DEF 14A of Citizens, Inc.
Filed Apr 29, 2024 · FY20230000024090-24-000079
DIRECTOR NOMINEES
DIRECTOR NOMINEES The Company’s Board consists of a diverse group of leaders in their respective fields and almost all have extensive experience in the life insurance industry. In these positions, they have gained broad management and industry experience, including strategic planning, business development, compliance, risk management, and leadership development. In addition, some of our directors have experience serving as executive officers, or on boards of directors, of other public or private companies where they have gained experience in governance and compensation matters. Two of our directors are former elected officials who had oversight for insurance responsibilities in their elected roles, and thus bring unique perspectives to the Board. The name, age and other information for each director nominee is listed below.
DIRECTOR NOMINEES
| | Gerald W. Shields, 66 | | | Citizens’ Chief Executive Officer since January 1, 2022; served as Interim Chief Executive Officer and President from August 2020 through December 31, 2021 | | | Director since 2017; Vice-Chairman of the Board since February 2020 | | | Other Current Public Boards: 0 | | | Certifications: FLMI; Cyber Security Oversight Certificate (Carnegie Mellon) | | | Education: B.A. - Accounting and Computer Science, Baylor University |
DIRECTOR NOMINEES
Mr. Shields, our Chief Executive Officer, is a seasoned life insurance executive who brings life insurance and information technology experience to our Board. He has more than 30 years’ experience in health insurance management, as well as professional certifications from Harvard University’s Kennedy School of Government, Massachusetts Institute of Technology’s Chief Network Officers Program, and Aubrey Daniels International. He has been named twice in CIO Magazine’s Top 100 CIOs of the Year and has also been the recipient of ComputerWorld’s Top 100 CIO Award. Prior to Citizens, Mr. Shields served as Chief Information Officer at FirstCare Health Plans from July 2015 to October 2018, and as Senior Vice President and Chief Information Officer at AFLAC from 2002 to 2011. Mr. Shields’ significant technology and insurance experience are instrumental to the Board’s oversight as the Company advances its strategic technology objectives.
DIRECTOR NOMINEES
| | Christopher W. Claus, 63 Independent Director | | | Retired executive of USAA of San Antonio | | | Director since 2017 | | | Committees: Investment Committee (Chair), Compensation Committee, Executive Committee | | | Other Current Public Boards: 0 | | | Education: B.A. - Business, University of Minnesota - Duluth M.B.A. – University of St. Thomas |
DIRECTOR NOMINEES
Mr. Claus had a 20-year career as an executive at USAA of San Antonio, Texas serving in various roles, including Executive Vice President of USAA’s Enterprise Advice Group from 2013 to 2014, President of USAA’s Financial Advice and Solutions Group from 2007 to 2013, and President of USAA’s Investment Management Company from 2001 to 2006. Until 2023, he served as a director of TrueCar, Inc. Having served as President of USAA’s Investment Management Company, Mr. Claus brings insurance executive experience and asset management expertise critical to the success of our Company and Board. In his role as Chairman of our Investment Committee, Mr. Claus has strengthened the Board’s oversight of the Company’s assets under management.
DIRECTOR NOMINEES
| | Cynthia H. Davis, 58 Independent Director | | | Life Insurance Underwriter at NFP Corp./Partners Financial | | | Director since 2021 | | | Committees: Nominating and Corporate Governance Committee (Chair), Executive Committee | | | Other Current Public Boards: 0 | | | Certifications: FLMI, FALU, LOMA certified Associate - Customer Service | | | Education: B.A. – Economics, University of Georgia |
DIRECTOR NOMINEES
Ms. Davis is a seasoned executive in the life insurance industry with over 30 years of underwriting in both the carrier and brokerage side. She is currently the Vice President and Senior Underwriting Consultant at NFP/Partners Financial providing underwriting expertise specializing in complex high net worth cases, foreign nationals and offshore insurance. Previously, Ms. Davis was the Chief Underwriter at Financial Industries Corporation (FIC) and Great American. Ms. Davis is also involved with the Texas Wide Underwriting planning board. Ms. Davis’ brings to the Board deep knowledge of the insurance industry, which she developed during her long and successful career in the life insurance industry. With significant global experience with both reinsurers and high net worth foreign insureds, she adds valuable and unique expertise to our Board.
DIRECTOR NOMINEES
| | Jerry D. “Chip” Davis, 73 Independent Director | | | Retired life insurance company CEO - National Farm Life Insurance Company | | | Director since 2017; Chairman of the Board since February 2020 | | | Committees: Compensation Committee (Chair), Executive Committee (Chair), Investment Committee | | | Other Current Public Boards: 0 | | | Certifications: FLMI | | | Education: B.S. – Business, Tarleton State Masters – Business Administration – Tarleton State University |
DIRECTOR NOMINEES
Mr. Davis is a seasoned and proven life insurance executive, having had a 46-year insurance career with National Farm Life Insurance Company (“NFLIC”). Mr. Davis began his career with NFLIC as a Mortgage Loan officer in 1977 and become Senior Vice President and Chief Investment Officer in 1981. He served as President and Chief Executive Officer of NFLIC from 2004 to January 2016. Mr. Davis has served on the board of NFLIC since 2004 and currently serves as chairman. Mr. Davis’ career as a life insurance executive and service as Chief Investment Officer of a life insurance company brings tremendous experience to our Board and Investment Committee. Specifically, he has experience dealing with state insurance regulators and auditors. His service as as Chief Investment Officer of NFLIC strengthens the investment Committee’s oversight of the Company’s assets under management. There is no family relationship between Cynthia Davis and Chip Davis.
DIRECTOR NOMINEES
| | Dr. Terry S. Maness, 75 Independent Director | | | Former Dean at Baylor University’s Hankamer School of Business | | | Director since 2011 | | | Committees: Audit Committee (Chair), Executive Committee | | | Other Current Public Boards: 0 | | | Certifications: Certified Cash Manager | | | Education: B.A. and M.S. – Economics, Baylor University M.B.A. and Doctor of Business Administration – Indiana University |
DIRECTOR NOMINEES
Dr. Maness served as Dean at Baylor University's Hankamer School of Business from 1997 through 2021 and was named Dean Emeritus upon his retirement. Previously, Dr. Maness served as Acting Dean at Baylor University from 1996 to 1997, Associate Dean for Undergraduate Programs at Baylor University from 1978 to 1981 and Chairman of the Department of Finance, Insurance and Real Estate at Baylor University from 1985 to 1996. Dr. Maness is an owner of Business Value Consultants and has owned the company since 1989. In addition to Citizens, he serves on the board of a privately held bank and some nonprofit boards as a way of serving his community. Dr. Maness’ background as Dean of one of the leading business schools in the United States brings a strong academic presence to our board. He has operated effectively at the highest levels in the academic and business community. He is the author of five books about financial analysis and financial management, and also a contributing author to various publications, such as Journal of Finance, Journal of Banking and Finance, Journal of Financial Education, Journal of Portfolio Management, Journal of Financial and Quantitative Analysis, Journal of Futures Markets, Journal of Cash Management and Corporate Controller.
DIRECTOR NOMINEES
| | J. Keith Morgan, 73 Independent Director | | | Retired senior legal executive; Former Chief Legal Officer at TIAA-CREF | | | Director since 2021 | | | Committees: Audit Committee, Investment Committee | | | Other Current Public Boards: 0 | | | Education: B.A. – Economics, Duke University J.D., University of Virginia Law School | | | Military Veteran |
DIRECTOR NOMINEES
Mr. Morgan has decades of experience as a senior legal executive, most recently (2015 - 2018) as Chief Legal Officer & Senior Executive VP at TIAA-CREF, a $1 trillion retirement, insurance and asset management company. Mr. Morgan specializes in securities law, financial regulation, international transactions and mergers and acquisitions. Prior to TIAA-CREF, he spent nearly 20 years at GE, serving as general counsel and senior vice president of GE Commercial Finance Ltd. and GE Capital Corporation. Before joining GE, Mr. Morgan served as the managing partner of Gibson, Dunn & Crutcher's London, Paris, and Saudi Arabia offices. Earlier in his career, he served in the U.S. Navy Judge Advocate General's Corps. Mr. Morgan’s experience as the Chief Legal Officer of major insurance and asset management companies has provided him with a substantive understanding of the risks, including investment risks, related to a highly regulated company such as Citizens.
DIRECTOR NOMINEES
| | Mary Taylor, 58 Independent Director | | | Senior Vice President, Operations and Finance at Northeast Ohio Medical University | | | Director since 2021 | | | Committees: Audit Committee, Nominating and Corporate Governance Committee, Compensation Committee | | | Other Current Public Boards: 0 | | | Certifications: CPA | | | Education: B.S. – Accounting, University of Akron Master of Taxation, University of Akron |
DIRECTOR NOMINEES
Ms. Taylor is a Certified Public Accountant and recognized tax and auditing expert with over 30 years of experience in the public and private sector. Since 2020, she has served as the Vice President, Operations and Finance at Northeast Ohio Medical University. During 2019, she served as Executive Vice President and Chief Financial Officer of Welty Building Company and from August 2019 through March 2020 also served as the Chair of the Finance and Operations Advisory Committee. She has served in the following elected positions: •2011 to 2019 - Lieutenant Governor of Ohio ◦Served as the Director of the Ohio Department of Insurance from 2011 to 2017 • 2007 to 2011 - Auditor of State of Ohio •2003 to 2006 - State Representative in Ohio ◦Served on the Finance, Ways and Means, and Education Committees Ms. Taylor has extensive experience in transforming operations, implementing automation in insurance and delivering results in complex tax cases with the IRS and the Department of Labor. Her unique mix of experience gives her a valuable perspective and ability to oversee management’s efforts to grow and develop Citizens’ business and its interactions with regulators as well as the ability to enhance shareholder value by leveraging her financial and risk management expertise and deep understanding of the insurance business.
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION The following table shows information regarding the compensation earned or paid during 2023 to members of the Board who were not Company employees during 2023. Mr. Shields was an employee during 2023 and thus did not receive any compensation as a director. Mr. Shields 2023 compensation is reflected on the Summary Compensation Table on page 43.
DIRECTOR COMPENSATION
| NAME | Fees Earned or Paid in Cash ($) | Stock Awards ($) (1) | All Other Compensation ($) | TOTAL ($) | | Christopher W. Claus | 115,000 | 40,000 | — | 155,000 | | Cynthia H. Davis | 110,682 | 40,000 | — | 150,682 | | Jerry D. Davis, Jr. | 115,000 | 40,000 | — | 155,000 | | Francis A. Keating | 105,000 | 40,000 | — | 145,000 | | Dr. Terry S. Maness | 115,000 | 40,000 | — | 155,000 | | J. Keith Morgan | 105,000 | 40,000 | — | 145,000 | | Dr. Robert B. Sloan, Jr. | 49,659 | — | — | 49,659 | | Mary Taylor | 105,000 | 40,000 | — | 145,000 |
DIRECTOR COMPENSATION
(1)The amounts reported in the Stock Awards column reflect the aggregate grant date fair value of awards of RSUs computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”). The grant date fair value is measured based on the closing price of the Company’s Class A common stock on the date of grant. See Note 13 to the Company’s audited financial statements for the fiscal year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K. Each non-employee director who was elected at our June 6, 2023 Annual Meeting of Shareholders received an annual director award valued at $40,000 on that date. Each of the RSUs will vest one year from the date of grant, June 6, 2024. As of December 31, 2023, each such non-employee director held all 18,182 RSUs. (2)Pursuant to our Board Refreshment Policy, Dr. Robert B. Sloan, Jr. did not stand for re-election to the Board in 2023. The amount reported in the Fees Earned or Paid in Cash Column reflects the prorated cash retainer and fees for service as director paid until the expiration of his term on June 6, 2023.
Narrative to the Director Compensation Table
Narrative to the Director Compensation Table Non-employee directors receive compensation for their service on the Board as follows (amounts are per year, beginning as of the date of election and paid in 24 equal installments throughout the year, subject to continued service):
Narrative to the Director Compensation Table
| Annual cash retainer | $105,000 | | Additional cash retainer for Chair of the Board and Chair of each committee of the Board | $10,000 |
Narrative to the Director Compensation Table
Directors do not receive fees for attending Board or Committee meetings. Additionally, each non-employee director receives an annual grant of RSUs, which is granted on the date of each annual meeting and vests at the expiration of the elected term (one year). Upon vesting, the Company will deliver one share of Class A common stock for each RSU. Based on the Compensation Committee's work in 2021 with our independent compensation consultants, which evaluated the director compensation program in light of the Company's adoption of a new peer group in 2021, the amount of the annual equity grant was increased from $10,500 in 2021 to $32,500 in 2022 and $40,000 in 2023. We also provide up to a $5,000 reimbursement to each director for director education. This amount is not reflected in the compensation table above, as we consider it a normal course reimbursement necessary for a director to provide service to the Company. No other compensation was paid to our non-employee directors.
UPDATING OUR COMPENSATION PRACTICES
| 2017 | In 2017, after the appointment of Geoffrey Kolander as Chief Executive Officer, the Company engaged an independent compensation consultant for the first time and following its compensation review, the Compensation Committee implemented pay-for-performance elements in the executive compensation program. In 2017, our shareholders approved our first equity incentive plan, which allowed us to incorporate long-term equity as a component of our executive compensation program. | | •Added pay-for-performance elements for first time | | | ◦Cash incentive-based bonuses | | | •Shareholders approved our first equity incentive plan | |
UPDATING OUR COMPENSATION PRACTICES
| 2018 | | •Added equity - based incentive compensation to enhance alignment of executives and shareholders | | ◦RSUs with 2-year time-based vesting terms |
UPDATING OUR COMPENSATION PRACTICES
| 2020 | | •Based on negative say-on-pay vote at 2019 Annual Meeting of Shareholders, implemented formulaic scorecard to assess and measure performance for annual incentives |
UPDATING OUR COMPENSATION PRACTICES
| 2021 | | •Incorporated more quantifiable financial and operating metrics in annual incentive program to give less discretion in awarding bonuses | | •Awarded RSUs based on achievement of performance goals and once received, lengthened vesting period to 3 years | | •In December 2021, entered into new CEO agreement (effective January 1, 2022) with market-based compensation below the median of our peer group and standard double trigger severance provisions |
UPDATING OUR COMPENSATION PRACTICES
Based on changes, in 2021 we received a favorable say-on-pay vote, with 76% of our shareholders supporting our executive compensation program.
UPDATING OUR COMPENSATION PRACTICES
| 2022 & 2023 | | •Changes to our Chief Executive Officer Compensation led to 97% of our shareholders supporting our say-on-pay proposal in 2022 and 92% in 2023. |
UPDATING OUR COMPENSATION PRACTICES
Mr. Shields was appointed as our Chief Executive Officer, effective January 1, 2022, and entered into an Employment Agreement with the Company (the “Shields Employment Agreement”, as further described on page 45). During the search for a permanent Chief Executive Officer, the Compensation Committee worked extensively with the Company’s external compensation consultant to structure a market compensation package. The Shields Employment Agreement reflects this structure and provides the following: Base salary: $775,000 Short-term cash incentive opportunity: target of $600,000 Long-term equity incentive opportunity: target of $250,000 Relocation payment: $15,000 Additionally, the Shields Employment Agreement contains a standard, double-trigger severance payment in the event he is terminated in connection with a change-in-control of the Company, with pay limited to two times the sum of Mr. Shield's base salary at the time of termination and Mr. Shields' most recent annual bonus. The initial term of the Shields Employment Agreement is two years. The chart below compares the compensation in 2019 and 2020 of our former CEO, Geoffrey Kolander (the compensation that received the negative say-on-pay vote) to the compensation offered to Mr. Shields pursuant to his Employment Agreement.
UPDATING OUR COMPENSATION PRACTICES
| Base Salary: | | | Kolander: | $1,000,000 | | Shields: | $775,000 | | Non-Performance Based Compensation: | | | Kolander: | $300,000 cash retention bonus and $1,000,000 fully vested RSUs | | Shields: | $0 | | Short-Term Incentive Target Compensation (cash): | | | Kolander | $1,200,000 | | Shields: | $600,000 | | Long-Term Incentive Target Compensation (equity): | | | Kolander: | $1,200,000 | | Shields: | $250,000 |
UPDATING OUR COMPENSATION PRACTICES
| 2024 | | •Introduction of Long-Term Incentives in the form of Performance Share Units |
UPDATING OUR COMPENSATION PRACTICES
In March 2024, the Board modified the compensation of the Company's executive officers to REDUCE the amount tied to the annual short-term bonus and ADD a long-term component (LTIP) that consists of 40% RSUs and 60% Performance Share Units (PSUs). The RSUs vest in 1/3 increments on the first, second and third anniversary of the grant and thus act as a retention tool. The PSUs only vest at the end of 3 years if certain performance metrics are met. The LTIP is effective for the 2024 year and will be described in more detail in the Proxy Statement for the 2025 Annual Meeting of Shareholders.
KEY ELEMENTS OF EXECUTIVE COMPENSATION IN 2023
KEY ELEMENTS OF EXECUTIVE COMPENSATION IN 2023 The key elements of our executive compensation program for 2023 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 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 Compensation Consultant. The Compensation Committee is responsible for selecting, retaining and reviewing the performance of the Company's independent compensation consultant. In 2023, the Compensation Committee continued to engage Meridian Compensation Partners ("Meridian") as its independent compensation consultant. 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 2023 Meridian did not provide 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 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. In setting executive officer compensation for 2023, the Compensation Committee used Peer Company Data from the following comparable companies (the “Peer Group”):
Annual Bonus Opportunity
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.
Annual Bonus Opportunity
| | Establish Performance Objectives ("Milestones") |
Annual Bonus Opportunity
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 executive officers. The process for establishing the performance objectives starts at the beginning of the year, when 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). The longer-term goals are intended to drive long-term profitable growth by increasing sales, retaining revenue, focused execution and financial discipline. In 2023, the performance objectives (the “2023 Milestones”) were:
Annual Bonus Opportunity
| First Year Sales Increase | Improve Policy Retention | Roadmap Execution | Financials & Expense Discipline | | Achieve first year sales growth across all 3 markets. Specific first year sales targets were established for International, Domestic and for our Home Service Insurance segment. Payouts eligible 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 were 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, including: •Complete transfer of business from Bermuda to Puerto Rico •Implement LDTI to meet schedule and budget •Deliver 2-3 new products / riders •Deliver as per approved roadmap to improve sales and service across all markets all sales levers (product, promotion, and process) •Manage and deliver 2-3 new domestic distribution partners | • •120% Payout Goal: Net Pre-tax income of ~117% of budget •100% Payout Goal: Net Pre-tax income of ~108% of budget •80% Payout goal: Achieve budgeted Net Pre-tax income | | | | | |
Annual Bonus Opportunity
| | Setting the Annual Bonus Opportunity |
Annual Bonus Opportunity
The Annual Bonus opportunity for each Named Executive Officer and Section 16 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. The 2023 target Annual Bonus opportunity for each Named Executive Officer and Section 16 Officer was:
Annual Bonus Opportunity
| Named Executive Officers | Base Salary | Cash Bonus Target Value | Equity Bonus Target Value | | Gerald W. Shields | $775,000 | $600,000 | $250,000 | | Jeffery P. Conklin | $430,000 | $170,000 | $150,000 | | Sheryl Kinlaw | $350,000 | $150,000 | $150,000 | | Robert M. Mauldin III | $350,000 | $160,000 | $150,000 | | Harvey J. L. Waite | $345,000 | $125,000 | $130,000 |
Annual Bonus Opportunity
| | Tying the Annual Bonus Opportunity to the Milestones |
Annual Bonus Opportunity
The Compensation Committee ties a percentage of each executive officer’s Annual Bonus opportunity to each milestone with a higher percentage tied to the milestone 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 2023, the Compensation Committee weighed the milestones as follows:
Annual Bonus Opportunity
| 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 | 25% | 25% | 25% | 25% | | 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% |
Annual Bonus Opportunity
| First Year Sales Increase | | Achieve first year sales growth across all 3 markets. Specific first year sales targets were established for International, Domestic and for our Home Service Insurance segment. Payouts eligible at 80% of goal, 100% of goal and 120% of goal for each. | | |
Annual Bonus Opportunity
| MILESTONE 1 | | | | | | | Weightx | 80% | = | Payout | | INTERNATIONAL | 33.3% | 0.8 | | 0.2664 | | DOMESTIC | 33.3% | 0.8 | | 0.2664 | | HOME SERVICE | 33.3% | 0.8 | | 0.2664 | | | Weightx | 100% | = | Payout | | INTERNATIONAL | 33.3% | 1 | | 0.333 | | DOMESTIC | 33.3% | 1 | | 0.333 | | HOME SERVICE | 33.3% | 1 | | 0.333 | | | Weightx | 120% | = | Payout | | INTERNATIONAL | 33.3% | 1.2 | | 0.3996 | | DOMESTIC | 33.3% | 1.2 | | 0.3996 | | HOME SERVICE | 33.3% | 1.2 | | 0.3996 | | The threshold amount that an executive officer could earn for this Milestone (other than $0 for no achievement) would be 80% achievement of one of the three markets - International, Domestic or Home Service, which would result in a 26.64% payout for Milestone 1. The maximum amount would be achievement of 120% of all revenue goals, which would result in a 120% payout for Milestone 1. | | | | |
Annual Bonus Opportunity
| Improve Policy Retention | | Goal: Improve policy lapses and surrenders to improve in-force revenue while maintaining an established first year persistency level. Targets were 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. | | |
Annual Bonus Opportunity
| MILESTONE 2 | | | | | | | Weightx | 80% | = | Payout | | INTERNATIONAL | 50% | 0.8 | | 0.4 | | HOME SERVICE | 50% | 0.8 | | 0.4 | | | Weightx | 100% | = | Payout | | INTERNATIONAL | 50% | 1 | | 0.5 | | HOME SERVICE | 50% | 1 | | 0.5 | | | Weightx | 120% | = | Payout | | INTERNATIONAL | 50% | 1.2 | | 0.6 | | HOME SERVICE | 50% | 1.2 | | 0.6 | | The threshold amount that an 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 would be achievement of 120% of both retention goals, which would result in a 120% payout for Milestone 2. | | | | |
Annual Bonus Opportunity
| Roadmap Execution | | Maintain and execute on the approved 5 Quarter Roadmap, including: •Complete transfer of business from Bermuda to Puerto Rico •Implement LDTI to meet schedule and budget •Deliver 2-3 new products / riders •Deliver as per approved roadmap to improve sales and service across all markets all sales levers (product, promotion, and process) •Manage and deliver 2-3 new domestic distribution partners | | |
Annual Bonus Opportunity
| MILESTONE 3 | | | | | | | Weightx | 80% | = | Payout | | | 100% | 0.8 | | 0.8 | | | Weightx | 100% | = | Payout | | | 100% | 1 | | 1.0 | | | Weightx | 120% | = | Payout | | | 100% | 1.2 | | 1.2 | | The threshold amount that an 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 would be achievement of 120% of roadmap execution, which would result in a 120% payout for Milestone 3. | | | | |
Annual Bonus Opportunity
| Financials & Expense Discipline | | • •120% Payout Goal: Net Pre-tax income of ~117% of budget •100% Payout Goal: Net Pre-tax income of ~108% of budget •80% Payout goal: Achieve budgeted Net Pre-tax income | | |
Annual Bonus Opportunity
| MILESTONE 4 | | | | | | | Weightx | 80% | = | Payout | | | 100% | 0.8 | | 0.8 | | | Weightx | 100% | = | Payout | | | 100% | 1 | | 1.0 | | | Weightx | 120% | = | Payout | | | 100% | 1.2 | | 1.2 | | The threshold amount that an 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 would be achievement of 120% of financials & expense discipline, which would result in a 120% payout for Milestone 4. | | | | |
Annual Bonus Opportunity
Thus, the overall Annual Bonus opportunity for each Named Executive Officer and Section 16 Officer is as follows:
Annual Bonus Opportunity
| | Threshold Achievement of each Milestone(1) | Target (100% Achievement of each Milestone) | 120% Achievement of each Milestone | | Gerald W. Shields | $481,667 | $850,000 | $1,020,000 | | Jeffery P. Conklin | $204,800 | $320,000 | $384,000 | | Sheryl Kinlaw | $196,000 | $300,000 | $360,000 | | Robert M. Mauldin III | $157,067 | $310,000 | $372,000 | | Harvey J. L. Waite | $149,600 | $255,000 | $306,000 |
Annual Bonus Opportunity
(1)Calculated for each by (a) multiplying (i) the minimum threshold achievement percentage needed for a payout as set forth above (26.7% for Milestone 1, 40% for Milestone 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:
Annual Bonus Opportunity
| | Threshold Achievement Multiplier* | | Gerald W. Shields | 57% | | Jeffery P. Conklin | 64% | | Sheryl Kinlaw | 65% | | Robert M. Mauldin III | 51% | | Harvey J. L. Waite | 59% |
Annual Bonus Opportunity
* Rounded to nearest tenth of a percent.
Calculating the 2023 Annual Bonus
Calculating the 2023 Annual Bonus Because the calculation of the Annual Bonus opportunity is formulaic, following conclusion of the 2023 fiscal year, the Compensation Committee determines the achievement of each of the 2023 Milestones in order to calculate the 2023 Annual Bonus amount for each Named Executive Officer and Section 16 Officer.
Calculating the 2023 Annual Bonus
| 2023 Milestone | Percentage of Milestone Achieved | 2021 Key Accomplishments/Results | | First Year Sales Growth | 91% | •Achieved 100% for international, 91.8% for domestic and 80% for Home Services Insurance segment leading to 12% growth in first year premiums. | | Retention Improvement | 50% | •Achieved 100% goal for international life insurance and 0% goal for Home Services Insurance segment | | Roadmap Execution | 120% | •Delivered over and above plan on 5-quarter roadmap, which included completion of 55 projects, including all of those identified as goals described above. Key additional deliveries included: additional domestic distribution channels and agents, enhancements to our domestic enrollment portal to enhance agent and customer experience and achievement of first AM Best ratings. | | Financial and Expense Discipline | 0% | •Did not achieve budgeted Net Pre-tax income |
Calculating the 2023 Annual Bonus
Once the achievement percentages are set for each milestone, the Annual Bonus was calculated for each Named Executive Officer and Section 16 Officer by multiplying the percentage achieved for each milestone by such person's weighting for each such milestone to determine the bonus multiplier.
Calculating the 2023 Annual Bonus
| Named Executive Officer | First Year Sales Growth | = | Retention Improvement | = | Roadmap Execution | = | Financial & Expense Discipline | = | TOTAL | | Gerald W. Shields | .25 x .906 | 0.2265 | .25 x .5 | 0.125 | .25 x 1.2 | 0.3 | .25 x 0 | 0 | 65% | | Jeffery P. Conklin | .15 x .906 | 0.1359 | .2 x .5 | 0.1 | .25 x 1.2 | 0.3 | .40 x 0 | 0 | 54% | | Sheryl Kinlaw | .20 x .906 | 0.1812 | .10 x .5 | 0.05 | .35 x 1.2 | 0.42 | .35 x 0 | 0 | 65% | | Robert M. Mauldin III | .40 x .906 | 0.3624 | .20 x .5 | 0.1 | .30 x 1.2 | 0.36 | .10 x 0 | 0 | 82% | | Harvey J. L. Waite | .25 x 906 | 0.2265 | .20 x .5 | 0.1 | .35 x 1.2 | 0.42 | .20 x 0 | 0 | 75% |
Calculating the 2023 Annual Bonus
The total (bonus multiplier) is then multiplied by each Named Executive Officer and Section 16 Officer’s target Annual Bonus opportunity to determine the Annual Bonus earned.
Calculating the 2023 Annual Bonus
| Named Executive Officers | Cash Bonus Target Value | x | Cash Bonus Paid | Equity Bonus Target Value | x | Equity Bonus Granted | | Gerald W. Shields | $600,000 | .65 | $389,541 | $250,000 | .65 | $162,309 | | Jeffery P. Conklin | $170,000 | .54 | $90,872 | $150,000 | .54 | $80,181 | | Sheryl Kinlaw | $150,000 | .65 | $97,408 | $150,000 | .65 | $97,408 | | Robert M. Mauldin III | $160,000 | .82 | $131,004 | $150,000 | .82 | $122,817 | | Harvey J. L. Waite | $125,000 | .75 | $93,030 | $130,000 | .75 | $96,751 | | TOTAL | $1,205,000 | | $801,855 | $830,000 | | $559,466 |
Calculating the 2023 Annual Bonus
The Cash Bonus amounts paid to each Named Executive Officer and Section 16 Officer is reported under “Non-equity Incentive Plan Compensation” in the Summary Compensation Table on page 43. The Equity Bonus Granted amount set forth in the table above is divided by the closing price of our Class A common stock on March 28, 2024, the payout date for the Annual Bonus, to determine the number of Restricted Stock Units (RSUs) received. The RSUs vest over a 3-year period following the date of payment. Thus, our Equity Bonus component has both a performance-based compon ent, 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 2023 Executive Officer receives the stock over the following three years, subject to continued service with the Company and the Company's RSU Retirement Policy. 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.
Severance Arrangements
Severance Arrangements The Shields Employment Agreement provides for cash severance and other benefits in connection with a qualifying termination following a Change in Control. The Named Executive Officers (other than Mr. Shields) are entitled to potential payments and benefits pursuant to each of their Change in Leadership Agreement. A more detailed description of this agreement is set forth below in the section entitled “Potential Payments Upon Termination or Change in Control” beginning on page 46. As of December 31, 2023, the Company did not have any other severance arrangements in place with any of its executive officers.
Inducement Equity Grants
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 2023 or 2022.
RSU Retirement Policy
RSU Retirement Policy The RSU retirement policy defines 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.
Policies and Practices Related to the Grant of Certain Equity Awards Close In Time to the Release of Material Nonpublic Information
Policies and Practices Related to the Grant of Certain Equity Awards Close In Time to the Release of Material Nonpublic Information We do not grant options to any of our directors, officers or employees. For Restricted Stock Units granted to our executive officers in connection with pay-for-performance, the grants are made on the last day the stock market is open in the month of March, which is generally 2 weeks after we have filed our Annual Report on Form 10-K and prior year results in our earnings release.
Summary Compensation Table
Summary Compensation Table
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Stock Awards ($) (1) | Non-Equity Incentive Plan Compensation ($) (2) | All Other Compensation ($) | Total ($) | | Gerald W. Shields | 2023 | 775,000 | 234,999 | 389,541 | 1,200(3) | 1,400,740 | | Chief Executive Officer and President | 2022 | 775,000 | — | 564,000 | 15,000(4) | 1,354,000 | | Jeffery P. Conklin | 2023 | 430,000 | 107,605 | 90,872 | 15,988(3)(6) | 644,465 | | Vice President, Chief Financial Officer, Chief Investment Officer and Treasurer | 2022 | 430,000 | 99,805 | 156,400 | 12,200(3) | 698,405 | | Sheryl Kinlaw | 2023 | 350,000 | 94,998 | 97,408 | 14,200(3) | 556,606 | | Vice President, Chief Legal Officer and Secretary | 2022 | 300,000 | 40,335 | 128,250 | 12,194(3) | 480,779 | | Robert M. Mauldin III | 2023 | 350,000 | 140,999 | 131,004 | 26,939(3)(6) | 648,942 | | Vice President, Chief Marketing Officer | 2022 | 350,000 | 78,699 | 141,000 | 19,100(3)(5) | 588,799 | | Harvey J. L. Waite | 2023 | 343,750 | 86,398 | 93,030 | 34,000(3)(5)(6) | 557,178 | | Vice President, Chief Actuary | 2022 | 340,000 | 72,351 | 120,000 | 32,695(3)(5) | 565,046 |
Summary Compensation Table
(1)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 Note 13 to the Company’s audited financial statements for the fiscal year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K. 2023 - The 2023 RSU awards were granted on March 31, 2023 for achievement of 2022 performance goals and have three year vesting terms, subject to acceleration under certain circumstances as described herein. 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. (2)The amounts reflect the performance-based cash incentive bonus earned by each Named Executive Officer or Section 16 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 2023 column was earned for the goals achieved for 2023, even though not paid until March 2024. See “Annual Bonus Opportunity” starting on page 36 for additional discussion on achievement and payout of the 2023 non-equity incentive plan compensation. (3)Includes the Company’s contributions to the respective Named Executive Officer or Section 16 Officer's defined contribution plan and health savings account. Mr. Shields does not participate in the defined contribution plan. (4)15,000 relocation payment paid to Mr. Shields in 2022 pursuant to the Shields Employment Agreement. (5)2023 - Includes reimbursement for commuting to our headquarters in Austin, Texas, from his home outside of Texas in the amount of $16,458. For 2022, includes reimbursement for commuting to our headquarters in Austin, Texas, from their homes outside of Texas in the amount of $15,423 for Mr. Mauldin and $21,921 for Mr. Waite. (6) Includes a one-time bonus in the amount Mr. Conklin, Mr. Mauldin and Mr. Waite would have received for his 401(k) match in 2022 and 2021 if such person had spread their own 401(k) contributions evenly throughout the year rather than "frontloading" contributions. The amounts in the salary, bonus, and non-equity incentive plan compensation columns of the “Summary Compensation Table” reflect actual amounts earned in the relevant years (even if paid in a subsequent year), while the amounts in the stock awards column reflect the fair market values of equity granted during the year and not actual amounts paid. The tables entitled “Outstanding Equity Awards at 2023 Year-End” and “Stock Vested” provide further information on the Named Executive Officers and Section 16 Officers potential realizable value and actual value realized with respect to their RSU awards.
OUTSTANDING EQUITY AWARDS AT 2023 YEAR-END
OUTSTANDING EQUITY AWARDS AT 2023 YEAR-END The following table shows information regarding the outstanding equity awards held by each of the Named Executive Officers and Section 16 Officers as of December 31, 2023. All equity awards are granted in the form of Restricted Stock Units (RSUs).
OUTSTANDING EQUITY AWARDS AT 2023 YEAR-END
| Name | Grant Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested (1) ($) | | Gerald W. Shields | 3/31/2023 (4) | 63,342 | $170,390 | | Jeffery P. Conklin | 1/29/2021 (2) | 11,816 | 31,785 | | | 3/31/2022 (3) | 15,693 | 42,214 | | | 3/31/2023 (4) | 29,004 | 78,021 | | | | | $152,020 | | Sheryl Kinlaw | 7/1/2021 (5) | 8,000 | 21,520 | | | 3/31/2022 (3) | 6,342 | 17,060 | | | 3/31/2023 (4) | 25,606 | 68,880 | | | | | $107,460 | | Robert M. Mauldin III | 1/29/2021 (2) | 11,331 | 30,480 | | | 3/31/2022 (3) | 12,374 | 33,286 | | | 3/31/2023 (4) | 38,005 | 102,233 | | | | | $165,999 | | Harvey J. L. Waite | 1/29/2021 (2) | 2,697 | 7,255 | | | 3/31/2022 (3) | 11,376 | 30,601 | | | 3/31/2023 (4) | 23,288 | 62,645 | | | | | $100,501 |
OUTSTANDING EQUITY AWARDS AT 2023 YEAR-END
(1)The dollar amounts are determined by multiplying the number of RSUs by $2.69, the closing price of the Company’s Class A common stock on December 29, 2023, the last trading day of the Company’s fiscal year. (2)These RSUs were granted on January 29, 2021 and vested equally over 3 years. As of December 31, 2023, 1/3 of the grant remained outstanding and this amount fully vested on January 29, 2024. (3)These RSUs were granted on March 31, 2022 and vest equally over 3 years. As of December 31, 2023, 2/3 of the grant remained outstanding. 1/3 of the RSUs vested on March 31, 2024 (the second anniversary of the date of the grant) and the remaining 1/3 are scheduled to vest on March 31, 2025 (the third anniversary of the date of grant), provided that the Named Executive Officer or Section 16 Officer, as applicable, continues to be employed with the Company through the vesting date or otherwise qualifies for accelerated vesting pursuant to the Company's RSU Retirement Policy. (4)These RSUs were granted on March 31, 2023 and vest equally over 3 years. As of December 31, 2023, 100% of the grant remained outstanding. 1/3 of the RSUs vested on March 31, 2024 (the first anniversary of the date of the grant) and the remaining 2/3 are scheduled to vest on March 31, 2025 and March 31, 2026 (the second and third anniversary of the date of grant, respectively), provided that the Named Executive Officer or Section 16 Officer, as applicable continues to be employed with the Company through the vesting date or otherwise qualifies for accelerated vesting pursuant to the Company's RSU Retirement Policy. (5)Represents remaining 1/3 of RSUs from equity inducement grant awarded to Ms. Kinlaw on her start date.
STOCK VESTED
STOCK VESTED The following table shows information regarding the vesting of RSUs during 2023 that were granted to the Named Executive Officers or Section 16 Officers prior to 2023.
STOCK VESTED
| | Stock Awards | | | Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(1) | | Gerald W. Shields | 0 | $— | | Jeffery P. Conklin | 19,662 | $57,586 | | Sheryl Kinlaw | 11,171 | $31,044 | | Robert M. Mauldin III | 17,519 | $50,264 | | Harvey J. L. Waite | 8,386 | $27,604 |
STOCK VESTED
(1)The dollar amounts are determined by multiplying the number of shares that vested by the per share closing price of the Company’s Class A common stock on each applicable vesting date.
POTENTIAL PAYMENTS UPON TERMINATION
POTENTIAL PAYMENTS UPON TERMINATION At December 31, 2023, the following agreements contain provisions whereby a Named Executive Officer may receive a payment following termination of employment or a change in control of the Company: •Shields Employment Agreement •Executive Change in Leadership Agreements (Mr. Conklin and Mr. Mauldin) •RSU Agreements
PAY VERSUS PERFORMANCE
PAY VERSUS PERFORMANCE The following information is provided pursuant to the SEC pay versus performance disclosure requirements set forth for Smaller Reporting Companies in Item 402(v) of Regulation S-K (the "Pay Versus Performance Rule"). The amounts reported as “Compensation Actually Paid” do not reflect the actual amount of compensation earned by or paid to our Chief Executive Officer or our non-CEO executive officers and differ from the compensation amounts disclosed elsewhere in this proxy statement.
PAY VERSUS PERFORMANCE
| (a) Year (1) | (b) Summary compensation table total for CEO ($) | (c) Compensation actually paid to CEO (2) ($) | (d) Average summary compensation table total for non-CEO executive officers ($) | (e) Average compensation actually paid to non-CEO executive officers (3) ($) | (f) Value of initial fixed $100 investment based on Total Shareholder Return (4) | (h) Net Income ($) (in thousands) | (i) Adjusted Operating Income (loss) ($) (in thousands) (5) | | 2023 | 1,400,740 | 1,336,131 | 605,912 | 598,909 | $46.95 | 24,437 | 26,631 | | 2022 | 1,354,000 | 1,350,015 | 583,257 | 473,173 | $37.17 | 26,007 | 36,103 | | 2021 | 1,458,287 | 1,450,021 | 610,973 | 573,360 | $92.67 | 72,706 | 33,601 |
PAY VERSUS PERFORMANCE
(1)Gerald W. Shields was the CEO in each year presented in the Pay Versus Performance tables. The other executive officers in all 3 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:
PAY VERSUS PERFORMANCE
| 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 | | 2023 | $1,400,740 | $(234,999) | $170,390 | $— | $— | $1,336,131 | | 2022 | $1,354,000 | $— | $— | $— | $(3,985) | $1,350,015 | | 2021 | $1,458,287 | $(10,499) | $10,742 | $— | $(8,509) | $1,450,021 |
PAY VERSUS PERFORMANCE
(3)The Average Compensation Actually Paid to the four non-CEO executive officers in each applicable year is calculated as follows:
PAY VERSUS PERFORMANCE
| 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 | | 2023 | $605,912 | $(107,500) | $77,945 | $11,148 | $11,404 | $598,909 | | 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 |
PAY VERSUS PERFORMANCE
(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, with discrete adjustments that exclude net investment related gains (losses) and income and loss from ceased businesses. 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:
PAY VERSUS PERFORMANCE
| For the years ended | | | | | | | | Unaudited (In thousands) | 2023 | | 2022 | | 2021 | | | Adjusted Operating Income | | | | | | | | Income before federal income tax | | 26,174 | | 27,377 | | 30,505 | | Less: | | | | | | | | Excluded investment related gains (losses) | 760 | | (10,291) | | 10,991 | | | Excluded property insurance business income (loss) | (1,217) | | 1,565 | | (1,463) | | | Excluding goodwill impairment | — | | — | | (12,624) | | | Total adjustments | | (457) | | (8,726) | | (3,096) | | Adjusted income (loss) before federal income tax | | 26,631 | | 36,103 | | 33,601 |
Relationship Between Compensation Actually Paid and our Total Shareholder Return
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 executive officers. However, the amount of Compensation Actually Paid to our executive officers aligns with the Company's Total Shareholder Return (TSR) due to the fact that a portion of the compensation paid to our executive Officers is comprised of equity awards. In each year presented, 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 TSR and the difference was greatest when the TSR was lowest (2022).
Relationship Between Compensation Actually Paid and our Total Shareholder Return
| Year | Value of Initial Fixed $100 Investment Based on Total Shareholder Return | Summary Compensation Table Total for CEO and Average of Other Executive Officers (column b+d above) ($) | Compensation Actually Paid to CEO and Average of Other Executive Officers (column c+e above) ($) | Difference ($) | | 2021 | $92.67 | 2,069,260 | 2,023,381 | (45,879) | | 2022 | $37.17 | 1,937,257 | 1,823,188 | (114,069) | | 2023 | $46.95 | 2,006,652 | 1,926,040 | (80,612) |
Relationship Between Compensation Actually Paid and our Net Income (GAAP and Non-GAAP)
Relationship Between Compensation Actually Paid and our Net Income (GAAP and Non-GAAP) GAAP and non-GAAP net income (Adjusted Operating Income) are measures of our overall profitability that we believe are factors that can drive our stock price performance. However, Compensation Actually Paid is less sensitive to our annual GAAP income because management and our Board of Directors do not believe that our GAAP income is a meaningful number in allowing investors to evaluate underlying profitability. Rather, we believe that Adjusted Operating Income is a better tool to allow investors to evaluate profitability and enhance comparability across periods. Accordingly, pre-tax income is one of the four elements of the Annual Bonus Opportunity (described above).
Relationship Between Compensation Actually Paid and our Net Income (GAAP and Non-GAAP)
| Year | Net Income ($) (in thousands) | Adjusted Operating Income (Loss) ($) (in thousands) | Non-Equity Incentive Plan Compensation Paid to CEO and all Other Executive Officers (from Summary Compensation Table; (in thousands) ($) | | 2021 | 72,706 | 33,601 | 1,092 | | 2022 | 26,007 | 36,103 | 1,110 | | 2023 | 24,437 | 26,631 | 802 |
Relationship Between Compensation Actually Paid and our Net Income (GAAP and Non-GAAP)
The decrease in Adjusted Operating Income from 2022 to 2023 is the primary reason that the non-equity incentive plan compensation paid to our executive officers was lower in 2023 than 2022. The increase in Adjusted Operating Income from 2021 to 2022 was one of the reasons that the non-equity incentive plan compensation paid to the Named Executive Officers was higher in 2022 than 2021. Ms. Kinlaw's non-equity incentive plan compensation was annualized in the 2021 table above.