AFLAC INC
For the period ended May 5, 2025. Filed Mar 20, 2025.
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May 5, 2025 · Filed Mar 20, 2025
Contents
Performance-Based Compensation: How Performance Goals Are Set
| 44 | AFLAC INCORPORATED | EXECUTIVE COMPENSATION |
| Performance-Based Compensation: How Performance Goals Are SetThe Board and the Compensation Committee believe it is important for the Company to manage its business to provide long-term value to our shareholders. Therefore, performance goals under the MIP and LTI programs involve metrics that drive shareholder returns, and payouts depend entirely upon the level of achievement of those goals. The following sections provide detail on how we select metrics under the MIP and LTI program, determine performance target amounts and other important considerations in setting these targets.While performance goals are continually evaluated and refreshed as appropriate, we have used the same methodology for setting MIP and LTI goals for many years. Segment metrics for Aflac U.S., Aflac Japan, and Global Investments are consistent with assumptions used in developing segment financial projections (described below) based on the Company’s best estimates for the coming year. The segment projections are consolidated into the corporate financial projection used to develop performance targets. | The goal-setting process generally proceeds in two stages:1 RECOMMEND•The Company’s CEO and CFO, in consultation with Mercer, recommend to the Compensation Committee specific Company performance objectives that are aligned with corporate strategy and thus will drive shareholder value and ensure financial soundness.•Recommended ranges are based, in part, on past performance results and scenario tests of the Company’s financial outlook as projected by a complex financial model.•The model projects the impact on various financial measures using different levels of total new annualized premium, investment returns, budgeted expenses, morbidity, persistency, return on equity, and capital ratios. | |
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| 2 ESTABLISH•The Compensation Committee refers to these modeled results to establish a target performance level, as well as a minimum and maximum level, for each performance goal.•The target goal is not necessarily equidistant between the minimum and maximum goals. Instead, for certain key metrics the MIP payout curve is “sloped” to require significant above-target performance to achieve a maximum payout.•Correspondingly, the payout for a minimum result is one-half of the target payout, while the payout for the maximum goal (or better) is twice the target payout.•No payouts are made for performance below the minimum goal.•Interpolation is used to calculate incentive payouts for results between minimum and target goals or target and maximum goals.•The 2024 MIP goals were approved by the Compensation Committee in February 2024. |
For 2024, the Compensation Committee established the following metrics under the MIP:
Corporate Metric: Adjusted earnings per diluted share excluding foreign currency effect
U.S. Segment: New Annualized Premium, Net Earned Premium, Total Adjusted Expense Ratio, and Pretax Adjusted Earnings
Japan Segment: New Annualized Premium and Net Earned Premium
Global Investment Metrics: Net Investment Income (U.S. and Japan GAAP Segments only) and Credit Losses/Impairments
Beginning in 2021, the Compensation Committee decided to incorporate a modifier into the MIP compensation formula. The modifier allows for a -5%, flat, or +5% adjustment to total MIP compensation for all MIP participants based on achieving specific sustainability objectives for 2024.
Considerations in setting the target goal amount for each of these MIP metrics are described in more detail below.
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