DEF 14A 1 d246478ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE

SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO.      )

 

Filed by the Registrant x

 

Filed by a Party other than the Registrant ¨

 

Check the appropriate box:

 

¨   Preliminary Proxy Statement

 

¨   Confidential, For Use of the Commission Only
       (as permitted by Rule 14a-6(e)(2))

 

x   Definitive Proxy Statement

 

¨   Definitive Additional Materials

 

¨   Soliciting Material Pursuant to §240.14a-12

 

Lincoln National Corporation


(Name of Registrant as Specified in Its Charter)

 

 


(Name of Person(s) Filing Proxy Statement if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

  x   No fee required.

 

  ¨   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  1.   Title of each class of securities to which transaction applies:

 

 

 

  2.   Aggregate number of securities to which transaction applies:

 

 

 

  3.   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

  4.   Proposed maximum aggregate value of transaction:

 

 

 

  5.   Total fee paid:

 

 

 

  ¨   Fee paid previously with preliminary materials.

 

 

 

  ¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  1.   Amount Previously Paid:

 

 

 

  2.   Form, Schedule or Registration Statement No.:

 

 

 

  3.   Filing Party:

 

 

 

  4.   Date Filed:

 

 


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Radnor, Pennsylvania / April 15, 2016

DEAR FELLOW SHAREHOLDER:

You are invited to attend our 2016 Annual Meeting of Shareholders, to be held Friday, May 27 at The Ritz-Carlton Hotel in Philadelphia, Pennsylvania. Our Board of Directors and management team look forward to greeting you.

This document describes the matters to be voted on at the Annual Meeting, so please review it carefully.

Many shareholders received a notice of Internet availability instead of paper copies of our proxy statement and our 2015 Annual Report to Shareholders. The notice of Internet availability provides instructions on how to access these documents over the Internet and how to receive a paper or email copy of our proxy materials, including our proxy statement, our 2015 Annual Report to Shareholders and a proxy card. Electronic delivery enables us to more cost-effectively provide you with the information you need while reducing the environmental impact of printing and mailing paper copies.

Please vote your shares of our stock as promptly as possible. You may vote by mailing in a proxy card, by telephone or Internet, or by attending the Annual Meeting and voting in person.

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

Sincerely,

 

LOGO

William H. Cunningham

Chairman of the Board

 

 

 


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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

May 27, 2016    9:00 a.m.    The Ritz-Carlton Hotel
   local time    10 Avenue of the Arts
      Philadelphia, Pennsylvania 19102

Mailing date: April 15, 2016

The purpose of the meeting is to:

 

  1. elect seven Directors for a one-year term expiring at the 2017 Annual Meeting of Shareholders;

 

  2. ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2016;

 

  3. approve an advisory resolution on the compensation of our named executive officers;

 

  4. consider and vote upon a shareholder proposal if properly presented at the meeting; and

 

  5. consider and vote upon any other matters that might come up at the meeting.

You may vote at the Annual Meeting if you were a shareholder of record at the close of business on March 21, 2016. Please cast your votes by one of the following methods:

 

LOGO   LOGO   LOGO   LOGO
SIGNING AND RETURNING   TOLL-FREE   THE INTERNET   IN PERSON AT THE
A PROXY CARD   TELEPHONE     ANNUAL MEETING

If, going forward, you would like to receive electronic delivery of future proxy materials, please see page 78 for more information.

For the Board of Directors,

 

LOGO

Kirkland L. Hicks

Executive Vice President, General Counsel & Secretary

Lincoln National Corporation

Radnor, Pennsylvania

 

 

 


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TABLE OF CONTENTS

 

PROXY SUMMARY

     1   

GOVERNANCE OF THE COMPANY

     4   

AGENDA ITEM 1 - ELECTION OF DIRECTORS

     13   

Phase-Out of Classified Board

     13   

Nominees for Director

     13   

Directors Continuing in Office

     17   

COMPENSATION OF OUTSIDE DIRECTORS

     19   

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

     23   

Independent Registered Public Accounting Firm Fees and Services

     23   

Audit Committee Pre-Approval Policy

     24   

Other Information

     24   

Audit Committee Report

     25   

AGENDA ITEM 3 - ADVISORY PROPOSAL ON EXECUTIVE COMPENSATION

     26   

COMPENSATION DISCUSSION & ANALYSIS

     28   

Executive Summary

     29   

Compensation Committee Report

     54   

EXECUTIVE COMPENSATION TABLES

     55   

Summary Compensation Table

     55   

Grants of Plan-Based Awards

     58   

Outstanding Equity Awards at Fiscal Year-End

     60   

Option Exercises and Stock Vested

     62   

Pension Benefits

     62   

Nonqualified Deferred Compensation

     64   

Potential Payments Upon Termination or Change of Control

     66   

AGENDA ITEM  4 - SHAREHOLDER PROPOSAL TO ADOPT SIMPLE MAJORITY VOTE

     73   

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     75   

RELATED-PARTY TRANSACTIONS

     75   

SECURITY OWNERSHIP

     76   

ANNUAL MEETING INFORMATION

     78   

GENERAL INFORMATION

     82   

Shareholder Proposals

     82   

Incorporation by Reference

     83   

Compliance with Beneficial Ownership Reporting

     83   

Annual Report

     83   

Additional Voting Matters

     83   

EXHIBIT 1 - RECONCILIATION OF NON-GAAP MEASURES

     E-1   

EXHIBIT 2 - LIST OF INVESTMENT COMPANIES FROM THE 2014 MCLAGAN SURVEY

     E-4   

EXHIBIT 3 - DEFINITIONS FOR INCENTIVE COMPENSATION PROGRAMS

     E-5   

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 27, 2016: This proxy statement and the accompanying annual report are available at: www.proxydocs.com/lnc.

 

 

 


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PROXY SUMMARY

 

 

This summary highlights certain information for your convenience. Since it does not contain all of the information you should consider, we encourage you to read the entire proxy statement carefully before voting.

ANNUAL MEETING OF SHAREHOLDERS

 

 

 

DATE / TIME   PLACE   VOTING
     

Friday, May 27, 2016

9:00 a.m. local time

 

The Ritz-Carlton Hotel

10 Avenue of the Arts

Philadelphia, PA 19102

 

RECORD DATE

  Shareholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each of the other proposals.
   

March 21, 2016

 

   

VOTING MATTERS

 

 

 

AGENDA ITEM  

OUR BOARD’S VOTING

RECOMMENDATION

 

WHERE TO FIND

MORE INFORMATION

1.    Election of seven directors for a one-year term expiring at the 2017 Annual Meeting of Shareholders.   FOR each director nominee   Page 13
2.    Ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm for 2016.   FOR the ratification   Page 23
3.    Approval of an advisory resolution on the compensation of our named executive officers.   FOR the resolution   Page 26
4.    Shareholder proposal, if properly presented at the meeting.   AGAINST the proposal   Page 73

BOARD OF DIRECTOR NOMINEES

 

 

 

NAME

OCCUPATION

  AGE   DIRECTOR
SINCE
  SKILLS/QUALIFICATIONS   INDEPENDENT    COMMITTEE
MEMBERSHIPS
William H. Cunningham   72   2006   • finance and capital management   Yes    • Compensation
Professor, University of       • marketing/public relations      • Corporate Governance
Texas at Austin and James       • corporate governance     
J. Bayless Chair for Free            • Executive (Chair)
Enterprise at the University’s            • Finance
McCombs School of Business           
George W. Henderson, III   67   2006   • accounting   Yes    • Audit
Retired Chairman and Chief       • finance and capital management      • Finance
Executive Officer, Burlington           
Industries, Inc.           
Eric G. Johnson   65   1998   • business operations and strategic planning   Yes    • Compensation
President and Chief Executive       • finance and capital management      • Executive
Officer, Baldwin Richardson       • marketing/public relations      • Finance (Chair)
Foods Company           

 

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BOARD OF DIRECTOR NOMINEES (cont’d.)

 

 

 

NAME

OCCUPATION

  AGE   DIRECTOR
SINCE
  SKILLS/QUALIFICATIONS   INDEPENDENT   COMMITTEE
MEMBERSHIPS
M. Leanne Lachman   73   1985   • business operations and strategic planning   Yes   • Audit (Chair)
President, Lachman       • finance and capital management    
Associates LLC and Executive       • marketing/public relations    
in Residence, Columbia       • corporate governance    
Graduate School of Business          
William Porter Payne   68   2006   • finance and capital management   Yes   • Corporate
Chairman, Centennial       • marketing/public relations       Governance
Holding Company, LLC       • legal and regulatory     • Executive
      • corporate governance    
Patrick S. Pittard   70   2006   • public accounting   Yes   • Compensation
Chairman, PatrickPittard       • finance and capital management         (Chair)
Advisors, LLC       • talent management    
      • corporate governance    
Isaiah Tidwell   71   2006   • accounting   Yes   • Audit
Retired Executive Vice       • risk management     • Corporate
President and Georgia       • corporate governance       Governance
Wealth Management Director,             (Chair)
Wachovia Bank, N.A.          

The directors continuing in office until the 2017 Annual Meeting are:

 

  Dennis R. Glass, President and Chief Executive Officer of Lincoln National Corporation;

 

  Gary C. Kelly, Chairman of the Board, President and Chief Executive Officer of Southwest Airlines Co.; and

 

  Michael F. Mee, retired Executive Vice President and Chief Financial Officer of Bristol-Myers Squibb Company.

GOVERNANCE HIGHLIGHTS

 

 

Sound governance is important to our Board, which regularly evaluates and implements policies that reflect corporate governance best practices. Some of these practices are:

 

  The Chairman of the Board is an independent director;

 

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

 

  We have majority voting and a director resignation policy for directors in uncontested elections;

 

  We have robust stock ownership guidelines for directors and executive officers;

 

  Independent directors meet regularly in executive session;

 

  The Board and its committees conduct annual self-evaluations; and

 

  As of the Annual Meeting in 2017, we will no longer have a classified Board and all directors will stand for election annually.

 

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EXECUTIVE COMPENSATION HIGHLIGHTS

 

 

The key objectives of our executive compensation program are to:

 

MOTIVATE OUR EXECUTIVES    PAY COMPENSATION    RETAIN KEY EXECUTIVE
TO INCREASE PROFITABILITY    THAT VARIES BASED ON    TALENT, AS THIS IS CRITICAL
AND SHAREHOLDER RETURN    PERFORMANCE    TO OUR SUCCESS

We are asking you to cast an advisory, nonbinding vote to approve compensation awarded to our named executive officers (“NEOs”) — our chief executive officer (“CEO”), chief financial officer (“CFO”) and three other most highly paid executive officers, as listed on page 28. At our last Annual Meeting, shareholders expressed strong support for our executive compensation programs, with 97% of votes cast in favor of the advisory resolution on executive compensation.

PAY FOR PERFORMANCE

We seek to align pay and performance by making a significant portion of our NEOs’ compensation dependent on:

 

  achieving specific annual and long-term strategic and financial goals; and

 

  increasing shareholder value.

2015 Pay Mix. NEO compensation is weighted toward variable compensation (annual and long-term incentives), which is at risk because the actual amounts earned could differ from targeted amounts based on corporate and individual performance. As the following charts show, the vast majority of our CEO’s and other NEOs’ target direct compensation for 2015 could vary significantly based on company performance, including stock-price performance.

 

LOGO

Note, the amounts in these graphs are shown at target and therefore will not match the values reflected in the Summary Compensation Table on page 55. For additional details about our executive compensation programs and our NEOs’ fiscal year 2015 compensation, please see “Compensation Discussion & Analysis” beginning on page 28 and “Executive Compensation Tables” beginning on page 55.

Proxy Statement

ANNUAL MEETING OF SHAREHOLDERS | MAY 27, 2016

The Board of Directors of Lincoln National Corporation (the “Company,” “we,” “us” or “Lincoln”) is soliciting proxies in connection with the proposals to be voted on at the 2016 Annual Meeting of Shareholders, which will be held on Friday, May 27 at The Ritz-Carlton Hotel, 10 Avenue of the Arts, Philadelphia, Pennsylvania 19102, beginning at 9:00 a.m. local time. This proxy statement and a proxy card or a notice of Internet availability were sent to our shareholders on or about April 15. When we refer to the Meeting or the Annual Meeting, we are also referring to any meeting that results from an adjournment of the Annual Meeting.

 

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GOVERNANCE OF THE COMPANY

Our Board of Directors has 10 members, 9 of whom are non-employees, or outside directors. The Board has determined that all 9 outside directors are independent, as discussed below. The Board may fill a director vacancy or reduce the size of the Board without shareholder approval.

BOARD LEADERSHIP STRUCTURE

The Board has no set policy requiring separation of the offices of CEO and Chairman of the Board (“Chairman”). It believes that the decision on whether or not to separate these roles should be part of the regular succession planning process and made based on the best interests of the Company.

Currently, we separate the roles of CEO and Chairman in recognition of the differences between these roles. The CEO is responsible for setting the Company’s performance and strategic direction and for day-to-day leadership, while the Chairman provides guidance to the CEO and management, consults on the agenda for Board meetings, acts as the key liaison between the Board and management, and presides over meetings of the full Board and of the independent directors. He also has the authority to call special meetings of the Board.

The Board elects the Chairman annually. William H. Cunningham, an independent director, has served as our Chairman since 2009.

BOARD’S ROLE IN RISK OVERSIGHT

Enterprise risk management is an integral part of our business processes. Senior management is primarily responsible for establishing policies and procedures designed to assess and manage the Company’s significant risks. We also have a Corporate Enterprise Risk and Capital Committee, made up of members of senior management and the Chief Risk Officer, that provides oversight of our enterprise-wide risk structure and of our processes to identify, measure, monitor and manage significant risks, including credit, market and operating risk.

The Board’s role is regular oversight of the enterprise risk management process, including reviews of operational, financial, legal/regulatory, compensation, strategic and competitive risks. The Board reviews the most significant risks the Company faces and the manner in which our executives manage these risks. The Board has also delegated certain of its risk oversight efforts to its Committees, as shown below. This structure enables the Board and its Committees to coordinate the risk oversight role, particularly with respect to risk interrelationships. We believe that the separation of the Chairman and CEO roles supports the Board’s oversight role.

 

 

BOARD AND COMMITTEES: AREAS OF RISK OVERSIGHT

 

   

FULL BOARD

 

  

AUDIT

 

  

COMPENSATION

 

  

FINANCE

 

●     Strategy

 

●     Operations

 

●     Competition

 

●     Financial strategies and     transactions

  

●     Company’s enterprise risk     management efforts

 

●     Financial statements

 

●     Financial reporting     process

 

●     Accounting and audit     matters

 

●     Legal, compliance and     regulatory matters

  

●     Compensation policies     and practices

 

●     Executive incentive     compensation and stock     ownership

 

●     Executive retention and     succession planning

  

●     Investment policies,     strategies and     guidelines

 

●     Capital management and     structure

 

●     Financial plan

 

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OUR CORPORATE GOVERNANCE GUIDELINES

The Board’s Corporate Governance Guidelines provide a framework for effective corporate governance and set expectations for how the Board should perform its functions. The Guidelines include the following key principles:

 

  A majority of our Board must at all times be “independent” as defined by Securities and Exchange Commission (“SEC”) rules and New York Stock Exchange (“NYSE”) listing standards.
  Our independent directors must meet in executive session at least once a year, with no members of management present. Our outside directors, all of whom are independent, meet in connection with each regularly scheduled Board meeting and at any other times they may choose.
  Only independent directors may serve on the Audit, Compensation and Corporate Governance committees.
  The written charters of the Audit, Compensation, and Corporate Governance committees comply with the NYSE’s listing standards and are reviewed at least once each year.
  We have a Code of Conduct, available on our website at www.lfg.com, which includes our “code of ethics” for purposes of SEC rules and our “code of business conduct and ethics” for purposes of the NYSE listing standards. We will disclose amendments to or waivers from a required provision of the code by including such information on our website.
  Directors may not stand for election or reelection after reaching age 75.

The full texts of our Corporate Governance Guidelines and committee charters are available on our website at www.lfg.com.

DIRECTOR INDEPENDENCE

Under the Corporate Governance Guidelines, a majority of our directors must at all times be “independent” and meet the NYSE listing standards regarding independence as incorporated in our Corporate Governance Guidelines. Among other things, these standards require the Board to determine that our independent directors have no material relationship with Lincoln other than as directors.

Applying these standards, the Corporate Governance Committee and the Board have reviewed the independence of each director and director nominee, and the Board has determined that:

 

  directors Cunningham, Henderson, Johnson, Kelly, Lachman, Mee, Payne, Pittard and Tidwell are independent; and

 

  all members of the Audit, Compensation and Corporate Governance committees are independent of our management and of the Company.

In conducting its independence review, the Board will consider, among other things, transactions and relationships between each outside director (or any member of his or her immediate family) and us or our subsidiaries and affiliates. The Board takes into account that in the ordinary course of business, we conduct transactions with companies at which some of our directors are or have been directors, employees or officers. Transactions that are in the ordinary course of business on terms substantially equivalent to those prevailing at the time for comparable transactions, and that fall below the threshold levels set forth in our independence standards do not impact a director’s independence under our standards.

 

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DIRECTOR NOMINATION PROCESS

Under our Corporate Governance Guidelines, the Board is responsible for selecting its own members. The Corporate Governance Committee is charged with:

 

  identifying the competencies appropriate for the Board;

 

  identifying which, if any, of those competencies may be missing or under-represented on the current Board;

 

  identifying individuals with appropriate qualifications and attributes; and

 

  recommending to the Board the director nominees for the next annual meeting of shareholders.

Although there are no specific minimum qualifications for director nominees, the Corporate Governance Committee’s charter allows the Committee to consider any factors it deems appropriate. The Committee reviews with the Board the appropriate skills and characteristics required of directors in the context of the Board’s current make-up. In addition to considering a candidate’s background, experience and professional accomplishments, the Board looks for individuals with, among other attributes, integrity, business acumen, specific skills (such as an understanding of marketing, finance, accounting, regulation and public policy) and a commitment to our shared values.

Although the Board does not have a formal diversity policy, our Corporate Governance Guidelines specify that the Corporate Governance Committee should consider diversity in the director identification and nomination process. As a result, the Committee seeks nominees with a broad diversity of backgrounds, experiences, professions, education and differences in viewpoints and skills. Its goal is to ensure that the directors, as a group, provide a substantive blend of experience, knowledge and ability that enables the Board to fulfill its responsibilities in a constructive and collegial environment. In the annual evaluation of the Board and committees, the Board considers whether the members of the Board reflect such diversity and whether such diversity contributes to a constructive and collegial environment.

The Corporate Governance Committee begins the nomination process each year by deciding whether to renominate current directors. This includes an individual assessment of each director who will be up for reelection the following year. The Committee then reviews the results of the individual director assessments. It considers for renomination those Board members whose skills and experience continue to be relevant to our business and whose performance for the most recent term has also been favorably assessed.

When identifying potential director candidates — whether to replace a director who has retired or resigned or to expand the Board to gain additional capabilities — the Committee determines the skills, experience and other characteristics that a potential nominee should possess (in light of the composition and needs of the Board and its committees, and including whether or not the nominee would be considered independent under the NYSE listing standards) and seeks candidates with those qualifications.

Although not required to do so, the Committee may consider candidates proposed by our directors or our management and may also retain an outside firm to help identify and evaluate potential nominees. The Committee will also consider nominations from shareholders. Such nominations must be submitted in writing to our Corporation Secretary at our principal executive office, and must include the same information that would be required for a candidate to be nominated by a shareholder at a meeting of shareholders as described under “General Information – Shareholder Proposals” on page 82. Any such recommendation must be received by the Corporate Secretary not later than January 27, 2017.

If the Corporate Governance Committee determines that it should conduct a full evaluation of a prospective candidate, including an interview, one or more members of the Committee will do so, and other directors may be asked to interview the candidate as well. Upon completing the evaluation and the interview, the Committee recommends to the Board whether to nominate the individual.

 

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The nominee evaluation process is the same whether the nomination comes from a Board member, management or a shareholder. If the Corporate Governance Committee recommends a shareholder nominee to the Board, the Board may— as with any nominee—either accept or reject the recommendation.

ANNUAL BOARD EVALUATION

Annually, the Board conducts a self-evaluation to determine whether it and its committees are functioning effectively. The Corporate Governance Committee oversees the Board evaluation process, which is designed to elicit feedback and recommendations from the directors that will improve the effectiveness of the Board. Each year the Committee reviews the overall process for the assessment as well as the substantive matters to be addressed during the evaluation. In general, the evaluation covers a variety of topics including the Company’s strategy, financial performance, risk management and succession planning. The results of the assessment are discussed with each Committee and the full Board following the compilation of the results.

COMMUNICATIONS WITH DIRECTORS

Shareholders and others who wish to communicate with the full Board or its outside (non-executive) directors may do so by sending a letter to either “The Board of Directors” or “The Outside Directors,” as appropriate, at:

Lincoln National Corporation

150 N. Radnor Chester Road

Radnor, PA 19087

Attention: Office of the Corporate Secretary

Our Corporate Secretary receives and processes all communications and will refer relevant and appropriate communications to the Chairman. If a communication relates to possible violations of our Code of Conduct or contains concerns or complaints regarding our accounting, internal auditing controls, or auditing matters or other related concerns, it will be referred to the Audit Committee, which has a policy for reporting such information. The policy can be found on our website at www.lfg.com.

You may communicate with the Board anonymously and/or confidentially. However, if you submit your communication anonymously, we will not be able to contact you in the event we require further information. Also, while we will attempt to preserve your confidentiality whenever possible, we cannot guarantee absolute confidentiality.

BOARD AND COMMITTEE MEETINGS

The Board met four times during 2015, and each director attended 75% or more of the aggregate of: (1) the total number of Board meetings; and (2) the total number of meetings held by committees on which he or she served. Although the Board does not have a formal policy that requires directors to attend our Annual Meeting of Shareholders, directors are encouraged to attend. All of the Company’s directors attended the 2015 Annual Meeting.

 

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BOARD COMMITTEES

The Board has six standing committees: the Audit Committee, the Compensation Committee, the Corporate Governance Committee, the Executive Committee, the Finance Committee and the Committee on Corporate Action. The table below lists the directors who currently serve on these committees and the number of meetings each committee held during 2015. The Audit, Compensation, Corporate Governance and Finance committees conduct self-evaluations of their committee’s performance each year.

 

 

CURRENT COMMITTEE MEMBERSHIP AND MEETINGS HELD DURING 2015 (C=CHAIR M=MEMBER)

 

    

AUDIT

 

COMPENSATION

 

CORPORATE

GOVERNANCE

 

EXECUTIVE

 

FINANCE

 

CORPORATE

ACTION1

William H. Cunningham

    M   M   C   M    

Dennis R. Glass

        M     C

George W. Henderson, III

  M         M    

Eric G. Johnson

    M     M   C    

Gary C. Kelly

  M         M    

M. Leanne Lachman

  C            

Michael F. Mee

    M     M   M    

William P. Payne

      M   M      

Patrick S. Pittard

    C          

Isaiah Tidwell

  M       C            

Number of Meetings in 2015

  9   5   4   0   4   --

Shaded cells denote committee chair.

1. The Committee on Corporate Action takes all action by the unanimous written consent of the sole member of that Committee, and there were fourteen (14) such consents in 2015.

The functions and responsibilities of our Board’s standing committees are described below. Charters for the Audit, Compensation, Corporate Governance, Executive and Finance committees are available on the Governance section of our website at www.lfg.com.

 

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AUDIT COMMITTEE

The primary function of the Audit Committee is oversight, including risk oversight. This includes:

 

 

 

  helping the Board oversee: (1) the integrity of our financial statements; (2) our compliance with legal and regulatory requirements; (3) the independent auditor’s qualifications and independence; (4) the performance of our general auditor and independent auditor; and (5) our risk assessment and risk management policies and processes

 

  hiring, firing, and evaluating the performance of the independent auditors and approving their compensation and all of their engagements

 

  discussing the timing and process for implementing the rotation of the lead audit partner

 

  discussing our annual and quarterly consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our SEC filings and annual report to shareholders

 

  inquiring about significant risks and exposures, if any, and reviewing and assessing the steps taken to monitor and manage them

 

  reviewing and discussing the risk policies and procedures adopted by management and the implementation of these policies

 

  reviewing the qualifications and backgrounds of senior risk officers

 

  establishing procedures for handling complaints regarding accounting, internal auditing controls or auditing matters and for the confidential, anonymous submission of employee concerns regarding questionable accounting or auditing matters

 

  consulting with management before the appointment or replacement of the internal auditor

 

  preparing the report required for inclusion in our annual proxy statement

 

  reporting the Committee’s activities to the Board on a regular basis and making any recommendations to the Board that the Committee deems appropriate.

 

 

The Board has determined that two of its members meet the definition of “audit committee financial expert” under SEC rules. The Board has named Gary C. Kelly as our “audit committee financial expert” for this proxy statement. The Audit Committee may obtain advice and assistance from internal or external legal, accounting or other advisers.

More information regarding the Audit Committee, including the Audit Committee Report, can be found under “Ratification of Appointment of Independent Registered Public Accounting Firm” beginning on page 23.

    

 

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COMPENSATION COMMITTEE

The principal functions of the Compensation Committee include:

 

 

 

  establishing our general compensation philosophy in consultation with the compensation consultant and senior management

 

  ensuring that succession plans are in place for the CEO and other executive officers

 

  reviewing and approving corporate goals and objectives for NEO compensation

 

  evaluating the CEO’s performance and setting the CEO’s compensation level based on this evaluation

 

  evaluating annually whether the Company’s compensation programs create unnecessary risks that could harm the Company

 

  reviewing with management the Compensation Discussion & Analysis to be included in the proxy statement

 

  reviewing and approving the strategies, policies and programs related to the compensation of our executive officers and other key personnel

 

  making recommendations to the Board regarding incentive compensation and equity-based plans, and approving all grants and awards to executive officers under such plans

 

  approving employment and severance agreements for executive officers

 

  approving certain employee benefit and executive compensation plans and programs, and changes to such plans and programs

 

  reporting the Committee’s activities to the Board on a regular basis and making any recommendations the Committee deems appropriate.

 

 

The Compensation Committee may retain or obtain advice on executive compensation-related matters from a compensation consultant, outside legal counsel or other adviser. The Committee is directly responsible for appointing, compensating and overseeing the work of any such advisers and must consider certain independence factors before hiring them. More information concerning the Compensation Committee, including the role of its compensation consultant and our executive officers in determining or recommending the amount or form of executive compensation, can be found in the “Compensation Discussion & Analysis” section beginning on page 28.

    

 

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CORPORATE GOVERNANCE COMMITTEE

The principal functions of the Corporate Governance Committee include:

 

 

 

  identifying individuals qualified to become Board members

 

  recommending to the Board nominees for director (including those recommended by shareholders in accordance with our Bylaws)

 

  taking a leadership role in shaping our corporate governance and recommending to the Board the corporate governance principles applicable to us

 

  developing and recommending to the Board standards for determining the independence of directors

 

  making recommendations to the Board regarding the compensation program for directors

 

  making recommendations to the Board regarding the size of the Board and the membership, size, structure and function of its committees

 

  helping evaluate the Board and individual directors

 

  reporting the Committee’s activities to the Board on a regular basis and making any recommendations the Committee deems appropriate.

 

 

The Corporate Governance Committee may hire and terminate search firms; approve any search firm’s fees and terms of retention; and seek advice and assistance from internal or external legal, accounting or other advisers.

 

EXECUTIVE COMMITTEE

The principal function of the Executive Committee is to act for the Board, when necessary, between Board meetings. In such instances, the Executive Committee may act for the Board in managing and directing the Company’s business and affairs, except for matters expressly delegated to another committee or the full Board. The Executive Committee reports any actions it takes to the Board as soon as practicable.

    

 

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FINANCE COMMITTEE

The principal functions of the Finance Committee include:

 

 

 

  reviewing and providing guidance to senior management with respect to:

 

  our annual three-year financial plan;

 

  our capital structure, including issuance of securities by us or any of our affiliates, significant “off balance sheet” transactions, and our dividend and share repurchase strategies;

 

  our reinsurance strategies; and

 

  proposed mergers, acquisitions, divestitures, joint ventures and other strategic investments.

 

  reviewing our overall credit quality and credit ratings strategy

 

  reviewing the general account and our investment policies, strategies and guidelines

 

  reviewing our hedging program and the policies and procedures governing the use of financial instruments, including derivatives

 

  reviewing the funding adequacy of our qualified pension plans, including significant actuarial assumptions, investment policies and performance

 

  reporting the Committee’s activities to the Board on a regular basis and making any recommendations the Committee deems appropriate.

 

 

The Finance Committee may seek advice and assistance from internal or external legal, accounting or other advisers.

    

 

COMMITTEE ON CORPORATE ACTION

The Committee on Corporate Action was formed to delegate to the sole member, the CEO, the authority to take certain actions on behalf of the Board in accordance with limits set by the Board. The principal functions that have been delegated to the Committee on Corporate Action include:

 

 

 

  determining the pricing of the securities offered from our shelf registration statement, including all rates, payments, ratios, discounts and other financial measures related to the pricing of such securities

 

  approving, as necessary, the underwriting agreement, form of security and other transaction documents relating to the offering and sale of securities under our shelf registration statement

 

  appointing and removing certain classes of our officers as the Board may determine by resolution.

    

 

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ITEM 1 | ELECTION OF DIRECTORS

PHASE-OUT OF CLASSIFIED BOARD

Our Board had traditionally been divided into three classes, with each class serving for a three-year term. Elections of the Board had also been “staggered,” meaning that only one class stood for election each year. In recognition of evolving corporate governance practices, we started this process at last year’s Annual Meeting, where the class of directors up for reelection was elected for a one-year term. We will continue this process with this year’s class of directors so that, by the 2017 Annual Meeting, shareholders will elect the entire Board annually.

NOMINEES FOR DIRECTOR

Each director brings a strong background and set of skills to the Board, giving the Board as a whole expertise, diversity and experience in a wide variety of areas. The Board believes that all of our directors have integrity and honesty and adhere to high ethical standards. They have also demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment to serve the Company.

Unless you direct otherwise or specifically indicate that you wish to abstain from voting for one or more of the nominees on the proxy, your proxy will be voted for each of the nominees below. Each nominee is a current director of the Company and has agreed to continue serving on the Board if elected. If any nominee is unable to serve as a director, proxies may be voted for another person designated by the Board.

 

The Board of Directors recommends a vote FOR each of the nominees.   

 

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Nominees for a Term Expiring at the 2017 Annual Meeting

 

LOGO   

 

WILLIAM H. CUNNINGHAM

 

PROFESSOR AT THE
UNIVERSITY OF TEXAS AT
AUSTIN AND JAMES J. BAYLESS
CHAIR FOR FREE ENTERPRISE
AT THE UNIVERSITY’S
MCCOMBS SCHOOL OF
BUSINESS

  

 

AGE: 72    DIRECTOR SINCE: 2006

 

Non-Executive Chairman of the Board since: 2009

 

Member, Compensation, Corporate Governance, Executive and Finance Committees

 

CAREER  

Mr. Cunningham has been a professor with The University of Texas since 2000. Before that he served as Chancellor and CEO of The University of Texas System, as President of The University of Texas at Austin and as Dean of the McCombs School of Business.

 

QUALIFICATIONS  

Substantial experience in accounting, marketing, finance and corporate governance, as well as experience leading a large public institution. Mr. Cunningham also has significant experience serving on public company boards, including over 20 years in our industry as a Director of Jefferson-Pilot Corporation, a public insurance company with whom we merged in 2006.

 

OTHER PUBLIC COMPANY BOARDS  

John Hancock Mutual Funds, 1986–present; and Southwest Airlines Co., 2000–present.

 

PRIOR PUBLIC COMPANY BOARD SERVICE IN PAST 5 YEARS  

LIN Media LLC, (formerly LIN Television Corporation) 2002–2007 and 2009–2014; and Resolute Energy Corporation, 2009–2015.

 

 

LOGO   

 

GEORGE W. HENDERSON, III

 

RETIRED CHAIRMAN
AND CHIEF EXECUTIVE
OFFICER OF BURLINGTON
INDUSTRIES, INC.

  

 

AGE: 67    DIRECTOR SINCE: 2006

 

Member, Audit and Finance Committees

 

Mr. Henderson also serves as a Director of Lincoln Life & Annuity Company of New York, one of our insurance subsidiaries.

CAREER  

Mr. Henderson was Chairman and CEO of Burlington Industries, a global manufacturer of textile products, 1998–2003. Before that he served as that company’s President and its COO. He was also a member of Burlington’s Board of Directors for 13 years.

 

QUALIFICATIONS  

Executive leadership and management experience at the highest levels of a global public company; significant experience with international operations and accounting and financial reporting.

 

OTHER PUBLIC COMPANY BOARDS  

Bassett Furniture Industries, Inc., 2004–present.

 

 

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LOGO   

 

ERIC G. JOHNSON

 

PRESIDENT AND CEO OF

BALDWIN RICHARDSON

FOODS COMPANY

  

 

AGE: 65     DIRECTOR SINCE: 1998

 

Chair, Finance Committee

 

Member, Compensation and Executive Committees

CAREER  

Since 1997, Mr. Johnson has served as President and CEO of Baldwin Richardson Foods Company, a privately held manufacturer of products for the food service industry.

 

QUALIFICATIONS  

Extensive executive management skills; expertise in marketing, finance and the development and execution of corporate strategy; experience in mergers and acquisitions. Through his years of service on our Board, Mr. Johnson has also developed a deep base of knowledge regarding our business and our industry.

 

OTHER PUBLIC COMPANY BOARDS  

SUPERVALU, INC., 2013–present.

 

 

LOGO   

 

M. LEANNE LACHMAN

 

PRESIDENT OF LACHMAN
ASSOCIATES LLC AND

EXECUTIVE -IN-RESIDENCE,
COLUMBIA GRADUATE
SCHOOL OF BUSINESS

  

 

AGE: 73     DIRECTOR SINCE: 1985

 

Chair, Audit Committee

 

Ms. Lachman also serves as a Director of Lincoln Life & Annuity Company of New York, one of our insurance subsidiaries.

CAREER  

Ms. Lachman has served since 2003 as President of Lachman Associates LLC, an independent real estate consultancy, and since 2000 as an Executive-in-Residence at Columbia Business School. Before that she was Managing Director of Lend Lease Real Estate Investments, a global institutional investment manager.

 

QUALIFICATIONS  

Extensive background in real estate analysis, investment, management, and development, and international operations. Through more than 25 years of service on our Board, she has acquired a deep understanding of our business, our organization and our industry.

 

OTHER PUBLIC COMPANY BOARDS  

Liberty Property Trust, 1994–present, including service on the audit, compensation and governance committees.

 

 

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LOGO   

 

WILLIAM PORTER PAYNE

 

CHAIRMAN OF CENTENNIAL

HOLDING COMPANY, LLC

  

 

AGE: 68    DIRECTOR SINCE: 2006

 

Member, Corporate Governance and

Executive Committees

CAREER  

Mr. Payne is the Chairman of Centennial Holding Company, LLC, a real estate investment firm. Previously, Mr. Payne served in an executive management role with Gleacher and Company, an investment banking and asset management firm. He was with Gleacher from 2000 through 2013.

 

QUALIFICATIONS  

Extensive financial expertise; experience in providing strategic advisory services to complex organizations. Earlier in his career, Mr. Payne was an attorney specializing in commercial real estate transactions and mergers and acquisitions. His breadth of knowledge brings an interdisciplinary set of skills to the Board. He also has expertise in corporate governance, having served on a number of public company boards.

 

PRIOR PUBLIC COMPANY BOARD SERVICE IN PAST 5 YEARS  

Cousins Properties, Inc., 1996–2014.

 

 

LOGO   

 

PATRICK S. PITTARD

 

CHAIRMAN OF PATRICKPITTARD
ADVISORS LLC

  

 

AGE: 70    DIRECTOR SINCE: 2006

 

Chair, Compensation Committee

 

Mr. Pittard also serves as a Director of Lincoln Life & Annuity Company of New York, one of our insurance subsidiaries.

CAREER  

Mr. Pittard is Chairman of Patrick Pittard Advisors LLC, a human capital firm providing “C-level” services such as executive search and talent assessment. He also serves as a leadership instructor at the Terry School of Business at the University of Georgia and was the Chairman and CEO of ACT Bridge from 2011 to 2013. Before that Mr. Pittard was Chairman, President and CEO of Heidrick & Struggles International, Inc., a worldwide provider of executive-level search and leadership services and one of the largest publicly traded global recruiting firms, from which he retired in 2002.

 

QUALIFICATIONS  

Executive leadership and management experience at the highest levels of a global public company; experience driving strategic organizational growth; expertise in executive compensation, insurance and investments.

 

OTHER PUBLIC COMPANY BOARDS  

Artisan Funds, 2001–present.

 

 

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LOGO   

 

ISAIAH TIDWELL

 

RETIRED EXECUTIVE
VICE PRESIDENT AND
GEORGIA WEALTH
MANAGEMENT DIRECTOR OF
WACHOVIA BANK, N.A

  

 

AGE: 71    DIRECTOR SINCE: 2006

 

Chair, Governance Committee

 

Member, Audit Committee

CAREER  

Before retiring in 2005, Mr. Tidwell was an Executive Vice President and Director of Wealth Management operations for Wachovia Bank in Georgia. During his career at Wachovia, he took on various roles with increasing responsibility, eventually becoming Southern Regional Executive before being promoted to Executive Vice President. Earlier in his career, Tidwell was employed in various accounting and financial positions with Celanese Corporation.

 

QUALIFICATIONS  

Extensive experience in banking, financial services and wealth management. Through his years of service on the boards of other public companies, Mr. Tidwell has also developed knowledge of risk assessment practices and a significant understanding of finance and accounting principles.

 

OTHER PUBLIC COMPANY BOARDS  

Synder’s–Lance, Inc. (formerly Lance, Inc.), 1995–present.

 

PRIOR PUBLIC COMPANY BOARD SERVICE IN PAST 5 YEARS  

Harris Teeter Supermarkets, Inc. (formerly Ruddick Corporation), 1999–2014.

 

DIRECTORS CONTINUING IN OFFICE UNTIL THE 2017 ANNUAL MEETING

 

LOGO   

 

DENNIS R. GLASS

 

PRESIDENT AND CHIEF
EXECUTIVE OFFICER
OF LINCOLN NATIONAL
CORPORATION

  

 

AGE: 66    DIRECTOR SINCE: 2006

 

Member, Executive Committee

CAREER  

Mr. Glass has served as our President since 2006 and our CEO since 2007. He is also President of, and serves on the boards of, our principal insurance subsidiaries. Before our merger with Jefferson-Pilot Corporation, Mr. Glass was President, CEO and a Director of that company.

 

QUALIFICATIONS  

A seasoned executive who has served in executive-level positions in the insurance industry for over 30 years, Mr. Glass brings to his role as a Director a deep knowledge of our industry, our competitors and our products.

 

OTHER PUBLIC COMPANY BOARDS  

None in past 5 years.

 

 

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LOGO   

 

GARY C. KELLY

 

CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER OF
SOUTHWEST AIRLINES CO.

  

 

AGE: 61    DIRECTOR SINCE: 2009

 

Member, Audit and Finance Committees

CAREER  

Mr. Kelly has been CEO of Southwest Airlines since 2004, and President and Chairman since 2008. Previously Mr. Kelly held a number of senior-level positions within the Southwest organization, including CFO. Before joining Southwest, Mr. Kelly served as a CPA for a public auditing firm.

 

QUALIFICATIONS  

Executive leadership and management experience at the highest levels of a public company; ability to provide insights into operational, regulatory and governance matters; substantial expertise in finance, accounting and financial reporting.

 

OTHER PUBLIC COMPANY BOARDS  

Southwest Airlines Co., 2004–present.

 

 

LOGO   

 

MICHAEL F. MEE

 

RETIRED EXECUTIVE VICE

PRESIDENT AND CHIEF

FINANCIAL OFFICER OF

BRISTOL-MYERS SQUIBB

COMPANY

  

 

AGE: 73    DIRECTOR SINCE: 2001

 

Member, Compensation and Finance Committees

CAREER  

From 1994 to 2001, Mr. Mee was the Executive Vice President and CFO of Bristol-Myers Squibb Co., a pharmaceutical and health care products company, where he was also a member of the Office of the Chairman. Before joining Bristol-Myers Squibb, Mr. Mee served in senior financial executive positions with several Fortune 500 companies.

 

QUALIFICATIONS  

Significant public accounting and financial reporting skills; extensive management experience and leadership skills; expertise in corporate strategy, development and investments, international operations and risk assessment.

 

OTHER PUBLIC COMPANY BOARDS  

None in the past 5 years.

 

 

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COMPENSATION OF OUTSIDE DIRECTORS

The Board adheres to the following guidelines in establishing outside director compensation:

 

  We provide competitive compensation to attract and retain high-quality outside directors; and

 

  A significant portion of each outside director’s compensation is paid in equity to help align our directors’ interests with those of our shareholders.

In accordance with our Corporate Governance Guidelines, the Board’s compensation program is reviewed and assessed annually by the Corporate Governance Committee. As part of this review, the Committee may solicit the input of outside compensation consultants. During 2015, the Committee asked Pay Governance LLC, an independent compensation consultant, to provide a competitive analysis of the compensation we provide to our outside directors. As a result of that review and the Committee’s discussion, the Committee recommended to the Board an increase of $10,000 in the cash retainer for the Committee Chairs other than the Audit Committee Chair for 2016.

The following table compares our director fees for 2015 to the revised fees that took effect on January 1, 2016:

 

FEES    2015      2016  

BOARD

     

Annual Retainer (Cash)

     $86,000         $86,000   

Deferred LNC Stock Units

     $161,000         $161,000   

Total Board Fees

     $247,000         $247,000   

NON-EXECUTIVE CHAIRMAN OF THE BOARD

     

Deferred LNC Stock Units

     $200,000         $200,000   

COMMITTEES (CASH)

     

Audit Committee Chair

     $30,000         $30,000   

Audit Committee Member

     $10,000         $10,000   

Other Committee Chair

     $10,000         $20,000   

SHARE OWNERSHIP REQUIREMENTS

Lincoln’s share ownership guidelines require outside directors to hold, within five years of joining the Board, interests in the Company’s common stock equal to five (5) times the annual Board cash retainer. Interests in our stock that count toward the share ownership guidelines include Deferred LNC Stock Units, LNC stock owned outright, and 33% of vested stock options. As of December 31, 2015, all of our directors are in compliance with this requirement.

 

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OPTIONAL DEFERRAL OF ANNUAL RETAINER

In addition to receiving Board fees in the form of Deferred LNC Stock Units, directors may defer the cash component of their annual and committee retainers into various investment options under the Lincoln National Corporation Deferred Compensation Plan for Non-Employee Directors (the “Directors’ DCP”).

The investment options track those offered to employees under the LNC Employees’ 401(k) Savings Plan (the “Employees’ 401(k) Plan”) and include a Lincoln National Corporation Stock Fund investment option (the “LNC Stock Fund”). However, the Directors’ DCP uses “phantom” versions of the Employees’ 401(k) Plan investment options, meaning that accounts are credited with earnings or losses as if the amounts had been invested in the chosen investment options.

All deferred amounts, including the annual retainer paid in Deferred LNC Stock Units, are payable only when the director retires or resigns from the Board. In addition, amounts invested in the LNC Stock Fund upon cessation of a director’s service on the Board are only payable in shares of Lincoln common stock.

MEETING FEES

No additional fees are paid for attending regularly scheduled Board or committee meetings, although the Corporate Governance Committee has discretion to recommend additional compensation ($1,100 per meeting) for additional meetings. Outside directors who are also directors of Lincoln Life & Annuity Company of New York (“LNY”), our indirect, wholly owned subsidiary, receive an annual cash retainer of $15,000 and a fee of $1,100 for each LNY Board and committee meeting they attend. During 2015, three outside directors — Mr. Henderson, Ms. Lachman and Mr. Pittard — also served as directors of LNY.

OTHER BENEFITS

We offer outside directors several benefits in addition to the compensation listed above. These include:

 

  Financial planning services—up to $20,000 for an initial financial plan and $10,000 for annual updates. The services must be provided by a Lincoln Financial Network financial planner for the director to be reimbursed.

 

  Participation—at their own expense—in certain health and welfare benefits, including our self-insured medical and dental plans as well as life insurance and accidental death and dismemberment coverages.

 

  Participation in a matching charitable gift program through which the Lincoln Financial Foundation, Inc. matches donations from a director to one or more eligible organizations, up to an annual total of $15,000 for all gifts.

 

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COMPENSATION OF NON-EMPLOYEE DIRECTORS* DURING 2015
NAME     
 
 

 

FEES EARNED
OR PAID IN
CASH1

($)

  
  
  

  

    
 
 
STOCK
AWARDS2
($)
  
  
  
    
 
 
ALL OTHER
COMPENSATION
($)
  
  
  
  TOTAL ($)

William J Avery3

     96,000         161,000         25,000 4,5    282,000

William H. Cunningham

     86,000         361,000         15,000 5    462,000

George W. Henderson, III

     115,400         161,000         10,000 5    286,400

Eric G. Johnson

     96,000         161,000         -      257,000

Gary C. Kelly

     96,000         161,000         12,500 5    269,500

M. Leanne Lachman

     135,400         161,000         15,000 5    311,400

Michael F. Mee

     86,000         161,000         -      247,000

William Porter Payne

     89,901         161,000         15,000 5    265,901

Patrick S. Pittard

     113,200         161,000         10,000 4    284,200

Isaiah Tidwell

     102,099         161,000         4,250 5    267,349

* As an employee of the Company, Mr. Glass receives no director compensation.

1. As described above, $86,000 of the annual retainer was paid in cash. The fees shown in this column also include any fees that an outside director was paid as the chair of a committee, as a member of the Audit Committee or for service on the Board of LNY.

2. The fair value of the stock awards was determined in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Stock Compensation. The assumptions made in calculating the grant date fair value of stock and option awards are set forth in Note 18 of the Notes to the Consolidated Financial Statements, included in Item 8 of our Form 10-K for fiscal year ended December 31, 2015. Mr. Cunningham received an additional $200,000 in Deferred LNC Stock Units for serving as non-executive Chairman during 2015.

3. Mr. Avery retired from our Board of Directors effective December 31, 2015.

4. Includes the provision of financial planning services with an aggregate incremental cost to us of $10,000 for each of Mr. Avery and Mr. Pittard.

5. Reflects contributions made on the director’s behalf under the matching charitable gift program.

 

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The following table shows the number of deferred stock units and vested unexercised stock options held by each director as of December 31, 2015:

 

NAME

  

            DEFERRED LNC

STOCK UNITS

    

STOCK

                     OPTIONS

William J. Avery

     6,247       8,506

William H. Cunningham

     83,557       41,359

George W. Henderson, III

     53,916       33,180

Eric G. Johnson

     46,661       33,180

Gary C. Kelly

     17,698       17,040

M. Leanne Lachman

     56,869       33,180

Michael F. Mee

     60,111       33,180

William Porter Payne

     34,702       25,105

Patrick S. Pittard

     36,849       19,606

Isaiah Tidwell

     29,215       39,314

Deferred LNC Stock Units include amounts reported in the Stock Awards column above and phantom units awarded under the LNC Outside Directors’ Value Sharing Plan, which was terminated on July 1, 2004, plus any accrued dividend equivalents, which are automatically reinvested in additional phantom units of our common stock. The stock options held by Messrs. Cunningham and Tidwell include former options for Jefferson-Pilot Corporation common stock, which were converted into stock options for our common stock in connection with our merger with Jefferson-Pilot.

 

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ITEM 2 | RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee evaluates the performance of the Company’s independent auditors each year and determines whether to reengage them or consider other firms. In doing so, the Committee considers the auditor’s service quality and efficiency, capability, technical expertise, and knowledge of our operations and industry.On February 24, 2016, the Committee appointed Ernst & Young LLP (“Ernst & Young”) as our independent registered public accounting firm for fiscal year 2016. We have engaged this firm and its predecessors in this capacity continuously since 1968. In addition, the Committee is involved in the selection of Ernst & Young’s lead engagement partner and ensures that the mandated rotation of the lead partner occurs routinely.

As a matter of good corporate governance, we request that our shareholders ratify (approve) this appointment, even though this is not required. If shareholders do not ratify this appointment, the Audit Committee will take note of that and may reconsider its decision. If shareholders do ratify this appointment, the Committee will still have discretion to terminate Ernst & Young and retain another accounting firm at any time during the year.

Representatives of Ernst & Young will be present at the Annual Meeting, where they will be given the opportunity to make a statement, if they wish to. They will also be available to respond to questions about their audit of our consolidated financial statements and internal controls over financial reporting for fiscal year 2015.

The Board of Directors recommends a vote FOR the ratification of Ernst & Young as our independent registered public accounting firm for 2016.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES AND SERVICES

The table below shows the total fees that Ernst & Young received for professional services rendered for fiscal years 2015 and 2014, with a breakdown of fees paid for different categories of work.

 

      FISCAL YEAR
ENDED -
DECEMBER 31, 2015
     % OF
TOTAL FEES
     FISCAL YEAR
ENDED -
DECEMBER 31, 2014
     % OF
TOTAL FEES
 

Audit Fees1

     $10,015,790         90.9         $9,841,680         88.1   

Audit-Related Fees2

     937,100         8.5         1,222,782         10.9   

Tax Fees3

     63,842         0.6         115,164         1.0   

All Other Fees

                               

TOTAL FEES

     $11,016,732         100         $11,179,626         100   

 

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1. Audit Fees. Fees for audit services include fees and expenses associated with the annual audit, the reviews of our interim financial statements included in quarterly reports on Form 10-Q, accounting consultations directly associated with the audit, and services normally provided in connection with statutory and regulatory filings.

 

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

 

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

AUDIT COMMITTEE PRE-APPROVAL POLICY

The Audit Committee has policies and procedures to pre-approve all audit and permissible non-audit services that our accounting firm provides. Management submits to the Committee for approval a schedule of all audit, tax and other related services it expects the firm to provide during the year. The schedule includes examples of typical or known services expected to be performed, listed by category, to illustrate the types of services to be provided under each category. The Committee pre-approves the services by category, with specific dollar limits for each category. If management wants to engage the accounting firm for additional services, management must receive approval from the Committee for those services. The Committee chair also has the authority to pre-approve services between meetings, subject to certain dollar limitations, and must notify the full Committee of any such pre-approvals at its next scheduled meeting.

OTHER INFORMATION

Ernst & Young has advised us that neither it nor any member of the firm has any financial interest, direct or indirect, in any capacity in us or our subsidiaries. The Company has made similar inquiries of our directors and executive officers, and we have identified no such direct or indirect financial interest in Ernst & Young.

 

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AUDIT COMMITTEE REPORT

Management has primary responsibility for:

 

  preparing our financial statements;
  establishing financial reporting systems and internal controls; and
  reporting on the effectiveness of our internal control over financial reporting.

The Company’s independent registered public accounting firm is responsible for:

 

  performing an independent audit of our consolidated financial statements;
  issuing a report on those financial statements; and
  issuing an attestation report on our internal control over financial reporting.

In this context, the Audit Committee has:

 

  reviewed and discussed with management the audited financial statements for fiscal year 2015;
  discussed with our accounting firm the matters that the Public Company Accounting Oversight Board (“PCAOB”) requires them to discuss as per Auditing Standard No. 16, Communications with Audit Committee;
  received the written disclosures and letter from our accounting firm that the PCAOB requires regarding the firm’s communications with the Audit Committee concerning independence; and
  discussed with our accounting firm that firm’s independence.

Based upon the review and discussions referred to in this report, the Audit Committee recommended to the Board that the audited consolidated financial statements for fiscal year 2015 be included in the Company’s Annual Report on Form 10-K for fiscal year ending December 31, 2015, for filing with the SEC.

The Audit Committee

William J. Avery

George W. Henderson, III

Gary C. Kelly

M. Leanne Lachman, Chair

Isaiah Tidwell

 

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ITEM 3 | ADVISORY PROPOSAL ON EXECUTIVE COMPENSATION

The SEC requires that we allow shareholders to vote their approval, on an advisory basis, of the compensation of our named executive officers as disclosed in this proxy statement. As discussed in detail in the Compensation Discussion & Analysis (“CD&A”) section that begins on page 28, our executive compensation principles and underlying programs are designed to:

 

  align the interests of our executive officers with those of our shareholders

 

  link executive pay directly to the attainment of short- and long-term financial/business goals, which we refer to as “pay for performance”

 

  attract, motivate and retain key executives who are crucial to our long-term success.

Key features of our compensation programs include:

Pay for Performance. We link our executives’ targeted direct compensation to the performance of the Company as a whole, with the largest portion delivered as variable pay in the form of long-term equity awards and an annual incentive award. For instance in 2015, 90% of our CEO’s compensation was at risk and variable.

Compensation Tied to Enterprise Performance and Shareholder Return. Our annual and long-term incentive compensation programs have multiple balanced performance measures and goals that tie executive compensation to key enterprise performance metrics and shareholder return.

Governance/Compensation Best Practices. Among the best practices we follow: we have an independent Compensation Committee and compensation consultant; we do not provide tax gross-up benefits; and we have a double-trigger equity vesting requirement upon a change of control of the Company.

Share Ownership Requirements. Our executives are subject to rigorous stock ownership guidelines to further align their interests with the long-term interests of our shareholders. For instance, our CEO is required to hold an amount of our shares equal to seven times his base salary, and our other executive officers must hold shares equal to four times their base salary.

In addition, we recognize that strong governance/compensation principles are essential to an effective executive compensation program. These governance/compensation principles and our executive compensation philosophy are established by the Compensation Committee, which is independent of management and advised by an independent consultant. The Committee regularly reviews the compensation programs applicable to our executive officers to ensure that the programs support our objectives of aligning our executive compensation structure with our shareholders’ interests and current market practices.

Our compensation policies and procedures are described in detail on pages 28 to 54.

Although the advisory vote on this proposal is non-binding — meaning that our Board is not required to adjust our executives’ compensation or our compensation programs or policies as a result of the vote — the Board and the Compensation Committee will consider the voting results when determining compensation policies and decisions, including future executive compensation decisions. Notwithstanding the advisory nature of the vote, the resolution will be approved if more votes are cast for the proposal than against it. Abstentions and broker non-votes will not count as votes cast either for or against the proposal. We intend to hold a non-binding advisory vote on executive compensation each year, with the next such vote at our 2017 Annual Meeting.

 

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We urge you to read the CD&A and other information in the “Executive Compensation” section, beginning on page 28, which we believe demonstrates that our executive compensation programs align our executives’ compensation with our short- and long-term performance; provide the incentives needed to attract, motivate and retain key executives crucial to our long-term success; and align the interests of our executive officers with those of our shareholders.

The Board unanimously recommends a vote FOR this proposal and FOR the following resolution:

“Resolved, that the shareholders approve, on an advisory basis, the compensation of the named executive officers of the Company, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion & Analysis, the 2015 compensation tables regarding named executive officer compensation, and the accompanying narrative disclosure in this proxy statement.”

 

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COMPENSATION DISCUSSION & ANALYSIS

 

 

This Compensation Discussion & Analysis (“CD&A”) contains information about:

 

●     our fundamental pay-for-performance compensation philosophy

 

●     the structure of our compensation programs and the reasoning behind this structure

 

●     how compensation decisions are made and how our compensation programs are administered

 

●     the compensation we paid under our performance-based incentive programs for performance periods ending in 2015, and how it  related to our short and long-term performance results

 

The CD&A also details the compensation of our NEOs (also referred to as “executives” or “executive officers”) included in the compensation tables beginning on page 55. These NEOs are:

DENNIS R. GLASS – President and CEO

RANDAL J. FREITAG – Executive Vice President and CFO

LISA M. BUCKINGHAM –   Executive Vice President, Chief Human Resources Officer, Head of Brand and Enterprise Communications

WILFORD H. FULLER – President, Annuity Solutions, LFD and LFN

MARK E. KONEN – President, Insurance and Retirement Solutions

We encourage you to read the CD&A in conjunction with the compensation tables on pages 55 to 72.

To ensure the continued effectiveness of our pay-for-performance culture, the Compensation Committee each year reviews and approves the elements, measures, targets and payouts of our executive compensation programs. In setting the programs’ performance measures and goals, the Committee chooses metrics that focus on our overall corporate strategy and are linked to our long-term financial plan. Our executives’ compensation is tied closely to the achievement of short- and long-term goals that (a) support our long-term business strategy and (b) measure the creation of sustainable long-term shareholder value.

At our 2015 Annual Meeting, shareholders expressed strong support for our executive compensation programs, with 97% of votes cast in favor of the advisory resolution on executive compensation.

 

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EXECUTIVE SUMMARY

OUR PAY FOR PERFORMANCE PHILOSOPHY

We believe that those executives with significant responsibility and a greater ability to influence the Company’s results should have more of their total compensation tied directly to business results. Therefore, the vast majority of our NEO compensation is tied to Company or individual performance (and, for business-unit executives, to the performance of individual business units). This also means that the vast majority of our NEO compensation is “at risk”—executives will not reach their targeted pay amounts if the Company’s performance does not meet expectations.

In keeping with this philosophy, annual and long-term incentive awards are the largest components of total NEO compensation, and the fixed pay element — base salary — is the smallest. The variable components are:

The Annual Incentive Program (“AIP”), which ties compensation to key Company performance metrics that, while measured annually, also support our long-term strategic goals

The Long-Term Incentive Program (“LTI”) which consists of a mix of long-term equity grants —including performance shares tied to metrics that reward increased shareholder value over a three-year period

As the following charts show, the vast majority of our CEO’s and NEOs’ target direct compensation is variable (i.e., based on performance, including that of our stock price.)

 

LOGO

Note, the amounts in these graphs are shown at target and therefore will not match the values reflected in the Summary Compensation Table at page 55 of this proxy statement.

EXECUTIVE COMPENSATION BEST PRACTICES

When evaluating our compensation practices and policies, the Compensation Committee takes into account competitive market trends and the views of our shareholders. Examples of our governance and compensation practices include:

 

  Robust stock ownership guidelines and stock holding requirements;

 

  Moderate change-of-control benefits;

 

  The use of an independent compensation consultant for significant compensation decisions regarding our executives;

 

  “Double trigger” vesting provisions for our equity awards following our change of control;

 

  Clawback provisions on our equity awards;

 

  No tax-gross-up benefits upon our change of control;

 

  No repricing or exchange of underwater stock options without shareholder approval;

 

  Restrictions regarding pledging, hedging and speculation in our securities; and

 

  Limited perquisites for executive officers.

For more information, see “Change of Control Severance Arrangements” on page 53; “Alignment with Shareholders” on page 34; and “Role of the Compensation Consultant” on page 51.

 

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2015 PERFORMANCE OVERVIEW

We had solid financial results in 2015 as Lincoln’s franchise was resilient in what proved be a very volatile year for capital markets. We continued to focus on growth, profitability, and capital management initiatives that we believe position us well for long-term, sustainable financial results.

Our full year results included the following highlights:

 

LOGO

Despite these efforts to continue to build long-term value for our shareholders, our year-over-year stock price decreased 12.8% to $50.26 on December 31, 2015, from $57.67 on December 31, 2014. Over the longer term, our performance was strong. For the three year period from December 31, 2012 to December 31, 2015:

 

LOGO

 

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These charts illustrate some of the measures of our full-year 2015 results. These are also among the key metrics used for our short- and long-term incentive compensation programs.

 

LOGO

More information on our business performance during 2015 is available in our Form 10-K for fiscal year ended December 31, 2015 (the “2015 Form 10-K”), which is included in the 2015 Annual Report to Shareholders that accompanies this proxy statement. A reconciliation of the measures not shown in accordance with generally accepted accounting principles (“GAAP”) used in this proxy statement to their corresponding GAAP measures can be found in Exhibit 1 on page E-1.

 

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ELEMENTS OF OUR COMPENSATION PROGRAM

The following table outlines the elements of targeted direct compensation and how each element aligns with our objectives and guiding principles.

 

COMPENSATION

ELEMENT

   WHAT IT REWARDS   

HOW IT ALIGNS

WITH OUR OBJECTIVES

  

PERFORMANCE

MEASURED

  

FIXED OR

VARIABLE

  

CASH OR

EQUITY

BASE SALARY

  

·  Sustained high level of performance

·  Demonstrated success in meeting or exceeding key objectives

·  Highly developed skills and abilities critical to success of the business

·  Experience and time in position

  

·  Competitive base salaries enable us to attract and retain top talent

·  Merit-based salary increases align with our pay-for- performance philosophy

   INDIVIDUAL    FIXED    CASH

ANNUAL

INCENTIVE

AWARDS

  

·  Company performance during the year against key financial goals

·  Specific business-segment performance during the year, measured against strategic business-segment goals

  

·  Competitive targets enable us to attract and retain top talent

·  Payouts depend on the achievement of established performance measures and goals that align pay with performance

  

CORPORATE

AND BUSINESS

SEGMENT

   VARIABLE    CASH

 

LONG-TERM INCENTIVE AWARDS

 

                       

NONQUALIFIED

STOCK OPTIONS

  

·  Increase in stock price

·  Continued service

  

·  Value is dependent on our stock price; options have no value unless the stock price increases

·  Three-year ratable vesting supports retention

   CORPORATE    VARIABLE    EQUITY
   
RESTRICTED STOCK UNITS   

·  Increase in stock price and dividends

·  Continued service

  

·  Value rises or falls as our stock price and dividend increases or decreases

·  Three-year cliff vesting supports retention

   CORPORATE    VARIABLE    EQUITY

PERFORMANCE

SHARES

  

·  Meeting or exceeding our return on equity goal

·  Total shareholder return performance relative to that of other companies

  

·  Payout is based on metrics important to our shareholders and critical to value creation

·  Three-year performance period supports retention and aligns pay with performance over an extended period of time

·  Relative performance metric creates incentive to outperform peers

   CORPORATE    VARIABLE    EQUITY

 

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OUR EXECUTIVE COMPENSATION PROGRAM PHILOSOPHY

Our executive compensation program has three key objectives:

 

 

PAY FOR PERFORMANCE

  

 

ALIGNMENT WITH SHAREHOLDERS

   
To link executive pay directly to the attainment of short-term and long-term financial/business goals, using short-term metrics that correlate with our strategic goals and long-term metrics that correlate to long-term shareholder value    To provide compensation arrangements that link the interests of our executive officers to those of our shareholders
  

 

COMPETITIVE COMPENSATION

 

     To attract and retain key executive talent

These objectives, discussed below, guide us in setting and paying compensation to our NEOs.

PAY FOR PERFORMANCE

Our executive compensation program is based on a “pay-for-performance” philosophy: The vast majority of our executives’ target compensation is made up of variable (“at risk”) compensation—in the form of annual cash incentive awards and long-term equity awards—that is linked to consolidated short- and long-term business performance and each individual’s contribution to that performance. In measuring an executive’s contribution, we put a strong emphasis on the individual’s role in implementing strategies and driving performance specific to their function or the operating units they direct.

The key objectives of our pay-for-performance philosophy are to:

 

  reward the achievement of superior financial results — in both the short term and long term — through balanced incentive programs;

 

  offer the opportunity to earn above-market compensation when overall and individual performance exceed expectations; and

 

  emphasize compensation that is at risk based on performance rather than compensation that is fixed—for instance, only 10% of our CEO’s target annual pay is fixed.

Balanced Performance Measure and Goals

It is important to us and to our executives that performance be measurable and that compensation be paid based on criteria that executives and shareholders alike can easily identify and understand.

To implement our pay-for-performance philosophy, the Compensation Committee chooses performance measures for our NEO incentive programs that focus on our overall corporate business strategies and that, if achieved, create sustained growth for our shareholders:

 

  Our AIP is based on the same key financial measures indicative of Lincoln’s current and future profitability; and

 

  Our LTI uses measures that correlate directly to the creation of long-term value for Lincoln shareholders.

The goals for each performance measure are linked directly to the Company’s financial plan. In setting the goals, management and the Compensation Committee intend for the maximum performance levels to present a substantial challenge for our NEOs, thereby creating a strong incentive to produce superior results. For 2015, the Compensation Committee chose the following performance measures, which it has used since 2011:

 

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2015 ANNUAL INCENTIVE PROGRAM
PERFORMANCE MEASURE    WHY CHOSEN
Income from Operations per Diluted Share    This is a key measure of profitability that management uses to evaluate our business and that investors commonly use to value companies in the financial services industry.
Sales Growth    In our business, sales create value because, over time and at a compounded growth rate, they are an indicator of future profitability. In addition, we believe that distribution strength (depth and breadth) is an important driver of our valuation and that sales growth is an effective way to measure the value of the distribution franchise and overall product competitiveness.
Controllable Costs    Management establishes annual budgets for the Company and for each business unit that are key to the success of our financial plan. The Compensation Committee sets a budget-related performance goal to reinforce the importance of containing costs and expenses across the entire company.

 

2015 LONG-TERM INCENTIVE PROGRAM

PERFORMANCE MEASURE    WHY CHOSEN
Operating Return on Equity    This is an important measure that stock analysts use to value companies — especially those in the financial services industry — because it is a critical indicator of capital efficiency and is closely aligned with long-term shareholder value.
Relative Total Shareholder Return    This measure reflects the Company’s delivery of shareholder value over time relative to that of peers.

ALIGNMENT WITH SHAREHOLDERS

Through our annual and long-term incentive compensation programs, our share ownership requirements and share retention policy, and the design and governance features of our long-term equity programs, we tie the financial interests of our NEOs to those of our shareholders. For both the annual and long-term programs, the Compensation Committee chooses performance goals that align with our strategies for sustained growth and profitability.

 

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Long-Term Incentives

The equity-based awards that are the basis of our long-term incentive compensation make up the largest part of our NEOs’ targeted direct compensation. To provide a balanced incentive program and to lessen the risk inherent in the greater focus on long-term incentives, executives receive a mix of equity-based compensation awards, which include:

 

  Performance share awards (“PSAs”) – the number of shares actually received depends on our performance over a three-year period relative to key metrics of shareholder value;

 

  Restricted stock units (“RSUs”) – these awards cliff-vest three years from the date of grant (cliff-vesting acts as a retention tool for our executives) and the value ultimately realized depends on how our stock performs over that three-year period; and

 

  Nonqualified stock options to purchase our common stock (“Options”) – these awards vest over time and only have value if the stock price rises after the option grants are made.

Share Ownership Guidelines and Holding Requirements

Our share ownership requirements formalize the Compensation Committee’s belief that our officers should maintain a material personal financial stake in the Company. The requirements also promote a long-term perspective in managing our business by linking the long-term interests of our executives with those of our shareholders and reducing the incentive for short-term risk-taking.

Our share ownership requirements are based on multiples of base salary and vary by job level. Equity interests counted in determining whether share ownership guidelines have been met include:

 

  shares owned outright;

 

  amounts invested in shares of our common stock through our employee benefits plans;

 

  restricted stock and RSUs; and

 

  in-the-money vested Options.

 

 

SHARE OWNERSHIP AND RETENTION REQUIREMENTS

 

 

OFFICER POSITION

  

 

VALUE OF SHARES THAT OFFICER MUST HOLD

 

  

 

ADDITIONAL RETENTION REQUIREMENTS

 

CEO

  

 

7 times base salary

 

  

 

25% of net profit shares* for 5 years

 

Executive Officers

(other than our CEO)

 

  

 

4 times base salary

  

 

25% of net profit shares* for 5 years

* Net profit shares reflect the value of an amount of shares remaining after payment of the option exercise price and taxes owed at the time of exercise plus the after-tax value of any vested RSUs or earned performance shares.

In addition to the minimum share ownership levels, each NEO must also retain an amount equal to 25% of the net profit shares resulting from equity-based LTI grants, such as vested RSUs or earned PSAs. This additional amount of shares must be held for five years from the date of exercise for Options or the date of vesting for other awards. If at any point an NEO does not meet the share ownership requirements, the executive must hold 50% of the net profit shares resulting from equity-based LTI awards that are exercised or vest, as applicable, until the required ownership level is met.

 

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Prohibition on Pledging and Hedging

Our Insider Trading and Confidentiality Policy includes provisions that prohibit: (i) the pledging of our securities; and (ii) the use of derivative instruments to hedge the value of any of our securities.

Multi-Year Performance and Vesting Periods

The multi-year performance criteria and vesting elements of our long-term incentive programs promote the retention of our executives by putting their focus on our long-term performance, thereby aligning our executives’ interests with those of shareholders.

Prohibition on Repricing

Our equity incentive compensation plans prohibit us from reducing the exercise price of outstanding Options without shareholder approval.

Clawback Features

The equity awards for our NEOs are subject to “clawback” and forfeiture provisions, which allow us to rescind an executive’s award(s) under certain conditions, such as if:

 

  the executive’s employment is terminated for cause; or

 

  the executive violates any non-compete, non-disclosure, non-solicitation, non-disparagement or other restrictive covenant.

For example, if an executive violates any such agreement within six months of having exercised Options or received shares from a PSA, we may rescind the exercise or award and require the executive to return any gain realized or value received.

COMPETITIVE COMPENSATION

In general, we target our executives’ total direct compensation — i.e., base salary, targeted annual incentive compensation and targeted long-term incentive compensation — at the median of the compensation paid to executives in similar positions at the insurance-based financial services and investment management companies with which we compete for talent.

Because the roles and responsibilities of our executives are unlikely to be exactly the same as those of executives with similar titles/roles in our peer companies, we often consider multiple sources of market data for this purpose. However, market data is only one of many factors considered when setting executive compensation targets. For more information on how we set target compensation and our benchmarking processes, please see “Setting Target Compensation” on page 37.

 

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CONSIDERATION OF OUR 2015 SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION

The Compensation Committee and the Board appreciate and value the views of our shareholders. At our 2015 Annual Meeting of Shareholders, approximately 97% of shareholder votes were cast in favor of the “say on pay” advisory resolution on executive compensation. While we do review the program design on an annual basis, there have not been any significant changes to our compensation program in the last several years. In light of the continued strong shareholder support for our overall pay practices and NEO compensation, the Compensation Committee decided to maintain our general principles and philosophy in structuring executive compensation for 2016.

SETTING TARGET COMPENSATION

The Compensation Committee made compensation decisions for the 2015 calendar year for the NEOs based on a detailed analysis of Company-specific and external data.

BENCHMARKING

To help the Compensation Committee set 2015 target direct compensation levels for our NEOs, Pay Governance performed a comprehensive competitive compensation analysis in November of 2014. They analyzed base pay, annual incentive opportunities, long-term incentive values and total direct compensation (the sum of the elements listed here) to establish market rates for each executive officer position. They then compared our current executive compensation levels to the market median of our peers.

For Messrs. Glass, Freitag and Konen, and Ms. Buckingham, Pay Governance used market data drawn from the stock companies included in the Towers Watson 2014 Diversified Insurance Study of Executive Compensation (the “2014 Towers DI Study”), which are:

 

AFLAC

   METLIFE

AIG

   PHOENIX COMPANIES

ALLSTATE

   PRINCIPAL FINANCIAL

AXA GROUP

   PRUDENTIAL FINANCIAL

CIGNA

   SUN LIFE FINANCIAL

CNO FINANCIAL

   TRANSAMERICA

GENWORTH FINANCIAL

   UNUM GROUP

HARTFORD FINANCIAL SERVICES

   VOYA FINANCIAL INC.

JOHN HANCOCK

    

 

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The Compensation Committee believes that these companies are appropriate for compensation benchmarking because, even though none has our exact business mix, each is a major competitor in one or more of our businesses and competes directly with us for talent. Because some of these companies have either higher or lower market capitalization, assets or revenue than we do, the data are size-adjusted, where possible, to ensure comparability with our scope. We have used the same market survey for a number of years, and if the companies included in the study change, we reflect those changes in our benchmarking peer group. Neither the Committee nor management has any input into the companies included in this general industry survey.

The survey data were used as a primary reference for most roles. The Compensation Committee seeks to target total direct compensation within a competitive range of plus or minus 15% of the 50th percentile of market data being used. In some cases the Committee may target compensation above or below this range. Reasons for doing this include:

 

  organizational considerations; for example, because an executive’s role is considered especially critical to our overall business strategy and to our succession planning;

 

  internal pay equity considerations;

 

  to gain the specific expertise needed to build a new business or improve an existing one; or

 

  to retain highly qualified executives whom we have recruited from outside the insurance industry or whom we believe have skills or experience that will further our corporate strategy.

For Mr. Fuller, different compensation benchmarking data were reviewed due to the unique nature of his role. As President of Lincoln Financial Distributors (“LFD”) and Lincoln Financial Network (“LFN”), Mr. Fuller is responsible for our wholesale and retail distribution businesses. In addition, Mr. Fuller assumed responsibility for the Annuities business starting in March 2015. In recognition of his role, the Compensation Committee reviewed compensation data for executives in similar positions from the McLagan Partners’ Investment Products Sales and Marketing Survey for 2014, as well as from the companies in the 2014 Towers DI Study. For a list of the companies included in the McLagan Partners’ Investment Products Sales and Marketing Survey, see Exhibit 2 on page E-4.

 

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TALLY SHEETS

When making compensation decisions, the Compensation Committee considers:

 

  the recommendations of our Chief Human Resources Officer (“CHRO”), the recommendations of our CEO, and the opinion of the Committee’s independent compensation consultant (although our CHRO and CEO do not make recommendations with respect to their own compensation);

 

  the available market data; and

 

  reports called “tally sheets” illustrating all elements of targeted total direct compensation, including:

 

    base salary;

 

    annual and long-term incentive awards;

 

    deferred compensation and change in pension;

 

    perquisites; and

 

    potential payments for various termination scenarios.

The tally sheets enable the Compensation Committee to analyze the value of total target compensation, as well as the value of compensation actually delivered compared with the value of compensation opportunities the Committee originally established.

The Compensation Committee also uses the tally sheets to assess whether our executive compensation program is consistent with our compensation philosophy and desired positioning relative to the market data. However, tally sheets are just one point of information the Committee uses to determine NEO compensation. The Committee performed a similar analysis to establish the total targeted direct compensation for our CEO.

 

 

2015 TARGET TOTAL DIRECT COMPENSATION FOR OUR NAMED EXECUTIVE OFFICERS

 

  

NAME   BASE
SALARY
    

 

ANNUAL
INCENTIVE
AWARD AT
TARGET

   

LONG-TERM INCENTIVE

AWARD AT

TARGET

   

TOTAL

TARGETED
ANNUAL COMPENSATION

 
Dennis R. Glass     $1,169,050         $2,338,100        $7,764,900        $11,272,050   
Randal J. Freitag     $650,202         $812,753        $1,658,000        $3,120,955   
Lisa M. Buckingham     $578,448         $636,293        $1,067,794        $2,282,535   
Wilford H. Fuller     $575,000         $1,035,000        $1,439,143        $3,049,143   
Mark E. Konen     $663,320         $994,980        $1,654,285        $3,312,585   

 

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ANNUAL COMPENSATION FOR 2015

During 2015, annual compensation was made up of base salary and a short-term incentive award under the AIP.

BASE SALARY

Base salaries are reviewed annually. In setting base salary levels for 2015, the Compensation Committee started with the 2014 base salaries and then made adjustments based on the compensation analysis discussed above and the individual performance of each NEO. In general, the increases for our NEOs were around 3%, with the exception of Mr. Freitag. The Compensation Committee made a larger adjustment to his base salary to bring it more in line with the current competitive levels within our marketplace for talent. Mr. Freitag’s salary was increased 13% to $650,202.

In March 2015, the Committee met to consider additional compensation changes in light of a reorganization of the business line responsibilities of Mr. Fuller and Mr. Konen following the retirement of an executive officer. The Committee approved an increase in Mr. Fuller’s base salary from $499,000 to $575,000 effective as March 1, 2015. The Committee also approved other changes to their short- and long-term incentive compensation, which are reflected in amounts shown in the Annual Incentive Program section on page 40 and the Long-Term Compensation section on page 45.

The Committee approved the following base salaries for our NEOs effective for 2015:

 

NAME

   2015

Dennis R. Glass

   $1,169,050

Randal J. Freitag

   $650,202

Lisa M. Buckingham

   $578,448

Wilford H. Fuller

   $575,000

Mark E. Konen

   $663,320

ANNUAL INCENTIVE PROGRAM

2015 Payout Opportunities

The table below shows the dollar amount of the estimated threshold, target and maximum payout opportunities for the 2015 AIP that the Compensation Committee established on the grant date; the threshold, target and maximum opportunities are calculated as a percentage of each NEO’s base salary. The threshold opportunity would be payable only in the case where the threshold goal is met for the performance measure with the lowest percentage payout amount.

 

 

ESTIMATED PAYOUT OPPORTUNITIES UNDER THE 2015 AIP

 

  

NAME      THRESHOLD         TARGET         MAXIMUM   
Dennis R. Glass      $35,072         $2,338,100           $4,676,200   
Randal J. Freitag      $12,191         $812,753           $1,625,505   
Lisa M. Buckingham      $ 9,544         $636,293           $1,272,586   
Wilford H. Fuller      $23,288         $1,035,000           $2,070,000   
Mark E. Konen      $24,875         $994,980           $1,989,960   

 

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2015 Performance Measures and Goals

In February 2015, the Compensation Committee established the goals and measures for the 2015 AIP.

Performance measures. The Committee selected three performance measures for 2015, the same ones it has used since 2011.

 

  Income from operations per share

 

  Sales growth

 

  Management of controllable costs

The Committee chose these measures because they focus on our overall corporate strategy of balancing top-line revenue growth with profitability and prudent cost management. To learn more about why these measures were selected, see Pay for Performance on page 33.

For purposes of the 2015 AIP, Income from Operations is defined as net income in accordance with GAAP, but excluding the after-tax effects of the items detailed in Exhibit 1 on page E-1. This is one of the financial measures that management uses to assess our results. (To calculate “Income from Operations per Share,” the value of Income from Operations (as defined in Exhibit 1) was divided by the average diluted shares). Management believes that excluding these items from net income better reflects the underlying trends in our businesses because the excluded items are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments. In addition, in most instances decisions regarding these items do not necessarily relate to the operations of the individual segments.

For our CEO, performance is measured entirely at the corporate level, while our other NEOs are assessed on both corporate and business unit performance. To reflect the different roles and responsibilities of our NEOs, the Committee also weights the performance measures differently for each NEO, as shown in the tables on pages 42 to 44. As noted above, the Committee met again in March 2015 to consider and approve revised short-term incentive targets and performance measures and weightings for Messrs. Fuller and Konen to reflect their new business line reporting responsibilities after the reorganization. These revised measures are reflected in the below tables.

Performance goals. In setting the goals for each of the performance measures, management and the Compensation Committee intended the maximum levels to present a significant challenge, therefore requiring exceptionally strong performance to achieve these goals. The target goal for corporate Income from Operations per Share was set after consideration of a number of factors, including a review of our internal financial plan. The target goal for sales growth, at both the corporate and business-unit level, was based on our internal financial plan, emphasizing our corporate strategy to grow and protect the profitability of the business. The target goal for controllable costs was based upon controllable costs as budgeted in our annual financial plan. We believe that our methodology for determining financial performance targets for the AIP supports the following key objectives:

 

    Aligning incentives with our annual financial plan;

 

    Establishing challenging yet achievable incentive targets for our executives; and

 

    Setting targets that are consistent with our assessment of opportunities and risks for the upcoming year.

2015 Performance Results and Actual Payouts

In February 2016, the Compensation Committee certified the performance results for the 2015 AIP. These formulaic results triggered a payout that was below target for all of our NEOs, except Mr. Fuller.

The following tables show the goals, weights, performance results and payout percentages for the 2015 AIP measures for each of our NEOs. Based on actual results, a payout percentage—expressed as a percentage of the NEO’s target payout opportunity—is first determined for each goal. These payouts are then weighted to determine the weighted payout for each goal. The sum of these weighted payouts equals the NEO’s payout percentage.

 

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The tables also show the resulting performance-based payouts approved by the Compensation Committee under the 2015 AIP for each of our NEOs and how these payouts compared with each NEO’s target payout opportunity under this program.

DENNIS R. GLASS

 

    

CORPORATE MEASURES (100%)

 
                         
            SALES GROWTH         
     INCOME FROM
OPERATIONS
PER SHARE
     LIFE      GROUP
PROTECTION
     ANNUITIES      RETIREMENT
PLAN SERVICES
     ENTERPRISE
CONTROLLABLE
COSTS
 

GOALS

                 

Threshold

     $5.66         $636 M         $426 M         $12,320 M         $6,627 M         N/A   

Target

     $6.22         $723 M         $485 M         $14,000 M         $7,530 M         100%   

Maximum

     $6.97         $809 M         $543 M         $15,680 M         $8,434 M         89%   

RESULTS

                                                     

Certified Performance

     $6.08         $725 M         $408 M         $12,692 M         $7,545 M         96%   

Payout as Percentage of Target

     81.3%         102.3%         0.0%         41.6%         101.7%         134.3%   

Weighting

     50.0%         11.0%         8.0%         10.0%         6.0%         15.0%   

Weighted Payout

     40.6%         11.3%         0.0%         4.2%         6.1%         20.1%   

 

            PAYOUT         
            PERCENTAGE         
      TARGET
OPPORTUNITY
     (sum of weighted
payouts)
     PAYOUT
AMOUNT
 

ACTUAL PAYOUT UNDER THE 2015 AIP

     $2,338,100         82.3%       $ 1,924,256   

RANDAL J. FREITAG

 

   

CORPORATE MEASURES (92.5%)

    BUSINESS UNIT  
                                              MEASURES  
          SALES GROWTH               
    INCOME FROM
OPERATIONS
PER SHARE
    LIFE     GROUP
PROTECTION
    ANNUITIES     RETIREMENT
PLAN
SERVICES
    ENTERPRISE
CONTROLLABLE
COSTS
   

CONTROLLABLE

COSTS FINANCE

 

GOALS

             

Threshold

    $5.66        $636 M        $426 M        $12,320 M        $6,627 M        N/A        N/A   

Target

    $6.22        $723 M        $485 M        $14,000 M        $7,530 M        100%        100%   

Maximum

    $6.97        $809 M        $543 M        $15,680 M        $8,434 M        89%        90%   
               

RESULTS

                                                       

Certified Performance

    $6.08        $725 M        $408 M        $12,692 M        $7,545 M        96%        98.9%   

Payout as Percentage of Target

    81.3%        102.3%        0.0%        41.6%        101.7%        134.3%        110.8%   

Weighting

    50.0%        11.0%        8.0%        10.0%        6.0%        7.5%        7.5%   

Weighted Payout

    40.6%        11.3%        0.0%        4.2%        6.1%        10.1%        8.3%   

 

            PAYOUT         
            PERCENTAGE         
      TARGET
OPPORTUNITY
     (sum of weighted
payouts)
     PAYOUT
AMOUNT
 

ACTUAL PAYOUT UNDER THE 2015 AIP

     $812,753         80.5%         $654,266   

 

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LISA M. BUCKINGHAM

 

   

CORPORATE MEASURES (85%)

    BUSINESS UNIT MEASURES  
          SALES GROWTH              
    INCOME FROM
OPERATIONS
PER SHARE
    LIFE     GROUP
PROTECTION
    ANNUITIES     RETIREMENT
PLAN SERVICES
    CONTROLLABLE
COSTS HUMAN
RESOURCES
   

CONTROLLABLE

COSTS MARKETING

 

GOALS

             

Threshold

    $5.66        $636 M        $426 M        $12,320 M        $6,627 M        N/A        N/A   

Target

    $6.22        $723 M        $485 M        $14,000 M        $7,530 M        100%        100%   

Maximum

    $6.97        $809 M        $543 M        $15,680 M        $8,434 M        90%        90%   
               

RESULTS

                                                       

Certified Performance

    $6.08        $725 M        $408 M        $12,692 M        $7,545 M        97.9%        98.3%   

Payout as Percentage of Target

    81.3%        102.3%        0.0%        41.6%        101.7%        121.1%        117.1%   

Weighting

    50.0%        11.0%        8.0%        10.0%        6.0%        7.5%        7.5%   

Weighted Payout

    40.6%        11.3%        0.0%        4.2%        6.1%        9.1%        8.8%   

 

            PAYOUT
PERCENTAGE
        
     

TARGET

OPPORTUNITY

     (sum of weighted
payouts)
    

PAYOUT

AMOUNT

 

ACTUAL PAYOUT UNDER THE 2015 AIP

     $636,293         80.0%         $509,034   

WILFORD H. FULLER

 

    CORPORATE
MEASURES
   

BUSINESS UNIT MEASURES (80%)

 
                      SALES GROWTH  
    INCOME FROM
OPERATIONS
PER SHARE
    INCOME FROM
OPERATIONS
FOR ANNUITIES
    NET
CONTRIBUTION
MARGIN FOR
LFD AND LFN
    LIFE     ANNUITIES     RPS SMALL
MARKET
   

CONTROLLABLE
COSTS

LFD & LFN

 

GOALS

             

Threshold

    $5.66        $840 M        ($4.4) M        $636 M        $12,320 M        $1,870 M        N/A   

Target

    $6.22        $954 M        $15.6 M        $723 M        $14,000 M        $2,125 M        100%   

Maximum

    $6.97        $1,107 M        $35.6 M        $809 M        $15,680 M        $2,380 M        85%   
               

RESULTS

                                                       

Certified Performance

    $6.08        $998 M        $16.5 M        $725 M        $12,692 M        $2,131 M        92.0%   

Payout as Percentage of Target

    81.3%        128.8%        104.5%        102.3%        41.6%        102.4%        155.9%   

Weighting

    20.0%        26.0%        10.0%        12.5%        12.5%        9.0%        10.0%   

Weighted Payout

    16.3%        33.5%        10.5%        12.8%        5.2%        9.2%        15.6%   

 

            PAYOUT         
            PERCENTAGE         
      TARGET
OPPORTUNITY
    

(sum of weighted

payouts)

     PAYOUT
AMOUNT
 

ACTUAL PAYOUT UNDER THE 2015 AIP

     $1,035,000         103.0%         $1,066,050   

 

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MARK E. KONEN

 

     CORPORATE     

BUSINESS UNIT MEASURES (80%)

 
     MEASURES                                                          
             INCOME FROM OPERATIONS     

SALES GROWTH

 
     INCOME FROM
OPERATIONS
PER SHARE
     LIFE      GROUP
PROTECTION
     RPS      LIFE      GROUP
PROTECTION
     RPS      CONTROLLABLE
COSTS LIFE, GP
AND RPS
 

GOALS

                       

Threshold

     $5.66         $486 M         $48 M         $123 M         $636 M         $426 M         $6,627 M         N/A   

Target

     $6.22         $552 M         $55 M         $140 M         $723 M         $485 M         $7,530 M         100%   

Maximum

     $6.97         $640 M         $63 M         $162 M         $809 M         $543 M         $8,434 M         90%   
                 

RESULTS

                                                                       

Certified Performance

     $6.08         $488 M         $43 M         $141 M         $725 M         $408 M         $7,545 M         98.7%   

Payout as Percentage of Target

     81.3%         27.3%         0.0%         104.5%         102.3%         0.0%         101.7%         113.0%   

Weighting

     20.0%         12.0%         12.0%         12.0%         10.0%         10.0%         14.0%         10.0%   

Weighted Payout

     16.3%         3.3%         0.0%         12.5%         10.2%         0.0%         14.2%         11.3%   

 

            PAYOUT         
            PERCENTAGE         
      TARGET
OPPORTUNITY
     (sum of weighted
payouts)
     PAYOUT
AMOUNT
 

ACTUAL PAYOUT UNDER THE 2015 AIP

     $994,980         67.8%         $674,596   

The Compensation Committee can, at its discretion, reduce award payouts by including, rather than excluding, certain factors — listed in Items A through H of Exhibit 3 on page E-5 — if it determines that these factors were relevant to individual performance. The Committee may also make other discretionary adjustments to the calculation of the performance results if the net effect would be to reduce award amounts. In certifying the results for the 2015 AIP awards, the Compensation Committee did not reduce the award payout levels from the formulaic results.

 

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LONG-TERM COMPENSATION AWARDED OR VESTED IN 2015

Long-term compensation for our NEOs generally includes three equity elements:

 

  Options, which have a 10-year term and vest ratably over three years;

 

  RSUs, which cliff-vest in three years; and

 

  PSAs, which vest, if at all, depending on the outcome of pre-established performance measures over a three-year performance period. Consistent with our fundamental pay-for-performance philosophy, these awards are linked to metrics that measure the creation of long-term shareholder value, with above-target compensation paid out only when performance has exceeded the target level. PSA payouts are capped at two times target.

2015 LTI AWARD MIX

The charts below show our targeted long-term incentive mix — i.e., the percentage of the total 2015 LTI award delivered through each equity element for our CEO and the other NEOs. Starting in 2014, in recognition of our CEO’s career stage, the Compensation Committee reduced the percentage of his LTI award delivered as Options and increased the percentage delivered as RSUs. They made additional revisions to the mix for the CEO in 2015. For the other NEOs, the Committee increased the percentage of their LTI award delivered as PSAs and decreased the amount delivered as RSUs, and this mix remained the same for 2015.

 

LOGO

The RSUs and PSAs will be paid in shares of our common stock if the applicable vesting requirements and, in the case of PSAs, performance targets are met. Long-term equity-based awards such as these encourage our NEOs to act as owners, thus aligning their interests with those of shareholders. The Options, which vest ratably over a three-year period, and the RSUs, which cliff vest in three years, are not tied to formulas that could focus our executives on specific short-term outcomes. Instead, the value of these awards to our NEOs depends on the positive financial performance of our Company over time, as expressed through the multi-year increase in share value. These equity awards are subject to the clawback provisions detailed on page 36.

 

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2015-2017 PERFORMANCE SHARE AWARDS

The 2015-2017 performance cycle began on January 1, 2015, and ends on December 31, 2017. In February 2015, the Committee established:

 

  the threshold, target, and maximum PSA amounts payable to the NEOs;

 

  the relevant performance measures (ROE and Relative TSR);

 

  the peer group used to assess Relative TSR performance;

 

  the relative weighting of each performance measure; and

 

  the goals for threshold, target and maximum payouts for each performance measure.

The maximum goals were intended to present a challenge for management and create appropriate incentives for our executives to create financial growth and long-term shareholder value. For each performance measure, the maximum payout, 200% of target, occurs when performance is superior and the minimum payout, 25% of target, results when the performance threshold is met but not exceeded. For example, the minimum award for a performance measure is calculated as follows: 25% multiplied by the relative weighting of the performance measure multiplied by the target payout opportunity.

The two performance measures for the 2015-2017 (Return on Equity and Relative Total Shareholder Return) are weighted equally. For any portion of the PSAs to ultimately vest, the minimum achievement level for at least one of the performance measures must be attained. In other words, if performance on both measures falls below the threshold, there is no payout.

PERFORMANCE AWARD MEASURES, WEIGHTINGS, AND GOALS

FOR THE 2015-2017 PERFORMANCE AWARD CYCLE

 

Return on Equity (ROE)    Relative Total Shareholder Return (TSR)
   
Why Chosen: A key measure of our financial health that management uses to evaluate our business and that is also used by investors to value companies in the financial services industry. It provides a meaningful measure of performance that is closely tied to long-term shareholder value.    Why Chosen: Assesses the Company’s delivery of shareholder value over time relative to that of our peers.
     

Relative weight: 50%

 

        Relative weight: 50%

 

    
     

GOAL AT THRESHOLD

  

GOAL AT

TARGET

   GOAL AT
MAXIMUM
   GOAL AT
THRESHOLD
   GOAL AT
TARGET
   GOAL AT
MAXIMUM
     

11.61%

   12.26%    12.91%    RANKING OF
8TH
   MEDIAN OF
PEER GROUP
   RANKING OF
1ST TO 3RD

Among the factors the Committee considered in setting the TSR and ROE performance measures were peer group performance, market data and our financial plan. In establishing the weightings of the performance share plan measures, the Compensation Committee took into account its belief, and that of management, that, over the long-term, ROE is a key input to shareholder value and TSR represents the actual value delivered to shareholders. The specific goals for each measure were set for compensation purposes only and do not constitute, and should not be viewed as, management’s projection of future results.

 

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ROE for the 2015-2017 performance period is an absolute measure that is to be calculated as of the end of the performance period. ROE is defined as Income from Operations (as defined above with respect to the 2015 AIP) divided by average shareholders’ equity for the year. Shareholders’ equity excludes accumulated other comprehensive income or other similar items and any increase in equity due to goodwill associated with an acquisition during the performance period.

TSR for the 2015-2017 performance period is a relative measure based on Lincoln’s TSR for the performance period ranked against the TSR results for the peer group shown below. The Committee believes that the performance peer group should be limited to companies that publish financial results against which our results are compared and that offer competing insurance and financial products. The TSR Performance Peer group was updated for the 2015-2017 performance period to remove Protective Life, which was acquired by a foreign company, and to add Voya Financial Inc. (formerly ING).

2015-2017 RELATIVE TSR PERFORMANCE PEER GROUP

 

GENWORTH FINANCIAL

   SUN LIFE FINANCIAL

MANULIFE

   SYMETRA FINANCIAL

METLIFE

   TORCHMARK

PRINCIPAL FINANCIAL

   UNUM GROUP

PRUDENTIAL FINANCIAL

   VOYA FINANCIAL

As noted above, the Committee met again on March 30, 2015, to consider and approve revised long-term incentive targets for Messrs. Fuller and Konen to reflect their new business line reporting responsibilities after the reorganization. These revised targets are reflected in the below tables. While the incremental LTI awards for Messrs. Fuller and Konen were approved by the Committee on March 30, 2015, in accordance with our Equity Award Procedures discussed on page 52, the effective date of these grants was May 1, 2015, the first day of the open window period following the meeting. If earned, the 2015-2017 performance share awards will be paid out in shares of our common stock. The table shows the number of shares that our executives have the potential to earn at different performance levels:

 

ESTIMATED SHARE PAYOUT OPPORTUNITIES UNDER

THE 2015-2017 PERFORMANCE AWARD CYCLE AS OF GRANT DATE*

  

  

   
NAME    THRESHOLD (#)      TARGET (#)      MAXIMUM (#)  

Dennis R. Glass

     5,069         40,551         81,102   

Randal J. Freitag

     1,423         11,384         22,768   

Lisa M. Buckingham

     917         7,332         14,664   

Wilford H. Fuller

     1,238         9,902         19,804   

Mark E. Konen

     1,421         11,367         22,734   

* Amounts do not include dividend equivalents

The grant date fair value of the Options, RSUs and PSAs awarded in 2015 are included in the Summary Compensation Table on page 55. Additional details regarding the 2015-2017 PSAs granted to the NEOs can be found in the Grants of Plan-Based Awards table on page 58.

 

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2013-2015 LTI PROGRAM

The Compensation Committee established the performance-based 2013 LTI Program at its February 2013 meeting, with performance metrics that measure the creation of long-term shareholder value. The Committee approved the equity awards under the 2013 LTI Program, including grants of Options, RSUs and PSAs.

Options and RSUs

The Options vested over a three-year period, with one-third vesting on the anniversary of the grant date. The RSUs cliff vested three years from the date of grant. The final tranche of Options and the RSUs vested on February 28, 2016. Additional details regarding the Options and RSUs granted in 2013 can be found in the Outstanding Equity Awards table on page 60.

2013-2015 Performance Share Awards

At that February 2013 meeting, the Committee also established the 2013-2015 performance cycle for PSAs for the period that began January 1, 2013, and ended on December 31, 2015. The Compensation Committee set:

 

  the threshold, target and maximum PSA amounts payable to the NEOs;

 

  the relevant performance measures (ROE and Relative TSR);

 

  the relative weighting of each performance measure; and

 

  the goals for threshold, target and maximum payouts for each performance measure (25%, 100% and 200% of target, respectively).

The payouts for the 2013-2015 LTI PSAs could have ranged from 0% to 200% of each NEO’s target, with a threshold payout for each performance measure equal to 25% of target. For the PSA to be payable, the threshold or minimum achievement level for at least one of the performance measures must have been attained. Therefore, a minimum award would be calculated as follows: 25% multiplied by the relative weighting of the performance measure multiplied by the target amount.

The following table shows the number of shares that each NEO had the potential to earn under the 2013-2015 LTI performance period at the threshold, target and maximum levels:

 

ESTIMATED SHARE PAYOUT OPPORTUNITIES UNDER

THE 2013–2015 PERFORMANCE AWARD CYCLE AS OF GRANT DATE*

  

  

   
NAME    THRESHOLD (#)      TARGET (#)      MAXIMUM (#)  

Dennis R. Glass

     9,293         74,340         148,680   

Randal J. Freitag

     1,958         15,665         31,330   

Lisa M. Buckingham

     1,513         12,102         24,204   

Wilford H. Fuller

     1,733         13,862         27,724   

Mark E. Konen

     2,320         18,563         37,126   
* Amounts do not include dividend equivalents.

 

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In February 2016, the Compensation Committee reviewed the reports and analysis that management provided regarding our performance during the 2013-2015 performance cycle and determined the results for each performance measure, as shown in the graphic below. As of December 31, 2015, the Company’s ROE, was 11% which matched the goal at maximum shown in the table below. The Company’s TSR for the performance period was 116%, which was ranked 2nd among the peers listed below. As a result of the strong performance by the Company in each of these key metrics over the performance period (which met the maximum performance level for each measure), the Compensation Committee approved a payout of the 2013-2015 performance share awards at 200% of target.

PERFORMANCE GOALS, ACTUAL RESULTS AND ACTUAL PAYOUT PERCENTAGES

FOR THE 2013-2015 PERFORMANCE AWARD CYCLE

 

Return on Equity (ROE)

Relative weight: 50%

   Relative Total Shareholder Return (TSR)

Relative weight: 50%

     
GOAL AT THRESHOLD    GOAL AT TARGET    GOAL AT
MAXIMUM
   GOAL AT
THRESHOLD
   GOAL AT TARGET    GOAL AT MAXIMUM
     
10%    10.5%    11%    RANKING OF
7th
   MEDIAN OF
PEER GROUP
   RANKING OF

1ST TO 2ND

ACTUAL RESULTS   

PAYOUT AS PERCENTAGE

OF TARGET

   ACTUAL
RESULTS
   PAYOUT AS

PERCENTAGE OF TARGET

     
11%    200%    2ND IN PEER GROUP

(TSR OF 116%)

   200%

ROE for the 2013-2015 LTI performance period was an absolute measure that was calculated as of the end of the three year performance period. ROE was calculated using the definition of Income from Operations that the Committee set for the 2013 AIP and divided by average Shareholders’ Equity for the year. The definition of ROE used in this calculation can be found in Exhibit 3 on page E-5.

TSR for the 2013-2015 LTI was based on our TSR results for the performance period ranked against the TSR results for the peer group shown below:

2013-2015 RELATIVE TSR PEER GROUP

 

GENWORTH FINANCIAL

   PRUDENTIAL FINANCIAL

MANULIFE

   SYMETRA FINANCIAL

METLIFE

   SUN LIFE FINANCIAL

PRINCIPAL FINANCIAL

   TORCHMARK

PROTECTIVE LIFE 1

   UNUM GROUP

1. Due to the acquisition of Protective Life during the 2013-2015 performance period, it was removed from the Peer Group in accordance with the provisions of the 2013 LTI program.

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

 

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The table below shows the resulting payouts:

 

ACTUAL PAYOUTS UNDER 2013-2015 PERFORMANCE SHARE AWARDS

   
NAME   

TARGET

(# OF SHARES)

   PAYOUT
PERCENTAGE
OF TARGET
  PAYOUT
(# OF SHARES)1

Dennis R. Glass

   74,340    200%   148,680

Randal J. Freitag

   15,665    200%   31,330

Lisa M. Buckingham

   12,102    200%   24,204

Wilford H. Fuller

   13,862    200%   27,724

Mark E. Konen

   18,563    200%   37,126

1. Share amounts do not include dividends accrued through the vesting date. For the actual payout amounts including dividends, see the Outstanding Equity Awards Table on page 60.

PARTICIPATION IN EXECUTIVE COMPENSATION DECISIONS

ROLE OF THE COMPENSATION COMMITTEE

The Compensation Committee has primary authority for determining the compensation of our executive officers, including our NEOs. Specifically, it:

 

  approves the individual pay components and aggregate compensation amounts for our executives;

 

  determines the form(s) in which compensation will be paid — i.e., cash or equity — and the equity vehicles to be used, including Options, PSAs or RSUs, among others; and

 

  establishes the target award levels and performance measures for the various short- and long-term compensation programs.

For a description of the Compensation Committee’s principal functions, see “The Board of Directors and Committees – Compensation Committee” on page 10.

The Compensation Committee normally determines the portion of performance-based incentive awards earned for completed performance cycles at its first regularly scheduled meeting of the calendar year (usually in February) following the end of the applicable performance cycle. During this meeting, the Committee reviews financial results for the various performance measures for the just-completed annual and long-term performance cycles; certifies the achievement (or non-achievement) of the performance goals; and approves the earned portion of the awards, as appropriate.

ROLE OF MANAGEMENT

In determining executive compensation, the Compensation Committee considers input from a number of sources, including executive management. However, neither our CEO nor our CHRO play any role in, and are not present for, any discussions regarding their own compensation. Specifically, our CEO and CHRO provide the Compensation Committee with their views and insight on NEO compensation (for roles other than their own), including:

 

  their assessment of individual performance, the business environment, succession planning and retention; and

 

  recommendations for base salary, target annual incentive awards and target long-term incentive awards for each NEO.

The Committee views this input as an essential component of the process.

 

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ROLE OF THE COMPENSATION CONSULTANT

The Compensation Committee regularly consults with Pay Governance LLC, an independent compensation consultant, for advice regarding compensation practices for our executives. The Committee has the sole authority to hire or fire any compensation consultant, as well as to establish the scope of the consultant’s work.

During 2015, Pay Governance provided the Committee with:

 

  an evaluation of our executive officers’ base salaries and short- and long-term target incentive compensation relative to that of identified peers and the broader market;

 

  an evaluation of the alignment of the Company’s executive compensation with Company performance;

 

  information on trends in executive compensation, such as the use of various forms of equity compensation and the prevalence of different types of compensation vehicles;

 

  an advance review of all management-prepared materials for each Committee meeting;

 

  assistance in the review and discussion of all material agenda items;

 

  an independent review of our analytical work related to executive compensation;

 

  insight and advice in connection with the design of, and changes to, our equity grants and short- and long-term incentive plans; and

 

  feedback regarding our CEO’s total targeted direct compensation package.

Pay Governance does not provide us with any services other than advising the Compensation Committee on executive compensation and the Corporate Governance Committee on director compensation. The Compensation Committee has assessed the independence of Pay Governance pursuant to SEC rules and concluded that no conflict of interest exists.

RISK CONSIDERATIONS RELATING TO COMPENSATION

The structure and administration of our compensation programs are designed to, among other objectives, appropriately balance risk and reward. As part of the annual risk assessment of our compensation plans, we identify, analyze and evaluate all of our employee compensation programs to assess any risks these programs might pose. The process includes, but is not limited to:

 

  identifying all of the compensation programs that cover our employees;

 

  reviewing these programs from a design and governance perspective, including evaluating the behavior each program was designed to encourage and detailing the flow of compensation for each program;

 

  identifying any risks inherent in the programs, including analyzing whether any of the programs encourage our executives or any other employees to take risks that could harm the Company; and

 

  identifying and discussing any additional risk mitigation factors in the program design and any additional risk controls outside of the compensation process specific to each business model.

Once the annual assessment is completed, our CFO and the Head of Total Rewards formally review the analysis of our programs and discuss the findings with the Compensation Committee.

 

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Some of the features of our compensation programs that limit risk include the following:

 

  our incentive plan awards are based on a variety of performance indicators, thus minimizing the potential for any single indicator of performance to have an undue influence on payout;

 

  the Compensation Committee approves the final incentive plan awards and has the authority to decrease the awards even if the performance goals are met;

 

  the “clawback” features of our equity awards, which allow us to rescind an executive’s award(s) under certain conditions;

 

  the multi-year performance criteria for our LTI programs and the multi-year vesting elements of our other equity awards, which link the interests of our executives with the long-term health of the Company;

 

  the balanced pay mix, which minimizes the significance of any single element of pay and decreases the likelihood that an executive would take inappropriate risks to inflate such pay;

 

  our share ownership guidelines and holding requirements, which encourage our executives to focus on sustaining long-term performance rather than maximizing performance in any single year; and

 

  fixed compensation is set at a level that allows executives to meet their essential financial needs.

For 2015, the Compensation Committee discussed the evaluation and risk assessment review of our compensation programs and confirmed that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on the Company. The risk assessment for this year also identified other aspects of the administration and oversight of our plans that build considerable risk mitigation into the plans’ organizational structure.

OTHER COMPENSATION CONSIDERATIONS

Equity Award Procedures. The Compensation Committee formally approves our equity grant procedures, including procedures for granting Options. All Options are granted with a “strike,” or exercise, price set at the closing price of our common stock as reported on the composite transactions table of the NYSE on the grant date. Although the Compensation Committee Chair may approve changes to executive compensation, subject to the Committee’s review and ratification, only the full Committee or the Board has the authority to grant equity awards to executive officers.

Although the Compensation Committee typically makes equity award grants during its first regularly scheduled meeting of the calendar year, the Committee or the Board may also grant equity awards to executives at other regularly scheduled or special meetings or by taking action through unanimous written consent in order to accommodate special circumstances such as new hires or promotions.

 

  For equity awards granted to executives at a regularly scheduled meeting of the Board or Committee, the grant date is the date of the meeting.

 

  For equity awards granted at a “special” meeting of the Board or Committee that does not occur during the period in which trading of our securities is permitted under our Insider Trading and Confidentiality Policy (a “window period”), the grant becomes effective on the first business day of the next window period. (Window periods generally begin on the later of the second business day after our quarterly earnings release or the first business day after our public call with investors.)

 

  For equity awards granted by unanimous consent, the grant becomes effective on the first business day of the week following the effective date of the written consent; however, if that business day is not during a window period, the grant becomes effective on the first business day of the next window period.

 

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Tax Considerations. The Internal Revenue Code of 1986, as amended (“IRC”) generally limits a public company’s corporate income tax deduction for compensation to $1 million per year for each “covered employee,” which includes each NEO (other than our CFO). However, this limit does not apply to compensation that qualifies as “performance-based” under IRC rules. In general, we intend to design our incentive award grants to qualify as performance-based compensation under the IRC rules, and our grants are subject to limits established under the LNC 2014 Incentive Compensation Plan (referred to hereinafter as the “2014 ICP,” or collectively with the LNC 2009 Amended and Restated Incentive Compensation Plan as the “ICP”) in compliance with the relevant IRC rules.

In certain circumstances, the Compensation Committee may limit compensation awards or pay compensation that does not qualify as performance-based under the IRC rules.

 

  For PSAs, the Committee may reduce the target award or payout for any “covered employee” or increase or decrease any other executive’s individual payout, based on certain circumstances that may occur during the cycle.

 

  The Committee may also award non-performance-based compensation to “covered employees” based on circumstances that could affect performance results, such as changing economic and market conditions, mergers or acquisitions, sale of a business, restructuring charges, reserve strengthening or release, and/or extraordinary natural occurrences or man- made events (e.g., acts of war). In doing so, the Committee would consider various factors, including investor reaction, stock price performance, performance of peers, retention considerations, and our CEO’s recommendation.

Despite the Compensation Committee’s efforts to structure the AIP and PSAs for our executives in a manner intended to be exempt from Section 162(m), and as a result not subject to its deduction limits, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and the regulations issued thereunder, no assurance can be given that compensation we intend to satisfy the requirements for exemption from Section 162(m) in fact will. Further, the Compensation Committee reserves the right to modify compensation that was initially intended to be exempt from Section 162(m) if it determines that such modifications are consistent with our business needs.

EMPLOYEE BENEFIT PLANS

We offer our executives some additional benefits not offered to our non-executive employees, in some cases to replace benefits the executives lose as a result of regulatory limits in the broad-based tax-qualified plans. We use these benefits to attract and retain key employees, since our competitors typically offer the same types of benefits.

Our Deferred Compensation Plan. We provide certain benefits to our executive officers, including NEOs, through our nonqualified defined contribution plan — the Lincoln National Corporation Deferred Compensation & Supplemental/ Excess Retirement Plan (the “DC SERP”). For more information on the DC SERP, see page 64.

Change-of-Control Severance Arrangements. We offer our executives a severance plan that provides potential benefits in connection with a change of control of the Company. Payment of benefits under this plan, the Lincoln National Corporation Executives’ Severance Benefit Plan (the “LNC COC Plan”), is triggered when an executive’s employment is terminated (under specific circumstances) in anticipation of or within two years after our change of control. The objectives of the change-of-control benefits are to:

 

  retain qualified executives in the face of an actual or threatened change of control of the Company;

 

  enable executives to help our Board assess any proposed change of control of the Company and advise whether such a proposal is in the best interests of the Company, our shareholders, our policyholders and customers without being unduly influenced by the possibility of employment termination; and

 

  demonstrate to those executives our desire to treat them fairly and competitively in such circumstances.

 

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Each year the Compensation Committee reviews a tally sheet prepared by Pay Governance that estimates for each NEO the benefits associated with a potential change of control of the Company and the cost of those benefits to us. For 2015, the Committee found that the estimated costs for these benefits would be reasonable. For more information on the LNC COC Plan, see page 66.

Severance Plans. We also offer our NEOs and our other executive officers a severance plan in the event their job is eliminated, other than in connection with our change of control. The plan pays 52 weeks of severance benefits as well as a lump-sum stipend of $200/week for each week of the severance period. To qualify for benefits under this plan (the Severance Plan for Officers of Lincoln National Corporation (the “Officers’ Severance Plan”)), the officer must sign our standard form of agreement, waiver and release of claims, which includes forfeiture provisions for competition and solicitation. Any payments made under the Officers’ Severance Plan reduce, on a dollar-for-dollar basis, any payments the officer receives under the LNC COC Plan. For more information on the Officers’ Severance Plan, see page 67.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed this Compensation Discussion & Analysis with management and has recommended to the Board that the Compensation Discussion & Analysis be included in this proxy statement and incorporated by reference into the Company’s 2015 Form 10-K.

The Compensation Committee

William H. Cunningham

Eric G. Johnson

Michael F. Mee

Patrick S. Pittard, Chair

 

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EXECUTIVE COMPENSATION TABLES

SUMMARY COMPENSATION TABLE

The table below shows the compensation of our NEOs for 2015. See “Narrative to Summary Compensation Table” below for more information.

 

SUMMARY COMPENSATION TABLE  

NAME AND

PRINCIPAL POSITION

  YEAR     SALARY     BONUS    

STOCK

AWARDS

    OPTION
AWARDS
    NON-EQUITY
INCENTIVE
PLAN
COMPENSATION
   

CHANGE IN
PENSION VALUE
AND NON-
QUALIFIED
DEFERRED
COMPENSATION

EARNINGS

   

ALL OTHER

COMPENSATION

    TOTAL  
            ($)     ($)     ($)1     ($)2     ($)3     ($)4     ($)5     ($)6  

DENNIS R. GLASS

    2015        1,169,050               6,816,576        1,350,013        1,924,256        26,864        728,575        12,015,334   

President and CEO of LNC

    2014        1,135,000               5,589,052        1,350,010        3,000,940        272,177        848,154        12,195,333   
      2013        1,100,000               4,204,470        2,135,005        3,999,600               739,083        12,178,158   

RANDAL J. FREITAG

    2015        650,202               1,273,405        497,407        654,266               248,199        3,323,479   

Executive Vice President

    2014        575,384               1,027,891        421,258        899,670        55,425        258,141        3,237,769   

and CFO

    2013        558,625               885,969        449,876        1,100,235               220,232        3,214,937   

LISA M. BUCKINGHAM7

    2015        578,448               820,152        320,348        509,034               211,967        2,439,949   

Executive Vice President,

                   

CHRO, Head of Brand and

                   

Enterprise Communications

                   

WILFORD H. FULLER

    2015        555,880               1,105,348        431,755        1,066,050               333,888        3,492,921   

President, Annuity Solutions,

    2014        484,000               863,206        353,752        1,489,171               365,026        3,555,155   

LFD and LFN

    2013        484,000               784,009        398,093        2,103,658               307,934        4,077,694   

MARK E. KONEN

    2015        663,320               1,270,610        496,294        674,596               275,266        3,380,086   

President, Insurance and

    2014        644,008               1,115,015        456,950        1,061,196        114,854        308,849        3,700,872   

Retirement Solutions

    2013        625,250               1,049,887        533,107        1,323,529               276,995        3,808,768   

 

1. Represents the grant date fair value of stock awards granted in 2015, 2014 and 2013 under the ICP. Values were determined in accordance with FASB ASC Topic 718 (Topic 718), and the assumptions made in calculating them can be found in Note 18 of the Notes to the Consolidated Financial Statements in Item 8 of our 2015 Form 10-K. Stock awards granted in 2015 include grants of RSUs and PSAs, the latter of which are subject to performance conditions.

The table below shows the grant date fair value of the RSUs and PSAs, as well as the value of the PSAs assuming the maximum level of performance (200% of target) is achieved under both the ROE and TSR performance measures described on page 46. The grant date fair value for the PSAs was calculated in accordance with Topic 718 using a performance factor of 1.17, the probable outcome on the date of grant. The stock awards granted in 2015 are described in more detail in the Grants of Plan-Based Awards table on page 58.

 

                Named Executive Officer    Grant Date
Fair Value of
2015 RSU
     Grant Date
Fair Value of
2015 PSA
     Value of 2015
PSA at Maximum
Performance Level
 
     ($)      ($)      ($)  

Dennis R. Glass

     4,052,449         2,764,126         4,725,003   

Randal J. Freitag

     497,424         775,981         1,326,464   

Lisa M. Buckingham

     320,372         499,780         854,325   

Wilford H. Fuller

     431,794         673,554         1,151,374   

Mark E. Konen

     496,323         774,286         1,323,567   

 

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2. Represents the grant-date fair value of Option awards granted in 2015, 2014 and 2013 under the ICP. Values were determined in accordance with Topic 718, and the assumptions made in calculating them can be found in Note 18 of the Notes to the Consolidated Financial Statements in Item 8 of our 2015 Form 10-K. The Option awards granted in 2015 are described in more detail in the Grants of Plan-Based Awards table on page 58.

3. Represents the AIP awards earned for the 2015 performance period under the ICP. More information on the AIP awards is provided in the Grants of Plan-Based Awards table on page 58 and in the CD&A on pages 40 to 44.

4. These amounts reflect the total of all increases in the actuarial present value of each NEO’s accumulated benefits under our qualified and nonqualified defined benefit pension plans shown in the Pension Benefits table on page 63. We froze these pension plans at the end of 2007. The year-end present values were computed using the same assumptions as those used for financial reporting purposes. For year-end 2015 those are a 4.50% interest rate to discount the normal retirement age (age 65 or current age if higher) lump sum value of annuity payments which were converted using an interest discount rate of 4.75% and the IRS-prescribed IRC 417(e)(3) mortality table for 2016. For Messrs. Freitag and Konen the amounts attributable to the change in pension value for 2015 resulted in a decrease of (17,209) and (28,926), respectively. The NEOs did not have any preferential nonqualified deferred compensation earnings.

5. The table below gives details on all Other Compensation:

 

Name    Perquisitesa
($)
    

401 (k) Match,
Core and Transition
Contributionsb

($)

    

Additional Company Contributions into
Deferred Compensation
Plan (Special Executive Credit and Excess
Match, Core and Transition
Contributions)c

($)

     Total
($)
 

Dennis R. Glass

     78,057         35,000         615,518         728,575   

Randal J. Freitag

     12,700         33,390         202,109         248,199   

Lisa M. Buckingham

             26,500         185,467         211,967   

Wilford H. Fuller

             26,500         307,388         333,888   

Mark E. Konen

     12,700         35,000         227,566         275,266   

 

  (a) For Mr. Glass, $56,457 of the amount reflects the aggregate incremental cost of personal use of the corporate aircraft. Mr. Glass generally uses the corporate aircraft for personal use only when necessary to accommodate his business schedule. The amount also reflects $15,000 in matching charitable gifts made by Lincoln Financial Foundation, Inc. on his behalf, and the reimbursement of financial planning and tax-preparation expenses.

For Mr. Freitag, the amount reflects $10,000 in matching charitable gifts made by Lincoln Financial Foundation, Inc. on his behalf and the reimbursement of tax-preparation expenses.

For Mr. Konen, the amount reflects $10,000 in matching charitable gifts made by Lincoln Financial Foundation, Inc. on his behalf, and the reimbursement of tax-preparation expenses.

More information regarding perquisites and personal benefits, including a discussion of how we value personal use of the corporate aircraft, can be found under “Narrative to the Summary Compensation Table” on page 57.

 

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

 

  (c) Represents excess Company matching, core and transition contributions to the DC SERP, which are amounts above IRC limits. Also, for all NEOs except Mr. Glass, this amount includes an additional contribution — a “special executive credit” to the DC SERP — which is described in more detail on page 64.

6. Some numbers might not add due to rounding.

7. Ms. Buckingham was not an NEO in prior years.

 

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NARRATIVE TO SUMMARY COMPENSATION TABLE

2015 Annual Incentive Program

For the 2015 AIP, the dollar amounts included in the Summary Compensation Table for each of our NEOs reflect the performance results for this program as certified by the Compensation Committee in February 2016. These results triggered a below-target payout for each NEO, except for Mr. Fuller. For more details on the 2015 AIP, including the performance measures, targets and final results, see the CD&A, pages 40 to 44.

Perquisites and Personal Benefits

Below are the primary perquisites and personal benefits we offered our NEOs in 2015, not all of which were actually received:

Financial Planning and Tax Preparation Services. We offer to reimburse our NEOs, along with other officers, up to $6,000 annually for financial-planning services provided by a Lincoln Financial Network financial planner and up to $2,700 annually for tax-preparation services provided by a certified public accountant other than Ernst & Young, our accounting firm. For the financial-planning services, we reimburse the first $1,800 of such services, plus 50% of costs above that amount up to the $6,000 maximum. Any unused portion of the $2,700 tax-preparation reimbursement may be applied to the financial-planning reimbursement, but not vice versa.

Personal Use of the Corporate Aircraft. Since 2005, the Board has advised our CEO to use the corporate aircraft for both business and personal travel, when practical, because of security concerns and to maximize his time devoted to our business. If an executive (and any guests of the executive) uses the corporate aircraft for personal purposes, we treat this usage as a perquisite for proxy-statement reporting purposes and calculate the value of such services based on the total incremental cost to us. For personal flights, that cost is based on a cost-per-flight-hour charge that reflects the operating costs of the aircraft, including regularly required maintenance, inspections and related fees/taxes. We also include as an incremental cost any flights required to reposition the corporate aircraft (i.e., dead-head flights) because of a personal flight. When executives, their families and invited guests fly on the corporate aircraft as additional passengers on business flights, there is no incremental cost. Finally, if more than one executive is on a personal flight, we allocate the incremental cost on a proportional basis depending on the number of guests of each executive.

Matching Charitable Gift Program. Under this program, the Lincoln Financial Foundation, Inc. matches gifts from an NEO to one or more eligible recipient organizations, up to an annual total maximum of $10,000.

Retirement Benefits

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

For each NEO, the special executive credit is calculated annually as follows: 15% of Total Pay expressed as a percentage, offset by the total of: (a) the NEO’s maximum basic matching contribution opportunity (6%); plus (b) core contributions (4%); plus (c) transition contributions, if any (up to 8%), as determined under the Employees’ 401(k) Plan, each expressed as a percentage. For more details on the DC SERP, the contributions and the calculations of these amounts, see page 64.

 

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GRANTS OF PLAN-BASED AWARDS

The table below shows the awards granted to our NEOs during 2015 under the ICP.

 

              ESTIMATED POSSIBLE PAYOUTS      ESTIMATED FUTURE PAYOUTS                                  
             UNDER NON-EQUITY INCENTIVE      UNDER EQUITY INCENTIVE      ALL OTHER      ALL OTHER             GRANT  
             PLAN AWARDS1      PLAN AWARDS2      STOCK      OPTION             DATE FAIR  
                           AWARDS:      AWARDS:      EXERCISE      VALUE OF  
    

 

 

    

 

 

               
                                                       NUMBER OF      NUMBER OF      OR BASE      STOCK  
                                                       SHARES OF      SECURITIES      PRICE OF      AND  
                                                       STOCK OR      UNDERLYING      OPTION      OPTION  
NAME    GRANT
DATE
     THRESHHOLD
($)
     TARGET
($)
     MAXIMUM
($)
     THRESHHOLD
(#)
     TARGET
(#)
     MAXIMUM
(#)
    

UNITS3

(#)

    

OPTIONS4

(#)

     AWARDS
($/SH)
     AWARDS5
($)
 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

DENNIS R. GLASS

        35,072         2,338,100         4,676,200                          
       2/25/15                  5,069         40,551         81,102                  2,764,126   
       2/25/15                           69,558               4,052,449   
       2/25/15                              102,460         58.26         1,350,013   

RANDAL J. FREITAG

        12,191         812,753         1,625,505                          
       2/25/15                  1,423         11,384         22,768                  775,981   
       2/25/15                           8,538               497,424   
       2/25/15                              37,751         58.26         497,407   

LISA M. BUCKINGHAM

        9,544         636,293         1,272,586                          
       2/25/15                  917         7,332         14,664                  499,780   
       2/25/15                           5,499               320,372   
       2/25/15                              24,313         58.26         320,348   

WILFORD H. FULLER

        23,288         1,035,000         2,070,000                          
       2/25/15                  1,042         8,339         16,678                  568,421   
       2/25/15                           6,254               364,358   
       2/25/15                              27,653         58.26         364,356   
       5/1/2015                  195         1,563         3,126                  105,133   
       5/1/2015                           1,173               67,436   
       5/1/2015                              5,177         57.49         67,399   

MARK E. KONEN

        24,875         994,980         1,989,960                          
       2/25/15                  1,347         10,772         21,544                  734,265   
       2/25/15                           8,079               470,683   
       2/25/15                              35,722         58.26         470,673   
       5/1/2015                  74         595         1,190                  40,022   
       5/1/2015                           446               25,641   
       5/1/2015                                                                        1,968         57.49         25,621   

1. Represents potential 2015 AIP awards. Actual amounts the NEOs earned are reflected in the Summary Compensation Table. More information on the 2015 AIP awards, including the applicable performance targets, is provided in the CD&A on pages 40 to 44.

2. Represents 30.4% of our CEO’s 2015 LTI target, and 40% of the other NEO’s 2015 LTI target, each awarded as PSAs for the 2015-2017 performance period, payable 100% in shares. Awards under the 2015-2017 performance cycle will be determined in the first quarter of 2018 (for the performance period ending December 31, 2017), and the amount of the award that vests may range from 0% to 200% of target depending upon the attainment of pre-established performance goals. For more information on the 2015-2017 performance awards and the performance goals that apply to these awards, see pages 45 to 47 in the CD&A. Dividend equivalents accrue on the LTI performance share awards, based on normal dividend rates, and are payable in stock only if the related LTI award actually vests based on certification of performance.

3. Represents 52.2% of our CEO’s 2015 LTI target, and 30% of the other NEO’s 2015 LTI target, each awarded as RSUs that cliff-vest on the third anniversary of the grant date; these RSUs are described in more detail in the CD&A on page 45. Dividend equivalents accrue on the RSUs, are credited in the form of additional RSUs on each date that dividends are paid on our common stock, and are payable only in stock and only upon vesting of the related RSU award.

4. Represents 17.4% of our CEO’s 2015 LTI target, and 30% of the other NEO’s 2015 LTI target, each awarded in the form of Options as described in more detail in the CD&A on page 45. The Options have 10-year terms and vest ratably over a three-year period, with one-third vesting on each of the first three anniversaries of the grant date. These Options do not have a reload feature.

5. Represents the grant date fair value of the award determined in accordance with Topic 718. All assumptions made in calculating the aggregate fair value can be found in Note 18 of the Notes to the Consolidated Financial Statements included in Item 8 of our 2015 Form 10-K.

 

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NARRATIVE TO GRANTS OF PLAN-BASED AWARDS TABLE

The following terms also apply to these awards:

 

  The exercise price and tax-withholding obligations related to the exercise of all Options may be paid by withholding or delivering shares, subject to certain conditions.

 

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

 

  The Options and stock awards granted in 2015 will vest fully: (1) if the executive dies or becomes permanently disabled; or (2) upon a “change of control” and either: (a) the termination of the executive’s employment by the Company for any reason other than “cause”; or (b) the executive’s termination of his or her employment for “good reason,” as those terms are defined in the LNC COC Plan.

 

  Options and stock awards are not transferable except by will or under trust and estates law, unless the Compensation Committee permits such a transfer. The Compensation Committee has not permitted a transfer of any of the awards shown in the Grants of Plan-Based Awards table above.

 

  In general, when an executive voluntarily leaves the Company after reaching age 55 with at least five years of service, or is involuntarily terminated for any reason other than cause and signs a general release of claims against us, the executive will receive a pro-rated performance award (but only if the applicable performance goals are achieved and the Compensation Committee does not withhold payout of the award, which it has the discretion to do). The pro-rated award will be based on the number of days of service out of the total number of days in the three-year performance cycle. Any payout will be made at the same time, and in the same manner, as other participants are paid.

 

  In general, Options and RSU awards granted in 2015 will vest on a pro rata basis if an executive voluntarily leaves the Company after reaching age 55 with at least five years of service, or is involuntarily terminated for any reason other than cause and signs a general release of claims against us.

 

  The Options, RSUs and PSAs granted to our CEO will fully vest upon his retirement from the Company, with the PSAs vesting subject to the achievement of the applicable performance goals.

 

  The Options, RSUs and PSAs are subject to forfeiture and “clawback” provisions, including non-compete, non-solicitation, non-disparagement and confidentiality/non-disclosure covenants. Specifically, we may require the NEO to return the shares (or possibly the cash received, in the case of Options) to us upon breach of one of the covenants. The restrictive covenants and forfeiture provisions expire six months after an Option exercise, an RSU award vesting, or the payment of shares in accordance with a PSA. Additionally, we have the right to claw back any vested shares if the NEO is terminated for cause at any time after an award vests (no expiration date).

 

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

 

  the expiration of the Option term;

 

  one year after the date the executive died or became disabled;

 

  five years after the date the executive voluntarily left the Company after reaching age 55 with at least five years of service; or

 

  three months after the date the executive was involuntarily terminated for any reason other than cause.

 

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The table below provides information on unexercised Options, unvested stock awards and unvested equity incentive plan awards for each NEO as of the end of 2015.

 

      OPTION AWARDS                           STOCK AWARDS
NAME   

NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS

(#)
EXERCISABLE

    

NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS

(#)
UNEXERCISABLE1

    

OPTION

EXERCISE
PRICE

($)

     OPTION
EXPIRATION
DATE
         

NUMBER OF
SHARES OR
UNITS OF STOCK
THAT HAVE NOT
VESTED2

(#)

    

MARKET
VALUE OF
SHARES OR
UNITS OF
STOCK THAT
HAVE NOT
VESTED3

($)

     EQUITY
INCENTIVE
PLAN
AWARDS:
NUMBER OF
UNEARNED
SHARES, UNITS
OR OTHER
RIGHTS THAT
HAVE NOT
VESTED (#)
    EQUITY
INCENTIVE
PLAN
AWARDS:
MARKET OR
PAYOUT
VALUE OF
UNEARNED
SHARES,
UNITS OR
OTHER
RIGHTS
THAT HAVE
NOT
VESTED3 ($)

DENNIS R. GLASS

     319,694            52.76         02/07/18             59,789         3,004,995         154,178 4    7,748,986
       176,354         97,178         29.54         02/28/23             58,740         2,952,272         95,334 5    4,791,487
       33,903         67,808         50.77         02/24/24             67,423         3,388,680         40,989 6    2,060,107
          102.460         58.26         02/25/25                    

RANDAL J. FREITAG

     4,373            70.66         02/22/17             13,085         657,652         32,488 4    1,632,847
       15,966            52.76         02/07/18             8,500         427,210         22,664 5    1,139,093
       6,478            25.78         02/22/20             8,630         433,744         11,507 6    578,342
       25,179            30.64         02/23/21                    
       52,198            24.99         02/22/22                    
       40,953         20,477         29.54         02/28/23                    
       10,579         21,159         50.77         02/24/24                    
          37,751         58.26         02/25/25                    

LISA M. BUCKINGHAM

     13,228            30.64         02/23/21             10,109         508,078         25,089 4    1,261,425
       23,367            24.99         02/22/22             6,010         302,063         16,028 5    805,567
       31,638         15,820         29.54         02/28/23             5,558         279,345         7,411 6    372,477
       7,481         14,964         50.77         02/24/24                    
          24,313         58.26         02/25/25                    

WILFORD H. FULLER

     22,485            30.64         02/23/21             11,580         582,011         28,748 4    1,444,874
       41,209            24.99         02/22/22             7,137         358,706         19,034 5    956,649
       36,239         18,120         29.54         02/28/23             6,321         317,693         8,429 6    423,642
       8,883         17,769         50.77         02/24/24             1,181         59,357         1,574 6    79,109
          27,653         58.26         02/25/25                    
          5,177         57.49         05/01/25                    

MARK E. KONEN

     44,140            70.66         02/22/17             14,954         751,588         38,498 4    1,934,909
       84,591            52.76         02/07/18             9,005         452,591         24,586 5    1,235,692
       8,306            16.24         05/14/19             8,081         406,151         10,888 6    547,231
       33,749            30.64         02/23/21             445         22,366         599 6    30,106
       49,355            24.99         02/22/22                    
       48,529         24,266         29.54         02/28/23                    
       11,475         22,952         50.77         02/24/24                    
          35,722         58.26         02/25/25                    
                1,968         57.49         05/01/25                                      

 

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1. These Options were not exercisable at the end of 2015. The following table shows the dates when Options in this column vest and become exercisable.

 

Expiration Dates    Vesting Dates
2/28/2023    Balance vested on 2/28/2016
2/24/2024    Balance vests equally on 2/24/2016 and 2/24/2017
2/25/2025    Vests in 3 equal annual installments beginning on 2/25/2016
5/1/2025    Vests in 3 equal annual installments beginning on 5/1/2016

2. These stock awards are RSUs that vest as follows:

 

   Vested On    Vest On    Vest On    Vest On
Dennis R. Glass    59,798    58,740    67,423   
   2/28/2016    2/24/2017    2/25/2018    N/A
Randal J. Freitag    13,085    8,500    8,630   
   2/28/2016    2/24/2017    2/25/2018    N/A
Lisa M. Buckingham    10,109    6,010    5,558   
   2/28/2016    2/24/2017    2/25/2018    N/A
Wilford H. Fuller    11,580    7,137    6,321    1,181
   2/28/2016    2/24/2017    2/25/2018    5/1/2018
Mark E. Konen    14,954    9,005    8,081    445
   2/28/2016    2/24/2017    2/25/2018    5/1/2018

The stock awards include accrued but unpaid dividend equivalents credited in additional RSUs calculated at the normal dividend rate and settled in shares of our common stock only upon distribution of the vested award.

 

3. This represents the product of the number of shares/units and the closing price of our common stock as reported on the composite tape of the NYSE on December 31, 2015, which was $50.26.

 

4. Represents PSAs that were granted in connection with the 2013-2015 performance cycle and vested on February 24, 2016, plus accrued dividend equivalents. Awards vested based on the actual performance certified by the Compensation Committee on February 24, 2016.

 

5. Represents PSAs granted in connection with the 2014-2016 performance cycle. Because our performance as of the end of the last fiscal year for this performance cycle exceeded the target performance measures, these awards are shown at maximum (200% of target), plus accrued but unpaid dividend equivalents. However, the amount, if any, of these awards that will be paid out will depend upon the actual performance over the full performance period and the Compensation Committee’s certification of the performance after completion of the performance cycle, which should occur in the first quarter of 2017 for the 2014-2016 performance cycle.

 

6. Represents PSAs granted in connection with the 2015-2017 performance cycle. Because our performance as of the end of the last fiscal year for this performance cycle was above threshold, these awards are shown at target, plus accrued but unpaid dividend equivalents. However, the amount, if any, of these awards that will be paid out will depend upon the actual performance over the full performance period and the Compensation Committee’s certification of the performance after completion of the performance cycle which should occur in the first quarter of 2018 for the 2015-2017 performance cycle.

 

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OPTION EXERCISES AND STOCK VESTED

The table below provides information on Options exercised and stock awards that vested during 2015.

 

      OPTION AWARDS      STOCK AWARDS  
NAME   

NUMBER OF SHARES

ACQUIRED ON EXERCISE
(#)

    

AGGREGATE VALUE

REALIZED ON EXERCISE
($)

    

NUMBER OF SHARES

ACQUIRED ON VESTING1
(#)

    

AGGREGATE VALUE

REALIZED ON VESTING2
($)

 

Dennis R. Glass

     676,515         14,518,347         242,723         14,157,968   

Randal J. Freitag

     17,335         370,508         51,311         2,993,120   

Lisa M. Buckingham

     22,000         862,978         27,621         1,611,232   

Wilford H. Fuller

                     48,611         2,837,115   

Mark E. Konen

     12,500         458,883         60,560         3,531,310   

 

  1. For each NEO this includes shares delivered for RSUs that vested on February 22, 2015, and PSAs that vested on February 25, 2015. For Mr. Glass, the amount also reflects shares withheld on February 25, 2015, from a grant of RSUs to comply with IRC tax-withholding regulations that apply to equity grants with early retirement provisions. For Mr. Konen, the amount also reflects shares withheld on November 16, 2015, from grants of RSUs to comply with IRC tax-withholding regulations that apply to equity grants with retirement vesting provisions.

 

  2. Calculated as shares vested times the closing price of our common stock as reported on the composite tape of the NYSE on the vesting date (or the last date before vesting that was a trading day for the NYSE). These prices were: $58.51 for February 20, 2015; $58.26 for February 25, 2015; and $55.21 for November  16, 2015.

PENSION BENEFITS

RETIREMENT PLANS

The LNC Retirement Plan. As of December 31, 2007, we converted our retirement program from a defined-benefit to a defined-contribution design. As a result, benefit accruals ceased (i.e., were “frozen”) under the Lincoln National Corporation Retirement Plan for Employees Hired Prior to January 1, 2008 (the “LNC Retirement Plan”), a defined benefit plan.

Excess Retirement Plan. The Lincoln National Corporation Excess Retirement Plan (the “Excess Plan”) paid, or “restored,” benefits that would have been paid under the LNC Retirement Plan if certain limits were not imposed by Sections 401(a) and 415 of the IRC. The Excess Plan calculated benefits using the same formula as the qualified retirement plans that it “restored,” but without the IRC limits. The amount of the qualified retirement benefit payment is then deducted from, or offset against, the benefit calculated under the Excess Plan.

When the LNC Retirement Plan was “frozen,” the Excess Plan was also “frozen.” In addition, if the Company undergoes a change of control, no enhanced benefits are payable under the Excess Plan.

The table below shows the present value of the “frozen” accrued benefit, as of December 31, 2015, under the LNC Retirement Plan and the Excess Plan for each of our NEOs except for Ms. Buckingham and Mr. Fuller, who are not eligible to participate in either plan.

 

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PENSION BENEFITS  
NAME    PLAN NAME   

NUMBER OF

YEARS OF

CREDITED SERVICE

(#)

    

PRESENT VALUE OF

ACCUMULATED

BENEFIT2,3

($)

    

PAYMENTS

DURING LAST

FISCAL YEAR

($)

 

Dennis R. Glass

   LNC Retirement Plan      13         594,622           
    

Excess Plan

     13         2,066,215           

Randal J. Freitag

   LNC Retirement Plan      11.5         267,349           
    

Excess Plan

     11.5         13,031           

Lisa M. Buckingham        

        N/A         N/A         N/A   

Wilford H. Fuller

        N/A         N/A         N/A   

Mark E. Konen

   LNC Retirement Plan      12         352,090           
    

Excess Plan

     12         314,438           

 

  1. No benefits have accrued under these plans after December 31, 2007.

 

  2. All present values were determined using the same interest rate and mortality assumptions used for financial reporting purposes. The amounts shown for Messrs. Glass, Freitag and Konen reflect the present value of the lump sum payable at normal retirement age (age 65 or current age if higher) converted using a discount rate of 4.75% and the IRS-prescribed IRC 417(e)(3) mortality table for 2016.

 

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NONQUALIFIED DEFERRED COMPENSATION

We have adopted the DC SERP, a nonqualified plan that permits our NEOs and other officers to defer amounts of salary and annual incentive bonus that cannot be deferred under our tax-qualified Employees’ 401(k) Plan due to the IRC limits.

The amount of eligible compensation (base salary and annual incentive bonus) that employees may contribute to the Employees’ 401(k) Plan is subject to annual plan and IRC limits. During 2015, Lincoln made the following contributions to the Employees’ 401(k) Plan:

 

  a dollar-for-dollar basic matching contribution on the first 6% of eligible compensation contributed;

 

  a “core contribution” of 4% of eligible compensation; and

 

  for certain employees based on age and years of service as of December 31, 2007, a “transition contribution” of up to 8% of eligible compensation.

Any “core” and/or “transition” contributions that cannot be contributed to the Employees’ 401(k) Plan due to plan and/or IRC limits are contributed to the DC SERP.

SPECIAL EXECUTIVE CREDIT

For all NEOs except Mr. Glass, an additional contribution — a “special executive credit” as a percentage of “Total Pay”—was made to the DC SERP in 2015. For the purpose of determining this credit, “Total Pay” under the DC SERP is defined as base salary plus annual incentive bonus paid during the fiscal year. For each NEO, the special executive credit is calculated annually as follows: 15% of Total Pay, expressed as a percentage, offset by the total of: (a) the executive officer’s maximum basic matching contribution opportunity (6%); plus (b) core contributions (4%); plus (c) transition contributions, if any, (up to 8%) as determined under the Employees’ 401(k) Plan and the DC SERP, each expressed as a percentage.

Mr. Glass did not receive a special executive credit in 2015 because he received a transition credit in excess of 5% under the Employees’ 401(k) Plan. Typically, special executive credits are calculated and credited to the DC SERP by March of the following year. In accordance with the terms of the DC SERP, effective 2018, the special executive credit will equal 5% of Total Pay for each executive officer as a result of the expiration of the transition contributions. In 2015, the special executive credits for our NEOs, expressed as a percentage of Total Pay, were: 2.4% for Mr. Freitag; 5% for Ms. Buckingham; 5% for Mr. Fuller; and 1.6% for Mr. Konen.

Special executive credits vest on the earlier of: five years after becoming eligible to receive special executive credits under the DC SERP; death; eligibility for long-term disability benefits under a Company-sponsored plan; or reaching age 62. However, executive officers as of January 1, 2008 — including Messrs. Glass and Konen — were immediately vested in their special executive credits.

ADDITIONAL TERMS OF THE DC SERP

 

  We will pay out amounts based upon the total performance of the investment measures selected by the participant

 

  Our NEOs may select from a menu of “phantom” investment options used as investment measures for calculating the investment return notionally credited to their deferrals. These are generally the same investment options that are available under the Employees’ 401(k) Plan.

 

  Amounts deferred and contributed under the DC SERP are credited to “notional” (or bookkeeping) accounts and are subsequently credited with earnings or losses mirroring the performance of the available investment options under the Employees’ 401(k) Plan.

 

  All matching contributions are initially invested in the same investment options that the participant has elected for salary and bonus deferrals and are credited with notional earnings or losses.

 

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  Our NEOs may at any time change their investment elections or, subject to our Insider Trading and Confidentiality Policy, transfer amounts between investments.

 

  Our NEOs may change investment elections with respect to the LNC stock unit fund only during permitted trading “window” periods, which generally occur quarterly. We will issue actual shares of our common stock in settlement of these stock units when amounts credited to the LNC stock unit fund are actually paid to the participants. Before settlement, the participants have no rights associated with ownership of our common stock, including voting rights.

 

  The DC SERP is an unfunded plan and represents an unfunded promise to pay the benefits credited to each participant.

The table below provides information on each NEO’s deferrals and on contributions we made to the DC SERP on their behalf during 2015. It also shows each NEO’s aggregate balance under the DC SERP as of December 31, 2015.

 

NONQUALIFIED DEFERRED COMPENSATION

 

 
NAME   

EXECUTIVE CONTRIBUTIONS
IN LAST FY1

($)

    

COMPANY
CONTRIBUTIONS
IN LAST FY2

($)

     AGGREGATE
EARNINGS
IN LAST FY
($)
    AGGREGATE
WITHDRAWALS/
DISTRIBUTIONS
($)
     AGGREGATE
BALANCE
LAST FYE3
($)
 

Dennis R. Glass

     250,199         615,518         222,200        125,927         21,820,370   

Randal J. Freitag

     92,992         202,109         (36,465     115,547         1,511,036   

Lisa M. Buckingham

     133,241         185,467         (25,359             1,597,305   

Wilford H. Fuller

     122,703         307,388         (113,935             2,723,075   

Mark E. Konen

     676,517         227,566         152,587                5,459,119   

 

1. Amounts shown reflect deferral of a portion of salary for 2015 (included as Salary in the Summary Compensation Table for 2015) and deferral of a portion of the AIP amounts paid in 2015 relating to 2014 performance (included as Non-Equity Plan Compensation in the Summary Compensation Table for 2014). These amounts are:

 

Named Executive Officer

     Salary  ($)      Incentive Plan  ($) 

Dennis R. Glass

     70,143        180,056   

Randal J. Freitag

     39,012        53,980   

Lisa M. Buckingham

     57,845        75,396   

Wilford H. Fuller

     33,353        89,350   

Mark E. Konen

     39,799        636,718   

 

2. Amounts shown reflect our employer contributions into the DC SERP during 2015, some of which were included in All Other Compensation for 2014 in the Summary Compensation Table but credited in 2015.

 

3. In addition to the amounts shown in footnote 1 above, this column includes amounts that were reported in prior years’ Summary Compensation Tables to the extent the NEO was an NEO at the time. These amounts are as follows: $1,579,339 for Mr. Glass; $307,952 for Mr. Freitag; $371,241 for Mr. Fuller; and $635,018 for Mr. Konen. Ms. Buckingham was not an NEO in prior years.

 

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

The narrative below describes the various termination and change-of-control arrangements applicable to our NEOs that are not available to all employees on a non-discriminatory basis. The narrative is followed by tables showing potential payments each NEO would have received in the event of their termination (voluntary, involuntary or in connection with our change of control) occurring on December 31, 2015.

CHANGE-OF-CONTROL ARRANGEMENTS

All of our executive officers, including our NEOs, are eligible to participate in the LNC COC Plan. NEOs become eligible for benefits under the LNC COC Plan if, either in anticipation of or within two years after our change of control:

 

  the NEO’s employment terminates for any reason other than “cause” (defined as conviction of a felony, fraudulent or willful misconduct by the executive that is materially and demonstrably injurious to our business or reputation, or the willful and continued failure of the executive to perform his or her duties, despite warning notices) or the NEO’s death or disability; or

 

  the NEO terminates his or her employment for “good reason” (defined as a “material and adverse” change in the NEO’s responsibilities, a reduction in salary or target annual incentive bonus opportunity, or our failure to provide compensation and benefits materially similar to those offered in the past – with the exception of broad-based changes to our benefit plans that affect a significant portion of our employees).

If the conditions for payment under the LNC COC Plan are met, the Company would make a cash payment to the NEO based on a multiple of “annual base salary” and “target bonus.” For purposes of the LNC COC Plan:

 

  “annual base salary” means the highest annual rate of salary during the 12-month period immediately preceding the date of termination; and

 

  “target bonus” means the target set for annual incentive bonus under the ICP for the calendar year in which the NEO was terminated or for the year in which the change of control occurred, whichever is higher.

The amounts payable under the LNC COC Plan would be determined as follows:

 

Chief Executive Officer

 

   3 times annual base salary    +    3 times target bonus

All Other

Participating Executives (including our other NEOs)

   2 times annual base salary    +    2 times target bonus

Benefits offered under the LNC COC Plan do not include any tax “gross ups” to cover any excise tax amounts deemed to be “excess parachute payments” under IRC Section 280G.

 

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In addition to the cash payment, our NEOs would receive the following additional benefits and benefit enhancements under the LNC COC Plan:

 

  Reimbursement, for a maximum of 18 months, of premiums the NEO paid for the continuation of coverage under our welfare benefit plans in accordance with the Consolidated Omnibus Budget Reconciliation Act;

 

  For purposes of determining eligibility for retiree medical and dental coverage, additional credited service equal to the period that severance pay would be payable to the NEO under our broad-based employees’ severance plan;

 

  Vesting of AIP and LTI awards for each completed performance period, with awards for open performance periods paid at target and pro-rated to reflect the date on which the termination occurred and paid out at the end of the performance period (although the Compensation Committee has discretion under the ICP to fully vest awards); and

 

  Reimbursement of the cost of outplacement services, up to a maximum of 15% of the NEO’s highest rate of annual base salary during the 12-month period immediately preceding the date of employment termination.

NEOs in the LNC COC Plan may be eligible to receive payments under the LNC Severance Pay Plan or other severance arrangements (as described below). However, any payments they receive under those plans would reduce, on a dollar-for-dollar basis, the amount of any cash payment they receive under the LNC COC Plan.

As a condition to an NEO’s receiving payments or benefits, the LNC COC Plan imposes non-disparagement and confidentiality obligations, as well as a non-solicitation obligation for two years following termination of the executive’s employment.

CHANGE-OF-CONTROL FEATURES OF OTHER PLANS AND PROGRAMS

Options and RSUs

Unvested grants of Options and RSUs will vest and become either immediately exercisable or non-forfeitable only upon: (i) our change of control; and (ii) either: (a) termination of the executive’s employment for any reason other than “cause;” or (b) the executive’s termination of his or her employment for “good reason.” In addition, the Compensation Committee may determine whether outstanding PSAs will be paid in shares immediately upon our change of control, including the discretion as to whether to pay at target or maximum.

Severance Plans

We sponsor the Officers’ Severance Plan, which provides 52 weeks of severance benefits to our executive officers, including our NEOs, as well as a lump-sum severance stipend of $200/week for each week of the severance period. Executive officers are paid in a lump sum no earlier than six months after the date the officer’s job was eliminated.

To qualify for benefits under the Officers’ Severance Plan, an officer must sign our standard form of agreement, waiver and release of claims, which includes forfeiture provisions for competition and solicitation, among other conditions.

All officers, including NEOs, also participate in the LNC Severance Pay Plan, a broad-based severance plan available to all employees on an equal basis, with benefits triggered by job elimination or job restructuring.

 

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Deferred Compensation Plan

Upon our change of control, our NEOs will receive the following benefit enhancements under the DC SERP:

 

  Any unvested special executive credits will vest immediately.

 

  Executives eligible for benefits under the LNC COC Plan, as of the date of our change of control and who separate from service within two years after such change of control, will receive an additional two (or three, in the case of our CEO) years’ worth of core contributions, transition contributions, matching contributions, and special executive credits.

POTENTIAL PAYMENT TABLES

The tables below show potential payments to each NEO if the NEO’s employment were terminated as a result of:

 

  early retirement or voluntary termination;

 

  involuntary not-for-cause termination;

 

  for-cause termination;

 

  involuntary termination following our change of control; or

 

  death or disability.

Please note the following regarding the amounts in the tables:

 

  Under the DC SERP, except for Mr. Freitag, the amounts shown in the Nonqualified Deferred Compensation Table on page 65 under the Aggregate Balance at fiscal year-end were fully vested as of December 31, 2015, and therefore are fully payable and unaffected by the various termination scenarios. The DC SERP amounts are shown as lump sums, but are payable as either lump sums or as 5-, 10-, 15- or 20-year annual installments.

 

  The amounts assume that termination was effective December 31, 2015, and are therefore estimates. The amounts actually paid at termination would differ from these estimates, which constitute forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Additional assumptions are described in footnotes to the tables.

Long-term incentive compensation reflects equity-based awards that had not yet vested on the date of a termination event for which vesting continues post-termination or is accelerated as a result of the termination event. All awards held by each NEO at December 31, 2015, that would have become vested and/or exercisable upon a termination event are shown at a value using the closing price of our common stock on December 31, 2015, which was $50.26. In general, vesting occurs as follows:

 

  Options – Unvested Options will vest and become exercisable upon the NEO’s death or permanent disability. Unvested Options will also vest and become immediately exercisable following our change of control if: (a) the executive’s employment is terminated for any reason other than “cause;” or (b) the executive terminates his or her employment for “good reason.” If an NEO retires or is involuntarily terminated without cause, the Options will vest pro rata for the time the NEO was employed during the vesting period, unless the NEO has reached age 62, in which case the Options vest in full upon retirement.

 

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  Unvested RSUs will vest upon the NEO’s death or permanent disability. Unvested RSUs will also vest upon our change of control if: (a) the NEO’s employment is terminated for any reason other than “cause”; or (b) the executive terminates his or her employment for “good reason.” If an NEO, other than the CEO, retires or is involuntarily terminated without cause, the RSUs will vest pro rata for the time the executive was employed during the vesting period. If our CEO retires his RSUs vest in full.

 

  PSAs — Upon the NEO’s death or permanent disability, the PSAs will vest. Unvested PSAs will also vest upon our change of control if: (a) the NEO’s employment is terminated for any reason other than “cause”; or (b) the executive terminates his or her employment for “good reason.” If an NEO, other than the CEO, retires or is involuntarily terminated without cause, the PSAs will vest pro rata for the time the executive was employed during the performance period. If our CEO retires his PSAs vest in full. Amounts in the table are calculated based on payouts at target for the 2014-2016 and 2015-2017 performance cycles. Under all termination events except our change of control, the PSAs are paid only at the end of the actual performance cycle. The effect of our change of control is discussed in detail beginning on page 66.

The tables exclude benefits — such as accrued vacation pay, distributions from the Employees’ 401(k) Plan, disability benefits, and life insurance benefits equal to one times salary — that all employees are eligible to receive on the same basis. The tables do not reflect the changes made to the Officers’ Severance Plan set forth in our Current Report on Form 8-K filed on March 1, 2016.

 

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Amounts in the table are estimates based on a hypothetical termination on December 31, 2015.

 

          POTENTIAL PAYMENTS
     TRIGGER EVENTS

BENEFITS AND PAYMENTS

 

  

EARLY RETIREMENT1

/VOLUNTARY TERMINATION

($)

  

INVOLUNTARY

NOT-FOR-CAUSE TERMINATION2

($)

  

FOR-CAUSE

TERMINATION

($)

  

INVOLUNTARY TERMINATION AFTER CHANGE-

OF-CONTROL

($)

  

DISABILITY

($)

  

DEATH

($)

Dennis R. Glass

                             

Compensation:

                   

Annual Incentive Compensation

   1,924,256    1,924,256       1,924,256    1,924,256    1,924,256

Options

   2,013,514    2,013,514       2,013,514    2,013,514    2,013,514

RSUs

   9,345,948    9,345,948       9,345,948    9,345,948    9,345,948

PSAs3

   8,330,334    8,330,334       8,330,334    8,330,334    8,330,334

Benefits & Perquisites:

                   

DC SERP4

            1,641,346      

Miscellaneous Payments5

            181,958      

Cash Severance

            10,521,450      

Total

   21,614,062    21,614,062    0    33,958,816    21,614,062    21,614,062

Randal J. Freitag

                             

Compensation:

                   

Annual Incentive Compensation

      654,266       654,266    654,266    654,266

Options

      355,695       424,277    424,277    424,277

RSUs

      1,007,965       1,518,606    1,518,606    1,518,606

PSAs

      1,388,902       1,388,902    1,964,312    1,964,312

Benefits & Perquisites:

                   

DC SERP4

            533,751    130,829    168,026

Miscellaneous Payments5

      10,400       104,130      

Cash Severance

      650,202       2,925,910      

Total

   0    4,067,430    0    7,549,842    4,692,290    4,729,487

Lisa M. Buckingham

                             

Compensation:

                   

Annual Incentive Compensation

      509,034       509,034    509,034    509,034

Options

      274,794       327,777    327,777    327,777

RSUs

      745,734       1,089,486    1,089,486    1,089,486

PSAs

      1,023,377       1,023,377    1,405,923    1,405,923

Benefits & Perquisites:

                   

DC SERP4

      66,620       431,042       66,620

Miscellaneous Payments5

      10,400       93,367      

Cash Severance

      578,448       2,429,482      

Total

   0    3,208,407    0    5,903,565    3,332,220    3,398,840

 

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Table of Contents
            POTENTIAL PAYMENTS                       
           TRIGGER EVENTS  

BENEFITS AND

PAYMENTS

   
 
 
 
EARLY
RETIREMENT1
/ VOLUNTARY
TERMINATION
  
  
  
  
   
 
 
INVOLUNTARY
NOT-FOR-CAUSE
TERMINATION2
  
  
  
   
 
FOR-CAUSE
TERMINATION
  
  
   
 
 
 
INVOLUNTARY
TERMINATION
AFTER CHANGE-
OF-CONTROL
  
  
  
  
    DISABILITY        DEATH   
      ($)        ($)        ($)        ($)        ($)        ($)   

Wilford H. Fuller

                                               

Compensation:

             

Annual Incentive Compensation

           1,066,050               1,066,050        1,066,050        1,066,050   

Options

           314,752               375,439        375,439        375,439   

RSUs

           874,648               1,317,767     <