DEF 14A 1 d40935ddef14a.htm DEF 14A DEF 14A
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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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¨   Soliciting Material Pursuant to §240.14a-12

Unum Group

 

(Name of Registrant as Specified In Its Charter)

 

  

 

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Table of Contents

LOGO


Table of Contents

TABLE OF CONTENTS

 

TABLE OF CONTENTS

 

NOTICE OF 2016 ANNUAL MEETING      5   

PROXY SUMMARY

     6   

Management and Board Transitions

     6   

Performance Highlights

     6   

Capital Generation for Shareholders

     7   

Total Shareholder Return

     8   

2015 Say-on-Pay Vote

     9   

Key Corporate Governance and Executive Compensation Practices

     10   

Voting Items

     11   
INFORMATION ABOUT THE BOARD OF DIRECTORS      12   

Director Nominees

     12   

Additional Directors – Retiring at the Annual Meeting

     18   

Director Compensation

     19   
CORPORATE GOVERNANCE      23   

Corporate Governance Guidelines

     23   

Board Leadership Structure

     23   

Chairman Succession Planning

     24   

Director Independence

     24   

Process for Selecting and Nominating Directors

     25   

Board Tenure

     26   

Limits on Board and Audit Committee Service

     26   

Board Meetings and Attendance

     26   

Committees of the Board

     27   

The Board’s Role in Risk Oversight

     29   

Director Retirement Policy

     30   

Compensation Committee Interlocks and Insider Participation

     30   

Related Party Transactions and Policy

     30   

Codes of Conduct and Ethics

     31   
REPORT OF THE AUDIT COMMITTEE      32   
COMPENSATION DISCUSSION AND ANALYSIS      35   

Business and Performance Review

     35   

2015 Say-on-Pay Vote

     39   

Key Executive Compensation Practices

     40   

Management Transition

     40   

Compensation Program Structure and Committee Decisions

     41   

Individual Performance Assessments

     47   

Company Performance Targets

     51   

Compensation Decisions

     57   

Compensation Contracts and Agreements

     67   

Compensation Policies and Practices

     69   
REPORT OF THE HUMAN CAPITAL COMMITTEE      72   
COMPENSATION TABLES      73   

2015 Summary Compensation Table

     73   

2015 Grants of Plan-Based Awards

     77   

2015 Outstanding Equity Awards at Fiscal Year-End

     79   

Vesting Schedule for Unvested Restricted Stock Units

     80   

2015 Option Exercises and Stock Vested

     81   
POST-EMPLOYMENT COMPENSATION      82   

Pension Benefits

     82   

Nonqualified Deferred Compensation

     85   

Other Post-Employment Payments

     86   
EQUITY COMPENSATION PLAN INFORMATION      92   
OWNERSHIP OF COMPANY SECURITIES      94   

Security Ownership of Certain Shareholders

     95   

Section 16(a) — Beneficial Ownership Reporting Compliance

     96   
ITEMS TO BE VOTED ON      97   

Election of Directors

     97   

Advisory Vote to Approve Executive Compensation

     97   

Ratification of Appointment of Independent Registered Public Accounting Firm

     98   

Approval of the Unum European Holding Company Limited Savings-Related Share Option Scheme 2016

     99   
ABOUT THE ANNUAL MEETING      102   
ADDITIONAL INFORMATION      106   
APPENDIX A      109   

Rules of the Unum European Holding Company Limited Savings-Related Share Option Scheme 2016

     109   
APPENDIX B      125   

Reconciliation of Non-GAAP Financial Measures

     125   
APPENDIX C      127   

Directions to the Annual Meeting

     127   
 

 

We are furnishing proxy materials, including this proxy statement, in connection with the solicitation of proxies on behalf of the Board of Directors, to be voted at the 2016 Annual Meeting of Shareholders of Unum Group and at any adjournment or postponement thereof. Our proxy materials are first being mailed and made available electronically to shareholders on or about April 14, 2016.

 

2016 PROXY STATEMENT   3


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A LETTER FROM OUR BOARD OF DIRECTORS

 

 

April 14, 2016

Dear Fellow Shareholder:

 

At Unum, we’re proud of the tremendous societal value we create as a leading provider of employee benefits that help protect people when they need it most – including during some of the most difficult times in their lives.

 

As members of your Board of Directors, our primary focus is to ensure this good work continues by building a sustainable organization that generates long-term value for its shareholders. We do this by setting a clear strategic course for the company, helping develop sound operating and financial plans, and assuring that these plans are executed in a timely, effective and responsible manner.

 

Solid execution was again a key theme in 2015 as we generated strong financial results, consistent operating performance and significant growth across our core businesses, while also returning value to shareholders through share repurchases and a dividend increase.

 

As a result, we continue to be well-positioned both financially and strategically to capitalize on the opportunities that lie ahead.

 

Our success, of course, rests on the strength of our people. One of our goals is to ensure that Unum is not only doing the right things to attract and retain high-caliber individuals, but also that it is committed to a rigorous leadership development and succession planning process at all levels of the organization. This commitment has paid dividends as we seamlessly transitioned the responsibilities of a number of executives over the last several years – including both the Chief Executive Officer and Chief Financial Officer in 2015 – without impacting company performance. We’d like to thank current chairman and former CEO Tom Watjen for leading the company through this well-planned transition process.

 

Our focus on succession planning isn’t limited to the executive ranks at the company. In fact, the Board itself has undergone significant change and will continue to do so over the next two years as several directors approach mandatory retirement age. At the Annual Meeting this year, current Lead Independent Director and former Chairman William J. Ryan will retire after 12 years on our Board. Director A.S. (Pat) MacMillan, who is our longest-serving board member, will also retire at the meeting after 21 years on our Board. Retiring at the end of 2015 was Tom Kinser, who was a director for 11 years. We wish Bill, Pat and Tom well and thank them for their many years of leadership. Kevin T. Kabat, who joined our Board in 2008, is slated to become Lead Independent Director upon his re-election at the Annual Meeting.

 

In closing, we are pleased with our 2015 operating and financial performance and remain confident that we are continuing to do all the things necessary to create value for our shareholders.

 

On behalf of our employees and the entire leadership team, thank you for your continued support of Unum.

   LOGO

 

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NOTICE OF 2016 ANNUAL MEETING OF SHAREHOLDERS

 

 

NOTICE OF 2016 ANNUAL MEETING OF SHAREHOLDERS

The 2016 Annual Meeting of Shareholders of Unum Group will be held:

 

Date:      Thursday, May 26, 2016
Time:      10:00 a.m. Eastern Daylight Time
Place:      Unum Group
     2211 Congress Street
     Portland, Maine 04122

The items of business are:

 

    To elect 13 directors named in the proxy statement, each for a one-year term expiring in 2017;

 

    To conduct an advisory vote to approve executive compensation;

 

    To ratify the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for 2016; and

 

    To approve the Unum European Holding Company Limited Savings-Related Share Option Scheme 2016.

Shareholders also will transact any other business that may properly come before the meeting.

Management will also review the company’s 2015 performance and its outlook for the future.

Shareholders of record of the company’s common stock (NYSE: UNM) at the close of business on March 28, 2016, are entitled to vote at the meeting and any adjournments or postponements of the meeting.

 

LOGO

J. Paul Jullienne

Vice President, Managing Counsel and Corporate Secretary

April 14, 2016

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on May 26, 2016: The proxy statement and annual report to shareholders are available at www.envisionreports.com/unm.

 

2016 PROXY STATEMENT   5


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PROXY SUMMARY

 

 

PROXY SUMMARY

This summary is intended to highlight certain key information contained in this proxy statement that we believe will assist your review of the items of business to be voted on at the 2016 Annual Meeting of Shareholders of Unum Group (the “Annual Meeting”). As it is only a summary, we encourage you to review the full proxy statement and our annual report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”) for more complete information about these topics.

Management and Board Transitions

 

Upon the conclusion of the 2015 Annual Meeting, Thomas R. Watjen retired as the Chief Executive Officer of Unum Group (“Unum” or the “company”) after more than 20 years with the company, including the last 12 as CEO. Richard P. McKenney, who had served as Executive Vice President and Chief Financial Officer since August 2009, succeeded Mr. Watjen as President and was elected as a director of the company in April 2015. Mr. McKenney then succeeded Mr. Watjen as CEO upon his retirement the following month. John F. McGarry, formerly President and Chief Executive Officer of Closed Block Operations, succeeded Mr. McKenney as Chief Financial Officer in April 2015.

Mr. Watjen assumed the role of non-executive Chairman of the Board of Directors in May 2015, with plans to serve for two years to ensure continuity at both the Board and management levels. In this role, he has guided the Board through recent changes and has positioned us well for a smooth transition when he leaves.

When Mr. Watjen made the transition to Chairman last year, William J. Ryan, our previous non-executive Chairman, became Lead Independent Director. After 12 years of service, Mr. Ryan will retire from the Board at the 2016 Annual Meeting. The independent directors have named Kevin T. Kabat to assume the role of Lead Independent Director if re-elected at the Annual Meeting. The Board views this as an important step toward naming a successor Chairman as Mr. Watjen nears the end of his two-year commitment.

Succession planning for the Chairman and Lead Independent Director roles has been led by the Governance Committee using a transparent process developed with director input on appropriate selection criteria to ensure broad support. The process was initiated soon after Mr. Watjen became the Chairman and is reflective of a desire that succession for both roles be considered together. The Lead Independent Director role is naturally aligned with the Chairman role, and although Mr. Kabat is not assured of being named Chairman in the future, his Lead Independent Director service will provide a basis for assessing his performance for the Chairman’s role in 2017 when Mr. Watjen’s Board service is expected to end. The Board is confident with the succession plan for the Lead Independent Director and Chairman roles and expects the upcoming transition for each to be as successful as the recent series of management changes.

Performance Highlights

Unum had another successful year in 2015 as we built on the sales and premium growth begun the prior year and continued our track record of consistent financial and operating performance. The persistently low interest rate environment continues to pressure our results, but price increases and management of discount rates have allowed us to maintain our profitability.

 

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PROXY SUMMARY

 

Financial highlights1 from 2015 include:

 

    Pre-tax operating income of $1.29 billion and after-tax operating income of $901.0 million, based on revenues of $10.7 billion;

 

    Record operating earnings per share (EPS) of $3.64, a 3.7% increase from the prior year and the tenth consecutive year of operating EPS growth;

 

    Consolidated operating return on equity (ROE) of 11.3% (14.5% in our core operating segments);

 

    Book value per share growth of 8.4% from 2014 (excluding accumulated other comprehensive income, or AOCI), the seventh consecutive year of growth; and

 

    Solid investment results in a difficult interest rate environment while emphasizing sound risk management and credit quality.

Operating highlights from 2015 include:

 

    Approximately $6.8 billion in benefits paid to people facing illness, injury, or loss of life;

 

    Healthy growth in sales of 4.6% and premium of 5.1% throughout our core businesses;

 

    Acquisition of a leading dental carrier to complement the offerings of our U.K. business;

 

    High client satisfaction metrics that generally exceeded our plan benchmarks;

 

    A strong company brand, image, and reputation; and

 

    Recognition of our corporate citizenship efforts by several independent organizations, including: being recognized as one of the best places to work in America by Forbes magazine and in the insurance industry by Business Insurance magazine; and being included in the Dow Jones Sustainability North American Index.

Capital Generation for Shareholders

Our capital generation remained strong and allowed us to deploy that capital in a number of ways.

 

    Shareholders received $174.2 million in Unum dividends, representing an increase in the dividend rate of 12.1% over the prior year, bringing our cumulative dividend rate increase since 2008 to 146.6%;

 

    We also repurchased approximately 12.3 million shares at a cost of nearly $427 million, bringing our total share repurchases since 2007 to $3.2 billion; and

 

    Our credit ratings remain high as a result of the strength of our strong brand in the employee benefits market, our favorable operating results and our strong balance sheet.

 

 

1 Operating results referenced in this document are non-GAAP financial measures that exclude certain specified items. For 2015, these excluded items were net realized investment gains and losses and non-operating retirement-related gains or losses. For reconciliations of the non-GAAP financial measures, including operating income, operating revenue, operating earnings per share, operating return on equity and book value per share (excluding accumulated other comprehensive income, or AOCI), to the most directly comparable GAAP measures, refer to Appendix B. Effective January 1, 2015, we adopted an accounting standards update for tax credit partnership investments in qualified affordable housing projects and applied the amendments retrospectively, adjusting all comparative prior periods. See Note 1 of the Consolidated Financial Statements in Part II, Item 8 of our 2015 Form 10-K for further discussion.

 

2016 PROXY STATEMENT   7


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PROXY SUMMARY

 

Total Shareholder Return

Unum has been a steady performer and a solid long-term investment during one of the most challenging economic periods in memory, with a 5.7% compound annual growth rate over the last 10 years. In fact, our total shareholder return has outperformed the S&P Life and Health Index during the same time period, and matched or exceeded our Proxy Peer Group in all but the five-year comparison.

Due to the long-term nature of some of our businesses, our performance is pressured by the historically low interest rate environment. As a result, our stock price, as well as the stock price of many of our peers in the financial services sector, has underperformed the broader stock market indices over the past 10 years. However, by leveraging our market leading positions, strong underwriting and risk management discipline and effective capital management, we have been able to outperform our Proxy Peer Group and the S&P Life and Health Index as a whole.

 

LOGO

 

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PROXY SUMMARY

 

2015 Say-on-Pay Vote

Although our 2015 shareholder advisory vote on executive compensation passed, the Board and the Human Capital committee were disappointed that it received only approximately 69% support. To better understand these results, we engaged in an extensive shareholder outreach effort, contacting each of our top 40 investors, representing the holders of over 69% of our outstanding shares. Eleven of these investors, representing holders of more than 45% of our outstanding shares, accepted our invitation for engagement. We met with each of them.

During the meetings, shareholders provided feedback on a variety of topics. Multiple shareholders commented that they were pleased to see a robust process for Board succession along with a focus on diversity and skills needed to support our business strategy. We did not receive many comments or suggestions for changes to our compensation programs. In fact, the shareholders we spoke with generally had favorable comments about the design of our executive compensation programs and policies.

While shareholders had a range of perspectives, the one consistent theme was to include disclosure on our reasons for using return on equity as a performance metric in our annual and long-term incentive plans (see discussion beginning on page 51). Beyond that, there were a few suggestions with respect to enhancements we could make to our proxy statement, including disclosure of:

 

    The goal-setting process to provide additional insight into the rigor of our performance goals (discussed beginning on page 51);

 

    The change to 2015 pay as a result of recent leadership changes (discussed beginning on page 40);

 

    Incentive plan adjustments that would be made during the current calendar year, if applicable (in addition to those actually made the prior year) (discussed beginning on page 56); and

 

    Addressing what we have heard from our shareholders and how we are responding.

Overall, shareholders told us they appreciated the opportunity to engage in these discussions and the company’s willingness to consider their input with respect to both executive compensation and governance practices.

In addition to our meetings with shareholders, we also met with two large proxy advisory firms to provide an update on our shareholder engagement efforts and gain further insight into their views regarding our programs and disclosure. We believe that the changes to our disclosure referenced above are also responsive to comments that we received from these firms. Specifically, our disclosures with respect to the leadership transition and related compensation, rigor of the goal setting process, and use of return on equity as a performance goal are responsive to comments from their reports and/or the meetings we held with them.

 

2016 PROXY STATEMENT   9


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PROXY SUMMARY

 

Key Corporate Governance and Executive Compensation Practices

We are committed to good corporate governance and executive compensation practices, as evidenced by the following:

 

    Pay for performance linking a majority of our compensation to individual, financial and stock price performance measures;

 

    Annual say-on-pay votes;

 

    Robust stock ownership and retention requirements for senior officers and directors;

 

    Anti-pledging and anti-hedging policies applicable to executives and directors;

 

    No poison pill;

 

    Majority voting for directors (in uncontested elections);

 

    Board declassification (effective as of our 2016 Annual Meeting);

 

    Proxy access (for discussion, see “Shareholder proposals and nominations for our 2017 Annual Meeting” on page 106);

 

    Annual Board, committee, and individual director evaluations;

 

    Substantially independent Board (13 of 15 directors are independent);

 

    Restriction on other board and audit committee service;

 

    Frequent executive sessions of independent directors at scheduled Board meetings;

 

    High meeting attendance by directors (average attendance of 97% in 2015);

 

    Double-trigger (change in control and termination) required for accelerated vesting of equity;

 

    Independent compensation consultant to the Human Capital Committee;

 

    Minimal perquisites; and

 

    Elimination of golden parachute excise tax gross-ups.

 

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PROXY SUMMARY

 

Voting Items

The following items will be voted on at the Annual Meeting:

 

Description    Pages      Board Recommends

 

Item 1. Election of directors

  

 

 

 

97

 

  

  

 

FOR each nominee  

Thirteen director nominees are standing for election this year, each for a one-year term expiring in 2017 and until his or her successor is duly elected and qualified or until his or her earlier death, resignation, disqualification, or removal from office. The Board and the Governance Committee believe that each director nominee possesses the necessary skills and qualifications to provide effective oversight of the business. The director nominees are:

Theodore H. Bunting, Jr.

E. Michael Caulfield

Joseph J. Echevarria

Cynthia L. Egan

   Pamela H. Godwin

Kevin T. Kabat

Timothy F. Keaney

   Gloria C. Larson

Richard P. McKenney

Edward J. Muhl

   Ronald P. O’Hanley

Francis J. Shammo

Thomas R. Watjen

Item 2. Advisory vote to approve executive compensation

     97-98       FOR
We are seeking a non-binding advisory vote to approve the compensation of our named executive officers. We describe our compensation programs in the Compensation Discussion and Analysis section of this proxy statement. The Human Capital Committee believes these programs reward performance and align the long-term interests of management and shareholders. Although non-binding, the Human Capital Committee will take into account the outcome of the advisory vote and shareholder feedback when considering future executive compensation decisions.
Item 3. Ratification of appointment of
independent registered public accounting firm
     98       FOR
The Audit Committee has appointed Ernst & Young LLP as our independent registered public accounting firm for 2016, and the shareholders are being asked to ratify the appointment.
Item 4. Approval of the Unum European Holding Company Limited
Savings-Related Share Option Scheme 2016
     99-101       FOR
The Human Capital Committee has adopted the Unum European Holding Company Limited Savings-Related Share Option Scheme 2016, and the shareholders are being asked to approve the plan. The plan would enable our eligible employees in the U.K. to purchase shares of our common stock at a 10% discounted price, similar to an employee stock purchase plan for U.S. employees.

 

2016 PROXY STATEMENT   11


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INFORMATION ABOUT THE BOARD OF DIRECTORS

 

INFORMATION ABOUT THE BOARD OF DIRECTORS

Below are brief biographies for each of our directors and descriptions of the directors’ key qualifications, skills, and experiences that contribute to the Board’s effectiveness as a whole.

Director Nominees

 

LOGO     

 

Director    

since 2013    

 

Age 57     

 

Theodore H. Bunting, Jr.

 

Independent Director

 

 

 

 

Member of the Audit Committee   

Member of the Human Capital Committee   

 

 

 

Mr. Bunting is the Group President, Utility Operations of Entergy Corporation, an integrated energy company engaged primarily in electric power production and retail distribution operations in Arkansas, Louisiana, Mississippi, and Texas, a position he has held since June 2012. From August 2007 to May 2012, he served as Senior Vice President and Chief Accounting Officer for Entergy and its subsidiaries. Prior to that, he held numerous executive positions within the Entergy organization, which he joined in 1983. He began his professional career in public accounting with Arthur Andersen & Co. in 1981 and is a certified public accountant. Mr. Bunting was a director of Imation Corp., a global data storage and information security company, from November 2012 until August 2014.

 

Mr. Bunting possesses extensive financial, accounting, and operational experience as a senior executive with a public company in a regulated industry. His leadership responsibilities have included financial reporting oversight, strategic and financial planning, customer service, operations support, and risk management. He also has experience as a director of another publicly traded company and qualifies as an “audit committee financial expert” under SEC regulations.

LOGO     

 

Director    

since 2007    

 

Age 69    

 

E. Michael Caulfield

 

Independent Director

 

 

 

 

Chair of the Audit Committee   

Member of the Risk and Finance Committee   

 

 

 

Mr. Caulfield served as President of Mercer Human Resource Consulting from September 2005 until his retirement in September 2006, prior to which he served as Chief Operating Officer from July 2005. He retired from Prudential Insurance Company as Executive Vice President in 2000, after having held a number of executive positions, including Executive Vice President of Financial Management, Chief Executive Officer of Prudential Investments, and President of both Prudential Preferred Financial Services and Prudential Property and Casualty Company. He previously served as a director of our company from August 2004 to July 2005.

 

Mr. Caulfield has senior leadership experience in finance, investments, and executive management in both the insurance and broader financial services industry. His operating background with large global businesses included responsibility for financial reporting oversight, risk management, and strategic planning. He also qualifies as an “audit committee financial expert” under SEC regulations.

 

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INFORMATION ABOUT THE BOARD OF DIRECTORS

 

 

LOGO     

 

Director    

since 2016    

 

Age 59    

 

Joseph J. Echevarria

 

Independent Director

 

 

 

 

Member of the Audit Committee   

Member of the Governance Committee   

 

 

 

Mr. Echevarria served as Chief Executive Officer of Deloitte LLP, a global provider of professional services, from 2011 until his retirement in August 2014. During his 36-year tenure with Deloitte he held increasingly senior leadership positions prior to being named CEO, including U.S. Managing Partner and Chief Operating Officer, Deputy Managing Partner, and Southeast Region Audit Managing Partner. He also served on key boards and committees within Deloitte and its member firm network, including chair of the U.S. Executive and Americas Executive committees and memberships on the U.S. and global boards. Mr. Echevarria has been a director of The Bank of New York Mellon Corporation since January 2015 and a director of Pfizer Inc. since June 2015. In addition, he serves as the Chair of My Brother’s Keeper Alliance and is a member of the President’s Export Council and the Presidential Commission on Election Administration.

 

Mr. Echevarria brings to the Board significant experience in finance, accounting, global operations, strategic planning, executive management and corporate governance acquired through his leadership at Deloitte and on the boards of other publicly traded companies. He has a deep understanding of the financial services industry, including the current regulatory environment. He also brings public policy perspectives from his government service, is a certified public accountant and qualifies as an “audit committee financial expert” under SEC regulations.

LOGO     

 

Director    

since 2014    

 

Age 60    

 

Cynthia L. Egan

 

Independent Director

 

 

 

 

Member of the Audit Committee   

Member of the Regulatory Compliance Committee   

 

 

 

Ms. Egan was President of T. Rowe Price Retirement Plan Services, Inc., a retirement planning subsidiary of the global investment management firm T. Rowe Price Group, Inc., from May 2007 until her retirement in December 2012. She served an appointment as a senior advisor to the U.S. Department of the Treasury on the development of myRA, a Treasury-sponsored retirement savings program from April 2014 to April 2015. Prior to her work at T. Rowe Price, she was a long-time member of the executive team at Fidelity Investments where she was head of Fidelity Institutional Tax-Exempt Services Company and President of the Fidelity Charitable Gift Fund. Ms. Egan served as a director of Envestnet, Inc., a wealth management technology and services provider, from August 2013 to March 2016. She has also been a director of The Hanover Insurance Group, Inc., the holding company for several property and casualty insurers, and the BlackRock Closed-End Funds, since May 2015 and April 2016, respectively.

 

Ms. Egan has significant operational experience in delivering complex financial products and services on a large scale through her work at T. Rowe Price and Fidelity. She has used technology and process improvement to successfully lead businesses through transition, including growth and strategic redirection, and her knowledge of the retirement industry gives her insight into the need for the financial protection benefits we provide. She also has experience operating in a regulated environment, serving as a director of other publicly traded companies, and qualifies as an “audit committee financial expert” under SEC regulations.

 

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INFORMATION ABOUT THE BOARD OF DIRECTORS

 

 

LOGO     

 

Director    

since 2004    

 

Age 67    

 

Pamela H. Godwin

 

Independent Director

 

 

 

 

Chair of the Governance Committee   

Member of the Risk and Finance Committee   

 

 

 

Ms. Godwin has been President of Change Partners, Inc., a consulting firm specializing in organizational change and growth initiatives, since 2001. From 1999 to 2001, she was President and Chief Operating Officer of the personal lines agency division of GMAC Insurance. Prior to that time, she held a number of executive positions within the financial services industry, including Senior Vice President of customer management for the credit card division of Advanta Corporation, President and Chief Operating Officer of Academy Insurance Group, a unit of Providian Corporation, and Senior Vice President of property/casualty claims at Colonial Penn Group, Inc. Ms. Godwin has also been a director of the Federal Home Loan Bank of Pittsburgh since January 2013.

 

Ms. Godwin possesses executive management and operating experience within the insurance industry. She has expertise in strategic change initiatives, including cultural and operational integration of acquisitions, operational turnaround, and crisis intervention. She also has risk-assessment skills from her work as a chartered property/casualty underwriter and experience managing high-risk lines of insurance.

LOGO     

 

Director    

since 2008    

 

Age 59    

 

Kevin T. Kabat

 

Independent Director

 

 

 

 

Chair of the Human Capital Committee   

Member of the Governance Committee   

 

 

 

Mr. Kabat has served as Vice Chairman of the Board of Directors of Fifth Third Bancorp, a diversified financial services company, since September 2012. He is expected to retire from that Board in April 2016, having previously served at Fifth Third Bancorp as Chief Executive Officer from April 2007 to October 2015, as President from June 2006 to September 2012, and as Executive Vice President from December 2003 to June 2006. Before that, he was President and CEO of Fifth Third Bank (Michigan) from April 2001. Prior to joining Fifth Third Bancorp, Mr. Kabat served in a number of management and executive positions with Old Kent Financial Corporation, including as its Vice Chairman and President. Mr. Kabat has been a director of NiSource Inc., an energy holding company, since July 2015.

 

Mr. Kabat has agreed to serve as Lead Independent Director if re-elected as a director at the Annual Meeting.

 

Mr. Kabat brings to the Board executive leadership experience, including his recent service as CEO of a large public company in the financial services industry, along with extensive financial, operating, and strategic planning expertise. He understands the importance of risk management and the challenges of managing a business in a highly regulated industry. He also has a strong corporate governance perspective from his service as a director of other publicly traded companies, including board chairman experience.

 

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INFORMATION ABOUT THE BOARD OF DIRECTORS

 

 

LOGO     

 

Director    

since 2012    

 

Age 54    

 

Timothy F. Keaney

 

Independent Director

 

 

 

 

Chair of the Risk and Finance Committee   

Member of the Audit Committee   

 

 

 

Mr. Keaney served as Vice Chairman of The Bank of New York Mellon Corporation (BNY Mellon), a global investments company, from October 2010 to September 2014. While at BNY Mellon, he held a number of executive positions, including Chief Executive Officer of Investment Services from January 2013 to June 2014 and Chief Executive Officer of Asset Servicing from September 2010 to December 2012. He served as co-CEO of Asset Servicing at BNY Mellon following its formation in 2007 upon the merger of The Bank of New York Company, Inc. and Mellon Financial Corporation. Prior to the merger, Mr. Keaney was head of The Bank of New York’s asset servicing business and head of that company’s presence in Europe, with management responsibilities for all business activities in the region. 

 

Mr. Keaney possesses significant operational, investment, and finance experience, both domestically and internationally. His work has included lengthy periods of executive leadership service in the United Kingdom, which has given him a deep understanding of many of the challenges and opportunities that we face there. He also qualifies as an “audit committee financial expert” under SEC regulations.

 

LOGO     

 

Director    

since 2004    

 

Age 65    

 

Gloria C. Larson

 

Independent Director

 

 

 

 

Chair of the Regulatory Compliance Committee   

Member of the Governance Committee   

 

 

 

Ms. Larson has been the President of Bentley University since July 2007. She previously served as co-chairperson of the Government Practices Group of the law firm Foley Hoag LLP and coordinator for its Administrative Practices Group after joining the firm in 1996. Prior to joining Foley Hoag, she served as Secretary of Economic Affairs and as Secretary of Consumer Affairs and Business Regulation for the Commonwealth of Massachusetts, and prior to that was Deputy Director of Consumer Protection for the Federal Trade Commission. Ms. Larson has served as a director of Boston Private Financial Holdings, Inc., a wealth management company servicing high net worth individuals, families and select institutions, since January 2015.

 

Ms. Larson has executive management experience as president of a major university. In addition, she brings regulatory insight from her service as a regulator and her experience advising clients in the course of her practice of law. She also has corporate governance experience from her current and prior service on the boards of other publicly traded companies.

 

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INFORMATION ABOUT THE BOARD OF DIRECTORS

 

 

LOGO     

 

Director    

since 2015    

 

Age 47    

 

Richard P. McKenney

 

Director

 

 

 

 

President and Chief Executive Officer   

 

 

 

Mr. McKenney has served as President and Chief Executive Officer of Unum since May 2015. He previously served as Executive Vice President and Chief Financial Officer from August 2009 until April 2015. Before joining Unum in July 2009, Mr. McKenney served as Executive Vice President and Chief Financial Officer of Sun Life Financial, Inc., an international financial services company, from February 2007 until July 2009, having joined that company as Executive Vice President in September 2006.

 

Mr. McKenney has significant executive management, financial, and insurance industry experience through his prior service as chief financial officer of our company and other publicly traded insurance companies, and his current service as chief executive officer of our company. He has an intimate knowledge of all aspects of our business, including strategic planning, risk management and public policy, and close working relationships with senior management.

 

LOGO     

 

Director    

since 2005    

 

Age 71    

 

Edward J. Muhl

 

Independent Director

 

 

 

 

Member of the Human Capital Committee   

Member of the Regulatory Compliance Committee   

 

 

 

Mr. Muhl served as the National Leader of the Insurance Regulatory Advisory Practice of PricewaterhouseCoopers from 2001 until his retirement in June 2005. He was Senior Managing Director of Navigant Consulting, Inc. from 1998 to 2000, which he joined as Executive Vice President in 1997. Prior to that time, Mr. Muhl held important regulatory positions within the insurance industry, including Superintendent of Insurance of the State of New York, Insurance Commissioner of the State of Maryland, and President of the National Association of Insurance Commissioners. Mr. Muhl is also a director of Farm Family Insurance Company.

 

Mr. Muhl has over 45 years of experience in the insurance industry, including leadership service for important insurance and regulatory bodies, and understands the regulatory compliance environment in which we operate. He has experience serving on other public and private company boards, including current service in the insurance sector.

 

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INFORMATION ABOUT THE BOARD OF DIRECTORS

 

 

LOGO     

 

Director    

since 2015    

 

Age 59    

 

Ronald P. O’Hanley

 

Independent Director

 

 

 

 

Member of the Human Capital Committee   

Member of the Risk and Finance Committee   

 

 

 

Mr. O’Hanley is the President and Chief Executive Officer of State Street Global Advisors, the investment management arm of State Street Corporation, a provider of financial services to institutional investors worldwide. Prior to joining State Street in this capacity in April 2015, he served as President of Asset Management and Corporate Services for Fidelity Investments, a leading provider of financial products and services, from July 2010 until March 2014 and was a member of Fidelity’s Executive Committee. From 2007 until May 2010, Mr. O’Hanley served as Vice Chairman of The Bank of New York Mellon Corporation (BNY Mellon), a global investments company, and President and Chief Executive Officer of BNY Mellon Asset Management. Prior to the merger of The Bank of New York and Mellon Financial Corporation, he was Vice Chairman of Mellon Financial Corporation and President and Chief Executive Officer of Mellon Asset Management. Before joining Mellon in 1997, he was a partner with McKinsey & Company, Inc., a management consulting firm.

 

Mr. O’Hanley has significant executive management and operational experience within the financial services industry, both domestically and internationally. He has served in senior leadership positions at large, global organizations, which has included responsibility for investment, finance, human resources, legal, risk, corporate compliance, and enterprise technology functions.

 

LOGO     

 

Director    

since 2015    

 

Age 55    

 

Francis J. Shammo

 

Independent Director

 

 

 

 

Member of the Audit Committee   

Member of the Regulatory Compliance Committee   

 

 

 

Mr. Shammo is Executive Vice President and Chief Financial Officer of Verizon Communications, Inc., a leading communications provider, where he has held this position since November 2010. After joining Bell Atlantic Corporation in 1989, which merged with GTE Corporation in 2000 to form Verizon, he held positions of increasing responsibility in finance, mergers and acquisitions, logistics, facilities, regional operations, and planning. His prior positions include President and Chief Executive Officer of Verizon Telecom and Business, Senior Vice President and Chief Financial Officer of Verizon Business, President – West Area of Verizon Wireless, and Vice President and Controller of Verizon Wireless.

 

Mr. Shammo has significant executive management, financial, and operational experience, including service as chief financial officer, for large publicly traded companies in the telecommunications industry, where technology and connectivity are integral to the business. He has led major business units, with responsibility for sales, marketing, and customer service for customers worldwide. He is also a certified public accountant and qualifies as an “audit committee financial expert” under SEC regulations.

 

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INFORMATION ABOUT THE BOARD OF DIRECTORS

 

 

LOGO     

 

Director    

since 2002    

 

Age 61    

 

Thomas R. Watjen

 

Non-Executive Director

 

 

 

 

Chairman of the Board of Directors   

 

 

 

Mr. Watjen has served as the Chairman of the Board of Directors of Unum since May 2015, having served as President and Chief Executive Officer from 2003 until April 2015 and May 2015, respectively, when he retired from the company. He previously served as Vice Chairman and Chief Operating Officer from 2002 until 2003 and, before that, was named Executive Vice President, Finance in 1999. Prior to the 1999 merger between Unum and Provident, he served as Chief Financial Officer from 1994. Before that, Mr. Watjen served as a Managing Director of the insurance practice of the investment banking firm Morgan Stanley & Co. Mr. Watjen has been a director of SunTrust Banks, Inc. since April 2010.

 

Mr. Watjen has executive management and financial experience as chief executive officer of our company as well as his prior positions within the financial services industry. He also serves as a director and the chair of the audit committee of another publicly traded company in the financial services industry.

Additional Directors – Retiring at the Annual Meeting

 

LOGO     

 

Director    

since 1995    

 

Age 72    

 

A.S. (Pat) MacMillan, Jr.

 

Independent Director
Retiring in 2016

 

 

 

 

Member of the Human Capital Committee   

Member of the Regulatory Compliance Committee   

 

 

 

Mr. MacMillan has served as the Chief Executive Officer of Triaxia Partners, Inc., an international consulting firm, since 1980. Triaxia’s practice areas include strategy, team, leadership, and organizational development. Specific services include management consulting, management training, and organizational audits. He is also a trustee of The Maclellan Foundation, Inc.

 

Mr. MacMillan brings talent management, strategic planning, and organizational insight from his consulting practice. He has expertise in leadership development and team building practices that help businesses successfully achieve their strategic visions. He has a long history with our company, and also brings insights from his prior service on the boards of other companies, including publicly traded companies.

 

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INFORMATION ABOUT THE BOARD OF DIRECTORS

 

 

LOGO     

 

Director    

since 2004    

 

Age 72    

 

William J. Ryan

 

Lead Independent Director Retiring in 2016

 

 

 

 

Member of the Risk and Finance Committee   

Member of the Governance Committee   

 

 

 

Mr. Ryan has served as Lead Independent Director of Unum since May 2015 and previously served as Chairman of the Board of Directors from October 2011 until May 2015. He was Chairman, President and Chief Executive officer of TD Banknorth, Inc., a banking and financial services company, from March 2005 until March 2007, and continued as its Chairman until November 2009. He was Chairman, President and Chief Executive Officer of Banknorth Group, Inc. from 2000 until its merger with TD Banknorth, Inc. in March 2005, and prior to that served as President and Chief Executive Officer of People’s Heritage Savings Bank. Mr. Ryan has served as a director of Anthem, Inc., a health benefits company, since 2001, and as Chairman of the Board of Directors of Berkshire Hills Bancorp, Inc., a bank holding company, since June 2014.

 

Mr. Ryan has extensive executive leadership experience, including service as a board chairman and chief executive officer, with large companies in the banking and financial services industry. As the former chairman of our Board and current lead independent director, he has experience with corporate governance matters and a firm understanding of our business. He also has experience serving on the boards of other publicly traded companies in regulated industries.

Director Compensation

The Human Capital Committee (the Committee) reviews our non-employee director compensation annually and makes recommendations to the Board as appropriate.

Benchmarking

With the assistance of its independent third-party compensation consultant, Pay Governance LLC, the Committee reviews peer group data to understand market practices for director compensation.

Our non-employee director compensation is compared to that of companies in two peer groups: (1) the Proxy Peer Group described beginning on page 44 of this proxy statement; and (2) a general industry peer group, which consisted of 158 companies for the review completed in December 2015. The Committee believes the companies in the general industry peer group provide appropriate comparisons given that their market capitalizations and revenues are well aligned with those of the company (data below as of December 2014):

 

    Market capitalizations ranging from $6.7 billion at the 25th percentile to $14.5 billion at the 75th percentile (compared to Unum market capitalization of $8.8 billion); and

 

    Revenues ranging from $4.1 billion at the 25th percentile to $12.3 billion at the 75th percentile (compared to Unum revenues of $10.5 billion).

The use of two peer groups provides an indication of director pay levels both within the insurance industry as well as the broader market. The Committee uses the approximate median of these peer groups as a reference point for setting director compensation.

 

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The Committee’s consultant provided its annual analysis of non-employee director compensation at the December 2015 Committee meeting. Year-over-year, the consultant observed an increase in director compensation and noted that our total non-employee director compensation was below the Proxy Peer Group median. Given that the higher median remuneration by peers was based on 2014 data, as reported in 2015 proxy statements, the Committee approved an increase in non-employee director compensation as outlined in the table below, to be effective in May 2016. The analysis also showed that committee chair retainers are below the Proxy Peer Group median; however, the Committee elected not to make changes to the retainers at this time.

Elements of Non-Employee Director Compensation

Non-employee directors receive cash retainers and equity awards as outlined in the following table:

NON-EMPLOYEE DIRECTOR COMPENSATION

 

    All Directors:

     2015 Pay                     2016 Pay     
   

    Annual cash retainer

     $95,000         $110,000     

    Annual restricted stock unit award

     140,000         150,000     

    Committee Chairs:

     
   

    Additional annual cash retainer - Audit Committee

     22,500         22,500     

    Additional annual cash retainer - Human Capital Committee

     17,500         17,500     

    Additional annual cash retainer - other Board committees

     10,000         10,000     

    Board Chairman:

     
   

    Additional annual cash retainer (paid in quarterly installments)

     200,000         200,000     

    Lead Independent Director:

     
   

    Additional annual cash retainer (paid in quarterly installments)

     50,000         50,000     
   

For new Board members, these amounts are prorated for partial-year service based on the date of election to the Board. Amounts may be deferred at the election of each director for payment in company common stock at a future date. Directors deferring cash compensation receive a number of deferred share rights equal to the number of whole shares of common stock that could be purchased for the deferred amount, based on the closing price of a share of common stock on the date the cash compensation would otherwise be payable.

Directors’ expenses of attending Board and committee meetings, or other meetings relating to company business, are paid by the company. Directors are eligible to participate in our employee matching gifts program. Under this program, we match up to $10,000 each year for eligible gifts to non-profit organizations.

Mr. McKenney is employed by the company and receives no additional compensation for his Board service. We paid no additional compensation to Mr. Watjen for his Board service during the time that he was an employee of the company.

We do not have a retirement plan for non-employee directors. Dr. Goldsberry, who retired from our Board in May 2015, and previously served as a director of UNUM Corporation prior to its merger into our company in 1999, is entitled to receive an annual payment of $27,500 for four years under the legacy UNUM Corporation plan. The first annual payment was made in January 2016.

 

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INFORMATION ABOUT THE BOARD OF DIRECTORS

 

2015 Compensation

Our Board compensation year starts at the Annual Meeting each year and runs to the next Annual Meeting. The annual cash retainer and restricted stock unit award are paid/granted annually in advance. The additional cash retainers for the Chairman and Lead Independent Director are paid quarterly in advance. The following table provides details of the compensation of each person who served as a non-employee director during 2015, other than Mr. Watjen, whose non-employee director compensation is included in the Summary Compensation table on page 73 of this proxy statement, as required. Mr. O’Hanley was elected to the Board on February 26, 2015, prior to the 2015 Annual Meeting. Therefore, his compensation shown in the below table reflects prorated amounts for the 2014/2015 board year in addition to the annual amounts for the 2015/2016 board year.

NON-EMPLOYEE DIRECTOR COMPENSATION

 

Name

     Fees
Earned
or Paid
in Cash(1)
       Stock
Awards(2)
     All Other
Compensation(3)
       Total  

Theodore H. Bunting, Jr.

       $95,000           $140,010         $10,000           $245,010   
 

E. Michael Caulfield

       117,500           140,010         7,500           265,010   
 

Cynthia L. Egan

       95,000           140,010         10,000           245,010   
 

Pamela H. Godwin

       105,000           140,010         3,000           248,010   
 

Ronald E. Goldsberry

       -             -           15,000           15,000   
 

Kevin T. Kabat

       112,500           140,010         -             252,510   
 

Timothy F. Keaney

       105,000           140,010         -             245,010   
 

Thomas Kinser

       95,000           140,010         6,400           241,410   
 

Gloria C. Larson

       105,000           140,010         7,500           252,510   
 

A.S. (Pat) MacMillan, Jr.

       95,000           140,010         -             235,010   
 

Edward J. Muhl

       95,000           140,010         -             235,010   
 

Ronald P. O’Hanley

       118,711           174,998         10,000           303,709   
 

William J. Ryan

       190,833           140,010         -             330,843   
 

Francis J. Shammo

       79,167           116,651         -             195,818   

 

(1) Amounts represent retainers, including for service as Board Chairman and committee chairs, which were paid in 2015, either in cash or deferred, for 2015/2016 board service. Mr. O’Hanley’s amount also includes a prorated retainer for his 2014/2015 board year service. Mr. O’Hanley elected to defer a total of $117,580, which was converted to deferred share rights. Upon his election to the Board on July 27, 2015, Mr. Shammo received a prorated retainer of $79,167. Mr. Watjen’s retainer and stock awards can be found in the Summary Compensation Table on page 73.

 

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(2) On May 21, 2015, each then serving non-employee director was granted 4,006 restricted stock units (RSUs) under our Stock Incentive Plan of 2012. Dr. Goldsberry retired from the Board at the 2015 Annual Meeting and did not receive a grant of RSUs for the 2015/2016 board year. Upon his election to the Board, Mr. Shammo received a prorated grant of 3,157 RSUs. Additionally, upon his election to the Board, Mr. O’Hanley received a prorated grant of 1,041 RSUs for his 2014/2015 board year service. The amounts shown are the grant date value of these units.

 

     We account for stock-based payments under the requirements of Accounting Standards Codification Topic 718 Compensation - Stock Compensation (ASC 718). A complete discussion of the assumptions made as well as the financial impact of this type of compensation can be found in Notes 1 and 11 of the Consolidated Financial Statements in Part II, Item 8 of our 2015 Form 10-K.

 

     The following table provides details of the unvested RSUs, including dividend equivalent units, held by each non-employee director as of December 31, 2015.

 

Director Name   

Number of Unvested

Restricted Stock Units at Fiscal Year End

  
Theodore H. Bunting, Jr.    4,048   
E. Michael Caulfield    4,048   
Cynthia L. Egan    4,048   
Pamela H. Godwin    4,048   
Ronald E. Goldsberry        -   
Kevin T. Kabat    4,048   
Timothy F. Keaney    4,048   
Thomas Kinser        -   
Gloria C. Larson    4,048   
A.S. (Pat) MacMillan, Jr.    4,048   
Edward J. Muhl    4,048   
Ronald P. O’Hanley    5,105   
William J. Ryan    4,048   
Francis J. Shammo    3,190   
(3) With the exception of Mr. Kinser and Dr. Goldsberry, who both retired from the company in 2015, the amounts shown represent the company’s matching gifts resulting from the directors’ charitable gifts. In addition to the $1,400 in matching gifts for Mr. Kinser and $10,000 in matching gifts for Dr. Goldsberry, the company made a $5,000 charitable contribution on behalf of each director, in recognition of their retirement from the Board.

Director Stock Ownership and Retention Requirements

Each non-employee director is required to own Unum equity securities with an aggregate value of five times the director’s annual cash retainer ($475,000 at the end of 2015; and $550,000 effective May 2016). New directors have five years from the date of their election to meet the ownership requirement.

In addition, each non-employee director is required to retain 60% of Unum equity securities received as a result of director compensation for at least one year from the time the equity securities vest, and to retain at least the number of equity securities necessary to meet his or her ownership requirement until retirement from the Board.

The Committee annually reviews each director’s stock ownership level. If a director does not reach his or her ownership requirement within the time period provided, the Committee will determine whether action is appropriate. As of December 31, 2015, 9 of the 13 current non-employee directors serving on the Board at that time had met the ownership requirement. The other four directors joined the Board within the past five years and are expected to meet the ownership requirement within the applicable time period provided. In addition, Mr. Echevarria joined the Board on April 1, 2016 and is expected to meet the ownership requirement within the applicable time period.

 

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CORPORATE GOVERNANCE

 

CORPORATE GOVERNANCE

Corporate Governance Guidelines

The Board of Directors has adopted corporate governance guidelines on a number of significant matters, including director selection and independence, director responsibilities, Board leadership, and management succession. The corporate governance guidelines are available on our investor relations website under the “Corporate Governance” heading at www.investors.unum.com. The Governance Committee regularly reviews developments in corporate governance and recommends updates to the corporate governance guidelines and other documents as necessary or appropriate in response to regulatory requirements and evolving practices.

Board Leadership Structure

At present, Thomas R. Watjen serves as Chairman of the Board, and Richard P. McKenney serves as President and Chief Executive Officer (CEO) of the company. William J. Ryan currently serves as the Lead Independent Director, and will retire from the Board at the Annual Meeting. The independent directors of the Board have elected Kevin T. Kabat to serve as the Lead Independent Director effective upon the conclusion of the Annual Meeting provided he is re-elected to the Board.

As Lead Independent Director, Mr. Kabat will have certain responsibilities outlined in our corporate governance guidelines, including:

 

    Presiding at all meetings of the Board at which the Chairman is not present, including executive sessions of the non-management and independent directors;

 

    Communicating actions/issues arising from executive sessions to the Chairman and/or the CEO, as appropriate;

 

    Authority to call meetings of the independent directors;

 

    Authority to approve meeting schedules, agendas and information provided to the Board;

 

    In conjunction with the Chairman, advising the Board on Board development, including Board and committee leadership succession planning;

 

    Unless otherwise determined by the Board, together with the Chairman, meeting with each director to evaluate the Board and committees and reporting this evaluation to the Governance Committee;

 

    When requested by the independent directors, hiring advisors to the independent directors, to be paid by the company;

 

    Receiving through the Corporate Secretary communications from shareholders seeking to communicate with the Board;

 

    Serving as liaison between the Chairman and the independent directors; and

 

    If requested by major shareholders, ensuring that he is available for consultation and direct communication.

The Board believes this leadership structure, together with our active and engaged independent directors, will continue to provide significant independent oversight of management, as Messrs. Watjen and McKenney are the only members of the Board who are not independent directors – Mr. Watjen because he is a recent employee of our company, and Mr. McKenney because he is a current employee of our company. The Board

 

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generally holds executive sessions, without management present, as part of each regularly scheduled in-person Board meeting. In 2015, the independent directors met alone in executive session five times, and the independent Chairman or Lead Independent Director, as applicable, chaired each of these executive sessions.

Our bylaws and corporate governance guidelines allow the offices of Chairman and CEO to be filled by the same or different individuals. This allows the Board flexibility to select the appropriate leadership for our company based on a number of factors, including the specific needs of the business and what best serves the company and our shareholders at a given time. The independent directors of the Board will continue to review the Board’s leadership structure periodically and may modify this structure from time to time as they determine appropriate in the best interests of the company and our shareholders.

Chairman Succession Planning

Soon after Mr. Watjen became Chairman, the Governance Committee began considering succession for the Lead Independent Director and Chairman roles given that both were expected to be vacated within two years (in May 2016 and May 2017, respectively). The Governance Committee and the Board recognized that an independent director could be named to succeed the Chairman. It was therefore agreed that the succession planning process should consider the possibility that the successor Lead Independent Director might later be named the successor Chairman. Transparency was deemed fundamental to ensuring broad support, so director input was solicited in developing appropriate selection criteria for the roles. This process ultimately led the independent directors to name Mr. Kabat as successor Lead Independent Director if he is re-elected to the Board at the 2016 Annual Meeting. Although Mr. Kabat is not assured of being named the successor Chairman, the Governance Committee and the Board believe that Lead Independent Director service aligns well with the Chairman role and provides both valuable training and a basis for evaluating his potential candidacy for Chairman.

Director Independence

Our corporate governance guidelines provide that a substantial majority of the Board will be independent. For a director to be considered independent, the Board must determine that the director has no material relationship with our company, and the director must meet the requirements for independence under the listing standards of the New York Stock Exchange (NYSE). The Board has also determined that certain categories of relationships are not considered to be material relationships that would impair a director’s independence. These independence standards are listed in our corporate governance guidelines.

The Governance Committee reviews information about the directors’ relationships and affiliations that might affect their independence and makes recommendations to the Board as to the independence of the directors. In making independence determinations, the Board considers all relevant facts and circumstances. In this regard, the Board considered that each of Messrs. Bunting, Caulfield, Echevarria, Kabat, Keaney, Muhl, O’Hanley, Ryan and Shammo, and Mses. Egan and Godwin, or one of their immediate family members, is or was during the last three fiscal years a director, trustee, advisor, or executive or served in a similar position at another business that had dealings with our company during those years. In each case, these have been ordinary course dealings (business where the other business obtains insurance policies from us or we receive interest on debt security investments or make payments for trustee, depository and commercial banking business relationships) involving amounts less than 1% of both our and the other business’ total consolidated revenues for such fiscal year. In addition, each of Mses. Egan and Larson, or one their immediate family members, is or was during the last three fiscal years, a director, executive, or employee of a charitable

 

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organization or university that received contributions from us (other than non-discretionary matching contributions) of less than $120,000 in any one fiscal year.

Based on a review of the findings and recommendations of the Governance Committee and applying the standards described above, the Board has determined that each of Messrs. Bunting, Caulfield, Echevarria, Kabat, Keaney, MacMillan, Muhl, O’Hanley, Ryan and Shammo and Mses. Egan, Godwin and Larson is (as well as Dr. Goldsberry and Mr. Kinser who retired in 2015, were each during their tenure) an independent director.

Mr. McKenney, our President and CEO, and Mr. Watjen, our Chairman, are not independent directors.

Process for Selecting and Nominating Directors

The Governance Committee is responsible for identifying and evaluating director candidates and recommending to the Board a slate of nominees for election at each annual meeting of shareholders. The Committee has engaged a third-party search firm to assist with recruitment efforts in preparation for anticipated retirements. This firm identifies candidates who meet the criteria of our search, provides requested background and other relevant information regarding candidates, and coordinates arrangements for interviews as necessary. Nominees may also be suggested by directors, management, or shareholders. Messrs. Bunting, Echevarria, O’Hanley and Shammo were first recommended to the Governance Committee by a third-party search firm.

Shareholders who wish to recommend director candidates for consideration by the Governance Committee must submit to the Corporate Secretary at Unum Group, 1 Fountain Square, Chattanooga, Tennessee 37402 the same information that would be required to nominate a director candidate as described on page 106 in the section titled “Shareholder proposals and nominations for our 2017 Annual Meeting.” The Governance Committee’s policy is to consider candidates recommended by shareholders in the same manner as other candidates.

In addition, our bylaws permit shareholders to nominate directors for inclusion in our proxy materials or directly at an Annual Meeting in accordance with the procedures in our bylaws, as described on page 106 in the section titled “Shareholder proposals and nominations for our 2017 Annual Meeting.”

Our corporate governance guidelines specify the following criteria to be used in evaluating the candidacy of a prospective nominee:

 

    Reputation for high ethical conduct, integrity, sound judgment, and accountability;

 

    Current knowledge and experience in one or more core competencies identified in the corporate governance guidelines;

 

    Ability to commit sufficient time to the Board and its committees;

 

    Collegial effectiveness; and

 

    Diversity, whether in viewpoints, gender, ethnic background, age, professional experience or other demographics (though no specific diversity policy has been adopted).

The core competencies sought in any particular candidate depend on the current and future needs of the Board based on an assessment of the composition of the Board and the mix of attributes and qualifications represented. Core competencies include knowledge and experience in finance and accounting, executive management, the insurance or financial services industry, risk oversight, technology, marketing, strategic

 

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planning, regulatory compliance, public policy and such other areas that may be considered appropriate by the Board.

In addition to the criteria described above, the Governance Committee considers other specific qualifications that may be desired or required of nominees, including their independence and ability to satisfy specific Audit Committee or Human Capital Committee requirements. The Governance Committee assesses the effectiveness of its Board membership criteria as part of the director selection and nomination process. In determining whether to recommend a director for re-election, the Governance Committee also considers the director’s interest in continuing to serve, past attendance at meetings, contributions to the Board and committees on which the director serves, the skills, experience and background that the director brings to the Board relative to the Board’s needs and existing composition, and the results of the most recent Board, committee and individual director evaluations.

Board Tenure

The Governance Committee periodically reviews the mix of our directors’ tenure on the Board and favors maintaining a balance that helps transition the knowledge and experience of longer-serving directors and contributes to a range of perspectives. The average tenure of the 11 independent directors who are director nominees is 5.5 years, with six members having served fewer than 5 years, two members having served between 5 and 10 years, and three members having served more than 10 years.

Limits on Board and Audit Committee Service

While we recognize that Board members benefit from service on the boards of other companies and such service is encouraged, the Board believes it is critical that directors be able to dedicate sufficient time to their service on our Board. To that end, no director may serve on more than three public company boards in addition to our Board, or on more than two audit committees of public companies in addition to our Audit Committee.

Board Meetings and Attendance

The Board of Directors met nine times during 2015. Depending upon committee assignments, a director generally would have had 24 to 31 meetings to attend in 2015. Average director attendance at Board and committee meetings was 97%, and each incumbent director attended at least 75% of the total number of meetings of the Board and committees on which he or she served during the period of the director’s service in 2015.

Directors are expected to attend annual meetings of shareholders. All current directors serving on the Board at the time of the 2015 Annual Meeting attended that meeting.

 

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Committees of the Board

The Board of Directors has five standing committees: Audit, Risk and Finance, Governance, Human Capital, and Regulatory Compliance. Each committee has a charter that is available on our investor relations website under the “Corporate Governance” heading at www.investors.unum.com. In addition to the duties contained in their respective charters, each committee may be assigned additional tasks by the Board, and each is charged with reporting its activities to the Board.

BOARD MEMBERS AND COMMITTEES

 

Name    Term
Expires
     Audit    Risk &
Finance
   Governance    Human
Capital
   Regulatory
Compliance
 

    Theodore H. Bunting, Jr.

     2016                  
 

    E. Michael Caulfield

     2016       Chair            
 

    Joseph J. Echevarria(1)

     2016                  
 

    Cynthia L. Egan

     2016                  
 

    Pamela H. Godwin

     2016             Chair      
 

    Kevin T. Kabat

     2016                Chair   
 

    Timothy F. Keaney

     2016          Chair         
 

    Gloria C. Larson

     2016                   Chair
 

    A.S. (Pat) MacMillan, Jr.(2)

     2016                  
 

    Richard P. McKenney

     2016                  
 

    Edward J. Muhl

     2016                  
 

    Ronald P. O’Hanley

     2016                  
 

    William J. Ryan(2)

     2016                  
 

    Francis J. Shammo

     2016                  
 

    Thomas R. Watjen

     2016                            

2015 Committee Meetings

 

 

            11    5    10    11    5

 

(1) Mr. Echevarria joined the Board effective April 1, 2016 and therefore did not attend committee meetings in 2015.

 

(2) As noted on page 30, Messrs. MacMillan and Ryan will retire from the Board at the Annual Meeting in May 2016.

Audit Committee

The Audit Committee assists the Board in oversight of financial statement and disclosure matters, the effectiveness of internal control over financial reporting, the relationship with our independent auditor, the internal audit function, compliance with legal and regulatory requirements, and financial risk. The Audit Committee has the sole authority to appoint, oversee and, if necessary, replace the company’s independent auditors. A more complete description of the responsibilities of the Audit Committee is included in the Report of the Audit Committee beginning on page 32.

All members of the Audit Committee meet the independence requirements of the SEC and the NYSE for audit committee members and our corporate governance guidelines. The Board has further determined that all six members of the Audit Committee, Theodore H. Bunting, Jr., E. Michael Caulfield, Joseph J. Echevarria, Cynthia L.

 

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Egan, Timothy F. Keaney, and Francis J. Shammo, are “audit committee financial experts” under SEC regulations, and are “financially literate” as required by the NYSE.

Risk and Finance Committee

The Risk and Finance Committee assists the Board in oversight of our investments, capital and financing plans and activities, including dividends and borrowings, and related financial matters and the associated risks. It also oversees our enterprise risk management activities and other risks not specifically allocated to another committee. Among other responsibilities, the Risk and Finance Committee:

 

    Monitors, evaluates and recommends to the Board capital and financing plans, activities, requirements and opportunities;

 

    Oversees implementation of and compliance with investment strategies, guidelines and policies;

 

    Reviews, assesses and reports on the impact of various finance activities on our debt ratings; and

 

    Monitors, evaluates and makes recommendations regarding matters pertaining to our Closed Block segment, including the long-term care business, that could have a meaningful impact upon any of the matters for which the Risk and Finance Committee has oversight responsibility.

All members of the Risk and Finance Committee meet the independence requirements of our corporate governance guidelines.

Governance Committee

The Governance Committee assists the Board in implementation and oversight of our corporate governance policies. Among other responsibilities, the Governance Committee:

 

    Oversees compliance with our corporate governance guidelines;

 

    Identifies qualified candidates for the Board, consistent with criteria approved by the Board, and periodically reviews such criteria;

 

    Oversees the process for Board and committee evaluations; and

 

    Periodically makes recommendations to the Board regarding committee membership.

All members of the Governance Committee meet the independence requirements of the NYSE and our corporate governance guidelines.

Human Capital Committee

The Human Capital Committee assists the Board in oversight of our compensation and benefit programs and related risks to support business plans, attract and retain key executives and tie compensation to performance. Among other responsibilities, the Human Capital Committee:

 

    Establishes our general compensation philosophy, principles and practices;

 

    Takes into consideration the results of the company’s most recent say-on-pay vote;

 

    Evaluates and approves compensation and benefit plans;

 

    Annually reviews and approves compensation of the CEO and other executive officers;

 

    Reviews and recommends to the Board the form and amount of director compensation; and

 

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    Reviews the Compensation Discussion and Analysis and related disclosures in our proxy statements.

All members of the Human Capital Committee meet the independence requirements of the NYSE for directors and compensation committee members and our corporate governance guidelines and are “non-employee directors” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934 and “outside directors” for purposes of Section 162(m) of the Internal Revenue Code.

Regulatory Compliance Committee

The Regulatory Compliance Committee assists the Board in its oversight of regulatory, compliance, policy and legal matters and related risks and compliance with laws and regulations. Among other responsibilities, the Regulatory Compliance Committee:

 

    Monitors the effectiveness of our compliance efforts concerning applicable regulatory and legal requirements and internal policy;

 

    Reviews and discusses with management any communication to or from regulators or governmental agencies and any complaints, reports and legal matters that raise significant issues regarding our compliance with applicable laws or regulations; and

 

    Monitors the investigation and resolution of any significant instances of noncompliance or potential compliance violations.

All members of the Regulatory Compliance Committee meet the independence requirements of our corporate governance guidelines.

The Board’s Role in Risk Oversight

The Board has an active role, as a whole and also at the committee level, in overseeing management of the company’s risks. The Board is responsible for managing strategic risk, and it regularly reviews information regarding our capital, liquidity and operations, as well as the risks associated with each. The Risk and Finance Committee is responsible for oversight of the company’s enterprise risk management program and receives a report on these activities at least quarterly. The Risk and Finance Committee is also responsible for overseeing risks associated with investments and related financial matters, including those pertaining to our Closed Block segment, and any other risks not specifically allocated to another committee for oversight. The Audit Committee is responsible for oversight of financial risk and continues to fulfill its NYSE-mandated responsibility to discuss guidelines and policies with respect to the process by which the company undertakes risk assessment and risk management. The Audit Committee and Risk and Finance Committee may also meet jointly as appropriate to oversee certain risks for which they have overlapping responsibility, including operational risks relating to data privacy, cybersecurity and business continuity. The Human Capital Committee is responsible for overseeing the management of risks relating to our compensation plans and programs and, as more fully described below, receives an annual report from the company’s chief risk officer with respect to these risks. The Regulatory Compliance Committee oversees management of risks related to regulatory, compliance, policy and legal matters, both current and emerging and whether of a local, state, federal or international nature. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is regularly informed through committee reports about such risks in addition to the risk information it receives directly.

 

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Compensation Risk

Each year, the company’s chief risk officer, in consultation with the Human Capital Committee, undertakes a risk assessment of our compensation programs and practices. This year’s process included the following steps:

 

    Review of the overall design and philosophy of the incentive compensation programs.

 

    Review and assessment of the 2015 annual incentive program and long-term incentive program performance measures for alignment between actual results and achievement payout levels.

 

    Identification of fundamental principles to test, including the SEC’s non-exclusive list of situations where compensation programs may have the potential to raise material risks to the company.

 

    Assessment of the incentive programs in light of the company’s primary risks (as disclosed in the company’s 2015 Form 10-K) and the company’s annual financial and capital plans.

 

    Assessment of proposed design changes to the 2016 incentive plans.

Based on this assessment, the following conclusions were reached by the chief risk officer and presented to the Human Capital Committee:

 

    The company’s incentive program targets, thresholds, caps, weights and payout curves are effective control mechanisms.

 

    The incentive plans are balanced and align the long-term interests of stakeholders and management.

 

    The program’s goals are effectively balanced and consistent with the risk levels embedded in the company’s financial and capital plans.

 

    All potential awards are subject to Human Capital Committee discretion and the company has a recoupment policy in place in the event of a material earnings restatement.

Accordingly, our chief risk officer and the Human Capital Committee do not believe the company’s compensation programs create risks that are reasonably likely to have a material adverse effect on the company.

Director Retirement Policy

Our bylaws do not allow any person to serve as a director beyond the date of the annual meeting of shareholders immediately following his or her 72nd birthday. In accordance with this policy, Messrs. MacMillan and Ryan will retire from the Board effective at the Annual Meeting. We expect that one other director (Mr. Muhl) will retire pursuant to this policy at the 2017 Annual Meeting.

Compensation Committee Interlocks and Insider Participation

None of the members of the Human Capital Committee has served as an officer of the company, and during 2015 none of the members of the Human Capital Committee was an employee of the company. None of our executive officers served as a member of a board of directors or compensation committee of any other entity that has one or more executive officers serving as a member of our Board or Human Capital Committee.

Related Party Transactions and Policy

The Board has adopted a written policy concerning related party transactions. This policy covers any transaction in which the company was or is to be a participant and the amount involved exceeds $120,000,

 

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and in which any related party had or will have a direct or indirect material interest. A “related party” means any of our directors, director nominees, executive officers, persons known to us to beneficially own more than 5% of our outstanding common stock, and any of their respective immediate family members, and any entity in which any of these persons has an interest as an employee, principal or 10% or greater beneficial owner or other material financial interest.

Prior to entering into a transaction that may be viewed as a related party transaction, the related party must notify our general counsel of the facts and circumstances of the transaction. If the general counsel determines that the proposed transaction is a related party transaction, it is submitted to the disinterested members of the Audit Committee for consideration at the next Committee meeting (or to the chair of the Committee if it is not practical to wait until the next meeting and the chair is not a related party to the transaction). The Committee considers all relevant facts and circumstances, including the benefits to the company, if the related party is an independent director or nominee, the potential effect of entering into the transaction on the director’s or nominee’s independence, any improper conflict of interest that may exist, the availability of other sources for the products and services, the terms of the transaction, and the terms available from or to unrelated third parties generally.

The transaction may be approved if it is determined in good faith not to be inconsistent with the best interests of the company and shareholders. Certain types of transactions are deemed to be pre-approved by the Audit Committee, including executive officer and director compensation arrangements approved by the Board of Directors or the Human Capital Committee, indemnification payments and any transaction between the company and any entity in which a related party has a relationship solely as a director, less than 10% equity holder, or employee (other than an executive officer), or all of these relationships.

Transactions with Related Persons

During 2015 and up to the date of this proxy statement, there have been no related party transactions required to be disclosed.

Codes of Conduct and Ethics

The Board has adopted a code of conduct establishing certain business practices and ethics applicable to all of our directors, officers and employees. The Board has also adopted a separate code of ethics applicable to our CEO and certain of our senior financial officers. Both of these codes, together with any information on certain amendments or any waivers applicable to certain of our executive officers, are available on our investor relations website under the “Corporate Governance” heading at www.investors.unum.com.

 

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REPORT OF THE AUDIT COMMITTEE

 

REPORT OF THE AUDIT COMMITTEE

The Audit Committee1 (in this report, the “Committee”) is appointed by the Board of Directors and operates under a written charter adopted by the Board, a copy of which is available on the company’s investor relations website at www.investors.unum.com. The Committee is comprised solely of independent directors who meet the independence requirements of the SEC and the NYSE. All members of the Committee are “financially literate” as required by the NYSE, and the Board has determined that all six members are “audit committee financial experts” under SEC regulations. In July 2015, Francis J. Shammo became a member of the Committee upon his election to the Board. In April 2016, Joseph J. Echevarria became a member of the Committee upon his election to the Board. Former Committee member Thomas Kinser retired from the Board at the end of 2015.

The primary purpose of the Committee is to assist the Board in its oversight of the:

 

    Integrity of the company’s financial statements and related disclosures;

 

    Effectiveness of the company’s internal control over financial reporting;

 

    Compliance by the company with legal and regulatory requirements;

 

    Qualifications, independence and performance of the company’s independent auditor;

 

    Responsibilities and performance of the company’s internal audit function; and

 

    Management of the company’s financial risks.

The Committee is also responsible for discussing guidelines and policies with respect to the process by which the company undertakes risk assessment and management, and communicates with the Risk and Finance Committee as necessary for this purpose. The Committee receives regular enterprise risk management (ERM) reports, including results of the Own Risk and Solvency Assessment (ORSA). In 2015, the Committee Chair and another member of the Committee reviewed and provided input in the development of the ORSA Summary Report. This report provides strong evidence of the strengths of the company’s ERM framework, measurement approaches, key assumptions utilized in assessing our risks, and prospective solvency assessments under both normal and stressed conditions.

The Committee met 11 times during 2015. The Committee regularly held executive sessions and met separately with its independent auditor, Ernst & Young, and with the internal auditors without management present.

In fulfilling its oversight responsibilities, the Committee reviewed and discussed with management and the independent auditor matters relating to the company’s accounting and financial reporting processes, including the internal control over financial reporting; reviewed and discussed with management and the independent auditor the company’s annual and quarterly financial statements and related disclosures in reports filed with the SEC; pre-approved all audit services and permitted non-audit services to be performed by the company’s independent auditor; reviewed and discussed with management the responsibilities and performance of the internal audit function; discussed with management policies relating to risk assessment and risk management, as well as specific financial risks; and obtained and reviewed reports concerning the company’s policies and procedures for ensuring compliance with legal and regulatory requirements.

 

 

1   Joseph J. Echevarria did not join the Committee until April 1, 2016, and therefore did not participate in Committee actions with respect to the Report of the Audit Committee contained in this proxy statement.

 

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Management is primarily responsible for the preparation, presentation and integrity of the company’s financial statements and for the reporting process, including the establishment and effectiveness of the company’s internal control over financial reporting. The company’s independent auditor is responsible for performing an independent audit of the financial statements and of the effectiveness of the company’s internal control over financial reporting in accordance with auditing standards promulgated by the Public Company Accounting Oversight Board (PCAOB). The independent auditor reports directly to the Committee, which is responsible for the appointment, compensation, retention and oversight of the work performed by the independent auditor.

The Committee reviewed and discussed with management the company’s audited financial statements for the year ended December 31, 2015, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant estimates and assumptions which could impact the amounts reported in the company’s financial statements, and the clarity of disclosures in the financial statements. The Committee reviewed and discussed with the independent auditor the overall scope and results of the independent audit and its judgments of the quality and acceptability of the company’s accounting principles. The Committee also engaged in discussions with management and the independent auditor, among other matters, concerning management’s assessment of reserve adequacy across all major business lines, which is presented to the Committee each year. The Committee discussed with the independent auditor the matters required to be discussed by applicable standards of the PCAOB. The Committee received the written disclosures and the letter from the independent auditor required by applicable requirements of the PCAOB regarding the auditor’s communications with the Committee concerning independence. The Committee also discussed with the independent auditor matters relating to its independence, including consideration of whether the independent auditor’s provision of non-audit services to the company is compatible with the auditor’s independence. In order to assure continuing auditor independence, the Committee periodically considers whether there should be a regular rotation of the independent auditor.

The company’s internal audit function, under the direction of the chief auditor, reports directly to the Committee, which is responsible for the oversight of the work performed by the internal auditors. The internal auditors are responsible for, among other matters, conducting internal audits designed to evaluate the company’s system of internal controls. The Committee reviewed and discussed with the company’s internal auditors, and received regular status reports from them concerning, the overall scope and plans for their audits. The Committee met with the internal auditors, with and without management present, to discuss their audit observations and findings, and management’s responses, and their evaluation of the effectiveness of the company’s internal control over financial reporting.

The Committee evaluates the performance of its independent auditor, including the senior audit engagement team, each year and considers whether to retain the current independent auditor or consider other audit firms. In doing so, the Committee took into consideration a number of factors, including the professional qualifications of the firm and the lead audit partner, the quality and candor of the firm’s communications with the Committee and the company, and evidence supporting the firm’s independence, objectivity, and professional skepticism. The Committee also reviewed the 2014 PCAOB inspection report of Ernst & Young which was published in 2015 and discussed its findings with the independent auditor. In conjunction with the mandated rotation of the independent auditor’s lead engagement partner, the Committee and its chair are directly involved in the selection of the independent auditor’s lead engagement partner, including the current partner who assumed this role in 2014 after meeting with a subgroup of the Committee during which his qualifications were discussed.

 

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Based on this evaluation, the Committee has determined that the continued retention of Ernst & Young to serve as the company’s independent auditor is in the best interests of the company and its shareholders. Accordingly, the Committee appointed Ernst & Young as the company’s independent auditor for 2015. Ernst & Young has served as the company’s independent auditor since the merger of Unum and Provident in 1999, and before that served at various times as the independent auditor for the company and certain predecessor companies. Although the Committee has sole authority to appoint the independent auditor, the Committee recommended that the Board of Directors seek shareholder ratification of the appointment at the Annual Meeting as a matter of good corporate governance.

Based on the reviews and discussions referred to above, the Committee recommended to the Board of Directors, and the Board approved, that the company’s audited financial statements for the year ended December 31, 2015 be included in the company’s Annual Report on Form 10-K for filing with the Securities and Exchange Commission.

2015 Audit Committee:

E. Michael Caulfield, Chair

Theodore H. Bunting, Jr.

Cynthia L. Egan

Timothy F. Keaney

Francis J. Shammo

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

COMPENSATION DISCUSSION AND ANALYSIS

In this section, we provide an overview of our compensation philosophy and processes, and explain how the Human Capital Committee of our Board (referenced throughout as the “Committee”) arrived at its compensation decisions for the below named executive officers (NEOs) for 2015, all of whom are included in the 2015 Summary Compensation Table on page 73.

 

    Richard P. McKenney, President and Chief Executive Officer

 

    John F. McGarry, Executive Vice President and Chief Financial Officer

 

    Thomas R. Watjen, Retired Former Chief Executive Officer

 

    Breege A. Farrell, Executive Vice President, Chief Investment Officer

 

    Michael Q. Simonds, President and Chief Executive Officer, Unum US

 

    Lisa G. Iglesias, Executive Vice President, General Counsel

As previously announced, Mr. McKenney was elected as the company’s President in April 2015 and subsequently assumed the role of CEO following Mr. Watjen’s retirement in May 2015. Mr. Watjen is currently serving as the Chairman of the Board and will continue in this role for one more year if re-elected as a director at the Annual Meeting. John F. McGarry, who had previously served as President and Chief Executive Officer of our Closed Block Operations, succeeded Mr. McKenney as Chief Financial Officer in April 2015.

Business and Performance Review

Our Business

We are a leading provider of financial protection benefits in the United States and United Kingdom. Our products include disability, life, accident, and critical illness insurance. These products, which are primarily offered through the workplace, help protect millions of working people and their families from the financial hardships that can occur in the event of illness, injury, or loss of life.

Our business operations are divided into three primary segments – Unum US, Unum UK, and Colonial Life – and a Closed Block of business that includes products we service and support but no longer actively market.

2015 Performance

Unum had another successful year in 2015 as we built on the sales and premium growth begun the prior year and maintained our track record of consistent financial and operating performance. The persistently low interest rate environment continues to pressure our results, but price increases and management of discount rates have allowed us to maintain our profitability.

 

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Financial highlights1 from 2015 include:

 

    Pre-tax operating income of $1.29 billion and after-tax operating income of $901.0 million, based on revenues of $10.7 billion;

 

    Record operating earnings per share (EPS) of $3.64, a 3.7% increase from the prior year and the tenth consecutive year of operating EPS growth;

 

    Consolidated operating return on equity (ROE) of 11.3% (14.5% in our core operating segments);

 

    Book value per share growth of 8.4% from 2014 (excluding accumulated other comprehensive income, or AOCI), the seventh consecutive year of growth; and

 

    Solid investment results in a difficult interest rate environment while emphasizing sound risk management and credit quality.

Operating highlights from 2015 include:

 

    Approximately $6.8 billion in benefits paid to people facing illness, injury or loss of life;

 

    Healthy growth in sales of 4.6% and premium of 5.1% throughout our core businesses;

 

    Acquisition of a leading dental carrier to complement the offerings of our U.K. business;

 

    High client satisfaction metrics that generally exceeded our plan benchmarks;

 

    A strong company brand, image and reputation; and

 

    Recognition of our corporate citizenship efforts by several independent organizations, including: being recognized as one of the best places to work in America by Forbes magazine and in the insurance industry by Business Insurance magazine; and being included in the Dow Jones Sustainability North America Index.

Our capital generation remained strong and allowed us to deploy that capital in a number of ways.

 

    Shareholders received $174.2 million in Unum dividends, representing an increase in the dividend rate of 12.1% over the prior year, bringing our cumulative dividend rate increase since 2008 to 146.6%;

 

    We also repurchased approximately 12.3 million shares at a cost of nearly $427 million, bringing our total share repurchases since 2007 to $3.2 billion; and

 

    Our credit ratings remain high as a result of the strength of our strong brand in the employee benefits market, our favorable operating results and our strong balance sheet.

  

 

1   Operating results referenced in this document are non-GAAP financial measures that exclude certain specified items. For 2015, these excluded items were net realized investment gains and losses and non-operating retirement-related gains or losses. For reconciliations of the non-GAAP financial measures, including operating income, operating revenue, operating earnings per share, operating return on equity and book value per share (excluding accumulated other comprehensive income, or AOCI), to the most directly comparable GAAP measures, refer to Appendix B. Effective January 1, 2015, we adopted an accounting standards update for tax credit partnership investments in qualified affordable housing projects and applied the amendments retrospectively, adjusting all comparative prior periods. See Note 1 of the Consolidated Financial Statements in Part II, Item 8 of our 2015 Form 10-K for further discussion.

 

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CAPITAL GENERATION AND DEPLOYMENT

 

  Year    Share Repurchases    Dividend Increase  
  2008    $700 million   
  2009       10.0%
  2010    $356 million    12.1%
  2011    $620 million    13.5%
  2012    $500 million    23.8%
  2013    $319 million    11.5%
  2014    $301 million    13.8%
  2015    $427 million    12.1%

Business Highlights

The following are 2015 performance highlights within our primary business segments and other key areas of the company:

 

Unum US

0.6% increase in operating income

4.2% increase in sales

6.4% increase in premium income

13.3% operating return on equity

   Our Unum US segment, representing 61% of our consolidated premium income in 2015, built on the momentum of the prior year by delivering continued sales and premium growth, and favorable risk results. Operating income improved slightly from 2014, primarily due to strong premium growth and effective expense management.
Unum UK

2.4% increase in operating income*

6.2% increase in sales*

2.3% increase in premium income*

18.0% operating return on equity

* Results in British Pounds

   Our Unum UK segment, representing 7% of our consolidated premium income in 2015, showed continued improvement as a result of actions we took to address profitability and expand into the dental market through acquisition. Strong sales and premium growth, coupled with favorable risk results, led to an excellent ROE and a good year for this business.
Colonial Life

3.4% increase in operating income

6.9% increase in sales

5.1% increase in premium income

16.6% operating return on equity

   Our Colonial Life segment, representing 17% of our consolidated premium income in 2015, had another good year with a healthy increase in income, solid sales and premium growth, and stable risk results. Consistent with past years, Colonial Life continues to generate solid margins and returns.
Closed Block
Our Closed Block segment, representing 15% of our consolidated premium income in 2015, performed at or above our expectations, with a slight decrease in operating income of 0.8%. We continue to see consistent results from this block of business largely as a result of our continued investments in management resources and capabilities.
Investments
Our investment results remain solid, although we recorded lower net investment income in 2015. This was primarily due to a decline in the yield on invested assets as we continue to invest new cash flows at lower rates.

 

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Total Shareholder Return

Unum has been a steady performer and a solid long-term investment during one of the most challenging economic periods in memory. Our share price has grown at a compound annual growth rate of 5.7% over the last 10 years. In fact, our total shareholder return (TSR) has outperformed the S&P Life and Health Index during the same time period, and matched or exceeded our Proxy Peer Group in all but the five-year comparison.

Due to the long-term nature of some of our businesses, our performance is pressured by the historically low interest rate environment. As a result, our stock price, as well as the stock price of many of our peers in the financial services sector, has underperformed the broader stock market indices over the past 10 years. However, by leveraging our market leading positions, strong underwriting and risk management discipline and effective capital management, we have been able to outperform our Proxy Peer Group and the S&P Life and Health Index as a whole.

 

LOGO

 

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2015 Say-on-Pay Vote

Although our 2015 shareholder advisory vote on executive compensation passed, the Board and the Human Capital committees were disappointed that it received only approximately 69% support. To better understand these results, we engaged in an extensive shareholder outreach effort, contacting each of our top 40 investors, representing the holders of over 69% of our outstanding shares. Eleven of these investors, representing holders of more than 45% of our outstanding shares, accepted our invitation for engagement.

During meetings with each of these 11 investors, shareholders provided feedback on a variety of topics. Multiple shareholders commented that they were pleased to see a robust process for Board succession along with a focus on diversity and skills needed to support our business strategy. We did not receive many comments or suggestions for changes to our compensation programs. In fact, the shareholders we spoke with generally had favorable comments about the design of our executive compensation programs and policies. Below is a summary of the key feedback we heard and our response.

 

     What We Heard   Our Response
LOGO       Need to disclose why we use return on equity (ROE) as a performance metric in both annual and long-term incentive plans    

 

 

 

 

    

ROE is one of the most important metrics for our shareholders and we think tightly aligned with shareholder value

Including this metric in both incentive plans is designed to keep employees focused on both short-term and long-term results

We assign it only a 20% weighting in the annual incentive plan, which minimizes risk of overemphasis and, in the Committee’s view, provides the right overall balance

(see disclosure beginning on page 51 for details)

           
           
           
LOGO   

Suggest enhanced disclosure of goal-setting process to provide additional insight into the rigor of performance goals

           Performance goals are a direct output of our business plans for the year
            Metrics carefully balance the current performance of the business and the risk appetite of the enterprise with an appropriate amount of stretch
            External economic factors and their impact on our business are considered as part of business plan process
            Sensitivity tests of possible upside and downside scenarios to the plans are used to ensure appropriate degree of rigor
            (see disclosure beginning on page 51 for details)
   Disclosure on changes to pay as a result of recent leadership changes            Messrs. McKenney and McGarry received promotional increases in April 2015 based on their new positions
            The compensation packages for each are below what we paid the predecessors in their positions and are also below the median relative to the Proxy Peer Group
            This reflects the Committee’s practice of setting the pay of newly-promoted employees and making adjustments over time based on tenure and performance in the job
            (see Management Transition section on page 40 for details)
   Suggest disclosing incentive plan adjustments that will be made during the current calendar year in addition to those actually made during the prior year            Each year, the Committee determines that certain items not included in the financial plan for the year will be excluded from the calculation of the company’s performance, for purposes of both the annual and long-term incentive plans, should they occur. Disclosure on page 56 confirms that the same list of items that were used for 2015 have also been approved for 2016.
   Provide information on what you heard from shareholders and how you are responding            See the information provided or referenced in this section

 

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In addition to our meetings with shareholders, we also met with two large proxy advisory firms to provide an update on our shareholder engagement efforts and gain further insight into their views regarding our programs and disclosure. We believe that the changes to our disclosure referenced above are also responsive to comments that we received from these firms. Specifically, our disclosure with respect to the leadership transition and related compensation, rigor of the goal setting process, and use of return on equity as a performance goal are responsive to comments from their reports and/or the meetings we held with them.

Key Executive Compensation Practices

We are committed to good executive compensation practices, including the following:

 

    Pay for performance linking a majority of compensation to individual, financial and stock price performance measures;

 

    Annual say-on-pay votes;

 

    Robust stock ownership and retention requirements for senior officers and directors;

 

    Anti-pledging and anti-hedging policies applicable to executives and directors;

 

    Double-trigger vesting of long-term incentives which would only occur upon a qualifying termination following a change in control;

 

    Independent compensation consultant to the Human Capital Committee;

 

    Minimal perquisites; and

 

    Elimination of golden parachute excise tax gross-ups.

Management Transition

Upon the conclusion of the 2015 Annual Meeting, Thomas R. Watjen retired as the President and Chief Executive Officer of Unum Group after more than 20 years with the company, including the last 12 as CEO. Richard P. McKenney, who had previously served as Executive Vice President and Chief Financial Officer since August 2009, succeeded Mr. Watjen as President and was elected as a director of the company in April 2015. Mr. McKenney then succeeded Mr. Watjen as CEO upon his retirement the following month. John F. McGarry, formerly President and Chief Executive Officer of Closed Block Operations, succeeded Mr. McKenney as Chief Financial Officer in April 2015.

The management transition has been smooth and seamless. As is noted in the individual performance comments on page 48, the Board noted the effective transition and that company performance has continued at a high level.

Mr. McKenney’s Accomplishments as CEO

In addition to facilitating the changes in management roles, Mr. McKenney led the company to strong operating performance in 2015. The company achieved record operating earnings per share of $3.64, a 3.7% increase over the prior year. Each operating business unit met or exceeded its goals. Capital metrics and the balance sheet remained strong and book value per share grew by 8.4%. Under Mr. McKenney’s leadership, we believe that the company is well positioned for future success. See page 48 for Mr. McKenney’s additional accomplishments.

 

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Compensation Components

The Committee established the following key components of Mr. McKenney’s compensation package effective with his promotion to President in April 2015 (which remained unchanged with his subsequent promotion to CEO):

 

    Base Salary: Mr. McKenney’s base was set at $975,000;

 

    Annual Incentive Award: The annual incentive target for Mr. McKenney was set at 175%, prorated for the portion of the year he would serve as President and later as CEO; and

 

    Long-Term Incentive Award: The annual long-term incentive target for Mr. McKenney was set at $5,000,000. For his 2015 award, this amount was prorated for the portion of the year that he would serve as CEO, producing a target award of $3,000,000.

Upon Mr. McGarry’s promotion to CFO in April 2015, the Committee approved the following compensation package for him:

 

    Base Salary: Mr. McGarry’s base salary was set at $550,000;

 

    Annual Incentive Award: The annual incentive target for Mr. McGarry was set at 100%, prorated for the portion of the year he would serve as CFO; and.

 

    Long-Term incentive Award: The annual long-term incentive target for Mr. McGarry was set at 150% of base salary. For his 2015 award, this amount was prorated for the portion of the year that he would serve as CFO, producing a target award of $618,750.

The compensation packages for Messrs. McKenney and McGarry are below what we paid the predecessors to their positions and are currently below the median relative to the Proxy Peer Group. This reflects the Committee’s practice of pay positioning newly-promoted employees and making adjustments over time based on tenure and performance in the job.

The Committee’s 2015 compensation decisions for the remaining NEOs can be found beginning on page 57.

Mr. Watjen’s Retirement

Mr. Watjen retired coincident with the company’s 2015 Annual Meeting. He then assumed the role of non-executive Chairman.

His director compensation for the 2015/2016 board year consists of an annual cash retainer of $95,000, a restricted stock unit grant of $140,000 and an additional cash retainer of $200,000 for serving as Chairman of the Board. An overview of our director compensation program can be found, beginning on page 19 of this proxy statement.

Compensation Program Structure and Committee Decisions

Our executive compensation philosophy is designed to reward performance that helps us achieve our corporate objectives, increase shareholder return, and attract and retain talented individuals. We do this by:

 

    Offering base salaries that reflect the competitive market as well as the roles, skills, abilities, experience, and performance of employees;

 

    Providing incentive opportunities for all employees based on the achievement of corporate and individual performance goals; and

 

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    Aligning the long-term interests of management and shareholders by offering performance-based equity compensation opportunities and requiring senior officers to own a specified value of shares and retain equity awards for a specified period of time after vesting. This practice also promotes a culture of ownership and accountability in the company.

Elements of Pay

There are five primary elements of pay in our executive compensation program, which are summarized in the following table.

Those pay elements that are “at risk,” or contingent upon individual or corporate performance, are noted in the table below. Our NEOs, as the most senior officers of the company, have a majority of their targeted total direct compensation (consisting of fixed salary and variable annual and long-term incentive awards), at risk. This design creates an incentive for achievement of performance goals (short- and long-term) and aligns the interests of executives with those of our shareholders. For 2015, 87% of Mr. McKenney’s targeted total direct compensation was at risk. For the remaining NEOs (except Mr. Watjen who retired on May 21, 2015), an average of 70% of their aggregate targeted total direct compensation was at risk.

 

PAY ELEMENTS

 

Annual base salary
To provide a fixed amount of compensation that is reflective of the market for similar jobs as well as individual skills, abilities, and performance. Aligns with our compensation philosophy of attracting and retaining talented individuals.
Annual incentive awards (at risk)
To motivate executives to achieve short-term corporate financial goals as well as individual objectives. This form of compensation is paid in cash based on the achievement of corporate and individual goals and aligns with our compensation philosophy of rewarding performance in the achievement of short-term corporate objectives.
Long-term incentive awards (at risk)
To motivate long-term performance and align the interests of management and shareholders. This form of compensation is awarded in performance-based restricted stock units (PBRSUs) and performance share units (PSUs) based on a corporate earnings threshold and individual performance. Additionally, PSU vesting is based on achievement of three-year, prospective corporate financial goals, modified by relative total shareholder return. This aligns with our compensation philosophy of rewarding long-term performance and attracting and retaining talented individuals.
Retirement and workplace benefits
To provide a competitive program that addresses health, welfare, and retirement needs of executives and other employees. Aligns with our compensation philosophy of attracting and retaining talented individuals.
Perquisites and other personal benefits
Most perquisites were eliminated as of 2008. The limited perquisites we currently offer are in support of a specific business purpose.

 

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Roles of the Committee, Executive Officers and Consultants

The Committee, CEO, and compensation consultant each have important roles in our compensation program. The Committee, with input from the CEO, and compensation consultant, has the final authority to:

 

    Evaluate, design, and administer a compensation program for executive officers that appropriately links pay, company and individual performance, and the creation of shareholder value;

 

    Establish performance goals and certify whether they have been attained;

 

    Review the performance of the CEO, with input from the full Board, and determine his compensation; and

 

    Determine compensation for each of the other NEOs.

The CEO provides to the Committee:

 

    A self-assessment outlining his own performance for the year;

 

    Performance assessments and compensation recommendations for executives who report directly to him, which includes all of the NEOs (except Mr. Watjen); and

 

    His perspective on the business environment and the company’s performance.

The CEO does not participate in any decisions related to his own compensation.

Pay Governance LLC, as compensation consultant to the Committee, provides objective, expert analyses, independent advice, and comparative data across peer companies on executive and director compensation. Pay Governance reports directly to the Committee, which is responsible for the appointment, compensation, retention, and oversight of the work performed by the consultant. A senior representative of the compensation consultant generally attends Committee meetings, participates in executive sessions of the Committee without management present, and communicates directly with Committee members outside of meetings. Management interacts with the compensation consultant only when doing so on behalf of the Committee or concerning proposals the Committee will review for approval.

The Committee has adopted a policy requiring that its compensation consultant be independent. During 2015, the Committee completed its annual assessment of the independence of Pay Governance, taking into account the following factors:

 

    Compliance with the Committee’s independence policy;

 

    Other services, if any, provided to the company by the consultant;

 

    The amount of fees paid by the company to the consultant as a percentage of the consultant’s total revenues;

 

    Any business or personal relationships between the consultant (including its representatives) and the company’s directors or senior officers; and

 

    The policies and procedures the consultant has in place to prevent conflicts of interest, which include a prohibition against stock ownership in the company.

Pay Governance has attested to its independence and does not provide any services to the company other than those related to director and executive compensation consulting. Fees paid to Pay Governance for such services provided in 2015 totaled $143,370.

 

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Based on its assessment, the Committee concluded that the compensation consultant is independent under the Committee’s policy and that the compensation consultant’s work has not raised any conflict of interest.

The company’s finance, human resources, and legal staff, including the chief financial officer, support the Committee in its work. Employees from these departments discuss various executive compensation topics with the Committee and its compensation consultant, including how compensation plans fit in with other programs and business objectives. Although these staff members may make recommendations, the final decision on all executive compensation matters rests solely with the Committee.

Compensation Benchmarking

The Committee compares the compensation of our named executive officers to the median pay of executives in similar positions at peer companies. By targeting each pay element to the approximate median of the applicable comparator group (as described below), we ensure that the balance among the elements is competitive, while at the same time allowing company and individual performance to determine a majority of the compensation received by our NEOs. Overall, these benchmarking comparisons are used as points of reference and are secondary to the primary factors considered by the Committee when making compensation decisions. The primary factors are: company performance; individual performance; the executive’s level of responsibility and tenure; internal equity considerations; the creation of shareholder value; our executive compensation philosophy; and the results of the most recent shareholder say-on-pay vote.

The two sources used by the Committee for benchmarking executive compensation are:

 

    For CEO and CFO compensation, a proxy peer group comprised of insurance and financial services companies that are either our business competitors or primary competitors for talent (Proxy Peer Group). The Proxy Peer Group is also a reference for compensation programs and practices. The composition of the Proxy Peer Group is determined by the Committee and reviewed annually as outlined below; and

 

    For the compensation of our other NEOs, the Willis Towers Watson Diversified Insurance Study of Executive Compensation (Diversified Insurance Study). This source is used because responsibilities of our other NEOs may not be directly comparable with those of named executives at other companies in the Proxy Peer Group.

In addition to benchmarking executive compensation, the Committee uses a subset of the Proxy Peer Group (which we refer to as the “PSU Peer Group”) for purposes of measuring relative TSR for our PSU awards (see page 55 for details on these awards). This subset is selected because they are considered to be direct business competitors of Unum.

The Committee evaluates the composition of the Proxy Peer Group every year. Peer companies are determined based on five primary criteria (life and health GICS code; reasonable range of: assets; revenues; and market capitalization; and competition with Unum for talent and/or market share). Based on our review in August 2015, on average, the peer companies met three of the five criteria. Overall, Unum is above the median asset level and approximately 82% of the revenue median. Additionally, 10 of the 17 peers (59%) selected Unum as a peer for compensation benchmarking purposes in their 2015 proxy statements.

 

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During its annual Proxy Peer Group analysis in August 2015, the Committee determined to remove the managed healthcare companies (Aetna, Cigna, and Humana) from the Proxy Peer Group in 2016 due to their expected size increase as a result of recently announced deals as well as the evolving dynamics within this space of the insurance market. Additionally, the Committee, after consideration of: (a) the number of peers needed for statistical validation, (b) the size of peers relative to the company and relative to each other, (c) whether peers selected the company as a peer, (d) the potential skewing of total shareholder return data following deal announcements, and (e) consistency in the treatment of announced deals involving peers, decided to remove StanCorp Financial from the group given that Meiji Yasuda acquired them. Furthermore, the Committee considered other insurance and financial services companies with its consultant, Pay Governance LLC, and determined that Voya Financial, a company that the Committee believes closely matches the criteria above based on its discussion and analysis, will be added to the 2016 Proxy Peer Group. The effect of these changes to the peer group was a 9.7% reduction in median CEO targeted total direct compensation (TDC).

Since the Proxy Peer Group contains a dispersion of companies (7 proxy peers are larger than Unum based on assets; 10 are smaller), annual sensitivity tests are performed to understand the impact of both larger and smaller peers on median CEO compensation levels. For the tests conducted in 2015, excluding the two smallest and two largest peers for testing purposes had no impact on CEO targeted TDC. An additional sensitivity test was conducted using a common statistical approach known as regression analysis. Regression analysis considers the correlation between two factors (e.g., compensation and asset or revenue size) and is commonly used to adjust compensation data to remove the effects of company size. A regression analysis that considered the correlation between asset size and compensation yielded a corresponding TDC level based on our asset size that was 7% less than the median TDC. A regression analysis that considered the correlation between revenue and compensation yielded a corresponding TDC based on our revenue that was 9% less than the median. Based on these tests, the Committee determined that the 2016 Proxy Peer Group is appropriate.

The following table lists the companies in the Diversified Insurance Study (DIS), PSU Peer Group and Proxy Peer Group.

 

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BENCHMARKING EXECUTIVE COMPENSATION

                Proxy Peer Indicators(1)(2)
 Company   DIS
Survey
Partici-
pant(1)
  PSU
Peer
Group(3)
  2015 
Proxy 
Peer 
  Life &
Health
GICS
 

0.4x to 2.5x

Unum

Revenues

 

0.4x to 2.5x

Unum
Assets

 

0.5x to 5.0x

Unum Market

Capitalization

  List
Unum
as a
Peer
 Aetna             ü   ü    
 Aflac         ü   ü   ü   ü   ü
 AIG                    
 Allstate                    
 Aon           ü   ü   ü    
 Assurant           ü   ü   ü   ü
 AXA Group                              
 Cigna             ü   ü   ü
 CNO Financial         ü   ü   ü     ü
 Genworth Financial           ü   ü   ü   ü
 Guardian Life                    
 Hartford Financial Services           ü     ü   ü
 Humana             ü   ü   ü
 John Hancock                              
 Lincoln National         ü   ü     ü   ü
 Marsh & McLennan           ü     ü    
 Massachusetts Mutual                    
 MetLife         ü          
 Nationwide                    
 New York Life                    
 Northwestern Mutual                              
 One America Financial                    
 Pacific Life                    
 Phoenix Companies                    
 Principal Financial         ü   ü     ü    
 Prudential Financial         ü       ü    
 Reinsurance Group of America           ü   ü   ü   ü
 Securian Financial                              
 StanCorp Financial         ü     ü      
 Sun Life Financial                    
 Thrivent Financial                    
 TIAA-CREF                    
 Torchmark         ü       ü   ü
 Transamerica                    
 USAA                    
 Voya Financial                              

 

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(1) For compensation decisions made in early 2015, benchmarking comparisons were made using the 2015 Proxy Peer Group and the 2014 DIS (the latest data available at the time). Although Unum participates in the DIS, we are excluded from this table. The number of participants in the DIS remained the same as the prior year; the only change was the inclusion of Voya Financial instead of ING.
(2) The Proxy Peer Group includes both property and casualty insurers and life and health insurers, with Unum’s assets equal to 117% of the peer median as of December 31, 2014, and our revenue at 81% of the peer median for the year ended December 31, 2014. Unum is not part of the Proxy Peer Group.
(3) This peer group will be used for the TSR comparison under the 2015 PSU grant. These companies are our direct competitors, are generally followed by the same sell-side research analysts, and generally compete with us for talent.

Individual Performance Assessments

The Committee uses individual performance assessments as a factor in its determination of compensation for each NEO. Individual performance is measured against the leadership criteria and Board assessment goal areas described in the table below, as well as the common performance goals outlined on the following page. Collectively, these can be used to adjust earned annual incentive and long-term incentive awards between 0% and 125%.

Evaluation Criteria

In evaluating how effectively each NEO met the leadership criteria, the Committee considered:

 

    Company performance;

 

    For Mr. McKenney, the Board’s assessment of his performance, as well as his self-assessment;

 

    For NEOs other than the CEO and Mr. Watjen, the CEO’s performance assessments of the NEOs. For each individual, the performance assessment is based on a combination of performance feedback from the individual’s direct manager, peers, direct reports, and other partners, as well as the individual’s self-assessment; and

 

    Written assessments by all Board members of each NEO against the stated goals in the areas listed in the table below.

INDIVIDUAL PERFORMANCE ASSESSMENTS

 

 Leadership Criteria    Board Assessment Goal Areas
 

    Delivers results

 

    Leadership

    Builds organizational talent

 

    Strategic planning, succession planning, and leadership development

    Makes effective decisions

 

    Demonstrated performance

    Creates business and enterprise value

 

    Building and sustaining a high-functioning organization and team

    Engages employees in the corporate vision

 

    Humility and ego maturity

    Adheres to the company’s values

 

    Statesmanship

   

    Balance of putting the company first with appropriate self-care
  and resilience

   

    Ability to balance complex competing factors

   

    Commitment to the enterprise as well as their business unit

   

    Board relations

 

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2015 Performance Assessment and Highlights

The named executive officers’ achievement levels, for purposes of the 2015 annual incentive paid in March 2016 and long-term incentive awards granted in February 2016, were determined in part based on the following common performance goals. Each common performance goal has specific areas of focus for each executive and his or her respective business areas.

2015 COMMON PERFORMANCE GOALS

Achieve the business and financial objectives the Board approved for the company, which includes the following areas of focus:

 

 

    Positioning each business to deliver planned results and capitalize on market positions and opportunities
    Appropriately redeploying the company’s excess capital
    Continuing to manage the plans of the company on an integrated basis

Deepen the management talent and employee engagement throughout the company:

 

 

    Strengthen the senior leadership succession plan
    Maintain a high level of employee engagement in all businesses
    Continue to take actions to assure that our workforce diversity matches that of our key stakeholders

Continue to develop the culture and values of the company at all levels which includes:

 

 

    Ethics and compliance
    Social responsibility
    Risk management

Build on the image and reputation of the company with key constituents:

 

    Including with regulators, media and public policy makers

Provide for a seamless management transition which includes:

 

    Visibility across the employee base
    Visibility with investors, regulators and media
    Continued development of strong relationships between the Board and management

 

Based on the above criteria, the Committee assessed the individual performance of our NEOs and awarded each an individual performance percentage. These percentages were used to calculate the final payout of 2015 annual incentives and long-term incentive awards granted in 2016, as described later in this section.

Individual performance highlights for each NEO, and their respective awarded performance percentages, are included below:

Richard P. McKenney

President and Chief Executive Officer

In assessing Mr. McKenney’s performance for 2015, the Committee noted that he:

 

    Successfully transitioned into the CEO role as well as facilitated a seamless transition of his former CFO role;

 

    Achieved substantially all of the company’s financial objectives, with each business segment meeting or exceeding its goals for the year. This resulted in operating earnings per share growth of 3.7%, which is the tenth consecutive year of operating earnings per share growth;

 

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    Maintained a strong balance sheet and capital position. This capital position allowed us to continue to invest in our business, fund an acquisition, and return capital to shareholders through dividend increases and share repurchases;

 

    Completed an acquisition of a dental insurer in the U.K. which further strengthens our market presence in that country; and

 

    Made significant progress developing the company’s long term Closed Block strategy as well as better aligning the Global Technology Services organization to meet future business needs.

Given these accomplishments, and consistent with the company’s overall performance achievement of 103%, the Committee awarded Mr. McKenney an individual performance percentage of 103% for his 2015 annual incentive award and 103% as the strategic performance modifier for his long-term incentive award granted in February 2016.

John F. McGarry

Executive Vice President and Chief Financial Officer

In assessing Mr. McGarry’s performance for 2015, the Committee noted that he:

 

    Effectively transitioned into the CFO role in 2015 and facilitated a seamless transition of his former role;

 

    Achieved substantially all of the company’s financial objectives, with each business segment meeting or exceeding its goals for the year;

 

    Maintained a strong capital position which allowed the company to continue to invest in the growth of the business, fund an acquisition in the U.K., and return capital to shareholders through dividend increases and share repurchases;

 

    Worked closely with the Finance leadership team to drive appropriate organizational change, strengthen talent, and create a more efficient organization; and

 

    Undertook a lead role representing the company with external audiences including shareholders and the financial community.

Given these accomplishments, the Committee applied an individual performance percentage of 100% for Mr. McGarry’s 2015 annual incentive award and 110% as the individual performance modifier for his long-term incentive award granted in February 2016, reflecting longer term expectations.

Thomas R. Watjen

Retired Chief Executive Officer

Mr. Watjen’s bonus was calculated and paid per the terms of his employment agreement. Based on his retirement on May 21, 2015, the agreement stated that he was to receive a prorated bonus based on the number of days he served as CEO in the year of retirement divided by 365. This fraction was multiplied by the average of the annual bonuses paid for the three completed calendar years prior to the year in which retirement occurred.

 

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Breege A. Farrell

Executive Vice President, Chief Investment Officer

In assessing Ms. Farrell’s performance for 2015, the Committee noted that she:

 

    Achieved positive results despite a continued difficult investment environment;

 

    Remained disciplined in asset selection and maintained the overall strong credit quality of the portfolio;

 

    Continued to develop good partnerships with the business segment owners to help ensure we have appropriate alignment between products and investments;

 

    Remained focused on building and enhancing talent and depth within the investment team; and

 

    Maintained a strong external focus with the broader investment community allowing us to leverage industry trends and developments.

Given these accomplishments, the Committee applied an individual performance percentage of 100% for Ms. Farrell’s 2015 annual incentive award and 100% as the individual performance modifier for her long-term incentive award granted in February 2016.

Michael Q. Simonds

Executive Vice President, President and Chief Executive Officer, Unum US

In assessing Mr. Simonds’ performance for 2015, the Committee noted that he:

 

    Led Unum US to strong financial results despite a continued difficult interest rate environment;

 

    Delivered strong sales and premium growth while maintaining risk and pricing discipline. Sales increased 4.2% while premium growth of 6.4% was the strongest in over 10 years;

 

    Continued to focus on talent development within Unum US as well as the enterprise overall;

 

    Drove the assessment and early stage development of our new technology platform to better serve our customers and simplify our operations; and

 

    Represented the company with a variety of outside stakeholders including shareholders, regulators, customers, and brokers.

Given these accomplishments, the Committee applied an individual performance percentage of 110% for Mr. Simonds’ 2015 annual incentive award and 110% as the individual performance modifier for his long-term incentive award granted in February 2016.

Lisa G. Iglesias

Executive Vice President, General Counsel

In assessing Ms. Iglesias’ performance for 2015, the Committee noted that she:

 

    Contributed to effective transition in leadership as she assumed the role of General Counsel;

 

    Assessed and executed significant changes in the legal organization to better align the organization with the needs of the business;

 

    Produced strong performance despite instituting significant change in the department, with most performance indicators on track for the year;

 

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    Integrated quickly and effectively to a new organization and culture. She has built solid connections within the businesses as well as the Board of Directors; and

 

    Continues to build industry and company knowledge while at the same time utilizing her considerable legal and public company expertise to move the organization forward.

Given these accomplishments, the Committee applied an individual performance percentage of 105% for Ms. Iglesias’ 2015 annual incentive award and 105% as the individual performance modifier for her long-term incentive award granted in February 2016.

Company Performance Targets

Each year, the Committee sets targets for several performance measures that are used to calculate annual and long-term incentive awards. Performance measures and their respective targets are established for the company as a whole as well as for each of our principal operating business segments, and weightings are assigned to each performance measure based on its relative importance to the company or business segment.

The performance targets are aligned with the company’s primary business objectives:

 

    Strong operational performance

 

    Disciplined growth

 

    Effective risk management

 

    Consistent capital generation

The performance goals in our incentive plans are a direct output of our business plans which are approved by the Board of Directors each year.

The business plans and the associated metrics carefully balance the current performance of the business and the risk appetite of the enterprise with an appropriate amount of stretch designed to drive consistent growth and improvement.

In addition, the Committee considered external economic factors including: (1) the overall economic growth rate, (2) employment and wage growth which impacts our overall premium levels, and (3) the interest rate and investment environment which can have a significant impact on our overall profit margins.

While the absolute year-over-year goals for most of the performance metrics generally increase, there are instances where a performance goal for the year may be below or equivalent to the prior year goal, based on pressures in each of the identified factors above. Our after-tax operating performance metric in the 2015 annual incentive plan and our return-on-equity (ROE) metric in the 2015 long-term incentive plan were each below the level of the comparable prior year metric. This was due to the continued low interest rate environment and increases in statutory capital requirements rather than lower operational expectations.

In setting the business plans and performance metrics, a number of sensitivity tests are run to determine the possible upside and downside scenarios to the plan. These scenarios are reviewed to be certain we have the appropriate degree of rigor in the plan. We set challenging plans to ensure that their achievement will drive long-term value for shareholders.

Once the performance measures are established, the incentive payout targets are set to appropriately reward performance above the targets and to penalize results that are below target.

 

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Generally, for each annual incentive performance measure, the typical payout range begins at achieving 75% of target with a 0% payout for achieving less than 75% of target. Performance which is 100% of the target will equate to a 100% payout while achieving 115% of target will result in a 200% payout for that performance measure. However, the overall plan maximum payout is 150%. Our incentive plans are subject to an annual risk assessment by our chief risk officer, which is discussed with the Committee as described on page 30.

After careful evaluation, the Committee decided to use the ROE performance measure under both our annual and our long-term incentive plans. The Committee has concluded that ROE is one of the most important metrics for shareholders, over both a near-term and an extended timeframe. The Committee believes that including this metric in incentive plans that payout over both one-year and three-year periods encourages executives to focus on both short- and long-term results. The Committee also believes that any risk of overemphasizing ROE in the annual and long-term incentive plans is avoided by assigning it only a 20% weighting to the Unum Group ROE performance measure in the annual incentive plan and by giving equal weighting to another performance measure (in recent years, average after-tax operating earnings per share) with further adjustment based on relative TSR for PSUs awarded under our long-term incentive plan.

Prior to 2016, consolidated ROE was included as an annual performance measure for Unum Group but not for the individual business segment plans (see table below for 2015 performance measures by business). Effective in 2016, the consolidated ROE metric will be included as a performance measure for each business segment.

An additional change has been made in 2016 to the Unum Group annual performance measures. The business area composite metric has been replaced with individual metrics for earned premium, sales, service and operating expense ratio for the core operating business segments. For the business segments, beginning in 2016, we are measuring the quality of our customers’ experiences from their point of view, focusing on a few specific areas that we know most directly impact customer loyalty and satisfaction. For this reason, we are renaming the service performance measure “customer experience.”

The changes to the annual performance measures for Unum Group and the business segments are designed to create consistency among the plan metrics which should provide better alignment between the business segments and overall company performance.

Incentive Funding Performance Requirement

Our annual and long-term incentive plans are conditioned on the company achieving a specified level of performance. We apply an incentive funding performance requirement because we believe employees and officers should receive incentive awards only after our shareholders and creditors are paid. Additionally, the company intends that meeting this incentive funding performance requirement will allow the company to retain certain deductions in accordance with Section 162(m) of the Internal Revenue Code (the “Code”). However, the Committee retains discretion to pay compensation that is not deductible under Section 162(m) of the Code, and it is possible that compensation intended to qualify for exemption under Section 162(m) of the Code may not so qualify if all requirements for the “qualified performance-based compensation” exemption are not met.

The Annual Incentive Plan specifies a performance requirement of $250 million of statutory after-tax operating earnings to fund the plan. At the time this plan was established, this was approximately enough to cover dividends to shareholders and after-tax interest on our recourse debt. For 2015, the Committee established the same performance requirement to fund the long-term incentive plan. Funds used to attain the performance requirement are derived from statutory after-tax operating earnings and other sources of cash flow available from the company’s insurance and non-insurance subsidiaries.

 

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The company successfully achieved the 2015 performance requirement for funding the 2015 annual incentive awards and the long-term incentive grants made in February 2016.

Annual Incentive Targets

Depending on their role in the company, our NEOs’ annual incentive awards are tied in various ways to the performance of Unum Group and its business units. The annual incentive awards of Messrs. McKenney and McGarry, and for Ms. Iglesias are based entirely on Unum Group performance. Mr. Watjen’s award was calculated based on the terms of his employment agreement, as outlined above. For business unit executives 25% of their award is based on Unum Group performance and 75% is based on their business unit’s performance (Investments for Ms. Farrell and Unum US for Mr. Simonds). The following table outlines the targets for annual incentives awarded for 2015 performance and how the company and business units performed against those targets in 2015.

 

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2015 ANNUAL INCENTIVE AWARD PERFORMANCE TARGETS AND RESULTS ($s/£s IN MILLIONS)

 

    Performance Measure

   Component
Weighting
   Threshold(1)    Target    Maximum    Actual    

 

Unum Group

 

              

After-tax operating income(2)

   40%    $672.9    $897.2    $1,031.8    $901.0

Business area composite(3)

   40%    75%    100%    150%    102%

Return on equity(4)

   20%    8.43%    11.25%    12.93%    11.32%

 

Unum US

 

              

Before-tax operating income(5)

   40%    $597.5    $853.5    $1,024.2    $850.0

Earned premium

   20%    $4,203.6    $4,945.4    $5,934.5    $4,960.0

Sales

   15%    $691.6    $922.1    $1,290.9    $939.6

Service(6)

   15%    90%    100%    150%    102%

Operating expense ratio

   10%    21.70%    19.70%    17.70%    19.89%

 

Colonial Life

 

              

Before-tax operating income(5)

   40%    $215.2    $307.4    $368.9    $309.1

Earned premium

   20%    $1,131.5    $1,331.2    $1,597.4    $1,338.6

Sales

   15%    $326.3    $435.0    $609.0    $438.5

Service(6)

   15%    90%    100%    150%    104%

Operating expense ratio

   10%    18.37%    16.37%    14.37%    16.70%

 

Unum UK

 

              

Before-tax operating income(5)

   40%    £64.1    £91.6    £110.0    £92.0

Earned premium

   20%    £319.1    £375.4    £450.5    £376.9

Sales

   15%    £41.0    £54.6    £76.5    £55.1

Service(6)

   15%    90%    100%    150%    103%

Operating expense ratio

   10%    23.21%    21.21%    19.21%    20.70%

 

Investments

 

              

Net Investment Income(7)

   50%    $2,354.0    $2,479.0    $2,604.0    $2,512.0

Avoided Losses(8)

   25%    ($100.0)    $25.0    $150.0    $4.4

Market Composite(9)

   25%    83%    100%    175%    105%

 

(1) For each performance measure, there is no payout at or below the threshold. For each performance measure, the payout would be 200% for performance at or above the maximum. However, the overall payout for the aggregate annual incentive plan is capped at 150% of target. For performance between defined levels, the payout is interpolated.
(2) After-tax operating income is defined as net income adjusted to exclude after-tax net realized investment gains or losses and after-tax non-operating retirement-related gains or losses and certain other items specified in the reconciliation of non-GAAP (generally accepted accounting principles) measures attached hereto as Appendix B.
(3)

The business area composite component weighting for Unum Group includes a weighted average of the overall business unit incentive plan results (excluding before-tax operating earnings which is already captured in both after-tax operating income and    

 

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  return on equity), weighted as follows: Unum US at 40%, Unum UK at 25%, Colonial Life at 25% and Investments at 10%. Performance for each business unit could be zero to a maximum of 150%.
(4) Return on equity is calculated by taking after-tax operating income and dividing it by the average of the beginning- and end-of-year stockholders’ equity adjusted to exclude the net unrealized gain or loss on securities and the net gain on cash flow hedges.
(5) Before-tax operating income is defined as net income adjusted to exclude net realized investment gains or losses, non-operating retirement-related gains or losses, income tax expense and certain other items specified in the reconciliation of non-GAAP measures attached hereto as Appendix B.
(6) Service is based on the average of several service metrics for policyholders, producers and claimants.
(7) Net investment income reflects the impact of investment results on after-tax operating income. Net investment income excludes interest on policy loans, investment income on floating rate securities backing floating rate debt, investment income on index-linked securities which support claim reserves that provide for index-linked claim payments, variances to plan for asset levels and specified portions of miscellaneous net investment income, and includes investment income related to investments managed by Unum supporting reserves related to a block of individual disability business assumed through a modified coinsurance agreement.
(8) Avoided losses are calculated by multiplying an industry standard weighted default rate by Unum’s total credit exposure and comparing to Unum’s actual investment losses.
(9) Market composite consists of comparing the average of three targets: (1) credit spreads on purchases to a specified benchmark, (2) yields on purchases to a specified benchmark, and (3) realized investment losses to a specified peer group.

Each performance target has been selected because the Committee believes it is an appropriate driver of long-term shareholder value:

 

    The growth and competitiveness of the company are measured using sales and earned premium targets;

 

    Profitability achievement is measured using after-tax operating income for Unum Group; pre-tax operating income for Unum US, Colonial Life, and Unum UK; and net investment income for Investments;

 

    The balance of profitability and capital management effectiveness is measured using return on equity; and

 

    Effective and efficient customer service is measured using the service and operating expense ratio targets.

A business area composite performance measure is included in Unum Group’s annual incentive targets to better align our corporate staff functions, which provide support to each of our business units, with the results generated in those units.

Long-Term Incentive Targets

The achievement of a corporate performance threshold must be met before any award may be granted under the company’s long-term incentive program, as described on page 52. All of our NEOs except Ms. Iglesias, who had recently joined the company, received a portion of the long-term incentive grant in February 2015 in the form of PSUs. The PSUs will vest based on the achievement of three-year, prospective (2015-2017) average operating earnings per share and average return on equity goals, and the achievement will be modified (up to +/-20%) based on linear interpolation on our total shareholder return relative to 9 members of our Proxy Peer Group, referred to herein as our “PSU Peer Group.” These nine companies (Aflac, Assurant, Hartford Financial, Lincoln National, MetLife, Principal Financial, Prudential Financial, Stancorp, and Torchmark) were selected because they are considered to be direct business competitors of Unum (see discussion beginning on page 44 for the differences in our Proxy Peer Group and PSU Peer Group). We believe it is appropriate to adjust these awards for relative TSR, since Unum’s individual TSR performance directly affects the value of the equity

 

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awards. The table below outlines the three-year performance targets established by the Committee for the PSU grants made in February 2015.

TARGETS FOR PERFORMANCE SHARE UNITS (PSUs) GRANTED IN 2015

 

Corporate Performance Factors

   Driver of Shareholder Value   

Component

Weighting

  Threshold   Target   Maximum  

Average 3-year Return on Equity

(2015-2017)

  

Capital Management

Effectiveness

   50%   8.18%   10.90%   12.54%

Average 3-year After-Tax Operating 

EPS (2015-2017)

   Profitability    50%   $2.86   $3.81   $4.38

Relative Total Shareholder Return

   Modifier

Percentile

  -20% @

35th

  0 @

50th

  +20% @

75th

Items Excluded When Determining Company Performance

When pre-establishing the performance measures and weightings for 2015, the Committee determined that certain items not included in the 2015 financial plan would be excluded from the calculation of the company’s performance, for purposes of both the annual and long-term incentive plans, should they occur. These criteria are the same ones that we used in 2014 and the Committee has also approved them for use in the 2016 plans as well. The Committee believes it is appropriate to exclude these items because they are unusual or infrequent in nature, do not directly reflect company or management performance, or could serve as a disincentive to decisions which are in the best interest of the company and shareholders. These items are:

 

    Unplanned adjustments resulting from accounting policy changes, legal or regulatory rule or law changes;

 

    The impact of any unplanned acquisitions, divestitures, or block reinsurance transactions;

 

    Unplanned adjustments to the Closed Block of business;

 

    The effect of any unplanned regulatory, legal, or tax settlements;

 

    The effect of unplanned changes to strategic asset allocation;

 

    Unplanned debt issuance, repurchasing or retirement; or stock repurchase or issuance;

 

    The effect of differences between actual currency exchange rates versus exchange rates assumed in the financial plan;

 

    Unplanned fees or assessments, including tax assessments, from new legislation; and

 

    The effect on revenue from unplanned variances from floating rate securities and index-linked securities.

 

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Applying these criteria, the Committee adjusted targets for the impact of the following three items on our 2015 financial results that were not included in the 2015 financial plan from which the targets were initially derived:

 

    The effect of differences between actual stock repurchases versus the amount assumed in the financial plan (actual repurchases were higher than planned);

 

    The effect of differences between actual foreign currency rates versus exchange rates assumed in the financial plan; and

 

    The effect of the unplanned acquisition of National Dental Plan Limited and associated companies.

 

Each year, the Committee undertakes an overall assessment of the results while also maintaining the discretion to make final adjustments. Any adjustments are based on a review of the actual achievement for each performance measure compared to the annual incentive targets listed beginning on page 53, as well as a qualitative assessment of results. For 2015, the Committee made minor adjustments to each business unit’s performance based on a number of qualitative considerations that impacted the aggregate annual incentive payout by less than 1%. The resulting annual incentive plan achievement levels for 2015 and their comparison to the previous year are shown in the accompanying table.

 

The achievement levels for 2015 were used in calculations for annual incentive awards described in the “Compensation Decisions” section below.

 

ANNUAL INCENTIVE PLAN ACHIEVEMENT LEVELS

 

  Plan

     2015         2014   

 

  Unum Group

     103%         103%   

 

  Unum US

     100%         103%   

 

  Unum UK

     105%         103%   

 

  Colonial Life

     102%         108%   

 

  Investments

 

     105%         99%   

Compensation Decisions

Annual Base Salary

Salaries for our NEOs are established based on their position, skills, experience, responsibility, and performance. Competitiveness of salary levels is assessed annually relative to the approximate median of salaries in the marketplace using the sources noted beginning on page 44 for similar executive positions. Increases may be considered for factors such as changes in responsibilities, individual performance, and/or changes in the competitive marketplace.

In early 2015, the Committee approved base salary increases for NEOs as outlined in the following table. For a discussion of 2016 salary adjustments, see “2016 Compensation Decisions” beginning on page 64.

 

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    2015 ANNUAL BASE SALARY DECISIONS

 

    Name                      2015        2014        % Change     

Mr. McKenney(1)

 

                 $975,000           $715,000         36.4%  

Mr. McGarry(1)

 

                 550,000           430,624         27.7%  

Mr. Watjen(2)

 

                 1,150,000           1,150,000         – %  

Ms. Farrell

 

                 446,500           435,625         2.5%  

Mr. Simonds(3)

 

                 575,000           525,000         9.5%  

Ms. Iglesias(4)

                     485,000           N/A         N/A    

 

(1) Messrs. McKenney and McGarry’s increases were based on their promotions to president and chief financial officer, respectively, which were effective April 1, 2015.
(2) Mr. Watjen’s salary was not increased given his pending retirement.
(3) A portion of Mr. Simonds increase is related to a market driven adjustment.
(4) Ms. Iglesias was not eligible for an increase given that she had just been hired by the company in January 2015.

Setting Incentive Targets

For purposes of determining the amount of annual incentive and long-term incentive awards for our NEOs, the Committee establishes a target amount as a percentage of each executive’s salary, except that the long-term incentive target is set as an absolute dollar amount for the CEO, and Mr. Watjen’s target was not set given his pending retirement. In establishing each target, the Committee considered market data from the appropriate peer group as well as each individual’s target relative to other NEOs, given their respective levels of responsibility. In early 2015, the Committee approved annual and long-term incentives for each NEO as outlined in the tables below.

    2015 ANNUAL INCENTIVE TARGET DECISIONS

 

    Name           2015      2014      % Change     

Mr. McKenney(1)

 

       175%      100%      75%  

Mr. McGarry(1)

 

       100%      80%      25%  

Mr. Watjen(2)

 

       N/A      200%      N/A  

Ms. Farrell

 

       120%      120%      – %  

Mr. Simonds

 

       90%      90%      – %  

Ms. Iglesias(3)

         75%      N/A      N/A    

 

(1) Messrs. McKenney and McGarry’s incentive targets were based on their promotions to president and chief financial officer, respectively, which were prorated for 2015.
(2) A target was not set for Mr. Watjen given his pending retirement.
(3) Ms. Iglesias’ target was set as part of her employment compensation in January 2015.

 

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    2015 LONG-TERM INCENTIVE TARGET DECISIONS

 

    Name                      2015      2014      % Change     

Mr. McKenney(1)

 

               $5,000,000      $1,400,000      257.1%  

Mr. McGarry(1)

 

               150%      100%      50.0%  

Mr. Watjen(2)

 

               N/A      $6,000,000      N/A  

Ms. Farrell

 

               100%      100%      – %  

Mr. Simonds

 

               150%      150%      – %  

Ms. Iglesias(3)

                   125%      N/A      N/A    

 

(1) Messrs. McKenney and McGarry’s incentive targets were based on their promotions to president and chief financial officer, respectively, which were prorated for 2015. The prorated amounts were $3,000,000 for Mr. McKenney and $618,750 for Mr. McGarry.
(2) A target was not set for Mr. Watjen given his pending retirement.
(3) Ms. Iglesias’ target was set as part of her employment compensation in January 2015.

Annual Incentive Awards

Our annual incentive awards reward performance based on the achievement of both company and individual performance, which the Committee believes aligns compensation with the objectives of shareholders. The Annual Incentive Plan, under which 2015 annual incentive awards were granted, includes:

 

    Eligibility for all non-sales employees to receive an annual incentive;

 

    An Executive Officer Incentive Plan in which our NEOs participate; and

 

    An objective performance threshold of $250 million of statutory after-tax operating earnings and other sources of cash flow available from the company’s insurance and non-insurance subsidiaries for the fiscal performance year that provides funding for incentive payments. This goal must be achieved before participants are eligible to receive an award. If the goal is not achieved, no awards are paid.

The decision making process to determine 2015 annual incentive awards was as follows:

 

 

LOGO

 

(1) The Committee exercises discretion as to the final percentage considering all performance factors, including, but not limited to, the quality of financial results. For details on adjustments for 2015, see page 56.
(2) Individual performance may range from 0% to 125%.

 

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Once it was determined that the performance threshold had been met for 2015, specific awards for our NEOs were arrived at by:

 

    Applying the individual annual incentive targets, which had been set in early 2015, to each individual’s base salary;

o    The individual annual incentive targets for Messrs. McKenney and McGarry were prorated based on the earnings and targets for each job they held during the year and the time in each position.

 

    Calculating company and business unit performance percentages by comparing actual results to the performance targets described beginning on page 51 (the Committee may also take into account other factors, including economic considerations as well as non-financial goals);

 

    Establishing an individual performance percentage (from 0% to 125%) using the individual assessment process described beginning on page 47; and

 

    Multiplying company and business unit performance by individual performance and the NEO’s annual incentive target. The “qualified performance-based compensation” exemption under Section 162(m) of the Code requires that a maximum individual award be established. The maximum award that an individual may receive under the Annual Incentive Plan is $8 million.

The table below sets forth the target incentive and the actual annual incentive awards approved by the Committee to our NEOs for 2015 performance. For a discussion of 2016 annual incentive award targets, see “2016 Compensation Decisions” beginning on page 64.

 

    ANNUAL INCENTIVE PAID IN 2016    (for 2015 Performance)

 

    Executive   

2015
Incentive

Target
(%)

          

Eligible

Earnings(6)

($)

            

Company

Performance
(%)

          

Individual

Performance
(%)

          

2015 Annual

Incentive Paid

($)

 

Mr. McKenney(1)

 

   159.05%      X         905,000         X       103%      X       103%      =         1,527,033   

Mr. McGarry(2)

 

   95.52%      X         517,860         X       103%      X       100%      =         509,513   

Mr. Watjen(3)

 

   N/A         N/A          N/A       N/A         771,233   

Ms. Farrell(4)

 

   120%      X         444,618         X       104.5%      X       100%      =         557,551   

Mr. Simonds(5)

 

   90%      X         566,346         X       100.75%      X       110%      =         564,888   

Ms. Iglesias

   75%      X         470,077         X       103%      X       105%      =         381,291   

 

(1) Mr. McKenney’s annual incentive target was increased from 100% to 175% upon his promotion to President in April 2015. His actual 2015 annual incentive target was prorated (rounded to two decimal places) based on his time in each position.
(2) Mr. McGarry’s annual incentive target was increased from 80% to 100% upon his promotion to Chief Financial Officer in April 2015. His actual 2015 annual incentive target was prorated (rounded to two decimal places) based on his time in each position.
(3) Mr. Watjen’s incentive amount was paid per the terms of his employment agreement. The agreement stated that he is to receive a prorated bonus based on the number of days he served as CEO in the year of retirement, divided by 365. This fraction was multiplied by the average of the annual bonuses paid for the three completed calendar years prior to the year in which retirement occurred.
(4) Company performance for Ms. Farrell was weighted with 75% based on Investments and 25% based on Unum Group performance. Investments achievement was 105% and Unum Group achievement was 103%, which when weighted, resulted in an achievement of 104.5%.

 

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(5) Company performance for Mr. Simonds was weighted with 75% based on Unum US and 25% based on Unum Group performance. Unum US achievement was 100% and Unum Group achievement was 103%, which when weighted, resulted in achievement of 100.75%.
(6) Eligible earnings differed from the annual salary amounts discussed above because the 2015 increases, if any, became effective March 1, 2015 and the promotional increases for Messrs. McKenney and McGarry became effective on April 1, 2015.

Long-Term Incentive Awards Granted in 2015

Our long-term incentive plan aligns the long-term interests of management and shareholders by tying a substantial portion of executive compensation directly to the company’s stock price. The grants to each NEO in February 2015, other than Ms. Iglesias, were based on the Compensation Committee’s February 2015 assessment of the executives’ performance for the prior year.

Beginning with the February 2015 grant, the mix of awards for all NEOs was 50% performance-based restricted stock units (PBRSUs) and 50% performance share units (PSUs), other than Ms. Iglesias who received only an award of PBRSUs, due to her recently joining the company. PBRSUs were awarded in 2015 based on the achievement of an after-tax statutory earnings threshold for 2014, as modified by individual achievement factors for 2014. They vest ratably over three years.

PSUs granted in 2015 vest based upon the achievement of three-year (2015-2017) pre-established average operating earnings per share and average return on equity goals, modified (up to +/-20%) based on Unum’s relative total shareholder return as described on the prior page. PSUs can be earned at 40% to 180% of target.

All long-term incentive awards are granted under the Stock Incentive Plan of 2012. Our long-term incentive award mix is based on a review of peer practices as well as what the Committee believes most appropriately retains and rewards our NEOs and ensures that a significant portion of each executive’s compensation is tied to the increase of our stock price over the long-term.

PBRSUs, which are valued in terms of company stock, do not include any actual stock issued at the time of grant. Instead, company stock is issued only when the grant is settled. During the restricted period, dividends are not paid in the form of cash but rather additional PBRSUs that are settled only when, and to the extent, that the underlying PBRSUs vest. In addition, there are no shareholder voting rights unless and until the award is settled in shares.

PSUs are notional units that will track the value of our share price over the three-year performance period, and will vest and be settled through the issuance of shares based upon the achievement of predetermined performance metrics. Dividend equivalents accrue during the three-year performance period and will vest only when and to the extent that the underlying shares vest.

The decision-making process to determine long-term incentive awards granted in February 2015 was as follows:

 

 

LOGO

 

(1) Individual performance may range from 0% to 125%.

 

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As outlined in the previous diagram, once it was determined that the performance threshold had been met, the total value of the long-term incentive awards for our NEOs were determined by:

 

    Applying the individual long-term incentive targets, which were set in early 2014 by considering the market data from the appropriate comparator group (as described beginning on page 44) as well as each individual’s target relative to other NEOs, given their respective levels of responsibility, to each individual’s base salary, except that, the long-term incentive targets are set as a dollar amount for Messrs. McKenney and Watjen;

 

    Establishing an individual performance percentage (from 0% to 125%) using the individual assessment process described beginning on page 47 for 2014; and

 

    Multiplying each NEO’s long-term incentive target by his or her individual performance.

Once the long-term incentive award value was determined, it was awarded as described below:

 

    The 2015 long-term incentive award was divided evenly between PBRSUs (50%) and PSUs (50%) for all NEOs other than Ms. Iglesias; and

 

    The PBRSU awards vest based on each NEO’s continued service over a three-year period. The PSUs vest based on the achievement of three-year pre-established goals (2015-2017) for average return on equity and average operating earnings per share, modified by relative total shareholder return as previously described.

In February 2015, the Committee approved grants of PBRSUs and PSUs for the NEOs as outlined below. For a discussion of 2016 long-term incentive award targets, see “2016 Compensation Decisions” below.

 

LONG-TERM INCENTIVE GRANTED IN 2015

 

    

(for 2014 Performance)

 

 

Executive

   Long-Term
Incentive
Target
             Individual
Performance
          2015 Long-Term
Incentive Grant(2)
 
 

Mr. McKenney(1)

     $3,000,000         X       100%     =         $3,000,000   
 

Mr. McGarry

     618,750         X       100%     =         618,750   
 

Mr. Watjen(1)

     6,000,000         X       100%     =         6,000,000   
 

Ms. Farrell

     435,625         X       100%     =         435,625   
 

Mr. Simonds

     787,500         X       120%     =         945,000   
 

Ms. Iglesias

                                    300,006   

 

(1) Mr. McKenney’s target (and Mr. Watjen’s previous target) was set as a dollar amount vs. a percentage of salary for the other NEOs.
(2) The long-term incentive granted in February 2015 was based on individual performance during 2014, except for Ms. Iglesias who joined the company in January 2015. The grant date fair value of the long-term incentive grant (as reported in the Summary Compensation Table on page 73) differs due to the valuation of the PSUs based on a Monte Carlo valuation.

 

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Executive    Grant Date
Fair Value
     Performance Share
Units Granted
(Feb. 2015)
  

Restricted Stock Units
Granted

(Feb. 2015)

    

Mr. McKenney

   $ 2,999,994       44,014    44,014   

Mr. McGarry

     618,756         9,078      9,078   

Mr. Watjen

     5,999,988       88,028    88,028   

Ms. Farrell

     435,611         6,391      6,391   

Mr. Simonds

     944,970       13,864    13,864   

Ms. Iglesias

     300,006                –      8,803   

Given that Mr. Watjen was retirement-eligible under the Stock Incentive Plan, his unvested PBRSUs accelerated upon his retirement in May 2015. Of the 50% portion of Mr. Watjen’s long-term incentive award that was paid in PBRSUs, 50% was settled in stock and 50% was settled in cash upon vesting.

Vesting of 2013 Performance Share Units (PSUs)

The company first granted performance share units in 2013 in response to shareholder feedback received during our 2012 outreach. In 2013, our former CEO, Mr. Watjen, was the only participant who received 50% of his long-term incentive award in the form of PSUs. Today, the long-term incentive mix for all of our NEOs includes 50% in the form of PSUs.

The table below provides an overview of the three-year goals for the 2013 grant as well as the achievement on each goal.

2013 PERFORMANCE SHARE UNIT (PSU) AWARDS

 

Corporate Performance Factors

   Component
Weighting
  Threshold   Target   Maximum     Actual  

Average 3-year Return on Equity

(2013-2015)

   50%   8.19%   10.92%   12.56%   11.29%

Average 3-year After-Tax Operating EPS

(2013-2015)

   50%   $2.49   $3.33   $3.83   $3.48

Relative Total Shareholder Return

   Modifier
Percentile
  -20% @
35th
  0 @
50th
  +20% @
75th
  Below

35th

Based on the above performance, and after taking into account the factors described on the following page, in February 2016, the Committee certified the results for this grant and approved a payout of 90.5%. The business goals were achieved at 113.1%, with this achievement being reduced by 20% based on relative TSR.

When setting the performance measures and weightings for the 2013 PSU grant, the Committee determined that certain items not included in the financial plan for fiscal years 2013 to 2015 would be excluded from the calculation of the company’s performance, for purposes of the performance share units, should they occur. The list of items is the same list used for our annual incentive plan, the details of which can be found under “Items Excluded When Determining Company Performance,” beginning on page 56.

 

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Applying these criteria, the Committee adjusted targets for the impact of the following four items that were not included in the financial plans from which the targets were initially derived:

 

    The effect of differences between actual stock repurchases versus the amount assumed in the financial plan;

 

    The effect of differences between actual foreign currency rates versus exchange rates assumed in the financial plan;

 

    The effect of the unplanned acquisition of National Dental Plan Limited and associated companies; and

 

    The effect of an accounting policy election to account for certain investments in qualified affordable housing projects using the proportional amortization method.

In calculating the relative TSR, the PSU grant agreement provided that any company that was a part of the peer group at the beginning would be removed from the peer group for the entire period if it has been acquired by another company. Therefore, Protective Life was removed from the peer group when calculating relative TSR given that they were acquired and no longer a public company.

2016 Compensation Decisions

At its February 2016 meeting, after consideration of company and individual performance during 2015, each executive’s responsibilities, tenure and market data, the Committee made decisions with respect to our NEOs’ base salaries as well as annual and long-term incentive targets for each of the NEOs for 2016 as outlined below.

2016 ANNUAL BASE SALARY DECISIONS

 

Name

         2016        2015        % Change      
 

Mr. McKenney

        $1,000,000           $975,000         2.6%   
 

Mr. McGarry

        600,000           550,000         9.1%   
 

Mr. Watjen

        N/A           1,150,000         N/A   
 

Ms. Farrell

        453,000           446,500         1.5%   
 

Mr. Simonds

        600,000           575,000         4.3%   
 

Ms. Iglesias

          495,000           485,000         2.1%     

The base salary increases noted above, were approved in recognition of each NEO’s individual performance in 2015.

Annual and long-term incentive targets were set based on consideration of each NEO’s current target, the approximate median of the appropriate comparator group and each individual’s target relative to other NEOs, given their respective levels of responsibility.

 

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2016 ANNUAL INCENTIVE TARGET DECISIONS

 

Name

           2016      2015      % Change     

Mr. McKenney

        175%      175%      – %  

Mr. McGarry

        100%      100%      – %  

Mr. Watjen

        N/A      N/A      N/A  

Ms. Farrell

        120%      120%      – %  

Mr. Simonds

        90%      90%      – %  

Ms. Iglesias

          75%      75%      – %    

 

2016 LONG-TERM INCENTIVE TARGET DECISIONS

 

Name

           2016      2015      % Change     

Mr. McKenney

        $5,250,000      $5,000,000      5.0%  

Mr. McGarry

        150%      150%      – %  

Mr. Watjen

        N/A      N/A      N/A  

Ms. Farrell

        100%      100%      – %  

Mr. Simonds

        150%      150%      – %  

Ms. Iglesias

          125%      125%      – %    

The Committee believes the 2016 compensation decisions position all of our NEOs’ targeted total direct compensation within an appropriate range of the market median given each executive’s performance and time in their current position. The compensation packages for Messrs. McKenney and McGarry are currently below the median relative to the Proxy Peer Group, which is consistent with the Committee’s practice of pay positioning newly-promoted employees and making adjustments over time based on tenure and performance in the job.

Retirement and Workplace Benefits

We provide a benefits package for employees, including all NEOs, and their dependents, portions of which are paid for, in whole or in part, by the employee.

Among the retirement benefits we offer are:

The Unum Group Defined Contribution Retirement Plan. On January 1, 2014, Unum replaced its defined benefit pension plans, which were frozen to further accruals as of December 31, 2013, with an enhanced defined contribution retirement offering. This includes: (1) a non-contributory tax-qualified defined contribution for all regular U.S. employees who are scheduled to work at least 1,000 hours per year, which is offered within our existing tax-qualified 401(k) retirement plan (401(k) Plan), and (2) a separate, non-qualified defined contribution plan (Non-qualified Plan) for employees whose benefits under the tax-qualified plan are limited by the Internal Revenue Code (the Code). Base pay and annual incentives are included in covered earnings for these defined contribution plans, but long-term incentive awards are not. Unum provides the following contributions:

 

    5% match contribution (for elected deferrals provided through the 401(k) and Non-Qualified Plans)

 

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    4.5% contribution (provided through the 401(k) and Non-Qualified Plans)

 

    3.5% transition contribution on all earnings and an additional 3.5% transition contribution for earnings above $70,000 (both contributions are provided to employees who met certain age and service requirements, through the 401(k) Plan, and for those eligible employees whose earnings exceed the qualified plan limits, under the Non-Qualified Plan)

The transition contributions are being provided to eligible employees to more closely align with the benefits which were accrued under the frozen defined benefit plans. This benefit is provided to those employees who, due to their age and years of service, would not have the same opportunity to adjust to the new defined contribution plan as other employees. Transition contributions will be made to active eligible employees until December 31, 2020.

The Unum Group Defined Benefit Retirement Plan. We sponsor both a tax-qualified defined benefit pension plan and a non-qualified defined benefit pension plan for employees whose benefits under the tax-qualified plan are limited by the Code. Base pay and annual incentives are counted in eligible earnings for the purposes of the defined benefit pension plans, but long-term incentive earnings are not. Prior to his retirement, Mr. Watjen also participated in the Unum Group Senior Executive Retirement Plan (the SERP). Following his retirement, we no longer have any active employees covered under the SERP. As noted above, during 2013, we amended the terms of our defined benefit pension plans (tax-qualified and non-qualified) and the SERP to freeze the further accrual of retirement benefits provided under those plans as of December 31, 2013. For a more complete description of pension benefits for our NEOs, see page 82.

The other workplace benefits we offer include: life, health, dental, vision, voluntary products and disability insurance; dependent and healthcare reimbursement accounts; tuition reimbursement; an employee stock purchase plan; paid time off; holidays; and a matching gifts program for charitable contributions.

In April 2000, we purchased corporate owned life insurance (COLI) on all officers who gave their approval. In the event of a covered officer’s death while still employed, we will provide a death benefit to the officer’s beneficiary in the amount of $200,000. Of the NEOs, only Messrs. Watjen and McGarry, who were officers of the company at such time, are covered under a COLI policy.

Perquisites and Other Personal Benefits

We provide a limited number of perquisites to our employees, including all NEOs, which are described below:

 

    One of our largest employee locations is in Tennessee, which has no state income tax. Due to the frequency of travel between our corporate offices and other locations, employees often incur non-resident state taxes in multiple states. Therefore, when any employee travels to other company locations outside of his or her primary state of employment and incurs state income tax based on another state’s law, we provide a tax gross-up for the non-resident state taxes.

 

    While corporate policy would have entitled Mr. Watjen to a company-paid benefit of up to 40 hours of personal use of the corporate aircraft while serving as CEO, he had voluntarily elected to discontinue this company-paid benefit. In addition, he had entered into a time-sharing agreement under which he reimbursed the company for the costs of personal use of the aircraft. This time-sharing agreement terminated in May 2015 as a result of his retirement. Prior to his retirement, he made payments to the company of $15,554 for 6.7 hours of personal usage. This amount has not been included in the Summary Compensation Table because there is no incremental cost to the company of such benefit.

 

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    As part of the transition in leadership during 2015, the Committee decided that it will no longer offer 40 hours of personal corporate aircraft usage. However, the company has entered into an aircraft time-sharing agreement with Mr. McKenney dated effective as of May 21, 2015, pursuant to which he agrees to reimburse the company for the costs of his personal use of the corporate aircraft. Mr. McKenney did not use this benefit during 2015.

 

    We pay relocation expenses for any employees that we relocate. Our policies provide various levels of support depending upon the job level of the employee we relocate. We also pay the taxes related to these expenses.

 

    A tax gross-up is provided to employees who incur income on company-sponsored events where attendance is expected, including a limited number of events we host each year to recognize the contributions of various employees. These functions serve specific business purposes, and in some cases the attendance of an NEO and his or her spouse or guest is expected. If so, we attribute income to the NEO for these costs when required under Internal Revenue Service regulations. For more information, see the All Other Compensation table on page 75.

Compensation Contracts and Agreements

We have the following compensation contracts and agreements with NEOs.

Employment Agreements

Prior to his retirement, Mr. Watjen was covered under an employment agreement. The agreement terminated upon his retirement in May 2015. Under the agreement, Mr. Watjen was entitled to the following compensation:

 

    Base salary of at least $1,122,000;

 

    Target annual incentive of no less than 150% of his base salary, excluding any special or supplemental bonuses that may be awarded;

 

    Payment of a pro-rated bonus in the event of termination other than for cause or as a result of death, disability or retirement;

 

    Eligibility for annual equity grants and/or cash-based awards as determined by the Committee;

 

    Participation in all savings, retirement, health and welfare benefit programs generally available to our other senior executive officers;

 

    A minimum annual retirement benefit equal to 2.5% of Mr. Watjen’s final average earnings, defined as the average of the highest 5 years’ earnings in the 10 years of employment prior to December 31, 2013, multiplied by his years of service, which benefit was frozen as to further accruals as of December 31, 2013; and

 

    Post-retirement welfare benefit coverage for a period of three years following the date of termination in the event of termination by the company without cause or by Mr. Watjen for good reason within certain change in control periods, and for a period of two years if such terminations occur outside of these change in control periods.

The agreement stipulates that Mr. Watjen is prohibited from using or divulging confidential information and from competing with us or soliciting any officer at the level of vice president or above for a period of 18 months after his retirement.

 

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We had also entered into an aircraft time-sharing agreement with Mr. Watjen in 2007. This agreement also terminated upon Mr. Watjen’s retirement in May 2015. Details about that agreement can be found in the Perquisites and Other Personal Benefits section beginning on page 66.

Severance Benefits

The company provides severance benefits to all employees in the event of involuntary termination, other than for death, disability or cause.

Mr. McKenney’s severance benefits are provided under a severance agreement dated effective as of April 1, 2015. This agreement replaced his prior change in control severance agreement (described below) and provides comparable severance benefits in the event of his termination of employment within two years after a change in control, except that if termination is by the company other than for cause, death or disability or is a resignation by Mr. McKenney for good reason, the severance payment is three times salary plus bonus, and medical and other benefits will continue for three years after termination. The agreement also eliminated the golden parachute excise tax gross-up provided under his prior agreement and instead provides for “best net after-tax” provisions that cut back payments to avoid potential excise taxes, but only if the after-tax value is greater than providing full payments (which would be subject to excise tax that would be borne by Mr. McKenney). The agreement also provides for severance when termination of employment occurs outside the two-year period following a change in control, and in such circumstances the severance payment is two times salary and bonus, and medical and other benefits will continue for two years after termination.

The remaining NEOs are covered under our Separation Pay Plan for Executive Vice Presidents. In general, we provide severance in order to give our employees competitive benefits with respect to the possibility of an involuntary termination of their employment.

When termination of employment is accompanied by severance payments, the former executive is required to release all claims he or she may have against us. The release contains restrictions on the former executive with respect to confidentiality, solicitation of company employees, competition, and disparagement. We also agree to indemnify the former executive for certain actions taken on the company’s behalf during his or her employment.

Change in Control Severance Agreements

Each of the NEOs, other than Messrs. McKenney and Watjen, are covered by a change in control severance agreement with the company. These agreements provide an enhanced severance benefit in the event of a termination following a change in control. This ensures that shareholders have the benefit of our NEOs’ focused attention during the critical times before and after a major corporate transaction regardless of any uncertainty with respect to their future employment. Details about these agreements can be found in the “Terminations Related to a Change in Control” section beginning on page 87.

Messrs. McKenney and McGarry previously held change in control severance agreements which included a modified excise tax gross-up provision. However, each of them agreed to the cancellation of this provision in connection with their promotions during 2015. Therefore, as of April 2015, none of the NEOs have an excise gross-up provision in their agreements.

As described above, change in control benefits are available to Mr. McKenney under his severance agreement. Change in control benefits were also available to Mr. Watjen prior to his retirement under the terms of his employment agreement. However, these benefits expired upon his retirement in May 2015.

 

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Compensation Policies and Practices

Equity Grant Practices

Equity grants awarded under the long-term incentive program are approved at the February meeting of the Committee, which typically occurs two to three weeks after the company’s annual earnings are released to the public. The date of approval is the grant date of the awards. The closing stock price on the grant date is used to determine the number of units awarded.

Stock Ownership and Retention Requirements

Ensuring that senior officers have a significant ownership stake in the company aligns the long-term interests of management and shareholders and promotes a culture of ownership. We require certain senior officers, including each NEO, to:

 

    Hold a multiple of the officer’s base salary in Unum shares (including unvested restricted stock units) throughout employment; and

 

    Retain a fixed percentage of the net shares (shares after the payment of taxes and the costs of exercise and commissions) received as compensation for a specified period of time. These holding period requirements apply to shares acquired upon the exercise of options and the vesting of PBRSUs and PSUs even if the stock ownership requirements have been met. Exceptions to this requirement may be made only by the Board of Directors.

The following table presents the stock ownership and retention requirements for our NEOs who are current employees. Newly promoted or newly hired senior officers have five years to achieve the ownership requirement. Not meeting the requirements may impact future equity grants. All of our then employed NEOs with the exception of Ms. Iglesias, who joined the company in January 2015, exceeded the requirements as of December 31, 2015.

STOCK OWNERSHIP AND RETENTION REQUIREMENTS* (as of December 31, 2015)

 

Executive

  

Common
Stock(1)

     Restricted
Stock Units(2)
    

Total Current
Ownership

     Ownership
as % of Salary
     Retention
Requirements
 
            Owned      Required     

Retention

%(3)

    Holding
Period(4)
 
               

Mr. McKenney

   $ 3,527,774       $ 2,909,280       $ 6,437,054         6.6x         6x         75     3 years   
         

Mr. McGarry

     1,485,933         642,630         2,128,563         3.9x         3x         60     1 year   
         

Ms. Farrell

     1,166,948         649,454         1,816,402         4.1x         3x         60     1 year   
         

Mr. Simonds

     944,837         940,642         1,885,479         3.3x         3x         60     1 year   
         

Ms. Iglesias

     10,986         1,152,466         1,163,452         2.4x         3x         60     1 year   

* Mr. Watjen was excluded from this table because of his May 21, 2015 retirement.

 

(1) Amount includes shares held in certificate form, brokerage accounts, and 401(k) Plan accounts. Shares were valued using a closing stock price of $33.29 on December 31, 2015, the last trading day of the year.
(2) Shares/units were valued using a closing stock price of $33.29 on December 31, 2015, the last trading day of the year. Performance-based restricted stock units (PBRSUs) vest over three years (see the Vesting Schedule for Unvested Restricted Stock Units table on page 80).

 

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(3) Retention percentage is the net percentage of shares to be held after the payment of taxes and the costs of exercise and commissions. Retention requirements apply to shares acquired upon the exercise of options and the vesting of PBRSUs and PSUs.
(4) After this holding period, the officer would then be able to sell the shares as long as his or her ownership requirement is met or would be reached in the time period allotted.

Hedging, Pledging and Insider Trading Policies

We have a policy that no director or executive officer, which includes our NEOs, may purchase or sell options, puts, calls, straddles, equity swaps or other derivatives that are directly linked to our stock.

In addition, our insider trading policy prohibits directors, executive officers (including NEOs) and employees from buying or selling our stock while in possession of material nonpublic information about the company and from conveying any such information to others. Under this policy, additional trading restrictions apply to the NEOs and other “corporate insiders,” who are generally permitted to buy or sell our stock only during predetermined window periods following earnings announcements, and only after they have pre-cleared the transactions with our general counsel or designee. Also under this policy, no corporate insider may make “short sales” of our stock, and no director or executive officer may pledge our stock as security for a loan.

Recoupment Policy

If the company makes a material restatement of its financial results, then the Board will, to the extent permitted by applicable law, seek recoupment of performance-based compensation paid to certain senior officers if it determines that:

 

    The senior officer has committed or engaged in fraud or willful misconduct that resulted, either directly or indirectly, in the need to make such restatement; and

 

    Such performance-based compensation paid or awarded to the senior officer would have been a lesser amount if calculated using the restated financial results.

The amount of performance-based compensation to be recouped will be determined by the Board after taking into account the relevant facts and circumstances. Performance-based compensation includes annual cash incentive awards, bonuses and all forms of equity compensation. The company’s right to recoup compensation is in addition to other remedies that may be available to us under applicable law.

The Dodd-Frank Act, which contemplates an expansion of the reach of recoupment policies, was enacted into law in July 2010. On July 1, 2015, the Securities and Exchange Commission issued a proposal related to compensation clawbacks but final rules have not yet been issued. Once the rules and administrative guidance on requirements of this legislation are final, the Committee will implement any necessary changes to our current recoupment policy at that time.

Tax and Accounting Considerations

Section 162(m) of the Internal Revenue Code generally places a limit of $1 million per year on the amount of deductible compensation paid to all named executive officers other than the CFO, unless the compensation satisfies the “qualified performance-based compensation” exception to Section 162(m).

The current annual incentive payout and long-term incentive grants are intended to be deductible under Section 162(m). From time to time, the Committee may, in its sole discretion, pay compensation that is not deductible under Section 162(m) if it determines that paying such compensation is needed in order to attract, retain or provide incentive to our NEOs, or is otherwise desirable, and it is possible that compensation intended to qualify for the “qualified performance-based compensation” exception does not so qualify.

 

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We account for stock-based payments under the requirements of ASC Topic 718. A complete discussion of the assumptions made as well as the financial impact of this type of compensation can be found in Notes 1 and 11 of the Consolidated Financial Statements in Part II, Item 8 of our 2015 Form 10-K. Each year, the company provides a report to the Committee of the expense for stock-based payments. Additionally, in the event the Committee is considering new equity-based compensation programs or changes to existing programs, the accounting implications of the program or change are presented and discussed as part of the decision process.

 

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REPORT OF THE HUMAN CAPITAL COMMITTEE

 

REPORT OF THE HUMAN CAPITAL COMMITTEE

The Human Capital Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based on such review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

2015 Human Capital Committee:

Kevin T. Kabat, Chair

Theodore H. Bunting, Jr.

A.S. (Pat) MacMillan, Jr.

Edward J. Muhl

Ronald P. O’Hanley

 

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COMPENSATION TABLES

 

COMPENSATION TABLES

2015 Summary Compensation Table

 

 

    Name and

    Principal

    Position

  Year     Salary
($)
    Bonus
($)
    Stock
Awards
($)(4)
    Option
Awards
($)
   

Non-Equity
Incentive
Plan
Compen-
sation

($)

   

Change in
Pension Value
&  Non-qualified
Deferred
Compensation
Earnings

($)

    All Other
Compen-
sation
($)
    TOTAL
($)
 
Richard P. McKenney(1)                    
President and
Chief Executive Officer,
and a Director
     2015        905,000               3,051,050   (5)             1,527,033   (9)        (10)      247,931   (11)      5,731,014   
 

 

 

 

 2014

 

  

 

 

 

 

712,404

 

  

 

 

 

 

 

  

 

 

 

 

1,692,153

 

  

 

 

 

 

 

  

 

 

 

 

880,531

 

  

 

 

 

 

175,000

 

  

 

 

 

 

226,237

 

  

 

 

 

 

3,686,325

 

  

 

 

 

 

 

 2013

 

 

  

 

 

 

 

 

 

696,869

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

1,165,358

 

 

  

 

 

 

 

 

 

388,455

 

 

  

 

 

 

 

 

 

889,553

 

 

  

 

 

 

 

 

 

26,000

 

 

  

 

 

 

 

 

 

51,413

 

 

  

 

 

 

 

 

 

3,217,648

 

 

  

 

John F. McGarry                                                                        
Executive Vice
President,
and Chief Financial
Officer
   

 

 2015

 

  

 

   

 

517,860

 

  

 

   

 

 

  

 

   

 

629,287

 

  (5) 

 

   

 

 

  

 

   

 

509,513

 

  (9) 

 

   

 

 

  (10) 

 

   

 

221,024

 

  (11) 

 

   

 

1,877,684

 

  

 

Thomas R. Watjen(2)                                                                        
Chairman of the
Board of Directors
Retired Former
Chief Executive Officer
     2015        695,994   (3)             6,242,111   (5)(6)                      (10)      1,339,100   (11)      8,277,205   
 

 

 

 

 2014

 

  

 

 

 

 

1,145,154

 

  

 

 

 

 

 

  

 

 

 

 

5,985,384

 

  

 

 

 

 

 

  

 

 

 

 

2,359,017

 

  

 

 

 

 

3,227,000

 

  

 

 

 

 

598,034

 

  

 

 

 

 

13,314,589

 

  

 

 

 

 

 

 2013

 

 

  

 

 

 

 

 

 

1,118,277

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

5,609,489

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

2,141,221

 

 

  

 

 

 

 

 

 

144,000

 

 

  

 

 

 

 

 

 

99,933

 

 

  

 

 

 

 

 

 

9,112,920

 

 

  

 

Breege A. Farrell                                                                        
Executive Vice
President
and Chief Investment
Officer
     2015        444,618               443,024   (5)             557,551   (9)        (10)      109,762   (11)      1,554,955   
 

 

 

 

 2014

 

  

 

 

 

 

433,786

 

  

 

 

 

 

 

  

 

 

 

 

449,470

 

  

 

 

 

 

 

  

 

 

 

 

520,543

 

  

 

 

 

 

79,000

 

  

 

 

 

 

90,526

 

  

 

 

 

 

1,573,325

 

  

 

 

 

 

 

 2013

 

 

  

 

 

 

 

 

 

417,131

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

424,278

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

560,922

 

 

  

 

 

 

 

 

 

234,000

 

 

  

 

 

 

 

 

 

17,242

 

 

  

 

 

 

 

 

 

1,653,573

 

 

  

 

Michael Q. Simonds                                                                        
Executive Vice
President,
President and Chief
Executive Officer,
Unum US
     2015        566,346               961,052   (5)             564,888   (9)        (10)      113,967   (11)      2,206,253   
 

 

 

 

 

 2014

 

 

  

 

 

 

 

 

 

512,019

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

611,877

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

545,838

 

 

  

 

 

 

 

 

 

344,000

 

 

  

 

   

 

93,728

 

  

 

 

 

 

 

 

2,107,462

 

 

  

 

Lisa G. Iglesias                                                                        
Executive Vice
President,
General Counsel
   

 

 2015

 

  

 

   

 

470,077

 

  

 

   

 

 

  

 

   

 

1,149,997

 

  (7)(8) 

 

   

 

 

  

 

   

 

381,291

 

  (9) 

 

   

 

 

  

 

   

 

40,410

 

  (11) 

 

   

 

2,041,775

 

  

 

 

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(1) Mr. McKenney was named Chief Executive Officer upon Mr. Watjen’s retirement on May 21, 2015.
(2) After his retirement, Mr. Watjen was named non-executive Chairman of the Board of Directors.
(3) This amount consists of Mr. Watjen’s salary earned prior to his retirement, director compensation, and accrued paid time off. His director compensation consists of his annual cash retainer of $95,000 and a prorated additional cash retainer of $116,667 of the $200,000 retainer for serving as Chairman of the Board. For more information on our director compensation arrangements, see “Director Compensation” beginning on page 19.
(4) “Stock Awards” consists of performance share units (PSUs), performance-based restricted stock units (PBRSUs), and restricted stock units (RSUs). The number of shares payable under the PSU awards will be based on the actual performance, modified (+/- 20%) based on relative total shareholder return, and may result in the ultimate award of 40-180% of the initial number of PSUs issued, with the potential for no award if company performance goals are not achieved during the three-year period. PSUs assuming the highest possible outcomes of performance conditions (180%) to which 2015 awards are subject, determined based on the award amount at the time of grant and thus excluding dividend equivalent units that accrue during the performance period, would be: $2,699,995 for Mr. McKenney; $556,881 for Mr. McGarry; $5,399,990 for Mr. Watjen; $392,050 for Ms. Farrell; and $850,473 for Mr. Simonds.
(5) These awards were comprised of 50% PSUs and 50% PBRSUs granted to Messrs. McKenney, McGarry, Watjen, and Simonds and Ms. Farrell on February 24, 2015 for their performance in 2014. The grant date fair value of stock awards for the PSUs was calculated in accordance with FASB ASC Topic 718 – Compensation – Stock Compensation (ASC 718) as the number of units multiplied by the Monte Carlo simulation value of $35.24 on the grant date. The grant date fair value of stock awards for the PBRSUs was calculated in accordance with ASC 718 as the number of units multiplied by the closing market price of $34.08 on the grant date.
(6) For Mr. Watjen, this amount also includes his annual director RSU award granted on May 21, 2015. The grant date fair value of this award was calculated in accordance with ASC 718 as the number of units multiplied by the closing market price of $34.95 on the date of grant.
(7) Ms. Iglesias was granted RSUs as part of her employment offer to compensate her for a portion of the forfeiture of equity awards she received from her former employer. The grant date fair value of stock awards was calculated in accordance with ASC 718 as the number of units multiplied by the closing market price of $33.77 on the grant date.
(8) Ms. Iglesias was also granted RSUs in February 2015 as part of her employment package. The grant date fair value of stock awards was calculated in accordance with ASC 718 as the number of units multiplied by the closing market price of $34.08 on the grant date.
(9) Amounts reflect the annual incentive awards granted in February 2016 for performance in 2015. These are discussed in further detail beginning on page 59 under the Annual Incentive Awards heading.
(10) The amounts of the actuarial present value decreases from December 31, 2014 through December 31, 2015 under all pension plans established by the company was as follows: Mr. McKenney $(37,000); Mr. McGarry $(69,000); Mr. Watjen $(24,000); Ms. Farrell $(12,000); and Mr. Simonds $(84,000). Pursuant to regulation, these amounts are shown as zero in the above table. Pension values may fluctuate from year-to-year depending on a number of factors, including age at benefit commencement and the assumptions used to determine the present value, such as the discount rate and mortality rate. The assumptions used by the company in calculating the change in pension value are described beginning on page 84 and are consistent with those set forth in Note 9 of our Consolidated Financial Statements in Part II, Item 8 of our 2015 Form 10-K , except as otherwise provided in footnotes to the Pension Benefits table on page 84.

 

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COMPENSATION TABLES

 

(11) “All Other Compensation” amounts are included within the following table.

2015 ALL OTHER COMPENSATION

 

     

Mr.

McKenney

    

Mr.

McGarry

    

Mr.

Watjen

     Ms.
Farrell
     Mr.
Simonds
     Ms.
Iglesias
 
Employee and Spouse/Guest Attendance at Company Business Functions(a)      $38,521         $-         $39,404         $ -         $4,013         $ -   
Aircraft Shuttle(b)      -         36,415         -         -         -         -   

Total Perquisites

     $38,521         $36,415         $39,404         $ -         $4,013         $ -   
Relocation Assistance(c)      $ -         $10,000         $ -         $ -         $ -         $18,967   
Matching Gifts Program(d)      10,000         300         -         10,000         600         10,000   
Company Matching Contributions Under our Qualified and Nonqualified Defined Contribution Retirement Plan(e)      89,277         45,343         140,951         48,258         55,609         -   
Non-Resident State Taxes(f)      13,557         5,794         55,282         7,882         30         1,284   
Company Contributions to the Qualified and Nonqualified Defined Contribution Retirement Plan(g)      80,349         101,838         321,737         43,432         50,048         -   
Tax Reimbursement Payments(h)      16,227         8,706         10,493         190         3,667         10,159   
Foreign Assignment(i)      -         12,628         -         -         -         -   
Prorated Annual Bonus(j)      -         -         771,233         -         -         -   

Total All Other Compensation

     $247,931         $221,024         $1,339,100         $109,762         $113,967         $40,410   
  (a) Spouses or guests sometimes accompany the named executive officer at company business functions. When their attendance is expected, a tax gross up payment is provided. Where applicable, these payments have been included under “Tax Reimbursement Payments.” Additionally, when these trips included travel on the corporate aircraft, the incremental cost was calculated to determine amounts to be included. For purposes of compensation disclosure, the use of company aircraft is valued using an incremental cost that takes into account fuel costs, landing fees, parking, weather monitoring and maintenance fees per hour of flight. Crew travel expenses are included based on the actual amount incurred for a particular trip. Fixed costs that do not change based on usage, such as pilot salaries and depreciation of the aircraft, are excluded. Amounts represent the imputed income each NEO incurred for such attendance plus the incremental cost of the aircraft when the aircraft was used.
  (b) We provide business flights to our various locations. When Mr. McGarry was named CFO in 2015, he elected not to move his primary residence from Portland, Maine to Chattanooga, Tennessee. Instead he established a secondary residence in Chattanooga and periodically commutes to Portland using our aircraft shuttle that is already making the flights for business purposes. We have calculated the incremental costs of these flights using the methodology outlined in footnote (a) and imputed income according to Internal Revenue Service (IRS) guidelines.
  (c) We pay relocation expenses for any employees that we relocate. Our policies provide various levels of support depending upon the job level of the employee we relocate. We also pay the taxes related to these expenses. For Mr. McGarry and Ms. Iglesias, the relocation expenses reported included both taxable and non-taxable expenses related directly to establishing a secondary residence and a primary residence, respectively, in Chattanooga, Tennessee, including temporary living expenses. The gross-up related to relocation expenses is reported in “Tax Reimbursement Payments” of this table.
  (d) Amounts represent those provided through our Matching Gifts Program, available to all full-time employees and non-employee directors. During 2015, the company matched eligible gifts from a minimum of $50 to an aggregate maximum gift of $10,000 per employee/non-employee director, per calendar year. Amounts listed only represent matching gifts made to qualified non-profit organizations and educational institutions on behalf of the named executive officers, and do not represent total charitable contributions made by them during the year.
  (e)

Amounts represent the aggregate matching contributions into our 401(k) Plan as well as matching contributions into our Non-Qualified Plan. Matching contributions under our 401(k) Plan are provided to all eligible employees participating in the plan as described beginning on page 65 in the Retirement and Workplace Benefits section. The company matched contributions dollar-for-dollar up to 5% of eligible earnings in 2015. Matching contributions under our Non-Qualified Plan are

 

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  provided to eligible officers participating in the plan as described beginning on page 65 in the Retirement and Workplace Benefits section. The company matched contributions dollar-for-dollar up to 5% of eligible earnings in 2015.
  (f) Many of our employees are required to travel to other company locations outside of their primary state of employment. While working in a state other than their primary state of employment, employees may become subject to state income taxes in that state if days worked or earnings accrued exceed an amount specified under state law. When this happens, we pay the state income tax on behalf of those employees (including our executives) and gross up the income amount for FICA and Medicare taxes (gross ups on these amounts are in row (h)). The employee remains responsible for any taxes they would have incurred had they worked only in their primary state of employment.
  (g) These amounts represent the aggregate of company and transition contributions under our 401(k) and Non-Qualified Plans as described beginning on page 65 in the Retirement and Workplace Benefits section. Full-time employees with one year of service with the company receive 4.5% of their salary and annual incentive contributed into their 401(k) Plan. Full-time employees who have reached the age of 50 with 10 years of service with the company as of December 31, 2013, receive an additional contribution into their 401(k) Plan through the transition contributions, as disclosed above in the Retirement and Workplace Benefits section.
  (h) The amounts shown in this row represent tax payments made by us on behalf of each named executive officer relating to other items in this table.
  (i) This amount includes tax equalization and foreign tax preparation benefits. We provided expatriate tax benefits to Mr. McGarry in connection with his non-permanent relocation, at the company’s request, to the United Kingdom, consistent with the company’s policy for employees working on non-permanent assignments outside their home countries. Under the company’s expatriate assignment policy, the employee is responsible for the amount of taxes he would have incurred if he had continued to live and work in his home country. These taxes were paid in British Pounds and have been converted to U.S. dollars at a rate of GBP£1 = US$1.4969. Additionally, we provide all expatriate employees (including executives) foreign tax preparation services while they are on assignment outside their home countries and for the three-year period after they return. These gross ups have been included in row (h).
  (j) Per Mr. Watjen’s employment agreement, upon his retirement, he received a prorated amount of his average non-equity incentive plan compensation paid for his previous three years of service.

 

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COMPENSATION TABLES

 

2015 Grants of Plan-Based Awards

 

Grant

Date

 

Estimated Future

Payouts Under

Non-Equity

Incentive Plan

Awards ($)(1)

 

Estimated Future

Payouts Under

Equity Incentive

Plan Awards (#)(4)

 

All Other

Stock

Awards

(Number

of Shares

of Stock

or Units)

 

Grant

Date Fair

Value of

Stock and
Option

Awards

 
  Threshold   Target   Max   Threshold   Target   Max   (#)(5)   ($)  

Mr. McKenney

               

           —

  359,844   1,439,375   2,878,750              

02/24/15

                  44,014     1,499,997  (6)   

02/24/15

              17,606   44,014   79,225         1,551,053  (7)   

Mr. McGarry(2)

               

           —

  123,668   494,673   989,346              

02/24/15

                  9,078     309,378  (6)   

02/24/15

              3,631   9,078   16,340         319,909  (7)   

Mr. Watjen(3)

               

02/24/15

                  88,028     2,999,994  (6)   

02/24/15

          35,211   88,028   158,450         3,102,107  (7)   

05/21/15

                          4,006        140,010  (8)   

Ms. Farrell

               

           —

  133,385   533,541   1,067,082              

02/24/15

                  6,391     217,805  (6)   

02/24/15

              2,556   6,391   11,504         225,219  (7)   

Mr. Simonds

               

           —

  127,428   509,711   1,019,422              

02/24/15

                  13,864     472,485  (6)   

02/24/15

              5,546   13,864   24,955         488,567  (7)   

Ms. Iglesias

               

           —

  88,140   352,558   705,116              

01/08/15

                  25,170     849,991  (9)   

02/24/15

                          8,803     300,006  (6)   

 

(1) These amounts reflect the threshold, target, and maximum award under the annual incentive plan. The threshold is the minimum level, which is 25% of the amount shown in the Target column. Target amounts are based on the individuals’ earnings for 2015 and their annual incentive target. The maximum award is 200% of such target.
(2) Mr. McGarry’s performance-based restricted stock units (PBRSUs) and performance share units (PSUs) are no longer subject to risk of forfeiture because he met the age and years of service requirements for retirement eligibility under the plans from which the awards were granted. His PBRSUs will continue to vest ratably over the three year vesting period on each anniversary of the grant date. The actual amount of PSUs that will vest will be determined based on the achievement of the three-year performance goals, modified by TSR, as described in further detail in the Long-term Incentive Targets section beginning on page 55.

 

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