All such concerns will be reviewed under our Audit Committee’s direction and oversight by the General Counsel, our Internal Audit Department or such other persons as our Audit Committee determines to be appropriate. Confidentiality will be maintained to the fullest extent possible, consistent with the need to conduct an adequate review. Prompt and appropriate corrective action will be taken when and as warranted in the judgment of our Audit Committee. The General Counsel will prepare a periodic summary report of all such communications for our Audit Committee.
Our Code of Business Conduct provides that we will not discharge, demote, suspend, threaten, harass or in any manner discriminate against any employee in the terms and conditions of employment based upon any lawful actions of such employee with respect to good faith reporting of complaints regarding accounting matters or otherwise as specified in Section 806 of the Sarbanes-Oxley Act of 2002.
Our directors are expected to attend all Board meetings, meetings of committees on which they serve and the annual meeting of shareholders. ElevenTwelve of our directors attended the 20082009 Annual Meeting of Shareholders. Directors also are expected to spend the time needed and to meet as frequently as necessary to properly discharge
| | |
| | • | a market value account; or |
| |
| | • | a shareholders’ equity account. |
A non-employee director participating in the Director Deferred Compensation ProgramPlan for Directors may elect to receive the compensation deferred in either a lump sum or in annual installments. All amounts are paid in cash, except for the market value accounts which we pay in shares of our common stock. Deferred compensation represents an unsecured obligation payable out of our general corporate assets.
Cash Accounts. Interest bearing accounts (cash accounts) bear interest at the lesser of 120% of the applicable long-term federal interest rate and Citibank, N.A.’s prime rate in effect on the first day of each January, April, July and October during the deferral period. At December 31,
2008,2009, we maintained
a cash
accountaccounts for
two non-employee directors, one
non-employee directorof whom deferred 2009 compensation into this account pursuant to the
Director Deferred Compensation
Program.Plan for Directors.
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Market Value Accounts. Market value accounts, which are denominated in units with one unit having the equivalent value of one share of our common stock, track the value of shares of our common stock. On each date compensation otherwise would have been paid in accordance with our normal practice (the credit date), non-employee directors deferring cash compensation into market value accounts are credited with the number of market value units equal to the quotient of:
| | |
| | • | the amount of compensation deferred by the non-employee director, divided by |
| |
| | • | the closing share price of our common stock on the NYSE on the credit date or on the trading day preceding the credit date if the credit date is not a trading day. |
When we pay cash dividends on our common stock, the market value account of each participating non-employee director is credited with the number of market value units equal to:
| | |
| | • | the product of (i) the amount of the dividend per share, multiplied by (ii) the number of units in the non-employee director’s market value account on the dividend payment date, divided by |
| |
| | • | the closing share price of our common stock on the NYSE on the dividend payment date or on the trading day preceding the dividend payment date if the dividend payment date is not a trading day. |
At December 31, 2008,2009, we maintained market value accounts for sevensix non-employee directors, threetwo of whom deferred 20082009 compensation into a market value account pursuant to the Director Deferred Compensation Program.Plan for Directors.
Shareholders’ Equity Accounts. Shareholders’ equity accounts, which are denominated in units, track the book value per share of our common stock. On each date compensation otherwise would have been paid in accordance with our normal practice, non-employee directors deferring cash compensation into shareholders’ equity accounts are credited with the number of shareholders’ equity units equal to the quotient of:
| | |
| | • | the amount of compensation deferred by the non-employee director, divided by |
| |
| | • | the shareholders’ equity per share as reported in our annual report to shareholders for the immediately preceding year. |
When we pay cash dividends on our common stock, the shareholders’ equity account of each participating non-employee director is credited with the number of shareholders’ equity units equal to:
| | |
| | • | the product of (i) the amount of the dividend per share, multiplied by (ii) the number of units in the non-employee director’s shareholders’ equity account on the dividend payment date, divided by |
| |
| | • | the closing share price of our common stock on the NYSE on the dividend payment date or on the trading day preceding the dividend payment date if the dividend payment date is not a trading day. |
At December 31, 2008,2009, we did not maintain shareholders’ equity accounts for any of our non-employee directors.
Equity Compensation. We offer Prior to 2009, we offered non-employee directors the option of deferring receipt of all or a portion of their equity compensation.
At December 31, 2009, we maintained deferred equity accounts for seven non-employee directors who had elected to defer receipt of all or a portion of the shares they would have been
17
entitled to receive upon settlement of pre-2009 equity grants. Amounts of voluntarily deferred equity are payable at the option of the non-employee director either upon the non-employee director’s terminationseparation of service from our Board or at a specified date chosen by the non-employee director at the time the deferral election is made. Non-employee directors receive current payment of dividend equivalents on their deferred equity.equity, whether such deferral is voluntary or mandatory. We declare and pay dividend equivalents on equity held in director deferral accounts at the same rate and at the same time as we declare and pay dividends on our common stock generally. At December 31, 2008, we maintained
In 2009, our Governance Committee determined that deferred stock units would be the primary equity accountsaward structure under the 2009 LTIP for nineour non-employee directors. Accordingly, in April 2009, our non-employee directors sixwere awarded deferred stock units which vested immediately upon grant but the issuance of whomthe shares underlying such awards was mandatorily deferred 2008 equity compensation.until following each recipient’s separation of service from our Board.
All Other Compensation
Directors’ Group Term Life Insurance Program. Our non-employee directors have the option of purchasing $50,000 in group term life insurance coverage for themselves. Directors pay the full cost of the coverage, which is based on coverage rates for our active employees. Mmes. Baird and Williams and Messrs. Small, Somers and Zollar have elected to purchase life insurance coverage under this program. In connection with the premiums they paid to purchase life insurance policies under Directors’ Group Term Life Insurance Program, income was imputed in 2009 to Mmes. Baird and Williams in the respective amounts of $107 and $531 and to Messrs. Small, Somers and Zollar in the respective amounts of $318, $165 and $178. The imputed income represented the difference between the group rates on these policies and the IRS prescribed coverage values.
Director’s Charitable Award Program. Effective January 1, 1992, we established the Director’s Charitable Award Program. Under this program, each non-employee director, following his or her first election to our Board by
18
our shareholders, maywas entitled to request that we direct one or more charitable contributions totaling up to $500,000 to eligible tax exempt organizations. We have elected to fund the Director’s Charitable Award Program through the proceeds of“second-to-die” life insurance policies that we have purchased on the lives of the participating non-employee directors. We are the owner and beneficiary of these policies. Non-employee directors have no rights in these policies or the benefits thereunder.
Under the terms of these policies, participating non-employee directors are paired and, upon the death of the second paired non-employee director, we use the proceeds of these policies to fund the contributions to the organizations selected by the non-employee directors. At December 31, 2008,2009, ten non-employee directors were participating in the program. For seven of these non-employee directors, we paid the full premium on the life insurance policies through which we fund the program prior to 2008.2009. For the remaining three non-employee directors who were participating in this program as of December 31, 2008,Messrs. McGuinn, Søderberg and Somers, the premiums paid in 2008,2009 in connection with their participation in this program, which also are reflected in the “All Other Compensation” column of the Director Compensation Table set forth under the heading “Corporate Governance—Directors’ Compensation,” are as follows:
| | | | | |
Name | | Amount | |
| |
| Martin G. McGuinn | | $ | 26,234 | |
| Jess Søderberg | | | 27,632 | |
| Daniel E. Somers | | | 33,629 | |
were $26,234, $28,219 and $26,234, respectively.
In March 2008, our Board voted to close the Director’s Charitable Award Program to future participants (with currently eligible participants under the Director’s Charitable Award Program being grandfathered). In addition, we may further amend or terminate the Director’s Charitable Award Program at our election at any time. Participating non-employee directors are entitled to change their designated charities at any time.
Changes in Director Compensation Policies for 2009Estate Enhancement Program.
In February 2009, our Board approved Prior to 2002, we maintained The Chubb Corporation Long-Term Stock Incentive Plan (2009) (the 2009 Stock Plan) subjectEstate Enhancement Program for Non-Employee Directors. This program was offered to shareholder approval at the 2009 Annual Meeting. If our shareholders approve the 2009 Stock Plan, beginning in 2009, we expect that each of our non-employee directors as an estate enhancement benefit pursuant to which a participant could exchange deferred compensation for a split-dollar whole-life insurance benefit. The program was designed so that it would be cost neutral to us, with the after-tax cost of the program (including amounts we will receive an annual equity awardupon payout of the life insurance benefit) to us being intended to approximate the participant’s foregone deferred compensation. During 2009, Mr. Small recognized imputed income of $668 in connection with the premiums paid on the insurance policies purchased in connection with his participation in the form of deferred stock units, instead of the performance units and stock units awarded under the 2004 Director Plan discussed above. Information regarding the deferred stock units is set forth under the heading “Proposal 2— Adoption of The Chubb Corporation Long-Term Incentive Plan (2009).” We expect that the fair market value of these awards will remain approximately $100,000 per non-employee director.program.
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OUR BOARD OF DIRECTORS
Our Board oversees our business operations, assets, affairs and performance. In accordance with our long-standing practice, each of our directorsthe director nominees other than our Chief Executive Officer is independent. Our Corporate Governance Guidelines provide that no director may be nominated to a new term ifSet forth below are the director would be age 72 or older at the time of election.
The name, age, length of service on our Board and principal occupation of each director nominee, together with certain other biographical information are set forth below.and factors considered by our Governance Committee and the Board in nominating each director nominee for election to our Board. Unless otherwise indicated, each nominee has served for at least fiveten years in the business position currently or most recently held. The age of each director is as of April 28, 2009,27, 2010, the date of the 20092010 Annual Meeting.
| | | |
  | | ZOË BAIRD(Age 56)57)
Director since 1998
Zoë Baird is President of the Markle Foundation, a private philanthropy that focuses on using information and communications technologies to address critical public needs, particularly in the areas of health care and national security. Ms. Baird’s career spans business, government and academia. She has been Senior Vice President and General Counsel of Aetna, Inc., a senior visiting scholar at Yale Law School, counselor and staff executive at General Electric Co., and a partner in the law firm of O’Melveny and Myers. She was Associate General Counsel to President Jimmy Carter and an attorney in the Office of Legal Counsel of the Department of Justice. She served on President Clinton’s Foreign Intelligence Advisory Board from 1993 - 2001 and on the International Competition Policy Advisory Committee to the Attorney General. Ms. Baird served on the Technology & Privacy Advisory Committee to the Secretary of Defense in 2003 - 2004, which advised on the use of technology to counter terrorism. She is on a number of non-profit and corporate boards, including the Convergys Corporation, Boston Properties, and Brookings Institution, among others. |
| | | In selecting Ms. Baird as a director nominee, our Nominating Committee and Board considered the factors set forth under the heading “Corporate Governance - Director Qualifications and Candidate Considerations.” In addition, the Nominating Committee and the Board considered Ms. Baird’s outside board service and business activities, including her knowledge of the insurance industry, legal matters, public policy matters, governmental affairs and information technology. |
| | |
 | | SHEILA P. BURKE(Age 57)58)
Director since 1997
Faculty Research Fellow, Malcolm Wiener Center for Social Policy, Member of Faculty, J.F. Kennedy School of Government, Harvard University.University since 2007. Senior Public Policy Advisor, Baker, Donelson, Bearman, Caldwell & Berkowitz from 2009 to present. From 2004 - 2007 Deputy Secretary and Chief Operating Officer, Smithsonian Institution. Ms. Burke previously was Under Secretary for American Museums and National Programs, Smithsonian Institution, from June 2000 to December 2003 and Executive Dean and Lecturer in Public Policy of the John F. Kennedy School of Government, Harvard University, from November 1996 until June 2000. Ms. Burke served as Chief of Staff to the Majority Leader of the U.S. Senate and Deputy Staff Director of the U.S. Senate Committee on Finance from 1985 - 1996. Ms. Burke also serves on the boards of Wellpoint Inc., the Kaiser Commission on the Future of Medicaid and Uninsured, the Georgetown University School of Nursing and Health Studies, and the Partnership for Public Service.Service and the Association of American Medical Colleges. |
| | In selecting Ms. Burke as a director nominee, our Nominating Committee and Board considered the factors set forth under the heading “Corporate Governance - Director Qualifications and Candidate Considerations.” In addition, the Nominating Committee and the Board considered Ms. Burke’s outside board service and business activities, including her knowledge of public policy matters and governmental affairs. |
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| | | |
  | | JAMES I. CASH, JR.(Age 61)62)
Director since 1996
The James E. Robison Emeritus Professor of Business Administration, Harvard University. Dr. Cash was a member of the Harvard Business School faculty from July 1976 to October 2003. He also serves on the boards of General Electric Company Microsoft Corporation, Wal-Mart and Phase Forward Inc.,Wal-Mart. He owns a private company - The Cash Catalyst - and serves as a Special Advisor toor Director of several private companies including General Catalyst Partners.Partners, Verne Global and Veracode. Dr. Cash also serves on the non-profit boards of the National Association of Basketball Coaches Foundation and the Bert King Foundation. |
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| | | |
 | | JOEL J. COHEN(Age 71)
In selecting Dr. Cash as a director nominee, our Nominating Committee and Board considered the factors set forth under the heading “Corporate Governance - Director since 1984
ChairmanQualifications and Co-Chief Executive Officer of Sagent Advisors Inc., a financial advisory firm, since September 2003. Mr. Cohen has been Lead Director of Chubb’s Board since December 2003Candidate Considerations.” In addition, the Nominating Committee and was Chairman of the Board (non-executive) from December 2002 to December 2003. Mr. Cohen previously was Managing Directorconsidered Dr. Cash’s outside board service and co-headbusiness experience, including his knowledge of Global Mergersinformation technology, strategic planning and Acquisitions at Donaldson, Lufkin & Jenrette Securities Corporation (DLJ), a leading investment and merchant bank, until his retirement in November 2000. He had been associated with DLJ since October 1989. He had previously served as General Counsel to the Presidential Task Force on Market Mechanisms and as a partner of the law firm Davis Polk & Wardwell. Mr. Cohen also serves on the boards of Borders Group, Inc. and Maersk, Inc.international business operations. |
| | | |
 | | JOHN D. FINNEGAN(Age 60)61)
Director since 2002
President and Chief Executive Officer of The Chubb Corporation since December 2002 and Chairman since December 2003. Mr. Finnegan previously had been Executive Vice President of General Motors Corporation, which is primarily engaged in the development, manufacture and sale of automotive vehicles, and Chairman and President of General Motors Acceptance Corporation, a finance company and subsidiary of General Motors Corporation, from May 1999 to December 2002. He was Vice President and Group Executive of General Motors and also President of General Motors Acceptance Corporation from November 1997 to April 1999. Mr. Finnegan was associated with General Motors Corporation from 1976 to December 2002. |
| | | |
 | | KLAUS J. MANGOLD(Age 64)
Director since 2001
Chairman of the Supervisory Board of Rothschild & Cie, Frankfurt and Vice Chairman of Rothschild & Cie, London/Paris. Dr. Mangold previously servedIn selecting Mr. Finnegan as a member ofdirector nominee, our Nominating Committee and Board considered the factors set forth under the heading “Corporate Governance - Director Qualifications and Candidate Considerations.” In addition, the Nominating Committee and the Board of Management of DaimlerChrysler AGconsidered Mr. Finnegan’s role as our Chief Executive Officer and as Chairman ofhis extensive experience in the Board of Management of DaimlerChrysler Services AG, a provider of financial services industry as well as the perspective he has gained through his outside board service and a subsidiary of DaimlerChrysler AG, until December 2003. Daimler AG is primarily engaged in the development, manufacture, distribution, sale and financing of a wide range of automotive products. Dr. Mangold also serves on the Boards of Metro AG, Magna International Inc., Canada and Alstom S.A., Paris.business activities. |
| | | |
 | | MARTIN G. McGUINN(Age 66)67)
Director since 2007
Chairman and Chief Executive Officer of Mellon Financial Corporation from January 1999 until February 2006. Mr. McGuinn held a number of positions during his 25 years at Mellon. Mr. McGuinn recently concluded a one-year term as Chairman of the Financial Services Roundtable. He served as the 2005 President of the Federal Reserve Board’s Advisory Council. Mr. McGuinn serves on the BoardBoards of Celanese Corporation and iGate Corporation, and is a member of the Advisory Board of CapGen Financial. Mr. McGuinn also serves on several nonprofit boards, including the Carnegie Museums of Pittsburgh and the University of Pittsburgh Medical Center. |
| | | In selecting Mr. McGuinn as a director nominee, our Nominating Committee and Board considered the factors set forth under the heading “Corporate Governance - Director Qualifications and Candidate Considerations.” In addition, the Nominating Committee and the Board considered Mr. McGuinn’s outside board service and business activities, including his role as Chairman and Chief Executive Officer of a major public financial services company. |
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| | |
  | | LAWRENCE M. SMALL(Age 67)68)
Director since 1989
Former Secretary of the Smithsonian Institution, the world’s largest museum and research complex, a position he held from January 2000 until March- 2007. Mr. Small previously had been President and Chief Operating Officer of Fannie Mae the nation’s largest source of financing for home mortgages, from 1991 to 2000. Mr. SmallBefore joining Fannie Mae, he served as Vice Chairman of the executive committee of the boards of directors of Citicorp and Citibank, where he worked for 27 years. He currently also serves as a director on the boards of Marriott International Inc. and New York City’s Spanish Repertory Theatre. |
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| | In selecting Mr. Small as a director nominee, our Nominating Committee and Board considered the factors set forth under the heading “Corporate Governance - Director Qualifications and Candidate Considerations.” In addition, the Nominating Committee and the Board considered Mr. Small’s outside board service and business activities, including his senior leadership roles at major public financial services companies and a government institution. |
| | | |
 | | JESS SØDERBERG(Age 64)65)
Director since 2007
Retired from A.P. Moller-Maersk in November 2007. Mr. Søderberg was Partner and Group CEO of A.P. Moller-Maersk since 1994. He joined the company after graduating with an MBA from the Copenhagen Business School in 1969, and has since held a number of senior financial positions in both the USA and Denmark. Mr. Søderberg was a member of JP Morgan Chase’s International Council until recently, is a member of Danske Bank’s Advisory Board, is a memberthe Vice Chairman of the board of Carlsberg A/S, is Chairman of Carlsberg A/S’s audit committee, and an adviser to Permira (a major international equity fund). Mr. Søderberg is honored as a Knight 1st Degree of the Order of Dannebrog and the Chilean Order of Bernardo O’Higgins. |
| | | In selecting Mr. Søderberg as a director nominee, our Nominating Committee and Board considered the factors set forth under the heading “Corporate Governance - Director Qualifications and Candidate Considerations.” In addition, the Nominating Committee and the Board considered Mr. Søderberg’s outside board service and business activities, including his role as Chief Executive Officer of a major public company and his expertise in international business operations. |
| | |
 | | DANIEL E. SOMERS(Age 61)62)
Director since 2003
Vice Chairman of Blaylock and Partners LP, an investment banking firm, from January 2002 until September 2007. Mr. Somers previously had been President and Chief Executive Officer of AT&T Broadband, a provider of cable and broadband services, from December 1999 to October 2001, and Senior Executive Vice President and Chief Financial Officer at AT&T Corp., a telecommunications company, from May 1997 to December 1999. Mr. Somers served on the board of The Lubrizol Corporation until February 2007. He is also Vice Chairmana member of the Board of Trustees of Stonehill College. |
| | In selecting Mr. Somers as a director nominee, our Nominating Committee and Board considered the factors set forth under the heading “Corporate Governance - Director Qualifications and Candidate Considerations.” In addition, the Nominating Committee and the Board considered Mr. Somers’ outside board service and business activities, including his role as Chief Financial Officer of a major public company. |
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| | | |
 | | KAREN HASTIE WILLIAMS(Age 64)65)
Director since 2000
Partner, Crowell & Moring LLP, attorneys, from 1982 until her retirement to Senior Counsel status in January 2005. Ms. Williams also serves on the boards of Continental Airlines Inc., Gannett Company, Inc., SunTrust Banks, Inc. and Washington Gas Light Holdings, Inc. She is also a Trustee Emeritus of Amherst College and Trustee of the Black Student Fund and the NAACP Legal Defense and Education Fund. |
| | | In selecting Ms. Williams as a director nominee, our Nominating Committee and Board considered the factors set forth under the heading “Corporate Governance - Director Qualifications and Candidate Considerations.” In addition, the Nominating Committee and the Board considered Ms. Williams’ outside board service and business activities, including her experience with legal matters, public policy matters and governmental affairs. |
 | | |
 | | JAMES M. ZIMMERMAN(Age 65)66)
Director since 2008
Retired Chairman and Chief Executive Officer of Federated Department Stores, Inc. Mr. Zimmerman was Chairman of the Board from February 2003 until January 2004, Chairman and Chief Executive Officer from May 1997 to February 2003, and President and Chief Operating Officer from March 1988 to May 1997. He began his career with Federated in 1965 after graduating from Rice University in Houston, Texas. Mr. Zimmerman is also a director of Fossil, Inc., continues on the boards of and in leadership roles with several community organizations, and previously served on the boards of the H. J. Heinz Company, Goodyear Tire and Rubber Company, and Convergys Corporation. |
| | | In selecting Mr. Zimmerman as a director nominee, our Nominating Committee and Board considered the factors set forth under the heading “Corporate Governance - Director Qualifications and Candidate Considerations.” In addition, the Nominating Committee and the Board considered Mr. Zimmerman’s outside board service and business activities, including his role as Chairman and Chief Executive Officer of a major public company. |
| | |
 | | ALFRED W. ZOLLAR(Age 54)55)
Director since 2001
General Manager, Tivoli Software, IBM Corporation, which manufactures and sells computer services, hardware and software, since July 2004. Mr. Zollar previously had been General Manager, eServer iSeries, IBM Corporation, from January 2003 to July 2004; General Manager, Lotus Software, which designs and develops business software and was a subsidiary of IBM Corporation, from January 2000 to January 2003; General Manager, Network Computing Software Division, IBM Corporation from 1998 to 2000 and General Manager, Network Software, IBM Corporation, from 1996 to 1998. |
| | In selecting Mr. Zollar as a director nominee, our Nominating Committee and Board considered the factors set forth under the heading “Corporate Governance - Director Qualifications and Candidate Considerations.” In addition, the Nominating Committee and the Board considered Mr. Zollar’s outside board service and business activities, including his experience with product management and information technology matters. |
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COMMITTEE ASSIGNMENTS
Our Board has established the five committees described above under the headings “Corporate Governance—Audit Committee,” “—Compensation Committee,” “—Executive Committee,” “—Finance Committee,” and “—Governance Committee” to assist our Board in fulfilling its responsibilities. In April 2008, our Board dissolved the Pension & Profit Sharing Committee and reallocated its work among the Compensation Committee, the Finance Committee and a management-level committee. The charter for each of our Audit, Compensation and Governance Committees, which are available on our website atwww.chubb.com/investors, requires that all members satisfy the independence requirements of the NYSE. Our Governance Committee annually considers committee assignments, with appointments being effective as of the date of the annual meeting of shareholders. Current members of our committees are identified below:
Audit Committee
Daniel E. Somers (Chair)
Zoë Baird
Joel J. Cohen
Martin G. McGuinn
Alfred W. Zollar
Compensation Committee
Martin G. McGuinn (Chair)
Sheila P. Burke
Daniel E. Somers
Karen Hastie Williams
James M. Zimmerman
Alfred W. Zollar
Executive Committee
John D. Finnegan (Chair)
James I. Cash, Jr.
Joel J. Cohen
Martin G. McGuinn
Daniel E. Somers
James M. Zimmerman
Finance Committee
John D. Finnegan (Chair)
Sheila P. Burke
Klaus J. Mangold
Jess Søderberg
Governance Committee
James I. Cash, Jr. (Chair)
Zoë Baird
Joel J. Cohen
Lawrence M. Small
Karen Hastie Williams
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AUDIT COMMITTEE REPORT
Purpose
Our Board has formed our Audit Committee to assist our Board in monitoring:
| | |
| | • | the integrity of our financial statements; |
| |
| | • | our compliance with legal and regulatory requirements; |
| |
| | • | the independence and qualifications of our independent auditor; |
| |
| | • | the performance of our internal auditors and independent auditor; and |
| |
| | • | other significant financial matters. |
Composition and Meetings
At December 31, 2008,2009, our Audit Committee was comprised of five directors, each of whom our Board determined to be independent and each of whom satisfied the applicable legal and regulatory independence requirements. Mr. Somers served as the Chairman of our Audit Committee during 20082009 and our Board designated him, together with Messrs. Cohen and McGuinn, as the audit committee financial experts. Information regarding the respective experience of Messrs. Cohen, McGuinn and Somers is set forth under the heading “Our Board of Directors.”
Our Governance Committee and the full Board consider Audit Committee membership annually. Committee appointments are effective as of the date of the annual meeting of shareholders. In addition to Messrs. Cohen, McGuinn and Somers, Ms. Baird and Mr. Zollar currently serve on our Audit Committee. Our Audit Committee met nineeight times during 2008.2009.
Charter and Self-Assessment
Our Audit Committee operates pursuant to its written charter, which is available on our website atwww.chubb.com/investors. The Audit Committee Charter has been approved by our Audit Committee and our Board and it is subject to review at least annually. It was last revised in February 2005.
Pursuant to its charter, our Audit Committee performs an annual self-assessment. For 2008,2009, our Audit Committee concluded that, in all material respects, it had fulfilled its responsibilities and satisfied the requirements of its charter and applicable laws and regulations.
Appointment of Independent Auditor
Under its charter, our Audit Committee, among other things, is directly responsible for the appointment, compensation, retention and oversight of the work of the independent auditor engaged for the purpose of preparing or issuing an audit report or related work or performing other audit, review or attest services for us. Our Audit Committee has appointed Ernst & Young LLP to serve as independent auditor. Our Audit Committee has recommended to our Board that Ernst & Young’s appointment as independent auditor be submitted for ratification by our shareholders. This matter is described under the heading “Proposal 3—2—Ratification of Appointment of Independent Auditor.”
Review of Financial Information
Management is responsible for our internal controls over the financial reporting process and the independent auditor is responsible for performing an independent audit of our consolidated financial statements in accordance with generally accepted auditing standards and for issuing a report on its audit. Our Audit Committee is charged with overseeing and monitoring these activities on behalf of our Board. During 20082009 and the first quarter of 2009,2010, our Audit Committee reviewed and discussed with management and the independent auditor our quarterly financial statements and our audited consolidated financial statements for the year ended December 31, 2008.2009. Our Audit
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Committee discussed with the independent auditor the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.
Auditor Independence
The Audit Committee has received the written disclosures and the letter from the independent accountant required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with the independent accountant the independent accountant’s independence.
Inclusion of Consolidated Financial Statements in the 20092008 10-K
Based on the foregoing, our Audit Committee recommended to our Board that the audited consolidated financial statements be included in the 20092008 10-K filed with the SEC.
The foregoing report has been furnished by the following members of our Board who comprise our Audit Committee:
| | | |
| Daniel E. Somers (Chair) | | Martin G. McGuinn |
| Zoë Baird | | Alfred W. Zollar |
| Joel J. Cohen | | |
This Audit Committee Report shall not be deemed to be “soliciting material,” to be “filed” with the SEC, subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically request that the information be treated as soliciting material, nor shall it be incorporated by reference into any document filed under the Securities Act of 1933, as amended (Securities Act), or the Exchange Act unless we specifically incorporate it by reference.
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COMPENSATION COMMITTEE REPORT
Our Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included under the heading “Compensation Discussion and Analysis” pursuant to Item 402(b) of SECRegulation S-K.
Based upon the review and discussion described in the preceding paragraph, our Compensation Committee recommended to our Board that the “Compensation Discussion and Analysis” be included in our proxy statement on Schedule 14A prepared in connection with the 20092010 Annual Meeting and that the “Compensation Discussion and Analysis” be incorporated by reference into the 20092008 10-K for the year ended December 31, 2008.2009.
The foregoing report has been furnished by the following members of our Board who comprise our Compensation Committee:
| | | |
| Martin G. McGuinn (Chair) | | Karen Hastie Williams |
| Sheila P. Burke | | James M. Zimmerman |
| Daniel E. Somers | | Alfred W. Zollar |
This Compensation Committee Report shall not be deemed to be “soliciting material,” to be “filed” with the SEC, subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically request that the information be treated as soliciting material, nor shall it be incorporated by reference into any document filed under the Securities Act or the Exchange Act unless we specifically incorporate it by reference.
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COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis describes the 20082009 compensation program for our NEOs.
Changes to Senior Management
Our senior During 2009, our executive management team experienced several changes that impacted our NEOs during 2008. Thomas F. Motamed retired from Chubb as Vice Chairman and Chief Operating Officer, effective June 6, 2008, and Michael O’Reilly retired from Chubb as Vice Chairman, effective December 31, 2008. On June 19, 2008, we madeconsisted of the following promotions, which took effect immediately:NEOs:
| | |
| | • | John D. Finnegan, Chief Executive Officer; |
|
| • | Richard G. Spiro, Chief Financial Officer; |
|
| • | John J. Degnan, was promoted to Chief Operating Officer; |
| |
| | • | Paul J. Krump, was promoted to Chief Underwriting Officer; |
| |
| | • | Harold L. Morrison, Jr. was promoted to, Chief Global Field Officer; and |
| |
| | • | Dino E. Robusto, was promoted to Chief Administrative Officer. |
On September 4, 2008, our Board elected Richard G. Spiro as our Executive Vice President and Chief Financial Officer. Mr. Spiro’s election as Executive Vice President was effective as of his October 1, 2008 start date and he succeeded Mr. O’Reilly as Chief Financial Officer effective November 10, 2008.
Overall Executive Compensation Philosophy and Objectives
The property and casualty insurance industry is comprised of hundreds of companies vying for part of the multibillion-dollar market for personal, commercial and specialty lines of insurance coverage. Within this competitive environment, we are considered to be one of the world’s preeminent insurers, offering extensive business and personal insurance solutions globally. We distinguish ourselves with an approach that focuses on providing premier customer service, quality underwriting and highly disciplined cost management. It is imperative to our success and long-term viability that our business continues to be managed by highly experienced, focused and capable executives who possess the dedication to oversee our global organization on aday-to-day basis and have the vision to anticipate and respond to market developments. It is also important that we concentrate on retaining and developing the capabilities of our emerging leaders to ensure that we continue to have an appropriate depth of executive talent.
Our executive compensation program is intended to attract, reward and retain a management team with the collectiveindividual and individualcollective abilities that fit our profile described above. With this philosophy in mind, our executive compensation program is intended to motivate our employees to achieve the following objectives:
| | |
| | • | enhance our market reputation as a provider of the highest quality customer service; |
| |
| | • | attain superior financial performance, in both the short- and long-term; |
| |
| | • | take accountability for the performance of the business units and functions for which they are responsible; and |
| |
| | • | make decisions about our business that will maximize long-term shareholder value. |
As discussed more fully below, a substantial portion of an executive’s compensation incorporates performance criteria that support and reward achievement of our annual operating plan and long-term business goals. Specifically, compensation decisions for our NEOs are linked to corporate goals based on financial results (merit-based salary increases and Annual Incentive Plan awards), absolute stock price appreciation (restricted stock unit (RSU)) and performance unit awards) anda combination of total shareholder return relative to companies in the S&P 500 Index and stock price appreciation (performance unit awards). For 2008,2009, approximately 71% of Mr. Finnegan’s total target compensation was performance-based. Mr. Spiro’s 2008 compensation package was established in his offer letterperformance-based (Annual Incentive Plan award and included a guaranteed bonus for 2008, payable in 2009.performance unit award). The percentagepercentages of performance-based pay relative to total target compensation for the NEOs other than Messrs. FinneganSpiro, Degnan, Krump, Morrison and Spiro was, on average, 63%. Going forward, we expect that Mr. Spiro’s percentage of performance-based compensation relative to his total compensation will be comparable to that of our NEOs other than Mr. Finnegan.Robusto were approximately 67%, 68%, 55%, 56% and 56%, respectively.
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Setting of Executive Compensation
Our Compensation Committee is responsible for establishing the philosophy and objectives that underlie our executive compensation program and guiding its design and administration. Additional information on the structure, scope of authority and operation of our Compensation Committee, andas well as the roleroles of the
27
Compensation Consultant and management in determining compensation, is set forth under the heading “Corporate Governance—Compensation Committee.”
Market Data
Our Compensation Committee, with the assistance of the Compensation Consultant, reviews the compensation of similarly situated officers of a representative peer group of companies on an annual basis to ensure that our executive compensation program is competitive with the companies with which we believe we compete for executive talent. The overall peer group is comprised of companies similar in size and scope to us within the property and casualty and broader insurance industries as well as the financial services industry. In 2008,2009, the 2119 companies comprising our peer group, of which seven were in the property and casualty insurance industry, were:
| | | | | |
| *ACE Ltd. | | Cigna Corp. | | Progressive Corp. |
Aetna, Inc. | | *CNA Financial Corp. | | Prudential Financial, Inc. |
Aflac,Aetna, Inc. | | Genworth Financial, Inc. | | Principal Financial Group, Inc. |
Allstate Corp.Aflac, Inc. | | *Hartford Financial Services Group Inc. | | SafecoState Street Corp. |
American International Group Inc.*Allstate Corp. | | Lincoln National Corp. | | State Street Corp.*The Travelers Companies, Inc. |
| Bank of New York Mellon Corp. | | MetLife, Inc. | | The Travelers Companies, Inc.*XL Capital Ltd. |
| BB&T Corp. | | PNC Financial Svcs Grp, Inc. | | XL Capital Ltd. |
| Cigna Corp. | | *Progressive Corp. | | |
Our Compensation Committee has established what it believes to be challenging performance goals—both on an absolute basis and relative to our peers.peers, with an emphasis on our property and casualty insurance industry peers (indicated above with an asterisk). Accordingly, total compensation for our NEOs is targeted between the 50th and 75th percentiles of our peer group of companies,peers, combined salary and annual cash incentive compensation is targeted at the median of our peer grouppeers and long-term incentive awards are targeted between the 50th and 75th percentiles. During 2009, we achieved the second highest operating income (net income excluding after-tax realized investment gains) per share result in our 127 year history. The total compensation for Messrs. Finnegan and Degnan exceeded the 75th percentile as a result of their individual performance as well as our strong absolute and relative performance. Mr. Spiro’s total compensation slightly exceeded the 75th percentile goal, reflective of the external market for attracting the superior talent that he provides, his excellent performance and our financial results. While our Compensation Committee recognizes the outstanding contributions to our financial results attributable to Messrs. Krump, Morrison and Robusto, each of them was recently promoted and each received raises in 2008 and 2009, which brought their respective total compensation packages close to the 25th percentile of other NEOs within our peer group.
Our emphasis on long-term performance-based compensation supports our need for executives to maintain a longer-term focus on our business, while merit-based salary increases and annual incentive compensation reward the delivery of strong annual results. For 2008,2009, approximately 70% of Mr. Finnegan’s total target compensation represented long-term equity incentive awards. The percentage of long-term equity incentive awards relative to total target compensation for the other NEOsMessrs. Spiro and Degnan was on average, 51% (excluding Mr. Spiro as during 2008 his onlyapproximately 62% and 60%, respectively. The percentage of long-term equity grantincentive awards relative to total target compensation for Messrs. Krump, Morrison and Robusto was an RSU award that he received upon commencement of his employment with us to compensate him for lost equity from his prior employer).approximately 35%, 37% and 37%, respectively.
Individual Performance
Our executive compensation program provides our Compensation Committee with the flexibility to make annual compensation decisions based on individual performance. Specifically, our program is designed to provide our Compensation Committee with the ability to adjust individual compensation, significantly in some cases, to the extent the executive achieves individual annual performance goals and strengthens his or her competencies, performance and potential over a longer period. Our Compensation Committee believes that this flexibility is imperative to reward and recognize the key skills, talents and contributions to annual performance and overalllong-term company success. Each year, our Compensation Committee evaluates Mr. Finnegan’s performance. Mr. Finnegan, in turn, presents our Compensation Committee with his evaluation of each of the other NEOs, which includes a review of contributions and performance over the prior year, strengths, weaknesses, development plans,
28
succession potential and compensation recommendations. Our Compensation Committee then makes a final determination of compensation amounts for each NEO with respect to each of the elements of the executive compensation program for actual compensation relative to the preceding year and target compensation for the current year.
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Tally Sheets
Our Compensation Committee reviews tally sheets prepared by management and the Consultant on an annual basis. The tally sheets set forth all components of the NEOs’ compensation, including base salary, annual incentive compensation, equity incentive awards, benefits and perquisites, retirement plan accruals and total payments upon various termination scenarios. Our Compensation Committee uses these tally sheets to confirm that it has a full understanding of our NEOs’ comprehensive compensation packages.
Assessment of Compensation Programs
During 2009, with the assistance of the Compensation Consultant, our Compensation Committee performed an assessment of the primary components of our executive compensation program—annual salary, annual incentive compensation, long-term equity incentive awards and deferred compensation plan. Our Compensation Committee reviewed each component from an internal perspective, including the alignment of our overall executive compensation philosophy and objectives to our business strategy, and from an external perspective, which considered our peer group and evolving market trends. The assessment revealed that our overall executive compensation program is aligned with our business strategy of emphasizing operating income and shareholder return and reflects market practices in terms of incentive mix, metrics and equity use. Based on the assessment, the Compensation Committee determined that these components of our executive compensation program did not encourage inappropriate risk-taking by our NEOs.
In reaching this conclusion, our Compensation Committee noted that:
| | |
| • | The financial performance objectives of our annual cash incentive program are the budgeted objectives that are reviewed and approved by the Compensation Committee. |
|
| • | We generally use the same financial performance measures under our Annual Incentive Plan for our NEOs that we use for all other plan participants. |
|
| • | Our variable compensation awards (annual cash incentives and long-term incentives in the form of performance units and RSUs) are based on a formula and are at the discretion of the Compensation Committee. |
|
| • | We have a recoupment policy that requires the repayment of any bonus or other incentive-based or equity-based compensation in certain circumstances. |
|
| • | A substantial component of our NEO’s annual compensation is in the form of performance units that are subject to a three-year performance cycle, which mitigates excessive short-term risk taking. |
|
| • | Our NEOs hold a significant amount of their personal wealth in the form of our stock. Accordingly, they would be personally impacted by the potential consequences of inappropriate or unnecessary risk-taking. |
|
| • | We balance short- and long-term decision making with the annual cash incentive program and equity awards that vest over three years. |
In addition to the risk assessment of the compensation programs in which our NEOs participate, in February 2010, our Compensation Committee undertook a risk analysis of our other compensation programs and determined that these compensation programs do not create any risk that is reasonably likely to have a material adverse effect on us.
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Tax Policies
Section 162(m) of the Internal Revenue Code limits to $1 million per year the federal income tax deduction to public corporations for compensation paid for any fiscal year to the CEO and the three most highly compensated executive officers (other than the CFO) as of the end of the fiscal year as determined in accordance with the Exchange Act. This limitation does not apply to qualifying “performance-based compensation.” Our Compensation Committee has designed our annual incentive compensation awards and performance unit awards to qualify for the performance-based compensation exception to the $1 million limit. In establishing targets for meeting the performance-based compensation exception, our Compensation Committee anticipated using negative discretion in calculating final incentive payouts. In addition, our NEOs (other than Mr. Spiro) generally are required to defer compensation that would not otherwise be deductible. Due to guidance issued in 2007 by the Internal Revenue Service (IRS), the compensation of Messrs.Mr. Spiro, and O’Reilly, our Principal Financial Officersprincipal financial officer for 2008,2009, was not subject to the Section 162(m) limitation on deductibility.
Our Compensation Committee believes that our shareholders are best served by not restricting our Compensation Committee’s discretion and flexibility in crafting compensation plans and arrangements, such as annual salaries restricted stock and RSU awards, even though such plans and arrangementsthey may result in certain non-deductible compensation expenses. Accordingly, our Compensation Committee may from time to time approve elements of compensation for one or more of our NEOs that are not fully deductible and reserves the right to do so in the future, in appropriate circumstances.future.
Components of Executive Compensation
Our executive compensation program consists of annual and long-term compensation and company-sponsored benefit plans. Each component is designed for a specific purpose and contributes to an overall total compensation package that is competitive, predominantly performance-based and valued by our executives.
Annual Salary
Annual salary is designed to provide a fixed level of compensation to our NEOs based on their skill,skills, background, and market data, as well as to retain their services. Annual salaries are generally targeted at the median of our peer group because we want to provide attractive and competitive levels of base compensation to ensure our ability to attract and retain superior talent. In addition to considering peer group data, individual performance and contributions, our Compensation Committee determines annual salaries based upon the skills, knowledge and competencies of each NEO, as reviewed and recommended annually by Mr. Finnegan (for all NEOs other than himself). Setting of annual salaries is important because each NEO’s target annual incentive compensation is then developed based on annual salary levels.
In March 2008,February 2009, our Compensation Committee reviewed annual salaries for each of our NEOs other than Mr. Spiro. Basedbased upon the above factors (in particular, the achievement offactors. Although we achieved another year of excellent performance), theseperformance, at that time, our Compensation Committee decided to maintain the 2008 base salaries in 2009 for all of our NEOs other thangiven that Mr. Finnegan, received a 6.20% increase in 2008Spiro’s annual salary on average.had just been fixed in October 2008 and each of Messrs. Degnan, Krump, Morrison and Robusto alsohad received salarysubstantial increases in June 2008 that were commensurateconnection with their respective promotions. Mr. Finnegan’s original employment agreement provides for a minimum annual salary of $1,200,000 per year. In 2005, Mr. Finnegan’s annual salary was increased to $1,275,000, which became his new minimum annual salary pursuant to the terms of his employment agreement. As reflectedpromotions in Mr. Finnegan’s 2008 performance-based compensation payouts, our Compensation Committee determined that Mr. Finnegan’s performance placed him at the top of our peer group. However, ourJune 2008. The Compensation Committee also determined that Mr. Finnegan’s salary remained competitive without adjustment. Accordingly, the 2009 base salaries for Messrs. Finnegan, Spiro, Degnan, Krump, Morrison and Robusto were set at $1,275,000, $750,000, $825,000, $550,000, $480,000, and $450,000, respectively. In September 2009, our Board extended for one year the mandatory retirement date for Mr. Degnan so that he could remain our Chief Operating Officer until the end of 2010. In connection with this decision to defer Mr. Degnan’s retirement, the Compensation Committee undertook a comprehensive review of the compensation of our NEOs during the third quarter of 2009. As a result of that analysis, the Compensation Committee approved base salary increases for Messrs. Degnan, Krump, Morrison and Robusto of 6.0%, 5.5%, 6.3% and 13.3%, respectively. Accordingly, effective September 1, 2009, the annual base salaries for Messrs. Degnan, Krump, Morrison and Robusto increased to $874,500, $580,000, $510,000 and $510,000, respectively. Due to his recent hire in 2008, our Compensation Committee decided to maintain Mr. Spiro’s base salary for the remainder of 2009.
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existing annual salary was competitive with annual salaries paid to other chief executive officers in our peer group. Accordingly, his 2008 annual salary remained at $1,275,000. Pursuant to his offer letter, the Compensation Committee fixed Mr. Spiro’s annual salary at $750,000 for 2008.
Annual Incentive Compensation
Our Annual Incentive Plan wasis designed to support our compensation strategy by linking a significant portion of total annual cash compensation to the achievement of critical business goals on an annual basis. All of our salaried employees, including our NEOs, are eligible to participate in the Annual Incentive Plan.
Incentive Opportunity. As discussed under the heading “Compensation Discussion and Analysis—Setting of Executive Compensation,” baseline opportunities for annual incentive compensation awards (combined with salary) are generally set at the median for executives with commensurate positions at our
peer group of companies.peers. Our Compensation Committee establishes the range of potential payments for Mr. Finnegan’s annual incentive compensation based upon its analysis of market data from our peer group of companies,
advice from the Compensation Consultant and subject to the minimum annual incentive compensation award target of $1.6 million as provided for in his employment agreement. For the other NEOs, our Compensation Committee establishes the annual incentive compensation payment range after taking into consideration Mr. Finnegan’s recommendations,
advice from the Compensation Consultant and market data from our peer group of companies. For information regarding the potential ranges of awards under the Annual Incentive Plan for our NEOs in
2008,2009, see the information set forth under the heading “Executive Compensation—Grants of Plan-Based Awards.”
Baseline opportunities are disclosed in the “target” column.
Performance Goals.Goal. For 2008, our Compensation Committee determined that theSince 2007, annual incentive compensation
award pool would not be funded unless we achieved 2008awards have been earned based on our adjusted operating income. We define adjusted operating income
greater than 50% of our 2007 adjusted operating income. Adjusted operating income refers toas net income excluding after-tax realized investment gains
and losses and adjusted to account for the loss of investment income attributable to our
buybackrepurchase of shares of our common
stock since 2007.stock. Our Compensation Committee
determined 2008 actual incentive compensation awards for our NEOs (other than for Mr. Spiro who was guaranteed a bonus in connection with the commencement of his employment in October 2008 as discussed in more detail below) by applying a performance multiplier (established pursuant to a predetermined formula described below) to the NEOs’ total baseline opportunities. In March 2008, our Compensation Committee determinedbelieves that
the performance multiplier for our NEOs (other than for Mr. Spiro) would be calculated in two steps. First, our Compensation Committee determined that 2008 adjusted operating income would be the performance goal utilized in determining the 2008 annual incentive compensation award pool for all participants covered by the Annual Incentive Plan, including the NEOs. This was a continuation of the program that we first implemented in 2007. Our Compensation Committee established adjusted operating income as the performance goal because our Compensation Committee believed that tying annual incentive compensation awards to an operating income goal providedprovides an effective means of directly linking executive compensation to our shareholders’ interests. TheWe adjust for investment income adjustment (used in calculating adjusted operating income) was premised on the notionso that the calculation shouldis not be impacteddistorted by the impact of our continuing commitment to return capital to shareholders through our share buyback programs. Underrepurchase program.
Pool Funding. Each year we fund an aggregate award pool for all Annual Incentive Plan participants in an amount equal to 8.8% of adjusted operating income subject to a minimum funding condition that requires us to achieve operating income greater than 50% of the
performance goal established by our Compensation Committee,prior year’s operating income. This means that each percentage increase or decrease in
2008 adjusted2009 operating income relative to
2007 adjusted2008 operating income
resultedwill result in a proportional increase or decrease in the
2008 annual incentive compensation award pool. For example, if 2008 adjusted operating income was $2,732.8 million (5% higher than the adjusted operating income in 2007), the actual incentive compensation2009 Annual Incentive Compensation award pool,
would be 5% higher than in 2007. Conversely, if 2008 adjusted operating income was $2,472.5 million (5% lower than the adjusted operating income in 2007), the actualthus providing a direct link between incentive
compensation award pool would be 5% lower than the annual incentive compensation award pool in 2007.payouts and year over year performance.
Second, our Compensation Committee determined that the performance multiplier for calculating the 2008 annualPerformance Multiplier. Actual incentive
compensation awards for our NEOs
(upare earned by applying a performance multiplier to
the maximum permitted award) would beeach NEO’s baseline opportunity. The performance multiplier is derived by dividing the
2008 annual incentive compensationtotal Annual Incentive Compensation award pool
described in the preceding paragraph by the total baseline opportunities for all participants covered by the Annual Incentive Plan.
The total baseline opportunities for Messrs. Degnan, Krump, Morrison and Robusto, were increased in June 2008 to reflect their respective promotions.
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Pursuant to his offer letter, Mr. Spiro received a guaranteed cash bonus paid in March 2009 in the amount of $1.42 million (which would have been reduced to the extent he had received any 2008 bonus from his previous employer) and a cash payment in the amount of $315,000 paid on his start date of October 1, 2008.
Incentive Payouts. Adjusted operating income in
20082009 was
$2.2$2.3 billion, which
was approximately 7.0% higher than 2008 adjusted operating income of $2.2 billion. This created a
20082009 award pool of
$189.3$202.7 million. Based upon this award pool and total baseline opportunities, awards to Messrs.
Finnegan, O’ReillySpiro, Degnan, Krump, Morrison and
DegnanRobusto were set at
$3.4 million, $1.5 million$1,563,300, $1,974,700, $806,000, $708,700 and
$1.8 million,$708,700, respectively.
The bonusThese amounts
paid to these three executives reflect our formulaic approach to calculating bonuses and the Compensation Committee did not make any
adjustments based on individual performance. adjustments. Our Compensation Committee decided to adjust the formulaic approach for Messrs. Krump, Morrison and RobustoMr. Finnegan to reflect their respective achievements against pre-establishedhis outstanding performance towards the achievement of enterprise financial goals inand the areasdevelopment of financial performance, people managementa rigorous succession plan that included comprehensive competencies for CFO, COO, CAO and customer service.CEO. With these adjustments,this adjustment, the awardsaward to Krump, Morrison and Robusto were set at $775,000, $682,000 and $675,000, respectively.Mr. Finnegan was increased by $206,500 to $3,750,000.
The incentive payouts for our NEOs who are subject to the $1 million compensation limit under Section 162(m) of the Internal Revenue Code are below their respective targets established by our Compensation Committee to meet the performance-based compensation exception.
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Long-Term Equity Incentive Awards
In 2009, our Board adopted, and our shareholders approved the 2009 LTIP to replace the 2004 Employee Plan. The terms of the new plan and types of awards granted thereunder are substantially similar to those of the 2004 Employee Plan. Our NEOs received their 2009 equity awards under the 2004 Employee Plan and did not begin receiving equity awards under the new plan until 2010.
Equity Incentive Awards. Long-term equity incentive awards made pursuant to the 2004 Employee Plan
wereare designed to support several of our compensation objectives, including:
| | |
| | • | placing a significant portion of total compensation at risk; |
| |
| | • | linking long-term performance-based awards with shareholder value; and |
| |
| | • | retaining our highly-skilled and valued senior management. |
All employees at or above the level of Assistant Vice President (approximately 1,700 employees), including our NEOs, participate in our long-term equity incentive award program. Target long-term equity incentive awards are designed to achieve our desired competitive market position of being between the 50th and 75th percentiles of our peer group of companies and are commensurate with the individual’s level within our organization. For 2008,2009, the target long-term equity incentive awards for Messrs. Finnegan, Spiro and Degnan were $7,600,000, $2,650,000 and $3,000,000, respectively. The target long-term equity incentive award for Mr. Finneganeach of Messrs. Krump, Morrison, and Robusto was $7,600,000. The target long-term equity incentive awards for the other NEOs averaged $1,261,000 (excluding Mr. Spiro as he only received equity as part of his sign-on agreement).$550,000. These target levels were determined based on analysis of data from our peer group of companies.
Annual equity incentive awards to our NEOs are in the form of performance units and RSUs. Consistent with our emphasis on performance-based compensation, for officers at or above the level of Senior Vice President, including our NEOs, performance units generally constitute 75% of the annual equity award, while RSUs generally constitute the remaining 25%. We believe our emphasis on performance basedperformance-based long-term equity incentive awards is consistent with the practice of our peer group companies.
Our Compensation Committee manages the potential dilutive effect of equity incentive awards by monitoring thisour “run rate”—the number of shares granted as a percentage of our fully diluted common shares outstanding—relative to our peer companies. Our Compensation Committee also evaluates guidelines used by certain institutional advisory services and considers advice from the Compensation Consultant. Our annual run rate was approximately 0.5%0.6% in 2008,2009, which we believe is conservative relative to the practices of our peer group companies. Our conservative run rate is primarily attributable to the fact that fewer full-value shares are needed to provide a target award value in the form of performance units and RSUs than would be required for an award of stock options as well as our limited participation levels.
Performance Units. Performance units are intended to motivate our senior officers to achieve superior total shareholder return—share price appreciation plus reinvested dividends (TSR)—versus companies in the Standard & Poor 500 Index (S&P 500) over a three-year performance period. We view the other companies in the S&P 500 as the competition for our shareholders’ investment dollars. The value of performance units is directly linked to the
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total return delivered to our investors,shareholders, thus motivating our senior officers to deliver superior returns over an extended performance period. Performance units also support retention, as they are subject to forfeiture if the recipient’s employment terminates before the shares are settled for any reason other than death, disability, retirement or with the consent of our Compensation Committee.
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The number of performance units earned for each three-year performance period can vary from 0% to 200% of the original target award based on our relative TSR versus S&P 500 companies as follows:
| | | | | |
TSR
| | |
Percentile
| | Percent of Target
|
Ranking | | Shares Earned |
| |
85th & higher | | | 200 | % |
50th | | | 100 | % |
25th | | | 50 | % |
Below 25th | | | 0 | % |
For relative performance between the 25th and 85th percentiles, the number of shares earned is determined by multiplying the relative percentile of comparative performance achieved by two. The final dollar value of each recipient’s performance unit award is also dependent on the price of our common stock at the end of the three-year performance period,award’s settlement date, thus providing an additional link to shareholders’ interests and providing our senior officers with significant value potential based on our results.
The performance period for the performance units granted in March 20062007 ended on December 31, 2008.2009. Our TSR over the performance period was 8.4%0.4%, which positioned us at the 84.366.1 percentile of companies in the S&P 500. Based on the performance scale above, each of our NEOs (other than Mr. Spiro), like all recipients of 20062007 performance units who did not forfeit such awards due to termination of their employment, received in February 2010 the number of shares of common stock in February 2009 equal to 168.6%132.2% of the respective target number of performance units granted in 2006.2007. Information regarding the vesting of each NEO’s respective 20062007 performance unit award is set forth under the heading “Executive Compensation—Option Exercises and Stock Vested.”
The number and grant date fair value of performance units granted to our NEOs in 20082009 for the performance period running from January 1, 20082009 to December 31, 20102011 is set forth under the heading “Executive Compensation—Grants of Plan-Based Awards.”
RSUs. RSUs are intended to align management’s interests with those of our shareholders and serve as a strong retention tool for key employees. Like performance units, RSUs support retention because they generally cliff vest on the third anniversary of the date of grant, provided the recipient remains employed by us over that period. The number and grant date value of RSUs granted to NEOs in
20082009 is set forth under the heading “Executive Compensation—Grants of Plan-Based Awards.”
Stock Options. We discontinued the use of stock options as part of our core long-term equity incentive award program in 2004. However, we still utilize stock option grants as a means of providing tax-efficient equity awards to certain internationally-based employees. In addition, stock options granted to all participants, including participating NEOs, under predecessor plans to the 2004 Employee Plan included a restoration option feature that provides the optionee with the right to receive a restoration stock option upon exercise of the original option if shares are exchanged in a
stock-for-stock exercise within seven years of the grant date and our stock price is at least 25% above the exercise price on the exercise date. Restoration stock options are granted on the same date the original stock option award is exercised, have an exercise price equal to the average of the high and low prices of our common stock on the grant date and have a term equal to the remaining term of the original option.
Equity Grant Practices. Our Compensation Committee approves and grants annual equity awards at
itsa regularly scheduled meeting in the first quarter of each year based on market data from our peer group of companies,
advice from the Compensation Consultant and recommendations from Mr. Finnegan for the other NEOs. There is no relationship between the timing of equity incentive award grants and our release of material, non-public information. Although our Compensation Committee has the discretion to do so,
under the 2004 Employee Plan, our Compensation Committee generally does not make interim equity award grants to employees at or above the level of Executive Vice President, including our NEOs.
An
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the only persons or entities known to us to be beneficial owners of more than 5% of our outstanding common stock. The information below is as reported by that entity in statements filed with the SEC.
| | | | | | | | |
| | Amount and Nature
| | | | |
| | of Beneficial
| | | | |
| | Ownership of
| | | | |
Name and Address
| | Common Stock | | | Percent of Class(3) | |
|
FMR LLC | | | 23,776,912(1 | ) | | | 6.7 | % |
Morgan Stanley | | | 24,563,220(2 | ) | | | 6.9 | % |
| | | | | | | | | |
| | | Amount and Nature
| | | | |
| | | of Beneficial
| | | | |
| | | Ownership of
| | | | |
Name and Address | | Common Stock | | | Percent of Class(3) | |
| |
| BlackRock, Inc. | | | 25,162,691 | (1) | | | 7.5 | % |
| Morgan Stanley | | | 22,130,668 | (2) | | | 6.5 | % |
| | |
| (1) | | Reflects ownership as of December 31, 20082009 as reported on an amendment to Schedule 13G filed with the SEC by FMR LLC,BlackRock, Inc., located at 82 Devonshire40 East 52nd Street, Boston, MA 02109. FMR LLCNew York, NY 10022. BlackRock, Inc. reports sole voting power over 2,834,806 of the reported shares, shared voting power over none of the reported shares and sole dispositive power over all of the reported shares. FMR LLCBlackRock, Inc. has certified that these shares of our common stock were acquired in the ordinary course of business and were not acquired for the purpose of, and do not have the effect of, changing or influencing the control of Chubb and were not acquired in connection with or as a participant in any transaction having such purpose or effect. |
| |
| (2) | | Reflects ownership as of December 31, 20082009 as reported on a Schedule 13G/A filed with the SEC by Morgan Stanley, located at 1585 Broadway, New York, NY 10036. Morgan Stanley reports sole voting power over 23,510,64821,465,067 of the reported shares, shared voting power over 8,462none of the reported shares and sole dispositive power over all of the reported shares. Morgan Stanley has certified that these shares of our common stock were acquired in the ordinary course of business and were not acquired for the purpose of, and do not have the effect of, changing or influencing the control of Chubb and were not acquired in connection with or as a participant in any transaction having such purpose or effect. |
| |
| (3) | | As reported in the applicable statement filed with the SEC. |
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The following table sets forth certain information regarding the beneficial ownership of our common stock and common stock-based holdings by each of our directors and nominees for director, by each of our NEOs and by our directors and executive officers as a group as of March 9, 2009.8, 2010.
| | | | | | | | | |
| | | Amount and Nature
| | | | |
| | | of Beneficial
| | | | |
| | | Ownership of
| | | | |
Name and Address(1) | | Common Stock(2) | | | Percent of Class(3) | |
| |
Zoë Baird(4)(8) | | | 58,63463,027 | | | | | * |
Sheila P. Burke(4)(9) | | | 71,09277,766 | | | | | * |
James I. Cash, Jr.(4)(10) | | | 18,58618,933 | | | | | * |
Joel J. Cohen(4)(11) | | | 185,369181,701 | | | | | * |
John D. Finnegan(12) | | | 1,085,5991,126,654 | | | | | * |
Klaus J. Mangold(4)(13) | | | 31,69536,897 | | | | | * |
Martin G. McGuinn(5) | | | 10,85314,864 | | | | | * |
Lawrence M. Small(4)(14) | | | 98,446103,503 | | | | | * |
Jess Søderberg(6) | | | 7644,345 | | | | | * |
Daniel E. Somers(4)(15) | | | 16,33520,530 | | | | | * |
Karen Hastie Williams(4)(16) | | | 34,10438,223 | | | | | * |
James M. Zimmerman(7) | | | 6,1938,674 | | | | | * |
Alfred W. Zollar(4)(17) | | | 9,05412,906 | | | | | * |
John J. Degnan(18) | | | 233,003219,409 | | | | | * |
Paul J. Krump(19) | | | 138,424141,792 | | | | | * |
Harold L. Morrison, Jr.(20) | | | 28,25736,029 | | | | | * |
Dino E. Robusto(21) | | | 76,43369,880 | | | | | * |
Richard G. Spiro(22) | | | 80,44884,158 | | | | | * |
All directors and executive officers as a group(23) | | | 2,394,4342,488,924 | | | | | * |
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| * | | Less than 1%. |
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| (1) | | The business address of each director and executive officer named in this table isc/o The Chubb Corporation, 15 Mountain View Road, Warren, New Jersey 07059. |
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| (2) | | Unless otherwise indicated, share amounts are as of March 9, 20098, 2010 and each person has sole voting and investment power with respect to the shares listed. |
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| (3) | | Based upon 352,178,299328,527,950 shares of our common stock outstanding as of March 9, 2009.8, 2010. |
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| (4) | | This amount includes 1,327Includes (i) 882 fully vested stock units granted under the 2004 Director Planand (ii) 2,481 deferred stock units but does not include performance units representing a target of 1,239 shares for the performance period ending December 31, 2009 and 1,407 shares for the performance period ending December 31, 2010 granted under the 2004 Director Plan.2010. Payment of such performance units will range from 0% to 200% depending on actual performance measured against the stated performance goals for the applicable performance period. |
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| (5) | | This amount includesIncludes (i) 853 fully vested stock units granted under the 2004 Director Planand (ii) 2,481 deferred stock units but does not include performance units representing a target of 1,157 shares for the performance period ending December 31, 2009 and 1,407 shares for the performance period ending December 31, 2010 granted under the 2004 Director Plan.2010. Payment of such performance units will range from 0% to 200% depending on actual performance measured against the stated performance goals for the applicable performance period. |
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| (6) | | This amount includesIncludes (i) 764 fully vested stock units granted under the 2004 Director Planand (ii) 2,481 deferred stock units but does not include performance units representing a target of 885 shares for the performance period ending December 31, 2009 and 1,407 shares for the performance period ending December 31, 2010 granted under the 2004 Director Plan.2010. Payment of such performance units will range from 0% to 200% depending on actual performance measured against the stated performance goals for the applicable performance period. |
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| (7) | | This amount includesIncludes (i) 433 fully vested stock units granted under the 2004 Director Planand (ii) 2,481 deferred stock units but does not include performance units representing a target of 1,301 shares for the performance period ending December 31, 2010 |
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| | granted under the 2004 Director Plan.2010. Payment of such performance units will range from 0% to 200% depending on actual performance measured against the stated performance goals for the applicable performance period. |
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| (8) | | Includes (i) 40,000 shares that may be purchased within 60 days pursuant to The Chubb Corporation Stock Option Plan for Non-Employee Directors (2001) (the 2001 Director Plan)days; and our other predecessor non-employee director equity plans; 7,730(ii) 3,988 market value units which Ms. Baird has elected to defer her receipt of pursuant to the Director Deferred Compensation Program; and 3,570609 vested stock units which Ms. Baird has elected to defer her receipt of pursuant to the 2004 Director Plan.of. |
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| (9) | | Includes (i) 56,000 shares that may be purchased within 60 days pursuant to the 2001 Director Plandays; and our other predecessor non-employee director equity plans; 4,658(ii) 7,213 market value units which Ms. Burke has elected to defer her receipt of pursuant to the Director Deferred Compensation Program; and 7,3599,442 vested stock units which Ms. Burke has elected to defer her receipt of pursuant to the 2004 Director Plan.of. |
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| (10) | | Includes (i) 8,000 shares that may be purchased within 60 days pursuant to the 2001 Director Plandays; and our other predecessor non-employee director equity plans; 2,218(ii) 2,288 market value units which Dr. Cash has elected to defer his receipt of pursuant to the Director Deferred Compensation Program; and 644 vested stock units which Dr. Cash has elected to defer his receipt of pursuant to the 2004 Director Plan.of. |
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| (11) | | Includes 98,708(i) 90,708 shares that may be purchased within 60 days pursuant to the 2001 Director Plan and our other predecessor non-employee director equity plans;days; (ii) 12,663 shares that may be purchased within 60 days pursuant to a restoration stock option awarded pursuant to exercising a special stock option grant; and 34,684(iii) 1,638 vested stock units and 35,791 market value units which Mr. Cohen has elected to defer his receipt of pursuant to the Director Deferred Compensation Program.of. |
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| (12) | | Includes (i) 80,000 shares held by a family-owned limited liability company; (ii) 364,780 shares that may be purchased within 60 days pursuant to The Chubb Corporation Long-Term Stock Incentive Plan (2000) (the 2000 Employee Plan); 37,773 RSUs that will vest on March 1, 2010;days; (iii) 37,690 RSUs that will vest on March 12, 2011; (iv) 47,070 RSUs that will vest on February 25, 2012 pursuant to the 2004 Employee Plan; 1922012; (v) 37,262 RSUs that will vest on February 24, 2013; (vi) 197 shares that were allocated to Mr. Finnegan pursuant to the ESOP; and 203,886(vii) 241,659 RSUs that are fully vested which Mr. Finnegan has elected to defer receipt of until retirement. This amount does not include (i) performance units representing a target of 113,320 shares for the performance period ending December 31, 2009; 113,073 shares for the performance period ending December 31, 2010; and(ii) 141,211 shares for the performance period ending December 31, 2011.2011; and (iii) 111,786 shares for the performance period ending December 31, 2012. Payment of such shares will range from 0% to 200% depending on actual performance measured against the stated performance goals for the applicable performance period. |
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| (13) | | Includes (i) 16,000 shares that may be purchased within 60 days pursuant to the 2001 Director Plan; 4,591days; and (ii) 5,741 market value units which Dr. Mangold has elected to defer his receipt of pursuant to the Director Deferred Compensation Program; and 7,9339,793 vested stock units which Dr. Mangold has elected to defer his receipt of pursuant to the 2004 Director Plan.of. |
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| (14) | | Includes (i) 37,925 shares that may be purchased within 60 days pursuant to the 2001 Director Plandays; and our other predecessor non-employee director equity plans;(ii) 4,018 shares that may be purchased within 60 days pursuant to a restoration stock option awarded pursuant to exercising a special stock option grant; 23,964 market value units which Mr. Small has elected to defer his receipt of pursuant to the Director Deferred Compensation Program; and 8,577 vested stock units which Mr. Small has elected to defer his receipt of pursuant to the 2004 Director Plan.grant. |
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| (15) | | Includes (i) 2,000 shares that may be purchased within 60 days pursuant to the 2001 Director Plan; 2,383days; and (ii) 2,459 market value units which Mr. Somers has elected to defer his receipt of pursuant to the Director Deferred Compensation Program; and 8,57710,660 vested stock units which Mr. Somers has elected to defer his receipt of pursuant to the 2004 Director Plan.of. |
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| (16) | | Includes (i) 24,000 shares that may be purchased within 60 days pursuant to the 2001 Director Plandays; and our other predecessor non-employee director equity plans; and 5,429(ii) 5,874 vested stock units which Ms. Hastie Williams has elected to defer her receipt of pursuant to the 2004 Director Plan.of. |
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| (17) | | Includes 322 vested stock units which Mr. Zollar has elected to defer his receipt of pursuant to the 2004 Director Plan.of. |
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| (18) | | Includes 12,077 RSUs that will vest on March 1, 2010;(i) 12,051 RSUs that will vest on March 12, 2011; (ii) 18,580 RSUs that will vest on February 25, 2012 pursuant to the 2004 Employee Plan; 42,6232012; (iii) 14,708 RSUs that will vest on February 24, 2013; (iv) 54,700 RSUs that are fully vested which Mr. Degnan has elected to defer receipt of until retirement; and 6,444(v) 6,607 shares that were allocated to Mr. Degnan pursuant to the ESOP. This amount does not include (i) performance units representing a target of 36,233 shares for the performance period ending December 31, 2009; 36,153 shares for the performance period ending December 31, 2010; and(ii) 55,741 shares for the performance period ending December 31, 2011.2011; and (iii) 44,127 shares for the performance period ending December 31, 2012. Payment of such shares will range from 0% to 200% depending on actual performance measured against the stated performance goals for the applicable performance period. |
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| (19) | | Includes (i) 60,480 shares which Mr. Krump has the right to purchasethat may be purchased within 60 days under the 2000 Employee Plan and our other predecessor employee long-term stock incentive plans; 2,112 RSUs that will vest on March 1, 2010;days; (ii) 2,355 RSUs that will vest on March 12, 2011; (iii) 3,406 RSUs that will vest on February 25, 2012 pursuant to the 2004 Employee Plan;2012; (iv) 3,432 RSUs that will vest on February 24, 2013; and 6,322(v) 6,483 shares that were allocated to Mr. Krump pursuant to the ESOP. This amount does not include (i) performance units representing a target of 6,337 shares for the performance period ending December 31, 2009; 7,067 shares for the performance period ending December 31, 2010; and(ii) 10,219 shares for the performance period ending December 31, 2011.2011; and (iii) 10,296 shares for the performance period ending December 31, 2012. Payment of such shares will range from 0% to 200% depending on actual performance measured against the stated performance goals for the applicable performance period. |
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| (20) | | Includes 1,988 RSUs that will vest on March 1, 2010;(i) 2,231 RSUs that will vest on March 12, 2011; (ii) 3,406 RSUs that will vest on February 25, 2012 pursuant to the 2004 Employee Plan; 3432012; (iii) 3,432 RSUs that will vest on February 24, 2013; (iv) 348 shares in the Chubb Stock Fund of the CCAP; and 126(v) 129 shares that were allocated to Mr. Morrison pursuant to the ESOP. This amount does not include (i) performance units representing a target of 5,964 shares for the performance period ending December 31, 2009; 6,695 shares for the performance period ending |
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| | December 31, 2010; and(ii) 10,219 shares for the performance period ending December 31, 2011.2011; and (iii) 10,296 shares for the performance period ending December 31, 2012. Payment of such shares will range from 0% to 200% depending on actual performance measured against the stated performance goals for the applicable performance period. |
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| (21) | | Includes 46,106(i) 31,788 shares which Mr. Robusto has the right to purchasethat may be purchased within 60 days under the 2000 Employee Plan and our other predecessor employee long-term stock incentive plans; 1,988 RSUs that will vest on March 1, 2010;days; (ii) 2,231 RSUs that will vest on March 12, 2011; and(iii) 3,406 RSUs that will vest on February 25, 2012 pursuant to the 2004 Employee Plan.2012; and (iv) 3,432 RSUs that will vest on February 24, 2013. This amount does not include (i) performance units representing a target of 5,964 shares for the performance period ending December 31, 2009; 6,695 shares for the performance period ending December 31, 2010; and(ii) 10,219 shares for the performance period ending December 31, 2011.2011; and (iii) 10,296 shares for the performance period ending December 31, 2012. Payment of such shares will range from 0% to 200% depending on actual performance measured against the stated performance goals for the applicable performance period. |
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| (22) | | Includes 24,145 RSUs that will vest on January 31, 2010;(i) 24,144 RSUs that will vest on January 31, 2011; and(ii) 16,412 RSUs that will vest on February 25, 2012 pursuant to the 2004 Employee Plan.2012; and (iii) 12,992 RSUs that will vest on February 24, 2013. This amount does not include (i) performance units representing a target of 49,238 shares for the performance period ending December 31, 2011.2011; and (ii) 38,978 shares for the performance period ending December 31, 2012. Payment of such shares will range from 0% to 200% depending on actual performance measured against the stated performance goals for the applicable performance period. |
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| (23) | | Includes (i) 1,162 shares which executive officers other than those listed in the table above disclaim beneficial ownership; 114(ii) 116 shares which were allocated to executive officers other than those listed in the table above pursuant to the Chubb Stock Fund of the CCAP; 8,195(iii) 8,403 shares which were allocated to executive officers other than those listed in the table above pursuant to the ESOP; 71,638(iv) 58,018 shares which executive officers other than those listed in the table above have the right to purchase within 60 days under the 2000 Employee Plan and our other predecessor employee long-term stock incentive plans; and 9,888 RSUs that will vest on March 1, 2010;days; (v) 10,436 RSUs that will vest on March 12, 2011; and(vi) 16,027 RSUs that will vest on February 25, 2012 pursuant to the 2004 Employee Plan.2012; and (vii) 12,648 RSUs that will vest on February 24, 2013. This amount does not include (i) performance units awarded to executive officers other than those listed in the table above representing a target of 29,672 shares for the performance period ending December 31, 2009; 31,318 shares for the performance period ending December 31, 2010; and(ii) 48,085 shares for the performance period ending December 31, 2011.2011; and (iii) 37,949 shares for the performance period ending December 31, 2012. Payment of such shares will range from 0% to 200% depending on actual performance measured against the stated performance goals for the applicable performance period. |
6362
CERTAIN TRANSACTIONS AND OTHER MATTERS
At December 31, 2008, FMR LLC2009, BlackRock, Inc. was the beneficial owner of more than 5% of our outstanding common stock. FMR LLC manages severalIn 2009, BlackRock, Inc. purchased insurance policies from one of the funds offered to participants in the CCAP. Asour property and casualty insurance subsidiaries with an aggregate net written premium of approximately $2,800,000. At December 31, 2008, participants in the CCAP held aggregate investments in these funds of2009, we owned approximately $691.5 million. A subsidiary of FMR LLC acts as trustee of the CCAP and provides administrative and record keeping services for several of our company-sponsored benefit plans, including the CCAP. In addition, a subsidiary of FMR LLC managed approximately $25.8$40 million of assets in our Pension Plan. As of December 31, 2008, we held approximately $425 million in money market securities issued by an affiliate of FMR LLC.BlackRock, Inc. fixed income securities.
At December 31, 2008,2009, Morgan Stanley was the beneficial owner of more than 5% of our outstanding common stock. During 2008,2009, an affiliate of Morgan Stanley acted as our broker in connection with fixed income securitycertain securities transactions for which it earned aggregate commissions of approximately $550 million.$2,000,000. In addition, during 2008,2009, we paid an affiliate of Morgan Stanley approximately $200,000$150,000 in brokerage commissions relating to certain equity trades made by us. As of December 31, 2008,2009, an affiliate of Morgan Stanley served as the general partner of three limited partnerships in which we have invested. During 2009, we paid management fees to this affiliate in the approximate amount of $1,500,000. As of December 31, 2009, an affiliate of Morgan Stanley managed approximately $191.5 million of assetsa fixed income portfolio in our Pension Plan and anotherfor which it received approximately $425,000 in fees. In addition, as of December 31, 2009, an affiliate of Morgan Stanley affiliate managed one of the funds offered to participants in the CCAP. As of December 31, 2009, CCAP participants had invested approximately $49 million in this fund. The associated management fees are borne by the CCAP participants who invest in this fund. In 2008,2009, a subsidiary of Morgan Stanley purchased insurance policies from one of our property and casualty insurance subsidiaries with an aggregate net written premium of approximately $2.13 million.$2,000,000. At December 31, 2009, we owned approximately $6,200,000 of Morgan Stanley common stock.
During the first quarter of 2010, one of our property and casualty insurance subsidiaries agreed to pay €650,000 on behalf of the subsidiary’s insured to resolve all claims of a third party against the insured’s directors, officers and employees. The company that purchased the insurance policy from our subsidiary was an early stage venture capital backed software company that, like many information technology companies, filed for bankruptcy in 2002 when its backers declined to make further investments in it. Dr. Cash was a director of the insured. The settlement was negotiated at arm’s length between counsel for the claimant and the insureds. Our subsidiary administered the insured’s claim for insurance coverage in the ordinary course of business and consistent with our administration of claims of other insureds. The insured, together with its directors, officers and employees, have denied, and continue to deny, liability for the claims. No portion of the settlement payment has been attributed to Dr. Cash.
Effective December 1, 2002, we entered into an employment agreement with Mr. Finnegan. This employment agreement covers Mr. Finnegan’s roles and responsibilities, his compensation and benefits and the results of the termination of his employment under various circumstances. The employment agreement contains an automatic renewal clause, providing that the employment agreement will have a perpetual two-year term unless Mr. Finnegan or we deliver a notice of non-renewal. Additional information regarding Mr. Finnegan’s employment agreement is set forth under the headings “Compensation Discussion and Analysis—Employment and Severance Agreements,” “Compensation Discussion and Analysis—Change in Control Agreements” and “Executive Compensation—Potential Payments upon Termination.”
We have entered into change in control agreements with our Chief Operating Officer and our Chief Financial Officer. Information regarding these change in control agreements is set forth under the headings “Compensation Discussion and Analysis—Change in Control Agreements” and “Executive Compensation—Potential Payments upon Termination.”
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than 10% of our common stock to file reports of securities ownership and changes in such ownership with the SEC. Based solely upon a review of copies of such reports or written representations that all such reports were timely filed, we believe that each of our directors, executive officers and greater than 10% beneficial owners complied with all Section 16(a) filing requirements applicable to them during 2008,2009, except for John J. Degnan,Mr. Søderberg who filed a Form 4 due on April 23, 2008 on July 24, 2009 as a result of an administrative error and Mr. Krump who filed a Form 4 on December 15, 2008February 8, 2010 reporting transactions that should have been reported by February 12, 2007 and May 7, 2007, respectively, as a giftresult of shares by Mr. Degnan that were not reported on the Form 5 due February 14, 2005 due to inadvertent administrativea broker error.
6463
PROPOSAL 1
ELECTION OF DIRECTORS
Upon the recommendation of the Governance Committee, our Board has nominated the following individuals for election to our Board this year:
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| Zoë Baird | | Lawrence M. SmallJess Søderberg |
| Sheila P. Burke | | Jess SøderbergDaniel E. Somers |
| James I. Cash, Jr. | | Daniel E. Somers |
Joel J. Cohen | | Karen Hastie Williams |
| John D. Finnegan | | James M. Zimmerman |
Klaus J. MangoldMartin G. McGuinn | | Alfred W. Zollar |
Martin G. McGuinnLawrence M. Small | | |
Information regarding the business experience of each nominee and the factors considered by our Governance Committee and the Board in selecting each nominee for election to our Board is provided under the heading “Our Board of Directors.” Each directorof our directors is elected annually to serve until the next annual meeting of shareholders and until his or her successor is elected and qualified. There are no family relationships among our executive officers and directors. Each director nominee other than Mr. Finnegan satisfies the independence requirements set forth in the NYSE listing standards and, with respect to the nominees expected to serve on our Audit Committee, Section 10A(m)(3) of the Exchange Act.
Our Board expects that each of the nominees named in this proxy statement will be available for election and, if elected, will be willing to serve as a director. If any nominee is not available, then the proxies may vote for a substitute as may be designated by our Board, unless our Board reduces the number of directors. Our Board has, in accordance with our By-Laws, fixed the number of directors to be elected at 13.11. If elected, each director will serve until the next annual meeting of shareholders and until his or her successor is duly elected and qualified.
Director nominees will be elected by a majority of the votes cast by shareholders entitled to vote at the 20092010 Annual Meeting. If you sign your proxy card but do not give instructions with respect to the voting of directors, your shares will be voted for the 13 individuals recommended by our Board. If you wish to give specific instructions with respect to the voting of directors, you may do so by indicating your instructions on your proxy card.
Our Board unanimously recommends that you vote “FOR” each of the foregoing nominees for director. Proxies solicited by our BoardIf you are a shareholder of record and return a signed and dated proxy card without marking any voting selections, your shares will be voted “FOR” this proposal unlessthe election of each of the director nominees. If you are a shareholder has indicated otherwise onbeneficial owner of shares held in street name and return a signed and dated voting instruction card without marking any voting selections for the proxy card.election of directors, your shares will not be voted and will not be considered as present and entitled to vote with respect to the election of each of the director nominees.
6564
PROPOSAL 2
ADOPTION OF THE CHUBB CORPORATION LONG-TERM INCENTIVE PLAN (2009)
Introduction
We have long had in effect stock-based incentive plans that have allowed us to grant management, other key employees, and our non-employee directors various types of awards, including stock options, performance units, stock awards, and stock units. These programs reflected our Board’s belief that encouraging stock ownership by management, other key employees, and our non-employee directors served to attract, retain and motivate them by providing a direct, personal financial interest in our continued success. Our Board continues to believe that the best way to encourage our management, other key employees, and our non-employee directors to create and enhance value for our shareholders is through a compensation program that encourages stock ownership.
Our Board believes that it would be beneficial to retain the current equity compensation program for our key employees—that is, TSR-based performance units and stock units. Our Board believes this program closely aligns key employees’ interests with those of our shareholders and provides a strong incentive for plan participants to remain in our service. Our Board intends to grant stock options to plan participants only in limited circumstances, including, without limitation, where the grant of other kinds of awards to employees in certain foreign jurisdictions would have negative tax consequences (relative to U.S. tax consequences) for the recipients of such awards.
Our Board has also concluded that it would be beneficial to change the structure of our equity program for our non-employee directors from TSR-based performance units to deferred stock units. Accordingly, our Board concluded that it was appropriate to allow greater flexibility in award types issuable to non-employee directors than provided for under the 2004 Director Plan, which generally mandated the types of awards that could be granted to non-employee directors.
With these goals in mind, both the Compensation Committee and the Governance Committee (the Compensation Committee and the Governance Committee, as applicable, may be referred to in this Proposal 2 as the Administrative Committee) recommended, and in February 2009 our Board adopted, subject to shareholder approval, the 2009 Stock Plan, which covers both our eligible employees and our non-employee directors. The 2009 Stock Plan generally authorizes the use of the same types of awards as were available for grant under the 2004 Employee Plan.
Upon approval of the 2009 Stock Plan by our shareholders, the shares remaining available for grant under the 2004 Employee Plan and 2004 Director Plan (collectively with the 2004 Employee Plan, the 2004 Plans) will be available to make grants of all types of awards under the 2009 Stock Plan, and no new grants will be made under the 2004 Plans.
Summary of the 2009 Stock Plan
The following summary of the 2009 Stock Plan is qualified in its entirety by reference to the complete text of the 2009 Stock Plan, which is attached to this proxy statement as Annex A.
Shares Available for Issuance
Subject to adjustment upon the occurrence of certain events described below, a maximum of 3,750,000 newly authorized shares, plus the shares remaining available for issuance (or that become subsequently available for issuance) under the 2004 Employee Plan (approximately 6,025,000 shares as of March 9, 2009) may be issued under the 2009 Stock Plan to our employees and a maximum of 250,000 newly authorized shares, plus any shares remaining available for issuance (or that become subsequently available for issuance) under the 2004 Director Plan (approximately 318,000 shares as of March 9, 2009) may be issued under the 2009 Stock Plan to our directors. The total number of shares available for grant reflects a reduction in the number of shares historically available under prior plans in light of our emphasis on granting “full value share” awards rather than stock option grants since the adoption of the 2004 Plans. To satisfy awards under the 2009 Stock Plan, we may use authorized but unissued shares or shares in treasury.
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Shares subject to awards under the 2009 Stock Plan, the 2004 Plans and our other predecessor stock plans that lapse, are forfeited or cancelled or are settled without the issuance of stock, in each case, after the effective date of the 2009 Stock Plan will be available for awards under the 2009 Stock Plan and will be credited to the applicable pool of shares for our employees or non-employee directors. This includes shares that are withheld from an award to satisfy any exercise price or tax obligations.
In addition to aggregate share limits, the 2009 Stock Plan establishes individual limits that provide that no participant may receive in any calendar year:
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| • | stock options and stock appreciation rights on more than 2,000,000 shares; |
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| • | stock awards and stock unit awards related to more than 300,000 shares; |
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| • | performance shares related to more than 600,000 shares; or |
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| • | performance units with a value of more than $15,000,000. |
In the context of performance shares and performance units, where the number of shares of our common stock issuable or the dollar value earned may be up to twice the number of performance shares or units granted, this limit pertains to the target number granted.
If the Administrative Committee determines that any stock dividend, stock split, share combination, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation,split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase shares at a price substantially below fair market value, or other similar corporate event affects the shares such that an adjustment is required to preserve the benefits intended under the 2009 Stock Plan, the Administrative Committee shall make such adjustments as it deems equitable in the number and kind of shares that thereafter may be awarded or optioned under the 2009 Stock Plan (including making appropriate adjustments in the individual award limits referred to above), the number and kind of shares subject to outstanding options and awards, and the respective grant or exercise prices and/or, if appropriate, to provide for the payment of cash to a participant who has an outstanding option or award.
Administration
With respect to awards made to eligible employees, the 2009 Stock Plan will be administered by the Compensation Committee. With respect to awards made to our non-employee directors, the 2009 Stock Plan will be administered by the Governance Committee. The respective Administrative Committee will have the sole and complete authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the operation of the 2009 Stock Plan as it deems advisable, and to interpret the terms and provisions of the 2009 Stock Plan. To the extent permitted by law, the Compensation Committee may delegate to one or more executive officers the power to make awards to participants who are not executive officers, provided that the Compensation Committee shall fix the maximum amount of such awards that its delegates can make in the aggregate and to any one participant.
Subject to the express terms of the 2009 Stock Plan, the respective Administrative Committee has discretion as to the specific terms and conditions of each award and any rules applicable thereto, including but not limited to the effect thereon of the death, retirement or other termination of employment or service of the participant. Awards may not be assigned or transferred, except by will or the laws of descent and distribution or to the participant’s immediate family and to other permitted transferees under rules established by the Administrative Committee. Incentive stock option awards may not be assigned or transferred, except by will or the laws of descent and distribution only.
The Compensation Committee may make grants to any of our eligible employees or any of the eligible employees of our subsidiaries, and to any natural person who provides services to us or a subsidiary as a consultant, agent, or advisor who the Compensation Committee determines to have the capacity to contribute to our success. It is anticipated that the Compensation Committee will make these determinations based on each individual’s present and potential contribution to our success. It is estimated that approximately 1,700 employees will be eligible to participate in the 2009 Stock Plan, although it is not contemplated that every eligible employee will receive each of the different types of awards available under the 2009 Stock Plan. The Governance Committee may make grants to
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any of our eligible non-employee directors. Each of the 12 non-employee directors who we expect will continue serving on our Board after the 2009 Annual Meeting will be eligible to receive awards under the 2009 Stock Plan.
Performance Shares or Units
The 2009 Stock Plan affords the Administrative Committee discretion to grant performance shares and performance units, the payment of which is conditioned upon meeting one or more performance goals established by the Administrative Committee. Our current expectation is that performance units will constitute a substantial majority of the long-term incentive compensation opportunity made available to our NEOs and other members of senior management; however, it is the current intent of the Governance Committee to discontinue the use of performance units in favor of deferred stock units (described below) with respect to non-employee directors.
The Administrative Committee currently intends to use our TSR relative to the TSR of a broad-based group of companies (such as those in the Standard & Poor’s 500 Index), as the performance goal in respect of performance shares and performance units. However, as different goals may be more appropriate for specific individuals or classes of employees or under different circumstances, the 2009 Stock Plan permits the Administrative Committee to establish performance goals based on the following criteria, whether in absolute terms or relative to performance at other companies: stock price, operating income, net income, return on equity, income, market share, combined ratio, level of expenses, gross revenue, net revenue, book value, net premiums written, return on capital, investment income, any claim metric, loss ratio, expense ratio, and, for awards not intended to qualify as “other performance-based compensation” within the meaning of Section 162(m)(4) of the Internal Revenue Code, such other criteria as may be established by the Administrative Committee. The Administrative Committee also has the discretion to condition payment of amounts in respect of performance shares and performance units on such factors in addition to the performance goals as it shall determine on the grant date.
The Administrative Committee will determine the value of each performance share and unit, the number of such shares and units for each performance cycle, the duration of each performance cycle, and the number of performance shares and units that have been earned based on performance relative to the performance goals discussed above. Performance shares and units also may be deemed earned upon the occurrence of certain events, such as a change in control. Unless the Administrative Committee otherwise determines, performance shares and units for in-progress performance cycles will be forfeited and terminated if a participant’s employment or service terminates. However, unless the Administrative Committee otherwise determines, if a participant’s employment or service terminates due to death, disability or retirement on or after the completion of the first calendar year of a performance cycle, the participant or his representative will receive all of the performance shares and units for the performance cycle that would have been earned had the participant continued employment or service for the full period.
The Administrative Committee may provide on the grant date that, depending on actual performance measured against the stated performance goals, the amount payable in respect of performance shares and units will range from 0% to 200% of the target grant for each such award. Payment of earned performance share and unit awards may, at the discretion of the Administrative Committee, be distributed in the form of cash, shares of our stock or a combination thereof. The Administrative Committee also has the authority to adjust the applicable performance goals as it deems equitable to reflect unusual or non-recurring events affecting us or changes in tax law or accounting principles or other factors that it deems appropriate.
The Administrative Committee may permit or require participants who receive performance shares or performance units to defer receipt of such awards upon the terms and conditions the Administrative Committee establishes from time to time.
Stock Awards or Units
It is our current expectation that stock awards and stock units with a three-year cliff vesting schedule will be used in combination with performance shares and units for our NEOs and other members of senior management, but will be secondary to such performance-based awards. Stock awards and stock units will be the primary component of awards under the 2009 Stock Plan to other eligible employees. It is our current expectation that stock units also
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will be the primary award type granted to our non-employee directors. Stock unit awards to our non-employee directors will vest immediately but settlement will be mandatorily deferred until the earlier of a change in control of Chubb or the non-employee director’s termination of service. Non-employee directors will have the right to further defer settlement of stock unit awards. Stock awards and stock units may not be sold, assigned, transferred, pledged, or otherwise encumbered until any restrictions have lapsed and, in the case of stock units, the award has been settled. Subject to the forfeiture and transfer restrictions applicable to a stock award, a participant will have the right to vote the shares underlying such stock award. There are no voting rights associated with stock unit awards. The Administrative Committee may permit a participant to receive dividends or dividend equivalents on a stock or stock unit award and whether such dividends or dividend equivalents are distributed currently or on a deferred basis. The Administrative Committee has authority to determine the length of the restricted period, if any, the conditions under which the stock award and stock units may be forfeited, as well as the other terms and conditions of such awards, including the establishment of performance goals for the grant of such awards based on one or more of the performance criteria described above for performance shares and units. Stock units may be paid, at the discretion of the Administrative Committee, in cash or shares or a combination of both. The lapse of the restricted period may accelerate upon the occurrence of certain events specified in the 2009 Stock Plan, such as a change in control of Chubb or the termination of a participant’s employment or service due to death, disability, retirement or other qualifying termination. Unless the Administrative Committee otherwise determines, in the event that a participant’s employment or service terminates other than due to death, disability or retirement prior to vesting in any stock award or stock unit, such stock award or stock unit will be forfeited.
The Administrative Committee may permit or require participants who receive stock awards or stock units to defer receipt of such awards upon the terms and conditions the Administrative Committee establishes from time to time. Due to Section 162(m) of the Internal Revenue Code, we expect that the receipt of all shares issuable upon the expiration of the restriction period applicable to any stock award or stock unit made to Mr. Finnegan will be deferred until termination of his employment. Likewise, we expect that the receipt of all of a portion of the shares issuable upon the expiration of the restriction period applicable to any stock award or stock unit made to Mr. Degnan will be deferred until termination of his employment.
Stock Options and Stock Appreciation Rights
It is our expectation that stock options and stock appreciation rights will be used sparingly. Options granted under the 2009 Stock Plan may be either non-statutory options or incentive stock options. Incentive stock options may be granted to eligible employee participants only. The exercise price of any stock option granted may not be less than 100% of the fair market value of the underlying shares at the time of grant, and the Administrative Committee is not permitted to subsequently reduce the exercise price or otherwise reprice granted options. Stock appreciation rights may be granted in tandem with or unrelated to options granted under the 2009 Stock Plan and, if in tandem with an option, will be granted at the time of such option grant. Upon the exercise of a stock appreciation right, the participant is entitled to receive the excess of the fair market value of a share over the base value applicable to such right. The Administrative Committee has the authority to determine whether the value of a stock appreciation right is paid in cash or shares or a combination of both.
The Administrative Committee has discretion as to the terms and conditions upon which options and stock appreciation rights will be exercisable, but under no circumstances may an option or stock appreciation right have a term exceeding ten years from the date of grant. Unless the Administrative Committee establishes another exercise schedule, options and stock appreciation rights generally will become exercisable in three approximately equal installments on each of the first three anniversaries of the date of grant. Unless the Administrative Committee otherwise determines, any option or stock appreciation right that has not been exercised prior to the termination of the participant’s employment or service will cease to be exercisable, regardless of whether exercisable at that time. However, if a participant’s employment or service terminates due to death, disability, or retirement on or after the first anniversary of the grant date of an option or stock appreciation right, then the participant or his or her representative may exercise such option or stock appreciation right for the remainder of its term, regardless of the extent to which such awards were exercisable at the date of such termination. An option holder may satisfy the
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exercise price in cash or, at the discretion of the Administrative Committee, by exchanging shares owned by the optionee, by net issue settlement or by a combination thereof.
Change in Control
If the respective Administrative Committee (as constituted before the change in control) determines that each of the following conditions are satisfied (i) there will be no acceleration of the vesting, or lapsing of restrictions, of any options, stock appreciation rights, stock awards, stock units, (ii) performance shares and performance units will not be deemed earned, and (iii) there will be no payment made in respect of such awards by reason of a “change in control” (as defined in the 2009 Stock Plan):
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| • | outstanding awards will be honored or assumed by the surviving corporation; |
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| • | the honored or assumed awards will relate to securities that are or will shortly be publicly traded on an established U.S. securities market; |
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| • | the terms and conditions (such as vesting and exercisability) of the honored or assumed awards are at least equal to or better than the terms of the awards related to our common stock; |
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| • | the honored or assumed awards will have substantially equivalent economic value, at the time of the change in control, to the awards in respect of our common stock; and |
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| • | the honored or assumed awards must provide that, upon the involuntary termination of the award recipient’s employment or service, the awards will be deemed vested or exercisable, as the case may be. |
For purposes of the 2009 Stock Plan, “change in control” includes:
| | |
| • | an acquisition of 20% or more of our shares by a person other than us, our subsidiaries or our employee benefit plans; |
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| • | a change in a majority of the members of our Board due to a proxy contest or tender or exchange offer; and |
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| • | a merger, reorganization, or similar transaction (including a sale of substantially all assets), where our shareholders immediately prior to such transaction do not control more than 50% of the surviving entity immediately after the transaction. |
If we experience a change in control and the foregoing conditions are not satisfied, each option and stock appreciation right and each stock award and each stock unit grant will be treated as fully vested and will no longer be subject to forfeiture and transfer restrictions. Additionally, each option and stock appreciation right will be cancelled in exchange for an amount equal to the excess, if any, of the fair market value on the date of the change in control transaction over the exercise price or base value of such award, and all outstanding performance shares and performance units will be deemed earned and be immediately payable, in an amount equal to 100% of the applicable target grant for each such award, regardless of the portion of the applicable performance period that will have elapsed prior to the date of such change in control. Stock awards and stock units will similarly be cancelled in exchange for an amount equal to the per share consideration received by our shareholders in connection with the change in control transaction. However, when Section 409A of the Internal Revenue Code applies to any stock award or stock unit, payment of such award to an employee will not be accelerated and payment of such award to a director will be accelerated only if the change in control also qualifies as a “change in control event” under Section 409A of the Internal Revenue Code.
Awards toNon-U.S. Participants
Although performance units and restricted stock units will be the primary awards granted to our employees and deferred stock units will be the primary award granted to our directors, our Board intends to structure equity awards granted in foreign jurisdictions to minimize any negative tax consequences to recipients (relative to U.S. tax consequences), as well as leverage any tax advantage available in such foreign jurisdiction. For example, we intend to continue granting stock options to plan participants in Canada in lieu of performance units or restricted stock unit awards because of the preferential tax treatment of stock options in Canada.
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Term of the 2009 Stock Plan and Amendments
No award may be granted under the 2009 Stock Plan after December 31, 2019 and no incentive stock option may be granted after the tenth anniversary of the effective date of the 2009 Stock Plan. The 2009 Stock Plan may be amended or terminated at any time by our Board or Administrative Committee, except that no amendment may be made without shareholder approval if such approval is necessary to comply with any tax or regulatory requirement, including any approval requirement that is imposed by the rules of the NYSE, that the Administrative Committee determines to be applicable. Participant consent will be needed for an amendment that may adversely affect existing awards in a material manner unless the Administrative Committee determines that such amendment is necessary or advisable for us to comply with applicable law, regulation, rule or accounting standard.
Description of Federal Income Tax Consequences under the 2009 Stock Plan
The following discussion summarizes the Federal income tax consequences of the 2009 Stock Plan based on current provisions of the Internal Revenue Code, which are subject to change. The summary does not cover any state, local, foreign or other tax consequences of participation in the 2009 Stock Plan. Participants in the 2009 Stock Plan should consult with their tax advisors as to the federal, state, local, foreign and other tax consequences of their receipt of awards under the 2009 Stock Plan.
Performance Shares
When payment is made to a participant in respect of earned performance shares granted under the 2009 Stock Plan, the participant will have taxable ordinary income in an amount equal to the amount of cash and the fair market value of any shares of our stock that such participant receives in payment on such award. We will receive a Federal income tax deduction in an amount equal to the amount paid to the participant, unless the amount is paid by a subsidiary or affiliate that is not part of our consolidated Federal return, in which case, the subsidiary or affiliate, as the case may be, will receive the deduction.
Stock Awards
Unless a participant makes the election described below, a grant of stock awards will not result in taxable income to the participant or a deduction to us (or the unconsolidated subsidiary or affiliate employing the participant) in the year of grant. The value of such stock award will be taxable to a participant as ordinary income in the year in which the award vests. Alternatively, a participant may elect to treat as income in the year of grant the fair market value of the stock award on the date of grant, provided the participant makes the election within 30 days after the date of such grant. If such an election were made, the participant would not be allowed to deduct at a later date the amount included as taxable income if the participant should forfeit the shares of stock award. The amount of ordinary income recognized by a participant is deductible by us (or the unconsolidated subsidiary or affiliate employing the participant) in the year such income is recognized by the participant, provided such amount constitutes reasonable compensation to the participant. If the election described above is not made, then prior to the lapse of restrictions, dividends paid on the shares subject to such restrictions will be taxable to the participant as additional compensation in the year received, and we (or the unconsolidated subsidiary or affiliate employing the participant) will be allowed a corresponding deduction.
Non-Statutory Options
When an optionee exercises an option, the excess of the fair market value of the shares on the date of exercise over the exercise price will be ordinary income to the optionee and will be allowed as a deduction for Federal income tax purposes to us (or the unconsolidated subsidiary or affiliate employing the participant). When an optionee disposes of shares acquired by the exercise of the option, any amount received in excess of the market value of the shares on the date of exercise will be treated as long or short-term capital gain, depending upon the holding period of the shares. If the amount received upon disposition of the shares is less than the market value of the shares on the date of exercise, the loss will be treated as long or short-term capital loss, depending upon the holding period of the shares. If pursuant to the authority of the Administrative Committee an optionee transfers an option by
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gift, the optionee will still have ordinary income upon the exercise of the option by the transferee equal to the excess of the fair market value of the shares on the date of exercise over the exercise price.
Incentive Stock Options
When an optionee exercises an incentive stock option while employed by us or a subsidiary or within the three month (one year for disability) period after termination of employment by reason of retirement or death, no ordinary income will be recognized by the optionee at that time but the excess (if any) of the fair market value of the shares acquired upon such exercise over the exercise price will be an adjustment to taxable income for purposes of the Federal alternative minimum tax applicable to individuals. If the shares acquired upon exercise are not disposed of prior to the expiration of one year after the date of transfer and two years after the date of grant of the option, the excess (if any) of the sales proceeds over the aggregate exercise price of such shares will be long-term capital gain. We will not be entitled to any tax deduction with respect to the amount treated as long-term capital gain, and neither will any unconsolidated subsidiary or affiliate employing the participant. If the shares are disposed of prior to the expiration of such periods (a “disqualifying disposition”), the excess of the fair market value of such shares at the time of exercise over the aggregate exercise price (but not more than the gain on the disposition if the disposition is a transaction on which a loss, if realized, would be recognized) will be ordinary income at the time of such disqualifying disposition and we (or the unconsolidated subsidiary or affiliate employing the participant) will be entitled to a Federal tax deduction in a like amount. If an incentive stock option is exercised by the optionee more than three months (one year for disability) after termination of employment, the tax consequences are the same as described above for non-statutory options.
Stock Appreciation Rights, Performance Units, and Stock Units
Generally, when a participant exercises stock appreciation rights granted under the 2009 Stock Plan or receives payment with respect to earned performance units or stock units granted under the 2009 Stock Plan, the amount of cash and the fair market value of the shares received will be ordinary income to such participant, and we (or the unconsolidated subsidiary or affiliate employing the participant) will be allowed a corresponding deduction for Federal income tax purposes.
New Plan Benefits Table
The following table sets forth the awards that the Governance Committee has authorized to be made in 2009 pursuant to the 2009 Stock Plan to our non-employee directors if our shareholders approve the adoption of the 2009 Stock Plan. Each non-employee director will receive deferred stock units with an aggregate fair value of approximately $100,000 on the date of the 2009 Annual Meeting. The units will vest immediately and will be mandatorily deferred until the earlier of a change in control of Chubb or the non-employee director’s termination of service. A non-employee director will have the right to further defer settlement of the award.
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Name and Position | | Dollar Value | | | Number of Units(1) | | | Types of Award | |
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| Non-Employee Director Group (12 total) | | $ | 1,200,000 | | | | 33,984 | | | | Deferred stock units | |
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(1) | | Represents the number of units for all directors based on the average of our high and low stock price on March 9, 2009 ($35.31 per share). |
In the event that our shareholders do not approve the 2009 Stock Plan, we expect that each of our non-employee directors will receive a combination of performance units and stock units with an aggregate fair value of approximately $100,000 pursuant to the terms of the 2004 Director Plan on the date of the 2009 Annual Meeting.
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The following table shows awards that the Compensation Committee granted in 2009 to our NEOs, to all executive officers (including the NEOs) as a group and to all non-executive officer employees as a group under the 2004 Employee Plan. While the Administrative Committee has not yet determined what grants will be made under the 2009 Stock Plan if it is approved by shareholders, we expect that the awards under the 2009 Stock Plan would have been substantially similar to the 2009 grants.
| | | | | | | | | | | |
| | | Dollar
| | | | |
| | | Value of
| | | | |
| | | Awards
| | Number
| | Types of
|
Name and Position | | $(1) | | of Units | | Awards |
| |
| John D. Finnegan, | | | 5,699,982 | | | | 141,211 | | | Performance units |
| Chairman, President and Chief Executive Officer | | | 1,899,981 | | | | 47,070 | | | Restricted stock units |
| | | | | | | | | | | |
| Richard G. Spiro, | | | 1,987,492 | | | | 49,238 | | | Performance units |
Executive Vice President and
Chief Financial Officer | | | 662,470 | | | | 16,412 | | | Restricted stock units |
| | | | | | | | | | | |
| John J. Degnan, | | | 2,249,985 | | | | 55,741 | | | Performance units |
| Vice Chairman and Chief Operating Officer | | | 749,982 | | | | 18,580 | | | Restricted stock units |
| | | | | | | | | | | |
| Paul J. Krump, | | | 412,490 | | | | 10,219 | | | Performance units |
Executive Vice President and
Chief Underwriting Officer | | | 137,483 | | | | 3,406 | | | Restricted stock units |
| | | | | | | | | | | |
| Harold L. Morrison, Jr., | | | 412,490 | | | | 10,219 | | | Performance units |
Executive Vice President and
Chief Global Field Officer | | | 137,483 | | | | 3,406 | | | Restricted stock units |
| | | | | | | | | | | |
| Dino E. Robusto, | | | 412,490 | | | | 10,219 | | | Performance units |
Executive Vice President and
Chief Administrative Officer | | | 137,483 | | | | 3,406 | | | Restricted stock units |
| | | | | | | | | | | |
| Executive Group (including the NEOs named above) | | | 13,115,880 | | | | 324,932 | | | Performance units |
| | | | 4,371,812 | | | | 108,307 | | | Restricted stock units |
| Non-Executive Employee Group | | | 19,099,991 | | | | 473,182 | | | Performance units |
| | | | 46,431,900 | | | | 1,150,301 | | | Restricted stock units |
| | | | 1,525,039 | | | | 125,301 | | | Options(2) |
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(1) | | Determined by multiplying the number of units by the February 25, 2009 grant price of $40.365. |
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(2) | | Although we generally do not expect to issue options as part of our annual equity awards, employees residing in certain jurisdictions outside the U.S. may receive options in lieu of performance units or restricted stock unit awards. |
Required Vote
The affirmative vote of a majority of the shares of our common stock represented and voting at the 2009 Annual Meeting is required for approval of the proposal to adopt the 2009 Stock Plan, provided that the total votes cast on the proposal represent a majority of the outstanding shares entitled to vote on the proposal.
Our Board unanimously recommends that you vote “FOR” the adoption of The Chubb Corporation Long-Term Incentive Plan (2009). Proxies solicited by our Board will be voted “FOR” this proposal unless a shareholder has indicated otherwise on the proxy card.
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PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
Our Audit Committee, acting pursuant to the authority granted to it in its charter, has retained Ernst & Young LLP (Ernst & Young) as our independent auditor. The appointment of Ernst & Young is being submitted to our shareholders for ratification. Ernst & Young has acted as our independent auditor for many years. The following summarizes the fees billed to us by Ernst & Young for professional services rendered in 20082009 and 2007:2008:
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| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
Audit Fees(1) | | $ | 6,555,000 | | | $ | 7,018,000 | | | $ | 6,840,000 | | | $ | 6,555,000 | |
Audit-Related Fees(2) | | | 852,000 | | | | 802,000 | | | | 1,190,000 | | | | 852,000 | |
Tax Fees(3) | | | — | | | | — | | | | — | | | | — | |
All Other Fees(4) | | | 102,000 | | | | 166,000 | | | | 33,000 | | | | 102,000 | |
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| (1) | | Audit Fees primarily relate to the audit of our annual financial statements, review of our financial statements included in our quarterly reports onForm 10-Q, statutory audits for our insurance subsidiaries and review of SEC registration statements. |
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| (2) | | Audit-Related Fees primarily relate to an International Financial Reporting Standards impact assessment, a SAS 70 internal control reports,report, employee benefit plan audits and certain non-insurance related statutory audits. |
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| (3) | | Tax Fees primarily relate to tax compliance, tax advice and tax planning. |
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| (4) | | All Other Fees relate to other services not described in notes (1), (2), and (3) above, including special actuarial reports filed with regulators, technical training and an online information service. |
Our Audit Committee determined that the provision of these services is compatible with maintaining Ernst & Young’s independence.
In 2008,2009, our Audit Committee pre-approved all services performed for us by Ernst & Young except for two de minimis audit-related services with fees totaling $7,600. These services were subsequently approved by the Audit Committee.Young.
Representatives of Ernst & Young are expected to be present at the 20092010 Annual Meeting and to have the opportunity to make a statement should they desire to do so and to be available to respond to appropriate questions.
Required Vote
The affirmative vote of a majority of the votes cast by shareholders entitled to vote at the 20092010 Annual Meeting is required to ratify the appointment of Ernst & Young as our independent auditor. If our shareholders do not ratify the appointment of Ernst & Young, our Audit Committee will reconsider the appointment.
Our Board unanimously recommends that you vote “FOR” ratification of the appointment of Ernst & Young LLP as our independent auditor. Proxies solicited by our Board will be voted “FOR” this proposal unless a shareholder has indicated otherwise on the proxy card. If you are a shareholder of record and return a signed and dated proxy card without marking any voting selections with respect to ratification of Ernst & Young LLP as independent auditor, or if you are a beneficial owner of shares held in street name and return a signed and dated voting instruction card without marking any voting selection with respect to ratification of Ernst & Young LLP as independent auditor, your shares will be considered as present and entitled to vote with respect to that proposal and your shares will be voted “FOR” Proposal 2.
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SOLICITATION OF PROXIES
We will pay the cost of this solicitation of proxies. In addition to the solicitation of proxies by use of the internet and mail, we may use the services of one or more of our directors, officers or other regular employees (who will receive no additional compensation for their services in such solicitation) to solicit proxies personally, by telephone or by other electronic means. In addition, we may enter into an agreement with a professional proxy solicitor, pursuant to which it may assist us in the solicitation of proxies by mail, in person and by telephone for a fee, which is estimated not to exceed $8,500 plusout-of-pocket expenses. Arrangements will be made with brokerage firms and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of shares held on the record date by such persons and we will reimburse them for reasonable expenses actually incurred by them in so doing.
20102011 SHAREHOLDER PROPOSALS AND NOMINATIONS
Any proposal that a shareholder intends to be included in our proxy statement and form of proxy card for our 20102011 Annual Meeting of Shareholders must be in writing and be received by our Corporate Secretary at The Chubb Corporation, 15 Mountain View Road, Warren, New Jersey 07059 no later than November 19, 200918, 2010 and must otherwise comply with the rules promulgated by the SEC in order to be eligible for inclusion in our proxy materials for the 20092011 Annual Meeting of Shareholders.
Under our By-Laws, if a shareholder desires to bring a matter before the annual meeting of shareholders or if a shareholder wants to nominate a person for election to our Board, the shareholder must follow the procedures set forth in our By-Laws. A copy of Article I, Section 10, of our By-Laws, which covers those matters, is available without charge to shareholders of record upon written request to our Corporate Secretary. Our By-Laws also are available on our website atwww.chubb.com/investors. Our By-Law procedures are separate from the SEC’s requirements that a shareholder must meet in order to have a shareholder proposal included in our proxy statement.
One of the procedural requirements in our By-Laws is timely notice in writing of any business the shareholder proposes to bring before the annual meeting of shareholdersand/or the nomination any shareholder proposes to make at the annual meeting of shareholders. Notice of business proposed to be brought before the 20102011 Annual Meeting of Shareholdersand/or director nominations proposed to be made at the 20102011 Annual Meeting of Shareholders must be received by our Corporate Secretary no earlier than December 29, 200928, 2010 and no later than January 28, 2010.27, 2011.
The notice for business that a shareholder proposes to bring before the annual meeting of shareholders must be a proper matter for shareholder action and must set forth:
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| | • | the name and address of such shareholder, as they appear on our books, and the name and address of any certain parties related to the shareholder (each a Shareholder Associated Person); |
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| | • | the class and number of shares of our stock that are, directly or indirectly, owned beneficially and of record by such shareholder or Shareholder Associated Person; |
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| | • | the date such shares of our stock were acquired; |
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| | • | a representation that the shareholder is a holder of record of shares of our stock entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to bring or propose such business or make such nomination, as the case may be; |
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| | • | a description of any agreement, understanding or arrangement, direct or indirect, with respect to such business, proposal or nomination between or among such shareholder, any Shareholder Associated Person or any others (including their names) acting in concert with any of the foregoing; |
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| | • | a description of any agreement, understanding or arrangement (including any derivative or short positions, profit interests, options, hedging transactions and borrowed or loaned shares) that has been entered into, directly or indirectly, as of the date of such shareholder’s notice by, or on behalf of, the shareholder or any Shareholder Associated Person, the effect or intent of which is to mitigate loss to, manage risk or benefit of |
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| | |
| | | share price changes for, or increase or decrease the voting power of such shareholder or any Shareholder Associated Person with respect to shares of our stock; |
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| | • | if such shareholder’s notice relates to the nomination of a person for election to the Board of Directors, (i) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such nominating shareholder, any Shareholder Associated Person or others acting in concert with any of the foregoing, including all information that would be required to be disclosed pursuant to Rule 404 promulgated by the SEC underRegulation S-K, as amended from time to time, if such nominating shareholder, Shareholder Associated Person or any person acting in concert therewith, were the “registrant” for the purposes of such rule and the person being nominated for election as director were a director or executive of such “registrant” and (ii) as to each person whom the shareholder proposes to nominate for election as a director, all information relating to such person that would be required to be disclosed in a solicitation of proxies for the election of such person as a director pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if so elected); |
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| | • | a description of any proxy (including revocable proxies), contract, arrangement, understanding or other relationship pursuant to which such shareholder or Shareholder Associated Person has a right to vote any shares of our stock; |
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| | • | with respect to any and all of the agreements, contracts, understandings, arrangements, proxies or other relationships referred to in the foregoing bullets, a representation that such shareholder will notify us in writing of any such agreement, contract, understanding, arrangement, proxyand/or other relationship that are or will be in effect as of the date of the applicable annual meeting of shareholders no later than five business days before the date of such meeting; |
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| | • | all other information that would be required to be filed with the SEC if such shareholder or Shareholder Associated Person were participants in a solicitation subject to Section 14 of the Exchange Act; |
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| | • | as to any business that the shareholder proposes to bring before the meeting, (i) a brief description of such business, (ii) if such business includes a proposal, the text of the proposal (including the text of any resolutions proposed for consideration,consideration), (iii) if the proposal includes an amendment to our By-Laws, the language of the proposed amendment, (iv) the reasons for conducting such business at the meeting and (v) any material interest of such shareholder and any Shareholder Associated Person in such business; and |
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| | • | a representation as to whether the shareholder intends (i) to deliver a proxy statement and form of proxy to holders of at least the percentage of our outstanding capital stock required to approve or adopt the proposal or elect the nominee or (ii) otherwise to solicit proxies from shareholders in support of such proposal or nomination. In addition, a shareholder seeking to submit a shareholder proposal or other business or make a director nomination shall promptly provide any other information reasonably requested by us, and any proposed nominee for election to our Board must furnish such other information as we may reasonably require to determine the eligibility of such proposed nominee to serve as a member of our Board. |
By Order of the Board of Directors,
W. Andrew Macan
Vice President and Secretary
March 19, 200918, 2010
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ANNEX A
THE CHUBB CORPORATION
LONG-TERM INCENTIVE PLAN (2009)
SECTION 1. PURPOSE
The purposes of The Chubb Corporation Long-Term Incentive Plan (2009) (the “Plan”) are to promote the interests of The Chubb Corporation and its shareholders by (i) attracting and retaining executive personnel and other key employees of outstanding ability; (ii) motivating executive personnel and other key employees, by means of performance-related incentives, to achieve longer-range performance goals; (iii) providing non-employee directors a direct proprietary interest by granting such directors equity and equity-based awards; and (iii) enabling such employees and non-employee directors to participate in the long-term growth and financial success of The Chubb Corporation.
SECTION 2. DEFINITIONS
(a) Certain Definitions. Capitalized terms used herein without definition shall have the respective meanings set forth below:
“Act” means the Securities Exchange Act of 1934, as amended.
“Affiliate” means, with respect to any person, any other person controlled by, controlling or under common control with such person.
“Award” means any grant or award made pursuant to Sections 5 through 8, inclusive.
“Board” means the Board of Directors of the Corporation.
“Cause” means (i) the willful failure of a Participant to perform substantially his or her employment- or Director-related duties; (ii) a Participant’s willful or serious misconduct that has caused or could reasonably be expected to result in material injury to the business or reputation of the Company; (iii) a Participant’s conviction of, or entering a plea of guilty ornolocontendere to, a crime constituting a felony; or (iv) the breach by a Participant of any written covenant or agreement with a Company or of any material written policy of any Company, provided that if a Participant is a party to an employment or individual severance agreement with a Company that defines the term “Cause” then, with respect to any Award made to such Participant, “Cause” shall have the meaning set forth in such agreement.
“Change in Control” means the first occurrence of any of the following events after the effective date of the Plan:
(i) the acquisition by any person, entity or “group” (as defined in Section 13(d) of the Act), other than the Corporation, the Subsidiaries, and any employee benefit plan of the Corporation or the Subsidiaries, of 20% or more of the combined voting power of the Corporation’s then outstanding voting securities;
(ii) the persons who were serving as the members of the Board immediately prior to the commencement of a proxy contest relating to the election of directors or a tender or exchange offer for voting securities of the Corporation (the “Incumbent Directors”) shall cease to constitute at least a majority of the Board (or the board of directors of any successor to the Corporation) at any time within one year of the election of directors as a result of such contest or the purchase or exchange of voting securities of the Corporation pursuant to such offer,provided that any director elected to the Board, or nominated for election, by a majority of the Incumbent Directors then still in office and whose nomination or election was not made at the request or direction of the person(s) initiating such contest or making such offer shall be deemed to be an Incumbent Director for purposes of this clause (ii);
(iii) the shareholders of the Corporation approve a merger, reorganization or consolidation of the Corporation, which is consummated and as a result of which persons who were shareholders of the Corporation immediately prior to such merger, reorganization or consolidation, do not, immediately thereafter, own,
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directly or indirectly and in substantially the same proportions as their ownership of the stock of the Corporation immediately prior to the merger, reorganization or consolidation, more than 50% of the combined voting power entitled to vote generally in the election of directors of (A) the merged, reorganized or consolidated company or (B) an entity that, directly or indirectly, owns more than 50% of the combined voting power entitled to vote generally in the election of directors of the company described in subclause (A); and
(iv) the shareholders of the Corporation approve a sale, transfer or other disposition of all or substantially all of the assets of the Corporation, which is consummated and immediately following which the persons who were shareholders of the Corporation immediately prior to such sale, transfer or disposition, do not own, directly or indirectly and in substantially the same proportions as their ownership of the stock of the Corporation immediately prior to the sale, transfer or disposition, more than 50% of the combined voting power entitled to vote generally in the election of directors of (A) the entity or entities to which such assets are sold or transferred or (B) an entity that, directly or indirectly, owns more than 50% of the combined voting power entitled to vote generally in the election of directors of the entities described in subclause (A).
“Change in Control Price” means the price per share offered in respect of Stock in conjunction with any transaction resulting in a Change in Control on a fully-diluted basis (as determined in good faith by the Committee as constituted before the Change in Control, if any part of the offered price is payable other than in cash) or, in the case of a Change in Control occurring solely by reason of a change in the composition of the Board, the highest Fair Market Value of a share of Stock on any of the 30 trading days immediately preceding the date on which a Change in Control occurs.
“Code” means the Internal Revenue Code of 1986, as amended from time to time, or its successor.
“Committee” means the Organization & Compensation Committee of the Board or such other committee of the Board as the Board shall from time to time designate to administer the Plan. Notwithstanding the foregoing, with respect to grants to Directors, Committee means the Corporate Governance & Nominating Committee of the Board or such other committee of the Board as the Board shall from time to time designate to administer the Plan.
“Company” means the Corporation and any Subsidiary, and, in the discretion of the Committee, also may mean any business organization that is an Affiliate.
“Consultant” means any natural person serving as an advisor, agent, or consultant to any Company. Except as otherwise determined by the Committee or provided for in an individual consulting agreement, for purposes of this Plan, the terms employment and termination of employment, as applied to any person described in the immediately preceding sentence, shall mean the maintenance of, or termination of, as the case may be, such person’s relationship as an advisor, agent, or consultant to all of the Companies to whom such person rendered services.
“Corporation” means The Chubb Corporation.
“Designated Beneficiary” means the beneficiary designated by the Participant, in a manner determined by the Committee, to receive amounts due the Participant in the event of the Participant’s death. In the absence of an effective designation by the Participant, Designated Beneficiary shall mean the Participant’s estate.
“Director” means a director of the Corporation who is not an Employee, and who has not, within one year immediately preceding the determination of such director’s eligibility, received any award under any plan of the Corporation or a Subsidiary with respect to services for the Corporation or a Subsidiary as an Employee.
“Disability” means a disability as defined in the Participant’s applicable award agreement.
“Effective Date” means the date, following adoption of this Plan by the Board, on which this Plan is approved by a majority of the votes cast at a duly constituted meeting of the shareholders of the Corporation.
“Employee” means any officer or employee of any Company.
“Fair Market Value” means the average of the highest and lowest sales prices of the Stock reported for consolidated trading of issues listed on the New York Stock Exchange on the date in question, or, if the Stock shall
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not have been traded on such date, the average of such highest and lowest sales prices on the first day prior thereto on which the Stock was so traded. Notwithstanding the foregoing, the Committee may elect at the time of grant of any Award to determine the Fair Market Value as of any date for purposes of such Award based on the average of the averages of the highest and lowest sales prices of the Stock reported for consolidated trading of issues listed on the New York Stock Exchange on each trading day in a period (of not more than 30 trading days) specified by the Committee, provided such determination is made in accordance with Section 409A of the Code, if applicable. In the event the Stock is no longer traded on the New York Stock Exchange, the Committee shall determine in good faith the Fair Market Value to be used, provided such determination is made in accordance with Section 409A of the Code, if applicable.
“Incentive Stock Option” means a stock option granted under Section 7 which is intended to meet the requirements of Section 422 of the Code.
“Key Employee” means a Participant who is a Key Employee as defined in Section 416(i) of the Code without regard to Section 416(i)(5) of the Code thereof as of the Key Employee Determination Date. The Key Employee Determination Date shall be December 31 of each calendar year. The determination that a Participant is a Key Employee as of the Key Employee Determination Date shall make such Participant a Key Employee for the12-month period commencing as of the April 1 next following the Key Employee Determination Date. For purposes of identifying a Key Employee by applying the requirements of Section 416(i)(1)(A)(i), (ii), and (iii) of the Code, the definition of compensation under Treasury Regulation § 1.415(c)-2(a) shall be used, applied without using any safe harbor provided in Treasury Regulation § 1.415(c)-2(d), without using any of the special timing rules provided in Treasury Regulation § 1.415(c)-2(e), and without using any of the special rules provided in Treasury Regulation § 1.415(c)-2(g) other than the rule set forth in Treasury Regulation § 1.415(c)-2(g)(2).
“New Company” means, after a Change in Control, a Participant’s employer or service recipient, or any direct or indirect parent or any direct or indirect majority-owned subsidiary of such employer.
“Non-statutory Stock Option” means a stock option granted under Section 7 that is not intended to be an Incentive Stock Option.
“Option” means an Incentive Stock Option or a Non-statutory Stock Option.
“Participant” means an Employee, Consultant, or Director who is selected by the Committee to receive an Award under the Plan.
“Payment Value” means the dollar amount assigned to a Performance Share that shall be equal to the Fair Market Value of the Stock on the day of the Committee’s certification under Section 5(e) with respect to the applicable Performance Cycle (or, in the case of any payment made pursuant to Section 9, the date on which the Change in Control occurs).
“Performance Cycle” means the period selected by the Committee during which performance is measured for the purpose of determining the extent to which an award of Performance Shares or Performance Units has been earned.
“Performance Goal” means the objectives established by the Committee for a Performance Cycle pursuant to Section 5(c) for the purpose of determining the extent to which an award of Performance Shares or Performance Units has been earned.
“Performance Share” means an award granted pursuant to Section 5 of the Plan of a contractual right to receive a payment in respect of the Payment Value of such award upon the achievement, in whole or in part, of the applicable Performance Goals.
“Performance Unit” means a fixed or variable dollar denominated unit (or a unit denominated in the Participant’s local currency) granted pursuant to Section 5 of the Plan, payable upon the achievement, in whole or in part, of the applicable Performance Goals.
“Prior Director Plan” means The Chubb Corporation Long-Term Stock Incentive Plan for Non-Employee Directors (2004).
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“Prior Employee Plans” means The Chubb Corporation Long-Term Stock Incentive Plan (2004), The Chubb Corporation Long-Term Stock Incentive Plan (2000), The Chubb Corporation Long-Term Stock Incentive Plan (1996), The Chubb Corporation Long-Term Stock Incentive Plan (1992), and the Long-Term Stock Incentive Plan (1989).
“Prior Plans” means the Prior Director Plan and the Prior Employee Plans.
“Qualifying Termination” means a termination of a Participant’s employment or service with the Company by reason of the Participant’s death, Disability, or Retirement.
“Restriction Period” means the period of time, if any, selected by the Committee during which the grant of a Stock Award or Stock Unit, as the case may be, is subject to forfeitureand/or restrictions on transfer pursuant to the terms of the Plan.
“Retirement” means retirement as defined in the Participant’s applicable award agreement.
“Stock” means the common stock, $1.00 par value, of the Corporation.
“Stock Appreciation Right” means a right to receive payment from the Corporation, in cash or Stock, granted under Section 8.
“Stock Award” means a share of Stock contingently granted to a Participant under Section 6 of the Plan, which may be subject to a Restriction Period.
“Stock Unit” means a fixed or variable stock denominated unit contingently awarded under Section 6 of the Plan, which may be subject to a Restriction Period.
“Subsidiary” means any business entity in which the Corporation possesses directly or indirectly fifty percent (50%) or more of the total combined voting power.
(b) Gender and Number. Except when otherwise indicated by the context, words in the masculine gender used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular.
SECTION 3. POWERS OF THE COMMITTEE
(a) Eligibility. Each Employee, Consultant, and Director who, in the opinion of the Committee, has the capacity to contribute to the successful performance of the Corporation is eligible to be a Participant in the Plan.
(b) Power to Grant and Establish Terms of Awards. The Committee shall have the discretionary authority, subject to the terms of the Plan, to determine which Employees, Consultants, and Directors, if any, to whom Awards shall be granted, the type or types of Awards to be granted, and the terms and conditions of any and all Awards including, without limitation, the number of shares of Stock subject to an Award, the time or times at which Awards shall be granted, and the terms and conditions of applicable award agreements. The Committee may establish different terms and conditions for different types of Awards, for different Participants receiving the same type of Award, and for the same Participant for each type of Award such Participant may receive, whether or not granted at the same or different times.
(c) Administration. The Plan shall be administered by the Committee. The Committee shall have sole and complete authority and discretion to adopt, alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan as it shall from time to time deem advisable, and to interpret the terms and provisions of the Plan. The Committee’s decisions (including any failure to make decisions) shall be binding upon all persons, including the Corporation, shareholders, each Company, each Employee, each Consultant, each Director, each Participant, and each Designated Beneficiary, and shall be given deference in any proceeding with respect thereto.
(d) Delegation by the Committee. To the extent permitted by state law, the Committee may delegate to one or more executive officers of the Corporation the power to make Awards to Participants other than Directors or any
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of the Corporation’s executive officers (including the chief executive officer), provided that when so delegating, the Committee shall fix the aggregate maximum amount of such Awards and the maximum Award for any one Participant that may be awarded by such delegate(s).
(e) Participants Located Outside the United States. To conform with the provisions of local laws and regulations, or with local compensation practices and policies, in foreign countries in which the Corporation or any of its Subsidiaries or Affiliates operate or the Participant resides, but subject to the limitations set forth herein regarding the maximum number of shares issuable hereunder and the maximum award to any single Participant, the Committee may (i) modify the terms and conditions of Awards granted to Participants employed or residing outside the United States (“Non-US Awards”), (ii) establish subplans with modified exercise procedures and such other modifications as may be necessary or advisable under the circumstances (“Subplans”), and (iii) take any action which it deems advisable to obtain, comply with or otherwise reflect any necessary governmental regulatory procedures, exemptions, or approvals with respect to the Plan. The Committee’s decision to grant Non-US Awards or to establish Subplans is entirely voluntary, and at the complete discretion of the Committee. The Committee may amend, modify, or terminate any Subplans at any time, and such amendment, modification, or termination may be made without prior notice to the Participants. The Corporation, Subsidiaries, Affiliates, and members of the Committee shall not incur any liability of any kind to any Participant as a result of any change, amendment, or termination of any Subplan at any time. The benefits and rights provided under any Subplan or by any Non-US Award (i) are wholly discretionary and, although provided by either the Corporation, a Subsidiary or Affiliate, do not constitute regular or periodic payments and (ii) are not to be considered part of the Participant’s salary or compensation under the Participant’s employment with the Participant’s local employer for purposes of calculating any severance, resignation, redundancy or other end of service payments, vacation, bonuses, long-term service awards, indemnification, pension, or retirement benefits, or any other payments, benefits, or rights of any kind. If a Subplan is terminated, the Committee may direct the payment of Non-US Awards (or direct the deferral of payments whose amount shall be determined) prior to the dates on which payments would otherwise have been made, and, in the Committee’s discretion, such payments may be made in a lump sum or in installments, provided such payments are made in accordance with Section 409A of the Code, if applicable.
SECTION 4. MAXIMUM AMOUNT AVAILABLE FOR AWARDS
(a) Number. Subject in all cases to the provisions of this Section 4, the maximum number of shares of Stock that are available for Awards made to Employees (the “Employee Pool”) shall be 3,750,000, plus that number of shares of Stock that are not subject to an outstanding award under the Prior Employee Plans on the Effective Date but were otherwise available for issuance under the Prior Employee Plans. Subject in all cases to the provisions of this Section 4, the maximum number of shares of Stock that are available for Awards made to Directors (the “Director Pool”) shall be 250,000, plus that number of shares of Stock that are not subject to an outstanding award under the Prior Director Plan on the Effective Date but were otherwise available for issuance under the Prior Director Plan. Notwithstanding the provisions of Section 4(b), the maximum number of shares of Stock that may be issued to Employees in respect of Incentive Stock Options shall not exceed 600,000 shares. Shares of Stock may be made available from Stock held in treasury or authorized but unissued shares of the Corporation not reserved for any other purpose.
(b) Canceled, Terminated, or Forfeited Awards, etc. If, after the Effective Date, (i) any Award granted hereunder or any award granted under the Prior Plans expires or is terminated unexercised, or is settled for cash or otherwise settled without the issuance of Stock (including where any such shares are withheld to satisfy a Participant’s tax withholding obligations), or (ii) any shares of Stock are tendered by a Participant to pay the exercise price of, or are delivered to satisfy tax obligations in respect of, any Award under this Plan or any award under any Prior Plan, then any shares of Stock covered by such lapsed, cancelled, expired, or settled portion of such Award or Prior Plan award and any such tendered shares of Stock shall be available for grant under this Plan and shall be credited to the applicable Employee Pool or Director Pool according to which pool or Prior Plan it originated, provided that, in each case, such Stock is not used for Prior Plan awards. Any shares that become available for grant under this Section 4(b) may be used for any type of Award.
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(c) Individual Award Limitations. No Participant may be granted under the Plan in any calendar year more than 600,000 Performance Shares. No Participant may be granted under the Plan in any calendar year more than 300,000 Stock Awards and Stock Units in total. No Participant may be granted in total Options or Stock Appreciation Rights on more than 2,000,000 shares of Stock under the Plan in any calendar year. No Participant may be granted Performance Units under the Plan in any calendar year with a value of more than $15,000,000 (or the equivalent of such amount denominated in the Participant’s local currency).
(d) Adjustment in Capitalization. In the event that the Committee shall determine that any stock dividend, stock split, share combination, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation,split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Stock at a price substantially below fair market value, or other similar corporate event affects the Stock such that an adjustment is required in order to preserve, or to prevent the enlargement of, the benefits or potential benefits intended to be made available under this Plan, then the Committee shall, in its sole discretion, and in such manner as the Committee may deem equitable, adjust any or all of (i) the number and kind of shares which thereafter may be awarded or optioned and sold or made the subject of Stock Appreciation Rights under the Plan, including, without limitation, the individual limitations described in Section 4(c) above and any limits on the types of Awards that may be made under the Plan, (ii) the number and kind of shares subject to outstanding Options and other Awards, and (iii) the grant, exercise or conversion price with respect to any Award. In addition, the Committee may, if deemed appropriate, make provision for cash payment to a Participant or a person who has an outstanding Award, provided that any payment exchanged for an Option or Stock Appreciation Right (on a per share basis) shall not exceed the difference between the Fair Market Value of the Stock on the date of payment and the exercise price for the Award. Unless the Committee shall otherwise determine, following any such adjustment, the number of shares subject to any Option or other Award shall always be a whole number. Notwithstanding anything in this Section 4(d) to the contrary, an adjustment to an Option or Stock Appreciation Right under this Section shall be made in a manner that will not result in the grant of a new Option or Stock Appreciation Right under Section 409A of the Code.
SECTION 5. PERFORMANCE SHARES AND PERFORMANCE UNITS
(a) Generally. The Committee shall have the authority to determine the Participants who shall receive Performance Shares and Performance Units, the number of Performance Shares and the number and value of Performance Units each Participant receives for each or any Performance Cycle, and the Performance Goals applicable in respect of such Performance Shares and Performance Units for each Performance Cycle. The Committee shall determine the duration of each Performance Cycle (the duration of Performance Cycles may differ from each other), and there may be more than one Performance Cycle in existence at any one time. Unless the Committee determines otherwise, a Performance Cycle shall mean a period of at least one year. Performance Shares and Performance Units shall be evidenced by an award agreement that shall specify the number of Performance Shares and the number and value of Performance Units awarded to the Participant, the Performance Goals applicable thereto, and such other terms and conditions not inconsistent with the Plan as the Committee shall determine. No shares of Stock will be issued at the time an Award of Performance Shares is made, and the Corporation shall not be required to set aside a fund for the payment of Performance Shares or Performance Units.
(b) Earned Performance Shares and Performance Units. Performance Shares and Performance Units shall become earned, in whole or in part, based upon the attainment of specified Performance Goals or the occurrence of any event or events, including a Change in Control, as the Committee shall determine, either at or after the grant date. In addition to the achievement of the specified Performance Goals, the Committee may, at the grant date, condition payment of Performance Shares and Performance Units on the Participant attaining a certain age, or on such other conditions as the Committee shall specify. The Committee may provide, at the time of any grant of Performance Shares or Performance Units, that if performance relative to the Performance Goals exceeds targeted levels, then the Payment Value of each affected Performance Share or the value payable in respect of each Performance Unit shall be adjusted by such multiple not in excess of 200% as the Committee shall specify at the time of grant. Notwithstanding the foregoing, the Committee also may require the completion of a minimum period of service (in addition to the achievement of any applicable Performance Goals) or the satisfactory completion of
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specified work assignments (in the case of Consultants) as a condition to the vesting of any Performance Share or Performance Unit Award.
(c) Performance Goals. At the discretion of the Committee, Performance Goals may be based on the total return to the Corporation’s shareholders, inclusive of dividends paid, during the applicable Performance Cycle (determined either in absolute terms or relative to the performance of one or more similarly situated companies or a published index covering the performance of a number of companies), or upon the relative or comparative attainment of one or more of the following criteria, whether in absolute terms or relative to the performance of one or more similarly situated companies or a published index covering the performance of a number of companies: stock price, operating earnings, net earnings, return on equity, income, market share, combined ratio, level of expenses, growth in revenue, book value, net premiums written, return on capital, investment income, a claims metric, loss ratio, expense ratio, and, for Awards not intended to qualify as “other performance based compensation” within the meaning of Section 162(m)(4) of the Code, such other criteria as may be determined by the Committee. Performance Goals may be established on a Corporation-wide basis or with respect to one or more business units, divisions, Subsidiaries, or Affiliates. When establishing Performance Goals for a Performance Cycle, the Committee may exclude any or all “extraordinary items” as determined under U.S. generally accepted accounting principles including, without limitation, the charges or costs associated with restructurings of the Corporation or any Company, discontinued operations, other unusual or non-recurring items, and the cumulative effects of accounting changes. The Committee also may adjust the Performance Goals for any Performance Cycle as it deems equitable in recognition of unusual or non-recurring events affecting the Corporation, changes in applicable tax laws or accounting principles, or such other factors as the Committee may determine.
(d) Special Rule for Performance Goals. If, at the time of grant, the Committee intends a Performance Share Award or Performance Unit to qualify as “other performance based compensation” within the meaning of Section 162(m)(4) of the Code, the Committee must establish Performance Goals for the applicable Performance Cycle no later than the 90th day after the Performance Cycle begins (or by such other date as may be required under Section 162(m) of the Code).
(e) Certification of Attainment of Performance Goals. As soon as practicable after the end of a Performance Cycle and prior to any payment in respect of such Performance Cycle, the Committee shall certify in writing the number of Performance Shares and the number and value of Performance Units which have been earned on the basis of performance in relation to the established Performance Goals.
(f) Payment of Awards. Payment Values of earned Performance Shares and the value of earned Performance Units shall be distributed to the Participant or, if the Participant has died, to the Participant’s Designated Beneficiary no later than March 15 of the year following the expiration of the Performance Cycle. The Committee shall determine whether Payment Values of Performance Shares and the value of earned Performance Units are to be distributed in the form of cash, shares of Stock or in a combination thereof, with the value or number of shares payable to be determined based on the Fair Market Value of Stock on the date of the Committee’s certification under Section 5(e) above.
(g) Newly Eligible Participants. Notwithstanding anything in this Section 5 to the contrary, the Committee shall be entitled to make such rules, determinations and adjustments as it deems appropriate with respect to any Participant who becomes eligible to receive Performance Shares or Performance Units after the commencement of a Performance Cycle.
(h) Termination.
(i) Qualifying Termination. Unless otherwise determined by the Committee at or after the grant date, a Participant whose employment or service terminates by reason of a Qualifying Termination on or after December 31 of the first year in which the relevant Performance Cycle commenced (or such other period as the Committee shall specify at the time of the award of the Performance Shares or Performance Units) shall be entitled to the same Payment Values of Performance Shares and the value of Performance Units (without pro-ration) that would have been payable for the Performance Cycle had his or her employment or service continued until the end of the applicable Performance Cycle. Any Payment Values of Performance Shares or
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value of Performance Units becoming payable in accordance with the preceding sentence shall be paid at the same time as Payment Values of Performance Shares and the value of Performance Units are paid to other Participants. Any rights that a Participant or Designated Beneficiary may have in respect of any Performance Shares or Performance Units outstanding at the date of the Qualifying Termination that are not available to be earned or that are not earned in accordance with this Section 5(h)(i) shall be forfeited and canceled, effective as of the date of the Participant’s termination of employment or service.
(ii) Termination for any Other Reason. Unless otherwise determined by the Committee at or after the grant date, if a Participant’s employment or service is terminated for any reason other than a Qualifying Termination during a Performance Cycle, all of the Participant’s rights to Performance Shares and Performance Units related to such Performance Cycle shall be immediately forfeited and canceled as of the date of such termination of employment or service. Notwithstanding anything else contained in the Plan to the contrary, with respect to Participants other than Directors, a Participant’s rights in respect of unearned Performance Shares and Performance Units shall in all events be immediately forfeited and canceled as of the date of the Participant’s termination of employment or service for Cause. Notwithstanding anything else contained in the Plan to the contrary, if a Director is removed from the Board for Cause or resigns in anticipation of his or her removal from the Board for Cause, all of the Director’s Performance Shares and Performance Units shall be forfeited, and the Director shall not be entitled to receive any payment or distribution in respect thereof.
(i) Change in Control. Notwithstanding anything to the contrary in this Section 5, Section 9 shall determine the treatment of Performance Shares and Performance Units upon a Change in Control.
SECTION 6. STOCK AWARDS AND STOCK UNITS
(a) Grant. Stock Awards and Stock Units may be granted to Participants at such time or times as shall be determined by the Committee. The grant date of any Stock Award or Stock Unit under the Plan shall be the date on which such Stock Award or Stock Unit is awarded by the Committee, or on such other date as the Committee shall determine. Stock Awards and Stock Units shall be evidenced by an award agreement that shall specify (i) the number of Stock Awards and the number of Stock Units to be granted to each Participant, (ii) the Restriction Period(s), if any, and (iii) such other terms and conditions not inconsistent with the Plan as the Committee shall determine, including customary representations, warranties and covenants with respect to securities law matters. Grants of Stock Awards shall be evidenced by a bookkeeping entry in the Corporation’s records (or by such other reasonable method as the Corporation shall determine from time to time). No shares of Stock will be issued at the time an Award of Stock Units is made and the Corporation shall not be required to set aside a fund for the payment of any such Awards.
(b) Vesting. Stock Awards and Stock Units granted to Participants under the Plan may be subject to a Restriction Period. Except as otherwise determined by the Committee, the Restriction Period for awards made to Participants who are not Directors shall lapse upon the third anniversary of the grant date. A Restriction Period also shall lapse, in whole or in part, upon the occurrence of any event or events, including a Change in Control, specified in the Plan, or specified by the Committee, in its discretion, either at or after the grant date of the applicable Award. In its discretion, the Committee also may establish performance conditions with respect to Stock Awards and Stock Units based on one or more of the Performance Goals listed in Section 5(c), during a performance period selected by the Committee.
(i) Qualifying Termination. Unless otherwise determined by the Committee at or after the date of grant, if the employment of a Participant other than a Director terminates by reason of a Qualifying Termination during a Restriction Period, a pro rata portion of any Stock related to a Stock Award or a Stock Unit held by such Participant shall vest at the date of such termination, based on the number of full months of such Participant’s employment relative to the number of full months in the relevant Restriction Period. Unless otherwise determined by the Committee at or after the date of grant, if a Director’s service terminates during a Restriction Period by reason of a Qualifying Termination or because the Director becomes an employee of the Corporation or a Subsidiary, any Stock related to a Stock Award or Stock Unit held by such Participant shall
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vest at the date of such termination. Notwithstanding the foregoing, unless otherwise determined by the Committee at or after the date of grant, a Qualifying Termination due to Retirement shall have no effect on the vesting of a Stock Award.
(ii) Termination for any Other Reason. Unless otherwise determined by the Committee at or after the date of grant, no Stock Award or Stock Unit that is subject to a Restriction Period shall vest when a Participant’s employment or service terminates for any reason other than a Qualifying Termination during the Restriction Period. Notwithstanding the immediately preceding sentence, a Participant’s rights in respect of an unvested Stock Award or Stock Unit shall in all events be immediately forfeited and canceled as of the date of the Participant’s employment is terminated for Cause or the Participant is removed from the Board for Cause or resigns in anticipation of his or her removal from the Board for Cause.
(c) Dividends and Voting. The Committee shall determine whether and to what extent dividends payable on Stock shall be credited to the account of, or paid currently, to a Participant in respect of a Stock Award or Stock Unit, provided the payment of any current dividends shall be made as soon as practicable after dividends are paid on the common stock (but in no event later than March 15 of the year following the end of the year in which the dividends are paid) and any accumulated dividends shall be paid at the same time as settlement of the Stock Award or Stock Unit. A Participant holding Stock Awards shall be entitled to exercise any voting rights and any other rights as a shareholder with respect to shares of Stock underlying such Award. A Participant holding Stock Units shall not be entitled to exercise any voting rights and any other rights as a shareholder with respect to shares of Stock underlying such Award.
(d) Settlement of Stock Awards and Stock Units. Unless otherwise determined by the Committee at or after the date of grant, within 90 days after the expiration of any Restriction Period for a Stock Award, the Corporation shall remove the restrictions applicable to the bookkeeping entry evidencing the vested Stock Award, and shall, upon request, deliver the stock certificates evidencing such Stock Award to the Participant or the Participant’s legal representative (or otherwise evidence the issuance of such shares free of any restrictions imposed under the Plan).
Unless otherwise determined by the Committee at or after the date of grant, within 90 days after the earlier of (i) death, (ii) Disability, (iii) Separation from Service, or (iv) the expiration of any Restriction Period, for each vested Stock Unit, the Participant shall receive, in the Committee’s discretion, (x) the Fair Market Value of one share of Stock as of such payment date, (y) one share of Stock, or (z) any combination of cash and shares of Stock.
For purposes of this Section 6(d), a “Separation from Service” means a separation from service within the meaning of Section 409A of the Code whereby the Participant and the Corporation (or such other member of the Corporation’s controlled group of entities, within the meaning of Section 414(c) of the Code, for whom the Participant provides services) reasonably anticipate that (i) no further services would be performed by the Participant for the Corporation or other members of its controlled group after a certain date, or (ii) the level of bona fide services after such date would permanently decrease to no more than 49% of the average level of services performed in the prior36-month period (or, if less, the full period of service with the Corporation or its other members of its controlled group) for any reason other than death or Disability.
Notwithstanding the foregoing, any settlement of an award that is subject to Section 409A of the Code to a Key Employee due to a Separation from Service shall be delayed for six months following the Key Employee’s Separation from Service (or, if earlier, the date of death of the Key Employee).
(e) Restrictions on Transfer. Except as provided herein or in an award agreement, Stock Awards and Stock Units may not be sold, assigned, transferred, pledged, or otherwise encumbered during the Restriction Period. Any such attempt by the Participant to sell, assign, transfer, pledge, or encumber shares of Stock Awards and Stock Units without complying with the provisions of the Plan shall be void and of no effect.
(f) Change in Control. Notwithstanding anything to the contrary in this Section 6, Section 9 shall determine the treatment of Stock Awards and Stock Units upon a Change in Control.
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SECTION 7. STOCK OPTIONS
(a) Grant. Options may be granted to Participants at such time or times as shall be determined by the Committee. The Committee shall have the authority to grant Incentive Stock Options, or to grant Non-statutory Stock Options, or to grant both types of Options. Each Option shall be evidenced by an award agreement that shall specify the grant date, the type of Option granted, the exercise price, the duration of the Option, the number of shares of Stock to which the Option pertains, the conditions upon which the Option or any portion thereof shall become vested or exercisable, and such other terms and conditions not inconsistent with the Plan as the Committee shall determine, including customary representations, warranties, and covenants with respect to securities law matters. For the avoidance of doubt, Incentive Stock Options may be granted to Participants who are treated as common law employees of the Corporation or any Subsidiary Corporation (as defined in Section 424(f) of the Code) only.
(b) Exercise Price. The Committee shall establish the exercise price at the time each Option is granted, which price shall not be less than 100% of the Fair Market Value of the Stock on the date of grant.
(c) Vesting and Exercisability. Unless otherwise determined by the Committee at or after grant, and subject to the Participant’s continued employment or service with the Company on such date, each Option awarded to a Participant under the Plan shall become vested and exercisable in three approximately equal installments on each of the first three anniversaries of the grant date. Options also may become exercisable, in whole or in part, upon the occurrence of any event or events, including a Change in Control, specified in the Plan, or specified by the Committee, in its discretion, either at or after the grant date of the applicable Option. In its discretion, the Committee also may establish performance conditions with respect to the exercisability of any Option based on one or more of the Performance Goals listed in Section 5(c) or such other performance condition as determined by the Committee, during a performance period selected by the Committee. No Option shall be exercisable on or after the tenth anniversary of its grant date. The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable.
(d) Payment. No Stock shall be delivered pursuant to any exercise of an Option until payment in full of the option price therefore is received by the Corporation. Such payment may be made in cash or its equivalent or, if permitted by the Committee, (i) by exchanging shares of Stock owned by the optionee and that are not the subject of any pledge or other security interest, (ii) through an arrangement with a broker approved by the Corporation whereby payment of the exercise price is accomplished with the proceeds of the sale of Stock, (iii) withholding shares of Stock subject to the Option with a Fair Market Value on the date of exercise equal to the exercise price, or (iv) by a combination of the foregoing, provided that the combined value of all cash and cash equivalents and the Fair Market Value of any such Stock so tendered to the Corporation, valued as of the date of such tender, is at least equal to such exercise price. The Corporation may not make a loan to a Participant to facilitate such Participant’s exercise of any of his or her Options or payment of taxes.
(e) Incentive Stock Option Status. Notwithstanding anything in this Plan to the contrary, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code.
(f) Termination.
(i) Qualifying Termination. Unless otherwise determined by the Committee at or after the date of grant, if a Participant’s employment or service terminates by reason of a Qualifying Termination on or after the first anniversary of the grant date of an Option or because the Participant’s service as a Director terminates by reason of becoming an Employee, the Participant (or the Participant’s beneficiary or legal representative) may exercise the Option (regardless of whether then exercisable) until the date the Option would expire otherwise. Any rights that a Participant or Designated Beneficiary may have in respect of any Option not remaining exercisable in accordance with the preceding sentence shall be forfeited and cancelled as of the date of the Qualifying Termination.
(ii) Termination for any Other Reason. Unless otherwise determined by the Committee at or after the date of grant, if Section 7(f)(i) does not apply, any Option that is not exercised on or prior to the date of
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termination of employment or service (including, without limitation, any portion of such Option that is not exercisable as of the date of such termination) shall be forfeited and cancelled as of the date of such termination.
(iii) Removal for Cause. Notwithstanding anything else contained in the Plan to the contrary, if the employment of a Participant other than a Director is terminated for Cause (or, following the date the Participant’s employment terminates, the Committee determines that circumstances exist such that the Participant’s employment could have been terminated for Cause), any Options granted to such Participant, whether or not then vested or exercisable, shall be forfeited and cancelled as of the date of such termination of employment and shall not be exercisable on such date. Notwithstanding anything else contained in the Plan to the contrary, if a Director is removed from the Board for Cause or resigns in anticipation of his or her removal from the Board for Cause, any Option held by such Director shall be forfeited and cancelled as of the date of such termination of service, and the Corporation shall have the right to rescind any exercise of any Option by such Director effected within 90 days of the date of his or her termination of service as a member of the Board.
(g) Change in Control. Notwithstanding anything to the contrary in this Section 7, Section 9 shall determine the treatment of Options upon a Change in Control.
(h) Dividend Equivalents. No dividends payable on Stock shall be credited to the account of, or paid currently, to a Participant in respect of an Award of Options.
SECTION 8. STOCK APPRECIATION RIGHTS
(a) Grant. Stock Appreciation Rights may be granted to Participants at such time or times as shall be determined by the Committee. Stock Appreciation Rights may be granted in tandem with Options, in addition to Options, or freestanding and unrelated to Options. Stock Appreciation Rights granted with or in addition to an Option may be granted either at the same time as the Option or at a later time. No Stock Appreciation Right shall be exercisable on or after the tenth anniversary of its grant date. Stock Appreciation Rights shall be evidenced in writing, whether as part of the award agreement governing the terms of the Options, if any, to which such Stock Appreciation Right relates, or pursuant to a separate award agreement with respect to freestanding Stock Appreciation Rights, in each case, containing the grant date and such provisions not inconsistent with the Plan as the Committee shall determine, including customary representations, warranties and covenants with respect to securities law matters. Notwithstanding anything in the Plan to the contrary, any Stock Appreciation Right granted in tandem with an Option shall be granted at the same time as the Option, and the exercise of a tandem Option shall terminate the related Stock Appreciation Right and the exercise of a tandem Stock Appreciation Right shall terminate the related Option.
(b) Vesting and Exercisability; Termination. The rules governing the vesting and exercisability of Options shall equally apply to the vesting and exercisability of Stock Appreciation Rights, regardless of whether granted in tandem with any Option. Unless otherwise determined by the Committee at or after the date of grant, upon a Participant’s termination of employment or service, Stock Appreciation Rights shall be treated in substantially the same manner as provided for Options in Section 7(f).
(c) Settlement. Upon exercise of a Stock Appreciation Right, the Participant shall be entitled to receive a payment determined by multiplying:
(i) the excess, if any, of the Fair Market Value of a share of Stock on the date of exercise (or such lesser amount that the Committee shall specify at the time of grant) over the Fair Market Value of a share of Stock on the date of grant (or such greater amount that the Committee shall specify at the time of grant), by
(ii) the number of shares of Stock with respect to which the Stock Appreciation Right is exercised.
The Committee shall determine whether payment in respect of Stock Appreciation Rights is made in cash, shares of Stock, or a combination thereof.
(d) Change in Control. Notwithstanding anything to the contrary in this Section 8, Section 9 shall determine the treatment of Options upon a Change in Control.
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(e) Dividend Equivalents. No dividends payable on Stock shall be credited to the account of, or paid currently, to a Participant in respect of an Award of Stock Appreciation Rights.
SECTION 9. CHANGE IN CONTROL
(a) Alternative Awards. No cancellation, acceleration of exercisability or vesting, lapse of any Restriction Period or settlement or other payment shall occur with respect to any outstanding Award (including, without limitation, Performance Shares and Performance Units) upon a Change in Control if the Committee reasonably determines, in good faith, prior to the Change in Control that such outstanding Awards shall be honored or assumed, or new rights substituted therefor (such honored, assumed, or substituted Award being hereinafter referred to as an “Alternative Award”) by the New Company, provided that any Alternative Award must:
(i) be based on securities that are traded on an established United States securities market, or which will be so traded within 60 days of the Change in Control;
(ii) provide the Participant (or each Participant in a class of Participants) with rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable under such Award, including, but not limited to, an identical or better exercise or vesting schedule and identical or better timing and methods of payment;
(iii) have substantially equivalent economic value to such Award (determined at the time of the Change in Control);
(iv) have terms and conditions which provide that if the Participant’s employment or service is involuntarily terminated or constructively terminated, any conditions on a Participant’s rights under, or any restrictions on transfer or exercisability applicable to, each such Alternative Award shall be waived or shall lapse, as the case may be; and
(v) not subject the Participant to the assessment of additional taxes or interest under Section 409A of the Code.
For Participant’s with an employment or individual severance agreement with a constructive termination, “Good Reason” or similar definition, constructive termination shall have the meaning set forth therein, and for all other Participants, the occurrence of a constructive termination shall be determined in good faith by the Committee (as constituted prior to the Change in Control).
(b) Accelerated Vesting and Payment.
(i) In General. In the event Section 9(a) does not apply, upon a Change in Control (A) all outstanding Options and Stock Appreciation Rights shall become vested and exercisable immediately prior to the Change in Control and (B) all outstanding unvested Stock Awards and Stock Units shall become vested immediately prior to the Change in Control.
(ii) Additionally, in the event Section 9(a) does not apply, the Committee (as constituted prior to the Change in Control) shall provide that in connection with the Change in Control (A) each Option and Stock Appreciation Right shall be cancelled in exchange for an amount (payable in accordance with Section 9(b)(iv)) equal to the excess, if any, of the Fair Market Value of a share of Stock on the date of the Change in Control over the exercise price for such Option or the base value applicable to such Stock Appreciation Right and (B) each Stock Award and Stock Unit shall be cancelled in exchange for an amount (payable in accordance with Section 9(b)(iv)) equal to the Change in Control Price multiplied by the number of shares of Stock covered by such Award.
(iii) Performance Shares and Performance Units. In the event Section 9(a) does not apply, upon a Change in Control, (A) each outstanding Performance Share shall be cancelled in exchange for a payment equal to the product of the Payment Value that would have been payable had each such Performance Share been deemed equal to 100% (or such greater or lesser percentage as the Committee shall specify at grant or such greater percentage as the Committee shall specify after grant) of its Payment Value and (B) each
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outstanding Performance Unit shall be cancelled in exchange for a payment equal to the product of the value that would have payable had each such Performance Unit been deemed equal to 100% (or such greater or lesser percentage as the Committee shall specify at grant or such greater percentage as the Committee shall specify after grant) of its initially established dollar or local currency denominated value.
(iv) Payments. Payment of any amounts calculated in accordance with Section 9 shall be made in cash or, if determined by the Committee (as constituted prior to the Change in Control), in shares of the stock of the New Company having an aggregate fair market value equal to such amount or in a combination of such shares of stock and cash. All amounts payable hereunder shall be payable in full, as soon as reasonably practicable, but in no event later than 10 business days, following the Change in Control. For purposes hereof, the fair market value of one share of stock of the New Company shall be determined in good faith by the Committee (as constituted prior to the Change in Control).
(c) Termination Prior to Change in Control. In the event that any Change in Control occurs as a result of any transaction described in clause (iii) or (iv) of the definition of such term, any Participant whose employment or service is involuntarily terminated by a Company other than for Cause or is terminated due to death or Disability, in either case, on or after the date on which the shareholders of the Corporation approve the transaction giving rise to the Change in Control, but prior to the consummation thereof, shall be treated, solely for purposes of this Plan (including, without limitation, this Section 9), as continuing in the Corporation’s employment or service until the occurrence of such Change in Control, and to have been terminated immediately thereafter.
(d) Notwithstanding the foregoing provisions of Section 9, in connection with the payment to a Participant other than a Director of an amount subject to Section 409A of the Code, Sections 9(b) and 9(c) shall have no effect on the payment date of such amount. Notwithstanding the foregoing provisions of Section 9, in connection with the payment to a Director of an amount subject to Section 409A of the Code, Sections 9(b) and 9(c) shall have no effect on the payment date of such amount unless the Change in Control also satisfies the definition of “change in control event” under Section 409A of the Code and TreasuryRegulation Section 1.409A-3(i)(5).
SECTION 10. EFFECTIVE DATE, AMENDMENT, MODIFICATION,
AND TERMINATION OF THE PLAN
The Plan shall be effective on the Effective Date, and shall continue in effect, unless sooner terminated pursuant to this Section 10, until December 31, 2019. The Board or the Committee may at any time in its sole discretion, for any reason whatsoever, terminate or suspend the Plan, and from time to time may amend or modify the Plan; provided that without the approval by a majority of the votes cast at a duly constituted meeting of shareholders of the Corporation, no amendment or modification to the Plan may materially modify the Plan in any way that would require shareholder approval under any regulatory requirement that the Committee determines to be applicable, including, without limitation, the rules of the New York Stock Exchange. No amendment, modification, or termination of the Plan shall have a materially adverse effect on any Award theretofore granted under the Plan, without the consent of the Participant. Notwithstanding the foregoing, no Participant consent shall be needed for an amendment, modification, or termination of the Plan if the Committee determines such amendment, modification, or termination is necessary or advisable for the Corporation to comply with applicable law (including Section 409A of the Code), regulation, rule, or accounting standard. No Incentive Stock Option may be granted after the tenth anniversary of the Effective Date.
SECTION 11. GENERAL PROVISIONS
(a) Section 409A of the Code. This Plan is intended to be interpreted, operated, and administered in a manner so as not to subject Participants to the assessment of additional taxes or interest under Section 409A of the Code.
(b) Withholding. The Company shall have the right to deduct from all amounts paid to a Participant in cash (whether under this Plan or otherwise) any amount of taxes required by law to be withheld in respect of Awards under this Plan as may be necessary in the opinion of the Company to satisfy the minimum tax withholding required under the laws of any country, state, province, city, or other jurisdiction, including but not limited to income taxes,
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capital gains taxes, transfer taxes, and social security contributions that are required by law to be withheld. In the case of payments of Awards in the form of Stock, at the Committee’s discretion, the Participant shall be required to either pay to the Company the minimum amount of any taxes required to be withheld with respect to such Stock or, in lieu thereof, the Company shall have the right to retain the number of shares of Stock whose Fair Market Value equals such minimum amount required to be withheld.
(c) Nontransferability of Awards. No Award shall be assignable or transferable except by will or the laws of descent and distribution; provided that the Committee may permit (on such terms and conditions as it shall establish) a Participant to transfer an Award (other than an Incentive Stock Option) for no consideration to the Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,mother-in-law,father-in-law,son-in-law,daughter-in-law,brother-in-law, orsister-in-law, including adoptive relationships, any person sharing the Participant’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent (50%) of the beneficial interest and any other entity in which these persons (or the Participant) own more than fifty percent (50%) of the voting interests (“Permitted Transferees”). Except to the extent required by law, no right or interest of any Participant shall be subject to any lien, obligation, or liability of the Participant. All rights with respect to Awards granted to a Participant under the Plan shall be exercisable during the Participant’s lifetime only by such Participant or, if applicable, his or her Permitted Transferee(s). The rights of a Permitted Transferee shall be limited to the rights conveyed to such Permitted Transferee, who shall be subject to and bound by the terms of the agreement or agreements between the Participant and the Corporation.
(d) No Limitation on Compensation. Nothing in the Plan shall be construed to limit the right of the Company to establish other plans or to pay compensation to its Directors or Employees or Consultants, in cash or property, in a manner which is not expressly authorized under the Plan.
(e) No Additional Rights. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ or service of the Company. The grant of an Award hereunder, and any future grant of Awards under the Plan is entirely voluntary, and at the complete discretion of the Corporation. Neither the grant of an Award nor any future grant of Awards by the Corporation shall be deemed to create any obligation to grant any further Awards, whether or not such a reservation is explicitly stated at the time of such a grant. The Plan shall not be deemed to constitute, and shall not be construed by the Participant to constitute, part of the terms and conditions of employment and participation in the Plan shall not be deemed to constitute, and shall not be deemed by the Participant to constitute, an employment or labor relationship of any kind with the Company. The Company expressly reserves the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein and in any agreement entered into with respect to an Award. The Corporation expressly reserves the right to require, as a condition of participation in the Plan, that Award recipients agree and acknowledge the above in writing. Further, the Corporation expressly reserves the right to require Award recipients, as a condition of participation, to consent in writing to the collection, transfer from the Company to the Corporation and third parties, storage and use of personal data for purposes of administering the Plan.
(f) No Rights as Shareholder. Subject to the provisions of the applicable Award contained in the Plan and in the award agreement, no Participant, Permitted Transferee or Designated Beneficiary shall have any rights as a shareholder with respect to any shares of Stock to be distributed under the Plan until he or she has become the holder thereof.
(g) Construction of the Plan. The validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the State of New Jersey (without reference to the principles of conflicts of law).
(h) Compliance with Legal and Exchange Requirements. The Plan, the granting and exercising of Awards thereunder, and any obligations of the Corporation under the Plan, shall be subject to all applicable federal, state, and foreign country laws, rules, and regulations, and to such approvals by any regulatory or governmental agency as may be required, and to any rules or regulations of any exchange on which the Stock is listed. The Corporation, in its discretion, may postpone the granting and exercising of Awards, the issuance or delivery of Stock under any Award
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or any other action permitted under the Plan to permit the Corporation, with reasonable diligence, to complete such stock exchange listing or registration or qualification of such Stock or other required action under any federal, state or foreign country law, rule, or regulation and may require any Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Stock in compliance with applicable laws, rules, and regulations. The Corporation shall not be obligated by virtue of any provision of the Plan to recognize the exercise of any Award or to otherwise sell or issue Stock in violation of any such laws, rules, or regulations, and any postponement of the exercise or settlement of any Award under this provision shall not extend the term of such Awards. Neither the Corporation nor its directors or officers shall have any obligation or liability to a Participant with respect to any Award (or Stock issuable thereunder) that shall lapse because of such postponement.
(i) Indemnification. Each person who is or shall have been a member of the Committee and each delegate of such Committee shall be indemnified and held harmless by the Corporation against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be made a party or in which he or she may be involved in by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Corporation’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided that the Corporation is given an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it personally. The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such persons may be entitled under the Corporation’s Articles of Incorporation or By-laws, by contract, as a matter of law, or otherwise.
(j) Amendment of Award. In the event that the Committee shall determine that such action would, taking into account such factors as it deems relevant, be beneficial to the Corporation, the Committee may affirmatively act to amend, modify, or terminate any outstanding Award at any time prior to payment or exercise in any manner not inconsistent with the terms of the Plan, including without limitation, to change the date or dates as of which (i) an Option or Stock Appreciation Right becomes exercisable, (ii) a Performance Share or Performance Unit is deemed earned, or (iii) a Stock Award or Stock Unit becomes nonforfeitable, except that no outstanding Award may be amended or otherwise modified or exchanged (other than in connection with a transaction described in Section 4(d)) in a manner that would have the effect of reducing its original exercise price or otherwise constitute repricing. Any such action by the Committee shall be subject to the Participant’s consent if the Committee determines that such action would have a materially adverse effect on the Participant’s rights under such Award, whether in whole or in part. Notwithstanding the foregoing, the Committee, in its sole discretion, may amend an Award if it determines such amendment is necessary or advisable for the Corporation to comply with applicable law (including Section 409A of the Code), regulation, rule, or accounting standard.
(k) Deferrals. The Committee may postpone the exercising of Awards, the issuance or delivery of Stock under, or the payment of cash in respect of, any Award or any action permitted under the Plan, upon such terms and conditions as the Committee may establish from time to time, provided such deferral is consistent with Section 409A of the Code and the Treasury Regulations promulgated thereunder.
(i) Employees. A Participant who is an Employee may electively defer receipt of the shares of Stock or cash otherwise payable in respect of any Award (other than amounts payable under an Option or a Stock Appreciation Right) under the terms of The Chubb Corporation Key Employee Deferred Compensation Plan (2005) or its successor.
(ii) Directors. A Director may electively defer receipt of the shares of Stock or cash otherwise payable in respect of any Award (other than amounts payable under an Option or Stock Appreciation Right) to a specified date in accordance with this Section 11(k)(ii) and terms established by the Committee. If a Director makes an election to defer an Award or a portion thereof to a specified date, such vested portion of the Award shall be paid in a lump sum on the specified date. Notwithstanding any deferral election made by the Director, any deferred vested Award shall be distributed in a lump sum payment to the Director or beneficiary within 90 days following the date the Director becomes Disabled or dies. “Disabled” means a Director (x) is unable to
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engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months or (y) is determined to be totally disabled by the Social Security Administration. A Director may designate his beneficiary in a writing delivered to the Committee prior to death in accordance with procedures established by the Committee. If a Director has not properly designated a beneficiary or if no designated beneficiary is living on the date of distribution, such amount shall be distributed to the Director’s estate. Notwithstanding any deferral election made by a Director, in the event of a Change in Control, vested Awards shall be distributed within 10 business days of the Change in Control, provided such Change in Control also satisfies the definition of “change in control event” under Section 409A of the Code and TreasuryRegulation Section 1.409A-3(i)(5).
(A) Timing of Deferral Elections. To make a deferral election, a Director shall file an irrevocable deferral form with the Committee before the beginning of the year in which such Award would be granted. Notwithstanding the foregoing, (1) if the Committee determines that an Award qualifies as “performance-based compensation” under Section 409A of the Code, a Director may elect to defer a portion of the Award by filing a deferral form at such later time up until the date six months before the end of the performance period as permitted by the Committee, and (2) in the first year in which a Director becomes eligible to make a deferral election under the Plan, a deferral election may be made with respect to services to be performed subsequent to the election within 30 days after the date the Director becomes eligible to participate in the Plan to the extent permitted under Section 409A of the Code. Once a deferral election has become irrevocable under Section 409A of the Code, payment of the deferred amount shall be made in accordance with the terms of this Section 11(k)(ii) and not the other terms of the Plan or the Award.
(B) Changes in Deferral Elections. A Director may make one or more subsequent elections to change the time of distribution for a deferred Award, but such an election shall be effective only if the following conditions are satisfied: (1) the election may not take effect until at least twelve (12) months after the date on which such subsequent election is made; (2) the distribution may not be made earlier than at least five (5) years from the date the distribution would have otherwise been made; and (3) the election must be made at least twelve (12) months before the date the distribution is scheduled to be paid.
(l) No Impact on Benefits. Except as may otherwise be specifically stated under any employee benefit plan, policy or program, no amount payable in respect of any Award shall be treated as compensation for purposes of calculating a Participant’s right under any such plan, policy or program.
(m) No Constraint on Corporate Action. Nothing in this Plan shall be construed (i) to limit, impair, or otherwise affect the Corporation’s right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets or (ii) to limit the right or power of the Corporation, or any Subsidiary, to take any action which such entity deems to be necessary or appropriate, subject to Sections 10 and 11(j).
(n) Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of this Plan, and shall not be employed in the construction of this Plan.
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ANNEX B
THE CHUBB CORPORATION
POLICY ON PRE-APPROVAL OF INDEPENDENT AUDITOR SERVICES
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| I. | Statement of Principles |
The Audit Committee of the Board of Directors is responsible for the appointment, compensation, retention, and oversight of the work of the independent auditor. The Chubb Corporation and the Audit Committee are committed to ensuring the independence of the auditor, both in appearance and in fact. Accordingly, significant attention is directed toward ensuring that services provided by the auditor are consistent with the SEC’s rules on auditor independence.
The Audit Committee is required to pre-approve the audit and non-audit services performed by the independent auditor or its affiliates on behalf of The Chubb Corporation or any of its subsidiaries (collectively, the “Corporation”) in order to assure that the provision of such services does not impair the auditor’s independence from the Corporation. In the case of audit services, pre-approval by the Audit Committee is required for such services provided to all consolidated subsidiaries of the Corporation, whether provided by the principal independent auditor or other firms.
The Audit Committee has delegated to the Chairman of the Audit Committee authority to pre-approve specific services not to exceed $25,000 per engagement. Any services pre-approved by the Chairman shall be reported to the Audit Committee at its next scheduled meeting.
The Audit Committee may consult with management but does not delegate its responsibilities to pre-approve services performed by the independent auditor to management.
III. Audit Services
Audit services include all services to be performed to comply with generally accepted auditing standards and those services that generally only the Corporation’s independent auditor can provide, such as comfort letters, statutory audits, attest services, consents and assistance with and review of documents filed with the SEC.
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| IV. | Audit-Related Services |
Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Corporation’s financial statements and that are traditionally performed by the independent auditor. The Audit Committee believes that the provision of audit-related services does not impair the independence of the auditor and is consistent with the SEC’s rules on auditor independence. Audit-related services include, among other services, audits of employee benefit plans; due diligence related to mergers and acquisitions; internal control reviews; attest services that are not required by statute or regulation; and consultations related to financial accounting or reporting standards.
The Audit Committee believes that the provision of tax services to the Corporation including tax planning, compliance, and advice does not impair the independence of the auditor and is consistent with the SEC’s rules on auditor independence. Tax services include tax planning, compliance, and advice; preparation and review of original and amended tax returns; assistance with claims for refund and tax payment-planning services, tax audits and appeals before the IRS and similar state, local and foreign agencies; and advice related to mergers and acquisitions, employee benefit plans and requests for rulings or technical advice for taxing authorities. The Corporation shall not record a transaction or transactions, the primary business purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related
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regulations; the rendering of services to the Corporation, its executive officers and its directors by the independent auditor in connection with the auditor’s recommendation of such transaction or transactions is prohibited.
The Audit Committee believes that certain specific non-audit services do not impair the auditor’s independence. Accordingly, the Audit Committee may grant pre-approval to specific, permissible non-audit services classified as “All Other Services” that it believes are routine and recurring services that would not impair the independence of the auditor. “All Other Services” may include preparation of actuarial reports in accordance with regulatory requirements provided that the Audit Committee reasonably concludes that the results of these services will not be subject to audit procedures during an audit of the Corporation’s financial statements.
VII. Procedures
Requests for services to be rendered by the independent auditor will be provided annually to the Audit Committee for specific pre-approval. The requests will include a description of the particular services to be rendered and the expected fee range. On a periodic basis at subsequent Audit Committee meetings, an update on independent auditor services and all other audit services will be provided to the Audit Committee and any proposed new services, increases in engagement scope, and increases in engagement fees will be provided for specificpre-approval by the Audit Committee. Requests for pre-approval will be submitted to the Audit Committee by both the independent auditor and management and must include a written statement by the independent auditor as to whether, in its view, the request is consistent with the SEC’s rules on auditor independence.
The Audit Committee will consider whether such service requests are consistent with the SEC rules on auditor independence. The Audit Committee will also consider whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with the Corporation’s business, people, culture, accounting systems, risk profile and other factors.
The term of any pre-approval is the period beginning on the date of pre-approval and ending on the last day of the first full calendar year after the date of pre-approval, unless the Corporation specifically provides for a different period.
The Audit Committee is also mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. For each fiscal year, the Audit Committee may determine the appropriate ratio between the total amount of fees for Audit, Audit-related, Tax, and All Other Services.
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VIII. | Prohibited Non-Audit Services |
VIII. Prohibited Non-Audit Services
Provision of the following non-audit services by the independent auditor is prohibited in accordance with the SEC’s rules. The SEC’s rules and relevant guidance should be consulted to determine the precise definitions of these services and the applicability of exceptions to certain of the prohibitions.
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| | • | Bookkeeping or other services related to the accounting records or financial statements of the Corporation; |
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| | • | Financial information systems design and implementation; |
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| | • | Appraisal or valuation services, fairness opinions orcontribution-in-kind reports; |
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| | • | Actuarial services; |
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| | • | Internal audit outsourcing services; |
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| | • | Management functions or human resources; |
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| | • | Broker-dealer, investment adviser, or investment banking services; |
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| | • | Legal services and expert services unrelated to the audit; and |
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| | • | Any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible. |
B-2A-2
THE CHUBB CORPORATION
15 MOUNTAIN VIEW ROAD
WARREN, NJ 07059VOTE BY INTERNET -www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on April 27, 2009.26, 2010. Have your proxy card in hand when you access the web sitewebsite and then follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on April 27, 2009.26, 2010. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | CHUBB1 | | |
| | M19415-P89631- Z51848 | | KEEP THIS PORTION FOR YOUR RECORDS |
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| | | | DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | The Chubb Corporation - 2009 Annual Meeting of Shareholders Proxy Card | | | | | | | | | | | | |
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| | The Board of Directors recommends you vote “FOR” the following proposals: | | | | | | | | | | | | | | | | | | | | | | |
| | | A. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 1. | | Election of DirectorsDirectors: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Nominees: | | For | | Against | | | | | | For | | Against | | |
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| | | | 1a) | | Zoë Baird | | | o | | | | o | | | | | | | 1h) Daniel E. Somers | | | o | | | | o | | | | | |
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| | | | 1b) | | Sheila P. Burke | | | o | | | | o | | | | | | | 1i) Karen Hastie Williams | | | o | | | | o | | | | | |
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| | | | 1c) | | James I. Cash, Jr. | | | o | | | | o | | | | | | | 1j) James M. Zimmerman | | | o | | | | o | | | | | |
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| | | | 1d) | | John D. Finnegan | | | o | | | | o | | | | | | | 1k) Alfred W. Zollar | | | o | | | | o | | | | | |
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| | | | 1e) | | Martin G. McGuinn | | | o | | | | o | | | | | | | | | For | | Against | | Abstain |
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| | | | 1f) | | Lawrence M. Small | | | o | | | | o | | | | | 2. | | To ratify the appointment of Ernst & Young LLP as independent auditor. | | | o | | | | o | | | | o | |
| | | | 1g) | | Jess Søderberg | | | o | | | | o | | | | | | | | | | | | | | | | | | | |
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| | For address changes and/or comments, please check this box and write them on the back where indicated. | | | o | | | | | | | | | | | | | | | | |
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| | 1. | | Our Board of Directors recommends a vote | | For | | Against | | | | | | | | | | | | | | | | |
| | | | | “FOR”the listed nominees 1a - 1m. | | | | | | | | | | For | | Against | | | | | | | | |
| | | | Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. | | | | | | | | | | | | | | | | | | | | |
| | | | | 1a - Zoë Baird | | o | | o | | | | 1i - Jess Søderberg | | o | | o | | | | | | | | |
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| | | | 1b - Sheila P. Burke | | o | | o | | | | 1j - Daniel E. Somers | | o | | o | | | | | | | | |
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| | | | 1c - James I. Cash, Jr. | | o | | o | | | | 1k - Karen Hastie Williams | | o | | o | | | | | | | | |
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| | | | 1d - Joel J. Cohen | | o | | o | | | | 1l - James M. Zimmerman | | o | | o | | | | | | | | |
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| | | | 1e - John D. Finnegan | | o | | o | | | | 1m - Alfred W. Zollar | | o | | o | | | | | | | | |
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| | | Signature [PLEASE SIGN WITHIN BOX] | | 1f - Klaus J. Mangold | | o | | o | | | | Our Board of Directors recommends a
vote“FOR” Proposal 2.
| | For | | Against | | Abstain | | | | |
| Date | | | | | | | | | | | | | Signature (Joint Owners) | | | | | | | | | | | |
| | | | 1g - Martin G. McGuinn | | o | | o | | | | 2. To approve the adoption of The Chubb Corporation Long-Term Incentive Plan (2009). | | o | | o | | | o | | | | | |
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| | | | 1h - Lawrence M. Small | | o | | o | | | | Our Board of Directors recommends a
vote“FOR” Proposal 3.
| | For | | Against | | Abstain | | | | |
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| | Change of Address- Please check this box and write the changes where indicated on the reverse side. | | o | | 3. To ratify the appointment of Ernst & Young LLP as independent auditor. | | o | | o | | | o | | | | | |
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| | C. Authorized Signatures - This section must be completed for your vote to be counted. - Date and Sign Below
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| | Please sign exactly as name(s) appear(s) hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. | | | | | | | | | | | | |
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Signature [PLEASE SIGN WITHIN BOX] | Date | | | | | | Signature (Joint Owners) | Date | | |
Electronic Voting Instructions
You can vote by Internet or telephone!
Available 24 hours a day, 7 days a week!
Proxies submitted by the Internet or telephone must be received by 11:59 p.m.,P.M.
Eastern Time on April 27, 2009.26, 2010.
Important Notice Regarding the Availability of Proxy Materials:Materials for the Annual Meeting:
The 20092010 Notice and Proxy Statement, 20082009 Annual Report on Form 10-K and 20082009 Annual Review
are
available at www.proxyvote.com.
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH
AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
M19415-P89631- Z51848
Proxy - The Chubb Corporation
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CHUBB CORPORATION FOR THE 2010 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 27, 2010.
The undersigned shareholder of THE CHUBB CORPORATION (the Corporation) acknowledges receipt of the Notice of 2010 Annual Meeting of Shareholders and Proxy Statement each dated March 18, 2010, and the undersigned revokes all prior proxies and appoints JOHN D. FINNEGAN, W. ANDREW MACAN and DOUGLAS A. NORDSTROM, and each of them, with full power of substitution, as proxies for the undersigned to vote all shares of Common Stock of the Corporation, which the undersigned would be entitled to vote at the 2010 Annual Meeting of Shareholders to be held at 15 Mountain View Road, Warren, New Jersey 07059 at 8:00 A.M., local time, on April 27, 2010 and any adjournment or postponement thereof, on all matters coming properly before said meeting.
This card also provides voting instructions for any shares of Common Stock of the Corporation allocated to and held on the undersigned’s behalf in The Chubb Corporation Capital Accumulation Plan (the Plan).
When properly executed, this proxy will be voted in the manner directed herein by the undersigned shareholder. If this proxy is validly executed and dated, but no direction is made, this proxy will be voted “FOR” Proposals 1 and 2. If the undersigned has voting rights with respect to shares of Common Stock under the Plan, the trustees of the Plan will vote those shares as directed. If you do not direct the trustees with respect to shares you hold in the Plan, your shares will not be voted.
In their discretion, the proxies are authorized to vote upon such other business as may properly come before the 2010 Annual Meeting of Shareholders.
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| Address Changes/Comments: | | |
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| | Proxy - The Chubb Corporation | | | | |
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| | THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CHUBB CORPORATION FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 28, 2009.
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| | The undersigned shareholder of THE CHUBB CORPORATION (the Corporation) acknowledges receipt of the Notice of 2009 Annual Meeting of Shareholders and Proxy Statement each dated March 19, 2009, and the undersigned revokes all prior proxies and appoints JOHN D. FINNEGAN, W. ANDREW MACAN and DOUGLAS A. NORDSTROM, and each of them, with full power of substitution, as proxies for the undersigned to vote all shares of Common Stock of the Corporation, which the undersigned would be entitled to vote at the 2009 Annual Meeting of Shareholders to be held at 15 Mountain View Road, Warren, New Jersey 07059 at 8:00 a.m., local time, on April 28, 2009 and any adjournment or postponement thereof, on all matters coming properly before said meeting. | | |
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| | This card also provides voting instructions for any shares of Common Stock of the Corporation allocated to and held on the undersigned’s behalf in The Chubb Corporation Capital Accumulation Plan (the Plan). | | |
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| | When properly executed, this proxy will be voted in the manner directed herein by the undersigned shareholder. If the undersigned has voting rights with respect to shares of Common Stock under the Plan, the trustees of the Plan will vote those shares as directed. If this proxy is validly executed and dated, but no direction is made, this proxy will be voted “FOR” Proposals 1, 2 and 3.
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| | In their discretion, the proxies are authorized to vote upon such other business as may properly come before the 2009 Annual Meeting of Shareholders.
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| | Change of Address -Please print new address below. | | |
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| | (If you noted a Change of Ad dress above, please mark corresponding
box on the reverse side.) | | |
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
