EXECUTIVE COMPENSATION POLICIES AND PRACTICES
We have adopted the following compensation policies and practices to help achieve our compensation philosophy and objectives:
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Pay for Performance | A substantial portion of compensation for our Named Executive Officers is performance-based and aligned with creation of shareholder value through an annual incentive cash bonus and long-term equity grants that are only awarded if pre-approved performance goals are achieved. |
No pension or other special benefits | We do not provide pensions or supplemental executive retirement, health or insurance benefits. |
Limited perquisites | We provide very limited perquisites to our Named Executive Officers. |
Stock Ownership Guidelines | We require our Named Executive Officers to hold a certain amount of the Company’s Class A common stock. |
Prohibition on hedging, pledging and short sales | We prohibit short sales, transactions in derivatives, hedging and pledging of our securities by our Named Executive Officers. |
Development of Peer Group | We seek to align our Named Executive Officers’ compensation so that it is competitive with our industry peers. |
Independent Compensation Committee | Our Compensation Committee is comprised of 100% independent members. |
Independent compensation consultant | The Compensation Committee has directly retained an independent compensation consultant. |
WHAT GUIDES OUR PROGRAM
Our Compensation Philosophy and Objectives
Our executive compensation program is designed to attract, retain and motivate high-performing executive officers and rewards them for achieving strategic goals that enhance shareholder value. We are guided by the following philosophy and objectives:
•Compensation should be competitive. Our total compensation should be competitive with our peer companies to enable us to attract and retain the best executive talent possible. In developing competitive compensation programs, we review compensation from companies in our peer group companies and also use survey sources which include compensation data of executive officers of financial services and insurance companies.
•Compensation should be tied to performance. In order to align our executive compensation program with our strategic business goals, we pay for performance. Annual incentive bonus opportunities consisting of cash and equity grants in the form of performance-based RSUs are evaluated annually based on achievement of pre-set milestones that are established based on the Company's highest priorities.
•Compensation should focus on creating enduring value for our shareholders. We believe that the use of long-term equity incentives serves to retain our executive officers and encourage them to focus on the Company’s long-term performance and success, and aligns executive compensation with the interests of our shareholders. Accordingly, we grant our executive officers RSUs that once earned, vest over three years.
Key Elements of Executive Compensation
The key elements of our executive compensation program include an annual base salary and an annual bonus opportunity that consists of both cash and equity.
•Base Salary. This is fixed compensation and is measured primarily by individual experience and knowledge brought to such position. The purpose is to compensate executive officers fairly for the responsibility of the position held.
•Annual Bonus Opportunity. This is variable compensation and is measured primarily by corporate performance.
◦Cash Incentive Bonus. Purpose is to motivate and reward executive officers for achieving our short-term business objectives.
◦Equity Incentive Bonus. Purposes are to: (1) motivate executive officers by linking incentives to the achievement of our annual performance goals and the performance of our Class A common stock over the long term; and (2) reinforce the link between the interests of our executive officers and shareholders.
The Compensation Committee’s goal is to create a competitive compensation package for each Named Executive Officer using the Competitive Compensation Data (as described below in the section titled “Peer Company Data”) to help determine each element of our executive pay.
THE DECISION-MAKING PROCESS
The Role of the Compensation Committee. Our executive compensation program is administered by the Compensation Committee, which is composed entirely of independent directors. The Compensation Committee is responsible for designing our executive compensation program, including each element of the program, and determining and approving total executive compensation. Each year, the Compensation Committee reviews a competitive analysis and assessment of our executive compensation and approves executive compensation based on this review. The Compensation Committee’s decisions with respect to our executive officers’ compensation are then reviewed and approved by the independent members of the Board.
The Role of the Chief Executive Officer. At the Compensation Committee’s request, the Chief Executive Officer provides input regarding the performance and appropriate compensation of the other Named Executive Officers. The Compensation Committee considers the Chief Executive Officer’s evaluation and his direct knowledge of each executive officer’s performance and contributions when making compensation decisions. The Chief Executive Officer does not participate in the voting or deliberations by the Compensation Committee regarding his own compensation.
The Role of the Compensation Consultant. The Compensation Committee is responsible for selecting, retaining and reviewing the performance of the Company's independent compensation consultant. In 2022, the Compensation Committee replaced Pearl Meyer with Meridian Compensation Partners ("Meridian") as its independent compensation consultant as a result of the departure of the Pearl Meyer partner with whom the Compensation Committee had worked.
In retaining and reviewing the compensation consultant's performance, the Compensation Committee considers the independence of the compensation consultant in accordance with SEC rules. During 2022, neither Pearl Meyer nor Meridian provided services to the Company other than services for the Compensation Committee. The Compensation Committee therefore concluded that no conflict of interest existed that would prevent Pearl Meyer (prior to their replacement) or Meridian, from serving as an independent consultant to the Compensation Committee.
Peer Company Data. The use of compensation data from a peer group of public companies that are comparable in industry, size (e.g., assets, market capitalization) and performance (the “Peer Company Data”) is an important aspect of determining our executive compensation. Since we compete for executive talent with comparable companies, utilizing the Peer Company Data helps us create a competitive compensation program that is structured to be compatible with our pay-for-performance compensation philosophy.
As disclosed in our 2022 Proxy Statement, in setting executive officer compensation for 2022, the Compensation Committee used Peer Company Data from the following comparable companies (the “Peer Group”):
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Company (in order of assets) | Primary Industry | Total Assets* ($M) |
PRA Group, Inc. | Consumer Finance | $4,279 |
United Insurance Holdings Corp. | Property and Casualty Insurance | $2,803 |
Maiden Holdings, Ltd. | Reinsurance | $2,703 |
Consumer Portfolio Services, Inc. | Consumer Finance | $2,096 |
Safety Insurance Group, Inc. | Property and Casualty Insurance | $2,046 |
Stewart Information Services Corporation | Property and Casualty Insurance | $2,043 |
Heritage Insurance Holdings, Inc. | Property and Casualty Insurance | $2,015 |
Global Indemnity Group, LLC | Property and Casualty Insurance | $1,898 |
Medallion Financial Corp. | Consumer Finance | $1,689 |
AMERISAFE, Inc. | Property and Casualty Insurance | $1,495 |
CURO Group Holdings Corp. | Consumer Finance | $1,408 |
FedNat Holding Company | Property and Casualty Insurance | $1,286 |
EZCORP, Inc. | Consumer Finance | $1,196 |
Independence Holding Company** | Life and Health Insurance | $1,125 |
Regional Management Corp. | Consumer Finance | $1,098 |
HCI Group, Inc. | Property and Casualty Insurance | $1,017 |
World Acceptance Corporation | Consumer Finance | $954 |
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75th Percentile | | $2,046 |
50th Percentile | | $1,689 |
25th Percentile | | $1,196 |
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Citizens, Inc. | Life and Health Insurance | $1,782 |
Percentile | | 53% |
* Total Assets as of June 7, 2021, based on publicly disclosed information as of such date.
** Independence Holding Company was acquired in 2022 and thus will no longer a member of the Peer Group, but remains on this chart as it was considered for Peer Company Data in setting 2022 compensation.
Information We Use to Determine Executive Compensation
As mentioned above, the use of Peer Company Data plays an important role in determining our executive compensation. In addition we use data sourced from LOMA, an international trade association for the insurance and financial services industry (with the Peer Company Data, collectively, the “Competitive Compensation Data”).
We review the Competitive Compensation Data as a reference point in setting our executive officers’ base salaries and annual incentive bonus opportunities to ensure that we are offering competitive compensation packages to our named executive officers. The Compensation Committee considered the Competitive Compensation Data in setting executive officer compensation for 2022, and in determining competitive compensation packages for newly hired or promoted executive officers.
2022 EXECUTIVE COMPENSATION DECISIONS IN DETAIL
Components of Total Compensation
Annual Base Salary
Annual base salary is a customary, fixed element of compensation intended to attract and retain executive officers. Base salaries are set when an executive officer is hired or promoted into his or her position and may be modified based on each executive officer’s experience, responsibilities, market demand and consideration of the Competitive Compensation Data.
Mr. Shields base salary was determined based on his experience and using the Competitive Compensation Data. The Compensation Committee did not make any increases to the base salary levels of any of the Company’s named executive officers in 2022. Our Named Executive Officers were paid the following base salaries for 2022:
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Named Executive Officers | 2022 |
Gerald W. Shields | $775,000 |
Jeffery P. Conklin | $430,000 |
Sheryl Kinlaw | $300,000 |
Robert M. Mauldin III | $350,000 |
Harvey J. L. Waite | $340,000 |
Annual Bonus Opportunity
Our executive officers are eligible to earn annually a bonus that consists of a cash incentive (the “Cash Bonus”) and an equity incentive (the “Equity Bonus” and collectively with the Cash Bonus, the “Annual Bonus”). The Annual Bonus is designed to place at risk a portion of each officer’s total direct compensation and pay for performance delivered during the year.
There are three steps to establishing the Annual Bonus opportunity.
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| Establish Performance Objectives ("Milestones") |
At the beginning of the year, the Compensation Committee, with input from the Chief Executive Officer, establishes the performance objectives for the year. The goal of the performance objectives is to tie the Annual Bonus opportunity to achievement of the Company’s highest priorities (short-term goals) within our strategic initiatives (longer-term goals).
In 2022, the performance objectives (the “2022 Milestones”) were: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| First Year Sales Increase | | Improve Policy Retention | | Roadmap Execution | | Financials & Expense Discipline | |
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| Achieve first year sales of $x million annualized premium.
Specific targets for payout were established for our international sales and for our Home Service Insurance segment sales, at 80% of goal, 100% of goal and 120% of goal for each. | | Goal: Improve policy lapses and surrenders to improve in-force revenue while maintaining an established first year persistency level.
Targets are established for international business retention and Home Service Insurance segment retention, with specific targets for payout at 80% of retention goal, 100% of retention goal and 120% retention goal for each, along with a minimum persistency level for each.
| | Maintain and execute on the approved 5 Quarter Roadmap:
•Implement solution to minimize grey market impact •Complete Home Services transformation •Execute on LDTI to successfully meet schedule and budget •Deliver as per approved roadmap to improve sales and service across the 3 markets and 3 sales levers (product, promotion, and process) •Complete Claims Reengineering efforts to improve claims payment time | |
•120 % Payout Stretch Goal: Positive Net Pre-tax income
•100% Payout Goal: Break even Net Pre-tax income
•80% Payout goal: Achieve budgeted Net Pre-tax income | |
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| Setting the Annual Bonus Opportunity |
The Annual Bonus opportunity for each Named Executive Officer is set by the Compensation Committee, based on Competitive Compensation Data and in the case of Mr. Shields, as reflected in the Shields Employment Agreement. Total Annual Bonus opportunity is set to bring each named executive officer close to the median total opportunity of the Competitive Compensation Data.
The 2022 target Annual Bonus opportunity for each Named Executive Officer was:
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Named Executive Officers |
Base Salary | Cash Bonus Target Value |
Equity Bonus Target Value |
TOTAL ANNUAL BONUS OPPORTUNITY (% of Salary) |
Gerald W. Shields | $775,000 | $600,000 | $250,000 | 110% |
Jeffery P. Conklin | $430,000 | $170,000 | $116,960 | 67% |
Sheryl Kinlaw | $300,000 | $135,000 | $100,000 | 78% |
Robert M. Mauldin III | $350,000 | $150,000 | $150,000 | 86% |
Harvey J. L. Waite | $340,000 | $125,000 | $90,000 | 63% |
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| Tying the Annual Bonus Opportunity to the Milestones |
As discussed above, over the last few years, the Compensation Committee has continued to refine our executive compensation program. In 2021, as we became a non-controlled Company for the first time in over 30 years, the Compensation Committee incorporated more quantifiable financial and operating metrics in our performance objectives in order to have less discretion in awarding the Annual Bonus to our Named Executive Officers. This allows the Compensation Committee to tie a percentage of each Named Executive Officer’s Annual Bonus opportunity to the milestone(s) that such person is responsible for driving. We believe that this step provides clear objectives to motivate the Company’s leadership to meet high standards of values-driven leadership in addition to delivering strong financial results.
In 2022, the Compensation Committee weighed the milestones as follows:
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Named Executive Officers | Milestone 1- First Year Sales Increase | Milestone 2- Improved Policy Retention | Milestone 3- Roadmap Execution | Milestone 4- Financials & Expense Discipline |
Gerald W. Shields | 40% | 20% | 30% | 10% |
Jeffery P. Conklin | 15% | 20% | 25% | 40% |
Sheryl Kinlaw | 20% | 10% | 35% | 35% |
Robert M. Mauldin III | 40% | 20% | 30% | 10% |
Harvey J. L. Waite | 25% | 20% | 35% | 20% |
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| First Year Sales Increase | |
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| Achieve first year sales of $x million annualized premium.
Specific targets for payout were established for our international sales and for our Home Service Insurance segment sales, at 80% of goal, 100% of goal and 120% of goal for each. | |
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MILESTONE 1 | | |
| Weight | x | 80% | = | Payout | |
INTERNATIONAL | 50% | | 0.8 | | 0.4 | |
HOME SERVICE | 50% | | 0.8 | | 0.4 | |
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| Weight | x | 100% | = | Payout | |
INTERNATIONAL | 50% | | 1 | | 0.5 | |
HOME SERVICE | 50% | | 1 | | 0.5 | |
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| Weight | x | 120% | = | Payout | |
INTERNATIONAL | 50% | | 1.2 | | 0.6 | |
HOME SERVICE | 50% | | 1.2 | | 0.6 | |
The threshold amount that a Named Executive Officer could earn for this Milestone (other than $0 for no achievement) would be 80% achievement of either International or Home Service, which would result in a 40% payout for Milestone 1. The maximum amount that a Named Executive Officer could earn for this Milestone would be achievement of 120% of both revenue goals, which would result in a 120% payout for Milestone 1. |
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| Improve Policy Retention | |
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| Goal: Improve policy lapses and surrenders to improve in-force revenue while maintaining an established first year persistency level.
Targets are established for international business retention and Home Service Insurance segment retention, with specific targets for payout at 80% of retention goal, 100% of retention goal and 120% retention goal for each, along with a minimum persistency level for each.
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MILESTONE 2 | | |
| Weight | x | 80% | = | Payout | |
INTERNATIONAL | 50% | | 0.8 | | 0.4 | |
HOME SERVICE | 50% | | 0.8 | | 0.4 | |
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| Weight | x | 100% | = | Payout | |
INTERNATIONAL | 50% | | 1 | | 0.5 | |
HOME SERVICE | 50% | | 1 | | 0.5 | |
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| Weight | x | 120% | = | Payout | |
INTERNATIONAL | 50% | | 1.2 | | 0.6 | |
HOME SERVICE | 50% | | 1.2 | | 0.6 | |
The threshold amount that a Named Executive Officer could earn for this Milestone (other than $0 for no achievement) would be 80% achievement of either International or Home Service, which would result in a 40% payout for Milestone 2. The maximum amount that a Named Executive Officer could earn for this Milestone would be achievement of 120% of both retention goals, which would result in a 120% payout for Milestone 2. |
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| Roadmap Execution | |
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| Maintain and execute on the approved 5 Quarter Roadmap:
•Implement solution to minimize grey market impact •Complete Home Services transformation •Execute on LDTI to successfully meet schedule and budget •Deliver as per approved roadmap to improve sales and service across the 3 markets and 3 sales levers (product, promotion, and process) •Complete Claims Reengineering efforts to improve claims payment time | |
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MILESTONE 3 | | |
| Weight | x | 80% | = | Payout | |
| 100% | | 0.8 | | 0.8 | |
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| Weight | x | 100% | = | Payout | |
| 100% | | 1 | | 1.0 | |
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| Weight | x | 120% | = | Payout | |
| 100% | | 1.2 | | 1.2 | |
The threshold amount that a Named Executive Officer could earn for this Milestone (other than $0 for no achievement) would be 80% achievement of roadmap execution, which would result in an 80% payout for Milestone 3. The maximum amount that a Named Executive Officer could earn for this Milestone would be achievement of 120% of roadmap execution, which would result in a 120% payout for Milestone 3. |
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| Financials & Expense Discipline | |
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•120 % Payout Stretch Goal: Positive Net Pre-tax income
•100% Payout Goal: Break even Net Pre-tax income
•80% Payout goal: Achieve budgeted Net Pre-tax income | |
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MILESTONE 4 | | |
| Weight | x | 80% | = | Payout | |
| 100% | | 0.8 | | 0.8 | |
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| Weight | x | 100% | = | Payout | |
| 100% | | 1 | | 1.0 | |
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| Weight | x | 120% | = | Payout | |
| 100% | | 1.2 | | 1.2 | |
The threshold amount that a Named Executive Officer could earn for this Milestone (other than $0 for no achievement) would be 80% achievement of financials & expense discipline, which would result in an 80% payout for Milestone 4. The maximum amount that a Named Executive Officer could earn for this Milestone would be achievement of 120% of financials & expense discipline, which would result in a 120% payout for Milestone 4. |
Thus, the overall Annual Bonus opportunity for each named Executive Officer is as follows:
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| Threshold Achievement of each Milestone(1) | Target (100% Achievement of each Milestone) | 120% Achievement of each Milestone |
Gerald W. Shields | $476,000 | $850,000 | $1,020,000 |
Jeffery P. Conklin | $189,394 | $286,960 | $344,352 |
Sheryl Kinlaw | $159,800 | $235,000 | $282,000 |
Robert M. Mauldin III | $168,000 | $300,000 | $360,000 |
Harvey J. L. Waite | $133,300 | $215,000 | $258,000 |
(1)Calculated for each Named Executive Officer by (a) multiplying (i) the minimum threshold achievement percentage needed for a payout as set forth above (40% for each of Milestones 1 and 2, and 80% for each of Milestones 3 and 4), times (ii) the weighting for each officers as set forth on page 38 above, then (b) adding all 4 factors, which would result in the following percentages:
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Named Executive Officers | Threshold Achievement Multiplier* |
Gerald W. Shields | 56% |
Jeffery P. Conklin | 66% |
Sheryl Kinlaw | 68% |
Robert M. Mauldin III | 56% |
Harvey J. L. Waite | 62% |
* Rounded to nearest tenth of a percent.
Calculating the 2022 Annual Bonus
Because the calculation of the Annual Bonus opportunity is formulaic, following conclusion of the 2022 fiscal year, the Compensation Committee only had to determine the achievement of each of the 2022 Milestones in order to calculate the 2022 Annual Bonus amount for each Named Executive Officer.
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2022 Milestone | Percentage of Milestone Achieved | 2021 Key Accomplishments/Results |
First Year Sales Growth | 80% | •Achieved 80% of first year sales growth for international sales and Home Services Insurance segment sales
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Retention Improvement | 90% | •Achieved 100% goal for international life insurance and 80% goal for Home Services Insurance segment |
Roadmap Execution | 120% | •Delivered above plan on 5-quarter roadmap, which included deliveries of: ◦New and enhanced products ◦Quarterly portal releases and numerous infrastructure and service-related projects •LDTI project implementation met timeline •Home Services Insurance transformation continued on plan |
Financial and Expense Discipline | 80% | •Achieved budgeted and Plan Net Pre-tax income |
Once the achievement percentages are set for each milestone, the Annual Bonus was calculated for each Named Executive Officer by multiplying the percentage achieved for each milestone by such Named Executive Officer’s weighting for each such milestone to determine the bonus multiplier.
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Named Executive Officer | First Year Sales Growth | = | Retention Improve-ment | = | Roadmap Execution | = | Financial & Expense Discipline | = | TOTAL |
Gerald W. Shields | .4 x .8 | 0.32 | .20 x .9 | 0.18 | .30 x 1.2 | .36 | .10 x .80 | .08 | 94% |
Jeffery P. Conklin | .15 x .8 | 0.12 | .2 x .9 | 0.18 | .25 x 1.2 | 0.3 | .40 x .80 | 0.32 | 92% |
Sheryl Kinlaw | .20 x .8 | 0.16 | .10 x .9 | 0.09 | .35 x 1.2 | 0.42 | .35 x .80 | 0.28 | 95% |
Robert M. Mauldin III | .40 x .8 | 0.32 | .20 x .9 | 0.18 | .30 x 1.2 | 0.36 | .10 x .80 | 0.08 | 94% |
Harvey J. L. Waite | .25 x 8 | 0.2 | .20 x .9 | 0.18 | .35 x 1.2 | 0.42 | .20 x .80 | 0.16 | 96% |
The total (bonus multiplier) is then multiplied by each Named Executive Officer’s target Annual Bonus opportunity to determine the Annual Bonus earned. The Cash Bonus amounts paid to the Named Executive Officers are reported under “Non-equity Incentive Plan Compensation” in the Summary Compensation Table on page 44.
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Named Executive Officers | Cash Bonus Target Value | x | Cash Bonus Paid | Equity Bonus Target Value | x | Equity Bonus Granted |
Gerald W. Shields | $600,000 | .94 | $564,000 | $250,000 | .94 | $235,000 |
Jeffery P. Conklin | $170,000 | .92 | $156,400 | $116,960 | .92 | $107,603 |
Sheryl Kinlaw | $135,000 | .95 | $128,250 | $100,000 | .95 | $95,000 |
Robert M. Mauldin III | $150,000 | .94 | $141,000 | $150,000 | .94 | $141,000 |
Harvey J. L. Waite | $125,000 | .96 | $120,000 | $90,000 | .96 | $86,400 |
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TOTAL | $1,180,000 | | $1,109,650 | $706,960 | | $665,003 |
The Equity Bonus is calculated by dividing the Equity Bonus Granted amount set forth in the table above by the closing price of our Class A common stock on March 31, 2023, the payout date for the Annual Bonus. The Equity Bonus was paid in the form of a grant of Restricted Stock Units (RSUs), which vest over a 3-year period following the date of payment. Thus, our Equity Bonus component has both a performance-based component, i.e., the RSUs aren’t granted unless the established milestones are achieved, and a time-based component, i.e., once the performance goals are achieved, a Named Executive Officer receives the stock over the following three years, subject to continued service with the Company. We believe this component of pay thus aligns the interests of our executives with shareholders’ interests in creating long-term shareholder value and promoting the stability and retention of the executive team over longer periods.
OTHER COMPENSATION PRACTICES POLICIES AND GUIDELINES
Inducement Equity Grants
In order to attract and retain talent, from time-to-time we offer inducement equity awards that vest over 3-year terms. We believe that such awards allow us to recruit talent and incentivize employees to remain at Citizens in order to help drive our strategic goals. No inducement equity grants were made to Named Executive Officers in 2022; Ms. Kinlaw received an inducement grant in 2021.
RSU Retirement Policy
On June 7, 2022, the Board adopted a RSU retirement policy in order to define how unvested RSUs are to be handed for individuals retiring from the Company. This policy allows employees who have unvested RSUs at the time of Retirement to continue vesting without penalty or forfeiture if the employee is retiring on a voluntary basis and has had favorable annual performance reviews over the prior 3 years. "Retirement" for the purposes of this policy equals the Early Retirement Age as defined by the Social Security Administration (currently age 62); provided, however, an employee must have a minimum of 5 years of employment with the Company to be eligible for the continued vesting benefit. The Board believes that this policy allows for a process to be followed consistently and help the Company recruit and retain staff through retirement in order to ensure continuity of leadership of employees who are considering retiring from Citizens.
Compensation Clawback
The terms of all outstanding RSU awards held by our Named Executive Officers allow us to recoup “excess compensation” that may be paid in respect of RSUs in the event the Company is required to restate its audited financial statements for any of the prior three fiscal years as a result of material noncompliance with financial reporting requirements under federal securities laws. “Excess compensation” means the excess of (i) the actual amount of performance-based compensation received by an individual over (ii) the compensation that would have been received based on the restated financial results during such period.
Prohibition on Hedging, Pledging and Short Sales
The Company prohibits all directors and officers from engaging in (i) any transactions in derivatives of the Company’s securities, including the use of financial instruments such as prepaid variable forward contracts, equity swaps, collars, and exchange funds, or any other transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of the Company’s securities, (ii) pledging of the Company securities as collateral and (iii) short sales of the Company’s securities.
Other Benefits
Our Named Executive Officers are eligible to participate in other benefits on the same basis as other employees, including our health, dental and vision insurance plans, our 401(k) Retirement Plan and paid time off plan. Additionally, Robert Mauldin and Harvey Waite live outside of Texas and we reimbursed these executives for travel expenses incurred in commuting between their principal residence and our executive offices, as well as lodging expenses.
Pursuant to the Shields Consulting Agreement, Mr. Shields received a relocation bonus of $15,000. Mr. Mauldin and Mr. Waite were reimbursed for travel expenses from their homes outside of Texas to our headquarters in Austin, Texas. Other than these amounts, no perquisites or personal benefits exceeded $10,000 for any of our other Named Executive Officers.
Risk Considerations
In establishing and reviewing the Company’s executive compensation program, the Compensation Committee considers whether the program encourages unnecessary or excessive risk-taking. Additional risk considerations are discussed above under “Board Matters – Board’s Roles and Responsibilities - Risk Oversight.”
Severance Arrangements
The Shields Employment Agreement provides for cash severance and other benefits in connection with a qualifying termination following a Change in Control.
Potential payments and benefits provided pursuant to the Change in Leadership Agreements and a more detailed description of the agreements are set forth below in the section entitled “Potential Payments Upon Termination or Change in Control” beginning on page 47.
As of December 31, 2022, the Company did not have any other severance arrangements in place with any of its executive officers.
COMPENSATION TABLES
The following tables, footnotes and narrative discuss the compensation of each of our Named Executive Officers for 2022 and 2021, as required by the rules for a smaller reporting company.
Summary Compensation Table
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Name and Principal Position |
Year |
Salary ($) (1) |
Stock Awards ($) (2) |
Non-Equity Incentive Plan Compensation ($) (3) |
All Other Compensation ($) | |
Total ($) |
Gerald W. Shields | 2022 | 775,000 | — | 564,000 | 15,000 | (5) | 1,354,000 |
Chief Executive Officer and President | 2021 | 822,945 | 10,499 | 606,667 | 18,176 | (5) | 1,458,287 |
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Jeffery P. Conklin | 2022 | 430,000 | 99,805 | 156,400 | 12,200 | (4) | 698,405 |
Vice President, Chief Financial Officer, Chief Investment Officer and Treasurer | 2021 | 430,000 | 214,460 | 149,334 | 10,012 | (4) | 803,806 |
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Sheryl Kinlaw | 2022 | 300,000 | 40,335 | 128,250 | 12,194 | (4) | 480,779 |
Vice President, Chief Legal Officer and Secretary | 2021 | 150,000 | 130,320 | 54,853 | 115,485 | (4)(6) | 450,658 |
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Robert M. Mauldin III | 2022 | 350,000 | 78,699 | 141,000 | 19,100 | (4)(7) | 588,799 |
Vice President, Chief Marketing Officer | 2021 | 350,000 | 205,670 | 118,048 | 7,761 | (4) | 681,479 |
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Harvey J. L. Waite | 2022 | 340,000 | 72,351 | 120,000 | 32,695 | (4)(7) | 565,046 |
Vice President, Chief Actuary | 2021 | 340,000 | 48,963 | 108,528 | 10,458 | (4) | 507,949 |
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(1)The 2021 salary for Mr. Shields reflects the consulting fees paid to him for his service as Interim Chief Executive Officer and President of the Company (as an independent contractor and not an employee). Mr. Shields was appointed Interim Chief Executive Officer and President effective August 5, 2020 and held that position through December 31, 2021.
The 2021 salary for Ms. Kinlaw reflects the prorated salary based on her 6 months of service in the role of Vice President, Chief Legal Officer and Secretary of the Company effective July 1, 2021.
(2)The amounts listed in Stock Awards reflect the aggregate grant date fair value of awards of RSUs granted under the Citizens, Inc. Omnibus Incentive Plan and do not reflect compensation actually received. The aggregate grant date fair value is computed in accordance with FASB ASC Topic 718, based on the closing price of the Company’s Class A common stock on the date of grant. Assumptions used in the calculation of these amounts are included in Footnote 11 to the Company’s audited financial statements for the fiscal year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K.
2022 - The 2022 RSU awards were granted on March 31, 2022 for achievement of 2021 performance goals and have three year vesting terms, subject to acceleration under certain circumstances as described herein.
2021 - The 2021 RSU awards granted to Mr. Conklin, Mr. Mauldin and Mr. Waite were granted on January 29, 2021 for achievement of 2020 performance goals. The RSUs granted to Ms. Kinlaw represent an inducement grant made to Ms. Kinlaw on her employment start date. All of these RSUs vest equally over three years from the date of grant. The RSUs granted to Mr. Shields in 2021 were granted for his service as a non-employee director are time-based RSUs with a one year vesting term.
(3)The amounts reflect the performance-based cash incentive bonus earned by each Named Executive Officer in each year in recognition of achievement of the relevant performance measure satisfied during such year, although not payable until the following fiscal year. For example, the amount reflected in the 2022 column was earned for the goals achieved for 2022, even though not paid until 2023. See “Annual Bonus Opportunity” starting on page 37 for additional discussion on achievement and payout of the 2022 non-equity incentive plan compensation.
(4)Includes the Company’s contributions to the respective Named Executive Officer’s defined contribution plan.
(5)2022 - Reflects a $15,000 relocation payment paid to Mr. Shields pursuant to the Shields Employment Agreement.
2021 – This amount reflects perquisites paid to Mr. Shields under his consulting agreement when he was acting as Interim Chief Financial Officer, which primarily consisted of travel and lodging from his home to the Company’s headquarters in Austin, Texas.
(6)Includes the amount paid to Ms. Kinlaw as outside counsel prior to April 1, 2021 and as Interim Chief Legal Officer (as a consultant) from April 1, 2021 through June 30, 2021.
(7)Includes reimbursement for travel to our headquarters in Austin, Texas, from their homes outside of Texas in the amount of $15,423 for Mr. Mauldin and $21,921 for Mr. Waite and for both, a $125 payment (plus tax gross up) for a wellness plan benefit.
The amounts in the salary, bonus, and non-equity incentive plan compensation columns of the “Summary Compensation Table” reflect actual amounts earned in the relevant years (even if paid in a subsequent year), while the amounts in the stock awards column reflect the fair market values of equity granted during the year and not actual amounts paid. The tables entitled “Outstanding Equity Awards at 2022 Year-End” and “Stock Vested” provide further information on the Named Executive Officers’ potential realizable value and actual value realized with respect to their RSU awards. The “Summary Compensation Table” should be read in conjunction with the Compensation Discussion and Analysis and the subsequent tables and narrative descriptions.
Narrative Disclosure to Summary Compensation Table
Shields Employment Agreement
On January 1, 2022, Gerald W. Shields was appointed as the Company's Chief Executive Officer, after serving as the Interim Chief Executive Officer and President of the Company since August 5, 2020. In connection with Mr. Shields’ appointment as the Company’s Chief Executive Officer, the Company and Mr. Shields entered into an Executive Employment Agreement, which was effective on January 1, 2022 (the "Shields Employment Agreement").
Below is a summary of the material terms of the Shields Employment Agreement. Capitalized terms used but not defined below have the meanings set forth in the Shields Employment Agreement.
Term. The Shields Employment Agreement has an initial term of two (2) years and will automatically renew for an additional one year on each anniversary of the effective date unless either Citizens or Mr. Shields provides at least 90 days’ notice not to renew.
Base Salary. The Employment Agreement establishes an annual base salary of $775,000.
Short-Term Incentive. Mr. Shields will be eligible to receive an annual cash bonus of up to $600,000 (subject to annual review by the Board or Compensation Committee, who may increase or decrease such bonus opportunity). The amount of the actual cash or equity bonus awarded each year, if any, shall be determined by the Board of the Company’s Compensation Committee based on the achievement of annual performance objectives established by the Board or the Compensation Committee from time to time and in their sole discretion.
Long-Term Incentive. Mr. Shields will be eligible to earn additional incentive compensation in an amount up to $250,000 per year, in the form of restricted stock units or performance stock units, or other equity grants available under the Company’s equity incentive plan (the “LTI”). If the initial term of employment is not renewed for an additional one-year term, all unvested restricted stock units granted during the initial term shall automatically vest at the end of the initial term.
Relocation Payment. Mr. Shields relocated to Austin, Texas and was paid a relocation payment in the amount of $15,000.
Termination Payments. In the event that Mr. Shields' employment is terminated for one of the reasons stated below, he shall be paid as described below. For purposes of the Termination Payments:
"Accrued Amounts" means a cash payment equal to (i) earned but unpaid Base Salary, plus (ii) accrued but unused PTO, plus (iii) earned, but unpaid Annual Bonus, if any, which was earned for the previous fiscal year, plus (iv) reimbursement of reasonable business expenses and disbursements incurred and documented prior to the date of termination.
"Benefits Continuation" means payment by the Company of the cost of Mr. Shields' participation in the Company's group health plan (as elected as of the date of termination) for the number of months left in the Term.
"Pro-Rated Annual Bonus" means a pro-rated Annual Bonus for the year of termination, based on the degree to which performance metrics for the fiscal year of termination are satisfied (paid at the same time as bonuses are paid to similarly situated executives).
"Severance Period" means the number of months remaining in the Term following the date of termination.
Death or Disability (other than within one year following a Change in Control). A cash payment equal to (i) the Accrued Amounts, plus (ii) a Pro-Rated Annual Bonus.
Without Cause or For Good Reason (other than a Termination in Anticipation of a Change of Control or within one year following a Change in Control). A cash payment equal to (i) the Accrued Amounts, plus (ii) 50% of the Pro-Rated Annual Bonus, plus (iii) 50% of the Base Salary during the Severance Term, payable in equal installments over such period, plus (iv) immediate vesting of all unvested Long-Term Incentive awards, plus (v) Benefits Continuation. Payments under this provision are subject to Mr. Shields' execution of a valid general release and waiver containing the Restricted Covenants.
Without Cause, For Good Reason, or Death or Disability Following a Change in Control or a Termination in Anticipation of a Change in Control. A cash payment equal to (i) the Accrued Amounts, plus (ii) 50% of the Pro-Rated Annual Bonus, plus (iii) two times the Base Salary at time of termination (paid over the remaining Severance Period), plus (iv) two times the most recent Annual Bonus (paid over the remaining Severance Period), plus (v) immediate vesting of all unvested Long-Term Incentive awards, plus (vi) Benefits Continuation. Payments under this provision are subject to Mr. Shields' compliance with the Conditions.
Any other reason. The Accrued Amounts.
The foregoing summary of the Shields Employment Agreement is not complete and is subject to, and qualified by reference to, (i) the full text of the Shields Employment Agreement filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 21, 2021.
No other Named Executive Officer has an employment agreement.
Material Terms of Stock Awards and Non-Equity Incentive Plan Awards
The material terms of each RSU grant and non-equity incentive plan awards made to our named executive officers during the last completed fiscal year are described starting on page 37, "Compensation Discussion and Analysis - Annual Bonus Opportunity."
OUTSTANDING EQUITY AWARDS AT 2022 YEAR-END
The following table shows information regarding the outstanding equity awards held by each of the Named Executive Officers as of December 31, 2022. All equity awards are granted in the form of Restricted Stock Units (RSUs). Mr. Shields did not have any outstanding equity awards as of such date.
| | | | | | | | | | | |
Name | Grant Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested (1) ($) |
Jeffery P. Conklin | 1/29/2021 (2) | 23,632 | 50,336 |
| 3/31/2022 (3) | 23,539 | 50,138 |
|
Sheryl Kinlaw | 7/1/2021 (4) | 16,000 | 34,080 |
| 3/31/2022 (3) | 9,513 | 20,263 |
|
Robert M. Mauldin III | 1/29/2021 (2) | 22,663 | 48,273 |
| 3/31/2022 (3) | 18,561 | 39,535 |
|
Harvey J. L. Waite | 1/29/2021 (2) | 5,395 | 11,492 |
| 3/31/2022 (3) | 17,064 | 36,346 |
|
(1)The dollar amounts are determined by multiplying the number of RSUs by $2.13, the closing price of the Company’s Class A common stock on December 30, 2022, the last trading day of the Company’s fiscal year.
(2)One-half of the RSUs vested subsequent to December 31, 2022, on January 29, 2023 (the second anniversary of the date of the grant). The remaining one-half are scheduled to vest on January 29, 2024 (the third anniversary of the date of grant), provided that the Named Executive Officer continues to be employed with the Company through the vesting date or otherwise qualifies for accelerated vesting pursuant to the Company's RSU Retirement Policy. .
(3)One-third of the RSUs vested subsequent to December 31, 2022, on March 31, 2023 (the first anniversary of the date of the grant). One-third of the RSUs are scheduled to vest on March 31, 2024 (the second anniversary of the date of the grant) and the remaining one-third are scheduled to vest on March 31, 2025 (the third anniversary of the date of grant), provided that the Named Executive Officer continues to be employed with the Company through the vesting date or otherwise qualifies for accelerated vesting pursuant to the Company's RSU Retirement Policy.
(4)Represents remaining two-thirds of RSUs from equity inducement grant awarded to Ms. Kinlaw on her start date.
STOCK VESTED
The following table shows information regarding the vesting of RSUs during 2022 that were granted to the Named Executive Officers prior to 2022.
| | | | | | | | |
| Stock Awards |
Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(1) |
Gerald W. Shields | 2,023 | $ | 6,757 | |
Jeffery P. Conklin | 40,870 | $ | 179,423 | |
Sheryl Kinlaw | 8,000 | $ | 33,120 | |
Robert M. Mauldin III | 34,981 | $ | 154,118 | |
Harvey J. L. Waite | 2,698 | $ | 12,706 | |
(1)The dollar amounts are determined by multiplying the number of shares that vested by the per share closing price of the Company’s Class A common stock on each applicable vesting date.
POTENTIAL PAYMENTS UPON TERMINATION
At December 31, 2022, the following agreements contain provisions whereby a Named Executive Officer may receive a payment following termination of employment or a change in control of the Company:
•Shields Employment Agreement
•RSU Agreements
Shields Employment Agreement
The following table shows the estimated Termination Payment Mr. Shields would have become entitled to under the terms of the Shields Employment Agreement had his employment terminated on December 31, 2022. For purposes of this table:
Accrued Amounts = $89,423. Reflects cash payment equal to the paid time out accrued but not used as of 12/31/2022. No other Accrued Amounts would be due because: (i) earned but unpaid Base Salary = $0 as full Base Salary for 2022 was paid as of December 30, 2022 (the last business day of fiscal year); and (ii) Annual Bonus for the previous fiscal year (2021) was paid in April 2022.
Base Salary = $775,000
Annual Bonus = $600,000; Pro-Rated Annual Bonus = $600,000
Assumes business expenses had been fully reimbursed.
Benefits Continuation = $1,192 / month
| | | | | |
Termination Reason | Amount |
Death or Disability (1) | $689,423 |
Without Cause or For Good Reason (2) | $791,227 |
Without Cause, For Good Reason, or Death or Disability Following a Change in Control or a Termination in Anticipation of a Change in Control (3) | $3,167,061 |
Any other reason | $0 |
(1)Other than within one year following a Change in Control. Payment reflects (1) the Pro-Rated Annual Bonus calculated as if 100% of Annual Bonus was earned and paid out; and (ii) Accrued Amounts..
(2)Other than a Termination in Anticipation of a Change in Control or within one year following a Change in Control. Payment reflects (i) Accrued Amounts; (ii) 50% of the Pro-Rated Annual Bonus, calculated as if 100% of Annual Bonus was earned and paid out, (iii) 50% of the remaining Base Salary due, (iv) immediate vesting of Long-Term Incentive Awards ($0) and (v) Benefits Continuation for 12 months. Assumes Mr. Shields signed the Release.
(3) Payment reflects: (i) Accrued Amounts; (ii) 50% of the Pro-Rated Annual Bonus, plus (iii) two times the Base Salary at time of termination (paid over the remaining Severance Period), plus (iv) two times the most recent Annual Bonus (paid over the remaining Severance Period), plus (v) immediate vesting of all unvested Long-Term Incentive awards, plus (vi) Benefits Continuation for 12 months. Assumes Mr. Shields signed the Release.
RSU Agreements
Pursuant to the terms of the award agreements for RSUs granted to all recipients under our Omnibus Incentive Plan, unvested RSUs shall become 100% vested on an accelerated basis in the following circumstances:
(a)Death or Disability (as Disability is defined in §22(e)(3) of the Internal Revenue Code); or
(b)Change in Control
Change in Control – 100% vested if “Termination of Employment or Service in Connection with a Change of Control”
“Termination of Employment or Service in Connection with a Change of Control” means a termination of employment within the one-year period beginning on the date of a Change in Control:
•by the Company for any reason other than Cause; or
•by the recipient for Good Reason
“Good Reason” generally means a material reduction in base salary or wage rate or target incentive opportunity; or the relocation of the principal place of employment to a location more than fifty miles from the Named Executive Officer’s principal place of employment as of immediately prior to the Change of Control (subject to certain cure rights).
A “Change of Control” generally occurs when:
•we sell or otherwise dispose of all or substantially all of our assets;
•we consummate a merger or consolidation of the Company with or into another corporation where our shareholders do not continue to hold at least a majority of the surviving entity;
•any person, entity or group (other than the Company) becomes a beneficial owner of, or shall have obtained voting control over, more than a certain percentage of the outstanding shares of the Class A common stock
•under certain circumstances, our directors cease to constitute a majority of the Board; or
• our shareholders approve a plan of complete liquidation or dissolution of the Company.
The following table shows the amounts that each of the Named Executive Officers would have become entitled to under the terms of their RSU grant agreements had their employment or service been terminated on December 31, 2022.
| | | | | |
|
($) (1) |
Gerald W. Shields | 0 |
Jeffery P. Conklin | 100,474 |
Sheryl Kinlaw | 54,343 |
Robert M. Mauldin III | 87,808 |
Harvey J. L. Waite | 47,838 |
(1) The dollar amounts are determined by multiplying the number of shares outstanding at 2022 year end as reflected in table above (which are subject to acceleration) by $2.13, the closing price of the Company’s Class A common stock on December 31, 2022.
The foregoing summary is not complete and is subject to, and qualified by reference to, the full text of the Form of Citizens, Inc. Employee Restricted Stock Unit Agreement filed as Exhibit 10.6 to the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2018. .
PAY VERSUS PERFORMANCE
We are providing the following information pursuant to the new SEC pay versus performance disclosure requirements set forth for Smaller Reporting Companies in Item 402(v) of Regulation S-K (the "Pay Versus Performance Rule"), which requires disclosure of certain information about the relationships between our performance and the compensation of our Chief Executive Officer and the average compensation of our other non-CEO Named Executive Officers, as well as the “Compensation Actually Paid” as calculated in accordance with the Pay Versus Performance Rule. The amounts reported as “Compensation Actually Paid” do not reflect the actual amount of compensation earned by or paid to our Chief Executive Officer or our non-CEO Name Executive Officers and differ from the compensation amounts disclosed elsewhere in this proxy statement. For a discussion of our executive compensation program and philosophy, please refer to our “Compensation Discussion and Analysis” section.
| | | | | | | | | | | | | | | | | | | | | | | |
(a) Year (1) | (b) Summary compensation table total for CEO ($) | (c) Compensation actually paid to CEO (2) ($) | (d) Average summary compensation table total for non-CEO named executive officers ($) | (e) Average compensation actually paid to non-CEO named executive officers (3) ($) | (f) Value of initial fixed $100 investment based on Total Shareholder Return (4) | (e)
Net Income (loss) ($, (in thousands) | (f)
Adjusted Operating Income (loss) ($, (in thousands) (5) |
|
2022 | 1,354,000 | 1,350,015 | 583,257 | 473,173 | $37.17 | (6,638) | 3,224 |
2021 | 1,458,287 | 1,450,021 | 610,973 | 573,360 | $92.67 | 36,787 | (5,055) |
(1)Gerald W. Shields was the CEO in 2022 and 2021. The other named executive officers in both years were: Jeffery P. Conklin, Sheryl Kinlaw, Robert M. Mauldin III, and Harvey J.L. Waite.
(2)Compensation Actually Paid to Mr. Shields in each applicable year is calculated as follows:
| | | | | | | | | | | | | | | | | | | | |
Year | Summary compensation table total for CEO | LESS Grant Date Fair Value of Equity Awards Granted During Applicable Year (as reflected in Summary Compensation Table) | PLUS Year-End Fair Value of Equity Awards Granted During Applicable Year that are Outstanding and Unvested at end of Applicable Year | PLUS Change in Fair Value as of Year-End of Any Prior-Year Awards that Remain Unvested as of Year-End | PLUS Change in Fair Value as of the Vesting Date from the End of the Prior Fiscal year of Any Prior Year Awards that Vested During Applicable Year | EQUALS Compensation Actually Paid |
2022 | 1,354,000 | $— | $— | $— | $(3,985) | $1,350,015 |
2021 | 1,458,287 | $10,499 | $10,742 | $— | $(8,509) | $1,450,021 |
(3)The Average Compensation Actually Paid to the four non-CEO named executive officers in each applicable year is calculated as follows:
| | | | | | | | | | | | | | | | | | | | |
Year | Average summary compensation table total for non-CEO named executive officers | LESS Average of Grant Date Fair Value of Equity Awards Granted During Applicable Year (as reflected in Summary Compensation Table) | PLUS Average of Year-End Fair Value of Equity Awards Granted During Applicable Year that are Outstanding and Unvested at end of Applicable Year | PLUS Average of Change in Fair Value as of Year-End of Any Prior-Year Awards that Remain Unvested as of Year-End | PLUS Average of Change in Fair Value as of the Vesting Date from the End of the Prior Fiscal year of Any Prior Year Awards that Vested During Applicable Year | EQUALS Average of Compensation Actually Paid |
2022 | $583,257 | $72,790 | $36,571 | $(53,814) | $(20,051) | $473,173 |
2021 | $610,973 | $149,853 | $134,789 | $(5,534) | $(17,015) | $573,360 |
(4)Calculated by determining the number of shares that $100 would have purchased on December 31, 2020 ($100 divided by $5.73, which was the closing price of our Class A Common Stock on such date) and then multiplying that share amount by the closing price in each of the applicable years to determine the value of the $100 investment at the end of each applicable year.
(5) Adjusted Operating Income (loss) is a non-GAAP measure that is computed as pre-tax GAAP operating income, excluding net investment related gains (losses) and unusual one-time items. Management believes that this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods, by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends. Management believes that the pre-tax metric is a more useful comparison than the post-tax metric, as the Company’s effective tax rate can fluctuate significantly from quarter-to-quarter. Adjusted Operating Income is calculated as follows:
| | | | | | | | | | | | | | | | | | | | |
| |
For the periods ended | |
Unaudited (In thousands) | 2022 | | 2021 |
| | | |
Adjusted Operating Income | | | |
Income (loss) before federal income tax | $ | (7,067) | | | $ | (6,688) | |
Less: | | | |
Excluded investment related gains (losses) | (10,291) | | | 10,991 | |
Excluding goodwill impairment | — | | | (12,624) | |
Total adjustments | (10,291) | | | (1,633) | |
Adjusted income (loss) before federal income tax | $ | 3,224 | | | $ | (5,055) | |
Relationship Between Compensation Actually Paid and our Total Shareholder Return
Our stock price performance is not one of the elements used in determining Compensation Actually Paid to our Named Executive Officers. However, the amount of Compensation Actually Paid to our Named Executive Officers aligns with the Company's Total Shareholder Return (TSR) due to the fact that a portion of the compensation paid to our Named Executive Officers is comprised of equity awards. In both 2021 and 2022, the amount of Compensation Actually Paid to our Named Executive Officers was less than the Summary Compensation Table total for the Named Executive Officers due to the declining stock price and TSR.
| | | | | | | | | | | | | | |
Year | Value of initial fixed $100 investment based on Total Shareholder Return | Summary compensation table total for all Named Executive Officers ($) | Compensation actually paid to Named Executive Officers ($) | Difference |
2021 | $92.67 | 2,069,260 | 2,023,381 | $(45,879) |
2022 | $37.17 | 1,937,257 | 1,823,188 | $(114,069) |
Relationship Between Compensation Actually Paid and our Net Income (Loss) (GAAP and Non-GAAP)
GAAP and non-GAAP net income (Adjusted Operating Income) are measures of our overall profitability that we believe are factors that can drive our stock price performance. However, Compensation Actually Paid is less sensitive to our annual GAAP income (loss) because management and our Board of Directors do not believe that our GAAP income (loss) is a meaningful number in allowing investors to evaluate underlying profitability. Rather, we believe that Adjusted Operating Income is a better tool to allow investors to evaluate profitability and enhance comparability across periods. Accordingly, pre-tax income is one of the four elements of the Annual Bonus Opportunity (described above in Compensation Discussion and Analysis). The increase in Adjusted Operating Income from 2021 to 2022, is one of the reasons that the non-equity incentive plan compensation paid to the Named Executive Officers was generally higher in 2022 than 2021.
CEO PAY RATIO
| | | | | | | | | | | | | | | | | |
Name | Salary ($) | Stock Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) |
Gerald W. Shields | 775,000 | 0 | 564,000 | 15,000 | 1,354,000 |
CEO Pay Ratio: approximately 23 to 1
The total annual compensation of Mr. Shields for 2022 ($1,354,000) was 23 times the median annual total compensation of all of our employees ($60,036).
Calculation of Mr. Shields total annual compensation:
As disclosed in the Summary Compensation Table of this Proxy Statement on page 44, Mr. Shields had annual total compensation of $1,354,000 in 2022.
Calculation of median annual total compensation of all our employees:
We identified our median employee by examining the total cash compensation for all of the 215 employees who were employed by us on December 31, 2021. Mr. Shields was not an employee as of such date.
We believe the use of total cash compensation for all employees is a consistently applied compensation measure that reasonably reflects the annual compensation of our employees. We included all employees, whether employed on a full-time or part-time basis and did not exclude any non-U.S. employees. We did not make any assumptions, adjustments or estimates with respect to total cash compensation (except for the fact that we annualized the compensation for any full-time or part-time employees who were not employed by us for all of 2021).
STOCK OWNERSHIP INFORMATION
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table provides information as of April 11, 2023, on the beneficial ownership of our Class A common stock by (1) each of our directors and nominees, (2) each of the other named executive officers and (3) all of our directors and executive officers as a group.
Each person listed below has sole voting and investment power for all shares held by such person.
The address for each person listed below is: Citizens, Inc., 11815 Alterra Parkway, Suite 1500, Austin, Texas 78758.
| | | | | | | | |
NAME OF BENEFICIAL OWNER |
CLASS A SHARES OWNED |
PERCENT OF CLASS (1) |
Directors and Nominees | | |
Christopher W. Claus | 15,934 | * |
Cynthia H. Davis | 2,486 | * |
Jerry D. Davis, Jr. | 13,072 | * |
Francis A. Keating II | 10,319 | * |
Dr. Terry S. Maness | 6,614 | * |
J. Keith Morgan | 33,162 | * |
Gerald W. Shields | 85,171 | * |
Dr. Robert B. Sloan, Jr. | 53,094 | * |
Mary Taylor | 2,930 | * |
|
Jeffery P. Conklin | 101,782 | * |
Sheryl Kinlaw | 11,677 | * |
Robert M. Mauldin III | 75,339 | * |
Harvey J. L. Waite | 25,752 | * |
Directors and executive officers as a group |
(13 individuals) | 437,332 | * |
* Less than one percent (1%).
(1)Based on 49,856,895 shares of Class A common stock outstanding as of April 11, 2023.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Except as otherwise noted, the following table provides information as of April 11, 2023, with respect to the number of shares of our Class A common stock owned by each person known by the Company to be the beneficial owner of more than 5 percent of our Class A common stock.
| | | | | | | | |
NAME OF BENEFICIAL OWNER | CLASS A SHARES OWNED | PERCENT OF CLASS (1) |
Galindo, Arias & Lopez (as trustee of four non-U.S. trusts and/or record holder) c/o Gala Trust and Management Services, Inc., Scotia Plaza, 9th Floor, Federico Boyd Avenue 18 and 51 Street, Panama 5 Republic of Panama
| 4,121,765 | 8.3% (2) |
(1)Based on 49,856,895 shares of Class A common stock outstanding as of April 11, 2023. The ownership percentages set forth in this column are based on the assumption that each of the beneficial owners continued to own the number of shares reflected in the table above on such date.
(2)The information is based on a Schedule 13G/A filed by Galindo, Arias & Lopez (“GA&L”), Gala Trust and Management Services, Inc. (“Gala Management”) and GAMASE Insureds Trust (“Gamase,” and together with GA&L and Gala Management, the “GALA”) with the SEC on February 4, 2019, reporting beneficial ownership as of December 31, 2018. GALA has not filed a Schedule 13G/A with the SEC regarding ownership of the Company’s stock since such date. As of such date, the reporting persons reported that GA&L has shared dispositive power with respect to 4,121,765 shares of Class A common stock, Gala Management has shared dispositive power with respect to 2,787,731 shares of Class A common stock and Gamase has shared dispositive power with respect to 2,526,980 shares of Class A common stock.
To our knowledge, GA&L is the sole owner of Gala Management and Regal Trust (BVI) Ltd. (“Regal”), who serves as trustee for trusts that hold shares of the Company’s Class A common stock. Gala Management serves as trustee of Gamase, which holds 2,526,980 shares, and as trustee of an additional trust that holds 260,751 shares of our Class A common stock, making Gala Management the indirect beneficial owner of 2,787,731 shares. Regal serves as trustee of two trusts, one of which holds 1,101,321 shares of Class A common stock and the other of which holds 232,713 shares, making Regal the indirect beneficial owner of 1,334,034 shares. As sole owner of Gala Management and Regal, GA&L is deemed to beneficially own all shares beneficially owned by them, or a total of 4,121,765 shares of the Company’s outstanding Class A common stock.
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
ANNUAL MEETING
The Annual Meeting will be held at the Company’s principal executive office at 11815 Alterra Parkway, Suite 1500, Austin, Texas 78758 on Tuesday, June 6, 2023, at 10:00 a.m. Central Daylight Time.
ATTENDING THE ANNUAL MEETING
If you plan on attending the Annual Meeting in person, you will be required to present a valid, government-issued photo identification (e.g., driver’s license or passport) to enter the Annual Meeting. If you are a shareholder of record, your ownership of Common Stock will be verified against the list of shareholders of record as of the Record Date prior to being allowed to enter the Annual Meeting. If you are a beneficial owner and hold your shares of Common Stock in “street name” (i.e., your shares of Common Stock are held in a brokerage account or by a bank or other nominee), you will need to provide evidence of beneficial ownership as of the Record Date, such as an account statement or letter from the shareholder of record (i.e., your broker, bank or other nominee), and a copy of the voting instruction form provided by the shareholder of record.
Seating at the Annual Meeting will begin at 9:50 a.m. (Central Time) on June 6, 2023. The health and safety of our shareholders and other participants at the Annual Meeting is of the utmost importance. In light of public health concerns related to the coronavirus (COVID-19), we intend to institute safety precautions at the Annual Meeting consistent with applicable guidelines of public health authorities, which will include appropriate social distancing and may include seating shareholders in a separate room from the presenters, with full opportunity to hear the presenters, vote and participate in any discussion, and may take other actions as necessary to protect all attendees from undue risk of exposure to the virus. We suggest arriving at least 30 minutes early to the Annual Meeting to allow sufficient time to complete the admission process. Cameras, recording devices and other electronic devices will not be permitted at the Annual Meeting. Admission will close ten minutes before the Annual Meeting begins. If you do not provide a valid, government-issued photo identification or do not comply with the other procedures described above, you will not be admitted to the Annual Meeting. The Company reserves the right to remove from the Annual Meeting persons who disrupt the Annual Meeting or who do not comply with the rules and procedures for the conduct of the Annual Meeting.
PROXY MATERIALS
The proxy materials for the Annual Meeting include the Notice of Annual Meeting, this Proxy Statement and our Annual Report on Form 10-K. If you received a paper copy of these materials, the proxy materials also include a proxy card or voting instruction form.
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
We are furnishing proxy materials to our shareholders primarily via “Notice and Access” delivery pursuant to SEC rules. On or about April 24, 2023, we mailed to our shareholders (other than those who previously requested a printed set) a “Notice Regarding the Availability of Proxy Materials” (the “notice”) containing instructions on how to access the proxy materials via the Internet. Utilizing this method of proxy delivery expedites receipt of proxy materials by our shareholders and reduces our cost of producing and mailing the full set of proxy materials. If you receive a notice by mail, you will not receive a printed copy of the proxy materials in the mail. Instead, the notice instructs you on how to access the proxy materials and vote over the Internet. If you received a notice by mail and would like to receive paper copies of our proxy materials in the mail, you may follow the instructions in the notice for making this request. The notice also contains instructions on how you may request to receive an electronic copy of our proxy materials by e-mail.
Our proxy materials are also available on our website at www.citizensinc.com. If you vote by Internet, simply go to www.envisionreports.com/cia and follow the prompts regarding electronic distribution consent on that site.
PROXY SOLICITATION
We bear all expenses incurred in connection with the solicitation of proxies. We have engaged Alliance Advisors, LLC to assist with the solicitation of proxies for a fee of $8,500, plus expenses. Our directors, officers and employees also may solicit proxies by mail, telephone and personal contact. They will not receive any additional compensation for these activities. We will reimburse banking institutions, brokerage firms, custodians, nominees and fiduciaries for their costs in forwarding proxy materials to beneficial owners of our Class A common stock.
VOTING
Each share of the Company’s Class A common stock may cast one vote on each matter. Only shareholders of record at the close of business on April 11, 2023 are entitled to vote at the Annual Meeting. As of the Record Date, we had 49,856,895 shares of Class A common stock outstanding and entitled to vote and 0 shares of Class B common stock outstanding and entitled to vote. Our Class B common stock is classified as authorized but unissued stock and will not be voted at any shareholder meeting while it is classified in such status. If your shares are registered directly in your name with the Company’s registrar and transfer agent, Computershare Trust Company, N.A. (“Computershare”), you are considered a shareholder of record with respect to those shares. If your shares are held in a bank or brokerage account, you are considered the “Beneficial Owner” of those shares and should respond to the communication you receive from the holder of record as soon as possible so your shares can be represented at the Annual Meeting.
VOTING PROCEDURES
Shareholders of record may vote using any of the methods listed below. If you vote in advance (methods 1, 2 or 3, we must receive your vote by 11:59 p.m. Eastern Daylight Time on June 5, 2023.
1. BY MAIL: If you requested printed copies of the proxy materials by mail, you will receive a proxy card, and you may vote by marking, signing and dating your proxy card and returning it in the postage-paid envelope provided. The named proxies will vote your stock according to your directions. If you submit a signed proxy card without indicating your vote, the person voting the proxy will vote your stock in favor of the proposals.
2. BY TELEPHONE: Call toll-free (800) 652-VOTE (8683).
• Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week.
• Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number available. Follow the simple instructions the recorded message provides you.
3. ONLINE: http://www.envisionreports.com/cia OR use the QR code on your proxy card.
• Use the Internet to vote your proxy 24 hours a day, 7 days a week.
• Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number available. Follow the simple instructions to obtain your records and create an electronic ballot.
4. IN PERSON: You may vote in person at the Annual Meeting. If your stock is held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor, to be able to vote at the Annual Meeting.
If your shares are held in a bank or brokerage account, your bank or broker will provide you with materials and instructions for voting your shares. Please check with your bank or broker and follow the voting procedures they provide to vote your shares.
If you have any questions or require assistance with voting your shares, you may also contact Alliance Advisors, LLC at 200 Broadacres Drive, Bloomfield, New Jersey 07003. Shareholders may call toll free: 800-574-5928.
REVOCATION OF PROXIES
A shareholder may revoke his or her proxy at any time before it is voted at the Annual Meeting by:
•giving written notice of revocation to the Secretary of the Company;
◦if before the commencement of the Annual Meeting to the person serving as Secretary at the Annual Meeting site; or
◦if delivered before the date of the Annual Meeting, the Secretary of the Company at Citizens’ offices at P. O. Box 149151, Austin, Texas 78714-9151;
• delivering no later than the commencement of the Annual Meeting a properly-executed, later-dated proxy; or
• voting in person at the Annual Meeting.
CITIZENS, INC. STOCK INVESTMENT PLAN PARTICIPANTS
Citizens Stock Investment Plan (“SIP”) participants are shareholders of record and thus have the right to vote all shares of Class A common stock credited to their SIP account in person or by proxy. Each SIP participant’s proxy card includes the participant’s whole or fractional shares of the Company’s Class A common stock which such participant has the right to vote. A participant’s shares will not be voted unless a participant or the participant’s proxy votes them. As described below, the SIP administrator may submit a participant’s unvoted shares at a shareholder meeting, solely for purposes of establishing a quorum, unless the participant objects by notifying us in writing. For more information about the SIP, please see the SIP prospectus contained in the Company’s Registration Statement on Form S-3 (Registration No. 333-260955) filed with the SEC.
QUORUM
At the Annual Meeting, a quorum will require the presence, in person or by proxy, of the holders of a majority of the voting power represented by our shares of Class A common stock entitled to vote. Proxies received but marked as abstentions and broker non-votes are counted as present for purposes of determining quorum. Additionally, unless a SIP participant notifies the Company in writing that it elects to withhold the SIP administrator’s authority, the plan administrator is deemed to have the written authorization to appear in person or by proxy at any annual or special meeting of shareholders of the Company and to submit the participant’s unvoted shares at the meeting for the sole purpose of determining a quorum. If a quorum is not present or represented at the meeting, the shareholders entitled to vote have the power to adjourn or recess the meeting without notice, other than announcement at the meeting, until a quorum is obtained. At a reconvened meeting where a quorum is obtained, any business may be transacted which might have been transacted at the meeting as originally noticed.
VOTING REQUIREMENTS
For Proposal No. 1 (Election of Directors), you may vote “FOR” or “WITHHOLD” for each nominee, or “ABSTAIN” from voting. Under the Company’s Bylaws, as permitted by Colorado law, director nominees with the highest number of votes cast “FOR” their election will be elected to the Board. Cumulative voting is not permitted. Director nominees receiving the highest number of votes cast “FOR” their election by the shareholders will be elected to the Board of Directors. Votes that are withheld or voted in abstention will be excluded entirely from the vote and will have no effect other than for purposes of establishing quorum. According to NYSE Rule 452, as amended, brokers who have not received instructions from their customers in uncontested elections may not vote shares held in street name in the election of directors, and in certain other matters. Therefore, regardless of the number of shares you hold or whether you cast a vote, providing your properly executed proxy is very important.
Under our Director Resignation Policy, if a director receives more “withhold” votes than “for” votes, such director will be required to submit his or her resignation for Board consideration.
For Proposal No. 2 (Ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for 2022), you may vote “FOR” or “AGAINST” such proposal or “ABSTAIN” from voting. Such proposal requires for approval that the votes cast “FOR” the proposal exceed the votes cast “AGAINST” the proposal. For these votes, abstentions and broker non-votes will be disregarded and will have no impact on the vote.
For Proposal No. 3 (Approval, on a non-binding advisory basis of executive compensation), you may vote “FOR” or “AGAINST” each proposal or “ABSTAIN” from voting. Each proposal requires for approval that the votes cast “FOR” the proposal exceed the votes cast “AGAINST” the proposal. For these votes, abstentions and broker non-votes will be disregarded and will have no impact on the vote. Because your votes on executive compensation are advisory, they will not be binding upon the Company or the Board. However, the Compensation Committee will consider the outcome of the votes when considering future executive pay.
OTHER INFORMATION
ADDITIONAL SHAREHOLDER MATTERS
OTHER BUSINESS
Our Bylaws require shareholders to give advance notice of any proposal intended to be presented at the annual meeting. The deadline for this notice has passed and the Company has not received any such notice. If any other matter properly comes before the shareholders for a vote at the meeting, however, the proxy holders will vote your shares in accordance with their best judgment.
SHAREHOLDER PROPOSALS FOR 2023 ANNUAL MEETING OF SHAREHOLDER AND NOMINATIONS
A shareholder who intends to have a shareholder proposal included in our Proxy Statement for our 2024 Annual Meeting of Shareholders pursuant to Rule 14a-8 under the Exchange Act must submit the proposal so that it is received by the Secretary of the Company at the mailing address below no later than December 27, 2024. Any submission must comply with all the requirements of Rule 14a-8 applicable to shareholder proposals.
The Company’s Bylaws generally require advance written notice from a shareholder seeking to present any nominations for election to the Board of Directors or any other proposal, not for inclusion in next year’s proxy statement but directly at the 2024 Annual Meeting of Shareholders. Pursuant to the Bylaws, notice must be received by the Secretary of the Company at the mailing address for our principal executive offices at Citizens, Inc., P.O. Box 149151, Austin, Texas 78714-9151 no earlier than the close of business on February 7, 2024, and no later than the close of business on March 8, 2024. The notice must include all of the information required by the Company’s Bylaws.
The mailing address to send a shareholder proposal or nomination for election to the Board is:
Citizens, Inc.
Attn: Secretary / Chief Legal Officer
11815 Alterra Parkway, Floor 15,
Austin, TX 78758
In order to curtail controversy as to the date on which a proposal was received by us, it is suggested proponents submit their proposals by certified mail-return receipt requested.
ANNUAL REPORT ON FORM 10-K
The Annual Report, which includes our Form 10-K and accompanies this Proxy Statement, is not considered a part of the proxy solicitation material. We will furnish to any shareholder, without charge, a copy of our Annual Report, as filed with the SEC. A request for the report can be made in writing to the Secretary of the Company at Citizens, Inc., P. O. Box 149151, Austin, Texas 78714-915. The Form 10-K and other public filings are also available through the SEC’s website at www.sec.gov and on our website at www.citizensinc.com.
HOUSEHOLDING
The SEC rules allow us, subject to certain conditions, to send only one Proxy Statement and Annual Report or Notice to two or more shareholders who share the same last name and address. This “householding” rule provides greater convenience for our shareholders and cost savings for us by reducing the number of duplicate documents that households receive. Also, this allows us to be more environmentally friendly by reducing the unnecessary use of materials. Please note that each shareholder will continue to receive a separate proxy card, which will allow each individual to vote independently.
If you are a Citizens, Inc. shareholder who resides in the same household with another Citizens, Inc. shareholder with the same last name, or if you hold more than one account with Computershare registered in your name at the same address and wish to receive a separate or single proxy statement and annual report or notice for each account, please contact our transfer agent, Computershare.
Computershare Investor Services
P. O. Box 505000
Louisville, KY 40233-5000
Shareholder Services Number(s): 877-785-9659 (toll free within the USA, US territories & Canada) or
1-781-575-4621 (International Direct Dial). Investor Centre™ portal: www.computershare.com/investor.
You may revoke your consent at any time by contacting Computershare using the same contact information as set forth above.
Citizens, Inc. 2023 Proxy Statement
Citizens (NYSE:CIA)
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