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For each calendar year, participants will earn total
PBRS credit based on the sum of the RBC credit, the
SMR credit and the OROE credit earned. For
performance between the minimum and target goal and
between the target goal and maximum goal, a pro-rata
calculation will be used to determine the percentage of
credit achieved. The final three-year PBRS award
percentage will be the arithmetic average of the PBRS
credits earned in each of the individual three years
comprising the performance period, provided however,
that the PBRS award credit will not exceed 100%. If the
performance measures are achieved, the PBRS awards
are settled (a participant will receive one share of
Company common stock for each earned PBRS
award).
Stock options are awarded to all NEOs, except Mr. Dan
Amos. These options are granted based on the closing
price on the date of grant and vest over a three-year
period.
METRIC CHANGES FOR 2015
After the Compensation Committee’s thorough review
of the annual and long-term incentive plan metrics in
the context of the ever-changing global market in which
we compete, as well as feedback from shareholders
and outside advisors, we have decided to eliminate the
overlap in performance metrics used for our executive
officers’ 2015 MIP and 2015 PBRS awards,
respectively. For 2015, RBC has been removed as a
metric under our MIP. The RBC measure is not subject
to the same potential volatility due to macro factors, and
it also measures the capital level of the consolidated
insurance operations of Aflac Japan and Aflac
U.S. Therefore, RBC was determined to be the best
metric to measure and assess Aflac’s long-term
performance for our PBRS awards. Separately, we
have removed SMR and OROE as metrics for the
PBRS awards, but have continued to include them as
metrics under the MIP. Overall, we believe that these
modifications better focus the executives on
successfully executing our business strategy over both
annual and long-term time horizons.
CEO 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.
As noted above, for 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.
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