for re-election must appoint from themselves an ad hoc Board committee to consider the tendered resignations and make a recommendation to the Board whether it should accept them. If fewer than three directors would constitute an ad hoc committee, the entire Board (other than the individual director whose resignation is being considered) will make the determination to accept or reject the director’s resignation. |
Stock Ownership and Retention Requirements
Selective believes that stock ownership by directors and management encourages the enhancement of stockholder value. Selective’s stock ownership guidelines which are based on prevailing corporate governance practices areand set forth in the Corporate Governance Guidelines.
The following table shows the common stock ownership guidelines for our non-employee directors and certain officers. Each director must meet the guidelines within five years of his or her first election to the Board and eachBoard. Each officer must meet or have met,(and subsequently maintain) the current stock ownership guidelines within the later of (i) five years from attainment of attaining the specified position:respective officer status, or (ii) three years from any change to these requirements (“Requirement Date”). Base salary increases during the five-year period will require the ultimate ownership requirements to increase when shares are valued on November 1 following such increase.
If, at the November 1 valuation date, an officer fails to meet their current stock ownership requirement as of their Requirement Date, the officer has until March 15 of the following year to cure the non-compliance. If an officer does not cure the non-compliance by March 15, the Salary and Employee Benefit Committee may determine to pay all or a portion of such officer’s next annual cash incentive plan award in shares of Selective common stock.
| Position | Requirement |
| Non-Employee Directors | 5 x annual retainer |
| CEO or President | 5 |
| Senior Executive Vice Presidents and Executive Vice Presidents | 3 x base salary |
| Senior Vice Presidents or equivalent job grade | 1.5 x base salary |
Page 23
In calculating ownership under the guidelines:
| § | Shares of Selective common stock currently owned, seventy-five percent (75%) of the awards of restricted stock or restricted stock units (including related dividend equivalent units) not yet vested, and shares of Selective common stock held in benefit plan investments (i.e., 401(k) plan) are counted; |
| § | Unexercised stock options are not counted; and |
| § | Deferred shares of Selective common stock held in accounts of directors are counted. |
In addition, officers are required to retain direct ownership of at least 75% of the shares acquired under an equity award granted under any CompanySelective equity compensation plan or other written compensatory arrangements, net of taxes and transaction costs, unless the officer has met his or her applicable stock ownership requirement as set forth above.requirement. Taxes and transaction costs include: (i) shares retained by the company to satisfy tax withholding requirements attributable to awards; and (ii) shares the officer tenders to pay all or any portion of the exercise price of option grants. All of our directors and officers have met, or are on track to meet, the required ownership guidelines.
Policy on Hedging
On January 30, 2020, Selective’s Board of Directors amended Selective’s Insider Trading Policy to provide as follows:
Selective seeks to fully align the long-term financial interests of its officers, directors, and employees with the interests of Selective’s other shareholders. For this reason, Selective officers, directors, and employees are prohibited from purchasing financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds), or otherwise engaging in transactions that hedge, offset, or are designed to hedge or offset, any decrease in the market value or the full ownership risks and rewards of their direct or indirect Selective stock holdings. For fairness and to avoid unnecessary complications, any contribution or transfer of Selective stock to an exchange fund made prior to January 1, 2019, shall be exempt from this anti-hedging policy.
On December 18, 2018, the SEC adopted rules requiring companies to describe their practices or policies about the ability of employees and directors to engage in hedging activities involving company stock. These rules included “exchange funds” in the definition of hedging financial instruments. Exchange funds are arrangements between concentrated shareholders of different companies that pool shares and allow participant investors to exchange large holdings of a single company’s stock for units in the entire pool's portfolio. Exchange funds provide investment diversification and capital gains tax deferral. On August 18, 2016, prior to the inclusion of exchange funds in the definition of hedging financial instruments, Director William M. Rue contributed 25,000 shares of Selective stock, out of 422,358.0909 shares then beneficially held by Mr. Rue, to an exchange fund. This was 5.9% of Mr. Rue’s beneficial holdings, and was reported as a sale, and exchange fund contribution, on a Form 4 filed on August 18, 2016. Because (i) the exchange fund transaction pre-dated the expanded hedging definition, (ii) the transaction involves an immaterial percentage of his Selective holdings, and (iii) he has agreed not to contribute additional Selective shares to an exchange fund, Selective has not required Mr. Rue to immediately unwind his exchange fund position. After consulting with the Lead Independent Director and Chairman of the Corporate Governance and Nominating Committee, Mr. Rue has agreed to redeem his contributed Selective stock from the exchange fund by year-end 2020. Selective knows of no other directors, officers, or employees who have contributed Selective stock to an exchange fund.
TheDue to the challenging environment created by the COVID-19 pandemic, the Board of Directors held seven25 meetings in 2019.2020. All directors attended 75% or more of the aggregate of the meetings of the Board of Directors and their respective committees for the period during which they were directors in 2019.2020. Selective expects all directors to attend the Annual Meeting. All directors serving on the Board on May 1, 2019April 29, 2020, attended the 20192020 Annual Meeting.
The Board has five standing committees:
| § | Audit Committee; |
| § | Corporate Governance and Nominating Committee; |
| § | Salary and Employee Benefits |
| § | Executive Committee; and |
| § | Finance Committee. |
The Corporate Governance and Nominating Committee is responsible for evaluating and making recommendations to the Board concerning the appointment of directors to the five committees and the selection of committee chairs. The Board generally favors the periodic rotation of committee chair positions, but also recognizes that, at times, it may not be in the best interest of the company to change a Board committee chair position, such as when a director has special knowledge or experience. It is anticipated that Board committee chairs will serve up to approximately five consecutive years, on average, to facilitate rotation of committee chairs while preserving experienced leadership.
Page 24
The following tables provide information on each of the five standing committees:
| Audit Committee | |
| Written | |
Responsibilities: | |
§Oversee Selective’s statements.
§ Monitor the adequacy and effectiveness of Selective’s financial reporting process and systems of internal controls regarding finance, accounting, and legal compliance. §Review and discuss with Selective’s management, Chief Audit Executive, and independent auditors Selective’s financial statements, reports, and other information provided to the public and filed with the SEC, as well as critical accounting policies and practices and any critical audit matters.
§Monitor the activities of Selective’s Internal Audit Department and review and approve the Internal Audit Department’s budget, resources, audit plan, and charter.
§Review and concur in the appointment, evaluation, compensation, replacement, reassignment, or dismissal of the Chief Audit Executive.
§
§Assist the Board in overseeing Selective’s enterprise risk management function. Discuss with management Selective’s major financial, operational (such as cyber risk), or other risk exposures and steps management has taken to monitor and manage such exposures.
§Appoint Selective’s independent registered public accounting firm and supervise the relationship between Selective and its independent auditors, including reviewing their performance, making decisions about their compensation, retention and removal, reviewing and approving in advance their audit services and permitted non-audit services, and confirming the independence of the independent auditors. | |
| Director Members: | Independent |
| John S. Scheid, Chairperson and designated Audit Committee financial expert | Yes |
| Ainar D. Aijala, Jr. | Yes |
| John C. Burville | Yes |
| Terrence W. Cavanaugh | Yes |
| Robert Kelly Doherty | Yes |
| Thomas A. McCarthy | Yes |
| H. Elizabeth Mitchell | Yes |
| Philip H. Urban | Yes |
Page 25
| Corporate Governance and Nominating Committee | |
| Written Charter is available in the Corporate Governance subsection of the Investors section ofwww.Selective.com | |
Responsibilities: | |
§Establish criteria for director selection, and identify and recommend director nominees to the Board.
§Review and assess Selective’s Corporate Governance Guidelines and recommend changes to the Board.
§Recommend to the Board the directors to serve as members of the Board committees, chairpersons of the committees, and Lead Independent Director.
§Advise the Board regarding Board composition, procedures, and committees.
§Review and update Selective’s Code of Conduct and review conflicts of interest or other issues that may arise under the Code of Conduct involving Selective’s officers or directors.
§Oversee the self-evaluations of the Board and its committees.
§ Oversee management's activities to address ESG issues and trends. §Review, jointly with the development.
§Make a recommendation to the Board vote in an uncontested election of directors. | |
| Director Members: | Independent |
| Cynthia S. Nicholson, Chairperson | Yes |
| Lisa Rojas Bacus | Yes |
| Wole C. Coaxum | Yes |
| H. Elizabeth Mitchell | Yes |
| Michael J. Morrissey | Yes |
| J. Brian Thebault | Yes |
| Philip H. Urban | Yes |
Page 26
| Salary and Employee Benefits Committee | |
| Written Charter is available in the Corporate Governance subsection of the Investors section of www.Selective.com | 2020 Meetings: 7 |
| Responsibilities: | |
§ Oversee, review, and administer compensation, equity, and employee benefit plans and programs related to the employees and management of Selective and its subsidiaries. § Review annually and approve corporate goals and objectives relevant to executive compensation and evaluate the performance of the CEO and other executive officers in light of those goals. § Review annually and approve Selective’s compensation strategy for employees. § Review annually and determine the individual elements of total compensation for the CEO and other executive officers. § Review, jointly with the Corporate Governance and Nominating Committee, CEO and executive management succession planning and professional development. § Review and approve compensation for non-employee directors. § Review the independence and engagement of the independent executive compensation consultant. § Form and delegate to subcommittees such power and authority as the SEBC deems appropriate. § Delegate to certain senior officers the authority to establish salaries and to approve equity and other incentive awards, and performance criteria for the foregoing, for non-Section 16 officers within parameters established by the SEBC. | |
| Director Members: | Independent |
| Michael J. Morrissey, Chairperson | Yes |
| Yes | |
| John C. Burville | Yes |
| Terrence W. Cavanaugh | Yes |
| Stephen C. Mills | Yes |
| Cynthia S. Nicholson | Yes |
| J. Brian Thebault | Yes |
| Philip H. Urban | Yes |
| |
Page 27
| |
| Executive Committee | |
| No | |
Responsibilities:
§Authorized by Selective’s By-Laws to exercise the Board’s powers and authority in the management of Selective’s business and affairs between
§Has the right and authority to exercise all the powers of the Board on all matters brought before it, except concerning Selective’s investments or as prohibited by law. | |
| Director Members: | Independent |
| Gregory E. Murphy, Chairperson | No |
| Robert Kelly Doherty | Yes |
| John J. Marchioni | No |
| Michael J. Morrissey | Yes |
| Cynthia S. Nicholson | Yes |
| John S. Scheid | Yes |
| J. Brian Thebault | Yes |
| Finance Committee | |
| Written | |
| Responsibilities: | |
§Review and approve changes to Selective’s investment policies, strategies, and programs.
§Review investment transactions made on behalf of Selective and review the performance of Selective’s investment portfolio and external investment managers.
§ Discuss Selective’s major investment risk exposures with management, including the steps management has taken to monitor and manage such exposures. § Review Selective’s capital structure and review and make recommendations to the Board about Selective’s financial policies and corporate finance matters, including (i) financial planning, cash flow management, fiscal and treasury policies, and financial risk assessment and management, (ii) the issuance, retirement, or repurchase of debt, equity, and other securities, and (iii) other transactions or financial issues that management desires the Finance Committee to review. §Review matters relating to the investment portfolios of the benefit plans of Selective and its subsidiaries, including the administration and performance of such portfolios.
§Review Selective’s reinsurance program, including structure, pricing, and financial strength of participating reinsurers of the program.
§Appoint members of Selective’s Management Investment Committee.
§Review and make recommendations to the Board regarding the payment of dividends. | |
Page 28
| Finance Committee | |
| |
| Director Members: | Independent |
| Robert Kelly Doherty, Chairperson | Yes |
| Ainar D. Aijala, Jr. | Yes |
| Wole C. Coaxum | Yes |
| Thomas A. McCarthy | Yes |
| Yes | |
| Yes | |
| William M. Rue | No |
| John S. Scheid | Yes |
Board Leadership Structure
Our two current principal Board leadership positions are: (i) Executive ChairmanNon-Executive Chairperson of the Board; and (ii) Lead Independent Director. While the Board does not require the separation of the offices of the Chairperson of the Board and the CEO, we believe our current Board leadership structure provides effective oversight of management and strong leadership of the independent directors.
Mr. Murphy served as our Chairman of the Board and CEO until January 31, 2020, and as Executive Chairman from February 1, 2020 until February 1, 2021. Effective February 2, 2021, Mr. Murphy was appointed Non-Executive Chairperson of the Board. In this role, Mr. Murphy is responsible for oversight and guidance of Selective’s Management and overall corporate performance. In coordination with the CEO, the Non-Executive Chairperson helps maintain effective relationships with significant distribution partners, investors, stockholders, insurance rating agencies, and government officials. Additionally, the Non-Executive Chairperson serves as an advisor to the CEO and works with the CEO and Board to establish long-range strategies.
Our Lead Independent Director is J. Brian Thebault, who was appointed in 2017 and has served on our Board since 1996. The Lead Independent Director position is defined in our Corporate Governance Guidelines and is very similar to the role of an independent non-executive Chairman. We believe our current Board leadership structure provides effective oversight of management and strong leadership of the independent directors. The Corporate Governance and Nominating Committee also conducts annual self-assessments and evaluates their effectiveness of the Board and its committees.
Chairperson. The Lead Independent Director is responsible for coordinating the activities of the independent directors and performing various other duties. It is anticipated that the Lead Independent Director will serve up to approximately five consecutive years in order to facilitate the rotation of the Lead Independent Director position while maintaining experienced leadership; however, the Board may extend such tenure in accordance with good governance practices, including (without limitation) to accommodate the transition of a new CEO or new directors or to provide continuity to further strategic objectives or address external factors affecting the company.
The Lead Independent Director’s general authority and responsibilities are as follows:
| § | Presiding at all meetings of independent directors, as appropriate, and providing prompt feedback to the |
| § | Serving as a point of contact for Board members to raise issues that they may not be able to readily address with the |
| § | Ensuring that matters of importance to the directors are placed on the Board’s meeting agendas; |
| § | Assuring that the |
| § | Assuring that the Board understands the |
| § | Calling executive sessions of the independent directors and serving as |
Our Lead Independent Director is J. Brian Thebault, who was appointed in 2017 and has served on our Board since 1996. Mr. Murphy served as our Chairman of the Board and CEO until February 1, 2020. Effective February 1, 2020, Mr. Murphy was appointed Executive Chairman of the Board. The Executive Chairman serves as the Chairman of the Board of Directors, which is responsible for oversight and guidance of Selective’s Management and overall corporate performance. In coordination with the CEO, the Executive Chairman helps maintain effective relationships with significant distribution partners, investors, shareholders, insurance rating agencies, and government officials. He serves as an advisor to the CEO and works with the CEO and Board to establish long-range strategies.
Page 29
Board and Committee Evaluations
The Corporate Governance and Nominating Committee conducts annual self-assessments and evaluates its effectiveness and the effectiveness of the full Board and its other committees. The current process includes a questionnaire and interviews of each director by the Chairperson of the Corporate Governance and Nominating Committee or the Lead Independent Director, with potential action items discussed with the Board.
Continuing Education for Directors
Selective provides continuing education opportunities for directors, including a mix of in-house and third-party presentations and programs.
Enterprise Risk Management
As a property and casualty holding company, our insurance subsidiaries are in the business of assuming risk. We categorize our major risks into the following six broad categories:
Our internal control framework operates with a three lines of defense model. The first line of defense consists of individual functions that deliberately assume risks and own and manage that risk on a day-to-day and business operational basis. The second line of defense is responsible for risk oversight and also supports the first line to understand and manage risk. A dedicated risk team led by the Chief Risk Officer is responsible for this second line and reports to the Chief Financial Officer. The third line of defense is our Internal Audit team, who with oversight from the Audit Committee of our Board, provides independent, objective assurance as to the assessment of the adequacy and effectiveness of our internal control environment. Internal Audit also coordinates risk-based audits, compliance reviews, and other specific initiatives to evaluate and address risk within targeted areas of our business.
We use Enterprise Risk Management (“ERM”) as part of our governance and control process to take an entity-wide view of our major risks and their potential impact. OurWe designed our ERM framework is designed to identify, measure, report, and monitor our major risks and develop appropriate responses to support successful execution of our business strategies.
Our Board oversees our ERM process, and the various Board committees of the Board oversee risks specific to their areas of supervision and report their activities and findings to the full Board. Management has formed an Executive Risk Committee that is responsible for the holistic monitoring and management of our risk profile. The Executive Risk Committee consists of the CEO, his direct reports, and key operational and financial leaders, including the Chief Risk Officer. The Executive Risk Committee relies on several management committees, such as the Emerging Risk Committee and the Underwriting Committee, for detailed analysis and management of specific major risks. The Chief Risk Officer reports on the Executive Risk Committee'sCommittee’s activities, analyses, and findings to the Board or the appropriate Board committee, and provides a quarterly update on certain risk metrics.
In addition to the various Board and management committees and governance over the ERM process, we believe that high-quality andHigh-quality, effective ERM is best achieved when it isas a shared organizational cultural value throughout the organization. We consider ERM to be a key process that is the responsibility of every employee. We have developed processes and use
tools and processes that we believe support a culture of risk management and create a robust framework oforganizational ERM within our organization. In addition,framework. We also designed our compensation policies and practices, as well as our governance framework including our Board’sand Board leadership structure, are designed to support our overall risk appetite and strategy. Our ERM processes and practices help us to identify potential events that may affect us, and quantify, evaluate, and manage the significant risks we face.
We rely on quantitative and qualitative tools to identify, prioritize, and manage our major risks, including proprietary and third-party computer modeling as well as various other analyses. The Executive Risk Committee meets at least quarterly and reviews and discusses various topics and the interrelation of our major risks, including, but not limited to, capital modeling results, capital adequacy, risk metrics, emerging risks, and sensitivity analysis. Where necessary, we also utilize the services of subject matter experts, such as external actuaries, third-party risk modeling firms, and information technology security experts. Consistent with the requirements of state insurance regulators, our insurance subsidiaries annually file their Own Risk Solvency Assessment report, which is an internal assessment of our solvency. The Chief Risk Officer develops the report in coordination with members of the Executive Risk Committee, and the report is provided to the Board.
We believe that ourOur risk governance structure facilitates strongrobust risk dialogue across all levels and disciplines of the organization andorganization. It also promotes robust risk management practices.practices, which served us well in 2020 as we evaluated and managed the emerging risk of COVID-19. All of our strategies and controls, however, have inherent limitations. We cannot be certain that an event or series of unanticipated events will not occur and result ingenerate losses greater than we expect and have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. An investor should carefully consider the risks and all of the other information included in Item 1A. “Risk Factors.”, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk."”, and Item 8. “Financial Statements and Supplementary Data."” of Selective’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Page 30
Compensation Risk Assessment
We do not believe that risks arising from our compensation policies and practices are reasonably likely to have a material adverse effect on our operations or results. To make this determination, we conducted an internal risk assessmentassessed the risks of our compensation policies and programs. In performing the risk assessment,assessing these risks, we considered that we operate in an industry based almost entirely on managing risk, and we believe that our risk management function is robust. We also analyzed the issues detailed in the proxy disclosure rules and gave close consideration to the following points:
| § | The compensation policies and practices for employees of our reportable segments are similar. Our insurance operations, which sell property and casualty insurance products, are subject to, among other things, risks related to significant competition, |
| § | Our compensation policies are consistent with our overall risk structure and we award a significant portion of our senior officers’ compensation on the accomplishment of financial performance goals that are measured over a three-year period; and |
| § | In addition to designing our compensation policies and practices to motivate our employees to take appropriate levels of risk, we have developed a set of controls and governance processes to manage our risk profile. These include escalation processes based on various levels of individual authorities, a comprehensive set of management and Board committees that focus on analysis, management, and reporting of specific major risks, |
We also considered our overall compensation program, including:
| § | The features of our compensation program and whether they align with our compensation philosophy; |
| § | The compensation program’s multiple financial and strategic measures that balance profitability and growth. |
| § | The maximum potential payments under our compensation plans; |
| § | The mix of fixed versus variable compensation; |
| § | The balance between cash and equity compensation; |
| § | The ratio of compensation based on long-term versus short-term performance metrics; and |
| § | The timing of equity award grants and vesting. |
We also considered that from time to time, we adjust our compensation programs from time-to-time as risks in our industry and reportable segments change to help ensure that compensation and risk remain appropriately aligned.
2 The combined ratio is the property and casualty insurance industry standard measure of underwriting profitability. A combined ratio under 100% indicates that an insurance company is generating an underwriting profit and a combined ratio over 100% indicates that an insurance company is generating an underwriting loss.
Page 31
Finally, we reviewed our various risk mitigation strategies in the compensation context, including:
| § | The stock ownership and retention requirements for management outlined in the section entitled, “Stock Ownership and Retention Requirements” of this Proxy Statement; |
| § | The independent oversight of compensation programs by the |
| § | The Board’s role in risk oversight, which includes receiving, analyzing, and making due inquiry about reports from its committees, including the |
We will continue to assess the risks of our compensation policies and programs going forward.
Stockholders may send communications to the Board of Directors or individual directors in writing c/o Corporate Secretary, Selective Insurance Group, Inc., 40 Wantage Avenue, Branchville, New Jersey 07890 or by e-mail to corporate.governance@Selective.com.corporate.governance@Selective.com. Each communication received will be reviewed by the Corporate Secretary for the sole purpose of determining whether it is appropriate. The Board has instructeddetermined that the Corporate Secretaryfollowing types of communication are not related to use discretion in forwardingthe duties and responsibilities of the Board and are therefore not appropriate: spam and similar junk mail and mass mailings, unsolicited advertisements or invitations to conferences or promotional material, product complaints, resumes or other promotional material.job inquiries, and surveys.
Selective has adopted a Code of Conduct that provides guidingguides business ethics principles for all Selective personnel, including executive officers. The Code of Conduct is located in the Corporate Governance subsection of the Investors section of Selective’s website,www.Selective.com. Any material amendment to or waiver from the provisions of the Code of Conduct that applies to Selective’s senior executive officers will be posted to Selective’s website.
2 The combined ratio is the property and casualty insurance industry standard measure of underwriting profitability. A combined ratio under 100% indicates that an insurance company is generating an underwriting profit and a combined ratio over 100% indicates that an insurance company is generating an underwriting loss.Page 32
COMPENSATION DISCUSSION AND ANALYSIS
EXECUTIVE SUMMARY
This Compensation Discussion and Analysis provides our stockholders information about our 20192020 compensation program for the following named executive officers (“NEOs”):
| § | John J. Marchioni, President and CEO (Mr. Marchioni served as our President and Chief Operating Officer until February 1, 2020); |
| § | Gregory E. Murphy, former Executive Chairman and former CEO (Mr. Murphy served as our Chairman and CEO through January 31, 2020, Executive Chairman of the Board from February 1, 2020 through February 1, 2021, and Non-Executive Chairperson of the Board since February 2, 2021); |
| § | Mark A. Wilcox, Executive Vice President and Chief Financial Officer; and |
| § | Michael H. Lanza, Executive Vice President, General Counsel and Chief Compliance Officer. |
As designated by the Board of Directors, Messrs. Murphy, Marchioni, Wilcox, and Lanza are Selective’s only “executive officers” under Section 16 of the Exchange Act. During 2020 and until February 1, 2021, Mr. Murphy also was an executive officer as designated by the Board of Directors.
Consideration of 20192020 Say-on-Pay Advisory Vote Results
Since our initial say-on-pay proposal in 2011, our stockholders have overwhelmingly supported our compensation decisions. At our 20192020 Annual Meeting of Stockholders, our stockholders voted on an advisory basis to approve the compensation of our NEOs, with nearly 97%approximately 98% of votes cast voting in favor of the proposal. WeIn conjunction with our regular review of our compensation practices, we considered these results and, in light of our stockholders’ indicated continued support for our compensation decisions, did not make any material changes in our 20192020 compensation decisions and policies, other than in connection with our CEO transition, as described more fully under “2019“2020 Elements of Compensation and Allocation Between Current and Long-Term Compensation.” We have continued to maintain our emphasis onemphasize providing a well-calibrated combination of both short-term and long-term incentive compensation, which we believe rewards our executives for delivering stockholder value.
20192020 Corporate Performance Highlights
During 2019,2020, in the face of the unprecedented challenges posed by the COVID-19 pandemic, we continued to make excellent progress executing our Strategic Business Plan Framework that focuses on our five strategic imperatives:
| § | Create a Highly Engaged Team; |
| § | Align Resources for Profitable Growth; |
| § | Deliver a Superior Omni-Channel Experience; |
| § | Leverage Data and Treat Information as a Valued Corporate Asset; and |
| § | Optimize Operational Effectiveness and Efficiency. |
Page 33
For 2019,2020, we generated a GAAP return on common equity (“ROE”) of 13.6%10.4% and a non-GAAP operating ROE3 of 13.3%10.5%, which was: (i) abovewas slightly below our budgeted projection11% target for the year; (ii)year, and well above Conning, Inc.’s expected 20192020 U.S. property and casualty insurance industry GAAP ROE4; and (iii) of 5.2%. The year 2020 was our sixthseventh consecutive year of double-digit non-GAAP operating ROE. We also produced aOur 2020 combined ratio of 93.7%, which compares very favorably94.9% was an excellent result compared to Conning, Inc.’s expected 20192020 U.S. property and casualty insurance industry statutory combined ratio of 96.8%100.0%.5.
GAAP COMBINED RATIO
In addition toFor 2020, our excellent combined ratioinvestment portfolio total return was 6%. We had net investment income, after-tax, of $184.6 million, which was in line with our budget and non-GAAP operating ROE, other key accomplishments for2% higher than in 2019, includeddriven by strong alternative investment returns. As of year-end 2020, 92% of our portfolio was invested in fixed income securities and short-term investments with an average credit rating of “AA-” and an effective duration of 3.8 years, offering a high degree of liquidity. Risk assets, including our high yield allocation within fixed income, public equities, and limited partnership investments in private equity, private credit, and real asset strategies, represented 10.4% of our investment portfolio at year-end 2020. This increase from an 8.1% allocation at year-end 2019 resulted from purchases of attractive risk asset opportunities we identified during the following:year given market conditions.
3 Non-GAAP operating ROE is a non-GAAP financial measure and is calculated as follows:
| Non-GAAP Operating ROE: |
| Non-GAAP Operating Income from the Performance Period |
| ÷ |
| (Common Stockholders’ Equity at Beginning of Performance Period |
| + Common Stockholders’ Equity at Year End) ÷ 2 |
Non-GAAP operating income differs from net income available to common stockholders by the exclusion of after-tax net realized and unrealized gains and losses on investments and after-tax debt retirement costs. It is used as an important financial measure by management, analysts, and investors, because the realization of investment gains and losses on sales in any given period is largely discretionary as to timing. TheseIn addition, net realized and unrealized investment gains and losses other-than-temporary investment impairmentson investments that are charged to earnings unrealized gains and losses on equity securities, and the debt retirement costs could distort the analysis of trends. Non-GAAP operating ROE is not intended as a substitute for ROE that is based on net income available to common stockholders prepared in accordance with GAAP. Please refer to Selective’s Annual Report on Form 10-K for the year ended December 31, 2020 for a reconciliation of Non-GAAP operating ROE to its most directly comparable financial measure calculated and presented in accordance with GAAP.
4 Source: ©2020©2021 Conning, Inc. Used with permission.
5 Source: ©2020©2021 Conning, Inc. Used with permission.
Page 34
In addition to our strong non-GAAP operating ROE of 10.5%, other key accomplishments for 2020 included the following:
| Our annualized total shareholder return (“TSR”), which is calculated using the change in the value of Selective’s common stock price and reinvested dividends, compared to Standard & Poor’s P&C Index annualized TSR and Standard & Poor’s 500 Index annualized TSR for the last one-, three-, five-, and ten-year periods, was as follows: |
| Time Period | Selective Annualized TSR | Standard & Poor’s P&C Index Annualized TSR | Standard & Poor’s 500 Index Annualized TSR |
| One-Year Period | 4.5% | 4.4% | 18.4% |
| Three-Year Period | 5.9% | 6.2% | 14.2% |
| Five-Year Period | 16.4% | 10.2% | 15.2% |
| Ten-Year Period | 16.2% | 12.1% | 13.9% |
| § | Compared to 2019, overall NPW increased by 3%, which included an approximate four percentage-point negative impact from COVID-19-related items. This impact reflects a $75 million estimate of audit and endorsement return premium on our general liability and workers compensation lines of business and $19.7 million of premium credits recorded in 2020 for our personal and commercial automobile lines of business; |
| § | Both commercial lines and excess and surplus lines experienced NPW growth of 4% compared to the prior year; |
| § | We achieved new business growth of 2%, 10%, and 18% for the commercial lines, personal lines, and excess and surplus lines segments, respectively, compared to the prior year; |
| § | We achieved 4.3% in overall renewal pure price increases, led by a 4.4% increase in standard commercial lines. Average renewal pure price increases were 2.5% in standard personal lines and 6.2% in excess and surplus lines; |
| § | Using our sophisticated pricing and underwriting tools, we achieved a standard commercial lines retention rate of 85%, which was 200 basis points higher than the prior year, while positioning our organization to achieve loss ratio improvement from mix of business changes; |
| § | We continued work on our ESG journey, including publishing our first ESG report, Leading with Purpose, (which can be found on the Investors page of our website) establishing a management Sustainability Committee to drive ESG initiatives, enhancing our vendor management diversity efforts, and continuing support for our corporate headquarters solar facility. |
| § | We delivered a superior omni-channel customer experience and generated significant value for our customers through proactive and targeted communications based on their preferences. Enhancing our digital self-service offerings has (i) increased customer usage, and (ii) improved operational efficiency through deployment of virtual servicing technologies by our claims and safety management teams. |
| § | We made substantial progress with our DE&I initiatives, including (i) enhancing the diversity of Selective’s Board of Directors, (ii) augmenting talent acquisition, assessment, and advancement procedures, (iii) establishing DE&I performance objectives and goals for senior leaders, and (iv) promoting open conversations among managers and employees around racial inequality and unconscious bias. |
| § | We managed a seamless transition to a work-at-home environment for nearly all of our employees while maintaining a high degree of employee engagement, responding to the risks, and supporting the challenges posed by the COVID-19 pandemic to our policyholders, distribution partners, and employees. |
Page 35
| § |
| We received |
In the fourth quarter of 2019, A.M.2020, AM Best Company reaffirmed our “A (Excellent)” financial strength rating, their third highest of 13 financial strength ratings, and upgraded our outlook to “positive” from “stable.”outlook. The rating reflects A.M.AM Best Company’s view on our strong balance sheet, sustained profitability,adequate operating performance, favorable business profile, and appropriate enterprise risk management. In addition, theThe positive outlook reflects A.M.AM Best Company’s view of our improved profitability over the past five years on an absolute basis and relative to our peers.
During the third quarter of 2019,2020, S&P Global Ratings reaffirmed our financial strength rating of “A” (with a “stable” outlook), citing. In an October 19, 2020 report, S&P cited our strong financial and business risk profiles, driven by strong capital adequacy and strong operating performance, driven by sound underwriting and steady pure renewal price increases.performance. Fitch Ratings reaffirmed our “A+” rating (with a “stable” outlook) in the second quarter of 2019,2020, citing our strong capitalization and financial performance, with stable underwriting results and return metrics that have remained favorable compared to our peers. Moody’s Investors Service’sService last reaffirmed our “A2” rating (with a “stable” outlook) most recently in the first quarter of 2018, referencingwhen it referenced our solid regional franchise, established independent agency support, solid risk-adjusted capitalization, strong invested asset quality, and good underwriting profitability.
CEO Pay for Performance
The following table presents Mr. Marchioni’s compensation for 2020 (as he was appointed CEO effective February 1, 2020), and Mr. Murphy’s compensation overfor 2016 through 2019 (“CEO Total Compensation”), the past five years, its dollar and percentage change from the prior year, and Selective’s cumulative TSR for the corresponding one-, three-, and five-year periods. We believe theThe table demonstrates the correlation between changes in Selective’s cumulative TSR and Mr.Messrs. Murphy’s and Marchioni’s CEO compensation for such years, which is consistent with, and reflects our philosophy of, aligning compensation with the interests of stockholders and long-term performance.
* Note: The value of “Indexed"Indexed Total Shareholder Return (TSR)”" at the end of each year-endyear shown above is based on the then-current value of an assumed $100 investment in Selective common stock on December 31, 2014,2015, and reflects changes in stock price and assumes that dividends paid to stockholdersshareholders are reinvested in Selective common stock.
Page 36
| 2015 | 2016 | 2017 | 2018 | 2019 | 2016 | 2017 | 2018 | 2019 | 2020 | |
| CEO Total Compensation* (Base Salary Rate, Annual Cash Incentive Compensation, and Long-Term Incentive Compensation) | $4,440,002 | $4,890,031 | $4,900,008 | $5,100,019 | $6,792,401 | |||||
| CEO Total Compensation(1) (Base Salary Rate + Annual Cash Incentive Plan Payments + Total Long-Term Compensation) | $4,890,031 | $4,900,008 | $5,100,019 | $6,792,401 | $4,800,608 | |||||
| $ Change from Prior Year | +$514,991 | +$450,029 | +$9,977 | +$200,011 | +$1,692,382 | +$450,029 | +$9,977 | +$200,011 | +$1,692,382(2) | -$1,991,793(3) |
| % Change from Prior Year | +13.1% | +10.1% | +0.2% | +4.1% | +33.2% | +10.1% | +0.2% | +4.1% | +33.2% | -29.3% |
| One-Year TSR | +26.0% | +30.4% | +38.2% | +5.1% | +8.2% | +30.4% | +38.2% | +5.1% | +8.2% | +4.5% |
| Three-Year TSR | +85.5% | +68.5% | +126.8% | +89.3% | +57.2% | |||||
| Five-Year TSR | +109.3% | +170.7% | +234.1% | +144.8% | +158.1% | |||||
| Cumulative Three-Year TSR | +68.5% | +126.8% | +89.3% | +57.2% | +18.9% | |||||
| Cumulative Five-Year TSR | +170.7% | +234.1% | +144.8% | +158.1% | +114.1% | |||||
*(1)For 2017, also includes discretionary bonus.
(2) Increase due in part to Mr. Murphy’s transition to Executive Chairman.
(3) Decrease due in part to transition of CEO role to Mr. Marchioni.
Role and Function of the Salary and Employee Benefits Committee
The Salary and Employee Benefits Committee of the Board of Directors (“SEBC”)SEBC oversees executive compensation. The SEBCcompensation and retains an independent executive compensation consultant, Exequity LLP (“Compensation Consultant”), to advise it on executive and director compensation issues.matters. The Compensation Consultant representatives: (i) review senior executive compensation;reviews our NEO compensation structure and amounts, (ii) prepareprepares comprehensive competitive compensation analyses for our NEOs;NEOs, (iii) provideprovides counsel to the SEBC regardingabout award metrics, compensation components, of compensation, amounts allocated to those components, and the total compensation opportunities for the CEO and the other NEOs;NEOs, and (iv) attendattends SEBC meetings, as requested by the SEBC.meetings.
The Compensation Consultant has advised the SEBC since 2007. The Compensation Consultant does not provide Selective any services to Selective other than to adviseadvising the SEBC on executive and director compensation matters. Based on applicable SEC and NASDAQNasdaq rules, the SEBC has determined that the Compensation Consultant’s services doConsultant does not raisehave a conflict of interest.interest with Selective.
The SEBC has full autonomy in determining executiveto make compensation and makes all final determinationsdecisions about CEO and other NEOthe NEOs (including approval of compensation payable under Mr. Murphy’s employment agreement for his services as Executive Chairman), incorporating information provided by the Compensation Consultant. The CEO, in 2019, made compensation recommendations to the SEBC for the President and Chief Operating Officer based on his assessment of the President and Chief Operating Officer’s annual performance, contributions to Selective, and potential for advancement. The CEO and President and Chief Operating Officer, in 2019,In 2020, Mr. Marchioni made compensation recommendations to the SEBC for the other NEOs (other than Mr. Murphy) based on theirhis assessment of the other NEOs’their annual performance, contributions to Selective, and potential for advancement. In making its compensation decisions, the SEBC also considers:considers (i) pre-established guidelines regarding award amounts;amounts, (ii) pay levels at companies with which we compete for business and executive talent (discussed below);, (iii) Selective’s performance;performance, (iv) executive retention issues, including the retention of Mr. Murphy’s services as Executive Chairman through February 1, 2021; (v) internal compensation parity;parity, and (vi) advancement in abilities, experience, and responsibilities. TheAs part of their usual duties and responsibilities, the Executive Vice President, Chief Human Resources Officer, and certain other human resources officers as part of their usual duties and responsibilities, provide the SEBC with information regarding the overall design of the executive compensation program and its individual components.
DESIGN CONSIDERATIONS OF SELECTIVE’S EXECUTIVE COMPENSATION PROGRAM
Selective’s Executive Compensation Program Objective and Philosophy
The objective of our executive compensation program is to attract, retain, and motivate executive talent who willto drive the organization’s success by creating stockholder value through profitable growth and effective risk management.
Our compensation program is designed to:to (i) promote and align both the short- and long-term interests of our executives with those of our shareholders;stockholders, (ii) reward the achievement of our business objectives through the execution of our Strategic Business Plan Framework and its five strategic imperatives; andimperatives, (iii) recognize our executives for their individual achievements by motivating them to execute their duties and responsibilities in a manner not reasonably likely to have a material adverse effect on our operations or results.results, and (iv) promote ESG and DE&I through the incorporation of related performance objectives and goals for executives. We aim to provide these highly talented and qualified executives with compensation that is competitive, both in value and mix of short-term
Page 37
and long-term cash and stock-based components, with the total compensation paid by (i) other property and casualty insurance companies, and (ii) other companies with which we compete for executive talent.
When evaluating compensation for our CEO and other NEOs, the SEBC considers: (i) our overall results compared to budget and projected industry results; (ii) the company’s profitability as measured by our combined ratios; (iii) our ability to profitably grow NPW; (iv) our investment income performance compared to both budget and benchmark targets; (v) progress on ESG and DE&I initiatives; and (vi) retention of top talent.
Consistent with our pay-for-performance philosophy, we link our annual incentive awards to pre-determined financial and strategic business objectives and individual contributions, and wecontributions. We align our long-term compensation to the achievement of pre-determined specific performance measures that impact the generation of long-term stockholder value.
Compensation Elements
Our executive compensation program generally consists of the following key elements selected to: (i) address the market-based realities of attracting and retaining quality executives; and (ii) align the executives’ compensation with our stockholders’ interests:
| § | Base salary; |
| § | Annual cash incentive program (“ACIP”) payments; and |
| § | Long-term incentive program (“LTIP”) awards in the form of performance-based restricted stock units and performance-based cash incentive units. |
Compensation Best Practices
Selective primarily uses the following compensation structures and practices:
WHAT WE DO
| WHAT WE DO | |
| We do not include excise tax gross-up provisions in employment agreements. |
| We do not re-price stock options. |
| We do not grant stock options at less than fair market value. |
| We do not pay dividends on unvested stock-based awards. |
| . |
WHAT WE DO NOT DO
| We offer limited perquisites to executive officers. |
| The SEBC engages an independent compensation consultant. |
Page 38
Benchmarking
When making compensation decisions, the SEBC believes it is important to be informed of compensation practices at multiple comparator groupsan array of publicly-traded companies and property and casualty insurance holding companies.companies from multiple sources. The SEBC believes that:
| § | Benchmarking provides the SEBC with relevant |
| § | Measuring our compensation against practices from two benchmark sources (see below for more details) helps ensure that the SEBC has an ample and robust assessment of our competitive compensation posture; and |
| § | Considering multiple market references |
Accordingly, theThe SEBC received from, and reviewed with the Compensation Consultant the following benchmarking information in late 20182019 for purposes of establishing 20192020 compensation:
| § | Analyses of both the individual compensation elements and total compensation that we pay our NEOs compared to a peer group that consisted of companies with which we compete in the |
| § | Data provided by a third-party vendor (Property and Casualty Insurance Compensation Survey) for our NEOs against a group consisting of |
As part of the 20192020 compensation process, in late 2018,2019, the Compensation Consultant furnished the SEBC with the most recent NEO compensation information available from the following:
| Proxy | Survey | |
| Kemper Corporation | Property and Casualty Insurance Compensation Survey |
| Argo Group International Holdings, Ltd.
| State Auto Financial Corporation | |
| Cincinnati Financial Corporation
| The Hanover Insurance Group, Inc.
| |
| CNA Financial Corporation | The Hartford Financial Services Group, Inc. | |
| Erie Indemnity Company |
| |
| EMC Insurance Group, Inc. | W. R. Berkley Corporation | |
To re-evaluate its earlier 20192020 NEO compensation decisions and in establishing compensation parameters for 2020,2021, the SEBC reviewed the most recent NEO compensation information available as of that time from these two market reference sources in late 20192020 and early 2020.2021.
Information for the Proxy Peerscompanies in the above table (collectively, the “ProxyProxy Peer Group”)Group was obtained from proxy statements and other materials filed with the SEC. This information includes data on compensation components and comparative analyses of the overall financial performance of the Proxy Peer Group. The Proxy Peer Group is composedcomprised of organizations that provide similar products, have a similar geographic market scope, and compete with us for executive talent. The Property and Casualty Insurance Compensation Survey provides supplemental datafrom organizations of various sizes. Because we strive to engage the best talent and may have to recruit from organizations of various sizes, both smaller and larger organizations,than Selective, we look at data from throughout the property and casualty insurance industry. In late 20192020 and early 2020,2021, the SEBC reviewed information reported in the Property and Casualty Insurance Compensation Survey, which reflects data from 54 organizations including Selective,(including Selective) that have an annual median direct premiums written of $3.6$3.8 billion and annual median revenues of $3.7$4.0 billion.
Page 39
When the SEBC evaluates NEO compensation, it seeks to benchmark against positions with comparable job responsibilities whenever possible. As the position of PresidentAggregate base salaries, ACIP payments, and Chief Operating Officer had increasingly broad succession plan-mandated responsibilities in 2019 related to Mr. Marchioni’s ultimate appointment as CEO effective February 1, 2020, there were no direct comparators in our multiple market reference groups. The lack of a true benchmark comparatorLTIP awards for Mr. Marchioni’s position impacts the compensation comparison of our NEOs, as a group. Similarly, as the SEBC deemed a smooth leadership transition throughout 2020 and into early 2021 critical to the organization, and did not consider the Retention Grant (defined below) to be exclusively part of annual compensation, Mr. Murphy’s 2019 compensation is higher in comparison to the market.
Due to these CEO transition-related objectives and considerations, total NEO compensation reported for 20192020 in the Summary Compensation Table, in relationwere 17.6% above the combined benchmark median and 28.2% below the combined benchmark 75th percentile. The Executive Chairman was not evaluated by the SEBC relative to the reference market sources,Property and Casualty Insurance Compensation Survey data, as there was44% above not sufficient data for that role in the survey; therefore aggregate average medianfigures capture Proxy Peer Group data for each NEO and19% below the aggregate average 75th percentile. Property and Casualty Insurance Compensation Survey data for only Messrs. Marchioni, Wilcox, and Lanza. The SEBC deemed these variancescompensation levels appropriate given the CEO transition-related objectives and considerations, Selective’s corporatedue to (i) excellent company performance, and the(ii) individual performance of our NEOs.NEOs, and (iii) the CEO and Executive Chairman transition-related objectives and considerations. The components comprising total NEO compensation differed from market to varying degrees. Specifically, base salary was above the total averagecombined benchmark median by12% and 9.1%, but below the total averagecombined benchmark 75th percentile by 4%9.5%. Driven by the outstandingstrong performance relative to annual financial, operational, and strategic objectives detailed below, annual cash incentiveACIP awards were114% 44.5% above the total averagecombined benchmark median and 33% abovebut 12.8% below the total averagecombined benchmark 75th percentile. The combined relative positioning of base salary and annual cash incentivesACIP awards resulted in annual total cash compensation that was above the total averagecombined benchmark median by 69%28.9% and abovebelow the total averagecombined benchmark 75th percentile by 26%8.7%. The grant date fair value of our 2019 long-term incentive2020 LTIP awards was28% above the total average median, but 44% 16.8% below the total averagecombined benchmark median and 47.2% below the combined benchmark 75th percentile. Considering each individual’s accomplishments and contributions, the degree to which we achieved our 20192020 goals and outperformed relative to the expected industry performance, the SEBC felt that each NEO’s compensation was appropriate.
20192020 ELEMENTS OF COMPENSATION AND ALLOCATION BETWEEN CURRENT AND LONG-TERM COMPENSATION
The table below shows the percentage of total variable and total fixed compensation for 20192020 for the CEO and the other NEOs that is short-term incentive compensation (ACIP) versus long-term incentive compensation (LTIP), and fixed compensation (base salary) versus variable compensation (ACIP and LTIP). Mr. Murphy’s 2019 LTIP includes a time-based restricted stock unit award (LTIP) granted to incentivize his continued service with Selective through February 1, 2021 (the “Retention Grant”). When evaluating 2019, and short-term incentive compensation for our CEO and other NEOs, the SEBC considered: (i) our overall results compared to budget and projected industry results; (ii) our ability to obtain renewal pure price increases on our insurance business that allowed us to produce a strong combined ratio; (iii) our ability to profitably grow NPW; (iv) our investment income performance compared to both budget and benchmark targets; (v) significant claims improvement initiatives; and (vi) retention of top talent. These factors were viewed in light of the relative competitive positioning of the(ACIP) versus long-term incentive compensation of our CEO and the other NEOs.(LTIP).
As the table below indicates, the 20192020 compensation allocation aligns closely with our compensation philosophy, which is designed to motivate executives to achieve short- and long-term corporate objectives consistent with our stockholders’ economic interests. We strive to achieve a balance between pay incentive vehicleselements and performance time horizons.
| Variable Compensation | Fixed Compensation | |||
| NEOs | 2019 Short-Term (ACIP) | 2019 Long-Term (LTIP) | 2019 Total Variable (ACIP + LTIP) | 2019 Base Salary |
| Gregory E. Murphy | 40% | 46%(1) | 86%(1) | 14% |
| John J. Marchioni | 47% | 32% | 79% | 21% |
| Mark A. Wilcox | 46% | 30% | 76% | 24% |
| Michael H. Lanza | 43% | 27% | 71% | 29% |
(1) Includes Retention Grant.
| Fixed Compensation | Variable Compensation | |||
| NEOs | 2020 Base Salary | 2020 Short-Term (ACIP) | 2020 Long-Term (LTIP) | 2020 Total Variable (ACIP + LTIP) |
| John J. Marchioni | 20% | 46% | 34% | 80% |
| Gregory E. Murphy | 16% | 41% | 43% | 84% |
| Mark A. Wilcox | 26% | 43% | 31% | 74% |
| Michael H. Lanza | 36% | 34% | 30% | 64% |
The chartschart below reflectreflects the allocation of 20192020 compensation to LTIP, ACIP, and base salary for the CEO and for all other NEOs on average:
Page 40
Base Salary
Our base salary compensation is intended to provide stable, competitive compensation while taking into account each executive’s scope of responsibility, relevant background, training, and experience. In setting base salaries, the SEBC considers both competitive market data for positions with comparable job content and overall market demand for each position. The SEBC generally believes that base salaries should be aligned with market trends for executives with similar responsibilities at comparable companies. When establishing the base salaries of our NEOs, the SEBC also considers:
| § | The functional role of the executive’s position; |
| § | The executive’s level of responsibility; |
| § | The executive’s growth in the position, including skills and competencies; |
| § | The executive’s contribution and performance; and |
| § | The organization’s ability to replace the executive. |
Based on these considerations and on their respective accomplishments and contributions as described below in the section entitled, “2019“2020 Compensation Actions for the CEO and other NEOs,” the SEBC increased the base salariessalary of theMr. Marchioni in connection with his transition to CEO, and of the other NEOs in early 20192020 during our regular salary review process, as follows: Mr. Murphy, 4%; Mr. Marchioni, 5%13%; Mr. Wilcox, 4%7%; and Mr. Lanza, 2%6%. The increase to Mr. Marchioni’s base salary for 2020 was to better align his salary with market compensation for his position as CEO. In connection with Mr. Murphy’s transition from CEO to Executive Chairman, his base salary was reduced by 19%.
Annual Cash Incentive Program (ACIP)
Our ACIP is intended to link a meaningful portion of annual cash compensation to one or more pre-established near-term strategic and financial organizational performance goals. For 2019,2020, all NEOs were eligible to participate in the ACIP. ACIP awards are granted under the Selective Insurance Group, Inc. Cash Incentive Plan, As Amended and Restated as of May 1, 2014 (the “Cash Incentive Plan”).
20192020 Corporate ACIP Measures
Our Corporate ACIP Measures (defined below) are established to encourage our employees to remain focused on particular financial and strategic objectives, even in the face of especially challenging circumstances in a performance year. The SEBC takes into consideration the level of achievement of the Corporate ACIP Measures when determining the ACIP payments to our NEOs.
Page 41
As shown below, for the 2020 performance year, 0% to 116.3%100.0% of the maximum ACIP opportunity for employees was based on a financial performance goal of achieving a GAAP combined ratio of between 90.0% and 100.0%, and 0% to 50% of the maximumtarget ACIP opportunity for employees was based on the achievement of 1213 measures related to our five strategic imperatives, (withwith an additional potential 5% frompremium for exceeding the pure rate profitability improvement goal)goal target (the “Corporate ACIP Measures”). The table below shows total potential Corporate ACIP payouts for employees at various combined ratio percentages, assuming all 1213 measures were fully met:
| GAAP Combined Ratio (%) | Corporate ACIP Measures | Corporate ACIP Measures(1) | ||||
| Financial Measure (%) | Maximum Strategic Measures (%) | Total Opportunity (%) | Financial Measure (%) | Target Strategic Measures (%) | Total Target Opportunity (%)(2) | |
| 100.0 | 0.0 | 50 | 50.0 | 0.0 | 50 | 50.0 |
| 99.0 | 11.6 | 50 | 61.6 | 10.0 | 50 | 60.0 |
| 98.0 | 23.3 | 50 | 73.3 | 20.0 | 50 | 70.0 |
| 97.0 | 34.9 | 50 | 84.9 | 30.0 | 50 | 80.0 |
| 96.0 | 46.5 | 50 | 96.5 | 40.0 | 50 | 90.0 |
| 95.5 | 50.0 | 50 | 100.0 | |||
| 95.0 | 58.1 | 50 | 108.1 | 50.0 | 50 | 100.0 |
| 94.0 | 69.8 | 50 | 119.8 | 60.0 | 50 | 110.0 |
| 93.0 | 81.4 | 50 | 131.4 | 70.0 | 50 | 120.0 |
| 92.0 | 93.0 | 50 | 143.0 | 80.0 | 50 | 130.0 |
| 91.0 | 104.7 | 50 | 154.7 | 90.0 | 50 | 140.0 |
| 90.0 | 116.3 | 50 | 166.3 | 100.0 | 50 | 150.0 |
(1) Straight line interpolation applies to performance between designated goals.
(2) Reflects total opportunity at achievement of target, does not reflect additional 5% potential from the pure rate profitability improvement goal.
20192020 Corporate ACIP Measure Results
The 20192020 Corporate ACIP Measure results were based on our achievement of the financial metric of overall GAAP combined ratio and the strategic measures, as described in greater detail below.
Financial Performance Results
For 2019,2020, our overall GAAP combined ratio was 93.7%94.9%. Accordingly, the financial performance component of the Corporate ACIP Measures generated funding at 73.3%51.0%.
Page 42
Strategic Measures Performance Results
As reflected in the table below, we fully achieved 10 measures, partially achieved one measure, and did not achieve one measurethree measures of the 1213 total 20192020 ACIP strategic measures, which support our five strategic imperatives. Accordingly, the strategic measures performance component of the Corporate ACIP Measures generated funding at 47.0%41% (39% target points + 2% premium points).
| Strategic Imperative | Measure | Point Value | Results | |
Create a Highly
Optimize | EXPENSE MANAGEMENT | 5 pts | Achieved 5 pts |
|
Achieve designated labor and non-labor expense targets for specified business units. | ||||
Achieve designated company-wide labor and non-labor expense budget. | 5 pts | Achieved 5 pts |
| |
Align
Leverage Data | PROFITABILITY IMPROVEMENT | 0 – 8 pts (plus 5 pt. premium) | Achieved 10 pts |
|
Achieve a specified commercial pure rate target for standard renewal business. | ||||
| ||||
| Effectively manage pricing discipline through appropriate risk differentiation across the portfolio. | 3 pts | Achieved 0 pts | ||
Achieve designated aggregate pricing targets for new business. | Achieved
| |||
Align
Leverage Data | GROWTH | Achieved
| ||
| Achieve specified new direct standard commercial | ||||
| Achieve specified commercial lines | Achieved
| |||
| Achieve key milestones of Small Business strategy to improve ease of doing business. | Achieved 0 pts | |||
| 3 pts | Achieved 3 pts | ||
| Deliver a Superior Omni- Channel Experience | CUSTOMER EXPERIENCE | 2 pts | Achieved 2 pts | |
| ||||
| 3 pts | Achieved 3 pts | |||
| Optimize Organizational Effectiveness and Efficiency | OPERATIONAL EFFICIENCY | 2 pts | Achieved 2 pts | |
| Implement designated |
| |||
|
| |||
| ||||
| Deploy designated | 2 pts | Achieved 2 pts |
|
Page 43
20192020 Corporate ACIP Measure Results
For 2019,2020, our combined Corporate ACIP Measures resulted in total funding opportunity for the NEOs of 120.3%92.0% (51 points from financial measure and 41 points from strategic measures).
20192020 ACIP Payment Opportunities and Awards for NEOs
The 20192020 ACIP payment opportunities for the NEOs were based on competitive market levels and set as a percentage of annual base salary. The following table lists each NEO’s 20192020 minimum and maximum ACIP opportunities, the SEBC’s actual 20192020 award as a percentage of base salary, and the change in ACIP from 20182019 to 2019:2020:
| NEO | Minimum 2019 ACIP Opportunity (as % of Base Salary Rate) | Maximum 2019 ACIP Opportunity (as % of Base Salary Rate) | Actual 2019 ACIP Payment (as % of Base Salary) | Change in ACIP Payment from 2018 to 2019 (as %) | Minimum 2020 ACIP Opportunity (as % of Base Salary Rate) | Maximum 2020 ACIP Opportunity(1) (as % of Base Salary Rate) | Actual 2020 ACIP Payment (as % of Base Salary) | Change in ACIP Payment from 2019 to 2020 (as %) |
| John J. Marchioni | 0% | 350% | 231% | 16%(2) | ||||
| Gregory E. Murphy | 0% | 350% | 272% | 26% | 0% | 300% | 248% | -26% |
| John J. Marchioni | 0% | 275% | 226% | 27% | ||||
| Mark A. Wilcox | 0% | 250% | 193% | 30% | 0% | 250% | 166% | -8% |
| Michael H. Lanza | 0% | 150% | 43% | 0% | 150% | 95% | -33% | |
(1) NEOs’ ACIP opportunity ranges (as percentage of base salary rate) were established by the SEBC in January 2020.
(2) Mr. Marchioni’s ACIP payout increase reflects his transition to CEO effective February 2, 2020.
ELEMENTS OF LONG-TERM COMPENSATION
Design Elements
Our long-term incentive opportunities are intended to reward our leaders and encourage their long-term retention. By aligning financial rewards with theour stockholders’ economic interests, of our stockholders, leaders are motivated to achieve our long-term strategic objectives and increase stockholder value. We use both cash and non-cash vehicleselements under our LTIP to deliver long-term compensation, which is consistent with the market practices of the companies included in our Proxy Peer Group. We establish a dollar-denominated target for each employee eligible to participate in the LTIP, including the NEOs. All individual target award amountstargets are aggregated to determine the total LTIP
award pool.opportunity.
LTIP awards are typically granted in overlapping three-year cycles and are allocated among performance-based restricted stock units and performance-based cash incentive units. By granting performance-based restricted stock units and performance-based cash incentive units with three-year performance periods, our goal is to encourage executive officers to continue their tenure with us and align their economic interests with those of our stockholders.
Page 44
Long-Term Incentive Program Award Grants
Performance goals for the long-term incentive awards granted in 2017 through 2019 are as follows:
| Performance Period | Restricted Stock Unit Performance Measures | Cash Incentive Unit Performance Measures |
| 01/01/18 – 12/31/20 | Cumulative | |
| 01/01/19 – 12/31/21 | Cumulative | |
| 01/01/20 – 12/31/22 | Generate a cumulative non-GAAP operating ROE of at least 12% (computed by excluding from the determination of average equity any unrealized gain occurring after December 31, 2019), or achieve a 5% cumulative growth in policy count or statutory NPW at any calendar year end during the performance period. | Cumulative TSR over the three-year performance period, and cumulative three-year statutory NPW growth and statutory operating return on policyholder surplus relative to peer index. |
(1) Statutory operating return on policyholder surplus is a measurement of profitability that reflects the amount of statutory operating income generated by dividing statutory operating income by the average policyholder surplus during the period.
In determining the amount of LTIP awards granted to the NEOs in 2019,2020, the SEBC considered several factors, including: (i) each NEO’s performance during the previous year, including the achievement of departmental goals and other projects and endeavors accomplished throughout the year, as outlined below;year; (ii) each NEO’s total compensation in comparison to our Proxy Peer Group and Property and Casualty Insurance Compensation Survey data; and (iii) our desire for long-term retention of high-performing executives.
In 2017, the SEBC changed the elements allocation of the total grant date fair value of LTIP awards to executives, including the NEOs. The SEBC increased the allocation to performance-based restricted stock units, and lowered and narrowed the performance grid for performance-based cash incentive units, to mitigate the potential volatility of stock compensation expense. Accordingly, the LTIP awards’ allocation are 75% performance-based restricted stock units and 25% performance-based cash incentive units.
Performance-Based Restricted Stock Units
Seventy-five percent (75%) of the total grant date fair value of each NEO’s LTIP award made in 2019, exclusive of Mr. Murphy’s Retention Grant,2020 consisted of performance-based restricted stock units granted under the Selective Insurance Group, Inc. 2014 Omnibus Stock Plan (the “Omnibus Stock Plan”), based on, and subject to, the following conditions:
| § | Three-year vesting period; and |
| § | Achievement at the end of any calendar year during the three-year period beginning on January 1, |
Dividend equivalent units (“DEUs”) are credited on performance-based restricted stock units at the same time and same dividend rate paid to all Selective stockholders. PaymentPayments of DEUs, which are payable in shares of Selective common stock, remainsremain subject to the same vesting conditions and performance measures as the underlying restricted stock units. DEUs are not paid out unless and until the related restricted stock units vest. This use of performance-based restricted stock units aligns this component of our NEOs’ compensation with overall corporate performance and stockholder interests.
Page 45
Performance-Based Cash Incentive Units
The remaining twenty-five percent (25%) of the grant date fair value of each NEO’s LTIP award granted in 20192020 consisted of performance-based cash incentive units granted under the Cash Incentive Plan, based on, and subject to, the following terms:
| § | Three-year performance period; |
| § | The value of each cash incentive unit, initially awarded at $100 per unit, increases or decreases to reflect the TSR of Selective common stock over the three-year performance period for the award; and |
| § | The number of cash incentive units ultimately earned increases or decreases based on the performance criteria in the following table: |
| Matrix of Potential Performance-Based Cash Incentive Unit Payouts | ||||||||||||||||||||||||||||||||
| (as a % of Initial Award Value) | ||||||||||||||||||||||||||||||||
| >=80% | 100 | % | 108 | % | 117 | % | 125 | % | 133 | % | 142 | % | 150 | % | ||||||||||||||||||
| 70 | % | 86 | % | 100 | % | 108 | % | 117 | % | 125 | % | 133 | % | 142 | % | |||||||||||||||||
| Cumulative 3-Year | 60 | % | 72 | % | 86 | % | 100 | % | 108 | % | 117 | % | 125 | % | 133 | % | ||||||||||||||||
| Statutory Net | 50 | % | 58 | % | 72 | % | 86 | % | 100 | % | 108 | % | 117 | % | 125 | % | ||||||||||||||||
| Premium Growth | 40 | % | 44 | % | 58 | % | 72 | % | 86 | % | 100 | % | 108 | % | 117 | % | ||||||||||||||||
| Relative to Peer | 30 | % | 30 | % | 44 | % | 58 | % | 72 | % | 86 | % | 100 | % | 108 | % | ||||||||||||||||
| Index | <=20 | % | 0 | % | 30 | % | 44 | % | 58 | % | 72 | % | 86 | % | 100 | % | ||||||||||||||||
| <=20 | % | 30 | % | 40 | % | 50 | % | 60 | % | 70 | % | >=80 | % | |||||||||||||||||||
| Cumulative 3-Year Statutory Operating Return on Policyholder Surplus | ||||||||||||||||||||||||||||||||
| Relative to Peer Index | ||||||||||||||||||||||||||||||||
| Matrix of Potential Performance-Based Cash Incentive Unit Payouts (as a % of Initial Award Value) | ||||||||
| Cumulative 3-Year Statutory Net Premium Growth Relative to Peer Index | >=80% | 100% | 108% | 117% | 125% | 133% | 142% | 150% |
| 70% | 86% | 100% | 108% | 117% | 125% | 133% | 142% | |
| 60% | 72% | 86% | 100% | 108% | 117% | 125% | 133% | |
| 50% | 58% | 72% | 86% | 100% | 108% | 117% | 125% | |
| 40% | 44% | 58% | 72% | 86% | 100% | 108% | 117% | |
| 30% | 30% | 44% | 58% | 72% | 86% | 100% | 108% | |
| <=20% | 0% | 30% | 44% | 58% | 72% | 86% | 100% | |
| <=20% | 30% | 40% | 50% | 60% | 70% | >=80% | ||
| Cumulative 3-Year Statutory Operating Return on Policyholder Surplus Relative to Peer Index | ||||||||
In establishing the peer group (the “Cash Incentive Unit Peer Group”) for 20192020 to compare performance and determine the ultimate number of performance-based cash incentive units earned, the SEBC strived to include companies that have a similar mix of products, operate in the same geographic regions, have similar premium volume, and distribute their products through independent agents. The Cash Incentive Unit Peer Group differs from the Proxy Peer Group, as the Proxy Peer Group also includes companies with which we compete for executive talent. The Cash Incentive Unit Peer Group consists of the following companies:
| Liberty Mutual Group Inc. |
| Cincinnati Financial Corporation
| State Auto Financial Corporation |
| CNA Financial Corporation
| United Fire Group, Inc. |
| Donegal Insurance Group
| Utica National Insurance Group |
| Erie Indemnity Company
| Westfield Group |
| The Hanover Insurance Group, Inc. |
|
Timing of LTIP Awards
LTIP awards are generally granted each year following the release of Selective’s year-end earnings results.
Page 46
20162017 Long-Term Incentive Program Award Grant Results
The following table summarizes the achievement of the performance metrics for the 20162017 LTIP award grants and the corresponding payout in 2019:2020:
| Performance Metrics | Actual Performance Versus Performance Metrics | Percentage Achieved |
Restricted Stock Units | Achieved 5% cumulative growth of NPW | 100%(1) |
| Generate a cumulative non-GAAP operating ROE of at least 12% (computed by excluding from the determination of average equity any unrealized gain occurring after December 31, | ||
Cash Incentive Units(2) | Achieved a TSR of 57.21%, a statutory operating return on policyholder surplus of 41%, and NPW growth of 20%(3) | 117% of units at $157.21 |
| Cumulative TSR over the three-year performance period, and cumulative three-year statutory NPW growth and statutory operating return on policyholder surplus relative to peer index for the period of January 1, |
(1)The 5% cumulative growth in statutory NPW was achieved for the performance period, resulting in 100% payout of the Restricted Stock Units.restricted stock units.
(2)Cash incentive unit awards are denominated in units and granted at a target amount, with an initial value of $100. Both the number and final value of the cash incentive units ultimately earned by the NEOs are variable, depending on the level of achievement of the underlying performance metrics. For 20162017 awards, the final dollar value of the cash incentive units ($157.21) appreciation or depreciation was based on TSR, which iswas determined using the change in Selective’s common stock price and reinvested dividends over the three-year performance period for the award. The number of 20162017 cash incentive units ultimately earned (117%) was based on: (i) cumulative three-year statutory NPW growth relative to the Cash Incentive Unit Peer Group index; and (ii) cumulative three-year operating return on policyholder surplus relative to this peer group index.
(3)Performance results exceeded The company’s cumulative three-year statutory operating return on policyholder surplus of 41%, positioned us in the maximum levels; 200% was100th percentile of the maximum payout forpeer group and the 2016cumulative three-year statutory NPW growth of 20% positioned us in the 47th percentile of the peer group, resulting in 117% of target cash incentive units earned. Please refer to the Matrix of Potential Performance-Based Cash Incentive Units.Unit Payouts above.
20192020 COMPENSATION ACTIONS FOR THE CEO AND OTHER NEOS
In making its 20192020 base salary, ACIP, and LTIP compensation decisions for Mr.Messrs. Marchioni and Murphy, and the other NEOs, the SEBC considered each NEO’s overall and individual accomplishments and contributions. The required achievement of pre-determined financial and strategic goals limits the ACIP and LTIP components of our compensation program. We structure our reward programs to retain and motivate our best-performing employees and those in critical positions. In balancing our strategic results achieved with ongoing price competition, and in light of the challenges and complexities presented in 2020 in connection with the COVID-19 pandemic, the SEBC made the following compensation decisions for 2019:2020:
| § | In connection with his transition to CEO effective February 1, 2020, Mr. |
| o | Base salary was increased |
| o | ACIP payment for |
| o | LTIP award granted in |
| o | Total compensation, including salary, ACIP payment, and LTIP award |
As
Page 47
| § | In connection with his transition from CEO to Executive Chairman effective February 1, 2020, Mr. Murphy’s: |
| o | Base salary was decreased 19%; |
| o | ACIP payment for 2020 was 26% lower than his 2019 ACIP payment; |
| o | LTIP award granted in 2020 was 32% lower than his award granted in the previous year; and |
| o | Total compensation, including salary, ACIP payment, and LTIP award was 28% lower for 2020 than 2019. |
Mr. Marchioni commenced his service as CEO during 2019,on February 1, 2020, at which time Mr. Murphy was ultimatelyassumed the position of Executive Chairman. Given their respective roles of CEO and Executive Chairman, and the transitioning of the CEO position from Mr. Murphy to Mr. Marchioni in 2020, Messrs. Marchioni and Murphy both were responsible for the achievement of all financial, strategic, and investment goals. Accordingly, in making its 20192020 compensation decisions for Mr.Messrs. Marchioni and Murphy, the SEBC considered our overall corporate performance, as previously detailed in this Compensation Discussion and Analysis under the section entitled “2019“2020 Corporate Performance Highlights,” and a comprehensive written performance appraisal of the CEO completed by non-employeeall members of Selective’s Board of Directors.Directors (other than Mr. Marchioni). In addition, in making its compensation decisions for Mr. Murphy, the SEBC considered Mr. Murphy’s extraordinary efforts in assisting in managing numerous pandemic-related matters, such as governmental orders, related economic impacts, management’s enterprise risk activities, active monitoring of our investment portfolio, and leading weekly and monthly Board meetings.
Based on the degree of achievement of the Corporate ACIP measuresMeasures and the factors noted above in the 20192020 Corporate Performance Highlights, the SEBC determined that Mr. Marchioni’s 2020 ACIP payment would be 231% of base salary. This compares to his initial ACIP opportunity range of 0-350% of base salary. The SEBC determined that Mr. Murphy’s 20192020 ACIP payment would be set at 272%248% of his base salary. This compares to his initial ACIP opportunity range of 0-300% of base salary. The SEBC also considered Mr. Murphy’s long-standing superior leadership in achieving exceptional and sustained financial and operating performance, his role in the successful transition of the CEO responsibilities to Mr. Marchioni, and the historical positioning of his compensation relative to peers, which has ranged from below the peer median, to modestly above the peer median, even during periods of outstanding performance.
The SEBC determined that Mr.Messrs. Marchioni and Murphy’s ACIP payment waspayments were appropriate and consistent with Selective’s pay-for-performance philosophy and that it reinforcesreinforce our longlong-standing history of linking pay and performance.
Our other NEOs were also critical in executing Selective’s 20192020 strategic goals and delivering key accomplishments. In light of these accomplishments, the SEBC made the following compensation decisions for the other NEOs:
| § | Base salaries for Messrs. |
| § | The ACIP |
| § | LTIP awards granted in February |
| § | Total compensation, including base salary, ACIP payments, and LTIP awards, for Messrs. for |
Page 48
In making 20192020 compensation decisions for the other NEOs,Messrs. Wilcox and Lanza, the SEBC considered the following for each NEO:
Mr. MarchioniWilcox – As our President and Chief Operating Officer during 2019, Mr. Marchioni was responsible for our Insurance Operations, Strategy, Actuarial, Human Resources, Marketing, Information Technology, Finance, and Legal areas. Mr. Marchioni played a key role in developing strategies that enhance profitability, growth, and competitive strength, including managing agency relations, claims, underwriting, customer service, and all regional operations. In 2019, Mr. Marchioni directly oversaw Messrs. Wilcox and Lanza, as well as their respective areas of responsibility, consistent with our focus on leadership development. During 2019, Mr. Marchioni was elected to the Board and also served as a member of our key management committees.
In 2019, Mr. Marchioni played a key role in executing on our Strategic Business Plan Framework and had primary responsibility for the achievement of the 2019 Corporate ACIP strategic measures, and many of his accomplishments are closely tied to these measures. Under Mr. Marchioni’s leadership, our Insurance Operations continued to focus on granular pricing and sophisticated underwriting, as well as significant improvement in claims outcomes, that we believe give us a competitive advantage. Mr. Marchioni’s major contributions in 2019 included:
Based on the degree of achievement of the Corporate ACIP Measures and the factors noted above, the SEBC approved Mr. Murphy’s recommendation that Mr. Marchioni’s 2019 ACIP payment be set at 226% of base salary. This compares to his initial ACIP opportunity range of 0-275% of base salary.
6Source: ©2020 Conning, Inc. Used with permission.
Mr. Marchioni’s ACIP payment for 2019 was 27% higher than his 2018 ACIP payment. We believe his 2019 ACIP award aligns with our pay-for-performance philosophy that is intended to reward and retain key performers in critical positions.
Mr. Wilcox – In addition to his general management responsibility as a member of the executive management team, Mr. Wilcox, as Executive Vice President and Chief Financial Officer, Mr. Wilcox has (i) general management responsibility as an executive management team member, and (ii) primary responsibility for all financial matters, including financial accounting, SEC reporting, internal audit, investor relations, tax, capital and capital management planning, treasury, billing, investments, enterprise risk management, reinsurance, financial planning, and contracts and procurement. Mr. Wilcox’s major contributions in 20192020 included:
| § |
| § |
| § |
| § |
| § |
| § |
| § | Enhancing our vendor management diversity efforts; |
| § | Completing a new audit universe risk assessment by area; |
| § | Monitoring and managing the annual budget and forecasting processes; |
| § |
| § | Executing the |
| § | Continuing |
| § | Providing continued support of the corporate headquarters solar facility; and |
| § | Strengthening |
Based on the degree of achievement of the Corporate ACIP Measures and the factors noted above, the SEBC approved Messrs. Murphy andMr. Marchioni’s recommendation that Mr. Wilcox’s 20192020 ACIP payment be set at 193%166% of his base salary. This compares to his initial ACIP payment opportunity range of 0-250% of base salary.
Mr. Wilcox’s ACIP payment for 20192020 was 30% higher8% lower than his 20182019 ACIP. We believe his 20192020 ACIP award aligns with our pay-for-performance philosophy that is intended to reward and retain key performers in critical positions.
Page 49
Mr. Lanza – In addition to his general management responsibility as a member of the executive management team, Mr. Lanza, asAs Executive Vice President, General Counsel and Chief Compliance Officer, Mr. Lanza has (i) general management responsibility as an executive management team member, and (ii) primary responsibility for all legal, corporate governance, government affairs, state filings, regulatory, and compliance matters. Mr. Lanza’s major 2019significant 2020 contributions were:
| § | Advising the Board and management on corporate governance, board recruitment and succession, regulatory compliance, data and information governance, and public disclosure issues. In 2020, Mr. Lanza played an essential role in (i) advising the Board in connection with the CEO succession process early in the year, establishing the Executive Chairman position, and preparing for the potential establishment of the Non-Executive Chairperson position in 2021, (ii) supporting the recruitment and on-boarding of four new directors, and (iii) evaluating the unusual volume of potential public disclosure issues presented by COVID-19; |
| § | Providing significant government affairs counsel on COVID-19-related matters, including premium credits and related accounting issues, developing strategies for various state legislative proposals for business interruption coverage and workers compensation presumptions, and being a thought leader on several public policy issues, including cybersecurity and privacy; |
| § | Providing ongoing counsel to the claims operations on organizational structure, the new Chief Claims Officer’s on-boarding, and alternative legal fee arrangements; |
| § | Continued leadership in integrating the claims coverage analysis unit into the legal department and timely and appropriate legal counsel on COVID-19 and social unrest claims coverage matters, including selection of outside counsel and litigation strategies; |
| § | Advising on the issuance of $200 million of perpetual 4.60% Non-Cumulative Preferred Stock and a $100 million stock repurchase authorization; |
| § | Providing timely and appropriate legal advice and support for ESG matters, including researching, benchmarking, establishing a management Sustainability Committee, and publishing our inaugural ESG report; |
| § | Providing extensive legal counsel on, and executive and departmental support for, various DE&I matters; |
| § | Providing legal counsel and leadership on the organizational design, assessment, and potential restructuring of the companies’ compliance function; |
| § | Providing legal advice, counsel, and oversight of the development of |
| § | Providing significant counsel on the execution of corporate, tax, and investment |
| § | Providing continued |
Based on the degree of achievement of the Corporate ACIP Measures and the factors noted above, the SEBC approved Messrs. Murphy andMr. Marchioni’s recommendation that Mr. Lanza’s 20192020 ACIP payment be set at 150%95% of base salary. This compares to his initial ACIP payment opportunity range of 0-150% of base salary.
Mr. Lanza’s 20192020 ACIP payment was 43% higher33% lower than his 20182019 ACIP payment. This award aligns with our pay-for-performance philosophy that is intended to reward and retain key performers in critical positions.
PERQUISITES
NEO perquisites in 20192020 were limited to tax preparation services and executive physicals, which isare a prevailing industry practice. Messrs. Murphy, Marchioni, and Lanza usedThe following NEOs were reimbursed in 2020 for tax preparation services inas follows: $2,900 for Mr. Marchioni; $5,000 for Mr. Murphy; and $10,000 for Mr. Wilcox (for 2019 and 2020 services). Messrs. Marchioni and Wilcox used the executive physical service and were each reimbursed $5,000, $5,000, and $3,000, respectively. Mr. Lanza also received a modest cash service award.$11,000 in 2020.
Page 50
RECOUPMENT OF AWARDS
The Board has adopted an incentive-based compensation recoupment policy under which the Board, after the recommendation of the SEBC, may require the return, repayment, or forfeiture of any cash or equity-based incentive compensation payment or award made or granted to any current or former “Senior Officer” (defined below) during the three completed fiscal years immediately preceding the date of either of the following:
| § | A required restatement of Selective’s financial statements due to material noncompliance with any financial reporting requirement under the federal securities laws regardless of the Senior Officer’s culpability in such restatement; or |
| § | A required restatement of a performance measure – a financial or operating metric used formulaically or considered by the SEBC in determining performance-based compensation – in which the fraud or willful misconduct of the Senior Officer was a significant contributing factor in causing the restatement. |
“Senior Officer” means any person designated by the Board as an “officer” for purposes of Section 16 of the Exchange Act, the Chief Accounting Officer, and any other officer who reports directly to the CEO.
The amount of cash or equity-based incentive-based compensation payment or award required to be returned, repaid, or forfeited shall be the amount by which the Senior Officer’s original incentive payment or award for the relevant period exceeded all incentive paymentpayments or awardawards calculated on the restated results, determined on an after-tax basis assuming that the Senior Officer was taxable at the highest federal, state, and local marginal income tax rates.
The Board shall make all determinations about the application and operation of the policy in its sole discretion, taking into account the recommendation of the SEBC, and all such determinations shall be final and binding. The Board and the SEBC have the right to use reasonable efforts to recover any amounts determined under this policy to be excess incentive-based compensation. This policy (i) applies to all incentive-based compensation granted after March 1, 2020, and (ii) is to be interpreted and amended to be consistent with any applicable rules or regulations adopted by the SEC or the NASDAQ Stock MarketNasdaq as contemplated by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any other applicable law.
RETIREMENT AND DEFERRED COMPENSATION PLANS
Selective Insurance Company of America (“SICA”), a wholly-owned subsidiary of Selective, employs all of our personnel, including all of the NEOs. We strive to provide a competitive retirement benefit program that allows us to attract and retain talent for the organization. This includes a defined contribution program, including a nonqualified defined contribution deferred compensation plan (“Deferred Compensation Plan”) for certain of our officers and highly compensated employees, including the NEOs, and depending on date of hire, a defined benefit pension program, including a nonqualified supplemental pension plan for certain of our officers and highly compensated employees, in which all of the NEOs participate (other than Mr. Wilcox, whose employment commenced on January 1, 2017). These plans are consistent with benefits provided by many of the companies with which we compete for executive talent.
SICA offers a tax-qualified defined contribution plan named the Selective Insurance Retirement Savings Plan (the “Retirement Savings Plan”) for employees, including the NEOs, who meet eligibility requirements. Participants could contribute up to 50% of their eligible compensation to the Retirement Savings Plan, up to $19,000$19,500 in 2019.2020. Under the Retirement Savings Plan, participant contributions are matched at 100% of the employee’s salary deferrals up to 3% of the employee’s eligible compensation, and at 50% of the employee’s salary deferrals above 3%, up to 6% of the employee’s eligible compensation, subject to limitations under the Code. Participants turning age of 50 or over during the year, including certain of the NEOs, were eligible in 20192020 to make an additional catch-up salary deferral contribution to the Retirement Savings Plan under the Code.
The Retirement Income Plan and the related supplemental pension plan, discussed further below, were amended to cease accrual of additional benefits under these plans effective as of March 31, 2016. In connection with the curtailment of the Retirement Income Plan, all eligible participants in the Retirement Savings Plan, including the NEOs, began receiving a non-elective contribution of 4% of base salary to their accounts under the Retirement Savings Plan, subject to limitations under the Code.
Page 51
Under the Deferred Compensation Plan, certain executives and employees, including the NEOs, may, subject to certain limitations, defer: (i) up to 50% of their base salary; (ii) up to 100% of their annual bonus (subject to certain limitations to provide for required tax withholding); and/or (iii) all or a percentage of such other compensation as otherwise designated by the administrator of the Deferred Compensation Plan. To compensate for the Code’s limitations on SICA’s matching contributions for the NEOs under the Retirement Savings Plan, SICA matched our NEOs’ contributions to the Deferred Compensation Plan in 20192020 as follows: 100% of each NEO’s salary deferrals to the Retirement Savings Plan and the Deferred Compensation Plan up to 3% of the employee’s base salary, and 50% of the NEO’s salary deferrals to the Retirement Savings Plan and the Deferred Compensation Plan above 3%, up to 6% of the NEO’s base salary, less any matching contributions to the Retirement Savings Plan. Additionally, to the extent that non-elective contributions to the Retirement Savings Plan are limited due to the provisions of the Code and the Retirement Savings Plan, non-elective contributions of 4% of base salary are made by SICA to participants’ Deferred Compensation Plan accounts. Additional information regarding the Deferred Compensation Plan is included in the section entitled, “Nonqualified Deferred Compensation” of this Proxy Statement.
SICA also has maintained a non-contributory defined benefit pension program consisting of a tax-qualified defined benefit pension plan, the Retirement Income Plan, and a nonqualified supplemental pension plan for certain executives and employees. The accrual of additional benefits under the pension program ceased as of March 31, 2016. The pension program is more fully described in the section entitled, “Pension Benefits” of this Proxy Statement.
In addition, SICA also maintains health and welfare benefit plans in which eligible employees, including the NEOs, participate.
EMPLOYMENT AGREEMENTS
SICA has entered into employment agreements with its key executive officers, including the NEOs, each of which, other than with respect to Mr. Murphy, provide for severance in the event of termination: (i) due to death or disability; (ii) without “Cause”7;6; (iii) due to resignation for “Good Reason”87 by (A) the CEO at any time, or (B) other executives within two years following a change in control; (iv) due to resignation of the NEO within two years of the company first imposing a requirement, without the consent of the NEO, that relocates the NEO’s business location more than 50 miles; and (v) without Cause or withoutfor the CEO, a resignation at any time for Good Reason within two years following a change in control.Reason. The SEBC believes that these agreements are important for recruitment and retention of key executives and was advised by its Compensation Consultant that the terms of these agreements were market competitive within our peer group when they were executed. In the event of a change in control, uncertainty may arise among our key executives as to their continued employment after or in connection with such event, which may result in the departure or distraction of our key executives. The purpose of the employment agreements is to retain our key executives, and reinforce and encourage their continued attention and dedication during such a potentially critical time, even if they fear that their position will be terminated after or in connection with the change in control.
With respect to severance payments, outstanding awards under our stock and cash plans, and continued insurance coverages or reimbursement for such coverage, the change in control provisions of the employment agreements for Messrs. Marchioni, Wilcox, and Lanza are triggered if the executive’s employment is terminated without Cause, or withoutthe NEO resigns for Good Reason within two years following a change in control. This double trigger ensures such a payout does not automatically occur upon a change in control only. The employment agreements are described in the section entitled, “Employment Agreements and Potential Payments upon Termination or Change in Control” of this Proxy Statement. This section includes information on multipliers used in calculating the severance payment and duration of benefit coverage (or reimbursement for the cost of such coverages) provided to individual executives upon termination. We believe these multipliers are consistent with the level and value of the position to the organization. SICA’s current employment agreements do not contain excise tax gross-up provisions.
76 “Cause” is defined in the employment agreements, but generally means the executive: (i) was convicted of or pled guilty to a felony; (ii) breached a material provision of the executive’s employment agreement; or (iii) engaged in misconduct which constitutes fraud in the performance of the executive’s duties and obligations to the company.
87“Good “Good Reason” is defined in the employment agreements (other than Mr. Murphy’s most recent employment agreement), but generally means: (i) a material reduction in salary; (ii) a material negative change in the executive’s benefits; (iii) a material reduction of the executive’s position, duties, responsibilities, and status with the company or material negative change in title or office; (iv) requiring the executive to be based at a location in excess of 50 miles from the location of the executive’s office prior to a change in control; (v) failure of a counterparty to a transaction resulting in a change in control to assume the employment agreement; or (vi) a breach of the employment agreement by SICA within two years after a change in control.
Page 52
Mr. Murphy’s employment agreement, which terminated as of February 1, 2021, provided for severance and certain benefits upon termination for death, disability, or without Cause during the term of the agreement.
The employment agreements are described in the section entitled, “Employment Agreements and Potential Payments upon Termination or Change in Control” of this Proxy Statement. This section includes information on multipliers used in calculating the severance payment and duration of reimbursement for the cost of certain benefit coverages provided to individual executives upon termination. We believe these multipliers are consistent with the level and value of the position to the organization. SICA’s current employment agreements do not contain excise tax gross-up provisions.
TAX TREATMENT AND ACCOUNTING
Code Section 162(m) generally disallows a federal income tax deduction to public companies for annual compensation over $1 million (per individual) paid to their chief executive officer, chief financial officer, and the other NEOs. While the SEBC considers the deductibility of awards as one factor in determining executive compensation, the SEBC also considers the other goals of our executive compensation program in making its compensation decisions, and retains the flexibility to award compensation that it believes to be in the best long-term interests of Selective, even if the awards may not be fully deductible under Code Section 162(m).
For taxable years commencing before January 1, 2018, compensation paid pursuant to a stockholder-approved plan that otherwise qualified as “performance-based compensation” under Section 162(m) was exempt from the annual $1 million deduction limitation. The Tax Cuts and Jobs Act of 2017 (“Tax Reform”) eliminated the performance-based compensation exception for taxable years commencing after December 31, 2017. Under Tax Reform transition relief, compensation provided under a written binding contract in effect on November 2, 2017 that is not materially modified after that date continues to be subject to the performance-based compensation exception of Section 162(m), as previously in effect. The performance-based compensation exception, however, generally will not be available for new awards of compensation granted after November 2, 2017. As a result, most of the compensation payable to our NEOs in excess of $1 million per person in a year will not be fully deductible.
Awards to NEOs made in 2019 were granted under two performance-based stockholder approved plans: (i) the Omnibus Stock Plan; and (ii) the Cash Incentive Plan. These grants were made after the November 2, 2017 date, and therefore are not eligible for the performance-based compensation exception. However, we believe that certain compensation paid to NEOs in 2019 under the Omnibus Stock Plan is deductible under the Section 162(m) transition rules, as such compensation was designed to meet the performance-based compensation exemption under Section 162(m), paid in satisfaction of awards made on or prior to November 2, 2017, and has not been materially modified since that time.
GAAP requires compensation expense to be measured on the income statement for all stock-based payments at grant date fair value for equity instruments (including employee stock options and restricted stock unit awards) and at market value on the date of vesting for liability instruments (including cash incentive unit awards). The SEBC has considered the impact of GAAP on our use of stock-based compensation as a retention tool. The SEBC has determined that the current estimated costs of continuing to use stock-based compensation relative to the benefits they provide are appropriate and do not warrant any change to our current incentive framework.
We have designed our compensation programs and awards to executive officers to comply with the provisions of Section 409A of the Code, where applicable. For example, payments that are subject to Section 409A of the Code and made to our executive officers under our nonqualified deferred compensation plans on account of the executives’ separation from service are not payable before the first day of the seventh month following the date of separation from service if the executives are “specified employees” under Section 409A of the Code.
Page 53
The following Summary Compensation Table reflects the compensation earned by or paid to the NEOs during 2020, 2019, 2018, and 2017.2018.
| Name and Principal Position | Year | Salary | Stock |
| Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Deferred Compensation Earnings($) | All Other | Total |
John J. Marchioni President and CEO | 2020 2019 2018 | 951,923 842,308 800,000 | 1,648,685 1,264,482 1,167,500 | 2,200,000 1,900,000 1,500,000 | 239,169 326,606 (124,457) | 90,629 75,104 73,200 | 5,130,406 4,408,500 3,416,243 | |
Gregory E. Murphy Former Executive Chairman and Former CEO(2) | 2020 2019 2018 | 807,692 992,308 950,000 | 2,100,004 3,100,093(5) 2,000,019 | 2,000,000 2,700,000 2,150,000 | 380,329 1,065,006 (239,277) | 82,477 87,854 85,450 | 5,370,502 7,945,261 4,946,192 | |
Mark A. Wilcox Executive Vice President, | 2020 2019 2018 | 661,733 621,156 600,002 | 775,882 778,147 778,352 | 1,100,000 1,200,000 925,000 | 0 0 0 | 75,824 52,152 38,000 | 2,613,439 2,651,455 2,341,354 | |
Michael H. Lanza Executive Vice President, | 2020 2019 2018 | 579,615 548,462 540,000 | 500,033 500,003 500,034 | 550,000 825,000 575,000 | 101,198 147,514 (48,381) | 48,221 49,732 49,075 | 1,779,067 2,070,711 1,615,728 |
(1) Mr. Murphy served as our Chairman and CEO until February 1, 2020.
(2) Mr. Marchioni served as our President and Chief Operating Officer until February 1, 2020, when he was appointed President and CEO.
(3)(2) Amount may differMr. Murphy served as our Chairman and CEO until January 31, 2020 and as our Executive Chairman from base salary rate due to payroll payment schedule.February 1, 2020 until February 1, 2021.
((3)4) Amounts The year 2020 included an extra pay period (27 vs. 26). This pay period timing occurs approximately once every decade. Consequently, the NEOs, as well as every employee in this column reflect discretionary cash bonus awardsthe organization who was employed for the full year, were paid an additional pay period in 2020. This did not result in an ongoing increase to Messrs. Murphy and Marchioni in 2017.the NEOs or any employee’s annual base pay rate.
((4)5) This column reflects the aggregate grant date fair value of the 2020, 2019, 2018, and 20172018 grants of performance-based restricted stock unit awards, and 2020, 2019, 2018, and 20172018 grants of performance-based cash incentive unit awards. The grants of performance-based restricted stock units were made pursuant to the Omnibus Stock Plan. Such units vest three years from the date of grant, conditioned upon the attainment of certain predetermined performance goals. Grants of performance-based cash incentive unit awards were made pursuant to the Cash Incentive Plan. Such units vest at the payment date, which is as soon as practicable in the calendar year following the end of the calendar year coincident with the end of the three-year performance period. The value of each cash incentive unit initially awarded increases or decreases to reflect TSR on Selective common stock over the three-year performance period for the award. For the 2020, 2019, 2018, and 20172018 performance-based cash incentive unit awards, the number of cash incentive units ultimately earned increases or decreases based on:on (i) cumulative three-year statutory NPW growth relative to the Cash Incentive Unit Peer Group;Group, and (ii) cumulative three-year statutory operating return on policyholder surplus relative to the Cash Incentive Unit Peer Group. Restricted stock unit and cash incentive unit awards are generally subject to forfeiture should the grantee resign or be terminated for cause prior to vesting. However, restricted stock unit and cash incentive unit awards granted to Messrs. Murphy and Lanza will vest upon attainment of the performance condition only, as they have achieved early retirement eligibility.
The grant date fair values for the performance-based restricted stock unit and performance-based cash incentive unit awards granted to the NEOs are as follows:
| Name | Year | Performance-Based Restricted Stock Units ($) | Performance-Based Cash Incentive Units($) |
| John J. Marchioni | 2020 2019 2018 | 1,223,685 939,482 867,500 | 425,000 325,000 300,000 |
| Gregory E. Murphy | 2020 2019 2018 | 1,575,004 2,575,093 1,500,019 | 525,000 525,000 500,000 |
| Mark A. Wilcox | 2020 2019 2018 | 575,882 578,147 578,352 | 200,000 200,000 200,000 |
| Michael H. Lanza | 2020 2019 2018 | 375,033 375,003 375,034 | 125,000 125,000 125,000 |
Page 54
The aggregate grant date fair value reported in this column assumes the following: (i) the predetermined performance goals for the restricted stock unit grants are probable of being attained; (ii) initial per unit values for the cash incentive unit awards of $100; and (iii) a 100% peer group unit multiplier for cash incentive unit awards. For further discussion of the fair value calculation of the awards in this column, please refer to Note 1516 to the consolidated financial statements in Selective’s Annual Report on Form 10-K for the year ended December 31, 2019.2020. The maximum value assuming the highest level of performance conditions for the performance-based restricted stock units are consistent with the amounts above. Although the maximum number of performance-based cash incentive units potentially issuable is 150% of the original grant for the 2017, 2018, 2019, and 20192020 grants, the ultimate maximum value of the 2017, 2018, 2019, and 20192020 grants cannot be determined due to the fact that, as stated above,because the initial value of each unit is adjusted based on the TSR of Selective common stock over the grant’s three-year performance period, the maximum value of which is not determinable at this time.
((5)6) This amount also includes Mr. Murphy’s Retention Grant, $1,000,054 ofNovember 1, 2019 time-based restricted stock units awardedunit award (the “2019 Retention Grant”) with a monetized value on date of grant of $1,000,054, granted to him on Novemberincentivize his continued service with Selective through February 1, 20192021, in conjunction with his transition to Executive Chairman. The 2019 Retention Grants vestsGrant vested on February 1, 2021.
((6)7) Amounts in this column are annual cash incentive plan awards to the NEOs earned in 2020 and paid in 2021, earned in 2019 and paid in 2020, and earned in 2018 and paid in 2019, and earned in 2017 and paid in 2018.2019. These awards were granted under the Cash Incentive Plan.
(8)(7) Amounts in this column reflect the actuarial increase in the present value of each NEO’s pension benefits under all defined benefit pension plans of SICA, determined using the same interest rate and mortality assumptions as those used for financial statement reporting purposes. There were no changes to the benefit formulas under the defined pension benefit plans in 2019,2020, as the plans were amended to cease further accruals effective as of March 31, 2016. The changes in pension values reported in this column are primarily attributable to a decrease in the discount rate used to calculate present value and the use of the most-recently released mortality tables. There were no above-market or preferential earnings on deferred compensation under SICA’s nonqualified deferred compensation program.
((8)9) For 2019,2020, amounts in this column for each NEO reflect the following (amounts in this footnote may not exactly match the figures in the Summary Compensation Table due to rounding):
| § | Mr. |
| § | Mr. |
| § | Mr. Wilcox: |
| § | Mr. Lanza: $13,258 of company matching contributions and $10,738 of non-elective contributions to his Deferred Compensation Plan account, and $12,825 of company matching contributions and $11,400 of non-elective contributions to his 401(k) plan account. |
Page 55
The following table shows the grants of plan-based awards to our NEOs in 2019:2020:
| Name | Grant Date | Estimated Future Payouts under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts under Equity Incentive PlanAwards(2) | Grant Date Fair Value of Cash Incentive Unit and Restricted Stock Units Awards(4) ($) | ||||
| Cash Incentive Unit Awards(3) | Restricted Stock Unit Awards (#) | |||||||
| Thres-hold ($) | Maximum ($) | Thres-hold (#) | Target (#) | Max-imum (#) | Maximum (#) | |||
| Gregory E. Murphy | 2/4/2019 | 24,961 | 1,575,039 | |||||
| 2/4/2019 | 2,310 | 5,250 | 7,875 | 525,000 | ||||
| – | 0 | 3,500,000 | – | |||||
| 11/1/2019 | 14,410(5) | 1,000,054(5) | ||||||
| John J. Marchioni | 2/4/2019 | 15,452 | 939,482 | |||||
| 2/4/2019 | 1,430 | 3,250 | 4,875 | 325,000 | ||||
| – | 0 | 2,337,500 | – | |||||
| Mark A. Wilcox | 2/4/2019 | 9,509 | 578,147 | |||||
| 2/4/2019 | 880 | 2,000 | 3,000 | 200,000 | ||||
| – | 0 | 1,562,505 | – | |||||
| Michael H. Lanza | 2/4/2019 | 5,943 | 375,003 | |||||
| 2/4/2019 | 550 | 1,250 | 1,875 | 125,000 | ||||
| – | 0 | 825,000 | – | |||||
| Name | Grant Date | Estimated Future Payouts under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts under Equity Incentive Plan Awards(2) | Grant Date Fair Value of Cash Incentive Unit and Restricted Stock Units Awards(4) ($) | ||||
| Cash Incentive Unit Awards(3) | Restricted Stock Unit Awards (#) | |||||||
Threshold | Maximum | Thres-hold | Target | Max-imum | Maximum | |||
| John J. Marchioni | 2/3/2020 | 19,022 | 1,223,685 | |||||
| 2/3/2020 | 1,870 | 4,250 | 6,375 | 425,000 | ||||
| 0 | 3,237,500 | |||||||
| Gregory E. Murphy | 2/3/2020 | 23,497 | 1,575,004 | |||||
| 2/3/2020 | 2,310 | 5,250 | 7,875 | 525,000 | ||||
| 0 | 2,250,000 | |||||||
| Mark. A. Wilcox | 2/3/2020 | 8,952 | 575,882 | |||||
| 2/3/2020 | 880 | 2,000 | 3,000 | 200,000 | ||||
| 0 | 1,600,005 | |||||||
| Michael H. Lanza | 2/3/2020 | 5,595 | 375,033 | |||||
| 2/3/2020 | 550 | 1,250 | 1,875 | 125,000 | ||||
| 0 | 840,000 | |||||||
(1) Amounts represent minimum and maximum potential ACIP awards under our Cash Incentive Plan for 20192020 based on 20192020 base salary rates. Maximum awards reflect the maximum ACIP award established by the SEBC. Actual payouts of the above-referenced awards are included in the Non-Equity Incentive Plan Compensation column of the
Summary Compensation Table. For information regarding the ACIP, see the section of the Compensation Discussion and Analysis entitled, “Annual Cash Incentive Program.”
(2) Performance-based cash incentive unit awards were granted under the Cash Incentive Plan, and performance-based restricted stock unit awards were granted under the Omnibus Stock Plan. For a description of the material terms of such awards, see the section of the Compensation Discussion and Analysis entitled, “Elements of Long-Term Compensation.”
(3)The number of performance-based cash incentive units paid can range from 0-150%, and therefore, the amount payable could be $0. The threshold selected represents the 30th percentile of the Cash Incentive Unit Peer Group, the target represents the 50th percentile of the Cash Incentive Unit Peer Group, and the maximum represents greater than or equal to the 80th percentile of the Cash Incentive Unit Peer Group.
(4)This column includes the grant date fair value of restricted stock unit awards and cash incentive unit awards with an initial value of $100 per unit.
(5) This amount represents Mr. Murphy’s Retention Grant of time-based restricted stock units issued in conjunction with the CEO transition.
Page 56
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table shows the unvested stock awards of our NEOs as of December 31, 2019.2020. Our NEOs had no unexercised options as of December 31, 2019:2020:
| Name | No. of Shares or Units of Stock That Have Not Vested (#)(1) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: No. of Units or Other Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Not Vested($)(8) | |
|
1,064,023 | 3,250(5)
|
|
1,294,511 | |
|
2,702,857 | 5,250(5)
|
|
1,599,049 | |
| Mark A. Wilcox |
|
654,788 | 2,000(5)
| 2,000(6)
|
609,214 |
| Michael H. Lanza |
|
409,234 | 1,250(5)
| 1,250(6)
|
380,758 |
(1) In the event of a termination of employment on or after an individual attains Early Retirement Age, as defined under the 2017, 2018, 2019, and 20192020 restricted stock unit award agreements (the “Award Early Retirement Age”), holders of performance-based restricted stock unit awards granted in 2017, 2018, 2019, and 20192020 are vested in such awards subject only to the attainment of applicable performance measures. The respective dates upon which each NEO attained, or is anticipated to attain, his Award Early Retirement Age are as follows: Mr. Marchioni, May 28, 2024; Mr. Murphy, April 11, 2010; Mr. Marchioni, May 28, 2024; Mr. Wilcox, January 2, 2027; and Mr. Lanza, December 16, 2016.
(2) Reflects number of performance-based restricted stock units initially granted on February 6, 20175, 2018 and the related accrued DEUs, which were vested and paid on February 6, 2020.5, 2021. Also reflects number of performance-based cash incentive units initially granted on February 6, 2017 to the NEOs for the three-year performance period ending December 31, 2019. In the event of a termination of employment on or after an individual’s Award Early Retirement Age, holders of such awards are vested in such awards, with the initial number of units and the value of each unit subject to adjustment, based on the attainment of specified performance measures. Award Early Retirement Age dates for the NEOs are set forth in footnote 1. Settlement of the 2017 cash incentive unit awards will be made as soon as practicable in the 2020 calendar year, following the determination of the attainment of the applicable performance measures. The amounts reflected in this column attributable to performance-based restricted stock units and the related accrued DEUs are as follows: Mr. Murphy, 31,415; Mr. Marchioni, 18,850; Mr. Wilcox, 14,361; and Mr. Lanza, 8,079. The amounts reflected in this column attributable to performance-based cash incentive units are as follows: Mr. Murphy, 4,375; Mr. Marchioni, 2,625; Mr. Wilcox, 2,000; and Mr. Lanza, 1,125.
(3) Reflects number of performance-based restricted stock units initially granted on February 5, 2018 and the related accrued DEUs: (i) for which the applicable performance measures were achieved as of December 31, 2018; and (ii) that generally will vest and be payable on February 5, 2021.
(4) Reflects number of performance-based restricted stock units initially granted on February 4, 2019 and the related accrued DEUs: (i) for which the applicable performance measures were achieved as of December 31, 2019; and (ii) that generally will vest and be payable on February 4, 2022. For Mr. Murphy, this amount also includes his Retention Grant of time-based restricted stock units issued in conjunction with the CEO transition.
(5) Reflects a $157.21 per unit value for the February 6, 2017 cash incentive unit grant and maximum performance for this award.
(6) Reflects number of performance-based cash incentive units initially granted on February 5, 2018 to the NEOs for the three-year performance period ending December 31, 2020. In the event of a termination of employment on or after an individual’s Award Early Retirement Age, holders of such awards are vested in such awards, with the initial number of units and the value of each unit subject to adjustment, based on the attainment of specified performance measures. Award Early Retirement Age dates for the NEOs are set forth in footnote 1. Settlement of the 2018 cash incentive unit awards will be made as soon as practicable in the 2021 calendar year, following the determination of the attainment of the applicable performance measures. The amounts reflected in this column attributable to performance-based restricted stock units and the related accrued DEUs are as follows: Mr. Marchioni, 16,260; Mr. Murphy, 27,100; Mr. Wilcox, 10,840; and Mr. Lanza, 6,776. The amounts reflected in this column attributable to performance-based cash incentive units are as follows: Mr. Marchioni, 3,000; Mr. Murphy, 5,000; Mr. Wilcox, 2,000; and Mr. Lanza, 1,250.
(7)(3) Reflects number of performance-based restricted stock units initially granted on February 4, 2019 and the related accrued DEUs: (i) for which the applicable performance measures were achieved as of December 31, 2019; and (ii) that generally will vest and be payable on February 4, 2022.
(4) Reflects a $118.8626 per unit value for the February 5, 2018 cash incentive unit grant and maximum performance for this award.
(5) Reflects number of performance-based cash incentive units initially granted on February 4, 2019 to the NEOs for the three-year performance period ending December 31, 2021. In the event of a termination of employment on or after an individual’s Award Early Retirement Age, holders of such awards are vested in such awards, with the initial number of units and the value of each unit subject to adjustment, based on the attainment of specified performance measures. Award Early Retirement Age dates for the NEOs are set forth in footnote 1. Settlement of
Page 57
the 2019 cash incentive unit awards will be made as soon as practicable in the 2022 calendar year, following the determination of the attainment of the applicable performance measures.
(8) (6) Reflects number of performance-based cash incentive units initially granted on February 3, 2020 to the NEOs for the three-year performance period ending December 31, 2022. In the event of a termination of employment on or after an individual’s Award Early Retirement Age, holders of such awards are vested in such awards, with the initial number of units and the value of each unit subject to adjustment, based on the attainment of specified performance measures. Award Early Retirement Age dates for the NEOs are set forth in footnote 1. Settlement of the 2020 cash incentive unit awards will be made as soon as practicable in the 2023 calendar year, following the determination of the attainment of the applicable performance measures.
(7) Reflects number of performance-based restricted stock units initially granted on February 3, 2020 and the related accrued DEUs: (i) for which the applicable performance measures were not achieved as of December 31, 2020; and (ii) that generally will vest and be payable on February 3, 2023, following the determination of the attainment of the applicable performance measures.
(8)The amounts in this column reflect: (i) a $113.78 per unit value for the February 5, 2018 cash incentive unit grant, and a $108.25$113.0802 per unit value for the February 4, 2019 cash incentive unit grant, and a $104.4627 per unit value for the February 3, 2020 cash incentive unit grant based on the TSR of Selective common stock at December 31, 2019;2020; and (ii) maximum performance for each of these awards. The performance measures are identified for the February 4, 20193, 2020 grant in the Grants of Plan-Based Awards table.
OPTION EXERCISES AND STOCK VESTED
The following table shows the stock vesting of grants of plan-based awards by our NEOs in 2019.2020. Our NEOs exercised no stock options in 2019:2020:
| Stock Awards | ||
| Name | Number of Shares Acquired on Vesting (#)(1) | Value Realized on Vesting ($)(2) |
| Gregory E. Murphy | 53,408 | 5,303,996 |
| John J. Marchioni | 31,416 | 3,119,998 |
| Mark A. Wilcox | - | - |
| Michael H. Lanza | 13,090 | 1,299,999 |
| Stock Awards | ||
| Name | Number of Shares | Value Realized on Vesting ($)(2) |
| John J. Marchioni | 21,921 | 1,766,107 |
| Gregory E. Murphy | 36,533 | 2,943,417 |
| Mark A. Wilcox | 16,701 | 1,345,568 |
| Michael H. Lanza | 9,395 | 756,913 |
(1) Amounts in this column include the number of performance-based restricted stock units and the related accrued DEUs that vested in 20192020 as well as performance-based cash incentive units paid in 2019.2020. The amounts reflected in this column attributable to performance-based restricted stock units and the related accrued DEUs are as follows: Mr. Marchioni, 18,850; Mr. Murphy, 38,475;31,414; Mr. Marchioni, 22,632;Wilcox, 14,361; and Mr. Lanza, 9,430.8,079. The amounts reflected in this column attributable to performance-based cash incentive units are as follows: Mr. Marchioni, 3,071; Mr. Murphy, 14,933;5,119; Mr. Marchioni, 8,784;Wilcox, 2,340; and Mr. Lanza, 3,660.1,316.
(2) Amounts in this column include the value of performance-based restricted stock units and the related accrued DEUs that vested in 20192020 as well as the amount paid for performance-based cash incentive units in 2019.2020. The amounts reflected in this column attributable to performance-based restricted stock units and the related accrued DEUs are as follows: Mr. Marchioni, $1,283,277; Mr. Murphy, $2,477,021;$2,138,701; Mr. Marchioni, $1,457,071;Wilcox, $977,698; and Mr. Lanza, $607,113.$549,986. The amounts reflected in the table attributable to performance-based cash incentive units are as follows: Mr. Marchioni, $482,830; Mr. Murphy, $2,826,975;$804,716; Mr. Marchioni, $1,662,926;Wilcox, $367,870; and Mr. Lanza, $692,886.$206,927.
SICA maintains a tax-qualified non-contributory defined benefit pension plan, the Retirement Income Plan. Many SICA employees, including the NEOs (other than Mr. Wilcox, whose employment commenced on January 1, 2017) and certain former employees whose employment commenced on or before December 31, 2005, are eligible to receive benefits under the Retirement Income Plan. SICA also maintains the unfunded Selective Insurance Supplemental Pension Plan (“SERP”) to provide supplemental benefits to certain executives and other participants in the Retirement Income Plan equal to the difference between: (i) the benefits payable to these participants under the Retirement Income Plan, calculated without regard to Code limitations on annual amounts payable under the Retirement Income Plan; and (ii) the actual benefits payable to these participants under the Retirement Income Plan.
Page 58
The Retirement Income Plan and the SERP were frozen in the first quarter of 2013, when both plans were amended to cease accrual of additional benefits under these plans for all participants as of March 31, 2016. Participants as of March 31, 2016 remain entitled to the benefits already earned but have not earned additional benefits since that date, and no new participants have been admitted to the plans.date.
The Retirement Income Plan was amended as of July 1, 2002, to provide for different calculations based on age and company service as of that date. Monthly benefits payable at normal retirement age under the Retirement Income Plan and the SERP for the NEOs are computed as follows. Defined terms used in this section, but not defined in this Proxy Statement, have the meanings given to them in the Retirement Income Plan.
| 1. | If a participant: (i) completed at least five years of Vesting Service on or before July 1, 2002; and (ii) the sum of a participant’s age and Vesting Service is 55 or more on or before July 1, 2002, a participant’s benefit is equal to the sum of: (a) 2% of Average Monthly Compensation (base salary), less 1 3/7% of Primary Social Security benefit multiplied by the number of years of Benefit Service through June 30, 2002 (up to 35 years) reduced by the monthly amount, if any, of retirement annuity payable under the group annuity contract issued by AXA Equitable Life Insurance Company that was purchased under a prior terminated defined benefit pension plan, based on Benefit Service as of June 30, 2002, but including compensation earned after such date; and (b) 1.2% of Average Monthly Compensation multiplied by the number of years of Benefit Service after June 30, 2002. |
| 2. | If a participant first became eligible for the plan before July 1, 2002, but did not qualify for 1 above, the participant’s benefit is equal to the greater of: (i) the benefit accrued as of June 30, 2002 equal to 2% of Average Monthly Compensation less 1 3/7% of Primary Social Security Benefit multiplied by years of Benefit Service reduced by the monthly amount, if any, of retirement annuity payable under the group annuity contract issued by AXA Equitable Life Insurance Company that was purchased under a prior terminated defined benefit pension plan, based on Benefit Service as of June 30, 2002, but including compensation earned after such date for purposes of determining the participant’s Average Monthly compensation; and (ii) 1.2% of Average Monthly Compensation multiplied by years of Benefit Service. |
| 3. | If a participant first became a participant in the plan after July 1, 2002, the benefit is equal to 1.2% of Average Monthly Compensation multiplied by years of Benefit Service. |
The earliest retirement age is 55 with 10 years of service or the attainment of 70 points (age plus years of service). If a participant chooses to begin receiving benefits before his or her 65th birthday, the amount of the monthly benefit will be reduced as follows:
| § | By 1/180th for each complete calendar month for the first 60 months by which the first early retirement benefit payment precedes the attainment of Normal Retirement Age (age 65); |
| § | By 1/360th for each complete calendar month for the next 60 months by which the first early retirement benefit payments precede Normal Retirement Age; and |
| § | By 40% plus 1/600th per month for each month before age 55. |
At retirement, participants receive monthly pension payments. There are four optional forms of payments that can be chosen as alternatives to the normal form of payment, which for a married participant is an automatic 50% joint and surviving spouse annuity, and for an unmarried participant is a single life annuity.
The following table shows information regarding the pension benefits of our NEOs. As noted above, based on Mr. Wilcox’s date of hire of January 1, 2017, he is not eligible to participate in the Retirement Income Plan or the SERP:
| Name | Early Retirement Eligible | Plan Name | Number of Years Credited Service (#)(1) | Present Value of Accumulated Benefit ($)(2) | Payments During Last Fiscal Year ($) |
| Gregory E. Murphy | Yes | Retirement Income Plan | 34.83 | 1,938,568 | 0 |
| SERP | 34.83 | 5,460,306 | 0 | ||
| John J. Marchioni | No | Retirement Income Plan | 17.25 | 469,526 | 0 |
| SERP | 17.25 | 760,529 | 0 | ||
| Michael H. Lanza | Yes | Retirement Income Plan | 10.67 | 370,180 | 0 |
| SERP | 10.67 | 353,576 | 0 |
Page 59
| Name | Early Retirement Eligible | Plan Name | Number of Years Credited Service (#)(1) | Present Value of Accumulated Benefit ($)(2) | Payments During Last Fiscal Year ($) |
| John J. Marchioni | No | Retirement Income Plan | 17.25 | 560,820 | 0 |
| SERP | 17.25 | 908,404 | 0 | ||
| Gregory E. Murphy | Yes | Retirement Income Plan | 34.83 | 2,038,217 | 0 |
| SERP | 34.83 | 5,740,986 | 0 | ||
| Michael H. Lanza | Yes | Retirement Income Plan | 10.67 | 421,940 | 0 |
| SERP | 10.67 | 403,014 | 0 |
(1) The Retirement Income Plan imposes a one-year waiting period for plan participation, which year is not included in years of credited service.
(2) Present value as of December 31, 20192020, is calculated based on the basis of Normal Retirement Age of 65 using a 3.33%2.68% discount rate. For further discussion, see Note 14.15. “Retirement Plans” in Item 8. “Financial Statements and Supplementary Data.” of Selective’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
NONQUALIFIED DEFERRED COMPENSATION
The Deferred Compensation Plan allows participants to defer receipt of up to 50% of base salary and up to 100% of their annual bonus (subject to certain limitations to provide for required tax withholding). Participant accounts are credited with a notional rate of return (positive or negative) based on the performance of investment options selected by the participants from a menu of notional investment options. Participants can elect to schedule in-service withdrawals or withdrawals upon separation from service.
SICA makes matching contributions to a participant’s Deferred Compensation Plan account to supplement matching contributions under the Retirement Savings Plan. For 2019,2020, such matching contributions consisted of 100% of the first 3% of base salary and 50% of the next 3% of base salary deferred to the Retirement Savings Plan and the Deferred Compensation Plan together, minus any matching contribution made to a participant’s Retirement Savings Plan account. Effective January 1, 2010, the Deferred Compensation Plan was amended for participants ineligible to participate in the Retirement Income Plan to provide a non-elective contribution to the extent not made to a participant’s Retirement Savings Plan account due to the limitations under the Code and the Retirement Savings Plan. The non-elective contribution to the Deferred Compensation Plan is equal to 4% of a participant’s base salary, minus any non-elective contribution made to the Retirement Savings Plan. In conjunction with the amendment of the Retirement Income Plan and the SERP to cease accrual of further benefits under these plans effective as of March 31, 2016, all participants affected by the curtailment, including the NEOs, became eligible for the nonelectivenon-elective contribution effective April 5, 2013.
Page 60
The following table shows information regarding nonqualified deferred compensation of our NEOs:
| Name | Executive Contributions in 2019 ($)(1) | Company Contributions in 2019 ($)(2) | Aggregate Earnings in 2019 ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at December 31, 2019 ($)(4) | Executive Contributions in 2020 ($)(1) | Company Contributions in 2020 ($)(2) | Aggregate Earnings in 2020 ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at December 31, 2020 ($)(4) |
| John J. Marchioni | 38,077 | 52,504 | 144,710 | 0 | 1,144,065 | |||||
| Gregory E. Murphy | 49,615 | 59,054 | 378,452 | 0 | 2,607,033 | 40,385 | 52,013 | 304,992 | 0 | 3,004,424 |
| John J. Marchioni | 42,115 | 46,304 | 156,935 | 0 | 908,774 | |||||
| Mark A. Wilcox | 18,635 | 28,352 | 20,831 | 0 | 128,096 | 259,852 | 30,599 | 65,199 | 0 | 483,746 |
| Michael H. Lanza | 56,173 | 22,681 | 118,499 | 0 | 620,137 | 23,185 | 23,996 | 101,072 | 0 | 768,390 |
(1) Amounts in this column are attributable to 20192020 salary deferred by Messrs. Marchioni, Murphy, Marchioni, Wilcox, and Lanza, and are included in the Salary column of the Summary Compensation Table.
(2) All amountsAmounts in this column are included in the All Other Compensation column of the Summary Compensation Table.
(3) Amounts in this column are not included in the Summary Compensation Table because such earnings or losses were not above-market or preferential.
(4) Amounts in this column include the following aggregate contributions of the NEOs and SICA to the Deferred Compensation Plan in 2019,2020, which amounts are included in the Summary Compensation Table:
| § | For |
| § | For 2019: Mr. Marchioni, $88,419; Mr. Murphy, $108,669; |
| § | For 2020: Mr. Marchioni, $90,581; Mr. Murphy, $92,398; Mr. Wilcox, $290,451; and Mr. Lanza, $47,181. |
EMPLOYMENT AGREEMENTS AND POTENTIAL PAYMENTS UPON
TERMINATION OR CHANGE IN CONTROL
SICA entered into amended employment agreements with: (i) Messrs. Murphy and LanzaMr. Marchioni, commencing as of December 23, 2008; (ii) Mr. Marchioni as of September 10, 2013February 1, 2020, in connection with his electionappointment as President and Chief OperatingExecutive Officer; and (iii)(ii) Mr. Wilcox, commencing as of January 1, 2017, in connection with his commencement of employmentemployment; (iii) Mr. Lanza, commencing as of March 2, 2020; and (iv) Mr. Murphy, commencing as of February 1, 2020, in connection with his transition to Executive Chairman of the Board, which terminated as of February 1, 2021 (collectively, the “Employment Agreements”). See footnote (1) to the following table for information regarding the current employment agreements of Messrs. Murphy, Marchioni, and Lanza. The following table summarizestables summarize the principal provisions of the Employment Agreements:Agreements.
Messrs. Marchioni, Wilcox, and Lanza
| Term | Initial three-year term, automatically renewed for additional one-year periods unless terminated by either party with written |
| Compensation | Base salary.(2) |
| Benefits | Eligible to participate in incentive compensation plan, stock plan, 401(k) plan, and any other stock option, stock appreciation right, stock bonus, pension, group insurance, retirement, profit sharing, medical, disability, accident, life insurance, relocation plan or policy, or any other plan, program, policy or arrangement of Selective or SICA intended to benefit SICA’s employees generally. |
| Vacation and Reimbursements | Vacation time and reimbursements for ordinary travel and entertainment expenses in accordance with SICA’s policies. |
| Perquisites | Suitable offices, secretarial and other services, and other perquisites to which other SICA executives |
Page 61
| Severance and Benefits on Termination without Change in Control | § For Cause or Resignation by NEO other than for Good Reason: Salary and benefits accrued through termination date. § Death or Disability: Multiple(3) of: (i) § Without Cause by SICA, Relocation of Office over 50 Miles (without o Multiple(3) of: (i) NEOs salary; plus (ii) average of three most recent annual cash incentive payments paid in 12 equal installments. o Medical, dental, vision, disability, and life insurance coverage in effect for NEO and dependents until the earlier of specified period of months(4) following termination or commencement of equivalent benefits from a new employer. § Stock Awards: Except for termination for Cause or resignation by the NEO other than for |
| Severance and Benefits on Termination after Change in Control | For termination without Cause or resignation for Good Reason by: (i) CEO at any time; or (ii) other NEO within two years following a Change in Control (as defined in the Employment Agreement), NEO is entitled to: § Severance payment equal to multiple(5) of the greater of: (i) § Medical, dental, vision, disability, and life insurance coverage in effect for NEO and dependents until the earlier of a period of months(6) following termination or commencement of equivalent benefits from a new employer. § Stock awards, same as above, except that the initial number of cash incentive units is multiplied by 150%.
|
| Release; Confidentiality and Non-Solicitation | § Receipt of severance payments and benefits conditioned upon: o Entry into release of claims; and o No disclosure of confidential or proprietary information, or solicitation of employees to |
(1) The initial three-year term for Mr. Wilcox ended on January 1, 2020. The initial three-year terms for Messrs. Marchioni and Lanza will end on January 31, 2023, and March 2, 2023, respectively.
(2) The annual base salaries for the NEOs were as follows: Mr. Marchioni, $925,000 (as of February 1, 2020); Mr. Wilcox, $640,002 (as of March 2, 2020); and Mr. Lanza, $560,000 (as of March 2, 2020).
(3) For Mr. Marchioni, the multiple is two, and for Messrs. Wilcox and Lanza, the multiple is 1.5.
(4) For Mr. Marchioni, the period is 24 months, and for Messrs. Wilcox and Lanza, the period is 18 months.
(5) For Mr. Marchioni, the multiple is 2.99. For each of Messrs. Lanza and Wilcox, the calculation for the severance payment is 1.5 times the sum of his salary and the average of his annual cash incentive payments for the three calendar years prior to the calendar year in which the termination occurs.
(6) For Mr. Marchioni, the period is 36 months, and for Messrs. Lanza and Wilcox, the period is 18 months.
Page 62
Mr. Murphy
| Term | ||
| Compensation | Base salary of $750,000. In lieu of eligibility for LTIP grants of restricted stock units and cash incentive units after the first quarter of 2020, | |
| Benefits | Eligible to participate in incentive compensation plan, stock plan, 401(k) plan, and any other stock option, stock appreciation right, stock bonus, pension, group insurance, retirement, profit sharing, medical, disability, accident, life insurance, relocation plan or policy, or any other plan, program, policy or arrangement of Selective or SICA intended to benefit SICA’s employees generally, except for LTIP grants after the first quarter of 2020. | |
| Reimbursements | Reimbursements for ordinary travel and entertainment expenses in accordance with | |
| Perquisites | Suitable offices, secretarial and other services, and other perquisites to which other executives of SICA are generally entitled. | |
| Severance and Benefits on Termination without Change in Control | §For Cause or Resignation: Salary and benefits accrued through termination date. §Death or Disability, or without Cause: o Remainder of unpaid salary through the o Annual o The Cash Award. o Partial reimbursement for the | |
| Release; Confidentiality and Non-Solicitation | § Receipt of severance payments and benefits conditioned upon: o Entry into release of claims; and o No disclosure of confidential or proprietary information, |
period of two years following the termination of the Employment Agreement and assignment of intellectual property rights.
The following table shows information regarding payments and benefits to which our NEOs would be entitled under the terms of the Employment Agreements and the scenarios shown as of December 31, 2019:2020:
| Name | Resignation(1) or Termination For Cause ($) | Retirement($)(2) | Death or Disability($)(3) | Termination without Cause or Resignation with Good Reason ($)(4) | Termination Following Change in Control ($)(5) | Resignation(1) or Termination For Cause ($) | Retirement ($)(2) | Death or Disability ($)(3) | Termination without Cause or Resignation with Good Reason ($)(4) | Termination Following Change in Control ($)(5) |
| John J. Marchioni | - | 4,615,693 | 9,692,360 | 9,713,812 | 14,912,029 | |||||
| Gregory E. Murphy | - | 8,200,880 | 14,167,547 | 14,191,810 | 27,546,454 | - | 7,853,502 | 10,466,002 | 10,490,393 | 8,721,708 |
| John J. Marchioni | - | 4,397,167 | 8,990,500 | 9,012,036 | 12,606,890 | |||||
| Mark A. Wilcox | - | 3,017,457 | 5,323,710 | 5,350,798 | 5,711,292 | - | 2,662,900 | 5,135,403 | 5,162,718 | 5,355,374 |
| Michael H. Lanza | - | 1,807,793 | 3,495,293 | 3,521,654 | 4,270,143 | - | 1,664,330 | 3,504,330 | 3,530,923 | 3,603,676 |
(1)Other than a resignation for Good Reason.
(2)This column includes the value of vested and unvested performance-based restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs. These performance-based awards would normally vest upon: (i) achievement of early or normal retirement eligibility or continuation in service through the end of the applicable performance period; and (ii) the achievement of the specified performance goals applicable to each such award, and be payable following the end of the applicable three-year performance period. Restricted stock unit and cash incentive unit awards granted to Messrs. Murphy and Lanza have vested, but their ultimate payment value will only be determined upon achievement of the performance condition, as each of these NEOs has attained early retirement eligibility. Also included in this column is the value of performance-based cash incentive units awarded
Page 63
under the Cash Incentive Plan to the NEOs. The value of such awards is calculated using: (i) the target 100% unit multiplier for the number of cash incentive units granted; and (ii) the per unit value at December 31, 2019.2020. Under the Cash Incentive Plan, participants’ awards, including the NEOs’ awards, would fully vest upon achievement of early or normal retirement eligibility or continuation in service through the end of the payment date and be payable following the end of the applicable three-year performance period.
(3)This column includes the value of unvested performance-based restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs. In the event of total disability, these performance-based awards would normally vest for all participants, including the NEOs, upon the achievement of the specified performance goals applicable to each such award, and be payable following the end of the applicable three-year performance period. In the event of death, these performance-based awards are immediately vested and payable for all participants, including the NEOs. Also included in this column is the value of performance-based cash incentive units awarded under the Cash Incentive Plan to the NEOs. The value of such awards is calculated using: (i) the target 100% unit multiplier for the number of cash incentive units granted; and (ii) the per unit value at December 31, 2019.2020. Under the Cash Incentive Plan, participants’ awards, in the event of total disability, including the NEOs’ awards, would fully vest and be payable following the end of the applicable three-year performance period. This column also includes the severance payment provided for in each NEO’s Employment Agreement. Payments in this column will be reduced by life or disability insurance payments under policies for which SICA paid premiums.
(4)This column includes the value of unvested performance-based restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs. These performance-based awards would normally vest upon: (i) a termination without Cause or Resignation for Good Reason; and (ii) the achievement of the specified performance goals applicable to each such award, and be payable following the end of the applicable three-year performance period. Also included in this column is the value of performance-based cash incentive units awarded under the Cash Incentive Plan to the NEOs. The value is calculated using: (i) the target 100% unit multiplier for the number of cash incentive units granted; and (ii) the per unit value at December 31, 2019.2020. The awards would fully vest and be payable following the end of the applicable three-year performance period. Also included in this column are the severance payment and the value of applicable medical, dental, vision, disability, and life insurance coverages, as provided for in each respective NEO’s Employment Agreement.
(5)This column includes the value of unvested performance-based restricted stock units granted under the Omnibus Stock Plan, and any related accrued DEUs, which would immediately vest and be payable upon a termination of employment following a change in control. This column also includes the value of performance-based cash incentive units awarded under the Cash Incentive Plan to the NEOs, all of which would vest upon a termination of employment following a change in control. The value of such awards is calculated using: (i) a 150% per unit multiplier; and (ii) the per unit value at December 31, 2019.2020. Also included in this column are the severance payment and the value of applicable medical, dental, vision, disability, and life insurance coverages, as provided for in each NEO’s Employment Agreement. This column also includes the value of any tax gross-up payment necessary to offset any excise tax imposed on the payment and benefits disclosed in this column, other than for Messrs. Marchioni and Wilcox whose employment agreements do not contain this provision.
As a result of rules adopted under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the SEC requires disclosure of the CEO to median employee pay ratio. We identified the median employee in 2017 by tabulating 20172020 W-2 Medicare Wages on October 31, 2017.2020. We included all employees, whether employed full-time, part-time, or seasonally. We did not make any adjustments or annualize compensation for employees who we did not employ for all of 2017.2020. We believe the use of W-2 Medicare Wages is a simple and consistent methodology that we can easily replicate in future years. In order to determine if it was appropriate to use the same median employee for 2019 as in 2018, we considered that we had: (i) no significant acquisitions or divestitures during 2019; (ii) no reduction in force or notable employee turnover in 2019; and (iii) no material changes in the median employee's circumstances, pay, or employment status. We analyzed the median employee’s W-2 Medicare Wages as of December 31, 2019 compared to December 31, 2018 to confirm there were no significant changes in the prior median employee’s position. These results supported our using the same median employee in 2019, so we did not change our median employee.
Mr. Murphy’s 2019Marchioni’s 2020 total compensation was $7,945,261$5,130,406 (reflected in the Summary Compensation Table), and our median employee’s 20192020 total compensation was $106,123.$107,451. Mr. Murphy’s 2019Marchioni’s 2020 total compensation was approximately 7548 times that of our median employee.
Page 64
We compensate non-employee directors for their Board service on the Board with a combination of cash and equity thein amounts of which are commensurate with their role and involvement, and consistent with peer company practices. In setting director compensation, we consider the significant amount of time and effort our directors expend in fulfilling their duties, as well as the skill level required of members of our Board. We intend to compensate our non-employee directors in a competitive way that is competitive, attracts and retains a high caliber of directors and aligns their interests with those of our stockholders. Messrs. Murphy and Marchioni, who also served as executive officers in 2019,2020, did not receive additional compensation for their service as directors.directors in 2020.
The SEBC, which is comprised solely of independent directors, has the primary responsibility for reviewing and approving compensation for non-employee directors, including, but not limited to, the following elements: retainer, meeting fees, committee member fees, committee chairchairperson fees, lead independent director fees, non-executive chairperson fees, and equity and stock compensation. In October 2018,2019, the SEBC undertook a review of the amountform and formamount of compensation paid to our non-employee directors for their service on the Board.Board service. The SEBC considered the results of an independent analysis
completed by the Compensation Consultant, who reviewed non-employee director compensation trends and data from companies comprising the peer group used by the SEBC in its review of executive compensation. After further consultation with the Compensation Consultant, the SEBC made no changes to Selective’s director compensation program from the prior year in light of peer data and the amount of responsibility of the positions, the SEBC approved the following changes to Selective’s director compensation program:their positions.
The following table shows compensation earned by or paid to our non-employee directors during 2019.2020:
| Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Total ($) |
| Ainar D. Aijala, Jr.(3) | 27,322 | 0 | 27,322 |
| Lisa Rojas Bacus(4) | 26,639 | 0 | 26,639 |
| John C. Burville | 104,348 | 80,013 | 184,361 |
| Terrence W. Cavanaugh | 100,045 | 80,013 | 180,058 |
| Wole C. Coaxum(5) | 26,639 | 0 | 26,639 |
| Robert Kelly Doherty | 122,500 | 80,013 | 202,513 |
| Thomas A. McCarthy | 100,045 | 80,013 | 180,058 |
| Stephen C. Mills(6) | 27,322 | 0 | 27,322 |
| H. Elizabeth Mitchell | 97,545 | 80,013 | 177,558 |
| Michael J. Morrissey | 118,371 | 80,013 | 198,384 |
| Cynthia S. Nicholson | 107,381 | 80,013 | 187,394 |
| Ronald L. O’Kelley(7) | 32,787 | 0 | 32,787 |
| William M. Rue | 92,500 | 80,013 | 172,513 |
| John S. Scheid | 122,545 | 80,013 | 202,558 |
| J. Brian Thebault | 137,545 | 80,013 | 217,558 |
| Philip H. Urban | 102,431 | 80,013 | 182,444 |
(1) Information on the election by directors to receive shares of Selective common stock instead of cash for their 2020 annual retainer is set forth below under the heading “Annual Retainer Stock Election.”
| Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Total ($) |
| Paul D. Bauer(3) | 34,808 | 0 | 34,808 |
| John C. Burville | 112,500 | 80,035 | 192,535 |
| Terrence W. Cavanaugh | 100,068 | 80,035 | 180,103 |
| Robert Kelly Doherty | 122,500 | 80,035 | 202,535 |
| Thomas A. McCarthy | 100,068 | 80,035 | 180,103 |
| H. Elizabeth Mitchell | 97,500 | 80,035 | 177,535 |
| Michael J. Morrissey | 120,051 | 80,035 | 200,086 |
| Cynthia S. Nicholson | 97,568 | 80,035 | 177,603 |
| Ronald L. O’Kelley | 100,017 | 80,035 | 180,052 |
| William M. Rue | 92,500 | 80,035 | 172,535 |
| John S. Scheid | 122,568 | 80,035 | 202,603 |
| J. Brian Thebault | 137,500 | 80,035 | 217,535 |
| Philip H. Urban | 97,534 | 80,035 | 177,569 |
| (3) | Mr. |
| (4) | Ms. Bacus joined Selective’s Board effective as of September 23, 2020. |
| (5) | Mr. Coaxum joined Selective’s Board effective as of September 23, 2020. |
| (6) | Mr. Mills joined Selective’s Board effective as of September 23, 2020. |
| (7) | Mr. O’Kelley retired from Selective’s Board effective as of |
Page 65
The following table summarizes the types and amounts of compensation paid to our non-employee directors in 2019:2020:
| Type of Compensation | Amount |
| Annual Retainer Fee | $85,000 |
| Grant Date Fair Value of Annual Equity Award | $80,000 |
| Board Meeting Attendance | |
Annual Committee Member Fee Audit Committee Corporate Governance and Nominating Committee Finance Committee
|
$7,500 |
Annual Committee Chairperson Fee Audit Committee Corporate Governance and Nominating Committee Finance Committee
|
$30,000 $20,000 $30,000 $20,000 |
| Lead Independent Director Fee | $40,000 |
| Expenses | Reasonable |
As the Director Compensation tabletables above shows,show, in 2019,2020, the non-employee directors received compensation in the forms of restricted stock units and cash for their director service. The SEBC annually reviews and approves the compensation for non-employee directors, including the Annual Retainer Fee. For 2019,2020, non-employee directors had the election to receive up to 100% of their Annual Retainer Fee in shares of Selective common stock. Any remaining balance of the Annual Retainer Fee was paid in cash. Non-employee directors made this election bybefore December 15, 2018.20, 2019. The Annual Retainer Fee was paid in one installment on the second business day following Selective’s 20192020 Annual Meeting of Stockholders.
For 2019,2020, the annual equity grant under Selective’s non-employee director compensation program was made entirely in restricted stock units granted under the Omnibus Stock Plan. Shares of Selective common stock paid to directors as a portion of their Annual Retainer Fee were issued under the Omnibus Stock Plan. Annual Committee AttendanceMember Fees, Annual Committee Chairperson Fees, and the Lead Independent Director Fee were paid in cash pursuant to the table above.
Annual Retainer Stock Election
Directors elected to receive shares of Selective common stock for all or a portion of their 20192020 Annual Retainer Fee as follows:
| Name | Number of Shares | Payment Date Value of Stock ($) |
| Ainar D. Aijala, Jr. | 0 | 0 |
| Lisa Rojas Bacus | 0 | 0 |
| John C. Burville | 1,842 | 85,045 |
| Terrence W. Cavanaugh | 1,842 | 85,045 |
| Wole C. Coaxum | 0 | 0 |
| Robert Kelly Doherty | 0 | 0 |
| Thomas A. McCarthy | 1,842 | 85,045 |
| Stephen C. Mills | 0 | 0 |
| H. Elizabeth Mitchell | 1,842 | 85,045 |
| Michael J. Morrissey | 1,381 | 63,761 |
| Cynthia S. Nicholson | 1,842 | 85,045 |
| Ronald L. O’Kelley | 0 | 0 |
| William M. Rue | 0 | 0 |
| John S. Scheid | 1,842 | 85,045 |
| J. Brian Thebault | 1,842 | 85,045 |
| Philip H. Urban | 1,289 | 59,513 |
| Name | Number of Shares (#) | Payment Date Value of Stock ($) |
| Paul D. Bauer | 0 | 0 |
| John C. Burville | 0 | 0 |
| Terrence W. Cavanaugh | 1,200 | 85,068 |
| Robert Kelly Doherty | 0 | 0 |
| Thomas A. McCarthy | 1,200 | 85,068 |
| H. Elizabeth Mitchell | 0 | 0 |
| Michael J. Morrissey | 900 | 63,801 |
| Cynthia S. Nicholson | 1,200 | 85,068 |
| Ronald L. O’Kelley | 300 | 21,267 |
| William M. Rue | 0 | 0 |
| John S. Scheid | 1,200 | 85,068 |
| J. Brian Thebault | 0 | 0 |
| Philip H. Urban | 600 | 42,534 |
Page 66
Outstanding Options and Unvested Restricted Stock Units*
The aggregate number of outstanding options and unvested restricted stock units held by each director as of December 31, 2019 were2020, was as follows:
| Name | Outstanding Options (#) | Unvested Restricted Stock Units (#) |
| Paul D. Bauer | 0 | 0 |
| John C. Burville | 0 | 1,129 |
| Terrence W. Cavanaugh | 0 | 1,129 |
| Robert Kelly Doherty | 0 | 1,129 |
| Thomas A. McCarthy | 0 | 1,129 |
| H. Elizabeth Mitchell | 0 | 1,129 |
| Michael J. Morrissey | 7,953 | 1,129 |
| Cynthia S. Nicholson | 5,964 | 1,129 |
| Ronald L. O’Kelley | 7,953 | 1,129 |
| William M. Rue | 0 | 1,129 |
| John S. Scheid | 0 | 1,129 |
| J. Brian Thebault | 0 | 1,129 |
| Philip H. Urban | 0 | 1,129 |
| Name | Unvested Restricted Stock Units (#) |
| Ainar D. Aijala, Jr. | 0 |
| Lisa Rojas Bacus | 0 |
| John C. Burville | 1,733 |
| Terrence W. Cavanaugh | 1,733 |
| Wole C. Coaxum | 0 |
| Robert Kelly Doherty | 1,733 |
| Thomas A. McCarthy | 1,733 |
| Stephen C. Mills | 0 |
| H. Elizabeth Mitchell | 1,733 |
| Michael J. Morrissey | 1,733 |
| Cynthia S. Nicholson | 1,733 |
| Ronald L. O’Kelley | 0 |
| William M. Rue | 1,733 |
| John S. Scheid | 1,733 |
| J. Brian Thebault | 1,733 |
| Philip H. Urban | 1,733 |
* No Directors held any outstanding stock options as of December 31, 2020.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Salary and Employee Benefits Committee: (i) was a Selective officer or employee in 2019;2020; (ii) is a former Selective officer; or (iii) entered into any transaction in 20192020 requiring disclosure under the section entitled, “Transactions with Related Persons.”
No Selective executive officer served as a member of the compensation committee of another entity, or as a director of another entity, one of whose executive officers served on the Salary and Employee Benefits Committee or as a director of Selective.
The Salary and Employee Benefits Committee establishes general executive compensation policies and establishes the salaries and bonuses of Selective’s executive officers, including the Chief Executive Officer. The Salary and Employee Benefits Committee:Committee (i) has reviewed and discussed the Compensation Discussion and Analysis with management;management, and (ii) based on this review and discussion, recommended to the Board of Directors, and the Board approved, the inclusion of the Compensation Discussion and Analysis in Selective’s Annual Report on Form 10-K for the year ended December 31, 20192020 and this Proxy Statement.
Submitted by the Salary and Employee Benefits Committee of Selective’s Board of Directors,
| Stephen C. | |
| Lisa Rojas Bacus | Cynthia S. Nicholson |
| John C. Burville | J. Brian Thebault |
| Terrence W. Cavanaugh | |
The Compensation Committee Report does not constitute soliciting material, and it shall not be deemed to be filed or incorporated by reference into any other Selective filing under the Securities Act of 1933, as amended (“Securities Act”), or the Exchange Act, except to the extent that Selective specifically incorporates the Compensation Committee Report by reference therein.
Page 67
As required under the Dodd-Frank Act, our Board of Directors provides Selective’s stockholders the opportunity to vote annually to approve, on an advisory (non-binding) basis, the compensation of our named executive officers disclosed pursuant to the compensation disclosure rules of the SEC (also referred to as say-on-pay). Although the vote is non-binding, the Board and the SEBC value theour stockholders’ opinions of our stockholders and will consider the outcome of this vote when making future compensation decisions for named executive officers. In 2019,2020, our stockholders overwhelmingly supported our compensation decisions, with approximately 97%98% of votes cast voting in favor of our say-on-pay proposal.
We urge stockholders to read the Compensation Discussion and Analysis section of this Proxy Statement, which discusses our compensation philosophy, policies, and procedures. The following resolution is being submitted to stockholders for approval at the Annual Meeting pursuant to Section 14A of the Exchange Act:
“RESOLVED, that the stockholders of Selective Insurance Group, Inc. (“Selective”) approve, on an advisory basis, the 20192020 compensation of Selective’s named executive officers as such compensation is disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K or any successor thereto.”
If a majority of stockholders vote against this proposal, neither the Board nor the SEBC will be required to take any specific action because this vote is non-binding and advisory. Nonetheless, consistent with our record of stockholder responsiveness, the SEBC will consider our stockholders’ concerns and take them into account in future determinations concerning our executive compensation programs. The Board of Directors recommends you indicate your support for the compensation of our named executive officers as outlined in the above resolution.
Board Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE ADVISORY RESOLUTION APPROVING THE 20192020 COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.
Approval of Amendment and Restatement of the Company’s Employee
Stock Purchase Plan to Increase the Number of Authorized
Shares Issuable and to Make Certain Other Administrative Changes
On January 28, 2021, the Board of Directors adopted, subject to stockholder approval and based on the SEBC’s recommendation, the Selective Insurance Group, Inc. Employee Stock Purchase Plan, as amended and restated (the “Amended ESPP”), and directed that this proposal to approve the Amended ESPP be submitted to our stockholders for their approval at the Annual Meeting. Under this proposal, we are asking you to approve the Amended ESPP, including an increase in the number of shares of our common stock authorized for issuance thereunder by 1,000,000, and to make certain other administrative changes. If approved by stockholders at the Annual Meeting, the Amended ESPP will become effective July 1, 2021.
The Board believes that stockholder approval of the Amended ESPP will provide a greater community of interest between Selective stockholders and the employees of Selective and its subsidiaries, and facilitate the purchase by employees of shares of our common stock. The ESPP offers eligible employees of Selective and designated subsidiaries the opportunity to purchase shares of our common stock at a discounted price through regular payroll deductions. Accordingly, the ESPP provides such eligible employees with the opportunity to become stockholders of Selective and participate in our success, which aligns their interests with those of our stockholders and provides an incentive for them to promote our continued success. Participation in the ESPP is entirely voluntary.
As of March 5, 2021, there were 257,347 shares of our common stock available for future purchase under the current ESPP. The Board believes that additional shares of common stock are needed for issuance under the Amended ESPP so that the ESPP can continue to be used as a method to attract, motivate, and retain the best available talent suitable for the success of our business. Based on past participation rates, the company believes that the addition of 1,000,000 shares of common stock will be sufficient for purchases under the Amended ESPP for approximately six more years. However, the actual number of shares utilized will depend on various factors,
Page 68
including employee participation levels and our common stock price. The proceeds Selective receives from the sale of common stock under the Amended ESPP may be used for any corporate purpose.
The Amended ESPP is intended to be an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). The Amended ESPP is not subject to the provisions of the Employee Retirement Income Security Act of 1974, nor is it qualified as a pension, profit-sharing, or stock bonus plan under Section 401(a) of the Code. The Amended ESPP will supersede and replace in its entirety the Selective Employee Stock Purchase Plan (2009) in effect until July 1, 2021.
Summary of the Amended ESPP
The material terms and conditions of the Amended ESPP are described below. This summary is not intended to be a complete description of all provisions of the Amended ESPP and is qualified in its entirety by reference to the full text of the Amended ESPP, a copy of which is attached to this Proxy Statement as Appendix A.
Material Features of the Amended ESPP
Twice a year, the ESPP provides eligible employees the opportunity to purchase shares of our common stock through payroll deductions at a price equal to the lesser of 85% of the fair market value of a share of our common stock on the first day of the offering period and 85% of the fair market value of a share of our common stock on the last day of the offering period. Up to 4,500,000 shares of our common stock are currently authorized for issuance under the ESPP. If the Amended ESPP is approved by stockholders at the Annual Meeting, an additional 1,000,000 shares of common stock will be available for issuance under the Amended ESPP, bringing the total number of shares of common stock that have been authorized for issuance under the ESPP to 5,500,000 shares, subject to adjustment as provided in the Amended ESPP pursuant to anti-dilution provisions.
Administration
The Amended ESPP will be administered by the SEBC. The SEBC has the full and exclusive discretionary authority to administer the Amended ESPP, to construe, interpret, and apply its terms, determine eligibility to participate in the Amended ESPP, adjudicate all disputed claims made with respect to the Amended ESPP, and to adopt rules and regulations necessary to administer the Amended ESPP.
Term of the Amended ESPP
Subject to stockholder approval at the Annual Meeting, the Amended ESPP will become effective on July 1, 2021. The Board has the right to suspend or terminate the Amended ESPP at any time and for any reason. To the extent any suspension or termination of the Amended ESPP were to occur while an offering was in progress, the SEBC either will shorten such offering period by setting a new exercise date before such suspension or termination occurs, or will refund to each participant the balance, if any, of each participant’s account, without interest.
The SEBC also may take certain actions, without regard to any adverse effect on participant rights, as permitted by the terms of the Amended ESPP, including changing the timing of an offering period.
Eligibility
Any person who is an employee of the company or of a participating subsidiary and who is a regularly scheduled full-time or regularly scheduled part-time employee, or who is customarily employed more than twenty hours per week, is eligible to participate in the Amended ESPP. However, seasonal employees (employees whose customary employment is for not more than five months in any calendar year) are not eligible to participate in the Amended ESPP.
In addition, an employee may not participate in an offering under the Amended ESPP if the purchase would cause the employee to own shares and/or options to purchase shares representing 5% or more of the total combined voting power or value of all classes of stock of Selective or any subsidiary or parent of Selective.
Any eligible employee may become a participant in the Amended ESPP by enrolling in the Amended ESPP and authorizing payroll deductions before the offering period begins. Once an employee becomes a participant, payroll deductions continue for all subsequent offering periods unless a participant discontinues his or her participation in the Amended ESPP. Eligible employees may not transfer their rights under the Amended ESPP, other than by will or the laws of descent or distribution.
Page 69
As of March 5, 2021, 2,392 employees were eligible to participate in the current ESPP, with approximately 847 employees actually participating. The closing price of our common stock on Nasdaq on March 5, 2021 was $71.24.
Offerings under the Amended ESPP
Amended ESPP offerings are made on the first business day of January and July each year. An offering gives each eligible employee the opportunity to buy shares of our common stock at a 15% discount from “fair market value.” Purchases under the Amended ESPP are made by means of payroll deductions over a six-month option period beginning on the first business day in January and July and ending on the last business day in the following June and December, respectively, of the applicable year. Upon enrollment in the Amended ESPP, a participant shall authorize the company to make payroll deductions of a whole percentage of his or her base pay each payroll period at a rate not to exceed 10% of his or her payroll period base pay. A participant may not increase or decrease the percentage of the payroll deduction during an offering period. However, a participant may change the percentage of the payroll deduction prior to the commencement of an offering period. For a participating employee, the amount in his or her account on the last day of the offering period (the last business day in June or December) is applied, without interest, to purchase whole or partial shares of our common stock, at a price equal to the lower of 85% of the fair market value of a share of our common stock on the first day of the offering period and 85% of the fair market value of a share of our common stock on the last day of the offering period.
However, no participant may purchase more than 2,400 shares of common stock in any one offering period, and no participant may be granted an option under the Amended ESPP that, together with purchase rights under any other Company “employee stock purchase plan,” accrues at a rate exceeding $25,000 worth of stock (valued at the time the participant’s option is granted) for each calendar year during which the option is outstanding.
Termination of Participation
Participants may not alter the rate of payroll deductions during an offering period, but may entirely discontinue their participation in the Amended ESPP for an offering period no later than fourteen (14) business days before the last day of the offering period. If a participant withdraws from an offering period, his or her option for the offering period will terminate, all of his or her payroll deductions will be refunded as soon as administratively practicable, without interest, and further payroll deductions will cease. A participant who has previously withdrawn from an offering period may re-enter the Amended ESPP by enrolling for a subsequent offering period.
Upon termination of a participant’s employment with the company and its participating subsidiaries during an offering period for any reason, including death, the payroll deductions credited to the participant’s account for the offering period will be automatically returned to him or her (or in the event of the participant’s death, to his or her estate) in cash, without interest.
Amendment of the Amended ESPP
The Board may amend the Amended ESPP at any time and in any respect, except that stockholder approval is required for any such amendment that increases the number of shares authorized for issuance under the Amended ESPP or for any such amendment that would cause the Amended ESPP to fail to continue to qualify as an “employee stock purchase plan” under Section 423 of the Code.
Certain Federal Income Tax Consequences
The following is a brief description of the U.S. federal income tax consequences generally arising with respect to options that may be granted under the Amended ESPP. There may be different tax consequences under certain circumstances, and there may be federal gift and estate tax consequences and state, local, and foreign tax consequences. This discussion is intended for the information of the stockholders considering how to vote at the Annual Meeting and not as tax guidance to individuals who will participate in the Amended ESPP.
The Amended ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. Under such an arrangement, no taxable income will be recognized by a participant upon either the grant or the exercise of an option to purchase shares during an offering period. Taxable income will not be recognized until there is a sale or other disposition of the shares acquired under the Amended ESPP or unless the participant dies while still owning the purchased shares.
Page 70
The tax consequences to a participant of a disposition of shares vary depending on the period the stock is held before its disposition. If a participant disposes of shares within two years after the first day of the offering period (the “grant date”) or within one year after the date on which the shares are acquired (a “disqualifying disposition”), the participant will recognize ordinary income in the year of disposition in an amount equal to the difference between the fair market value of the shares on the exercise date (or, if less, the sale price of the shares) and the purchase price. The company will be entitled to a corresponding deduction. Any additional gain or resulting loss recognized by the participant from the disposition of the shares is a capital gain or loss.
If the participant disposes of the shares at least two years after the grant date and at least one year after the date on which the shares are acquired, the participant recognizes ordinary income in the year of disposition in an amount equal to the lesser of:
| (i) | the difference between the fair market value of the shares on the date of disposition and the purchase price; and |
| (ii) | the difference between the fair market value of the shares on the grant date and the purchase price (determined by applying any discounted purchase price as if the option were exercised on the grant date). |
Any additional gain recognized by the participant on the disposition of the shares is a capital gain. If the fair market value of the shares on the date of disposition is less than the purchase price, there is no ordinary income, and the loss recognized is a capital loss. The company will not be entitled to any tax deduction with respect to a disposition of shares by a participant after the two-year and one-year holding periods described above.
If the participant still owns the shares at the time of his or her death, the lesser of the following amounts is recognized as ordinary income in the year of the participant’s death:
| (i) | the difference between the fair market value of the shares on the date of death and the purchase price; and |
| (ii) | the difference between the fair market value of the shares on the grant date and the purchase price (determined as if the option were exercised on the grant date). |
A capital gain or loss will be long-term if the participant holds the shares for more than twelve months and short-term if the participant holds the shares for twelve months or less.
New Plan Benefits
Participation in the Amended ESPP is voluntary and each eligible employee will make his or her own decision regarding whether and to what extent to participate in the Amended ESPP. It is therefore not possible to determine the benefits or amounts that will be received in the future by individual employees or groups of employees under the Amended ESPP.
Stockholder Approval Required
Approval of the Amended ESPP requires the affirmative vote of a majority of the votes cast at the Annual Meeting. For more information, please see the section entitled “Proposals for Stockholder Vote and Approval Requirements” of this Proxy Statement.
Board Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE PROPOSAL TO APPROVE THE AMENDED ESPP TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE THEREUNDER AND TO MAKE CERTAIN OTHER ADMINISTRATIVE CHANGES.
Page 71
Ratification of Appointment of
Independent Registered Public Accounting Firm
The Audit Committee has appointed KPMG LLP to act as Selective’s independent registered public accounting firm for the fiscal year ending December 31, 2020.2021. The Audit Committee monitors the independence of the independent registered independentpublic accounting firm and compliance with auditor partner rotation requirements. Upon the recommendation of the Audit Committee, the Board of Directors has approved the appointment and has directed that the appointment be submitted to Selective’s stockholders for ratification at the Annual Meeting.
Stockholder ratification of the appointment of KPMG LLP as Selective’s independent registered public accounting firm is not required. The Board of Directors, however, is submitting the appointment to our stockholders for ratification as a matter of good corporate practice. If our stockholders do not ratify the appointment, the Audit Committee and the Board of Directors will reconsider whether to retain KPMG LLP or another firm. Even if our stockholders ratify the appointment, the Board of Directors may direct the appointment of a different auditing firm at any time during the 20202021 fiscal year if the Board determines that such a change would be in the best interests of Selective and our stockholders.
RepresentativesWe expect that a representative of KPMG LLP are expected to be present atwill participate in the Annual Meeting. TheyMeeting by virtually attending and the representative will have an opportunity to make a statement, if theyhe or she so desire,desires, and will be available to respond to appropriate questions.
Board Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020.2021.
FEES OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP, Selective’s independent registered public accounting firm, provided services in the following categories and amounts in 20192020 and 2018:2019:
| Category | 2019 | 2018 | 2020 | 2019 |
| Audit Fees | $1,802,500 | $1,680,000 | $1,840,000 | $1,802,500 |
| Audit-Related Fees | $94,000 | $90,000 | $0 | $94,000 |
| Tax Fees | $17,344 | $6,370 | $5,057 | $17,344 |
| All Other Fees | $440,541 | $97,594 | $293,413 | $440,541 |
| TOTAL | $2,354,385 | $1,873,964 | $2,138,470 | $2,354,385 |
| (1) | Audit fees include fees associated with the issuance of comfort letters in both years. |
| (2) | Audit-Related Fees |
| Tax Fees for |
| All Other Fees for |
The Audit Committee has a pre-approval policy that requires pre-approval of audit, audit-related, and permitted non-audit services on an annual basis and authorizes the Audit Committee to delegate, to one or more of its members, pre-approval authority with respect to permitted services. The Audit Committee delegated the authority to pre-approve audit, audit-related, and permitted non-audit services by KPMG LLP to the Audit Committee Chairperson, who is required to report any pre-approvals to the Audit Committee for ratification at its next meeting. In 2019,2020, the Audit Committee pre-approved 100% of audit, audit-related, and permitted non-audit services, and concluded that KPMG LLP’s provision of such services was compatible with the maintenance of KPMG LLP’s independence in the conduct of its auditing functions.
Page 72
The Audit Committee oversees Selective’s financial reporting processes on behalf of the Board of Directors. Management has the primary responsibility for overseeing the preparation of the financial statements and the overall reporting processes, including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee has:
| § | Periodically met with and held discussions with management regarding the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in Selective’s financial statements. |
| § | Reviewed and discussed the audited financial statements for the year ended December 31, |
| § | Reviewed and discussed with KPMG LLP, Selective’s independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of those audited financial statements in accordance with U.S. generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of Selective’s accounting principles and such other matters as are required to be discussed with the Audit Committee under Statements of the Public Company Accounting Oversight Board, including the Statement on Auditing Standards No. 1301, “Communications with Audit Committees” as adopted by the Public Company Accounting Oversight Board, as may be modified or supplemented. |
| § | Received the written disclosures and the letter from KPMG LLP required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence and |
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board approved, the inclusion of the audited financial statements in Selective’s Annual Report on Form 10-K and any amendments thereto for the year ended December 31, 2019.2020.
Submitted by the Audit Committee of Selective’s Board of Directors,
| John S. Scheid, Chairperson | Robert Kelly Doherty |
| Ainar D. Aijala, Jr. | Thomas A. McCarthy |
| John C. Burville | H. Elizabeth Mitchell |
| Terrence W. Cavanaugh | Philip H. Urban |
The Audit Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other Selective filing under the Securities Act or the Exchange Act, except to the extent that Selective specifically incorporates the Audit Committee Report by reference therein.
Page 73
STOCKHOLDER PROPOSALS AND NOMINATIONS
Proposals for Inclusion in 20212022 Proxy
From time to time, stockholders present proposals that may be proper subjects for inclusion in the proxy statement and for consideration at an annual meeting. Under SEC rules, in order to be included in the proxy statement for the 20212022 Annual Meeting of Stockholders, stockholder proposals submitted under Exchange Act Rule 14a-8 must be received no later than November 25, 202024, 2021 by Selective’s Corporate Secretary at 40 Wantage Avenue, Branchville, New Jersey 07890.
Other Proposals and Nominations
Selective’s By-Laws require that a stockholder who otherwise intends to: (i) present a proposal outside of Rule 14a-8 under the Exchange Act; or (ii) nominate a director, must deliver notice to the Corporate Secretary, in proper written form and in accordance with the requirements of the By-Laws, not less than 120 days nor more than 150 days prior to the first anniversary of the preceding year’s annual meeting. Accordingly, a notice of a stockholder proposal for the 20212022 Annual Meeting of Stockholders, submitted outside of Rule 14a-8 under the Exchange Act, will be untimely if received by the Corporate Secretary before November 30, 202029, 2021 or after December 30, 2020.29, 2021.
* * * * * * * *
It is important that your shares be represented at the meeting, regardless of the number of shares that you hold. ACCORDINGLY, YOU ARE URGED TO PROMPTLY VOTE YOUR SHARES BY: (1) COMPLETING, DATING, AND SIGNING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED ENVELOPE; (2) CALLING THE TOLL-FREE TELEPHONE NUMBER LISTED ON THE PROXY CARD; OR (3) ACCESSING THE INTERNET WEBSITEWEB SITE LISTED ON THE PROXY CARD. Stockholders who are present at the meeting may revoke their proxies and vote in person or, if they prefer, may abstain from voting in person and allow their proxies to be voted.
By Order of the Board of Directors:
Robyn P. Turner Corporate Secretary March 24, 2021 Branchville, New Jersey
|
Page 74
DIRECTIONS
Selective Insurance Group, Inc.Directions to Principal Offices40 Wantage AvenueBranchville, New Jersey 07890-1000
From East:Appendix A
Route I-80 West to Route 15 North to Route 206 North. Go about 2 miles from Route 15/Route 206 intersection, turn right at traffic light opposite “Our Lady Queen of Peace” Catholic church, then left on Route 630 (Broad Street). Turn right at Post Office onto Wantage Avenue (Route 519). Take second entrance on right - Corporate office/main reception area.SELECTIVE INSURANCE GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN (2021)
From West:Amended and Restated Effective July 1, 2021
Route I-80 East to Route 94 North to Route 206 North. Turn right at Branchville traffic light opposite “Our Lady Queen of Peace” Catholic church, then left on Route 630 (Broad Street). Turn right at Post Office onto Wantage Avenue (Route 519). Take second entrance on right - Corporate office/main reception area.ARTICLE I
Establishment and Purpose
| 1.1. | Selective Insurance Group, Inc. (the “Company” or “Selective”) has established the Employee Stock Purchase Plan (the “Plan”) to provide a greater community of interest between Selective stockholders and the employees of Selective and its subsidiaries which adopt the Plan, and to facilitate the purchase by employees of shares of common stock of Selective. The Company intends that the Plan qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended. |
- or -
| 1.2. | The Plan, as amended and restated, is effective July 1, 2021, subject to approval by the Company’s stockholders at the Company’s 2021 annual meeting of stockholders, and is renamed the “Selective Insurance Group, Inc. Employee Stock Purchase Plan (2021).” |
ARTICLE II
Definitions
Route I-78 East to PA Route 611 North to Route 94 North to Route 206 North. Turn right at Branchville traffic light opposite “Our Lady Queen of Peace” Catholic church, then left on Route 630 (Broad Street). Turn right at Post Office onto Wantage Avenue (Route 519). Take second entrance on right - Corporate office/main reception area.
| 2.1. | “Account” means a bookkeeping account established by the Company with respect to the funds that are accumulated for each individual Participant as a result of payroll deductions for the purpose of purchasing Shares under the Plan. The funds that are allocated to a Participant's Account may be commingled with the general funds of the Company. |
- or -
| 2.2. | “Acquisition” means a merger or consolidation of Selective with and into another person or the sale, transfer, or other disposition of all or substantially all of the assets of Selective to one or more persons (other than any wholly-owned subsidiary of Selective) in a single transaction or series of related transactions. |
Route I-78 East to Route 31 North to Route 46 West to Route 94 North to Route 206 North. Turn right at Branchville traffic light opposite “Our Lady Queen of Peace” Catholic church, then left on Route 630 (Broad Street). Turn right at Post Office onto Wantage Avenue (Route 519). Take second entrance on right - Corporate office/main reception area.
| 2.3. | “Base Pay” means the portion of a Participant’s regular base salary, earnings or wages paid to the Participant during the applicable payroll period, excluding payments for overtime, bonuses and other incentive compensation, commissions, pension, welfare and fringe benefits. |
From North:
| 2.4. | “Board” means the Board of Directors of Selective. |
Route I-84 (East or West) to PA Route 209 South to Route 206 South. Turn left at Branchville traffic light opposite “Our Lady Queen of Peace” Catholic church, then turn left on Route 630 (Broad Street). Turn right at Post Office onto Wantage Avenue (Route 519). Take second entrance on right - Corporate office/main reception area.
| 2.5. | “Code” means the Internal Revenue Code of 1986, as amended. |
From South:
| 2.6. | “Commencement Date” with respect to an Option means the first day of the Offering Period in which such Option was granted. |
| 2.7. | “Committee” means the Salary and Employee Benefits Committee of the Board. |
Route 206 North or Route I-80 West to Route 15 North to Route 206 North. Turn right at Branchville traffic light opposite “Our Lady Queen of Peace” Catholic church, then left on Route 630 (Broad Street). Turn right at Post Office onto Wantage Avenue (Route 519). Take second entrance on right - Corporate office/main reception area.
| 2.8. | “Designated Subsidiary” means any Subsidiary that the Committee has designated from time to time, in its sole discretion, as eligible to participate in the Plan. |
| 2.9. | “Employee” means any common law employee of the Company or a Designated Subsidiary, including an officer or a member of the Board who is a common law employee, who is customarily employed by the Company or a Designated Subsidiary more than five (5) months in a calendar year, and who (i) is regularly scheduled to work on a full-time basis; (ii) is regularly scheduled to work on a part-time basis; or (iii) is not regularly scheduled to work on either a full-time or part-time basis, but is customarily employed more than twenty (20) hours per week, all as set forth in the books and records of the Company or a Designated Subsidiary. |
Page A-1
| 2.10. | “Exercise Date” with respect to any Option means the last day of the Offering Period in which such Option was granted. |
| 2.11. | “Fair Market Value” of the Shares on any given date shall be calculated as follows: (i) if the Shares are listed on a national securities exchange and sale prices are regularly reported for the Shares, then the Fair Market Value shall be the closing selling price for a Share reported on the applicable composite tape or other comparable reporting system on the applicable date, or, if the applicable date is not a trading day, on the most recent trading day immediately prior to the applicable date; or (ii) if closing selling prices are not regularly reported for the Shares as described in clause (i) above but bid and asked prices for the Shares are regularly reported, then the Fair Market Value shall be the arithmetic mean between the closing or last bid and asked prices for the Shares on the applicable date or, if the applicable date is not a trading day, on the most recent trading day immediately prior to the applicable date; or (iii) if prices are not regularly reported for the Shares as described in clause (i) or (ii) above, then the Fair Market Value shall be such value as the Committee in good faith determines. |
| 2.12. | “Offering Period” means any of the successive six-month offerings (the “Offerings”), with a new Offering commencing on January 1 and July 1 of each year, for purposes of purchasing Shares by Participants under the Plan, as described in Section 4.1. Each Offering commencing on January 1 of each year shall end on June 30 of that year, and each Offering commencing on July 1 of each year shall end on December 31 of that year. |
| 2.13. | “Option” means the right to purchase Shares under the Plan. |
| 2.14. | “Parent” means a parent, as that term is defined under Section 424(e) of the Code. |
| 2.15. | “Participant” means an Employee who has elected to participate in the Plan in accordance with Article V. |
| 2.16. | “Plan” means this Selective Insurance Group, Inc. Employee Stock Purchase Plan (2021), as amended from time to time. |
| 2.17. | “Shares” mean shares of common stock of the Company, par value $2.00 per share, subject to adjustments which may be made in accordance with Article XV. |
| 2.18. | “Subsidiary” means a “subsidiary corporation” of the Company, as that term is defined under Section 424(f) of the Code. |
ARTICLE III
Eligibility
| 3.1. | Any person who is an Employee during the enrollment period established by the Committee for an Offering Period and as of the first day of an Offering Period, shall be eligible to participate in the Plan with respect to such Offering Period, subject to the limitations imposed by Section 423 of the Code. |
| 3.2. | Notwithstanding any provision of the Plan to the contrary, no Employee shall be granted an Option: |
| (i) | if such Employee, immediately after the Option is granted, owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of Selective or of any Parent or Subsidiary (taking into account stock which would be attributed to such Employee pursuant to Section 424(d) of the Code); or |
| (ii) | that gives the Employee the right to purchase stock under all “employee stock purchase plans” (within the meaning of Section 423 of the Code) of Selective and its Parents and Subsidiaries, including the Plan, to accrue at a rate which exceeds $25,000 of the Fair Market Value of such stock (determined as of the Commencement Date of the Offering Period to which the Option relates) for each calendar year in which such Option is outstanding at any time. The term “accrue” shall be interpreted in accordance with Section 423(b)(8) of the Code and the regulations thereunder. |
Page A-2
ARTICLE IV
Offering Periods
| 4.1. | Shares shall be offered for purchase under the Plan through a series of successive or non-overlapping Offering Periods until such time as: (i) the maximum number of Shares available for issuance under the Plan shall have been purchased; or (ii) the Plan shall have been sooner terminated. Each Offering Period shall be of such duration (not to exceed twelve (12) months) and commence on such dates as determined by the Committee prior to the Commencement Date of such Offering Period. At any time and from time to time, the Committee may change the duration and/or the frequency of Offering Periods or suspend operation of the Plan with respect to Offering Periods not yet commenced. Unless otherwise determined by the Committee from time to time, an Offering Period shall commence on the first business day in January and July of each year and end on the last business day in the following June and December, respectively. |
| 4.2. | The Committee may at any time suspend any Offering Period if required by law or if the Committee shall deem such suspension to be in the best interests of the Company. |
ARTICLE V
Participation
| 5.1. | Any person who is an Employee during the enrollment period established by the Committee for an Offering Period and as of the Commencement Date of an Offering Period may become a Participant in the Plan for such Offering Period by enrolling in the Plan and authorizing payroll deductions prior to the Commencement Date of such Offering Period in the manner provided by the Committee from time to time. |
| 5.2. | Participation in one Offering Period under the Plan shall neither limit, nor require, participation in any other Offering Period. |
| 5.3. | Participation in the Plan shall be voluntary. |
ARTICLE VI
Payroll Deductions
| 6.1. | Upon enrollment in the Plan, a Participant shall authorize the Company to make payroll deductions of a whole percentage of his or her Base Pay each payroll period at a rate not in excess of ten percent (10%) of such payroll period Base Pay. The Committee may, from time, change the limitations on the maximum and/or minimum percentage or amount of payroll deductions that may be made by Participants; provided, however, that, except as provided in Articles XII and XV, a Participant's existing rights under any Offering Period that has already commenced may not be adversely affected by such change. |
| 6.2. | Payroll deductions for a Participant shall commence with the first regular payroll date occurring on or after the Commencement Date of the Offering Period for which a payroll deduction authorization has been filed. Payroll deductions shall end on the last payroll date that is on or prior to the Exercise Date, unless the Participant has discontinued his or her participation in the Plan with respect to that Offering Period earlier as provided in Article IX. |
| 6.3. | At the conclusion of each Offering Period, the Company shall automatically re-enroll each Participant in the next Offering Period, and payroll deductions shall continue at the rate selected by the Participant in his or her payroll deduction authorization for the prior Offering Period, unless the Participant discontinues his or her participation in the Plan earlier as provided in Article IX. |
| 6.4. | All payroll deductions made for a Participant shall be credited to a payroll deduction Account. The Participant may not make any separate cash payments into such Account nor may payment for Shares be made from other than the Participant's Account. |
| 6.5. | A Participant may elect to discontinue his or her participation in the Plan and terminate his or her payroll deduction authorization as provided in Article IX, but may not alter the amount or rate of payroll deductions during an Offering Period or make any other change during an Offering Period. |
Page A-3
| 6.6. | No interest will be paid or allowed in respect of any payroll deduction amount under any circumstances. |
| 6.7. | Notwithstanding anything in this Article VI to the contrary, to the extent necessary to comply with Section 423(b)(3) or Section 423(b)(8) of the Code and Section 3.2 herein, a Participant may be excluded from participating in an Offering Period, or a Participant's payroll deductions may be limited, decreased or terminated during any Offering Period. Except to the extent required to ensure compliance with Section 423(b)(3) or Section 423(b)(8) of the Code and Section 3.2 herein, payroll deductions limited, decreased or terminated pursuant to this Section 6.7 shall re-commence automatically at the rate provided in such Participant's payroll deduction authorization at the beginning of the next Offering Period, unless terminated by the Participant as provided in Article IX or modified by the Participant with respect to the next Offering Period. |
ARTICLE VII
Terms and Conditions of Options
| 7.1. | Options granted pursuant to the Plan shall be evidenced by agreements, if any, in such form, including electronic form, as the Committee shall require, and shall comply with and be subject to the terms and conditions set forth in this Article VII. All Employees shall have the same rights and privileges under the Plan. |
| 7.2. | On the Commencement Date of each Offering Period, Selective shall grant to each Participant in such Offering Period an Option to purchase as many full or fractional Shares as may be purchased by such Participant with the amount credited to his or her Account at the Exercise Date for such Option, subject to the limitations of Section 7.4. A Participant shall be granted a separate purchase right for each Offering Period in which he participates. |
| 7.3. | The Option price of the Shares shall be the lower of: |
| (i) | 85% of the Fair Market Value of the Shares on the Commencement Date of the Offering Period; and |
| (ii) | 85% of the Fair Market Value of the Shares on the Exercise Date for the Offering Period. |
| 7.4. | In no event may the number of Shares purchased by any Participant during an Offering Period exceed 2,400 shares, as the same may be adjusted pursuant to Article XV. |
ARTICLE VIII
Exercise of an Option
| 8.1. | Unless a Participant has received a refund of or withdrawn the balance of his or her Account pursuant to Article IX, his or her Option for the purchase of Shares will be exercised automatically on the Exercise Date, and the maximum number of Shares shall be purchased at the applicable Option price with the accumulated payroll deductions in his or her Account. |
| 8.2. | Any balance remaining in any Participant’s Account at the Exercise Date of an Offering Period equaling less than the sum required to purchase a full Share shall be used to purchase fractional Shares. |
ARTICLE IX
Withdrawal or Termination
| 9.1. | Upon termination of a Participant’s employment with the Company and Subsidiaries for any reason, including death, prior to an Exercise Date for an Offering Period, the payroll deductions credited to the Participant's Account for such Offering Period shall be returned to him or her (or, in the event of the Participant's death, to his or her estate) in cash, without interest. |
Page A-4
| 9.2. | Subject to rules and procedures adopted by the Committee, a Participant may withdraw all but not less than all of the balance in his or her Account and thereby withdraw from participation in the Plan with respect to an Offering Period by giving written notice to the Committee no later than fourteen (14) business days prior to the last day of the Offering Period. Upon receipt of such notice: (a) the Participant’s Option for the Offering Period shall automatically terminate; (b) no further contributions to his or her Account shall be permitted for such Offering Period; and (c) as soon as administratively practicable, the Company shall refund to the Participant the funds that remain in the Participant's Account, without interest. |
| 9.3. | An Employee who has previously withdrawn from the Plan may re-enter by complying with the requirements of Article V. Upon compliance with such requirements, an Employee's re-entry into the Plan will become effective on the Commencement Date of the next Offering Period following the date the Employee complies with Article V with respect to the re-entry. |
ARTICLE X
Shares Under Option
| 10.1. | Subject to adjustment pursuant to Article XV, the aggregate number of Shares available for issuance under the Plan shall be 5,500,000, which amount is inclusive of 1,000,000 Shares to be made available as of July 1, 2021 and all Shares previously authorized under the Plan. The Shares to be sold to Participants under this amended and restated Plan may, at the election of the Board, be either treasury Shares, Shares originally issued for such purpose, or issued and outstanding Shares purchased for such purpose in the open market. |
| 10.2. | If for any reason any Option under the Plan terminates or is cancelled in whole or in part, Shares that may have been purchased upon the exercise of such Option may be made subject to another Option under the Plan. |
| 10.3. | If, on any date, the total number of Shares for which outstanding Options have been granted exceeds the number of Shares then available under this Article X after deduction of all Shares that have been purchased under the Plan, the Committee shall make a pro-rata allocation of the Shares that remain available in as nearly a uniform manner as shall be practicable and as it shall determine, in its sole judgment, to be equitable. In such event, the number of Shares each Participant may purchase shall be reduced and the Committee shall give to each Participant a written notice of such reduction. |
| 10.4. | Selective shall deliver, or cause to be delivered, to each Participant, as promptly as practicable after any Exercise Date, a statement indicating the number of Shares, including any fractional Shares, purchased upon exercise of his or her Option that are being held in an account established by Selective for and in the Participant’s name. |
| 10.5. | A Participant will have no interest in Shares covered by his or her Option, and will have no rights as a stockholder and no voting rights with respect to any such Shares, until such Option has been exercised and such Shares issued to the Participant. |
ARTICLE XI
Administration
| 11.1. | The Plan shall be administered by the Salary and Benefits Committee of Selective Insurance Group, Inc. For any period during which no such committee is in existence, “Committee” shall mean the Board, and all authority and responsibility assigned to the Committee under the Plan shall be exercised, if at all, by the Board. |
| 11.2. | The Committee shall be vested with full and exclusive discretionary authority to administer the Plan, to construe, interpret and apply its terms, to determine eligibility to participate in the Plan, to adjudicate all disputed claims made with respect to the Plan and to adopt such rules and regulations as it deems necessary to administer the Plan. Without limiting the generality of the foregoing, the Committee may, at any time, change the timing of an Offering Period, limit the frequency and/or number of changes in the amount withheld during an Offering Period, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company's processing of properly completed |
Page A-5
payroll deduction authorizations, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Shares for each Participant properly correspond with amounts withheld from the Participant's Base Pay, and establish such other limitations or procedures as the Committee determines in its sole discretion advisable which are consistent with the Plan.
| 11.3. | Any determination, decision, or action of the Committee with respect to the construction, interpretation, administration, or application of the Plan, any Option agreement entered into pursuant to the Plan or any other forms or procedures used in connection with or relating to the Plan shall be final, conclusive, and binding on all persons having or claiming any interest under this Plan. |
| 11.4. | The Committee may, at any time and in its sole discretion by action in writing, delegate to any individual, committee or entity any of its powers and responsibilities under the Plan. Without limiting the generality of the foregoing, the Committee may appoint an employee or employees of the Company and delegate to such employee(s) its authority to administer the day-to-day operations of the Plan. |
| 11.5. | In addition to such other rights of indemnification as they may have as directors, officers, employees or members of the Committee, the members of the Committee shall be indemnified by Selective against the reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them, or any of them, in settlement thereof (provided such settlement is approved by independent legal counsel selected by Selective) or in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Committee member is liable for negligence or misconduct in the performance of his or her duties; provided, that within 60 days after institution of any such action, suit or proceeding a Committee member shall in writing offer the Company the opportunity, at its own expenses, to handle and defend the same. |
ARTICLE XII
Amendment and Termination of the Plan
| 12.1. | The Board may amend the Plan at any time in such respects as it shall deem advisable; provided, however, that stockholder approval will be required for any amendment that will increase the total number of Shares as to which Options may be granted under the Plan or for any amendment which, without such stockholder approval, would cause this Plan to fail to continue to qualify as an "employee stock purchase plan" under Section 423 of the Code. |
| 12.2. | The Board may suspend or terminate this Plan at any time. Upon a suspension or termination of the Plan while an Offering Period is in progress, the Committee shall either shorten such Offering Period by setting a new Exercise Date before the date of such suspension or termination of the Plan, or shall refund to each Participant the balance, if any, of each Participant's Account, without interest. |
| 12.3 | Without stockholder consent and without regard to whether any Participant rights may be considered to have been adversely affected, the Committee, as administrator of the Plan, shall be entitled to make changes to the Offering Periods and other terms of participation in the Plan permitted by Article 11, including, without limitation, Section 11.2. |
ARTICLE XIII
Nontransferability
| 13.1. | Neither the Options, the payroll deductions credited to a Participant’s Account, nor any rights with regard to the exercise of an Option or the receipt of Shares under the Plan may be assigned, transferred, pledged, or otherwise disposed of in any way by a Participant, other than by will or the laws of descent or distribution, and any such attempted assignment, transfer, pledge, or other disposition shall be null and void and without effect, but Selective may treat such act as an election to withdraw from the Plan in accordance with Article IX. No Option may be exercised during a Participant’s lifetime by any person other than the Participant. |
Page A-6
| 13.2. | Unless otherwise determined by the Committee, Shares purchased under the Plan may be registered only in the name of the Participant, or, if such Participant so indicates on his or her payroll deduction authorization form, in his or her name jointly with a member of his or her family, with right of survivorship. A Participant who is a resident of a jurisdiction which does not recognize such a joint tenancy may have Shares registered in the Participant’s name as tenant in common with a member of the Participant’s family, without right of survivorship. |
ARTICLE XIV
Use of Funds
| 14.1. | All payroll deductions received or held by the Company under this Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to, and shall not, segregate such payroll deductions. On each Exercise Date, sufficient funds to acquire the number of Shares being purchased by the Participants employed by the Company shall be transferred to Selective by the Company which employs such Participants. |
ARTICLE XV
Adjustments upon Changes in Capitalization, Acquisitions, Etc.
| 15.1. | Subject to any required action by the stockholders of Selective, the number of Shares covered by each Option under the Plan which has not yet been exercised and the number of Shares which have been authorized for issuance under the Plan but have not yet been placed under Option (collectively, the “Reserves”), as well as the maximum number of Shares which may be purchased by a Participant in an Offering Period, the number of Shares set forth in Sections 7.4 and 10.1 above, and the price per Share covered by each Option which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of the issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares (including any such change in the number of Shares effected in connection with a change in domicile of Selective), or any other increase or decrease in the number of Shares effected without receipt of consideration by Selective; provided however, that conversion of any convertible securities of Selective shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. |
| 15.2. | In the event of a dissolution or liquidation of Selective, the Plan and the Offering Period then in progress will terminate immediately prior to the consummation of such action. Unless otherwise provided by the Committee, any outstanding Option granted with respect to the Offering Period then in progress will terminate immediately prior to the consummation of such action, and the entire amount credited to each Participant’s Account will be paid to him or her in cash without interest. |
| 15.3. | In the event of an Acquisition, each Option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a Parent or Subsidiary of such successor corporation. In the event that the successor corporation or Parent or Subsidiary of such successor corporation refuses to assume or substitute for outstanding Options, then the Committee shall provide for either (i) or (ii) below to occur: |
| (i) | The Offering Period then in progress shall be shortened and a new Exercise Date shall be set with respect to such Offering (the “New Exercise Date”), as of which date the Offering Period then in progress will terminate. The New Exercise Date shall be on or before the date of consummation of the transaction and the Committee shall notify each Participant in writing, at least ten (10) days prior to the New Exercise Date, that the Exercise Date for his or her Option has been changed to the New Exercise Date and that his or her Option will be exercised automatically on the New Exercise Date, unless prior to such date he has withdrawn from the Plan with respect to such Offering Period as provided in Article IX. |
| (ii) | The Offering Period then in progress will terminate immediately prior to the consummation of the Acquisition, any outstanding Option granted with respect to the Offering Period then in progress will terminate, and the entire amount credited to each Participant’s Account will be paid to him or her in cash without interest. |
Page A-7
For purposes of this Article XV, an Option granted under the Plan shall be deemed to be assumed, without limitation, if, at the time of issuance of the stock or other consideration upon an Acquisition, each holder of an Option would be entitled to receive upon exercise of the Option the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to the transaction, the holder of the number of Shares covered by the Option at such time (after giving effect to any adjustments in the number of Shares covered by the Option as provided for in this Article XV); provided, however, that if the consideration received in the transaction is not solely common stock of the successor corporation or its Parent, the Committee may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the Option to be solely common stock of the successor corporation or its Parent equal in Fair Market Value to the per Share consideration received by holders of Shares in the transaction.
| 15.4. | The Committee shall make an appropriate and proportionate adjustment, as determined in the exercise of its sole discretion, to the Reserves, as well as the price per Share and the kind of shares covered by each outstanding Option, in the event that Selective effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of Shares, and in the event of a merger or other consolidation of Selective with or into any other corporation. |
ARTICLE XVI
Registration and Qualification of Shares
| 16.1. | Shares shall not be issued with respect to an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. |
| 16.2. | As a condition to the exercise of an Option, the Committee may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Committee, such a representation is required by any of the aforementioned applicable provisions of law. |
ARTICLE XVII
Designation of Beneficiary
| 17.1. | A Participant may, if and to the extent permitted by the Committee, file a written designation of a beneficiary who is to receive any Shares and cash, if any, from the participant's Account under the Plan in the event of such Participant's death subsequent to the end of an Offering Period but prior to delivery to him or her of such Shares and cash. Any such beneficiary shall also be entitled to receive any cash from the Participant's Account under the Plan in the event of such Participant's death during an Offering Period. |
| 17.2. | Such designation of beneficiary may be changed by the Participant at any time by written notice to the Committee. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Committee shall deliver such Shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Committee), the Committee, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Committee, then to such other person as the Committee may designate. |
Page A-8
ARTICLE XVIII
Miscellaneous
| 18.1. | If a Participant disposes of any Shares received by him or her pursuant to an Option within two (2) years after the Commencement Date or within one (1) year after the Exercise Date of the Offering Period to which such Option relates, the Participant shall notify Selective in writing within 30 days after the date of any such disposition, and shall provide such details of the disposition, including the date of the disposition, as the Committee may require. |
| 18.2. | No provision of the Plan or transaction hereunder shall confer upon any Participant any right to be employed by the Company or any Subsidiary or affiliate thereof, or to interfere in any way with the right of the Company to increase or decrease the amount of any compensation payable to such Participant. |
| 18.3. | Each Participant who purchases Shares under the Plan shall thereby be deemed to have agreed that the Company shall be entitled to withhold, from any other amounts that may be payable to the Participant at or around the time of the purchase, such federal, state, local and foreign income, employment and other taxes which may be required to be withheld under applicable laws. In lieu of such withholding, the Company may require the Participant to remit such taxes to the Company as a condition of the purchase. |
| 18.4. | In the event that any provision of the Plan shall be declared illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan but shall be fully severable, and the Plan shall be construed and enforced as if such illegal or invalid provision had never been a part of the Plan. |
| 18.5. | The validity, construction, and effect of the Plan shall be determined in accordance with the laws of the State of New Jersey, without giving effect to principles of conflicts of laws, to the extent not preempted by federal law. |
Page A-9
VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 p.m. Eastern Time on April 28, 202027, 2021 for shares held directly and by 11:59 p.m. Eastern Time on April 26, 202025, 2021 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. During The Meeting - Go to www.virtualshareholdermeeting.com/SIGI2020SIGI2021 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 p.m. Eastern Time on April 28, 202027, 2021 for shares held directly and by 11:59 p.m. Eastern Time on April 26, 202025, 2021 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. SELECTIVE INSURANCE GROUP, INC. ATTN: ROBYN P. TURNER 40 WANTAGE AVENUE BRANCHVILLE, NJ 07890 TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: D32750-P50796 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY D03910-Z76742 SELECTIVE INSURANCE GROUP, INC. THE BOARD IS SUBJECT TO ANNUAL ELECTION BY THE STOCKHOLDERS. THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE FOLLOWING 17 NOMINATED DIRECTORS FOR A TERM OF ONE YEAR: 1. ELECTION OF DIRECTORS For ! ! ! ! ! ! ! ! ! ! ! ! ! Against ! ! ! ! ! ! ! ! ! ! ! ! ! Abstain ! ! ! ! ! ! ! ! ! ! ! ! ! Nominees: 1a. AINAR D. AIJALA, JR. For ! ! ! ! ! Against ! ! ! ! ! Abstain ! ! ! ! ! 1b. LISA ROJAS BACUS 1n. WILLIAM M. RUE 1c. JOHN C. BURVILLE 1o. JOHN S. SCHEID 1p. J. BRIAN THEBAULT 1d. TERRENCE W. CAVANAUGH 1e. WOLE C. COAXUM 1q. PHILIP H. URBAN 2. APPROVAL, ON AN ADVISORY BASIS, OF THE 2020 1f. ROBERT KELLY DOHERTY COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL, ON AN ADVISORY BASIS, OF THE 2020 COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS DISCLOSED IN THE PROXY STATEMENT. 1g. JOHN J. MARCHIONI 1h. THOMAS A. MCCARTHY 3. APPROV AL OF AMENDED AND REST A TED ! ! ! SELECTIVE INSURANCE GROUP, INC. ATTN: ROBYN P. TURNER 40 WANTAGE AVENUE BRANCHVILLE, NJ 07890 1a. JohnEMPLOYEE STOCK 1i. STEPHEN C. Burville 1e. Thomas A. McCarthy 1c. Robert Kelly Doherty 1g. MichaelMILLS PURCHASE PLAN (2021) THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE AMENDED AND RESTATED SELECTIVE INSURANCE GROUP, INC. EMPLOYEE STOCK PURCHASE PLAN (2021). 1j. H. ELIZABETH MITCHELL ! ! ! 1k. MICHAEL J. Morrissey 1j. William M. RueMORRISSEY 4. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2021. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED AS THE BOARD RECOMMENDS. 1l. GREGORY E. MURPHY 1m. CYNTHIA S. NICHOLSON Please sign exactly as your name(s) appear(s) on the Proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the Proxy. 1b. Terrence W. Cavanaugh 1f. H. Elizabeth Mitchell 1d. John J. Marchioni 1h. Gregory E. Murphy 1k. John S. Scheid 1i. Cynthia S. Nicholson 1l. J. Brian Thebault 1m. Philip H. Urban 1. Election of Directors 2. Approve, on an advisory basis, the 2019 compensation of Selective's named executive officers as disclosed in the accompanying proxy statement. 3. Ratify the appointment of KPMG LLP as Selective's independent registered public accounting firm for the fiscal year ending December 31, 2020. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED AS THE BOARD RECOMMENDS. Nominees: The Board of Directors Recommends a Vote "FOR" Each of the Nominees Listed in Item 1 and "FOR" Items 2 and 3. For Against Abstain Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
proxy D03911-Z76742 SELECTIVE INSURANCE GROUP, INC. ANNUAL MEETING OF STOCKHOLDERS Wednesday, April 29, 202028, 2021 9:00 AM Eastern Time Live via webcast at www.virtualshareholdermeeting.com/SIGI2020SIGI2021 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement, Annual Report and InsertShareholder Letter are available at www.proxyvote.com. D03911-Z76742D32751-P50796 proxy Selective Insurance Group, Inc. This proxy is solicited by the Board of Directors for use at the Annual Meeting on April 29, 2020.28, 2021. The shares of stock you hold in your account will be voted as you specify on the reverse side. If no choice is specified, the proxy will be voted FOR Items 1, 2, 3, and 3.4. By signing the proxy, you revoke all prior proxies and appoint Terrence W. CavanaughLisa Rojas Bacus and H. Elizabeth Mitchell,Stephen C. Mills, and each of them with full power of substitution, to vote your shares on the matters shown on the reverse side and any other matters which may come before the Annual Meeting and all adjournments. TO VOTE BY INTERNET OR TELEPHONE, SEE REVERSE SIDE OF THIS PROXY CARD. proxy