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. )
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Preliminary Proxy Statement |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Lincoln National Corporation
(Name of Registrant as Specified in Its Charter)
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Lincoln national corporation 2018 proxy statement and notice of annual meeting of shareholders
Radnor, Pennsylvania / April 24, 2020
Dear Fellow Shareholder:
You are invited to attend our 2020 Annual Meeting of Shareholders, to be held Thursday, June 11 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 2019 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 2019 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
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Lincoln National Corporation 2020 Proxy Statement |
Notice of Annual Meeting of Shareholders
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June 11, 2020 9:00 a.m. local time |
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The Ritz-Carlton Hotel 10 Avenue of the Arts Philadelphia, Pennsylvania 19102* |
Mailing date: April 24, 2020
The purpose of the meeting is to:
1. Elect ten directors for a one-year term expiring at the 2021 Annual Meeting of Shareholders;
2. Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2020;
3. Approve an advisory resolution on the compensation of our named executive officers;
4. Approve the Lincoln National Corporation 2020 Incentive Compensation Plan;
5. Consider and vote upon up to two shareholder proposals if properly presented at the meeting; and
6. 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 April 7, 2020.
Please cast your votes by one of the following methods:
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SIGNING AND RETURNING |
TOLL-FREE TELEPHONE |
THE INTERNET |
IN PERSON AT THE |
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A PROXY CARD |
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ANNUAL MEETING |
If, going forward, you would like to receive electronic delivery of future proxy materials, please see page 84 for more information.
For the Board of Directors,
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Nancy A. Smith |
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Senior Vice President & Secretary |
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Lincoln National Corporation |
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Radnor, Pennsylvania |
* Although we currently are planning to hold our Annual Meeting in person, as part of our precautions relating to the coronavirus, or COVID-19, we are planning for the possibility that the Annual Meeting may need to be held solely by means of remote communication this year. If we need to take this step, we will take the necessary actions to allow us to do so and we will announce the decision in advance. The announcement, which we will also post on our website at www.lfg.com, will contain details on how to participate in the Annual Meeting. If we were to hold the Annual Meeting by means of remote communication this year, it would be our intention to return to our practice of holding an in-person Annual Meeting in 2021.
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Lincoln National Corporation 2020 Proxy Statement |
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Agenda Item 2 – Ratification of Appointment of Independent Registered Public Accounting Firm |
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▪ Independent Registered Public Accounting Firm Fees and Services |
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Agenda Item 4 - Approval of Lincoln National Corporation 2020 Incentive Compensation Plan |
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Agenda Item 5 – Shareholder Proposal Regarding Amending Special Shareholder Meeting Right |
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Agenda Item 6 - Shareholder Proposal Regarding Independent Board Chairman |
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Exhibit 3 – Lincoln National Corporation 2020 Incentive Compensation Plan |
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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 11, 2020:
This proxy statement and the accompanying annual report are available at: www.proxydocs.com/lnc.
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Lincoln National Corporation 2020 Proxy Statement |
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
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Voting |
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Thursday, June 11, 2020 |
The Ritz-Carlton Hotel |
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. |
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9:00 a.m. local time |
10 Avenue of the Arts |
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Philadelphia, PA 19102 |
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Record Date |
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April 7, 2020 |
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Voting Matters
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Where to Find More Information |
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1. Election of ten directors for a one-year
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Page 16 |
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2. Ratification of the appointment of Ernst & Young
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Page 25 |
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3. Approval of an advisory resolution on the
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4. Approval of the Lincoln National Corporation 2020 Incentive Compensation Plan. |
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Page 67 |
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5. Respond to an advisory shareholder proposal regarding an amendment to our special shareholder meeting right. |
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Page 76 |
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6. Respond to an advisory shareholder proposal regarding the amendment of our governing documents to provide an independent chair of the board. |
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Page 79 |
FOR each director nominee
FOR the ratification
FOR the resolution
FOR the approval
AGAINST the proposal
AGAINST the proposal
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Lincoln National Corporation 2020 Proxy Statement |
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Proxy Summary
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Name Occupation |
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Director Since |
Selected Skills/Qualifications |
Independent |
Committee Memberships |
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Deirdre P. Connelly Retired President, North American Pharmaceuticals of GlaxoSmithKline |
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2016 |
▪ business operations and strategic planning ▪ finance and capital management ▪ corporate governance |
Yes |
Audit Corporate Governance (Chair) |
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William H. Cunningham Professor, University of Texas at Austin and James J. Bayless Chair for Free Enterprise at the University’s McCombs School of Business |
76 |
2006 |
▪ finance and capital management ▪ marketing/public relations ▪ talent management ▪ corporate governance |
Yes |
Compensation Corporate Governance Executive (Chair) Finance |
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Dennis R. Glass President and Chief Executive Officer, Lincoln National Corporation |
70 |
2006 |
▪ business operations and strategic planning ▪ finance and capital management ▪ talent management |
No |
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George W. Henderson, III Retired Chairman and Chief Executive Officer, Burlington Industries, Inc. |
71 |
2006 |
▪ accounting ▪ finance and capital management |
Yes |
Audit Finance |
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Eric G. Johnson President and Chief Executive Officer, Baldwin Richardson Foods Company |
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1998 |
▪ business operations and strategic planning ▪ finance and capital management ▪ marketing/public relations |
Yes |
Compensation Corporate Governance Executive Finance (Chair) |
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Gary C. Kelly Chairman of the Board and Chief Executive Officer, Southwest Airlines Co. |
65 |
2009 |
▪ business operations and strategic planning ▪ finance and capital management ▪ public accounting |
Yes |
Audit Finance |
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M. Leanne Lachman President, Lachman Associates LLC and Executive in Residence, Columbia Graduate School of Business |
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1985 |
▪ business operations and strategic planning ▪ finance and capital management ▪ marketing/public relations ▪ corporate governance ▪ risk management |
Yes |
Audit (Chair) |
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Michael F. Mee Retired Executive Vice President and Chief Financial Officer, Bristol- Myers Squibb Company |
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2001 |
▪ finance and capital management ▪ public accounting ▪ business operations and strategic planning |
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Compensation Executive Finance |
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Patrick S. Pittard Chief Executive Officer, BDI DataLynk, LLC |
74 |
2006 |
▪ public accounting ▪ finance and capital management ▪ talent management ▪ corporate governance |
Yes |
Compensation (Chair) |
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Lynn M. Utter Principal and Chief Talent Officer, Atlas Holdings LLC |
57 |
2017 |
▪ business operations and strategic planning ▪ risk management ▪ corporate governance |
Yes |
Corporate Governance Finance
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Lincoln National Corporation 2020 Proxy Statement |
Proxy Summary
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.
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Lincoln National Corporation 2020 Proxy Statement |
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Proxy Summary
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
▪ All directors, except CEO, are independent
▪ All Audit, Compensation, Corporate Governance, and Finance Committee members are independent
▪ Annual election of all directors
▪ Majority voting standard for election of directors with director resignation policy for directors in uncontested elections
▪ Independent directors meet regularly in executive session
▪ Annual Board, Committee and individual director evaluations
▪ Shareholder right to call special meetings (10% ownership threshold)
▪ “Proxy access” rights to holders owning at least 3% of outstanding shares for 3 years
▪ No super majority voting provisions in Restated Articles of Incorporation and Bylaws
▪ Robust stock ownership guidelines for directors and executive officers
▪ Prohibition on pledging, hedging and speculation in our securities
▪ Executive compensation program strongly links pay and performance
▪ Caps on awards under annual and long-term incentive programs
▪ No repricing or exchange of underwater stock options without shareholder approval
▪ Clawback provisions on equity awards
▪ Double-trigger vesting provisions for equity awards following a change of control
▪ No tax-gross-up provisions upon a change of control
▪ No employment agreements with NEOs
▪ Limited perquisites for executive officers
Our full year 2019 results included the following highlights:
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5% |
Our revenues increased 5% year over year. |
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12% |
For the tenth straight year, we increased our quarterly dividend — for 2019, we paid $0.37 per share, up from $0.33 in 2018, and up from $0.01 in 2010. |
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5% |
Our book value per share, excluding accumulated other comprehensive income (loss), grew to $71.27 from $67.73 in 2018. |
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$938M |
We continued to return capital to shareholders during 2019, returning $938 million through share buybacks and dividends. |
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2019 Shareholder Engagement and Response to Feedback
In the fall of 2019, as part of our on-going commitment to robust shareholder engagement, we reached out to investors representing over 40% of our shares outstanding to discuss various key corporate governance-related matters. As a result of this outreach, we engaged substantively with more than half of the contacted investors, during which we discussed topics including board refreshment and composition, the board evaluation process, company culture, executive compensation and areas of focus for our shareholders regarding environmental and social practices. Shareholder feedback was generally positive with respect to our compensation, governance, environmental and social practices. The feedback from these meetings was shared with the Corporate Governance Committee and the Compensation Committee as well as the full Board. This feedback strongly informed the enhancements that were made to this proxy statement to further improve transparency.
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Lincoln National Corporation 2020 Proxy Statement |
Proxy Summary
Executive Compensation Highlights
The key objectives of our executive compensation program are to:
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▪ Motivate our executives to increase
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▪ Retain key executive talent, as this
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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 28. At the 2019 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.
2019 Pay Mix. NEO compensation is weighted toward variable compensation (annual and long-term incentives, or AIP and LTI), 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 2019 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 52. For additional details about our executive compensation programs and our NEOs’ fiscal year 2019 compensation, please see “Compensation Discussion & Analysis” beginning on page 28 and “Executive Compensation Tables” beginning on page 52.
For 2020, our CEO’s target direct compensation will remain at 2019 levels. In addition, for 2020, the Compensation Committee adjusted the LTI equity award mix for our CEO to increase the percentage of equity granted as performance share awards (PSAs) and stock options, consistent with our fundamental pay for performance philosophy. The LTI equity award mix for 2020 (Options, PSAs and restricted stock units (RSUs)) is shown below.
2019 LTI MIX FOR CEO 2020 LTI MIX FOR CEO
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Lincoln National Corporation 2020 Proxy Statement |
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Governance ▪ Board Structure and Leadership
Annual Meeting of Shareholders | June 11, 2020
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 2020 Annual Meeting of Shareholders, which will be held beginning at 9:00 a.m. local time on Thursday, June 11 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 24. When we refer to our 2020 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.
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, our many other stakeholders 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 ten members, nine of whom are non-employees, or outside directors. The Board has determined that all nine outside directors are independent, as discussed below. The Board may fill a director vacancy or reduce the size of the Board 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, reviews and approves the agenda for the Board meetings, has the opportunity to review, revise and approve all Board meeting materials, 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 and is available to meet or otherwise communicate with major shareholders, when appropriate. During our 2019 shareholder engagement, many of our shareholders expressed support for the current leadership structure and the ability of the Board to retain flexibility to select the most appropriate board leadership structure based on the best interests of the Company at the given time.
The Board elects the Chairman annually. Independent director William H. Cunningham 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, strategic and competitive risks. The Board reviews the most significant risks the Company faces and the manner in which our executives manage these risks. The Board has also delegated certain of its risk oversight efforts to its committees, as shown below. This structure enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships. We believe that the separation of the Chairman and CEO roles supports the Board’s oversight role.
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Lincoln National Corporation 2020 Proxy Statement |
Our Corporate Governance Guidelines ▪ Governance
Board and Committees: Areas of Risk Oversight
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Strategy |
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Operations |
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Competition |
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Financial strategies and transactions |
Audit
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Enterprise risk management efforts |
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Financial statements |
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Financial reporting process |
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Accounting and audit matters |
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Legal, compliance and regulatory matters |
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Cybersecurity
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Compensation policies and practices |
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Executive incentive compensation and stock ownership |
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Executive retention and succession planning
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Corporate Governance
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Director succession and refreshment planning |
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Sustainability and corporate social responsibility
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Finance
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Investment policies, strategies and guidelines |
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Capital management and structure |
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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:
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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. |
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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. |
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Only independent directors may serve on the Audit, Compensation, Corporate Governance and Finance Committees. |
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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. |
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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. |
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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. |
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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 the Corporate Governance page of our website at www.lfg.com.
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Lincoln National Corporation 2020 Proxy Statement |
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Governance ▪ Director Independence
ISG Corporate Governance Framework
We also follow the Investor Stewardship Group’s (ISG) Corporate Governance Framework for U.S. Listed Companies. The ISG Principles and our corresponding practices are as follows:
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Principle 1:
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▪All Directors are elected annually by a majority of votes cast ▪We have proxy access with market terms ▪We have robust corporate governance disclosures ▪We have responded to all shareholder proposals that received majority support |
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Principle 2:
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▪Each shareholder gets one vote per share on all matters ▪We have majority voting in uncontested director elections, and directors not receiving majority support must tender their resignation for consideration by the Board |
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Principle 3:
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▪We have a robust shareholder engagement program to discuss our business, corporate governance, executive compensation, and sustainability practices ▪Our Board considers the feedback received from shareholder engagement when structuring governance, compensation, and sustainability practices ▪In 2019, we reached out to institutional investors representing over 40% of our shares outstanding, and engaged substantively with over half of these investors |
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Principle 4:
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▪The Chair of the Board is an independent, non-executive Director with a robust oversight role that has clearly defined duties that are disclosed to shareholders ▪Each Committee of the Board is chaired by an independent Director ▪The Board leadership structure is considered at least annually |
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Principle 5:
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▪The Board is comprised of ten directors, nine of whom are independent ▪The Board has taken actions to refresh its membership, with two new directors added in the last four years ▪Each Committee of the Board has an extensive detailed charter outlining the Committee’s duties and responsibilities ▪Board members have complete access to Company officers and counsel and may retain outside counsel, financial or other advisors as the Board deems appropriate ▪Board, Committee and individual director evaluations are conducted annually by an independent third party, as further discussed in the proxy statement ▪The number of public company boards on which a Director may serve is limited in order to ensure sufficient time to dedicate to Board duties |
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▪The Compensation Committee annually reviews and approves incentive compensation program design, goals and objectives for alignment with compensation and business strategies that furthers short- and long-term strategic objectives ▪Our executive compensation has received at least 91% shareholder support since 2013 |
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.
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:
In conducting its independence review, the Board will consider, among other things, transactions and relationships between each outside director (or any member of his or her immediate family) and us or our subsidiaries and affiliates. The Board takes into account that in the ordinary course of business, we conduct transactions with companies at which some of our directors are or have been directors, employees or officers. Transactions that are in the ordinary course of business on terms substantially equivalent to those prevailing at the time for comparable transactions and that fall below the threshold levels set forth in our independence standards do not impact a director’s independence under our standards.
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Lincoln National Corporation 2020 Proxy Statement |
Director Nomination Process ▪ Governance
Under our Corporate Governance Guidelines, the Board is responsible for selecting its nominees. The Corporate Governance Committee is charged with:
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Identifying the competencies appropriate for the Board |
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Identifying which, if any, of those competencies may be missing or underrepresented on the current Board |
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Identifying individuals with appropriate qualifications and attributes |
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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 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.
The Board regularly evaluates the need for Board refreshment and has retained an outside search firm to identify and evaluate potential director candidates. Two new directors have been elected to our Board in the last four 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. The Committee is also assisted in identifying potential candidates by an independent third-party search firm that recommends potential director candidates who meet the Board’s stated requirements.
Although not required to do so, the Corporate Governance Committee may consider candidates proposed by our directors or our management and has also retained 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 2021 Annual Meeting” on page 87 and in our Amended and Restated Bylaws (“bylaws”), which can be found on our website at www.lfg.com. Any such recommendation for next year’s director slate must be received by the Corporate Secretary no earlier than February 11, 2021, nor later than March 13, 2021.
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
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Lincoln National Corporation 2020 Proxy Statement |
9 |
Governance ▪ Annual Board, Committee and Individual Director Evaluations
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.
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:
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Board and committee composition, including skills, background and experience; |
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Board understanding of, and effectiveness in overseeing, its responsibilities; |
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Satisfaction with director performance, including that of Board and committee chairs in those positions; |
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Board and committee information needs and quality of materials presented; |
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. For 2019, the Corporate Governance Committee engaged an independent third party to conduct the annual self-evaluations to gain a fresh perspective and encourage even more candid participation and feedback. The Corporate Governance Committee plans to continue to use an independent third party on a regular basis for the evaluations.
The independent third party conducted individual interviews with each director, covering the topics discussed above, and, after aggregating and summarizing the responses, delivered a report to the Corporate Governance Committee highlighting comments and areas of future focus. Responses were not attributed to specific Board or Committee members to promote candor. Using the independent third party’s report as a guide, our Chairman reviewed the results of the Board evaluation and each Committee chair reviewed the results of the Committee evaluation. The report was 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. The peer evaluations were also conducted by the independent third party for 2019. 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 value our shareholders’ view and insights, which is why last year we extended our proactive shareholder engagement program with a specific focus on corporate governance, compensation and environmental and social practices. This program complements the ongoing dialogue throughout the year among our shareholders, CEO, CFO and Investor Relations team on financial and strategic performance. Our engagement program is designed to reach out to our shareholders and hear their perspectives about issues that are important to them, both generally and with regard to the Company, and gather feedback. We believe this engagement program promotes transparency between our Board and our shareholders and builds informed and productive relationships.
In the fall of 2019, we reached out to investors representing over 40% of our shares outstanding and discussed various topics including board refreshment and composition, the board evaluation process, company culture, executive compensation and areas of focus for our shareholders regarding environmental and social practices. The result of this outreach was substantive engagement with more than half of these investors. The feedback from these meetings was shared with the Corporate
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Lincoln National Corporation 2020 Proxy Statement |
Board and Committee Meetings ▪ Governance
Governance Committee and the Compensation Committee as well as the full Board. This feedback strongly informed the enhancements that were made to this proxy statement to further improve transparency.
The Company has a history of being responsive to shareholder feedback. In 2019, in response to shareholder feedback, the Company made available through its website and its 2018 Corporate Social Responsibility Report a gender pay equity statement. In 2018, based in part on feedback received, the Board took action to amend the Company’s bylaws to reduce to 10% the percentage of outstanding stock required for shareholders to call a special meeting.
Board and Committee Meetings
The Board met five times during 2019, 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 2019 Annual Meeting except for Isaiah Tidwell.
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 2019. The Audit, Compensation, Corporate Governance, and Finance Committees conduct self-evaluations of their committee’s performance each year.
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Current Committee Membership and Meetings Held During 2019 (C=Chair M=Member) |
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Audit |
Compensation |
Corporate Governance |
Executive |
Finance |
Corporate Action1 |
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Deirdre P. Connelly
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William H. Cunningham
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Dennis R. Glass
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George W. Henderson, III
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Eric G. Johnson
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Gary C. Kelly
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M. Leanne Lachman
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Michael F. Mee
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Patrick S. Pittard
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Lynn M. Utter
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Number of Meetings in 2019
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8 |
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5 |
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Shaded cells denote committee chair. |
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The Committee on Corporate Action takes all action by the unanimous written consent of the sole member of that Committee, and there were ten (10) such consents in 2019. |
The functions and responsibilities of our Board’s standing committees are described below. Charters for the Audit, Compensation, Corporate Governance, Executive, and Finance Committees are available on the Governance section of our website at www.lfg.com.
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Lincoln National Corporation 2020 Proxy Statement |
11 |
Governance ▪ Board Committees
Chair: Lachman
Members: Connelly, Henderson and Kelly
The primary function of the Audit Committee is oversight, including risk oversight. This includes:
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hiring, firing, and evaluating the performance of the independent auditors and approving their compensation and all of their engagements |
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discussing the timing and process for implementing the rotation of the lead audit partner |
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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 |
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inquiring about significant risks and exposures, if any, and reviewing and assessing the steps taken to monitor and manage them |
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reviewing and discussing the risk policies and procedures adopted by management, and the implementation of these policies |
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reviewing the qualifications and backgrounds of senior risk officers |
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preparing the report required for inclusion in our annual proxy statement |
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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 |
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consulting with management before the appointment or replacement of the internal auditor |
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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 25.
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Lincoln National Corporation 2020 Proxy Statement |
Board Committees ▪ Governance
Chair: Pittard
Members: Cunningham, Johnson and Mee
The principal functions of the Compensation Committee include:
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establishing our general compensation philosophy in consultation with the compensation consultant and senior management |
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ensuring that succession plans are in place for the CEO and other executive officers |
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reviewing and approving corporate goals and objectives for the CEO and executive officers’ compensation |
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evaluating the CEO’s performance and setting the CEO’s compensation level based on this evaluation |
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evaluating annually whether the Company’s compensation programs create unnecessary risks that could harm the Company |
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reviewing with management the Compensation Discussion & Analysis to be included in the proxy statement |
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reviewing and approving the strategies, policies and programs related to the compensation of our executive officers and other key personnel |
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making recommendations to the Board regarding incentive compensation and equity-based plans, and approving all grants and awards to executive officers under such plans |
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approving employment and severance agreements for executive officers |
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approving certain employee benefit and executive compensation plans and programs, and changes to such plans and programs |
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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 28.
Corporate Governance Committee
Chair: Connelly
Members: Cunningham, Johnson and Utter
The principal functions of the Corporate Governance Committee include:
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making recommendations to the Board regarding the compensation program for directors |
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recommending to the Board nominees for director (including those recommended by shareholders in accordance with our bylaws) |
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making recommendations to the Board regarding the size of the Board and the membership, size, structure and function of its committees |
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taking a leadership role in shaping our corporate governance and recommending to the Board the corporate governance principles applicable to us |
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reporting the Corporate Governance Committee’s activities to the Board on a regular basis and making any recommendations the Corporate Governance Committee deems appropriate |
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developing and recommending to the Board standards for determining the independence of directors |
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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.
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Lincoln National Corporation 2020 Proxy Statement |
13 |
Governance ▪ Board Committees
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.
Finance Committee
Chair: Johnson
Members: Cunningham, Henderson, Kelly, Mee and Utter
The principal functions of the Finance Committee include:
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reviewing and providing guidance to senior management with respect to: |
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our annual three-year financial plan |
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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 |
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our reinsurance strategies |
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proposed mergers, acquisitions, divestitures, joint ventures and other strategic investments |
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reviewing our overall credit quality and credit ratings strategy |
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reviewing the general account and our investment policies, strategies and guidelines |
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reviewing our hedging program and the policies and procedures governing the use of financial instruments, including derivatives |
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reviewing the funding adequacy of our qualified pension plans, including significant actuarial assumptions, investment policies and performance |
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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:
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appointing and removing certain classes of our officers as the Board may determine by resolution |
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Lincoln National Corporation 2020 Proxy Statement |
Director Orientation and Continuing Education ▪ Governance
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.
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Lincoln National Corporation 2020 Proxy Statement |
15 |
Item 1 | Election of Directors
Item 1 | Election of Directors
Ten directors will be up for election at the 2020 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.
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Lincoln National Corporation 2020 Proxy Statement |
Nominees for Director ▪ Item 1 | Election of Directors
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Age: 59
Director since: 2016
Chair, Corporate Governance Committee
Member, Audit Committee |
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Deirdre P. Connelly Retired President, North American Pharmaceuticals of GlaxoSmithKline Career Ms. Connelly was 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.
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Age: 76 Director since: 2006 Non-Executive Chairman of the Board since: 2009 Chair, Executive Committee Member, Compensation, Corporate Governance and Finance Committees |
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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 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.
Prior public company board service in past 5 years Resolute Energy Corporation, 2009–2015.
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Lincoln National Corporation 2020 Proxy Statement |
17 |
Item 1 | Election of Directors ▪ Nominees for Director
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Age: 70 Director since: 2006 Member, Executive Committee |
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Dennis R. Glass President and Chief Executive Officer of Lincoln National Corporation 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 the past 5 years. |
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Age: 71 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. |
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George W. Henderson, III Retired Chairman and Chief Executive Officer of Burlington Industries, Inc. 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. Prior public company board service in past 5 years Bassett Furniture Industries, Inc., 2004–2019. |
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Lincoln National Corporation 2020 Proxy Statement |
Nominees for Director ▪ Item 1 | Election of Directors
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Age: 65 Director since: 2009 Member, Audit and Finance Committees |
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Gary C. Kelly Chairman of the Board and Chief Executive Officer of Southwest Airlines Co. 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. |
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Lincoln National Corporation 2020 Proxy Statement |
19 |
Item 1 | Election of Directors ▪ Nominees for Director
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Age: 77 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. |
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M. Leanne Lachman President of Lachman Associates LLC and Executive-in-Residence, Columbia Graduate School of Business 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. |
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Age: 77 Director since: 2001 Member, Compensation, Executive and Finance Committees |
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Michael F. Mee Retired Executive Vice President and Chief Financial Officer of Bristol-Myers Squibb Company Career From 1994 to 2001, Mr. Mee was Executive Vice President and CFO of Bristol-Myers Squibb Co., a pharmaceutical and health care products company, where he was also a member of the Office of the Chairman. Before joining Bristol-Myers Squibb, Mr. Mee served in senior financial executive positions with several Fortune 500 companies. Qualifications Significant public accounting and financial reporting skills; extensive management experience and leadership skills; expertise in corporate strategy, development and investments, international operations and risk assessment. Other public company boards None in the past 5 years. |
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Lincoln National Corporation 2020 Proxy Statement |
Nominees for Director ▪ Item 1 | Election of Directors
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Age: 74 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. |
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Patrick S. Pittard Chief Executive Officer of BDI DataLynk, LLC 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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Age: 57 Director since: 2017 Member, Corporate Governance and Finance Committees |
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Lynn M. Utter Principal, Chief Talent Officer of Atlas Holdings LLC Career Ms. Utter has served as 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 2018. Prior to that, Ms. Utter served as CEO and a director of First Source, LLC, from 2016 to 2018. She previously served as President and Chief Operating Officer of Knoll Office, a designer and manufacturer of office furniture products, from 2012 to 2015. She also served as President and Chief Operating Officer of Knoll North America from 2008 to 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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Lincoln National Corporation 2020 Proxy Statement |
21 |
Compensation of Outside Directors
Compensation of Outside Directors
The Board adheres to the following guidelines in establishing outside director compensation:
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We provide competitive compensation to attract and retain high-quality outside directors; and |
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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 2019, 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. The independent compensation consultant compared the director compensation to the same compensation peer group used for the Company’s annual executive compensation review, and the analysis was further informed by general industry data developed based on companies in the S&P 500. As a result of that review and the committee’s discussion, the Corporate Governance Committee recommended making no changes to the Board compensation for 2020.
The following table shows the fees in effect beginning January 1, 2019:
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Fees |
2019 |
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Annual retainer (cash) |
$110,000 |
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Deferred LNC Stock Units |
$165,000 |
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Total Board Fees |
$275,000 |
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Non-Executive Chairman of the Board |
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Annual retainer (cash) |
$120,000 |
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Deferred LNC Stock Units |
$376,000 |
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Total Non-Executive Chairman of the Board Fees |
$496,000 |
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Committees (cash) |
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Audit Committee Chair |
$35,000 |
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Audit Committee Member |
$10,000 |
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Compensation Committee Chair |
$25,000 |
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Other Committee Chair |
$20,000 |
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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 ($550,000 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 and LNC stock owned outright. As of December 31, 2019, all of our directors have interests in the Company’s common stock equal to the required threshold, with the exception of Ms. Utter, who joined the Board in November 2017 and has until November 2022 to meet the full share ownership requirement.
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, and dividends are reinvested in additional phantom units.
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 at the time of distribution are only payable in shares of Lincoln common stock.
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Lincoln National Corporation 2020 Proxy Statement |
Directors’ Compensation Table ▪ Compensation of Outside Directors
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 2019, 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:
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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. For 2019, directors were eligible to receive matching donations totaling up to an additional $5,000 in the event the director chose to donate such additional amount to a specified charity in memory of Mr. Tidwell. |
|
* |
As an employee of the Company, Mr. Glass receives no director compensation. |
|
1 |
As described above, $110,000 (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. Fees are pro-rated for partial service during the year. |
|
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 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, 2019. Mr. Cunningham received a total of $376,000 in Deferred LNC Stock Units for serving as a director and the non-executive Chairman during 2019. |
|
3 |
Includes the provision of financial planning services with an aggregate incremental cost to us of $10,000. |
|
4 |
Reflects contributions made on the director’s behalf under the matching charitable gift program. |
5 Mr. Tidwell passed away on August 4, 2019.
|
Lincoln National Corporation 2020 Proxy Statement |
23 |
Compensation of Outside Directors ▪ Deferred LNC Stock Units
The following table shows the number of Deferred LNC Stock Units held by each director as of December 31, 2019. None of the directors held any stock options as of such date.
|
Name |
Deferred LNC Stock Units |
|
|
Deirdre P. Connelly |
9,807 |
|
|
William H. Cunningham |
117,286 |
|
|
George W. Henderson, III |
71,096 |
|
|
Eric G. Johnson |
62,354 |
|
|
Gary C. Kelly |
30,806 |
|
|
M. Leanne Lachman |
36,822 |
|
|
Michael F. Mee |
77,605 |
|
|
Patrick S. Pittard |
27,424 |
|
|
Lynn M. Utter |
9,286 |
|
|
|
|
|
Deferred LNC Stock Units include amounts reported in the Stock Awards column above, phantom units awarded under the LNC 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.
|
24 |
Lincoln National Corporation 2020 Proxy Statement |
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 Audit Committee considers the auditor’s service quality and efficiency, capability, technical expertise, and knowledge of our operations and industry. On February 19, 2020, the Audit Committee appointed Ernst & Young LLP (“Ernst & Young”) as our independent registered public accounting firm for fiscal year 2020. 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 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 2019 and 2018, with a breakdown of fees paid for different categories of work.
|
|
Fiscal year ended- December 31, 2019 |
|
% of Total Fees |
|
Fiscal year ended- December 31, 2018 |
|
% of Total Fees |
|
||||
|
Audit Fees1 |
$11,968,947 |
|
|
84.8% |
|
|
$11,596,984 |
|
|
89.0% |
|
|
|
Audit-Related Fees2 |
2,141,568 |
|
|
15.2% |
|
|
1,438,314 |
|
|
11.0% |
|
|
|
Tax Fees3 |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
All Other Fees |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
Total Fees |
$14,110,515 |
|
|
100.0% |
|
|
$13,035,298 |
|
|
100.0% |
|
|
|
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, 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.
|
Lincoln National Corporation 2020 Proxy Statement |
25 |
Item 2 | Ratification of Appointment ▪ Audit Committee Report
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.
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 2019; |
|
▪ |
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 2019 be included in the Company’s Annual Report on Form 10-K for fiscal year ending December 31, 2019, for filing with the SEC.
The Audit Committee
Deidre P. Connelly
George W. Henderson, III
Gary C. Kelly
M. Leanne Lachman, Chair
|
26 |
Lincoln National Corporation 2020 Proxy Statement |
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 2019 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 28, our executive compensation principles and underlying programs are designed to:
|
▪ |
align the interests of our executive officers with those of our shareholders; |
|
▪ |
link executive pay directly to the attainment of short- and long-term financial/business goals, which we refer to as “pay for performance;” 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 2019, 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 28 to 51.
Although the advisory vote on this proposal is non-binding — meaning that our Board is not required to adjust our executives’ compensation or our compensation programs or policies as a result of the vote — the Board and the Compensation Committee will consider the voting results when determining compensation policies and decisions, including future executive compensation decisions. Notwithstanding the advisory nature of the vote, the resolution will be approved if more votes are cast for the proposal than against it. Abstentions and broker non-votes will not count as votes cast either for or against the proposal. We intend to hold a non-binding advisory vote on executive compensation each year, with the next such vote at our 2021 Annual Shareholders Meeting.
We urge you to read the CD&A and other information in the Executive Compensation Tables, beginning on page 52, 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.
“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 2019 compensation tables regarding named executive officer compensation, and the accompanying narrative disclosure in this proxy statement.”
|
Lincoln National Corporation 2020 Proxy Statement |
27 |
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 2019, 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 52. 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 52 to 66.
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, are linked to our long-term financial plan and reflect our shareholders’ feedback. The compensation of our executives 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 2019 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.
|
28 |
Lincoln National Corporation 2020 Proxy Statement |
Executive Summary ▪ Compensation Discussion & Analysis
As a company that has been in business for nearly 115 years, 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 solid financial results in 2019 despite the economic headwinds facing the company and the industry, including the low interest rate environment in which we have been operating for a number of years. During 2019, we continued to focus on driving shareholder value while further advancing our strategic priorities, diversifying our mix of business and increasing operating revenues 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:
From a financial and operating standpoint, we had a solid year in 2019 as we delivered steady operating revenue growth across our core businesses, leading to record book value per share, excluding accumulated other comprehensive income (loss). We maintained a strong value proposition with customers and producers and focused on expanding our product portfolio and distribution reach. Our disciplined business approach helped us maintain attractive profit margins. These results were achieved despite a challenging environment, including the pressure of continued low interest rates. Accomplishments this past year across our core businesses include:
▪ positive net flows in the Annuities business in every quarter totaling $1.9 billion for the full year;
▪ Life Insurance sales exceeding $1 billion as we benefited from our broad product portfolio;
▪ a 30% increase in Group Protection sales;
▪ positive net flows in the Retirement Plan Services business for the fifth consecutive year; and
▪ ending the year with $275 billion in assets under management.
In addition, we continued to be recognized for our good corporate citizenship and dedication to diversity and inclusion, as demonstrated by, among other accolades, our inclusion on the Dow Jones Sustainability Index North America and among the Forbes Just 100 and Newsweek’s 2020 America’s Most Responsible Companies, and our ranking by Forbes as Best Employer for Diversity, Best Employer for Women and a Best Large Employer.
Despite these accomplishments and our diligent focus on returning capital to shareholders, our stock price has underperformed our peers. For 2019, our stock price increased 15% to $59.01 as of the market close on December 31, 2019 from $51.31 on December 31, 2018. Our ending adjusted operating return on equity for 2019 was 9.7%, which includes the impact of our third quarter annual assumption review.
|
Lincoln National Corporation 2020 Proxy Statement |
29 |
Compensation Discussion & Analysis ▪ Executive Summary
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 measures include some of the key metrics used as the basis for our annual and long-term incentive program goals.
2017 – 2019 GAAP Net Income per Share and Adjusted Income from Operations per Share
2017 – 2019 GAAP Revenues and Adjusted Operating Revenues
|
30 |
Lincoln National Corporation 2020 Proxy Statement |
Executive Summary ▪ Compensation Discussion & Analysis
2017 – 2019 Sales by Business Unit
1 Total sales represents first year sales and recurring deposits.
More information on our business performance during 2019 is available in our Form 10-K for fiscal year ended December 31, 2019 (the “2019 Form 10-K”), which is included in the 2019 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 2020 Proxy Statement |
31 |
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”— meaning that 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 options, restricted stock units, and 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) and at risk.
|
TARGET PAY MIX FOR CEO |
|
TARGET PAY MIX FOR NEOS (EXCLUDING CEO) |
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 52 of this proxy statement.
Looking Forward
For 2020, our CEO’s target direct compensation will remain at 2019 levels. In addition, for 2020, the Compensation Committee increased the alignment of CEO compensation with Company performance and shareholder interests by adjusting our CEO’s LTI equity award mix to increase the percentage of equity granted as PSAs and stock options, consistent with our fundamental pay for performance philosophy. The LTI equity award mix for 2020 is shown below.
2019 LTI MIX FOR CEO 2020 LTI MIX FOR CEO
|
32 |
Lincoln National Corporation 2020 Proxy Statement |
Executive Summary ▪ Compensation Discussion & Analysis
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:
2019 Shareholder Engagement and Response to Feedback
We value our shareholders’ view and insights, which is why last year we extended our proactive shareholder engagement program with a specific focus on corporate governance, compensation and environmental and social practices. This program complements the ongoing dialogue throughout the year among our shareholders, CEO, CFO and Investor Relations team on financial and strategic performance. Our engagement program is designed to reach out to our shareholders and hear their perspectives about issues that are important to them, both generally and with regard to the Company, and gather feedback. We believe this engagement program promotes transparency between our Board and our shareholders and builds informed and productive relationships.
In the fall of 2019, we reached out to investors representing over 40% of our shares outstanding and discussed various topics including board refreshment and composition, the board evaluation process, company culture, executive compensation and areas of focus for our shareholders regarding environmental and social practices. The result of this outreach was substantive engagement with more than half of these investors. The feedback from these meetings was shared with the Corporate Governance Committee and the Compensation Committee as well as the full Board. This feedback strongly informed the enhancements that were made to this proxy statement to further improve transparency.
|
Lincoln National Corporation 2020 Proxy Statement |
33 |
Compensation Discussion & Analysis ▪ Components of our Compensation Program
Components of Our Compensation Program
The following table outlines the components of target total direct compensation and how each component aligns with our objectives and guiding principles.
|
34 |
Lincoln National Corporation 2020 Proxy Statement |
Our Executive Compensation Program Pay for Performance Philosophy ▪ Compensation Discussion & Analysis
Our Executive Compensation Program Pay for Performance 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 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 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:
|
▪ |
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; |
|
▪ |
allow the compensation of our executives to vary meaningfully with performance; and |
|
▪ |
reward the achievement of superior financial results and shareholder returns — in both the short-term and long-term — through balanced incentive programs. |
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 with consultation from external compensation experts 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 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 target performance levels to be challenging yet attainable and 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 2019, the Compensation Committee continued to align our executive compensation accordingly by choosing the following performance measures:
|
Lincoln National Corporation 2020 Proxy Statement |
35 |
Compensation Discussion & Analysis ▪ Our Executive Compensation Program Pay for Performance Philosophy
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 comprise our long-term incentive compensation are the largest percentage of our NEOs’ targeted direct compensation (69% in the case of our CEO and 53% on average in the case of our other NEOs). 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. |
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 robust share ownership and share retention requirements are among the most stringent in place at companies in the S&P 500, providing a significant alignment of our executives with shareholders through the risks and rewards of stock ownership. The 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
|
36 |
Lincoln National Corporation 2020 Proxy Statement |
Consideration of Our 2019 Shareholder Vote on Executive Compensation ▪ Compensation Discussion & Analysis
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. As of December 31, 2019, each of our NEOs was exceeding their share ownership requirements.
The table below shows our share ownership guidelines and share retention requirements by officer tier:
|
* |
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 benefit 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 by our executive officers; and (ii) the use of derivative instruments by any employee to hedge the value of any of our securities. The full text of our Insider Trading and Confidentiality Policy is available on the Corporate Governance page of our website at www.lfg.com.
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.
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 restriction or is terminated for cause prior to or within six months after the vesting of any portion of an equity award, such as Options or a PSA, we may rescind the exercise or award and require the executive to return any gain realized or value received.
Competitive Compensation
In general, we target our executives’ total direct compensation — i.e., base salary, targeted annual incentive compensation and targeted long-term incentive compensation — at the median of the compensation paid to executives in similar positions at the insurance-based financial services and investment management companies with which we compete for talent. We then adjust the compensation as we believe appropriate given our executives’ experience and tenure and the scope of their roles and responsibilities. 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 are 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 2019 Shareholder Vote on Executive Compensation
The Compensation Committee and the Board appreciate and value the views of our shareholders. At our 2019 Annual Meeting of Shareholders, over 92% of shareholder votes were cast in favor of the “say on pay” advisory resolution on executive compensation. We review the program design on an annual basis, and in light of the support for our compensation program expressed by our shareholders through both engagement and historical levels of support for our “say on pay” advisory resolution, there have not been any significant changes to our compensation program in the last several years. However, for 2020, the CEO’s
|
Lincoln National Corporation 2020 Proxy Statement |
37 |
Compensation Discussion & Analysis ▪ Setting 2019 Target Compensation
target direct compensation, including his base salary, was maintained at 2019 levels. In addition, in response to the feedback shared by our shareholders through our robust shareholder engagement program, the Compensation Committee increased the alignment of CEO compensation with Company performance and shareholder interests by adjusting our CEO’s LTI equity award mix for 2020 to increase the percentage of equity granted as PSAs and Options.
Setting 2019 Target Compensation
The Compensation Committee made compensation decisions for the 2019 calendar year for the NEOs based on a detailed analysis of Company-specific and external data.
External Benchmarking
The Compensation Committee uses a comprehensive competitive compensation analysis to set target direct compensation levels for our NEOs. For 2019, 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 2018 Diversified Insurance Study of Executive Compensation (the “Towers DI Study”). We have used the Towers DI Study for over 10 years, and if the stock companies included in the study are changed, we reflect those changes in our benchmarking peer group. In 2018, Brighthouse Financial and Protective Life were added to the Towers DI Study, resulting in a corresponding change to our peer group. This list 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 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 each competes directly with us for talent and distribution of our products. Most of these peer companies compete with us in two or more lines of business, and the table below highlights which peers are a top-15 competitor in our core businesses. None of the companies in our peer benchmarking group are solely property and casualty companies, which the Compensation Committee believes is appropriate given that such companies have significantly different business and risk profiles than traditional life and annuity companies and do not compete with us directly for business or talent.
The Compensation Committee has generally 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. In addition, the Compensation Committee will remove a company from the benchmarking group if the company’s business mix changes such that it is no longer an appropriate peer.
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Compensation Peer Group for Benchmarking |
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Top-15 competitor in our core business units1 |
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2018 Towers DI Study Participant |
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Competitor for our core business units |
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Lists LNC as a peer |
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Life Insurance |
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Group Protection |
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Annuities |
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Retirement Plan Services |
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Competitor for distribution and talent |
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Aflac |
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Allstate |
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AXA Equitable |
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Brighthouse Financial |
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Cigna |
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CNO Financial |
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Genworth Financial |
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Hartford Financial Services |
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John Hancock/Manulife |
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MetLife |
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Principal Financial |
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Protective Life |
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Prudential Financial |
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Sun Life Financial |
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Transamerica |
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Unum Group |
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Voya Financial |
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1 |
Source for top-15 competitor data: (a) Life Insurance: 2019 ACLI Fact Book, based on individual life insurance inforce as of 2018; (b) Group Protection: LIMRA, based on 2018 year-end sales results; (c) Annuities: LIMRA 2019 Yearbook, based on annuity companies’ 2018 assets under management; and (d) Retirement Plan Services: based on 2018 plan sponsor total defined contribution assets under management. Note that a number of the top 15 competitors are mutual companies, which are not included in our benchmarking group. |
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38 |
Lincoln National Corporation 2020 Proxy Statement |
Setting 2019 Target Compensation ▪ Compensation Discussion & Analysis
The market data described on page 38 was used as a primary reference for most roles. The Compensation Committee seeks to target total direct compensation within a competitive range of plus or minus 15% of the 50th percentile of the market data being used. 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 are only one of many factors considered when setting executive compensation targets. In some cases, the Compensation Committee may target compensation above or below this range. Reasons for doing this include:
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▪ organizational considerations; for example, because an executive’s role is considered especially critical to our overall business strategy and to our succession planning; ▪ uniqueness of an individual’s role as compared to similar role at peer companies; ▪ internal pay equity considerations; |
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▪ to gain the specific expertise needed to build a new business or improve an existing one; or ▪ to retain highly qualified executives whom we have recruited from outside the insurance industry or whom we believe have skills or experience that will further our corporate strategy. |
Tally Sheets
When making compensation decisions, the Compensation Committee considers:
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the recommendations of our Chief People, Place & Brand Officer (“CPPBO”), the recommendations of our CEO, and the opinion of the Compensation Committee’s independent compensation consultant (although our CEO and CPPBO do not make recommendations with respect to their own compensation); |
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the available market data; and |
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reports called “tally sheets” illustrating the elements of targeted total direct compensation, including: |
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– base salary; |
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– 401(k) contributions and deferred compensation; and – perquisites. |
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– annual and long-term incentive awards; |
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The tally sheets enable the Compensation Committee to analyze the value of total target compensation, as well as the value of compensation actually realized compared with the value of compensation opportunities the Compensation Committee originally established.
The Compensation Committee also uses the tally sheets to assess whether our executive compensation program is consistent with our compensation philosophy and desired positioning relative to the market data. However, tally sheets are just one point of information the Compensation Committee uses to determine NEO compensation. The Compensation Committee performed a similar analysis to establish the total targeted direct compensation for our CEO.
Total Targeted 2019 Direct Compensation
The table below shows the total targeted direct compensation set by the Compensation Committee for our NEOs for 2019:
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2019 Target Total Direct Compensation for Our NEOs |
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Name |
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Base salary |
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Annual incentive award at target |
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Long-term incentive award at target |
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Total targeted annual compensation |
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Dennis R. Glass |
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$1,360,000 |
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$2,856,000 |
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$9,515,000 |
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$13,731,000 |
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Randal J. Freitag |
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$806,000 |
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$1,088,100 |
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$2,265,952 |
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$4,160,052 |
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Lisa M. Buckingham |
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$713,790 |
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$856,548 |
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$1,419,402 |
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$2,989,740 |
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Ellen G. Cooper |
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$639,230 |
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$831,000 |
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$1,807,770 |
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$3,278,000 |
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Wilford H. Fuller |
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$745,500 |
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$1,155,525 |
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$2,094,225 |
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$3,995,250 |
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Lincoln National Corporation 2020 Proxy Statement |
39 |
Compensation Discussion & Analysis ▪ Annual Cash Compensation for 2019
Annual Cash Compensation for 2019
During 2019, annual cash compensation was made up of base salary and a short-term incentive award under the AIP.
Base Salary
Base salaries are reviewed annually for market competitiveness and upon promotion or following a change in job responsibilities and are based on market data, internal pay equity and performance. In general, base salaries are targeted to the 50th percentile of the market data developed during the benchmarking process described above. In setting base salary levels for 2019, the Compensation Committee started with the 2018 base salaries and then approved merit increases based on the benchmarking data and compensation analysis discussed above as well as the individual performance of each NEO, using our enterprise-wide merit increase budget as a guide. Base salary increases for our NEOs ranged from 3% to 6% for 2019. Mr. Fuller received an increase of 5% in recognition of his performance, and Ms. Cooper received an increase of 6% to reflect an increase in her responsibilities.
The Compensation Committee approved the following base salaries for our NEOs effective during 2019:
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Name |
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2019 |
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Dennis R. Glass |
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$1,360,000 |
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Randal J. Freitag |
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$806,000 |
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Lisa M. Buckingham |
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$713,790 |
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Ellen G. Cooper |
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$639,230 |
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Wilford H. Fuller |
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$745,500 |
Annual Incentive Program
2019 Payout Opportunities
The table below shows the dollar amount of the threshold, target and maximum payout opportunities for the 2019 AIP established by the Compensation Committee for each of our NEOs; the threshold, target and maximum opportunities are calculated as a percentage of each NEO’s base salary. Payouts under the 2019 AIP are capped at the maximum amount. The threshold opportunity would be payable only in the case where the threshold goal is met for the performance measure with the lowest percentage payout amount.
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Estimated Payout Opportunities under the 2019 AIP |
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Name |
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Threshold |
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Target |
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Maximum |
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Dennis R. Glass |
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$35,700 |
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$2,856,000 |
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$5,712,000 |
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Randal J. Freitag |
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$13,601 |
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$1,088,100 |
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$2,176,200 |
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Lisa M. Buckingham |
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$10,707 |
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$856,548 |
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$1,713,096 |
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Ellen G. Cooper |
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$8,310 |
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$831,000 |
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$1,661,999 |
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Wilford H. Fuller |
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$14,444 |
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$1,155,525 |
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$2,311,050 |
2019 Performance Measures and Goals
In February 2019, the Compensation Committee established the goals and measures for the 2019 AIP.
Performance Measures. The Committee selected the three performance measures for 2019 described below because they focus on our overall corporate strategy of balancing top-line revenue growth with profitability and prudent cost management. To learn more about why these measures were selected, see “Pay for Performance” on page 35. The threshold, target and maximum goals associated with each measure are established annually so that they remain rigorous and in line with our financial plan.
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▪ Income from Operations per Share |
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▪ Business Unit Sales |
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▪ Management of Controllable Costs |
For purposes of the 2019 AIP, Income from Operations is defined as net income in accordance with GAAP but excluding the after-tax effects of the items detailed in Exhibit 2 on page E-5. This is one of the financial measures that management uses to assess our results. (To calculate Income from Operations per Share, the value of Income from Operations (as defined in Exhibit 2) was divided by the average diluted shares.) Management believes that excluding these items from net income better reflects the underlying trends in our businesses because the excluded items are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments. In addition, in most instances, decisions regarding these items do not necessarily relate to the operations of the individual segments.
For our CEO, performance is measured entirely at the corporate level, while our other NEOs are assessed on both corporate and business unit performance. To reflect the different roles and responsibilities of our NEOs, the Compensation Committee also weighs the performance measures differently for each NEO, as shown in the tables on pages 41 to 43.
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40 |
Lincoln National Corporation 2020 Proxy Statement |
Annual Cash Compensation for 2019 ▪ Compensation Discussion & Analysis
Performance Goals. In setting the goals for each of the performance measures, management and the Compensation Committee intended the target levels to be challenging yet achievable and the maximum levels to present a significant challenge, therefore requiring exceptionally strong performance to achieve these goals. The target goal for corporate Income from Operations per Share was set after consideration of a number of factors, including a review of our internal financial plan. The target goals for Business Unit Sales, at both the corporate and business-unit level, was based on our internal financial plan, emphasizing our corporate strategy to grow and protect the profitability of the business. The target goals for Controllable Costs were based upon controllable costs as budgeted in our annual financial plan. We believe that our methodology for determining financial performance targets for the AIP supports the following key objectives:
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aligning incentives with our annual financial plan; |
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establishing challenging yet achievable incentive targets for our executives; and |
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setting targets that are consistent with our assessment of opportunities and risks for the upcoming year. |
In establishing the performance goals for the 2019 AIP, the Compensation Committee took into account the sales environment across the business units over the previous year as well as the internal financial plan. The 2019 goals at target for Income from Operations per Share and Business Unit Sales were each increased for 2019 over the targets set for 2018. The target goals for Mr. Fuller for certain business unit-specific measures, including Annuities income from operations and Distribution net contribution margin, were decreased compared to the targets set for 2018. The goal for Annuities income from operations reflected the expected reduction in earnings resulting from the reinsurance of approximately $7.7 billion of annuities at the end of 2018, and the goal for Distribution net contribution margin reflected higher expenses due to investments made to expand our distribution network. The Compensation Committee believes these performance goals are rigorous goals at target that take into account both the risks and opportunities facing the Company.
In addition, for the 2019 AIP, the Committee also reviewed the weights for each goal and the goals for each role and made minor adjustments to Ms. Buckingham’s weightings to reflect an increase in her responsibilities during 2018.
2019 Performance Results and Actual Payouts
In February 2020, the Compensation Committee certified the performance results for the 2019 AIP. These formulaic results triggered a payout that was above target for all of our NEOs.
The following tables show the goals, weights, performance results and payout percentages for the 2019 AIP measures for each of our NEOs. Based on actual results, a payout percentage, expressed as a percentage of the NEO’s target payout opportunity, is first determined for each goal. These payouts are then weighted to determine the weighted payout for each goal. The sum of these weighted payouts equals the NEO’s payout percentage. The tables also show the resulting performance-based payouts approved by the Compensation Committee under the 2019 AIP for each of our NEOs and how these payouts compared with each NEO’s target payout opportunity under this program.
In calculating Operating ROE for the 2019 AIP, certain defined exclusions were made (as listed in Items A through I of Exhibit 2 on page E-5) in accordance with the terms of the plan, which resulted in the exclusion of the results of our third quarter 2019 annual assumption review. As a result, Income from Operations Per Share as calculated under the 2019 AIP was $8.70. The Compensation Committee can, at its discretion, reduce award payouts by including, rather than excluding, certain of the defined exclusions if it determines that these factors were relevant to individual performance. The Compensation Committee could have made other discretionary adjustments to the calculation of the performance results if the net effect would have been to reduce award amounts. In certifying the results for the 2019 AIP awards, the Compensation Committee did not exercise negative discretion for any of our NEOs and maintained the formulaic results.
Dennis R. Glass
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Corporate Measures (100%) |
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