lnc-pre14a_20160415.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE

SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO.      )

Filed by the Registrant 

Filed by a Party other than the Registrant 

Check the appropriate box:

Preliminary Proxy Statement

Confidential, For Use of the Commission Only

(as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

Lincoln National Corporation

 

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

1.

Title of each class of securities to which transaction applies:

 

 

2.

Aggregate number of securities to which transaction applies:

 

 

3.

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

4.

Proposed maximum aggregate value of transaction:

 

 

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Total fee paid:

 

 

Fee paid previously with preliminary materials.

 

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

1.

Amount Previously Paid:

 

 

2.

Form, Schedule or Registration Statement No.:

 

 

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4.

Date Filed:

 

 

 

 

 


 

 

 

 

 

 

 

Radnor, Pennsylvania / April 14, 2017

DEAR FELLOW SHAREHOLDER:

You are invited to attend our 2017 Annual Meeting of Shareholders, to be held Friday, May 26 at The Ritz-Carlton Hotel in Philadelphia, Pennsylvania. Our Board of Directors and management team look forward to greeting you.

This document describes the matters to be voted on at the Annual Meeting, so please review it carefully.

Many shareholders received a notice of internet availability instead of paper copies of our proxy statement and our 2016 Annual Report to Shareholders. The notice of internet availability provides instructions on how to access these documents over the internet and how to receive a paper or email copy of our proxy materials, including our proxy statement, our 2016 Annual Report to Shareholders and a proxy card. Electronic delivery enables us to more cost-effectively provide you with the information you need while reducing the environmental impact of printing and mailing paper copies.

Please vote your shares of our stock as promptly as possible. You may vote by mailing in a proxy card, by telephone or internet, or by attending the Annual Meeting and voting in person.

On behalf of the entire Board of Directors, thank you for your continued support.

Sincerely,

 

William H. Cunningham

Chairman of the Board

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

 

 


 

 

 

 

 

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

 

 

 

 

 

 

 

 

 

May 26, 2017

 

9:00 a.m.

 

The Ritz-Carlton Hotel

 

 

local time

 

10 Avenue of the Arts

 

 

 

 

Philadelphia, Pennsylvania 19102

 

 

 

 

 

Mailing date: April 14, 2017

The purpose of the meeting is to:

1. elect ten Directors for a one-year term expiring at the 2018 Annual Meeting of Shareholders;

2. ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2017;

3. approve an advisory resolution on the compensation of our named executive officers;

4. respond to an advisory proposal regarding the frequency (every one, two or three years) of future advisory resolutions on the

    compensation of our named executive officers;

5. approve amendments to our restated articles of incorporation to remove supermajority voting standards applicable to the

    following provisions;

 

Item 5(a) – voting rights of preferred stock, prohibitions regarding shares of stock in our subsidiary and future amendments

                   to the bylaws

 

Item 5(b) – removal of directors;

 

Item 5(c) – certain business combinations; and

6. consider and vote upon any other matters that might come up at the meeting.

You may vote at the Annual Meeting if you were a shareholder of record at the close of business on March 20, 2017. Please cast your votes by one of the following methods:

 

 

 

 

 

SIGNING AND RETURNING

TOLL-FREE

THE INTERNET

IN PERSON AT THE

A PROXY CARD

TELEPHONE

 

ANNUAL MEETING

If, going forward, you would like to receive electronic delivery of future proxy materials, please see page 78 for more information.

For the Board of Directors,

 

Andrea D. Goodrich

Senior Vice President & Secretary

Lincoln National Corporation

Radnor, Pennsylvania

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

 

 


 

 

 

 

TABLE OF CONTENTS

 

PROXY SUMMARY

1

 

 

GOVERNANCE OF THE COMPANY

5

 

 

AGENDA ITEM 1 - ELECTION OF DIRECTORS

14

 

 

 

 

Nominees for Director

14

 

 

 

 

COMPENSATION OF OUTSIDE DIRECTORS

20

 

 

AGENDA ITEM 2 - RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

24

 

 

Independent Registered Public Accounting Firm Fees and Services

24

 

 

Audit Committee Pre-Approval Policy

25

 

 

Other Information

25

 

 

Audit Committee Report

26

 

 

AGENDA ITEM 3 - ADVISORY PROPOSAL ON EXECUTIVE COMPENSATION

27

 

 

AGENDA ITEM 4 - ADVISORY PROPOSAL ON THE FREQUENCY OF FUTURE ADVISORY PROPOSALS ON EXECUTIVE COMPENSATION

29

 

 

COMPENSATION DISCUSSION & ANALYSIS

30

 

 

Executive Summary

31

 

 

Compensation Committee Report

54

 

 

EXECUTIVE COMPENSATION TABLES

55

 

 

Summary Compensation Table

55

 

 

Grants of Plan-Based Awards

58

 

 

Outstanding Equity Awards at Fiscal Year-End

60

 

 

Option Exercises and Stock Vested

62

 

 

Pension Benefits

63

 

 

Nonqualified Deferred Compensation

64

 

 

Potential Payments Upon Termination or Change of Control

66

 

 

AGENDA ITEM 5 – APPROVE AMENDMENTS TO OUR ARTICLES TO REMOVE SUPERMAJORITY VOTE PROVISIONS

72

 

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

75

 

 

RELATED-PARTY TRANSACTIONS

75

 

 

SECURITY OWNERSHIP

76

 

 

ANNUAL MEETING INFORMATION

78

 

 

GENERAL INFORMATION

82

 

 

Shareholder Proposals

82

 

 

Incorporation by Reference

82

 

 

Compliance with Beneficial Ownership Reporting

82

 

 

Annual Report

83

 

 

Additional Voting Matters

83

 

 

EXHIBIT 1 - RECONCILIATION OF NON-GAAP MEASURES

E-1

 

 

EXHIBIT 2 – DEFINITIONS FOR INCENTIVE COMPENSATION PROGRAMS

E-4

 

 

EXHIBIT 3 – PROPOSED AMENDMENTS TO OUR ARTICLES OF INCORPORATION

E-6

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 26, 2017: This proxy statement and the accompanying annual report are available at: www.proxydocs.com/lnc.

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

 

 


 

 

 

 

 

PROXY SUMMARY

 

PROXY SUMMARY

This summary highlights certain information for your convenience. Since it does not contain all of the information you should consider, we encourage you to read the entire proxy statement carefully before voting.

 

ANNUAL MEETING OF SHAREHOLDERS  

 

DATE / TIME

PLACE

VOTING

Friday, May 26, 2017

9:00 a.m. local time

The Ritz-Carlton Hotel

10 Avenue of the Arts

Philadelphia, PA 19102

 

RECORD DATE

Shareholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each of the other proposals.

 

March 20, 2017

 

 

 

VOTING MATTERS  

 

AGENDA ITEM

OUR BOARD’S VOTING

RECOMMENDATION

WHERE TO FIND

MORE INFORMATION

 

 

 

 

1.

Election of ten directors for a one-year term expiring at the 2018 Annual Meeting of Shareholders.

FOR each director nominee

Page 14

 

 

 

 

2.

Ratification of the appointment of Ernst & Young LLP as
independent registered public accounting firm for 2017.

FOR the ratification

Page 24

 

 

 

 

3.

Approval of an advisory resolution on the compensation of our named executive officers.

FOR the resolution

Page 27

4.

Respond to an advisory proposal regarding the frequency (every one, two or three years) of future advisory resolutions on the compensation of our named executive officers.

for a ONE-YEAR frequency

Page 29

5.

Approval of Amendments to our Restated Articles of Incorporation to remove the supermajority voting standards applicable to certain provisions.

FOR all three proposed amendments

Page 72

 

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

1

 


 

 

 

PROXY SUMMARY

 

 

 

BOARD OF DIRECTOR NOMINEES  

 

NAME

OCCUPATION

AGE

DIRECTOR

SINCE

SKILLS/QUALIFICATIONS

INDEPENDENT

COMMITTEE

MEMBERSHIPS

Deirdre P. Connelly

  55

  2016

business operations and strategic planning

Yes

Audit

Retired President, North

 

 

finance and capital management

 

• Corporate

American Pharmaceuticals of

 

 

corporate governance

 

  Governance

GlaxoSmithKline

 

 

 

 

 

William H. Cunningham

73

2006

finance and capital management

Yes

Compensation

Professor, University of

 

 

marketing/public relations

 

• Corporate

Texas at Austin and James

 

 

corporate governance

 

  Governance

J. Bayless Chair for Free

 

 

 

 

• Executive (Chair)

Enterprise at the University’s

 

 

 

 

Finance

McCombs School of Business

 

 

 

 

 

 

 

 

 

 

 

Dennis R. Glass

67

2006

business operations and strategic planning

No

Executive

President and Chief

 

 

finance and capital management

 

 

Executive Officer, Lincoln

 

 

 

 

 

National Corporation

 

 

 

 

 

George W. Henderson, III

68

2006

accounting

Yes

Audit

Retired Chairman and Chief

 

 

finance and capital management

 

Finance

Executive Officer, Burlington

 

 

 

 

 

Industries, Inc.

 

 

 

 

 

 

 

 

 

 

 

Eric G. Johnson

66

1998

business operations and strategic planning

Yes

Compensation

President and Chief

 

 

finance and capital management

 

Executive

Executive

 

 

marketing/public relations

 

Finance (Chair)

Officer, Baldwin Richardson

 

 

 

 

 

Foods Company

 

 

 

 

 

 

 

 

 

 

 

Gary C. Kelly

62

2009

business operations and strategic planning

Yes

Audit

Chairman of the Board,

 

 

finance and capital management

 

Finance

President and Chief

 

 

public accounting

 

 

Executive Officer,

 

 

 

 

 

Southwest Airlines Co.

 

 

 

 

 

M. Leanne Lachman

74

1985

business operations and strategic planning

Yes

Audit (Chair)

President, Lachman

 

 

finance and capital management

 

 

Associates LLC and

 

 

marketing/public relations

 

 

Executive

 

 

corporate governance

 

 

in Residence, Columbia

 

 

 

 

 

Graduate School of Business

 

 

 

 

 

Michael F. Mee

74

2001

finance and capital management

Yes

Compensation

Retired Executive Vice

 

 

public accounting

 

Finance

President and Chief

 

 

business operations and strategic planning

 

 

Financial Officer, Bristol-

 

 

 

 

 

Myers Squibb Company

 

 

 

 

 

Patrick S. Pittard

71

2006

finance and capital management

Yes

Compensation

Chairman, PatrickPittard

 

 

public accounting

 

  (Chair)

Advisors, LLC

 

 

talent management

 

 

 

 

 

corporate governance

 

 

 

 


 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

2

 


 

 

 

 

 

PROXY SUMMARY

 

BOARD OF DIRECTOR NOMINEES (cont’d.) 

 

NAME

OCCUPATION

AGE

DIRECTOR

SINCE

SKILLS/QUALIFICATIONS

INDEPENDENT

COMMITTEE

MEMBERSHIPS

 

 

 

 

 

 

Isaiah Tidwell

72

2006

accounting

Yes

Audit

Retired Executive Vice

 

 

risk management

 

Corporate

President and Georgia

 

 

corporate governance

 

  Governance

Wealth Management

 

 

 

 

  (Chair)

Director, Wachovia

 

 

 

 

 

Bank, N.A.

 

 

 

 

 

 

 

GOVERNANCE HIGHLIGHTS 

Sound governance is important to our Board, which regularly evaluates and implements policies that reflect corporate governance best practices. Some of these practices are:

Our Chairman of the Board is an independent director;

All of our directors, except for the chief executive officer, are independent and each of the Audit, Compensation, Corporate Governance and Finance Committees are entirely composed of independent directors;

All of our directors stand for election annually;

We require majority voting and maintain a director resignation policy for directors in uncontested elections;

We provide for proxy access in our bylaws;

We have established robust stock ownership guidelines for directors and executive officers;

We maintain a policy prohibiting pledging and hedging ownership of our stock;

Independent directors meet regularly in executive session; and

Our Board and committees conduct annual self-evaluations.

 

EXECUTIVE COMPENSATION HIGHLIGHTS

The key objectives of our executive compensation program are to:

 

MOTIVATE OUR EXECUTIVES

 

PAY COMPENSATION

 

RETAIN KEY EXECUTIVE

TO INCREASE PROFITABILITY

 

THAT VARIES BASED ON

 

TALENT, AS THIS IS CRITICAL

AND SHAREHOLDER RETURN

 

PERFORMANCE

 

TO OUR SUCCESS

 


 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

3

 


 

 

 

PROXY SUMMARY

 

 

 

We are asking you to cast an advisory, nonbinding vote to approve compensation awarded to our named executive officers (“NEOs”) — our chief executive officer (“CEO”), chief financial officer (“CFO”) and three additional most highly paid executive officers, as listed on page 30. At our last Annual Meeting, shareholders expressed strong support for our executive compensation programs, with 93% of votes cast in favor of the advisory resolution on executive compensation.

PAY FOR PERFORMANCE

We seek to align pay and performance by making a significant portion of our NEOs’ compensation dependent on:

achieving specific annual and long-term strategic and financial goals; and

increasing shareholder value.

2016 Pay Mix. NEO compensation is weighted toward variable compensation (annual and long-term incentives), which is at risk because the actual amounts earned could differ from targeted amounts based on corporate and individual performance. As the following charts show, the vast majority of our CEO’s and other NEOs’ target direct compensation for 2016 could vary significantly based on company performance, including stock-price performance.

 

Note, the amounts in these graphs are shown at target and therefore will not match the values reflected in the Summary Compensation Table on page 55. For additional details about our executive compensation programs and our NEOs’ fiscal year 2016 compensation, please see “Compensation Discussion & Analysis” beginning on page 30 and “Executive Compensation Tables” beginning on page 55.

 

Proxy Statement

ANNUAL MEETING OF SHAREHOLDERS | MAY 26, 2017

The Board of Directors of Lincoln National Corporation (the “Company,” “we,” “us” or “Lincoln”) is soliciting proxies in connection with the proposals to be voted on at the 2017 Annual Meeting of Shareholders, which will be held beginning at 9:00 a.m. local time on Friday, May 26 at The Ritz-Carlton Hotel, 10 Avenue of the Arts, Philadelphia, Pennsylvania 19102. This proxy statement and a proxy card or a notice of internet availability were sent to our shareholders on or about April 14. When we refer to the Meeting or the Annual Meeting, we are also referring to any meeting that results from an adjournment of the Annual Meeting.

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

4

 


 

 

 

GOVERNANCE

 

Board Structure and Leadership

 

GOVERNANCE OF THE COMPANY

 

Integrity, respect and responsibility are not just guiding principles for us. They unify and inspire us to help people to take charge of their lives. Our Board of Directors is responsible for directing and overseeing the management of the Company’s business in the best interests of the shareholders and consistent with good corporate citizenship. In carrying out its responsibilities, the Board provides oversight for the process of selecting and monitoring the performance of senior management, provides oversight for financial reporting and legal and regulatory compliance, determines the Company’s governance guidelines and implements its governance policies. The Board, together with management, is responsible for establishing our values and code of conduct and for setting strategic direction and priorities.

 

BOARD STRUCTURE AND LEADERSHIP

Our Board of Directors has ten members, nine of whom are non-employees, or outside directors. The Board has determined that all nine outside directors are independent, as discussed below. The Board may fill a director vacancy or reduce the size of the Board without shareholder approval.

The Board has no set policy requiring separation of the offices of CEO and Chairman of the Board (“Chairman”). It believes that the decision on whether or not to separate these roles should be part of the regular succession planning process and made based on the best interests of the Company.

Currently, we separate the roles of CEO and Chairman in recognition of the differences between these roles. The CEO is responsible for setting the Company’s performance and strategic direction and for day-to-day leadership, while the Chairman provides guidance to the CEO and management, consults on the agenda for Board meetings, acts as the key liaison between the Board and management, and presides over meetings of the full Board and of the independent directors. He also has the authority to call special meetings of the Board.

The Board elects the Chairman annually. William H. Cunningham, an independent director, has served as our Chairman since 2009.

 

BOARD’S ROLE IN RISK OVERSIGHT

Enterprise risk management is an integral part of our business processes. Senior management is primarily responsible for establishing policies and procedures designed to assess and manage the Company’s significant risks. We also have a Corporate Enterprise Risk and Capital Committee, made up of members of senior management and the Chief Risk Officer, which provides oversight of our enterprise-wide risk structure and of our processes to identify, measure, monitor and manage significant risks, including credit, market and operating risk.  The Board’s role is regular oversight of the overall risk management process, including reviews of operational, financial, legal/regulatory, compensation, strategic and competitive risks. The Board reviews the most significant risks the Company faces and the manner in which our executives manage these risks. The Board has also delegated certain of its risk oversight efforts to its Committees, as shown below. This structure enables the Board and its Committees to coordinate the risk oversight role, particularly with respect to risk interrelationships. We believe that the separation of the Chairman and CEO roles supports the Board’s oversight role.

  

BOARD AND COMMITTEES: AREAS OF RISK OVERSIGHT

 

 

FULL BOARD

 

 

AUDIT

 

 

COMPENSATION

 

 

FINANCE

 

 

Strategy

 

Operations

 

Competition

 

Financial strategies and transactions

 

Company’s enterprise risk management efforts

 

Financial statements

 

Financial reporting process

 

Accounting and audit matters

 

Legal, compliance and regulatory matters

 

Compensation policies and practices

 

Executive incentive compensation and stock ownership

 

Executive retention and succession planning

 

Investment policies, strategies and guidelines

 

Capital management and structure

 

Financial plan

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

5

 


 

 

 

GOVERNANCE

 

Our Corporate Governance Guidelines

 

 

OUR CORPORATE GOVERNANCE GUIDELINES

The Board’s Corporate Governance Guidelines provide a framework for effective corporate governance and set expectations for how the Board should perform its functions. The Guidelines include the following key principles:

A majority of our Board must at all times be “independent” as defined by Securities and Exchange Commission (“SEC”) rules and New York Stock Exchange (“NYSE”) listing standards.

Our independent directors must meet in executive session at least once a year, with no members of management present. Our outside directors, all of whom are independent, meet in connection with each regularly scheduled Board meeting and at any other times they may choose.

Only independent directors may serve on the Audit, Compensation and Corporate Governance committees.

Our Board conducts an annual review of the performance of the Board and the Audit, Compensation, Corporate Governance and Finance Committees each year.

The written charters of the Audit, Compensation, and Corporate Governance committees comply with the NYSE’s listing standards and are reviewed at least once each year.

We have a Code of Conduct, available on our website at www.lfg.com, which includes our “code of ethics” for purposes of SEC rules and our “code of business conduct and ethics” for purposes of the NYSE listing standards. We will disclose amendments to or waivers from a required provision of the code by including such information on our website.

The full texts of our Corporate Governance Guidelines and committee charters are available on our website at www.lfg.com.

 

DIRECTOR INDEPENDENCE

Under the Corporate Governance Guidelines, a majority of our directors must at all times be “independent” and meet the NYSE listing standards regarding independence as incorporated in our Corporate Governance Guidelines. Among other things, these standards require the Board to determine that our independent directors have no material relationship with Lincoln other than as directors.

Applying these standards, the Corporate Governance Committee and the Board have reviewed the independence of each director and director nominee, and the Board has determined that:

Directors Connelly, Cunningham, Henderson, Johnson, Kelly, Lachman, Mee, Pittard and Tidwell are independent.

All members of the Audit, Compensation, Corporate Governance and Finance committees are independent of our management and of the Company.

In conducting its independence review, the Board will consider, among other things, transactions and relationships between each outside director (or any member of his or her immediate family) and us or our subsidiaries and affiliates. The Board takes into account that in the ordinary course of business, we conduct transactions with companies at which some of our directors are or have been directors, employees or officers. Transactions that are in the ordinary course of business on terms substantially equivalent to those prevailing at the time for comparable transactions, and that fall below the threshold levels set forth in our independence standards do not impact a director’s independence under our standards.

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

6

 


 

 

 

GOVERNANCE

 

Director Nomination Process

 

 

 

DIRECTOR NOMINATION PROCESS

Under our Corporate Governance Guidelines, the Board is responsible for selecting its own members. The Corporate Governance Committee is charged with:

Identifying the competencies appropriate for the Board.

Identifying which, if any, of those competencies may be missing or under-represented on the current Board.

Identifying individuals with appropriate qualifications and attributes.

Recommending to the Board the director nominees for the next annual meeting of shareholders.

Although there are no specific minimum qualifications for director nominees, the Corporate Governance Committee’s charter allows the Committee to consider any factors it deems appropriate. The Committee reviews with the Board the appropriate skills and characteristics required of directors in the context of the Board’s current make-up. In addition to considering a candidate’s background, experience and professional accomplishments, the Board looks for individuals with, among other attributes, integrity, business acumen, specific skills (such as an understanding of marketing, finance, accounting, regulation and public policy) and a commitment to our shared values.

 

Our Board reflects a diverse, highly engaged group of directors with appropriate skills and varying backgrounds.  We have a rigorous board evaluation process that includes an annual self-assessment and peer review to foster the right mix of subject matter expertise, capabilities and perspectives. Our Board also takes a thoughtful approach to board refreshment with the intent to align directors’ skills with our company strategy. The Board regularly reviews the composition and qualifications of our directors. After a deliberate and inclusive process, Deirdre Connelly was elected as a new director during 2016, to fill the vacancy left by a retiring director.

Ms. Connelly’s experience and expertise is well-suited to our board and complements that of our other directors. The Board will continue to review its composition and structure, balancing the need for continuity and experience with fresh ideas and perspectives.

Although the Board does not have a formal diversity policy, our Corporate Governance Guidelines specify that the Corporate Governance Committee should consider diversity in the director identification and nomination process. As a result, the Committee seeks nominees with a broad diversity of backgrounds, experiences, professions, education and differences in viewpoints and skills. Its goal is to ensure that the directors, as a group, provide a substantive blend of experience, knowledge and ability that enables the Board to fulfill its responsibilities in a constructive and collegial environment. In the annual evaluation of the Board and committees, the Board considers whether the members of the Board reflect such diversity and whether such diversity contributes to a constructive and collegial environment.

The Corporate Governance Committee begins the nomination process each year by deciding whether to renominate current directors. This includes an individual assessment of each director who will be up for reelection the following year. The Committee then reviews the results of the individual director assessments. It considers for renomination those Board members whose skills and experience continue to be relevant to our business and whose performance for the most recent term has also been favorably assessed.

When identifying potential director candidates — whether to replace a director who has retired or resigned or to expand the Board to gain additional capabilities — the Committee determines the skills, experience and other characteristics that a potential nominee should possess (in light of the composition and needs of the Board and its committees, and including whether or not the nominee would be considered independent under the NYSE listing standards) and seeks candidates with those qualifications.

Although not required to do so, the Committee may consider candidates proposed by our directors or our management and may also retain an outside firm to help identify and evaluate potential nominees. The Committee will also consider nominations from shareholders. Such nominations must be submitted in writing to our Corporation Secretary at our principal executive office, and must include the same information that would be required for a candidate to be nominated by a shareholder at a meeting of shareholders as described under “General Information – Shareholder Proposals for the 2018 Annual Meeting” on page 82. Any such recommendation must be received by the Corporate Secretary no earlier than January 26, 2018, and not later than February 25, 2018.

If the Corporate Governance Committee determines that it should conduct a full evaluation of a prospective candidate, including an interview, one or more members of the Committee will do so, and other directors may be asked to interview the candidate as well. Upon completing the evaluation and the interview, the Committee recommends to the Board whether to nominate the individual.

The nominee evaluation process is the same whether the nomination comes from a Board member, management or a shareholder. If the Corporate Governance Committee recommends a shareholder nominee to the Board, the Board may— as with any nominee—either accept or reject the recommendation.

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

7

 


 

 

 

GOVERNANCE

 

Annual Board Evaluation

 

 

 

ANNUAL BOARD EVALUATION

Annually, the Board conducts a self-evaluation to determine whether it and its committees are functioning effectively. The Corporate Governance Committee oversees the Board evaluation process, which is designed to elicit feedback and recommendations from the directors that will improve the effectiveness of the Board. Each year the Committee reviews the overall process for the assessment as well as the substantive matters to be addressed during the evaluation. In general, the evaluation covers a variety of topics including the Company’s strategy, financial performance, risk management and succession planning. The results of the assessment are discussed with each Committee and the full Board following the compilation of the results.

 

COMMUNICATIONS WITH DIRECTORS

Shareholders and others who wish to communicate with the full Board or its outside (non-executive) directors may do so by sending a letter to either “The Board of Directors” or “The Outside Directors,” as appropriate, at our principal executive offices:

Lincoln National Corporation

150 N. Radnor Chester Road

Radnor, PA 19087

Attention: Office of the Corporate Secretary

Our Corporate Secretary receives and processes all communications and will refer relevant and appropriate communications to the Chairman. If a communication relates to possible violations of our Code of Conduct or contains concerns or complaints regarding our accounting, internal auditing controls, or auditing matters or other related concerns, it will be referred to the Audit Committee, which has a policy for reporting such information. The policy can be found on our website at www.lfg.com.

You may communicate with the Board anonymously and/or confidentially. However, if you submit your communication anonymously, we will not be able to contact you in the event we require further information. Also, while we will attempt to preserve your confidentiality whenever possible, we cannot guarantee absolute confidentiality.

 

BOARD AND COMMITTEE MEETINGS

The Board met four times during 2016, and each director attended 75% or more of the aggregate of: (1) the total number of Board meetings; and (2) the total number of meetings held by committees on which he or she served. Although the Board does not have a formal policy that requires directors to attend our Annual Meeting of Shareholders, directors are encouraged to attend. All of the Company’s directors attended the 2016 Annual Meeting.

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

8

 


 

 

 

Board Committees

 

GOVERNANCE

 

 

 

BOARD COMMITTEES

The Board has six standing committees: the Audit Committee, the Compensation Committee, the Corporate Governance Committee, the Executive Committee, the Finance Committee and the Committee on Corporate Action. The table below lists the directors who currently serve on these committees and the number of meetings each committee held during 2016. The Audit, Compensation, Corporate Governance and Finance committees conduct self-evaluations of their committee’s performance each year.

 

 

CURRENT COMMITTEE MEMBERSHIP AND MEETINGS HELD DURING 2016 (C=CHAIR M=MEMBER)

 

 

 

 

 

 

 

 

 

AUDIT

COMPENSATION

CORPORATE

GOVERNANCE

EXECUTIVE

FINANCE

CORPORATE

ACTION1

Deirdre P. Connelly

M

 

M

 

 

 

William H. Cunningham

 

M

M

C

M

 

Dennis R. Glass

 

 

 

M

 

C

George W. Henderson, III

M

 

 

 

M

 

Eric G. Johnson

 

M

 

M

C

 

Gary C. Kelly

M

 

 

 

M

 

M. Leanne Lachman

C

 

 

 

 

 

Michael F. Mee

 

M

 

M

M

 

William P. Payne

 

 

M

M

 

 

Patrick S. Pittard

 

C

 

 

 

 

Isaiah Tidwell

M

 

C

 

 

 

 

 

 

 

 

 

 

Number of Meetings in 2016

8

4

4

0

4

Shaded cells denote committee chair.

1.

The Committee on Corporate Action takes all action by the unanimous written consent of the sole member of that Committee, and there were twelve (12) such consents in 2016.

The functions and responsibilities of our Board’s standing committees are described below. Charters for the Audit, Compensation, Corporate Governance, Executive and Finance committees are available on the Governance section of our website at www.lfg.com.

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

9

 


 

 

 

GOVERNANCE

 

Board Committees

 

 

 

AUDIT COMMITTEE

The primary function of the Audit Committee is oversight, including risk oversight. This includes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

assisting the Board in oversight of: (1) the integrity of our financial statements; (2) our compliance with legal and regulatory requirements; (3) the independent auditor’s qualifications and independence; (4) the performance of our general auditor and independent auditor; and (5) our risk assessment and risk management policies and processes

 

 

 

 

reviewing and discussing the risk policies and procedures adopted by management and the implementation of these policies

 

reviewing the qualifications and backgrounds of senior risk officers

 

preparing the report required for inclusion in our annual proxy statement

 

 

 

 

 

 

 

 

 

hiring, firing, and evaluating the performance of the independent auditors and approving their compensation and all of their engagements

 

establishing procedures for handling complaints regarding accounting, internal auditing controls or auditing matters and for the confidential, anonymous submission of employee concerns regarding questionable accounting or auditing matters

 

 

 

 

 

 

 

 

 

discussing the timing and process for implementing the rotation of the lead audit partner

 

consulting with management before the appointment or replacement of the internal auditor

 

 

 

 

 

 

 

 

 

discussing our annual and quarterly consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our SEC filings and annual report to shareholders

 

reporting the Committee’s activities to the Board on a regular basis and making any recommendations to the Board that the Committee deems appropriate.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

inquiring about significant risks and exposures, if any, and reviewing and assessing the steps taken to monitor and manage them

 

 

.

 

 

 

 

 

The Board has determined that two of its members meet the definition of “audit committee financial expert” under SEC rules. The Board has named Gary C. Kelly as our “audit committee financial expert” for this proxy statement. The Audit Committee may obtain advice and assistance from internal or external legal, accounting or other advisers.

More information regarding the Audit Committee, including the Audit Committee Report, can be found under “Ratification of Appointment of Independent Registered Public Accounting Firm” beginning on page 24.

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

10

 


 

 

 

Board Committees

 

GOVERNANCE

 

 

 

 

 

COMPENSATION COMMITTEE

The principal functions of the Compensation Committee include:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

establishing our general compensation philosophy in consultation with the compensation consultant and senior management

 

reviewing and approving the strategies, policies and programs related to the compensation of our executive officers and other key personnel

 

 

 

 

 

 

 

 

 

ensuring that succession plans are in place for the CEO and other executive officers

 

making recommendations to the Board regarding incentive compensation and equity-based plans, and approving all grants and awards to executive officers under such plans

 

 

 

 

 

 

 

 

 

reviewing and approving corporate goals and objectives for the CEO and executive officer’s compensation

 

approving employment and severance agreements for executive officers

 

 

 

 

 

 

 

 

 

evaluating the CEO’s performance and setting the CEO’s compensation level based on this evaluation

 

approving certain employee benefit and executive compensation plans and programs, and changes to such plans and programs

 

 

 

 

 

 

 

 

 

evaluating annually whether the Company’s compensation programs create unnecessary risks that could harm the Company

 

reporting the Committee’s activities to the Board on a regular basis and making any recommendations the Committee deems appropriate.

 

 

 

 

 

 

 

 

 

reviewing with management the Compensation Discussion & Analysis to be included in the proxy statement

 

 

 

 

 

 

 

 

 

 

 

The Compensation Committee may retain or obtain advice on executive compensation-related matters from a compensation consultant, outside legal counsel or other adviser. The Committee is directly responsible for appointing, compensating and overseeing the work of any such advisers and must consider certain independence factors before hiring them. More information concerning the Compensation Committee, including the role of its compensation consultant and our executive officers in determining or recommending the amount or form of executive compensation, can be found in the “Compensation Discussion & Analysis” section beginning on page 30.

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

11

 


 

 

 

GOVERNANCE

 

Board Committees

 

 

 

 

CORPORATE GOVERNANCE COMMITTEE

The principal functions of the Corporate Governance Committee include:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

identifying individuals qualified to become Board members

 

making recommendations to the Board regarding the compensation program for directors

 

 

 

 

 

 

 

 

 

recommending to the Board nominees for director (including those recommended by shareholders in accordance with our Bylaws)

 

making recommendations to the Board regarding the size of the Board and the membership, size, structure and function of its committees

 

 

 

 

 

 

 

 

 

taking a leadership role in shaping our corporate governance and recommending to the Board the corporate governance principles applicable to us

 

reporting the Committee’s activities to the Board on a regular basis and making any recommendations the Committee deems appropriate

 

 

 

 

 

 

 

 

 

developing and recommending to the Board standards

for determining the independence of directors

 

helping evaluate the Board and individual directors.

 

 

 

 

 

 

 

 

The Corporate Governance Committee may hire and terminate search firms; approve any search firm’s fees and terms of retention; and seek advice and assistance from internal or external legal, accounting or other advisers.

 

 

 

 

EXECUTIVE COMMITTEE

 

 

The principal function of the Executive Committee is to act for the Board, when necessary, between Board meetings. In such instances, the Executive Committee may act for the Board in managing and directing the Company’s business and affairs, except for matters expressly delegated to another committee or the full Board. The Executive Committee reports any actions it takes to the Board as soon as practicable.

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

12

 


 

 

 

Board Committees

 

GOVERNANCE

 

 

 

 

FINANCE COMMITTEE

The principal functions of the Finance Committee include:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reviewing and providing guidance to senior management with respect to:

 

reviewing the general account and our investment policies, strategies and guidelines

 

 

 

 

 

 

 

 

 

 

 

our annual three-year financial plan;

 

reviewing our hedging program and the policies and procedures governing the use of financial instruments, including derivatives

 

 

 

 

 

 

 

 

 

 

 

our capital structure, including issuance of securities by us or any of our affiliates, significant “off balance sheet” transactions, and our dividend and share repurchase strategies;

 

reviewing the funding adequacy of our qualified pension plans, including significant actuarial assumptions, investment policies and performance

 

 

 

 

 

 

 

 

 

 

 

our reinsurance strategies; and

 

reporting the Committee’s activities to the Board on a regular basis and making any recommendations the Committee deems appropriate.

 

 

 

 

 

 

 

 

 

 

 

proposed mergers, acquisitions, divestitures, joint ventures and other strategic investments.

 

 

 

 

 

 

 

 

 

 

 

 

 

reviewing our overall credit quality and credit ratings strategy

 

 

 

 

 

 

 

 

 

 

 

 

The Finance Committee may seek advice and assistance from internal or external legal, accounting or other advisers.

 

 

 

 

COMMITTEE ON CORPORATE ACTION

The Committee on Corporate Action was formed to delegate to the sole member, the CEO, the authority to take certain actions on behalf of the Board in accordance with limits set by the Board. The principal functions that have been delegated to the Committee on Corporate Action include:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

determining the pricing of the securities offered from our shelf registration statement, including all rates, payments, ratios, discounts and other financial measures related to the pricing of such securities

 

approving, as necessary, the underwriting agreement, form of security and other transaction documents relating to the offering and sale of securities under our shelf registration statement

 

 

 

 

 

 

 

 

 

 

 

 

appointing and removing certain classes of our officers as the Board may determine by resolution.

 

 

 

 

 

 

 

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

13

 


ITEM 1

 

 

ELECTION OF DIRECTORS

 

Nominees for Director

 

 

ITEM 1 | ELECTION OF DIRECTORS

 

NOMINEES FOR DIRECTOR

Ten directors will be up for election at the 2017 Annual Meeting to hold office until the next annual meeting and until their respective successors are elected and qualified. Mr. Payne is not standing for reelection.  Of the directors standing for election, Mr. Glass is an officer of the Company. In addition to annual elections, our bylaws require our directors to be elected by a majority of votes cast in an uncontested election.

Each director brings a strong background and set of skills to the Board, giving the Board as a whole expertise, diversity and experience in a wide variety of areas. The Board believes that all of our directors have integrity and honesty and adhere to high ethical standards. They have also demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment to serve the Company.

Unless you direct otherwise or specifically indicate that you wish to abstain from voting for one or more of the nominees on the proxy, your proxy will be voted for each of the nominees below. Each nominee is a current director of the Company and has agreed to continue serving on the Board if elected. If any nominee is unable to serve as a director, proxies may be voted for another person designated by the Board.

 

The Board of Directors recommends a vote FOR each of the nominees.

 

 

 

 

DEIRDRE P. CONNELLY

 

RETIRED PRESIDENT

NORTH AMERICAN PHARMACUETICALS

OF GLAXOSMITHKLINE

 

AGE: 55    DIRECTOR SINCE: 2016

 

Member, Audit and Corporate Governance Committees

 

 

 

 

 

 

 

 

 

 

 

CAREER

Ms. Connelly was the President, North American Pharmaceuticals of GlaxoSmithKline, a global pharmaceutical company, from 2009 until her retirement in 2015. Before that she served as President, U.S. Operations for Eli Lily and Company from 2005-2009.

 

 

 

 

 

 

QUALIFICATIONS

Substantial leadership experience and expertise as a senior executive of large publicly-traded companies with global operations.  She has extensive knowledge and expertise in strategy, operations, finance and capital management, brand marketing and product development.

 

 

 

 

 

 

OTHER PUBLIC
COMPANY BOARDS

Macy’s, Inc. 2008–present.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

14

 


 

 

ITEM 1

Nominees for Director

 

ELECTION OF DIRECTORS

 

 

 

WILLIAM H. CUNNINGHAM

 

PROFESSOR AT THE
UNIVERSITY OF TEXAS AT
AUSTIN AND JAMES J. BAYLESS
CHAIR FOR FREE ENTERPRISE
AT THE UNIVERSITY’S
McCOMBS SCHOOL OF
BUSINESS

 

AGE: 73    DIRECTOR SINCE: 2006

 

Non-Executive Chairman of the Board since: 2009

 

Member, Compensation, Corporate Governance, Executive and Finance Committees

 

 

 

 

 

 

 

 

 

 

 

CAREER

Mr. Cunningham has been a professor with The University of Texas since 2000. Before that he served as Chancellor and CEO of The University of Texas System, as President of The University of Texas at Austin and as Dean of the McCombs School of Business.

 

 

 

 

 

 

QUALIFICATIONS

Substantial experience in accounting, marketing, finance and corporate governance, as well as experience leading a large public institution. Mr. Cunningham also has significant experience serving on public company boards, including over 20 years in our industry as a Director of Jefferson-Pilot Corporation, a public insurance company with whom we merged in 2006.

 

 

 

 

 

 

OTHER PUBLIC
COMPANY BOARDS

John Hancock Mutual Funds, 1986–present.

Southwest Airlines Co., 2000–present.

 

 

 

 

 

 

PRIOR PUBLIC
COMPANY BOARD
SERVICE IN PAST
5 YEARS

LIN Media LLC, (formerly LIN Television Corporation) 2002–2007 and 2009–2014.

Resolute Energy Corporation, 2009–2015.

 


 

 

 

 

 

DENNIS R. GLASS

 

PRESIDENT AND CHIEF
EXECUTIVE OFFICER
OF LINCOLN NATIONAL
CORPORATION

 

AGE: 67    DIRECTOR SINCE: 2006

 

Member, Executive Committee

 

 

 

 

 

 

 

 

CAREER

Mr. Glass has served as our President since 2006 and our CEO since 2007. He is also President of, and serves on the boards of, our principal insurance subsidiaries. Before our merger with Jefferson-Pilot Corporation, Mr. Glass was President, CEO and a Director of that company.

 

 

 

 

 

 

QUALIFICATIONS

A seasoned executive who has served in executive-level positions in the insurance industry for over 30 years, Mr. Glass brings to his role as a Director a deep knowledge of our industry, our competitors and our products.

 

 

 

 

 

 

OTHER PUBLIC
COMPANY BOARDS

None in past 5 years.

 

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

15

 


ITEM 1

 

 

ELECTION OF DIRECTORS

 

Nominees for Director

 

 

 

GEORGE W. HENDERSON, III

 

RETIRED CHAIRMAN
AND CHIEF EXECUTIVE
OFFICER OF BURLINGTON
INDUSTRIES, INC.

 

AGE: 68    DIRECTOR SINCE: 2006

 

Member, Audit and Finance Committees

 

Mr. Henderson also serves as a Director of
Lincoln Life & Annuity Company of New York, one of our insurance subsidiaries.

 

 

 

 

 

 

CAREER

Mr. Henderson was Chairman and CEO of Burlington Industries, a global manufacturer of textile products, from 1998 to his retirement in 2003. Before that he served as that company’s President and its COO. He was also a member of Burlington’s Board of Directors for 13 years.

 

 

 

 

 

 

QUALIFICATIONS

Executive leadership and management experience at the highest levels of a global public company; significant experience with international operations and accounting and financial reporting.

 

 

 

 

 

 

OTHER PUBLIC
COMPANY BOARDS

Bassett Furniture Industries, Inc., 2004–present.

 

 

 

 

 

 


 

 

 

 

ERIC G. JOHNSON

 

PRESIDENT AND CEO OF

BALDWIN RICHARDSON

FOODS COMPANY

 

AGE: 66     DIRECTOR SINCE: 1998

 

Chair, Finance Committee

 

Member, Compensation and Executive Committees

 

 

 

 

 

 

 

CAREER

Since 1997, Mr. Johnson has served as President and CEO of Baldwin Richardson Foods Company, a privately held manufacturer of products for the food service industry.

 

 

 

 

 

 

QUALIFICATIONS

Extensive executive management skills; expertise in marketing, finance and the development and execution of corporate strategy; experience in mergers and acquisitions. Through his years of service on our Board, Mr. Johnson has also developed a deep base of knowledge regarding our business and our industry.

 

 

 

 

 

 

OTHER PUBLIC
COMPANY BOARDS

SUPERVALU, INC., 2013–present.

 

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

16

 


 

 

ITEM 1

Nominees for Director

 

ELECTION OF DIRECTORS

 

 

 

GARY C. KELLY

 

CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER OF
SOUTHWEST AIRLINES CO.

 

AGE: 62    DIRECTOR SINCE: 2009

 

Member, Audit and Finance Committees

 

 

 

 

 

 

 

 

CAREER

Mr. Kelly has been CEO of Southwest Airlines since 2004, and President and Chairman since 2008. Previously Mr. Kelly held a number of senior-level positions within the Southwest organization, including CFO. Before joining Southwest, Mr. Kelly served as a CPA for a public auditing firm.

 

 

 

 

 

 

QUALIFICATIONS

Executive leadership and management experience at the highest levels of a public company; ability to provide insights into operational, regulatory and governance matters; substantial expertise in finance, accounting and financial reporting.

 

 

 

 

 

 

OTHER PUBLIC
COMPANY BOARDS

Southwest Airlines Co., 2004–present.

 

 

 

 

 

 

 

 

 

M. LEANNE LACHMAN

 

PRESIDENT OF LACHMAN
ASSOCIATES LLC AND

EXECUTIVE-IN-RESIDENCE,
COLUMBIA GRADUATE
SCHOOL OF BUSINESS

 

AGE: 74    DIRECTOR SINCE: 1985

 

Chair, Audit Committee

 

Ms. Lachman also serves as a Director of Lincoln Life & Annuity Company of New York, one of our insurance subsidiaries.

 

 

 

 

 

 

 

CAREER

Ms. Lachman has served since 2003 as President of Lachman Associates LLC, an independent real estate consultancy, and since 2000 as an Executive-in-Residence at Columbia Business School. Before that she was Managing Director of Lend Lease Real Estate Investments, a global institutional investment manager.

 

 

 

 

 

 

QUALIFICATIONS

Extensive background in real estate analysis, investment, management, and development, and international operations. Through her years of service on our Board, she has acquired a deep understanding of our business, our organization and our industry.

 

 

 

 

 

 

OTHER PUBLIC
COMPANY BOARDS

Liberty Property Trust, 1994–present.

 

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

17

 


ITEM 1

 

 

ELECTION OF DIRECTORS

 

Nominees for Director

 

 

 

MICHAEL F. MEE

 

RETIRED EXECUTIVE VICE

PRESIDENT AND CHIEF

FINANCIAL OFFICER OF

BRISTOL-MYERS SQUIBB

COMPANY

 

AGE: 74    DIRECTOR SINCE: 2001

 

Member, Compensation and Finance Committees

 

 

 

 

 

 

 

 

CAREER

From 1994 to 2001, Mr. Mee was the Executive Vice President and CFO of Bristol-Myers Squibb Co., a pharmaceutical and health care products company, where he was also a member of the Office of the Chairman. Before joining Bristol-Myers Squibb, Mr. Mee served in senior financial executive positions with several Fortune 500 companies.

 

 

 

 

 

 

QUALIFICATIONS

Significant public accounting and financial reporting skills; extensive management experience and leadership skills; expertise in corporate strategy, development and investments, international operations and risk assessment.

 

 

 

 

 

 

OTHER PUBLIC
COMPANY BOARDS

None in the past 5 years.

 

 

 

 

 

 

 

 

 

 

 

PATRICK S. PITTARD

 

CHAIRMAN OF PATRICKPITTARD
ADVISORS LLC

 

AGE: 71    DIRECTOR SINCE: 2006

 

Chair, Compensation Committee

 

Mr. Pittard also serves as a Director of
Lincoln Life & Annuity Company of New York, one of our insurance subsidiaries.

 

 

 

 

 

 

 

CAREER

Mr. Pittard is Chairman of Patrick Pittard Advisors LLC, a human capital firm providing “C-level” services such as executive search and talent assessment. He also serves as a leadership instructor at the Terry School of Business at the University of Georgia and was the Chairman and CEO of ACT Bridge from 2011 to 2013. Before that Mr. Pittard was Chairman, President and CEO of Heidrick & Struggles International, Inc., a worldwide provider of executive-level search and leadership services and one of the largest publicly traded global recruiting firms, from which he retired in 2002.

 

 

 

 

 

 

QUALIFICATIONS

Executive leadership and management experience at the highest levels of a global public company; experience driving strategic organizational growth; expertise in executive compensation, insurance and investments.

 

 

 

 

 

 

OTHER PUBLIC
COMPANY BOARDS

Artisan Funds, 2001–present.

 

 

 

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

18

 


 

 

ITEM1

Nominees for Director

 

ELECTION OF DIRECTORS

 

 

 

 

 

 

 

ISAIAH TIDWELL

 

RETIRED EXECUTIVE
VICE PRESIDENT AND
GEORGIA WEALTH
MANAGEMENT DIRECTOR OF
WACHOVIA BANK, N.A

 

AGE: 72     DIRECTOR SINCE: 2006

 

Chair, Governance Committee

 

Member, Audit Committee

 

 

 

 

 

 

 

 

 

 

 

 

CAREER

Before retiring in 2005, Mr. Tidwell was an Executive Vice President and Director of Wealth Management operations for Wachovia Bank in Georgia. During his career at Wachovia, he took on various roles with increasing responsibility, eventually becoming Southern Regional Executive before being promoted to Executive Vice President. Earlier in his career, Tidwell was employed in various accounting and financial positions with Celanese Corporation.

 

 

 

 

 

 

QUALIFICATIONS

Extensive experience in banking, financial services and wealth management. Through his years of service on the boards of other public companies, Mr. Tidwell has also developed knowledge of risk assessment practices and a significant understanding of finance and accounting principles.

 

 

 

 

 

 

OTHER PUBLIC

COMPANY BOARDS

Synder’s–Lance, Inc. (formerly Lance, Inc.), 1995–present.

 

 

 

 

 

 

PRIOR PUBLIC
COMPANY BOARD
SERVICE IN
PAST 5 YEARS

Harris Teeter Supermarkets, Inc. (formerly Ruddick Corporation), 1999–2014.

 

 

 

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

19

 


 

 

 

COMPENSATION OF DIRECTORS

 

 

 

COMPENSATION OF OUTSIDE DIRECTORS

The Board adheres to the following guidelines in establishing outside director compensation:

We provide competitive compensation to attract and retain high-quality outside directors; and

A significant portion of each outside director’s compensation is paid in equity to help align our directors’ interests with those of our shareholders.

In accordance with our Corporate Governance Guidelines, the Board’s compensation program is reviewed and assessed annually by the Corporate Governance Committee. As part of this review, the Committee may solicit the input of outside compensation consultants. During 2016, the Committee asked Pay Governance LLC, an independent compensation consultant, to provide a competitive analysis of the compensation we provide to our outside directors. As a result of that review and the Committee’s discussion, the Committee recommended to the Board an increase of $15,000 in the Deferred LNC Stock Units retainer for the non-executive Chairman of the Board. The Committee also recommended an increase in the cash portion of the Annual Retainer to $120,000 for the non-executive Chairman of the Board and an increase to $100,000 for the other directors.

The following table compares our director fees for 2016 to the revised fees that took effect on January 1, 2017:

 

FEES

2016

 

2017

 

BOARD

 

 

 

 

Annual Retainer (Cash)

$86,000

 

$100,000

 

Deferred LNC Stock Units

$161,000

 

$161,000

 

Total Board Fees

$247,000

 

$261,000

 

NON-EXECUTIVE CHAIRMAN OF THE BOARD

 

 

 

 

Annual Retainer (Cash)

$86,000

 

$120,000

 

Deferred LNC Stock Units

$361,000

 

$376,000

 

Total Non-Executive Chairman of the Board Fees

$447,000

 

$496,000

 

COMMITTEES (CASH)

 

 

 

 

Audit Committee Chair

$30,000

 

$30,000

 

Audit Committee Member

$10,000

 

$10,000

 

Other Committee Chair

$20,000

 

$20,000

 

 

SHARE OWNERSHIP REQUIREMENTS

Lincoln’s share ownership guidelines require outside directors to hold, within five years of joining the Board, interests in the Company’s common stock equal to five (5) times the annual Board cash retainer. Interests in our stock that count toward the share ownership guidelines include Deferred LNC Stock Units, LNC stock owned outright, and 33% of vested stock options. As of December 31, 2016, all of our directors are in compliance with this requirement. Ms. Connelly, who joined the Board in May of 2016, has until May 2021 to meet the full share ownership requirement.

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

20

 


 

 

 

Optional Deferral of Annual Retainer

 

COMPENSATION OF DIRECTORS

 

 

 

 

OPTIONAL DEFERRAL OF ANNUAL RETAINER

In addition to receiving Board fees in the form of Deferred LNC Stock Units, directors may defer the cash component of their annual and committee retainers into various investment options under the Lincoln National Corporation Deferred Compensation Plan for Non-Employee Directors (the “Directors’ DCP”).

The investment options track those offered to employees under the LNC Employees’ 401(k) Savings Plan (the “Employees’ 401(k) Plan”) and include a Lincoln National Corporation Stock Fund investment option (the “LNC Stock Fund”). However, the Directors’ DCP uses “phantom” versions of the Employees’ 401(k) Plan investment options, meaning that accounts are credited with earnings or losses as if the amounts had been invested in the chosen investment options.

All deferred amounts, including the annual retainer paid in Deferred LNC Stock Units, are payable only when the director retires or resigns from the Board. In addition, amounts invested in the LNC Stock Fund upon cessation of a director’s service on the Board are only payable in shares of Lincoln common stock.

 

MEETING FEES

No additional fees are paid for attending regularly scheduled Board or committee meetings, although the Corporate Governance Committee has discretion to recommend additional compensation ($1,100 per meeting) for additional meetings. Outside directors who are also directors of Lincoln Life & Annuity Company of New York (“LNY”), our indirect, wholly owned subsidiary, receive an annual cash retainer of $15,000 and a fee of $1,100 for each LNY Board and committee meeting they attend. During 2016, three outside directors — Mr. Henderson, Ms. Lachman and Mr. Pittard — also served as directors of LNY.

 

OTHER BENEFITS

We offer outside directors several benefits in addition to the compensation listed above. These include:

Financial planning services—up to $20,000 for an initial financial plan and $10,000 for annual updates. The services must be provided by a Lincoln Financial Network financial planner for the director to be reimbursed.

Participation—at their own expense—in certain health and welfare benefits, including our self-insured medical and dental plans as well as life insurance and accidental death and dismemberment coverages.

Participation in a matching charitable gift program through which the Lincoln Financial Foundation, Inc. matches donations from a director to one or more eligible organizations, up to an annual total of $15,000 for all gifts.

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

21

 


 

 

 

COMPENSATION OF OUTSIDE DIRECTORS

 

Directors’ Compensation Table

 

 

COMPENSATION OF NON-EMPLOYEE DIRECTORS* DURING 2016

 

 

 

 

 

 

 

 

 

 

NAME

FEES EARNED

OR PAID IN

CASH1

($)

 

STOCK

AWARDS2

($)

 

ALL OTHER

COMPENSATION

($)

 

TOTAL

($)

 

 

 

 

 

 

 

 

 

 

Deirdre P. Connelly3

55,419

 

96,423

 

 

151,842

 

William H. Cunningham

86,000

 

361,000

 

15,000

6

462,000

 

George W. Henderson, III

115,400

 

161,000

 

10,000

6

286,400

 

Eric G. Johnson

106,000

 

161,000

 

 

267,000

 

Gary C. Kelly

96,000

 

161,000

 

 

257,000

 

M. Leanne Lachman

135,400

 

161,000

 

25,000

5,6

321,400

 

Michael F. Mee

86,000

 

161,000

 

10,000

6

257,000

 

William Porter Payne4

86,000

 

161,000

 

15,000

6

262,000

 

Patrick S. Pittard

125,400

 

161,000

 

10,000

5

296,400

 

Isaiah Tidwell

116,000

 

161,000

 

8,000

6

285,000

 

*

As an employee of the Company, Mr. Glass receives no director compensation.

1.

As described above, $86,000 of the annual retainer was paid in cash. The fees shown in this column also include any fees that an outside director was paid as the chair of a committee, as a member of the Audit Committee or for service on the Board of LNY.

2.

The fair value of the stock awards was determined in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Stock Compensation. The assumptions made in calculating the grant date fair value of stock and option awards are set forth in Note 18 of the Notes to the Consolidated Financial Statements, included in Item 8 of our Form 10-K for fiscal year ended December 31, 2016. Mr. Cunningham received an additional $200,000 in Deferred LNC Stock Units for serving as non-executive Chairman during 2016.

3.

Ms. Connelly was elected to our Board of Directors on May 26, 2016.

4.

Mr. Payne has notified the Board that he will not stand for election as a director at the Annual Meeting.

5.

Includes the provision of financial planning services with an aggregate incremental cost to us of $10,000 for each of Ms. Lachman and Mr. Pittard.

6.

Reflects contributions made on the director’s behalf under the matching charitable gift program.

 

 

 

 

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Deferred LNC Stock Units and Stock Options

 

COMPENSATION OF OUTSIDE DIRECTORS

 

The following table shows the number of deferred stock units and vested unexercised stock options held by each director as of December 31, 2016:

 

NAME

DEFERRED LNC

STOCK UNITS

 

STOCK

OPTIONS

 

 

 

 

Deirdre P. Connelly

1,884

 

_

William H. Cunningham

93,476

 

19,906

George W. Henderson, III

58,725

 

3,007

Eric G. Johnson

51,302

 

33,180

Gary C. Kelly

21,669

 

17,040

M. Leanne Lachman

61,746

 

3,007

Michael F. Mee

65,064

 

33,180

William Porter Payne

39,066

 

14,119

Patrick S. Pittard

18,483

 

3,007

Isaiah Tidwell

33,453

 

22,452

 

Deferred LNC Stock Units include amounts reported in the Stock Awards column above and phantom units awarded under the LNC Outside Directors’ Value Sharing Plan, which was terminated on July 1, 2004, plus any accrued dividend equivalents, which are automatically reinvested in additional phantom units of our common stock.

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

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ITEM 2

RATIFICATION OF APPOINTMENT

 

 

 

 

 

ITEM 2 | RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee evaluates the performance of the Company’s independent auditors each year and determines whether to reengage them or consider other firms. In doing so, the Committee considers the auditor’s service quality and efficiency, capability, technical expertise, and knowledge of our operations and industry. On February 22, 2017, the Committee appointed Ernst & Young LLP (“Ernst & Young”) as our independent registered public accounting firm for fiscal year 2017. We have engaged this firm and its predecessors in this capacity continuously since 1968. In addition, the Committee is involved in the selection of Ernst & Young’s lead engagement partner and ensures that the mandated rotation of the lead partner occurs routinely.

As a matter of good corporate governance, we request that our shareholders ratify (approve) this appointment, even though this is not required. If shareholders do not ratify this appointment, the Audit Committee will take note of that and may reconsider its decision. If shareholders do ratify this appointment, the Committee will still have discretion to terminate Ernst & Young and retain another accounting firm at any time during the year.

Representatives of Ernst & Young will be present at the Annual Meeting, where they will be given the opportunity to make a statement, if they wish to. They will also be available to respond to questions about their audit of our consolidated financial statements and internal controls over financial reporting for fiscal year 2016.

 

The Board of Directors recommends a vote FOR the ratification of Ernst & Young as our independent registered public accounting firm for 2017.

 

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES AND SERVICES

The table below shows the total fees that Ernst & Young received for professional services rendered for fiscal years 2016 and 2015, with a breakdown of fees paid for different categories of work.

 

 

FISCAL YEAR

ENDED -

DECEMBER 31, 2016

 

% OF

TOTAL FEES

 

FISCAL YEAR

ENDED -

DECEMBER 31, 2015

 

% OF

TOTAL FEES

 

 

 

 

 

 

 

 

 

 

Audit Fees1

$10,556,687

 

91.3

 

$10,015,790

 

90.9

 

Audit-Related Fees2

1,010,749

 

8.7

 

937,100

 

8.5

 

Tax Fees3

 

 

63,842

 

0.6

 

All Other Fees

 

 

 

 

TOTAL FEES

$11,567,436

 

100

 

$11,016,732

 

100

 

 

1.

Audit Fees. Fees for audit services include fees and expenses associated with the annual audit, the reviews of our interim financial statements included in quarterly reports on Form 10-Q, accounting consultations directly associated with the audit, and services normally provided in connection with statutory and regulatory filings.

2.

Audit-Related Fees. Audit-related services principally include employee benefit plan audits, service auditor reports on internal controls, due diligence procedures in connection with acquisitions and dispositions, reviews of registration statements and prospectuses, and accounting consultations not directly associated with the audit or quarterly reviews.

3.

Tax Fees. Fees for tax services include tax-filing and advisory services.

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

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ITEM 2

RATIFICATION OF APPOINTMENT

Pre-Approval Policy

 

 

 

AUDIT COMMITTEE PRE-APPROVAL POLICY

The Audit Committee has policies and procedures to pre-approve all audit and permissible non-audit services that our accounting firm provides. Management submits to the Committee for approval a schedule of all audit, tax and other related services it expects the firm to provide during the year. The schedule includes examples of typical or known services expected to be performed, listed by category, to illustrate the types of services to be provided under each category. The Committee pre-approves the services by category, with specific dollar limits for each category. If management wants to engage the accounting firm for additional services, management must receive approval from the Committee for those services. The Committee chair also has the authority to pre-approve services between meetings, subject to certain dollar limitations, and must notify the full Committee of any such pre-approvals at its next scheduled meeting.

 

OTHER INFORMATION

Ernst & Young has advised us that neither it nor any member of the firm has any financial interest, direct or indirect, in any capacity in us or our subsidiaries. The Company has made similar inquiries of our directors and executive officers, and we have identified no such direct or indirect financial interest in Ernst & Young.

 

 

 

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ITEM 2

RATIFICATION OF APPOINTMENT

 

 

 

Audit Committee Report

 

 

AUDIT COMMITTEE REPORT

Management has primary responsibility for:

preparing our financial statements;

establishing financial reporting systems and internal controls; and

reporting on the effectiveness of our internal control over financial reporting.

The Company’s independent registered public accounting firm is responsible for:

performing an independent audit of our consolidated financial statements;

issuing a report on those financial statements; and

issuing an attestation report on our internal control over financial reporting.

In this context, the Audit Committee has:

reviewed and discussed with management the audited financial statements for fiscal year 2016;

discussed with our accounting firm the matters that the Public Company Accounting Oversight Board (“PCAOB”) requires them to discuss as per Auditing Standard No. 1301, Communications with Audit Committee;

received the written disclosures and letter from our accounting firm that the PCAOB requires regarding the firm’s communications with the Audit Committee concerning independence; and

discussed with our accounting firm that firm’s independence.

Based upon the review and discussions referred to in this report, the Audit Committee recommended to the Board that the audited consolidated financial statements for fiscal year 2016 be included in the Company’s Annual Report on Form 10-K for fiscal year ending December 31, 2016, for filing with the SEC.

The Audit Committee

Deidre P. Connelly

George W. Henderson, III

Gary C. Kelly

M. Leanne Lachman, Chair

Isaiah Tidwell

 

 

 

 

 

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ITEM 3

ADVISORY PROPOSAL ON

EXECUTIVE COMPENSATION

 

 

ITEM 3 | ADVISORY PROPOSAL ON EXECUTIVE COMPENSATION

 

The Board recognizes that providing shareholders with an advisory vote on executive compensation can produce useful information on investor sentiment with regard to the Company’s executive compensation programs. As a result, this proposal provides shareholders with the opportunity to cast an advisory vote on the compensation of our executive management team, as described in the section of this proxy statement entitled “Compensation Discussion & Analysis,” (“CD&A”) and endorse or not endorse our fiscal 2016 executive compensation philosophy, programs and policies and the compensation paid to the Named Executive Officers.  As discussed in detail in the CD&A that begins on page 30, our executive compensation principles and underlying programs are designed to:

align the interests of our executive officers with those of our shareholders

link executive pay directly to the attainment of short- and long-term financial/business goals, which we refer to as “pay for performance”

attract, motivate and retain key executives who are crucial to our long-term success.

Key features of our compensation programs include:

Pay for Performance. We link our executives’ targeted direct compensation to the performance of the Company as a whole, with the largest portion delivered as variable pay in the form of long-term equity awards and an annual incentive award. For instance in 2016, 90% of our CEO’s compensation was at risk and variable.

Compensation Tied to Enterprise Performance and Shareholder Return. Our annual and long-term incentive compensation programs have multiple balanced performance measures and goals that tie executive compensation to key enterprise performance metrics and shareholder return.

Governance/Compensation Best Practices. Among the best practices we follow: we have an independent Compensation Committee and compensation consultant; we do not provide tax gross-up benefits upon our change of control; and we have a double-trigger equity vesting requirement upon a change of control of the Company.

Share Ownership Requirements. Our executives are subject to rigorous stock ownership guidelines to further align their interests with the long-term interests of our shareholders. For instance, our CEO is required to hold an amount of our shares equal to seven times his base salary, and our other executive officers must hold shares equal to four times their base salary.

In addition, we recognize that strong governance/compensation principles are essential to an effective executive compensation program. These governance/compensation principles and our executive compensation philosophy are established by the Compensation Committee, which is independent of management and advised by an independent consultant. The Committee regularly reviews the compensation programs applicable to our executive officers to ensure that the programs support our objectives of aligning our executive compensation structure with our shareholders’ interests and current market practices.

Our compensation policies and procedures are described in detail on pages 30 to 71.

Although the advisory vote on this proposal is non-binding — meaning that our Board is not required to adjust our executives’ compensation or our compensation programs or policies as a result of the vote — the Board and the Compensation Committee will consider the voting results when determining compensation policies and decisions, including future executive compensation decisions. Notwithstanding the advisory nature of the vote, the resolution will be approved if more votes are cast for the proposal than against it. Abstentions and broker non-votes will not count as votes cast either for or against the proposal. We intend to hold a non-binding advisory vote on executive compensation each year, with the next such vote at our 2018 Annual Meeting.

We urge you to read the CD&A and other information in the Executive Compensation Tables, beginning on page 30, which we believe demonstrates that our executive compensation programs align our executives’ compensation with our short- and long-term performance; provide the incentives needed to attract, motivate and retain key executives crucial to our long-term success; and align the interests of our executive officers with those of our shareholders.

 

 

 

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ITEM 3

ADVISORY PROPOSAL ON

EXECUTIVE COMPENSATION

 

 

 

 

 

The Board of Directors unanimously recommends a vote FOR this proposal and FOR the following resolution:

 

 

“Resolved, that the shareholders approve, on an advisory basis, the compensation of the named executive officers of the Company, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion & Analysis, the 2016 compensation tables regarding named executive officer compensation, and the accompanying narrative disclosure in this proxy statement.”

 

 


 

 

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ITEM 4

FREQUENCY OF ADVISORY PROPOSALS

ONEXECUTIVE COMPENSATION

 

ITEM 4 | ADVISORY PROPOSAL ON THE FREQUENCY OF FUTURE ADVISORY PROPOSALS ON EXECUTIVE COMPENSATION

 

Section 14A of the Securities Exchange Act provides for our shareholders to indicate how frequently we should seek an advisory vote on the compensation of our named executive officers.  You may vote on whether you prefer an advisory vote every one, two or three years.  You may also choose to abstain from voting on the matter.  

 

The Board believes that an advisory vote on executive compensation that occurs every year is the most appropriate alternative for our shareholders, and therefore the Board recommends that you vote for a one-year interval for the advisory vote on executive compensation.

 

Note that you are not voting to approve or disapprove the recommendation of the Board with respect to this proposal.  Instead, each proxy card provides four choices with respect to this proposal: a one, two or three year frequency or shareholders may abstain from voting on the proposal.  Because this vote is advisory and not binding, the Board may decide that it is in the best interests of the shareholders and the Company to hold an advisory vote on executive compensation at a frequency other than the option selected by the shareholders.

 

 

 

The Board of Directors recommends a vote for a ONE-YEAR frequency for the future advisory votes on executive compensation.

 

 

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

29

 


 

 

 

COMPENSATION

DISCUSSION & ANALYSIS

 

 

 

COMPENSATION DISCUSSION & ANALYSIS

 

 

This Compensation Discussion & Analysis (“CD&A”) contains information about:

 

  our fundamental pay for performance compensation philosophy

 

  the structure of our compensation programs and the reasoning behind this structure

 

  how compensation decisions are made and how our compensation programs are administered

 

  the compensation we paid under our performance-based incentive programs for performance periods ending in 2016, and how it  related to our short- and long-term performance results

 

The CD&A also details the compensation of our NEOs (also referred to as “executives” or “executive officers”) included in the compensation tables beginning on page 55. These NEOs are:

 

 

DENNIS R. GLASS – President and CEO

 

 

RANDAL J. FREITAG – Executive Vice President and CFO

 

 

WILFORD H. FULLER – President, Annuity Solutions, LFD and LFN

 

KIRKLAND L. HICKS – Executive Vice President and General Counsel

 

 

MARK E. KONEN – President, Insurance and Retirement Solutions (retired in 2017)

 

We encourage you to read the CD&A in conjunction with the compensation tables on pages 55 to 71.

To ensure the continued effectiveness of our pay-for-performance culture, the Compensation Committee each year reviews and approves the elements, measures, targets and payouts of our executive compensation programs. In setting the programs’ performance measures and goals, the Committee chooses metrics that focus on our overall corporate strategy and are linked to our long-term financial plan. Our executives’ compensation is tied closely to the achievement of short- and long-term goals that (a) support our long-term business strategy and (b) measure the creation of sustainable long-term shareholder value.

At our 2016 Annual Meeting, shareholders expressed strong support for our executive compensation programs, with 93% of votes cast in favor of the advisory resolution on executive compensation.

 

 

 

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Executive Summary

 

COMPENSATION

DISCUSSION & ANALYSIS

 

 

EXECUTIVE SUMMARY

OUR PAY FOR PERFORMANCE PHILOSOPHY

We believe that those executives with significant responsibility and a greater ability to influence the Company’s results should have more of their total compensation tied directly to business results. Therefore, the vast majority of our NEO compensation is tied to Company or individual performance (and, for business-unit executives, to the performance of individual business units). This also means that the vast majority of our NEO compensation is “at risk”—executives will not reach their targeted pay amounts if the Company’s performance does not meet expectations.

In keeping with this philosophy, annual and long-term incentive awards are the largest components of total NEO compensation, and the fixed pay element — base salary — is the smallest. The variable components are:

 

 

 

The Annual Incentive Program (“AIP”), which ties compensation to key Company performance metrics that, while measured annually, also support our long-term strategic goals

 

The Long-Term Incentive Program (“LTI”), which consists of a mix of long-term equity grants —including performance shares tied to metrics that reward increased shareholder value over a three-year period

 

 

As the following charts show, the vast majority of our CEO’s and NEOs’ target direct compensation is variable (i.e., based on performance, including that of our stock price.)

 

Note, the amounts in these graphs are shown at target and therefore will not match the values reflected in the Summary Compensation Table at page 55 of this proxy statement.

EXECUTIVE COMPENSATION BEST PRACTICES

When evaluating our compensation practices and policies, the Compensation Committee takes into account competitive market trends and best practices, as well as the views of our shareholders. Examples of our governance and compensation practices include:

Robust stock ownership guidelines and stock holding requirements;

Moderate change-of-control benefits;

The use of an independent compensation consultant for significant compensation decisions regarding our executives;

“Double trigger” vesting provisions for our equity awards following our change of control;

Clawback provisions on our equity awards;

No tax-gross-up benefits upon our change of control;

No repricing or exchange of underwater stock options without shareholder approval;

Restrictions regarding pledging, hedging and speculation in our securities; and

Limited perquisites for executive officers.

 

 

 

 

For more information, see “Change of Control Severance Arrangements” on page 54, “Alignment with Shareholders” on page 36, and “Role of the Compensation Consultant” on page 51.

 

 

 

 

 

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COMPENSATION

DISCUSSION & ANALYSIS

 

Executive Summary

 

2016 PERFORMANCE OVERVIEW

We had solid financial results in 2016 as Lincoln’s franchise was resilient in what proved be a very volatile year for capital markets. We continued to focus on growth, profitability, and capital management initiatives that we believe position us well for long-term, sustainable financial results.

Our full year results included the following highlights:

 

 

Over the longer term, our performance was strong. For the three year period from December 31, 2013 to December 31, 2016:

 

 

 

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Executive Summary

 

COMPENSATION

DISCUSSION & ANALYSIS

 

 

 

These charts illustrate some of the measures of our full-year results over the past three years. These are also among the key metrics used for our short- and long-term incentive compensation programs.

 

More information on our business performance during 2016 is available in our Form 10-K for fiscal year ended December 31, 2016 (the “2016 Form 10-K”), which is included in the 2016 Annual Report to Shareholders that accompanies this proxy statement. A reconciliation of the measures not shown in accordance with U.S. generally accepted accounting principles (“GAAP”) used in this proxy statement to their corresponding GAAP measures can be found in Exhibit 1 on page E-1.

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

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COMPENSATION

DISCUSSION & ANALYSIS

 

Elements of Our Executive Compensation Program

 

 

ELEMENTS OF OUR COMPENSATION PROGRAM

The following table outlines the elements of targeted direct compensation and how each element aligns with our objectives and guiding principles.

 

 

COMPENSATION

ELEMENT

 

WHAT IT REWARDS

 

HOW IT ALIGNS

WITH OUR OBJECTIVES

 

PERFORMANCE

MEASURED

 

FIXED OR

AT RISK

 

CASH OR

EQUITY

 

 

BASE SALARY

 

  Sustained high level of performance

  Demonstrated success in meeting or exceeding key objectives

  Highly developed skills and abilities critical to success of the business

  Experience and time in position

 

 

  Competitive base salaries enable us to attract and retain top talent

  Merit-based salary increases align with our pay-for- performance philosophy

 

INDIVIDUAL

 

FIXED

 

CASH

 

ANNUAL
INCENTIVE
AWARDS

 

  Company performance during the year against key financial goals

  Specific business-segment performance during the year, measured against strategic business-segment goals

 

 

  Competitive targets enable us to attract and retain top talent

  Payouts depend on the achievement of established performance measures and goals that align pay with performance

 

CORPORATE

AND BUSINESS

SEGMENT

 

AT RISK

 

CASH

 

LONG-TERM INCENTIVE AWARDS

 

 

NONQUALIFIED
STOCK OPTIONS

 

  Increase in stock price

  Continued service

 

  Value is dependent on our stock price; options have no value unless the stock price increases

  Three-year ratable vesting supports retention

 

 

CORPORATE

 

AT RISK

 

EQUITY

 

RESTRICTED
STOCK UNITS

 

  Increase in stock price

    and dividends

  Continued service

 

  Value rises or falls as our stock price and dividend increases or decreases

  Three-year cliff vesting supports retention

 

 

CORPORATE

 

AT RISK

 

EQUITY

 

PERFORMANCE
SHARES

 

  Meeting or exceeding our return on equity goal

  Total shareholder return performance relative to that of other companies

 

  Payout is based on metrics important to our shareholders and critical to value creation

  Three-year performance period supports retention and aligns pay with performance over an extended period of time

  Relative performance metric creates incentive to outperform peers

 

 

CORPORATE

 

AT RISK

 

EQUITY

 

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

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Our Executive Compensation Program Philosophy

 

COMPENSATION

DISCUSSION & ANALYSIS

 

 

OUR EXECUTIVE COMPENSATION PROGRAM PHILOSOPHY

Our executive compensation program has three key objectives:

 

 

PAY FOR PERFORMANCE

 

To link executive pay directly to the attainment of short-term and long-term financial/business goals, using short-term metrics that correlate with our strategic goals and long-term metrics that correlate to long-term shareholder value

 

ALIGNMENT WITH SHAREHOLDERS

 

To provide compensation arrangements that link the interests of our executive officers to those of our shareholders

 

 

COMPETITIVE COMPENSATION

 

To attract and retain key executive talent

 

These objectives, discussed below, guide us in setting and paying compensation to our NEOs.

PAY FOR PERFORMANCE

Our executive compensation program is based on a “pay for performance” philosophy: The vast majority of our executives’ target compensation is made up of variable (“at risk”) compensation—in the form of annual cash incentive awards and long-term equity awards—that is linked to consolidated short- and long-term business performance and each individual’s contribution to that performance. In measuring an executive’s contribution, we put a strong emphasis on the individual’s role in implementing strategies and driving performance specific to their function or the operating units they direct.

The key objectives of our pay for performance philosophy are to:

reward the achievement of superior financial results — in both the short-term and long-term — through balanced incentive programs;

offer the opportunity to earn above-market compensation when overall and individual performance exceed expectations; and

emphasize compensation that is at risk based on performance rather than compensation that is fixed—for instance, only 10% of our CEO’s target annual pay is fixed.

Balanced Performance Measure and Goals

It is important to us and to our executives that performance be measurable and that compensation be paid based on criteria that drive shareholder value and that executives and shareholders alike can easily identify and understand.

To implement our pay for performance philosophy, the Compensation Committee chooses performance measures for our NEO incentive programs that focus on our overall corporate business strategies and that, if achieved, create sustained growth for our shareholders:

Our AIP is based on the same key financial measures indicative of Lincoln’s current and future profitability; and

Our LTI uses measures that correlate directly to the creation of long-term value for Lincoln shareholders.

 

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

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COMPENSATION

DISCUSSION & ANALYSIS

 

Our Executive Compensation Program Philosophy

 

The goals for each performance measure are linked directly to the Company’s financial plan. In setting the goals, management and the Compensation Committee intend for the maximum performance levels to present a substantial challenge for our NEOs, thereby creating a strong incentive to produce superior results. For 2016, the Compensation Committee chose the following performance measures, which it has used since 2011:

 

 

2016 ANNUAL INCENTIVE PROGRAM

 

 

PERFORMANCE MEASURE

 

 

WHY CHOSEN

 

 

Income from Operations
per Diluted Share

 

This is a key measure of profitability that management uses to evaluate our business and that investors commonly use to value companies in the financial services industry.

 

 

Business Unit Sales

 

In our business, sales create value because, over time and at a compounded growth rate, they are an indicator of future profitability. In addition, we believe that distribution strength (depth and breadth) is an important driver of our valuation and that sales are an effective way to measure the value of the distribution franchise and overall product competitiveness.

 

 

Controllable Costs

 

Management establishes annual budgets for the Company and for each business unit that are key to the success of our financial plan. The Compensation Committee sets a budget-related performance goal to reinforce the importance of containing costs and expenses across the entire organization.

 

 

 

2016 LONG-TERM INCENTIVE PROGRAM

 

 

PERFORMANCE MEASURE

 

 

WHY CHOSEN

 

 

Operating Return on Equity

 

This is an important measure that stock analysts use to value companies — especially those in the financial services industry — because it is a critical indicator of capital efficiency and is closely aligned with long-term shareholder value.

 

 

Relative Total Shareholder Return

 

This measure reflects the Company’s delivery of shareholder value over time relative to that of our peers.  Many investors look at a company’s total shareholder return when making an investment decision.

 

ALIGNMENT WITH SHAREHOLDERS

Through our annual and long-term incentive compensation programs, our share ownership requirements and share retention policy, and the design and governance features of our long-term equity programs, we tie the financial interests of our NEOs to those of our shareholders. For both the annual and long-term programs, the Compensation Committee chooses performance goals that align with our strategies for sustained growth and profitability.

Long-Term Incentives

The equity-based awards that are the basis of our long-term incentive compensation make up the largest part of our NEOs’ targeted direct compensation. To provide a balanced incentive program and to lessen the risk inherent in the greater focus on long-term incentives, executives receive a mix of equity-based compensation awards, which include:

Performance share awards (“PSAs”) – The number of shares actually received depends on our performance over a three-year period relative to key metrics of shareholder value;

Restricted stock units (“RSUs”) – These awards cliff-vest three years from the date of grant (cliff-vesting acts as a retention tool for our executives) and the value ultimately realized depends on how our stock performs over that three-year period; and

Nonqualified stock options to purchase our common stock (“Options”) – These awards vest over time and only have value if the stock price rises after the option grants are made.

 

 

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Our Executive Compensation Program Philosophy

 

COMPENSATION

DISCUSSION & ANALYSIS

 

Share Ownership Guidelines and Holding Requirements

Our share ownership requirements formalize the Compensation Committee’s belief that our officers should maintain a material personal financial stake in the Company. The requirements also promote a long-term perspective in managing our business by linking the long-term interests of our executives with those of our shareholders and reducing the incentive for short-term risk-taking.

Our share ownership requirements are based on multiples of base salary and vary by job level. Equity interests counted in determining whether share ownership guidelines have been met include:

shares owned outright;

amounts invested in shares of our common stock through our employee benefits plans;

restricted stock and RSUs subject to service-based restrictions; and

in-the-money Options.

 

 

SHARE OWNERSHIP AND RETENTION REQUIREMENTS

 

 

OFFICER POSITION

 

 

VALUE OF SHARES THAT

OFFICER MUST HOLD

 

 

ADDITIONAL RETENTION

REQUIREMENTS

 

 

CEO

 

 

7 times base salary

 

 

25% of net profit shares* for 5 years

 

 

Executive Officers

(other than our CEO)

 

 

4 times base salary

 

25% of net profit shares* for 5 years

*

Net profit shares reflect the value of an amount of shares remaining after payment of the option exercise price and taxes owed at the time of exercise plus the after-tax value of any vested RSUs or earned performance shares.

In addition to the minimum share ownership levels, each NEO must also retain an amount equal to 25% of the net profit shares resulting from equity-based LTI grants, such as vested RSUs or earned PSAs. This additional amount of shares must be held for five years from the date of exercise for Options or the date of vesting for other awards. If at any point an NEO does not meet the share ownership requirements, the executive must hold 50% of the net profit shares resulting from equity-based LTI awards that are exercised or vest, as applicable, until the required ownership level is met.

Prohibition on Pledging and Hedging

Our Insider Trading and Confidentiality Policy includes provisions that prohibit: (i) the pledging of our securities; and (ii) the use of derivative instruments to hedge the value of any of our securities.

Multi-Year Performance and Vesting Periods

The multi-year performance criteria and vesting elements of our long-term incentive programs promote the retention of our executives by putting their focus on our long-term performance, thereby aligning our executives’ interests with those of shareholders.

Prohibition on Repricing

Our equity incentive compensation plans prohibit us from reducing the exercise price of outstanding Options without shareholder approval.

 

 

 

 

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COMPENSATION

DISCUSSION & ANALYSIS

 

Consideration of our Shareholder Vote on Executive Compensation

 

Clawback Features

The equity awards for our NEOs are subject to “clawback” and forfeiture provisions, which allow us to rescind an executive’s award(s) under certain conditions, such as if:

the executive’s employment is terminated for cause; or

the executive violates any non-compete, non-disclosure, non-solicitation, non-disparagement or other restrictive covenants.

For example, if an executive violates any such agreement prior to or within six months after the vesting of any portion of an equity award, such as Options or PSAs, we may rescind the exercise or award and require the executive to return any gain realized or value received.

COMPETITIVE COMPENSATION

In general, we target our executives’ total direct compensation — i.e., base salary, targeted annual incentive compensation and targeted long-term incentive compensation — at the median of the compensation paid to executives in similar positions at the insurance-based financial services and investment management companies with which we compete for talent.

Because the roles and responsibilities of our executives are unlikely to be exactly the same as those of executives with similar titles/roles in our peer companies, we often consider multiple sources of market data for this purpose. However, market data is only one of many factors considered when setting executive compensation targets. For more information on how we set target compensation and our benchmarking processes, please see “Setting Target Compensation” on page 39.  

 

CONSIDERATION OF OUR 2016 SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION

The Compensation Committee and the Board appreciate and value the views of our shareholders. At our 2016 Annual Meeting of Shareholders, approximately 93% of shareholder votes were cast in favor of the “say on pay” advisory resolution on executive compensation. While we do review the program design on an annual basis, there have not been any significant changes to our compensation program in the last several years. In light of the continued strong shareholder support for our overall pay practices and NEO compensation, the Compensation Committee decided to maintain our general principles and philosophy in structuring executive compensation for 2017.

 

 

 

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Setting Target Compensation

 

COMPENSATION

DISCUSSION & ANALYSIS

 

 

 

SETTING TARGET COMPENSATION

The Compensation Committee made compensation decisions for the 2016 calendar year for the NEOs based on a detailed analysis of Company-specific and external data.

BENCHMARKING

To help the Compensation Committee set 2016 target direct compensation levels for our NEOs, Pay Governance LLC performed a comprehensive competitive compensation analysis in November of 2015. They analyzed base pay, annual incentive opportunities, long-term incentive values and total direct compensation (the sum of the elements listed here) to establish market rates for each executive officer position. They then compared our current executive compensation levels to the market median of our peers.

The Compensation Committee believes that these companies are appropriate for compensation benchmarking because, even though none has our exact business mix, each is a major competitor in one or more of our businesses and competes directly with us for talent. Because some of these companies have either higher or lower market capitalization, assets or revenue than we do, the data are size-adjusted, where possible, to ensure comparability with our scope. We have used the same market survey for a number of years, and if the companies included in the study change, we reflect those changes in our benchmarking peer group. Neither the Committee nor management has any input into the companies included in this general industry survey.

For each of our NEOs, Pay Governance used market data drawn from the stock companies included in the Towers Watson 2015 Diversified Insurance Study of Executive Compensation (the “2015 Towers DI Study”), which are:

 

 

AFLAC

 

 

METLIFE

 

AIG

 

 

PHOENIX COMPANIES

 

ALLSTATE

 

 

PRINCIPAL FINANCIAL

 

AXA GROUP

 

 

PRUDENTIAL FINANCIAL

 

CIGNA

 

 

SUN LIFE FINANCIAL

 

CNO FINANCIAL

 

 

TRANSAMERICA

 

GENWORTH FINANCIAL

 

 

UNUM GROUP

 

HARTFORD FINANCIAL SERVICES

 

 

VOYA FINANCIAL INC.

 

JOHN HANCOCK

 

 

 

The survey data were used as a primary reference for most roles. The Compensation Committee seeks to target total direct compensation within a competitive range of plus or minus 15% of the 50th percentile of market data being used. In some cases, the Committee may target compensation above or below this range. Reasons for doing this include:

organizational considerations; for example, because an executive’s role is considered especially critical to our overall business strategy and to our succession planning;

internal pay equity considerations;

to gain the specific expertise needed to build a new business or improve an existing one; or

to retain highly qualified executives whom we have recruited from outside the insurance industry or whom we believe has skills or experience that will further our corporate strategy.

 

 

LINCOLN NATIONAL CORPORATION 2017 PROXY STATEMENT

39

 


 

 

 

COMPENSATION

DISCUSSION & ANALYSIS

 

Setting Target Compensation