40 / 108
HOW MIP PERFORMANCE GOALS ARE SET
The Board of Directors believes it is important for the Company to manage the business to provide long-term value
to our shareholders. Therefore, performance goals under the MIP involve metrics that drive shareholder returns.
The MIP payout depends entirely upon the level of achievement of performance goals. We have used the same
methodology for setting MIP goals for many years:
●●
MIP segment metrics for Aflac U.S. and Aflac Japan are consistent with assumptions used in developing
segment financial projections (described below) based on the Company’s best estimates for the coming year.
●●
The segment projections are consolidated into the corporate financial projection used to develop earnings per
share guidance.
First, the Company’s CEO, President, and CFO recommend to the Compensation Committee the specific
Company performance objectives aligned with corporate strategy, driving shareholder value and ensuring financial
soundness. Recommended ranges are based, in part, on past performance results and scenario tests of the
Company’s financial outlook as projected by a complex financial model. The model projects the impact on various
financial measures using different levels of total new annualized premium sales, investment returns, budgeted
expenses, morbidity, and persistency.
After receiving recommendations for each performance measure, the Compensation Committee establishes
a target performance level, as well as a minimum and maximum level. Typically, the target goal is equidistant
between the minimum and maximum goals. The payout for a minimum result is one-half of the target payout, while
the payout for a maximum result is twice the target payout; no payouts would be made for performance below the
minimum level of performance. Interpolation is used to calculate incentive payouts for results between minimum
and target or target and maximum.
The annual incentive goals for each performance measure typically are set in February for the current calendar
year. At this time, the Compensation Committee assesses management’s recommendations and approves or, if
deemed appropriate, modifies those goals for the year. This CD&A discusses MIP goals that were approved by the
Compensation Committee in February 2016.
IMPORTANCE OF NEUTRALIZING FOREIGN CURRENCY EFFECTS
Since 1991, the Company has communicated external earnings guidance that excludes foreign currency effects.
Our Japanese business is important to our results, but currency changes are largely outside of management’s
control. However, reported earnings do reflect the impact of foreign currency fluctuations. Our Japanese
segment’s revenues, including realized gains and losses on it investment portfolio, accounted for 71% of the
Company’s total revenues in 2016. The percentage of the Company’s total assets attributable to the Japan
segment was 83% at December 31, 2016.
The Compensation Committee strongly believes that management should not be unduly rewarded when the yen is
strong or penalized in periods of yen weakening, which is why MIP objectives are set on a currency-neutral basis.
MIP PERFORMANCE METRICS
The incentive measures include statistical and non-GAAP financial measures, as more fully described below.
Appendix C to this proxy statement provides a reconciliation of these non-GAAP measures to the corresponding
GAAP measures.
Corporate metrics
Operating earnings per diluted share and operating return on shareholders’ equity (“OROE”)
both are
calculated to exclude the impact of foreign currency effect. We define operating earnings per diluted share as:
the profits derived from operations, including
interest cash flows associated with notes
payable, before realized investment gains
and losses from securities transactions,
impairments, derivative and hedging activities,
and other nonrecurring items
the weighted-average number of shares
outstanding for the period, plus a number of
weighted-average shares to compensate for
the dilutive effect of share-based awards
÷
Compensation Discussion & Analysis
|
Elements of Our Executive Compensation Program
AFLAC INCORPORATED
2017 PROXY STATEMENT
34