DEF 14A 1 lincolndef14a.htm LINCOLN NATIONAL CORPORATION FORM DEF 14A lincolndef14a.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

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Lincoln National Corporation
______________________________
(Exact Name of Registrant as Specified in its Charter)

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RADNOR, PENNSYLVANIA




April 11, 2014


Dear Fellow Shareholder:

You are cordially invited to attend our Annual Meeting of Shareholders scheduled for Thursday, May 22, 2014, at 9:00 a.m., local time, at The Ritz-Carlton Hotel, 10 Avenue of the Arts, Philadelphia, Pennsylvania 19102.  Our Board of Directors and management team look forward to greeting you.

The notice of meeting and proxy statement describe the matters to be acted upon at the Annual Meeting of Shareholders.  Please review these documents carefully.

Many of our shareholders received a notice of internet availability instead of a paper copy of our proxy statement and our 2013 annual report to shareholders.  The notice of internet availability contains instructions on how shareholders can access these documents over the internet as well as how shareholders can receive a paper or email copy of our proxy materials including our proxy statement, our 2013 annual report to shareholders and a proxy card.  We believe electronic delivery allows us to provide our shareholders with the information they need, while lowering the costs of the delivery of the materials and reducing the environmental impact of printing and mailing paper copies.

It is important that you vote your shares of our stock by voting as promptly as possible by proxy, through the use of a proxy card, via telephone or over the internet, or by attending the Annual Meeting and voting in person.

On behalf of the entire Board of Directors, thank you for your continued support.
 

 
Sincerely,
   
   
 
William H. Cunningham
 
Chairman of the Board
 
 

 
 

 



LINCOLN NATIONAL CORPORATION
RADNOR, PENNSYLVANIA



NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS


April 11, 2014

The Annual Meeting of Shareholders of Lincoln National Corporation will be held on Thursday, May 22, 2014, at 9:00 a.m., local time, at The Ritz-Carlton Hotel, 10 Avenue of the Arts, Philadelphia, Pennsylvania 19102.

The items of business are:

1.  
the election of three directors for three-year terms expiring at the 2017 Annual Meeting;
2.  
the ratification of the appointment of Ernst & Young LLP as the independent registered public accounting firm for 2014;
3.  
the approval of an advisory resolution on the compensation of our named executive officers;
4.  
the approval of the Lincoln National Corporation 2014 Incentive Compensation Plan; and
5.  
to consider and act upon such other matters as may properly come before the meeting.

You have the right to receive this notice and vote at the Annual Meeting of Shareholders if you were a shareholder of record at the close of business on March 17, 2014.  Please remember that your shares cannot be voted unless you cast your votes by one of the following methods: (1) sign and return a proxy card; (2) vote via telephone; (3) vote via the internet; (4) vote in person at the Annual Meeting; or (5) make other arrangements to vote your shares.


 
For the Board of Directors,
   
 
Charles A. Brawley, III
 
Senior Vice President, Associate General Counsel & Secretary
 






 
 

 

TABLE OF CONTENTS

PROXY SUMMARY                                                                                                                            
1
GENERAL INFORMATION                                                                                                                            
3
SECURITY OWNERSHIP                                                                                                                            
6
GOVERNANCE OF THE COMPANY                                                                                                                            
8
THE BOARD OF DIRECTORS AND COMMITTEES                                                                                                                            
10
ITEM 1 – ELECTION OF DIRECTORS                                                                                                                            
13
     Nominees for Director                                                                                                                            
14
     Directors Continuing in Office                                                                                                                            
15
COMPENSATION OF DIRECTORS                                                                                                                            
19
ITEM 2 – RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   
21
     Independent Registered Public Accounting Firm Fees and Services                                                                                                                            
21
     Audit Committee Pre-Approval Policy                                                                                                                            
22
     Other Information                                                                                                                            
22
     Audit Committee Report                                                                                                                            
22
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
23
EXECUTIVE COMPENSATION                                                                                                                            
23
     Compensation Discussion & Analysis                                                                                                                            
23
     Compensation Committee Report                                                                                                                            
39
     Executive Compensation Tables                                                                                                                            
40
     Summary Compensation Table                                                                                                                            
40
     Grants of Plan-Based Awards                                                                                                                            
43
     Outstanding Equity Awards at Fiscal Year-End                                                                                                                            
45
     Option Exercises and Stock Vested                                                                                                                            
46
     Pension Benefits                                                                                                                            
47
     Nonqualified Deferred Compensation                                                                                                                            
48
     Potential Payments Upon Termination or Change of Control                                                                                                                            
49
ITEM 3 – ADVISORY PROPOSAL ON EXECUTIVE COMPENSATION                                                                                                                            
56
ITEM 4 – APPROVAL OF THE LINCOLN NATIONAL CORPORATION 2014 INCENTIVE COMPENSATION PLAN
57
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
66
RELATED PARTY TRANSACTIONS                                                                                                                            
66
GENERAL                                                                                                                            
66
     Shareholder Proposals                                                                                                                            
66
     Incorporation by Reference                                                                                                                            
68
     Annual Report                                                                                                                            
68
     Other Matters
68
EXHIBIT 1 – Section 11 – Notice of Shareholder Nominees                                                                                                                            
E-1
EXHIBIT 2 – Reconciliation of Non-GAAP Measures                                                                                                                            
E-3
EXHIBIT 3 – List of Defined Contribution Companies from the 2012 McLagan Survey and Financial Services Companies from the 2012 Towers Watson Survey
E-6
EXHIBIT 4 – List of Investment Companies from the 2012 McLagan Survey                                                                                                                            
E-8
EXHIBIT 5 – Definitions for Incentive Compensation Programs                                                                                                                            
E-9
EXHIBIT 6 – Lincoln National Corporation 2014 Incentive Compensation Plan
E-11
EXHIBIT 7 – Section 10 – Notice of Shareholder Business                                                                                                                            
E-27
 
 
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 22, 2014:
This proxy statement and the accompanying annual report are available at: www.proxydocs.com/lnc.

 
 

 

Proxy Summary


This summary highlights information contained elsewhere in this proxy statement.  This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.

Annual Meeting of Shareholders

 
·
Time and Place:
Thursday, May 22, 2014 at 9:00 a.m. local time
·
Place:
The Ritz-Carlton Hotel
10 Avenue of the Arts
Philadelphia, PA  19102
·
Record Date:
March 17, 2014
·
Voting:
Shareholders as of the record date are entitled to vote.  Each share of common stock and each share of preferred stock is entitled to one vote for each director nominee and one vote for each of the other proposals to be voted on.
 
Voting Matters


Agenda Item
Board Vote Recommendation
Page Reference
(for more detail)
 
1.
 
The election of three directors for three-year terms expiring at the 2017 Annual Meeting.
 
FOR each director nominee
 
13
 
2.
 
The ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm for 2014.
 
FOR
 
21
 
3.
 
The approval of an advisory resolution on the compensation of our named executive officers.
 
FOR
 
56
 
4.
 
The approval of the Lincoln National Corporation 2014 Incentive Compensation Plan.
 
FOR
 
57

Board of Director Nominees


 
Name
 
Age
Director
Since
 
Occupation
 
Independent
Committee Memberships
 
Dennis R. Glass
 
64
 
2006
 
President and Chief Executive Officer, Lincoln National Corporation
 
No
 
Corporate Action
Gary C. Kelly
59
2009
 
Chairman, President and Chief Executive Officer, Southwest Airlines Co.
 
Yes
 
Audit
Finance
Michael F. Mee
71
2001
 
Retired, Executive Vice President and CFO, Bristol-Myers Squibb Company
 
Yes
 
Compensation
Finance

Governance Highlights


Our Board of Directors has long considered strong governance practices a priority.  They regularly evaluate and implement policies that reflect corporate governance best practices.  Some of these practices include the following:
 
·
The Chairman of the Board is an independent director;

·
All of our directors, except for the chief executive officer, are independent;

·
Majority voting and a director resignation policy for directors in uncontested elections;

·
Robust stock ownership guidelines for directors;
 
 
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·
Independent directors meet regularly in executive session; and

·
Board and committees conduct annual self-evaluations.

Executive Compensation Highlights


We are asking shareholders to cast an advisory, non-binding vote to approve compensation awarded to our named executive officers (“NEO”).  The key objectives of our executive compensation program are to motivate our executives to increase profitability and shareholder returns, to pay compensation that varies based on performance and to retain key executive talent, who are critical to our success.  At our 2013 Annual Meeting, shareholders expressed strong support for our executive compensation programs with 95% of the vote cast in favor of the advisory resolution.

Pay for Performance

Under these programs, we seek to align pay and performance by making a significant portion of our NEOs’ compensation dependent on:
 
·
the achievement of specific annual and long-term strategic and financial goals; and

·
the realization of increased shareholder value.
 
Our NEOs are those individuals who served as our chief executive officer and chief financial officer during 2013 and our three other most highly compensated executive officers, who are listed on page 23 of this proxy statement.

2013 Pay Mix

Named executive officer compensation is weighted towards variable compensation (annual and long-term incentives), where the actual amounts earned may differ from targeted amounts based on corporate and individual performance.  As the following charts show, 88% of the CEO’s target direct compensation and an average of 79% of our other NEOs’ target direct compensation are variable with performance, including stock price performance.
 
   
 

Note, the amounts in these graphs are shown at target and therefore will not match the values reflected in the Summary Compensation Table at page 40 of this proxy statement
 
Please read “Compensation Discussion & Analysis” beginning on page 23 and “Executive Compensation Tables” beginning on page 40 for additional details about our executive compensation programs, including information about our NEOs’ fiscal year 2013 compensation.

 
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LINCOLN NATIONAL CORPORATION
150 N. RADNOR CHESTER ROAD
RADNOR, PENNSYLVANIA 19087

 
PROXY STATEMENT
Annual Meeting of Shareholders
May 22, 2014

The Board of Directors (or “Board”) of Lincoln National Corporation (the “Company,” “we,” “our,” or “us”) is soliciting proxies in connection with the proposals to be voted on at the Annual Meeting of Shareholders scheduled for May 22, 2014 (the “Annual Meeting”).  The Annual Meeting will be held at The Ritz-Carlton Hotel, 10 Avenue of the Arts, Philadelphia, Pennsylvania 19102, beginning at 9 a.m. local time.  This proxy statement and a proxy card or a notice of internet availability was first sent to our shareholders on or about April 11, 2014.  Whenever we refer in this proxy statement to the “Annual Meeting,” we are also referring to any meeting that results from an adjournment of the Annual Meeting.


GENERAL INFORMATION

Why did I receive this proxy statement or notice of internet availability of proxy materials?

You are receiving a proxy statement, or a notice of internet availability of proxy materials, because you owned shares of our stock on March 17, 2014, the record date, and that entitles you to vote at the Annual Meeting.  This proxy statement describes the matters to be voted on at the Annual Meeting, provides information on these matters, and provides information about the Company that must be disclosed when your proxy is solicited.

What will I be voting on at the Annual Meeting?

At the Annual Meeting, shareholders are being asked to vote upon the following items of business:

1.  
the election of three directors for three-year terms expiring at the 2017 Annual Meeting;
2.  
the ratification of the appointment of Ernst & Young LLP as the independent registered public accounting firm for 2014;
3.  
the approval of an advisory resolution on the compensation of our named executive officers;
4.  
the approval of the Lincoln National Corporation 2014 Incentive Compensation Plan; and
5.  
to consider and act upon such other matters as may properly come before the meeting.

What are the Board of Directors recommendations?
 
·
for the election of the three director nominees named in this proxy statement;
·
for the ratification of the appointment of Ernst & Young LLP as the independent registered public accounting firm for 2014;
·
for the approval of the advisory resolution on the  compensation of our named executive officers; and
·
for the approval of the Lincoln National Corporation 2014 Incentive Compensation Plan (the “2014 ICP”).
 
Why did some shareholders receive a one-page notice in the mail regarding the internet availability of proxy materials instead of a full set of the printed proxy materials?

In accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials to each shareholder of record, we may furnish proxy materials by providing access to those documents on the internet.  Most shareholders received a notice of internet availability (the “Notice”) containing instructions as to how to access and review all of the proxy materials on the internet.  The Notice also contains instructions on how shareholders can request a paper copy of our proxy materials including our proxy statement, our 2013 annual report to shareholders and a proxy card form.  The Notice also instructs shareholders how to submit their proxy on the internet.  Shareholders receiving the Notice who would like to receive paper or email copies of our proxy materials should follow the instructions in the Notice for requesting those materials.  To ensure timely delivery of such proxy materials prior to the Annual Meeting, shareholders should make such request by May 9, 2014.

How do I attend the Annual Meeting?

All shareholders of record as of March 17, 2014 are invited to attend the Annual Meeting in person.  If you plan to attend the annual meeting, you will need to present proof of ownership and valid photo identification for admission.  Proof of ownership can include a brokerage statement or letter from your broker showing that you owned shares of our stock as of the record date, March 17, 2014.  If you do not have proof of ownership and valid photo identification, you will not be admitted to the Annual Meeting.
 
 
 
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Who is entitled to vote at the Annual Meeting?

Only shareholders of record at the close of business on March 17, 2014, the record date for the meeting, are entitled to vote at the Annual Meeting.  As of the record date, we had 262,001,129 shares of common stock, issued, outstanding and entitled to vote at the Annual Meeting.  You are entitled to one vote for each share of common stock you own.  The number of shares you own (and may vote) is listed on the proxy card or the Notice that you received.

What constitutes a quorum?

A majority of all outstanding shares entitled to vote at the Annual Meeting, or 131,000,565, constitutes a quorum, which is the minimum number of shares that must be present or represented by proxy at the Annual Meeting in order to transact business.  Subject to the rules regarding the votes necessary to adopt the proposals discussed below, abstentions and broker non-votes will be counted for purposes of determining whether a quorum is present.  Generally, “broker non-votes” occur when brokerage firms return proxies for which no voting instructions have been received from beneficial owners and the broker does not have discretionary authority to vote on the proposal.  Once a share is represented for any purpose at the Annual Meeting, it will be deemed present for quorum purposes for the remainder of the meeting (including any meeting resulting from an adjournment of the Annual Meeting, unless a new record date is set).

How do I vote?

1.  In person.  If you are a shareholder of record, you may attend the Annual Meeting and vote your shares or send a personal representative with an appropriate proxy.

If you own your shares in “street name” (i.e., through a broker-dealer or other financial institution) and you want to vote at the Annual Meeting, you will need to obtain a proxy card from the institution that holds your shares and present that card at the Annual Meeting.

If you own share equivalents through the Lincoln National Corporation Stock Fund of the LNC Employees’ 401(k) Savings Plan (the “Employees’ 401(k) Plan”), the LNL Agents’ 401(k) Savings Plan (the “Agents’ 401(k) Plan”),  or the LNL ABGA Money Purchase Plan, or through our dividend reinvestment plan, you cannot vote in person at the Annual Meeting.  Instructions on voting these share equivalents are described in more detail below under “How do I vote my 401(k) and/or dividend reinvestment plan shares?”
 
You can obtain additional information on voting in person at the Annual Meeting, including appropriate forms of proof of ownership and directions to the meeting location, by contacting Shareholder Services at 1-800-237-2920 or shareholderservices@lfg.com.

2.  By Mail.  Mark, date, sign and mail the proxy card in the prepaid envelope the Company has provided you if you received a paper copy of the proxy materials.  If you return the proxy card but do not mark your voting preference, the individuals named as proxies will, to the extent permissible, vote your shares in accordance with the Board’s recommendation on each item in this proxy statement.  With respect to any other matter that properly comes before the Annual Meeting, the individuals named as proxies will, to the extent permissible, vote all proxies in the manner they perceive to be in our best interests.

3.  By Telephone or Internet.  If you are a shareholder of record, you may submit your proxy with voting instructions by telephone if you are calling within the United States, Canada or Puerto Rico.  If you are a shareholder of record, you may also submit your proxy through the internet by visiting the website listed on the proxy card or Notice.

If you choose to submit your proxy with voting instructions by telephone or through the internet, you will be required to provide your assigned control number noted on the proxy card or Notice before your proxy will be accepted.  In addition to the instructions that appear on the proxy card or Notice, step-by-step instructions will be provided by recorded telephone message or at the designated website on the internet.

If you hold your shares in “street name,” please check your proxy card or Notice, or contact your broker, nominee, fiduciary or other custodian to determine if you will be able to vote by telephone or internet.

How many votes are needed to approve each proposal and what are the effects of broker non-votes, abstentions and unmarked proxy cards?

A majority of the votes cast by the holders of shares entitled to vote at the annual meeting, assuming a quorum is present, is required for: (1) the approval of the election of each director; (2) the ratification of the appointment of Ernst & Young LLP as our independent registered accounting firm; (3) the approval of the advisory resolution on the compensation of our named executive officers; and (4) the approval of the 2014 ICP.  Abstentions will not count as votes cast either for or against a nominee or the above proposals.
 
 
 
- 4 -

 

 

The proposal regarding the approval of the compensation of our named executive officers is advisory only and not binding on the Board of Directors.  If any other matters are properly presented at the Annual Meeting, a particular proposal will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against the proposal.

If you sign and return a proxy or voting instruction card, but do not mark how your shares are to be voted, they will be voted as the Board recommends.  If you hold your shares in “street name,” you may instruct your broker on how you would like your shares voted.  If you choose not to provide voting instructions, your shares are referred to as broker non-votes and the bank, broker or other custodian may be permitted to vote your shares (discretionary voting) only on the ratification of the appointment of the independent registered accounting firm.  These broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting for purposes of determining a quorum, but will not be considered in determining the number of votes necessary for approval and will have no effect on the outcome of the vote for directors, the advisory resolution on the compensation of our named executive officers, or the 2014 ICP.

Can I revoke my proxy or change my vote after I vote my proxy?

Yes.  You may revoke your proxy or change your vote at any time prior to the Annual Meeting by: (1) sending our Corporate Secretary a written revocation; (2) submitting a new proxy by mail, telephone or internet; or (3) attending the Annual Meeting and voting your shares in person.

How do I vote my 401(k) and/or dividend reinvestment plan shares?

If you have invested in the Lincoln National Corporation Stock Fund of the Employees’ 401(k) Plan or the Agents’ 401(k) Plan, your voting instructions, whether submitted via telephone or through the internet, will instruct the trustee of your plan how to vote the shares of common stock allocated to the plans.  If our stock books contain identical account information regarding common stock that you own directly and common stock that you have an interest in through these plans, you will receive a single proxy/voting instruction card representing all shares owned by you.  If you participate in one of these plans and do not provide the trustee with your voting instructions by 11:59 p.m. (E.D.T.) on May 20, 2014, the trustee of the plans will vote the shares in your account in proportion to shares held by the plans for which voting instructions have been received.

If you participate in our dividend reinvestment plan, your proxy/voting instruction card(s) will also include your shares of common stock allocated to your accounts in that plan.  To vote your shares in this plan, you must return your proxy/voting instruction card(s) or submit your voting instructions by telephone or over the internet as instructed on your proxy/voting instruction card(s).
 
Who may solicit proxies?

Our directors, officers and employees, as well as Georgeson Inc., our proxy solicitation firm, may solicit proxies on behalf of the Board in person, by mail, telephone, fax and other electronic means.
 
Who pays for the costs of soliciting proxies?

We will pay the cost of soliciting proxies. Our directors, officers and employees will receive no additional compensation for soliciting proxies.  We will reimburse certain brokerage firms, banks, custodians and other fiduciaries for the reasonable mailing and other expenses they incur in forwarding proxy materials to the beneficial owners of stock that those brokerage firms, banks, custodians and fiduciaries hold of record.  As noted above, we have retained Georgeson Inc. to solicit proxies.  We will pay Georgeson Inc. a fee of $11,000, plus reasonable expenses, for these services.




 
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SECURITY OWNERSHIP

Security Ownership of More than 5% Beneficial Owners

We only have shares of common stock outstanding, which are listed on the New York Stock Exchange (“NYSE”) under the symbol “LNC.”  The following table shows the names of persons or entities known by us to beneficially own more than 5% of our common stock as of December 31, 2013.

 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AS OF DECEMBER 31, 2013
 
 
TITLE
OF CLASS
 
 
NAME AND ADDRESS
OF BENEFICIAL OWNER
 
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
 
PERCENT OF CLASS
 
 
Common Stock
 
 
BlackRock, Inc.
40 East 52nd Street
New York, New York  10022
 
 
 
17,305,409
 
 
6.6%
 
 
Common Stock
 
 
The Vanguard Group
100 Vanguard Boulevard
Malvern, Pennsylvania  19355
 
 
 
17,838,508
 
 
6.79%

The information set forth in this table is based solely on our review of Schedules 13G filed with the SEC and as of the date set forth above.  We do not have information regarding the foregoing share positions after December 31, 2013.  The information regarding the amount and nature of beneficial ownership is to the best of our knowledge.


 
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Security Ownership of Directors, Nominees and Executive Officers

The following table shows the number of shares of common stock and stock units (i.e., non-transferable, non-voting “phantom” units, the value of which is the same as the value of the corresponding number of shares of common stock) beneficially owned on March 15, 2014, by each director, nominee for director and named executive officer, individually, and by all directors and executive officers as a group.

Whenever we refer in this proxy statement to the “named executive officers” or “NEOs”, we are referring to those executive officers that we are required to identify in the Summary Compensation Table on page 40.

SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
AS OF MARCH 15, 2014
 
NAME
AMOUNT OF LNC COMMON STOCK AND NATURE OF BENEFICIAL OWNERSHIP1
PERCENT OF CLASS
LNC STOCK UNITS2
TOTAL OF LNC COMMON STOCK AND STOCK UNITS
TOTAL PERCENT OF CLASS
William J. Avery
36,187
*
30,061
66,248
*
Charles C. Cornelio
337,337
*
5,001
342,378
*
William H. Cunningham
50,776
*
68,445
119,221
*
Randal J. Freitag
159,795
*
644
160,439
*
Wilford H. Fuller
213,446
*
23,077
236,522
*
Dennis R. Glass
1,607,299
*
40,523
1,647,822
*
George W. Henderson, III
41,965
*
46,939
88,904
*
Eric G. Johnson
39,781
*
39,855
79,636
*
Gary C. Kelly
20,040
*
11,576
31,616
*
Mark E. Konen
393,191
*
5,918
399,109
*
M. Leanne Lachman
37,528
*
49,822
87,350
*
Michael F. Mee
34,017
*
52,988
87,005
*
William P. Payne
52,860
*
28,178
81,038
*
Patrick S. Pittard
57,551
*
30,275
87,826
*
Isaiah Tidwell
43,210
*
22,821
66,031
*
All Directors and Executive Officers as a group –18 persons
3,283,433
1.24%
456,124
3,739,557
1.41%

_________________________________
* Each of these amounts represents less than 1% of the outstanding shares of our common stock as of March 15, 2014.

1.  The number of shares that each person named in this table has a right to acquire within 60 days of March 15, 2014 is as follows:  Mr. Avery, 25,105 shares; Mr. Cornelio 248,824 shares; Mr. Cunningham, 49,538 shares; Mr. Freitag, 133,984 shares; Mr. Fuller, 100,459 shares; Mr. Glass, 1,265,992 shares;
Mr. Henderson, 41,359 shares; Mr. Johnson, 33,180 shares; Mr. Kelly, 17,040 shares; Mr. Konen, 311,000 shares; Ms. Lachman, 33,180 shares; Mr. Mee, 33,180 shares; Mr. Payne, 41,463 shares; Mr. Pittard, 49,538 shares; Mr. Tidwell, 43,120 shares; and all directors and officers as a group, 2,596,343 shares.  Mr. Konen’s shares include 37,457 shares that are held in a family trust.

2.  LNC Stock Units are non-voting, non-transferable phantom stock units that track the economic performance of our common stock.



 
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GOVERNANCE OF THE COMPANY

Our Board of Directors consists of 11 members.  Ten of these directors are non-employees, or outside directors, and the Board has determined that all 10 are independent as discussed below.

Board Leadership Structure

The Board has no policy requiring separation of the offices of chief executive officer, or CEO, and Chairman of the Board.  The Board believes this decision is part of the succession planning process and takes into consideration the best interests of the Company in making this determination.  Currently, we separate the roles of CEO and Chairman of the Board in recognition of the differences between the two roles.  The CEO is responsible for setting the strategic direction for the Company and the day-to-day leadership and performance of the Company, while the Chairman of the Board provides guidance to the CEO and management, consults on the agenda for Board meetings, and presides over meetings of the full Board.  In May 2013, independent director, William H. Cunningham, was re-elected to serve another one-year term as the non-executive Chairman of the Board.  In addition to the duties described above,
Mr. Cunningham acts as the key liaison between the Board and management and presides over meetings of the independent directors.  As chairman, Mr. Cunningham also has the authority to call special meetings of the Board.

Board’s Role in Risk Oversight

Enterprise risk management is an integral part of our business processes.  Senior management is primarily responsible for establishing policies and procedures designed to assess and manage the Company’s significant risks.  Additionally, we have a Corporate Enterprise Risk and Capital Committee made up of members of senior management and the Chief Risk Officer that provides oversight of our enterprise-wide risk structure and the processes established to identify, measure, monitor, and manage significant risks, including credit risk, market risk, and operating risk.  The Corporate Enterprise Risk and Capital Committee periodically reviews the Company’s strategies and policies for managing these risks.  The Board’s role is regular oversight of the enterprise risk management process, including reviews of operational, financial, legal and regulatory, and strategic and competitive risks.

The Board exercises its responsibilities periodically as part of its meetings and through its Committees.  The Board has delegated the regular oversight of our risk management efforts to the Audit Committee, the oversight of risks involving the capital structure of the enterprise to the Finance Committee and the oversight of compensation-related risk to the Compensation Committee.  For a further discussion of the Audit and Finance Committees’ oversight responsibilities, see “Audit Committee” and “Finance Committee” at pages 11 and 13 respectively.  For a further discussion of the Compensation Committee’s oversight of compensation-related risk, see “Risk Considerations Relating to Compensation” at page 29.

The Audit Committee receives quarterly reports from members of senior management, including the Chief Risk Officer, on areas of material risk to the Company, including operational, financial, legal, regulatory, strategic and competitive risks.  After the Audit Committee receives these reports, the Chair of the Audit Committee provides a summary of the discussion to the full Board during the Audit Committee report at the next Board meeting.  Similar reports are provided by the Compensation and Finance Committees to the full Board.  This enables the Board and its Committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.  In addition, at its meetings, the Board reviews the most significant risks facing the Company and the manner in which our executives manage these risks.  We believe that our current leadership structure supports the Board’s oversight role.

Our Corporate Governance Guidelines

The Board of Directors has developed and adopted a set of Corporate Governance Guidelines (the “Guidelines”) to promote the functioning of the Board and its committees and to set forth a common set of expectations as to how the Board should perform its functions.  The full text of the Guidelines is available on our website at www.lfg.com.  The Guidelines provide a framework for effective corporate governance, including the following key principles:
 
·
A majority of our Board, including the nominees for director, must at all times be independent as that term is defined under the applicable SEC rules and our guidelines for determining the independence of directors, which meet the NYSE listing standards.
·
The independent directors must meet in executive session at least once a year and may meet at such other times as they may desire.  The outside directors, all of whom are independent, meet in connection with each regularly scheduled Board meeting and at such other times as they may desire.
·
Only independent directors may serve on the Audit Committee, Compensation Committee and Corporate Governance Committee.
·
The written charters of the Audit, Compensation, Corporate Governance and Finance Committees of the Board are reviewed not less than annually.  The charters of the Audit, Compensation and Corporate Governance Committees comply with the NYSE’s
 
 
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listing standards and are available on our website at www.lfg.com.
·
We have a Code of Conduct that is available on our website at www.lfg.com.  The Code of Conduct comprises our “code of ethics” for purposes of Item 406 of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and our “code of business conduct and ethics” for purposes of the NYSE listing standards.  We intend to disclose amendments to or waivers from a required provision of the code by including such information on our website at www.lfg.com.
·
Directors may not stand for election or reelection after their 75th birthday.
·
The Board conducts an annual review of the performance of the Board and the Audit, Compensation, Corporate Governance and Finance Committees.
·
The Corporate Governance Committee must re-evaluate the Guidelines each year.
 
Director Independence

Our Board maintains independence standards, which are included in the Guidelines. These independence standards require that a majority of our directors must at all times be independent as that term is defined under the applicable SEC rules and meet the criteria for independence as set forth in the NYSE listing standards.  The NYSE listing standards provide that in order to be considered independent, the Board must determine that a director has no material relationship with us other than as a director.

The Corporate Governance Committee and the Board have reviewed the independence of each director, including the nominees for director at the Annual Meeting, under the standards set forth in the Guidelines and the NYSE listing standards.  As a result of this review, the Board has affirmatively determined that directors Avery, Cunningham, Henderson, Johnson, Kelly, Lachman, Mee, Payne, Pittard and Tidwell are independent.

The Board also determined that those directors who are members of the Audit, Compensation and Corporate Governance Committees are likewise independent of our management and us under the Guidelines and the applicable SEC and NYSE rules.

In conducting its independence review, the Board considered, among other things, transactions and relationships between each outside director or any member of his or her immediate family and us or our subsidiaries and affiliates.  In making these determinations, the Board considered that in the ordinary course of business, transactions occur between us and companies at which some of our directors are or have been directors, employees or officers.  Mr. Cunningham is a professor at and employee of The University of Texas with which we engage in ordinary course of business transactions, namely, providing a 403(b) plan.  In each case, the transactions were on terms that are substantially equivalent to those prevailing at the time for comparable transactions, and none reached the threshold levels set forth in our standards.

Director Nomination Process

The Corporate Governance Committee of the Board is responsible for: (1) assisting the Board by identifying individuals qualified to become Board members; (2) recommending to the Board the director nominees for the next annual meeting of shareholders; and (3) evaluating the competencies appropriate for the Board and identifying missing or under-represented competencies.  Our Corporate Governance Guidelines provide that the Board is responsible for selecting its own members.

The Corporate Governance Committee does not have any specific minimum qualifications that must be met by a nominee.  However, its charter provides that “[I]n nominating candidates, the Committee shall take into consideration such factors as it deems appropriate.  These factors may include judgment, skill, diversity, experience, the extent to which the candidate’s experience complements the experience of other Board members and the extent to which the candidate would be a desirable addition to the Board and any Committees of the Board.  The Committee may consider candidates proposed by management, but is not required to do so.”

The Corporate Governance Committee begins by reviewing the individual director assessments of existing directors who are being considered for re-nomination. Current members of the Board who have skills and experience that are relevant to our business, who are willing to continue to serve and whose director assessment indicates the director has performed well during the most recent term are considered for re-nomination.  If any member of the Board being considered for re-nomination does not wish to serve, or if the Corporate Governance Committee decides not to re-nominate a given member, the Corporate Governance Committee identifies the desired skills and experience that a potential new nominee should possess.  The Corporate Governance Committee also considers whether it is necessary or desirable that the nominee be considered independent under the NYSE listing standards, and, if so, whether the individual meets the standards for independence. The Corporate Governance Committee may, but is not required to, retain an outside firm to assist in the identification and evaluation of potential nominees.

The Corporate Governance Committee is responsible for reviewing with the Board the appropriate skills and characteristics required of Board members in the context of the current make-up of the Board.  This assessment
 
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includes integrity, business acumen, age, experience, professional accomplishments, skills such as an understanding of marketing, finance, accounting, regulation and public policy and a commitment to our shared values, among others – all in the context of an assessment of the perceived needs of the Board at a given point in time. Our Corporate Governance Guidelines also specify that diversity should be considered by the Corporate Governance Committee in the director identification and nomination process. The Committee seeks nominees with a broad diversity of backgrounds, experience, professions, education and differences in viewpoints and skills. The Board does not have a formal policy with respect to diversity; however, the Board and the Corporate Governance Committee believe that the backgrounds and qualifications of the directors, considered as a group, should provide a substantive blend of experience, knowledge and abilities that allow the Board to fulfill its responsibilities. In the annual evaluation of the Board and committees, the Board considers whether the members of the Board reflect such diversity and whether such diversity contributes to a constructive and collegial environment.
 
In connection with the evaluation of a new nominee, the Corporate Governance Committee determines whether it should interview the nominee, and, if warranted, one or more members of the Corporate Governance Committee interview the nominee.  Other directors may also be asked to interview the nominee.  Upon completing the evaluation and the interview, the Corporate Governance Committee makes a recommendation to the Board as to whether to nominate the director nominee.

Although the Corporate Governance Committee does not solicit shareholder recommendations regarding director nominees to be proposed by the Board, it will consider such recommendations if they are made in accordance with the procedures set forth in Article I, Section 11 of our Bylaws, which are set forth in Exhibit 1 to this proxy statement and discussed beginning on page 66 under the heading “Shareholder Proposals.”  If the Corporate Governance Committee determines that such a nominee should be considered as a director, it will recommend the nominee to the Board.  The Board may accept or reject the proposed nominee.  There are no differences in the manner in which the Corporate Governance Committee evaluates nominees for director based on whether the nominee is recommended by a shareholder.

Communications with Directors

The Board provides a process for shareholders and other interested persons to send communications to the Board or to the outside directors of the Board.  Shareholders and other interested persons may send such communications to the outside members of the Board of Directors at:

The Outside Directors
Lincoln National Corporation
150 N. Radnor Chester Road
Radnor, PA  19087
Attention:  Office of the Corporate Secretary

All communications will be received and processed by the Corporate Secretary.  Relevant and appropriate communications will be referred to the non-executive Chairman of the Board.  You may communicate anonymously and/or confidentially.

The Audit Committee has established a policy for reporting information related to possible violations of our Code of Conduct, or concerns or complaints pertaining to our accounting, internal controls or audit matters or other related concerns.  The policy can be found on our website at www.lfg.com.

If you choose to submit your communication anonymously, we will be unable to contact you in the event we require further information.  If you choose to communicate confidentially, we cannot guarantee absolute confidentiality.

Director Attendance at 2013 Annual Meeting

The Board does not have a formal policy regarding attendance by Board members at our Annual Meeting of Shareholders, but directors are encouraged to attend the Annual Meeting of Shareholders.  Ten of our directors were in attendance at the 2013 Annual Meeting of Shareholders.


THE BOARD OF DIRECTORS AND COMMITTEES

Our Board is composed of 11 members.  The members of the Board, including Board nominees, their relevant term of office and certain biographical information are set forth beginning on page 13 under “Item 1 – Election of Directors.”  Compensation of our directors is discussed on page 19 under “Compensation of Directors.”

During 2013, the Board met four times.  All directors attended 75% or more of the aggregate of: (1) the total number of meetings of the Board and (2) the total number of meetings held by committees on which he or she served.


 
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Board Committees

The Board currently has six standing committees:  the Audit Committee, the Compensation Committee, the Corporate Governance Committee, the Executive Committee, the Finance Committee and the Committee on Corporate Action.  The following table lists the directors who currently serve on the Committees and the number of meetings held for each Committee during 2013.  The Audit, Compensation, Corporate Governance and Finance Committees each conduct a self-evaluation of their respective committee’s performance each year.
 
Current Committee Membership and Meetings Held During 2013
(C=Chair     M=Member)
Name
Audit
Compensation
Corporate Governance
 
Executive
Finance
Corporate Action1
William J. Avery
M
 
M
     
William H. Cunningham
 
M
M
C
M
 
Dennis R. Glass
     
M
 
C
George W. Henderson, III
M
     
M
 
Eric G. Johnson
 
M
 
M
C
 
Gary C. Kelly
M
     
M
 
M. Leanne Lachman
C
         
Michael F. Mee
 
M
 
M
M
 
William P. Payne
   
C
M
   
Patrick S. Pittard
 
C
       
Isaiah Tidwell
M
 
M
     
Number of Meetings in 2013:
9
4
4
0
5
 
1 The Committee on Corporate Action takes all action by the unanimous written consent of the sole member of that Committee, and there were 9 such consents in 2013.


The functions and responsibilities of the standing committees of our Board are described below.

Audit Committee

The primary function of the Audit Committee is oversight, including risk oversight.  The principal functions of the Audit Committee include:
 
·
assist the Board of Directors in its oversight of:
(1) the integrity of our financial statements; (2) our compliance with legal and regulatory requirements; (3) the independent auditor’s qualifications and independence; (4) the performance of our general auditor and independent auditor; and (5) our policies and processes for risk assessment and risk management;
·
appoint, retain and terminate the independent auditors, and approve all engagements of the independent auditors;
·
discuss any significant matters arising from any audit;
·
discuss our annual and quarterly consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our SEC filings and annual report to shareholders, if applicable;
·
inquire about significant risks and exposures, if any, and review and assess the steps taken to monitor and manage such risks;
·
review and discuss the risk policies and procedures adopted by management and the implementation of these policies;
·
review the qualifications and background of senior risk officers;
·
establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal auditing controls or auditing matters, and for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;
·
consult with management before the appointment or replacement of the internal auditor;
·
prepare the report required to be prepared by the Audit Committee pursuant to SEC rules for inclusion in our annual proxy statement; and
·
report the Committee’s activities to the Board on a regular basis and make any recommendations as the Committee deems appropriate.
 
The Board has determined that Gary C. Kelly is an “audit committee financial expert,” as defined under Item 407 of Regulation S-K under the Exchange Act.  Mr. Kelly is an independent director under applicable SEC rules, NYSE listing standards and our Corporate Governance Guidelines.  The Audit Committee has authority to obtain advice and assistance from internal or external legal, accounting or other advisers.  The Board has adopted a written charter for the Audit Committee, a copy of which is available on our website at www.lfg.com.
 
 
 
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More information concerning the Audit Committee, including the Audit Committee Report, is set forth under “Ratification of the Appointment of the Independent Registered Public Accounting Firm” beginning on page 21.
 
Compensation Committee

The principal functions of the Compensation Committee include:
 
·
establish, in consultation with its compensation consultant and senior management, our general compensation philosophy;
·
ensure succession plans are in place for the CEO and other executive officers;
·
review and approve corporate goals and objectives relevant to the compensation of the CEO, evaluate the CEO’s performance in light of these goals and set the CEO’s compensation level based on this evaluation;
·
evaluate on an annual basis whether the Company’s compensation programs create unnecessary risks that are reasonably likely to have a material adverse effect on the Company;
·
discuss with management the Compensation Discussion and Analysis to be included in the Company’s proxy statement;
·
review and approve all compensation strategies, policies and programs that encompass total remuneration of our executive officers and key personnel;
·
make recommendations to the Board regarding incentive compensation and equity-based plans, and approve all grants and awards under such plans to executive officers;
·
approve employment and severance agreements for executive officers;
·
approve employee benefit and executive compensation plans and programs and changes to such plans and programs, provided the cost of each plan or change to a plan will not exceed $20 million for the next five calendar years after their effectiveness; and
·
report the Committee’s activities to the Board on a regular basis and make any recommendations as the Committee deems appropriate.
 
A copy of the Compensation Committee Charter is available on our website at www.lfg.com.  The Compensation Committee is directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, independent legal counsel and other advisers.  The Compensation Committee may select any such adviser only after taking into account certain independence factors.  More information concerning the Compensation Committee, including the role of its compensation consultant and our executive officers in determining or recommending the amount or form of executive compensation, is set forth in the “Compensation Discussion & Analysis” section beginning on page 23.

Corporate Governance Committee

The principal functions of the Corporate Governance Committee include:
 
·
identify individuals qualified to become Board members;
·
subject to our Bylaws, recommend to the Board nominees for director (including those recommended by shareholders in accordance with our Bylaws) and for Board Committees;
·
take a leadership role in shaping our corporate governance and recommend to the Board the corporate governance principles applicable to us;
·
develop and recommend to the Board standards for determining the independence of directors;
·
recommend to the Board an overall compensation program for directors;
·
make recommendations to the Board regarding the size of the Board and the size, structure and function of Board Committees;
·
assist in the evaluation of the Board and be responsible for the evaluation of individual directors; and
·
report the Committee’s activities to the Board on a regular basis and make any recommendations as the Committee deems appropriate.
 
The Corporate Governance Committee has the authority to retain and terminate search firms and to approve any search firm’s fees and terms of retention and to obtain advice and assistance from internal or external legal, accounting or other advisers.  A copy of the Corporate Governance Committee Charter is available on our website at www.lfg.com.

Executive Committee

The Executive Committee meets at such times as it determines to be appropriate and has the authority to act for the Board in the management and direction of the business and affairs of the Company during intervals between Board meetings, except for those matters that are expressly delegated to another committee or the full Board.  The Executive Committee will report to the Board of Directors any actions taken by the Committee as soon as practicable.  A copy of the Executive Committee Charter is available on our website at www.lfg.com.

Finance Committee

The principal functions of the Finance Committee include:
 
 
 
 
- 12 -

 

 
·
review and provide guidance to senior management with respect to our annual three-year financial plan;
·
review and provide guidance to senior management with respect to our capital structure, including reviewing and approving (within guidelines established by the Board) issuance of securities by us or any of our affiliates, reviewing and approving significant “off balance sheet” transactions and reviewing and recommending changes, if necessary, to our dividend and share repurchase strategies;
·
review our overall credit quality and credit ratings strategy;
·
review and provide guidance to senior management with respect to our reinsurance strategies;
·
review and provide guidance to senior management with respect to proposed mergers, acquisitions, divestitures, joint ventures and other strategic investments;
·
review the general account and approve our investment policies, strategies and guidelines;
·
review our hedging program and the policies and procedures governing the use of financial instruments including derivative instruments;
·
review the adequacy of the funding of our qualified pension plans, including significant actuarial assumptions, investment policies and performance; and
·
report the Committee’s activities to the Board on a regular basis and make any recommendations as the Committee deems appropriate.
 
The Finance Committee has authority to obtain advice and assistance from internal or external legal, accounting or other advisers.  A copy of the Finance Committee Charter is available on our website at www.lfg.com.
 
Committee on Corporate Action

Within limits now or hereafter specified by the Board and, in some cases, the Finance Committee, the principal functions of the Committee on Corporate Action include:
 
·
determine the pricing of the securities offered from our shelf registration statement (including the interest rate, dividend rate, distribution rate or contract adjustment payments, as applicable, the conversion ratio or settlement rate, as applicable, the price at which such securities will be sold to the underwriters, the underwriting discounts, commissions and reallowances relating thereto and the price at which such securities will be sold to the public);
·
approve, as necessary, the underwriting agreement, security and other transaction documents relating to the offering and sale of the securities under our shelf registration statement; and
·
appoint certain classes of our officers as the Board may determine by resolution.

ITEM 1 - ELECTION OF DIRECTORS

Our Board is currently divided into three classes.  Directors elected at the Annual Meeting are elected for three-year terms.  However, beginning with the 2015 Annual Meeting of Shareholders, the class of directors that will be up for re-election at that meeting will only be elected for a one-year term.  We will continue this process each year thereafter, such that by the 2017 Annual Meeting of Shareholders, the board will no longer be classified and each director will be elected on an annual basis.

William H. Cunningham has served as our non-executive chairman since 2009 and a director since 2006.  The Board of Directors is authorized under our Bylaws to fill a vacancy on the Board or reduce the size of the Board without seeking shareholder approval.

The following descriptions of each of our directors provide information as of the date of this proxy statement regarding the particular experience, qualifications, attributes or skills that led our Board to the conclusion that each of the persons listed below should serve as a director for the Company.  Each director brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence, diversity and experience in a wide variety of areas.  The Board believes all of our directors have integrity and honesty and adhere to high ethical standards.  They have each demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to the Company and our Board.
 
 

 
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Nominees for Director

Unless you direct otherwise, or specifically indicate that you wish to abstain from voting for one or more of the nominees on the proxy you complete, your proxy will be voted for the Board’s nominees for terms expiring at the 2017 Annual Meeting or until their successors are duly elected and qualified.  All of the nominees are current directors of the Company.  All nominees have agreed to serve on the Board if they are elected.  The identity of and certain biographical information relating to, the nominees are set forth below.  If any nominee is unable (or for whatever reason declines) to serve as a director at the time of the Annual Meeting, proxies may be voted for the election of a qualified substitute nominee selected by the Board.


 
Nominees for a Term Expiring at the 2017 Annual Meeting


Dennis R. Glass, President and Chief Executive Officer, Lincoln National Corporation
 
Mr. Glass, 64, elected to the Board of Directors in 2006, serves as a member of the Executive Committee.  An experienced and seasoned executive, Mr. Glass has served as our President since 2006, and our CEO since 2007.  He is also the president of and serves on the boards of our principal insurance subsidiaries.  Prior to our merger with Jefferson-Pilot Corporation in 2006, he was the President, CEO and also served on the board of directors of Jefferson-Pilot Corporation from 2004 through the merger in 2006.  Prior to joining Jefferson-Pilot in 1993, Mr. Glass held executive level finance and investment positions in the insurance and investment industries.  Having served in executive level positions in the insurance and investment industries for nearly 30 years, Mr. Glass brings a deep knowledge of our industry, our competitors and our products to his role as a director.  Mr. Glass’s background also includes senior executive experience in financial accounting and reporting as well as past service as chairman of the Board of the American Council of Life Insurers (ACLI).  He currently chairs the ACLI CEO Financial Services Committee.
 
Other Public Company Board Service:  None.
   
Gary C. Kelly, Chairman of the Board, President and Chief Executive Officer of Southwest Airlines Co.
 
Mr. Kelly, 59, elected to the Board of Directors in 2009, serves as a member of the Audit and Finance Committees.  Mr. Kelly currently serves as the Chairman of the Board, President and CEO of Southwest Airlines, the largest domestic airline, based on passengers carried, and one well known for its commitment to customer service and knowledge of the customer experience.  Prior to becoming the CEO of Southwest, Mr. Kelly held a number of senior level positions within the Southwest organization, including as Chief Financial Officer, providing him with substantial expertise in finance, accounting and financial reporting.  Prior to joining Southwest, Mr. Kelly served as a CPA for a public auditing firm. Through his experience as the CEO of a large airline, Mr. Kelly gained substantial executive leadership skills and management experience as the senior executive of a public company.  He brings invaluable operational, financial, regulatory and governance perspectives to the Board of Directors.
 
Other Public Company Board Service:  Director of Southwest Airlines Co. (2004 – Present).
   
 
 
 
- 14 -

 
 
 
   
 
Michael F. Mee, Retired Executive Vice President and Chief Financial Officer of Bristol-Myers Squibb Company
 
Mr. Mee, 71, elected to the Board of Directors in 2001, serves as a member of the Compensation and Finance Committees.  Mr. Mee retired as the Executive Vice President and CFO of Bristol-Myers Squibb Co. in 2001.  He was also a member of the Office of the Chairman.  In that position, he was responsible for all Controllership, Tax, Treasury, Audit, Investor Relations, Information Management, Corporate and External Business Development and the Global Business Services functions.  Prior to joining Bristol-Myers Squibb, Mr. Mee was involved in the reorganization of Wang Laboratories as chairman of the board and earlier as chief financial officer of the company.  Prior to joining Wang Laboratories in 1990, he was chief financial officer of the Norton Co. and chairman of its Eastman Christensen Oil Field Services subsidiary.  Mr. Mee brings significant public accounting and financial reporting skills from his experience as the CFO at a number of public companies.  In addition to his management experience and leadership skills as a senior executive officer, Mr. Mee has also developed expertise in corporate strategy, development and investments, international operations and risk assessment while with these companies.  In addition to serving on our Board, Mr. Mee also served on the board of Ferro Corporation, a public global materials producer until March 2010.
 
Public Company Board Service in last 5 years:  Ferro Corporation (2001 – 2010).
 
 
 
The Board of Directors recommends a vote FOR each of the nominees.


Directors Continuing in Office

The identity of, and certain biographical information relating to, the directors who will continue in office after the Annual Meeting are set forth below.


Continuing in Office for a Term Expiring at the 2015 Annual Meeting


 
George W. Henderson, III, Retired Chairman and Chief Executive Officer of Burlington Industries, Inc.
 
Mr. Henderson, 65, elected to the Board of Directors in 2006, serves as a member of the Audit and Finance Committees.  He also serves as a director of Lincoln Life & Annuity Company of New York, one of our insurance subsidiaries.  Mr. Henderson served as the Chairman and CEO of Burlington Industries, a manufacturer of textile products from 1998 – 2003.  During his career at Burlington, which began in 1974, Mr. Henderson served in various roles and was elected to the board of directors in 1990.  Thereafter, he was named president and COO in 1993, and president and CEO in 1995.  Through his experience as the CEO of a global manufacturer, Mr. Henderson gained substantial executive leadership skills and management experience as the senior executive of a public company.  Mr. Henderson’s background includes significant experience with international operations and accounting and financial reporting.  He has also served on the boards of a number of public companies.
 
Other Public Company Board Service:  Bassett Furniture Industries, Inc. (2004 – Present).
 
 
 
 
 
- 15 -

 

 
Eric G. Johnson, President and Chief Executive Officer of Baldwin Richardson Foods Company
 
Mr. Johnson, 63, elected to the Board of Directors in 1998, is Chairman of the Finance Committee and serves as a member of the Compensation and Executive Committees.  Since 1997, Mr. Johnson has served as the President and CEO of Baldwin Richardson Foods Company, a private company that manufactures products for the food service industry.  A business entrepreneur, Mr. Johnson originally purchased Baldwin Ice Cream Co. in 1992.  After expanding the sales and distribution of the company, Mr. Johnson completed the acquisition of Richardson Foods from the Quaker Oats Company.  Prior to that, he served as the CEO of a public company, Johnson Products Company.  Mr. Johnson has developed extensive executive management skills, expertise in marketing, corporate strategy, development and execution, as well as experience in mergers and acquisitions.  Through his prior service as the CEO of a public company, Mr. Johnson brings broad finance expertise to the Board.  Mr. Johnson was recently appointed to the board of SUPERVALU INC., a grocery industry leader with store locations throughout the U.S.  Through his years of service on our Board, Mr. Johnson has developed a deep base of knowledge regarding our business and our industry.
 
Other Public Company Board Service:  SUPERVALUE INC. (2013 – Present).
   
 
M. Leanne Lachman, President of Lachman Associates LLC and Executive in Residence, Columbia Graduate School of Business.
 
Ms. Lachman, 71, elected to the Board of Directors in 1985, is the Chair of the Audit Committee.  She also serves as a director of Lincoln Life & Annuity Company of New York, one of our insurance subsidiaries.  Ms. Lachman has served as president of Lachman Associates LLC, an independent real estate consultancy since 2003, and as an Executive-in-Residence at Columbia Business School since 2000.  Previously, Ms. Lachman spent four years as managing director of Lend Lease Real Estate Investments, a global institutional investment manager.  Prior to that, she was a partner of Schroder Real Estate Associates, a boutique real estate manager.  Her early career was with Real Estate Research Corporation, where she served as chief executive officer.  In addition, Ms. Lachman has an extensive background in real estate analysis, investment management and development, as well as international operations.  With more than 25 years of service as a director of our Company, she has acquired a deep understanding of our business, our organization and our industry, enabling her to make significant contributions to our Board.  She also serves on the board, and audit and governance and nominating committees, of Liberty Property Trust, a public real estate investment trust, which gives her insight into governance and related best practices.
 
Other Public Company Board Service:  Director of Liberty Property Trust (1994 – Present).
 
Isaiah Tidwell, Retired Executive Vice President and Georgia Wealth Management Director, Wachovia Bank, N.A.
 
Mr. Tidwell, 69, elected to the Board of Directors in 2006, serves as a member of the Audit and Corporate Governance Committees.  He was an Executive Vice President and Director of Wealth Management operations for Wachovia Bank in Georgia from 2001 to 2005.  Throughout his career with Wachovia, which began in 1972, he served in successively more responsible roles including Assistant Vice President, General Loan Administration Officer, Vice President and then Office Executive for the Winston Salem Office.  Later, he was elected Regional Vice President and Area Executive for the Charlotte Office.  Thereafter, Mr. Tidwell served as the Southern Regional Executive and was then promoted to Executive Vice President.  Mr. Tidwell was named president of Georgia Banking in 1999.  Prior to his career with Wachovia, Tidwell was employed in various accounting and financial positions with Celanese Corporation.  Over his 32 year career with Wachovia Bank, Mr. Tidwell developed extensive experience in banking, financial services and wealth management.  In addition to serving on our Board, Mr. Tidwell has also served for a number of years on the boards of other public companies.  Through this experience, Mr. Tidwell has also developed knowledge of risk assessment practices and a significant understanding of finance and accounting principles.
 
Other Public Company Board Service:  Director of Synder’s-Lance, Inc. (formerly Lance, Inc., 1995 – Present).
 
Public Company Board Service in last 5 years:  Harris Teeter Supermarkets, Inc. (formerly Ruddick Corporation, 1999 – 2014).
 
 
 
 
- 16 -

 

 
Continuing in Office for a Term Expiring at the 2016 Annual Meeting


William J. Avery, Retired Chairman of the Board and Chief Executive Officer of Crown Cork & Seal Company, Inc.
 
Mr. Avery, 73, elected to the Board of Directors in 2002, serves as a member of the Audit and Corporate Governance Committees.  In 2001, Mr. Avery retired from Crown Cork & Seal, a manufacturer of packaging products for consumer goods.  Mr. Avery began his career as a management trainee with Crown Cork & Seal in 1959 in the Chicago plant.  He attained successively more responsible positions with the company as plant manager, area manufacturing manager and vice president of sales in the Mid-West Division.  In 1974, he was appointed corporate vice president of sales.  He was appointed senior vice president of sales and marketing in 1979, executive vice president in 1980 and president in 1981.  In 1989, he became chief executive officer and, in 1990, he assumed the additional position of chairman of the board.  Through his experience as the former President, CEO and Chairman of the Board of Crown, Cork & Seal (now Crown Holdings, Inc.), Mr. Avery brings a wealth of experience in driving strategic direction and leading organizational growth.  Mr. Avery also has substantial experience in accounting, financial reporting, marketing and mergers and acquisitions.  In addition to his years of service on our Board, he previously served for over 10 years on the board and audit committee of Rohm and Haas Company, a diversified chemical company.
 
 Other Public Company Board Service:  None.
 
Public Company Board Service in last 5 years:  Director of Rohm & Haas (1997 – 2009).
   
 
William H. Cunningham, Professor at The University of Texas at Austin and James L. Bayless Chair for Free Enterprise at the University’s McCombs School of Business.
 
Mr. Cunningham, 70, elected to the Board of Directors in 2006, has served as Chairman since 2009.  Mr. Cunningham also serves on the Compensation, Corporate Governance and Finance Committees.  Mr. Cunningham has been a professor with The University of Texas since 2000.  Prior to that he served as Chancellor and Chief Executive Officer of The University of Texas System from September 1992 to July 2000.  He served as President of The University of Texas at Austin from 1985-1992 and was Dean of the McCombs School of Business from 1983-1985.  He has also served on many various public commissions and boards including The University of Texas Investment Management Company Board of Directors, the Houston Area Research Council Board of Directors, the Southwest Research Institute, and the Economic Advisory Committee of the United States Department of Commerce.  Through his more than 30 years of experience with the University, including his eight years as Chancellor and CEO, Mr. Cunningham has gained substantial experience in accounting, marketing, finance and corporate governance, as well as experience in leading a large public institution.  Further, Mr. Cunningham has and continues to serve on the board of a number of public companies.  This includes over 20 years of experience in our industry through his service on the board of directors of Jefferson-Pilot Corporation, a public insurance company that was merged into one of our wholly-owned subsidiaries in 2006.
 
Other Public Company Board Service:  John Hancock Mutual Funds (1986 – Present); LIN Media LLC, (formerly LIN Television Corporation 2002 – 2007, 2009 – Present); Resolute Energy Corporation (2009 – Present); and Southwest Airlines Co. (2000 – Present).
 
Public Company Board Service in last 5 years:  Hayes Lemmerz International, Inc. (2003 – 2009); Hicks Acquisition Company I, Inc. (2007 – 2009); Introgen Therapeutics, Inc. (2000 – 2009).
 
 
 
 
 
- 17 -

 
 
 
   
 
William Porter Payne, Chairman, Centennial Holding Company, LLC
 
Mr. Payne, 66, elected to the Board of Directors in 2006, serves as the Chair of the Corporate Governance Committee and a member of the Executive Committee.  Mr. Payne serves as the Chairman of Centennial Holding Company, LLC, a real estate investment firm.  Previously, Mr. Payne served in an executive management role with Gleacher and Company, an investment banking and asset management firm, and had been with the firm from 2000 to 2013.  Formerly, he was Vice Chairman of Bank of America, Director of Healtheon/WebMD and Vice Chairman and Director of Premiere Technologies.  Throughout his career, Mr. Payne has developed extensive experience and financial expertise by providing strategic advisory services to complex organizations.  In addition to his financial and investment experience, earlier in his career, Mr. Payne worked as an attorney, specializing in commercial real estate transactions and mergers and acquisitions.  This breadth of knowledge brings an interdisciplinary set of skills to the Board.  Through his service on the board of a number of public companies, including Cousins Properties, Inc., and past service on the boards of Anheuser Busch, Inc. and Crown Crafts, Inc., Mr. Payne brings valuable expertise in corporate governance.
 
Other Public Company Board Service:  Cousins Properties, Inc. (1996 – Present).
   
 
Patrick S. Pittard, Chairman, PatrickPittard Advisors LLC
 
Mr. Pittard, 68, elected to the Board of Directors in 2006, serves as the Chair of the Compensation Committee.  He also serves as a director of Lincoln Life & Annuity Company of New York, one of our insurance subsidiaries.  Mr. Pittard currently serves as the Chairman of PatrickPittard Advisors LLC, a “C” level human capital firm.  From 2011 to 2013, Mr. Pittard served as the Chairman and CEO of ACT Bridge.  Since 2002, Mr. Pittard has also served on the faculty as a leadership instructor of the Terry School of Business at the University of Georgia.  Before joining the University of Georgia, Mr. Pittard served as chairman, president and chief executive officer of Heidrick & Struggles International, Inc., a worldwide provider of executive-level search and leadership services.  During his tenure as CEO of Heidrick & Struggles, the firm experienced impressive financial growth and global expansion.  He began his career with Heidrick in 1983, and during his tenure held the titles partner, managing partner (Atlanta), North America managing partner, and president and CEO.  Through his depth and breadth of experience from having served as the CEO of one of the largest publicly traded global recruiting firms, Mr. Pittard brings his insights as a senior executive along with his understanding of executive compensation matters, insurance, investments and his experience in driving strategic organizational growth.  In addition to serving on our Board, Mr. Pittard has also served on the boards of other public companies, including Artisan Funds and CBeyond, Inc.
 
Other Public Company Board Service:  Director of Artisan Funds (2001 – Present).
 
Public Company Board Service in last 5 years:  CBeyond, Inc. (2007 – 2009).
 



 
 
- 18 -

 


 
COMPENSATION OF DIRECTORS

The Board of Directors adheres to the following guidelines in establishing outside director compensation:
 
 
·
We provide competitive compensation to attract and retain high-quality directors; and
 
·
A significant portion of each outside director’s compensation is paid in equity to help align our directors’ interests with the interests of our shareholders.
 
The Board’s compensation program is reviewed annually.  The Corporate Governance Committee uses Pay Governance LLC, the Board’s independent compensation consultant, to conduct a regular comprehensive review and assessment of director compensation.  Pay Governance LLC reviewed the compensation of our directors in August 2013.  As a result of that review and the Committee’s discussion, the Committee recommended to the Board that changes be made to the amount and form of director compensation for 2014.  The following chart shows the fees in effect for 2013 for our non-employee directors and the changes approved by the Board effective as of January 1, 2014:
 
   
2013
   
2014
 
Board Retainer
           
     Annual Cash Retainer
  $ 86,000     $ 86,000  
     Deferred Stock Units
  $ 103,000     $ 146,000  
     Stock Options
  $ 43,000       0  
Total Board Retainer
  $ 232,000     $ 232,000  
                 
Non-Executive Chair Retainer
               
     Deferred Stock Units
  $ 200,000     $ 200,000  
                 
Annual Committee Retainers (Cash)
               
      Audit Committee Chair
  $ 20,000     $ 30,000  
      Audit Committee Member
  $ 5,000     $ 10,000  
      Other Committee Chair
  $ 10,000     $ 10,000  
                 
Share Ownership Requirements
 
3 times
   
5 times
 


Directors may elect to defer the cash component of their annual retainer into various “phantom” investment options, including the Lincoln National Corporation Stock Fund investment option, available under the Lincoln National Corporation Deferred Compensation Plan for Non-Employee Directors (the “Directors’ DCP”).  The investment options are the same as those offered under the Employees’ 401(k) Plan.  Amounts notionally invested into “phantom” investment options are credited with earnings or losses as if the deferred amounts had been actually invested in either our common stock, or in any of the available investment options.  All amounts deferred under the Directors’ DCP, including the annual equity retainer paid in deferred stock units, are payable only upon the director's retirement or resignation from the Board.  Any amounts invested in the Lincoln National Corporation Stock Fund investment option are payable only in shares of our common stock.

Our directors are subject to share ownership guidelines, which require outside directors to holds interests in the Company’s common stock equal in value to three times the annual Board cash retainer within five years of joining the Board.  In November 2013, the Board increased the multiple to five times the annual Board cash retainer effective as of January 1, 2014.  Each director is in compliance with the new ownership requirements. No meeting fees are paid for regularly scheduled Board or committee meetings.  However, the Corporate Governance Committee has discretion to recommend to the Board additional compensation ($1,100 per meeting) for meetings in addition to the regularly scheduled Board or committee meetings.  Outside directors who are also directors of Lincoln Life & Annuity Company of New York (“LNY”), our indirect, wholly owned subsidiary, receive an annual cash retainer of $15,000 and a fee of $1,100 for each Board and committee meeting of LNY that they attend.  For 2013, the outside directors who also served as directors of LNY were Mr. Henderson, Ms. Lachman and Mr. Pittard.

We also provide financial planning services to outside directors with a value not to exceed $20,000 for an initial financial plan, and $10,000 for annual updates.  A Lincoln Financial Network financial planner must provide the financial planning services to be eligible for reimbursement.  We also allow outside directors to participate at their own cost in certain of our health and welfare benefits including our self-insured medical and dental plans as well as life insurance and accidental death and dismemberment coverages.  The participating non-employee director is responsible for all of the premiums for the coverage.  Finally, outside directors are eligible to participate in a charitable gift program through which the Lincoln Financial Foundation, Inc. will donate a matching gift from a director to one or more eligible recipient organizations, up to an annual total maximum of $15,000 for all gifts.
 
 
 
 
- 19 -

 

 
The table below contains information about the compensation paid to outside directors during the fiscal year ended December 31, 2013.

COMPENSATION OF NON-EMPLOYEE DIRECTORS DURING 2013
 
Name*
 
 
Fees Earned or Paid in
Cash1
($)
 
 
Stock
Awards2, 3
($)
 
 
Option Awards2,4
($)
 
All Other
Compensation
($)
 
 
Total
($)
 
William J. Avery
91,000
103,000
43,001
25,0005,6
262,001
William H. Cunningham
86,000
303,000
43,001
15,0006
447,001
George W. Henderson, III
110,400
103,000
43,001
9,0006
265,401
Eric G. Johnson
96,000
103,000
43,001
-
242,001
Gary C. Kelly
91,000
103,000
43,001
31,0005,6
268,001
M. Leanne Lachman
125,400
103,000
43,001
20,0005,6
291,401
Michael F. Mee
86,000
103,000
43,001
15,0006
247,001
William Porter Payne
96,000
103,000
43,001
15,0006
257,001
Patrick S. Pittard
115,400
103,000
43,001
-
261,401
Isaiah Tidwell
91,000
103,000
43,001
10,5006
247,501

* Mr. Glass, an employee-director, does not receive any director compensation.

1.  As described above, $86,000 of the annual retainer was paid in cash.  The outside directors could elect to defer their annual cash retainer and other cash fees into the Directors’ DCP.  In 2013, Messrs. Kelly and Mee elected to defer 100% of their cash fees.  The fees shown in this column also include any fees that an outside director was paid or earned as the chair of a committee, as a member of the Audit Committee or for service on the Board of LNY.

2.  The fair values of the stock and option awards were determined in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation.  The assumptions made in calculating the grant date fair value of stock and option awards are set forth in Note 19 of the Notes to the Consolidated Financial Statements, included in Item 8 of the Form 10-K for the year ended December 31, 2013.

3.  Represents the grant date fair value of the portion of each director’s annual retainer that was paid in deferred stock units.  Mr. Cunningham received an additional $200,000 in deferred stock units for serving as non-executive Chairman of the Board during 2013.  At December 31, 2013, the vested stock units beneficially owned by the directors were: Mr. Avery, 29,957;
Mr. Cunningham, 68,207; Mr. Henderson, 46,775; Mr. Johnson, 39,716; Mr. Kelly, 11,536; Ms. Lachman, 49,648; Mr. Mee, 52,803; Mr. Payne, 28,080; Mr. Pittard, 30,170; and Mr. Tidwell, 22,742.  Vested stock units include the deferred stock units reported in the Stock Awards column above and phantom units awarded under the Directors’ Value Sharing Plan, which was terminated as of July 1, 2004, and any accrued dividend equivalents, which are automatically deemed reinvested in additional phantom units of our common stock.

4.  Represents the grant date fair value of the portion of each director’s annual retainer that was paid as an award of stock options.  At December 31, 2013, the number of unexercised stock options held by each of the directors was:  Mr. Avery, 28,105; Mr. Cunningham, 49,538; Mr. Henderson, 41,359; Mr. Johnson, 36,180; Mr. Kelly, 17,040; Ms. Lachman, 36,180; Mr. Mee, 36,180; Mr. Payne, 41,463; Mr. Pittard, 49,538; and Mr. Tidwell, 43,120.  The stock options held by Messrs. Cunningham, Henderson, Payne, Pittard, and Tidwell include former options for Jefferson-Pilot Corporation common stock, which were converted into stock options for our common stock in connection with our merger with Jefferson-Pilot.

5.  This amount includes the provision of financial planning services with an aggregate incremental cost to us for Mr. Avery of $10,000, for Mr. Kelly of $16,000 and for Ms. Lachman of $13,500.

6.  Outside directors are eligible to participate in the Lincoln Financial Foundation, Inc. matching charitable gift program, which matches contributions to various non-profit entities.  These amounts reflect matching contributions made under this program.


 
- 20 -

 
 
ITEM 2 - RATIFICATION OF THE APPOINTMENT OF
THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee evaluates the performance of the Company’s independent auditors each year and determines whether to reengage the current independent auditors or to consider other audit firms.  In doing so, the Audit Committee considers the quality and efficiency of the services provided by the auditors, the auditors’ capability and the auditors’ technical expertise and knowledge of the Company’s operations and industry.   On February 24, 2014, our Audit Committee appointed Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2014.  We have engaged this firm and its predecessors in this capacity continuously since 1968.
 
Although not required, as a matter of good corporate governance, we request that you ratify this appointment.  If you do not ratify this appointment, the Audit Committee may reconsider its appointment.  Even if you do ratify this appointment, the Audit Committee is empowered to terminate Ernst & Young LLP and select and retain another independent registered public accounting firm at any time during the year.

Representatives of Ernst & Young LLP will be present at the Annual Meeting.  They will be given the opportunity to make a statement, if they so desire, and will be available to respond to appropriate questions relating to the audit of our audited consolidated financial statements for the year ended December 31, 2013.

The Board of Directors recommends a vote FOR the ratification of Ernst & Young LLP as our independent registered public accounting firm for 2014.
 
 
Independent Registered Public Accounting Firm
Fees and Services

Below are fees that were incurred by Ernst & Young LLP, our independent registered public accounting firm, for fiscal years 2013 and 2012 for professional services rendered as well as the related percentage of total fees that are included in each category.

 
Fiscal Year Ended -December 31,  
2013
 
% of Total Fees
Fiscal Year Ended -December 31,
2012
 
% of Total Fees
Audit Fees1
$9,848,970
91.5
$9,109,780
87.5
Audit-Related Fees2
 908,198
8.4
  1,146,755
11.0
Tax Fees3
8,788
0.1
150,947
1.5
All Other Fees
--
--
--
--
TOTAL FEES:
$10,765,956
100
$10,407,482
100
 
 
1.
Audit Fees. Fees for audit services include fees and expenses associated with the annual audit, the reviews of our interim financial statements included in quarterly reports on Form 10-Q, accounting consultations directly associated with the audit, and services normally provided in connection with statutory and regulatory filings.

2.
Audit Related Fees. Audit-related services principally include employee benefit plan audits, service auditor reports on internal controls, due diligence procedures in connection with acquisitions and dispositions, reviews of registration statements and prospectuses and accounting consultations not directly associated with the audit or quarterly reviews.

3.
Tax Fees.  Fees for tax services include tax filing and advisory services.


 
- 21 -

 

Audit Committee Pre-Approval Policy

The Audit Committee has established policies and procedures to pre-approve all audit and permissible non-audit services provided by the Company’s independent registered public accounting firm.  In conjunction with the engagement of the independent registered public accounting firm for the annual audit, management submits to the Committee for approval a schedule of all proposed services expected to be rendered during the year for audit, audit-related, tax and all other services.  Examples, including typical or known services to be performed, are included by category for purposes of illustrating the types of services to be provided under each category.  The Audit Committee pre-approves the services by category, with specific dollar value limits for each category.  During the year, if it becomes desirable to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval, such services will be presented to the Audit Committee for approval.  The Audit Committee also has delegated to the Chair the authority to pre-approve services between meetings, subject to certain dollar limitations.  Pre-approvals by the Audit Committee chair are communicated to the full Committee at its next scheduled meeting.

Other Information

The Company has been advised that neither Ernst & Young LLP, nor any member of the firm, has any financial interest, direct or indirect, in any capacity in the Company or its subsidiaries.  The Company has made similar inquiries of its directors and executive officers regarding their relationship to Ernst & Young LLP that identified no direct or indirect financial interest.

Audit Committee Report

Management has primary responsibility for preparing our financial statements and establishing financial reporting systems and internal controls.  Management also is responsible for reporting on the effectiveness of the Company’s internal control over financial reporting.  The independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements and issuing a report on those financial statements.  The independent registered public accounting firm is also responsible for issuing an attestation report on the Company’s internal control over financial reporting.

In this context, the Audit Committee has reviewed and discussed with management the audited financial statements for the fiscal year ended December 31, 2013.  The Audit Committee has also discussed with the Company’s independent registered public accounting firm the matters required to be discussed by the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 16, “Communications with Audit Committee,” and other required matters.  Additionally, the Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence.

Based upon the review and discussions referred to in this report, the Audit Committee recommended to the Board that the audited consolidated financial statements for the fiscal year ended December 31, 2013 be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 for filing with the SEC.

The Audit Committee

William J. Avery
George W. Henderson, III
Gary C. Kelly
M. Leanne Lachman, Chair
Isaiah Tidwell


 
 
- 22 -

 


 
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our directors, certain officers and beneficial owners of greater than 10% of our equity securities to file reports of holdings and transactions with the SEC and the NYSE.  Based on written representations that we have received from our officers subject to Section 16 and directors, and a review of the reports filed with respect to transactions that occurred during 2013, we believe that each of our directors and officers subject to Section 16 met all applicable filing requirements.


EXECUTIVE COMPENSATION

 
Compensation Discussion & Analysis

Overview

Our executive compensation programs are designed to align the interests of our executive officers with those of our shareholders and support our foundational compensation philosophy of “paying for performance.”  Our compensation programs are structured to provide market-competitive opportunities that attract and retain successful, high-achieving professionals, with pay directly linked to the attainment of short- and long-term business results, thereby reinforcing our philosophy.

The Compensation Committee (or the “Committee”) has an established practice governing the structure and administration of our compensation programs.  The Committee reviews and approves the program elements, measures, targets and payouts annually, to ensure the continued effectiveness of our pay-for-performance culture.  In setting the performance measures and goals for our executive compensation programs, the Compensation Committee chooses metrics that support a focus on our overall corporate strategy and that are linked to our long-term financial plan.  The actual compensation received by our executives is tied closely to the achievement of short-term goals that support our long-term business strategy and long-term goals that measure the creation of sustainable long-term shareholder value.

At our 2013 Annual Meeting, shareholders expressed strong support for our executive compensation programs with 95% of the votes cast in favor of the advisory resolution.

In general, this Compensation Discussion & Analysis (“CD&A”) provides an overview, discussion and analysis of:
 
·
our foundational pay for performance compensation philosophy;
·
the establishment, structure, governance and administration of our compensation programs; and
·
the performance results for our short- and long-term incentive programs for the performance periods ending December 31, 2013.
 
The CD&A describes the compensation of those executive officers named in the compensation tables (hereinafter referred to as “executives,” “executive officers,” or “NEOs”) beginning on page 40 of this proxy statement who are:
 
·
Dennis R. Glass, President and Chief Executive Officer, our principal executive officer (“CEO”);
·
Randal J. Freitag, Executive Vice President and Chief Financial Officer, our principal financial officer (“CFO”);
·
Charles C. Cornelio, President, Retirement Plan Services;
·
Wilford H. Fuller, President, Lincoln Financial Group Distribution; and
·
Mark E. Konen, President, Insurance and Retirement Solutions.
 
We encourage you to read the CD&A in conjunction with the compensation tables on pages 40 to 56 of this proxy statement.

 
- 23 -

 
 
Executive Summary

Executive Compensation Highlights and Best Practices
 
·
Compensation Tied to Performance and Shareholder Return.  We link executive compensation to the performance of the Company as a whole and to the performance of our business units (for business unit executives).  A large percentage of total targeted compensation is incentive-based and at risk.  We believe executives with higher levels of responsibility and a greater ability to influence enterprise results should have a greater percentage of their total compensation in the form of variable compensation that is dependent on performance.
 
The Annual Incentive Program (the “AIP”) for 2013 uses a formulaic approach with balanced performance measures and goals that tie compensation to key enterprise performance metrics that support our long-term strategic goals.

The Long-Term Incentive Program (the “LTI”) for 2013-2015 comprises a mix of long-term equity grants that includes performance shares with a three-year performance cycle, based on metrics that reward key inputs and outputs of shareholder value.

The chart below shows the 2013 targeted direct compensation mix for the CEO (base salary, AIP and LTI), and illustrates that 88% of his compensation is at risk:

 
Note, the amounts in this chart are shown at target and therefore will not match the values reflected in the Summary Compensation Table at page 40 of this proxy statement.

The following chart shows the average 2013 targeted direct compensation mix for the other NEOs in the aggregate, and illustrates that 79% of their compensation is at risk:

 
Note, the amounts in this chart are shown at target and therefore will not match the values reflected in the Summary Compensation Table at page 40 of this proxy statement.

As the charts illustrate, the fixed element of compensation, base salary, makes up the smallest percentage of total annual compensation for our executives.  The largest components of total annual compensation – long-term and annual incentive awards – are variable and will fluctuate in value based on corporate performance and share price.
 
·
Compensation Best Practices.  The Compensation Committee considers competitive market trends and the views of its shareholders when considering changes to our compensation practices and policies.  Some examples of our governance and compensation practices include:
 
 
·
Moderate change of control benefits;
 
·
“Double trigger” vesting provisions for our equity awards following a change of control;
 
·
Clawback provisions on our equity awards;
 
·
No tax gross up benefits upon a change of control;
 
·
No repricing or exchange of underwater stock options without shareholder approval;
 
·
Limited perquisites for executive officers;
 
·
Robust stock ownership guidelines and stock holding requirements; and
 
·
Restrictions regarding pledging, hedging and speculation in our securities.
 
For additional information, please see “Change of Control Severance Arrangements” on page 38 of this proxy statement and “Alignment with Shareholders” on page 28 of this proxy statement.
 
·
Independent Compensation Consultant.  The Compensation Committee’s compensation consultant, Pay Governance LLC, was engaged by
 
 
- 24 -

 
 
the Compensation Committee and provides services only to the Compensation and Corporate Governance Committees. The Compensation Committee consults with Pay Governance LLC on significant compensation decisions regarding our executives. For additional information, please see “Role of the Compensation Consultant” on page 29 of this proxy statement.
 
2013 Performance Overview

Our fiscal year 2013 financial operating results were strong, reflecting the actions and strategies implemented in 2013.  Some of the key performance highlights include:
 
·
During 2013, our stock price nearly doubled to $51.62 as of December 31, 2013 from $25.90 as of December 31, 2012;
·
Our total shareholder return for 2013 was 101.2%;
·
We returned capital to shareholders by repurchasing $450 million of our common stock during 2013;
·
We had consolidated deposits of $26.7 billion, up 17% versus $22.9 billion in 2012;
·
Return on equity increased to 12.1% for 2013 versus 12% for 2012;
·
We had a 10% increase in book value per share (excluding accumulated other comprehensive income (loss)) of $45.23 versus $41.11 in 2012; and
·
The Board of Directors approved a 50% increase in our quarterly common stock dividend to $0.12 per share for 2013.
 
The graphs below illustrate some of the key measures of our full year 2013 results, which are also some of the key metrics for our short- and long-term incentive compensation programs:
 
·
Net income per share of $4.52 was relatively flat compared to $4.56 in 2012;
·
Income from operations per share of $5.03 was up 12.5% from $4.47 in 2012;
·
Total revenues of $11.9 billion were also up from $11.5 billion in 2012; and
·
Operating revenues of $12.2 billion, were up 6% from $11.6 billion in 2012.

Additional information on our business performance during 2013 can be found in our Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”), included in our Annual Report to Shareholders accompanying this proxy statement.  For a reconciliation of non-GAAP measures to their corresponding GAAP measures also see Exhibit 2 to this proxy statement.
 
 
- 25 -

 

2013 Executive Compensation Overview

This section discusses our compensation philosophy and the administration and governance of our executive compensation programs for 2013.  The following table outlines the elements of targeted direct compensation and how each element aligns with our objectives and guiding principles.

Compensation
Element
 
What it Rewards
How it Aligns
With Our Objectives
Performance Measured
Fixed or Variable
Cash or Equity
Base Salary
• Sustained high level of performance
• Demonstrated success in meeting or   exceeding key objectives
• Highly developed skills and abilities critical to success of the business
• Experience and time in position
• Competitive base salaries enable us to attract and retain top talent
• Merit-based salary increases align with    our pay for performance philosophy
Individual
Fixed
Cash
Annual Incentive Awards
• Company performance during the year against key financial goals
• Specific business segment performance during the year measured against strategic business segment goals
• Competitive targets enable us to attract and retain top talent
• Payouts depend on the achievement of established performance measures and goals that align pay with performance
Corporate and Business Segment
Variable
Cash
Long-Term Incentive Awards
         
Stock Options
• Increase in stock price
• Continued service
• Value dependent on the price of our stock; Options have no value unless the stock price increases
• Three-year ratable vesting supports retention
Corporate
Variable
Equity
RSUs
• Increase in stock price and dividends
• Continued service
• Value increases or decreases as stock price and dividend increases or decreases
• Three-year cliff vesting supports retention
Corporate
Variable
Equity
Performance Shares
• Meeting or exceeding our Return on Equity goal
• Total shareholder performance relative to other companies’ shareholder return
• Payout is based on metrics important to our shareholders
• Three-year performance period supports retention and aligns pay with performance
• Relative performance metric creates incentive to outperform peers
Corporate
Variable
Equity

The Company’s Executive Compensation Program Philosophy

We believe that attracting and retaining key executives is essential to our growth.  Our compensation programs are designed to motivate and engage successful, high-achieving executives through a pay for performance culture that fosters a long-term focus on enhancing shareholder value through superior financial performance.  Accordingly, our executive compensation practices are based on the following fundamental guiding principles:

·
Pay for Performance;
·
Competitive Compensation;
·
Balanced Performance Measures and Goals; and
·
Alignment with Shareholders.

Each of these principles plays an important role in how we set and pay compensation to our NEOs and is discussed more fully hereafter.
 
Pay for Performance

A significant portion of our executives’ annual compensation is linked to our annual and long-term business performance and each individual’s contribution to that performance.

Our compensation programs are also designed to be easily communicated to and understood by both our shareholders and executives.  We put a strong emphasis on “line of sight” factors for our executives that are specific to the business unit(s) they direct.  It is important to us and to our executives that performance be measurable and for compensation to be paid based on criteria that both executives and shareholders can easily identify and understand.


 
- 26 -

 

Competitive Compensation

In general, we aim to target total direct compensation (base salary, targeted annual incentive compensation opportunity and targeted long-term incentive compensation opportunity) at market median for our executives as compared to the compensation paid to executives in similar positions at those insurance-based, financial services, and investment management companies, as applicable, with which we compete for talent.

The Compensation Committee traditionally establishes compensation targets for the following fiscal year at its November meeting.  In November 2012, the Compensation Committee’s independent compensation consultant, Pay Governance LLC, reviewed with the Compensation Committee market data for comparable executive roles with similar responsibilities in organizations in similar industries.  Understanding that there is no perfect match between the roles played by our executives and the executives in the peer companies we have identified, we may consider multiple sources of market data for this purpose.  However, market data is only one point in a discussion that considers a number of factors.  For additional information on setting target compensation and our benchmarking processes, please see “Setting Target Total Direct Compensation” on page 30 of this proxy statement.

Balanced Performance Measures and Goals

Our short- and long-term incentive programs are designed to link the financial interests of our NEOs with those of our shareholders by putting executive pay at risk based on corporate and business unit performance.  In establishing the performance measures and goals for the incentive programs for our NEOs, the Compensation Committee approved measures that emphasize a focus on our overall corporate strategy of driving profitable business.  The goals for each performance measure are then linked to the Company’s financial plan.  In setting the goals, both management and the Compensation Committee intend for the maximum performance levels to present a challenge for our NEOs, therefore creating a strong incentive to produce superior results.  For 2013, the Compensation Committee chose these performance measures for our incentive programs for the following reasons:


2013 Annual Incentive Program
Measure
Objective/Purpose
Income from Operations per Diluted Share
This is a key measure of profitability that management uses to evaluate our business and is also used by stock analysts to value companies in the financial services industry.
Sales Growth
In our business, over time and at a compounded growth rate, sales create value by building the in-force contribution to earnings and returns. We believe that distribution strength (depth and breadth) is among the more important drivers of valuation, and sales growth is an effective way to measure the value of the distribution franchise and overall product competitiveness.
Controllable Costs
Management establishes a budget for the Company as well as a budget for each specific business unit as one of the key assumptions in attaining the success of our financial plan for 2013.  The Compensation Committee set a budget-related performance goal to reinforce the importance of containing costs and expenses across the entire company.

2013 Long-Term Incentive Program
Measure
Objective/Purpose
Return on Equity
This is an important measure used by stock analysts to value companies in the financial services industry because it is a critical indicator of capital efficiency and is closely aligned with long-term shareholder value.
Total Shareholder Return
This performance measure assesses the Company’s delivery of shareholder value over time relative to our peers.


 
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Alignment with Shareholders

Through our annual and long-term incentive compensation programs, our share ownership requirements, and the design and governance features of our long-term equity programs, we tie the financial interests of our NEOs to those of our shareholders.

Share Ownership Guidelines and Holding Requirements.  The share ownership requirements formalize the Compensation Committee’s belief that our officers should maintain a material personal financial stake in the Company.  Further, the requirements are intended to promote a long-term perspective in managing our business, linking the long-term interests of our executives with those of our shareholders, and reducing the incentive for short-term risk-taking.

The share ownership and holding requirements are summarized in the following table:

 
Officer
Position
 
 
Multiple of
Base Salary
 
 
Additional Holding
Requirements
 
CEO
7 times base salary
25% of net profit shares* for 5 years
Executive Officers (other than the CEO)
4 times base salary
25% of net profit shares for 5 years
* Net profit shares are the shares remaining after payment of the option exercise price and taxes owed at the time of exercise and the after-tax value of any vested restricted stock units or earned performance shares.

Our share ownership requirements are based on multiples of base salary and vary by job level.  If at any point the ownership guideline is not met with shares otherwise owned by the executive, the executive would be required to retain 50% of the net profit shares resulting from previously granted equity-based long-term incentive plan awards that are exercised or vest as applicable.  Additionally, once an executive has met the minimum share ownership levels, they are also required to retain an amount equal to 25% of the net profit shares resulting from equity-based long-term incentive plan grants for five years from the date of exercise for stock options or the date of vesting for other awards.

Amounts invested in shares of our common stock through our employee benefits plans, in-the-money Options, restricted stock and shares owned outright are counted in determining whether share ownership guidelines have been met.

Policy on Pledging, Speculation and Hedging.  We have an Insider Trading and Confidentiality Policy that governs trading in our securities and includes provisions that prohibit any pledging of and any speculation in our securities.  In addition, executives may not, without the approval of the Corporate Governance Committee, use derivative instruments to hedge the value of any of our securities.  The Corporate Governance Committee has not granted any approval under this authority.

Multi-year Performance and Vesting Periods.  The multi-year performance criteria and multi-year vesting elements of our long-term incentive programs promote the retention of our executives putting their focus on the long-term performance of the Company and correlating their interests with the interests of shareholders.

Prohibition on Repricing.  In accordance with the terms of the Lincoln National Corporation 2009 Amended and Restated Incentive Compensation Plan (the “2009 ICP”), the terms of outstanding awards of Options may not be amended to reduce the exercise price without shareholder approval.  This feature is also included in the 2014 ICP that is being presented to shareholders for their approval, as discussed at pages 57 to 66 of this proxy statement.

Clawback Features.  The equity awards for our NEOs are subject to clawback provisions.  In the case of termination for cause the awards will be rescinded.  The equity awards are also subject to non-compete, non-disclosure, non-solicitation, non-disparagement and other restrictive covenants.  Violations of these provisions may result in the Compensation Committee’s cancellation, forfeiture, or rescission of awards.  Specifically, if a breach of a restrictive covenant occurs within six months of an option exercise or payment of performance shares, we may demand that the exercise or award be rescinded and the amount of gain realized or payment received by the executive be returned to us.  We believe these clawback provisions protect the Company from anti-competitive behavior by former executives.

The Role of the Compensation Committee

The Compensation Committee has primary authority for considering and determining the compensation for our executive officers, including our NEOs.  For a description of the principal functions of the Compensation Committee, see “The Board of Directors and Committees – Compensation Committee” on page 12 of this proxy statement.

The Compensation Committee approves the individual pay components and aggregate compensation levels of our executives.  The Compensation Committee also determines the form in which the compensation will be paid – e.g., cash or equity – and determines the equity vehicles to be used, including Options, performance shares or restricted stock units, among others.  The Compensation Committee also establishes the target award levels and performance measures under the various short- and long-term compensation programs.
 
 
 
 
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The Compensation Committee normally determines the portion of performance-based incentive awards earned for completed performance cycles at its first regularly scheduled meeting of the calendar year (usually in February) following the end of the applicable performance cycle.  During this meeting, the Compensation Committee reviews financial data provided by management reporting the results for the various performance measures previously established for the just-completed annual and long-term performance cycles.  The Compensation Committee certifies the achievement (or non-achievement) of the performance measures and approves the earned portion of the awards, as appropriate.

The Role of Executive Management

In making determinations with respect to executive compensation, the Compensation Committee considers input from a number of sources including executive management.  Specifically, our CEO and Chief Human Resources Officer (“CHRO”) provide their views and insight on compensation for the NEOs to the Compensation Committee.  The Compensation Committee believes the input of these executive officers with respect to the assessment of individual performance, the business environment, succession planning and retention is an essential component of the process.  Our CEO and CHRO make recommendations to the Compensation Committee with respect to base salary, target annual incentive award opportunities and target long-term incentive award opportunities for each of the NEOs, except for our CEO.

The Role of the Compensation Consultant

The Compensation Committee regularly consults with an independent compensation consultant in performing its duties.  The Compensation Committee has the authority to retain and terminate the relationship with any compensation consultant, as well as to establish the scope of the consultant’s work.

The Compensation Committee has engaged Pay Governance LLC to provide advice regarding compensation practices for our executives.  During 2013, Pay Governance LLC provided the Compensation Committee with:
 
·
an evaluation of executive officers’ base salaries and  short- and long-term target incentive compensation relative to identified peers and the broader market;
·
information on trends in executive compensation – such as the use of various forms of equity compensation and the prevalence of different types of compensation vehicles;
·
an evaluation of the impact of the Company’s equity programs on the pool of shares available for grant;
·
a review of all company-prepared materials in advance of each Committee meeting;
·
assistance in its review and discussions of all material agenda items throughout the year;
·
an independent review of our analytical work;
·
insight and advice in connection with the design of and changes to our equity grants and short- and long-term incentive plans; and
·
feedback regarding the total targeted direct compensation package for our CEO.
 
Pay Governance LLC does not provide any services to the Company other than advice for the Compensation Committee regarding executive compensation and to the Corporate Governance Committee regarding director compensation.  The Compensation Committee has assessed the independence of Pay Governance LLC pursuant to SEC rules and concluded that no conflict of interest exists.

Risk Considerations Relating to Compensation

We have designed the structure and administration of our compensation programs to, among other objectives, appropriately balance risk and reward.

As part of the annual risk assessment of our compensation plans, we undertook a formal process to identify, analyze, and evaluate the various employee compensation programs across our enterprise to assess any risks posed by those programs.  The risk assessment process included, but was not limited to:
 
·
identifying the compensation programs that cover all of our employees;
·
reviewing the compensation programs from a design and governance perspective, including evaluating the behavior each program was designed to encourage and detailing the flow of compensation;
·
identifying any risks inherent in the programs; and
·
identifying and discussing any additional mitigation factors in the program design and any additional risk controls outside of the compensation process specific to each business model.
 
Our CFO and the Head of Employee Experience and Services formally reviewed the analysis of our programs.  The findings were then discussed with the Compensation Committee to determine whether such programs encourage risk-taking by our executives that is reasonably likely to materially and adversely affect the Company.

Some of the features of our compensation programs that limit risk include:
 
·
our incentive plan awards are based on a variety of indicators of performance, thus preventing the
 
 
- 29 -

 
 
potential of any single indicator of performance from having an undue influence on payout;
·
the Compensation Committee approves the final incentive plan awards after the review of executive and corporate performance and has the authority to exercise negative discretion to decrease the awards even if the performance goals are met;
·
the “clawback” features of our equity awards;
·
the multi-year performance criteria for our LTI programs and the multi-year vesting elements of our other equity awards link the interests of our executives with the long-term health of the Company;
·
the balanced pay mix minimizes the significance of any single element of pay and decreases the likelihood that an executive would take inappropriate risks to inflate such pay;
·
our share ownership guidelines and holding requirements discourage a short-term focus and require meaningful long-term executive ownership of Company shares that focuses our executives on sustaining long-term performance rather than maximizing performance in any single year; and
·
fixed compensation is set at a level that allows executives to meet their essential financial needs.
 
In addition to the features listed above, the evaluation also identified aspects of the administration and oversight of our plans that build considerable risk mitigation into the organizational structure of the plans.  The Compensation Committee discussed with management the evaluation and risk assessment review of our compensation programs and confirmed that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on the Company.

Consideration of Our 2013 Shareholder Vote on Executive Compensation

At our 2013 Annual Meeting of Shareholders, we received substantial support for the compensation of our NEOs, with approximately 95% of the votes cast in favor of the “say on pay” advisory vote on executive compensation, up from 87% in 2012.  The Compensation Committee and the Board appreciate and value the views of our shareholders.  In considering the results of this advisory vote, the Compensation Committee was pleased that a significant majority of our shareholders approved the proposal, showing strong support for our overall pay practices and the compensation paid to our NEOs.

In light of this evaluation and the support shown by shareholders, the Compensation Committee decided to maintain our general principles and philosophy in structuring executive compensation for 2014.
 
Setting Target Total Direct Compensation

The Compensation Committee made compensation decisions for the 2013 calendar year for the NEOs based on a detailed analysis of Company-specific and external data.

Benchmarking

Pay Governance LLC performed a comprehensive competitive compensation analysis in November 2012 to assist the Compensation Committee in setting 2013 target direct compensation levels for our NEOs.  Pay Governance LLC analyzed base pay, annual incentive opportunities, long-term incentive values and total direct compensation (the sum of the elements listed above) to establish market rates for each executive officer position. They compared our current executive compensation levels to the market median of our peers.

In some cases we may target above-median market compensation.  The Compensation Committee may do this for a variety of reasons, including:
 
·
organizational considerations, for example, because the role is considered critical to our overall business strategy and to our succession planning;
·
the need for specific expertise in the task of building a new business or improving an existing one; or
·
the retention of highly qualified executives whom we have recruited from outside of the insurance industry or whom we believe have management skills or experience that will further our corporate strategy.
 
For Messrs. Glass, Freitag and Konen, Pay Governance LLC used market data drawn from the companies shown in the table below, which are the stock companies included in the Towers Watson 2012 Diversified Insurance Study of Executive Compensation the (“2012 Towers DI Study”):

AFLAC
John Hancock
AIG
Met Life
Allstate
Phoenix Companies
AXA Group
Principal Financial
CIGNA
Prudential Financial
CNO Financial
Sun Life Financial
Genworth Financial
Transamerica
Hartford Financial Services
Unum Group
ING
 

 
- 30 -

 

We have used the same market survey for a number of years, and if the companies included in the study change, we reflect those changes in the peer group we use for benchmarking.  These companies are major competitors in one or more of the Company’s businesses, but none represents the exact business mix of the Company.

Mr. Cornelio, has served as the President, Retirement Plan Services since December 2009.  In addition, Mr. Cornelio serves as the Company’s Chief Administrative Officer overseeing the Company’s Information Technology and Shared Services areas.  In view of Mr. Cornelio’s dual role, the Compensation Committee reviewed compensation data for executives in similar positions from the McLagan Partners’ Defined Contribution Survey for 2012, as well as companies from the Towers Watson 2012 Financial Services Executive Compensation Survey.  For a list of the companies included in the McLagan Partners’ Survey and the Towers Watson Survey refer to Exhibit 3 of this proxy statement.

For Mr. Fuller, President, Lincoln Financial Group Distribution, which includes our wholesale and retail distribution businesses, the Compensation Committee reviewed compensation data for executives in similar positions from the McLagan Partners’ Investment Products Sales and Marketing Survey for 2012, as well as from the companies in the 2012 Towers DI Study.  For a list of the companies included in the McLagan Partners’ Investment Products Sales and Marketing Survey refer to Exhibit 4 of this proxy statement.

Because some of these companies have higher market capitalization, assets or revenue than the Company and some have lower market capitalization, assets and revenue than the Company, the data are size-adjusted, where possible, to ensure comparability with the Company’s scope.
 
Based on the data, the needs of the organization, and the expertise that each executive brings to the Company, in 2013, we targeted above-median compensation for Messrs. Cornelio and Fuller.

Tally Sheets

When making compensation decisions, the Compensation Committee considers:
 
·
the recommendation of our CHRO, and our CEO (only with respect to NEOs other than the CEO), as well as the opinion of its compensation consultant;
·
the available market data; and
·
reports called “tally sheets” illustrating all elements of targeted total direct compensation, including:
 
·
base salary;
 
·
annual and long-term incentive awards;
 
·
deferred compensation and change in pension;
 
·
perquisites; and
 
·
potential payments for various termination scenarios.
 
The tally sheets enable the Compensation Committee to analyze the value of total compensation as well as the value of compensation actually delivered compared with the value of compensation opportunities as originally established by the Compensation Committee.

The tally sheets are also used to help the Compensation Committee assess whether our executive compensation program is consistent with the Company’s compensation philosophy and desired positioning relative to the market data.  However, they are just one point of information used by the Compensation Committee in the process of determining NEO compensation.  The Compensation Committee performed a similar analysis to establish the total targeted direct compensation for our CEO.  The CEO does not play a role in and is not present during discussions regarding his own compensation.


The below table reflects the dollar amount of targeted direct compensation levels for 2013 for our NEOs as established by the Compensation Committee.

2013 Targeted Compensation
 
 
Name
 
 
Base Salary
 
Annual Incentive Award at Target
Long-term Incentive Award at Target
Total
Targeted Annual Compensation
Dennis R. Glass
$1,100,000
$2,200,000
$6,100,000
$9,400,000
Randal J. Freitag
$558,625
$615,000
$1,285,350
$2,458,975
Charles C. Cornelio
$564,570
$762,170
$1,016,226
$2,342,966
Wilford H. Fuller
$484,000
$1,161,600
$1,137,400
$2,783,000
Mark E. Konen
$625,250
$875,350
$1,523,150
$3,023,750



 
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Annual Compensation Elements

During 2013, annual compensation was made up of base salary and a short-term incentive award under the AIP.

Base Salary

Base salaries are reviewed annually.  In setting base salary levels for 2013, the Committee took into account the compensation analysis discussed above and the individual performance of each NEO, and as a result made adjustments to the salary for each NEO as illustrated in the following table:

Base Salary
 
Name
 
2012
 
2013
Percent Increase
Dennis R. Glass
1,075,000
1,100,000
2.3%
Randal J. Freitag
545,000
558,625
2.5%
Charles C. Cornelio
540,000
564,570
4.6%
Wilford H. Fuller
440,000
484,000
10.0%
Mark E. Konen
610,000
625,250
2.5%

Annual Incentive Award Program

Consistent with our pay for performance approach to executive compensation, during 2013 our NEOs participated in an annual incentive award program.  In February 2013, the Compensation Committee established the 2013 AIP, including the goals and measures for the program.

The following table shows the dollar amount of the estimated possible payouts for the 2013 AIP at threshold, target and maximum as established by the Compensation Committee on the date of grant.   The target opportunity for AIP is set as a percentage of each NEO’s base salary.

Estimated Payout Opportunities Under the 2013 AIP
 
Name
Threshold
($)
Target
($)
Maximum
($)
Dennis R. Glass
33,000
2,200,000
4,400,000
Randal J. Freitag
9,225
615,000
1,230,000
Charles C. Cornelio
38,108
762,170
1,524,339
Wilford H. Fuller
14,520
1,161,600
2,323,200
Mark E. Konen
24,729
875,350
1,750,700

The 2013 Annual Incentive Award Program Measures

The Compensation Committee approved the following as the 2013 AIP performance measures in February 2013: (1) income from operations per share; (2) sales growth; and (3) management of controllable costs.  The Compensation Committee chose these measures because they focus on our overall corporate strategy of balancing top-line revenue growth with profitability and prudent cost management.

“Income from Operations” is defined as net income for the relevant performance period in accordance with  generally accepted accounting principles, but excluding the after-tax effects of the items detailed in Exhibit 2 of this proxy statement.  To calculate “Income from Operations per Share,” the value of Income from Operations (as defined in Exhibit 2) was divided by the average diluted shares.

Income from Operations is one of the financial measures we use to evaluate and assess our results.  Management believes this performance measure explains the results of our ongoing business in a manner that provides a better understanding of the underlying trends in our current business because the excluded items are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments, and, in most instances, decisions regarding these items do not necessarily relate to the operations of the individual segments.

In setting the goals for each of the 2013 AIP performance measures, both management and the Compensation Committee intended the maximum levels to present a significant challenge for our NEOs, therefore requiring exceptionally strong performance to achieve these goals.  The target corporate Income from Operations per Share performance measure was set after consideration of a number of factors, including a review of our internal financial plan.  The target sales component of AIP, at both a corporate level and a business unit level, was based on our internal financial plan, which emphasizes our corporate strategy to grow and protect the business.  The goal for managing costs at target was based upon controllable costs as budgeted for in our annual financial plan.

The 2013 Annual Incentive Award Performance Results

The performance results for the 2013 AIP were certified by the Compensation Committee in February 2014.  Our 2013 financial results exceeded expectations.  The Compensation Committee may decide to exercise negative discretion to reduce award payouts.  The specific factors that the Compensation Committee may consider in exercising its negative discretion are set forth in Items A through H of Exhibit 5, if they determine that they were relevant to individual performance.  In certifying the results for the 2013 AIP awards, the Compensation Committee did not exercise its negative discretion to adjust the award payout levels downward.




 
- 32 -

 

The table below sets forth the goals, weights and performance results for the 2013 AIP measures for Mr. Glass.

($ amount in millions, except per share amounts)
 
Corporate Measures (100%)
 
 
Income from Operations
Per Share
Sales Growth
 
Enterprise Controllable Costs
 
 
 
Life
 
 
Group Protection
 
 
Annuities
 
Retirement Plan Services
 
Weighting
50.0%
11.0%
8.0%
10.0%
6.0%
15.0%
Threshold
$4.08
$518
$442
$10,055
$5,984
N/A
Target
$4.49
$588
$502
$11,426
$6,800
100%
Maximum
$5.03
$659
$562
$12,797
$7,616
89%
             
Actual Performance
$5.03
$677
$541
$14,773
$6,786
95.8%
Payout as a percentage of Target
200%
200%
165%
200%
98.7%
137.7%
Weighted Payout
100%
22%
13.2%
20%
5.9%
20.7%


The table below sets forth the goals, weights and performance results for the 2013 AIP measures for Mr. Freitag.

($ amount in millions, except per share amounts)
 
 
Corporate Measures (92.5%)
Business Unit
Measures
 
 
Income from Operations
Per Share
Sales Growth
 
Enterprise Controllable Costs
 
 Controllable Costs
Finance
 
 
 
Life
 
Group Protection
 
 
Annuities
 
Retirement Plan Services
 
Weighting
50.0%
11.0%
8.0%
10.0%
6.0%
7.5%
7.5%
Threshold
$4.08
$518
$442
$10,055
$5,984
N/A
N/A
Target
$4.49
$588
$502
$11,426
$6,800
100%
100%
Maximum
$5.03
$659
$562
$12,797
$7,616
89%
90%
               
Actual Performance
$5.03
$677
$541
$14,773
$6,786
98.7%
100%
Payout as a percentage of Target
200%
200%
165%
200%
98.7%
137.7%
100%
Weighted Payout
100%
22%
13.2%
20%
5.9%
10.3%
7.5%


The table below sets forth the goals, weights and performance results for the 2013 AIP measures for Mr. Cornelio.

($ amount in millions, except per share amounts)
 
Corporate
Measures
 
Business Unit Measures (75%)
 
Income from Operations per Share
 
Income from Operations
 
 
Sales Growth
 
Controllable Costs
RPS
 
Controllable Costs
SS/IT
Weighting
25.0%
20.0%
35.0%
5.0%
15.0%
Threshold
$4.08
$107
$5,984
N/A
N/A
Target
$4.49
$121
$6,800
100%
100%
Maximum
$5.03
$141
$7,616
90%
90%
           
Actual Performance
$5.03
$141
$6,786
100%
95.7%
Payout as a percentage of Target
200%
200%
98.7%
100%
142.7%
Weighted Payout
50%
40%
34.5%
5%
21.4%







 
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The table below sets forth the goals, weights and performance results for the 2013 AIP measures for Mr. Fuller.

($ amount in millions, except per share amounts)
 
Corporate Measures
 
Business Unit Measures (70%)
 
 
Income from Operations per Share
 
LFD Net Contribution Margin
 
LFN Net Contribution Margin
Sales Growth
Controllable Costs
LFD & LFN
 
 
 
Life
 
 
Annuities
RPS
Small Market
Weighting
30.0%
10.0%
10.0%
15.0%
15.0%
5.0%
15.0%
Threshold
$4.08
($10.0)
($9.8)
$518
$10,055
$1,663
N/A
Target
$4.49
$0.0
$0.2
$588
$11,426
$1,890
100%
Maximum
$5.03
$10.0
$10.2
$659
$12,797
$2,117
85%
               
Actual Performance
$5.03
$27.4
$16.5
$677
$14,773
$1,683
96%
Payout as a percentage of Target
200%
200%
200%
200%
200%
31.6%
129.9%
Weighted Payout
60%
20%
20%
30%
30%
1.6%
19.5%


The table below sets forth the goals, weights and performance results for the 2013 AIP measures for Mr. Konen.

($ amount in millions, except per share amounts)
 
Corporate Measures
 
Business Unit Measures (80%)
Income from Operations per Share
Income from Operations
Sales Growth
Controllable Costs IS and Annuities
Life
Group Protection
Annuities
Life
Group Protection
Annuities
Weighting
20.0%
12.0%
12.0%
12.0%
11.3%
11.4%
11.3%
10.0%
Threshold
$4.08
$485
$77
$546
$518
$442
$10,055
N/A
Target
$4.49
$552
$87
$621
$588
$502
$11,426
100%
Maximum
$5.03
$640
$101
$720
$659
$562
$12,797
90%
                 
Actual Performance
$5.03
$544
$71
$750
$677
$541
$14,773
97.7%
Payout as a percentage of Target
200%
91%
0%
200%
200%
165%
200%
122.5%
Weighted Payout
40%
10.9%
0%
24%
22.6%
18.8%
22.6%
12.3%


The table below sets forth the approved aggregated, weighted performance results for the 2013 AIP for each of our NEOs as percentage of target along with the final approved payout amounts.

Actual Payouts Under the 2013 AIP
 
Name
 
Target
Percentage of Target
 
Payout
Dennis R. Glass
$2,200,000
181.8%
$3,999,600
Randal J. Freitag
$615,000
178.9%
$1,100,235
Charles C. Cornelio
$762,170
151%
$1,150,876
Wilford H. Fuller
$1,161,600
181.1%
$2,103,658
Mark E. Konen
$875,350
151.2%
1,323,529


Long-Term Compensation

LTI compensation for our NEOs generally includes three equity elements:
 
·
Options to purchase shares of our common stock (“Options”), which have a ten-year term and vest ratably over 3 years;
·
RSUs, which cliff vest in 3 years; and
·
Performance share awards, which vest depending on outcome of established performance measures over a three-year performance period.
 
Consistent with our fundamental pay for performance philosophy for executive compensation, our performance-based LTI programs are linked to metrics that measure the creation of long-term shareholder value.  The programs are intended to pay out above-target compensation only when performance has exceeded the target level and the payout amounts are subject to maximum caps.
 
 
 
 
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The 2013 LTI Program

The chart below shows our long-term incentive mix, or the percentage of the total 2013 LTI award delivered through each equity element.

 
The RSUs and performance share awards will be settled in shares of our common stock if the applicable vesting date and/or performance targets are met.  The Options, which vest ratably over a multi-year period, and the RSUs, which cliff vest in three years, are not tied to formulas that could focus our executives on specific short-term outcomes.  Instead, the value of these awards to our NEOs depends on the positive financial performance of our Company over time, as expressed through the multi-year increase in share value.  Long-term equity-based awards such as these encourage our NEOs to act as owners, thus aligning their interests with those of shareholders.  These equity awards are subject to the clawbacks detailed on page 28 of this proxy statement.

The 2013-2015 Performance Award Cycle

The 2013-2015 performance cycle was established in February 2013 for a performance period beginning on January 1, 2013 and ending on December 31, 2015.  The Committee established the target performance share award amounts payable to the NEOs, the relevant performance measures, the relative weighting of each performance measure, and the goals for threshold payout (25% of target) and maximum payout (200% of target) for each performance measure.  For each performance measure the maximum award, 200% of target, will occur when performance is superior, and a minimum award, 25% of target, would result when a threshold level of performance is met, therefore a minimum award is calculated as follows: 25% multiplied by the relative weighting of the performance measure multiplied by the target amount.  If the threshold performance is not met, then no payout will occur.  For the performance share awards to ultimately vest, the minimum achievement level for at least one of the performance measures must be attained.  The 2013-2015 performance share awards will, if earned, be paid out in shares of our common stock.

The table below sets forth the performance measures approved for the 2013-2015 performance award cycle for all participating executives, as well as the relative weighting for each performance measure.

2013-2015 LTI
Performance Award Measures
Objective/Purpose
Relative
Weight
Return on Equity (“ROE”)
This is a key measure of our financial health that management uses to evaluate our business and that is also used by stock analysts to value companies in the financial services industry.  It provides a meaningful measure of performance that is closely tied to long-term shareholder value.
50%
 Relative Total Shareholder Return (“TSR”)
This performance measure assesses the Company’s delivery of shareholder value over time relative to our peers.
50%

ROE for the 2013-2015 LTI is defined as Income from Operations (as defined above with respect to the 2013 AIP) divided by average shareholders’ equity for the performance period.  Shareholders’ equity will exclude accumulated other comprehensive income or other similar items and any increase in equity due to goodwill associated with an acquisition during the performance period.  TSR for the 2013-2015 LTI is a relative measure based on Lincoln’s TSR for the performance period ranked against the TSR results for the peer group shown below:

2013-2015 Relative TSR Peer Group

· Genworth Financial
·  Prudential Financial
· Manulife
·  Symmetra Financial
· MetLife
·  Sun Life Financial
· Principal Financial
·  Torchmark
· Protective Life
· Unum Group

The Compensation Committee established the weightings of the performance share plan measures.  The selected weightings reflect the Committee’s and management’s current judgment that over the long-term, ROE is a key input to shareholder value, and TSR represents the actual value delivered to shareholders.

The Compensation Committee also set minimum, target, and maximum performance achievement levels for each measure. In setting the goals to be achieved with respect to each of the 2013-2015 LTI performance measures, the maximum levels were intended to present a challenge for management and were designed to create appropriate incentives for our executives to create financial growth and long-term value for shareholders.  The TSR and ROE performance measures were set after consideration of a number of factors, including peer group performance, market data and our financial plan.
 
 
 
 
- 35 -

 
 

 
The performance level necessary for a payout at target for growth in ROE was set at ten and one-half percent for the three-year performance cycle period.  The performance level necessary for a payout at target for relative TSR was set at the median of the peer group over the three-year performance cycle.  These targets were set for compensation purposes only and do not constitute, and should not be viewed as, management’s projection of future results.

The grant date fair value of the Options, RSUs and performance share awards are included in the Summary Compensation Table on page 40 of this proxy statement. Additional details regarding the 2013-2015 performance share awards granted to the NEOs are set forth in the Grants of Plan-Based Awards table on page 43.

The 2011 LTI Program

The performance-based 2011 LTI Program was established by the Compensation Committee in February 2011, with performance metrics that measure the creation of long-term shareholder value.  The Compensation Committee approved the equity awards under the 2011 LTI Program including grants of Options, RSUs and performance share awards.  At that meeting, the Compensation Committee also established the 2011-2013 performance cycle for the period that beginning January 1, 2011 and ending December 31, 2013 for performance share awards.  The Compensation Committee set:
 
·
the maximum award amounts payable to the NEOs in shares of our common stock;
·
the relevant performance measures;
 
·
Growth in ROE; and
 
·
Relative TSR; and
·
the goals for:
 
·
minimum payout (25% of target); and
 
·
maximum payout (200% of target) for each performance measure for the performance share awards.
 
The payouts for the 2011-2013 LTI performance share awards could have ranged from 0% to 200% of each NEO’s target, with a threshold payout for each performance measure equal to 25% of target.  For the performance share award to ultimately have been payable, the threshold or minimum achievement level for at least one of the performance measures must have been attained.  Therefore, a minimum award would be calculated as follows: 25% multiplied by the relative weighting of the performance measure multiplied by the target amount.

The following table shows the estimated number of shares that could have been earned by each NEO for the 2011-2013 LTI performance period at threshold, target and maximum levels as established by the Compensation Committee on the date of grant.

Estimated Possible Share Payouts Under
the 2011-2013 Performance Award Cycle as of Grant Date
 
Name
Threshold
(#)
Target
(#)
Maximum
(#)
Dennis R. Glass
7,856
62,849
125,698
Randal J. Freitag
1,473
11,785
23,570
Charles C. Cornelio
1,220
9,759
19,518
Wilford H. Fuller
1,316
10,524
21,048
Mark E. Konen
1,975
15,796
31,592

Growth in ROE for the 2011-2013 LTI program was measured as the cumulative basis point increase over the three-year performance period.  ROE was calculated as of December 31, 2010 and again as of December 31, 2013, with the final result being the difference between the 2013 ending value and the 2011 starting value.  The definition of ROE set forth in Exhibit 5 to this proxy statement was used for each point in time calculation of ROE.  

Total Shareholder Return for the 2011-2013 LTI was a relative measure based on our TSR results for the performance period ranked against the TSR results for the peer group shown below:

2011-2013 Relative TSR Peer Group

· Genworth Financial
·  Protective Life
· Hartford Financial Services
·  Prudential Financial
· Manulife
·  Sun Life Financial
· MetLife
·  Torchmark
· Principal Financial
· Unum Group

TSR was defined as the change in the price of a share of our common stock plus dividends paid, over the relevant performance period, divided by the price of a share of our common stock at the beginning of the performance period.  We used an average of the prices of our common stock as reported on the NYSE consolidated transactions tape for the 45 days preceding the beginning and end dates to determine the beginning and ending prices for the performance period.
 


 
- 36 -

 

The chart below sets forth the goals for each of the performance measures established for the 2011-2013 LTI performance award cycle, as well as the actual performance results for the performance period beginning January 1, 2011 and ending December 31, 2013.

Performance Measure for
2011-2013 Performance Cycle
Goal at
Minimum
Goal at
Target
Goal at
Maximum
Actual
Results
Payout as a Percentage of Target
Growth in ROE
50 basis points
75 basis points
125 basis points
160 basis points
200%
Relative TSR Rank
8th
Median
1st to 3rd
2nd
200%

In February 2014, the Compensation Committee reviewed the reports and analysis provided to it by management regarding our performance during the 2011-2013 performance cycle and determined the results for each performance measure.  For the 2011-2013 performance period, the Company’s ROE grew by 160 basis points, which was above the goal at target shown above.  The Company’s TSR for the performance period was 96.53%, which was ranked 2nd among the peers listed above.  As a result of the strong performance by the Company in each of these key metrics over the performance period, the Compensation Committee approved a payout of the 2011-2013 performance share awards at 200% of target.  See the Outstanding Equity Awards table on page 45 of this proxy statement for the actual share amounts earned by each NEO.
 
Other Compensation Considerations

Equity Award Procedures.  The Compensation Committee formally approves our equity grant procedures, including procedures for granting Options.  Under these procedures, all Options for our common stock are granted with a “strike” or exercise price set at the closing price of our common stock, as reported on the composite transactions table of the NYSE, on the date of grant.  Only the full Compensation Committee or the Board of Directors has the authority to make equity grants with respect to our executives.

The Compensation Committee generally grants equity awards to our executives annually as part of our long-term incentive compensation program.  These grants are made typically during its first regularly scheduled meeting of the calendar year.  However, the Compensation Committee or the Board of Directors may also grant equity awards to executives at other regularly scheduled or special meetings or by taking action through unanimous written consent in order to accommodate special circumstances such as new hires or promotions.  For equity awards granted to executives at a regularly scheduled meeting of the Board or Committee, the grant date is the date of the meeting.  However, if the equity award is granted at a “special” meeting of the Board or Committee, and such meeting does not occur during the period in which trading of our securities is permitted under our Insider Trading and Confidentiality Policy (a “window period”), then the grant becomes effective on the first business day of the next window period.  Window periods generally begin on the later of the second business day after our quarterly earnings release or the first business day after our public call with investors.

In cases where the Compensation Committee or the Board of Directors grant equity awards by written consent, the grant becomes effective on the first business day of the week following the effective date of the written consent; provided, however, that if such business day is not during a window period, the grant becomes effective on the first business day of the next window period.

The Compensation Committee has delegated to the Chair of the Committee the authority to approve changes to executive compensation, subject to the Compensation Committee’s review and ratification.  This delegation of authority was done to facilitate changes in compensation between Compensation Committee meetings, usually in connection with a promotion or new hire.  However, grants of equity awards for executives and the establishment and determination of performance goals intended to satisfy the performance-based compensation exception of Section 162(m) of the Internal Revenue Code of 1986, as amended (“Code Section 162(m)”) may only be made by the full Compensation Committee.

Tax Considerations. Code Section 162(m) generally limits a public company’s corporate income tax deduction for compensation up to $1 million per year for each “covered employee,” which includes each NEO (other than our CFO).  However, compensation that qualifies as performance-based compensation is not subject to this limitation.  In general, the incentive awards that we grant are intended to qualify as performance-based compensation under Code Section 162(m) and are subject to limits established under the 2009 ICP in compliance with the rules of that Code Section.
 
 
 
- 37 -

 
 

 
The Compensation Committee may decide to further limit compensation awards.  In the case of our performance share awards, the Compensation Committee retains the discretion to reduce the target award or payout of any “covered employee” as defined under Code Section 162(m), or increase or decrease any other executive’s individual payout, based on certain circumstances that may occur during the cycle.  The Compensation Committee may also consider paying non-performance-based compensation to covered employees based on circumstances that could impact performance results such as changing economic and market conditions, mergers or acquisitions, sale of a business, restructuring charges, reserve strengthening or release, and/or extraordinary natural occurrences or man-made events (e.g., acts of war).  In making such changes, the Compensation Committee would consider various factors, including but not limited to, investor reaction, stock price performance, performance of peers, retention considerations, and the CEO’s recommendation. The guiding principle in making adjustments and modifications would be to encourage and reward management for consistently high financial and shareholder return performance relative to peers, while taking into consideration the creation of shareholder value.

Notwithstanding the above and as may be permitted under our applicable plans, should compliance with Code Section 162(m) conflict with the Compensation Committee’s compensation philosophy, the Compensation Committee reserves the authority to act in the manner it perceives to be in the best interests of us and our shareholders, including awarding compensation that is not tax deductible.

Employee Benefit Plans

Many of the benefits offered to our executives are the same benefits that we offer to our general employee population.  With some exceptions, the additional benefits available to our executives are offered through plans and programs that promote tax efficiency and replacement of benefit opportunities lost due to regulatory limits in the broad-based tax-qualified plans.  In addition to providing retirement income, our benefits help to protect our employees and executives from the financial hardship that can result from unexpected illness, disability, or death.  These types of benefits are typically offered by our peer group of companies with whom we compete, and therefore, help us to attract and retain key employees.

Our Deferred Compensation Plan.  Through the Lincoln National Corporation Deferred Compensation & Supplemental/Excess Retirement Plan (the “DC SERP”), our non-qualified defined contribution plan, we provide certain benefits to our executive officers, including our NEOs.  For additional information on the DC SERP see page 48 of this proxy statement.

Change of Control Severance Arrangements.  We sponsor a single severance plan that applies to our executives in connection with a change of control of the Company, the Lincoln National Corporation Executives’ Severance Benefit Plan (the “LNC COC Plan”), where the payment of benefits is triggered by a termination of employment (under specific circumstances) in anticipation of or within two years after our change of control.

The objectives of the change of control benefits are:
 
·
to retain qualified executives in the face of an actual or threatened change of control of the Company;
·
to enable such executives to help our Board assess any proposed change of control of the Company and advise the Board as to whether such a proposal is in the best interests of the Company, our shareholders, our policyholders and customers without being unduly influenced by the possibility of employment termination; and
·
to demonstrate to those executives our desire to treat them fairly and competitively in such circumstances.
 
On an annual basis, the Compensation Committee reviews a tally sheet prepared by Pay Governance LLC estimating our costs and executive benefits for each NEO associated with a potential change of control of the Company.  For 2013, the Compensation Committee agreed that the costs for these benefits associated with a change of control were reasonable.  For additional information on the LNC COC Plan see page 49 of this proxy statement.

Severance Plans. We also sponsor the Severance Plan for Officers of Lincoln National Corporation (the “Officers’ Severance Plan”), which provides for 52 weeks of severance benefits to our executive officers, including our NEOs, as well as a lump-sum severance stipend of $200/week for each week of the severance period, including, in the event of certain terminations, not in connection with a change of control.  In order to qualify for benefits under the Officers’ Severance Plan, each affected officer must sign our standard form of agreement, waiver and release of claims that includes a forfeiture-for-competition provision and a non-solicitation provision, among other conditions.  Any payments made under the Officers’ Severance Plan would offset, or reduce, on a dollar-for-dollar basis, any payments to an executive under the LNC COC Plan.  For additional information on the Officers’ Severance Plan see page 50 of this proxy statement.

 
 
- 38 -

 


 
Compensation Committee Report

The members of the Compensation Committee have reviewed and discussed this Compensation Discussion & Analysis with management.  Based on that review and discussion, the Compensation Committee has recommended to the Board of Directors of the Corporation that the Compensation Discussion & Analysis be included in this proxy statement and incorporated by reference into the Corporation’s Form 10-K for the year ended December 31, 2013.

The Compensation Committee

Patrick S. Pittard, Chair
William H. Cunningham
Eric G. Johnson
Michael F. Mee




 
- 39 -

 

Executive Compensation Tables

Summary Compensation Table

The table below contains information about our NEOs’ compensation earned or paid during the fiscal year ended December 31, 2013.  The NEOs for 2013 are:
 
 
·
our CEO and our CFO during 2013; and
 
·
our three other most highly compensated executive officers employed on December 31, 2013.
 
                                     
Name and Principal Position
 
Year
 
Salary
($)
 
Bonus
($)
 
Stock
Awards
($)1
 
Option Awards
($)2
 
Non-Equity Incentive
Plan
Compensation
($)3
 
Change in Pension Value and Non-Qualified Deferred Compensation Earnings
($)4
 
All Other Compensation
($)5
 
Total
($)6
   
2013
 
1,100,000
 
 
4,204,470
 
2,135,005
 
3,999,600
 
 
739,083
 
12,178,158
Dennis R. Glass
 
2012
 
1,075,000
 
 
4,247,938
 
2,069,453
 
3,104,600
 
173,443
 
671,779
 
11,342,213
President and CEO of LNC
 
2011
 
1,075,000
 
 
4,293,791
 
1,951,132
 
4,187,231
 
334,875
 
860,185
 
12,702,214
   
2013
 
558,625
 
 
885,969
 
449,876
 
1,100,235
 
 
220,232
 
3,214,937
Randal J. Freitag
 
2012
 
545,000
 
 
900,900
 
438,881
 
871,074
 
27,929
 
186,252
 
2,970,036
Executive Vice President and CFO
 
2011
 
473,231
 
50,000
 
805,140
 
365,851
 
791,652
 
58,478
 
117,411
 
2,661,763
Charles C. Cornelio7
 
2013
 
564,570
 
 
700,467
 
355,683
 
1,150,876
 
 
220,656
 
2,992,252
President, Retirement Plan Services
                 
   
2013
 
484,000
 
 
784,009
 
398,093
 
2,103,658
 
 
307,934
 
4,077,694
Wilford H. Fuller
 
2012
 
440,000
 
 
911,260
 
346,485
 
1,641,200
 
 
245,685
 
3,584,630
President, Lincoln Financial Group Distribution
2011
440,000
 
718,996
326,707
1,578,442
249,820
3,313,965
   
2013
 
625,250
 
 
1,049,887
 
533,107
 
1,323,529
 
 
276,995
 
3,808,768
Mark E. Konen
 
2012
 
610,000
 
 
1,067,571
 
520,077
 
1,146,922
 
60,057
 
265,813
 
3,670,440
President, Insurance and Retirement Solutions
 
2011
 
610,000
 
 
1,079,184
 
490,373
 
1,502,396
 
124,645
 
575,512
 
4,382,110

1. Represents the grant date fair value of stock awards granted in 2013, 2012, and 2011 under the 2009 ICP.  The fair values of these awards were determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation (“Topic 718”).  The assumptions made in calculating the grant date fair value of stock awards with respect to the years ended December 31, 2013, 2012 and 2011 are set forth in Note 19 of the Notes to the Consolidated Financial Statements, included in Item 8 of the 2013 Form 10-K.  The stock awards granted in 2013 include grants of RSUs and performance share awards.  The performance share awards are subject to performance conditions.  The below table shows the grant date fair value of the RSUs and performance share awards as well as the value of the performance share awards assuming the maximum level of performance is achieved (200% of target) under both the ROE and TSR performance measures as described on page 35.  The grant date fair value for the performance share awards was calculated in accordance with Topic 718 using a performance factor of 1.14, the probable outcome on the date of grant.  The stock awards granted in 2013 are described in more detail in the Grants of Plan-Based Awards table on page 43.

Named Executive Officer
 
 
Grant Date
Fair Value of
2013 RSU
($)
Grant Date
Fair Value of
2013 Performance Share Award
($)
Value of 2013 Performance Share Award at Maximum Performance Level
($)
Dennis R. Glass
1,740,857
2,463,613
4,322,128
Randal J. Freitag
366,834
519,135
910,763
Charles C. Cornelio
290,031
410,436
720,064
Wilford H. Fuller
324,625
459,384
805,937
Mark E. Konen
434,713
615,174
1,079,253

2.  Represents the grant date fair value of option awards granted in 2013, 2012 and 2011 under the 2009 ICP.  The grant date fair values of these awards were determined in accordance with Topic 718.  The assumptions made in calculating the grant date fair value of option awards with respect to the years ended December 31, 2013, 2012 and 2011 are set forth in Note 19 of the Notes to the Consolidated Financial Statements, included in Item 8 of the 2013 Form 10-K.  The option awards granted in 2013 are described in more detail in the Grants of Plan-Based Awards table on page 43.

3. Represents the AIP awards earned for the 2013 performance period under the 2009 ICP.  Additional information on the AIP
 
 
 
 
- 40 -

 
 
awards is provided in the Grants of Plan-Based Awards table on page 43 and the CD&A at pages 32 to 34.
 
4.  These amounts solely reflect the total of all increases in the actuarial present value of each NEO’s accumulated benefits under our qualified and non-qualified defined benefit pension plans shown in the Pension Benefits table on page 47.  We froze all of our qualified and non-qualified defined benefit pension plans at the end of 2007.  Present values were calculated at year-end 2013, 2012 and 2011, respectively, using the interest rate and mortality rate assumptions set forth in Note 17 of the Notes to our Consolidated Financial Statements, included in Item 8 of the 2013 Form 10-K and the Forms 10-K for the fiscal years ended December 31, 2012, and December 31, 2011.  Totals for the plans listed above include the sum of increases only.  For Messrs. Glass, Freitag, Cornelio and Konen the amounts attributable to the change in pension value for 2013 resulted in a decrease of (21,154), (19,452), (29,051), and (34,985), respectively.  The NEOs did not have any preferential non-qualified deferred compensation earnings.

5.  All Other Compensation:

Name
 
Perquisitesa
($)
 
Tax Gross-ups
or
Miscellaneous
($)
 
401(k) Match, Core and Transition  Contributionsb
($)
 
Additional Company Contributions into Deferred Compensation
Plan (Special Executive Credit
and Excess Match, Core and Transition Contributions)c
($)
 
Total
($)
Dennis R. Glass
 
83,165
 
 
33,500
 
622,418
 
739,083
Randal J. Freitag
 
10,290
 
 
31,830
 
178,112
 
220,232
Charles C. Cornelio
 
15,858
 
 
37,133
 
167,665
 
220,656
Wilford H. Fuller
 
13,519
 
 
25,500
 
268,915
 
307,934
Mark E. Konen
 
12,944
 
 
33,500
 
230,551
 
276,995


(a)  
For Mr. Glass, the entire amount reflects the aggregate incremental cost of personal use of the corporate aircraft.  In general, Mr. Glass only uses the corporate aircraft for personal use when necessary to accommodate his business schedule.  For 2013, the aggregate incremental costs were higher than the normal run rate due to the pro rata costs of required comprehensive inspections of the aircraft.

For Mr. Freitag, the amount reflects the cost of matching charitable gifts made by Lincoln Financial Foundation, Inc. on his behalf, and the incremental cost of personal activities and items incurred in connection with offsite business events.

For Mr. Cornelio, the amount reflects the cost of matching charitable gifts made by Lincoln Financial Foundation, Inc. on his behalf, the reimbursement of financial planning expenses and tax preparation expenses, as well as the incremental cost of personal activities and items incurred in connection with offsite business events.
 
 
For Mr. Fuller, the amount reflects the cost of matching charitable gifts made by Lincoln Financial Foundation, Inc. on his behalf, the reimbursement of: financial planning expenses; tax preparation expenses; and the cost of a medical exam, as well as the incremental cost of personal activities and items incurred in connection with offsite business events.

For Mr. Konen, the amount reflects the cost of matching charitable gifts made by Lincoln Financial Foundation, Inc. on his behalf, the reimbursement of tax preparation expenses, and the incremental cost of personal activities and  items incurred in connection with offsite business events.

More information regarding perquisites and personal benefits, including the manner in which we value personal use of the corporate aircraft is discussed under “Narrative Disclosure to the Summary Compensation Table” on page 42 of this proxy statement.

(b)  
Represents Company matching, core and transition contributions under our Employees’ 401(k) Plan.

(c)  
Represents excess Company matching, core and transition contributions to the DC SERP, which are amounts above applicable Internal Revenue Code of 1986, as amended (the “IRC”) limits.  In addition, for all NEOs, except Mr. Glass, this amount includes an additional contribution – a “special executive credit” to the DC SERP, which is described on more detail on page 48 of this proxy statement.

6.  Some numbers may not add due to rounding.

7.  Mr. Cornelio was not previously an NEO.

 
- 41 -

 

Narrative Disclosure to the Summary Compensation Table

2013 Annual Incentive Program

The dollar amounts included in the Summary Compensation Table at page 40 for the 2013 AIP for each of our NEOs reflect the performance results for this program that were certified by the Compensation Committee in February 2014, which results exceeded the goal at target.  For further details on the 2013 AIP, including the performance measures, targets and final results, see the CD&A, pages 32 to 34.

Perquisites and Personal Benefits

The following discusses the primary perquisites and personal benefits offered to the NEOs in 2013, not all of which were received by the NEOs.  Under the financial planning and tax preparation program, the NEOs, along with the other executive officers, were eligible for reimbursement of the costs of utilizing a Lincoln Financial Network financial planner to provide financial planning services.  The reimbursement opportunity was equal to 100% of the first $1,800 of costs, plus 50% of costs above that amount up to a maximum of $6,000.  In addition, the same officer group was eligible to receive up to $2,700 for the reimbursement of tax preparation services provided by any fee-for-service tax preparer that was a certified public accountant, excluding Ernst & Young LLP, our independent registered public accounting firm.  If the officer does not use the entire tax preparation reimbursement allowance in a year, any remaining amount may be applied to the financial planning reimbursement, but not vice versa.

In 2005, the Compensation Committee adopted a policy advising our CEO to use the corporate aircraft for personal travel as well as business travel, when practical.  The policy was adopted due to security concerns and to allow for more efficient travel time so that the CEO can devote more time to our business.  In general, our policy with respect to our executive officers’ personal use of the corporate aircraft is that to the extent any executive and guest of an executive used the corporate aircraft for personal purposes, the usage is treated as a perquisite for proxy statement reporting purposes.  For purposes of determining the value of such services, the personal use is calculated based on the aggregate incremental cost to us.  For personal flights on corporate aircraft, the aggregate incremental cost is calculated based on a cost-per-flight-hour charge that reflects the operating costs of the aircraft, including regularly required  maintenance and inspections, including the costs of parts, labor, overhauls (but not engine overhauls of the type incurred every 5-10 years), fuel, landing and parking fees/taxes and crew travel expenses.  During 2013, several comprehensive required inspections were performed.  We also include, as an aggregate incremental cost, empty aircraft flights to reposition the corporate aircraft (i.e., dead head flights) that are determined to be the product of a personal flight.  Executives, their families and invited guests occasionally fly on the corporate aircraft as additional passengers on business flights.  Since such flights do not result in additional aggregate incremental costs under our cost-per-flight-hour methodology, no incremental cost is reflected in the Summary Compensation Table.  Finally, if more than one executive is on a personal flight, we allocate the incremental cost on a proportional basis depending on the number of guests of each officer.

We also have a matching charitable gift program.  Under the program in 2013, all NEOs were eligible to apply for matching contributions of up to $10,000.

Retirement Benefits

Under the DC SERP, all of our participating NEOs are eligible to receive an additional contribution—a “special executive credit” as a percentage of “Total Pay.”  For the purpose of determining the special executive credit, “Total Pay” under the DC SERP means base salary and AIP paid during the fiscal year.

For each NEO, the special executive credit is calculated annually as follows: 15% of Total Pay expressed as a percentage, offset by the total of: (a) the NEO’s maximum basic matching contribution opportunity (6%); plus (b) core contributions (4%); plus (c) transition contributions, if any (up to 8%) as determined under the Employees’ 401(k) Plan, each expressed as a percentage.  For more details on the DC SERP, the contributions and the calculations of these amounts, see page 48 of this proxy statement.

 

 
- 42 -

 

 
Grants of Plan-Based Awards

The table below provides information on grants of plan-based awards during fiscal year 2013 to the NEOs granted under the 2009 ICP.

Name
Grant Date
 
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards1
 
Estimated Future Payouts Under Equity Incentive Plan Awards2
 
All Other Stock Awards: Number of Shares of Stock or Units3
(#)
 
All Other Option Awards: Number of Securities Underlying Options4
(#)
 
Exercise or Base Price of Option Awards
($/SH)
 
Grant Date Fair Value of Stock and Option Awards5
($)
 
 
Threshold
($)
 
Target
($)
 
Maximum
($)
 
Threshold
(#)
 
Target
(#)
 
Maximum
(#)
       
Dennis R. Glass
   
33,000
 
2,200,000
 
4,400,000
                           
2/28/2013
             
9,293
 
74,340
 
148,680
             
2,463,613
2/28/2013
                         
59,885
         
1,740,857
2/28/2013
                             
291,532
 
29.54
 
2,135,005
Randal J. Freitag
   
9,225
 
615,000
 
1,230,000
                           
2/28/2013
             
1,958
 
15,665
 
31,330
             
519,135
2/28/2013
                         
12,619
         
366,834
2/28/2013
                             
61,430
 
29.54
 
449,876
Charles C. Cornelio
   
38,108
 
762,170
 
1,524,339
                           
2/28/2013
             
1,548
 
12,385
 
24,770
             
410,436
2/28/2013
                         
9,977
         
290,031
2/28/2013
                             
48,568
 
29.54
 
355,683
Wilford H. Fuller
   
14,250
 
1,161,600
 
2,323,200
                           
2/28/2013
             
1,733
 
13,862
 
27,724
             
459,384
2/28/2013
                         
11,167
         
324,625
2/28/2013
                             
54,359
 
29.54
 
398,093
Mark E. Konen
   
24,729
 
875,350
 
1,750,700
                           
2/28/2013
             
2,320
 
18,563
 
37,126
             
615,174
2/28/2013
                         
14,954
         
434,713
2/28/2013
                             
72,795
 
29.54
 
533,107

1.  Represents the potential 2013 AIP awards.  Actual amounts earned by the NEOs are reflected in the Summary Compensation Table.  More information on the 2013 AIP awards, including the applicable performance targets, is provided in the CD&A on pages 32 to 34.

2.  Represents 36% of each NEO’s 2013 LTI target awarded as performance share awards, for the performance period 2013-2015, payable 100% in shares.  Awards under the 2013-2015 performance cycle will be determined in the first quarter of 2016 (for the performance period ending December 31, 2015), and the amount of the award that vests may range from 0% to 200% of target depending upon the satisfaction of applicable performance goals.  For information on the 2013-2015 performance awards and a description of the performance goals applicable to these awards, see the CD&A at pages 35-36.  Dividend equivalents accrue on the LTI performance share awards.  The dividend equivalents are payable in stock, based upon normal dividend rates, only if the related LTI award actually vests based on certification of performance.

3.  Represents 29% of each NEO’s 2013 LTI target awarded as RSUs that cliff vest on the third anniversary of the grant date and are described in more detail in the CD&A on page 35.  Dividend equivalents accrue on the RSUs, which are credited on each date dividends are paid on our common stock in the form of additional RSUs, and are payable in stock only upon vesting of the related RSU.

4.  Represents 35% of each NEO’s 2013 LTI target awarded in the form of Options as described in more detail in the CD&A on page 35.  The Options granted have 10-year terms.  The Options vest ratably over a three-year period, with one-third vesting on each anniversary of the grant date.  These Options do not have a reload feature.

5.  Represents the grant date fair value of the award determined in accordance with Topic 718. All assumptions made in calculating the aggregate fair value are set forth in Note 19 of the Notes to the Consolidated Financial Statements, included in Item 8 of the 2013 Form 10-K.
 
 
 
 
- 43 -

 

 
 
Narrative Disclosure to the Grants of Plan-Based Awards Table

In addition to the material terms of grants described in the footnotes to the Grants of Plan-Based Awards table above, we wish to point out the following:
 
·
The exercise price and tax withholding obligations related to the exercise of all Options may be paid by delivery of shares, subject to certain conditions.

·
With respect to stock awards, at the NEO’s election, we withhold a sufficient number of shares to satisfy the NEO’s mandatory minimum tax withholding obligations upon vesting.

·
The Options and RSU awards granted in 2013 will vest fully upon a change of control only following the occurrence of two events (or triggers):

(1) our change of control, as defined in the LNC COC Plan; and

(2) either: (a) the executive’s employment is terminated for any reason other than “cause” or (b) the executive terminates his or her employment for “good reason,” as those terms are defined in the LNC COC Plan.

·
Options and stock awards are not transferable except by will or pursuant to the laws of descent and distribution, unless the Compensation Committee permits such a transfer.  The Compensation Committee has not permitted (nor historically permitted) a transfer with respect to any of the awards shown in the Grants of Plan-Based Awards table above.

·
In cases where an executive participating in the 2013 LTI program dies, becomes disabled, voluntarily leaves the company after attaining age 55 with five years of service, or is involuntarily terminated for any reason other than for cause and signs a general release of claims against us, the executive (or the executive’s beneficiary) will receive a pro-rated performance award based on the number of days of service out of the total number of days in the three-year performance cycle, provided that the applicable performance goals are achieved, and the Compensation Committee does not exercise its discretion not to pay out on the award.  Any payout will be made at the same time, and in the same manner, as other participants are paid.

·
The Options, RSUs and performance share awards are subject to four restrictive covenants in the form of non-competition, non-solicitation, non-disparagement, and non-disclosure provisions.  We have the right to “clawback” an award.  Specifically, we have the right to demand that the NEO return the shares, or in the case of Options, the cash received, to us upon breach of one of the covenants.  The restrictive covenants and the “clawback” right expire six months after an option exercise, an RSU award vesting, or the payment of performance shares.  Additionally, we have the right to clawback any vested shares if the NEO is terminated for “cause” at any time after a share vests (no expiration date).

Any vested Options may be exercised by the executive or his/her beneficiary (as applicable), until the earliest to occur of:

·
the expiration of the term of the Option;
·
the first anniversary of the date the executive died or was disabled;
·
the fifth anniversary of the date the executive voluntarily left the company after attaining age 55 with five years of service; or
·
three months from the date the executive was involuntarily terminated for any reason other than for cause.


 
- 44 -

 

Outstanding Equity Awards at Fiscal Year-End

The table below provides information with respect to unexercised Options to purchase shares of our common stock, unvested stock awards and unvested equity incentive plan awards for each NEO as of December 31, 2013 on an award-by-award basis.

Option Awards
Stock Awards
Name
 
Number of Securities Underlying Unexercised Options
(#)
Exercisable1
 
Number of Securities Underlying Unexercised Options
(#)
Unexercisable1
 
Option Exercise Price
($)
 
Option Expiration
Date
 
Number of Shares or Units of Stock That Have Not Vested2
(#)
 
Market Value of Shares or Units of Stock That Have Not Vested3
($)
 
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
 
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested3
($)
Dennis R.
Glass
 
272,650
     
45.73
 
02/13/15
 
65,428
 
3,377,407
 
129,9384
 
6,707,410