DEF 14A 1 d355343ddef14a.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 ☒

 

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))

 

  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):

 

    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):

 

 

 

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  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.

 

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  4.   Date Filed:

 

 


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Radnor, Pennsylvania / April 14, 2017

DEAR FELLOW SHAREHOLDER:

You are invited to attend our 2017 Annual Meeting of Shareholders, to be held Friday, May 26 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 2016 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 2016 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 26, 2017    9:00 a.m.    The Ritz-Carlton Hotel
   local time    10 Avenue of the Arts
      Philadelphia, Pennsylvania 19102

Mailing date: April 14, 2017

The purpose of the meeting is to:

 

  1. elect ten Directors for a one-year term expiring at the 2018 Annual Meeting of Shareholders;

 

  2. ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2017;

 

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

 

  4. respond to an advisory proposal regarding the frequency (every one, two or three years) of future advisory resolutions on the compensation of our named executive officers;

 

  5. approve amendments to our restated articles of incorporation to remove supermajority voting standards applicable to the following provisions;

 

Item 5(a) –   voting rights of preferred stock, prohibitions regarding shares of stock in our subsidiary and future amendments to the bylaws
Item 5(b) –   removal of directors;
Item 5(c) –   certain business combinations; and

 

  6. consider and vote upon such other business as may properly come before the meeting or any adjournment thereof.

You may vote at the Annual Meeting if you were a shareholder of record at the close of business on March 20, 2017. 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 82 for more information.

For the Board of Directors,

 

LOGO

Andrea D. Goodrich

Senior Vice President & Secretary

Lincoln National Corporation

Radnor, Pennsylvania

 

 

 


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TABLE OF CONTENTS

 

PROXY SUMMARY

     1  

GOVERNANCE OF THE COMPANY

     5  

AGENDA ITEM 1 - ELECTION OF DIRECTORS

     15  

Nominees for Director

     15  

COMPENSATION OF OUTSIDE DIRECTORS

     21  

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

     25  

Independent Registered Public Accounting Firm Fees and Services

     25  

Audit Committee Pre-Approval Policy

     26  

Other Information

     26  

Audit Committee Report

     27  

AGENDA ITEM 3 - ADVISORY PROPOSAL ON EXECUTIVE COMPENSATION

     28  

AGENDA ITEM 4 - ADVISORY PROPOSAL ON THE FREQUENCY OF FUTURE ADVISORY PROPOSALS ON EXECUTIVE COMPENSATION

     30  

COMPENSATION DISCUSSION & ANALYSIS

     31  

Executive Summary

     32  

Compensation Committee Report

     57  

EXECUTIVE COMPENSATION TABLES

     58  

Summary Compensation Table

     58  

Grants of Plan-Based Awards

     61  

Outstanding Equity Awards at Fiscal Year-End

     63  

Option Exercises and Stock Vested

     65  

Pension Benefits

     66  

Nonqualified Deferred Compensation

     67  

Potential Payments Upon Termination or Change of Control

     69  

AGENDA ITEM 5 - APPROVE AMENDMENTS TO OUR ARTICLES TO REMOVE SUPERMAJORITY VOTE PROVISIONS

     76  

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     79  

RELATED-PARTY TRANSACTIONS

     79  

SECURITY OWNERSHIP

     80  

ANNUAL MEETING INFORMATION

     82  

GENERAL INFORMATION

     86  

Shareholder Proposals

     86  

Incorporation by Reference

     86  

Compliance with Beneficial Ownership Reporting

     87  

Annual Report

     87  

Additional Voting Matters

     87  

EXHIBIT 1 - RECONCILIATION OF NON-GAAP MEASURES

     E-1  

EXHIBIT 2 - DEFINITIONS FOR INCENTIVE COMPENSATION PROGRAMS

     E-5  

EXHIBIT 3 - PROPOSED AMENDMENTS TO OUR ARTICLES OF INCORPORATION

     E-7  

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 26, 2017: 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 26, 2017

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 20, 2017

 

 

 

 

VOTING MATTERS

 

AGENDA ITEM  

OUR BOARD’S VOTING

RECOMMENDATION

 

WHERE TO FIND

MORE INFORMATION

 
1.    Election of ten directors for a one-year term expiring at the 2018 Annual Meeting of Shareholders.   FOR each director nominee   Page 15
 
2.    Ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm for 2017.   FOR the ratification   Page 25
 
3.    Approval of an advisory resolution on the compensation of our named executive officers.   FOR the resolution   Page 28
 
4.    Respond to an advisory proposal regarding the frequency (every one, two or three years) of future advisory resolutions on the compensation of our named executive officers.   for a ONE-YEAR frequency   Page 30
 
5.    Approval of Amendments to our Restated Articles of Incorporation to remove the supermajority voting standards applicable to certain provisions.   FOR all three proposed amendments  

Page 76

 

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BOARD OF DIRECTOR NOMINEES

 

 

 

NAME OCCUPATION   AGE    

DIRECTOR

SINCE

  SKILLS/QUALIFICATIONS   INDEPENDENT    COMMITTEE
MEMBERSHIPS
     

Deirdre P. Connelly

    55     2016  

• business operations and strategic planning

 

Yes

  

• Audit

Retired President, North

       

• finance and capital management

    

• Corporate Governance

American Pharmaceuticals

       

• corporate governance

    

of GlaxoSmithKline

              
     

William H. Cunningham

    73     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               
     

Dennis R. Glass

    67     2006  

• business operations and strategic planning

 

No

  

• Executive

President and Chief

       

• finance and capital management

    

Executive Officer, Lincoln

              

National Corporation

              
     

George W. Henderson, III

    68     2006   • accounting  

Yes

  

• Audit

Retired Chairman and Chief

        • finance and capital management     

• Finance

Executive Officer, Burlington

              

Industries, Inc.

              
     

Eric G. Johnson

    66     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

              
     

Gary C. Kelly

    62     2009  

• business operations and strategic planning

 

Yes

  

• Audit

Chairman of the Board,

       

• finance and capital management

    

• Finance

President and Chief

       

• public accounting

    

Executive Officer,

              

Southwest Airlines Co.

              
     

M. Leanne Lachman

    74     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

              
     

Michael F. Mee

    74     2001  

• finance and capital management

 

Yes

  

• Compensation

Retired Executive Vice

       

• public accounting

    

• Finance

President and Chief

Financial Officer, Bristol-

Myers Squibb Company

       

• business operations and strategic planning

    

 

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BOARD OF DIRECTOR NOMINEES (CONT’D.)

 

NAME

OCCUPATION

  AGE   DIRECTOR
SINCE
  SKILLS/QUALIFICATIONS   INDEPENDENT   COMMITTEE
MEMBERSHIPS
     
Patrick S. Pittard   71   2006   • public accounting   Yes   • Compensation
Chairman, Patrick Pittard         • finance and capital management         (Chair)
Advisors, LLC         • talent management    
       

• corporate governance

   
     
Isaiah Tidwell   72   2006   • accounting   Yes   • Audit
Retired Executive Vice         • risk management     • Corporate
President and Georgia         • corporate governance       Governance
Wealth Management Director,                 (Chair)
Wachovia Bank, N.A.              

 

 

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:

 

  Our Chairman of the Board is an independent director;

 

  All of our directors, except for the chief executive officer, are independent and each of the Audit, Compensation, Corporate Governance and Finance Committees are entirely composed of independent directors;

 

  All of our directors stand for election annually;

 

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

 

  We provide for proxy access in our bylaws;

 

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

 

  We maintain a policy prohibiting pledging and hedging ownership of our stock;

 

  Independent directors meet regularly in executive session; and

 

  Our Board and committees conduct annual self-evaluations.

 

 

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 additional most highly paid executive officers, as listed on page 31. At our last Annual Meeting, shareholders expressed strong support for our executive compensation programs, with 93% of votes cast in favor of the advisory resolution on executive compensation.

 

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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.

2016 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 2016 could vary significantly based on company performance, including stock-price performance.

TARGET PAY MIX FOR CEO

 

LOGO

TARGET PAY MIX FOR NEOs (EXCLUDING CEO)

 

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 58. For additional details about our executive compensation programs and our NEOs’ fiscal year 2016 compensation, please see “Compensation Discussion & Analysis” beginning on page 31 and “Executive Compensation Tables” beginning on page 58.

Proxy Statement

ANNUAL MEETING OF SHAREHOLDERS | MAY 26, 2017

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 2017 Annual Meeting of Shareholders, which will be held beginning at 9:00 a.m. local time on Friday, May 26 at The Ritz-Carlton Hotel, 10 Avenue of the Arts, Philadelphia, Pennsylvania 19102. This proxy statement and a proxy card or a notice of internet availability were sent to our shareholders on or about April 14. 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

Integrity, respect and responsibility are not just guiding principles for us. They unify and inspire us to help people to take charge of their lives. Our Board of Directors is responsible for directing and overseeing the management of the Company’s business in the best interests of the shareholders and consistent with good corporate citizenship. In carrying out its responsibilities, the Board provides oversight for the process of selecting and monitoring the performance of senior management, provides oversight for financial reporting and legal and regulatory compliance, determines the Company’s governance guidelines and implements its governance policies. The Board, together with management, is responsible for establishing our values and code of conduct and for setting strategic direction and priorities.

 

 

BOARD STRUCTURE AND LEADERSHIP

As of the Annual Meeting our Board of Directors will have ten members, nine of whom are non-employees, or outside directors. The Board has determined that all nine outside directors are independent, as discussed below. The Board may fill a director vacancy or reduce the size of the Board without shareholder approval.

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, which 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 overall 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.

 

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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

 

 

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.
  Our Board conducts an annual review of the performance of the Board and the Audit, Compensation, Corporate Governance and Finance Committees each year.
  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.

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:

 

  All of our Directors, except Mr. Glass are independent.

 

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  All members of the Audit, Compensation, Corporate Governance and Finance 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.

 

 

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.

 

  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.

Our Board reflects a diverse, highly engaged group of directors with appropriate skills and varying backgrounds. We have a rigorous board evaluation process that includes an annual self-assessment and peer review to foster the right mix of subject matter expertise, capabilities and perspectives. Our Board also takes a thoughtful approach to board refreshment with the intent to align directors’ skills with our company strategy. The Board regularly reviews the composition and qualifications of our directors. After a deliberate and inclusive process, Deirdre Connelly was elected as a new director during 2016, to fill the vacancy left by a retiring director. Ms. Connelly’s experience and expertise is well-suited to our board and complements that of our other directors. The Board will continue to review its composition and structure balancing the need for continuity and experience with fresh ideas and perspectives.

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.

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.

 

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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 for the 2018 Annual Meeting” on page 86. Any such recommendation must be received by the Corporate Secretary no earlier than January 26, 2018, and not later than February 25, 2018.

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.

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.

 

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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 our principal executive offices:

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 2016, 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 2016 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 2016. 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 2016 (C=CHAIR M=MEMBER)

 

      AUDIT      COMPENSATION     

CORPORATE  

GOVERNANCE  

   EXECUTIVE      FINANCE      CORPORATE  
ACTION1  

Deirdre P. Connelly

   M       M             

William H. Cunningham

        M    M    C    M     

Dennis R. Glass

                M         C

George W. Henderson, III

   M               M     

Eric G. Johnson

        M         M    C     

Gary C. Kelly

   M               M     

M. Leanne Lachman

   C                     

Michael F. Mee

        M         M    M     

William P. Payne

           M    M          

Patrick S. Pittard

        C                  

Isaiah Tidwell

   M       C             

Number of Meetings in 2016

   8    4    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 twelve (12) such consents in 2016.

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:

 

 

 

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

 

  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

 

  preparing the report required for inclusion in our annual proxy statement

 

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

 

  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

 

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

 

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

 

  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

 

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

 

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

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 25.

 

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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 the CEO and executive officers’ 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 31.

 

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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

 

 

NOMINEES FOR DIRECTOR

Ten directors will be up for election at the 2017 Annual Meeting to hold office until the next annual meeting and until their respective successors are elected and qualified. Mr. Payne is not standing for reelection. Of the directors standing for election, Mr. Glass is an officer of the Company. In addition to annual elections, our bylaws require our directors to be elected by a majority of votes cast in an uncontested election.

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.   

 

LOGO   

 

DEIRDRE P. CONNELLY

 

RETIRED PRESIDENT NORTH

AMERICAN PHARMACUETICALS

OF GLAXOSMITHKLINE

  

 

AGE: 55    DIRECTOR SINCE: 2016

 

Member, Audit and Corporate Governance Committees

CAREER  

Ms. Connelly was the President, North American Pharmaceuticals of GlaxoSmithKline, a global pharmaceutical company from 2009 until her retirement in 2015. Before that she served as President, U.S. Operations for Eli Lily and Company from 2005-2009.

 

QUALIFICATIONS  

Substantial leadership experience and expertise as a senior executive of large publicly-traded companies with global operations. She has extensive knowledge and expertise in strategy, operations, finance and capital management, brand marketing and product development.

 

OTHER PUBLIC COMPANY BOARDS   Macy’s, Inc. 2008–present.
   

Genmab A/S 2017–present.

 

 

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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: 73    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.

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.

Resolute Energy Corporation, 2009–2015.

 

 

LOGO   

 

DENNIS R. GLASS

 

PRESIDENT AND CHIEF

EXECUTIVE OFFICER

OF LINCOLN NATIONAL

CORPORATION

  

 

AGE: 67    DIRECTOR SINCE: 2006

 

Member, Executive Committees

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   

 

GEORGE W. HENDERSON, III

 

RETIRED CHAIRMAN

AND CHIEF EXECUTIVE

OFFICER OF BURLINGTON INDUSTRIES, INC.

  

 

AGE: 68     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, from 1998 to his retirement in 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.

 

 

LOGO   

 

ERIC G. JOHNSON

 

PRESIDENT AND CEO OF

BALDWIN RICHARDSON

FOODS COMPANY

  

 

AGE: 66     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.

 

 

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LOGO   

 

GARY C. KELLY

 

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

  

 

AGE: 62    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   

 

M. LEANNE LACHMAN

 

PRESIDENT OF LACHMAN
ASSOCIATES LLC AND

EXECUTIVE -IN-RESIDENCE,
COLUMBIA GRADUATE
SCHOOL OF BUSINESS

  

 

AGE: 74     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 her 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.

 

 

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LOGO   

 

MICHAEL F. MEE

 

RETIRED EXECUTIVE VICE

PRESIDENT AND CHIEF

FINANCIAL OFFICER OF

BRISTOL-MYERS SQUIBB

COMPANY

  

 

AGE: 74    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.

 

 

LOGO   

 

PATRICK S. PITTARD

 

CHAIRMAN OF PATRICKPITTARD
ADVISORS LLC

  

 

AGE: 71    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: 72    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.

 

 

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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 2016, 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 $15,000 in the Deferred LNC Stock Units retainer for the non-executive Chairman of the Board. The Committee also recommended an increase in the cash portion of the Annual Retainer to $120,000 for the non-executive Chairman of the Board and an increase to $100,000 for the other directors.

The following table compares our director fees for 2016 to the revised fees that took effect on January 1, 2017:

 

FEES    2016      2017  

BOARD

         

Annual Retainer (Cash)

   $ 86,000      $ 100,000  

Deferred LNC Stock Units

   $ 161,000      $ 161,000  
     

Total Board Fees

   $ 247,000      $ 261,000  
     

NON-EXECUTIVE CHAIRMAN OF THE BOARD

         

Annual Retainer (Cash)

   $ 86,000      $ 120,000  

Deferred LNC Stock Units

   $ 361,000      $ 376,000  
     

Total Non-Executive Chairman of the Board Fees

   $ 447,000      $ 496,000  
     

COMMITTEES (CASH)

         

Audit Committee Chair

   $ 30,000      $ 30,000  

Audit Committee Member

   $ 10,000      $ 10,000  

Other Committee Chair

   $ 20,000      $ 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, 2016, all of our directors are in compliance with this requirement. Ms. Connelly, who joined the Board in May of 2016, has until May 2021 to meet the full share ownership 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 2016, 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 2016  
NAME     


FEES EARNED
OR PAID IN
CASH1

($)

 
 
 

 

    

STOCK
AWARDS2
($)
 
 
 
    

ALL OTHER
COMPENSATION
($)
 
 
 
   
TOTAL
($)
 
 

Deirdre P. Connelly3

     55,419        96,423        -       151,842  

William H. Cunningham

     86,000        361,000        15,000 6      462,000  

George W. Henderson, III

     115,400        161,000        10,000 6      286,400  

Eric G. Johnson

     106,000        161,000        -       267,000  

Gary C. Kelly

     96,000        161,000        -       257,000  

M. Leanne Lachman

     135,400        161,000        25,000 5,6      321,400  

Michael F. Mee

     86,000        161,000        10,000 6      257,000  

William Porter Payne4

     86,000        161,000        15,000 6      262,000  

Patrick S. Pittard

     125,400        161,000        10,000 5      296,400  

Isaiah Tidwell

     116,000        161,000        8,000 6      285,000  

* 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, 2016. Mr. Cunningham received an additional $200,000 in Deferred LNC Stock Units for serving as non-executive Chairman during 2016.

3. Ms. Connelly was elected to our Board of Directors on May 26, 2016.

4. Mr. Payne has notified the Board that he will not stand for election as a director at the Annual Meeting.

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

6. 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, 2016:

 

NAME               DEFERRED LNC
STOCK UNITS
    STOCK
                     OPTIONS
 

Deirdre P. Connelly

    1,884          

William H. Cunningham

    93,476       19,906  

George W. Henderson, III

    58,725       3,007  

Eric G. Johnson

    51,302       33,180  

Gary C. Kelly

    21,669       17,040  

M. Leanne Lachman

    61,746       3,007  

Michael F. Mee

    65,064       33,180  

William Porter Payne

    39,066       14,119  

Patrick S. Pittard

    18,483       3,007  

Isaiah Tidwell

    33,453       22,452  

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.

 

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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 22, 2017, the Committee appointed Ernst & Young LLP (“Ernst & Young”) as our independent registered public accounting firm for fiscal year 2017. 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 2016.

The Board of Directors recommends a vote FOR the ratification of Ernst & Young as our independent registered public accounting firm for 2017.

 

 

IDEPENDENT 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 2016 and 2015, with a breakdown of fees paid for different categories of work.

 

     

FISCAL YEAR

ENDED -

DECEMBER 31, 2016

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

Audit Fees1

   $ 10,556,687        91.3      $ 10,015,790        90.9  

Audit-Related Fees2

     1,010,749        8.7        937,100        8.5  

Tax Fees3

                   63,842        0.6  

All Other Fees

                           

TOTAL FEES

   $ 11,567,436        100      $ 11,016,732        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 2016;
  discussed with our accounting firm the matters that the Public Company Accounting Oversight Board (“PCAOB”) requires them to discuss as per Auditing Standard No. 1301, 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 2016 be included in the Company’s Annual Report on Form 10-K for fiscal year ending December 31, 2016, for filing with the SEC.

The Audit Committee

Deidre P. Connelly

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 Board recognizes that providing shareholders with an advisory vote on executive compensation can produce useful information on investor sentiment with regard to the Company’s executive compensation programs. As a result, this proposal provides shareholders with the opportunity to cast an advisory vote on the compensation of our executive management team, as described in the section of this proxy statement entitled “Compensation Discussion & Analysis,” (“CD&A”) and endorse or not endorse our fiscal 2016 executive compensation philosophy, programs and policies and the compensation paid to the Named Executive Officers. As discussed in detail in the CD&A that begins on page 31, 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 2016, 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 upon our change of control; 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 31 to 57.

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

 

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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 2018 Annual Meeting.

We urge you to read the CD&A and other information in the “Executive Compensation Tables” , beginning on page 58, 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 of Directors 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 2016 compensation tables regarding named executive officer compensation, and the accompanying narrative disclosure in this proxy statement.”

 

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ITEM 4 | ADVISORY PROPOSAL ON THE FREQUENCY OF FUTURE ADVISORY PROPOSALS ON EXECUTIVE COMPENSATION

Section 14A of the Securities Exchange Act provides for our shareholders to indicate how frequently we should seek an advisory vote on the compensation of our named executive officers. You may vote on whether you prefer an advisory vote every one, two or three years. You may also choose to abstain from voting on the matter.

The Board believes that an advisory vote on executive compensation that occurs every year is the most appropriate alternative for our shareholders, and therefore the Board recommends that you vote for a one-year interval for the advisory vote on executive compensation.

Note that you are not voting to approve or disapprove the recommendation of the Board with respect to this proposal. Instead, each proxy card provides four choices with respect to this proposal: a one, two or three year frequency or shareholders may abstain from voting on the proposal. Because this vote is advisory and not binding, the Board may decide that it is in the best interests of the shareholders and the Company to hold an advisory vote on executive compensation at a frequency other than the option selected by the shareholders.

The Board of Directors recommends a vote for a ONE-YEAR frequency for the future advisory votes on executive compensation.

 

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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 2016, 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 58. These NEOs are:

DENNIS R. GLASS – President and CEO

 

 

RANDAL J. FREITAG – Executive Vice President and CFO

 

 

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

 

 

KIRKLAND L. HICKS – Executive Vice President and General Counsel

 

 

MARK E. KONEN – President, Insurance and Retirement Solutions (retired in 2017)

We encourage you to read the CD&A in conjunction with the compensation tables on pages 58 to 75.

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 2016 Annual Meeting, shareholders expressed strong support for our executive compensation programs, with 93% 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.)

 

TARGET PAY MIX FOR CEO

 

LOGO

TARGET PAY MIX FOR NEOs (EXCLUDING CEO)

 

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 58 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 best practices, as well as 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 56, “Alignment with Shareholders” on page 37, and “Role of the Compensation Consultant” on page 54.

 

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2016 PERFORMANCE OVERVIEW

We had solid financial results in 2016 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

Over the longer term, our performance was strong. For the three year period from December 31, 2013 to December 31, 2016:

 

LOGO

 

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

 

LOGO

 

LOGO

More information on our business performance during 2016 is available in our Form 10-K for fiscal year ended December 31, 2016 (the “2016 Form 10-K”), which is included in the 2016 Annual Report to Shareholders that accompanies this proxy statement. A reconciliation of the measures not shown in accordance with U.S. 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    AT RISK    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    AT RISK    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    AT RISK    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    AT RISK    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    AT RISK    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 drive shareholder value and 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 2016, the Compensation Committee chose the following performance measures, which it has used since 2011:

 

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2016 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.
Business Unit Sales    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 are 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 organization.

 

2016 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 our peers. Many investors look at a company’s total shareholder return when making an investment decision.

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 subject to service-based restrictions; and

 

  in-the-money 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 covenants.

For example, if an executive violates any such agreement prior to or within six months after the vesting of any portion of an equity award, such as Options or 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 40.

 

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CONSIDERATION OF OUR 2016 SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION

The Compensation Committee and the Board appreciate and value the views of our shareholders. At our 2016 Annual Meeting of Shareholders, approximately 93% 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 2017.

SETTING TARGET COMPENSATION

The Compensation Committee made compensation decisions for the 2016 calendar year for the NEOs based on a detailed analysis of Company-specific and external data.

BENCHMARKING

To help the Compensation Committee set 2016 target direct compensation levels for our NEOs, Pay Governance LLC performed a comprehensive competitive compensation analysis in November of 2015. 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 each of our NEOs, Pay Governance used market data drawn from the stock companies included in the Towers Watson 2015 Diversified Insurance Study of Executive Compensation (the “2015 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 has skills or experience that will further our corporate strategy.

 

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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 CEO does not make recommendations with respect to his 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.

 

 

2016 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     $1,200,000        $2,400,000       $8,000,000       $11,600,000  
Randal J. Freitag     $669,708        $837,135       $1,893,157       $3,400,000  
Wilford H. Fuller     $650,000        $1,040,000       $1,760,000       $3,450,000  
Kirkland L. Hicks     $575,000        $575,000       $850,000       $2,000,000  
Mark E. Konen     $683,130        $1,024,829       $1,741,951       $3,449,910  

 

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ANNUAL COMPENSATION FOR 2016

During 2016, 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 2016, the Compensation Committee started with the 2015 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. Fuller. 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. Fuller’s salary was increased 13% to $650,000.

The Committee approved the following base salaries for our NEOs effective for 2016:

 

NAME

   2016  

Dennis R. Glass

   $1,200,000  

Randal J. Freitag

   $669,708  

Wilford H. Fuller

   $650,000  

Kirkland L. Hicks

   $575,000  

Mark E. Konen

   $683,130  

ANNUAL INCENTIVE PROGRAM

2016 Payout Opportunities

The table below shows the dollar amount of the estimated threshold, target and maximum payout opportunities for the 2016 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 2016 AIP

 

 

NAME      THRESHOLD        TARGET        MAXIMUM      
Dennis R. Glass      $36,000        $2,400,000          $4,800,000      
Randal J. Freitag      $12,557        $837,135          $1,674,270      
Wilford H. Fuller      $23,400        $1,040,000          $2,080,000      
Kirkland L. Hicks      $8,625        $575,000          $1,150,000      
Mark E. Konen      $25,621        $1,024,829          $2,049,659      

 

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2016 Performance Measures and Goals

In February 2016, the Compensation Committee established the goals and measures for the 2016 AIP.

Performance measures. The Committee selected three performance measures for 2016, the same ones it has used since 2011.

 

  Income from operations per share

 

  Business unit sales

 

  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 36.

For purposes of the 2016 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 58 to 75.

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 business unit sales, 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.

2016 Performance Results and Actual Payouts

In February 2017, the Compensation Committee certified the performance results for the 2016 AIP. These formulaic results triggered a payout that was above target for all of our NEOs.

The following tables show the goals, weights, performance results and payout percentages for the 2016 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.

The tables also show the resulting performance-based payouts approved by the Compensation Committee under the 2016 AIP for each of our NEOs and how these payouts compared with each NEO’s target payout opportunity under this program.

 

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DENNIS R. GLASS

 

    

CORPORATE MEASURES (100%)

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

GOALS

                 

Threshold

     $5.56        $643 M        $377 M        $9,040 M        $6,576 M        N/A      

Target

     $6.10        $731 M        $428 M        $11,300 M        $8,220 M        100%      

Maximum

     $6.84        $819 M        $479 M        $13,560 M        $9,864 M        88%      

RESULTS

                                                     

Certified Performance

     $6.53        $737 M        $478 M        $8,214 M        $7,657 M        95.5%      

Payout as Percentage of Target

     158.1%        106.8%        198.0%        0.0%        74.3%        138.6%      

Weighting

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

Weighted Payout

     79.1%        11.8%        15.8%        0.0%        4.5%        20.8%      

 

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

ACTUAL PAYOUT UNDER THE 2016 AIP

     $2,400,000        131.9%      $ 3,165,600  

 

RANDAL J. FREITAG

 

   

CORPORATE MEASURES (92.5%)

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

GOALS

             

Threshold

    $5.56       $643 M       $377 M       $9,040 M       $6,576 M       N/A       N/A  

Target

    $6.10       $731 M       $428 M       $11,300 M       $8,220 M       100%       100%  

Maximum

    $6.84       $819 M       $479 M       $13,560 M       $9,864 M       88%       90%  
               

RESULTS

                                                       

Certified Performance

    $6.53       $737 M       $478 M       $8,214 M       $7,657 M       95.5%       99.6%  

Payout as Percentage of Target

    158.1%       106.8%       198.0%       0.0%       74.3%       138.6%       104.1%  

Weighting

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

Weighted Payout

    79.1%       11.8%       15.8%       0.0%       4.5%       10.4%       7.8%  

 

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

ACTUAL PAYOUT UNDER THE 2016 AIP

     $837,135        129.3%        $1,082,416  

 

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WILFORD H. FULLER

 

    CORPORATE
MEASURES
   

BUSINESS UNIT MEASURES (80%)

 
                      BUSINESS UNIT SALES        
    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

    $5.56       $809 M       ($17.3) M       $643 M       $9,040 M       $1,887 M       N/A      

Target

    $6.10       $919 M       $2.7 M       $731 M       $11,300 M       $2,359 M       100%      

Maximum

    $6.84       $1,067 M       $22.7 M       $819 M       $13,560 M       $2,831 M       85%      
               

RESULTS

                                                       

Certified Performance

    $6.53       $935 M       ($0.3) M       $737 M       $8,214 M       $2,248 M       90.5%      

Payout as Percentage of Target

    151.8%       110.8%       88.8%       106.8%       0.0%       82.4%       163.3%      

Weighting

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

Weighted Payout

    31.6%       28.8%       8.9%       13.4%       0.0%       7.4%       16.3%      

 

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

ACTUAL PAYOUT UNDER THE 2016 AIP

     $1,040,000        106.4%        $1,106,560  

 

KIRKLAND L. HICKS

 

            

BUSINESS

UNIT

 
     CORPORATE MEASURES (85%)              MEASURES  
            BUSINESS UNIT SALES         
    

INCOME FROM
OPERATIONS

PER SHARE

     LIFE      GROUP
PROTECTION
     ANNUITIES      RETIREMENT
PLAN SERVICES
     CONTROLLABLE
COSTS LEGAL
 

GOALS

                 

Threshold

     $5.56        $643 M        $377 M        $9,040 M        $6,576 M        N/A  

Target

     $6.10        $731 M        $428 M        $11,300 M        $8,220 M        100%  

Maximum

     $6.84        $819 M        $479 M        $13,560 M        $9,864 M        80%  
             

RESULTS

                                                     

Certified Performance

     $6.53        $737 M        $478 M        $8,214 M        $7,657 M        93.7%  

Payout as Percentage of Target

     158.1%        106.8%        198.0%        0.0%        74.3%        131.4%  

Weighting

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

Weighted Payout

     79.1%        11.8%        15.8%        0.0%        4.5%        19.7%  

 

            PAYOUT         
            PERCENTAGE         
     

TARGET

OPPORTUNITY

     (sum of weighted
payouts)
     PAYOUT
AMOUNT
 

ACTUAL PAYOUT UNDER THE 2016 AIP

     $575,000        130.8%        $752,100  

 

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MARK E. KONEN

 

     CORPORATE     

BUSINESS UNIT MEASURES (80%)

 
     MEASURES                                                          
             INCOME FROM OPERATIONS     

BUSINESS UNIT SALES

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

GOALS

                       

Threshold

     $5.56        $443 M        $52 M        $102 M        $643 M        $377 M        $6,576 M        N/A  

Target

     $6.10        $504 M        $59 M        $116 M        $731 M        $428 M        $8,220 M        100%  

Maximum

     $6.84        $584 M        $68 M        $134 M        $819 M        $479 M        $9,864 M        90%  
                 

RESULTS

                                                                       

Certified Performance

     $6.53        $515 M        $65 M        $127 M        $737 M        $478 M        $7,657 M        97.6%  

Payout as Percentage of Target

     158.1%        113.8%        166.7%        161.1%        106.8%        198.0%        74.3%        124.0%  

Weighting

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

Weighted Payout

     31.6%        13.7%        20.0%        19.3%        10.7%        19.8%        10.4%        12.4%  

 

            PAYOUT         
            PERCENTAGE         
      TARGET
OPPORTUNITY
     (sum of weighted
payouts)
    

PAYOUT

AMOUNT

 

ACTUAL PAYOUT UNDER THE 2016 AIP

     $1,024,829        137.9%        $1,413,239  

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 2 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 2016 AIP awards, the Compensation Committee did reduce the award payout levels from the formulaic results.

 

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LONG-TERM COMPENSATION AWARDED OR VESTED IN 2016

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.

2016 LTI AWARD MIX

The charts below show our targeted long-term incentive mix — i.e., the percentage of the total 2016 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 no revisions to the mix for the CEO in 2016. For the other NEOs, in 2014, 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 2016.

2016 LTI MIX FOR CEO

 

LOGO

2016 LTI MIX FOR NEOs (EXCLUDING CEO)

 

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 39.

 

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2016-2018 PERFORMANCE SHARE AWARDS

The 2016-2018 performance cycle began on January 1, 2016, and ends on December 31, 2018. In February 2016, 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 2016-2018 (ROE and Relative TSR) 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 2016-2018 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
         

10.35%

   11.0%    11.65%    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 2016-2018 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 2016 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 2016-2018 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 2016-2018 performance period to remove Genworth Financial and Symetra Financial and add Aegon and Ameriprise Financial, which better reflect the size and scope of our business. With regard to MetLife, in the event that they finalize the announced spinoff of their U.S. retail unit (Brighthouse Financial) during the performance period, the Committee will include data for MetLife through the date of completion of the transaction and thereafter include data for the U.S. retail unit.

 

2016-2018 RELATIVE TSR PERFORMANCE PEER GROUP

 

AEGON

   PRUDENTIAL FINANCIAL

AMERIPRISE FINACIAL

   SUN LIFE FINANCIAL

MANULIFE

   TORCHMARK

METLIFE

   UNUM GROUP

PRINCIPAL FINANCIAL

   VOYA FINANCIAL

If earned, the 2016-2018 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 2016-2018 PERFORMANCE AWARD CYCLE AS OF GRANT DATE*

 

 

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

Dennis R. Glass

     8,564        68,508        137,016  

Randal J. Freitag

     2,667        21,332        42,664  

Wilford H. Fuller

     2,479        19,831        39,662  

Kirkland L. Hicks

     1,197        9,578        19,156  

Mark E. Konen

     2,454        19,628        39,256  

* Amounts do not include dividend equivalents

The grant date fair value of the Options, RSUs and PSAs awarded in 2016 are included in the Summary Compensation Table on page 58. Additional details regarding the 2016-2018 PSAs granted to the NEOs can be found in the Grants of Plan-Based Awards table on page 61.

 

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2014-2016 LTI PROGRAM

The Compensation Committee established the performance-based 2014 LTI Program at its February 2014 meeting, with performance metrics that measure the creation of long-term shareholder value. The Committee approved the equity awards under the 2014 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 24, 2017. Additional details regarding the Options and RSUs granted in 2014 can be found in the Outstanding Equity Awards table on page 63.

2014-2016 Performance Share Awards

At the February 2014 meeting, the Committee established the 2014-2016 performance cycle for PSAs for the period that began January 1, 2014 and ended on December 31, 2016. 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 2014-2016 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 2014-2016 LTI performance period at the threshold, target and maximum levels:

 

ESTIMATED SHARE PAYOUT OPPORTUNITIES UNDER

THE 2014–2016 PERFORMANCE AWARD CYCLE AS OF GRANT DATE*

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

Dennis R. Glass

   5,817    46,534    93,068

Randal J. Freitag

   1,383    11,063    22,126

Wilford H. Fuller

   1,161      9,291    18,582

Mark E. Konen

   1,500    12,001    24,002
* Amounts do not include dividend equivalents.

Mr. Hicks was not with the Company in 2014 at the start of this performance cycle.

 

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In February 2017, the Compensation Committee reviewed the reports and analysis that management provided regarding our performance during the 2014-2016 performance cycle and determined the results for each performance measure, as shown in the graphic below. As of December 31, 2016, the Company’s ROE, was 12.02% which was above the goal at target shown in the table below. The Company’s TSR for the performance period was 33.85%, which was ranked second 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 exceeded the target performance level for the ROE measure and met the maximum performance level for TSR measure), the Compensation Committee approved a payout of the 2014-2016 performance share awards at 178.46% of target.

 

PERFORMANCE GOALS, ACTUAL RESULTS AND ACTUAL PAYOUT PERCENTAGES

FOR THE 2014-2016 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

         
11%   11.65%   12.3%  

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

     
 12.02%   78.46%  

2ND IN PEER% GROUP

(TSR OF 33.85%)

  100%

ROE for the 2014-2016 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 2014 AIP and divided by average Shareholders’ Equity for the year. The definition of ROE used in this calculation can be found in Exhibit 2 on page E-5.

TSR for the 2014-2016 LTI was based on our TSR results for the performance period ranked against the TSR results for the peer group shown below:

 

2014-2016 RELATIVE TSR PEER GROUP

 

GENWORTH FINANCIAL

   PRUDENTIAL FINANCIAL

MANULIFE

   SUN LIFE FINANCIAL

METLIFE

   SYMETRA FINANCIAL 1

PRINCIPAL FINANCIAL

   TORCHMARK

PROTECTIVE LIFE 1

   UNUM GROUP

1. Due to the acquisition of Protective Life and Symetra Financial during the 2014-2016 performance period, they were removed from the Peer Group in accordance with the provisions of the 2014 LTI program.

TSR for the 2014-2016 LTI is 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 30 trading 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 2014-2016 PERFORMANCE SHARE AWARDS

        
         
NAME            TARGET
(# OF SHARES)
         PAYOUT
PERCENTAGE
OF TARGET
        PAYOUT
(# OF SHARES)1
 

Dennis R. Glass

          46,534         178.46%          83,045  

Randal J. Freitag

          11,063         178.46%          19,743  

Wilford H. Fuller

          9,291         178.46%          16,581  

Mark E. Konen

          12,001         178.46%          21,417  

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 63.

Mr. Hicks was not with the Company in 2014 and as a result he is not eligible for a payout for the 2014-2016 LTI performance cycle.

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 “ Compensation Committee” on page 12.

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, our CEO does not play any role in, and is not present for, any discussions regarding his own compensation. Specifically, our CEO and CHRO provide the Compensation Committee with their views and insight on NEO compensation (with respect to the CEO, other than for himself), 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 2016, 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;

 

  both annual incentives and the PSAs have payouts that are capped;

 

  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 2016, 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 the 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 accordance 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 performance-based compensation under 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 67.

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 2016, the Committee found that the estimated costs for these benefits would be reasonable. For more information on the LNC COC Plan, see page 69.

Severance Plans. We also offer our NEOs and our other executive officers a severance plan in the event their jobs are eliminated, other than in connection with our change of control. The plan pays 78 weeks of severance benefits. 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 70.

 

 

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 2016 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 2016. 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

    2016       1,200,000             6,819,263       1,392,003       3,165,600       132,017       556,529       13,265,412  

President and CEO of LNC

    2015       1,169,050             6,816,576       1,350,013       1,924,256       26,864       728,575       12,015,334  
      2014       1,135,000             5,589,052       1,350,010       3,000,940       272,177       848,154       12,195,333  

RANDAL J. FREITAG

    2016       669,708             1,391,021       567,954       1,082,416       13,231       204,529       3,928,859  

Executive Vice President

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

and CFO of LNC

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

WILFORD H. FULLER

    2016       650,000             1,293,170       528,007       1,106,560             273,858       3,851,595  

President, Annuity Solutions,

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

LFD and LFN

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

KIRKLAND L. HICKS7

    2016       575,000       125,000       1,564,586       255,002       752,100             122,993       3,394,681  

Executive Vice President

                   

and General Counsel of LNC

                   

MARK E. KONEN

    2016       683,130             1,279,906       522,587       1,413,239       31,453       226,727       4,157,042  

President, Insurance and

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

Retirement Solutions (Retired)

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

 

1. Represents the grant date fair value of stock awards granted in 2016, 2015 and 2014 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 2016 Form 10-K. Stock awards granted in 2016 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 49. The grant date fair value for the PSAs was calculated in accordance with Topic 718 using a performance factor of 1.09, the probable outcome on the date of grant. The stock awards granted in 2016 are described in more detail in the Grants of Plan-Based Awards table on page 61.

 

Named Executive Officer    Grant Date
Fair Value of
2016 RSU
     Grant Date
Fair Value of
2016 PSA
     Value of 2016
PSA at Maximum
Performance Level
 
      ($)      ($)      ($)  

Dennis R. Glass

     4,176,007        2,643,256        4,864,068  

Randal J. Freitag

     567,965        823,056        1,514,572  

Wilford H. Fuller

     528,027        765,143        1,408,001  

Kirkland L. Hicks

     1,195,037        369,550        680,038  

Mark E. Konen8

     522,596        757,311        1,393,588  

 

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2. Represents the grant-date fair value of Option awards granted in 2016, 2015 and 2014 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 2016 Form 10-K. The Option awards granted in 2016 are described in more detail in the Grants of Plan-Based Awards table on page 61.

3. Represents the AIP awards earned for the 2016 performance period under the ICP. More information on the AIP awards is provided in the Grants of Plan-Based Awards table on page 61 and in the CD&A on pages 48 to 50.

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 66. 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 2016 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 2017. The NEOs did not have any preferential nonqualified deferred compensation earnings.

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

 

Name    Perquisitesa
($)
     Tax Gross-upsb
($)
    

401 (k) Match,
Core and Transition
Contributionsc

($)

    

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

($)

     Total
($)
 

Dennis R. Glass

     69,145               35,000        452,384        556,529  

Randal J. Freitag

                   34,335        170,628        204,963  

Wilford H. Fuller

                   26,500        247,358        273,858  

Kirkland L. Hicks

     38,763        25,403        26,500        32,327        122,993  

Mark E. Konen

     17,200               35,000        174,527        226,727  

 

  (a) For Mr. Glass, $55,811 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 $13,334 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. Hicks, the amount reflects matching charitable gifts made by Lincoln Financial Foundation, Inc. on his behalf, the reimbursement of financial planning expenses and the reimbursement of relocation expenses incurred in connection with his relocation to our principal offices.

For Mr. Konen, the amount reflects $10,000 in matching charitable gifts made by Lincoln Financial Foundation, Inc. on his behalf, the reimbursement of costs of a medical exam 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 60.

 

  (b) Represents the amount of the tax gross-up for Mr. Hicks in connection with amounts paid for his relocation expenses.

 

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

 

  (d) 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 67.

6. Some totals might not reconcile due to rounding.

7. Only compensation for 2016 is provided for Mr. Hicks as he only joined the Company in December 2015.

8. Mr. Konen retired from the Company as of February 28, 2017. He will be eligible to receive a pro rata portion of his 2016 RSU and PSA awards, and not the full amount shown in Footnote 1 above.

 

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NARRATIVE TO SUMMARY COMPENSATION TABLE

2016 Annual Incentive Program

For the 2016 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 2017. These results triggered a payout above target for each NEO. For more details on the 2016 AIP, including the performance measures, targets and final results, see the CD&A, pages 43 to 47.

Perquisites and Personal Benefits

Below are the primary perquisites and personal benefits we offered our NEOs in 2016, not all of which were actually received by each NEO:

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 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, except for Mr. Glass who is also a Director and has a matching gift limit of up to $15,000.

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 67.

 

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GRANTS OF PLAN-BASED AWARDS

The table below shows the awards granted to our NEOs during 2016 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

        36,000        2,400,000        4,800,000                           
       2/24/16                 8,564        68,508        137,016                 2,643,256      
       2/24/16                          117,634              4,176,007      
       2/24/16                             147,677        35.50        1,392,003      

RANDAL J. FREITAG

        12,557        837,135        1,674,270                           
       2/24/16                 2,667        21,332        42,664                 823,056      
       2/24/16                          15,999              567,965      
       2/24/16                             60,254        35.50        567,954      

WILFORD H. FULLER

        23,400        1,040,000        2,080,000                           
       2/24/16                 2,479        19,831        39,662                 765,143      
       2/24/16                          14,874              528,027      
       2/24/16                             56,016        35.50        528,007      

KIRKLAND L. HICKS

        8,625        575,000        1,150,000                           
       2/24/16                 1,197        9,578        19,156                 369,550      
       2/24/16                          33,663              1,195,037      
       2/24/16                             27,053        35.50        255,002      

MARK E. KONEN

        25,621        1,024,829        2,049,659                           
       2/24/16                 2,454        19,628        39,256                 757,311      
       2/24/16                          14,721              522,596      
       2/24/16                                                                       55,441        35.50        522,587      

1. Represents potential 2016 AIP awards. Actual amounts the NEOs earned are reflected in the Summary Compensation Table. More information on the 2016 AIP awards, including the applicable performance targets, is provided in the CD&A on pages 43 to 47.

2. Represents 30.4% of our CEO’s 2016 LTI target, and 40% of the other NEO’s 2016 LTI target, each awarded as PSAs for the 2016-2018 performance period, payable 100% in shares. Earned awards for the 2016-2018 performance cycle will be determined in the first quarter of 2019 (for the performance period ending December 31, 2018), and the amount of the award that is earned may range from 0% to 200% of the target amount depending upon the attainment of pre-established performance goals. For more information on the 2016-2018 performance awards and the performance goals that apply to these awards, see pages 48 to 50 in the CD&A. Dividend equivalents accrue on the LTI performance share awards, based on normal dividend rates, and are payable only in stock and only if the related LTI award is actually earned based on certification of performance.

3. Represents 52.2% of our CEO’s 2016 LTI target, and 30% of the other NEO’s 2016 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 48. 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 2016 LTI target, and 30% of the other NEO’s 2016 LTI target, each awarded in the form of Options as described in more detail in the CD&A on page 48. 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. The 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 2016 Form 10-K.

6. Mr. Konen retired from the Company as of February 28, 2017. He will be eligible to receive a pro rata portion of his 2016 RSU and PSA awards, and not the full amount shown in the table above.

 

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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 2016 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.

 

  the 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 meeting the requirements for “retirement” in the applicable award agreement, 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 prorated 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 2016 will vest on a pro rata basis if an executive officer voluntarily leaves the Company with at least seven 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 or 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 meeting the requirements for “retirement”; 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 2016.

 

      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            60,104        3,983,092        87,042 4    5,768,279    
       67,807        33,904        50.77        02/24/24            68,989        4,571,901        83,882 5    5,558,860    
       34,153        68,307        58.26        02/25/25            115,564        7,658,426        139,310 6    9,232,074    
          147,677        35.50        02/24/26                     

RANDAL J. FREITAG

     4,373           70.66        02/22/17            8,697        576,350        20,692 4    1,371,259    
       6,478           25.78        02/22/20            8,830        585,164        23,548 5    1,560,526    
       25,179           30.64        02/23/21            16,266        1,077,948        43,378 6    2,874,660    
       52,198           24.99        02/22/22                     
       61,430           29.54        02/28/23                     
       21,158        10,580        50.77        02/24/24                     
       12,583        25,168        58.26        02/25/25                     
          60,254        35.50        02/24/26                     

WILFORD H. FULLER

     54,359           29.54        02/28/23            7,303        483,970        17,378 4    1,151,669    
       17,767        8,885        50.77        02/24/24            6,468        428,634        17,248 5    1,143,025    
       9,217        18,436        58.26        02/25/25            1,209        80,120        3,220 5    213,389    
       1,725        3,452        57.49        05/01/25            14,953        990,935        40,326 6    2,672,404    
          56,016        35.50        02/24/26                     

KIRKLAND L. HICKS

        27,053        35.50        02/24/26            34,226        2,268,157        19,476 6    1,290,675    

MARK E. KONEN

     44,140           70.66        02/22/17            9,100        603,057        22,447 4    1,487,563    
       67,747           29.54        02/28/23            8,168        541,293        22,282 5    1,476,628    
          11,476        50.77        02/24/24            448        29,689        1,226 5    81,247    
       11,907        23,815        58.26        02/25/25            14,799        980,730        39,912 6    2,644,968    
       655        1,313        57.49        05/01/25                     
                55,441        35.50        02/24/26                                         

 

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1. These Options were not exercisable at the end of 2016. The following table shows the dates when Options in this column vest and become exercisable.

 

Expiration Dates    Vesting Dates
2/24/2024    Balance vested on 2/24/2017
2/25/2025*    Balance vests equally on 2/25/2017 on 2/25/2018
5/1/2025*    Balance vests equally on 5/1/2017 on 5/1/2018
2/24/2026*    Vests in 3 equal annual installments beginning on 2/24/2017

* Mr. Konen will receive a prorated amount of shares for the unvested awards listed above upon his retirement from the company.

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

 

     Vested On    Vest On    Vest On    Vest On
Dennis R. Glass    60,104    68,989    115,564     
     2/24/2017    2/25/2018    2/24/2019    N/A
Randal J. Freitag    8,697    8,830    16,266     
     2/24/2017    2/25/2018    2/24/2019    N/A
Wilford H. Fuller    7,303    6,487    1,209    14,953
     2/24/2017    2/25/2018    5/1/2018    2/24/2019
Kirkland L. Hicks    34,226           
     2/24/2019    N/A    N/A    N/A
Mark E. Konen    9,100    8,168*    448*    14,799*
     2/24/2017    2/25/2018    5/1/2018    2/24/2019

* Mr. Konen will receive a prorated amount of shares for the unvested awards listed above upon his retirement from the company.

The RSU 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 30, 2016, which was $66.27.

 

4. Represents PSAs that were granted in connection with the 2014-2016 performance cycle and vested on February 22, 2017, plus accrued dividend equivalents. Awards vested based on the actual performance certified by the Compensation Committee on February 22, 2017.

 

5. 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 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 2018 for the 2015-2017 performance cycle.

 

6. Represents PSAs granted in connection with the 2016-2018 performance cycle. Because our performance as of the end of the last fiscal year for this performance cycle was above target, these awards are shown at maximum, 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 2019 for the 2016-2018 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 2016.

 

      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

     273,532        6,123,991        219,305        7,906,238      

Randal J. Freitag

     15,966        101,971        45,863        1,654,606      

Wilford H. Fuller

     63,694        2,047,205        40,755        1,474,409      

Kirkland L. Hicks

                               

Mark E. Konen

     204,000        3,910,770        54,183        1,963,320      

 

  1. For each NEO this includes shares delivered for RSUs that vested on February 28, 2016, and PSAs that vested on February 24, 2016. For Mr. Glass, the amount also reflects shares withheld on February 24, 2016 to cover employment taxes due on a grant of RSUs to comply with IRC tax-withholding regulations that apply to equity grants with early retirement provisions. For Mr. Fuller and Mr. Konen, the amount also reflects shares withheld on November 11, 2016 to cover employment taxes due on grants of RSUs to comply with IRC tax-withholding regulations that apply to equity grants with early 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: $35.50 for February 24, 2016; $37.51 for February 28, 2016; and $60.11 for November 11, 2016.

 

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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 following table shows the present value of the “frozen” accrued benefit, as of December 31, 2016, under the LNC Retirement Plan and the Excess Plan for each of our NEOs except for Mr. Fuller and Mr. Hicks, who are not eligible to participate in either plan.

 

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        624,124             
    

Excess Plan

     13        2,168,730             

Randal J. Freitag

   LNC Retirement Plan      11.5        279,965             
    

Excess Plan

     11.5        13,646             

Wilford H. Fuller

          N/A        N/A        N/A      

Kirkland L. Hicks        

          N/A        N/A        N/A      

Mark E. Konen

   LNC Retirement Plan      12        368,705             
    

Excess Plan

     12        329,276             

 

  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 2017.

 

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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 2016, 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 2016. 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 2016 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 2016, the special executive credits for our NEOs, expressed as a percentage of Total Pay, were: 2.4% for Mr. Freitag; 5% for Mr. Fuller; 5% for Mr. Hicks; 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 2016. It also shows each NEO’s aggregate balance under the DC SERP as of December 31, 2016.

 

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

     187,455        452,384        2,261,921        499,483        24,222,646       

Randal J. Freitag

     79,438        170,628        127,160        101,050        1,787,212       

Wilford H. Fuller

     128,963        247,358        918,886