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Compensation Discussion & Analysis
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Executive Summary
AFLAC INCORPORATED
2017 PROXY STATEMENT
31
Response to Say-on-Pay Vote
The Company has a history and a well-earned reputation with its shareholders as a transparent organization.
That commitment to transparency on all levels was certainly a driving force behind our decision in 2008 to allow
shareholders a “say-on-pay” advisory vote, years before such votes became mandatory for all public companies.
In 2016, 86% of our shareholders voted in favor of our executive compensation program.
Consistent with our approach in prior years, the Company engaged in shareholder outreach efforts throughout
2016. The feedback from these conversations, together with a thorough analysis of best practices and guidance
from our compensation consultant, was incorporated into the Compensation Committee’s regular review of our
compensation practices. This review has prompted several changes to our compensation program over the years:
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In 2014, we changed the process for setting the CEO’s compensation to better align that compensation with
our relative financial and total shareholder return (“TSR”) performance. The prior method for setting the CEO’s
pay had an inherent timing disconnect between performance and the related compensation as reported.
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In 2015, we eliminated an overlap in performance metrics used in the annual non-equity incentive plan and the
long-term equity incentive plan.
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In 2016, we began using a three-year average vesting metric for performance-based restricted stock (“PBRS”),
rather than vesting incrementally each year based on performance within the respective year.
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For 2017, the Company made the following changes:
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Our Chairman & CEO received his entire target annual long-term incentive award in February 2017 at a
market competitive level in relation to our peers.
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The long term incentive award for all NEOs was granted exclusively in the form of PBRS.
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The PBRS program was modified to include both upside and downside payout leverage, along with the
incorporation of two additional performance metrics to better align the PBRS awards with our strategic and
operational goals.
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The MIP program was modified to reflect a proactive approach to simplifying and aligning performance
metrics and increasing the level of performance required to achieve maximum goals.
For more information, see “Program Changes for 2017,” which begins on page 42.
We continually analyze our policies to ensure that we remain current in our approaches, a leader in executive
compensation best practices, and cognizant of shareholder concerns. Moreover, we pride ourselves on
incorporating ethics and transparency into everything we do, including compensation disclosure. Accordingly, we
will continue our review and dialogue with investors to determine if additional changes are warranted in 2017.
2016 Business Overview
Under the leadership of the CEO and executive management, the Company achieved strong financial and
operating results in 2016. The Company’s annual TSR as of December 31st was 19.1% and the Company’s stock
hit an all-time high during the year.
From a financial standpoint, 2016 net earnings increased 5.0% to $2.7 billion and operating earnings per diluted
share, excluding the impact of foreign currency, grew 4.7%. The operating earnings metric is one of the principal
financial measures used to evaluate management’s performance, and we believe it continues to be a key driver
of shareholder value. The Company’s relative financial performance improved as EPS growth, return on revenues,
return on average equity and return on average assets were in the top quartile in relation to our peers (see the
“2016 Financial Performance Ranking Matrix” below).
In 2016, the Company advanced the vision of offering high-quality voluntary products, solutions and service through
diverse distribution outlets, building upon the Company’s market-leading position to drive long-term shareholder
value. In Japan, where the Company insures one in four households, management seized the opportunity in 2016 to
strengthen relationships with sales channels and enhance the product line to ensure that the needs of consumers
continue to be met. These actions were instrumental in maintaining the Company’s status as the leading provider of
both medical and cancer insurance in Japan. Despite the negative interest rate environment in Japan, we were able
to achieve our financial objectives. In the U.S., although new annualized premium sales came in below expectations
last year, management was able to offset this with record profits and record persistency.
Management and the Board are committed to comprehensive risk management and safeguarding the financial
strength of the Company. In 2016, core capital strength measures, SMR ratio in Japan and RBC ratio in U.S.,
remained very strong at 945% and 894% respectively. The Company’s strong capital and cash flow position continues
to support strong financial strength ratings and a 34 year track record of increased common stock dividends.