o | | ¨ Fee paid previously with preliminary materials. ¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | (1) | Amount Previously Paid: |
| | (1) | | Amount Previously Paid: | | | (2) | | Form, Schedule or Registration Statement No.: | |
| | | | | Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
(973) 948-3000 |
March 26, 200925, 2011 NOTICE OF 20092011 ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
April 29, 200927, 2011
The 20092011 Annual Meeting of Stockholders of Selective Insurance Group, Inc. (“Selective”) will be held at 3:00 PM Eastern Time on Wednesday, April 29, 2009,27, 2011, in the Auditorium at Selective’s principal offices, which are located at, and have both a physical and mailing address of, 40 Wantage Avenue, Branchville, New Jersey 07890. At the meeting, we will ask stockholders to: | 1. | | Elect three (3) Class III and five Class III directors for a one-year term expiring in 2012; |
| 2. | | Approve a non-binding advisory resolution on the amended and restated Selective Insurance Group, Inc. Employee Stock Purchase Plan (2009);compensation of Selective’s named executive officers; |
| 3. | Approve a non-binding advisory resolution on the frequency of an advisory resolution on the compensation of our named executive officers; and |
| 4. | Ratify the appointment of KPMG LLP as our independent registered public accountantsaccounting firm for the fiscal year ending December 31, 2009; and2011. |
4. | | Consider and vote upon a stockholder proposal relating to the declassification of the Board of Directors. |
We plan a brief business meeting focused on these items and we will attend to any other business as may properly comebrought before the meeting and at any adjournments or postponements of the meeting.The Board of Directors recommends thatthat: (i) you vote “FOR” all of the nominees to the Board of Directors; (ii) you vote in favor of Items 1,Proposals 2 and 4; and (iii) for Proposal 3, and 4.you vote for a stockholders’ advisory vote on the compensation of our named executive officers to be held “EVERY YEAR.”These proposals are further described in the proxy statement. Also enclosed is Selective’s 20082010 Annual Report to Stockholders. At the meeting, we will be making a brief presentation on operations and we will offer time for your comments and questions. Selective stockholders of record at the close of business on March 9, 20094, 2011 are entitled to notice of, and to vote at, the meeting and any adjournment of it. A quorum is a majority of outstanding shares. YOUR VOTE IS IMPORTANT. WE URGE YOU TO VOTE YOUR SHARES BY: (1) CALLING THE TOLL-FREE TELEPHONE NUMBER LISTED ON THE PROXY CARD; (2) ACCESSING THE INTERNET WEBSITE LISTED ON THE PROXY CARD; OR (3) COMPLETING, DATING, AND SIGNING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED ENVELOPE. YOUR PROXY MAY BE REVOKED AT ANY TIME, AS DESCRIBED IN THE PROXY STATEMENT, PRIOR TO THE TIME IT IS VOTED AT THE 20092011 ANNUAL MEETING. Very truly yours, Gregory E. Murphy
Chairman of the Board, President and Chief Executive Officer
By Order of the Board of Directors: Robyn P. Turner
Corporate Secretary
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FOR THE 20092011 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 29, 200927, 2011
WHEN AND WHERE IS THE ANNUAL MEETING?
The 20092011 Annual Meeting of Stockholders (the “Annual Meeting”) of Selective Insurance Group, Inc. (“Selective” or the “Company”) will be held on Wednesday, April 29, 2009,27, 2011, at 3:00 PM Eastern Time in the Auditorium at Selective’s principal offices at 40 Wantage Avenue, Branchville, New Jersey 07890. Directions are on the back of thethis Proxy Statement.
WHEN WAS THIS PROXY STATEMENT MAILED?
This Proxy Statement is being mailed to stockholders on or about March 25, 2011.
WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
Anyone who owned Selective common stock as of the close of business on March 9, 2009,4, 2011, is entitled to one vote per share owned. There were 52,819,02454,017,474 shares outstanding at the close of business on that date.
WHO IS SOLICITING MY PROXY TO VOTE MY SHARES AND WHEN?
Selective’s Board of Directors (“Board of Directors” or the “Board”) is soliciting your “proxy,” or your authorization for our named proxies, John C. BurvillePaul D. Bauer and Ronald L. O’Kelley,S. Griffin McClellan III, to vote your shares.Unless revoked by you, your proxy will be effective for the Annual Meeting and for any adjournments or continuationspostponements of that meeting.
WHAT IS THE COST OF SOLICITING PROXIES AND WHO IS PAYING FOR THE COST?
Selective is bearing the entire cost of soliciting proxies. Proxies will be solicited principally through the mail, but may also be solicited personally or by telephone, or special letter by directors, officers, and regular Selective employees for no additional compensation. Selective has engaged Georgeson Inc. (“Georgeson”), a proxy solicitation firm, to assist in the solicitation of proxies and the distribution of proxy materials, including reviewing Selective’s proxy materials, disseminating broker search cards, soliciting a proxy service company, brokers, banks, and institutional holders, and delivering executed proxies.materials. Georgeson will provide such services for an estimated fee of approximately $7,500$8,000 plus expenses. Selective will reimburse banks, brokerage firms, and other custodians, nominees, and fiduciaries for reasonable expenses incurred by them in sending proxy materials to their customers or principals who are the beneficial owners of shares of Selective common stock.
WHAT ARE THE REQUIREMENTS FOR BUSINESS TO BE CONDUCTED AT THE ANNUAL MEETING?
For business to be conducted at the Annual Meeting, owners of 26,409,51327,008,738 shares of Selective common stock (a majority of the issued and outstanding shares entitled to vote) constituteconstituting a quorum, and must be in attendance or represented by proxy.
Management is presenting three (3)four proposals for a stockholder vote and a stockholder intends to present one (1) proposal for a stockholder vote.
| | | | PROPOSAL 1. | | ELECTION OF DIRECTORS |
THE BOARD RECOMMENDS THAT YOU VOTEFOR THE THREEFOLLOWING EIGHT NOMINATED CLASS II DIRECTORS: A. DAVID BROWN,DIRECTORS FOR A TERM OF ONE YEAR: PAUL D. BAUER, JOHN C. BURVILLE, JOAN M. LAMM-TENNANT, MICHAEL J. MORRISSEY, GREGORY E. MURPHY, CYNTHIA S. GRIFFIN MC CLELLAN III,NICHOLSON, RONALD L. O’KELLEY, AND J. BRIAN THEBAULT.WILLIAM M. RUE.
You can find information about these nominees, as well as information about Selective’s Board of Directors, its committees, compensation for directors, and other related matters beginning on page 6.
New Jersey law and Selective’s By-lawsBy-Laws govern the vote on Proposal 1, on which you may:
| | • | § | Vote in favor of“FOR” all the nominees; | |
| | •§ | Vote “AGAINST” all of the nominees; |
| | Withhold your votes as to all§ | Vote “FOR” or “AGAINST” specific nominees; or | |
| | •§ | | Withhold your votes as to specific nominees.Abstain from voting. |
Assuming
Under our By-Laws, as amended on December 3, 2010, assuming a quorum is present, todirectors in uncontested elections must be elected by a candidatemajority of votes cast. A majority means that the number of votes cast “for” a director nominee must exceed the number of votes cast “against” the nominee. In an uncontested election, any director nominee who does not receive a pluralitymajority of the “for” votes cast atis required to tender his or her resignation from the Annual Meeting in person or by proxy.Board of Directors within five days of certified election results. In such a case: (i) the Corporate Governance and Nominating Committee must make a recommendation to the Board of Directors as to whether it should accept the resignation; and (ii) the Board of Directors must decide whether to accept such resignation and disclose its decision-making process. Stockholders may not cumulate their votes. AbstentionsUnder New Jersey law and consistent with the proxy rules of the United States Securities and Exchange Commission (“SEC”), abstentions and broker non-votes will have no effect onnot be taken into account in determining the outcome of the vote.
| | | | PROPOSAL 2. | | APPROVAL OF AMENDED AND RESTATED SELECTIVE INSURANCE GROUP,INC. EMPLOYEE STOCK PURCHASE PLAN (2009)NON-BINDING ADVISORY RESOLUTION ON COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS |
THE BOARD RECOMMENDS THAT YOU VOTEFOR THE AMENDED AND RESTATED SELECTIVE INSURANCE GROUP, INC. EMPLOYEE STOCK PURCHASE PLAN (2009)APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS DISCLOSED IN THIS PROXY STATEMENT. You can find information about the amended and restated Selective Insurance Group, Inc. Employee Stock Purchase Plan (2009) beginning on page 42.
New Jersey law and Selective’s By-lawsBy-Laws govern the vote on Proposal 2, on which you may:
| | • | § | Vote in favor of Proposal 2; | |
| | • | § | Vote against Proposal 2; or | |
Assuming a quorum is present, Proposal 2 will pass if approved by an affirmative vote of a majority of votes cast at the Annual Meeting. Under New Jersey law, in determining whether the proposal has received the requisite number of affirmative votes, abstentions and broker non-votes will not be counted as votes and, accordingly, will have no effect on the outcome of the vote. A majority vote is also required to approve Proposal 2 for purposes of Sections 162(m) and 422 of the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”). | | | PROPOSAL 3. | | RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS |
THE BOARD RECOMMENDS THAT YOU VOTEFOR THERATIFICATION OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2009.
You can find information about Selective’s relationship with KPMG LLP beginning on page 48.
New Jersey law and Selective’s By-laws govern the vote on Proposal 3, on which you may:
| • | | Vote in favor of Proposal 3; | | | • | | Vote against Proposal 3; or | | | • | | Abstain from voting. |
Assuming a quorum is present, Proposal 3 will pass if approved by an affirmative vote of a majority of the votes cast at the Annual Meeting. Under New Jersey law and consistent with the SEC’s proxy rules, abstentions and broker non-votes will not be taken into account in determining whether the proposal has received the requisite number of affirmative votes.
| PROPOSAL 3. | APPROVAL OF NON-BINDING ADVISORY RESOLUTION ON THE FREQUENCY OF THE EXECUTIVE COMPENSATION VOTE |
THE BOARD RECOMMENDS THAT YOU VOTE FOR A STOCKHOLDERS’ ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS TO BE HELD EVERY YEAR.
New Jersey law and Selective’s By-Laws govern the vote on Proposal 3, on which you may:
| § | Vote in favor of the Board’s recommendation that an advisory vote on executive compensation be held every year; |
| § | Vote in favor of an advisory vote on executive compensation being held every two years; |
| § | Vote in favor of an advisory vote on executive compensation being held every three years; or |
Assuming a quorum is present, the Proposal 3 selection that receives the most votes cast will be deemed the stockholders’ selection. Under New Jersey law, and consistent with the SEC’s proxy rules, abstentions and broker non-votes will not be counted as votes cast and, accordingly, will have no effect ontaken into account in determining the outcome of the vote. Page 2
| | | | PROPOSAL 4. | | STOCKHOLDER PROPOSAL RELATING TO THE DECLASSIFICATIONRATIFICATION OF THE BOARDAPPOINTMENT OF DIRECTORS.INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
THE BOARD RECOMMENDS THAT YOU VOTEFOR THE STOCKHOLDER PROPOSAL RELATING TO THE DECLASSIFICATIONRATIFICATION OF THE BOARDAPPOINTMENT OF DIRECTORS.KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2011.
You can find information about the stockholder proposal relating to the declassification of the Board of DirectorsSelective’s relationship with KPMG LLP beginning on page 50.53.
New Jersey law and Selective’s By-lawsBy-Laws govern the vote on Proposal 4, on which you may:
| | • | § | Vote in favor of Proposal 4; | |
| | • | § | Vote against Proposal 4; or | |
Assuming a quorum is present, Proposal 4 will pass if approved byit receives an affirmative vote of a majority of the votes cast at the Annual Meeting. Under New Jersey law and the SEC’s proxy rules, abstentions will not be counted as votes cast and, accordingly, will not be taken into account in determining whether the proposal has received the requisite number of affirmative votes, abstentions and broker non-votes will not be counted as votes cast and, accordingly, will have no effect on the outcome of the vote.votes. The Board of Directors is not aware of any other business to be presented for a vote of the stockholders at the Annual Meeting. If any other matters are properly presented for a vote, the people named as proxies will have discretionary authority, to the extent permitted by applicable law and NASDAQ Stock Market (“NASDAQ”) and United States Securities and Exchange Commission (“SEC”)SEC rules and regulations, to vote on such matters according to their best judgment.
The Chairman of the Annual Meeting may refuse to allow presentation of a proposal or nominee for the Board of Directors if the proposal or nominee is not properly submitted. The requirements for submitting proposals and nominations for this year’s meeting were the same as those described on page 52 for next year’s meeting.set forth in Selective’s By-Laws.
You can vote four (4) ways:
| | 1. | | BY MAIL.MAIL. Mark your voting instructions on, then sign and date the proxy card. Then return the proxy card in the postage-paid envelope provided. If you mail your proxy card, we must receive it before the beginning of the meeting. | | | | | If we receive your signed proxy card, but you do not give voting instructions, the named proxies will vote your shares FOR Proposals 1, 2, 3, and 4. If any other matters arise during the meeting which require a vote, the named proxies will exercise their discretion, to the extent permitted by applicable law and NASDAQ and SEC rules and regulations. | |
If we receive your signed proxy card, but you do not give voting instructions, the named proxies will vote your shares FOR each of the director nominees, FOR Proposals 2 and 4, and FOR the Board’s recommendation on Proposal 3. If any other matters arise during the meeting that require a vote, the named proxies will exercise their discretion, to the extent permitted by applicable law and NASDAQ and SEC rules and regulations, in accordance with their best judgment.
| | 2. | | BY TELEPHONE.TELEPHONE. Call the toll-free number on your proxy card to vote by telephone. Follow the instructions on your proxy card and the voice prompts. IF YOU VOTE BY TELEPHONE, YOU DO NOT NEED TO RETURN YOUR PROXY CARD. | |
| | 3. | | BY INTERNET.INTERNET. Go to the website listed on your proxy card to vote through the Internet. Follow the instructions on your proxy card and the website. If you vote through the Internet, you may incur telephone and/or Internet access charges from your service providers. IF YOU VOTE BY INTERNET, YOU DO NOT NEED TO RETURN YOUR PROXY CARD. | |
| | 4. | | IN PERSON.PERSON. Attend the Annual Meeting, or send a personal representative with an appropriate proxy, in order to vote. |
HOW DO I REVOKE MY PROXY OR CHANGE MY VOTING INSTRUCTIONS?
You may revoke your proxy before the proxy is exercised by writing to Selective’s Corporate Secretary, Robyn P. Turner, at the address in the meeting notice on the cover of this Proxy Statement. You may also change your vote before the proxy is exercised by entering a new vote via the Internet, by telephone, or by returning a properly executed proxy bearing a later date. Any subsequent timely and valid vote by any means will change your prior vote. For example, if you voted by telephone, a subsequent Internet vote will change your vote. The last vote received before noon central time on April 28, 200926, 2011 will be the vote that is counted, except that you may also change your vote by voting in person at the Annual Meeting.
HOW WILL PROXIES BE VOTED IF I GIVE MY AUTHORIZATION?
If you properly execute your proxy on the accompanying form and return it to Selective or submit your proxy by telephone or Internet, as described above, and do not subsequently revoke your proxy, your shares of common stock will be voted at the Annual Meeting in accordance with your instructions. In the absence of instructions, the named proxies will vote your shares “FOR” the election ofFOR each director nominee, “FOR” the approval of the Selective Insurance Group, Inc. Employee Stock Purchase Plan (2009), “FOR”director nominees, FOR Proposals 2 and 4, and FOR the ratification of the appointment of KPMG LLP as Selective’s independent public accountants for the fiscal year ending December 31, 2009, and “FOR” the stockholder proposal relating to the declassification of the Board of Directors.Board’s recommendation on Proposal 3. If other matters should properly come before the meeting, the named proxies will vote on such matters, to the extent permitted by applicable law and NASDAQ and SEC rules and regulations, in accordance with their best judgment. Page 4
HOW WILL VOTES BE COUNTED?
The inspectorinspectors of electionselection appointed for the Annual Meeting by the Board of Directors for the Annual Meeting will separately tabulate affirmative and negative votes, abstentions and broker non-votes (shares held by a broker, bank or other nominee that does not have authority, either express or discretionary, to vote on a particular matter). Shares represented by proxies that reflect abstentions and broker non-votes are counted for determining whether there is a quorum. Brokers may exercise their discretionary voting power for Proposal 4.
For Proposal 1, abstentions and broker non-votes will not be considered in determining whether director nominees have received the requisite numbermore “for” votes than “against” votes. Approval of affirmative votes. For ProposalsProposal 2 3, and 4, approval will requirerequires the affirmative vote of a majority of votes cast at the Annual Meeting. Although abstentions and broker non-votes are treated as present for purposes of determining whether a quorum is presentThe selection in Proposal 3 that receives the most votes cast at the Annual Meeting any shares not voted as a result of an abstention or a broker non-vote will not be counted as voting “for” or “against” Proposals 2, 3, and 4. Accordingly, abstentionsdeemed the stockholders’ selection. Abstentions and broker non-votes will not be counted as votes cast and will have no effect on the outcome of Proposals 2 and 3. Approval of Proposal 4 requires the affirmative vote of a vote.majority of votes cast at the Annual Meeting. Abstentions have no effect on Proposal 4.
WHAT IF MY SHARES ARE NOT REGISTERED IN MY NAME?
If you own your shares in “street name,” meaning that your broker is actually the record owner, you should contact your broker. When a broker does not have voting instructions and withholds its vote on one of these matters, it is called a “broker non-vote.” Broker non-votes count toward a quorum, but otherwise do not affect the outcome of any proposal.
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 29, 200927, 2011
This Proxy Statement is available on Selective’s internet website at www.selective.com. Page 5
Election of Directors Under our By-Laws, as amended on December 3, 2010, directors in uncontested elections must be elected by a majority of votes cast. A majority means that the number of votes cast “for” a director nominee must exceed the number of votes cast “against” that nominee. For more information on our majority voting policy, please see “Corporate Governance – Majority Voting for Directors in Uncontested Elections” beginning on page 16.
At its 2010 Annual Meeting of Stockholders, as part of an ongoing effort to adopt “best practices” in corporate governance, the Board recommended, and Selective’s stockholders approved, amendments to Selective’s Restated Certificate of Incorporation and By-Laws to phase out Selective’s classified board structure over the two-year period following the 2010 Annual Meeting. Accordingly, at this Annual Meeting, three Class I directors and five Class III directors are standing for election for a one-year term. The eligible Class II directors will stand for election for a one-year term at the 2012 Annual Meeting, after which time all directors will serve for one-year terms and, if re-nominated, will stand for election annually. In all cases, each director will hold office until a successor has been elected and qualified, or until the director’s earlier resignation or removal.
Selective’s Board of Directors currently has twelve (12) members and is divided into three (3) classes designated Class I, Class II, and Class III.12 members. Pursuant to Selective’s Restated Certificate of Incorporation, as amended, and its By-laws,By-Laws, Selective may have a minimum of seven (7) and a maximum of twenty (20)20 directors. By majority vote, the Board of Directors may set the number of directors within this range at any time. Effective as
Process for Review and Nomination of Director Candidates
The Corporate Governance and Nominating Committee is responsible for the review and nomination of candidates to the Board of Directors1. The Corporate Governance and Nominating Committee reviews all director candidates for possible nomination and election to the Board and seeks such candidates from any source, including: 1 See chart on page 18 for further discussion of the Annual Meeting,Corporate Governance and Nominating Committee’s other responsibilities. | § | Directors and management; |
| § | Third party search firms that the Corporate Governance and Nominating Committee may engage; and |
Any stockholder proposing Board candidate(s) must submit in writing all information required to be disclosed pursuant to Regulation 14A under the Board has set the numberExchange Act in a solicitation of directors at eleven (11). William M. Kearns, Jr., having surpassed the eligibility ageproxies for election as a director, will retire from the Board on April 29, 2009, following the election of directors ata director to the 2009 Annual Meeting of Stockholders. The Board thanks Mr. Kearns for his many years of service as a Director and Lead Independent DirectorChairman of the Board.Corporate Governance and Nominating Committee, c/o Corporate Secretary, 40 Wantage Avenue, Branchville, NJ 07890. Under Selective’s By-laws, directors
Regardless of source, the Corporate Governance and Nominating Committee evaluates all candidates based on, among other things, the following standards:
| § | Personal and professional ethics, integrity, character, and values; |
| § | Professional and personal experience; |
| § | Independence and avoidance or limitation of potential or actual conflicts of interest; |
| § | Dedication and commitment to representing the long-term interests of Selective and its stockholders; |
| § | Willingness to dedicate and devote sufficient time to Board duties and activities; |
| § | Other appropriate and relevant factors, including the qualification and skills of the current members of the Board; and |
Although Selective has no formal diversity policy, its Corporate Governance Guidelines provide that the composition of the Board should encompass a broad range of skills, expertise, industry knowledge, and diversity of opinion. Accordingly, diversity of thought, experience, gender, race, and ethnic background are elected atgreatly considered in the Annual Meeting for terms of three (3) years, unless a director is being elected to fill a vacant, unexpired term. evaluation process.
Director Nominees
No family relationships exist between any of Selective’s current directors, executive officers, and persons nominated by Selective to become a director.
The Board has ratified the Corporate Governance and Nominating Committee’s nomination of the following three (3)eight incumbent Class III and Class III directors to stand for election at the 2011 Annual Meeting for terms expiring at the 2012 Annual Meeting or until a successor has been duly elected and qualified: A. David Brown,Paul D. Bauer, John C. Burville, Joan M. Lamm-Tennant, Michael J. Morrissey, Gregory E. Murphy, Cynthia S. Griffin McClellan III,Nicholson, Ronald L. O’Kelley, and J. Brian Thebault.William M. Rue. The Board thanks W. Marston Becker for his five years of service to Selective.
All three (3) nominees have consented to being named in this Proxy Statement and to serveserving if elected and theelected. The Board does not know of any reason why any of these nominees would decline or be unable to serve if elected. If a nominee becomes unavailable or unable to serve before the Annual Meeting, the Board can either reduce its size or designate a substitute nominee. If the Board designates a substitute nominee, proxies that would have been cast for the original nominee will be cast for the substitute nominee unless instructions are given to the contrary.
| NOMINEES OF THE BOARD OF DIRECTORS | CLASS I – DIRECTORS NOMINATED TO CONTINUE IN OFFICE UNTIL THE 2012 ANNUAL MEETING OF STOCKHOLDERS | Name, Age, Year Elected to Board of Directors | Occupation and Background | Gregory E. Murphy, 55 Employee Director, 1997 | · Chairman, President and Chief Executive Officer of Selective, since May 2000. · President and Chief Executive Officer of Selective, 1999 to 2000. · President and Chief Operating Officer of Selective, 1997 to 1999. · Other senior executive, management, and operational positions at Selective, since 1980. · Certified Public Accountant (New Jersey) (Inactive). · Trustee, Newton Memorial Hospital Foundation, since 1999. · Director, Property Casualty Insurers Association of America, since 2008. · Director, Insurance Information Institute, since 2000. · Trustee, the American Institute for CPCU (AICPCU) and the Insurance Institute of America (IIA), since 2001. · Graduate of Boston College (B.S. Accounting). · Harvard University (Advanced Management Program). · M.I.T. Sloan School of Management. | Discussion of individual experience, qualifications, attributes, and skills. | Mr. Murphy, with 31 years of service at Selective and 12 as Chief Executive Officer, is the Director most knowledgeable about our operations. We consider his service on the Board extremely valuable to informed business and strategic decision-making. He has broad experience and knowledge in the areas of reinsurance, and insurance pricing and industry fundamentals. Mr. Murphy has extensive contacts in the insurance industry and serves as a director or trustee of several important industry groups. He is an accountant, served as our Chief Financial Officer prior to assuming other leadership positions, and is extremely financially sophisticated. | Cynthia S. Nicholson, 46 Independent Director, 2009 | · Executive Vice President and Chief Marketing Officer, Equinox Holdings, Inc., since September 2010. · Co-Founder, Pup To Go, LLC, since 2009. · Advisor, GamesThatGive, Inc., since March 2010 · Principal Strategist and Director, GamesThatGive, Inc., 2009 to March 2010. · Senior Vice President and Chief Marketing Officer of Pepsi-Cola North America, a division of PepsiCo, Inc., 2005 to 2008. · Member, Association of National Advertisers Board, 2006 to 2008. · Graduate of Kelley School of Business, Indiana University (M.B.A.). · Graduate of University of Illinois (B.S.). | Discussion of individual experience, qualifications, attributes, and skills. | Ms. Nicholson is a marketing expert with 22 years of marketing experience in various industries. She served in a variety of senior marketing positions at Pepsi, which is known for its brand marketing and senior management training. We believe that her marketing expertise is invaluable to us as we explore branding and marketing efforts to address competitive issues in the property and casualty insurance industry and our distribution through independent agents. Ms. Nicholson was appointed to the Board in 2009 after being identified by a third-party firm specializing in diversity director searches, Diversified Search Ray & Berndtson. |
| NOMINEES OF THE BOARD OF DIRECTORS | CLASS I – DIRECTORS NOMINATED TO CONTINUE IN OFFICE UNTIL THE 2012 ANNUAL MEETING OF STOCKHOLDERS | Name, Age, Year Elected to Board of Directors | Occupation and Background | William M. Rue, 63 Non-Independent Director, 1977 | · President and former Executive Vice President, Rue Insurance, general insurance agency, since 1969. · President, Rue Financial Services, Inc., since 2002. · Director, 1st Constitution Bank, since 1989, Secretary of the Board, since 2005. · Director, 1st Constitution Bancorp, since 1999, Secretary of the Board, since 2005. · Director, Robert Wood Johnson University Hospital at Hamilton, since 1994. · Trustee, Rider University, since 1993. · Director, Robert Wood Johnson University Hospital Foundation, since 1999. · Member, Independent Agents & Brokers Association. · Member, Society of CPCU. · Member, Professional Insurance Agents Association. · President, The Rue Foundation, since 2004. · Graduate of Rider College (B.A.). | | Discussion of individual experience, qualifications, attributes, and skills. | Mr. Rue has been one of our independent agents for 42 years, and the chief executive of his agency for 26 years. We believe that, because we distribute our products exclusively through independent agents, it is extremely valuable for informed business and strategic decision-making for the Board to have the feedback and input from an independent agent with strong knowledge of our operations and the competitive landscape. |
| NOMINEES OF THE BOARD OF DIRECTORS | CLASS III – DIRECTORS NOMINATED TO CONTINUE IN OFFICE UNTIL THE 2012 ANNUAL MEETING OF STOCKHOLDERS | Name, Age, Year Elected to Board of Directors | Occupation and Background | Paul D. Bauer, 67 Independent Director, 1998 | · Retired financial executive. · Executive Vice President and Chief Financial Officer of Tops Markets, Inc., 1970 to 1993. · Director, Rosina Holdings Inc., since 2002. · Director, Catholic Health System of Western New York, 1998 to 2008. · Co-founder and President, The Bison Scholarship Fund (formerly named the Buffalo Inner-City Scholarship Opportunity Network), since 1995. · Trustee, Holy Angels Academy, since 2005. · Graduate of Boston College (B.S. Accounting). | | Discussion of individual experience, qualifications, attributes, and skills. | Mr. Bauer is the former Chief Financial Officer of a publicly-traded company and the Audit Committee’s designated financial expert. Mr. Bauer is very active in the Buffalo community and knowledgeable of Upstate New York, which is an important market for us. |
| NOMINEES OF THE BOARD OF DIRECTORS | CLASS III – DIRECTORS NOMINATED TO CONTINUE IN OFFICE UNTIL THE 2012 ANNUAL MEETING OF STOCKHOLDERS | Name, Age, Year Elected to Board of Directors | Occupation and Background | John C. Burville, 63 Independent Director, 2006 | · Insurance Consultant to the Bermuda Government, 2003 to 2007. · Bermuda Insurance Advisory Committee, 1985 to 2003. · Chief Actuary and Senior Rating Agency Manager of ACE Limited, 1992 to 2003. · Graduate of Leicester University in the United Kingdom (BSc and Ph.D.). · Fellow of the Institute of Actuaries. | | Discussion of individual experience, qualifications, attributes, and skills. | Mr. Burville has extensive insurance industry knowledge and served as chief actuary of one of the world’s largest property and casualty insurance companies. He is extremely knowledgeable about reserving and numerous actuarial techniques to calculate ultimate reserve levels. Mr. Burville is looked to as an actuarial subject matter expert on the Board. | Joan M. Lamm-Tennant, 58 Independent Director, 1993 | · Global Chief Economist & Risk Strategist, Guy Carpenter & Company, LLC, since 2007. · Vice President, Marsh & McLennan Companies, Inc., 2009 to January 2011. · Senior Vice President, General Re Corporation, 1997 to 2007. · Lawrence and Susan Hirsh Adjunct Professor of International Business, the Wharton School of the University of Pennsylvania, since 2010. · Adjunct Professor the Wharton School of the University of Pennsylvania, 2006 to 2010. · Director, IVANS, Inc., since 2004. · Member, American Risk and Insurance Association. · Member, International Insurance Society. · Member, Association for Investment Management and Research. · Graduate of St. Mary’s University (B.B.A. and M.B.A.). · Graduate of the University of Texas (Ph.D.). | | Discussion of individual experience, qualifications, attributes, and skills. | Ms. Lamm-Tennant has extensive insurance industry experience. She is a recognized expert in the fields of enterprise risk management and capital modeling. Ms. Lamm-Tennant currently serves as an advisor to Marsh & McLennan Companies, Inc. as well as eight national or multinational insurance companies on enterprise risk management implementation. She is active in several industry associations and a finance professor. Ms. Lamm-Tennant is a financial expert and particularly knowledgeable regarding investments and investment strategies. |
| NOMINEES OF THE BOARD OF DIRECTORS | CLASS III – DIRECTORS NOMINATED TO CONTINUE IN OFFICE UNTIL THE 2012 ANNUAL MEETING OF STOCKHOLDERS | Name, Age, Year Elected to Board of Directors | Occupation and Background | Michael J. Morrissey, 63 Independent Director, 2008 | · President & Chief Executive Officer, International Insurance Society, Inc., 2009 to present. · Chairman and Chief Executive Officer, Firemark Investments, 1983 to 2009. · Director, CGA Group, Ltd., 1998 to 2009. · Chartered Financial Analyst. · Graduate of Boston College (B.A.). · Graduate of Dartmouth College (M.B.A.). | | Discussion of individual experience, qualifications, attributes, and skills. | Mr. Morrissey has 38 years of insurance industry experience. He is the head of an international insurance trade association, previously ran an investment firm specializing in insurance companies, and was president and chief investment officer of an insurance company. Mr. Morrissey is very knowledgeable regarding the investment community, investor relations, and the analysis of strategic transactions. | Ronald L. O’Kelley, 66 Independent Director, 2005 | · Chairman and Chief Executive Officer, Atlantic Coast Venture Investments Inc., 2003 to 2008 and 2009 to present; Director, Atlantic Coast Venture Investments Inc., 2003 to 2009. · President and Chief Executive Officer, U.S. Shipping Partners, L.P., 2008 to 2009, Director 2004 to 2008. In April 2009, U.S. Shipping Partners, L.P. filed for protection under Chapter 11 of the U.S. Bankruptcy Code and emerged reorganized as U.S. Shipping Corp in November 2009. · Executive Vice President, Chief Financial Officer and Treasurer, State Street Corporation, 1995 to 2002. · Director, Refco Inc., 2005 to 2006. · Advisory Director, Donald H. Jones Center for Entrepreneurship, Tepper School of Business, Carnegie Mellon University, since 2003. · Member, National Association of Corporate Directors. · Graduate of Duke University (A.B.). · Graduate of Carnegie Mellon University (M.B.A.). | | Discussion of individual experience, qualifications, attributes, and skills. | Mr. O’Kelley is the former Chief Financial Officer of a large multi-national financial services organization and qualifies as a financial expert. He has extensive experience in corporate restructurings for both manufacturing organizations and financial institutions. Mr. O’Kelley has a demonstrated track record for implementing corporate strategy through significant mergers and acquisitions, divestitures, and debt and equity fund raisings. He is active in the trade association for corporate directors and has significant tenure as a director of other public companies. |
Board Recommendation THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE NOMINEES OF THE BOARD OF DIRECTORSDIRECTORS. CONTINUING DIRECTORS CLASS II – Directors Continuing in Office Until the 2012 Annual Meeting of Stockholders
| | | CLASS II —Directors Nominated to Continue in Office Until the 2012 Annual Meeting ofStockholders |
| | | Name, Age, Year Elected Toto Board of Directors | | Occupation Andand Background | | A. David Brown, 66
68 Independent Director, 1996 | Lead Independent Director, 2009 – present | •· Executive Vice President, Human Resources, Urban Brands, Inc., since April 2009. In September 2010, Urban Brands, Inc. filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Urban Brands, Inc. was acquired by a subsidiary of Gordon Brothers Group in November 2010 and emerged from bankruptcy.
· Senior Vice President, Human Resources, Linens ‘n Things, Inc., 2006 to 2009. In May 2008, Linens and Things, Inc. filed for protection under Chapter 11 of the U.S. Bankruptcy Code. | | | •· Managing Partner, Bridge Partners, LLC, an executive recruiting firm, 2003 to 2006.
| | | • Partner, Whitehead Mann, executive recruiters, 1997 to 2003.
| | | •· Director, Hanover Direct, 2003 to 2006.
| | | •· Director, Zale Corporation, 1997 to 2006.
| | | • Director, The Sports Authority, Inc., 1998 to 2003.
| | | •· Trustee, Jackie Robinson Foundation.
| | | •· Graduate of Monmouth University (B.S.).
| | Discussion of individual experience, qualifications, attributes, and skills. | | Mr. Brown has had a long career in human resources, with extensive experience in executive development, recruitment and leadership, employee benefits and compensation, particularly in corporate restructurings. He has run his own business and worked for large corporations. He also has a long commitment to diversity and was the managing director of a search firm specializing in diversity. Mr. Brown has extensive corporate governance experience and has served on several public company boards. He is active in several institutions based in New Jersey, where we are headquartered. Mr. Brown’s strong leadership and inter-personal skills have made him an effective Lead Independent Director. | S. Griffin McClellan III, 7173 Independent Director, 1980 | | •· Retired Banking Executive.
| Independent Director, 1980 | | • Self-employed Consultant, 1994 to 2001.
| | | •· Graduate of Harvard University (B.A.).
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| | | Name, Age, Year Elected To BoardDiscussion of Directorsindividual experience, qualifications, attributes, and skills. | | Occupation And Background | | Mr. McClellan is the former Chief Executive Officer of a federal savings bank and a commercial bank. He has extensive financial and investment experience and knowledge, particularly in the area of structured products, leading him to be a major contributor to the Finance Committee. After Mr. Rue, Mr. McClellan is the longest tenured director and has an extensive knowledge of our history and challenges. | J. Brian Thebault, 5759 | | • Chairman, Earth-Thebault, since 2007.
| | Independent Director, 1996 | | •· Partner, Thebault Associates, since 2007.1987.
| | | •· Chairman, Earth-Thebault, July 2007 to July 2009.
· Chairman and Chief Executive Officer, L.P. Thebault Company, 1998 to 2007; President and Chief Executive Officer, L.P. Thebault Company, 1984 to 1998. | | | •· Director, Curex Group Holdings LLC, since January 2010.
· Trustee, The Peck School, since 1994.1994 to 2010. | | | •· Trustee, The Delbarton School, 1990 to 2007.
| | | •· Graduate of University of Southern California (B.S.).
| | Discussion of individual experience, qualifications, attributes, and skills. | For most of his career, Mr. Thebault has run closely-held businesses, which is the structure of many of our commercial customers. Through his career in the printing industry, he has a strong background in sales, marketing, finance matters, and business strategy. |
CONTINUING DIRECTORS
| | | CLASS I | — | Directors Continuing in Office Until the 2010 Annual Meeting of Stockholders |
Page 12 | | | Name, Age, Year Elected To Board of Directors | | Occupation And Background | | W. Marston Becker, 56
Independent Director, 2006
| | • Chairman and CEO, Max Capital Group Ltd., since October 2006; Director, since 2004.
| | | • Chairman and General Partner of West Virginia Media Holdings, since 2001.
| | | • Chairman and CEO of LaSalle Re Holdings Ltd., 2002 to 2008.
| | | • Director, BrickStreet Mutual Insurance Company, since 2008.
| | | • Director, Dorado Insurance, Ltd., since 2007.
| | | • Director, Coal Contractors Insurance, Ltd., since 2002.
| | | • Chairman and Chief Executive Officer, Trenwick Group, Ltd., 2002 to 2005; Director, Trenwick Group, Ltd., 1997 to 2003.
| | | • Director, Mountain Companies, since 2007.
| | | • Director, Beazley Group plc, 2006 to 2008.
| | | • CEO, McDonough-Caperton Insurance Group, 1986 to 1994.
| | | • Advisory Board Member, Conning Funds, since 1997.
| | | • Advisory Board Member, American Securities Funds, since 1997.
| | | • Graduate of West Virginia University (B.S. and J.D.).
| | | | Gregory E. Murphy, 53
| | • Chairman, President and Chief Executive Officer of Selective, since May 2000.
| Employee Director, 1997 | | • President and Chief Executive Officer of Selective, May 1999 to May 2000.
| | | • President and Chief Operating Officer of Selective, 1997 to May 1999.
| | | • Other senior executive, management, and operational positions at Selective, since 1980.
| | | • Certified Public Accountant (New Jersey) (Inactive).
| | | • Director, Newton Memorial Hospital Foundation, Inc., since 1999.
| | | • Director, Property Casualty Insurers Association of America, since 2008.
| | | • Director, Insurance Information Institute, since 2000.
| | | • Trustee, the American Institute for CPCU (AICPCU) and the Insurance Institute of America (IIA), since 2001.
| | | • Graduate of Boston College (B.S. Accounting).
| | | • Harvard University (Advanced Management Program).
| | | • M.I.T. Sloan School of Management.
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| | | Name, Age, Year Elected To Board of Directors | | Occupation And Background | | William M. Rue, 61
| | • President, Rue Insurance, general insurance agency, since 1969.
| Non-Independent Director, 1977 | | • President, Rue Financial Services, Inc., since 2002.
| | | • Director, 1st Constitution Bank, since 1989, Secretary of the Board, since 2005.
| | | • Director, 1st Constitution Bancorp, since 1999, Secretary of the Board, since 2005.
| | | • Director, Robert Wood Johnson University Hospital at Hamilton, since 1994.
| | | • Trustee, Rider University, since 1993.
| | | • Director, Robert Wood Johnson University Hospital Foundation, since 1999.
| | | • Member, National Association of Securities Dealers.
| | | • Member, Council of Insurance Agents & Brokers.
| | | • Member, Society of CPCU.
| | | • Member, Professional Insurance Agents Association.
| | | • President, The Rue Foundation, since 2004.
| | | • Graduate of Rider College (B.A.).
|
| | | CLASS III | — | Directors Continuing in Office Until the 2011 Annual Meeting of Stockholders |
| | | Name, Age, Year Elected To Board of Directors | | Occupation And Background | | Paul D. Bauer, 65
| | • Retired financial executive.
| Independent Director, 1998 | | • Executive Vice President and Chief Financial Officer of Tops Markets, Inc., 1970 to 1993.
| | | • Director, Rosina Holdings Inc., since 2002.
| | | • Director, R.P. Adams Co., 1991 to 2004.
| | | • Director, IMC, Inc., 1995 to 2000.
| | | • Co-founder and President, Buffalo Inner-City Scholarship Opportunity Network, since 1995.
| | | • Trustee, Holy Angels Academy, since 2005.
| | | • Graduate of Boston College (B.S. Accounting).
| | | | John C. Burville, 61
| | • Insurance Consultant to the Bermuda Government, 2003 to 2007.
| Independent Director, 2006 | | • Bermuda Insurance Advisory Committee, 1985 to 2003.
| | | • Chief Actuary and Senior Rating Agency Manager of ACE Limited, 1992 to 2003.
| | | • Graduate of Leicester University in the United Kingdom (BSc and Ph.D.).
| | | • Fellow of the Institute of Actuaries.
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| | | Name, Age, Year Elected To Board of Directors | | Occupation And Background | | Joan M. Lamm-Tennant, 56
| | • Risk Strategist, Marsh & McLennan Companies, Inc., since Feb. 2009.
| Independent Director, 1993 | | • Global Chief Economist & Risk Strategist, Guy Carpenter & Company, LLC, since 2007.
| | | • Senior Vice President, General Re Corporation, 1997 to 2007.
| | | • Adjunct Professor, the Wharton School of the University of Pennsylvania, since 2006.
| | | • Professor of Finance, Villanova University, 1988 to 2000.
| | | • Director, IVANS, Inc., since 2004.
| | | • Member, American Risk and Insurance Association.
| | | • Member, International Insurance Society.
| | | • Member, Association for Investment Management and Research.
| | | • Graduate of St. Mary’s University (B.B.A. and M.B.A.).
| | | • Graduate of the University of Texas (Ph.D.).
| | | | Michael J. Morrissey, 61
| | • Chairman and Chief Executive Officer, Firemark Investments, since 1983.
| Independent Director, 2008 | | • Director, CGA Group, Ltd., since 1998.
| | | • President, Chief Operating Officer, Chief Investment Officer and Director, Manhattan Life Insurance Company, 1985 to 1987.
| | | • Chief Executive Officer, Manhattan Capital Management, 1985.
| | | • Senior Vice President, Crum & Forster Insurance Group, 1978 to 1983.
| | | • Chartered Financial Analyst.
| | | • Graduate of Boston College (B.A.).
| | | • Graduate of Dartmouth College (M.B.A.).
| | | | Ronald L. O’Kelley, 64
| | • President and Chief Executive Officer, U.S. Shipping Partners, L.P., since 2008.
| Independent Director, 2005 | | • Chairman and Chief Executive Officer, Atlantic Coast Venture Investments Inc., 2003 to 2008; Director, Atlantic Coast Venture Investments Inc., since 2003.
| | | • Executive Vice President, Chief Financial Officer and Treasurer, State Street Corporation, 1995 to 2002.
| | | • Director, U.S. Shipping Partners L.P., 2004 to 2008.
| | | • Director, Refco Inc., 2005 to 2006.
| | | • Advisory Director, Donald H. Jones Center for Entrepreneurship, Tepper School of Business, Carnegie Mellon University, since 2003.
| | | • Member, National Association of Corporate Directors.
| | | • Graduate of Duke University (A.B.).
| | | • Graduate of Carnegie Mellon University (M.B.A.).
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The following table shows as of February 28, 2009:2011: | | • | § | The number of shares of Selective common stock beneficially owned by each director, the Chairman of the Board, President and Chief Executive Officer (the “Chief Executive Officer” or “CEO”), the Chief Financial Officer, (the “CFO”), and the three most highly compensatedother named executive officers, other than the CEOas described in our Compensation Discussion and CFO (collectively, with the CEO and CFO, referred to as the “named executive officers”).Analysis on page 22. | |
| | • | § | The number of shares of Selective common stock beneficially owned by theour directors and executive officers of Selective as a group. |
| | | | | | | | | | | | | | | | | | | | | Number of Shares | | | | | | | | | | Options | | | | | | Name of Beneficial | | | | | | Exercisable Within | | Total Shares | | Percent of | | Owner | | Common Stock(1) | | 60 Days | | Beneficially Owned | | Class | | Bauer, Paul D. | | | 38,001 | | | | 51,544 | | | | 89,545 | | | | * | | | Becker, W. Marston | | | 12,225 | | | | 15,544 | | | | 27,769 | | | | * | | | Brown, A. David | | | 40,208 | | | | 45,544 | | | | 85,752 | | | | * | | | Burville, John C. | | | 7,813 | | | | 15,544 | | | | 23,357 | | | | * | | | Connell, Richard F. | | | 50,337 | | | | 17,184 | | | | 67,521 | | | | * | | | Guthrie, Kerry A. | | | 63,559 | (2) | | | 55,684 | | | | 119,243 | | | | * | | | Kearns, William M., Jr. | | | 201,579 | | | | 51,544 | | | | 253,123 | | | | * | | | Lamm-Tennant, Joan M. | | | 45,373 | | | | 51,544 | | | | 96,917 | | | | * | | | McClellan, S. Griffin, III | | | 40,825 | (3) | | | 27,544 | | | | 68,369 | | | | * | | | Morrissey, Michael J. | | | 1,045 | | | | 0 | | | | 1,045 | | | | * | | | Murphy, Gregory E. | | | 121,381 | | | | 70,002 | | | | 191,383 | | | | * | | | O’Kelley, Ronald L. | | | 15,326 | | | | 21,544 | | | | 36,870 | | | | * | | | Rue, William M. | | | 410,338 | (4) | | | 51,544 | | | | 461,882 | | | | 1 | % | | Thatcher, Dale A. | | | 53,494 | | | | 17,184 | | | | 70,678 | | | | * | | | Thebault, J. Brian | | | 52,825 | (5) | | | 51,544 | | | | 104,369 | | | | * | | | Zaleski, Ronald J., Sr. | | | 35,755 | | | | 41,176 | | | | 76,931 | | | | * | | | All directors and executive officers, as a group (20 persons) | | | 1,242,405 | | | | 600,457 | | | | 1,842,862 | | | | 3 | % |
Name of Beneficial Owner | Number of Shares | Percent of Class | Common Stock(1) | Options Exercisable Within 60 Days of February 28, 2011 | Total Shares Beneficially Owned | | Bauer, Paul D. | 48,893 | 54,156 | 103,049 | * | | Becker, W. Marston | 37,117(2) | 30,156 | 67,273 | * | | Brown, A. David | 40,762 | 54,156 | 94,918 | * | | Burville, John C. | 16,349 | 30,156 | 46,505 | * | | Connell, Richard F. | 50,601 | 27,602 | 78,203 | * | | Guthrie, Kerry A. | 35,183 | 31,779 | 66,962 | * | | Lamm-Tennant, Joan M. | 56,265 | 54,156 | 110,421 | * | | Lanza, Michael H. | 44,438 | 17,602 | 62,040 | * | | Marchioni, John J. | 55,800 | 17,692 | 73,492 | * | | McClellan, S. Griffin, III | 48,773 | 42,156 | 90,929 | * | | Morrissey, Michael J. | 8,923 | 14,612 | 23,535 | * | | Murphy, Gregory E. | 281,417 | 59,358 | 340,775 | 1% | | Nicholson, Cynthia S. | 5,911 | 0 | 5,911 | * | | O’Kelley, Ronald L. | 24,834 | 36,156 | 60,990 | * | | Rue, William M. | 420,499(3) | 54,156 | 474,655 | 1% | | Thatcher, Dale A. | 96,391 | 27,602 | 123,993 | * | | Thebault, J. Brian | 64,316(4) | 54,156 | 118,472 | * | All directors and executive officers, as a group (18 persons) | 1,393,739 | 627,612 | 2,021,351 | 4% |
* Less than 1% of the common stock outstanding. (1) Certain directors and executive officers hold Selective stock in margin accounts, but no director or officer has Selective common stock pledged for a loan or stock purchase. (2) Includes 4,000 shares held by Becker Family LP. (3) Includes: (i) 36,927 shares held by Chas. E. Rue & Sons, Inc. t/a Rue Insurance (“Rue Insurance”), a general insurance agency of which Mr. Rue is President and owner of more than a 10% equity interest (see page 14 of this Proxy Statement for more information); and (ii) 1,980 shares held by Mr. Rue’s wife. (4) Includes: (i) 10,841 shares held by a grantor retained annuity trust; (ii) 232 shares held in custody for, and 333 shares held by, Mr. Thebault’s son; (iii) 232 shares held in custody for, and 221 shares held by, a daughter of Mr. Thebault; (iv) 224 shares held in custody for, and 101 shares held by, a second daughter of Mr. Thebault; and (v) 101 shares held in custody for a third daughter of Mr. Thebault. | | | * | | Less than 1% of the common stock outstanding. | | (1) | | Certain directors and executive officers hold Selective stock in margin accounts but, except as set forth in the footnotes to this table, no director or officer has pledged Selective stock for a loan or stock purchase. | | (2) | | 5,196 of the shares held by Kerry A. Guthrie, Selective’s Executive Vice President and Chief Investment Officer, were pledged as collateral for a loan made by Selective to purchase Selective common stock in 1998, which loan is grandfathered under the Sarbanes-Oxley Act of 2002 and was authorized by the Board of Directors to encourage Selective stock ownership. This loan was repaid in full as of March 6, 2009. | | (3) | | Includes 4,000 shares held by Mr. McClellan’s wife, for which Mr. McClellan disclaims beneficial ownership. | | (4) | | Includes: (i) 34,727 shares held by Chas. E. Rue & Sons, Inc. t/a Rue Insurance (“Rue Insurance”), a general insurance agency of which Mr. Rue is President and owner of more than a 10% equity interest (see page 11 of this Proxy Statement for more information); and (ii) 1,980 shares held by Mr. Rue’s wife. | | (5) | | Includes: (i) 217 shares held in custody for and 213 shares held by Mr. Thebault’s son; (ii) 217 shares held in custody for and 207 shares held by a daughter of Mr. Thebault; and (iii) 210 shares held in custody for another daughter of Mr. Thebault. |
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The following table lists the only persons or groups known to Selective to be the beneficial ownerowners of more than 5% of any class of Selective’s voting securities as of December 31, 2008,2010, based on Schedules 13G filed by the beneficial owners on February 9, 200911, 2011, February 8, 2011, and February 5, 2009,10, 2011, respectively, with the SEC. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amount & Nature of | | | Percentage of | | Title of Class | | | Name & Address of Beneficial Owner | Amount & Nature of Beneficial Ownership | | Beneficial Ownership | | | Percentage of Class | | | | | | | | | | | | | Common Stock | | | Dimensional Fund Advisors LP | | | 4,480,467 shares | | | | 8.49 | % | | | | | Palisades West, Building One | | | of common stock | | | | | | | | | | 6300 Bee Cave Road | | | | | | | | | | | | | | | Austin, TX 78746 | 4,486,874 shares of common stock | | | | | | | | | 8.38% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stock | BlackRock, Inc. 40 East 52nd Street New York, NY 10022 | | Barclays Global Investors, NA and Affiliates | | | 3,593,3184,456,239 shares | | | | 6.81 | % | | | | | 400 Howard Street | | | of common stock | | | | | 8.33% | | Common Stock | T. Rowe Price Associates, Inc. 100 E. Pratt Street Baltimore, MD 21202 | 2,833,078 shares of common stock | | San Francisco, CA 94105 | | | | | | | | | | | | | | | | | | | | | 5.2% |
Information regarding Executive Officers is incorporated by reference to the section entitled “Executive Officers of the Registrant” in Part I, Item 1. BusinessBusiness. of Selective’s Annual Report on Form 10-K for the year ended December 31, 2008.2010. Transactions with Related Persons
William M. Rue, a Selective director,Director. Mr. Rue is President and owns more than 10% of the equity of Rue Insurance, a general independent insurance agency. Rue Insurance ishas been an appointed independent agent of Selective’s insurance subsidiaries since 1928 and Selective HR Solutions, Inc., Selective’s human resources administration subsidiary (together with its subsidiaries, “Selective HR Solutions”),expects that relationship to continue in 2011. The appointment of Rue Insurance as an independent agent was made on similar terms and conditions similar to those ofas other Selective agents includingand includes the right to participate in the Amended and Restated Selective Insurance Group, Inc. Stock Purchase Plan for Independent Insurance Agencies.Agencies (2010). In 2010, Rue Insurance also places insurance for Selective’s business operations. Selective’s relationship with Rue Insurance has existed since 1928 and Selective expects that its relationship with Rue Insurance will continue in 2009. In 2008:Insurance: | | •· | | Rue Insurance placedPlaced insurance policies with Selective’s insurance subsidiaries. Direct premiums written associated with these polices was $8.3$7.2 million in 2008, $9.9 million in 2007, and $9.5 million in 2006.2010. In return, Selective’s insurance subsidiaries paid commissions to Rue Insurance of $1.7 million in 2008 and 2007, and $1.9 million in 2006.$1.3 million. | |
| | •· | | Rue Insurance placed human resource outsourcing contracts with Selective HR Solutions resulting in revenues to Selective HR Solutions of approximately $79,000 in 2008, $69,000 in 2007, and $62,000 in 2006. In return, Selective HR Solutions paid commissions to Rue Insurance of $12,000 in 2008, $15,000 in 2007, and $14,000 in 2006. | | | • | | Rue Insurance placedPlaced insurance coverage for Selective with non-Selective insurance companies for which Rue Insurance was paid commission pursuant to its agreements with those carriers. Selective paid premiums for such insurance coverage of $0.5$0.3 million in 2008, $0.5 million in 2007, and $0.5 million in 2006. | | | • | | Selective paid reinsurance commissions of $0.2 million in 2008, 2007, and 2006 to PL, LLC. PL, LLC is an insurance fund administrator of which Rue Insurance owns 33.33% and which places reinsurance through a Selective insurance subsidiary.2010. |
The son of S. Griffin McClellan III, a Selective director, Samuel G. McClellan IV, was an Assistant Vice President of Selective’s insurance subsidiaries through January 16, 2009. In 2008, Mr. McClellan IV received $139,740 in cash compensation, primarily comprised of salary and an annual cash incentive payment. He also received long-term incentive awards, consistent with awards granted to other Selective employees. Mr. McClellan IV’s compensation was determined in accordance with the standard employee compensation practices of Selective Insurance Company of America (“SICA”). Mr. McClellan III is not currently a member of the Audit Committee, the Corporate Governance and Nominating Committee, or the Salary and Employee Benefits Committee.
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The daughter of Gregory E. Murphy, the Chairman, President and Chief Executive Officer of Selective,CEO. Kelly Murphy, ACAS, isSalmon, FCAS, Mr. Murphy’s daughter, was employed through September 3, 2010 as an actuarial analyst by Guy Carpenter & Company, LLC (“Guy Carpenter”), one of Selective’sour reinsurance brokers. Guy Carpenter receives commissions from Selective’sour reinsurers for business that Guy Carpenter places on our behalf with such reinsurers on Selective’s behalf. Mr. Murphy’s daughter has no involvementreinsurers. Ms. Salmon was not involved in the reinsurance brokering relationship between Selectiveus and Guy Carpenter.
In 2008,
The Selective Group Foundation, a private foundation Selective established by Selective under Section 501(c)(3) of the Internal Revenue Code (the “Selective Foundation”), made approximately $97,500 in. The Selective Foundation makes grants to charitable organizations in accordance with its By-Laws and funding guidelines, which guidelines are available at www.selective.com. In 2010, the Newton Memorial HospitalSelective Foundation (“NMHF”), a charitable organization affiliatedmade grants in excess of $20,000 in the following amounts to the following organizations with Newton Memorial Hospital (“NMH”). Both NMH and NMHFties to Selective, all of which are located in Sussex County, New Jersey, where Selective is headquartered. At the endheadquartered and a large percentage of 2008,its headquarter-based employees live:
| · | $75,000 in grants to The Newton Memorial Hospital Foundation (“NMHF”), a charitable organization affiliated with Newton Memorial Hospital. Mr. Murphy serves on the Board of Trustees of NMHF. At the end of 2009, there were outstanding annually renewable pledges to NMHF totaling $150,000. |
| · | $50,000 in grants to Project Self-Sufficiency of Sussex County (“PSS”), a non-profit, community-based organization dedicated to empowering low-income adults and their children to achieve personal and economic self-sufficiency. Susan Murphy, Mr. Murphy’s wife, serves on the PSS Board of Directors. |
| · | $25,000 in grants to the United Way of Sussex County. Richard F. Connell, Senior Executive Vice President and Chief Administrative Officer of Selective, and Steven B. Woods, Executive Vice President of Selective Insurance Company of America (“SICA”), the lead insurance subsidiary of Selective, each served as a member of the Board of Trustees of the United Way of Sussex County. |
In 2010, SICA also provided corporate sponsorship payments totaling $300,000$4,700 to NMHF. Mr. Murphy serves on the Board of Directors of NMHF. In 2008, the Selective Foundation also made $132,500 in grantsNMHF and $10,000 to Project Self-Sufficiency of Sussex County (“PSS”), a non-profit, community-based organization dedicated to empowering low-income adults and their children to achieve personal and economic self-sufficiency. At the end of 2008, there were outstanding annually renewable pledges totaling $45,000 to PSS. Susan Murphy, Mr. Murphy’s wife, serves on the Board of Directors of PSS. In 2008, the Selective Foundation made a grant to the Morristown Memorial Heart Center of $20,000. At the end of 2008, there were outstanding renewal pledges totaling $60,000 to the Morristown Memorial Health Foundation. Mr. Kearns, Lead Independent Director, is a member of the Oncology Philanthropic Leadership Council, Carol G. Simon Cancer Center, Morristown Memorial Health Foundation. In 2008, the Selective Foundation made approximately $25,000 in grants to the United Way of Sussex County. Richard F. Connell, Senior Executive Vice President and Chief Administrative Officer of Selective, is a member of the Board of Trustees of the United Way of Sussex County. From time to time, the Selective Foundation makes grants to these and other charitable organizations in accordance with the Selective Foundation’s By-laws.
Review, Approval, or Ratification of Transactions with Related Persons Selective’s Board of Directors adopted
Selective has a written Related Person Transactions Policy and Procedures (the “Related Person Policy”) on January 30, 2007. .
The Related Person Policy defines “Related Person Transactions” as any transaction, arrangement or relationship in which Selective or its subsidiaries was, is, or will be a participant and the amount involved exceeds $20,000, and in which any “Related Person” had, has, or will have a direct or indirect interest. A “Related Person” under the Related Person Policy is generallygenerally: (i) any director, executive officer, or nominee to become director of Selective or an immediate family member of such person; (ii) a beneficial owner of more than 5% of Selective’s common stock or an immediate family member of such beneficial owner; and (iii) any firm, corporation, or other entity in which any person included in (i) or (ii) is employed or is a general partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest.
Under the Related Person Policy, “Related Person Transactions” must be approved by the Audit Committee (or Chair of the Committee if between meetings). The must approve “Related Person Transactions.” In its review, the Audit Committee considers all of theavailable relevant facts and circumstances of the proposed transaction, available to it, includingincluding: (i) the benefits to Selective; (ii) the impact on a director’s independence; (iii) the availability of other sources for comparable products and services; (iv) the terms of the transaction; and (v) the terms available to unrelated third parties or to employees generally. No member of the Audit Committee member may participate in any review, consideration, or approval of any Related Person Transaction with respect toin which such memberdirector or any of his or her immediate family members is the Related Person. The Audit Committee only approves those Related Person Transactions that it considers are in, or are not inconsistent with, the best interests of Selective and its stockholders. Prior to the adoption of the Related Person Policy, Related Person Transactions, including those described above, were reported to, and considered by, the Board of Directors pursuant to Selective’s Conflict of Interest Policy. Page 12
Director Independence
The Board of Directors has determined that all directors except Messrs. Murphy and Rue, are independent as defined by the applicable NASDAQ and SEC rules and regulations.regulations – except Messrs. Murphy and Rue. In making its determination, the Board considered various transactions, relationships, or arrangements that relate to the Directors. The Board determined that the employment of Mr. McClellan’s son by SICA through January 16, 2009 did not affect Mr. McClellan’s independence under applicable NASDAQ and SEC rules and regulations. For a description of the transactions, relationships, or arrangements related to Messrs.Mr. Rue, and McClellan, see the section entitled “Transactions with Related Persons” beginning on page 11.14.
In May 2007, Ms. Lamm-Tennant, a member of the Finance Committee, was appointed Global Chief Economist & Risk Strategist of Guy Carpenter, a subsidiary of Marsh & McLennan Companies, Inc. (“Marsh & McLennan”Marsh”). From February 2009 through January 2011, Ms. Lamm-Tennant served as Vice President of Marsh. The Board reviewed the material terms of the broker service agreement withbetween Selective’s insurance subsidiaries and Guy Carpenter under which the company’s insurance subsidiaries placed reinsurance through Guy Carpenter, for whichis placed. In 2010, Guy Carpenter earned approximately $1.38$1.5 million on our reinsurance placements and had total revenues of approximately $975 million. Guy Carpenter’s total revenue for 2008 was approximately $803 million and, as such,Accordingly, the transactions with Selective companies wereus represented less than 0.2%0.15% of Guy Carpenter’s 2010 total revenue for the year. In February 2009, Ms. Lamm-Tennant was appointed Risk Strategist of Marsh & McLennan. Selective and its subsidiaries, from time to time,revenue. We occasionally use the services of certainMarsh subsidiaries of Marsh & McLennan.other than Guy Carpenter. In 2008,2010, we made aggregate payments in connection with such services weretotaling less than $100,000. As$10,000 to those other Marsh subsidiaries. As: (i) Ms. Lamm-Tennant is not a reinsurance broker and had no involvement in these transactions; (ii) Guy Carpenter and Marsh have established an internal segregation to separate Ms. Lamm-Tennant from knowledge of specific transactions involving us; and (iii) the amount of therevenue from such transactions is immaterial to the business of Guy Carpenter and Marsh, & McLennan, the Board determined that these transactions do not affect theMs. Lamm-Tennant’s independence of Ms. Lamm-Tennant under applicable NASDAQ and SEC rules and regulations. Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires Selective’s directors and executive officers, and persons who beneficially own more than 10% of a registered class of Selective’s equity securities, to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of Selective’s equity securities.securities with the SEC. Such executive officers, directors, and greater than 10% stockholders are required by SEC regulationregulations to furnish Selective with copies of all of the Section 16(a) Exchange Act reports that they file. Other than as set forth above, based solely on its review of the copies of Forms 3, 4, and 5 or written representations from certain reporting persons that no Forms 5 were required for those persons, Selective believes that all reporting requirements under Section 16(a) for the fiscal year ended December 31, 2008,2010, were met in a timely manner by its directors, executive officers, and greater than 10% beneficial owners.
Corporate Governance Guidelines Selective has established Corporate Governance Guidelines that are available for review in the Corporate Governance subsection of the Investor Relations section of Selective’s website, www.selective.com.www.selective.com. These guidelines provide for the election of a Lead Independent Director, who supervises meetings of Selective’s independent directors that occur at least semi-annually. Mr. KearnsA. David Brown is presently the Lead Independent Director. The Board intends to elect a new Lead Independent Director effective upon Mr. Kearns’ retirement. In 2008,2010, Selective’s independent directors met four (4)three times outside the presence of management.
All of the members of the Audit Committee, the Corporate Governance and Nominating Committee, and the Salary and Employee Benefits Committee are independent directors as defined by NASDAQ and SEC rules and regulations.
Majority Voting for Directors in Uncontested Elections
Continuing our effort to adopt corporate governance “best practices,” Selective’s Board of Directors approved an amendment to Selective’s By-Laws on December 3, 2010 to adopt a majority voting policy for uncontested elections of directors. In accordance with our By-Laws, unless the Corporate Secretary determines that the number of nominees exceeds the number of directors to be elected, a nominee must receive more votes cast “for” than “against” to be elected or re-elected to the Board. Any nominee who receives fewer “for” votes than “against” votes must tender his or her resignation to the Chairman of the Board within five days following certification of the meeting’s election results. Within 45 days after the meeting, the Corporate Governance and Nominating Committee will make a recommendation to the Board regarding whether to accept the director’s resignation. The Corporate Governance and Nominating Committee, in making its recommendation to the Board, may consider any factors they deem relevant. The Corporate Governance and Nominating Committee, as it deems appropriate, may consider a range of possible alternatives concerning the director’s tendered resignation. Any director who fails to receive a majority of votes cast and tenders resignation pursuant to this requirement may not participate in the deliberations of the Corporate Governance and Nominating Committee or the Board related to the decision to accept the offer of resignation.
Within 90 days after the stockholders’ meeting, the Board of Directors shall formally act on the Corporate Governance and Nominating Committee’s recommendation and, in a Form 8-K filed with the SEC within four business days of such decision, disclose its decision to accept or reject the directors’ resignation and the rationale and process for such decision. If every member of the Corporate Governance and
Nominating Committee fails to receive a majority vote in favor of election at the same stockholders’ meeting, then those independent directors who received a majority vote, and any independent directors who did not stand for election, will appoint from amongst themselves an ad hoc Board committee to consider the resignation offers and recommend to the Board whether it should accept them. In such a situation, if fewer than three directors would be on such an ad hoc committee, the entire Board (other than the individual director whose resignation is being considered) will make the determination to accept or reject the director’s resignation.
The Board of Directors held eight (8)seven meetings in 2008.2010. All directors attended 75% or more of the aggregate of the meetings of the Board of Directors and thetheir respective committees of which they were members in 2008.2010. It is Selective’s policy that all directors are expected to attend the Annual Meeting, and all attended the 2008 Annual Meeting, except for former director John F. Rockart, who was absent due to illness.directors did so in 2010. The Board has five (5) standing committees: | | • | · | Corporate Governance and Nominating Committee; | |
| | • | · | Salary and Employee Benefits Committee. |
Audit Committee
The following table provides information on the composition and activitieseach of the Audit Committee:five committees:
| | Audit Committee | Written Charter is available onin the Corporate Governance subsection of the Investor Relations section of www.selective.com | | 20082010 Meetings: 65 | | | |
Responsibilities: • | | · Oversee the accounting and financial reporting processes and the audits of the financial statements. |
• | | · Review and discuss with Selective’s management and independent auditors Selective’s financial reports and other financial information provided to the public and filed with the SEC. |
• | | · Monitor the activities of Selective’s Internal Audit Department and the appointment, replacement, reassignment, or dismissal of the Director of Internal Audit. |
• | | · Monitor Selective’s internal controls regarding finance, accounting, and legal compliance. |
• | | · Discuss significant financial risk exposures and the steps management has taken to monitor, control, and report such exposures. |
• | | · Appoint Selective’s independent registered public accountantsaccounting firm and supervise the relationship between Selective and its independent auditors, including reviewing their performance, making decisions with respect to their compensation, retention and removal, reviewing and approving in advance their audit services and permitted non-audit services, and confirming the independence of the independent auditors. |
| | | | Director Members: | | Independent | Paul D. Bauer, Chairperson and Designateddesignated Audit Committee Financial Expertfinancial expert under SEC Safe Harbor | safe harbor | Yes | Joan M. Lamm-Tennant | John C. Burville | Yes | | Michael J. Morrissey | Yes | | Ronald L. O’Kelley | | Yes | | J. Brian Thebault | | Yes |
Corporate Governance and Nominating Committee
The following table provides information on the composition and activities of the Corporate Governance and Nominating Committee:
| | Corporate Governance and Nominating Committee | Written Charter is available onin the Corporate Governance subsection of the Investor Relations section of www.selective.com | | 20082010 Meetings: 45* *Includes a joint meeting with the Salary and Employee Benefits Committee | | | |
Responsibilities:Responsibilities: • | | · Establish criteria for the selection of directors and identify and recommend to the Board the nominees for director. |
• | | · Review and assess Selective’s Corporate Governance Guidelines and recommend any changes to the Board. |
• | | · Recommend to the Board the directors to serve on the various Board committees and as chairpersons of the respective committees. |
• | | · Advise the Board with respect to Board composition, procedures, and committees. |
• | | · Review and update Selective’s Code of Conduct and review conflicts of interest or other issues that may arise under the Code of Conduct involving Selective’s officers or directors. |
• | | · Oversee the self-evaluations of the Board and each committee of the Board. |
• | | · Review, jointly with the Salary and Employee Benefits Committee, CEO and executive staff succession planning and professional development. |
| | · Make a recommendation to the Board in respect of a director that receives fewer “for” than “against” votes in an uncontested election of directors as to whether to accept the resignation of such director. | | Director Members: | | Independent | A. David Brown,W. Marston Becker, Chairperson | | Yes | W. Marston Becker | A. David Brown | Yes | William M. Kearns, Jr.S. Griffin McClellan III | Yes | | Cynthia S. Nicholson | Yes |
Nomination and Review of Director Candidates
The Corporate Governance and Nominating Committee reviews candidates for possible nomination and election to the Board of Directors from any source, including:
Directors and management;
Third party search firms that it may engage from time-to-time; and
Regardless of source, the Corporate Governance and Nominating Committee evaluates all candidates on the same bases and standards, including:
Personal and professional ethics, integrity, character, and values;
Professional and personal experience;
Subject matter expertise;
Insurance industry knowledge;
Willingness to dedicate and devote sufficient time to Board duties and activities;
Potential or actual conflicts of interest; and
Other appropriate and relevant factors, including the qualification and skills of the current members of the Board.
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Stockholders proposing candidates for consideration by the Corporate Governance and Nominating Committee must submit all information relating to such candidates as 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 in writing as follows:
Chairman of the Corporate Governance and Nominating Committee
c/o Corporate Secretary of Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, NJ 07890
Executive Committee
The following table provides information on the composition and activities of the Executive Committee:
Responsibilities: •Executive Committee | | No Charter. Responsibilities defined in By-Laws. | 2010 Meetings: 0 | Responsibilities: · Authorized by By-lawsBy-Laws to exercise the Board of Directors’ powers and authority in the management of Selective’s business and affairs between Board meetings. | | • | | · Has the right and authority to exercise all the powers of the Board of Directors on all matters brought before it, except with respect to matters concerning Selective’s investments. |
investments or as prohibited by law. | | | | Director Members: | | | | Gregory E. Murphy, Chairperson | | William M. Kearns, Jr., Lead DirectorA. David Brown | | Paul D. Bauer | | William M. Rue | A. David Brown | W. Marston Becker | J. Brian Thebault |
Finance CommitteeThe following table provides information on the composition and activities of the Finance Committee:Page 18
| | Finance Committee | Written Charter is available onin the Corporate Governance subsection of the Investor Relations section of www.selective.com | | 20082010 Meetings: 54 |
Responsibilities: • | | · Review and approve changes to Selective’s investment policies, strategies, and programs. | | • | | · Review investment transactions made on behalf of Selective and review the performance of Selective’s investment portfolio. | | • | | · Review matters relating to the investment portfolios of the benefit plans of Selective and its subsidiaries, including the administration and performance of such portfolios. | | • | | · Appoint members of Selective’s Management Investment Committee. | | • | | · Review and make recommendations to the Board regarding payment of dividends. | | • | | · Review Selective’s capital structure and provide recommendations to the Board regarding financial policies and matters of corporate finance. |
| | | | | Director Members: | | | | | William M. Rue, Chairperson | | | S. Griffin McClellan III | | W. Marston Becker | | | Michael J. Morrissey | WilliamJoan M. Kearns, Jr. | | Lamm-Tennant | Ronald L. O’Kelley | Joan M. Lamm-Tennant | | | |
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Salary and Employee Benefits Committee
The following table provides information on the composition and activities of the Salary and Employee Benefits Committee:
| | Salary and Employee Benefits Committee | Written Charter is available onin the Corporate Governance subsection of the Investor Relations section of www.selective.com | | 20082010 Meetings: 87* *Includes a joint meeting with the Corporate Governance and Nominating Committee | | | |
Responsibilities: • | | · Oversee, review, and administer all compensation, equity, and employee benefit plans and programs related to Selective’s and its subsidiaries’ employees and management. | | • | | · Review annually and approve corporate goals and objectives relevant to executive compensation and evaluate performance in light of those goals. | | • | | · Review annually and approve Selective’s compensation strategy for employees. | | • | | · Review annually and determine the individual elements of total compensation of the CEO and other members of Senior Management. | | • | | senior management. · Review, jointly with the Corporate Governance and Nominating Committee, CEO and executive staff succession planning and professional development. · Review and approve compensation for non-employee directors. |
| | | | Director Members: | | Independent | | J. Brian Thebault, Chairperson | Yes | | Paul D. Bauer | Yes | Paul D. Bauer | A. David Brown | Yes | | John C. Burville | | Yes | Michael J. Morrissey | Cynthia S. Nicholson | Yes |
Board Leadership Structure Gregory E. Murphy, our Chief Executive Officer, has served as Chairman of the Board since April 2000. Since July 2004, we have had a Lead Independent Director and our Corporate Governance Guidelines provide that the Board will designate a Lead Independent Director. A. David Brown has served as the Lead Independent Director since April 2009. The Lead Independent Director is responsible for coordinating the activities of the independent directors and performing various other duties. The Lead Independent Director’s general authority and responsibilities are as follows: | · | Presiding at all meetings of independent directors, as appropriate, and providing prompt feedback to the Chairman, President and CEO. |
| · | Serving as point of contact for Board members to raise issues that they may not be able to readily address with the Chairman, President and CEO. |
| · | Ensuring that matters of importance to the Directors are placed on the Board’s meeting agendas. |
| · | Ensuring that the Chairman, President and CEO understand the Board’s views on all critical matters. |
| · | Ensuring that the Board understands the Chairman, President and CEO’s views on all critical matters. |
| · | Calling executive sessions of the independent directors and serving as chairman of such meetings. |
The defined role of Selective’s Lead Independent Director is very similar to the role of an independent non-executive Chairman. We believe that our current Board leadership structure provides effective oversight of management and strong leadership of the independent directors. In addition, the Corporate Governance and Nominating Committee, of which Mr. Brown is a member, conducts annual self-assessments of the Board and its various committees to evaluate their effectiveness. At this time, we believe there is a benefit to having Mr. Murphy serve as both Chairman of the Board and Chief Executive Officer. As the individual with primary responsibility for managing our day-to-day operations, he is best positioned to chair regular Board meetings and to ensure that key business issues and risks are brought to our Board or the appropriate committee’s attention.
Enterprise Risk Management
Our Board oversees our overall enterprise risk management process, which follows, among other things, the Enterprise Risk Management – Integrated Framework of the Treadway Commission of the Committee of Sponsoring Organizations (COSO). We began our formal enterprise risk management process approximately nine years ago. The key components of our enterprise risk management process include identification and measurement, reporting, and monitoring of major risks, and the development of appropriate responses.
In addition to the Board’s oversight of overall risk and the enterprise risk management process, various committees of the Board oversee risks specific to their areas of supervision and report their activities and findings to the Board: | · | The Audit Committee, to operational, financial, and compliance risks; |
| · | The Corporate Governance and Nominating Committee, to governance and certain compliance risk; |
| · | The Finance Committee, to investment risk and associated financial risk; and |
| · | The Salary and Employee Benefits Committee, to employee, human capital, and compensation strategy risk. |
The Chief Executive Officer, who continues to be the executive responsible for risk, and the Executive Risk Committee together are responsible for the holistic evaluation and supervision of our major risks. The Executive Risk Committee primarily consists of the Chief Executive Officer and his direct reports, each of whom is responsible for management of risk in his respective area, and an enterprise risk management officer who reports to the Chief Financial Officer. The Executive Risk Committee meets at least quarterly and provides a structured forum for the discussion of Selective’s major risks. The enterprise risk management officer reports the analysis and findings of the Executive Risk Committee to the Board or the appropriate Board committee along with a quarterly update of certain risk metrics.
In overseeing the analysis and management of risk, the Board regularly receives, analyzes, and makes due inquiry regarding reports from its various committees and management regarding risk. We believe our Board’s leadership structure, with a Lead Independent Director, supports the Board’s ability to effectively evaluate and manage risk.
Compensation Risk Assessment
We do not believe that risks arising from our compensation policies and practices are reasonably likely to have a material adverse effect on our operations or results. To make this determination, we conducted an internal risk assessment of our compensation policies and programs. In performing the risk assessment, we considered that we operate in an industry based almost entirely on managing risk, and we believe that our risk management function is robust. We also analyzed the issues set forth in the proxy disclosure rules and gave close consideration to the following points:
| · | The compensation policies and practices for employees of both of our operating units are similar and neither operating unit carries a disproportionate portion of our corporate risk profile. For example, our Insurance Operations segment, which sells property and casualty insurance products, is subject to, among other things, risks related to significant competition and extensive losses from catastrophic events and acts of terrorism, while our Investment Operations segment, which invests premiums collected by the Insurance Operations segment, is subject to, among other things, global economic risks and risks inherent in the equity markets; and |
| · | Our compensation policies are consistent with our overall risk structure and a substantial portion of compensation is awarded on the accomplishment of business objectives that are measured over a significant period of time. |
We also considered our overall compensation program, including:
| · | The features of our compensation program and whether those features align with our compensation philosophy; |
| · | The compensation program has multiple financial and strategic measures that balance profitability and growth. Our financial goals are based on a statutory combined ratio, which is a standard insurance industry standard of profitability, and our strategic goals are based on, among other things, pricing, retention, and profitability of business, that are intended to incentivize profitable growth; |
| · | The maximum potential payments under our compensation plans; |
| · | The mix of fixed versus variable compensation; |
| · | The balance between cash and equity compensation; |
| · | The ratio of compensation based on long-term versus short-term performance metrics; and |
| · | The timing of equity award grants and vesting. |
We also considered that we adjust our compensation programs from time-to-time as risks in its industry and operating segments change to help ensure that compensation and risk remain appropriately aligned.
Finally, we reviewed our various risk mitigation strategies in the compensation context including:
| · | The stock ownership requirements for management; |
| · | The independent oversight of compensation programs by the Salary and Employee Benefits Committee of the Board, including oversight of goals and performance measures; and |
| · | The Board’s role in risk oversight, which includes receiving, analyzing and making due inquiry regarding reports from its various committees, including the Salary and Employee Benefits Committee and Management’s Executive Risk Committee, regarding risk. |
Stockholders so desiring may send communications to the Board of Directors or individual directors in writing c/o Corporate Secretary, Selective Insurance Group, Inc., 40 Wantage Avenue, Branchville, NJ 07890 or by e-mail to corporate.governance@selective.com.corporate.governance@selective.com. The Board has instructed the Corporate Secretary to use discretion in forwarding unsolicited advertisements, invitations to conferences, or other promotional material.
Selective has adopted a Code of Conduct which sets forth thestating business ethics guiding principles of business ethics for all Selective personnel, including executive officers. The Code of Conduct can be found underin the Corporate Governance subsection of the Investor Relations section of Selective’s website, www.selective.com.www.selective.com. Any amendment to or waiver from the provisions of the Code of Conduct that applies to Selective’s senior executive officers will be posted to Selective’s website, www.selective.com. Page 17
EXECUTIVE SUMMARY
Purpose of Compensation Discussion and Analysis Philosophy of our
This Compensation Discussion and Analysis provides information about the 2010 compensation program for the following continuing named executive officers (“NEOs”): | · | Gregory E. Murphy, Chairman, President and Chief Executive Officer (“CEO”); |
| · | Dale A. Thatcher; Executive Vice President and Chief Financial Officer; |
| · | Richard F. Connell, Senior Executive Vice President and Chief Administrative Officer; |
| · | Michael H. Lanza, Executive Vice President, General Counsel and Chief Compliance Officer; and |
| · | John J. Marchioni, Executive Vice President, Insurance Operations. |
As required by proxy disclosure rules, we have also included information for an additional NEO, Kerry A. Guthrie, former Executive Compensation ProgramVice President and Chief Investment Officer, who left Selective on April 2, 2010. 2010 Corporate Performance Highlights The challenges posed by the highly competitive commercial lines market place, coupled with the ongoing economic recession, created a difficult business environment for the insurance industry in 2010. Despite these challenges, we made progress on a number of fronts that have set the stage for future performance. Specifically: | · | We met our statutory combined ratio2 expectations for 2010 in spite of a significant and unusual number of micro-catastrophes and higher-than-expected commercial lines return audit and endorsement premiums; |
| · | We were one of the only carriers to drive and achieve commercial lines renewal rate increases; |
| · | We made significant investments in our Insurance Operations for long-term efficiency and profitability, including: |
| o | We developed and began implementation of the second generation of commercial lines underwriting predictive models; |
| o | We continued to increase our underwriting appetite by adding new products to provide greater opportunity for our agency force to place more business with us; and |
| o | We embarked on initiatives in our claims organization that we expect to reduce loss costs going forward; and |
| · | We outsourced our Investment Operations to take advantage of the broader sector and security expertise offered by external investment managers. |
In 2010, our A+ financial strength rating from A.M. Best Company (“A.M. Best”), a worldwide insurance rating company, was affirmed for the 49th consecutive year, and our surplus increased to $1.1 billion. In its affirmation notification, A.M. Best cited, among other things, our “experienced management team, disciplined underwriting focus and growing use of sophisticated predictive analytic modeling tools.” Our long-term perspective lets us address immediate challenges while focusing on major business decisions that best position us for long-term success. We believe this forward-looking view will consistently benefit our stockholders, policyholders, agents, and employees. 2010 Compensation Actions Our financial and operational results improved in 2010 from 2009 and we had a 14% total shareholder return (“TSR”). In balancing these results with general economic conditions, the Salary and Employee Benefits Committee (“SEBC”) of Selective’s Board of Directors oversees executive compensation. Selective seeks to attract and retain talented and qualified executives by paying compensation that is generally targeted at the 50th percentile or greater of compensation paid by comparable companies in the property and casualty insurance industry. Our compensation programs are designed to motivate executives to achieve our corporate objectives and increase shareholder value. Accordingly, we tie our annual incentive awards to pre-determined strategic and financial business objectives and individual objectives, and we align our long-term compensation to the generation of long-term stockholder value over time. The SEBC retains an outside executive compensation consultant (the “Compensation Consultant”) whose representative attends SEBC meetings as requested, reviews senior executive compensation, prepares comprehensive competitive compensation analyses for Selective’s named executive officers, and makes recommendations regarding the components of compensation, amounts allocated to those components, and the total compensation opportunities for the CEO and the other named executive officers. In April 2007, the SEBC engaged EXEQUITY, LLP (“EXEQUITY”) as the Compensation Consultant, and entered into an agreement with EXEQUITY. For 2008, amounts incurred for EXEQUITY’s executive compensation consulting services were $33,563.31.
Design Considerations of the Executive Compensation Program
Our executive compensation program consists ofmade the following key elements:compensation decisions in 2010:
| | •· | | Base salary; | | | • | | Annual cash incentive payments; | | | • | | Long-term incentive awards in the form of stock options, performance-based restricted stock units, and performance-based cash incentive units; and | | | • | | Retirement and deferred compensation plans.CEO: |
Each of the above elements was selected to respond to the market-based realities of attracting and retaining quality executives and to align executives’ efforts and results with the interests of Selective’s stockholders.
When making compensation decisions, the SEBC believes that it is important to be informed on compensation practices at publicly traded companies, in general, and property and casualty insurance holding companies, in particular. Accordingly, the Compensation Consultant performs an annual analysis of compensation paid to our named executive officers. This analysis compares base salary, annual cash incentives, total cash compensation, long-term incentives, and total compensation paid by Selective against various external benchmark groups. For our named executive officers other than our Chief Investment Officer and Chief Actuary, the Compensation Consultant utilizes the Market/Product Group, Size Group and the Property & Casualty Insurance Compensation Survey (the “PCICS”). For our Chief Investment Officer, market data is analyzed from both the PCICS and the McLagan Partners Investment Management Survey (the “McLagan Survey”), a recognized source for pay data for investment professionals. For our Chief Actuary, the Compensation Consultant utilizes the ClearSolutionsHR Salary Surveys (the “ClearSolutions Surveys”), which benchmarks Actuarial compensation nationwide. Compensation data for companies in these groups is obtained from filed proxy statements, as well as the PCICS, McLagan Survey and ClearSolutions Surveys. Additional information, including a listing of the companies in each of these benchmark groups and details regarding our benchmarking process is contained in the section entitled “Benchmarking.”
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Tax Treatment and Accounting
To the extent practicable, the SEBC intends to preserve deductibility under the Internal Revenue Code for performance-based compensation paid to its executive officers. Section 162(m) of the Internal Revenue Code prohibits publicly owned companies from deducting compensation paid to certain of its executive officers as expense to the extent that the officer’s compensation in excess of $1 million is not performance-based, and is not paid pursuant to a stockholder approved plan. Selective has two performance-based stockholder approved plans: the Selective Insurance Group, Inc. 2005 Omnibus Stock Plan (the “Omnibus Stock Plan”) and the Selective Insurance Group, Inc. Cash Incentive Plan (the “Cash Incentive Plan”).
The Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards 123 (revised 2004),Share-Based Payment(“FAS 123R”), requires that compensation expense be measured on the income statement for all share-based payments (including employee stock options) at grant date fair value of the equity instruments. Selective adopted this accounting pronouncement on January 1, 2005.
Benchmarking
At least once a year, the SEBC compares the individual targeted compensation and actual paid compensation of our named executive officers with external data from groups of comparator companies. In 2008, EXEQUITY furnished the SEBC with information on the following benchmark groups, which contained 2007 and 2008 market data for named executive officer positions. The SEBC believes that these sources provide comprehensive information regarding Selective’s relative compensation position. By considering these multiple market references, the SEBC believes it can be less concerned about potential anomalies that may occur in a single market data point.
| | •o | | Market/Product Group — organizations that compete with Selective inMr. Murphy’s base salary did not increase for the sale of products and services; | | | • | | Size Group — companies of similar size; | | | • | | Property and Casualty Insurance Compensation Survey; | | | • | | McLagan Partners Investment Management Survey — Insurance Companies;and | | | • | | ClearSolutionsHR Actuarial Salary Surveys.fourth consecutive year. |
The companies that were included in each of these benchmark groups were as follows:
| | o | | Market/Product Group
| | Size Group
| | | | The Chubb Corporation | | Arch Capital Group, Ltd. | Cincinnati Financial Corporation | | Commerce Group, Inc. | CNA Financial Corporation | | Hanover Group | EMC Insurance Group Inc. | | MaxCapital Group Ltd. | Hanover Group | | Mercury General Corporation | Harleysville Group, Inc. | | Ohio Casualty Corporation | Hartford Financial Services Group | | Old Republic International Corporation | Ohio Casualty Corporation | | Radian Group Inc. | PMA Capital Corporation | | Unitrin, Inc. | Safeco Corporation | | Zenith National Insurance Corp. | The Travelers Companies, Inc. | | | State Auto Financial Corporation | | His long-term incentive program (“LTIP”) award in February 2010 was 11.1% lower than the prior year, consistent with individual and company performance. |
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Property & Casualty Insurance Compensation Survey
| | o | | ACE | | Great American Insurance Group | Acuity | | Hanover Group | Allstate Insurance Company | | Harleysville Group, Inc. | American Family Insurance | | Hartford Financial Services Group | American International Group | | Liberty Mutual Group | Argonaut Group, Inc. | | Main Street America Group | Mr. Murphy’s 2010 annual cash incentive program (“ACIP”) payment was 67% of base salary and approximately 50% higher than his 2009 ACIP payment. Because of the 2009 results, particularly the underperformance of investment goals for which he was ultimately responsible as CEO, Mr. Murphy’s 2009 ACIP was 38% less than 2008. The Auto Club Group | | Mercury General Corporation | Automobile ClubSEBC felt that the increase in ACIP for 2010 was warranted in light of Southern California | | MetLife | California State Automobile Association | | Nationwide | Central Insurance Companies | | Ohio Casualty Corporation | The Chubb Corporation | | OneBeacon Insurance Group, Ltd | CNA Financial Corporation | | PMA Capital Corporation | Country Insurance & Financial Services | | Safeco Corporation | Crum & Forster | | Sentry Insurance | Erie Indemnity Company | | The Travelers Companies, Inc. | Farmers Insurance Group | | State Farm Insurance Company | FBL Financial Group, Inc. | | USAA | Fireman’s Fund Insurance Company | | Utica National Insurance Group | GEICO | | Winterthur North America | GE Insurance | | Zenith National Insurance Corp. | | | Zurich North Americaimproved financial results and TSR, and consistent with our pay-for-performance philosophy. |
McLagan Partners Investment Management Survey — Insurance Companies
| | | | 40/86 Advisors, Inc | | Mutual of Omaha | Advantus Capital Management, Inc | o | Nationwide Insurance | AEGON USA | | New York Life Investment Management LLC | Aetna, Inc. | | Northwestern Mutual Life Insurance Company | AIG Global Investment Group | | OneAmerica Financial Partners | Allianz Life Insurance of North America | | Opus Investment Management (Hanover Ins) | Allianz of America, Inc. | | Pacific Life Insurance Company | Allstate Investments, LLC | | PartnerRe Asset Management Company | Assurant, Inc | | PPM America, Inc. | AVIVA USA (formerly AmerUs) | | Principal Global Investors | AXA Equitable | | Progressive Corporation | The Chubb Corporation | | Prudential Financial | CIGNA Investment Management | | Security Benefit Corporation | Country Insurance & Financial Services | | Sentinel Asset Management, Inc. | CUNA Mutual Group | | Sentry Insurance | FBL Financial Group | | Standard Life Investments (USA) Limited | Fort Washington Investment Advisors, Inc. | | State Farm Insurance Companies | Genworth Financial | | Sun Life Financial | Guardian Life Insurance Company | | Swiss Re | Hartford Investment Management Company | | Thrivent FinancialHis total compensation based on salary, ACIP payment, and LTIP award increased 0.6% for Lutherans | ING Investment Management | | TIAA-CREF | Liberty Mutual Group | | The Travelers Companies, Inc. | MBIA Asset Management | | USAA Investment Management Company | MEAG New York Corporation (Munich RE) | | | MetLife Investments | | | MFC Global Investment Management | | | Mutual of Omaha | | | Modern Woodmen of America | | |
2010 over 2009.3Page 20
ClearSolutionsHR Actuarial Salary Surveys
| | | ACE INA | | Harleysville Insurance | Acuity | | The Hartford | Aipso | | Insurance Services Office | Allstate Corporation | | Liberty Mutual Group | American Family Insurance | | The Main Street America Group | American International Group | | Mercury Insurance Group | Argonaut Group, Inc. | | MetLife Auto and Homeowners Insurance | Assurant Solutions | | Michigan Education Employees Mutual | Automobile Club Group/AAA Michigan | | Insurance Company | Automobile Club of Southern California | | Munich Reinsurance America, Inc. | California Casualty Management | | Nationwide Insurance | Association | | NCCI Holdings, Inc. | California State Automobile Association | | Ohio Casualty Corporation | The Chubb Corporation | | Pennsylvania National Mutual Casualty | CNA | | Insurance Company | Crum & Forster/US Fire Insurance | | PMA Insurance Group | CUNA Mutual Group | | Safeco Corporation | Employers Mutual Casualty Company | | Selective Insurance Company of America | Erie Insurance Group | | State Farm Insurance Companies | Farmer’s Insurance | | Swiss Reinsurance Company | FBL Financial Group, Inc. | | Towers-Perrin | Fireman’s Fund Insurance Company | | Traveler | GEICO | | United Services Automobile Association | GMAC Motors Insurance Corporation | | White Mountains Reinsurance Services | GM Insurance Management Corporation | | Winterhur U.S. Holdings | GM Reinsurance Corporation | | XL Capital | Great American Insurance Company | | Zurich North America | The Hanover Insurance Group | | |
For named executive officers other than the CEO, the SEBC takes into account the recommendations made by the CEO based on his assessment of each named executive officer’s performance for the year, continued contributions to the company, and potential for advancement.
2 The SEBC gives the CEO’s recommendations significant weight in the evaluation process, but final decisions on named executive officer compensation are made by the SEBC. The SEBC also considers the medians of the benchmark groups in addition to pre-established guidelines regarding award amounts, company performance, retention issues, internal compensation parity, advancement in abilities, experience, and responsibilities. Allocation Between Current and Long-Term Compensation
Selective allocates compensation between currently paid components, principally comprised of an established base salary and a variable annual cash incentive, and variable long-term components that link compensation opportunities for executives to both short-term and long-term financial and strategic objectives.
Elements of Current Compensation
Base Salary
Selective’s base salary provides stable, competitive compensation and takes into account scope of responsibility, relevant background, training, and experience. The SEBC also considers competitive market data for similar positions and overall market demand for each position. Generally, the SEBC believes base salaries should be aligned with market trends for executives in similar positions and with similar responsibilities at comparable companies. When establishing the 2008 base salaries of the named executive officers, the SEBC considered a number of additional factors, including:
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| • | | the functional role of the position; | | | • | | the level of responsibility; | | | • | | growth of the executive in the role, including skills and competencies; | | | • | | the contribution and performance of the executive; and | | | • | | the organization’s ability to replace the executive. |
In light of the challenging property and casualty insurance business environment, the Company’s overall performance in 2008, and the competitive positioning of Mr. Murphy’s base salary, Mr. Murphy requested, and the SEBC agreed, for the third consecutive year, not to increase his base salary in 2009. For these same reasons, the base salaries of the other named executive officers were not increased for 2009, and will not again be considered for increase until the Company’s common salary review date in 2010.
In determining the 2008 base salary for Mr. Murphy, the SEBC considered the overall performance of the organization and Mr. Murphy’s individual performance, as well as base pay levels of CEOs in the benchmark groups. This comparison showed that Mr. Murphy’s base salary remained higher than the medians of the Market/Product Group and Size Group, but more closely aligned with the median of the PCICS group. Consequently, the SEBC concluded that Mr. Murphy’s base salary was appropriately positioned when compared with competitive norms and no salary increase was provided to him in 2008.
In determining the 2008 base salaries for the other named executive officers, based on their contributions to Selective’s growth, reviews of their comprehensive performance appraisals by Mr. Murphy, the potential for voluntary departures and cost and difficulty of replacement, the SEBC approved increases in the 2008 annual base salary rates for Mr. Thatcher from $415,000 to $475,000; Mr. Guthrie from $400,000 to $425,000; and Mr. Zaleski from $390,000 to $400,000. These increases were made in the course of the normal annual performance and salary review process. As Mr. Connell received a salary increase in late 2007 in connection with his appointment as Chief Administrative Officer, no additional salary increase was provided to him in 2008.
Annual Cash Incentive Program
Selective’s annual cash incentive program (“ACIP”) is based on near-term strategic and financial organizational goals as well as pre-established individual goals and objectives, and is intended to link a meaningful portion of annual cash compensation to the achievement of these goals. For 2008, most of Selective’s executives, including the named executive officers, other than the Chief Investment Officer, whose compensation is described in detail below, were eligible to be considered for an annual cash incentive payment under the Cash Incentive Plan, which was approved at the 2005 Annual Meeting of Stockholders. Each year, the SEBC approves annual strategic and financial goals, which, if attained, result in the funding of an ACIP award pool. An individual’s ACIP is based on position grade level, achievement of various corporate strategic initiatives and a corporate financial measure established for the ACIP, and individual employee performance. For 2008, corporate goals for the ACIP applicable to participating executive officers, including the named executive officers other than the Chief Investment Officer, were based on the achievement of six equally weighted strategic initiatives, which could account for the funding of up to 36% of the ACIP award pool, and a range of statutory combined ratios from 96.0% to 100.8%, that could result in the funding of between 0% and 80% of the ACIP award pool. Statutory combined ratio is a measurement commonly used within the property and casualty insurance industry tostandard measure of underwriting profit or loss — aprofitability. A statutory combined ratio under 100% generally indicates that an insurance company is generating an underwriting profit and a statutory combined ratio over 100% generally indicates that an insurance company is generating an underwriting loss.
3 The NEOs’ 2009 salary included an extra pay period (27 vs. 26) due to pay period timing. This pay period timing occurs approximately once every decade. Consequently, the NEOs, as well as every employee in the organization who was employed for the full year, were paid an additional pay period in 2009. | o | Mr. Murphy’s pay in 2010 is consistent with our philosophy of aligning compensation to the generation of long-term shareholder value, as reflected in the chart below, which demonstrates that over the past four years, Mr. Murphy’s compensation has moved in direct alignment to Selective’s TSR. |
| | 2007 | 2008 | 2009 | 2010 | CEO Total Compensation (Salary/ACIP/LTIP) | $3,600,058 | $3,150,112 | $2,684,631 | $2,700,087 | | $ Change from Prior Year | - | -$449,946 | -$465,481 | $15,456 | | % Change from Prior Year | - | -12.5% | -14.8% | 0.6% | | One-Year TSR | -18.1% | 2.1% | -25.7% | 14.0% |
| o | Messrs. Connell, Guthrie, Lanza, and Thatcher’s base salaries did not increase in 2010 or 2009. Mr. Marchioni received a base salary increase in 2009 as a result of his new role as the head of Insurance Operations. He did not receive a base salary increase in 2010. |
| o | LTIP awards granted in February 2010 were the same as the prior year’s level for Messrs. Lanza and Thatcher. Mr. Connell’s 2010 LTIP award was 10.5% lower than the prior year, and Mr. Guthrie’s award was 5.9% lower than the prior year. Mr. Marchioni’s 2010 LTIP award was increased by 28.6% compared to the prior year as a result of his new role as the head of Insurance Operations. |
| o | Messrs. Lanza, Marchioni, and Thatcher each received 2010 ACIP payments that were approximately 3% higher than for 2009. Mr. Connell’s 2010 ACIP payment was reduced by approximately 17% compared to 2009. Mr. Guthrie did not receive a 2010 ACIP award as he was not eligible pursuant to the terms of his employment agreement. |
| o | Total compensation based on salary, ACIP payment, and LTIP award for the other continuing NEOs for 2010 over 20093 was as follows: Mr. Connell: (-9.3)%; Mr. Lanza: (-0.7)%; and Mr. Thatcher: (-0.6)%. Mr. Marchioni’s 2010 compensation based on salary, ACIP payment, and LTIP award was 9.8% higher than for 2009 because of his new role as the head of Insurance Operations. Mr. Guthrie’s 2010 compensation based on salary, ACIP payment, and LTIP award (not including severance payments) was 50.2% lower than for 2009 due to his departure from Selective on April 2, 2010. |
We focus our reward programs to retain and motivate our best performing employees and those in critical positions. Our compensation decisions for 2010 reflected the highly competitive commercial lines market place, the difficult economic environment, our financial performance, and the degree of success each executive officer achieved in meeting these challenges. We believe our management responded appropriately to an extremely challenging climate, maintained strategic focus, and took action to achieve profitable growth over the long-term.
OVERVIEW Selective’s Executive Compensation Program Philosophy We seek to attract and retain talented and qualified executives by paying compensation that is generally targeted at the 50th percentile or greater of total compensation paid by comparable companies in the property and casualty insurance industry. Our compensation programs are designed to motivate executives to achieve our corporate objectives and increase stockholder value in both the short- and long-term. Consistent with our pay-for-performance philosophy, we tie our annual incentive awards to pre-determined strategic and financial business objectives and individual objectives. In addition, we align our long-term compensation to the generation of long-term stockholder value.
Role and Function of the Compensation Committee The SEBC oversees executive compensation. The SEBC retains an independent executive compensation consultant to advise it on executive compensation issues (“Compensation Consultant”). Representatives of the Compensation Consultant: (i) review senior executive compensation; (ii) prepare comprehensive competitive compensation analyses for our NEOs; (iii) make recommendations regarding the components of compensation, amounts allocated to those components, and the total compensation opportunities for the CEO and the other NEOs; and (iv) attend SEBC meetings, as requested. Exequity, LLP has served as the SEBC’s Compensation Consultant since April 2007. The Compensation Consultant’s only business with Selective is to advise the SEBC on executive compensation matters. The SEBC has full autonomy in determining executive compensation and, primarily based on information provided by the Compensation Consultant, makes all final determinations regarding the CEO and other NEO compensation. The CEO makes compensation recommendations to the SEBC regarding all of the senior executives that report directly to him based on the CEO’s assessment of each executive officer’s annual performance, contributions to the Company, and potential for advancement. In making its compensation decisions, the SEBC also considers the medians of the benchmark groups in addition to pre-established guidelines regarding award amounts, Company performance, retention issues, internal compensation parity, and advancement in abilities, experience, and responsibilities. The Executive Vice President of Human Resources and certain other human resources officers, as part of their usual duties and responsibilities, provide the SEBC with information regarding the overall design of the executive compensation program and its individual components.
DESIGN CONSIDERATIONS OF SELECTIVE’S EXECUTIVE COMPENSATION PROGRAM Our executive compensation program consists of the following key elements selected to: (i) address the market-based realities of attracting and retaining quality executives; and (ii) align the executives’ compensation with our stockholders’ interests: | · | Annual cash incentive payments; and |
| · | Long-term incentive awards in the form of stock options, performance-based restricted stock units, and performance-based cash incentive units. |
Benchmarking When making compensation decisions, the SEBC believes that it is important to be informed generally on compensation practices at publicly-traded companies and particularly at property and casualty insurance holding companies. The SEBC believes that: | · | Measuring our compensation against practices from multiple market reference sources helps ensure that it has an ample and robust assessment of our competitive compensation posture; |
| · | Benchmarking provides the SEBC with relevant information to make appropriate compensation decisions that will attract and retain the key talent required to drive company performance and long-term stockholder value; and |
| · | Considering multiple market references offsets inaccuracies inherent in a single market data point and enhances the SEBC’s decisions by allowing it to rely on a fuller set of market-competitive pay measures. |
Accordingly, the SEBC receives from, and reviews with, the Compensation Consultant, the following benchmarking information: | · | Benchmarking analyses of compensation that we pay our NEOs, compared to base salary, annual cash incentives, total cash compensation, long-term incentives, and total compensation that the market reference sources described in the table below pay for similar positions; |
| · | Benchmarking analyses by our Human Resources Department for our NEOs against a group of 46 property and casualty insurance organizations; and |
| · | Benchmarking analyses by our Human Resources Department of supplemental survey data from multiple survey sources for all NEOs to facilitate a comprehensive understanding of the overall compensation environment. |
For 2010, the Compensation Consultant furnished the SEBC with 2010 and 2009 NEO compensation information on three market reference sources as follows:
Market/Product Group Organizations with which we compete in the sale of products and services | Peer Size Group Companies of similar revenue size | Third-party Vendor Surveys | · The Chubb Corporation · Cincinnati Financial Corporation · CNA Financial Corporation · EMC Insurance Group Inc. · The Hanover Insurance Group, Inc. · Harleysville Group Inc. · Hartford Financial Services Group · PMA Capital Corporation (now Old Republic International Corporation) · State Auto Financial Corporation | · Arch Capital Group, Ltd. · The Hanover Insurance Group, Inc. · Max Capital Group Ltd. (now Alterra Capital Holdings, Ltd.) · Mercury General Corporation · Old Republic International Corporation · Radian Group Inc. · Unitrin, Inc. · Zenith National Insurance Corp. (acquired by Fairfax Financial Holdings Limited) | · Property and Casualty Insurance Compensation Survey |
Information for the Market/Product Group and the Peer Size Group is gathered from proxy statements filed with the SEC. This information includes data on compensation components and analysis of the overall financial performance of the organizations in each group, and compares our performance to them. The Property and Casualty Insurance Compensation Survey provides supplemental data from companies of various sizes. This information is divided into segments that most accurately reflect the size of our organization. Because we strive to engage the best talent, which may require recruiting from organizations larger than us, we look at data from: (i) the overall property and casualty insurance industry; and (ii) organizations with direct written premiums of less than $2 billion. In 2010, our aggregate continuing NEO compensation, when compared to total average survey medians of the market reference sources, was 6.1% below the total average median. Base salary and total cash were above these total average medians by 0.4% and 6.7%, respectively. Long-term awards and total direct compensation were below these total average medians by 18.3% and 6.1%, respectively. This comparison is tabulated by the Compensation Consultant and suggests that continuing NEO pay is aligned with defined external benchmarks. ELEMENTS OF COMPENSATION AND ALLOCATION BETWEEN CURRENT AND LONG-TERM COMPENSATION We allocate compensation among: (i) a fixed base salary; (ii) a variable annual cash incentive; and (iii) a variable long-term component. Together, these three components link compensation opportunities for executives to both short-term and long-term financial and strategic objectives. The chart below demonstrates the percentage of total compensation for the CEO, Chief Financial Officer, and other continuing NEOs that is short-term incentive compensation (ACIP) versus long-term incentive compensation (LTIP), and fixed (base pay) versus variable (ACIP and LTIP). As indicated in the table below, the compensation allocation for 2010 aligns closely with our compensation philosophy, which is designed to motivate executives to achieve short-term and long-term corporate objectives that are consistent with the economic interests of our stockholders. We strive to achieve a balance among pay incentive vehicles and performance time horizons, placing the most weight on achievement of long-term success that increases long-term shareholder value.
| CONTINUING NEO | 2010 | 2010 | 2010 | 2010 | | | ACIP | LTIP | Fixed (Base Pay) | Variable (ACIP & LTIP) | | Gregory E. Murphy | 22% | 45% | 33% | 67% | | Dale A. Thatcher | 24% | 37% | 39% | 61% | | Richard F. Connell | 19% | 39% | 42% | 58% | | Michael H. Lanza | 21% | 38% | 41% | 59% | | John J. Marchioni | 27% | 40% | 33% | 67% |
Mr. Guthrie’s 2010 compensation, and its allocation to the various compensation components, included payments in connection with his termination of employment pursuant to the terms of his employment agreement. Base Salary Our base salary strategy is to provide stable, competitive compensation, while taking into account each executive’s scope of responsibility, relevant background, training, and experience. In setting base salaries, the SEBC considers both competitive market data for similar positions and overall market demand for each position. The SEBC generally believes that base salaries should be aligned with market trends for executives in similar positions with similar responsibilities at comparable companies. When establishing the base salaries of NEOs, the SEBC also considers: | · | The functional role of the position; |
| · | The level of responsibility; |
| · | Growth of the executive in the role, including skills and competencies; |
| · | The contribution and performance of the executive; and |
| · | The organization’s ability to replace the executive. |
When determining 2010 base salaries for the CEO and other NEOs, the SEBC also considered the challenging property and casualty insurance business environment, our overall results, and the competitive positioning of the base salaries of the CEO and the other NEOs. Based on these factors, the SEBC decided against an increase in base salary for the CEO and other NEOs in 2010. Annual Cash Incentive Program (ACIP) Our ACIP is intended to link a meaningful portion of annual cash compensation to pre-established near-term strategic and financial organizational performance goals and pre-established individual and business unit or departmental performance goals and objectives. For 2010, all of the continuing NEOs were eligible to participate in the ACIP. ACIP awards are granted under the Selective Insurance Group, Inc. Cash Incentive Plan, as Amended and Restated Effective as of May 1, 2010 (the “Cash Incentive Plan”). The SEBC approves annual financial and strategic performance goals for the ACIP. If none of the ACIP goals wereare achieved, no ACIP payments are made. If ACIP goals are attained, the ACIP award pool is funded. An individual’s ACIP award is based on: (i) position grade level; (ii) corporate achievement of various ACIP annual financial and strategic goals; and (iii) the achievement of individual and business unit or departmental objectives.
2010 ACIP Targets and Results 2010 ACIP Targets For 2010, the SEBC determined the ACIP funding opportunity to be between 0% and 112% of target, based on attainment of our overall financial and strategic performance goals. The SEBC determined that between 0% and 67% of this target percentage would be paid. Page 22
The six (6) strategic initiatives for 2008 were as follows:
Agency Distribution
New agent appointments and revenue growth;
Targeted Premium Growth
Achievementattributable to a financial performance goal of premium target in specified market segment;
Territorial Expansion
Complete efforts to achieve targeted expansion of company footprint;
Technology
Achieve targeted pricing goals established under predictive modeling underwriting process;
Safety Management
Achieve service and compliance goals; and
Claims
Achieve stated litigation management and workers compensation operational improvements.
Based on the attainment ofachieving a statutory combined ratio between 98% and 102%. The SEBC also determined that between 0% and 45% of 99.2% andthis target percentage would be attributable to the achievement of threesix strategic performance goals. The SEBC rated five of the six strategic initiatives, the 2008measures as being worth seven percentage points each and one worth up to 10 percentage points if all elements were achieved. The chart below reflects potential ACIP award pool for the Company’s executive officers, including the named executive officers, other than the Chief Investment Officer, was establishedpayout totals at 42%various statutory combined ratio percentages if all strategic goals were met:
| Statutory Combined | ACIP | | Ratio (%) | Financial (%) | Strategic (%) | Total (%) | | 102 | 0 | 45 | 45 | | 101 | 10 | 45 | 55 | | 100 | 21 | 45 | 66 | | 99 | 42 | 45 | 87 | | 98 | 67 | 45 | 112 |
2010 ACIP Results | · | For 2010, our statutory combined ratio was 101.6%, which resulted in the ACIP financial measure being funded at 4%. |
| · | We met four of the six 2010 strategic performance goals as shown in the table below, which resulted in the strategic performance measures of the ACIP being funded at 28%. |
| · | Accordingly, the total 2010 ACIP award pool for executive officers, including the continuing NEOs, was established at 32% of the funding target. |
| 2010 Strategic Initiatives | Measures | Value | 2010 Results | | 1. New Business (must accomplish 3 of 4) | · Generate 90% of new policy premium in the three highest internal categories of profitability for modeled lines of business. · Generate an average of $315,000 per day of new small business premium. · Generate $166 million of new specified middle market premium. · Generate $53 million of new personal lines premium. | 7 (if 3 goals met) | Not Achieved | 2. Diversification/ Growth (must accomplish 2 of 3) | · Write a total of $164.6 million of new specified non-contractors lines of business. · Develop and implement 4 of the 6 new or revised products in 15 states in 2010. · Build and implement the pricing structure for 50% of the Phase III expansion states for specified lines of business. | 7 (if 2 goals met) | Achieved |
| 3. Pricing (must accomplish 2 of 3) | · Achieve commercial lines (excluding bonds) pure rate target of 4.2%, or 3 of 5 regions achieve commercial lines (excluding bonds) pure rate target (3 point bonus for exceeding 4.2% pricing goal by .5%). · Achieve a target pure rate increase on certain lines of business that perform below a specified internal category of profitability. · Implement 20 rate changes of over 5% in personal lines in 2010. | 10 (if 2 goals met & pricing goal exceeded) | Not Achieved | | 4. Retention (must accomplish 2 of 3) | · Achieve commercial lines (excluding bonds) retention target of 74.9%, or 3 of 5 regions achieve their commercial lines retention target. · Achieve below specified retention rate for certain lines of business that perform below specified internal categories of profitability. · Achieve above specified retention rate for certain lines of business that perform above specified internal categories of profitability. | 7 (if 2 goals met) | Achieved | | 5. Financial/Operational | · Meet or achieve better than the controllable expense budget of $271 million. | 7 | Achieved | | 6. Claims (must accomplish 2 of 3) | · For Claims Strategic Program, implement key automation efforts and create core claims system requirements. · Create and maintain claim metrics regarding cycle time and productivity standards. · Implement companywide litigation improvement plan incorporating alternative fee arrangements and litigation mitigation. | 7 (if 2 goals met) | Achieved |
2010 ACIP Payment Opportunities and Awards The ACIP payment opportunities for the 2008 ACIP forcontinuing NEOs earned in 2010 and paid in 2011 under the CEO and the other named executive officers (other than the Chief Investment Officer)Cash Incentive Plan were based on competitive market levels and set as a percentage of annual base salary relative to corresponding levels of performance against the program’sannual performance goals. The SEBC can exercise discretion to award incentives inno incentive payments or to award amounts lower than the maximums outlined below or tomaximum opportunity. The following table sets forth the 2010 minimum and maximum ACIP opportunity, the SEBC’s actual 2010 award no incentives at all. 2008 ACIP Opportunity Based On Goal Achievement
| | | | | Officer | | Title | | Maximum ACIP Opportunity | Gregory E. Murphy | | Chairman, President & CEO | | 200% of base salary | Dale A. Thatcher | | Executive Vice President & CFO | | 150% of base salary | Richard F. Connell | | Senior Executive Vice President | | 175% of base salary | Ronald Zaleski | | Executive Vice President & Chief Actuary | | 150% of base salary |
For 2008, Mr. Murphy’s ACIP payment was $650,000, or approximately 72%,for the continuing NEOs as a percentage of base salary, comparedand the percentage increase or decrease in ACIP from 2009 to $900,000, or 100%, of base salary paid to him for 2007;2010:
Continuing NEO(1) | Minimum 2010 ACIP Opportunity as % of Base Salary | Maximum 2010 ACIP Opportunity as % of Base Salary | Actual 2010 ACIP as % of Base Salary | % Change in ACIP from 2009 to 2010 | | Gregory E. Murphy | 0% | 200% | 66.7% | 50% | | Dale A. Thatcher | 0% | 150% | 63.2% | 3% | | Richard F. Connell | 0% | 175% | 44.4% | -17.6% | | Michael H. Lanza | 0% | 150% | 51.7% | 3% | | John J. Marchioni | 0% | 150% | 80% | 3% |
(1)Kerry A. Guthrie, former Executive Vice President and Chief Investment Officer, who left Selective on April 2, 2010, did not receive a decrease of approximately 28% compared to his2010 ACIP payment for 2007. award. DISCUSSION OF CEO ACIP AWARD In evaluating Mr. Murphy’s 2010 performance, for 2008, the SEBC usedreviewed our overall performance, the 2010 ACIP goal results, and a comprehensive written performance appraisal whichthat was completed by all non-executivenon-employee members of Selective’s Board of Directors. As CEO, Mr. Murphy, as CEO, has ultimate responsibility for the achievement of our annual financial and strategic performance goals, discussed above, as well as attainment of investment goals. Our financial, strategic, and investment goals are considered to be Mr. Murphy’s individual performance goals. For 2010: | · | Our statutory combined ratio was 101.6%; |
| · | Four of our six strategic ACIP goals were achieved; |
| · | Our investment income exceeded budget by 2%; |
| · | Our total operating income was $73.9M and exceeded budget; and |
| · | Our stock price increased by 10% as of December 31, 2010 versus December 31, 2009 with a price to book value of 90%, which is in line with our peers. |
In addition, we: | · | Achieved a commercial lines renewal pure price increase of 3.1% in an extremely competitive commercial lines market; |
| · | Achieved a personal lines renewal price increase of 5.4%; |
| · | Successfully outsourced our Investment Operations; |
| · | Reduced our alternative investment portfolio; |
| · | Implemented several new commercial line products driving diversification; |
| · | Maintained a competitive expense ratio of 32.0% versus the composite peer benchmark of 33.8%; |
| · | Improved our enterprise risk management process with the continued development of an overall framework enabling us to evaluate strategic and business decisions; and |
| · | Developed and began implementation of second generation commercial lines underwriting predictive modeling. |
Based on these factors, which summarize our overall 2010 performance and for which Mr. Murphy is ultimately accountable, and guidance provided by the Compensation Consultant regarding CEO pay trends, the SEBC determined that Mr. Murphy’s 2010 ACIP would be set at 67% of base salary, in relation to his ACIP opportunity range of 0-200% of base salary. This is approximately 50% higher than his 2009 ACIP payment of 44% of base salary, which was driven in part by the underperformance of investment goals in 2009. As this component of Mr. Murphy’s compensation is tied to annual financial and strategic goals, describedthe 2010 ACIP payment reflects the significant achievements noted above. As the company did not fully meet certain stated objectives and goals in 2008, theThe SEBC felt the reductiondetermined that this increase in Mr. Murphy’s ACIP payment was warranted and consistent with the company’s pay for performanceSelective’s pay-for-performance philosophy. For
DISCUSSION OF OTHER CONTINUING NEO ACIP AWARDS The SEBC reviewed the balanceperformance appraisal of each of the named executive officers, other thancontinuing NEOs and determined their 2010 ACIP payments based on: (i) the Chief Investment Officer, who participatesachievement of the 2010 ACIP financial and strategic performance goals; (ii) the achievement of departmental objectives; and (iii) attainment of individual and shared performance objectives and effort in a separate Investment Department Compensation Program (“IDCP”) described below, 2008 annual cash incentive payments were determined bydifficult economic environment and competitive insurance market. A discussion of the SEBC based on overall company performance, certain strategic goals described above,2010 ACIP awards for the successful attainment of written departmental objectives, and individual performance, including the following:other NEOs follows:
Mr. Thatcher — – In addition to his general management accountability as a member of the Executive Management Team,executive management team, Mr. Thatcher, Executive Vice President and Chief Financial Officer, has primary responsibility for all financial Page 23
matters, including investor relations, tax, (including capital loss taxand capital management planning, strategies), and treasury activities. In concert with the Chief Investment Officer and his team,addition, Mr. Thatcher developed and fully implemented an enhanced liquidity plan to effectively deal with the unprecedented economic conditions that the company faced in 2008. His thoughtful planning and timely response allowed the company to maintain a strong statutory surplus position. Mr. Thatcher was also instrumental in implementing positive changes to the company’s casualty excess loss reinsurance program. Finally, Mr. Thatcher was also actively engaged in the development of favorable tax strategies, a very targeted investor relationshas responsibility for corporate strategy and an integrated Enterprisecorporate communications, and is Chairman of the Executive Risk Management effort, including the implementation of a control self-assessment discipline across the company. As a result ofCommittee. In April 2010, Mr. Thatcher assumed responsibilities for Investment Operations. Mr. Thatcher’s strong contributions and financial leadershipmajor 2010 departmental goals, which were met, included: | · | Successfully reducing our alternative investment portfolio; |
| · | Our investment income exceeding budget by 2%; |
| · | Achieving a well-diversified reinsurance program, despite a difficult reinsurance market; |
| · | Supporting efforts on the selection and initial implementation of a new reinsurance system and a major technology effort on the decommissioning of the prior statistical reporting system; and |
| · | Enhancing the overall Investor Relations operations. |
In addition, Mr. Thatcher’s 2010 key individual accomplishments included: | · | Leading the successful outsourcing of our Investment Operations, including the establishment of all systems, controls, and reports to effectively manage the process going forward; |
| · | Improvements to the enterprise risk management process with the continued development of an overall framework enabling us to evaluate strategic and business decisions; and |
| · | Driving our corporate strategy process, including the development of appropriate communication plans for the strategy’s articulation to every level of employee. |
Based on the organization asfactors noted above, their relative impact onwhich summarize Mr. Thatcher’s performance in 2010, the organization,CEO recommended and the overall performance of the company,SEBC agreed that Mr. Thatcher’s 20082010 ACIP payment was approximately 53%would be set at 63% of base salary, in relation to his ACIP opportunity range of 0-150% of base salary. Consequently, Mr. Thatcher’s 20082010 ACIP payment was a reduction of approximately 17% from 2007, whichslightly higher (+3%) than his 2009 ACIP. This award aligns with our pay-for-performance philosophy that is consistent with the company’s pay for performance philosophy given that the company did not meet certain stated objectivesintended to reward and goalsretain key performers in 2008.critical jobs.
Mr. Connell — – In addition to his rolegeneral management accountability as a member of the executive management team, Mr. Connell, as Senior Executive Vice President and Chief Administrative Officer, Mr. Connell is responsible for many integrated functions, that supportincluding Information Technology, which supports the achievement of companyour corporate goals and objectives. Mr. Connell’s leadershipConnell takes a disciplined approach in making business decisions and management of the control self-assessment process in the company’s Human Resources function during 2008 are noteworthy. The comprehensive nature of this activity and the process disciplineis responsible for our Enterprise Project Management Office (“EPMO”), which is responsible for all projects that cost over $500,000. During 2010, Mr. Connell established wasaccomplished several goals that were instrumental in supporting the successful achievement of this effort. In the technology arena, the ability of the company to expand its footprint into the state of Tennessee on time and within budget is directly attributable to Mr. Connell’s managementattainment of the Company’s information technology resources. Mr. Connell improved the enterprise project management office, effectively drove strategy planning efforts,2010 financial and successfully completed a series of Knowledge Managementstrategic objectives, and automated processing milestones. As a result ofhave positioned us well for future success. Mr. Connell’s significant rolemajor 2010 departmental goals, which were met, included: | · | Completion of Phase II of the customer self-service automation project; |
| · | Development and initiation of implementation of second generation commercial lines underwriting predictive modeling; |
| · | Claims strategy automation, including the rollout of automated correspondence and initiation of enterprise content management effort; |
| · | Completion of Information Technology Services infrastructure process automation efforts; and |
| · | Completing automation of specified commercial line rate changes. |
As in 2009, Mr. Connell’s key individual 2010 accomplishments included: (i) leading the continued developmentsuccessful execution of discretionary technology investments; (ii) delivering efficient and support of Information Technologycost effective technology solutions; and (iii) leading initiatives to support our “high-touch” business strategy asenable improvements in technology, service, and core operations. Examples include: | · | Playing a key support role in the development of new products driving diversification; |
| · | Supporting companywide expansion efforts; |
| · | Driving the vendor management initiative, including developing a tool that identifies expected total vendor spending and identifying opportunities for lease consolidation and replacement yielding significant annual savings; and |
| · | Leading the decommissioning effort of the prior statistical reporting system and migration to a new data storage array. |
Based on the factors noted above, their relative impact onwhich summarize Mr. Connell’s performance in 2010, the organization,CEO recommended and the overall performance of the company, his 2008SEBC agreed that Mr. Connell’s 2010 ACIP payment waswould be set at approximately 61%44% of base salary, in relation to his ACIP opportunity range of 0-175% of base salary. Consequently, Mr. Connell’s 2008 cash payout is a reduction of approximately 21% from 2007, given that the company did not meet certain stated objectives and goals in 2008. This reduction is consistent with the company’s pay for performance philosophy. Mr. Zaleski— Functioning as the organization’s Chief Actuary and chief planning/budgeting officer, Mr. Zaleski plays a key role in oversight of reserve adequacy, pricing actions, underwriting improvements, and claims initiatives. During 2008, Mr. Zaleski successfully changed the budgeting model to risk-state functionality. He plays a critical role in assessing reserve adequacy and his quarterly reserve reviews provided essential information to guide prudent business decisions. Mr. Zaleski also assumed the leadership and management of the predictive modeling efforts and successfully led the development of the first fully developed in-house model. He was instrumental in the roll out of the Tennessee expansion project. Mr. Zaleski’s efforts to provide comprehensive rate indications and various state filings are expected to improve the company’s underwriting results. Other noteworthy accomplishments for Mr. Zaleski include his efforts with personal lines pricing (including the launch of a homeowner By-Peril rating plan), and in catastrophic expense management. As a result of Mr. Zaleski’s key role in driving underwriting improvements and leadership of the company’s predictive modeling efforts as noted above, their relative impact on the organization, and the overall performance of the company, his 20082010 ACIP payment was approximately 50%17.6% lower than his 2009 ACIP. This award aligns with our pay-for-performance philosophy.
Mr. Lanza – In addition to his general management accountability as a member of the executive management team, Mr. Lanza, Executive Vice President, General Counsel and Chief Compliance Officer, has primary responsibility for all legal, corporate governance, internal audit, government affairs, regulatory, and compliance matters. In addition, in 2010 Mr. Lanza assumed responsibility for the state filing function for the Company. Mr. Lanza’s major 2010 departmental goals, which were met, included: | · | Partnering with and counseling Insurance Operations leadership and staff in meeting new business, diversification, and pricing goals; |
| · | Providing legal support for the outsourcing of our Investment Operations; |
| · | Continuing to integrate the Internal Audit Department as a business partner with operating units and fostering a compliance mindset throughout the company; |
| · | Continuing work on stockholder matters and supporting the Board of Directors in corporate governance and corporate secretarial matters; and |
| · | Supporting the claims and claims legal operations in efforts to improve claims processes and reduce legal expenses. |
In 2010, Mr. Lanza’s key individual accomplishments included: | · | Successfully obtaining approval from the New York Department of Insurance of a Derivative Use Plan; |
| · | Deploying alternative fee arrangements; |
| · | Leading key efforts in the legal and government affairs arena with trade associations driving issues impacting us and the insurance industry as a whole; and |
| · | Playing a key role in the successful negotiation of key contracts that position us to drive operational excellence and achieve key objectives in the future. |
Based on the factors noted above, which summarize Mr. Lanza’s performance in 2010, the CEO recommended and the SEBC agreed that Mr. Lanza’s 2010 ACIP would be set at 51.7% of base salary, in relation to his ACIP opportunity range of 0-150% of base salary. Consequently, Mr. Zaleski’s 2008 ACIP payment is a reduction of approximately 27% from 2007, which is consistent with the company’s pay for performance philosophy given that the company did not meet certain stated objectives and goals in 2008. Page 24
The Chief Investment Officer’s annual cash incentive compensation is paid under the IDCP. The IDCP measures overall investment results against stated benchmarks for both fixed income and equity portfolio performance. For 2008, annual cash incentive payments to the Chief Investment Officer and other company investment professionals were calculated based on results achieved over one-year and three-year performance periods. The IDCP’s cash award is increased or decreased based on the company’s investment results compared to the stated benchmarks. A final investment factor (pool modifier) is calculated each year after investment results are calculated. The 2008 pool modifier was approximately 93%. Listed below are the 2008 investment program performance measures:
Equity — Achieve portfolio performance as compared with the S&P 500 Index; and
Fixed Income — Achieve portfolio performance as compared with the custom blended Lehman weighted average debt indices.
Mr. Guthrie — As Chief Investment Officer, Mr. Guthrie’s performance is measured against appropriate financial market indices for the IDCP’s one-year and three-year performance periods. The investment climate and environment during 2008 was unprecedented and Mr. Guthrie made a series of sound decisions, initiated prudent action and generated results exceeding benchmarks. He maintained the quality of the company’s portfolio, responded with thoughtful, well-reasoned action to mitigate yield or liquidity issues, and was instrumental in safeguarding the Company’s capital position. The equity component of the portfolio significantly outperformed the S&P 500 Index for the 9th consecutive year and alternative investments also outperformed the S&P 500 Index, although fixed income fell well below benchmark comparators. Overall, our investment portfolio’s other-than-temporary impairment (“OTTI”) write downs for 2008 were limited to a modest rate of approximately 1.5% of invested assets. In addition, Mr. Guthrie’s results in managing interest rate risk and credit risk in the 2008 market are noteworthy. Mr. Guthrie’s leadership on investment tools and strategies better position the company to effectively manage its investment portfolio and risks. As a result of Mr. Guthrie’s role in generating investment results that exceeded benchmarks as noted above, their relative impact on the organization, and the overall performance of the investment portfolio against stated benchmarks, his 2008Lanza’s 2010 ACIP payment was approximately 74%slightly higher (+3%) than his 2009 ACIP. This award aligns with our pay-for-performance philosophy that is intended to reward and retain key performers in critical jobs.
Mr. Marchioni – In addition to his general management accountability as a member of the executive management team, as Executive Vice President, Insurance Operations, Mr. Marchioni plays a key role for the Company in developing strategies that enhance profitability, growth, and competitive strength for the Insurance Operations. Within his scope of responsibilities, Mr. Marchioni has oversight of the Company’s property and casualty insurance operations, including managing agency relations, claims, underwriting, customer service, and all regional operations. Mr. Marchioni assumed responsibility for the corporate claims function in 2010. Mr. Marchioni also serves as a member of our key management committees. Mr. Marchioni successfully accomplished many of his 2010 goals, although the achievement of some goals was greatly impacted by the difficult economic environment and the extremely competitive commercial lines insurance market. Under Mr. Marchioni’s leadership, our Insurance Operations did an excellent job of adhering to an underwriting discipline that balanced growth and profitability so that the Company is well positioned when the market turns. Key departmental accomplishments included: | · | Achieving a commercial lines renewal price increase of 3.1% in an extremely competitive market that is not achieving pure rate increases; |
| · | Achieving a personal lines renewal price increase of 5.4% while driving key profitability initiatives; |
| · | Expansion of our corporate underwriting capability and the implementation of several new commercial line products driving diversification and future revenue growth; and |
| · | Maintaining very strong agency relationships as indicated by feedback received through an agency survey and ongoing Producer Council meetings conducted with our agents. |
Mr. Marchioni’s key individual 2010 accomplishments included: | · | Leading the Claims Strategic Program, including the implementation of key automation efforts, alternative fee arrangements, and anti-fraud tools; |
| · | Driving an enhanced quality assurance program in support of a culture of “operational excellence;” |
| · | Began implementation of second generation commercial lines underwriting predictive models; |
| · | Completion of Phase II of the customer self-service automation project; and |
| · | Playing a key role in supporting the development of our strategy that will help position us for the future. |
Based on the factors noted above, which summarize Mr. Marchioni’s performance in 2010, and his expanded role which now includes oversight of the claims operation, the CEO recommended and the SEBC agreed that Mr. Marchioni’s 2010 ACIP would be set at 80% of base salary, in relation to his ACIP opportunity range of 0-197%0-150% of base salary. Consequently, Mr. Marchioni’s 2010 ACIP payment was slightly higher (+3%) than his 2009 ACIP. This award aligns with our pay-for-performance philosophy that is intended to reward and retain key performers in critical jobs. Mr. Guthrie – As previously noted, Mr. Guthrie’s 2008 ACIP payment is a reductionemployment ended April 2, 2010. Accordingly, Mr. Guthrie’s compensation for 2010 was primarily determined under the severance provisions of approximately 34% from 2007, given thathis employment agreement. ELEMENTS OF LONG-TERM COMPENSATION Design Elements Our long-term incentive opportunities reward, and assist with the company did not meet certain statedretention of, our leaders. By aligning financial rewards with the economic interests of our stockholders, leaders are encouraged to work toward achieving our long-term strategic objectives and goals in 2008. This reductionincreasing stockholder value. We use both cash and non-cash vehicles to deliver long-term compensation, which is consistent with the company’s pay for performance philosophy. Long-Term Incentive Program Award (“LTIP”) Funding
market practices of our benchmark insurance groups. For each employee eligible to participate in ourthe LTIP, including the named executive officers,NEOs, a dollar denominated target award is established. To determine the amount of the total LTIP award pool, all individual target award amounts are aggregated. Elements of Long-Term Compensation
Selective uses bothFor certain executives, including the NEOs, LTIP awards are granted in overlapping three-year cycles, and allocated among three components: (i) stock options; (ii) performance-based restricted stock units; and (iii) performance-based cash and non-cash vehicles to deliver long-term compensation, which is consistent and competitive with the market practices of Selective’s benchmark insurance groups. This approach also takes into account Selective’s prior commitment made in its 2005 Proxy Statement to maintain a three-year average annual share utilization “burn-rate” of not greater than 2% for awards granted under the Omnibus Stock Plan, including awards to the named executive officers (“Burn-Rate Commitment”). The average share utilization burn-rate for the three-year period ended December 31, 2008 for grants under the Omnibus Stock Plan was 1.73%; within the prior Burn-Rate Commitment.
Selective views long-term compensation as a retention tool for Selective’s named executive officers, and as a vehicle to help focus these executives on long-term goals.incentive units. By granting performance-based restricted stock units and performance-based cash incentive units with three-year performance
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periods, and options with three-year ratable vesting periods, Selective encourageswe encourage executive officers to continue their tenure with Selective, while aligningus and align their interests with those of our stockholders. Long-Term Incentive Program Award Grants Performance goals for the long-term incentive awards granted in 2008 through 2010 are as follows: Performance Period | Restricted Stock Unit Performance Measures | Cash Incentive Unit Measures | | 01/01/08 – 12/31/10 | Cumulative return on equity (“ROE”) or cumulative net premiums written (“NPW”) | TSR/NPW growth/statutory combined ratio | | 01/01/09 – 12/31/11 | Cumulative ROE or cumulative growth in policy count | TSR/NPW growth/statutory combined ratio | | 01/01/10 – 12/31/12 | Cumulative ROE or cumulative growth in policy count | TSR/NPW growth/statutory combined ratio |
In determining the amount of long-term compensationLTIP awards granted to the NEOs in 2008,2010, the SEBC looked at several factors, including: (i) each individual executive’sNEO’s ability to drive and impact our performance over the three-year grant term; (ii) each NEO’s performance during the previous year, including the achievement of department initiatives and other projects and endeavors accomplished throughout the year, as outlined above; (ii)(iii) each executive officer’sNEO’s total compensation in comparison to benchmark data; and (iii) Selective’s(iv) our desire to encouragefor long-term retention of high-performing executives. The SEBC compared Selective’sour performance, including statutory combined ratios, revenue growth, net premium writtenratio, NPW growth, and total shareholder return,TSR, to the performance of the companies in the benchmark insurance groups to help ensure that Selective’sour executive officers are adequately and competitively compensated for the results they have achieved for Selective.in 2010. For certain executives, including the named executive officers, long-term compensation awards are allocated among three components: stock options, performance-based restricted stock units and performance-based cash incentive units.
Stock Options : Stock options are allocated to the CEO and other named executive officers ascomprised a portion of the monetized value of the executive’s long-term compensation award.our NEOs’ 2010 LTIP awards. As the value delivered by a stock option is dependent on the increase in value of the underlying shares, ana stock option award of this nature aligns the named executive officers’ interests of the NEOs with those of our stockholders. Options arewere awarded under the Selective Insurance Group, Inc. 2005 Omnibus Stock Plan, as Amended and Restated Effective as of May 1, 2010 (the “Omnibus Stock Plan”) at fair market value (thethe closing price of Selective’sour common stock as quoted on NASDAQ on the date of grant)grant (“Fair Market Value”), and they vest ratably over three years, beginning on the first anniversary of the date of grant. The valueFair Market Value of any executive’seach NEO’s stock option grant is limited to a Fair Market Value ofwas $100,000 on date of grant, so that the full option grant may qualify for incentive stock option (“ISO”) tax treatment. Selective’s useTwo percent of Mr. Murphy’s 2010 LTIP award consisted of incentive stock options, has been generally lower thanand the other financial services companies and is consistent with the Burn-Rate Commitment.NEOs received 5-6% of their 2010 LTIP award in incentive stock options.
Performance-Based Restricted Stock Units For 2008, sixty-five percent (65%): The Black-Scholes value of the remaining monetizedoptions awarded was deducted from the total monetary value of an executive’s long-term compensation is deliveredeach NEO’s LTIP award granted in 2010 to determine the “adjusted monetary value” of their award. Of the adjusted monetary value, 60% was awarded in performance-based restricted stock units granted under the Omnibus Stock Plan. Performance-based restricted stock unit grantsawards are generally subject to vesting based on time and attainment of certain performance measures that are set annually by the SEBC.SEBC for each award at the outset of the award’s performance period. The 20082010 grants are subject to the following conditions:
| | • | · | Three-year vesting period; and | |
| | • | · | Achievement at the end of any timecalendar year during the vestingthree-year period beginning on January 1, 2010 and ending on December 31, 2012 of either: (i) a cumulative operating return on equityROE of fifteen percent (15%), computedat least 12% (computed by excluding from the determination of average equity any unrealized gain occurring after December 31, 2007,2009); or (ii) a five percent (5%)5% cumulative growth in net premiums written.policy count. |
Dividend equivalent units (“DEUs”) are credited on performance-based restricted stock units at the same dividend rate paid to all Selective stockholders. Payment of DEUs remains subject to the same vesting conditions and performance measures applicable to the underlying restricted stock units. This use of performance-based restricted stock units clearly aligns this component of executives’NEOs’ compensation with overall corporate performance and stockholder interests.
Performance-Based Cash Incentive Units : The remaining thirty-five percent (35%)40% of the monetizedadjusted monetary value of an executive’s long-term compensation is delivered throughthe NEOs’ LTIP award granted in 2010 consisted of performance-based cash incentive units granted under the Cash Incentive Plan. Grants madeAs the cash incentive unit grants take into account: (i) our three-year performance, based on NPW growth and cumulative statutory combined ratio, in 2008each case relative to a peer group; and (ii) TSR on Selective common stock, they are also directly linked to Selective’s performance and the interests of stockholders. Performance-based cash incentive units granted in 2010 are subject to the following terms: Page 26
| | • | · | Three-year performance period; | |
| | • | · | The value of each cash incentive unit, initially awarded at $100 per unit, increases or decreases to reflect total shareholder returnTSR on Selective common stock over the three-year performance period for the award; and | |
| | • | · | The number of cash incentive units ultimately earned increases or decreases based on: (i) cumulative three-year statutory net premium written growth relative to a peer index, and (ii) cumulative three-year statutory combined ratio relative to a peer index. Awards are earned at target level if these performance measures are betweenon the 45th and 54.9th percentile of the peer group. If both measures are at or above the 80th percentile, 200% of the units initially awarded are earned. If both measures are below the 35th percentile, none of the units initially awarded are earned.following table: |
Cumulative 3-Year Statutory Net Premium Growth Relative to Peer Index | > = 80th percentile | 100% | 125% | 150% | 175% | 200% | 55th – 79.9th percentile | 75% | 100% | 125% | 150% | 175% | 45th – 54.9th percentile | 50% | 75% | 100% | 125% | 150% | 35th – 44.9th percentile | 25% | 50% | 75% | 100% | 125% | < 35th percentile | 0% | 25% | 50% | 75% | 100% | | | | < 35th percentile | 35th – 44.9th percentile | 45th – 54.9th percentile | 55th – 79.9th percentile | > = 80th percentile | | | | Cumulative 3-Year Statutory Combined Ratio Relative to Peer Index |
The peer group (the “Cash Incentive Unit Peer Group”) established for 2010 for comparing Selective’s performance for the purposes of determining the ultimate number of performance-based cash incentive units awardedearned consists of the following companies:
| | | Auto-Owners Insurance Group | | CNA Group LLC | · Liberty Mutual Group Inc. | | The Travelers Companies, Inc. | Hartford Fire Group | | Harleysville Group Inc. | Safeco Insurance Company of America | | · Cincinnati Financial Corporation ·Utica National Insurance Group | Erie Insurance Exchange· State Auto Financial Corporation | · United Fire & Casualty · CNA Financial Corporation · Harleysville Group Inc. · Westfield Group | · Main Street America (National Grange) · The Hanover Insurance Group, Inc. | Cincinnati Financial Corporation | | W. R. Berkley Corporation | OneBeacon· Auto-Owners Insurance Group Ltd | | |
Use
2007 Long-Term Incentive Program Award Grant Results
The following table summarizes the achievement of the cash incentive units in lieu of stock options or restricted stock units conserves share usage consistent withperformance metrics for the Burn-Rate Commitment. Since2007 LTIP award grants and the cashcorresponding payout:
| Performance Metrics | Actual Performance Versus
Performance Metrics | Percentage Achieved | | 2007 Grant Results | | | | Restricted Stock | | | · Generate a cumulative fiscal year return on average equity of at least 20% at any time during such period; or achieve a 10% cumulative growth NPW at any time during the period of January 1, 2007 to December 31, 2009 | Achieved 20% cumulative ROE | 100% | Cash Incentive Units(1) | | | · TSR over the three-year performance period, and cumulative three-year statutory NPW growth and statutory combined ratio relative to peer index during the period of January 1, 2007 to December 31, 2009 | Achieved a TSR factor of 62.14%, a statutory combined ratio of 99.22% and NPW growth of -8.17% | 50% of units at $62.14 |
(1) Cash incentive unit grants take into accountawards are denominated in units with an initial value of $100. Appreciation or depreciation is based on TSR, which is determined using the change in Selective’s common stock price and reinvested dividends over the three-year performance period for the award. The number of units ultimately earned increases or decreases based on: (i) cumulative three-year statutory NPW growth relative to itsa peer groupindex; and total shareholder return on its common stock, this award is also directly linked(ii) cumulative three-year statutory combined ratio relative to company performance and the interests of stockholders.a peer index.
Timing of LTIP Awards Generally, stock: Stock option, restricted stock unit, and cash incentive unit awards are generally granted each year in connection withfollowing the SEBC’s regularly scheduled firstrelease of Selective’s fourth quarter meeting. It was at this time, at their respective meetings, that theand year-end earnings results. The SEBC and the Board of Directors reviewedreview final year-end results for the prior year in connection with their regularly scheduled first quarter meeting and the SEBC mademakes final determinations on compensation.
Stock Ownership Requirements
Selective believes that stock ownership by directors and management encourages the enhancement of stockholder value and, accordingly, adopted, effective January 31, 2008,value. Selective’s stock ownership guidelines are included in our Corporate Governance Guidelines, which are available in the Corporate Governance subsection of the Investor Relations section of www.selective.com. The following table shows the common stock ownership guidelines for Directorsour directors and certain officers, as partwhich must be met at the later of its Corporate Governance Guidelines posted on Selective’s website at www.selective.com:March 31, 2014 or within five years of attaining the specified position:
| POSITION | REQUIREMENT | | Directors | 4 x annual retainer | | Chairman, President & CEO | 4 x base salary | | Senior Executive Vice Presidents and Executive Vice Presidents | 2.5 x base salary | | Senior Vice Presidents | 1.5 x base salary |
In calculating ownership under the guidelines: | | •· | | Each director shall, within five (5) years of his or her first election to the Board, beneficially own at least four (4) times the cash value of his or her annual retainer in shares of Selective common stock. Shares of Selectiveour common stock currently owned, awards of restricted stock or restricted stock units (included related dividend equivalent units) not yet vested, and shares of Selective common stock held in benefit plan investments (i.e.,401(k) Plan)plan) are considered in determining such ownership. counted; |
| · | Unexercised stock options are not counted in calculating ownership. Deferred stock units held in the accounts of directors under the Deferred Compensation Plan for directors are counted in calculating ownership.counted; and |
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The current requirements for certain officers of Selective are as follows:
| | · | | Chairman, President & CEO | | 4 x base salary | Senior Executive Vice Presidents and Executive Vice Presidents | | 2.5 x base salary | Senior Vice Presidents | | 1.5 x base salaryDeferred shares of our common stock held in accounts of directors are counted. |
The above stock
We believe that our directors and officers are on track to meet the required ownership requirements for officers must be met no later than December 31, 2013, or within five (5) years from the attainmentguidelines.
PERQUISITES
NEO perquisites are limited to tax preparation services, which is a prevailing industry practice. None of the above officer status, whichever is later. Base salary increases during the five (5) year period will require the ultimate ownership requirements to increase when shares are valued on the December 31 following such increase. Sharescontinuing NEOs took advantage of Selective common stock currently owned, awardsthis perquisite in 2010. Mr. Guthrie used this service in 2010 at a cost of restricted stock or restricted stock units not yet vested and shares of Selective common stock held in benefit plan investments (i.e.,401(k) Plan) are considered in determining such ownership. Unexercised stock options are not counted in calculating stock ownership.$974. Role of Executive Officers in Determining Compensation
The SEBC makes all final determinations with respect to executive officers’ compensation, primarily based on information provided by its Compensation Consultant. Selective’s CEO does make recommendations to the SEBC relating to the compensation of executive officers who directly report to him, but the SEBC has full autonomy in determining executive compensation. As part of their responsibilities, the Executive Vice President of Human Resources and certain other human resources officers provide information to the SEBC regarding the overall design of the executive compensation program and its individual components.RETIREMENT AND DEFERRED COMPENSATION PLANS
Retirement and Deferred Compensation Plans
Selective’s wholly-owned lead insurance subsidiary, Selective Insurance Company of America (“SICA”), employs theall of our personnel, engaged in Selective’s insurance operations, including all of the namedNEOs. We strive to provide a competitive retirement benefit program that allows us to attract and retain talent for the organization. This includes both a defined contribution and a defined benefit program depending on date of hire. In addition, SICA offers a non-qualified deferred compensation plan (“Deferred Compensation Plan”) to our highly compensated officers, including the NEOs. These plans are consistent with benefits provided by many of the companies with which we compete for executive officers.talent.
Specifically, SICA maintains a non-contributory defined benefit pension program consisting of a tax qualified defined benefit pension plan named the Retirement Income Plan for Selective Insurance Company of America (the “Retirement Income Plan”) and a supplemental employee retirement plan for certain executives and maintains health and welfare benefit plans in which eligible employees, including the named executive officers, participate.employees. The pension program is more fully described in the section entitled “Pension Benefits” beginning on page 35.44. SICA offers a tax qualified defined contribution plan named the Selective Insurance Retirement Savings Plan (the “Retirement Savings Plan”) to employees, including the named executive officers,NEOs, who meet eligibility requirements. Participants, other than highly compensated employees as defined by the Internal Revenue Service, cancould contribute 50% of their defined compensation to the Retirement Savings Plan, up to $15,500$16,500 in 2008.2010. Highly compensated employees arewere limited to 8%9% of their defined compensation, up to $15,500$16,500 in 2008.2010. Contributions by participants of up to a maximum of 7% of defined compensation arewere matched 65% by SICA. Participants over the age of 50, including certain of the named executive officers,NEOs, may make an additional $5,000$5,500 catch-up contribution to the Retirement Savings Plan, pursuant to the Internal Revenue Code, which contribution is not eligible for a company match.Code. Effective January 1, 2006, the Retirement Savings Plan was amended to include additional enhanced matching contributions and non-elective contributions for otherwise eligible employees who, because of a date of hire after December 31, 2005, are not eligible to participate in the Retirement Income Plan. None of the named executive officersNEOs are eligible for the enhanced matching or the additional non-elective contributions.
Effective January 1, 2011, the Retirement Savings Plan was amended to: (i) change the match so that participant contributions are matched at 100% to the first 3% of the employee’s defined compensation and 50% up to the next 3% of the employee’s defined compensation; (ii) eliminate the enhanced matching contribution and increase the non-elective contribution to 4%; and (iii) immediately vest all company matching and non-elective contributions.
Under SICA’sthe Deferred Compensation Plan, certain executives and employees, including the named executive officers,NEOs, may defer up to 50% of their base salary and/or up to 100% of their ACIP.ACIP payment. To the extent not matched in the Retirement Savings Plan, due to limitations under the Internal Revenue Code, contributions to the Deferred Compensation Plan by participants of up to 7% of base salary arewere matched 65% by SICA. Additionally, to the extent that a non-elective contribution is not made in the Retirement Savings Plan due to the limitations under the Internal Revenue Code and the plan, non-elective contributions of 4% of base salary are made by SICA. Additional information regarding the deferred compensationDeferred Compensation Plan is included underin the section entitled “Nonqualified Deferred Compensation” beginning on page 35. Page 28
Employment Agreements46.
Selective has
SICA also maintains health and welfare benefit plans in which eligible employees, including the NEOs, participate.
EMPLOYMENT AGREEMENTS
SICA entered into employment agreements containingwith its key executive officers, including the NEOs, which provide for severance in the event of termination: (i) due to death or disability; (ii) without “Cause”4; (iii) by the executive for “Good Reason”5; or (iv) after a change in control. The SEBC was advised by its Compensation Consultant that the terms of these agreements were market competitive within our peer group when they were executed, and the SEBC believes that these agreements are important for recruitment and retention of key executives. In the event of a change in control, provisions.uncertainty may arise among our key executives as to their continued employment after or in connection with such event, which may result in the departure or distraction of our key executives. The purpose of the employment agreements is to retain our key executives and reinforce and encourage their continued attention and dedication during such a potentially critical time, even if they fear that their position will be terminated after or in connection with the change in control. With respect to severance payments and continued insurance coverages, the change in control provision of the employment agreements requires that the 4 “Cause” is defined in the employment agreements, but generally means the executive: (i) was convicted of or pled guilty to a felony; (ii) breached a material provision of his employment agreement; or (iii) engaged in misconduct which constitutes fraud in the performance of his duties and obligations to the Company. 5 “Good Reason” is defined in the employment agreements, but generally means: (i) a material reduction in salary; (ii) a material negative change in the executive’s benefits; (iii) a material reduction of the executive’s position, duties, responsibilities, and status with the Company or material negative change in title or office; (iv) requiring the executive to be based at a location in excess of 50 miles from the location of the executive’s office prior to a change in control; (v) failure of a counterparty to a transaction resulting in a change in control to assume the employment agreement; or (vi) a breach of the employment agreement by SICA within two years after a change in control. executive’s employment be terminated within two years following a change in control. This double trigger ensures such a payout does not automatically occur upon a change in control only. Outstanding awards under our stock and cash plans, however, vest and become exercisable upon a change in control for all employees, including the NEOs. The employment agreements are described underin the section entitled “Employment Agreements and Potential Payments Uponupon Termination or Change of Control” beginning on page 37.47. This section includes information on multipliers used in calculating the severance payment and duration of benefit coverage provided to individual executives upon termination. These multipliers are consistent with the level and value of the position to the organization.
TAX TREATMENT AND ACCOUNTING
The SEBC intends to preserve deductibility under the Internal Revenue Code for performance-based compensation paid to its executive officers as practicable. Section 162(m) of the Internal Revenue Code prohibits publicly-owned companies from deducting compensation paid to certain of its executive officers as expense to the extent that the officer’s compensation in excess of $1 million is not performance-based and is not paid pursuant to a stockholder approved plan. Selective has two performance-based stockholder approved plans: (i) the Omnibus Stock Plan; and (ii) the Cash Incentive Plan.
U.S. generally accepted accounting principles (“GAAP”) require that compensation expense be measured on the income statement for all share-based payments at grant date fair value of equity instruments (including employee stock options and restricted stock and restricted stock unit awards) and at market value on the day of vesting of liability instruments (including cash incentive unit awards). The SEBC has considered the impact of GAAP on our use of stock-based compensation as a key retention tool. The SEBC has determined that the current estimated costs of continuing to use stock-based compensation relative to the benefits our compensation programs provide, does not warrant any change to our current incentive framework.
We have designed our compensation programs and awards to executive officers to comply with the provisions of Section 409A of the Internal Revenue Code, where applicable. For example, payments made to our executive officers under our non-qualified deferred compensation plans on account of the executives’ separation from service are not payable before the first day of the seventh month following the date of separation from service.
The following Summary Compensation Table reflects the compensation earned by or paid to the named executive officers.NEOs during 2008, 2009, and 2010. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in | | | | | | | | | | | | | | | | | | | | | | | | Non-Equity | | Pension Value | | | | | | | | | | | | | | | | | | | | | | | | Incentive | | and Nonqualified | | | | | | Name | | | | | | | | | | Stock | | Option | | Plan | | Deferred | | All Other | | | | And | | | | | | Salary | | Awards | | Awards | | Compensation | | Compensation | | Compensation | | Total | | Principal Position | | Year | | ($)(1) | | ($)(2) | | ($)(3) | | ($)(4) | | Earnings ($)(5) | | ($)(6) | | ($) | Gregory E. Murphy | | | 2008 | | | | 900,000 | | | | 1,708,294 | | | | 23,139 | | | | 650,000 | | | | 459,931 | | | | 42,150 | | | | 3,783,514 | | | Chairman, President and Chief | | | 2007 | | | | 900,000 | | | | 1,876,425 | | | | 25,633 | | | | 900,000 | | | | 85,449 | | | | 40,989 | | | | 3,828,496 | | | Executive Officer | | | 2006 | | | | 876,923 | | | | 2,460,513 | | | | 28,066 | | | | 1,500,000 | | | | 158,637 | | | | 42,900 | | | | 5,067,039 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dale A. Thatcher | | | 2008 | | | | 465,769 | | | | 164,747 | | | | 12,662 | | | | 250,000 | | | | 43,062 | | | | 21,193 | | | | 957,433 | | | Executive Vice | | | 2007 | | | | 405,000 | | | | 207,953 | | | | 15,664 | | | | 300,000 | | | | 13,696 | | | | 18,428 | | | | 960,741 | | | President, Chief | | | 2006 | | | | 342,308 | | | | 242,166 | | | | 17,152 | | | | 420,000 | | | | 14,245 | | | | 17,075 | | | | 1,052,946 | | | Financial Officer and Treasurer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Richard F. Connell | | | 2008 | | | | 450,000 | | | | 597,923 | | | | 23,139 | | | | 275,000 | | | | 96,035 | | | | 21,491 | | | | 1,463,588 | | | Senior Executive | | | 2007 | | | | 411,538 | | | | 561,175 | | | | 24,318 | | | | 350,000 | | | | 49,037 | | | | 19,250 | | | | 1,415,318 | | | Vice President and | | | 2006 | | | | 375,385 | | | | 327,237 | | | | 18,351 | | | | 485,000 | | | | 44,406 | | | | 17,755 | | | | 1,268,134 | | | Chief Administrative Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Kerry A. Guthrie | | | 2008 | | | | 421,154 | | | | 543,683 | | | | 23,139 | | | | 325,000 | | | | 151,006 | | | | 19,279 | | | | 1,483,261 | | | Executive Vice | | | 2007 | | | | 392,615 | | | | 607,940 | | | | 25,633 | | | | 495,000 | | | | 49,640 | | | | 20,762 | | | | 1,591,590 | | | President and Chief | | | 2006 | | | | 347,077 | | | | 338,280 | | | | 20,047 | | | | 400,000 | | | | 59,761 | | | | 18,263 | | | | 1,183,428 | | | Investment Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ronald J. Zaleski | | | 2008 | | | | 395,385 | | | | 218,379 | | | | 14,470 | | | | 200,000 | | | | 54,649 | | | | 17,990 | | | | 900,873 | | | Executive Vice | | | 2007 | | | | 367,385 | | | | 183,074 | | | | 15,746 | | | | 275,021 | | | | 19,157 | | | | 21,869 | | | | 882,252 | | | President and Chief | | | 2006 | | | | 349,923 | | | | 219,045 | | | | 17,152 | | | | 390,000 | | | | 22,178 | | | | 21,162 | | | | 1,019,460 | | | Actuary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | Year | Salary ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compen-sation ($)(4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings($)(5) | All Other Compen-sation ($)(6) | Total ($) | Gregory E. Murphy Chairman, President & Chief Executive Officer | 2010 2009 2008 | 900,000 934,616 900,000 | 1,176,392 1,329,413 1,576,973 | 23,695 20,602 23,139 | 600,000 400,000 650,000 | 529,748 448,515 459,931 | 40,950 42,525 61,071 | 3,270,785 3,175,671 3,671,114 | Dale A. Thatcher Executive Vice President & Chief Financial Officer | 2010 2009 2008 | 475,000 493,269 465,769 | 401,194 401,589 505,484 | 23,695 20,602 23,139 | 300,000 291,300 250,000 | 70,926 52,350 43,062 | 21,613 64,041 33,370 | 1,292,428 1,323,151 1,320,824 | Richard F. Connell(7) Senior Executive Vice President & Chief Administrative Officer | 2010 2009 2008 | 450,000 467,308 450,000 | 401,393 454,465 551,915 | 23,695 20,602 23,139 | 200,000 242,800 275,000 | 108,658 103,242 96,035 | 20,475 20,513 51,471 | 1,204,221 1,308,930 1,447,560 | Michael H. Lanza Executive Vice President, General Counsel & Chief Compliance Officer | 2010 2009 2008 | 435,000 451,731 435,000 | 354,146 354,832 337,565 | 23,695 20,602 23,139 | 225,000 218,500 200,000 | 42,017 28,929 22,774 | 19,207 43,883 46,100 | 1,099,065 1,118,477 1,064,578 | John J. Marchioni Executive Vice President, Insurance Operations | 2010 2009 2008 | 375,000 381,731 325,000 | 401,194 308,075 265,681 | 23,695 20,602 23,139 | 300,000 291,300 175,000 | 46,968 33,176 22,866 | 17,063 30,525 18,829 | 1,163,920 1,065,409 830,515 | Kerry A. Guthrie Former Executive Vice President & Chief Investment Officer | 2010 2009 2008 | 106,250 441,346 421,154 | 376,391 404,469 501,921 | 23,695 20,602 23,139 | 0 150,000 325,000 | 120,475 159,938 151,006 | 767,822 16,548 26,735 | 1,394,633 1,192,903 1,448,955 |
(1) Although the CEO and other NEOs, other than Mr. Marchioni, did not receive a base salary increase in 2009, the Summary Compensation Table shows an increase in salary dollars for 2009. This increase was due to pay period timing that resulted in an extra pay period in 2009 (27 vs. 26). This pay period timing occurs approximately once every decade. Consequently, the NEOs, as well as every employee in the organization who was employed for the full year, were paid an additional pay period in 2009. This did not result in an ongoing increase to the NEOs or any employee’s annual base pay rate. The amounts in this column include any salary that certain NEOs have deferred into SICA’s Deferred Compensation Plan. Such amounts are also included in the Nonqualified Deferred Compensation table on page 46. (2) This column reflects the aggregate grant date fair value of the 2010, 2009, and 2008 grants of performance-based restricted stock unit awards, and 2010, 2009, and 2008 grants of performance-based cash incentive unit awards. Grants of performance-based restricted stock units were made pursuant to the Omnibus Stock Plan, and such shares vest three years from the date of grant, conditioned upon the attainment of certain predetermined performance goals. Grants of performance-based cash incentive unit awards were made pursuant to the Cash Incentive Plan, and such units vest at the payment date, which is as soon as practicable in the calendar year following the end of the calendar year coincident with the end of the three-year performance period. The value of each cash incentive unit initially awarded increases or decreases to reflect TSR on Selective common stock over the three-year performance period for the award. The number of cash incentive units ultimately earned increases or decreases based on: (i) cumulative three-year statutory NPW growth relative to a peer index; and (ii) cumulative three-year statutory combined ratio relative to a peer index. Restricted stock unit and cash incentive unit awards are subject to forfeiture should the grantee resign or be terminated for cause prior to vesting. The grant date fair values for the aggregate of each of the performance-based restricted stock unit and performance-based cash incentive unit awards granted in 2010 to the NEOs are as follows: Mr. Murphy: $705,792 restricted stock units and $470,600 cash incentive units; Mr. Thatcher: $230,594 restricted stock units and $170,600 cash incentive units; Mr. Connell: $240,793 restricted stock units and $160,600 cash incentive units; Mr. Lanza: $203,546 restricted stock units and $150,600 cash incentive units; Mr. Marchioni: $230,594 restricted stock units and $170,600 cash incentive units; and Mr. Guthrie: $225,791 restricted stock units and $150,600 cash incentive units. The grant date fair values for the aggregate of each of the performance-based restricted stock unit and performance-based cash incentive unit awards granted in 2009 to the NEOs are as follows: Mr. Murphy: $864,113 restricted stock units and $465,300 cash incentive units; Mr. Thatcher: $251,289 restricted stock units and $150,300 cash incentive units; Mr. Connell: $295,365 restricted stock units and $159,100 cash incentive units; Mr. Lanza: $222,032 restricted stock units and $132,800 cash incentive units; Mr. Marchioni: $192,775 restricted stock units and $115,300 cash incentive units; and Mr. Guthrie: $262,869 restricted stock units and $141,600 cash incentive units. | | | (1) | | The amounts in this column include portions of salary that certain named executive officers have deferred into SICA’s Deferred Compensation Plan. Such amounts are also included in the Nonqualified Deferred Compensation table on page 36. | | (2) | | This column reflects amounts recognized as expense for the 2008 grants of performance-based restricted stock units, 2007 and 2006 grants of performance-based restricted stock, and 2008, 2007, 2006 and performance-based cash incentive unit awards. Grants of performance-based restricted stock and performance-based restricted stock units were made pursuant to the Omnibus Stock Plan, under which such shares vest three years from the date of grant, conditioned upon the attainment of certain predetermined performance goals. Grants of cash incentive unit awards were made pursuant to the Cash Incentive Plan, under which such units vest at the payment date, which is as soon as practicable in the calendar year following the end of the calendar year coincident with the end of the three-year performance period. The value of each cash incentive unit initially awarded increases or decreases to reflect total shareholder return on Selective common stock over the three-year performance period for the award. The number of cash incentive units ultimately earned increases or decreases based on: (i) cumulative three-year statutory net premium written growth relative to a peer index, and (ii) cumulative three-year statutory combined ratio relative to a peer index. Restricted stock, restricted stock unit, and cash incentive unit awards are subject to forfeiture should the grantee resign or be terminated for cause prior to vesting. Amounts recognized as expense for performance-based restricted stock and performance-based cash incentive unit awards granted in 2006 to the named executive officers are as follows: Mr. Murphy: $709,476 restricted stock and $1,751,037 cash incentive units; Mr. Thatcher: $69,838 restricted stock and $172,328 cash incentive units; Mr. Connell: $77,237 restricted stock and $250,000 cash incentive units; Mr. Guthrie: $71,067 restricted stock and $267,213 cash incentive units; and Mr. Zaleski: $63,171 restricted stock and $155,874 cash incentive units. Amounts recognized as expense for performance-based restricted stock and performance-based cash incentive unit awards granted in 2007 to the named executive officers are as follows: Mr. Murphy: $1,331,279 restricted stock and $545,146 cash incentive units; Mr. Thatcher: $147,518 restricted stock and $60,435 cash incentive units; Mr. Connell: $398,125 restricted stock and $163,050 cash incentive units; Mr. Guthrie: $431,302 restricted stock and $176,638 cash incentive units; and Mr. Zaleski: $129,868 restricted stock and $53,206 cash incentive units. Amounts recognized as expense for performance-based restricted stock unit and performance-based cash incentive unit awards granted in 2008 to the named executive officers are as follows: Mr. Murphy: $1,024,973 restricted stock units and $683,321 cash incentive units; Mr. Thatcher: $94,931 restricted stock units and $69,816 cash incentive units; Mr. Connell: $358,715 restricted stock units and $239,208 cash incentive units; Mr. Guthrie: $326,221 restricted stock units and $217,462 cash incentive units; and Mr. Zaleski: $129,854 restricted stock units and $88,525 cash incentive units. The expense reported in this column assumes the following: (i) the predetermined performance goals for the restricted stock unit grants are probable of being attained; (ii) per units values for the 2008, 2007, and 2006 cash incentive unit awards of $102.09, $81.89, and $109.69, respectively; and (iii) a 150% peer group unit multiplier for the 2007 and 2006 grants and a 125% peer group unit multiplier for the 2008 grants. | | (3) | | This column reflects amounts recognized as expense for the 2008, 2007, and 2006 option grants. The grant date fair value of these grants is calculated using the Black-Scholes option valuation method, in accordance with FAS 123R. For a discussion of the weighted-average assumptions used in the valuation of these awards, see Item 8. Financial Statements and Supplementary Data, Note 16, Share-Based Payments, in Selective’s Annual Report on Form 10-K for the year ended December 31, 2008; Item 8. Financial Statements and Supplementary Data, Note 17, Share-Based Payments, in Selective’s Annual Report on Form 10-K for the year ended December 31, 2007; and Item 8. Financial Statements and Supplementary Data, Note 18, Share-Based Payments, in Selective’s Annual Report on Form 10-K for the year ended December 31, 2006. Grants were made pursuant to the Omnibus Stock Plan, under which such options vest one-third each year, beginning the first anniversary of the grant date. The grants are subject to forfeiture should the grantee resign or be terminated for cause prior to vesting. |
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| | | (4) | | Amounts in this column include: (i) ACIP awards earned in 2008 and paid in March 2009 under the Cash Incentive Plan for Messrs. Murphy, Thatcher, Connell, and Zaleski, and for Mr. Guthrie, includes the annual incentive compensation payment earned in 2008 and paid in March 2009 under the IDCP; (ii) ACIP awards earned in 2007 and paid in 2008 under the Cash Incentive Plan for Messrs. Murphy, Thatcher, Connell, and Zaleski, and for Mr. Guthrie, includes the annual incentive compensation payment earned in 2007 and paid in 2008 under the IDCP; and (iii) ACIP awards earned in 2006 and paid in 2007 under the Cash Incentive Plan for Messrs. Murphy, Thatcher, Connell, and Zaleski, and for Mr. Guthrie, includes the annual incentive compensation payment earned in 2006 and paid in 2007 under the Investment Compensation Program. | | (5) | | Amounts in this column reflect the actuarial increase in the present value of each named executive officer’s pension benefits under all defined benefit pension plans of the company, determined using the same interest rate and mortality assumptions as those used for financial statement reporting purposes. There were no changes to the benefit formulas under the defined pension benefit plans in 2008. The increase in pension values reported in this column are attributable to the use of a different mortality table, a decrease in the discount rate used to calculate present value, along with the increase of years of service of the named executive officers. There were no above-market or preferential earnings on deferred compensation under the company’s nonqualified deferred compensation program. | | (6) | | For 2006, amounts in this column for each named executive officer reflect the following: |
The grant date fair values for the aggregate of each of the performance-based restricted stock unit and performance-based cash incentive unit awards granted in 2008 to the NEOs are as follows: Mr. Murphy: $1,024,973 restricted stock units and $552,000 cash incentive units; Mr. Thatcher: $320,984 restricted stock units and $184,500 cash incentive units; Mr. Connell: $358,715 restricted stock units and $193,200 cash incentive units; Mr. Lanza: $214,365 restricted stock units and $123,200 cash incentive units; Mr. Marchioni: $168,681 restricted stock units and $97,000 cash incentive units; and Mr. Guthrie: $326,221 restricted stock units and $175,700 cash incentive units. The aggregate grant date fair value reported in this column assumes the following: (i) the predetermined performance goals for the restricted stock unit grants are probable of being attained; (ii) per unit values for the cash incentive unit awards of $100.00; and (iii) a 100% peer group unit multiplier for cash incentive unit awards. The maximum value assuming the highest level of performance conditions for the performance-based restricted stock units are consistent with the amounts above. Although the maximum number of performance-based cash incentive units potentially issuable is 200% of the original grant, the ultimate maximum value of the grant cannot be determined due to the fact that, as stated above, the value of each unit is adjusted based on the TSR of Selective common stock, the maximum value of which is not determinable at this time. (3) This column reflects the aggregate grant date fair value for the 2010, 2009, and 2008 option grants. The aggregate grant date fair value of these grants is calculated using the Black-Scholes option valuation method. For a discussion of the weighted-average assumptions used in the valuation of these awards, see Item 8. Financial Statements and Supplementary Data, Note 16, Share-Based Payments, in Selective’s Annual Report on Form 10-K for the year ended December 31, 2010; Item 8. Financial Statements and Supplementary Data, Note 17, Share-Based Payments, in Selective’s Annual Report on Form 10-K for the year ended December 31, 2009; and Item 8. Financial Statements and Supplementary Data, Note 16, Share-Based Payments, in Selective’s Annual Report on Form 10-K for the year ended December 31, 2008. Grants were made pursuant to the Omnibus Stock Plan, and such options vest one-third each year, beginning on the first anniversary of the grant date. The grants are subject to forfeiture should the grantee be terminated for cause prior to vesting. If the grantee resigns prior to vesting, any outstanding options that were vested at the time of separation from the company expire 90 days from the separation date. (4) Amounts in this column include awards to the NEOs earned in 2010 and paid in 2011, earned in 2009 and paid in 2010, and earned in 2008 and paid in 2009. These awards made to Messrs. Murphy, Thatcher, Connell, Lanza, and Marchioni were granted under the Cash Incentive Plan and the awards made to Mr. Guthrie were granted under the Investment Department Compensation Program. (5) Amounts in this column reflect the actuarial increase in the present value of each NEOs pension benefits under all defined benefit pension plans of SICA, determined using the same interest rate and mortality assumptions as those used for financial statement reporting purposes. There were no changes to the benefit formulas under the defined pension benefit plans in 2010. The increases in pension values reported in this column are attributable to a decrease in the discount rate used to calculate present value along with the increase of years of service of the NEOs. There were no above-market or preferential earnings on deferred compensation under SICA’s nonqualified deferred compensation program. (6) For 2010, amounts in this column for each NEO reflect the following: | | • | ● | Mr. Murphy: $33,075$30,225 of company matching contributions to Mr. Murphy’shis Deferred Compensation Plan $3,000 for tax preparation services, and $6,825$10,725 of company matching contributions to Mr. Murphy’shis 401(k) plan. | |
| | • | ● | Mr. Thatcher: $13,312$10,888 of company matching contributions to Mr. Thatcher’shis Deferred Compensation Plan $1,500 for tax preparation services, and $2,263$10,725 of company matching contributions to Mr. Thatcher’shis 401(k) plan. | |
| | • | ● | Mr. Connell: $7,330 of company matching contributions to Mr. Connell’s Deferred Compensation Plan, $675 for tax preparation services, and $9,750 of company matching contributions to Mr. Connell’s 401(k) plan. | | | • | | Mr. Guthrie: $12,936his Deferred Compensation Plan and $10,725 of company matching contributions to his 401(k) plan. |
| ● | Mr. Guthrie’s Deferred Compensation Plan, $1,660 for tax preparation services, $2,937Lanza: $8,482 of company matching contributions to Mr. Guthrie’s 401(k) plan,his Deferred Compensation Plan and $730 representing the difference between the market rate of interest and the actual rate of interest on indebtedness to the company. | | | • | | Mr. Zaleski: $10,237$10,725 of company matching contributions to his 401(k) plan. |
| ● | Mr. Zaleski’s Deferred Compensation Plan, $1,175 for tax preparation services, and $9,750Marchioni: $6,338 of company matching contributions to Mr. Zaleski’shis Deferred Compensation Plan and $10,725 of company matching contributions to his 401(k) plan. |
For 2007, amounts in this column for each named executive officer reflect the following: | | • | ● | Mr. Murphy: $30,875Guthrie: $748,333 of severance; $10,480 paid on Mr. Guthrie’s behalf to purchase disability insurance and $3,201 paid on Mr. Guthrie’s behalf to purchase life insurance, all in connection with his departure from Selective and pursuant to the terms of his employment agreement; $290 of company matching contributions to Mr. Murphy’shis Deferred Compensation Plan, and $10,114Plan; $4,544 of company matching contributions to Mr. Murphy’shis 401(k) plan. | | | • | | Mr. Thatcher: $15,569 of company matching contributions to Mr. Thatcher’s Deferred Compensation Plan,plan account; and $2,859 of company matching contributions to Mr. Thatcher’s 401(k) plan. | | | • | | Mr. Connell: $8,650 of company matching contributions to Mr. Connell’s Deferred Compensation Plan, $525$974 for tax preparation services, and $10,075 of company matching contributions to Mr. Connell’s 401(k) plan. | | | • | | Mr. Guthrie: $14,790 of company matching contributions to Mr. Guthrie’s Deferred Compensation Plan, $2,280 for tax preparation services, $3,075 of company matching contributions to Mr. Guthrie’s 401(k) plan, and $617 representing the difference between the market rate of interest and the actual rate of interest on indebtedness to the company. | | | • | | Mr. Zaleski: $16,716 of company matching contributions to Mr. Zaleski’s Deferred Compensation Plan, $1,415 for tax preparation services, and $3,738 of company matching contributions to Mr. Zaleski’s 401(k) plan.services. |
For 2008, amounts (7) Richard F. Connell will retire from Selective, effective April 1, 2011, as announced in this column for each named executive officer reflecta press release, dated December 2, 2010 and filed with the following:SEC on December 2, 2010 on a Form 8-K. | • | | Mr. Murphy: $30,875 of company matching contributions to Mr. Murphy’s Deferred Compensation Plan, $1,200 for tax preparation services, and $10,075 of company matching contributions to Mr. Murphy’s 401(k) plan. | | | • | | Mr. Thatcher: $11,118 of company matching contributions to Mr. Thatcher’s Deferred Compensation Plan, and $10,075 of company matching contributions to Mr. Thatcher’s 401(k) plan. | | | • | | Mr. Connell: $10,400 of company matching contributions to Mr. Connell’s Deferred Compensation Plan, $1,016 for tax preparation services, and $10,075 of company matching contributions to Mr. Connell’s 401(k) plan. | | | • | | Mr. Guthrie: $7,762 of company matching contributions to Mr. Guthrie’s Deferred Compensation Plan, $938 for tax preparation services, $10,075 of company matching contributions to Mr. Guthrie’s 401(k) plan, and $504 representing the difference between the market rate of interest and the actual rate of interest on indebtedness to the company. | | | • | | Mr. Zaleski: $7,915 of company matching contributions to Mr. Zaleski’s Deferred Compensation Plan, and $10,075 of company matching contributions to Mr. Zaleski’s 401(k) plan. |
The following table shows the grants of plan based awards to our named executive officersNEOs in 2008:2010: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grant Date | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair Value | | | | | | | | | | | | | | | | | | | | | | Estimated Future Payouts Under Equity | | | All Other | | | | | | | | of Cash | | | | | | | | | | | | | | | | | | | | | | Incentive Plan Awards(2) | | | Option | | | | | | | | Incentive | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Re- | | | Awards: | | | Exercise | | | Unit, | | | | | | | | | | | | Estimated Future | | | | | | | | | | | | | | | | | | stricted | | | Number of | | | or Base | | | Restricted | | | | | | | | | | | | Payouts Under Non- | | | | | | | | | | | | | | | | | | Stock | | | Securities | | | Price of | | | Stock, and | | | | | | | | | | | | Equity Incentive Plan | | | | | | | | | | | | | | | | | | Awards | | | Underlying | | | Option | | | Option | | | | | | | | | | | | Awards(1) | | | Cash Incentive Unit Awards(3) | | | (#) | | | Options | | | Awards | | | Awards(4) | | | | Name | | | Grant Date | | | Minimum($) | | | Maximum ($) | | | Threshold (#) | | | Target (#) | | | Maximum (#) | | | Maximum (#) | | | (#) | | | ($/Sh) | | | ($) | | | | Gregory E. Murphy | | | | 2/6/2008 | | | | $ | 0 | | | | $ | 1,800,000 | | | | | 2,760 | | | | | 5,520 | | | | | 11,040 | | | | | 42,583 | | | | | 4,154 | | | | $ | 24.07 | | | | $ | 1,600,111 | | | | | Dale A. Thatcher | | | | 2/6/2008 | | | | $ | 0 | | | | $ | 712,500 | | | | | 923 | | | | | 1,845 | | | | | 3,690 | | | | | 14,228 | | | | | 4,154 | | | | $ | 24.07 | | | | $ | 550,106 | | | | | Richard F. Connell | | | | 2/6/2008 | | | | $ | 0 | | | | $ | 787,500 | | | | | 966 | | | | | 1,932 | | | | | 3,864 | | | | | 14,903 | | | | | 4,154 | | | | $ | 24.07 | | | | $ | 575,053 | | | | | Kerry A. Guthrie | | | | 2/6/2008 | | | | $ | 0 | | | | $ | 797,160 | | | | | 879 | | | | | 1,757 | | | | | 3,514 | | | | | 13,553 | | | | | 4,154 | | | | $ | 24.07 | | | | $ | 525,059 | | | | | Ronald J. Zaleski | | | | 2/6/2008 | | | | $ | 0 | | | | $ | 600,000 | | | | | 748 | | | | | 1,495 | | | | | 2,990 | | | | | 11,528 | | | | | 4,154 | | | | $ | 24.07 | | | | $ | 450,117 | | | | |
| Name | Grant Date | Estimated Future Payouts under Non- Equity Incentive Plan Awards(1) | Estimated Future Payouts under Equity Incentive Plan Awards(2) | All Other Option Awards: Number of Secur- ities Under- lying Options (#) | Exer- cise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Cash Incentive Unit, Restricted Stock Units, and Option Awards(4) ($) | Cash Incentive Unit Awards(3) | Re- stricted Stock Unit Awards (#) | Thres- hold ($) | Maximum ($) | Thres- hold (#) | Target (#) | Max- imum (#) | Maximum (#) | Gregory E. Murphy | 2/5/2010 | $0 | $1,800,000 | 2,353 | 4,706 | 9,412 | 45,447 | 6,439 | $15.53 | $1,200,087 | Dale A. Thatcher | 2/5/2010 | $0 | $712,500 | 853 | 1,706 | 3,412 | 16,471 | 6,439 | $15.53 | $424,889 | Richard F. Connell | 2/5/2010 | $0 | $787,500 | 803 | 1,606 | 3,212 | 15,505 | 6,439 | $15.53 | $425,088 | Michael H. Lanza | 2/5/2010 | $0 | $652,500 | 753 | 1,506 | 3,012 | 14,539 | 6,439 | $15.53 | $377,841 | John J. Marchioni | 2/5/2010 | $0 | $562,500 | 853 | 1,706 | 3,412 | 16,471 | 6,439 | $15.53 | $424,889 | Kerry A. Guthrie | 2/5/2010 | $0 | $850,000 | 753 | 1,506 | 3,012 | 14,539 | 6,439 | $15.53 | $400,086 |
(1) Amounts represent minimum and maximum potential ACIP awards to Messrs. Murphy, Thatcher, Connell, Lanza, and Marchioni under our Cash Incentive Plan for 2010. Maximum awards reflect the maximum ACIP award established by the SEBC. ACIP awards are intended to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code. For Mr. Guthrie, the amount reflects the minimum and maximum award established by the SEBC under the Investment Department Compensation Program. As a result of his departure from Selective on April 2, 2010, Mr. Guthrie is not eligible for this award. Actual payouts of the above-referenced awards are included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. For information regarding the ACIP, see the section of the Compensation Discussion and Analysis beginning on page 27 entitled “Annual Cash Incentive Program.” (2) Performance-based cash incentive unit awards are granted under the Cash Incentive Plan, and performance-based restricted stock unit awards and stock option awards are granted under the Omnibus Stock Plan. For a description of the material terms of such awards, see the section of the Compensation Discussion and Analysis beginning on page 33 entitled, “Elements of Long-Term Compensation.” (3) The number of performance-based cash incentive units paid can range from 0-200%, and therefore, the amount payable could be $0. The threshold selected represents 35-44.9th percentile of the Cash Incentive Unit Peer Group; the target represents 45-54.9th percentile of the Cash Incentive Unit Peer Group; and the maximum represents greater than or equal to 80th percentile of the Cash Incentive Unit Peer Group. (4) This column includes the grant date fair value of restricted stock unit awards, cash incentive unit awards with an initial value of $100 per unit, and the grant date fair value of options calculated using the Black-Scholes option valuation method. | | | (1) | | For Messrs. Murphy, Thatcher, Connell, and Zaleski, amounts represent minimum and maximum potential ACIP award to each named executive officer under our Cash Incentive Plan for 2008. Maximum awards reflect the maximum ACIP award established by the SEBC pursuant to the requirements of Section 162(m) of the Internal Revenue Code. For Mr. Guthrie, the amounts represent the minimum and maximum potential annual cash incentive award under the IDCP for 2008. Actual payouts of the above-referenced awards are included in the “Non-Equity Incentive Compensation Plan” column of the “Summary Compensation Table.” For information regarding the ACIP and the annual cash incentive payment under the IDCP, see the section of the Compensation Discussion and Analysis beginning on page 22 entitled “Annual Cash Incentive Program.” | | (2) | | Performance-based cash incentive unit awards are granted under the Cash Incentive Plan, and performance-based restricted stock unit awards and stock option awards are granted under the Omnibus Stock Plan. For a description of the material terms of such awards, see pages 25-27 of the Compensation Discussion & Analysis. | | (3) | | The number of performance-based cash incentive units paid can range from 0-200%, and therefore, has the potential to pay $0. The threshold selected represents 35-44.9th percentile of the Cash Incentive Unit Peer Group; the target represents 45-54.9th percentile of the Cash Incentive Unit Peer Group; and the maximum represents greater than or equal to 80th percentile of the Cash Incentive Unit Peer Group. | | (4) | | This column includes restricted stock unit awards calculated at grant date fair value, cash incentive unit awards with an initial value of $100 per unit, and stock options valued at the Black-Scholes value on the date of grant. |
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The following table shows the unexercised options and unvested stock awards to our named executive officersNEOs as of December 31, 2008:2010: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards
| | | Stock Awards
| | | Name | | No. of | No. of | | Option | | Option | | | No. of Shares | | Market Value | | Equity | | Equity | | | | Securities | Securities | | Exercise | | Expiration | | | or Units of | | of Shares or | | Incentive Plan | | Incentive Plan | | | | Under- | Under- | | Price | | Date | | | Stock That | | Units of Stock | | Awards: No. of | | Awards: | | | | lying | lying | | ($/Sh)(2) | | | | | | | Have Not | | That Have Not | | Unearned | | Market or | | | | Unexer- | Unexer- | | | | | | | | | | | Vested | | Vested | | Shares, Units | | Payout Value | | | | cised | cised | | | | | | | | | | | (#)(3)(4) | | ($) | | or Other Rights | | of Unearned | | | | Options | Options (#) | | | | | | | | | | | | | | | That Have Not | | Shares, Units | | | | (#) | Unexer- | | | | | | | | | | | | | | | Vested | | or Other | | | | Exercis- | cisable(1) | | | | | | | | | | | | | | | | | Rights That | | | | able | | | | | | | | | | | | | | Have Not | | | | | | | | | | | | | | | | | | Vested | | | | | | | | | | | | | | | | | | ($)(8) | | Gregory | | | 21,062 | | | | | | | 11.1875 | | | | 02/06/2011 | | | | | 43,569 | | | | 999,036 | | | | 10,642 | (5) | | | 975,982 | | | E. | | | 10,362 | | | | | | | 10.375 | | | | 02/05/2012 | | | | | | | | | | | | | 4,438 | (6) | | | 371,044 | | | Murphy | | | 11,394 | | | | | | | 11.6175 | | | | 02/04/2013 | | | | | | | | | | | | | 5,520 | (7) | | | 1,127,127 | | | | | | 10,000 | | | | | | | 17.395 | | | | 02/03/2014 | | | | | | | | | | | | | | | | | | | | | | | 10,000 | | | | | | | 22.025 | | | | 02/01/2015 | | | | | | | | | | | | | | | | | | | | | | | 2,320 | | | 1,160 | | | | 28.74 | | | | 01/30/2016 | | | | | | | | | | | | | | | | | | | | | | | 1,160 | | | 2,320 | | | | 27.44 | | | | 01/30/2017 | | | | | | | | | | | | | | | | | | | | | | | | | | 4,154 | | | | 24.07 | | | | 02/06/2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dale A. | | | 10,000 | | | | | | | 22.025 | | | | 02/01/2015 | | | | | 19,419 | | | | 445,272 | | | | 3,142 | (5) | | | 288,154 | | | Thatcher | | | 2,320 | | | 1,160 | | | | 28.74 | | | | 01/30/2016 | | | | | 7,290 | | | | 167,160 | | | | 1,476 | (6) | | | 123,403 | | | | | | 1,160 | | | 2,320 | | | | 27.44 | | | | 01/30/2017 | | | | | 16,128 | | | | 369,815 | | | | 1,845 | (7) | | | 376,730 | | | | | | | | | 4,154 | | | | 24.07 | | | | 02/06/2018 | | | | | 14,557 | | | | 333,802 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Richard | | | 10,000 | | | | | | | 22.025 | | | | 02/01/2015 | | | | | 15,248 | | | | 349,638 | | | | 3,292 | (5) | | | 301,911 | | | F. | | | 2,320 | | | 1,160 | | | | 28.74 | | | | 01/30/2016 | | | | | | | | | | | | | 1,438 | (6) | | | 120,226 | | | Connell | | | 1,160 | | | 2,320 | | | | 27.44 | | | | 01/30/2017 | | | | | | | | | | | | | 1,932 | (7) | | | 394,494 | | | | | | | | | 4,154 | | | | 24.07 | | | | 02/06/2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Kerry A. | | | 4,000 | | | | | | | 7.594 | | | | 02/03/2010 | | | | | 13,867 | | | | 317,966 | | | | 2,842 | (5) | | | 260,641 | | | Guthrie | | | 4,500 | | | | | | | 11.1875 | | | | 02/06/2011 | | | | | | | | | | | | | 1,438 | (6) | | | 120,226 | | | | | | 10,000 | | | | | | | 10.375 | | | | 02/05/2012 | | | | | | | | | | | | | 1,757 | (7) | | | 358,762 | | | | | | 12,000 | | | | | | | 11.6175 | | | | 02/04/2013 | | | | | | | | | | | | | | | | | | | | | | | 8,000 | | | | | | | 17.395 | | | | 02/03/2014 | | | | | | | | | | | | | | | | | | | | | | | 10,000 | | | | | | | 22.025 | | | | 02/01/2015 | | | | | | | | | | | | | | | | | | | | | | | 2,320 | | | 1,160 | | | | 28.74 | | | | 01/30/2016 | | | | | | | | | | | | | | | | | | | | | | | 1,160 | | | 2,320 | | | | 27.44 | | | | 01/30/2017 | | | | | | | | | | | | | | | | | | | | | | | | | | 4,154 | | | | 24.07 | | | | 02/06/2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ronald J. | | | 9,638 | | | | | | | 10.375 | | | | 02/05/2012 | | | | | 19,419 | | | | 445,272 | | | | 2,842 | (5) | | | 260,641 | | | Zaleski | | | 8,606 | | | | | | | 11.6175 | | | | 02/04/2013 | | | | | 6,594 | | | | 151,200 | | | | 1,263 | (6) | | | 105,595 | | | | | | 5,748 | | | | | | | 17.395 | | | | 02/03/2014 | | | | | 13,804 | | | | 316,526 | | | | 1,495 | (7) | | | 305,263 | | | | | | 10,000 | | | | | | | 22.025 | | | | 02/01/2015 | | | | | 11,795 | | | | 270,457 | | | | | | | | | | | | | | 2,320 | | | 1,160 | | | | 28.74 | | | | 01/30/2016 | | | | | | | | | | | | | | | | | | | | | | | 1,160 | | | 2,320 | | | | 27.44 | | | | 01/30/2017 | | | | | | | | | | | | | | | | | | | | | | | | | | 4,154 | | | | 24.07 | | | | 02/06/2018 | | | | | | | | | | | | | | | | | | |
| Option Awards | Stock Awards | | Name | No. of Securities Underlying Unexer- cised Options (#) Exercisable | No. of Securities Underlying Unexer- cised Options (#) Unexer- cisable | Option Exer- cise Price ($/Sh)(1) | Option Expiration Date | No. of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: No. of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(9) | | Gregory E. Murphy | 10,362 11,394 10,000 10,000 3,480 3,480 2,769 2,171 | 1,385(10) 4,343(11) 6,439(12) | 10.375 11.6175 17.395 22.025 28.74 27.44 24.07 15.35 15.53 | 02/05/2012 02/04/2013 02/03/2014 02/01/2015 01/30/2016 01/30/2017 02/06/2018 01/30/2019 02/05/2020 | 46,690(3) 60,326(4) 46,964(5) | 847,416 1,094,919 852,403 | 5,520(6) 4,653(7) 4,706(8) | 477,314 394,109 536,343 | | Dale A. Thatcher | 10,000 3,480 3,480 2,769 2,171 | 1,385(10) 4,343(11) 6,439(12) | 22.025 28.74 27.44 24.07 15.35 15.53 | 02/01/2015 01/30/2016 01/30/2017 02/06/2018 01/30/2019 02/05/2020 | 15,600(3) 19,485(4) 17,021(5) | 283,142 353,660 308,930 | 1,845(6) 1,503(7) 1,706(8) | 159,537 127,304 194,433 | | Richard F. Connell | 10,000 3,480 3,480 2,769 2,171 | 1,385(10) 4,343(11) 6,439(12) | 22.025 28.74 27.44 24.07 15.35 15.53 | 02/01/2015 01/30/2016 01/30/2017 02/06/2018 01/30/2019 02/05/2020 | 16,340(3) 20,620(4) 16,023(5) | 296,575 374,257 290,812 | 1,932(6) 1,591(7) 1,606(8) | 167,060 134,758 183,036 | | Michael H. Lanza | 3,480 3,480 2,769 2,171 | 1,385(10) 4,343(11) 6,439(12) | 28.74 27.44 24.07 15.35 15.53 | 01/30/2016 01/30/2017 02/06/2018 01/30/2019 02/05/2020 | 10,418(3) 17,217(4) 15,024(5) | 189,093 312,484 272,693 | 1,232(6) 1,328(7) 1,506(8) | 106,531 112,482 171,639 | | John J. Marchioni | 3,406 3,644 2,769 2,171 | 1,385(10) 4,343(11) 6,439(12) | 22.025 27.44 24.07 15.35 15.53 | 02/01/2015 01/30/2017 02/06/2018 01/30/2019 02/05/2020 | 8,198(3) 14,948(4) 17,021(5) | 148,795 271,308 308,930 | 970(6) 1,153(7) 1,706(8) | 83,876 97,659 194,433 | Kerry A. Guthrie(13) | 2,252 5,460 3,480 3,480 4,154 6,514 6,439 | | 17.395 22.025 28.74 27.44 24.07 15.35 15.53 | 12/31/2011 12/31/2011 12/31/2015 12/31/2015 12/31/2015 12/31/2015 12/31/2015 | 14,860(3) 18,352(4) 15,024(5) | 269,709 333,081 272,693 | 1,757(6) 1,416(7) 1,506(8) | 151,928 119,935 171,639 |
(1) The exercise price of option grants made under the Omnibus Stock Plan is the closing market price on the date of the grant. The exercise price of option grants made under previous equity plans is the average of the high and the low market price on the date of grant. | | | (1) | | The options listed in this column vest ratably over three years beginning on the first anniversary of the date of grant. | | (2) | | The exercise price of option grants issued under the Omnibus Stock Plan is the closing market price on the date of the grant. The exercise price on options grants issued under previous equity plans is the average of the high and the low market price on the date of grant. | | (3) | | In the event of a termination of employment on or after an individual’s “Early Retirement Date,” as defined under the Retirement Income Plan for Selective Insurance Company of America (“Retirement Income Plan”), holders of performance-based restricted stock and restricted stock unit awards are fully vested in such awards subject to the attainment of applicable performance measures. Early Retirement Dates for the named executive officers are as follows: Mr. Murphy, 10/26/2002; Mr. Thatcher, 12/3/2015; Mr. Connell, 2/3/2008; Mr. Guthrie, 9/8/2007; and Mr. Zaleski, 12/7/2009. | | (4) | | As noted below, amounts in this column include shares attained through Selective’s Dividend Reinvestment and Stock Purchase Plan (“DRP”). Pursuant to equity grants made under Selective’s previous equity plans, the grantee can choose on the date of vesting to take the dividends on the granted shares in cash or in accumulated dividend reinvestment shares of Selective’s common stock. One thousand four hundred and nineteen shares (1,419) included in this column for Messrs. Thatcher and Zaleski were |
(2) In the event of a termination of employment on or after an individual attains “Early Retirement Age,” as defined under the Retirement Income Plan, holders of performance-based restricted stock unit awards are vested in such awards subject only to the attainment of applicable performance measures. The respective dates upon which each NEO attained, or is anticipated to attain his Early Retirement Age are as follows: Mr. Murphy, 10/27/2002; Mr. Thatcher, 12/04/2015; Mr. Connell, 2/4/2008; Mr. Lanza, 12/16/2016; Mr. Marchioni 09/14/2018; and Mr. Guthrie 09/09/2007. Mr. Guthrie’s departure from Selective on April 2, 2010 occurred following attainment of his Early Retirement Age. (3) Reflects number of performance-based restricted stock units initially granted and related accrued DEUs on February 6, 2008, which will vest and be payable, subject to the attainment of applicable performance measures, on February 6, 2011. (4) Reflects number of performance-based restricted stock units initially granted and related accrued DEUs on January 30, 2009, which will vest and be payable, subject to the attainment of applicable performance measures, on January 30, 2012. (5) Reflects number of performance-based restricted stock units initially granted and related accrued DEUs on February 5, 2010, which will vest and be payable, subject to the attainment of applicable performance measures, on February 5, 2013. (6) Reflects number of performance-based cash incentive units initially granted on February 6, 2008 to the NEOs for the three-year performance period ending December 31, 2010. In the event of a termination of employment on or after an individual’s Early Retirement Date, holders of such awards are vested in such awards, with the initial number of units and the value of each unit subject to adjustment, based on the attainment of specified performance measures. Early Retirement Dates for the NEOs are set forth in footnote 2. Settlement of the 2008 cash incentive unit awards will be made as soon as practicable in the 2011 calendar year, following the determination of the attainment of the applicable performance measures. (7) Reflects number of performance-based cash incentive units initially granted on January 30, 2009 to the NEOs for the three-year performance period ending December 31, 2011. In the event of a termination of employment on or after an individual’s Early Retirement Date, holders of such awards are vested in such awards, with the initial number of units and the value of each unit subject to adjustment, based on the attainment of specified performance measures. Early Retirement Dates for the NEOs are set forth in footnote 2. Settlement of the 2009 cash incentive unit awards will be made as soon as practicable in the 2012 calendar year, following the determination of the attainment of the applicable performance measures. (8) Reflects number of performance-based cash incentive units initially granted on February 5, 2010 for the three-year performance period ending December 31, 2012. In the event of a termination of employment on or after an individual’s Early Retirement Date, holders of such awards are vested in such awards, with the initial number of units and the value of each unit subject to adjustment, based on the attainment of specified performance measures. Early Retirement Dates for the NEOs are set forth in footnote 2. Settlement of the 2010 cash incentive unit awards will be made as soon as practicable in the 2013 calendar year, following the determination of the attainment of the applicable performance measures. (9) The amounts in this column reflect: (i) the target 100% unit multiplier for the number of cash incentive units granted on February 6, 2008, January 30, 2009, and February 5, 2010, respectively, based on performance against the Cash Incentive Unit Peer Group; and (ii) a $86.47 per unit value for the February 6, 2008 grant, a $84.70 per unit value for the January 30, 2009 grant, and a $113.97 per unit value for February 5, 2010 grant based on TSR at December 31, 2010. The target 100% unit multiplier is used in the calculation for the grants because performance through December 31, 2010 is below target for the February 6, 2008 and January 30, 2009 awards and at target for the February 5, 2010 grant. The targets are identified for the February 5, 2010 grant in the Grants of Plan Based Awards table on page 41. (10) These options vested on February 6, 2011. (11) These options vested, or are scheduled to vest, as follows: 2,171 options on January 30, 2011 and 2,172 options on January 30, 2012. Vesting may be accelerated for an individual upon his death, disability, or retirement on or after attaining Early Retirement Age, or in accordance with such individual’s employment agreement as discussed beginning on page 47 (12) These options vested, or are scheduled to vest, as follows: 2,146 options on February 5, 2011; 2,146 options on February 5, 2012; and 2,147 options on February 5, 2013. Vesting may be accelerated for an individual upon his death, disability, or retirement on or after attaining Early Retirement Age, or in accordance with such individual’s employment agreement as discussed beginning on page 47. (13) Because Mr. Guthrie’s termination from the Company occurred after he reached Early Retirement Age, upon his termination all of his options were immediately vested. Page 33
| | | | | forfeited on February 1, 2009 and the dividends on the awards that vested on February 1, 2009 were paid to Messrs. Thatcher and Zaleski in cash. | | (5) | | Reflects number of performance-based cash incentive units initially granted in 2006 to the named executive officers for the three-year performance period ending December 31, 2008. In the event of a termination of employment on or after an individual’s Early Retirement Date, as defined under the Retirement Income Plan, holders of such awards are vested in such awards, with the initial number of units and the value of each unit subject to adjustment, based on the attainment of specified performance measures. Early Retirement Dates for the named executive officers are as follows: Mr. Murphy, 11/11/2002; Mr. Thatcher, 12/10/2015; Mr. Connell, 2/7/2008; Mr. Guthrie, 9/11/2007; and Mr. Zaleski, 12/9/2009. Settlement of the 2006 cash incentive award will be made as soon as practicable in the 2009 calendar year, following the determination of the attainment of the applicable performance measures. | | (6) | | Reflects number of performance-based cash incentive units initially granted in 2007 to the named executive officers for the three-year performance period ending December 31, 2009. In the event of a termination of employment on or after an individual’s Early Retirement Date, as defined under the Retirement Income Plan, holders of such awards are vested in such awards, with the initial number of units and the value of each unit subject to adjustment, based on the attainment of specified performance measures. Early Retirement Dates for the named executive officers are as follows: Mr. Murphy, 11/11/2002; Mr. Thatcher, 12/10/2015; Mr. Connell, 2/7/2008; Mr. Guthrie, 9/11/2007; and Mr. Zaleski, 12/9/2009. Settlement of the 2007 cash incentive award will be made as soon as practicable in the 2010 calendar year, following the determination of the attainment of the applicable performance measures. | | (7) | | Reflects number of performance-based cash incentive units initially granted in 2008 to the named executive officers for the three-year performance period ending December 31, 2010. In the event of a termination of employment on or after an individual’s Early Retirement Date, as defined under the Retirement Income Plan, holders of such awards are vested in such awards, with the initial number of units and the value of each unit subject to adjustment, based on the attainment of specified performance measures. Early Retirement Dates for the named executive officers are as follows: Mr. Murphy, 11/11/2002; Mr. Thatcher, 12/10/2015; Mr. Connell, 2/7/2008; Mr. Guthrie, 9/11/2007; and Mr. Zaleski, 12/9/2009. Settlement of the 2008 cash incentive award will be made as soon as practicable in the 2010 calendar year, following the determination of the attainment of the applicable performance measures. | | (8) | | The amounts in this column reflect: (i) the target 100% unit multiplier for the number of cash incentive units granted for the 2006 and 2007 grants and the maximum 200% unit multiplier for the number of cash incentive units granted for the 2008 grant based on performance against the Cash Incentive Unit Peer Group; and (ii) an $91.71 per unit value for the 2006 grant, an $83.61 per unit value for the 2007 grant, and $102.09 per unit value for 2008 grant based on total shareholder return at December 31, 2008. The target 100% unit multiplier is used in the calculation for the 2006 and 2007 grants because performance through December 31, 2008 is at target and the maximum 200% unit multiplier is used in the calculation for the 2008 grant because performance through December 31, 2008 has exceeded the target amounts, which are identified for the 2008 grant in the Grants of Plan Based Awards table on page 32. |
The following table shows the option exerciseexercises and stock vesting of grants of plan based awards toby our named executive officersNEOs in 2008:2010: | | | | | | | | | | | | | | | | | | | | | | Option Awards | | Stock Awards(1) | | | | | Number of | | Number of | | | | | | | Shares Acquired | | Value Realized | | Shares Acquired | | Value Realized | | | | | on Exercise | | on Exercise | | on Vesting | | on Vesting | Option Awards | Stock Awards | | Name | | (#) | | ($) | | (#) | | ($) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting(1) (#) | Value Realized on Vesting ($)(2) | Gregory E. Murphy | | 6,832 | | 88,720 | | 48,516 | | 1,152,255 | | 21,062 | 73,559 | 4,438 | 137,889 | Dale A. Thatcher | | 0 | | 0 | | 19,333 | | 459,154 | | 0 | 0 | 17,604 | 295,359 | Richard F. Connell | | 0 | | 0 | | 60,689 | | 1,452,383 | | 0 | 0 | 1,438 | 44,679 | | Michael H. Lanza | | 0 | 0 | 12,382 | 207,742 | | John J. Marchioni | | 0 | 0 | 5,635 | 94,552 | Kerry A. Guthrie | | 4,000 | | 59,940 | | 15,718 | | 373,303 | | 32,248 | 150,060 | 1,438 | 44,679 | Ronald J. Zaleski | | 0 | | 0 | | 19,333 | | 459,154 | | |
(1) Amounts in this column include shares of performance-based restricted stock vested in 2010 as well as performance-based cash incentive units paid in 2010. The amounts reflected in the table attributable to shares of performance-based restricted stock are as follows: Mr. Thatcher, 16,128; Mr. Lanza, 11,344; and Mr. Marchioni, 5,162. The amounts reflected in the table attributable to performance-based cash incentive units are as follows: Mr. Murphy, 4,438; Mr. Thatcher, 1,476; Mr. Connell, 1,438; Mr. Lanza, 1,038; Mr. Marchioni, 473; and Mr. Guthrie, 1,438. (2) Amounts in this column include the value of shares of performance-based restricted stock vested in 2010 as well as the amount paid for performance-based cash incentive units in 2010. The amounts reflected in the table attributable to shares of performance-based restricted stock are as follows: Mr. Thatcher, $249,500; Mr. Lanza, $175,492; and Mr. Marchioni, $79,856. The amounts reflected in the table attributable to performance-based cash incentive units are as follows: Mr. Murphy, $137,889; Mr. Thatcher, $45,859; Mr. Connell, $44,679; Mr. Lanza, $32,251; Mr. Marchioni, $14,696; and Mr. Guthrie, $44,679. | | | (1) | | In the event of a termination of employment on or after an individual’s Early Retirement Date as defined under the Retirement Income Plan, holders of restricted stock awards become fully vested in such awards, provided any related performance measures have been attained. As a result, the value became subject to ordinary income taxation upon a holder attaining his Early Retirement Date, notwithstanding the continued employment of the holder by the company. Due to the imposition of this accelerated income tax liability, the SEBC determined it appropriate to fully vest and remove the restrictions on such shares. Accordingly, the numbers and amounts shown for Messrs. Murphy and Guthrie reflect grants awarded to them in 2007 and the amount shown for Mr. Connell reflects grants awarded to him in 2005, 2006, and 2007. |
Page 34
Selective’s lead insurance subsidiary,
SICA maintains a tax qualified non-contributory defined benefit pension plan, the Retirement Income Plan, andPlan. Most SICA employees, including the Selective Insurance Supplemental Pension Plan (“SERP”). Most employees,NEOs and certain former employees of SICA, whose employment with SICA commenced on or before December 31, 2005, including the named executive officers, are eligible to receive benefits under the Retirement Income Plan. SelectiveSICA also maintains anthe unfunded SERP,Selective Insurance Supplemental Pension Plan (“SERP”), as permitted under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), to provide payments to certain executives and other participants in the Retirement Income Plan participants equal to the difference between: (i) the benefit payment to a participant under the Retirement Income Plan calculated without regard to ERISA and Internal Revenue Code limitations on annual amounts payable under the Retirement Income Plan; and (ii) the benefit payable to the participant pursuant to such limitations.
The Retirement Income Plan was amended as of July 1, 2002 to provide for different calculations based on age and company service with the company as of that date. Monthly benefits payable at normal retirement age under the Retirement Income Plan and SERP at normal retirement age are computed by adding two calculations: (i) 2% of “average monthly base salary” (based onas follows. Defined terms used in this section, but not defined in this Proxy Statement, have the monthly average ofmeanings given to them in the participant’s compensation for the 60 months out of the most recent 120 months of employment preceding the participant’s termination of employment for which the employee’s base salary is the highest) lessRetirement Income Plan.
| 1. | If a participant: (i) attained age 50 and completed five years of vesting service on or before July 1, 2002, or (ii) completed at least 25 years of vesting service on or before July 1, 2002, a participant’s benefit is equal to 2% of Average Monthly Compensation, minus 1 3/7% of Primary Social Security Benefits multiplied by years of Benefit Service (up to 35 years), reduced by the annuity contract issued by the AXA Equitable Life Insurance Company (“Equitable”) purchased under a prior terminated defined benefit pension plan. |
| 2. | If a participant: (i) completed at least five years of Vesting Service; and (ii) the sum of a participant’s age and Vesting Service is 55 or more, a participant’s benefit is equal to the sum of: (a) 2% of Average Monthly Compensation, less 1 3/7% of Primary Social Security benefit multiplied by the number of years of Benefit Service through June 30, 2002 (up to 35 years) reduced by the monthly amount, if any of retirement annuity payable under the group annuity |
contract issued by Equitable that was purchased under a prior terminated defined benefit pension plan, based on Benefit Service as of June 30, 2002, but including compensation earned after such date; and (b) 1.2% of Average Monthly Compensation multiplied by the number of years of benefit service through June 30, 2002 (up to a maximum of 35 years); and (ii) 1.2% of average monthly base salary (as described above) multiplied by the number of years of benefit serviceBenefit Service after June 30, 2002. | 3. | If a participant first became eligible for the plan before July 1, 2002, but did not qualify for either 1 or 2 above, the participant’s benefit is equal to the greater of: (i) the benefit accrued as of June 30, 2002 equal to 2% of Average Monthly Compensation less 1 3/7% of Primary Social Security Benefit multiplied by years of Benefit Service reduced by the monthly amount, if any of retirement annuity payable under the group annuity contract issued by Equitable that was purchased under a prior terminated defined benefit pension plan, based on Benefit Service as of June 30, 2002, but including compensation earned after such date for purposes of determining the participant’s Average Monthly compensation; and (ii) 1.2% of Average Monthly Compensation multiplied by years of Benefit Service. |
| 4. | If a participant first became a participant in the plan after July 1, 2002, the benefit is equal to 1.2% of Average Monthly Compensation multiplied by years of Benefit Service. |
The earliest retirement age is age 55 with 10 years of service or the attainment of 70 points (age plus years of service). ForIf a participant who retires atchooses to begin receiving benefits before his or her 65th birthday, the earliest retirement age,amount of the Retirement Income Plan’s early reduction factors are 6 2/3% per year for the first five years and 3 1/3% for the next five years and the reduction is actuarially equivalent for years earlier than age 55. monthly benefit will be reduced as follows:
| · | By 1/180th for each complete calendar month for the first 60 months by which the first early retirement benefit payment precedes the attainment of Normal Retirement Age (age 65); |
| · | By 1/360th for each complete calendar month for the next 60 months by which the first early retirement benefit payments precede Normal Retirement Age; and |
| · | By 40% plus 1/600th per month for each month prior to age 55. |
At retirement, participants receive monthly pension payments. There are four optional forms of payments and may choose among fourthat can be chosen as alternatives to the normal form of payment, which for a married participant is an automatic 50% joint and survivor payment options.surviving spouse annuity, and for an unmarried participant is a single life annuity.
The following table shows information regarding the pension benefits of our named executive officers:NEOs: | | | | | | | | | | | | | | | | | | | | | | | | | | Present Value of | | Payments | | | | | Number of Years | | Accumulated | | During Last | | | | | Early Retirement | | Credited Service | | Benefit | | Fiscal Year | | | Name | | Eligible | | Plan Name | | (#)(1) | | ($)(2) | | ($) | Early Retirement Eligible | Plan Name | Number of Years Credited Service (#)(1) | Present Value of Accumulated Benefit ($)(2) | Payments During Last Fiscal Year ($) | Gregory E. Murphy | | Yes | | Retirement Income Plan | | 27.58 | | 537,053 | | 0 | | Yes | Retirement Income Plan | 29.58 | 770,470 | 0 | | | | SERP | | 27.58 | | 1,610,320 | | 0 | | | SERP | 29.58 | 2,355,166 | 0 | Dale A. Thatcher | | No | | Retirement Income Plan | | 7.67 | | 72,989 | | 0 | | No | Retirement Income Plan | 9.67 | 130,707 | 0 | | | | SERP | | 7.67 | | 47,177 | | 0 | | | SERP | 9.67 | 112,735 | 0 | Richard F. Connell | | Yes | | Retirement Income Plan | | 7.33 | | 182,966 | | 0 | | Yes | Retirement Income Plan | 9.33 | 290,320 | 0 | | | | SERP | | 7.33 | | 138,617 | | 0 | | | SERP | 9.33 | 243,163 | 0 | | Michael H. Lanza | | No | Retirement Income Plan | 5.42 | 71,611 | 0 | | | | | SERP | 5.42 | 50,955 | 0 | | John J. Marchioni | | No | Retirement Income Plan | 12.00 | 104,863 | 0 | | | | | SERP | 12.00 | 33,740 | 0 | Kerry A. Guthrie | | Yes | | Retirement Income Plan | | 20.00 | | 330,599 | | 0 | | Yes | Retirement Income Plan | 21.25 | 463,131 | 0 | | | | SERP | | 20.00 | | 204,992 | | 0 | | | SERP | 21.25 | 352,873 | 0 | Ronald J. Zaleski | | No | | Retirement Income Plan | | 8.25 | | 116,995 | | 0 | | | | | | SERP | | 8.25 | | 72,273 | | 0 | | |
(1) The Retirement Income Plan imposes a one-year waiting period for plan participation, which year is not included in years of credited service. (2) Present value as of December 31, 2010 is calculated on the basis of Normal Retirement Age of 65. A 5.55% discount rate is applied and the 2011 Static Mortality Table is used to calculate the values indicated. (3) In connection with Mr. Guthrie’s departure from Selective on April 2, 2010, his information in this table is as of such date.
| | | (1) | | The Retirement Income Plan imposes a one-year waiting period for plan participation. | | (2) | | Present value as of December 31, 2008 is calculated on the basis of normal retirement age of 65. A 6.24% discount rate is applied and the RP-2000 Mortality Table is used to calculate the values indicated. |
The Deferred Compensation Plan allows participants to defer receipt of up to 50% of base salary and/orand up to 100% of their ACIP. Participants may choose fromACIP payments. Participant accounts are credited with a varietynotional rate of return (positive or negative) based on the performance of investment options that mirrorselected by the market performanceparticipant from a menu of the selected funds. Each year, participantsinvestment options. Participants can elect whether to schedule in-service withdrawals or withdrawals at separation of service. For those funds to be distributed at separation of service, participants may be paid in five, ten, or fifteen annual installments, or a lump sum.
SICA may makemakes matching contributions to a participant’s Deferred Compensation Plan account to supplement matching contributions under the Retirement Savings Plan. For 2010, such matching contributions consisted of $0.6565% of each dollar deferred, Page 35
up to 7% of base salary, except that SICAminus any matching contribution made to a participant’s Retirement Savings Plan account. For 2011, such match will matchconsist of 100% of the first 3% of a participant’s base salary, plus 50% of the participant’s next 3% of base salary, minus any matching contribution made to a participant’s Retirement Savings Plan.
In addition, effective January 1, 2010 the Deferred Compensation Plan was amended for participants ineligible to participate in the Retirement Income Plan, to provide a non-elective contribution to the extent not made to a participant’s Retirement Savings Plan account due to the limitations under the Internal Revenue Code and the Retirement Savings Plan contributions first, and in no event will a participant receive a matchingPlan. The non-elective contribution in excess of $0.65 of each dollar, upis equal to 7%4% of base salary.salary, minus any non-elective contribution made to the Retirement Savings Plan. None of the NEOs are eligible for this non-elective contribution.
The following table shows information regarding nonqualified deferred compensation of our named executive officers:NEOs: | | | | | | | | | | | | | | | | | | | | | | | | | Executive | | Selective | | | | | | Aggregate | | Aggregate Balance | | | | Contributions | | Contributions in | | Aggregate | | Withdrawals/ | | at December 31, | | | | in 2008 | | 2008 | | Earnings in 2008 | | Distributions | | 2008 | | Name | | ($)(1) | | ($)(2) | | ($)(3) | | ($) | | ($)(4) | Gregory E. Murphy | | | 47,500 | | | | 30,875 | | | | (359,070 | ) | | | 0 | | | | 548,856 | | Dale A. Thatcher | | | 46,577 | | | | 11,118 | | | | (149,556 | ) | | | 0 | | | | 180,449 | | Richard F. Connell | | | 212,147 | | | | 10,400 | | | | (715,185 | ) | | | 0 | | | | 1,032,602 | | Kerry A. Guthrie | | | 148,906 | | | | 7,762 | | | | (363,725 | ) | | | 0 | | | | 506,981 | | Ronald J. Zaleski | | | 246,059 | | | | 7,915 | | | | (930,042 | ) | | | 0 | | | | 1,159,024 | |
| Name | Executive Contributions in 2010 ($)(1) | Company Contributions in 2010 ($)(2) | Aggregate Earnings in 2010 ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at December 31, 2010 ($)(4) | | Gregory E. Murphy | 54,000 | 30,225 | 101,867 | 0 | 988,134 | | Dale A. Thatcher | 47,500 | 10,888 | 42,477 | 0 | 382,858 | | Richard F. Connell | 18,000 | 9,750 | 108,150 | 0 | 1,405,060 | | Michael H. Lanza | 13,050 | 8,482 | 8,376 | 0 | 69,045 | | John J. Marchioni | 18,750 | 6,388 | 8,970 | 0 | 89,178 | | Kerry A. Guthrie | 43,875 | 290 | 64,565 | 182,239 | 542,239 |
| | | (1) | | Amounts in this column attributable to 2008 salary deferred by the named executive officers are included in the Salary column of the Summary Compensation Table. Such amounts are as follows: Mr. Murphy, $47,500; Mr. Thatcher, $46,577; Mr. Connell, $124,643; Mr. Guthrie, $74,656; and Mr. Zaleski, $108,548. The balance of the amounts in this column, $87,504 for Mr. Connell, $74,250 for Mr. Guthrie, and $137,511 for Mr. Zaleski, are attributable to the deferral of a portion of their ACIP paid in March 2008. | | (2) | | 100% of the information in this column is included in the All Other Compensation Column of the Summary Compensation Table. | | (3) | | The information in this column is not included in the Summary Compensation Table because such earnings are not above market earnings. | | (4) | | The Aggregate Balance as of December 31, 2008 includes the following contributions of the named executive officers and SICA to the Deferred Compensation Plan which are included in the Summary Compensation Table |
(1) Amounts in this column are attributable to 2010 salary deferred by Messrs. Murphy, Thatcher, Connell, Marchioni, and Lanza and are included in the Salary column of the Summary Compensation Table. Of the amount in this column for Mr. Guthrie, $6,375 is attributable to 2010 salary deferred, which is included in the Salary column of the Summary Compensation Table, and $37,500 is attributable to the deferral of a portion of his Investment Department Compensation Program award, which is included in the amount reported for 2010 in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. (2) All amounts in this column are included in the All Other Compensation column of the Summary Compensation Table. (3)Amounts in this column are not included in the Summary Compensation Table because such earnings are not above market earnings. (4)Amounts in this column include the following contributions of the NEOs and SICA to the Deferred Compensation Plan, which amounts are included in the Summary Compensation Table: | | • | | For 2006: Mr. Murphy, $329,498; Mr. Thatcher, $42,927; Mr. Connell, $470,907; Mr. Guthrie, $36,561; and Mr. Zaleski, $376,604. | | | • | | For 2007: Mr. Murphy, $283,262; Mr. Thatcher, $56,069; Mr. Connell, $342,899; Mr. Guthrie, $185,990; and Mr. Zaleski, $303,659. | | | • | ● | For 2008: Mr. Murphy, $78,375; Mr. Thatcher, $57,695; Mr. Connell, $222,547; Mr. Guthrie, $156,668;Lanza, $0; Mr. Marchioni $16,165; and Mr. Zaleski, $253,974.Guthrie $156,668. |
Page 36
| ● | For 2009: Mr. Murphy, $87,877; Mr. Thatcher, $61,046; Mr. Connell, $23,132; Mr. Lanza, $22,361; Mr. Marchioni $25,730; and Mr. Guthrie $95,814. |
| ● | For 2010: Mr. Murphy, $84,225; Mr. Thatcher, $58,388; Mr. Connell, $27,750; Mr. Lanza, $21,532; Mr. Marchioni $25,138; and Mr. Guthrie $44,165. |
SICA entered into amended Employment Agreementsemployment agreements (collectively, the “Employment Agreements”) with Messrs. Murphy, Thatcher, Connell, Guthrie, and Zaleski (the “Executives”),the NEOs, as of December 23, 2008. The Employment Agreements were amended to comply with the requirements of Section 409(A) of the Internal Revenue Code. The Employment Agreements were additionally amended to substitute the contracting party to the agreement from Selective to SICA. The amended Employment Agreements do not otherwise substantively change the terms or conditions of the previous employment agreements The following table summarizes the principal provisions of the Employment Agreements. Defined terms used in this table, but not defined in this Proxy Statement, have the meanings given to them in the Employment Agreements. | | | | | | | | | | | | | | | | Term | | | Continuation of the Prior Agreements’prior agreements’ initial three (3) yearthree-year term,(1) automatically renewed for additional one (1) yearone-year periods unless terminated by either party with written notice. | | | | | (1) | | Compensation | | | | | | | | | | | | | Base salary.(2) | | | | Compensation | | | Base salary.(2) | | | | | | | | | | | | | | | | | | | | | | | Benefits | | | Eligible to participate in incentive compensation plan, stock plan, 401(k) plan, defined benefit pension plan and any other stock option, stock appreciation right, stock bonus, pension, group insurance, retirement, profit sharing, medical, disability, accident, life insurance, relocation plan or policy, or any other plan, program, policy or arrangement of Selective or SICA intended to benefit SICA’s employees generally. | | | | | | | | | | | | | | | | | | | | | | | Vacation and
Reimbursements | | | Vacation time and reimbursements for ordinary travel and entertainment expenses in accordance with SICA’s policies. | | | | | | | | | | | | | | | | | | | | | | | Perquisites | | | Suitable offices, secretarial and other services, and other perquisites to which other executives of SICA are generally entitled. | | | | | | | | | | | | | | | | | | | | | | | Severance and Benefits on
Termination without
Change in Control | | | • | | · For Cause or Resignation by ExecutiveNEO other than for Good Reason:
Reason: Salary and benefits accrued through termination date. | | | | | | | | | | • | | · Death or Disability:Disability: Multiple(3) of: (i) Executive’s salary,NEOs salary; plus (ii) average of three (3) most recent annual cash incentive payments; provided that any such severance payments be reduced by life or disability insurance payments under policies with respect to which SICA paid premiums. | | | | | | | | | | | | | | | | | | | | | | | | • | | premiums, paid in 12 equal installments. · Without Cause by SICA, Relocation of Office over Fifty (50)50 Miles (without Executive’sNEOs consent), Resignation for Good Reason by Executive: | | | | | | | | | | | | | | | | | | | | | | | | | | • | | NEO: o Multiple(3) of: (i) Executive’s salary,NEOs salary; plus (ii) average of three (3) most recent annual cash incentive payments. | | | | | | | | | | | | | | | | | | | | | | • | | payments paid in 12 equal installments. o Medical, dental, vision, disability, and life insurance coverage in effect for ExecutiveNEO and dependents until the earlier of specified period of months(4) following termination or commencement of equivalent benefits from a new employer. | | | | | | | | | | | | | | | | | | | | • | | · Stock Awards:Awards: Except for termination for Cause or resignation by the ExecutiveNEO other than for Good Reason, immediate vesting and possible extended exercise period, as applicable, for any previously granted stock options, stock appreciation rights, cash incentive units, restricted stock, restricted stock units, and stock bonuses. | | | | | | | |
| | | | | | | | | | | Severance and
Benefits on
Termination after
Change in Control | | For termination Withoutwithout Cause or by ExecutiveNEO with Good Reason within two (2) years following a Change in Control (as defined in the Employment Agreement), ExecutiveNEO is entitled to: | | | | | | | | | | | • | | · Severance payment equal to multiple(5) of the greater of: (i) Executive’sNEOs salary plus target annual cash incentive payment; or (ii) Executive’sNEOs salary plus the average of Executive’s three (3) immediately priorNEOs annual cash incentive payments. | | | | | | | | | | | • | | payments for the three calendar years prior to the calendar year in which the termination occurs, paid in lump sum. · Medical, dental, vision, disability, and life insurance coverage in effect for ExecutiveNEO and dependents until the earlier of period of months(6) following termination or commencement of equivalent benefits from a new employer. | | | | | | | | | | | | • | | · Stock Awards,awards, same as above, except that the initial number of cash incentive units is increasedmultiplied by 150%. | | | | | | | | | | | | • | | · Tax Gross-Up Payment,gross-up payment, if necessary, to offset any excise tax imposed on ExecutiveNEO for such payments or benefits. | | | | | | | | | | | | | | | | Release;
Confidentiality and Non-Solicitation | | • | | · Receipt of severance payments and benefits conditioned upon: | | | | | Non-Solicitation | | | | • | | o Entry into release of claims; and | | | | | | | | | | • | | o No disclosure of confidential or proprietary information or solicitation of employees to leave the RegistrantSelective or its subsidiaries for a period of two (2) years following the termination of the Employment Agreement. |
(1) The Employment Agreements automatically renewed for additional one-year periods on April 25, 2010 for Mr. Murphy, on July 26, 2010 for Mr. Lanza, and on July 31, 2010 for Messrs. Connell, Thatcher, and Marchioni. (2) As of January 31, 2011, the annual base salaries for the NEOs were as follows: Mr. Murphy, $900,000; Mr. Thatcher, $475,000; Mr. Connell, $450,000; Mr. Lanza, $435,000; and Mr. Marchioni, $375,000. | | | (1) | | Initial three (3) year term ends on April 25, 2009 for Mr. Murphy and July 31, 2009 for Messrs. Connell, Thatcher, Guthrie, and Zaleski. | | (2) | | As of January 31, 2009, the annual base salaries for the Executives were as follows: Mr. Murphy, $900,000; Mr. Thatcher, $475,000; Mr. Connell, $450,000; Mr. Guthrie, $425,000; and Mr. Zaleski, $400,000. | | (3) | | For Mr. Murphy the multiple is 2; for Mr. Connell the multiple is 1.75; and for Messrs. Thatcher, Guthrie, and Zaleski the multiple is 1.5. | | (4) | | For Mr. Murphy the period is 24 months; for Mr. Connell, 21 months; and for Messrs. Thatcher, Guthrie, and Zaleski, 18 months. | | (5) | | For Mr. Murphy the multiple is 2.99; for Mr. Connell the multiple is 2.5; and for Messrs. Thatcher, Guthrie, and Zaleski the multiple is 2. | | (6) | | For Mr. Murphy the period is 36 months; and for Messrs. Connell, Thatcher, Guthrie, and Zaleski, 24 months. |
(3) For Mr. Murphy the multiple is 2; for Mr. Connell the multiple is 1.75; and for Messrs. Thatcher, Lanza, and Marchioni the multiple is 1.5. (4) For Mr. Murphy the period is 24 months; for Mr. Connell the period is 21 months; and for Messrs. Thatcher, Lanza, and Marchioni the period is 18 months. (5) For Mr. Murphy the multiple is 2.99; for Mr. Connell the multiple is 2.5; and for Messrs. Thatcher, Lanza, and Marchioni the multiple is 2. (6) For Mr. Murphy the period is 36 months; and for Messrs. Connell, Thatcher, Lanza, and Marchioni the period is 24 months.
The following table shows information regarding payments thatand benefits to which our NEOs would have been paid to our named executive officersbe entitled under the scenarios shown as of December 31, 2008:2010 and the payment made to Mr. Guthrie when he left Selective on April 2, 2010: | | | | | | | | | | | | | | | | | | | | | | | | | | Resignation(1) | | | | | | | | | | | or Termination | | Death or | | Termination | | Change in | | | | | For Cause | | Retirement(2) | | Disability | | Without Cause | | Control | | | Name | | ($) | | ($) | | ($)(3) | | ($)(4) | | ($)(5) | Resignation(1) or Termination For Cause ($) | Retirement(2) ($) | Death or Disability ($)(3) | Termination without Cause or Resignation with Good Reason ($)(4) | Change in Control ($)(5) | Gregory E. Murphy | | — | | 2,909,625 | | 7,309,625 | | 7,328,733 | | 14,512,045 | | - | 4,231,535 | 7,331,535 | 7,349,209 | 15,993,319 | Dale A. Thatcher | | — | | 1,915,970 | | 3,188,470 | | 3,204,258 | | 5,629,276 | | - | 1,456,036 | 2,589,186 | 2,602,441 | 3,471,847 | Richard F. Connell | | — | | 969,021 | | 2,491,531 | | 2,493,748 | | 4,854,803 | | - | 1,475,528 | 2,769,254 | 2,770,094 | 5,342,435 | Kerry A. Guthrie | | — | | 878,213 | | 2,138,213 | | 2,141,650 | | 3,882,278 | | | Ronald J. Zaleski | | — | | 1,702,300 | | 2,872,310 | | 2,885,303 | | 4,832,953 | | | | Michael H. Lanza | | - | 1,193,952 | 2,168,202 | 2,186,587 | 4,222,595 | | John J. Marchioni | | - | 1,134,031 | 2,004,684 | 2,021,611 | 3,921,098 | Kerry A. Guthrie(6) | | - | - | - | 2,469,426 | - |
(1) Other than a resignation for Good Reason. (2) This column includes the value of unvested performance-based restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs. These awards would normally vest upon: (i) retirement or continuation in service through the end of the applicable performance period; and (ii) the achievement of the specified performance goals applicable to each such award, and be payable following the end of the applicable three-year performance period. Also included in this column is the value of performance-based cash incentive units awarded under the Cash Incentive Plan to the NEOs. The value of such awards is calculated using: (i) the target 100% unit multiplier for the number of cash incentive units granted; and (ii) the per unit value at December 31, 2010. Under the Cash Incentive Plan, participants’ awards, including the NEOs’ awards, would fully vest upon retirement or continuation in | | | (1) | | Other than a resignation for “Good Reason” | | (2) | | This column includes the value of unvested restricted stock and restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs, all of which shares would normally vest upon retirement for any participant in such plans and be payable upon the achievement of the specified performance goals applicable to each such award. Also included is the current intrinsic value of performance-based cash incentive units awarded under the Cash Incentive Plan to the named executive officers, which, as for any other participant, would fully vest upon retirement and be payable following the end of the applicable three-year performance period, subject to the achievement of the specified performance goals applicable to each such award. |
service through the end of the payment date and be payable following the end of the applicable three-year performance period. Also included in this column is the intrinsic value of unvested stock options as of December 31, 2010. The value of such awards is calculated using the difference of the Fair Market Value as of December 31, 2010 and the stock option’s exercise price. (3) This column includes the value of unvested performance-based restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs. In the event of total disability, these awards would normally vest for all participants, including the NEOs, upon the achievement of the specified performance goals applicable to each such award, and be payable following the end of the applicable three-year performance period. In the event of death, the awards are immediately vested and payable for all participants, including the NEOs. Also included in this column is the value of performance-based cash incentive units awarded under the Cash Incentive Plan to the NEOs. The value of such awards is calculated using: (i) the target 100% unit multiplier for the number of cash incentive units granted; and (ii) the per unit value at December 31, 2010. Under the Cash Incentive Plan, participants’ awards, in the event of total disability, including the NEOs’ awards, would fully vest and be payable following the end of the applicable three-year performance period. Also included in this column is the intrinsic value of unvested stock options as of December 31, 2010. The value of such awards is calculated using the difference of the Fair Market Value as of December 31, 2010 and the stock option’s exercise price. This column also includes the severance payment provided for in each NEO’s Employment Agreement. Payments in this column will be reduced by life or disability insurance payments under policies with respect to which SICA paid premiums. (4) This column includes the value of unvested performance-based restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs. These awards would normally vest upon: (i) a termination without Cause or for Good Reason; and (ii) the achievement of the specified performance goals applicable to each such award, and be payable following the end of the applicable three-year performance period. Also included in this column is the value of performance-based cash incentive units awarded under the Cash Incentive Plan to the NEOs. The value is calculated using: (i) the target 100% unit multiplier for the number of cash incentive units granted; and (ii) the per unit value at December 31, 2010. The awards would fully vest and be payable following the end of the applicable three-year performance period. Also included in this column is the intrinsic value of unvested stock options as of December 31, 2010. The value of such awards is calculated using the difference of the Fair Market Value as of December 31, 2010 and the stock option’s exercise price. Also included in this column are the severance payment and the value of medical, dental, vision, disability, and life insurance coverage, all as provided for in each NEOs Employment Agreement. (5) This column includes the value of unvested performance-based restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs, which would immediately vest and be payable for all participants upon a change in control, including the NEOs. This column also includes the value of performance-based cash incentive units awarded under the Cash Incentive Plan to the NEOs, all of which would vest upon a change in control for any participant, including the NEOs, holding such awards under such plans. The value of such awards is calculated using: (i) a 150% per unit multiplier; and (ii) the per unit value at December 31, 2010. Also included in this column is the intrinsic value of unvested stock options as of December 31, 2010. The value of such awards is calculated using the difference of the Fair Market Value as of December 31, 2010 and the stock option’s exercise price. This column also includes the severance payment and the value of medical, dental, vision, disability, and life insurance coverage, as provided for in each NEOs Employment Agreement. This column also includes the value of any tax gross-up payment necessary to offset any excise tax imposed for the payment and benefits disclosed in this column. (6) In connection with Mr. Guthrie’s departure from Selective on April 2, 2010, the information in this table reflects the actual payment Mr. Guthrie received in accordance with his employment agreement. His payment included: (i) $1,122,500, which represents 1.5 times Mr. Guthrie’s base salary and the average of his annual cash incentive payments for the three calendar years prior to his termination; (ii) $13,681, which represents the cost to the company of disability and life insurance purchased on Mr. Guthrie’s behalf; (iii) $875,484, which represents the value of performance-based restricted stock units granted under the Omnibus Stock Plan and related accrued DEUs as of December 31, 2010, which are fully vested, but not yet paid; (iv) $443,502, which represents the value of performance-based cash incentive units awarded under the Cash Incentive Plan as of December 31, 2010, which are fully vested, but not yet paid; and (v) $14,259, which represents the intrinsic value of any unvested stock options as of April 1, 2010. The value of such awards is calculated using the difference of the Fair Market Value as of April 1, 2010 and the stock option’s exercise price. Mr. Guthrie was retirement eligible at the time of his termination and would have been entitled to: (i) the performance-based restricted stock units granted under the Omnibus Stock Plan and related accrued DEUs; (ii) the performance-based cash incentive units awarded under the Cash Incentive Plan; and (iii) the immediate vesting of any unvested stock options even if he had not entered into his employment agreement with SICA. Page 38
| | | (3) | | This column includes the value of unvested restricted stock and restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs, all of which shares would normally vest upon death or disability for any participant in such plans. The restricted stock granted would be payable upon the achievement of the specified performance goals applicable to each such award. The restricted stock units granted would, in the event of death, be payable immediately and, in the event of disability, upon the achievement of the specified performance goals applicable to each such award. This column also includes the severance payment provided for in each named executive officer’s Employment Agreement. Also included is the current intrinsic value of performance-based cash incentive units awarded under the Cash Incentive Plan to the named executive officers, which, as for any other participant, would fully vest upon death or disability and be payable following the end of the applicable three-year performance period, subject to the achievement of the specified performance goals applicable to each such award. Payments in this column will be reduced by life or disability insurance payments under policies with respect to which SICA paid premiums. | | (4) | | Also applicable to resignation for Good Reason. This column includes: (i) the value of unvested restricted stock and restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs, all of which shares would vest upon a termination Without Cause or for Good Reason and be payable upon the achievement of the specified performance goals applicable to each such award; (ii) the severance payment; and (iii) the value of medical, dental, vision, disability, and life insurance coverages, all as provided for in each named executive officer’s Employment Agreement. This column also includes the current intrinsic value of performance-based cash incentive units awarded under the Cash Incentive Plan to the named executive officers, which would fully vest and be payable following the end of the applicable three-year performance period, subject to the achievement of the specified performance goals applicable to each such award. | | (5) | | This column includes: (i) the value of unvested restricted stock and restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs payable upon the achievement of the specified performance goals applicable to each such award, and (ii) the value of 150% of the number of outstanding performance-based cash incentive units awarded to the named executive officers under the Cash Incentive Plan, calculated using a per unit value at December 31, 2008 of $91.71 for the 2006 grant, $83.61 for the 2007 grant, and $102.09 for the 2008 grant, all of which would vest upon a change in control for any participant holding such awards under such plans. This column also includes the severance payment and the value of medical, dental, vision, disability, and life insurance coverages, as provided for in each named executive officer’s Employment Agreement. This column also includes the value of any tax gross-up payment necessary to offset any excise tax imposed for the payment and benefits disclosed in this column. |
The following table shows compensation earned or paid to our non-employee directors in 2008 and stock and option awards outstanding at December 31, 2008during 2010 (employee directors do not receive compensation for serving on the Board) are shown. | Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Total ($) | | Paul D. Bauer | 31,500 | 82,522 | 32,502 | 146,524 | | W. Marston Becker | 21,000 | 82,522 | 32,502 | 136,024 | | A. David Brown | 54,000 | 57,536 | 32,502 | 144,038 | | John C. Burville | 35,500 | 62,523 | 32,502 | 130,525 | | Joan M. Lamm-Tennant | 8,000 | 82,522 | 32,502 | 123,024 | | S. Griffin McClellan III | 35,500 | 57,536 | 32,502 | 125,538 | | Michael J. Morrissey | 38,000 | 57,536 | 32,502 | 128,038 | | Cynthia S. Nicholson | 15,500 | 82,522 | 32,502 | 130,524 | | Ronald L. O’Kelley | 28,000 | 67,527 | 32,502 | 128,029 | | William M. Rue | 13,500 | 82,522 | 32,502 | 128,524 | | J. Brian Thebault | 29,000 | 82,522 | 32,502 | 144,024 |
(1) This column reflects the aggregate grant date fair value for the 2010 grants of restricted stock units to directors, based on a grant date fair value of $16.71, and the following table:portion of each director’s Annual Retainer Fee, as set forth below, paid in stock. For 2010, at least 50% of a director’s Annual Retainer Fee was required to be paid in Selective common stock. | | | | | | | | | | | | | | | | | | | | | Fees Earned or | | | | | | | | | | Paid in Cash | | Stock Awards | | Option Awards | | Total | | Name | | ($) | | ($)(1) | | ($)(2) | | ($) | | Paul D. Bauer | | | 34,500 | | | | 82,555 | | | | 32,524 | | | | 149,579 | | | W. Marston Becker | | | 8,000 | | | | 82,555 | | | | 32,524 | | | | 123,079 | | | A. David Brown | | | 13,500 | | | | 82,555 | | | | 32,524 | | | | 128,579 | | | John C. Burville | | | 30,000 | | | | 62,552 | | | | 32,524 | | | | 125,076 | | | William M. Kearns, Jr. | | | 29,000 | | | | 82,555 | | | | 32,524 | | | | 144,079 | | | Joan M. Lamm-Tennant | | | 9,500 | | | | 82,555 | | | | 32,524 | | | | 124,579 | | | S. Griffin McClellan III | | | 32,000 | | | | 57,560 | | | | 32,524 | | | | 122,084 | | | Michael J. Morrissey | | | 26,670 | | | | 17,202 | | | | 0 | | | | 43,872 | | | Ronald L. O’Kelley | | | 31,500 | | | | 70,069 | | | | 32,524 | | | | 134,093 | | | John F. Rockart | | | 11,898 | | | | 40,432 | | | | 32,524 | | | | 84,854 | | | William M. Rue | | | 15,500 | | | | 82,555 | | | | 32,524 | | | | 130,579 | | | J. Brian Thebault | | | 32,500 | | | | 82,555 | | | | 32,524 | | | | 147,079 | |
(2) This column reflects the aggregate grant date fair value for the 2010 option grants to directors using the Black-Scholes option valuation method and based on a grant date fair value of $4.09. The aggregate number of options outstanding at December 31, 2010 for each director was as follows: Messrs. Bauer and Thebault and Ms. Lamm-Tennant: 68,109; Messrs. Becker and Burville: 38,109; Mr. McClellan: 50,109; Mr. O’Kelley: 44,109; Mr. Morrissey: 22,565; Ms. Nicholson: 7,953; and Messrs. Rue and Brown: 62,109. | | | (1) | | This column reflects amounts recognized as expense for the 2008 grants of restricted stock units to directors, based on a grant date fair market value of $23.93, and the portion of each director’s annual retainer paid in stock, 50% of which annual retainer, as set forth below, must be paid to a director in Selective common stock. | | (2) | | This column reflects amounts recognized as expense for the 2008 option grants to directors using the Black Scholes option valuation method in accordance with FAS 123R. The grant date fair value of each of these grants is $150,161. The aggregate number of options outstanding at December 31, 2008 for each director is as follows: Messrs. Bauer, Kearns, and Rue: 51,544; Messrs. Becker and Burville: 15,544; Mr. Brown: 45,544; Mr. McClellan: 27,544; Mr. O’Kelley: 21,544; Mr. Rockart: 33,544; and Mr. Thebault and Ms. Lamm-Tennant: 57,544. |
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The following table reflectssummarizes the types and amounts of compensation forpaid to our non-employee directors in 2008:2010: | | | | | | | Type of Compensation | | Amount | | Annual Retainer Fee | | $ | 50,000 | | | Grant Date Fair Value of Annual Equity Award | | $ | 32,500 | | | Black-Scholes Value of Annual Option Grant | | $ | 32,500 | | | Board Meeting Attendance | | $ | 0 | | | Committee Attendance Fee | | | | | | In person | | $ | 1,500 | | | By telephone | | $ | 1,000 | | | Annual Chairperson Fee | | | | | | Audit Committee | | $ | 15,000 | | | Corporate Governance and Nominating Committee | | $ | 7,500 | | | Finance Committee | | $ | 7,500 | | | Salary & Employee Benefits Committee | | $ | 12,500 | | | Lead Director Fee | | $ | 15,000 | | | Expenses | | Reasonable |
| Type of Compensation | Amount | | Annual Retainer Fee | $50,000 | | Grant Date Fair Value of Annual Equity Award | $32,500 | | Black-Scholes Value of Annual Option Grant | $32,502 | | Board Meeting Attendance | $0 | Committee Attendance Fee In person By telephone | $1,500 $1,000 | Annual Chairperson Fee Audit Committee Corporate Governance and Nominating Committee Finance Committee Salary and Employee Benefits Committee | $15,000 $7,500 $7,500 $12,500 | | Lead Director Fee | $15,000 | | Expenses | Reasonable |
As shownthe Director Compensation table shows, in the table above,2010 the non-employee directors receivereceived compensation in the forms of restricted stock units, stock options, and cash for their service as directors.director service. The SEBC setsreviews and approves the compensation for non-employee directors, including the Annual Retainer Fee. For 2011, the SEBC determined that the Annual Retainer Fee annually. Pursuantwould be paid in cash to make the Omnibus Stock Plan, non-employee directors, by December 20payment allocation of Selective’s director compensation program more consistent with market practice and help Selective meet the prior year, must elect to receive the Annual Retainer Fee either: (i) entirelyburn rate commitment that it made in shares of common stock; or (ii) in a combination of shares of common stock and cash, which cash amount must be 50% or less of the Annual Retainer Fee. its 2010 Proxy Statement. The Annual Retainer Fee is paid in equal quarterly installmentsinstallments. The portion of the Annual Retainer Fee that was paid in shares of Selective common stock in 2010 was valued based on Fair Market Value on the payment date, which was the first (1st)business day of January, April, July, and October. The number of shares of common stock issued in each quarterly installment is determined by multiplying theequals: The amount of Annual Retainer Fee to be paid in stock by one-quarter (0.25) and dividing that product by thex .25 The Fair Market Value of Selective’sSelective common stock on the payment date. Under
For governance and administrative purposes, effective January 2011, the SEBC changed the payment date of the Annual Retainer to be the date in each calendar quarter that is the second business day following the release of Selective’s financial results for the previous quarter or year, as applicable. In 2010, under the director compensation program, each non-employee director annually receivesreceived restricted stock units of Selective’sSelective common stock having a Fair Market Value$32,500 fair value on the date of grant of $32,500 and options on shares having a $32,502 Black-Scholes value on the date of grant of $32,500, whichgrant. The restricted stock units and stock options arewere granted pursuant to the terms of the Omnibus Stock Plan. For 2011, the SEBC has determined that the annual equity grant under Selective’s director compensation program will be made entirely in restricted stock units to make the compensation program more consistent with market practice. Committee Attendance Fees and Annual Chairperson Fees as listedwere paid in cash pursuant to the table above, are paid in cash.above. By December 20 of
Pursuant to the prior year,Selective Insurance Group, Inc. Non-Employee Directors’ Deferred Compensation Plan, as amended, non-employee directors may elect by December 20 to defer thetheir receipt of their director compensation including, but not limited to be earned in the Annual Retainer Fee, Committee Attendance Fees, Annual Chairperson Fees, and the Annual Lead Director Fee and any dividends and accrued interest thereon,following year to a specified future year, the attainment of age 70, or separation from service as a director. No member of the Salary and Employee Benefits CommitteeCommittee: (i) was a Selective officer or employee in 2008,2010; (ii) is a former Selective officer,officer; or (iii) entered into any transaction in 20082010 requiring disclosure under the section entitled “Transactions with Related Persons.” No Selective executive officer served as a member of the compensation committee of another entity, or as a director of another entity, one of whose executive officers served on the Salary and Employee Benefits Committee or as a director of Selective. The Salary and Employee Benefits Committee establishes general executive compensation policies and establishes the salaries and bonuses of Selective’s executive officers, including the Chief Executive Officer. The Board of Directors did not modify any action or recommendation made by the Salary and Employee Benefits Committee with respect to executive compensation in 2008.2010. The Salary and Employee Benefits CommitteeCommittee: (i) has reviewed and discussed the Compensation Page 40
Discussion and Analysis with management; and (ii) based on this review and discussion recommended to the Board of Directors, and the Board approved, the inclusion of the Compensation Discussion and Analysis in Selective’s Annual Report on Form 10-K for the year ended December 31, 20082010 and this Proxy Statement.
Submitted by the Salary and Employee Benefits Committee of Selective’s Board of Directors, J. Brian Thebault, Chairperson
Paul D. Bauer
John C. Burville
Michael J. Morrissey
| J. Brian Thebault, Chairperson | | Paul D. Bauer | | A. David Brown | | John C. Burville | | Cynthia S. Nicholson |
The Compensation Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other Selective filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Selective specifically incorporates the Compensation Committee Report by reference therein.
General
We are asking you to approve the amendment and restatement of our Employee Stock Purchase Savings Plan (“ESPP”). The restatement will increase the number of shares of common stock available for issuanceAs required under the ESPP by an additional numberDodd-Frank Wall Street Reform and Consumer Protection Act of shares not to exceed 1,500,000 shares, and make certain other technical changes designed to facilitate the administration2010 (the “Dodd-Frank Act”), our Board of the ESPP.
The current ESPP authorizes the issuance of an aggregate of 3,000,000 common shares available for purchase, as adjusted to give effect to our stock splits that occurred since the inception of the ESPP. As of March 9, 2009, the Company had issued and employees had purchased 2,882,890 of the 3,000,000 common shares currently authorized under the ESPP. The Board believes that the remaining number of shares currently available for issuance under the ESPPDirectors is insufficient to continue providing our employees withSelective’s stockholders the opportunity to acquire a proprietary interestvote to approve, on an advisory (non-binding) basis, the compensation of our named executive officers disclosed pursuant to the compensation disclosure rules of the SEC (also referred to as “say-on-pay”). Although the vote is non-binding, the Board and the SEBC value the opinions of the stockholders and will consider the outcome of this vote when making future compensation decisions for named executive officers.
As discussed in the CompanyCompensation Discussion and therebyAnalysis section of this Proxy Statement, our compensation philosophy is designed to seek to attract motivate, and retain talented and qualified executives by paying compensation that is generally targeted at the best available talent suitable for50th percentile or greater of total compensation paid by comparable companies in the successproperty and casualty insurance industry. Our compensation programs are designed to motivate executives to achieve our corporate objectives and increase stockholder value in both the short and long term. Accordingly, we tie our annual incentive awards to pre-determined strategic and financial business objectives and individual objectives, and we align our long-term compensation to the generation of long-term stockholder value. Stockholders are urged to read this Proxy Statement’s Compensation Discussion and Analysis section, which discusses how our business. Therefore, on March 17, 2009,compensation policies and procedures implement our compensation philosophy. The SEBC and the Board of Directors approved the proposed amendedbelieve that these policies and restated ESPP, which reserves an additional number of shares of common stockprocedures are effective in implementing our compensation philosophy and achieving our goals. The following resolution is being submitted to stockholders for issuance under the ESPP such that, following the end of the ESPP’s offering period ending on June 30, 2009, 1,500,000 common shares will remain available for issuance under the ESPP. Based on past participation rates, the Company believes that the additional authorized shares will be sufficient for purchases under the ESPP for approximately four more years. Assuming approval of this proposal, we plan to register the additional shares on Form S-8 under the Securities Act of 1933.
If approved by stockholders at the Annual Meeting the Amended ESPP will become effective July 1, 2009.
Summarypursuant to Section 14A of the ESPP, As Amended and RestatedExchange Act:
The ESPP was initially approved by
“RESOLVED, that the stockholders at Selective’s 1987 Annual Meeting of Stockholders. The material provisions of the ESPP, as amended (the “Amended ESPP”), are summarized below. The actual text of the Amended ESPP is attached to this Proxy Statement asAppendix A. This description of the Amended ESPP is only a summary of its material terms and is qualified by reference to the actual text as set forth inAppendix A. Purpose
The purpose of the ESPP is to provide our eligible employees with the opportunity to purchase shares of our common stock through convenient payroll deductions. The Amended ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.
Share Reserve
Under the current ESPP, the aggregate number of common shares authorized for purchase is 3,000,000 common shares. Because, as of March 9, 2009, 2,882,890 of these available shares have already been issued under the ESPP, only 117,110 shares will remain available for future purchases (including purchases under the ESPP’s current offering period which ends on June 30, 2009) unless stockholder approval of the increase in the number of common shares is obtained. Under the Amended Plan, the total number of common shares available for issuance is the lesser of: (i) 4,500,000; and (ii) (A) 1,500,000plus(B) 2,882,890;plus(C) the number of Shares issued to
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Participants on the exercise of Options for the Offering Period ending June 30, 2009, all subject to adjustment.
Assuming stockholder approval of the share increase, following the end of the offering period under the ESPP ending on June 30, 2009, an aggregate of 1,500,000 shares will remain available for future issuance under the Amended ESPP. The 1,500,000 shares remaining available under the Amended ESPP, if approved, will represent approximately 2.8% of the issued and outstanding shares of the Company’s common stock as of the Record Date, which is within RiskMetrics Group’s 2009 proxy voting guidelines.
The shares issuable under the ESPP may be newly issued shares made available from authorized but unissued shares of common stock, or shares repurchased by the Company, including shares purchased on the open market.
Offering Periods and Options
Shares of common stock are offered under the Amended ESPP through a series of “offering periods” of no longer than a year established by the ESPP’s administrator. Currently, the administrator has established successive six-month offering periods, commencing on the first business day of January each year and ending on the last business day of the following June, and commencing on the first business day of July each year and ending on the last business day of the following December. When an eligible employee elects to join an offering period, he or she is granted a purchase right (or “option”) to acquire shares of our common stock on the “exercise date,” which is the last day of the offering period. Each option expires at the end of the offering period in which it is granted.
Eligibility
Any person who is an employee of the Company or of a participating subsidiary and who is a regularly scheduled full-time or regularly scheduled part-time employee, or who is customarily employed more than twenty hours per week, is eligible to participate in the ESPP. However, seasonal employees (employees whose customary employment is for not more than five months in any calendar year) are not eligible.
In addition, an employee may not participate in an offering under the ESPP if the purchase would cause the employee to own shares and/or options to purchase shares representing 5% or more of the total combined voting power or value of any class of stock of the Company or any subsidiary.
As of January 2, 2009, the first day of the current offering period, approximately 2,057 employees were eligible to participate in the ESPP, of whom approximately 34% were participating.
Enrollment and Contributions
Participation in the ESPP is voluntary. Each eligible employee elects whether to participate in the ESPP and the extent to which he or she will participate. An individual who first becomes an eligible employee after the election period established for an offering period may not participate in the ESPP until the next offering period.
A participant may authorize payroll withholdings at a rate not in excess of 10% of his or her payroll period base pay. Payroll deductions are credited to a participant’s account on an after-tax basis and without interest, and may be commingled with the general assets of the Company and used for general corporate purposes until shares of common stock are purchased. After an offering period begins, a participant may not change the current contribution percentage until the next offering period.
Options to purchase shares under the ESPP are not assignable or transferable by the participant, and may be exercised only by the participant.
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Purchase of Shares
On the exercise date, all payroll deductions collected from a participant are automatically applied to the purchase of whole and partial shares of our common stock.
However, no participant may purchase more than 2,400 shares of common stock in any one offering period, and no participant may be granted an option under the ESPP that, together with purchase rights under any other Company “employee stock purchase plan,” accrues at a rate exceeding $25,000 worth of stock (valued at the time the participant’s option is granted) for each calendar year during which the option is outstanding.
The purchase price for each common share purchased under the ESPP will be the lesser of 85% of the closing selling price of a share of common stock on the first day of the offering period and 85% of the closing selling price of a share of common stock on the last trading day of the offering period.
On March 9, 2009, the closing price of our common stock was $10.17 per share.
Cessation of Active Participation
Participants may not alter the rate of payroll deductions during an offering period, but may entirely discontinue their participation in the ESPP for an offering period no later than fourteen (14) business days before the last day of the offering period. If a participant withdraws from an offering period, his or her option for the offering period will terminate, all of his or her payroll deductions will be refunded promptly, without interest, and further payroll deductions will cease. A participant who has previously withdrawn from an offering period may re-enter the ESPP by enrolling for a subsequent offering period.
Upon termination of a participant’s employment with the Company and its participating subsidiaries during an offering period for any reason, including death, the payroll deductions credited to the participant’s account for the offering period will be automatically returned to him or her (or in the event of the participant’s death, to his or her estate) in cash, without interest.
In addition, if a participant receives a hardship distribution from the Company’s Retirement Savings Plan, or any other plan sponsored by the Company or an affiliate that is intended to qualify as a Code Section 401(k) plan, the participant’s participation in the offering period in which the participant receives the hardship distribution shall be terminated, and the participant may not again participate in the ESPP for at least six months from the date of such termination.
Administration
The ESPP is administered by the Salary and Employee Benefits Committee of the Board of Directors of Selective Insurance Group, Inc. The ESPP’s administrator has full(“Selective”) approve, on an advisory basis, the compensation of Selective’s named executive officers as such compensation is disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K or any successor thereto.”
If a majority of stockholders vote against this proposal, neither the Board nor the SEBC will be required to take any specific action, because this vote is non-binding and exclusive discretionary authority to construe, interpretadvisory. Nevertheless, consistent with our record of stockholder responsiveness, the SEBC will consider our stockholders’ concerns and apply the terms of the ESPP, to determine eligibility, to adjudicate all disputed claims filed under the ESPP, and to adopt rules and regulations for carrying out the terms of the ESPP. Amendment and Termination
take them into account in future determinations concerning our executive compensation programs. The Board has the right to amend, suspend or terminate the ESPP at any time and for any reason. However, stockholder approval is required for an amendment increasing the number of shares authorized for issuance under the ESPP. No amendment or termination of the plan may affect a participant’s existing options, exceptDirectors therefore recommends that the Board may terminate the ESPP or an offering period on the exercise dateyou indicate your support for the offering period (or on an accelerated purchase date) if the Board determines that the termination iscompensation of our named executive officers as outlined in the best interests of the Company and its stockholders. However, the ESPP’s administrator is permitted to take certain
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actions without regard to any adverse effect on participant rights, including changing the timing of an offering period and establishing reasonable waiting and adjustment periods.
Upon termination of the Amended ESPP, Selective will refund to each participant any remaining balance of the participant’s account.
Corporate Events
In the event of any stock split, reverse stock split, stock dividend, reorganization, recapitalization, or other change in our capital structure, appropriate adjustments will be made in the number and purchase price of the shares available for purchase under the ESPP.
In the event of a merger or consolidation of the Company with and into another person or the sale, transfer, or other disposition of all or substantially all of the assets of the Company to one or more persons (other than any wholly-owned subsidiary of the Company), each option outstanding under the ESPP will be assumed, or an equivalent option shall be substituted, by the successor corporation. If the successor corporation or a parent or subsidiary of the successor corporation refuses to assume or substitute the outstanding options, the offering period then in progress will be shortened and a new exercise date that is on or before the closing of the transaction shall be set, as of which date the offering period then in progress will terminate.
In the event of a dissolution or liquidation of the Company, unless the ESPP’s administrator otherwise provides, the offering period then in progress will terminate immediately prior to the consummation thereof.
New Plan Benefits
No options have been granted, and no shares have been issued, on the basis of the share increase which is the subject of this proposal. Because benefits under the Amended ESPP will depend on employees’ elections to participate and the fair market value of our common stock at various future dates, it is not possible to determine the benefits that will be received by executive officers and other employees if the Amended ESPP is approved by the stockholders. Non-employee directors are not eligible to participate in the Amended ESPP.
However, in 2008, the following employees and groups of employees participated in the ESPP and received the following amounts in benefits (measured as the difference between the price paid for shares of our common stock purchased under the ESPP and the market value of the common stock on the date of purchase):
| | | | | | | Name or Position | | Dollar Value | | Gregory E. Murphy | | $ | 5,447 | | | Dale A. Thatcher | | $ | 3,609 | | | Richard F. Connell | | $ | 0 | | | Kerry A. Guthrie | | $ | 2,511 | | | Ronald J. Zaleski | | $ | 0 | | | Executive Officer Group | | $ | 11,567 | | | All other Employees | | $ | 619,717 | |
U.S. Federal Income Tax Consequences
The following is a brief summary of the general U.S. federal income tax consequences to participants and the Company of participation in the ESPP. This summary is not intended to be exhaustive and does not describe foreign, state or local tax consequences, nor does it describe consequences based on particular circumstances. Each participant should refer to the actual text of the Amended ESPP set forth inAppendix Aand should consult with a tax advisor as to specific questions relating to tax consequences of participation in the ESPP.
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Federal Income Tax Consequences to Participants
The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code. Under such an arrangement, no taxable income will be recognized by a participant upon either the grant or the exercise of an option to purchase shares during an offering period. Taxable income will not be recognized until there is a sale or other disposition of the shares acquired under the ESPP or unless the participant dies while still owning the purchased shares.
The tax consequences to a participant of a disposition of shares vary depending on the period the stock is held before its disposition. If a participant disposes of shares within two years after the first day of the offering period (the “grant date”) or within one year after the date on which the shares are acquired (a “disqualifying disposition”), the participant will recognize ordinary income in the year of disposition in an amount equal to the difference between the fair market value of the shares on the exercise date and the purchase price. Any additional gain or resulting loss recognized by the participant from the disposition of the shares is a capital gain or loss.
If the participant disposes of the shares at least two years after the grant date and at least one year after the date on which the shares are acquired, the participant recognizes ordinary income in the year of disposition in an amount equal to the lesser of:above resolution.
(i) the difference between the fair market value of the shares on the date of disposition and the purchase price; and (ii) the difference between the fair market value of the shares on the grant date and the purchase price (determined by applying any discounted purchase price as if the option were exercised on the grant date).
Any additional gain recognized by the participant on the disposition of the shares is a capital gain. If the fair market value of the shares on the date of disposition is less than the purchase price, there is no ordinary income, and the loss recognized is a capital loss.
If the participant still owns the shares at the time of his or her death, the lesser of the following amounts is recognized as ordinary income in the year of the participant’s death:
(x) the difference between the fair market value of the shares on the date of death and the purchase price; and
(y) the difference between the fair market value of the shares on the grant date and the purchase price (determined as if the option were exercised on the grant date).
A capital gain or loss will be long-term if the participant holds the shares for more than twelve months and short-term if the participant holds the shares for twelve months or less.
Federal Income Tax Consequences to the Company
We are not allowed a deduction for federal income tax purposes in connection with the grant or exercise of an option to purchase common shares under the ESPP if there is no disposition of the shares by a participant within either the one- or two-year periods described above. However, if there is a disqualifying disposition, we will be entitled to a deduction in the same amount and at the same time that the participant realizes ordinary income.
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Board Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERSSTOCKHOLDERS VOTE“FOR”THE PROPOSAL TO AMENDADVISORY RESOLUTION APPROVING THE ESPP TO INCREASE THE NUMBERCOMPENSATION OF SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE THEREUNDER AND TO MAKE CERTAIN OTHER ADMINISTRATIVE CHANGES. Page 47
OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.
Pursuant to the Dodd-Frank Act, Selective is also providing its stockholders with the opportunity to cast an advisory (non-binding) vote regarding the frequency of submission to stockholders of a “say-on-pay” advisory vote such as Proposal 2 in our Proxy Statement. Under the proposed regulations issued by the SEC, stockholders also have the option to abstain from voting on this matter. Assuming a quorum is present, the selection that receives the most votes cast on Proposal 3 at the Annual Meeting in person or by proxy will be deemed the stockholders’ selection. By voting on this Proposal 3, stockholders may indicate whether they would prefer an advisory vote on named executive officer compensation every one, two, or three years. “RESOLVED, that a non-binding advisory vote to approve the compensation of Selective’s named executive officers, as disclosed pursuant to the Securities and Exchange Commission’s compensation disclosure rules (which disclosure shall include the Compensation Discussion and Analysis, the Summary Compensation Table, and any other related material), shall be held at an annual meeting of stockholders: The Board of Directors believes that an annual advisory vote on executive compensation is preferred. An annual advisory vote will give stockholders a regular opportunity to communicate their views on our executive compensation philosophy, policies and practices as disclosed in the proxy statement every year. The Board of Directors also believes that many of its stockholders prefer to cast an advisory vote on executive compensation every year and seeks to be responsive to these stockholders. We understand that our stockholders may have different views as to what is the best approach for Selective.
The option of every one year, two years, or three years that receives the highest number of votes cast by stockholders will be the frequency for the advisory vote on executive compensation that has been selected by the stockholders. This is an advisory vote and not binding on Selective or its Board in any way. The Board may therefore decide that it is in the best interests of our stockholders to hold an advisory vote on executive compensation more or less frequently than the option approved by our stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” AN ADVISORY VOTE ON EXECUTIVE COMPENSATION EVERY YEAR.
Ratification of Appointment of
Independent Registered Public AccountantsAccounting Firm The Audit Committee has appointed KPMG LLP to act as Selective’s independent registered public accountantsaccounting firm for the fiscal year ending December 31, 2009.2011. The Board of Directors has approved the appointment and has directed that such appointment be submitted to Selective’s stockholders for ratification at the Annual Meeting. Stockholder ratification of the appointment of KPMG LLP as Selective’s independent registered public accountantsaccounting firm is not required. The Board of Directors, however, is submitting the appointment to the stockholders for ratification as a matter of good corporate practice. If the stockholders do not ratify the appointment, the Audit Committee and the Board of Directors will reconsider whether to retain KPMG LLP or another firm. Even if the appointment is ratified, the Board of Directors, in its discretion, may direct the appointment of a different auditing firm at any time during the 20092011 fiscal year if the Board determines that such a change would be in the best interests of Selective and its stockholders. Representatives of KPMG LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions. In 2008,2010, Selective paid KPMG LLP $1,712,150$1,262,750 for audit and audit-related services. Noservices and $78,200 for non-audit services were provided by KPMG LLP to Selective in 2008.2010. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2011. KPMG LLP, Selective’s independent registered public accountants,accounting firm, provided services in the following categories and amounts in 2010 and 2009: | Category | 2010 | 2009 | | Audit Fees | $1,172,750 | $1,197,500 | Audit-Related Fees(1) | $90,000 | $181,500 | | Tax Fees | $0 | $0 | All Other Fees(2) | $78,200 | $78,000 | | TOTAL | $1,340,950 | $1,457,000 |
(1) Audit-Related Fees for 2010 and 2009 consisted primarily of amounts associated with: (i) audits of our benefit plans for 2009 and 2008, respectively; and 2007:(ii) consents. | | | | | | | | | | | Category | | 2008 | | 2007 | | Audit Fees | | $ | 1,215,000 | | | $ | 1,319,500 | | Audit-Related Fees(1) | | $ | 497,150 | | | $ | 132,000 | | | Tax Fees | | $ | 0 | | | $ | 0 | | | All Other Fees | | $ | 0 | | | $ | 0 | | TOTAL | | $ | 1,712,150 | | | $ | 1,451,500 | |
(2) All Other Fees for 2010 and 2009 consisted of the independent actuarial reviews and reserve opinions. | | | (1) | | Audit-Related Fees for 2008 consisted primarily of: (i) amounts associated with audits of our benefit plans for 2007 and 2006; (ii) an audit of our flood operations; and (iii) the independent actuarial review and reserve opinion related to the Audit. Audit-Related Fees for 2007 consisted primarily of: (i) the independent actuarial review and reserve opinion related to the Audit; and (ii) audits of the employee benefit plans for 2007 and 2006. |
The Audit Committee has a Pre-Approval Policypre-approval policy that requires pre-approval of audit, audit-related, and audit-relatedpermitted non-audit services on an annual basis and authorizes the Audit Committee to delegate to one or more of its members pre-approval authority with respect to permitted services. The Audit Committee delegated the authority to pre-approve audit, audit-related, and audit-relatedpermitted non-audit services by KPMG LLP to the Audit Committee Chairperson, who is required to report any pre-approvals to the Audit Committee for ratification at its next meeting for ratification.meeting. In 2008,2010, the Audit Committee pre-approved one hundred percent (100%)100% of audit, audit-related, and audit-relatedpermitted non-audit services and concluded that KPMG LLP’s provision of such services was compatible with the maintenance of KPMG LLP’s independence in the conduct of its auditing functions. KPMG LLP provided no tax services or non-audit related services in 2008.2010. Any such future services also would require Audit Committee pre-approval on an individual engagement basis. Page 48
The Audit Committee oversees Selective’s financial reporting processes on behalf of the Board of Directors. Management has the primary responsibility for overseeing preparation of the financial statements and the overall reporting processes, including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee has: | | • | · | Periodically met with and held discussions with management regarding the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in Selective’s financial statements. | |
| | • | · | Reviewed and discussed the audited financial statements for the year ended December 31, 2008,2010, included in the Annual Report on Form 10-K, with management, which represented to the Audit Committee that: (i) the financial statements were prepared in accordance with U.S. generally accepted accounting principles; and (ii) management had reviewed Selective’s disclosure controls and procedures and believes those controls are effective. | |
| | • | · | Reviewed and discussed with KPMG LLP, Selective’s independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of those audited financial statements in accordance with U.S. generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of Selective’s accounting principles and such other matters as are required to be discussed with the Audit Committee under Statements of the Public Company Accounting Oversight Board, including the Statement on Auditing Standards No. 61, as amended. | |
| | • | · | Discussed with KPMG LLP, the independent registered public accounting firm’s independence from Selective and its management, including the matters in the written disclosures from the independent accountsaccountants delivered to the Audit Committee as required by the applicable requirements of the Public Company Accounting Oversight Board.Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence. |
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board approved, the inclusion of the audited financial statements in Selective’s Annual Report on Form 10-K for the year ended December 31, 2008.2010. Submitted by the Audit Committee of Selective’s Board of Directors, Paul D. Bauer, Chairperson
Joan M. Lamm-Tennant
Ronald L. O’Kelley
J. Brian Thebault
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| Paul D. Bauer, Chairperson | | John C. Burville | | Michael J. Morrissey | | Ronald L. O’Kelley | | J. Brian Thebault |
INFORMATION ABOUT PROPOSAL 4
Stockholder Proposal Relating to the Declassification of the Board of Directors
Gerald R. Armstrong, who resides at 910 Sixteenth Street, No. 412, Denver, Colorado, 80202-2917, 303-355-1199,and owns 200 shares of Selective common stock (based on information provided to Selective by Mr. Armstrong), has notified Selective that he intends to present the following proposal at the Annual Meeting:
RESOLUTION
That the shareholders of SELECTIVE INSURANCE GROUP, INC. request its Board of Directors to take the steps necessary to eliminate classification of terms of the Board of Directors to require that all Directors stand for election annually. The Board declassification shall be completed in a manner thatAudit Committee Report does not affectconstitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other Selective filing under the unexpired termsSecurities Act of 1933, as amended, or the previously-elected Directors.
SUPPORTING STATEMENT
The proponent believes the election of directors is the strongest way that shareholders influence the directors of any corporation. Currently, our board of directors is divided into three classes with each class serving three-year terms. Because of this structure, shareholders may only vote for one-third of the directors each year. This is not in the best interest of shareholders because it reduces accountability.
Xcel Energy Inc., Devon Energy Corporation, ConocoPhillips, ONEOK, Inc., CenterPoint Energy, Inc., Hess Corporation have adopted this practice and it has been approved by shareholders at CH Energy Group, Inc., Central Vermont Public Service Corporation, Black Hills Corporation, Spectra Energy Corp., and several others, upon presentation of a similar resolution by the proponent during 2008. The proponent is a professional investor who has studied this issue carefully.
The performance of our management and our Board of Directors is now being more strongly tested due to economic conditions and the accountability for performance must be given to the shareholders whose capital has been entrusted in the form of share investments.
A study by researchers at Harvard Business School and the University of Pennsylvania’s Wharton School titled “Corporate Governance and Equity Prices” (Quarterly Journal of Economics, February, 2003), looked at the relationship between corporate governance practices (including classified boards) and firm performance. The study found a significant positive link between governance practices favoring shareholders (such as annual directors election) and firm value.
While management may argue that directors need and deserve continuity, management should become aware that continuity and tenure may be best assured when their performance as directors is exemplary and is deemed beneficial to the best interests of the corporation and its shareholders.
The proponent regards as unfounded the concern expressed by some that annual election of all directors could leave companies without experienced directors in the event that all incumbents are voted out by shareholders. In the unlikely event that shareholders do vote to replace all directors, such a decision would express dissatisfaction with the incumbent directors and reflect the need for change.
If you agree that shareholders may benefit from greater accountability afforded by annual election of all directors, please vote “FOR” this proposal.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THIS PROPOSAL.
The Board of Directors of the Company has considered the proposal set forth above relating to the declassification of the Board. The Board believes that its classified board structure has helped assure continuity and stability of the Company’s business strategies and policies and has reinforced a
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commitment to focusing on long-term stockholder value. Although these are important benefits, the Board acknowledges that there are growing sentiments among our stockholders and in the investment community in favor of annual elections of directors and believes that the Board would be equally effective in protecting stockholder interests under an annual election system. As a result, the Board has considered the proposal and has determined to recommend a vote “for” the proposal.
The proposal, which is advisory in nature, would constitute a recommendation to the Board if approved by stockholders. Approval of this proposal requires the affirmative vote of a majority of the votes cast at the Annual Meeting. Such approval would not, by itself, eliminate the classified board. In order to eliminate the classified board provision in the Company’s Certificate of Incorporation, New Jersey law and the terms of the Certificate of Incorporation require the favorable vote of the Board and the holders of at least two-thirds of the then outstanding shares of voting stock of the Company.
If stockholders approve the proposal at this year’s Annual Meeting, the Board,Exchange Act, except to the extent consistent with its fiduciary duty to act in a manner it believes to be inthat Selective specifically incorporates the best interests of the Company and its stockholders, will abideAudit Committee Report by the vote of stockholders and will present for a vote of stockholders at next year’s Annual Meeting an amendment to the Company’s Certificate of Incorporation that, if approved by the requisite vote, would eliminate the classified board structure.reference therein.
Proposals for Inclusion in 20102012 Proxy
From time to time,time-to-time, stockholders present proposals that may be proper subjects for inclusion in the proxy statement and for consideration at an annual meeting. Under the rules of the SEC (Rule 14a-8 under(under the Exchange Act), stockholder proposals to be included in the proxy statement for the 20102012 Annual Meeting of Stockholders must be received by Selective’s Corporate Secretary at 40 Wantage Avenue, Branchville, NJ 07890 no later than November 26, 2009.2011.
Other Proposals and Nominations In order for proposals of stockholders made outside of Rule 14a-8 under the Exchange Act to be considered “timely” within the meaning of Rule 14a-4(c) under the Exchange Act, such proposals must be received by
Selective’s Corporate Secretary at the above address by January 29, 2010. Selective’s By-lawsBy-Laws require that a stockholder who otherwise intends to present a proposal outside of Rule 14a-8 under the Exchange Act at Selective’s 2010 Annual Meetingor to nominate a director must deliver notice to the Corporate Secretary, in proper written form and in accordance with the requirements of the By-laws,By-Laws, not less than ninety (90)120 days nor more than one hundred twenty (120)150 days prior to the first anniversary of the preceding year’s annual meeting. Thus, a notice of a stockholder proposal for the 20102012 Annual Meeting of Stockholders, submitted outside of Rule 14a-8 under the Exchange Act, will be untimely if received by the Corporate Secretary before December 30, 2009November 29, 2011 or after JanuaryDecember 29, 2010.2011.
Under Section 3B of Selective’s By-laws, stockholders may: (i) present proposals that are proper subjects for consideration at an annual meeting, which proposals are not submitted for inclusion in the proxy statement for such annual meeting pursuant to Rule 14a-8 of the Exchange Act; or (ii) nominate a person for election to our Board of Directors at the annual meeting. On written request to Selective’s Corporate Secretary at 40 Wantage Avenue, Branchville, NJ 07890, stockholders of record may receive a free copy of Selective’s By-laws. Procedures in the By-laws are separate and distinct from those required by Rule 14a-8 under the Exchange Act.
Selective’s By-laws require that the stockholder provide the following information in writing regarding any proposal:
| • | | the business proposed to be brought before the annual meeting; | | | • | | the reasons for conducting such business at the annual meeting; | | | • | | any material interest of the stockholder in such business; | | | • | | the beneficial owner, if any, on whose behalf the proposal is made; | | | • | | the name and address of the stockholder giving the notice, as they appear on our books, and of the beneficial owner of those shares; and | | | • | | the class and number of shares which are owned beneficially and of record by the stockholder and the beneficial owner. |
Selective’s By-laws require that the stockholder provide the following information in writing regarding any nomination for director:
| • | | all information relating to each person whom the stockholder proposes to nominate for election as a director as 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); | | | • | | the name and address of the stockholder giving the notice, as they appear on our books, and of the beneficial owner of those shares; and | | | • | | the class and number of shares which are owned beneficially and of record by the stockholder and the beneficial owner. |
* * * * * * * * Page 52
It is important that your shares be represented at the meeting, regardless of the number of shares that you hold. YOU ARE THEREFORE URGED TO PROMPTLY VOTE YOUR SHARES BY: (1) CALLING THE TOLL-FREE TELEPHONE NUMBER LISTED ON THE PROXY CARD; (2) ACCESSING THE INTERNET WEBSITE LISTED ON THE PROXY CARD; OR (3) COMPLETING, DATING, AND SIGNING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED ENVELOPE. Stockholders who are present at the meeting may revoke their proxies and vote in person or, if they prefer, may abstain from voting in person and allow their proxies to be voted.
By Order of the Board of Directors: Robyn P. Turner
Corporate Secretary
March 26, 2009
25, 2011 Branchville, New Jersey
Information regarding Executive Officers is incorporated by reference to the section entitled “Executive Officers of the Registrant” in Part I, Item1. BusinessItem 1. Business. of Selective’s Annual Report on Form 10-K for the year ended December 31, 2008.2010. Page 53
Page 55 SELECTIVE INSURANCE GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN (2009)
Amended and Restated Effective July 1, 2009ARTICLE I
Establishment and Purpose
1.1. | | Selective Insurance Group, Inc. established the Employee Stock Purchase Savings Plan effective as of July 1, 1987. The purpose of the Plan is to provide a greater community of interest between Selective stockholders and the employees of Selective and its subsidiaries which adopt the Plan, and to facilitate the purchase by employees of shares of common stock of Selective. It is intended that the Plan qualify as an “employee stock purchase plan” under Section 423 of the Code, and the provisions of the Plan shall be construed in a manner consistent with the requirements of Section 423 of the Code. | | 1.2. | | The Plan is hereby amended and restated effective with respect to Offering Periods commencing on and after July 1, 2009, and is renamed the “Selective Insurance Group, Inc. Employee Stock Purchase Plan (2009).” |
DIRECTIONSARTICLE II
Definitions
2.1. | | “Account” means a bookkeeping account established by the Company with respect to the funds that are accumulated for each individual Participant as a result of payroll deductions for the purpose of purchasing Shares under the Plan. The funds that are allocated to a Participant’s Account may be commingled with the general funds of the Company. | | 2.2. | | Acquisition” means a merger or consolidation of Selective with and into another person or the sale, transfer, or other disposition of all or substantially all of the assets of Selective to one or more persons (other than any wholly-owned subsidiary Selective) in a single transaction or series of related transactions. | | 2.3. | | “Base Pay” means a Participant’s regular annualized base salary or regular straight time base earnings, excluding payments for overtime, bonuses and other incentive compensation, commissions, pension, welfare and fringe benefits, and any other special, irregular or infrequent benefits or remuneration; provided, however, that Base Pay shall include remuneration paid by the Company for paid-time off (bank days) used while in the employ of the Company, short-term disability wage continuation payments, military leave payments, military leave differential payments and workers’ compensation wage continuation payments, as well as any salary deferral contributions made by the Participant to the Selective Insurance Retirement Savings Plan, the Selective Insurance Company of America “Selections” Plan, and the Selective Insurance Company of America Deferred Compensation Plan. | | 2.4. | | “Board” means the Board of Directors of Selective. | | 2.5. | | “Code” means the Internal Revenue Code of 1986, as amended. | | 2.6. | | “Commencement Date” with respect to an Option means the first day of the Offering Period in which such Option was granted. | | 2.7. | | “Committee” means the Salary and Employee Benefits Committee of the Board. |
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2.8. | | “Company” means, collectively, Selective, Selective Insurance Company of America, Selective HR Solutions VI, Inc., and any Parent or other Subsidiary of Selective which adopts the Plan as a participating employer with the consent of and subject to any conditions imposed by Selective. Notwithstanding the foregoing, the Committee may exclude Selective Insurance Company of America, Selective HR Solutions, Inc. and/or any other Parent or Subsidiary of Selective adopting the Plan from participation in the Plan with respect to any Offering Period by written action prior to the commencement of such Offering Period. | | 2.9. | | “Employee” means any common law employee of the Company, including an officer or a member of the Board of Directors of the Company, who is customarily employed by the Company more than five (5) months in a calendar year, and who (i) is regularly scheduled to work on a full-time basis; (ii) is regularly scheduled to work on a part-time basis; or (iii) is not regularly scheduled to work on either a full-time or part-time basis, but is customarily employed more than twenty (20) hours per week, all as set forth in the books and records of the Company. | | 2.10. | | “Exercise Date” with respect to any Option means the last day of the Offering Period in which such Option was granted. | | 2.11. | | “Fair Market Value” of the Shares on any given date shall be calculated as follows: (i) if the Shares are listed on a national securities exchange or traded on the NASDAQ National Market or the NASDAQ SmallCap Market and sale prices are regularly reported for the Shares, then the Fair Market Value shall be the closing selling price for a Share reported on the applicable composite tape or other comparable reporting system on the applicable date, or, if the applicable date is not a trading day, on the most recent trading day immediately prior to the applicable date; or (ii) if closing selling prices are not regularly reported for the Shares as described in clause (i) above but bid and asked prices for the Shares are regularly reported, then the Fair Market Value shall be the arithmetic mean between the closing or last bid and asked prices for the Shares on the applicable date or, if the applicable date is not a trading day, on the most recent trading day immediately prior to the applicable date; or (iii) if prices are not regularly reported for the Shares as described in clause (i) or (ii) above, then the Fair Market Value shall be such value as the Committee in good faith determines. | | 2.12. | | “Offering Period” means any of the successive periods of time not to exceed one (1) year used for purposes of purchasing Shares by Participants under the Plan, as described in Section 4.1. | | 2.13. | | “Option” means the right to purchase Shares under the Plan. | | 2.14. | | “Parent” means a parent, as that term is defined under Section 424(e) of the Code. | | 2.15. | | “Participant” means an Employee who has elected to participate in the Plan in accordance with Article V. | | 2.16. | | “Plan” means this Selective Insurance Group, Inc. Employee Stock Purchase Plan (2009), as amended from time to time. | | 2.17. | | “Selective” means Selective Insurance Group, Inc., or any successor. | | 2.18. | | “Shares” mean shares of common stock of Selective, par value $2.00 per share, subject to adjustments which may be made in accordance with Article XV. | | 2.19. | | “Subsidiary” means a subsidiary, as that term is defined under Section 424(f) of the Code. |
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ARTICLE III
Eligibility
3.1. | | Any person who is an Employee during the enrollment period established by the Committee for an Offering Period and as of the first day of an Offering Period, shall be eligible to participate in the Plan with respect to such Offering Period, subject to the limitations imposed by Section 423 of the Code. | | 3.2. | | Notwithstanding any provision of the Plan to the contrary, no Employee shall be granted an Option: |
| (i) | | if such Employee, immediately after the Option is granted, owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of Selective or of any Parent or Subsidiary of Selective (taking into account stock which would be attributed to such Employee pursuant to Section 424(d) of the Code); or | | | (ii) | | which gives the Employee the right to purchase stock under all “employee stock purchase plans” (within the meaning of Section 423 of the Code) of Selective and its Parents and Subsidiaries, including the Plan, to accrue at a rate which exceeds $25,000 of the Fair Market Value of such stock (determined as of the Commencement Date of the Offering Period to which the Option relates) for each calendar year in which such Option is outstanding at any time. The term “accrue” shall be interpreted in accordance with Section 423(b)(8) of the Code and the regulations thereunder. |
ARTICLE IV
Offering Periods
4.1. | | Shares shall be offered for purchase under the Plan through a series of successive or non-overlapping Offering Periods until such time as: (i) the maximum number of Shares available for issuance under the Plan shall have been purchased; or (ii) the Plan shall have been sooner terminated. Each Offering Period shall be of such duration (not to exceed twelve (12) months) and commence on such dates as determined by the Committee prior to the Commencement Date of such Offering Period. At any time and from time to time, the Committee may change the duration and/or the frequency of Offering Periods or suspend operation of the Plan with respect to Offering Periods not yet commenced. Unless otherwise determined by the Committee from time to time, an Offering Period shall commence on the first business day in January and July of each year and end on the last business day in the following June and December, respectively. | | 4.2. | | The Committee may at any time suspend any Offering Period if required by law or if the Committee shall deem such suspension to be in the best interests of the Company. |
ARTICLE V
Participation
5.1. | | Any person who is an Employee during the enrollment period established by the Committee for an Offering Period and as of the Commencement Date of an Offering Period, may become a Participant in the Plan for such Offering Period by enrolling in the Plan and authorizing payroll deductions prior to the Commencement Date of such Offering Period in the manner provided by the Committee from time to time. | | 5.2. | | Participation in one Offering Period under the Plan shall neither limit, nor require, participation in any other Offering Period. | | 5.3. | | Participation in the Plan shall be voluntary. |
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ARTICLE VI
Payroll Deductions
6.1. | | Upon enrollment in the Plan, a Participant shall authorize the Company to make payroll deductions of a whole percentage of his Base Pay each payroll period at a rate not in excess of ten percent (10%) of such payroll period Base Pay. The Committee may, from time, change the limitations on the maximum and/or minimum percentage or amount of payroll deductions that may be made by Participants; provided, however, that, except as provided in Articles XII and XV, a Participant’s existing rights under any Offering Period that has already commenced may not be adversely affected by such change. | | 6.2. | | Payroll deductions for a Participant shall commence with the first regular payroll date occurring on or after the Commencement Date of the Offering Period for which a payroll deduction authorization has been filed. Payroll deductions shall end on the last payroll date that is on or prior to the Exercise Date, unless the Participant has discontinued his participation in the Plan with respect to that Offering Period earlier as provided in Article IX. | | 6.3. | | At the conclusion of each Offering Period, the Company shall automatically re-enroll each Participant in the next Offering Period, and payroll deductions shall continue at the rate selected by the Participant in his payroll deduction authorization for the prior Offering Period, unless the Participant discontinues his participation in the Plan earlier as provided in Article IX, or increases or reduces his contribution percentage with respect to, and prior to the Commencement Date of, such subsequent Offering Period. | | 6.4. | | All payroll deductions made for a Participant shall be credited to a payroll deduction Account in the name of the Participant under the Plan. The Participant may not make any separate cash payments into such Account nor may payment for Shares be made from other than the Participant’s Account. | | 6.5. | | A Participant may elect to discontinue his participation in the Plan and terminate his payroll deduction authorization as provided in Article IX, but may not alter the amount or rate of payroll deductions during an Offering Period or make any other change during an Offering Period. | | 6.6. | | No interest will be paid or allowed in respect of any payroll deduction amount under any circumstances. | | 6.7. | | Notwithstanding anything in this Article VI to the contrary, to the extent necessary to comply with Section 423(b)(3) or Section 423(b)(8) of the Code and Section 3.2 herein, a Participant may be excluded from participating in an Offering Period, or a Participant’s payroll deductions may be limited, decreased or terminated during any Offering Period. Except to the extent required to ensure compliance with Section 423(b)(3) or Section 423(b)(8) of the Code and Section 3.2 herein, payroll deductions limited, decreased or terminated pursuant to this Section 6.7 shall re-commence automatically at the rate provided in such Participant’s payroll deduction authorization at the beginning of the next Offering Period, unless terminated by the Participant as provided in Article IX or modified by the Participant with respect to the next Offering Period. | | 6.8. | | Notwithstanding anything in this Article VI to the contrary, in the event that an Employee who is a participant in any pension plan maintained by the Company or any of its affiliates which includes a cash or deferred arrangement pursuant to Section 401(k) of the Code takes a hardship distribution, within the meaning of Section 401(k)(2)(B)(i)(IV) of the Code, from such plan, the Committee may decrease the Employee’s payroll deductions under the Plan to zero percent (0%) during an Offering Period, and/or may restrict the Employee from participating in the Plan with respect to a new Offering Period, if and to the extent necessary to satisfy the requirements of Treasury Regulation Section 1.401(k)-1(d)(3)(iv)(E)(2). |
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ARTICLE VII
Terms and Conditions of Options
7.1. | | Options granted pursuant to the Plan shall be evidenced by agreements, if any, in such form, including electronic form, as the Committee shall require, and shall comply with and be subject to the terms and conditions set forth in this Article VII. All Employees shall have the same rights and privileges under the Plan. | | 7.2. | | On the Commencement Date of each Offering Period, Selective shall grant to each Participant in such Offering Period an Option to purchase as many full Shares as may be purchased by such Participant with the amount credited to his Account at the Exercise Date for such Option, subject to the limitations of Section 7.4. A Participant shall be granted a separate purchase right for each Offering Period in which he participates. | | 7.3. | | The Option price of the Shares shall be the lower of: |
| (i) | | 85% of the Fair Market Value of the Shares on the Commencement Date of the Offering Period; and | | | (ii) | | 85% of the Fair Market Value of the Shares on the Exercise Date for the Offering Period. |
7.4. | | In no event may the number of Shares purchased by any Participant during an Offering Period exceed 2,400 shares, as the same may be adjusted pursuant to Article XV. |
ARTICLE VIII
Exercise of an Option
8.1. | | Unless a Participant has received a refund of or withdrawn the balance of his Account pursuant to Article IX, his Option for the purchase of Shares will be exercised automatically on the Exercise Date, and the maximum number of Shares shall be purchased at the applicable Option price with the accumulated payroll deductions in his Account. | | 8.2. | | Any balance remaining in any Participant’s Account at the Exercise Date of an Offering Period equaling less than the sum required to purchase a full Share shall be used to purchase fractional Shares. |
ARTICLE IX
Withdrawal or Termination
9.1. | | Upon termination of a Participant’s employment with the Company for any reason, including death, prior to an Exercise Date for an Offering Period, the payroll deductions credited to the Participant’s Account for such Offering Period shall be returned to him (or, in the event of the Participant’s death, to his estate) in cash, without interest. | | 9.2. | | Subject to rules and procedures adopted by the Committee, a Participant may withdraw all but not less than all of the balance in his Account and thereby withdraw from participation in the Plan with respect to an Offering Period by giving written notice to the Committee no later than fourteen (14) business days prior to the last day of the Offering Period. Upon receipt of such notice: (a) the Participant’s Option for the Offering Period shall automatically terminate; (b) no further contributions to his Account shall be permitted for such Offering Period; and (c) as soon as administratively practicable, the Company shall refund to the Participant the funds that remain in the Participant’s Account, without interest. | | 9.3. | | An Employee who has previously withdrawn from the Plan may re-enter by complying with the requirements of Article V. Upon compliance with such requirements, an Employee’s re- |
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| | entry into the Plan will become effective on the Commencement Date of the next Offering Period following the date the Employee complies with Article V with respect to the re-entry. |
ARTICLE X
Shares Under Option
10.1. | | The Shares to be sold to Participants under this amended and restated Plan may, at the election of the Board, be either treasury Shares, Shares originally issued for such purpose, or issued and outstanding Shares purchased for such purpose in the open market. Subject to adjustment pursuant to Article XV, the aggregate number of Shares available for issuance under the Plan shall be the lesser of: (i) 4,500,000; and (ii) (A) 1,500,000plus(B) 2,882,890;plus(C) the number of Shares issued to Participants on the exercise of Options for the Offering Period ending June 30, 2009. For the avoidance of doubt, the aggregate number of Shares remaining available for issuance under the Plan with respect to Offering Periods commencing on or after July 1, 2009 shall be 1,500,000 (subject to adjustment pursuant to Article XV). | | 10.2. | | If for any reason any Option under the Plan terminates or is cancelled in whole or in part, Shares that may have been purchased upon the exercise of such Option may be made subject to another Option under the Plan. | | 10.3. | | If, on any date, the total number of Shares for which outstanding Options have been granted exceeds the number of Shares then available under this Article X after deduction of all Shares that have been purchased under the Plan, the Committee shall make a pro-rata allocation of the Shares that remain available in as nearly a uniform manner as shall be practicable and as it shall determine, in its sole judgment, to be equitable. In such event, the number of Shares each Participant may purchase shall be reduced and the Committee shall give to each Participant a written notice of such reduction. | | 10.4. | | Selective shall deliver, or cause to be delivered, to each Participant, as promptly as practicable after any Exercise Date, a statement indicating the number of Shares, including any fractional Shares, purchased upon exercise of his Option that are being held in an account established by Selective for and in the Participant’s name. Notwithstanding the foregoing, the Committee may, in its sole discretion, issue certificates for Shares to a Participant, subject to payment by the Participant of such reasonable charge as the Committee may impose. | | 10.5. | | A Participant will have no interest in Shares covered by his Option, and will have no rights as a stockholder and no voting rights with respect to any such Shares, until such Option has been exercised and such Shares issued to the Participant. |
ARTICLE XI
Administration
11.1. | | The Plan shall be administered by the Salary and Benefits Committee of Selective Insurance Group, Inc. For any period during which no such committee is in existence, “Committee” shall mean the Board, and all authority and responsibility assigned to the Committee under the Plan shall be exercised, if at all, by the Board. | | 11.2. | | The Committee shall be vested with full and exclusive discretionary authority to administer the Plan, to construe, interpret and apply its terms, to determine eligibility to participate in the Plan, to adjudicate all disputed claims made with respect to the Plan and to adopt such rules and regulations as it deems necessary to administer the Plan. Without limiting the generality of the foregoing, the Committee may, at any time, change the timing of an Offering Period, limit the frequency and/or number of changes in the amount withheld during an Offering Period, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of properly completed |
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| | payroll deduction authorizations, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Shares for each Participant properly correspond with amounts withheld from the Participant’s Base Pay, and establish such other limitations or procedures as the Committee determines in its sole discretion advisable which are consistent with the Plan. | | 11.3. | | Any determination, decision, or action of the Committee with respect to the construction, interpretation, administration, or application of the Plan, any Option agreement entered into pursuant to the Plan or any other forms or procedures used in connection with or relating to the Plan shall be final, conclusive, and binding on all persons having or claiming any interest under this Plan. | | 11.4. | | The Committee may, at any time and in its sole discretion by action in writing, delegate to any individual, committee or entity any of its powers and responsibilities under the Plan. Without limiting the generality of the foregoing, the Committee may appoint an employee or employees of the Company and delegate to such employee(s) its authority to administer the day-to-day operations of the Plan. | | 11.5. | | In addition to such other rights of indemnification as they may have as directors, officers, employees or members of the Committee, the members of the Committee shall be indemnified by Selective against the reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them, or any of them, in settlement thereof (provided such settlement is approved by independent legal counsel selected by Selective) or in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Committee member is liable for negligence or misconduct in the performance of his duties; provided, that within 60 days after institution of any such action, suit or proceeding a Committee member shall in writing offer the Company the opportunity, at its own expenses, to handle and defend the same. |
ARTICLE XII
Amendment and Termination of the Plan
12.1. | | The Board may amend the Plan at any time in such respects as it shall deem advisable; provided, however, that stockholder approval will be required for any amendment that will increase the total number of Shares as to which Options may be granted under the Plan or for any amendment which, without such stockholder approval, would cause this Plan to fail to continue to qualify as an “employee stock purchase plan” under Section 423 of the Code. | | 12.2 | | The Board may suspend or terminate this Plan at any time. Upon a suspension or termination of the Plan while an Offering Period is in progress, the Committee shall either shorten such Offering Period by setting a new Exercise Date before the date of such suspension or termination of the Plan, or shall refund to each Participant the balance, if any, of each Participant’s Account, without interest. | | 12.3 | | Without stockholder consent and without regard to whether any Participant rights may be considered to have been adversely affected, the Committee, as administrator of the Plan, shall be entitled to make changes to the Offering Periods and other terms of participation in the Plan permitted by Article 11, including, without limitation, Section 11.2. |
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ARTICLE XIII
Nontransferability
13.1. | | Neither the Options, the payroll deductions credited to a Participant’s Account, nor any rights with regard to the exercise of an Option or the receipt of Shares under the Plan may be assigned, transferred, pledged, or otherwise disposed of in any way by a Participant, other than by will or the laws of descent or distribution, and any such attempted assignment, transfer, pledge, or other disposition shall be null and void and without effect, but Selective may treat such act as an election to withdraw from the Plan in accordance with Article IX. No Option may be exercised during a Participant’s lifetime by any person other than the Participant. | | 13.2. | | Unless otherwise determined by the Committee, Shares purchased under the Plan may be registered only in the name of the Participant, or, if such Participant so indicates on his payroll deduction authorization form, in his name jointly with a member of his family, with right of survivorship. A Participant who is a resident of a jurisdiction which does not recognize such a joint tenancy may have Shares registered in the Participant’s name as tenant in common with a member of the Participant’s family, without right of survivorship. |
ARTICLE XIV
Use of Funds
14.1. | | All payroll deductions received or held by the Company under this Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to, and shall not, segregate such payroll deductions. On each Exercise Date, sufficient funds to acquire the number of Shares being purchased by the Participants employed by each Company shall be transferred to Selective by the Company which employs such Participants. |
ARTICLE XV
Adjustments upon Changes in Capitalization, Acquisitions, Etc.
15.1. | | Subject to any required action by the stockholders of Selective, the number of Shares covered by each Option under the Plan which has not yet been exercised and the number of Shares which have been authorized for issuance under the Plan but have not yet been placed under Option (collectively, the “Reserves”), as well as the maximum number of Shares which may be purchased by a Participant in an Offering Period, the number of Shares set forth in Sections 7.4 and 10.1 above, and the price per Share covered by each Option which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of the issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares (including any such change in the number of Shares effected in connection with a change in domicile of Selective), or any other increase or decrease in the number of Shares effected without receipt of consideration by Selective; provided however,that conversion of any convertible securities of Selective shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. | | 15.2. | | In the event of a dissolution or liquidation of Selective, the Plan and the Offering Period then in progress will terminate immediately prior to the consummation of such action. Unless otherwise provided by the Committee, any outstanding Option granted with respect to the Offering Period then in progress will terminate immediately prior to the consummation of such action, and the entire amount credited to each Participant’s Account will be paid to him or her in cash without interest. | | 15.3. | | In the event of an Acquisition, each Option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a Parent or Subsidiary of such successor corporation. In the event that the successor corporation or |
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| | Parent or Subsidiary of such successor corporation refuses to assume or substitute for outstanding Options, then the Committee shall provide for either (i) or (ii) below to occur: |
| (i) | | The Offering Period then in progress shall be shortened and a new Exercise Date shall be set with respect to such Offering (the “New Exercise Date”), as of which date the Offering Period then in progress will terminate. The New Exercise Date shall be on or before the date of consummation of the transaction and the Committee shall notify each Participant in writing, at least ten (10) days prior to the New Exercise Date, that the Exercise Date for his Option has been changed to the New Exercise Date and that his Option will be exercised automatically on the New Exercise Date, unless prior to such date he has withdrawn from the Plan with respect to such Offering Period as provided in Article IX. | | | (ii) | | The Offering Period then in progress will terminate immediately prior to the consummation of the Acquisition, any outstanding Option granted with respect to the Offering Period then in progress will terminate, and the entire amount credited to each Participant’s Account will be paid to him or her in cash without interest. |
| | For purposes of this Article XV, an Option granted under the Plan shall be deemed to be assumed, without limitation, if, at the time of issuance of the stock or other consideration upon an Acquisition, each holder of an Option would be entitled to receive upon exercise of the Option the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to the transaction, the holder of the number of Shares covered by the Option at such time (after giving effect to any adjustments in the number of Shares covered by the Option as provided for in this Article XV); provided, however,that if the consideration received in the transaction is not solely common stock of the successor corporation or its Parent, the Committee may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the Option to be solely common stock of the successor corporation or its Parent equal in Fair Market Value to the per Share consideration received by holders of Shares in the transaction. | | 15.4. | | The Committee shall make an appropriate and proportionate adjustment, as determined in the exercise of its sole discretion, to the Reserves, as well as the price per Share and the kind of shares covered by each outstanding Option, in the event that Selective effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of Shares, and in the event of a merger or other consolidation of Selective with or into any other corporation. |
ARTICLE XVI
Registration and Qualification of Shares
16.1. | | Shares shall not be issued with respect to an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. | | 16.2. | | As a condition to the exercise of an Option, the Committee may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Committee, such a representation is required by any of the aforementioned applicable provisions of law. |
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ARTICLE XVII
Designation of Beneficiary
17.1. | | A Participant may, if and to the extent permitted by the Committee, file a written designation of a beneficiary who is to receive any Shares and cash, if any, from the participant’s Account under the Plan in the event of such Participant’s death subsequent to the end of an Offering Period but prior to delivery to him of such Shares and cash. Any such beneficiary shall also be entitled to receive any cash from the Participant’s Account under the Plan in the event of such Participant’s death during an Offering Period. | | 17.2. | | Such designation of beneficiary may be changed by the Participant at any time by written notice to the Committee. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant’s death, the Committee shall deliver such Shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Committee), the Committee, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Committee, then to such other person as the Committee may designate. |
ARTICLE XVIII
Miscellaneous
18.1. | | If a Participant disposes of any Shares received by him pursuant to an Option within two (2) years after the Commencement Date or within one (1) year after the Exercise Date of the Offering Period to which such Option relates, the Participant shall notify Selective in writing within 30 days after the date of any such disposition, and shall provide such details of the disposition, including the date of the disposition, as the Committee may require. | | 18.2. | | No provision of the Plan or transaction hereunder shall confer upon any Participant any right to be employed by the Company or any subsidiary or affiliate thereof, or to interfere in any way with the right of the Company to increase or decrease the amount of any compensation payable to such Participant. | | 18.3. | | Each Participant who purchases Shares under the Plan shall thereby be deemed to have agreed that the Company shall be entitled to withhold, from any other amounts that may be payable to the Participant at or around the time of the purchase, such federal, state, local and foreign income, employment and other taxes which may be required to be withheld under applicable laws. In lieu of such withholding, the Company may require the Participant to remit such taxes to the Company as a condition of the purchase. | | 18.4. | | In the event that any provision of the Plan shall be declared illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan but shall be fully severable, and the Plan shall be construed and enforced as if such illegal or invalid provision had never been a part of the Plan. | | 18.5. | | The validity, construction, and effect of the Plan shall be determined in accordance with the laws of the State of New Jersey, without giving effect to principles of conflicts of laws, to the extent not preempted by federal law. | | 18.6. | | Whenever used in the Plan, unless the context otherwise indicates, words in the masculine will be deemed to include the feminine, and the singular will be deemed to include the plural. |
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DIRECTIONS
Selective Insurance Group, Inc.
Directions to Principal Offices
40 Wantage Avenue
Branchville, NJ 07890-1000
From East: Route I-80 West to Route 15 North to Route 206 North. Go about 2 miles from Route 15/Route 206 intersection, turn right at traffic light, then left on Route 630 (Broad Street). Turn right at Post Office onto Wantage Avenue (Route 519). 1st entrance on right —- Northeast Operations. 2nd entrance on right —- Corporate office/main reception area.
From West: Route I-80 East to Route 94 North to Route 206 North. Turn right at Branchville traffic light opposite “Our"Our Lady Queen of Peace”Peace" Catholic church, then left on Route 630 (Broad Street). Turn right at Post Office onto Wantage Avenue (Route 519). 1st entrance on right —- Northeast Operations. 2nd entrance on right —- Corporate office/main reception area. —or—- or -
Route I-78 East to Pa. Route 611 North to Route 94 North to Route 206 North. Turn right at Branchville traffic light opposite “Our"Our Lady Queen of Peace”Peace" Catholic church, then left on Route 630 (Broad Street). Turn right at Post Office onto Wantage Avenue (Route 519). 1st entrance on right —- Northeast Operations. 2nd entrance on right —- Corporate office/main reception area. —or—- or -
Route I-78 East to Route 31 North to Route 46 West to Route 94 North to Route 206 North. Turn right at Branchville traffic light opposite “Our"Our Lady Queen of Peace”Peace" Catholic church, then left on Route 630 (Broad Street). Turn right at Post Office onto Wantage Avenue (Route 519). 1st entrance on right —- Northeast Operations. 2nd entrance on right —- Corporate office/main reception area.
From North: Route I-84 (East or West) to PA Route 209 South to Route 206 South. Left at Branchville traffic light opposite “Our"Our Lady Queen of Peace”Peace" Catholic church, then turn left on Route 630 (Broad Street). Turn right at Post Office onto Wantage Avenue (Route 519). 1st entrance on right —- Northeast Operations. 2nd entrance on right —- Corporate office/main reception area.
From South: Route 206 North or Route I-80 West to Route 15 North to Route 206 North. Turn right at Branchville traffic light opposite “Our"Our Lady Queen of Peace”Peace" Catholic church, then left on Route 630 (Broad Street). Turn right at Post Office onto Wantage Avenue (Route 519). 1st entrance on right —- Northeast Operations. 2nd entrance on right —- Corporate office/main reception area.
SELECTIVE INSURANCE GROUP, INC.ANNUAL MEETING OF STOCKHOLDERSWednesday, April 29, 2009
3:00 p.m.
40 Wantage Avenue
Branchville, New Jersey 07890
| | | | | | | | | |  | | Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890 | | proxy | | | | | | | This proxy is solicited by the Board of Directors of Selective Insurance Group, Inc. for use at the Annual Meeting of Stockholders to be held on April 29, 2009.
| | | | | | The undersigned, a stockholder of Selective Insurance Group, Inc. (the “Company”), hereby constitutes and appoints John C. Burville and Ronald L. O’Kelley and/or any one of them (with full power of substitution and the full power to act without the other), proxies to vote all the shares of the Common Stock of the Company, registered in the name of the undersigned, at the Annual Meeting of Stockholders of the Company to be held on Wednesday, April 29, 2009 at 3:00 p.m., in the auditorium at the headquarters of the Company at 40 Wantage Avenue, Branchville, New Jersey, and at any adjournment thereof. | | | | | | Specify your choices by marking the appropriate box (see reverse side), but you need not mark any box if you wish to vote in accordance with the Board of Directors’ recommendations. The proxies cannot vote your shares unless you sign and return this proxy, submit a proxy by telephone or through the Internet, or attend the meeting and vote by ballot. |
Your vote is important. Please vote immediately.
See reverse for voting instructions.
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ADDRESS BLOCK
| | | | | | | COMPANY #
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Vote by Internet, Telephone, or Mail
24 Hours a Day, 7 Days a Week | | |
Your phone or Internet vote authorizes the named
proxies to vote your shares in the same manner as if you
marked, signed, and returned your proxy card. | | | | | | | | | |  | |
INTERNET– www.eproxy.com/sigi
Use the Internet to vote your proxy until 12:00 p.m. (CT) on April 28, 2009. Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number available and follow the instructions to obtain your records and create an electronic ballot. | | | | | | | | | |  | |
PHONE–1-800-560-1965
Use a touch-tone telephone to vote your proxy until 12:00 p.m. (CT) on April 28, 2009. Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number available and follow the instructions. | | | | | | | | | |  | |
MAIL– Mark, sign and date your proxy card and return it in the postage-paid envelope provided or return it to Selective Insurance Group, Inc., c/o Shareowner ServicesSM, P.O. Box 64873, St. Paul, MN 55164-0873. | | | | | | | | | | | If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card. |
TO CHANGE YOUR VOTEYou may revoke your proxy by giving proper written notice of revocation to the Corporate Secretary of the Company before your proxy is exercised. Any subsequent timely and valid vote, by any means, will change your prior vote. For example, if you voted by telephone, a subsequent Internet vote will change your vote. The last vote received before 12:00 noon (CT) on April 28, 2009, will be the one counted. You may also change your vote by voting in person at the Annual Meeting of Stockholders.TO VOTE BY MAIL AS THE BOARD OF DIRECTORS RECOMMENDS ON ALL ITEMS BELOW,
SIMPLY SIGN, DATE, AND RETURN THIS PROXY CARD.
 Please detach here | | | | | | | | | | | | | | | | | | | | | | | | The Board of Directors Recommends a Vote FOR Items 1, 2, 3, and 4.
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1. | |
Election of three (3) Class II directors | |
01 A. David Brown | | o | |
Vote FOR | o | |
Vote WITHHELD | | | | | | | for a term expiring in 2012: | | 02 S. Griffin McClellan III | | | | all nominees | | | from all nominees | | | | | | | | | | 03 J. Brian Thebault | | | | (except as marked) | | | | | | | | | | | | | | | | | | | | | | | | | | (Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right.) | | | | | | | 2. | | Approve the amended and restated Selective Insurance Group, Inc.
Employee Stock Purchase Plan (2009). | | o | | For | o | Against | | o Abstain | | | | | | | | | | | | | | | | | | | | | | | 3. | | Ratify the appointment of KPMG LLP as independent public accountants
for the fiscal year ending December 31, 2009. | | o | | For | o | Against | | o Abstain | | | | | | | | | | | | | | | | | | | | | | | 4. | | Stockholder proposal relating to the declassification of the Board of Directors. | | o | | For | o | Against | | o Abstain | | | | | | | | | | | | | | | | | | | | | | | THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL. | | | | | | | | | | | | Date | | | | | | | | | Address Change? Mark Box o Indicate changes below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Signature(s) in Box
Please sign exactly as your name(s) appears on the proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.
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