Human Resources and Compensation Committee Mandate
This mandate provides terms of reference for the Human Resources and Compensation Committee of each of Economical Mutual Insurance Company (“Economical”), Sonnet Insurance Company, The Missisquoi Insurance Company, Perth Insurance Company, Waterloo Insurance Company and Petline Insurance Company (collectively the “Companies” and individually the “Company”).
The Company’s Board of Directors (the “Board”) has established the Human Resources and Compensation Committee (the “Committee”) to assist the Board in fulfilling its oversight responsibilities by gaining and maintaining reasonable assurance in relation to:
- executive appointments and terms of employment;
- performance of the chief executive officer;
- compensation philosophy and design;
- pension governance, provided that assistance for the Board concerning matters relating to pension investment governance is addressed by the Investment Committee;
- talent management and succession planning;
- public disclosure regarding the Company’s employee compensation practices;
- other employee matters, including health and safety and employment conditions;
- any other compensation matter requiring Board approval; and
- any additional matters duties described herein or as may be delegated to the Committee by the Board from time to time.
Members and Conduct
The Board shall appoint a minimum of three directors to be members of the Committee. The members of the Committee will be selected by the Board on the recommendation of the Corporate Governance Committee. Each year, the Board will appoint one member of the Committee to serve as chair of the Committee. If, in any year, the Board does not appoint a chair, the incumbent chair will continue in office until a successor is appointed.
All of the members of the Committee will meet the criteria for independence referred to in the Board mandate. In addition, a majority of Committee members shall have an understanding of human resource management and compensation issues or shall commit to understanding such issues in a timely manner. Members have a duty to immediately notify the chair of the Board if he or she ceases to meet the qualifications for Committee membership for any reason.
Any member may be removed and replaced at any time by the Board, and will automatically cease to be a member as soon as the member ceases to meet the qualifications set out above. The Board will fill vacancies on the Committee by appointment from among qualified members of the Board on the recommendation of the Corporate Governance Committee. If a vacancy exists on the Committee, the remaining members will exercise all of its powers so long as there is a quorum.
The Committee shall conduct itself in accordance with the committee operating procedures prescribed by the Board from time to time. At least annually the Committee shall meet, at the Committee’s discretion, in separate in camera sessions with its independent advisor and the Company’s chief human resources officer. The Committee shall also be entitled to meet in private session or, at the option of the Committee, with one or more members of management or other employees of the Company or its subsidiaries.
This mandate does not impose on any Committee member a standard of care or diligence that is in any way more onerous or extensive than the standard of care applicable to the Company’s directors generally.
The Committee is responsible for performing the duties set out below as well as any other duties delegated to the Committee by the Board from time to time.
Executive appointments, compensation and departures
The Committee will be responsible to review and refer to the Board its recommendations regarding the appointment of and terms of employment for the Company’s president and chief executive officer, including material changes thereto, of the annual assessment of the president and chief executive officer’s performance, including the substance of applicable performance objectives, and the president and chief executive officer’s compensation.
The Committee will also be responsible for reviewing and approving without further approval:
- proposals by the president and chief executive officer regarding (i) the appointment of and terms of employment (or any material changes to terms of employment) for the CEO’s direct reports, such as the heads of major business platforms or units, and the executives responsible for the corporate oversight functions, as may be designated by the Committee as subject to Committee review (“Officers and Other Persons”), and (ii) the terms of all formal written employment agreements entered into with any Officer or Other Person, provided that such approvals may be granted on behalf of the Committee by the Committee chair so long as such approval is reported to the full Committee at its next scheduled meeting;
- at least once every three years, the Company’s compensation philosophy and the general design and composition of its broadly applicable compensation and benefit programs, taking into account their general adequacy, competitiveness, internal equity, cost effectiveness and, in relation to executive compensation, alignment with the Company’s financial and non-financial performance, business strategy, and risk management philosophy;
- the design of short-term, long-term and other incentive plans for Officers and Other Persons;
- any profit sharing or other short, medium or long-term incentive awards to Officers and Other Persons;
- upon recommendation of the president and chief executive officer, changes to the base salaries of, and any discretionary bonuses for, Officers and Other Persons, other than the president and chief executive officer.
The chair of the Committee will consult with the chair of the Audit Committee, or the chair of the Risk Review Committee, prior to the approval by or on behalf of the Committee of the appointment of a new chief financial officer, or a new chief risk officer or chief compliance officer, respectively.
The Committee will also oversee the Company’s compliance with any rules promulgated by a regulatory body prohibiting loans to officers and directors of the Company.
The Committee will also be responsible for
- reviewing the departure circumstances for all departing Officers and Other Persons, and
- approving in advance all compensation arrangements in connection with such departures.
The Committee will be responsible for providing to the Corporate Governance Committee, upon its request, market insights, recommendations or other information regarding the form and amount of the directors’ compensation.
The Committee will:
- review and refer to the Board its recommendations regarding significant changes to the Company’s pension plans and/or pension plan documents, including any supplemental plan(s);
- at its discretion, meet with the pension actuary in order to consider changes to plan funding and/or design as may be necessary or desirable in the circumstances;
- monitor compliance with all tax and pension legislation applicable to the Company’s pension plans;
- monitor management’s oversight relating to pension plan administration to gain and maintain reasonable assurance that roles, responsibilities and accountabilities of the trustees, consultants and others, including the pension plan administrator, are clearly defined and that performance is monitored; and
- consider and recommend to the Board any ad hoc adjustments for pensioners.
Talent management and succession planning
The Committee will obtain and maintain reasonable assurance in relation to the following matters:
- the adequacy of the Company’s talent management strategy, including programs relating to the attraction, development and retention of the human resources required by the Company to meet its objectives;
- the adequacy of the Company’s systems and processes to evaluate the development and succession of Officers within the Company. The Committee will review with the president and chief executive officer at least annually the performance of and potential for advancement of each Officer and their respective successors. The Committee may also, at its discretion, request information on the management resources of any part of the Company or its subsidiaries;
- as a separate and supplementary contingency plan to the succession process, the identity of immediate replacements and/or mitigation plans in the event of an emergency for the president and chief executive officer, the chief financial officer, the appointed actuary and Other Persons.
The Committee will:
- periodically review the Company’s culture and the results of its employee engagement surveys;
- periodically review reports regarding health and safety considerations affecting the Company’s employees;
- oversee the preparation of any public disclosure about the employee compensation practices of the Company, including any report to be included in the proxy materials for the Company’s annual meeting;
- review with the president and chief executive officer any other compensation matter that requires Board approval;
- review and refer to the Board the designation or removal of individuals as corporate officers of the Company, upon recommendation of the president and chief executive officer; and
- provide oversight over the corporate policies delegated to the Committee by the Board from time to time.
The Committee will regularly report to the Board on, among other matters:
- significant changes to the Company’s overall compensation philosophy;
- the design of short-term, long-term and other incentive plans for Officers;
- departures of Officers and Other Persons, other than the president and chief executive officer, including related principal financial terms;
- the actuarial valuation and funded status of the defined benefit portion of the Company’s pension plan;
- any material issues relating to compliance with legal and regulatory requirements related to or impacting the Company’s pension plans;
- the matters it is required to refer to the Board hereunder; and
- all other significant matters it has addressed and with respect to such other matters that are within its responsibilities.
At least annually, the Corporate Governance Committee will review the effectiveness of the Committee in fulfilling the responsibilities and duties set out in this mandate, in accordance with the evaluation process approved by the Board.
The Committee will review and assess the adequacy of this mandate at least once every three years and submit it to the Corporate Governance Committee for approval together with amendments, as it deems necessary and appropriate. The Corporate Governance Committee will review this mandate and submit it to the Board for approval with such further amendments, as it deems necessary and appropriate. Minor technical amendments to this mandate may be made by the corporate secretary of the Company, who will report any such amendments to the Board at its next regular meeting.
Access to Records and Outside Advisors; Reliance on Experts
In carrying out its responsibilities, the Committee:
- is empowered to investigate any matter with full and unrestricted access to all books, records, facilities and personnel of the Company and its subsidiaries;
- may retain, remove, instruct and pay any outside advisor, including independent counsel, at the expense of the Company without Board approval at any time;
- has the sole authority to determine such advisor’s fees and other retention terms;
- may communicate directly and privately with the internal auditor, the external auditor and any other advisor engaged by the Committee or the Company at any time;
- shall be entitled to rely in good faith upon:
- a report or advice of an officer or employee of the Company, where it is reasonable in the circumstances to rely on the report or advice, and
- a report of an actuary, lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by such a person.
No Rights Created
This mandate is a statement of broad policies and is intended as a component of the flexible governance framework within which the Board, assisted by its committees, directs the affairs of the Company. While it should be interpreted in the context of all applicable laws, regulations and listing requirements (if any), as well as in the context of the Company’s letters patent and bylaws, it is not intended to establish any legally binding obligations.