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 (Amendment No. )
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Cigna Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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NOTICE OF
2017
ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT
CIGNA®
April 26, 2017 at 8:00 a.m.
Sheraton Hartford Hotel (at Bradley Airport)
1 Bradley International Airport
Windsor Locks, Connecticut 06096
March 17, 2017
900 Cottage Grove Road
Bloomfield, Connecticut 06002
Dear Cigna Shareholder:
On behalf of the Cigna Corporation Board of Directors, our Enterprise Leadership Team and our more than 40,000 colleagues around the globe, we are pleased to cordially invite you to attend our 2017 Annual Meeting of Shareholders on April 26, 2017. The attached Notice of 2017 Annual Meeting of Shareholders and Proxy Statement contains important information about the business to be conducted at the Annual Meeting.
During the past year we continued to build on our numerous successes of the past seven years, including growing our number of customer relationships to more than 94 million, and delivering innovative tools and capabilities to drive quality, affordability, personalization and differentiated value. We continue to anticipate and meet our customers emerging needs with solutions and partnerships that better connect individuals and health care professionals to improve their health and well-being.
While we delivered strong revenue and customer growth in the face of considerable market disruptions this year, earnings were pressured by uncharacteristic challenges in the first half of the year for two of our historically well-performing businesses. Ultimately, Cigna concluded 2016 with strong momentum and remains in a solid position to drive attractive earnings and customer growth both in 2017 and over the long-term.
Our journey to create a more sustainable health care system originally motivated our proposed combination with Anthem as we sought to further expand choice, improve affordability and quality, and accelerate value-based care programs. In the second half of 2016, the Department of Justice sued to prevent our merger with Anthem; the federal district court has enjoined the proposed merger and litigation continues.
Throughout this process, we continued to invest in our businesses, and continued contingency planning for other potential paths if necessary including a sovereign path. As we lead the healthcare industry in consumer engagement, continue supporting our customers through their diverse life and health stages, and contribute to building a sustainable health care system, we have a clear path ahead to create value in the marketplace, and eagerly and optimistically look to Cignas future.
Our Board of Directors, comprised of individuals with diverse experiences and skills, is committed to strong corporate governance as a framework for financial integrity, shareholder transparency and competitively attractive performance.
Your vote is very important. Whether or not you plan to attend the 2017 Annual Meeting, we hope that you will cast your vote as soon as possible. Please review the instructions on each of your voting options described in the Important Notice Regarding the Availability of Proxy Materials. Additional instructions on how to vote can be found on pages 91 and 92 of the proxy statement.
We look forward to seeing you at the 2017 Annual Meeting. As always, thank you for your continued support of Cigna.
Sincerely,
/s/ David M Cordani | /s/ Isaiah Harris, Jr. | |
David M. Cordani
President and Chief Executive Officer |
Isaiah Harris, Jr.
Chairman of the Board |
NOTICE OF 2017 ANNUAL MEETING OF SHAREHOLDERS
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DATE AND TIME: | Wednesday, April 26, 2017 at 8:00 a.m.
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PLACE: | Sheraton Hartford Hotel at Bradley Airport 1 Bradley International Airport Windsor Locks, Connecticut 06096
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ITEMS OF BUSINESS: | Proposal 1: Election of seven director nominees for one-year terms expiring in April 2018.
Proposal 2: Advisory approval of executive compensation.
Proposal 3: Advisory approval of the frequency of future advisory votes on executive compensation.
Proposal 4: Approval of the Amended and Restated Cigna Long-Term Incentive Plan.
Proposal 5: Ratification of the appointment of PricewaterhouseCoopers LLP as the Companys independent registered public accounting firm for 2017.
Proposal 6: Consideration of a shareholder proposal, if properly presented.
Consideration of any other business properly brought before the meeting.
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RECORD DATE: | You may vote on the matters presented at the Annual Meeting if you were a shareholder of record on February 27, 2017.
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PROXY VOTING: | Your vote is very important, regardless of the number of shares you own. We urge you to promptly vote by telephone, by using the Internet, or, if you received a proxy card or instruction form, by completing, dating, signing and returning it by mail. |
March 17, 2017 | By order of the Board of Directors,
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/s/ Neil Boyden Tanner | ||||
Neil Boyden Tanner | ||||
Corporate Secretary |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders To Be Held on April 26, 2017
The Notice of Annual Meeting, Proxy Statement and Annual Report for the fiscal year ended December 31, 2016 are available at www.envisionreports.com/ci.
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PROXY STATEMENT SUMMARY | 1 | |||
CORPORATE GOVERNANCE MATTERS | 7 | |||
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COMPENSATION MATTERS | 27 | |||
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ADVISORY APPROVAL OF THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION (PROPOSAL 3) |
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PROCESSES AND PROCEDURES FOR DETERMINING EXECUTIVE COMPENSATION |
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APPROVAL OF THE AMENDED AND RESTATED CIGNA LONG-TERM INCENTIVE PLAN (PROPOSAL 4) |
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AUDIT MATTERS | 79 | |||
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PROPOSAL 5) |
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SHAREHOLDER PROPOSAL SHAREHOLDER PROXY ACCESS (PROPOSAL 6) | 83 | |||
OWNERSHIP OF CIGNA COMMON STOCK | 86 | |||
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ANNUAL MEETING INFORMATION | 89 | |||
ANNEX A NON-GAAP MEASURES | A-1 | |||
ANNEX B SURVEY DATA FOR PRESIDENT INTERNATIONAL MARKETS | B-1 | |||
ANNEX C GENERAL INDUSTRY PEER GROUP | C-1 |
APPENDIX A AMENDED AND RESTATED CIGNA LONG-TERM INCENTIVE PLAN | Appendix-1 |
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We provide below highlights of certain information in this Proxy Statement. As it is only a summary, please refer to the complete Proxy Statement and 2016 Annual Report before you vote.
Mission and Strategy
Cignas mission is to improve the health, well-being and sense of security of the people we serve in our more than 94 million customer relationships around the globe. Our strategic focus is centered on delivering high quality, affordable and personalized solutions for our customers and clients by leveraging our insights, focus, execution, brand, talent and localized approach. Creating value for our customers, and in turn, our shareholders, is a direct result of the effective execution of our Go Deep, Go Global, Go Individual strategy that we implemented in 2010.
Our Mission
To improve the health, well-being and sense of security of the people we serve
Our Strategy
Go Deep within existing geographies and products, Go Global to offer solutions in
adjacent and new markets and Go Individual to serve the holistic needs of an individual
Our proven Go Deep, Go Global, Go Individual strategy is delivering value as we help the people we serve maintain and improve their health as well as achieve high quality, affordable care when needed. First, our well-positioned, diverse and growing portfolio of businesses is delivering innovative solutions that meet the needs of customers and clients around the world. Second, we continue to have significant financial flexibility, with a strong return on capital in each of our business segments, which provides us with the opportunity to effectively deploy capital for the benefit of shareholders. Finally, we continue to position ourselves to capitalize on opportunities to expand in new buying segments, new distribution marketplaces, and new geographies. We believe that our guiding framework will continue to drive differentiated value for our customers and shareholders.
Consistent with our mission, we believe in being a good corporate citizen. Every day, Cigna employees around the world make meaningful contributions to improve the health of the communities where we live and work. Our goal is to help ensure that everyone has the best opportunity to achieve their optimal health.
Proposed Merger with Anthem
Cigna entered into the merger in order to create a combined company that would expand choice, improve affordability and quality, and further accelerate value-based care. In February 2017, the U.S. District Court for the District of Columbia enjoined the proposed merger and an appeal of that decision is now pending before the Appeals Court. Also in February, we sent Anthem a notice terminating the merger agreement and the parties are now litigating whether the merger agreement remains in effect. Until this matter is resolved, we continue to abide by the terms of the merger agreement. Throughout this process, we have continued to invest in our businesses, and continued contingency planning for other potential paths if necessary including a sovereign path.
Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
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PROXY STATEMENT SUMMARY
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Business Performance
In 2016, consolidated revenue increased 5% to $39.7 billion, as we continue to focus on our mission to improve the health, well-being and sense of security of the people we serve. Consolidated adjusted income from operations* for 2016 was $2.1 billion, compared to $2.3 billion in 2015, reflecting strong performance in our Commercial Healthcare and Global Supplemental Benefits businesses and challenges during the year related to our Group Disability and Life and Seniors businesses. We made notable progress in the second half of 2016 addressing those challenges. Specifically, we gained traction in our Group Disability business as the claims process modifications made earlier in 2016 continued to mature, we experienced more stable claims in our Life business and, within Seniors, we made progress with our remediation efforts and are in the later stages of our audit response work. We concluded 2016 with strong momentum that positions Cigna for attractive earnings and customer growth in 2017.
CONSOLIDATED REVENUES (IN BILLIONS)
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CONSOLIDATED ADJUSTED INCOME FROM OPERATIONS* (IN BILLIONS)
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* We encourage you to review our Annual Report on Form 10-K for the year ended December 31, 2016 for more complete financial information. Consolidated adjusted income from operations is a measure of profitability used by Cignas management because it presents the underlying results of operations of Cignas businesses and permits analysis of trends in underlying revenue, expenses and shareholders net income. This consolidated measure is not determined in accordance with accounting principles generally accepted in the United States (GAAP) and should not be viewed as a substitute for the most directly comparable GAAP measure, shareholders net income. Shareholders net income was $1.6 billion, $1.5 billion, $2.1 billion, $2.1 billion and $1.9 billion for the years ended December 31, 2012, 2013, 2014, 2015 and 2016, respectively. For a reconciliation of consolidated adjusted income from operations to shareholders net income, see Annex A.
Total Shareholder Return
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Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
PROXY STATEMENT SUMMARY
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Board of Directors
CURRENT DIRECTORS |
AGE | OCCUPATION | COMMITTEE MEMBERSHIPS | |||||
David M. Cordani |
51 | President and Chief Executive Officer of Cigna |
Executive | |||||
Eric J. Foss |
58 | Chairman, President and Chief Executive Officer of ARAMARK Corporation |
Corporate Governance | |||||
Isaiah Harris, Jr. |
64 | Former President and Chief Executive Officer of AT&T Advertising & Publishing East |
Chairman of the Board Executive (Chair) | |||||
Jane E. Henney, M.D. |
69 | Former Senior Vice President, Provost and Professor of Medicine, University of Cincinnati College of Medicine |
Corporate Governance (Chair) Executive | |||||
Roman Martinez IV |
69 | Private Investor |
Audit (Chair) | |||||
John M. Partridge* |
67 | Former President of Visa, Inc. |
Finance (Chair) | |||||
James E. Rogers* |
69 | Former Chairman, President and Chief Executive Officer of Duke Energy Corporation |
Audit | |||||
Eric C. Wiseman* |
61 | Executive Chairman of VF Corporation |
Finance | |||||
Donna F. Zarcone |
59 | President and Chief Executive Officer of The Economic Club of Chicago |
Audit | |||||
William D. Zollars |
69 | Former Chairman, President and Chief Executive Officer of YRC Worldwide, Inc. |
People Resources (Chair) Executive |
* | Current term expires at the 2018 annual meeting of shareholders. |
Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
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PROXY STATEMENT SUMMARY
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Corporate Governance
Cigna is committed to ensuring strong corporate governance practices on behalf of our shareholders. We believe that strong corporate governance provides the foundation for financial integrity, shareholder confidence and attractive performance.
At the 2016 annual meeting of shareholders, the phased implementation of the Boards declassified structure began and, at the 2018 annual meeting of shareholders, all directors will be elected to one-year terms and the classified structure will be fully eliminated.
KEY GOVERNANCE PRACTICES
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Independent board of directors with diversity in composition, skills and experience
Independent Chairman of the Board
Regular executive sessions of the Board and its committees
Director elections by majority voting
Annual election of all directors beginning in 2018
Separate Code of Business Conduct and Ethics for the Board |
Independent Audit, Corporate Governance, Finance and People Resources Committees
Annual self-evaluations of the Board, its committees and individual directors, including periodic independent third party assessments
Majority of director compensation delivered in Cigna common stock
Meaningful stock ownership guidelines for directors | |||||
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Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
PROXY STATEMENT SUMMARY
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Executive Compensation
Cignas executive compensation program is based on the philosophy that executive pay should strongly align with the interests of our shareholders, directly link to Company and individual performance and attract and retain executive talent. We believe the achievement of our enterprise goals will result in the creation of meaningful and sustained long-term value for our shareholders. Each of the measures in our performance-based plans are designed to align with and support our business strategy focusing on driving enterprise profitability, growth and operating expense efficiency to support investment in innovation, customer loyalty and stock performance.
As a result of our 2016 financial performance, payouts under the 2016 Management Incentive Plan were lower than in recent years and below target levels, reflecting strong pay-for-performance alignment.
In 2016, our shareholders overwhelmingly cast advisory votes in favor of our executive compensation program, with approximately 93% of votes cast in favor.
COMPENSATION GOVERNANCE AND CONTROLS
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Double trigger requirement for change of control benefits
No tax gross-up of severance pay upon a change of control
Regular review of executive compensation governance market practices, particularly when considering the adoption of new practices or changes to existing programs or policies
Robust stock ownership guidelines and holding requirements for equity awards to align executives interests with shareholders
Prohibition of hedging of Cigna stock by all directors and employees, including the executive officers, and restrictions on pledging of Cigna stock by directors and Section 16 officers
A disgorgement of awards (clawback) policy beyond the mandates of Sarbanes-Oxley |
Management of Long-Term Incentive Plan annual share usage (or burn rate) and total dilution by setting an annual share usage limit, which is below the maximum permitted under the plan
No excessive perquisites
Oversight by the People Resources Committee of people development policies and processes, including consideration of assessments of executive officers and key senior management
CEO and executive officer succession plans overseen by the Board of Directors, with assistance from the People Resources Committee
An annual assessment by the People Resources Committee of any potential risks and associated internal controls in our incentive compensation programs and policies
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The target pay mix for the Chief Executive Officer and the other named executive officers during 2016 reflects our executive compensation philosophy that emphasizes performance-based compensation over fixed compensation. The percentages shown below are targets only and will not match the percentages calculable from the compensation reflected in the Summary Compensation Table on page 54.
CEO TARGET PAY MIX |
OTHER NEO AVERAGE TARGET PAY MIX |
Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
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PROXY STATEMENT SUMMARY
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Voting Matters and Board Recommendations
MANAGEMENT PROPOSALS |
BOARD RECOMMENDATION | |
Proposal 1. Election of Directors.
The Board and the Corporate Governance Committee believe that the seven director nominees, David M. Cordani, Eric J. Foss, Isaiah Harris, Jr., Jane E. Henney, M.D., Roman Martinez IV, Donna F. Zarcone and William D. Zollars, bring a combination of diverse qualifications, skills and experience that contributes to a well-rounded Board. Each director nominee has proven leadership ability, good judgment and has been an active and valued participant on the Board during his or her tenure. |
FOR each of the nominees | |
Proposal 2. Advisory Approval of Executive Compensation.
The Board believes that Cignas executive compensation program design effectively aligns the interests of our executive officers with those of our shareholders by tying a significant portion of their compensation to Cignas performance and rewarding our executive officers for the creation of long-term value for Cignas shareholders. Because your vote is advisory, it will not be binding upon the Board. However, the Board and People Resources Committee value your opinion and will review and consider the voting results when making future executive compensation decisions. |
FOR | |
Proposal 3. Advisory Approval of the Frequency of Further Advisory Votes on Executive Compensation.
The Board believes that an advisory vote on executive compensation that occurs every year is the most appropriate alternative for Cigna. An annual advisory vote on executive compensation will enable shareholders to provide direct input to the Company regarding our compensation philosophy, policies and practices as disclosed in the proxy statement each year. Because your vote is advisory, it will not be binding upon the Board. However, the Board and People Resources Committee value your opinion and will take into account the outcome of the vote when considering the frequency of future advisory votes on executive compensation. |
FOR every one-year | |
Proposal 4. Approval of the Amended and Restated Cigna Long-Term Incentive Plan.
The Cigna Long-Term Incentive Plan awards are an essential part of the total compensation package for our employees. They reflect the importance the Company places on using long-term incentives to motivate employees, reward them for superior long-term results and align the interests of Cignas employees with the interests of its shareholders. |
FOR | |
Proposal 5. Ratification of the Appointment of PricewaterhouseCoopers LLP as our Independent Registered Public Accounting Firm for 2017.
The Audit Committee approved the appointment of PricewaterhouseCoopers LLP as Cignas independent registered public accounting firm for 2017. The Audit Committee and the Board believe that the continued retention of PricewaterhouseCoopers LLP to serve as the Companys independent registered public accounting firm is in the best interests of the Company and its shareholders. As a matter of good corporate governance, the Board is seeking shareholder ratification of the appointment. |
FOR | |
SHAREHOLDER PROPOSAL |
BOARD RECOMMENDATION | |
Proposal 6. Shareholder Proxy Access.
The Board believes that Cigna should have the opportunity to meaningfully consider appropriate and balanced terms of a proxy access bylaw that are more consistent with market practices and good corporate governance standards. The Board intends to complete its proxy access evaluation as soon as practicable, with a goal of implementing proxy access on terms it believes are in the shareholders best interests in advance of the 2018 annual meeting of shareholders. |
AGAINST |
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Election of Directors (Proposal 1)
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CORPORATE GOVERNANCE MATTERS
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Director Expectations and Qualifications
The Corporate Governance Committee, in consultation with the Board, has identified individual director expectations and qualifications, characteristics, skills and experience that it believes every member of the Board should have. In addition, the Corporate Governance Committee has identified areas of expertise that it believes support Cignas business strategy in the short- and long-term, enable the Board to exercise its oversight function and contribute to a well-rounded Board. In developing these areas of expertise, the Board considered the skills necessary to support business strategy and the skills and experiences reflected on the boards of companies within Cignas peer group, as well as best practices among other large companies. The Board regularly reviews the identified areas to ensure they support changes in the Companys strategy and the Boards needs. The Corporate Governance Committee and the Board take into consideration these criteria and the mix of experience as part of the director recruitment, selection, evaluation and nomination process.
Expectations of Every Director
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Understand Cignas businesses and the importance of the creation of shareholder value
Participate in an active, constructive and objective way at Board and committee meetings
Review and understand advance briefing materials
Contribute effectively to the Boards evaluation of executive talent, compensation and succession planning |
Contribute effectively to the Boards assessment of strategy and risk
Share expertise, experience, knowledge and insights on matters before the Board
Advance Cignas business objectives and reputation
Demonstrate an ongoing commitment to consult and engage with the CEO and senior management outside of Board and committee meetings on matters affecting Cigna |
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Qualifications, Characteristics, Skills and Experience of Every Director
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Good judgment and strong commitment to ethics and integrity
Ability to analyze complex business and public policy issues and provide relevant input concerning the Companys business strategy
Free of conflicts of interest |
Ability to assess different risks and impact on shareholder value
Contribution to the Boards overall diversity of thought
High degree of achievement in their respective fields |
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While the Board does not have a formal policy with regard to diversity, the Corporate Governance Committee works to ensure that the Board is comprised of individuals with expertise in fields relevant to Cignas business, experience from different professions and industries, a diversity of age, ethnicity, gender and global experience and a range of tenures. The Board believes that a range of tenure allows both new perspective and continuity. This continuity has proven beneficial given the complexities of the health care industry and the significant change and uncertainty the health care industry has faced over the past several years.
DIVERSITY | AGE | TENURE | ||
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Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
CORPORATE GOVERNANCE MATTERS
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AREAS OF EXPERTISE REFLECTED ON CIGNAS BOARD OF DIRECTORS
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Business Leader
Directors who have served as a chief executive officer, a CEO-equivalent or a business unit leader of a large company bring a practical understanding of large organizations, processes, strategy and risk management. |
Finance
An understanding of finance, capital markets and financial reporting processes is necessary for a well-rounded Board because of the importance we place on accurate financial reporting and robust financial controls and compliance. In addition, Cignas business involves complex financial transactions. |
Healthcare and Delivery Systems
As we work to create a sustainable health care ecosystem, the Board values directors with experience on issues related to reducing health costs to patients through provision of care management and the use of innovative delivery system solutions. |
Information Technology
Effective information systems and the integrity and timeliness of data we use to serve our customers and health care professionals are integral to the operation of our business. For this reason, the Board benefits from directors with leadership experience related to the development, installation, implementation, security or maintenance of computer systems, applications and digital informatics. |
International/Global
In furtherance of our Go Global strategy, the Board values directors with leadership experience overseeing non-U.S. operations and working in diverse cultures around the world. |
Marketing and Consumer Insights
The Go Deep and Go Individual aspects of our customer-focused strategy support inclusion of directors with leadership experience over marketing, advertising and consumer insight functions. These directors also have experience with product development and brand building, particularly as it focuses on end-user consumers. |
Regulated Industry/Public Policy
Our business is highly regulated at the federal, state, local and international levels. For this reason, the Board benefits from directors with experience in regulated industries and public policies to help us identify, assess and respond to new trends in the legislative and regulatory environment. |
Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
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CORPORATE GOVERNANCE MATTERS
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Other Practices and Policies Related to Director Service
In addition to working to ensure that the Board is comprised of diverse and qualified individuals, the Board has adopted the following governance policies and practices that contribute to a well-functioning Board.
Limits on Public Company Directorships |
To ensure each director is able to devote sufficient time and attention to his or her responsibilities as a board member, the Board has established the following limits on outside directorships:
Each director who also is a chief executive officer of a public company may not serve on more than one other public company board in addition to Cignas Board and the board of his or her employer (for a total of three public company directorships); and
Each director who is not a chief executive officer of a public company may serve on no more than four boards of other public companies (for a total of five such directorships).
All of our directors are in compliance with these limits on outside directorships. | |
Change in Directors Principal Position |
If a director changes his or her principal employment position, that director is required to tender his or her resignation from the Board to the Corporate Governance Committee. The Committee will then recommend to the Board whether to accept or decline the resignation. | |
Mandatory Retirement Age |
A director is required to retire no later than the annual meeting of shareholders coinciding with or following his or her 72nd birthday. | |
Continuing Education for Directors |
The Board is regularly updated on Cignas businesses, strategies, customers, operations and employee matters, as well as external trends and issues that affect the Company. Directors also are encouraged to attend continuing education courses relevant to their service on Cignas Board. The Corporate Governance Committee oversees the continuing education practices, and the Company is kept apprised of director participation. |
Upon the recommendation of the Corporate Governance Committee, the Board is nominating the seven directors listed below for re-election for one-year terms to expire in April 2018. All nominees have consented to serve, and the Board does not know of any reason why any nominee would be unable to serve. If a nominee becomes unavailable or unable to serve before the Annual Meeting, the Board may either reduce its size or designate another nominee. If the Board designates a nominee, your proxy will be voted for the substitute nominee.
Below are biographies, skills and qualifications for each of the nominees and for each of the directors continuing in office. Each of the director nominees currently serves on the Board. The Board believes that the combination of the various experiences, skills and qualifications represented contributes to an effective and well-functioning Board and that the nominees and directors continuing in office possess the qualifications, based on the criteria described above, to provide meaningful oversight of Cignas business and strategy.
The Board of Directors unanimously recommends that shareholders vote FOR the nominees listed below. |
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CORPORATE GOVERNANCE MATTERS
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CORPORATE GOVERNANCE MATTERS
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CORPORATE GOVERNANCE MATTERS
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CORPORATE GOVERNANCE MATTERS
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CORPORATE GOVERNANCE MATTERS
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DIRECTORS WHO WILL CONTINUE IN OFFICE
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CORPORATE GOVERNANCE MATTERS
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Corporate Governance Policies and Practices
Cigna is committed to ensuring strong corporate governance practices on behalf of our shareholders. We believe that strong corporate governance and an independent Board provide the foundation for financial integrity, shareholder confidence and attractive performance. The Corporate Governance Committee annually reviews Cignas governance program based on, among other things, developments in corporate governance, shareholder engagement, legal or regulatory actions, proxy advisory firm positions, Securities and Exchange Commission (SEC) guidance and New York Stock Exchange (NYSE) requirements. In 2015, the Board and the Corporate Governance Committee conducted a thorough review of its governance practices and developed a set of Board Corporate Governance Guidelines (the Guidelines). The Guidelines set forth the key governance principles that guide the Board. The Guidelines, together with the charters of the Audit, Corporate Governance, Finance, People Resources and Executive Committees, provide a framework of policies and practices for our effective governance.
The Board and the Corporate Governance Committee review the Guidelines, and the committees review their respective charters, at least annually and update these governing documents as necessary to reflect changes in the regulatory environment, evolving practices and input from shareholders. The full text of the Guidelines and committee charters are available on our website at www.cigna.com/about-us/corporate-governance/ and are available to any shareholder who requests a copy.1
Corporate Governance Highlights
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Independent board of directors with diversity in composition, skills and experience
Independent Chairman of the Board
Regular executive sessions of the Board and its committees
Director elections by majority voting
Annual election of all directors beginning in 2018
Separate Code of Business Conduct and Ethics for the Board |
Independent Audit, Corporate Governance, Finance and People Resources Committees
Annual self-evaluations of the Board, its committees and individual directors, including periodic independent third party assessments
Majority of director compensation delivered in Cigna common stock
Meaningful stock ownership guidelines for directors |
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1 The information on our website is not, and shall not be deemed to be, part of this Proxy Statement or incorporated herein or into any of our other filings with the SEC.
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CORPORATE GOVERNANCE MATTERS
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Chairman Responsibilities
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Serve as principal representative of the Board
Facilitate discussion among independent directors on key issues
Preside over Board and shareholder meetings
Advise the CEO on issues of concern for the Board
Develop agenda for Board meetings, in consultation with the CEO and other directors |
Act as liaison between Board and management
Lead the Board in CEO succession planning
Engage in the director recruitment process
Represent the Company in interactions with external stakeholders, at the direction of the Board |
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BOARD/COMMITTEE | PRIMARY AREAS OF RISK OVERSIGHT | |
Full Board |
Strategic, financial and execution risks and exposures associated with Cignas business strategy, including impact of changes to laws and regulations, significant litigation and regulatory exposures and other current matters that may present material risk to financial performance, operations, infrastructure, plans, prospects, reputation, acquisitions and divestitures. | |
Audit Committee |
In addition to overseeing Cignas ERM framework, oversees risks related to the Companys financial statements, the financial reporting process, accounting, cyber-security and certain legal and compliance matters. The Audit Committee also oversees the internal audit function and the Companys ethics and compliance program. | |
Corporate Governance Committee |
Oversees risks and exposures associated with director succession planning, corporate governance and overall Board effectiveness. Also oversees the Companys risks related to political and charitable contributions. In exercising this oversight, the Corporate Governance Committee reviews and discusses financial contributions to such organizations. | |
Finance Committee |
Oversees the Companys deployment of capital, technology and investment-related initiatives. In exercising this oversight, the Finance Committee regularly reviews and discusses the technology, financial market and capital management risks that are monitored through the Companys ERM process. | |
People Resources Committee |
Oversees compensation related-risks and management succession planning. For additional information regarding the People Resources Committees role in evaluating the impact of risk on executive compensation, see page 49 of the Compensation Discussion & Analysis. |
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In 2016, the Board held eight meetings and the committees of the Board held a total of 26 meetings. At all meetings held in 2016, the independent members of the Board met in executive session. As part of all regularly scheduled Board meetings, the Chairman presides over all executive sessions of the Board. Each committee also met in executive session on a regular basis in connection with their respective meetings.
Each director attended more than 75% of the aggregate of all meetings of the Board and committees on which he or she served during 2016. During 2016, Board and committee attendance averaged 94% for the Board as a whole. In addition to formal Board meetings, the Board engages with management regularly throughout the year.
The Board encourages directors to attend the annual meeting of shareholders. Ten directors attended the 2016 annual meeting: Dr. Henney, Ms. Gass and Ms. Zarcone and Messrs. Cordani, Foss, Martinez, Partridge, Wiseman, Zollars and Harris, who chaired the meeting. All directors are expected to attend the Annual Meeting in 2017.
The Board has five committees: Executive, Audit, Corporate Governance, Finance and People Resources. Complete copies of the committee charters are available on Cignas website at www.cigna.com/about-us/company-profile/corporate-governance/.
The composition of the Audit, Corporate Governance, Finance and People Resources Committees is set forth below.
Audit* | Corporate Governance |
Finance | People Resources | |||||
Eric J. Foss |
✓ | ✓ | ||||||
Jane E. Henney, M.D. |
Chair | ✓ | ||||||
Roman Martinez IV |
Chair # | ✓ | ||||||
John M. Partridge |
Chair | ✓ | ||||||
James E. Rogers |
✓ # | ✓ | ||||||
Eric C. Wiseman |
✓ | ✓ | ||||||
Donna F. Zarcone |
✓ # | ✓ | ||||||
William D. Zollars |
✓ | Chair | ||||||
Meetings in 2016 |
9 | 5 | 5 | 7 |
✓ | Committee member |
# | Designated audit committee financial expert as defined in the SEC rules. |
* | All members of the Audit Committee are financially literate within the meaning of the NYSE listing standards. |
The Executive Committee may exercise the power and authority of the Board as specifically delegated by the Board when convening a meeting of the full Board of Directors is impracticable. Mr. Harris is Chairman of the Executive Committee and Dr. Henney and Messrs. Cordani, Martinez, Partridge and Zollars serve on the Executive Committee. In 2016, the Board of Directors did not delegate any actions to the Executive Committee and, therefore, the Executive Committee did not meet in 2016.
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Committee | Responsibilities | |||
Audit Committee | Assesses the qualification and independence of, appoints, compensates, oversees the work of and removes, if appropriate, Cignas independent registered public accounting firm.
Represents and assists the Board in fulfilling its oversight responsibilities regarding the adequacy and effectiveness of internal controls and the integrity of financial statements.
Reviews annual and quarterly financial statements, earnings releases, earnings guidance and significant accounting policies with management and, if appropriate, the independent registered public accounting firm.
Oversees compliance with material legal and regulatory requirements, including those that apply to federal and state health care programs.
Oversees the Companys enterprise risk management program and internal audit function and advises the Board on financial and enterprise risks, including risks related to the security of information technology systems.
Maintains procedures for and reviews the receipt, retention and treatment of complaints and concerns regarding accounting, controls, auditing, reporting and disclosure matters.
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Corporate Governance Committee | Reviews, advises and reports to the Board on the Boards membership, structure, organization, governance practices and performance, as well as shareholder engagement activities.
Assists the Board in the oversight and governance of director succession plans.
Reviews committee assignments and director independence.
Oversees director nomination and compensation and develops specific director recruitment criteria.
Oversees communications with external stakeholders, including shareholders.
Oversees corporate political and charitable contributions.
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Finance Committee | Oversees the structure and use of Cignas capital.
Oversees Cignas long-term financial objectives and progress against those objectives.
Reviews Cignas strategic operating plan and budget.
Oversees Cignas investment strategy and sets investment policies and guidelines.
Oversees information technology strategy and execution.
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People Resources Committee | Oversees the policies and processes for people development and assessments of executive officers and key senior management and assists the Board in developing and evaluating executive officer succession plans.
Establishes company goals and objectives relevant to the CEOs compensation, evaluates the CEOs performance in light of those established goals and objectives, and based on this evaluation, recommends the CEOs compensation to the independent members of the Board for approval.
Reviews and approves compensation targets, base salaries, cash and equity-based incentive compensation payments and arrangements, severance, and other compensation and benefits arrangements for any current or prospective executive officers other than the CEO, subject to required Board or shareholder approvals.
Establishes performance measures and goals and assesses whether these goals are met for awards under short-term and long-term cash-based and equity-based compensation plans.
Reviews and monitors the Companys diversity program.
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Non-Employee Director Compensation
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DIRECTOR COMPENSATION TABLE FOR 2016
The table below includes information about the compensation paid to non-employee directors in 2016. Mr. Cordani, the only Company employee on the Board of Directors, does not receive any director compensation for his Board service.
FEES EARNED OR PAID IN CASH |
STOCK AWARDS | ALL
OTHER COMPENSATION |
TOTAL COMPENSATION |
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NAME | ($) | ($) | ($) | ($) | ||||||||||||
(a) | (b) | (c) | (d) | (e) | ||||||||||||
Eric J. Foss |
115,000 | 180,000 | 365 | 295,365 | ||||||||||||
Michelle D. Gass(1) |
115,000 | 180,000 | 365 | 295,365 | ||||||||||||
Isaiah Harris, Jr. |
320,000 | 180,000 | 918 | 500,918 | ||||||||||||
Jane E. Henney, M.D. |
120,000 | 180,000 | 6,157 | 306,157 | ||||||||||||
Roman Martinez IV |
120,000 | 180,000 | 1,320 | 301,320 | ||||||||||||
John M. Partridge |
120,000 | 180,000 | 5,365 | 305,365 | ||||||||||||
James E. Rogers |
115,000 | 180,000 | 766 | 295,766 | ||||||||||||
Eric C. Wiseman |
115,000 | 180,000 | 766 | 295,766 | ||||||||||||
Donna F. Zarcone |
115,000 | 180,000 | 6,263 | 301,263 | ||||||||||||
William D. Zollars |
120,000 | 180,000 | 1,017 | 301,017 |
(1) | Ms. Gass resigned from the Board of Directors on February 21, 2017. |
Fees Earned or Paid in Cash (Column (b))
| In addition to the annual cash retainer for Board service received by each director: |
| Dr. Henney and Messrs. Martinez, Partridge and Zollars each served as a committee chair and as a member of another committee. |
| Ms. Gass, Ms. Zarcone and Messrs. Foss, Rogers and Wiseman each served as a member of two committees. |
| Mr. Harris served as Chairman of the Board. |
| Director fees listed in this column may be deferred by directors under the Deferral Plan (see Deferral of Payments as described on page 24). |
Stock Awards (Column (c))
Column (c) lists the aggregate grant date fair value of Cigna common stock awarded to directors as part of their Board retainer, computed in accordance with FASB Accounting Standards Codification (ASC) Topic 718, applying the same model and assumptions that Cigna applies for financial statement reporting purposes as described in Note 16 to Cignas consolidated financial statements in the Companys Annual Report on Form 10-K for the year ended December 31, 2016 (disregarding any estimates for forfeitures). Common stock awards listed in this column may be deferred by directors under the Deferral Plan. See Director Ownership below for amounts and a description of equity-based awards outstanding as of December 31, 2016.
All Other Compensation (Column (d))
Column (d) includes:
| reinvested dividends on certain share equivalent awards and on deferred Cigna common stock, and dividends paid in cash on restricted stock units, as described below under Director Ownership; |
| matching charitable awards made by Cigna as part of its matching gift program (also available on a broad basis to Cigna employees) in the amount of $5,000 each for Dr. Henney, Ms. Zarcone and Mr. Partridge; and |
| the dollar value of Company-paid life insurance premiums for all directors. |
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The table shows Cigna securities held by each non-employee director as of December 31, 2016. The value of these securities was calculated using $133.39, which was Cignas closing stock price on December 30, 2016.
NAME | COMMON STOCK (a) |
DEFERRED COMMON STOCK (b) |
RESTRICTED STOCK UNITS (c) |
HYPOTHETICAL SHARES OF COMMON STOCK (d) |
TOTAL OWNERSHIP (e) |
TOTAL OWNERSHIP VALUE (f) |
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Eric J. Foss |
12,373 | | | | 12,373 | $ | 1,650,434 | |||||||||||||||||
Michelle D. Gass |
4,109 | | | | 4,109 | $ | 548,100 | |||||||||||||||||
Isaiah Harris, Jr. |
1,356 | | 13,500 | 23,249 | 38,105 | $ | 5,082,826 | |||||||||||||||||
Jane E. Henney, M.D. |
2,596 | | 13,500 | 19,024 | 35,120 | $ | 4,684,657 | |||||||||||||||||
Roman Martinez IV |
9,496 | 21,740 | 13,500 | 15,419 | 60,155 | $ | 8,024,075 | |||||||||||||||||
John M. Partridge |
32,227 | | | | 32,227 | $ | 4,298,760 | |||||||||||||||||
James E. Rogers |
| 36,480 | | 10,632 | 47,112 | $ | 6,284,270 | |||||||||||||||||
Eric C. Wiseman |
4,200 | 11,077 | | 2,987 | 18,264 | $ | 2,436,235 | |||||||||||||||||
Donna F. Zarcone |
5,971 | 7,190 | 13,500 | 2,796 | 29,457 | $ | 3,929,269 | |||||||||||||||||
William D. Zollars |
2,327 | | 13,500 | 9,782 | 25,609 | $ | 3,415,985 |
Deferred Common Stock (Column (b))
Column (b) includes the equity portion of the 2016 and any previous years Board retainer granted in Cigna common stock or deferred stock units that have been deferred under the Deferral Plan.
Restricted Stock Units (Column (c))
Column (c) includes restricted stock units that were issued in April 2014 upon the cancellation and exchange of 13,500 restricted share equivalents held by each of Dr. Henney, Ms. Zarcone and Messrs. Harris, Martinez and Zollars. The restricted share equivalents were originally granted pursuant to the terms of the compensation program in place at the times of the directors election to the Board between 2004 and 2006. The restricted share equivalents and the restricted stock units have the same terms and conditions, except that, upon separation of service, the restricted share equivalents would have settled in cash and the restricted stock units will settle in shares of Cigna common stock. The restricted stock units vest after nine years of service or upon reaching age 65. All of these restricted stock units are vested.
Hypothetical Shares of Common Stock (Column (d))
Column (d) includes (1) share equivalents resulting from voluntary deferrals of cash compensation hypothetically invested in the Cigna stock fund; (2) hypothetical shares of Cigna common stock credited to directors restricted deferred compensation accounts under the terms of the retirement plan in effect between 1997 and 2005; and (3) hypothetical shares of Cigna common stock acquired pursuant to a pre-2006 requirement that directors invest or defer a portion of their Board retainer in shares of hypothetical Cigna common stock. Although these securities are not common stock, the value of the hypothetical shares of Cigna common stock credited to a directors deferred compensation account is tied directly to the value of Cigna common stock.
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Advisory Approval of Executive Compensation (Proposal 2)
Our Board is committed to strong governance and recognizes that Cigna shareholders have an interest in our executive compensation policies and practices. Section 14A of the Securities Exchange Act of 1934, as amended (the Exchange Act) requires that we provide our shareholders with the opportunity to vote to approve, on an advisory basis, the compensation of our named executive officers (NEOs). In recognition of the preference of shareholders expressed at our 2011 annual meeting, the Board has held say on pay advisory votes on an annual basis. Consistent with this practice and SEC rules, we are asking you to approve the following advisory resolution:
Resolved, that the shareholders approve, on an advisory basis, the compensation of the Companys named executive officers as disclosed in the Companys Proxy Statement for the 2017 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, Executive Compensation Tables and accompanying narrative disclosure.
We believe that our executive compensation program design effectively aligns the interests of our executive officers with those of our shareholders by tying a significant portion of their compensation to Cignas performance and rewarding our executive officers for the creation of long-term value for Cignas shareholders. In considering your vote, we encourage you to review the Proxy Statement Summary beginning on page 1, the Compensation Discussion and Analysis beginning on page 29 and the Executive Compensation Tables beginning on page 54.
This advisory vote is intended to address our overall compensation policies and practices related to the NEOs, rather than any specific element of compensation. Because your vote is advisory, it will not be binding upon the Board. However, the Board and People Resources Committee value your opinion and will review and consider the voting results when making future executive compensation decisions.
The Board of Directors unanimously recommends that shareholders vote FOR the advisory approval of the Companys executive compensation. |
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Advisory Approval of the Frequency of Future Advisory Votes on Executive Compensation (Proposal 3)
Section 14A of the Exchange Act provides that shareholders can indicate their preference, at least once every six years, as to how frequently we should seek a say-on-pay advisory vote on executive compensation. By voting on this proposal, you may indicate whether you would prefer that we seek future advisory votes on executive compensation once every one, two or three years.
The Board believes that an advisory vote on executive compensation that occurs every year is the most appropriate alternative for Cigna and therefore recommends that you vote for a one-year interval for the advisory vote on executive compensation. In formulating its recommendation, the Board considered that an annual advisory vote on executive compensation will enable shareholders to provide direct input to the Company regarding our compensation philosophy, policies and practices as disclosed in the proxy statement each year. Setting a one-year period for holding this shareholder vote enhances shareholder communication by providing a clear, simple means for our Board to ascertain general investor sentiment regarding our executive compensation program.
Shareholders may cast a vote on the preferred voting frequency by selecting the option of one-year, two-years or three-years when voting in response to the resolution set forth below:
RESOLVED, that the option of every one-year, two-years or three-years which receives the highest number of votes cast for this resolution will be the preferred frequency with which the Company is to provide shareholders with the opportunity to vote to approve the compensation of named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission.
The option of every one-year, two-years or three-years that receives the highest number of votes cast by shareholders will be the frequency for the advisory vote on executive compensation that has been selected by shareholders. Because the required vote is advisory, it will not be binding upon the Board. The Board and the People Resources Committee will, however, take into account the outcome of the vote when considering the frequency with which the Company will provide shareholders the opportunity to vote to approve the compensation of named executive officers.
The Board of Directors for the option of every |
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COMPENSATION MATTERS
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Compensation Discussion and Analysis
This Compensation Discussion and Analysis (CD&A) describes the compensation policies, programs and decisions regarding our named executive officers (NEOs) for 2016, who include our Chief Executive Officer, Chief Financial Officer, the three most highly-compensated executive officers as of the end of 2016, as well as one executive officer who retired during 2016. The People Resources Committee (the Committee) is charged with oversight of the Companys executive compensation policy and plans and makes all compensation decisions for our executive officers with the exception of our CEO, for whom the Committee makes recommendations to the Board of Directors. This section also describes why the Committee has chosen each element of compensation and how it made compensation decisions. For 2016, our NEOs are:
NAME |
TITLE | |
David M. Cordani |
President and Chief Executive Officer | |
Thomas A. McCarthy(1) |
Executive Vice President and Chief Financial Officer | |
Nicole S. Jones |
Executive Vice President and General Counsel | |
Matthew G. Manders(2) |
President, Government & Individual Programs and Group Insurance | |
Jason D. Sadler |
President, International Markets | |
Herbert A. Fritch(3) |
Retired President, CignaHealthSpring |
(1) | On February 22, 2017, Mr. McCarthy notified the Company of his intention to retire from his position in the early summer of 2017. |
(2) | On February 23, 2017, the Company appointed Matthew G. Manders, who was most recently the Companys President of U.S. Markets, to the new role of President, Government & Individual Programs and Group Insurance. |
(3) | Mr. Fritch retired from the Company effective November 11, 2016. |
This CD&A is organized as follows:
Executive Summary provides an overview of our compensation philosophy and our pay-for-performance alignment. |
Pages 29 31 | |
Executive Compensation Policies and Practices describes our compensation objectives and practices, as well as how we set target total direct compensation and target pay mix. |
Pages 32 35 | |
Elements of Compensation describes each form of compensation we pay and how our executive compensation program is tied strongly to performance. |
Pages 36 47 | |
Employment Arrangements and Post-Termination Payments summarizes any employment agreements, our severance and other post-termination arrangements as well as our change of control arrangements. |
Pages 47 48 | |
Processes and Procedures for Determining Executive Compensation provides an overview of the Committees role in executive compensation, the process for determining executive officer compensation and the compensation consultants role. |
Pages 48 50 | |
Other Practices describes our stock ownership guidelines, our hedging and pledging restrictions, our clawback policy and the impact of tax and accounting treatment. |
Pages 51 53 |
Cignas executive compensation program is based on the philosophy that executive pay should strongly align with the interests of our shareholders, directly link to Company and individual performance and attract and retain executive talent. We believe the achievement of our enterprise goals will result in the creation of meaningful and sustained long-term value for our shareholders. Each of the measures in our performance-based plans are designed to align with and support our business strategy focusing on driving enterprise profitability, growth and operating expense efficiency to support investment in innovation, customer loyalty and stock performance.
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COMPENSATION MATTERS
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The primary principles underlying our compensation philosophy are to:
Motivate superior enterprise results with appropriate consideration of risk while maintaining a commitment to the Companys ethics and values. |
Align the interests of the Companys executives with those of its shareholders and reward the creation of long-term value for Cigna shareholders.
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Emphasize performance-based short-term and long-term compensation over fixed compensation. |
Reward the achievement of favorable long- term financial results more heavily than the achievement of short-term results. |
Provide market-competitive compensation opportunities designed to attract and retain highly qualified executives. |
Pay-for-Performance Alignment
Cignas compensation program is heavily weighted to emphasize performance-based pay over fixed compensation. Our Management Incentive Plan (MIP) is a cash-based program designed to reward the achievement of annual enterprise results. Long-term performance is awarded through annual long-term incentive (LTI) awards, including Strategic Performance Shares (SPSs), the payout of which is based upon performance over a three-year period. Financial measures within the MIP and SPS program, such as adjusted income from operations,1 revenues and operating expense ratio improvement, are tied to the performance of Cignas three ongoing business segments Global Health Care, Global Supplemental Benefits and Group Disability and Life. Our MIP and SPS plans are designed to reward our NEOs for the Companys performance relative to pre-established enterprise goals.
Short- and Long-Term Performance
For 2016, adjusted income from operations1 for Cignas ongoing business segments was $2.3 billion, compared to $2.4 billion in 2015, reflecting strong performance in Cignas Commercial Healthcare and Global Supplemental Benefits businesses and challenges during the year related to the Seniors and Disability and Life businesses. Revenue for the three ongoing business segments grew to $39.0 billion, reflecting continued growth in Cignas targeted customer segments. We made notable progress in the second half of 2016 addressing the challenges in our Group Disability and Life and Seniors business. Specifically, we gained traction in our Group Disability business as the claims process modifications made earlier in 2016 continued to mature, we experienced more stable claims in our Life business and, within Seniors, we made progress with our remediation efforts and are in the later stages of our audit response work. However, these challenges did impact full year adjusted income from operations.1
ADJUSTED INCOME FROM OPERATIONS1, 2 (IN BILLIONS) |
REVENUES2 (IN BILLIONS) |
THREE-YEAR ANNUAL COMPOUNDED TSR | ||||
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Cignas three- year TSR was at the 67th percentile of its peers for the 20142016 performance period.3 |
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COMPENSATION MATTERS
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2016 Management Incentive Plan
As a result of our 2016 financial performance, payouts under the 2016 Management Incentive Plan were significantly lower than in prior years and below target levels, reflecting strong pay-for-performance alignment. Mr. Cordanis MIP award was 50% of target for 2016, compared to 130% of target for 2015 and, on average, the MIP award paid to each of the other NEOs who received a MIP award was 75% of target for 2016, compared to 124% of target for 2015.
Measure | Result | Award | ||
Adjusted income from operations1, 2 |
(6.7)% growth was below target range | Individual payouts ranged from 50% to 80% of each NEOs target. | ||
Revenue2 |
4.5% growth was within target range | |||
Operating expense ratio improvement2 |
(0.5)% improvement was below target range | |||
Net promoter score (NPS) |
2016 NPS score decreased from 2015 |
20142016 Strategic Performance Share Program
Long-term performance was rewarded through the payout of our 20142016 SPSs. Our TSR over this three-year period, which accounts for 50% of the SPS payout, was 15.1%, placing Cigna at the 67th percentile relative to the peer group. While 2016 performance impacted the payout percentage of the 20142016 SPSs, over the three-year performance period, each of adjusted income from operations1, 2 and revenue grew as described in the following table.
Measure | Result ($ in millions) | Award | ||
Relative TSR3 |
67th percentile (151% of target) | 20142016 SPSs were paid out at 123.5% of target. | ||
Adjusted income from operations1, 2 |
$6,724 (87.0% of target) | |||
Revenue2 |
$110,641 (104.8% of target) |
1. | We encourage you to review our Annual Report on Form 10-K for the year ended December 31, 2016 for more complete financial information. Cigna uses adjusted income from operations as the principal financial measure for operating performance because management believes it best reflects the underlying results of our business operations and permits analysis of trends in underlying revenue, expenses and profitability. Effective January 1, 2015, adjusted income from operations is defined as shareholders net income (loss) excluding the following after-tax adjustments: net realized investment results, net amortization of other acquired intangible assets and special items. Prior to 2015, and at the time that the Committee approved the 20142016 SPS program, Cigna did not exclude net amortization of other acquired intangible assets in the calculation of adjusted income from operations. For this reason, net amortization of other acquired intangible assets is not excluded from the calculation of adjusted income from operations for the 20142016 SPS program. For a reconciliation of adjusted income from operations for the Global Health Care, Global Supplemental Benefits and Group Disability and Life segments to shareholders net income for each of the three businesses, see Annex A to this Proxy Statement. As appropriate, adjustments are made for acquisitions, dispositions and the implementation of accounting changes to ensure comparability of actual results and targets. |
2. | Reflects results for Cignas three ongoing business segments Global Health Care, Global Supplemental Benefits and Group Disability and Life. |
3. | The peer group used to measure relative TSR is the compensation peer group in place at the time of the 20142016 SPS award and includes: Aetna, Inc., Aflac Incorporated, Anthem, Inc., Chubb Limited, The Hartford Financial Services Group, Inc., Humana, Inc., Manulife Financial Corporation, MetLife, Inc. and Unum Group. |
2016 Long-Term Incentive Award
In February 2016, the Committee (and, for Mr. Cordani, the Board, upon the recommendation of the Committee) approved the annual LTI award, 50% of which was awarded in stock options and 50% of which was awarded in an SPS award with a 20162018 performance period. The exercise price of the stock options awarded was $139.22, which means our stock must trade above that price for the NEOs to realize value from these awards. The payout of the 20162018 SPS award will be based on the Companys performance over the three-year period. In determining the annual LTI award, the Committee primarily evaluates individual contributions, but also may consider the other factors described on page 42. The LTI awards granted in February 2016 ranged from 70% to 125% of each NEOs target.
Shareholders Continue to Support our Executive Compensation Program
The Committee and the Board consider the results of the annual shareholder executive compensation say-on-pay vote, as well as other compensation-related shareholder votes, in determining the ongoing design and administration of the Companys executive compensation programs. Shareholders have expressed their overwhelming support for our executive compensation program, with approximately 93% of votes cast at the 2016 annual meeting in favor of the advisory vote on executive compensation.
The Committee also considers feedback on our executive compensation program received as part of our ongoing communications with shareholders.
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EXECUTIVE COMPENSATION POLICIES AND PRACTICES
Compensation Objectives and Practices
Cignas executive compensation program is based on the philosophy that executive pay should strongly align with the interests of our shareholders, directly link to Company and individual performance and attract and retain executive talent. By emphasizing performance-based awards over fixed compensation, we strive to motivate superior enterprise results that we believe will result in the creation of meaningful and sustained long-term value for our shareholders.
To further our compensation philosophy, the Committee uses the following compensation practices, processes and instruments:
| A regular and rigorous analysis of relevant market compensation data for each executive officer. The analysis includes market data for competitors and the broad-based general industry based on companies of similar size and scope; |
| Annual pay-for-performance assessment of the degree of achievement of the Companys short-term and long-term goals and an evaluation of each executive officers contribution to the Companys performance; |
| A MIP designed to motivate executive officers to achieve the Companys annual performance goals. No MIP awards are made unless the Company achieves a pre-defined minimum level of adjusted income from operations for the ongoing businesses; |
| An equity-based incentive plan (the Cigna Long-Term Incentive Plan or LTIP) focused on long-term shareholder value creation. We grant SPS awards and stock options to executives under the LTIP. SPS awards reward executives for relative TSR performance as compared to our competitors and the achievement of financial goals over a three-year performance period. Through stock options, executives have the potential to realize value as a result of stock price appreciation; |
| The retention of an independent compensation consultant to assist the Committee in its design and implementation of the Companys executive compensation programs; and |
| Ongoing monitoring of compensation best practices and investors views on compensation and the modification of our compensation programs as appropriate to align with good governance standards. |
For information on the oversight of the executive compensation program, see Processes and Procedures for Determining Executive Compensation beginning on page 48.
Strong Compensation Governance and Controls
What We Do |
Significant alignment between pay and performance.
Double trigger requirement for change of control benefits.
Regular review of executive compensation governance market practices, particularly when considering the adoption of new practices or changes to existing programs or policies.
Robust stock ownership guidelines and share holding requirements for equity awards to align executives interests with shareholders.
A disgorgement of awards (clawback) policy beyond the mandates of Sarbanes-Oxley.
Management of LTIP annual share usage (or burn rate) and total dilution by setting an annual share usage limit, which is below the maximum permitted under the plan.
Oversight of people development policies & processes, including consideration of assessments of executive officers and key senior management.
CEO and executive officer succession plans overseen by the Board of Directors, with assistance from the Committee.
An annual assessment by the Committee of any potential risks and associated internal controls in our incentive compensation programs and policies.
Require the achievement of a minimum acceptable level of financial performance in order for the MIP to be funded.
Over 90% of CEOs target total direct compensation is performance based. | |
What We Dont Do |
No tax gross-up of severance pay upon a change of control.
No excessive perquisites.
No hedging of Cigna stock by all directors and employees, including the executive officers, and we impose restrictions on pledging of Cigna stock by directors and Section 16 officers.
No discounting, reloading or repricing of stock options without shareholder approval.
No payment of dividends on unvested shares. |
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NEO | 2016 ANNUAL BASE SALARY ($) |
2016 MIP TARGET ($) |
2016 LTI TARGET ($) |
TARGET TOTAL DIRECT COMPENSATION ($) |
TARGET TOTAL DIRECT COMPENSATION POSITION TO COMPENSATION PEER GROUP(1) |
TARGET TOTAL DIRECT COMPENSATION POSITION TO GENERAL INDUSTRY PEER GROUP(2) | ||||||
David M. Cordani |
1,200,000 | 2,200,000 | 9,600,000 | 13,000,000 | Within competitive range | Within competitive range | ||||||
Thomas A. McCarthy |
740,000 | 800,000 | 2,400,000 | 3,940,000 | Below competitive range | Below competitive range | ||||||
Nicole S. Jones |
581,138 | 560,000 | 1,424,500 | 2,565,638 | Within competitive range | Within competitive range | ||||||
Matthew G. Manders |
750,000 | 900,000 | 2,600,000 | 4,250,000 | Within competitive range | Within competitive range | ||||||
Jason D. Sadler(3) |
589,463 | 499,745 | 1,000,000 | 2,089,532 | Within competitive range | Below competitive range | ||||||
Herbert A. Fritch(4) |
1,000,000 | 1,000,000 | 2,000,000 | 4,000,000 | Above competitive range | Above competitive range |
(1) | Based on survey data available in December 2015 for the compensation peer group and, with respect to Mr. Sadler, the companies listed on Annex B. |
(2) | Based on survey data available in December 2015 for the general industry peer group. |
(3) | Mr. Sadler is based in Hong Kong. His base salary and annual incentive award are paid in Hong Kong dollars and, throughout this CD&A, have been converted to U.S. dollars using an exchange rate of $1 Hong Kong dollar = $0.12888508 U.S. dollar, the average of the daily mid-points between the bid and the ask prices for each trading day in the month of December 2016. |
(4) | Mr. Fritchs target total direct compensation was driven by his role as Chief Executive Officer of HealthSpring before Cigna acquired HealthSpring in January 2012. |
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As illustrated in the charts below, performance-based compensation represents approximately 91% of Mr. Cordanis target total direct compensation, including 74% in long-term incentives and 17% in annual incentives. On average, performance-based compensation represents 78% of target total direct compensation for the other NEOs, including an average of 56% in long-term incentives and 22% in annual incentives. These percentages are targets only and will not match the percentages calculable from the compensation amounts reflected in the Summary Compensation Table on page 54.
CEO TARGET PAY MIX |
OTHER NEO AVERAGE TARGET PAY MIX |
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Cignas 2016 executive compensation program consists of the following elements:
ELEMENT | PURPOSE | |||
Base salary |
Fixed portion of total direct compensation, set with reference to competitive market data and designed to attract and retain key talent. | |||
Management Incentive |
Performance-based cash compensation designed to reward the achievement of annual enterprise results relative to pre-established goals, as well as individual performance accomplishments and contributions. | |||
Long-Term |
Stock Options |
Performance-based compensation, the potential realized value of which is determined by stock price appreciation from the date of grant through the date of exercise. | ||
Strategic Performance Shares |
Performance-based compensation, the payout of which is based upon the achievement of pre-determined enterprise goals and the Companys relative TSR over a three-year performance period. | |||
Retirement and Deferred Compensation |
Compensation component that is aligned to competitive market practice, including 401(k) plans and a voluntary non-qualified deferred compensation program that does not have any Company contributions. U.S.-based NEOs hired before July 1, 2009 have accrued benefits from defined benefit pension plans that were frozen on July 1, 2009. | |||
Limited Perquisites and Other Benefits |
Limited perquisites that are designed to attract and retain key talent or to provide for the safety and security of executive officers. |
The Committee approved certain changes to compensation programs affecting 2017 compensation. The Committee approved a new performance measure for the 2017 MIP as described on page 42, approved changes to its various peer groups as described on page 33, and approved an alternative ranking methodology should the number of companies in the relevant SPS peer group fall below 10, as further described on page 45.
Base Salary
Base salary represents the only fixed portion of a NEOs total target direct compensation and, consistent with the Committees philosophy that executive pay should strongly align with the interests of our shareholders, represents a small portion of total target direct compensation.
Base salary levels are set with reference to both competitive market data and individual performance. Base salaries are reviewed annually and may be adjusted as a result of updated market data and an assessment of an executives role and performance contributions, including the executives demonstration of Cignas core values and the achievement of the expectations associated with his or her role. The overall salary budget also is a factor in determining the extent of base salary adjustments.
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Executive Officer MIP Funding and Award Determination Process
The key considerations to funding the MIP and determining individual award amounts are discussed below.
STEP 1 Achieve Earnings Minimum
The Committee believes that achieving Cignas profitability goals is critically important to the long-term success of the business. In recognition of its importance, a minimum acceptable level of financial performance relative to Cignas corporate objectives for the year must be achieved. If the Company does not meet a pre-defined minimum level of adjusted income from operations, then no annual incentives will be paid to executive officers.
STEP 2 Company Performance Drives Funding Level
If the Company achieves the earnings minimum, the Committee may fund the executive officer MIP pool from 0% to 200% of target based upon the following performance ranges: below target, target and above target. The Companys actual performance is the basis for establishing the range of funding available for awards. The following table sets forth the ranges between which the MIP pool may be funded for each performance measure, in each case, assuming the earnings minimum has been achieved:
|
MEASURE | PERFORMANCE | FUNDING RANGE | ||||||
Adjusted Income from Operations |
Above target range | Above 120% to 200% | ||||||
Revenue |
Within target range | 80% to 120% | ||||||
Operating Expense Ratio Improvement |
Below target range | Less than 80% | ||||||
NPS |
NPS score equal to or greater than the prior years score |
100% to 200% | ||||||
NPS score less than the prior years score |
Less than 100% |
The Committee maintains the discretion to determine at which point within the limits of the pre-established range the actual funding will be set. In setting the actual funding, the Committee considers Cignas performance as a whole (both in absolute terms and relative to competitors), as well as Cignas achievement of the goals within each performance measure. The MIP funding mechanisms ensure that a minimum level of performance is achieved and that NEOs are only rewarded for satisfactory Company performance.
STEP 3 Award Amounts Based on Individual Contributions to Company Performance
Once MIP funding has been determined, the Committee (and for Mr. Cordani, the Board of Directors upon the recommendation of the Committee) assesses each named executive officers individual contributions and how such contributions impacted the achievement of the MIP goals to determine the actual award amounts for each NEO. Actual awards can range from 0% to 200% of a NEOs MIP target, allowing the Committee to differentiate payouts based on each individuals contributions.
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2016 Performance Goals, Measures and Actual Results
The Committee considers the appropriate measures for the MIP program for the upcoming year at its October and December meetings, and then considers and approves the actual targets at its meetings in January and February. For 2016, the Committee established the performance measures, weightings and target performance goals below, which were used to determine the range of potential aggregate funding for MIP awards.
MEASURE | ALIGNMENT WITH BUSINESS STRATEGY |
WEIGHTING | TARGET PERFORMANCE GOALS |
ACTUAL RESULT | ||||||
Adjusted income from operations* |
Reinforces the importance of profitable growth across the enterprise. |
50 | % | 1% to 10% growth | (6.7)% growth was below target range | |||||
The target was set as a year-over-year growth goal for Cignas Global Health Care, Global Supplemental Benefits and Group Disability and Life segments. | ||||||||||
Revenue |
Focuses on enterprise growth, encourages business decisions that optimize results for the enterprise, promotes collaboration across business units and drives customer focus. |
20 | % | 0.5% to 7% growth | 4.5% growth was within target range | |||||
The target was set as a year-over-year growth goal for Cignas Global Health Care, Global Supplemental Benefits and Group Disability and Life segments. | ||||||||||
Operating expense ratio improvement |
Drives continued focus on delivering ongoing expense efficiency while furthering investment capacity for ongoing innovation. |
20 | % | (0.1)% to 3.8% change |
(0.5)% improvement was below target range | |||||
The target was set as a composite objective, which measures operating expense improvement in Cignas Global Health Care, Global Supplemental Benefits and Group Disability and Life segments versus 2015. Operating expenses are expressed as a percent of revenue for each segment. | ||||||||||
Net promoter score (NPS) |
Reinforces our focus on customer retention and loyalty by measuring customer perception on matters such as our reputation, brand, product, service, pricing and providers, all of which we believe are critical to Cignas success. |
10 | % | Improve or maintain 2015 NPS score | 2016 NPS score decreased from 2015 | |||||
This is a measure of customer loyalty based on the results of externally conducted customer surveys.
The target was set as a composite objective, measuring the year-over-year change in the NPS against 2015 results. NPS results from each of Cignas segments are weighted based on the Companys 2016 operating plan for the segments premiums and fees to establish both the NPS baseline and final result for 2016. |
* | Cigna uses adjusted income from operations as the principal financial measure for operating performance because management believes it best reflects the underlying results of our business operations and permits analysis of trends in underlying revenue, expenses and profitability. For a reconciliation of adjusted income from operations for the Global Health Care, Global Supplemental Benefits and Group Disability and Life segments to shareholders net income for each of the three businesses, see Annex A to this Proxy Statement. As appropriate, adjustments are made for acquisitions, dispositions and the implementation of accounting changes to ensure comparability of actual results and targets. |
In setting the target performance goals for each measure in February 2016, the Committee considered Cignas publicly disclosed earnings estimates, historical Company and SPS performance peer company results, analyst commentary and the Companys then-current expectations for the industry and economic environment. The Committee considered various market forces impacting the Company and related uncertainties, including the expectation that the industry would continue to face significant market changes and disruption in 2016. Factors contributing to these uncertainties included continued rate pressure for the Medicare Advantage market, foreign exchange headwinds, continued uncertainty in enrollment and margins associated with the individual business on the public exchanges, as well as impacts from the proposed merger with Anthem. The Committee believed that the target performance goals represented competitively attractive goals that would be challenging to achieve in light of the circumstances facing the Company in 2016.
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2016 Individual MIP Targets and Awards
MIP target levels for the 2016 performance year for the NEOs are set forth in the table below.
In determining actual MIP awards, the Committee (and for Mr. Cordani, the Board of Directors upon the recommendation of the Committee) takes an integrated approach, assessing enterprise results together with each named executive officers individual contributions during 2016. For the 2016 performance year, the Committee and the Board made annual incentive awards to the NEOs ranging from 50% to 80% of the target award value, as reflected in the following table.
NEO | 2016 MIP TARGET ($) |
MIP MAXIMUM AWARD ($) |
ACTUAL MIP PAYOUT ($) |
PAYOUT OF TARGET (%) |
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David M. Cordani |
2,200,000 | 4,400,000 | 1,100,000 | 50% | ||||||||||||
Thomas A. McCarthy |
800,000 | 1,600,000 | 536,000 | 67% | ||||||||||||
Nicole S. Jones |
560,000 | 1,120,000 | 431,200 | 77% | ||||||||||||
Matthew G. Manders |
900,000 | 1,800,000 | 675,000 | 75% | ||||||||||||
Jason D. Sadler |
499,745 | 999,490 | 399,796 | 80% | ||||||||||||
Herbert A. Fritch(1) |
1,000,000 | 2,000,000 | 0 | 0% |
(1) | Mr. Fritchs MIP target was driven by his annual incentive target in his role as Chief Executive Officer of HealthSpring before Cigna acquired HealthSpring in January 2012. Mr. Fritch retired in November 2016 and did not receive a MIP award for 2016. |
Mr. Cordani
In early 2017, the Committee, together with the independent Chairman of the Board, assessed the performance of Mr. Cordani in the context of the overall Company performance. This assessment included a review of the Companys financial performance in 2016 as well as Mr. Cordanis individual contributions. Following this review, the Committee made certain recommendations to the Board relating to Mr. Cordanis MIP award for 2016. The Board considered these recommendations as part of its own independent review of Mr. Cordanis performance. More specifically, the Board considered the following factors:
Enterprise Performance. Consolidated revenue increased 5% to $39.7 billion. Consolidated adjusted income from operations for 2016 was $2.1 billion, compared to $2.3 billion in 2015. These results reflect strong performance in Cignas Commercial Healthcare and Global Supplemental Benefits businesses as well as challenges during the year related to the Group Disability and Life and Seniors businesses.
During the second half of the year, however, the Company made notable progress addressing the challenges in the Group Disability and Life and Seniors businesses. Specifically, we gained traction in the Group Disability business as the claims process modifications made earlier in 2016 continued to mature, we experienced more stable claims in the Life business and, within Seniors, we made progress with our remediation efforts and are in the latter stages of our audit response work. The Board recognized that, as a result of these efforts, the Company concluded 2016 with strong momentum that positions Cigna for attractive earnings and customer growth in 2017.
Strategy Execution. During 2016, Mr. Cordani oversaw development of our sovereign strategy to ensure that Cigna is well positioned for both a combination with Anthem or continuing as a sovereign company. Mr. Cordani also continued the advancement of the Companys Go Deep, Go Global, Go Individual strategy, highlighted by:
| The successful implementation of a significant technology platform in support of our strategy to enhance affordability and personalization; |
| The growth of Cigna Collaborative Accountable Care arrangements to over 160 relationships, in addition to over 70 specialty collaborative relationships; and |
| The launch of Cigna SureFit, a next evolution of network capabilities that centers access around anchor care providers and allows greater personalization of care, and Cigna One Guide, a personalized multi-modal service experience that supports consumers consultatively at the point they choose a plan, find care and other moments that matter, with a roll out to more than one million Cigna customers in January 2017. |
Enterprise Leadership. The Board recognized Mr. Cordanis leadership during a year of significant change and uncertainty, focusing on talent retention, employee development and engagement initiatives. Cigna developed operating
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model changes, which were announced in early 2017 and are designed to ensure the executional focus necessary to deliver greater choice, quality, affordability and personalization to Cignas customers and clients. As evidence of Cignas strategic succession planning efforts, three leaders were appointed to the Enterprise Leadership Team. Cigna also delivered solid results on diversity and inclusion efforts.
Customer, Client and Partner Initiatives. Mr. Cordani continued Cignas customer-centric efforts to define and deliver value for targeted customer segments. While the Company did experience a decrease in its 2016 NPS score, NPS results within the Group Disability and Life and Seniors business were solid despite the challenges those businesses faced, indicating continued strong customer value and experience. In addition, Mr. Cordani represented Cigna and the health care industry in a number of forums in Washington, D.C. and across the country to ensure focus on the needs of the Companys customers and clients.
Proposed Merger with Anthem. Cigna committed its full support which included work by hundreds of associates and hundreds of millions of dollars in expenditures to the regulatory approval process led by Anthem. Cigna deployed a significant number of key leaders and talent across the organization to address Department of Justice information requests in a timely and thorough manner, and to advance integration planning and Day 1 readiness work in collaboration with Anthem.
Based on these factors, and in particular given the Companys 2016 financial performance, the positive momentum going into 2017 and Mr. Cordanis continued focus on executing the Companys strategy and leading the organization during a challenging year, the Board awarded Mr. Cordani a MIP payout for 2016 of $1,100,000, or 50% of his 2016 MIP target.
Other NEOs
For all other NEOs, Mr. Cordani makes recommendations to the Committee regarding MIP awards based on his evaluation of each NEOs performance and contributions to enterprise goals. The Committee considers Mr. Cordanis recommendations when determining MIP awards. While not exhaustive, below are certain key factors the Committee considered when making award determinations.
Mr. McCarthy. As Cignas Chief Financial Officer, Mr. McCarthy has continued to lead productive engagement between business teams and their financial counterparts. While financial results varied across the Companys businesses, Mr. McCarthys leadership in the management and development of reporting and financial processes and systems helped to deliver strong results in the U.S. Commercial and Global Supplemental Benefits businesses and to drive improvements in the Group Disability and Life and Seniors businesses in the second half of the year. Mr. McCarthy was critical in executing the Companys investment strategy to deliver investment income and achieving Cignas capital management objectives. Under his leadership, Cigna has maintained its improved and favorable credit agency ratings, which will continue to provide Cigna with financial flexibility. In addition, Mr. McCarthy has actively supported the development of the Companys strategic framework and the development and expansion of the Companys delivery systems partnerships and a new supply chain management model throughout the enterprise. As a result of Mr. McCarthys contributions in 2016, Mr. Cordani recommended, and the Committee approved, a 2016 MIP payment of $536,000, or 67% of his target.
Ms. Jones. As Executive Vice President and General Counsel, Ms. Jones continued to lead Cignas legal, compliance and government affairs functions in 2016 and continued to strengthen the partnership across these functions and between them and the Companys business leaders. During the past year, Ms. Jones led a centralization and reorganization of the Companys compliance function and developed and staffed compliance initiatives to advance the HealthSpring remediation process and audit response efforts and to improve compliance communications throughout the enterprise. In addition, with respect to the proposed merger with Anthem, Ms. Jones provided key strategic legal counsel, directed critical regulatory support and participated in integration planning efforts. As a result of Ms. Jones contributions in 2016, Mr. Cordani recommended, and the Committee approved, a 2016 MIP payment of $431,200, or 77% of her target.
Mr. Manders. Mr. Manders continued to lead the U.S. Commercial and Group insurance operations in 2016. Under his leadership, the U.S. Commercial business delivered strong results, exceeding aggressive revenue and earnings targets in a challenging environment. While the Group business did not meet earnings targets for the full year, earnings improved markedly in the second half of the year. Mr. Manders continued to make meaningful progress advancing strategic initiatives, including the localization strategy and the development of critical technology and business process capabilities. Mr. Manders also led a restructuring of Cignas disability model, with a focus on enhancing the models short-term disability and long-term disability transition process. In addition to these contributions, Mr. Manders was key in the development of Cignas strategy and in the integration planning efforts related to the proposed merger with Anthem. As a result of his contributions, Mr. Cordani recommended, and the Committee approved, a 2016 MIP payment to Mr. Manders of $675,000, or 75% of his target.
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Mr. Sadler. Mr. Sadler continued to serve as President of Cignas International Markets business in 2016, delivering strong performance, particularly in the Global Supplemental Benefits business. Mr. Sadler was critical to the development and execution of our international strategy, leading acquisitions of innovative technologies, initiating product launches and significantly increasing brand equity and customer satisfaction throughout international markets. As a result of Mr. Sadlers contributions in 2016, Mr. Cordani recommended, and the Committee approved, a 2016 MIP payment of $399,796, or 80% of his target.
2017 MIP Changes
For 2017, the Committee has added a new performance measure to the MIP plan strategic priorities. This measure will evaluate Company performance in the following areas: (1) customer, client and reputation focus (which includes NPS), (2) employee engagement and (3) enterprise focus on compliance. NPS will be removed as a separate measure.
Adjusted income from operations and revenue will remain in the plan, with continued weightings of 50% and 20%, respectively, The operating expense improvement ratio measure will remain as well, with a new weighting of 10%. Strategic priorities will be weighted 20%.
Long-Term Incentives
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The table below provides more detail about the 2016 LTI target values, grant values and percentages relative to LTI targets.
2016 LTI TARGET ($) |
LTI MAXIMUM AWARD ($) |
ACTUAL LTI GRANT ($) |
LTI AWARD OF TARGET (%) |
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David M. Cordani |
9,600,000 | 19,200,000 | 12,000,000 | 125 | ||||||||||||
Thomas A. McCarthy |
2,400,000 | 4,800,000 | 2,640,000 | 110 | ||||||||||||
Nicole S. Jones |
1,424,500 | 2,849,000 | 1,709,400 | 120 | ||||||||||||
Matthew G. Manders |
2,600,000 | 5,200,000 | 2,860,000 | 110 | ||||||||||||
Jason D. Sadler |
1,000,000 | 2,000,000 | 1,150,000 | 115 | ||||||||||||
Herbert A. Fritch |
2,000,000 | 4,000,000 | 1,400,000 | 70 |
(1) | Awarded in February 2016. The LTI Grant Value referenced in the table differs from the sum of the Stock Award and Option Award grant date fair values referenced in the Summary Compensation Table on page 54. This is largely due to the timing and determination of the grant date fair value of SPS awards under ASC Topic 718. SPS grant date fair values reflect a probable achievement level of the TSR performance condition as of grant date. The TSR performance condition comprises 50% (of the weighting) of the SPS performance measures, and is determined after the Committee arrives at each NEOs LTI grant value. Thus, an SPS awards grant date fair value may be higher or lower than the Committees LTI grant value if the TSR probable achievement level is above or below target, respectively. For more information on the TSR performance condition, please see the Stock Awards footnote for the Summary Compensation table on page 54. |
Equity awards granted in 2016 are disclosed in terms of their grant date fair value in columns (e) and (f) of the Summary Compensation Table on page 54 and in the Grants of Plan-Based Awards Table on page 56.
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Strategic Performance Shares Program
Our SPS program is designed to incent and reward superior results achieved through sustained long-term financial discipline and strategic accomplishments that benefit Cigna and its shareholders over the long-term.
Grants
At the time of grant, a total LTI dollar value is approved for each executive officer. The SPS portion of
the award (50% of the total LTI value) is converted into a specific number of SPSs on the grant date based on
Cignas stock price on that date.
Vesting
SPSs vest in the first quarter of the year following the end of the three-year performance period.
Payout Determination
The Committee determines payouts based on Company performance of pre-established measures during the performance period. | ||
Measure: Relative TSR, compounded over the three-year performance period
Weighting: 50%
Alignment with Business Strategy: Rewards NEOs for stock performance relative to Cignas applicable peer group at the time of the award
Comparator: Beginning with the 20152017 SPS program, the Committee adopted the SPS performance peer group to measure relative TSR. For the 20142016 SPS program, relative TSR is measured against Cignas compensation peer group at the time of the award
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Measure: Adjusted income from operations
Weighting: 50%
Alignment with Business Strategy: Reinforces the importance of sustained profitable growth across the enterprise
Segments Included: Global Health Care, Global Supplemental Benefits and Group Disability and Life
Threshold Performance: Performance that would result in funding of less than 35% of target yields no payment for this measure |
Final Payout is 0 200% of the SPSs Granted
SPS awards are ultimately settled in Cigna stock, so the actual value of the earned awards is based on
Cignas stock price at the time of payment.
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The following table shows the performance period for our SPS programs outstanding as of the end of 2016, the grant date, the potential payment date and the performance measures used for each cycle.
PERFORMANCE PERIOD |
GRANT DATE | PAYMENT DATE (IF EARNED) |
PERFORMANCE MEASURES (WEIGHTINGS IN %) | |||||||
20142016 | February 2014 | 2017 | Relative TSR1, 3 (50%) |
Adjusted income from operations (25%) | Revenue (25%) | |||||
20152017 | February 2015 | 2018 | Relative TSR2, 3 (50%) |
Adjusted income from operations (50%) | ||||||
20162018 | March 2016 | 2019 | Relative TSR2, 3 (50%) |
Adjusted income from operations (50%) |
1. | The peer group used to measure relative TSR is the compensation peer group in place at the time of award and includes: Aetna, Inc., Aflac Incorporated, Anthem, Inc., Chubb Limited, The Hartford Financial Services Group, Inc., Humana, Inc., Manulife Financial Corporation, MetLife, Inc. and Unum Group. |
2. | The SPS performance peer group, which includes Aetna, Inc., Aflac Incorporated, Anthem, Inc., The Hartford Financial Services Group, Inc., Humana, Inc., Manulife Financial Corporation, MetLife, Inc., UnitedHealth Group Incorporated and Unum Group, is used to measure relative TSR. |
3. | In the event the number of companies in the peer group falls below ten during the three-year performance period, the Companys TSR will be ranked against the remaining companies. |
20142016 SPS Program
The performance goals for the 20142016 SPSs are presented in the table below, along with actual results for the three-year performance period.
MEASURE | WEIGHTING | TARGET PERFORMANCE GOALS (DOLLARS IN MILLIONS) |
ACTUAL RESULT (DOLLARS IN MILLIONS) | |||||
Relative TSR |
50 | % | 50th Percentile |
67th Percentile (151% of target) | ||||
Adjusted income |
25 | % | Cumulative adjusted income from operations of $6,584 to $7,379, calculated assuming a compound annual growth rate of 5%11% |
$6,724 (87.0% of target) | ||||
Revenue2 |
25 | % | Cumulative revenue of $102,881 to $115,384, calculated assuming a compound annual growth rate of 4%10% |
$110,641 (104.8% of target) |
1. | Cigna uses adjusted income from operations as the principal financial measure for operating performance because management believes it best reflects the underlying results of our business operations and permits analysis of trends in underlying revenue, expenses and profitability. Effective January 1, 2015, adjusted income from operations is defined as shareholders net income (loss) excluding the following after-tax adjustments: net realized investment results, net amortization of other acquired intangible assets and special items. Prior to 2015, and at the time that the Committee approved the 20142016 SPS program, Cigna did not exclude net amortization of other acquired intangible assets in the calculation of adjusted income from operations. For this reason, net amortization of other acquired intangible assets is not excluded from the calculation of adjusted income from operations for the 20142016 SPS program. For a reconciliation of adjusted income from operations for the Global Health Care, Global Supplemental Benefits and Group Disability and Life segments to shareholders net income for each of the three businesses, see Annex A to this Proxy Statement. As appropriate, adjustments are made for acquisitions, dispositions and the implementation of accounting changes to ensure comparability of actual results and targets. |
2. | Reflects results for Cignas three ongoing business segmentsGlobal Health Care, Global Supplemental Benefits and Group Disability and Life. |
Over the three-year period from 2014 to 2016, three-year annual compounded TSR was 15.1%, which ranked at the 67th percentile relative to the applicable peer group companies and was 151% of target.
Based on the results in the table above, in February 2017, the Committee approved payout of the 20142016 SPSs at 123.5% of target. The calculations utilized to determine the payout were reviewed for accuracy by PricewaterhouseCoopers LLP. See the Outstanding Equity Awards table on page 58 for actual share amounts issued to each NEO and associated market values.
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20132015 SPS Program
The shares earned under the 20132015 SPS Program were measured using performance through December 31, 2015 and were delivered to each executive officer in February 2016. The total share value realized by each NEO on the payment date is reflected in the Option Exercises and Stock Vested table on page 60. The performance measures, targets, results and payout for the 20132015 SPS program are discussed in greater detail in our definitive proxy statement for our 2016 annual meeting of shareholders, filed with the SEC on March 18, 2016.
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Process for Executive Compensation Decisions
Chief Executive Officer Compensation
The Committee and independent Chairman of the Board evaluate CEO performance and enterprise goals. |
The Committee makes recommendations to the independent members of the Board about CEO performance and compensation. |
The Board considers the Committees recommendations as it reviews and approves the CEOs compensation. |
The Chairman of the Board reviews the results of the performance evaluation with the CEO. | |||
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ADVICE RECEIVED BY THE
COMMITTEE FROM ITS COMPENSATION CONSULTANT FOR 2016 COMPENSATION DECISIONS |
Analyzed compensation levels and pay practices as compared to Cignas compensation peer group to assess whether three-and five-year realizable pay were aligned with Cignas performance and compensation philosophy
Presented a comparison of competitive market data to the current compensation levels of each executive officer to assist in setting compensation targets
Provided market research on incentive plans to assist in the design of short-term and long-term incentive compensation plans
Reviewed incentive measures in the 2016 MIP and 20162018 SPS program to provide the Committee with objective reference points to consider when determining target goals
Evaluated the effect of Cignas equity programs on annual share use, burn rate and total overhang to provide the Committee with context for its determination of the maximum share limit for use in 2016
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At the request of the Committee, a representative of Pay Governance regularly attended the Committees meetings in 2016. The Committee regularly reviews and evaluates its compensation consultant engagement, and annually reviews the compensation consultants performance.
Independence of the Compensation Consultant
The Committees policy requires that the compensation consultant be independent of the Company. A compensation consultant is deemed independent under the policy if the compensation consultant (1) is retained by and reports solely to the Committee for all executive compensation services; (2) does not provide any services or products to the Company or management except with approval of the Committees chair; and (3) is otherwise free from conflicts. The Committee has assessed Pay Governances independence pursuant to Cignas policy and NYSE rules and concluded that Pay Governance is free from conflicts and independent. In addition, each year the Committee receives a letter from its compensation consultant providing appropriate assurances and confirmation of independence.
50 |
Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
COMPENSATION MATTERS
|
Executive officers are subject to robust stock ownership requirements, prohibited from hedging and restricted in their ability to pledge Cigna securities. |
||||||||
Stock Ownership Guidelines
We believe that the ownership of meaningful levels of Cigna stock by our executive officers is a critical factor in aligning the long-term interests of management and our shareholders. To promote this goal, we have adopted stock ownership guidelines that apply to all of our executive officers, including our NEOs. As of December 31, 2016, all of our NEOs met or exceeded stock ownership guidelines. The chart below shows the stock ownership requirements and actual value of holdings as a multiple of base salary as of December 31, 2016 for the CEO and the average of the other NEOs.
FEATURES OF OUR STOCK OWNERSHIP GUIDELINES |
Wholly owned shares, restricted stock, stock equivalents, and shares owned through benefit plans (such as investments in the Cigna stock fund of the Cigna 401(k) Plan) are counted toward meeting the guidelines. SPSs granted on or after January 1, 2014 and stock options do not count toward meeting guidelines.
Executive officers have five years from date of hire, promotion or any other event that changes their multiple of base salary to meet their applicable ownership guideline. Prior to meeting their stock ownership guidelines, executives may only engage in transactions that increase their holdings. Once an executive attains his or her required holding level, the executive must maintain the requirement on a continuous basis, even if the requirement is met before the end of the five-year period.
|
Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
|
51 |
|
COMPENSATION MATTERS
|
SHARE RETENTION REQUIREMENTS ENCOURAGE
A LONG-TERM OWNERSHIP PHILOSOPHY |
OTHER PRACTICES REGARDING TRANSACTIONS
IN CIGNA STOCK | |
Once ownership guidelines are satisfied,
executive officers may not sell more than 50% of the shares held above their applicable guideline in any single open period; and
executive officers must retain, for at least one year, a minimum of 50% of the shares acquired upon exercise of any stock options and 50% of the shares acquired upon vesting of restricted stock grants.
|
Executive officers may only transact in Cigna securities during approved open trading periods after satisfying mandatory clearance requirements.
CEO approval is required for all transactions in Cigna stock by executive officers.
General Counsel approval is required for all transactions in Cigna stock by the CEO. |
52 |
Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
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53 |
|
COMPENSATION MATTERS
|
2016 SUMMARY COMPENSATION TABLE
This table includes information regarding 2016, 2015 and 2014 compensation for each of the NEOs. Other tables in this proxy statement provide more detail about specific types of compensation with respect to 2016.
NAME AND PRINCIPAL POSITION (a) |
YEAR (b) |
SALARY ($) (c) |
BONUS ($) (d) |
STOCK AWARDS ($) (e) |
OPTION AWARDS ($) (f) |
NON-EQUITY INCENTIVE COMPENSATION ($) (g) |
CHANGE IN VALUE AND ($) (h) |
ALL OTHER ($) (i) |
TOTAL ($) (j) |
|||||||||||||||||||||||||||
David M. Cordani President and Chief Executive Officer |
2016 | 1,200,000 | | 6,690,115 | 6,000,012 | 1,100,000 | 62,000 | 227,730 | 15,279,857 | |||||||||||||||||||||||||||
2015 | 1,189,615 | | 7,105,072 | 5,800,033 | 2,860,000 | | 352,952 | 17,307,672 | ||||||||||||||||||||||||||||
2014 | 1,125,185 | | 5,670,023 | 5,400,023 | 1,900,000 | 125,859 | 240,355 | 14,461,445 | ||||||||||||||||||||||||||||
Thomas A. McCarthy(1) Executive Vice President and Chief Financial Officer |
2016 | 740,000 | | 1,471,894 | 1,320,035 | 536,000 | 65,616 | 34,898 | 4,168,443 | |||||||||||||||||||||||||||
2015 | 719,231 | | 1,470,005 | 1,200,013 | 1,000,000 | | 29,036 | 4,418,285 | ||||||||||||||||||||||||||||
2014 | 637,037 | | 1,102,541 | 1,050,006 | 630,000 | 205,455 | 38,063 | 3,663,102 | ||||||||||||||||||||||||||||
Nicole S. Jones Executive Vice President, General Counsel |
2016 | 581,137 | | 953,114 | 854,702 | 431,200 | 7,207 | 35,294 | 2,862,654 | |||||||||||||||||||||||||||
2015 | 577,867 | | 1,003,501 | 819,089 | 756,000 | | 31,390 | 3,187,847 | ||||||||||||||||||||||||||||
2014 | 562,682 | | 897,453 | 854,710 | 501,113 | 15,623 | 32,013 | 2,863,594 | ||||||||||||||||||||||||||||
Matthew G. Manders(2) President, Govt & Indiv. Programs and Group Insurance |
2016 | 750,000 | | 1,594,526 | 1,430,035 | 675,000 | 289,130 | 41,900 | 4,780,591 | |||||||||||||||||||||||||||
2015 | 732,692 | | 1,347,529 | 1,100,015 | 1,080,000 | | 37,253 | 4,297,489 | ||||||||||||||||||||||||||||
2014 | 585,667 | | 1,276,282 | 918,773 | 787,500 | 653,845 | 35,995 | 4,258,062 | ||||||||||||||||||||||||||||
Jason D. Sadler(3) President, International Markets |
2016 | 589,463 | | 641,256 | 575,039 | 399,796 | | 239,383 | 2,444,937 | |||||||||||||||||||||||||||
2015 | 586,330 | | 704,494 | 575,025 | 575,297 | | 235,637 | 2,676,783 | ||||||||||||||||||||||||||||
2014 | 554,977 | | 1,266,644 | 471,013 | 546,116 | | 231,784 | 3,070,534 | ||||||||||||||||||||||||||||
Herbert A. Fritch(4) Retired President, Cigna-HealthSpring |
2016 | 883,428 | | 913,987 | 700,039 | 0 | | 138,634 | 2,636,088 | |||||||||||||||||||||||||||
2015 | 1,000,000 | | 1,041,266 | 850,020 | 700,000 | | 36,450 | 3,627,736 | ||||||||||||||||||||||||||||
2014 | 1,000,000 | | 787,576 | 750,001 | 900,000 | | 30,563 | 3,468,140 | ||||||||||||||||||||||||||||
(1) | On February 22, 2017, Mr. McCarthy notified the Company of his intention to retire from his position in the early summer of 2017. |
(2) | On February 23, 2017, the Company appointed Matthew G. Manders, who was most recently the Companys President of U.S. Markets, to the new role of President, Government & Individual Programs and Group Insurance. |
(3) | Mr. Sadlers base salary and annual award under the Management Incentive Plan are paid in Hong Kong dollars and, throughout these Executive Compensation Tables, have been converted to U.S. dollars using an exchange rate equal to the average of the daily mid-points between the bid and the ask prices for each trading day in the month of December for the relevant year. For 2016 base salary and the 2016 MIP award, $1 Hong Kong dollar = $0.12888508 U.S. dollars. |
(4) | Mr. Fritch retired effective November 11, 2016. On October 20, 2016, he and the Company entered into an Agreement and Release (the A&R Agreement) in connection with his retirement. The A&R Agreement is described in Potential Payments Upon Termination or Change of Control Terms of Mr. Fritchs Retirement, beginning on page 65. |
Stock Awards (Column (e))
Amounts in this column represent the grant date fair value of stock awards computed in accordance with ASC Topic 718 as described in Note 16 to Cignas consolidated financial statements in the Companys Annual Report on Form 10-K for the year ended December 31, 2016 and, for SPSs, are based upon the probable outcome of the performance conditions. All awards were made under the Cigna Long-Term Incentive Plan. For Mr. Fritch, also includes the incremental expense as determined in accordance with ASC Topic 718 related to the accelerated vesting of 45,020 shares of restricted stock pursuant to the A&R Agreement. No stock awards, other than SPSs, were granted to the NEOs in 2016.
54 |
Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
COMPENSATION MATTERS
|
The SPSs are subject to performance conditions as described beginning on page 44. The grant date fair value of SPS awards granted in 2016 reflects the probable achievement level of the TSR performance condition as of the grant date for the assumed award value of SPS awards as shown in the CD&A. TSR performance comprises 50% (of the weighting) of the SPS performance measures. This forecasted performance condition creates an accounting grant date fair value that differs from the assumed award value granted to each NEO, as reflected in the CD&A. The amount reported in column (e) is consistent with the estimate of aggregate compensation cost recognized over the service period determined as of the grant date under ASC Topic 718, excluding the effect of estimated forfeitures, as follows:
VALUE OF SPSs GRANTED IN 2016 | ||||||||
NAME
|
GRANT DATE FAIR VALUE ($) |
AT HIGHEST PERFORMANCE ACHIEVEMENT* ($) |
||||||
David M. Cordani |
6,690,115 | 9,690,167 | ||||||
Thomas A. McCarthy |
1,471,894 | 2,131,936 | ||||||
Nicole S. Jones |
953,114 | 1,380,519 | ||||||
Matthew G. Manders |
1,594,526 | 2,309,560 | ||||||
Jason D. Sadler |
641,256 | 928,815 | ||||||
Herbert A. Fritch** |
780,653 | 1,130,722 |
* | The value at the highest performance achievement reflects adjusted income from operations at 200% of target and projected achievement of total shareholder return relative to Cignas SPS performance peer group based on accounting assumptions. |
** | Mr. Fritch will only receive a prorated portion of this award in accordance with the A&R Agreement. |
Option Awards (Column (f))
Represents the grant date fair value of option awards made under the Cigna Long-Term Incentive Plan computed in accordance with ASC Topic 718 applying the same model and assumptions as Cigna applies for financial statement reporting purposes, as described in Note 16 to Cignas consolidated financial statements in the Companys Annual Report on Form 10-K for the year ended December 31, 2016 (disregarding any estimates for forfeitures).
Non-Equity Incentive Plan Compensation (Column (g))
This column reflects performance-based compensation awarded under the MIP as described beginning on page 37. Mr. Fritch did not receive a MIP award for 2016.
Change in Pension Value and Nonqualified Deferred Compensation Earnings (Column (h))
This column includes the aggregate change in the actuarial present value of accumulated benefits under the pension plans, which value increases and decreases from period to period and is subject to the assumptions discussed in connection with the Pension Benefits Table on page 61. Information regarding accumulated benefits under the pension plans is also discussed in the narrative to the Pension Benefits Table beginning on page 62. The amounts in this column do not include deferred compensation because we do not provide above market earnings to our executive officers. The symbol in the table represents a negative change in pension value.
All Other Compensation (Column (i))
This column includes:
| Cignas matching contributions to the NEOs accounts under its 401(k) and supplemental 401(k) plans in the following amounts: Mr. Cordani $68,850; Mr. McCarthy $34,050; Ms. Jones $28,007; Mr. Manders $35,400; and Mr. Fritch $31,431. |
| Cignas contributions of $104,742 to Mr. Sadlers Third Country National Pension Plan account and $2,320 to Mr. Sadlers Mandatory Provident Fund account. |
| Dividends paid in 2016 on restricted stock awards of $258 for Ms. Jones and $7,203 for Mr. Fritch. |
| Payment of $100,000 to Mr. Fritch pursuant to his Advisory Services Agreement. For more information on the Advisory Services Agreement, see the section titled Potential Payments Upon Termination or Change of Control Terms of Mr. Fritchs Retirement on page 65. |
| 2016 perquisites valued at incremental cost (the cost incurred by Cigna due to the NEOs personal use or benefit) as follows: |
¡ | Fees paid for financial planning, tax preparation and legal services related to tax and estate planning in the following amounts: Mr. Cordani $23,608; Ms. Jones $6,500; Mr. Manders $6,500; and Mr. Sadler $4,065. |
Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
|
55 |
|
COMPENSATION MATTERS
|
¡ | For the corporate aircraft, $129,040 of incremental cost related to Mr. Cordanis use of the aircraft, at the Companys encouragement, for personal travel. Incremental cost is determined by dividing the annual variable costs by the total number of flight hours and multiplying the result by the number of personal flight hours during the year. Variable costs include fuel, crew travel, trip-related maintenance, landing fees and hangar costs and other similar costs. Fixed costs that do not change based on usage are excluded from the incremental cost calculation. |
¡ | Costs for security system monitoring and maintenance in the following amounts: Mr. Cordani $6,232; Mr. McCarthy $848; and Ms. Jones $529. |
¡ | Mr. Sadler is provided with local benefits consistent with market practice for executives in Hong Kong, which included his annual club memberships $6,301; a housing allowance $108,263; a company car $7,405; and a personal driver $6,287. |
GRANTS OF PLAN-BASED AWARDS IN 2016
This table provides information about annual incentive targets for 2016 and grants of plan-based awards made in 2016 to the NEOs. The disclosed dollar and share amounts do not necessarily reflect the actual amounts that will be paid or issued to the NEOs. Those amounts will be known only if and when the awards vest or become payable.
NAME (a) |
|
GRANT DATE (b) |
|
|
COMMITTEE APPROVAL DATE (c) |
|
|
AWARD TYPE (d) |
|
|
ESTIMATED POSSIBLE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS |
|
|
ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS |
|
|
ALL OTHER STOCK AWARDS: NUMBER SHARES STOCK (#) (k) |
|
|
ALL OTHER OPTION AWARDS: NUMBER OF SECURITIES UNDERLYING OPTIONS (#) (l) |
|
|
EXERCISE OR BASE PRICE OF OPTION ($/Sh) (m) |
|
|
CLOSING MARKET PRICE DATE OF GRANT ($/Sh) (n) |
|
|
GRANT DATE MARKET VALUE STOCK OPTION AWARDS ($) (o) |
| ||||||||||||||||||||||||||
|
THRESHOLD ($) (e) |
|
|
TARGET ($) (f) |
|
|
MAXIMUM ($) (g) |
|
|
THRESHOLD (#) (h) |
|
|
TARGET (#) (i) |
|
|
MAXIMUM (#) (j) |
|
|||||||||||||||||||||||||||||||||||||||
David M. Cordani |
| | |
MIP Target |
|
| 2,200,000 | 4,400,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
3/1/2016 | 2/23/2016 | SPS | 7,542 | 43,098 | 86,196 | 6,690,115 | ||||||||||||||||||||||||||||||||||||||||||||||||||
3/1/2016 | 2/23/2016 | Option | 142,801 | 139.22 | 138.53 | 6,000,012 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas A. McCarthy |
| | |
MIP Target |
|
| 800,000 | 1,600,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
3/1/2016 | 2/23/2016 | SPS | 1,659 | 9,482 | 18,964 | 1,471,894 | ||||||||||||||||||||||||||||||||||||||||||||||||||
3/1/2016 | 2/23/2016 | Option | 31,417 | 139.22 | 138.53 | 1,320,035 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Nicole S. Jones |
| | |
MIP Target |
|
| 560,000 | 1,120,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
3/1/2016 | 2/23/2016 | SPS | 1,075 | 6,140 | 12,280 | 953,114 | ||||||||||||||||||||||||||||||||||||||||||||||||||
3/1/2016 | 2/23/2016 | Option | 20,342 | 139.22 | 138.53 | 854,702 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Matthew G. Manders |
| | |
MIP Target |
|
| 900,000 | 1,800,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
3/1/2016 | 2/23/2016 | SPS | 1,798 | 10,272 | 20,544 | 1,594,526 | ||||||||||||||||||||||||||||||||||||||||||||||||||
3/1/2016 | 2/23/2016 | Option | 34,035 | 139.22 | 138.53 | 1,430,035 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Jason D. Sadler |
| | |
MIP Target |
|
| 499,745 | 999,490 | ||||||||||||||||||||||||||||||||||||||||||||||||
3/1/2016 | 2/23/2016 | SPS | 723 | 4,131 | 8,262 | 641,256 | ||||||||||||||||||||||||||||||||||||||||||||||||||
3/1/2016 | 2/23/2016 | Option | 13,686 | 139.22 | 138.53 | 575,039 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Herbert A. Fritch |
| | |
MIP Target |
|
| 1,000,000 | 2,000,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
3/1/2016 | 2/23/2016 | SPS | 880 | 5,029 | 10,058 | 780,653 | ||||||||||||||||||||||||||||||||||||||||||||||||||
3/1/2016 | 2/23/2016 | Option | 16,661 | 139.22 | 138.53 | 700,039 | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
Restricted Stock Modification |
|
45,020 | 133,334 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (Columns (f) and (g))
Amounts in column (f) represent annual incentive targets for the 2016 performance period paid in 2017. Individual award values can range from 0% to 200% of target (as reflected in column (g)). The actual amounts earned by each NEO are as follows: Mr. Cordani $1,100,000; Mr. McCarthy $536,000; Ms. Jones $431,200; Mr. Manders $675,000; Mr. Sadler $399,796; and Mr. Fritch $0.
56 |
Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
COMPENSATION MATTERS
|
Estimated Future Payouts Under Equity Incentive Plan Awards (Columns (h), (i) and (j))
Represents SPSs awarded for the 20162018 performance period. Pursuant to the A&R Agreement, Mr. Fritch will receive a payout of a prorated portion of his 20162018 SPS award of 1,397 SPSs. Mr. Fritch forfeited the balance of his 20162018 SPS award (3,632 SPSs) granted in 2016. The People Resources Committee will determine payout amounts for the SPSs, if any, in 2019. The number of shares paid can range from 0% to 200% of the number of SPSs awarded. Threshold shares represent a threshold value for the SPS awards at 17.5% of target, which represents the lowest possible level of share payout under these awards assuming achievement at threshold for adjusted income from operations.
All Other Stock Awards: Number of Shares of Stock or Units (Column (k))
Pursuant to the A&R Agreement, on November 11, 2016, the vesting of 45,020 shares of Mr. Fritchs restricted stock was accelerated. The amount shown with respect to these restricted stock awards in column (o) is the incremental expense of such acceleration.
All Other Option Awards (Column (l))
Represents stock option awards granted under the Cigna Long-Term Incentive Plan and approved by the People Resources Committee at its February 2016 meeting as part of each NEOs long-term incentive award. Stock options represented 50% of the long-term incentive awards for executive officers in 2016, as described on page 42.
Exercise or Base Price of Option Awards (Column (m))
Pursuant to the Cigna Long-Term Incentive Plan, the stock option exercise price is the average of the high and low trading price of Cigna common stock on the date of the award.
Grant Date Fair Market Value of Stock and Options Awards (Column (o))
These amounts represent the grant date fair value of equity awards computed in accordance with ASC Topic 718, applying the same model and assumptions Cigna uses for financial statement reporting purposes. The award values represented in the table are theoretical, and may not correspond to the actual value that will be recognized by the NEO. The grant date fair value of SPS awards granted in 2016 reflects the probable achievement level of the TSR performance condition as of the grant date for the assumed award value of SPS awards as shown in the CD&A. TSR performance comprises 50% (of the weighting) of the SPS performance measures. This forecasted performance condition creates an accounting grant date fair value that differs from the assumed award value granted to each NEO (as reflected in the CD&A). For Mr. Fritch, it also includes the incremental expense as determined in accordance with ASC Topic 718 related to the accelerated vesting of his restricted stock pursuant to the A&R Agreement.
Cigna 2017 Notice of Annual Meeting of Shareholders and Proxy Statement |
|
57 |
|
COMPENSATION MATTERS
|
OUTSTANDING EQUITY AWARDS AT YEAR-END 2016
This table provides information about unexercised stock options and unvested stock awards (restricted stock, restricted stock units (RSUs) and SPSs) held as of December 31, 2016 by the NEOs.
OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||||||||||
NAME (a) |
NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) EXERCISABLE (b) |
NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#)(1) UNEXERCISABLE (c) |
OPTION EXERCISE PRICE ($) (d) |
OPTION EXPIRATION DATE (e) |
NUMBER OF SHARES OR OF THAT NOT VESTED (#)(1) (f) |
MARKET OF OR UNITS OF STOCK THAT NOT ($)(2) (g) |
EQUITY INCENTIVE PLAN AWARDS: NUMBER UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT NOT (#)(1) (h) |
EQUITY INCENTIVE PLAN AWARDS: MARKET OR PAYOUT VALUE OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT ($)(2) (i) |
||||||||||||||||||||||||
David M. Cordani |
190,180 | 34.6450 | 3/3/2020 | 85,462 | 11,399,776 | 91,074 | 12,148,361 | |||||||||||||||||||||||||
189,610 | 42.1900 | 3/1/2021 | ||||||||||||||||||||||||||||||
200,229 | 44.4250 | 2/28/2022 | ||||||||||||||||||||||||||||||
206,843 | 58.7300 | 3/5/2023 | ||||||||||||||||||||||||||||||
152,970 | 76,473 | 78.0350 | 2/26/2024 | |||||||||||||||||||||||||||||
53,129 | 106,259 | 120.8950 | 2/25/2025 | |||||||||||||||||||||||||||||
142,801 | 139.2200 | 3/1/2026 | ||||||||||||||||||||||||||||||
Total |
992,961 | 325,533 | 85,462 | 11,399,776 | 91,074 | 12,148,361 | ||||||||||||||||||||||||||
Thomas A. McCarthy |
4,464 | 46.8833 | 2/28/2017 | 16,618 | 2,216,675 | 19,408 | 2,588,833 | |||||||||||||||||||||||||
5,651 | 47.9250 | 2/27/2018 | ||||||||||||||||||||||||||||||
21,582 | 14.0250 | 3/4/2019 | ||||||||||||||||||||||||||||||
8,138 | 34.6450 | 3/3/2020 | ||||||||||||||||||||||||||||||
8,159 | 42.1900 | 3/1/2021 | ||||||||||||||||||||||||||||||
10,960 | 44.4250 | 2/28/2022 | ||||||||||||||||||||||||||||||
11,332 | 58.7300 | 3/5/2023 | ||||||||||||||||||||||||||||||
29,744 | 14,870 | 78.0350 | 2/26/2024 | |||||||||||||||||||||||||||||
10,992 | 21,985 | 120.8950 | 2/25/2025 | |||||||||||||||||||||||||||||
31,417 | 139.2200 | 3/1/2026 | ||||||||||||||||||||||||||||||
Total |
111,022 | 68,272 | 16,618 | 2,216,675 | 19,408 | 2,588,833 | ||||||||||||||||||||||||||
Nicole S. Jones |
34,163 | 58.7300 | 3/5/2023 | 13,527 | 1,804,367 | 12,916 | 1,722,865 | |||||||||||||||||||||||||
24,212 | 12,104 | 78.0350 | 2/26/2024 | |||||||||||||||||||||||||||||
7,503 | 15,006 | 120.8950 | 2/25/2025 | |||||||||||||||||||||||||||||
20,342 | 139.2200 | 3/1/2026 | ||||||||||||||||||||||||||||||
Total |
65,878 | 47,452 | 13,527 | 1,804,367 | 12,916 | 1,722,865 | ||||||||||||||||||||||||||
Matthew G. Manders |
29,953 | 44.4250 | 2/28/2022 | 16,599 | 2,214,141 | 19,371 | 2,583,898 | |||||||||||||||||||||||||
38,471 | 58.7300 | 3/5/2023 | ||||||||||||||||||||||||||||||
26,027 | 13,011 | 78.0350 | 2/26/2024 | |||||||||||||||||||||||||||||
10,076 | 20,153 | 120.8950 | 2/25/2025 | |||||||||||||||||||||||||||||
34,035 | 139.2200 | 3/1/2026 | ||||||||||||||||||||||||||||||
Total |
104,527 | 67,199 | 16,599 | 2,214,141 | 19,371 | 2,583,898 | ||||||||||||||||||||||||||
Jason D. Sadler |
4,864 | 58.7300 | 3/5/2023 | 15,333 | 2,045,269 | 8,888 | 1,185,570 | |||||||||||||||||||||||||
6,670 | 6,670 | 78.0350 | 2/26/2024 | |||||||||||||||||||||||||||||
5,267 | 10,535 | 120.8950 | 2/25/2025 | |||||||||||||||||||||||||||||
13,686 | 139.2200 | 3/1/2026 | ||||||||||||||||||||||||||||||
Total |
16,801 | 30,891 | 15,333 | 2,045,269 | 8,888 | 1,185,570 | ||||||||||||||||||||||||||
Herbert A. Fritch |
63,043 | (3) | 12.2500 | 2/13/2019 | 11,211 | 1,495,435 | 5,694 | 759,523 | ||||||||||||||||||||||||
138,752 | (3) | 14.4000 | 11/11/2019 | |||||||||||||||||||||||||||||
71,992 | (3) | 30.1300 | 11/11/2019 |