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:

(as permitted by Rule 14a-6(e)(2))

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Radnor, Pennsylvania / April 12, 2019

DEAR FELLOW SHAREHOLDER:

You are invited to attend our 2019 Annual Meeting of Shareholders, to be held Friday, May 24 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 2018 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 2018 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

 

 

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

Mailing date: April 12, 2019

The purpose of the meeting is to:

1. elect eleven directors for a one-year term expiring at the 2020 Annual Meeting of Shareholders;

2. ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2019;

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

4. consider and vote upon up to two shareholder proposals if properly presented at the meeting; and

5. 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, 2019. Please cast your votes by one of the following methods:

 

If, going forward, you would like to receive electronic delivery of future proxy materials, please see page 85 for more information.

For the Board of Directors,

 

Nancy A. Smith

Senior Vice President & Secretary

Lincoln National Corporation

Radnor, Pennsylvania

 

 

 

 

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TABLE OF CONTENTS

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 24, 2019: This proxy statement and the accompanying annual report are available at: www.proxydocs.com/lnc.

 

 

 

 

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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  

 

 

VOTING MATTERS  

 

 

 

 

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BOARD OF DIRECTOR NOMINEES  

 

 

 

 

 

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BOARD OF DIRECTOR NOMINEES (CONT’D.) 

 

 

 

Our director nominees provide the Board with the comprehensive diversity of relative skill sets needed to provide effective oversight in light of the Company’s industry, risks and current and long-term strategic needs.

 

 

 

 

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GOVERNANCE HIGHLIGHTS 

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

 

FINANCIAL HIGHLIGHTS

 

Our full year 2018 results included the following highlights:

 

 

 

 

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2018 SHAREHOLDER ENGAGEMENT AND RESPONSE TO FEEDBACK

 

In the Fall of 2018 we reached out to investors representing close to half of our shares outstanding to discuss various key corporate governance-related matters, including the ownership threshold for special shareholder meetings. As a result of this outreach, we engaged substantively with almost half of the contacted investors. The Board took into account the feedback received during this engagement effort when determining to amend the Company’s Bylaws in November 2018 to reduce to 10% the percentage of outstanding stock required for shareholders to call a special meeting. In addition, based on feedback received from investors, and in light of the continued strong shareholder support for our overall pay practices and NEO compensation at the 2018 Annual Meeting, the Compensation Committee decided to maintain our general principles and philosophy in structuring executive compensation for 2019.

 

EXECUTIVE COMPENSATION HIGHLIGHTS

The key objectives of our executive compensation program are to:

 

 

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 32. At the 2018 Annual Meeting, our shareholders expressed continued strong support for our executive compensation programs, with over 92% 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:

2018 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 2018 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 59. For additional details about our executive compensation programs and our NEOs’ fiscal year 2018 compensation, please see “Compensation Discussion & Analysis” beginning on page 32 and “Executive Compensation Tables” beginning on page 59.

 

 

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Proxy Statement

ANNUAL MEETING OF SHAREHOLDERS | MAY 24, 2019

The Board of Directors (the “Board”) of Lincoln National Corporation (the “Company,” “we,” “us,” “LNC” or “Lincoln”) is soliciting proxies in connection with the proposals to be voted on at the 2019 Annual Meeting of Shareholders, which will be held beginning at 9:00 a.m. local time on Friday, May 24 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 12. When we refer to our 2019 Annual Meeting of Shareholders (the “Meeting” or the “Annual Meeting”) we are also referring to any meeting that results from an adjournment of the Annual Meeting.

 

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 is responsible for directing and overseeing the management of the Company’s business in the best interests of our 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 has eleven members, ten of whom are non-employees, or outside directors. The Board has determined that all ten outside directors are independent, as discussed below. The Board may fill a director vacancy or reduce the size of the Board at any time 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 be made based on the best interests of the Company at the given time.

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 and regulatory, cybersecurity, compensation,

 

 

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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.

 

OUR CORPORATE GOVERNANCE GUIDELINES

The Board’s Corporate Governance Guidelines (the “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:

The full texts of our 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 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.

 

 

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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:

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.

 

 

DIRECTOR NOMINATION PROCESS

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

 

DIRECTOR QUALIFICATIONS

The Corporate Governance Committee reviews with the Board the appropriate skills and characteristics required of directors in the context of the Board’s current make-up and each director nominee’s ability to oversee the Company’s strategies and risks. 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.

 

In addition, although the Board does not have a formal diversity policy, our Guidelines specify that the Corporate Governance Committee should consider diversity in the director identification and nomination process. As a result, the Corporate Governance 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 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 environment.

As set forth in our Guidelines, Board refreshment over time is critical to ensuring that the Board as a whole maintains the appropriate balance of tenure, diversity, skills and experience needed to provide effective oversight in light of the Company’s current and long-term strategic needs. The Board does not believe that arbitrary term limits for directors based on age or years of service are appropriate, as they can result in the Company losing the valuable contribution of directors who have over time developed increased insight into the Company and its operations. The Company benefits from a mix of these experienced directors with a deep understanding of the Company and newer directors who bring fresh perspectives. However, a director’s service should not outlast his or her ability to contribute and consequently the Board does not believe that directors should expect to be renominated continually. Each director’s continued tenure is reconsidered annually, taking

 

 

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into account the results of the Board’s annual self-evaluation, annual individual director peer evaluations, results of voting by shareholders in annual director elections and the Company’s needs.

 

Two new directors have been elected to our Board in the last three years. The Board will continue to review its composition and structure, balancing the need for continuity and experience with fresh ideas and perspectives.

 

DIRECTOR NOMINEE SELECTION PROCESS

The Corporate Governance Committee begins the nomination process each year by deciding whether to renominate current directors, as all directors are up annually for nomination and election by our shareholders. This includes an individual assessment of each director who will be up for reelection the following year. The Corporate Governance Committee then reviews the results of the individual director assessments and 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 Corporate Governance 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, including whether or not the nominee would be considered “independent” under SEC rules and NYSE listing standards) and seeks candidates with those qualifications.

Although not required to do so, the Corporate Governance 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 Corporate Governance Committee will also consider nominations from shareholders. Such nominations must be submitted in writing to our Corporate 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 2020 Annual Meeting” on page 89 and in our Amended and Restated Bylaws (“bylaws”), which can be found on our website at www.lfg.com. Any such recommendation must be received by the Corporate Secretary no earlier than January 25, 2020, nor later than February 24, 2020.

Our proxy access bylaws permit a shareholder, (or a group of up to 20 shareholders) owning shares of our outstanding common stock representing at least 3% of the votes entitled to be cast on the election of directors, to nominate and include in our proxy materials director candidates constituting up to 20% of the Board. The nominating shareholder or group of shareholders must have owned their shares continuously for at least three years, and the nominating shareholder(s) and nominee(s) must satisfy other requirements specified in our bylaws.

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 Corporate Governance Committee will do so, and other directors may be asked to interview the candidate as well. Upon completing the evaluation and the interview, the Corporate Governance Committee recommends to the Board whether to nominate the candidate.

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.

 

 

ANNUAL BOARD, COMMITTEE AND INDIVIDUAL DIRECTOR EVALUATIONS

Our Board recognizes that a thorough, constructive evaluation process enhances our Board's effectiveness and is an essential element of good corporate governance. Accordingly, every year, our Corporate Governance Committee oversees a Board, Committee and individual director evaluation process, which is designed to elicit feedback and recommendations from the directors that will improve the effectiveness of the Board.

 

 

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In general, our Board evaluations cover a variety of topics including the Company’s strategy, financial performance, risk management and succession planning, as well as:

Each year, the Corporate Governance Committee reexamines the evaluation process to ensure that the process allows directors the opportunity to provide actionable feedback on the functioning of the Board as a whole as well as the performance of individual directors. The Board and each Committee then conduct their annual self-evaluations through the use of a written questionnaire that covers the topics discussed above. The Company’s Corporate Secretary aggregates and summarizes the directors’ responses to the questionnaires, highlighting comments and year-over-year trends. Responses are not attributed to specific Board or Committee members to promote candor. Using the questionnaires and summaries of written evaluations as guides, our Chairman reviews the results of the Board evaluation and each Committee chair reviews the results of each Committee evaluation. The evaluations and summaries are then shared and discussed with the full Board and each Committee during executive sessions.

Each director also participates in an annual individual director peer evaluation through which the director assesses the performance of and provides feedback on his or her fellow directors. As discussed above, the Corporate Governance Committee reviews the results of these individual director assessments, as well as of the Board and Committee self-evaluations, when considering each director’s continued service on the Board.

 

SHAREHOLDER ENGAGEMENT AND RESPONSE TO FEEDBACK

We are committed to a robust shareholder engagement program. The Board values our shareholders’ perspectives, and feedback from our shareholders on our business, corporate governance, executive compensation, and sustainability practices are important considerations for Board discussions throughout the year. Over the course of the year, we seek opportunities to connect with our investors to gain and share valuable insights into current and emerging global governance trends on those topics. In addition to speaking with our institutional investors, we respond to inquiries from our individual investors and other stakeholders. Our Board appreciates the feedback it receives from these discussions, and considers the feedback when structuring governance, compensation and sustainability practices. Our meetings and interactions with shareholders are designed to better understand how our shareholders perceive Lincoln and to provide our investors an opportunity to discuss matters that they think deserve attention.

In addition to engaging with investors at conferences and meetings throughout the year, in the Fall of 2018 we reached out to 27 of our global institutional investors representing 48% of our shares outstanding to discuss various key corporate governance-related matters.  As a result of this outreach, we engaged substantively with close to half of these investors via teleconference or email, and the discussions covered a wide range of topics, including executive compensation, Board refreshment and social and environmental considerations. Overall, the feedback received from investors was positive, with shareholders recognizing our good governance and proactive adoptions of best governance practices.

Among the topics discussed with investors during the Fall engagement was the ownership threshold for special shareholder meetings.  A shareholder resolution at our 2018 Annual Meeting requesting a 10% ownership threshold for shareholders to call a special meeting passed with 51.47% of the vote. Following the 2018 Annual Meeting, the Board determined to review the Company’s special meetings bylaw provision and, in connection therewith, to consider investor views and corporate governance practices. During our discussions with shareholders, they expressed mixed views on the appropriate ownership threshold; some viewed a 10% threshold as appropriate while others expressed a preference for a higher threshold. In

 

 

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part due to this feedback, the Board took action to amend the Company’s bylaws in November 2018 to reduce to 10% the percentage of outstanding stock required for shareholders to call a special meeting.

Executive compensation was also a topic of discussion with investors during the Fall engagement. Based on the feedback received from investors, and in light of the continued strong shareholder support for our overall pay practices and NEO compensation at the 2018 Annual Meeting, the Compensation Committee decided to maintain our general principles and philosophy in structuring executive compensation for 2019.

 

BOARD AND COMMITTEE MEETINGS

The Board met four times during 2018, 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 2018 Annual Meeting.

 

 

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 2018. The Audit, Compensation, Corporate Governance, and Finance Committees conduct self-evaluations of their committee’s performance each year.

 

Shaded cells denote committee chair.

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.

 

 

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DIRECTOR ORIENTATION AND CONTINUING EDUCATION

Director education is an ongoing, year-round process, which begins when a director joins our Board. Upon joining our Board, new directors are provided with a comprehensive orientation to our Company, including our business, strategy and governance. New directors participate in an orientation program with senior business and functional leaders from all areas of the Company, during which there is discussion of strategic priorities and key risks and opportunities. On an ongoing basis, directors receive presentations on a variety of topics related to their work on the Board and within the insurance and financial services industries, both from senior management and from experts outside of the Company, for example at our annual Board retreat. We also encourage directors to enroll in continuing education programs sponsored by third parties at our expense.  

 

COMMUNICATIONS WITH DIRECTORS

Shareholders and others who wish to communicate with the full Board or its outside (nonexecutive) 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.

 

 

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ITEM 1 | ELECTION OF DIRECTORS

 

NOMINEES FOR DIRECTOR

Eleven directors will be up for election at the 2019 Annual Meeting to hold office until the next annual meeting and until their respective successors are elected and qualified. Of the directors standing for election, only 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.

 

 

 

 

 

 

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COMPENSATION OF OUTSIDE DIRECTORS

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

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 2018, the Corporate Governance 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 Corporate Governance Committee recommended to the Board certain fee increases for 2019.

The following table compares our director fees for 2018 to the revised fees that took effect beginning January 1, 2019:

 

 

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 or Chair cash retainer (for 2018, this was $500,000 for each Board member and $600,000 for the Chairman). 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, 2018, all of our directors are in compliance with this requirement, with the exceptions of Ms. Connelly, who joined the Board in May 2016 and has until May 2021 to meet the full share ownership requirement, and Ms. Utter, who joined the Board in November 2017 and has until November 2022 to meet the full share ownership requirement.

 

 

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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 of the Directors’ DCP track those offered to employees under the LNC Deferred Compensation and Supplemental/Excess Retirement Plan (the “DC SERP”) and include a Lincoln National Corporation Stock Fund investment option (the “LNC Stock Fund”). Like the DC SERP, the Directors’ DCP uses “phantom” versions of the 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 2018, three of our outside directors — Messrs. Henderson and Pittard and Ms. Lachman — also served as directors of LNY.

 

OTHER BENEFITS

In addition to the compensation listed above, we offer our outside directors the following benefits:

 

 

 

 

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

 

 

 

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The following table shows the number of Deferred LNC Stock Units and vested unexercised LNC stock options held by each director as of December 31, 2018:

 

 

Deferred LNC Stock Units include amounts reported in the Stock Awards column above, phantom units awarded under the LNC Outside Directors’ Value Sharing Plan, which was terminated on July 1, 2004, and any phantom units held by the director in the LNC Stock Fund under the Directors’ DCP pursuant to an election to defer cash Board fees, plus any accrued dividend equivalents, which are automatically reinvested in additional phantom units of our common stock.  

 

 

 

 

 

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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 27, 2019, the Audit Committee appointed Ernst & Young LLP (“Ernst & Young”) as our independent registered public accounting firm for fiscal year 2019. We have engaged this firm and its predecessors in this capacity continuously since 1968 for LNC and since 1966 for subsidiaries of LNC. In addition, the Audit 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 do so. 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 2018.

 

 

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 2018 and 2017, with a breakdown of fees paid for different categories of work.

 

 

 

 

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AUDIT COMMITTEE PRE-APPROVAL POLICY

The Audit Committee has policies and procedures to preapprove all audit and permissible non-audit services that our independent auditors provide. Management submits to the Audit 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 Audit Committee preapproves 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 Audit Committee for those services. The Audit Committee chair also has the authority to preapprove services between meetings, subject to certain dollar limitations, and must notify the full Audit Committee of any such preapprovals 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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AUDIT COMMITTEE REPORT

Management has primary responsibility for:

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

In this context, the Audit Committee has:

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 2018 be included in the Company’s Annual Report on Form 10-K for fiscal year ending December 31, 2018, 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

 

The Board recognizes that providing shareholders with an advisory vote on executive compensation can produce useful information on investor sentiment regarding 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 2018 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 32, our executive compensation principles and underlying programs are designed to:

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 2018, 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 have caps on payouts for incentive compensation; 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 share 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. The Compensation 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 32 to 58.

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

 

 

 

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against the proposal. We intend to hold a non-binding advisory vote on executive compensation each year, with the next such vote at our 2020 Annual Shareholders Meeting.

We urge you to read the CD&A and other information in the Executive Compensation Tables, beginning on page 59, which we believe demonstrate 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.

 

 

“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 2018 compensation tables regarding named executive officer compensation, and the accompanying narrative disclosure in this proxy statement.”

 

 

 

 

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COMPENSATION DISCUSSION & ANALYSIS

 

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 59. These NEOs are:

 

We encourage you to read the CD&A in conjunction with the compensation tables on pages 59 to 75.

To ensure the continued effectiveness of our pay-for-performance culture, the Compensation Committee each year reviews and approves the elements, measures, targets, weightings and payouts of our executive compensation programs. In setting the programs’ performance measures and goals, the Compensation Committee chooses metrics that drive 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 support our long-term business strategy and measure the creation of sustainable long-term shareholder value.

At our 2018 Annual Meeting, shareholders continued to express strong support for our executive compensation programs, with over 92% of votes cast in favor of the advisory resolution on executive compensation.

 

 

 

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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 a significant portion 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”— an executive will not reach his or her 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:

 

 

 

 

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 59 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:

 

 

 

 

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2018 PERFORMANCE OVERVIEW

As a company with a 114-year history, we recognize that a focus on long-term value creation and purpose is what will keep us in the business of servicing our customers, employees, communities and shareholders for the next century and beyond. At our core, our purpose is to provide advice and solutions that help empower people to take charge of their financial lives with confidence and optimism. We continue to deliver on this mission and our promises, which enabled us to deliver strong financial results in 2018 as Lincoln’s franchise positioned us well for growth. We continued to focus on increasing sales and profitability in all of our businesses through our powerful retail franchise that brings together a broad product portfolio and distribution breadth. We also continue to actively manage our capital through initiatives that we believe position us well for long-term, sustainable financial results.

Our full year results included the following highlights:

 

 

Significant accomplishments this past year include returning to positive flows in the Annuities business in the fourth quarter, completing the acquisition of the Liberty group benefits business, which has outperformed our expectations to date, and executing on strategic transactions, which resulted in $2.5 billion of capital deployed. Despite these efforts to continue to build long-term value for shareholders, our year-over-year stock price decreased to $51.31 as of the market close on December 31, 2018 from $76.87 on December 29, 2017. Over the longer term, our performance was solid with positive cumulative shareholder return for the three-year period from December 31, 2015, to December 31, 2018, and strong results for adjusted operating return on equity as of December 31, 2018:

 

 

 

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These charts illustrate some of the measures of our full-year results over the past three years, cumulatively and sales broken out by business unit. These are also among the key metrics used for our short- and long-term incentive compensation programs.

2016 - 2018 GAAP AND ADJUSTED OPERATING EARNINGS PER SHARE

 

2016 - 2018 GAAP AND ADJUSTED OPERATING TOTAL REVENUES

 

 

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2016 - 2018 SALES BY BUSINESS UNIT

 

More information on our business performance during 2018 is available in our Form 10-K for fiscal year ended December 31, 2018 (the “2018 Form 10-K”), which is included in the 2018 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.

 

 

 

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COMPONENTS OF OUR COMPENSATION PROGRAM

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

 

 

 

 

 

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OUR EXECUTIVE COMPENSATION PROGRAM PHILOSOPHY

Our executive compensation program has three key objectives:

 

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:

Balanced Performance Measures and Goals

It is important to us and to our executives that performance goals be objectively measurable and that compensation be paid based on easily understood criteria that drive shareholder value.

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:

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. Annually, the Compensation Committee reviews the performance measures to ensure that the metrics selected are aligned with our corporate strategy. The Company’s overall corporate strategy continues to focus on balancing top-line revenue growth with profitability and prudent cost management, and, as a result, for 2018, the Compensation Committee continued to align our executive compensation accordingly by choosing the following performance measures:

 

 

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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:

 

 

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Share Ownership Guidelines and Share Retention 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. 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 number 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. Each of our NEOs are exceeding their share ownership requirements.

The table below shows our share ownership guidelines and share retention requirements by officer tier:

 

Equity interests counted in determining whether share ownership guidelines have been met include:

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.

Multiyear Performance and Vesting Periods

The multiyear 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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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:

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 identical to 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” below.  

 

CONSIDERATION OF OUR 2018 SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION

The Compensation Committee and the Board appreciate and value the views of our shareholders. At our 2018 Annual Meeting of Shareholders, over 92% 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. Based on the results of our shareholder engagement conducted in the Fall of 2018, and in light of the continued strong shareholder support for our overall pay practices and NEO compensation at the 2018 Annual Meeting, the Compensation Committee decided to maintain our general principles and philosophy in structuring executive compensation for 2019.

 

SETTING 2018 TARGET COMPENSATION

The Compensation Committee made compensation decisions for the 2018 calendar year for the NEOs based on a detailed analysis of Company-specific and external data.

BENCHMARKING

The Compensation Committee uses a comprehensive competitive compensation analysis to set target direct compensation levels for our NEOs. For 2018, this analysis included a review of our competitors’ 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, followed by a comparison of our current executive compensation levels to the market median of our peers.

For each of our NEOs, market data was drawn from the stock companies included in the Willis Towers Watson 2017 Diversified Insurance Study of Executive Compensation (the “Towers DI Study”). We have used the Towers DI Study for over 10 years, and if the companies included in the study change, we reflect those changes in our benchmarking peer group. In 2017, Phoenix Companies was removed from the Towers DI Study, resulting in a corresponding change to our peer group. This also reflects the continued changes to traditional life and annuity companies resulting from mergers, acquisitions, divestitures, spin-offs and privatization across the insurance industry. The Compensation Committee believes that these companies are

 

 

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appropriate for compensation benchmarking because, even though none has our exact business mix, each is a competitor in one or more of our core business units and competes directly with us for talent and distribution of our products. Most of these companies compete with us in two or more lines of business.

The Compensation Committee has determined not to exercise discretion to remove or add peers to the benchmarking group derived from the Towers DI Study to keep a consistent peer group year-over-year. However, 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 develop comparable market rates for a hypothetical organization of similar size and type to our own.

If there are significant changes that take place during the year, such as promotions, new hires or a reorganization of roles and responsibilities at the executive officer level, the Compensation Committee may review the executive’s compensation in light of current market data provided by the Compensation Consultant and changes may be made accordingly.  

 

 

 

 

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The market data described on page 42 was 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 50^th percentile of the market data being used. In some cases, the Compensation Committee may target compensation above or below this range. Reasons for doing this include:

TALLY SHEETS

When making compensation decisions, the Compensation Committee considers:

The tally sheets enable the Compensation Committee to analyze the value of total target compensation, as well as the value of compensation actually delivered compared with the value of compensation opportunities the Compensation Committee originally established.

The Compensation Committee also uses the tally sheets to assess whether our executive compensation program is consistent with our compensation philosophy and desired positioning relative to the market data. However, tally sheets are just one point of information the Compensation Committee uses to determine NEO compensation. The Compensation Committee performed a similar analysis to establish the total targeted direct compensation for our CEO.

TOTAL TARGETED 2018 DIRECT COMPENSATION

The table below shows the total targeted direct compensation set by the Compensation Committee for our NEOs for 2018:

 

 

 

 

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ANNUAL CASH COMPENSATION FOR 2018

During 2018, annual compensation was made up of base salary and a short-term incentive award under the AIP.

BASE SALARY

Base salaries are reviewed annually, upon promotion or following a change in job responsibilities and are based on market data, internal pay equity and performance. In setting base salary levels for 2018, the Compensation Committee started with the 2017 base salaries and then approved merit increases based on the benchmarking data and compensation analysis discussed above and the individual performance of each NEO, using our enterprise-wide merit increase budget as a guide.

In general, base salaries are targeted to the 50^th percentile of the market data developed during the benchmarking process described above. For 2018, the increases for our NEOs were in the range of 3% to 6%. During 2018, Ms. Buckingham’s target compensation was reviewed after a reorganization that resulted in her undertaking additional job responsibilities.

The Compensation Committee approved the following base salaries for our NEOs effective during 2018:

 

 

ANNUAL INCENTIVE PROGRAM

2018 Payout Opportunities

The table below shows the dollar amount of the threshold, target and maximum payout opportunities for the 2018 AIP established by the Compensation Committee for each of our NEOs; the threshold, target and maximum opportunities are calculated as a percentage of each NEO’s base salary. Payouts under the 2018 AIP are capped at the maximum amount. The CEO’s AIP target as a percentage of base salary has remained unchanged since 2008. The threshold opportunity would be payable only in the case where the threshold goal is met for the performance measure with the lowest percentage payout amount.

 

 

 

 

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2018 Performance Measures and Goals

In February 2018, the Compensation Committee established the goals and measures for the 2018 AIP.

Performance measures. The Committee selected the three performance measures for 2018 described below because they focus on our overall corporate strategy of balancing top-line revenue growth with profitability and prudent cost management. To learn more about why these measures were selected, see “Pay for Performance” on page 38. The threshold, target and maximum goals associated with each measure are established annually so that they remain rigorous and in line with our financial plan.

For purposes of the 2018 AIP, Income from Operations is defined as net income in accordance with GAAP but excluding the after-tax effects of the items detailed in Exhibit 2 on page E-5. This is one of the financial measures that management uses to assess our results. (To calculate Income from Operations per Share, the value of Income from Operations (as defined in Exhibit 2) was divided by the average diluted shares.) Management believes that excluding these items from net income better reflects the underlying trends in our businesses because the excluded items are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments. In addition, in most instances, decisions regarding these items do not necessarily relate to the operations of the individual segments.

For our CEO, performance is measured entirely at the corporate level, while our other NEOs are assessed on both corporate and business unit performance. To reflect the different roles and responsibilities of our NEOs, the Compensation Committee also weighs the performance measures differently for each NEO, as shown in the tables on pages 46 to 48.

Performance goals. In setting the goals for each of the performance measures, management and the Compensation Committee intended the maximum levels to present a significant challenge, therefore requiring exceptionally strong performance to achieve these goals. The target goal for corporate Income from Operations per Share was set after consideration of a number of factors, including a review of our internal financial plan. The target goal for business unit sales, at both the corporate and business-unit level, was based on our internal financial plan, emphasizing our corporate strategy to grow and protect the profitability of the business. The target goal for controllable costs was based upon controllable costs as budgeted in our annual financial plan. We believe that our methodology for determining financial performance targets for the AIP supports the following key objectives:

In establishing the performance goals for the 2018 AIP related to Annuities Sales, the Compensation Committee took into account the sales environment across the business units over the previous year as well as the internal financial plan. The 2018 goals at target for Income from Operations and Business Unit Sales were each increased for 2018 over the targets set for 2017. In addition, the Committee also reviewed the weights for each goal and the goals for each role and made adjustments as appropriate to reflect each NEO’s role. The Compensation Committee believes these are rigorous goals at target that take into account both the risks and opportunities facing the Company. For example, the goals for business unit sales for Group Protection reflected the increase in sales expected from the acquisition of the Group Benefits business from Liberty Mutual Insurance Company that was completed on May 1, 2018.

 

 

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2018 Performance Results and Actual Payouts

In February 2019, the Compensation Committee certified the performance results for the 2018 AIP. These formulaic results triggered a payout that was above target for all of our NEOs.

The following tables show the goals, weights, performance results and payout percentages for the 2018 AIP measures for each of our NEOs. Based on actual results, a payout percentage—expressed as a percentage of the NEO’s target payout opportunity—is first determined for each goal. These payouts are then weighted to determine the weighted payout for each goal. The sum of these weighted payouts equals the NEO’s payout percentage.

The tables also show the resulting performance-based payouts approved by the Compensation Committee under the 2018 AIP for each of our NEOs and how these payouts compared with each NEO’s target payout opportunity under this program.

The Compensation Committee can, at its discretion, reduce award payouts by including, rather than excluding, certain factors — listed in Items A through I in Exhibit 2 on page E-5 — if it determines that these factors were relevant to individual performance. The Compensation Committee may also make other discretionary adjustments to the calculation of the performance results if the net effect would be to reduce award amounts. In certifying the results for the 2018 AIP awards, the Compensation Committee did not exercise negative discretion for any of our NEOs, which maintained the formulaic results.

DENNIS R. GLASS

 

 

 

 

 

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 RANDAL J. FREITAG

 

 

 

 

LISA M. BUCKINGHAM

 

 

 

 

 

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ELLEN G. COOPER

 

 

 

WILFORD H. FULLER

 

 

 

 

 

 

 

 

 

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LONG-TERM COMPENSATION AWARDED OR VESTED IN 2018

Long-term compensation for our NEOs generally includes three equity elements:

2018 LTI AWARD MIX

The charts below show our targeted long-term incentive mix — i.e., the percentage of the total 2018 LTI award delivered through each equity element for our CEO and the other NEOs. The equity award mix for 2018 for each of our NEOs was the same as for 2017.

The RSUs and PSAs will be paid in shares of our common stock if the applicable vesting requirements and, in the case of PSAs, performance targets are met. Long-term equity-based awards such as these encourage our NEOs to act as owners, thus aligning their interests with those of shareholders. The Options and the RSUs are not tied to formulas that could focus our executives on specific short-term outcomes. Instead, the value of these awards to our NEOs depends on the positive financial performance of our Company over time, as expressed through the multiyear increase in share value. The PSA and RSU awards also earn dividends that are only paid out upon the award vesting. These equity awards are subject to the clawback provisions detailed on page 41. In addition, the shares of common stock paid out upon the vesting of PSA and RSU awards or the exercise of Options are subject to the share retention requirements detailed on page 40.

 

 

 

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2018-2020 PERFORMANCE SHARE AWARDS

The 2018-2020 performance cycle began on January 1, 2018, and ends on December 31, 2020. In February 2018, the Compensation Committee established:

The maximum goals were intended to present a challenge for management and create appropriate incentives for our executives to create financial growth and long-term shareholder value. For each performance measure, the maximum payout, which is capped at 200% of target, occurs when performance is superior and the minimum payout, 25% of target, results when the performance threshold is met but not exceeded. For example, the minimum award for a performance measure is calculated as follows: 25% multiplied by the relative weighting of the performance measure multiplied by the target payout opportunity.

The two performance measures for the 2018-2020 performance cycle (Operating ROE and Relative TSR) are weighted equally. For any portion of the PSAs to ultimately vest, the minimum achievement level for at least one of the performance measures must be attained. In other words, if performance on both measures falls below the threshold, there is no payout.

 

Among the factors the Compensation Committee considered in setting the TSR and ROE performance measures were peer group performance, market data and our financial plan. In establishing the weightings of the performance share plan measures, the Compensation Committee took into account its belief and management’s belief that, over the long-term, ROE is a key input to shareholder value and TSR represents the actual value delivered to shareholders. The specific goals for each measure were set for compensation purposes only and do not constitute, and should not be viewed as, management’s projection of future results.

 

 

 

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ROE for the 2018-2020 performance period is an absolute measure that is to be calculated as of the end of the performance period. ROE is defined as Income from Operations (as defined above with respect to the 2018 AIP) divided by average shareholders’ equity for the year. Shareholders’ equity excludes accumulated other comprehensive income or other similar items and any increase in equity due to goodwill associated with an acquisition during the performance period.

TSR for the 2018-2020 performance period is a relative measure based on Lincoln’s TSR for the performance period ranked against the TSR results for the peer group shown below. The Compensation Committee believes that the performance peer group should be limited to companies that publish financial results against which our results are compared and that offer competing insurance and financial products.  

 

If earned, the 2018-2020 performance share awards will be paid out in shares of our common stock. The table shows the number of shares that our executives have the potential to earn at different performance levels:

 

 

The grant date fair value of the Options, RSUs and PSAs awarded in 2018 are included in the Summary Compensation Table on page 59. Additional details regarding the 2018-2020 PSAs granted to the NEOs can be found in the Grants of Plan-Based Awards table on page 62.

 

 

 

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2016-2018 LTI PROGRAM

The Compensation Committee established the performance-based 2016 LTI Program at its February 2016 meeting, with performance metrics that measure the creation of long-term shareholder value. The Compensation Committee approved the equity awards under the 2016 LTI Program, including grants of RSUs, PSAs and Options.

RSUs and Options

The RSUs cliff vested three years from the date of grant. The Options vested ratably over a three-year period, with one-third vesting on each of the first three anniversaries of the grant date. The final tranche of Options and the RSUs vested on February 24, 2019. Additional details regarding the RSUs and Options granted in 2016 can be found in the Outstanding Equity Awards table on page 64.

2016-2018 Performance Share Awards

At the February 2016 meeting, the Compensation Committee established the 2016-2018 performance cycle for PSAs for the period that began January 1, 2016, and ended on December 31, 2018. The Compensation Committee set:

The payouts for the 2016-2018 LTI PSAs could have ranged from 0% to 200% of each NEO’s target, with a threshold payout for each performance measure equal to 25% of target. For the PSA to be payable, the threshold or minimum achievement level for at least one of the performance measures must have been attained. Therefore, a minimum award would be calculated as follows: 25% multiplied by the relative weighting of the performance measure multiplied by the target amount.

The following table shows the number of shares that each NEO had the potential to earn under the 2016-2018 LTI performance cycle at the threshold, target and maximum levels:

 

 

 

 

 

 

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In February 2019, the Compensation Committee reviewed the reports and analysis that management provided regarding our performance during the 2016-2018 performance cycle and determined the results for each performance measure, as shown in the graphic below. As of December 31, 2018, the Company’s ROE, as calculated for the LTI plan, was 12.2%, which was above the goal at maximum shown in the table below. The Company’s TSR for the performance period was 14.5%, as calculated for the LTI plan, which ranked third among the peers listed below. As a result of the strong performance by the Company in each of these key metrics over the performance period (which exceeded the maximum performance level for both the ROE and TSR measures), the Compensation Committee approved a payout of the 2016-2018 performance share awards capped at 200% of target.

 

 

ROE for the 2016-2018 LTI performance period was an absolute measure that was calculated as of the end of the three-year performance period. ROE was calculated using the definition of Income from Operations that the Compensation Committee set for the 2016 AIP and divided by average Shareholders’ Equity for the year. The definition of ROE used in this calculation can be found in Exhibit 2 on page E-6. In calculating ROE for the 2016-2018 LTI performance period, certain defined exclusions were made (as listed in Items A through H of Exhibit 2 on page E-7) in accordance with the terms of the plan. As a result, as of December 31, 2018, ROE as calculated in accordance with the terms of the plan was 12.2%. TSR for the 2016-2018 LTI was based on our TSR results for the performance period ranked against the TSR results for the peer group shown below:

 

 

 

 

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TSR for the 2016-2018 LTI is defined as the change in the price of a share of our common stock plus dividends paid, over the relevant performance period, divided by the price of a share of our common stock at the beginning of the performance period. We used an average of the prices of the common stock as reported on the NYSE consolidated transactions tape for the 30 trading days preceding the beginning and end dates to determine the beginning and ending share prices for the performance period to eliminate the effects of any short-term volatility on the stock price.

The table below shows the resulting payouts:

 

 

 

PARTICIPATION IN EXECUTIVE COMPENSATION DECISIONS

ROLE OF THE COMPENSATION COMMITTEE

The Compensation Committee has primary authority for determining the compensation of our executive officers, including our NEOs. Specifically, it:

For a description of the Compensation Committee’s principal functions, see “Board Committees – Compensation Committee” on page 12.

The Compensation Committee normally determines the portion of performance-based incentive awards earned for completed performance cycles at its first regularly scheduled meeting of the calendar year (usually in February) following the end of the applicable performance cycle. During this meeting, the Compensation Committee reviews financial results for the various performance measures for the just-completed annual and long-term performance cycles; certifies the achievement (or non-achievement) of the performance goals; and approves the earned portion of the awards, as appropriate.

 

 

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ROLE OF MANAGEMENT

In determining executive compensation, the Compensation Committee considers input from a number of sources, including executive management. However, our CEO and CPPBO do not play any role in, and are not present for, any discussions regarding their own compensation. Specifically, our CEO and CPPBO provide the Compensation Committee with their views and insight on NEO compensation (other than for themselves), including:

The Compensation Committee views this input as an essential component of the process.

 

ROLE OF THE COMPENSATION CONSULTANT

The Compensation Committee regularly consults with Pay Governance LLC, an independent compensation consultant, for advice regarding compensation practices for our executives. The Compensation Committee has the sole authority to hire or fire any compensation consultant, as well as to establish the scope of the consultant’s work.

During 2018, Pay Governance provided the Compensation Committee with:

Pay Governance does not provide us with any services other than advising the Compensation Committee on executive compensation and the Corporate Governance Committee on director compensation. The Compensation Committee has assessed the independence of Pay Governance pursuant to SEC rules and concluded that no conflict of interest exists.

 

RISK CONSIDERATIONS RELATING TO COMPENSATION

The structure and administration of our compensation programs are designed to, among other objectives, appropriately balance risk and reward. As part of the annual risk assessment of our compensation plans, we identify, analyze and evaluate all of our employee compensation programs to assess any risks these programs might pose. The process includes, but is not limited to:

 

 

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Once the annual assessment is completed, our CFO and the Head of Total Rewards formally review the analysis of our programs and discuss the findings with the Compensation Committee.

 

Some of the features of our compensation programs that limit risk include the following:

For 2018, the Compensation Committee discussed the evaluation and risk assessment review of our compensation programs and confirmed that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on the Company. The risk assessment also highlights other aspects of the administration and oversight of our plans that build considerable risk mitigation into the plans’ organizational structure.

 

 

OTHER COMPENSATION CONSIDERATIONS

Equity Award Procedures. The Compensation Committee formally approves our equity grant procedures, including procedures for granting Options. All Options are granted with a “strike,” or exercise, price set at the closing price of our common stock as reported on the composite transactions table of the NYSE on the grant date. Although the Compensation Committee Chair may approve changes to executive compensation, subject to the Compensation Committee’s review and ratification, only the full Compensation Committee or the Board has the authority to grant equity awards to executive officers.

Although the Compensation Committee typically makes equity award grants during its first regularly scheduled meeting of the calendar year, the Compensation Committee or the Board may also grant equity awards to executives at other regularly scheduled or special meetings, or by taking action through unanimous written consent in order to accommodate special circumstances such as new hires or promotions.

 

 

 

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Tax Considerations. The Internal Revenue Code of 1986, as amended (“IRC”) generally limits a public company’s corporate income tax deduction for compensation to $1 million per year for certain executives. Historically, this limit did not apply to compensation that qualified as “performance-based” under the IRC rules, and in general, we designed our incentive award grants in a manner intended to qualify as performance-based under the IRC rules. However, in certain circumstances, the Compensation Committee may have granted awards or paid compensation that did not qualify as performance-based under the IRC rules.

 

Federal legislation passed on December 22, 2017 repealed the “performance-based” exemption and the limitation on deductibility generally was expanded to include all individuals who are considered NEOs in any year beginning on or after December 31, 2016. As a result, compensation paid to our NEOs in excess of $1 million may not be deductible for taxable years commencing after December 31, 2017, subject to limited transition relief for arrangements in place as of November 2, 2017, the scope of which is uncertain. Further, no assurance can be given that compensation intended to satisfy the requirements for the exemption from IRC Section 162(m) in fact will do so.

 

Despite the change in law, the Compensation Committee intends to continue to implement compensation programs that it believes are competitive and in the best interests of the company and its shareholders. Accordingly, the Compensation Committee may approve compensatory arrangements (including amendments to existing compensatory arrangements) that provide for non-deductible payments or benefits when it determines that such arrangements are consistent with the Company’s business needs and in the best interest of the Company and its shareholders.

 

EMPLOYEE BENEFIT PLANS

We offer our executives some additional benefits not offered to our non-executive employees, in some cases to replace benefits the executives lose as a result of regulatory limits in the broad-based tax-qualified plans. We use these benefits to attract and retain key employees, since our competitors typically offer the same types of benefits.

Our Deferred Compensation Plan. We provide certain benefits to our executive officers, including NEOs, through our nonqualified defined contribution plan — the Lincoln National Corporation Deferred Compensation & Supplemental/ Excess Retirement Plan (the “DC SERP”). For more information on the DC SERP, see page 68.

Change-of-Control Severance Arrangements. We offer our executives a severance plan that provides potential benefits in connection with a change of control of the Company. Payment of benefits under this plan, the Lincoln National Corporation Executives’ Severance Benefit Plan (the “LNC COC Plan”), is triggered when an executive’s employment is terminated (under specific circumstances) in anticipation of or within two years after our change of control. The objectives of the change-of-control benefits are to:

 

Each year the Compensation Committee reviews a tally sheet prepared by their independent compensation consultant that estimates for each NEO the benefits associated with a potential change of control of the Company and the cost of those benefits to us. For 2018, the Compensation Committee found that the estimated costs for these benefits would be reasonable. For more information on the LNC COC Plan, see page 70.

 

 

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Severance Plans. We also offer our NEOs and our other executive officers a severance plan in the event their jobs are eliminated, other than in connection with our change of control. The plan pays 78 weeks of severance benefits. To qualify for benefits under this plan (The Severance Plan for Officers of Lincoln National Corporation (the “Officers’ Severance Plan”)), the officer must sign our standard form of agreement, waiver and release of claims, which includes forfeiture provisions for competition and solicitation. Any payments made under the Officers’ Severance Plan reduce, on a dollar-for-dollar basis, any payments the officer receives under the LNC COC Plan. For more information on the Officers’ Severance Plan, see page 71.

 

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed this Compensation Discussion & Analysis with management and has recommended to the Board that the Compensation Discussion & Analysis be included in this proxy statement and incorporated by reference into the Company’s 2018 Form 10-K.

The Compensation Committee

William H. Cunningham

Eric G. Johnson

Michael F. Mee

Patrick S. Pittard, Chair

 

 

 

 

 

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EXECUTIVE COMPENSATION TABLES

 

SUMMARY COMPENSATION TABLE

The table below shows the compensation of our NEOs for 2018. See “Narrative to Summary Compensation Table” below for more information.  

 

 

The table below shows the grant date fair value of the RSUs and PSAs, as well as the value of the PSAs assuming the maximum level of performance (200% of target) is achieved under both the ROE and TSR performance measures described on page 50. The grant date fair value for the PSAs was calculated in accordance with Topic 718 using a performance factor of 1.1483. The stock awards granted in 2018 are described in more detail in the Grants of Plan-Based Awards table on page 62.

 

 

 

 

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(a) For Mr. Glass, the amount reflects the aggregate incremental cost of personal use of the corporate aircraft. Mr. Glass generally uses the corporate aircraft for personal use only when necessary to accommodate his business schedule.

More information regarding perquisites and personal benefits, including a discussion of how we value personal use of the corporate aircraft, can be found under “Narrative to the Summary Compensation Table” on page 61.

(b) Represents Company matching contributions under the LNC Employees’ 401(k) Savings Plan (the “Employees’ 401(k) Plan”).  Beginning in 2018, the Company changed the timing of its core contributions to the Employees’ 401(k) Plan to the first quarter after the end of the plan year. As a result, there are no Company core contributions for the 2018 plan year reflected in the table above.

 

 

 

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NARRATIVE TO SUMMARY COMPENSATION TABLE

2018 Annual Incentive Program

For the 2018 AIP, the dollar amounts included in the Summary Compensation Table for each of our NEOs reflect the performance results for this program as certified by the Compensation Committee in February 2019. These results triggered a payout above target for each NEO. For more details on the 2018 AIP, including the performance measures, targets and final results, see the CD&A, pages 44 to 48.

Perquisites and Personal Benefits

Below are the primary perquisites and personal benefits we offered our NEOs in 2018, not all of which were actually received by each NEO:

Financial Planning and Tax Preparation Services. We offer to reimburse our NEOs, along with other officers, up to $3,900 annually for financial-planning services and up to $2,700 annually for tax-preparation services provided by a certified public accountant other than Ernst & Young, our accounting firm. For the financial-planning services, we reimburse the first $1,800 of such services, plus 50% of costs above that amount up to a $6,000 cost maximum. Any unused portion of the $2,700 tax-preparation reimbursement may be applied to supplement the $3,900 financial-planning reimbursement, but not vice versa.

Personal Use of the Corporate Aircraft. Since 2005, the Board has advised our CEO to use the corporate aircraft for both business and personal travel, when practical, because of security concerns and to maximize his time devoted to our business. If an executive (and any guests of the executive) uses the corporate aircraft for personal purposes, we treat this usage as a perquisite for proxy-statement reporting purposes and calculate the value of such services based on the total incremental cost to us. For personal flights, that cost is based on a cost-per-flight-hour charge that reflects the operating costs of the aircraft, including regularly required maintenance, inspections and related fees/taxes. We also include as an incremental cost any flights required to reposition the corporate aircraft (i.e., dead-head flights) because of a personal flight. When executives, their families and invited guests fly on the corporate aircraft as additional passengers on business flights, there is no incremental cost. Finally, if more than one executive is on a personal flight, we allocate the incremental cost on a proportional basis depending on the number of guests of each executive.

Matching Charitable Gift Program. Under this program, the Lincoln Financial Foundation, Inc. matches gifts from an NEO to one or more eligible recipient organizations, up to an annual total maximum of $10,000, except for Mr. Glass who is also a Director and has a matching gift limit of up to $15,000.

Retirement Benefits

Under the DC SERP, our participating NEOs are eligible for an additional contribution — a “special executive credit” — as a percentage of “Total Pay.” For the purpose of determining the special executive credit, “Total Pay” under the DC SERP means base salary and AIP paid during the fiscal year.

For each NEO, the amount of the special executive credit we contributed to the DC SERP in 2018 was calculated as follows: 15% of Total Pay expressed as a percentage, offset by the total of: (a) the NEO’s maximum basic matching contribution opportunity (6%); plus (b) core contributions (4%); plus (c) transition contributions, if any (up to 8%), as determined under the Employees’ 401(k) Plan, each expressed as a percentage. For more details on the DC SERP, the contributions and the calculations of these amounts, see page 68.

 

 

 

 

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GRANTS OF PLAN-BASED AWARDS

The table below shows the awards granted to our NEOs during 2018 under the ICP.

 

 

 

 

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 NARRATIVE TO GRANTS OF PLAN-BASED AWARDS TABLE

The following terms also apply to these awards:

 

 

 

 

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The table below provides information on unexercised Options, unvested stock awards and unvested equity incentive plan awards for each NEO as of the end of 2018.

 

 

 

 

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The RSU awards include accrued but unpaid dividend equivalents credited in additional RSUs calculated at the normal dividend rate and settled in shares of our common stock only upon distribution of the vested award.

 

 

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OPTION EXERCISES AND STOCK VESTED

The table below provides information on Options exercised and stock awards that vested during 2018.

 

 

 

 

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PENSION BENEFITS

RETIREMENT PLANS

The LNC Retirement Plan. As of December 31, 2007, we converted our retirement program from a defined-benefit to a defined-contribution design. As a result, benefit accruals ceased (i.e., were “frozen”) under the Lincoln National Corporation Retirement Plan for Employees Hired Prior to January 1, 2008 (the “LNC Retirement Plan”), a defined benefit plan.

Excess Retirement Plan. The Lincoln National Corporation Excess Retirement Plan (the “Excess Plan”) paid, or “restored,” benefits that would have been paid under the LNC Retirement Plan if certain limits were not imposed by Sections 401(a) and 415 of the IRC. The Excess Plan calculated benefits using the same formula as the qualified retirement plans that it “restored,” but without the IRC limits. The amount of the qualified retirement benefit payment is then deducted from, or offset against, the benefit calculated under the Excess Plan.

When the LNC Retirement Plan was “frozen,” the Excess Plan was also “frozen.” In addition, if the Company undergoes a change of control, no enhanced benefits are payable under the Excess Plan.

The following table shows the present value of the “frozen” accrued benefit, as of December 31, 2018, under the LNC Retirement Plan and the Excess Plan for each of our NEOs who are eligible to participate in these plans.

 

 

 

 

 

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NONQUALIFIED DEFERRED COMPENSATION

We have adopted the DC SERP, a nonqualified plan that permits our NEOs and other eligible employees to defer amounts of salary and annual incentive bonus that cannot be deferred under our tax-qualified Employees’ 401(k) Plan due to the IRC limits.

The amount of eligible compensation (base salary and annual incentive bonus) that employees may contribute to the Employees’ 401(k) Plan is subject to annual plan and IRC limits. For 2018, Lincoln made the following contributions to the Employees’ 401(k) Plan:

Any “core” contributions that cannot be contributed to the Employees’ 401(k) Plan due to plan and/or IRC limits are contributed to the DC SERP. The Company’s “transition contributions” to the Employees’ 401(k) Plan for certain employees based on age and years of service as of December 31, 2007 expired at the end of the 2017 plan year.

SPECIAL EXECUTIVE CREDIT

For all NEOs except Mr. Glass, an additional contribution — a “special executive credit” as a percentage of “Total Pay”—was made to the DC SERP in 2018 for the 2017 plan year.  Mr. Glass did not receive a special executive credit in 2018 because he received a transition credit in excess of 5% under the Employees’ 401(k) Plan in 2017.  

Typically, special executive credits are calculated and credited to the DC SERP by March of the following year. For the purpose of determining the credit, “Total Pay” under the DC SERP is defined as base salary plus annual incentive bonus paid during the fiscal year. For each NEO, the special executive credit contributed in 2018 was calculated as follows: 15% of Total Pay, expressed as a percentage, offset by the total of: (a) the executive officer’s maximum basic matching contribution opportunity (6%); plus (b) core contributions (4%); plus (c) transition contributions, if any, (up to 8%) as determined under the Employees’ 401(k) Plan and the DC SERP, each expressed as a percentage. In accordance with the terms of the DC SERP, effective for the 2018 plan year, the special executive credit will equal 5% of Total Pay for each executive officer as a result of the expiration of the transition contributions.

The special executive credits for our NEOs (contributed in 2018 for the 2017 plan year), expressed as a percentage of Total Pay, were: 2.4% for Mr. Freitag and 5% for each of Mr. Fuller and Mses. Buckingham and Cooper.

Special executive credits vest on the earlier of: five years after becoming eligible to receive special executive credits under the DC SERP; death; eligibility for long-term disability benefits under a Company-sponsored plan; reaching age 62; or upon our change of control. However, executive officers as of January 1, 2008 — including Mr. Glass — were immediately vested in their special executive credits.

ADDITIONAL TERMS OF THE DC SERP

 

 

 

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The table below provides information on each NEO’s deferrals and on contributions we made to the DC SERP on their behalf during 2018. It also shows each NEO’s aggregate balance under the DC SERP as of December 31, 2018.

 

 

 

 

 

 

 

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

The narrative below describes the various termination and change-of-control arrangements applicable to our NEOs that are not broadly available to our employees on a non-discriminatory basis. The narrative is followed by a table showing potential payments each NEO would have received in the event of their termination of employment (voluntary, involuntary or in connection with our change of control) occurring on December 31, 2018.

CHANGE-OF-CONTROL ARRANGEMENTS

All of our executive officers, including our NEOs, are eligible to participate in the LNC COC Plan. NEOs become eligible for benefits under the LNC COC Plan if (either in anticipation of or within two years after our change of control):

If the conditions for payment under the LNC COC Plan are met, the Company would make a cash payment to the NEO based on a multiple of “annual base salary” and “target bonus.” For purposes of the LNC COC Plan:

The amounts payable under the LNC COC Plan would be determined as follows:

 

Benefits offered under the LNC COC Plan do not include any tax “gross ups” to cover any excise tax amounts deemed to be “excess parachute payments” under IRC Section 280G.

 

 

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In addition to the cash payment, our NEOs would receive the following additional benefits and benefit enhancements under the LNC COC Plan:

NEOs in the LNC COC Plan may be eligible to receive payments under the LNC Severance Pay Plan or other severance arrangements (as described below). However, any payments they receive under those plans would reduce, on a dollar-for-dollar basis, the amount of any cash payment they receive under the LNC COC Plan.

As a condition to an NEO’s receiving payments or benefits, the LNC COC Plan imposes non-disparagement and confidentiality obligations, as well as a non-solicitation obligation for two years following termination of the executive’s employment.

CHANGE-OF-CONTROL FEATURES OF OTHER PLANS AND PROGRAMS

Options and RSUs

Unvested grants of Options and RSUs will vest and become either immediately exercisable or non-forfeitable only upon: (i) our change of control; and (ii) either: (a) termination of the executive’s employment for any reason other than “cause;” or (b) the executive’s termination of his or her employment for “good reason.” In addition, the Compensation Committee may determine whether outstanding PSAs will be paid in shares immediately upon our change of control, including the discretion as to whether to pay at target or maximum.

Severance Plans

We sponsor the Officers’ Severance Plan, which provides 78 weeks of severance benefits to our executive officers, including our NEOs, except our CEO, who is not eligible for the plan. Payments of these benefits begin no earlier than six months after the date the officer’s job was eliminated.

To qualify for benefits under the Officers’ Severance Plan, an officer must sign our standard form of agreement, waiver and release of claims, which includes forfeiture provisions for competition and solicitation, among other conditions.

All officers, including NEOs, also participate in the LNC Severance Pay Plan, a broad-based severance plan available to all employees on an equal basis, with benefits triggered by job elimination or job restructuring.

 

 

Deferred Compensation Plan

Upon our change of control, our NEOs will receive the following benefit enhancements under the DC SERP:

 

 

 

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POTENTIAL PAYMENTS TABLE

The following table shows potential payments to each NEO if the NEO’s employment were terminated as a result of:

Please note the following regarding the amounts in the table:

Long-term incentive compensation reflects equity-based awards that had not yet vested on the date of a termination event for which vesting continues post-termination or is accelerated as a result of the termination event. All awards held by each NEO at December 31, 2018, that would have become vested and/or exercisable upon a termination event are shown at a value using the closing price of our common stock on December 31, 2018, which was $51.31. In general, vesting occurs as follows:

 

The following table excludes benefits — such as accrued vacation pay, distributions from the Employees’ 401(k) Plan, disability benefits, and life insurance benefits equal to one times salary — that all employees are eligible to receive on the same basis.

 

 

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Amounts in the table are estimates based on a hypothetical termination on December 31, 2018.

 

 

 

 

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CEO PAY RATIO

Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, require companies to disclose certain information about the annual total compensation of our employees and the annual total compensation of our CEO, Mr. Dennis Glass.  

 

Median Employee Identification Process

 

To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee and our CEO, we took the following steps:

 

Calculation of the Pay Ratio

 

Once we identified our median employee, we combined all of the elements of such employee’s compensation for 2018 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $70,828. With respect to the total annual compensation of our CEO, we used the amount reported in the “Total” column of our 2018 Summary Compensation Table on page 59 of this proxy statement.

 

Pay Ratio

 

For 2018, our last completed fiscal year:

 

Based on this information, for 2018 the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was 204 to 1.

 

The above pay ratio and annual total compensation amount are reasonable estimates that have been calculated using methodologies and assumptions permitted by SEC rules. We note that the ratio and total compensation amount may not be directly comparable to those of other companies because the methodologies and assumptions used to identify the median employee and determine that employee’s total compensation, the composition and location of the workforce, and other factors may vary significantly among companies.

 

 

 

 

 

 

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ITEM 4 | SHAREHOLDER PROPOSAL REGARDING INDEPENDENT BOARD CHAIRMAN

 

We expect the following proposal (Proposal 4 on the proxy card and voting instruction card) to be presented by a shareholder at the Annual Meeting. In accordance with SEC rules, the shareholder proposal is presented below as submitted by the shareholder. The Company disclaims all responsibility for the content of the proposal and the supporting statement, including other sources referenced in the supporting statement. Names, addresses and shareholdings of the shareholder proponent will be supplied promptly upon oral or written request made to the Corporate Secretary.

 

RESOLUTION PROPOSED BY SHAREHOLDER:

 

PROPOSAL 4 – INDEPENDENT BOARD CHAIRMAN

 

Shareholders request our Board of Directors to adopt as policy, and amend our governing documents as necessary, to require henceforth that the Chair of the Board of Directors, whenever possible, to be an independent member of the Board. The Board would have the discretion to phase in this policy for the next Chief Executive Officer transition, implemented so it does not violate any existing agreement.

 

If the Board determines that a Chairman, who was independent when selected is no longer independent, the Board shall select a new Chairman who satisfies the requirements of the policy within a reasonable amount of time. Compliance with this policy is waived if no independent director is available and willing to serve as Chairman. This proposal requests that all the necessary steps be taken to accomplish the above.

 

Caterpillar is an example of a company changing course and naming an independent board chairman. Caterpillar had opposed a shareholder proposal for an independent board chairman at its annual meeting. Wells Fargo also changed course and named an independent board chairman.

 

An independent Chairman is best positioned to build up the oversight capabilities of our directors which appear to be compromised as our stock fell from $75 to $63 in the year leading up to the submittal of this proposal.

 

For instance 3 directors had 17 to 33-years long-tenure:

Michael Mee  17-years Eric Johnson  20-years Leanne Lachman  33-years

 

Long-tenure can impair the independence of a director no matter how well qualified. Independence is a priceless attribute in a director.

 

Directors Deirdre Connelly, Leanne Lachman, Lynn Utter and Michael Mee owned zero voting shares and yet are paid about $40,000 a week for the time they devote to Lincoln National.

 

Mr. Mee was on the Executive Pay Committee and Dennis Glass had an annual paycheck of $22 million.

 

Meanwhile there are challenges like the following that face our company that need to be managed well and prevented from reoccurring that could be helped by having an independent chairman to run the Board of Directors:

 

Putative Class Action lawsuits over alleged overcharges of universal life insurance policies, Pennsylvania October 2018

 

Putative Class Action over alleged unjust enrichment from excessive cost of insurance for universal life insurance policies, New York
June 2018

 

An independent Chairman is best positioned to build up the oversight capabilities of our directors while our CEO addresses the challenging day-to-day issues facing the company. The roles of Chairman of the Board and CEO are fundamentally different and should not be held by the same person. There should be a clear division of responsibilities between these positions to insure a balance of power and authority on the Board.

 

Please vote yes:
Independent Board Chairman - Proposal 4

 

 

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OUR RESPONSE – STATEMENT IN OPPOSITION TO PROPOSAL:

 

The Board has carefully reviewed the foregoing proposal and unanimously recommends a vote AGAINST this proposal because we believe it is not in the best long-term interests of the Company and its shareholders. The Board agrees with the importance of a strong independent Board to represent the interests of shareholders, and all of our current directors, except our CEO, are independent.  Moreover, the Board agrees with the importance of strong independent leadership on the Board and has had an independent director serving in the Chairman role since 2007. However, the Board believes that formally separating the roles of CEO and Chairman, as proposed by the proposal’s unnecessarily rigid requirement, is not necessary to ensure a strong independent board of directors, and we believe that it is in the best interests of our shareholders to retain flexibility to determine the optimal leadership structure at any given time. The Board’s determination as to the appropriate Board leadership structure is part of the regular Board succession planning process, and the Board’s determination as to who should serve as the Board Chairman is based on the qualifications of the director and the best interests of the Company at that time. In addition, we believe that the independence of our key committees and other strong corporate governance practices ensure and encourage independent oversight.

 

Since 2007, we have continuously had an independent director serving in the Chairman role.

 

Under our Corporate Governance Guidelines, the majority of our Board is required to be “independent” as defined by SEC rules and NYSE listing standards, and all of our current directors have been determined to be independent with the exception of our CEO, Mr. Glass. The Board elects its Chairman annually, and, for each of the last 12 years, our Board has elected an independent director to serve as Board Chairman.  

 

We have currently separated the roles of CEO and Chairman. 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 the 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. However, as discussed further below, the Board has no set policy requiring that the Chairman be an independent member of the Board nor that the offices of CEO and Chairman be separate. The Board believes that the decision on whether to separate these roles should be part of the Company’s regular Board succession planning process and be made based on the best interests of the Company.

 

We believe a flexible leadership structure is the most effective for the Company and its shareholders.

 

The Board values the flexibility of selecting the structure of leadership best suited to meet the needs of the Company and its shareholders. Given the constantly evolving and dynamic business and economic environment in which we operate, the Board believes that the right leadership structure may vary as circumstances warrant.

 

Under the Company’s Corporate Governance Guidelines, the Board is permitted to change its leadership structure if it determines that doing so is appropriate and in the best interests of the Company and its shareholders at a given time. The Board carefully considers the merits of separating or combining the Chairman and CEO positions, including whether the Chairmanship should be held by an independent director, whenever a CEO change occurs or the Chairman is elected. The Guidelines also provide the flexibility for the Board to designate a Lead Director from among the outside directors if it has not elected a non-executive Chairman. The Lead Director role is empowered under the Guidelines with the same functions as the non-executive Chairman role.

 

The Board believes that the decision as to who will serve as Chairman, including whether to separate or combine the roles of Chairman and CEO, should be based on the unique circumstances and challenges confronting the Company at any given time, as well as the individual skills and experiences that may be required in an effective Chairman at that time. Eliminating the flexibility to select a structure of leadership, as the proponent requests, based on the facts and circumstances presented at a particular point in time is unnecessarily rigid.

 

 

 

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The Board’s Audit, Compensation, Corporate Governance and Finance Committees are comprised entirely of independent directors.

 

Furthermore, the primary oversight of key financial, accounting, compensation and governance matters for the Company is entrusted to Board committees comprised of independent directors. Each of the Audit Committee, the Compensation Committee, the Corporate Governance Committee, and the Finance Committee are required by their charters to be comprised solely of independent directors and, as such, each committee is chaired by an independent director. These committees play a critical role in our governance and strategy, and each committee has access to management and the authority to retain independent advisors as it deems appropriate.

 

We employ a number of other strong corporate governance practices that ensure independent oversight and viewpoints.

A fixed policy requiring an independent Board Chairman is also unnecessary given the Company’s other strong corporate governance practices that encourage independent oversight and viewpoints, including:

In light of the Board’s more than decade-long history of having an independent Chairman, the independence of our key Board committees and our other strong corporate governance practices, coupled with the Board’s belief that a flexible leadership structure is the most effective for the Company and our shareholders, the Board believes that the proposal is unnecessarily rigid, and that its adoption is not in the best long-term interests of our shareholders.

 

 

 

 

 

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ITEM 5 | SHAREHOLDER PROPOSAL REGARDING AMENDING SHAREHOLDER PROXY ACCESS

 

We expect the following proposal (Proposal 5 on the proxy card and voting instruction card) to be presented by a shareholder at the Annual Meeting. In accordance with SEC rules, the shareholder proposal is presented below as submitted by the shareholder. The Company disclaims all responsibility for the content of the proposal and the supporting statement, including other sources referenced in the supporting statement. Names, addresses and shareholdings of the shareholder proponent will be supplied promptly upon oral or written request made to the Corporate Secretary.

 

 

RESOLUTION PROPOSED BY SHAREHOLDER:

 

PROPOSAL 5 – ENHANCE SHAREHOLDER PROXY ACCESS

 

RESOLVED: Stockholders ask the board of directors to amend its proxy access bylaw provisions and any associated documents, to include the following change:

A shareholder proxy access director candidate shall not need to obtain a specific percentage vote in order to qualify as a shareholder proxy access director candidate at any future shareholder meeting.

 

This proposal is important because a shareholder proxy access candidate might not obtain the current required 25%-vote (and thus be unfortunately disqualified the following year under our current rule) even if he or she is better qualified than certain existing directors.

 

Shareholders may simply believe that at the time of the annual meeting that the company is not ready for a proxy access candidate and hence may not support the candidate because the timing is not right.

 

A year later a majority of shareholders might determine that circumstances have changed and the timing is right. Hence shareholders should be able to vote for such a highly qualified candidate.

 

The following are just a few of the scores of companies that do not require a proxy access director candidate to obtain a specific percentage vote in order to be a candidate the following year:

 

Citigroup (C)

eBay (EBAY)

FedEx (FDX)

Goodyear (GT)

Home Depot (HD)

 

Stockholder proposals such as this have taken a leadership role in improving the governance rules of our company. After receiving shareholder proposals Lincoln National eliminated the need for shareholders to obtain 75%-votes on certain important issues (2017), adopted a rudimentary right for shareholder proxy access for shareholder-nominated directors (2017) and adopted a right for 10% of shares to call for a special meeting (2018).

 

Please vote yes:

Enhance Shareholder Proxy Access - Proposal 5

 

 

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OUR RESPONSE – STATEMENT IN OPPOSITION TO PROPOSAL:

 

The Board has carefully reviewed the foregoing proposal and unanimously recommends a vote AGAINST this proposal because we believe it is not in the best long-term interests of the Company and its shareholders. As discussed below, we have already adopted proxy access bylaws for our shareholders that we believe are aligned with current best practices, providing shareholders with meaningful and appropriate proxy access rights, and we believe that such rights strike the appropriate balance between the benefits and risks of proxy access. The proposal seeks the adoption of a provision that would unnecessarily disrupt that balance by increasing the potential for proxy access misuse and the imposition of administrative burden and expense in connection with a nominee who has demonstrated a lack of meaningful shareholder support. In addition, we believe that the Company’s overall corporate governance reflects best practices and provides shareholders with meaningful rights to communicate their views and ensure Board accountability and responsiveness to shareholders.

 

We have already adopted proxy access bylaws that we believe are aligned with best practices and strike the appropriate balance between providing shareholders with meaningful proxy access rights while balancing the interests of all of our shareholders.

 

In January 2017, the Board adopted proxy access bylaws, which permit a shareholder (or a group of up to 20 shareholders) owning, continuously for at least three years, shares of our outstanding common stock representing at least 3% of the vote entitled to be cast on the election of directors, to nominate and include in our proxy materials director candidates constituting up to 20% of the Board. We believe that our proxy access bylaws are consistent with market practice and strike the appropriate balance between providing our shareholders with meaningful proxy access rights, on the one hand, and, on the other hand, protecting the interests of all shareholders by mitigating the potential for misuse by individuals whose interests are not aligned with the majority of our shareholders. The change to the Company’s proxy access right requested by this proposal would upset that balance.

 

We have adopted a number of other governance practices and mechanisms that provide shareholders the ability to communicate their views and ensure Board accountability and responsiveness to shareholders.

 

The unnecessary, and potentially shareholder value-destructive, change requested by this proposal should be viewed in light of the Company’s existing corporate governance practices, its demonstrated willingness to discuss Company business with shareholders, and its responsiveness to shareholders. The Company has strong corporate governance practices, provides ample avenues of communication between the Company and its shareholders, and has a proven record of accountability.

 

 

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The Company’s current corporate governance practices reflect the Board’s dedication to being responsive and accountable to shareholders. The Company solicits and values shareholder discussion and input on corporate governance matters, and, together, management and the Board regularly assess and refine the Company’s corporate governance policies and procedures to take into account evolving best practices and to address feedback provided by shareholders and other stakeholders.  

 

In addition to providing for proxy access in our bylaws, the Company has implemented numerous other corporate governance measures to ensure that the Board remains accountable to our shareholders, to provide shareholders with greater influence on the nomination and election of directors, and to afford shareholders the ability to directly communicate their views to the Board and make their views known.  Some of these measures are:

 

In light of the Board’s belief that the Company’s existing proxy access bylaws are aligned with best practices and strike the appropriate balance between the benefits and risks of proxy access, the potential for the proposed proxy access amendment to unnecessarily disrupt that balance by increasing the potential for proxy access misuse and the imposition of increased administrative burden and expense in connection with a nominee who has demonstrated a lack of meaningful shareholder support, and the Board’s demonstrated commitment to strong corporate governance and responsiveness to shareholders, the Board believes that the adoption of this shareholder proposal is unnecessary, and that it is not in the long-term interests of all of our shareholders.  

 

 

 

 

 

 

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

William H. Cunningham, Eric G. Johnson, Michael F. Mee and Patrick S. Pittard served on the Compensation Committee during 2018. No member of the Compensation Committee had any relationship requiring disclosure under the “Related-Party Transactions,” as discussed below, and no member was an employee, officer, or former officer of us or our subsidiaries. In addition, no member of the Board is an executive officer of another entity at which one of our executive officers serves on the Board of Directors.

RELATED-PARTY TRANSACTIONS

Our Corporate Governance Committee has a written policy for reviewing, approving and ratifying transactions with related parties. This policy applies to any transaction or proposed transaction that we must disclose publicly to comply with SEC rules, and it requires that the Corporate Governance Committee (or the full Board) pre-approve or ratify such transactions. In approving or ratifying any transaction or proposed transaction, the Corporate Governance Committee must determine that the transaction is fair and reasonable to Lincoln and otherwise complies with our policy on conflicts of interest. This policy does not require the Corporate Governance Committee to obtain a fairness opinion or other third-party support for its actions, although it has discretion to do so. If the Corporate Governance Committee does not ratify a transaction with a related party, Lincoln and/or the related party must make all reasonable efforts to terminate or unwind the transaction.

The policy does not apply to transactions in which we, our subsidiaries or affiliated planners provide insurance, annuities, mutual funds or similar products, or financial services on terms and conditions substantially similar to those available to similarly situated third parties in arm’s-length transactions. This exception also applies to products and services provided to or by an entity of which a related person is an executive officer or employee, provided that the related person receives the same benefits generally available to employees having an equivalent title at the other entity.

BlackRock, Inc. (“BlackRock”), acting in various fiduciary capacities, filed a Schedule 13G/A with the SEC, reporting that as of December 31, 2018, BlackRock beneficially owned approximately 8.4% of our outstanding common stock. In the ordinary course of business, our subsidiaries have agreements with subsidiaries of BlackRock to distribute, and include in certain of our products, BlackRock funds.  In 2018, our subsidiaries recorded revenues of approximately $11.0 million from BlackRock subsidiaries under these agreements. In addition, BlackRock provides sub-advisory and investment management services to our subsidiaries. For 2018, our subsidiaries paid BlackRock approximately $5.5 million in the aggregate for these services.

JPMorgan Chase & Co. (“JPMorgan”), acting in various fiduciary capacities, filed a Schedule 13G with the SEC, reporting that as of December 31, 2018, JPMorgan beneficially owned approximately 5.0% of our outstanding common stock. In the ordinary course of business, our subsidiaries have agreements with subsidiaries of JPMorgan to distribute, and include in certain of our products, JPMorgan funds. In 2018, our subsidiaries recorded revenues of approximately $3.8 million from JPMorgan subsidiaries under these agreements. In addition, JPMorgan provides sub-advisory services to our subsidiaries. For 2018, our subsidiaries paid JPMorgan approximately $5.5 million for these services.

The Vanguard Group (“Vanguard”), acting in various fiduciary capacities, filed a Schedule 13G/A with the SEC, reporting that as of December 31, 2018, Vanguard beneficially owned approximately 10.86% of our outstanding common stock. In the ordinary course of business, our subsidiaries have agreements with subsidiaries of Vanguard to distribute certain Vanguard products, including mutual funds. In 2018, our subsidiaries recorded revenues of approximately $132,000 from Vanguard subsidiaries.

 

 

 

 

 

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SECURITY OWNERSHIP

 

SECURITY OWNERSHIP OF MORE THAN 5% BENEFICIAL OWNERS

Our common stock trades on the NYSE under the symbol “LNC.” We have no other types of stock outstanding. The following table lists persons or entities that, to the best of our knowledge, were beneficial owners of more than 5% of our common stock as of December 31, 2018. The information shown is based solely on our review of Schedules 13G filed with the SEC.

 

 

 

 

 

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SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS

The following table shows the number of shares of common stock and stock units beneficially owned on March 15, 2019, by each director, director nominee and NEO, individually, and by all directors and executive officers as a group. LNC Stock Units are non-voting, non-transferable “phantom” stock units that track the economic performance of our common stock; a unit has the same value as a share of our common stock.

 

 

 

 

 

 

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ANNUAL MEETING INFORMATION

 

You received a copy of this proxy statement (or a notice of internet availability of proxy materials) because you owned shares of our stock on March 20, 2019, the record date, and that entitles you to vote at the Annual Meeting. This proxy statement describes the matters to be voted on at the meeting and provides information on those matters. It also provides certain information about the Company that we must disclose to you when the Board solicits your proxy.

 

The SEC allows us to provide access to proxy materials via the internet rather than mailing a printed copy to each shareholder. Most shareholders received a notice of internet availability, which explains how to access the proxy materials on the internet and how to vote using the internet.

 

The notice of internet availability (the “Notice”) contains instructions on how to obtain a paper copy of all proxy materials — including our proxy statement, our 2018 annual report and a proxy card form. If you would like to receive paper copies of our proxy materials, please follow the instructions in the Notice and submit your request by May 12 to ensure that you receive the materials before the Annual Meeting.

 

If you hold shares registered in your name, you may sign up at www.proxypush.com/lnc to receive access to the proxy material over the internet for future meetings, rather than receiving mailed copies. If you chose internet access, you will receive an email notifying you when the 2018 annual report to shareholders and this proxy statement are available, with links to access the documents on a website with instructions on how to vote via the internet. Your enrollment for internet access will remain in effect for subsequent years, although you can cancel it up to two weeks prior to the record date for any annual meeting.

If you hold your shares in “street name,” you may be able to obtain internet access to proxy materials by contacting your broker, bank or other intermediary.

 

You are being asked to:

1. elect eleven directors for a one-year term expiring at the 2020 Annual Meeting of Shareholders;

2. ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm for 2019;

3. approve an advisory (non-binding) resolution on the compensation of our named executive officers;

4. respond to an advisory shareholder proposal regarding the amendment of our governing documents to provide an independent chair of the board; and

5. respond to an advisory shareholder proposal regarding an amendment to our proxy access bylaw.

The Board recommends that you vote FOR agenda items 1, 2 and 3, and AGAINST agenda items 4 and 5.

While it is possible that other matters could come up for voting at the meeting, the Board is not aware of any other matters at present.

 

 

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If you attend the Annual Meeting, you will be asked to present valid, government-issued photo identification, such as a driver’s license. If you are a holder of record, the top half of your proxy card or your Notice is your admission ticket. If you hold your shares in street name, you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or a letter from your bank or broker are examples of proof of ownership. If you want to vote your shares held in street name in person, you must get a legal proxy in your name from the broker, bank or other nominee that holds your shares, and submit it with your vote.

Attendance at the Annual Meeting is limited to shareholders of the Company as of the record date (March 20, 2019). Each shareholder may appoint only one proxy holder or representative to attend the Annual Meeting on his or her behalf.

 

Only shareholders of record at the close of business on March 20, 2019, the record date for the meeting, are entitled to vote at the Annual Meeting.

 

A majority of all outstanding shares entitled to vote at the Annual Meeting constitutes a quorum, which is the minimum number of shares that must be present or represented by proxy at the Annual Meeting in order to transact business. As of the record date, we had 204,506,964 shares of common stock, issued, outstanding and entitled to vote at the Annual Meeting. Once a share is counted as present at the Annual Meeting, it will be deemed present for quorum purposes for the entire meeting (and for any meeting resulting from a postponement of the Annual Meeting, unless a new record date is set).

Abstentions and broker non-votes will be counted for purposes of determining whether a quorum is present. Generally, “broker non-votes” occur when brokerage firms return proxies for which no voting instructions have been received and the broker does not have discretionary authority to vote on the proposal.

 

You are entitled to one vote for each share of common stock you own. You will find the number of shares you own (and may vote) on the proxy card or the Notice that you received.

You may vote:

 

 

 

 

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Assuming a quorum is present, a majority of the votes cast by the holders of shares entitled to vote at the annual meeting is required to elect each director, to ratify the appointment of Ernst & Young as our accounting firm, to approve the advisory resolution on the compensation of our NEOs, and to approve the shareholder proposals.

Proposals 3 through 5, including the proposal regarding the approval of our NEOs’ compensation, are advisory only and not binding on the Board. Any other proposal that is properly presented at the Annual Meeting will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against the proposal.

 

Abstentions: Abstentions will not count as votes cast either for or against a nominee or the proposals set forth in Items 2 through 5.

Unmarked Proxy Cards: If you sign and return a proxy or voting instruction card but do not mark how your shares are to be voted, the individuals named as proxies will vote your shares, if permitted, as the Board recommends.

Broker Non-Votes: If you hold your shares in “street name,” you may instruct your broker how to vote your shares. If you do not provide voting instructions, your shares are referred to as “broker non-votes” and the bank, broker or other custodian may vote your shares, at its discretion, only on the ratification of the appointment of our accounting firm. These broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting for purposes of determining a quorum, but will not be considered in determining the number of votes necessary for approval. Broker non-votes will not count as votes cast either for or against a nominee or the proposals set forth in Items 2 through 5.

 

 

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Yes, you may revoke your proxy or change your vote at any time prior to the Annual Meeting. To do so either:

1. notify our Corporate Secretary in writing that you are revoking your vote;

2. submit a new proxy by mail, telephone or internet; or

3. attend the meeting and vote your shares in person.

 

If you have invested in the LNC Stock Fund of the LNC Employees’ 401(k) Savings Plan, the LNL Agents’ 401(k) Savings Plan, or the LNL ABGA Money Purchase Plan, your voting instructions, whether submitted via telephone or through the internet (as described above), tell the trustee of your plan how to vote the shares of common stock allocated to the plans. If our stock books contain identical account information regarding common stock that you own directly and common stock that you have an interest in through these plans, you will receive a single proxy/voting instruction card representing all shares you own. If you participate in one of these plans and do not provide the trustee with your voting instructions by 11:59 p.m. Eastern Time on May 21, the trustee of the plans will vote the shares allocated to your account in proportion to the shares held by each plan for which voting instructions have been received.

If you participate in our dividend reinvestment plan, your proxy/voting instruction card(s) will also include the number of shares of common stock allocated to your accounts in that plan. To vote your shares in that plan, you must return your proxy/voting instruction card(s) or submit your voting instructions by telephone or over the internet as instructed on your proxy/voting instruction card(s).

 

Our directors, officers and employees, as well as Alliance Advisors, LLC (“Alliance Advisors”), our proxy solicitation firm, may solicit proxies on behalf of the Board in person, by mail, telephone, fax and other electronic means.

 

We pay the cost of soliciting proxies. Our fee to Alliance Advisors to solicit proxies this year is $15,000, plus reasonable expenses. Our directors, officers and employees receive no additional compensation for soliciting proxies. We will reimburse certain brokerage firms, banks, custodians and other fiduciaries for the reasonable mailing and other expenses they incur in forwarding proxy materials to the beneficial owners of stock that those organizations hold of record.

 

 

 

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GENERAL INFORMATION

 

SHAREHOLDER PROPOSALS FOR THE 2020 ANNUAL MEETING

TO BE INCLUDED IN OUR PROXY MATERIALS

If you wish to include a shareholder proposal in the proxy materials for our 2020 Annual Meeting of Shareholders, you must submit the proposal, in accordance with SEC Rule 14a-8, to our Corporate Secretary, who must receive the proposal by December 14, 2019.

In addition, if you wish to include a director nominee in the proxy materials for our 2020 Annual Meeting of Shareholders pursuant to our “proxy access” bylaws, you must meet the requirements set forth in our bylaws and you must submit the materials required by our bylaws within the same time outlined below for director nominations submitted by a shareholder for presentation directly at an annual meeting.  All such proxy access director nominations must satisfy the requirements set forth in our bylaws, a copy of which is available on our website (www.lfg.com) in the “About Us” Section under the “Corporate Governance” header. You may also obtain a hard copy of our bylaws at no cost by contacting our Corporate Secretary.

TO BE PRESENTED IN PERSON AT SHAREHOLDER MEETINGS

Our bylaws set forth advance-notice procedures with respect to proposals and director nominations submitted by a shareholder for presentation directly at an annual meeting, rather than for inclusion in our proxy statement. If you wish to propose a director nominee—or any other matter of business—at an annual shareholder meeting, you must follow the procedures contained in our bylaws, which include notifying the Corporate Secretary at least 90 but not more than 120 days before the first anniversary of the prior year’s annual meeting. Based on this year’s annual meeting date of May 24, 2019, a notice will be considered timely received for the 2020 Annual Meeting of Shareholders if our Corporate Secretary receives it no earlier than January 25, 2020, and no later than February 24, 2020.

If our annual meeting is scheduled to be held more than thirty (30) days before or more than thirty (30) days after the first anniversary of the prior year’s annual meeting, you must give your notice by the close of business on the later of (i) the date 90 days prior to the scheduled annual meeting or (ii) the tenth day following the date that the scheduled annual meeting is first publicly announced or disclosed. All such proposals and director nominations must satisfy the requirements set forth in our bylaws, a copy of which is available on our website (www.lfg.com) in the “About Us” section under the “Corporate Governance” header. You may also obtain a hard copy of our bylaws at no cost by contacting our Corporate Secretary.

If any such matter is brought before the meeting in accordance with our bylaws, the individuals identified on the proxy card may, if the matter will be voted on, vote the shares represented by proxies at their discretion in the manner they believe to be in our best interests. However, the person presiding at a meeting of shareholders (the Chairman) is authorized by the bylaws to determine whether the proposed business was properly brought before the meeting or was lawful or appropriate for consideration at the meeting or whether a nomination for director was properly made. If the Chairman determines that any of these requirements was not met, then the proposed business shall not be transacted or the defective nomination shall be disregarded.

 

INCORPORATION BY REFERENCE

To the extent that this proxy statement has been or will be specifically incorporated by reference into any of our other filings under the Securities Act of 1933 or the Exchange Act, the sections of this proxy statement entitled “Audit Committee Report” and “Compensation Committee Report” shall not be deemed to be so incorporated, unless specifically provided otherwise in such filing.

 

 

 

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COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING

Section 16(a) of the Exchange Act requires that our directors, certain officers, and those who are beneficial owners of more than 10% of our stock file reports of their holdings and transactions with the SEC and the NYSE. Based on statements from our directors and our officers subject to Section 16, as well as a review of the reports filed for transactions during 2018, we believe that each of our directors and officers subject to Section 16 met all applicable filing requirements, except for Ms. Connelly and Mr. Fuller. Ms. Connelly had one late filing in 2018 disclosing one transaction. Mr. Fuller inadvertently failed to disclose on a timely basis the disposition of an aggregate of 839 shares of our stock that he gifted in six transactions that occurred between April 2013 and June 2017. Mr. Fuller reported these transactions on a Form 5 filed with the SEC on February 14, 2019.

 

ANNUAL REPORT

You may request a printed copy of our Annual Report on Form 10-K, at no charge, by writing to: Corporate Secretary, Lincoln National Corporation, 150 N. Radnor Chester Road, Radnor, PA 19087. In addition, you can access our Form 10-K and other reports on the SEC’s website at www.sec.gov and on our website at www.lfg.com.

HOUSEHOLDING

SEC rules allow a single copy of the proxy materials or the Notice to be delivered to multiple shareholders sharing the same address and last name, or who we reasonably believe are members of the same family and who consent to receive a single copy of these materials in a manner provided by these rules. This practice is referred to as “householding” and can result in significant savings of paper and mailing costs.

Because we are using the SEC’s notice and access rule, we will not household our proxy materials or notices to shareholders of record sharing an address. This means that shareholders of record who share an address will each be mailed a separate notice or paper copy of the proxy materials. However, we understand that certain brokerage firms, banks, or other similar entities holding our common stock for their customers may household proxy materials or notices. Shareholders sharing an address whose shares of our common stock are held by such an entity should contact such entity if they now receive (1) multiple copies of our proxy materials or Notices and wish to receive only one copy of these materials per household in the future, or (2) a single copy of our proxy materials or Notice and wish to receive separate copies of these materials in the future. Additional copies of our proxy materials are available upon request by writing to: Corporate Secretary, Lincoln National Corporation, 150 N. Radnor Chester Road, Radnor, PA 19087.

 

ADDITIONAL VOTING MATTERS

The Board is not aware of any matters that will be presented for action at the Annual Meeting other than those mentioned in this proxy statement. However, if any other matter should properly come before the meeting, the persons authorized by the accompanying proxy will vote and act with respect to such matter(s) in what they believe to be in the best interests of the Company and its shareholders.

A list of shareholders entitled to vote at the Annual Meeting will be available for examination at the Annual Meeting.

For the Board of Directors,

Nancy A. Smith

Senior Vice President & Secretary

April 12, 2019

 

 

 

 

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RECONCILIATION OF NON-GAAP MEASURES

DEFINITIONS OF NON-GAAP MEASURES USED IN THIS PROXY STATEMENT

 

Adjusted income (loss) from operations, adjusted operating revenues and adjusted operating return on equity (including and excluding average goodwill within average equity), excluding accumulated other comprehensive income (loss) (“AOCI”), using annualized adjusted income (loss) from operations are financial measures we use to evaluate and assess our results. Adjusted income (loss) from operations, adjusted operating revenues and adjusted operating return on equity (“ROE”), as used in this proxy statement, are non-GAAP financial measures and do not replace GAAP net income (loss), revenues and ROE, the most directly comparable GAAP measures.

 

Adjusted Income (Loss) from Operations

 

We exclude the after-tax effects of the following items from GAAP net income (loss) to arrive at adjusted income (loss) from operations:

 

 

 

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Adjusted Operating Revenues

 

Adjusted operating revenues represent GAAP revenues excluding the pre-tax effects of the following items, as applicable:

 

Adjusted Operating Return on Equity

 

Adjusted operating return on equity measures how efficiently we generate profits from the resources provided by our net assets.

 

Book Value Per Share Excluding AOCI

 

Book value per share excluding AOCI is calculated based upon a non-GAAP financial measure.

 

Special Note Regarding Sales

 

Sales as reported consist of the following:

 

 

 

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A reconciliation of book value per share to book value per share excluding AOCI as of December 31, 2018, 2017 and 2016, is presented below.

 

 

 

 

 

 

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DEFINITIONS FOR INCENTIVE COMPENSATION PROGRAMS

 

2018 AIP

For the 2018 AIP, “Income from Operations” is defined as set forth below. Unless as otherwise defined, all terms shall have the meaning set forth in our Annual Report on Form 10-K for the year ended December 31, 2018.

Income from Operations means Net Income, exclusive of the items listed below (all net-of-tax):

In addition, for calculating Income from Operations for the 2018 AIP the following items will be excluded from Income from Operations, all net of tax, if any occur in the relevant performance period:

 

 

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For the 2018 AIP, “Income from Operations per Diluted Share” is defined as the sum of Income from Operations as defined above divided by the average diluted shares. The calculation of Income from Operations per Diluted Share will exclude the dilutive effect resulting from the accounting for the LNC stock component of the Company’s Deferred Compensation plan.

2016 LTI

For the 2016 LTI Program, Return on Equity (“ROE”) was defined as follows:

Income from Operations, as defined below, divided by average Shareholders’ Equity for the relevant period. Shareholders’ Equity excludes Accumulated Other Comprehensive Income or other similar items and excludes the increase in equity due to goodwill associated with an acquisition during the performance period. ROE was calculated as of December 31, 2018, using the average of the beginning and ending common shares outstanding for 2018.

Income from Operations is defined as net income for the relevant performance period in accordance with generally accepted accounting principles, all net of tax if any occur in the relevant period:

 

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In addition, for calculating Income from Operations for the 2016 LTI Program the following items will be excluded from Income from Operations, all net of tax if any occur in the relevant performance period:

 

 

 

 

 

 

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