Document

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
Filed by the Registrant [X]

Filed by a Party other than the Registrant [   ]

Check the appropriate box:
[ ]     Preliminary Proxy Statement
[   ]     Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X]     Definitive Proxy Statement
[   ]     Definitive Additional Materials
[   ]     Soliciting Material Pursuant to Section 240.14a-12


CINCINNATI FINANCIAL CORPORATION
(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (check the appropriate box):
[X]     No fee required.
[   ]     Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1) Title of each class of securities to which transaction applies: ...................................................................................
2) Aggregate number of securities to which transaction applies: ...................................................................................
3) Per unit price of other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ......................................................
4) Proposed maximum aggregate value of transaction: ................................................................................................
5) Total fee paid: ............................................................................................................................................................

[  ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid: ............................................................................................................................................

2) Form, Schedule or Registration Statement No.: ........................................................................................................

3) Filing Party: ................................................................................................................................................................

4) Date Filed: .................................................................................................................................................................




cfc2019coverproxys001.jpg



a2019proxyheader112818.jpg
March 13, 2019

To the Shareholders of Cincinnati Financial Corporation:

You are cordially invited to attend the Annual Meeting of Shareholders of Cincinnati Financial Corporation, which will take place at 9:30 a.m. on Saturday, April 27, 2019, at the Cincinnati Art Museum, located in Eden Park, Cincinnati, Ohio. The business to be conducted at the meeting includes:

1.
Electing 14 directors for one-year terms;
2.
Voting on a nonbinding proposal to approve compensation for the company’s named executive officers;
3.
Ratifying the selection of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2019;
4.
Transacting such other business as may properly come before the meeting.

Shareholders of record at the close of business on February 28, 2019, are entitled to vote at the meeting.

Whether or not you plan to attend the meeting, please cast your vote as promptly as possible. We encourage convenient online voting, which saves your company significant postage and processing costs. If you prefer, you may submit your vote by telephone or by mail. Detailed voting instructions can be found in the Frequently Asked Questions section on Page 72 of this proxy statement.

Thank you for your interest and participation in the affairs of the company.



/S/ Lisa A. Love            
Lisa A. Love, Esq.
Senior Vice President, General Counsel and Corporate Secretary



This proxy statement, the Annual Report on Form 10-K, the Letter from the Chairman and the Chief Executive Officer and voting instructions were first made available to Cincinnati Financial Corporation shareholders on March 13, 2019.




Table of Contents
Proxy Summary
 
2019 Annual Meeting of Shareholders
 
Voting Matters and Board Recommendations
 
2018 Governance Highlights
 
Director Nominees
 
2018 Business and Financial Highlights
 
2018 Executive Compensation Highlights
 
Security Ownership of Principal Shareholders and Management
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Information About the Board of Directors
 
Proposal 1 - Election of Directors
 
Directors of Your Company
 
Compensation of Nonemployee Directors
 
Governance of Your Company
 
2018 Governance Highlights
 
Governance Policies and Practices
 
Certain Relationships and Transactions
 
Compensation of Named Executive Officers and Directors
 
Proposal 2 - Say-on-Pay: Advisory Vote on Compensation of Named Executive Officers
 
Report of the Compensation Committee
 
Compensation Committee Interlocks and Insider Participation
 
Compensation Discussion and Analysis
 
Audit-Related Matters
 
Proposal 3 - Ratifying the Selection of the Independent Registered Public Accounting Firm
 
Report of the Audit Committee
 
Fees Billed by the Independent Registered Public Accounting Firm
 
Services Provided by the Independent Registered Public Accounting Firm
 
Frequently Asked Questions
 
Conclusion
 
Shareholder Proposals and Important Dates for Next Year
 
Cost of Solicitation
 
Other Business
 
Appendix A - Definitions of Non-GAAP Information and Reconciliation to
     Comparable GAAP Measures
 



Page 2



Proxy Summary
This summary highlights information contained elsewhere in this proxy statement. It does not contain all of the information that you should consider before voting. Please read the entire proxy statement, and for more complete information about the company’s 2018 performance, please review the company’s 2018 Annual Report on Form 10-K.

2019 Annual Meeting of Shareholders
Date and Time:    April 27, 2019, 9:30 a.m. ET
Place:            Cincinnati Art Museum, 953 Eden Park Drive, Cincinnati, Ohio 45202
Record Date:        February 28, 2019
Meeting Webcast:    cinfin.com/investors

Voting Matters and Board Recommendations
 
Our Board’s Recommendation
Election of Directors (Page 12)
FOR Each Director Nominee
Advisory Vote to Approve Executive Compensation (Page 31)
FOR
Ratification of Auditors (Page 68)
FOR

Page 3



2018 Governance Highlights
In 2018, the company continued to follow its strong governance policies and practices to benefit shareholders. Highlights included:
Proxy Access - The board is committed to strong governance. It keeps abreast of developing governance practices and adopts those that it believes are appropriate for our company and its shareholders. In 2018, shareholders approved an amendment to the company's Code of Regulations to allow proxy access for director nominations.
Majority Voting - A majority voting standard applies to uncontested elections of directors. The board believes that this voting standard gives shareholders a more meaningful voice in electing our directors and reinforces our commitment to accountability and strong corporate governance practices.
Cybersecurity - Cybersecurity is a growing threat for all companies. For the fourth year in a row, the audit committee increased its understanding of the company’s cybersecurity risk through reports of testing by third-party experts of the company’s cybersecurity program structure and capabilities.
Board Refreshment and Composition - Informed by feedback from its annual board self-evaluation, engagement with investors each year and our Corporate Governance Guidelines, the board continuously assesses the composition of the board of directors. Its goal is to balance independence, board size, tenure, and diversity of experience, skills, competencies and other qualities of current directors and future director candidates to best structure and govern itself in the short- and long-term and provide effective oversight of management for the benefit of shareholders.
Succession Planning - Succession planning at all levels is important to the long-term success of the company. In 2018, the board continued its practice of attending meetings of the subsidiary boards during which more than a dozen executives provide reports. These meetings provide the directors with opportunities to become familiar with this level of management, assess their development over time and gain in-depth knowledge about the company’s operating businesses. Additionally, each year the board discusses potential management succession candidates with the chief executive officer at one of its regular meetings.


Page 4



Director Nominees
The following table provides summary information about each director nominee. Complete information about each director’s background and experience begins on Page 12. Each director stands for election annually.
Name
Age
Primary Occupation
Independent
Committee Memberships
Other Public Company Boards
William F. Bahl*
67
Chairman, Bahl & Gaynor Investment Counsel Inc.
ü
A, E, I, N (Chair)
0
Gregory T. Bier
72
Managing Partner (Retired), Deloitte LLP
ü
A, I
0
Linda W.
Clement-Holmes
56
Chief Information Officer (Retired),
The Procter & Gamble Company
ü
A, C, N
0
Dirk J. Debbink
63
Chairman and Chief Executive Officer, MSI General Corporation
ü
A, N
0
Steven J. Johnston
59
President and Chief Executive Officer, Cincinnati Financial Corporation
 
E (Chair), I
0
Kenneth C. Lichtendahl
70
Director of Development and Sales, Heliosphere Designs LLC
ü
A, C
0
W. Rodney McMullen
58
Chairman and Chief Executive Officer, The Kroger Co.
ü
C (Chair), E, I
2
David P. Osborn
58
President, Osborn Williams & Donohoe LLC
ü
A, C, I
0
Gretchen W. Price
64
Executive Vice President, Chief Financial and Administrative Officer (Retired), Arbonne International LLC
ü
A (Chair), C, N
0
Thomas R. Schiff
71
Chairman and Chief Executive Officer, John J. & Thomas R. Schiff & Co. Inc.
 
I
0
Douglas S. Skidmore
56
Chief Executive Officer, Skidmore Sales & Distributing Company Inc.
ü
A, N
0
Kenneth W. Stecher
72
Chairman of the Board, Cincinnati Financial Corporation
 
E, I (Chair)
0
John F. Steele, Jr.
65
Chairman and Chief Executive Officer, Hilltop Basic Resources Inc.
ü
A, E
0
Larry R. Webb
63
President, Webb Insurance Agency Inc.
 
E, I
0

*Lead Independent Director
A    Audit Committee
C    Compensation Committee
E    Executive Committee
I    Investment Committee
N    Nominating Committee


Page 5



2018 Business and Financial Highlights
In 2018, our industry experienced a second consecutive year of elevated levels of insured losses from hurricanes, wildfires and other catastrophic weather events. It also was a year that ended with a sharp decline in the equity markets. Your company delivered strong operating results and somewhat mixed financial performance that benefited shareholders with one-year and three-year total shareholder returns of 6.2 percent and 43.0 percent, respectively; a 4.4 percent decrease in book value; and a 6.0 percent increase in regular cash dividends declared. This performance generated payouts of annual incentive compensation and performance-based restricted stock units at threshold levels for our named executive officers. Highlights of our company's performance in 2018 included:
A 45 percent increase in underwriting profit to $186 million and a combined ratio of 96.4 percent for 2018, marking our seventh consecutive year of underwriting profit. In 2018, our efforts to further segment our renewal and new business opportunities with better pricing precision and risk-selection decisions continued to benefit underwriting performance.
An all-time record-level of consolidated property casualty new business written premiums at $652 million, up 4 percent, driven by new agency appointment contributions.
A 4 percent increase in consolidated property casualty net written premiums to more than $5 billion in 2018. The increase in premiums reflects our growth initiatives, modest average price increases for most lines of business and a higher level of insured exposures.
A $4 million improvement in life insurance subsidiary net income, largely due to decreased income taxes as a result of tax reform, after factoring out the 2017 $111 million benefit from revaluation of deferred income taxes due to tax reform.
$17.516 billion in consolidated cash and invested assets, down 1 percent over the prior year.
A 2 percent increase in pretax investment income to a record $619 million, net of expenses, reflecting a 6 percent increase in equity portfolio dividends and flat interest income.
A value creation ratio (VCR) of negative 0.1 percent for 2018, exceeding that measure for three of the nine companies in our peer group. Our average annual VCR for the five-year period ending December 31, 2018, is 10.7 percent, within our announced goal of producing an annual average VCR of 10 percent to 13 percent in any five-year period.
Additionally, our results allowed the board to continue to reward shareholders with an increase of our regular annual cash dividend for the 58th consecutive year. Through the cash dividends paid and share repurchases, we returned $461 million to shareholders in 2018, and $1.298 billion during the three years ending December 31, 2018.



Page 6



2018 Executive Compensation Highlights
The named executive officers earned payouts of annual incentive compensation at the threshold level and performance based restricted stock units at the threshold level for the performance period ending December 31, 2018, which included a VCR of -0.1 percent, exceeding three peer companies; and a three-year total shareholder return of 43.0 percent, outperforming four peer companies. Set forth below is the 2018 compensation for each named executive officer as determined under Securities and Exchange Commission (SEC) rules. See the notes accompanying the Summary Compensation Table (SCT) on Page 56 for more information.
Name and Principal Position
Salary
($)
Bonus
($)
Stock Awards
($)
Option Awards
($)
Non-
Equity Incentive Plan Compensa-
tion
($)
Change in Pension Value and Non-
Qualified Deferred Compensa-
tion Earnings
($)
All Other Compensa-
tion
($)
Total Compensa-
tion
($)
Steven J. Johnston
1,025,385

999,111

849,752

339,900


230,462

3,444,610

Chief Executive Officer
& President

















Jacob F. Scherer, Jr.
949,152

638,786

464,800

185,918

621,358

26,991

2,887,005

Chief Insurance Officer

















Michael J. Sewell
851,218

574,408

418,034

167,213


150,667

2,161,540

Chief Financial Officer

















Martin F. Hollenbeck
710,560

479,777

348,963

139,582


120,935

1,799,817

Chief Investment Officer

















Martin J. Mullen
616,919

418,678

304,423

121,767

104,226

22,883

1,588,896

Chief Claims Officer


















No changes were made to the structure of the executive compensation program in 2018.

Page 7



Security Ownership of Principal Shareholders and Management
Under Section 13(d) of the Securities Exchange Act of 1934 (Exchange Act), a beneficial owner of a security is any person who directly or indirectly has or shares voting power or investment authority over such security. A beneficial owner under this definition need not enjoy the economic benefit of such securities. The following are the only shareholders known to the company who are deemed to be beneficial owners of at least 5 percent of our common stock as of February 28, 2019.
Title
of Class
Name and Address of Beneficial Owner
Amount and Nature of Beneficial Ownership
Footnote Reference
Percent of Class
Common Stock
The Vanguard Group Inc.
18,383,549

(1)
11.27


100 Vanguard Blvd.






Malvern, PA 19355












Common Stock
BlackRock Inc.
13,530,397

(2)
8.29


55 East 52nd Street






New York, NY 10055












Common Stock
State Street Corporation
9,713,262

(3)
5.95


State Street Financial Center






One Lincoln Street






Boston, MA 02111












Common Stock
Thomas R. Schiff
8,954,808

(4)(5)(6)(7)
5.49


Cincinnati Financial Corporation






6200 South Gilmore Road






Fairfield, OH 45014












Page 8



The outstanding common shares beneficially owned by each other director and our named executive officers and total outstanding shares for all directors and executive officers as a group as of February 28, 2019, are shown below:
 
Name of Beneficial Owner
Amount and Nature of Beneficial Ownership
Footnote
Reference
Percent
of Class
 
 
 
 
 
 
 
 
Other Directors and
Named Executive Officers
 
 
 
 
 
 
William F. Bahl, CFA, CIC
231,659

 
(8)
0.14

 
 
Gregory T. Bier, CPA (ret.)
27,259

 
 
0.02

 
 
Linda W. Clement-Holmes
11,346

 
 
0.01

 
 
Dirk J. Debbink
30,477

 
 
0.02

 
 
Martin F. Hollenbeck,
CFA, CPCU
111,401

 
(9)(10)
0.07

 
 
Steven J. Johnston,
FCAS, MAAA, CFA, CERA
384,552

 
(9)(10)
0.24

 
 
Kenneth C. Lichtendahl
37,069

 
 
0.02

 
 
W. Rodney McMullen
52,594

 
 
0.03

 
 
Martin J. Mullen
121,663

 
(7)(9)
0.07

 
 
David P. Osborn, CFA
40,649

 
 
0.02

 
 
Gretchen W. Price
28,319

 
 
0.02

 
 
Jacob F. Scherer, Jr.
243,282

 
(7)(9)
0.15

 
 
Michael J. Sewell, CPA
151,574

 
(7)(9)(10)
0.09

 
 
Douglas S. Skidmore
38,198

 
(11)
0.02

 
 
Kenneth W. Stecher
198,156

 
(7)(9)
0.12

 
 
John F. Steele, Jr.
25,467

 
 
0.02

 
 
Larry R. Webb, CPCU
501,774

 
(12)
0.31

 
 
 
 
 
 
 
 
 
All directors and nondirector executive officers as a group
(27 individuals)
11,680,039

 
(4)(5)(6)(7)(8)
(9)(10)(11)(12)
7.16

 
 
 
 
 
 
 
 
 
 
 
 
 

Except as otherwise indicated in the notes below, each person has sole voting and investment power with respect to the common shares noted.
(1)
Reflects ownership as of December 31, 2018, according to Form 13G/A filed by The Vanguard Group Inc. on February 11, 2019.
(2)
Reflects ownership as of December 31, 2018, according to Form 13G/A filed by BlackRock Inc. on February 4, 2019.
(3)
Reflects ownership as of December 31, 2018, according to Form 13G filed by State Street Corporation on February 11, 2019.
(4)
Includes 6,742,046 shares owned of record by the Mary R. Schiff and John J. Schiff Foundation. The trustees are Mr. T. Schiff and his two siblings, John J. Schiff, Jr. and Suzanne S. Reid, who share voting and investment power equally.
(5)
Includes 107,186 shares owned of record by the John J. & Thomas R. Schiff & Co. Inc. pension plan, the trustees of which are Messrs. T. Schiff and J. Schiff, Jr., who share voting and investment power; and 124,249 shares owned by John J. & Thomas R. Schiff & Co. Inc. for which Messrs. T. Schiff and J. Schiff, Jr. share voting and investment power.
(6)
Includes 129,218 shares held in Thomas R. Schiff Foundation and 229,190 shares held in TRS Investments LLC., of which Mr. T. Schiff has voting and investment power.
(7)
Includes shares pledged as collateral as of December 31, 2018, in the amounts of; 143,691 for Mr. Scherer; 638,200 for Mr. T. Schiff; 30,475 for Mr. Stecher; 60,646 for Mr. Mullen; 39,656 for Mr. Sewell; and 73,192 for the nondirector executive officers as a group.
(8)
Includes 8,821 shares held in the Bahl Family Foundation, of which Mr. Bahl is president.
(9)
Includes shares available within 60 days from exercise of stock options in the amount of 167,136 shares for Mr. Johnston; 96,381 for Mr. Scherer; 49,329 shares for Mr. Stecher; 77,437 shares for Mr. Sewell; 49,701 for Mr. Hollenbeck; 55,329 for Mr. Mullen; and 251,427 shares for the nondirector executive officers as a group.
(10)
Includes shares held in the company’s nonqualified savings plan for highly compensated associates in the amounts of 117,746 shares for Mr. Johnston; 5,016 shares for Mr. Hollenbeck; 12,081 shares for Mr. Sewell; and 10,800 shares for the nondirector executive officers as a group. Individuals participating in this plan do not have the right to vote these shares.

Page 9



(11)
Includes 7,035 shares owned of record by Skidmore Sales Profit Sharing Plan, of which Mr. Skidmore is an administrator and shares investment authority.
(12)
Includes 186,257 shares owned of record by a limited partnership of which Mr. Webb is a general partner and 43,478 shares owned of record by a marital trust for the benefit of his wife and children.


Page 10



Section 16(A) Beneficial Ownership Reporting Compliance
Directors, executive officers and 10 percent shareholders are required to report their beneficial ownership of our stock according to Section 16 of the Exchange Act. Those individuals are required by SEC regulations to furnish the company with copies of all Section 16(a) forms they file.

SEC regulations require us to identify in this proxy statement anyone who filed a required report late during the most recent calendar year. Based on our review of forms we received or written representations from reporting persons stating that they were not required to file these forms, we believe that all Section 16(a) filing requirements were satisfied on a timely basis during calendar year 2018.

Information About the Board of Directors
The mission of the board is to encourage, facilitate and foster the long-term success of Cincinnati Financial Corporation. The board oversees management in the performance of the company’s obligations to our independent agents, policyholders, associates, communities and suppliers in a manner consistent with the company’s mission and with the board’s responsibility to shareholders to achieve the highest sustainable shareholder value over the long term.


Page 11



Proposal 1 - Election of Directors
Directors are elected annually. The board of directors currently consists of 14 directors, 10 of whom are determined to be independent by the board, according to the definition of independence specified in the Nasdaq listing requirements. On November 16, 2018, the board, upon the recommendation of its nominating committee, unanimously nominated the 14 directors listed below for re-election to the board at the 2019 Annual Meeting of Shareholders.

The directors elected at the Annual Meeting will hold office until the 2020 Annual Meeting and until their successors are duly elected and qualified. Unless otherwise instructed, the persons named in the proxy card (the proxy holders) attached to this proxy statement, as filed with the SEC, intend to vote the proxies held by them for the election of the 14 nominees named below. The board of directors knows of no reason why these nominees should be unable or unwilling to serve, but if that should be the case, proxies received will be voted for the election of such other persons, if any, as the board of directors may designate.

Vote Required
Director nominees receiving more votes cast for their election than against will be elected directors of the company. Abstentions and broker nonvotes have no effect on the voting for this proposal.

The board of directors recommends a vote FOR William F. Bahl, Gregory T. Bier, Linda W. Clement-Holmes, Dirk J. Debbink, Steven J. Johnston, Kenneth C. Lichtendahl, W. Rodney McMullen, David P. Osborn, Gretchen W. Price, Thomas R. Schiff, Douglas S. Skidmore, Kenneth W. Stecher, John F. Steele, Jr. and Larry R. Webb as directors to hold office until the 2020 Annual Meeting of Shareholders and until their successors are elected and seated.

Directors of Your Company
Each of our directors brings to our board extensive management and leadership experience gained through their service as executives and, in several cases, chief executive officers of diverse businesses. In these executive roles, they have taken hands-on, day-to-day responsibility for strategy and operations, including management of capital, risk and business cycles. In addition, most current directors bring public company board experience – either significant experience on other boards or long service on our board – that broadens their knowledge of board policies and processes, rules and regulations, and issues and solutions. Further, each director has civic and community involvement that mirrors our company’s values emphasizing personal service, relationships and local decision making. The nominating committee’s process to recommend qualified director candidates is described on Page 27 under Director Nomination Considerations and Process.

The biographies of our current directors, including their names, ages, the year first elected as a director, their present positions, principal occupations and public company directorships held in the past five or more years begin on Page 13. For each director, we also describe specific individual qualifications and skills that contribute to the overall effectiveness of our board and its committees.



Page 12



Biographical Information About Our Directors
(Data as of February 28, 2019)

bahlbill0412218a03.jpg
William F. Bahl
CFA, CIC
Age: 67
Director since 1995
Independent Lead Director
Committees: Nominating (chair), Audit,
Executive, Investment
Insurance Subsidiary Director
Mr. Bahl is chairman of the board of Cincinnati-based Bahl & Gaynor Investment Counsel Inc. Prior to co-founding Bahl & Gaynor in 1990, he was senior vice president and chief investment officer at Northern Trust Company in Chicago, having previously worked for Fifth Third Bank and Mellon Bank.
Mr. Bahl’s independent registered investment advisory firm performs financial analysis of publicly held securities, advising and managing portfolios for high net worth individuals and institutional clients. His expertise helps support the board’s oversight of our investment operations, which continue to be our main source of profits. His familiarity with public company governance structures and policies beyond our own contributes to full discussion and evaluation of our options.
Former Public Company Directorships
LCA-Vision Inc. (2005-2014)
Selected Directorships and Memberships
Nonprofit boards benefiting parks, schools, a hospital association and youth organizations
 
biergreg0812518a04.jpg
Gregory T. Bier
CPA (Ret.)
Age: 72
Director since 2006
Committees: Audit, Compensation, Investment
Insurance Subsidiary Director
Mr. Bier was the managing partner of the Cincinnati office of Deloitte LLP, an independent registered public accounting firm, from 1998 to 2002. He retired in 2002 after 23 years as a partner of the firm and 35 years of service, beginning in 1967 when he joined Haskins & Sells, which later became part of Deloitte.
Mr. Bier brings to our board relevant experience with accounting and financial reporting, SEC filings, complex corporate transactions and mergers and acquisitions for public companies, including Fifth Third Bancorp, The Procter & Gamble Company, The Midland Company, Cincinnati Financial Corporation and The E.W. Scripps Company.

Former Public Company Directorships
LifePoint Health Inc. (2008-2016)

Selected Directorships and Memberships
Nonprofit boards benefiting several high schools, colleges, social services and civic organizations

Page 13



clementholmeslinda082518a03.jpg
Linda W. Clement-Holmes
Age: 56
Director since 2010
Committees: Audit, Compensation, Nominating

Ms. Clement-Holmes was chief information officer of publicly traded The Procter & Gamble Company from 2015 to 2017. She retired from Procter & Gamble on January 31, 2018, following a 35-year career. As Procter & Gamble’s chief information officer, Ms. Clement-Holmes led the entire global information technology organization (2,500 IT professionals), set strategic direction and drove technology innovation. From 2010 to 2014, she was senior vice president of Global Business Services and also served as chief diversity officer from 2010 to 2012.
Ms. Clement-Holmes built her expertise in leveraging emerging business technologies to support speed and innovation during her career at Procter & Gamble. Her aptitude and accomplishments in these areas help our board to effectively evaluate our business processes and technology initiatives, supporting alignment of those initiatives with our strategic goals.

Selected Directorships and Memberships
Member, IT Senior Management Forum
(2000-present)
Board Member, CincyTech (2016-present)
Member, Chief Information Officer Strategy Exchange (2015-2017)
Board Member, Cintrifuse (2016-2017)

Nonprofit boards benefiting women, families and child care, educational and civic organizations, professional IT organizations and the American Heart Association

 
debbinkdirk132518a03.jpg
Dirk J. Debbink
Age: 63
Director since 2012
Committees: Audit, Nominating

Mr. Debbink is chairman since 2007 and chief executive officer since 2012 of MSI General Corporation, a privately owned design/build construction firm. He joined MSI General in 1983, holding various positions of increasing leadership responsibility and serving as the company’s president from 1991 to 2007.
Mr. Debbink has served as a leader of organizations ranging from small firms typical of the company’s commercial policyholders to extremely large organizations, including Reserve Deputy Commander of U.S. Pacific Fleet (170,000 sailors) and Commander, Navy Reserve Force (64,000 sailors). While on active duty with the U.S. Navy, he served as a senior member of the staff of the Chief of Naval Operations in the Pentagon. He has extensive experience in strategic planning and execution, sales, marketing, information technology for a worldwide dispersed workforce, human resources, including pension and profit-sharing plans, and government relationships at the federal level.

Selected Directorships and Memberships
Board Member, U.S. Naval Institute
(2012-present)
Board Member, Fisher House Wisconsin
(2014-present)
Board Member, Froedtert Health System
(2014-present)





Page 14



johnstonsteve132518a03.jpg
Steven J. Johnston
FCAS, MAAA, CFA, CERA
Age: 59
Director since 2011
Chief Executive Officer and President
Committees: Executive (chair), Investment
Insurance Subsidiary Director

Mr. Johnston has been chief executive officer of the company and its U.S. subsidiaries, and president of the company and its lead subsidiary, The Cincinnati Insurance Company, since 2011. From 2008 to 2011, he was chief financial officer, senior vice president and secretary for both the company and The Cincinnati Insurance Company, and treasurer of the company.
As chief executive officer of Cincinnati Financial Corporation, Mr. Johnston provides the board with information gained from hands-on management of our operations, identifying our nearterm and long-term challenges, opportunities and strategies. His management and actuarial expertise and his experience driving technology and efficiency improvements combine with his strong communication skills to aid in his role as liaison between the board and the company management team.

Selected Directorships and Memberships
Member, American Academy of Actuaries
(1987-present)
Fellow, Casualty Actuarial Society (1990-present)
Chartered Financial Analyst (1997-present)
Chartered Enterprise Risk Analyst
(2013-present)


 
lichtendahlken142518a03.jpg
Kenneth C. Lichtendahl
Age: 70
Director since 1988
Committees: Audit, Compensation

Mr. Lichtendahl is the director of development and sales for Heliosphere Designs LLC, a private company marketing solar timepieces. From 2011 to 2012, he served as a senior adviser for Nestle Waters of North America, following Nestle’s acquisition of Sweet Leaf Tea, which had acquired Tradewinds Beverage Company in 2010. From 1996 to 2010, Mr. Lichtendahl was president and a director of Tradewinds, a privately owned, Cincinnati-based company formed following the sale of Hudepohl-Schoenling.
Mr. Lichtendahl’s years of service on our board and audit committee supports institutional continuity with company and industry knowledge accumulated through all phases of industry and economic cycles and through our expansion over that period. He brings valuable insights gained in developing customer relationships, ethical practices, high-quality staff and product differentiation that helped turn his company, Hudepohl-Schoenling Brewing Co., into the 10th largest brewer in the United States before its sale in 1996.

Selected Directorships and Memberships
Nonprofit boards benefiting youth, civic and conservation organizations







Page 15



mcmullenrodney092518a03.jpg
W. Rodney McMullen
Age: 58
Director since 2001
Committees: Compensation (chair), Executive, Investment
Insurance Subsidiary Director

Mr. McMullen has been chairman of the board of The Kroger Co. since January 2015 and chief executive officer since 2014. Kroger is a publicly traded, Cincinnati-based company and the world’s third-largest retailer. He served as Kroger’s president and chief operating officer from 2009 through 2013.
Mr. McMullen has worked with Kroger’s board on business strategy initiatives and transactions, including business model transformation, mergers and acquisitions, divestitures and management transitions. His daily experience leading a large public company equips him to understand and guide management decisions and actions related to planning, risk management, investor relations, marketing and capital management.

Other Public Company Directorships
Chairman of the Board, The Kroger Co.
(2015-present)
Board Member, VF Corporation (2016-present)

Selected Directorships and Memberships
Board Member, Cincinnati Center City Development Corporation (2014-present)
Board Member, Cincinnati Business Committee (2015-present)
Board Member, Global Standards 1 (2007-2014)
Board Member, 1WorldSync (2012-2014)
 
osborndavid1312518a03.jpg
David P. Osborn
CFA
Age: 58
Director since 2013
Committees: Audit, Investment
Insurance Subsidiary Director

Since 2012, Mr. Osborn has been president of Cincinnati-based Osborn Williams & Donohoe LLC. He joined its predecessor firm in 1993, becoming a partner in 2010.
Mr. Osborn draws on more than 30 years of experience as an investment professional to lead his independent investment advisory firm’s dividend growth strategy team. This dividend growth strategy mirrors our own investment strategy, supporting investment committee decisions. His experiences building relationships and setting long-term, strategic business plans enhance board discussions of our company's long-term outlook and strategic planning activities.

Selected Directorships and Memberships
Board Member, Cincinnati Children’s Hospital (2016-present)
Trustee, Greater Cincinnati Foundation
(2017-present)

Nonprofit boards benefiting arts, education, youth services and the care of adults with neurological disorders





Page 16



pricegretchen222518a03.jpg
Gretchen W. Price
Age: 64
Director since 2002
Committees: Audit (chair), Compensation, Nominating

Ms. Price retired June 14, 2018, from Arbonne International LLC, a beauty and nutritional product company headquartered in Irvine, California. As executive vice president and chief financial and administrative officer of the firm since 2011, she led the firm’s financial, accounting, strategy and business planning, operations, information technology, human resources and international functions. She was executive vice president and chief financial officer from 2008 to 2011 of Philosophy Inc., an international, prestige beauty brand based in Phoenix, Arizona.
Ms. Price’s executive positions have developed her expertise in areas of focus for our board, including accounting, auditing and financial reporting, investor relations, capital management, human resources, information technology, strategic planning and business planning. Board discussions and decisions benefit from her knowledge of customer relationship management and distribution chains.

Other Public Company Directorships
Board Member, Beam Inc. (2012-2015)

Selected Directorships and Memberships
Nonprofit boards benefiting fine arts, music, human service programs and student scholarships
 
schifftom162518a03.jpg
Thomas R. Schiff
Age: 71
Director since 1975
Committees: Investment
Insurance Subsidiary Director

Mr. Schiff has been chairman and chief executive officer since 1996 and a director and an agent with John J. & Thomas R. Schiff & Co. Inc., a privately owned, Cincinnati-based independent insurance agency. He was the agency’s president from 1983 to 1996. He also is chief executive officer and chairman of Lightborne Properties and Lightborne Communications, privately owned media companies based in the Cincinnati area.
Mr. Schiff’s experience on our board helps provide ongoing insight into how we are serving our primary customer, the independent insurance agent. He contributes to board assessments of the impacts of our decisions on agency operations, including sales, claims, professional advising and financial management. Additionally, he brings the perspective of a large shareholder to our board discussions and decisions.

Selected Directorships and Memberships
Nonprofit boards benefiting fine and performing arts, arts education, a hospital, children’s dental services and general philanthropy




Page 17



skidmoredoug152518a03.jpg
Douglas S. Skidmore
Age: 56
Director since 2004
Committees: Audit, Nominating

Mr. Skidmore has been chief executive officer since 2003 and director since 1994 of Skidmore Sales & Distributing Company Inc., a privately owned, Cincinnati-based, full-service independent distributor and broker of quality industrial food ingredients. He was president from 1994 to 2013 and marketing manager from 1990 to 1994.
Mr. Skidmore has been responsible in his executive roles for strategic direction, marketing, human resources and overall growth and performance of his second-generation family business, which shares many characteristics with our typical commercial policyholders. In addition to providing a policyholder view of our products and services, he has management experience that equips him to contribute to the board’s oversight of business processes and technology initiatives.

Selected Directorships and Memberships
Member, Institute of Food Technologists
(1990-present)
Board Member, Athletes in Action (2013-present)
Board Member, Cincinnati Opera (2018-present)
Trustee, Food Ingredient Distributors Association (2005-2015)


 
stecherken022518a03.jpg
Kenneth W. Stecher
Age: 72
Director since 2008
Chairman of the Board
Committees: Investment (chair), Executive
Insurance Subsidiary Chairman

From 2008 to 2011, Mr. Stecher was president and chief executive officer of the company and its lead subsidiary, The Cincinnati Insurance Company. For both companies, he was chief financial officer from 2001 to 2008 and executive vice president from 2006 to 2008. He also was chairman of the lead subsidiary from 2006 to 2008. He served as senior vice president for both companies until 2006, beginning in 1999 for the company and in 1997 for its lead subsidiary.
Mr. Stecher facilitates and guides the business of the board, supporting its effectiveness with his deep knowledge of the company as well as industry challenges and opportunities. Over his long tenure in management, he was responsible for operations and capital management. He served as our face to the analyst and investor communities and as our corporate secretary conversant in governance issues and trends.

Selected Directorships and Memberships
Trustee, American Institute for Chartered Property Casualty Underwriters (2009-present)
Nonprofit boards benefiting Cincinnati-area high schools, college institutions, the United Way of Greater Cincinnati and Prevent Blindness Ohio


Page 18



steelejrjohn032518a03.jpg
John F. Steele, Jr.
Age: 65
Director since 2005
Committees: Audit, Executive
Property Casualty Insurance Subsidiary Director

Mr. Steele is chairman since 2004, chief executive officer since 1994 and a director since 1985 of Hilltop Basic Resources Inc., a privately owned, Cincinnati-based aggregates and ready-mix concrete supplier to the construction industry.
Mr. Steele has provided his firm with corporate oversight and strategic direction of all aspects of business ownership, operations and customer relationships. He brings to our board a policyholder perspective, including intimate knowledge of family-run corporations and the construction industry, which is the source of approximately 40 percent of our commercial general liability insurance premiums.

Selected Directorships and Memberships
Board Member, National Stone, Sand & Gravel Association (2001-2010; 2013-present)
Board Member, Lykins Companies Inc.
(2012-present)
Board Member, Smook Bros. Inc. (2006-2010)
Board Member, Down-Lite International (2015-2016)




 
webblarry042518a03.jpg
Larry R. Webb
CPCU
Age: 63
Director since 1979
Committees: Executive, Investment
Insurance Subsidiary Director

Mr. Webb has been president since 1994 and director since 1980 of Webb Insurance Agency Inc., a privately owned, independent insurance agency based in Lima, Ohio. Prior to becoming president, he was treasurer of the agency from 1981 to 1994. He has been a licensed insurance agent since 1977.
Mr. Webb brings to our board his insights as a principal owner of an independent insurance agency, with duties in financial management and accounting oversight, information technology, human resources, sales and marketing, risk management and relationship development with insurance companies and clients. His long tenure on our board and as a large shareholder, as well as his agency’s representation of our products and services since 1951, brings the board deep institutional knowledge, promoting continuity of the agent-centered mission and values essential to our business model. His agency does not advise the company on our insurance needs or sell insurance products or services to the company.

Selected Directorships and Memberships
Board Member, SWD Corporation (2010-present)
Nonprofit boards benefiting cancer research, an airport authority, hospital and cultural organizations


Page 19



Committees of the Board and Meetings
There are five standing committees of the board: audit, compensation, executive, investment and nominating. Each committee operates pursuant to a written charter adopted by the board, copies of which are posted on cinfin.com/investors. Each year the board considers changes to the charters recommended by each committee, if any, and reapproves them.

The following table summarizes the current membership of the board and each of its committees, as well as the number of times the board and each committee met during 2018:

Board
Audit
Compensation
Executive
Investment
Nominating
Mr. Bahl
X
X

X
X
Chair
Mr. Bier
X
X


X

Ms. Clement-Holmes
X
X
X


X
Mr. Debbink
X
X



X
Mr. Johnston
X


Chair
X

Mr. Lichtendahl
X
X
X



Mr. McMullen
X

Chair
X
X

Mr. Osborn
X
X
X

X

Ms. Price
X
Chair
X


X
Mr. T. Schiff
X



X

Mr. Skidmore
X
X



X
Mr. Stecher
Chair


X
Chair

Mr. Steele, Jr.
X
X

X


Mr. Webb
X


X
X

Number of 2018 meetings
7
4
4
4
6
3

Board members are expected to attend the Annual Meeting of Shareholders, all meetings of the board and the meetings of committees of which they are a member. In 2018, all directors attended the Annual Meeting of Shareholders and at least 93 percent of the meetings indicated above for the board and committees of which they were members.

The annual meeting of directors is held immediately following the Annual Meeting of Shareholders at the same location. The board of directors will review committee assignments at its meeting on April 27, 2019.

Audit Committee - The audit committee oversees the process of accounting and financial reporting, audits and financial statements of the company. The report of the audit committee begins on Page 68.

All of the members of the audit committee are believed to meet the Nasdaq criteria for independence and audit committee membership and the independence criteria of Section 10A-3 of the Exchange Act. Further, Mr. Bahl, Mr. Bier, Mr. Osborn and Ms. Price qualify as financial experts according to the SEC definition and meet the standards established by Nasdaq for financial expertise.


Page 20



Compensation Committee - The compensation committee discharges the responsibility of the board of directors relating to compensation of the company’s directors, its executive officers and its internal audit officer. The committee also administers the company’s stock compensation and annual incentive compensation plans. The report of the compensation committee begins on Page 32.

All of the members of the compensation committee are believed to meet the Nasdaq criteria for independence and qualify as “nonemployee directors” for purposes of Rule 16b-3 of the Exchange Act. They also are believed to meet the definition of “outside directors” for purposes of Section 162(m) of the Internal Revenue Code of 1986 (Section 162(m)) as respects performance-based compensation granted prior to November 2, 2017.

Executive Committee - The executive committee exercises the powers of the board of directors in the management of the business and affairs of the company between meetings of the board of directors. Independence requirements do not apply to the executive committee.

Investment Committee - The investment committee provides oversight of the policies and procedures of the investment department of the company and its subsidiaries and reviews the invested assets of the company. The objective of the committee is to oversee the management of the portfolio to ensure the long-term security of the company. Independence requirements do not apply to the investment committee.

Nominating Committee - The nominating committee identifies, recruits and recommends qualified candidates for election as directors and officers of the company and as directors of its subsidiaries. The committee also nominates directors for committee membership. Further, the committee oversees the corporate governance and compliance policies of the company. Information about the director nomination process begins on Page 27.

All of the members of the nominating committee are believed to meet the Nasdaq criteria for independence.


Page 21



Compensation of Nonemployee Directors
In 2018, nonemployee directors were compensated for their board service as follows:
Annual Cash Retainer
$40,000
Annual Stock Retainer
$40,000
Chairman Annual Cash Retainer
$50,000
Lead Director Annual Cash Retainer
$25,000
Independent Committee Chair Cash Retainer
$10,000
Meeting Fees - Cash
$4,500 per board meeting
$1,500 per committee meeting (except investment committee)
$6,000 per investment committee meeting
$7,500 maximum per day
Meeting Fees - Stock
Matches cash meeting fees up to maximum of $60,000 per year

The Committee grants the stock awards for each director’s prior year’s board service at its first scheduled meeting each calendar year. See Stock-Based Award Grant Practices, Page 48. Amounts shown in the Stock Awards column of the 2018 Director Compensation table reflect grants awarded under the 2009 Stock Plan at the Committee’s meeting on January 31, 2019, for board service in 2018.

The company also provides outside directors with life insurance, personal umbrella liability insurance and spouse travel and meals for certain business events. See Perquisites and Other Personal Benefits, Page 49, for details about these benefits. Amounts contained in the All Other Compensation column of the 2018 Director Compensation table reflect the aggregate cost of these individual benefits.

The company does not provide outside directors with retirement benefits, benefits under health and welfare plans or compensation in any form not described above, nor does it have any agreement with any director to make charitable donations in the director’s name.


Page 22



2018 Director Compensation (1)
Name
Fees Earned or Paid in Cash
($)
Stock Awards
($)
(2)
All Other
Compensation
($)
(3)
Total
($)
 
 
 
 
 
 
William F. Bahl
168,000

100,052

10,803

 
278,855

Gregory T. Bier
118,000

100,052

10,020

 
228,072

Linda Clement-Holmes
88,000

88,049

2,196

 
178,245

Dirk J. Debbink
82,000

82,008

10,123

 
174,131

Kenneth C. Lichtendahl
79,000

79,027

9,839

 
167,866

W. Rodney McMullen
129,500

100,052

1,692

 
231,244

David P. Osborn
113,500

100,052

8,799

 
222,351

Gretchen W. Price
98,000

88,049

1,239

 
187,288

Thomas R. Schiff
107,500

100,052

1,568

 
209,120

Douglas S. Skidmore
82,000

82,008

12,094

 
176,102

Kenneth W. Stecher
169,500

100,052

1,421

 
270,973

John F. Steele, Jr.
97,000

97,072

2,064

 
196,136

Larry R. Webb
116,500

100,052

9,764

 
226,316

 
 
 
 
 
 

(1)
Mr. Johnston is a director and the chief executive officer and president of the company. Compensation for Mr. Johnston is shown in the Summary Compensation Table and supporting disclosure beginning on Page 56. Mr. Johnston receives no additional compensation for his service as a director.
(2)
Stock awards for nonemployee directors under the Cincinnati Financial Corporation Non-Employee Directors Stock Plan of 2009 were valued at fair market value determined by the average of the high and low sales price on Nasdaq on January 31, 2019, the date of grant, times the number of shares awarded. The per share fair market value on January 31, 2019, was $80.56. The number of shares granted to directors reported in this column were: 1,242 to Mr. Bahl; 1,242 to Mr. Bier; 1,093 to Ms. Clement-Holmes; 1,018 to Mr. Debbink; 981 to Mr. Lichtendahl; 1,242 to Mr. McMullen; 1,242 to Mr. Osborn; 1,093 to Ms. Price; 1,242 to Mr. T. Schiff; 1,018 to Mr. Skidmore; 1,242 shares to Mr. Stecher; 1,205 to Mr. Steele; and 1,242 to Mr. Webb.
(3)
For Mr. Bahl, includes premiums in the amount of $275 paid for life insurance for the benefit of the director and perquisites in the amount of $10,528, which includes $8,012 for the incremental additional cost of spouse travel and meals for business events to which spouses are invited and premiums in the amount of $2,516 for a personal umbrella liability policy.
For Mr. Skidmore, includes premiums in the amount of $275 paid for life insurance for the benefit of the director and perquisites in the amount of $11,819, which includes $10,323 for the incremental additional cost of spouse travel and meals for business events to which spouses are invited and premiums in the amount of $1,496 for a personal umbrella liability policy.
For all of the other directors, amounts shown in this column include premiums in the amount of $275 paid for life insurance for the benefit of the director and perquisites in an aggregate amount less than $10,000 for one or more of the types described in Perquisites and Other Personal Benefits, Page 49.



Page 23



Governance of Your Company

2018 Governance Highlights
In 2018, the company continued to follow its strong governance policies and practices to benefit shareholders. Highlights included:
Proxy Access - The board is committed to strong governance. It keeps abreast of developing governance practices and adopts those that it believes are appropriate for our company and its shareholders. In 2018, shareholders approved an amendment to the company's Code of Regulations to allow proxy access for director nominations.
Majority Voting - A majority voting standard applies to uncontested elections of directors. The board believes that this voting standard gives shareholders a more meaningful voice in electing our directors and reinforces our commitment to accountability and strong corporate governance practices.
Cybersecurity - Cybersecurity is a growing threat for all companies. For the fourth year in a row, the audit committee increased its understanding of the company’s cybersecurity risk through reports of testing by third-party experts of the company’s cybersecurity program structure and capabilities.
Board Refreshment and Composition - Informed by feedback from its annual board self-evaluation, engagement with investors each year and our Corporate Governance Guidelines, the board continuously assesses the composition of the board of directors. Its goal is to balance independence, board size, tenure, and diversity of experience, skills, competencies and other qualities of current directors and future director candidates to best structure and govern itself in the short- and long-term and provide effective oversight of management for the benefit of shareholders.
Succession Planning - Succession planning at all levels is important to the long-term success of the company. In 2018, the board continued its practice of attending meetings of the subsidiary boards during which more than a dozen executives provide reports. These meetings provide the directors with opportunities to become familiar with this level of management, assess their development over time and gain in-depth knowledge about the company’s operating businesses. Additionally, each year the board discusses potential management succession candidates with the chief executive officer at one of its regular meetings.


Page 24



Governance Policies and Practices
Our primary governance policies and practices are set forth in our Corporate Governance Guidelines, Code of Ethics for Senior Financial Officers and Code of Conduct applicable to all associates of the company. The nominating committee reviews these documents annually and, when appropriate, recommends changes for the board’s consideration and approval. These guidelines and codes are available on cinfin.com/investors.

Certain of the board’s governance policies and practices are summarized below:

Code of Conduct - Our Code of Conduct applies to the company and its U.S. subsidiaries and all of their associates, including officers and directors. It establishes ethical standards for a variety of topics, including complying with laws and regulations, observing blackout periods for trading in the company’s securities, accepting and giving gifts, handling conflicts of interest, handling the company’s confidential information and personal data of consumers, and reporting illegal or unethical behavior.

Governance Hotline - Our audit committee oversees a governance hotline for the reporting of concerns about the company’s auditing, accounting and financial reporting activities. Callers can remain anonymous or identify themselves. The hotline is maintained by a third-party vendor. Reports of all calls are reported to the audit committee.

Board Leadership and Executive Sessions - The chairman of the board presides at all meetings of the board of directors. The chairman is appointed on an annual basis by at least a majority vote of the other directors. Currently, the offices of chairman of the board and chief executive officer are separated. The company has no fixed policy with respect to the separation of the offices of the chairman of the board and chief executive officer. The board believes that the separation of the offices of the chairman of the board and chief executive officer is part of the succession planning process and that it is in the best interests of the company to make this determination from time to time.

When the chairman of the board is not an independent director, the board appoints the chairman of the nominating committee as the board’s lead independent director. The company’s Corporate Governance Guidelines describe the authority and duties of the lead director. These include chairing the executive sessions of board meetings without management present, facilitating the communication between the independent directors and management on matters of interest and participating in the preparation of meeting agendas and materials sent to directors. The independent directors meet in executive session, without management present, at every regularly scheduled meeting of the board of directors.

Stock Ownership Guidelines - Our directors and officers are subject to stock ownership guidelines that set targets for levels of ownership at a multiple of the officer’s salary or director’s meeting fees. As of December 31, 2018, all of our directors and executive officers were in compliance with the guidelines. Director and Officer Ownership Guidelines are available on cinfin.com/investors.

Risk Management - The board believes that oversight of our risk management efforts is the responsibility of the entire board. It views enterprise risk management as an integral part of our strategic planning process. The subject of risk management is a recurring agenda item for which the board receives a report at each regularly scheduled board meeting from the chief risk officer, including in-person reports twice each year. The chief risk officer has direct access to all members of the board of directors.


Page 25



Additionally, the charters of certain of the board’s committees assign oversight responsibility for particular areas of risk. For example, our audit committee oversees management of risks related to accounting, auditing and financial reporting, maintaining effective internal controls for financial reporting and cybersecurity. Our nominating committee oversees risk associated with our corporate governance and legal, regulatory and other nonfinancial compliance activities. Our compensation committee oversees the risk related to our executive compensation plans and arrangements. Our investment committee oversees the risks related to managing our investment portfolio. All of these risks are discussed with the entire board in the ordinary course of the chairperson’s report of committee activities at regular board meetings.

Board Evaluations - The board annually conducts a self-evaluation. Led by the lead independent director, feedback from individual directors is reviewed and discussed first by the nominating committee and then with the entire board. These discussions include specific governance topics such as director tenure, board refreshment and composition as well as the diversity of experience, skills, competencies and other qualities of current directors and future director candidates. The board intends for this annual process to help inform its decisions about how to best structure and govern itself in the short- and long-term enabling it to provide effective oversight of the company for the benefit of shareholders.

Director Independence - Each year, based on all relevant facts and circumstances, the board determines which directors satisfy the criteria for independence. To be found independent, a director must not have a material relationship with the company, either directly or indirectly as a partner (other than a limited partner), controlling shareholder or executive officer of another organization that has a relationship with the company that could affect the director’s ability to exercise independent judgment.

Directors deemed independent are believed to satisfy the definitions of independence required by the rules and regulations of the SEC and the listing standards of Nasdaq. The board has determined that these directors and nominees meet the applicable criteria for independence as of February 1, 2019: William F. Bahl, Gregory T. Bier, Linda W. Clement-Holmes, Dirk J. Debbink, Kenneth C. Lichtendahl, W. Rodney McMullen, David P. Osborn, Gretchen W. Price, Douglas S. Skidmore and John F. Steele, Jr. A majority, 10 of our current 14 directors, meet the applicable criteria for independence under Nasdaq listing standards.

Board Structure and Tenure - The board balances its independence, size and tenure. Over time and without unnecessary disruption, its goal is to achieve a board with at least 75 percent of its directors qualifying as independent. The insurance business is complex, requiring new directors to develop a deep understanding of both our insurance operations and investment activities. Once this knowledge is acquired, the board expects that these directors will continue their board service for a significant period. As a consequence, the board expects the average tenure of its independent directors to be higher than average.


Page 26



Director Nomination Considerations and Process - The nominating committee considers many factors when determining the eligibility of candidates for nomination as director. The committee does not have a diversity policy; however, the committee’s goal is to nominate candidates from a broad range of experiences and backgrounds who can contribute to the board’s overall effectiveness in meeting its mission. The committee is charged with identifying nominees with certain characteristics:
Demonstrated character and integrity
An ability to work with others
Sufficient time to devote to the affairs of the company
Specific skills and experiences that enhance the board's diversity and acumen
Willingness to enter into a long-term association with the company, in keeping with the company’s overall business strategy
The nominating committee also considers the needs of the board in accounting and finance, business judgment, management, industry knowledge, leadership and such other areas as the board deems appropriate. The committee further considers factors included in the Corporate Governance Guidelines that might preclude nomination or renomination, including service on other public company boards. When a director is considering service on another public company's board, that director notifies the chairman of the board and the chairman of the nominating committee. Each year, when considering a director for renomination for election to the board, the nominating committee considers a director's service on other public company boards, weighing the potential benefit to our company against any potential negative impact of such service.

In particular, the nominating committee seeks to support our unique, agent-centered business model. The committee believes that the board should include a variety of individuals and should include independent insurance agents who bring a special knowledge of policyholders and agents in the communities where we do business.

Potential board nominees generally are identified by referral. The nominating committee follows a five-part process to evaluate nominees for director. The committee first performs an initial screening that includes reviewing background information on the candidates, evaluating their qualifications against the criteria set forth in the company’s Corporate Governance Guidelines and the skills and competencies that may be identified by the committee or the board as desirable in future director candidates. As it believes is appropriate, the committee may discuss the potential candidates with the individual or individuals making the referrals. Second, for candidates who qualify for additional consideration, the committee interviews the potential nominees as to their background, business acumen, interests and potential commitment to the company and its operating philosophy. Third, the committee may seek references from sources identified by the candidates as well as sources known to the committee members. Fourth, the committee may ask other members of the board for their input. Finally, the committee develops a list of nominees who exhibit the characteristics desired of directors that satisfy the needs of the board.

The nominating committee will consider candidates recommended by shareholders. Shareholders wishing to propose a candidate for consideration may provide information about such a candidate in writing to the secretary of the company, giving the candidate’s name, biographical data and qualifications, and emphasizing the characteristics set forth in our Corporate Governance Guidelines available on cinfin.com/investors. Preferably, any such referral would contain sufficient information to enable the committee to preliminarily screen the referred candidate for the needs of the board, if any, in accounting and finance, business judgment, management, industry knowledge, leadership and the board’s independence requirements.

Since the 2018 Annual Meeting of Shareholders, no fees were paid to any third party to identify, evaluate or assist in identifying and evaluating potential nominees.

Page 27




Communicating with the Board - Shareholders may direct a communication to board members by sending it to the attention of the corporate secretary of the company, Cincinnati Financial Corporation, P.O. Box 145496, Cincinnati, Ohio, 45250-5496. The company and board of directors have not established a formal process for determining whether all shareholder communication received by the corporate secretary will be forwarded to directors. The board welcomes shareholder communication and has instructed the corporate secretary to use reasonable criteria to determine whether correspondence should be forwarded. The board believes that correspondence has been and will continue to be forwarded appropriately. However, exceptions may occur, and the board does not intend to provide management with instructions that limit its ability to make reasonable business decisions. Examples of exceptions would be routine items such as requests for publicly available information that can be provided by company associates; vendor solicitations that appear to be mass-directed to board members of a number of companies; or correspondence that raises issues related to specific company transactions (insurance policies or claims) where there may be privacy concerns or other issues.

In some circumstances, the board anticipates that management would provide the board or board members with summary information regarding correspondence.


Page 28



Certain Relationships and Transactions
The audit committee follows a written policy for review and approval of transactions involving the company and related persons, defined as directors and executive officers or their immediate family members, or shareholders owning 5 percent or more of our outstanding common shares. The policy covers any related-party transaction that meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules, generally transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest.

As it examines individual transactions for approval, the committee considers:
Whether the transaction creates a conflict of interest or would violate the company’s Code of Conduct
Whether the transaction would impair the independence of a director
Whether the transaction would be fair
Any other factor the committee deems appropriate

Consideration of transactions with related parties is a regular item on the audit committee’s agenda. Most of the transactions fall into the categories of standard agency contracts with directors who are principals of independent insurance agencies that sell our insurance products or with directors and executive officers who purchase our insurance products on the same terms as such products are offered to the public. Because the committee does not believe these classes of transactions create conflicts of interest or otherwise violate our Code of Conduct, the committee deems such transactions preapproved.

The following transactions in 2018 with related persons were determined to pose no actual conflict of interest and were approved by the committee pursuant to its policy:
Thomas R. Schiff is a director of Cincinnati Financial Corporation and the chief executive officer of John J. & Thomas R. Schiff & Co. Inc., a privately owned insurance agency that represents a number of insurance companies, including our insurance subsidiaries. Our subsidiaries paid John J. & Thomas R. Schiff & Co. Inc. fees and commissions of $6,139,958. The company purchased various insurance policies through John J. & Thomas R. Schiff & Co. Inc. for premiums totaling $997,326. John J. & Thomas R. Schiff & Co. Inc. paid rent to the company in the amount of $122,445 for office space located in the headquarters building and purchased property casualty insurance from our insurance subsidiaries for premiums totaling $136,395.

Dirk J. Debbink is a director of Cincinnati Financial Corporation and principal owner, director and chief executive officer of MSI General Corporation, and is a control person for several development limited liability companies, which on a consolidated basis purchased property casualty and life insurance from our insurance subsidiaries for premiums totaling $169,584.

Douglas S. Skidmore is a director of Cincinnati Financial Corporation and principal owner, director and chief executive officer of Skidmore Sales & Distributing Company Inc., which purchased property casualty insurance from our insurance subsidiaries for premiums totaling $712,974.

John F. Steele, Jr. is a director of Cincinnati Financial Corporation and chairman and chief executive officer of Hilltop Basic Resources Inc., which purchased property casualty insurance from our insurance subsidiaries for premiums totaling $740,030.


Page 29



Larry R. Webb is a director of Cincinnati Financial Corporation and president, director and a principal owner of Webb Insurance Agency Inc., a privately owned insurance agency that represents a number of insurance companies, including our insurance subsidiaries. The company’s insurance subsidiaries paid Webb Insurance Agency Inc. commissions of $1,272,203 as compensation for selling the company’s insurance products to the agency’s clients. This agency does not advise the company on our insurance needs or sell insurance products or services to the company.

A director and two executive officers, including our chief executive officer, have immediate family members employed by the company in nonofficer positions. Each of these three associates has been employed by the company from seven to 21 years. Compensation earned by each associate, consisting of salary, incentive bonus, stock-based compensation and perquisites ranges from $133,948 to $137,331, and was established by the company in accordance with our employment and compensation practices applicable to associates with equivalent qualifications and responsibilities and holding similar positions.


Page 30



Compensation of Named Executive Officers and Directors

Proposal 2 - Say-on-Pay: Advisory Vote on Compensation of Named Executive Officers
We conduct a say-on-pay vote each year at the annual shareholder meeting. This say-on-pay vote is required by Section 14A of the Securities Exchange Act of 1934 (Exchange Act) and the related rules of the SEC. Although the say-on-pay vote is nonbinding, the compensation committee (Committee) considers the voting results as part of its annual evaluation of our executive compensation program. The annual frequency was selected by more than 90 percent of our shareholders who voted on the proposal at our 2018 Annual Meeting of Shareholders.

In 2018, our industry experienced a second consecutive year of elevated levels of insured losses from hurricanes, wildfires and other catastrophic weather events. It also was a year that ended with a sharp decline in the equity markets. Your company delivered strong operating results and somewhat mixed financial performance that benefited shareholders with one-year and three-year total shareholder returns of 6.2 percent and 43.0 percent, respectively; a 4.4 percent decrease in book value; and a 6.0 percent increase in regular cash dividends declared. This performance generated payouts of annual incentive compensation and performance-based restricted stock units at threshold levels for our named executive officers.

Please read the Compensation Discussion and Analysis section for more detailed information about our executive compensation program and decisions to inform your vote on the following say-on-pay proposal:
“RESOLVED, that the company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the company’s proxy statement for the Cincinnati Financial Corporation 2019 Annual Shareholder Meeting pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the 2018 Summary Compensation Table and the other related tables and narrative disclosure.”

Vote Required
The affirmative vote of a majority of the shares represented in person or by proxy at the Annual Meeting that are entitled to vote on this proposal is required for approval. Votes to abstain have the same effect as votes against the proposal. Broker nonvotes have no effect on the voting for this proposal.

The board of directors recommends a vote FOR the resolution approving the compensation of our named executive officers as disclosed in this proxy statement.


Page 31



Report of the Compensation Committee
The compensation committee reviewed and discussed the Compensation Discussion and Analysis with management. Based on the review and discussions, the Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in the company’s 2019 proxy statement.

Submitted by the compensation committee:

W. Rodney McMullen (chair),
Linda W. Clement-Holmes, Kenneth C. Lichtendahl, David P. Osborn and Gretchen W. Price

Compensation Committee Interlocks and Insider Participation
W. Rodney McMullen, William F. Bahl, Gregory T. Bier, Linda W. Clement-Holmes, Kenneth C. Lichtendahl, David P. Osborn and Gretchen W. Price served on the compensation committee for all or part of 2018. During 2018, none of the compensation committee members were officers, employees or former officers of Cincinnati Financial Corporation.


Page 32



Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides you with a detailed description of our executive compensation philosophy and programs, the compensation decisions the compensation committee (Committee) has made under those programs and the factors considered in making those decisions. This Compensation Discussion and Analysis focuses on the compensation of our named executive officers for 2018, who were:
Name
Title
Steven J. Johnston
President and Chief Executive Officer
Jacob F. Scherer
Chief Insurance Officer and Executive Vice President
Michael J. Sewell
Chief Financial Officer and Senior Vice President
Martin F. Hollenbeck
Chief Investment Officer and Senior Vice President
Martin J. Mullen
Chief Claims Officer and Senior Vice President

Executive Summary
Overview
Cincinnati Financial Corporation is one of the 25 largest property casualty insurers in the nation, based on net written premium volume from our insurance subsidiary. The U.S. property casualty insurance industry is a highly competitive marketplace with more than 2,000 stock and mutual companies operating independently or in groups. We compete with these companies, which offer standard market property casualty and/or excess and surplus lines and life insurance products as we do, seeking to increase our share of these multibillion-dollar markets. Critical to our long-term success are highly experienced, dedicated and capable executives who can manage our business day to day and who possess the vision to plan for and adjust to changes in the market. The objective of our executive compensation program is to attract, motivate, reward, develop and retain the executive talent required for our long-term success. We also must nurture the capabilities of our emerging leaders to ensure that we have an appropriate depth of executive talent. We believe that as an associate’s level of responsibility increases, so should the proportion of performance-based compensation. As a result, our executive compensation program aims to tie a meaningful level of each officer’s compensation to awards that require achievement of the primary financial objectives by which we measure the company’s performance, creating a firm link between pay and performance.

2018 Business and Financial Highlights
In 2018, our industry experienced a second consecutive year of elevated levels of insured losses from hurricanes, wildfires and other catastrophic weather events. It also was a year that ended with a sharp decline in the equity markets. Your company delivered strong operating results and somewhat mixed financial performance that benefited shareholders with one-year and three-year total shareholder returns of 6.2 percent and 43.0 percent, respectively; a 4.4 percent decrease in book value; and a 6.0 percent increase in regular cash dividends declared. This performance generated payouts of annual incentive compensation and performance-based restricted stock units at threshold levels for our named executive officers. Highlights of our company's performance in 2018 included:
A 45 percent increase in underwriting profit to $186 million and a combined ratio of 96.4 percent for 2018, marking our seventh consecutive year of underwriting profit. In 2018, our efforts to further segment our renewal and new business opportunities with better pricing precision and risk-selection decisions continued to benefit underwriting performance.
An all-time record-level of consolidated property casualty new business written premiums at $652 million, up 4 percent, driven by new agency appointment contributions.
A 4 percent increase in consolidated property casualty net written premiums to more than $5 billion in 2018. The increase in premiums reflects our growth initiatives, modest average price increases for most lines of business and a higher level of insured exposures.

Page 33



A $4 million improvement in life insurance subsidiary net income, largely due to decreased income taxes as a result of tax reform, after factoring out the 2017 $111 million benefit from revaluation of deferred income taxes due to tax reform.
$17.516 billion in consolidated cash and invested assets, down 1 percent over the prior year.
A 2 percent increase in pretax investment income to a record $619 million, net of expenses, reflecting a 6 percent increase in equity portfolio dividends and flat interest income.
A value creation ratio (VCR) of negative 0.1 percent for 2018, exceeding that measure for three of the nine companies in our peer group. Our average annual VCR for the five-year period ending December 31, 2018, is 10.7 percent, within our announced goal of producing an annual average VCR of 10 percent to 13 percent in any five-year period.
We consider VCR to be our primary performance metric for two reasons. First, we believe this measure captures the contribution of our insurance operations, the success of our investment strategy and the importance we place on paying cash dividends to shareholders. Second, as demonstrated in the chart below, the VCR has historically been directly correlated to the returns experienced by our shareholders for their investment in our common stock over the long term.

Start with $1 Invested in 1987...
vcrvsshareholderreturn2419.jpg
We believe that when we operate our business to achieve a VCR consistently within our targeted range, we create value for shareholders over time, through share price appreciation and dividends paid to shareholders that have increased for 58 consecutive years. Through the cash dividends paid and share repurchases, we returned $461 million to shareholders in 2018, and $1.298 billion during the three years ended December 31, 2018.

Relationship Between Company Performance and
Chief Executive Officer Compensation
Generally the Committee expects that when the company’s performance adds or preserves more value for shareholders than its peers, that compensation for the named executive officers, including the chief executive officer, will be higher than when the company’s performance lags its peers. Accordingly, the primary performance metrics for both annual and long-term performance-based compensation are calibrated to the company’s performance compared with the companies in the peer group. At the same time, the Committee expects compensation to directionally correlate with the company’s actual performance for these metrics, particularly when considered over the long term. The following graph illustrates the directional relationships between company performance, based on the two primary performance metrics used in our performance-based awards, and the compensation of our chief executive officer for each of the three years ending 2018.


Page 34



CEO Pay for Performance
(Dollars in millions)
ceopayforperformance13019.jpg
CEO Pay for Performance
2016

2017

2018
SCT Total Compensation
$
4,249,903


$
4,978,956


$
3,444,610

Realized Total Compensation(1)
$
3,711,998


$
4,217,970


$
2,520,787

1-Year VCR
14.5
%

22.9
%

(0.1
)%
3-Year TSR(2)
60.6
%

60.2
%

43.0
 %

(1)
Realized total compensation is the sum of salary and annual incentive cash compensation reported in the Summary Compensation Table (SCT) for the year plus the value realized from the exercise of stock options and vesting of time-vesting or performance-based restricted stock units, if any, reported in the Option Exercises and Stock Vested table for the year.
(2)
3-Year TSR is total shareholder return for the 3-year performance period ending December 31 of a given year, as calculated by and displayed on Bloomberg Finance L.P.

Page 35



Over the last three years, compensation for our chief executive officer varied in line with overall company performance, even as the Committee adjusted base annual salary and targets for performance-based compensation. Payouts of annual incentive and long-term performance-based awards throughout the period also directly align with company performance.
 
Annual Incentive Compensation
(VCR)
Long-Term Performance-Equity Compensation
(3-Year
Total Shareholder Return)
 
Baseline Award Placement Relative VCR
Adjustments for Growth and Profitability
Final Relative Award Placement*
Performance Level Earned
Performance Relative to Peer Companies
Performance Level Earned
2018
> 3 Peers
None
> 3 Peers
Threshold
> 4 Peers
Threshold
2017
> 9 Peers
None
> 9 Peers
Maximum
> 5 Peers
Target
2016
> 8 Peers
+1
> 9 Peers
Maximum
> 5 Peers
Target

*
For the annual performance period ending December 31, 2018, the company's VCR exceeded that of three Peer Group companies. The additional performance goals for net written premium growth and combined ratio were not met and did not affect final award placement or payout. For the annual performance period ending December 31, 2017, the company's VCR exceeded that of all nine of the Peer Group companies, achieving the maximum award placement level. The additional performance goals for net written premium growth and combined ratio were not met and did not affect final award placement or payout. For the annual performance period ending December 31, 2016, the company's VCR exceeded that of eight Peer Group companies and achievement of the additional performance goals for net written premium growth and combined ratio were met and increased relative peer placement by one, but did not affect award payout.


Page 36



Our performance over the last three years exceeded four of the nine companies of our peer group as measured by three-year total shareholder return. As suggested by the Three-Year Relative Pay for Performance graph below, total realizable compensation1 for our chief executive officer and the other named executive officers over the same period remains comparatively low, ranking near the 28th percentile, largely reflecting the size of several of the companies included in the peer group. While we do not benchmark executive compensation to the peer group, our performance is judged against those companies with whom we compete every day for each insurance policy we write, regardless of the size of those companies.

Three-Year Relative Pay for Performance
(2016-2018)
threeyeartotalrealizable.jpg

1Three-year total realizable compensation is the sum of the following components of compensation as reported and calculated by Equilar: salary paid, discretionary cash bonus, nonequity incentive compensation paid, amounts realized from the exercise of stock options or vesting of stock awards, the intrinsic value of exercisable “in the money” stock options and the grant date fair value of time vesting and target-level performance-based restricted stock or restricted stock unit awards, for the three years ending December 31, 2017, the most recent year for which such data is available.

Page 37



Results of 2018 Advisory Vote to Approve Executive Compensation
At the 2018 Annual Meeting of Shareholders, more than 96 percent of the votes cast were in favor of this proposal. The Committee believes this favorable outcome demonstrates support of its decisions and of our overall executive compensation program. Our annual discussions with investors confirm this belief. All of the shareholders contacted during our annual investor engagement efforts in 2018 favorably commented on the company’s executive compensation program, criteria for performance-based awards and overall level of pay. The Committee made no material changes in the structure of our compensation program in 2018 as a result of feedback from investors. At the 2019 Annual Meeting of Shareholders, we will again hold an advisory vote to approve executive compensation (see Page 31). The Committee will continue to consider the results of these annual advisory votes and feedback from investor outreach in its deliberations about our executive compensation program.

Executive Compensation Practices
The Committee applies certain fundamentals that are key characteristics of our overall compensation program, including:
We Do
We Don’t
Link Pay to Performance - The majority of pay awarded by the Committee to each executive officer each year is tied to achievement of short- and long-term performance objectives and changes in the market value of the company’s common stock.
Use Employment Contracts - We employ all of our executive officers at will.
Review Data Sheets - Each year the Committee reviews data recounting the compensation history for each executive officer. For the named executive officers, the Committee additionally reviews compensation and performance data for the companies in the peer group before making executive compensation decisions.
Benchmark Executive Compensation - We review compensation program structures and resulting payouts of the companies in our Peer Group to maintain an awareness of pay levels and practices. We do not benchmark the compensation we pay our named executive officers to achieve a specific level of pay, for example "above the median" of our Peer Group. 
Mitigate Excessive Risk - Compensation earned from performance-based awards is capped and is subject to clawback policies and provisions. Company-level performance objectives relative to peers minimizes the ability of any single individual or business unit to control its own performance-based compensation. The Committee’s authority to exercise negative discretion and eliminate payment of any award also is a powerful risk control.
Pay Dividends or Dividend Equivalents - We do not pay dividends or dividend equivalents on unvested stock awards.

Use Double-Trigger Change in Control Provisions - Both our annual incentive and stock-based compensation plans include double-trigger change in control provisions.
Reprice or Exchange Stock Options - We do not reprice or exchange stock options. We consider stock options to be performance-based compensation that links the financial success of our associates to shareholders. Since shareholders cannot reprice or exchange their shares, neither do we.

Perform Compensation Risk Assessments - Our chief risk officer performs this assessment each year, and it is considered by the Committee as part of its decision making process.
Include Stock-Based Awards in Calculations for Pension or Other Retirement Benefits - Our pension is calculated based on salary only, and our matches to 401(k) and Top Hat Savings Plan contributions are limited to cash compensation.

Track Compliance with Ownership Guidelines - All of our directors and executive officers are in compliance with our published stock ownership guidelines.
Allow Hedging Transactions by Executive Officers or Directors - Our Securities Trading Policy prohibits transactions such as short sales, prepaid forward sales contracts or other hedging transactions that we believe decouple the director’s or officer’s interests from those shared by our shareholders generally.


Page 38



Components of Compensation
Total direct compensation (TDC) is the compensation annually determined or awarded each year by the Committee. TDC generally is the sum of three components: base annual salary, target levels of annual incentive cash compensation and long-term equity compensation comprised of target levels of performance-based and service-based equity compensation. As illustrated in the following charts, in 2018, approximately 69 percent of TDC awarded to the chief executive officer and 56 percent of the TDC awarded to the other named executive officers was considered performance-based and not guaranteed.

piegraphs12819a01.jpg

Base Annual Salary
We use base annual salary to attract executive talent and to provide adequate and stable compensation. The Committee reviews and sets base annual salaries for the named executive officers each year. In determining base annual salary, the Committee considers:
The officer’s role and responsibilities,
Fairness, as compared with officers with similar responsibilities, experience and performance,
Current compensation level, and
Individual performance.
Base annual salaries may be adjusted to reflect annual merit increases, if any; promotions or changes in role or responsibilities; and market adjustments.

The base annual salaries for the named executive officers were adjusted in February 2018 to recognize the strong individual contribution of each officer to the company’s strong performance in the prior year. On average, base annual salary for the group increased approximately 4.5 percent. On an individual basis, each named executive officer’s salary was adjusted as follows:
For Mr. Johnston, an increase of 3.0 percent to $1,030,000;
For Mr. Scherer, an increase of 3.0 percent to $953,424;
For Mr. Sewell, an increase of 5.0 percent to $857,500;
For Mr. Hollenbeck, an increase of 5.0 percent to $715,804; and
For Mr. Mullen, an increase of 8.5 percent to $624,445.


Page 39



Annual Incentive Compensation
We pay annual incentive compensation to encourage achievement of key short-term performance objectives believed to be important for achievement of longer-term strategic goals. Under the shareholder-approved Annual Incentive Compensation Plan of 2009, as amended (2009 Annual Incentive Plan), each executive officer is eligible to annually receive an award of up to $3 million in cash based on achievement of specific performance-based criteria.

The 2009 Annual Incentive Plan offers a wide range of performance objectives from which the Committee may choose. The specific performance objectives, hurdles and targets for each year are contained in the award agreements delivered to the individual officer. The 2009 Annual Incentive Plan also features a forfeiture and recoupment provision to enable the company to recover payments under this plan when circumstances warrant. Awards of incentive compensation tie vesting of a portion of annual cash compensation to performance goals.

Performance Objectives
The Committee uses a multi-metric formula that incorporates three performance objectives. The primary performance objective is our one-year value creation ratio (VCR) relative to our peer group. We believe this measure captures the contribution of our insurance operations, the success of our investment strategy and the importance we place on paying cash dividends to shareholders. The value creation ratio is a two-part metric: 1) our rate of growth in book value per share, plus 2) the ratio of dividends declared per share to beginning book value per share. We are targeting an annual VCR averaging 10 percent to 13 percent over the next five-year period. Two company-specific performance objectives also are used by the Committee to emphasize the importance of consistent profitable growth. These company-specific performance objectives are: 1) revenue as measured by property casualty net written premium growth (premium growth goal), and 2) underwriting profitability as measured by the combined ratio (combined ratio goal). When both operating goals of premium growth and combined ratio are achieved, the company's relative placement among the peer group companies may be improved by up to three placements to determine the final award placement. For the named executive officers, the maximum effect of the addition of these two performance objectives is capped at one additional payout level, for example from a threshold to a target-level payout, but not from a threshold to a maximum-level payout.

Setting Target Amounts
Target amounts for annual incentive compensation are set by the Committee each year as a percentage of the named executive officer’s salary. In 2018, the percentage of salary ranged from 65 percent to 110 percent based on the named executive officer’s tier. Assignment to a particular tier was based on level of responsibility. In 2018, Mr. Johnston was assigned to the chief executive officer’s tier for which the target-level award was 110 percent of base annual salary. The remaining named executive officers were assigned to Tier I for which target-level awards were 65 percent of base annual salary.


Page 40



Determining Final Award Placement
Determination of the final award placement is a three-step process:
Step 1 - The Committee determines the company's baseline award placement among the peer group companies based on relative VCR. As in prior years, when the company's VCR exceeds the VCR of one or more of the companies in the peer group, the company's baseline award placement increases by one for each peer group company exceeded.
Step 2 - The Committee determines whether the company achieved the pre-established premium growth goal. For 2018, the growth goal was 2.0 percent or more. If the company does not achieve the growth goal, then the final award placement is the baseline award placement determined in Step 1. If the growth goal is achieved, then the final award placement is determined by Step 3.
Step 3 - The Committee determines the achievement of the final award placement based on achievement of the combined ratio goal. The combined ratio goal for 2018 awards is as follows:
When the combined ratio is 95.0 percent or better, the company's baseline award placement improves by one placement.
When the combined ratio is 93.0 percent or better, the company's baseline award placement improves by two placements.
When the combined ratio is 91.0 percent or better, the company's baseline award placement improves by three placements.

If the company does not achieve the combined ratio goal, then the final award placement is the baseline award placement determined in Step 1.

Setting Performance Hurdles
Performance hurdles for threshold, target and maximum awards were set at the 30th, 50th and 75th percentiles, respectively, of the peer group. Stated another way, the final award placement must exceed three of the nine peer companies to achieve the threshold hurdle, must equal or exceed five peer companies to achieve the target hurdle and must equal or exceed seven peer companies to achieve the maximum hurdle. Achievement of threshold, target and maximum performance hurdles earns award payouts of 30 percent, 100 percent and 200 percent, respectively, of target. If the final award placement does not exceed at least three of the peer companies, no annual incentive compensation is earned or paid.


Page 41



Calculating the Annual Incentive Award Earned

Step 1: Determining the Baseline Award Placement Using Relative VCR
As shown in the following chart, for 2018, the company achieved a value creation ratio of -0.1 percent, which exceeded the value creation ratio achieved by three peer companies. This established the baseline award placement of exceeding three peer companies.

oneyearvaluecreationratio220.jpg
Step 2: Determining Achievement of Premium Growth Goal
The premium growth goal for awards granted in 2018 was 2.0 percent or more. The company reported property casualty net written premium growth of 4.0 percent, satisfying the 2018 premium growth goal.

Step 3: Determining Achievement of Combined Ratio Goal
The company reported a property casualty combined ratio of 96.4 percent, which failed to satisfy the combined ratio goal.

Because the company did not achieve the combined ratio goal, the final award placement is the baseline award placement determined in Step 1, specifically a final award placement that exceeds three of the peer group companies. A final award placement that exceeds three of the peer group companies satisfies the performance hurdle for a threshold-level award payout of 30 percent of target.

Page 42



The following formula is used to calculate the annual incentive award earned:

Base Annual Salary X Tier Target % X Performance Factor (0 - 200%)

The following table shows how the formula was applied and the actual amounts earned for 2018.
Name
Base Annual Salary
($)
Tier Target
% of Base Annual Salary
2018 Performance Factor
(Threshold)
(%)
2018 Annual Incentive Cash Compensation
($)
Steven J. Johnston
1,030,000
110
30
339,900
Jacob F. Scherer, Jr.
953,424
65
30
185,918
Michael J. Sewell
857,500
65
30
167,213
Martin F. Hollenbeck
715,804
65
30
139,582
Martin J. Mullen
624,445
65
30
121,767

Long-Term Stock-Based Compensation

General
We award stock-based compensation not only to reward service to the company, but also to provide incentive for individuals to remain in the employ of the company and help it prosper. We believe people tend to value and protect most that which they have paid for, generally by investing their time, effort or personal funds. Over the long run, we believe shareholders are better served when associates at all levels have a significant component of their financial net worth invested in the company. For that reason, we grant awards of stock-based compensation not only to our directors and to named executive officers, but also generally to all full-time salaried associates of the company who are in good standing. We believe this approach encourages associates at all levels to make decisions in the best interest of the company as a whole, linking their personal financial success with the company’s success. Although we do not have access to information about broker accounts, we estimate that approximately 80 percent of our current associates hold shares of Cincinnati Financial Corporation. Stock ownership guidelines applicable to all directors and officers help the Committee monitor ownership for all directors and officers. Our Director and Officer Stock Ownership Guidelines can be found at cinfin.com/investors.

Stock-based awards granted to all associates in February 2018, totaled less than 1 percent of total shares outstanding. In 2018, approximately 43 percent of all stock-based awards were granted to the company’s executive officers, including the named executive officers, and approximately 57 percent were granted to nearly 3,600 other company associates. All stock-based awards are granted at 100 percent of fair value on the date of grant.


Page 43



Types of Stock-Based Awards
The Committee grants three types of stock-based awards to the named executive officers: nonqualified stock options, performance-based restricted stock units (PSUs) and service-vesting restricted stock units (RSUs). The Committee finds these awards effective because stock options have value only if there is a corresponding increase in value recognized by shareholders, while PSUs focus executives on the sustained long-term performance of the company regardless of short-term stock price fluctuations. RSUs further emphasize the long-term focus and strengthen the alignment of financial interests shared by executives and shareholders, and supports retention of executive talent. Both stock options and PSUs granted prior to November 2, 2017, were intended to qualify as performance-based, tax-deductible executive compensation. The named executive officers also are eligible to receive shares under the Holiday Stock Plan. We do not pay dividends or dividend equivalents on unvested stock-based awards.

Stock Options - For the named executive officers, the Committee uses nonqualified stock options that vest and become exercisable in equal amounts over the three years following the grant date. We consider stock options to be performance-based compensation, because the associate recognizes value only if the market value of our stock appreciates over time. Stock options tie the compensation realized from such awards, if any, to changes in the stock price experienced by shareholders. When the stock price does not increase, the stock options do not have value. We do not, and have not, backdated, repriced or exchanged stock options.

PSUs - For the named executive officers, the Committee uses PSUs that cliff vest after three years if performance targets are achieved. PSUs tie vesting of a portion of stock-based compensation to performance goals, and the three-year performance period for awards of PSUs reinforces the company’s long-term focus and matches the period after which stock option awards are fully vested and exercisable. If performance hurdles are achieved and an award of PSUs vests, the award is paid in shares of common stock, one share for each restricted stock unit. For PSUs, the Committee expects to set targets that it considers achievable, but that require some stretch, based on market conditions and the current insurance industry environment at the time of grant.

Since November 2008, the performance objective for PSUs has been three-year total shareholder return relative to the companies in the peer group. The Committee selected this measure because total shareholder return combines share price appreciation and dividends paid. It measures the total return achieved for the shareholder and the relative position reflects the market perception of overall performance relative to the peer group.

RSUs - For the named executive officers, the Committee uses RSUs that ratably vest in thirds over three years. The Committee uses RSUs as a regular component of compensation for the named executive officers to place additional emphasis on long-term compensation, aid retention and strengthen the alignment of executive officer and shareholder financial interests.


Page 44



Setting Target Amounts for Stock-Based Awards
Target amounts for performance-based stock compensation (nonqualified stock options and PSUs) are set by the Committee as a percentage of the named executive officer’s salary. For 2018, the percentage of salary ranged from 97.5 percent to 165 percent (which amounts are 150 percent of annual incentive targets) based on the named executive officer’s tier. Assignment to a particular tier was based on level of responsibility. In 2018, Mr. Johnston was assigned to the chief executive officer’s tier for which the target level award was 165 percent of base annual salary. The remaining named executive officers were assigned to Tier I for which target level awards were 97.5 percent of base annual salary. The target dollar amount is then allocated between stock options and PSUs. The number of stock options granted is determined by dividing the target dollar amount by the intrinsic value of the stock option on the date of grant. That intrinsic value represents an estimate of fair value of each stock option granted, based on a modeled future market price of our stock less the exercise price applicable to that stock option. For option grants issued during 2018, that intrinsic value was $10.02 per share. Assumptions related to that value are disclosed in our 2018 Annual Report on Form 10-K note that describes share-based associate compensation plans. The number of PSUs granted is determined by dividing the target dollar amount by the fair value of the company’s stock on the date of grant. For 2018, the target value for stock awards was allocated 50 percent to PSUs and 50 percent to stock options. The following formulas were used to calculate the number of shares underlying the grants of performance-based stock compensation:

For nonqualified stock options:
Base Annual Salary X Tier Target % X Award Allocation %
=
Target # of Shares Underlying Award
Intrinsic Value of Stock Option on Date of Grant

For PSUs:
Base Annual Salary X Tier Target % X Award Allocation %
=
Target # of Shares Underlying Award
Grant Date Fair Value

Until 2017, the Committee historically used the grant date fair value as the denominator to determine the number of shares for both nonqualified stock options and PSUs. In 2017, the Committee changed the denominator for calculating the number of stock options to the option's intrinsic value on the date of grant. This change produces awards of a greater number of stock options than in prior years, as intended by the Committee to add greater weight to long-term equity compensation.

Similarly, the Committee sets amounts for RSUs as a percentage of the named executive officer’s salary. In 2017, the Committee increased the number of RSUs granted, increasing the percentage of base salary used to determine the grant date value of awards to 25 percent of base annual salary. This change produces awards of a greater number of RSUs than in prior years, as intended by the Committee to add greater weight to long-term equity compensation.

The following formula is used to calculate the number of shares underlying each grant of RSUs:
Base Annual Salary X 25%
=
# of Shares Underlying Award
Grant Date Fair Value


Page 45



2018 Stock-Based Grants
At its meeting on February 9, 2018, the Committee granted the following stock-based awards to the named executive officers:
Name
# Nonqualified Stock Options
# PSUs
# RSUs
Steven J. Johnston
84,765
11,937
3,618
Jacob F. Scherer, Jr.
46,365
6,529
3,349
Michael J. Sewell
41,700
5,873
3,012
Martin F. Hollenbeck
34,810
4,902
2,514
Martin J. Mullen
30,367
4,277
2,193

For the PSUs granted in 2018, performance hurdles for threshold, target and maximum awards were set at the 30th, 50th and 75th percentiles, respectively, of the peer group. Stated another way, the company’s three-year total shareholder return must exceed that of three of the nine peer companies to achieve the threshold hurdle, must equal or exceed that of five peer companies to achieve the target hurdle and must equal or exceed that of seven peer companies to achieve the maximum hurdle. For PSUs granted in 2018, achievement of threshold, target and maximum performance hurdles earns award payouts of 30 percent, 100 percent and 200 percent, respectively, of target. If the company's three-year total shareholder return does not exceed that of at least three of the peer companies, no shares from the award are earned or paid.

The following formula describes how the Committee calculates the number of shares earned:

Target # of Shares Underlying Award X Performance Factor (0 - 200%)

The performance period for the PSUs awarded in 2018 is the three calendar years ending December 31, 2020. The PSUs will vest and become payable on March 1, 2021, if the company achieves one of the performance hurdles described in the preceding paragraph.


Page 46



Compensation Realized From PSUs Granted in Prior Years
The company’s three-year TSR for the three-year performance period ended December 31, 2018, was 43.0 percent, exceeding that metric for four of the nine companies in the peer group and earning payout at the threshold level of 30 percent of the target number of shares.
 
Name
Performance Period
Target PSUs
(#)
 Achievement Level
PSUs Vested
(#)
Value of PSUs Vested
($)
(1)
 
 
Steven J. Johnston
2016-2018
11,768

Threshold
3,531

273,370

 
 
2015-2017
13,573

Target
13,573

1,017,568

 
 
2014-2016
12,873

Target
12,873

975,130

 
Jacob F. Scherer, Jr.
2016-2018
7,081

Threshold
2,125

164,518

 
 
2015-2017
8,087

Target
8,087

606,282

 
 
2014-2016
8,850

Target
8,850

670,388

 
Michael J. Sewell
2016-2018
6,247

Threshold
1,875

145,163

 
 
2015-2017
7,205

Target
7,205

540,159

 
 
2014-2016
7,885

Target
7,885

597,289

 
Martin F. Hollenbeck
2016-2018
5,150

Threshold
1,545

119,614

 
 
2015-2017
5,939

Target
5,939

445,247

 
 
2014-2016
6,468

Target
6,468

489,951

 
Martin J. Mullen
2016-2018
4,207

Threshold
1,263

97,781

 
 
2015-2017
4,782

Target
4,782

358,507

 
 
2014-2016
5,208

Target
5,208

394,506


(1)
Based on the closing price on Nasdaq as of the last trading day of the performance period as follows:
$77.42 for the performance period ending December 31, 2018
$74.97 for the performance period ending December 31, 2017
$75.75 for the performance period ending December 31, 2016

Other Stock-Based Compensation
The named executive officers are eligible to receive stock bonuses under the company’s broad-based Holiday Stock Plan, which annually awards one share of common stock to each full‑time associate in good standing for each year of service, up to a maximum of 10 shares. This plan, in effect since 1976, encourages stock ownership at all levels of the company.

Policy on Hedging and Pledging of Company Stock
Hedging - All of our officers and directors and certain associates identified by management as having regular access to potentially material, nonpublic information are prohibited from engaging in any form of hedging or monetization transactions involving the company’s stock. Such transactions can decouple the officer’s or director’s interest from the interests of shareholders generally and can limit the officer’s or director’s ability to control the timing of stock transactions to avoid times when in possession of material nonpublic information.

Pledging - We enjoy a strong culture of ownership, linking the long-term financial prospects for our associates to the long-term financial prospects for our shareholders generally through broad-based grants of equity compensation awards. Some of our associates, including some executive officers, choose to build their ownership in the company by pledging shares they own to collateralize loans from banks or brokers to exercise employee stock options. Some directors, officers and associates choose to hold their shares of stock in street name in accounts with banks or brokers as a matter of convenience. Depending on individual circumstances and decisions, these accounts can be subject to margin or collateral requirements.

Page 47




Accordingly, we permit our directors, officers and associates to pledge shares of company stock that they own. The board expects directors and executive officers to exercise good judgment when making decisions about their holdings and transactions involving company stock, including pledging. The board anticipates that the level of share pledging by directors and executive officers will decrease over time. In 2018, the number of shares pledged by our directors and executive officers as a group increased approximately 27,000 shares from 2017 levels as shares earned as stock compensation by certain executive officers were added to existing bank or broker accounts in which the number of shares previously owned significantly exceeded any loan amounts.

A majority, 17 of our current 27 directors and executive officers, do not pledge any shares. Another group of nine have pledged shares totaling less than 0.2 percent of the shares outstanding. One director with pledged shares is a member of one of the company’s founding families, with reported holdings of company stock that sufficiently outnumber the approximately 0.4 percent of shares outstanding that he holds in accounts and are available as collateral.

Stock-Based Award Grant Practices
In awarding stock options and other forms of stock-based compensation, the Committee follows certain general precepts:

Timing - Since 2010, the Committee established its February meeting as the date for granting stock-based compensation to company associates each year. This meeting is purposely scheduled to occur shortly after the company announces its financial results for the preceding quarter and year, and therefore occurs when it does not expect to be in possession of material nonpublic information. The Committee makes its grants of restricted stock to directors under the Directors’ Stock Plan of 2018 at its first regularly scheduled meeting of the year. The Committee believes the consistency of these practices eliminates concerns over timing. When grants are made at any other time of the year, the Committee ensures that such grants are made outside of any regular trading blackout associated with the company’s disclosure of financial results and when the company is not otherwise in possession of material nonpublic information.

Option Exercise Price - All stock-based compensation is granted at fair market value on the date of grant. Under all stock-based compensation plans, fair market value is defined as the average of the high and low sale price on Nasdaq on the grant date. Unless a future date is specified, the grant date is the date of the Committee meeting at which the grant is made. The Committee does not delegate timing or pricing of these stock-based awards to management.

Retirement Benefits

Defined Benefit Plans
In 2018, Messrs. Scherer and Mullen were participants in The Cincinnati Financial Corporation Retirement Plan (Retirement Plan), our tax-qualified defined benefit pension plan. There are no special or enhanced pension formulas for the named executive officers, compared with other plan participants. The Retirement Plan was frozen and closed to new participants in mid-2008. Participants remaining in the Retirement Plan continue to accrue a benefit as prescribed by the plan's terms.

These two named executive officers also participate in The Cincinnati Financial Corporation Supplemental Retirement Plan (SERP). The SERP is unfunded and subject to forfeiture in the event of bankruptcy.

The SERP is a nontax-qualified defined benefit plan maintained by the company to pay eligible associates the difference between the amount payable under the tax-qualified plan and the amount they

Page 48



would have received without the tax-qualified plan’s limit due to Section 401(a)(17) and Section 415 of the Internal Revenue Code. Accordingly, the SERP definitions for service, normal retirement and annual earnings are the same as those for the Retirement Plan except the SERP’s definition of annual earnings is not limited.

For information about accumulated benefits under these plans and detailed information about the plans, see the 2018 Pension Benefits table and the discussion following, beginning on Page 63.

Defined Contribution Plans
The named executive officers can participate in a tax-qualified 401(k) savings plan as well as the Cincinnati Financial Corporation Top Hat Savings Plan, a nonqualified deferred compensation plan for a select group of management or certain highly compensated associates. The company matches contributions to the 401(k) plan made by associates who are not members of the Retirement Plan, including Messrs. Johnston, Sewell and Hollenbeck, up to a maximum of 6 percent of the associate’s annual cash compensation (salary and annual incentive compensation). The company also matches contributions by Messrs. Johnston, Sewell and Hollenbeck to the Top Hat Savings Plan of up to 6 percent of their annual cash compensation that exceeds the maximum recognizable compensation under Section 401(a)(17) of the Internal Revenue Code, which for 2018 was $275,000.

For information about the amount of company matching contributions and specific information about the defined contribution plans, see the 2018 Nonqualified Deferred Compensation table and the discussion following, beginning on Page 65.

In 2008, the company transitioned away from providing associates with a defined benefit pension plan, instead choosing to assist associates with building savings for retirement by providing a company match of associate contributions to a tax-qualified 401(k) plan. This change was primarily in response to requests from associates who wanted control over their retirement benefit accounts. Participation in the defined benefit pension plan terminated for associates under the age of 40, and they transitioned to the new tax-qualified 401(k) plan with a company matching contribution. None of the named executive officers were under age 40 at the time of the transition. Associates age 40 and over as of August 31, 2008, were given a one-time election to remain in the defined benefit pension plan or to leave the plan and participate in the 401(k) plan with a company match. Those associates leaving the pension plan received distributions of their accumulated pension benefit from the defined benefit plan that they could choose to receive in cash, roll over to the company’s 401(k) plan or roll over to an Individual Retirement Account. Mr. Hollenbeck elected to leave the defined benefit plan in connection with the 2008 transition. Messrs. Johnston and Sewell, hired after entry to the pension plan was closed, also participate in the 401(k) plan with the company match. Messrs. Scherer and Mullen elected to remain in the pension plan.

Perquisites and Other Personal Benefits
Perquisites and other personal benefits are intended to support our corporate objectives or the performance of an individual’s responsibilities. Perquisites and personal benefits are offered to the named executive officers on the same basis as to other company officers and may include employer-paid health insurance premiums, personal umbrella liability insurance coverage, life insurance, executive tax services, use of a company car, safe driver award, executive health exams, club dues and limited spouse travel and meals associated with certain business functions. The Committee believes that the level of perquisites and personal benefits we offer our officers is de minimis, totaling no more than $34,564 for any named executive officer in 2018.


Page 49



CEO Pay Ratio
We are committed to transparency about our compensation practices. We provide detailed and comprehensive public disclosure about how the Committee structures our executive compensation program and makes individual compensation decisions for the chief executive officer and the other named executive officers each year. Internally, we provide transparency by publishing detailed information about salary bands for all positions. For annual cash incentive bonuses, we internally publish the bonus targets expressed as percentages of base annual compensation and provide a “bonus estimator” for associates to use to model how their annual incentive bonuses are affected by the company’s performance. Transparency was further enhanced in 2012, when we aligned all associate bonuses (from entry-level positions to our senior executives) to the same performance criteria. Since 2017, we also provide every associate with a “Current Compensation” summary that provides a total annual compensation value that is the sum of that associate’s base annual pay, the amount of the last annual incentive bonus paid and the value of the last paid restricted stock unit award. We also provide a full historical summary of all stock-compensation awards. We expect that the CEO Pay Ratio disclosure will further enhance our transparency about compensation.

Our CEO to median employee pay ratio is calculated in accordance with Item 402(u) of Regulation S-K. As permitted by the rule, because there were no significant changes to our compensation programs or employee base in 2018, we used the same median employee for the 2018 ratio as we used for 2017. In 2017, we identified the median employee by examining the annual total compensation for all of our associates, excluding our CEO, who were employed by us on December 1, 2017. We included all associates, whether employed on a full-time, part-time or seasonal basis. To determine the median employee, we calculated the total annual compensation for each of our then 5,072 associates as the sum of the following amounts:
Annual base pay
Increase in the value of the associate’s pension benefit
The company’s contribution to the associate’s health insurance coverage
The company’s matching contributions to the associate’s 401(k) account
The company’s matching contributions to the associate's nonqualified deferred compensation (top hat) account
Calendar year cash bonus
Calendar year stock compensation grants (time and or performance vesting restricted stock units)
Calendar year stock option grants (incentive or nonqualified stock options)
Holiday stock compensation

We believe the use of these components for all associates is a consistently applied compensation measure that includes all of the compensation elements that are widely distributed throughout our organization, including retirement benefits.

After identifying the median employee based on the process described above, we calculated annual total compensation for the median employee using the same methodology we use for our named executive officers as set forth in the 2018 Summary Compensation Table later in this proxy statement. The total annual compensation calculated for our CEO was $3,444,610 and for our median employee was $88,046. The resulting ratio for our CEO’s pay compared with the pay of our median employee for 2018 is 39.1 to 1.


Page 50



How We Make Compensation Decisions

Annual Compensation Setting Process
The Committee evaluates and sets compensation for the named executive officers annually. In doing so, it considers:
Its judgment about the effectiveness of the executive compensation program generally;
The effect of any changes to the program;
The result of the most recent shareholder advisory vote to approve executive compensation and feedback about the executive compensation program received from shareholders during annual outreach calls;
The compensation risk assessment conducted by the company’s chief risk officer;
Current and historical compensation and performance data supplied by the chief executive officer for each named executive officer, excluding himself;
Reports generated through Equilar on the amounts and components of compensation paid to the named executive officers of the companies in the peer group;
Reports generated through Equilar on the financial performance of the companies in the peer group;
Each officer’s individual performance, experience, expertise and functional responsibilities; and
Company performance, both financial and nonfinancial.

The Committee meets in February each year to set base annual salaries, grant stock-based and incentive cash compensation awards and consider the payment of any performance-based compensation earned upon satisfaction of performance goals established in prior years’ award grants. The Committee also may meet during the year to set or adjust compensation appropriately if management changes or new executive officers join the company or to consider potential prospective changes to the structure of the executive compensation program.

Compensation Risk Considerations
The Committee is responsible for overseeing the risk associated with the company’s compensation program. The company’s compensation plans and executive compensation program are designed with features intended to mitigate risk without diminishing the incentive nature of the compensation. We believe our compensation plans and programs encourage and reward prudent business judgment and appropriate risk taking, and do not create risks that are reasonably likely to have a material adverse impact on the company.

In 2018, the Committee considered the annual compensation risk assessment conducted by the chief risk officer. For the executive compensation program, the risk assessment identified the component parts of the program and the information and process used by the Committee to set the level of compensation for each. Independence and qualifications of committee members and rigor of the committee’s oversight and administration of the executive compensation program also were examined.


Page 51



The table below summarizes the risk mitigation factors identified in the annual compensation risk assessment.
Base Annual Salary Risk Mitigation Factors
Base annual salary is set each year.
Base annual salary adjustments require approval of the Committee.
Annual Incentive Risk Mitigation Factors
Awards are based upon multi-metric performance objectives. The primary performance objective is relative to peer companies. The two other performance objectives are publicly reported in the company's periodic reports. Achievement is determined by company performance, not individual performance.
Robust processes require the Committee to certify performance achievement and authorize payment.
Maximum payout of annual incentive compensation is capped.
The Committee may exercise negative discretion to reduce or eliminate awards when appropriate.
Annual incentive compensation is subject to clawback provisions.
Performance objectives and targets are easily calculable and clearly disclosed to investors.
Long-Term Stock-Based Compensation Risk Mitigation Factors
The company has stock ownership guidelines applicable to the named executive officers.
Exercising stock options requires investment of the associate’s personal assets.
Performance objectives are relative to peer companies.
Achievement of performance for PSUs is determined by company performance, not individual performance.
Robust processes require the Committee to certify performance achievement and authorize payment.
Maximum payout of performance-based restricted stock units is capped.
Stock-based compensation is subject to clawback provisions.
Performance objectives and targets are easily calculable and clearly disclosed to investors.

Benchmarking and Peer Group
We believe that increasing compensation for our named executive officers to achieve a benchmark at or above the median of our peers would serve only to increase compensation expense without a corresponding benefit to shareholders. Our approach is to consider competitive compensation practices and relevant factors about executive compensation program structures and award types used by the companies in our Peer Group to maintain an awareness of pay levels and practices, which as one of many factors considered each year by the Committee may influence appropriate changes to our executive compensation structure and levels over time. This approach provides us with flexibility in maintaining and enhancing our executive officers’ focus, motivation and enthusiasm for our future while controlling overall compensation expense. We believe our levels of compensation are competitively reasonable and appropriate for our business needs and circumstances.

We do use the peer group to compare our performance to those companies against whom we compete each day, irrespective of the size of any peer company. We believe that it is important to link performance-based compensation to company performance compared with peers. Accordingly, the primary performance targets for our annual incentive compensation and PSUs are relative targets compared with our peer group. We also believe that linking the level of performance-based awards to a percentage of base annual salary that is paid out according to a predetermined formula based upon achievement of performance goals for all of our executive officers unites the personal financial interests of the executive team, focusing its attention on achievement of performance goals designed to increase shareholder value over the long term.


Page 52



The Committee reviews performance and compensation data of the peer group to gain a sense of whether we are providing generally competitive compensation for our named executive officers individually and as a group. For 2018, the nine peer companies are:
The Allstate Corporation
Hanover Insurance Group Inc.
Hartford Financial Services Group Inc.
Markel Corporation
Selective Insurance Group Inc.
State Auto Financial Corporation
The Travelers Companies Inc.
United Fire Group Inc.
W.R. Berkley Corporation

These nine U.S.-domiciled companies were selected because they generally market their products through the same types of independent insurance agencies that represent our company, and they provide both commercial lines and personal lines of insurance, as we do. We also included companies in the peer group that historically have followed an equity investment strategy similar to ours, or that offer life insurance products or excess and surplus lines coverages.

Comparative performance and compensation data reviewed by the Committee suggests that the company’s executive compensation is not excessive as compared with performance and compensation levels of the peer group. As reported by Equilar, Total Direct Compensation of $14,711,912 awarded to our named executive officers as a group in 2017, the last year for which peer data is available, was approximately 69 percent of the average Total Direct Compensation of $21,374,260 awarded by companies in the peer group to their named executive officers as a group in the same year. The following table ranks the company and the nine companies in the peer group according to market capitalization at December 31, 2018, and ranks three-year value creation ratio, three-year total shareholder returns as of December 31, 2018, as reported by Bloomberg LP, and compensation data compiled by Equilar from the 2018 proxy statements filed by the peer group, the most recent year for which such data is available.
Rank
Market
Capitalization
Three-Year
Value Creation Ratio
Three-Year
Total
Shareholder
Return
Total Direct
Compensation
(from 2018 Proxy Statements)
1
Travelers
Cincinnati
Selective
Allstate
2
Allstate
W.R. Berkley
State Auto
Travelers
3
Hartford
Selective
United Fire
Hartford
4
Markel
Allstate
Hanover
W.R. Berkley
5
Cincinnati
Hanover
W.R. Berkley
Cincinnati
6
W.R. Berkley
Travelers
Cincinnati
Markel
7
Hanover
United Fire
Allstate
Selective
8
Selective
Markel
Markel
Hanover
9
State Auto
State Auto
Travelers
United Fire
10
United Fire
Hartford
Hartford
State Auto







Page 53



Compensation Consultants
The Committee does not employ compensation consultants for recommendations concerning executive compensation. Our compensation programs are not complex and, because we do not benchmark compensation to peers, the Committee does not believe it requires the services of a compensation consultant to assist with either administration of current plans or the determination of appropriate levels of compensation. The Committee will continue to monitor our compensation structure to ensure that the compensation it wishes to deliver to the executive team is delivered as appropriate, considering overall company and individual performance. The Committee does review and consider peer group performance and compensation data collected from the Equilar service and publicly available proxy statements and Form 10-K filings.

Tax Considerations
Section 162(m) limits to $1 million per year the federal income tax deduction to public corporations for compensation paid in any fiscal year to any individual who is identified as a named executive officer as of the end of the fiscal year in accordance with the Exchange Act. Until the enactment of the Jobs and Tax Reform Act of 2017 (Tax Reform) this limitation did not apply to qualifying “performance-based compensation.” The Committee intended that PSUs (which permit the Committee to exercise negative discretion to reduce or eliminate payment of awards) and stock options that are subject to binding agreements in effect before November 2, 2017, to qualify for the performance-based compensation exception to the $1 million limitation under prior law.

Beginning with grants of performance-based compensation made after November 2, 2017, Tax Reform removes the tax deduction for compensation of our named executive officers in excess of $1 million, even if that compensation results from what previously would have qualified as "performance-based compensation" under 162(m). We believe that performance-based compensation remains an effective incentive to drive short-term and long-term results that benefit our company and its shareholders, and we will continue to use it. We also expect that the overall beneficial effect of Tax Reform on our country's economy, in general and the domestic insurance industry, in particular, and the positive impact that we expect those beneficial effects to have on our company in the future more than outweigh the loss of a tax deduction for executive compensation.

The Committee generally does not favor the payment of tax gross-ups. Except in limited circumstances, such as a retirement gift of nominal value or relocation assistance on the same basis offered to all retiring or relocating associates, the Committee has not authorized payment of tax gross-ups to executive officers.


Page 54



Employment Agreements, Change in Control Provisions and
Post-Retirement Benefits
We do not have employment agreements with any of our named executive officers that specify a term of employment or guarantee minimum levels of bonuses or stock-based awards. All of our named executive officers are at-will employees. Our long-standing corporate perspective has been that employment contracts do not provide the company with any significant advantage. We believe our corporate culture, current compensation practices and levels of stock ownership by our executive officers have resulted in stability in our current 14-member group of executive officers, who average 24 years with the company.

In 2011, in connection with hiring Mr. Sewell as our chief financial officer, the Committee authorized a deferred compensation agreement between the company and Mr. Sewell designed to approximate the value of retirement benefits that he would forego at his former employer. Mr. Sewell is fully vested in amounts payable under the agreement. No amounts are payable under the agreement until Mr. Sewell reaches the age of 58.

Change in control provisions are included in our 2016 and 2012 Stock Compensation Plans and our 2009 Annual Incentive Plan, and those provisions apply to all associates receiving awards under the plans, not just to executive officers. The change in control provisions in these plans contain a “double trigger,” which requires both a change in control event, as defined in the plans, and termination of the associate’s employment due to the change in control within a specified time period. The double trigger ensures that we will become obligated to accelerate vesting of prior awards only if the associate is actually or constructively discharged because of the change in control event.

We occasionally provide post-retirement benefits to long-tenured, executive-officer-level associates who provide services to the company after retirement from their executive positions. These post-retirement benefits are intended to compensate the associate for ongoing services associated with maintaining continuity of relationships and providing guidance to their successors and other associates. No post-retirement benefits were paid to any former executive officer in 2018.



Page 55



Summary Compensation Table
Name and Principal Position
Year
Salary
($)
Bonus
($)
(1)
Stock Awards
($)
(2)(4)
Option
Awards
($)
(3)
Non-
equity Incentive Plan Compen-
sation
($)
Change in Pension Value and
Nonqualified Deferred Compen-
sation Earnings
($)
(5)
All Other Compen-
sation
($)
(8)(9)
Total Compen-
sation
($)
Steven J. Johnston
  Chief Executive Officer
and President
Cincinnati Financial Corporation
2018
1,025,385
999,111
849,752
339,900

230,462

3,444,610
2017
995,351
741,917
825,010
2,200,000

216,678
4,978,956
2016
960,814
917,696
155,459
2,121,792

94,142
4,249,903






















Jacob F. Scherer, Jr.
  Chief Insurance Officer and
Executive Vice President
The Cincinnati Insurance
Company
2018
949,152
638,786
464,800
185,918
621,358
(6)
26,991

2,887,005
2017
921,351
495,696
451,262
1,203,350
506,246
(6)
35,832

3,613,737
2016
887,747
581,968
93,542
1,160,572
575,137
(6)
19,200

3,318,166






















Michael J. Sewell
  Chief Financial Officer,
Senior Vice President
and Treasurer
Cincinnati Financial Corporation
2018
851,218
574,408
418,034
167,213

150,667

2,161,540
2017
812,871
437,114
398,126
1,061,667

140,114

2,849,892
2016
784,665
513,159
82,525
1,023,925

71,520

2,475,794






















Martin F. Hollenbeck
Chief Investment Officer and
Senior Vice President
Cincinnati Financial Corporation
2018
710,560
479,777
348,963
139,582

120,935

1,799,817
2017
677,473
365,250
332,338
886,234

110,600

2,371,895
2016
646,808
423,473
68,033
844,032

59,884

2,042,230






















Martin J. Mullen
Chief Claims Officer and
Senior Vice President
The Cincinnati Insurance
Company
2018
616,919
418,678
304,423
121,767
104,226
(7)
22,883

1,588,896
2017
569,629
308,518
280,573
748,182
590,191

21,788

2,518,881



































(1)
Since 2010, the Committee has eliminated discretionary cash bonuses as a regular component of compensation for the named executive officers.
(2)
Amounts shown in the Stock Awards column reflect values for grants of PSUs, RSUs and Holiday Stock awards. PSUs were intended to be performance-based compensation for purposes of Section 162(m) on the date of grant and reflect the full grant date fair values in accordance with FASB ASC 718. Amounts for PSUs are computed using a Monte Carlo valuation on the date of grant. Amounts for RSUs reflect the full grant date fair value in accordance with FASB ASC 718. These amounts do not represent the actual value that may be realized by the named executive officers. For assumptions used in determining the values for awards of PSUs and RSUs, see our 2018 Annual Report on Form 10-K, Part II, Item 8, Note 17, Page 173. Awards under the Holiday Stock Plan are valued at fair market value on the date of grant. The per share fair market values were $81.46, $73.30 and $71.55 for the grant dates of November 9, 2018, November 10, 2017 and November 11, 2016, respectively. There were no forfeitures of Holiday Stock or PSU or RSU awards by the named executive officers in 2018, 2017 or 2016.
(3)
Amounts in the Option Awards column reflect the value of awards for grants of nonqualified stock options. These nonqualified stock options were intended to be performance-based compensation for purposes of Section 162(m) on the date of grant and reflect the full grant date fair values in accordance with FASB ASC 718. These amounts do not represent the actual value, if any, that may be realized by the named executive officers. For assumptions used in calculation of option awards, see our 2018 Annual Report on Form 10-K, Part II, Item 8, Note 17, Page 173. There were no forfeitures of option awards by the named executive officers in 2018, 2017 or 2016.
(4)
Maximum values of PSUs granted in 2018 are: $1,510,985 for Mr. Johnston; $826,441 for Mr. Scherer; $743,404 for Mr. Sewell; $620,495 for Mr. Hollenbeck; and $541,383 for Mr. Mullen.
Maximum values of PSUs granted in 2017 are: $1,009,688 for Mr. Johnston; $552,257 for Mr. Scherer; $487,281 for Mr. Sewell; $406,731 for Mr. Hollenbeck; and $343,398 for Mr. Mullen.
Maximum values of PSUs granted in 2016 are: $1,652,933 for Mr. Johnston; $994,597 for Mr. Scherer; $877,453 for Mr. Sewell; and $723,369 for Mr. Hollenbeck.
(5)
No above-market or preferential earnings were paid on deferred compensation. The amounts shown in this column represent the aggregate change in actuarial present value of accumulated pension benefits for those named executive officers participating in the company’s Retirement Plan and SERP for each of the years presented, using the same pension plan measurement date and assumptions used for financial reporting purposes. In addition to one year of service credit under the Retirement Plan and the

Page 56



SERP for Messrs. Scherer and Mullen, the changes in plan balances are primarily due to fluctuations in the applicable interest rate and discount rate used to actuarially calculate the accumulated benefit in each plan.
(6)
For Mr. Scherer, in 2018, an increase of $192,408 in the Retirement Plan and an increase of $428,950 in the SERP; in 2017 an increase of $117,043 in the Retirement Plan and an increase of $389,203 in the SERP; and in 2016 an increase of $169,439 in the Retirement Plan and an increase of $405,698 in the SERP.
(7)
For Mr. Mullen, in 2018, a decrease of $10,073 in the Retirement Plan and increase of $114,299 in the SERP; and in 2017 an increase of $270,831 in the Retirement Plan and an increase of $319,360 in the SERP.
(8)
For Mr. Johnston, includes perquisites in the amount of $34,564, which includes $21,881 for employer paid health care premiums; $9,840 for the incremental additional cost of spouse travel and meals for business events to which spouses are invited; premiums paid for a personal umbrella liability policy; personal use of a company car; safe driver award; and an executive health examination.
For Mr. Scherer, includes perquisites in the amount of $25,778, which includes $16,245 for employer paid health care premiums; $6,506 for the incremental additional cost of spouse travel and meals for business events to which spouses are invited; premiums paid for a personal umbrella liability insurance policy; personal use of a company car; a safe driver award; executive tax services and an executive health examination.
For Mr. Sewell, includes perquisites in the amount of $33,885, which includes $21,881 for employer paid health care premiums; $3,729 for the incremental additional cost of spouse travel and meals for business events to which spouses are invited; $4,125 for executive tax services; premiums paid for a personal umbrella liability insurance policy; personal use of a company car; and a safe driver award.
For Mr. Hollenbeck, includes perquisites in the amount of $23,893, which includes $14,903 for employer paid health care premiums; $5,949 for the incremental additional cost of spouse travel and meals for business events to which spouses are invited; premiums paid for a personal umbrella liability insurance policy; personal use of a company car; executive tax services; a safe driver award; and an executive health examination.
For Mr. Mullen, includes perquisites in the amount of $21,448, which includes $14,903 for employer paid health care premiums; $3,887 for the incremental additional cost of spouse travel and meals for business events to which spouses are invited; premiums paid for a personal umbrella liability policy; personal use of a company car; a safe driver award; executive tax services, and an executive health examination.
(9)
Includes matching contributions to the company’s 401(k) and Top Hat Savings Plans in the amounts of $193,523 for Mr. Johnston; $114,773 for Mr. Sewell and $95,808 for Mr. Hollenbeck.

Total compensation for 2018 shown in the 2018 Summary Compensation Table, excluding attributions of compensation related to retirement plans, generally decreased from 2017 levels because of lower payouts of annual incentive compensation; at the threshold level of 30 percent of target for 2018, compared with the maximum level of 200 percent of target for 2017.

Total compensation for 2017 shown in the Summary Compensation Table, excluding attributions of compensation related to retirement plans, generally increased from 2016 levels because of the increased number of nonqualified stock options and RSUs awarded in connection with structural changes made to the executive compensation program to add greater weight to long-term, stock-based compensation.


Page 57



Amounts shown in the Salary column do not exactly match the base annual salaries set by the Committee for the year because of the timing of adjustments to base annual salary made in the respective years. The history of changes to base annual salaries for the named executive officers for the reported years is set forth below:

In February 2018, the Committee adjusted base salaries to $1,030,000 for Mr. Johnston; to $953,424 for Mr. Scherer; to $857,500 for Mr. Sewell; to $715,804 for Mr. Hollenbeck; and to $624,445 for Mr. Mullen.

In February 2017, the Committee adjusted base salaries to $1,000,000 for Mr. Johnston; to $925,654 for Mr. Scherer; to $816,667 for Mr. Sewell; to $681,718 for Mr. Hollenbeck; and to $575,525 for Mr. Mullen.

In February 2016, the Committee adjusted base salaries to $964,451 for Mr. Johnston; to $892,747 for Mr. Scherer; to $787,635 for Mr. Sewell; and to $649,256 for Mr. Hollenbeck.

Amounts shown in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column of the Summary Compensation Table represent the annual incremental changes in the present values of benefits under the company’s defined benefit and SERP plans. Changes in the balances of the Top Hat accounts of named executive officers due to their contributions and investment performance during the year are included in the All Other Compensation column of the Summary Compensation Table. For information about these plans, see Retirement Benefits, Page 48.

Page 58



2018 Grant of Plan-Based Awards (1)
Name
Grant Date
Estimated Possible Payouts Under Nonequity Incentive Plan Awards
Estimated Possible Payouts Under Equity Incentive Plan Awards
All Other Stock Awards:
Number of Shares of Stock or Units
(2)
All Other Option Awards: Number of Securities Under-lying Options
Exercise or Base Price of Option Awards
Grant Date Fair Value of Stock and Option Awards



Threshold
($)
 Target
($)
 Maximum ($)
Threshold
(#)
 Target
(#)
 Maximum
(#)
(#)
(#)
($/Sh)
($)
Mr. Johnston
2/9/2018
**







84,765

71.19

849,752


2/9/2018
*
339,900

1,133,000

2,266,000









2/9/2018
**



3,581

11,937

23,874




755,493


2/9/2018
**






3,618



242,804


11/9/2018
***






10



815

Mr. Scherer
2/9/2018
**







46,365

71.19

464,800


2/9/2018
*
185,918

619,725

1,239,451









2/9/2018
**



1,958

6,529

13,058




413,220


2/9/2018
**






3,349



224,751


11/9/2018
***






10



815

Mr. Sewell
2/9/2018
**







41,700

71.19

418,034


2/9/2018
*
167,213

557,375

1,114,750









2/9/2018
**



1,761

5,873

11,746




371,702


2/9/2018
**






3,012



202,135


11/9/2018
***






7



570

Mr. Hollenbeck
2/9/2018
**







34,810

71.19

348,963


2/9/2018
*
139,582

465,273

930,545









2/9/2018
**



1,470

4,902

9,804




310,248


2/9/2018
**






2,514



168,715


11/9/2018
***






10



815

Mr. Mullen
2/9/2018
**







30,367

71.19

304,423


2/9/2018
*
121,767

405,889

811,778









2/9/2018
**



1,283

4,277

8,554




270,691


2/9/2018
**






2,193



147,172


11/9/2018
***






10



815


*
Cincinnati Financial Corporation 2009 Incentive Compensation Plan
**
Cincinnati Financial Corporation 2012 Stock Compensation Plan
***
Holiday Stock Plan. See Long-Term Stock-Based Compensation, Page 43, for information about awards of shares under the Holiday Stock Plan.
(1)
No material modifications or repricing occurred with respect to any outstanding option or other stock-based award in 2018.
(2)
The grant date fair value of shares awarded under the Holiday Stock Plan is 100 percent of the average of the high and low sales price on Nasdaq on the date of grant, which was $81.46 on November 9, 2018.


Page 59



Outstanding Equity Awards at 2018 Year End

Option Awards (1)
Stock Awards

Name
Number of Securities Underlying Unexercised Options Exercisable
(#)
Number of Securities Underlying Unexercised Options Unexercisable
(#)
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
Option Exercise Price
($)
Option Expiration Date
Number of Shares or Units of Stock That Have Not Vested
(#)
(2)
 Market Value of Shares or Units of Stock That Have Not Vested
($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
(2)(3)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
Mr. Johnston
10,234



26.58

2/19/2020







7,991



34.04

2/18/2021







4,893



31.62

5/2/2021







13,472



35.63

2/17/2022







13,088



44.70

2/15/2023







12,873



46.81

2/14/2024

















11,768

905,901



13,573



52.25

2/13/2025

















523

40,261


11,670

898,357



7,845

3,923


61.47

2/12/2026
















2,358

181,519


11,937

918,910



25,495

50,989


70.70

12/10/2027



















3,618

278,517







84,765


71.19

2/9/2028










Mr. Scherer
8,933



34.04

2/18/2021







664



31.62

5/2/2021







10,262



35.63

2/17/2022







8,998



44.70

2/15/2023







8,850



46.81

2/14/2024







8,087




52.25

2/13/2025















7,081

545,095



4,721

2,360


61.47

2/12/2026












484

37,258


6,383

491,363



13,945

27,890


70.70

2/10/2027














2,182

167,970


6,529

502,602




46,365


71.19

2/9/2028














3,349

257,806






















Page 60




Option Awards (1)
Stock Awards

Name
Number of Securities Underlying Unexercised Options Exercisable
(#)
Number of Securities Underlying Unexercised Options Unexercisable
(#)
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
Option Exercise Price
($)
Option Expiration Date
Number of Shares or Units of Stock That Have Not Vested
(#)
(2)
 Market Value of Shares or Units of Stock That Have Not Vested
($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
(2)(3)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
Mr. Sewell
9,578



35.63

2/17/2022









8,016



44.70

2/15/2023









7,885



46.81

2/14/2024

















6,247

480,894



7,205



52.25

2/13/2025

















427

32,870


5,632

433,551



4,165

2,082


61.47

2/12/2026

















1,925

148,187


5,873

452,104



12,303

24,606


70.70

2/10/2027
















3,012

231,864







41,700


71.19

2/9/2028






Mr. Hollenbeck
6,468



46.81

2/14/2024









5,939



52.25

2/13/2025
















352

27,097






3,433

1,717


61.47

2/12/2026



5,150

396,447










1,607

123,707






10,270

20,540


70.70

2/10/2027



4,701

361,883











2,514

193,528







34,810


71.19

2/9/2028



4,902

377,356


Mr. Mullen
4,016



34.04

2/18/2021







4,526



35.63

2/17/2022







5,126



44.70

2/15/2023







5,208



46.81

2/14/2024







4,782



52.25

2/13/2025