DEF 14A 1 lnc-def14a_20190524.htm DEF 14A lnc-def14a_20190524.htm

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 

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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)

 

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Radnor, Pennsylvania / April 12, 2019

DEAR FELLOW SHAREHOLDER:

You are invited to attend our 2019 Annual Meeting of Shareholders, to be held Friday, May 24 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 2018 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 2018 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,

 

William H. Cunningham

Chairman of the Board

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

 

 


 

 

 

 

 

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

 

 

 

 

 

 

 

 

 

May 24, 2019

 

9:00 a.m.

 

The Ritz-Carlton Hotel

 

 

local time

 

10 Avenue of the Arts

 

 

 

 

Philadelphia, Pennsylvania 19102

 

 

 

 

 

Mailing date: April 12, 2019

The purpose of the meeting is to:

1. elect eleven directors for a one-year term expiring at the 2020 Annual Meeting of Shareholders;

2. ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2019;

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

4. consider and vote upon up to two shareholder proposals if properly presented at the meeting; and

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

You may vote at the Annual Meeting if you were a shareholder of record at the close of business on March 20, 2019. Please cast your votes by one of the following methods:

 

 

 

 

 

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 85 for more information.

For the Board of Directors,

 

Nancy A. Smith

Senior Vice President & Secretary

Lincoln National Corporation

Radnor, Pennsylvania

 

 

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

 

 


 

 

 

 

TABLE OF CONTENTS

 

PROXY SUMMARY

1

 

 

GOVERNANCE OF THE COMPANY

6

 

 

AGENDA ITEM 1 - ELECTION OF DIRECTORS

17

 

 

Nominees for Director

17

 

 

COMPENSATION OF OUTSIDE DIRECTORS

23

 

 

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

27

 

 

Independent Registered Public Accounting Firm Fees and Services

27

 

 

Audit Committee Pre-Approval Policy

28

 

 

Other Information

28

 

 

Audit Committee Report

29

 

 

AGENDA ITEM 3 - ADVISORY PROPOSAL ON EXECUTIVE COMPENSATION

30

 

 

COMPENSATION DISCUSSION & ANALYSIS

32

 

 

Executive Summary

33

 

 

Compensation Committee Report

58

 

 

EXECUTIVE COMPENSATION TABLES

59

 

 

Summary Compensation Table

59

 

 

Grants of Plan-Based Awards

62

 

 

Outstanding Equity Awards at Fiscal Year-End

64

 

 

Option Exercises and Stock Vested

66

 

 

Pension Benefits

67

 

 

Nonqualified Deferred Compensation

68

 

 

Potential Payments Upon Termination or Change of Control

70

 

 

CEO Pay Ratio

75

 

 

AGENDA ITEM 4 - SHAREHOLDER PROPOSAL REGARDING INDEPENDENT BOARD CHAIRMAN

76

 

 

AGENDA ITEM 5 – SHAREHOLDER PROPOSAL REGARDING AMENDING SHAREHOLDER PROXY ACCESS

79

 

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

82

 

 

RELATED-PARTY TRANSACTIONS

82

 

 

SECURITY OWNERSHIP

83

 

 

ANNUAL MEETING INFORMATION

85

 

 

GENERAL INFORMATION

89

 

 

Shareholder Proposals for the 2020 Annual Meeting

89

 

 

Incorporation by Reference

89

 

 

Compliance with Beneficial Ownership Reporting

90

 

 

Annual Report

90

 

 

Additional Voting Matters

90

 

 

EXHIBIT 1 - RECONCILIATION OF NON-GAAP MEASURES

E-1

 

 

EXHIBIT 2 DEFINITIONS FOR INCENTIVE COMPENSATION PROGRAMS

E-5

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 24, 2019: This proxy statement and the accompanying annual report are available at: www.proxydocs.com/lnc.

 

 

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

 

 


 

 

 

 

 

PROXY SUMMARY

 

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 24, 2019

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, 2019

 

 

 

VOTING MATTERS  

 

AGENDA ITEM

OUR BOARD’S VOTING

RECOMMENDATION

WHERE TO FIND

MORE INFORMATION

 

 

 

 

1.

Election of eleven directors for a one-year term expiring at the 2020 Annual Meeting of Shareholders.

FOR each director nominee

Page 17

 

 

 

 

2.

Ratification of the appointment of Ernst & Young LLP as the
independent registered public accounting firm for 2019.

FOR the ratification

Page 27

 

 

 

 

3.

Approval of an advisory resolution on the compensation of our named executive officers.

FOR the resolution

Page 30

4.

Respond to an advisory shareholder proposal regarding the amendment of our governing documents to provide an independent chair of the board.

AGAINST the proposal

Page 76

5.

Respond to an advisory shareholder proposal regarding an amendment to our proxy access bylaw.

AGAINST the proposal

Page 79

 

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

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PROXY SUMMARY

 

 

 

 

BOARD OF DIRECTOR NOMINEES  

 

NAME

OCCUPATION

AGE

DIRECTOR

SINCE

SELECTED SKILLS/QUALIFICATIONS

INDEPENDENT

COMMITTEE

MEMBERSHIPS

Deirdre P. Connelly

58

2016

business operations and strategic planning

Yes

Audit

Retired President, North

 

 

finance and capital management

 

• Corporate

American Pharmaceuticals of

 

 

corporate governance

 

  Governance

GlaxoSmithKline

 

 

 

 

 

William H. Cunningham

75

2006

finance and capital management

Yes

Compensation

• Corporate

    Governance

• Executive (Chair)

Finance

Professor, University of

Texas at Austin and James

J. Bayless Chair for Free

Enterprise at the University’s

McCombs School of Business

 

 

marketing/public relations

talent management

 

 

 

corporate governance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dennis R. Glass

69

2006

business operations and strategic planning

No

Executive

President and Chief

 

 

finance and capital management

 

 

Executive Officer, Lincoln

 

 

talent management

 

 

National Corporation

 

 

 

 

 

George W. Henderson, III

70

2006

accounting

Yes

Audit

Retired Chairman and Chief

 

 

finance and capital management

 

Finance

Executive Officer, Burlington

 

 

 

 

 

Industries, Inc.

 

 

 

 

 

 

 

 

 

 

 

Eric G. Johnson

68

1998

business operations and strategic planning

Yes

Compensation

President and Chief

 

 

finance and capital management

 

Executive

Executive Officer,

 

 

marketing/public relations

 

Finance (Chair)

Baldwin Richardson

 

 

 

 

 

Foods Company

 

 

 

 

 

 

 

 

 

 

 

Gary C. Kelly

64

2009

business operations and strategic planning

Yes

Audit

Chairman of the Board and

 

 

finance and capital management

 

Finance

Chief Executive Officer,

 

 

public accounting

 

 

Southwest Airlines Co.

 

 

 

 

 

M. Leanne Lachman

76

1985

business operations and strategic planning

Yes

Audit (Chair)

President, Lachman

 

 

finance and capital management

 

 

Associates LLC and

 

 

marketing/public relations

 

 

Executive in Residence,

 

 

corporate governance

 

 

Columbia Graduate School

 

 

risk management

 

 

of Business

 

 

 

 

 

Michael F. Mee

76

2001

finance and capital management

Yes

Compensation

Retired Executive Vice

 

 

public accounting

 

Executive

President and Chief

 

 

business operations and strategic planning

 

Finance

Financial Officer, Bristol-

 

 

 

 

 

Myers Squibb Company

 

 

 

 

 

Patrick S. Pittard

73

2006

finance and capital management

Yes

Compensation

Chief Executive Officer,

 

 

public accounting

 

  (Chair)

BDI DataLynk, LLC

 

 

talent management

 

 

 

 

 

corporate governance

 

 

 

 


 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

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PROXY SUMMARY

 

BOARD OF DIRECTOR NOMINEES (CONT’D.) 

 

NAME

OCCUPATION

AGE

DIRECTOR

SINCE

SELECTED SKILLS/QUALIFICATIONS

INDEPENDENT

COMMITTEE

MEMBERSHIPS

Isaiah Tidwell

74

2006

accounting

Yes

Audit

Retired Executive Vice

 

 

risk management

 

Corporate

President and Georgia

 

 

corporate governance

 

  Governance

Wealth Management

 

 

 

 

  (Chair)

Director, Wachovia

 

 

 

 

 

Bank, N.A.

 

 

 

 

 

 

Lynn M. Utter

56

2017

business operations and strategic planning

Yes

Corporate

Principal and Chief Talent

 

 

risk management

 

  Governance

Officer, Atlas Holdings LLC

 

 

corporate governance

 

Finance

 

 

 

 

 

 

 

 

Our director nominees provide the Board with the comprehensive diversity of relative skill sets needed to provide effective oversight in light of the Company’s industry, risks and current and long-term strategic needs.

 

 

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

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PROXY SUMMARY

 

 

 

 

GOVERNANCE HIGHLIGHTS 

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

Independent Chairman of the Board

Robust stock ownership guidelines for directors and executive officers

All directors, except CEO, are independent

Prohibition on pledging, hedging and speculation in our securities

All Audit, Compensation, Corporate Governance, and Finance Committee members are independent

Executive compensation program strongly links pay and performance

Annual election of all directors

Caps on awards under annual and long-term incentive programs

Majority voting standard for election of directors with director resignation policy for directors in uncontested elections

No repricing or exchange of underwater stock options without shareholder approval

Independent directors meet regularly in executive session

Clawback provisions on equity awards

Annual Board, Committee and individual director evaluations

Double-trigger vesting provisions for equity awards following a change of control

Shareholder right to call special meetings (10% ownership threshold)

No tax-gross-up provisions upon a change of control

“Proxy access” rights to holders owning at least 3% of outstanding shares for 3 years

No employment agreements with NEOs

No super majority voting provisions in Restated Articles of Incorporation and Bylaws

Limited perquisites for executive officers

 

FINANCIAL HIGHLIGHTS

 

Our full year 2018 results included the following highlights:

 

 


 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

4

 


 

 

 

 

 

PROXY SUMMARY

 

 

2018 SHAREHOLDER ENGAGEMENT AND RESPONSE TO FEEDBACK

 

In the Fall of 2018 we reached out to investors representing close to half of our shares outstanding to discuss various key corporate governance-related matters, including the ownership threshold for special shareholder meetings. As a result of this outreach, we engaged substantively with almost half of the contacted investors. The Board took into account the feedback received during this engagement effort when determining to amend the Company’s Bylaws in November 2018 to reduce to 10% the percentage of outstanding stock required for shareholders to call a special meeting. In addition, based on feedback received from investors, and in light of the continued strong shareholder support for our overall pay practices and NEO compensation at the 2018 Annual Meeting, the Compensation Committee decided to maintain our general principles and philosophy in structuring executive compensation for 2019.

 

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 32. At the 2018 Annual Meeting, our shareholders expressed continued strong support for our executive compensation programs, with over 92% of votes cast in favor of the advisory resolution on executive compensation.

PAY FOR PERFORMANCE

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

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

increasing shareholder value.

2018 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 2018 could vary significantly based on company performance, including stock-price performance.

 

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 59. For additional details about our executive compensation programs and our NEOs’ fiscal year 2018 compensation, please see “Compensation Discussion & Analysis” beginning on page 32 and “Executive Compensation Tables” beginning on page 59.

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

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GOVERNANCE

 

Board Structure and Leadership

 

Proxy Statement

ANNUAL MEETING OF SHAREHOLDERS | MAY 24, 2019

The Board of Directors (the “Board”) of Lincoln National Corporation (the “Company,” “we,” “us,” “LNC” or “Lincoln”) is soliciting proxies in connection with the proposals to be voted on at the 2019 Annual Meeting of Shareholders, which will be held beginning at 9:00 a.m. local time on Friday, May 24 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 12. When we refer to our 2019 Annual Meeting of Shareholders (the “Meeting” or the “Annual Meeting”) we are also referring to any meeting that results from an adjournment of the Annual Meeting.

 

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 is responsible for directing and overseeing the management of the Company’s business in the best interests of our 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

Our Board has eleven members, ten of whom are non-employees, or outside directors. The Board has determined that all ten outside directors are independent, as discussed below. The Board may fill a director vacancy or reduce the size of the Board at any time 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 be made based on the best interests of the Company at the given time.

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 and regulatory, cybersecurity, compensation,


 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

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Our Corporate Governance Guidelines

 

GOVERNANCE

 

strategic and competitive risks. The Board reviews the most significant risks the Company faces and the manner in which our executives manage these risks. The Board has also delegated certain of its risk oversight efforts to its committees, as shown below. This structure enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships. We believe that the separation of the Chairman and CEO roles supports the Board’s oversight role.

  

BOARD AND COMMITTEES: AREAS OF RISK OVERSIGHT

 

 

FULL BOARD

 

 

AUDIT

 

 

COMPENSATION

 

 

CORPORATE GOVERNANCE

 

 

FINANCE

 

 

Strategy

 

Operations

 

Competition

 

Financial strategies and transactions

 

Enterprise risk management efforts

 

Financial statements

 

Financial reporting process

 

Accounting and audit matters

 

Legal, compliance and regulatory matters

Cybersecurity

 

Compensation policies and practices

 

Executive incentive compensation and stock ownership

 

Executive retention and succession planning

 

Board governance

Sustainability and corporate social responsibility

 

 

 

Investment policies, strategies and guidelines

 

Capital management and structure

 

Financial plan

 

OUR CORPORATE GOVERNANCE GUIDELINES

The Board’s Corporate Governance Guidelines (the “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, Corporate Governance and Finance Committees.

Our Board conducts an annual review of the performance of the Board and the Audit, Compensation, Corporate Governance, and Finance Committees. Our directors also conduct an annual review of their individual performance.

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.

Our Board elects its Chairman annually and, if it has not elected a non-executive Chairman, may designate a Lead Director from among the Company’s outside directors who is empowered with the same functions.

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 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 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.

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

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GOVERNANCE

 

Director Nomination Process

 

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

Directors Connelly, Cunningham, Henderson, Johnson, Kelly, Lachman, Mee, Pittard, Tidwell and Utter are independent.

All members of the Audit, Compensation, Corporate Governance and Finance Committees are independent under the applicable standards.

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 Guidelines, the Board is responsible for selecting its nominees. 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 underrepresented 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.

 

DIRECTOR QUALIFICATIONS

The Corporate Governance Committee reviews with the Board the appropriate skills and characteristics required of directors in the context of the Board’s current make-up and each director nominee’s ability to oversee the Company’s strategies and risks. 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.

 

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

As set forth in our Guidelines, Board refreshment over time is critical to ensuring that the Board as a whole maintains the appropriate balance of tenure, diversity, skills and experience needed to provide effective oversight in light of the Company’s current and long-term strategic needs. The Board does not believe that arbitrary term limits for directors based on age or years of service are appropriate, as they can result in the Company losing the valuable contribution of directors who have over time developed increased insight into the Company and its operations. The Company benefits from a mix of these experienced directors with a deep understanding of the Company and newer directors who bring fresh perspectives. However, a director’s service should not outlast his or her ability to contribute and consequently the Board does not believe that directors should expect to be renominated continually. Each director’s continued tenure is reconsidered annually, taking

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

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Annual Board, Committee and Individual Director Nominations

 

GOVERNANCE

 

into account the results of the Board’s annual self-evaluation, annual individual director peer evaluations, results of voting by shareholders in annual director elections and the Company’s needs.

 

Two new directors have been elected to our Board in the last three years. The Board will continue to review its composition and structure, balancing the need for continuity and experience with fresh ideas and perspectives.

 

DIRECTOR NOMINEE SELECTION PROCESS

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

When identifying potential director candidates — whether to replace a director who has retired or resigned or to expand the Board to gain additional capabilities — the Corporate Governance 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, including whether or not the nominee would be considered “independent” under SEC rules and NYSE listing standards) and seeks candidates with those qualifications.

Although not required to do so, the Corporate Governance 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 Corporate Governance Committee will also consider nominations from shareholders. Such nominations must be submitted in writing to our Corporate 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 2020 Annual Meeting” on page 89 and in our Amended and Restated Bylaws (“bylaws”), which can be found on our website at www.lfg.com. Any such recommendation must be received by the Corporate Secretary no earlier than January 25, 2020, nor later than February 24, 2020.

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

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 Corporate Governance Committee will do so, and other directors may be asked to interview the candidate as well. Upon completing the evaluation and the interview, the Corporate Governance Committee recommends to the Board whether to nominate the candidate.

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, COMMITTEE AND INDIVIDUAL DIRECTOR EVALUATIONS

Our Board recognizes that a thorough, constructive evaluation process enhances our Board's effectiveness and is an essential element of good corporate governance. Accordingly, every year, our Corporate Governance Committee oversees a Board, Committee and individual director evaluation process, which is designed to elicit feedback and recommendations from the directors that will improve the effectiveness of the Board.

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

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GOVERNANCE

 

Shareholder Engagement and Response to Feedback

 

 

In general, our Board evaluations cover a variety of topics including the Company’s strategy, financial performance, risk management and succession planning, as well as:

Board and committee composition, including skills, background and experience;

Areas where the Board and committees should increase their focus;

Board understanding of, and effectiveness in overseeing, its responsibilities;

Satisfaction with the Board schedule, agendas, topics and encouragement of open discussion;

Satisfaction with director performance, including that of Board and committee chairs in those positions;

Satisfaction with committee structure and composition; and

Board and committee information needs and quality of materials presented;

Access to management, experts and internal and external resources.

Each year, the Corporate Governance Committee reexamines the evaluation process to ensure that the process allows directors the opportunity to provide actionable feedback on the functioning of the Board as a whole as well as the performance of individual directors. The Board and each Committee then conduct their annual self-evaluations through the use of a written questionnaire that covers the topics discussed above. The Company’s Corporate Secretary aggregates and summarizes the directors’ responses to the questionnaires, highlighting comments and year-over-year trends. Responses are not attributed to specific Board or Committee members to promote candor. Using the questionnaires and summaries of written evaluations as guides, our Chairman reviews the results of the Board evaluation and each Committee chair reviews the results of each Committee evaluation. The evaluations and summaries are then shared and discussed with the full Board and each Committee during executive sessions.

Each director also participates in an annual individual director peer evaluation through which the director assesses the performance of and provides feedback on his or her fellow directors. As discussed above, the Corporate Governance Committee reviews the results of these individual director assessments, as well as of the Board and Committee self-evaluations, when considering each director’s continued service on the Board.

 

SHAREHOLDER ENGAGEMENT AND RESPONSE TO FEEDBACK

We are committed to a robust shareholder engagement program. The Board values our shareholders’ perspectives, and feedback from our shareholders on our business, corporate governance, executive compensation, and sustainability practices are important considerations for Board discussions throughout the year. Over the course of the year, we seek opportunities to connect with our investors to gain and share valuable insights into current and emerging global governance trends on those topics. In addition to speaking with our institutional investors, we respond to inquiries from our individual investors and other stakeholders. Our Board appreciates the feedback it receives from these discussions, and considers the feedback when structuring governance, compensation and sustainability practices. Our meetings and interactions with shareholders are designed to better understand how our shareholders perceive Lincoln and to provide our investors an opportunity to discuss matters that they think deserve attention.

In addition to engaging with investors at conferences and meetings throughout the year, in the Fall of 2018 we reached out to 27 of our global institutional investors representing 48% of our shares outstanding to discuss various key corporate governance-related matters.  As a result of this outreach, we engaged substantively with close to half of these investors via teleconference or email, and the discussions covered a wide range of topics, including executive compensation, Board refreshment and social and environmental considerations. Overall, the feedback received from investors was positive, with shareholders recognizing our good governance and proactive adoptions of best governance practices.

Among the topics discussed with investors during the Fall engagement was the ownership threshold for special shareholder meetings.  A shareholder resolution at our 2018 Annual Meeting requesting a 10% ownership threshold for shareholders to call a special meeting passed with 51.47% of the vote. Following the 2018 Annual Meeting, the Board determined to review the Company’s special meetings bylaw provision and, in connection therewith, to consider investor views and corporate governance practices. During our discussions with shareholders, they expressed mixed views on the appropriate ownership threshold; some viewed a 10% threshold as appropriate while others expressed a preference for a higher threshold. In

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

10

 


 

 

 

Board and Committee Meetings

 

GOVERNANCE

 

part due to this feedback, the Board took action to amend the Company’s bylaws in November 2018 to reduce to 10% the percentage of outstanding stock required for shareholders to call a special meeting.

Executive compensation was also a topic of discussion with investors during the Fall engagement. Based on the feedback received from investors, and in light of the continued strong shareholder support for our overall pay practices and NEO compensation at the 2018 Annual Meeting, the Compensation Committee decided to maintain our general principles and philosophy in structuring executive compensation for 2019.

 

BOARD AND COMMITTEE MEETINGS

The Board met four times during 2018, 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 2018 Annual Meeting.

 

 

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 2018. 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 2018 (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

 

Patrick S. Pittard

 

C

 

 

 

 

Isaiah Tidwell

M

 

C

 

 

 

Lynn M. Utter

 

 

M

 

M

 

Number of Meetings in 2018

8

6

6

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 nine (9) such consents in 2018.

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.

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

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GOVERNANCE

 

Board Committees

 

 

 

AUDIT COMMITTEE

Chair: Lachman
Members: Connelly, Henderson, Kelly and Tidwell

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; (5) our risk assessment and risk management policies and processes; and (6) our policies regarding information technology security and protection from cyber risks

 

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

 

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

 

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

 

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

 

 

 

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

 

▪  reviewing the qualifications and backgrounds of senior risk officers

 

▪  preparing the report required for inclusion in our annual proxy statement

 

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

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Board has determined that at least one of its members meets 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 27.

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

12

 


 

 

 

Board Committees

 

GOVERNANCE

 

 

 

 

COMPENSATION COMMITTEE

Chair: Pittard
Members: Cunningham, Johnson and Mee

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 Compensation Committee’s activities to the Board on a regular basis and making any recommendations the Compensation 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 32.

 

 

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

13

 


 

 

 

GOVERNANCE

 

Board Committees

 

 

 

CORPORATE GOVERNANCE COMMITTEE

Chair: Tidwell
Members: Connelly, Cunningham and Utter

The principal functions of the Corporate Governance Committee include:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

identifying individuals qualified to become Board members

 

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

 

 

 

 

 

 

 

 

 

making recommendations to the Board regarding the compensation program for directors

 

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

 

 

 

 

 

 

 

 

 

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

 

developing and recommending to the Board standards

for determining the independence of 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.

 

 

 

 

 

 

 

 

 

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

Chair: Cunningham
Members: Glass, Johnson and Mee

 

 

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.

 

 


 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

14

 


 

 

 

Board Committees

 

GOVERNANCE

 

 

 

FINANCE COMMITTEE

Chair: Johnson
Members: Cunningham, Henderson, Kelly, Mee and Utter

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

 

– 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 Finance Committee’s activities to the Board on a regular basis and making any recommendations the Finance 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

 

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

 

 

▪  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.

 

 

 

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

15

 

 


 

 

 

GOVERNANCE

 

Director Orientation and Continuing Education

 

 

DIRECTOR ORIENTATION AND CONTINUING EDUCATION

Director education is an ongoing, year-round process, which begins when a director joins our Board. Upon joining our Board, new directors are provided with a comprehensive orientation to our Company, including our business, strategy and governance. New directors participate in an orientation program with senior business and functional leaders from all areas of the Company, during which there is discussion of strategic priorities and key risks and opportunities. On an ongoing basis, directors receive presentations on a variety of topics related to their work on the Board and within the insurance and financial services industries, both from senior management and from experts outside of the Company, for example at our annual Board retreat. We also encourage directors to enroll in continuing education programs sponsored by third parties at our expense.  

 

COMMUNICATIONS WITH DIRECTORS

Shareholders and others who wish to communicate with the full Board or its outside (nonexecutive) 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.

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

16

 


 

 

ITEM 1

 

 

ELECTION OF DIRECTORS

 

 

ITEM 1 | ELECTION OF DIRECTORS

 

NOMINEES FOR DIRECTOR

Eleven directors will be up for election at the 2019 Annual Meeting to hold office until the next annual meeting and until their respective successors are elected and qualified. Of the directors standing for election, only 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.

 

 

 

 

DEIRDRE P. CONNELLY

 

RETIRED PRESIDENT

NORTH AMERICAN PHARMACUETICALS

OF GLAXOSMITHKLINE

 

AGE: 58    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 to 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.

 

 

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

17

 

 


ITEM 1

 

 

ELECTION OF DIRECTORS

 

Nominees for Director

 

 

 

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: 75    DIRECTOR SINCE: 2006

 

Non-Executive Chairman of the Board since: 2009

 

Chair, Executive Committee

 

Member, Compensation, Corporate Governance and Finance Committees

 

 

 

 

 

 

 

 

 

 

 

CAREER

Mr. Cunningham has been a professor at 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.

 

 

 


 

 

 

 

 

DENNIS R. GLASS

 

PRESIDENT AND CHIEF
EXECUTIVE OFFICER
OF LINCOLN NATIONAL
CORPORATION

 

AGE: 69    DIRECTOR SINCE: 2006

 

Member, Executive Committee

 

 

 

 

 

 

 

 

CAREER

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

 

 

 

 

 

 

QUALIFICATIONS

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

 

 

 

 

 

 

OTHER PUBLIC
COMPANY BOARDS

 

 

None in past 5 years.

 

 

 

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

18

 


 

 

 

 

 

COMPENSATION OF OUTSIDE DIRECTORS

 

 

 

GEORGE W. HENDERSON, III

 

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

 

AGE: 70    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, accounting and financial reporting.

 

 

 

 

 

 

OTHER PUBLIC
COMPANY BOARDS

 

 

Bassett Furniture Industries, Inc., 2004–present.

 

 

 

 

 


 

 

 

 

ERIC G. JOHNSON

 

PRESIDENT AND CEO OF

BALDWIN RICHARDSON

FOODS COMPANY

 

AGE: 68     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.

 

 

 

 

 

 

PRIOR PUBLIC
COMPANY BOARD
SERVICE IN
PAST 5 YEARS

 

 

SUPERVALU, INC., 2013–2018.

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

19

 

 


 

 

 

COMPENSATION OF DIRECTORS

 

 

 

 

 

GARY C. KELLY

 

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

 

AGE: 64    DIRECTOR SINCE: 2009

 

Member, Audit and Finance Committees

 

 

 

 

 

 

 

 

CAREER

Mr. Kelly has been CEO of Southwest Airlines since 2004, and Chairman since 2008. He also served as President of Southwest from 2008 to 2017. Prior to that 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.

 

 

 

 

 

 

 

 

 

M. LEANNE LACHMAN

 

PRESIDENT OF LACHMAN
ASSOCIATES LLC AND

EXECUTIVE-IN-RESIDENCE,
COLUMBIA GRADUATE
SCHOOL OF BUSINESS

 

AGE: 76    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, an 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.

 

 

 

 

 

 

PRIOR PUBLIC
COMPANY BOARD
SERVICE IN
PAST 5 YEARS

 

 

Liberty Property Trust, 1994–2018.

 

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

20

 


 

 

 

 

 

COMPENSATION OF OUTSIDE DIRECTORS

 

 

 

MICHAEL F. MEE

 

RETIRED EXECUTIVE VICE

PRESIDENT AND CHIEF

FINANCIAL OFFICER OF

BRISTOL-MYERS SQUIBB

COMPANY

 

AGE: 76    DIRECTOR SINCE: 2001

 

Member, Compensation, Executive 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.

 

 

 

 

 

 

 

 

 

 

 

PATRICK S. PITTARD

 

CHIEF EXECUTIVE OFFICER OF
BDI DATALYNK, LLC

 

AGE: 73    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 has served as CEO of BDI DataLynk, LLC, a company that provides fiber optic technician training services, since 2018. Prior to that he served as Chair and CEO of Southern Fiber Company from 2017 to 2018. Previously, Mr. Pittard served as CEO of Patrick Pittard Advisors LLC, a firm providing “C-level” services such as executive search and talent assessment. He also serves as a Distinguished Executive-in-Residence at the Terry School of Business at the University of Georgia. Earlier in his career, 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 Partners Funds, Inc., 2001–present.

 

 

 

 

 

 

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COMPENSATION OF DIRECTORS

 

 

 

 

 

 

ISAIAH TIDWELL

 

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

 

AGE: 74     DIRECTOR SINCE: 2006

 

Chair, Corporate 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.

 

 

 

 

 

 

PRIOR PUBLIC
COMPANY BOARD
SERVICE IN
PAST 5 YEARS

 

 

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

Synder’s–Lance, Inc. (acquired by Campbell Soup Company), 1995–2018.

 

 

 

 

 

 

LYNN M. UTTER

 

PRINCIPAL, CHIEF TALENT OFFICER OF

ATLAS HOLDINGS LLC

 

AGE: 56     DIRECTOR SINCE: 2017

 

Member, Corporate Governance and Finance Committees

 

 

 

 

 

 

 

 

 

 

 

CAREER

Ms. Utter has served as a Principal and Chief Talent Officer of Atlas Holdings LLC, a private investment firm that owns and operates a portfolio of companies in a variety of industrial fields, since July 2018.  Prior to that Ms. Utter served as the CEO and a director of First Source, LLC, from 2016 to 2018. She previously served as the President and Chief Operating Officer of Knoll Office, a designer and manufacturer of office furniture products, from February 2012 to April 2015. She also served as President and Chief Operating Officer of Knoll North America from 2008 to February 2012.  

 

 

 

 

 

 

QUALIFICATIONS

Executive leadership experience in key operating roles, including her recent role as chief executive officer. She has had wide-ranging experience as a senior executive in multiple industries and disciplines, including sales, manufacturing and distribution. Ms. Utter has also developed a strong knowledge of strategic planning as a Chief Strategy Officer and strategy consultant.

 

 

 

 

 

 

OTHER PUBLIC

COMPANY BOARDS

 

 

WESCO International, Inc., 2006–present.

 

 

 

 

 

 

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COMPENSATION OF OUTSIDE DIRECTORS

 

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 2018, the Corporate Governance 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 Corporate Governance Committee recommended to the Board certain fee increases for 2019.

The following table compares our director fees for 2018 to the revised fees that took effect beginning January 1, 2019:

 

FEES

 

2018

2019

BOARD MEMBERS OTHER THAN CHAIRMAN

 

 

 

Annual Retainer (Cash)

 

$100,000

$110,000

Deferred LNC Stock Units

 

$161,000

$165,000

Total Board Fees

 

$261,000

$275,000

NON-EXECUTIVE CHAIRMAN OF THE BOARD

 

 

 

Annual Retainer (Cash)

 

$120,000

$120,000

Deferred LNC Stock Units

 

$376,000

$376,000

Total Non-Executive Chairman of the Board Fees

 

$496,000

$496,000

COMMITTEES (CASH)

 

 

 

Audit Committee Chair

 

$30,000

$35,000

Audit Committee Member

 

$10,000

$10,000

Compensation Committee Chair

 

$20,000

$25,000

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 or Chair cash retainer (for 2018, this was $500,000 for each Board member and $600,000 for the Chairman). 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, 2018, all of our directors are in compliance with this requirement, with the exceptions of Ms. Connelly, who joined the Board in May 2016 and has until May 2021 to meet the full share ownership requirement, and Ms. Utter, who joined the Board in November 2017 and has until November 2022 to meet the full share ownership requirement.

 

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COMPENSATION OF OUTSIDE DIRECTORS

 

Optional Deferral of Annual Retainer

 

 

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 of the Directors’ DCP track those offered to employees under the LNC Deferred Compensation and Supplemental/Excess Retirement Plan (the “DC SERP”) and include a Lincoln National Corporation Stock Fund investment option (the “LNC Stock Fund”). Like the DC SERP, the Directors’ DCP uses “phantom” versions of the 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 2018, three of our outside directors — Messrs. Henderson and Pittard and Ms. Lachman — also served as directors of LNY.

 

OTHER BENEFITS

In addition to the compensation listed above, we offer our outside directors the following benefits:

Financial planning services—reimbursement of 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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Directors’ Compensation Table

 

COMPENSATION OF OUTSIDE DIRECTORS

 

COMPENSATION OF NON-EMPLOYEE DIRECTORS* DURING 2018

NAME

 

FEES EARNED

OR PAID IN

CASH1

($)

 

STOCK

AWARDS2

($)

 

ALL OTHER

COMPENSATION

($)

 

 

TOTAL

($)

Deirdre P. Connelly

 

110,000

 

161,000

 

-

 

 

271,000

William H. Cunningham

 

120,000

 

376,000

 

15,000

4

 

511,000

George W. Henderson, III

 

129,400

 

161,000

 

7,500

4

 

297,900

Eric G. Johnson

 

120,000

 

161,000

 

-

 

 

281,000

Gary C. Kelly

 

110,000

 

161,000

 

10,000

3

 

281,000

M. Leanne Lachman

 

149,400

 

161,000

 

25,000

3,4

 

335,400

Michael F. Mee

 

100,000

 

161,000

 

-

 

 

261,000

Patrick S. Pittard

 

139,400

 

161,000

 

10,000

3

 

310,400

Isaiah Tidwell

 

130,000

 

161,000

 

15,000

4

 

306,000

Lynn M. Utter

 

100,000

 

161,000

 

15,000

4

 

276,000

*

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

1.

As described above, $100,000 (or $120,000 in case of the non-executive chair) 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 the fiscal year ended December 31, 2018. Mr. Cunningham received a total of $376,000 in Deferred LNC Stock Units for serving as a director and the non-executive Chairman during 2018.

3.

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

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

 

 

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COMPENSATION OF OUTSIDE DIRECTORS

 

Deferred LNC Stock Units and Stock Options

 

 

The following table shows the number of Deferred LNC Stock Units and vested unexercised LNC stock options held by each director as of December 31, 2018:

 

NAME

 

DEFERRED LNC

STOCK UNITS

 

STOCK

OPTIONS

Deirdre P. Connelly

 

6,886

 

-

William H. Cunningham

 

108,341

 

-

George W. Henderson, III

 

66,698

 

-

Eric G. Johnson

 

58,070

 

-

Gary C. Kelly

 

27,379

 

17,040

M. Leanne Lachman

 

33,250

 

-

Michael F. Mee

 

73,050

 

-

Patrick S. Pittard

 

24,078

 

-

Isaiah Tidwell

 

35,443

 

-

Lynn M. Utter

 

4,588

 

-

 

Deferred LNC Stock Units include amounts reported in the Stock Awards column above, phantom units awarded under the LNC Outside Directors’ Value Sharing Plan, which was terminated on July 1, 2004, and any phantom units held by the director in the LNC Stock Fund under the Directors’ DCP pursuant to an election to defer cash Board fees, 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

 

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 27, 2019, the Audit Committee appointed Ernst & Young LLP (“Ernst & Young”) as our independent registered public accounting firm for fiscal year 2019. We have engaged this firm and its predecessors in this capacity continuously since 1968 for LNC and since 1966 for subsidiaries of LNC. In addition, the Audit 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 do so. 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 2018.

 

The Board of Directors recommends a vote FOR the ratification of Ernst & Young as our independent registered public accounting firm for 2019.

 

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES AND SERVICES

The table below shows the total fees that Ernst & Young received for professional services rendered for fiscal years 2018 and 2017, with a breakdown of fees paid for different categories of work.

 

 

 

FISCAL YEAR

ENDED -

DECEMBER 31, 2018

 

% OF

TOTAL FEES

 

FISCAL YEAR

ENDED -

DECEMBER 31, 2017

 

% OF

TOTAL FEES

Audit Fees1

 

$10,882,024

 

88.3%

 

$9,823,196

 

85.6%

Audit-Related Fees2

 

1,438,314

 

11.7%

 

1,649,620

 

14.4%

Tax Fees3

 

 

 

 

All Other Fees

 

 

 

 

TOTAL FEES

 

$12,320,338

 

100.0%

 

$11,472,816

 

100.0%

 

 

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ITEM 2

RATIFICATION OF APPOINTMENT

 

Pre-Approval Policy

 

 

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 preapprove all audit and permissible non-audit services that our independent auditors provide. Management submits to the Audit 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 Audit Committee preapproves 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 Audit Committee for those services. The Audit Committee chair also has the authority to preapprove services between meetings, subject to certain dollar limitations, and must notify the full Audit Committee of any such preapprovals 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

 

ITEM 2

RATIFICATION OF APPOINTMENT

 

 

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 2018;

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 2018 be included in the Company’s Annual Report on Form 10-K for fiscal year ending December 31, 2018, 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

 

 

 

 

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 regarding 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 2018 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 32, 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;” and

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 2018, 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 have caps on payouts for incentive compensation; 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 share 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. The Compensation 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 32 to 58.

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

 

 

 

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ITEM 3

ADVISORY PROPOSAL ON

EXECUTIVE COMPENSATION

 

 

 

against the proposal. We intend to hold a non-binding advisory vote on executive compensation each year, with the next such vote at our 2020 Annual Shareholders Meeting.

We urge you to read the CD&A and other information in the Executive Compensation Tables, beginning on page 59, which we believe demonstrate 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 2018 compensation tables regarding named executive officer compensation, and the accompanying narrative disclosure in this proxy statement.”

 

 


 

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COMPENSATION

DISCUSSION & ANALYSIS

 

 

 

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 2018, 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 59. These NEOs are:

 

 

DENNIS R. GLASS – President and CEO

 

 

RANDAL J. FREITAG – Executive Vice President, CFO and Head of Individual Life

 

 

LISA M. BUCKINGHAM – Executive Vice President and Chief People, Place and Brand Officer

 

 

ELLEN G. COOPER – Executive Vice President and Chief Investment Officer

 

 

WILFORD H. FULLER – Executive Vice President and President, Annuities, LFD and LFN

 

We encourage you to read the CD&A in conjunction with the compensation tables on pages 59 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, weightings and payouts of our executive compensation programs. In setting the programs’ performance measures and goals, the Compensation Committee chooses metrics that drive 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 support our long-term business strategy and measure the creation of sustainable long-term shareholder value.

At our 2018 Annual Meeting, shareholders continued to express strong support for our executive compensation programs, with over 92% of votes cast in favor of the advisory resolution on executive compensation.

 

 

 

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Executive Summary

 

COMPENSATION

DISCUSSION & ANALYSIS

 

 

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 a significant portion 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”— an executive will not reach his or her 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).)

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 59 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 post-vesting stock holding requirements;

Caps on awards under our annual and long-term incentive programs;

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

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

Annual assessment of compensation risks;

All long-term incentive awards are granted in equity;

Hold an annual vote on Say on Pay;

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;

No employment agreements with NEOs;

Prohibitions on pledging, hedging and speculation in our securities; and

Limited perquisites for executive officers.

 

 

 

 

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COMPENSATION

DISCUSSION & ANALYSIS

 

Executive Summary

 

2018 PERFORMANCE OVERVIEW

As a company with a 114-year history, we recognize that a focus on long-term value creation and purpose is what will keep us in the business of servicing our customers, employees, communities and shareholders for the next century and beyond. At our core, our purpose is to provide advice and solutions that help empower people to take charge of their financial lives with confidence and optimism. We continue to deliver on this mission and our promises, which enabled us to deliver strong financial results in 2018 as Lincoln’s franchise positioned us well for growth. We continued to focus on increasing sales and profitability in all of our businesses through our powerful retail franchise that brings together a broad product portfolio and distribution breadth. We also continue to actively manage our capital through initiatives that we believe position us well for long-term, sustainable financial results.

Our full year results included the following highlights:

 

 

Significant accomplishments this past year include returning to positive flows in the Annuities business in the fourth quarter, completing the acquisition of the Liberty group benefits business, which has outperformed our expectations to date, and executing on strategic transactions, which resulted in $2.5 billion of capital deployed. Despite these efforts to continue to build long-term value for shareholders, our year-over-year stock price decreased to $51.31 as of the market close on December 31, 2018 from $76.87 on December 29, 2017. Over the longer term, our performance was solid with positive cumulative shareholder return for the three-year period from December 31, 2015, to December 31, 2018, and strong results for adjusted operating return on equity as of December 31, 2018:

 


 

 

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Executive Summary

 

COMPENSATION

DISCUSSION & ANALYSIS

 

 

These charts illustrate some of the measures of our full-year results over the past three years, cumulatively and sales broken out by business unit. These are also among the key metrics used for our short- and long-term incentive compensation programs.

2016 - 2018 GAAP AND ADJUSTED OPERATING EARNINGS PER SHARE

 

2016 - 2018 GAAP AND ADJUSTED OPERATING TOTAL REVENUES


 

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COMPENSATION

DISCUSSION & ANALYSIS

 

Executive Summary

 

2016 - 2018 SALES BY BUSINESS UNIT

 

More information on our business performance during 2018 is available in our Form 10-K for fiscal year ended December 31, 2018 (the “2018 Form 10-K”), which is included in the 2018 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.

 

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

36

 


 

 

 

Components of Our Compensation Program

 

COMPENSATION

DISCUSSION & ANALYSIS

 

 

COMPONENTS OF OUR COMPENSATION PROGRAM

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

 

 

COMPENSATION

COMPONENT

 

WHAT IT REWARDS

 

HOW IT ALIGNS

WITH OUR OBJECTIVES

 

PERFORMANCE

MEASURED

 

FIXED OR

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

 

  “AIP”

 

 

  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 and support shareholder value creation

 

CORPORATE

AND BUSINESS

SEGMENT

 

AT RISK

 

CASH

 

LONG-TERM INCENTIVE AWARDS

 

 

RESTRICTED
STOCK UNITS

 

  Increase in stock price

    and dividends

  Continued service

 

  Value rises or falls as our stock price and dividend increase or decrease

  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 in our sector

 

  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, with absolute metric rewarding performance versus plan

 

 

CORPORATE

 

AT RISK

 

EQUITY

 

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

 

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

37

 

 


 

 

 

COMPENSATION

DISCUSSION & ANALYSIS

 

Our Executive Compensation Program Philosophy

 

 

OUR EXECUTIVE COMPENSATION PROGRAM PHILOSOPHY

Our executive compensation program has three key objectives:

 

 

PAY FOR PERFORMANCE

 

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 business strategy and financial success and long-term metrics that correlate to long-term shareholder value

 

ALIGNMENT WITH SHAREHOLDERS

 

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;

allow the compensation of our executives to vary meaningfully with performance; 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 Measures and Goals

It is important to us and to our executives that performance goals be objectively measurable and that compensation be paid based on easily understood criteria that drive shareholder value.

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. Annually, the Compensation Committee reviews the performance measures to ensure that the metrics selected are aligned with our corporate strategy. The Company’s overall corporate strategy continues to focus on balancing top-line revenue growth with profitability and prudent cost management, and, as a result, for 2018, the Compensation Committee continued to align our executive compensation accordingly by choosing the following performance measures:

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

38

 


 

 

 

Our Executive Compensation Program Philosophy

 

COMPENSATION

DISCUSSION & ANALYSIS

 

 

 

2018 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.

 


 

2018 LONG-TERM INCENTIVE PROGRAM

 

 

PERFORMANCE MEASURE

 

 

WHY CHOSEN

 

 

Operating Return on Equity

 

This is an important measure used to value companies — especially those in the financial services industry — because it is a critical indicator of capital efficiency and correlated closely 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.  

 

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.

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:

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;

Performance share awards (“PSAs”) – The number of shares actually received depends on our performance over a three-year period relative to key inputs and outputs of shareholder value, with the ultimate value of any earned shares dependent on our stock price performance; and

Nonqualified stock options to purchase our common stock (“Options”) – These awards vest ratably over a three-year period and only have value if our stock price rises after the Options are granted.


 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

39

 

 


 

 

 

COMPENSATION

DISCUSSION & ANALYSIS

 

Our Executive Compensation Program Philosophy

 

Share Ownership Guidelines and Share Retention 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. 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 number 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. Each of our NEOs are exceeding their share ownership requirements.

The table below shows our share ownership guidelines and share retention requirements by officer tier:

 

 

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 the number 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 PSAs.

Equity interests counted in determining whether share ownership guidelines have been met include:

shares owned outright;

amounts invested in Company stock funds offered under our employee benefits plans;

restricted stock and RSUs subject to service-based restrictions; and

in-the-money Options.

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.

Multiyear Performance and Vesting Periods

The multiyear 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.

 

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

40

 


 

 

 

Consideration of our 2018 Shareholder Vote on Executive Compensation

 

COMPENSATION

DISCUSSION & ANALYSIS

 

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:

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 PSAs, 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 identical to 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” below.  

 

CONSIDERATION OF OUR 2018 SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION

The Compensation Committee and the Board appreciate and value the views of our shareholders. At our 2018 Annual Meeting of Shareholders, over 92% 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. Based on the results of our shareholder engagement conducted in the Fall of 2018, and in light of the continued strong shareholder support for our overall pay practices and NEO compensation at the 2018 Annual Meeting, the Compensation Committee decided to maintain our general principles and philosophy in structuring executive compensation for 2019.

 

SETTING 2018 TARGET COMPENSATION

The Compensation Committee made compensation decisions for the 2018 calendar year for the NEOs based on a detailed analysis of Company-specific and external data.

BENCHMARKING

The Compensation Committee uses a comprehensive competitive compensation analysis to set target direct compensation levels for our NEOs. For 2018, this analysis included a review of our competitors’ 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, followed by a comparison of our current executive compensation levels to the market median of our peers.

For each of our NEOs, market data was drawn from the stock companies included in the Willis Towers Watson 2017 Diversified Insurance Study of Executive Compensation (the “Towers DI Study”). We have used the Towers DI Study for over 10 years, and if the companies included in the study change, we reflect those changes in our benchmarking peer group. In 2017, Phoenix Companies was removed from the Towers DI Study, resulting in a corresponding change to our peer group. This also reflects the continued changes to traditional life and annuity companies resulting from mergers, acquisitions, divestitures, spin-offs and privatization across the insurance industry. The Compensation Committee believes that these companies are

 

LINCOLN NATIONAL CORPORATION 2019 PROXY STATEMENT

41

 

 


 

 

 

COMPENSATION

DISCUSSION & ANALYSIS

 

Setting 2018 Target Compensation

 

appropriate for compensation benchmarking because, even though none has our exact business mix, each is a competitor in one or more of our core business units and competes directly with us for talent and distribution of our products. Most of these companies compete with us in two or more lines of business.

The Compensation Committee has determined not to exercise discretion to remove or add peers to the benchmarking group derived from the Towers DI Study to keep a consistent peer group year-over-year. However, 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 develop comparable market rates for a hypothetical organization of similar size and type to our own.

If there are significant changes that take place during the year, such as promotions, new hires or a reorganization of roles and responsibilities at the executive officer level, the Compensation Committee may review the executive’s compensation in light of current market data provided by the Compensation Consultant and changes may be made accordingly.  

 

 

Compensation Peer Group for Benchmarking