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Section 1: DEF 14A (DEF 14A)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.    )
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Soliciting Material under 240.14a-12
 Kemper Corporation
(Name of registrant as specified in its charter)
 
(Name of person(s) filing proxy statement, if other than the registrant)
 
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397181056_kemperlogo140x25.jpg

Notice of 2019 Annual Meeting & Proxy Statement
 
 
 



Kemper Corporation
200 East Randolph Street
Suite 3300
Chicago, Illinois 60601
kemper.com




397181056_kemperlogo140x25.jpg
Notice of 2019 Annual Meeting of Shareholders to Be Held May 1, 2019

The 2019 Annual Meeting of the Shareholders (“Annual Meeting”) of Kemper Corporation (“Company” or “Kemper) will be held at 8:00 a.m., Central Daylight Time, on Wednesday, May 1, 2019, at 200 East Randolph Street, 80th Floor, Chicago, Illinois 60601. Attendees providing proper identification will be directed to the meeting room located on the 80th floor. The purpose of the Annual Meeting will be to:
                        
1.
Elect a Board of Directors;
2.
Consider and vote on an advisory proposal to ratify the selection of Deloitte & Touche LLP as the Company’s independent registered public accountant for 2019;
3.
Consider and vote on an advisory proposal to approve the compensation of the Company’s Named Executive Officers, as disclosed in this Proxy Statement;
4.
Consider and vote on a proposal to approve the Company’s 2019 Employee Stock Purchase Plan; and
5.
Consider and act upon such other business as may be properly brought before the meeting.

The Board of Directors of Kemper has fixed March 7, 2019 as the record date (“Record Date”) for determining shareholders entitled to receive this notice and to vote at the 2019 Annual Meeting or any adjournments or postponements of the meeting. Only shareholders of record at the close of business on the Record Date will be entitled to notice of, and to vote at, the Annual Meeting. A list of registered shareholders as of the close of business on March 7, 2019 will be available for inspection at the Annual Meeting and for a period of 10 days prior to May 1, 2019 during ordinary business hours at the Company’s executive offices located at 200 East Randolph Street, Suite 3300, Chicago, Illinois 60601.

By Order of the Board of Directors,
    397181056_cthomasevanssiga02.jpg
C. Thomas Evans, Jr.
Secretary
Chicago, Illinois
March 20, 2019
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on May 1, 2019: The Company’s 2019 Proxy Statement and 2018 Annual Report to Shareholders are available at proxyvote.com.

Regardless of whether you plan to attend the Annual Meeting, please vote your proxy as promptly as possible. You may vote by timely returning your signed and dated proxy card in the postage-paid envelope provided, or you may vote by telephone or through the Internet. Instructions are printed on your proxy card. To obtain directions to attend in person, you may contact Investor Relations by telephone at 312.661.4930, or by e-mail at [email protected]








TABLE OF CONTENTS    
 
 
Page
Proxy Statement Summary
 
 
Board and Corporate Governance
Meetings and Committees of the Board of Directors
Corporate Governance
Selection of Board Nominees
Related Person Transactions
Director Independence
Compensation Committee Interlocks and Insider Participation
Board Leadership and Role in Risk Oversight
Director Compensation
2018 Annual Non-Employee Director Compensation Program
Director Compensation Table
Proposal 1: Election of Directors
 
 
Audit Matters
Audit Committee Report
Independent Registered Public Accountant
Independent Registered Public Accountant Fees for 2018 and 2017
Pre-Approval of Services by Independent Registered Public Accountant
Proposal 2: Advisory Vote to Ratify the Selection of Deloitte & Touche LLP as the Company's Independent Registered Public Accountant
 
 
Executive Officers
 
 
Discussion of Compensation Committee Governance
 
 
Compensation Discussion and Analysis
Executive Summary
Executive Compensation Program
Compensation Strategy and Analysis
Annual Determination of Specific Compensation
Stock Ownership Policy
Changes Made to NEO Compensation for 2019
Perquisites
Employee Welfare Benefit and Retirement Plans
Other Post-Employment Compensation
Tax Implications
Compensation Committee Report
 
 
Executive Officer Compensation & Benefits
Summary Compensation Table
Grants of Plan-Based Awards in 2018 - Narrative and Table
Outstanding Equity Awards at 2018 Fiscal Year-End Table
Option Exercises and Stock Vested in 2018 Table
Retirement Plans - Narrative and Pension Benefits Table
Nonqualified Deferred Compensation - Narrative and Table
Potential Payments Upon Termination or Change in Control - Narrative and Table
Pay Ratio Disclosure
Proposal 3: Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers



 
 
Proposal 4: Vote to Approve the Company's 2019 Employee Stock Purchase Plan
 
 
Ownership of Kemper Common Stock
Directors and Executive Officers
Certain Beneficial Owners
Section 16(a) Beneficial Ownership Reporting Compliance
Frequently Asked Questions
 
 
Incorporation by Reference
 
 
Appendix A: Supplement to Compensation Discussion and Analysis
 
 
Appendix B: Kemper Corporation 2019 Employee Stock Purchase Plan
 


    
 
 
Proxy Statement Summary


Proxy Statement Summary
The Kemper Board of Directors (“Board of Directors” or “Board”) is furnishing you with this Proxy Statement to solicit your proxy to be voted at Kemper’s Annual Meeting. This Proxy Statement Summary highlights information contained elsewhere in this Proxy Statement. Please read the entire Proxy Statement carefully before voting.
Annual Meeting of Shareholders
Date:            Wednesday, May 1, 2019
Time:            8:00 a.m. Central Daylight Time    
Location:        200 East Randolph Street
80th Floor
Chicago, Illinois 60601
Record Date:        March 7, 2019
Voting Matters and Board Recommendations
Voting Matter
 
Board Recommendation
 
Page Reference
1.
Election of Directors;
 
FOR
 
2.
Advisory vote to ratify selection of Deloitte & Touche LLP as the Company’s independent registered public accountant for 2019;
 
FOR
 
3.
Advisory vote to approve the compensation of the Company’s Named Executive Officers, as disclosed in this Proxy Statement; and
 
FOR
 
4.
Vote to approve the Company’s 2019 Employee Stock Purchase Plan
 
FOR
 
How to Cast Your Vote
The mailing address of our principal executive office is 200 East Randolph Street, Suite 3300, Chicago, Illinois 60601. We began sending these proxy materials on or about March 20, 2019 to all shareholders entitled to vote at the Annual Meeting.
All properly executed proxy cards, and all properly completed proxies submitted by telephone or through the Internet, that are timely delivered in response to this solicitation will be voted at the Annual Meeting in accordance with the directions given in the proxy, unless the proxy is revoked before the meeting. For more information, please refer to the Frequently Asked Questions section under the heading Voting and Record Date on page 61.
The proxies may also be voted at any adjournments or postponements of the Annual Meeting.

Kemper Corporation 2019 Proxy Statement 1

Board and Corporate Governance

Board and Corporate Governance
Meetings and Committees of the Board of Directors
The Board has the following four principal standing committees: (i) Audit Committee; (ii) Compensation Committee; (iii) Investment Committee; and (iv) Nominating and Corporate Governance (“NCG”) Committee. The Board has adopted written charters for each committee. These documents are available on the Company’s website at kemper.com under Governance and/or by mail at no cost upon request to the Company at 200 East Randolph Street, Suite 3300, Chicago, Illinois 60601, Attention: Investor Relations.
Under the Company’s Corporate Governance Guidelines and Policy on Director Attendance at Annual Meetings, directors are expected to attend the following types of meetings, unless unavoidable obligations or other circumstances prevent their attendance: (i) annual shareholder meetings; (ii) Board meetings; and (iii) Board committee meetings for the committees on which they serve. Each incumbent director attended at least 75 percent of the 2018 meetings of the Board and Board committees on which he or she served. The non-employee and independent members of the Board meet regularly in executive session. In addition, each of the directors who was a member of the Board on the date of the 2018 Annual Meeting attended such meeting.
The following table shows the current membership (“M”) and chair (“C”) of the Board and each of its four principal Board committees, and the number of Board and Board committee meetings held in 2018 and actions taken by unanimous written consent in lieu of meetings:
Name
Board
Audit Committee
Compensation Committee
Investment Committee
NCG Committee
Teresa A. Canida
M
M
 
M
 
George N. Cochran
M
C
 
M
 
Kathleen M. Cronin
M
M
C
 
 
Douglas G. Geoga
M
M
 
M
 
Lacy M. Johnson
M
 
M
 
M
Robert J. Joyce
C
M
 
 
C
Joseph P. Lacher, Jr.
M
 
 
M
 
Christopher B. Sarofim
M
 
 
C
 
David P. Storch
M
 
M
 
M
Susan D. Whiting
M
M
M
 
 
 
 
 
 
 
 
Meetings Held
11 (1)
8
5
3
5
Actions Taken by Written Consent
1
2
(1) In addition, the Board held a two-day, long-term strategic planning session with members of the senior management team.
The following is a brief description of the functions of the four principal Board committees:
Audit Committee
The Audit Committee (“Audit Committee”) assists the Board in fulfilling its oversight responsibilities with respect to the:
integrity of the Company’s financial statements and adequacy of its internal controls;
Company’s compliance with legal and regulatory requirements;
independent registered public accountant’s qualifications, independence and performance; and
performance of the Company’s internal audit function.

Kemper Corporation 2019 Proxy Statement 2

Board and Corporate Governance

The Audit Committee is a standing committee established in accordance with the Securities Exchange Act of 1934, as amended (“Exchange Act”). Under its charter, the Audit Committee is responsible for the appointment, compensation, retention and oversight of the Company’s independent registered public accountant, including prior approval of the audit engagement fees and terms. The Audit Committee is also responsible for, among other matters, reviewing and discussing with management Kemper’s financial statements and disclosures, internal controls, internal audit function, and major risk exposures and steps taken by management to monitor and control such exposures, including its enterprise risk management (“ERM”) structure and program.
The Board has determined that each member of the Audit Committee is independent and financially literate in accordance with the New York Stock Exchange (“NYSE”) Listed Company Manual (“NYSE Listing Standards”) and meets the independence requirements for audit committee membership under the rules of the Securities and Exchange Commission (“SEC”). In addition, the Kemper Board has determined that Mr. Cochran, the Audit Committee chair, is qualified as an audit committee financial expert under the SEC rules.
Compensation Committee
The Compensation Committee assists the Board in fulfilling its responsibilities relating to:
reviewing and approving corporate goals and objectives relevant to the compensation of the Company’s Chief Executive Officer (“CEO”) and evaluating the CEO’s performance and compensation in light of such goals and objectives;
overseeing the compensation of the Company’s executive officers and other members of senior management as may be designated by the committee from time to time;
reviewing and approving the Company’s incentive compensation and equity-based compensation plans;
reviewing and approving the material terms of any employment agreements or severance or change-in-control arrangements involving any of the Company’s executive officers; and
reviewing and making recommendations to the Board on non-employee director compensation.
The Board has determined that each member of the Compensation Committee is independent in accordance with the NYSE Listing Standards. Additional information about the Compensation Committee’s governance is provided below in the section entitled Discussion of Compensation Committee Governance beginning on page 18.
Investment Committee
The Investment Committee oversees the Company’s investment objectives and policies and reviews the performance of the Company’s investment portfolio on a consolidated basis. The Investment Committee is also responsible for reviewing and approving the policies and objectives for the Company’s investment activities that are established and maintained by the Company’s Chief Investment Officer.
Nominating & Corporate Governance Committee
The NCG Committee assists the Board in fulfilling its responsibilities with respect to:
identifying potential candidates qualified to become Board members and recommending director nominees to the Board from time to time and in connection with each annual meeting of shareholders;
developing and assessing policies and guidelines for corporate governance, executive succession, business conduct and ethics;
leading the Board in its annual review of the performance of the Board and Board committees; and
recommending to the Board the members and chairs for each Board committee and a Board member to serve as Chairman of the Board.
The Board has determined that each member of the NCG Committee is independent in accordance with the NYSE Listing Standards.

Kemper Corporation 2019 Proxy Statement 3

Board and Corporate Governance

Corporate Governance
The Corporate Governance Guidelines, Code of Business Conduct and Ethics, charters for Board committees and other corporate governance information can be found on the Company’s website at kemper.com under Governance. Copies of these documents may also be obtained free of charge by request to the Company at 200 East Randolph Street, Suite 3300, Chicago, Illinois 60601, Attention: Investor Relations.
Selection of Board Nominees
In accordance with its charter, the NCG Committee recommends a slate of director nominees for election each year at the Annual Meeting. As needed to fill actual or anticipated vacancies on the Board of Directors, the NCG Committee screens and interviews candidates, and conducts inquiries into each candidate’s background, qualifications and independence in accordance with the NYSE Listing Standards and SEC rules. The NCG Committee may, in its discretion, retain recruiters to identify and evaluate director candidates.
The Company will also consider director recommendations by shareholders that are made in writing, addressed to the Company’s Secretary, and include: (i) the candidate’s name, address and telephone number; (ii) a brief biographical description of the candidate, including his or her occupation for the past five years and a statement of the qualifications of the candidate to serve as director; and (iii) the candidate’s signed consent to serve as a director if elected and to be named in the Company’s proxy materials as a director nominee. The NCG Committee will consider shareholder recommendations using the same standards it uses to assess all other candidates for director.
The NCG Committee evaluates potential nominees for director against the following standards that were previously adopted by the Board, as well as other attributes and skill sets considered desirable or necessary to address particular needs from time to time:
the highest ethical standards and integrity;
willingness and ability to devote sufficient time to the work of the Board;
willingness and ability to represent the interests of shareholders as a whole rather than those of special interest groups;
no conflicts of interest that would interfere with performance as a director;
a reputation for working constructively with others;
a history of achievement at a high level in business or the professions that reflects superior standards; and
qualities that contribute to the Board’s diversity.
The primary focus in recruitment and nomination of directors has been on skills and experience. Other than as noted in the last bullet point above, the NCG Committee does not have a specific policy or requirement with regard to its consideration of diversity in identifying director nominees, nor has it attempted to define or limit the concept of “diversity” to any particular set of characteristics. The NCG Committee and the Board believe that the Board should be comprised of members with complementary and diverse skills and experience which, collectively, contribute breadth of perspective and enable the Board to effectively oversee a publicly-traded insurance organization.
Related Person Transactions
The Board has adopted a written policy (“Policy on Related Person Transactions”) for review, approval and ratification of transactions involving the Company and “related persons,” defined as directors, executive officers, and shareholders owning five percent or more of Kemper common stock (“Common Stock”), or their immediate family members. The Policy on Related Person Transactions covers any related person transaction unless it involves: (i) a transaction generally available to all employees of the Company; (ii) less than $120,000 in the aggregate on an annual basis; or (iii) a relationship as an insurance policyholder entered and maintained in the ordinary course of business of a subsidiary of the Company on terms no more favorable to the related person than those applicable to non-affiliated third parties or those generally available to employees of the Company. Covered related person transactions must be approved or ratified by the NCG Committee. In addition,

Kemper Corporation 2019 Proxy Statement 4

Board and Corporate Governance

approval under the Policy on Related Person Transactions is required before the Company can make charitable contributions exceeding $120,000 in the aggregate in any fiscal year to a charitable organization for which a related person serves as an executive officer, director, trustee or in a similar capacity.
Upon learning of a proposed or existing related person transaction requiring review under the Policy on Related Person Transactions, management is required to submit the matter for consideration to the NCG Committee, which will review the transaction and make a determination as to whether it is consistent with the best interests of the Company and its shareholders. In its review, the NCG Committee considers the facts and circumstances it deems significant and relevant to the particular transaction, including such factors as the related person’s relationship to the Company and interest in the transaction, the value of the transaction and any reasonable alternatives, and the potential impact of the transaction on the Company, the related person, and other applicable parties. No director who is on the NCG Committee will participate in the review or approval under the Policy on Related Person Transactions of a transaction involving such director or a member of his or her immediate family.
In accordance with the Policy on Related Person Transactions, the NCG Committee has reviewed certain transactions with the Company involving Fayez Sarofim & Co. (“FS&C”), a registered investment advisory firm. Christopher Sarofim, a member of the board, is Vice Chairman and a member of the board of directors of FS&C. Fayez Sarofim, Chairman of the Board, Chief Executive Officer, a director and the majority shareholder of FS&C, was a member of the Kemper Board until his retirement on May 1, 2013, and is the beneficial owner of more than five percent of the Company’s stock. Pursuant to an agreement entered into between FS&C and the Company’s tax-qualified defined benefit pension plan (“Pension Plan”), FS&C provides investment management services with respect to certain Pension Plan funds. At December 31, 2018, the Pension Plan had $124.5 million in assets managed by FS&C. Under the agreement, FS&C is entitled to fees calculated and payable quarterly based on the fair market value of the assets under management. During 2018, the Pension Plan incurred investment expenses of $0.9 million under the agreement. The agreement governing these services may be terminated by either party at any time on 30 days advance written notice. The Company believes the services described above have been provided on terms no less favorable to the Company than could have been negotiated with non-affiliated third parties.
Director Independence
The Board has adopted categorical standards (“Director Independence Standards”) to assist in its determination of director independence as required by Section 303A of the NYSE Listing Standards and applicable SEC rules. The Director Independence Standards are posted under Governance on the Company’s website at kemper.com. Under the Director Independence Standards, a director is not independent for purposes of his or her service on the Board or a particular Board committee unless the director and his or her immediate family members meet all independence requirements applicable to such service under the NYSE Listing Standards and SEC rules. The Director Independence Standards incorporate by reference certain relationships listed in the NYSE and SEC independence rules. In addition, the Director Independence Standards define four specific types of relationships as categorically immaterial. Two of these types of relationships involve an organization or entity that either received charitable contributions from the Company or engaged in transactions with the Company, in either case to the extent the annual amounts involved did not exceed $120,000. The other two types of relationships are: (i) status as an insurance policyholder of a Company subsidiary in the ordinary course of business of the subsidiary on terms no more favorable to the director than those applicable to unaffiliated third parties or those generally available to Company employees; and (ii) the receipt by a director of administrative support or retirement compensation for prior service from a former employer of such director that has a business relationship with the Company. The Board believes that these specified types of relationships would not affect or influence the Company’s business relationships or create a direct or indirect material interest in the Company’s business transactions on the part of a director.
In connection with its annual independence assessment of the individuals recommended by the NCG Committee as nominees for election to the Board at the 2019 Annual Meeting, the Board considered the applicable independence rules and the factual information derived from the questionnaires and affirmations completed by the individual directors and other available information. The Board affirmatively determined that, under the NYSE Listing Standards, applicable SEC rules and the Director Independence Standards, Mses. Canida, Cronin and Whiting and Messrs. Cochran, Geoga, Johnson, Joyce and Storch are each independent directors with no material relationships with the Company, and as a result, that a majority of the members of the Board are independent.

Kemper Corporation 2019 Proxy Statement 5

Board and Corporate Governance

Compensation Committee Interlocks and Insider Participation
The Board has determined that each member of the Compensation Committee is independent in accordance with the NYSE Listing Standards. The Compensation Committee consists of Mses. Cronin and Whiting and Messrs. Johnson and Storch. None of these individuals is a current or former officer or employee of the Company or any of its subsidiaries, and none of these individuals had a relationship with the Company during 2018 that required disclosure by the Company under the SEC rules on transactions with related persons. Related person transactions and the independence of the non-employee members of the Company’s Board are discussed in more detail under the two preceding headings, Related Person Transactions and Director Independence. No executive officer of the Company has served as a director or member of the compensation committee or other board committee of another entity that had an executive officer who served on the Company’s Compensation Committee or Board.
Board Leadership and Role in Risk Oversight

Board’s Leadership Structure
The current Board structure includes a Chairman of the Board and four principal board committees. The Audit Committee, Compensation Committee and NCG Committee are comprised entirely of independent directors; the Investment Committee is comprised of three independent directors, another non-employee director and the CEO. The Chairman of the Board serves as the primary liaison between non-employee directors and the CEO, although all non-employee directors are encouraged to communicate freely with the CEO and other members of management at any time. In addition, the Chairman sets agendas for, and presides over, Board meetings and executive sessions of non-employee directors.
The Board has no set policy on whether the offices of Chairman and CEO should be held by the same person and believes the combination or separation of these offices should be determined by the circumstances of the Company and the composition of the Board. The Company believes that its leadership structure is appropriate for the Company given the role of the Chairman and current membership of the Board. In addition to the leadership provided by the Chairman and general oversight of the Company provided by the full Board, all non-employee and independent directors meet regularly in executive session, and the principal Board committees and the independent outside advisors those committees retain in their discretion perform significant functions for the Board and the Company.

Board’s Role in Risk Oversight
The Board plays an active role in the oversight of risk assessment and management at various levels of the Board’s leadership structure. Board and Board committee meetings provide the directors with regular opportunities to discuss key matters and raise questions with management, auditors and any consultants retained by the Board or its committees. The Board is regularly informed by members of the Company’s executive and operational management about a wide range of matters that could pose significant risks to the Company. These include, for example, strategic plans, corporate transactions, and significant operational projects and developments. In addition, Board committees have the opportunity to evaluate areas of potential risk on issues pertinent to their particular functional responsibilities.
The Audit Committee has oversight responsibilities pertaining to a number of matters that involve potential risk to the Company, most notably, the Company’s financial reporting and internal controls, ERM functions, the internal audit function, matters reported through the Company’s Corporate Responsibility Hotline, guidelines and policies regarding financial risk assessment and management, and the performance of the Company’s independent auditors. In carrying out these responsibilities, the Audit Committee reviews, for example, the Company’s quarterly and annual financial statements and related SEC disclosures and auditor’s reports and communications, ERM structure and program, major risk exposures (including risks associated with catastrophe losses and mitigation thereof) and management assessments and controls, and internal audit plans and significant findings. In addition, the Audit Committee receives regular updates on the Company’s information security program, cybersecurity risks, and related developments. The Compensation Committee has oversight responsibilities pertaining to the Company’s executive compensation and equity-based compensation programs. In carrying out these responsibilities, the Compensation Committee reviews compensation risk assessments, performance metrics and results under the Company’s cash incentive and equity-based compensation plans and levels of ownership of the Company’s Common Stock by its executive officers and directors.

Kemper Corporation 2019 Proxy Statement 6

 
 
Director Compensation





Director Compensation
2018 Annual Non-Employee Director Compensation Program
The following table shows the 2018 non-employee director compensation program:

Board/Committee/Position
Annual Chair Retainer ($)

Annual Non-Chair Retainer ($)

Deferred Stock Unit Award ($)

 
Board of Directors
165,000

60,000

110,000

(1)
Audit Committee
33,000

15,000


 
Compensation Committee
15,000

8,000


 
Investment Committee
15,000

10,000


 
Nominating & Corporate Governance Committee
15,000

7,000


 
(1)
Under the 2018 program, an annual deferred stock unit (“DSU”) award covering shares of Common Stock with a grant date value of $110,000 was granted automatically at the conclusion of the Annual Meeting to each non-employee director under the Company’s 2011 Omnibus Equity Plan (“Omnibus Plan”).
The non-employee directors are eligible to defer up to 100 percent of the fees earned for service on the Board and Board committees under the Kemper Corporation Nonqualified Deferred Compensation Plan (“Deferred Compensation Plan”). For more information about the Deferred Compensation Plan, see the narrative discussion in the Executive Officer Compensation & Benefits section on page 48 under the heading Deferred Compensation Plan.
The DSUs granted to non-employee directors give the holder the right to receive one share of Common Stock for each DSU issued and are fully vested on the date of grant. Holders of DSUs are entitled to receive dividend equivalents in cash in the amount and at the time that dividends would have been payable if the DSUs were shares of Common Stock. Conversion of the DSUs into shares of Common Stock is deferred until the date the holder’s service on the Board terminates.
All directors are entitled to reimbursement for travel expenses incurred in attending Board and Board committee meetings and other Company business. Each of the Company’s directors, including any director who is also a member of management, is a party to an indemnification and expense advancement agreement with the Company, as permitted by the Delaware General Corporation Law. The provisions of these agreements are substantially the same as the indemnification provisions applicable to the directors under the Company’s Amended and Restated Bylaws (“Bylaws”) and Certificate of Incorporation, except that the agreements may not be amended or terminated without the written consent of the respective director.
Changes Made to Non-Employee Director Compensation for
2019
Effective in the second quarter of 2019, the Board approved the following annual retainer changes:
Annual Chair Retainer for the Chairman of the Board increased to $200,000;
Annual Non-Chair Retainer for other members of the Board increased to $80,000;
Annual Non-Chair Retainer for the Compensation Committee members increased to $10,000; and
Annual Non-Chair Retainer for the NCG Committee members increased to $8,000.

In addition, the Board amended the equity portion of the non-employee Board compensation to replace the annual DSU award with a restricted stock unit award that has a grant date value of $130,000 and a one-year vesting period. Payment of dividend equivalents will be deferred until vesting.
Director Compensation Table

The following table shows the compensation earned in 2018 based on the annual non-employee director compensation program in effect for 2018. The specific amounts of fees earned and awards granted differs for individual directors based on the particular committees on which they sit, the dates they joined or departed from the Board and specific committees,

Kemper Corporation 2019 Proxy Statement 7

 
 
Director Compensation





and the variable fee structure for each committee and committee chairs versus non-chair members as shown in the table above on page 7.

DIRECTOR COMPENSATION
Name
Fees Earned or Paid in Cash($)(2)
Deferred Stock Unit Awards($)(3)

All Other Compensation($)(4)

Total($)
Teresa A. Canida
43,519


43,519
George N. Cochran
103,000
110,000
6,250
219,250
Kathleen M. Cronin
92,923
110,000
6,250
209,173
Douglas G. Geoga
84,165
110,000
7,210
201,375
Thomas M. Goldstein (1)
84,341
110,000

3,446

197,787
Lacy M. Johnson
75,000
110,000

3,446

188,446
Robert J. Joyce
188,500
110,000
7,210
305,710
Christopher B. Sarofim
75,000
110,000
7,210
192,210
David P. Storch
79,000
110,000
7,210
196,210
Susan D. Whiting
83,000
110,000
682
193,682
(1)
Mr. Goldstein resigned from the Company, effective January 29, 2019.
(2)
Fees shown were earned for service on the Board and/or Board committees and include any amounts deferred at the election of an individual Board member under the Deferred Compensation Plan. For more information about the Deferred Compensation Plan, see the narrative discussion in the Executive Officer Compensation & Benefits section under the heading Deferred Compensation Plan on page 48.
(3)
The amounts shown represent the aggregate grant date fair values of the annual DSU awards granted to the designated directors on June 1, 2018. Ms. Canida was not a member of the Board until July 2018 and so was not eligible for a DSU award in 2018. The grant date fair values for the annual DSU awards were based on the grant date closing price $77.50 per share of Common Stock. For a discussion of valuation assumptions, see Note 10, Long-term Equity-based Compensation, to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2018. Additional information about non-employee director DSU awards is provided in the narrative preceding this table.
For each non-employee director, the following table shows the total number of outstanding stock option shares and DSUs held as of December 31, 2018:
Name
Outstanding Option Shares as of 12/31/18(#)

Outstanding Deferred Stock Units
as of 12/31/18(#)

Teresa A. Canida


George N. Cochran
9,179

7,220

Kathleen M. Cronin
8,000

7,220

Douglas G. Geoga
29,965

8,220

Thomas M. Goldstein

4,300

Lacy M. Johnson

4,300

Robert J. Joyce
17,179

8,220

Christopher B. Sarofim
16,000

8,220

David P. Storch
29,179

8,220

Susan D. Whiting

1,420

(4) The amounts shown represent the amounts paid as dividend equivalents in connection with outstanding DSUs.


Kemper Corporation 2019 Proxy Statement 8

 
 
Proposal 1

Proposal 1: Election of Directors
Overview
Shareholders are being asked to elect nine directors. Current Board member, Douglas G. Geoga, who has served on the Board since 2000, will be retiring from the Board effective May 1, 2019 and so is not standing for re-election. The Board of Directors commends Mr. Geoga for his long-standing commitment and exceptional contributions to the Board and the Company. As of May 1, 2019, the Board will reduce the size of the Board to nine members and, accordingly, the Board has slated nine nominees for election at the Annual Meeting.
Directors serve for an annual term or until the election of their successors, or as otherwise provided under the Bylaws. If any of the director nominees for election to the Board at the Annual Meeting named below (“Nominees”) declines or is unable to serve as a director (neither of which is anticipated), the individuals designated as proxies on the proxy card reserve full discretion to vote for any or all other persons who may be nominated. A Nominee will be elected if the number of votes cast “FOR” exceeds the number of votes cast “AGAINST” his or her election.
Business Experience of Nominees
The NCG Committee considers and recommends candidates for the Board. Each of the individuals selected to serve as a Nominee meets the standards for Board nominees as described above under the heading Selection of Board Nominees on page 4. The NCG Committee and the Board believe each Nominee has demonstrated significant business achievements, ethical principles and commitment to serve the Company and its shareholders, and that the specific experience, qualifications, attributes and skills of each Nominee add to the collective ability of the Board to perform its duties and discharge its responsibilities with competence, professionalism and expertise.
The following is a summary of the background and public-company directorships held by each Nominee over at least the past five years, as well as some specific factors particular to such Nominee that, combined with the generally applicable factors noted above, led the Board to conclude that he or she should be selected as a Nominee for election to the Board at the Annual Meeting:
Teresa A. Canida
 
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Ms. Canida is currently serving as a Principal and Portfolio Manager of Cito Capital Group, LLC, a position she has held since 2016. Ms. Canida served in various capacities with Taplin, Canida & Habacht LLC, including as Chairperson from 2015 until 2016, President from 2008 until 2015, and President, Managing Principal, and Chief Compliance Officer from 1985 until 2008. Ms. Canida served as a member of the Board of Directors of Infinity Property and Casualty Corporation (“Infinity”) from May 2009 until the company was acquired by Kemper in July 2018.
Ms. Canida brings invaluable knowledge about Infinity and significant industry experience gained during her nearly decade-long tenure on the Infinity Board of Directors. In addition, Ms. Canida offers the Board expertise in the financial markets and investment community gained from her leadership roles in the investment industry, entrepreneurial skills established through co-founding and managing a multi-billion dollar investment advisory firm, and knowledge and understanding of the Company’s Hispanic customer base.
Age: 65
Director since: 2018


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Proposal 1

George N. Cochran
 
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Mr. Cochran served as Chairman in the Global Financial Institutions Group at Macquarie Capital until his retirement in December 2014. Previously, he was the Chairman of Fox-Pitt Kelton Cochran Caronia Waller (“FPKCCW”) and co-founder of its predecessor firm, Cochran Caronia Waller (“CCW”). FPKCCW was acquired by Macquarie Capital in November 2009. Prior to co-founding CCW, Mr. Cochran developed Kidder Peabody’s Insurance M&A and Financing Practice and also served as Managing Director and Insurance Industry Head of Coopers & Lybrand Securities, LLC.
Mr. Cochran brings considerable insurance industry expertise to the Board, as well as substantial merger and acquisition knowledge specific to the industry. His experience in top leadership roles at several investment banking firms provides the Board with additional expertise in the areas of executive development and operational management. In addition, Mr. Cochran is a National Association of Corporate Directors (“NACD”) Governance Fellow and Board Leadership Fellow. He has demonstrated his commitment to boardroom excellence by completing NACD’s comprehensive program of study for directors and corporate governance professionals.
Age: 64
Director since: 2015
Kathleen M. Cronin
 
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Ms. Cronin is Senior Managing Director, General Counsel and Corporate Secretary for CME Group Inc. (“CME Group”), the world’s leading and most diverse derivatives marketplace. Before joining CME Group in November 2002, Ms. Cronin was in private practice at the law firm of Skadden, Arps, Slate, Meagher and Flom, where she was employed for more than 10 years and focused her practice on corporate, securities offerings and transactional matters. From 1995 to 1997, Ms. Cronin served as Chief Counsel/Corporate Finance for Sara Lee Corporation.
Ms. Cronin’s role overseeing audit, compliance, regulatory and risk management functions at CME Group, and her experience in the areas of information security, corporate governance, government relations, corporate law and corporate finance, provide the Board with important knowledge and perspective on the challenges of doing business in a highly-regulated industry and expertise regarding the role of the board and its committees. Her background in these areas also makes her particularly well-suited to serve on the Audit and Compensation Committees.
Age: 55
Director since: 2015
Lacy M. Johnson
 
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Mr. Johnson is a partner with the Ice Miller LLP law firm, where he has practiced since January 1993. His primary practice areas focus on public affairs services and he serves as co-chair to the firm’s Public Affairs and Gaming Group. Before joining Ice Miller, Mr. Johnson served as Attorney, Government Relations Services, Sagamore-Bainbridge, Inc., Director of Security for the Indiana State Lottery, liaison with the Indiana General Assembly, and Lt. Colonel and deputy superintendent for Support Services for the Indiana State Police. Mr. Johnson is a Democratic National Committeeman and former Lt. Commander of the United States Naval Intelligence Reserves.
Mr. Johnson’s background in public affairs and government relations brings unique perspective to the Board. In addition, Mr. Johnson provides the Board with legal acumen gained over his twenty years of legal practice in a private law firm.
Age: 66
Director since: 2016

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Proposal 1

Robert J. Joyce
 
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Mr. Joyce has served as Chairman of the Board of Directors of the Company since November 2015. Mr. Joyce served as Chairman and Chief Executive Officer of Westfield Group from July 2003 to January 2011, and as Executive Chair of Westfield’s Board from January 2011 until his retirement in March 2012. Westfield Group is privately-held and provides a broad portfolio of insurance and financial services. Mr. Joyce also served as Chairman of Westfield Bank from December 2001 to April 2010. Prior to joining Westfield in 1996, Mr. Joyce held various senior leadership positions with Reliance Insurance Group, and previously worked as a certified public accountant. Mr. Joyce served as a U.S. Navy Captain and is a veteran of Desert Storm and Desert Shield.
Mr. Joyce brings substantial leadership experience and insurance industry expertise to the Board. Mr. Joyce also gained valuable acumen and skills for his role as Chairman of the Company’s Board through his years of service as Chairman of the Board at Westfield. In addition, Mr. Joyce previously served on the Board of Governors of the Property Casualty Insurers Association of America and is a past chair of that organization. He also served as a Trustee of the Griffith Insurance Education Foundation and on the Board of the National Association of Independent Insurers.
Age: 70
Director since: 2012
Joseph P. Lacher, Jr.
 
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Mr. Lacher has served as President and Chief Executive Officer of the Company since November 2015. Mr. Lacher previously served in other senior executive roles in the insurance industry. From November 2009 to July 2011, Mr. Lacher was President of Allstate Protection, a unit of Allstate Corporation, where he led the company’s property and casualty offerings serving more than 17 million American households. Prior to Allstate, Mr. Lacher spent 18 years at The Travelers Companies, Inc., most recently serving as Executive Vice President - Personal Insurance from 2002 to 2009 and additionally as Executive Vice President - Select Accounts from 2006 to 2009.
Mr. Lacher’s senior executive experience in the insurance industry provides valued expertise and perspective to the Board. In his role as the Company’s Chief Executive Officer, he fills a critical role as liaison between the Board and the members of the Company’s executive and operational teams. His strong industry background and insights complement the broad business backgrounds and skills of the other members of the Board.
Age: 49
Director since: 2015
Christopher B. Sarofim
 
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Mr. Sarofim is the Vice Chairman and a member of the Board of Directors of Fayez Sarofim & Co., a registered investment advisory firm. Mr. Sarofim joined the firm in 1988 and has been a member of its Board since August 2014. He is a member of the firm’s Executive, Finance and Investment Committees, and is also the President of the firm’s foreign advisory business, Sarofim International Management Company. Mr. Sarofim shares portfolio management responsibilities for numerous separate accounts advised by the firm, as well as several Dreyfus Corporation mutual funds. Prior to joining Fayez Sarofim & Co., he was employed with Goldman, Sachs & Co. in corporate finance.
Mr. Sarofim offers the Board extensive experience in the investment world, gained with one of the nation’s premier investment advisory firms. With his financial background and investment advisory experience, Mr. Sarofim is particularly well-suited to serve on the Investment Committee and provides the Board financial market and securities analysis expertise, key aspects of the Company’s investment portfolio management function.
Age: 55
Director since: 2013

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Proposal 1

David P. Storch
 
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Mr. Storch is currently Non-Executive Chairman of the Board of AAR Corp., a leading provider of aviation services to the worldwide commercial aerospace and government/defense industries, a position he has held since June 2018. Mr. Storch had served as AAR’s Chairman of the Board and Chief Executive Officer from October 2005 through May 2018 when he retired as Chief Executive Officer, and additionally served as President from July 2015 to June 2017. He previously served various terms as AAR’s President, Chief Executive Officer and Chief Operating Officer between 1989 and 2007. Mr. Storch also served as a director of KapStone Paper and Packaging Corporation, a leading North American producer of unbleached kraft paper products and corrugated packaging products until November 2018. Mr. Storch served as Lead Director of Kemper’s Board from August 2012 to November 2015.
Mr. Storch brings the Board substantial leadership expertise and skills. The experiences he has had as Chairman of the Board and Chief Executive Officer of a large multinational public corporation, an executive responsible for business development, a board member of another public company and a business leader in his industry, offer the Board broad and unique perspectives and hands-on knowledge of the challenges of running a public company.
Age: 66
Director since: 2010
Susan D. Whiting
 
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Ms. Whiting currently serves as a director and advisor to for-profit global companies, both private and public. Ms. Whiting had served as Vice Chair of Nielsen Holdings plc until she stepped down in January 2014, following her 35-year career with Nielsen, a global performance management company that provides a comprehensive understanding of what consumers watch and buy. Ms. Whiting’s prior positions with Nielsen include President, Chief Operating Officer, Chief Executive Officer and Chairman of Nielsen Media Research, and Global Executive Vice President. Ms. Whiting has also served as a director of Alliant Energy Corporation since 2013.
Ms. Whiting has an extensive background in a variety of operational and executive roles. Her resulting expertise in consumer behavior, information services and data analytics, and government and public affairs, provides the Board with strategic management know-how in these areas. In addition, Ms. Whiting’s career service with Nielsen gives the Board significant consumer-focused perspective and insight.
Age: 62
Director since: 2017
Required Vote
Under the Company’s Bylaws, if a quorum is present, each Nominee will be elected by the affirmative vote of a majority of the votes cast, meaning that the number of shares voted “FOR” a Nominee exceeds the number of shares voted “AGAINST” such Nominee. “Abstentions” and “broker non-votes” are not considered votes cast “FOR” or “AGAINST” the foregoing purpose, and will have no effect on the election of Nominees. If a Nominee who is an incumbent director receives a greater number of votes “AGAINST” his or her election than votes “FOR” such election, the Company’s Bylaws require that such director must promptly tender his or her resignation to the Board following certification of the vote.
Recommendation of the Board of Directors
The Board of Directors recommends that you vote “FOR” the Election of all Nominees for Director in Proposal 1.





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Audit Matters

Audit Matters
Audit Committee Report
This report concerns the Audit Committee and its activities regarding the Company’s financial reporting and auditing processes. The role of the Audit Committee is one of oversight, and does not include conducting audits or determining whether the financial statements are complete and accurate. The responsibility for the completeness and accuracy of the Company’s financial statements and the assessment of the effectiveness of the Company’s internal control over financial reporting rests with the Company’s management. It is the responsibility of the Company’s independent registered public accountant to perform an audit of, and to express an opinion on whether, the Company’s annual financial statements are fairly presented in conformity with accounting principles generally accepted in the United States and the effectiveness of the Company’s internal control over financial reporting. The responsibility of the Audit Committee is to review and monitor these processes on behalf of the Board.
In this context, the Audit Committee has reviewed and discussed the Company’s audited financial statements and the effectiveness of the Company’s internal control over financial reporting with management and Deloitte & Touche LLP (“Deloitte & Touche”), the Company’s independent registered public accountant for the fiscal year ended December 31, 2018. The Audit Committee has also discussed with Deloitte & Touche, the matters required to be discussed by Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 1301, Communications with Audit Committees. The Audit Committee has received from, and discussed with, Deloitte & Touche its written disclosures and letter regarding its independence required by applicable requirements of the PCAOB regarding the independent registered public accountant’s communications with the Audit Committee about independence, and has discussed with Deloitte & Touche the firm’s independence.
In reliance on these reviews and discussions, and the report of Deloitte & Touche as the Company’s independent registered public accountant, the Audit Committee recommended to the Board that the Company’s audited financial statements for the year ended December 31, 2018 be included in the Annual Report for that year for filing with the SEC.

Audit Committee of the Board of Directors of Kemper Corporation

Teresa A. Canida
George N. Cochran, Chair
Kathleen M. Cronin
Douglas G. Geoga
Robert J. Joyce
Susan D. Whiting

Independent Registered Public Accountant
Independent Registered Public Accountant
Independent Registered Public Accountant Fees for 2018 and 2017 and Pre-Approval of Services
Deloitte & Touche, a registered public accountant with the PCAOB, served as the Company’s independent registered public accountant for and during the years ended December 31, 2018 and 2017. The following table provides information regarding the fees for professional services provided by Deloitte & Touche for 2018 and 2017:
Fee Type
2018

2017

Audit Fees
$
5,604,359

$
3,847,215

Audit-Related Fees
1,126,510

46,000

Tax Fees
31,017


Total Fees
$
6,761,886

$
3,893,215


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Audit Matters

Audit Fees in 2018 and 2017 included fees for: (i) the audit of the Company’s annual financial statements and to provide an opinion on the effectiveness of the Company’s internal control over financial reporting; (ii) the review of the financial statements included in the Company’s quarterly reports on Form 10-Q; and (iii) other services normally provided by the independent registered public accountant, including services in connection with regulatory filings by the Company and its subsidiaries for the 2018 and 2017 fiscal years. Audit-Related Fees in 2018 included fees for (i) due diligence services; and (ii) the audit of several of the Company’s employee benefit plans. Audit-Related Fees in 2017 related to fees for the audit of one of the Company’s employee benefit plans. Tax Fees in 2018 included fees to prepare forms and schedules for several of the Company’s employee benefit plans.
Pre-Approval of Services by Independent Registered Public Accountant
Under its charter, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of Kemper’s independent registered public accountant, including the pre-approval of audit engagements and all permitted non-audit engagements of the independent registered public accountant. Pre-approval of non-audit services may be delegated to the chair of the Audit Committee. All services provided to Kemper by Deloitte & Touche in 2018 and 2017 were pre-approved by the Audit Committee.


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Proposal 2

Proposal 2: Advisory Vote to Ratify the Selection of Deloitte & Touche LLP as the Company's Independent Registered Public Accountant
Overview
The Audit Committee considered the performance and qualifications of Deloitte & Touche and has reappointed Deloitte & Touche to serve as the Company’s independent registered public accountant for the fiscal year 2019, and the Board is asking shareholders to ratify that selection. Under applicable laws, rules and regulations, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent registered public accountant. The Board believes that shareholder ratification of the appointment of the independent registered public accountant, while not legally required, represents good governance practice in light of the significance of the independent registered public accountant’s role in the process of ensuring the integrity of the Company’s financial statements.
The vote is advisory, which means the vote is not binding on the Company, the Board or the Audit Committee. The affirmative vote of a majority of the votes cast with respect to the proposal is required to ratify the selection of Deloitte & Touche as the Company’s independent registered public accountant for the 2019 fiscal year. In the event the appointment is not ratified, the Audit Committee will consider whether the appointment of a different independent registered public accountant would better serve the interests of the Company and its shareholders. Despite shareholder ratification, the Audit Committee may appoint a new independent registered public accountant at any time if it determines in its sole discretion that such appointment is appropriate and in the best interests of the Company and its shareholders.
It is expected that representatives from Deloitte & Touche will be present at the Annual Meeting. Such representatives may make a statement if they desire to do so and will be available to respond to appropriate questions.
Required Vote
If a quorum is present, the selection of Deloitte and Touche as the Company’s independent registered public accountant for 2019 will be ratified by the affirmative vote of the majority of votes cast, meaning the number of shares voted “FOR” the proposal exceeds the number of shares voted “AGAINST” the proposal. “Abstentions” and “broker non-votes” are not considered votes cast “FOR” or “AGAINST” the proposal and will have no effect on the proposal.
Recommendation of the Board of Directors
The Board of Directors recommends that you vote “FOR” Proposal 2.


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Executive Officers

Executive Officers
The following narratives summarize the business experience over at least the last five years of the Company’s current executive officers, other than Mr. Lacher, whose business experience was described above under the heading Business Experience of Nominees on page 9. The positions described below as being with the Company may have been held with Kemper or one or more of its subsidiaries. The executive officers serve at the pleasure of the Board.
John M. Boschelli, Senior Vice President and Chief Investment Officer, 50
Mr. Boschelli assumed his current position with the Company in May 2015. Mr. Boschelli served as Vice President and Chief Investment Officer of the Company from May 2009 to May 2015. Mr. Boschelli served as the Company’s Treasurer from February 2002 to May 2009, as Assistant Treasurer from December 1999 to February 2002 and in various other positions from December 1997 to April 1999.
Charles T. Brooks, Senior Vice President, Operations and Systems, 52
Mr. Brooks joined the Company in May 2016 as Senior Vice President & Chief Information Officer and assumed his current position in March 2017. Prior to joining the Company, Mr. Brooks served as the Global Operations and Technology Officer for ACE Limited (now Chubb), a position he held from August 2011 to December 2015. From February 2009 to August 2011, Mr. Brooks served as Senior Vice President/Head, Member and Plan Sponsor Services for Aetna. Mr. Brooks previously served as Senior Vice President, Operations and Chief Information Officer, Personal Lines for Travelers from December 2003 to February 2009 and as Partner, Financial Services - Insurance Practice at Accenture from June 1998 to December 2003.
C. Thomas Evans, Jr., Senior Vice President, Secretary and General Counsel, 60
Mr. Evans assumed his current position with the Company in May 2016. Mr. Evans served as the Company’s Vice President, General Counsel and Secretary from May 2015 to May 2016 and as Secretary and Associate General Counsel from May 2011 to May 2015. Mr. Evans served as the Company’s Assistant General Counsel from May 2002 to May 2011 and as Counsel from April 1992 to May 2002. Before joining the Company in 1992, Mr. Evans was in private practice with the law firm of Winston & Strawn, where his practice focused on commercial litigation.
Mark A. Green, Senior Vice President and President, Life & Health Division, 51
Mr. Green joined the Company in May 2016. Prior to joining the Company, Mr. Green held various executive positions with Allstate Corporation from March 2009 to May 2016, and most recently served as President-Encompass Insurance Company from August 2015 to May 2016. During his tenure with Allstate, he also served as President-Allstate Dealer Services, President-Ivantage and Senior Vice President-Allstate Financial. Prior to Allstate, Mr. Green served as Chief Risk Officer/Executive Vice President with AIX Group from July 2005 to March 2009. He previously served as Vice President-Wells Fargo Insurance Services from July 2003 to July 2005, Vice President of Chubb Financial Solutions from July 2002 to July 2003 and served in various management roles at Swiss Re from July 1995 to July 2002.

Kimberly A. Holmes, Senior Vice President, Chief Actuary and Strategic Analytics Officer, 55
Ms. Holmes joined the Company in February 2019. Prior to joining the Company, Ms. Holmes served as Senior Vice President & Global Head of Strategic Analytics at AXA XL from December 2010 to February 2019. Prior to this position, Ms. Holmes served in various senior roles at Endurance Specialty Insurance Ltd., from March 2002 - November 2010, including Senior Vice President and Chief Actuary and as Global Head of Reinsurance Risk Management. Previously, Ms. Holmes served in senior positions at Enterprise Reinsurance Ltd. from August 1998 to March 2002 and at General Reinsurance from August 1992 to August 1998.
James J. McKinney, Senior Vice President and Chief Financial Officer, 39
Mr. McKinney joined the Company in November 2016. Prior to joining the Company, Mr. McKinney served as Executive Vice President, Chief Financial Officer for Banc of California from November 2015 to November 2016 and as Executive Vice President, Chief Accounting Officer from September 2015 to November 2015. From November 2012 to July 2015, Mr. McKinney held senior executive positions with International Lease Finance Corporation, a unit of AerCap Holdings N.V.,

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Executive Officers

where he served most recently as Vice President, Controller and previously as Vice President, Principal Accounting Officer and Global Corporate Controller. Mr. McKinney previously held several senior financial positions with RBS Citizens Asset Finance from June 2004 to November 2012, most recently as Vice President, Head of Balance Sheet Management, Operations & Strategy.
Christine F. Mullins, Senior Vice President and Chief Human Resources Officer, 60
Ms. Mullins joined the Company in November 2016. Prior to joining the Company, Ms. Mullins served as a Partner at CEO.works from January 2015 to October 2016. From April 2008 to December 2014, Ms. Mullins served in a number of executive human resource positions at Zurich Insurance Group, most recently as Head of HR Strategy and Global Services from November 2012 to December 2014. She previously served as Human Resource Chief Operating Officer and Director of Human Resources Transformation for Zurich from June 2011 to November 2012. Prior to joining Zurich, Ms. Mullins held various executive and management positions with Motorola, Inc. from 1979 to 2008.
Richard Roeske, Vice President and Chief Accounting Officer, 58
Mr. Roeske assumed his current position with the Company in January 2001 and has served as the Company’s Chief Accounting Officer since August 1999. Additionally, for portions of 2010 and 2016, Mr. Roeske served as the Company’s Interim Chief Financial Officer. Mr. Roeske also held various accounting positions within the Company from January 1990 to August 1999.
Duane A. Sanders, Senior Vice President and President, Property & Casualty Division, 62
Mr. Sanders joined the Company in January 2018. Prior to joining the Company, Mr. Sanders spent 16 years at Travelers, from August 2001 to January 2018, in several senior leadership roles, most recently as Senior Vice President of Small Commercial, leading Field Operations, National Programs, National Distribution, International Small Commercial, and the broader Business Insurance Low Touch initiative. From 2013 to 2016, Mr. Sanders held various senior leadership roles at Travelers Canada, including CEO and COO. Prior to joining Travelers, Mr. Sanders held various senior leadership positions at Mobile America Insurance Group from 1995 to 2001.




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Compensation Committee Governance

Discussion of Compensation Committee Governance
Compensation Committee Authority and Delegation
The scope and authority of the Compensation Committee is described in the Corporate Governance section above. The Compensation Committee has authority to retain outside advisors to assist the committee in its evaluation of executive compensation, and to approve the fees and other terms of retention of such advisors. Under the terms of its charter, the Compensation Committee may delegate authority to subcommittees, consistent with applicable law. However, the Compensation Committee does not presently have any subcommittees and no such delegations have been made.
The Compensation Committee has delegated authority to the Company’s CEO to grant, and designate recipients for, a limited number of awards under the Omnibus Plan, and to determine the size, terms and conditions of such awards. The delegated authority covers only new hire, promotional and retention awards to employees other than the Company’s executive officers. The delegated authority is regularly monitored by the Compensation Committee.
Compensation Committee Process Overview
The Compensation Committee performs an annual review of the Company’s executive compensation policies, practices and programs, and of the compensation provided to the Company’s executive officers and directors. Annual reviews have historically started at the Compensation Committee meeting held in the last quarter of each year, with compensation determinations for the Company’s executive officers approved at its first quarter meeting of the following year. At or prior to its first quarter meeting, the Compensation Committee makes decisions on:
annual compensation of the Company’s executive officers;

determination of the amounts of any annual cash incentives payable for the prior year, including validation of performance results for determining any payouts under performance-based cash and equity-based compensation awards granted for prior years;

any changes to Kemper’s executive compensation plans and programs; and

determinations as to the current-year cash and equity-based compensation.
The CEO plays a key role in the decision-making process for determining the annual compensation of the other executive officers by providing performance assessments and making compensation recommendations to the Compensation Committee on salary, annual cash incentives, and equity-based compensation awards. The Compensation Committee considers these recommendations and meets with the CEO to discuss his rationale. The Compensation Committee works collaboratively with the CEO to obtain the benefit of his knowledge and judgment to determine the appropriate compensation for those executive officers.
At its first quarter meeting each year, the Compensation Committee approves recommendations to the Board for any changes to the non-employee director compensation program. The Company’s executive officers are not involved in the process of analyzing and determining compensation for the non-employee members of the Board, except the CEO, who participates as a Board member when non-employee director compensation is considered and determined by the Board.
The Role of Compensation Consultants
The Compensation Committee has engaged the services of independent compensation consultants to assist with its executive and non-employee director compensation review and oversight, and for such additional services as it has requested from time to time. The Compensation Committee engaged Pay Governance LLC (“Pay Governance”) as its independent compensation consultant for 2018. The Compensation Committee asked Pay Governance to provide the committee with benchmarking data based on comparable companies in the insurance industry, as well as general

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Compensation Committee Governance

benchmarking data for the executive officers, data and practices with respect to non-employee director compensation, advice on current trends and developments related to executive compensation, and advice on other executive and director compensation matters that arose in the ordinary course. The involvement of Pay Governance in the 2018 executive compensation decision-making process is described in more detail below in the discussion under the heading Benchmarking Analysis in the Compensation Discussion and Analysis section.
Before retaining Pay Governance as its consultant, the Compensation Committee considered the firm’s independence and concluded that no factors existed that presented any independence issues or conflicts of interest under applicable rules of the NYSE or SEC.

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Compensation Discussion and Analysis

Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) describes the Company’s executive compensation program and explains how the Compensation Committee made compensation decisions for the following named executive officers (“NEOs”) in 2018:

Named Executive Officer    
Position with the Company in 2018
Joseph P. Lacher, Jr.
President and Chief Executive Officer
James J. McKinney
Senior Vice President and Chief Financial Officer
John M. Boschelli
Senior Vice President and Chief Investment Officer
Mark A. Green
Senior Vice President and President, Life & Health Division
Duane A. Sanders
Senior Vice President and President, Property & Casualty Division
Executive Summary

Background

During 2018, we continued to improve our operating performance, building on the progress we achieved in 2017. We shifted our focus from financial turnaround to delivering sustainable, profitable growth, and strengthened the Company’s competitive advantage in the specialty auto insurance market through our acquisition of a leading provider, Infinity Property and Casualty Corporation (“Infinity”). The Infinity acquisition was a major step forward in our growth plans and broader strategy of acquiring businesses that strategically enhance our business and create value in underserved niche markets. The Company’s strong results also reflect the continued solid performance of our Life & Health Division and our investment management expertise.

Financial and Shareholder Performance

Overall Kemper financial results for 2018 compared to 2017 and 2016:
397181056_revenue.jpg 397181056_netincomea02.jpg 397181056_earningsperdilutedsharechart.jpg 397181056_bvs.jpg 397181056_roea02.jpg

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Compensation Discussion and Analysis

Major contributors to the improved financial performance in 2018
ü
Specialty P&C Insurance Segment: Strong organic growth and profitability further enhanced by the addition of Infinity
ü
Preferred P&C Insurance Segment: Modest premium growth with a return to profitability in 2018
ü
Life & Health Insurance Segment: Stable earnings and cash flow generation with increased earned premiums in Accident & Health business
ü
Investments: Continued strong performance of diversified and highly rated investment portfolio
 
 
 
 
 
The improved financial performance led to significant gains for shareholders
ü
Kemper’s share price improved from a $37.25 closing price on December 31, 2015 to $66.38 on December 31, 2018, an overall increase of 78.2% or annualized increases of 21.2% over the three-year period
ü
Dividends of $0.96 per share paid to shareholders in 2018

Executive Compensation Outcomes

Key features of the Company’s executive compensation program in 2018 include the following:

Salary, the only component that is fixed and not based on performance. Salary represents a relatively small portion of total compensation and is generally not adjusted annually. No changes to the NEOs’ salaries were made for 2018.

Our annual performance-based cash incentive program (“Annual Incentive Program”) rewards participants for significant improvement and the overall performance results of the Company and its business units. The program allocates the highest compensation to the highest performing and most impactful participants. Awards increased in 2018 as compared to 2017 in the context of the Company’s improved financial performance.

Our performance-based equity awards include stock options and performance share units (“PSUs”), with three-year performance metrics tied to relative total shareholder return (“Relative TSR”) and adjusted return on equity (“Three-Year Adjusted ROE”). Equity awards are tied to key measures we believe are valued by shareholders including share price increases and relative shareholder return compared to similarly situated insurance companies, and adjusted return on equity, a key performance indicator in the insurance industry. These awards increase in value as our share price increases, aligning them with resulting gains by shareholders.

Overall, we believe our 2018 financial results provided a solid basis for the annual and equity incentive awards provided to our management team for their performance. We believe the results and awards effectively link pay and performance and align with shareholder interests.

We considered the 97.8 percent shareholder vote to approve the “say-on-pay” proposal at our 2018 Annual Meeting. Because of the strong favorable expression of support, we did not make any changes to our compensation program as a result of the vote.
Executive Compensation Program
Summary of Executive Compensation Elements

The Company provides both fixed (salary) and performance-based (cash and equity incentives) compensation to NEOs. Most compensation awarded to each NEO in 2018 was “at-risk” to the executive because it was contingent on Company and individual performance and, for the performance share component, the number of shares ultimately paid out could vary from the initial award. Additionally, the value of the option grants awarded will change commensurately with the price of the Company’s Common Stock. The amount of “at risk” compensation based on performance is designed to be significantly more than salary. The following charts show each element of 2018 target NEO compensation, including the mix of annual

Kemper Corporation 2019 Proxy Statement 21

 
 
Compensation Discussion and Analysis

cash and long-term equity incentives, as well as the overall percentages of fixed versus performance-based compensation for the CEO and for the other NEOs (on average):

397181056_ceovneocomp.jpg
     
                            
 
 
 
 
What We Do
ü
Pay-for-Performance: The majority of NEO total compensation is tied to Company, business unit and individual performance and is considered “at risk” by the Company, with actual value contingent upon performance results.
ü
Independence of Executive Compensation Consultant (Pay Governance): The Compensation Committee engaged an executive compensation advisor who is independent in accordance with SEC and NYSE rules. Pay Governance has no personal relationships with our NEOs or Board members.
ü
Clawback Rights: Our cash incentive and equity programs include clawback rights on paid incentives in the event of certain accounting restatements or as otherwise required by applicable law.
ü
Independent Committee Members: All Compensation Committee members are independent in accordance with SEC and NYSE requirements and guidelines.
ü
Dividend Equivalents Paid Only on Earned Awards: Beginning with the 2018 equity grants, dividend equivalents accrue on performance shares during the performance period and are paid on shares earned when they vest.
ü
Stock Ownership Guidelines: The Company maintains rigorous stock ownership guidelines for Directors, NEOs and other executive officers to reinforce the alignment of our executives with shareholder interests.
ü
Double-Trigger Change-in-Control: Our Company policy provides for change of control benefits only on a qualified termination of employment in connection with a change in control.
ü
Strive to Understand Shareholders’ Views on Executive Compensation: The supportive shareholder vote on the Company’s annual Say-on-Pay proposal demonstrates that the program aligns with shareholder expectations.


Kemper Corporation 2019 Proxy Statement 22

 
 
Compensation Discussion and Analysis

What We Do Not Do
û
No Tax Gross-Ups: NEOs and other executive officers are not entitled to excise tax gross-ups under any Company policies or compensation programs.
û
No Hedging or Pledging: Directors and employees who receive equity awards are prohibited from hedging, pledging or otherwise encumbering shares of the Company’s Common Stock.
û
No Employment Contracts: The Company does not have employment contracts with its NEOs or other executive officers, who are all employees “at will.”
û
No Excessive Perquisites: Perquisites primarily include annual executive physical, financial planning program and limited personal aircraft use.
Compensation Strategy and Analysis

General Strategy

In its deliberations on executive compensation, the Compensation Committee considers whether the cash and equity-based awards are consistent with the Company’s underlying principles and objectives, including long-term shareholder interests, the total value to individual executives and the cost to the Company. Executive compensation decisions reflect the following approach by the Compensation Committee:

Obtain a clear understanding of the business strategies and objectives of the Company, and the reasoning and recommendations of senior management. The Compensation Committee believes it is necessary to give significant weight to the views of the CEO and senior management;
 
Consider, with the assistance of its compensation consultant, industry data on compensation levels for similar positions at similar companies, particularly in the insurance industry, to assess the comparability of the Company’s pay practices and determine if any noted variances are reasonable, appropriate and purposefully designed to successfully attract, motivate and retain skilled executives in a highly competitive marketplace;

Provide executive officer salary adjustments only periodically, generally not more often than every three years, or as appropriate to reflect significant changes to the Company’s profile or increased management responsibilities;

Provide an annual cash incentive program structured to incentivize and reward exceptional financial, business unit and individual performance during the prior year;

Reward longer-term results through equity-based incentives, including PSUs with three-year performance metrics based on Relative TSR and Three-Year Adjusted ROE, and stock options that gain value based on absolute share price appreciation; and

Monitor compliance by the senior management team with Kemper’s stock ownership policy.

The following table summarizes the material elements of the Company’s 2018 executive compensation program. Further details regarding each of the elements are provided in the discussion that follows the table.









Kemper Corporation 2019 Proxy Statement 23

 
 
Compensation Discussion and Analysis

EXECUTIVE COMPENSATION PROGRAM
 
 
 
 
 
Element
Key Characteristics
Why We Pay this Element
How We Determine Amount
2018 Decisions
 
 
 
 
 
Fixed Compensation
Salary
Fixed compensation payable in cash
Provides competitive cash compensation to attract, retain and motivate performance by talented executives
Established using market data as a reference. Generally for NEOs, adjustments may be made every 3-5 years, and/or to reflect significant changes in size and scope of responsibilities
No salary increases were provided to NEOs in 2018
 
 
 
 
 
Performance-Based Compensation (Variable)
Annual Cash Incentive
Variable cash compensation
Aligns compensation program with annual performance
Earned based on corporate, business unit and individual performance

Program allocates highest compensation to the highest performing and most impactful participants
Aggregate annual incentive pool was about 115% of target pool, based on 2018 improved financial performance of the Company
Performance Share Units (PSUs)
Variable equity compensation

Earned based on results of performance metrics at the end of a three-year performance period

Realizable value is variable based on multi-year Company financial performance and stock price appreciation
Align management’s interests with those of shareholders

Performance metrics driven by Company performance

Balance short-term focus of the Annual Cash Incentive by tying rewards to performance over multi-year periods

Along with stock options, provide mix of long-term incentives supporting business strategy
Based on job scope, market data and individual performance

Actual payouts can range from 0% to 200% of target shares, based on achievement of three-year performance goals
One-half of total annual equity award value was granted in form of PSUs

PSUs were split equally between performance metrics based on Relative TSR, and Three-Year Adjusted ROE
Stock Options
Variable equity compensation

Nonqualified stock options vest over three years (assuming continued employment) and expire in 10 years

Realizable value is variable based on long-term stock price appreciation
Align management’s interests with those of shareholders

Focus management on long-term stock price appreciation

Balance short-term focus of Annual Cash Incentive by tying rewards to long-term performance over up
to 10 years

Along with PSUs, provide a mix of long-term incentives that support business strategy
Based on job scope, market data and individual performance
One-half of total annual value of equity award granted as stock options
Restricted Stock Units (RSUs)
Variable equity compensation

Time-vested awards which generally vest over three years

RSUs are not part of the annual grant, but are used in limited circumstances
Generally used to encourage retention and serve as an inducement to join or remain with the Company under certain circumstances
Based on job scope, future potential assessment and/or to replace compensation “left on table” for candidates, which serves as an inducement to join the Company
No RSUs were granted
 to NEOs in 2018


Kemper Corporation 2019 Proxy Statement 24

 
 
Compensation Discussion and Analysis

Benchmarking Analysis

As part of its executive compensation review for 2018, the Compensation Committee considered a benchmarking analysis provided by Pay Governance comparing the compensation components of salary, annual incentives, long-term incentives, and total compensation of the Company’s CEO and other executive officers relative to pay programs at a selected peer group (“Proxy Group”). Where possible, each Company position was compared to industry data using functional counterparts or executives with similar roles at the peer companies, as well as compensation data disclosed in proxy statements filed in 2017.

The Proxy Group, approved by the Compensation Committee after considering recommendations of Pay Governance and input from management, consisted of 15 publicly-traded companies in the insurance industry with profiles similar to the Company’s based on information disclosed in their annual reports and proxy statements. The Proxy Group companies generally had a majority of operations in the property and casualty insurance industry, and variations in their revenues, assets and market capitalization versus the Company were considered when the group was selected.

The following companies were included in the Proxy Group:
American National Insurance Company
The Hanover Insurance Group, Inc.
Argo Group International Holdings, Ltd.
Horace Mann Educators Corporation
W.R. Berkley Corporation
Infinity Property and Casualty Corporation
Cincinnati Financial Corporation
Mercury General Corporation
CNO Financial Group
RLI Corp.
Erie Indemnity Company
Selective Insurance Group, Inc.
FBL Financial Group, Inc.
Torchmark Corporation
First American Financial Corporation
 
 
To provide a broader context, Pay Governance also compared Kemper’s executive compensation levels against additional market references, including published survey data from similarly-sized companies in the broader insurance industry, and general industry data from Willis Tower Watson executive pay surveys. The Compensation Committee did not consider the individual companies included in these additional market references for the CEO, and does not believe their identification to be material with respect to the compensation of the other NEOs.

The Compensation Committee used the benchmarking data to test the reasonableness of the compensation paid to the Company’s executive officers. In evaluating the benchmarking data, the Compensation Committee did not follow a rigid process, establish specific pay objectives in evaluating the benchmarking data (such as, for example, targeting different elements of compensation at the median), or use the data as part of specific formulas when making compensation determinations for these executives. Instead, the Compensation Committee considered the benchmarking analysis as a means of identifying any outliers and determining whether the levels of compensation provided to the CEO and other executive officers were within appropriate ranges relative to comparable companies.

The benchmarking data was also subjectively considered by the Compensation Committee as an additional point of reference in its deliberations on compensation levels for these executives, along with other factors such as Company and business unit performance, individual performance, and the Company’s compensation philosophy and objectives. The Compensation Committee believes the Company’s executive compensation program is fair, competitive with marketplace practices and effective in enhancing shareholder value.

 





Kemper Corporation 2019 Proxy Statement 25

 
 
Compensation Discussion and Analysis

Annual Determination of Specific Compensation
The objective of the Company’s executive compensation program is to attract, retain and motivate the performance of the Company’s executives by providing competitive compensation structured to incentivize performance in support of the Company’s strategy, and reward executives for achieving the desired financial results and increased shareholder value.

The annual compensation program for the NEOs consists of a fixed salary component, an annual cash incentive award component that varies based on performance, and an equity award based on multi-year financial metrics and long-term stock price appreciation. For the NEOs other than the CEO, the equity award value is at a target percentage of salary. The equity award value may be increased or decreased on occasion at the discretion of the Compensation Committee to recognize outsized performance, under performance or other significant factors.
As salary is the only component that is fixed and not based on performance, it represents a relatively small portion of total compensation, and is not adjusted annually. The Compensation Committee believes compensation based on performance, including awards under the Annual Incentive Program, stock options and PSUs, provide the most effective means of driving successful and shareholder-focused performance. Time-based RSUs are used in limited circumstances, specifically in grants to certain executives to induce them to join or remain with the Company.

Salaries
The Compensation Committee did not make any changes to NEO salaries for 2018. The 2018 salaries for NEOs were as follows:
    
Name    
Salary ($)

Effective Year of Last Salary Change
Joseph P. Lacher, Jr
750,000

2015 - Date of Hire
James J. McKinney
450,000

2016 - Date of Hire
John M. Boschelli
400,000

2015
Mark A. Green
420,000

2016 - Date of Hire
Duane A. Sanders
485,000

2018 - Date of Hire

Performance-Based Cash Incentives and Equity Awards

Because each NEO holds a position that provides strategic direction, requires critical decision-making, and drives the Company’s performance and financial results, the Compensation Committee believes:

A material percentage of the NEO’s compensation should be linked to Company performance; and

Greater responsibilities should lead to greater opportunities for incentive compensation.
 
Accordingly, cash incentives and equity-based awards linked to the outcome of Company financial metrics comprise a significant portion of each NEO’s compensation. As previously noted, the Annual Incentive Program provides awards to the highest performing and most impactful participants.

Annual Cash Incentives for 2018

Executive Performance Plan

The Executive Performance Plan (“EPP”) is intended to serve as an “umbrella” plan and funding vehicle for annual cash incentives. It was originally intended to ensure full tax deductibility to the Company of performance-based cash incentives under Section 162(m) (“Section 162m”) of the Internal Revenue Code of 1986, as amended (“Code”), but the performance-based compensation deduction was eliminated by the Tax Cuts and Jobs Act of 2017 (2017 Tax Reform Act).


Kemper Corporation 2019 Proxy Statement 26

 
 
Compensation Discussion and Analysis

At its meeting in May 2018, the Compensation Committee approved amendments to the EPP that include the following:
removed references to Section 162m and its specific requirements;

removed references to multi-year awards (eliminated in 2016 when the multi-year component of the prior program was merged into a single annual award under the new Annual Incentive Program);

changed to a $6,000,000 maximum yearly individual award limitation (“EPP Limit”) from two $3,000,000 annual limitations, one for an annual and one for a multi-year award; and
added the Chief Financial Officer as a plan participant.

The Compensation Committee intends to continue the process of approving an annual EPP formula and related allocations to plan participants as a good corporate governance practice even though the process was initially intended to comply with Section 162m requirements that no longer apply. This process will generally occur at the Compensation Committee’s first quarterly meeting of the year. In 2018, the approval occurred at the Compensation Committee’s May meeting, given the additional time needed by the Compensation Committee and its advisor, Pay Governance, to process the impact of the then-recently enacted 2017 Tax Reform Act, particularly with regard to Section 162(m).

The 2018 annual incentives under the EPP were determined by the Compensation Committee using the multi-step process followed in prior years:

The 2018 annual cash incentive pool (“EPP Incentive Pool”) was determined by the performance results under the pre-approved formula based on pre-tax operating income from continuing operations, as adjusted, for the performance period ending on December 31, 2018;

Maximum payouts to EPP participants were determined based on the pre-approved allocations of the EPP Incentive Pool to individual participants; and

Actual payouts to the NEOs were determined under the Annual Incentive Program based on achievement of key performance results in the judgment of the Compensation Committee, with the CEO’s input with regard to payouts for the NEOs other than the CEO, and, in each case, resulted in the application of negative discretion.

For 2018, the EPP participants are the NEOs in the 2019 proxy statement, including the Company’s Chief Financial Officer, whose compensation was not previously subject to the deductibility limitations of Section 162(m). The formula approved for the 2018 EPP Incentive Pool was set as follows, reflecting the addition of the Chief Financial Officer as a participant in the EPP:

Formula for 2018 EPP Incentive Pool
8.5% of Income from Continuing Operations before Income Taxes as reported in the Company’s financial statements for the year ended December 31, 2018, modified as follows to account for items the Compensation Committee deems not indicative of the Company’s core operating performance:


(a) adjust the amount of Actual Catastrophe Losses and LAE to equal Expected Catastrophe Losses and LAE (italicized terms defined below);
 
 
(b) adjust Net Realized Gains on Sales of Investments and Net Impairment Losses Recognized in Earnings (italicized terms as reported in the Company’s 2018 financial statements) to equal Expected Net Realized Gains on Sales of Investments and Expected Net Impairment Losses Recognized in Earnings (italicized terms defined below);
 
 
(c) exclude significant unusual judgments or settlements in connection with the Company’s legal
      contingencies or defined benefit pension plans; and
 
 
(d) exclude additional significant unusual or nonrecurring items as permitted by the EPP.

Kemper Corporation 2019 Proxy Statement 27

 
 
Compensation Discussion and Analysis


The terms as used above are defined as follows:

Actual Catastrophe Losses and LAE means the actual Catastrophe Losses and associated Loss Adjustment Expenses (as described on page 33), including catastrophe reserve development, as reported in the Company’s management reports for the relevant year.

Expected Catastrophe Losses,” “Expected Net Realized Gains on Sales of Investments,” and “Expected Net Impairment Losses Recognized in Earnings” means the amounts specified in the Company’s management reports as “Planned” or “Expected” for the 2018 annual performance period for, respectively: (a) Catastrophe Losses and associated Loss Adjustment Expenses, including catastrophe reserve development, (b) Net Realized Gains on Sales of Investments, and (c) Net Impairment Losses Recognized in Earnings, as such terms as defined in 2018 Annual Report.

The following allocations of the 2018 EPP Incentive Pool were approved by the Compensation Committee to determine the maximum annual cash incentive payable to each plan participant:

36 percent to the Chief Executive Officer; and

16 percent to each of the other NEOs.
At its meeting in February 2019, the Compensation Committee certified the performance results under the 2018 EPP Incentive Pool formula and determined the amount of the 2018 EPP Incentive Pool to be $17,561,000. The Compensation Committee determined the maximum incentive amounts for the participating NEOs pursuant to the previously-approved 2018 EPP Incentive Pool allocations, subject to the EPP Limit. In approving the actual annual incentive award payouts for Mr. Lacher and the other NEOs under the Annual Incentive Program, the Compensation Committee exercised negative discretion to reduce the size of awards from the amounts determined under the EPP formula for 2018.

2018 Annual Incentive Program
The Annual Incentive Program is a cash incentive program adopted in 2016 to replace the Company’s prior cash incentive program that had included both annual and multi-year components. Each year, a modeled pool is established for participating employee groups. For 2018, the modeled pool was based on historical target and payout values at each organizational level in an attempt to keep total compensation generally equivalent year over year. The modeled pool was adjusted for extenuating factors, partial year employment for new bonus-eligible participants, and achievement of key strategic projects.

The final Annual Incentive Program pool was allocated to the participating groups and distributed in individual awards based on performance. Initial recommendations were reviewed for calibration across function, organizational level, business groups and other relevant metrics, to significantly dif
ferentiate based on the results delivered and individual performance.

In determining awards under the Annual Incentive Program for the Company’s NEOs, the Compensation Committee considered quantitative financial performance measures and qualitative criteria. The Compensation Committee did not use a formula or assign any relative weighting to any performance measure. The Compensation Committee believes a strictly formulaic approach to individual incentive payments is not an appropriate substitute for the Compensation Committee’s deliberation and business judgment. The level of achievement of any financial or operational measure neither guarantees nor precludes the payment of an annual cash incentive but is given significant weight as a factor along with any additional information available to it at the time, including general market conditions.

The Compensation Committee applied its judgment to the following qualitative factors in its overall assessment:

Substantial progress on the strategic re-positioning of the Company and improved financial performance;

Completion of the Infinity transaction and the initial integration of Infinity into the Company;


Kemper Corporation 2019 Proxy Statement 28

 
 
Compensation Discussion and Analysis

Strong and consistent investment returns in a portfolio with increased assets;
Solid financial position, with adequate capital and liquidity to support the Company’s strategic plans;

Effective management of risk and expenses; and

Overall performance of the NEOs, based on the judgment of the Compensation Committee, the Chairman of the Board, and, in the case of the other NEOs, also the CEO, including perceptions on leadership, teamwork, effective management and oversight.

The Compensation Committee also reviewed quantitative factors and management’s progress toward improved financial and operating performance in 2018. The quantitative factors reviewed include net income, combined ratio, return on equity, written and earned premiums, and net investment income, by business segment and operating unit within each business segment. The Compensation Committee analyzed reported results against plan, prior-year and industry results and considered underlying trends. In addition, the Compensation Committee reviewed results with various adjustments for items it deemed not indicative of the Company’s core operating performance.

The Compensation Committee reviewed results with and without certain adjustments, including the following:

Reported results including Actual Catastrophe Losses and LAE, and Actual Catastrophe Losses and LAE adjusted to expected losses;
 
Reported results with and without unusual charges or gains; and

Reported results including realized gains and losses and impairments, and results adjusted to expected realized gains and losses and impairments.

In determining award payouts for the individual NEOs under the Annual Incentive Program, the Compensation Committee reviewed key business results and factors considered critical to the success of their respective business units and functional areas in addition to the qualitative and quantitative factors described above.

The Compensation Committee considered net income and return on equity, with and without certain adjustments, although these measures were not individually determinative or given any specific weight in comparison with other measures considered in determining adjustments to the initial pool and specific incentive awards for the 2018 Annual Incentive Program.

The following table shows 2018 and 2017 actual Net Income and Return on Equity, each as reported and as adjusted:
2018 versus 2017 Performance Comparisons
Measure
2018 Actual

2017 Actual

Net Income
$190.1 million

$120.9 million

Adjusted Net Income (1)
$290.4 million

$171.9 million

Return on Equity (“ROE”)
7.4%

5.9
%
Adjusted ROE (1)
11.9
%
9.2
%
(1)
Non-GAAP financial measure - See Appendix A for GAAP to Non-GAAP
reconciliation.

The aggregate total of incentive payouts for the Annual Incentive Program under the EPP was $5.5 million, significantly less than the maximum amounts allocated under the 2018 EPP Incentive Pool and represented about 31.3 percent of the total pool available across the NEO group. The following table shows the 2018 EPP Incentive Pool allocations and maximum amounts payable for 2018 annual awards under the EPP and the actual 2018 annual EPP award payouts approved for the EPP participants:


Kemper Corporation 2019 Proxy Statement 29

 
 
Compensation Discussion and Analysis

Annual Incentive Payouts - 2018 Annual EPP Awards
Name
Allocated Percentage of EPP Incentive Pool(%)

Maximum Award (Lower of EPP Incentive Pool Allocation or
EPP Limit) ($)

 
Actual
Award Payout($)

Actual Award Payout as Percentage of Maximum (%)
Joseph P. Lacher, Jr.
36

6,000,000

(1)
2,500,000

41.7
James J. McKinney
16

2,809,760

 
900,000

32.0
John M. Boschelli
16

2,809,760

 
600,000

21.4
Mark A. Green
16

2,809,760

 
500,000

17.8
Duane A. Sanders
16

2,809,760

 
1,000,000

35.6
(1) Maximum award to Mr. Lacher determined in accordance with the 2018 EPP formula exceeded
the $6,000,000 EPP Limit.

The Compensation Committee believes these NEO annual incentive award payouts reflect fairly the actual financial performance outcomes achieved during 2018 and the qualitative factors considered by the Compensation Committee as described above and, more specifically, the following issues deemed most pertinent to the individual officer’s responsibilities:

Mr. Lacher, with the Board’s direction and advice and the assistance of the new leadership team which he formed, was responsible for continued execution of the turnaround strategy which realized improved financial results and generated significant value for shareholders. In addition, Mr. Lacher drove the leadership of the P&C segment to strengthen its management team and enhance the separation of its non-standard auto and preferred lines units. Finally, Mr. Lacher with the help of the leadership team, drove the completion of the Infinity acquisition in July and the planning process for its integration into the Company.

Mr. McKinney directed many changes in the Finance organization that led to an increasingly strong capital position, with ample liquidity to support the Company’s strategic initiatives. In addition, his team was able to execute a credit agreement amendment that expanded the Company’s borrowing capacity and added a term loan feature to provide partial funding for the Infinity acquisition.

Mr. Boschelli managed a solid investment group that again produced strong consistent results, leveraged the structure of the Company’s two operating divisions, and achieved industry-leading returns with a diversified and highly-rated investment portfolio that held $1.3 billion more assets than in 2017.

Mr. Green led substantial changes in the Life & Health Division. Investments in the Life business to modernize internal processes and improve technology, underwriting, and collections, and to enhance the distribution system, have resulted in continued modest increases in earned premiums after years of declines; the supplemental Health business, adapting to the changing health insurance market, experienced increased earned premiums.

Mr. Sanders assumed leadership of the Property & Casualty Division in early 2018, directing the team’s successful Infinity integration efforts. Additionally, he oversaw the ongoing rollout of the Kemper Prime home and auto product, expanded releases to the enhanced sales and policy service technology platform introduced in 2017, and is repositioning Kemper Personal Insurance for long-term profitable growth.

Equity-Based Compensation Awards

Equity-based compensation continues to be an
integral part of the Company’s executive compensation program. The Compensation Committee believes the Company’s equity-based compensation program incentivizes performance and stock ownership by its executive officers, thereby aligning the interests of the Company’s management and shareholders.

Kemper Corporation 2019 Proxy Statement 30

 
 
Compensation Discussion and Analysis


Award Methodology

The 2018 annual executive compensation program continued the prior year’s mix of equity-based, long-term incentive compensation awards consisting of both PSUs and stock options. The 2018 equity awards for all NEOs were allocated 50 percent in stock options and 50 percent in PSUs, with the number of shares subject to each grant determined with reference to the Common Stock price on the date of grant. The Compensation Committee approved an equity award for Mr. Lacher with a total value of $3.5 million. For the NEOs other than Mr. Lacher, the Compensation Committee followed a target-value approach, with the equity award value based on a set percentage of their respective base salaries. However, the Compensation Committee exercised its discretion to grant equity awards in excess of their 150 percent target values in recognition of the Company’s strong achievements in 2017, including its significantly improved financial and operational performance in advance of anticipated milestones, strategic plan progress and exceptional stock performance. The value of the long-term incentive awards granted in February 2018 was 180 percent of salary for Messrs. McKinney, Boschelli, Green and Sanders.

Mr. Lacher’s 2018 award was determined by the Compensation Committee, with input from the Chairman of the Board, based on, among other factors, his overall performance in 2017, performance on the 2017 objectives, as approved by the Board, total compensation for comparable CEOs, in light of the Company’s philosophy that Mr. Lacher’s total compensation should be heavily weighted towards performance-based compensation.

The equity award agreements approved for the 2018 grants incorporate the following changes from the 2017 grants:

maximum, target and threshold performance levels were increased from the 2017 awards for the PSUs based on Three-Year Adjusted ROE;

the vesting schedule for stock option awards was changed to three annual installments beginning on the first anniversary of the grant date, instead of four annual installments beginning six months from the grant date;

dividend equivalents on PSUs and RSUs accrue until vesting instead of paying out on a quarterly basis and will only be paid on total shares actually earned; and

new restrictive covenants were added related to confidentiality, nonsolicitation and nondisparagement.

PSU Awards Granted in 2018

Fifty percent of the PSU awards granted to the NEOs in February 2018 were based on Relative TSR and 50 percent were based on Three-Year Adjusted ROE. These awards are subject to forfeiture and transfer restrictions until vesting on the date the Compensation Committee certifies the performance results (“Vesting Date”) in accordance with the award agreements. The number of PSU shares granted to each NEO in February 2018 (“Target Shares”) that will vest and be issued as Common Stock, if any, and the number of additional shares of Common Stock, if any, that will be granted on the Vesting Date (“Additional Shares”), will be determined based on the applicable performance results for the performance period, as described in detail below.

Shares Based on Relative TSR

For the 50 percent of PSUs based on Relative TSR, the determination of vesting will be based on the Company’s total shareholder return (“TSR”) over a three-year performance period ending on January 31, 2021 relative to a peer group comprised of all companies in the S&P 1500 Supercomposite Insurance Index (“Peer Group”). In accordance with the award agreements, TSR is calculated based on the average of the closing stock prices for 20 consecutive trading days prior to the beginning and end of the performance period, and assumes all dividends issued over the performance period are reinvested. The award agreements provide for grants of Additional Shares to the award recipient if the Company’s relative performance exceeds the “target” performance level, which is the 50th percentile based on TSR relative to the Peer Group (“Relative

Kemper Corporation 2019 Proxy Statement 31

 
 
Compensation Discussion and Analysis

TSR Percentile Rank”). The number of Target Shares that will vest, if any, and the number of Additional Shares, if any, that will be granted, will be determined in accordance with the following table:
Kemper’s Relative TSR Percentile Rank
Total  PSUs to Vest and/or Shares to be Granted on Vesting Date as Percentage of Target Shares (%)
At least 90th
200

75th
150

50th
100

25th
  50

Below 25th


Shares Based on Three-Year Adjusted ROE
For the 50 percent of PSUs based on Three-Year Adjusted ROE, the determination of vesting will be based on the Company’s adjusted return on equity over a three-year performance period ending on December 31, 2020. The award agreements provide for grants of Additional Shares to the award recipient if the Company’s Three-Year Adjusted ROE exceeds the “target” performance level of 8.5 percent. The target, threshold and maximum levels shown in the table below represent increases over the respective levels applicable to the 2017 PSU awards based on Three-Year Adjusted ROE.
The number of Target Shares that will vest, if any, and the number of Additional Shares, if any, that will be granted, will be determined in accordance with the following table:
Three-Year Adjusted ROE (%)
Total  PSUs to Vest and/or Shares to be Granted on Vesting Date as Percentage of Target Shares (%)
At least 10.0
200

8.5
100

7.0
  50

Below 7.0


The applicable terms are calculated as follows:

Three-Year Adjusted ROE is computed by dividing the sum of Adjusted Net Income for each of the three years in the performance period by the sum of the Adjusted Average Shareholders’ Equity for each of the three years.

Adjusted Net Income is defined as Net Income as reported in the Company’s financial statements for the respective year, adjusted to account for the after-tax impacts of the following items, to the extent the Compensation Committee deems them not indicative of the Company’s core operating performance:

adjust the amount of Actual Catastrophe Losses and LAE to equal Expected Catastrophe Losses (italicized terms defined below);

adjust Net Realized Gains on Sales of Investments and Net Impairment Losses Recognized in Earnings (italicized terms as reported in the Company’s financial statements) to equal Expected Net Realized Gains on Sales of Investments and Expected Net Impairment Losses Recognized in Earnings (italicized terms defined below);

significant unusual judgments or settlements in connection with the Company’s legal contingencies or benefit plans; and

additional significant unusual or nonrecurring items as permitted by the Omnibus Plan.


Kemper Corporation 2019 Proxy Statement 32

 
 
Compensation Discussion and Analysis

Adjusted Average Shareholders’ Equity is defined as the simple average of Total Shareholders’ Equity (as reported in the Company’s financial statements) for the beginning and end of year for each year in the performance period, adjusted to account for the after-tax impacts of the following items, to the extent the Compensation Committee deems them not indicative of the Company’s core operating performance:

Unrealized Gains and Losses on Fixed Maturity Securities from Adjusted Shareholders Equity (italicized terms as reported in the Company’s financial statements as defined above and below);

the modifications made in calculating Adjusted Net Income; and

additional significant, unusual or nonrecurring items as permitted by the Omnibus Plan.

Actual Catastrophe Losses and LAE means the actual Catastrophe Losses and associated Loss Adjustment Expenses, including catastrophe reserve development, as reported in the Company’s management reports for the relevant time period.

Expected Catastrophe Losses, Expected Net Realized Gains on Sales of Investments, and Expected Net Impairment Losses Recognized in Earnings means the amounts specified in the Company’s management reports as “Planned” or “Expected” for, respectively, (a) Catastrophe Losses and associated Loss Adjustment Expenses, including catastrophe reserve development, (b) Net Realized Gains on Sales of Investments, and (c) Net Impairment Losses Recognized in Earnings.

Unrealized Gains and Losses on Fixed Maturity Securities means the Unrealized Gains and Losses on Fixed Maturity Securities as reported in the Company’s management reports.

Additional Information

For performance falling between the percentile levels specified in the first column of each table above, the number of shares that will vest and be issued as Common Stock or be forfeited, and the number of Additional Shares, if any, that will be granted on the Vesting Date will be determined by straight-line interpolation from the percentages specified in the table. Any Target Shares that do not vest in accordance with the table above will be forfeited on the Vesting Date. Under the terms of the applicable 2018 PSU award agreements, Target Shares of PSUs accrue dividend equivalents during the vesting period on the same basis as dividends paid to holders of outstanding shares of Common Stock, but are paid out after vesting only on the total number of shares actually earned.

The February 6, 2018 grant date fair value of the PSUs was estimated at $61.84 per share for the portion based on Relative TSR and $60.00 for the portion based on Three-Year Adjusted ROE. For a discussion of valuation assumptions, see Note 10, “Long-term Equity-based Compensation,” to the consolidated financial statements included in the Company’s 2018 Annual Report.
Performance Results for 2016 PSU Awards

Messrs. Lacher, Boschelli, McKinney and Green received PSU awards in 2016, half of which were based on Relative TSR and half of which were based on Three-Year Adjusted ROE. Mr. Sanders did not receive 2016 PSU awards due to his hire date with the Company.

Shares Based on Relative TSR

On March 6, 2019, the Compensation Committee certified the performance results of the Company’s Relative TSR for the 2016 - 2018 performance period for the 2016 PSU awards based on Relative TSR. The TSR for Kemper and each company in the Peer Group was calculated using the 20-day average trading price preceding the beginning and the end of the performance period. The Company’s TSR was determined to be 206.5 percent for the performance period. Relative to the Peer Group, the Company ranked second out of the fifty companies, or at the 98th percentile. By comparison, peer companies closest to the 90th percentile (maximum level), 50th percentile (target level) and 25th percentile (threshold level), ranked approximately 6, 25, and 38, respectively, out of the 50 companies. Since the Company’s performance was above the

Kemper Corporation 2019 Proxy Statement 33

 
 
Compensation Discussion and Analysis

maximum level, the final number of shares earned equals 200 percent of the Target Shares based on Relative TSR granted in 2016. As a result, on the Vesting Date, March 6, 2019, all Target Shares vested and the same number of Additional Shares were granted. The NEOs received received the following shares of Common Stock upon the vesting of their 2016 PSU Awards based on Relative TSR on March 6, 2019: Lacher (48,118); McKinney (5,038); Boschelli (4,692); and Green (5,938). Mr. Sanders did not receive any 2016 PSU Awards due to his hire date in 2018.

Performance of Kemper Common Stock Compared to S&P 1500 Supercomposite Insurance Index

The graph below shows relative TSR performance over the period from January 1, 2016 through December 31, 2018 and prior-period comparison.        
397181056_tschart.jpg

Shares Based on Three-Year Adjusted ROE

On March 6, 2019, the Compensation Committee certified the performance results of the Company’s Three-Year Adjusted ROE for the 2016 PSU Awards. The Three-Year Adjusted ROE for the 2016-2018 Performance Period was calculated on the same basis as described above for the PSU awards granted in 2018 for the 2018-2020 performance period, but payouts were determined based on the following threshold, target and maximum levels:
Three-Year Adjusted ROE (%)
Total PSUs to Vest and/or Shares to be Granted on Vesting Date as Percentage of Target Shares (%)
At least 7.8%
200
6.5%
100
5.2%
  50
Below 5.2%
0

The Company’s Three-Year Adjusted ROE was determined to be 9 percent for the 2016-2018 performance period.  Since the Company’s performance was above the maximum level, the final number of shares earned equals 200 percent of the Target Shares granted in 2016. As a result, on the vesting date, March 6, 2019, all Target Shares vested and the same number of Additional Shares were granted. The NEOs received received the following shares of common stock upon the vesting of

Kemper Corporation 2019 Proxy Statement 34

 
 
Compensation Discussion and Analysis

their 2016 PSU Awards based on Three-Year Adjusted ROE on March 6, 2019: Lacher (48,118); McKinney (5,038); Boschelli (4,692); and Green (5,938). Mr. Sanders did not receive any 2016 PSU Awards due to his hire date in 2018.

The graph below shows the Three-Year Adjusted ROE over the period from January 1, 2016 through December 31, 2018 and prior-period comparison.
397181056_roechart.jpg

Other Features and Practices Related to the Equity Incentive Program

Equity-Based Compensation Granting Process

The Compensation Committee follows an established Company process for the review, approval and timing of grants of equity-based compensation for all eligible employees of the Company, including its executive officers. In making his annual grant recommendations to the Compensation Committee, the CEO follows an established grant cycle, with the exception of off-cycle grants made in connection with key new hire, promotion or retention awards which may be made with Compensation Committee approval or under the CEO’s delegated authority, as described in the next section. The Company’s executive officers play no role in the timing of option or other grants except with regard to such new hire, promotion or retention awards, the timing of which is driven by the circumstances of the underlying event.

The Company provides administration of the Company’s equity-based compensation plans. Following Compensation Committee approval, the Company delivers award agreements for acceptance by the recipients. All forms of equity-based compensation award agreements are approved by the Compensation Committee in advance of their initial use.
    
Delegated Authority

As previously mentioned, the Compensation Committee has delegated authority to the CEO to grant a limited number of shares under the Omnibus Plan in connection with new hire, promotional and retention awards to employees other than executive officers. The exercise price of each stock option award granted under the delegated authority is the closing price of a share of Common Stock on the grant date. The Compensation Committee is periodically informed about the awards granted pursuant to the delegated authority and periodically replenishes the share pool used in this program from the pool of shares available in the shareholder-approved Omnibus Plan.



Kemper Corporation 2019 Proxy Statement 35

 
 
Compensation Discussion and Analysis

Stock Ownership Policy
The Compensation Committee believes equity-based compensation awards to the executive officers, along with their subsequent retention of the acquired shares, further align their interests with those of the Company’s shareholders.
The Company’s Stock Ownership Policy provides minimum ownership requirements for its non-employee directors and executive officers based on a multiple of their base compensation. The minimum ownership level for the Company’s CEO is shares valued at five times his annual salary, while the minimum level for the other NEOs is two times their annual salaries. the minimum ownership level for non-employee directors is five times the retainer for non-chair members. In calculating ownership for purposes of the policy, RSUs and DSUs are included, but not performance-based awards.
The Compensation Committee monitors shareholdings by executive officers and directors annually, as of year-end. As of December 31, 2018, the NEOs subject to the policy either exceeded the minimum levels required under the policy or were within the five-year grace period to attain the minimum required share ownership level due to their recent start dates with the Company. The amount of Common Stock beneficially owned by each NEO as of the Record Date is disclosed in the table under the Ownership of Kemper Common Stock section on page 58.
Changes Made to NEO Compensation for 2019

At its meeting on February 5, 2019, the Compensation Committee approved 2019 compensation for the NEOs reflecting:

Salary increases were granted for 2019, effective February 1, 2019, and generally were targeted at or just below the market medians derived from the Company’s new peer group approved in 2018 for 2019 to better reflect the Company’s size following the acquisition of Infinity, and significantly increased management responsibilities.

The salary changes for 2019 approved by the Compensation Committee are shown below:
 
2019 Salary

Change (%)

Joseph P. Lacher, Jr.
1,000,000

33

James J. McKinney
575,000

27

John M. Boschelli
450,000

13

Mark A. Green
470,000

12

Duane A. Sanders
600,000

24


The Compensation Committee, after consultation with the CEO and the Chairman, approved new target levels for equity awards for the NEOs other than the CEO at 180 percent of their respective base salaries. The new target levels reflect the increased size and complexity of the Company, consistent with the benchmarking data provided by PayGovernance, as well as respective increases in the responsibilities of the individual NEOs.

Mr. Lacher’s 2019 equity award valued at $4.5 million was determined by the Compensation Committee, with input from the Chairman, and was based on, among other factors, his overall performance in 2018 and achievement of the 2018 objectives, as approved by the Board, and the Company’s philosophy that Mr. Lacher’s total compensation should be heavily weighted towards performance-based compensation. Key factors included the successful execution of the Infinity acquisition and total compensation for CEOs at comparable peer companies.

The following table illustrates the total compensation for each of the NEOs based on the components included in the Summary Compensation Table in the Executive Officer Compensation & Benefits section below on page 40 (“Summary Compensation Table”), but with the values in the Stock Awards and Option Awards columns based on the equity awards approved in February 2019 instead of February 2018. The equity awards granted to the NEOs in February 2019 were greater than the equity awards granted in February 2018 because they were based on higher target levels and base salaries as a result the 2019 salary increases. As a result, the Company believes the following table better represents the total compensation of the NEOs based on 2018 performance than the total compensation amounts shown in the Summary Compensation Table.

Kemper Corporation 2019 Proxy Statement 36

 
 
Compensation Discussion and Analysis

ALTERNATE SUMMARY COMPENSATION TABLE (1)
Name
Year
Salary
($)(2)

Bonus
($)

Stock Awards
($)(3)

Option Awards
($)(3)

Non-Equity Incentive
Plan
Compen-
sation
($)(4)

Change in Pension
Value & Nonqual-
ified
Deferred Compen-
sation
Earnings
($)(5)

All Other Compen-sation
($)(6)

Total

Joseph P. Lacher, Jr.
2018
750,000


2,288,136

2,455,441

2,500,000


123,695

8,117,272

James J. McKinney
2018
450,000


526,272

564,761

900,000


67,137

2,508,170

John M. Boschelli
2018
400,000


411,892

441,981

600,000


72,450

1,926,323

Mark A. Green
2018
420,000


430,192

461,639

500,000


52,833

1,864,664

Duane A. Sanders
2018
485,000

1,350,000

549,138

589,308

1,000,000


217,847

4,191,293

(1) As noted above, this table discloses the same compensation information for the NEOs as disclosed in the Summary Compensation Table, with the exception of the Stock Awards and Option Awards columns that include the values of the respective equity awards approved in February 2019 rather than in February 2018 to better illustrate the total compensation awarded to the NEOs based on Company and individual performance in 2018.
(2) These amounts represent salaries earned for 2018.
(3) These amounts represent the aggregate grant date fair values of the equity awards (stock options or PSUs) to the designated NEO approved on February 5, 2019 pursuant to the Omnibus Plan. For pricing models/methods and valuation assumptions, see footnote (4) to the Summary Compensation Table on page 40 below.
(4) These amounts were earned under the Company’s annual cash incentive programs. The amounts shown were made for 2018 performance (and paid in 2019), under the EPP and Annual Incentive Program.
(5) See footnote (6) to the Summary Compensation Table on page 41 below.
(6) See footnote (7) to the Summary Compensation Table on page 41 below.
Perquisites

The NEOs receive a number of perquisites, including financial planning services, comprehensive annual physical examinations and limited use of the Company’s aircraft. The Board has approved use of the Company’s aircraft by Mr. Lacher to attend board meetings of an outside non-profit organization for which he serves as a director and reimbursement of his related expenses. NEOs may be reimbursed for applicable expenses under the Company’s relocation program and in connection with spousal travel when accompanying the officer to off-site business meetings required for bona fide business reasons. NEOs may also have incidental personal use of cell phones, computer equipment and other resources provided primarily for business purposes.

Employee Welfare Benefit and Retirement Plans
The NEOs are eligible for the following plans:
Employee welfare benefits under plans generally available to all full-time salaried employees and which do not discriminate in scope, terms or operation in favor of executive officers;

Deferred Compensation Plan, which allows the NEOs to elect to defer a portion of their salaries and cash incentives. Information about the Deferred Compensation Plan in general, and more specific information about participation therein by the NEOs, is provided in the section entitled Executive Officer Compensation & Benefits below beginning on page 48 under the heading Deferred Compensation Plan;


Kemper Corporation 2019 Proxy Statement 37

 
 
Compensation Discussion and Analysis

Tax-qualified defined contribution retirement plan applicable to all full-time salaried employees, including executive officers, meeting age and service-based eligibility requirements (“401(k) and Retirement Plan”). Due to his hire date prior to 2006, Mr. Boschelli had been eligible for benefit accruals under the Company’s defined benefit pension plan (“Pension Plan”) in lieu of the retirement contribution under the 401(k) and Retirement Plan until June 30, 2016 when Pension Plan benefit accruals were frozen for all participants.

Nonqualified supplemental defined contribution retirement plan (“Retirement SERP”), available to key employees designated annually by the Board of Directors to provide benefits using the same formulas used for the tax-qualified retirement plan but without regard to the limits imposed under the Internal Revenue Code. Mr. Boschelli had been eligible for a benefit accrual under the Company’s nonqualified supplemental defined benefit pension plan (“Pension SERP”) in lieu of the Retirement SERP until June 30, 2016 when Pension SERP benefit accruals ceased as a result of the freezing of the Pension Plan accruals; and

Voluntary participation in the 401(k) portion of the Company’s 401(k) and Retirement Plan includes a Company matching contribution feature offered to all full-time salaried employees, including executive officers, meeting age and service-based eligibility requirements.

Additional information about the Company’s retirement plans and participation therein by the NEOs is provided in the section entitled Executive Officer Compensation and Benefits below beginning on page 49 under the heading Retirement Plans.

Other Post-Employment Compensation

Change in control benefits applicable to the NEOs are described in more detail below under the section entitled Potential Payments Upon Termination or Change in Control. These benefits are provided under individual severance agreements with the NEOs and provisions included in agreements with all grant recipients in applicable equity award agreements under the Omnibus Plan. The NEOs are not entitled to other post-termination benefits except pursuant to the standard provisions of any of the plans discussed above.
Tax Implications
Section 162(m) imposes an annual limit of $1 million per person on the corporate tax deduction for compensation paid by a company to its chief executive officer and the other officers listed in its proxy compensation tables due to their compensation. Until 2018, the limit did not apply to a company’s chief financial officer, or to certain performance-based compensation that met specific exemption requirements. Under the 2017 Tax Reform Act, the $1 million limit on deductibility will also apply to chief financial officers, and the exemption for performance-based compensation has been eliminated, subject to applicable transition rules.
Prior to the 2017 Tax Reform Act, the Company had generally intended most components of executive compensation to qualify as tax deductible for federal income tax purposes, to the extent practicable in particular hiring and compensation decisions, and consistent with the objectives and underlying philosophy of its executive compensation program. The EPP, as well as the Omnibus Plan and its predecessor equity plans, were designed to enable the Company to grant awards qualified as performance-based compensation under Section 162(m). As was required by Section 162(m), the Company obtained shareholder approval of the EPP in 2014 and of the Omnibus Plan in 2016. Due to the 2017 Tax Reform Act, the Company no longer expects most incentive compensation awarded after 2017 to be tax deductible due to the elimination of the exception for performance-based compensation.


Kemper Corporation 2019 Proxy Statement 38

 
 
Compensation Discussion and Analysis

Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis set forth above. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
Compensation Committee of the Board of Directors of Kemper Corporation

Kathleen M. Cronin, Chair
Lacy M. Johnson
David P. Storch
Susan D. Whiting

Kemper Corporation 2019 Proxy Statement 39

 
 
Executive Officer Compensation & Benefits

Executive Officer Compensation & Benefits
Summary Compensation Table

The following table shows the compensation for fiscal years 2018, 2017 and 2016 for the NEOs serving during the year ended December 31, 2018, which include the Company’s Chief Executive Officer, Chief Financial Officer and three other most highly compensated executive officers:
SUMMARY COMPENSATION TABLE





Name and
Principal Position (1)
Year
Salary
($)(2)

Bonus
($)(3)

Stock Awards
($)(4)

Option Awards
($)(4)

Non-Equity Incentive Plan Compen-sation
($)(5)

Change in Pension Value and Nonquali-fied Deferred Compen-sation Earnings
($)(6)

All Other Compen-sation
($)(7)

Total
($)

Joseph P. Lacher, Jr., President and Chief Executive Officer
2018
750,000


1,776,855

1,755,329

2,500,000


123,695

6,905,879

2017
750,000


617,748

1,484,099

2,000,000


88,298

4,940,145

2016
750,000


1,284,269

416,821

1,000,000


25,272

3,476,362

James J. McKinney,
Senior Vice President and Chief Financial Officer
2018
450,000


411,210

406,232

900,000


67,137

2,234,579

2017
450,000


266,870

213,716

750,000


64,409

1,744,995

2016
51,923

1,050,000

813,635

154,632



15,955

2,086,145

John M. Boschelli,
Senior Vice President
and Chief Investment Officer
2018
400,000


365,520

361,095

600,000


72,450

1,799,065

2017
400,000


237,215

189,965

754,240

46,111

67,640

1,695,171

2016
400,000


125,229

142,574

512,220

213,758

19,401

1,413,182

Mark A. Green,
Senior Vice President and President, Life and Health Division
2018
420,000


383,796

379,150

500,000


52,833

1,735,779

2017
420,000


249,067

199,467

700,000


44,495

1,613,029

2016
240,692

550,000

191,946

206,730

260,000


5,047

1,454,415

Duane A. Sanders, 
Senior Vice President and President, Property and Casualty Division
2018
485,000

1,350,000

777,950

688,595

1,000,000


217,847

4,519,392



































(1) Amounts for each officer are shown only for years in which he served as an NEO.
(2)
These amounts represent salary earned for each of the years an individual was an NEO. Pursuant to the Company’s regular compensation cycle, salary adjustments for the years shown in the table have taken effect in April of such year. As a result, for any year in which an individual officer’s salary was increased or decreased, a portion of the amount of salary shown for such year was earned at the rate in effect prior to the adjustment.
(3) These amounts represent signing bonuses granted to Messrs. McKinney and Green in 2016, and Mr. Sanders in 2018.
(4)
These amounts represent the aggregate grant date fair values of the equity awards (stock options, PSUs and RSUs) to the designated NEOs pursuant to the Omnibus Plan. The Black-Scholes option pricing model was used to estimate the fair value of each option (including its tandem SAR) on the grant date. A Monte Carlo simulation method was used to estimate the fair values on the grant date of the awards of the PSUs based on Relative TSR. PSUs based on ROE and RSUs were valued using the closing price of a share of Common Stock on the grant date. For a discussion of valuation assumptions, see Note 10, “Long-term Equity-based Compensation,” to the consolidated financial statements included in the Company’s 2018 Annual Report. These equity awards are subject to forfeiture and transfer restrictions until they vest in accordance with their respective grant agreements.
If achievement of the performance conditions at the maximum performance level is assumed, the aggregate number and market value of the payouts of PSUs would be as follows under awards granted in 2018 to each NEO:

Kemper Corporation 2019 Proxy Statement 40

 
 
Executive Officer Compensation & Benefits

Name
Number
of Shares at
Target Level
(# of Shares)

Estimated Payout in Shares if Maximum Performance Level Achieved
(# of Shares)

Estimated Value of Payout if Maximum Performance Level Achieved ($)

Joseph P. Lacher, Jr.
29,167

58,334

3,553,710

James J. McKinney
6,750

13,500

822,420

John M. Boschelli
6,000

12,000

731,040

Mark A. Green
6,300

12,600

767,592

Duane A. Sanders
12,770

25,540

1,555,900

(5)
These amounts were earned under the Company’s annual cash incentive programs. With regard to the payments shown for Mr. Boschelli, for 2017, they were made under the Annual Incentive Program and his 2015 multi-year award under the Company’s 2009 Performance Incentive Plan (“Multi-Year PIP Award”) (and paid in 2018), and for 2016, they were made under the Annual Incentive Program and his 2014 Multi-Year PIP Award (and paid in 2017). The amounts shown for the other NEOs other than Mr. McKinney were made for 2018, 2017 and 2016 (and paid in 2019, 2018 and 2017, respectively), under the Annual Incentive Program and the EPP. The amounts shown for Mr. McKinney were made for 2018 and 2017 (and paid in 2019 and 2018, respectively) under the Annual Incentive Program.
(6)
These amounts represent the change in actuarial present value for Mr. Boschelli under the Company’s Pension Plan and Pension SERP as of December 31 of 2018, 2017 and 2016 from the end of the prior calendar year. However, for 2018, no amount is shown for Mr. Boschelli because the change in actuarial present value was negative; the actual amount was ($125,957). No amounts are shown for the other NEOs because they were not eligible to participate in these plans due to their hire dates with the Company; they instead became participants in the retirement portion of the Company’s 401(k) and Retirement Plan and Retirement SERP after meeting initial eligibility requirements. Mr. Boschelli became eligible to participate in the retirement portion of the Company’s 401(k) and Retirement Plan and Retirement SERP after the Pension Plan and Pension SERP were frozen as of June 30, 2016. For more information on these plans, see the narrative captioned Retirement Plans on page 49. The year-to-year changes in pension values is generally attributable to a decrease in the present value of future payments due to an increase in the applicable discount rate in 2018.
(7)
The amounts shown for 2018 for each NEO include perquisites and additional compensation of the types indicated in the following table, plus employer-paid health and life benefit costs:
Name
Perquisites and Other Personal Benefits (1)

Relocation Tax Reimbursement

Company Contributions to Defined Contribution Plans

Dividend Equivalents Paid on RSUs and Certain PSUs (2)

Joseph P. Lacher, Jr.
45,360


35,750

30,025

James J. McKinney
19,107


20,250

15,652

John M. Boschelli
19,482


36,000

4,912

Mark A. Green
19,400


19,450

5,644

Duane A. Sanders
129,614

67,361

8,250

2,637

(1)
The amounts in this column include the costs of financial planning services for each NEO and, for each NEO other than Mr. Sanders, also an executive physical. For Mr. Lacher, the value also includes the incremental costs for his use of the Company aircraft and reimbursement of his travel expenses to attend board meetings of an outside non-profit organization for which he serves as a director. For Mr. Sanders, the value also includes reimbursement of relocation expenses in the amount of $112,908 and the cost for his spouse’s required attendance at a Company event.
 

Kemper Corporation 2019 Proxy Statement 41

 
 
Executive Officer Compensation & Benefits

(2) The amounts shown are dividend equivalents paid on RSUs and PSUs based on Three-Year Adjusted ROE, which are not factored into their grant date fair values reported in the Stock Awards column of the Summary Compensation Table. Dividend equivalents paid on PSUs based on Relative TSR are factored into such grant date fair values.
Grants of Plan-Based Awards

PSU Awards

The PSUs awarded to the NEOs in February 2018 are subject to forfeiture and transfer restrictions until their vesting date following the three-year performance period in accordance with the terms of the award agreements. Determination of the number of shares of Common Stock that will vest or be forfeited, and of any Additional Shares that will be granted, will be based, for half of the PSUs, on the Company’s Relative TSR relative to the Peer Group, and for the other half of the PSUs, on the Company’s Three-Year Adjusted ROE, each based on a three-year performance period as described in more detail above in the Compensation Discussion and Analysis section under the heading PSU Awards Granted in 2018 beginning on page 31.

Stock Options
The stock options awarded to the NEOs in February 2018 are non-qualified options for federal income tax purposes, have an exercise price equal to the closing price of a share of Common Stock on the grant date and expire on the tenth anniversary of the grant date. The stock options were coupled with SARs and become exercisable in three equal, annual installments beginning on the one-year anniversary of the grant date. References to stock options in this proxy statement generally include tandem SARs.

Incentive Plan Awards
Annual incentive compensation award payouts for 2018 were approved and made under the Company’s EPP and Annual Incentive Program in February 2019. The maximum potential amount for awards under the EPP shown in the table below is the maximum provided under the EPP for an annual award to any participant. The performance criteria and process of determining payouts under these awards are described in more detail in the Compensation Discussion and Analysis section under the heading Executive Performance Plan beginning on page 26.

Kemper Corporation 2019 Proxy Statement 42

 
 
Executive Officer Compensation & Benefits

The following table shows each grant to the NEOs in 2018 under the Company plans as described above:
GRANTS OF PLAN-BASED AWARDS IN 2018
 
 
 
Estimated Future Payouts Under Non-Equity Incentive
Plan Awards (2)
 
Estimated Future Payouts Under Equity Incentive
Plan Awards (3)
 
 
 
Name
Grant Date (1)




Award Type



Maximum
($)

 



Threshold
(#)




Target
(#)




Maximum
(#)

All Other Option Awards: Number of Securities Underlying Options
(#)(4)

Exercise or
Base Price of Option Awards
($/Sh) (5)

Grant
Date Fair Value of Stock and Option Awards
($)(6)

Joseph P. Lacher, Jr.
2/6/2018
 Stock Options

 



116,667

60.00

1,755,329


2/6/2018
 PSU

 
7,292

14,584

29,168



901,875


2/6/2018
 PSU

 
7,292

14,583

29,166



874,980

 
 
Annual Incentive
6,000,000

 






James J. McKinney
2/6/2018
 Stock Options

 



27,000

60.00

406,232


2/6/2018
 PSU

 
1,688

3,375

6,750



208,710


2/6/2018
 PSU

 
1,688

3,375

6,750



202,500

 
 
Annual Incentive
6,000,000

 






John M. Boschelli
2/6/2018
 Stock Options

 



24,000

60.00

361,095


2/6/2018
 PSU

 
1,500

3,000

6,000



185,520


2/6/2018
 PSU

 
1,500

3,000

6,000



180,000

 
 
Annual Incentive
6,000,000

 






Mark A. Green
2/6/2018
 Stock Options

 



25,200

60.00

379,150


2/6/2018
 PSU

 
1,575

3,150

6,300



194,796


2/6/2018
 PSU

 
1,575

3,150

6,300



189,000

 
 
Annual Incentive
6,000,000

 






Duane A. Sanders
2/1/2018
Stock Options

 



15,699

63.70

250,767


2/1/2018
PSU

 
1,374

2,748

5,496



169,936


2/1/2018
PSU

 
1,374

2,747

5,494



174,984


2/6/2018
 Stock Options

 



29,100

60.00

437,828


2/6/2018
 PSU

 
1,819

3,638

7,276



224,974


2/6/2018
 PSU

 
1,819

3,637

7,274



218,220


2/5/2019
Annual Incentive
6,000,000








(1) The grant date is also the date of approval for all awards shown in the table with the exception of the February 1,
2018 grants to Mr. Sanders, which were approved as of January 31, 2018.
(2)
No threshold or target amounts are provided under the EPP or the Annual Incentive Program. The amounts shown represent the annual maximum incentive to any participant under the terms of the EPP because the amounts determined by the Compensation Committee at its meeting on February 5, 2019 based on the previously-approved formula and allocation percentages exceeded the maximum. The maximum amounts payable to each participant could not have been determined at the beginning of the performance period. The process for determining the awards for the NEOs and the amounts of the awards that were approved by the Compensation Committee for 2018 are detailed in the narrative descriptions about the EPP and the Annual Incentive Program in the Compensation Discussion and Analysis section on pages 26-30 and the table captioned Annual Incentive Payouts - 2018 Annual EPP Awards on page 30.

Kemper Corporation 2019 Proxy Statement 43

 
 
Executive Officer Compensation & Benefits

(3)
These columns show a range of payouts possible under the PSU awards granted in 2018 under the Omnibus Plan. The amount shown in the “Target” column for each award represents 100 percent of the PSUs granted, which equals the number of units that would vest if the “Target” performance level is achieved. The “Threshold” level is the minimum level of performance that must be met before any payout may occur, and the amount shown in the “Threshold” column is 50 percent of the “Target” payout amount. The amount shown in the “Maximum” column is 200 percent of the “Target” payout amount. Further information about these awards is provided in the Compensation Discussion and Analysis section under the heading PSU Awards Granted in 2018 on page 31.
(4)
These are non-qualified stock options granted under the Omnibus Plan.
(5)
The exercise price of the stock option awards is equal to the closing price of a share of Common Stock on the grant date.
(6)
The amounts shown represent the aggregate grant date fair values of the 2018 stock option and PSU awards. For stock options, the grant date fair values were estimated based on the Black-Scholes option pricing model. For PSUs based on Relative TSR, the grant date fair values were estimated using the Monte Carlo simulation method. For PSUs based on ROE, the grant date fair values were based on the closing price of a share of Common Stock on the grant date. For a discussion of valuation assumptions, see Note 10, “Long-term Equity-based Compensation,” to the consolidated financial statements included in the Company’s 2018 Annual Report.
Outstanding Equity Awards at 2018 Fiscal Year-End
The following table shows the unexercised stock option awards and unvested RSU and PSU awards for each NEO granted under the Company’s Omnibus Plan and its predecessor plan that were outstanding as of December 31, 2018:
OUTSTANDING EQUITY AWARDS AT 2018 FISCAL YEAR-END
 
Option Awards
 
Stock Awards
Name
Number of
Securities
Underlying
Unexercised
Options
Exercisable (#)

Number of
Securities
Underlying
Unexercised
Options
Unexercisable (#)

 
Option
Exercise
Price
($)

Option
Expiration
Date

 
Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)

 
Market
Value of
Shares or
Units of
Stock that
Have Not Vested
($)

Equity Incentive
Plan Awards:
Number of Unearned Shares, Units or Other Rights That Have Not Vested(#)

 
Equity Incentive
Plan Awards:
Market or Payout Value of Unearned Shares, Units of Other Rights That Have Not Vested($)

Joseph P. Lacher, Jr.
73,710

24,570

(1)
40.70

11/19/2025









72,176

24,059

(2)
27.71

3/1/2026









86,605

86,606

(3)
43.30

2/7/2027










116,667

(4)
60.00

2/6/2028


















48,118

(5)
3,194,073











48,118

(6)
3,194,073











14,436

(7)
958,262











14,434

(8)
958,129











29,168

(9)
1,936,172











29,166

(10)
1,936,039

James J. McKinney
5,038

10,075

(11)
40.20

11/17/2026









6,236

12,472

(3)
43.30

2/7/2027










27,000

(4)
60.00

2/6/2028















10,667

(12)
708,075














5,038

(5)
334,422











5,038

(6)
334,422











6,236

(7)
413,946











6,236

(8)
413,946

 









6,750

(9)
448,065

 


 


 

 

6,750

(10)
448,065

 
 
 
 
 
 
 
 
 
 
 
 
 

Kemper Corporation 2019 Proxy Statement 44

 
 
Executive Officer Compensation & Benefits

OUTSTANDING EQUITY AWARDS AT 2018 FISCAL YEAR-END (continued)
 
Option Awards
 
Stock Awards
Name
Number of
Securities
Underlying
Unexercised
Options
Exercisable (#)

Number of
Securities
Underlying
Unexercised
Options
Unexercisable (#)

 
Option
Exercise
Price
($)

Option
Expiration
Date

 
Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)

 
Market
Value of
Shares or
Units of
Stock that
Have Not Vested
($)

Equity Incentive
Plan Awards:
Number of Unearned Shares, Units or Other Rights That Have Not Vested(#)

 
Equity Incentive
Plan Awards:
Market or Payout Value of Unearned Shares, Units of Other Rights That Have Not Vested($)

John M. Boschelli
4,691

4,692

(2)
27.71

3/1/2020









11,085

11,086

(3)
43.30

2/7/2027










24,000

(4)
60.00

2/6/2028


















4,692

(5)
311,455











4,692

(6)
311,455











5,544

(7)
368,011











5,542

(8)
367,878











6,000

(9)
398,280











6,000

(10)
398,280

Mark A. Green
17,814

5,938

(13)
31.83

6/3/2026









11,250

3,750

(14)
32.20

6/15/2026