Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Tower Group International, Ltd. | d338427d8k.htm |
 1.
Supplementary
Materials
with
Respect
to
Shareholder
Advisory
Vote
to
Approve
the
Company’s
Executive
Compensation
April
20,
2012
Exhibit 99.1 |
 1
Overview
At
the
Annual
Meeting
of
Stockholders
of
Tower
Group,
Inc.
(“Tower”
or
the
“Company”)
on
May
3,
2012,
Tower’s
stockholders
will
vote
on
an
advisory
basis
on
the
Company’s
executive
compensation
as
described
in
the
Proxy
Statement.
At
last
year’s
Annual
Meeting
of
Stockholders,
more
than
95%
of
the
shares
were
cast
in
support
of
the
Company’s
executive
compensation
programs
and
policies.
This
year,
ISS
Proxy
Advisory
Services
(“ISS”)
has
recommended
an
advisory
vote
against
the
Company’s
executive
compensation.
Within
the
following
pages:
•
The
key
elements
and
approach
of
Tower’s
executive
compensation
program
are
quantified,
and
•
We
will
detail
our
performance
against
our
peers
and
the
criteria
we
believe
should
be
used
to
determine
management
performance
and
compensation. |
 2
Key Elements of Tower’s Executive Compensation Program
Tower’s approach to employee compensation is based on its
pay-for-performance philosophy.
As described in the Company’s Proxy Statement, the key elements of
compensation for each Named Executive Officer are base salary, annual bonus,
stock-based incentives and retirement and other benefits.
The annual bonus and stock-based incentive are determined based primarily
on the extent to which the Company achieves targets in four performance
metrics: •
Adjusted operating return on equity
•
Gross premiums written and produced
•
Combined ratio, and
•
Growth in diluted book value per share
For 2011, the target metrics and actual results were as follows:
LOW
MID
HIGH
MAX
ACTUAL
Operating ROE
6.8%
8.6%
10.7%
12.8%
5.4%
GPW and Produced
1.377
1.53
1.8
2.16
1.811
Combined Ratio
99.1%
97.1%
94.1%
91.7%
100.1%
Growth DBVPS
4.5%
5.7%
7.2%
8.7%
5.1%
2011 Bonus Targets and Actual Results Achieved |
 3
Key Elements of Tower’s Executive Compensation Program
The process for determining executive compensation includes an assessment of
the performance of the Company and each Named Executive Officer and a
comparison of compensation for executives at peer companies.
•
For
determining
2011
compensation,
the
Committee
defined
this
peer
group
as
the
set
of
14
publicly
traded
comparable
property
and
casualty
insurance
companies
listed
below.
•
This
list
was
selected
after
discussion
with
an
executive
compensation
consulting
firm
and
management. |
 4
2011 Results Under Tower’s Executive Compensation Program
As can be seen by the chart below, Tower’s executive compensation program
worked as it should in 2011.
Tower’s CEO compensation was substantially reduced to reflect the
Company’s performance on the four performance metrics.
*The compensation data used above include long term incentive pay in
performance year. In contrast, the Summary Compensation Table in
the Proxy Statement includes long term compensation based on grant year. -
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2007
2008
2009
2010
2011
Total Compensation
* |
 5
Comparison of Tower 2011 Results to Peers
Despite
the
fact
that
the
compensation
of
Tower’s
Chief
Executive
Officer
and
other
Named
Executive
Officers
was
reduced
because
the
Company
underperformed
on
its
metrics,
the
Company
actually
outperformed
the
peer
group
selected
by
the
Compensation
Committee
in
adjusted
operating
return
on
equity
and
growth
in
book
value
per
share.
*
DEFINED PEER GROUP
2011 OPERATING
RETURN ON
EQUITY
2011 BOOK VALUE
PER SHARE
GROWTH
ALLIED WORLD ASSURANCE CO
6.0
7.8
AMERICAN FINANCIAL GROUP INC
8.1
9.9
AMTRUST FINANCIAL SERVICES
22.1
23.2
ARCH CAPITAL GROUP LTD
6.6
6.8
ARGO GROUP INTERNATIONAL
-6.1
-3.8
ASPEN INSURANCE HOLDINGS LTD
-2.1
-1.2
AXIS CAPITAL HOLDINGS LTD
-2.9
-3.3
ENDURANCE SPECIALTY HOLDINGS
-4.9
-4.1
HANOVER INSURANCE GROUP INC
0.6
2.7
HCC INSURANCE HOLDINGS INC
7.8
10.3
MARKEL CORP
3.7
7.9
NAVIGATORS GROUP INC
3.8
9.3
SELECTIVE INSURANCE GROUP
1.7
2.2
VALIDUS HOLDINGS LTD
1.5
-2.1
Mean
3.3
4.7
Median
2.7
4.8
High
22.1
23.2
Low
-6.1
-4.1
TWGP
5.4
5.1
Source: SNL financial for peers; BVPS used for peers; Diluted BVPS used for
Tower. |
 6
Comparison to ISS Methodology
ISS defines financial performance in terms of total shareholder return
(“TSR”). No weight has been given to profitability,
growth of the business or return on equity. •
TSR can be skewed depending on the start date. This happens in the case
of Tower, as the following chart shows.
•
Tower’s TSR results far outperform the indexes since its
IPO. Tower’s
President and Chief Executive Officer, Michael Lee, owns 10% of Tower stock,
so his interests are closely aligned with those of our shareholders.
Tower’s Compensation Committee does not support the TSR approach.
•
The Committee believes that the use of any one metric is problematic,
including the exclusive use of TSR. Instead, the Committee relies
primarily upon the four metrics previously described.
|
 7
Comparison to ISS Methodology
The
Committee
believes
that
the
four
metrics
outlined
on
page
2
of
these
materials
provide
a
much
more
accurate
picture
of
management’s
performance
than
any
one
metric.
As
stated
on
page
25
of
the
Proxy
Statement:
The
Committee
believes
that
these
four
metrics
collectively
provide
a
comprehensive,
accurate
and
appropriate
measurement
of
the
Company’s
performance
both
during
a
given
year
and
over
a
period
of
years.
The
Company
further
believes
that
these
four
metrics
provide
a
more
reliable
measurement
of
performance
than
would
any
single
metric,
including
a
single
metric
based
on
total
shareholder
return. |
 8
Comparison to ISS Peer Group
As seen in the following chart, the ISS peer group does not seem
to take into
account the nature, size or type of insurance written by Tower.
In comparison,
Tower’s peer group is limited to property and casualty companies with
characteristics that make each company reasonably comparable to Tower in
terms of size, complexity and business mix.
Sector
# of Companies
Tower's Peer Group
P&C
14
P&C
18
Life
2
Title Insurance
1
Brokers
2
Runoff Company
1
Peer Group Comparison
ISS' Peer Group |
 9
Summary of Differences in Methodology and Approach
Metric
ISS Position
The exclusive metric to measure management performance is total shareholder
return.
Tower's Position
Performance should consider return on equity, premium growth, growth in book
value and combined ratio. The use of any one metric, including TSR, is less accurate
and appropriate in measuring management’s performance than using the four
metrics selected by the Compensation Committee.
Compensation
Measurement
ISS Position
Appropriate
to
use
Summary
Compensation
Table
in
Proxy
Statement
even
though
equity
compensation
included
therein
is
actually
related
to
the
prior
year.
Tower's Position
Performance
year
compensation
is
a
better
measurement
than
Summary
Compensation
Table
data.
Also,
2011
compensation
on
the
Table
is
higher
because
the
cash
bonus
for
2010
performance
was
paid
in
equity
and
so
is
reflected
in
2011
compensation.
Peer Group
ISS Position
Appropriate to use peer group which includes life insurers, runoff companies and
brokers, as well as P&C companies regardless of size or market capitalization.
Tower's Position
Appropriate to use peer group solely composed of P&C companies of relatively
similar size and business mix. |