DEF 14A 1 aflac3220911-def14a.htm DEFINITIVE PROXY STATEMENT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.            )
 
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Filed by a Party other than the Registrant [   ] 
 
Check the appropriate box:
 
[   ]        Preliminary Proxy Statement
[   ]   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X]   Definitive Proxy Statement
[   ]   Definitive Additional Materials
[   ]   Soliciting Material Pursuant to §240.14a-12

  AFLAC INCORPORATED  
  (Name of Registrant as Specified In Its Charter)  
 
       
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
 

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Table of Contents

 

 

Notice of
2017 Annual Meeting
of Shareholders and
Proxy Statement

 

Monday, May 1, 2017 10:00 am | Columbus Museum (the Patrick Theatre)
1251 Wynnton Road, Columbus, Georgia

 

 

 

Table of Contents

 

Our Strategy

 

 

 

 

Table of Contents

 

 

   

March 17, 2017

Dear Fellow Shareholder:

First, let me thank you for putting your faith, confidence and resources in Aflac Incorporated. It is my pleasure to invite you to attend the 2017 Annual Meeting of Shareholders on Monday, May 1, 2017, where you can hear about Aflac Incorporated’s recent business performance and strategy for the future.

In addition, I encourage you to review the enclosed proxy materials and Aflac Incorporated’s 2016 Year in Review and Annual Report on Form 10-K to learn more about your company and our latest achievements. Then please vote your shares, even if you plan to attend the Annual Meeting. We want to be sure your shares are represented.

Looking back on the Company’s sixty-two years in business, our founding principles are as relevant today as they were in 1955. At that time, John Amos, the Company’s principal founder, was joined by his brothers, Paul and Bill, as they set out to establish a company focused on insurance products that would help ease the financial burden of getting sick or injured. Their vision and dedication laid the groundwork for an incredibly rewarding six decades of growing the business and touching millions of lives. In 2016, we made significant strides in advancing our vision of offering high-quality voluntary products, solutions and service through diverse distribution outlets, building upon our market-leading position to drive long-term, sustainable shareholder value.

Our Company has always managed our business for the long term while remaining laser-focused on meeting our more immediate financial objectives. Our activities are centered on protecting policyholders, growing our business and driving shareholder value. By delivering on our promise to be there when our policyholders need us most and running our business The Aflac Way, we’ve gained the trust of more than 50 million people worldwide who count on us to pay claims fairly and promptly.

As we look ahead, delivering on our promise will remain our priority because that is not only what sets our Company apart, it’s who we are. Thank you again for your faith, confidence and investment in Aflac Incorporated.

 

Sincerely,

 

 

Daniel P. Amos

Chairman & Chief Executive Officer

 

 

AFLAC INCORPORATED 2017 PROXY STATEMENT

 

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March 17, 2017

To my Fellow Shareholders:

It is an honor for me to serve as Lead Non-Management Director on your behalf, and I am fortunate to work with a diverse group of knowledgeable and experienced Board members who are committed to overseeing corporate governance and business strategy effectively and prudently. On behalf of my fellow directors, I want to share some of our key areas of focus over the past year.

Shareholder Engagement

I have worked with the Company’s Investor and Rating Agency Relations team to ensure we understand the opinions and positions of our shareholders. Our outreach has included Financial Analyst Briefings, attended by many of our shareholders, in both New York and Tokyo as well as other meetings with institutional investors. As a result of these efforts, the Board has received invaluable feedback, related to our board practices, executive compensation structure and sustainability efforts, resulting in positive dialogue and actions on behalf of you, our shareholders.

Board Composition and Succession Planning

The Board engages in a regular self-evaluation process to ensure we maintain the right balance of perspective, experience, skill sets and subject matter experts required for prudent oversight of the Company. We believe it is appropriate to maintain a balance of longer-tenured members who bring valuable, Company-specific knowledge that lends a historical perspective with newer members who bring fresh viewpoints and new ideas. Accordingly, over the last five years, we have added six new directors—most recently, Karole Lloyd, who brings a wealth of financial, accounting and auditing experience and a new, external perspective to our Board.

Corporate Activities

A major part of the Board’s responsibility is working to ensure that the Company is well-positioned in both the short and long term. In 2016 the Board oversaw a variety of corporate activities. Among other things, Aflac initiated the process of converting Aflac’s Japan branch to a subsidiary, which will better align the Company with more common global regulatory practices and corporate structures.

Executive Compensation Program

In response to feedback from investors, our long-term incentive compensation program no longer relies on annual measurements of average risk-based capital (RBC) over a three-year period, and instead incorporates a single three-year measure of RBC in 2016, together with additional new performance criteria in 2017. We believe this revision to executive compensation appropriately motivates executives to focus on the long-term growth of the Company while appropriately minimizing risk to policyholders and the Company.

With these bigger-picture topics in mind, I encourage you to review the accompanying proxy and associated materials and to vote your shares before our annual meeting on May 1, 2017. The Board looks forward to receiving and acting upon feedback from our investors, and we thank you for your support.

 

 

 

 

Sincerely,

 

Douglas W. Johnson

Lead Non-Management Director

 

 

AFLAC INCORPORATED 2017 PROXY STATEMENT

 

Table of Contents

 

Contents

 

   
Notice of 2017 Annual Meeting of Shareholders i
Proxy Summary 1
Solicitation and Revocation of Proxy 5
Election of Directors (Proposal 1) 8
Ownership Reporting 17
Corporate Governance 18
Shareholder Outreach 18
Director Independence 18
Board Leadership Structure 18
Lead Non-Management Director 18
Board Self-Evaluation 19
Director Nominating Process 19
Enterprise-Wide Risk Oversight 20
Chief Executive Officer and Executive Management Succession Planning 21
Code of Business Conduct and Ethics 21
Communications with Directors 22
Board and Committees 22
Director Compensation 27
Compensation Discussion & Analysis 29
Executive Summary 29
Elements of our Executive Compensation Program 33
CEO and President Compensation and Pay-for-Performance 38
Program Changes for 2017 42
Retirement, Deferral, and Savings Plans 43
Additional Executive Compensation Practices and Procedures 44
2016 Summary Compensation Tables 47
Pension Benefits 52
Nonqualified Deferred Compensation 54
Potential Payments Upon Termination or Change in Control 55
Equity Compensation Plan Information 59
Advisory Vote on Executive Compensation (Proposal 2) 60
Advisory Vote on Frequency of Future Say-On-Pay Votes (Proposal 3) 61
Audit and Risk Committee Report 62
Related Persons Transactions 63
Ratification of Appointment of Independent Registered Public Accounting Firm (Proposal 4) 64
Proposal to Approve the Aflac Incorporated Long-Term Incentive Plan (As Amended and Restated February 14, 2017) (Proposal 5) 65
Proposal to Approve an Amended and Restated 2018 Management Incentive Plan (Proposal 6) 72
Other Matters 75
Appendix A – Aflac Incorporated Long-Term Incentive Plan (As Amended and Restated February 14, 2017) 77
Appendix B – Aflac Incorporated 2018 Management Incentive Plan 93
Appendix C – Definitions of Non-GAAP Measures and Reconciliations to Corresponding GAAP Measures 99

 

 

AFLAC INCORPORATED 2017 PROXY STATEMENT

 

Table of Contents

 

Notice of 2017 Annual Meeting of Shareholders

 

The Annual Meeting of Shareholders of Aflac Incorporated (the “Company”) will be held on Monday, May 1, 2017, at 10:00 a.m. at the Columbus Museum (in the Patrick Theatre), 1251 Wynnton Road, Columbus, Georgia, for the following purposes, all of which are described in the accompanying Proxy Statement:

 

1. to elect fourteen Directors of the Company to serve until the next Annual Meeting and until their successors are duly elected and qualified;

2. to consider a non-binding advisory proposal on the Company’s executive compensation (“say-on-pay”);

3. to hold a non-binding advisory vote on the frequency of future say-on-pay votes;

4. to ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2017;

 

5. to approve the adoption of the Aflac Incorporated Long-Term Incentive Plan (As Amended and Restated February 14, 2017) (“2017 LTIP”) with additional shares authorized under the 2017 LTIP;

6. to approve the adoption of the 2018 Management Incentive Plan (“2018 MIP”); and

7. to transact such other business as may properly come before the meeting and at any adjournments or postponements of the meeting.

 

How to Vote

 

It is important that you vote your shares. We encourage you to take advantage of the easy and cost-effective Internet and telephone voting that the Company offers.

 

       
Internet: Mail: Telephone: In Person:
Visit the website listed on your proxy card. You will need the control number that appears on your proxy card when you access the web page. Complete and sign the proxy card and return it in the enclosed postage pre-paid envelope. If your shares are held in the name of a broker, bank, or other nominee: Follow the telephone voting instructions, if any, provided on your proxy card. If your shares are registered in your name: Call 1-800-690-6903 and follow the telephone voting instructions. You will need the control number that appears on your proxy. You may attend the Annual Meeting and vote orally or by ballot.
 
   
     

 

The accompanying proxy is solicited by the Board of Directors (the “Board”) of the Company. The Proxy Statement and the Company’s 2016 Year in Review and Annual Report on Form 10-K for the year ended December 31, 2016, are enclosed. The record date for determining which shareholders are entitled to vote at the Annual Meeting is February 22, 2017. Only shareholders of record at the close of business on that date will be entitled to vote at the Annual Meeting and any adjournment thereof.

Your vote is important! Even if you expect to attend the annual meeting, please vote in advance so that we may be assured of a quorum to transact business. You may vote online or by telephone, or, if you received a paper copy of this proxy statement, by signing, dating and returning your proxy card. If you attend the annual meeting, you may revoke your proxy and vote in person.

By order of the Board of Directors,

 

 

J. Matthew Loudermilk

Secretary

March 17, 2017

Columbus, Georgia

 

* Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be held on May 1, 2017. This Proxy Statement and the Annual Report are available at proxyvote.com.

 

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AFLAC INCORPORATED 2017 PROXY STATEMENT

 

Table of Contents

 

Proxy Summary

 

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

 

For more complete information regarding the Company’s 2016 performance, please review the Company’s Annual Report on Form 10-K. In this Proxy Statement, the terms “Company,” “we,” or “our” refer to Aflac Incorporated, and the term “Aflac” refers to the Company’s subsidiary, American Family Life Assurance Company of Columbus, which operates in the United States (“Aflac U.S.”) and as a branch in Japan (“Aflac Japan”).

 

ANNUAL MEETING OF
SHAREHOLDERS

 

 

     
Date Monday, May 1, 2017  
Time 10:00 am  
Place Columbus Museum  
  (the Patrick Theatre),  
  1251 Wynnton Road,  
  Columbus, Georgia  
Record Date February 22, 2017  

 

AGENDA AND VOTING MATTERS

 

    Board    
Proposal   recommendation   Page
1. to elect fourteen Directors of the Company   For each nominee   8
2. to consider a non-binding advisory proposal on the Company’s executive compensation (“say-on-pay”)   For   60
3. to hold a non-binding vote on the frequency of future say-on-pay votes   For every year   61
4. to ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm   For   64
5. to approve the adoption of the 2017 LTIP   For   65
6. to approve the adoption of the 2018 MIP   For   72

 

Information about our Board Members

 

BOARD TENURE  
2017 Non-management Directors (11)  
 

 

DIVERSITY OF SKILLS AND EXPERIENCE
 

 

AFLAC INCORPORATED 2017 PROXY STATEMENT

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Proxy Summary

 

DIRECTOR NOMINEES

 

Each Director stands for election annually. The following table provides summary information about the nominees. Our Board believes it is appropriate to maintain a diverse balance of longer tenured members, who bring stability and valuable Company-specific knowledge with a historical perspective, and newer members, who bring fresh perspectives and new ideas.

 

        Committee Memberships
Name Age Director
Since
Ind. Audit & Risk Compensation Corporate
Development
Corporate
Governance
Executive Finance &
Investment
Sustainability

Daniel P. Amos

Chairman and Chief Executive Officer of Aflac Incorporated and Aflac

65 1983           CHAIR    

Paul S. Amos II

President of Aflac

41 2007            

W. Paul Bowers

Chairman, President and Chief Executive Officer of Georgia Power Co.

60 2013   CHAIR      

Kriss Cloninger III

President of Aflac Incorporated

69 2001              

Toshihiko Fukuzawa

President and CEO, Yushu Tatemono Co., Ltd.

60 2016              

Elizabeth J. Hudson

Retired Chief Communications Officer for the National Geographic Society

67 1990         CHAIR

Douglas W. Johnson*

Certified Public Accountant and retired Ernst & Young LLP audit partner

73 2004 CHAIR        

Robert B. Johnson

Retired Senior Advisor, Porter Novelli PR

72 2002   CHAIR      

Thomas J. Kenny

Former Partner and Co-Head of Global Fixed Income, Goldman Sachs Asset Management

53 2015              

Charles B. Knapp

President Emeritus of the University of Georgia

70 1990       CHAIR  

Karole F. Lloyd

Certified Public Accountant and retired Ernst & Young LLP audit partner

58 2017            

Joseph L. Moskowitz

Retired Executive Vice President, Primerica, Inc.

63 2015        

Barbara K. Rimer, DrPH

Dean and Alumni Distinguished Professor, Gillings School of Global Public Health, University of North Carolina, Chapel Hill

68 1995       CHAIR  

Melvin T. Stith

Dean Emeritus of the Martin J. Whitman School of Management at Syracuse University

70

2012          

 

*Douglas W. Johnson is also the Lead Non-Management Director.

 

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AFLAC INCORPORATED 2017 PROXY STATEMENT

 

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Proxy Summary

2016 Business Highlights

In 2016, the Company delivered strong operating results.

 

 

    Operating earnings per diluted share, excluding foreign currency effect1, increased 4.7% over 2015, meeting our objective for the 27th consecutive year. We believe operating earnings per diluted share, excluding foreign currency effect, continues to be one of the best measures of our performance and a key driver of shareholder value.

    Combined, we generated $2.5 billion in total new annualized premium sales in the United States and Japan, driven by a 4.1% increase in third sector sales (which includes cancer and medical insurance) in Japan.

    Revenues rose 8.1% to $22.6 billion. Total operating revenues on a currency-neutral basis1 rose 1.0% to $21.0 billion, reflecting growth in our premium income from our growing business.

   

    As of December 31, 2016, our capital ratios remained strong. Risk-based capital ratio was 894%. Solvency margin ratio, the principal capital adequacy measure in Japan, was 945%.

    We have started work on converting our Japanese operations from a branch to a subsidiary form. Converting to this structure will allow the Company to further align with emerging global best practices in the financial services sector and preserve existing state regulatory oversight in the United States while also ensuring that our financial profile is as strong as it is today.

 

 

1 Operating earnings per diluted share excluding foreign currency effect, operating revenues on a currency-neutral basis, and operating return on shareholders’ equity excluding foreign currency effect are not calculated in accordance with generally accepted accounting principles in the United States (GAAP). See Appendix C to this Proxy Statement for a description of these measures and reconciliation to the nearest GAAP measure, as applicable.

 

AFLAC INCORPORATED 2017 PROXY STATEMENT

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Proxy Summary

 

Executive Compensation Highlights

 

Our compensation philosophy, which extends to every employee level at the Company, is to provide pay that is directly linked to the Company’s results. We believe this is the most effective method for creating shareholder value and that it has played a significant role in making the Company an industry leader.

 

The Company’s executive compensation programs reflect our corporate governance best practices principles:

 

    The Board’s independent Compensation Committee oversees the program.

    The Compensation Committee retains an independent compensation consultant that reports only to that committee.

    For the past nineteen years, all of the CEO’s total direct compensation has been determined based on the Company’s financial performance and total shareholder return performance compared to our peers. The Compensation Committee regularly evaluates this formula to ensure it remains appropriate.

    The independent compensation consultant reports annually to the full Board of Directors on CEO pay and performance alignment.

   

    We were the first public company in the U.S. to voluntarily provide shareholders with a say-on-pay vote–three years before such votes became mandatory.

    Executive officers and Directors may not enter into 10b5-1 plans (unless approved by the Compensation Committee) or hedge or pledge the Company’s stock.

    Executive officers and Directors have been subject to stock ownership guidelines for almost two decades.

    We have had a clawback policy since 2007.

    We do not pay change-in-control excise tax gross-ups.

    All employment agreements contain double trigger change-in-control requirements.

Executive Compensation Program Changes

From our first voluntary “say-on-pay” advisory vote in 2008 until 2013, the Company received endorsement rates from our shareholders that averaged more than 96%.

In recent years the support for our executive compensation program has been less favorable; approximately 86% of our shareholders voted in favor of our 2016 say-on-pay proposal. In addition, consistent with past practice, the Company engaged in shareholder outreach efforts throughout 2016. The Compensation Committee incorporated the feedback from these conversations into its regular review of compensation practices, and also conducted a thorough analysis of best practices. As a result, the Compensation Committee has modified our compensation plans, as further discussed in this proxy statement.

Based on the feedback resulting from the Company’s shareholder engagement and analysis, in 2016 the LTI award for the CEO continued under the current structure and process: the contingent PBRS grant made in February 2016 was trued up as of December 31, 2016, based on the Company’s relative financial and relative TSR performance versus our peers. Beginning in 2017, the Company will grant the CEO’s entire annual LTI award at a competitive level considering peer market data, the Company’s performance, and the tenure and performance of the CEO.

The Compensation Committee also has approved changes to the management incentive program and the LTI award program for executives other than the CEO. The management incentive program will reflect fewer metrics, taking into account a new definition of operating earnings. Additionally, the Aflac Japan direct premium metric will focus on third sector business in Japan. The 2017 LTI program will follow a simplified approach recommended by our independent compensation consultant that is consistent with long-term incentive plans offered by our peers. See “Program Changes for 2017,” which begins on page 42.

We work hard to ensure we remain current, continue to lead in executive compensation best practices, and remain focused on shareholder concerns. Accordingly, we will continue our review to determine if additional changes should be made in 2017.

Pay-for-Performance

Our compensation program targets market median positioning and delivers the majority of that compensation through performance-based compensation elements. This ensures proper alignment with our shareholders and ties the ultimate value delivered to named executive officers (“NEOs”) to the Company’s performance.

 

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Solicitation and Revocation of Proxy

This Proxy Statement is furnished to shareholders in connection with the solicitation of proxies by the Board of Directors of the Company for use at the Annual Meeting of Shareholders to be held on Monday, May 1, 2017, and any adjournment thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders and described in detail herein. The Annual Meeting will be held at 10 a.m. at the Columbus Museum (in the Patrick Theatre), 1251 Wynnton Road, Columbus, Georgia.

The mailing address of our principal executive offices is Aflac Incorporated, 1932 Wynnton Road, Columbus, Georgia 31999.

All properly executed proxies returned to the Company will be voted in accordance with the instructions contained thereon. If you return your proxy with no voting instructions indicated, the proxy will be voted FOR the election of all Director nominees named in this Proxy Statement, FOR approval of Proposals 2 and 4 through 6, for holding advisory votes on executive compensation every “year” (Proposal 3), and according to the discretion of the proxy holders on any other matters that may properly come before the Annual Meeting or any postponement or adjournment thereof. If you are a shareholder of record, you also may submit your proxy online or by telephone in accordance with the procedures set forth in the enclosed proxy, or you may vote in person at the Annual Meeting. Shareholders can revoke a proxy at any time before it is exercised by giving written notice to that effect to the Secretary of the Company or by submitting a later-dated proxy or subsequent internet or telephonic proxy. Shareholders who attend the Annual Meeting may revoke any proxy previously granted and vote in person orally or by written ballot.

This Proxy Statement and the accompanying proxy are being delivered to shareholders on or about March 17, 2017.

Solicitation of Proxies

The Company will pay the cost of soliciting proxies. The Company will make arrangements with brokerage firms, custodians, and other fiduciaries to send proxy materials to their customers, and will reimburse these entities for the associated mailing and related expenses. In addition, certain officers and other employees of the Company may solicit proxies by telephone and by personal contacts, but those individuals will not receive additional compensation for those efforts. The Company has retained Georgeson LLC to assist in the solicitation of proxies for a fee of $9,500, plus reimbursement of reasonable out-of-pocket expenses.

Proxy Materials and Annual Report

As permitted by the SEC rules, we are making these proxy materials available to our shareholders via the internet. Accordingly, we have mailed to most of our shareholders a notice about the internet availability of this Proxy Statement and the Company’s 2016 Year in Review and Annual Report on Form 10-K for the year ended December 31, 2016 (together, the “Annual Report”) instead of paper copies of those documents. The notice contains instructions on how to access those documents online, how to vote at proxyvote.com, and how to request and receive a paper copy of our proxy materials, including this Proxy Statement and our Annual Report. If you select the online access option for the Proxy Statement, Annual Report, and other account mailings through aflinc®, the Company’s secure online account management system, you will receive electronic notice of availability of these proxy materials. If you do not receive a notice and did not already elect online access, you will receive a paper copy of the proxy materials by mail. We believe providing online access to our critical documents will conserve natural resources and reduce the costs of printing and distributing our proxy materials.

 

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Solicitation and Revocation of Proxy

 

Multiple Shareholders Sharing the Same Address

The Company is sending only one Annual Report and one Proxy Statement or notice of availability of these materials to shareholders who consented and who share a single address. This is known as “householding.” However, any registered shareholder who wishes to receive a separate Annual Report or Proxy Statement may contact Shareholder Services by phone at (800) 227-4756, by email at shareholder@aflac.com, or by mail at the address set forth above. If you receive multiple copies of the Annual Report or Proxy Statement or notice of availability of these materials, you may request householding by contacting Shareholder Services (if you are a registered shareholder) or by contacting the holder of record (if you own the Company’s shares through a bank, broker, or other holder of record).

Description of Voting Rights

The Company believes that long-term shareholders should have a greater say in our success. Accordingly, the Company’s Articles of Incorporation provide that each share of the Company’s Common Stock is entitled to one vote until it has been held by the same beneficial owner for a continuous period of longer than 48 months prior to the record date of the meeting, at which time each share becomes entitled to ten votes. If a share is transferred by gift, devise, or bequest, or otherwise through the laws of inheritance, descent, or distribution from the estate of the transferor, or by distribution to a beneficiary of shares held in trust, the transferee is deemed to be the same beneficial owner as the transferor for purposes of determining the number of votes per share. Shares acquired as a direct result of a stock split, stock dividend, or other distribution with respect to existing shares are deemed to have been acquired and held continuously from the date on which the underlying shares were acquired. Shares of Common Stock acquired pursuant to the exercise of a stock option are deemed to have been acquired on the date the option was granted.

Shares of Common Stock held in “street” or “nominee” name are presumed to have been held for less than 48 months and are entitled to one vote per share unless this presumption is rebutted by evidence to the contrary. If you wish to demonstrate that you have held your Common Shares in street name for longer than 48 months, please complete and execute the affidavit appearing on the reverse side of your proxy. The Board of Directors may require evidence to support the affidavit.

Quorum and Vote Requirements

Holders of record of Common Stock at the close of business on February 22, 2017, will be entitled to vote at the Annual Meeting. At that date, the number of outstanding shares of Common Stock entitled to vote was 401,177,209. According to the Company’s records, this represents the following voting rights:

Number of shares   Votes per share   Yields this many votes  
371,012,282 @ 1 = 371,012,282  
30,164,927 @ 10 = 301,649,270  
401,177,209   Total   672,661,552  

If all of the outstanding shares were entitled to ten votes per share, the total number of possible votes would be 4,011,772,090. However, for purposes of this Proxy Statement, we assume that the total number of votes that may be cast at the Annual Meeting will be 672,661,552.

The holders of a majority of the voting rights entitled to vote at the Annual Meeting, present in person or represented by proxy, will constitute a quorum for the transaction of such business that comes before the meeting. Abstentions are counted as “shares present” for purposes of determining whether a quorum exists. A broker non-vote occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner. Broker non-votes are counted as “shares present” at the Annual Meeting for purposes of determining whether a quorum exists.

 

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Solicitation and Revocation of Proxy

The following table shows the voting requirements for each proposal we expect at the Annual Meeting.

Proposal Vote required to Pass Effect of abstentions and broker non-votes
Uncontested election of directors Votes cast for a nominee exceed votes cast against that nominee Abstentions and broker non-votes are not counted as votes cast and have no effect
Advisory vote on frequency of future say-on-pay votes The frequency (every year, every two years, or every three years) that attains the most votes will prevail Abstentions and broker non-votes are not counted as votes cast and have no effect
Ratification of the Independent Registered Public Accounting Firm Majority of the votes cast Abstentions are not counted as votes cast and have no effect. Brokers and other nominees may vote without instructions, so we do not expect broker non-votes.
Advisory say-on-pay, 2017 LTIP, and 2018 MIP Majority of the votes cast Abstentions and broker non-votes are not counted as votes cast and have no effect

If a nominee who is already serving as a Director is not re-elected at the Annual Meeting in an uncontested election, Georgia law provides that Director would continue to serve on our Board as a “holdover director.” However, our Director Resignation Policy provides that holdover directors must tender a resignation to our Chairman of the Board. The Corporate Governance Committee will consider such resignation and recommend to the Board whether to accept or reject it. In considering whether to accept or reject the tendered resignation, the Corporate Governance Committee will consider all factors its members deem relevant, including the stated reasons why shareholders voted against such Director, the qualifications of the Director, and whether the resignation would be in the best interests of the Company and its shareholders. The Board will formally act on the Corporate Governance Committee’s recommendation no later than ninety days following the date of the Annual Meeting at which the election occurred. The Company will, within four business days after such decision is made, publicly disclose that decision in a Form 8-K filed with the SEC, together with a full explanation of the process by which the decision was made and, if applicable, the reasons for rejecting the tendered resignation. If a nominee who was not already serving as a Director is not elected at the Annual Meeting, that nominee would not become a Director or a holdover director.

In a contested election at an annual meeting of shareholders (meaning the number of nominees exceeds the number of Directors to be elected), the standard for election of Directors would be a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of Directors.

Effect of Not Casting a Vote

If you hold your shares in street name, it is critical that you provide voting instructions to the record owner. Otherwise, your shares will not count in any proposal other than Proposal 4—Ratification of the Independent Registered Public Accounting Firm. Your bank or broker is not permitted to vote without your instructions in the election of Directors, on the advisory vote on executive compensation, on the advisory vote on the frequency of future say-on-pay votes, or on the two proposals to approve our compensation plans. Broker non-votes on these matters will have no effect on the outcome of the proposals. Your bank or broker may vote any uninstructed shares on the ratification of the appointment of the Company’s independent registered public accounting firm (Proposal 4).

If you are a shareholder of record and you do not return your proxy card, no votes will be cast on your behalf on any item of business at the Annual Meeting. If you return the proxy card but do not give voting instructions, your proxy will be voted FOR the election of all Director nominees named in this Proxy Statement, FOR approval of Proposals 2 and 4 through 6, for “every year” frequency for say-on-pay votes (Proposal 3), and according to the discretion of the proxy holders on any other matters that may properly come before the Annual Meeting or any postponement or adjournment thereof.

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Proposal 1: Election of Directors

The Company proposes that the following fourteen individuals be elected to the Board of Directors. These individuals have been nominated by the Corporate Governance Committee of the Board of Directors and, if elected, are willing to serve until the next Annual Meeting of Shareholders and until their successors have been elected and qualified. The people named in the accompanying proxy (or their substitutes) will vote to elect these nominees unless specifically instructed to the contrary. However, if any nominee becomes unable or unwilling to serve or is otherwise unavailable for election, the people named in the proxy (or their substitutes) will have discretionary authority to vote or to refrain from voting on any substitute nominee. The Board of Directors has no reason to believe that any of the nominees will be unable or unwilling to serve. Our Board believes it is appropriate to maintain a diverse balance of longer tenured members, who bring stability and valuable Company-specific knowledge with an historical perspective, and newer members, who bring fresh perspectives and new ideas.

All of the nominees introduced below are currently members of our Board. Ms. Lloyd was appointed as a director, upon the recommendation of the Corporate Governance Committee, on January 6, 2017. Ms. Lloyd was recommended for the Board by the Chairman of the Audit and Risk Committee.

DIRECTOR SKILLS SUMMARY

        Japanese        
  Current or Operations   Market Financial Risk Mgmt. Industry Public Health
Name former CEO Experience Independent Experience Expertise Experience Experience Experience
Daniel P. Amos · ·   ·   · ·  
Paul S. Amos II   ·   ·   · ·  
W. Paul Bowers · · · · · ·    
Kriss Cloninger III   ·     · · ·  
Toshihiko Fukuzawa ·   · · · · ·  
Elizabeth J. Hudson     ·     ·    
Douglas W. Johnson     ·   ·   ·  
Robert B. Johnson     ·     · ·
Thomas J. Kenny   ·     · ·    
Charles B. Knapp     ·   · ·    
Karole F. Lloyd     ·   ·      
Joseph L. Moskowitz   · ·   · · ·  
Barbara K. Rimer, DrPH     ·       · ·
Melvin T. Stith     ·   · ·    

 


FOR
The Board of Directors recommends a vote “for” the election of each of the following nominees as directors.
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Proposal 1: Election of Directors

 

    

AGE

65

DIRECTOR SINCE

1983

COMMITTEES

Executive (Chair)

Daniel P. Amos               Chairman and Chief Executive Officer of Aflac Incorporated and Aflac

Mr. Amos has been Chief Executive Officer of the Company and Aflac since 1990 and Chairman since 2001. He has spent 38 years in various positions at Aflac.

SKILLS AND RECOGNITION     OTHER BOARD OR LEADERSHIP POSITIONS    

Institutional Investor magazine has named Mr. Amos one of America’s Best CEOs in the life insurance category five times. Additionally, Mr. Amos was named among the World’s Best Performing CEOs by Harvard Business Review in 2015 and 2016.

Mr. Amos’ experience and approach deliver insightful expertise and guidance to the Board of Directors on topics relating to corporate governance, people management and risk management.

 

· Synovus Financial Corp.
(2001 to 2011)

· Southern Company
(2000 to 2006)

 

    

AGE

41

DIRECTOR SINCE

2007

COMMITTEES

Executive

Finance and Investment

Paul S. Amos II               President of Aflac

Mr. Amos has been President of Aflac since January 2007. He was Chief Operating Officer of Aflac U.S. from February 2006 until July 2013, and executive vice president, U.S. Operations, from January 2005 until January 2007. Since January 2008, Mr. Amos has also played a leadership role in Aflac Japan sales and marketing efforts. After assuming reporting responsibilities for Aflac Japan in 2013, Mr. Amos relocated to Tokyo for two years to oversee the Aflac Japan operation locally.

SKILLS AND RECOGNITION                                                                        
Mr. Amos brings to the Board a deep knowledge of insurance sales, which forms the core of our business, as well as more than ten years of experience at the Company in various leadership roles. Furthermore, his extensive familiarity with the Japanese culture and insurance industry brings a unique perspective to the Board.  

 

 

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Proposal 1: Election of Directors

 

     

AGE

60

DIRECTOR SINCE

2013

COMMITTEES

Corporate

Development (Chair)

Audit and Risk* Sustainability

*Financial Expert

W. Paul Bowers                Chairman, President and Chief Executive Officer of Georgia Power Co.

Mr. Bowers has been chairman, president and chief executive officer of Georgia Power, the largest subsidiary of Southern Company, since 2011. Before that, Mr. Bowers served as chief financial officer of Southern Company from 2008 to 2010. Previously, he served in various senior executive positions across Southern Company in Southern Company Generation, Southern Power, and the company’s former U.K. subsidiary, where he was president and chief executive officer of South Western Electricity LLC/Western Power Distribution.

SKILLS AND RECOGNITION   OTHER BOARD OR LEADERSHIP POSITIONS
Mr. Bowers brings to the Board a valuable and unique perspective from his considerable financial knowledge as a former chief financial officer; national and international business experience, including operating in a highly regulated industry; and expertise in corporate development and managing the evolving risks associated with cyber security.  

· Chair, Atlanta Committee for Progress
(since 2016)

· Nuclear Electric Insurance Ltd.
(since 2009)

· Board of Regents of the University
System of Georgia (since 2014)

· Federal Reserve Bank of Atlanta’s
Energy Policy Council (since 2008)

 

    

AGE

69

DIRECTOR SINCE

2001

COMMITTEES

Executive

Kriss Cloninger III          President of Aflac Incorporated

Mr. Cloninger has been President of the Company since 2001, and before that was executive vice president since 1993. He served as Chief Financial Officer from 1992 to 2015, and Treasurer from 1993 to 2015. Prior to joining the Company in 1992, he was a principal in KPMG’s insurance actuarial practice and served as a consultant to Aflac beginning in 1977. Mr. Cloninger will retire as President on December 31, 2017.

SKILLS AND RECOGNITION   OTHER BOARD OR LEADERSHIP POSITIONS
Mr. Cloninger has been named Best CFO in America in the insurance/life category by Institutional Investor magazine three times. His financial acumen and expertise in the Company’s operations and corporate strategy bring a unique economic perspective to our Board of Directors.  

Total System Services, Inc. (TSYS)
(since 2004)

Tupperware Brands Corporation
(since 2003)

Fellow of the Society of Actuaries

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Proposal 1: Election of Directors

 

   

AGE

60

DIRECTOR SINCE

2016

Toshihiko Fukuzawa President and CEO of Yushu Tatemono Co., Ltd

Mr. Fukuzawa has been the president and chief executive officer of Yushu Tatemono Co., Ltd. since June 2015, where he also serves as a representative director. He served as deputy president and a representative director at Mizuho Trust & Banking Co., Ltd. from 2013 to 2015, managing executive officer and head of IT System Group at Mizuho Bank Ltd. from 2011 to 2013, and deputy president and a representative director at Mizuho Information & Research Institute, Inc. from 2009 to 2011. Between 2002 and 2009, he held executive officer and general manager positions at Mizuho Bank, Ltd. and affiliated companies of Mizuho Financial Group, Inc. which was formed in a merger between his former employer, Dai-Ichi Kangyo Bank, Ltd., and two other banks. Mr. Fukuzawa held various positions of increasing responsibility at Dai-Ichi Kangyo Bank, Ltd., from 1979 until 2002.

SKILLS AND RECOGNITION                                                                       
Over a 36-year career as a professional banker in Japan, Mr. Fukuzawa has gained extensive business and IT knowledge and experience with a wide range of Japanese financial services institutions, including insurance companies. He provides the Board with valuable insight and expertise relevant to the Company’s Japanese business.    

 

   

AGE

67

DIRECTOR SINCE

1990

COMMITTEES

Sustainability (Chair)

Corporate
Development

Finance and
Investment

Elizabeth J. Hudson Retired Chief Communications Officer for the National Geographic Society

Ms. Hudson was the chief communications officer of the National Geographic Society from 2014 to 2015, and previously served as the senior communications executive since 2000. She oversaw philanthropic development and was responsible for all communications and public affairs initiatives undertaken by the National Geographic Society and its subsidiaries, including media and public relations, community engagement and social media, brand stewardship, employee communications, and related marketing-communications activities.

SKILLS AND RECOGNITION   OTHER BOARD OR LEADERSHIP POSITIONS
Ms. Hudson has more than forty years of experience serving on the executive management teams of several national and international organizations, including publicly traded entities and one of the world’s largest scientific and research organizations. She brings extensive experience in strategic corporate communications, including financial and crisis communications management, and in marketing initiatives. She also has expertise in developing and articulating sustainability programs.   Co-chair, Washington chapter of Women Corporate Directors (since 2010)

 

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Proposal 1: Election of Directors

 

    

 

AGE

73

DIRECTOR SINCE

2004

LEAD NON- MANAGEMENT

DIRECTOR

COMMITTEES

Audit and Risk* (Chair)

Compensation

Executive

*Financial Expert

Douglas W. Johnson Certified Public Accountant and retired Ernst & Young LLP
   audit partner

Mr. Johnson is a certified public accountant who retired as an Ernst & Young LLP audit partner in 2003. He spent the majority of his career focusing on companies in the life, health and property/casualty segments of the insurance industry. During Mr. Johnson’s thirty-year tenure with Ernst & Young and its predecessor firms, he was coordinating partner of several large multinational insurance companies and for the firm’s largest American insurance client.

SKILLS AND RECOGNITION   OTHER BOARD OR LEADERSHIP POSITIONS
Mr. Johnson’s work experience includes extensive coordination with the audit committees of publicly held insurance companies. His finance experience and leadership skills enable him to make valuable contributions to our Audit and Risk Committee, where he serves as the Chair.   Member, American Institute of Certified Public Accountants (AICPA)

 

    

AGE

72

DIRECTOR SINCE

2002

COMMITTEES

Compensation

(Chair)

Corporate Governance Executive

Robert B. Johnson Retired Senior Advisor, Porter Novelli PR

Mr. Johnson retired from Porter Novelli PR, where he was a senior advisor from 2003 until 2014. Until 2008, he served as chairman and CEO of the One America Foundation, an organization that promotes dialogue and solidarity among Americans of all races and provides education, grants and technical equipment to disadvantaged youth. Before that, he served in President Clinton’s administration as an assistant to the President and director of the President’s initiative for One America. He served two years in the Carter Administration, and then was the Business Regulations Administrator for Washington, D.C.

SKILLS AND RECOGNITION   OTHER BOARD OR LEADERSHIP POSITIONS
Mr. Johnson has extensive experience in political and media strategic planning and community involvement. He also brings to the Board substantial experience in executing public relations strategies and promoting diversity.   Deputy chair, Democratic National Committee (2003 to 2004)

 

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Proposal 1: Election of Directors

    

 

AGE

53

DIRECTOR SINCE

2015

COMMITTEES

Finance and
Investment

Thomas J. Kenny Former Partner and Co-Head of Global Fixed Income, Goldman Sachs Asset Management

Mr. Kenny has served as a TIAA-CREF trustee since 2011. He also currently serves as the chair of the TIAA-CREF Funds Investment Committee and on the TIAA-CREF Funds Operations Committee. Prior to his role at TIAA-CREF, Mr. Kenny held a variety of leadership positions at Goldman Sachs for twelve years, most recently serving as partner and advisory director. He also served as co-head of the Global Cash and Fixed Income Portfolio team at Goldman Sachs Asset Management, where he was responsible for overseeing the management of more than $600 billion in assets across multiple strategies with teams in London, Tokyo and New York. Before joining Goldman Sachs, Mr. Kenny spent thirteen years at Franklin Templeton. He is a CFA charter holder.

SKILLS AND RECOGNITION                                                                   
Mr. Kenny’s extensive experience in investment management and financial markets provide the Board with valuable insight and expertise.    

 

    

AGE

70

DIRECTOR SINCE

1990

COMMITTEES

Finance and
Investment
(Chair)

Audit and Risk*

Corporate
Development

*Financial Expert

Charles B. Knapp President Emeritus of the University of Georgia

Dr. Knapp is president emeritus of the University of Georgia. Dr. Knapp was president of the Aspen Institute from 1997 to 1999, and from 2000 to 2004 was a partner with the executive search firm Heidrick & Struggles. From 2004 to 2011 he was director of Educational Development for the CF Foundation. Dr. Knapp was also interim dean of the Terry College of Business at the University of Georgia from 2013 through 2014. Earlier in his career, Dr. Knapp served as the executive vice president and chief financial officer of Tulane University and as U.S. deputy assistant secretary of labor in the Carter Administration.

SKILLS AND RECOGNITION   OTHER BOARD OR LEADERSHIP POSITIONS
Dr. Knapp’s experience and knowledge provide the Board with valuable insight into the areas of finance, investments, and management.   Chairman, East Lake Foundation (2006 to 2011)

 

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Proposal 1: Election of Directors

 

     

I

AGE

58

DIRECTOR SINCE

2017

COMMITTEES

Audit and Risk*

*Financial Expert

Karole F. Lloyd Certified Public Accountant and retired Ernst & Young LLP audit partner

Ms. Lloyd is a certified public accountant and recently retired vice chair and managing partner for Ernst & Young, LLP. She brings to Aflac more than 37 years of experience and leadership, most recently as part of the board of Ernst & Young, and has extensive experience in the audits of large financial services, insurance and health care companies. She has served as an audit partner for publicly held companies in both the United States and Canada. Ms. Lloyd’s other experience includes leadership and consulting with respect to financial reporting, board governance and legal matters, regulatory compliance, internal audit, and risk management.

SKILLS AND RECOGNITION                                                       OTHER BOARD OR LEADERSHIP POSITIONS
Ms. Lloyd’s extensive accounting and advisory experience across many industries, combined with her leadership skills and strategic thinking, provide valuable perspective for our Audit and Risk Committee.  

The University of Alabama President’s Advisory Council (since 2003)

The University of Alabama Board of Visitors for the Commerce and Business School (since 2001)

Atlanta Symphony Orchestra Board of Directors (since 2010)

Metro Atlanta Chamber of Commerce, Board of Trustees and Executive Committee (2009 to 2016)

 

 

    

 

AGE

63

DIRECTOR SINCE

2015

COMMITTEES

Audit and Risk*

Compensation

Corporate
Development

*Financial Expert

Joseph L. Moskowitz Retired Executive Vice President, Primerica, Inc.

Mr. Moskowitz retired from Primerica, Inc., where he served as executive vice president from 2009 until 2014, leading the Product Economics and Financial Analysis Group. He joined Primerica in 1988, and served in various capacities, including managing the group responsible for financial budgeting, capital management support, earnings analysis, financial supplement, and analyst and stockholder communications support. He served as chief actuary from 1999 to 2004. Before joining Primerica, Mr. Moskowitz was vice president of Sun Life Insurance Company from 1985 to 1988 and was a senior manager at KPMG from 1979 to 1985.

SKILLS AND RECOGNITION   OTHER BOARD OR LEADERSHIP POSITIONS
With forty years of actuarial experience and leadership roles in the financial services industry, Mr. Moskowitz provides insight into the analysis and evaluation of actuarial and financial models, which form the basis of various aspects of corporate planning, financial reporting, and risk assessment, to the Board.  

Fellow, Society of Actuaries

Member, American Academy of Actuaries

 

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Proposal 1: Election of Directors

 

    

 

AGE

68

DIRECTOR SINCE

1995

COMMITTEES

Corporate Governance

(Chair)

Executive Sustainability

Barbara K. Rimer, DrPH Dean and Alumni Distinguished Professor, Gillings School of Global Public Health, University of North Carolina, Chapel Hill

Dr. Rimer has been dean of the University of North Carolina Gillings School of Global Public Health since 2005, and alumni distinguished professor since 2003. Previously, she was director of the Division of Cancer Control and Population Sciences at the National Cancer Institute. She is a former director of Cancer Control Research and professor of community and family medicine at the Duke University School of Medicine. She was elected to the Institute of Medicine in 2008.

SKILLS AND RECOGNITION   OTHER BOARD OR LEADERSHIP POSITIONS

At the Gillings School of Public Health, Dr. Rimer works to improve public health, promote individual well-being, and eliminate health inequities across North Carolina and around the world. In 2012, Dr. Rimer was appointed Chairman of the President’s Cancer Panel and has been reappointed twice since then. Her insight and leadership with respect to the public health sector are extremely relevant to the Companys business and operations.

 

  ● Chair, President’s Cancer Panel (since 2012)

 

    

 

AGE

70

DIRECTOR SINCE

2012

COMMITTEES

Audit and Risk*

Corporate Governance

*Financial Expert

Melvin T. Stith Dean Emeritus of the Martin J. Whitman School of Management at Syracuse University

Dr. Stith is dean emeritus of the Martin J. Whitman School of Management at Syracuse University, having served as dean from 2005 until 2013. Prior to assuming this role, Dr. Stith was the dean emeritus and the Jim Moran Professor of Business Administration at Florida State University for thirteen years. He has been a professor of marketing and business since 1977 following his service as a captain in the U.S. Army Military Intelligence Command.

SKILLS AND RECOGNITION                                                              OTHER BOARD OR LEADERSHIP POSITIONS
Dr. Stith’s financial acumen and his leadership skills in consensus building, risk management, and executive management add an important dimension to the composition of our Board.  

● Synovus Financial Corp. (since 1998)

● Flowers Foods, Inc. (since 2004)

● Jim Moran Foundation (since 2000)

● Dr. Stith also previously served on the boards of Correctional Services Corporation, JM Family Enterprises Youth Automotive Training Center, the Keebler Company, United Telephone of Florida, and Rexall Sundown.

 

Daniel P. Amos is the father of Paul S. Amos II. No other family relationships exist among any other executive officers or Directors.

 

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Proposal 1: Election of Directors

 

The following information is provided with respect to each Director and nominee:

  Shares of Common Stock      
  Beneficially Owned on Percent of Outstanding Voting Rights on  
Name February 22, 2017(1) Shares February 22, 2017 Percent of Available Votes
Daniel P. Amos 4,123,247 1.0 37,248,495 5.4
Paul S. Amos II 2,064,879 .5 19,813,543 2.9
W. Paul Bowers 9,780 * 9,780 *
Kriss Cloninger III 715,406 .2 5,184,183 .8
Toshihiko Fukuzawa 3,582,368 .9 35,336,969 5.3
Elizabeth J. Hudson 84,501 * 765,437 .1
Douglas W. Johnson 71,118 * 380,196 .1
Robert B. Johnson 20,306 * 115,310 *
Thomas J. Kenny 14,212 * 14,212 *
Charles B. Knapp 94,355 * 803,951 .1
Karole F. Lloyd 6,241 * 6,241 *
Joseph L. Moskowitz 5,750 * 5,750 *
Barbara K. Rimer, DrPH 43,552 * 295,921 *
Melvin T. Stith 12,752 * 45,211 *
*Percentage not listed if less than .1%.
(1)Includes options to purchase shares, which are exercisable within 60 days for: Daniel P. Amos, 1,550,457; Paul S. Amos II, 206,975; Kriss Cloninger III, 215,419; Elizabeth J. Hudson, 25,026; Douglas W. Johnson, 55,831; Robert B. Johnson, 5,000; Thomas J. Kenny, 9,735; Charles B. Knapp, 41,919; and Barbara K. Rimer, DrPH, 31,419. Also includes shares of restricted stock awarded under the 2004 Long-Term Incentive Plan for Daniel P. Amos, 408,093, Paul S. Amos II, 61,756, and Kriss Cloninger III, 169,166, for which these individuals have the right to vote but not to transfer. These shares will vest three years from the date of grant if the Company attains certain performance goals. Also includes shares of restricted stock awarded under the 2004 Long-Term Incentive Plan for W. Paul Bowers, 6,740, Toshihiko Fukuzawa, 1,946, Elizabeth J. Hudson, 4,125, Robert B. Johnson, 4,125, Thomas J. Kenny, 4,405, Karole F. Lloyd, 991, Joseph L. Moskowitz, 2,527, and Melvin T. Stith, 6,078, for which these individuals have the right to vote but not to transfer. These shares will vest four years from the date of grant, except restricted shares granted after 2014, which will vest one year from the date of grant.

Also includes the following shares:

Daniel P. Amos: 2,281 shares owned by his spouse; 446,325 shares owned by partnerships of which he is a partner; 991,506 shares owned by trusts of which he is trustee; 324,003 shares owned by the SOMA Foundation Inc.; 128,604 shares owned by the Daniel P. Amos Family Foundation, Inc.; 54,648 shares owned by a trust with his spouse as trustee; and 112,444 shares owned by the Paul S. Amos Family Foundation, Inc.

Paul S. Amos II: 95,028 shares owned by his spouse; 58,164 shares owned by his children; 166,736 shares owned by trusts with his spouse as trustee; 837,983 shares owned by trusts of which he or his children are beneficiaries; 15,000 shares owned by a partnership of which he is a partner; 18,471 shares owned by the Paul & Courtney Amos Foundation; 8,000 shares owned by the Dan Amos Dynasty Trust; 128,604 shares owned by the Daniel P. Amos Family Foundation, Inc.; 112,444 shares owned by the Paul S. Amos Family Foundation, Inc.; and 62,795 in the Amos Trust.

Kriss Cloninger III: 33,403 shares owned by his spouse; 58 shares owned by his spouse’s children; 35,615 shares owned by partnerships of which Mr. Cloninger is a partner; and 6,300 shares owned by trusts with Mr. Cloninger as trustee.

Elizabeth J. Hudson: 3,200 shares owned by her children; 45,192 shares owned by trusts with Ms. Hudson as trustee.

Charles B. Knapp: 21,000 shares owned by his spouse.

Toshihiko Fukuzawa: 3,580,388 shares owned by The Mizuho Trust & Banking Co., Ltd. Mr. Fukuzawa shares the power to vote these shares.

 

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Ownership Reporting

No person, as of February 22, 2017, was the owner of record or, to the knowledge of the Company, beneficial owner of more than 5% of the outstanding shares of Common Stock or of the available votes of the Company other than as shown below.

Name and Address Title of Class Amount of Beneficial   Amount of Beneficial Percent of Percent of
of Beneficial Owner Common Stock Ownership Shares   Ownership Votes Class Available Votes
BlackRock, Inc.* 1 Vote Per Share 26,189,214   26,189,214 6.5 3.9
55 East 52nd Street            
New York, NY 10055            
State Street Corporation* 1 Vote Per Share 21,357,788   21,357,788 5.3 3.2
State Street Financial Center            
One Lincoln Street            
Boston, MA 02111            
The Vanguard Group* 1 Vote Per Share 30,932,512   30,932,512 7.7 4.6
100 Vanguard Boulevard            
Malvern, PA 19355            
Daniel P. Amos** 10 Votes Per Share 3,680,583   36,805,831 1.0 5.4
1932 Wynnton Road 1 Vote Per Share 442,664   442,664    
Columbus, GA 31999 4,123,247   37,248,495     
*The above information is derived from Schedule 13G filings filed with the Securities and Exchange Commission, dated January 19, 2017, by Blackrock Inc., dated February 9, 2017, by State Street Corporation and The Vanguard Group. According to the Schedule 13G filings, BlackRock, Inc., State Street Corporation, and The Vanguard Group have sole and dispositive power with respect to these shares.
**See footnote (1) on page 16.

Security Ownership of Management

The following table sets forth, as of February 22, 2017, the number of shares and percentage of outstanding shares of Common Stock beneficially owned by: (i) our named executive officers, comprising our CEO, CFO, and the three other most highly compensated executive officers as listed in the 2016 Summary Compensation Table whose information was not provided under the heading “Proposal 1: Election of Directors,” and (ii) all Directors and executive officers as a group.

Common Stock Beneficially Owned and Approximate Percentage of Class as of February 22, 2017

Name Shares(1) Percent of Shares Votes Percent of Votes
Frederick J. Crawford 62,694 * 62,694 *
Eric M. Kirsch 104,254 * 332,899 *
All Directors, nominees, and 11,969,050 3.0 105,929,263 15.2
executive officers as a group (25 persons)        
*Percentage not listed if less than .1%.
(1)Includes options to purchase shares, which are exercisable within 60 days for Eric M. Kirsch of 17,152 and all Directors and executive officers as a group, 2,471,076. Also includes shares of restricted stock awarded under the 2004 Long-Term Incentive Plan; in 2015, 2016 and 2017 for Frederick J. Crawford of 61,656; in 2015, 2016 and 2017 for Eric M. Kirsch of 48,698; and all Directors and executive officers as a group 1,007,374 which they have the right to vote, but they may not transfer until the shares have vested. Includes 47,814 shares pledged for an executive officer who is not an NEO and prior to the prohibition beginning in 2013. No Director nominee or other executive officer has any pledged shares. For information on the Company’s pledging policy, please see “Stock Ownership Guidelines; Hedging and Pledging Restrictions” beginning on page 44.

Section 16(a) Beneficial Ownership Reporting Compliance

Pursuant to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), executive officers, Directors, and holders of more than 10% of the Common Stock are required to file reports of their trading in Company equity securities with the SEC. Ms. Audrey B. Tillman, our Executive Vice President and General Counsel, did not timely report the sale of 6,639 shares on July 27, 2012. A Form 4 for this transaction was filed on March 6, 2017, due to a delay caused by administrative error.

Based solely on its review of the copies of such reports received by the Company, or written representations from certain reporting persons, the Company believes that all other filings required to be made by its reporting persons complied with all applicable Section 16 filing requirements during the last fiscal year.

 

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Corporate Governance

Shareholder Outreach

The Company has a long history of engaging shareholders to learn about the issues and concerns that are important to them. We believe that open communications can have a positive influence on our corporate governance practices. For example, we are proud to have been the first publicly traded company in the United States to voluntarily allow shareholders a say-on-pay vote. In keeping with this governance philosophy, we communicate with our shareholders on a regular basis and incorporate their feedback into our decision-making process.

Director Independence

The Board of Directors annually assesses the independence of each Director nominee. Daniel P. Amos, Paul S. Amos II, and Kriss Cloninger III are all employees of the Company. With the exception of Thomas J. Kenny, due to fees paid for his previous role as a consultant to the Board, the Board has determined that all of the other nominees are “independent” under New York Stock Exchange (“NYSE”) listing standards. None of the independent nominees has a material relationship with the Company, either directly or as a partner, shareholder, or officer of an organization that has a relationship with the Company. The Board made its determination based on information furnished by all Directors regarding their relationships with the Company and research conducted by management.

Board Leadership Structure

Daniel P. Amos has served as Chairman of the Board since 2001 and as CEO since 1990. The Board believes the most effective Board leadership structure for the Company is for the CEO to continue to serve as Chairman of the Board, working with a Lead Non-Management Director. This structure has served the Company well for many years. The CEO is ultimately responsible for the day-to-day operation of the Company and for executing the Company’s strategy, and the performance of the Company is an integral part of Board deliberations. Accordingly, the Board believes that Mr. Amos is the Director most qualified to act as Chairman. The Board believes that Mr. Amos’ in-depth long-term knowledge of the Company’s operations and his vision for the Company’s development provides decisive and effective leadership for the Board. However, the Board retains the authority to modify this structure to best advance the interests of all shareholders if circumstances warrant such a change.

The Board believes its existing corporate governance practices achieve independent oversight and management accountability. These governance practices are reflected in the Company’s Guidelines on Significant Corporate Governance Issues and the Committee charters. In particular:

a substantial majority of our Board members are independent;
the Audit and Risk, Compensation, and Corporate Governance Committees all comprise independent Directors;
the Company has a Lead Non-Management Director with the responsibilities described below; and
the Non-employee Directors meet at each regularly scheduled Board meeting in executive session without management present.

Lead Non-Management Director

Douglas W. Johnson is currently the Lead Non-Management Director. The responsibilities of the Lead Non-Management Director include:

consulting with the Chairman and Secretary to establish the agenda for each Board meeting;
setting the agenda for, and leading, all executive sessions of the Non-employee Directors;
when appropriate, discussing with the Chairman matters addressed at such executive sessions;
facilitating discussions, between Board meetings, among the Non-employee Directors;
serving as a liaison between the Non-employee Directors and the Chairman of the Board;
serving as a liaison between management and the Board;

 

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Corporate Governance | Board Self-Evaluation

representing the Board in shareholder outreach; and
in coordination with the Chairman of the Board, facilitating the annual Board self-evaluation.

The Lead Non-Management Director has the authority to call meetings of the independent Directors.

Board Self-Evaluation

The effectiveness of our Board is of the utmost importance. The Board recognizes that we live in a dynamic world that requires regular self-evaluation to ensure that we have the best skill set and experience to serve the Company and that the Board is fulfilling its responsibilities. To that end, the Corporate Governance Committee is charged with overseeing an annual process of self-evaluation for the Board as a whole and for its individual members.

The Board’s annual self-evaluation process involves both the Chairman and the Lead Non-Management Director separately scheduling one-on-one conferences with the Directors to address a variety of topics related to the Board’s performance and oversight responsibility. Among other things, the Board considers its composition, with the goal of ensuring its members have the mix of skills and subject matter expertise required for prudent oversight of the Company. In addition, the Board evaluates the Board’s processes and operations, the Board’s organization and committee structure, the Board’s oversight responsibility, the Board’s performance, and the quality of the information provided to Directors by the Audit and Risk Committee about the Company’s risk management and corporate compliance programs.

Director Nominating Process

The Corporate Governance Committee believes that, at a minimum, nominees for Director must have two qualifications:

a demonstrated ability to make a meaningful contribution to the Board’s oversight of the business and affairs of the Company; and
an impeccable record and reputation for honest and ethical conduct in both professional and personal activities.

Beyond these threshold requirements, the Corporate Governance Committee examines each prospective candidate’s specific experiences and skills, time availability in light of other commitments, potential conflicts of interest, and independence from management and the Company. The Corporate Governance Committee strives to build a Board that is strong in its collective knowledge and has a diversity of backgrounds. In particular, the Corporate Governance Committee looks for nominees with experience in the following areas:

accounting and finance business operations corporate  governance
management and leadership business judgment global markets
vision and strategy industry  knowledge  

Finally, the Corporate Governance Committee considers diversity (including gender, ethnicity, race, color, and national origin) in nominating Directors. Nominees must be between the ages of 21 and 74.

The Corporate Governance Committee identifies potential nominees from three sources. The Committee seeks suggestions from current Directors and executive officers; may engage firms that specialize in identifying director candidates; and, as discussed below, considers candidates recommended by shareholders.

Once the Corporate Governance Committee identifies a potential nominee, members review publicly available information to assess whether that person should receive further consideration. Candidates who warrant further consideration will be contacted. If a potential nominee is willing to be considered for a seat on the Board, the Corporate Governance Committee will request more information.

Generally, the Corporate Governance Committee conducts one or more interviews with each prospective nominee. Committee members also may contact references provided by each candidate, and speak with members of the business community or other people who may have firsthand knowledge of a candidate’s record. This process enables the Corporate Governance Committee to compare the accomplishments and qualifications of all potential nominees.

The Corporate Governance Committee will consider Director candidates recommended by shareholders. As with any prospective nominee, the Corporate Governance Committee will evaluate shareholder-nominated candidates in light of the needs of the Board and the qualifications of the particular individual. In addition, the Corporate

 

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Corporate Governance | Enterprise-Wide Risk Oversight

Governance Committee may consider the number of shares held by the recommending shareholder and the length of time such shares have been held.

To recommend a candidate for the Board, a shareholder must submit the recommendation in writing, including: (i) the name of the shareholder and evidence of the person’s ownership of Common Stock, including the number of shares owned and the length of time of ownership; and (ii) the name of the candidate, the candidate’s resume or qualifications to be a Director, and the candidate’s consent to be named as a Director if nominated by the Board.

The shareholder recommendation and information described above must be sent to the Corporate Secretary at Aflac Incorporated, 1932 Wynnton Road, Columbus, Georgia 31999, and must be received by the Corporate Secretary not less than 90 nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of shareholders; provided, however, that in the event that the annual meeting is called for a date that is not within 25 days before or after such anniversary date, notice by the shareholder, to be timely, must be so received no later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever occurs first.

Shareholder recommendations and accompanying information should be sent to the Corporate Secretary at Aflac Incorporated as described at the end of this Proxy Statement under the heading “Other Proposals or Director Nominations to be brought before our 2018 Annual Meeting.”

Our proxy access bylaw permits a shareholder (or group of up to twenty shareholders) owning shares of our outstanding capital stock representing at least 3% of the votes entitled to be cast on the election of directors to nominate and include in our proxy materials director candidates constituting up to 20% of the Board. The nominating shareholder or group of shareholders must have owned their shares continuously for at least three years, and the nominating shareholder(s) and nominee(s) must satisfy other requirements specified in our Bylaws.

Enterprise-Wide Risk Oversight

Our Board of Directors oversees an enterprise-wide approach to risk management, designed to achieve organizational and strategic objectives, to improve long-term performance, and to enhance shareholder value. Risk management requires more than just understanding the risks we face and the steps management takes to manage those risks. The Board also must understand what level of risk is appropriate for the Company. Our Directors are equipped to make all of these determinations because they are integral to the process of setting the Company’s business strategy.

While the Board of Directors oversees the risk management process generally, several Board and management committees have specific roles that correspond with their areas of responsibility.

Audit and Risk Committee

Under its charter, the Audit and Risk Committee’s responsibilities include risk management and compliance oversight. Specifically, the Audit and Risk Committee:

discusses guidelines and policies governing the process by which senior management and the relevant departments of the Company assess and manage exposure to risk;
reviews the Company’s risk assessment and enterprise risk-management framework, including risk management guidelines, risk appetite, risk tolerances, key risk policies and control procedures;
reviews critical regulatory risk-management filings and enterprise risk-management material shared with regulators and rating agencies;
reviews the general structure, staffing models, and engagement of the Company’s risk governance departments and practices;
reviews the Company’s major financial risk exposures and evaluates processes and controls that management has adopted to monitor and control those risks;
meets in executive session with key senior leaders involved in risk management;
reviews with the internal auditors, the independent auditor, and the Company’s financial management team the adequacy and effectiveness of our internal controls, including information security policies and internal controls regarding information security, and any special steps adopted in light of material control deficiencies; and
reports to the Board, at least annually, with respect to matters related to key enterprise risks and risk management areas of concentration.

 

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Corporate Governance | Chief Executive Officer and Executive Management Succession Planning

Finance and Investment Committee

The Finance and Investment Committee oversees the investment process and investment risk management of the Company and its subsidiaries by monitoring investment policies, strategies, and transactions and reviewing the performance of the investment portfolio.

Investment process The manner in which we invest cash flows of the Company and its subsidiaries and manage investments to emphasize safety, liquidity, returns, tax considerations, applicable laws and regulations, and conformity with the needs of each Company.
Investment risk Includes liquidity risk, market risk, and credit risk.
Liquidity risk When an investment is not marketable and cannot be bought or sold quickly enough to prevent or minimize a loss.
Market risk The risk that market movements will cause fluctuations in the value of our assets, the amount of our liabilities, or the income from our assets.
Credit risk The risk of loss arising from the failure of a counterparty to perform its contractual obligations.

Compensation Committee

The Compensation Committee strives to create incentives that encourage a level of risk-taking behavior consistent with the Company’s business strategy. As more fully discussed in the Compensation Discussion and Analysis section of this Proxy Statement, the Compensation Committee establishes incentive compensation performance objectives for management that are realistically attainable so as not to encourage excessive risk taking.

Management Committees

The Company’s management is responsible for day-to-day risk management. Our enterprise risk-management framework, which is aligned with and overseen by the Board and its Committees, includes several executive management committees whose roles incorporate risk management across the enterprise and who provide regular reports to the Board of Directors or its committees. For example, the global Disclosure Committee comprises senior managers from across the Company to ensure that disclosure controls and procedures are effective and that the information required to be disclosed to the investing public is accumulated and evaluated in a timely manner. Other management committees are responsible for implementing policies and risk-management processes relating to strategic, operational, investment, competitive, regulatory and legislative, product, reputational and compliance risks.

Chief Executive Officer and Executive Management Succession Planning

The Board of Directors, in coordination with the Corporate Governance Committee, is responsible for succession planning for key executives to ensure continuity in senior management. As part of that effort, the Board and the Corporate Governance Committee ensure that the Company has an appropriate process for addressing Chief Executive Officer succession planning in the event of extraordinary circumstances.

The Chief Executive Officer plays an active role in the succession-planning process. In coordination with the Company’s executive management team, including the General Counsel and the Director of Human Resources, the Chief Executive Officer periodically evaluates potential successors, reviews development plans recommended for such individuals, and makes recommendations to the Corporate Governance Committee. Together these parties also identify potential successors for critical executive management positions. In addition, the Chief Executive Officer reviews executive succession planning and management development at an annual executive session of independent Directors.

Code of Business Conduct and Ethics

The Company’s Code of Business Conduct and Ethics applies to all Directors, executives, and employees of the Company and its subsidiaries. In addition, there are provisions specifically applicable to the Chief Executive Officer, the Chief Financial Officer, and the Chief Accounting Officer. The Company intends to satisfy any disclosure requirements regarding amendments to, or waivers from, any provision of the Code of Business Conduct and Ethics by posting such information on our website, aflac.com, under “Investors,” then “Corporate Governance.”

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Corporate Governance | Communications with Directors

Communications with Directors

Shareholders may contact members of the Board by mail. If you wish to communicate with the Board of Directors, any individual Director, or any group or committee of Directors, address your correspondence to the Board or to such individual Director, group, or committee, c/o the Corporate Secretary of Aflac Incorporated at the following address: 1932 Wynnton Road, Columbus, Georgia 31999. The Corporate Secretary will forward any message that is not in the nature of advertising, promotions of a product or service, or patently offensive material.

It is Company policy that each Director should attend the Annual Meeting. Twelve Directors attended the 2016 Annual Meeting.

Board and Committees

The Board of Directors met four times in 2016, and all Directors attended at least 75% of the meetings of the Board and the Committees on which they served.

The Board of Directors has seven standing committees: Audit and Risk; Compensation; Corporate Development; Corporate Governance; Executive; Finance and Investment; and Sustainability. Each committee (other than the Executive Committee) operates under a written charter adopted by the Board of Directors. Charters for the Audit and Risk Committee, the Compensation Committee, and the Corporate Governance Committee, as well as the Company’s Guidelines on Significant Corporate Governance Issues and the Code of Business Conduct and Ethics, all can be found on the Company’s website, aflac.com, under “Investors,” then “Corporate Governance.” Shareholders can request printed copies of these documents by submitting a request to the Corporate Secretary at the address shown above.

MEMBERS

Douglas W. Johnson

(Chairman and

The Audit and Risk Committee
financial expert) RESPONSIBILITIES

W. Paul Bowers

(financial expert)

Charles B. Knapp

(financial expert)

Karole F. Lloyd

(financial expert)

Joseph L. Moskowitz

(financial expert)

Melvin T. Stith

(financial expert)

NUMBER OF
MEETINGS IN 2016

11

    ensuring that management maintains the reliability and integrity of the reporting process and systems of internal controls of the Company and its subsidiaries regarding finance, accounting, and legal matters;

    issuing annually the Audit and Risk Committee Report set forth below;

   selecting, overseeing, evaluating, determining funding for, and, where appropriate, replacing or terminating the independent registered public accounting firm and monitoring that firm’s independence;

●   pre-approving audit and non-audit services provided by the independent registered public accounting firm;

●   pre-approving or ratifying all related person transactions that are required to be disclosed in this Proxy Statement;

●   overseeing the performance of the Company’s internal auditing department;

●   assisting with Board oversight of the Company’s compliance with legal and regulatory requirements;

●   overseeing the Company’s policies, process, and structure related to enterprise risk engagement and management; and

●   providing an open avenue of communication among the independent registered public accounting firm, management, the internal auditing department, and the Board.

 

PURPOSE    
     
The independent registered public accounting firm has direct access to the Audit and Risk Committee and may discuss any matters that arise in connection with its audits, the maintenance of internal controls, and any other matters relating to the Company’s financial affairs. The Audit and Risk Committee may authorize the independent registered public accounting firm to investigate any such matters, and may present its recommendations and conclusions to the Board. At least annually, the Audit and Risk Committee reviews the services performed and the fees charged by the independent registered public accounting firm.   All Audit and Risk Committee members qualify as “outside” Directors as defined by Section 162(m) of the Internal Revenue Code of 1986, “Non-employee Directors” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, and independent Directors under the NYSE listing standards, and have been determined by the Board to be “audit committee financial experts,” as such term is defined in Item 401(h) of SEC Regulation S-K. Ms. Lloyd joined the Audit and Risk Committee upon her appointment to the Board on January 6, 2017; Dr. Stith will no longer serve on the Audit and Risk Committee after May 1, 2017

 

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Corporate Governance | Board and Committees

MEMBERS

Robert B. Johnson

(Chairman)

The Compensation Committee
Joseph L. Moskowitz RESPONSIBILITIES

Douglas W. Johnson

NUMBER OF
MEETINGS IN 2016

6

●   reviewing, at least annually, the goals and objectives of the Company’s executive compensation plans;

●   evaluating annually the performance of the CEO with respect to such goals and objectives and determining the appropriate compensation level;

●   evaluating annually the performance of the Company’s other executive officers in light of such goals and objectives, and setting their compensation levels based on this evaluation and the recommendation of the CEO;

●   reviewing the Company’s incentive compensation programs to determine whether they encourage excessive risk taking, and evaluating compensation policies and practices that could mitigate any such risk; and

●   reviewing the Company’s general compensation and benefit plans to ensure they promote our goals and objectives.

  PURPOSE
 

The Compensation Committee also reviews and approves compensation levels, equity-linked incentive compensation, and annual incentive awards under the Company’s Management Incentive Plan.

The Compensation Committee recommended and the Board adopted a policy regarding Non-employee Director compensation and actual Non-employee Director compensation levels consistent with that policy. If the Board creates a special purpose committee made up of Non-employee Directors, the Compensation Committee recommends remuneration for the individuals who serve. The Board makes final determinations regarding Non-employee Director compensation.

The members of the Compensation Committee are Robert B. Johnson (Chairman), Joseph L. Moskowitz, and Douglas W. Johnson. All of these

 

individuals are “outside” Directors as defined by Section 162(m) of the Internal Revenue Code, “Non-employee Directors” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, and independent Directors under NYSE listing standards.

Compensation Committee Interlocks and Insider Participation. No member of the Compensation Committee is a current or former employee or officer of the Company or any of its subsidiaries. During 2016, no Director was an executive officer of another entity on whose compensation committee any executive officer of the Company served. In addition, no member of the Compensation Committee had any relationship requiring disclosure under the section titled “Related Person Transactions” in this Proxy Statement.

 

MEMBERS

W. Paul Bowers

(Chairman)

The Corporate Development Committee
Elizabeth J. Hudson RESPONSIBILITIES

Charles Knapp

Joseph L. Moskowitz

NUMBER OF
MEETINGS IN 2016

2

●   reviewing the Company’s corporate and strategic organization development to identify, evaluate, and execute on appropriate opportunities that could enhance long-term growth and build shareholder value;

●   assisting the Board in reviewing, evaluating and approving specific strategic plans for corporate development activities including mergers, acquisitions, dispositions, joint venture marketing and distribution arrangements, and strategic equity investments;

●   assisting the Board in reviewing proposals to enter new geographic markets; and

●   reviewing corporate development proposals prepared by the Company’s officers and managers and other strategic projects as determined by the Board to ensure consistency with achieving long-term strategic objectives.

 

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Corporate Governance | Board and Committees

MEMBERS

Barbara K. Rimer, DrPH

The Corporate Governance Committee
(Chair) RESPONSIBILITIES

Robert B. Johnson

Melvin T. Stith

NUMBER OF
MEETINGS IN 2016

3

   selecting individuals qualified to serve as Directors to be nominated to stand for election to the Board;

   recommending assignments to the Board’s standing committees;

   advising the Board with respect to matters of Board structure, composition and procedures;

   developing and recommending to the Board a set of corporate governance principles applicable to the Company;

   monitoring compliance with the Company’s political participation program;

   overseeing the evaluation of the Board; and

   ensuring that the Company’s management and succession plans are appropriate.

  The members of the Corporate Governance Committee are Barbara K. Rimer, DrPH (Chair), Robert B. Johnson, and Melvin T. Stith. All Corporate Governance Committee members qualify as “outside” Directors as defined by   Section 162(m) of the Internal Revenue Code, “Non-employee Directors” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, and independent Directors under NYSE listing standards.

 

MEMBERS

Daniel P. Amos

(Chairman)

The Executive Committee
Paul S. Amos II PURPOSE

Kriss Cloninger

Douglas W. Johnson

Robert B. Johnson

Barbara Rimer, DrPH

NUMBER OF

MEETINGS IN 2016

7

 

Under the Company’s Bylaws, the Executive Committee must consist of at least five Directors, including the Chief Executive Officer, the Chairman of the Board of Directors, the President, and such additional Directors as the Board may from time to time determine. Currently, the membership of the Executive Committee also includes the chairpersons of the Audit and Risk, Compensation, and Corporate Governance

 

  Committees, and includes the Company’s Lead Non-Management Director. The Chief Executive Officer (or another member of the Executive Committee chosen by him) is the Chairman of the Executive Committee. During the intervals between meetings of the Board of Directors, the Executive Committee may exercise all of the powers of the Board that may be delegated under Georgia law.
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Corporate Governance | Board and Committees

MEMBERS

Charles B. Knapp

(Chairman)

The Finance and Investment Committee
Paul S. Amos II FINANCE RESPONSIBILITIES

Elizabeth J. Hudson

Thomas J. Kenny

NUMBER OF
MEETINGS IN 2016

7

●   reviewing and reassessing significant financial policies and matters of Treasury and corporate finance, including the Company’s overall capital structure, dividend policy, share repurchase program, liquidity, and the issuance or retirement of debt and other capital securities;

●   reviewing and providing guidance to the Board on significant reinsurance transactions and strategies;

●   reviewing and providing guidance on the Company’s credit ratings, ratings strategy, and overall rating agency dialogue;

●   reviewing and providing guidance to the Board on the financing strategy and capital impact of corporate development activities and multiyear strategic capital project expenditures;

●   reviewing and reassessing the Company’s overall hedging strategy, including foreign exchange and cash flow hedging, ensuring proper governance over policies and procedures associated with trading in derivative instruments;

●   in partnership with the Compensation Committee, overseeing the Company’s processes for managing the finances of the employee pension and defined contribution benefit plans, including the related investment policies, actuarial assumptions, and funding policies; and

●   in partnership with the Audit and Risk Committee, reviewing and providing guidance on the Company’s corporate insurance coverages.

  INVESTMENT RESPONSIBILITIES
 

●   overseeing the investment process and the policies, strategies, and programs of the Company and its subsidiaries relating to investment risk management;

●   periodically reviewing and assessing the adequacy of the Global Investment Policy of the Company and its subsidiaries, and approving any changes to that policy;

●   reviewing and approving investment transactions made on behalf of the Company and its subsidiaries; and

●   reviewing the performance of the investment portfolios of the Company and its subsidiaries.

 

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Corporate Governance | Board and Committees

 

MEMBERS

Elizabeth J. Hudson

(Chair)

The Sustainability Committee
W. Paul Bowers RESPONSIBILITIES

Barbara K. Rimer, DrPH

NUMBER OF
MEETINGS IN 2016

2

●   helping the Board fulfill its responsibility to shareholders in regards to the policies and practices that relate to the sustainable growth of the U.S. operation of the Company and its subsidiaries;

●   overseeing the Company’s sustainability plans and practices, including internal policies and procedures as well as public-facing corporate policy;

●   helping management set strategy, establish goals, and integrate sustainability into the daily business activities of the Company’s U.S. operation;

●   formulating and implementing policies, procedures, and practices that permit the Company to respond to evolving public sentiment and government regulation in the areas of environmental stewardship, energy use, recycling and carbon emissions; and

●   reviewing and discussing with management the Company’s environmental activities and impacts.

  PURPOSE
  We believe “sustainable growth” means being able to meet the needs of our shareholders and customers while taking into account the needs of future generations, and also ensuring the long-term preservation and enhancement of the Company’s financial, environmental and social capital.   In February 2017, the Sustainability Committee was renamed the Corporate Social Responsibility and Sustainability Committee.
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Director Compensation

 

Directors who also serve as employees of the Company or its subsidiaries do not receive compensation as Board members. The Compensation Committee reviews the policy regarding total compensation for Non-employee Directors at least every other year, and recommends compensation to the Board consistent with that policy. The Board makes final determinations regarding Non-employee Director compensation. In 2016, cash compensation for the Non-employee Directors was as follows:

All Non-employee directors $115,000 annually
Audit and Risk Committee members Additional $10,000 annually
Chairs—Corporate Governance, Sustainability, Corporate Development Additional $15,000 annually
Chairs—Compensation, Finance and Investment Additional $20,000 annually
Chair—Audit and Risk Additional $25,000 annually
Lead Non-Management Director Additional $25,000 annually

Upon joining the Board, every Non-employee Director is granted an award of nonqualified stock options, stock appreciation rights, restricted stock, or a combination thereof, with an aggregate value as determined by the Board of Directors not in excess of the value of a nonqualified stock option covering 10,000 shares of Common Stock. In every year thereafter, the Non-employee Directors may, at the discretion of the Board, receive restricted stock, nonqualified stock options, stock appreciation rights, or a combination thereof with an aggregate dollar value that approximates $135,000. The values of these stock options and stock appreciation rights are determined based upon the most current Black-Scholes-Merton three-year period valuation price of option shares as determined by the Compensation Committee’s independent compensation consultant. If the Board grants restricted stock, it may permit Non-employee Directors to elect to receive nonqualified stock options instead. In 2016, one Non-employee Director elected to receive nonqualified stock options covering 19,425 options of Common Stock, one Non-employee Director elected to receive half the grant in nonqualified stock options covering 9,713 options of Common Stock, and the remaining eight received all restricted stock. Grants of restricted stock made to Non-employee Directors in 2016 at the annual meeting become vested at the next annual meeting if the Non-employee Director continues to serve on the Board. Upon retirement, a Non-employee Director becomes immediately vested in all outstanding stock options and awards that have not yet expired. Retirement is defined as either (1) after ten years of service on the Board of Directors or (2) as of the date of the first annual Shareholders’ meeting of the Company on or after the date the Participant attains age 75, and is no longer eligible to stand for reelection as per the Bylaws of the Company. Beginning in 2017, these retirement provisions will no longer be included in award agreements. Upon death or disability or a change in control of the Company, Non-employee Directors will become 100% vested in all outstanding options and stock awards.

Non-employee Directors, with the exception of those who are, or within one year will become, retirement eligible, may elect to have all or a portion of their Board annual retainer paid in the form of immediately vested nonqualified stock options, restricted stock that vests after one year of continued service, or a combination thereof as determined by the Board of Directors. In 2016, one of the Non-employee Directors elected to receive restricted stock in lieu of a cash annual retainer.

The Company maintains a retirement plan for Non-employee Directors who have attained age 55 and completed at least five years of service on the Board, but that plan was closed to new participants effective 2002. The dollar value and length of payment of the annual retirement benefits were frozen effective May 3, 2010. The Non-employee Directors do not participate in any nonqualified deferred compensation plans.

For additional information, please see “Stock Ownership Guidelines; Hedging and Pledging Restrictions” beginning on page 44.

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Director Compensation

2016 Director Compensation

The following table identifies each item of compensation paid to Non-employee Directors for 2016.

      Change in Pension    
        Value and    
        Nonqualified    
        Deferred    
  Fees Earned or Paid Stock Option Compensation    
  in Cash Awards Awards Earnings All Other  
  (2) (3) (4) (5) Compensation Total
Name(1) ($) ($) ($) ($) ($) ($)
W. Paul Bowers 140,000 135,011 275,011
Toshihiko Fukuzawa 76,667 134,527 211,194
Elizabeth J. Hudson 130,000 135,011 4,724 269,735
Douglas W. Johnson 175,000 261,185 10,401 446,586
Robert B. Johnson 135,000 135,011 270,011
Thomas J. Kenny 115,032 135,011 250,043
Charles B. Knapp 145,000 135,011 2,993 13,473 296,477
Joseph L. Moskowitz 125,000 67,540 130,599 12,844 335,983
Barbara K. Rimer, DrPH 130,000 135,011 3,803 268,814
Melvin T. Stith 125,000 135,011 260,011

*   Takuro Yoshida’s term on the Board of Directors ended May 2, 2016.

(1)Daniel P. Amos, Paul S. Amos II, and Kriss Cloninger III are not included in the table; they are employees and thus do not receive compensation for their service as Directors. The compensation received by these individuals as employees is shown in the Summary Compensation Table.
(2)Thomas J. Kenny elected to receive his annual retainer in restricted stock. The value of these shares on the grant date was $115,032.
(3)This column represents the dollar amount recognized in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC 718”) for financial statement purposes with respect to the 2016 fiscal year for the fair value of restricted stock granted in 2016. The fair values of the awards granted in 2016 were calculated using the closing per-share stock price on the date of grant of $69.13. As of December 31, 2016, each Non-employee Director held the following number of restricted stock awards: W. Paul Bowers, 6,740; Toshihiko Fukuzawa, 1,946; Elizabeth J. Hudson, 4,125; Robert B. Johnson, 4,125; Thomas J. Kenny, 4,405; Joseph L. Moskowitz, 2,527; and Melvin T. Stith, 6,078. The following shares issued in 2016 to the retirement eligible Non-employee directors, as defined in the equity agreements, were accelerated to vest within the year and are not included in the number of restricted shares held: Elizabeth J. Hudson, 1,953; Robert B. Johnson, 1,953; Charles B. Knapp, 1,953, and Barbara K. Rimer, 1,953.
(4)In accordance with the SEC’s reporting requirements, this column represents the dollar amount recognized in accordance with ASC 718 for financial statement purposes with respect to the 2016 stock option grants. The Company’s valuation assumptions are described in Note 12 “Share-Based Compensation” in the Notes to the Consolidated Financial Statements in the Company’s Annual Form 10-K filed with the SEC for the year ended December 31, 2016. Stock options granted to Non-employee Directors vest in one year. As of December 31, 2016, each non-employee Director held stock options covering the following number of shares of Common Stock: Elizabeth J. Hudson, 25,026; Douglas W. Johnson, 62,661; Robert B. Johnson, 7,000; Thomas J. Kenny, 14,735; Charles B. Knapp, 48,749; Joseph L. Moskowitz, 9,713; Barbara K. Rimer, 38,249; and Takuro Yoshida, 31,988.
(5)Represents change in pension value. W. Paul Bowers, Toshihiko Fukuzawa, Douglas W. Johnson, Robert B. Johnson, Thomas J. Kenny, Joseph L. Moskowitz, Melvin T. Stith and Takuro Yoshida do not participate in the Director retirement plan since they first became Directors after the plan was closed to new participants in 2002.

 

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Compensation Discussion & Analysis

Executive Summary

This Compensation Discussion and Analysis (“CD&A”) provides a detailed description of our executive compensation philosophy and programs, the decisions made by the Compensation Committee related to those programs, and the factors considered when making those decisions. This CD&A focuses on our NEOs for 2016, who were:

Named Executive Officer Title
Daniel P. Amos Chairman & Chief Executive Officer
Frederick J. Crawford Executive Vice President, Chief Financial Officer
Kriss Cloninger III President
Paul S. Amos II President, Aflac
Eric M. Kirsch Executive Vice President, Global Chief Investment Officer, Aflac

Pay-for-Performance Compensation Philosophy

Our compensation programs are designed to ensure that a substantial amount of executive pay is directly linked to the Company’s results. We believe this is the most effective method for creating shareholder value, and that it has played a significant role in making the Company an industry leader. Importantly, performance-based elements of our compensation programs apply to all levels of Company management—not just the executive officers. In fact, pay-for-performance components permeate compensation at every employee level. As a result, we are able to attract, retain, motivate and reward talented individuals who have the necessary skills to manage our growing global business on a day-to-day basis and to position the Company for success in the future.

Our executive compensation program is designed to drive shareholder value via three critical features:

1   2   3
A pay-for-performance philosophy and compensation program structure that directly motivates our executives to achieve our annual and long-term strategic and operational goals   Compensation elements that help us attract and retain high-caliber talent to lead the Company   “Best practice” compensation governance policies, such as stock ownership guidelines, clawback provisions, and no change-in-control excise tax gross-ups

 

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Compensation Discussion & Analysis | Executive Summary

Strong Compensation Governance Policies and Leader in Best Practices

The Company has been a leader in corporate governance best practices. Our executive compensation programs reflect the strong, long-standing governance principles outlined below.

What We Do   What We Don’t Do

ì First public company in the U.S. to provide shareholders with a say-on-pay vote (voluntary action starting in 2008, three years before such votes were required)

ì Prioritize active engagement with our shareholders regarding our compensation program

ì History of responding to our shareholders’ feedback

ì Adherence to a rigorous pay for performance philosophy in establishing program design and targeted pay levels for its NEOs

ì Independent Compensation Committee oversees the program

ì Independent compensation consultant is hired by and reports to the Compensation Committee

ì Annual report by the independent compensation consultant to the full Board on CEO pay and performance alignment

ì Long-standing stock ownership guidelines for executive officers and Directors

ì Long-standing clawback policy

ì Supplemental Executive Retirement Plan frozen to new participants effective January 1, 2015

ì Double trigger change-in-control requirements in all employment agreements

 

î No golden parachute payments for CEO or President following a change in control

î Officers and Directors may not implement 10b5-1 plans unless approved by the Compensation Committee

î Officers and Directors may not hedge or engage in short sales of Company stock

î Executive officers and Directors may not pledge Company stock, and “grandfathered” pledged Company stock does not count toward the stock ownership guidelines

î No repricing underwater stock options

î No change-in-control excise tax gross-ups

Independent Compensation Consultant

The Compensation Committee has retained a nationally recognized compensation consultant, Mercer LLC, to assist and advise the Compensation Committee in its deliberations. Mercer works with the compensation Committee to review executive compensation practices, including the competitiveness of pay levels, design issues, market trends, and other technical considerations.

Mercer typically assists in the following areas:

providing comparative company performance to determine CEO pay;
evaluating the competitiveness of the Company’s executive compensation and benefit programs;
reviewing plan design issues and recommending improvements;
apprising the Compensation Committee of trends and developments in the marketplace;
assessing the relationship between executive pay and performance;
assessing proposed performance goals and ranges for incentive plans;
providing comparative company data to determine NEO compensation;
conducting training sessions for the Compensation Committee; and
determining the compensation of Non-employee Directors.

Fees paid to Mercer for these services totaled $286,295 in 2016. Management retained certain Mercer affiliates to provide additional services not pertaining to executive compensation during 2016, and approved payments totaling $16,139,173—primarily for broker commissions for insurance sales—for those services. As reported by Mercer to the Compensation Committee, these payments represented less than 0.15% of Mercer’s parent company’s annual revenue. The Compensation Committee has assessed Mercer’s independence pursuant to SEC rules and concluded that no conflict of interest exists with respect to the work Mercer performs for the Committee.

 

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Compensation Discussion & Analysis | Executive Summary

Response to Say-on-Pay Vote

The Company has a history and a well-earned reputation with its shareholders as a transparent organization. That commitment to transparency on all levels was certainly a driving force behind our decision in 2008 to allow shareholders a “say-on-pay” advisory vote, years before such votes became mandatory for all public companies. In 2016, 86% of our shareholders voted in favor of our executive compensation program.

Consistent with our approach in prior years, the Company engaged in shareholder outreach efforts throughout 2016. The feedback from these conversations, together with a thorough analysis of best practices and guidance from our compensation consultant, was incorporated into the Compensation Committee’s regular review of our compensation practices. This review has prompted several changes to our compensation program over the years:

lIn 2014, we changed the process for setting the CEO’s compensation to better align that compensation with our relative financial and total shareholder return (“TSR”) performance. The prior method for setting the CEO’s pay had an inherent timing disconnect between performance and the related compensation as reported.
lIn 2015, we eliminated an overlap in performance metrics used in the annual non-equity incentive plan and the long-term equity incentive plan.
lIn 2016, we began using a three-year average vesting metric for performance-based restricted stock (“PBRS”), rather than vesting incrementally each year based on performance within the respective year.
lFor 2017, the Company made the following changes:
·Our Chairman & CEO received his entire target annual long-term incentive award in February 2017 at a market competitive level in relation to our peers.
·The long term incentive award for all NEOs was granted exclusively in the form of PBRS.
·The PBRS program was modified to include both upside and downside payout leverage, along with the incorporation of two additional performance metrics to better align the PBRS awards with our strategic and operational goals.
·The MIP program was modified to reflect a proactive approach to simplifying and aligning performance metrics and increasing the level of performance required to achieve maximum goals.

For more information, see “Program Changes for 2017,” which begins on page 42.

We continually analyze our policies to ensure that we remain current in our approaches, a leader in executive compensation best practices, and cognizant of shareholder concerns. Moreover, we pride ourselves on incorporating ethics and transparency into everything we do, including compensation disclosure. Accordingly, we will continue our review and dialogue with investors to determine if additional changes are warranted in 2017.

2016 Business Overview

Under the leadership of the CEO and executive management, the Company achieved strong financial and operating results in 2016. The Company’s annual TSR as of December 31st was 19.1% and the Company’s stock hit an all-time high during the year.

From a financial standpoint, 2016 net earnings increased 5.0% to $2.7 billion and operating earnings per diluted share, excluding the impact of foreign currency, grew 4.7%. The operating earnings metric is one of the principal financial measures used to evaluate management’s performance, and we believe it continues to be a key driver

of shareholder value. The Company’s relative financial performance improved as EPS growth, return on revenues, return on average equity and return on average assets were in the top quartile in relation to our peers (see the “2016 Financial Performance Ranking Matrix” below).

In 2016, the Company advanced the vision of offering high-quality voluntary products, solutions and service through diverse distribution outlets, building upon the Company’s market-leading position to drive long-term shareholder value. In Japan, where the Company insures one in four households, management seized the opportunity in 2016 to strengthen relationships with sales channels and enhance the product line to ensure that the needs of consumers continue to be met. These actions were instrumental in maintaining the Company’s status as the leading provider of both medical and cancer insurance in Japan. Despite the negative interest rate environment in Japan, we were able to achieve our financial objectives. In the U.S., although new annualized premium sales came in below expectations last year, management was able to offset this with record profits and record persistency.

Management and the Board are committed to comprehensive risk management and safeguarding the financial strength of the Company. In 2016, core capital strength measures, SMR ratio in Japan and RBC ratio in U.S., remained very strong at 945% and 894% respectively. The Company’s strong capital and cash flow position continues to support strong financial strength ratings and a 34 year track record of increased common stock dividends.

 

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Compensation Discussion & Analysis | Executive Summary

 

Summary of Our Executive Compensation Program

As a leader in our industry segment, we recognize that a sound management compensation program is a part of what makes us an employer of choice.

Base salary is the smallest component of compensation for the NEOs. We consider annual and long-term incentive compensation to be the most important compensation awarded: these pay elements represent the largest part of total rewards for executives and provide the strongest link to Company results and shareholder value creation. Moreover, incentive compensation enables us to attract, retain, motivate and reward talented individuals who have the necessary skills to manage our growing global enterprise on a day-to-day basis, as well as for the future. As shown below, our executive compensation program directly links compensation incentives with our business goals and shareholder interests.

KEY ELEMENTS OF OUR 2016 EXECUTIVE COMPENSATION PROGRAM

Element Terms Performance Measure Objective
Base salary The fixed amount of annual cash compensation for performing day-to-day responsibilities. Levels set based on market data, job scope, responsibilities and experience. Generally reviewed biennially for potential increase based on a number of factors, including market levels, performance and internal equity Attract and retain talent
Management
Incentive Plan
(“MIP”)
Annual variable cash compensation based on the achievement of predetermined annual performance goals

Annual incentive award performance metrics align with our business strategy, geographic segment goals, and key value drivers:

Corporate Goals: Operating Earnings per share, OROE, Solvency Margin Ratio (SMR), Net Investment Income

U.S. Goals: increase in new annualized premiums, increase in premium income, increase in pretax operating earnings

Japan Goals: new annualized premiums, increase in premium income, increase in pretax operating earnings

Global Investments: credit losses/ impairments.

Performance goals are rigorous and set with the expectation of achieving target performance

Motivate executives and reward achievement toward annual operational and strategic goals

Focus on key short-term value drivers for our business

Retain key talent

Exercise sound risk management practices

Long-term
incentives
(“LTI”)
Long-term variable equity awards granted annually as a combination of PBRS and stock options. PBRS vests based on three-year financial performance, and options cliff vest after three years of service

PBRS (100% of LTI for CEO and President; 80% of LTI for other NEOs)

Risk-based capital (RBC) ratio metric represents key industry performance measure that aligns with creation of long-term value

Stock Options (0% of LTI for CEO and President; 20% of LTI for other NEOs)

Motivate executives and reward achievement toward long-term operational and strategic goals

Focus on key long-term value drivers for our business

Align executives’ interests with shareholder interests; stock options only provide value if share price increases

Retain key talent

Exercise sound risk management practices

 

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Compensation Discussion & Analysis | Elements of Our Executive Compensation Program

 

Elements of our Executive Compensation Program

Importance of the Peer Group

As discussed in this CD&A, the Compensation Committee considers our peer group when setting compensation amounts or targets. Each year, the Compensation Committee reviews the composition of the peer group to ensure it remains appropriate. Key factors the Compensation Committee considers during this annual review include operating characteristics, revenue size, asset size, profitability, market value, and total number of employees. Based on the annual review, the Compensation Committee selects a peer group of companies that are engaged in businesses similar to that of the Company, are of a similar size, and compete against the Company for talent.

The 2016 peer group, which has not changed since 2013, consists of the companies shown at right.

The data below shows how the Company’s revenues, total assets, and market value compare to the peer group medians for those metrics.

(in millions) Revenue
(1)
     Total Assets
(2)
     Market Value
(3)
Aflac Incorporated $21,216(4)   $129,530(4)   $28,404
Peer Median $27,095   $108,537   $27,294
(1)For the trailing twelve months ending September 30, 2016
(2)As of September 30, 2016
(3)As of December 31, 2016, when data was compiled for the performance review by the Compensation Committee
(4)Figures are net of foreign currency effect
2016 Peer Group
l   Aetna Inc.
l   The Allstate Corporation
l   Assurant, Inc.
l   The Chubb Corporation
l   CIGNA Corporation
l   CNO Financial Group, Inc.
l   Genworth Financial, Inc.
l   The Hartford Financial Services Group, Inc.
l   Humana Inc.
l   Lincoln National Corporation
l   Manulife Financial Corporation
l   MetLife, Inc.
l   Principal Financial Group, Inc.
l   The Progressive Corporation
l   Prudential Financial, Inc.
l   The Travelers Companies, Inc.
l   Unum Group
 

We show the Company’s 2016 performance relative to the peer group on a variety of metrics below in the “CEO and President Compensation and Pay-for Performance” section of this CD&A.

Base Salary

Base salary is typically the smallest component of total compensation for the NEOs; the majority of their compensation comes from performance-based cash and equity awards.

The base salaries of our executive officers are competitively positioned relative to comparable executives at our peers and in the broader insurance sector, but also reflect each individual’s scope of responsibilities and performance. The Compensation Committee uses comparative market data on salaries in reviewing and determining the CEO’s salary, and the CEO uses that data to inform his recommendations for the salaries of the other executive officers.

Mr. Daniel P. Amos has not received a salary increase in the last five years. Messrs. Crawford, Cloninger, and Kirsch did not receive salary increases in 2016. Mr. Paul S. Amos received a base salary increase of approximately 3.3% for 2016 due to a change in his role and responsibilities and in order to align his base salary competitively relative to similar roles in the market.

Management Incentive Plan (MIP)

All of the NEOs are eligible to participate in an annual non-equity incentive plan, referred to as the MIP, which was submitted to and approved by shareholders in 2012. See proposal 6 for the adoption of a new MIP, which will be effective January 1, 2018 (Appendix B).

 

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HOW MIP PERFORMANCE GOALS ARE SET

The Board of Directors believes it is important for the Company to manage the business to provide long-term value to our shareholders. Therefore, performance goals under the MIP involve metrics that drive shareholder returns.

The MIP payout depends entirely upon the level of achievement of performance goals. We have used the same methodology for setting MIP goals for many years:

lMIP segment metrics for Aflac U.S. and Aflac Japan are consistent with assumptions used in developing segment financial projections (described below) based on the Company’s best estimates for the coming year.
lThe segment projections are consolidated into the corporate financial projection used to develop earnings per share guidance.

First, the Company’s CEO, President, and CFO recommend to the Compensation Committee the specific Company performance objectives aligned with corporate strategy, driving shareholder value and ensuring financial soundness. Recommended ranges are based, in part, on past performance results and scenario tests of the Company’s financial outlook as projected by a complex financial model. The model projects the impact on various financial measures using different levels of total new annualized premium sales, investment returns, budgeted expenses, morbidity, and persistency.

After receiving recommendations for each performance measure, the Compensation Committee establishes a target performance level, as well as a minimum and maximum level. Typically, the target goal is equidistant between the minimum and maximum goals. The payout for a minimum result is one-half of the target payout, while the payout for a maximum result is twice the target payout; no payouts would be made for performance below the minimum level of performance. Interpolation is used to calculate incentive payouts for results between minimum and target or target and maximum.

The annual incentive goals for each performance measure typically are set in February for the current calendar year. At this time, the Compensation Committee assesses management’s recommendations and approves or, if deemed appropriate, modifies those goals for the year. This CD&A discusses MIP goals that were approved by the Compensation Committee in February 2016.

IMPORTANCE OF NEUTRALIZING FOREIGN CURRENCY EFFECTS

Since 1991, the Company has communicated external earnings guidance that excludes foreign currency effects. Our Japanese business is important to our results, but currency changes are largely outside of management’s control. However, reported earnings do reflect the impact of foreign currency fluctuations. Our Japanese segment’s revenues, including realized gains and losses on it investment portfolio, accounted for 71% of the Company’s total revenues in 2016. The percentage of the Company’s total assets attributable to the Japan segment was 83% at December 31, 2016.

The Compensation Committee strongly believes that management should not be unduly rewarded when the yen is strong or penalized in periods of yen weakening, which is why MIP objectives are set on a currency-neutral basis.

MIP PERFORMANCE METRICS

The incentive measures include statistical and non-GAAP financial measures, as more fully described below. Appendix C to this proxy statement provides a reconciliation of these non-GAAP measures to the corresponding GAAP measures.

Corporate metrics

Operating earnings per diluted share and operating return on shareholders’ equity (“OROE”) both are calculated to exclude the impact of foreign currency effect. We define operating earnings per diluted share as:

 

the profits derived from operations, including interest cash flows associated with notes payable, before realized investment gains and losses from securities transactions, impairments, derivative and hedging activities, and other nonrecurring items

÷

the weighted-average number of shares outstanding for the period, plus a number of weighted-average shares to compensate for the dilutive effect of share-based awards

 

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Operating earnings per diluted share growth is computed using the average yen/dollar exchange rate for the prior year, which eliminates fluctuations from currency rates that can magnify or suppress reported results in dollar terms.

In 2016, we defined OROE as:

 

the profits derived from operations, including interest cash flows associated with notes payable, before realized investment gains and losses from securities transactions, impairments, derivative and hedging activities, and other nonrecurring items ÷ average shareholder’s equity, excluding unrealized gains/losses from investments and derivatives

OROE growth is computed using the average yen/dollar exchange rate for the prior year for earnings. For the average shareholder’s equity, we adjust the ending equity balance to the prior year-end spot yen/dollar exchange rate. The combination of these adjustments to both components of this measure effectively eliminates fluctuations from currency rates on operating earnings, which can magnify or suppress reported results in dollar terms.

The Japan Solvency Margin Ratio (“SMR”) is a metric associated with our regulatory reporting to the Financial Services Agency in Japan. SMR measures an insurance company’s ability to satisfy policy obligations. A strong SMR serves to protect our policyholders’ interests, while also improving our flexibility to invest in additional asset classes, with the objective of enhancing risk-adjusted investment returns and returning capital to our shareholders through share repurchases and cash dividends. The SMR is an important financial indicator and key benchmark for industry regulators. Maintaining a strong capital position has been a long-standing priority. Aflac’s SMR remains high, and was 945% at the end of 2016, compared to 828% at the end of 2015.

Net Investment Income emphasizes that each NEO is responsible for maximizing the Company’s risk-adjusted performance subject to our liability profile and capital requirements.

U.S. and Japanese segments

For both the U.S. and Japanese segments, we use a metric referred to as the increase in total new annualized premiums (on policies sold and converted) during the reporting period. Both segments’ MIP metrics include the percentage increase in Direct Premiums and the percentage increase in Pretax Operating Earnings. We define Direct Premiums as the insurance premium earned by the segment during the period, prior to any reinsurance ceded or assumed. We define Pretax Operating Earnings on a segment basis as the operating profit before realized investment gains and losses from securities transactions, impairments, and derivative and hedging activities, as well as nonrecurring items. The percentage increase in Pretax Operating Earnings for the Japan segment is also measured before expenses allocated from the U.S., and excludes foreign currency effect.

TARGET SETTING CONSIDERATION

In addition to currency neutrality, the Compensation Committee considers the current business operating environment and forecasts emerging from the strategic planning process when setting MIP objectives for each metric. For example, new product launches and distribution expansion can materially affect the Company’s results from one year to the next. Aflac Japan launched a major cancer product, New Cancer Days, at the end of 2014, and its strong sales momentum carried into 2015. Aflac Japan also launched its EVER medical insurance in June 2015. Over this same timeframe, Aflac Japan continued to deepen and expand its relationship with Japan Post Holdings.

It was also anticipated that low interest rates, especially in Japan, would continue in 2016. This expectation was reinforced on January 29, 2016, when the Bank of Japan announced a negative interest rate policy, which exacerbated problems faced by insurance companies in Japan, especially in regard to finding yen-denominated assets to match against longer duration liabilities. The low rate environment would continue to pressure Aflac Japan’s net investment income as private placement investments were called or matured. Furthermore, the Company planned in 2016 to actively manage down sales of first sector savings products, which have returns that are more interest rate sensitive. As such, the difficult sales comparison produced by the successful product launches and enhanced distribution in 2015, combined with the anticipated effects of de-emphasizing first sector products in 2016, led the Compensation Committee to identify that a lower third sector new annualized premium target was justified for 2016.

 

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Compensation Discussion & Analysis | Elements of Our Executive Compensation Program

Operating earnings per diluted share excluding foreign currency effect rose 7.5% in 2015, presenting a challenging comparison for 2016. Aflac Japan earnings are impacted by the low rate environment and an expected premium decline from the Company’s tactical decision to de-emphasize first sector savings products. For Aflac U.S., expense ratios were expected to increase modestly in 2016 as a result of investment in overall IT, group product administration and everwell platforms. This combination of natural sales patterns in Japan, the low rate environment’s impact on net investment income, and increased investment in the business led to modestly lowered consolidated profitability targets for 2016.

TARGET BONUS OPPORTUNITY

Target bonuses for 2016 for the NEOs, which were determined to be competitive relative to comparable positions within our peer group, were as follows:

Named Executive Officer

Target MIP

(as percent of base salary)

Daniel P. Amos 220%
Frederick J. Crawford 125%
Kriss Cloninger III 150%
Paul S. Amos II 125%
Eric M. Kirsch 200%

The MIP opportunities for all NEOs are capped at 200% of their target opportunities.

WEIGHTINGS OF EACH PERFORMANCE OBJECTIVE FOR 2016

The performance measures are weighted differently for each NEO and for all other officer levels in the Company. We vary the weightings to reflect how each position can and should influence the outcome of particular metrics.

  Weightings of Annual Incentive Metrics as a Percent of Target
  Daniel P. Amos      Frederick J. Crawford      Kriss Cloninger III       Paul S. Amos II           Eric M. Kirsch

Corporate Objectives:

Operating earnings per diluted share on a consolidated basis for the Company (excluding foreign currency effect)

22.73% 24.00% 22.67% 24.00% 30.00%
OROE (excluding foreign currency effect) 11.36% 8.80% 9.33% 8.00% 15.00%
SMR 11.36% 8.80% 9.33% 8.00% 15.00%
Net Investment Income excluding hedge costs (Consolidated) 9.10% 8.00% 8.67% 8.00% 30.00%
Subtotal Aflac Incorporated 54.55% 49.60% 50.00% 48.00% 90.00%

U.S. Segment:

New Annualized Premium

6.81% 5.20% 5.33%
Direct Premiums 4.55% 5.20% 5.33%
Pretax Operating Earnings 4.55% 5.60% 6.01% 8.00%
Subtotal 15.91% 16.00% 16.67% 8.00%

Japan Segment:

New Annualized Premium (third sector sales)

11.36% 10.40% 10.00% 16.00%
Direct Premiums 9.09% 10.40% 10.00% 8.00%
Pretax Operating Earnings 9.09% 13.60% 13.33% 20.00%
Subtotal 29.54% 34.40% 33.33% 44.00%

Global Investments:

Credit Losses/Impairments

10.00%
Subtotal 10.00%
GRAND TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%

 

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Compensation Discussion & Analysis | Elements of Our Executive Compensation Program

2016 MIP TARGETS AND ACTUAL PERFORMANCE

Actual performance relative to MIP targets was determined after the end of the year and presented to the Compensation Committee for discussion and approval at its February 2017 meeting. The following table shows the corporate and business segment metrics, objectives, and results for the 2016 MIP awards.

 

 

  Minimum Goal Target Goal Maximum Goal 2016 Actual 2016 Payout
Percentages

Corporate Metrics:

Operating earnings per diluted share on a consolidated basis for the Company (excluding foreign currency effect)*

$6.17 $6.29 $6.41 $6.45 200%
OROE (excluding foreign currency effect) 17% 19.5% 22% 17.3% 56%
SMR 500% 600% 700% 945% 200%
Net Investment Income excluding hedge costs (Consolidated) Budget
minus 2%
Budget Budget
plus 2.25%
Budget
plus 0.91%
140.42%

U.S. Segment Metrics:

Increase in New Annualized Premiums

3.00% 4.00% 5.00% -.34%
Increase in Direct Premiums 1.50% 2.25% 3.00% 2.08% 88.39%
Increase in Pretax Operating Earnings 1.00% 3.00% 5.00% 9.67% 200%
Japan Segment Metrics:
New Annualized Premiums
(third sector sales) (billions)
¥74.22 ¥75.84 ¥77.45 ¥83.99 200%
Increase in Direct Premiums 0.25% 0.75% 1.25% .96% 141.51%
Increase in Pretax Operating Earnings before allocated expenses and foreign currency change -4.00% -3.25% -2.00% -2.02% 198.56%

Global Investments Metrics (Eric M. Kirsch only):

Credit Losses/Impairments (in millions)

($465) ($315) ($165) ($97) 200%
*Corresponds to an increase of a minimum goal of .2%, a target goal of 2%, and a maximum goal of 4% from a 2015 base or $6.16 per share.

Please refer to the 2016 Business Overview section on page 31 for additional information.

2016 MIP PAYOUTS

The following table reflects target and earned percentages of salary for each NEO for the MIP based on 2016 performance results.

  As a % of base salary
NEO Target Earned
Daniel P. Amos 220% 339%
Frederick J. Crawford 125% 200%
Kriss Cloninger III 150% 238%
Paul S. Amos II 125% 223%
Eric M. Kirsch 200% 321%

The Compensation Committee has the discretion in certain limited circumstances to adjust the MIP results related to particular performance measures if the Committee determines that a class of MIP participants would be unduly penalized or rewarded because a payout is incompatible with the performance measure. There were no adjustments to the NEOs’ MIP payouts for 2016.

For additional information about the MIP, please refer to the 2016 Grants of Plan-Based Awards table below, which shows the threshold, target, and maximum award amounts payable under the MIP for 2016, and the 2016 Summary Compensation Table, which shows the actual amount of non-equity incentive plan compensation paid to the NEOs for 2016.

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Compensation Discussion & Analysis | CEO and President Compensation and Pay-for-Performance

Long-term Equity Incentives

The CEO and President’s long-term equity incentives are addressed in the next section; this section pertains only to the other NEOs.

In 2016, executive officers, including the NEOs, received LTI awards in the form of PBRS, and all officers received stock options. For NEOs, the target amount of each award is competitively positioned relative to awards for comparable executives at our peers and in the broader insurance sector. The targeted LTI mix for 2016 for the NEOs was 80% PBRS and 20% stock options. These stock options have an exercise price based on the closing price of the Company’s common stock on the date of grant, and a three-year vesting period.

LTI targets as a percent of base salary for the NEOs were as follows:

NEO

Target LTI

(as Percent of Base Salary)

Frederick J. Crawford 200%
Paul S. Amos II 200%
Eric M. Kirsch 200%

PBRS awards will be lower than target or reduced to zero if management fails to maintain appropriate risk-based capital levels, as specified below. Additionally, the value of existing awards and other shares held by our executives likely would decline, providing strong economic incentive to manage capital and risk. Options only provide value if our share price appreciates and the options vest, which aligns with the long-term interests of shareholders.

The performance period for PBRS awards granted in 2016 is January 1, 2016, through December 31, 2018. The awards will vest three years from the issuance date, subject to satisfaction of performance conditions and final Compensation Committee authorization. Mr. Crawford received a one-time discretionary award of 4,104 PBRS to recognize superior performance that will vest on the third anniversary of the grant date if the related performance metrics are met. The sole performance measure for determining vesting for PBRS awards to NEOs is the achievement of specified RBC ratios as determined on a U.S. statutory accounting basis. This performance measure was selected because the Compensation Committee believes that capital adequacy is a significant concern for the financial markets and shareholder confidence. The RBC demonstrates Aflac’s achievement in managing the capital level of the consolidated insurance operations of Aflac Japan and Aflac U.S. as reported to U.S. regulatory authorities. This capital measure reflects the Company’s ability to both satisfy its obligations to policyholders and generate returns for shareholders.

The final three-year PBRS award percentage will reflect the three-year average RBC (2016 to 2018).

For the three-year period, performance shares will vest as follows:

  Threshold Goal Target Goal Maximum Goal
Average Risk-Based Capital Ratio 500% 700% 700%
Vesting Percentage 50% 100% 100%

If the average RBC falls below 500%, there will be no vesting for the period. Vesting will be determined using linear interpolation for an average RBC ratio between 500% and 700%. If the average RBC equals or exceeds 700%, vesting will be equal to 100%.

CEO and President Compensation and Pay-for-Performance

The Compensation Committee’s longstanding process for reviewing and determining the CEO’s pay involves a rigorous pay-for-performance approach that creates a direct link between the Company’s comparative performance results and CEO compensation. To achieve this linkage, the compensation consultant annually calculates the Company’s composite performance percentile rank for a variety of metrics among our peer group.

Starting in 2015, the Company’s President was placed under a similar program for his long-term incentive compensation. Based on market analyses, and also considering the unique role held by Mr. Cloninger as of the start of 2015 (he was President, CFO, and Treasurer at the time), the Compensation Committee determined that Mr. Cloninger’s final 2016 pay package would be set at 55% of the CEO’s pay package. Mr. Cloninger’s 2016 long-term incentive pay is 100% performance-based, as it is a function of the CEO’s pay, which is determined based on the Company’s relative financial and total shareholder return (TSR) performance against our peers.

 

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Compensation Discussion & Analysis | CEO and President Compensation and Pay-for-Performance

Timing and Key Features of the Program

The process used to determine the CEO’s and President’s total direct compensation in 2016 is shown in the following chart:

Long-term Equity Incentive (LTI) Award

The Compensation Committee’s process for making PBRS grants to the CEO and the President is summarized below.

Each of these steps, and the corresponding action for 2016, is summarized on the following pages.

 

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Compensation Discussion & Analysis | CEO and President Compensation and Pay-for-Performance

STEP 1

CONTINGENT PBRS GRANT BASED ON PRIOR YEAR’S PERFORMANCE

In this step, the Compensation Committee determines the February LTI award for the CEO and President. The contingent award was equal to 100% of the prior year’s total LTI grant date award value. The contingent grant for 2016 totaled 80,075 shares for the CEO and 50,055 shares for the President. See “2016 Grants of Plan-based Awards” table for additional information.

STEP 2

DETERMINE THE COMPANY’S RELATIVE FINANCIAL AND TSR PERFORMANCE

At the end of the calendar year, the Compensation Committee reviews the Company’s actual results for the year using the following metrics to determine the final total PBRS grants for the CEO and the President.

 

Relative financial performance (total weight: 56%), measured by:
· Revenue growth · Return on revenues
· Net income growth · Return on average equity
· Premium income growth · Return on average assets
· EPS growth  

 

Relative TSR performance (total weight: 44%), measured by:
· 1-year TSR
· 3-year TSR
 
 

 

2016 FINANCIAL PERFORMANCE RANKING MATRIX: AFLAC INCORPORATED RELATIVE RANKING AMONG PEER GROUP

 

Aflac Incorporated

Relative Ranking

(out of 18

companies)

Weightings(4)    Totals
Revenue 1-Year Growth(1) 9 1 9
Net Income 1-Year Growth(1) 6 1 6
Premium Income 1-Year Growth(1) 11 1 11
EPS 1-Year Growth(1) 5 1 5
Return on Revenues 2016(1) 1 2 2
Return on Average Equity 2016(2) 3 2 6
Return on Average Assets 2016(2) 7 2 14

1-Year Indexed TSR

(12/31/15—12/31/16)(3)

7 4 28

3-Year Indexed TSR

(12/31/13—12/31/16)(3)

16 4 64
Composite Score 145
Performance Rank 5

 

The Company's rank in comparison to our peer group on each of these metrics is shown in the table to the left. The lower the total weighted composite score, the higher a company's overall ranking.

Based upon an analysis of the Company's relative financial performance and TSR, the Company ranked 5. The Company's performance rank significantly improved compared to the prior year's assessment of relative performance when the Company ranked 10 out of 18 companies.

(1) For the trailing twelve months ending September 30, 2016.

(2) As of September 30, 2016.

(3) As of December 31, 2016, when data was compiled for the performance review by the Compensation Committee.

(4) A weighting of "1" means the related metric is worth approximately 5.56% of the total score, and a weighting of "4" means a worth of approximately 22.22% of the total.

STEP 3

ASSESS CEO COMPENSATION AT PEER COMPANIES

In conjunction with the relative performance assessment, the Compensation Committee evaluates total compensation levels for the CEO relative to the peer group with the help of the compensation consultant. The highest and lowest paid CEOs among the peers are removed from the data set to mitigate the effect of the outliers.

 

STEP 4

CALCULATE TOTAL DIRECT COMPENSATION FOR THE CEO BASED UPON THE COMPANY'S PERFORMANCE PERCENTILE RANKING VERSUS PEERS

The Company's relative performance percentile ranking (for 2016, 5 out of 18, or 77th percentile ranking) is applied to the peer CEO compensation data compiled in Step 3 for the applicable year to derive an implied total compensation amount for the Company's CEO.

 

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Compensation Discussion & Analysis | CEO and President Compensation and Pay-for-Performance

STEP 5

DETERMINE CEO’S FINAL PBRS GRANT AND ADJUST CONTINGENT PBRS TO REFLECT ACTUAL RELATIVE PERFORMANCE RANKING

The resulting implied compensation level determined in Step 4 was used to determine the CEO’s PBRS grant for 2016. The contingent grant to the CEO in February 2016 was trued-up as of December 31, 2016. Together with base salary and MIP, the final PBRS grant aligns the CEO’s total direct compensation with the Company’s relative performance versus the peer group.

STEP 6

DETERMINE PRESIDENT’S FINAL PBRS GRANT

Once the CEO’s compensation package is determined, the President’s compensation package is fixed at 55% of that amount. The resulting implied compensation level was used in determining the President’s PBRS grant for 2016.

ENDING GRANT RESULT
For 2016, the above-described process resulted in the CEO receiving a true-up of 131,246 shares of PBRS, and the President receiving a true-up of 70,010 shares of PBRS. See “2016 Grants of Plan-based Awards” table for additional information.

Contingent Vesting of PBRS Grants

In addition to having to earn the PBRS grant amount based upon the Company’s relative financial and TSR performance, the 2016 grant of PBRS is not guaranteed; vesting is contingent upon the Company achieving the three-year RBC performance thresholds discussed under “Elements of Our Executive Compensation Program–Long-term Equity Incentives” on page 38. Thus, unlike many companies where an LTI award need only be earned once, the CEO’s and President’s LTI awards must be earned twice:

lTotal grant for the year is based upon relative financial performance (56% weighting) and relative TSR performance (44% weighting) for the current year, and
lThe grant operates like the PBRS program for other NEOs (based on future performance against a pre-established, Compensation Committee-approved metric and performance level).

As a result, we believe our approach to these two senior executives’ LTI grants, and the overall compensation packages awarded these individuals, reflects the Company’s continuing strong commitment to pay for performance.

 

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Program Changes for 2017

Overview and Context

As discussed in the “Response to Say-on-Pay Vote” section above, we continually analyze our compensation program to ensure that we remain current in our approaches, a leader in executive compensation best practices, and cognizant of shareholder concerns. The feedback from these conversations, together with a thorough analysis of best practices and guidance from our compensation consultant, was incorporated into the Compensation Committee’s regular review of our compensation practices.

For 2017, we believed it was necessary to modify the metrics used in our incentive compensation programs due to the following internal and external factors affecting our business as more fully discussed in Item 1A of the 2016 Annual Report on Form 10-K:

lBegan conversion of the Japan branch to a subsidiary;
lInclusion of Japan’s U.S. dollar investment portfolio hedge costs in Operating Earnings and its impact on New Investment Income; and
lThe Bank of Japan’s 2016 announced negative rate policy resulting in a low interest rate environment and the Company’s strategic decision to de-emphasize yen-based retirement products in Japan.

In addition, we thoughtfully considered feedback received during our shareholder outreach efforts when making the following changes to our 2017 executive compensation program.

MIP Changes

For 2017, we have made the following modifications to our MIP:

lSegment pre-tax earnings were removed as MIP metrics for NEOs given that operating earnings per diluted share on a consolidated basis for the Company (excluding foreign currency effect) is already included in the MIP as a corporate metric with material weighting;
lOROE and SMR were removed from the MIP and incorporated as metrics under our PBRS awards under the LTI program in order to better align the metrics under our PBRS program with the Company’s strategic and operational goals;
lThe Japan segment includes third sector premium in place of total premium as we focus on third sector business in response to the Bank of Japan’s negative rate policy; and
lThe slope of the MIP payout curve was adjusted such that the required above-target performance to achieve maximum payouts will now be greater.

LTI Program Changes

CEO AND PRESIDENT LTI PROGRAM CHANGES

The Compensation Committee has approved a new structure to transition the CEO’s annual LTI grants from the historic pay ranking-performance matrix approach (which was applicable to 2016 grants) to a more typical market-based approach. Beginning in 2017, the CEO’s LTI grant will have the following attributes:

lAnnual LTI grants will continue to be made 100% in PBRS with terms described in the following section; and
lThe entire target annual LTI award will be granted in February at a market-competitive level based on peer market data.

Our shareholder outreach identified some shareholder concern about the absence of an LTI target and maximum for the CEO. With these LTIP program changes, the CEO’s grant will have a target and a maximum payout. The 2017 target LTI grant for the CEO is approximately $8.4 million.

Mr. Cloninger will not receive any LTI grants in 2017 due to his planned retirement at the end of 2017.

PBRS DESIGN

For 2017, our PBRS grants for executives – including our CEO – are different in the following respects. Specifically, we:

lIncorporated additional metrics (OROE and SMR) that better reflect our long-term business strategy and operating environment;
lAdded upside performance/payout leverage;
lAdded a relative TSR (RTSR) modifier; and
lModified the OROE definition to include hedge costs and exclude unrealized gains and (losses) on foreign currency translation from shareholders’ equity.

 

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Compensation Discussion & Analysis | Retirement, Deferral, and Savings Plans

The following illustrates the terms of the 2017 PBRS grant.

lFor financial performance (OROE, SMR, and RBC), linear interpolation will be used to determine payouts for performance between the corresponding goals (i.e., threshold to target, or target to maximum)
lFor RTSR, adjustments of 1.20x or 0.80x would be made only if the Company’s RTSR is in the upper or lower quartile, respectively, versus its peers; no adjustments to amounts earned pursuant to the Company’s financial performance will be made for RTSR performance falling between the 25th and 75th percentiles of the peers
lOverall, maximum potential payouts will be capped at 200% of target

RBC thresholds were adjusted down modestly to reflect the eventual draw-down of excess capital in the U.S. as a result of our Japan branch conversion. Overall, we believe that these changes for 2017 further enhance our long-standing strong pay-for-performance philosophy, while also being responsive to the business and talent markets in which we compete.

Retirement, Deferral, and Savings Plans

The retirement, deferral and savings plans described below were established in order to provide competitive post-termination benefits for officers and employees, including the NEOs, in recognition of their service and contributions to the Company.

Defined Benefit Pension Plans

As described further in “Pension Benefits” below, the Company maintains tax-qualified, noncontributory defined benefit pension plans covering substantially all U.S. employees, including the NEOs, who satisfy the eligibility requirements. The Company also maintains nonqualified supplemental retirement plans covering the NEOs. No change has been made to the pension plans and the benefit level remains the same as it was last year.

Executive Deferred Compensation Plan

The NEOs, together with other U.S.-based eligible executives, are entitled to participate in the Executive Deferred Compensation Plan (“EDCP”). Mr. Daniel P. Amos and Mr. Crawford are the only NEOs currently participating in this plan. The EDCP is discussed in more detail below under “Nonqualified Deferred Compensation.”

 

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Compensation Discussion & Analysis | Additional Executive Compensation Practices and Procedures

401(k) Savings and Profit Sharing Plan

The Company maintains a tax qualified 401(k) Savings and Profit Sharing Plan (the “401(k) Plan”) in which all U.S.-based employees, including the U.S.-based NEOs, are eligible to participate under the same terms. The Company will match 50% of the first 6% of eligible compensation that is contributed to the 401(k) Plan. Employee contributions made to the 401(k) Plan are 100% vested. Employees vest in employer contributions at the rate of 20% for each complete year of service. After five years of service, employees are fully vested in all employer contributions.

Other Benefits

The Company provides NEOs with other benefits that we believe are reasonable, competitive and consistent with our overall executive compensation program. For details, see the “All Other Compensation” column in the 2016 Summary Compensation Table on page 47.

The Company maintains medical and dental insurance, group life insurance, accidental death insurance, cancer insurance, and disability insurance programs for all of its employees, as well as paid time off, leave of absence, and other similar policies. The NEOs and other officers are eligible to participate in these programs along with, and on the same basis as, the Company’s other salaried employees. In addition, the NEOs are eligible to receive reimbursement for medical examination expenses.

For security and time management reasons, certain officers of the Company occasionally travel on corporate aircraft for business and personal purposes. Personal travel on corporate aircraft and security services are provided where considered by the Board of Directors to be in the best interest of the Company and its business objectives.

Additional Executive Compensation Practices and Procedures

Equity Granting Policies

Each year, the Compensation Committee meets shortly after the Company’s fiscal year results are released to the public. Based on recommendations developed by the CEO, President, and CFO with input from Mercer, stock options, PBRS and time-based restricted stock awards are submitted to the Compensation Committee for approval at its February meetings. Option grants are awarded on the date of the meeting, and have a per share exercise price set at the closing price on the date of grant. The Company has never engaged in “backdating” of options.

The Company may periodically make additional equity grants during the course of the year. However, it is the Company’s policy not to make any equity grants in advance of material news releases. As detailed in the section labeled “CEO and President Compensation and Pay for Performance,” the Company adjusted the amount of equity compensation granted to the CEO and President in December 2016 based on the Company’s performance relative to peers in 2016.

Stock Ownership Guidelines; Hedging and Pledging Restrictions

The Company believes its executive officers and Directors should have a significant equity interest in the Company, and has enforced stock ownership guidelines for executive officers and Directors for almost two decades. The current stock ownership guidelines are as follows:

 

Position Ownership guideline
Chairman, CEO, President, and President of Aflac 5x base salary
All other executive officers 3x base salary
Non-employee Directors 4x annual retainer

Officers have four years from date of hire or promotion to satisfy their respective stock ownership requirements. Non-employee Directors have five years from the date first elected to the Board to satisfy these requirements.

 

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Compensation Discussion & Analysis | Additional Executive Compensation Practices and Procedures

Ownership includes all shares held by the officer or Director and their spouse, as well as tenure-based, unvested restricted shares. Shares pledged as collateral for a margin account or other loan, performance-based restricted shares, and stock options (vested or unvested) do not count toward these stock ownership guidelines.

Each NEO and Director has stock ownership that exceeds ownership guidelines or is working toward meeting the requisite guideline within the allowed four-year time frame. Progress toward meeting the guidelines is reviewed regularly and reported to the Board.

The Company’s insider trading policy prohibits our Directors, officers and other covered persons from selling our Common Stock “short,” engaging in option trading (puts, calls, or other derivative securities) relating to our Common Stock, entering into a 10b5-1 plan (unless approved by the Compensation Committee), or hedging. Beginning in 2013, the Board adopted a policy prohibiting any further pledging of the Company’s stock by executive officers and Directors. All other covered persons under the Company’s insider trading policy must pre-clear with the policy’s compliance officer before pledging Company stock as collateral for a margin account or other loan.

 

Employment Agreements

The Company has employment agreements with the NEOs and certain other executives in key roles. The agreements generally address: role and responsibility; rights to compensation and benefits during active employment; termination in the event of death, disability or retirement; termination for cause or without cause; and resignation by the employee. Some agreements also contain termination and related pay provisions in the event of a change in control. These change-in-control provisions do not apply unless there is both a change in control and a termination by the Company without cause or a resignation by the executive for good reason. This is commonly referred to as a “double trigger” requirement. Further, the contracts stipulate that the executive may not compete with the Company for prescribed periods following termination of employment, or disclose confidential information.

The payments that may be made under each NEO’s employment agreement upon termination of employment under specified circumstances are described in more detail below under “Potential Payments Upon Termination or Change in Control.”

 

Change-in-Control Policy and Severance Agreements

The Company has no formal change in control or severance policy. However, as noted above, individual employment agreements generally have provisions related to these matters. These agreements provide no excise tax gross-ups.

 

Compensation Recovery (“Clawback”) Policy

The Company has a “clawback” policy that allows it to review any adjustment or restatement of performance measures and determine whether adjustments or recoveries of non-equity incentives are necessary. If it is deemed that such an adjustment or recovery is appropriate, the Compensation Committee is charged with determining the amount of recovery and the proper officer group subject to any potential adjustments or recovery.

 

Certain Tax Implications of Executive Compensation

In connection with making decisions on executive compensation, the Compensation Committee considers the provisions of Internal Revenue Code Section 162(m), which limits the Company’s ability to deduct, for federal income tax purposes, certain categories of compensation in excess of $1 million paid to certain executive officers. It is the Company’s policy to maximize the effectiveness of the compensation programs while also taking into consideration the requirements of Internal Revenue Code (“IRC”) Section 162(m). The Company intends to maintain the flexibility to take actions that it deems to be in the best interest of the Company and its shareholders. Accordingly, the Compensation Committee intends to maintain the flexibility to implement executive compensation programs that it deems to be in the best interest of the Company and its shareholders, and it reserves the authority to award non-deductible compensation as it deems appropriate.

 

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Compensation Discussion & Analysis | Additional Executive Compensation Practices and Procedures

 

Long-term Incentive Fair Value Determinations

A challenging issue for publicly traded companies is how to value long-term incentive awards for grant purposes. Like many companies, we target and express such awards as a percent of salary. We also seek to balance the value of stock options with PBRS awarded to executive officers. Of particular concern to the Company is how to calculate the value of a stock option.

The predominant model used to value stock options is the Black-Scholes-Merton valuation model. This model considers various assumptions for duration prior to exercise, risk-free interest rate, stock volatility, and employment termination rates. We segregate groups of option holders within the model by exercise patterns to better estimate the value of an option. For example, NEOs and executive officers typically hold their options much longer before exercising them than do non-officer employees.

In reality, the value assigned to long-term incentive awards changes each year as a result of fluctuations in the current market value of the Company’s Common Stock and changes in pricing assumptions. For example, when the share price goes up, so do the option grants’ fair value and their strike price, and the number of awarded shares equal to a designated dollar value decreases. Conversely, if the share price goes down, both the option’s fair value and its strike price go down, and the number of awarded shares increases. This result seems counterintuitive from a pay-for-performance perspective in that a lower stock price would lead to more options being granted at a lower price and a higher stock price would lead to fewer options being granted at a higher price.

Our solution, for grant purposes only, is to stabilize the deemed present value of a stock option for a three-year period. We think the use of such a value is more in line with creating long-term shareholder value and pay for performance, and allows us to better manage our burn rate (number of shares granted each year divided by the number of common shares outstanding) and budget the number of awarded shares over the life of the share authorization approved by shareholders.

For grants made in the three-year period of 2016 to 2018, our deemed fair value of a stock option is $6.95. However, the actual per-share exercise price under each option in any event is the closing price of a Common Stock share on the day the option is granted.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the preceding CD&A with management and, based on that review and discussion, has recommended to the Board of Directors to include the CD&A in this Proxy Statement.

 

Compensation Committee

Robert B. Johnson, Chairman

Douglas W. Johnson

Joseph L. Moskowitz

 

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2016 Summary Compensation Tables

 

The following table provides information concerning total compensation earned or paid to our CEO, CFO and the three other most highly compensated executive officers who were serving as executive officers during 2016. These five officers are referred to as our NEOs in this Proxy Statement.

 

Name and
Principal Position
Year

Salary
(1)

($)

Bonus
($)

Stock Awards

(2)(3)

($)

Option

Awards

(3)

($)

Non-equity

Incentive

Plan
Compensation

($)

Change in

Pension
Value and
Nonqualified
Deferred

  Compensation

Earnings

(4)

($)

All Other
  Compensation

(5)

($)

Total
($)
 

Total
without
Change in
Pension
Value*

($)

Daniel P. Amos 2016 1,441,100 13,773,466 4,884,442 313,002 20,412,010   20,412,010
Chairman and CEO 2015 1,441,100 4,800,556 5,509,362 231,365 11,982,383   11,982,383
  2014 1,441,100 2,141,162 4,829,415 6,835,154 230,517 15,477,348   8,642,194
Frederick J. Crawford 2016 700,000 1,420,062 280,003 1,400,700 454,628 4,255,393   4,255,393
Executive Vice 2015 360,606 1,240,000 847,987 211,994 799,652 47,335 3,507,574   3,507,574
President, CFO 2014  
Kriss Cloninger III 2016 975,000 7,772,382 2,321,529 139,409 11,208,320   11,208,320
President 2015 975,000 3,017,256 2,583,298 278,335 134,538 6,988,427   6,710,092
  2014 975,000 2,644,624 661,159 2,190,304 2,329,649 116,359 8,917,095   6,587,446
Paul S. Amos II 2016 700,000 1,120,019 280,003 1,564,038 1,402,759 1,579,325 6,646,144   5,243,385
President, Aflac 2015 677,900 1,093,011 257,128 1,619,607 716,225 1,088,891 5,452,762   4,736,537
  2014 667,900 1,655,800 333,948 1,238,548 1,290,895 982,557 6,169,648   4,878,753
Eric M. Kirsch 2016 593,800 950,052 237,519 1,906,407 36,505 17,281 3,741,564   3,705,059
Executive Vice 2015 593,800 957,391 239,348 2,262,378 26,174 8,363 4,087,454   4,061,280
President, Global Chief 2014 585,000 1,170,000 292,507 1,898,061 30,759 11,395 3,987,722   3,956,963
Investment Officer, Aflac                      
*Total without Change in Pension Value represents total compensation, as determined under applicable SEC rules, minus the change in pension value reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column. This additional column has been included to show the effect that the year-over-year change in pension value had on total compensation as determined under applicable SEC rules. The amounts reported in the Total without Change in Pension Value column differ from the amounts reported in the Total column required under SEC rules and are not a substitute for total compensation. The change in pension value, as discussed in footnote 4 below, is subject to many external variables that are not related to the Company’s performance.
(1)In each of the 3 years above, includes $441,100 deferred for Mr. Daniel P. Amos. This amount has been included in the 2016 Nonqualified Deferred Compensation table below.
(2)Mr. Crawford received a one-time discretionary award of 4,104 shares of performance-based restricted stock that will vest on the third anniversary of the grant date if the related performance metrics are met.
(3)In accordance with the SEC’s reporting requirements, we report all equity awards at their full grant date fair value under ASC 718. The Company’s valuation assumptions are described in Note 12 “Share-Based Compensation” in the Notes to the Consolidated Financial Statements in the Company’s Annual Form 10-K filed with the SEC for the year ended December 31, 2016. See page 50 for a more detailed discussion of our outstanding equity grants compared to current fair market value.
(4)No amount in this column is attributable to above-market earnings on deferred compensation. The aggregate change in the actuarial present value of the accumulated benefit obligation of the defined benefit pension plan and Retirement Plan for Senior Officers for Messrs. Daniel P. Amos and Cloninger was a decrease of $1,299,019 and $243,315, respectively. Mr. Crawford is not eligible to participate in the defined benefit plans because the plans were frozen prior to his hire date. See the “Pension Benefits” section and the accompanying table beginning on page 52 for a more detailed discussion of the retirement plans.
(5)Additional information regarding all other compensation is provided in the “All Other Compensation” or “Perquisites” tables detailed on the following page.

 

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2016 Summary Compensation Tables | 2016 All Other Compensation

2016 All Other Compensation

The following table identifies the amount of each item included for 2016 in the All Other Compensation column in the 2016 Summary Compensation Table on previous page.

 

  Perquisites   Company Contribution Renewal  
  and Other Personal        to Nonqualified Deferred Commissions from  
  Benefits     Company Contribution Compensation Previous Job  
  (1) to 401(k) Plan (2) (3) Total
Name ($) ($) ($) ($) ($)
Daniel P. Amos 305,052 7,950 313,002
Frederick J. Crawford 131,573 7,950 315,105 454,628
Kriss Cloninger III 131,459 7,950 139,409
Paul S. Amos II 1,554,780 7,950 16,595 1,579,325
Eric M. Kirsch 9,331 7,950 17,281

 

(1)Perquisites are more fully described in the Perquisites table below.
(2)Includes $315,105 of a Company deferred compensation contribution for Mr. Crawford. This amount has been included in the 2016 Nonqualified Deferred Compensation table below.
(3)Amounts are for earned renewal sales commissions before expenses on Aflac U.S. products sold before Mr. Paul S. Amos II became an Aflac employee.

 

 

2016 Perquisites

The following table identifies the incremental cost to the Company of each perquisite included for 2016 in the All Other Compensation table above.

      International       Total  Perquisites
  Personal Use of Security Assignment Tax Related Relocation     and Other Personal
  Company Aircraft Services Allowance Reimbursements Expenses     Other Benefits
  (1) (2) (3) (4) (5) (6) (7)
Name ($) ($) ($) ($) ($) ($) ($)
Daniel P. Amos 66,659 237,446 947 305,052
Frederick J. Crawford 1,046 15,121 90,197 25,209 131,573
Kriss Cloninger III 108,344 372 22,743 131,459
Paul S. Amos II 136,007 4,620 65,221 1,336,786 12,146 1,554,780
Eric M. Kirsch 106 9,225 9,331

 

(1)Incremental cost for the personal use of corporate aircraft is the calculated standard hourly cost rate based upon actual operating expenses for corporate aircraft, including fuel costs, airport fees, catering, in-flight phone, and crew travel expenses. This rate is recalculated annually. The personal use of corporate aircraft has been authorized by the Board of Directors for security reasons and to maximize the effectiveness of the executives’ time. Included in the amount reported for Mr. Cloninger is $10,373 for attending meetings of an outside board on which he serves.
(2)Incremental costs for security services include the salaries and benefits of security officers and the actual costs of any security equipment, monitoring and maintenance fees.
(3)All expenses were incurred as a direct result of Mr. Paul S. Amos II’s overseas assignment in Tokyo, Japan, which ended on December 31, 2015. Certain amounts were paid in yen and all are converted to dollars by dividing the actual yen-denominated payments by the year-to-date December 31, 2016 weighted average exchange rate of 108.70 yen to the dollar.
(4)Amount included in the tax-related reimbursements for Mr. Paul S. Amos II represents Japan taxes and tax gross-up payments ($1,336,786) paid by the Company in 2016 to satisfy tax obligations arising solely as a result of his international assignment. Amounts included in the tax-related reimbursements for Mr. Crawford represent tax gross-up payments for him that are related to his relocation expenses.
(5)This amount represents certain relocation expenses of Mr. Crawford’s paid by the Company, including $45,000 for real estate commissions and $15,400 for duplicate housing.
(6)Amounts included in the Other column are charges for guest travel in the amount of $947 (Daniel P. Amos), $25,037 (Mr. Crawford), $21,730 (Mr. Cloninger), $9,585 (Paul S. Amos II) and $975 (Mr. Kirsch). Messrs. Crawford, Cloninger and Paul S. Amos II incurred expenses for the use of Company automobile transportation in the U.S. Mr. Kirsch also incurred amounts totaling $8,150 for personal tax return preparation and financial planning.
(7)Other than tax gross-ups reflected in the tax-related reimbursements, the Company did not gross up for tax purposes any of the other perquisites described in this table.

 

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2016 Summary Compensation Tables | 2016 Grants Of Plan-Based Awards

 

2016 Grants Of Plan-Based Awards

The following table provides information with respect to the 2016 grants of plan-based awards for the NEOs.

 

                  All other    
                  Option    
                  Awards: Exercise Grant Date
Name and  

Estimated Possible Payouts

Under Non-Equity

Incentive Plan Awards(1)

  

Estimated Future Payouts

Under Equity

Incentive Plan Awards(2)

Number of
Securities
Underlying
Options
or Base
Price of
Option
Awards
Fair Value
of Stock
and Option
Awards
Principal Position Grant Threshold Target Maximum   Threshold Target    Maximum      
  Date ($) ($) ($)   (#) (#) (#) (#) ($/Sh) ($)
Daniel P. Amos 2/9/2016   40,038 80,075 80,075 4,638,745
  12/30/2016   65,623 131,246 131,246 9,134,722
  N/A     1,585,210     3,170,420     6,340,840  
Frederick J. Crawford 2/9/2016   9,667 19,334 19,334 1,120,019
  2/9/2016   22,534 57.93 280,003
  8/9/2016   2,052 4,104 4,104 300,043
  N/A 437,500 875,000 1,750,000  
Kriss Cloninger III 2/9/2016   25,028 50,055 50,055   2,899,686
  12/30/2016   35,005 70,010 70,010 4,872,696
  N/A 731,250 1,462,500 2,925,000  
Paul S. Amos II 2/9/2016   9,667 19,334 19,334 1,120,019
  2/9/2016   22,534 57.93 280,003
  N/A 437,500 875,000 1,750,000  
Eric M. Kirsch 2/9/2016   8,200 16,400 16,400 950,052
  2/9/2016   19,115 57.93 237,519
  N/A 593,800 1,187,600 2,375,200  

 

 

(1)The amounts shown in Estimated Possible Payouts Under Non-Equity Incentive Plan Awards reflect the payout levels for the NEOs under the Company’s MIP, based on the achievement of certain performance goals approved by the Compensation Committee. For additional information, please see “Elements of Our Executive Compensation Program—Management Incentive Plan (MIP)” beginning on page 33. For each Company performance goal, a minimum, target and maximum performance level is specified. The amount paid for each performance goal depends on the results attained.
(2)The amounts shown under Estimated Future Payouts Under Equity Incentive Plan Awards reflect the number of shares of PBRS. Those shares incorporate restrictions that will lapse upon the attainment of performance goals set by the Compensation Committee. Awards vest on the third anniversary of the grant date, based on the attainment of the three-year cumulative target performance goal for Company RBC ratios. Performance shares will vest based on the three-year period 2016 to 2018, calculated as the arithmetic average. For the three years, the awards will be earned upon achieving a minimum of 50% with a maximum of 100%. All NEOs possess the same rights as all other holders of Common Stock in respect of the shares underlying the PBRS, including all incidents of ownership (except the right to transfer the shares while they remain subject to forfeiture) and the right to vote such shares. The dividends accrued on the award shares will be reinvested in Common Stock at the same dividend rate received by other holders of Common Stock. Those additional restricted shares will be held in the NEO book entry account subject to the same terms and conditions attributable to the original grant, until such time as all restrictions have lapsed on the shares of Common Stock with respect to which the dividend was accrued.

 

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2016 Summary Compensation Tables | 2016 Outstanding Equity Awards At Fiscal Year-End

 

2016 Outstanding Equity Awards At Fiscal Year-End

The following table provides certain information with respect to the equity awards outstanding at the 2016 fiscal year-end for the NEOs.

 

    Option Awards   Stock Awards
                            Equity Incentive Plan Awards:
                            Number of   Market or
Payout Value
of Unearned
      Number of Securities
Underlying
  Option            Unearned Shares,
Units or Other
Rights That Have
 

Shares, Units
or Other Rights

That Have

       

Unexercised Options

  Exercise   Option   Stock   Not Vested   Not Vested
    Option Grant   Exercisable   Unexercisable   Price   Expiration   Award Grant   (1)   (2)
Name   Date     (#)     (#)     ($)     Date     Date     (#)     ($)
Daniel P. Amos   2/12/08   128,541       61.810   2/12/18            
    8/12/08   261,952       55.720   8/12/18            
    2/10/09   155,712       22.130   2/10/19            
    8/11/09   324,915       40.230   8/11/19            
    2/09/10   146,386       47.060   2/09/20            
    8/10/10   216,402       50.890   8/10/20            
    2/08/11   152,752       57.900   2/08/21            
    8/09/11   163,797       39.610   8/09/21            
                        2/11/14   36,947   2,571,511
                        2/10/15   64,777   4,508,479
                        12/31/15   17,330   1,206,168
                        2/09/16   82,040   5,709,984
                        12/30/16   131,246   9,134,722
Frederick J. Crawford   7/01/15       21,348   62.430   7/01/25            
                        7/01/15   14,099   981,290
    2/09/16       22,534   57.930   2/09/26            
                        2/09/16   19,809   1,378,706
                        8/09/16   4,152   288,979
Kriss Cloninger III   2/08/11   80,750       57.900   2/08/21            
    2/14/12   47,950       48.560   2/14/22            
    2/12/13   47,950       49.500   2/12/23            
    2/11/14   38,769       62.410   2/11/24            
                        2/11/14   45,634   3,176,126
                        2/10/15   51,606   3,591,778
                        2/09/16   51,284   3,569,366
                        12/30/16   70,010   4,872,696
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AFLAC INCORPORATED 2017 PROXY STATEMENT

 

Table of Contents

2016 Summary Compensation Tables | 2016 Outstanding Equity Awards At Fiscal Year-End

 

    Option Awards   Stock Awards
                            Equity Incentive Plan Awards:
                            Number of  

Market or

Payout Value

of Unearned

       

Number of Securities

Underlying

 

 

 

Option

         

Unearned Shares,

Units or Other

Rights That Have

 

Shares, Units

or Other Rights

That Have

        Unexercised Options   Exercise   Option   Stock   Not Vested   Not Vested
    Option Grant   Exercisable   Unexercisable   Price   Expiration   Award Grant   (1)   (2)
Name   Date   (#)   (#)   ($)   Date   Date   (#)   ($)
Paul S. Amos II   2/12/08   38,000       61.810   2/12/18            
    2/10/09   41,482       22.130   2/10/19            
    2/09/10   33,000       47.060   2/09/20            
    2/08/11   28,050       57.900   2/08/21            
    2/14/12   21,100       48.560   2/14/22            
    2/12/13   21,100       49.500   2/12/23            
    9/30/13   4,661       61.990   9/30/23            
    2/11/14       19,582   62.410   2/11/24            
                        2/11/14   28,571   1,988,542
    2/10/15       26,306   61.450   2/10/25            
                        2/10/15   18,694   1,301,102
    2/09/16       22,534   57.930   2/09/26            
                        2/09/16   19,809   1,378,706
Eric M. Kirsch   2/11/14       17,152   62.410   2/11/24            
                        2/11/14   20,189   1,405,154
    2/10/15       24,487   61.450   2/10/25            
                        2/10/15   16,375   1,139,700
    2/09/16       19,115   57.930   2/09/26            
                        2/09/16   16,803   1,169,489

 

 

(1)Includes dividend shares accumulated as of December 31, 2016, for PBRS awards granted as follows: awards granted on February 11, 2014, February 10, 2015, December 31, 2015, and February 9, 2016, respectively, of 2,639, 3,144,415 and 1,965 shares for Daniel P. Amos; awards granted on July 1, 2015, February 9, 2016, and August 9, 2016, respectively, of 516,475, and 48 shares for Mr. Crawford; awards granted on February 11, 2014, February 10, 2015, and February 9, 2016, respectively, of 3,259, 2,505, and 1,229 shares for Mr. Cloninger; 2,040,907, and 475 for Paul S. Amos II; and 1,442,795, and 403 shares for Mr. Kirsch.
(2)Based on the per share closing price of our Common Stock of $69.60 as of December 30, 2016.

 

Grant Date Options Vesting Schedule
02/11/14 100% vesting on the third anniversary of the option for Messrs. Paul S. Amos II and Kirsch
02/10/15 100% vesting on the third anniversary of the option for Messrs. Paul S. Amos II and Kirsch
07/01/15 100% vesting on the third anniversary of the option for Mr. Crawford
02/09/16 100% vesting on the third anniversary of the option for Messrs. Crawford, Paul S. Amos II and Kirsch

 

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Table of Contents

 

2016 Summary Compensation Tables | 2016 Option Exercises and Stock Vested

 

Stock Award Grant Date Stock Award Vesting Schedule
02/11/14 Graded vesting based on the attainment of the cumulative target performance goals for RBC ratios, SMR, and OROE of Aflac for three consecutive calendar years beginning with the year of grant. Each year a credit will be earned with a minimum of 50% and a maximum of 150% as measured at each year-end. The final award on 2/14/2017 was vested with a maximum payout of 100% based on the arithmetic average of the credit earned each year.
02/10/15 and 07/01/15 Graded vesting on the third anniversary of the award based on the attainment of the cumulative target performance goal for RBC ratios of Aflac for three consecutive calendar years beginning with the year of grant. Each year a credit will be earned with a minimum of 50% and a maximum of 150% as measured at each year-end. The final award will be the arithmetic average of the credit earned each year, but with a maximum payout of 100%.
12/31/15 Graded vesting of the award based on the attainment of the cumulative target performance goals for RBC ratios of Aflac for three consecutive calendar years beginning with the year of grant. Each year a credit will be earned with  a minimum threshold of 50% and a maximum of 150% as measured at each year-end. The final award will be the arithmetic average of the credit earned each year, but with a maximum payout of 100%.
02/09/16 and 08/09/16 Cliff vesting on the third anniversary of the award based on the attainment of the cumulative target performance goals for RBC ratios of Aflac for three consecutive calendar years beginning with the year of grant. For the three year period, stock will vest at 50% if the threshold RBC ratio is achieved and 100% if target is attained.
12/30/16 Cliff vesting on 2/9/2019 of the award based on the attainment of the cumulative target performance goals for RBC ratios of Aflac for three consecutive calendar years beginning with the year of grant. For the performance period, stock will vest at 50% if threshold RBC ratio is achieved and 100% if target is attained.

 

 

 

2016 Option Exercises and Stock Vested

The following table provides information with respect to options exercised and stock awards vested during 2016 for each of the NEOs.

 

  Option Awards   Stock Awards
Name

Number of Shares
Acquired on Exercise

(#)

Value Realized
on Exercise

($)

 

Number of Shares
Acquired on Vesting

(#)

Value Realized
on Vesting

($)

Daniel P. Amos 477,621 9,935,779   198,599 13,665,431
Frederick J. Crawford  
Kriss Cloninger III 104,000 1,171,040   55,380 3,173,832
Paul S. Amos II   24,350 1,395,498
Eric M. Kirsch 21,100 407,546   24,350 1,395,498

 

Pension Benefits

The Company maintains tax-qualified, noncontributory defined benefit pension plans that cover the NEOs other than Mr. Crawford, and nonqualified supplemental retirement plans covering the NEOs other than Messrs. Crawford and Kirsch. All of these plans were frozen before Mr. Crawford joined the Company.

 

The Company does not credit extra years of service under any of its retirement plans, unless required by employment agreements upon certain termination events. Messrs. Daniel P. Amos and Cloninger are eligible to receive immediate retirement benefits. For Mr. Daniel P. Amos, retirement benefits fall under the provisions of the U.S. tax-qualified plan and the Retirement Plan for Senior Officers. For Messrs. Cloninger and Paul S. Amos II, retirement benefits fall under the U.S. tax-qualified plan and the Supplemental Executive Retirement Plan. For Mr. Kirsch, retirement benefits fall under the U.S. tax-qualified plan.

 

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Table of Contents

 

2016 Summary Compensation Tables | Pension Benefits

 

Qualified Defined Benefit Pension Plan

The Aflac Incorporated Defined Benefit Pension Plan (“Plan”) is a funded tax-qualified retirement program that covers all eligible U.S.-based employees. Benefits under the Plan are calculated in accordance with the following formula:

 

             
1% of average
final monthly
compensation
x years of credited
service up to
25 years
+ .5% of average
final monthly
compensation
x years of credited
service in excess
of 25 years
             

 

For purposes of the Plan, final average monthly compensation is the participant’s highest average compensation (salary and non-equity incentive plan compensation) during any five consecutive years of service within the ten consecutive plan years of service immediately preceding retirement. Participants are eligible to receive full retirement benefits upon attaining a retirement age of 65. Participants also become eligible for full retirement benefits when their years of credited service plus age equals or exceeds 80. Participants with at least fifteen years of credited service are eligible to receive reduced retirement benefits upon reaching an early retirement age of 55. The Plan was frozen to new employees hired, or former employees rehired, on or after October 1, 2013. During the fourth quarter of 2013, active participants in the Plan were given the option to exit the Plan and receive a non-elective 401(k) matching contribution.

Benefits payable under the Plan are not subject to adjustment for Social Security benefits or other offsets. The benefits are paid monthly over the life of the participant, with joint and survivor options available at actuarially reduced rates. The maximum annual retirement benefit was limited, in accordance with Section 415 of the Internal Revenue Code, to $210,000 for 2016. The maximum annual compensation that may be taken into account when calculating retirement benefits was limited, in accordance with Section 401(a)(17) of the Internal Revenue Code, to $265,000 for 2016. The limitation amounts for future years will be indexed for cost-of-living adjustments.

 

Supplemental Executive Retirement Plan

The Company’s Supplemental Executive Retirement Plan (“SERP”) is an unfunded and unsecured obligation of the Company and is not a tax-qualified plan. The SERP provides retirement benefits to certain officers of the Company in addition to those provided by the qualified Plan. Participation in the SERP is limited to certain key employees as periodically designated by the Compensation Committee. Currently, Messrs. Cloninger and Paul S. Amos II participate in the SERP. To be eligible for benefits under the SERP, participants generally must be employed with the Company or a subsidiary at age 55. The SERP was frozen to new participants effective January 1, 2015.

The SERP includes a four-tiered benefit formula that provides for a benefit based on final three-year average compensation (base salary and non-equity incentive plan compensation) earned for a calendar year as described below. The annual benefit varies based on the participant’s age at retirement: 40% is paid to someone who retires between the ages of 55 and 59, 50% is paid to someone who retires between the ages of 60 and 64, and 60% is paid to someone who retires at or after the age of 65. A reduced 30% benefit is available to participants with at least fifteen years of service who terminate employment prior to age 55.

Benefits generally are payable in the form of an annuity for the life of the participant. The participant may elect to receive reduced lifetime benefits, in which case any surviving spouse will receive a benefit equal to 50% of the amount paid to the participant. Benefits are calculated based upon the average annual compensation for the three consecutive calendar years out of the final ten consecutive calendar years of employment that yield the highest average. Benefits under the SERP are subject to offset for amounts paid under the qualified Plan.

 

Retirement Plan for Senior Officers

The CEO is the only active employee who participates in the Retirement Plan for Senior Officers (“RPSO”). Participants in the RPSO receive full compensation for the first twelve months after retirement. Thereafter, a participant may elect to receive annual lifetime retirement benefits equal to 60% of final compensation (base salary plus non-equity incentive), or 54% of final compensation with 50% of final compensation to be paid to a surviving spouse for a specified period after death of the participant. Final compensation is deemed to be the higher of either the compensation paid during the last twelve months of active employment with the Company or the highest compensation received in any calendar year of the last ten years preceding the date of retirement.

 

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2016 Summary Compensation Tables | Nonqualified Deferred Compensation

 

Generally, no benefits are payable until the participant accumulates ten years of credited service at age 60, or twenty years of credited service. Reduced benefits may be paid to a participant who retires (other than for disability) before age 65 with less than twenty years credited service. The CEO has 43 years of credited service, meaning he is fully vested for retirement benefits under the RPSO. The RPSO was frozen to new participants on January 1, 2009.

All benefits under the RPSO are subject to annual cost-of-living increases as approved by the Compensation Committee. Retired participants and their spouses also are entitled to receive full medical expense benefits for their lifetimes. The benefits payable under the RPSO are not subject to Social Security or qualified Plan offsets.

 

2016 Pension Benefits

The following table provides certain information regarding the Company’s pension benefits at December 31, 2016, and for the year then ended.

 

    Number of Years
Credited Service
Present Value of
  Accumulated Benefit*

   Change from Prior

Year

  Payments During Last

Fiscal Year

Name Plan Name (#) ($) ($) ($)
Daniel P. Amos Retirement Plan for Senior Officers 43 51,886,230 (1,367,308)
  Aflac Incorporated Defined Benefit Pension Plan 43 1,217,141 68,289  
Frederick J. Crawford Aflac Incorporated Defined Benefit Pension Plan
Kriss Cloninger III Supplemental Executive Retirement Plan 25 22,349,210 (312,810)
  Aflac Incorporated Defined Benefit Pension Plan 25 798,001 69,495  
Paul S. Amos II Supplemental Executive Retirement Plan 12 6,489,736 1,362,728
  Aflac Incorporated Defined Benefit Pension Plan 12 280,054 40,031  
Eric M. Kirsch Aflac Incorporated Defined Benefit Pension Plan 5 133,497 36,505

 

*Assumed retirement age for all calculations was the earliest retirement age for unreduced benefits. Assumptions used to calculate pension benefits are more fully described in Note 14, “Benefit Plans,” in the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2016.

 

Nonqualified Deferred Compensation

The following 2016 Nonqualified Deferred Compensation table shows, for Messrs. Daniel P. Amos and Crawford, Company contributions to, and earnings and account balances under, the Aflac Incorporated Executive Deferred Compensation Plan (“EDCP”), an unfunded, unsecured deferred compensation plan.

 

2016 Nonqualified Deferred Compensation

 

 

 

Name

Executive Contributions
in Last Fiscal Year

($)

Registrant Contributions
in Last Fiscal Year

($)

Aggregate Earnings (Loss)
in Last Fiscal Year(3)

($)

Aggregate Withdrawals/

Distributions

($)

Aggregate Balance at Last

Fiscal Year-End

($)

Daniel P. Amos(1) 441,100 335,309 6,194,606
Frederick J. Crawford(2) 315,105 315,105
Kriss Cloninger III
Paul S. Amos II
Eric M. Kirsch

 

(1)The $441,100 deferred compensation for Mr. Daniel P. Amos is included in the Summary Compensation Table for the current year. Additionally, previous years’ deferrals included in the Aggregate Balance column were reported as compensation in prior periods.
(2)The $315,105 deferred compensation for Mr. Crawford represents unvested Company-funded executive employer contributions in the amount of 15% of Mr. Crawford’s annual compensation (base salary plus MIP). The funds for 2016 will be credited to the EDCP in March 2017. This is an annual contribution approved by the Compensation Committee since Mr. Crawford is not eligible to participate in the Pension Plan or SERP. Annual contributions will be 100% vested on the earlier of (i) the later of 15 years of employment or 5 years participation, (ii) age 65, (iii) change in control, (iv) death, or, (v) disability. The amount shown in the table is included in the Summary Compensation Table for the current year in the All Other Compensation column.
(3)The Company does not pay or credit above-market earnings on amounts deferred by or on behalf of executives.

 

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Table of Contents

 

2016 Summary Compensation Tables | Potential Payments Upon Termination or Change in Control

The EDCP allows certain U.S.-based officers, including the NEOs (the “Participants”), to defer up to 75% of their base salaries and up to 100% of their annual non-equity incentive awards. The Company may make discretionary matching or other discretionary contributions in such amounts, if any, that the Compensation Committee may determine each year.

The EDCP is subject to the requirements of Section 409A of the Internal Revenue Code. Deferred amounts earned and vested prior to 2005 (“grandfathered” amounts) under the EDCP are not subject to Section 409A’s requirements and continue to be governed generally under the terms of the EDCP and the tax laws in effect before January 1, 2005.

The amounts in the Aggregate Balance column include investment earnings (and losses) determined under phantom investments. Account balances may be invested in phantom investments selected by Participants from an array of investment options that substantially mirror the funds available under the Company’s 401(k) Plan, except for Common Stock. Participants can change their investment selections (unless prohibited by the fund) in the same manner that applies to participants in the 401(k) Plan.

Each year, when Participants elect whether to defer compensation under the EDCP for the following year, they also elect the timing and form of future distributions arising from those deferrals, with a separate election permitted for each type of deferral (i.e., salary and non-equity incentive award). Specifically, a Participant may elect distributions beginning in a specific year (even if employment has not then ended) or beginning six months after the termination of employment. Participants may choose to have any distribution made in a lump sum or in up to ten annual installments. Distributions attributable to discretionary contributions are made in the form and at the time specified by the Company.

A Participant may delay the timing and form of distributions attributable to deferrals as long as the change is made at least twelve months before the initial distribution date. With respect to non-grandfathered amounts, new elections also must satisfy the additional requirements of Section 409A. In general, Section 409A provides that distributions may not be accelerated (other than for hardships) and any delayed distribution may not begin earlier than five years after the original distribution date.

Deferral amounts for which no distribution elections have been made are distributed in a lump sum six months after a Participant separates from service.

Potential Payments Upon Termination or Change in Control

For purposes of this section only, the “Company” refers to Aflac Incorporated or Aflac, as applicable. The Company has employment agreements with each of the NEOs. Except as described below, the agreements are similar in nature and contain provisions relating to termination, disability, death and a change in control of the Company.

Mr. Daniel P. Amos voluntarily waives all “golden parachute” and other severance components in his employment agreement. The elimination of these potential payments has been reflected in the 2016 Potential Payments Upon Termination or Change in Control table.

For the remaining NEOs, the Company remains obligated to continue compensation and benefits for the scheduled term of the agreement if the NEO’s employment is terminated by the Company without “good cause” or by the NEO with “good reason.” In addition, upon a termination by the Company without good cause or by the NEO for good reason, all outstanding equity awards become fully vested, except that equity awards subject to Company performance will remain subject to that performance. Mr. Kirsch entered into a new agreement effective January 1, 2016, that provides for termination and change of control compensation and benefits similar to the compensation and benefits provided for the other NEOs. Messrs. Cloninger and Paul S. Amos II are not entitled to continued compensation after earning the maximum benefit under the SERP; Mr. Cloninger has earned the maximum SERP benefit and, therefore, would not receive continued compensation. Mr. Kirsch does not participate in the SERP.

If an NEO’s employment is terminated by the Company for “good cause,” or by the NEO without “good reason,” the Company generally is obligated to pay compensation and benefits only to the date of termination (except that the NEO, to the extent otherwise eligible, is entitled to benefits under the RPSO or under the SERP if the termination is not for “good cause”). Under the NEOs’ employment agreements, “Good cause” generally means that in discretion of the Company, any of the following have occurred or exist: (i) the willful failure by the NEO to substantially perform assigned management duties (other than due to sickness, injury, or disability); (ii) intentional

 

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conduct by the NEO causing substantial injury to the Company; or (iii) the conviction of or plea of guilty by the NEO to a felony. “Good reason” is defined to include (i) a material breach of the employment agreement by the Company; (ii) a material diminution or change in the NEO’s title, duties, or authority; or (iii) a material relocation of the Company’s principal offices (or in Mr. Kirsch’s case, the Company’s principal New York office or his own office). Upon voluntary termination without “good reason” or termination by the Company for “good cause,” an NEO is prohibited for a two-year period from directly or indirectly competing with the Company.

The NEOs’ employment agreements provide that compensation and benefits continue for certain specified periods in the event the NEO becomes totally disabled. The amount of continued compensation for Messrs. Cloninger and Paul S. Amos II will be reduced by 60% if they are eligible for the maximum benefit percentage under the SERP. Mr. Cloninger has earned the maximum SERP benefit and, therefore, would be subject to this 60% reduction. Upon the death of an NEO, the NEO’s estate is to be paid an amount, over a three-year period, equal to the NEO’s base salary and any non-equity incentive awards actually paid during the last three years of the NEO’s life.

Upon a “change in control” of the Company, employment agreements for the NEOs (other than Mr. Daniel P. Amos) are extended for an additional three-year period. If, following a change in co