Compensation Committee Report

 

The Organization and Compensation Committee of the Board of Aon has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and set forth in this proxy statement.

Based on its review and discussions with management, the Organization and Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated into Aon’s Annual Report on Form 10-K.

This Report is provided by the Organization and Compensation Committee, which is composed entirely of the following independent directors:

 

Richard C. Notebaert, Chairman		Cheryl A. Francis
Jin-Yong Cai		Richard B. Myers
Jeffrey C. Campbell		Carolyn Y. Woo

 

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Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis (“CD&A”) describes our executive compensation program for our NEOs for 2019, who are listed below. We recommend that you read this section in conjunction with the executive compensation tables and corresponding footnotes that follow, as it provides context for the amounts shown in the tables and the footnote disclosures.

 

Name		Role
Gregory C. Case		Chief Executive Officer (“CEO”)
Christa Davies		Executive Vice President and Chief Financial Officer
Eric Andersen(1)		Co-President
Michael O’Connor(2)		Co-President
Peter Lieb		Special Legal Advisor to CEO; Former Executive Vice President, General Counsel, and Company Secretary
John Bruno(3)		Chief Operating Officer; Former Chief Operations Officer

 

(1)	On February 24, 2020, Mr. Andersen was named President of the Company.

(2)	On February 20, 2020, Mr. O’Connor notified the Company of his decision to step down from his position as Co-President of the Company, effective immediately. Mr. O’Connor will remain at the Company for a transition period to be determined.

(3)	On February 24, 2020, Mr. Bruno was named Chief Operating Officer of the Company.

Executive Summary

Who We Are

Aon is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our approximately 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights intended to reduce volatility and improve performance.

2019 Business Highlights

In assessing our performance, we focus on four non-GAAP metrics that we communicate to shareholders: organic revenue growth, expansion of adjusted operating margins, increase in adjusted diluted earnings per share, and increased free cash flow. These non-GAAP metrics should be viewed in addition to, not instead of, our consolidated financial statements and notes thereto. A reconciliation of these non-GAAP metrics to the most directly comparable GAAP in metrics is set forth in Appendix A to this proxy statement.

In 2019, we continued to deliver against these four metrics:

 

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Total revenue growth was 2% and organic revenue growth was 6%, driven by growth across every major solution line, with particular strength in Reinsurance Solutions and Commercial Risk Solutions.

 

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Operating margin was 19.7% and adjusted operating margin was 27.5%, which reflects record adjusted operating margin driven by organic revenue growth of 6%, operational improvement, and $169 million of incremental savings from restructuring and other operational improvement initiatives.

 

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Earnings per share was $6.37 and adjusted diluted earnings per share was $9.17, demonstrating strong operational performance and effective capital management, highlighted by $2.0 billion of share repurchase during 2019, partially offset by an unfavorable impact from foreign currency translation and a higher effective tax rate.

 

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Cash flow from operations was $1,835 million and free cash flow was $1,610 million an increase of $164 million, or 11%, driven by strong operational improvement and a $15 million decrease in capital expenditures, partially offset by approximately $130 million of net cash payments related to certain litigation settlements.

Performing to these metrics allows us to continue to execute on our goals of strategically investing in long-term growth, improving return on invested capital, and effectively allocating capital.

During 2019, we returned approximately $2.4 billion in excess capital to our shareholders, including $2.0 billion in share repurchases and $410 million in dividends, which highlights our strong cash flow generation and effective allocation of capital. During Mr. Case’s leadership, which began in April 2005, our average annual total shareholder return has been 18%, compared to the return of the benchmark S&P 500 of 7% and 11% for our direct peer averages (Arthur J. Gallagher & Co., Brown & Brown, Inc., Marsh & McLennan Companies, Inc. and Willis Towers Watson Public Limited Company). We believe we are well positioned to create long-term value by improving our growth profile and operating performance and generating strong free cash flow.

 

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We compensate our senior executives through incentive programs that measure both long-term and short-term performance. Our long-term incentive program (described in this CD&A under “Leadership Performance Program Under Our Shareholder-Approved Plan”) is based on adjusted cumulative earnings per share (a measure driven by operational performance and capital management) across overlapping three-year performance periods. Our short-term incentive program (described in this CD&A under “Annual Incentive Awards Under Our Shareholder-Approved Plan”) is based on adjusted operating income, a measure driven by operating margin and organic revenue growth.

We achieved strong results against these two metrics, which were the key performance measures under our 2019 annual and 2017-2019 long-term incentive compensation programs. Set forth below are the results against these metrics as well as the results against their GAAP comparative metrics:

 

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$2,169M Operating Income; $3,025M Adjusted Operating Income, an increase of 12% year-over-year

 

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$12.19 Cumulative EPS; $23.80 Adjusted Cumulative EPS for 2017-2019; $21.41 LPP Adjusted Cumulative EPS for 2016-2018, as compared to target Adjusted Cumulative EPS of $17.95

Because our short-range or long-range corporate planning may dictate a change to the metrics we use over time, we expect to continue reassessing the metrics annually.

Features of Our Executive Compensation Program

The following table provides an overview of our compensation program elements for our NEOs. The guiding philosophy underlying our executive compensation program is to provide a fair, flexible, and market-based total compensation package that is meaningfully tied to the Company’s short- and long-term performance and aligned with the interests of our shareholders.

 

		Element		Description		Objectives
Fixed		Base Salary		Fixed amount of compensation for services provided during the year.		Intended to provide our executives with a predictable level of income; determined in view of job responsibilities, experience, contractual commitments, individual performance, and market pay data.
Performance-Contingent		Annual Incentive Compensation		Performance-based annual incentive determined and paid based on achievement of specified annual corporate performance objectives and individual review of executives’ contributions to business and financial results, delivery of key strategic initiatives, and personal leadership. Annual incentives, if paid, are generally made under our shareholder-approved 2011 Incentive Plan (our “Shareholder-Approved Plan”) in a combination of 65% cash and 35% in restricted share units that vest over a three-year period.		Intended to serve as a vehicle for recognizing annual results and performance, while the portion payable in time-vested restricted share units promotes retention and provides value tied to long-term Company performance.
		Long-Term Incentive Compensation		Performance-based long-term incentive determined and paid under our Leadership Performance Program. LPP awards are issued under our Shareholder-Approved Plan in the form of performance share units that vest upon achievement of specific corporate performance objectives over a three-year performance period.		Intended to encourage and reward long-term performance by giving executives a stake in the Company’s long-term financial success, and promotes retention.

 

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		Element		Description		Objectives
Benefit Plans		Retirement and Health and Welfare Benefits		Standard 401(k) plan and health and welfare benefits as provided to non-executive full-time employees. We also offer a nonqualified supplemental savings plan to eligible employees who exceed statutory U.S. Internal Revenue Service (“IRS”) limits for participation in our 401(k) plan, as well as a nonqualified plan through which eligible employees may defer receipt of their salary and/or annual incentive payments.		Intended to provide competitive benefits to attract and retain talented employees.
Severance		Severance and Change in Control Benefits		Severance benefits payable upon certain qualifying terminations of employment without cause or with specified good reason, including in connection with a change in control.		Intended to provide a temporary income stream following termination of employment without cause or with specified good reason and, in the case of change in control protection, to ensure continuity and objectivity of management during a change in control event.
Other		Certain Other Benefits		Housing, tax equalization, and various cost of living payments made to certain NEOs in connection with their relocation to London for the Company’s redomestication; limited personal use of Company aircraft; certain NEOs also receive annual health screenings, a supplemental insurance program, reimbursement for club dues, legal services, relocation benefits, and car allowances.		Intended to recognize and make NEOs whole for expenses incurred in connection with the Company’s U.K. redomestication; also intended to attract and retain committed employees and allow them to focus on job duties.

Our Pay for Performance Orientation and Executive Compensation Philosophy

The core principle of our executive compensation program continues to be pay for performance, as we continue towards our goal of being the leading global professional services firm focused on risk, health, and retirement. That core principle dictates that performance-based pay elements (which constitute the bulk of our NEOs’ total direct compensation) will not be earned or paid unless our shareholders also benefit. For 2019, performance-based compensation comprised approximately 90% of the total direct compensation for Mr. Case and averaged approximately 77% of the total direct compensation for our other NEOs:

 

 

*

Mr. Lieb, who received $1.2 million in fixed compensation and no performance-based compensation for 2019, is excluded from the chart immediately above because he received a special $1.8 million transition payment in 2019 in connection with his resignation as Executive Vice President, General Counsel, and Company Secretary and transition to Special Legal Advisor to our CEO.

 

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The “performance-based” pay component of the above graphs is the sum of (1) the cash portion of the NEO’s bonus paid for 2019 performance, plus (2) the target value of all performance-based equity awards granted to the NEO for 2019 performance or during 2019. The “fixed” pay component is the NEO’s 2019 base salary. (Mr. Lieb is not included in these calculations, in connection with his transition to a non-executive officer role during 2019.) For our NEOs other than Mr. Case, the actual performance-based amount of total direct compensation ranged from 72% to 82%. Please refer to the Summary Compensation Table below for complete disclosure of the total compensation paid to our NEOs serving in that capacity during the prior three years.

In addition to our focus on pay-for-performance, our compensation program is complemented by several practices designed to align with the long-term interests of our shareholders:

 

Share Ownership Guidelines		Our share ownership guidelines are designed to increase executives’ equity stakes in Aon and to align executives’ interests more closely with those of our shareholders. The guidelines provide that our CEO should attain an investment position in Class A Ordinary Shares equal to six times annual base salary and each other executive officer, including the remainder of our NEOs, should attain an investment position in Class A Ordinary Shares equal to three times annual base salary. The guidelines also establish equity retention rules generally requiring that net shares received through the exercise of share options, the vesting of restricted share units, and the vesting of performance share units are retained until the required investment position is achieved. Class A Ordinary Shares counted toward these guidelines include any shares owned outright, shares owned through an Aon-sponsored savings or retirement plan, shares purchased through an Aon-sponsored employee share purchase plan, shares obtained through the exercise of share options, and shares issued upon the vesting of restricted share units or performance share units. Each of our NEOs held the requisite number of shares under the guidelines as of December 31, 2019.   Mr. Case has agreed to maintain an investment position in Class A Ordinary Shares in excess of those required under our share ownership guidelines. In his employment agreement, he agreed to maintain an investment position equal to 20 times his annual base salary.
Hedging and Pledging Policies		We have a policy prohibiting all employees, executive officers, and directors from engaging in short sales, publicly traded options, puts and calls, forward sale contracts, and other swap, hedging, and derivative transactions relating to our securities. We also maintain a policy prohibiting our executive officers and directors from holding our securities in margin accounts or pledging our securities as collateral for a loan.
Independent Compensation Consultant		The Organization and Compensation Committee (referred to throughout this CD&A and the accompanying compensation tables as the “Compensation Committee”) retains an independent compensation consultant to provide advice and market data to bolster the Compensation Committee’s decision-making.
Clawback Policy and Forfeiture Provision		We have adopted an Incentive Repayment Policy applicable to our executive officers. Pursuant to the Incentive Repayment Policy, the Board may cancel or require reimbursement of any incentive or equity-based award received if such award was based on the achievement of financial results that are subsequently restated. If the Board determines that the executive officer engaged in fraud that caused or partially caused the need for the financial restatement, the incentive payment or equity-based award is required to be forfeited or reimbursed in full. If the restatement was not the result of fraud by the executive officer, the Board may, to the extent allowed under applicable law, require forfeiture or reimbursement of the amount by which the incentive payment or equity-based award exceeded the lower amount that would have been paid based on the restated financial results. In addition, beginning with equity-based awards granted in 2019, unvested equity-based awards are subject to forfeiture in the event of a material violation of the Company’s policies or procedures or a breach of applicable restrictive covenants.

 

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2019 Executive Compensation Highlights

Leadership Performance Program. In early 2020, we settled performance share units granted to our NEOs in 2017 under our twelfth LPP cycle (“LPP 12”). The settlement of those units in Class A Ordinary Shares was contingent upon achieving adjusted earnings per share of at least $17.15 (threshold performance) over the performance period from January 1, 2017 to December 31, 2019, and reflects achievement of adjusted earnings per share of $21.41 (after permitted adjustments), which exceeded the target earnings per share of $17.95. Also in 2019, we granted performance share units under our fourteenth LPP cycle (“LPP 14”) to each of our NEOs (other than Mr. Lieb, who entered into a transition and separation agreement described below), which are expected to be settled in 2022 contingent upon the Company’s adjusted earnings per share performance over the January 1, 2019 to December 31, 2021 performance period.

Annual Incentive Compensation. Annual incentives for our NEOs typically are based on a comparison of current year adjusted operating income results against the prior year, as well as the Compensation Committee’s evaluation of each NEO’s contributions to our business and financial results, delivery of key strategic initiatives, and personal leadership. While our NEOs were eligible for annual incentive awards for 2019, with a view toward total compensation and maintaining alignment with our pay-for-performance executive compensation philosophy, Mr. Case and the other NEOs requested— prior to the determination of the funding status of the incentive pool for 2019 and prior to any individual determinations by the Board of the Compensation Committee—that they receive no annual incentive awards for fiscal 2019. The Board (for Mr. Case) and the Compensation Committee (for the other NEOs) accepted this request. The annual incentive funding that would have been allocated to our CEO and other NEOs was instead reserved and allocated for the Company’s broad-based annual incentive bonus pool.

The Executive Compensation Process

Process of Determining Executive Compensation

Management assists the Compensation Committee in developing and administering our executive and director compensation programs. Direct responsibilities of management include, but are not limited to:

 

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Recommending executive compensation adjustments and short- and long-term incentive awards and other benefits, where applicable, for executive officers other than our CEO;

 

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Providing ongoing review of the effectiveness of our executive compensation programs and alignment of the programs with our business and strategic objectives;

 

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Designing and recommending appropriate amendments to our long-term and short-term cash and equity-based incentive plans for executives; and

 

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Designing and recommending appropriate amendments to our employee benefit plans.

In the first quarter of 2019, our independent directors evaluated our CEO’s performance and compensation. At that time, the Compensation Committee also evaluated the performance and reviewed the compensation of other executive officers. During this review, the Compensation Committee approved for each executive officer a target annual incentive for 2019 performance and the specific corporate performance metrics that our performance would be measured against for 2019.

In early 2020, in connection with the Compensation Committee’s annual compensation review, management presented the Compensation Committee with compensation tally sheets reporting compensation paid for the prior four years and the best-available competitive pay data. The Compensation Committee also reviewed and considered Aon’s overall performance against targets that were established for 2019. This review culminated in certain compensation decisions made by the Compensation Committee with respect to our executive officers during the first quarter of 2020, which are described in more detail below.

Relationship with Executive Compensation Consultant

The Compensation Committee retains Frederic W. Cook & Co., Inc. (“FW Cook”) as its independent compensation consultant. FW Cook provides expertise on various matters coming before the Compensation Committee. FW Cook is engaged by, and reports directly to, the Compensation Committee, and does not advise management or receive other compensation from Aon. FW Cook typically participates in all Compensation Committee meetings where executive compensation matters are

 

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discussed and communicates with the Chair of the Compensation Committee between meetings. During 2019, FW Cook assisted the Compensation Committee by advising on our compensation philosophy, objectives, and strategy; developing criteria for identification of our peer group for executive and Board compensation and Company performance review purposes; reviewing management’s design proposals for short-term cash and long-term equity incentive compensation programs; assessing risks arising from our compensation policies and practices; providing change in control severance calculations for our NEOs in the 2019 annual proxy disclosure; providing compensation data from our peer group proxy and other disclosures; advising on the terms and conditions of the renewal of employment agreements and transition to employment letters with our senior executive officers; and advising and providing comments on management’s recommendations regarding executive officers’ annual incentives for 2019 and equity-based awards granted in 2019. Management periodically retains other consulting firms to provide pay survey data and other non-executive compensation services that may be presented to or reviewed by the Compensation Committee.

The Compensation Committee has assessed the independence of FW Cook pursuant to SEC and NYSE rules and concluded that no conflict of interest exists that would prevent FW Cook from serving as an independent consultant to the Compensation Committee.

How We Determine Total Compensation

The Compensation Committee generally targets a competitive level and mix of total direct compensation elements using market data as a reference point. For 2019, the Compensation Committee did not use a specific formula or comparative percentile objectives or target to determine total compensation, individual components of compensation, or the relative mix of pay components, and the establishment of compensation levels in 2019 was not a mechanical process. Rather, the Compensation Committee used its judgment and business experience. The Compensation Committee’s overall intent was to manage the various elements of total compensation together so that the emphasis of the Company’s compensation program was on its variable components of pay, including long-term equity awards and annual bonus awards that fluctuate based on Aon’s performance.

Use of Tally Sheets

The Compensation Committee regularly reviews compensation tally sheets. The tally sheets assign dollar amounts to each component of the executive’s compensation, including base salary, annual incentives (target and actual), long-term incentives granted and outstanding, employee benefits (including health care and qualified and nonqualified retirement plans), relocation benefits including income tax equalization, perquisites, and potential change in control severance payments. The tally sheets are presented to the Compensation Committee to help ensure that it is aware of all rewards components and the value of such elements when making compensation decisions.

Involvement of Mr. Case in the Compensation Process

Each year, the Compensation Committee approves all elements of compensation for our NEOs and other executive officers (other than Mr. Case). These decisions are typically made during the annual compensation review process conducted in the first quarter of the year. The Compensation Committee solicits certain recommendations from Mr. Case and our Chief People Officer (formerly known as our Chief Human Resources Officer).

Mr. Case recommends to the Compensation Committee the equity award, annual incentive payment, and base salary adjustments, if any, for the executive officers who report directly to him. He has direct knowledge of the contributions made to Aon by these executive officers and he shares this knowledge with the Compensation Committee. Mr. Case supports his recommendations by providing performance evaluations for his direct reports.

During the annual review process, our Chief People Officer and the Chair of the Compensation Committee work together on Mr. Case’s annual evaluation report, which summarizes Mr. Case’s qualitative and quantitative performance. The report is considered, along with other factors (including the Compensation Committee’s own assessment of Mr. Case’s performance, relevant market data, and Aon’s overall performance), in determining Mr. Case’s compensation.

The Compensation Committee has the ultimate authority to make compensation decisions for our NEOs and other executive officers except for Mr. Case, whose compensation is approved by the independent directors of the Board. The Compensation Committee discusses its preliminary compensation decisions with the independent members of the Board who do not serve

 

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on the Compensation Committee. This process garners additional input from those directors regarding the executives’ performance. The sharing of performance review information also aids the directors in carrying out their succession planning responsibilities. After considering input from those directors, the Compensation Committee makes its final determinations.

Mr. Case, together with our Chief People Officer and our Chief Financial Officer, makes recommendations to the Compensation Committee relating to the corporate performance targets to be established under Aon’s annual incentive and long-term equity incentive programs. The Compensation Committee reviews such recommendations with FW Cook and reserves the ultimate authority to set such targets and to determine whether such goals were achieved.

Result of Advisory Vote by Shareholders on Our “Say on Pay” Proposal

The Compensation Committee considered the results of the advisory vote by shareholders on the “say on pay” proposal presented to our shareholders at our 2019 annual general meeting of shareholders. As reported in our Current Report on Form 8-K, filed with the SEC on June 25, 2019, approximately 93% of shareholder votes cast at that meeting were voted in support of the compensation program offered to our NEOs. Accordingly, the Compensation Committee made no changes to our executive compensation programs as a result of such vote.

Review of Compensation Policies and Practices

We believe that we maintain an appropriate level of prudence associated with our compensation programs and will continue to do so. We engage in a process to evaluate whether our executive and broad-based compensation programs contribute to unnecessary risk-taking, which includes an assessment by the Compensation Committee’s independent consultant of whether these programs create material risk. We have concluded that the risks arising from these programs are not reasonably likely to have a material adverse effect on the Company. In the first quarter of 2020, FW Cook assessed our executive compensation policies and practices and also concluded that they do not motivate imprudent risk-taking.

Internal Pay Relationships

In determining an executive officer’s target annual incentive or long-term performance award value, the Compensation Committee will, from time to time, consider internal pay relationships. However, the Compensation Committee has not adopted a broad internal pay equity policy pursuant to which each executive officer’s compensation, or one or more components thereof, is related to or benchmarked against the compensation of other executive officers.

Tax Deductibility of Executive Compensation

Prior to the passage of the Tax Cuts and Jobs Act of 2017 (the “TCJA”) on December 22, 2017, Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally disallowed a tax deduction to publicly held companies for compensation paid to certain covered executive officers in excess of $1 million per officer, unless such compensation qualified as “performance-based.” Under the TCJA, the performance-based exception has been repealed with respect to taxable years beginning after December 31, 2017, subject to a special rule that “grandfathers” certain compensation paid pursuant to a written binding contract in effect as of November 2, 2017 that is not materially modified thereafter. As a result of the TCJA, most of the compensation paid to our NEOs in excess of $1 million per officer in a year will not be deductible. While the TCJA may limit the deductibility of compensation paid to our NEOs, the Compensation Committee will—consistent with past practice—retain flexibility to design compensation programs that are in the best long-term interests of the Company and our shareholders.

Compensation Committee Interlocks and Insider Participation

During 2019, the Compensation Committee was composed of Mr. Notebaert (Chair), Mr. Cai, Mr. Campbell, Ms. Francis, General Myers, and Dr. Woo. No member of the Compensation Committee was, during 2019 or previously, an officer or employee of Aon or any of its subsidiaries. In addition, during 2019, there were no Compensation Committee interlocks required to be disclosed.

Analysis of Key 2019 Compensation Decisions

Peer Group

The Compensation Committee selects our executive compensation peer group based on a process that considers objective criteria including: industry segment; revenues, market-cap value, and employee head count; business complexity; and global footprint. We also consider peers of our direct peers (“peers of peers”) and proxy-advisor peer groups. Our goal is to have relevant market-data to inform our decisions on pay levels and practices. As such, we strive for a sample that is balanced with larger and smaller companies in a comparable range, and to have continuity through an annual review process.

 

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The defined criteria used to establish our peer group includes global financial services industry companies or major consulting firms with which we compete for executive talent and/or financial capital that are between one-third and three times our size in average market capitalization (calculated over the most recent eight quarters to reduce volatility), between one-fourth and four times our size in trailing four-quarter revenues, and with at least one-half our headcount or revenues per employee that are between one-half and two times our revenues per employee. No changes were made as a result of the annual review with FW Cook in 2018.

In 2019, we again reviewed our peer group with FW Cook and concluded that The Allstate Corporation should be removed, while BlackRock and IHS Markit should be added. These changes reflect our objective selection criteria and maintain appropriate relevance and size balance. Our 2019 and 2020 peer group members are listed below:

 

2020 Peer Group
Accenture plc		Fidelity National Information Services		Northern Trust Corporation
A.J. Gallagher & Co.		Fiserv, Inc.		S&P Global
Bank of New York Mellon		IHS Markit		State Street
BlackRock		Marsh & McLennan Companies, Inc.		Willis Towers Watson plc
Cognizant Technology Solutions Corp.		Moody’s Corporation
DXC Technology		Morgan Stanley

 

2019 Peer Group
Accenture plc		DXC Technology		Morgan Stanley
A.J. Gallagher & Co.		Fidelity National Information Services		Northern Trust Corporation
The Allstate Corporation		Fiserv, Inc.		S&P Global
Bank of New York Mellon		Marsh & McLennan Companies, Inc.		State Street
Cognizant Technology Solutions Corp.		Moody’s Corporation		Willis Towers Watson plc

Base Salary

Using the peer group and executive compensation review processes outlined above, the Compensation Committee annually considers and reviews salaries for our executive officers. While base salaries for our senior executives are adjusted infrequently, they may be occasionally adjusted to, among other things, recognize changes in job responsibilities or to bring the fixed component of an executive’s total compensation in line with his or her peers at the Company or the industry generally. Where approved, base salary adjustments generally take effect on April 1. In 2019, the Compensation Committee approved increases of $100,000 (from $900,000 to $1,000,000) to the base salaries of each of Ms. Davies, Mr. Andersen, and Mr. O’Connor, and an increase of $100,000 (from $850,000 to $950,000) for Mr. Bruno. The base salaries for our other NEOs were not adjusted in 2019.

Leadership Performance Program under Our Shareholder-Approved Plan

During the first quarter of 2019, we granted performance share units to our executive officers, including each NEO, pursuant to LPP 14 (performance period of 2019-2021), a sub-plan of our Shareholder-Approved Plan. During the first quarter of 2020, we determined our actual levels of achievement under LPP 12 (performance period of 2017-2019).

LPP 14. This is our fourteenth layer of consecutive three-year performance cycles for long-term incentive awards granted to our most senior leaders. It is intended to further strengthen the relationship between capital accumulation for our executives and long-term financial performance of the Company and increasing shareholder value. The performance share units awarded under LPP 14 are payable (to the extent earned) in the form of Class A Ordinary Shares. The nominal value of the awards was determined and approved by the Compensation Committee. The number of target performance share units was calculated on the date of grant based on that day’s closing price for Class A Ordinary Shares on the NYSE. The performance share units under LPP 14 will be earned and settled in a range of 0% (if the threshold level is not achieved) to 200% of the target number of shares based on the Company’s cumulative adjusted EPS over the three-year performance period.

 

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The performance results for LPP 14 will be measured against three-year publicly reported adjusted cumulative EPS growth rate, subject to limited adjustments set forth in the program documentation at the beginning of the three-year period. The adjustments are intended to exclude the impact of unusual or infrequently occurring items, to provide a target that, while challenging, eliminates the impact of certain events and circumstances outside of the control of the relevant executive officers. The Compensation Committee’s selection under LPP 14 of the three-year performance period and cumulative adjusted EPS financial performance metric is intended to provide the award recipients a reasonable period within which to achieve and sustain what are intended to be challenging long-term growth objectives. The Compensation Committee believes adjusted EPS is a more effective measure of Company performance for purposes of motivating executive performance than against EPS calculated in accordance with U.S. GAAP, as the adjusted measure provides a target that is within the executives’ control and area of accountability. Further, the Company believes that adjusted EPS provides a perspective on the Company’s ongoing core operating performance that is consistent with how shareholders measure our success and that creates transparency and clarity for participants.

In determining the individual awards under LPP 14, the Compensation Committee considered internal pay relationships, the award recipient’s compensation mix, and total direct compensation.

LPP 12. In early 2020, we determined the actual achievement under LPP 12. The performance period for LPP 12 ended on December 31, 2019.

LPP 12—Performance Share Units (Performance Period 1/1/2017—12/31/2019)

 

Metric		Threshold (50% Payout)				Target (100% Payout)				Maximum (200% Payout)
Cumulative Adjusted EPS		$	17.16			$	17.95			$	19.76
							Actual			$	21.41

For LPP 12, the cumulative adjusted EPS goals from continuing operations ranged from a threshold level of $17.16, below which no payout would occur, to $19.76 or higher, which would yield shares equal to 200% of the target number. A result of $17.95 in cumulative adjusted EPS from continuing operations would have yielded shares equal to 100% of the target number. This target represented a 5.6% decrease over the EPS target for the eleventh cycle of our LPP established for the performance period from 2016 through 2018 (“LPP 11”). The reason for the decrease in EPS target for LPP 11 is primarily due to the Company’s divestiture of our benefits administration and business process outsourcing platform in 2017. Our actual cumulative adjusted EPS from continuing operations for the three-year period of 2017-2019 (after permitted adjustments, as described below) was $21.41, resulting in a payout at 200% of target.

The adjusted EPS from continuing operations results for LPP 12 include adjustments detailed by the plan governing LPP 12 and approved by the Compensation Committee. For each year of the performance period associated with LPP 12, adjustments to EPS from continuing operations were approved by the Compensation Committee to address the impact of the disposition of National Flood Services and restructuring savings. Each NEO received a distribution under LPP 12.

We do not pay dividends or dividend equivalents on performance share units.

LPP Adjustments for Restructuring. We consider underlying restructuring charges, as well as the resulting savings, to be unusual in nature and infrequently occurring and, therefore, consider these transactions for adjustments when assessing LPP performance. Since the inception of our restructuring plan, we excluded each respective year’s incremental restructuring savings from reported adjusted EPS for the purposes of LPP 11 (2016-2018), LPP 12 (2017-2019), and LPP 13 (2018-2020). For LPP 12 and LPP 13, the original performance targets were set based on a series of assumptions related to the impact of our restructuring plan, with acknowledgement that the Compensation Committee retains discretion to adjust the stated performance to address deviations from expectations, in accordance with LPP rules. In 2019, the Compensation Committee determined that, given the underlying nature of the restructuring savings and the fact that the benefits are realized in multiple subsequent years, it was appropriate to adjust out the majority of the cumulative savings, rather than the incremental savings, on a go-forward basis. No further adjustments will be made to LPP 11 (2016-2018), as it has already vested, or LPP 14 (2019-2021), as full knowledge of the impact of the restructuring savings was considered when assessing performance targets.

 

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Annual Incentive Awards under Our Shareholder-Approved Plan

Shareholder-Approved Plan. Under our Shareholder-Approved Plan, the Compensation Committee annually approves the framework for our annual incentive compensation plan, including the applicable Aon-wide performance metric and minimum achievement threshold against that performance metric. If the metric is not achieved, no annual bonuses are payable under our Shareholder-Approved Plan. If the minimum achievement threshold is met, our Shareholder-Approved Plan allows for the payment of current-year annual incentives to our executive officers up to a cap of the lesser of $10 million or the maximum annual incentive otherwise established by the Compensation Committee for each executive officer. For 2019, the Compensation Committee established a cap of 300% of each NEO’s target annual incentive.

In the first quarter of 2019, the Compensation Committee set 2019 annual incentive eligibility for our NEOs. For each NEO, annual incentive eligibility was set as a target percentage of the executive’s base salary at year end (and, for Ms. Davies and Mr. Lieb, their annual foreign service allowance received in connection with their relocation to London). The target annual incentives for each of our NEOs are shown in the table below:

 

NEO		2019 Target Annual Incentive
Case		$	3,000,000
Davies		$	1,680,000
Andersen		$	1,000,000
O’Connor		$	1,000,000
Lieb		$	805,000
Bruno		$	950,000

Our Shareholder-Approved Plan does not provide guidelines or formulas for determining the actual annual incentives payable to our executive officers once the metric is achieved. If the metric is achieved, our Shareholder-Approved Plan allows the Compensation Committee to award an annual incentive up to the previously established cap. As explained below, for 2019, the Compensation Committee adopted a framework (the “Executive Committee Incentive Compensation Plan”) for determining actual annual incentives to be paid if the metric under our Shareholder-Approved Plan was achieved.

2019 Performance Metrics. In the first quarter of 2019, the Compensation Committee determined that 2019 Aon-wide performance would be measured by growth in adjusted operating income (“OI”) for 2019 (as adjusted for unusual or infrequently occurring items) as compared to a 2018 baseline adjusted OI number of $2,697 million. The Compensation Committee set the minimum achievement threshold at 70% of the 2018 adjusted OI, or $1,888 million. The Compensation Committee retained the discretion to further adjust OI under the plan for extraordinary, unusual, or infrequently occurring items. The Compensation Committee selected OI as the measure to emphasize performance of Aon as a whole and directly link executives’ awards to Aon’s key business initiatives of delivering distinctive client value and achieving operational excellence.

The Compensation Committee set the minimum threshold at 70% because it believed performance below that level would not create enough value for the Company’s shareholders and, therefore, should not result in annual incentive payments. If the minimum achievement threshold is satisfied, an annual incentive pool may be funded as described below under “Determining 2019 Annual Incentives.”

2019 Actual Performance. During the first quarter of 2020, the Compensation Committee determined that Aon’s 2019 adjusted OI was $2,856 million (after permitted adjustments), or 105.9%, of the 2018 baseline. This exceeded the minimum threshold established under our Shareholder-Approved Plan.

Determining 2019 Annual Incentives. In the first quarter of 2019, the Compensation Committee approved the Executive Committee Incentive Compensation Plan for funding the total annual incentive pool under our Shareholder-Approved Plan for those executives and members of senior management who at such time comprised Aon’s executive committee. That group included each of our NEOs. The rationale for establishing this funding framework was to provide executives with a clear connection between the expected reward and the required performance, as well as a basis for annual incentive accruals. Under those guidelines, the size of the incentive pool generally equals the budgeted accruals for aggregate target annual incentive payments for members of the Company’s executive committee, multiplied by the percentage increase in OI from

 

2020 Aon Proxy Statement        33

 

the 2018 baseline to 2019 (reduced by 200 basis points), although the CEO retains the discretion to approve increases (up to 10%, subject to Compensation Committee consent) and decreases (up to 20%) in the size of the incentive pool. In other words, the incentive pool is only funded at target if there is a 2% increase in adjusted OI over the previous year. However, no individual could receive an award in excess of the maximum amount established by the Committee (the lesser of $10 million or three times their target annual incentive).

In accordance with our Shareholder-Approved Plan, the Executive Committee Incentive Compensation Plan would not be funded for 2019 unless Aon achieved the minimum threshold of 70% of the 2018 baseline. After determining that the minimum threshold had been achieved, the Compensation Committee met in February 2020 to determine the funding status of the incentive pool for 2019. While our NEOs were eligible for annual incentive awards for 2019, with a view toward total compensation and maintaining alignment with our pay-for-performance executive compensation philosophy, Mr. Case and the other NEOs requested—prior to the determination of the funding status of the incentive pool for 2019 and prior to any individual NEO bonus determinations by the Board or the Compensation Committee—that they receive no annual incentive awards for fiscal 2019. The Board (for Mr. Case) and the Compensation Committee (for the other NEOs) accepted this request. After application of the NEOs’ request to receive no bonuses for 2019, the formula guidelines described above, and discretionary adjustments by the Committee, the total incentive pool reserved for members of the Company’s executive team (including our NEOs, other than Mr. Lieb), was reduced to $3.2 million. The annual incentive funding that would have been allocated to our CEO and other NEOs was instead reserved and allocated for the Company’s broad-based annual incentive bonus pool.

Effective for 2020, the Executive Committee Incentive Compensation Plan has been updated to reflect the restructuring of the Executive Committee and will be renamed the Senior Executive Incentive Compensation Plan.

Executive and Relocation Benefits

Executive Benefits. In addition to our broad-based employee benefit programs that are available to our employees generally (such as health coverage, 401(k) plan, etc.), each of our currently serving NEOs is eligible to participate in a deferred compensation program and a supplemental savings plan. Only Mr. Andersen participates in our defined benefit pension plan and the supplemental pension program because each other NEO was hired after the Aon Pension Plan was closed to new hires in 2004. Additional information regarding these qualified and nonqualified plan benefits is set forth under the headings “Pension Benefits in Fiscal Year 2019” and “Nonqualified Deferred Compensation in Fiscal Year 2019” contained in this proxy statement. We also provide an executive health screening program available to all members of our management executive committee, including our NEOs.

Relocation Benefits. In 2019, we continued to provide relocation benefits resulting from our relocation of our headquarters to London, United Kingdom in 2012 (the “2012 Redomestication”) to certain of our NEOs. Relocation benefits are customary for expatriate assignments for us and other employers in our industry. The Compensation Committee approved certain benefits for the relocated executives after consulting with FW Cook, and each relocated executive has signed an international assignment letter with Aon that sets forth the relocation benefits available to him or her. The relocation packages for our NEOs are intended to keep them “whole” on a total rewards basis, be transparent and equitable, and reflect competitive practices and benchmarks of industry peers. The Compensation Committee periodically reviews the relocation packages of our executives. These benefits are provided pursuant to international assignment letters with our NEOs on assignment, which are described in more detail under the heading “International Assignment Letters.”

The compensation received in the form of such benefits is reflected in the Summary Compensation Table for Fiscal Years 2019, 2018, and 2017.

Post-Termination Compensation

We believe that providing severance and change in control severance benefits is important to recruit talented employees and secure the continued employment and dedication of our existing employees. A significant number of the companies with which we compete for talent have similar arrangements in place for their senior executives. While we consider these benefits to be important, the terms of these benefits are not considered as part of the compensation strategy when the Compensation Committee annually determines the compensation for the NEOs. Additional information about post-termination compensation is set forth in the section captioned “Potential Payments on Termination or Change in Control” contained in this proxy statement.

 

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Severance Benefits Upon Change in Control. Our NEOs, other than Mr. Case and Mr. Lieb, are eligible for change in control severance benefits under our Senior Executive Combined Severance and Change in Control Plan (referred to throughout this CD&A and the accompanying compensation tables as the “Combined Severance Plan”). The Combined Severance Plan provides that covered executives would receive certain severance benefits upon qualifying terminations of employment in connection with or within two years following a change in control of Aon. Thus, the Combined Severance Plan requires a “double trigger”—a qualifying change in control of Aon and a qualifying termination of the executive’s employment—for severance benefits to become payable. Mr. Case, who is not covered under the Combined Severance Plan, is party to an individual change in control severance agreement with the Company that also provides certain severance benefits upon a qualifying termination in connection with or within two years following a change in control of Aon. Neither the Combined Severance Plan nor Mr. Case’s individual agreement provides for excise tax gross-up protection in the event the executive becomes subject to tax under Section 280G of the Code in connection with such double trigger. Mr. Lieb entered into a transition and separation agreement in June 2019, discussed below.

Additional information regarding the change in control arrangements for our NEOs is set forth in the section captioned “Potential Payments on Termination or Change in Control” contained in this proxy statement.

Severance Benefits Pursuant to Employment Agreements and Combined Severance Plan. We have entered into agreements with certain executive officers that provide for post-employment severance benefits and transitional compensation if the officer’s employment terminates for a qualifying event or circumstance unrelated to a change in control of Aon, such as being terminated without “cause” as such term is defined in the operative agreement. To the extent that our NEOs are not party to an individual employment agreement providing for severance benefits, those individuals are eligible to receive severance benefits under the Combined Severance Plan. During 2019, each of our NEOs had an employment agreement providing for severance benefits or was eligible to receive severance benefits under the Combined Severance Plan (or, in the case of Mr. Lieb, entered into a transition and separation agreement discussed below). Additional information regarding such post-employment severance or transitional compensation for Mr. Case and the other NEOs is set forth in the section captioned “Potential Payments on Termination or Change in Control” contained in this proxy statement.

Transition and Separation Agreement with Mr. Lieb. We entered into a transition and separation agreement with Mr. Lieb, effective June 3, 2019, under which he resigned as our Executive Vice President, General Counsel, and Company Secretary and transitioned to the role of Special Legal Advisor to our CEO as of June 24, 2019, until his anticipated separation from service on December 31, 2020. During the transition period, Mr. Lieb continues to receive his regular base salary ($700,000 annually, of which he received an advance of $500,000 of his 2020 salary in 2019). In connection with Mr. Lieb’s transition, and subject to customary conditions, Mr. Lieb received a cash payment of $1.8 million in 2019, in exchange for carrying out duties and responsibilities during the transition period. In addition, Mr. Lieb received relocation benefits under our domestic transfer policy, as well as price protection in the amount of $300,000 for the sale of his residence, and was entitled to (but did not receive) payment of legal fees up to $20,000. Mr. Lieb is not eligible to receive any other incentive payments during or with respect to 2019 or 2020. Mr. Lieb’s existing equity awards will continue to be governed by the terms of the applicable plan documents.

Directors’ Remuneration Policy

In accordance with English law, our shareholders approved our directors’ remuneration policy at our 2017 annual general meeting. The directors’ remuneration policy is intended to be consistent with the compensation programs and policies set forth in this CD&A and to provide a binding framework within which the Compensation Committee oversees the Company’s compensation programs applicable to management and non-management directors. The directors’ remuneration policy provides the Compensation Committee with discretion to administer the Company’s director compensation programs.

As reported in our Current Report on Form 8-K filed with the SEC on June 27, 2017, there was significant support by shareholders for the directors’ remuneration policy. All compensation reported in this proxy statement was in compliance with the approved directors’ remuneration policy. This policy governed the Company’s director compensation decisions while the Company was a U.K. company for all of 2019.

 

2020 Aon Proxy Statement        35

Executive Compensation

 

The executive compensation disclosure contained in this section reflects compensation information for the years ended December 31, 2019, December 31, 2018, and December 31, 2017 with respect to our NEOs for all years in which each NEO served in that capacity. The following Summary Compensation Table contains compensation information for the following NEOs: (1) Mr. Case, who served as our CEO during 2019, (2) Ms. Davies, who served as our Chief Financial Officer during 2019, (3) Mr. Andersen, Mr. O’Connor, and Mr. Bruno, who were our three other most highly compensated executive officers serving as of December 31, 2019, and (4) Mr. Lieb, who served as our General Counsel, Executive Vice President, and Company Secretary from January 1, 2019 through June 24, 2019, and then as a Special Legal Advisor to our CEO through December 31, 2020.

Summary Compensation Table for Fiscal Years 2019, 2018 and 2017

 

Name and Principal   Position		Year				Salary ($)				Bonus ($)				Stock Awards ($)(1)				Non-Equity Incentive Plan Compensation ($)(2)				Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(3)				All Other Compensation ($)(4)				Total ($)
Gregory C. Case			2019				1,500,000				—				13,705,798				0				—				802,045				16,007,843
CEO			2018				1,500,000				—				12,694,073				1,300,000				—				669,802				16,163,875
			2017				1,500,000				—				11,086,351				1,300,000				—				723,331				14,609,682
Christa Davies			2019				975,000				—				5,024,842				0				—				1,739,576				7,739,418
Executive Vice President			2018				900,000				—				4,375,050				1,040,000				—				6,003,119				12,318,169
and Chief Financial Officer			2017				875,000				—				3,648,221				936,000				—				1,923,293				7,382,514
Eric Andersen			2019				975,000				—				3,261,849				0				—				47,384				4,284,233
Co-President (5)			2018				900,000				—				2,944,817				650,000				—				44,355				4,539,172
			2017				875,000				—				2,692,635				526,500				—				49,702				4,143,837
Michael O’Connor			2019				975,000				—				3,226,907				0				11,176				52,913				4,265,996
Co-President (6)			2018				900,000				—				2,944,817				585,000				10,544				62,002				4,502,363
			2017				875,000				—				2,657,686				526,500				9,947				54,655				4,123,788
Peter Lieb			2019				700,000				1,800,000				297,513				0				16,058				2,829,423				5,642,995
Former Executive Vice President, General Counsel, & Company Secretary; Current Special Legal Advisor to CEO (7)			2018				700,000				—				1,771,221				552,500				15,149				1,029,170				4,068,040
			2017				700,000				—				1,745,082				503,750				14,292				1,076,183				4,039,307
John Bruno			2019				925,000				—				2,741,532				0				—				38,086				3,704,618
Chief Operations Officer (8)			2018				N/A				N/A				N/A				N/A				N/A				N/A				N/A
			2017				N/A				N/A				N/A				N/A				N/A				N/A				N/A

 

(1)

The amounts shown reflect the aggregate grant date fair value (determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“ASC Topic 718”)) of restricted share unit awards (paid in satisfaction of 35% of each NEO’s annual incentive award for the previous performance year) and performance share unit awards granted to our NEOs pursuant to our Shareholder-Approved Plan in 2019, 2018, and 2017. These amounts disregard adjustments for forfeiture assumptions and do not reflect amounts actually paid to, or realized by, the NEOs in the years shown, or any prior years.

 

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In 2017-2019, each of our NEOs received awards under the LPP with a grant date fair value as set forth in the table below. Mr. Lieb was not granted an LPP award in 2019 due to his employment transition.

 

Name		Year				Grant Date Fair Value of Performance Share Unit Awards Assuming Probable Outcomes Under LPP ($)				Grant Date Fair Value of Performance Share Unit Awards Assuming Achievement of Maximum Performance Levels Under LPP ($)
Gregory C. Case			2019				13,005,880				26,011,760
			2018				11,994,139				23,988,279
			2017				10,036,338				20,072,677
Christa Davies			2019				4,464,926				8,929,852
			2018				3,871,087				7,742,173
			2017				3,088,209				6,176,418
Eric Andersen			2019				2,911,923				5,823,846
			2018				2,661,347				5,322,694
			2017				2,412,688				4,825,377
Michael O’Connor			2019				2,911,923				5,823,846
			2018				2,661,347				5,322,694
			2017				2,412,688				4,825,377
Peter Lieb			2019				—				—
			2018				1,500,007				3,000,015
			2017				1,447,544				2,895,089
John Bruno			2019				2,426,548				4,853,096
			2018				N/A				N/A
			2017				N/A				N/A

 

For awards granted under the LPP, the grant date fair value of performance share units is calculated in accordance with ASC Topic 718 based on the probable outcome of the performance conditions at the time of grant. Set forth above are the grant date fair values of the performance share unit awards granted under the LPP, calculated assuming (i) the probable outcome of the performance conditions for each program, which amount is included in the “Stock Awards” column of this Summary Compensation Table and (ii) achievement of the maximum levels of performance (which is the dollar value attributed to the original award multiplied by 200% for each year shown for the LPP). The amounts shown in the table above reflect the aggregate grant date fair value for these awards computed in accordance with ASC Topic 718, and do not correspond to the actual value that will be recognized by our NEOs.

 

(2)

The amounts shown in the “Non-Equity Incentive Plan Compensation” column for each of 2019, 2018 and 2017 reflect the cash portion of the annual incentive awards earned by the NEOs for performance in those years (generally, under the terms of those awards, 35% has been paid in the form of restricted share units and 65% in the form of cash). These amounts were actually paid to the NEOs in the first quarter of the year following the relevant performance year. As described in the CD&A under “Annual Incentive Awards under Our Shareholder-Approved Plan,” our NEOs determined to forego 2019 annual incentive plan awards prior to the time any final determinations were made by the Board or the Compensation Committee with respect to such awards and, as a result, no such awards were paid for 2019 performance.

 

(3)

Mr. O’Connor and Mr. Lieb are the only NEOs who have participated in the Deferred Compensation Plan. For amounts deferred prior to January 1, 2014, the investment options under the Deferred Compensation Plan include a fixed annual rate of 6%. The amount included in this column represents the difference between the interest rate used to calculate earnings under this fixed return and 120% of the applicable federal long-term rate.

 

(4)	For 2019, the amounts reported as “All Other Compensation” consist of the following components:

 

Name		Company Contributions ($)(a)				Perquisites ($)(b)				Other ($)(c)				Tax Reimbursements ($)(d)				Total ($)
Gregory C. Case			29,200				158,332				614,513				—				802,045
Christa Davies			29,200				58,723				527,510				1,124,143				1,739,576
Eric Andersen			31,400				15,984				—				—				47,384
Michael O’Connor			29,200				23,713				—				—				52,913
Peter Lieb			29,200				416,190				1,052,510				1,331,523				2,329,423
John Bruno			27,000				11,086				—				—				38,086

 

(a)

The amounts shown in the “Company Contributions” column represent, for each of our NEOs, (i) a contribution by Aon of $17,900 for each of Mr. Case, Ms. Davies, and Mr. Andersen, and $18,200 for each of Mr. O’Connor, Mr. Lieb, and Mr. Bruno to the Aon Savings Plan, our qualified defined contribution plan; and (ii) a contribution by Aon of $11,300 for each of Mr. Case and Ms. Davies, $13,500 for Mr. Andersen, and $11,000 for Mr. O’Connor and Mr. Lieb to the Aon Supplemental Savings Plan, a nonqualified defined contribution plan.

 

(b)

In connection with the 2012 Redomestication, certain of our NEOs agreed to relocate to London, U.K. The relocation packages are intended to keep the transferred executives “whole” on a total rewards basis, be transparent and equitable, and reflect competitive practices and benchmarks of industry counterparts. This column also includes amounts Aon paid to third parties for the NEO’s eligible dependents’ schooling or assistance in preparing his or her tax returns in connection with the 2012 Redomestication.

 

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In 2019, the Company provided perquisites related to the relocation as follows:

 

Name		Schooling Assistance ($)				Tax Preparation Services ($)
Christa Davies			42,447				13,341
Michael O’Connor			—				13,023
Peter Lieb			—				29,223

 

For a description of cash allowances and cash bonuses paid to our NEOs in connection with the relocation, see footnote (c) below.

 

Mr. Case, Ms. Davies, Mr. O’Connor, Mr. Lieb, and Mr. Bruno participated in Aon’s executive health screening program in 2019. The amount included in “All Other Compensation” is the actual cost to Aon of the NEO’s use of this program, which was $12,697 for Mr. Case, $2,935 for Ms. Davies, $6,970 for Mr. O’Connor, $6,320 for Mr. Lieb, and $11,086 for Mr. Bruno.

 

Mr. O’Connor and Mr. Lieb received reimbursement for club dues of $3,720 and $3,984 respectively. Mr. Andersen also received an annual car allowance of $12,000.

 

As part of Mr. Case’s employment agreement, Aon provides him with life insurance coverage in the amount no less than $5,000,000 during the term of his agreement. This amount reflects the cost above and beyond the cost of life insurance that is provided to a typical Aon employee. For 2019, the cost was $20,635.

 

We maintain an arrangement with NetJets for use of chartered aircraft and associated ground travel as necessary. Infrequently, an NEO will use a NetJets flight for personal purposes, or the spouse or guests of an NEO may accompany the executive when a NetJets flight is already going to a specific destination for a business purpose. In the case of a personal flight, the cost to the Company of such flight is reimbursed to the Company by the NEO. In the case of a spouse or other guest on a business flight, this has a minimal cost to the Company and, where applicable, the variable costs associated with the additional passenger are included in determining the aggregate incremental cost to the Company. During 2019, the Company paid $125,000 on Mr. Case’s behalf in connection with a regulatory compliance filing under the Hart-Scott-Rodino Act resulting from Mr. Case’s acquisition of Company shares under our executive compensation programs in excess of certain limits under such act. During 2019, pursuant to a transition and separation agreement with Mr. Lieb, the Company paid relocation costs of $80,647 for Mr. Lieb. In addition, Mr. Lieb received price protection in the amount of $300,000 for the sale of his residence in Chicago, Illinois.

 

(c)

In connection with their relocation to London, U.K., certain NEOs are entitled to additional cash compensation in accordance with the terms of their international assignment letters and our relocation programs. Allowances became payable to the NEOs beginning on the date the NEO’s foreign assignment began and terminate at the end of the foreign assignment. Additionally, Mr. Lieb received an advance of his 2020 salary in the amount of $500,000 in 2019 in connection with his transition and separation agreement. The following table sets forth the additional compensation received by the NEOs with respect to 2019 service:

 

Name		Housing Allowance ($)				Cost of Living Allowance ($)				Foreign Service Allowance ($)				Home Leave Allowance ($)				Transportation Allowance ($)				Salary Advance ($)				Total ($)
Gregory C. Case			382,013				97,500				135,000				—				—				—				614,513
Christa Davies			286,510				97,500				120,000				—				23,500				—				527,510
Peter Lieb			286,510				97,500				105,000				40,000				23,500				500,000				1,052,510

 

(d)

In connection with their relocation to London, U.K., Ms. Davies and Mr. Lieb are entitled to receive a tax equalization benefit designed to equalize the income tax paid by the executive so that their total income and social tax costs related to any earnings from the Company while on the international assignment (including earnings related to granting or vesting of equity-based awards) will be no more than an amount the executive would have paid had all of the earnings been taxable solely pursuant to U.S. income and social tax laws.

 

The tax equalization benefit caps the executive’s total income and social tax exposure to what he or she would be taxed on earnings from the Company under the U.S. tax laws (as compared to the U.K. tax laws as in existence from time to time). This policy is designed and intended to yield neither an economic benefit nor detriment to an executive as a result of his or her international assignment.

 

For Ms. Davies and Mr. Lieb, any applicable schooling assistance and allowances for foreign service, housing, cost of living, home leave, and transportation are grossed up for applicable U.S. taxes.

 

The amounts shown in the “All Other Compensation” table represent Aon’s calculation of the excess U.K. taxes paid above the hypothetical tax that Ms. Davies and Mr. Lieb would have paid had they not been relocated to London, U.K. and the amount paid by Aon to neutralize the tax impact on Ms. Davies and Mr. Lieb with respect to eligible relocation compensation.

 

(5)	Mr. Andersen became President on February 24, 2020.

 

(6)	Mr. O’Connor notified the Company on February 20, 2020, of his decision to step down from his position as Co-President of the Company, effective immediately. Mr. O’Connor will remain at the Company for a transition period to be determined.

 

(7)	Mr. Lieb resigned as our Executive Vice President, General Counsel, and Company Secretary and transitioned to the role of Special Legal Advisor to our CEO as of June 24, 2019.

 

(8)	Mr. Bruno became Chief Operating Officer on February 24, 2020.

 

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Employment Agreements and Other Compensation Agreements

Mr. Case’s Employment Agreement

We entered into an Amended and Restated Employment Agreement with Gregory C. Case, our CEO, dated January 16, 2015, and amended on April 20, 2018, which provides that Mr. Case will be employed as Aon’s President and CEO through April 1, 2023 unless terminated earlier. The agreement was further amended effective May 15, 2018 to reflect Mr. Case’s title change to CEO. The agreement also provides that Mr. Case will be nominated for re-election as a member of the Board at each annual meeting of shareholders during the period of his employment.

Mr. Case’s agreement provides for an initial base salary of $1,500,000, subject to adjustment at the discretion of the Board, a target annual incentive bonus of not less than 200% of his base salary, subject to the provisions of our Shareholder-Approved Plan. The Board retains the discretion to determine Mr. Case’s actual bonus payment.

In addition, the agreement provides that Mr. Case will be provided with life insurance coverage in an amount equal to no less than $5,000,000 during the term of the agreement. Under the agreement, Mr. Case has also agreed to maintain an investment position in Aon Class A Ordinary Shares equal to no less than 20 times his annual base salary.

Ms. Davies’s Employment Agreement

We entered into an Employment Agreement with Christa Davies, our Executive Vice President and Chief Financial Officer, dated as of October 3, 2007, which was amended effective March 27, 2012, February 20, 2015, and April 19, 2018, and which will expire on April 1, 2023 unless terminated earlier. The agreement provides that Ms. Davies will be employed as Aon’s Executive Vice President and Chief Financial Officer. The agreement reflects Ms. Davies’s then-current base salary of $900,000, which is subject to adjustment at the discretion of our CEO and the Compensation Committee, and a target annual incentive bonus of 150% of her base salary and foreign service allowance. In early 2019, the Committee approved an increase of $100,000 to Ms. Davies’s base salary, from $900,000 to $1,000,000.

Mr. Andersen’s Employment Agreement and Employment Letter

We entered into an Employment Agreement with Eric Andersen dated as of October 1, 2013, which expired on October 1, 2018. The agreement provided that Mr. Andersen would serve as Chief Executive Officer of Reinsurance and Retirement Solutions, Data and Analytics for a base salary of no less than $800,000, subject to adjustment, and a target annual incentive bonus of 100% of his base salary, subject to a cap of 300% of his base salary.

In connection with Mr. Andersen’s appointment as Aon’s Co-President and the expiration of Mr. Andersen’s employment agreement on October 1, 2018, and consistent with the Company’s general intent of moving away from the practice of entering into fixed-term employment agreements with our management employees, the Company and Mr. Andersen entered into an employment letter dated May 11, 2018. The employment letter provides that Mr. Andersen will serve as Aon’s Co-President, that his continued employment with the Company is on an at-will basis, and that he is eligible to participate in the Combined Severance Plan. The letter also provides that Mr. Andersen’s then-current base salary of $900,000 and his target annual incentive bonus are unchanged. In early 2019, the Committee approved an increase of $100,000 to Mr. Andersen’s base salary, from $900,000 to $1,000,000.

Mr. O’Connor’s Employment Agreement and Employment Letter

We entered into an Employment Agreement with Michael J. O’Connor, our Co-President, dated as of March 29, 2013, which expired on March 1, 2018. The agreement provided that Mr. O’Connor would serve as Chief Executive Officer of Commercial Risk and Health Solutions for a base salary of no less than $800,000, subject to adjustment, and a target annual incentive bonus of 100% of his base salary, subject to a cap of 300% of his base salary.

In connection with the expiration of Mr. O’Connor’s employment agreement on March 1, 2018, and consistent with the Company’s general intent of moving away from the practice of entering into fixed-term employment agreements with our management employees, the Company and Mr. O’Connor entered into an employment letter dated March 1, 2018. The employment letter provides that Mr. O’Connor’s continued employment with the Company is on an at-will basis, and that he is eligible to participate in the Combined Severance Plan. The letter also provided that Mr. O’Connor’s then-current base salary of $900,000 and his target annual incentive bonus were unchanged. The letter was amended and restated effective May 15, 2018 to reflect his change in title to Aon’s Co-President. In early 2019, the Committee approved an increase of $100,000 to Mr. O’Connor’s base salary, from $900,000 to $1,000,000.

 

2020 Aon Proxy Statement        39

 

Mr. O’Connor notified the Company on February 20, 2020, of his decision to step down from his position as Co-President of the Company, effective immediately. Mr. O’Connor will remain at the Company for a transition period to be determined.

Mr. Lieb’s Employment Agreement, Employment Letter, and Transition Agreement

We entered into an Employment Agreement with Peter Lieb, our Executive Vice President, General Counsel and Company Secretary, dated as of January 1, 2014, which expired on January 1, 2019. The agreement replaced Aon’s prior agreement with Mr. Lieb and provided for a base salary of no less than $700,000, subject to adjustment, and a target annual incentive bonus of 100% of his base salary and foreign service allowance, subject to a cap of 300% of his base salary.

In connection with the expiration of Mr. Lieb’s employment agreement on January 1, 2019, and consistent with the Company’s general intent of moving away from the practice of entering into fixed-term employment agreements with our management employees, the Company and Mr. Lieb entered into an employment letter dated November 6, 2018. The employment letter provided that Mr. Lieb’s continued employment with the Company was on an at-will basis and that he was eligible to participate in the Combined Severance Plan. The letter also provided that Mr. Lieb’s base salary and target annual incentive bonus are unchanged.

Mr. Lieb and Aon entered into a transition and separation agreement effective June 3, 2019, under which Mr. Lieb resigned as our Executive Vice President, General Counsel, and Company Secretary and transitioned to the role of Special Legal Advisor to our CEO, effective June 24, 2019. During the transition period through December 31, 2020, Mr. Lieb will continue to receive his base salary. This transition and separation agreement is described in more detail above in the CD&A under “Transition and Separation Agreement with Mr. Lieb.”

International Assignment Letters

In connection with the Company’s 2012 Redomestication, we entered into international assignment letters with each of Mr. Case, Ms. Davies, Mr. O’Connor, and Mr. Lieb. These letters describe the international assignments and set forth the relocation benefits to the executives, which are described below. The letters are not intended to diminish the rights of the executives under their current employment arrangements; however, the letters provide by their terms that the executives’ acceptance of their international assignments, and repatriation thereafter, will not give rise to any right to terminate for good reason (as such term is defined in the applicable executive’s employment agreement, if applicable).

The letters for Mr. Case, Ms. Davies, and Mr. Lieb were amended and extended in July 2014 for an additional two years, July 1, 2016 for an additional two years, July 1, 2018 for an additional one year, and (for Mr. Case and Ms. Davies only) July 1, 2019 for an additional year. Mr. Lieb’s letter was not extended in 2019 and is no longer in effect (however he continued to receive certain benefits under his transition and separation agreement, as set forth below), and Mr. O’Connor’s 2012 letter was not extended and is no longer in effect; however, Mr. Lieb and Mr. O’Connor are still eligible to receive tax preparation services in connection with compensation attributable to the periods of time they were on international assignment.

Depending on each executive’s personal circumstances, and as disclosed in the tables above, the relocation packages, as amended, generally provide some or all of the following benefits:

 

•

a monthly housing allowance of approximately $31,834 for Mr. Case and $23,876 for each of Ms. Davies and Mr. Lieb;

 

•

a monthly cost of living differential of $8,125;

 

•

a monthly foreign service allowance of $11,250 for Mr. Case, $10,000 for Ms. Davies, and $8,750 for Mr. Lieb;

 

•

a monthly car allowance of approximately $1,958 for each of Ms. Davies and Mr. Lieb;

 

•

eligible dependents’ schooling assistance, including tuition and application fees, for Ms. Davies;

 

•

an annual home leave allowance for Mr. Lieb;

 

•

a tax equalization benefit for Ms. Davies and Mr. Lieb, designed to equalize the income tax paid by the executive so that his or her total income and social tax costs related to any earnings from the Company while on the international assignment (including earnings related to granting or vesting of equity-based awards) will be no more than an amount the executive would have paid had all of the earnings been taxable solely pursuant to the U.S. income and social tax laws;

 

40        2020 Aon Proxy Statement

 

•

a tax gross-up for Ms. Davies on schooling assistance and, for both Ms. Davies and Mr. Lieb, on allowances related to housing, cost of living, home leave and transportation; and

 

•

enhanced tax preparation and planning and expatriate services for the tax years covered by the international assignment or for which international earnings are taxed by the U.K.

All of the relocation benefits are subject to recoupment if the executive officer resigns employment with the Company within two years of commencing the international assignment, or 12 months after the end of the assignment, and becomes employed by a direct competitor of the Company.

Grants of Plan-Based Awards in Fiscal Year 2019

The following table provides information on non-equity incentive plan compensation, restricted share unit awards, and performance share unit awards granted in 2019 to each of the NEOs.

 

						Estimated Possible Payouts Under Non-Equity Incentive  Plan Awards (1)												Estimated Future Payouts Under Equity Incentive Plan Awards (2)												All Other Stock Awards: Number of Shares of Stock or Units (#)(3)				Grant Date Fair Value of Stock and Option Awards ($)(4)
Name		Grant Date				Target ($)				Maximum ($)								Threshold (#)				Target (#)				Maximum (#)
Gregory C. Case			—				3,000,000				9,000,000								—				—				—				—				—
			2/15/2019				—				—								—				—				—				4,070				699,918
			3/29/2019				—				—								39,250				78,500				157,000				—				13,005,880
Christa Davies			—				1,680,000				5,040,000								—				—				—				—				—
			2/14/2019				—				—								—				—				—				3,301				559,916
			3/28/2019				—				—								13,596				27,192				54,384				—				4,464,926
Eric Andersen			—				1,000,000				3,000,000								—				—				—				—				—
			2/14/2019				—				—								—				—				—				2,063				349,926
			3/28/2019				—				—								8,867				17,734				35,468				—				2,911,923
Michael O’Connor			—				1,000,000				3,000,000								—				—				—				—				—
			2/14/2019				—				—								—				—				—				1,857				314,984
			3/22/2018				—				—								8,867				17,734				35,468				—				2,911,923
Peter Lieb			—				—				—								—				—				—				—				—
			2/14/2019				—				—								—				—				—				1,754				297,513
			—				—				—								—				—				—				—				—
John Bruno			—				950,000				2,850,000								—				—				—				—				—
			2/14/2019				—				—								—				—				—				1,857				314,984
			3/28/2019				—				—								7,389				14,778				29,556				—				2,426,548

 

(1)

The amounts shown relate to potential annual incentive plan awards for 2019 service for each NEO under our Shareholder-Approved Plan. The amounts shown as “Target” represent the target payment level of 200% for Mr. Case, 150% for Ms. Davies, and 100% for each of Mr. Andersen, Mr. O’Connor, and Mr. Bruno, of their respective base salaries, and the amounts shown in “Maximum” reflect the maximum payment level of the lesser of $10,000,000 or three times the target incentive amount, as provided by the terms of our Shareholder-Approved Plan. For Ms. Davies, the annual foreign service allowance is included with base salary in determining her bonus target. Pursuant to his transition and separation agreement with the Company, Mr. Lieb was not entitled to any new plan-based grants in 2019.

 

Our Shareholder-Approved Plan does not contain a threshold payment level for any of the NEOs. If pre-established performance measures are not met, no payments are made.

 

As described in the CD&A under “Annual Incentive Awards under Our Shareholder-Approved Plan,” our NEOs determined to forego 2019 annual incentive plan awards prior to the time any final determinations were made by the Board or the Compensation Committee with respect to such awards and, as a result, no such awards were paid for 2019 performance.

 

(2)

The amounts shown in columns titled “Threshold,” “Target,” and “Maximum” represent the threshold, target, and maximum number of performance share units granted to our NEOs pursuant to Aon’s LPP 14 that will be earned and settled in Class A Ordinary Shares if certain performance criteria are achieved during the 2019 to 2021 performance period. As the potential payments are dependent on achieving certain performance criteria, actual payouts could differ by a significant amount. For more information regarding the terms of these performance share units and LPP 14, see the section titled “Leadership Performance Program under Our Shareholder-Approved Plan” in the CD&A.

 

(3)

The amounts shown in this column represent the number of restricted share units granted to each NEO in 2019 in satisfaction of 35% of the annual incentive award earned by such NEO for 2018 performance. Within the framework of our Shareholder-Approved Plan, the target amount of each NEO’s annual incentive award for 2018 performance (calculated as a percentage of base salary and, with respect to Ms. Davies and Mr. Lieb, their annual foreign service allowance) was 200% for Mr. Case, 150% for Ms. Davies, and 100% for each of Mr. Andersen, Mr. O’Connor, Mr. Lieb, and

 

2020 Aon Proxy Statement        41

 

Mr. Bruno; the bonus range was capped at 600% for Mr. Case, 450% for Ms. Davies, and 300% for each of Mr. Andersen, Mr. O’Connor, Mr. Lieb, and Mr. Bruno. The determination of the actual incentive amount payable was determined based, among other things, on Aon’s overall performance and individual performance. These restricted share units will vest in installments of 331/3% on the first through third anniversaries of the date of grant. Dividend equivalents are paid quarterly in cash on unvested restricted share units and voting rights do not attach to any unvested restricted share units.

 

(4)

The amounts shown in this column are the grant date fair values of the various awards. The grant date fair value generally reflects the aggregate grant date fair value computed in accordance with ASC Topic 718 and, with respect to the performance share unit awards granted under the LPP, is based on the probable outcome of the performance-based conditions at the time of grant. These amounts do not correspond to the actual value (if any) that may be recognized by the NEOs. For additional information about the applicable assumptions for determining the grant date fair value of restricted share unit awards, see footnote (1) to the Summary Compensation Table.

Outstanding Equity Awards at 2019 Fiscal Year-End

The following table sets forth information regarding outstanding restricted share units and performance share units held by each of our NEOs on December 31, 2019. See “Potential Payments and Benefits on Termination or Change in Control” for information regarding the impact of certain employment termination scenarios on outstanding equity awards.

 

						Stock Awards
Name		Grant Date				Number of Shares or Units of Stock That Have Not Vested (#)				Market Value of Shares or Units of Stock That Have Not Vested ($)				Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Gregory C.			2/17/2017	(1)			2,978				620,288				—				—
Case			3/31/2017	(2)			175,246				36,501,989				—				—
			2/16/2018	(1)			3,313				690,065				—				—
			3/23/2018	(3)			—				—				180,798				37,658,415
			2/15/2019	(1)			4,070				847,740				—				—
			3/29/2019	(3)			—				—				157,000				32,701,530
Christa			2/16/2017	(1)			1,592				331,598				—				—
Davies			3/30/2017	(2)			54,018				11,251,409				—				—
			2/15/2018	(1)			2,385				496,772				—				—
			3/22/2018	(3)			—				—				57,426				11,961,262
			2/14/2019	(1)			3,301				687,565				—				—
			3/28/2019	(3)			—				—				54,384				11,327,643
Eric			2/16/2017	(1)			796				165,799				—				—
Andersen			3/30/2017	(2)			42,202				8,790,255				—				—
			2/15/2018	(1)			1,342				279,525				—				—
			3/22/2018	(3)			—				—				39,480				8,223,289
			2/14/2019	(1)			2,063				429,702				—				—
			3/28/2019	(3)			—				—				35,468				7,387,630
Michael			2/16/2017	(1)			697				145,178				—				—
O’Connor			3/30/2017	(2)			42,202				8,790,255				—				—
			2/15/2018	(1)			1,342				279,525				—				—
			3/22/2018	(3)			—				—				39,480				8,223,289
			2/14/2019	(1)			1,857				386,795				—				—
			3/28/2019	(3)			—				—				35,468				7,387,630
Peter			2/16/2017	(1)			846				176,213				—				—
Lieb			3/30/2017	(2)			25,320				5,273,903				—				—
			2/15/2018	(1)			1,284				267,444				—				—
			3/22/2018	(3)			—				—				22,252				4,634,869
			2/14/2019	(1)			1,754				365,341				—				—
John			2/16/2017	(1)			846				176,213				—				—
Bruno			3/30/2017	(2)			32,072				6,680,277				—				—
			2/15/2018	(1)			1,408				293,272				—				—
			3/22/2018	(3)			—				—				30,866				6,429,079
			2/14/2019	(1)			1,857				386,795				—				—
			3/28/2019	(3)			—				—				29,556				6,156,219

 

42        2020 Aon Proxy Statement

 

(1)	The vesting schedule for the restricted share units, other than performance share units, held by each NEO is as follows:

 

Vesting Date		Gregory C. Case				Christa Davies				Eric Andersen				Michael O’Connor				Peter Lieb				John Bruno
2/14/2020			—				1,100				687				619				584				619
2/15/2020			1,356				1,192				671				671				642				704
2/16/2020			1,656				1,592				796				697				846				846
2/17/2020			2,978				—				—				—				—				—
2/14/2021			—				1,100				688				619				585				619
2/15/2021			1,357				1,193				671				671				642				704
2/16/2021			1,657				—				—				—				—				—
2/14/2022			—				1,101				688				619				585				619
2/15/2022			1,357				—				—				—				—				—
Total			10,361				7,278				4,201				3,896				3,884				4,111

 

(2)

The performance share units convert into Class A Ordinary Shares on a one-to-one basis after the conclusion of a three-year performance period. For performance share units with a March 30, 2017 or March 31, 2017 grant date, the three-year performance period ended on December 31, 2019. These performance share units were subsequently settled in Class A Ordinary Shares on February 13, 2020.

 

(3)

The performance share units, to the extent earned, convert into Class A Ordinary Shares on a one-to-one basis after the conclusion of a three-year performance period. A pre-established cumulative EPS target as certified by the Compensation Committee in the first quarter of the year after the performance period must be met. For LPP performance share units with a March 22, 2018 or March 23, 2018 grant date, the three-year performance period ends on December 31, 2020. For LPP performance share units with a March 28, 2019 or March 29, 2019 grant date, the three-year performance period ends on December 31, 2021.

 

If the minimum or threshold performance is not attained, the performance share units will be forfeited. In this table, the maximum number of performance share units is shown for outstanding awards for all LPP cycles as awards granted under these cycles are currently tracking at or above target payout levels. The market value is calculated using $208.29, the closing price of a Class A Ordinary Share on the NYSE on December 31, 2019 (the last trading day of 2019). If Aon does not attain the maximum cumulative target over the three-year period, the number of Class A Ordinary Shares received by the NEOs upon settlement will be reduced.

Stock Vested in Fiscal Year 2019

The following table sets forth (1) the number of Class A Ordinary Shares acquired during 2019 by our NEOs upon the vesting of restricted share unit awards and the settlement of performance share unit awards, and (2) the value realized upon such vesting or settlement.

 

		Stock Awards
Name		Number of Shares Acquired on Vesting (#)(1)				Value Realized on Vesting ($)(2)
Gregory C. Case			190,585				32,347,381
Christa Davies			61,087				10,372,147
Eric Andersen			39,419				6,691,621
Michael O’Connor			39,381				6,685,087
Peter Lieb			28,941				4,914,643
John Bruno			46,916				8,217,939

 

(1)

Represents (a) the vesting of restricted share units granted under our Shareholder-Approved Plan and (b) the settlement of performance share unit awards granted under the LPP in March 2016 for the three-year performance period ending on December 31, 2018, which were converted into Class A Ordinary Shares on February 14, 2019. Of the amounts shown, the following aggregate number of Class A Ordinary Shares were withheld to pay taxes due in connection with the vesting: Mr. Case, 85,330 shares; Ms. Davies, 24,051 shares; Mr. Andersen, 18,423 shares; Mr. O’Connor, 16,566 shares; Mr. Lieb, 12,774 shares; and Mr. Bruno, 23,119 shares.

 

(2)

Calculated by multiplying (a) the fair market value of Class A Ordinary Shares on the vesting date, which was determined using the closing price on the NYSE of a Class A Ordinary Share on the vesting date or, if such day is a holiday, on the immediately preceding working day, by (b) the number of Class A Ordinary Shares acquired upon vesting.

 

2020 Aon Proxy Statement        43