Governance Practices: Board & Executive Compensation

Our director and executive compensation programs are designed to reinforce a long-term perspective and to align the long-term interests of our executives and directors with those of our shareholders.

Director compensation highlights

Under the director compensation program, nonmanagement directors currently receive more than 50% of their annual board and committee chair 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, aligning director interests with those of long-term shareholders.
Nonmanagement directors are required to accumulate and retain a level of ownership of Travelers equity securities equal to four times the director’s most recent annual deferred stock award.
The Nominating and Governance Committee reviews the appropriateness of the director compensation program at least once every two years.

Executive compensation highlights

With our pay-for-performance philosophy and compensation objectives as our guiding principles, we deliver annual executive compensation through the following elements:

Element		Metrics
Fixed	Base Salary	Base salaries are appropriately aligned with the Compensation Comparison Group.
Performance-Based Cash	Annual Cash Bonus	The Compensation Committee evaluates a broad range of financial and nonfinancial metrics in awarding performance-based incentives. Core return on equity is a principal factor in the Compensation Committee’s evaluation of the company’s performance. The Committee also considers other metrics, including core income and core income per diluted share, and the metrics that contribute to those results.
Performance-Based Equity	Long-Term Stock Incentives	Annual awards of stock-based compensation are typically in the form of stock options and performance shares. Because our performance shares only vest if specified core return on equity thresholds are met, and because stock options provide value only if our stock price appreciates, the Compensation Committee believes that such compensation is all performance-based. The mix of long-term incentives for the CEO and other named executive officers is 60% performance shares and 40% stock options, based on the grant date fair value of the awards.

Our executive compensation program links compensation to the achievement of our short-term and long-term financial goals and strategic objectives.
As part of our long-standing pay-for-performance philosophy, we utilize performance measures that are intended to align compensation with the creation of shareholder value and reinforce a long-term perspective.
The Compensation Committee believes that the most senior executives, who are responsible for the development and execution of our strategic and financial plans, should have the largest portion of their compensation tied to performance-based incentives, including stock-based compensation, the ultimate value of which is dependent on the performance of our stock price over time and our three-year core return on equity. Accordingly, the proportion of total compensation that is performance based increases with successively higher levels of responsibility.
Our executive compensation program reflects established and evolving corporate governance standards, including:
- A maximum cash bonus opportunity with regard to our CEO.
- A robust share ownership requirement of six times base salary for the CEO, three times base salary for vice chairmen and executive vice presidents and the equivalent of base salary for senior vice presidents.
- A clawback policy with respect to cash and equity incentive awards to our executive officers.
- The prohibition of hedging transactions as specified in our securities trading policy.
- The prohibition of pledging shares without the consent of Travelers (no pledges have been made).

For more detail regarding our executive compensation program, see the Compensation Discussion and Analysis section of our Proxy Statement.

More about governance practices

Approach

The Board of Directors and management of Travelers are committed to implementing sound corporate governance practices with the goal of ensuring that the company operates ethically and with integrity and is managed to maximize the long-term interests of its shareholders.

Board independence & diversity

The Board of Directors seeks to ensure that it is composed of members whose particular expertise, qualifications, attributes and skills, when taken together, allow the Board to satisfy its oversight responsibilities effectively.