DEF 14A of Chubb Ltd

Filed Apr 2, 2019 · FY20180001193125-19-095642

Open on EDGAR

How We Use Peer Groups
How We Use Peer Groups We utilize two peer groups in order to (1) assess our financial performance against key metrics relative to our P&C insurance industry peers with whom we compete for business (Financial Performance Peer Group) and (2) align our compensation with companies of comparable size and complexity that we seek to be competitive with for talent and compensation purposes (Compensation Benchmarking Peer Group).
How We Use Peer Groups
| Financial Performance Peer Group* | Compensation Benchmarking Peer Group | | | • American International Group, Inc. • CNA Financial Corporation • The Hartford Financial Services Group, Inc. • The Travelers Companies, Inc. • Zurich Financial Services Group | • The Allstate Corporation • American Express Company • American International Group, Inc. • Aon plc • Bank of America Corporation • The Bank of New York Mellon • BlackRock, Inc. • Cigna Corp. | • Citigroup Inc. • The Goldman Sachs Group, Inc. • Marsh & McLennan Companies, Inc. • MetLife, Inc. • Morgan Stanley • Prudential Financial, Inc. • The Travelers Companies, Inc. |
How We Use Peer Groups
| XL Group plc was removed from the peer group due to its 2018 acquisition by AXA S.A. The Allstate Corporation has been added to this peer group for 2019. Allstate was not included in this peer group for 2018 and was not taken into account for purposes of evaluating Chubb’s 2018 relative performance against the Financial Performance Peer Group. For further information, see “How We Use Peer Group Data in Determining Compensation” in the Compensation Discussion & Analysis section of this proxy statement.* |
Long-Term Performance Highlights
Long-Term Performance Highlights Chubb has a distinguished and consistent track record of performance and outperformance relative to its insurance industry peers. The following charts reflect our performance across key financial and operating measures starting in 2004 when Evan Greenberg became CEO of the Company.
Long-Term Performance Highlights
| Core Operating Income | Core Operating ROE | | 2004-2018 Core Operating Income against Financial Performance Peer Group average (indexed to Chubb 2004 core operating income)* | 2004-2018 Core Operating ROE against Financial Performance Peer Group average | | | | | * Chubb core operating income grew from $1 billion in 2004 to $4.4 billion in 2018 (341%). Average peer generated only $609 million of core operating income in 2018 for every $1 billion of core operating income in 2004 (-39%). Zurich Financial Services Group is presented with net income because it does not use core operating income as a financial measure. | | | Total Shareholder Return | P&C Combined Ratio | | 2004-2018 TSR against Financial Performance Peer Group average* | 2004-2018 P&C Combined Ratio against Financial Performance Peer Group average | | | | | * An investment in one Chubb share on January 1, 2004 ($41.15) was worth $178.35 at December 31, 2018 (including dividend reinvestment), versus $88.47 for the same amount invested in the average share of our peers. | |
Long-Term Performance Highlights
Source: SNL and company disclosures
2018 Performance: Key Metrics and Strategic Achievements
2018 Performance: Key Metrics and Strategic Achievements The Compensation Committee evaluates our performance across the following key metrics relative to our Financial Performance Peer Group, Board-approved plan and prior year performance. Our relative performance averaged across the key metrics described below was at the 66th percentile of our Financial Performance Peer Group. Our results were impacted, although to a lesser extent than in 2017, by after-tax catastrophe losses of $1.35 billion ($2.90 per share). The Company continued to produce strong financial results in 2018, but as a result of the catastrophes and other relevant factors described below, 2018 results did not exceed plan on our key metrics and did not exceed prior year on tangible book value per share growth and TSR.
2018 Performance: Key Metrics and Strategic Achievements
| Tangible book value per share growth | 0.03% | Relative performance was at the 100th percentile, exceeding each member of our Financial Performance Peer Group. Absolute performance was below plan and prior year primarily due to catastrophe losses and the mark-to-market impact of rising interest rates on our investment portfolio and foreign exchange. Excluding the mark-to-market impact, book value and tangible book value per share increased 2.7% and 5.8%, respectively, for the year. | | Core operating return on equity | 8.7% | Relative performance was at the 35th percentile of our Financial Performance Peer Group. Absolute performance was below plan due to the impact of catastrophe losses but increased from prior year by 11.5%. | | Core operating income | $4.4B | Relative performance was at the 30th percentile of our Financial Performance Peer Group in large part due to the year-over-year volatility of core operating income growth of several of our peers. Absolute performance was below plan due to the impact of catastrophe losses but exceeded prior year by 16.5%. | | P&C combined ratio | 90.6% | Relative performance was at the 100th percentile, exceeding each member of our Financial Performance Peer Group. Absolute performance was below plan due to the impact of catastrophe losses but was better than prior year by 4.1 points. | | Total Shareholder Return | -9.6% 1-year 5.6% 3-year | Relative to our Financial Performance Peer Group, 1-year TSR was at the 75th percentile and 3-year annualized TSR was at the 54th percentile. While absolute performance for each of 1-year and 3-year annualized TSR was below prior year, the cumulative 3-year TSR was 17.8% compared to a peer group average of 15.4%. |
2018 Compensation Decisions
2018 Compensation Decisions Using our pay-for-performance framework and recognizing both 2018 results as measured by the key metrics, as well as the Company’s strategic achievements, the Compensation Committee awarded to our CEO an annual cash bonus at 4.4X base salary and granted long-term incentive equity awards at 8.8X base salary. Our other NEOs were awarded annual cash bonuses at 1.7X to 2.6X base salary and granted long-term incentive equity awards at 2.9X to 4.4X base salary. The increase in the CEO’s annual cash bonus by 11% reflected the Company’s improved financial performance compared to prior year. The cash bonus remained 8% less than 2016 due to the impact that natural catastrophes had on our 2018 financial results. The Board further determined to increase the CEO’s long-term incentive equity awards by 4%. In part, the Board considered that these awards had been flat for the prior four years. The Board also considered the forward-looking nature of such awards, consistent with the Company’s compensation practices of linking pay with the long-term performance of the Company and aligning a significant portion of compensation with the creation of shareholder value. The Board also determined to grant special recognition performance share awards to two of our NEOs, as described on page 84. These awards will not be considered part of the NEOs’ annual run rate compensation in determining future compensation.
2018 Summary Compensation Table Information
2018 Summary Compensation Table Information The table below sets forth 2018 compensation for our NEOs as calculated in accordance with applicable SEC regulations. Additional detail, including the full Summary Compensation Table which includes 2017 and 2016 data and explanatory footnotes, can be found in the Executive Compensation section of this proxy statement.
2018 Summary Compensation Table Information
| Name and Principal Position | Salary | Bonus | Stock Awards | Option Awards | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | | Evan G. Greenberg | $1,400,000 | $6,100,000 | $8,849,881 | $2,761,129 | — | $1,246,474 | $20,357,484 | | Chairman, President and Chief Executive Officer | | | | | | | | | Philip V. Bancroft | $818,000 | $1,363,300 | $1,687,511 | $526,473 | — | $644,591 | $5,039,875 | | Chief Financial Officer | | | | | | | | | John W. Keogh | $963,462 | $2,505,000 | $3,001,466 | $936,436 | — | $452,934 | $7,859,298 | | Executive Vice Chairman and Chief Operating Officer | | | | | | | | | Paul J. Krump | $859,231 | $1,743,000 | $1,690,515 | $527,410 | $1,310,110 | $73,054 | $6,203,320 | | President, North America Commercial and Personal Insurance | | | | | | | | | John J. Lupica | $854,615 | $1,913,400 | $2,297,704 | $716,874 | — | $425,751 | $6,208,344 | | Vice Chairman; President, North America Major Accounts and Specialty Insurance | | | | | | | |
Executive Compensation, Good Governance and Risk Management
| The key objectives of our executive compensation program are to: | • Emphasize long-term performance and value creation that, while not immune to short-term financial results, encourages sensible risk-taking in pursuit of superior long-term operating performance. • Assure that executives do not take imprudent risks to achieve compensation goals. • Provide, to the extent practicable, that executives are not rewarded with short-term compensation for risk-taking actions that may not manifest in outcomes until after the compensation is paid. |
Executive Compensation, Good Governance and Risk Management
| What We Do | What We Don’t Do | | • Substantial equity component to align pay with performance • Performance share awards subject to 3-year cliff vesting and two operating metrics (tangible book value per share growth and P&C combined ratio) that drive long-term shareholder value (since 2017) • Significant amount of at-risk pay (93% for CEO, 85% for other NEOs) • Significant mandatory share ownership requirements (CEO 7X base salary; other NEOs 4X base salary) • Independent compensation consultants at every Compensation Committee meeting • Double trigger change in control payout • Detailed individual performance criteria • Clawback of all incentive compensation (cash bonus and equity, vested and unvested) in certain circumstances • Peer groups reevaluated annually • Employment agreements with non-competition and non-solicitation terms for Executive Management • Compensation Committee considers shareholder feedback in evaluating compensation program and disclosure | • No hedging of Chubb securities • No repricing or exchange of underwater stock options • No options backdating • No special tax gross ups • No new pledging of Chubb shares • No excessive perquisites for executives • No multi-year guaranteed bonuses • No disproportionate supplemental pensions • No annual pro-rata vesting of performance share awards or second chance “look back” vesting (since 2017) |
Voting Requirement to Approve Agenda Item
Our Director Nominees Our Board of Directors has nominated a slate of 14 director nominees, each of whom is a currently serving as a director, for election to the Board of Directors. All directors will serve a one-year term from the 2019 Annual General Meeting until our next annual general meeting. There will be a separate vote on each nominee. The current directors who are standing for re-election are Evan G. Greenberg, Robert M. Hernandez, Michael G. Atieh, Sheila P. Burke, James I. Cash, Mary Cirillo, Michael P. Connors, John A. Edwardson, Kimberly A. Ross, Robert W. Scully, Eugene B. Shanks, Jr., Theodore E. Shasta, David H. Sidwell and Olivier Steimer. One of our current directors, James M. Zimmerman, is retiring from our Board of Directors at the expiration of his term as of the Annual General Meeting and is not standing for re-election. We thank Mr. Zimmerman for his exemplary service on our Board of Directors and, as one of the former Chubb Corp. directors who joined our Board at the closing of the Chubb Corp. acquisition, the pivotal role he played in overseeing the integration of the combined company and positioning Chubb for long-term growth and shareholder value creation. Our Nominating & Governance Committee regularly considers Board size, tenure and refreshment, and whether the Board has the right mix of skills, qualifications and experiences. With Mr. Zimmerman’s retirement, our Board has proposed 14 nominees for election. This equals the number of directors prior to our acquisition of Chubb Corp. in January 2016. (At that time four Chubb Corp. directors joined our Board.) Our Nominating & Governance Committee will continue to assess Board composition and refreshment; however, we believe 14 directors is the appropriate size for the Board at this time. Biographical information for each of the nominees is included below.
Voting Requirement to Approve Agenda Item
| David H. Sidwell Retired Chief Financial Officer, Morgan Stanley Age: 66 Years of Service: 5 Committee Memberships: Audit | David H. Sidwell was Executive Vice President and Chief Financial Officer of Morgan Stanley from March 2004 to October 2007, when he retired. From 1984 to March 2004, Mr. Sidwell worked for JPMorgan Chase & Co. in a variety of financial and operating positions, most recently as Chief Financial Officer of JPMorgan Chase’s investment bank from January 2000 to March 2004. Prior to joining JP Morgan in 1984, Mr. Sidwell was with Price Waterhouse LLP, a major public accounting firm, from 1975 to 1984, where he was qualified as a chartered accountant with the Institute of Chartered Accountants in England and Wales. Mr. Sidwell is currently Senior Independent Director of UBS Group AG and was a director of the Federal National Mortgage Association (Fannie Mae) until October 2016. Mr. Sidwell served as a Trustee of the International Accounting Standards Committee Foundation from January 2007 until his term ended in December 2012. Skills and Qualifications: Mr. Sidwell has a strong background in accounting, finance and capital markets, as well as the regulation of financial institutions, complementary to his role on the Audit Committee. He also has considerable expertise in risk management from chairing the risk committee of a public company and his executive positions. Mr. Sidwell further contributes experience in executive compensation and corporate governance from his service on the committees of other public company boards. This comprehensive range of experience contributes greatly to his value as a Board member. |
Explanation of Proposal
Explanation of Proposal All compensation to directors (other than Mr. Greenberg, who does not receive compensation for his service as a director) from the date of the Annual General Meeting through the 2020 annual general meeting is subject to this maximum aggregate amount. This includes all annual retainer fees, committee chair fees and equity awards provided to the directors. It also includes the value of dividend equivalents paid with respect to (i) certain outstanding deferred restricted stock units (which we stopped granting in 2009) held by some of our longer-serving directors and (ii) market value units held by former Chubb Corp. directors that were assumed in connection with the Chubb Corp. acquisition, and certain other payments described in the 2018 Director Compensation table in this proxy statement. The requested $4.8 million is 1 percent higher than the current maximum aggregate authorized Board of Directors compensation of $4.75 million, which was approved by shareholders at our 2018 annual general meeting. This reflects both the changes to our Outside Directors Compensation Parameters described below in “Process Used to Determine Maximum Aggregate Compensation for the Board of Directors, Outside Consultant Survey and Analysis of Director Compensation” and the retirement of one of our directors as of the Annual General Meeting. The requested amount also represents an estimate for the dividend equivalents and other payments described above similar to last year’s, and a small cushion to permit per-meeting fees in case of special Board meetings as described in our Outside Directors Compensation Parameters.
Q&A Relating to Shareholder Ratification of the Maximum Aggregate Compensation of the Board
| Where can I find more information about director compensation? | A description of director compensation and the amounts of compensation paid to directors in 2018 can be found in the “Director Compensation” section beginning on page 60 of this proxy statement. Under Swiss law, we also publish an audited annual compensation report, the Swiss Compensation Report, which is included within our Annual Report. These documents are available to shareholders in their proxy materials. | | Who determines the actual compensation for each individual Board member? | The Board, upon recommendation of the Nominating & Governance Committee, determines the actual individual compensation of each member of the Board, subject to the maximum aggregate compensation amount ratified by the shareholders. |
Process Used to Determine Maximum Aggregate Compensation for the Board of Directors, Outside Consultant Survey and Analysis of Director Compensation
Process Used to Determine Maximum Aggregate Compensation for the Board of Directors, Outside Consultant Survey and Analysis of Director Compensation In February 2019 the Nominating & Governance Committee retained Pay Governance to provide a survey and analysis of director compensation. The Committee considered the Pay Governance survey and analysis, and recommended to the Board, and the Board approved, changes to the Outside Directors Compensation Parameters effective as of the date of the Annual General Meeting. The changes were based on, among other things, a comparison of our compensation structure to that of our competitors and other insurance and similarly-sized companies, and that total director compensation was below the median of such companies. As a result the cash retainer was increased from $120,000 to $125,000 and the equity retainer was increased from $170,000 to $180,000. No other changes were made with respect to any other element of director compensation. Upon recommendation of the Nominating & Governance Committee, the Board also approved the maximum aggregate amount of director compensation to recommend to shareholders. Considerations included the modifications to our Outside Directors Compensation Parameters noted above, the size of our Board, an estimation of an amount for dividend equivalents paid with respect to certain outstanding deferred restricted stock units (which we stopped granting in 2009) held by some of our longer-serving directors and market value units held by certain former Chubb Corp. directors, and the addition of a small cushion to permit per-meeting fees to be paid in accordance with our Outside Directors Compensation Parameters in case of additional meetings, should they be necessary. The Board does not expect to consider changes to the Outside Directors Compensation Parameters until it considers the maximum aggregate compensation pool to be submitted for shareholder approval next year.
Our Compensation Program
| • | encourage business decision-making aligned with the long-term interests of the Company, and |
Our Compensation Program
| • | Significant percentage of restricted stock grants in the form of performance-based equity awards (75% for CEO, 66% for Executive Vice Chairman and COO and 60% for other senior officers) |
Our Compensation Program
| • | Performance-based equity awards linked to key operating metrics (tangible book value per share growth and P&C combined ratio), with TSR used only as a modifier for premium awards; |
Our Compensation Program
| • | Three-year cliff vesting and no second-chance “look-back” vesting opportunities for performance-based equity awards (since January 2017); |
Our Compensation Program
| • | Carefully constructed peer groups, reevaluated annually; |
Compensation Consultants
Compensation Consultants Our Compensation Committee has the authority to retain advisors and must assess the independence of any advisor so retained. Our Compensation Committee is directly responsible for the appointment, compensation and oversight of the work of any such compensation advisor. During 2018, our Compensation Committee retained Pay Governance as its independent compensation consultant. Pay Governance did not perform any other work for the Company in 2018 other than advising our Compensation Committee and, with respect to director compensation, our Nominating & Governance Committee.
Elements of Director Compensation
Elements of Director Compensation
Elements of Director Compensation
| Pay Component | 2018 Compensation | | Standard Compensation Per year of service from May annual general meeting to the next May annual general meeting | $290,000 — $170,000 in restricted stock awards based on the fair market value of the Company’s Common Shares at the date of award — $120,000 in cash, paid quarterly | | Committee Chair Retainers | Audit Committee $35,000 Compensation Committee $25,000 Nominating & Governance Committee $20,000 Risk & Finance Committee $20,000 Paid in quarterly installments | | Lead Director Annual Retainer | $50,000 Paid in quarterly installments | | Additional Board Meeting Fees | No fees were paid in 2018 for attendance at regular or special Board or Committee meetings. |
Elements of Director Compensation
Directors may elect to receive all of their compensation, other than compensation for special meetings, in the form of restricted stock awards issued on an annual basis. Restricted stock will be awarded at beginning of the plan year (i.e., the date of the Annual General Meeting) and become non-forfeitable at end of the plan year, provided that the grantee has remained a Chubb director continuously during that plan year. We discontinued the practice of granting deferred restricted stock units to directors in 2009. We continue to credit dividend equivalents to outstanding deferred restricted stock units (including deferred market value units held by certain former Chubb Corp. directors), which were awarded to directors in prior years, as additional stock units at such time as cash dividends are paid to holders of our Common Shares, based on the closing price of our Common Shares on the date dividends are paid. These amounts are reflected for certain of our directors in the “All Other Compensation” column and footnote 2 of the Director Compensation Table. These amounts are included in total director compensation as calculated for SEC purposes, but relate to awards that were granted many years ago. In addition to the compensation described above, we have a matching contribution program for directors pursuant to which we will match director charitable contributions to registered charities, churches and other places of worship or schools up to a maximum of $20,000 per year. Director Compensation — Board of Directors’ Role and Compensation In February 2019 the Nominating & Governance Committee retained Pay Governance to provide a survey and analysis of director compensation. The Committee considered the Pay Governance survey and analysis, and recommended to the Board, and the Board approved, changes to the Outside Directors Compensation Parameters effective as of the date of the Annual General Meeting. The changes were based on, among other things, a comparison of our compensation structure to that of our competitors and other insurance and similarly-sized companies, and that total director compensation was below the median of such companies. As a result the cash retainer was increased from $120,000 to $125,000 and the equity retainer was increased from $170,000 to $180,000. No other changes were made with respect to any other element of director compensation. Director Stock Ownership Requirements Our Corporate Governance Guidelines specify director equity ownership requirements to further align their interests with our shareholders. Chubb awards independent directors restricted stock awards as part of their standard compensation. The Company requires minimum equity ownership of $600,000 for outside directors (based on stock price on date of award). Each Director has until the fifth anniversary of his or her initial election to the Board of Directors to achieve this minimum. Deferred restricted stock units (which we no longer grant) and restricted stock, whether or not vested, are counted toward achieving this minimum. Stock options are not counted towards achieving this minimum. All of our independent directors who have served for at least five years satisfy Chubb’s director equity ownership requirements. Once a Director has achieved the $600,000 minimum equity ownership, this requirement remains satisfied going forward as long as he or she retains the number of shares valued at $600,000 based on the NYSE closing price for the Company’s Common Shares as of the date such minimum threshold is initially met. Any vested shares held by a Director in excess of the minimum share equivalent may be sold at the Director’s discretion after consultation with our General Counsel. Directors are not permitted to pledge or hedge Common Shares. Director Compensation — 2018 Director Compensation 2018 Director Compensation The following table sets forth information concerning director compensation paid or, in the case of restricted stock awards, earned during 2018.
Elements of Director Compensation
| Name | Fees Earned or Paid in Cash | Stock Awards(1) | All Other Compensation(2) | Total | | Michael G. Atieh | $128,750 | $170,000 | $118,153 | $416,903 | | Sheila P. Burke | $120,000 | $170,000 | $34,246 | $324,246 | | James I. Cash | $120,000 | $170,000 | $29,280 | $319,280 | | Mary Cirillo(3) | — | $310,000 | $60,870 | $370,870 | | Michael P. Connors | $145,000 | $170,000 | $1,000 | $316,000 | | John A. Edwardson(4) | — | $290,000 | $20,000 | $310,000 | | Robert M. Hernandez | $170,000 | $170,000 | $91,872 | $431,872 | | Leo F. Mullin(5) | $30,000 | $63,750 | $36,019 | $129,769 | | Kimberly A. Ross | $90,000 | $215,000 | $1,000 | $306,000 | | Robert W. Scully(6) | — | $311,875 | $20,000 | $331,875 | | Eugene B. Shanks, Jr. | $120,000 | $170,000 | $20,000 | $310,000 | | Theodore E. Shasta | $120,000 | $170,000 | $20,000 | $310,000 | | David H. Sidwell | $120,000 | $170,000 | $20,000 | $310,000 | | Olivier Steimer | $140,000 | $170,000 | $29,901 | $339,901 | | James M. Zimmerman | $120,000 | $170,000 | $20,000 | $310,000 |
Elements of Director Compensation
| 1 | This column reflects restricted stock awards earned during 2018. Restricted stock awards were granted on the date of the 2018 and 2017 annual general meetings, respectively, and vest on the date of the subsequent year annual general meeting. The grant date fair value of the restricted stock awards for 2018 are based on the Common Share value of $134.45 and amount to $169,945 for each director. This amount does not include Common Shares received in lieu of cash for annual retainer or committee retainer fees earned, which are described in footnotes three, four and six to this table. |
Elements of Director Compensation
| 2 | Beginning in 2009, we stopped using deferred restricted stock units to compensate our directors. However, certain of our longer-serving directors continue to receive dividends from deferred restricted stock units issued before 2009. When we pay dividends on our deferred restricted stock units, we issue stock units equivalent in value to the dividend payments that they would have received if they held stock. The fair value of the dividend payment on deferred restricted stock units for each director is as follows: Mr. Atieh ($98,153), Ms. Cirillo ($40,870), Mr. Hernandez ($71,720), Mr. Mullin ($16,019), and Mr. Steimer ($9,901). The number of vested stock units and associated dividend payment accruals that each director held at December 31, 2018 was: Mr. Atieh (34,547), Ms. Cirillo (14,385), Mr. Hernandez (25,244), and Mr. Steimer (3,485). Prior to the Chubb Corp. acquisition, Ms. Burke and Dr. Cash received deferred market value units from Chubb Corp. Each unit has the equivalent value of one share of our common stock. These units are credited with market value units equivalent in value to the dividend payments they would have received if they held stock. The fair value of the dividend payment on deferred market value units is as follows: Ms. Burke ($29,246) and Dr. Cash ($9,280). The number of vested market value units at December 31, 2018 was: Ms. Burke (10,293) and Dr. Cash (3,266). |
Elements of Director Compensation
| Other annual compensation also includes matching contributions made under our matching contribution program for directors (pursuant to which we match director charitable contributions to registered charities, churches and other places of worship or schools up to a maximum amount, which was $20,000 per year in 2018), personal use of Company aircraft and travel permitted under our spousal travel policy. |
Elements of Director Compensation
| 3 | Included in Ms. Cirillo’s stock awards are the following amounts which were paid in stock, rather than cash, at the election of the director: an annual retainer fee of $120,000 for which she received 893 restricted stock awards and a committee chair retainer of $20,000 for which she received 149 restricted stock awards. |
Elements of Director Compensation
| 4 | Included in Mr. Edwardson’s stock awards is an annual retainer fee of $120,000 for which the director received 893 restricted stock awards, rather than cash, at the election of the director. |
Elements of Director Compensation
| 5 | Mr. Mullin retired from our Board upon the expiration of his term at the May 2018 annual general meeting. |
Elements of Director Compensation
| 6 | Included in Mr. Scully’s stock awards are the following amounts which were paid in stock, rather than cash, at the election of the director: an annual retainer fee of $120,000 for which he received 893 restricted stock awards and a committee chair retainer of $35,000 for which he received 260 restricted stock awards. |
Elements of Director Compensation
Information About Our Share Ownership How Many Shares Do Our Directors, Nominees and SEC Executive Officers Own? The following table sets forth information, as of March 25, 2019, with respect to the beneficial ownership of Common Shares by our NEOs, by each of our directors and by all our directors and SEC executive officers as a group. Unless otherwise indicated, the named individual has sole voting and investment power over the Common Shares listed in the Common Shares Beneficially Owned column. The Common Shares listed for each director and each NEO, and for all directors and SEC executive officers as a group, constitute less than one percent of the outstanding Common Shares.
Elements of Director Compensation
| Name of Beneficial Owner | Common Shares Beneficially Owned | Common Shares Subject to Options(1) | Restricted Common Shares(2) | | Evan G. Greenberg3 4 8 9 | 1,062,105 | 938,998 | 222,090 | | Philip V. Bancroft(4) 8 9 | 214,947 | 79,781 | 39,581 | | John W. Keogh3 8 | 131,712 | 183,149 | 95,371 | | Paul J. Krump8 9 10 | 74,224 | 17,001 | 33,636 | | John J. Lupica(3)(8) | 107,394 | 141,065 | 65,611 | | Michael G. Atieh3 5 6 | 19,067 | — | 1,264 | | Sheila P. Burke11 12 | 2,079 | — | 1,264 | | James I. Cash11 12 | 1,881 | — | 1,264 | | Mary Cirillo(6) | 20,338 | — | 2,306 | | Michael P. Connors | 11,114 | — | 1,264 | | John A. Edwardson | 6,827 | — | 2,157 | | Robert M. Hernandez5 6 | 73,373 | — | 1,264 | | Kimberly A. Ross | 6,859 | — | 1,264 | | Robert W. Scully(7) | 27,052 | — | 2,417 | | Eugene B. Shanks, Jr. | 8,204 | — | 1,264 | | Theodore E. Shasta | 10,191 | — | 1,264 | | David H. Sidwell | 7,985 | — | 1,264 | | Olivier Steimer(6) | 15,320 | — | 1,264 | | James M. Zimmerman(12) | 5,152 | — | 1,264 | | All directors and SEC executive officers as a group (23 individuals) | 2,144,688 | 1,669,749 | 608,722 |
Elements of Director Compensation
| 1 | Represents Common Shares that the individual has the right to acquire within 60 days of March 25, 2019 through option exercises. |
Elements of Director Compensation
| 2 | Represents Common Shares with respect to which the individual has the power to vote (but not to dispose of). |
Elements of Director Compensation
| 3 | Messrs. Atieh, Greenberg, Keogh and Lupica share with other persons the power to vote and/or dispose of 341 shares, 97,528 shares, 2,702 shares and 35,700 shares, respectively, of the Common Shares listed. Of the Common Shares listed as held by all directors and executive officers as a group (including those in the immediately preceding sentence), the power to vote and/or dispose of 139,606 Common Shares is shared with other persons. |
Elements of Director Compensation
| 4 | Mr. Greenberg has pledged 240,000 of the Common Shares beneficially owned by him and Mr. Bancroft has pledged 41,000 of the Common Shares beneficially owned by him. In each case, such pledging is consistent with the share pledging policy adopted by the Company under which, effective January 2017, new pledging of any Chubb shares by executive officers and directors is prohibited. |
Elements of Director Compensation
| 5 | Included in these amounts are Common Shares that will be issued to the director immediately upon his or her termination from the Board. These Common Shares relate to vested stock units granted as directors compensation and associated dividend reinvestment accruals. The number of such Common Shares at March 25, 2019 included in the above table for each director is as follows: Mr. Atieh (14,788) and Mr. Hernandez (10,967). |
Elements of Director Compensation
| 6 | Not included in these amounts are Common Shares that will be issued to the director no earlier than six months following his or her termination from the Board. Such Common Shares relate to deferred restricted stock units granted as directors compensation and associated dividend reinvestment accruals. The number of such Common Shares at March 25, 2019 not included in the above table for each director is as follows: Mr. Atieh (19,953), Ms. Cirillo (14,466), Mr. Hernandez (14,358), and Mr. Steimer (3,504). |
Elements of Director Compensation
| 7 | Includes 2,775 shares held by Mr. Scully’s daughter, of which Mr. Scully disclaims beneficial ownership. |
Elements of Director Compensation
| 8 | Not included in these amounts are Restricted Common Shares representing a premium performance award with respect to the performance restricted stock awards granted in 2015, 2016, 2017, 2018 and 2019. Such Restricted Common Shares will vest on the fourth anniversary for the 2015 to 2016 awards and on the third anniversary for the 2017, 2018 and 2019 awards, subject to the satisfaction of certain service and performance based criteria. Shares will not be entitled to vote until vested. Dividends will be accumulated and distributed only when, and to the extent, that the shares have vested. The number of such Restricted Common Shares at March 25, 2019 not included in the above table for each NEO is as follows: Mr. Greenberg (242,458), Mr. Bancroft (38,113), Mr. Keogh (81,111), Mr. Krump (25,880) and Mr. Lupica (54,960). |
Elements of Director Compensation
| 9 | Not included in these amounts are Restricted Stock Unit (RSU) awards granted in 2016, 2017, 2018 and 2019 for Mr. Greenberg and in 2018 and 2019 for Messrs. Bancroft and Krump. Such RSUs will vest evenly over four years. RSUs will not be entitled to vote until vested. Upon vesting, one Common Share will be delivered for each vested RSU. The number of such RSUs at March 25, 2019 not included in the above table for each NEO is as follows: Mr. Greenberg (41,452), Mr. Bancroft (6,647) and Mr. Krump (8,870). |
Elements of Director Compensation
Information About Our Share Ownership — How Many Shares Do Our Directors, Nominees And SEC Executive Officers Own?
Elements of Director Compensation
| 10 | Not included are 9,685 fully vested Deferred Stock Units, but will not be payable, unless further deferred, until 6 months after separation from service. |
Elements of Director Compensation
| 11 | Not included in these amounts are fully vested Market Value Units payable in Common Shares that will be paid out 3 months after separation from service, unless further deferred by the director. The number of such Common Shares at March 25, 2019 for each director is as follows: Ms. Burke (10,351) and Dr. Cash (3,284). |
Elements of Director Compensation
| 12 | Not included in these amounts are fully vested Deferred Stock Units, but will not be payable, unless further deferred by the participant, until the 90th day after the earliest to occur of the directors (i) death, (ii) disability, or (iii) separation from service. The number of such Common Shares at March 25, 2019 for each director is as follows: Ms. Burke (28,837), Dr. Cash (16,051) and Mr. Zimmerman (17,078). |
Elements of Director Compensation
Which Shareholders Own More Than Five Percent Of Our Shares? The following table sets forth information regarding each person, including corporate groups, known to us to own beneficially or of record more than five percent of our outstanding Common Shares as of December 31, 2018.
Elements of Director Compensation
| Name and Address of Beneficial Owner | Number of Shares Beneficially Owned | Percent of Class | | The Vanguard Group(1) | 38,234,960 | 8.29% | | 100 Vanguard Blvd. Malvern, Pennsylvania 19355 | | | | Wellington Management Group LLP(2) | 31,405,197 | 6.82% | | 280 Congress Street Boston, Massachusetts 02210 | | | | BlackRock Inc.(3) | 31,252,910 | 6.80% | | 55 East 52(nd)Street New York, New York 10055 | | |
Elements of Director Compensation
| 1 | Based on a Schedule 13G/A filed by The Vanguard Group on February 11, 2019. The Vanguard Group, together with certain of its wholly-owned subsidiaries acting as investment managers, may be deemed to have had beneficial ownership of 38,234,960 shares of common stock. The Vanguard Group had shared voting power over 122,221 shares, sole voting power over 534,030 shares, sole dispositive power over 37,586,500 shares, and shared dispositive power over 648,460 shares. |
Elements of Director Compensation
| 2 | Based on a Schedule 13G/A filed by Wellington Management Group LLP on February 12, 2019. Wellington Management may be deemed to have had beneficial ownership of 31,405,197 shares of common stock that are owned by investment advisory clients, none of which is known to have such interest with respect to more than five percent of the class of shares. Wellington Management had shared voting authority over 8,938,401 shares and shared dispositive power over 31,405,197 shares. |
Elements of Director Compensation
| 3 | Based on a Schedule 13G/A filed by BlackRock Inc. on February 4, 2019. BlackRock, together with certain of its affiliates, may be deemed to have had beneficial ownership of 31,252,910 shares of common stock. No one person was known to have an interest with respect to more than five percent of the class of shares. BlackRock had sole voting power over 26,639,247 shares. |
Elements of Director Compensation
Compensation Committee Report The Compensation Committee has reviewed and discussed the Compensation Discussion & Analysis contained in this proxy statement with management. Based on our review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion & Analysis be included in this proxy statement for the 2019 Annual General Meeting and the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. This report has been approved by all members of the Committee. Michael P. Connors, Chair Mary Cirillo Robert M. Hernandez James M. Zimmerman Executive Compensation Compensation Discussion & Analysis
Elements of Director Compensation
| Executive Summary | 67 | | Compensation Program Overview | 74 | | Our Compensation Philosophy | 74 | | What We Reward: Individual and Company Performance Criteria | 75 | | Components of Total Direct Compensation | 76 | | Compensation Practices and Policies | 77 | | The Relationship of Compensation to Risk | 79 | | How We Use Peer Group Data in Determining Compensation | 81 | | How We Determine Total Direct Compensation Pay Mix | 82 | | Elements of Total Direct Compensation | 83 | | Variable Compensation | 83 | | Stock Option and Restricted Stock Grants: Timing and Pricing | 86 | | How We Determine and Approve NEO Compensation | 87 | | 2018 NEO Total Direct Compensation and Performance Summary | 89 | | Executive Compensation Tables | 95 |
Elements of Director Compensation
The following Compensation Discussion & Analysis describes the 2018 compensation program for our named executive officers (NEOs). For 2018, our named executive officers were:
Elements of Director Compensation
| | Evan G. Greenberg | | | Chairman, President and | | | Chief Executive Officer | | | Philip V. Bancroft | | | Chief Financial Officer | | | John W. Keogh Executive Vice Chairman and Chief Operating Officer | | | Paul J. Krump | | | President, North America Commercial and Personal Insurance | | | John J. Lupica | | | Vice Chairman; | | | President, North America Major Accounts and Specialty Insurance |
Elements of Director Compensation
Our NEOs are determined based on applicable SEC rules. Our Executive Management as determined under Swiss law consists of the first three officers above, but not Messrs. Krump or Lupica. Joseph F. Wayland, our General Counsel, is part of Executive Management under Swiss law but is not an NEO this year. The Compensation Discussion & Analysis section of this proxy statement includes certain financial measures, including those considered in connection with compensation decisions, that are not presented in accordance with generally accepted accounting principles in the U.S. (U.S. GAAP), known as non-GAAP financial measures. These non-GAAP financial measures include core operating income, core operating return on equity, P&C combined ratio, tangible book value per share and book value and tangible book value per share excluding mark-to-market. More information on the rationale for the use of these measures and reconciliations to U.S. GAAP can be found in “Non-GAAP Financial Measures” on page 120 of this proxy statement.
Executive Summary
Executive Summary In 2018 our management team delivered strong financial performance on both an absolute basis and relative to our peers. Our financial results were influenced, although to a lesser extent than in 2017, by severe natural catastrophes that affected the global P&C insurance industry, including multiple large wildfires in California, hurricanes in the U.S. and Caribbean, typhoons in Asia, windstorms in Australia and other severe weather events around the world. Nevertheless, through disciplined underwriting, risk selection and enterprise-wide risk management, the Company generated strong financial results while providing industry-leading claims service to our policyholders and supporting them in their time of need. Management also remained focused on the future and continued to position Chubb for long-term growth and shareholder value creation through its execution of established and opportunistic strategic objectives. In consideration of these accomplishments, the Board approved an increase to variable compensation (and thus total compensation) for our named executive officers (NEOs) compared to prior year. The Board increased our CEO’s annual cash bonus by 11 percent, but the amount remained 8 percent less than 2016 due to the impact of natural catastrophes on our 2018 financial results. Additionally, our CEO’s long-term incentive equity awards, which had been flat since 2014, increased modestly compared to prior year. The Board’s compensation decisions and recommendations for 2018 reflect the Company’s philosophy to closely link compensation to performance, ensuring that our leadership team remains highly motivated, and strongly aligning remuneration outcomes with the creation of shareholder value. The success of this philosophy is demonstrated not only in this year’s solid results that as a whole improved upon 2017, but in consistent year-over-year strong financial results and operational excellence, as well as long-term stock price performance. Over the past 15 years, under Evan Greenberg’s leadership, the Company has had outstanding growth in tangible book value per share, an industry-leading combined ratio and strong Total Shareholder Return (TSR) as measured against our peers. Our CEO Compensation Process Our CEO, Evan Greenberg, has led the Company to extraordinary success over his tenure. That success continued in 2018 with outstanding financial and strategic results. His compensation reflects that success but takes into consideration the significant natural catastrophes that marked 2018 and their impact on financial performance. Each year, the Compensation Committee sets a scorecard for the potential range of CEO compensation, with top-, middle- and low-end bands tied to achievement of specific financial, operational and strategic goals, considered together with TSR, as reflected in the following summary for 2018: 1. Set CEO Compensation Range Determine total compensation parameters under various performance scenarios: Scorecard results exceed expectations Scorecard results meet expectations Scorecard results below expectations Strategic assessment of short-term and long-term TSR performance 2. Set CEO Goals In the first quarter of 2018, the Corr imittee approved goals related to financial, operational and strategic goals. Financial, Operational & Strategic Scorecard Financial Results (75%) " Tangible Book Value Per Share Growth " Core Operating Return on Equity " Core Operating Income " P&C Combined Ratio Operational & Strategic Goals (25%) " Establish new distribution partnerships " Execution of growth initiatives " Underwriting portfolio management actions " Digital technology and data analytics capability " Development of ESG profile " Talent retention, development and diversity Shareholder Value Total Shareholder Return Modifier " 1-year TSR performance " 3-year TSR performance 3. Evaluate Performance vs. Goals In the first quarter of 2019 the Committee reviewed actual results on an absolute basis and relative to our Financial Performance Peer Group, as well as underlying core performance including and excluding catastrophe losses and our performance against non-financiat operating and strategic goals. On average across our key financial metrics, our performance versus peers was at the 66th percentile. Despite the natural catastrophes in 2018, our results included an industry-leading P&C combined ratio and tangible book value per share growth that were each at the 100th percentile, exceeding each member of our peer group. We also had strong core operating income growth and a solid core operating ROE, which were at the 30th and 35th percentiles, respectively. Our key metrics, except for tangible book value per share growth, improved significantly from prior year but each of our metrics did not exceed plan due to 2018 natural catastrophes. One-year TSR was at the 75th percentile and three-year annualized TSR exceeded the peer group median, but both were below prior year. We also met or exceeded our non-financial operating and strategic goals to further position us as an industry leader and for long-term growth and shareholder value creation. 4. Set Final CEO Compensation Based on our absolute and relative performance, strategic accomplishments, and long-term strategy execution, 1 the Committee set a final CEO compensation value including base* salary, annual cash incentive and long-term equity incentive awards.
Pay-for-Performance Framework
| | Annual Cash Incentive | Long-Term/Equity Incentive | | CEO | 0–5X base salary | 0–9X base salary | | Other NEOs | 0–3X base salary | 0–5X base salary |
Pay-for-Performance Framework
To achieve the top of the ranges described above, relative Company performance should fall in the upper quartile of the Financial Performance Peer Group and absolute performance should exceed plan and prior year. The above ranges may be exceeded in the judgment of the Compensation Committee if relative Company performance substantially exceeds the Financial Performance Peer Group and absolute performance substantially exceeds plan and prior year.
Why Vote “For” Say-on-Pay?
| • | Established new distribution partnerships to expand global presence and growth potential, including a long-term bancassurance arrangement with Citibanamex in Mexico and a strategic distribution partnership with Grab, a leading on-demand transportation and fintech platform in Southeast Asia |
How We Use Peer Groups
How We Use Peer Groups We utilize two peer groups in order to (1) assess our financial performance against key metrics relative to our P&C insurance industry peers with whom we compete for business (Financial Performance Peer Group) and (2) align our compensation with companies of comparable size and complexity that we seek to be competitive with for talent and compensation purposes (Compensation Benchmarking Peer Group).
How We Use Peer Groups
| Financial Performance Peer Group* | Compensation Benchmarking Peer Group | | | • American International Group, Inc. • CNA Financial Corporation • The Hartford Financial Services Group, Inc. • The Travelers Companies, Inc. • Zurich Financial Services Group | • The Allstate Corporation • American Express Company • American International Group, Inc. • Aon plc • Bank of America Corporation • The Bank of New York Mellon • BlackRock, Inc. • Cigna Corp. | • Citigroup Inc. • The Goldman Sachs Group, Inc. • Marsh & McLennan Companies, Inc. • MetLife, Inc. • Morgan Stanley • Prudential Financial, Inc. • The Travelers Companies, Inc. |
How We Use Peer Groups
| XL Group plc was removed from the peer group due to its 2018 acquisition by AXA S.A. The Allstate Corporation has been added to this peer group for 2019. Allstate was not included in this peer group for 2018 and was not taken into account for purposes of evaluating Chubb’s 2018 relative performance against the Financial Performance Peer Group. For further information, see “How We Use Peer Group Data in Determining Compensation” in this Compensation Discussion & Analysis.* |
Long-Term Performance Highlights
Long-Term Performance Highlights Chubb has a distinguished and consistent track record of performance and outperformance relative to its insurance industry peers. The following charts reflect our performance across key financial and operating measures starting in 2004 when Evan Greenberg became CEO of the Company.
Long-Term Performance Highlights
| Core Operating Income | Core Operating ROE | | 2004-2018 Core Operating Income against Financial Performance Peer Group average (indexed to Chubb 2004 core operating income)* | 2004-2018 Core Operating ROE against Financial Performance Peer Group average | | | | | * Chubb core operating income grew from $1 billion in 2004 to $4.4 billion in 2018 (341%). Average peer generated only $609 million of core operating income in 2018 for every $1 billion of core operating income in 2004 (-39%). Zurich Financial Services Group is presented with net income because it does not use core operating income as a financial measure. | | | Total Shareholder Return | P&C Combined Ratio | | 2004-2018 TSR against Financial Performance Peer Group average* | 2004-2018 P&C Combined Ratio against Financial Performance Peer Group average | | | | | * An investment in one Chubb share on January 1, 2004 ($41.15) was worth $178.35 at December 31, 2018 (including dividend reinvestment), versus $88.47 for the same amount invested in the average share of our peers. | |
Long-Term Performance Highlights
Source: SNL and company disclosures
2018 Performance: Key Metrics and Strategic Achievements
2018 Performance: Key Metrics and Strategic Achievements The Compensation Committee evaluates our performance across the following key metrics relative to our Financial Performance Peer Group, Board-approved plan and prior year performance. Our relative performance averaged across the key metrics described below was at the 66th percentile of our Financial Performance Peer Group. Our results were impacted, although to a lesser extent than in 2017, by after-tax catastrophe losses of $1.35 billion ($2.90 per share). The Company continued to produce strong financial results in 2018, but as a result of the catastrophes and other relevant factors described below, 2018 results did not exceed plan on our key metrics and did not exceed prior year on tangible book value per share growth and TSR.
2018 Performance: Key Metrics and Strategic Achievements
| Tangible book value per share growth | 0.03% | Relative performance was at the 100th percentile, exceeding each member of our Financial Performance Peer Group. Absolute performance was below plan and prior year primarily due to catastrophe losses and the mark-to-market impact of rising interest rates on our investment portfolio and foreign exchange. Excluding the mark-to-market impact, book value and tangible book value per share increased 2.7% and 5.8%, respectively, for the year. | | Core operating return on equity | 8.7% | Relative performance was at the 35th percentile of our Financial Performance Peer Group. Absolute performance was below plan due to the impact of catastrophe losses but increased from prior year by 11.5%. | | Core operating income | $4.4B | Relative performance was at the 30th percentile of our Financial Performance Peer Group in large part due to the year-over-year volatility of core operating income growth of several of our peers. Absolute performance was below plan due to the impact of catastrophe losses but exceeded prior year by 16.5%. | | P&C combined ratio | 90.6% | Relative performance was at the 100th percentile, exceeding each member of our Financial Performance Peer Group. Absolute performance was below plan due to the impact of catastrophe losses but was better than prior year by 4.1 points. | | Total Shareholder Return | -9.6% 1-year 5.6% 3-year | Relative to our Financial Performance Peer Group, 1-year TSR was at the 75th percentile and 3-year annualized TSR was at the 54th percentile. While absolute performance for each of 1-year and 3-year annualized TSR was below prior year, the cumulative 3-year TSR was 17.8% compared to a peer group average of 15.4%. |
2018 Compensation Decisions
2018 Compensation Decisions Using our pay-for-performance framework and recognizing both 2018 results as measured by the key metrics, as well as the Company’s strategic achievements, the Compensation Committee awarded to our CEO an annual cash bonus at 4.4X base salary and granted long-term incentive equity awards at 8.8X base salary. Our other NEOs were awarded annual cash bonuses at 1.7X to 2.6X base salary and granted long-term incentive equity awards at 2.9X to 4.4X base salary. The increase in the CEO’s annual cash bonus by 11% reflected the Company’s improved financial performance compared to prior year. The cash bonus remained 8% less than 2016 due to the impact that natural catastrophes had on our 2018 financial results. The Board further determined to increase the CEO’s long-term incentive equity awards by 4%. In part, the Board considered that these awards had been flat for the prior four years. The Board also considered the forward-looking nature of such awards, consistent with the Company’s compensation practices of linking pay with the long-term performance of the Company and aligning a significant portion of compensation with the creation of shareholder value. The Board also determined to grant special recognition performance share awards to two of our NEOs, as described on page 84. These awards will not be considered part of the NEOs’ annual run rate compensation in determining future compensation. Compensation Program Overview
Our Compensation Philosophy
Our Compensation Philosophy We structure our compensation program to fairly compensate our management and to enhance shareholder value by continuing to closely align our executive compensation program and practices with the interests of our shareholders. Our compensation practices balance long-term and short-term awards. We seek to closely link pay to Company performance. We believe this encourages business decision-making aligned with the long-term interests of the Company and our shareholders, without encouraging or rewarding excessive risk. We also vary and adjust our compensation structure and components to support the human resource requirements of our business in all the markets, globally, in which we operate. Our goal is to attract and retain highly qualified executives who are talented, experienced, disciplined, motivated and of the highest integrity. We compete for talent with property and casualty insurers, specialty insurers, and financial services companies worldwide. Given the complexity and global nature of our business, as well as the enhanced responsibilities for our executives resulting from the size and scale of our business, our compensation practices must enable us to attract the highest caliber executives with specific capabilities such as knowledge of international insurance markets and the ability to effectively manage teams and organizations in multiple geographies around the world. We strive to develop and administer compensation practices that enable us to retain and motivate top talent in the markets in which we operate while, at the same time, administering integrated compensation practices for our employees globally. As our business performance and industry reputation continue to grow in comparison with our peer companies, we have become a potential source of talent for peer companies. This has made retention of our executives and other employees even more challenging and continues to be a critical priority.
What We Reward: Individual and Company Performance Criteria
| • | Personal contribution to both short-term and long-term business results |
What We Reward: Individual and Company Performance Criteria
Company Performance Criteria: Company performance is measured in absolute terms versus the financial plan as approved by the Board, as well as versus prior year results, and in relative terms in comparison with the performance of peer companies in our Financial Performance Peer Group, across the following key metrics:
Components of Total Direct Compensation
| | Component | What We Reward | Target Opportunity Range | What It Achieves | | | Base salary | Annual base salary, which is closely tied to role and market. | Base salary is targeted at the median of our compensation peer group and industry peers. | Provides a competitive market-based level of fixed compensation. | | | Cash bonus | Each NEO’s annual cash bonus is based on the prior year’s performance, as measured against: • Individual Performance Criteria; • Company Performance Criteria; and • for some NEOs, the performance of the operating unit(s) directly managed by the NEO. | The specific annual cash bonus opportunity for each NEO ranges from zero to 300 percent of annual base salary based on performance. The specific annual cash bonus opportunity for the CEO ranges from zero to 500 percent of annual base salary based on performance. | Ties officer pay to annual corporate and individual performance. | | | Long-term incentive equity awards Stock options (time-based) Restricted stock (time-based) Performance-based restricted stock • Target Awards • Premium Awards | The value of each NEO’s long-term incentive compensation award is based on the prior year’s performance, as measured against: • Individual Performance Criteria; • Company Performance Criteria; and • for some NEOs, the performance of the operating unit(s) directly managed by the NEO. The ultimate value realized from these awards is based on the Company’s stock price performance as well as, with respect to performance-based restricted stock, relative per share tangible book value growth and relative P&C combined ratio performance over time. Premium Awards are also subject to a TSR modifier. | The value of the award is determined as a percentage of annual base salary. This varies greatly among NEOs depending on position and performance but has been targeted to be between 200 percent and 500 percent of annual base salary. The value of the award for the CEO may go up to 900 percent of annual base salary. | Ties the current year’s awards to future performance. The Committee determines a specific long-term incentive equity award for each NEO that is linked both to current year performance and multi-year future performance. Stock options reward stock price appreciation. Restricted stock (time-based) aligns executive interests with those of shareholders, provides ownership and supports executive retention. Performance-based restricted stock encourages superior growth in tangible book value per share and a strong P&C combined ratio. |
Annual Board Committee Review of Executive Compensation Practices
Annual Board Committee Review of Executive Compensation Practices The Chair of the Compensation Committee meets annually with the Risk & Finance Committee of the Board of Directors to conduct a risk assessment of our executive compensation practices and discuss how specific business risks of concern to the Risk & Finance Committee are taken into account and mitigated as part of the compensation risk analysis and our compensation structure. Chubb’s management, including leaders in legal and human resources, provide a risk assessment of our compensation program to the Compensation Committee for its review. Additionally, the Compensation Committee considers the following factors to be important in discouraging excessive risk: The Chubb Code of Conduct The Chubb Code of Conduct is at the heart of our corporate culture and drives every business decision our executives and employees make. The Board considers Chubb’s values-oriented culture to be a key factor in mitigating risky behavior. Executive Stock Ownership Requirements Chubb’s stock ownership guidelines require our NEOs to hold substantial amounts of equity. For our CEO, the guideline amount is seven times annual base salary, while for the other NEOs, the guideline amount is four times annual base salary. We believe that stock ownership encourages appropriate decision-making that aligns with the long-term interests of our shareholders. Compensation Alignment with our Peer Group Our compensation program target levels are benchmarked annually to ensure consistency with our Compensation Benchmarking Peer Group. Our Clawback Policy Our clawback policy provides for the forfeiture, or clawback, of all incentive compensation awards (cash bonus and equity, vested and unvested) reaching back to the year misconduct occurs for any covered officer who deliberately commits fraud or other intentional misconduct (i) materially related to a financial restatement or (ii) in connection with the officer’s scope of employment that results in material financial or reputational harm to Chubb. Performance Goals Performance goals are set at levels that are high enough to encourage strong performance, but within reasonably attainable levels to discourage risky business strategies or actions. Periodic Assessment of Program Design Our Compensation Committee regularly reviews our compensation structure, awards programs and best practices to ensure our compensation programs do not encourage excessive risk-taking and that the Company awards strong short-, medium- and long-term performance.
Our NEO Compensation Components and Their Relationship to Risk
Our NEO Compensation Components and Their Relationship to Risk Variable pay for our NEOs in the form of annual cash bonuses and equity grants comprises the majority of each NEO’s annual total compensation. Base salary provides a fixed level of compensation for our NEOs and represents a relatively small portion of their overall compensation. Adjustments to base salary are driven more by competitive market data for similar positions as opposed to being tied to performance or short-term financial results and are targeted to market median. Executive Compensation — The Relationship of Compensation to Risk Cash bonuses are determined primarily by the prior calendar year’s results on key financial performance metrics as measured against a defined group of industry peers, prior year performance and Board-approved plan. These metrics are tangible book value per share growth, core operating return on equity, core operating income and P&C combined ratio. These specific financial performance metrics, taken together, have been selected in part because they encourage sound business decision-making and measure the creation of both short- and long-term enterprise value. Equity awards deliver the remainder—and typically the majority—of each NEO’s total compensation. Performance-based restricted stock awards cliff-vest at the end of a three-year period (for awards granted beginning in January 2017) or vest evenly over a four-year period (for awards granted prior to January 2017) from the time of grant. Time-based restricted stock awards vest evenly over a four-year period from the time of grant and stock options vest evenly over a three-year period from the time of grant. Consequently, the majority of each NEO’s total annual compensation is directly tied to the medium-term and long-term performance of the Company. We believe that executive performance is reasonably reflected in stock price over time, or ought to be, and we do not manage the Company (nor manage our executive compensation practices) to achieve or reward short-term fluctuations or anomalies in market conditions. While stock price may be an imperfect short-term marker for executive compensation, we believe it is a reasonable long-term tool for aligning executive compensation with shareholder results. Twenty-five percent of the value of each NEO’s annual equity award consists of 10-year options with strike prices set as of the award date. Because options often have more value when held longer, they are particularly suitable for encouraging long-term performance. The remaining 75 percent of each NEO’s long-term incentive equity awards consists of time-based and performance-based restricted shares, of which performance shares comprise a significant portion (75 percent for the CEO, 66 percent for the Executive Vice Chairman and COO, and 60 percent for the other NEOs (50 percent for grants prior to January 2017)). This means that awards in a given year are significantly dependent on objectively measured operating performance relative to industry competitors over a multiple year period, making a substantial percentage of overall compensation dependent on long-term outcomes relative to the competition.
Our Assessment of Compensation Risk
Our Assessment of Compensation Risk As part of Board governance, the Compensation Committee reviews the Company’s compensation structure, policies and practices to determine whether incentives arising from compensation policies or practices relating to any of our NEOs and other employees would be reasonably likely to have a material adverse effect on the Company. The Compensation Committee and management concluded that the Company’s compensation policies and practices do not create risks reasonably likely to have a material adverse effect on the Company, and again confirmed that the mix of compensation types and timeframes tended to align risk-taking with appropriate medium- and long-term performance for the Company. Executive Compensation — How We Use Peer Group Data in Determining Compensation How We Use Peer Group Data in Determining Compensation The Compensation Committee recommends to the full Board and the Board approves the total direct compensation for the CEO. The Compensation Committee also reviews and approves or modifies the CEO’s recommendations for the total direct compensation for the other NEOs and direct reports to the CEO. As part of the annual compensation review process, the Compensation Committee evaluates:
Our Assessment of Compensation Risk
| • | each NEO’s individual compensation against compensation levels for comparable positions in our Compensation Benchmarking Peer Group, a group of companies with characteristics similar to us that best defines the market in which we compete for executive talent, and |
Our Assessment of Compensation Risk
| • | Company performance against the financial performance of companies in a second peer group that best defines the market in which we compete for business, which we refer to as our Financial Performance Peer Group. |
How We Select, and Who is Currently in, Our Compensation Benchmarking Peer Group
How We Select, and Who is Currently in, Our Compensation Benchmarking Peer Group The Compensation Committee reviews the composition of our Compensation Benchmarking Peer Group on an annual basis. Our Compensation Benchmarking Peer Group is intended to be a group of companies that are similar to us in various ways that best define the market in which we compete for executive talent. The Compensation Committee’s independent executive compensation consultants assist in the annual evaluation of this group. Our Compensation Committee determined to make no changes to the composition of this peer group from last year, which had previously been revised to reflect the meaningfully larger size and scope of our Company following the Chubb Corp. acquisition. Our prior compensation peer group had been stable for a decade before these changes. However, it had become smaller as peers merged or were acquired, and our Company had become increasingly dissimilar to the remaining companies as we evolved and grew. Based on our size post-acquisition (making us the largest publicly traded P&C insurance company), our operational complexity (in terms of diversity of distribution channels, product and geography) and our risk profile, we undertook a disciplined and thorough study to develop a peer group that better aligned with our Company’s size and scope of operations. In partnership with our independent compensation consultants, a thorough analysis was conducted, considering multiple characteristics such as industry relevance, market capitalization, revenues and number of business lines, to identify companies within and outside our industry to constitute a robust group of 15 peer companies. The Compensation Committee believes that the current composition of this group supports more valid executive compensation decision-making than simply using our much smaller Financial Performance Peer Group. Our compensation peer group includes insurance companies with different primary businesses than ours and other financial services companies, which together complemented the remaining property and casualty companies on the list. Specifically, we include eight global insurance companies (three of which are global life/health companies and two of which are brokers) and seven global financial services companies. In developing our Compensation Benchmarking Peer Group, we note that there are not a sufficient number of comparable property and casualty insurers because, with few exceptions, they are considerably smaller than we are. Compared to peers outside the property and casualty insurer group we may experience more volatility (particularly with regard to the impact of catastrophe losses) and there are different factors impacting our financial statements, and therefore these peers may have markedly different results in a given year than the Company for external reasons. However, these companies’ size and complexity better match the Company’s characteristics and therefore make them viable compensation peers. For our CEO, we rely exclusively on the Compensation Benchmarking Peer Group. For the other NEOs, we rely on a broader set of industry-specific market survey data. Our 2018 Compensation Benchmarking Peer Group is:
How We Select, and Who is Currently in, Our Compensation Benchmarking Peer Group
| • The Allstate Corporation • American Express Company • American International Group, Inc. • Aon plc • Bank of America Corporation • The Bank of New York Mellon • BlackRock, Inc. • Cigna Corp. | • Citigroup Inc. • The Goldman Sachs Group, Inc. • Marsh & McLennan Companies, Inc. • MetLife, Inc. • Morgan Stanley • Prudential Financial, Inc. • The Travelers Companies, Inc. |
How We Select, and Who is Currently in, Our Financial Performance Peer Group
How We Select, and Who is Currently in, Our Financial Performance Peer Group The Financial Performance Peer Group includes companies that we view as comparable to us from a business perspective and our closest direct business competitors. The composition of the Financial Performance Peer Group is reviewed annually by the Compensation Committee. Following its review, the Compensation Committee, in consultation with its independent compensation consultants, determined to make two changes to this peer group. The first Executive Compensation — How We Use Peer Group Data in Determining Compensation is the removal of XL Group plc as a result of its acquisition by AXA S.A. in September 2018. The second change is the addition of The Allstate Corporation to replace XL so that this peer group continues to have a sufficient number of companies. Beginning in 2019, Allstate will be taken into account for evaluating relative performance and included in the vesting criteria for performance-based equity awards. Other than the changes above, this peer group has remained stable for over a decade with the exceptions of American International Group, Inc., which was omitted from the group during the financial crisis when it ceased to disclose financial results in a format that enabled performance comparisons, and the removal of Chubb Corp., since it was acquired by us in January 2016. It includes two companies (three beginning in 2019) in the Compensation Benchmarking Peer Group that are considered commercial property and casualty insurance companies. It also has three additional commercial property and casualty insurance companies that are not in the Compensation Benchmarking Peer Group because of their size and ownership structure. We think the Financial Performance Peer Group is the most relevant peer group to compare to the financial performance of the Company on growth in tangible book value per common share, core operating return on equity, core operating income and P&C combined ratio. Our 2018 Financial Performance Peer Group is*:
How We Select, and Who is Currently in, Our Financial Performance Peer Group
| • American International Group, Inc. • CNA Financial Corporation • The Hartford Financial Services Group, Inc. | • The Travelers Companies, Inc. • Zurich Financial Services Group |
How We Select, and Who is Currently in, Our Financial Performance Peer Group
| XL Group plc was removed from the peer group due to its 2018 acquisition by AXA S.A. Allstate has been added beginning in 2019.* |
How We Select, and Who is Currently in, Our Financial Performance Peer Group
How We Determine Total Direct Compensation Pay Mix
Introduction—Determining the Mix of Total Direct Compensation
Introduction—Determining the Mix of Total Direct Compensation The components of our NEO’s total direct compensation vary depending on level. Our more senior officers receive a greater percentage of their total direct compensation as variable or at-risk compensation. This consists of an annual cash bonus and a long-term incentive equity award composed of stock options and restricted stock. For restricted stock, at least 60 percent is in the form of performance shares, as described below. Total cash compensation, which consists of annual base salary and annual cash bonus, is typically less than half of total direct compensation. The Compensation Committee reviews the percentage of total direct compensation delivered in annual base salary, annual cash bonus, and long-term incentive equity awards for similar positions in our Compensation Benchmarking Peer Group. For all NEOs other than the CEO the Compensation Committee also considers the broader insurance market.
Elements of Total Direct Compensation
Elements of Total Direct Compensation Annual Base Salary The Compensation Committee reviews and approves or modifies the CEO’s recommendations for the annual base salary of each NEO. The Compensation Committee recommends, and the full Board of Directors determines, the annual base salary for the CEO. On an annual basis, the Committee reviews each NEO’s actual annual base salary in reference to the median compensation levels for comparable positions at companies in our Compensation Benchmarking Peer Group and broader insurance industry peers. The Committee also considers industry-specific market survey data for NEOs other than the CEO. While we typically target annual base salary to be at the median of the market, each NEO’s actual annual base salary may fall above or below the market median. Variable Compensation—Bonus and Equity Compensation Awards We use variable performance-based compensation in the form of the annual cash bonus and the long-term incentive equity awards in combination with annual base salary to provide an overall compensation opportunity that is closely tied to performance. When both Company performance and individual performance are considered outstanding, NEOs have the opportunity to achieve total direct compensation that approximates the 75th percentile of compensation for comparable positions at companies in our Compensation Benchmarking Peer Group. The Compensation Committee’s independent compensation consultants, Pay Governance, assess the competitive percentile for a given position based on an analysis of compensation disclosures in the most recent publicly available Compensation Benchmarking Peer Group proxy statements in combination with industry-specific market survey data. The Compensation Committee considers the opportunity to achieve or exceed the 75th percentile for outstanding performance appropriate because of the high performance expectations to which our Company executives are held, the prevailing competition for talent within our Compensation Benchmarking Peer Group, and the ambitious financial goals of the Company, which the Board reviews and approves each year. Annual Cash Bonus The annual cash bonus component of total direct compensation provides a timely link between recent performance and compensation. This allows the Compensation Committee to adjust annual compensation to reflect overall Company financial performance during the prior fiscal year as well as the individual performance of each NEO. Each NEO’s 2018 annual cash bonus was determined in early 2019 and was based on:
Elements of Total Direct Compensation
This process culminates in a specific annual cash bonus opportunity for each NEO that ranges between zero and 300 percent of annual base salary based on performance, with the exception of the CEO, for whom the range is up to 500 percent of annual base salary (see 2018 Total Direct Compensation – Supplemental Table on page 93). Long-Term Incentive Equity Awards The Compensation Committee bases the value of each NEO’s long-term incentive compensation award on the past year’s performance as measured against the Individual and Company Performance Criteria, described above, as well as, for some NEOs as further specified below, the performance of the operating unit(s) directly managed by the NEO. The Compensation Committee uses long-term incentive equity awards, principally in the form of stock options, restricted stock (time-based) and performance-based restricted stock, as:
Elements of Total Direct Compensation
| • | a forward-looking vehicle for retention of executive talent due to the multi-year vesting schedule for equity awards; |
Elements of Total Direct Compensation
| • | an important driver of long-term performance and risk management; and |
Elements of Total Direct Compensation
This process culminates in a specific long-term incentive equity award for each NEO that is linked both to prior year performance and multi-year future performance. The range of the value of the award as a percentage of annual base salary varies greatly among NEOs depending on position and performance but has been targeted to be between 200 percent and 500 percent of annual base salary, with the exception of the CEO, for whom the range is up to 900 percent of annual base salary.
Variable Compensation
Variable Compensation Criteria and Vesting Schedules Each year the Compensation Committee reviews the vesting criteria for Executive Management and NEOs. Since August 2014, all grants to members of Executive Management and our NEOs have been subject to double-trigger vesting upon a change in control. Options and restricted stock also vest if a recipient’s termination of employment occurs by reason of death or disability. Continued vesting requires uninterrupted employment with the Company unless the Compensation Committee (by recommendation from the CEO) exercises its discretion and grants continued vesting in unvested equity in connection with an employee’s separation from the Company. Also, upon reaching age 62 and having 10 years of service, employees who retire from the Company in good standing will be granted continued vesting without requiring Compensation Committee approval. Performance-Based Restricted Stock Criteria and Vesting The Compensation Committee established performance criteria for at least 60 percent of the restricted stock awards to NEOs and several other senior officers. The performance criteria is applied to 75 percent of the restricted stock awards granted to the CEO; 66 percent of the restricted stock awards granted to the Executive Vice Chairman and COO; and 60 percent of the stock awards granted to the other participating executives. For awards granted prior to January 2017, our performance criteria tie the annual vesting of these awards to specified performance targets, namely growth in our tangible book value per common share. We selected this financial measure because it is a strong indicator of growth in shareholder value for a commercial property and casualty insurer and a common financial performance measure for companies in our industry. For awards granted beginning in January 2017, our Compensation Committee has added P&C combined ratio to the vesting criteria in addition to growth in our tangible book value per common share, with a TSR modifier for Premium Awards. The vesting period for awards beginning in January 2017 is also now a three-year cliff vest rather than the previous four-year annual vesting period. To determine whether awards vest, we compare our performance to the Company’s Financial Performance Peer Group (see “How We Select, and Who is Currently in, Our Financial Performance Peer Group”). Special Recognition Long-Term Incentive Equity Awards Granted in 2019 In February 2019, the Board of Directors authorized and awarded supplemental equity awards to Messrs. Krump and Lupica in addition to the compensation awarded to them on the basis of the Company’s 2018 financial performance. For these NEOs, this award was in the form of an additional grant of performance-based restricted stock with the same vesting criteria as the performance-based restricted stock awarded as part of annual compensation for 2018. The awards ($500,000 for Mr. Krump, $250,000 for Mr. Lupica) were granted in recognition of their substantial contributions to the Company in 2018. Mr. Krump’s award also reflects consideration of benefit structure changes following the acquisition of Chubb Corp. These special recognition awards are not considered as part of the NEO’s annual run rate compensation and will not be considered for the purpose of determining future compensation. Special Recognition Long-Term Incentive Equity Awards Granted in 2016 In recognition of the extraordinary efforts of certain Company employees, including the NEOs, who undertook substantial additional work associated with the pre-closing phase of our acquisition of Chubb Corp., the Board of Directors authorized and awarded supplemental equity awards to these employees in February 2016. These awards were in addition to the compensation otherwise awarded on the basis of the Company’s 2015 financial performance. For the NEOs, this award was in the form of an additional grant of performance-based restricted stock with the same vesting criteria as the performance-based restricted stock awarded as part of annual compensation for 2015. The awards were granted as follows: $4 million for Mr. Greenberg, $1 million for Mr. Bancroft, $2.1 million for Mr. Keogh, $1 million for Mr. Krump and $1.6 million for Mr. Lupica. For Messrs. Greenberg and Keogh, however, any shares earned will cliff-vest at the end of the four-year period to support the retention of these key officers through the completion of the integration plan. Furthermore, to link compensation with the creation of shareholder value, for Messrs. Greenberg and Keogh, any shares above target (premium shares) earned based on growth in tangible book value per share will be delivered in full only if the stock price exceeds $130 per share as measured by the average price of the last 30 trading days prior to the four-year anniversary of the grant date. If the stock price does not exceed $130 per share, then only 50 percent of any earned premium shares will be delivered. Since these awards were granted for extraordinary efforts, they have not been and will not be considered for the purpose of determining future compensation. Independent Verification of Performance Criteria We have retained Ernst & Young LLP, an independent public accounting firm, to verify the calculations of our performance criteria for the vesting of performance-based restricted stock and to prepare a report on its findings. Our Compensation Committee reviews the report prepared by Ernst & Young and, based on that report, formally confirms whether, and to what extent, the performance criteria were met for the particular vesting period and how much, if any, performance-based restricted stock has vested as a result. Performance-Based Restricted Stock Awards We have two types of performance-based restricted stock awards: Target Awards and Premium Awards. Target Awards For awards granted beginning in January 2017, each Target Award is subject to a three-year performance period with a cliff vesting at the end of the period, subject to the following criteria:
Variable Compensation
For awards granted prior to January 2017, each Target Award of performance-based restricted stock consists of four annual installments. The vesting of each annual installment is subject to the following criteria:
Variable Compensation
Issuance Criteria For awards granted beginning January 2017, shares will cliff-vest at the end of a three-year period, and if the performance goal is not achieved at the end of this period, the shares will be forfeited. For awards granted prior to January 2017, if the performance-based restricted stock does not vest in a particular one-year period applicable to that installment, it may later vest in a subsequent year if the aggregate to-date performance exceeds the minimum applicable vesting performance percentage or the cumulative four-year performance exceeds the median performance for growth in tangible book value per common share. If the performance goal is not achieved within four years, the shares will be forfeited. Premium Awards For awards granted beginning in January 2017, if the weighted average of growth in tangible book value per common share and P&C combined ratio (weighted at 70 percent and 30 percent, respectively) compared with other companies included in our Financial Performance Peer Group over the three-year performance period, which we refer to as three-year cumulative performance, exceeds a certain percentile, a Premium Award of additional shares, over and above the yearly Target Award (up to a maximum of 65 percent of the Target Award), will be earned as follows:
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
| • | 3-year cliff-vesting |
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
| • | No “second chance” look-back vesting |
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
| • | Two performance metrics: tangible book value per share growth and P&C combined ratio |
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
| • | TSR modifier for Premium Awards |
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
| • | Maximum payout opportunity of 165% of target (previously 200%) |
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
Issuance Criteria Shares representing Target Awards are issued when the performance award is approved. They are subject to forfeiture if applicable performance criteria are not met. For awards granted beginning in January 2017, Premium Awards have been issued subject to vesting if actually earned or forfeited if not earned at the end of the three-year performance period. For awards granted in February 2015 and prior to January 2017, Premium Awards have been issued subject to vesting if actually earned or forfeited if not earned at the end of the four-year performance period. The Compensation Committee lacks discretion to increase the vesting of any performance-based award other than what was achieved based on the actual performance. Beginning in 2017, the Compensation Committee has agreed at the start of all performance periods to adjust the performance goals for Chubb and peer companies to exclude changes based on:
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
| • | any accretion or dilution to tangible book value resulting from any acquisition or disposition involving such entity during the applicable performance measurement period; |
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
| • | the net effect of transaction and integration costs associated with any acquisition or disposition involving such entity; and |
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
| • | any disposition involving such entity or its assets which results in a gain or loss to such entity. |
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
Prior to 2017, the Compensation Committee had agreed at the start of all performance periods to adjust the growth in tangible book value per share for Chubb and peer companies to exclude changes based on:
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
| • | corporate acquisitions or dispositions affecting goodwill; or |
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
| • | corporate dispositions resulting in gains or losses. |
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
These circumstances could materially impact growth in tangible book value per common share. Without this adjustment, executives could be unduly penalized or enriched for taking actions that are in the best interests of Chubb but reduce growth in tangible book value per common share. In May 2018, Target Awards granted to NEOs in February 2014 earned a Premium Award of 100 percent. Stock Option and Restricted Stock Grants: Timing and Pricing The Compensation Committee typically grants stock options and restricted stock to NEOs annually, effective the day of the February Board of Directors meeting. From time to time the Compensation Committee may make off-cycle grants to NEOs to recognize mid-year promotions or other circumstances.
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
| • | The option exercise price is the closing price of our Common Shares as traded on the NYSE on the grant date. Officers who join the Company after February in a given year may be granted stock options and restricted stock following their start date. |
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
| • | To determine the number of shares for an option award, we use a notional Black-Scholes option value. In 2018 and 2019 that notional value was 25 percent of the stock price, calculated in each case at the time that we make the decision to grant the option. We typically base the number of shares to be covered by a restricted stock grant on the closing stock price on the date that we make the decision to grant the restricted stock. |
Key Features of Performance-Based Restricted Stock Awards (for awards granted after January 2017)
How We Determine and Approve NEO Compensation
Role of Independent Consultants in Advising the CEO and Compensation Committee on NEO Compensation Determinations
Role of Independent Consultants in Advising the CEO and Compensation Committee on NEO Compensation Determinations The Compensation Committee directly retains Pay Governance to assist management in the collection and analysis of relevant market data including compensation and financial performance data for our Compensation Benchmarking and Financial Performance Peer Groups. Pay Governance also provides compensation benchmarking for the positions held by our NEOs for consideration by the CEO and the Compensation Committee. In addition, the Compensation Committee currently retains Pay Governance to assist it with respect to the compensation of the CEO. For this assignment, Pay Governance meets directly with the Compensation Committee to review Company performance, the performance of the CEO and provides guidance on CEO compensation in the form of proposed compensation ranges for the annual cash bonus and long-term incentive equity award. In addition, Pay Governance facilitates discussion, reviews peer groups and provides guidance on current trends in executive compensation practices, in general, and CEO compensation practices, specifically. The Compensation Committee has the authority to retain and terminate Pay Governance and to approve their fees and other retention terms.
How We Determine Compensation For Our CEO
How We Determine Compensation For Our CEO Each year, the Compensation Committee sets a scorecard for the potential range of CEO compensation, with top-, middle- and low-end bands tied to achievement of specific financial, operational and strategic goals, considered together with TSR, as reflected in the following summary for 2018: 1.Set CEO Compensation Range Determine total com sensation parameters under various perfonnance scenarios: Strategic assessment of short-term and long-term TSR performance Scorecard results exceed expectations Scorecard results meet expectations 1 Scorecard results meet expectations 1 Scorecard results below expectations 2.Set CeO Goals In the first quarter of 201H, the Commit tee approved goals related to financial, operational and strategic goals. 3.Evaluate Performance vs. Goals In the first quarter of 2019 the Committee reviewed actual results on an absolute basis and relative to our Financial Performance Peer Group, as well as underlying core performance including and excluding catastrophe losses and our performance against non-financiat operating and strategic goals. On average across our key financial metrics, our performance versus peers was at the 66th percentile. Despite the natural catastrophes in 2018, our results included an industry-leading P&C combined ratio and tangible book value per share growth that were each at the 100th percentile, exceeding each member of our peer group. We also had strong core operating income growth and a solid core operating ROE, which were at the 30th and 35th percentiles, respectively. Our key metrics, except for tangible book value per share growth, improved significantly from prior year but each of our metrics did not exceed plan due to 2018 natural catastrophes. One-year TSR was at the 75th percentile and three-year annualized TSR exceeded the peer group median, but both were below prior year. We also met or exceeded our non-financial operating and strategic goals to further position us as an industry leader and for long-term growth and shareholder value creation. A Set Final CEO Compensation Based on our absolute and relative performance, strategic accomplishments, and long-term strategy execution, the Committee set a final CEO compensation value including base salary, annual cash incentive and long-term equity incentive awards.
How We Determine Other NEO Compensation
How We Determine Other NEO Compensation For other NEOs, total direct compensation is determined by the CEO and approved or modified by the Compensation Committee. The compensation framework is similar to that for the CEO as described in “How We Determine Compensation For Our CEO” above as compensation decisions are based in part on overall Company performance, although compensation decisions also include consideration of the performance of the operating units or support functions under each NEO’s management. Decisions are also influenced by each NEO’s individual performance, within the context of compensation market data for each position provided by Pay Governance. As part of the annual compensation cycle, the CEO, with assistance from the Global Human Resources Officer, reviews appropriate compensation market data for each NEO. For those NEOs directly managing an operating unit, the review includes market data for other business segment leaders of comparatively sized business units within our Compensation Benchmarking Peer Group as well as for business segment leaders from other insurance industry peers. For those NEOs managing a support function, the review includes market data for other support function leaders within our Compensation Benchmarking Peer Group as well as for support function leaders from other insurance industry peers. This review and market analysis informs decision-making about annual compensation for our NEOs. 2018 NEO Total Direct Compensation and Performance Summary Below we provide a summary of each of our named executive officers’ total direct compensation and an overview of their 2018 performance relative to achieving our annual and long-term performance goals. The process the Compensation Committee uses to determine each officer’s 2018 compensation is described more fully in “How We Determine and Approve NEO Compensation” beginning on page 87.
2018 Performance Summary
| • | Tangible book value per share growth of 0.03% exceeded each member of our Financial Performance Peer Group |
2018 Performance Summary
| • | Established new distribution partnerships to expand global presence and growth potential, including a long-term bancassurance arrangement with Citibanamex in Mexico and a strategic distribution partnership with Grab, a leading on-demand transportation and fintech platform in Southeast Asia |
Compensation Committee Decisions
Compensation Committee Decisions • Base salary was increased 3 percent • Annual cash bonus was increased 8 percent • Long-term incentive equity award was increased 4 percent • 2018 total direct compensation was increased 5 percent
Compensation Committee Decisions
Compensation Committee Decisions • Base salary was unchanged • Annual cash bonus was increased 4 percent • Long-term incentive equity award was increased 7 percent • 2018 total direct compensation was increased 6 percent
Compensation Committee Decisions
| • | Annual cash bonus was increased 8 percent |
Compensation Committee Decisions
| • | Long-term incentive equity award increased 5 percent |
Compensation Committee Decisions
| • | Additional special recognition long-term incentive equity award of $500,000 |
Compensation Committee Decisions
Compensation Committee Decisions • Base salary was increased 2 percent • Annual cash bonus was increased 6 percent • Long-term incentive equity award was increased 6 percent • Additional special recognition long-term incentive equity award of $250,000 • 2018 total direct compensation was increased 6 percent (excluding special recognition award)
2018 Total Direct Compensation – Supplemental Table
2018 Total Direct Compensation – Supplemental Table Each February, the Compensation Committee and the Board of Directors approve compensation for each NEO including any adjustments to base salary, cash bonus in recognition of prior calendar year’s performance and long-term incentive equity awards. The long-term incentive equity awards consist of stock options, valued using a notional Black Scholes option valuation methodology representing roughly 25 percent of the closing market price at the date of grant; time-based restricted stock awards; and performance shares, which are subject to performance-based vesting criteria, valued at the closing market price at the date of grant. The key compensation components for each of our NEOs as considered by the Compensation Committee are summarized in the table below. The totals and the equity award values do not directly correlate to what is ultimately reported in the Summary Compensation Table in accordance with SEC rules (for example, the equity award column below reflects February 2019 grants, while the Summary Compensation Table reflects February 2018 grants).
2018 Named Executive Officers Compensation – Supplemental Table
| Name and Principal Position | Year | Salary | Bonus | Stock Awards(1) | Option Awards(2) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(3) | All Other Compensation(4) | Total | | Evan G. Greenberg Chairman, President and Chief Executive Officer | 2018 | $1,400,000 | $6,100,000 | $8,849,881 | $2,761,129 | — | $1,246,474 | $20,357,484 | | | 2017 | $1,400,000 | $5,500,000 | $8,849,933 | $2,183,422 | — | $1,183,046 | $19,116,401 | | | 2016 | $1,400,000 | $6,600,000 | $12,850,051 | $2,406,837 | — | $1,162,598 | $24,419,486 | | Philip V. Bancroft Chief Financial Officer | 2018 | $818,000 | $1,363,300 | $1,687,511 | $526,473 | — | $644,591 | $5,039,875 | | | 2017 | $793,750 | $1,268,000 | $1,874,967 | $462,600 | — | $652,649 | $5,051,966 | | | 2016 | $768,750 | $1,470,000 | $2,818,747 | $494,616 | — | $620,577 | $6,172,690 | | John W. Keogh Executive Vice Chairman and Chief Operating Officer | 2018 | $963,462 | $2,505,000 | $3,001,466 | $936,436 | — | $452,934 | $7,859,298 | | | 2017 | $919,231 | $2,400,000 | $3,262,565 | $804,907 | — | $478,261 | $7,864,964 | | | 2016 | $896,111 | $2,610,000 | $5,174,945 | $836,266 | — | $453,691 | $9,971,013 | | Paul J. Krump President, North America Commercial and Personal Insurance | 2018 | $859,231 | $1,743,000 | $1,690,515 | $527,410 | $1,310,110 | $73,054 | $6,203,320 | | | 2017 | $840,000 | $1,619,200 | $1,837,434 | $453,341 | $2,202,478 | $58,432 | $7,010,885 | | | 2016 | $840,000 | $1,760,000 | $999,946 | — | $2,288,521 | $62,206 | $5,950,673 | | John J. Lupica Vice Chairman; President, North America Major Accounts and Specialty Insurance | 2018 | $854,615 | $1,913,400 | $2,297,704 | $716,874 | — | $425,751 | $6,208,344 | | | 2017 | $815,385 | $1,800,000 | $2,497,593 | $616,174 | — | $434,731 | $6,163,883 | | | 2016 | $793,519 | $1,980,000 | $3,962,632 | $642,511 | — | $413,348 | $7,792,010 |
Chubb Corp. Pension Plan
Chubb Corp. Pension Plan Employees of Chubb Corp. on the date of its acquisition by the Company were eligible to participate in the Chubb Corp. Pension Plan, a tax-qualified defined benefit plan. Mr. Krump participates in the Chubb Corp. Pension Plan on the same terms and conditions as other eligible employees, except as noted below. The Chubb Corp. Pension Plan, as in effect during 2018, provides each eligible employee with annual retirement income beginning at age 65 equal to the product of:
Chubb Corp. Pension Plan
| • | the total number of years of participation in the Chubb Corp. Pension Plan; and |
Chubb Corp. Pension Plan
| • | 1.75 percent of average compensation for the highest five years in the last ten years of participation prior to retirement during which the employee was most highly paid or, if higher, the last 60 consecutive months (final average earnings). |
Chubb Corp. Pension Plan
Average compensation under the Chubb Corp. Pension Plan includes salary and annual non-equity incentive compensation. A social security offset is subtracted from this benefit. The social security offset is equal to the product of:
Chubb Corp. Pension Plan
| • | the total number of years of participation in the Chubb Corp. Pension Plan; and |
Chubb Corp. Pension Plan
| • | an amount related to the participant’s primary social security benefit. |
Chubb Corp. Pension Plan
Benefits can commence as early as age 55. However, if pension benefits commence prior to age 65, they may be actuarially reduced. The reduction in the gross benefit (prior to offset for social security benefits) is based on the participant’s age at retirement and years of Chubb Corp. Pension Plan participation as follows:
Chubb Corp. Pension Plan
| • | If the participant has at least 25 years of Chubb Corp. Pension Plan participation, benefits are unreduced at age 62 (Mr. Krump has more than 25 years of Chubb Corp. Pension Plan participation). They are reduced 2.5 percent per year from 62 to 60 (5 percent reduction at 60) and 5 percent per year from 60 to 55 (30 percent reduction at 55). |
Chubb Corp. Pension Plan
| • | If the participant has at least 15 but less than 25 years of Chubb Corp. Pension Plan participation, benefits are unreduced at age 65. They are reduced 2 percent per year from 65 to 62 (6 percent reduction at 62) and 4 percent per year from 62 to 61 (10 percent reduction at 61) and 5 percent per year from 61 to 55 (40 percent reduction at 55). |
Chubb Corp. Pension Plan
| • | If the participant has less than 15 years of Chubb Corp. Pension Plan participation, benefits are unreduced at age 65. They are reduced 6.67 percent per year from 65 to 60 (33.3 percent reduction at 60) and 3.33 percent per year from 60 to 55 (50 percent reduction at 55). |
Chubb Corp. Pension Plan
The participant’s social security benefit is reduced based on factors relating to the participant’s year of birth and age at retirement. Executive Compensation — Pension Benefits Benefits are generally paid in the form of an annuity. If a participant retires and elects a joint and survivor annuity, the Chubb Corp. Pension Plan provides a 10 percent subsidy. The portion of the benefit attributable to the cash balance account, as described in the following paragraph, may be paid in the form of a lump sum upon termination of employment. Effective January 1, 2001, the Chubb Corp. Pension Plan was amended to provide a cash balance benefit, in lieu of the benefit described above, to reduce the rate of increase in the Chubb Corp. Pension Plan costs. This benefit provides for a participant to receive a credit to his or her cash balance account every six months. The amount of the cash balance credit increases from 2.5 percent to 5 percent of compensation as the sum of a participant’s age and years of service credit increases. The maximum credit of 5 percent of compensation (subject to the maximum limitation on compensation permitted by the Internal Revenue Code) earned over the preceding six months is made when the sum of a participant’s age and years of service credit equals or exceeds 55 (which is the case for Mr. Krump). Amounts credited to a participant’s cash balance account earn interest at a rate based on the 30-year U.S. treasury bond rate, subject to a minimum interest rate of 4 percent. Participants who were hired by Chubb Corp. prior to January 1, 2001 (including Mr. Krump) will receive a benefit under the Chubb Corp. Pension Plan equal to the greater of the pension benefit described in the preceding paragraphs or the amount calculated under the cash balance formula. ERISA and the Internal Revenue Code impose maximum limitations on the recognized compensation and the amount of a pension which may be paid under a funded defined benefit plan such as the Chubb Corp. Pension Plan. The Chubb Corp. Pension Plan complies with these limitations. In 2016 the Chubb Corp. Pension Plan was amended to freeze further benefit accruals effective as of December 31, 2019.
Chubb Corp. Pension Excess Benefit Plan
| 4 | This table does not include amounts under the Chubb Corp. Pension Excess Benefit Plan, which appear in the Pension Benefits table on page 102. |
Non-Qualified Retirement Plans and Deferred Compensation Plans
| The Chubb US Deferred Compensation Plan This is a non-qualified deferred compensation plan for a select group of employees who are generally higher paid that permits them to defer the receipt of a portion of their compensation. | • The plan also credits employer contributions that would have been made or credited to the Chubb US 401(k) Plan, the Chubb US Basic Retirement Plan, or the Chubb US Supplemental Retirement Plan if the employee had received the compensation rather than electing to defer it, subject to the same vesting period as those plans. • Participants generally elect the time and form of payment at the same time that they elect to defer compensation. Participants may elect: – to receive distributions at a specified date or at termination of employment; – to receive distributions in the form of a lump sum or periodic payments; – a different distribution date and form of payment each time they elect to defer compensation. The new date and payment form will apply to the compensation that is the subject of the new deferral election. • For plan amounts subject to Internal Revenue Code Section 409A, the plan imposes additional requirements on the time and form of payments. • Chubb makes employer contributions once each year for participants employed on December 31. | | The Pension Excess Benefit Plan of The Chubb Corporation (assumed in connection with the Chubb Corp. acquisition) This plan is a supplemental, nonqualified, unfunded plan similar to the Chubb Corp. Pension Plan but recognizes compensation above IRS compensation limits. Plan accruals will freeze effective December 31, 2019, when the Chubb Corp. Pension Plan benefits freeze. | • The plan’s benefits are calculated in the same fashion as the Chubb Corp. Pension Plan benefits in excess of IRS limits. • The plan benefits are generally paid in a lump sum using an interest rate of 5 percent. • Additional distribution options are permitted for benefits accrued prior to 2005. | | The Defined Contribution Excess Benefit Plan of The Chubb Corporation (assumed in connection with the Chubb Corp. acquisition) This is a non-qualified deferred compensation plan for a select group of employees who are generally higher paid that permits them to defer the receipt of a portion of their compensation. Amounts credited for service in 2016 and later are paid in cash (not deferred). | • The plan provides a 4 percent contribution above the IRS qualified plan limits. • Prior to the Chubb Corp. acquisition, participants could choose to defer these amounts or receive them in cash. • Deferrals are notionally invested in the Fidelity Stable Value Fund. • In 2004, The Chubb Corporation Employee Stock Ownership Excess Benefit Plan was merged with the plan. • Earnings on The Chubb Corporation Employee Stock Ownership Plan shares are based on the change in Common Shares and dividends paid. | | The Chubb Corporation Key Employee Deferred Compensation Plan (assumed in connection with the Chubb Corp. acquisition) This is a non-qualified deferred compensation plan for a select group of employees who are generally higher paid that permits them to defer the receipt of a portion of their compensation. | • The plan permitted deferrals of salary, bonus and stock awards. • Our acquisition of Chubb Corp. was a distributable event (where chosen) and Mr. Krump received a distribution from the plan. • The plan contains an older plan, The Chubb Corporation Executive Deferred Compensation Plan, which is not subject to Internal Revenue Code Section 409A. Mr. Krump has deferrals under both pre-409A and 409A plans. |
How will the directors and executive officers of the Company vote?
How will the directors and executive officers of the Company vote? At the close of business on March 25, 2019, our directors and executive officers owned and were entitled to vote an aggregate of 2,753,410 Common Shares, which represented approximately 0.6 percent of our outstanding Common Shares. Each of our directors, nominees and executive officers have indicated their present intention to vote, or cause to be voted, their shares in favor of all of the agenda items at the Annual General Meeting, apart from Agenda Item 3, the discharge of the Board of Directors, where their vote will not be counted in accordance with Swiss law.

DEF 14A of Chubb Ltd

How We Use Peer Groups

How We Use Peer Groups

How We Use Peer Groups

Long-Term Performance Highlights

Long-Term Performance Highlights

Long-Term Performance Highlights

2018 Performance: Key Metrics and Strategic Achievements

2018 Performance: Key Metrics and Strategic Achievements

2018 Compensation Decisions

2018 Summary Compensation Table Information

2018 Summary Compensation Table Information

Executive Compensation, Good Governance and Risk Management

Executive Compensation, Good Governance and Risk Management

Voting Requirement to Approve Agenda Item

Voting Requirement to Approve Agenda Item

Explanation of Proposal

Q&A Relating to Shareholder Ratification of the Maximum Aggregate Compensation of the Board

Process Used to Determine Maximum Aggregate Compensation for the Board of Directors, Outside Consultant Survey and Analysis of Director Compensation

Our Compensation Program

Our Compensation Program

Our Compensation Program

Our Compensation Program

Our Compensation Program

Compensation Consultants

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Elements of Director Compensation

Executive Summary

Pay-for-Performance Framework

Pay-for-Performance Framework

Why Vote “For” Say-on-Pay?

How We Use Peer Groups

How We Use Peer Groups

How We Use Peer Groups

Long-Term Performance Highlights

Long-Term Performance Highlights

Long-Term Performance Highlights

2018 Performance: Key Metrics and Strategic Achievements

2018 Performance: Key Metrics and Strategic Achievements

2018 Compensation Decisions

Our Compensation Philosophy

What We Reward: Individual and Company Performance Criteria

What We Reward: Individual and Company Performance Criteria

Components of Total Direct Compensation

Annual Board Committee Review of Executive Compensation Practices

Our NEO Compensation Components and Their Relationship to Risk