UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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Unum Group
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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NOTICEOF ANNUAL MEETING
AND
PROXY STATEMENT
ANNUAL MEETINGOF SHAREHOLDERS
THURSDAY, MAY 24, 2012
2211 CONGRESS STREET, PORTLAND, MAINE
April 12, 2012
Dear Fellow Shareholder:
On behalf of the Board of Directors and all of the employees of Unum, it is my pleasure to invite you to our 2012 Annual Meeting of Shareholders on Thursday, May 24, 2012. This year’s meeting will be held at 10:00 a.m. Eastern Time at our corporate offices located at 2211 Congress Street in Portland, Maine.
At this year’s meeting, you will be asked to elect four directors for terms expiring in 2015, cast an advisory vote to approve executive compensation, approve our Stock Incentive Plan of 2012, and ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2012. Shareholders will also consider any other business that may properly come before the meeting.
Each of the scheduled voting items is described in the accompanying proxy statement. The Board of Directors recommends that you vote in favor of each voting item.
For more information on attending the meeting, voting eligibility and how to cast a vote on these items, please review the sections of the accompanying proxy statement entitled “About this Proxy Statement” and “About the Annual Meeting” that begin on pages 11 and 133, respectively.
Your vote is important. Whether or not you plan to attend the meeting, I hope you will vote as soon as possible.
Thank you for your support of Unum. We look forward to seeing you at the meeting.
Sincerely,
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April 12, 2012
Notice of 2012 Annual Meeting of Shareholders
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Susan N. Roth
Vice President, Transactions, SEC and Corporate Secretary
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Ratification of Appointment of Independent Registered Public Accounting Firm | 84 | |||
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Appendix A: | A-1 | |||
This summary highlights information contained in this Proxy Statement. The summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting.
Voting Items and Recommendations
Item No. | Voting Item | Board Vote Recommendation | Page Reference (for more detail) | |||
1 | Election of four directors for terms expiring in 2015 | FOR EACH NOMINEE | 13 | |||
2 | Advisory vote to approve executive compensation | FOR | 13 | |||
3 | Vote on approval of the Stock Incentive Plan of 2012 | FOR | 14 | |||
4 | Ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm for 2012 | FOR | 25 |
Director Nominees for Terms Expiring in 2015
Name | Age | Director Since | Occupation | Independent | Committee Memberships | |||||
Pamela H. Godwin |
63 |
2004 |
President, Change Partners, Inc. |
Yes |
FC – Member GC – Member | |||||
Thomas Kinser | 68 | 2004 | Former President and CEO, BlueCross BlueShield of Tennessee | Yes | AC – Member HCC – Member | |||||
A.S. (Pat) MacMillan, Jr. | 68 | 1995 | CEO, Triaxia Partners, Inc. | Yes | HCC – Chair RCC – Member | |||||
Edward J. Muhl | 67 | 2005 | Former National Leader of the Insurance Regulatory Advisory Practice, PriceWaterhouseCoopers | Yes | HCC – Member RCC – Member |
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Advisory Vote to Approve Executive Compensation
Our Board of Directors unanimously recommends that shareholders vote to approve, on an advisory basis, the compensation of the company’s named executive officers, as disclosed in this Proxy Statement. We believe our compensation programs and practices carry out our philosophy of aligning pay with performance and attracting and retaining top talent. A substantial percentage of the total compensation of our named executive officers is “at risk” as it is contingent on the achievement of individual performance objectives and corporate performance targets that the Human Capital Committee and Board of Directors believe promote the creation of shareholder value and position the company for long-term success. Our discussion of executive compensation begins on page 55.
Stock Incentive Plan of 2012
We are seeking shareholder approval of our Stock Incentive Plan of 2012. Though substantially similar to our current Stock Incentive Plan of 2007, as amended, which was approved by shareholders at our 2007 Annual Meeting, the 2012 plan has been updated to include certain terms (such as “double-trigger” vesting in respect of change in control events) we believe are more representative of current compensation practices in our industry. If the 2012 plan is approved by shareholders:
We may continue to elect to deduct all performance-based compensation paid to certain senior executives, in accordance with Section 162(m) of the Internal Revenue Code, which requires that shareholders approve the material terms of the performance goals under which performance-based compensation is to be paid at least every five years;
New awards pursuant to our existing long-term incentive program will be made under the 2012 plan, and will no longer be made under the 2007 plan; and
We will continue to use our long-term incentive plan to attract, retain and motivate officers, employees, directors and/or consultants, which provides incentives directly linked to shareholder value.
A description of the 2012 plan,furnishing proxy materials, including a summary of material differences from the 2007 plan, begins on page 14.
Independent Registered Public Accounting Firm
We ask that our shareholders ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2012. A summary of Ernst & Young’s fees for services provided in 2011 and 2010 is below. Additional information concerning our independent registered public accounting firm begins on page 49.
Year Ended December 31, | ||||||||
Types of Fees | 2011 | 2010 | ||||||
Audit Fees | $ | 7,608,443 | $ | 7,151,455 | ||||
Audit-Related Fees | 618,579 | 405,450 | ||||||
Tax Fees | 96,662 | 32,695 | ||||||
All Other Fees | – | 119,006 | ||||||
Total | $ | 8,323,684 | $ | 7,708,606 |
You are receiving these materialsproxy statement, in connection with the solicitation of proxies on behalf of the Board of Directors of Unum Group (referred to as “we”, “Unum” or “the company”) to be voted at the Annual Meeting2014 annual meeting of Shareholders on Thursday, May 24, 2012,shareholders of Unum Group (Annual Meeting) and at any adjournment or postponement of the Annual Meeting. The materials are being furnished by Internet or e-mail, or by mail if you have requested this method or it is required. This Proxy Statement and the accompanyingthereof. Our proxy materials are first being mailed and made available electronically to shareholders on or about April 12, 2012.9, 2014.
The
Notice of Annual Meeting will take place at 10:00 a.m. Eastern Time on May 24, 2012, at our corporate offices at 2211 Congress Street, Portland, Maine 04122.
What is included in the company’s proxy materials?
Our proxy materials include thisof Shareholders and 2014 Proxy Statement and our 2011 Annual Report to Shareholders, which includes audited consolidated financial statements for the fiscal year ended December 31, 2011. If you received a printed version of these materials by mail you also received a proxy card or voting instruction card for the meeting.| 3
Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full printed set?
As a convenience to our shareholders and to help save both costs and the environment, this year we are pleased to again be furnishing proxy materials over the Internet. As a result, we are mailing to many of our shareholders a Notice of Internet Availability of Proxy Materials instead of a printed set of materials. All shareholders receiving the notice will have the ability to access the proxy materials over the Internet and may also request to receive a printed set of these materials by mail. The notice will also serve as an admission ticket for the Annual Meeting.
How can I get electronic access to the proxy materials?
Instructions on how to access electronic materials are included in the Notice of Internet Availability of Proxy Materials and in the proxy card or voting instruction card. These provide information on how to:
View our proxy materials for the Annual Meeting over the Internet; and
Request that future proxy materials be sent to you by e-mail.
Our proxy materials are available on our website at www.unum.com in the Investors area under Proxy Materials. If you choose to access future proxy materials electronically, you will receive an e-mail with instructions detailing where those materials are available and how to vote by proxy. Your decision to receive proxy materials by e-mail will remain in effect until you change it.
How can I communicate with the company or obtain copies of corporate documents and SEC filings?
Shareholders may communicate with us or obtain copies of corporate documents, committee charters and SEC filings by contacting the Office of the Corporate Secretary as described below. In addition, SEC
April 9, 2014 Dear Fellow Shareholder: As members of your Board of Directors, our primary focus is on creating long-term value for our shareholders. We accomplish that in a number of ways, from setting a clear strategic course for the company, to helping management develop sound operating and financial plans, to assuring that management executes those plans in a responsible manner. Our vision as a company is to be the leading provider of employee benefits products and services that help employers manage their businesses and employees protect their livelihoods. In 2013, we continued to make steady progress toward this vision through solid financial results and consistent operating performance across all of our business units. This, in turn, drove significant value for our shareholders. In particular, we would note these 2013 highlights:(1) • We reported pre-tax operating income of $1.24 billion and after tax operating income of $882.5 million, both record highs, on operating revenues of $10.35 billion. Our operating earnings per share were a record $3.32, a 5.4% increase. • We delivered on our commitments to our customers by paying more than $6 billion in benefits and achieving consistently high customer satisfaction metrics. • We drove value for our shareholders by increasing our book value per share 9.4% from the prior year. We also returned capital by paying $146.5 million in dividends and repurchasing more than $318 million of shares. Since 2007, we have repurchased $2.5 billion of shares, or 30% of shares outstanding. • We achieved a one-year total shareholder return (TSR) of 71.8%, a significant improvement over the prior year. Transparency, accountability, integrity, and sound risk management form the foundation of our culture at Unum. We are pleased that our corporate citizenship efforts have been recognized by several independent organizations, including being named one ofForbes Most Reputable Companies and 100 Most Trustworthy Companies, a member of the Dow Jones Sustainability North American Index and one of the Best Places to Work in Insurance byBusiness Insurance.You can learn about these and other awards on our website atwww.unumgroup.com/about/awards. |
(1) | Operating results referenced in this letter exclude certain specified items. For 2013, these include net realized investment gains and losses, non-operating retirement-related gains or losses, the unclaimed death benefits reserve increase and the group life waiver of premium benefit reserve reduction. For reconciliations of the non-GAAP financial measures, including operating income, operating revenue, operating earnings per share, return on equity and book value per share (excluding accumulated other comprehensive income, or AOCI), to the most directly comparable GAAP measures, refer toAppendix A. |
4 | Notice of Annual Meeting of Shareholders and 2014 Proxy Statement
Listening carefully to our shareholders is also an important part of our culture. Your continued feedback is invaluable to us as we work to fulfill our role as directors. Participation in our Annual Meeting is one of the important ways you can provide feedback to us. We also regularly solicit feedback from shareholders on key issues. While shareholders generally have approved of our overall executive compensation program, we continued our outreach program to institutional investors and proxy advisory firms to solicit input regarding our executive compensation programs and other governance matters. We remain pleased with our 2013 operating and financial performance, and we are confident that we are continuing to do all the things necessary to create value for our shareholders. On behalf of our employees and the entire leadership team, we would like to thank you for your continued support of Unum. | ||||||
Theodore H. Bunting, Jr. | E. Michael Caulfield | Pamela H. Godwin | ||||
Ronald E. Goldsberry | Kevin T. Kabat | Timothy F. Keaney | ||||
Thomas Kinser | Gloria Larson | A.S. MacMillan, Jr. | ||||
Edward J. Muhi | Michael J. Passarella | William J. Ryan | ||||
Thomas R. Watjen |
filings, corporate governance information
Notice of Annual Meeting of Shareholders and other documents are available on our website at www.unum.com in the Investors area.2014 Proxy Statement | 5
The 2014 annual meeting of How can I contact the Officethe Corporate Secretary?
Shareholders may contact the Officeshareholders of the Corporate Secretary by calling toll-free 800-718-8824 or by writing to the following address:
Office of the Corporate Secretary
Unum Group
1 Fountain Square
Chattanooga, Tennessee 37402
Where are the company’s principal offices?
Our principal executive offices are at 1 Fountain Square, Chattanooga, Tennessee 37402. Our main telephone number is 423-294-1011.
will be held:
Place: | Colonial Life | ||
1200 Colonial Life Boulevard | |||
Columbia, South Carolina 29210 |
The items of business are:
— | To elect four directors named in the |
— | To conduct an advisory vote to approve executive compensation; |
— | To ratify the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for 2014; and |
— | To transact other business that may properly come before the meeting. |
Management will also review the company’s 2013 performance and its outlook for the future.
Shareholders of record of the company’s common stock (NYSE: UNM) at the close of business on March 27, 2014 are entitled to vote at the meeting and any adjournments or postponements of the meeting.
Items to be Acted On at the Meeting
Susan N. Roth
Election of DirectorsVice President, Transactions, SEC and Corporate Secretary
April 9, 2014
(Item 1 on theImportant Notice Regarding Availability of Proxy Card)
Our Board of Directors currently has 11 members and is divided into three classes, each comprised of an approximately equal number of directors. Each year, shareholders elect a class of directors to serveMaterials for three-year terms. At this Annual Meeting, we have nominated four persons to serve as directors until the Annual Meeting to be held in 2015.
The Board of Directors recommends the election of Pamela H. Godwin, Thomas Kinser, A.S. (Pat) MacMillan, Jr. and Edward J. Muhl, each to hold office for a term of three years expiring at the Annual Meeting of Shareholders to be held in 2015,Held on May 20, 2014: The proxy statement and until his or her successor is duly elected and qualified or until his or her earlier resignation, retirement or removal. Each nominee is currently serving as a memberannual report to shareholders are available atwww.envisionreports.com/unm.
6 | Notice of our Board of Directors. Information concerning these candidates is provided under the section titled “Nominees for Election as Directors with Terms Expiring in 2015” beginning on page 27.
We have no reason to believe that any nominee would be unable to serve if elected. However, if for any reason a nominee were to become unable to serve at or before the Annual Meeting of Shareholders and 2014 Proxy Statement
This summary is intended to highlight certain key information contained in this proxy statement that, we believe, will assist your review of the Boarditems of Directors could either reduce the number of directors or nominate someone else to stand for election. The persons we have designated as proxy holders could use their discretion to vote for any such substitute nominee.
For any nomineebusiness to be elected, he or she must receive a majority of the votes castvoted on at the Annual Meeting. As it is only a summary, we encourage you to review the full proxy statement and our annual report on Form 10-K for the year ended December 31, 2013 (2013 10-K) for more complete information about these topics.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR: PAMELA H. GODWIN, THOMAS KINSER, A.S. (PAT) MACMILLAN, JR. AND EDWARD J. MUHL.Performance Highlights
At next year’sLast year was a successful one for Unum as we delivered strong financial and operating performance across the company. Although we continued to face some economic headwinds – particularly in the form of low interest rates and modest job and salary growth – our businesses have adapted well and delivered consistent, predictable results.
Our key financial highlights for 2013 include:(1)
— | Pre-tax operating income of $1.24 billion and after tax operating income of $882.5 million, both record highs, and operating revenues of $10.35 billion; |
— | Record operating earnings per share of $3.32, a 5.4% increase from the prior year and the eighth consecutive year of operating earnings per share (EPS) growth; |
— | Consolidated return on equity of 11.4% (14.2% in our three primary operating businesses); |
— | Book value per share growth of 9.4% from 2012 (excluding AOCI), the fifth year of growth; and |
— | Strong investment results and, through our emphasis on sound risk management, a credit quality that remains among the best in the industry. |
Our key operating highlights for 2013 include:
— | Meeting our commitments to customers by paying more than $6 billion in benefits to people facing illness, injury or loss of life; |
— | High customer satisfaction metrics that generally exceeded our plan benchmarks; and |
— | A strong company brand, image and reputation. |
(1) | Operating results referenced throughout this document exclude certain specified items. For 2013, these include net realized investment gains and losses, non-operating retirement-related gains or losses, the unclaimed death benefits reserve increase and the group life waiver of premium benefit reserve reduction. For reconciliations of the non-GAAP financial measures, including operating income, operating revenue, operating earnings per share, return on equity and book value per share (excluding accumulated other comprehensive income, or AOCI), to the most directly comparable GAAP measures, refer toAppendix A. |
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 7
Proxy Summary Information
Capital Generation for Shareholders
Because of these and other accomplishments in 2013, our capital generation remained strong and we were able to deploy that capital to invest in and strengthen our businesses, as well as return it to shareholders through share repurchases totaling more than $318 million and a dividend payout of $146.5 million, an 11.5% increase from the prior year.
Total shareholder return (TSR) comparisons vary significantly based upon the indices and time periods considered. On a one-year basis, our TSR was 71.8%, outperforming our proxy peers, the S&P Life and Health Index, and the broader S&P 500. On a three- and five-year basis, we were consistent with the S&P Life and Health Index – the group that most closely aligns with our industry – and were generally in line with the S&P 500. Our performance trailed our proxy peers during that time, illustrating the significant volatility seen as a result of the financial crisis and the impact it had on the smaller Proxy Peer Group when compared with broader indices.
We are pleased that our track record of solid operating performance and returning value to shareholders was recognized in 2013 with our share price reaching levels nearer the historical valuation of our company.
8 | Notice of Annual Meeting of Shareholders and 2014 Proxy Statement
Proxy Summary Information
2013 Compensation and Benefits Highlights
The financial and operational performance of the company, expects to seek shareholder approval of amendments to its certificate of incorporation to provide for the annual election of all directors, beginning at the 2016 Annual Meeting. If the amendments are approved, the declassification of the Board would be phased in so that all directors elected by shareholders at or after the 2014 Annual Meeting would be elected for terms that would end at the following year’s Annual Meeting.
Advisory Vote to Approve Executive Compensation
(Item 2as outlined on the Proxy Card)
Our Boardpreceding pages and in our 2013 10-K, resulted in above plan achievement for all of Directors has decided to hold a shareholder advisory vote with respect toour business units (see accompanying table). This high performance is also recognized in the compensationindividual performance assessments and achievement levels of our named executive officers, every year. Thewhich are described beginning on page 42.
During 2013, the Committee took the following resolution asks that you approveactions with respect to compensation and benefits:
PLAN ACHIEVEMENT LEVELS | ||||
Plan | 2013 | 2012 | ||
Unum Group | 111% | 95% | ||
Unum US | 103% | 105% | ||
Unum UK | 110% | 65% | ||
Colonial Life | 105% | 95% | ||
Investments | 109% | 105% |
— | We amended the terms of our defined benefit pension plans to freeze further accrual of retirement benefits provided to U.S. employees on December 31, 2013. Effective January 1, 2014, we transitioned to a defined contribution plan for all employees in which Unum provides a 4.5% company contribution for those employees who have completed one year of service. |
— | By freezing further accrual of retirement benefits provided to employees under the defined benefit pension plans, we effectively eliminated a change in control benefit otherwise available to executives who are parties to change in control severance agreements with the company. The benefit eliminated is a lump sum payment equal to the increased actuarial present value of the executive’s retirement benefit under the defined benefit pension plan assuming two additional years of age and service credit following termination of employment in connection with a change in control. |
o | In the future, executives currently covered by change in control severance agreements will receive two additional years of contributions under the company’s non-qualified defined contribution plan in the event of a termination of employment in connection with a change in control. |
— | At Mr. Watjen’s request to be consistent with all other employees, we amended his employment agreement to freeze further accrual of his retirement benefit under the Unum Group Senior Executive Retirement Plan (SERP) (which is described in his employment agreement) as of December 31, 2013. As part of the revisions to Mr. Watjen’s employment agreement, we also: |
o | Eliminated the Section 280G excise tax gross-up; |
o | Reduced severance payable in the event of termination by the company without “cause” or by Mr. Watjen for “good reason” outside of certain “change in control” periods (each as defined in his employment agreement) by: |
¡ | Decreasing the severance multiple from three times the sum of base salary and average bonus to two times the sum of base salary and average bonus; and |
¡ | Reducing health and welfare benefits continuation from three years of continuation to two years of continuation; and |
o | Eliminated a lump sum severance payment that was equal to the increased actuarial present value of Mr. Watjen’s retirement benefit under the SERP assuming three additional years of age and service credit following termination of employment. |
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 9
Proxy Summary Information
Last year’s advisory vote on executive compensation (or “say-on-pay” vote) passed with 76% approval. This was higher than the compensationprevious year’s vote and included support from 12 of our 13 largest shareholders. We continue to strive to improve the level of shareholder support for our named executive officersofficer compensation.
Over the last several years, the company has had an extensive outreach program to shareholders and proxy advisory firms, with a particular focus on soliciting input on our executive compensation program.
The Human Capital Committee provided feedback and guidance with respect to the proposed agenda to be used during our shareholder outreach program. Throughout the process, the Committee was updated on our conversations with both institutional investors as describedwell as proxy advisory firms, including their feedback on our executive compensation programs. The Committee values shareholder feedback and takes the results of the say-on-pay vote and the shareholder feedback into consideration as it makes compensation decisions.
In 2012, we received specific feedback, including:
— | A preference for a three-year performance cycle for the long-term incentive plan; |
— | Requests for a reduction in the amount of overlap between annual and long-term incentive plan goals; and |
— | Requests for enhanced disclosure of the goals for the annual and long-term incentive plans. |
The Committee responded to the feedback and made changes in this2013, which included:
— | Introducing performance share units (PSUs) based on three-year, prospective average return on equity and average earnings per share goals, with a modifier tied to relative total shareholder return; |
— | Establishing new performance goals for our long-term incentive plan to reduce the overlap with the performance goals for our annual incentive plan; |
— | Enhancing proxy disclosure to provide a more detailed explanation of the rationale behind compensation decisions and a more comprehensive discussion of goals, individual performance and the linkage to compensation; and |
— | Supplementing disclosure of our annual and long-term incentive performance metrics by including threshold, maximum and actual performance levels for each metric. |
In 2013, the company again solicited feedback from institutional shareholders and proxy advisory firms. The feedback from our outreach in 2013 indicated that shareholders agreed with the changes we made to the long-term incentive program, particularly the use of PSUs with three-year corporate performance goals and a payout modifier tied to relative TSR. No additional concerns were identified by shareholders with respect to our executive compensation programs in the course of our 2013 shareholder outreach.
Key Corporate Governance Practices
We are committed to good corporate governance, as evidenced by the following practices:
— | Pay for performance; |
— | Annual say-on-pay votes; |
10 | Notice of Annual Meeting of Shareholders and 2014 Proxy Statement:Statement
Proxy Summary Information
— | Robust stock ownership and retention requirements for senior officers and directors; |
— | Anti-pledging and anti-hedging policies applicable to executives and directors; |
— | No poison pill; |
— | Non-executive chairman; |
— | Majority voting for directors; |
— | Board declassification in progress; |
— | Substantially independent Board (CEO only non-independent director); |
— | Restriction on other board and audit committee service; |
— | Executive sessions of independent directors at each regularly scheduled Board meeting; |
— | High meeting attendance by directors (average attendance of 95% in 2013); |
— | Double-trigger required for accelerated vesting of equity; |
— | Independent compensation consultant; |
— | Minimum perquisites; and |
— | No excise tax gross-ups after 2010. |
The following items will be voted on at the Annual Meeting:
Board Recommends | ||||||
Item 1. Election of directors | Page 83 | FOR | ||||
Four directors are seeking re-election for terms expiring in 2015: | each nominee | |||||
Timothy F. Keaney | William J. Ryan | |||||
Gloria C. Larson | Thomas R. Watjen | |||||
Item 2. Advisory vote to approve executive compensation | Page 84 | FOR | ||||
An advisory vote to approve the compensation of our named executive officers. | ||||||
Item 3. Ratification of appointment of independent registered public accounting firm | Page 84 | FOR | ||||
A vote to ratify the appointment of Ernst & Young LLP. |
RESOLVED, that the shareholders approve, on an advisory basis, the compensationNotice of the company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K in the company’s proxy statement for the 2012 Annual Meeting of Shareholders including the Compensation Discussion and Analysis, compensation tables and related narrative discussion.
Advisory approval of the compensation of our named executive officers as described in this2014 Proxy Statement requires the affirmative vote of a majority of the votes entitled to be cast by shareholders represented and entitled to vote at the Annual Meeting.| 11
Although this vote will not be binding, the Human Capital Committee will carefully consider the outcome in connection with its ongoing evaluation of the company’s compensation program
Below are brief biographies for named executive officers and when considering future executive compensation arrangements.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF NAMED EXECUTIVE OFFICER COMPENSATION, AS PROVIDED IN THE RESOLUTION ABOVE.
Vote on Approval of the Unum Group Stock Incentive Plan of 2012
(Item 3 on the Proxy Card)
We ask that our shareholders vote to approve the Unum Group Stock Incentive Plan of 2012 (the “2012 Plan”). The 2012 Plan was adopted by the Human Capital Committee of the Board of Directors on February 21, 2012, subject to such approval. If approved by shareholders at the Annual Meeting, the 2012 Plan will become effective on that date (the “Effective Date”).
Our existing Stock Incentive Plan of 2007, as amended (the “2007 Plan”), was approved by shareholders at our 2007 Annual Meeting. Though substantially similar to the 2007 Plan, the 2012 Plan has been updated to include certain terms (such as “double-trigger” vesting in respect of change in control events) we believe are more representative of current compensation practices in our industry. If the 2012 Plan is approved by shareholders:
We may continue to elect to deduct all performance-based compensation paid to certain senior executives, in accordance with Section 162(m) of the Internal Revenue Code (the “Code”), which requires that shareholders approve the material terms of the performance goals under which performance-based compensation is to be paid at least every five years;
New awards pursuant to our existing long-term incentive program will be made under the 2012 Plan, and will no longer be made under the 2007 Plan; and
We will continue to use our long-term incentive plan to attract, retain and motivate officers, employees, directors and/or consultants, which provides incentives directly linked to shareholder value.
Section 162(m) of the Code generally places a $1 million annual limit on a company’s tax deduction for compensation paid to certain senior executives, other than compensation that satisfies the applicable
requirements for a performance-based compensation exception. To qualify as performance-based compensation under Section 162(m) of the Code, the compensation must (among other requirements) be subject to attainment of performance goals that have been disclosed to shareholders and approved by a majority shareholder vote. We are asking shareholders at the 2012 Annual Meeting to approve the material terms of the performance goals under the 2012 Plan so that the company may make awards that qualify as performance-based compensation under Section 162(m) of the Code, and thus, would be tax-deductible. For purposes of Section 162(m) of the Code, the material terms of the performance goals requiring shareholder approval include the following:
the employees eligible to receive awards under the 2012 Plan;
the business criteria used as the basis for the performance goals; and
the limits on the maximum amount of compensation payable to any employee in a given time period.
By approving the 2012 Plan, shareholders will be approving, among other things, the eligibility requirements, performance goals and limits on various stock awards contained therein for purposes of Section 162(m) of the Code.
If the 2012 Plan is approved by our shareholders, no new awards may be granted under the 2007 Plan. However, awards previously granted and outstanding under the 2007 Plan will remain in full force and effect under the 2007 Plan according to their terms, and to the extent that any such award is forfeited, terminates, expires or lapses without being exercised (to the extent applicable), or is settled for cash, shares of our common stock subject to such award that are not delivered as a result will not be available for awards under the 2012 Plan. Dividend equivalents, however, may continue to be issued under the 2007 Plan in respect of awards granted under the 2007 Plan which are outstanding as of the Effective Date.
As of March 15, 2012, the shares to be issued upon the exercise or the settlement of outstanding awards under our existing equity compensation plans were as follows:
1,738,844 shares underlying outstanding options, with a weighted average exercise price of $20.71 and a weighted average remaining contractual term of 5.4 years; and
1,762,647 outstanding full-value awards (consisting of 1,619,994 restricted stock units and 142,653 deferred share rights).
Similar to the 2007 Plan, the purpose of the 2012 Plan is to allow us to attract, retain and motivate officers, employees, directors and/or consultants and to provide us and our subsidiaries and affiliates with a long-term incentive plan providing incentives directly linked to shareholder value.
A summary of the 2012 Plan, and a summary of the material differences between the terms and conditions of the 2012 Plan and the terms and conditions of the 2007 Plan, are set forth below. The summary of the 2012 Plan is qualified in its entirety by the full text of the 2012 Plan, which is included in this Proxy Statement asAppendix A.
Summary of Material Differences Between the 2012 Plan and the 2007 Plan
Consequences of Change in Control. The 2007 Plan provides that all awards granted and outstanding thereunder vest in full and are no longer subject to forfeiture upon a change in control of the company. Awards granted and outstanding under the 2012 Plan, however, vest upon a change in control only if equivalent replacement awards are not substituted for such awards at the time of the change in control. If equivalent replacement awards are substituted for the awards granted and outstanding under the 2012 Plan at the time of a change in control of the company, such awards vest upon a termination of employment by reason of death, disability or retirement or without cause or a resignation for “good reason” in each case within two years after such change in control (i.e., the awards “double-trigger” vest).
Individual Limitations On Awards. The 2007 Plan provides that, during any calendar year, the total number of shares that may be granted pursuant to awards to any one participant cannot exceed 1,000,000 and the maximum number of shares that may be granted pursuant to incentive stock options is 1,000,000. In response to recent guidance issued by the Internal Revenue Service under Section 162(m) of the Code, the 2012 Plan provides that no participant may be granted, in each case during any calendar year, performance-based awards intended to qualify under Section 162(m) of the Code (other than stock options and stock appreciation rights) covering in excess of 1,200,000 shares or stock options and stock appreciation rights covering in excess of 800,000 shares.
Types of Awards.The 2007 Plan permitted the grant of dividend equivalent awards with respect to all awards, including nonqualified stock options and stock appreciation rights, and did not prohibit payment of dividend equivalents in respect of unvested performance-based awards. The 2012 Plan eliminates the authorization for dividend equivalents in respect of nonqualified stock options and stock appreciation rights, and payment of dividend equivalents in respect of unvested performance-based awards is prohibited under the 2012 Plan.
Summary of the 2012 Plan
General. Awards granted under the 2012 Plan may be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, other stock-based awards or any combination of those awards. The 2012 Plan provides that awards may be made under the 2012 Plan for ten years.
Administration. Under the terms of the 2012 Plan, the 2012 Plan will be administered by the Human Capital Committee of our Board, or by such other committee or subcommittee as may be appointed by our Board, and which consists entirely of two or more “outside directors” within the meaning of Section 162(m) of the Code and who are “non-employee directors” as defined in Rule 16b-3 under the Securities Exchange Act of 1934 and which will be referred to in this summary as the “committee.” Unless and until the Board appoints any other committee or subcommittee, the 2012 Plan will be administered by the Human Capital Committee. Under the terms of the 2012 Plan, the committee can make rules and regulations and establish such procedures for the administration of the 2012 Plan as it deems appropriate. Any determination made by the committee under the 2012 Plan will be made in the sole discretion of the committee and such determinations will be final and binding on all persons.
Shares Available. The 2012 Plan provides that the aggregate number of shares of our common stock that may be subject to awards under the 2012 Plan cannot exceed 20,000,000 subject to adjustment in certain circumstances to prevent dilution or enlargement. No participant may be granted, during any
calendar year, performance-based awards intended to qualify under Section 162(m) of the Code (other than stock options and stock appreciation rights) covering in excess of 1,200,000 shares or stock options and stock appreciation rights covering in excess of 800,000 shares. The maximum number of shares that may be granted pursuant to incentive stock options is 1,000,000. For purposes of the limits set forth above, each full-value award (i.e., each award other than a stock option or stock appreciation right) shall be counted as 1.76 shares.
As described above, if the 2012 Plan is approved by our shareholders, no new awards may be granted under the 2007 Plan. However, awards previously granted and outstanding under the 2007 Plan will remain in full force and effect under the 2007 Plan according to their respective terms, and to the extent that any such award is forfeited, terminates, expires or lapses without being exercised (to the extent applicable), or is settled for cash, shares of our common stock subject to such award that are not delivered as a result will not be available for awards under the 2012 Plan. Dividend equivalents, however, may continue to be issued under the 2007 Plan in respect of awards granted under the 2007 Plan which are outstanding as of the Effective Date.
Shares underlying awards that expire or are forfeited or terminated without being exercised or settled for cash will again be available for the grant of additional awards within the limits provided by the 2012 Plan. Shares withheld by or delivered to us to satisfy the exercise price of options or tax withholding obligations with respect to any award granted under the 2012 Plan will nonetheless be deemed to have been issued under the 2012 Plan.
Eligibility. The 2012 Plan provides for awards to the directors, officers, employees and consultants of the company and its subsidiaries and affiliates and prospective employees and consultants who have accepted offers of employment or consultancy from the company or its subsidiaries or affiliates, except that incentive stock options may be granted only to employees of the company and its subsidiaries. As of the date of this Proxy Statement, there were approximately 550 directors, officers and employees eligible to participate in the 2012 Plan. Our current executive officers named in the Summary Compensation Table under the caption “Compensation Discussion and Analysis” herein and each of our directors are amongand descriptions of the individuals eligible to receive awards under the 2012 Plan.
Stock Options. Subjectdirectors’ key qualifications, skills and experiences that contribute to the terms and provisions of the 2012 Plan, options to purchase shares of our common stock may be granted to eligible individuals at any time and from time to time as determined by the committee. Options may be granted as incentive stock options, which are intended to qualify for favorable treatment to the recipient under Federal tax law, or as non-qualified stock options, which do not qualify for this favorable tax treatment. Subject to the limits provided in the 2012 Plan, the committee determines the number of options granted to each recipient. Each option grant will be evidenced by a stock option agreement that specifies the option exercise price, whether the options are intended to be incentive stock options or non-qualified stock options, the duration of the options, the number of shares to which the options pertain and such additional limitations, terms and conditions as the committee may determine, but the 2012 Plan provides that, except as otherwise determined by the committee, in no event will the normal vesting schedule of an option provide that the option will vest before the first anniversary of the date of grant.
The committee determines the exercise price for each option granted, except that the option exercise price may not be less than 100 percent of the fair market value of a share of our common stock on the date of grant. As of March 15, 2012, the fair market value (as that term is defined under the 2012 Plan) of a share of our common stock was $24.64. All options granted under the 2012 Plan will expire no later
than ten years from the date of grant. The method of exercising an option granted under the 2012 Plan is set forth in the 2012 Plan as are the general provisions regarding the exercisability of incentive stock options and nonqualified stock options following certain terminations of employment. Stock options are nontransferable except by will or by the laws of descent and distribution or, in the case of non-qualified stock options, as otherwise expressly permitted by the committee. The granting of an option does not accord the recipient the rights of a shareholder, and such rights accrue only after the exercise of an option and the registration of shares of our common stock in the recipient’s name.
Stock Appreciation Rights. The committee in its discretion may grant stock appreciation rights under the 2012 Plan. Stock appreciation rights may be “tandem SARs,” which are granted in conjunction with an option, or “free-standing SARs,” which are not granted in conjunction with an option. A stock appreciation right entitles the holder to receive from us upon exercise an amount equal to the excess, if any, of the aggregate fair market value of a specified number of shares of our common stock to which such stock appreciation right pertains over the aggregate exercise price for the underlying shares. The exercise price of a Free-Standing SAR shall not be less than 100% of the fair market value of a share of our common stock on the date of grant.
A tandem SAR may be granted at the grant date of the related option. A tandem SAR will be exercisable only at such time or times and to the extent that the related option is exercisable and will have the same exercise price as the related option. A tandem SAR will terminate or be forfeited upon the exercise or forfeiture of the related option, and the related option will terminate or be forfeited upon the exercise or forfeiture of the tandem SAR.
Each SAR will be evidenced by an award agreement that specifies the base price, the number of shares to which the stock appreciation right pertains and such additional limitations, terms and conditions as the committee may determine, but the 2012 Plan provides that, except as otherwise determined by the committee, in no event will the normal vesting schedule of a SAR provide that the right will vest before the first anniversary of the date of grant. We may make payment of the amount to which the participant exercising stock appreciation rights is entitled by delivering shares of our common stock, cash or a combination of stock and cash as set forth in the award agreement relating to the stock appreciation rights. The method of exercising a stock appreciation right granted under the 2012 Plan is set forth in the 2012 Plan as are the general provisions regarding the exercisability of SARs following terminations of employment. Stock appreciation rights are not transferable except by will or the laws of descent and distribution or, with respect to stock appreciation rights that are not granted in “tandem” with an option, as expressly permitted by the committee. Each stock appreciation right will be evidenced by an award agreement that specifies the date and terms of the award and such additional limitations, terms and conditions as the committee may determine.
Restricted Stock. The 2012 Plan provides for the award of shares of our common stock that are subject to forfeiture and restrictions on transferability as set forth in the 2012 Plan and as may be otherwise determined by the committee. Except for these restrictions and any others imposed by the committee, upon the grant of restricted stock, the recipient will have rights of a stockholder with respect to the restricted stock, including the right to vote the restricted stock and to receive all dividends and other distributions paid or made with respect to the restricted stock. During the restriction period set by the committee, the recipient may not sell, transfer, pledge, exchange or otherwise encumber the restricted stock. Subject to the terms of the 2012 Plan and award agreements covering the shares, any award of restricted stock will be subject to vesting during a restriction period of at least three years following the date of grant, except that a restriction period of at least one year is permissible if vesting is conditioned
upon the achievement of performance goals established by the committee. Subject to the terms of the 2012 Plan and award agreements covering the shares, an award of restricted stock may vest in part on a pro rata basis prior to the expiration of any restriction period, and up to five percent of shares available for grant as restricted stock (together with all other shares available for grant as full-value awards under the 2012 Plan) may be granted without regard to the restriction period, and the committee may accelerate the vesting and lapse of any restrictions with respect to any such restricted stock award.
Restricted Stock Units. The 2012 Plan authorizes the committee to grant restricted stock units and deferred share rights. Restricted stock units and deferred share rights are not shares of our common stock and do not entitle the recipients to the rights of a shareholder. Restricted stock units granted under the 2012 Plan may or may not be subject to performance conditions. The recipient may not sell, transfer, pledge or otherwise encumber restricted stock units granted under the 2012 Plan prior to their vesting. Restricted stock units will be settled in cash or shares of our common stock, in an amount based on the fair market value of our common stock on the settlement date.
Subject to the terms of the 2012 Plan and the applicable award agreement, any award of restricted stock units will be subject to vesting during a restriction period of at least three years following the date of grant, except that a restriction period of at least one year is permissible if vesting is conditioned upon the achievement of certain performance goals established by the committee. In addition, subject to the terms of the 2012 Plan and the applicable award agreement, an award of restricted stock units may vest in part on a pro rata basis prior to the expiration of any restriction period, and up to five percent of shares available for grant subject to restricted stock units under the 2012 Plan (together with all other shares available for grant as full-value awards) may be granted without regard to the restriction period, and the Committee may accelerate the vesting and lapse of any restrictions with respect to any such restricted stock units.
Performance Units. The 2012 Plan provides for the award of performance units that are valued by reference to a designated amount of cash or other property other than shares of our common stock. The payment of the value of a performance unit is conditioned upon the achievement of performance goals set by the committee in granting the performance unit and may be paid in cash, shares of our common stock, other property or a combination thereof. The performance period for a performance unit must be at least one year. The maximum value of the property that may be paid to a participant pursuant to a performance unit in any year is $5,000,000.
Other Stock-Based Awards. The 2012 Plan also provides for the award of shares of our common stock and other awards that are valued by reference to our common stock, including unrestricted stock, dividend equivalents and convertible debentures. Awards of unrestricted stock may be granted only in lieu of compensation that would otherwise be payable to the participant. Subject to the terms of the 2012 Plan and award agreements covering the shares, any other stock-based award that is a full-value award will be subject to vesting during a restriction period of at least three years following the date of grant, except that a restriction period of at least one year is permissible if vesting is conditioned upon the achievement of certain performance goals established by the committee. In addition, subject to the terms of the 2012 Plan and award agreements covering the shares, another stock-based award that is a full-value award may vest in part on a pro rata basis prior to the expiration of any restriction period, and up to five percent of shares available for grant as other stock-based awards that are full-value awards under the 2012 Plan (together with all other shares available for grant as full-value awards) may be granted without regard to the restriction period, and the committee may accelerate the vesting and lapse of any restrictions with respect to any such other stock-based award.
Performance Goals. The 2012 Plan provides that performance goals may be established by the committee in connection with the grant of restricted stock, restricted stock units, performance units or other stock-based awards. In the case of an award intended to qualify for the performance-based compensation exception of Section 162(m) of the Code: (i) such goals will be based on the attainment of specified levels of one or more of the following measures: overall or selected premium or sales growth, expense efficiency ratios (ratio of expenses to premium income), market share, customer service measures or indices, underwriting efficiency and/or quality, persistency factors, return on net assets, economic value added, shareholder value added, embedded value added, combined ratio, expense ratio, loss ratio, premiums, risk based capital, revenues, revenue growth, earnings (including earnings before taxes, earnings before interest and taxes or earnings before interest, taxes, depreciation and amortization), earnings per share, operating income (including non-pension operating income), pre- or after-tax income, net income, cash flow (before or after dividends), cash flow per share (before or after dividends), gross margin, return on equity, return on capital (including return on total capital or return on invested capital), cash flow return on investment, return on assets or operating assets, economic value added (or an equivalent metric), stock price appreciation, total stockholder return (measured in terms of stock price appreciation and dividend growth), cost control, gross profit, operating profit, cash generation, unit volume, stock price, market share, sales, asset quality, cost saving levels, marketing-spending efficiency, core non-interest income, or change in working capital with respect to the company or any one or more subsidiaries, divisions, business units or business segments of the company either in absolute terms or relative to the performance of one or more other companies or an index covering multiple companies; and (ii) such performance goals will be set by the committee within the time period and other requirements prescribed by Section 162(m) of the Code and the regulations promulgated thereunder.
Change in Control. Unless provided otherwise in the applicable award agreement:
in the event of a “change in control” of the company (as defined in the 2012 Plan), unless equivalent replacement awards are not substituted for awards granted and outstanding under the 2012 Plan at the time of such change in control, such awards vest upon a termination of employment by reason of death, disability or retirement or without cause or a resignation for “good reason” in each case within two years after such change in control (i.e., the awards “double-trigger” vest); and
notwithstanding any other provision of the 2012 Plan to the contrary, upon the termination of employment of a participant during the two-year period following a change in control for any reason other than for cause, any option or stock appreciation right held by the participant as of the date of the change in control that remains outstanding as of the date of such termination of employment may thereafter be exercised until (i) in the case of incentive stock options, the last date on which such options would otherwise be exercisable, and (ii) in the case of nonqualified options and stock appreciation rights, the later of (A) the last date on which such option or stock appreciation right would otherwise be exercisable and (B) the earlier of (1) the third anniversary of the change in control and (2) the expiration of the option’s or stock appreciation right’s term.
An award qualifiesBoard’s effectiveness as a “replacement award” under the 2012 Plan if the following conditions are met in the sole discretion of the committee: (i) it is of the same type as the award being replaced; (ii) it has a value equal to the value of the award being replaced as of the date of the change in control; (iii) if the underlying award being replaced was an equity-based award, it relates to publicly traded equity securities of the company or the entity surviving the company following the change in control; (iv) it contains terms relating to vesting (including with respect to a termination of employment) that are substantially identical
to those of the award being replaced; and (v) its other terms and conditions are not less favorable to the participant than the terms and conditions of the award being replaced (including the provisions that would apply in the event of a subsequent change in control) as of the date of the change in control.whole.
Termination of Employment. Unless otherwise determined by the committee:
upon a participant’s termination of employment for any reason other than death, disability, retirement or cause, any option or SAR held by the applicable participant that was exercisable immediately before the termination of employment may be exercised at any time until the earlier of (A) the 90th day following such termination of employment and (B) expiration of the term of the option or SAR;
upon a participant’s termination of employment by reason of the participant’s death, any option or SAR held by the participant will vest and be exercisable at any time until the earlier of (A) the third anniversary of the date of death and (B) the expiration of the term of the option or SAR;
upon a participant’s termination of employment by reason of disability, any option or SAR held by the participant will vest and be exercisable at any time until (A) in the case of nonqualified options and SARs, the expiration of the term of the option or SAR, and (B) in the case of incentive options, the earlier of (x) the first anniversary of the date of such termination of employment and (y) the expiration of the term of the option or SAR;
upon a participant’s termination of employment for retirement, any option or SAR held by the participant will vest and be exercisable at any time until the earlier of (A) in the case of nonqualified options and SARs, (x) the fifth anniversary of the termination of employment and (y) the expiration of the term of the option or SAR, and (B) in the case of incentive options, (1) the 90th day following such termination of employment and (2) the expiration of the term of the option; and
upon a participant’s termination for cause, all options or SARs will be forfeited.
Amendment. Our Board of Directors or the committee may amend, alter or discontinue the 2012 Plan, but no amendment, alteration or discontinuation shall be made which would materially impair the rights of the participant with respect to a previously granted award without such participant’s consent, except such an amendment made to comply with applicable law, including without limitation Section 409A of the Code, stock exchange rules or accounting rules. In addition, no such amendment shall be made without the approval of our shareholders (a) to the extent such approval is required (1) by applicable law or the listing standards of the applicable stock exchange as in effect as of the date hereof or (2) under applicable law or the listing standards of the applicable stock exchange as may be required after the date hereof, (b) to the extent such amendment would materially increase the benefits accruing to participants under the 2012 Plan, (c) to the extent such amendment would materially increase the number of securities which may be issued under the 2012 Plan or (d) to the extent such amendment would materially modify the requirements for participation in the 2012 Plan.
Federal Income Tax Consequences
The following is a summary of certain federal income tax consequences of awards made under the 2012 Plan based upon the laws in effect on the date hereof. The discussion is general in nature and does
not take into account a number of considerations which may apply in light of the circumstances of a particular participant under the 2012 Plan. The income tax consequences under applicable state and local tax laws may not be the same as under federal income tax laws.
Non-Qualified Stock Options. A participant will not recognize taxable income at the time of grant of a non-qualified stock option, and we will not be entitled to a tax deduction at such time. A participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) upon exercise of a non-qualified stock option equal to the excess of the fair market value of the shares purchased over their exercise price, and we generally will be entitled to a corresponding deduction.
Incentive Stock Options. A participant will not recognize taxable income at the time of grant of an incentive stock option. A participant will not recognize taxable income (except for purposes of the alternative minimum tax) upon exercise of an incentive stock option. If the shares acquired by exercise of an incentive stock option are held for the longer of two years from the date the option was granted and one year from the date the shares were transferred, any gain or loss arising from a subsequent disposition of such shares will be taxed as long-term capital gain or loss, and we will not be entitled to any deduction. If, however, such shares are disposed of within such two- or one-year periods, then in the year of such disposition the participant will recognize compensation taxable as ordinary income equal to the excess of the lesser of the amount realized upon such disposition and the fair market value of such shares on the date of exercise over the exercise price, and we generally will be entitled to a corresponding deduction. The excess of the amount realized through the disposition date over the fair market value of the stock on the exercise date will be treated as capital gain.
Stock Appreciation Rights. A participant will not recognize taxable income at the time of grant of a stock appreciation right, and we will not be entitled to a tax deduction at such time. Upon exercise, a participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) equal to the fair market value of any shares delivered and the amount of cash paid by us, and we generally will be entitled to a corresponding deduction.
Restricted Stock. A participant will not recognize taxable income at the time of grant of shares of restricted stock, and we will not be entitled to a tax deduction at such time, unless the participant makes an election under Section 83(b) of the Code to be taxed at such time. If such election is made, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time of the grant equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares. If such election is not made, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time the restrictions lapse in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares. We are entitled to a corresponding deduction at the time the ordinary income is recognized by the participant, except to the extent the deduction limits of Section 162(m) of the Code apply. In addition, a participant receiving dividends with respect to restricted stock for which the above-described election has not been made and prior to the time the restrictions lapse will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee), rather than dividend income. We will be entitled to a corresponding deduction, except to the extent the deduction limits of Section 162(m) of the Code apply.
Restricted Stock Units. A participant will not recognize taxable income at the time of grant of a restricted stock unit, and we will not be entitled to a tax deduction at such time. A participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time of settlement of the award equal to the fair market value of any shares delivered and the amount of cash paid by us, and we will be entitled to a corresponding deduction, except to the extent the deduction limits of Section 162(m) of the Code apply.
Performance Units. A participant will not recognize taxable income at the time of grant of performance units, and we will not be entitled to a tax deduction at such time. A participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time of settlement of the award equal to the fair market value of any shares or property delivered and the amount of cash paid by us, and we will be entitled to a corresponding deduction, except to the extent the deduction limits of Section 162(m) of the Code apply.
Section 162(m) Limitations.As explained above, Section 162(m) of the Code generally places a $1 million annual limit on a company’s tax deduction for compensation paid to certain senior executives, other than compensation that satisfies the applicable requirements for a performance-based compensation exception. The 2012 Plan is designed so that options and SARs qualify for this exemption, and it also permits the committee to grant other awards designed to qualify for this exception. However, the committee reserves the right to grant awards that do not qualify for this exception, and, in some cases, the exception may cease to be available for some or all awards that otherwise so qualify. Thus, it is possible that Section 162(m) of the Code may disallow compensation deductions that would otherwise be available to the company.
The foregoing general tax discussion is intended for the information of shareholders considering how to vote with respect to this proposal and not as tax guidance to participants in the 2012 Plan. Participants are strongly urged to consult their own tax advisors regarding the federal, state, local, foreign and other tax consequences to them of participating in the 2012 Plan.
New Plan Benefits
Any awards that an individual may receive under the 2012 Plan will be at the discretion of the committee and therefore cannot be determined in advance, with the exception of a grant of restricted stock units with a value of $120,000 which will be paid as an annual retainer to each individual who will serve as a non-employee director after the Annual Meeting. The grant under the 2012 Plan will be contingent on and effective with the approval of the 2012 Plan by shareholders upon the Effective Date. If the 2012 Plan is not approved, the grant to the non-employee directors will be made under the 2007 Plan. The following table shows the awards that we believe would have been received under the 2012 Plan in 2011 had the 2012 Plan been in effect at that time, which are the same as the awards received in 2011 under the 2007 Plan.
2011 EQUITY AWARDS | ||||||||||||||||||||||||
Name and Position | Options Granted | Exercise Price of Options per Share | Number of Restricted Stock Units Granted | Dollar Value of Restricted Stock Units Granted | Number of Deferred Share Rights Granted | Dollar Value of Deferred Share Rights Granted | ||||||||||||||||||
Mr. Watjen, President and Chief Executive Officer | 123,682 | $ | 26.29 | 165,552 | $ | 4,352,362 | - | - | ||||||||||||||||
Mr. McKenney, EVP and Chief Financial Officer | 26,048 | 26.29 | 34,866 | 916,627 | - | - | ||||||||||||||||||
Mr. McCarthy, EVP and Chief Operating Officer; President and CEO, Unum US | ||||||||||||||||||||||||
24,610 | 26.29 | 32,942 | 866,045 | - | - | |||||||||||||||||||
Mr. Best, former EVP, Global Services(1) | 16,450 | 26.29 | 22,019 | 578,880 | - | - | ||||||||||||||||||
Mr. Horn, EVP, President and CEO, Colonial Life | 11,035 | 26.29 | 14,770 | 388,303 | - | - | ||||||||||||||||||
All executive officers, as a group | - | - | 507,406 | $ | 10,195,999 | - | - | |||||||||||||||||
All directors, excluding executive officers, as a group | - | - | 50,963 | $ | 1,319,942 | 10,784 | $ | 277,229 | ||||||||||||||||
All employees, excluding executive officers, as a group | - | - | 416,643 | $ | 10,934,551 | - | - |
Approval
Approval of the 2012 Plan requires the affirmative vote of a majority of the votes entitled to be cast by shareholders represented and entitled to vote at the Annual Meeting.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE UNUM GROUP STOCK INCENTIVE PLAN OF 2012.
Ratification of Appointment of Independent Registered Public Accounting Firm
(Item 4 on the Proxy Card)
The Audit Committee of the Board of Directors has appointed Ernst & Young LLP as the independent registered public accounting firm (“independent auditors”) to audit our financial statements for the company’s fiscal year ending December 31, 2012 and is recommending that their appointment be ratified by the shareholders.
Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm requires the affirmative vote of a majority of the votes entitled to be cast by shareholders represented and entitled to vote at the Annual Meeting.
Although ratification is not legally required, the Board wants to bring the appointment of Ernst & Young LLP before our shareholders. In the event this appointment is not ratified, the Audit Committee will reconsider the decision of appointing Ernst & Young LLP.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2012.
Nominees for Election as Directors with Terms Expiring in 2015
| Timothy F. Keaney Director since 2012 Age 52 | Independent Director Current term expires in 2014 Member of the Audit Committee Member of the Finance Committee | ||
Mr. Keaney is Vice Chairman of BNY Mellon, where he has held this position since October 2010. He also serves as Chief Executive Officer of Investment Services at BNY Mellon and a member of BNY Mellon’s executive committee, which oversees day-to-day operations for that organization. Prior to the merger of The Bank of New York Company, Inc. and Mellon Financial Corporation in 2007, Mr. Keaney was head of The Bank of New York’s asset servicing business and head of that company’s presence in Europe, with management responsibilities for all business activities in the region. He joined the Bank of New York in 2000 as a Managing Director responsible for depositary receipts. Prior to that, Mr. Keaney was a Senior Vice President of Deutsche Bank. | ||||
Mr. Keaney possesses significant operational, investment and finance experience, both domestically and internationally. His work has included lengthy periods of executive leadership service in the United Kingdom, which has given him a deep understanding of many of the challenges and opportunities that we face in that region. He also qualifies as an “audit committee financial expert” as defined in SEC regulations. | ||||
Gloria C. Larson Director since 2004 Age 63 | Independent Director Current term expires in 2014 Chair of the Regulatory Compliance Committee Member of the Governance Committee | |||
Ms. Larson has been the President of Bentley University since July 2007. She previously served as co-chairperson of the Government Practices Group of the law firm Foley Hoag LLP and coordinator for its Administrative Practices Group after joining the firm in 1996. Prior to joining Foley Hoag, she served as Secretary of Economic Affairs and as Secretary of Consumer Affairs and Business Regulation for the Commonwealth of Massachusetts, and prior to that was Deputy Director of Consumer Protection for the Federal Trade Commission. | ||||
Ms. Larson has executive management experience as president of a major university. In addition, she brings regulatory insight from her service as a regulator and her experience advising clients in the course of her practice of law. She also has previous service on both public and private companies’ boards of directors. |
12 | Notice of Annual Meeting of Shareholders and 2014 Proxy Statement
Information About the Board of Directors
William J. Ryan Director since 2004 Age 70 | Independent Director Current term expires in 2014 Chairman of the Board of Directors | |||
Mr. Ryan has served as the Chairman of the Board of Directors of our company since October 2011. He was Chairman, President and Chief Executive officer of TD Banknorth Inc., a banking and financial services company, from March 2005 until March 2007, and continued as its Chairman until November 2009. He was Chairman, President and Chief Executive Officer of Banknorth Group Inc. from 2000 until its merger with TD Banknorth Inc. in March 2005, and prior to that served as President and Chief Executive Officer of People’s Heritage Savings Bank. He is also a director of WellPoint, Inc. | ||||
Mr. Ryan has experience as a board chairman and chief executive officer of companies in the banking and financial services industry. He currently serves as a director and the chair of the governance committee of another publicly traded company. | ||||
Thomas R. Watjen Director since 2002 Age 59 | Current term expires in 2014 President and Chief Executive Officer | |||
Mr. Watjen has been President and Chief Executive Officer of Unum since March 2003. He served as Vice Chairman and Chief Operating Officer from May 2002 until March 2003. He became Executive Vice President, Finance in June 1999. Prior to that, Mr. Watjen served in various roles with Provident. Before joining Provident in 1994, Mr. Watjen served as a Managing Director of the insurance practice of the investment banking firm Morgan Stanley & Co. He is also a director of SunTrust Banks, Inc. | ||||
Mr. Watjen has executive management and financial experience as chief executive officer of our company as well as his prior positions within the financial services industry. He also serves as a director and the chair of the audit committee of another publicly traded company in the financial services industry. |
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 13
Information About the Board of Directors
Theodore H. Bunting, Jr. Director since 2013 Age 55 | Independent Director Current term expires in 2016 Member of the Audit Committee Member of the Regulatory Compliance Committee | |||
Mr. Bunting is the Group President, Utility Operations of Entergy Corporation, an integrated energy company engaged primarily in electric power production and retail distribution operations, a position he has held since June 2012. From August 2007 to May 2012, he served as Senior Vice President and Chief Accounting Officer for Entergy and its subsidiaries. Prior to that, he held numerous executive positions within the Entergy organization, which he joined in 1983. He began his professional career in public accounting with Arthur Andersen & Co. in 1981 and is a certified public accountant. Mr. Bunting is also a director of Imation Corp. | ||||
Mr. Bunting possesses extensive financial, accounting and operational experience with a public company in a regulated industry. His leadership responsibilities have included strategic and financial planning, customer service, operations support and risk management. He also has experience as a director of another publicly traded company and qualifies as an “audit committee financial expert” under SEC regulations. | ||||
E. Michael Caulfield Director since 2007 Age 67 | Independent Director Current term expires in 2016 Chair of the Finance Committee Member of the Audit Committee | |||
Mr. Caulfield served as President of Mercer Human Resource Consulting from September 2005 until September 2006, prior to which he served as Chief Operating Officer from July 2005. He retired from Prudential Insurance Company as Executive Vice President in 2000, after having held a number of executive positions, including Executive Vice President of Financial Management, Chief Executive Officer of Prudential Investments, and President of both Prudential Preferred Financial Services and Prudential Property and Casualty Company. He previously served as a director of our company from August 2004 to July 2005. | ||||
Mr. Caulfield has experience in finance, investments, and executive management in both the insurance and broader financial services industry. He also qualifies as an “audit committee financial expert” under SEC regulations. |
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Information About the Board of Directors
Pamela H. Godwin
Director since 2004 Age 65 |
Independent Director Current term expires in
Member of the Finance Committee Member of the Governance Committee
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Ms. Godwin has been President of Change Partners, Inc., a consulting firm specializing in organizational change and growth initiatives, since 2001. From 1999 to 2001, she was President and Chief Operating Officer of the personal lines agency division of GMAC Insurance. Prior to that time, she held a number of executive positions within the financial services industry, including Senior Vice President of customer management for the credit card division of Advanta Corporation, President and Chief Operating Officer of Academy Insurance Group, a unit of Providian Corporation, and Senior Vice President of property/casualty claims at Colonial Penn Group, Inc. Ms. Godwin is also a director of Federal Home Loan Bank of Pittsburgh.
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Ms. Godwin brings executive management experience from the insurance industry. Additionally, she has risk-assessment skills from her work as a chartered property/casualty underwriter and experience managing high-risk lines of insurance.
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Ronald E. Goldsberry
Director since 1999 Age 71 | Independent Director Current term expires in
Chair of the Governance Committee Member of the Finance Committee
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Dr. Goldsberry is
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Dr. Goldsberry has broad business experience which includes marketing, sales, customer service and international operations. He also brings experience from his prior service on the board and audit committee of another publicly traded company. |
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 15
Information About the Board of Directors
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Kevin T. Kabat
Director since 2008 Age 57 |
Independent Director Current term expires in
Member of the Governance Committee | |||||
Mr. Kabat is the
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Mr. Kabat brings extensive financial and operating experience as a chief executive officer of a major regional bank, and in other executive positions in the financial services industry. He also qualifies as an “audit committee financial expert”
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Director since 2004 Age 70 |
Independent Director Current term expires in
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Information About the Board of Directors
| A.S. (Pat) MacMillan, Jr. Director since 1995 Age 70 | Independent Director Current term expires in 2015 Member of the Human Capital Committee |
Mr. MacMillan has served as the Chief Executive Officer of Triaxia Partners, Inc. since 1980. Triaxia’s practice areas include organizational strategy and design, as well as team and leadership development. Specific services include management consulting, management training and organizational audits. He is also a trustee of The Maclellan Foundation, Inc.
Mr. MacMillan brings management and organizational insight from his consulting practice. He has also served on the boards of public and private companies.
Edward J. Muhl Director since 2005 Age 69 | Independent Director Current term expires in 2015 Member of the Human Capital Committee |
Mr. Muhl served as the National Leader of the Insurance Regulatory Advisory Practice of PricewaterhouseCoopers from 2001 until his retirement in June 2005. He was Senior Managing Director of Navigant Consulting, Inc. from 1998 to 2000, which he joined as Executive Vice President in 1997. Prior to that time, Mr. Muhl held important regulatory positions within the insurance industry, including Superintendent of Insurance of the State of New York, Insurance Commissioner of the State of Maryland, and President of the National Association of Insurance Commissioners. He is also a director of Farm Family Insurance Company, and previously served as a director of Syncora Holdings, Ltd. from 2008 to 2009.
Mr. Muhl has over 45 years of experience in the insurance industry, including service as a regulator. He has previously served as a director of a publicly traded company and currently serves as a director of a non-publicly traded insurance company.
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 17
Information About the Board of Directors
Michael J. Passarella
Director since 2006 Age 72 |
Retiring in
Chair of the Audit Committee Member of the Regulatory Compliance Committee | |||
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Mr. Passarella was an audit partner of PricewaterhouseCoopers LLP from 1975 until his retirement in 2002. During that time, he served in a number of leadership positions at the firm, including as managing partner of its securities industry practice and as its capital markets industry global audit leader. Mr. Passarella served as a director and Chairman of the Audit Committee of Archipelago Holdings, Inc. from August 2004 until its merger in March 2006 with the New York Stock Exchange, Inc. He also served as a director with NYFIX, Inc. from October 2007, including as Chairman of its Audit Committee from April 2008, until its merger with a subsidiary of NYSE Technologies, Inc. in November 2009.
Mr. Passarella brings significant experience as an audit partner of a national accounting firm. He has also served on the boards and chaired the audit committees of two other publicly traded companies. He also qualifies as an “audit committee financial expert” as defined in SEC regulations.
The Human Capital Committee reviews director compensation annually and makes recommendations to the Board as appropriate.
Benchmarking
With the assistance of its third-party compensation consultant, Pay Governance LLC, the Committee reviews peer group data to understand market practices for director compensation. Our non-employee director compensation is compared to that of companies in two peer groups: (1) the Proxy Peer Group described on page 39 of the Compensation Discussion and Analysis; and (2) a general industry peer group with market capitalizations ranging from $2 billion to $12 billion, which consisted of 201 companies for the review in December 2012 and 162 companies for the review in August 2013. The Committee uses the approximate median of these peer groups as a reference point for setting director compensation. The use of two peer groups provides an indication of director pay levels both within the insurance industry as well as the broader market.
In December 2012, the Committee’s consultant provided its annual analysis of non-employee director compensation. While the analysis showed that total non-employee director compensation was approximately 5-14% below market median of the two comparator groups, the Committee decided not to make any change to non-employee director compensation at the time. In August 2013, Pay Governance provided an updated analysis based on the latest market data which showed that total remuneration had increased across the peer groups, and total non-employee director compensation was at that point approximately 8-16% below market median of the two comparator groups. The Committee agreed to consider this information and make a decision at its December meeting. In December 2013, given the comparison to market norms, the continued increased demands on directors, and the need to ensure that we attract and retain qualified directors, the Committee approved the compensation changes outlined in
18 | Notice of Annual Meeting of Shareholders and 2014 Proxy Statement
Information About the Board of Directors
the table, to be effective in May 2014. In particular, the Committee noted that the company will be actively recruiting a number of new directors as a result of Board retirements over the next few years and the need to offer competitive compensation. During the process, Mr. Kabat (who succeeded Mr. MacMillan as chair of the Committee in May 2013) recused himself of the decision to increase the Committee chair retainer.
For information about fees paid to Pay Governance LLC for director and executive officer compensation consulting services, see page 38 of the Compensation Discussion and Analysis.
Elements of Non-Employee Director Compensation
Non-employee directors receive cash retainers and equity awards as outlined in the following table:
CASH AND EQUITY COMPENSATION TO NON-EMPLOYEE DIRECTORS | 2013 | 2014 | ||||
All Directors: | Value | Value | ||||
Annual cash retainer | $80,000 | $95,000 | ||||
Annual restricted stock unit award | 120,000 | 140,000 | ||||
Committee Chairs: | ||||||
Additional annual cash retainer - Audit Committee | 15,000 | 22,500 | ||||
Additional annual cash retainer - Human Capital Committee | 10,000 | 17,500 | ||||
Additional annual cash retainer - all other Board committees | 10,000 | 10,000 | ||||
Board Chairman: | ||||||
Additional annual cash retainer (paid quarterly) | 160,000 | 160,000 |
These amounts are prorated for partial-year service and may be deferred at the election of each director for payment in common stock at a future date. Directors deferring cash compensation receive a number of deferred share rights (each representing the right to one share of common stock) equal to the number of whole shares of common stock that could be purchased for the deferred amount based on the closing price of a share of common stock on the date the cash compensation is payable.
Directors’ expenses associated with attending Board and committee meetings, or other meetings relating to company business, are paid by the company. Directors are eligible to participate in our employee matching gifts program. Under this program, we match up to $7,500 each year for eligible gifts to nonprofit organizations.
We do not have a retirement plan for directors. However, Dr. Goldsberry, who served as a director of UNUM Corporation prior to its merger into our company in 1999, is entitled to receive an annual payment of $27,500 for four years under the UNUM Corporation plan upon his ceasing to be a director.
We pay no additional compensation to Mr. Watjen for his Board service.
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 19
Information About the Board of Directors
2013 Compensation
The following table provides details of the compensation of each person who served as a non-employee director during 2013.
NON-EMPLOYEE DIRECTOR COMPENSATION
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Name | Fees Earned or Paid in Cash(1) | Stock Awards(2) |
Change in Pension | All Other Compensation(4) | Total | |||||||||||||||
Theodore H. Bunting, Jr. | $40,000 | $59,995 | $ - | $ - | $99,995 | |||||||||||||||
E. Michael Caulfield | 90,000 | 119,996 | 7,230 | 7,500 | 224,726 | |||||||||||||||
Pamela H. Godwin | 80,000 | 119,996 | 7,961 | 1,890 | 209,847 | |||||||||||||||
Ronald E. Goldsberry | 90,000 | 119,996 | 8,398 | - | 218,394 | |||||||||||||||
Kevin T. Kabat | 89,983 | 119,996 | 4,568 | - | 214,547 | |||||||||||||||
Timothy F. Keaney | 80,000 | 119,996 | - | 7,500 | 207,496 | |||||||||||||||
Thomas Kinser | 80,000 | 119,996 | 12,968 | 1,700 | 214,664 | |||||||||||||||
Gloria C. Larson | 90,000 | 119,996 | 20,340 | 7,500 | 237,836 | |||||||||||||||
A.S. (Pat) MacMillan, Jr. | 80,000 | 119,996 | - | - | 199,996 | |||||||||||||||
Edward J. Muhl | 80,000 | 119,996 | - | - | 199,996 | |||||||||||||||
Michael J. Passarella | 95,000 | 119,996 | 859 | 7,500 | 223,355 | |||||||||||||||
William J. Ryan | 240,000 | 119,996 | 5,275 | - | 365,271 |
(1) | These amounts include annual and committee retainers which were paid in cash or deferred. All directors elected to receive cash with the exception of Mr. Kabat, who chose to defer 100% of his fee in the form of deferred share rights. |
William J. Ryan
Director since 2004
Age 68
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(3) | The amounts shown represent dividend reinvestment earnings on deferred share rights in each director’s account. |
(4) | The amounts shown represent matching gifts to charitable organizations from
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20 | Notice of Annual Meeting of Shareholders and 2014 Proxy Statement
Information About the Board of Directors
Director Stock Ownership and Retention Requirements
Each non-employee director is required to own Unum equity securities with an aggregate value in excess of five times the director’s annual cash retainer ($400,000 at the end of 2013; and $475,000 beginning May 2014). New directors have five years from the date of their election to meet the ownership requirement.
Currently, each non-employee director is required to retain Unum equity securities received as a result of director compensation for at least three years from the time the equity securities vest, and to retain at least the number of equity securities necessary to meet his or her ownership requirement until retirement from the Board. In December 2013, following a review of ownership and retention requirements, the Human Capital Committee determined that it was appropriate to align the director retention requirements with those currently in effect for Unum’s executive vice presidents. Effective May 2014, each director will be required to retain 60% of Unum equity securities received as a result of director compensation for one year from the time the equity securities vest and to retain at least the number of equity securities necessary to meet his or her ownership requirement until retirement from the Board.
The Committee annually reviews each director’s stock ownership level. If a director does not reach his or her ownership requirement in a timely manner, the Committee will determine whether action is appropriate. As of December 31, 2013, 10 of our non-employee directors had met the ownership requirement. The other two non-employee directors recently joined the Board and are expected to meet the increased ownership requirement within the time period provided for reaching the requirement.
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 21
Corporate Governance Guidelines
The Board of Directors has adopted corporate governance guidelines on a number of significant matters, including director selection and independence, director responsibilities, Board leadership and management succession. The corporate governance guidelines are available on our investor relations website under the “Corporate Governance” heading atwww.investors.unum.com. The Governance Committee regularly reviews developments in corporate governance and recommends updates to the corporate governance guidelines and other documents as necessary or appropriate in response to regulatory requirements and evolving practices.
William J. Ryan, an independent director, serves as Chairman of the Board, and Thomas R. Watjen serves as Chief Executive Officer (CEO) of the company. The Board has determined that separation of the Chairman and CEO positions is appropriate at this time because it enables the CEO to devote the significant time and focus necessary to manage our business in the current environment. Our corporate governance guidelines allow the Board to combine the offices of Chairman and CEO when appropriate.
As an independent Chairman, Mr. Ryan is deemed the lead independent director. As such, he presides over executive sessions of the independent directors, facilitates information flow between directors and senior management, consults with the CEO and senior management about schedules, agendas and participants for Board meetings, and performs other duties specified in our corporate governance guidelines. If a non-independent director becomes Chairman, the Board will elect an independent director annually to serve as the lead independent director.
Our independent directors generally meet in executive session at each regularly scheduled Board meeting. Executive sessions enable the independent directors to discuss matters without management present, including management performance, succession planning and Board effectiveness. The independent directors met five times in executive session during 2013.
Our corporate governance guidelines provide that a substantial majority of the Board will be independent. For a director to be considered independent, the Board must determine that the director has no material relationship with our company, and the director must meet the requirements for independence under the listing standards of the New York Stock Exchange (NYSE). The Board has also determined that certain categories of relationships are not considered to be material relationships that would impair a director’s independence. These independence standards are listed in our corporate governance guidelines. In making independence determinations, the Board considers all relevant facts and circumstances.
The Governance Committee reviews information about the directors’ relationships and affiliations that might affect their independence and makes recommendations to the Board as to the independence of the directors.
22 | Notice of Annual Meeting of Shareholders and 2014 Proxy Statement
Corporate Governance
Based on a review of the findings and recommendations of the Governance Committee and applying the standards described above, the Board has determined that each of our directors is independent, with the exception of Thomas R. Watjen, our President and CEO.
Process for Nominating Directors
The Governance Committee is responsible for identifying and evaluating director candidates and recommending to the Board a slate of nominees for election at each annual meeting of shareholders. The Committee has engaged a third party search firm to assist with recruitment efforts in preparation for upcoming retirements. This firm identifies candidates who meet the criteria of our search, provides requested background and other relevant information regarding candidates, and coordinates arrangements for interviews as necessary. Nominees may also be suggested by directors, management or shareholders.
Shareholders who wish to nominate director candidates must submit written notice of their nominations to the Corporate Secretary at Unum Group, 1 Fountain Square, Chattanooga, Tennessee 37402 in accordance with the process described on page 90 in the section titled “Shareholder proposals and nominations for our 2015 annual meeting.” Our policy is to consider candidates recommended by shareholders in the same manner as other candidates.
Our corporate governance guidelines specify the following criteria to be used in evaluating the candidacy of a prospective nominee:
Reputation for high ethical conduct, integrity, sound judgment and accountability;
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Director since 2002
Age 57
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President and Chief Executive Officer
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its committees; |
How often does
— | Collegial effectiveness; and |
— | Diversity, whether in viewpoints, gender, ethnic background, age, professional experience or other demographics (though no specific diversity policy is applied). |
The core competencies sought in any particular candidate depend on the current and future needs of the Board meet?based on an assessment of the composition of the Board and the mix of attributes and qualifications represented. Core competencies include knowledge and experience in finance, investments and accounting, executive management, the insurance or financial services industry, risk oversight, technology, marketing, strategic planning, regulatory compliance and public policy.
In addition to the criteria described above, the Governance Committee considers other specific qualifications that may be desired or required of nominees, including their independence and ability to satisfy Audit Committee or Human Capital Committee requirements. In determining whether to recommend a director for re-election, the Governance Committee also considers the director’s interest in continuing to serve, past attendance at meetings, contributions to the Board and committees on which the director serves, and the results of the most recent Board, committee and individual director evaluations.
Limits on Board and Audit Committee Service
During 2011, theNo director may serve on more than three public company boards in addition to our Board, or on more than two audit committees of public companies in addition to our Audit Committee.
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 23
Corporate Governance
The Board of Directors met 15 times.seven times during 2013. Each incumbent director attended at least 75% of the total number of meetings of the Board and the committees on which he or she served during the periods of the director’s service in 2011. The independent directors met seven times2013. Depending upon committee assignments, a director generally would have had anywhere from 19 to 30 meetings to attend in executive session during 2011. William J. Ryan, the Chairman of the2013. Average director attendance at Board and lead independent director, presides over the executive sessions of the independent directors.committee meetings was 95%.
Directors are expected to attend annual meetings of shareholders. All of the directors attended the Annual Meeting in 2011.
What are the qualifications of the company’s directors?
To provide effective oversight of management and act in the long-term best interests of shareholders, we believe our directors must possess characteristics, attributes and qualities evidencing sound judgment, high ethical conduct, integrity and knowledge or experience in one or more core competencies. We consider knowledge in the following areas to be among the core competencies neededserving on the Board: finance and accounting, executive management,Board at the insurance industry or financial services industry, risk oversight, marketing, technology, strategic planning, regulatory compliance and public policy. Accountability, independence, commitment and diversity are also important. As indicated in our Corporate Governance Guidelines, we consider diversity to include diversity of viewpoints, gender, ethnicity, age, professional experience and other demographics. In evaluating candidates for directors, the Governance Committee and the Board of Directors consider the entirety of each candidate’s credentials in the context of these standards. With respect to continuing directors, the individuals’ contributions to the Board of Directors are also important.
Certain individual qualifications and skillstime of our directorsannual meeting in 2013 attended that contribute to the Board’s effectiveness as a whole are also discussed in the paragraphs above describing our directors.
meeting.
What are the standing Board committees?
The Board of Directors has five standing committees: Audit, Finance, Governance, Human Capital and Regulatory Compliance. Each committee has a charter that is available on our investor relations website under the “Corporate Governance” heading atwww.investors.unum.com. In addition to the duties contained in their respective charters, each committee may be assigned additional tasks by the Board, from time to time, and each is charged with reporting its activities to the Board. Each standing committee has a charter that may be accessed on our website at www.unum.com in the Investors area under Corporate Governance. Copies also are available free of charge by submitting a request to the Office of the Corporate Secretary as described on page 12.
Some matters may be discussed by more than one committee. The charters of each committee allow for this to occur, and any overlap of responsibilities is managed through communication among the committee chairs.
Who serves on the committees?
The table below lists the current members of the Board of Directors and the committees on which they serve (with “X” denoting membership and “C” denoting committee chair).
BOARD MEMBERS AND COMMITTEES
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Name | Term Expires | Audit | Finance | Governance | Human Capital | Regulatory Compliance | ||||||
Theodore H. Bunting, Jr. | 2016 | X | X | |||||||||
E. Michael Caulfield | 2016 | X | Chair | |||||||||
Pamela H. Godwin | 2015 | X | X | |||||||||
Ronald E. Goldsberry | 2016 | X | Chair | |||||||||
Kevin T. Kabat | 2016 | X | Chair | |||||||||
Timothy F. Keaney | 2014 | X | X | |||||||||
Thomas Kinser | 2015 | X | X | |||||||||
Gloria C. Larson | 2014 | X | Chair | |||||||||
A.S. (Pat) MacMillan, Jr. | 2015 | X | X | |||||||||
Edward J. Muhl | 2015 | X | X | |||||||||
Michael J. Passarella | 2016 (1) | Chair | X | |||||||||
William J. Ryan | 2014 | |||||||||||
Thomas R. Watjen | 2014 | |||||||||||
2013 Committee Meetings | 12 | 7 | 7 | 11 | 5 |
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24 | Notice of Annual Meeting of Shareholders and 2014 Proxy Statement
Corporate Governance
Audit Committee
The Audit Committee assists the Board in its oversight of financial statement and disclosure matters, the company’s relationship with itsour independent auditors,auditor, the internal audit function, risk management responsibilities, and compliance with legal and regulatory requirements. Under its charter, the Committee’s responsibilities, among others, are to:
appoint and, as necessary, replace, and provide appropriate funding for payment of compensation to, our independent auditors;
review and discuss matters relating to our financial and accounting reporting processes, including oversightA more complete description of the integrityresponsibilities of our financial statements and the effectiveness of our internal control over financial reporting;
review and discuss with management and the independent auditors the company’s annual and quarterly financial statements and related disclosuresAudit Committee is included in the company’s annual and quarterly reports filed with the SEC;
pre-approve all audit services and permitted non-audit services to be performed by our independent auditors;
review and evaluate the qualifications, performance and independence of our independent auditors;
review and, as appropriate, discuss with management and the independent auditors matters relating to internal audit responsibilities, budgeting and staffing, including the scopeReport of the internal audit plan each year and a summary of significant findings and responses;
review and discuss with management the company’s policies and major exposures with respect to financial risk, operational risk and any other risk not allocated to another Board committee, as well as the company’s risk assessment and risk management framework; and
obtain reports and advise the Board concerning matters relating to compliance with applicable laws, regulations and the Code of Conduct.
Members as of December 31, 2011 were: Michael J. Passarella (Chair), E. Michael Caulfield, Kevin T. Kabat and Thomas Kinser.
The Audit Committee met 10 times during 2011. beginning on page 29.
All members of the Audit Committee are independent according to the requirements of the New York Stock Exchange (NYSE), and as required by SEC rules and regulations, and otherwise satisfymeet the independence requirements of the SEC, the NYSE and our Corporate Governance Guidelines.corporate governance guidelines. The Board has determined that threefour members of the Audit Committee, Michael J. Passarella,Theodore H. Bunting, Jr., E. Michael Caulfield, Timothy F. Keaney and Kevin T. Kabat,Michael J. Passarella, are “audit committee financial experts” as defined by SEC regulations. Each of Messrs. Passarella, Caulfieldrules and Kabat also hashave accounting or related financial management expertise within the meaning of the listing standards of the NYSE. All members of the Audit Committee have been determined by the Board to be “financially literate” as required by the NYSE.
Finance Committee
The Finance Committee assists the Board in overseeing risk associated with the company’soversight of our investments, and related financial matters. Under its charter, the Committee’s primary responsibilities are to:
monitor, evaluate and recommend present and future capital and financing plans and capital requirementsactivities and opportunities relative to our business;related financial matters and the associated risks. Among other responsibilities, the Finance Committee:
— | evaluates and recommends to the Board capital and financing plans, activities, requirements and opportunities; |
develop, adopt, revise, and oversee
— | oversees implementation of and compliance with investment strategies, guidelines and policies; |
— | reviews, assesses and reports on the impact of various finance activities on our debt ratings; and |
— | monitors, evaluates and makes recommendations to the Board regarding matters pertaining to our Closed Block segment, including the long-term care business, that could have a meaningful impact upon any of the matters for which the Committee has oversight responsibility. |
All members of and compliance with investment strategies, guidelines and policies;
review, advise and provide reports to the Board of Directors with respect to our financial resources and investments;
authorize borrowings by the company;
review material proposed mergers, acquisitions, divestitures, restructurings, and joint ventures, and report to the Board on implications to our financial and capital plans; and
review, assess and report on the impact of various finance activities on our debt ratings.
Members as of December 31, 2011 were: E. Michael Caulfield (Chair), Pamela H. Godwin and Ronald E. Goldsberry.
The Finance Committee met six times during 2011. All Committee members satisfymeet the independence requirements of our Corporate Governance Guidelines.corporate governance guidelines.
Governance Committee
The Governance Committee assists the Board in developing, implementingimplementation and overseeing the company’soversight of our corporate governance policies. Under its charter,Among other responsibilities, the Committee’s primary responsibilities are to:Governance Committee:
oversee compliance with our Corporate Governance Guidelines;
— | oversees compliance with our corporate governance guidelines; |
establish the criteria for selecting director candidates;
— | sets director selection criteria and identifies qualified candidates for the Board; |
identify qualified candidates for the Board in its role as the nominating committee;
— | oversees the process for Board and committee evaluations; and |
— | periodically makes recommendations to the Board regarding committee membership. |
develop and implement a process for evaluating the Board and its members;
develop standards for independence of directors; and
periodically review and make recommendations to the Board regarding membership on Board Committees.
Members as of December 31, 2011 were: Ronald E. Goldsberry (Chair), Pamela H. Godwin, and Gloria C. Larson. The Governance Committee met 14 times during 2011. All members of the Governance
Committee are independent according to the NYSE requirements and otherwise satisfymeet the independence requirements of the NYSE and our corporate governance guidelines.
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 25
Corporate Governance Guidelines.
Human Capital Committee
The Human Capital Committee assists the Board in overseeing the company’soversight of our compensation and benefit programs and related risks. Under its charter,risks to support business plans, attract and retain key executives and tie compensation to performance. Among other responsibilities, the Committee’s primary responsibilities are to:Human Capital Committee:
approve the compensation for the CEO and other senior executives;
— | establishes our general compensation philosophy, principles and practices; |
evaluate employee compensation programs;
— | evaluates and approves compensation and benefit plans; |
oversee compensation regulatory compliance;
— | reviews and approves compensation of the CEO and other senior executives; and |
— | advises the Board on the Compensation Discussion and Analysis in our proxy statements, including consideration of the most recent say-on-pay vote. |
recommend the compensation of directors to the Board;
recommend any equity-based compensation plan to the Board;
advise the Board on the Compensation Discussion and Analysis in our Proxy Statement;
oversee compliance with the NYSE requirement that shareholders approve equity compensation plans; and
prepare an Annual Report of the Committee for inclusion in our Proxy Statement as required by regulations of the SEC.
Members as of December 31, 2011 were: A.S. (Pat) MacMillan, Jr. (Chair), Kevin T. Kabat, Thomas Kinser and Edward J. Muhl.
The Human Capital Committee met seven times during 2011. All members of the Human Capital Committee are independent according to NYSE requirements and otherwise satisfymeet the independence requirements of the NYSE and our Corporate Governance Guidelines to serve as members of the Committeecorporate governance guidelines and are “non-employee directors” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934 and “outside directors” for purposes of Section 162(m) of the Internal Revenue Code.
The Committee has engaged Pay Governance LLC as its independent compensation consulting firm since 2010. Committee meetings are generally attended by Pay Governance consultants, who also participate in executive sessions without members of management in attendance and communicate with Committee members outside of meetings. Pay Governance consultants report directly to the Committee, although they may meet with members of management from time to time on proposals management may make to the Committee. The Committee annually evaluates the independence of its compensation consultants in accordance with the policy it adopted in February 2009.
Regulatory Compliance Committee
The Regulatory Compliance Committee assists the Board in its oversight of regulatory, compliance, policy and legal matters and related risks to ensure that we maintain compliance with laws and regulations and the highest levels of integrity. Among other responsibilities, the Regulatory Compliance Committee:
— | monitors the effectiveness of our compliance efforts concerning applicable regulatory and legal requirements and internal policy; |
— | reviews and discusses with management any communication to or from regulators or governmental agencies and any information regarding our compliance with applicable laws or regulations; and |
— | monitors the investigation and resolution of any significant instances of noncompliance or potential compliance violations. |
All members of the Regulatory Compliance Committee meet the independence requirements of our corporate governance guidelines.
The Board’s Role in Risk Oversight
The Board has an active role, as a whole and also at the committee level, in overseeing management of the company’s risks. The Board is responsible for managing strategic risk and regularly reviews information regarding our capital, liquidity and operations, as well as the risks associated with each. The Audit Committee is responsible for oversight of the company’s risk management process, financial risks, operational risks, which includes cybersecurity risk, and any other risk not specifically assigned to another committee. An enterprise risk management report is provided to the Audit Committee at least quarterly. The Finance Committee is responsible for oversight of risks associated with investments and related financial matters, including those pertaining to our Closed Block segment. The Human Capital Committee is responsible for overseeing the management of risks relating to our compensation plans and programs; in connection with this oversight, it receives an analysis from enterprise risk management with respect to these risks. The Regulatory Compliance Committee oversees management of risks related to regulatory, compliance, policy and legal matters, both current and emerging and whether of a local, state, federal or international nature, that may affect the business of the company. Under its charter, the Committee’s primary responsibilities are to:
monitor and advise the Board on current and emerging regulatory, compliance, policy and legal matters and related risks that may significantly affect the company and for which oversight responsibility is not allocated solely to another standing committee of the Board;
monitor the effectiveness of the company’s enterprise-wide compliance efforts concerning applicable regulatory and legal requirements and internal policy;
obtain from and discuss with management, the Chief Compliance Officer, the Chief Risk Officer and/or other advisors, as appropriate, internal and external reports concerning significant compliance issues or exposure to which the company may be subject;
monitor compliance by the company and its insurance subsidiaries with applicable market conduct laws and regulations, Title I of ERISA and ongoing obligations under regulatory compliance agreements;
review and discuss with management any reports, orders, inquiries, responses or other correspondence by, to or from regulators or governmental agencies and any complaints or published reports and any litigation or legal matters which raise significant issues regarding the company’s compliance with applicable laws or regulations; and
monitor the investigation and resolution of any significant instances of noncompliance or potential compliance violations that are reported to the Committee.
Members as of December 31, 2011 were: Gloria C. Larson (Chair), A.S. (Pat) MacMillan, Jr., Edward J. Muhl and Michael J. Passarella.
The Regulatory Compliance Committee met five times during 2011. All members of the Regulatory Compliance Committee are independent and satisfy the requirements of our Corporate Governance Guidelines.
What is the Board’s leadership structure?
Currently, the positions of Chairman of the Board and Chief Executive Officer are separate. Our Chairman is an independent director, and the Board believes that the separation of the Chairman and CEO positions allows the CEO to devote the significant time and focus necessary to manage our business given the difficult economic and regulatory environment. Under our Corporate Governance Guidelines, the Board reserves the right to combine the offices of Chairman of the Board and CEO when appropriate.
26 | Notice of Annual Meeting of Shareholders and 2014 Proxy Statement
Corporate Governance
Whointernational nature. While each committee is responsible for determiningevaluating certain risks and overseeing the compensationmanagement of non-employee directors?such risks, the entire Board of Directors is regularly informed through committee reports about such risks in addition to the risk information it receives directly.
Compensation Risk
TheOur chief risk officer, in consultation with the Human Capital Committee, is responsible for determininghas undertaken a risk assessment of our compensation programs and practices. The process included the compensation of non-employee directors. The Committee seeks advice from Pay Governance LLC, its independent compensation consultant.
How often does the company review director compensation?
The Committee, with the assistance of its consultant, reviews director compensation annually. The first changes to director compensation since 2007 were made in 2011, although annual reviews in the years following 2007 consistently indicated that overall compensation for our directors was below market levels.
What benchmarking or research is done with regard to director pay?
Our non-employee director compensation is compared to that of companies in two peer groups:
The Proxy Peer Group described in the Compensation Discussion and Analysis; and
A general industry peer group with market capitalizations ranging from $2 billion to $12 billion which consisted of 170 companies for reviews in December 2010 and early 2011; and 216 companies for the review in December 2011.
As with executive pay, peer group data helps us understand the director compensation practices of other companies. The Committee uses the approximate median of this peer group as a reference point for setting director compensation to ensure that we can attract and retain directors with the appropriate leadership experience and skills.
How are non-employee directors compensated for their services?
The Committee’s consultant provided an analysis of non-employee director compensation in February 2011, which indicated that overall compensation was more than 15% below market levels. Given the comparison to market norms, the continued increased demands on directors, and the need to ensure that we attract and retain qualified directors, the Committee approved several changes to directors’ compensation. Further, in order to ensure alignment of director’s interests with those of shareholders, the Committee also increased the percentage of total compensation paid in restricted stock units. The following changes were made effective in May 2011:
Meeting fees were discontinued;
The grant date value of the annual grant of restricted stock units made to non-employee directors was increased; and
The additional annual retainer payable to the chair of each standing committee (other than the Audit Committee) was increased.
steps:
Review the |
Each non-employee director receives fees as outlined in the following table:
— | Review and assess the 2013 annual incentive program and long-term incentive program performance measures for alignment between actual results and achievement payout levels. |
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Directors’ expenses associated with attending meetings of the Board and committees, or other meetings relating to company business, are paid by the company.
Retainers are prorated for partial years during which a director serves on the Board or as the chair of a committee. Non-employee directors can elect to receive all or a portion of their cash compensation in deferred share rights.
Mr. Watjen, because he is an employee of the company, does not receive any additional compensation for his services as a director of the company or as a director of any of its subsidiaries.
In December 2011, the Committee’s consultant provided its annual analysis of non-employee director compensation. The Committee decided not make any changes to directors’ compensation at that time.
What payments are made to the Chairman of the Board?
The Chairman of the Board receives an additional retainer of $40,000 per quarter. Mr. Ryan assumed the role of Chairman of the Board on October 1, 2011 following the retirement of Mr. Fossel on September 30, 2011. Mr. Fossel has agreed to serve as a consultant to the company for a three-year period following his retirement and will receive an average of $200,000 per year.
Do directors receive any other benefits?
Directors are eligible to participate in our employee matching gifts program, which provides us with an important way to directly support non-profit organizations and educational institutions. Under this program, eligible gifts from a minimum of $50 to an aggregate maximum gift of $7,500 per year are matched on a dollar for dollar basis per year. Gifts to accredited colleges, universities, graduate schools, and secondary and elementary schools within the United States are matched on a two-to-one basis, subject to the $7,500 matching gift limit.
Are directors eligible for retirement pay?
We do not have a retirement plan for directors. Dr. Goldsberry, who served as a director of UNUM Corporation prior to its merger into our company in 1999, is entitled to receive an annual payment of $27,500 for four years under the UNUM Corporation plan. These payments will not begin until he ceases
to be a director and therefore are not included in the Non-Employee Director Compensation table as compensation in 2011.
What amounts were paid to the non-employee directors during 2011?
The following table provides details of the compensation of each person who served as a non-employee director during 2011.
NON-EMPLOYEE DIRECTOR COMPENSATION | ||||||||||||||||||||||
Name | Fees Earned or Paid in Cash(1) | Stock Awards(2) | Option Awards | Change in Pension Value and Nonqualified Deferred Compensation Earnings(3) | All Other Compensation(4) | Total | ||||||||||||||||
($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||
E. Michael Caulfield | $111,000 | $119,995 | $ - | $4,981 | $ - | $235,976 | ||||||||||||||||
Pamela H. Godwin | 99,000 | 119,995 | - | 6,821 | - | 225,816 | ||||||||||||||||
Ronald E. Goldsberry | 104,833 | 119,995 | - | 9,828 | - | 234,656 | ||||||||||||||||
Kevin T. Kabat | 99,500 | 119,995 | - | 2,818 | - | 222,313 | ||||||||||||||||
Thomas Kinser | 99,500 | 119,995 | - | 8,934 | - | 228,429 | ||||||||||||||||
Gloria C. Larson | 108,500 | 119,995 | - | 15,875 | - | 244,370 | ||||||||||||||||
A.S. (Pat) MacMillan, Jr. | 109,000 | 119,995 | - | - | - | 228,995 | ||||||||||||||||
Edward J. Muhl | 98,500 | 119,995 | - | - | - | 218,495 | ||||||||||||||||
Michael J. Passarella | 114,500 | 119,995 | - | 592 | - | 235,087 | ||||||||||||||||
William J. Ryan(5) | 144,667 | 119,995 | - | 3,634 | - | 268,296 | ||||||||||||||||
Jon S. Fossel(6) | 212,000 | 119,995 | - | 5,784 | 125,000 | 462,779 |
As of December 31, 2011, the aggregate number of deferred share rights held by each of our non-employee directors was as follows:
Mr. Caulfield | 12,745 | Mr. Kinser | 22,862 | Mr. Muhl | - | |||||||||
Ms. Godwin | 16,466 | Ms. Larson | 42,480 | Mr. Passarella | 1,514 | |||||||||
Dr. Goldsberry | 24,553(a) | Mr. MacMillan | - | Mr. Ryan | 9,299 | |||||||||
Mr. Kabat | 5,977 |
Assess the effect of any proposed design changes to the 2014 incentive plans. |
Based on this assessment, the following conclusions were reached:
— | The |
The incentive plans are balanced and |
The program’s goals are effectively balanced and consistent with the |
Are there stock ownership and retention guidelines for directors?—
In 2008, we adopted a guideline that each non-employee director is expected to hold Unum securities with a value equal to three times the director’s annual cash retainer of $80,000, or $240,000. In December 2011, after a review of current market practice, the Committee decided to increase the guideline for all current directors to five times the director’s annual cash retainer of $80,000, or $400,000, in order to be aligned with market practice. The effective date will be the 2012 Annual Meeting date, and directors will have two years to meet the guideline. New directors have five years from the date they are first elected to their current continuous service on the Board to reach the guideline.
Under our guidelines for director ownership, each director is expected to retain securities received as a result of director compensation for at least three years from the time the securities vest and retain at least the number of securities necessary to meet the above ownership goal until retirement from the Board.
Our management provides the Committee with an ownership summary for each director on an annual basis. The Committee will make a subjective assessment of the appropriate action to take for any director who does not reach the ownership goal in a timely manner. As of December 31, 2011, each of the non-employee directors met the current ownership guideline.
What is the nomination process for the Board?
The Governance Committee, serving in its capacity as the nominating committee, considers candidates for Board membership suggested by Board members, management and shareholders. In addition, the Committee typically uses the services of a national executive search firm to help identify candidates for the Board, obtain information about prospective candidates’ backgrounds and experience, determine the candidates’ levels of interest in becoming a director of our company, and make arrangements for meetings with prospective candidates.
A shareholder who wishes to recommend a prospective nominee for the Board must notify the Office of the Corporate Secretary in writing. Our policy is to consider candidates recommended by shareholders
All potential awards are subject to Human Capital Committee discretion and the company has a recoupment policy in place in the event of a material earnings restatement. |
in the same manner as other candidates. The nominee recommendation should include information required by our bylaws regarding shareholder nominations. Those requirements can be found in this document under “Submitting Nominations” below or on our website at www.unum.com in the Investors area under Corporate Governance.
Once the Committee has identified a prospective nominee, a decision is made whether to conduct a full evaluation of the candidate. This decision is based on information provided to the Committee as well as its own knowledge of the prospective candidate. This may be supplemented by information from the search firm assisting the Committee, or by inquiries to the person making the recommendation, or others. The Committee evaluates the prospective nominee against criteria in our Corporate Governance Guidelines, which include:
Evidence of reputation for high ethical conduct, integrity, sound judgment and accountability for one’s decisions and actions;
Current knowledge and experience that fulfill skills needed on the Board;
A willingness to commit time to the Board in order to fulfill its responsibilities;
Providing skills that help us build a Board that is effective and responsive to the needs of the company;
Contributing to the diversity of the Board, in viewpoints, gender, ethnic background, age, professional experience and other demographics; and
Fulfillment of the requirements of independence if the person is being considered for a position as an independent director.
The Committee also considers the number of other public company boards and audit committees on which a prospective nominee serves. The Corporate Governance Guidelines limit the number of public company boards on which a director of the company may serve to no more than three in addition to our Board. The Corporate Governance Guidelines further limit members of the Audit Committee of the Board to serving on no more than two other audit committees of public companies.
The Committee also considers other experience or qualifications from time to time, including:
The current composition of the Board;
Whether a director with specific experience is needed on the Board; and
The need for additional members to satisfy Audit Committee and Human Capital Committee requirements.
The Committee then compares prospective nominees and determines whetherdo not believe the company’s compensation programs create risks that are reasonably likely to interviewhave a nominee, either inmaterial adverse effect on the company.
Our bylaws state that no person or by telephone. After completingmay serve as a director beyond the evaluation and interview, the Committee makes a recommendation to the full Board as to whom, if anyone, should be nominated. The Board determines whether to accept the nominee after considering the recommendationdate of the Committee. In accordance with regulatory requirements, the Board may counsel with, or obtain approval of, certain state insurance regulators in connection with the qualifications of individuals asked to become directors.
As outlined in its charter and the Corporate Governance Guidelines, the Committee reviewed those directors whose terms expire at this Annual Meeting. This review took into account each director’s interest in continuing to serve, his or her contributions to the Board, and whether each director possessed special areas of experience or other traits or skills needed by the Board. Following this review, the Committee (with Ms. Godwin recusing herself from the decision with respect to her nomination) recommended the re-election of the four nominees identified in this Proxy Statement — Pamela H. Godwin, Thomas Kinser, A.S. (Pat) MacMillan, Jr. and Edward J. Muhl.
How may a shareholder submit a nomination?
Under our bylaws, a shareholder may nominate one or more persons for election to the Board of Directors at a meeting of shareholders. For the nominee to become eligible for election to the Board at the meeting, the shareholder nomination must be timely submitted to the company and must contain certain information concerning the nominee and the submitting shareholder, all as specified in our bylaws and summarized below.
What is the deadline for submitting a shareholder nomination?
To nominate a person for election to the Board at an annual meeting of shareholders a shareholder must give timely notice to our Corporate Secretary. To be timelyimmediately following his or her 72nd birthday. In accordance with this policy, Mr. Passarella will retire from the notice must be received between the 75th day and 120th day (by the close of business on such dates) prior to the first anniversary of the preceding year’s annual meeting. Thus, for notice of a shareholder nomination to be timely for our annual meeting in 2013, the notice must be received between the close of business on January 24, 2013 and the close of business on March 11, 2013.
If, however, the annual meeting date is moved by more than 30 days before or 70 days after the anniversary of the preceding year’s annual meeting or the nomination relates to a special meeting of shareholders called for the purpose of electing one or more directors, the notice will be timely if it is received no earlier than the close of business on the 120th day prior to the meeting and not later than the close of business on the later of (i) the 75th day prior to the meeting, and (ii) the 10th day following the day on which we first make public announcement of the date of the meeting.
What information must the shareholder nomination include?
Each notice of a shareholder nomination must set forth the following information:
As to each person whom the shareholder proposes to nominate for election or re-election as a director:
The name, age, business address and residence address of the person;
The principal occupation or employment of the person;
The class and number of shares of the company that are beneficially owned by the person;
A description of all arrangements, understandings or relationships between the shareholder and each nominee, and any other relevant person or persons;
All information required by the National Association of Insurance Commissioners’ Biographical Affidavit and attachments, as amended or replaced;
Such person’s written consent to being named in the Proxy Statement as a nominee and to serving as a director if elected; and
Any other information relating to the person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Rule 14(a) under the Securities Exchange Act of 1934, as amended (the “Act”), and any other applicable laws, rules or regulations of any governmental authority, or of any national securities exchange or similar body overseeing any trading market on which our shares are traded.
As to the shareholder giving the notice:
The name and address of record of the shareholder and its principals (as hereinafter defined) and any shareholder associated person as defined in our bylaws on whose behalf the nomination is made, and the name and address of record of any person that owns or controls, directly or indirectly, 10% or more of any class of securities or interests in such shareholder or shareholder associated person;
The class and number of shares of the company which are owned beneficially or of record by the shareholder and any shareholder associated person;
A list of all shareholder proposals and director nominations made by the shareholder during the prior 10 years;
A list of all litigation filed against principals of the shareholder during the prior 10 years asserting a breach of fiduciary duty or a breach of loyalty;
A representation that the shareholder is a holder of record of shares of the company entitled to vote at such meeting and intends to appear in person or by proxyBoard effective at the meeting to nominate the person or persons specified in the notice. A principal of a shareholder shall be the chief executive officer (or the equivalent) of the shareholder and any individual who owns 10% or more, directly or indirectly, of any class of securities or interests in the shareholder and is employed by the shareholder;
A description of any agreement, arrangement or understanding with respect to the proposal between or among the shareholder and/or any shareholder associated person, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing;
A description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the shareholder’s notice by, or on behalf of, such shareholder and any shareholder associated person, whether or not such instrument or right shall be subject to settlement in underlying shares of capital stock of the company, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or decrease the voting power of, such stockholder or such beneficial owner, with respect to securities of the company; and
A representation of whether the shareholder or any shareholder-associated person intends, or is a part of a group which intends: (a) to deliver a proxy statement or form of proxy to holders of at least the percentage of our outstanding capital stock required to approve or adopt the proposal or
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No potential director nominated by a shareholder is eligible for election as a director unless nominated in accordance with these procedures.
Independence of DirectorsAnnual Meeting.
What guidelines have been established to determine the independence of the company’s directors?
In February 2004, the Board adopted Corporate Governance Guidelines, which were amended most recently in May 2011. Under these guidelines, to be considered “independent,” a director must have no material relationship with our company and must otherwise meet or exceed the criteria for independence set forth in the listing standards of the NYSE.
Under NYSE standards, a director is not independent if:
He or she is, or has been within the last three years, an employee of the company, or an immediate family member is, or has been within the last three years, an executive officer of the company;
The director has received, or has an immediate family member who has received, during any 12-month period within the past three years, more than $120,000 in direct compensation from the company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);
(A) The director or an immediate family member is a current partner of a firm that is our internal or external auditor; (B) the director is a current employee of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice; or (D) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and worked on our audit within that time;
The director or an immediate family member is, or has been employed as an executive officer of another company within the last three years, where any of our present executive officers at the same time serves or served on that company’s compensation committee; or
The director is a current employee, or an immediate family member is a current executive officer of a company that has made payments to, or received payments from, our company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues.
In addition, the Board has determined that the following relationships between a director and the company are not considered to be material relationships that would impair the director’s independence:
The director is a current employee, or an immediate family member of the director is a current executive officer, of a third party that has made payments to, or received payments from, the company for property or services in an amount which, in any of the last three fiscal years, does not exceed the greater of $1 million or 2% of the third party’s consolidated gross revenues and, where there are comparable transactions, the relationship is in the ordinary course of our business and is on substantially the same terms as those prevailing under competitive circumstances at the time for comparable transactions with non-affiliated parties; and
The director serves as an executive officer or employee of a charitable organization that receives contributions from the company that do not, in any single fiscal year, exceed the greater of (A) 2% of the charitable organization’s goal for the year (or other comparable goal as determined by the Governance Committee) or (B) $500,000; provided, however, that this limitation shall not apply to annual United Way contributions by the company that have traditionally been made in communities in which the company has operations centers with more than 500 employees and do not materially exceed the amount of the contribution in the prior year.
Our Corporate Secretary gathers information about the directors’ relationships and entities with which they are affiliated that might affect their independence from the company. The Governance Committee reviews this information and makes recommendations to the Board as to the independence of the directors. The Board reviews the Committee’s findings and recommendations and makes a determination as to the independence of directors.
Does the company have any non-independent directors on its Board?
There is only one member of our Board who is not independent, Thomas R. Watjen, our President and Chief Executive Officer. The Board believes that there should not be more than two directors who are not independent, as stated in our Corporate Governance Guidelines.
Non-independent directors generally include current officers and any person who has been an officer within the past five years. All others are regarded as independent, outside or non-management directors. As required by NYSE, a majority of the Board must have no material relationship with the company and must otherwise meet NYSE’s criteria for independence.
The Board has determined that the following current directors are independent: E. Michael Caulfield, Pamela H. Godwin, Ronald E. Goldsberry, Kevin T. Kabat, Thomas Kinser, Gloria C. Larson, A.S. (Pat) MacMillan, Jr., Edward J. Muhl, Michael J. Passarella and William J. Ryan.
In reaching the determination that all other directors are independent, the Board applied the standards described above.
Compensation Committee Interlocks and Insider Participation
During fiscal 2011,2013, none of the members of the Human Capital Committee was an officer or employee of the company, and none of our executive officers served as a member of a board of directors or compensation committee of any other entity that has one or more executive officers serving as a member of our Board or Human Capital Committee.
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 27
Corporate Governance
Our Related Party TransactionTransactions and Policy
OurThe Board has adopted a written policy concerning related party transactions, which was approved by the Board in May 2007, defines “related party transaction” astransactions. This policy covers any transaction in which we werethe company was or areis to be a participant and the amount involved exceeds $120,000, and in which any related party had or will have a direct or indirect material interest. “RelatedA “related party” includesmeans any of our directors, director director nominee,nominees or executive officerofficers, any of the company,their immediate family members, any person whoknown to us to beneficially ownsown more than 5% of the company’sour outstanding common stock, and any member or any of their immediate families or any company or other entity in which they have at least aany of these persons has an interest as an employee, principal or 10% interestor greater beneficial owner or other material financial interest. Immediate family members covered under this policy include any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law and any other person (other than a tenant or employee) sharing the household with the nominee, director, executive officer, or 5% beneficial owner.
Prior to entering into a transaction that may be viewed as a related party transaction, the related party must notify our General Counselgeneral counsel of the facts and circumstances of the transaction. The General CounselIf the general counsel determines whetherthat the proposed transaction is a related party transaction. If the transaction is determined to be a related party transaction, it is submitted to the disinterested members of the Audit Committee for consideration at the next Committee meeting (or to the chair of the Committee if it is not practical to wait until the next meeting and the chair is not a related party to the transaction). The Committee considers all relevant facts and circumstances, including the benefits to the company, benefits to the related party, and if the related party is an independent director or nominee, the potential effect of entering into the transaction on the director’s or nominee’s independence, of entering into the transaction, any improper conflict of interest that may exist, the availability of other sources for the products and services, the terms of the transaction, and the terms available from or to unrelated third parties generally.
The transaction may be approved if it is determined in good faith not to be inconsistent with the best interests of the company and its shareholders. Certain types of transactions are deemed to be pre-approved by the Audit Committee, including executive officer and director compensation arrangements approved by the Board of Directors or the Human Capital Committee and any transaction between the company and any entity in which a related party has a relationship solely as a director, less than 10% equity holder, or an employee (other than an executive officer), or all of these relationships.
Transactions with Related Persons
During 2011,2013 and up to the date of this Proxy Statement,proxy statement, there have been no related party transactions, other than those described above as being deemed pre-approved.
The Board has adopted a code of conduct establishing certain business practices and ethics applicable to all orof our directors, officers and employees. The Board has also adopted a separate code of ethics applicable to our CEO and certain of our senior financial officers. Both of these codes are available on our investor relations website at www.unum.com inunder the Investors area under Corporate Governance. Copies also are available free of charge by submitting a request to the Office of the Corporate Secretary.
“Corporate Governance” heading atwww.investors.unum.com.
We will provide notice of any waivers of the code of conduct granted to executive officers or directors on our website, and will report to the SEC any waivers of the code of ethics granted to our CEO or certain of our senior financial officers. No waivers have been requested or granted to date, and no such requests for waivers are anticipated.
Interested Parties’ Communications with the Board
Shareholders or other interested parties may communicate with our Chairman, William J. Ryan, or any Board members by contacting the Office of the Corporate Secretary as described on page 12.
In March 2006, the Board approved a process for handling letters received by the company and addressed to non-management members of the Board. Under this process, our Corporate Secretary reviews all such correspondence and regularly provides a log and copies of the correspondence to the lead independent director, who determines whether further distribution of correspondence is appropriate and to whom it should be sent. Any director may at any time review this log and request copies of correspondence. Concerns relating to accounting, internal controls or auditing matters are promptly brought to the attention of the internal auditor and handled in accordance with procedures established by the Audit Committee. Copies of correspondence relating to corporate governance matters are also provided to the chair of the Governance Committee.
The Board has requested that certain items unrelated to the duties and responsibilities of the Board be excluded from the process, including mass mailings, resumes and other forms of job inquiries, surveys, business solicitations or advertisements, and matters related to claims or employment.
Corporate Governance Guidelines
The full text of our Corporate Governance Guidelines can be accessed on our website at www.unum.com in the Investors area under Corporate Governance. These guidelines are reviewed annually by the Governance Committee, including a determination of whether any changes are appropriate in response to regulatory requirements or other developments.
A copy of the Corporate Governance Guidelines is also available by contacting the Office of the Corporate Secretary as described on page 12.
28 | Notice of Annual Meeting of Shareholders and 2014 Proxy Statement
About the Independent Auditors
What fees were charged by Ernst & Young LLP?
The fees charged by Ernst & Young LLP as our independent registered public accounting firm in 2011 and 2010 are described below.
Audit Fees
The aggregate fees and expenses related to professional services rendered by Ernst & Young LLP for audit services were $7,608,443 for 2011 and $7,151,455 for 2010. Services rendered by the firm were:
The fiscal year audit of our annual financial statements;
The audit of internal control over financial reporting;
The interim reviews of the financial statements included in our quarterly reports on Form 10-Q; and
Services provided in connection with statutory and regulatory filings.
Audit-Related Fees
The aggregate fees and expenses related to professional services rendered by Ernst & Young LLP for audit-related services, comprised primarily of accounting consultations, SOC 1 reviews, and audit-related services for our employee benefit plans, were $618,579 for 2011 and $405,450 for 2010.
Tax Fees
The aggregate fees and expenses related to professional services rendered by Ernst & Young LLP for tax compliance and advisory services were $96,662 for 2011 and $32,695 for 2010.
All Other Fees
The aggregate fees billed for products and services provided by Ernst & Young LLP other than those reported above for audit, audit-related and tax services were $0 for 2011 and $119,006 for 2010.
Who is responsible for retaining the independent auditors?
The Audit Committee is directly responsible for the appointment, compensation, oversight and replacement of the independent auditors.
Does the Audit Committee have a policy of pre-approving services performedappointed by the independent auditors?
Yes. The Audit Committee has a policy that requires advance approval of all audit, audit-related, tax services and other services performed by the independent auditors. The policy provides for setting pre-approval limits for specifically defined audit and non-audit services. In pre-approving the services, the Committee considers whether such services are consistent with SEC rules on auditor independence.
Specific approval by the Committee will be required if fees for any particular service or aggregate fees for services of a similar nature exceed the pre-approved limits. The Committee has delegated to its Chair authority to approve permitted services, and the Chair must report any such decisions to the Committee at its next scheduled meeting.
Will the auditors be at the Annual Meeting to respond to questions?
Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting. They will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
The primary purpose and responsibilities of the Audit Committee are to assist the Board of Directors in its oversight of:
and operates under a written charter adopted by the integrityBoard, a copy of the financial statements of the company;
the effectiveness of internal control over financial reporting;
compliance with legal and regulatory requirements;
the qualifications and independence of the company’s independent auditors;
the performance of the internal audit function and independent auditors;
financial risk, operational risk and any other risks the oversight of which is not allocated to another committee of the Board; and
the company’s enterprise risk management program.
The Committee’s duties and responsibilities are summarized on page 34 under the caption “Audit Committee” and are more fully described in the Committee’s charter, which is available on the company’s investor relations website www.unum.com inatwww.investors.unum.com. The Committee is comprised solely of independent directors who meet the Investors area under Corporate Governance. The charter is also available by contacting the Officerequirements of the Corporate SecretarySEC, the NYSE and the company’s corporate governance guidelines. All members of the Committee are “financially literate” as described on page 12.required by the NYSE and four members are “audit committee financial experts” as defined by the SEC.
The primary purpose of the Committee is to assist the Board in its oversight of the:
— | Integrity of the company’s financial statements and related disclosures; |
— | Effectiveness of the company’s internal control over financial reporting; |
— | Compliance by the company with legal and regulatory requirements; |
— | Qualifications, independence and performance of the company’s independent auditor; |
— | Responsibilities and performance of the company’s internal audit function; |
— | Enterprise risk management program of the company; and |
— | Management of the company’s financial risks, operational risks, which include cyber security risk, and other risks not specifically allocated to another committee. |
In fulfilling its oversight responsibilities, the Committee met 12 times during 2013 to facilitate communication among the members of the Committee, management, the internal auditors and the independent auditor. The Committee held executive sessions and met separately with the independent auditor and with the internal auditors without management present.
The Committee reviewed and discussed with management and the company’s independent auditor, Ernst & Young, matters relating to the company’s accounting and financial reporting processes, including the internal control over financial reporting; reviewed and discussed with management and the independent auditor the company’s annual and quarterly financial statements and related disclosures in reports filed with the SEC; pre-approved all audit services and permitted non-audit services to be performed by the company’s independent auditor; reviewed and discussed with management the responsibilities and performance of the internal audit function; obtained, reviewed and discussed with management reports with respect to the adequacy and effectiveness of the company’s enterprise risk management program, as well as specific financial risks and operational risks, including cyber security risk; and obtained and reviewed reports concerning the company’s policies and procedures for ensuring compliance with applicable laws, regulations and the company’s Code of Conduct.
Management has the primary responsibilityis primarily responsible for the preparation, presentation and integrity of the company’s financial statements and for the reporting process, including the establishment and effectiveness of the company’s internal controlscontrol over financial reporting. The company’s independent registered public accounting firm, Ernst & Young LLP,auditor is responsible for performing an independent audit of the financial statements and expressing an opinion on whether they conform to generally accepted accounting principles. The independent registered public accounting firm also is responsible for auditingof the effectiveness of the company’s internal control over financial reporting.reporting in accordance with auditing standards promulgated by the Public Company Accounting Oversight Board (PCAOB). The independent registered public accounting firmauditor reports directly to the Committee, which is responsible for the appointment, compensation, retention and oversight of the work performed by the independent registered public accounting firm.auditor.
In fulfilling its oversight responsibilities, theThe Committee has reviewed and discussed with management the company’s audited financial statements for the year ended December 31, 2011,2013, including a discussion of the quality, not just the acceptability, of
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 29
Report of the Audit Committee
the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Committee has reviewed and discussed with the independent registered public accounting firmauditor the overall scope and results of the independent audit and its judgments of the quality and acceptability of the company’s accounting principles. The Committee has discussed with the independent registered public accounting firmauditor the matters required to be discussed by the statement on Auditng Standards No. 61, as amended (AICPA,Professional Standards, Vol. 1,PCAOB AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.Section 380. The Committee has received the written disclosures and the letter from the independent registered public accounting firmauditor required by applicable requirements of the Public Company Accounting Oversight BoardPCAOB regarding the independent registered public accounting firm’sauditor’s communications with the Committee concerning independence, and hasindependence. The Committee also discussed with the independent registered public accounting firmauditor matters relating to its independence, including consideration of whether the independenceindependent auditor’s provision of that firm.
non-audit services to the company is compatible with the auditor’s independence.
The company’s internal audit function, under the direction of the chief auditor, reports directly to the Committee, haswhich is responsible for the oversight of the work performed by the internal auditors. The internal auditors are responsible for, among other matters, conducting internal audits designed to evaluate the company’s system of internal controls. The Committee reviewed and discussed with the company’s internal auditors, and independent registered public accounting firm, and has received regular status reports from them concerning, the overall scope and plans for their respective audits. The Committee has met with the internal auditors, and independent registered public accounting firm, with and without management present, to discuss their audit observations and findings, and management’s responses, and their evaluation of the results of their examinations, their evaluationseffectiveness of the company’s internal controls andcontrol over financial reporting. Additionally, as the overall qualityformer chief auditor of the company retired in early 2013, the Chair of the Committee met with the candidate proposed as the successor in this role, as well as discussed the candidate’s qualifications with management.
In evaluating the performance of the company’s financial reporting.independent auditor, the Committee took into consideration a number of factors, including the professional qualifications of the firm and the lead audit partner, the quality and candor of the firm’s communications with the Committee and the company, and evidence supporting the firm’s independence, objectivity, and professional skepticism. Additionally, as the lead audit partner has completed five years of service to the company in 2013 and under SEC rules is subject to rotation requirements, a subgroup of the Committee met with the candidates proposed for this role in 2014, as well as discussed the candidates qualifications with management.
Based on this evaluation, the Committee has determined that the continued retention of Ernst & Young as independent auditor is in the best interests of the company and its shareholders. Accordingly, the Committee appointed Ernst & Young as the company’s independent auditor for 2014. Although the Committee has sole authority to appoint the independent auditor, the Committee recommended that the Board of Directors seek shareholder ratification of the appointment at the Annual Meeting.
Based on the reviews and discussions referred to above, the Committee recommended to the Board of Directors, (andand the Board approved)approved, that the company’s audited financial statements for the year ended December 31, 20112013 be included in the company’s Annual Report on Form 10-K for filing with the Securities and Exchange Commission.
Michael J. Passarella, Chair
Theodore H. Bunting, Jr.
E. Michael Caulfield
Kevin T. KabatTimothy F. Keaney
Thomas Kinser
30 | Notice of Annual Meeting of Shareholders and 2014 Proxy Statement
Report of the Human Capital Committee
The Human Capital Committee has reviewed and discussed the following Compensation Discussion and AnalysisIn this section, with Unum’s management. Based on this review and discussion, the Committee recommended to the Board of Directors that this Compensation Discussion and Analysis be included in both the Proxy Statement and in the company’s Annual Report on Form 10-K for the year ended December 31, 2011.
A.S. (Pat) MacMillan, Jr., Chair
Kevin T. Kabat
Thomas Kinser
Edward J. Muhl
Compensation Discussion and Analysis
The Compensation Discussion and Analysis is organized as follows:
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The Human Capital Committee has overall responsibility for approving and evaluating compensation plans, benefit plans, workforce management, and policies and programs of the company as they affect directors, executive officers and other employees of the company. This Compensation Discussion and Analysis section provideswe provide an overview of our compensation philosophy and processes and explain how the Human Capital Committee arrivesof our Board (the Committee) arrived at its compensation decisions specifically related tofor the base and incentive pay for our five highest paid executives in 2011. These five individuals, whobelow named executive officers (NEOs), all of whom are included in the 2013 Summary Compensation Table on page 100 and are referred to as “named executive officers” throughout this section, are:62.
Thomas R. Watjen, President and Chief Executive Officer;
— | Thomas R. Watjen, President and Chief Executive Officer |
Richard P. McKenney, Executive Vice President and Chief Financial Officer;
— | Richard P. McKenney, Executive Vice President and Chief Financial Officer |
— | Kevin P. McCarthy, Executive Vice President and Chief Operating Officer |
— | Randall C. Horn, Executive Vice President, President and Chief Executive Officer, Colonial Life |
— | Breege A. Farrell, Executive Vice President, Chief Investment Officer |
In May 2013, Mr. McCarthy Executive Vice President and Chief Operating Officer; President and Chief Executive Officer, Unum US;
Robert O. Best, former Executive Vice President, Global Services (retired); and
Randall C. Horn, Executive Vice President, President and Chief Executive Officer, Colonial Life.
Mr. Best retiredannounced his intent to retire from the company in March 2014, after approximately 35 years of service with the company. He stepped down from his duties as CEO of Unum US on December 31, 2011, andJuly 1, 2013, at which time his responsibilities have beenwere assumed by other officers.
Overall, 2011 was another successful year forMichael Q. Simonds. Mr. McCarthy continued to serve as Chief Operating Officer of Unum Group until his retirement on March 31, 2014. Following his retirement, Mr. McCarthy may provide consulting services to the company despite a very difficult external environment. We met or exceeded our primary financial targets (excluding special items discussedpursuant to an arrangement described on page 75), including earnings per share, return on equity, after-tax operating earnings58.
Business and revenue. In addition, we continued to deliver on our customer commitments and strengthened our culturePerformance Review
Our Business
We are a leading provider of social responsibility.
In terms of operating performance, the company continued to do better than othersfinancial protection benefits in the industry. As noted on page 60, company performance as measured by operating earnings per share growthUnited States and operating return on equity significantly exceededUnited Kingdom. Our products, which are primarily offered through the S&Pworkplace, include disability, life, accident and critical illness insurance and help protect millions of working people and their families from the financial hardships that can occur in the event of illness, injury or loss of life. In 2013, we paid more than $6 billion in benefits to hundreds of thousands of customers who faced illness, injury or loss of life.
Our business operations are divided into three primary segments selling products – Unum US, Unum UK and Colonial Life & Health insurance index.
Total shareholder return, as noted on page 61, surpassed industry averages on both– and a three-Closed Block of business that includes products we service and five-year basis. Although total shareholder return decreased 11.63% in 2011, that compares to a decrease of 20.71% for the S&P Life & Health index over the same period.support but no longer market.
In making its compensation decisions, the Committee reviewed and analyzed overall company and business area performance, as well as important strategic initiatives and the external environment. Additionally, the individual performance of our named executive officers was considered in making the following decisions relative to base salary and incentive payments:
Approved base salary increases for named executive officers ranging from 0% to 2.5%, effective March 1, 2012 (details on page 70);
Approved an increase to Mr. Watjen’s annual incentive target from 150% to 200% for 2012 (details on page 73);
Approved annual incentive awards for 2011 performance for named executive officers ranging from 83% to 133% of target (details on page 76);
Approved long-term incentive grants for 2011 performance for named executive officers, other than Mr. Best who was not eligible due to his retirement, ranging from 106% to 140% of target (details on page 82); and
Approved increases to long-term incentive targets for Mr. Watjen from $5,000,000 to $6,000,000 and Messrs. McKenney and McCarthy from 150% to 200% for 2012 (details on page 83).
In addition, and working with senior management over the last several years, the Committee has instituted the following key compensation practices:
Adopted a clawback policy;
Eliminated any new excise tax gross-ups;
Eliminated most perquisites;
Suspended company-paid personal use of corporate aircraft;
Increased stock ownership guidelines;
Implemented stock holding periods;
Adopted a “double trigger” vesting of awards upon a change-in-control; and
Implemented an anti-hedging policy.
These key compensation practices are summarized on page 62.
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 31
Compensation Discussion and Analysis
Environment
The economic environment in 2011 presented a number of general challenges:
An overall weak economy;
A slow recovery from the recession and its continued impact on consumer confidence;
Continuing high unemployment in the U.S. and U.K.;
The ongoing European debt crisis and its impact on global financial markets;
Austerity measures in the U.K. that put greater pressure on the costs of state-sponsored benefit programs; and
Uncertainty in Washington, D.C., on debt relief and the future of health care reform.
For financial services firms like Unum, additional factors contributed to a difficult economic environment, including:
Low interest rates that impacted the returns on investment portfolios; and
Weak employment trends resulting from firms continuing to reduce employment or delay hiring.
Company2013 Performance
Company performance is the key factor the Committee considers when making compensation decisions, along with any external factors that may be outside the company’s control. By any significant measure, 2011Fiscal year 2013 was anothera successful yearone for Unum as we delivered strong financial and operating performance across the company. Although we continued to deliver steadyface some economic headwinds, particularly in the form of low interest rates and disciplined operating performancemodest job and salary growth, our businesses have adapted well to these challenges. We grew in spitemany of the difficultareas we targeted for growth, remained solidly profitable and continued to generate excess capital that we used to strengthen our business and economic environment.return value to shareholders.
Unum built on a solidOur key financial foundation. The company:highlights for 2013 include:(1)
Pre-tax operating income of $1.24 billion and after tax operating income of $882.5 million, both record highs, and operating revenues of $10.35 billion; |
— | Record operating earnings per share of $3.32, a 5.4% increase from the prior year and the eighth consecutive year of operating EPS growth; |
— | Consolidated return on equity of 11.4% (14.2% in our three primary operating businesses); |
— | Book value per share growth (excluding AOCI) of 9.4%, the fifth consecutive year of growth in book value per share; and |
— | Strong investment results and, through our emphasis on sound risk management, a credit quality that remains among the best in the industry. |
Our key operating highlights for 2013 include:
— | Consistent operating performance from all of our businesses as a result of disciplined pricing, focused sales growth and improvement of internal processes; |
— | Meeting our commitments to customers by paying more than $6 billion in benefits to people facing illness, injury or loss of life; |
— | Strong customer satisfaction metrics that generally exceeded our plan benchmarks; |
— | Our brand and image remaining at historically high levels; and |
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Achieved Operating Earnings Per Share growth
32 | Notice of 9.7 percent;Annual Meeting of Shareholders and 2014 Proxy Statement
Compensation Discussion and Analysis
Delivered consistent operating results, solid investment performanceBecause of these and other accomplishments in 2013, our capital generation remained strong and we were able to deploy that capital to invest in and strengthen our businesses, as well as return it to shareholders through share repurchases totaling more than $318 million and a disciplined capitaldividend payout of $146.5 million, an 11.5% increase from the prior year. Our credit ratings also remain high as a result of the progress we have made over the last several years.
CAPITAL GENERATION AND DEPLOYMENT | ||||
Share Repurchases | Dividend Increase | |||
2008 | $ 700 million | — | ||
2009 | — | 10.0% | ||
2010 | $ 356 million | 12.1% | ||
2011 �� | $ 620 million | 13.5% | ||
2012 | $ 500 million | 23.8% | ||
2013 | $ 318 million | 11.5% |
Business Highlights
The following are 2013 performance highlights(1) within our primary business segments:
Our Unum US segment, representing 59.2% of our consolidated premium income in 2013, reported record operating income with a 1.4% increase over 2012 results driven by growth in premium income and overall favorable risk results. While premium income increased 1.4%, sales decreased 2% for the year, although they trended upward in the latter part of 2013 and were higher in the markets we targeted for growth. Unum US continued to generate above-market returns across all of its primary business segments, with a return on equity of 13.6%.
Unum UK, representing 7.3% of our consolidated premium income in 2013, reported a slight increase in operating income of 0.5% over 2012 results, due principally to overall favorable risk results. Premium income decreased 19.9% while sales decreased 19.5%, driven by lower group life sales as Unum UK continued to take actions to address profitability concerns in this line of business. The Unum UK return on equity was 14.0%.
Colonial Life, representing 16.2% of our consolidated premium income in 2013, reported record operating income with a 3.9% increase over 2012 results, driven mostly by higher operating revenue and stable risk results. Premium income grew 3.2% while sales increased 1.6% in the year. Consistent with past years, Colonial Life continues to generate solid margins and returns, with a return on equity of 16.5%.
Our Closed Block performed at or above expectations and grew before-tax operating income by nearly 15%. We added management strategy which ledresources and additional capabilities to oversee this important portion of our business, and due to this greater focus, we saw more consistent performance throughout the year.
Our investment results remain solid, although we recorded a slight drop in net investment income in 2013, primarily due to a further strengtheningdecline in yield on invested assets as we continue to invest new cash flows at lower rates. Our asset quality remains strong, with a net unrealized gain on our fixed maturity securities of the balance sheet:$4.1 billion at December 31, 2013.
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(1) | Operating results referenced throughout this document exclude certain specified items. For 2013, these include net realized investment gains and losses, non-operating retirement-related gains or losses, the unclaimed death benefits reserve increase and the group life waiver of premium benefit reserve reduction. For reconciliations of the non-GAAP financial measures, including operating income, operating revenue, operating earnings per share, return on equity and book value per share (excluding accumulated other comprehensive income, or AOCI), to the most directly comparable GAAP measures, refer toAppendix |
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 33
Continued buyback of company stock of $619.9 million in 2011; and
Strengthened reserves for future benefits in the individual disability closed block through an after-tax charge of $119.3 million.
Unum delivered on its customer commitment. The company:
Paid more than $6 billion in benefits to individualsCompensation Discussion and families impacted by life-changing events;Analysis
Earned customer and claimant satisfaction ratings that, as measured through third-party surveys, were well above industry benchmarks; and
Invested in our business and leveraged global capabilities to capitalize on current and future growth opportunities.
Unum remained committed to good corporate citizenship. The company:
Contributed more than $12 million through donations and employee volunteerism to charitable organizations throughout the United States and United Kingdom;
Drove industry and public policy discourse on the important role workplace benefits has in providing a financial safety net for working individuals and their families; and
Reduced our impact on the environment through resource conservation, recycling and employee education.
Unum advanced several important strategic initiatives. The company:
Implemented a new Global Services organization and plan. As part of this effort, work has begun to improve effectiveness and leverage resources across the enterprise;
Continued to invest in new capabilities, products and services designed to further profitable growth in target areas; and
Completed a strategic review of the long-term care business which resulted in the decision to discontinue sales of group long-term care policies and move the group and individual long-term care business to a closed block. This strategic decision allows us to sharpen our focus on those products which provide the greatest long-term opportunity and strengthen the company’s risk profile. As a result of the strategic review, the company took an after-tax charge of $561.2 million. The company has generally received a positive reaction to this announcement from rating agencies and analysts.
Within the specific business areas, performance against plan was as follows:
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Colonial Life – Pre-tax operating income was below plan driven by unfavorable risk results and a higher expense ratio. Premium income was slightly below plan. Sales were below plan with shortfalls in both the commercial and public sector markets;
Unum UK – Pre-tax operating income was below plan due primarily to unfavorable risk results. Premium income was favorable to plan. Sales were below plan. Expense ratio was favorable to plan; and
Investments – Overall investment performance was above plan. Net investment income, as defined for purposes of the investment incentive plan, was below plan, avoided losses when compared to the market were favorable, and the market composite performance, which measures average credit spreads and yields on investment purchases to specified benchmarks, and realized investment losses relative to a specified peer group, was above plan.
Industry Comparison
The company has generally performed well in comparison to others in its industry over the past five years. As shown in the charts below, operating earnings per share growth has exceeded the industry while the company’s operating return on equity has remained consistent and the industry return on equity has fallen.
Total Shareholder ValueReturn
A primary goal ofTotal shareholder return (TSR) comparisons vary significantly based upon the company is to create long-term shareholder value throughindices and time periods considered. On a focus on profitable growth and financial flexibility. We have worked to return value to shareholders primarily through share repurchases and dividend increases. As a result, we have significantly outperformed relevant key indices over a five-year period.
The charts below compare the three-year and five-year returns for the company against certain key indices. Theone-year basis, our TSR was 71.8%, outperforming our proxy peer group is informative in making compensation decisions because it is a primary labor market from which we recruit talent, and the size and structure of these companies are similar to Unum. However, it includes insurance brokerage, healthcare, and property and casualty insurers. These sectors trade on different business fundamentals and different cycles and, as a result, we believepeers, the S&P Life and Health index isIndex, and the broader S&P 500. On a better indicatorthree- and five-year basis, we were consistent with the S&P Life and Health Index – the group that most closely aligns with our industry – and were generally in line with the S&P 500. Our performance trailed our proxy peers during that time, illustrating the significant volatility seen as a result of benchmarked performance.the financial crisis and the impact it had on the smaller Proxy Peer Group when compared with broader indices.
We are pleased that our track record of solid operating performance and returning value to shareholders was recognized in 2013 with our share price reaching levels near the historical valuation of our company.
2013 Compensation and Benefits Actions
The financial and operational performance of the company, as outlined on the preceding pages and in our 2013 10-K, resulted in above plan achievement for all of our business segments (see page 49). This high performance is also recognized in the individual performance assessments and achievement levels of our NEOs found beginning on page 42.
During 2013, we took the following actions with respect to compensation and benefits:
We amended the terms of our defined benefit pension plans to freeze further accrual of retirement benefits provided to U.S. employees on December 31, 2013. Effective January 1, 2014, we transitioned to a defined contribution plan for U.S. employees in which Unum provides a 4.5% company contribution for those employees who have completed one year of service. The |
— | By freezing further accrual of retirement benefits provided to U.S. employees under the defined benefit pension plans, we effectively eliminated a change in control benefit otherwise available to executives who are parties to change in control severance agreements with the company. The benefit eliminated is |
34 | Notice of Annual Meeting of Shareholders and 2014 Proxy Statement
Compensation Discussion and Analysis
retirement benefit under the defined benefit pension plan assuming two additional years of age and service credit following termination of employment in connection with a change in control. |
o | In the future, executives currently covered by change in control severance agreements will receive two additional years of contributions under the company’s non-qualified defined contribution plan in the event of a termination of employment in connection with a change in control. |
At Mr. Watjen’s request to be consistent with all other employees, we amended his employment agreement to freeze further accrual of his retirement benefit under the Unum Group Senior Executive Retirement Plan (SERP) (which is described in his employment agreement) as of December 31, 2013. As part of the revisions to Mr. Watjen’s employment agreement, we also: |
o | Eliminated the Section 280G excise tax gross-up; |
o | Reduced severance payable in the event of termination by the company without “cause” or by Mr. Watjen for “good reason” outside of certain “change in control” periods (each as defined in his employment agreement) by: |
¡ | Decreasing the severance multiple from three times the sum of base salary and average bonus to two times the sum of base salary and average bonus, and |
¡ | Reducing health and welfare benefits continuation from three years of continuation to two years of continuation; and |
o | Eliminated a lump sum severance payment that was equal to the increased actuarial present value of Mr. Watjen’s retirement benefit under the SERP assuming three additional years of age and service credit following termination of employment. |
Last year’s advisory vote on executive compensation (or “say-on-pay” vote) passed with 76% approval. This was higher than the previous year’s vote and included support from 12 of our 13 largest shareholders. We continue to strive to improve the level of shareholder support for our named executive officer compensation.
Over the last several years, the company has had an extensive outreach program to shareholders and proxy advisory firms, with a particular focus on soliciting input on our executive compensation program.
The Human Capital Committee (the Committee) provided feedback and guidance with respect to the proposed agenda to be used during our shareholder outreach program. Throughout the process, the Committee was updated on our conversations with both institutional investors as well as proxy advisory firms, including their feedback on our executive compensation programs. The Committee values shareholder feedback and takes the results of the say-on-pay vote and the shareholder feedback into consideration as it makes compensation decisions.
In 2012, we received specific feedback, including:
— | A preference for a three-year performance cycle for the long-term incentive plan; |
— | Requests for a reduction in the amount of overlap between annual and long-term incentive plan goals; and |
— | Requests for enhanced disclosure with respect to the goals for the annual and long-term incentive plans. |
Notice of Annual Meeting of Shareholders and 2014 Proxy Statement | 35
Compensation Discussion and Analysis
The Committee responded to the feedback and made changes in 2013, which included:
— | Introducing performance share units (PSUs) based on three-year, prospective average return on equity and average earnings per share goals, with a modifier tied to relative total shareholder return; |
— | Establishing new performance goals for our long-term incentive plan to reduce the overlap with the performance goals for our annual incentive plan; |
— | Enhancing proxy disclosure to provide a more detailed explanation of the rationale behind compensation decisions and a more comprehensive discussion of goals, individual performance and the linkage to compensation; and |
— | Supplementing disclosure of our annual and long-term incentive performance metrics by including threshold, maximum and actual performance levels for each metric. |
In 2013, the company again solicited feedback from institutional shareholders and proxy advisory firms. The feedback from our shareholder outreach in 2013 indicated that shareholders agreed with the changes we made to the long-term incentive program, particularly the use of PSUs with three-year corporate performance goals and a payout modifier tied to relative total shareholder return. No additional concerns were identified by shareholders with respect to our executive compensation programs in the course of our 2013 shareholder outreach.
Compensation PhilosophyProgram Structure and ProcessesCommittee Decisions
Our executive compensation philosophy is based on two core goals: (1)designed to reward performance that helps us achieve our corporate objectives;objectives, increase shareholder return and (2) to attract and retain talented employees. In practice,individuals. We do this means that we:by:
Offer