DEF 14A 1 a2017proxystatement.htm 2017 PROXY Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
SCHEDULE 14A
 
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Torchmark Corporation
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March 19, 2018
 
To the Shareholders of
TORCHMARK CORPORATION (the Company):
 
Torchmark Corporation’s 2018 Annual Meeting of Shareholders (Annual Meeting) will be held at Company headquarters, 3700 South Stonebridge Drive, McKinney, Texas 75070 at 10:00 a.m., Central Daylight Time, on Thursday, April 26, 2018. The Annual Meeting will be conducted using Robert’s Rules of Order and Torchmark Corporation’s Shareholder Rights Policy. This policy is posted on the Company’s website at http://www.torchmarkcorp.com or you may obtain a printed copy by writing to the Corporate Secretary at 3700 South Stonebridge Drive, McKinney, Texas 75070.
 
The accompanying Notice and Proxy Statement discuss proposals which will be submitted to a stockholder vote. If you have any questions or comments about the matters discussed in the Proxy Statement or about the operations of the Company, we will be pleased to hear from you.
 
It is important that your shares be voted at the Annual Meeting. Please mark, sign, and return your proxy or vote over the telephone or on the Internet. If you attend the Annual Meeting, you may withdraw your proxy and vote your stock in person if you desire to do so.
 
We hope that you will take this opportunity to meet with us to discuss the results of operations of the Company during 2017.
 
Sincerely,
 
garycolemanproxy.jpg
Gary L. Coleman
Co-Chairman and Chief Executive Officer
 
 
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Larry M. Hutchison
Co-Chairman and Chief Executive Officer






Notice of Annual Meeting of Shareholders
to be held April 26, 2018
 

 
To the Holders of Common Stock of
TORCHMARK CORPORATION
 
The Annual Meeting of Shareholders of Torchmark Corporation will be held at Company Headquarters, 3700 South Stonebridge Drive, McKinney, Texas 75070 on Thursday, April 26, 2018 at 10:00 a.m., Central Daylight Time. Directions to attend the Annual Meeting where you may vote in person can be found on our website: www.torchmarkcorp.com. The meeting will be conducted in accordance with Robert’s Rules of Order and our Shareholder Rights Policy. You will be asked to: 
1.
Elect the fourteen nominees shown in the proxy statement as directors to serve for one-year terms or until their successors have been duly elected and qualified.
2.
Ratify the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of the Company.
3.
Approve the Torchmark Corporation 2018 Incentive Plan.
4.
Approve on an advisory basis the compensation of our named executive officers, as described in the Compensation Discussion and Analysis, executive compensation tables and accompanying narrative in the Proxy Statement.
5.
Transact any other business that properly comes before the meeting.
 
The Board of Directors recommends that you vote FOR Proposals 1, 2, 3 and 4 above. These matters are more fully discussed in the accompanying proxy statement.
 
The close of business on Friday, March 2, 2018 is the record date for determining shareholders who are entitled to notice of and to vote at the Annual Meeting. You are requested to mark, date, sign, and return the enclosed form of proxy in the accompanying envelope, whether or not you expect to attend the Annual Meeting in person. You may also choose to vote your shares over the telephone or on the Internet. You may revoke your proxy at any time before it is voted at the meeting.
 
The Annual Meeting may be adjourned from time to time without further notice other than by an announcement at the meeting or at any adjournment. Any business described in this notice may be transacted at any adjourned meeting.
 
 
By Order of the Board of Directors
 
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Carol A. McCoy
Vice President, Associate Counsel & Corporate Secretary
 




McKinney, Texas
March 19, 2018
 
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on April 26, 2018:
The Company’s Proxy Statement and 2017 Annual Report are available at: http://www.torchmarkcorp.com/investors/annualreports.



TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A-1
 
B-1




PROXY STATEMENT

PROXY SUMMARY
Company Highlights

2017 was another good year for the Company. Return on equity, excluding net unrealized gains on fixed maturities, was 14.3% and total premiums grew 5%. Agency sales grew 8%, driven by increases in both agent count and productivity. We have had sales growth in each of our exclusive agencies now for four years in a row. We believe the Company is well positioned to create sustainable growth and build shareholder value for years to come. The charts below highlight what we consider to be the most important metrics we use to evaluate our business.
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1


Executive Compensation
 
The compensation recommendations and decisions for 2017 of our management, the Compensation Committee, with the aid of its independent compensation consultant, Board Advisory, Inc. (formerly Board Advisory, LLC), and the independent members of the Board, with respect to the persons who served as Co-CEOs during 2017, are summarized in the separate executive summary of Compensation Discussion and Analysis on page 26 of this Proxy Statement.
 
Corporate Governance
 
Corporate governance remains a focus of our Board and Company management. In 2017, our efforts for improvements in corporate governance continued, led by the Co-CEOs of the Company, our independent Lead Director and the Governance and Nominating Committee. We launched a search for new directors as a part of our Board refreshment process, resulting in the February 2018 election to the Board of Directors of Linda L. Addison, Cheryl D. Alston and Mary E. Thigpen. Our comprehensive project for succession planning at all levels of Company management using both internal and external resources continued in 2017. We continued to file annual reports under the Risk Management and Own Risk Solvency Assessment (ORSA) regulation with state insurance regulators on behalf of the Company and its insurance subsidiaries in a process actively overseen by the senior management level Enterprise Risk Management Committee. Finally, in 2017, we issued an Environmental, Social and Governance (ESG) Report, a copy of which is posted on the Company's website at http://www.torchmarkcorp.com/investors, reflecting our ongoing commitment to sustainable business practices. Additional information about Corporate Governance is found on pages 19 through 25 of this Proxy Statement.

Meeting Actions
 
At Torchmark Corporation’s 2018 Annual Meeting of Shareholders, you are being asked to:

1.
Elect Directors – Fourteen of our current directors are standing for re-election to a one-year term based upon a majority voting standard: Charles E. Adair, Linda L. Addison, Marilyn A. Alexander, Cheryl D. Alston, David L. Boren, Jane M. Buchan, Gary L. Coleman, Larry M. Hutchison, Robert W. Ingram, Steven P. Johnson, Darren M. Rebelez, Lamar C. Smith, Mary E. Thigpen and Paul J. Zucconi.

Information about the director nominees’ qualifications and tenure on the Board is located on pages 3 to 7 of this Proxy Statement.

2.
Approve Auditors – Deloitte and Touche, LLP, who have served as Torchmark Corporation’s registered independent public accountants since 1999, are proposed to be ratified to continue in that role for 2018.

3.
Approve the Torchmark Corporation 2018 Incentive Plan – You are being asked to approve a new 2018 equity incentive plan to replace the existing 2011 Incentive Plan, which will be frozen.

4.
Advise on Executive Compensation – You are being asked to approve, on a non-binding advisory basis, the executive compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis, the various compensation tables and accompanying narrative compensation disclosures found on pages 26 to 48 of this Proxy Statement.





2


PROPOSAL NUMBER 1
 
Election of Directors
 
The Company’s By-laws provide that there will be not less than seven nor more than fifteen directors with the exact number to be fixed by the Board of Directors. Effective February 26, 2018, the number of directors was set at fifteen persons. At that time, the Board also determined to reduce the number of directors to fourteen persons effective upon the retirement of Lloyd W. Newton, as discussed below.
 
The Board of Directors proposes the election of Charles E. Adair, Linda L. Addison, Marilyn A. Alexander, Cheryl D. Alston, David L. Boren, Jane M. Buchan, Gary L. Coleman, Larry M. Hutchison, Robert W. Ingram, Steven P. Johnson, Darren M. Rebelez, Lamar C. Smith, Mary E. Thigpen and Paul J. Zucconi as directors, each to hold office for a one-year term, expiring at the close of the Annual Meeting of Shareholders to be held in 2019 and until his or her successor is elected and qualified. Upon their re-nomination as directors, all directors tendered an irrevocable contingent resignation letter pursuant to the Company’s Director Resignation Policy. Lloyd W. Newton will retire from the Board with 12 years of Board service immediately prior to the Annual Meeting of Shareholders on April 26, 2018.
 
Non-management directors first elected to the Board prior to April 28, 2005 must retire from the Board at the annual meeting of shareholders which immediately follows their 78th birthday. Non-management directors first elected to the Board after April 28, 2005 must retire from the Board at the annual meeting of shareholders immediately following their 74th birthday. Directors who are employees/officers of the Company must retire from active service as directors at the annual meeting of shareholders immediately following their 70th birthday.

If any of the nominees becomes unavailable for election, the directors’ proxies will vote for the election of any other person recommended by the Board unless the Board reduces the number of directors.
 
The Board recommends that the shareholders vote FOR the election of all of the nominees.

Profiles of Director Nominees
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Charles E. Adair
 
 
Independent Director
Chair, Governance and Nominating Committee
 
 
 
 
 
 
Principal Occupation: President of Kowaliga Capital, Montgomery, Alabama, an investment management company since December 1993.
 
He is also a director of Tech Data Corporation and of Rayonier Advanced Materials, Inc. He formerly served as a director of PSS World Medical, Inc. (2002-2013).

Mr. Adair holds a B.S. in Accounting from the University of Alabama and participated in the Advanced Management Program at Harvard Business School.
 
He brings to the Board extensive corporate governance experience developed from more than 20 years of experience as the former President and Chief Operating Officer of a NASDAQ-listed pharmaceutical and medical supplies distributor. Additionally, Mr. Adair has served on both public and private company boards, participating in acquisitions, divestitures and debt and equity financings.
Director since April 2003
 
Age 70
 
 
 
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Linda L. Addison
 
 
Independent Director
Member, Compensation Committee
 
 
(Effective April 2018)
 
 
 
Principal occupation: Immediate Past Managing Partner and Former Chair of the Management Committee of Norton Rose Fulbright US LLP since January 2017. (Formerly Managing Partner and Chair of the Management Committee of Norton Rose Fulbright US LLP, 2013-2016; Global Head of Dispute Resolution and Litigation of Norton Rose Fulbright, 2013-2014; Partner-in-Charge of New York office of Fulbright & Jaworski LLP, 2009-2013).
She is also a director of Catalyst, the Kay Bailey Hutchison Center for Energy, Law and Business, and the M.D. Anderson Center Board of Visitors. Additionally, she serves as a Trustee of the University of Texas Law School Foundation.
Ms. Addison earned a B.A. from the University of Texas at Austin and a J.D. from the University of Texas School of Law.
As a global business leader with more than three decades of practical experience, Ms. Addison brings a broad array of skills to the Board, including expertise in corporate governance, accounting, technology, strategic planning, risk assessment and risk management, compensation/benefits oversight and marketing.
Director since February 2018
 
Age 66
 
 
 

3


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Marilyn A. Alexander
 
 
Independent Director
Member, Governance and Nominating Committee
 
 
 
 
 
 
Principal occupation: Self-employed management consultant since November 2003 and Principal in Alexander & Friedman, LLC, Laguna Beach, California, a management consultancy practice focusing on business planning, brand strategy and development, communications, process and organizational issues since January 2006.
She also serves as a director of DCT Industrial Trust, Inc. She formerly served as a director of Tutor Perini Corporation (2008-2016). Additionally, she is a member of the Board of Governors, Chapman University, Orange, California.

Ms. Alexander has an A.B. in Philosophy from Georgetown University and an M.B.A. from Wharton Graduate School at the University of Pennsylvania.
 
Ms. Alexander contributes to the Board from her extensive expertise in finance, marketing and strategic planning based upon more than 35 years of experience at top corporations including Disneyland Resort where she was Senior Vice President and Chief Financial Officer, Walt Disney World Resort, Marriott Corporation and Towers Perrin as well as in her own consultancy practice.
Director since February 2013
 
Age 66
 
 
 
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Cheryl D. Alston
 
 
Independent Director
Member, Audit Committee
 
 
(Effective April 2018)
 
 
 
Principal occupation: Executive Director and Chief Investment Officer of the Employees' Retirement Fund of the City of Dallas, Texas ("ERF"), a $3.6 billion pension plan for the City's civilian employees, since October 2004.
Ms. Alston serves on the Board of CHRISTUS Health, Blue Cross Blue Shield of Kansas City, and the Federal Home Loan Bank of Dallas. She formerly served as a director of Mercy Health in St. Louis, MO and as a member of the Pension Benefit Guaranty Corporation Advisory Committee.

She received a B.S. in Economics from the Wharton School of Business at the University of Pennsylvania and a M.B.A. from the Leonard N. Stern School of Business at New York University.

With a career spanning more than 20 years in the financial services industry, including positions at ERF, Cigna Corporation and Chase Global Securities, Ms. Alston brings to the Board significant experience in the areas of strategic planning, investment management, asset allocation, corporate governance, finance and budget administration.
Director since February 2018
 
Age 51
 
 
 
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David L. Boren
 
 
Independent Director
Member, Governance and Nominating Committee
 
 
 
 
 
 
Principal occupation: President of The University of Oklahoma, Norman, Oklahoma since November 1994.

He also serves as Chairman, Oklahoma Foundation for Excellence Board of Trustees (1984-Present) and as a Trustee for Bloomberg Family Foundation (2010-Present). He formerly served as Co-Chair, President’s Intelligence Advisory Board, U.S. Government (2009-2014). Additionally, he formerly served as a director of Continental Resources, Inc. (2009-2017).

Mr. Boren holds a B.A. from Yale University, a Masters in Politics, Philosophy and Economics from Oxford University and a J.D. from the University of Oklahoma College of Law.
 
He brings to the Board a diverse set of skills with a focus on governance, human resources and compensation issues from his experiences as an Oklahoma state legislator, a former Governor of and U.S. Senator from Oklahoma and his present position as the President of the University of Oklahoma, where he oversees 13,000 employees and an annual operating budget of $1.6 billion.
Director since April 1996
 
Age 76
 
 
 
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Jane M. Buchan
 
 
Independent Director
Member, Compensation Committee
 
 
 
 
 
 
Principal Occupation: Chief Executive Officer and Managing Director of Pacific Alternative Asset Management Company, LLC, Irvine, California, an institutional fund of funds for pension plans of corporations, state governments and foreign retirement trusts, since March 2000; Co-CEO of PAAMCO Prisma Holdings since June 2017.

Ms. Buchan is a director of AGF Management Limited. She formerly served as Chairwoman and Director of the Chartered Alternative Investment Association (CAIA). She is a Trustee of Reed College, Portland, Oregon and University of California Irvine Foundation.

She earned a B.A. in Economics from Yale University and an M.A. and a Ph.D. in Business Economics/Finance from Harvard University.
 
Ms. Buchan's 30+ year career as an investment professional, including experience as an analyst at J.P. Morgan Investment Management, various positions (including Director of Quantitative Analysis and Chief Investment Officer of Non-Directional Strategies) at Collins Associates, an institutional fund of funds and consulting firm, and as founder, Managing Director and CEO of Pacific Alternative Asset Management Company provides the Board with a broad range of investment management skills.
Director since October 2005
 
Age 54
 
 
 

4


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Gary L. Coleman
 
 
 
Co-Chairman and Chief Executive Officer
 
 
 
 
 
 
Principal occupation: Co-Chairman of the Company since April 2014 and Co-Chief Executive Officer since June 2012. (Formerly Executive Vice President and Chief Financial Officer of Company, September 1999-May 2012).

Mr. Coleman is also a member of the Board of Directors, Texas Rangers Baseball Foundation.

He has a B.B.A. from the University of Texas at Austin.
 
Mr. Coleman's 43 years of experience, which includes seven years at KPMG where he primarily served insurance clients and 33 years in various accounting, financial and investment positions at the Company and its subsidiaries, including service as the Chief Financial Officer of the Company for 13 years, provides the Board with financial and operating perspectives from both management and independent accounting.

Director since August 2012
 
Age 65
 
 
 
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Larry M. Hutchison
 
 
 
Co-Chairman and Chief Executive Officer
 
 
 
 
 
 
Principal occupation: Co-Chairman of the Company since April 2014 and Co-Chief Executive Officer since June 2012. (Formerly Executive Vice President and General Counsel of the Company, September 1999-May 2012).

Mr. Hutchison received a B.B.A. in Economics from the University of Iowa and a J.D. from Drake University.
 
He contributes valuable legal, human resources, and governmental and industry relations perspectives to the Board from his 37 years of experience as an in-house corporate attorney and business executive, including six years at two different insurers prior to joining the Company and its subsidiaries as a staff attorney more than 32 years ago and culminating in 15 years of service as the General Counsel of the Company.

Director since August 2012
 
Age 64
 
 
 
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Robert W. Ingram
 
 
Independent Director
Member, Audit Committee
 
 
 
 
 
 
Principal Occupation: Retired Accounting Educator. (Formerly Senior Associate Dean, 2004-May 2008, and Ross-Culverhouse Professor of Accounting in Culverhouse College of Commerce, University of Alabama, Tuscaloosa, Alabama, 2002-July 2009).

He has a B.A. in English from Eastern New Mexico University, a M.A. in English from Abilene Christian University and Ph.D. in Accounting from Texas Tech University.
 
Mr. Ingram’s background of 32 years as an accounting educator at the undergraduate and graduate collegiate levels at four different universities and his experience as Director of the Culverhouse School of Accountancy and Senior Associate Dean of the Culverhouse College of Commerce at the University of Alabama provides the Board with extensive accounting, financial reporting and management expertise.

Director since October 2005
 
Age 69
 
 
 
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Steven P. Johnson
 
 
Independent Director
Member, Audit Committee
 
 
 
 
 
 
Principal occupation: Financial Consultant and Advisor for Boulder Creek Development, LLC, a developer of office/warehouse buildings, primarily for smaller businesses, and its affiliated companies since June 2013. (Formerly Senior Partner for Deloitte & Touche, LLP, 2010-2013).

He earned a B.B.A. from the University of Wisconsin-Eau Claire.
Mr. Johnson brings to the Board considerable expertise in accounting, auditing, corporate governance, Sarbanes-Oxley compliance and enterprise risk management, as well as insurance industry experience as an external auditor, stemming from his 41 year career with Deloitte & Touche, LLP, where he held a variety of senior firm leadership and client service positions, including Worldwide Lead Client Service Partner for several prominent firm clients and six years as Deputy Managing Partner - Operations.
Director since November 2016
 
Age 67
 
 
 


5


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Darren M. Rebelez
 
 
Independent Director
Chair, Compensation Committee
 
 
 
 
 
 
Principal Occupation: President of International House of Pancakes, LLC (IHOP) of Glendale, California, a leading family dining brand with franchise locations throughout the United States and internationally, since May 2015. (Formerly Executive Vice President and Chief Operating Officer of 7-Eleven, Inc. (7-Eleven), Dallas, Texas, the world’s largest convenience store chain, August 2007-October 2014).

Mr. Rebelez also serves as a director of Children of Fallen Patriots Foundation.

He has a B.S. in General Engineering from the United States Military Academy and an M.B.A. from the University of Houston.
 
Through his roles at IHOP and 7-Eleven, companies which also target the middle income market, Mr. Rebelez brings to the Board experience in store development, franchising, information technology and business transformation. His prior work at ExxonMobil and Thornton Oil Corporation provides the Board with expertise in merchandising, strategic planning, management and marketing.

Director since February 2010
 
Age 52
 
 
 
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Lamar C. Smith
 
 
Independent Director
Member, Audit Committee
 
 
 
 
 
 
Principal Occupation: Retired Financial Services Executive. Director and majority owner of Coles Bay Capital LLC, Forth Worth, Texas, a private holding company acquiring and operating other companies, since February 2013. (Formerly Owner and Chief Executive Officer, Vista Commercial Technologies, LLC, Fort Worth, Texas, a supplier of custom fabricated components for defense equipment, December 2011-December 2013).

He is also a National Association of Corporate Directors (NACD) Governance Fellow and serves as Chairman of the Board of Trustees, Search Ministries, Inc. and as a board member of Christian Prayer Breakfast of Fort Worth & Tarrant County, Inc.

Mr. Smith holds a B.S./B.B.A. from Georgia State University.
 
He gained valuable experience over a 30-year career at First Command Financial Services, a financial planning company providing insurance, mutual funds and banking services to middle income families including current and former military officers, as its President and Chief Operating Officer for seven years and as its Chairman and Chief Executive Officer for 15 years. Mr. Smith furnishes a perspective on insurance marketing issues and the operations of a large independent insurance and financial services agency.

Director since October 1999
 
Age 70
 
 
 
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Mary E. Thigpen
 
 
Independent Director
Member, Audit Committee
 
 
(Effective April 2018)
 
 
 
Principal occupation: Chief Executive Officer and Director of OpsDataStore, LLC , Johns Creek, Georgia, a big data analytics and visualization software company, since October 2017. (Formerly self-employed consultant providing advisory services in strategy development, technology assessments and global go-to-market operational competencies, Sept. 2015 - October 2017 and February 2011 - November 2013; Chief Executive Officer of North Plains, LLC, Toronto, Canada, a global digital marketing software company, April 2014 - August 2015).
Ms. Thigpen also serves as a director of Achievelt Online, LLC.
She received a B.S. in Mathematical and Computer Sciences from Clemson University.
Ms. Thigpen provides the Board with expertise in technology, strategic planning, corporate governance, international business, sales and marketing developed as a result of her time as a Chief Executive Officer at OpsDataStore and North Plains and through senior leadership positions at Cox Communications, BearingPoint, Arthur Andersen LLP and Hewlett-Packard Company, as well as through her consultancy practice.
Director since February 2018
 
Age 58
 
 
 
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Paul J. Zucconi
 
 
Independent Director
Chair, Audit Committee
 
 
 
 
 
 
Principal occupation: Business Consultant, Plano, Texas, since January 2001.

Mr. Zucconi formerly served as a director of Affirmative Insurance Holdings, Inc. (2004-2015) and American Beacon Funds (26 funds) (2008-2013). He is a former member of the North Texas Board of Directors, National Kidney Foundation.

He holds a B.S. and a M.B.A. from Cornell University.
 
Mr. Zucconi brings to the Board extensive experience in accounting, financial reporting and auditing (both internal and independent) from work as an internal auditor in the U.S. Air Force Auditor General’s office and his 33 year career with KPMG, where he was a partner for 25 years and very active in professional practice areas with significant emphasis on financial services, including 17 years as a SEC Reviewing Partner. Since his retirement from KPMG in 2001, he has worked as a business consultant using his accounting expertise.

Director since July 2002
 
Age 77
 
 
 

6


The following table provides an overview of relevant skills and experience brought to the Board by each of the Director Nominees:


DIRECTOR SKILLS MATRIX


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7


PROPOSAL NUMBER 2
 
Approval of Auditors
 
A proposal to ratify the appointment of the firm of Deloitte & Touche LLP (Deloitte) as the independent registered public accounting firm of the Company for the year ending December 31, 2018 will be presented to the shareholders at the Annual Meeting. Deloitte served as the Company’s independent registered public accounting firm, auditing the financial statements of the Company and its subsidiaries for the fiscal year ended December 31, 2017 and has served in this capacity since 1999.

In 2017, in addition to its annual evaluation of Deloitte, the Audit Committee of the Board engaged in a comprehensive process to solicit information from multiple independent accounting firms, including Deloitte, to enable the Audit Committee to evaluate whether a change in the Company’s independent registered public accounting firm might be appropriate. This process focused on an assessment of the depth of insurance experience of the respective engagement teams of each of the participating firms as well as an evaluation of the quality of the audits performed by such firms. As part of this process, with assistance from senior accounting personnel at the Company, the Audit Committee critically assessed each of the participating firms, focusing on the depth of insurance experience of their respective audit engagement teams and on evaluations of the quality of their audits by the Public Company Accounting Oversight Board (PCAOB). Based upon its annual evaluation of Deloitte and the foregoing assessment process, the Audit Committee of the Board has concluded that Deloitte should be retained as the Company’s independent registered public accounting firm, has appointed Deloitte to serve in such capacity for 2018, and has recommended that the shareholders ratify Deloitte's appointment for 2018.
 
A representative of Deloitte is expected to be present at the meeting and available to respond to appropriate questions and, although the firm has indicated that no statement will be made, an opportunity for a statement will be provided.
 
If the shareholders do not ratify the appointment of Deloitte, the selection of an independent registered public accounting firm will be reconsidered by the Audit Committee of the Board of Directors.
 
The Board recommends that stockholders vote FOR the proposal.


PROPOSAL NUMBER 3
 
 Approval of Torchmark Corporation 2018 Incentive Plan

On February 26, 2018, the Board of Directors of the Company adopted, subject to stockholder approval, the Torchmark Corporation 2018 Incentive Plan (the “2018 Plan").
 
We currently maintain the Torchmark Corporation 2011 Incentive Plan (the “Prior Plan”) under which new equity awards may be granted. As of the record date, March 2, 2018 there were approximately 8,766,000 shares of our common stock subject to outstanding awards under the Prior Plan. As of such date, there were approximately 184,000 shares of our common stock reserved and available for future awards under the Prior Plan which will be made available under the 2018 Plan. If our stockholders approve the 2018 Plan, all future equity awards will be made from the 2018 Plan, and we will not grant any additional awards under the Prior Plan.

The following table presents certain information regarding outstanding awards and shares available for grant under the Prior Plan as of March 2, 2018:
Total stock options outstanding
7,852,338
Weighted-average exercise price of stock options outstanding
60.06
Weighted-average remaining duration of stock options outstanding
5.41
Total full value awards outstanding1
914,122
Shares available for grant under the Prior Plan2
183,604
Total shares of common stock outstanding
113,851,304
1 Assumes outstanding performance share awards vest at the maximum level.
2 These shares will be made available under the 2018 Plan. No future awards will be granted under the Prior Plan if stockholders approve the 2018 Plan.
 

8


A summary of the 2018 Plan is set forth below. This summary is qualified in its entirety by the full text of the Torchmark Corporation 2018 Incentive Plan, which is attached to this Proxy Statement as APPENDIX B.

Background for Request to Approve Additional Shares under 2018 Plan
 
Significant Historical Award Information. Common measures of a stock plan’s cost include burn rate, dilution and overhang. The burn rate, or run rate, refers to how fast a company uses the supply of shares authorized for issuance under its stock plan. Over the last three years, the Company has maintained an average equity run rate of only 1.5% of shares outstanding per year. Dilution measures the degree to which the Company’s stockholders’ ownership has been diluted by stock-based compensation awarded under the Company’s various equity plans and also includes shares that may be awarded under the Company’s various equity plans in the future (“overhang”).

The following table shows how the Company’s key equity metrics have changed over the past three years:
Key Equity Metrics
 
2017
 
2016
 
2015
Equity Run Rate1
 
1.83
%
 
1.49
%
 
1.27
%
Overhang2
 
9.0
%
 
10.6
%
 
12.5
%
Dilution3
 
6.4
%
 
6.3
%
 
6.8
%
1 Equity run rate is calculated by dividing the number of shares subject to equity awards granted during the year by the weighted-average number of shares outstanding during the year.
2 Overhang is calculated by dividing (a) the sum of (x) the number of shares subject to equity awards outstanding at the end of the year and (y) the number of shares available for future grants, by (b) the number of shares outstanding at the end of the year.
3 Dilution is calculated by dividing the number of shares subject to equity awards outstanding at the end of the fiscal year by the number of shares outstanding at the end of the fiscal year. For the purpose of these calculations, shares are counted on the basis of the method utilized in the current plan.

Number of Shares Requested. The Company considered several factors in determining to request 8.8 million shares for the 2018 Plan:
Assuming stockholder approval of the 2018 Plan, 8,984,000 shares (8,800,000 new shares and approximately 184,000 shares which will be made available under the 2018 Plan from the Prior Plan) will be available for future grants. The Company expects this amount to last for approximately 4 years of awards. This estimate is based on a run rate average of 1.77%. While the Company believes this modeling provides a reasonable estimate of how long such a share reserve would last, there are a number of factors that could impact the Company’s future equity share usage.
The total overhang resulting from the share request, including awards outstanding under all of the Company’s equity plans, represents approximately 13.5% of the shares outstanding as of the Record Date.
  
Share Counting. The Company considered the dilutive effect of the different awards that could be granted under the 2018 Plan. The counting mechanism included in the 2018 Plan reflects the relative Shareholder Value Transfer (SVT) of each award type. SVT is calculated as the total value of equity grants divided by the market capitalization of the Company. This approach utilizes a true “fungible” count between award types. The one exception is the fact that we count time-based restricted stock at 125% of the rate used for performance-based awards. While this differential is not supported purely from a SVT perspective, it does reflect a suitable shareholder focus by counting these awards at a higher rate.

Summary of the 2018 Plan
 
Purpose. The purpose of the 2018 Plan is to promote the Company’s success and enhance the value of the Company by linking the personal interests of the Company’s employees, officers, directors and consultants to those of its stockholders, and by providing participants with an incentive for outstanding performance. The 2018 Plan is also intended to enhance the Company’s ability to motivate, attract, and retain the services of employees, officers, directors and consultants upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.
 

9


Administration. The 2018 Plan will be administered by the Compensation Committee. The Compensation Committee will have the authority to:
designate participants;
grant awards;
determine the type or types of awards to be granted to each participant and the number, terms and conditions thereof;
establish, adopt or revise any rules and regulations as it may deem advisable to administer the 2018 Plan; and
make all other decisions and determinations that may be required under the 2018 Plan.
  
The full Board may at any time elect instead to administer the 2018 Plan. If it does so, it will have all the powers of the Compensation Committee under the 2018 Plan.
 
Eligibility. The 2018 Plan permits the grant of incentive awards to employees, officers, directors, and consultants of the Company and its affiliates as selected by the Compensation Committee. As of March 2, 2018, the number of eligible participants was approximately 180. The number of eligible participants may increase over time based upon our future growth.
 
Awards to Non-Employee Directors. Awards granted under the 2018 Plan to our non-employee directors will be made only in accordance with the terms, conditions and parameters of a plan, program or policy for the compensation of non-employee directors as in effect from time to time. The Compensation Committee may not make discretionary grants under the 2018 Plan to non-employee directors.
 
Permissible Awards. The 2018 Plan authorizes the granting of awards in any of the following forms:
options to purchase shares of our common stock, which may be nonstatutory stock options or incentive stock options under the Internal Revenue Code of 1986, as amended, which we refer to as the “Code”;
stock appreciation rights (SARs), which give the holder the right to receive the difference (payable in cash or stock, as specified in the award certificate) between the fair market value per share of common stock on the date of exercise over the base price of the award;
restricted stock, which is subject to restrictions on transferability and subject to forfeiture on terms set by the Compensation Committee;
restricted or deferred stock units, which represent the right to receive shares of our common stock (or an equivalent value in cash or other property, as specified in the award certificate) in the future, based upon the attainment of stated vesting or performance criteria in the case of restricted stock units;
performance awards which are awards payable in cash or stock upon the attainment of specified performance goals (any award that may be granted under the 2018 Plan may be granted in the form of a performance award);
dividend equivalents, which entitle the holder of a full-value award to cash payments (or an equivalent value payable in stock or other property) equal to any dividends paid on the shares of stock underlying the full-value award;
other stock-based awards in the discretion of the Compensation Committee, including unrestricted stock grants; and
cash-based awards, including performance-based annual bonus awards.
   
Shares Available for Awards. Subject to adjustment as provided in the 2018 Plan, the aggregate number of shares of our common stock reserved and available for issuance pursuant to awards granted under the 2018 Plan is 8,800,000, plus a number of additional shares of common stock (not to exceed 184,000) available for awards as of March 2, 2018 under the Prior Plan that thereafter terminate or expire unexercised, or are cancelled, forfeited or lapse for any reason.
 
Share Counting. Awards of options and SARs with up to a seven-year term count against the number of shares remaining available for issuance under the 2018 Plan as .85 shares for each share covered by such awards. Awards of options and SARs with seven to ten-year terms count against the number of shares remaining available for issuance under the 2018 Plan as one (1) share for each share covered by such awards. Full-value awards that vest based on performance criteria other than continued service count against the number of shares remaining available for issuance under the 2018 Plan as 3.1 shares for each share covered by such awards. Full-value awards that vest solely on continued service count against the number of shares remaining available for issuance under the 2018 Plan as 3.88 shares for each share covered by such awards.
The full number of shares subject to an option or SAR shall count against the number of shares remaining available for issuance under the 2018 Plan, even if fewer shares are actually delivered to a participant as a result of a net settlement or withholding of shares to satisfy the exercise price or tax.
Shares withheld from an award to satisfy tax withholding requirements shall count against the number of shares remaining available for issuance under the 2018 Plan, and shares delivered by a participant to satisfy tax withholding requirements shall not be added to the 2018 Plan share reserve.

10


To the extent that an award is canceled, terminates, expires, is forfeited or lapses for any reason, any unissued or forfeited shares subject to the award will be added back to the plan share reserve and again be available for issuance pursuant to awards granted under the 2018 Plan.
To the extent that the full number of shares subject to a full-value award is not issued for any reason, including by reason of failure to achieve maximum performance goals, the unissued shares originally subject to the award will be added back to the plan share reserve and again be available for issuance under the 2018 Plan.
  
Limitations on Individual Awards. The maximum aggregate number of shares of common stock subject to stock-based awards that may be granted under the 2018 Plan within a single calendar year to any one participant is as follows:
options, 300,000;
stock appreciation rights, 300,000;
restricted stock or stock units, 100,000; and
other stock-based awards, 150,000.
The maximum aggregate amount that may be paid with respect to cash-based awards under the 2018 Plan to any one participant in any fiscal year of the Company shall be $4,000,000. The maximum dollar amount of awards that may be granted under the 2018 Plan to any non-employee director within a single calendar year is $450,000.
 
Performance Goals. The Committee is authorized to grant any award under the Plan, including cash-based award, with performance-based vesting criteria as determined by the Compensation Committee. The Compensation Committee may establish performance goals for performance awards based on any criteria selected by the Compensation Committee. Such performance goals may be based on Company-wide objectives or objectives that relate to the performance of a participant, an affiliate of the Company, or a division, region, department or function within the Company or an affiliate. The Compensation Committee may provide in any performance award, at the time the performance goals are established, that any evaluation of performance may exclude or otherwise be objectively adjusted for any specified unusual circumstance or event that occurs during a performance period, including by way of example but without limitation the following: (a) litigation or claim judgments or settlements; (b) the effect of changes in tax laws, accounting principles or other laws or provisions affecting reported results; (c) accruals for reorganization and restructuring programs; and (d) foreign exchange gains and losses.

Limitations on Transfer; Beneficiaries. A participant may not assign or transfer an award other than by will or the laws of descent and distribution; provided, however, that the Compensation Committee may permit other transfers (other than transfers for value) where it concludes that such transferability does not result in accelerated taxation, does not cause any option intended to be an incentive stock option to fail to qualify as such, and is otherwise appropriate and desirable, taking into account any factors deemed relevant, including without limitation, any state or federal tax or securities laws or regulations applicable to transferable awards. A participant may, in the manner determined by the Compensation Committee, designate a beneficiary to exercise the rights of the participant and to receive any distribution with respect to any award upon the participant’s death.
 
Treatment of Awards upon a Participant’s Termination of Service. Unless otherwise provided in an award certificate or any special plan document governing an award, upon the termination of a participant’s service due to death or disability:
all of that participant’s outstanding options and SARs will become fully vested and exercisable;
all time-based vesting restrictions on that participant’s outstanding awards will lapse as of the date of termination; and
the payout opportunities attainable under all of that participant’s outstanding performance-based awards will vest based on target or actual performance (depending on the time during the performance period in which the date of termination occurs) and the awards will pay out on a prorata basis, based on the time elapsed prior to the date of termination.
 
Treatment of Awards upon a Change in Control. Unless otherwise provided in an award certificate or any special plan document governing an award:
(A) upon the occurrence of a change in control of the Company (as defined in the 2018 Plan) in which awards are not assumed by the surviving entity or otherwise equitably converted or substituted in connection with the change in control in a manner approved by the Committee or the Board:
all outstanding options and SARs will become fully vested and exercisable;
all time-based vesting restrictions on outstanding awards will lapse as of the date of termination; and
the payout opportunities attainable under all outstanding performance-based awards will vest based on target or actual performance (depending on the time during the performance period in which the change in control occurs) and the awards will pay out on a prorata basis, based on the time elapsed prior to the change in control, and
 

11


(B) with respect to awards assumed by the surviving entity or otherwise equitably converted or substituted in connection with a change in control, if within two years after the effective date of the change in control, a participant’s employment is terminated without Cause or the participant resigns for Good Reason (as such terms are defined in the 2018 Plan), then:
all of that participant’s outstanding options and SARs will become fully vested and exercisable;
all time-based vesting restrictions on that participant’s outstanding awards will lapse as of the date of termination; and
the payout opportunities attainable under all of that participant’s outstanding performance-based awards will vest based on target or actual performance (depending on the time during the performance period in which the date of termination occurs) and the awards will pay out on a prorata basis, based on the time elapsed prior to the date of termination.
 
In addition, subject to limitations applicable to certain qualified performance-based awards, the Compensation Committee may, in its discretion accelerate awards upon the termination of service of a participant or the occurrence of a change in control. The Compensation Committee may discriminate among participants or among awards in exercising such discretion.

Clawbacks.  Awards made under the 2018 Plan will be subject to the Clawback Provisions described on page 33 of this Proxy Statement and may be recaptured by the Company upon the occurrence of certain specified events.

Adjustments. In the event of a transaction between us and our stockholders that causes the per-share value of our common stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering or large nonrecurring cash dividend), the share authorization limits and annual award limits under the 2018 Plan will be adjusted proportionately, and the Compensation Committee shall make such adjustments to the 2018 Plan and awards as it deems necessary, in its sole discretion, to prevent dilution or enlargement of rights immediately resulting from such transaction. In the event of a stock split, a stock dividend, or a combination or consolidation of the outstanding shares of our common stock into a lesser number of shares, the authorization limits and annual award limits under the 2018 Plan will automatically be adjusted proportionately, and the shares then subject to each award will automatically be adjusted proportionately without any change in the aggregate purchase price.
 
Termination and Amendment. Our Board or the Compensation Committee may, at any time and from time to time, terminate or amend the 2018 Plan, but if an amendment would constitute a material amendment requiring stockholder approval under applicable listing requirements, laws, policies or regulations, then such amendment will be subject to stockholder approval. In addition, our Board or the Compensation Committee may condition any amendment on the approval our stockholders for any other reason. No termination or amendment of the 2018 Plan may, without the written consent of the participant, reduce or diminish the value of an outstanding award.

The Compensation Committee may amend or terminate outstanding awards. However, such amendments may require the consent of the participant and, unless approved by our stockholders, the exercise price of an outstanding option may not be reduced, directly or indirectly, and the original term of an option may not be extended.
 
Prohibition on Repricing. As indicated above under “Termination and Amendment,” outstanding stock options cannot be repriced, directly or indirectly, without stockholder approval. The exchange of an “underwater” option (i.e., an option having an exercise price in excess of the current market value of the underlying stock) for another award would be considered an indirect repricing and would, therefore, require stockholder approval.
 
Certain U.S. Federal Income Tax Effects
 
The U.S. federal income tax discussion set forth below is intended for general information only and does not purport to be a complete analysis of all of the potential tax effects of the 2018 Plan. It is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. State and local income tax consequences are not discussed, and may vary from locality to locality.
 
Nonstatutory Stock Options. There will be no federal income tax consequences to the optionee or to the Company upon the grant of a nonstatutory stock option under the 2018 Plan. When the optionee exercises a nonstatutory option, however, he or she will recognize ordinary income in an amount equal to the excess of the fair market value of the stock received upon exercise of the option at the time of exercise over the exercise price, and the Company will be allowed a corresponding federal income tax deduction. Any gain that the optionee realizes when he or she later sells or disposes of the option shares will be short-term or long-term capital gain, depending on how long the shares were held.
 
Incentive Stock Options. There will be no federal income tax consequences to the optionee or to the Company upon the grant or exercise of an incentive stock option. If the optionee holds the option shares for the required holding period of at least two years after the date the option was granted and one year after exercise, the difference between the exercise price and the amount

12


realized upon sale or disposition of the option shares will be long-term capital gain or loss, and the Company will not be entitled to a federal income tax deduction. If the optionee disposes of the option shares in a sale, exchange, or other disqualifying disposition before the required holding period ends, he or she will recognize taxable ordinary income in an amount equal to the excess of the fair market value of the option shares at the time of exercise over the exercise price, and the Company will be allowed a federal income tax deduction equal to such amount. While the exercise of an incentive stock option does not result in current taxable income, the excess of the fair market value of the option shares at the time of exercise over the exercise price will be an item of adjustment for purposes of determining the optionee’s alternative minimum taxable income.
 
SARs. A participant receiving a SAR under the 2018 Plan will not recognize income, and the Company will not be allowed a tax deduction, at the time the award is granted. When the participant exercises the SAR, the amount of cash and the fair market value of any shares of stock received will be ordinary income to the participant and the Company will be allowed a corresponding federal income tax deduction at that time (subject to a possible limitation on deductibility under revised Code Section 162(m)).
 
Restricted Stock. Unless a participant makes an election to accelerate recognition of the income to the date of grant as described below, a participant will not recognize income, and the Company will not be allowed a tax deduction, at the time a restricted stock award is granted, provided that the award is nontransferable and is subject to a substantial risk of forfeiture. When the restrictions lapse, the participant will recognize ordinary income equal to the fair market value of the stock as of that date (less any amount he or she paid for the stock), and the Company will be allowed a corresponding federal income tax deduction at that time. If the participant files an election under Code Section 83(b) within 30 days after the date of grant of the restricted stock, he or she will recognize ordinary income as of the date of grant equal to the fair market value of the stock as of that date (less any amount paid for the stock), and the Company will be allowed a corresponding federal income tax deduction at that time (subject to a possible limitation on deductibility under revised Code Section 162(m)). Any future appreciation in the stock will be taxable to the participant at capital gains rates. However, if the stock is later forfeited, the participant will not be able to recover the tax previously paid pursuant to the Code Section 83(b) election.
 
Restricted or Deferred Stock Units. A participant will not recognize income, and the Company will not be allowed a tax deduction, at the time a stock unit award is granted. Upon receipt of shares of stock (or the equivalent value in cash or other property) in settlement of a stock unit award, a participant will recognize ordinary income equal to the fair market value of the stock or other property as of that date (less any amount he or she paid for the stock or property), and the Company will be allowed a corresponding federal income tax deduction at that time (subject to a possible limitation on deductibility under revised Code Section 162(m)).
 
Cash-Based Performance Awards. A participant will not recognize income, and the Company will not be allowed a tax deduction, at the time a cash-based performance award is granted (for example, when the performance goals are established). Upon receipt of cash in settlement of the award, a participant will recognize ordinary income equal to the cash received, and the Company will be allowed a corresponding federal income tax deduction at that time(subject to a possible limitation on deductibility under revised Code Section 162(m)).
 
Tax Withholding. The Company has the right to deduct or withhold, or require a participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes (including employment taxes) required by law to be withheld with respect to any exercise, lapse of restriction or other taxable event arising as a result of the 2018 Plan.

Internal Revenue Code Section 162(m). The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the Tax Cuts and Jobs Act substantially modifies Section 162(m) of the Code to eliminate the performance-based exception to the $1 million deduction limit effective as of January 1, 2018. This means that beginning in 2018, all compensation paid to certain executive officers in excess of $1 million will generally be nondeductible regardless of whether such compensation was performance-based.
Additionally, beginning in 2018, executive officers subject to Section 162(m) (the “Covered Employees”) will include any individual who served as the CEO or CFO at any time during the taxable year and the three other most highly compensated officers (other than the CEO and CFO) for the taxable year. Once an individual becomes a Covered Employee for any taxable year beginning after December 31, 2016, that individual will remain a Covered Employee for all future years, including following any termination of employment.
Pursuant to the Tax Cuts and Jobs Act transition rules, the changes to Section 162(m) described above will not apply to compensation payable pursuant to a written binding contract that was in effect on November 2, 2017 and is not materially modified after that date. The Compensation Committee may avail itself of this transition rule to the extent it is available. However, because of uncertainties as to the application and interpretation of the transition rule, no assurances can be given at this time that our existing contracts and awards, even if in place on November 2, 2017, will meet the requirements of the transition rule. The Compensation

13


Committee will not limit its decisions with respect to executive compensation to preserve deductibility under Section 162(m) if the Committee determines that doing so is in the best interests of the company.

Securities Authorized for Issuance Under Equity Compensation Plans
 
The following table provides information as of December 31, 2017 regarding compensation plans under which the Company’s equity securities are authorized for issuance. The following table does not include any shares which may be added by the adoption of the 2018 Plan in the event that Proposal 3 is approved by the stockholders of the Company.
Plan Category
 
Number of Shares
to be Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
 
Weighted-Average
Exercise Price
of Outstanding
Options, Warrants and Rights
 
Number of Shares Remaining Available for Future Issuance under
Equity
Compensation Plans
(Excluding Securities
Reflected in
Column (a))
 
 
(a)
 
(b)
 
(c)
 
 
 
 
 
 
 
Equity compensation plans approved by shareholders
 
6,753,801
 
$43.79
 
2,964,320
Equity compensation plans not approved by shareholders1
 
 
 
Total
 
6,753,801
 
$43.79
 
2,964,320
1 The Company does not maintain any equity compensation plans that have not been approved by its shareholders.

 
Recommendation of the Board
 
The Board of Directors recommends that you vote “FOR” the proposal to approve the Torchmark Corporation 2018 Incentive Plan.


The Board recommends that stockholders vote FOR the proposal.

14


PROPOSAL NUMBER 4
 
Advisory Vote on Executive Compensation
 
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act), enacted in July 2010, enables Company shareholders to vote to approve, on an advisory and non-binding basis, the compensation of the Company’s named executive officers as disclosed in this Proxy Statement in accordance with SEC rules.
 
We are asking for shareholder approval of the compensation of our named executive officers, as disclosed on pages 26 to 48 of this Proxy Statement in accordance with SEC rules, which includes the disclosures under “Executive Compensation—Compensation Discussion and Analysis,” the compensation tables and the related narrative compensation disclosures. This vote is not intended to address any specific item of compensation, but rather this vote relates to the overall compensation of our named executive officers and the compensation policies and practices described in this Proxy Statement.
 
The compensation of our executive officers is based on a philosophy that emphasizes and rewards the attainment of performance measures that the Compensation Committee believes promote the creation of long-term shareholder value and therefore align management’s interests with the interests of long-term shareholders. As described more fully in the Compensation Discussion and Analysis, the mix of compensation elements, the terms of the Management Incentive Plan and the terms of long-term equity incentive awards are all designed to enable the Company to attract, motivate, reward and retain key executives while, at the same time, creating a close relationship between performance and compensation. The Compensation Committee believes that the design of the compensation program and the compensation of named executive officers under the program fulfill this objective. Shareholders are urged to read the section of this Proxy Statement entitled “Executive Compensation—Compensation Discussion and Analysis," for a detailed discussion of how our compensation policies and practices implement our compensation philosophy.
 
This vote is advisory and therefore not binding on the Company, the Board or the Compensation Committee. The Board and the Compensation Committee value the opinions of Company shareholders and to the extent there is any significant vote against the named executive officer compensation as disclosed in this Proxy Statement, we will consider those shareholders' concerns, and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.
 
Accordingly, the Company is asking shareholders to approve the following resolution at the Annual Meeting:
 
“RESOLVED, that the Company’s shareholders hereby approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2018 Annual Meeting of Shareholders pursuant to the executive compensation disclosure rules of the Securities and Exchange Commission, which disclosure includes the Compensation Discussion and Analysis, the compensation tables and related compensation disclosures.”
 
Recommendation of the Board
 
The Board recommends that shareholders vote “FOR” advisory approval of the resolution set forth above.


OTHER BUSINESS
 
The directors are not aware of any other matters which may properly be and are likely to be brought before the Annual Meeting. If any other proper matters are brought before the Annual Meeting, the persons named in the proxy, Gary L. Coleman and Larry M. Hutchison, will vote in accordance with their judgment on these matters.

15


INFORMATION REGARDING DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
 
Executive Officers
 
The following table shows certain information concerning each person deemed to be an executive officer of the Company, except those persons also serving as directors. Each executive officer is appointed by the Board of the Company or its subsidiaries annually and serves at the pleasure of that board. There are no arrangements or understandings between any executive officer and any other person pursuant to which the officer was selected.
Name
 
Current
Age
 
Principal Occupation and Business Experience for the Past Five Years 1
J. Matthew Darden
 
47
 
Executive Vice President and Chief Strategy Officer of Company since January 2017; President of Family Heritage since January 2017. (Executive Vice President-Innovations & Business Development of Company Oct. 2014 - Dec. 2016; Partner of Deloitte & Touche LLP Aug. 2006 - Oct. 2014)
Steven J. DiChiaro
 
51
 
Chief Executive Officer, LNL Agency Division of Liberty since January 2018. (President of LNL Agency Division Jan. 2017 - Dec. 2017, President Jan. 2015 - Dec. 2016, Executive Vice President and Chief Agency Officer of Liberty Dec. 2011 - Dec. 2014)
Steven K. Greer
 
45
 
Chief Executive Officer, AIL Agency Division of American Income since January 2018. (President of AIL Agency Division Jan. 2017 - Dec. 2017, President Jan. 2016 - Dec. 2016, State General Agent of American Income for the State of Texas May 2001 - Dec. 2015)
Jennifer A. Haworth
 
44
 
Vice President, Marketing of Company since Jan. 2018; Senior Vice President, Marketing of Globe since Dec. 2011.
Mary E. Henderson
 
54
 
Vice President, Enterprise Lead Generation of Company since Jan. 2018; Senior Vice President of American Income, Family Heritage, Globe, Liberty and United American since Apr. 2017. (Senior Vice President of Globe Feb. 2011 - Apr. 2017)
Vern D. Herbel
 
60
 
Executive Vice President and Chief Administrative Officer of Company since Apr. 2006; President of Liberty since Jan. 2017. (Chief Executive Officer July 2004 - Feb. 2015, President of United American Dec. 2011 - Feb. 2015; Executive Vice President of Globe and American Income May 2002 - Feb. 2015)
Bill E. Leavell
 
55
 
President and Chief Executive Officer, Globe Life Direct Response of Globe since Jan. 2017. (President Nov. 2013 - Dec. 2016, Senior Vice President of Globe Aug. 2005 - Nov. 2013)
Ben W. Lutek
 
59
 
Executive Vice President and Chief Actuary of Company since Jan. 2013.
Michael C. Majors
 
55
 
Vice President, Investor Relations of Company since May 2008; President of United American since Mar. 2015.
Kenneth J. Matson
 
50
 
President and Chief Executive Officer, FHL Agency Division of Family Heritage since January 2017. (President Mar. 2014 - Dec. 2016, Executive Vice President of Family Heritage Nov. 2012 - Mar. 2014)
Carol A. McCoy
 
63
 
Vice President, Associate Counsel and Corporate Secretary of Company since Apr. 2001.
James E. McPartland
 
51
 
Executive Vice President and Chief Information Officer of Company since Nov. 2014. (Vice President, Information Systems Enterprise Planning & Analytics Mar. 2013 - Nov. 2014; Vice President, Applications Mar. 2011 - Mar. 2013 of Tenet Healthcare Corporation, Dallas, Texas, an owner and operator of hospitals and ancillary health care facilities)
R. Brian Mitchell
 
54
 
Executive Vice President and General Counsel of Company since June 2012; Chief Risk Officer of Company since May 2017; President of Globe since Jan. 2017. (Senior Vice President of American Income, Globe, Liberty and United American Nov. 2006 - Dec. 2016; Senior Vice President of Family Heritage July 2015 - Dec. 2016; General Counsel of American Income, Globe, Liberty and United American and Secretary of United American June 2010 - Dec. 2016; General Counsel of Family Heritage July 2015 - Dec. 2016; Secretary of Globe and Liberty May 2012 - Dec. 2016; Secretary of Family Heritage July 2015 - Dec. 2016)
W. Michael Pressley
 
66
 
Executive Vice President and Chief Investment Officer of Company since Jan. 2013.
Frank M. Svoboda
 
56
 
Executive Vice President and Chief Financial Officer of Company since June 2012; President of American Income since Jan. 2017.
Rebecca E. Zorn
 
45
 
Assistant Secretary and Director of Human Resources of Company since Jan. 2018. (Assistant General Counsel of United American Apr. 2015 - Dec. 2016; Assistant General Counsel of Globe Jan. 2017 - Dec. 2017)
1 American Income, Family Heritage, Globe, Liberty, and United American, as used in this Proxy Statement, refer to American Income Life Insurance Company, Family Heritage Life Insurance Company of America, Globe Life And Accident Insurance Company, Liberty National Life Insurance Company and United American Insurance Company, subsidiaries of the Company.


16


Stock Ownership
 
The following table shows certain information about stock ownership as of January 31, 2018 for the directors, nominees and executive officers of the Company, including shares with respect to which they have the right to acquire beneficial ownership on or prior to April 1, 2018.
 
 
Company Common Stock or Options Beneficially Owned as of
January 31, 2018 1
Name and City of Residence
 
Directly 2
 
Indirectly 3
Charles E. Adair
Montgomery, AL
 
36,910

 
0
Linda L. Addison
Houston, TX
 
0

 
0
Marilyn A. Alexander
Laguna Beach, CA
 
13,831

 
0
Cheryl D. Alston
Frisco, TX
 
0

 
0
David L. Boren
Norman, OK
 
16,612

 
0
Jane M. Buchan
Newport Coast, CA
 
91,908

 
0
Gary L. Coleman
Plano, TX
 
1,208,125

 
59,257
Larry M. Hutchison
Duncanville, TX
 
1,087,092

 
45,598
Robert W. Ingram
Gulf Breeze, FL
 
29,211

 
0
Steven P. Johnson
Plano, TX
 
5,245

 
0
Darren M. Rebelez
Glendale, CA
 
21,966

 
0
Lamar C. Smith
Fort Worth, TX
 
66,120

 
0
Mary E. Thigpen
Alpharetta, GA
 
0

 
0
Paul J. Zucconi
Plano, TX
 
48,203

 
0
J. Matthew Darden
Dallas, TX
 
39,250

 
0
Steven J. DiChiaro
Frisco, TX
 
45,860

 
2,215
Steven K. Greer
The Woodlands, TX
 
19,542

 
0
Jennifer A. Haworth
Yukon, OK
 
30,250

 
1,354
Mary E. Henderson
McKinney, TX
 
24,250

 
0
Vern D. Herbel
McKinney, TX
 
143,750

 
170,535
Bill E. Leavell
Pottsboro, TX
 
76,750

 
26,987
Ben W. Lutek
McKinney, TX
 
125,000

 
46,725
Michael C. Majors
Allen, TX
 
33,260

 
0
Kenneth J. Matson
McKinney, TX
 
54,056

 
0

17


 
 
Company Common Stock or Options Beneficially Owned as of
December 31, 2017 1
Name and City of Residence
 
Directly 2
 
Indirectly 3
Carol A. McCoy
Plano, TX
 
171,543

 
17,095

James E. McPartland
Allen, TX
 
23,885

 
0

R. Brian Mitchell
McKinney, TX
 
83,041

 
8,620

W. Michael Pressley
Parker, TX
 
143,448

 
1,334

Frank M. Svoboda
Grapevine, TX
 
344,453

 
1,700

Rebecca E. Zorn
McKinney, TX
 
0

 
0

All Directors, Nominees and Executive Officers as a group:4
 
3,983,561

 
381,420

1 No individual director, nominee or executive officer other than Gary L. Coleman (1.07%) beneficially owns 1% or more of the common stock of the Company.
2 Includes: for Adair, 25,541 shares; for Buchan, 11,667 shares; for Coleman, 578,750 shares; for Hutchison, 578,750 shares; for Rebelez, 5,269 shares; for Darden, 35,500 shares; for DiChiaro, 37,500 shares; for Greer, 17,500 shares; for Haworth, 30,250 shares; for Henderson, 24,250 shares; for Herbel, 125,000 shares; for Leavell, 76,750 shares; for Lutek, 125,000 shares; for Majors, 24,000 shares; for Matson, 45,000 shares; for McCoy, 76,500 shares; for McPartland, 22,000 shares; for Mitchell, 57,000 shares; for Pressley, 90,000 shares; for Svoboda, 259,500 shares and for all directors, executive officers and nominees as a group, 2,245,727 shares, that are subject to presently exercisable Company stock options.
Ms. Addison, Ms. Alston and Ms. Thigpen were first elected to the Board on February 26, 2018 and each owned no Company common stock at January 31, 2018. Upon their initial election to the Board, each was awarded 1,142 shares of restricted stock, which will vest in full on August 26, 2018.
3 Indirect beneficial ownership includes shares (a) owned by the director, executive officer or spouse as trustee of a trust or executor of an estate, (b) held in a trust in which the director, executive officer or a family member living in his home has a beneficial interest, (c) owned by the spouse or a family member living in the director’s, executive officer’s or nominee’s home or (d) owned by the director or executive officer in a personal corporation or limited partnership. Indirect beneficial ownership also includes approximately 59,257 shares, 45,598 shares, 2,215 shares, 1,354 shares, 42,451 shares, 4,198 shares, 17,095 shares, 8,620 shares, 1,334 shares and 1,700 shares calculated based upon conversion of stock unit balances held in the accounts of Coleman, Hutchison, DiChiaro, Haworth, Herbel, Leavell, McCoy, Mitchell, Pressley, and Svoboda, respectively, in the Company Savings and Investment Plan to shares. Indirect ownership for Mr. Herbel also includes 64,041 shares held in his living trust and 64,043 shares held in his spouse’s living trust. Indirect ownership for Mr. Leavell includes 22,789 shares held in his family living trust. Indirect ownership for Mr. Lutek includes 46,725 shares held in his family living trust.
4 All directors, nominees and executive officers, as a group, beneficially own 3.68% of the common stock of the Company.


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CORPORATE GOVERNANCE
 
Director Independence Determinations
 
The New York Stock Exchange (NYSE) rules require that the Company have a majority of independent directors. The rules provide that no director will qualify as “independent” unless the Board of Directors affirmatively determines that the director has no material relationship with the Company and its subsidiaries (collectively, the Company), either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. In order to assist in the making of these determinations, the Board adopted the categorical standards prescribed by the NYSE as well as eleven additional categorical standards to assist it in making determinations of independence. All directors other than those deemed not “independent” under these standards will be deemed to be “independent” upon a Board determination.
 
These independence standards are available on the Company’s website by going to www.torchmarkcorp.com and clicking on the Investors page. They are located under the Board of Directors heading at Director Independence Criteria. You may also obtain a printed copy of the independence standards at no charge by writing to the Corporate Secretary at 3700 South Stonebridge Drive, McKinney, Texas 75070.
 
Based on these categorical standards and after evaluation of the directors’ responses to an annual questionnaire, which includes questions based on the above-described independence criteria as well as any related party transactions disclosable pursuant to Item 404(a) of SEC Regulation S-K, the Governance and Nominating Committee makes recommendations to the Board of Directors regarding director independence. After review of such recommendations, the Board determined on February 26, 2018 that the following directors continued as of such date to meet the categorical standards set by the Board and are “independent”: Charles E. Adair, Marilyn A. Alexander, David L. Boren, Jane M. Buchan, Robert W. Ingram, Steven P. Johnson, Darren M. Rebelez, Lamar C. Smith and Paul J. Zucconi. Directors Linda L. Addison, Cheryl D. Alston and Mary E. Thigpen were determined to be "independent" upon their election to the Board on February 26, 2018. The Board determined that and Gary L. Coleman and Larry M. Hutchison (as Company employees) were not considered “independent”.
 
Board Leadership Structure
 
For a number of years, the Company has chosen to operate with the roles of Chairman of the Board and CEO combined, believing that it could operate effectively with these roles combined while continuing to provide the appropriate level of corporate governance for shareholders, policyholders, regulators and our other constituent groups. Although the Board is not currently chaired by an independent director, the Board has conducted frequent executive sessions of only the independent directors for a number of years, with all of such executive sessions presided over by a lead independent director. On January 26, 2010, the Board amended the Corporate Governance Guidelines in order to formally provide for the position of a lead independent director (the Lead Director), to define the qualifications and duties of that Lead Director and to elect a director to serve as the Lead Director. As defined in Section H. of the Corporate Governance Guidelines, the Lead Director is elected annually by and from the independent directors then serving on the Board; provided, however, that a director must have served a minimum of one year in order to qualify for election as the Lead Director and that a person may not serve as Lead Director for more than three one-year terms in succession without express agreement of the Board. The Lead Director has duties, including, but not limited to:

coordinating the scheduling of and preparation for Board meetings and executive sessions of the Board;
leading Board meetings if neither of the Co-Chairmen is present and leading all executive sessions of the independent directors;
acting as the principal liaison between the independent directors and the Co-Chairmen and CEOs;
advising the committee chairs in fulfilling their roles and responsibilities;
defining the scope, quality and timeliness of the information flow between management and the Board;
leading the process of employing, evaluating and compensating the Co-Chairmen and CEOs;
coordinating Co-Chairman and CEO, director and Board performance evaluations;
approving retention of Board consultants;
having authority to call meetings of the independent directors; and
being available for consultation and communication with shareholders upon request.

Lloyd W. Newton was elected as Lead Director in April 2017 to serve for a term expiring April 26, 2018.
 
Board’s Role in Risk Oversight
 
While the Audit Committee regularly monitors and reports to the Board on the Company’s major financial risk exposures and the Compensation Committee examines and reports to the Board on the Company’s compensation programs and policies to ensure that they do not operate to incent Company executives to take risks which would adversely affect the Company, the

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Company’s Board has determined that overall responsibility for oversight of enterprise risk management at the Company is that of the entire Board. Accordingly, the Board has not chosen to establish a separately designated risk committee of the Board. Instead, the full Board oversees risk by regularly monitoring, receiving and reviewing written and oral reports from and interacting with a senior management level Enterprise Risk Management Committee (ERM Committee). The ERM Committee is chaired by the Company’s General Counsel and Chief Risk Officer and is currently consists of: the Company’s Chief Financial Officer; General Counsel and Chief Risk Officer; Chief Administrative Officer; Chief Actuary; Chief Investment Officer; Chief Information Officer; Chief Information Security Officer; Chief Strategy Officer; Chief Compliance Officer; Vice President, Investor Relations; Director of Internal Audit; Director of Human Resources; the designated ORSA liaison for the Company and the CEOs of the Agency/Marketing Divisions of the principal insurance subsidiaries. The Company's Co-Chairmen and CEOs may also participate as non-voting ex officio members of the ERM Committee. The Chair of the Audit Committee serves as the Board’s official liaison to the ERM Committee and attends all its meetings. Other Board members are encouraged to attend meetings and may submit matters and issues to be considered and reported on by the ERM Committee. The ERM Committee operates within and functions as a part of the enterprise risk management governance structure of the Company together with the Board, the various Subsidiary Risk Committees at the insurance companies and the Company’s Risk Management Team, in order to comply with all legal and regulatory requirements related to enterprise risk management that may be imposed on the Company, including the Risk Management and Own Risk Solvency Assessment (ORSA) regulation. The ERM Committee regularly meets to identify, evaluate and prioritize risks faced by the Company and its insurance subsidiaries, including, but not limited to, strategic, financial, investment, credit, market, liquidity, operational, legal and regulatory, compliance, information, technological, human capital, fraud, reputational and external risks, and to consider mitigation of such risks. In its four meetings held in 2017, the ERM Committee continued to focus on ORSA, including conducting an emerging risks survey, a high level risk assessment and a regulatory risk assessment; review of the Company's information risk appetite statement; and other work necessary to submission of the ORSA Report and enhancement of ORSA processes. Additionally, in 2017, the ERM Committee conducted a focused examination of mortality risk and reputation risk and received updates on the information security risk acceptance process, the all hazards security risk program and the regulatory compliance program. The ERM Committee reported on all of their work to the full Board.
 
Executive Sessions of the Board and Communications with the Board of Directors
 
The Company’s independent directors have met in regularly scheduled executive sessions without any participation by Company officers or employee directors since October 2002. These executive sessions are currently held either before or after the Board’s regularly scheduled, physical meetings. Additional executive sessions can be scheduled at the request of the independent directors. The Lead Director presided over the executive sessions during 2017. If that director had not been present, another independent director would have been chosen by the independent directors to preside.
 
Security holders of the Company and other interested parties may communicate with the full Board of Directors, the Lead Director, the independent directors or a specific director or directors by writing to them in care of the Corporate Secretary at 3700 South Stonebridge Drive, McKinney, Texas 75070.
 
Governance Guidelines and Codes of Ethics
 
The Company has adopted Corporate Governance Guidelines, a Code of Ethics for the Co-CEOs and Senior Financial Officers, and a Code of Business Conduct and Ethics for its directors, officers, employees and contractors, all of which comply with the requirements of securities law, applicable regulations and New York Stock Exchange rules. These documents are available on the Company’s website by going to www.torchmarkcorp.com and clicking on the Investors page. They are located under the Corporate Governance heading. Printed copies of these documents may be obtained at no charge by writing to the Corporate Secretary at 3700 South Stonebridge Drive, McKinney, Texas 75070.
 
Committees of the Board of Directors
 
The Board has the following standing committees more fully described below: Audit, Compensation, and Governance and Nominating. The Board may also, from time to time, establish additional special committees. In November 2017, the Pricing Committee, a special committee established by the Board comprised of Messrs. Adair, Coleman, Hutchison, Johnson and Zucconi met to fix the terms and provisions of the Company's offering of $125,000,000 of its 5.275% Junior Subordinated Debentures due 2057.


20


The Board's Audit, Compensation and Governance and Nominating Committees are currently comprised of the following members, each of whom is independent under the applicable rules and regulations of the SEC, the NYSE (including the NYSE’s additional independence requirements for Compensation Committee members), Section 16 of the Securities Exchange Act of 1934 and Section 162(m) of the Internal Revenue Code:
g74m44.jpg
(L) - Lead Director; C - Chair; M - Member
1 Committee service will commence with the April 2018 committee meetings.
2 Scheduled to retire immediately prior to the Annual Meeting of Shareholders on April 26, 2018.
3 Physical meetings indicated except in the case of the Audit Committee, which held 5 physical meetings and 6 teleconference
meetings in 2017.

Each of the Board's Audit, Compensation and Governance and Nominating Committees has a written charter, which is annually reviewed and updated if necessary. Copies of the committee charters are posted on the Company's website and can be viewed by going to www.torchmarkcorp.com, clicking on the Investors page and looking for the applicable committee listing under the Board of Directors heading. You may also obtain a printed copy of any of these committee charters at no charge by writing the office of the Corporate Secretary at 3700 South Stonebridge Drive, McKinney, Texas 75070.

Audit Committee
 
The Audit Committee:
reviews and discusses with management and the independent registered public accounting firm the Company’s audited financial statements and quarterly financial statements prior to filing, the Company’s earnings press releases and financial information and earnings guidance, and the Company’s policies for financial risk assessment and management;
selects, appoints, reviews and, if necessary, discharges the independent auditors;
reviews the scope of the independent auditors’ audit plan and pre-approves audit and non-audit services; reviews the adequacy of the Company’s system of internal controls over financial reporting;
periodically reviews pending litigation and regulatory matters;
reviews the performance of the Company’s internal audit function;
reviews related party disclosures to assure that they are adequately disclosed in the Company’s financial statements and other SEC filings;
reviews and appropriately treats complaints and concerns regarding accounting, internal accounting controls or auditing matters pursuant to a confidential “whistleblower” policy;
discusses the Company’s major financial risk exposures and the steps that management has taken to monitor and control such exposures;
monitors and periodically reports to the Board regarding management’s enterprise risk management processes;

21


meets with the Company’s independent auditors and internal auditors both with and without management present at each of its physically-held meetings; and
evaluates the Company’s internal auditors and performs an annual evaluation of the independent auditor utilizing the external auditor evaluation tool developed by the Center for Audit Quality and several other governance organizations.

Compensation Committee

The Compensation Committee:
determines the Company’s stated general compensation philosophy and strategy;
reviews and determines the compensation of senior management of the Company and its subsidiaries at certain levels, including establishing goals and objectives for the Co-CEOs’ compensation, evaluating each Co-CEO’s performance in light thereof, and recommending their total compensation to the independent directors for their approval;
establishes the annual bonus pool;
administers the Company’s Management Incentive Plan, retirement and other employee benefit plans and equity incentive plans;
makes recommendations to the Board with respect to executive compensation, incentive compensation plans and equity-based plans;
reviews and recommends to the Board non-management director compensation;
reviews and discusses with Company management the Compensation Discussion and Analysis section and recommends to the Board that it be included in the annual Proxy Statement; and
oversees preparation of the Compensation Committee Report in the annual Proxy Statement.

The Compensation Committee is authorized to retain its own independent compensation consultant and has retained Board Advisory, Inc. (formerly Board Advisory, LLC) as its independent compensation consultant. The Compensation Committee receives input and recommendations from the Co-CEOs and other members of Company management on compensation matters more fully described in the Compensation Discussion and Analysis section of this Proxy Statement and delegates certain day-to-day administrative functions for implementation of its compensation decisions and programs to Company officers.
 
Compensation Committee Interlocks and Insider Participation—The Company has no compensation committee interlocks or insider participation as defined by Item 407(e)(4) of SEC Regulation S-K.
 
Governance and Nominating Committee
 
The Governance and Nominating Committee:
receives and evaluates the names and qualifications of potential director candidates;
identifies individuals qualified to become Board members consistent with criteria set by the Board and recommends to the Board director nominees;
recommends the directors to be appointed to Board committees, the committee chairs and the Lead Director;
develops and recommends to the Board a set of governance guidelines and codes of business conduct and ethics (Governance Guidelines) for the Company;
monitors and annually evaluates how effectively the Board and Company have implemented the Governance Guidelines;
oversees the development and monitors the implementation of succession planning, both long term and emergency, for the Board, the Co-CEOs and Company management; and
oversees evaluations of the performance of the Board and Co-CEOs as coordinated by the Lead Director and monitoring the Co-CEOs’ evaluations of senior Company management.

The Governance and Nominating Committee will receive, evaluate and consider the names and qualifications of any potential director candidates from all sources, including shareholders of the Company. Recommendations of potential director candidates and supporting material may be directed to the Governance and Nominating Committee in care of the Corporate Secretary at 3700 South Stonebridge Drive, McKinney, Texas 75070. Additionally, any Company shareholder entitled to vote at a shareholder meeting in which election of directors will be considered may use the director nomination procedures contained in Article III, Section 2 of the Company’s By-Laws, which are described on page 24 of this Proxy Statement under Procedures for Director Nominations by Shareholders.

Risk Assessment of Compensation Policies and Practices
 
The Compensation Committee, with input from its independent compensation consultant, has reviewed an inventory of the Company’s compensation programs, plans and practices applicable to all of its employees as they relate to risk management and

22


risk-taking initiatives to ascertain if they serve to incent risks which are “reasonably likely to have a material adverse effect” on the Company. As a result of this process, the Compensation Committee has concluded and informed the Board that any risks arising from these programs, plans and practices are not reasonably likely to have a material adverse effect on the Company.
 
In connection with its evaluation of risks which may rise to the level of impacting the Company’s financial statements and financial reporting, the Audit Committee has also considered the Company’s employee compensation programs, plans and practices as they may serve to incent risk-taking behavior impacting the Company’s financial statements and financial reporting. In the course of this examination, the Audit Committee has determined that there were no compensation risks which would rise to the level of materially adversely impacting the Company’s financial statements and financial reporting.
 
Succession Planning
 
The Board is responsible for the succession planning process for both the Chief Executive Officer (CEO) position and directors. The Board reviews and regularly discusses with the Co-Chief Executive Officers potential candidates which the Co-CEOs have identified from among senior management as possible successors for the CEO position. The Board and the Co-CEOs also have the authority to examine persons outside of the Company as a part of the process to ultimately select a successor to a CEO. The Board may determine to retain outside professionals including consultants or search firms to assist in the CEO succession planning process. Candidates to succeed a CEO upon his retirement as well as in the event of any emergency involving, or the incapacity of, a CEO are considered and after discussion at the Board level, a successor to the CEO is determined. A written Emergency CEO Succession Plan has been developed, approved by the Board and is currently in place. A similar process is followed by the Co-CEOs, consulting with senior management, to identify successors for key Company positions, such as Chief Financial Officer, Chief Administrative Officer, Chief Investment Officer, Chief Actuary, Chief Legal Officer, Chief Information Officer, Chief Strategy Officer, Director of Human Resources and the heads of the agency/marketing divisions of the principal insurance subsidiaries. These potential successors are discussed with the Board and the Board’s concurrence is obtained on the designated successors. The Board has engaged the services of an unaffiliated consulting firm to assist in the development of a more formalized structure for identifying immediate and long-term successors for key personnel at all levels of the Company and its subsidiaries. The Emergency CEO Succession Plan is reviewed at least annually by the Governance and Nominating Committee and discussed by the full Board in executive session.

Succession planning for directors is a principal focus of the Governance and Nominating Committee as well as the full Board. Using the standards for director independence set forth by the NYSE and the additional categorical standards adopted by the Board, the director qualification standards in the Corporate Governance Guidelines, and the Board-adopted statements on Qualifications of Directors and Procedures for Identifying and Evaluating Director Candidates, as the basis for beginning the director succession process, the Governance and Nominating Committee and the Board conduct extensive discussions regarding the qualities and characteristics to be sought in a successor to a departing director or in a nominee to fill a newly-created directorship. They evaluate potential director candidates from all sources, including shareholders and other security holders of the Company, working to develop a broad-based, inclusive pool of potential director candidates and may retain consultants or professional director search firms to assist them in the process. After compiling a list of potential director candidates, a search committee, comprised of members of the Board, including independent directors, the Co-CEOs and the Lead Director, meets with these candidates and makes recommendations for successor directors to the Governance and Nominating Committee and the full Board for decision.

In 2017 and continuing into 2018, succession planning at all levels of management at the Company and its subsidiaries as well as at the Board of Directors has been a focus using both internal and external resources.
 
Director Qualification Standards
 
The Company’s Corporate Governance Guidelines discuss the following director qualification standards:

Board Membership Criteria, including independence, limits on the number of boards on which a director serves, a former chief executive officer’s Board membership and directors who change their present job responsibilities;
Size of the Board;
Director Terms;
Retirement Policy; and
Selection of the Chairman of the Board.
 
Additionally, the Governance and Nominating Committee and the Board have adopted a statement on Qualifications of Directors containing factors which should at a minimum be considered in the nomination or appointment of Board members. You can learn more about these factors by going to the Company’s website at www.torchmarkcorp.com and clicking on Director Qualification Standards under the heading of Board of Directors on the Investors page.


23


One of the factors considered by the Board in the nomination or appointment of directors, as set out in the Board-adopted statement on Qualifications of Directors, addresses diversity. The Company does not have representational directors; the director nomination and selection process involves consideration of the Board as a collective group. The Board as an entirety should reflect appropriate diversity, and such diversity encompasses a wide range of personal and professional experiences, backgrounds, skill sets, age, gender, race, national origin and other demographic characteristics. The Governance and Nominating Committee has the primary responsibility to see that this and all of the other Qualifications of Directors are implemented. As a part of the annual self-evaluation process, one of a number of factors that the Board and the Governance and Nominating Committee consider is whether the Board as a whole reflects appropriate diversity. In evaluating potential director candidates, the Governance and Nominating Committee also examines broadly-defined diversity in identifying and recommending director nominees.
 
Director Identification and Evaluation Procedures
 
The Governance and Nominating Committee and the Board utilize the following procedures for identifying and evaluating director candidates:
The Board identifies the need (a) to add a new Board member meeting certain criteria or (b) to fill a vacancy on the Board;
The Governance and Nominating Committee initiates a search, working with Company staff support and seeking input from other Board members and senior Company management. The Governance and Nominating Committee may also engage a professional search firm or other consultants to assist in identifying director candidates if necessary;
In making its selection, the Governance and Nominating Committee will evaluate candidates proposed by shareholders under criteria similar to those used for the evaluation of other candidates;
Candidates that will satisfy any specified criteria and otherwise qualify for membership on the Board are identified and presented to the Governance and Nominating Committee for consideration;
The Lead Director, the Co-CEOs and at least one member of the Governance and Nominating Committee, along with other directors, will interview prospective candidate(s);
The Governance and Nominating Committee meets to consider and approve final candidate(s); and
The Governance and Nominating Committee seeks full Board endorsement of selected candidate(s).

Procedures for Director Nominations by Shareholders
 
Article III, Section 2 of the Company’s By-Laws provides for procedures pursuant to which Company shareholders may nominate candidates for election as a director of the Company. To provide timely notice of a director nomination for an annual meeting of shareholders, the shareholder's notice must be received at the principal offices of the Company (3700 South Stonebridge Drive, McKinney, Texas 75070) not later than the close of business on the 75th day or earlier than the 120th day prior to the first anniversary of the preceding year’s annual meeting and must contain the information specified in the Company's By-Laws.
 
You may find the Company’s By-Laws by going to the Company’s website at www.torchmarkcorp.com and clicking on the Investors page. The Company By-Laws are located under the Corporate Governance heading. Printed copies of the By-Laws may also be obtained at no charge by writing to the Corporate Secretary at 3700 South Stonebridge Drive, McKinney, Texas 75070.
 
Board and Annual Shareholder Meeting Attendance
 
During 2017, the Board held four physical meetings and one teleconference meeting and also acted four times by unanimous written consent. In 2017, all of the directors attended at least 75% of the meetings of the Board and the committees on which they served.
 
The Company has a long-standing policy that the members of its Board be present at the Annual Meeting of Shareholders, unless they have an emergency, illness or an unavoidable conflict. At the April 27, 2017 Annual Meeting of Stockholders, all directors were present.
 

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Sustainable Business Practices
 
The Company's Board and its management recognize the importance of sustainability and believe that sound sustainability practices are an important component of both good corporate citizenship and sound fiscal management. A variety of environmental, social, and governance (ESG) initiatives have been implemented at the Company through upgrades to home office facilities, information technology systems and a general focus on increasing employee awareness.
In 2017, the Company issued a sustainability report on ESG issues. A copy of the Environmental, Social, and Governance Report is posted on the Company's website and can be viewed by going to www.torchmarkcorp.com and clicking on the Investors page.
The Company has formed a sustainability committee comprised of various members of management, including but not limited to the Company’s Chief Investment Officer, Chief Risk Officer, Investor Relations officer and Director of Facilities. This committee, a sub-committee of the Enterprise Risk Management Committee, is responsible for setting the Company’s corporate sustainability agenda. The committee meets no less than semi-annually and reports regularly to the Enterprise Risk Management Committee regarding topics discussed and issues considered at committee meetings, as well as other committee activities.


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EXECUTIVE COMPENSATION
 
COMPENSATION DISCUSSION AND ANALYSIS
 
Executive Summary
 
The Company’s financial performance during 2017 improved over 2016. Net operating income from continuing operations earnings per diluted common share increased 7.3% over the previous year versus 8.7% in 2016. Overall performance, as measured relative to the performance framework in the annual bonus plan, increased from 120.1% to 145.2% (on a scale of 0% to 150%, with target or expected performance at 100%). Consistent with our pay for performance philosophy, the Compensation Committee reflected Company performance during 2017 in annual bonus and 2018 long-term incentive (LTI) awards made to the Company’s executive management.1 
Annual bonuses for the Co-CEOs increased by 38.6% – Approximately 60% of the increase resulted from improved corporate performance and the balance from an increase in the competitive target award. Total bonuses for the other continuing members of executive management increased by 15.7% from the awards made for 2016 performance.
Long-term awards made to the Co-CEOs in early 2018, based on 2017 performance did not change on a share equivalent basis.2 LTI awards for the other continuing members of executive management, based on 2017 performance and other factors, increased by 6.4% from the 2017 awards on a share equivalent basis.

Compensation Philosophy
 
The Company’s executive compensation philosophy is consistent with our business philosophy. Our compensation philosophy emphasizes and rewards consistent, steady growth in net operating income earnings per share, underwriting income and return on equity, which we believe provides long-term value to our shareholders and therefore aligns management’s interests with our shareholders’ interests. Our compensation philosophy also considers competitive remuneration practices in the insurance and financial services sector as we seek to attract, motivate, reward and retain key executives at both the holding company and subsidiary levels. Our philosophy has historically resulted in executive compensation at the Company which generally emphasizes equity and equity-linked compensation while placing less emphasis on cash compensation.
 
Roles in Compensation Decisions
 
The Compensation Committee is responsible for determining the compensation of our senior executives at the Company and its subsidiaries in accordance with our stated compensation philosophy and strategy. With certain input from the Co-CEOs and other members of senior management and the assistance of its independent compensation consultant, the Compensation Committee sets the total compensation in various forms for the executive management team (including named executive officers—i.e., the Co-CEOs, Chief Financial Officer (CFO) and the other executives listed in the compensation tables in this Proxy Statement, collectively, the NEOs). The Compensation Committee ensures that the mix of compensation among various elements is appropriately balanced and also considers the retirement and other benefits available to our NEOs in order to ensure that their compensation is fair, reasonable and competitive. Our mix of pay elements is based on the principle that the Company’s business is inherently long-term in nature and not generally subject to dramatic year-over-year variances in performance. Accordingly, our pay plans emphasize long-term equity accumulation (e.g., option grants), longevity (e.g., pension), consistent financial performance (e.g., performance shares3) and, on a very targeted basis, stability (e.g., restricted stock grants).
 
Company management, including our Co-CEOs, CFO, General Counsel and the Director of Human Resources, support the Compensation Committee, attend portions of its meetings at its request, make recommendations to the Compensation Committee and perform various day-to-day administrative functions on behalf of the Compensation Committee in connection with our cash and equity compensation programs and plans. Specifically, our Co-CEOs provide input to assess the effectiveness of the existing compensation philosophy and programs, assist in the design of new compensation programs and the modification of existing programs and make specific recommendations regarding the potential bonus awards and the amount and mix of the cash and equity compensation to be paid to certain levels of officers, including all NEOs except themselves.
1 In 2017, the executive management team consisted of the Co-CEOs plus fourteen officers of the Company and its various subsidiaries.
2 We define share equivalents as the number of shares counted under the Torchmark Corporation 2011 Incentive Plan, as amended.
3 We define performance share unit awards as performance shares for the purposes of this discussion. 


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The Compensation Committee has the authority to retain outside advisors, experts and other professionals to assist it. Since 2010, the Compensation Committee has retained Board Advisory, Inc. (formerly Board Advisory, LLC), an independent compensation consulting firm. Neither Board Advisory nor any of its affiliates provides any consulting services to the Company. In 2017, at the request of the Compensation Committee, Board Advisory conducted a review of the competitiveness of the total cash and equity-based compensation paid to the Co-CEOs and the other NEOs; made recommendations regarding compensation increases for the NEOs; and provided certain special reports and analyses requested by the Compensation Committee, such as recommendations for a peer group, a discussion of annual and long-term performance measures, a discussion of various executive compensation issues including the anticipated impact of the new tax law on executive compensation, recommendations regarding long-term incentive grant guidelines and analysis of historical share usage in the long-term incentive plan.

Setting Executive Compensation
 
In order to retain the insurance executives necessary to the successful operation of the Company, the Compensation Committee considers market compensation comparisons as it determines the elements, appropriate levels and mix of compensation to be paid to the executive officers. The Compensation Committee does not operate with rigid standards for the level and mix of the compensation elements it awards. Rather, it works using this market analysis and other inputs from Company management and its compensation consultant. As mentioned, the historic emphasis and conscious design of the Company’s compensation philosophy has been to deliver a large portion of pay in a variable format as long-term incentive awards, typically in the form of stock options and performance share awards, rather than primarily through annual cash bonuses.
 
The Compensation Committee periodically conducts an extensive review of the composition of the peer group, considering such factors as labor market competitors, capital competitors (companies considered peers by stock analysts), market competitors, peers of existing peers, peers utilized for strategic planning and peers used by proxy advisory firms. The last extensive study was conducted during 2016 when the peer group was significantly expanded. The Committee reviewed the peer group in 2017 and decided that no changes were warranted. In considering a peer group, the Compensation Committee was mindful of the effect of company scope on executive pay. Since the Company’s business model does not place a great deal of emphasis on capital accumulation products (e.g., annuities) that produce significant investment income (as a percentage of revenue), the Committee decided that the most relevant comparison of size was based on Total Policy Income, which largely reflects premiums and fees. Enterprise Value1 was used as a secondary measure of size. The revised peer group is shown in the following table:
Company Name
 
Ticker
 
2016 Total Policy Income (dollar amounts in millions)
($)
 
Total Enterprise Value at 12-31-16 (dollar amounts in millions)
($)
AFLAC
 
AFL
 
19,225

 
28,745

American Financial Group
 
AFG
 
4,352

 
6,839

American National Insurance Company
 
ANAT
 
2,304

 
3,210

Assurant, Inc.
 
AIZ
 
5,007

 
5,230

Cincinnati Financial
 
CINF
 
4,710

 
12,521

CNO Financial Group Inc.
 
CNO
 
2,601

 
7,072

Erie Indemnity
 
ERIE
 
1,597

 
5,716

Fidelity National Financial
 
FNG
 
4,723

 
431

Hanover Insurance Group
 
THG
 
4,628

 
4,363

Kemper
 
KMPR
 
2,220

 
2,907

Lincoln National Corporation
 
LNC
 
8,231

 
17,836

Old Republic
 
ORI
 
5,333

 
6,375

Primerica
 
PRI
 
844

 
3,825

Principal Financial Group, Inc.
 
PFG
 
5,994

 
17,274

Unum Group
 
UNM
 
8,358

 
12,995

W. R. Berkley
 
WRB
 
6,293

 
9,787

75th Percentile
 
 
 
5,252

 
11,159

Median
 
 
 
4,669

 
6,046

25th Percentile
 
 
 
2,378

 
3,960

Torchmark Corporation
 
TMK
 
3,137

 
10,027

1 Enterprise Value is market capitalization of common equity plus book value of debt minus cash.


27


Part of the Compensation Committee’s process of structuring and setting executive compensation includes conducting annually, with the assistance of its consultant, a detailed pay and performance analysis of compensation for the Company’s executive officers relative to the pay and performance of executives occupying similar positions in its peer group. The results of these analyses, including the analyses done in 2017 for 2014 to 2016 performance, show that the Company’s financial performance during this three-year period (which includes various metrics) as measured for compensation purposes was generally at or above the peer group's median. Total compensation levels as compared to the Company’s peer group are consistent with this performance and each officer’s tenure.
 
For 2016, the cash compensation (salary plus annual bonus) paid to the Co-CEOs was at about the median of the peer group’s cash compensation. Long-term incentive awards were benchmarked on a grant basis, using expected values (i.e., similar to the values shown in a Summary Compensation Table). This analysis showed that long-term awards were also about equal to the median of the market, slightly below our benchmarking positioning. It should be noted that our analysis of Co-CEO compensation measures their compensation relative to the average of the peer company CEO and second highest paid executive. This approach produces a benchmark that is typically 20% to 30% below the peer CEOs (depending on the component of pay examined). 

The pay for performance relationship was further examined by looking at realizable pay for the CEO versus total shareholder return for the period 2012 to 2016. This is shown in the “Pay for Performance” graph below. The horizontal axis of the graph is the percentile ranking of total shareholder return for 2012 to 2016. The vertical axis of the graph is the percentile ranking of realizable pay earned for 2012 to 2016. Realizable pay is defined as cash payments received (e.g., salary, bonuses, etc.) plus pension value increases and the value of “other” compensation plus realized value of options exercised or shares that vest plus the change in unrealized value of all outstanding equity awards. In contrast to the information reported in the Summary Compensation Table, which for Stock Awards reflects the grant date fair value of the award, we believe that realizable pay provides a better picture of the amounts actually earned. The graph shows that although the Company’s realizable compensation of the Co-CEOs was at the 46th percentile, total shareholder return (TSR) performance was at the 62nd percentile of the peer group. A company’s placement on the graph will vary with the incidence of TSR and realizable pay. Here, the Company’s position is within a “normal” range (+/- 25%) where pay is consistent with performance.

Pay for Performance

g85n51.jpg



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Assessment of 2017 Advisory Vote on Executive Compensation
 
The Company conducted a non-binding, advisory shareholder vote on executive compensation as disclosed in the 2017 Proxy Statement (known as a “Say-on-Pay” vote) at its Annual Meeting held on April 27, 2017. At that meeting shareholders who cast votes overwhelmingly approved, on an advisory basis, the executive compensation disclosed in the 2017 Proxy Statement (96.6%). The Company has considered the results of the “Say-on-Pay” vote in determining its compensation policies and decisions. Company management evaluated the support levels in these advisory votes in making its recommendations to the Compensation Committee regarding 2018 salaries, 2017 bonus decisions and equity awards to the NEOs following a “pay for performance” model. The Compensation Committee also reviewed these 2017 voting results and considered them in fixing the compensation levels for the NEOs other than the Co-CEOs in 2018 and in making its recommendations to the full Board regarding Co-CEO compensation in 2018.

Elements of Compensation
 
The total compensation package for all executives at the Company and its subsidiaries, including the NEOs, consists of multiple elements. Some of these elements focus on compensation paid during the executive’s active working career while others focus on compensation and benefits paid on or related to retirement. Executives may also receive certain limited perquisites and personal benefits. The elements included in compensation available to executives during fiscal year 2017 included:
 
Base salaries;
Cash bonuses;
Long-term equity incentives in the form of stock options, performance shares and restricted shares;
Retirement and other benefits, including a defined benefit pension plan; and
Perquisites and personal benefits.

Base Salaries
 
The Compensation Committee fixes (or, in the case of a Co-CEO, recommends to the Board) base salaries for our NEOs. Factors considered included competitive pay ranges, the officer’s time in the position, pay relative to organizational peers and individual performance. Effective January 17, 2018, the Compensation Committee fixed salaries for the NEOs with the exclusion of Mr. Coleman and Mr. Hutchison (whose salaries were fixed by the Board on February 26, 2018) as shown in the table below:
 
 
2017 Salary
($)
 
2018 Salary
($)
Gary L. Coleman
 
900,000
 
925,000
Larry M. Hutchison
 
900,000
 
925,000
Frank M. Svoboda
 
520,000
 
540,000
Roger C. Smith1
 
600,000
 
N/A
W. Michael Pressley
 
520,000
 
530,000
J. Matthew Darden
 
510,000
 
530,000
1 Mr. Smith retired as of December 31, 2017.
 
Annual Cash Bonuses
 
Annual cash bonuses are a key component of our executive compensation program and are competitively positioned as a percentage of salary between the 25th percentile and median. To ensure the tax deductibility of bonuses paid to executives, we have an annual Management Incentive Plan (MIP Plan), under which we may pay annual cash bonuses to the Co-CEOs and the other NEOs. This plan utilizes a “Plan within a Plan” approach where the criteria set by the Compensation Committee under this plan stipulate the maximum bonus that can be paid to each NEO1. The Compensation Committee is also authorized to pay discretionary bonuses to executives outside of the MIP Plan.
 
As noted, the MIP Plan establishes an upper limit for bonuses to covered employees. The actual bonuses paid are developed using an annual incentive plan framework that determines an initial award, subject to adjustment as the Compensation Committee deems appropriate. For 2017, the Compensation Committee established the annual incentive plan framework tied to three metrics, assigning 40% weight to net operating income earnings per share (EPS) growth (ranging from 2% at threshold, 4% at target and 6.5% at maximum); 30% weight to underwriting income growth (ranging from -2% at threshold, 0% at target and 2.5% at maximum); and 30% weight to return on equity (ROE) (ranging from 13.3% at threshold, 13.9% at target and 14.5% at maximum), subject to the exercise of discretion on the part of the Compensation Committee to further adjust the bonuses based upon consideration of subjective factors.

29



For 2017, net operating income EPS grew 7.3%, underwriting income grew 4.5% and ROE from continuing operations was 14.38%, yielding a total framework bonus for the NEOs equal to 145.2% of their target bonus amount. This is shown in the following table. The bonuses for Messrs. Svoboda, R. Smith and Pressley were determined based on recommendations of the Co-CEOs. The bonuses shown for Mr. Coleman and Mr. Hutchison were recommended by the Compensation Committee and approved by the independent members of the Board. The Compensation Committee approved the other bonuses.
 
 
Target
Bonus as a %
of Salary
 
Target Bonus Amount2
($)
 
Framework Bonus3
($)
 
Actual
Bonus
Paid
($)
Gary L. Coleman
 
140%
 
1,260,000

 
1,830,000

 
1,830,000

Larry M. Hutchison
 
140%
 
1,260,000

 
1,830,000

 
1,830,000

Frank M. Svoboda
 
60%
 
312,000

 
453,000

 
445,000

Roger C. Smith
 
60%
 
476,000

 
691,000

 
360,000

W. Michael Pressley
 
60%
 
312,000

 
453,000

 
400,000

Total
 
 
 
3,620,000

 
5,257,000

 
4,865,000

1 The criteria established by the Compensation Committee specify that net operating income per share must increase by 2% from the prior year for any bonuses to be payable and that, in such case, a bonus pool equal to 3% of pre-tax operating income will be established. For 2017, this pool was $24,635,000. Per the terms of the MIP Plan, the bonus payable to the each of the Co-CEOs cannot exceed 30% of the pool ($7.390 million for 2017) and the bonus paid to each of the other covered employees cannot exceed 10% of the pool ($2.463 million for 2017).
2 Reflects target bonus amount based on targeted EPS growth, underwriting income growth and ROE in 2017. The degree to which these objective criteria were achieved, along with subjective criteria considered by the committee, were used in determining (or, in the case of the Co-CEOs, recommending to the independent members of the Board) the amount by which the maximum bonus amount payable to each participating NEO would be reduced. The threshold bonus amount is equal to half the target. The maximum bonus is equal to the lesser of 150% of target or the amount allowed by the MIP Plan.
3 Bonus earned based on the 2017 performance framework, before Compensation Committee discretion. Equal to 145.2% of Target Bonus.

Mr. Darden's 2017 bonus was not paid pursuant to the MIP Plan. The Compensation Committee awarded him a bonus of $270,000 based upon the Co-CEOs' assessment of his performance as the Chief Strategy Officer of the Company, utilizing objective goals related to performance metrics comparable to those of the MIP Plan.
 
Long-Term Equity Incentives
 
The principal vehicle we use to distribute long-term incentive compensation to our Company and subsidiary executives, officers and key employees is stock options, which we first began awarding in 1984. Beginning in 2006, we used annual grants of time-vested restricted stock awards to certain senior executives for retention purposes as an incentive to work beyond the established early retirement age of 55. In 2012, we began granting performance shares, the vesting of which is directly tied to performance goals outlined in the Company’s strategic plan. In 2013 and 2014, we expanded this practice by replacing all annual grants of restricted stock to executive officers (i.e., roughly the top 15 executives of the Company and its subsidiaries) with annual awards in the form of performance shares. The performance shares awarded on February 21, 2017 will be earned and issued following the end of the three-year performance period from January 1, 2017 through December 31, 2019, based on the extent to which the Company achieves various performance goals established by the Compensation Committee: 40% weight to three-year growth in EPS (ranging from 2% at threshold, 6% at target and 10% at maximum), 30% weight to growth in underwriting income (ranging from -1% at threshold, 2.4% at target and 5.5% at maximum) and 30% weight to average ROE over the period 2016 to 2018 (ranging from 12.7% at threshold, 13.7% at target and 14.7% at maximum). Since 2013, it has been the Compensation Committee’s intention to only award time-vested restricted stock among these officers on a select basis where it is felt there is a need for further retention. In this case, these awards will utilize vesting after five years, with no partial vesting or vesting for early retirement. No time-vested restricted stock awards were made to NEOs in 2017.

The incentive plan under which stock options and restricted stock were awarded in 2017 was the Torchmark Corporation 2011 Incentive Plan (the 2011 Plan). The purposes of the 2011 Plan are to promote the success and enhance the value of the Company by linking the personal interests of employees, officers and directors of the Company and its subsidiaries to our shareholders and to provide these persons with an incentive for outstanding individual performance.
 
In making individual long-term incentive awards, we do not follow the common industry practice of determining a competitive annual grant value and then calculating a number of shares to be awarded based on that value. That approach produces the counterintuitive result of larger share grants when stock prices decline and smaller grants when prices increase. It also distorts the relative value of options versus full-value share awards (e.g., restricted stock and performance shares) during times of market turmoil. Instead it has been our practice to set award guidelines by position and keep those share levels relatively constant over

30


successive award cycles. Individual awards are then made relative to the guidelines, reflecting the individual’s performance and retention needs. For the Co-CEOs and aggregate awards, the guidelines are expressed as a percentage of the shares outstanding at the beginning of the year. This approach ensures that ongoing buybacks of shares do not automatically produce larger relative awards. The awards made in 2017 were made using the grant guidelines that were developed in 2016, based on an analysis of peer grant practices, measured in terms of dollar value and peer dilution rather than just dollar value. This approach minimizes differences in stock performance between companies and was based on our longer-term assessment of the relative value of the various incentive vehicles utilized as reflected in the fungible counting of shares under the 2011 Plan.
 
Based upon recommendations from the Co-CEOs, the Compensation Committee, as the administrator of the plan, selected the NEOs (other than the Co-CEOs), other officers and key employees (a total of 167 persons) who received non-qualified stock option grants and/or performance share awards on February 21, 2017. In a February 21, 2017 meeting, the independent members of the Board acted upon the recommendation from the Compensation Committee and awarded Co-CEOs Gary L. Coleman and Larry M. Hutchison each 35,000 performance shares (at target) and non-qualified options on 150,000 shares with an exercise price equal to the market closing price on that date and a term of seven years. In making the 2017 grants, the Compensation Committee considered the Co-CEOs’ recommendations for all persons other than themselves, individual performance and the Company’s succession planning and retention needs.
 
The 2011 Plan authorizes the Compensation Committee to set the performance metrics and goals for performance share awards as well as the restrictions on restricted shares and their vesting periods. The Compensation Committee also is charged with determining the type of stock options they award or recommend, the time and conditions of exercise of options and the methods of acceptable payment to exercise stock options. All stock options are granted with exercise prices equal to the fair market value of the Company’s common stock, which is defined by the 2011 Plan as the NYSE market closing price on the grant date. The grant date for stock options, restricted stock awards and performance share awards is the date of the Compensation Committee or Board meeting at which the Compensation Committee or the independent members of the Board review and determine the persons to receive options, restricted stock and/or performance shares and the number of options, restricted stock and/or performance shares.
 
The Compensation Committee and the independent members of the Board do not time the grant of stock options, restricted stock or performance shares in consideration of the release of material non-public information, whether or not that information may favorably or unfavorably impact the price of Company common stock. The consideration and grant of equity incentive awards to participants in the 2011 Plan, whether in the form of options, restricted stock and/or performance shares, normally occurs during the window period of each year which opens following the release of the prior year’s reported earnings.
 
Stock Ownership/Retention Guidelines
 
We have formal stock ownership guidelines that provide:
 
Any person serving as the CEO of the Company must hold shares of the Company stock with a market value equal to at least six times his annual salary;
Executive Vice Presidents of the Company must hold Company stock with a market value equal to at least three times their respective annual salaries;
Chief Executive Officers of the Agency/Marketing Divisions of the Company’s principal insurance subsidiaries must hold Company stock with a market value of at least two times their respective annual salaries;
Executive officers of the Company and its principal subsidiaries designated from time to time by the Governance and Nominating Committee must acquire and hold Company stock with a market value at least equal to their respective annual salaries; and
Non-management directors of the Company must acquire and hold Company stock with a market value equal to at least five times that portion of their respective annual retainers which may be paid in cash (Annual Cash Retainer).

All such directors, the Co-CEOs and the executive officers have a five-year period from the January 1, 2007 inception of these guidelines, their initial election as a director (if first elected after January 1, 2007) or their initial inclusion in the above-described categories of executive officers to attain minimum stock ownership levels. For purposes of meeting these ownership guidelines, common shares deemed owned, either directly or indirectly, for reporting purposes pursuant to Section 16(a) of the Securities Exchange Act of 1934, junior subordinated debentures of the Company, shares held in unitized stock funds in the Company’s thrift/401(k) plan, time-vested restricted stock and restricted stock units are counted. Stock options and performance share awards are not counted toward attainment of the ownership guidelines.
 
Until the minimum ownership levels are attained within the requisite period, the director or executive cannot sell any shares owned outright, sell any restricted stock when vested or performance shares when issued other than those shares necessary to pay withholding taxes, or execute a “cashless” option exercise where more shares are sold than are necessary to pay the option exercise

31


price and withholding taxes. The executive or director must retain all “profit shares” (the net shares remaining after payment of the option exercise price and taxes owed at the time of an option exercise, vesting of restricted stock or earnout of performance shares) until minimum ownership levels are met; provided, however, that in exceptional circumstances, upon obtaining an advance waiver of the guidelines from the Governance and Nominating Committee of the Board, profit shares may be sold.
 
We have no formal stock retention policy for shares derived from stock options or other equity grants after the stock ownership guidelines have been met. The Company believes the decisions regarding when to exercise options and whether to retain stock should be each individual award recipient’s decision if that award recipient is in compliance with the stock ownership guidelines. Our insider trading policy prohibits executives from trading and/or writing put and call options and other derivative vehicles in order to hedge positions or speculate in Company stock.
 
Retirement and Other Benefits
 
Retirement benefits provided to executives consist of a defined benefit pension plan benefit, a group term life insurance benefit, additional life insurance under Retirement Life Insurance Agreements, post-employment health coverage and, in the case of certain executives, benefits under a supplemental executive retirement plan (SERP). While some of these retirement benefits are available to all eligible employees (e.g., pension plan benefit, group term life insurance and post-employment health coverage), other benefits are only available to designated executives when they retire (e.g., Retirement Life Insurance Agreements and benefits under the SERP). The Company has chosen to provide such benefits either broadly or to specific individuals to attract and retain employees and executives by enabling retirement savings and planning. The SERP was put in place to encourage executives at certain levels to continue to work past the Company’s established early retirement age of 55. Messrs. Coleman, Hutchison, Svoboda, Smith,Pressley and Darden are among the 30 persons designated in 2017 by the Compensation Committee as participants in the SERP.

Savings Plans
 
Eligible executives and employees may choose to participate in the Torchmark Corporation Savings and Investment Plan (the Thrift Plan), a funded tax-qualified defined contribution plan. During 2006 and earlier years, they could elect to contribute a designated percentage up to 16% of their after-tax salary to the Thrift Plan and select an investment fund or funds from a menu offered by the plan. The Company would match on a 50% basis all employee contributions up to 6% of the employee’s salary. Investment vehicles included a unitized Company common stock fund and a broad spectrum of unaffiliated mutual funds.
 
Based upon the recommendations of the Compensation Committee as well as Company management, the Board of Directors approved a series of amendments to the Thrift Plan, effective January 1, 2007, which inserted provisions under Section 401(k) of the Code for pre-tax contributions commencing on that date. No additional after-tax contributions were permitted to the Thrift Plan after December 31, 2006. The Company matches the employee’s pre-tax contributions at 100% on the first 1% of salary and at 50% on the next 5% of salary up to a maximum annual match of $9,450. The employee may contribute additional amounts, which are not matched by the Company, up to the maximum amount allowed by the Internal Revenue Code (the Code) annually (in 2017, $18,000) and if he or she is age 50 or older, the employee may make an annual “catch-up” contribution of up to an additional $6,000, which is also not subject to Company matching. These contributions can be directed to the same type of investment funds as previously available. Each of the NEOs participates in this plan.
 
Deferred Compensation Plan
 
The Company has historically provided a traditional unfunded, deferred compensation plan to certain eligible executive officers and directors who may elect to defer all or any part of their compensation into an interest-bearing memorandum deferred compensation account until they terminate their elections. Elections must indicate the payment commencement date and the method of distribution, either in a lump sum or equal monthly installments (not to exceed 120). Interest on the account is paid at a rate equal to the average yield for Corporate Aa bonds per Moody’s Bond Survey, less a 0.5% expense allowance. Officers eligible to participate in the SERP (which would include the Co-CEOs and the other NEOs) are also eligible to participate in the deferred compensation plan. None of the NEOs participates in this plan.
 
Retirement Life Insurance Agreements
 
The Company provides retirement life insurance benefit agreements to a closed group comprised of certain of its executives, including some of the NEOs, and certain executives of its subsidiary companies. These retirement life insurance benefit agreements replace an insurance payment program to that same group of executives which was terminated in 2001. The agreements provide a life insurance benefit to a participating executive effective upon the later of their 65th birthday or their retirement date with coverage equal to a designated percentage, which will vary, based upon the employee’s age at the nearest birthday to their date of retirement, from 65% at age 55 to 100% at ages 62 or over, of an amount equal to two times the employee’s salary and bonus in

32


their final year of employment prior to retirement, less $5,000. Such insurance benefits, which are payable on the participating executive’s death, for certain executives may not exceed $1,995,000 and for other executives may not exceed $495,000. Messrs. Coleman, Hutchison and R. Smith each have a Retirement Life Insurance Agreement with a $1,995,000 maximum benefit and Messrs. Svoboda, Pressley and Darden do not have Retirement Life Insurance Agreements.
 
Perquisites and Personal Benefits
 
We have chosen to offer only a very limited number of perquisites and personal benefits to our NEOs, including the personal use of Company aircraft, Company-paid country club and other club dues, personal use of Company-paid tickets to events where the most expensive tickets utilized in 2017 had a face price of $150 per ticket, and costs associated with family members’ travel to Company meetings. We have not incurred significant expense as a result of the usage of perquisites and personal benefits. The aggregate incremental cost of perquisites for 2017 exceeded $10,000 for three of the NEOs reflected in the Summary Compensation Table. Perquisite and other personal benefit disclosures are reviewed annually and approved by the Audit and/or the Compensation Committees.
 
Termination of Employment and Change in Control
 
All employees, including the NEOs, holding Company stock options have option grant agreements which provide for varying exercise periods after termination of employment depending on the circumstances of the termination (voluntary termination, involuntary termination without cause, early retirement, retirement at or after age 60, normal retirement , disability and death). Generally, currently outstanding stock options provide for post-termination exercise periods ranging from one month for voluntary terminations to the longer of the remaining option term or one year from the date of death in the case of the optionee’s death. Any unvested options immediately vest in full upon retirement at or after age 65, on disability or on death. Termination of employment for cause results in expiration of all options on the date of the termination notice.
 
Change in control provisions are contained in various Company plans applicable to executives as well as to all Company employees. Options granted under the Company’s 2011 Plan provide that such options become fully exercisable if the executive’s employment is terminated without cause or the executive resigns for good reason within two years after the effective date of a change in control. The MIP Plan requires that the plan must be assumed by a successor to the Company and that bonus payouts accelerate if an executive is terminated without cause or the executive resigns for good reason following a change in control of the Company.
 
Our executives are subject to post-termination obligations for confidentiality pursuant to confidentiality agreements which they sign while employed. These post-termination confidentiality obligations do not relate to any compensation or benefits payable or to be payable upon certain triggering events. Beginning in 2015, all executives receiving performance share awards and certain executives receiving stock options are subject to non-solicitation, non-competition and confidentiality provisions contained in the respective grant agreements.
 
The Company and its subsidiaries do not enter into employment contracts, severance agreements, salary continuation agreements or severance plans with executives or directors at the time of their employment or election, respectively. To the extent that executives negotiate oral or written severance arrangements or other post-termination payments for current cash compensation, benefits and perquisites and outstanding equity compensation (outside of the provisions of the applicable stock incentive plan), this is done on an individual basis at the time of their contemplated departure. Perquisites and other personal benefits are not extended on a post-termination basis.
 
Clawback Provisions
 
Bonuses paid to executives pursuant to the MIP Plan are subject to “clawback” provisions. If the Company’s financial results are materially restated, the Compensation Committee has the authority to determine whether and which executives will be required to forfeit the right to receive any future payments under the plan and/or to recapture prior payments they determine to have been inappropriately received by an executive. Additionally, if the Company’s financial results are restated due to fraud or material noncompliance by the Company, as a result of misconduct, with any financial reporting requirements of the federal securities laws, any executive participating in the plan who the Compensation Committee determines participated in or was responsible for the fraud or material noncompliance causing the restatement must repay any amounts paid to him in excess of those that would have been paid under the restated results and forfeits the right to receive any future payments under the plan.
 
Awards made pursuant to the 2011 Plan may be recaptured by the Company on the occurrence of certain specified events if the Compensation Committee so specifies in the award certificate or grant agreement. Such specified events may include, but are not limited to, termination of employment for cause; violation of material Company policies; breach of non-competition, confidentiality or other restrictive covenants that may apply to the award recipient; other conduct by the award recipient detrimental to the business or reputation of the Company or its subsidiaries; or a later determination that the vesting of, or amount realized

33


from, a performance award was based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria, whether or not the award recipient caused or contributed to the material inaccuracy. 

Tax and Accounting Implications of Compensation
 
As one of the factors considered in performing its duties, the Compensation Committee evaluates the anticipated tax treatment to the Company and its subsidiaries, as well as to the executives, of various payments and benefits. The deductibility of some types of compensation depends upon the timing of an executive’s vesting or exercise of previously-granted rights. Deductibility may also be affected by interpretations of and changes in tax laws such as Section 162(m) of the Code, which generally provides that the Company may not deduct compensation of more than $1,000,000 paid to certain executives. Compensation paid pursuant to the MIP Plan of the Company, as well as certain awards under the 2011 Plan, were intended to qualify as “performance-based compensation” which was not subject to the limits of Section 162(m). However, on December 22, 2017 the Tax Cuts and Jobs Act (tax legislation) was signed into law, generally eliminating the performance-based compensation exception under Section 162(m) with respect to compensation paid after December 31, 2017. The tax legislation includes a transition provision providing that compensation paid after 2017 may continue to be considered performance-based compensation not subject to the limits of Section 162(m) if the compensation is with respect to a binding written agreement that was in effect on November 2, 2017. As a result, performance-based compensation arrangements which were granted prior to November 2, 2017 may continue to be considered performance-based compensation not subject to the limits of Section 162(m). However, because of uncertainties regarding the interpretation of the transition rule, no assurances can be given at this time that existing contracts and awards will meet the requirements of the transition rule. Payments made and stock-based awards that do not qualify for the transition rule will no longer be deductible by the Company if the executive’s total compensation exceeds $1,000,000 in a given year. The Compensation Committee will not limit its decisions with respect to executive compensation to that which is deductible under Section 162(m) if the Compensation Committee determines that doing so is in the best interests of the Company.

The tax legislation may also have an impact on the attainment of certain performance goals for performance share awards granted in 2016 and 2017. Although the Compensation Committee may adjust performance goals for future awards under the 2011 Plan as warranted by certain external factors such as the tax legislation, it has been its practice to avoid making such adjustments to previously granted awards, regardless of whether advantageous or disadvantageous to executives. In accordance with this historic practice, the Compensation Committee does not intend to adjust the performance goals for the 2016 and 2017 awards in response to the tax legislation, as our analysis indicates that making such adjustments would reduce shareholder value.
 
The Company designs, awards and implements its non-qualified deferred compensation arrangements to fully comply with Code Section 409A and accompanying regulations. We amended our non-qualified deferred compensation plans to comply with Section 409A, effective January 1, 2009.
 
On January 1, 2006, the Company began accounting for stock-based payments, including stock option grants and restricted stock awards in accordance with the requirements of ASC 718, Compensation — Stock Compensation in the consolidated GAAP financial statements.



COMPENSATION COMMITTEE REPORT
 
The Compensation Committee of the Board of Directors of Torchmark has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of SEC Regulation S-K with Company management. Based on these reviews and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
 
Darren M. Rebelez, Chairman
Jane M. Buchan
Lloyd W. Newton

 
February 26, 2018


The foregoing Compensation Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, or subject to Regulation 14A or the liabilities of Section 18 of the Securities Exchange Act of 1934.
 

34


SUMMARY COMPENSATION TABLE
 
The table below summarizes various categories of compensation earned in 2017 by the persons who served as the Company’s Co-Chief Executive Officers, its Chief Financial Officer and the three next most highly compensated executive officers of the Company. The six named executive officers had 2017 salaries and bonuses (as reflected in the Non-Equity Incentive Plan Compensation column or the Bonus column below) in the aggregate which represented 31.79% of their total compensation in 2017. None of the executive officers listed in the table has a written or unwritten employment agreement or arrangement with the Company or any of its subsidiaries.
Name and
Principal Position
 
Year
 
Salary
($)
 
Bonus
($)
 
Stock
Awards1,2,3
($)
 
Option
Awards4
($)
 
Non-Equity
Incentive Plan
Compensation
($)
 
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings5
($)
 
All Other
Compensation6
($)
 
Total
($)
Gary L. Coleman
 
2017
 
896,154

 
0
 
2,704,100

 
1,708,500

 
1,830,000

 
1,178,214

 
49,888

 
8,366,856

Co-Chairman and Chief Executive Officer
 
2016
 
870,865

 
0
 
1,519,200

 
1,497,500

 
1,320,000

 
981,809

 
18,619

 
6,207,993

2015
 
845,192

 
0
 
2,010,375

 
1,561,500

 
1,151,000

 
218,403

 
45,992

 
5,832,462

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Larry M. Hutchison
 
2017
 
896,154

 
0
 
2,704,100

 
1,708,500

 
1,830,000

 
1,133,382

 
39,810

 
8,311,946

Co-Chairman and Chief Executive Officer
 
2016
 
870,865

 
0
 
1,519,200

 
1,497,500

 
1,320,000

 
931,569

 
18,619

 
6,157,753

2015
 
845,192

 
0
 
2,010,375

 
1,561,500

 
1,151,000

 
194,789

 
34,764

 
5,797,620

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Frank M. Svoboda
 
2017
 
519,615

 
0
 
849,860

 
706,180

 
445,000

 
808,533

 
21,962

 
3,351,150

Executive Vice President &
Chief Financial Officer
 
2016
 
499,692

 
0
 
607,680

 
407,400

 
330,000

 
552,832

 
22,706

 
2,420,310

2015
 
477,692

 
0
 
643,320

 
624,600

 
250,000

 
215,347

 
24,780

 
2,235,739

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Roger C. Smitha
 
2017
 
599,904

 
0
 
0

 
1,309,850

 
360,000

 
1,133,512

 
25,571

 
3,428,837

Chief Executive Officer, AIL and LNL Agency Divisions
 
2016
 
594,846

 
0
 
911,520

 
583,940

 
475,000

 
1,026,586

 
15,147

 
3,607,039

2015
 
583,846

 
0
 
964,980

 
936,900

 
430,000

 
658,087

 
15,068

 
3,588,881

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
W. Michael Pressley
 
2017
 
519,615

 
0
 
772,600

 
740,350

 
400,000

 
661,825

 
22,945

 
3,117,335

Executive Vice President & Chief Investment Officer
 
2016
 
499,692

 
0
 
607,680

 
407,400

 
330,000

 
581,532

 
21,910

 
2,448,214

2015
 
478,462

 
0
 
643,320

 
624,600

 
250,000

 
429,218

 
13,820

 
2,439,420

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
J. Matthew Darden
 
2017
 
509,615

 
270,000
 
540,820

 
432,820

 
0

 
213,888

 
9,450

 
1,976,593

Executive Vice President & Chief Strategy Officer
 
2016
 
489,538

 
250,000
 
253,200

 
258,020

 
0

 
145,207

 
9,275

 
1,405,240

2015
 
459,885

 
230,000
 
268,050

 
343,530

 
0

 
101,375

 
9,275

 
1,412,115

a Mr. Smith retired as of December 31, 2017.
1 Amounts shown in this column for Messrs. Coleman, Hutchison, Svoboda, Pressley and Darden for 2017 are performance share awards valued based upon the probable outcome of the performance conditions as of the February 21, 2017 grant date, which were target levels on that date. The fair values of performance shares are calculated in accordance with ASC 718, Compensation – Stock Compensation (ASC 718), using NYSE market closing price on the grant date of the performance share awards. The fair values of such performance shares at maximum levels of the grant date were for Coleman ($5,408,200), Hutchison ($5,408,200), Svoboda ($1,699,720), Pressley ($1,545,200) and Darden ($1,081,640).
2 Amounts shown in this column for Messrs. Coleman, Hutchison, Svoboda, Smith, Pressley and Darden for 2016 are performance share awards valued based upon the probable outcome of the performance conditions as of the February 24, 2016 grant date, which were target levels on that date. The fair values of performance shares are calculated in accordance with ASC 718, Compensation – Stock Compensation (ASC 718), using NYSE market closing price on the grant date of the performance share awards. The fair values of such performance shares at maximum levels of the grant date were for Coleman ($3,038,400), Hutchison ($3,038,400), Svoboda ($1,215,360), Smith ($1,823,040), Pressley ($1,215,360) and Darden ($506,400).
3 Amounts shown in this column for Messrs. Coleman, Hutchison, Svoboda, Smith, Pressley and Darden for 2015 are performance share awards valued based upon the probable outcome of the performance conditions as of the February 25, 2015 grant date, which were target levels on that date. The fair values of performance shares are calculated in accordance with ASC 718, Compensation – Stock Compensation (ASC 718), using NYSE market closing price on the grant date of the performance share awards. The fair values of such performance shares at maximum levels of the grant date were for Coleman ($4,020,750), Hutchison ($4,020,750), Svoboda ($1,286,640), Smith ($1,929,960), Pressley ($1,286,640) and Darden ($536,100).
4 Assumptions used in calculating the aggregate grant date fair value in accordance with ASC 718 are set out in Footnote 1 to the Company’s audited financial statements contained in the Form 10-K for the fiscal year ended December 31, 2017.

35


5 Change in Pension Value and Non-Qualified Deferred Compensation Earnings:
Executive
 
Year
 
Increase
in Present
Value Pension
Plan
($)
 
Decrease
in Present Value
Pension
Plan
($)
 
Increase
in Present
Value 
SERP
($)
 
Decrease
in Present
Value
SERP
($)
Gary L. Coleman
 
2017
 
323,420

 
 
 
854,794

 
 
 
 
2016
 
267,849

 
 
 
713,960

 
 
 
 
2015
 
75,525

 
 
 
142,878

 
 
 
 
 
 
 
 
 
 
 
 
 
Larry M. Hutchison
 
2017
 
307,790

 
 
 
825,592

 
 
 
 
2016
 
251,752

 
 
 
679,817

 
 
 
 
2015
 
66,476

 
 
 
128,313

 
 
 
 
 
 
 
 
 
 
 
 
 
Frank M. Svoboda
 
2017
 
204,301

 
 
 
604,232

 
 
 
 
2016
 
154,370

 
 
 
398,462

 
 
 
 
2015
 
37,078

 
 
 
178,269

 
 
 
 
 
 
 
 
 
 
 
 
 
Roger C. Smith
 
2017
 
228,248

 
 
 
905,264

 
 
 
 
2016
 
198,409

 
 
 
828,177

 
 
 
 
2015
 
99,327

 
 
 
558,760

 
 
 
 
 
 
 
 
 
 
 
 
 
W. Michael Pressley
 
2017
 
153,771

 
 
 
508,054

 
 
 
 
2016
 
162,083

 
 
 
419,449

 
 
 
 
2015
 
106,610

 
 
 
322,608

 
 
 
 
 
 
 
 
 
 
 
 
 
J. Matthew Darden
 
2017
 
71,734

 
 
 
142,154

 
 
 
 
2016
 
50,191

 
 
 
95,016

 
 
 
 
2015
 
37,935

 
 
 
63,440

 
 
6 Includes Company matching contribution to each executive's 401(k) Plan account; excess premiums for additional life insurance for Messrs. Coleman, Hutchison, Svoboda, R. Smith and Pressley; and the categories and quantified amounts (if required) of perquisites and personal benefits required to be reported by SEC Regulation S-K, Item 402 (c)(2)(ix) for executives.
Name
 
Perquisitesa
($)

 
401(k) Match
($)
 
Excess Premiums for Additional Life Insurance
($)
 
Total
($)
Gary L. Coleman
 
30,688
 
9,450
 
9,750
 
49,888
Larry M. Hutchison
 
20,610
 
9,450
 
9,750
 
39,810
Frank M. Svoboda
 
10,644
 
9,450
 
1,868
 
21,962
Roger C. Smith
 
 
 
9,450
 
16,121
 
25,571
W. Michael Pressley
 
 
 
9,450
 
13,495
 
22,945
J. Matthew Darden
 
 
 
9,450
 
 
 
9,450
a
For Messrs. Coleman and Hutchison, the total amount listed reflects the aggregate incremental cost of personal use of corporate aircraft. For Mr. Svoboda, the amount reflects fitness center dues, country club dues and personal use of certain Company-purchased tickets.
The Company occasionally allows executives the personal use of tickets for sporting and special events previously acquired by the Company for business entertainment purposes. For certain tickets acquired by the Company, there is no incremental cost to the Company for such use.
For purposes of compensation disclosure, the value of personal use of Company aircraft is calculated using the actual variable costs incurred by the Company associated with such flights, including fuel, maintenance of the planes, "dead head" flights, pilot travel expenses, on-board catering, landing and parking fees, and other variable costs. Fixed costs, such as pilots' salaries, are not included since they do not change with usage.

36



CEO PAY RATIO
The Pay Ratio Disclosure Rule, codified in Item 402(u) of Regulation S-K and adopted pursuant to Section 953(b) of the Dodd-Frank Act, requires the Company to calculate and disclose the ratio of the annual total compensation of its CEO to the median of the annual total compensation of its employees. For 2017, our last completed fiscal year:
The annual total compensation of the Company's Co-CEO1 was $8,373,156, consisting of the total compensation reported for him in the Summary Compensation Table included elsewhere in this Proxy Statement plus non-cash compensation in the form of Company-paid healthcare benefits; and
The median of the annual total compensation of all employees of the Company (other than the Co-CEOs) was $80,680.
Based on this information, for 2017, the ratio of the annual total compensation of the Company's Co-CEO to the median of the annual total compensation of all employees was 104 to 1.2 The Company believes however that, since companies may employ different methodologies and assumptions to determine such a ratio, this pay ratio should not be relied upon for comparison purposes with the Company's peers.
Methodology
To identify the Company's employee population and its “median employee” and to determine the annual total compensation of the Company's Co-CEO and its “median employee”, the following methodology was utilized:
Identification of Employee Population
We selected October 1, 2017 as the determination date for purposes of identifying the employee population from which the “median employee” was identified. The employee population on that date consisted of 3,032 employees, which included all of the full-time, part-time and temporary employees of the Company and its consolidated subsidiaries.3
Identification of Median Employee
To identify our “median employee”, we utilized existing payroll records to compare the total cash compensation of our employees over the period from January 1, 2017 through September 30, 2017. This compensation measure, which was believed to reasonably reflect the annual compensation of our employees, was consistently applied to all employees in the employee population.4 Use of a partial-year measurement period, as opposed to the full 2017 fiscal year, was also believed to reasonably reflect the annual compensation of our employees. Since all of our employees are located in the United States, no cost-of-living adjustments were made in identifying the “median employee”. Because the employee population consisted of an even number of employees (3,032), two “median employees” were originally identified.
A significant component of the total compensation of Company employees in the employee population consists of employee benefits that vary by business unit, bargaining group and individual elections. As employees of the Company’s wholly-owned union subsidiary, however: (i) neither of the originally identified “median employees” was eligible to participate in the Company’s Defined Benefit Plan, although 79% of employees in the employee population were eligible to and did participate in such plan; (ii) neither of such individuals was eligible to participate in the Company’s Thrift Plan, although 82% of employees in the employee population were eligible to and 62% of employees did participate in such plan; and (iii) one of such individuals did not elect to participate in the Company’s health insurance program and received no Company-paid healthcare benefits5, although 100% of employees in the employee population were eligible to and 71% of employees did participate in such program, to which the Company partially contributed on behalf of such employees.
Since each of the originally identified "median employees" was determined to have anomalous compensation characteristics not reasonably reflective of the employee population—namely, non-participation in certain benefit programs—which would have significantly impacted the pay ratio, another employee with substantially similar compensation to that of the originally identified "median employees", based on the same compensation measure (total cash compensation), was substituted as the “median employee”. The replacement “median employee” participated in each of the above-described employee benefit programs in 2017.

37


Calculation of Annual Total Compensation and CEO Pay Ratio
To determine the annual total compensation of the Company's Co-CEO, we used the total compensation amount ($8,366,856) reflected in the 2017 Summary Compensation Table included in this Proxy Statement, then added non-cash compensation consisting of Company-paid healthcare benefits.6
We then combined all of the elements of the “median employee’s” compensation for 2017, in accordance with requirements of Item 402(c)(2)(x) of Regulation S-K, and added non-cash compensation consisting of Company-paid healthcare benefits7, in order to arrive at the “median employee’s” annual total compensation amount ($80,680).
Finally, we calculated the ratio of the annual total compensation paid to the Company's Co-CEO to that of the median employee (CEO pay ratio) based upon these results. The resulting ratio is a reasonable estimate calculated in a manner consistent with 402(u) of Regulation S-K.
1 Since the Company operated with Co-CEOs during 2017, the annual total compensation of Co-CEO Gary L. Coleman (referred to herein as "the Company's Co-CEO"), which was moderately higher than that of Co-CEO Larry M. Hutchison, was utilized for the purpose of calculating the CEO pay ratio.
2 The annual total compensation of Mr. Hutchison, the other Co-CEO, would have resulted in a ratio of 103 to 1.
3 Independent contractors were excluded from the employee population. The Company, which utilizes various widely recognized tests, including standards set forth by the U.S. Dept. of Labor under the Fair Labor Standards Act, guidance from the IRS, as well as common law, to determine whether its workers are employees, applied the same criteria for purposes of the pay ratio rule. Another basis for exclusion from the employee population consisted of workers whose compensation was determined by an unaffiliated third party but who provided services to the Company or its consolidated subsidiaries as independent contractors, in accordance with Item 402(u)(3) of Reg. S-K.
4 With respect to 414 permanent employees who were employed for less than the full nine-month measurement period, their total cash compensation was credited to include the portion of the measurement period they were not employed. No full-time equivalent adjustments were made.
5 Such benefits vary by health plan type, employee salary, and plan participation by employee family members.
6 Company-paid healthcare benefits, totaling $6,300, were included in the calculation of the annual total compensation of the Company's Co-CEO for 2017.
7 Company-paid healthcare benefits, totaling $4,104, were included in the calculation of the median employee’s annual total compensation for 2017.


38



2017 GRANTS OF PLAN-BASED AWARDS
 
 
 
 
 
 
Estimated Future 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
Units
(#)
 
All Other
Option 
Awards:
Number of
Securities
Underlying
Options3
(#)
 
Exercise 
or Base Price
of Option
Awards
($/Sh)
 
Grant Date Fair Value of Stock and Option Awards4
($)
Name
 
Award Type
 
Grant
Date
 
Threshold
($)
 
Target
($)
 
Maximum
($)
 
Threshold
(#)
 
Target
(#)
 
Maximum
(#)
 
Gary L. 
Coleman
 
Options
 
2/21/2017
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
150,000

 
77.26

 
1,708,500

 
 
Performance
Shares
 
2/21/2017
 
 
 
 
 
 
 
17,500

 
35,000

 
70,000

 
 
 
 

 
 

 
2,704,100

 
 
Annual Cash
 
 
 
630,000

 
1,260,000

 
1,890,000

 
 

 
 

 
 

 
 
 
 

 
 

 
 

Larry M. 
Hutchison
 
Options
 
2/21/2017
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
150,000

 
77.26

 
1,708,500

 
 
Performance
Shares
 
2/21/2017
 
 

 
 

 
 

 
17,500

 
35,000

 
70,000

 
 
 
 

 
 

 
2,704,100

 
 
Annual Cash
 
 
 
630,000

 
1,260,000

 
1,890,000

 
 

 
 

 
 

 
 
 
 

 
 

 
 

Frank M.
Svoboda
 
Options
 
2/21/2017
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
62,000

 
77.26

 
706,180

 
 
Performance
Shares
 
2/21/2017
 
 

 
 

 
 

 
5,500

 
11,000

 
22,000

 
 
 
 

 
 

 
849,860

 
 
Annual Cash
 
 
 
156,000

 
312,000

 
468,000

 
 

 
 

 
 

 
 
 
 

 
 

 
 

Roger C.
Smith
 
Options
 
2/21/2017
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
115,000

 
77.26

 
1,309,850

 
 
Annual Cash
 
 
 
180,000

 
360,000

 
540,000

 
 

 
 

 
 

 
 
 
 

 
 

 
 

W. Michael Pressley
 
Options
 
2/21/2017
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
65,000

 
77.26

 
740,350

 
 
Performance
Shares
 
2/21/2017
 
 

 
 

 
 

 
5,000

 
10,000

 
20,000

 
 
 
 

 
 

 
772,600

 
 
Annual Cash
 
 
 
156,000

 
312,000

 
468,000