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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

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☒		Definitive Proxy Statement
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☐		Soliciting Material Pursuant to §240.14a-12

Horace Mann Educators Corporation

(Name of Registrant as Specified In Its Charter)

 

 

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Springfield, Illinois

April 7, 2017

Dear Shareholder:

You are cordially invited to attend the Annual Meeting of Horace Mann Educators Corporation to be held at 9:00 a.m. Central Daylight Saving Time on Wednesday, May 24, 2017, at the Horace Mann Lincoln Auditorium, 1 Horace Mann Plaza, Springfield, Illinois 62715.

We will present a report on Horace Mann’s current affairs, and Shareholders will have an opportunity for questions and comments.

We encourage you to read the Proxy Statement and vote your shares as soon as possible. You may vote via the Internet, by telephone or by completing and returning a proxy card. Specific voting instructions are set forth in the Proxy Statement, the Notice of Internet Availability of Proxy Materials and the proxy card. You may revoke your voted proxy at any time prior to the meeting or vote in person if you attend the meeting.

We look forward to seeing you. If you vote by proxy and do not plan to attend, let us know your thoughts about Horace Mann either by letter or by comment on the proxy card.

Sincerely,

 

		Gabriel L. Shaheen		Marita Zuraitis
		Chairman of the Board		President and Chief Executive Officer

 

 

 

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ANNUAL MEETING OF SHAREHOLDERS

Meeting Notice

HORACE MANN EDUCATORS CORPORATION

1 Horace Mann Plaza

Springfield, Illinois 62715-0001

 

 

 

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HORACE MANN EDUCATORS CORPORATION

2017 Proxy Statement – Summary

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information you should consider. You should read the entire Proxy Statement carefully before voting.

How to Vote

Shareholders of record as of March 28, 2017 may cast their votes in any of the following ways:

 

Internet Go to www.proxyvote.com to vote via the Internet. You will need to follow the instructions on your Notice of Internet Availability of Proxy Materials (“Notice”) or proxy card and the website. If you vote via the Internet, you may incur telephone and Internet access charges.		Phone Call the toll-free telephone number on the proxy card or the website to vote by telephone. You will need to follow the instructions and the voice prompts.		Mail Request, complete and return a paper proxy card, following the instructions on your Notice.		In Person Attend the Annual Meeting, or send a personal representative with an appropriate proxy, to vote by ballot.

Voting Matters and Board Recommendation

 

Proposal		Board Vote Recommendation
Elect Directors (page 3)		FOR each Director Nominee
Advisory Resolution to Approve Named Executive Officers’ Compensation (page 11)		FOR
Advisory vote on the frequency of future advisory votes on Named Executive Officers’ compensation (page 12)		ONE YEAR
Ratification of Independent Registered Public Accounting Firm (page 34)		FOR

Fiscal Year 2016 Business Highlights

The company delivered solid underlying financial results across all three segments of its business in 2016. Full year operating income was $1.97 per diluted share. Book value per share* increased 4% in 2016 driven by the solid operating results and positive contributions from investment portfolio performance. In addition, we achieved broad-based increases in new business sales and solid policy retentions during the past year. Total Shareholder Return was 32.9% in 2016 outperforming key insurance and general market indices.

 

 

*Excluding

the fair value adjustment for investments

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These results reflect significant progress on numerous strategic initiatives, including:

•

Increased sales levels year-over-year in all lines of business excluding retirement

•

New auto and property sales premium increased 6% and 5%, respectively

•

Strong auto and property retention ratios

•

Increased annuity assets under management by 7%

Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in HMEC’s 2016 Annual Report on Form 10-K for a more detailed description of these financial results.

Corporate and Executive Compensation Governance Highlights

Director Term: One year

Director Election Standard: Majority vote

Board Meetings in 2016: 5

Board Committees (Meetings in 2016):

Audit (12), Compensation (5), Executive (0); Investment & Finance (4), Nominating & Governance (4), Customer Experience & Technology (4)

Corporate Governance Materials: www.horacemann.com - Investors - Corporate Overview - Governance Documents

Board Communication: By mail to: Board of Directors, c/o Corporate Secretary, 1 Horace Mann Plaza, Springfield, Illinois 62715. By email to: hmecbofd@horacemann.com

Executive Compensation Governance:

 

•

Hedging transactions and pledging shares prohibited for all Directors and Executive Officers

 

•

Clawback provisions applicable to all Executive Officers for both cash and equity awards

 

•

Stock Ownership Requirements for all Directors and Executive Officers

 

•

Stock Option holding requirement post exercise

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ANNUAL MEETING OF SHAREHOLDERS

Proxy Statement

Contents

 

		Page
General Information			1
Your Proxy Vote			2
How to Vote			2
Voting Rules			2
Proposals and Company Information			3
PROPOSAL NO. 1 - ELECTION OF NINE DIRECTORS			3
Board of Directors and Committees			7
Director Compensation			9
Corporate Governance			10
Related Person Transactions			11
PROPOSAL NO.  2 - ADVISORY RESOLUTION TO APPROVE NAMED EXECUTIVE OFFICERS’ COMPENSATION			11
PROPOSAL NO.  3 - ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON NAMED EXECUTIVE OFFICERS’ COMPENSATION			12
Compensation Discussion & Analysis			13
Compensation Committee Report			31
Equity Compensation Plan Information			31
Executive Officers			32
Security Ownership of Certain Beneficial Owners and Management			33
Section 16(a) Beneficial Ownership Reporting Compliance			34
PROPOSAL NO.  4 - RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			34
Report of the Audit Committee			34
The Company’s Independent Registered Public Accounting Firm			35
Other Matters			36
Delivery of Proxy Materials			36
Submitting Shareholder Proposals for the 2018 Annual Meeting of Shareholders			36

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General Information

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on Wednesday, May 24, 2017. The Proxy Statement and Annual Report to Shareholders and Form 10-K (the “Proxy Materials”) are available at www.proxyvote.com.

 

 

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2		2017 Proxy Statement • Your Proxy Vote

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Proposals and Company Information

PROPOSAL NO. 1 - ELECTION OF NINE DIRECTORS

The Bylaws of the Company provide for the Company to have not less than five or more than fifteen Directors. The following nine persons currently are serving as Directors of the Company (“Directors”): Daniel A. Domenech, Stephen J. Hasenmiller, Ronald J. Helow, Beverley J. McClure, H. Wade Reece, Gabriel L. Shaheen, Robert Stricker, Steven O. Swyers and Marita Zuraitis. The terms of these Directors expire at the Annual Meeting.

The Board of Directors believes it is necessary for each of the Company’s Directors to possess a variety of qualities and skills. The Nominating & Governance Committee is responsible for reviewing with the Board, on an annual basis, the requisite skills and characteristics of new Board members as well as the composition of the Board as a whole. This assessment includes members’ qualifications as independent, as well as consideration of skills, experience, diversity and age in the context of the needs of the Board. The Nominating & Governance Committee does not have a formal diversity policy; however, the Board and the Nominating & Governance Committee believe that it is essential that the Board members represent diverse viewpoints. The Nominating & Governance Committee assesses the effectiveness of the criteria described above when evaluating new Board candidates and when assessing the composition of the Board as a whole.

Upon the recommendation of the Nominating & Governance Committee, the Board nominated Dr. Domenech, Mr. Hasenmiller, Mr. Helow, Ms. McClure, Mr. Reece, Mr. Shaheen, Mr. Stricker, Mr. Swyers and Ms. Zuraitis (the “Board Nominees”) to hold office as Directors. The proxies solicited by and on behalf of the Board will be voted “FOR” the election of the Board Nominees unless you specify otherwise. The Company has no reason to believe that any of the foregoing Board Nominees is not available to serve or will not serve if elected, although in the unexpected event that any such Board Nominee should become unavailable to serve as a Director, full discretion is reserved to the persons named as proxies to vote for such other persons as may be nominated, or the Board may reduce the size of the Board. Each Director will serve until the next Annual Meeting of Shareholders and until his or her respective successor is duly elected and qualified.

Board Nominees

The following information, as of March 15, 2017, is provided with respect to each Board Nominee:

 

		Daniel A. Domenech   Age: 71 Director Since: 2015   Horace Mann Committees: Customer Experience & Technology Nominating & Governance		Dr. Domenech has served as the Executive Director of American Association of School Administrators (“AASA”), The School Superintendents Association, since July 2008. He is currently Chairman of the Board of the Communities in Schools of Virginia and the National Student Clearinghouse Research Center and is a member of the Board of Directors of Learning First Alliance, America’s Promise, the Center for Naval Analyses, ACT and Universal Service Administrative Company (“USAC”). Dr. Domenech is also a past President of the New York State Council of School Superintendents, the Suffolk County Superintendents Association and the Suffolk County Organization for Promotion of Education, and was the first President and cofounder of the New York State Association for Bilingual Education. In addition, he has served on the U.S. Department of Education’s National Assessment Governing Board, on the Advisory Board for the Department of Defense schools, on the Board of Directors for the Baldrige Award and on the National Board for Professional Teaching Standards. Dr. Domenech has more than 40 years of experience in public education.   Dr. Domenech’s experience in public education provides the Board with valuable insight into the Company’s niche market and the challenges and opportunities within that market.

 

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		Stephen J. Hasenmiller   Age: 67 Director Since: 2004   Horace Mann Committees: Compensation (Chair) Executive Nominating & Governance		Mr. Hasenmiller retired in March 2001 after 24 years of service at The Hartford Financial Services Group, Inc., as Senior Vice President - Personal Lines. Mr. Hasenmiller’s prior affiliations include his tenure as Chairman of the Personal Lines Committee of the American Insurance Association (1999-2001) and membership on the Boards of Directors of the Institute for Business & Home Safety (1996-2001) and the Insurance Institute for Highway Safety (1995-2001).   Mr. Hasenmiller’s seasoned insurance background in the personal lines business, including both direct sales and agency distribution, as well as his understanding and experience in dealing with complex insurance issues, provides the Board with a valuable perspective.
		Ronald J. Helow   Age: 72 Director Since: 2009   Horace Mann Committees: Customer Experience & Technology (Chair) Audit Executive		Mr. Helow is managing director of New Course Advisors, a consulting firm he founded in 2008 to advise companies on how to use advanced technologies to create a competitive advantage. Mr. Helow served from 2001 to 2008 as Partner and Chief Technology Officer at NxtStar Ventures, LLC, a firm providing consulting services to life insurance and retail financial services businesses, and founded Registry Systems Corporation in 1990 to custom design and implement mission critical projects using advanced computer technologies for insurance companies.   Mr. Helow’s past experience in developing and securing solutions to insurance company operating challenges through technology brings to the Board unique knowledge and perspective.
		Beverley J. McClure   Age: 62 Director Since: 2013   Horace Mann Committees: Audit Compensation Customer Experience & Technology		Ms. McClure retired in 2007 after a 35 year career with United Services Automobile Association (“USAA”), as Senior Vice President, Enterprise Operations. She is owner of Fresh Perspectives LLC, a firm she founded in 2007 which specializes in executive coaching and small business consulting. Ms. McClure previously served as Senior Advisor of Endeavor Management, a consulting firm specializing in service culture creation, leadership coaching, business transformation, operational execution, and customer experience management, a position she held from 2010 to 2013. She holds the Chartered Life Underwriter and Fellow, Life Management Institute designations and is a certified executive coach through the International Coach Federation.   Ms. McClure’s broad experience in the areas of service excellence, customer experience, culture creation, employee engagement and quality management provides the Board with a valuable perspective.

 

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		H. Wade Reece   Age: 60 Director Since: 2016   Horace Mann Committees: Customer Experience & Technology Investment & Finance		Mr. H. Wade Reece retired in 2015 after a 37 year career with BB&T Corporation (“BB&T”) where he served as the Chairman of the Board and Chief Executive Officer of BB&T Insurance Services, Inc. and BB&T Insurance Holdings, Inc., the sixth largest insurance broker globally. Until his retirement in 2015, Mr. Reece served as Vice Chairman of the Foundation of Agency Management Excellence (“FAME”) Board of Directors and a member of the Executive Committee of The Institutes (American Institute for Chartered Property Casualty Underwriters and Insurance Institute of America). He was also a past Chairman of the Council of Insurance Agents & Brokers and past Chairman of the Board of Trustees of The Institutes.   Mr. Reece’s in-depth knowledge of the insurance industry, leadership skills and broad experience with agency management will provide the Board with industry insight and perspective.
		Gabriel L. Shaheen   Age: 63 Director Since: 2007 Chairman Since: 2010   Horace Mann Committees: Executive (Chair) Nominating & Governance (Chair) Compensation		Mr. Shaheen retired in 1999 after 22 years of service with Lincoln National Corporation, including service as President and Chief Executive Officer of Lincoln National Life Insurance Company, Managing Director of Lincoln UK, and President and Chief Executive Officer of Lincoln National Reinsurance Companies. Since 2000, he has been Chief Executive Officer of GLS Capital Ventures, LLC and Partner of NxtStar Ventures, LLC, firms providing consulting services to life insurance and retail financial services businesses. He is currently a member of the Board of Directors of M Financial Holdings Incorporated and of Steel Dynamics, Inc., one of the largest steel producers and metals recyclers in the United States. Mr. Shaheen holds the Fellow of the Society of Actuaries designation.   Mr. Shaheen’s insurance experience, technical insurance expertise and leadership background are valuable Board resources and contribute to Board discussion of issues impacting the Company.
		Robert Stricker   Age: 70 Director Since: 2009   Horace Mann Committees: Investment & Finance (Chair) Customer Experience & Technology		Mr. Stricker retired from Shenkman Capital Management, Inc., an investment management firm, in March 2009 as Senior Vice President and Principal. Prior to joining Shenkman, he served as Managing Director, Head of U.S. Fixed Income, Citigroup Asset Management at Citigroup, Inc. from 1994 to 2001. Mr. Stricker has over 40 years of experience in the financial services industry. He currently serves as a Director of the CQS Directional Opportunities Feeder Fund Ltd. and on the OPEB Trust Board of the town of Greenwich, Connecticut. Mr. Stricker holds the Chartered Financial Analyst designation.   Mr. Stricker’s investment knowledge and financial services industry experience provide the Board with financial insights and assist the Board in its oversight responsibilities.

 

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		Steven O. Swyers   Age: 66 Director Since: 2014   Horace Mann Committees: Audit (Chair) Investment & Finance		Mr. Swyers retired in 2013 after a 40 year career with PricewaterhouseCoopers LLP (“PwC”), a public accounting firm. During this time with PwC, he served as the lead engagement partner on many national and international companies, including those in the financial services industry. He has also held various leadership positions at PwC including leader of the Central Region’s consumer and industrial products business segment and managing partner of their St. Louis practice. He is currently a member of the Board of Directors of Mercy Health East Communities and Webster University. Mr. Swyers holds the Certified Public Accountant designation.   Mr. Swyers has an extensive audit and accounting background and is recognized as a financial expert. His knowledge in these areas assists the Board in its oversight responsibilities.
		Marita Zuraitis   Age: 56 Director Since: 2013   Horace Mann Committees: Customer Experience & Technology Executive Investment & Finance		Ms. Zuraitis was appointed to her present position as President and Chief Executive Officer in September 2013. She joined the Company in May 2013 as President and Chief Executive Officer-Elect. Ms. Zuraitis joined Horace Mann from The Hanover Insurance Group where she was an Executive Vice President and a member of The Hanover’s Executive Leadership Team. From 2004 to 2013, she served as President, Property and Casualty Companies, responsible for the personal and commercial lines operations at Citizens Insurance Company of America, The Hanover Insurance Company and their affiliates. Prior to 2004, Ms. Zuraitis was with The St. Paul/Travelers Companies for six years, where she achieved the position of President and Chief Executive Officer, Commercial Lines. She also held a number of increasingly responsible underwriting and field management positions with United States Fidelity and Guaranty Company and Aetna Life and Casualty. She is a member of the Board of Directors of LL Global, Inc., a trade association with operating divisions LIMRA and LOMA, and a member of the Board of Trustees of The Institutes, the leading provider of risk management and property-casualty insurance education, whose offerings include the premier CPCU® designation. She is also a member of the Board of Directors of Citizens Financial Group, Inc. Ms. Zuraitis has over 30 years of experience in the insurance industry.   Ms. Zuraitis’s knowledge of and extensive background in the insurance industry contribute to Board discussion and understanding of issues impacting the Company.

All of the Board Nominees were elected Directors at the last Annual Meeting of Shareholders of the Company held on May 25, 2016.

The Board recommends that Shareholders vote FOR the election of these nine nominees as Directors.

 

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The following table identifies membership and the Chairman of each of the current committees of the Board, as well as the number of times each committee met during 2016.

 

Director

Executive  Committee

Compensation  Committee

Nominating &  Governance Committee

Investment &  Finance Committee

Audit  Committee

Customer  Experience &  Technology Committee (1)

Daniel A. Domenech

X

X

Stephen J. Hasenmiller

X

Chair

X

Ronald J. Helow

X

X

Chair

Beverley J. McClure

X

X

X

H. Wade Reece

X

X

Gabriel L. Shaheen

Chair

X

Chair

Robert Stricker

Chair

X

Steven O. Swyers

X

Chair

Marita Zuraitis

X

X

X

Meetings in 2016

0

5

4

4

12

4

    Chair - Committee Chair

    X - Committee member

 

(1)	The Customer Experience & Technology Committee is an ad hoc committee.

 

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Director Compensation

The compensation program for non-employee Directors is shown in the following table:

 

Compensation Element		Non-Employee Director Compensation (1)(2)
Board Chairman Annual Retainer		$115,000
Board Member Annual Retainer (other than Board Chairman)		$60,000
Committee Chairman Annual Retainer		$25,000 Audit Committee $15,000 Compensation Committee $12,000 Nominating & Governance Committee $15,000 Customer Experience & Technology Committee $10,000 all other Committees (3)
Committee Member Annual Retainer (other than Committee Chairman)		$10,000 Audit Committee $ 7,500 all other Committees (3)
Share-based Compensation		Fair value on the date of the respective awards is used to determine the number of Restricted Stock Units (“RSUs”) awarded. An annual award of $95,000 in RSUs following the Annual Shareholder Meeting. $95,000 in RSUs if joining the Board within 6 months after the prior Annual Shareholder Meeting, $47,500 in RSUs if joining more than 6 months after the prior Annual Shareholder Meeting but before the next Annual Shareholder Meeting. All awards have a 1 year vesting period.
Basic Group Term Life Insurance		Premium for $10,000 face amount
Business Travel Accident Insurance		Premium for $100,000 coverage

 

(1)	Annual retainer fees are paid following the Annual Shareholder Meeting each year. The annual retainer fees are prorated to the extent that a non-employee Director joins the Board after the Annual Shareholder Meeting.

(2)	Non-employee Directors may elect to defer cash compensation into Common Stock equivalent units (“CSUs”).

(3)	All other Committees except for the Executive Committee which is not paid an Annual Retainer.

 

 

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The following table sets forth information regarding compensation earned by, or paid to, the non-employee Directors during 2016:

 

Director		Fees Earned or Paid in Cash ($)				Stock Awards ($) (1)				All Other Compensation ($) (2)				Total ($)
Daniel A. Domenech			0				170,000				204				170,204
Stephen J. Hasenmiller			82,500				95,000				204				177,704
Ronald J. Helow			85,000				95,000				204				180,204
Beverley J. McClure			85,000				95,000				51				180,051
H. Wade Reece			75,000				95,000				35				170,035
Gabriel L. Shaheen			134,500				95,000				51				229,551
Robert Stricker			77,500				95,000				204				172,704
Steven O. Swyers			92,500				95,000				204				187,704

 

(1)	Represents fees deferred in 2016 pursuant to the HMEC 2010 Comprehensive Executive Compensation Plan, as well as $95,000 in RSUs (awarded May 25, 2016). As of December 31, 2016, each Director had 2,895 unvested RSUs.

(2)

Represents insurance premiums provided by the Company for group term life insurance and business travel accident insurance for each Director. The group term life insurance premiums are age-banded and this is reflected in the lower premiums for Ms. McClure, Mr. Reece and Mr. Shaheen. In addition, Mr. Reece’s premiums were pro-rated based on the date that he joined the Board.

Corporate Governance

 

 

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Compensation Discussion and Analysis

 

In this section, we describe the material components of our executive compensation program for our Named Executive Officers (“NEOs”), whose compensation is displayed in the 2016 Summary Compensation Table and the other compensation tables contained in this Proxy Statement. We also provide an overview of our executive compensation philosophy and we explain how and why the Compensation Committee of our Board (the “Committee”) arrives at specific compensation policies and decisions.   Our 2016 NEOs are our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and the three other most highly compensated Executive Officers employed at the end of 2016:   Marita Zuraitis, President and CEO; Dwayne D. Hallman, Executive Vice President and CFO*; Matthew P. Sharpe, Executive Vice President, Life & Retirement; William J. Caldwell, Executive Vice President, Property & Casualty; and Kelly J. Stacy, Senior Vice President, Field Operations and Distribution.   *Note Regarding Chief Financial Officer On Feb. 3, 2017, our Executive Vice President and Chief Financial Officer, Dwayne D. Hallman, passed away. Bret A. Conklin was named Acting CFO. As of our Proxy Statement filing date, a permanent CFO had not been named. Because Mr. Hallman was our CFO for the entire 2016 fiscal year, we will include the compensation and pay decisions made with respect to him when discussing the compensation of our NEOs throughout this section. We believe that this approach provides our shareholders with a representative view of our pay programs with respect to our executive team.

Executive Summary

This summary highlights information from this Compensation Discussion and Analysis section and may not contain all the information that is necessary to gain a full understanding of our policies and decisions. Please read the entire Compensation Discussion and Analysis section and compensation tables for a more complete understanding of our compensation program.

Our Business

We are a personal insurance and financial services business with approximately $10.6 billion of assets and approximately $1.1 billion in total revenue as of December 31, 2016. Founded by Educators for Educators^®, we offer our products and services primarily to K-12 teachers, administrators, and other public school employees and their families. We underwrite personal lines of auto, property and life insurance, as well as retirement products in the United States.

2016 Business Highlights

The Company delivered solid underlying financial results across all three segments of its business in 2016. Full year operating income was $1.97 per diluted share. Book value per share* increased 4% in 2016 driven by the solid operating results and positive contributions from investment portfolio performance. In addition, we achieved broad-based increases in new business sales and solid policy retentions during the past year. Total Shareholder Return was 32.9% in 2016 outperforming key insurance and general market indices.

 

 

*Excluding

the fair value adjustment for investments

 

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These results reflect significant progress on numerous strategic initiatives, including:

•

Increased sales levels year-over-year in all lines of business excluding retirement

•

New auto and property sales premium increased 6% and 5%, respectively

•

Strong auto and property retention ratios

•

Increased annuity assets under management by 7%

Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in HMEC’s 2016 Annual Report on Form 10-K for a more detailed description of these financial results.

2016 Executive Compensation Highlights

 

These elements of the executive compensation program are described more fully below.   •       Pay mix comprised of base salary, cash annual incentives under the Annual Incentive Plan (“AIP”), and equity-based long-term incentives under the Long-term Incentive Plan (“LTIP”) •       Over 70% of the CEO’s target compensation and over 60% of all other NEOs’ target compensation linked to performance-based or service-vested incentives •       Balanced performance measures designed with a focus on shareholder return, both absolute and relative, and incenting operating growth while managing risk •        Performance incentives tied to multiple overlapping performance periods •        Annual Cash Incentives tied to Company and business line performance measures •       Long-term Incentives entirely equity based: ➣    Performance-based RSUs vest following a 3-year period, based on both relative measures (relative total shareholder return and relative operating return on equity) and an absolute measure (total written premium growth) ➣    Service-vested stock options with a 4-year vesting period ➣    Service-vested RSUs with a 3-year vesting period •        One-time, provisional strategic equity grants of performance-based RSUs to promote continuity of leadership •        Stock ownership guidelines for NEOs ➣    Twelve-month post-exercise holding requirement for stock options •        Clawback policy applicable to both cash and equity awards •       Executive change in control plan excludes “tax gross-up” provision •        Limited perks and executive benefits

Pay Governance

Oversight

The Committee oversees our executive compensation program. The current members of the Committee are Mr. Hasenmiller, Ms. McClure, and Mr. Shaheen. Mr. Hasenmiller serves as the Committee Chair. Consistent with the listing standards of the NYSE, the Committee is composed entirely of independent Directors.

The Committee retained Compensation Advisory Partners LLC (“CAP”) as independent compensation consultants. CAP provides information and advice on the competitive market for executive talent, evolving market practices in our industry and the general employment market, regulatory and other external developments, and our executive compensation philosophy and incentive program design. In this way, CAP assists the Committee with ongoing education. Also, Committee members comply with Directors’ education requirement to help ensure each remains up to date on current issues relevant to the Company and its business.

The CAP consultants report directly to the Committee, attend the Committee meetings and portions of executive sessions of the Committee at the Chair’s request (generally with the Board’s outside legal counsel, but without management present). CAP serves at the pleasure of the Committee, and performs no services for management. CAP works with management to obtain necessary data and perspectives on the Company’s strategic objectives, business environment, corporate culture, performance, and other relevant factors. This information is used by CAP to formulate its recommendations related to

 

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competitive compensation performance targets and overall design. CAP’s findings and recommendations are reported directly to the Committee. The services provided by CAP during 2016 are described in more detail throughout this analysis. Pursuant to regulatory requirements, the Committee assessed CAP’s independence (along with that of its other direct and indirect consultants and advisors) and concluded that CAP’s work did not raise any conflict of interest. In addition, the Committee has the authority to hire other experts and advisors as it deems necessary.

Management also supports the Committee by providing analysis and recommendations. When setting levels of executive compensation, the Committee requests, receives, and considers the recommendations of the CEO regarding the performance of her direct reports and other Executive Officers. Members of management also attend and contribute to Committee meetings as relevant to the Committee agenda.

The Committee discusses its fundamental views on compensation and guiding principles, as well as its expectations of the CEO’s performance and annual goals, with the CEO and subsequently proposes the CEO’s goals to the Board for approval. The Committee does not include the CEO or other members of management in its discussions with CAP on the CEO’s compensation, nor does the CEO or management participate in the Committee’s recommendation to the Board on the CEO’s compensation.

Favorable Say on Pay

At our 2016 Annual Meeting of shareholders, we received substantial support for the compensation of our NEOs, with 97.2% of the votes cast in favor of the “Say on Pay” advisory vote on executive compensation. The Committee and the Board were gratified by the favorable vote and value the views of our shareholders. The Committee was pleased that a significant majority of our shareholders approved the proposal, showing strong support for the structure of the compensation plans, the absence of excessive perquisites, the demonstrated pay-for-performance practices, and the strength of the Company’s compensation processes and practices.

Executive Compensation Program

Guiding Principles

The Committee has established a set of core principles that underlie our executive compensation program. These core principles provide guidance to the Committee and management in making decisions while administering the program or when considering changes. These core principles include strong alignment between pay and performance, incentive to drive shareholder value, and market competiveness.

Strong pay for performance alignment

We target compensation around the median of the competitive market, with executives earning more or less than median, generally based on the performance of the Company and value delivered to shareholders. Our core executive compensation program includes base salary, an annual cash incentive plan (the “Annual Incentive Plan” or “AIP”), and long-term equity awards (the “Long-Term Incentive Plan” or “LTIP”). Both AIP and LTIP are administered under the shareholder-approved 2010 Comprehensive Executive Compensation Plan, as amended and restated effective May 20, 2015 (“CECP”). Incentive awards are earned upon the achievement of short-term and long-term business goals that are reviewed and approved by the Committee at the beginning of each performance period. Performance goals are structured to reward business growth, profitability, relative total shareholder return, balanced with productivity and risk and capital management.

Executive interests should be aligned with shareholders’

To encourage the long-term view, the Committee grants equity awards with multi-year performance periods and multi-year vesting. In 2016, Ms. Zuraitis received approximately 46% of her target compensation in equity. With respect to the other NEOs, approximately 40% to 44% of their compensation was equity-based.

Incentive compensation should drive long-term value creation and reward strong performance

The AIP performance goals are based on premiums and adjusted operating income to reward strong performance. The LTIP performance goals are directly linked to multi-year growth and return measures to keep executives focused on value creation.

A significant portion of compensation should be “at risk” based on the Company’s performance

For 2016, over 70% of the CEO’s target total pay (base salary plus target annual incentive plus target long-term incentive) and over 60% of target total pay for all other NEOs is at risk, and is variable from year to year, and for much of it, the level of payout is dependent on the Company’s performance.

 

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Compensation levels should be market competitive

The Committee sets total direct compensation for the NEOs – salary and target annual and long-term incentive opportunities – within a reasonable range of the median of the competitive market, while providing the ability to decrease or increase compensation if warranted by performance. To determine competitive pay levels, we use comparable survey market data provided by CAP and from published survey sources including Mercer, LOMA, Towers Watson, and proxy data for similar sized insurance companies in the Russell 2000^® Index. The data from these surveys is scaled to our size by CAP based on revenues or asset ranges. Annually, CAP provides the Committee with a comparison of the base salary, annual incentives and long-term incentives of the CEO with those of other chief executive officers based on survey data. The other NEOs are assessed against comparable functional matches in the insurance industry and the broader general industry, as appropriate. Based on the data, and CAP’s analysis, the Committee deliberates in executive session to determine its recommendation for approval by the Board of Directors. For 2016, CAP’s analysis demonstrated that our overall core total direct compensation was consistent with target pay positioning at the median of the market. Core total direct compensation is comprised of salary, annual incentive, and our ongoing long-term incentive. In 2016, we also made a strategic incentive grant, which we do not anticipate making on a regular basis, and therefore have not included in the comparison to market data.

Compensation Mix

Our NEOs’ annual compensation consists of base salary, annual incentives and long-term incentives. The targeted compensation mix of total direct compensation for the NEOs for 2016 is illustrated below. The mix of 2016 actual compensation varied as a result of actual incentives earned.

 

Base Salary

Competitive base salaries are critical to attracting and retaining high performing executive talent. The Committee seeks to pay salaries that approximate median salaries for executives of similar companies in like positions. However, in recruiting new executives, we sometimes exceed these guidelines to attract qualified candidates. There may also be instances where an existing executive’s compensation deviates from the median, up or down, due to experience, performance, responsibilities, compensation history, internal equity, or retention risk.

 

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Salaries for the NEOs and other executive officers are reviewed every 12 months in connection with the review of financial results for the prior fiscal year and the annual performance review discussed under Annual Performance and Pay Review. In 2016, Ms. Zuraitis and Mr. Hallman received base salary increases to move overall compensation closer to the market median. The other NEOs did not receive base salary increases in 2016. Base salary adjustments for 2016 are shown in the chart below.

 

Named Individual		2015 Annualized Salary				2016 Annualized Salary				Percent Increase
Marita Zuraitis			$750,000				$800,000			6.7%
Dwayne D. Hallman			$444,000				$460,000			3.6%
Matthew P. Sharpe			$400,000				$400,000			0.0%
William J. Caldwell			$350,000				$350,000			0.0%
Kelly J. Stacy			$300,000				$300,000			0.0%

Annual Incentive Plan

Our Annual Incentive Plan (AIP) is a cash incentive plan, administered under the CECP, and designed to drive and reward strong performance over a one-year period. Annually, the Committee establishes the performance objectives, threshold, target and maximum performance levels, and the related threshold, target and maximum AIP opportunities for each NEO, expressed as a percentage of base salary. Target incentive opportunity levels for the NEOs are intended to approximate the median of the target bonus potential for similarly situated executives in comparable companies. Maximum incentive opportunities are set at 200% of target.

For 2016, there were four performance measures, with 50% of the award based on Company-wide net operating income, and the remaining 50% divided among specific sales and premiums of the different business lines: P&C (20%), annuities (20%), and life (10%), as shown in the chart below. This provides a balance between shareholder return and growth, while complementing the longer-term LTIP metrics, which focus on long-term shareholder value creation.

2016 Annual Incentive Plan Performance Measures

 

		Adjusted Operating Income - Operating income (GAAP net income after tax, excluding realized investment gains and losses other than those for Fixed Indexed Annuity related options and embedded derivatives) adjusted for Property & Casualty (“P&C”) catastrophe costs different than Plan, Annuity & Life deferred acquisition costs (“DAC”) unlocking and change in guaranteed minimum death benefit (“GMDB”) reserve due to capital gains and losses and market performance different than Plan, the impact on investment income of share repurchases different than Plan, and debt structure/costs including debt retirement different than Plan   P&C Net Premium Written (GAAP) - Amount charged for property and casualty policies issued during the year. (Portions of such amounts may be earned and included in financial reports over future periods.)   Annuity Sales - The amount of new business from the sales of Horace Mann annuity products, from Horace Mann and independent agents, as measured by premiums and deposits to be collected over the 12 months following the sale   Life Sales - The amount of new Horace Mann individual life insurance products sold during the year, as measured by premiums and deposits to be collected over the 12 months following the sale

All the NEOs’ 2016 annual incentive amounts are based on the same corporate and business line objectives to promote cooperation. The targets for the operating income and sales or premium measures were based on a review of market conditions and expectations of other companies in the industry as well as our financial plan for 2016 (“2016 Plan”). The 2016

 

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Plan was the basis of our 2016 earnings guidance, which was publicly disclosed in February 2016 in connection with our release of earnings for the year ended December 31, 2015. The Committee believes that tying the AIP to Company performance provides appropriate alignment for an executive’s compensation as it recognizes that the Company as a whole must perform well in order to deliver value to our Shareholders. Further, tying all the NEOs’ AIP awards to the performance of specific business lines incentivizes cooperation among the business line leaders. It is the goal of the Committee to establish measurements and targets that are reasonable, but not easily achieved. The measures and targets are discussed with the CEO, other NEOs, other members of the Board and CAP before they are set.

Each March, the Committee also certifies performance and determines annual incentive award payouts for the prior year. Based on the 2016 results of 112.28% of target for Ms. Zuraitis and the other NEOs, the 2016 AIP payouts (paid in March 2017) were as follows:

 

2016 AIP Measures		Target (in $M)					Actual (in $M)					Results					Weighting					Payout
Adjusted Operating Income				92.4					96.5					142	%				50	%				70.88	%
P&C Net Premium Written				633.6					634.3					107	%				20	%				21.40	%
Horace Mann Annuity Sales				380.8					356.9					0	%				20	%				0.00	%
Horace Mann Life Sales				12.6					15.5					200	%				10	%				20.00	%
Total																			100	%				112.28	%

 

Named Individual		2016 Target AIP Opportunity		2016 Actual AIP Payout		2016 Actual AIP Payout as a % of Base Salary
Marita Zuraitis		100%		$898,240		112.28%
Dwayne D. Hallman		60%		$308,096		66.98%
Matthew P. Sharpe		60%		$269,472		67.37%
William J. Caldwell		50%		$196,490		56.14%
Kelly J. Stacy		40%		$134,736		44.91%

 

 

 

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Long-term Incentive Plan

The intent of our Long-term Incentive Plan (LTIP) is to focus executives on shareholder value and key strategic objectives, while promoting retention.

2016 LTIP Aggregate Target Opportunity

In setting the dollar values of the 2016 opportunities under LTIP for each NEO, the Committee targeted amounts that would achieve the Company’s overall objective of positioning total compensation at approximately the market median. The 2016 target grant values for the NEOs were as follows:

 

Named Individual		2016 LTIP Target
Marita Zuraitis			$1,400,000
Dwayne D. Hallman			$500,000
Matthew P. Sharpe			$500,000
William J. Caldwell			$350,000
Kelly J. Stacy			$300,000

2016 LTIP Award Vehicles

For 2016, LTIP is comprised of three vehicles, as illustrated in the chart below: (1) performance-based RSUs; (2) service-vested RSUs; and (3) service-vested stock options.

 

Performance-Based RSUs (PBRSUs)

The Committee believes that PBRSUs provide an effective vehicle for rewarding executives based on a three-year performance period. Each year, a new three-year period starts, partially overlapping the periods that started the prior two years. PBRSUs were granted on March 9, 2016 for the 2016-2018 performance period, and comprise 50% of the 2016 LTIP opportunity. These RSUs will be earned and vested on December 31, 2018, if at all, based on the level of achievement. From the date of grant, PBRSUs accrue dividend equivalents at the same rate as dividends paid to our shareholders, but the dividend equivalents are only paid on the corresponding shares that are earned. If no shares are earned, the dividend equivalents are forfeited. Earned dividend equivalents are converted into additional RSUs.

Service-vested RSUs

The Committee believes that service-vested RSUs assist in the retention of key executive talent. Service-vested RSUs were granted on March 9, 2016 and comprise 20% of the 2016 LTIP opportunity. Service-vested RSUs vest 33% after the first year, vest an additional 33% after the second year and vest the final 34% after the third year from the grant date, and are subject to continued employment to the vesting date. From the date of the grant, the RSUs accrue dividend equivalents at the same rate as dividends paid to our shareholders. These dividend equivalents are converted into additional RSUs and vest when the underlying RSUs vest.

Stock Options

The Committee believes that stock options provide strong alignment with shareholder interests, as participants do not realize any value unless our stock price appreciates. They also promote retention. Stock options granted under the LTIP have an exercise price equal to the closing stock price on the date of grant, vest ratably over a four-year period subject to continued employment on each vesting date and have a ten-year term. Stock options were granted on March 9, 2016 and comprise 30% of the 2016 LTIP opportunity. The number of options granted was determined using the Black-Scholes valuation method. For additional information regarding assumptions used for these valuations, see the Company’s 2016 Annual Report on Form 10-K “Notes to Consolidated Financial Statements –

 

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Note 1 – Summary of Significant Accounting Policies – Share-Based Compensation.” Upon exercise Executive Officers are required to hold shares equivalent to any proceeds (net of exercise price and related taxes and the costs of the exercise) for a minimum of twelve months.

Timing of Equity Grants

The Committee has granted long-term incentives only at its regularly scheduled Board meetings. The grant date is the applicable resolution as approved or a future date as otherwise specified in the resolution.

2016-2018 Performance-based RSUs

The Performance-based RSUs granted in 2016 have three performance measures as shown below:

 

		Relative Total Shareholder Return - Relative Total Shareholder Return for the three-year period measured against a peer group of companies   Relative Operating Return on Equity - Average annual relative Operating Income return on average equity for the three-year period measured against a peer group of companies   Total Written Premium Growth - Written premium growth measured as the compound annual growth rate from 2016 to 2018 for Auto, Property, Annuity and Life.

Prior Years PBRSU Grants

2015-2017 PBRSUs

The PBRSUs granted in 2015 will not mature until December 31, 2017. Since the applicable 3-year performance period has not yet ended, actual performance against targets is not yet known.

2014-2016 PBRSUs

The performance-based RSUs granted in 2014 matured and vested as of December 31, 2016. The performance measures, targets and payout levels for the PBRSUs granted in 2014 are as follows:

 

2014-2016 Relative Performance Measures (1)		Weighting		2014-2016 Target (2)		Result (as of 12/31/2016)
Operating Return on Equity		50%		50th		53%
Total Shareholder Return		50%		50th		52%
Total		100%				105%

 

(1)

The Performance Measures, as defined under the Long-term Incentive Plan, include:

•

Operating Return on Equity – Relates to the average annual Operating Income return on average equity for the three-year period measures against a peer group of companies in the Russell 2000® Index

•

Total Shareholder Return – Relates to the Total Shareholder Return for the three-year period measured against a peer group of companies in the Russell 2000® Index

(2)

50th Percentile of Peer Group

Strategic Incentive Grants

Working with CAP, we designed an incentive program to achieve both (i) corporate financial goals, and (ii) strategic individual goals which, while closely aligned with, transcend short and long-term financial measures. Specifically, in March 2016, we made equity grants to key executives, including the NEOs, under our CECP. The Company’s success makes our leadership team more vulnerable to recruitment by competitors. The Committee believes the grants promote continuity of leadership as we pursue our long-term vision, and also strengthen management’s alignment with shareholder interest. We believe if the management team is successful in achieving these specific strategic objectives, it will drive incremental value for shareholders. These awards were specifically designed to address key priorities during this strategic transition in our Company’s evolution, and are not expected to be an ongoing component of our compensation.

Each NEO received a provisional equity grant of PBRSUs contingent on a corporate financial Performance Goal, EPS, and individual strategic goals. If the Performance Goal is satisfied, 50% of the award shall be earned and vested on January 1, 2019. The remaining 50% of the award shall be eligible for vesting on January 1, 2019 subject to achievement of individual strategic goals.

 

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The Individual Goal-Based PBRSUs:

 

•

Do not vest unless the established individual strategic goals, discussed below, are achieved during the performance period beginning on January 1, 2016, and ending on December 31, 2018;

•

Are reduced to zero, if the corporate Performance Goal is not achieved;

•

Cannot exceed the number of shares granted (except through accrued dividend equivalents); and

•

Will be reduced if all individual strategic goals and their components are partially met.

The grant value of the Strategic Equity Grant for each NEO is listed below. Because we do not anticipate these types of awards being a regular component of pay, these amounts were not explicitly included in the comparison to market pay data.

 

		Named Individual		PBRSU Grant Value
		Marita Zuraitis		$	1,600,000
		Dwayne D. Hallman		$	666,000
		Matthew P. Sharpe		$	600,000
		William J. Caldwell		$	525,000
		Kelly J. Stacy		$	300,000

For all PBRSUs, the NEO must be an employee of the Company as of the vesting date for the awards to vest, except as otherwise provided with regard to death, disability, or in the event of a change in control, or as otherwise provided under a severance or consulting arrangement. The NEO will forfeit the entire award if she or he retires prior to the end of the performance period. Upon vesting, such units are converted into an equivalent number of shares of Common Stock.

Ms. Zuraitis’ individual goals are based on execution of strategic plans related to our long-term vision and leading the execution of the management team’s critical strategic initiatives, expanding the Company’s external exposure, and leveraging the Company’s unique industry position and enhancing the overall customer value proposition.

Mr. Hallman’s individual goals are based on establishing efficient and optimized Capital Management, Enterprise Risk Management, Investor Relations and Rating Agency Relations, and Investment Management strategies, providing strategic support to ensure the Company achieves our aggressive long-term vision, and leading business development and partnership opportunities.

Mr. Sharpe’s individual goals are based on refining and implementing an effective household acquisition strategy, leading the implementation strategy and execution of the DOL/SEC fiduciary standard transition, and continuing to expand the Company’s life insurance platform.

Mr. Caldwell’s individual goals are based on development of a strategy to modernize the Company’s property and casualty infrastructure, execution of a customer and agent experience strategy, and implementation of advanced pricing segmentation.

Mr. Stacy’s individual goals are based on building, establishing and achieving a long-term sales plan, building an agency framework that establishes clear standards and assessing agents against those standards, and designing an optimal field structure to deliver improved results.

Achievement of the individual strategic goals will be determined by the Board of Directors, with input from the CEO (except for her own award). The CEO will provide, periodic updates to the Board illustrating progress by each individual.

The entire award is subject to satisfaction of an objective threshold company-wide performance goal, which must be met during the performance period beginning on January 1, 2016 and ending on December 31, 2018 (Performance Period). If an unexpected event occurs triggering a significant loss, the awards could be eliminated entirely. With the objective threshold company-wide performance goal, the awards qualify for the performance-based compensation exception to the deduction limit in Section 162(m) of the Internal Revenue Code.

Additional Pay Practices

Stock Ownership & Holding Guidelines

The CEO is required to accumulate and maintain beneficial stock ownership with a book value of at least 500% of base salary and all other NEOs are required to accumulate and maintain beneficial stock ownership with a book value of at least 350% of base salary. Given recent market volatility, we use book value to measure the value of the shares we require the NEOs to own. Book value is less volatile than stock price. For this purpose, the Company’s book value per share is determined by dividing total shareholders’ equity, less the fair value adjustment for investments, by the number of outstanding shares of common stock.

 

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The NEOs must satisfy stock ownership guidelines within five years of attaining their position. Stock ownership may be achieved by direct ownership or beneficial ownership through a spouse, child, or trust. The following types of beneficial ownership are considered in determining stock ownership: direct ownership, shares held through our 401(k) Plan, deferred common stock equivalent units (only Mr. Hallman has these) and RSUs (vested and unvested). Outstanding stock options are not used in determining stock ownership.

Our executives are required to defer earned and vested RSU awards until their stock ownership guidelines are met. Beginning with the March 9, 2011 stock option grants, the NEOs are required to hold shares equivalent to any proceeds from a long-term incentive stock option exercise, net of exercise price and related taxes and the costs of the exercise, for a minimum of twelve months after the date of exercise. As part of its 2016 overall review of the executive compensation program, the Committee determined the existing multiples of base salary stock ownership guidelines for the Executive Officers were appropriate and would be continued in 2016.

As indicated in the following chart, all NEOs have met or exceeded their stock ownership guidelines except for Mr. Caldwell and Mr. Stacy. Mr. Caldwell has been with the Company less than four years and Mr. Stacy has been with the Company less than two years. Mr. Caldwell and Mr. Stacy are on target to meet the requirement by their respective deadlines.

 

 

Named Individual		2016 Stock Ownership Target		2016 Stock Ownership Actual				2016 Stock Ownership				2016 Book Value (1)
Marita Zuraitis		500%			1032	%			296,955			$	8,252,375
Dwayne D. Hallman		350%			1130	%			187,011			$	5,197,045
Matthew P. Sharpe		350%			686	%			98,774			$	2,744,928
William J. Caldwell		350%			339	%			42,632			$	1,184,755
Kelly J. Stacy		350%			241	%			25,984			$	722,099

 

(1)	Represents book value per share excluding the fair value adjustment for investments

HMN	Stock Price @ 12/31/2016 =        $42.80

HM	Book Value @ 12/31/2016 =        $27.79

Annual Performance and Pay Review

To further reinforce a performance-based culture and the tie between Company results and compensation, the Committee reviews each executive officer’s performance annually, coinciding with the review of corporate performance results. Each executive officer is reviewed not only on prior year business results but also on the individual’s demonstration of leadership skills and progress on specific strategic initiatives and other key priorities. The Committee also considers any adjustments to base salary, annual incentive opportunity, and long-term incentive opportunity at this review. The Committee recognizes the need to have market-competitive compensation opportunities to attract, retain, and reward high performing executive talent.

 

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Risk Assessment

Our programs are structured to discourage excessive risk-taking through a balanced use of compensation vehicles and metrics with an overall goal of delivering sustained long-term shareholder value while aligning our executives’ interests with those of our shareholders. To this end, management and CAP conduct, and the Committee and the Board’s outside legal counsel reviews, an annual risk analysis of the compensation plans and incentive metrics. Our programs require that a substantial portion of each executive officer’s compensation is contingent on delivering performance results. In addition, a significant portion of our NEOs’ compensation is delivered in equity over a multi-year timeframe. The Committee has been advised by the Board’s outside legal counsel and agrees that no unreasonable risk exists that a compensation policy or incentive plan would have a material adverse impact on the Company.

Succession Planning Process

To mitigate enterprise risk and leadership gaps, the Committee oversees and monitors the Company’s succession planning process on a regular basis. This process identifies candidates that have the skill sets, background, training, and industry knowledge to assume critical positions on an emergency basis and also for the long-term, if necessary. The Company’s succession plan is also reviewed by the full Board annually.

Minimal Use of Employment Agreements

The Company does not have any individual employment agreements with any executive officer and intends to continue to minimize their use, while recognizing that in isolated situations an agreement may be needed for attraction and retention of key executive talent.

Executive Severance and Change in Control Plans

To maintain market competitiveness and allow for the successful recruitment of key executives, the Company maintains the Horace Mann Service Corporation Executive Severance Plan (“Executive Severance Plan”) and the Horace Mann Service Corporation Executive Change in Control Plan (“CIC Plan”). The Executive Severance Plan provides benefits due to loss of position with or without a change in control. Currently, all NEOs participate in the Executive Severance Plan. The CIC Plan is intended to provide a level of security consistent with market practices, mitigate some of the conflicts an executive may be exposed to in a potential acquisition or merger situation, and serve to insure a more stable transition if a corporate transaction were to occur. The CIC Plan provides for benefits only in the event of the loss of position following a change in control, as defined in the CIC Plan. Participants in the CIC Plan are designated by position. This plan does not have tax gross-up provisions. Currently, Ms. Zuraitis, Mr. Sharpe, Mr. Caldwell, and Mr. Stacy participate in the Executive CIC Plan. The CIC Plan does not permit duplicate benefits under the Executive Severance Plan. The Company had an individual severance agreement with Mr. Hallman, which was entered into at the time of his employment in 2003. The agreement provided payments, benefits and tax gross-up provisions only if both a change in control of the Company and Mr. Hallman’s actual or constructive termination of employment occurred (“double trigger”).

Multiple of the sum of salary plus target annual incentive, payable in the form of salary continuation (for Executive Severance), and payable in a lump sum (for CIC), based on the following table:

 

				Multiple
		Named Individual		Executive Severance					Change In     Control
		Marita Zuraitis				2.0					2.5
		Dwayne D. Hallman*				N/A					N/A
		Matthew P. Sharpe				1.5					2.0
		William J. Caldwell				1.5					2.0
		Kelly J. Stacy				1.0					1.0

 

*Following

his death in February 2017, Mr. Hallman is no longer a participant in our Executive Severance Plan or CIC Plan.

Retirement Plans

The NEOs participate in our Company-wide Supplemental Retirement & Savings Plan – 401(k) – and a supplemental defined contribution plan designed to provide benefits that cannot be provided under our tax-qualified defined contribution plan because of certain limitations imposed by the Internal Revenue Code. Each of these two plans includes a Company contribution. The amounts contributed for each NEO are included in the “Summary Compensation Table.” These types of plans are customarily offered within our industry. No NEO participates in the Company’s defined benefit plan or supplemental defined benefit retirement plan because participation in those plans was limited to individuals hired prior to

 

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January 1, 1999 and all of our NEOs were hired after that date. We formerly maintained a money purchase pension plan, which was terminated in 2014 and all assets were distributed by the end of 2016.

Deferred Compensation

Prior to 2009, the LTIP permitted certain elective deferrals. Pre-2009 account balances are maintained in notional deferred Common Stock equivalent units, which accrue dividend equivalents at the same rate as dividends paid to our shareholders. These dividend equivalents are converted into additional deferred Common Stock equivalent units. Mr. Hallman was the only NEO with an account balance under this arrangement.

Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans

The Company offered a nonqualified deferred compensation plan to executives, which allowed them to defer receipt of Long-term Incentive cash compensation prior to 2009 when cash was a component of the Long-term Incentive Plan. Executives were allowed to defer up to 100% of their earned long-term cash incentive into HMEC’s deferred Common Stock equivalent units. All the NEOs except Mr. Hallman were hired after 2009 and do not have an account in the plan.

The Company also sponsors an unfunded excess pension plan, the Nonqualified Defined Contribution Plan (“NQDCP”), which covers only the base salary compensation in excess of the Section 415 limit, which in 2016 was $265,000. The NQDCP accounts are established for the executives at the time their compensation exceeds the Section 415 limit and the NEOs are credited with an amount equal to 5% of the excess. In addition, the NQDCP accounts are credited with the same rate of return as the qualified plan sponsored by the Company for all employees.

Clawbacks

The Committee believes that our compensation program should reward performance that supports the Company’s culture of integrity through compliance with applicable laws and regulations and our codes of ethics and conduct. As a further step to support that belief, the Committee has determined that all executive officers are subject to the same standards as the CEO and CFO regarding cash compensation clawbacks as defined under Section 304 of the Sarbanes-Oxley Act of 2002. In addition, under the CECP, the Company is entitled to recover any cash or equity award if it is determined that an executive’s own misconduct contributed materially to the executive’s receipt of an award. If changes are made in future applicable legislative or regulatory guidance, the Company will modify the current clawback provisions to comply.

Hedging, Pledging Prohibitions

NEOs and other executive officers are prohibited from engaging in hedging transactions in our common stock. They are also prohibited from pledging their shares of our common stock.

Perquisites and Personal Benefits

The only perquisites we provide are financial planning services, which are commonly provided among our peer companies. Please see the “Summary Compensation Table” for further details. Our NEOs do not receive other personal benefits.

Tax Implications

Favorable accounting and tax treatment of the various elements of the Company’s total compensation program is an important, not the sole, consideration in the design of the compensation program. Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public corporations for compensation over $1,000,000 paid for any fiscal year to the corporation’s CEO and three other most highly compensated Executive Officers (other than the CFO) as of the end of the fiscal year. However, the statute exempts qualifying performance-based compensation from the deduction limit if certain requirements are met.

The AIP and LTIP are designed to permit full deductibility and the Committee expects all compensation to be fully deductible. However, the Committee believes that shareholder interests are best served by not restricting the Committee’s discretion and flexibility in developing compensation programs, even though such programs may result in certain non-deductible compensation expenses. In order to satisfy the Section 162(m) qualification requirements, the Committee allocated an incentive pool equal to 5.4% of adjusted operating income to certain individuals under the Company’s compensation program. Once the amount of the pool and the specific allocations are determined at the end of the year, the Committee can apply “negative discretion” to reduce (but not increase) the amount of any award payable from the incentive pool to individuals, as determined by the amount payable to each individual based on performance criteria and actual results.

 

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Compensation Tables

Summary Compensation Table

The following table sets forth information regarding compensation of the Company’s Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated executive officers during 2016, 2015, and 2014.

 

Name & Principal Position		Year				Salary       ($) (1)				Bonus       ($) (2)				Stock     Awards     ($) (3)				Option   Awards   ($) (4)				Non-Equity Incentive Plan Compensation ($) (5)				All Other  Compensation  ($)				Total  ($)
Marita Zuraitis President & Chief Executive Officer			2016				800,000				0				2,580,000				420,000				898,240				57,593				4,755,833
			2015				742,333				0				770,000				330,000				749,809				55,587				2,647,729
			2014				690,500				0				700,000				300,000				929,068				45,609				2,665,177
Dwayne D. Hallman Executive Vice President & Chief Financial Officer			2016				457,333				0				1,016,000				150,000				308,096				22,225				1,953,654
			2015				444,000				0				350,000				150,000				298,981				28,000				1,270,981
			2014				440,502				0				350,000				150,000				329,275				30,200				1,299,977
Matthew P. Sharpe Executive Vice President, Life & Retirement			2016				400,000				0				950,000				150,000				269,472				40,927				1,810,399
			2015				394,000				0				350,000				150,000				265,312				41,508				1,200,820
			2014				354,252				0				280,000				120,000				264,803				36,053				1,055,108
William J. Caldwell Executive Vice President, Property & Casualty			2016				335,417				0				770,000				105,000				196,490				39,885				1,446,792
			2015				325,000				0				210,000				90,000				164,136				22,929				812,065
			2014				254,174				0				122,500				52,500				136,163				25,142				590,479
Kelly J. Stacy Senior Vice President, Field Operations & Distribution			2016				300,000				0				510,000				90,000				134,736				18,950				1,053,686
			2015				130,769				200,000				310,000				90,000				134,676				44,287				909,732

 

(1)	Represents each NEO’s actual base salary earnings as of December 31, 2016, 2015 and 2014, respectively. Mr. Stacy was hired in 2015.

 

(2)	For 2015 this represents a sign-on award for Mr. Stacy.

 

(3)

Represents the grant date fair value of service-based and performance-based RSUs granted in 2014 & 2015. Performance-based RSUs are valued based on the probable performance of Target with the potential of 50% to 200% being earned based on performance results. For 2015, this includes an additional sign-on award for Mr. Stacy. In 2016 it represents the grant date fair value of service based and performance based RSUs, and performance based RSUs based on strategic initiatives.

 

(4)	Represents the grant date fair value of $5.01 per share for stock options granted on March 9, 2016. For Mr. Stacy, it represents the grant date fair value of $11.52 per share for stock options granted on September 29, 2015.

 

(5)	Represents the cash payout for the AIP earned in each year.

 

2017 Proxy Statement • Compensation Discussion and Analysis		25

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Table of Contents

Detail of All Other Compensation

The following table sets forth information regarding all other compensation paid to, or earned by, the NEOs in 2016.

 

Name & Principal Position		Perquisites & Other Personal Benefits ($) (1)				Relocation ($)				Company Contributions to Defined Contribution Plans ($)				Total         ($)
Marita Zuraitis President and Chief Executive Officer			14,560				0				43,033			57,593
Dwayne D. Hallman Executive Vice President and Chief Financial Officer			0				0				22,225			22,225
Matthew P. Sharpe Executive Vice President, Life & Retirement			14,560				0				26,367			40,927
William J. Caldwell Executive Vice President, Property & Casualty			14,560				0				25,325			39,885
Kelly J. Stacy Senior Vice President, Field Operations and Distribution			0				0				18,950			18,950

 

(1)

Includes the use of a financial planning service to help minimize distractions and help ensure appropriate focus on his or her Company responsibilities.

 

26		2017 Proxy Statement • Compensation Discussion and Analysis

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Table of Contents

Grants of Plan Based Awards

The following table sets forth information concerning the grant of the 2016 Annual Incentive, the grant of the 2016 Long-term Incentive for the 2016 – 2018 performance period, and the strategic incentive grants. Actual payouts under the 2016 AIP are included in the “Summary Compensation Table.” Payouts for the 2016 Long-term incentive grant and the determination of the actual RSUs earned will not occur until after the completion of the 2016 – 2018 performance period.

 

Named Individual

Grant Date

Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)

Estimated Future Payouts Under Equity Incentive Plan Awards (2)

All Other Stock Awards: Number of Shares of Stock or Units (#) (3)

All Other Option Awards: Number of Securities Underlying Options (#) (4)

Exercise or Base Price of Option Awards ($/Sh)

Grant Date Fair Value of Stock Option Awards ($) (5)

Incentive Plan

Threshold ($)

Target ($)

Maximum ($)

Threshold (#)

Target (#)

Maximum (#)

Marita Zuraitis

AIP

400,000

800,000

1,600,000

N/A

N/A

N/A

N/A

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

37,086

74,171

148,342

N/A

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

N/A

N/A

N/A

9,030

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

N/A

N/A

N/A

N/A

83,916

$31.01

420,001

Dwayne D. Hallman

AIP

137,200

274,400

548,800

N/A

N/A

N/A

N/A

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

14,770

29,539

59,078

N/A

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

N/A

N/A

N/A

3,225

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

N/A

N/A

N/A

N/A

29,972

$31.01

150,010

Matthew P. Sharpe

AIP

120,000

240,000

480,000

N/A

N/A

N/A

N/A

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

13,706

27,411

54,822

N/A

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

N/A

N/A

N/A

3,225

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

N/A

N/A

N/A

N/A

29,972

$31.01

150,010

William J. Caldwell

AIP

83,854

167,708

335,416

N/A

N/A

N/A

N/A

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

11,288

22,575

45,150

N/A

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

N/A

N/A

N/A

2,259

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

N/A

N/A

N/A

N/A

20,980

$31.01

105,005

Kelly J. Stacy

AIP

60,000

120,000

240,000

N/A

N/A

N/A

N/A

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

7,257

14,513

29,026

N/A

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

N/A

N/A

N/A

1,935

N/A

N/A

N/A

3/9/2016

LTI

N/A

N/A

N/A

N/A

N/A

N/A

N/A

17,984

$31.01

90,010

N/A = Not applicable

(1)	Represents performance-based 2016 Annual Incentive.

(2)	Represents the performance-based portion of the 2016 Long-term Incentive grant, as well as a performance based RSU grant based on strategic initiatives.

(3)	Represents the service-based RSU portion of the 2016 Long-term Incentive grant.

(4)	Represents the stock option portion of the 2016 Long-term Incentive grant.

(5)	Totals equate to each NEO’s 2016 Long-term Incentive amount. The fair value of stock options was determined using the Black-Scholes model.

 

2017 Proxy Statement • Compensation Discussion and Analysis		27

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Table of Contents

Outstanding Equity Awards at Fiscal Year End

The following table sets forth information regarding the exercisable and unexercisable stock options, as well as the unvested RSUs held by each NEO at December 31, 2016.

 

				Option Awards																												Stock Awards (Restricted Stock Units)
		Named Individual		Number of Securities Underlying Unexercised Options Exercisable (#)				Number of Securities Underlying Unexercised Options Unexercisable (#) (1)				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)				Option Exercise Price ($)				Grant Date				Option Expiration Date								Number of Shares or Units of Stock that Have Not Vested (#) (2)				Market Value of Shares or Units of Stock that Have Not Vested ($) (3)				Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights that Have Not Vested (#) (4)				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights that Have Not Vested ($) (3)
		Marita Zuraitis			20,157				6,719				0			$	22.69				05/22/13				05/22/20
					16,648				16,648				0			$	28.88				03/05/14				03/05/24
					7,399				22,197				0			$	32.35				03/04/15				03/04/25								26,919			$	1,152,133				113,344			$	4,851,123
					0				83,916				0			$	31.01				03/09/16				03/09/26
		Dwayne D. Hallman			9,545				0				0			$	17.01				03/09/11				03/09/18
					22,464				0				0			$	17.32				03/07/12				03/07/19
					13,872				4,624				0			$	20.60				03/05/13				03/05/20
					8,324				8,324				0			$	28.88				03/05/14				03/05/24
					3,363				10,089				0			$	32.35				03/04/15				03/04/25
					0				29,972				0			$	31.01				03/09/16				03/09/26								14,978			$	641,058				48,080			$	2,057,824
		Matthew P. Sharpe			14,976				0				0			$	17.32				03/07/12				03/07/19
					8,325				2,775				0			$	20.60				03/05/13				03/05/20
					6,660				6,660				0			$	28.88				03/05/14				03/05/24
					3,363				10,089				0			$	32.35				03/04/15				03/04/25								12,061			$	516,211				43,996			$	1,883,029
					0				29,972				0			$	31.01				03/09/16				03/09/26
		William J. Caldwell			2,391				797				0			$	30.24				12/11/13				12/11/20
					2,914				2,914				0			$	28.88				03/05/14				03/05/24
					2,018				6,054				0			$	32.35				03/04/15				03/04/25								5,587			$	239,124				31,480			$	1,347,344
					0				20,980				0			$	31.01				03/09/16				03/09/26
		Kelly J. Stacy			0				5,862				0			$	33.41				09/29/15				09/29/25								5,323			$	227,824				19,607			$	839,180
					0				17,984				0			$	31.01				03/09/15				03/9/26

 

(1)	Long-term Incentive stock option grants are service-based and all unexercisable options vest on each anniversary of the grant date at a rate of 25% of the original grant.

(2)	Represents the unvested service-based RSUs granted in 2012, 2013, 2014, 2015, and 2016.

(3)	Represents the value of the RSUs based on the closing stock price of $42.80 at December 31, 2016.

(4)

The performance-based RSUs granted in 2014 will not be earned until the end of the 2014-2016 performance period. RSUs earned at the end of the performance period will vest 100% in 2017. The performance-based RSUs granted in 2015 will not be earned until the end of the 2015-2017 performance period. RSUs earned at the end of the performance period will vest 100% in 2018. The performance-based RSUs granted in 2016 will not be earned until the end of the 2016-2018 performance period. RSUs earned at the end of the performance period will vest 100% in 2019.

 

28		2017 Proxy Statement • Compensation Discussion and Analysis

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Table of Contents

Option Exercises and Stock Vest

The following table sets forth information regarding options exercised and stock awards acquired on vesting by the NEOs in 2016.

 

		Named Individual		Option Awards										Stock Awards
				Number of Shares Acquired on Exercise (#)				Value Realized on Exercise ($)						Number of Shares Acquired on Vesting (#)				Value Realized on Vesting ($) (1)
		Marita Zuraitis			0				0						2,311				73,004
		Dwayne D. Hallman			18,475				449,121						14,746				458,900
		Matthew P. Sharpe			0				0						1,051				33,201
		William J. Caldwell			0				0						4,757				169,989
		Kelly J. Stacy			1,954				18,696						1,608				52,444

 

(1)	The value realized on vesting of stock awards is determined by multiplying the number of shares vested by the closing stock price on the date of vesting. The actual amounts realized from vested stock awards will depend upon the sale price of the shares when they are actually sold.

Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans

The following table sets forth information regarding participation by the NEOs in the Company’s NQDCP and the nonqualified deferred compensation plan as of December 31, 2016.

 

		Named Individual		Account Name		Executive   Contributions in   Last FY ($)				Registrant   Contributions in   Last FY ($) (1)				Aggregate Earnings   in Last FY   ($) (2)				Aggregate Balance   at Last FYE   ($)
		Marita Zuraitis		NQDCP Account			0				26,750				726				62,412
				Deferred Compensation Account			0				0				0				0
		Dwayne D. Hallman		NQDCP Account			0				9,617				792				60,074
				Deferred Compensation Account			0				0				78,086				315,735
		Matthew P. Sharpe		NQDCP Account			0				6,750				238				21,867
				Deferred Compensation Account			0				0				0				0
		William J. Caldwell		NQDCP Account			0				4,250				46				7,296
				Deferred Compensation Account			0				0				0				0
		Kelly J. Stacy		NQDCP Account			0				1,750				0				1,750
				Deferred Compensation Account			0				0				0				0

 

(1)	Represents the 2016 NQDCP registrant Company contributions. These contributions are included in the All Other Compensation column of the “Summary Compensation Table” for 2016.

(2)	Represents (a) the gains in the NQDCP in 2016 and (b) the change in the deferred compensation account balance reflecting changes in the closing stock price of HMEC Common Stock from December 31, 2015 to December 31, 2016, each excluding contributions reflected in the first two columns.

 

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Illustration of Potential Payments upon Termination or Change in Control

The following table presents the estimated payments and benefits that would have been payable as of the end of 2016 in the event of separation due to disability or death, cause, voluntary termination of employment, retirement, involuntary termination of employment without cause, and a change of control of the Company.

Consistent with SEC requirements, these estimated amounts have been calculated as if the NEOs’ employment had been terminated as of December 30, 2016, the last business day of 2016, using the closing market price of our Common Stock on that date ($42.80). The amounts reported in the following table are hypothetical amounts based on the disclosure of compensation information about the NEOs. Actual payments will depend on the circumstances and timing of any termination of employment or other triggering event.

 

		Estimated Payments ($) Assuming Termination as of December 31, 2016 (1)(2)
		Name & Benefits		Disability or Death				For Cause				Voluntary				Involuntary Termination w/o Cause				Change in Control
		Marita Zuraitis
		Cash Severance			0				0				0				3,200,000				4,000,000
		AIP			800,000				0				0				800,000				800,000
		Acceleration of Stock Options			989,370				0				0				0				989,370
		Acceleration of RSUs			3,362,596				0				0				0				5,721,504
		Health and Welfare			0				0				0				38,019				38,019
		Modified Cap Adjustment (3)			N/A				N/A				N/A				N/A				N/A
		TOTAL			5,151,966				0				0				4,038,019				11,548,893
		Dwayne D. Hallman
		Cash Severance			0				0				0				0				0
		AIP			329,275				0				0				0				0
		Acceleration of Stock Options			353,370				0				0				0				0
		Acceleration of RSUs			1,229,273				0				0				0				0
		Health and Welfare			0				0				0				0				0
		Tax Gross-Up			N/A				N/A				N/A				N/A				N/A
		TOTAL			1,911,918				0				0				0				0
		Matthew P. Sharpe
		Cash Severance			0				0				0				960,000				1,280,000
		AIP			240,000				0				0				240,000				240,000
		Acceleration of Stock Options			353,370				0				0				0				353,370
		Acceleration of RSUs			1,089,046				0				0				0				1,981,426
		Health and Welfare			0				0				0				38,019				38,019
		Modified Cap Adjustment (3)			N/A				N/A				N/A				N/A				N/A
		TOTAL			1,682,416				0				0				1,238,019				3,892,815
		William J. Caldwell
		Cash Severance			0				0				0				787,500				1,050,000
		AIP			175,000				0				0				175,000				175,000
		Acceleration of Stock Options			247,354				0				0				0				247,354
		Acceleration of RSUs			809,491				0				0				0				1,519,786
		Health and Welfare			0				0				0				10,887				10,887
		Modified Cap Adjustment (3)			N/A				N/A				N/A				N/A				N/A
		TOTAL			1,231,845				0				0				973,387				3,003,027
		Kelly J. Stacy
		Cash Severance			0				0				0				420,000				630,000
		AIP			120,000				0				0				120,000				120,000
		Acceleration of Stock Options			212,031				0				0				0				212,031
		Acceleration of RSUs			554,688				0				0				0				1,032,849
		Health and Welfare			0				0				0				17,408				17,408
		Modified Cap Adjustment (3)			N/A				N/A				N/A				N/A				N/A
		TOTAL			886,719				0				0				557,408				2,012,288

N/A – Not applicable

(1)

All AIP and LTI earned payouts are assumed to be at target.

(2)

None of the NEOs were retirement eligible at December 31, 2016.

(3)

Benefit reduction to avoid the imposition of a “golden parachute” tax.

 

30		2017 Proxy Statement • Compensation Discussion and Analysis

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Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with management. Based on our review of, and the discussions with management with respect to, the Compensation Discussion and Analysis, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

COMPENSATION COMMITTEE

STEPHEN J. HASENMILLER, Chairman

BEVERLEY J. MCCLURE and GABRIEL L. SHAHEEN, Members

Equity Compensation Plan Information

The following table provides information as of December 31, 2016 regarding outstanding awards and shares remaining available for future issuance under the Company’s equity compensation plans (excluding the 401(k) plan):

 

Equity Compensation Plans

Securities to be Issued Upon the Exercise of Outstanding Options, Warrants and Rights

Weighted Average Exercise Price of Outstanding Options, Warrants and Rights

Securities Available for Future Issuance Under Equity Compensation Plans (4)

Plans Approved by Shareholders

Stock Incentive Plans (1)

Stock Options

747,032

$

19.05

N/A

Restricted Stock Units (2)

1,419,268

N/A

N/A

Subtotal

2,166,300

N/A

N/A

Deferred Compensation (2)(3)

125,560

N/A

N/A

Subtotal

2,291,860

N/A

2,882,735

Plans Not Approved by Shareholders

N/A

N/A

N/A

Total

2,291,860

N/A

2,882,735

N/A – Not applicable

 

(1)

Includes grants under the HMEC 2010 Comprehensive Executive Compensation Plan, as amended, (“CECP”).

(2)

No exercise price is associated with the shares of Common Stock issuable under these rights.

(3)

The CECP permits Directors and participants in certain cash incentive programs to defer compensation in the form of Common Stock equivalent units, which can be settled in cash at the end of the specified deferral period. For purposes of the CECP, Common Stock equivalent units are valued at 100% of the fair market value of Common Stock on the date of crediting to the participant’s deferral account. There are 45 senior executives of the Company currently eligible to participate in the CECP. The CECP does not reserve a specific number of shares for delivery in settlement of Common Stock equivalent units but instead provides that shares will be available to the extent needed for such settlements. Further information on the CECP appears in the “Compensation Discussion and Analysis”.

(4)

Excludes securities reflected in the Securities to be Issued column and represents shares remaining as part of a fungible share pool. The pool of shares is reduced by 2.5 shares for every “full-value” Award that is granted.

 

2017 Proxy Statement • Compensation Discussion and Analysis		31

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Executive Officers

The following is certain information, as of March 15, 2017, with respect to the executive officers of the Company and its subsidiaries who are not Directors of the Company (together with Marita Zuraitis, President and Chief Executive Officer, who is discussed above under “Board Nominees”, the “Executive Officers”). Dwayne D. Hallman, who was the Chief Financial Officer for fiscal year 2016, is also included. However, Mr. Hallman passed away on February 3, 2017 and Bret A. Conklin was named Acting Chief Financial Officer as noted below.

 

 

32		2017 Proxy Statement • Compensation Discussion and Analysis

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Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding beneficial ownership of shares of Common Stock by each person who is known by the Company to own beneficially more than 5% of the issued and outstanding shares of Common Stock, and by each of the Company’s Directors, Board Nominees and the Company’s Chief Executive Officer, Chief Financial Officer and the other three highest compensated Executive Officers employed at the end of 2016 (collectively the “Named Executive Officers”), and by all Directors and Executive Officers of the Company as a group. Information in the table is as of March 15, 2017, except that the ownership information for the 5% beneficial owners is as of December 31, 2016 based on information reported by such persons to the SEC. Except as otherwise indicated, to the Company’s knowledge all shares of Common Stock are beneficially owned, and investment and voting power is held solely by the persons named as owners.

 

		Common Stock Ownership		Beneficial Ownership Amount		Percent of Class
		5% Beneficial Owners
		BlackRock, Inc. (1)		4,796,814			11.9	%
		The Vanguard Group, Inc (2)		3,494,893			8.7	%
		Dimensional Fund Advisors LP (3)		3,455,373			8.6	%
		Silvercrest Asset Management Group, LLC (4)		2,278,509			5.7	%
		Hotchkis and Wiley Capital Management, LLC (5)		2,100,881			5.2	%
		Directors, Board Nominees and Executive Officers
		Daniel A. Domenech (6)		7,050			*
		Stephen J. Hasenmiller		31,194			*
		Ronald J. Helow (7)		31,813			*
		Beverley J. McClure (8)		13,312			*
		H. Wade Reece		0			0.0	%
		Gabriel L. Shaheen (9)		52,587			*
		Robert Stricker (10)		37,720			*
		Steven O. Swyers (11)		6,057			*
		Marita Zuraitis (12)		265,449			*
		Dwayne D. Hallman (13)		272,342			*
		Matthew P. Sharpe (14)		106,553			*
		William J. Caldwell (15)		27,258			*
		Kelly J. Stacy (16)		7,494			*
		All Directors and Executive Officers as a group (17 persons) (17)		977,496			2.4	%

*

Less than 1%

(1)

BlackRock, Inc. (“BlackRock”) has a principal place of business at 55 East 52nd Street, New York, New York 10055. BlackRock has sole voting power with respect to 4,696,402 shares and sole investment power with respect to 4,796,814 shares. The foregoing is based on Amendment No. 8 to Schedule 13G filed by BlackRock on January 12, 2017.

(2)

The Vanguard Group, Inc. (“Vanguard”) has a principal place of business at 100 Vanguard Boulevard, Malvern, Pennsylvania 19355. Vanguard has sole voting power with respect to 48,322 shares, sole investment power with respect to 3,442,943 shares, and shared investment power with respect to 51,950 shares. The foregoing is based on Amendment No. 5 to Schedule 13G filed by Vanguard on February 13, 2017.

(3)

Dimensional Fund Advisors LP (“Dimensional”) has a principal place of business at Building One, 6300 Bee Cave Road, Austin, Texas 78746. Dimensional has sole voting power with respect to 3,348,087 shares and sole investment power with respect to 3,455,373 shares. Dimensional disclaims beneficial ownership of such securities. The foregoing is based on Amendment No. 10 to Schedule 13G filed by Dimensional on February 9, 2017.

(4)

Silvercrest Asset Management Group, LLC (“Silvercrest”) has a principal place of business at 1330 Avenue of the Americas, 38th Floor, New York, New York 10019. Silvercrest has shared voting and investment power with respect to 2,278,509 shares. The foregoing is based on Amendment No. 3 to Schedule 13G filed by Silvercrest on February 14, 2017.

(5)

Hotchkis and Wiley Capital Management, LLC (“Hotchkis and Wiley”) has a principal place of business at 725 South Figueroa Street, 39th Floor, Los Angeles, California 90017. Hotchkis and Wiley has sole voting power with respect to 1,728,861 shares and sole investment power with respect to 2,100,881 shares. Hotchkis and Wiley disclaims beneficial ownership of such securities. The foregoing is based on Amendment No. 2 to Schedule 13G filed by Hotchkis and Wiley on February 10, 2017.

(6)	Consists entirely of 4,370 CSUs and 2,680 vested RSUs pursuant to the CECP.

(7)	Consists entirely of 31,813 vested RSUs pursuant to the CECP.

(8)	Consists entirely of 3,320 CSUs and 9,992 vested RSUs pursuant to the CECP.

(9)	Consists entirely of 14,628 CSUs and 37,959 vested RSUs pursuant to the CECP.

(10)	Includes 9,897 CSUs and 24,991 vested RSUs pursuant to the CECP.

(11)	Consists entirely of 6,057 vested RSUs pursuant to the CECP.

(12)	Includes 80,906 vested stock options and 182,951 vested RSUs pursuant to the CECP.

(13)	Includes 120,832 vested stock options, 7,377 CSUs and 125,150 vested RSUs pursuant to the CECP.

(14)	Includes 50,285 vested stock options and 55,544 vested RSUs pursuant to the CECP.

(15)	Includes 16,043 vested stock options and 5,649 vested RSUs pursuant to the CECP.

(16)	Includes 4,496 vested stock options and 1,282 vested RSUs pursuant to the CECP.

(17)	Includes 332,864 vested stock options, 48,451 CSUs and 530,956 vested RSUs pursuant to the CECP.

 

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34		2017 Proxy Statement • Compensation Discussion and Analysis

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The Company’s Independent Registered Public Accounting Firm

The independent registered public accounting firm selected by the Audit Committee to serve as the Company’s auditors for the year ending December 31, 2017 is KPMG LLP. KPMG LLP served in that capacity for the year ended December 31, 2016.

Fees of KPMG LLP

The following were the fees of KPMG LLP for the years ended December 31, 2016 and 2015.

 

		Fees		2016								2015
		Audit (1)			$    2,229,300								$    2,188,900
		Audit-Related (2)			$       256,400								$       256,000
		Tax (3)			0								0
		All Other (4)			0								0

 

(1)

Represents the aggregate fees billed for professional services rendered by KPMG LLP for the audit of the Company’s annual financial statements for the years ended December 31, 2016 and 2015, the audit of the Company’s internal control over financial reporting as of December 31, 2016 and 2014, the reviews of the financial statements included in the Company’s quarterly reports on Forms 10-Q for the years ended December 31, 2016 and 2014 and services in connection with the Company’s statutory and regulatory filings for the years ended December 31, 2016 and 2015. Fees in 2015 included $148,500 related to the Company’s issuance of its 4.50% Senior Notes due 2025.

 

(2)

Represents the aggregate fees billed for assurance and related services rendered by KPMG LLP that are reasonably related to the audit and review of the Company’s financial statements for the years ended December 31, 2016 and 2015, exclusive of the fees disclosed under “Audit Fees”. In 2016 and 2015, KPMG LLP audited the Company’s employee benefits plans. Also in 2016 and 2015, KPMG LLP prepared SOC1 reports on the Company’s annuity operations.

 

(3)

Represents the aggregate fees billed for tax compliance, consulting and planning services rendered by KPMG LLP during the years ended December 31, 2016 and 2015.

 

(4)

Represents the aggregate fees billed for all other services, exclusive of the fees disclosed above relating to audit, audit-related and tax services, rendered by KPMG LLP during the years ended December 31, 2016 and 2015.

Pre-Approval of Services Provided by the Independent Registered Public Accounting Firm

The Audit Committee approves in advance any significant audit and all non-audit engagements or services between the Company and the independent registered public accounting firm. As a practice, the Audit Committee does not allow “prohibited non-auditing services” as defined by regulatory authorities to be performed by the same firm that audits the Company’s annual financial statements. The Audit Committee may delegate to one or more of its members the authority to approve in advance all significant audit and all non-audit services to be provided by the independent registered public accounting firm so long as it is presented to the full Audit Committee at the next regularly scheduled meeting. Pre-approval is not necessary for de minimis audit services as long as such services are presented to the full Audit Committee at the next regularly scheduled meeting. The Audit Committee approved all of the above listed expenses. KPMG LLP did not provide any non-audit related services during the years ended December 31, 2016 and 2015.

 

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36		2017 Proxy Statement • Other Matters

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HORACE MANN EDUCATORS CORPORATION 1 HORACE MANN PLAZA SPRINGFIELD, IL 62715-0001 VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees For Against Abstain 1a Daniel A. Domenech 0 0 0 The Board of Directors recommends you vote FOR Proposal 2. For Against Abstain 1b Stephen J. Hasenmiller 0 0 0 2 Approval of the advisory resolution to approve 0 0 0 Named Executive Officers’ compensation. 1c Ronald J. Helow 0 0 0 The Board of Directors recommends you vote 1 YEAR on Proposal 3. 1 year 2 years 3 years Abstain 1d Beverley J. McClure 0 0 0 3 Advisory vote on the frequency of future 0 0 0 0 advisory votes on Named Executive Officers’ Compensation. 1e H. Wade Reece 0 0 0 1f Gabriel L. Shaheen 0 0 0 The Board of Directors recommends you vote FOR Proposal 4. For Against Abstain 1g Robert Stricker 0 0 0 4 Ratification of the appointment of KPMG LLP, an 0 0 0 independent registered public accounting firm, as the company’s auditors for the year ending 1h Steven O. Swyers 0 0 0 December 31, 2017. 1i Marita Zuraitis 0 0 0 NOTE: Such other business as may properly come R1.0.1.15 before the meeting or any adjournment thereof. 1 _ Materials Election - Check this box if you want to 0 Please sign exactly as your name(s) appear(s) hereon. When signing as receive a complete set of future proxy materials by attorney, executor, administrator, or other fiduciary, please give full mail, at no extra cost. If you do not take action title as such. Joint owners should each sign personally. All holders must you may receive only a Notice to inform you of the sign. If a corporation or partnership, please sign in full corporate or 0000326554 Internet availability of proxy materials. partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date

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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Form 10-K/Annual Report is/are available at www.proxyvote.com HORACE MANN EDUCATORS CORPORATION PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS MAY 24, 2017 The undersigned Shareholder of Horace Mann Educators Corporation (the “Company”) hereby appoints Gabriel L. Shaheen and Marita Zuraitis, or any of them, with full power of substitution, proxies to vote at the Annual Meeting of Shareholders of the Company (the “Meeting”), to be held on May 24, 2017 at 9:00 a.m. Central Daylight Saving Time, at the Horace Mann Lincoln Auditorium, 1 Horace Mann Plaza, Springfield, Illinois, and at any adjournment thereof and to vote all shares of Common Stock of the Company held or owned by the Undersigned as directed on the reverse side and in their discretion upon such other matters as may come before the Meeting. THIS PROXY CARD, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE BUT THE CARD IS SIGNED, THIS PROXY CARD WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES UNDER PROPOSAL 1, FOR PROPOSALS 2 AND 4, FOR 1 YEAR ON PROPOSAL 3, AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. R1.0.1.15 _ 2 0000326554 Continued and to be signed on reverse side