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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

Filed by the Registrant ý

Filed by a Party other than the Registrant o

Check the appropriate box:

o

 

Preliminary Proxy Statement

o

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

ý

 

Definitive Proxy Statement

o

 

Definitive Additional Materials

o

 

Soliciting Material under §240.14a-12

 

The Travelers Companies, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

ý

 

No fee required.

o

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
    (1)   Title of each class of securities to which transaction applies:
        
 
    (2)   Aggregate number of securities to which transaction applies:
        
 
    (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
        
 
    (4)   Proposed maximum aggregate value of transaction:
        
 
    (5)   Total fee paid:
        
 

o

 

Fee paid previously with preliminary materials.

o

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1)

 

Amount Previously Paid:
        
 
    (2)   Form, Schedule or Registration Statement No.:
        
 
    (3)   Filing Party:
        
 
    (4)   Date Filed:
        
 

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GRAPHIC

  485 Lexington Avenue
New York, New York 10017

March 31, 2017

Dear Shareholders:

Please join us for The Travelers Companies, Inc. Annual Meeting of Shareholders on Thursday, May 18, 2017, at 9:30 a.m. (Eastern Daylight Time) at the Hartford Marriott Downtown, 200 Columbus Boulevard, Hartford, Connecticut 06103.

Attached to this letter are a Notice of Annual Meeting of Shareholders and Proxy Statement, which describe the business to be conducted at the meeting. We also will report on matters of current interest to our shareholders.

At this year's meeting, you will be asked to:

The Board of Directors recommends that you vote FOR each of the nominees listed in the proxy statement, FOR items 2, 4 and 5, for every "ONE YEAR" for item 3 and AGAINST items 6, 7 and 8.

Your vote is important. Whether you own a few shares or many, and whether or not you plan to attend the Annual Meeting in person, it is important that your shares be represented and voted at the meeting. You may vote your shares by proxy on the Internet, by telephone, or by completing a paper proxy card and returning it by mail. You may also vote in person at the Annual Meeting.

Thank you for your continued support of Travelers.

Sincerely,    

GRAPHIC

 

GRAPHIC

Alan D. Schnitzer
Chief Executive Officer

 

John H. Dasburg
Chairman of the Board

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VOTING METHODS

If, at the close of business on March 21, 2017 (the "Record Date"), you were a shareholder of record or held shares through The Travelers Companies, Inc. (the "Company" or "Travelers") 401(k) Savings Plan or through a broker or nominee, you may vote your shares by proxy on the Internet, by telephone or by mail. For shares held of record or through a broker or nominee, you may also vote in person at the Annual Meeting of Shareholders to be held on May 18, 2017 (the "Annual Meeting"). For shares held through a broker or nominee, you may vote by submitting voting instructions to your broker or nominee. To reduce our administrative and postage costs, we ask that you vote on the Internet or by telephone, both of which are available 24 hours a day. You may revoke your proxies or change your vote at the times and as described on page 88.

If you are a shareholder of record or hold shares through a broker or bank and are voting by proxy, your vote must be received by 11:59 p.m. (Eastern Daylight Time) on May 17, 2017 to be counted.

If you hold shares through Travelers' 401(k) Savings Plan, your vote must be received by 11:59 p.m. (Eastern Daylight Time) on May 16, 2017 to be counted. Those votes cannot be changed or revoked after that time, and those shares cannot be voted in person at the Annual Meeting.

If you plan to attend the Annual Meeting and vote in person, you must present a form of personal identification (such as driver's license) along with your Notice, proxy card or proof of ownership (and if your shares are held in street name, a bank or brokerage account statement as proof of ownership). You may vote shares held in street name at the Annual Meeting only if you obtain a signed proxy from the recordholder (broker or other nominee) giving you the right to vote the shares.

Even if you plan to attend the Annual Meeting, we encourage you to vote in advance using one of the voting methods described below so that your vote will be counted if you later decide not to attend the meeting.

Shares held by current and former employees through the Company's 401(k) Savings Plan cannot be voted in person at the Annual Meeting.

See the General Information section beginning on page 86 of the Proxy Statement.

To vote by proxy:

BY INTERNET

Go to the website www.proxyvote.com and follow the instructions, 24 hours a day, seven days a week.

You will need the 16-digit number included on your Notice of Internet Availability of Proxy Materials (the "Notice") or on your proxy card.

BY TELEPHONE

From a touch-tone telephone, dial (800) 690-6903 and follow the recorded instructions, 24 hours a day, seven days a week.

You will need the 16-digit number included on your Notice of Internet Availability of Proxy Materials or on your proxy card.

BY MAIL

If you have not already received a proxy card, you may request a proxy card from us by following the instructions on your Notice of Internet Availability of Proxy Materials.

When you receive the proxy card, mark your selections on the proxy card.

Date and sign your name exactly as it appears on your proxy card.

Mail the proxy card in the postage-paid envelope that will be provided to you.

YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.


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GRAPHIC

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Thursday, May 18, 2017
9:30 a.m. Eastern Daylight Time
Hartford Marriott Downtown, 200 Columbus Boulevard, Hartford, Connecticut 06103.

ITEMS OF BUSINESS

1.
Elect the 12 director nominees listed herein.
2.
Ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2017.
3.
Consider a non-binding vote on the frequency of future votes on executive compensation.
4.
Consider a non-binding vote to approve executive compensation.
5.
Approve an amendment to The Travelers Companies, Inc. Amended and Restated 2014 Stock Incentive Plan.
6.
Consider a shareholder proposal relating to lobbying, if presented at the Annual Meeting.
7.
Consider a shareholder proposal relating to a gender pay equity report, if presented at the Annual Meeting.
8.
Consider a shareholder proposal relating to a diversity report, if presented at the Annual Meeting.
9.
Consider such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof.

RECORD DATE

You may vote at the Annual Meeting if you were a shareholder of record at the close of business on March 21, 2017.

VOTING BY PROXY

To ensure your shares are voted, you may vote your shares by proxy on the Internet, by telephone or by completing a paper proxy card and returning it by mail. Internet and telephone voting procedures are described on the preceding page and in the General Information section beginning on page 86 of the Proxy Statement and on the proxy card.

    By Order of the Board of Directors,

 

 

SIG
    Wendy C. Skjerven
Corporate Secretary

This Notice of Annual Meeting and the accompanying Proxy Statement are being distributed
or made available, as the case may be, on or about March 31, 2017.


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TABLE OF CONTENTS

ITEM 1 – ELECTION OF DIRECTORS

  1

Nominees for Election of Directors

  1

BOARD OF DIRECTORS INFORMATION

 
5

Committees of the Board and Meetings

  5

Audit Committee

  6

Compensation Committee

  6

Executive Committee

  8

Investment and Capital Markets Committee

  8

Nominating and Governance Committee

  8

Risk Committee

  9

GOVERNANCE OF YOUR COMPANY

 
10

Governance Guidelines

  10

Code of Business Conduct and Ethics

  10

Ethics Helpline

  10

Director Stock Ownership

  10

Director Age Limit

  11

Director Nominations

  11

Director Independence and Independence Determinations

  14

Dating and Pricing of Equity Grants

  14

Transactions with Related Persons

  15

Governance Structure of the Board

  16

Executive Session

  17

Board and Committee Evaluations

  17

Communications with the Board and Shareholder Engagement

  17

Board's Role in Risk Management

  18

Risk Management and Compensation

  19

ITEM 2 – RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 
20

ITEM 3 – NON-BINDING VOTE ON THE FREQUENCY OF FUTURE VOTES ON EXECUTIVE COMPENSATION

 
22

ITEM 4 – NON-BINDING VOTE TO APPROVE EXECUTIVE COMPENSATION

 
22

COMPENSATION DISCUSSION AND ANALYSIS

 
23

2016 Overview

  23

Pay for Performance Philosophy and Objectives of Our Executive Compensation Program

  27

Objectives of Our Executive Compensation Program

  29

Compensation Elements

  31

Total Direct Compensation

  32

Other Compensation

  40

Compensation Comparison Group

  42

Non-Competition Agreements

  42

Severance and Change in Control Agreements

  43

Stock Ownership Guidelines, Anti-Hedging and Pledging Policies, and Other Trading Restrictions

  43

Recapture/Forfeiture Provisions

  44

Timing and Pricing of Equity Grants

  45

Shareholder Engagement

  45

Total Direct Compensation for 2014-2016 (Supplemental Table)

  46

COMPENSATION COMMITTEE REPORT

 
46

TABULAR EXECUTIVE COMPENSATION DISCLOSURE

 
47

Summary Compensation Table

  47

Grants of Plan-Based Awards in 2016

  49

Narrative Supplement to Summary Compensation Table and Grants of Plan-Based Awards in 2016 Table

  50

Outstanding Equity Awards at December 31, 2016

  52

Option Exercises and Stock Vested in 2016

  53

Post-Employment Compensation

  54

Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control

  58

NON-EMPLOYEE DIRECTOR COMPENSATION

 
63

SHARE OWNERSHIP INFORMATION

 
66

5% Owners

  66

Share Ownership of Directors and Executive Officers

  67

ITEM 5 – AMENDMENT TO THE TRAVELERS COMPANIES, INC. AMENDED AND RESTATED 2014 STOCK INCENTIVE PLAN

 
68

ITEM 6 – SHAREHOLDER PROPOSAL RELATING TO LOBBYING

 
77

ITEM 7 – SHAREHOLDER PROPOSAL RELATING TO GENDER PAY EQUITY REPORT

 
80

ITEM 8 – SHAREHOLDER PROPOSAL RELATING TO DIVERSITY REPORT

 
83

GENERAL INFORMATION

 
86

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 
91

SHAREHOLDER PROPOSALS FOR 2018 ANNUAL MEETING

 
91

EQUITY COMPENSATION PLAN INFORMATION

 
92

OTHER BUSINESS

 
93

ANNEX A – RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES AND SELECTED DEFINITIONS

 
A-1

ANNEX B – THE TRAVELERS COMPANIES, INC. AMENDED AND RESTATED 2014 STOCK INCENTIVE PLAN

 
B-1

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ITEM 1 – ELECTION OF DIRECTORS

ITEM 1 – ELECTION OF DIRECTORS

Nominees for Election of Directors

There are currently 13 members of the Board of Directors (the "Board"). On February 10, 2017, the Board, upon recommendation of its Nominating and Governance Committee, unanimously nominated the 12 current directors listed below for re-election to the Board at the Annual Meeting. Mr. Thomas Hodgson, who currently serves as a director, will retire from the Board, effective as of the Annual Meeting, pursuant to our director retirement policy and will not stand for re-election. The Company is grateful to Mr. Hodgson for his many years of service on the Board.

The directors elected at the Annual Meeting will hold office until the 2018 annual meeting of shareholders and until their successors are duly elected and qualified. Unless otherwise instructed, the persons named in the form of proxy card (the "proxyholders") attached to this Proxy Statement as filed with the Securities and Exchange Commission ("SEC"), intend to vote the proxies held by them for the election of the 12 nominees named below. The proxies cannot be voted for more than 12 candidates for director. The Board of Directors knows of no reason why these nominees should be unable or unwilling to serve, but if that should be the case, proxies received will be voted for the election of such other persons, if any, as the Board of Directors may designate.

GRAPHIC    
Alan L. Beller
Director since 2007
 
Mr. Beller, age 67, is Senior Counsel of the law firm of Cleary Gottlieb Steen & Hamilton LLP ("Cleary"), based in the New York City office. Mr. Beller joined Cleary in 1976 and was a partner in the firm from 1984 through 2001. From 2002 to 2006, he served as the Director of the Division of Corporation Finance of the SEC and as Senior Counselor to the SEC. He returned to Cleary in August 2006 and was a partner in the firm until 2014 when he became Senior Counsel. Mr. Beller is a member of the Board of Trustees of the IFRS Foundation and the Board of Trustees of the Sustainability Accounting Standards Board (SASB).

GRAPHIC

 

  
John H. Dasburg
Director since 1994
 
Mr. Dasburg, age 74, has been Chairman and Chief Executive Officer of ASTAR USA, LLC, a holding company investing in aviation operations, since April 2003. He served as Chairman, Chief Executive Officer and President of Burger King Corporation from April 2001 through January 2003. Mr. Dasburg served as President and Chief Executive Officer of Northwest Airlines from 1989 through March 2001. From 1980 to 1989, he held a number of positions at Marriott Corporation, including President of The Lodging Group, Chief Financial Officer and Chief Real Estate Officer. From 1973 to 1980, Mr. Dasburg was employed by KPMG Peat Marwick, serving as a Tax Partner from 1978 to 1980. Mr. Dasburg is a director of the Miami Cancer Institute.

GRAPHIC

 

  
Janet M. Dolan
Director since 2001
 
Ms. Dolan, age 67, has been President of Act 3 Enterprises, LLC, a consulting services company, since August 2006. She served as President and Chief Executive Officer of Tennant Company, a manufacturer of nonresidential floor maintenance equipment and products, from April 1999 until her retirement in December 2005, and she had served in a number of senior executive positions with Tennant Company from 1986 until April 1999. Prior to joining Tennant Company, Ms. Dolan was a director of the Minnesota Lawyers' Professional Responsibility Board. Ms. Dolan is a director of Wenger Corporation and was a director of Donaldson Company, Inc. until November 2014.

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ITEM 1 – ELECTION OF DIRECTORS

GRAPHIC    
Kenneth M. Duberstein
Director since 1998
 
Mr. Duberstein, age 72, has been Chairman and Chief Executive Officer of The Duberstein Group, Inc., a strategic advisory and consulting firm, since 1989. Previously, Mr. Duberstein served as Chief of Staff to President Ronald Reagan from 1988 to 1989 and as Deputy Chief of Staff during 1987. From 1984 to 1986, Mr. Duberstein was Vice President of Timmons & Company in Washington, D.C. Prior to that, he held the White House position as Assistant to the President, Legislative Affairs from 1981 to 1983. From 1977 to 1980, Mr. Duberstein was Vice President of the Committee for Economic Development. Mr. Duberstein serves as Chairman of the Harvard Institute of Politics at the Kennedy School of Government, is a director of the Brookings Institution and the National Alliance to End Homelessness and is a lifetime trustee for the Kennedy Center for the Performing Arts. Mr. Duberstein is a director of The Boeing Company and Mack-Cali Realty Corporation and was a director of ConocoPhillips until April 2012 and a director of Dell Inc. until October 2013.

GRAPHIC

 

  
Patricia L. Higgins
Director since 2007
 
Ms. Higgins, age 67, served as President and Chief Executive Officer of Switch and Data Facilities, Inc., a provider of neutral interconnection and collocation services, from September 2000 until her retirement in February 2004. In 1999 and 2000, Ms. Higgins served as Executive Vice President of the Gartner Group and Chairman and Chief Executive Officer of the Research Board, a segment of the Gartner Group. From 1997 to 1999, she served as Corporate Vice President and Chief Information Officer of Alcoa Inc., and from 1995 to 1997, she served as Vice President and President (Communications Market Business Unit) of Unisys Corporation. From 1977 to 1995, she served in various managerial positions, including as Corporate Vice President and Group Vice President (State of New York) for Verizon (NYNEX) and Vice President, International Sales Operations (Lucent) for AT&T Corporation/Lucent. Ms. Higgins is a director of Barnes & Noble,  Inc., Internap Corporation and Dycom Industries.

GRAPHIC

 

  
William J. Kane
Director since 2012
 
Mr. Kane, age 66, served as an audit partner with Ernst & Young for 25 years until his retirement in 2010, during which time he specialized in providing accounting, auditing and consulting services to the insurance and financial services industries. Prior to that he served in various auditing roles with Ernst & Young.

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ITEM 1 – ELECTION OF DIRECTORS

GRAPHIC    
Cleve L. Killingsworth Jr.
Director since 2007
 
Mr. Killingsworth, age 64 served as the President and Chief Executive Officer of Blue Cross Blue Shield of Massachusetts, Inc. from July 2005 until March 2010. He served as Chairman from January 2008 to March 2010. He joined the company in February 2004 as President and Chief Operating Officer. Before joining Blue Cross Blue Shield of Massachusetts, Mr. Killingsworth served the Henry Ford Health System as Senior Vice President of Insurance and Managed Care, as well as President and Chief Executive Officer of the Health Alliance Plan. He joined Henry Ford Health Systems in January 1998 after holding senior management positions with: the Kaiser Foundation Health Plan; Blue Cross Blue Shield of Rochester, NY; Group Health Cooperative of Puget Sound; The American Hospital Association; and the Hospital of the University of Pennsylvania. Mr. Killingsworth is a member of the Board of Trustees of The MITRE Corporation and the Board of Overseers of the Teachers Insurance and Annuity Association of America (TIAA) and the College Retirement Equities Fund (CREF).

GRAPHIC

 

  
Philip T. (Pete) Ruegger III
Director since 2014
 
Mr. Ruegger, age 67, served as Chairman of the Executive Committee of the law firm Simpson Thacher & Bartlett LLP ("Simpson Thacher") from 2004 until his retirement in 2013. He was a member of the firm's executive committee from 1993 through June 2013. Mr. Ruegger joined Simpson Thacher in 1974 and became a partner in 1981. At Simpson Thacher, he advised clients on mergers and acquisitions, corporate governance, investigations, corporate finance and general corporate and securities law matters. Mr. Ruegger is Chairman of the Executive Committee of the Henry Street Settlement, a New York City based not-for-profit.

GRAPHIC

 

  
Todd C. Schermerhorn
Director since 2016
 
Mr. Schermerhorn, age 56, served as Senior Vice President and Chief Financial Officer of C.R. Bard, Inc., a multinational developer, manufacturer and marketer of life-enhancing medical technologies, from 2003 until his retirement in 2012. Prior to that, he had been Vice President and Treasurer of C.R. Bard from 1998 to 2003. From 1985 to 1998, Mr. Schermerhorn held various other management positions with C.R. Bard. Mr. Schermerhorn is a director of The Spectranetics Corporation and was a director of Thoratec Corporation until October 2015.

 

 

 

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ITEM 1 – ELECTION OF DIRECTORS

GRAPHIC    
Alan D. Schnitzer
Director since 2015
 
Mr. Schnitzer, age 51, is Chief Executive Officer of Travelers. He was previously the Company's Vice Chairman and Chief Executive Officer, Business and International Insurance from July 2014 to December 2015. He was Vice Chairman—Financial, Professional and International Insurance and Field Management; Chief Legal Officer from May 2012 until July 2014. Prior to that, he was Vice Chairman and Chief Legal Officer since joining the Company in April 2007 and Executive Vice President—Financial, Professional and International Insurance since May 2008. Prior to joining the Company, he was a partner at Simpson Thacher. Mr. Schnitzer serves as Vice Chair of the Advisory Board for the University of Pennsylvania's Institute for Urban Research and on the Board of Directors of the Connecticut Council for Education Reform.

GRAPHIC

 

  
Donald J. Shepard
Director since 2009
 
Mr. Shepard, age 70, served as Chairman of the Executive Board and Chief Executive Officer of AEGON N.V., an international life insurance and pension company, from April 2002 until his retirement in April 2008. Prior to that, he served as Chief Executive Officer of AEGON USA since 1989, and in 1992, he became a member of the Executive Board of AEGON N.V. Mr. Shepard is a director of PNC Financial Services Group, Inc. and CSX Corporation.

GRAPHIC

 

  
Laurie J. Thomsen
Director since 2004
 
Ms. Thomsen, age 59, served as an Executive Partner of New Profit, Inc., a venture philanthropy firm, from 2006 to 2010, and she served on its board from 2001 to 2006. Prior to that, from 1995 to 2004, she was a co-founder, General Partner and Retiring General Partner of Prism Venture Partners, a venture capital firm investing in healthcare and technology companies. From 1984 until 1995, she worked at the venture capital firm Harbourvest Partners in Boston, where she was a General Partner from 1988 until 1995. Ms. Thomsen was in commercial lending at U.S. Trust Company of New York from 1979 until 1984. Ms. Thomsen is a director of MFS Mutual Funds and Dycom Industries and an emeritus Trustee of Williams College.

YOUR BOARD RECOMMENDS YOU VOTE "FOR" THE
ELECTION OF ALL DIRECTOR NOMINEES.

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BOARD OF DIRECTORS INFORMATION

BOARD OF DIRECTORS INFORMATION

Committees of the Board and Meetings

There are six standing committees of the Board: the Audit Committee; the Compensation Committee; the Executive Committee; the Investment and Capital Markets Committee; the Nominating and Governance Committee; and the Risk Committee.

The Board has adopted a written charter for each of these committees, copies of which are posted on our website at www.travelers.com under "For Investors: Corporate Governance: Charter Documents". Each committee reviews its charter annually and, when appropriate, presents to the Nominating and Governance Committee and the Board any recommended amendments for consideration and approval.

The following table summarizes the current membership of the standing committees of the Board, as well as the number of times each committee met during 2016. Jay S. Fishman, our former Executive Chairman of the Board, served as a director and on the Executive Committee until his death in August 2016.

 
 
   
   
  Audit
   
  Compensation
   
  Executive
   
  Investment and
Capital Markets

   
  Nominating and
Governance

   
  Risk
   
 

 

 

Mr. Beller

      X                                       X    
 

 

 

Mr. Dasburg

      Chair               Chair                       X    
 

 

 

Ms. Dolan

      X                                       X    
 

 

 

Mr. Duberstein

              X       X       X       Chair            
 

 

 

Ms. Higgins

      X                                       X    
 

 

 

Mr. Hodgson

      X               X                       Chair    
 

 

 

Mr. Kane

      X                                       X    
 

 

 

Mr. Killingsworth

              X               X       X            
 

 

 

Mr. Ruegger

      X                                       X    
 

 

 

Mr. Schermerhorn

      X                                       X    
 

 

 

Mr. Schnitzer

                      X                            
 

 

 

Mr. Shepard

              Chair       X       X       X            
 

 

 

Ms. Thomsen

              X       X       Chair       X            
 

 

 

Meetings in 2016

      9       6       0       6       4       4    
 

Each of the directors is independent, other than Mr. Schnitzer who currently serves as our Chief Executive Officer. Each committee of the Board, other than the Executive Committee on which Mr. Schnitzer serves, is composed solely of independent directors.

Each director attended 75% or more of the total number of meetings of the Board and of the committees on which each such director served during 2016. The Board held five meetings in 2016. Directors are encouraged and expected, but not required, to attend each annual meeting of shareholders. All of the directors serving at the time of last year's annual meeting attended last year's annual meeting.

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BOARD OF DIRECTORS INFORMATION

Audit Committee

All members of the Audit Committee are "independent", consistent with our Governance Guidelines, the New York Stock Exchange ("NYSE") listing standards and SEC rules applicable to boards of directors in general and audit committees in particular. In addition, the Board has determined that all members of the Audit Committee meet the financial literacy requirements of the NYSE. The Board also has determined that Mr. Dasburg's experience with KPMG Peat Marwick from 1973 to 1980, his service as a KPMG Tax Partner from 1978 to 1980, his experience as Chief Financial Officer of Marriott Corporation, as Chief Executive Officer of Northwest Airlines, Burger King Corporation and ASTAR and his service on the audit committees of other public companies qualify him as an audit committee financial expert, and he has been so designated. In addition, the Board designated Mr. Kane as an audit committee financial expert after considering his extensive experience as an audit partner with Ernst & Young for 25 years. The duties and responsibilities of the Audit Committee include the following:

assist the Board in exercising its oversight of the Company's accounting and financial reporting
appoint our independent registered public accounting firm and review its qualifications, performance and independence;

review and pre-approve the audit and permitted non-audit services and proposed fees of the independent registered public accounting firm;

review the adequacy of the work performed by our internal audit group; and

review reports from management, the internal auditors and the independent registered public accounting firm with respect to the adequacy of the Company's internal controls.

With respect to reporting and disclosure matters, the duties and responsibilities of the Audit Committee include reviewing our audited financial statements and recommending to the Board that they be included in our Annual Report on Form 10-K in accordance with applicable rules and regulations of the SEC.

Compensation Committee

All members of the Compensation Committee are "independent" consistent with our Governance Guidelines, the NYSE listing standards and SEC rules applicable to boards of directors in general and compensation committee members in particular. In addition, all members of the Compensation Committee qualify as "non-employee directors" for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as "outside directors" for purposes of Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code").

With respect to general compensation matters, the duties and responsibilities of the Compensation Committee include the following:

review and approve the performance goals and individual objectives for our Chief Executive Officer ("CEO") and those members of our Management Committee who are executive officers or report directly to the CEO (together with the CEO, the "Committee Approved Officers");

review the performance and approve the salaries and incentive compensation of the Committee Approved Officers;
review and approve policies with respect to perquisites of the CEO and other members of management;

approve and monitor compliance with stock ownership guidelines applicable to the CEO and other members of management;

review and approve our compensation philosophy and objectives and recommend to the Board for approval compensation and benefit programs determined by the Compensation Committee to be appropriate;

review the operation of our overall compensation program to evaluate its objectives and its execution and recommend to the Board steps to modify our compensation programs to better conform them with the established compensation objectives;

review and approve any new equity compensation plans and material amendments to existing plans where shareholder approval has not been obtained and oversee management's administration of such plans;

review our regulatory compliance with respect to compensation matters;

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BOARD OF DIRECTORS INFORMATION

review and approve any severance or similar termination payments proposed to be made to any current or former executive officer;

review and approve all stock option, restricted stock, restricted stock unit, performance share and similar stock-based grants;

conduct an independence assessment prior to selecting any compensation consultant, legal counsel or other adviser that will provide advice to the Compensation Committee; and

evaluate, at least annually, whether any work provided by the Compensation Committee's compensation consultant raised any conflict of interest.

With respect to reporting and disclosure matters, the duties and responsibilities of the Compensation Committee include reviewing and discussing the Compensation Discussion and Analysis with management and recommending to the Board that it be included in our annual proxy statement and Annual Report on Form 10-K in accordance with applicable rules and regulations of the SEC.

Establishment of Annual Bonus and Equity Award Pools

The Compensation Committee approves the individual salary, annual bonus and equity awards for the Committee Approved Officers. In addition, the Compensation Committee approves the aggregate annual bonuses and all equity awards to employees who are not Committee Approved Officers.

The Compensation Committee considered recommendations from the CEO regarding compensation for each of the other executive officers named in the Summary Compensation Table on page 47 and other officers.

Delegation of Authority for "Off-Cycle" Equity Grants

The Compensation Committee has delegated limited authority to the CEO to make equity grants outside of the annual equity grant process, or "off-cycle grants", to employees and new hires who are not Committee Approved Officers. The delegation is subject to maximum grant date values of equity that can be granted to any one person. These grants can only be made on the grant dates established by our Governance Guidelines for "off-cycle" equity awards. Any grants made "off-cycle" are reported to the Compensation Committee at the next regularly scheduled quarterly meeting following such awards.

Compensation Consultant

The Compensation Committee has the authority under its charter to retain outside consultants or advisors, as it deems necessary or advisable. In accordance with this authority, the Compensation Committee has engaged Frederic W. Cook & Co. ("F. W. Cook") as its independent outside compensation consultant to provide it with objective and expert analyses, advice and information with respect to executive compensation. All executive compensation services provided by F. W. Cook are conducted under the direction or authority of the Compensation Committee, and all work performed by F. W. Cook must be pre-approved by the Compensation Committee or the Chair of the Compensation Committee. Neither F. W. Cook nor any of its affiliates maintains any other direct or indirect business relationships with the Company or any of its affiliates, other than advising the Nominating and Governance Committee with respect to director compensation. In November 2016, the Compensation Committee evaluated whether any work provided by its Compensation Committee consultant raised any conflict of interest and determined that it did not.

As requested by the Compensation Committee, in 2016, F. W. Cook's services to the Compensation Committee included, among other things:

advising with respect to the Compensation Committee meeting materials;

evaluating potential changes to incentive plans;

performing a comprehensive compensation program design review;

advising with respect to individual compensation for the Committee Approved Officers;

advising with respect to the Executive Chairman's compensation;

reviewing and discussing possible aggregate levels of corporate-wide bonus payments and equity awards;

preparing comparative analyses of executive compensation levels and design at peer group companies;

advising as to how actions taken by the Compensation Committee compare to the pay and performance of our peer group companies; and

advising in connection with the preparation of certain of the information included in this Proxy Statement.

An F. W. Cook representative participated in five of the six Compensation Committee meetings in 2016.

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In addition to the independent, outside compensation consultant discussed above, our corporate staff (including Finance, Human Resources and Legal staff members) supports the Compensation Committee in its work. Other than the CEO (with respect to compensation

for all other executive officers), no executive officer determines or recommends to the Compensation Committee the amount or form of executive compensation paid to another executive officer.

Executive Committee

The Board has granted to the Executive Committee, subject to certain limitations set forth in its charter, the broad responsibility of exercising the authority of the Board in the oversight of our business during the

intervals between Board meetings in order to provide a degree of flexibility and ability to respond to time-sensitive business and legal matters. The Executive Committee meets only as necessary.

Investment and Capital Markets Committee

The Investment and Capital Markets Committee assists the Board in exercising its oversight of the Company's management of its investment portfolios (including credit risk monitoring) and certain financial affairs of the Company (including capital management, such as dividend policy and actions, stock splits, repurchases of stock or other securities, financing arrangements, debt and equity financing and liquidity).

The Investment and Capital Markets Committee also reviews and either approves or recommends appropriate Board action with respect to, among other matters, the issuance of securities, the establishment of bank lines of credit and certain purchases and dispositions of real property, capital expenditure budgets and acquisitions and divestitures of assets.

Nominating and Governance Committee

All members of the Nominating and Governance Committee are "independent" consistent with our Governance Guidelines, the NYSE listing standards and SEC rules applicable to board of directors in general. The duties and responsibilities of the Nominating and Governance Committee include the following:

establish criteria for the selection of candidates to serve on the Board;

identify and recommend director candidates for election or re-election to the Board;

identify and recommend directors for appointment to serve on the committees of the Board and as chair of such committees;

recommend adjustments, from time to time, to the size of the Board or of any Board committee;

establish procedures for the annual evaluation of Board and director performance;
oversee continuing education of directors in light of the Governance Guidelines;

review the director compensation program and policies and recommend changes to the Board;

establish and review our Governance Guidelines;

develop and recommend to the Board standards for determining the independence of directors and the absence of material relationships between the Company and a director;

review succession plans for our CEO and the direct reports to the CEO;

review and approve or ratify all related person transactions under our Related Person Transaction Policy;

review the Company's public policy initiatives; and

recommend to the Board any guidelines for the removal of directors, as it determines appropriate.

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Risk Committee

The purpose of the Risk Committee is to assist the Board in exercising its oversight of the Company's operational activities and the identification and review of those risks that could have a material impact on us. The duties and responsibilities of the Risk Committee include oversight of management's risk management activities in the following areas:

our enterprise risk management program;

the underwriting of insurance;

the settlement of claims;
the management of catastrophe exposure;

the retention of insured risk and appropriate levels and types of reinsurance;

the credit risk in our insurance operations and ceded reinsurance program;

our information technology operations, including cyber risk and information security; and

the business continuity and executive crisis management for the Company and its business operations.

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GOVERNANCE OF YOUR COMPANY

Governance Guidelines

Our commitment to good corporate governance is reflected in our Governance Guidelines, which describe the Board's views on a wide range of governance topics. These Governance Guidelines are reviewed annually by the Nominating and Governance Committee and, any changes deemed appropriate by the Committee in light

of emerging practices or otherwise, are submitted to the full Board for consideration. Our Governance Guidelines can be found on the Corporate Governance page of the "For Investors" section on our website at www.travelers.com.

Code of Business Conduct and Ethics

We maintain a Code of Business Conduct and Ethics (the "Code of Conduct"), which is applicable to all of our directors, officers and employees, including our CEO, Chief Financial Officer, Controller and other senior financial officers. The Code of Conduct provides a framework for sound ethical business decisions and sets forth our expectations on a number of topics, including conflicts of interest, compliance with laws, use of our assets and business ethics.

The Code of Conduct may be found on our website at www.travelers.com under "For Investors: Corporate Governance: Code of Conduct".

Our Chief Ethics and Compliance Officer is responsible for overseeing compliance with the Code of Conduct as part of fulfilling her responsibility for overseeing our ethics and compliance functions throughout the organization. Our Chief Ethics and Compliance Officer also assists in the communication of the Code of Conduct and oversees employee education regarding its requirements through the use of global, computer-based training, supplemented with focused in person sessions where appropriate. All employees and directors are required to certify annually that they have reviewed, understand and agree to comply with the contents of the Code of Conduct.

Ethics Helpline

We maintain an Ethics Helpline through which employees can report integrity concerns or seek guidance regarding a policy or procedure. The Ethics Helpline is serviced by an independent company, is available seven days a week, 24 hours a day and can be accessed by individuals through a toll-free number. Employees may also access the helpline system and report integrity concerns via the Internet. In either case, employees can report concerns anonymously. We maintain a formal no retaliation policy that prohibits retaliation against, or discipline of, an employee who raises an ethical concern in good faith. Once an Ethics Helpline report is filed, the report is forwarded to the

Ethics and Compliance Office, which is responsible for oversight of the helpline. Our Chief Ethics and Compliance Officer or her designee coordinates with management and outside resources, as appropriate, to investigate the matter, and address any ethical or compliance-related issues. The Audit Committee receives quarterly summaries of matters reported through the Ethics Helpline. In addition, any matter reported to the Chief Ethics and Compliance Officer that involves accounting, internal control or audit matters, or any fraud involving persons with a significant role in our internal controls, is reported to the Audit Committee.

Director Stock Ownership

The Board believes its non-management directors should accumulate and retain a level of ownership of our equity securities to align the interests of the non-management directors and the shareholders. Accordingly, the Board has established an ownership target for each non-management director equal to

four times the director's most recent annual deferred stock award. Each new director is expected to meet or exceed this target within four years of his or her initial election to the Board, provided that, if the annual deferred stock award for any of such four years is less than the most recent annual deferred stock award, such

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director is expected to meet or exceed the target within five years of his or her election to the Board. All of our current non-management directors have achieved stock ownership levels in excess of the target amount, other than Mr. Schermerhorn, who was elected to our Board in 2016. Non-employee directors receive over 50% of their annual compensation in the form of deferred stock

units. The shares underlying these units are not distributed to a director until at least six months after the director leaves the Board. Accordingly, all of our non-management directors hold equity interests that they cannot sell for so long as they serve on the Board and at least six months afterwards.

Director Age Limit

The Governance Guidelines provide that no person who will have reached the age of 74 on or before the date of the next annual shareholders' meeting will be nominated for election at that meeting without an express waiver by the Board.

The Board believes that waivers of this policy should not be automatic and should be based upon the needs

of the Company and the individual attributes of the director. The Board approved a waiver of this policy in February 2017 with respect to the nomination of Mr. Dasburg for election as a director at the 2017 Annual Meeting. See, "Director Nominations—Specific Considerations Regarding 2017 Nominees" on page 12.

Director Nominations

Process and Criteria Generally

Pursuant to our Governance Guidelines, the Nominating and Governance Committee is responsible for recommending to the Board nominees for election as director, and the Board is responsible for selecting nominees for election.

As required by our Governance Guidelines, the Board, based on the Nominating and Governance Committee's recommendation, selects nominees after considering the following criteria:

personal qualities and characteristics, accomplishments and reputation in the business community;

current knowledge and contacts in the communities in which the Company does business and in the Company's industry or other industries relevant to the Company's business;

ability and willingness to commit adequate time to Board and committee matters;

the fit of the individual's skill and personality with those of other directors and potential directors in building a Board that is effective, collegial and responsive to the needs of the Company; and

diversity of viewpoints, background, experience and other demographics.

The evaluation of these criteria involves the exercise of careful business judgment. Accordingly, although the

Nominating and Governance Committee and the Board at a minimum assess each candidate's ability to satisfy any applicable legal requirements or listing standards, his or her strength of character, judgment, working style, specific areas of expertise and his or her ability and willingness to commit adequate time to Board and committee matters. The Nominating and Governance Committee and the Board do not have specific minimum qualifications that are applicable to all director candidates. The Board seeks to ensure that the Board is composed of members whose particular expertise, qualifications, attributes and skills, when taken together, allow the Board to satisfy its oversight responsibilities effectively.

As mentioned above, the Nominating and Governance Committee and the Board include diversity of "viewpoints, background, experience and other demographics" as one of several criteria that they consider in connection with selecting candidates for the Board. While neither the Board nor the Nominating and Governance Committee has a formal diversity policy, one of many factors that the Board and the Nominating and Governance Committee carefully consider is the importance to the Company of racial and gender diversity in board composition. Moreover, when considering director candidates, the Nominating and Governance Committee and the Board seek individuals with backgrounds and qualities that, when combined with those of our incumbent directors, enhance the Board's effectiveness and, as required by the

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Governance Guidelines, result in the Board having "a broad range of skills, expertise, industry knowledge, diversity of opinion and contacts relevant to the Company's business". As part of its annual self-evaluation, the Board assesses and confirms compliance with this Governance Guideline.

In identifying prospective director candidates for the Board, the Nominating and Governance Committee may seek referrals from other members of the Board, management, shareholders and other sources. The Nominating and Governance Committee also may, but need not, retain a professional search firm in order to assist it in these efforts. The Nominating and Governance Committee and the Board utilize the same criteria for evaluating candidates regardless of the source of the referral.

The Nominating and Governance Committee will consider director candidates recommended by shareholders. Shareholders wishing to propose a candidate for consideration may do so by submitting the proposed candidate's full name and address, résumé and biographical information to the attention of the Corporate Secretary, The Travelers Companies, Inc., 485 Lexington Avenue, New York, New York 10017. All recommendations for nomination received by the Corporate Secretary that satisfy our bylaw requirements relating to such director nominations will be presented to the Nominating and Governance Committee for its consideration.

Proxy Access

On November 3, 2016, the Board, upon recommendation of the Nominating and Governance Committee, approved an amendment and restatement of the Company's bylaws to implement proxy access. Our bylaws, as amended, permit a shareholder, or a group of up to 20 shareholders, that has continuously owned for three years at least 3% of the Company's outstanding common shares, to nominate and include in the Company's annual meeting proxy materials up to the greater of two directors or 20% of the number of directors serving on the Board, provided that the shareholder(s) and the nominee(s) satisfy the requirements specified in our bylaws, which are posted on our website at www.travelers.com. Shareholder requests to include shareholder-nominated directors in the Company's proxy materials for the 2018 annual meeting of shareholders must be received by the Company no earlier than November 1, 2017 and no later than December 1, 2017.

Specific Considerations Regarding 2017 Nominees

In considering the 12 director nominees named in this Proxy Statement and proposed for election by you at the Annual Meeting, the Nominating and Governance Committee and the Board evaluated and considered, among other factors:

each nominee's experiences, qualifications, attributes and skills, in light of the Governance Guidelines' criteria for nomination discussed on page 11, including the specific skills identified by the Board as relevant to the Company;

the contributions of those directors recommended for re-election in the context of the Board self-evaluation process and other needs of the Board;

the tenure of individual directors;

the mix of long-serving and new directors on the Board;

the specific needs of the Company given its business and industry; and

the diversity of viewpoints, background, experience and other demographics of the director nominees.

With respect to the individual and overall tenure of Board members, the Board and Nominating and Governance Committee:

noted that the Company's industry is one where a long-term perspective is critical and a historical perspective on risk is important, and, accordingly, the Company benefits from having longstanding directors serve on the Board, including in leadership positions;

considered the years of experience directors have had working together on the Board; and

considered that more than 50% of the independent directors have joined the Board since mid-2007, and four new directors have joined the Board in the last five years.

In light of the foregoing, the Board and the Nominating and Governance Committee concluded that there was an appropriate mix of long-serving and new directors.

The Board and the Nominating and Governance Committee, in considering each nominee, principally focused on the background and experiences of the nominee, as described in the biographies appearing on pages 1 through 4. The Board and the Nominating and Governance Committee considered that each nominee has experience serving in senior positions

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with significant responsibility, where each has gained valuable expertise in a number of areas relevant to the Company and its business. The Board and the Nominating and Governance Committee also considered that a number of directors have gained valuable experience and skills through serving as a director of other public and private companies. Specifically, among other things:

With respect to Mr. Beller, the Board and the Nominating and Governance Committee considered in particular his senior-level public service and his significant experience and expertise in the areas of law, risk management oversight and corporate governance and as to financial, accounting and auditing matters and their regulation.

With respect to Mr. Dasburg, the Board and the Nominating and Governance Committee considered in particular his experience as a public company CEO and his significant experience and expertise in areas of management, accounting and finance. The Board and Nominating and Governance Committee also considered that Mr. Dasburg will have reached the age of retirement under our Governance Guidelines prior to the Annual Meeting and, accordingly, would not be eligible to be nominated for re-election to the Board at the Annual Meeting absent a waiver of the Governance Guidelines age limit. The Board and Nominating and Governance Committee considered Mr. Dasburg's expertise, his extensive experience with the Company, his position as independent Chairman of the Board and his leadership of the Audit Committee, as well as the needs of the Company and the benefit his continued service on the Board could provide and decided to waive the age limit with respect to Mr. Dasburg this year to allow for his nomination for election at the Annual Meeting.

With respect to Ms. Dolan, the Board and the Nominating and Governance Committee considered in particular her experience as a public company CEO and her significant experience and expertise in management and in legal and compliance matters.

With respect to Mr. Duberstein, the Board and the Nominating and Governance Committee considered in particular his experience both in the highest levels of the U.S. government and as an outside strategic corporate advisor and his significant experience and expertise in public policy, public and government affairs and corporate governance.
With respect to Ms. Higgins, the Board and the Nominating and Governance Committee considered in particular her experience as a public company Chief Information Officer and her significant experience and expertise in management as well as information technology strategy and operations.

With respect to Mr. Kane, the Board and the Nominating and Governance Committee considered in particular his experience as an audit partner of a registered public accounting firm and his significant experience and expertise in financial controls, financial reporting, management and the insurance industry.

With respect to Mr. Killingsworth, the Board and the Nominating and Governance Committee considered in particular his experience as a health insurance CEO and his significant experience and expertise in management, insurance and regulation.

With respect to Mr. Ruegger, the Board and the Nominating and Governance Committee considered in particular his experience as the leader of a large international corporate law firm and his significant experience and expertise in mergers and acquisitions and other corporate transactional matters, as well as risk management.

With respect to Mr. Schermerhorn, the Board and the Nominating and Governance Committee considered in particular his experience as a public company Chief Financial Officer and his significant experience and expertise in management, accounting and business operations, including international operations.

With respect to Mr. Schnitzer, the Board and the Nominating and Governance Committee considered in particular his position as CEO of the Company and his significant experience in the management of the Company in various roles, including as Chief Executive Officer of Business and International Insurance, the Company's largest business segment, as well as his significant experience and expertise in management, finance and law.

With respect to Mr. Shepard, the Board and the Nominating and Governance Committee considered in particular his experience as a public insurance company CEO and his significant experience and expertise in management and international business.

With respect to Ms. Thomsen, the Board and the Nominating and Governance Committee considered in particular her experience as a general partner of a venture capital firm and her significant experience and expertise in investments, finance and the development of emerging businesses.

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Director Independence and Independence Determinations

Under our Governance Guidelines and NYSE rules, a director is not independent unless the Board affirmatively determines that he or she does not have a direct or indirect material relationship with the Company. In addition, the director must meet the bright-line test for independence set forth by the NYSE rules.

The Board has established categorical standards of director independence to assist it in making independence determinations. These standards, which are included in our Governance Guidelines, set forth certain relationships between the Company and the directors and their immediate family members, or entities with which they are affiliated, that the Board, in its judgment, has determined to be material or immaterial in assessing a director's independence. The Nominating and Governance Committee annually reviews the independence of all directors and reports its determinations to the full Board.

In the event a director has a relationship with the Company that is relevant to his or her independence and is not addressed by the categorical independence standards, the independent members of the Board determine in their judgment whether such relationship is material.

Our Governance Guidelines require that: (1) all members of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee be independent; and (2) no more than two members of the Board may concurrently serve as officers of the Company.

The Board has determined that all of its directors and all of the persons proposed for election at the Annual Meeting are independent, other than our Chief Executive Officer, Mr. Alan Schnitzer. Consequently, assuming election of all the nominees included in this Proxy Statement, approximately 92% of the directors on the Board will be independent.

In making its independence determinations, the Board considered and reviewed the various commercial, charitable and employment transactions and relationships known to the Board (including those identified through annual directors' questionnaires) that exist between us and our subsidiaries and the entities with which certain of our directors or members of their immediate families are, or have been, affiliated. Specifically, the Board's independence determinations included reviewing membership dues, contributions and research fees paid to a trade association and affiliated entities where Mr. Donald Shepard serves as a director (but not as an executive officer or employee). Payments to the organization constituted less than 1% of such organization's consolidated gross revenues during its last completed fiscal year and were below the thresholds set forth under our categorical standards of director independence.

The Board determined that the transactions identified were not material and did not affect the independence of such director under either the Company's Governance Guidelines or the applicable NYSE rules.

Dating and Pricing of Equity Grants

The Board has adopted a Governance Guideline establishing fixed grant dates for the award of "off-cycle" equity grants, so as to avoid the appearance that equity grant dates have been established with a view to benefiting recipients due to the timing of material public announcements.

In addition, to further ensure the integrity of our equity awards process, the Compensation Committee requires that the exercise price of all stock options granted, and

the fair value of all equity awards made, must be determined by reference to the closing price for a share of our common stock on the NYSE on the date of any such grant or award. Under the Company's stock plans, the Compensation Committee may not take any action with respect to any stock option that would be treated as a "repricing" of such stock option, unless such action is approved by the Company's shareholders in accordance with applicable rules of the NYSE.

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Transactions with Related Persons

General

The Board has adopted a written Related Person Transaction Policy to assist it in reviewing, approving and ratifying related person transactions and to assist us in the preparation of related disclosures required by the SEC. This Related Person Transaction Policy supplements our other policies that may apply to transactions with related persons, such as our Governance Guidelines and Code of Conduct.

The Related Person Transaction Policy provides that all related person transactions covered by the policy are prohibited, unless approved or ratified by the Board or by the Nominating and Governance Committee. Our directors and executive officers are required to provide prompt and detailed notice of any potential Related Person Transaction (as defined in the policy) to the Corporate Secretary, who in turn must promptly forward such notice and information to the Chair of the Nominating and Governance Committee and to our counsel for analysis, to determine whether the particular transaction constitutes a Related Person Transaction requiring compliance with the policy. The analysis and recommendation of counsel are then presented to the Nominating and Governance Committee for consideration at its next regular meeting.

In reviewing Related Person Transactions for approval or ratification, the Nominating and Governance Committee will consider the relevant facts and circumstances, including:

the commercial reasonableness of the terms;

the benefit (or lack thereof) to the Company;

opportunity costs of alternate transactions;

the materiality and character of the related person's interest, including any actual or perceived conflicts of interest; and

with respect to a non-employee director or nominee, whether the transaction would compromise the director's (1) independence under our Governance

The Nominating and Governance Committee will not approve or ratify a Related Person Transaction unless, after considering all relevant information, it has determined that the transaction is in, or is not inconsistent with, the best interests of the Company and our shareholders.

Generally, the Related Person Transaction Policy applies to any current or proposed transaction in which:

the Company was or is to be a participant;

the amount involved exceeds $120,000; and

any related person had or will have a direct or indirect material interest.

A copy of our Related Person Transaction Policy is available on our website at www.travelers.com under "For Investors: Corporate Governance: Corporate Governance: Related Person Transaction Policy".

In addition to the Related Person Transaction Policy, our Code of Conduct requires that all employees, officers and directors avoid any situation that involves or appears to involve a conflict of interest between their personal and professional relationships. Our Audit Committee provides oversight regarding compliance with our Code of Conduct and discusses any apparent conflicts of interest with senior management. The policies of the Company also require that all employees seek approval from our Chief Ethics and Compliance Officer prior to accepting a position as a director or officer of any unaffiliated for-profit company or organization.

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Employment Relationships

We employ approximately 30,900 employees, approximately 7,500 of whom work in and around Hartford, Connecticut. The following three employees are related to executive officers:

Mr. Jay Benet is Vice Chairman and Chief Financial Officer of the Company. His stepson, Jon-Paul Mucha, has been employed by the Company since 2003. In 2016, his total compensation, including salary, bonus, equity awards and other benefits, totaled approximately $126,000. His compensation is commensurate with that of his peers.

Mr. Brian MacLean is President and Chief Operating Officer of the Company. His daughter, Ms. Erin Cha, and his son-in-law, Mr. Junghwan Cha, have been employed by the Company since 2005 and 2009, respectively. In 2016, their combined total compensation, including salary, bonuses, equity awards and other benefits, totaled approximately $211,000. Their compensation is commensurate with that of their peers.

Third-Party Transactions

From time to time, institutional investors, such as large investment management firms, mutual fund management organizations and other financial organizations become beneficial owners (through aggregation of holdings of their affiliates) of 5% or more of voting securities of the Company and, as a result, are considered a "related person" under the Related Person Transaction Policy. These organizations may provide services to the Company or its benefit plans. In addition, the Company may provide insurance coverage to these

organizations. In 2016, the following transactions occurred with investors who reported beneficial ownership of 5% or more of the Company's voting securities:

In 2016, BlackRock, Inc. and its affiliates paid premiums of approximately $934,000 for insurance policies with subsidiaries of the Company in the ordinary course of business and on substantially the same terms as those offered to other customers.

An affiliate of State Street Corporation ("State Street") provides investment management services to the Company's 401(k) Savings Plan. The participants in the 401(k) Savings Plan paid approximately $373,000 in management fees to State Street in 2016. The investment management agreement was entered into on an arm's-length basis. In 2016, State Street paid premiums of approximately $483,000 for insurance policies with subsidiaries of the Company in the ordinary course of business and on substantially the same terms as those offered to other customers.

An affiliate of The Vanguard Group ("Vanguard") provides investment management services to the Company's 401(k) Savings Plan and the qualified and non-qualified pension plans. The participants in the 401(k) Savings Plan and the Company paid approximately $1.2 million and $780,000, respectively, in management fees to Vanguard in 2016. The investment management agreements were entered into on an arm's-length basis. In 2016, Vanguard paid premiums of approximately $1.9 million for insurance policies with subsidiaries of the Company in the ordinary course of business and on substantially the same terms as those offered to other customers.

Governance Structure of the Board

Our bylaws provide that the Board, at its regular meeting each year immediately following the annual shareholders meeting, shall elect a Chairman of the Board. The Board maintains the flexibility to determine whether the roles of Chairman and CEO should be combined or separated, based on what it believes is in the best interests of the Company at a given point in time. The Board believes that this flexibility is in the best interest of the Company and that a one-size-fits-all approach to corporate governance, with a mandated independent Chairman, would not result in better governance or oversight.

Our Governance Guidelines provide for the position of Lead Director whenever the Chairman of the Board is a director who does not qualify as an independent director.

Mr. Schnitzer, CEO.    Mr. Schnitzer assumed the role of CEO in December 2015. As CEO, Mr. Schnitzer serves as the Company's primary decision- and policy-maker and is responsible for the Company's day-to-day operations. Mr. Schnitzer also focuses on the Company's strategic priorities and long-term strategies, in collaboration with the Board.

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Mr. Dasburg, Chairman.    Following the passing of Mr. Fishman, our former Executive Chairman of the Board, in August 2016, the Board elected Mr. Dasburg, an independent director, as Chairman of the Board. As Chairman of the Board, Mr. Dasburg consults with the CEO and the Board on the strategic direction of the Company, reports solely to the Board and presides at all meetings of the Board. Among other things, under our Governance Guidelines, the independent Chairman of the Board has the authority to:

convene, set the agendas for, and chair the regular executive sessions of the independent directors;

convene and chair other meetings of the independent directors as deemed necessary;

provide direction regarding the meeting schedules, information to be sent to the Board and input regarding meeting agenda items;
act as a liaison between the independent directors, committee chairs and senior management;

receive and review correspondence sent to the Company's office addressed to the Board or independent directors and, together with the CEO, to determine appropriate responses if any; and

recommend to the Board the retention of consultants and advisors who directly report to the Board, without consulting or obtaining the advance authorization of any officer of the Company.

This structure facilitates the continued strong communication and coordination between management and the Board and enables the Board to fulfill its risk oversight responsibilities. A complete description of the role of the independent Chairman of the Board is set forth in our Governance Guidelines.

Executive Session

Non-employee members of the Board regularly meet in executive session with no members of management present. Each of the committees also meets regularly

in executive session. Executive sessions are chaired by the independent Chairman of the Board.

Board and Committee Evaluations

Every year, the Board and each of its committees evaluate and discuss their respective performance and effectiveness, as required by the Governance Guidelines. These evaluations cover a wide range of topics, including but not limited to, the fulfillment of the Board and committee responsibilities identified in the Governance Guidelines and committee charters. The evaluations address the Board's knowledge and understanding of, and performance with respect to, the Company's business, strategy, values and mission, the

appropriateness of the Board's structure and composition, the communication among the directors and between the Board and management and the Board's meeting process. Each committee reviews, among other topics, how the committee has satisfied the responsibilities contained in its charter in the past year as well as the organization of the committee, the committee meeting process and the committee's oversight. Each committee reports the results of their respective evaluations to the Board.

Communications with the Board and Shareholder Engagement

As described on our website at www.travelers.com, interested parties, including shareholders, who wish to communicate with a member or members of the Board, including the Chairman of the Board, the Nominating and Governance Committee, the non-employee directors as a group, or the Audit Committee, may do so by addressing their correspondence as follows: if intended for the full Board or one or more non-employee directors, to the Chairman of the Board; if intended for the Chairman of the Board, to Mr. John Dasburg; and if intended for the Audit Committee or the

Nominating and Governance Committee, to the Chair of such Committee. All such correspondence should be sent c/o Corporate Secretary, The Travelers Companies, Inc., 385 Washington Street, Saint Paul, Minnesota 55102. The office of the Corporate Secretary will forward such correspondence as appropriate.

In addition to the general correspondence process above, the Nominating and Governance Committee oversees a shareholder engagement program relating to the Company's governance and compensation practices.

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Under this program, at the direction of the Nominating and Governance Committee, management reaches out to the Company's largest shareholders at least once each year to facilitate a dialogue regarding governance, compensation and other matters. Management reports on the resulting conversations with those investors to the Nominating and Governance Committee and also, as appropriate, to the Compensation Committee. As noted under "Shareholder Engagement" in the Compensation Discussion and Analysis ("CD&A") section of this Proxy Statement, in 2016, the Company contacted shareholders representing over 35% of the Company's outstanding

shares. In a number of cases, the shareholder engagement program has encouraged changes to the Company's practices. For example, in the past few years based in part on investor input, the Compensation Committee enhanced the disclosure in the CD&A and raised the Return on Equity thresholds for vesting of performance shares; our former CEO voluntarily agreed to relinquish certain rights under his employment agreement; and the Company made clarifying changes to its policy regarding participation in the political process and provided additional disclosure of political contributions on its website.

Board's Role in Risk Management

Enterprise Risk Management is a company-wide initiative that involves the Board and management identifying, assessing and managing risks that could affect our ability to fulfill our business objectives or execute our corporate strategy. Our Enterprise Risk Management activities involve the identification and assessment of a broad range of risks and the development of plans to mitigate their effects. The Risk Committee and the other committees of the Board, as well as our separate management-level enterprise risk and underwriting risk committees, are key elements of our enterprise risk management structure and help to establish and reinforce our strong culture of risk management. For example, having both a Board Risk Committee that oversees operational risks and the Company's Enterprise Risk Management activities, and a management-level enterprise risk committee that reports regularly to the Board Risk Committee, enables a high degree of coordination between management and the Board. We describe our Enterprise Risk Management function in more detail in our Annual Report on Form 10-K, under "Business—Enterprise Risk Management". We also discuss the alignment of our executive compensation with our risk management below under "Risk Management and Compensation".

While the Risk Committee has oversight responsibility generally for our Enterprise Risk Management activities, the Board has allocated and delegated risk oversight responsibility to various committees of the Board in accordance with the following principles:

The Audit Committee is responsible for oversight of risks related to integrity of financial statements, including oversight of financial reporting principles and policies and internal controls, and oversight of the process for establishing insurance reserves.
The Risk Committee is responsible for oversight of risks related to business operations, including insurance underwriting and claims, reinsurance, catastrophe risk, credit risk in insurance operations, information technology and business continuity plans.

The Compensation Committee is responsible for oversight of risks related to compensation programs, including formulation, administration and regulatory compliance with respect to compensation matters.

The Investment and Capital Markets Committee is responsible for oversight of risks in the Company's investment portfolio (including valuation and credit risks), capital structure, financing arrangements and liquidity.

The Nominating and Governance Committee is responsible for oversight of risks related to corporate governance matters, including succession planning, director independence and related person transactions.

Each committee is responsible for monitoring reputational risk to the extent arising out of its allocated subject matter.

As a result, each committee charter contains specific risk oversight functions delegated by the Board, consistent with the principles set forth above. In that way, risk oversight responsibilities are shared by all committees of the Board and do not rest entirely with the Risk Committee. Further, we believe that allocating responsibility to a committee with relevant knowledge and experience improves the oversight of risk.

The allocation of risk oversight responsibility may change, from time to time, based on the evolving needs of the Company. On at least an annual basis, the Board

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reviews significant risks that management, through its Enterprise Risk Management efforts, has identified. The Board then evaluates, and may change, the allocation among the various committees of oversight responsibility for each identified risk. Further, each committee periodically reports to the Board on its risk oversight activities. In addition, at least annually, the Company's

chief risk officer conducts a review of the interrelationships of risks and reports the results to the Risk Committee and the Board. These reports and reviews are intended to inform the Board's annual evaluation of the allocation of risk oversight responsibility.

Risk Management and Compensation

Our compensation structure is intended to encourage a careful balance of risk and reward, both on an individual risk basis and in the aggregate on a Company-wide basis, and promote a long-term perspective.

As discussed in more detail under "Compensation Discussion and Analysis" in this Proxy Statement, consistent with our goal of achieving an operating return on equity in the mid-teens over time, the Compensation Committee selected adjusted operating return on equity as the quantitative performance measure for the performance share portion of our stock-based long-term incentive program and as a material factor in determining amounts paid under our annual cash bonus program. Because operating return on equity is a function of both operating income and shareholders' equity, it encourages senior executives, as well as other employees with management responsibility, to focus on a variety of performance objectives that are important for creating shareholder value, including the quality and profitability of our underwriting and investing activities and capital management.

In addition, the long-term nature of our stock-based incentive awards (which generally do not vest until three years after the award is granted), our significant

executive stock ownership requirements and the fact that more than 40% of our named executive officers' total direct compensation in the aggregate was in the form of long-term, stock-based incentives for each of the last five years, including 2016, all encourage prudent enterprise risk management and discourage excessive risk taking to achieve short-term gains. Moreover, neither the long-term incentive awards nor annual cash bonuses require growth in revenues or earnings in order for our executives to be rewarded, and none of our executives are paid based on a formulaic percentage of revenues or profits. As a result of this and the mix of short- and long-term performance criteria across our compensation programs, among other factors, we believe that our compensation practices and policies are not reasonably likely to have a material adverse effect on the Company.

Furthermore, the Compensation Committee's independent compensation consultant evaluates and advises the Compensation Committee as to the design and risk implications of our incentive plans and other aspects of our compensation programs to ensure that the mix of compensation, the balance of performance metrics and the overall compensation framework all support our short- and long-term objectives.

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ITEM 2

ITEM 2 – RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee is responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit the Company's financial statements. The Audit Committee has selected KPMG LLP ("KPMG") to serve as our independent registered public accounting firm for 2017.

Although ratification is not required by our bylaws or otherwise, the Board is submitting the selection of KPMG to our shareholders for ratification because we value our shareholders' views on the Company's independent registered public accounting firm. If our shareholders fail to ratify the selection, it will be considered notice to the Board and the Audit Committee to consider the selection of a different firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.

KPMG has continuously served as the independent registered public accounting firm of the Company (including The St. Paul Companies, Inc. ("St. Paul")

and its subsidiaries prior to its merger with Travelers Property Casualty Corp. ("TPC") that formed the Company (the "Merger")) since 1968 and of TPC and its predecessors from December 1993 until the Merger.

As part of the evaluation of its independent registered public accounting firm, the Audit Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm. In addition, in conjunction with the mandated rotation of the independent registered public accounting firm's lead engagement partner, the Audit Committee and the Audit Committee Chairman are directly involved in the selection of KPMG's lead engagement partner. The Audit Committee and the Board of Directors believe that the continued retention of KPMG to serve as the Company's independent registered public accounting firm is in the best interests of the Company and its shareholders.

Representatives of KPMG are expected to be present at the Annual Meeting. They also will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

Audit and Non-Audit Fees

In connection with the audit of the 2016 financial statements, we entered into an agreement with KPMG which set forth the terms by which KPMG would perform audit services for the Company.

The following table presents fees for professional services rendered by KPMG for the audit of our financial statements for 2016 and 2015 and fees billed for other services rendered by KPMG for those periods:

 
2016 2015

Audit fees(1)

$ 8,922,000 $ 8,941,700

Audit-related fees(2)

761,100 857,900

Tax fees(3)

295,300 395,500

All other fees(4)

90,800

Total:

$ 9,978,400 $ 10,285,900

(1)
Fees paid were for audits of financial statements, reviews of quarterly financial statements and related reports and reviews

of registration statements and certain periodic reports filed with the SEC.

(2)
Services primarily consisted of audits of employee benefit plans, actuarial attestations and reports on internal controls not required by applicable regulations.

(3)
Tax fees related primarily to tax return preparation and assistance services and occasionally to domestic and international tax compliance related services.

(4)
Other fees related to international regulatory and compliance advisory services.

The Audit Committee of the Board considered whether providing the non-audit services included in this table was compatible with maintaining KPMG's independence and concluded that it was.

Consistent with SEC policies regarding auditor independence and the Audit Committee's charter, the Audit Committee has responsibility for appointing,

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setting compensation for and reviewing the performance of the independent registered public accounting firm. In exercising this responsibility, the Audit Committee preapproves all audit and permitted non-audit services provided by the independent registered public accounting firm. Each year, the Audit Committee approves an annual budget for such permitted non-audit services and requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year. The Audit Committee has authorized our Chief Auditor to approve KPMG's commencement of work on such permitted services within that budget, although the Chair of the Audit Committee must approve any such permitted non-audit service within the budget if the

expected cost for that service exceeds $100,000. During the year, circumstances may arise that make it necessary to engage the independent registered public accounting firm for additional services that would exceed the initial budget. The Audit Committee has delegated the authority to the Chair of the Audit Committee to review such circumstances and to grant approval when appropriate. All such approvals are then reported by the Audit Committee Chair to the full Audit Committee at its next meeting.

YOUR BOARD RECOMMENDS YOU VOTE "FOR" THE RATIFICATION OF KPMG AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2017.

Report of the Audit Committee

The Audit Committee operates pursuant to a charter which is reviewed annually by the Audit Committee. Additionally, a brief description of the primary responsibilities of the Audit Committee is included under the heading "Board of Directors Information—Audit Committee" in this Proxy Statement. Under the Audit Committee charter, management is responsible for the preparation, presentation and integrity of the Company's financial statements, the application of accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for auditing the Company's financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles. In addition, the independent registered public accounting firm is responsible for auditing and expressing an opinion on the Company's internal controls over financial reporting.

In the performance of its oversight function, the Audit Committee reviewed and discussed the audited financial statements of the Company with management and

with the independent registered public accounting firm. The Audit Committee also received information regarding, and discussed with the independent registered public accounting firm, the matters required to be discussed by applicable standards adopted by the Public Company Accounting Oversight Board, including matters concerning the independence of the independent registered public accounting firm.

Based upon the review and discussions described in the preceding paragraph, the Audit Committee recommended to the Board that the audited financial statements of the Company be included in the Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC.

Submitted by the Audit Committee of the Company's Board of Directors:

John H. Dasburg (Chair)   Thomas R. Hodgson
Alan L. Beller   William J. Kane
Janet M. Dolan   Philip T. Ruegger III
Patricia L. Higgins   Todd C. Schermerhorn

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ITEMS 3 AND 4

ITEM 3 – NON-BINDING VOTE ON THE FREQUENCY OF FUTURE VOTES ON EXECUTIVE COMPENSATION

As a result of the Dodd-Frank Act, shareholders are entitled to indicate, on a non-binding basis, their preference as to how frequently they would like to cast a non-binding vote on the compensation of our named executive officers. Shareholders may indicate whether they would prefer such vote occur every one, two or three years or abstain from voting. While the Board intends to consider carefully the results of this vote, the vote is advisory in nature and is not binding on the Company or the Board.

The Board of Directors believes that a non-binding vote on executive compensation every one year is

appropriate for the Company and its shareholders based on a number of considerations, including the views of its shareholders. Since 2011, the Board of Directors has annually submitted to a vote of the shareholders a non-binding proposal to approve the executive compensation of our named executive officers.

YOUR BOARD RECOMMENDS YOU VOTE FOR EVERY "ONE YEAR" WITH RESPECT TO THE FREQUENCY OF NON-BINDING SHAREHOLDER VOTES TO APPROVE EXECUTIVE COMPENSATION.

ITEM 4 – NON-BINDING VOTE TO APPROVE EXECUTIVE COMPENSATION

The Company is requesting that shareholders vote, on a non-binding basis, to approve the compensation of our named executive officers as discussed in the Compensation Discussion and Analysis on page 23 and the Tabular Executive Compensation Disclosure on pages 47 to 62, including the Summary Compensation Table and accompanying narrative disclosure. The Company currently intends to hold such votes annually. Accordingly, the next such vote is expected to be held at the Company's 2018 Annual Meeting of Shareholders. While the Board intends to consider carefully the results of this vote, the final vote is advisory in nature and is not binding on the Company or the Board.

The Board recommends that shareholders vote "FOR" the following resolution:

RESOLVED, that the compensation paid to the Company's named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and related narrative discussion, is hereby APPROVED.

As described in the Compensation Discussion and Analysis, our executive compensation programs are structured consistent with our longstanding pay for performance philosophy and utilize performance measures that are intended to align compensation with the creation of shareholder value and to reinforce a long-term perspective.

In deciding how to vote on this proposal, the Board encourages you to read the Compensation Discussion and Analysis, particularly the "2016 Overview". In making compensation decisions for the 2016 performance year, the Compensation Committee considered the Company's strong results in 2016 and over time on both an absolute basis and relative to our peers. These financial results as well as other factors considered by the Compensation Committee are described in the Compensation Discussion and Analysis.

YOUR BOARD RECOMMENDS YOU VOTE "FOR" APPROVAL OF NAMED EXECUTIVE OFFICER COMPENSATION.

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COMPENSATION DISCUSSION AND ANALYSIS

COMPENSATION DISCUSSION AND ANALYSIS

2016 Overview

Travelers had another strong year of industry-leading financial and operating results in 2016. This overview summarizes a number of performance highlights in 2016 and how that performance impacted the amount of variable compensation awarded in February 2017 to the named executive officers with respect to the 2016 performance year.

Continued Strong Performance in 2016

Return on equity of 12.5% and operating return on equity* of 13.3% significantly exceeded the industry average return on equity for the 11th year in a row as well as the goals of 10.5% and 11.2%, respectively, included in our financial plan.

Record net written premiums of $24.958 billion, up 3.5% year-over-year, exceeded the goals included in our financial plan, with all three business segments contributing to this growth.

Net income per diluted share of $10.28 and operating income per diluted share* of $10.12 in 2016 meaningfully exceeded the goals in our financial plan, but were lower as compared to 2015 due in meaningful part to higher catastrophe losses and the persistently low interest rate environment, both of which are outside of management's control. As discussed on page 34, the 2016 financial plan did not include any prior year reserve development and assumed catastrophes at more normalized levels and lower net investment income due to the interest rate environment.

Similarly, net income of $3.014 billion and operating income* of $2.967 billion meaningfully exceeded the goals included in our financial plan, but were lower as compared to 2015.

Total shareholder return for 2016 was 11%.

Resulting In . . .

Variable Compensation Awarded to the Named Executive Officers as Follows:

With respect to its compensation decisions generally, the Compensation Committee considered, among other factors, our strong 2016 results discussed in this Compensation Discussion and Analysis but also took into consideration the year-over-year decrease in operating income as described above. With respect to Mr. Schnitzer, who assumed the role of CEO in December 2015, the Compensation Committee also considered the very successful completion of his first full year as CEO and the need to reposition his compensation relative to our Compensation Comparison Group to reflect the increased responsibilities associated with assuming the role of CEO. In light of these factors, the Compensation Committee made the following compensation decisions:

Mr. Schnitzer's annual cash bonus increased $1.95 million to $5.2 million compared to the 2015 performance year.

Mr. Schnitzer's equity awards increased by $4.0 million to $9.0 million compared to the 2015 performance year.

The average annual cash bonus paid to Messrs. MacLean, Benet and Heyman decreased approximately 7.5% compared to the 2015 performance year.

Equity awards were the same as those for the 2015 performance year for Messrs. Benet and Heyman, and decreased by approximately $1.76 million for Mr. MacLean, who had received an additional equity award of approximately $1.76 million for the 2015 performance year in connection with the leadership transition.

   


*
See, "Annex A – Reconciliation of GAAP Measures to Non-GAAP Measures and Selected Definitions" on page A-1.

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COMPENSATION DISCUSSION AND ANALYSIS

This year also marked the passing, on August 19, 2016, of Jay S. Fishman, the Company's Executive Chairman of the Board and former Chief Executive Officer. Mr. Fishman transformed Travelers into one of the best-performing companies in the financial services industry and the only property and casualty insurer in the Dow 30. Compensation awarded to Mr. Fishman for 2016 is discussed within this CD&A as well as in the section entitled "Tabular Executive Compensation Disclosure—Narrative Supplement to Summary Compensation Table and Grants of Plan-Based Awards in 2016 Table—Employment Arrangements". The Compensation Committee also awarded compensation to Mr. Kess, who joined the Company as Vice Chairman and Chief Legal Officer in December 2016, pursuant to the offer letter entered into in connection with, and as an inducement for, the commencement of his employment. For a discussion of the compensation awarded to Mr. Kess pursuant to the offer letter, see "Tabular Executive Compensation Disclosure—Narrative Supplement to Summary Compensation Table and Grants of Plan-Based Awards in 2016 Table—Employment Arrangements".

Consistent Performance

In 2016, we continued our long track record of delivering industry-leading returns to our shareholders with another year of strong financial results. Our operating return on equity was 13.3%, consistent with the average annual operating return on equity we have achieved over the last ten years, despite the historically low interest rate environment. These returns represent a meaningful spread over both the ten-year Treasury and our cost of equity.

Our solid underwriting and investment results in 2016 demonstrate the continued successful execution of our long-term financial strategy, which is to create shareholder value by:

delivering superior returns on equity by leveraging our competitive advantages;

generating earning and capital substantially in excess of our growth needs; and

thoughtfully rightsizing capital and growing book value per share over time.

Over the last decade, we produced an industry-leading return on equity, returned nearly $37 billion of excess

capital to our shareholders, grew dividends per share at an average annual rate of 10%, increased our book value per share by 125% and delivered a total return to shareholders of 193%.

The Company's successful execution of this long-term financial strategy is further demonstrated by the results we have achieved over time as discussed below.

Continued to Improve Profitability Through Active Use of Data and Analytics.  Given the successful execution of our strategy since 2010 to improve underwriting profitability, an important part of our strategy during 2016 was to continue to focus on retaining our most profitable business and seeking additional rate gains where needed, while actively seeking attractive new business opportunities. In 2016, we continued to analyze our business on an account-by-account or class-by-class basis using highly granular data and analytics. As a result, retention was at historically high levels, and we continued to achieve rate gains where needed, resulting in positive renewal rate change for the year overall. In addition, in 2016, we generated new business of $4.377 billion as compared to $3.926 billion in 2015, an increase of $451 million or 11.5%.
*
See, "Annex A – Reconciliation of GAAP Measures to Non-GAAP Measures and Selected Definitions" on page A-1.

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Achieved a Superior Return on Equity.  In 2016, we produced a return on equity of 12.5% and an operating return on equity of 13.3%. Our 2016 return on equity exceeded approximately 75% of the property and casualty companies in our Compensation Comparison Group (described on page 42). In addition, in contrast to our 2016 return on equity of 12.5%, the average return on equity for the domestic property and casualty industry in 2016 was approximately 5.5%, as estimated by the Insurance Information Institute. As demonstrated by the chart below, our return on equity has meaningfully outperformed the average return on equity for the industry in each of the past ten years.

GRAPHIC

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COMPENSATION DISCUSSION AND ANALYSIS

Increased Adjusted Book Value Per Share and Returned Significant Excess Capital to Our Shareholders.  During 2016, book value per share increased by 4% and adjusted book value per share*, which excludes the after-tax impact of unrealized gains and losses on investments, increased by 7%. Over the last ten years, the compound annual growth rate of each of our book value per share and adjusted book value per share was 8%. We were able to achieve this significant adjusted book value per share growth while, at the same time, returning substantial capital to shareholders.

GRAPHIC

Achieved Superior Total Return to Shareholders Over Time.  Strong financial results have led to outstanding total returns to shareholders over time (measured as the change in stock price plus the cumulative amount of dividends, assuming dividend reinvestment). For the one-year period ended December 31, 2016, our total shareholder return was 11%.

For the three-year and five-year periods ended December 31, 2016, our shareholder returns of 45% and 133%, respectively, placed Travelers at the 70th and 40th percentile of our Compensation Comparison Group.

*
See, "Annex A – Reconciliation of GAAP Measures to Non-GAAP Measures and Selected Definitions" on page A-1.

Moreover, in each of the three-year, five-year and ten-year periods mentioned above, Travelers' total shareholder return exceeded the return on the Dow Jones Industrial Average (the Dow 30 Index, of which Travelers is a member) and the S&P 500 Index.

The chart below shows total shareholder return for the period beginning January 1, 2007 and ending on December 31, 2016. For each year on the chart, total return is calculated with January 1, 2007 as the starting point and December 31 of the relevant year as the ending point. In contrast to many other members of the Compensation Comparison Group, the Company's level of shareholder returns over recent years reflected consistent strong performance rather than a recovery from a significant decline during the financial crisis. In assessing total shareholder return, the Compensation Committee generally gives greater weight to performance over a longer period of time, as a long-term perspective is necessary to execute our strategy, particularly in light of the inherent potential in the property and casualty insurance industry for results to vary significantly year-to-year.

GRAPHIC

Based on the achievements discussed above and elsewhere in this CD&A, and other factors, the Compensation Committee determined that Travelers and the named executive officers had performed at superior levels on both an absolute basis and relative to our peers. Notwithstanding this superior performance and strong results, in light of the year-over-year decrease in operating income as described above, the Compensation Committee determined to reduce compensation for the named executive officers generally, other than with respect to Mr. Schnitzer, as discussed in more detail below.

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Pay for Performance Philosophy and Objectives of Our Executive Compensation Program

Pay for Performance Philosophy

Our compensation program, the objectives and structure of which have been stable over time and aligned with our articulated financial strategy, is designed to, among other things, reinforce a long-term perspective and to align the interests of our executives with those of our shareholders. A long-term perspective is especially vital in the property and casualty insurance industry, where the periodic occurrence of catastrophes, changes in estimates of costs for claims and other economic conditions have historically produced results that vary significantly when measured year-to-year.

Consistent with our longstanding pay for performance philosophy, the Compensation Committee believes that, when we generally exceed our performance goals and the named executive officers individually perform at superior levels in achieving that performance, total compensation for these executive officers should be set at superior levels compared to the compensation levels for equivalent positions in our Compensation Comparison Group. When we do not generally exceed our performance goals or the named executive officers individually do not perform at superior levels, total compensation for these executives should be set at lower levels. In addition, to a greater extent than many

of the companies included in our Compensation Comparison Group, due to the absence of time-based restricted stock in our ongoing program, a substantial majority of the ultimate value of our named executive officer compensation is performance-based and is tied to, and is dependent on, operating results and increases in shareholder value over time.

The following two charts illustrate the directional relationship for the past ten performance years ("PY") between total direct compensation for the CEO (Mr. Schnitzer for PY2016 and Mr. Fishman for PY2007 through PY2015) and Travelers performance, as reflected by operating return on equity. As indicated below, while the objectives and structure of our compensation program have been stable over time, compensation levels vary significantly from year to year and correlate with returns, reflected by operating return on equity. Further, as explained under "Objectives of Our Executive Compensation Program", the Compensation Committee believes that compensation levels should encourage a long-term perspective, and, therefore, while catastrophe losses ("CATs") should impact compensation levels, compensation levels should not be as volatile, from year to year, as changes in financial results due to catastrophe losses.

CHART   CHART

Differences between total direct compensation for each performance year presented above and the information included in the Company's Summary Compensation Table are discussed further below under "—Total Direct Compensation for 2014-2016 (Supplemental Table)" and "—The Differences Between this Supplemental Table and the Summary Compensation Table" on page 46.

(1)
The adjustment to the chart is intended to facilitate a year-to-year comparison of recent operating return on equity ("ROE") by showing operating ROE both as reported and as adjusted to reflect a consistent level of catastrophe losses for each year to eliminate the volatility that undermines the comparison of period-to-period results. The average annual catastrophe losses (after-tax) for the ten-year period presented was $670 million. Actual catastrophe losses for each year are presented in Annex A.

(2)
Return on equity as reported for the ten-year period was as follows:
 
  PY2007   PY2008   PY2009   PY2010   PY2011   PY2012   PY2013   PY2014   PY2015   PY2016    

    18.0%     11.4%     13.5%     12.1%     5.7%     9.8%     14.6%     14.6%     14.2%     12.5%  

 

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Use of Operating Return on Equity and Other Metrics

While the Compensation Committee evaluates a broad range of financial and non-financial metrics in awarding performance-based annual cash bonuses, operating return on equity, in particular, is a principal factor in the Compensation Committee's evaluation of the Company's performance. Moreover, as discussed below, the number of performance shares that a named executive officer will receive upon vesting, if any, depends on the Company's attainment of specific financial goals related to operating return on equity.

The Compensation Committee believes that operating return on equity should not be viewed as a single metric. Rather, by being a function of both (1) operating income and (2) shareholders' equity (excluding unrealized gains and losses on investments), operating return on equity reflects a number of separate areas of financial performance related to both the Company's income statement and balance sheet. Accordingly, senior executives, as well as other employees with management responsibility, are encouraged to focus on multiple performance objectives that are important for creating shareholder value, including the quality and profitability of our underwriting and investment decisions, the pricing of our policies, the effectiveness of our claims management and the efficacy of our capital and risk management. When evaluating the Company's operating return on equity, the Compensation Committee considers recent and historical trends in operating return on equity of the Company, the domestic property and casualty insurance industry, and the Compensation Comparison Group, in addition to the Company's cost of equity. In 2016, the Compensation Committee also considered that the 2016 decrease in operating return on equity was due, in part, to factors that are largely outside of Travelers' control, such as higher levels of catastrophes and historically low interest rates.

In addition to operating return on equity, the Compensation Committee also reviews a broad range of other financial and non-financial metrics, particularly with respect to its administration of the Company's performance-based annual cash bonus program. As discussed further below, in determining annual cash bonuses to be paid to the named executive officers, the Compensation Committee evaluates the Company's performance with respect to a wide range of other

metrics included in the financial plan approved by the Board, including, among others:

operating income and operating income per diluted share along with other metrics that contribute to those results, such as:

written and earned premiums;

investment income;

insurance losses; and

expense management.

In evaluating performance against the objectives, however, the Compensation Committee does not use a formula or pre-determined weighting, and no one objective is individually material other than operating return on equity.

In addition to the metrics discussed above, the Compensation Committee also reviews per share growth in book value and adjusted book value over time in light of the Company's objective to create shareholder value by generating significant earnings and taking a balanced approach to capital management. However, because (1) book value can be volatile due to, among other things, the impact of changing interest rates on the fair value of the Company's fixed-income portfolio and (2) the Company's capital management strategy also emphasizes returning excess capital to shareholders, the Compensation Committee does not set a specific target for per share growth in book value or adjusted book value. Further, while it evaluates changes in book value and adjusted book value in the context of overall results, the Compensation Committee does not believe such changes, by themselves, are always the most meaningful indicators of relative performance.

The Compensation Committee believes that a formulaic approach to compensation, particularly in the property and casualty insurance industry, could result in unintended consequences and is not an appropriate substitute for the Compensation Committee's thorough deliberation and business judgment. The Compensation Committee's current approach allows it to appropriately assess the quality of performance results and ensures that executives are not unduly rewarded, or disadvantaged, based purely on mechanical formulas.

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Objectives of Our Executive Compensation Program

With our overarching pay-for-performance philosophy in mind, the Compensation Committee has approved the following five primary objectives of our executive compensation program.

1.
Link compensation to the achievement of our short- and long-term financial and strategic objectives

The Compensation Committee believes that a properly structured compensation system should measure and reward performance on multiple bases. To ensure an appropriate degree of balance in the program, the compensation system is designed to measure short- and long-term financial and operating performance, the efficiency with which capital is employed in the business, the effective management of risk, the achievement of strategic initiatives and the individual performance of each executive.

The Compensation Committee further believes that an executive's total compensation opportunity should be commensurate with his or her position and level of responsibility. Accordingly, the proportion of total compensation that is performance-based increases with successively higher levels of responsibility. Thus, the senior-most executives, who are responsible for the development and execution of our strategic and financial plans, have the largest portion of their compensation tied to performance-based incentives, including stock-based compensation, the ultimate value of which is dependent on changes in stock price and operating return on equity.

As noted above, in evaluating the Company's overall performance, the Compensation Committee recognizes that our business is subject to events outside of management's control, including natural and man-made catastrophic events, and takes those events into account when awarding compensation. The Compensation Committee believes that, while the impact of catastrophes in any given year can produce significant volatility, management should be focused on achieving the Company's long-term strategic goals. As a result, although the Compensation Committee believes that the impact of catastrophes on the Company's financial results should be reflected in its executive compensation decisions, the Compensation Committee does not believe it is appropriate for compensation levels to be subject to as much volatility year-to-year as may be caused by actual catastrophes.

2.
Provide competitive compensation opportunities to attract, retain and motivate high-performing executive talent

Our overall compensation levels are designed to attract and retain the best executives in light of the competition for executive talent. In addition, the Compensation Committee believes that, when we generally exceed our performance goals and the named executive officers individually perform at superior levels in achieving that performance, total compensation for these executive officers should be set at superior levels compared to the compensation levels for equivalent positions in our Compensation Comparison Group. When we do not generally exceed our performance goals or the named executive officers individually do not perform at superior levels, total compensation for these executives should be set at lower levels.

The Compensation Committee may also take into account other relevant facts and circumstances in awarding compensation in order to attract, retain and motivate high-performing talent.

3.
Align the interests of management and shareholders by paying a substantial portion of total compensation in stock-based incentives and ensuring that executives accumulate meaningful stock ownership stakes over their tenure

The Compensation Committee believes that the interests of executives and shareholders should be aligned. Accordingly, a significant portion of the total compensation for the named executive officers is in the form of stock-based compensation. The components of the stock-based compensation granted to the named executive officers in 2017 and 2016 were stock options and performance shares, other than with respect to a one-time grant of restricted stock units to Mr. MacLean in 2016 in recognition of special circumstances, as discussed below, and an inducement grant of restricted stock units to Mr. Kess in connection with the commencement of his employment in December 2016. In addition, as discussed below, senior executives are expected to achieve specified stock ownership targets prior to selling any stock acquired upon the exercise of stock options or the vesting of performance shares or restricted stock units. Both the portion of total compensation attributable to stock-based programs and the expected level of executive stock ownership increase with successively higher levels of responsibility.

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4.
Maximize, to the extent equitable and practicable, the financial efficiency of the overall compensation program from tax, accounting, cash flow and share dilution perspectives

We make reasonable efforts to maximize the tax deductibility of all elements of compensation. Section 162(m) of the Internal Revenue Code prohibits us from deducting compensation in excess of $1 million paid to most of the named executive officers unless specified requirements are met, including that such amounts be considered "qualified performance-based compensation" under Section 162(m). The Compensation Committee may also approve compensation that does not qualify for a deduction under Section 162(m) if it determines that it is appropriate to do so in light of other competing interests and goals, such as the attraction and retention of key executives.

As part of the process of approving the initial design of incentive plans, or any subsequent modifications made to such plans, and determining awards under the plans, the Compensation Committee also evaluates the aggregate economic costs and dilutive impact to shareholders of such compensation, the expected accounting treatment and the impact on our financial results. The Compensation Committee attempts to balance the various financial implications of each program to ensure that the system is as efficient as possible and that unnecessary costs are avoided.

5.
Reflect established and evolving corporate governance standards

The Compensation Committee, with the assistance of our Human Resources Department and the Compensation Committee's independent compensation consultant, stays abreast of current and developing corporate governance standards and trends with respect to executive compensation and adjusts the various elements of our executive compensation program, from

time to time, as it deems appropriate. As a result of this process, the Compensation Committee has adopted the following practices, among others:

    What We DO NOT Do:  
   

No excise tax "gross-up" payments in the event of a change in control

No tax "gross-up" payments on perquisites for named executive officers

No repricing of stock options and no buy-out of underwater options

No excessive or unusual perquisites

No dividends or dividend equivalents paid on unvested performance shares

No above-market returns provided for in deferred compensation plans

No guaranteed equity or bonuses for named executive officers

   

 

    What We DO:  
   

Maintain robust share ownership requirement

Maintain a clawback policy with respect to cash and equity incentive awards to our executive officers

Prohibit hedging transactions as specified in our securities trading policy

Prohibit pledging without the consent of the Company (no pledges have been made)

Engage in outreach and maintain a dialogue with shareholders relating to Travelers' governance and compensation practices

 

For a description of the duties of the Compensation Committee and its use of an independent compensation consultant, see "Board of Directors Information—Compensation Committee" on page 6.

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Compensation Elements

With our pay-for-performance philosophy and compensation objectives discussed above as our guiding principles, we deliver annual executive compensation through a combination of:

base salary, and

performance-based compensation consisting of

an annual cash bonus, and

stock-based, long-term incentive awards.

We also provide benefits and modest perquisites. In addition, from time to time, the Compensation Committee may also make special cash or equity awards to one or more of our named executive officers.

Consistent with recent years, the Compensation Committee has determined that the allocation of compensation between performance-based annual cash bonus and stock-based, long-term incentives should be somewhat more heavily weighted towards cash bonus as compared to our Compensation Comparison Group. The Compensation Committee believes that this allocation is appropriate in light of the fact that a higher percentage of the named executive officers' total compensation (and total direct compensation) is performance-based as compared to the peer average and peer median of the Compensation Comparison Group. In particular, unlike a number of other companies in our Compensation Comparison Group, annual equity awards made to the named executive officers are typically all performance-based.

The following chart illustrates the mix of performance-based compensation to non-performance-based compensation of our CEO, compared to the CEOs of our Compensation Comparison Group.

GRAPHIC

(1)
Travelers CEO Pay Mix reflects the pay mix of total direct compensation for Mr. Schnitzer for the 2016 performance year, as reported in the Supplemental Table on page 46.

(2)
Peer Average CEO Pay Mix reflects the pay mix of total direct compensation for our Compensation Comparison Group for their 2015 performance year (the most recent year for which data was publicly available) and was calculated for the Compensation Committee by its independent compensation consultant. As part of that calculation, the independent compensation consultant annualized special non-recurring long-term incentive grants (for example, new hire, retention and promotion awards) to reflect an estimate of "per year" value.

Annual awards of stock-based compensation are typically in the form of stock options and performance shares. Because our annual awards of performance shares only vest if specified return on equity thresholds are met, and because options provide value only if our stock price appreciates, the Compensation Committee believes that such compensation is all performance-based; that is, the compensation typically awarded annually to our CEO and other named executive officers generally does not include awards that are earned solely due to the passage of time without regard to performance. In February 2016, the Compensation Committee made an equity grant of time-based restricted stock units to Mr. MacLean in recognition of his assumption of direct leadership of the Business and International Insurance segment and his support throughout the leadership transition in 2015, and in December 2016, the Compensation Committee made an inducement grant of time-based restricted stock units to Mr. Kess in connection with the commencement of his employment.

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Total Direct Compensation

The following table sets forth the composition of total direct compensation for Mr. Schnitzer, our CEO, and our other named executive officers who served as executive officers for the entire 2016 performance year:

 

 

Compensation
Element



  Percentage of
Total Direct
Compensation
for Mr.
Schnitzer,
CEO






  Percentage of
Average Total
Direct
Compensation
of Other NEOs(1)





 

 

Base Salary Earned

      6.6%       12.7%    

 

 

Annual Cash Bonus

      34.2%       46.2%    

 

 

Long-Term Stock Incentives

      59.2%       41.1%    
(1)
Mr. Fishman's compensation for 2016 has been omitted from the table because he only served as a named executive officer for the portion of the year prior to his death in August 2016, and Mr. Kess's compensation for 2016 has been omitted from the table because he commenced employment in December 2016. Accordingly, the compensation received by each of Mr. Fishman and Mr. Kess for 2016 is not representative of the Company's regular compensation program.

Base Salary

The Compensation Committee's philosophy is to generally set base salary for executive officers other than the CEO at a level that is intended to be on average at or near the 50th percentile for equivalent positions in our Compensation Comparison Group. This positioning supports the attraction and retention of high quality talent, ensures an affordable overall cost structure, and mitigates excessive risk taking that could occur if salaries were artificially low. Individual salaries may range above or below the median based on a variety of factors, including the potential impact of the executive's role at the Company, the terms of the executive's employment agreement, if any, the tenure and experience the executive brings to the position and the performance and potential of the executive in his or her role. Base salaries are reviewed annually, and adjustments are made from time to time as the Compensation Committee deems appropriate to recognize performance, changes in duties and/or changes in the competitive marketplace.

In February 2017, the Compensation Committee did not make any changes to the base salaries for the named executive officers. The Compensation Committee increased the base salary for Mr. Schnitzer in August 2015 in connection with his appointment as CEO and increased the base salaries for Messrs. MacLean,

Benet and Heyman in April 2016 by $50,000, $100,000 and $100,000, respectively. Mr. Schnitzer's current base salary as CEO is below the 25th percentile when compared to other CEO's in our Compensation Comparison Group, and the current base salaries for Messrs. MacLean, Benet and Heyman are slightly above the 75th percentile of our Compensation Comparison Group, in each case based on the most recently available data as provided by the Compensation Committee's independent compensation consultant. The Compensation Committee set the base salary for our CEO below the 50th percentile because it believes that the CEO's compensation should be more heavily weighted to variable performance-based compensation, as shown in the table above. The base salaries of Messrs. MacLean, Benet and Heyman reflect their long tenure in their positions (12, 15 and 15 years, respectively), as well as their considerable expertise and outstanding performance over time.

Annual Cash Bonus

The named executive officers are eligible to earn performance-based annual cash bonuses under the Senior Executive Performance Plan, a plan approved by our shareholders. The annual bonuses are based upon the individual performance of each executive as well as that of Travelers as a whole. The annual cash bonuses are designed to further our goals described under "Objectives of Our Executive Compensation Program", including motivating and promoting the achievement of our short-term and long-term financial and strategic objectives.

Description of Senior Executive Performance Plan and Maximum Pool

The Senior Executive Performance Plan was approved by shareholders and is designed to comply with the "qualified performance-based compensation" requirements of Section 162(m) of the Internal Revenue Code so that the annual bonus payments to named executive officers could be fully tax deductible. The Senior Executive Performance Plan contains a multi-metric formula that was approved by shareholders and that is used to determine the maximum amount of the annual bonus pool.

The formula in the Senior Executive Performance Plan provides generally that, if our operating return on

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equity (determined by dividing (1) "after-tax operating earnings", as defined in the Senior Executive Performance Plan, by (2) total common shareholders' equity as of the beginning of the fiscal year, adjusted to exclude net unrealized appreciation or depreciation of investments) is greater than 8%, then the pool available to pay as "qualified performance-based compensation" under Section 162(m) will equal 1.5% of our "after-tax operating earnings".

Because the amount of our after-tax operating earnings can generate a larger bonus pool than necessary for awarding bonuses consistent with the Compensation Committee's objectives, the Compensation Committee can exercise (and in the past has always exercised) its discretion to award less than the maximum amount that could have been awarded under the Plan as "qualified performance-based compensation".

Performance-Year 2016 Bonuses Payable under the Senior Executive Performance Plan

Our return on equity for the 2016 performance period, calculated as defined in the Senior Executive Performance Plan, was 16.03%, and resulted in a maximum amount available under the Senior Executive Performance Plan of $53.66 million. As discussed below, the Compensation Committee awarded a total of $14.725 million in bonuses (being approximately 27% of the aggregate bonus pool under the Plan) to the named executive officers who were participants in the Senior Executive Performance Plan for the 2016 performance period.

As it has done in prior years, the Compensation Committee exercised its discretion to award less than the maximum amount that could have been awarded under the Plan as "qualified performance-based compensation".

Factors Considered in Awarding 2016 Bonuses

In determining the actual annual bonuses awarded, the Compensation Committee applied its business judgment and considered a number of factors, including:

the very successful completion of Mr. Schnitzer's first full year as CEO and the need to reposition his compensation relative to our Compensation Comparison Group to reflect the increased responsibilities of that role;
the strong financial performance and other significant achievements described above under "2016 Overview";

Company, business segment and/or investment results relative to the various financial measures set forth in our 2016 business plan that was established and approved by the Board at the end of 2015;

the performance of the executive;

compensation market practices as reflected by the Compensation Comparison Group in the most recent publicly available data;

our performance relative to the companies in our Compensation Comparison Group along with other companies in the property and casualty industry, with a particular emphasis on operating return on equity; and

the tenure and compensation history of the executive.

In determining these bonuses, the Compensation Committee also considered additional qualitative factors, such as:

the strategic positioning of the Company and the applicable business unit;

the progress made on strategic initiatives;

strong underlying underwriting profitability across the business segments;

the effective management of expenses;

the effective management of risk; and

the demonstration of leadership, teamwork and innovation.

As discussed below, the Compensation Committee generally weighs financial performance measures, particularly operating return on equity, and comparable compensation information more heavily than other factors. In particular, when assessing results, the Compensation Committee considers the Company's overall financial performance relative to prior years' performance, the financial plan, the performance of industry peers and, in the case of operating return on equity, the Company's cost of equity.

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The achievement, or inability to achieve, any particular financial or operational measure in a given year neither guarantees, nor precludes, the payment of an award, but is considered by the Compensation Committee as one of several factors among other factors noted and any additional information available to it at the time, including market conditions in general. The Compensation Committee does not use a formula or assign any particular relative weighting to any performance measure. As discussed under "Use of Operating Return on Equity and Other Metrics" on page 28, the Compensation Committee believes that a formulaic approach to compensation is not appropriate in the property and casualty industry and is not an appropriate substitute for the Compensation Committee's thorough deliberation and business judgment as it would not allow the Compensation Committee to assess the quality of the performance results and could result in negative unintended consequences. For example, a formulaic bonus plan tied to revenue growth (a common metric used in formulaic bonus plans) could create an incentive for management to relax the Company's underwriting or investment standards to increase revenue and reported profit on a short-term basis, thereby driving higher short-term bonuses, but create excessive risk for shareholders over the longer term. This is of particular concern in the property and casualty insurance industry due to the fact that the "cost of goods sold" (that is, the amount of insured losses) is not known at the time of sale and develops over time—in some cases over many years.

2016 Financial Metrics, Including Operating Return on Equity Target

In evaluating the foregoing factors, the Compensation Committee reviewed management's progress in meeting a broad range of financial and operational metrics included in the 2016 financial plan approved by the Board in December 2015. As discussed above, of the various financial metrics evaluated by the Compensation Committee, the Compensation Committee considered operating return on equity to be the most important metric in its evaluation of the Company's annual performance, and it reviewed other metrics in light of their contribution to the Company's return on equity goals.

Operating Return on Equity Target.    The Compensation Committee established in February 2016 specific targets for both: (1) operating return on equity; and (2) adjusted operating return on equity, which excludes catastrophes and prior year reserve development, if any, related

to asbestos and environmental coverages. In particular, the 2016 financial plan targeted: (1) an operating return on equity of 11.2% and (2) an adjusted operating return on equity of 13.9%.

One of management's important responsibilities is to produce an appropriate return on equity for our shareholders and to develop and execute financial and operational plans consistent with our financial goal of achieving a mid-teens operating return on equity over time. The Compensation Committee also recognizes, however, the historic cyclicality of our business and that there may be times when the operating return on equity achievable in a given year is greater than, or less than, a mid-teens level. The targeted returns for 2016 reflected the expectation that interest rates would remain at historically low levels. In addition, in evaluating the appropriateness of the targets set for return on equity, the Compensation Committee considers our return on equity relative to the Compensation Comparison Group and to the U.S. property and casualty industry generally and relative to our estimated cost of equity. This relationship to industry returns, over time, is described in the chart on page 25. As a result, when the Board approved our 2016 business plan, both management and the Board believed the plan to be reasonably difficult to achieve.

Notably, the Company's financial plan—and thus its targets—did not include any planned reserve development, positive or negative. The Company's actuarial estimates always reflect management's best estimates of ultimate loss as of the relevant date. As a result, when developing financial plans, the Company does not budget for, or target, prior year reserve development. Adjustments to actual adjusted operating return on equity for prior year reserve development related to asbestos and environmental coverages are made because, to a significant degree, those items relate to policies that were written decades ago and, particularly in the case of asbestos, arise to a significant extent as a result of court decisions and other trends that have attempted to expand insurance coverage far beyond what we believe to be the intent of the original parties. Accordingly, their financial impact is largely beyond the control of current management. The targets in the 2016 plan were similar to the targets in the 2015 plan and somewhat lower than the 2015 actual results because the 2016 plan assumed catastrophes at higher and more normalized levels as compared to 2015 and lower net investment income attributable to the continued and persistently low interest rate environment. In addition, the 2016 plan was lower than the 2015 actual results

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because 2015 actual results included positive prior year reserve development of $941 million ($617 million after-tax).

For 2016, our results compared to our targets were as follows:

Our operating return on equity was 13.3%, which was significantly higher than our target of 11.2%.

Our adjusted operating return on equity, excluding catastrophes and prior year reserve development related to asbestos and environmental coverages, was 16.4%, which was significantly higher than our target of 13.9%.

Other Financial Metrics.    The Senior Executive Performance Plan is a multiple metric plan. In determining annual cash bonuses to be paid to the named executive officers, the Compensation Committee evaluates the Company's performance with respect to not only operating return on equity, but also a broad range of other financial metrics including, among other things, operating income and operating income per diluted share and other metrics that contribute to those amounts, such as written and earned premiums, investment income, insurance losses and expense management. No one of these other financial metrics was individually material to 2016 compensation decisions.

The relevant targets for these other financial metrics were included in the 2016 financial plan approved by the Board at the end of 2015. The following table shows 2016 operating income and operating income per diluted share compared to the corresponding metrics contained in the Company's 2016 financial plan and to 2015 actual results.

                                 
    For the metrics below, 2016 actual results were higher than target, but lower than prior year results.    
    Metric

  2016
Actual


  2016
Target(1)


  2015
Actual


    Operating Income       $2.97B       $2.50B       $3.44B    
    Operating Income Per Diluted Share       $10.12       $8.46       $10.87    
(1)
As discussed above, the 2016 targets do not include any planned reserve development, either positive or negative, reflect lower net investment income attributable to the continued and persistently low interest rate environment and assume catastrophes at normalized levels.

Reasons for Performance in Excess of Financial Targets.    The Compensation Committee believes that the

Company's performance in 2016, which was substantially in excess of applicable targets, reflected among other things:

strong underlying underwriting performance;

favorable prior year reserve development not related to asbestos and environmental matters;

catastrophe losses that were slightly lower than amounts assumed in the 2016 financial plan;

a benefit from the successful settlement of a reinsurance dispute;

the favorable impact of the Company's capital management, particularly its share repurchase program; and

investment results that, while strong, were impacted by the continued low interest rate environment.

In addition, the Compensation Committee believes the results reflect strong performance relative to the U.S. property and casualty industry as a whole. In particular, the Company's return on equity of 12.5% in 2016 meaningfully exceeded the average return on equity for domestic property and casualty insurance companies, of approximately 5.5%, as estimated by the Insurance Information Institute.

Amount of 2016 Annual Cash Bonuses

At its February 2017 meeting, the Compensation Committee considered the quantitative and qualitative factors described above and the substantial contributions made by the named executive officers in exceeding the 2016 targets described above, including operating income of $2.97 billion, which while significantly exceeding the goal in the Company's financial plan was down from 2015, including as a result of, among other factors, higher weather-related losses and lower net investment income due to the continued and persistently low interest rate environment, two factors largely beyond our control.

The Compensation Committee believed that all of the named executive officers individually performed at superior levels and contributed substantially to our strong results. The Compensation Committee also placed significant weight on the fact that the Company's executive officers, including the named executive officers, were highly effective working as a team in driving the business over the long-term and

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particularly with respect to achieving the successful CEO transition.

With regard to Mr. Schnitzer, the Compensation Committee also considered the very successful completion of his first full year as CEO and the need to reposition his direct compensation in connection with the increased responsibilities of that role at about the median of the Compensation Comparison Group (based on 2015 compensation data, the most recent data publicly available). The Compensation Committee's determination that Mr. Schnitzer has performed very successfully in his first full year as CEO was based on a number of factors, including: (1) Mr. Schnitzer's successful day-to-day execution of the business; (2) the strong 2016 financial results as discussed above; (3) his stewardship of a successful transition, which inspired confidence among the Company's senior leadership team, its employees, and the Company's agent and broker partners; and (4) his leadership of the Company's strategic planning and initiatives responsive to a changing business environment—all aimed at positioning the Company to continue to deliver superior returns over time.

In light of the foregoing, the Compensation Committee determined in its judgment to award cash bonuses for the 2016 performance year as follows:

a cash bonus of $5.2 million to Mr. Schnitzer, which is $1.95 million higher than that awarded to him for performance year 2015; and

aggregate cash bonus of $9.525 million to Messrs. MacLean, Benet and Heyman, which is 7.5% lower than the bonuses awarded to them for performance year 2015.

Mr. Fishman's cash bonus for the 2016 performance year, which was paid in accordance with his employment agreement, decreased 68%, reflecting the change in his role from Chief Executive Officer to Executive Chairman, a proration of his bonus through the date of his death and the decline in the Company's operating income as discussed above.

Long-Term Stock Incentives

The Compensation Committee believes that the interests of executives and shareholders should be closely aligned. Accordingly, a significant portion of the total compensation for the named executive officers is in the form of stock-based long-term incentive awards that are designed to further our goals described under

"Objectives of Our Executive Compensation Program," including ensuring that our executive officers have a continuing stake in our long-term success and manage the business with a long-term, risk-adjusted perspective.

The Compensation Committee, with advice from its independent compensation consultant, has developed guidelines for the allocation of annual grants of equity compensation between performance shares and stock options. These allocations are intended to result in a mix of annual long-term incentives that is sufficiently performance-based and will result in (1) a large component of total compensation being tied to the achievement of specific, multi-year operating performance objectives and changes in shareholder value (performance shares); and (2) an appropriate portion being tied solely to changes in shareholder value (options). Under the guidelines, the mix of long-term incentives for the named executive officers is approximately 60% performance shares and 40% stock options, based on the grant date fair value of the awards. The mix of annual long-term incentive compensation reflects the Compensation Committee's judgment as to the appropriate balance of these incentives to achieve its objectives. While the aggregate grant date fair values of equity awards granted to the named executive officers take into account both individual and Company performance, the mix of equity incentives awarded annually is fixed and generally does not vary from year to year. For a description of the equity awards granted in calendar year 2016, refer to the "Tabular Executive Compensation Disclosure—Grants of Plan-Based Awards in 2016" on page 49.

At its February 2017 meeting, the Compensation Committee granted Mr. Schnitzer stock-based long-term incentive awards with a grant date fair value of $9 million, an increase of $4 million in light of the very successful completion of his first full year as CEO as discussed above and the need to reposition his compensation relative to our Compensation Comparison Group to reflect the increased responsibilities of that role. At the same meeting, the Compensation Committee granted stock-based incentive awards to Messrs. Benet and Heyman with a grant date fair value equal to the grant date value for 2015. The Compensation Committee granted stock-based incentive awards to Mr. MacLean with a grant date fair value of approximately $3.24 million, down $1.76 million from 2015. Mr. MacLean's awards for 2015 included approximately $1.76 million in additional equity awards granted in connection with Mr. MacLean's assumption

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of direct leadership of the Business and International Insurance segment and his role in the 2015 leadership transition. The Compensation Committee set the amounts of these incentive grants in order to position the total direct compensation for these named executive officers somewhat lower for 2016 performance as compared to 2015, reflecting the strong 2016 performance and the decline in the operating income year-over-year, in each case as discussed above. These equity awards, approved at the February 2017 meeting, will be reflected in the Summary Compensation Table in our Proxy Statement for our 2018 Annual Meeting.

As provided for by his employment agreement, in lieu of an equity grant in February 2017, Mr. Fishman's estate received a cash payment equivalent to the value of equity awards that would have been granted to him for 2016 performance. This cash payment for 2016 performance represents a 65% decrease from Mr. Fishman's equity award for 2015 performance, reflecting the change in Mr. Fishman's role from Chief Executive Officer to Executive Chairman and a proration of the award amount through the date of his death. This cash payment is reflected in the "Bonus" column of the Summary Compensation Table on page 47.

At its February 2016 meeting, the Compensation Committee granted Mr. Schnitzer stock-based long-term incentive awards with a grant date fair value of $5 million, an increase of $2.4 million in recognition of the change in his roles and responsibilities as a result of his promotion to CEO on December 1, 2015. Also, at its February 2016 meeting, the Compensation Committee granted Mr. Fishman stock-based long-term incentive awards with a grant date fair value of $11 million, an amount equal to his grant in the prior year. At the same meeting, the Compensation Committee granted Mr. MacLean stock-based long-term incentive awards with a grant date fair value of $5 million, an increase of approximately $1.76 million in recognition of his assumption of direct leadership of the Business and International Insurance segment and his commitment, support and guidance throughout the leadership transition in 2015, which he was uniquely positioned to provide as President and COO. The increase was in the form of stock options and restricted stock units. The Compensation Committee granted each of Mr. Benet and Mr. Heyman stock-based incentive awards with a grant date fair value of $2.625 million. The awards for

these named executive officers were 3.5 times the base salary for those officers at the end of 2015, the same multiple as in the prior year. The Compensation Committee set the amounts of such incentive grants in order to position the total direct compensation for these named executive officers at slightly lower compensation for 2015 performance as compared to 2014, while at the same time repositioning certain executive compensation levels in connection with Mr. Schnitzer's succession of Mr. Fishman as CEO. Given the Company's superior performance, these equity awards were also intended to position total direct compensation for the named executive officers for 2015 significantly above the median (in the top quartile) of the Compensation Comparison Group (based on 2014 compensation data, the most recent data publicly available at the time of grant).

The ultimate value of stock-based long-term incentive awards at the time of vesting or, in the case of stock options, exercise may be greater than or less than the grant date fair value, depending upon our operating performance and changes in the value of our stock price. The grant date fair values of long-term incentive awards are computed in accordance with the accounting standards described in footnote (2) to the Summary Compensation Table on page 47.

Performance Shares

Under our program for granting performance shares, we may grant performance shares to certain of our employees who hold positions of vice president (or its equivalent) or above, including the named executive officers. These awards provide the recipient with the right to receive a variable number of shares of our common stock based upon our attainment of specified performance goals discussed below. The performance goals for performance share awards granted in 2017 and 2016 are based upon our attaining various adjusted returns on equity over three-year performance periods commencing January 1, 2017 and ending December 31, 2019 and commencing January 1, 2016 and ending December 31, 2018, respectively (in each case, "Performance Period Return on Equity"). Performance Period Return on Equity represents the average of the "Adjusted Return on Equity" for each of the three calendar years in the Performance Period Return on Equity. The "Adjusted Return on Equity" for each calendar year is determined by dividing "Adjusted Operating Income" by "Adjusted Shareholders' Equity" for the year, as defined below.

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"Adjusted Operating Income", as defined in the Performance Share Awards Program, excludes the after-tax effects of:

specified losses from officially designated catastrophes,

asbestos and environmental reserve charges or releases,

net realized investment gains or losses in the fixed maturities and real estate portfolios,

extraordinary items, and

the cumulative effect of accounting changes and federal income tax rate changes, and restructuring charges, each as defined by GAAP and each as reported in our financial statements (including accompanying footnotes and management's discussion and analysis);

and is then reduced by the after-tax dollar amount for expected "normal" catastrophe losses. In the first year of the performance period, such expected "normal" catastrophe losses are represented by a fixed amount set forth in the terms of the performance shares ($620 million for 2016). In the two subsequent years of the performance period, such fixed amount for catastrophes is adjusted up or down by formula to reflect any increases or decreases, as the case may be, in written premiums in certain catastrophe-exposed commercial and personal lines.

"Adjusted Operating Income" is also reduced by an amount reflecting the historical level of credit losses (on an after-tax basis) associated with our fixed income investments. The Compensation Committee believes this reduction of "Adjusted Operating Income" is appropriate because credit losses in our fixed income portfolio are part of reported net income but not operating income and thus, absent making this reduction, would not be reflected in "Adjusted Operating Income". Specifically, for performance share awards granted in February 2017 and February 2016, the annual reduction is determined by multiplying a fixed factor (expressed as 2.25 basis points) by the amortized cost of the fixed maturity investment portfolio at the beginning of each quarter during the relevant year in the performance period and adding such amounts (on an after-tax basis) for each year in the performance period.

"Adjusted Shareholders' Equity" for each year in the performance period is defined in the Performance Share Awards Program as the sum of our total common shareholders' equity, as reported on our balance sheet as

of the beginning and end of the year (excluding net unrealized appreciation or depreciation of investments and adjusted as set forth in the immediately following sentence), divided by two. In calculating Adjusted Shareholders' Equity, our total common shareholders' equity as of the beginning and end of the year is adjusted to remove the cumulative after-tax impact of the following items during the performance period: (1) discontinued operations and (2) the adjustments and reductions made in calculating Adjusted Operating Income.

The Compensation Committee selected Performance Period Return on Equity as the performance measure in the Performance Share Plan because the Compensation Committee believes it is the best measure of return to shareholders and efficient use of capital over a multi-year period, as described further above under "Pay for Performance Philosophy and Objectives of Our Executive Compensation Program".

The Compensation Committee seeks to establish the Performance Period Return on Equity standards such that 100% vesting requires a level of performance over the performance period that is expected to be in the top tier of the industry. In considering what would constitute such top tier performance over a future three-year period, the Compensation Committee considers recent and historical trends in operating return on equity of the Company, the domestic property and casualty insurance industry, and our Compensation Comparison Group, as well as current and expected underwriting and investment market conditions, our business plan and the Company's cost of equity. For example, the Compensation Committee noted in respect of the performance shares granted in 2017 that the Performance Period Return on Equity of 10% that is required for 100% vesting would meaningfully exceed the average return on equity for the domestic property and casualty industry of 5.5%, as estimated by the Insurance Information Institute for 2016. Accordingly, while the Compensation Committee decided not to implement a formulaic calculation based on performance relative to other companies in the industry, which it believed could result in over or under compensation, it did set the Performance Period Return on Equity standards after considering the level of historical and expected performance that would constitute superior returns. See the chart on page 25, which shows historical returns on equity for the Company and the domestic property and casualty insurance industry. In addition, in establishing the Performance Period Return on Equity standards shown

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COMPENSATION DISCUSSION AND ANALYSIS

in the chart below, the Compensation Committee also considered our financial goal of achieving an operating return on equity in the mid-teens over time and that such an operating return on equity would, in its view, be reasonably difficult to achieve over the next three-year period. The Compensation Committee also considered that, because the Company's actuarial estimates reflect management's best estimates of ultimate loss as of the relevant date, the Company's future financial plans do not include any prior year reserve development, positive or negative.

For performance shares granted in 2017 and 2016, actual distributions are contingent upon our attaining Performance Period Return on Equity as indicated on the following chart. Performance falling between any of the identified points in the applicable chart below will result in an interpolated vesting percentage (for example, a Performance Period Return on Equity of 14% will yield a vesting of 115%).

Performance Shares Granted in 2017 and 2016: Performance Period Return on Equity Standards

       

Vesting
Percentage


 




Performance Period Return on
Equity for
Performance Shares
Granted in
2017 and 2016





    Maximum         150 %       ³16.0 %  
              140 %       15.5 %  
              130 %       15.0 %  
              120 %       14.5 %  
              110 %       13.5 %  
              100 %       10.0 %  
              75 %       8.5 %  
    Threshold         50 %       8.0 %  
              0 %       <8.0 %  

The performance shares are a long-term incentive intended to align a significant portion of our executives' compensation with return on equity objectives over time. The Compensation Committee from time to time makes adjustments to the Performance Period Return on Equity standards for a year's awards when, at the time of grant, it determines that there have been significant changes in the returns that it expects should constitute top tier performance.

For performance shares granted in 2017, the Compensation Committee decided not to make any changes to the Performance Period Return on Equity standards. This decision reflected the fact that, as in

2016, the Compensation Committee believes that returns that qualify as top tier performance over the next several years will continue to be somewhat lower than longer-term historical levels. In 2017, as in 2016, the Compensation Committee noted that:

interest rates were at or near historically low levels and, going forward, are expected to remain at very low levels for an extended period of time; and

the Performance Period Return on Equity required for 100% vesting meaningfully exceeds the Company's estimated cost of equity as of the beginning of the performance period.

The Committee also observed that the Performance Period Return on Equity required for 100% vesting exceeds the actual average return on equity for the domestic property and casualty industry for each of the last nine years as estimated by the Insurance Information Institute.

In granting future awards, the Compensation Committee intends to continue to review Performance Period Return on Equity standards in light of the then current operating environment and will consider further adjustments if, among other reasons, investment yields increase to more normal levels by historical standards.

To support our recruitment and retention objectives and to encourage a long term focus on our operations, the performance shares vest subject to both the satisfaction of the requisite performance goals and the participant meeting specified service period criteria. The program provides for accelerated vesting and/or waiver of service requirements in the event of death or disability or qualifying "retirement," as defined in the awards. In the event of a participant's voluntary termination for "good reason" or involuntary termination without "cause" within 24 months following a change in control of the Company, the service vesting requirements with respect to the 2017 performance share grants will be waived. Further, under his employment agreement, Mr. Schnitzer is entitled to conversion of all of his performance shares into time vesting awards upon a change in control and he is entitled to accelerated vesting of all of his equity awards in the event that his equity awards are not assumed by the surviving entity following a change in control or in the event of a voluntary termination for "good reason" or an involuntary termination without "cause" (each as defined in his employment letter) within 24 months

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following a change in control of the Company. These provisions are included to minimize the potential influence of the treatment of these equity awards in connection with a change in control on Mr. Schnitzer's and our other executives' decision-making process and to conform the terms of our program more closely to compensation practices among our peers. The Compensation Committee believes that these provisions will enhance Mr. Schnitzer's and our other executives' independence and objectivity when considering a potential transaction. These provisions are described in more detail under "Tabular Executive Compensation Disclosure—Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements—Mr. Schnitzer's Employment Letter".

New performance share cycles commence annually and overlap one another, helping to foster retention and reduce the impact of the volatility in compensation associated with changes in our annual return on equity performance. Dividend equivalent shares are paid only when and if performance shares vest, and are paid, in shares, at the same vesting percentage as the underlying performance shares.

The Compensation Committee awarded performance shares as follows:

Mr. Schnitzer—performance shares with a grant date fair value of $5.4 million in February 2017 and $3.0 million in February 2016.

Messrs. MacLean, Benet and Heyman—performance shares with grant date fair values ranging from approximately $1.6 million to $1.9 million in each of 2017 and 2016.

The number of performance shares granted is determined by dividing the grant date fair values by the closing price of our common stock on the date of grant ($118.78 and $106.03 for 2017 and 2016, respectively).

Payment of Performance Shares Granted for the 2014-2016 Period

In February 2017, the Compensation Committee reviewed and subsequently certified the results for the performance shares granted to the named executive officers in 2014. Payout of shares under these performance share awards was subject to attaining specified adjusted returns on equity over the three-year performance period commencing on January 1, 2014 and ending on December 31, 2016. The adjusted operating return on equity for such performance period was 14.7%, which resulted in the vesting of the performance shares at 124%.

Stock Options

All stock options are granted with an exercise price equal to the closing price of the underlying shares on the date of grant. Our annual award of stock options generally vests 100% three years after the date of grant and has a maximum expiration date of ten years from the date of grant. Following a change of control, Mr. Schnitzer has been, and, beginning with respect to stock options granted in February 2017, other executive officers are, entitled to accelerated vesting of their stock options under the corresponding situations, and for the same reasons, described above with respect to their performance shares.

Under the Amended and Restated 2014 Stock Incentive Plan (the "2014 Stock Incentive Plan"), stock options cannot be "repriced" unless such repricing is approved by our shareholders.

The Compensation Committee awarded stock options as follows:

Mr. Schnitzer—stock options with a grant date fair value of $3.6 million in February 2017 and $2.0 million in February 2016.

Messrs. MacLean, Benet and Heyman—stock options with grant date fair values ranging from approximately $1.1 million to $1.3 million and $1.1 million to $2.0 million, in February 2017 and 2016, respectively.

Other Compensation

Pension Plans

We provide retirement benefits as part of a competitive pay package to retain employees. Specifically, we currently offer all of our U.S. employees a tax-qualified defined benefit plan with a cash-balance formula, with some grandfathered participants accruing benefits under a final average pay formula. Also, a number of

employees and executives participate or have accrued benefits in other pension plans which are frozen as to new participants and/or new accruals. Under the cash-balance formula, each enrolled employee has a hypothetical account balance which grows with interest and pay credits each year.

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In addition, we sponsor a non-qualified excess benefit retirement plan that covers all U.S. employees whose tax-qualified plan benefit is limited by the Internal Revenue Code with respect to the amount of compensation that can be taken into account under a tax-qualified plan. The non-qualified plan makes up for the benefits that cannot be provided by the qualified plan as a result of those Internal Revenue Code limits by using the same cash-balance pension formula that applies under the qualified plan. The purpose of this plan is to ensure that employees who receive retirement benefits only through the qualified cash balance plan and employees whose qualified plan benefit is limited by the Internal Revenue Code are treated substantially the same. The details of the existing plans are described more fully under "Tabular Executive Compensation Disclosure—Post-Employment Compensation—Pension Benefits for 2016" on page 54.

Deferred Compensation

In the United States, we offer a tax-qualified 401(k) plan to all of our employees and a non-qualified deferred compensation plan to employees who hold positions of vice president or above. Both plans are available to the named executive officers.

The non-qualified deferred compensation plan allows an eligible employee to defer receipt of a portion of his or her salary and/or annual bonus until a future date or dates elected by the employee. This plan provides an additional vehicle for employees to save for retirement on a tax-deferred basis.

The deferred compensation plan is not funded by us and does not provide preferential rates of return. Participants have only an unsecured contractual commitment by us to pay amounts owed under that plan.

For further details, see "Tabular Executive Compensation Disclosure—Post-Employment Compensation—Non-Qualified Deferred Compensation for 2016" on page 57.

Other Benefits

We also provide other benefits described below to our named executive officers, which are not tied to any performance criteria. Rather, these benefits are intended to support objectives related to the attraction and retention of highly skilled executives and to ensure that they remain appropriately focused on their job responsibilities without unnecessary distraction.

Personal Security

We have established a security policy in response to a study prepared by an outside consultant that analyzed security risks to our CEO based on a number of factors, including travel patterns and past security threats. This security policy is periodically reviewed by an outside security consultant. In accordance with the security policy, a Company car and driver or other ground transportation arrangements are provided to our CEO for business and personal travel. These ground transportation services provide security for our CEO and enable him to conduct business on behalf of the Company while in transit. The methodologies we use to value the personal use of a Company car and driver and other ground transportation arrangements as a perquisite are described in footnote (6) to the Summary Compensation Table. In 2016, the aggregate incremental cost for personal use of a Company car and driver and other ground transportation provided pursuant to our security policy was $13,591 for Mr. Schnitzer.

In accordance with the security policy, our CEO uses our aircraft for business and personal air travel. Use of our Company aircraft provides the necessary security for our CEO and enables him to be immediately available to respond to business priorities from any location and to use his travel time productively for the Company's benefit. Our CEO reimburses the Company for personal travel on our aircraft in an amount equal to the incremental cost to the Company associated with such personal travel, provided that the amount does not exceed the maximum amount legally payable under FAA regulations, in which case our CEO reimburses such maximum amount.

Our CEO is responsible for all taxes due on any income imputed to him in connection with his personal use of Company-provided transportation.

In addition, under the security policy described above, we provide our CEO with additional home security enhancements and other protections. The methodology we use to value the incremental costs of providing additional home security enhancements and other protections to our CEO is the actual cost to us of the installation of home security and other equipment and any other incremental related expenses. In 2016, the aggregate incremental cost of security was $50,491 for Mr. Schnitzer. We provided similar personal security benefits to Mr. Fishman prior to his death based on a similar security study and rationale. For further details, see footnote (6) to the Summary Compensation Table.

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Other Transportation on Company Aircraft

We also on occasion provide transportation on Company aircraft for spouses or others, although under SEC rules, such spousal or other travel may not always be considered to be directly and integrally related to our business. Consistent with past practice, we only reimburse the named executive officers for any tax liabilities incurred with respect to travel by spouses or others if such travel is considered directly and integrally related to business.

Health Benefits; Treatment of Higher Paid and Lower Paid Employees

We subsidize health benefits more heavily for lower paid employees as compared to higher paid employees, such as the named executive officers. Accordingly, our higher paid employees pay a significantly higher percentage of the cost of their health benefits than our lower paid employees.

Compensation Comparison Group

Our Compensation Comparison Group includes:

our key competitors in the property and casualty insurance industry; and

general financial services and life and health insurance companies that in general are of relatively similar size and complexity. We regard these general financial services and life and health insurance companies as potential competition for executive talent.

The Compensation Comparison Group consisted of the following companies in the property and casualty insurance business:

Allstate Corporation

Chubb Ltd.

Hartford Financial Services Group

Progressive Corporation

The Compensation Comparison Group also included the following general financial services and life and health insurance companies:

Aetna, Inc.

American Express

CIGNA Corporation

Manulife Financial Corporation

MetLife Inc.

Prudential Financial Inc.

As of December 31, 2016, Travelers was in approximately the 30th percentile of the Compensation Comparison Group based on assets, the 20th percentile based on revenues and the 40th percentile based on market capitalization.

The Compensation Comparison Group has not changed since 2009 (aside from the merger of Ace Ltd. and Chubb Corporation in January 2016); however, the Compensation Committee reviews the composition of our peer group annually to ensure that the companies constituting the peer group continue to provide meaningful and relevant compensation comparisons.

Non-Competition Agreements

All members of our Management Committee, including the named executive officers, have signed non-competition agreements. The agreements provide that, upon an executive's termination of employment, we may elect to, and in the event of Mr. Schnitzer's voluntary termination for "good reason" or involuntary termination without "cause" within the 24-month period following a change in control, we have elected to, impose a six-month non-competition obligation upon the executive that would preclude the executive, subject to limited exceptions, from (1) performing services for or having any ownership interest in any entity or business unit that is primarily engaged in the property and casualty insurance business or (2) otherwise engaging in the property and casualty insurance business. This restriction will apply in the United States and any other

country where we are physically present and engaged in the property and casualty insurance business as of the executive's termination date.

If we elect to enforce the non-competition terms, and the executive complies with all of the obligations under the agreement, then the executive will be entitled to:

receive a lump sum payment at the end of the six-month restricted period equal to the sum of (1) six months base salary plus (2) 50% of the executive's average annual bonus for the prior two years plus (3) 50% of the aggregate grant date fair value of the executive's average annual equity awards for the prior two years; and

reimbursement for the cost of continuing health benefits on similar economic terms as in place

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immediately prior to the executive's termination date during the six-month non-competition period or

payment of an equivalent amount, payable at the end of the six-month restricted period.

Severance and Change in Control Agreements

All of our current senior executives, other than Mr. Schnitzer, are covered by our severance plan. Mr. Schnitzer's letter agreement, discussed at greater length below under "Tabular Executive Compensation Disclosure—Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements" on page 61, contains severance benefits that are triggered under some circumstances, including some circumstances related to a change in control of the Company.

Each of our named executive officers, other than Mr. Schnitzer, has entered into an agreement with us pursuant to which the named executive officer is granted enhanced severance benefits in exchange for agreeing to non-solicitation and non-disclosure provisions. Under the terms of such agreements, these named executive officers are eligible to receive a severance benefit if they are involuntarily terminated due to a reduction in force or for reasons other than cause or if they are asked to take a substantial demotion. The terms of these agreements, including a description of the severance package included in Mr. Kess's offer letter, are described more fully under "Tabular Executive Compensation Disclosure—Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements" on page 61. In addition, based on the advice of its compensation

consultant and consistent with market practice, the equity awards made in February 2017, including those made to the named executive officers, provide for protection in the event of a voluntary termination for "good reason" or an involuntary termination without "cause" within 24 months of a change in control.

The Compensation Committee believes that these severance agreements and, in some circumstances, change in control arrangements are necessary to attract and retain the talent necessary for our long-term success. The Compensation Committee also believes that these severance and change in control programs allow our executives to focus on duties at hand and provide security should their employment be terminated as a result of an involuntary termination without cause or a constructive discharge or following a change of control, as applicable. For these reasons, and based on advice of the Compensation Committee's independent compensation consultant, the Compensation Committee believes that these arrangements are appropriate and consistent with similar provisions agreed to by members of our Compensation Comparison Group and their executive officers.

None of the severance and change in control agreements with the named executive officers include excise tax gross-up protections.

Stock Ownership Guidelines, Anti-Hedging and Pledging Policies, and Other Trading Restrictions

We maintain an executive stock ownership policy under which executives are expected to accumulate and retain specified levels of ownership of our equity securities until termination of employment, so as to further align the interests of management and shareholders. The Compensation Committee developed this policy based in part on an analysis of policies instituted at our peer competitors. Under the policy, the CEO has a target ownership level established as the lesser of 150,000 shares or the equivalent value of 500% of base salary. Vice Chairmen and Executive Vice Presidents have target ownership levels established as the lesser of 30,000 shares or the equivalent value of 300% of base salary, and senior vice presidents have target ownership levels established as the lesser of 5,000 shares or the equivalent value of 100% of base salary. Executives who have not achieved these levels of stock ownership are expected to retain the shares acquired upon exercising stock options or upon the vesting of restricted stock, restricted stock

units or performance shares (other than shares used to pay the exercise price of options and withholding taxes) until the requirements are met.

The stock ownership levels of all persons subject to this policy are calculated on a quarterly basis. In determining an executive's share ownership level, the following are included:

100% of shares held directly by the executive;

100% of shares held indirectly through our 401(k) Savings Plan or deferred compensation plan;

50% of unvested performance shares (assuming 100% of the performance shares will vest); and

a number of shares with a market value equal to 50% of any unrealized appreciation in stock options, whether vested or unvested.

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As of December 31, 2016, each of our existing named executive officers was in compliance with our stock ownership policy.

We have a securities trading policy that sets forth guidelines and restrictions applicable to employees' and directors' transactions involving our stock. Among other things, this policy prohibits our employees and directors from engaging in short-term or speculative transactions involving our stock, including purchasing our stock on

margin, short sales of our stock (that is, selling stock that is not owned and borrowing shares to make delivery), buying or selling puts, calls or other derivatives related to our stock and arbitrage trading or day trading of our stock. Directors and executive officers are not allowed to pledge Company stock without the consent of the Company, and no shares beneficially owned by them are pledged.

Recapture/Forfeiture Provisions

Our Board has adopted a policy requiring the reimbursement and/or cancellation of all or a portion of any incentive cash bonus or stock-based incentive compensation awarded after February 1, 2010 to members of our Management Committee or other officers who are subject to Section 16 of the Exchange Act when the Compensation Committee has determined that all of the following factors are present:

the award and/or payout of an award was predicated upon the achievement of financial results that were subsequently the subject of a restatement;

the employee engaged in fraud or willful misconduct that was a significant contributing factor in causing the restatement; and

a lower award and/or payout of an award would have been made to the employee based upon the restated financial results.

Incentive compensation will be granted subject to the policy that, in each such instance described above, the Company will, to the extent permitted by applicable law and subject to the discretion and approval of the Compensation Committee, taking into account such facts and circumstances as it deems appropriate, including the costs and benefits of doing so, seek to recover the employee's cash bonus and/or stock-based incentive compensation paid or issued to the employee in excess of the amount that would have been paid or issued based on the restated financial results. If the Compensation Committee determines, however, that, after recovery of an excess amount from an employee, the employee is nonetheless unjustly enriched, it may seek recovery of more than such excess amount up to the entire amount of the bonus or other incentive compensation.

In addition, under the terms of our executive performance share and stock option award agreements,

in the event that the employment of an executive, including the named executive officers, is terminated for gross misconduct or for cause, as determined by the Compensation Committee, all outstanding vested and unvested awards are cancelled upon his or her termination.

Further, in connection with equity awards, the named executive officers and other recipients of equity awards are parties to an agreement that provides for the forfeiture of unexercised or unvested awards and the recapture by us of any compensatory value, including any amount included as compensation in his or her taxable income, that the former executive received or realized by way of payment, exercise or vesting during the period beginning 12 months prior to the date of termination of employment with us, and ending 12 months after the date of the termination of employment with us, if during the 12-month period following his or her termination, the executive:

(1)
fails to keep all confidential information strictly confidential;

(2)
uses confidential information to solicit or encourage any person or entity that is a client, customer, policyholder, vendor, consultant or agent of ours to discontinue business with us after accepting a position with a direct competitor;

(3)
is directly and personally involved in the negotiation or solicitation of the transfer of business away from us; or

(4)
solicits, hires or otherwise attempts to affect the employment of any person employed by us at any time during the last three months of the executive's employment or thereafter, without our consent.

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Timing and Pricing of Equity Grants

The Compensation Committee typically makes annual awards of equity at its meeting held in early February, which is set in advance as part of the Board's annual calendar of scheduled meetings. The Compensation Committee has in the past, and may in the future, make limited grants of equity on other dates in order to retain key employees, to compensate an employee in connection with a promotion or to compensate newly hired executives for equity or other benefits lost upon termination of their previous employment or to otherwise induce them to join us. Under our Governance Guidelines, the Compensation Committee may make off-cycle equity grants only on previously determined dates in each calendar month, which will be either (1) the date of a regularly scheduled Board or Compensation Committee meeting, (2) the next succeeding 15th day of the calendar month (or if the 15th is not a business day, the business day immediately preceding the 15th) or (3) in the case of grants in connection with new hires and/or promotions, on, or within 15 days of, the first day of employment or other personnel change. The grant date of equity grants to executives is the date of Compensation Committee approval. As discussed above, the exercise price of option grants is the closing market price of our common stock on the date of grant.

As discussed under "Board of Directors Information—Compensation Committee" on page 6, the Compensation Committee has delegated to the CEO, subject to the prior written consent of our Executive Vice President and General Counsel, the authority to make limited "off-cycle" grants to employees who are not Committee Approved Officers on the grant dates established by our Governance Guidelines. For these grants, as discussed above, the grant date is the date of such approval, and the exercise price of all stock options is the closing market price of our common stock on the date of grant.

Under the 2014 Stock Incentive Plan, stock options cannot be "repriced" unless such repricing is approved by our shareholders. See "Governance of Your Company—Dating and Pricing of Equity Grants" on page 14.

We monitor and periodically review our equity grant policies to ensure compliance with plan rules and applicable law. We do not have a program, plan or practice to time our equity grants in coordination with the release of material, non-public information.

Shareholder Engagement

Management has had numerous conversations with investors about compensation and governance practices, and management has reported on those conversations to the Compensation Committee. Specifically, during 2016, management contacted our largest shareholders and received feedback from beneficial owners of shares aggregating over 35% of our outstanding shares in which shareholders were generally supportive of our compensation program. After considering our conversations with investors and the results of the

shareholder advisory vote on executive compensation in 2016, pursuant to which more than 82% of the shares voting "FOR" or "AGAINST" at the meeting voted in favor of the compensation paid to our named executive officers, the Compensation Committee concluded that our executive compensation programs are performing as intended and, consistent with the advice of its independent compensation consultant, determined not to make changes to the core structure of our executive compensation programs.

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Total Direct Compensation for 2014-2016 (Supplemental Table)

The following table shows for those named executive officers who were named executive officers in both 2016 and 2015 the base salary actually earned during each of the last three years as well as annual cash bonuses paid and equity awards granted to such officers in the following February in respect of the immediately preceding performance year. Mr. Kess is not included in the table because his employment with Travelers did not commence until December 2016.

 
  Name
   
  Salary
($)

   
  Bonus
($)

   
  Equity
Awards
($)

   
  Total
($)

   
  Increase
(Decrease)
from
Prior
Year
(%)

   
    A.D. Schnitzer                                                    
        2016         1,000,000         5,200,000         9,000,000         15,200,000       67    
        2015         853,448         3,250,000         5,000,000         9,103,448       43    
        2014         750,000         3,000,000         2,625,000         6,375,000       3    
    J.S. Fishman                                                    
        2016         553,831         6,125,000         0         6,678,831       (65)    
        2015         1,000,000         7,100,000         11,000,000         19,100,000       (2)    
        2014         1,000,000         7,500,000         11,000,000         19,500,000       0    
    J.S. Benet                                                    
        2016         825,096         2,775,000         2,625,000         6,225,096       (2)    
        2015         750,000         3,000,000         2,625,000         6,375,000       (3)    
        2014         750,000         3,200,000         2,625,000         6,575,000       0    
    B.W. MacLean                                                    
        2016         962,548         3,700,000         3,237,500         7,900,048       (20)    
        2015         925,000         4,000,000         5,000,000         9,925,000       22    
        2014         925,000         4,000,000         3,237,500         8,162,500       0    
    W.H. Heyman                                                    
        2016         825,096         3,050,000         2,625,000         6,500,096       (3)    
        2015         750,000         3,300,000         2,625,000         6,675,000       (3)    
        2014         750,000         3,500,000         2,625,000         6,875,000       0    

The Purpose Behind This Supplemental Table

This Supplemental Table has been included to provide investors with additional compensation information for

the last three performance years. As part of reaching its compensation decisions for a performance year, the Compensation Committee refers to this data. Accordingly, this supplemental information enables investors to better understand the actions of the Compensation Committee with respect to total direct compensation for a performance year. This Supplemental Table is not, however, intended to be a substitute for the information provided in the Summary Compensation Table on page 47, which has been prepared in accordance with the SEC's disclosure rules.

The Differences Between this Supplemental Table and the Summary Compensation Table

The information contained in this Supplemental Table differs substantially from the total direct compensation information contained in the Summary Compensation Table for the relevant year because the stock awards and option awards columns for a particular year in the Summary Compensation Table on page 47 report awards actually granted in that calendar year (not equity awards granted in respect of that performance year). For example, for 2016, the Summary Compensation Table on page 47 includes awards made in February 2016 in respect of the 2015 performance year, but does not include awards made in February 2017 in respect of the 2016 performance year. On the other hand, the "2016" rows in the Supplemental Table presented above include stock-based grants made in February 2017 in respect of the 2016 performance year and not the stock-based grants made in February 2016 in respect of the 2015 performance year.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has discussed and reviewed the foregoing Compensation Discussion and Analysis with management. Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K.

Submitted by the Compensation Committee of the Company's Board of Directors:

Donald J. Shepard (Chair)
Kenneth M. Duberstein
Cleve L. Killingsworth Jr.
Laurie J. Thomsen

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TABULAR EXECUTIVE COMPENSATION DISCLOSURE

Summary Compensation Table

The following table provides summary information concerning compensation paid or accrued by us to or on behalf of our Chief Executive Officer, our former Executive Chairman of the Board (who was our Chief Executive Officer through November 2015), our Vice Chairman and Chief Financial Officer and each of our three other most highly compensated executive officers who served in such capacities at December 31, 2016. We refer to these individuals collectively as the "named executive officers".

 
  Name and
Principal Position

   
  Year
   
  Salary
($)

   
  Bonus
($)(1)

   
  Stock
Awards
($)(2)

   
  Option
Awards
($)(3)

   
  Non-Equity
Incentive Plan
Compensation
($)(4)

   
  Change in
Pension Value
and
Non-Qualified
Deferred
Compensation
Earnings
($)(5)

   
  All Other
Compensation
($)(6)

   
  Total
($)

   

 

 

Alan D. Schnitzer

      2016         1,000,000         0         3,000,013         2,000,015         5,200,000         280,194         77,897         11,558,119    

 

 

    Chief Executive Officer

      2015         853,448         0         1,575,012         1,049,991         3,250,000         146,295         70,205         6,944,951    

 

          2014         750,000         0         1,575,021         1,050,206         3,000,000         248,155         6,000         6,629,382    

 

 

Jay S. Fishman

      2016         553,831         3,825,000         6,600,049         4,400,049         2,300,000         N/A         102,913         17,781,842    

 

 

    Former Executive

      2015         1,000,000         0         6,600,036         4,399,979         7,100,000         703,069         210,349         20,013,433    

 

 

    Chairman of the Board

      2014         1,000,000         0         6,600,029         4,400,878         7,500,000         848,456         86,018         20,435,381    

 

 

Jay S. Benet

      2016         825,096         0         1,574,970         1,050,005         2,775,000         365,569         9,722         6,600,362    

 

 

    Vice Chairman and

      2015         750,000         0         1,575,012         1,049,991         3,000,000         332,979         6,000         6,713,982    

 

 

    Chief Financial Officer

      2014         750,000         0         1,575,021         1,050,206         3,200,000         399,713         10,392         6,985,332    

 

 

Brian W. MacLean

      2016         962,548         0         3,000,013         2,000,015         3,700,000         467,342         13,335         10,143,253    

 

 

    President and Chief

      2015         925,000         0         1,942,547         1,294,992         4,000,000         396,461         13,673         8,572,673    

 

 

    Operating Officer

      2014         925,000         0         1,942,461         1,295,263         4,000,000         511,741         10,622         8,685,087    

 

 

William H. Heyman

      2016         825,096         0         1,574,970         1,050,005         3,050,000         361,806         7,929         6,869,806    

 

 

    Vice Chairman and

      2015         750,000         0         1,575,012         1,049,991         3,300,000         355,060         6,000         7,036,063    

 

 

    Chief Investment Officer

      2014         750,000         0         1,575,021         1,050,206         3,500,000         341,172         6,000         7,222,399    

 

 

Avrohom J. Kess
Vice Chairman and
Chief Legal Officer

      2016         3,257         500,000         3,000,025         499,892         0         0         4,711,730         8,714,904    
(1)
As described in "Compensation Discussion and Analysis—Total Direct Compensation—Long-Term Stock Incentives", as provided for by his employment agreement, in lieu of an equity grant, Mr. Fishman's estate received a cash payment equivalent to the value of equity awards that he would have been eligible to receive for 2016 performance. In addition, in connection with the commencement of his employment with the Company in December 2016, Mr. Kess was awarded a $500,000 cash bonus. Performance-based annual cash bonuses are reported in the "Non-Equity Incentive Plan Compensation" column.

(2)
Stock awards for 2016 for Messrs. MacLean and Kess include restricted stock units with grant date fair values of $1,057,543 and $3,000,025, respectively. The dollar amounts represent the aggregate grant date fair value of stock awards granted during each of the years presented. The grant date fair value of an award is measured in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 718, Compensation—Stock Compensation ("ASC Topic 718") using the assumptions discussed in Note 13 to our financial statements for the fiscal year ended December 31, 2016 included in the Company's Annual Report on Form 10-K filed with the SEC on February 16, 2017 (the "Form 10-K"), without taking into account estimated forfeitures. With respect to the performance shares, the estimate of the grant date fair value determined in accordance with FASB ASC Topic 718 assumes the vesting of 100% of the performance shares awarded. Assuming the highest level of performance is achieved (which would result in the vesting of 150% of the performance shares granted), the aggregate grant date fair value of the performance shares reflected in the table above would be:

Name

    2016     2015     2014
 

Alan D. Schnitzer

  $ 4,500,019   $ 2,362,571   $ 2,362,531  

Jay S. Fishman

  $ 9,900,127   $ 9,900,106   $ 9,900,084  

Jay S. Benet

  $ 2,362,454   $ 2,362,571   $ 2,362,531  

Brian W. MacLean

  $ 2,913,704   $ 2,913,873   $ 2,913,732  

William H. Heyman

  $ 2,362,454   $ 2,362,571   $ 2,362,531  

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TABULAR EXECUTIVE COMPENSATION DISCLOSURE

(3)
The dollar amounts represent the aggregate grant date fair value of stock option awards granted during each of the years presented. The grant date fair value of an option award is measured in accordance with FASB ASC Topic 718 using the assumptions discussed in Note 13 to our financial statements for the fiscal year ended December 31, 2016 included in the Company's Form 10-K, without taking into account estimated forfeitures. For a discussion of specific stock option awards granted during 2016, see "Grants of Plan-Based Awards in 2016" below and the narrative discussion that follows.

(4)
Reflects annual cash incentive compensation paid in 2017 for performance year 2016, cash incentive compensation paid in 2016 for performance year 2015 and cash incentive compensation paid in 2015 for performance year 2014, respectively. For a discussion of the Company's Senior Executive Performance Plan, see "Compensation Discussion and Analysis—Total Direct Compensation—Annual Cash Bonus".

(5)
These amounts represent the aggregate change in actuarial present value of accumulated pension benefits for each of the years presented, using the same pension plan measurement date used for financial statement reporting purposes. We do not provide any of our executives with any above-market or preferential earnings on non-qualified deferred compensation. Mr. Fishman's pension benefits were distributed upon his death pursuant to the terms of the pension plans in which he was a participant. For additional information about these distributions, see "Pension Benefits for 2016" below.

(6)
For 2016, "All Other Compensation" for Mr. Schnitzer and Mr. Fishman includes $13,591 and $19,640, respectively, for personal use of a Company car and driver and other ground transportation arrangements, in each case calculated as described below, and $50,491 and $61,299, respectively, of personal security expenses incurred on their behalf pursuant to the Company's executive security program.

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Grants of Plan-Based Awards in 2016

The following table provides information on stock awards and stock options granted in 2016 to each of our named executive officers.

 

                    Estimated Future
Payouts Under
Non-Equity
Incentive Plan
Awards
        Estimated Future Payouts
Under Equity Incentive
Plan Awards(2)
        All Other
Stock
Awards:
Number of
Shares of
Stock or
        All Other
Option
Awards:
Number of
Securities
Underlying
        Exercise or
Base Price
of Option
        Grant Date
Fair Value
of Stock and
   
 

 

 
Name
        Grant
Date
      Target
($)(1)
        Threshold
(#)
        Target
(#)
        Maximum
(#)
        Units(3)
(#)
        Options
(#)(4)
        Awards
($/Sh)
        Option Awards
($)(5)
   

 

 

A.D. Schnitzer

        2/02/2016                 14,147         28,294         42,441                                       3,000,013    

 

            2/02/2016                                                         150,829         106.03         2,000,015    

 

                    N/A                                                                          

 

 

J.S. Fishman

        2/02/2016                 31,124         62,247         93,371                                       6,600,049    

 

            2/02/2016                                                         331,825         106.03         4,400,049    

 

                    N/A                                                                          

 

 

J.S. Benet

        2/02/2016                 7,427         14,854         22,281                                       1,574,970    

 

            2/02/2016                                                         79,185         106.03         1,050,005    

 

                    N/A                                                                          

 

 

B.W. MacLean

        2/02/2016                 9,160         18,320         27,480                                       1,942,470    

 

            2/02/2016                                                         150,829         106.03         2,000,015    

 

            2/02/2016                                               9,974                             1,057,543    

 

                    N/A                                                                          

 

 

W.H. Heyman

        2/02/2016                 7,427         14,854         22,281                                       1,574,970    

 

            2/02/2016                                                         79,185