10-K: Lincoln National Updates Director Compensation and Formalizes Executive Severance Plan

Sentiment:

Annual Report (Form 10-K) 22 February 2024 5:11 PM

Lincoln National Corporation formalizes its executive severance plan and updates non-employee director compensation effective January 1, 2024.

Summary

Lincoln National Corporation has amended and restated its Severance Plan for Officers, effective December 31, 2023.
The plan is designed to comply with Section 409A of the Internal Revenue Code and is intended as an unfunded top hat employee welfare benefit plan under ERISA.
Benefits are payable only in cases of Involuntary Termination other than for Cause.
The severance pay is the greater of the officer's annual base salary plus target bonus divided by 52, or their established compensation plus target bonus divided by 52.
The severance period varies based on the officer's title, ranging from 39 weeks for Assistant Vice Presidents and Vice Presidents to 78 weeks for Executive Vice Presidents.
Officers also receive a severance stipend based on their medical plan coverage level.
The document also details non-employee director fees, effective January 1, 2024, with annual retainers of $110,000 in cash.
Lead Independent Directors receive an additional $240,000 in deferred LNC stock units, while other non-employee directors receive $180,000.
Additional cash compensation is provided for committee chairs and members, ranging from $10,000 to $35,000 annually.

Sentiment

Score: 7

Explanation: The document is largely factual and informative, with a slightly positive outlook due to the company's strategic initiatives and focus on profitable growth. However, the presence of risks and uncertainties tempers the overall sentiment.

Positives

Formalization of the executive severance plan provides clarity and structure for officer departures.
Competitive compensation for non-employee directors helps attract and retain qualified individuals.
The severance plan includes a severance stipend to help offset medical costs.

Risks

The determination of 'Cause' for involuntary termination is at the sole discretion of the Corporation's Chief Human Resources Officer, potentially leading to disputes.
The plan includes provisions for forfeiture and clawback of benefits if an officer violates the terms of the agreement, which could create uncertainty for departing executives.

Future Outlook

The company expects to continue focusing on growing its wholesale distribution, making investments in its businesses, shifting to a more capital-efficient business mix, exploring reinsurance strategies, improving the profitability of its Group Protection business, and managing expenses aggressively.

Industry Context

The document provides insight into the competitive landscape of the insurance and retirement industries, highlighting the importance of product features, price, customer service, technological capabilities, distribution quality, and financial strength ratings.

Comparison to Industry Standards

The document does not provide specific comparisons to industry standards or competitors.
However, it does mention that the annuities market is very competitive and consists of many companies, with no one company dominating the market for all products.
Similarly, the life insurance market is very competitive and consists of many companies with no one company dominating the market for all products.
The group protection marketplace is also described as very competitive.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Amendment to Severance Plan	The Severance Plan for Officers of Lincoln National Corporation was amended and restated effective December 31, 2023.	December 31, 2023	Provides clarity and structure for officer departures.
Update to Director Compensation	Non-Employee Director Fees were updated effective January 1, 2024.	January 1, 2024	Ensures competitive compensation for board members.
Amendment to Incentive Compensation Plan	Amendment No. 1 to Option Award Agreements listed above (effective November 8, 2023 to Option awards outstanding under the LNC 2014 Incentive Compensation Plan and LNC 2020 Incentive Compensation Plan as of such date)	November 8, 2023	Provides clarity and structure for officer departures.
Amendment to Incentive Compensation Plan	Amendment No. 1 to PSA Agreements listed above (effective November 8, 2023 to PSAs outstanding under the LNC 2014 Incentive Compensation Plan and LNC 2020 Incentive Compensation Plan as of such date)	November 8, 2023	Provides clarity and structure for officer departures.
Amendment to Incentive Compensation Plan	Amendment No. 1 to RSU Award Agreements listed above (effective November 8, 2023 to RSU awards outstanding under the LNC 2014 Incentive Compensation Plan and LNC 2020 Incentive Compensation Plan as of such date)	November 8, 2023	Provides clarity and structure for officer departures.

Legal Proceedings

The company is involved in various pending or threatened legal or regulatory proceedings, including purported class actions, arising from the conduct of business both in the ordinary course and otherwise.
These proceedings include matters relating to cost of insurance rates and other aspects of the company's businesses and operations.

Stakeholder Impact

Shareholders: The company's strategic initiatives and financial performance directly impact shareholder value.
Employees: Changes in compensation plans, workforce reductions, and benefits affect employees.
Customers: Product features, pricing, and customer service impact customer satisfaction and retention.
Suppliers: The company's financial stability and business operations affect its ability to meet its obligations to suppliers.
Creditors: Credit ratings and financial performance influence the company's borrowing costs and access to capital.

Next Steps

The transaction to sell the wealth management business is expected to close in the first half of 2024.
The proposed DOL fiduciary rule is expected to be finalized and go into effect in the second or third quarter of 2024.
Modifications to the economic scenario generator used to calculate life and annuity reserves are expected to be implemented by January 1, 2025, at the earliest.

Key Dates

Date	Description
1968	Lincoln National Corporation organized under the laws of the state of Indiana.
2001	USA PATRIOT Act of 2001 includes anti-money laundering and financial transparency laws.
March 2010	President Obama signed into law the Patient Protection and Affordable Care Act.
2010	Dodd-Frank Wall Street Reform and Consumer Protection Act enacted.
2012	European Market Infrastructure Regulation implemented.
September 2021	Initial margin requirements began for derivatives transactions.
November 2021	The Spark Initiative, a new expense savings initiative, was formally communicated.
September 2022	Lincoln National announced enhancements to its variable annuity hedge program.
August 2022	Inflation Reduction Act of 2022 was passed by the U.S. Congress and signed into law by President Biden.
December 2022	Congress passed SECURE Act 2.0.
December 2022	The NAIC approved changes to Actuarial Guideline XLIX (AG49).
December 2022	The NAIC revised the C-2 mortality calculation.
January 1, 2023	Revised variable annuity hedge program became effective.
January 1, 2023	Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts and related amendments (ASU 2018-12) with a transition date of January 1, 2021, was adopted.
May 1, 2023	Compliance with the amended guideline, AG49-B, was required for any IUL products sold on, or after, May 1, 2023.
July 7, 2023	The DOL, Department of Health and Human Services and the Department of Treasury issued a proposed tri-agency federal rule that would change how hospital indemnity insurance and other fixed indemnity benefits qualify as excepted benefits under HIPAA.
July 2023	The Federal Reserve increased the federal funds rate target range to 5.25% to 5.50%.
August 2023	The NAIC approved temporary guidance to allow companies to admit a portion of net negative interest maintenance reserves (IMR) as an asset under certain conditions.
October 2023	The White House issued an Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence.
October 2023	Moodys downgraded LNCs long-term issuer credit rating and the financial strength ratings of LNL, LLANY and FPP.
October 2023	The Governor of California signed two bills into law that will require significant climate-related disclosures.
October 1, 2023	Reinsurance agreements with Fortitude Reinsurance Company Ltd. (Fortitude Re) became effective.
October 31, 2023	The DOL again issued a proposed rule to redefine the meaning of investment advice fiduciary.
November 2023	The NYDFS adopted amendments to the NYDFS Cybersecurity Regulation.
November 2023	S&P implemented changes to its insurer RBC capital adequacy model.
December 14, 2023	Lincoln National announced that it had entered into an agreement to sell all of the ownership interests in the subsidiaries of the Company that comprise the Companys wealth management business operated through LFN.
December 31, 2023	The Severance Plan for Officers of Lincoln National Corporation was amended and restated effective as of December 31, 2023.
January 2024	The Federal Reserve announced it would maintain the current federal funds target range of 5.25% to 5.50%.
January 1, 2024	Non-Employee Director Fees were updated effective January 1, 2024.
February 2024	Lincoln National reduced its workforce by approximately 5%.
First half of 2024	The transaction to sell the wealth management business is expected to close.
Second or third quarter of 2024	The proposed DOL fiduciary rule is expected to be finalized and go into effect.
January 1, 2025	Modifications to the economic scenario generator used to calculate life and annuity reserves are expected to be implemented, at the earliest.
December 31, 2025	NAIC temporary guidance to allow companies to admit a portion of net negative interest maintenance reserves (IMR) as an asset will sunset.
May 23, 2024	Scheduled date for the Annual Meeting of Shareholders.

Keywords

severance plan, executive compensation, director compensation, Lincoln National Corporation, LNC, stock units, incentive compensation, officers, directors, benefits

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