AFLAC INC
For the period ended May 6, 2024. Filed Mar 21, 2024.
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May 6, 2024 · Filed Mar 21, 2024
Contents
MIP Target-Setting
| 48 | AFLAC INCORPORATED | EXECUTIVE COMPENSATION |
MIP Target-Setting
In addition to currency neutrality, the Compensation Committee considers the prior year’s results, current business operating environment and the forecasts emerging from the Company’s strategic planning process when setting MIP objectives for each metric. For 2023, the majority of the MIP performance metrics were structurally consistent with the 2022 performance objectives, including weightings with specific “sloping” targets, with ranges adjusted for the 2023 financial plan. Target ranges for Aflac U.S. and Japan budget metrics as well as the Global Investment metrics were widened and sloped. For all NEOs and MIP participants who are Executive Vice Presidents or Senior Vice Presidents, a new metric was added for costs savings resulting from Transformation Initiatives. As a result of our shareholder engagement discussions regarding tying our sustainability goals with business strategy, the MIP modifier was continued in 2023 to further incentivize progress on key goals. In 2020, the Company discontinued the practice of providing adjusted earnings guidance, but as set forth below the Company continues to utilize an outlook of adjusted earnings per share in setting MIP goals. The goals for these metrics are generally consistent with the Company’s public disclosure during the Financial Analysts Briefing on November 15, 2022, and the subsequent fourth quarter 2022 earnings release and conference call.
| Metric | PerformanceMeasures | Factors Considered in Setting Goal Levels |
|---|---|---|
| Corporate Metric | •Adjusted EPS | In 2022, the Company generated $4.4 billion in net earnings, up 4.4% for the year, or $6.93 per diluted share. The Company also reported a 7.9% decrease in adjusted earnings for the year, which were $3.6 billion, and adjusted earnings per diluted share on a currency-neutral basis of $6.08, which was up 4.8%. This increase was supported by the repurchasing of $2.4 billion (39.2 million) of the Company’s shares and lower adjusted earnings as pandemic conditions in Japan gradually improved but impacted operations throughout the year resulting in lower revenues and elevated benefit ratios. Meanwhile, pandemic conditions in the U.S. had largely subsided, and results reflected revenue pressure due to lower persistency and elevated expenses due to costs of initiatives to drive future earned premium growth and efficiency.When looking at the Company’s currency-neutral adjusted EPS estimates for 2023 and normalizing for roughly $0.03 per share of items identified and called out in 2022, the 2023 adjusted earnings outlook included headwinds to revenue resulting from slow to recover pandemic pressures in Japan, higher hedge costs and elevated expense ratios. The elevated expense ratios were tied to the build-out of Aflac Dental & Vision and consumer markets and investments to address the challenges we face to grow the top line in both Japan and the U.S. These headwinds were offset by lower benefit ratio expectations in Japan reflecting return to normal claims assumptions as “deemed” hospitalization rules were lifted toward the end of 2022. |
| U.S. and Japan Segment Metrics | •New Annualized Premium•Net Earned Premium•Cost Savings from Transformation initiatives | In 2022, Aflac U.S. sales increased 16.1% to $1.5 billion, reflecting significant contributions from both our existing voluntary business and our more recently acquired growth properties. However, persistency experienced a significant decline, with the largest contributor being a significant migration of workers within the workforce, resulting in a persistency rate of 77.3% at the end of 2022. Moving into 2023, our business focus continues to be building out our growth properties, while continuing to strengthen our distribution reach for our core voluntary products. The Company expects sales growth in 2023 and the Compensation Committee set a range of 4% to 14% increase in sales for the year. After considering current economic volatility, our expected sales growth and persistency initiatives, the Company expected net earned premium growth in the -1% to +4% range. A new metric for costs savings related to transformation initiatives with a range of $15 million to $35 million was added to further incentivize progress on key goals. Similarly, in Japan, the focus was on post-pandemic recovery and realization of investment in product development. The Company expected sales to continue to improve in the second half of 2022, if conditions continued to allow more face-to-face interactions, Japan Post resumed proactive sales of Aflac Cancer insurance, and Aflac had a successful launch of a new cancer insurance policy in the second half of 2022. Moving into 2023, the Compensation Committee determined a relatively flat range for sales was appropriate for 2023 given the continued uncertainty around recovery. Additionally, net earned premium was expected to decline largely due to lower sales environment and limited pay third sector policies becoming paid-up. The Compensation Committee set a range of approximately ¥ 54.8 billion to ¥ 65.5 billion for sales including Japan Post and set a range of -8.25% to -5.00% for net earned premium. A new metric for cost savings related to transformation initiatives with a range of ¥ 3.2 billion to ¥ 4.6 billion was added to further align short-term management incentive compensation with an initiative to reduce run-rate expenses across the global enterprise. |
| EXECUTIVE COMPENSATION | 2024 PROXY STATEMENT | 49 |
|---|
| Metric | PerformanceMeasures | Factors Considered in Setting Goal Levels |
|---|---|---|
| Global Investment Metrics | •Net Investment Income•Credit Losses/ Impairments | For 2023, Aflac Japan net investment income including hedge costs was expected to be lower than the prior year, driven by higher hedge costs and lower call income, partially offset by higher yields. The Company expected net investment income for Aflac U.S. to increase, reflecting higher yields. Our planning assumes a positive 10% return each year for variable net investment income for both Aflac Japan and Aflac US.Target levels for credit losses and impairments are determined with consideration of current asset quality, current and expected market conditions, and potential trading activity to improve the overall health of the portfolio. In order to properly balance income and risk, targets for 2023 were expressed as a range around budget based on a bottom-up review of asset allocation and cash flows. As in 2022, we continued to slope the ranges to require above budget targeted performance for maximum payout, while not encouraging excessive risk-taking. |
| MIP Modifier | •Responsible Investing•Climate: Net Zero•Diversity, Equity & Inclusion (Japan)•Diversity, Equity & Inclusion (U.S.) | The objectives for the MIP Modifier continued to advance the Company’s progress toward longer-term sustainability goals that are important to its success. Having fully allocated the proceeds of the sustainability bond and received attestation for Scopes 1 and 2, as well as five categories of Scope 3 in 2022, the Company maintained four objectives for the MIP Modifier in 2023 that focused on sustainability and diversity, equity and inclusion. First, the Company maintained its target for responsible investing of the general account (portfolio) by continuing to allocate at least 10% of “available investable cash,” which excludes funding to existing commitments, to support a transition to a lower carbon economy over time and address global issues, like economic mobility, gender inequality and social inequity. As part of our longer-term objective to source 100% of electricity for our owned and controlled facilities from sustainable sources, the Company continued to target improvement in 2023 by setting a minimum target of sourcing 33% of electricity from sustainable sources. In addition, the Company continued to target progress toward longer-term diversity, equity and inclusion within its leadership in both Japan and the U.S. For Japan, this translated into women filling at least 26.5% of Manager or General Manager positions with Staff within Aflac Life Insurance Japan (ALIJ), and this is part of ALIJ’s path to reach 30% or more by the end of 2025. As part of a longer-term goal to increase the overall diversity (i.e., female or person of color) of Senior Management 5% in the U.S. by 2026, the Company aimed to achieve at least 48% diverse Senior Management in 2023 after ending 2022 at 47%. |
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