DEFA14A: Horace Mann Addresses Shareholder Concerns on Executive Pay in Proxy Statement Supplement

Horace Mann issued a supplement to its proxy statement to clarify CEO compensation, performance outcomes, and the relationship between pay and performance in response to shareholder feedback.

Summary

• Horace Mann has released a supplement to its proxy statement to address shareholder concerns regarding executive compensation.
• The supplement provides further clarity on CEO target compensation, actual performance outcomes, and the pay-for-performance relationship.
• The Compensation Committee considers market benchmarks, company performance, individual performance, experience, and tenure when determining executive pay.
• CEO target compensation increases were aligned with creating strong pay-for-performance alignment, incentivizing shareholder value, and maintaining market competitiveness.
• Ms. Zuraitis' 2023 target compensation was within 10% of the median of peer companies, and recent increases were primarily in at-risk pay.
• The CEO's base salary increased by 4% in 2023, with no increases in 2021 and 2022.
• 2023 was a challenging year due to macroeconomic factors like inflation and elevated catastrophe losses.
• The company's annual incentive plan is based on 50% Adjusted Core Earnings, 25% Adjusted Return on Equity (ROE), and 25% Insurance Premiums and Contract Charges Earned.
• The 2023 annual incentive plan paid out at 71% of target, while the 2022 plan paid out at 65% of target.
• Equity grants to the CEO and NEOs are 80% at-risk, with 20% in service-vested restricted stock units, 30% in stock options, and 50% in performance-based restricted stock units.
• Realized pay for Ms. Zuraitis is 25% below Summary Compensation Table (SCT) pay over the last three years.
• All stock options granted in the last three years are currently out-of-the-money, and the most recently completed PBRSU cycle paid out at 71%.
• The CEO is required to hold 5x her base salary in stock and currently holds 15x her base salary.
• Shareholders can revoke or change their votes by going to www.proxyvote.com by May 21, 2024, at 11:59 p.m. Eastern Daylight Time.

Sentiment

Score: 6

Explanation: The document attempts to address shareholder concerns and present a balanced view of executive compensation, but acknowledges challenges and below-target payouts. The sentiment is neutral to slightly positive.

Positives

• CEO compensation is closely aligned with company performance and shareholder value.
• A significant portion of executive compensation is at-risk, incentivizing performance.
• The company uses an independent consultant to establish target pay levels.
• The CEO's stock ownership significantly exceeds the required minimum.
• The company is actively addressing shareholder concerns regarding executive compensation.

Negatives

• 2023 was a challenging year for Horace Mann due to macroeconomic factors.
• The 2023 annual incentive plan paid out below target (71%), reflecting the challenging environment.
• All stock options granted in the last three years are currently out-of-the-money.

Risks

• Continued inflationary pressure on auto and property losses could impact future performance.
• Elevated catastrophe losses could negatively affect earnings.
• Macroeconomic factors could continue to create challenges for the company.

Future Outlook

The document does not provide specific forward-looking statements or guidance, but it acknowledges the ongoing challenges posed by macroeconomic factors and their potential impact on future performance.

Management Comments

• The Compensation Committee considers industry trends and broader macroeconomic factors each year when setting performance goals.
• The company believes incentivizing performance against appropriately rigorous goals during a down cycle is important to creating long-term shareholder value.
• The company's use of median performance for target payout aligns with its median compensation benchmark philosophy.

Industry Context

The document notes that 2023 was a challenging year for Horace Mann and other companies in the personal lines Property & Casualty sector, suggesting industry-wide headwinds.

Comparison to Industry Standards

• The company benchmarks CEO compensation against a peer group and aims to position target compensation within 10% of the median.
• The company's use of median performance for target payout aligns with market practice.
• The document mentions that setting goals below prior year is standard for the cyclical industry.

Stakeholder Impact

• The document aims to address shareholder concerns regarding executive compensation and its alignment with company performance.
• The company's performance and compensation decisions impact executives and employees.
• The company's financial performance affects shareholders and other stakeholders.

Next Steps

• Shareholders are encouraged to vote on the Say on Pay proposal at the Annual Meeting on May 22, 2024.
• Shareholders who have already submitted proxies can revoke or change their votes by May 21, 2024.

Key Dates

Keywords

executive compensation, proxy statement, shareholder value, performance-based pay, CEO compensation, Horace Mann, incentive plan, macroeconomic factors