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Program Changes for 2017
Overview and Context
As discussed in the “Response to Say-on-Pay Vote” section above, we continually analyze
our compensation program to ensure that we remain current in our approaches, a leader in
executive compensation best practices, and cognizant of shareholder concerns. 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.
For 2017, we believed it was necessary to modify the metrics used in our incentive
compensation programs due to the following internal and external factors affecting our
business as more fully discussed in Item 1A of the 2016 Annual Report on Form 10-K:
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Began conversion of the Japan branch to a subsidiary;
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Inclusion of Japan’s U.S. dollar investment portfolio hedge costs in Operating Earnings and
its impact on New Investment Income; and
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The Bank of Japan’s 2016 announced negative rate policy resulting in a low interest rate
environment and the Company’s strategic decision to de-emphasize yen-based retirement
products in Japan.
In addition, we thoughtfully considered feedback received during our shareholder outreach
efforts when making the following changes to our 2017 executive compensation program.
MIP Changes
For 2017, we have made the following modifications to our MIP:
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Segment pre-tax earnings were removed as MIP metrics for NEOs given that operating
earnings per diluted share on a consolidated basis for the Company (excluding foreign
currency effect) is already included in the MIP as a corporate metric with material weighting;
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OROE and SMR were removed from the MIP and incorporated as metrics under our PBRS
awards under the LTI program in order to better align the metrics under our PBRS program
with the Company’s strategic and operational goals;
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The Japan segment includes third sector premium in place of total premium as we focus on
third sector business in response to the Bank of Japan’s negative rate policy; and
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The slope of the MIP payout curve was adjusted such that the required above-target
performance to achieve maximum payouts will now be greater.
LTI Program Changes
CEO AND PRESIDENT LTI PROGRAM CHANGES
The Compensation Committee has approved a new structure to transition the CEO’s annual
LTI grants from the historic pay ranking-performance matrix approach (which was applicable to
2016 grants) to a more typical market-based approach. Beginning in 2017, the CEO’s LTI grant
will have the following attributes:
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Annual LTI grants will continue to be made 100% in PBRS with terms described in the
following section; and
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The entire target annual LTI award will be granted in February at a market-competitive level
based on peer market data.
Our shareholder outreach identified some shareholder concern about the absence of an LTI target
and maximum for the CEO. With these LTIP program changes, the CEO’s grant will have a target
and a maximum payout. The 2017 target LTI grant for the CEO is approximately $8.4 million.
Mr. Cloninger will not receive any LTI grants in 2017 due to his planned retirement at the end of 2017.
PBRS DESIGN
For 2017, our PBRS grants for executives – including our CEO – are different in the following
respects. Specifically, we:
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Incorporated additional metrics (OROE and SMR) that better reflect our long-term business
strategy and operating environment;
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Added upside performance/payout leverage;
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Added a relative TSR (RTSR) modifier; and
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Modified the OROE definition to include hedge costs and exclude unrealized gains and
(losses) on foreign currency translation from shareholders’ equity.
AFLAC INCORPORATED
2017 PROXY STATEMENT
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