CIGNA Corporation (CI)

Annual Incentives

Annual incentives are paid in cash in the first quarter of the calendar year following the close of the performance year. The EIP requires that any bonus award above $3 million is to be made in shares of CIGNA stock. The amount of Mr. Hanway's 2007 MIP award in excess of $3 million was paid in the form of unrestricted CIGNA stock. Columns (e) and (g) to the Summary Compensation Table include information regarding named executive officers' actual MIP awards for 2006 and/or 2007 performance.

Annual Incentives

Purpose and Overview.   Annual incentives are used to recognize named executive officers for achievement of annual organizational and business unit results, plus individual performance. The annual incentives reinforce the importance of achieving specific operating and financial goals during a particular calendar year. They are part of CIGNA’s philosophy to strengthen the alignment of compensation payments and company/executive performance. CIGNA’s annual incentives for the named executive officers are determined under two plans:

·       First, under the EIP, which applies only to executive officers, the PRC sets one or more performance goals which must be met before payouts, within limits authorized under the plan, may be made to the named executive officers. The EIP is intended to provide performance-based compensation under Section 162(m) of the Internal Revenue Code so that CIGNA may take a full tax deduction for annual incentive awards to named executive officers. See below for a discussion of the Executive Incentive Plan.

·       Second, the MIP, which applies to all bonus-eligible CIGNA employees, governs the awards based on achievement of corporate goals, business unit performance and individual contributions.

Executive Incentive Plan (EIP).   The EIP is intended to permit CIGNA to deduct annual incentive payments under Section 162(m) of the Internal Revenue Code. Section 162(m) imposes a $1 million annual limit on a company’s federal income tax deduction for compensation paid to the Chief Executive Officer and the next four highest paid executive officers who are included in the Summary Compensation Table in the Company’s proxy statement. This limitation, however, does not apply to qualified “performance-based compensation.” CIGNA’s intent is that EIP payouts qualify for treatment as performance-based compensation and remain fully tax deductible where possible. See Information about Item 3, Approval of the amended and restated CIGNA Executive Incentive Plan on page 22 for additional information.

Under the EIP, the PRC establishes objective performance measures and goals in the beginning of the year. If the pre-established performance goals are achieved, each named executive officer is eligible to receive the maximum award under the EIP for the performance year, which is $3 million and 75,000 shares of CIGNA stock. The PRC, however, may exercise its discretion to reduce (but not increase) the size of awards and determines an appropriate award amount by reviewing the individual’s annual incentive target and applying the MIP assessment process described below. In any given year, the PRC will evaluate a variety of factors in determining the performance goals, including choosing goals that will reinforce and

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support the strategic, financial and operational priorities CIGNA views as necessary for future success. In February 2006, the PRC established EIP performance goals for 2006 in two categories (1) income from continuing operations, and (2) adjusted revenues. When the PRC established the EIP performance goals, CIGNA believed the goals were attainable, but not certain. In 2006, CIGNA achieved performance against both EIP performance goals.