CIGNA Corporation DEF 14A 2005
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant ¨ Filed by a Party other than the Registrant ¨
Check the appropriate box:
(Name of Registrant as Specified In Its Charter)
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NOTICE OF 2005 ANNUAL MEETING OF SHAREHOLDERS
CIGNA Corporation Shareholders:
The Annual Meeting of Shareholders will be held on Wednesday, April 27, 2005, at 3:30 p.m. at The Gregg Conference Center at The American College, 270 S. Bryn Mawr Avenue, Bryn Mawr, Pennsylvania. Directions to The Gregg Conference Center are on the back of the attached proxy statement.
At the meeting, we will ask shareholders to:
CIGNA shareholders of record at the close of business on February 28, 2005, are entitled to notice of and to vote at the meeting and any adjournment thereof. Your vote is important, even if you do not own many shares. We urge you to mark, date, sign and return the enclosed proxy/voting instruction card or, if you prefer, to vote by telephone or by using the Internet.
ONE LIBERTY PLACE
1650 MARKET STREET
PHILADELPHIA, PA 19192-1550
TABLE OF CONTENTS
One Liberty Place
1650 Market Street
Philadelphia, Pa 19192-1550
March 21, 2005
When and where is the annual meeting?
The annual meeting will be held on Wednesday, April 27, 2005, at 3:30 p.m. at The Gregg Conference Center at The American College located at 270 S. Bryn Mawr Avenue, Bryn Mawr, Pennsylvania. Directions are on the back of the proxy statement.
When will CIGNA begin mailing the proxy statement, proxy/voting instruction card and 2004 Annual Report to Shareholders?
On or about March 21, 2005.
Who is entitled to vote at the annual meeting?
Anyone who owns CIGNA common stock as of the close of business on February 28, 2005, the record date, is entitled to one vote per share owned. There were 132,469,442 shares of CIGNA common stock outstanding on that date.
Who is seeking authority to vote my shares and when?
CIGNAs Board of Directors is sending you this proxy statement to solicit your proxy, or your authorization for our representatives to vote your shares. Your proxy will be effective for the April 27, 2005 meeting and at any adjournment (or continuation) of that meeting.
What is householding?
If you and other residents at your mailing address own shares of CIGNA stock in street name, your broker or bank may have notified you that your household will receive only one annual report and proxy statement for each company in which you hold stock through that broker or bank. This practice is known as householding. Unless you responded that you did not want to participate in householding, you were deemed to have consented to the process. Your broker or bank will send one copy of our annual report and proxy statement to your address. Each shareholder will continue to receive a separate proxy card or voting instruction card.
If you would like to receive your own set of CIGNAs future annual reports and proxy statements, or if you share an address with another CIGNA shareholder and together both of you would like to receive only a single set of CIGNA annual disclosure documents, please contact ADP, Householding Department, 51 Mercedes Way, Edgewood, NY 11717 or call them at 800.542.1061. Be sure to indicate your name, the name of your brokerage firm or bank and your account number. The revocation of your consent to householding will be effective 30 days following its receipt.
If you did not receive an individual copy of this years proxy statement or our annual report, we will send a copy to you if you address a written request to CIGNA Corporation, Shareholder Services, 1650 Market Street, OL57B, Philadelphia, PA 19192 or call 215.761.3516.
What proposals are being presented for a shareholder vote?
Management is presenting three proposals for a shareholder vote.
Item 1. Election of Directors
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ITS NOMINEES, PETER N. LARSON, CAROL COX WAIT AND WILLIAM ZOLLARS, TO BE DIRECTORS WITH TERMS EXPIRING APRIL 2008 AND MARILYN WARE TO BE A DIRECTOR WITH A TERM EXPIRING APRIL 2006.
You can find information about the Boards nominees, as well as information about CIGNAs Board of Directors and its committees, Director compensation, and other related matters, beginning on page 6.
Item 2. Ratification of Appointment of PricewaterhouseCoopers LLP
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR THE YEAR 2005.
You can find information about CIGNAs relationship with PricewaterhouseCoopers LLP beginning on page 18.
Item 3. Approval of CIGNA Long-Term Incentive Plan (As Amended and Restated effective as of January 1, 2005)
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL TO APPROVE THE CIGNA LONG-TERM INCENTIVE PLAN AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2005.
You can find information about the Amended and Restated CIGNA Long-Term Incentive Plan beginning on page 21.
What other matters may arise at the meeting?
We do not know of any other matters that will come before the shareholders during the annual meeting. The chairman of the meeting may refuse to allow presentation of a proposal or a nomination for the Board from the floor of the Annual Meeting if the proposal or nomination was not properly submitted. The requirements for properly submitting proposals and nominations from the floor of the Annual Meeting for this years meeting were described in CIGNAs 2004 Proxy Statement and are similar to those described on page 41 for next years meeting.
How will voting on other business be conducted?
If any other matters are properly presented for a vote, the people named as proxies will have discretionary authority, to the extent permitted by law, to vote on such matters according to their best judgment.
What constitutes a quorum and why do you need one?
In order to transact business at an annual meeting, we must have a quorum, or the presence of a prescribed number of voting shares. For this meeting, we need the holders of two-fifths of the issued and outstanding shares entitled to vote to either be represented by proxy or attend in person. If you attend the meeting or submit your proxy but abstain from voting, your shares will count toward a quorum.
What vote is required to approve each proposal?
The four nominees who receive a plurality (the greatest number) of votes cast on Item 1 will be elected as Directors. We need the affirmative vote of a majority of the shareholders present in person at the meeting or represented by proxy and entitled to vote on the subject matter, for all other matters, including to ratify the appointment of independent auditors and to approve the CIGNA Long-Term Incentive Plan, provided that the total votes cast on the proposal to approve the CIGNA Long-Term Incentive Plan represents more than 50% of all shares entitled to vote on the proposal. Abstentions will not affect the outcome of the election of Directors, but abstentions will have the same effect as against votes on the ratification of appointment of independent auditors and on the approval of the CIGNA Long-Term Incentive Plan. Votes withheld by brokers in the absence of instructions from street-name holders (broker non-votes) will not affect the outcome of the vote on the CIGNA Long-Term Incentive Plan, unless the votes otherwise cast constitute less than 50% of all shares entitled to vote on the proposal.
In order for the CIGNA Long-Term Incentive Plan to be approved, the votes on the proposal must be sufficient to meet the approval requirements under both the Companys by-laws and the NYSE rules.
Who can vote my shares?
Many CIGNA shareholders own their shares in street name, which means that brokers are actually the record owners entitled to vote the shares under NYSE rules. Brokers will have discretionary authority to vote on Item 1 Election of Directors, and Item 2 Ratification of Appointment of PricewaterhouseCoopers LLP, as described in this proxy statement, which means that your broker can vote your street name shares on Items 1 and 2 even if you do not give specific voting instructions. If you do not give specific voting instructions on Item 3 Approval of CIGNA Long-Term Incentive Plan, described in this proxy statement to your broker or bank, they will have no authority to vote on Item 3, resulting in a broker non-vote.
How do I vote?
There are four ways that you can vote your shares.
1. Over the Internet. Vote at http://www.proxyvoting.com/ci. The Internet voting system is available 24 hours a day until 11:59 p.m. E.D.T. on Tuesday, April 26, 2005. Once you enter the Internet voting system, you can record and confirm (or change) your voting instructions.
2. By telephone. Use the telephone number shown on your proxy card. The telephone voting system is available 24 hours a day in the United States until 11:59 p.m. E.D.T. on Tuesday, April 26, 2005. Once you enter the telephone voting system, a series of prompts will tell you how to record and confirm (or change) your voting instructions.
3. By mail. Mark your voting instructions on, and sign and date, the proxy card and then return it in the postage-paid envelope provided. For your mailed proxy card to be counted, we must receive it before the polls close at the meeting. If we receive your signed proxy card, but you do not give voting instructions, our representatives will vote your shares for Items 1, 2 and 3. If any other matters arise during the meeting that require a vote, the representatives will exercise their discretion.
4. In person. Attend the annual meeting, or send a personal representative with an appropriate proxy, in order to vote.
How do I vote if a bank, broker, or other nominee holds my shares?
If your shares of CIGNA stock are held in the name of a bank, broker, or other nominee (in street name), your ability to vote by Internet or telephone depends on their voting process. Please follow their directions carefully. If you want to vote shares of CIGNA stock that you hold in street name at the annual meeting, you must request a legal proxy from your bank, broker or other nominee that holds your shares and present that proxy for entrance to the meeting.
Requirements for confidential voting. If you want your vote to be confidential, you must indicate that when you submit your proxy. If you choose confidential voting, your votes can be revealed to CIGNA only in limited circumstances, such as to meet a legal requirement or in contested Board elections.
How do I revoke my proxy or change my voting instructions?
There are four ways that you can revoke your proxy or change your voting instructions.
1. Enter new instructions on either the telephone or Internet voting system before 11:59 p.m. E.D.T. on Tuesday, April 26, 2005.
2. Submit a new proxy card bearing a date later than your last vote. We must receive your new proxy card before the annual meeting begins.
3. Write to the Corporate Secretary, Carol J. Ward, at the address given for CIGNA Corporation in the meeting notice on the cover of this proxy statement. Your letter should contain the name in which your shares are registered, the date of the proxy you wish to revoke or change, your new voting instructions, if applicable, and your signature. She must receive your letter before the annual meeting begins.
4. Attend the annual meeting and vote in person (or by personal representative with an appropriate proxy).
What do I do if I have money in the CIGNA Stock Fund of the CIGNA or Intracorp 401(k) plans?
If you have money in the CIGNA Stock Fund of the CIGNA 401(k) Plan or the Intracorp 401(k) Performance Sharing Plan, you do not actually own shares of CIGNA stock. The plan trustees do. Under the plans, however, you have pass-through voting rights based on your interest the amount of money you have invested in the CIGNA Stock Fund. You may exercise pass-through voting rights in almost the same way that shareholders may vote their shares, but you have an earlier deadline. If your voting instructions are received by 11:59 p.m. E.D.T. on April 22, 2005, the trustee will submit a proxy that reflects your instructions. You may not vote in person at the annual meeting.
If you have money in the CIGNA Stock Fund of the CIGNA 401(k) Plan and you do not give voting instructions (or give them late), the trustees will vote your interest in the CIGNA Stock Fund as instructed by a CIGNA management advisory committee. If you have money in the CIGNA Stock Fund of the Intracorp 401(k) Performance Sharing Plan and you do not give voting instructions (or give them late), your shares will not be voted.
You may send your instructions to your plan trustee by using the mail (proxy/voting instruction card), telephone or Internet methods described on the proxy/voting instruction card. Your voting instructions will be kept confidential under the terms of the plans. You may not vote in person at the annual meeting.
Information About Item 1: Election of Directors
The Board determined that four Directors will be elected at the 2005 annual meeting of shareholders and set the size of the Board at ten, coincident with the annual meeting. The Board nominated three incumbent Directors, Peter N. Larson, Carol Cox Wait, and William Zollars to stand for election for terms ending April 2008 and one incumbent Director, Marilyn Ware, to stand for election for a term ending April 2006, as indicated below. All nominees have consented to serve, and the Board does not know of any reason why any would be unable to serve. If a nominee becomes unavailable or unable to serve before the annual meeting, the Board can either reduce its size or designate a substitute nominee. If the Board designates a substitute, proxies that would have been cast for the original nominee will be cast for the substitute nominee.
Charles R. Shoemate, an incumbent Director, will retire from the Board at the 2005 annual meeting and Joseph Neubauer, an incumbent Director, will not stand for re-election at the 2005 annual meeting.
The Board has determined that non-employee Directors shall retire no later than the annual meeting of shareholders following their seventy-second birthday.
Peter N. Larson
Peter Larson, 65, has been a Director of CIGNA Corporation since 1997. Mr. Larson was Chairman and Chief Executive Officer of Brunswick Corporation (a producer of recreational consumer products) from 1995 until 2000. He also served as an executive officer and Director of Johnson & Johnson (a health care product manufacturer) from 1991 until 1995. Mr. Larson serves as the Chairman of CIGNAs Finance Committee and a member of the Audit Committee.
Carol Cox Wait
Carol Cox Wait, 62, has been a Director of CIGNA Corporation since 1995. Ms. Wait has been President of Boggs, Atkinson, Inc. (a real estate company) since 2003. She was a Director, President and Chief Executive Officer of the Committee for a Responsible Federal Budget (a bi-partisan, educational, non-profit organization) from 1981 until 2003. She was President of Carol Cox and Associates (a consulting firm) from 1984 until 2003. Ms. Wait serves as a member of CIGNAs Audit Committee and Finance Committee.
William D. Zollars
William Zollars, 57, has been a Director of CIGNA Corporation since February 25, 2005. Mr. Zollars has served as Chairman, President and Chief Executive Officer of Yellow Roadway Corporation (a holding company whose subsidiaries provide regional, national and international transportation and related services) since 1999. He is also a Director of ProLogis Trust. SpencerStuart, a third party search firm, recommended Mr. Zollars to CIGNAs Corporate Governance Committee as a potential nominee to CIGNAs Board. Effective February 25, 2005, Mr. Zollars serves as a member of CIGNAs People Resources Committee and Finance Committee.
The Board of Directors nominee for a term to expire in April 2006:
Marilyn Ware, 61, has been a Director of CIGNA Corporation since 1993. Ms. Ware has been the Chief Executive Officer of the Ware Family Offices since 1996. She served as Chairman of American Water Works (a water utility holding company) from 1988 until 2003. She currently serves as Chairman Emeritus of American Water, a wholly-owned subsidiary of Thames Water as well as a member of the RWE Economic Advisory Board and Thames Water International Advisory Council. Ms. Ware serves as the Chairman of CIGNAs Corporate Governance Committee and a member of the People Resources Committee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ABOVE NOMINEES.
Robert H. Campbell
Bob Campbell, 67, has been a Director of CIGNA Corporation since 1992. His current term expires in April 2007. Mr. Campbell was Chairman of Sunoco, Inc. (a domestic refiner and marketer of petroleum products) from 1992 until 2000, Chief Executive Officer from 1991 until 2000 and President from 1991 until 1996. He is also a Director of Hershey Foods Corporation and Vical, Inc. Mr. Campbell serves as a member of CIGNAs Finance Committee and People Resources Committee.
H. Edward Hanway
Ed Hanway, 53, has been a Director of CIGNA Corporation since 1999. His current term expires in April 2006. He has been Chairman of the Board of CIGNA Corporation since December 2000, Chief Executive Officer since January 2000, President since January 1999 and Chief Operating Officer from January 1999 until January 2000. Mr. Hanway served as President of CIGNA HealthCare from 1996 until 1999 and President of CIGNA International from 1989 until 1996. He has been associated with CIGNA since 1978. Mr. Hanway also serves as Chairman of CIGNAs Executive Committee.
Jane E. Henney, M.D.
Jane Henney, 57, has been a Director of CIGNA Corporation since 2004. Her current term expires in April 2007. Dr. Henney has been Senior Vice President and Provost, Health Affairs at University of Cincinnati Medical Center since July 2003. Dr. Henney was Senior Scholar at the Association of Academic Health Centers from 2001 until June 2003 and Commissioner of the U.S. Food & Drug Administration from 1998 until January 2001. She is also a Director of AmerisourceBergen Corporation and AstraZeneca PLC. Dr. Henney serves as a member of CIGNAs Audit Committee and Corporate Governance Committee.
Louis W. Sullivan, M.D.
Lou Sullivan, 71, has been a Director of CIGNA Corporation since 1993. Dr. Sullivan will retire coincident with the 2006 Annual Meeting of Shareholders. He has been President Emeritus of Morehouse School of Medicine since June 2002. Dr. Sullivan served as President of Morehouse School of Medicine from 1981 until 2002, except from 1989 until 1993, when he served as the United States Secretary of Health and Human Services. He is also a Director of Bristol-Myers Squibb Company, Georgia Pacific Corporation, 3M Company, BioSante Pharmaceuticals, Inc., Henry Schein, Inc., and United Therapeutics Corporation. Dr. Sullivan has indicated that he will reduce the number of public company boards on which he serves to six or fewer by the end of May 2006. Dr. Sullivan serves as a member of CIGNAs People Resources Committee and Corporate Governance Committee.
Harold A. Wagner
H. A. Wagner, 69, has been a Director of CIGNA Corporation since 1997. His current term expires in April 2006. He has been Non-Executive Chairman of Agere Systems Inc. (a provider of communications components) since 2001. Mr. Wagner served as Chairman and Chief Executive Officer of Air Products and Chemicals, Inc. (a supplier of industrial gases and related equipment and selected chemicals) from 1992 to 2000 and as its President from 1992 to 1998. He is also a Director of Paccar Inc., United Technologies Corporation and Maersk Inc., a subsidiary of A.P. Moller. Mr. Wagner serves as Chairman of CIGNAs People Resources Committee and a member of the Corporate Governance Committee.
Donna F. Zarcone
Donna Zarcone, 47, has been a Director of CIGNA Corporation since February 11, 2005. Her current term expires in April 2007. Ms. Zarcone has served as President and Chief Operating Officer of Harley-Davidson Financial Services, Inc. (a provider of wholesale and retail financing, insurance and credit card programs to Harley-Davidson dealers and riders in the United States, Canada and select European countries), a wholly owned subsidiary of Harley-Davidson, Inc. since 1998. SpencerStuart, a third party search firm, recommended Ms. Zarcone to CIGNAs Corporate Governance Committee as a potential nominee to CIGNAs Board. Effective February 25, 2005, Ms. Zarcone serves as a member of CIGNAs Audit Committee and Finance Committee.
CIGNA Corporations Corporate Governance Policies, including the Companys Board Practices, Committee Charters and Code of Ethics and Compliance Policies, are posted at http://www.cigna.com/general/about/governance/index.html and are available in print to any shareholder who requests them by writing to the Corporate Secretary, CIGNA Corporation, One Liberty Place, 1650 Market Street, Philadelphia, PA 19192-1550. CIGNA Corporations Standards of Director Independence are specified in the Companys Board Practices and are detailed below. The Board of Directors Audit Committee Charter was revised and adopted effective as of February 1, 2005, and is also attached to this Proxy Statement as Appendix A. The CIGNA Corporation Code of Ethics and Compliance Policies apply to directors, officers, employees and agents of CIGNA Corporation and its subsidiaries throughout the world.
CIGNA Corporation Board Practices
Organizing the CIGNA Corporation Board of Directors work is an inherently dynamic process. The Board and Committees periodically review their practices with the goal of increasing their effectiveness, and thereby maximizing shareholder value. Over the years, the Board and Committees have regularly modified their practices. The following are the current practices:
Board Structure and Composition
CIGNA Corporations by-laws allow for a Board of eight to sixteen members. The Board and its Corporate Governance Committee each periodically consider the appropriate size of the Board. There is a strong commitment to a Board composed principally of independent, non-employee Directors. CIGNA Corporation has never had more than two employee Directors.
To be considered independent under the New York Stock Exchange, Inc. rules, the Board must determine that a Director has no material relationship with CIGNA (either directly or as a partner, shareholder or officer of an organization that has a relationship with CIGNA). The Board has established these guidelines to assist it in determining Director independence.
In addition, a commercial relationship in which a Director is an executive officer of another company that owns a common stock interest in CIGNA will not be considered to be a material relationship which would impair a Directors independence.
The Corporate Governance Committee is responsible for advising the Board with respect to the Boards membership. In fulfilling that responsibility, the Committee develops and the Board approves the Responsibilities of CIGNA Corporation Directors. Those responsibilities are:
Beyond the Responsibilities, the Corporate Governance Committee, in consultation with the Board, develops more specific Director Recruitment Criteria to guide Director searches. The criteria are as follows:
The Corporate Governance Committee and Board strive to ensure that the Board is comprised of individuals with these capabilities and professional attributes.
The Corporate Governance Committee is responsible for reviewing, advising and reporting to the Board regarding the Boards membership and Director selection. In that capacity, the Committee welcomes shareholder suggestions for Board nominees. Shareholders desiring the Committee to consider their suggestions for Board nominees should submit their suggestions together with appropriate biographical information and qualifications to the Committee. Correspondence may be addressed to CIGNA Corporation, Corporate Secretary, 1650 Market Street, Philadelphia, Pennsylvania, 19192. The Corporate Governance Committee generally considers nominees in October for the following Annual Meeting. Accordingly, suggestions for Board nominees should be submitted by October 1st to ensure consideration at the following Annual Meeting. Shareholder suggestions for Board nominees are evaluated using the same criteria described above.
The chairman of the Corporate Governance Committee (or another Director designated by the chairman of the Corporate Governance Committee) interviews Director candidates prior to the Committee making its recommendation that the Board:
The Board requires that any Director discontinuing the principal position that prevailed at the time of the Directors election to the Board give notice and an offer of resignation to the Corporate Governance Committee.
Under ordinary circumstances, the Chief Executive Officer will leave the Board when he/she retires as a CIGNA employee.
Directors shall retire no later than the annual meeting of shareholders following their seventy-second birthday.
Committee Structure and Composition
The Corporate Governance Committee is responsible for ensuring the appropriateness and effectiveness of the Boards committee structure. Annually, the Corporate Governance Committee reviews committee assignments. In consultation with the Chairman of the Board, it recommends (for action by the full Board) committee assignments for Directors, in line with Board needs and individual strengths. Directors generally serve on a working committee for about five years before rotating.
The Executive Committee has authority to manage CIGNAs business between regular Board meetings. However, it is not intended to be a working committee and meets infrequently.
There currently are four working committees of the Board: Audit, Corporate Governance, Finance, and People Resources. The four working committees consist of Directors who meet the New York Stock Exchanges standards for independence. In addition, Audit Committee members meet the Securities and Exchange Commissions standards for independence. At least one Audit Committee member will be an audit committee financial expert, as defined by the Securities and Exchange Commission.
The Board has, at various times, created ad hoc committees to focus on particular issues.
Summary of committee responsibilities: (Note: a current copy of the committee charters are posted on the Companys website at http://www.cigna.com/general/about/governance/committee.html).
Committee chairs regularly report to the full Board on Committee proceedings and actions.
Agenda, Materials, Education & Resources
The Board meeting schedule and agenda are developed with direct input from Directors. The duration of each meeting varies as business needs dictate.
Briefing materials generally are distributed at least a full week in advance of the Board and Committee meetings. The briefing materials include regular reviews of operating results, competitive performance, performance against plan and background information for the presentations and discussions to occur at the upcoming meetings.
New Directors participate in an orientation program. They meet with the Chief Executive Officer and staff officers at the time they join the Board. Upon election to a committee, they meet with that committees staff officer and are provided with more committee-specific training/reading.
The Board and committees regularly devote time to continuing Director education.
Directors are encouraged to attend continuing education courses.
The Board and its committees are able to access and retain appropriate independent advisors.
Periodically, Board meetings are devoted primarily to strategy issues.
The Board regularly discusses its performance, and annually conducts a self-assessment. On an ongoing basis, Directors offer suggestions and alternatives intended to further improve Board performance.
Annually, each working committee reviews its performance and the adequacy of its written charter. Then, in consultation with the committees staff officer, it agrees upon a meeting schedule (including frequency and length of meetings) and tentative agenda for the upcoming year. Agenda items are added and deleted during the course of the year at the members request and as business developments warrant.
The Corporate Governance Committee reviews the performance of each Director annually and always in advance of making a determination as to whether the Committee should recommend the Directors renomination to the Board.
The Chairman conducts exit interviews with Directors at the conclusion of their service.
Senior Management and the Board
Over the years, the CIGNA Corporation Board has modified the roles and responsibilities of CIGNAs top officers, utilizing in varying combinations and configurations the offices of Chairman, Chief Executive Officer, Co-Chairman, Vice Chairman, Chief Operating Officer and President as circumstances required. The Board is responsible for electing people to fill these positions.
Each committee is assigned a member of senior management to act as a staff officer. The staff officers attend the committee meetings and Board meetings. This gives Directors a range of contact people within the Company with whom they are familiar.
Several members of the Chief Executive Officers staff regularly attend Board meetings. Others attend when making presentations. In between meetings and at their discretion, Directors are free to contact members of management.
The Board has established a process to identify the next Chief Executive Officer. The Board has established desired characteristics for the Chief Executive Officer position, essentially to guide the succession planning process and management development programs.
The Board meets in Executive Session at the beginning of most Board meetings. An Executive Session without management is scheduled at the conclusion of most Board meetings. At least twice a year, the Board meets in extended Executive Session without the Chief Executive Officer. Generally, the appropriate committee chairperson leads the discussion in regularly scheduled Executive Sessions at which the Chief Executive Officer is not present.
The Corporate Governance Committee reviews the non-employee Director compensation program annually with respect to competitiveness and appropriateness of compensation levels and program design. The Committee then makes recommendations to the Board for action.
Compensation paid by peers representing CIGNAs core business competitors should be among the data considered in establishing compensation levels for CIGNA Directors.
Stock-based compensation has been and is an important component of the non-employee Director compensation program. Stock-based compensation is designed to promote stock ownership and align Director interests with those of shareholders.
Annually, Directors receive a significant part of their compensation in hypothetical stock units which they are required to hold for the duration of their service on the Board. Consequently, a Director should own in excess of $250,000 worth of shares of the Corporations common stock directly or as hypothetical stock units within three years of election to the Board.
No non-employee Director is paid consulting, advisory or other fees in addition to the compensation paid pursuant to the non-employee Director compensation program.
In general, management speaks for the Corporation. Inquiries from reporters, shareholders or others are referred to management for response.
Directors must consult with the Chairman and Chief Executive Officer prior to accepting additional for-profit directorships or more than three public company audit committee memberships.
The Board maintains an address for receipt of shareholder and interested party communications. Shareholders and interested parties may contact the Board of Directors, all of the non-employee Directors or specified individual Directors by writing to them at: Director Access Address, Attn: Office of the Corporate Secretary, 1650 Market Street, OL 56A, Philadelphia, PA 19192. All communications other than routine commercial solicitations will be compiled by the Corporate Secretary and periodically submitted to the Board or individual Directors. The Corporate Secretary will also promptly advise the appropriate member of management of any concerns relating to products or services.
The Board encourages Directors attendance at the Annual Meeting of Shareholders.
Board of Directors and committee meetings, membership, attendance and independence
The full Board held ten meetings during 2004 and acted by unanimous consent once.
The Board has five committees: Audit, Corporate Governance, Executive, Finance and People Resources. A summary description of each committees responsibilities can be found in Board Practices on page 11 of this proxy statement. The following table shows the members of each committee and how many meetings were held during 2004.
Committee Membership and Meetings Held During 2004
During 2004, Board and committee attendance averaged 94.75% for the Board as a whole and each Director attended at least 82.14% of the combined total meetings of the Board and committees on which he or she served during 2004. The Board encourages Directors attendance at the Annual Meeting of Shareholders. Five non-employee Directors attended the 2004 Annual Meeting of Shareholders.
As disclosed in the Board Practices section of this proxy statement, CIGNAs Board has adopted categorical director independence standards that meet and in some respects exceed the independence standards specified in the listing standards of the New York Stock Exchange and other applicable standards of independence. Based on the application of these standards, the Board has affirmatively determined that all of the Directors and Director nominees, except Mr. Hanway, are independent. Independent Directors include Robert H. Campbell, Jane E. Henney, M.D., Peter N. Larson, Joseph Neubauer, Charles R. Shoemate, Louis W. Sullivan, M.D., Harold A. Wagner, Carol Cox Wait, Marilyn Ware, Donna F. Zarcone and William D. Zollars. In reaching this determination, the Board considered that:
The Board also determined that transactions described above were not otherwise material to the other company or to CIGNA and that none of our Directors or Director nominees had a material interest in the transactions with these companies. The Board therefore determined that none of these relationships impaired the independence of the Directors or Director nominees.
All Audit Committee members (as of February 25, 2005, the Committee comprised of Mssrs. Neubauer, Larson and Shoemate and Mesdames Henney, Wait and Zarcone) have significant experience with financial reporting and internal control matters. CIGNAs designated audit committee financial expert is Joseph Neubauer until April 27, 2005 at which time the Companys designated financial expert will be Donna Zarcone, although other members of the Audit Committee also would qualify as audit committee financial experts. Each member of the Committee is an independent Director under the listing standards of the New York Stock Exchange and all members of the Committee are financially literate.
Each member of the Corporate Governance Committee, Finance Committee and People Resources Committee is an independent Director under the listing standards of the New York Stock Exchange.
Retained third-party Director search firm
The Corporate Governance Committee retained SpencerStuart, a third party search firm, to assist the Committee in identifying and evaluating candidates for Board membership who best match CIGNAs Director Recruitment Criteria and would best be able to carry out the Responsibilities of CIGNA Corporation Directors. SpencerStuart recommended recruitment of Donna F. Zarcone and William D. Zollars.
Stock held by Directors, Nominees and Executive Officers
The following table shows as of January 31, 2005:
Stock is owned beneficially by the person who exercises voting or investment power over the security, even if another person is the record owner.
Common stock equivalents track the economic performance of CIGNA common stock but do not carry voting rights.
Additional information about stock held by Directors and Executive Officers
Directors, nominees, and Executive Officers as a group beneficially own approximately 1.9% of the outstanding common stock. These beneficial ownership percentages have been calculated exclusive of common stock equivalents and based on 131,553,713 shares of common stock outstanding on January 31, 2005.
On January 31, 2005, the CIGNA Pension Plan held 292,500 shares, or approximately 0.22% of the outstanding common stock on that date. A CIGNA management advisory committee determines how these shares will be voted.
On January 31, 2005, the CIGNA Stock Funds of CIGNAs two 401(k) plans for employees held a total of 3,767,166 shares, or approximately 2.9% of the outstanding common stock on that date. A CIGNA management advisory committee determines how the shares held in the CIGNA Stock Fund of the CIGNA 401(k) Plan will be voted only to the extent the plans individual participants do not give voting instructions.
The Directors and Executive Officers control the voting and investment of all shares of common stock they own beneficially, except as described above.
Non-employee Director compensation
Changes in compensation. The amount of compensation paid to non-employee Directors has not been increased since 2002.
Board retainer. Each Director receives $50,000 annually for Board membership. At least $25,000 of the annual Board retainer must be paid in CIGNA common stock equivalents, which provide deferred cash compensation credited at rates of return that track the economic performance of CIGNA common stock.
Committee member retainer. Each Director receives $10,000 annually for each committee membership. Committee chairs and members of the Executive Committee do not receive this retainer.
Committee chair retainer. Each committee chair other than the chair of the Executive Committee receives $15,000 annually.
Compensation elections. In addition to the $25,000 annual Board retainer paid in CIGNA common stock equivalents, Directors can elect to receive some or all of their cash compensation in:
Annual credit. Each Director is entitled to an annual credit of $61,000 to a Restricted Deferred Compensation Account under the Deferred Compensation Plan for Directors of CIGNA Corporation. This amount is credited in restricted common stock equivalents and is payable in cash when a Director dies or retires from the Board.
Hypothetical dividends. Hypothetical dividends are paid on common stock equivalents and restricted common stock equivalents and can be reinvested in common stock equivalents or invested in the hypothetical investments available for deferred cash compensation.
Restricted stock and stock equivalents. Any non-employee Director who was not an officer or employee of CIGNA or any of its subsidiaries in the preceding 10 years is entitled to a one-time grant of 4,500 shares of restricted common stock or, for Directors beginning after October 1, 2004, 4,500 shares of restricted common
stock equivalents under the Restricted Stock/Stock Equivalent Plan for Non-Employee Directors of CIGNA Corporation. A Director who receives restricted stock under this plan can collect dividends and vote the shares. A Director who receives restricted stock equivalents receives dividend equivalents. Restricted stock and restricted stock equivalents do not vest until the later of:
Restricted stock and restricted stock equivalents are forfeited if a Directors service ends for any other reason.
Travel accident coverage. Each Director is provided $450,000 of coverage.
Financial planning. Each Director can use the financial planning services available to CIGNA Executive Officers.
Insurance. Each Director may purchase or participate, on an after-tax basis, in life insurance, medical/dental care programs, property/casualty personal lines insurance programs and matching gift programs available to CIGNA employees.
Transactions with affiliates
During 2004, CIGNA and its subsidiaries engaged in business transactions with other corporations whose executive officers are also CIGNA Directors. Among those transactions were:
In 2004, CIGNA paid approximately $418,000 in legal fees to the law firm of Davis & Harman, LLP. A member of Davis & Harman, LLP is the spouse of Judith E. Soltz, Executive Vice President and General Counsel of CIGNA.
During 2004, various CIGNA companies engaged in transactions with Franklin Resources, Inc. which beneficially owns more than five percent of CIGNAs outstanding common stock. Franklin Templeton, an affiliate of Franklin Resources, Inc., paid CIGNA companies approximately $1.6 million for health care service fees and other insurance services.
Management believes that transactions described in this section were in the ordinary course of business and on terms as favorable as CIGNA would have received from unaffiliated persons or organizations. Similar transactions will likely occur in varying amounts during 2005.
Information About Item 2: Ratification of Appointment of Independent Auditors
The Audit Committee approved the appointment of PricewaterhouseCoopers LLP as independent auditors for 2005. As a matter of good corporate practice, the Board wants shareholders to ratify this appointment even though ratification is not legally required. If shareholders do not ratify this appointment, the Audit Committee will reconsider it.
PricewaterhouseCoopers LLP has served as independent auditors for CIGNA and its subsidiaries since 1983, and performed the same role for Connecticut General Corporation, a predecessor company of CIGNA, and its subsidiaries since 1967. A representative from PricewaterhouseCoopers LLP will attend the annual meeting, may make a statement, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS.
Policy for the pre-approval of audit and non-audit services
The Audit Committee adopted its pre-approval policy in January of 2003, and revised it in December 2003 to reflect additional SEC guidance. Under this policy, the Audit Committee pre-approves all audit services provided by the Companys accounting firms and all non-audit services provided by the Companys principal independent auditors. Specifically:
Fees billed by independent auditors
Aggregate fees billed for professional services rendered by PricewaterhouseCoopers LLP during 2004 and 2003 were as follows:
Audit Committee Report
CIGNA has maintained an independent Audit Committee for many years. It operates under a written charter (Appendix A of this proxy statement) adopted by the Board of Directors. A summary description of the duties and powers of the Audit Committee is set forth at page 11 of this proxy statement.
All of the members of the Audit Committee are independent (as defined in the listing standards of the New York Stock Exchange and applicable federal regulations).
CIGNAs management has primary responsibility for preparing CIGNAs financial statements and establishing financial reporting systems and internal controls. Management also is responsible for reporting on the effectiveness of CIGNAs internal controls over financial reporting. The independent auditors are responsible for performing an independent audit of CIGNAs consolidated financial statements and issuing a report on these financial statements. The independent auditors also are responsible for issuing an attestation report on managements assessment of the effectiveness of CIGNAs internal controls over financial reporting. As provided in its charter, the Audit Committees responsibilities include oversight of these processes. As part of its oversight responsibilities, the Audit Committee meets with CIGNAs General Auditor, Chief Accounting Officer and independent auditors, with and without management present, to discuss the adequacy and effectiveness of CIGNAs internal controls and the quality of the financial reporting process.
In this context, before CIGNA filed its Annual Report on Form 10-K for the year ended December 31, 2004 with the Securities and Exchange Commission, the Audit Committee:
Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that such audited financial statements be included in CIGNAs Annual Report on Form 10-K for the year ended December 31, 2004 for filing with the Securities and Exchange Commission.
Joseph Neubauer, Chairman
Jane E. Henney, M.D.
Peter N. Larson
Charles R. Shoemate
Carol Cox Wait
Information About Item 3. Approval of CIGNA Long-Term Incentive Plan (As Amended and Restated effective as of January 1, 2005)
We are asking shareholders to approve the amendment and restatement of the CIGNA Long-Term Incentive Plan (called in this document the Plan). This Plan provides long-term incentive compensation awards to CIGNA officers and key employees. The ultimate value of the awards will be based upon the long-term performance of CIGNA common stock, par value $0.25 per share, or CIGNAs long-term success in meeting stated performance objectives.
We are seeking shareholder approval of the amendment and restatement of the Plan so that CIGNA may continue to grant certain awards that qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. Subject to certain exceptions, Section 162(m) limits CIGNAs ability to take a federal income tax deduction for annual compensation in excess of $1 million per person paid to the Chief Executive Officer or any of the next four most highly paid executive officers. Performance-based compensation is exempt from the Section 162(m) limits on deductible compensation.
The Plan was last approved by shareholders in April 2000. If shareholders approve the amendment and restatement of the Plan, no further grants will be made under the CIGNA Corporation Stock Plan. The remaining unissued shares available under the CIGNA Corporation Stock Plan will be added to the remaining shares under the Plan. Because shareholders are not being asked to approve any additional shares, the Plan will not have any additional impact on CIGNAs potential dilution. If shareholders do not approve the Plan, the CIGNA Corporation Stock Plan will not be terminated, the Plan will revert back to its terms prior to its amendment and restatement and any awards made under the Plan that are contingent on approval of the Plan will be forfeited.
Pages 21 to 27 contain a summary description of the Plan, while the Plan itself is attached as Appendix B.
The People Resources Committee commissioned a comprehensive review of CIGNAs executive compensation program and modified CIGNAs long-term incentive strategy to better align with its business strategy. The Board of Directors and its People Resources Committee approved the Plan on February 24, 2005 and are recommending that shareholders approve the Plan to:
The Board also believes that the Plan appropriately reflects a number of best practice provisions that align with shareholder interests including:
The Plan provides an essential component of the total compensation package offered to key employees and reflects the importance placed on motivating and rewarding superior results with long-term incentives.
As of December 31, 2004:
On February 24, 2005, after our fiscal year-end but before the mailing of this Proxy Statement, CIGNA granted additional option, restricted stock and restricted stock unit awards representing 1,061,136 shares of CIGNA common stock. There were also exercises of stock options and forfeitures during this interim period.
As a result of these changes, as of March 1, 2005:
Approval of the Plan limits the number of full-value shares CIGNA may grant to 3,000,000 shares. If shareholders do not approve the Plan, the two predecessor plans would have a combined limit of 6,085,076 in full-value shares, which represents the number of shares available as of March 1, 2005 under both the current CIGNA Long-Term Incentive Plan and the CIGNA Corporation Stock Plan.
CIGNA has made a commitment that it will manage its annual burn rate for share usage at less than two percent over the term of the Plan. The burn rate is calculated by dividing the number of shares granted per year by common shares outstanding at the beginning of the year. Further CIGNA has reduced the eligibility for stock options at its middle management and professional levels in an effort to recognize industry trends and manage dilution.
Key Terms and Material Amendments
The following is a summary of key Plan provisions and material amendments:
Other Material Features of the Plan
Purpose of the Plan. The Plan provides for the grant of stock-based and performance-based compensation opportunities to employees. These awards advance the interests of CIGNA and its shareholders by:
Eligibility. Only salaried officers and other key employees of CIGNA are eligible to receive awards under the Plan. As of March 1, 2005, approximately 5,850 employees are eligible to receive awards under the Plan.
Administration and Awards. The People Resources Committee administers the Plan, subject to any requirements for review and approval by the Board that the Board may establish. The Committee is authorized to interpret the Plan, to select and make awards to eligible participants, to determine eligibility for awards and to establish the terms of the awards. Subject to certain limits specified in the Plan, the Committee may delegate any authority it has under the Plan to the CEO or the CEOs designee. The CEO has limited authority to make awards under the Plan, but the CEO must be a CIGNA Board member at the time of grant and no more than 10% of the shares of common stock available for issuance under the Plan may be the subject of awards granted by the CEO. The CEO or his designee may grant strategic performance units and strategic performance shares, but only in limited circumstances and only in accordance with guidelines approved by the People Resources Committee or subject to ratification by the Committee.
Stock Options. The Plan provides for the grant to eligible employees of options to purchase shares of common stock. The option exercise price may not be less than the fair market value of the underlying shares on the grant date. The option exercise period must expire not more than ten years after the grant date. Options that are designated as incentive stock options (ISOs) are intended to comply with the requirements of Section 422 of the Internal Revenue Code.
Stock Appreciation Rights (SARs). To conform to requirements in recent U.S. Treasury guidance under the American Jobs Creation Act, the Plans SAR provisions authorize the grant of freestanding SARs payable only in shares of CIGNA common stock. (The predecessor plans SAR provision required SARs to be granted in tandem with stock options and allowed payment in stock or cash.) SARs entitle the recipient to receive, upon exercise, stock equal in value to the appreciation in fair market value of a specified number of shares of common stock from the grant date to the exercise date.
Restricted Stock. The Plan provides for the grant of shares of restricted CIGNA common stock upon terms and conditions that the Committee in its discretion considers appropriate, provided that these terms and conditions may not be contrary to the provisions and limitations contained in the Plan. Among other things, the Committee specifies the applicable restricted period at the time of the award. The recipient of the shares may not sell or otherwise transfer the shares for the duration of the applicable restricted period. However, the recipient has the right to vote the shares from the date of grant and, at the discretion of the Committee, may be entitled to receive payment of dividends on the shares from the date of grant. As described in Performance-Based Awards below, the Committee may grant long-term performance awards in the form of performance-based restricted stock.
Performance-Based Awards. The Plan also provides for the grant of long-term performance awards to eligible employees in the form of performance-based restricted stock, strategic performance shares and strategic performance units. These awards may be structured to provide compensation solely on account of the attainment of one or more pre-established, objective performance criteria that satisfy the requirements of Section 162(m).
At the time of grant, the People Resources Committee specifies in writing the duration of the performance period as well as the objective performance goals, performance measures and the formulas that will be used to determine the ultimate dollar value, vesting schedule or vesting percentage of the performance-based award. Performance goals can be established for CIGNA as a whole; for one or more of its subsidiaries, business units, or lines of business; or for any combination of the foregoing. They can be measured on an absolute basis or on a comparative basis using a peer group, a specified index or indices, or a combination of the foregoing.
To the extent required under Section 162(m), no such award will be payable unless the People Resources Committee certifies in writing that the performance goals applicable to the award were satisfied. For strategic performance units, the final unit value may not exceed $200 and for strategic performance shares, the final vesting percentage may not exceed 200%. The Committee may not increase the value or vesting percentage of an
award above the maximum determined by the attainment of the applicable performance goal, but the Committee has the discretion to reduce the value or vesting percentage below such maximum.
The possible financial measures that may be used to set performance goals are as follows: earnings (total or per share); net income (total or per share); growth in net income (total or per share); income from selected businesses (total or per share); growth in net income or income from selected businesses (total or per share); pre-tax income or growth in pre-tax income; profit margins; revenues; revenue growth; premiums and fees; growth in premiums and fees; membership; membership growth; market share; change in market share; book value; total shareholder return; stock price; change in stock price; market capitalization; change in market capitalization; return on market value; shareholder equity (total or per share); return on equity; assets; return on assets; capital; return on capital; economic value added; market value added; cash flow; change in cash flow; expense ratios or other expense management measures; medical loss ratio; ratio of claims or loss costs to revenues; satisfaction customer, provider, or employee; service quality; productivity ratios or other measures of operating efficiency; and measures of claim processing accuracy and other measures of operational effectiveness.
The Committee may specify any reasonable definition of the measures it uses. These definitions may provide for reasonable adjustments to the measures and may include or exclude items, including but not limited to: realized investment gains and losses; special items identified in CIGNAs external reporting; extraordinary, unusual or non-recurring items; effects of accounting changes, currency fluctuations, acquisitions, divestitures, reserve strengthening, or financing activities; expenses for restructuring or productivity initiatives; and other non-operating items.
Termination, Death and Retirement. Unexercised stock options and SARs will generally expire upon termination of the participants employment. However, if employment is terminated due to death, disability or retirement, the stock option or SAR will become or remain exercisable in accordance with the terms established by the People Resources Committee at the time of grant. If employment is terminated within two years following a Change of Control, the stock option or SAR will become exercisable on the date of termination of employment and will not expire until the earlier of three months following termination of employment or the regular expiration date of the stock option or SAR, as applicable.
Shares of restricted stock are generally forfeited if the participant terminates employment prior to the end of the applicable restricted period. However, if employment is terminated due to death or disability or a Change of Control prior to the end of the restricted period, the restricted period will lapse and the shares will vest immediately. In addition, if employment is terminated by reason of retirement prior to the end of the restricted period, the People Resources Committee or its designee may provide (before the retirement occurs) for the restricted period to lapse and the shares of restricted stock to vest upon retirement.
Dividend equivalent rights must generally be forfeited upon termination of employment, unless the People Resources Committee determines otherwise. Generally, a grant of common stock under the Plan in place of other awards still will be paid when termination occurs before the payment date. However, if termination is due to death, the common stock grant will be canceled and the award payment will be made in cash under the terms of the other qualifying plan.
Strategic performance shares and units will not generally be paid if the participants employment is terminated prior to the payment date. However, if termination is due to death, disability or retirement, the People Resources Committee has the discretion to determine whether and what amount of the payment should be made. Upon termination of employment due to a change of control, all outstanding units will be valued and paid based on the highest of: (a) target (par) value, (b) the most recent unit valuation, or (c) the average of the last two unit valuations. Upon termination for any other reason, all outstanding unit awards are canceled.
Reuse of Shares for Further Awards. The Plan has been amended so that shares surrendered to CIGNA as payment for the exercise price of stock options or withheld from an award for tax withholding on awards cannot
be reissued under the Plan. The issuance of a SAR will count as the issuance of a whole share, the same as stock options. The following shares may be reused for further awards under the Plan:
Adjustment. The Plan provides for proportionate adjustments in the number of shares of common stock subject to awards, including individual limits on awards, and available for future awards in the event of changes in outstanding common stock by reason of a merger, stock split, stock dividend, reorganization, reclassification or other similar events.
Change of Control. Neither a Change of Control nor a pending or threatened Change of Control results in any automatic acceleration of any rights or vesting under the Plan. The Plan maintains a double trigger, requiring both a Change of Control and termination of employment before the vesting of awards is accelerated. However, in case of a pending Change of Control, the People Resources Committee (subject to approval by a majority of Board members not participating in the Plan) has the discretion to modify outstanding stock options, SARs, restricted stock and certain other Plan rights to accelerate vesting or payments.
The Board believes that the Plans revised Change of Control definition is consistent with current sound principles of corporate governance. Under the updated definition, a Change of Control will occur if:
A Change of Control will not occur if:
Amendment. The Board and, subject to approval of the Board, the People Resources Committee, may suspend, terminate or modify the Plan, provided that no action may be taken by the Committee or the Board (1) without the approval of CIGNA shareholders if necessary under any laws or Internal Revenue Service or SEC regulations or the rules of the New York Stock Exchange or (2) that would adversely affect any outstanding awards without the affected holders consent. For example, the following amendments would require shareholder approval:
Transferability. In general, no Plan participant may transfer or assign any Plan award or right to anyone else except by will or by the laws of descent and distribution. However, the People Resources Committee may in its discretion allow a participant to transfer any stock options (other than ISOs) or other rights, during the participants lifetime and without consideration, to an immediate family member, a family trust or a family partnership or to any other person the Committee will allow. The transferee may not subsequently transfer the stock option or other right except by will or by the laws of descent and distribution.
Federal Income Tax Consequences
The following is a summary of the anticipated federal income tax consequences of certain awards under the Plan. This summary is not intended to be exhaustive or to describe tax consequences based on particular circumstances. Among other things, it does not address possible state, local or foreign tax consequences or awards other than stock options.
With respect to stock options that qualify as ISOs, a Plan participant will not recognize income for Federal income tax purposes at the time stock options are granted or exercised, although the exercise may give rise to alternative minimum tax liability for the participant. If the participant disposes of shares acquired by exercise of an ISO either before the expiration of two years from the date the stock options are granted or within one year after the issuance of shares upon exercise of the ISO (the holding periods), the participant will recognize in the year of disposition: (a) ordinary income, to the extent that the lesser of either (1) the fair market value of the shares on the date of stock option exercise or (2) the amount realized on disposition, exceeds the stock option price; and (b) capital gain, to the extent that the amount realized on disposition exceeds the fair market value of the shares on the date of stock option exercise. If the shares are sold after expiration of the holding periods, the participant generally will recognize capital gain or loss equal to the difference between the amount realized on disposition and the stock option price.
With respect to nonqualified stock options (those that do not qualify as ISOs), the participant will recognize no income upon grant of the stock option and, upon exercise, will recognize ordinary income to the extent of the excess of the fair market value of the shares on the date of stock option exercise over the amount paid by the participant for the shares. Upon a subsequent disposition of the shares received under the stock option, the participant generally will recognize capital gain or loss to the extent of the difference between the fair market value of the shares at the time of exercise and the amount realized on the disposition.
In general, for nonqualified options and ISOs, CIGNA will receive an income tax deduction at the same time and in the same amount as the amount that is taxable to the employee as compensation. Stock options under the Plan are intended to be qualified performance-based compensation for purposes of Section 162(m). To the extent a participant realizes capital gains or income for alternative minimum tax purposes, as described above, CIGNA will not be entitled to any deduction for federal income tax purposes.
It is not possible to determine specific amounts that may be awarded in the future under the Plan. However, as indicated in the table below, the People Resources Committee made SPU grants under the Plan in February 2005, subject to approval of the Plan by shareholders. It is not possible to determine the value that the SPUs will have at the end of the three-year performance period. The Committee also made in February 2005, stock option grants under the existing CIGNA Long-Term Incentive Plan and restricted stock grants under the CIGNA Corporation Stock Plan, which would have been granted from the Plan if it had been in effect. The closing price per share of CIGNAs common stock on March 1, 2005 as reported by the New York Stock Exchange was $91.78.
The table below shows the awards made by the Committee in February 2005 of SPU awards made under the Plan and the other awards that would have been made under the Plan, if it had been in effect, to the current named executive officers, the group of current executive officers and the group of current Company employees who are not executive officers:
Equity Compensation Plan Information
The following table presents information regarding CIGNAs equity compensation plans as of December 31, 2004:
Description of the Equity Compensation Plan Not Approved by Security Holders. The CIGNA-Healthsource Stock Plan of 1997 was adopted by CIGNAs Board of Directors in 1997 in connection with the acquisition of Healthsource, Inc. The plan provided for CIGNA stock option grants to replace prior Healthsource stock option grants as well as new incentive compensation grants to Healthsource employees after the acquisition. The plan had terms similar to those included in other CIGNA equity compensation plans existing at the time but provided only for the grant of stock options and restricted stock. No grants were made under the plan after 1999.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE AMENDMENT AND RESTATEMENT OF THE CIGNA LONG-TERM INCENTIVE PLAN.
Board Compensation Committee Report on Executive Compensation
The People Resources Committee of CIGNA's Board of Directors is responsible for establishing and reviewing the compensation and benefit policies and programs for CIGNA's executive officers. These and other functions the Committee performs are more fully described on page 11. To help it perform its responsibilities, the Committee has engaged Mercer Human Resource Consulting, an independent executive compensation consulting firm, which is directly accountable to the Committee. Previously, the Committee had engaged Hewitt Associates in this capacity.
In the opinion of the Board, all members of the Committee meet the independence requirements of the New York Stock Exchange, are non-employee directors pursuant to Securities and Exchange Commission Rule 16b-3, and are outside directors for purposes of Section 162(m) of the Internal Revenue Code.
The Committees compensation philosophy reflects CIGNA's desire to strengthen its financial position and to invest in its people so as to advance CIGNA in the competitive marketplace and increase shareholder value. In line with these objectives, each variable compensation component is designed to provide a specific reward linked to individual and organizational performance and to play a role in providing executives with the opportunity to receive total rewards that exceed competitive practices in the marketplace when superior results are delivered. This philosophy balances both CIGNAs and executives needs and is designed to enable CIGNA to attract, develop, focus and engage the right executives with the right skills, behaviors and attributes; to achieve CIGNA's strategic objectives; to ensure that executives interests are aligned with shareholders; and to instill in the executives a focus on maximizing shareholder value.
The Committees philosophy about performance management is aligned with its compensation philosophy. CIGNA requires that all executives and employees establish rigorous, annual goals to ensure that their individual objectives are aligned with the Corporations short and long-term business objectives. Performance throughout the enterprise, including the performance of senior executives, is appraised by appropriate management (the Committee appraises the CEO) and a normal distribution is applied so that total compensation, including equity based awards and other long-term incentive opportunity, is highly differentiated based on individual performance. Those making the strongest contributions to the success of the enterprise and increase in shareholder value receive the highest total compensation.
Components of Executive Compensation
The primary components of CIGNAs executive compensation program are base salary, annual bonus and long-term incentives. The target for each component is the 50th percentile of the competitive marketplace. As a result, the total compensation opportunity for CIGNA executives mirrors opportunities for executives with comparable roles, experience and expectations at companies in our industry of comparable size (based on revenue) and complexity that compete for the same customers and require the same executive talent for success. This comparator group includes most of the companies in the S&P Insurance/Managed Care Indexes shown in the performance graph on page 39. Beginning in 2005, consistent with CIGNA's strategic restructuring as a health care and related benefits company, the comparator group for CIGNA's most senior executives is a group of six major health care companies.
The total compensation package is designed to align executive compensation with performance and to attract and retain the right executives at the right cost so that CIGNA can be competitive within our industry. The mix of compensation for CIGNAs executives puts a significant portion of total pay at risk through annual bonus and long-term incentive compensation. CIGNA uses these variable pay components to differentiate recognition for individual contributions to the organization.
Competitive base salary is targeted at the 50th percentile of our comparator group. Actual base salary levels vary from the 50th percentile based on individual performance, contributions and results, as well as demonstrated skills, behaviors and attributes.
Total compensation opportunities are intended to be aligned with performance, allowing executives to earn above the 50th percentile but only for performance which exceeds our target objectives or the results of our competitors. For example, when organizational performance meets the business plan, CIGNAs total pay levels (base salary, annual bonus, and long-term incentives) are targeted at the 50th percentile of our comparators. If CIGNA outperforms the comparators, the total pay could be above the 50th percentile. However, when CIGNA under performs the comparators, an executives total pay is expected to be below that of the 50th percentile. As a result, the compensation package for CIGNA executives is significantly linked to the value they return to CIGNA and its shareholders.
The Committee regularly reviews CIGNAs compensation programs against the companys strategic goals as well as industry practices and emerging trends. The Committee retains the flexibility to modify the programs to address changes in the competitive landscape where circumstances dictate. For example, in recognition of the challenging competitive environment and to support CIGNAs strategic realignment as a health care and related benefits company, the Committee took the following actions:
Also, during 2004, the Committee reviewed CIGNAs executive compensation program with Mercer for opportunities to further align the program with the companys organizational and strategic business objectives. As a result of this review, the Committee included membership goals as a more direct determinant of 2005 annual bonus awards. In addition, the Committee reduced eligibility for equity awards to ensure responsible share usage and to align with market practice, and identified measures for valuing Strategic Performance Units that provide greater focus on shareholder value and profitable growth.
Variable Compensation Components
Named executive officers who are covered under Section 162(m) of the Internal Revenue Code are eligible to earn annual bonus awards under the shareholder-approved CIGNA Executive Incentive Plan. This Plan is designed to motivate the named executive officers with competitive awards based upon achievement of objective performance goals.
Annual bonus awards recognize contributions to annual business results as measured against competitors and against CIGNAs operational plans. In 2004, the Committee assessed corporate-wide, business unit and individual performance in relation to earnings, revenue growth and cost management. The Committee also considered customer service, quality and financial integrity in making its assessment. An executives bonus target opportunity is calibrated to be competitive with the 50th percentile of the market, with the actual bonus ranging from 0 to 200% of the target bonus based on performance.
Annual bonuses for 2005 will be measured against earnings growth, achieving certain health care membership goals and expense management.
Currently, a mix of 50% options and 50% Strategic Performance Units constitutes the long-term incentive portion of executive compensation. The long-term incentives CIGNA has offered its executives at various times in recent years have included Strategic Performance Units, restricted stock (including performance-accelerated restricted stock), deferred performance-accelerated restricted stock units and stock options. In making long-term incentive awards in 2004 and 2005, the Committee intended to focus CIGNA executives on competitively superior long-term results and to align executives interests with shareholder interests, to ensure that executives have incentive opportunities comparable to their counterparts at CIGNAs competitors, and to motivate key executives to remain with the company.
The performance metrics the Committee selected for the 2004 to 2006 performance period for Strategic Performance Units were return on equity weighted equally with total shareholder return. For the 2005 to 2007 performance period, the Committee selected three-year annualized total shareholder return weighted equally with a cumulative adjusted income or adjusted revenue measure.
Stock Ownership Guidelines
The Committee expects all CIGNA executives to demonstrate confidence in the companys future, and to be personally affected by increases and decreases in the value of CIGNA stock, by sustained ownership of a substantial amount of CIGNA stock. The Committee expects the named executive officers to own stock valued at between three and five times their base salaries, depending on their level. The Committee reviews stock ownership levels annually.
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction for compensation over $1,000,000 paid to the chief executive officer and to any of the four other most highly compensated executive officers. Qualified performance-based compensation is not subject to the deduction limit if certain requirements are met. The Committee intends compensation paid to the named executive officers to be tax-deductible under Section 162(m) to the company and has structured the companys compensation plans for its most senior executives to achieve that result. However, the Committee may from time to time award compensation that would not be deductible under Section 162(m) when, in the exercise of the Committees business judgment, such award is in the best interests of the company. This occurs, for example, in order to meet competitive market pressures and to attract and retain senior executives. Other than an insignificant amount, all compensation paid during 2004 to the CEO and four other most highly compensated executive officers was deductible under Section 162(m).
Chief Executive Officer Compensation for 2004
Mr. Hanways compensation package for 2004 is itemized in the Summary Compensation Table on page 33. The Committee evaluated the total value of the compensation received by the CEO.
Approximately 90% of Mr. Hanways total compensation opportunity is variable, at risk, compensation that is tied to competitive and absolute corporate business results. Approximately one-third of his total compensation opportunity is based on annual competitive and absolute business performance; over half is dependent upon long-term competitive results. Mr. Hanways total compensation opportunity as well as his base salary and variable compensation components are consistent with the compensation opportunity for CEOs of our comparator group.
The Committee considered several factors in assessing the performance of CIGNA and Mr. Hanway for 2004, including:
The Committee assessed Mr. Hanways performance against these measures in 2004 as follows:
As a result of this assessment, the Committee arrived at the following decisions regarding Mr. Hanways 2004 and 2005 variable compensation.
2004 Annual Bonus. CIGNA exceeded the objective financial performance goals established for 2004 under the CIGNA Executive Incentive Plan. Specific issues that the Committee considered included the factors described above under Variable Compensation Components. Mr. Hanways bonus for 2004 of $2,600,000 is below the median of the comparator group.
Unit-based Incentives. The Committee approved total estimated payments of $133 per unit for unit-based long-term incentive compensation. This amount reflects CIGNAs performance over the period from 2002 to 2004 compared to the peer group and includes approximately $50 per unit to reflect the Committees decision to offset the impact of post 2002 accounting charges attributable to the run-off reinsurance operations, which have been inactive since 2000. This decision was intended to retain executives key to achieving future earnings per share goals and restoring investor confidence in the face of the companys turnaround efforts. In 2004, as shown on page 35, the Committee granted Mr. Hanway 60,000 Strategic Performance Units for the 2004 to 2006 performance period, which was the median target. In 2005, the Committee granted Mr. Hanway 75,000 Strategic Performance Units for the 2005 to 2007 performance period, which is above the median target to incent Mr. Hanways future performance.
Stock Options. In 2004, as shown on page 34, Mr. Hanway received 241,000 options with a term of ten years and a vesting period of three years to provide a competitive compensation opportunity relative to CEO compensation at our comparator group companies and to link his future compensation opportunity to the creation of additional shareholder value. In 2005, Mr. Hanway received 136,430 options, with similar terms. His 2005 grant is comparable in value to the options provided in 2004; however, the number of options granted is significantly lower as a result of, among other factors, the increase in the stock price and shareholder value, an approximate 45% increase since last years grant. Because of these factors, fewer options were required to be granted to generate comparable value in the option component of Mr. Hanways long-term incentives.
People Resources Committee:
Harold A. Wagner, Chairman
Louis W. Sullivan, M.D.
What follows is information about how CIGNA compensates its Chief Executive Officer and each of the four most highly compensated executive officers other than the CEO at the end of 2004. The following table also includes information regarding one former executive officer who was no longer serving CIGNA at the end of 2004. Together these individuals are called the named executive officers.
Summary Compensation Table
This table shows certain information regarding compensation awarded to each of the named executive officers in the past three years. Other tables in this proxy statement, such as the options grants table on page 34 and the long-term incentive plan awards table on page 35, provide more detail about specific types of compensation.
Option Grants in Fiscal Year 2004
The following table provides additional information about the stock options granted in 2004 to the named executive officers. Those stock options are shown in column (g) of the Summary Compensation Table on page 33. CIGNA did not grant stock appreciation rights in 2004.
2004 Fiscal Year-End Option Values
This table provides information about options exercised by the named executive officers during 2004, and about the unexercised stock options they held at the end of 2004. The named executive officers did not exercise or hold any stock appreciation rights during 2004.
Long-Term Incentive Plan Awards in Fiscal Year 2004
This table provides information about long-term incentive awards granted in 2004 to the named executive officers.
One form of long-term incentive that CIGNA provides to executive officers and other key employees is strategic performance unit awards, called SPUs, under the Long-term Incentive Plan. The Committee sets performance metrics, payout formulas and a target value for the SPUs when they are awarded. For awards made in 2004, the People Resources Committee used total shareholder return, as a proxy for profitable growth, weighted equally with return on equity, as the performance metrics. The target value is currently $75 per unit, and is to be paid when CIGNAs three-year return on equity and total shareholder return is in the median range compared to the competitors. The payout value of SPUs is based on CIGNAs achievement relative to those performance metrics over a three-year period in comparison to a group of competitors that overall have business lines similar to CIGNAs. The final dollar value of each unit may be from zero to $200.
The Committee assigns a value to SPUs by comparing CIGNAs performance each year in the three-year performance period with the performance for a defined group of competitors and then assigns dollar values to the units based on the rankings, using a conversion formula. The Committee has discretion to reduce the dollar value of each SPU by up to $25, based on its judgment regarding strategic and financial performance during the period, and to otherwise reduce the payment or eliminate it entirely.
If within two years after a change of control of CIGNA an employee is terminated, or resigns because of certain adverse changes in employment conditions, that employee must be paid within 30 days for all SPU awards not yet valued and paid. The dollar value of each SPU would be the greatest of:
No payment is made to an employee terminated after conviction of a felony involving fraud or dishonesty directed against CIGNA.
Pension Plan Information
Retirement benefits are payable under a qualified plan covering all U.S. employees and a supplemental plan that provides benefits not available under the qualified plan because of federal tax code limits. These plans are described together as the CIGNA Pension Plan.
Pension Plan Table
The CIGNA Pension Plan provides two methods of determining retirement benefits. Mr. Hanway, Mr. Bell, Ms. Soltz, and certain other employees hired before January 1, 1989 participate in Part A of the Plan. This table shows annual retirement benefits under Part A (before the Social Security offset of 50% of an individuals annual primary Social Security benefit) under a straight life annuity, computed assuming the recipient retires at age 65 after the years of service and earnings specified in the table.
Under Part A, annual retirement benefits are based upon:
Part A qualified benefits are paid after separation from service in annuity form, and Part A supplemental benefits may be paid in a lump sum or in annuity form.
Messrs. Wolf and Kendall and other employees, including those hired on or after January 1, 1989, participate in Part B of the Pension Plan.
Pension benefits under Part B equal the sum of an employees accumulated annual benefit credits and quarterly interest credits. Annual benefit credits are based on age, years of credited service and earnings. Quarterly interest credits are based on U.S. Treasury bond rates.
The estimated annual pension benefits payable under Part B for Messrs. Wolf and Kendall at age 65 are $217,600 and $115,200, respectively. Mr. Coyle was not vested in his Part B pension benefit as of his termination date. These estimates assume level compensation until retirement, annual interest credits of 5.5%, current plan formulas and regulatory environment, and payout under a straight life annuity. Part B benefits may be paid after separation from service in a lump sum or in an annuity form.
Covered earnings under both Part A and Part B include salary and bonuses, but not long-term incentive plan payouts or any other incentive awards. Salary and bonus information for the named executive officers is in columns (c) and (d) of the Summary Compensation Table on page 33.
As of January 1, 2005, the named executive officers had the following years of credited service: Mr. Hanway, 26 years; Mr. Bell, 20 years; Ms. Soltz, 26 years; Mr. Wolf, 3 years; and Mr. Kendall, 7 years.
For a three-year period following a change of control of CIGNA, the CIGNA Pension Plan cannot be terminated, or benefit accruals reduced. If Part A were to be terminated in the fourth or fifth year following a change of control, additional benefits would be provided to participants, including an immediate 10% increase to persons receiving benefits and an annual 3% increase in benefits beginning at age 65. In addition, participants in Part A and Part B who are terminated, other than for cause, within three years following a change of control would receive certain benefits. Participants in Part A would receive up to three years of additional service credit and a floor amount of final average earnings based on their level of earnings when a change of control occurred. Participants in Part B would receive a special benefit credit for the year of termination equal to a percentage of adjusted eligible earnings.
Termination of Employment
Executive level employees (including the named executive officers) who are terminated (other than as the result of conviction of a felony involving fraud or dishonesty directed against CIGNA) within two years after a change of control would receive (in addition to amounts already described in the Executive Compensation section of this Proxy Statement):
If within two years after a change of control, any of the changes described in the next sentence affect an executive level employee, and he or she then resigns following written notification to CIGNA, the resignation will be treated as a termination after a change of control. The covered changes are any reduction in compensation; any material reduction in authority, duties or responsibilities; or a relocation of the executives office more than 35 miles from its location on the date of the change of control.
Severance benefits may be provided to executive level employees whose employment is terminated because of job elimination or any other reason. The amount of these benefits is subject to the discretion of the CEO (and, in
the case of senior executives, the Committee). The following factors are typically considered in the exercise of such discretion: length of service; the executives total compensation target and the executives career plans following termination of employment with CIGNA.
In connection with Mr. Coyles termination of employment effective January 14, 2005, he entered into an agreement dated August 30, 2004, pursuant to which he agreed not to compete with CIGNA for one year following his termination date. Pursuant to this agreement, Mr. Coyle received (1) salary from the date of the agreement until his termination date shown in column (c) in the Summary Compensation Table on page 33, (2) the bonus payment shown in column (d) in the Summary Compensation Table, and (3) severance benefits of $101,000, shown in column (i) in the Summary Compensation Table. In addition, Mr. Coyle will receive an SPU award related to the 2002 to 2004 performance period, with the estimated value shown in column (h) in the Summary Compensation Table, which is a pro rata portion (18 of 36 months) of the award granted to him. In addition, Mr. Coyles option grants shown in column (b) in the Option Grants Table on page 34 and his restricted stock described in Footnote 1 of the Summary Compensation Table continued to vest until his termination date; after that date any of his unexercised options expired and he forfeited his restricted stock in accordance with the terms of the original grants. Until March 25, 2005, Mr. Coyle continued group health care and life insurance coverage on the same basis as active employees. Also, Mr. Coyle received office space and secretarial service in accordance with CIGNAs standard outplacement program for executive level employees, and access to CIGNAs Financial Services Program through 2004, and will receive reimbursement for reasonable tax preparation fees for 2003 and 2004 income.
The following graph, which covers the five-year period ending December 31, 2004, compares the cumulative total shareholder return (assuming reinvestment of dividends) on CIGNAs common stock with the cumulative total shareholder return on (i) the Standard and Poors (S&P) 500 Index and (ii) a weighted average of the S&P Managed Health Care and Life & Health Insurance Indexes.
Beneficial Ownership Reporting Requirements
CIGNAs Directors and executive officers are required to file reports of their holdings and transactions in CIGNA securities with the Securities and Exchange Commission and the New York Stock Exchange. Based on our records and representations from our executive officers and Directors, we believe that all reports due in 2004 were filed as required.
Largest Security Holders
This table lists one shareholder that filed a Schedule 13G indicating that it beneficially owned more than five percent (5%) of CIGNAs common stock as of December 31, 2004. The table was prepared using information from the Schedule 13G filed by the beneficial owner listed and other sources.
Various affiliates of Franklin Resources, Inc. including Templeton Global Advisors Limited, Franklin Templeton Investment Management Limited, Templeton Investment Counsel, LLC, Franklin Templeton Investments Corp., Franklin Templeton Portfolio Advisors, Inc., Franklin Advisers, Inc., Fiduciary Trust Company International, and Templeton Asset Management, Ltd. reported on the 13G that they held shares for the account of discretionary clients. These clients have the right to receive dividends and any proceeds from the sale of these shares. Franklin Resources, Inc. reported it has sole voting power for 6,612,386 shares and dispositive power for 6,789,178 shares. Franklin Resources, Inc. reported to the Securities and Exchange Commission that it acquired its shares in the ordinary course of business with no intention of influencing control of CIGNA.
CIGNA will bear the cost of soliciting your proxy. We will enlist the help of banks and brokerage houses in soliciting proxies from their customers and reimburse them for their out-of-pocket expenses. In addition, we have engaged Georgeson Shareholder Communications, Inc. to assist in soliciting proxies. Georgeson will receive a fee of approximately $15,000 and be reimbursed for reasonable out-of-pocket expenses associated with this work.
Proxies will be solicited personally, through the mail, by telephone, by facsimile or via the Internet. Directors, officers, employees and agents of CIGNA or its subsidiaries may assist in solicitation efforts.
2006 Annual Meeting
The 2006 Annual Meeting will be held Wednesday, April 26, 2006, at a time and location to be announced later. The Board may change this date if necessary.
Shareholder Proposals for Inclusion in Next Years Proxy Statement
CIGNAs Corporate Secretary must receive a shareholder proposal by November 18, 2005, for the proposal to be eligible for inclusion in our proxy material for next years annual meeting.
Shareholder Proposals and Nominations for Presentation at Next Years Annual Meeting
Shareholders can present proposals not included in CIGNAs proxy material from the floor of next years annual meeting only if the Corporate Secretary receives notice and certain information before January 26, 2006. Any shareholder who wishes to introduce a proposal should consult CIGNAs by-laws and applicable proxy rules of the Securities and Exchange Commission.
Shareholders can nominate someone for the Board of Directors from the floor of next years annual meeting only if the Corporate Secretary receives notice before January 26, 2006. The notice must include certain information, specified in the by-laws, about you and your nominee(s). Each nominee must also provide the Corporate Secretary with written consent to serve if elected.
Please see page 10 for information on making suggestions on Board nominees to the Corporate Governance Committee.
CAROL J. WARD, Corporate Secretary
AUDIT COMMITTEE CHARTER (as approved by the Board February 1, 2005)
(also available at
Management is responsible for the Corporations internal controls and the financial reporting process. The Independent Auditors are responsible for performing an independent audit of the Corporations consolidated financial statements and issuing a report on these financial statements. The Audit Committee represents and assists the Board in fulfilling its oversight responsibility regarding the Corporations internal controls, financial reporting and independent auditing processes as set forth in this charter. In connection with its responsibility, the Audit Committee may consider and rely upon reports and work from persons and organizations inside and outside of the Corporation when the Committee reasonably believes that the reports and work merit confidence.
The Audit Committee shall represent and assist the Board in fulfilling its oversight responsibility regarding:
The Audit Committee shall prepare the Audit Committee report for inclusion in the Corporations proxy statement.
The Audit Committee shall consist of a minimum of at least three members of the Board of Directors. Members of the Committee shall be appointed by the Board of Directors upon the recommendation of the Corporate Governance Committee and may be removed by the Board of Directors in its discretion. All members of the Committee shall satisfy all applicable independence requirements. Each member of the Committee shall be financially literate, as determined by the Board of Directors. In addition, at least one member of the Committee shall be an audit committee financial expert, as determined by the Board in accordance with Securities and Exchange Commission rules.
The Audit Committee shall have the following authority and responsibilities:
MATTERS PERTAINING TO INDEPENDENT AUDITORS
The Independent Auditors shall have sole accountability to the Audit Committee.
The Audit Committee shall appoint (subject to ratification by the Corporations shareholders), compensate, oversee the work of and remove, as appropriate, the Independent Auditors.
In connection with its oversight of the Independent Auditors, the Audit Committee shall:
MATTERS PERTAINING TO THE GENERAL AUDITOR, RISK ASSESSMENT AND RISK MANAGEMENT
The Audit Committee shall:
MATTERS PERTAINING TO FILINGS WITH GOVERNMENT AGENCIES
The Audit Committee shall:
CONTROLS; SIGNIFICANT ACCOUNTING POLICIES
The Audit Committee shall:
PRESS RELEASES AND EARNINGS GUIDANCE
The Audit Committee shall:
COMPLIANCE AND LEGAL MATTERS
The Audit Committee shall:
In order to carry out and effectuate its purpose, the Audit Committee shall, at least quarterly, meet separately with the Corporations:
In order to carry out its responsibilities, the Audit Committee shall also:
The Audit Committee shall report regularly to the Board with respect to its activities.
PERFORMANCE EVALUATION AND CHARTER REVIEW
The Audit Committee shall annually:
(As Amended and Restated effective as of January 1, 2005)
Statement of Purpose; Effect on Prior Plans
The CIGNA Long-Term Incentive Plan is intended to:
The Plan is an amendment and restatement as of January 1, 2005 of the Prior Plan. As of the date CIGNA Corporation shareholders adopt this amended and restated Plan, any of the shares of Common Stock authorized for issuance under the CIGNA Corporation Stock Plan (approved by CIGNA Corporation shareholders at the CIGNA Corporation Annual Meeting on April 24, 1991) in excess of the number of shares reserved for awards that have been made under that plan shall be transferred into this Plan and shall become available for grant under this Plan. From and after the date CIGNA Corporation shareholders adopt this amended and restated Plan, no further awards shall be made under the CIGNA Corporation Stock Plan.
Except as otherwise provided in the Plan or unless the context otherwise requires, the terms defined below shall have the following meanings under the Plan:
Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.
Authorized Incentive Awards
Stock Appreciation Rights
Any fractional share of Common Stock resulting from this calculation shall be ignored.
Upon exercise of an SAR, the number of shares that the Participant designates for exercise will be subtracted from the number of shares available under the SAR immediately before the SAR exercise to determine the remaining number of shares, if any, that the Participant may designate for any future exercise of the SAR.
Restricted Stock Grants
If the Committee grants Restricted Stock subject to performance conditions, at the time of grant the Committee shall establish the applicable Performance Measures, Performance Objectives, vesting schedule and, if the Performance Objectives require comparing the Companys financial results to those of a Peer Group, the composition of the Peer Group. To the extent required by Code Section 162(m), before the vesting of any Restricted Stock subject to performance conditions, the Committee shall certify in writing that the Performance Objectives established at time of grant have been met. The Committee may establish different performance conditions for shares contained in a single Restricted Stock grant. No Eligible Employee may receive more than 150,000 shares of Restricted Stock with performance conditions during any calendar year.
Dividend Equivalent Rights
Common Stock in Place of Other Awards
Strategic Performance Units; Strategic Performance Shares
Shares Authorized under the Plan
Except as expressly provided under the Plan, the following provisions shall apply to all shares of Common Stock (including Restricted Stock) authorized for issuance and all Options and SARs granted under the Plan:
Administration of Plan
The Committee may require or permit the Participant to remit all or part of the required withholding amount in Common Stock (other than Restricted Stock). The remitted Common Stock may be shares deliverable to the Participant because of the transaction giving rise to the withholding obligation (in which case the number of shares of Common Stock delivered to a Participant shall be reduced by the number of shares so remitted) or shares the Participant has owned without restriction for at least six months as of the date the withholding obligation arises. If the Committee permits a Participant to elect to remit Common Stock, the election shall be made on or before the date the withholding obligation arises and be subject to the disapproval of the Committee.
The Committee may establish any additional conditions it deems appropriate. The value of any remitted Common Stock shall be its Fair Market Value as of the date the withholding obligation arises.
FROM CENTER CITY PHILADELPHIA
AND SOUTH JERSEY
Take I-76 West (Schuylkill Expressway) to I-476 (Blue Route) South towards Chester. Proceed on I-476 South to next exit, Exit 13 (US 30 - St. Davids/Villanova). Bear right and follow signs for US 30 East (Lancaster Avenue). Continue with directions below for Once on US 30 (Lancaster Avenue)...
FROM PA TURNPIKE (EAST OF VALLEY FORGE) AND NORTH
Exit PA Turnpike at Exit 333 (MidCounty). Proceed through toll plaza, follow signs for I-476 South (Blue Route) towards Chester. Proceed on I-476 South for 8 miles, to Exit 13 (US 30 - St. Davids/Villanova). Bear right and follow signs for US 30 East (Lancaster Avenue). Continue with directions below for Once on US 30 (Lancaster Avenue)...
FROM PHILADELPHIA INTERNATIONAL AIRPORT AND DELAWARE
From Airport follow signs for I-95 South. From Delaware take I-95 North. Proceed on I-95. Follow signs for I-476 North (Blue Route, near McDade Boulevard exit). Travel on I-476 North for 14 miles to Exit 13 (US 30 - St. Davids/Villanova). Bear right and follow signs for US 30 East (Lancaster Avenue). Continue with directions below for Once on US 30 (Lancaster Avenue)...
FROM KING OF PRUSSIA, VALLEY FORGE AND PA TURNPIKE (WEST OF VALLEY FORGE)
Exit PA Turnpike at Exit 326 (Valley Forge). Proceed through tolls onto I-76 East (Schuylkill Expressway). From King of Prussia area, take Route 202 to I-76 East(Schuylkill Expressway). Travel on I-76 East to Exit 331A. Follow signs for I-476 South (Chester). Proceed on I-476 South to Exit 13 (US 30 - St. Davids/Villanova). Bear right and follow signs for US 30 East (Lancaster Avenue). Continue with directions below for Once on US 30 (Lancaster Avenue)...
ONCE ON US 30 (LANCASTER AVENUE, FROM I-476)
Follow Route 30 East to first traffic light. Turn right on to Route 320 South (Sproul Road). Continue on Route 320 South for approximately .7 miles to 1st traffic light (under underpass) and turn left on to Conestoga Road. Follow Conestoga Road approximately 2.1 miles to third traffic light/dead end. Yangming Restaurant will be on your left and 7-11 Mini-Mart will be straight ahead. Bear right on to County Line Road (the 7-11 will be on your right). Proceed on County Line Road approximately .3 miles to second traffic light. Turn right onto Bryn Mawr Avenue (before WaWa Mini Mart). Follow Bryn Mawr Avenue for approximately 150 yards to the main entrance of The American College on the right hand side. Turn into main entrance and follow the directional signs to the Gregg Conference Center.
There is a frequent SEPTA commuter service, on the R5, between Bryn Mawr and Center City Philadelphia (30th Street Station or Suburban Station). Travel time is approximately 20 minutes. The R5/Bryn Mawr Station is just under a mile from the Conference Center. The 100 Line is a trolley that connects in Philadelphia at 69th Street. It is 1 block from the Gregg Center. SEPTA Travel Information Center (215) 580-7800.
NOTICE OF 2005 ANNUAL MEETING OF SHAREHOLDERS
CIGNA Corporation Shareholders and CIGNA and IntraCorp 401-k Plan Participants:
The annual meeting of shareholders will be held on Wednesday, April 27, 2005 at 3:30 p.m. at The Gregg Conference Center at The American College, 270 S. Bryn Mawr Avenue, Bryn Mawr, Pennsylvania. Directions to The Gregg Conference Center are at the end of the proxy statement.
At the meeting, we will ask the shareholders to:
We plan a business meeting focused on these items, then we will attend to any other proper business that may arise. We also will offer time for your questions and comments.
The Board of Directors recommends that you vote in favor of Items 1, 2 and 3. These proposals are described in the proxy statement. CIGNAs 2005 Proxy Statement and 2004 Annual Report to Shareholders are available online by going to www.cigna.com >Investor Relations > Most Recent Disclosures > Financial Literature. You may also contact CIGNAs Shareholder Services Department at 215.761.3516 for an Annual Report and Proxy Statement.
CIGNA shareholders of record at the close of business on February 28, 2005 are entitled to notice of and to vote at the meeting and any adjournment thereof. Your vote is important, even if you do not own many shares. CIGNA encourages you to exercise your right to vote by any of the following means:
H. EDWARD HANWAY
Chairman and Chief Executive Officer
By order of the Directors
CAROL J. WARD
CIGNA and Intracorp 401(k) Plan Participants:
The following notice about the Annual Shareholders Meeting and an enclosed proxy card are being mailed to your home address. You may already have received it. If not, you can expect it shortly.
The upper right-hand corner of the voting side of the proxy card (the side you would sign) indicates the total number of shares of CIGNA stock for which you have:
You may exercise your right to vote over the internet at the web address found at the bottom of this notice.
Click here to view the 2005 Proxy Statement and the 2004 Annual Report.
This proxy, when properly executed, will be voted in the manner directed herein by the shareholder and in the discretion of the proxies upon such other matters as may come before the meeting. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1, 2 AND 3.
Please Mark Here for Address Change or Comments
SEE REVERSE SIDE
1. ELECTION OF DIRECTORS
01 PETER N. LARSON
02 CAROL COX WAIT
03 WILLIAM D. ZOLLARS
04 MARILYN WARE
2. Ratification of Appointment of PricewaterhouseCoopers LLP as Independent Auditors.
FOR AGAINST ABSTAIN
FOR all nominees (except as marked to the contrary)
WITHHOLD for all Nominees
3. Approval of CIGNA Long-Term Incentive Plan.
FOR AGAINST ABSTAIN
To withhold authority to vote for any individual nominee(s), write the nominees name(s) in the space provided below:
Mark here if you would like your voting instructions to be confidential pursuant to the procedures on confidential voting described in the Proxy Statement. Marking this box will not absolve you of any independent fiduciary or other legal obligation to report how you voted nor prevent the inspectors from disclosing your vote if required by law or if otherwise permitted by the procedures.
Voting Instructions for positions held in the CIGNA 401(k) Plan and the IntraCorp 401(k) Performance Sharing Plan will be held confidential.
Signature if held jointly
Please sign exactly as your name appears hereon. Joint Owners should each sign. When signing as attorney, executor, administrator, trustee or guardian please give full title as such.
FOLD AND DETACH HERE
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11:59 PM Eastern Time the day prior to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.
Use the Internet to vote your proxy. Have your proxy card in hand when you access the web site.
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call.
Mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.
If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.
P R O X Y
Proxy/Voting Instruction Card
THIS PROXY/VOTING INSTRUCTION CARD IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Christine A. Reuther, the Corporations Assistant Corporate Secretary, and Carol J. Ward, the Corporations Corporate Secretary, or either of them, proxies with full power of substitution and each of them is hereby authorized to represent the undersigned and vote all shares of the Corporation held of record by the undersigned on February 28, 2005 and all of the shares as to which the undersigned then had the right to give voting instruction to the record holder (trustees) under the CIGNA 401(k) Plan and the Intracorp 401(k) Performance Sharing Plan at the Annual Meeting of Shareholders, to be held at The Gregg Conference Center at The American College, 270 S. Bryn Mawr Avenue, Bryn Mawr, PA 19010 on April 27, 2005, at 3:30 p.m. or at any adjournment thereof, on the matters set forth below:
1. ELECTION OF DIRECTORS, Nominees for terms expiring April 2008: 01 Peter N. Larson, 02 Carol Cox Wait and 03 William D. Zollars; and for a term expiring April 2006: 04 Marilyn Ware.
2. Ratification of Appointment of PricewaterhouseCoopers LLP as Independent Auditors.
3. Approval of CIGNA Long-Term Incentive Plan.
In their discretion, upon such other matters as may properly come before the meeting.
You are encouraged to specify your choices by marking the appropriate selections (either on this card or electronically), but you need not specify any choices if you wish to vote in accordance with the Board of Directors recommendations, so long as you submit your proxy.
If you use this card to vote, you must sign it on the reverse side in order for your vote to be counted. SEE REVERSE SIDE
Address Change/Comments (Mark the corresponding box on the reverse side)
FOLD AND DETACH HERE
CIGNA Corporation Annual Meeting of Shareholders
April 27, 2005 3:30 p.m.
The Gregg Conference Center at The American College 270 S. Bryn Mawr Avenue Bryn Mawr, PA 19010