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METRIC CHANGES FOR 2016
Based on shareholder feedback, the Compensation
Committee has changed the 2016 PBRS awards’ RBC
goals and vesting to strengthen the rigor of this metric.
For 2016, PBRS objectives will be based on the
average RBC for the three year period 2016 to 2018
calculated as the arithmetic average of the year-end
RBC for each of the three years. For the three year
period, performance shares will vest at 50% if threshold
RBC ratio is achieved and 100% if target if attained.
Vesting will be determined using linear interpolation for
an RBC ratio between 500% and 700%. If the RBC
falls below 500% there will be no vesting for the period.
If the RBC equals or exceeds 700% vesting will be
equal to 100%.
The RBC metrics have been strengthened considerably
by raising the RBC target from 625% in 2015 to 700%
in 2016. The new averaging approach sets 100%
payout at 700% versus formerly the mid-point of 625%.
Overall, we believe that these modifications provide a
more challenging performance goal for the long-term
equity incentives.
The Company is currently evaluating its definition of
operating earnings, and whether hedge costs
related to
foreign currency investments should be included in the
definition. As a result, any change in the definition of
operating earnings would impact MIP metrics (EPS,
OROE, and, potentially, Net Investment Income and the
Japan segment Pretax Operating Earnings). The
corresponding minimum, target, and maximum goals
would be adjusted accordingly.
CEO AND PRESIDENT COMPENSATION AND PAY-FOR-PERFORMANCE
The Compensation Committee is responsible for the
review and determination of the CEO’s pay. Since
1997, the Compensation Committee has utilized a
rigorous pay-for-performance approach that is directly
linked to the Company’s comparative performance
results to determine CEO compensation. To achieve
this linkage, the Consultant annually calculates the
Company’s composite performance percentile rank
among the peer group of 17 major insurance
companies previously identified in this CD&A, as it may
be modified from time to time.
Beginning in 2014, the Compensation Committee
modified the process for determining CEO
compensation that had been used since 1997. While
the overall construct and workings of the program – as
well as the emphasis on pay and performance –
remained unchanged, some modifications to the
performance period for financial metrics and total
shareholder return (used to determine the CEO’s LTI
grant – see below) were made to better align with the
current year’s performance and associated CEO
compensation.
Starting in 2015, the Company’s President was placed
under a similar program. Based on market analyses
performed, and also considering the unique role held by
Mr. Cloninger as of the start of 2015 (he was President,
CFO, and Treasurer at the time), it was determined that
Mr. Cloninger’s final 2015 pay package would be set to
equal 55% of that of the CEO, with his PBRS grant
being a function of this value. As a result, Mr.
Cloninger’s 2015 pay is 100% performance-based as it
is a function of the CEO’s pay, which, as noted
previously, is determined based on the Company’s
relative financial and TSR performance against its
peers.
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