SIGI Selective Insurance Group Inc

2015 Long-Term Incentive Program Award Grant Results

The following table summarizes the achievement of the performance metrics for the 2015 LTIP award grants and the corresponding payout in 2018:

⁽¹⁾ The 5% cumulative growth in statutory NPW was achieved for the performance period, resulting in 100% payout of the Restricted Stock Units.

⁽²⁾ Cash incentive unit awards are denominated in units with an initial value of $100. For 2015 awards, appreciation or depreciation was based on TSR, which is determined using the change in Selective’s common stock price and reinvested dividends over the three-year performance period for the award. The number of 2015 units ultimately earned was based on: (i) cumulative three-year statutory NPW growth relative to the Cash Incentive Unit Peer Group index; and (ii) cumulative three-year operating return on policyholder surplus relative to this peer group index.

⁽³⁾ Performance results exceeded the maximum levels; 200% was the maximum payout for the 2015 Cash Incentive Units.

2018 COMPENSATION ACTIONS FOR THE CEO AND OTHER NEOS

In making its 2018 base salary, ACIP, and LTIP compensation decisions for our CEO and the other NEOs, the SEBC considered each NEO’s overall and individual accomplishments and contributions. The required achievement of pre-determined financial and strategic goals limits the ACIP and LTIP components of our compensation program. We structure our reward programs to retain and motivate our best-performing employees and those in critical positions. In balancing our strategic results achieved with ongoing price competition, the SEBC made the following compensation decisions for 2018:

As CEO, Mr. Murphy has ultimate responsibility for the achievement of all financial, strategic, and investment goals. In making its compensation decisions for Mr. Murphy, the SEBC considered our overall corporate performance, as previously detailed in this Compensation Discussion and Analysis under the section entitled “2018 Corporate Performance Highlights,” and a comprehensive written performance appraisal completed by non-employee members of Selective’s Board of Directors.

Based on the degree of achievement of the Corporate ACIP measures and the factors noted above in the 2018 Corporate Performance Highlights, the SEBC determined that Mr. Murphy’s 2018 ACIP would be set at 226% of base salary. The SEBC also considered Mr. Murphy’s long-standing superior leadership in achieving exceptional and sustained financial and operating performance, and the historical positioning of his compensation relative to peers, which has ranged from below the peer median, to modestly above the peer median, even during periods of outstanding performance.

The SEBC determined that Mr. Murphy’s ACIP payment was appropriate and consistent with Selective’s pay-for-performance philosophy and that it reinforces our long history of linking pay and performance.

Our other NEOs were also critical in executing Selective’s 2018 strategic goals and key accomplishments. In light of these accomplishments, the SEBC made the following compensation decisions for the other NEOs:

In making compensation decisions regarding base salary and LTIP for the other NEOs, the SEBC considered the following for each NEO:

Mr. Wilcox – In addition to his general management responsibility as a member of the executive management team, Mr. Wilcox, as Executive Vice President and Chief Financial Officer, has primary responsibility for all financial matters, including financial accounting, investor relations, tax, capital and capital management planning, treasury, billing, investment operations, enterprise risk management, reinsurance, and contracts and procurement. Mr. Wilcox’s major contributions in 2018 included:

Based on the degree of achievement of the Corporate ACIP Measures and the factors noted above, the SEBC approved the CEO’s recommendation that Mr. Wilcox’s 2018 ACIP payment be set at 154% of his base salary. This compares to his initial ACIP payment opportunity range of 0-200% of base salary.

Mr. Wilcox’s ACIP payment for 2018 was 3% higher than his 2017 ACIP. We believe his 2018 ACIP award aligns with our pay-for-performance philosophy that is intended to reward and retain key performers in critical positions.

Mr. Marchioni – As President and Chief Operating Officer, Mr. Marchioni has been responsible for our Insurance Operations, Strategy, Actuarial, Human Resources, Marketing, and Information Technology areas. Mr. Marchioni plays a key role in developing strategies that enhance profitability, growth, and competitive strength, including managing agency relations, claims, underwriting, customer service, and all regional operations. In 2018, Mr. Marchioni also assumed direct reporting responsibility for Messrs. Wilcox and Lanza, as well as oversight for their respective areas of responsibility, consistent with our focus on leadership development. Mr. Marchioni also serves as a member of our key management committees.

Mr. Marchioni has primary responsibilities for the achievement of the 2018 Corporate ACIP strategic measures and many of his accomplishments are closely tied to these measures. Under Mr. Marchioni’s leadership, our Insurance Operations continue to focus on granular pricing and sophisticated underwriting, as well as significant improvement in claims outcomes, that we believe give us a competitive advantage. Mr. Marchioni’s major contributions in 2018 included:

Based on the degree of achievement of the Corporate ACIP Measures and the factors noted above, the SEBC approved the CEO’s recommendation that Mr. Marchioni’s 2018 ACIP be set at 188% of base salary. This compares to his initial ACIP opportunity range of 0-225% of base salary.

Mr. Marchioni’s ACIP payment for 2018 was 3% lower than the aggregate of his 2017 ACIP and discretionary bonus payments. We believe his 2018 ACIP award aligns with our pay-for-performance philosophy that is intended to reward and retain key performers in critical positions.

Mr. Lanza – In addition to his general management responsibility as a member of the executive management team, Mr. Lanza, as Executive Vice President, General Counsel and Chief Compliance Officer, has primary responsibility for all legal, corporate governance, government affairs, state filings, regulatory, and compliance matters. Mr. Lanza’s major 2018 contributions were:

Based on the degree of achievement of the Corporate ACIP Measures and the factors noted above, the SEBC approved the CEO’s recommendation that Mr. Lanza’s 2018 ACIP be set at 106% of base salary. This compares to his initial ACIP payment opportunity range of 0-150% of base salary.

Mr. Lanza’s 2018 ACIP payment was 4% lower than his 2017 ACIP payment. This award aligns with our pay-for-performance philosophy that is intended to reward and retain key performers in critical positions.

PERQUISITES

NEO perquisites are limited to tax preparation services, which is a prevailing industry practice, and in certain circumstances, moving expenses and taxes payable on those expenses. Messrs. Murphy, Marchioni, and Lanza used tax preparation services in 2018 and were reimbursed $4,500, $5,000, and $2,975, respectively.

RETIREMENT AND DEFERRED COMPENSATION PLANS

Selective Insurance Company of America (“SICA”), a wholly-owned subsidiary of Selective, employs all of our personnel, including all of the NEOs. We strive to provide a competitive retirement benefit program that allows us to attract and retain talent for the organization. This includes a defined contribution program, including a nonqualified defined contribution deferred compensation plan (“Deferred Compensation Plan”) for certain of our officers and highly compensated employees, including the NEOs, and depending on date of hire, a defined benefit pension program, including a nonqualified supplemental pension plan for certain of our officers and highly compensated employees, in which all of the NEOs participate (other than Mr. Wilcox, whose employment commenced on January 1, 2017). These plans are consistent with benefits provided by many of the companies with which we compete for executive talent.

SICA offers a tax-qualified defined contribution plan named the Selective Insurance Retirement Savings Plan (the “Retirement Savings Plan”) for employees, including the NEOs, who meet eligibility requirements. Participants could contribute up to 50% of their eligible compensation to the Retirement Savings Plan, up to $18,500 in 2018. Under the Retirement Savings Plan, participant contributions are matched at 100% of the employee’s salary deferrals up to 3% of the employee’s eligible compensation, and at 50% of the employee’s salary deferrals above 3%, up to 6% of the employee’s eligible compensation, subject to limitations under the Code. Participants over the age of 50, including certain of the NEOs, were eligible in 2018 to make an additional catch-up salary deferral contribution to the Retirement Savings Plan under the Code.

The Retirement Income Plan for Selective Insurance Company of America (the “Retirement Income Plan”) and the related supplemental pension plan, discussed further below, were amended to cease accrual of additional benefits under these plans effective as of March 31, 2016. In connection with the curtailment of the Retirement Income Plan, all eligible participants in the Retirement Savings Plan, including the NEOs, began receiving a non-elective contribution of 4% of base salary to their accounts under the Retirement Savings Plan, subject to limitations under the Code.

Under the Deferred Compensation Plan, certain executives and employees, including the NEOs may, subject to certain limitations, defer: (i) up to 50% of their base salary; (ii) up to 100% of their annual bonus (subject to certain limitations to provide for required tax withholding); and/or (iii) all or a percentage of such other compensation as otherwise designated by the administrator of the Deferred Compensation Plan. To compensate for the Code’s limitations on SICA’s matching contributions for the NEOs under the Retirement Savings Plan, SICA matched our NEOs’ contributions to the Deferred Compensation Plan in 2018 as follows: 100% of each NEO’s salary deferrals to the Retirement Savings Plan and the Deferred Compensation Plan up to 3% of the employee’s base salary, and 50% of the NEO’s salary deferrals to the Retirement Savings Plan and the Deferred Compensation Plan above 3%, up to 6% of the NEO’s base salary, less any matching contributions to the Retirement Savings Plan. Additionally, to the extent that non-elective contributions to the Retirement Savings Plan are limited due to the provisions of the Code and the Retirement Savings Plan, non-elective contributions of 4% of base salary are made by SICA to participants’ Deferred Compensation Plan accounts. Additional information regarding the Deferred Compensation Plan is included in the section entitled, “Nonqualified Deferred Compensation” of this Proxy Statement.

SICA also has maintained a non-contributory defined benefit pension program consisting of a tax-qualified defined benefit pension plan, the Retirement Income Plan, and a nonqualified supplemental pension plan for certain executives and employees. The accrual of additional benefits under the pension program ceased as of March 31, 2016. The pension program is more fully described in the section entitled, “Pension Benefits” of this Proxy Statement.

In addition, SICA maintains health and welfare benefit plans in which eligible employees, including the NEOs, participate.

EMPLOYMENT AGREEMENTS

SICA has entered into employment agreements with its key executive officers, including the NEOs, which provide for severance in the event of termination: (i) due to death or disability; (ii) without “Cause” ^[4] ; (iii) due to resignation for “Good Reason” ^[5] by (A) the CEO at any time, or (B) other executives within two years following a change in control; (iv) due to resignation of the NEO within two years of the company first imposing a requirement, without the consent of the NEO, that relocates the NEO’s business location more than 50 miles; and (v) without Cause or without Good Reason within two years following a change in control. The SEBC believes that these agreements are important for recruitment and retention of key executives and was advised by its Compensation Consultant that the terms of these agreements were market competitive within our peer group when they were executed. In the event of a change in control, uncertainty may arise among our key executives as to their continued employment after or in connection with such event, which may result in the departure or distraction of our key executives. The purpose of the employment agreements is to retain our key executives, and reinforce and encourage their continued attention and dedication during such a potentially critical time, even if they fear that their position will be terminated after or in connection with the change in control.

⁴ “Cause” is defined in the employment agreements, but generally means the executive: (i) was convicted of or pled guilty to a felony; (ii) breached a material provision of the executive’s employment agreement; or (iii) engaged in misconduct which constitutes fraud in the performance of the executive’s duties and obligations to the company.

⁵ “Good Reason” is defined in the employment agreements, but generally means: (i) a material reduction in salary; (ii) a material negative change in the executive’s benefits; (iii) a material reduction of the executive’s position, duties, responsibilities, and status with the company or material negative change in title or office; (iv) requiring the executive to be based at a location in excess of 50 miles from the location of the executive’s office prior to a change in control; (v) failure of a counterparty to a transaction resulting in a change in control to assume the employment agreement; or (vi) a breach of the employment agreement by SICA within two years after a change in control. 

With respect to severance payments, outstanding awards under our stock and cash plans, and continued insurance coverages or reimbursement for such coverage, the change in control provisions of the employment agreements are triggered if the executive’s employment is terminated without Cause or without Good Reason within two years following a change in control. This double trigger ensures such a payout does not automatically occur upon a change in control only. The employment agreements are described in the section entitled, “Employment Agreements and Potential Payments upon Termination or Change in Control” of this Proxy Statement. This section includes information on multipliers used in calculating the severance payment and duration of benefit coverage (or reimbursement for the cost of such coverages) provided to individual executives upon termination. We believe these multipliers are consistent with the level and value of the position to the organization.

TAX TREATMENT AND ACCOUNTING

Code Section 162(m) prohibits publicly-held companies from deducting compensation paid to certain executive officers for federal tax purposes to the extent the officer’s taxable year compensation exceeds $1 million. While the SEBC considers the deductibility of awards as one factor in determining executive compensation, the SEBC also considers the other goals of our executive compensation program in making its compensation decisions, and retains the flexibility to award compensation that it believes to be in the best long-term interests of Selective, even if the awards may not be fully deductible under Code Section 162(m).

For taxable years commencing before January 1, 2018, compensation paid pursuant to a stockholder-approved plan that otherwise qualified as “performance-based compensation” under Section 162(m) was exempt from the annual $1 million deduction limitation. The Tax Cuts and Jobs Act of 2017 (“Tax Reform”) eliminated the performance-based compensation exception for taxable years commencing after December 31, 2017. Under Tax Reform transition relief, compensation provided under a written binding contract in effect on November 2, 2017 that is not materially modified after that date continues to be subject to the performance-based compensation exception of Section 162(m), as previously in effect. The performance-based compensation exception, however, generally will not be available for new awards of compensation granted after November 2, 2017.

Awards to NEOs made in 2018 were granted under two performance-based stockholder approved plans: (i) the Omnibus Stock Plan; and (ii) the Cash Incentive Plan. These grants were made after the November 2, 2017 date, and therefore are not eligible for the performance-based compensation exception. However, we believe that compensation paid to NEOs in 2018 under these plans is deductible under the Section 162(m) transition rules, as this compensation was designed to meet the performance-based compensation exemption under Section 162(m) and paid in satisfaction of grants that were made prior to November 2, 2017 and have not been materially modified since that time.

GAAP requires compensation expense to be measured on the income statement for all stock-based payments at grant date fair value for equity instruments (including employee stock options and restricted stock unit awards) and at market value on the date of vesting for liability instruments (including cash incentive unit awards). The SEBC has considered the impact of GAAP on our use of stock-based compensation as a retention tool. The SEBC has determined that the current estimated costs of continuing to use stock-based compensation relative to the benefits they provide are appropriate and do not warrant any change to our current incentive framework.

We have designed our compensation programs and awards to executive officers to comply with the provisions of Section 409A of the Code, where applicable. For example, payments that are subject to Section 409A of the Code and made to our executive officers under our nonqualified deferred compensation plans on account of the executives’ separation from service are not payable before the first day of the seventh month following the date of separation from service if the executives are “specified employees” under Section 409A of the Code.

⁽¹⁾ Amount may differ from base salary rate due to payroll payment schedule.

^{( 2 )} Amounts in this column reflect discretionary cash bonus awards.

^{( 3 )} This column reflects the aggregate grant date fair value of the 2018, 2017, and 2016 grants of performance-based restricted stock unit awards, and 2018, 2017, and 2016 grants of performance-based cash incentive unit awards. The grants of performance-based restricted stock units were made pursuant to the Omnibus Stock Plan. Such units vest three years from the date of grant, conditioned upon the attainment of certain predetermined performance goals. Grants of performance-based cash incentive unit awards were made pursuant to the Cash Incentive Plan. Such units vest at the payment date, which is as soon as practicable in the calendar year following the end of the calendar year coincident with the end of the three-year performance period. The value of each cash incentive unit initially awarded increases or decreases to reflect TSR on Selective common stock over the three-year performance period for the award. For the 2018, 2017, and 2016 performance-based cash incentive unit awards, the number of cash incentive units ultimately earned increases or decreases based on: (i) cumulative three-year statutory NPW growth relative to the Cash Incentive Unit Peer Group; and (ii) cumulative three-year statutory operating return on policyholder surplus relative to the Cash Incentive Unit Peer Group. Restricted stock unit and cash incentive unit awards are subject to forfeiture should the grantee resign or be terminated for cause prior to vesting. However, restricted stock unit and cash incentive unit awards granted to Messrs. Murphy and Lanza will vest upon attainment of the performance condition only, as they have achieved early retirement eligibility.

The grant date fair values for the performance-based restricted stock unit and performance-based cash incentive unit awards granted to the NEOs are as follows:

The aggregate grant date fair value reported in this column assumes the following: (i) the predetermined performance goals for the restricted stock unit grants are probable of being attained; (ii) initial per unit values for the cash incentive unit awards of $100; and (iii) a 100% peer group unit multiplier for cash incentive unit awards. For further discussion of the fair value calculation of the awards in this column, please refer to Note 15 to the consolidated financial statements in Selective’s Annual Report on Form 10-K for the year ended December 31, 2018. The maximum value assuming the highest level of performance conditions for the performance-based restricted stock units are consistent with the amounts above. Although the maximum number of performance-based cash incentive units potentially issuable is 200% of the original grant for the 2016 grant, and 150% of the original grant for the 2017 and 2018 grants, the ultimate maximum value of the 2016, 2017, and 2018 grants cannot be determined due to the fact that, as stated above, the initial value of each unit is adjusted based on the TSR of Selective common stock over the grant’s three-year performance period, the maximum value of which is not determinable at this time.

⁽⁴⁾ Amounts in this column are annual cash incentive plan awards to the NEOs earned in 2018 and paid in 2019, earned in 2017 and paid in 2018, and earned in 2016 and paid in 2017. These awards were granted under the Cash Incentive Plan.

⁽⁵⁾ Amounts in this column reflect the actuarial increase in the present value of each NEO’s pension benefits under all defined benefit pension plans of SICA, determined using the same interest rate and mortality assumptions as those used for financial statement reporting purposes. There were no changes to the benefit formulas under the defined pension benefit plans in 2018, as the plans were amended to cease further accruals effective as of March 31, 2016. The changes in pension values reported in this column are primarily attributable to an increase in the discount rate used to calculate present value and the change from MP2017 to MP2018 of the mortality improvement projection scale. There were no above-market or preferential earnings on deferred compensation under SICA’s nonqualified deferred compensation program.

⁽⁶⁾ For 2018, amounts in this column for each NEO reflect the following (amounts in this footnote may not exactly match the figures in the Summary Compensation Table due to rounding):

⁽¹⁾ Amounts represent minimum and maximum potential ACIP awards under our Cash Incentive Plan for 2018 based on 2018 base salary rates. Maximum awards reflect the maximum ACIP award established by the SEBC. Actual payouts of the above-referenced awards are included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. For information regarding the ACIP, see the section of the Compensation Discussion and Analysis entitled, “Annual Cash Incentive Program.”

⁽²⁾ Performance-based cash incentive unit awards were granted under the Cash Incentive Plan, and performance-based restricted stock unit awards were granted under the Omnibus Stock Plan. For a description of the material terms of such awards, see the section of the Compensation Discussion and Analysis entitled, “Elements of Long-Term Compensation.”

⁽³⁾ The number of performance-based cash incentive units paid can range from 0-150%, and therefore, the amount payable could be $0. The threshold selected represents the 30th percentile of the Cash Incentive Unit Peer Group, the target represents the 50th percentile of the Cash Incentive Unit Peer Group, and the maximum represents greater than or equal to the 80th percentile of the Cash Incentive Unit Peer Group.

⁽⁴⁾ This column includes the grant date fair value of restricted stock unit awards and cash incentive unit awards with an initial value of $100 per unit.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The following table shows the unvested stock awards of our NEOs as of December 31, 2018. Our NEOs had no unexercised options as of December 31, 2018:

⁽¹⁾ In the event of a termination of employment on or after an individual attains Early Retirement Age, as defined under the 2016, 2017, and 2018 restricted stock unit award agreements (the “Award Early Retirement Age”), holders of performance-based restricted stock unit awards granted in 2016, 2017, and 2018 are vested in such awards subject only to the attainment of applicable performance measures. The respective dates upon which each NEO attained, or is anticipated to attain, his Award Early Retirement Age are as follows: Mr. Murphy, April 11, 2010; Mr. Wilcox, January 2, 2027; Mr. Marchioni, May 28, 2024; and Mr. Lanza, December 16, 2016.

⁽²⁾ Reflects number of performance-based restricted stock units initially granted on February 8, 2016 and the related accrued DEUs, which were vested and paid on February 8, 2019. Also reflects number of performance-based cash incentive units initially granted on February 8, 2016 to the NEOs for the three-year performance period ending December 31, 2018. In the event of a termination of employment on or after an individual’s Award Early Retirement Age, holders of such awards are vested in such awards, with the initial number of units and the value of each unit subject to adjustment, based on the attainment of specified performance measures. Award Early Retirement Age dates for the NEOs are set forth in footnote 1. Settlement of the 2016 cash incentive unit awards will be made as soon as practicable in the 2019 calendar year, following the determination of the attainment of the applicable performance measures. The amounts reflected in this column attributable to performance-based restricted stock units and the related accrued DEUs are as follows: Mr. Murphy, 38,475; Mr. Marchioni, 22,632; and Mr. Lanza, 9,430. The amounts reflected in this column attributable to performance-based cash incentive units are as follows: Mr. Murphy, 8,160; Mr. Marchioni, 4,800; and Mr. Lanza, 2,000.

⁽³⁾ Reflects number of performance-based restricted stock units initially granted on February 6, 2017 and the related accrued DEUs: (i) for which the applicable performance measures were achieved as of December 31, 2017; and (ii) that generally will vest and be payable on February 6, 2020.

⁽⁴⁾ Reflects number of performance-based restricted stock units initially granted on February 5, 2018 and the related accrued DEUs: (i) for which the applicable performance measures were achieved as of December 31, 2018; and (ii) that generally will vest and be payable on February 5, 2021.

⁽⁵⁾ Reflects a $189.31 per unit value for the February 8, 2016 cash incentive unit grant and maximum performance for this award.

⁽⁶⁾ Reflects number of performance-based cash incentive units initially granted on February 6, 2017 to the NEOs for the three-year performance period ending December 31, 2019. In the event of a termination of employment on or after an individual’s Award Early Retirement Age, holders of such awards are vested in such awards, with the initial number of units and the value of each unit subject to adjustment, based on the attainment of specified performance measures. Award Early Retirement Age dates for the NEOs are set forth in footnote 2. Settlement of the 2017 cash incentive unit awards will be made as soon as practicable in the 2020 calendar year, following the determination of the attainment of the applicable performance measures.

⁽⁷⁾ Reflects number of performance-based cash incentive units initially granted on February 5, 2018 to the NEOs for the three-year performance period ending December 31, 2020. In the event of a termination of employment on or after an individual’s Award Early Retirement Age, holders of such awards are vested in such awards, with the initial number of units and the value of each unit subject to adjustment, based on the attainment of specified performance measures. Award Early Retirement Age dates for the NEOs are set forth in footnote 2. Settlement of the 2018 cash incentive unit awards will be made as soon as practicable in the 2021 calendar year, following the determination of the attainment of the applicable performance measures.

⁽⁸⁾ The amounts in this column reflect: (i) a $145.23 per unit value for the February 6, 2017 cash incentive unit grant, and a $105.11 per unit value for the February 5, 2018 cash incentive unit grant based on the TSR of Selective common stock at December 31, 2018; and (ii) maximum performance for each of these awards. The performance measures are identified for the February 5, 2018 grant in the Grants of Plan-Based Awards table.

⁽¹⁾ Amounts in this column include the number of performance-based restricted stock units and the related accrued DEUs that vested in 2018 as well as performance-based cash incentive units paid in 2018. The amounts reflected in this column attributable to performance-based restricted stock units and the related accrued DEUs are as follows: Mr. Murphy, 39,960; Mr. Marchioni, 24,218; and Mr. Lanza, 11,504. The amounts reflected in this column attributable to performance-based cash incentive units are as follows: Mr. Murphy, 13,200; Mr. Marchioni, 8,000; and Mr. Lanza, 3,800.

⁽²⁾ Amounts in this column include the value of performance-based restricted stock units and the related accrued DEUs that vested in 2018 as well as the amount paid for performance-based cash incentive units in 2018. The amounts reflected in this column attributable to performance-based restricted stock units and the related accrued DEUs are as follows: Mr. Murphy, $2,369,603; Mr. Marchioni, $1,436,125; and Mr. Lanza, $682,186. The amounts reflected in the table attributable to performance-based cash incentive units are as follows: Mr. Murphy, $2,994,420; Mr. Marchioni, $1,814,800; and Mr. Lanza, $862,030.

PENSION BENEFITS

SICA maintains a tax-qualified non-contributory defined benefit pension plan, the Retirement Income Plan. Many SICA employees, including the NEOs (other than Mr. Wilcox, whose employment commenced on January 1, 2017) and certain former employees whose employment commenced on or before December 31, 2005, are eligible to receive benefits under the Retirement Income Plan. SICA also maintains the unfunded Selective Insurance Supplemental Pension Plan (“SERP”) to provide supplemental benefits to certain executives and other participants in the Retirement Income Plan equal to the difference between: (i) the benefits payable to these participants under the Retirement Income Plan, calculated without regard to Code limitations on annual amounts payable under the Retirement Income Plan; and (ii) the actual benefits payable to these participants under the Retirement Income Plan.

The Retirement Income Plan and the SERP were frozen in the first quarter of 2013, when both plans were amended to cease accrual of additional benefits under these plans for all participants as of March 31, 2016. Participants as of March 31, 2016 remain entitled to the benefits already earned but have not earned additional benefits since that date, and no new participants have been admitted to the plans.

The Retirement Income Plan was amended as of July 1, 2002, to provide for different calculations based on age and company service as of that date. Monthly benefits payable at normal retirement age under the Retirement Income Plan and SERP for the NEOs are computed as follows. Defined terms used in this section, but not defined in this Proxy Statement, have the meanings given to them in the Retirement Income Plan.

The earliest retirement age is 55 with 10 years of service or the attainment of 70 points (age plus years of service). If a participant chooses to begin receiving benefits before his or her 65th birthday, the amount of the monthly benefit will be reduced as follows:

At retirement, participants receive monthly pension payments. There are four optional forms of payments that can be chosen as alternatives to the normal form of payment, which for a married participant is an automatic 50% joint and surviving spouse annuity, and for an unmarried participant is a single life annuity.

The following table shows information regarding the pension benefits of our NEOs:

⁽¹⁾ The Retirement Income Plan imposes a one-year waiting period for plan participation, which year is not included in years of credited service.

⁽²⁾ Present value as of December 31, 2018 is calculated on the basis of Normal Retirement Age of 65 using a 4.46% discount rate. For further discussion, see Note 14. “Retirement Plans” in Item 8. “Financial Statements and Supplementary Data.” of Selective’s Annual Report on Form 10-K for the year ended December 31, 2018.

⁽³⁾ As noted above, based on Mr. Wilcox’s date of hire of January 1, 2017, he is not eligible to participate in the Retirement Income Plan or the SERP.

NONQUALIFIED DEFERRED COMPENSATION

The Deferred Compensation Plan allows participants to defer receipt of up to 50% of base salary and up to 100% of their annual bonus (subject to certain limitations to provide for required tax withholding). Participant accounts are credited with a notional rate of return (positive or negative) based on the performance of investment options selected by the participants from a menu of notional investment options. Participants can elect to schedule in-service withdrawals or withdrawals upon separation from service.

SICA makes matching contributions to a participant’s Deferred Compensation Plan account to supplement matching contributions under the Retirement Savings Plan. For 2018, such matching contributions consisted of 100% of the first 3% of base salary and 50% of the next 3% of base salary deferred to the Retirement Savings Plan and the Deferred Compensation Plan together, minus any matching contribution made to a participant’s Retirement Savings Plan account. Effective January 1, 2010, the Deferred Compensation Plan was amended for participants ineligible to participate in the Retirement Income Plan to provide a non-elective contribution to the extent not made to a participant’s Retirement Savings Plan account due to the limitations under the Code and the Retirement Savings Plan. The non-elective contribution to the Deferred Compensation Plan is equal to 4% of a participant’s base salary, minus any non-elective contribution made to the Retirement Savings Plan. In conjunction with the amendment of the Retirement Income Plan and the SERP to cease accrual of further benefits under these plans effective as of March 31, 2016, all participants affected by the curtailment, including the NEOs, became eligible for the non-elective contribution effective April 5, 2013.

The following table shows information regarding nonqualified deferred compensation of our NEOs:

⁽¹⁾ Amounts in this column are attributable to 2018 salary deferred by Messrs. Murphy, Wilcox, Marchioni, and Lanza, and are included in the Salary column of the Summary Compensation Table.

⁽²⁾ All amounts in this column are included in the All Other Compensation column of the Summary Compensation Table.

⁽³⁾ Amounts in this column are not included in the Summary Compensation Table because such earnings or losses were not above-market or preferential.

⁽⁴⁾ Amounts in this column include the following aggregate contributions of the NEOs and SICA to the Deferred Compensation Plan in 2018, which amounts are included in the Summary Compensation Table:

EMPLOYMENT AGREEMENTS AND POTENTIAL PAYMENTS UPON
TERMINATION OR CHANGE IN CONTROL

SICA entered into amended employment agreements with: (i) Messrs. Murphy and Lanza as of December 23, 2008; (ii) Mr. Marchioni as of September 10, 2013 in connection with his election as President and Chief Operating Officer; and (iii) Mr. Wilcox as of January 1, 2017 in connection with his commencement of employment (collectively, the “Employment Agreements”). The following table summarizes the principal provisions of the Employment Agreements:

⁽¹⁾ The Employment Agreements automatically renewed for additional one-year periods on April 25, 2018 for Mr. Murphy, on July 26, 2018 for Mr. Lanza, and on September 10, 2018 for Mr. Marchioni. Mr. Wilcox’s Employment Agreement will automatically renew on January 1, 2020.

⁽²⁾ As of February 19, 2018, the annual base salaries for the NEOs were as follows: Mr. Murphy, $950,000; Mr. Wilcox, $600,000; Mr. Marchioni, $800,000; and Mr. Lanza, $540,000.

⁽³⁾ For Messrs. Murphy and Marchioni the multiple is 2 and for Messrs. Wilcox and Lanza the multiple is 1.5.

⁽⁴⁾ For Messrs. Murphy and Marchioni the period is 24 months and for Messrs. Wilcox and Lanza the period is 18 months.

⁽⁵⁾ For Messrs. Murphy and Marchioni the multiple is 2.99 and for Mr. Lanza the multiple is 2. For Mr. Wilcox, the calculation for the severance payment is 1.5 times the sum of his salary and the average of his annual cash incentive payments for the three calendar years prior to the calendar year in which the termination occurs.

⁽⁶⁾ For Messrs. Murphy and Marchioni the period is 36 months, for Mr. Wilcox the period is 18 months, and Mr. Lanza the period is 24 months.

The following table shows information regarding payments and benefits to which our NEOs would be entitled under the scenarios shown as of December 31, 2018:

⁽¹⁾ Other than a resignation for Good Reason.

⁽²⁾ This column includes the value of vested and unvested performance-based restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs. These performance-based awards would normally vest upon: (i) achievement of early or normal retirement eligibility or continuation in service through the end of the applicable performance period; and (ii) the achievement of the specified performance goals applicable to each such award, and be payable following the end of the applicable three-year performance period. Restricted stock unit and cash incentive unit awards granted to Messrs. Murphy and Lanza have vested, but their ultimate payment value will only be determined upon achievement of the performance condition, as each of these NEOs have attained early retirement eligibility. Also included in this column is the value of performance-based cash incentive units awarded under the Cash Incentive Plan to the NEOs. The value of such awards is calculated using: (i) the target 100% unit multiplier for the number of cash incentive units granted; and (ii) the per unit value at December 31, 2018. Under the Cash Incentive Plan, participants’ awards, including the NEOs’ awards, would fully vest upon achievement of early or normal retirement eligibility or continuation in service through the end of the payment date and be payable following the end of the applicable three-year performance period.

⁽³⁾ This column includes the value of unvested performance-based restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs. In the event of total disability, these performance-based awards would normally vest for all participants, including the NEOs, upon the achievement of the specified performance goals applicable to each such award, and be payable following the end of the applicable three-year performance period. In the event of death, these performance-based awards are immediately vested and payable for all participants, including the NEOs. Also included in this column is the value of performance-based cash incentive units awarded under the Cash Incentive Plan to the NEOs. The value of such awards is calculated using: (i) the target 100% unit multiplier for the number of cash incentive units granted; and (ii) the per unit value at December 31, 2018. Under the Cash Incentive Plan, participants’ awards, in the event of total disability, including the NEOs’ awards, would fully vest and be payable following the end of the applicable three-year performance period. This column also includes the severance payment provided for in each NEO’s Employment Agreement. Payments in this column will be reduced by life or disability insurance payments under policies for which SICA paid premiums.

⁽⁴⁾ This column includes the value of unvested performance-based restricted stock units granted under the Omnibus Stock Plan and any related accrued DEUs. These performance-based awards would normally vest upon: (i) a termination without Cause or Resignation for Good Reason; and (ii) the achievement of the specified performance goals applicable to each such award, and be payable following the end of the applicable three-year performance period. Also included in this column is the value of performance-based cash incentive units awarded under the Cash Incentive Plan to the NEOs. The value is calculated using: (i) the target 100% unit multiplier for the number of cash incentive units granted; and (ii) the per unit value at December 31, 2018. The awards would fully vest and be payable following the end of the applicable three-year performance period. Also included in this column are the severance payment and the value of applicable medical, dental, vision, disability, and life insurance coverages, as provided for in each respective NEO’s Employment Agreement.

⁽⁵⁾ This column includes the value of unvested performance-based restricted stock units granted under the Omnibus Stock Plan, and any related accrued DEUs, which would immediately vest and be payable upon a termination of employment following a change in control. This column also includes the value of performance-based cash incentive units awarded under the Cash Incentive Plan to the NEOs, all of which would vest upon a termination of employment following a change in control. The value of such awards is calculated using: (i) a 150% per unit multiplier; and (ii) the per unit value at December 31, 2018. Also included in this column are the severance payment and the value of applicable medical, dental, vision, disability, and life insurance coverages, as provided for

in each NEO’s Employment Agreement. This column also includes the value of any tax gross-up payment necessary to offset any excise tax imposed on the payment and benefits disclosed in this column, other than for Messrs. Marchioni and Wilcox whose employment agreements do not contain this provision.

CEO PAY RATIO

As a result of rules adopted under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the SEC requires disclosure of the CEO to median employee pay ratio. We identified the median employee in 2017 by tabulating 2017 W-2 Medicare Wages on October 31, 2017. We included all employees, whether employed full-time, part-time, or seasonally. We did not make any adjustments or annualize compensation for employees who we did not employ for all of 2017. We believe the use of W-2 Medicare Wages is a simple and consistent methodology that we can easily replicate in future years. To determine if it was appropriate to use the same median employee for 2018 as in 2017, we considered that we had: (i) no significant acquisitions or divestitures during 2018; (ii) no significant reductions in workforce or notable employee turnover in 2018; and (iii) no material changes in the median employee's circumstances, pay, or employment status.

We analyzed the median employee’s 2018 W-2 Medicare Wages compared to 2017 to confirm there were no significant changes in the median employee’s compensation arrangements year-over-year. Based on these results, the lack of change in our employee population and compensation arrangements, and consistent with applicable SEC regulations, we did not change our median employee for 2018.

Mr. Murphy’s 2018 total compensation was $4,946,192 (as reflected in the Summary Compensation Table), and our median employee’s 2018 total compensation was $101,980. Mr. Murphy’s 2018 total compensation was approximately 48.5 times that of our median employee.