2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 446 measureswerebasedonareviewofmarketconditionsandexpectationsofothercompaniesinthe industryaswellasourfinancialplanfor2017(“2017Plan”).The2017Planwasthebasisofour2017 earningsguidance,whichwaspubliclydisclosedinFebruary2017inconnectionwithourreleaseof earningsfortheyearendedDecember31,2016.TheCommitteebelievesthattyingtheAIPto Companyperformanceprovidesappropriatealignmentforanexecutive’scompensationasit recognizesthattheCompanyasawholemustperformwellinordertodelivervaluetoour Shareholders.Further,tyingalltheNEOs’AIPawardstotheperformanceofspecificbusinesslines incentivizescooperationamongthebusinesslineleaders.ItisthegoaloftheCommitteetoestablish measurementsandtargetsthatarereasonable,butnoteasilyachieved.Themeasuresandtargetsare discussedwiththeCEO,otherNEOs,othermembersoftheBoardandCAPbeforetheyareset. EachMarch,theCommitteecertifiesperformanceanddeterminesAIPpayoutsfortheprioryear. Basedonthe2017resultsof95.46%oftargetforMs.ZuraitisandtheotherNEOs,the2017AIP payouts(paidinMarch2018)wereasfollows: 2017AIPMeasures (in$M) Threshold Target Maximum Actual Results Weighting Payout AdjustedOperatingIncome 77.9 83.8 92.5 87.2 139% 50% 69.48% P&CNetPremiumWritten 651.7 662.7 673.7 662.8 101% 20% 20.18% HoraceMannRetirement Sales 422.3 435.3 448.3 367.3 0% 20% 0.00% HoraceMannLifeSales 17.6 18.5 19.4 17.74 58% 10% 5.80% Total 100% 95.46% NamedIndividual 2017Target AIPOpportunity 1 2017Actual AIPPayout 2017ActualAIPPayout asa%ofBaseSalary MaritaZuraitis 100% $803,455 94.52% BretA.Conklin 35%/50% $134,200 41.94% MatthewP.Sharpe 60% $236,264 56.93% WilliamJ.Caldwell 60% $212,398 56.64% DonaldM.Carley 40% $114,552 38.18% (1)Mr.Conklin’sTargetAIPOpportunitywasincreasedto50%uponhispromotiontoEVP&CFO 95.5% HistoricalAIPPayout 2013 2014 2015 2016 2017 139.5% 112.2% 149.0% 112.3% 2018ProxyStatement ‰ CompensationDiscussionandAnalysis 27 Total of 02 pages in section CompensationDiscussionandAnalysis providingadirectlinktoshareprice,seeingthatourexecutivesmaintainrobustlevelsofshareownership,andproviding strongincentivesforretentionofkeyexecutives.Wegrantrestrictedstockunitsinpartbecausethevalueistiedtoshare price,whichbalancestherisk-takingincentivethatmaybeassociatedwithstockoptionsorperformanceshares.Although wehavechosenafour-yearvestingperiod,ourrestrictedstockunitshaveaminimumvestingperiodofnotlessthanthree years,withratablevestingovertheperiod,underKey’s2013EquityCompensationPlan. StockOptions StockoptionsallowourNamedExecutiveOfficerstopurchasesharesatapricenotlessthanthegrantdateclosingpriceof ourcommonsharesontheNewYorkStockExchange(or,ifthereisnoreportedclosingpriceonthegrantdate,theclosing priceontheprecedingbusinessday).Stockoptionsvestratablyoverafour-yearperiodandhaveaten-yearterm.Although wehavechosenafour-yearvestingperiod,ourstockoptionshaveaminimumvestingperiodofnotlessthanthreeyears, withratablevestingovertheperiod,underKey’s2013EquityCompensationPlan. Webelievethatstockoptionsareaneffectivetooltoaligntheinterestsofourshareholderswiththoseofourexecutivesas longastheyareappropriatelyrisk-balancedandgrantedinmeasuredamounts.Ourregulators,however,haveexpressed concernsabouttheleverageassociatedwithstockoptionsandthepossibilityofexecutivesrealizingadisproportionate award;accordingly,since2013,wehavelimitedourusageofstockoptionsto10%ofeachNamedExecutiveOfficer’s annuallong-termincentiveopportunity. Total Pay of Our Named Executive Officers Thefollowinginformationhighlightsthe2017compensationactionsapprovedbytheCompensationCommitteeforour NamedExecutiveOfficerswithrespecttotheirperformancein2017aswellastheapprovedpayoutlevelofour2015awards ofperformanceshares,whichvestedin2018,basedonourperformancebetween2015and2017. ActualTotalPayfor2017Performance ThefollowingtableshowstheCompensationCommittee’s2017totalpaydecisionsforourNamedExecutiveOfficers.The amountsreportedinthetablediffersubstantiallyfromthosereportedfor2017intheSummaryCompensationTablewhich reflectlong-termincentivesgrantedduringayear,ratherthanafteryear-end,evenifawardedforservicesinthatyear.We considerlong-termincentivesgrantedduringagivenyeartobepartoftheprioryear’scompensation. Afterassessingeachindividual’sperformanceduring2017,theCompensationCommitteeapprovedtheannualandlong- termincentiveawardsforourNamedExecutiveOfficersdescribedbelow: ActualTotalPay Name Base Salary Actual2017 Annual Incentive Award ($)(1) Actual2018 Long-Term Incentive Award ($)(1) Total Actual Pay Total Incentive Deferred (%)(2) BethE.Mooney 1,000,000 2,675,000 5,325,000 9,000,000 67% DonaldR.Kimble 650,000 1,400,000 1,550,000 3,600,000 53% ChristopherM.Gorman 700,000 2,000,000 2,600,000 5,300,000 57% AndrewJ.“Randy”PaineIII 500,000 1,700,000 1,900,000 4,100,000 53% AmyG.Brady 650,000 1,000,000 1,000,000 2,650,000 50% (1) Werequirethatatleast50%ofthe“totalincentive”—thatis,thesumofthe2017annualincentiveactuallyearnedandthetargetvalueof 2018long-termincentives—ofeachNamedExecutiveOfficer(60%forourChairmanandCEO)bedeliveredintheformofdeferred compensation,subjecttoamulti-yearvestingscheduleandrisk-adjustedvesting.Ifthetotalincentivedoesnotsatisfythisrequirement, aportionoftheNamedExecutiveOfficer’sdiscretionarycashincentiveisdeliveredasdeferredcompensation. (2) ThiscolumnshowstheactualpercentageofeachNamedExecutiveOfficer’stotalincentivedeliveredasdeferredincentive compensation,includinganyportionoftheNamedExecutiveOfficer’sannualincentiverequiredtobedeferred. 31 Total of 03 pages in section CompensationDiscussionandAnalysis VehiclesandVesting Thelong-termincentiveawardsgrantedtoourNamedExecutiveOfficersin2018weredeliveredasfollows: VehiclesandWeight (subjecttoRisk-AdjustedVesting) 40%RestrictedStock Units 10%StockOptions 50%CashPerformance Shares 60%PerformanceBased Long-TermIncentiveAwardAllocation • Weconsidercashperformancesharesandstockoptions tobeperformancebasedvehicles. • Cashperformancesharesaresubjecttoathree-year performanceperiod. • Stockoptionsonlyhavevaluetotheextentourshare priceincreases,whichcreatesadirectlinktoour performance. • Restrictedstockunitsareanimportantvehicleasthey encourageexecutivestopreservelong-termstockvalue, helpbalanceriskandreward,andmaintainalinkto shareholdervaluecreation. Performanceawardshavethree-yearcliffvestingandrestrictedstockunitsandstockoptionshavefour-yearratablevesting. 2018CashPerformanceShares Thecashperformancesharesgrantedin2018provideourNamedExecutiveOfficerswiththeopportunitytoreceivebetween 0%and150%oftheir“target”numberofcashperformancesharesbasedonourlevelofachievementofthefoll wing performancegoalsduringthethree-yearperformanceperiodendingonDecember31,2020: 2018-2020Long-TermIncentivePlan PerformanceRequiredforPayout OtherFactors (VestingReductionOnly) PerformanceGoals Weight Min. Target Max. TSRvs.Peers 25% 25%ile 50%ile 75%ile • ERMDashboard • ExecutionofStrategic Priorities • Otherfactors,asappropriate ReturnonTangibleCommonEquityvs. Peers 25% 25%ile 50%ile 75%ile CumulativeEarningsPerShare 50% 75%ofPlan 100%ofPlan 125%ofPlan The“target”numberofcashperformancesharesgrantedwasdeterminedbydividing50%ofeachNamedExecutive Officer’slong-termincentiveopportunitybythegrantdateclosingpriceofourcommonsharesof$21.02onFebruary16, 2018.Althoughthevalueofthesecashperformancesharesisdirectlytiedtoshareprice,anypayoutwillbeintheformof cash. TheCompensationCommitteebelievesthateachoftheperformancegoalssetforthabovestronglycorrelatestolong-term shareholdervaluecreation.Whenselectingtheperformancegoals,theCompensationCommitteeconsideredthatEPSalso isaperformancemetricinourAnnualIncentivePlan,butdeterminedthatachievementofthree-yearEPSgoalsrewards sufficientlydifferentperformancethanannualEPSgoals.The“otherfactors”includedintheperformancemetrics ayonly reducethevestingofcashperformancesharesif,intheCompensationCommittee’sjudgment,performancewithregardto these“otherfactors”isinsufficient. TheCompensationCommitteebelievesthatcashperformancesharesencourageourNamedExecutiveOfficerstomake decisionsandtodeliverresultsoveramulti-yeartimeperiod,therebykeepingafocusonourlong-termperformance objectives.Inaddition,cashperformancesharesallowustoretainexecutivetalentbecauseexecutivesgenerallymust remainemployedthroughtheendoftheperformanceperiodtorealizethefullvalueoftheaward. RestrictedStockUnits RestrictedstockunitsallowourNamedExecutiveOfficerstoreceivecommonsharessubjecttotheircontinuedemployment duringafour-yearvestingperiod.Restrictedstockunitsaligntheinterestsofourexecutiveswiththoseofourshareholdersby 30 HORACE MANN EDUCATORS CORPORATION KEYCORP AnnualIncentive Plan Our AIP is a cash incentiveplan,administeredunder the CECP,anddesignedto drive andreward strong performance over a one-year period. Annually,the Committee establishesthe performance objectives,threshold, target andmaximum performance levels,andthe related threshold, target and maximum AIP opportunitiesfor eachNEO, expressedas a percentageof basesalary. Target incentive opportunity levelsfor the NEOs are intendedto approximate the medianof the target bonuspotential for similarlysituated executivesincomparablecompanies.Maximum incentiveopportunitiesar set at 200% of target. For 2017, there were four performance measures, with50% of the awardbasedon Company-widen t operatingincome, andthe remaining50% dividedamong specificsalesandpremiums of the ifferent businesslines:P&Cnet written premium (20%), retirement sales(20%), andlifesales(10%), as showninthe chart below.Thisprovidesa balancebetweenshareholderreturn andgrowth, while complementingthe longer-term LTIP metrics, whichfocus on long-term shareholdervaluecreation. 2017AnnualIncentive Plan PerformanceMeasures P&CNetPremiumWritten (GAAP) HMNRetirementSales HMN LifeSales AdjustedOperating Income 50% 20% 20% 10% AdjustedOperating Income - Operating income(GAAP net incomeafter tax, excludingrealizedinvestment gainsand lossesother than those for FixedIndexed Annuityrelated optionsandembedded derivatives) adjustedfor P&Ccatastrophe costs different than the annualPlan, Annuity& Life deferred acquisitioncosts (“DAC”) unlockingandchangein guaranteedminimum death benefit (“GMDB”) reserve dueto capitalgainsand lossesandmarket performance different than Plan,the impact on investment income of share repurchases different than Plan, anddebt structure/costs includingdebt retirement different than Plan. P&CNet Premium Written (GAAP) - Amount chargedfor property andcasualtypolicies issuedduringthe year. (Portions of such amounts may be earnedandincludedin financialreports over future periods.) Retirement Sales - Theamount of new businessfrom the salesof HoraceMann annuityproducts, from HoraceMann and independentagents, as measured by premiums anddepositsto be collectedover the 12 months followingthe sale. LifeSales -TheamountofnewHoraceMann individuallifeinsuranceproductssoldduring theyear,asmeasuredbypremiumsand depositstobecollectedoverthe12months followingthesale. Allthe NEOs’2017annualincentiveamounts are basedon the same corporate andbusinessline objectivesto promote cooperation.Thetargets for the operatingincomeandsalesor premium 26 2018ProxyStatement ‰ CompensationDiscussionandAnalysis CompensationDiscussionandAnalysis 2017Performance& Funding Forthe2017performanceperiod,theCompensationCommitteeapproveda115%fundingrateforour2017AnnualIncentive PlanbasedonourachievementofperformanceagainstthefinancialandstrategicgoalsinourAnnualIncentivePlansetforth inthefollowingtable: KeyCorp2017AnnualIncentivePlan PerformanceRequiredforPayout PerformanceGoals* Funding% Min. 50% Middle 100% Max. 150% Actual Result Funding Rate Weight Final Funding PPNR(inmillions) $1,772 $2,170–$2,259 $2,658 $2,375 118% 20% 24% EarningsPerShare(EPS) $ 0.96 $1.17–$1.22 $ 1.44 $ 1.36 133% 20% 27% CashEfficiencyRatio 65.3% 61.8%–60.9% 57.7% 60.2% 114% 20% 23% RelativeProgresstoPeers Bottom Quartile Middle Quartiles Top Quartile Middle Quartiles 100% 20% 20% ValueAttainment(inmillions) $ 400 $445 $ 500 $ 460 113% 20% 22% CalculatedFunding 116% CompensationCommitteeApprovedFunding 115% * PPNR,CashEfficiencyRatioandEPSexcludenotableitemsandanyothermajorrestructuringchargesagreedtobytheCompensation Committee.PleaseseeFigure2beginningonpage36ofour2017AnnualReportonForm10-Kfortheidentificationofnotableitems. RelativePerformancetoPeers Measure ActualResult RevenueGrowth TopQuartile PPNRGrowth TopQuartile TangibleCommonEquityRatio MiddleQuartiles NetCharge-Offs/AverageLoans MiddleQuartiles Beforeestablishingthisfundinglevel,theCompensationCommitteeconsideredourEnterpriseRiskManagement(“ERM”) dashboardandwhetheranyeventoccurredorwasrealizedin2017thatwarrantedanadjustmenttofunding.The CompensationCommitteedeterminedthatnoeventwarrantedareductiontoourAnnualIncentivePlanfunding. 2018Long-Term Incentives AllNamedExecutiveOfficersareeligibletoreceivelong-termincentiveawardsthataregrantedbasedonprioryear performancebutanticipatefuturecontributionsthroughtheuseofavestingschedulegenerallyrequiringtheexec tive officertoremainemployedtorealizethefullvalueoftheaward. 29