NOTICE & PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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NORTHERN TRUST CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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NORTHERN TRUST CORPORATION | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
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Northern Trust Corporation
50 South La Salle Street
Chicago, Illinois 60603
March 10, 2015
Dear Stockholder:
You are cordially invited to attend the Northern Trust Corporation 2015 Annual Meeting of Stockholders on Tuesday, April 21, 2015, at 10:30 a.m., Central Time, at our corporate headquarters at 50 South La Salle Street in Chicago, Illinois.
For more than 125 years, our stockholders’ support has been essential to Northern Trust’s stability and success.Your vote plays a vital role and is very important for our future. Whether or not you plan to attend the Annual Meeting, I urge you to vote your shares as promptly as possible.
The attached Notice of Annual Meeting of Stockholders and Proxy Statement provide you with information about each proposal to be considered at the Annual Meeting, as well as other information you may find useful in voting your shares. If you plan to attend the Annual Meeting, please review the information on admittance procedures in the accompanying Proxy Statement.
If you choose not to attend in person, you may vote your shares by Internet or telephone. If you received a paper copy of the proxy materials, you also may complete, sign, date, and return your proxy card in the enclosed envelope. Instructions for voting by Internet or telephone can be found on your proxy card or your Notice Regarding the Availability of Proxy Materials.
Thank you for your continued support of Northern Trust Corporation, and your contribution to the future of our company.
Sincerely, |
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Frederick H. Waddell Chairman of the Board and Chief Executive Officer |
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF NORTHERN TRUST CORPORATION
Date: | Tuesday, April | |
Time: | 10:30 a.m., | |
Place: | Northern Trust Corporation 50 South
Chicago, Illinois 60603 | |
Purposes: | The purposes of the | |
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Record Date: | You | |
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March 8, 201210, 2015
ROSE A. ELLISBy order of the Board of Directors,
Stephanie S. Greisch
Corporate Secretary
Northern Trust Corporation
Chicago, Illinois 60603
TABLE OF CONTENTS— elect eleven directors to serve on the Board of Directors until the 2016 Annual Meeting of Stockholders and until their successors are elected and qualified;
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NORTHERN TRUST CORPORATION— transact any other business that may properly come before the Annual Meeting.
Chicago, Illinois 60603
March 8, 2012
PROXY STATEMENT
Our 2012 annual meeting of stockholders will be held on Tuesday, April 17, 2012 at 10:30 a.m., Chicago time, at the office of Northern Trust Corporation (the “Corporation” or “Northern Trust”) located at 50 South LaSalle Street (northwest corner of LaSalle Street
You do not need to attend the annual meeting to vote your shares. Instead, you may vote your shares by telephone or through the Internet, or you may complete, sign, date, and return your proxy card (a postage-paid envelope is included with your proxy materials if you receivedwere a full set of the proxy materials). Instructions for voting by telephone or through the Internet can be found on your proxy card or your notice regarding the availability of proxy materials.
The Corporation’s board of directors is soliciting your proxy to encourage your participation in the voting at the annual meeting. This proxy statement provides you with information about each proposal and other matters that you may find useful in voting your shares.
On March 8, 2012, we began mailing or otherwise making available our proxy materials to all stockholders entitled to vote at the annual meeting. Our proxy materials include our 2011 annual report to stockholders, which contains detailed information about the Corporation’s activities and financial performance in 2011.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON APRIL 17, 2012
This proxy statement, the 2011 annual report to stockholders, and a link to the means to vote by Internet or telephone are available at www.proxyvote.com.
COMMON QUESTIONS REGARDING OUR ANNUAL MEETING
AND PROXY STATEMENT
A Notice Regarding the Availability of Proxy Materials
Pursuant to the rules recently adopted by the Securities and Exchange Commission (the “SEC”), for some of our stockholders we are providing access to our proxy materials over the Internet. The rules permit us to send a Notice Regarding the Availability of Proxy Materials (the “Notice”) to some or all of our stockholders of record and beneficial owners. All stockholders have the ability to access the proxy materials on the website referred to in the Notice, www.proxyvote.com, or to request a printed set of proxy materials on this site or by calling toll-free 1-800-690-6903. Complete instructions for accessing the proxy materials over the Internet or requesting a printed copy may be found in the Notice. In addition, stockholders may request to receive all future proxy materials in printed form by mail or electronically by e-mail on the website above or when voting electronically.
Electronic Access to the Proxy Materials
The Notice provides instructions regarding how to view our proxy materials for the annual meeting on the Internet and how to instruct us to send our future proxy materials to you electronically by e-mail.
Choosing to receive your future proxy materials by e-mail will save us the cost of printing and mailing documents to you and will reduce the impact of our annual stockholders’ meetings on the environment. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.
Record holders of the Corporation’s common stock at the close of business on February 22, 2012 may vote at the annual meeting. On that date, the Corporation had 241,231,673 shares of common stock outstanding. The shares of common stock held in the Corporation’s treasury will not be voted.
You are entitled to one vote for each share of common stock that you ownedstockholder of record at the close of business on February 22, 2012. The proxy card or Notice, as applicable, indicates the number of shares you are entitled to vote at the annual meeting.
Whether or not you plan to attend the annual meeting, we urge you to vote your shares promptly.
If you are a “stockholder of record” (that is, you hold your shares of the Corporation’s common stock in your own name), you may vote your shares by proxy using any of the following methods:23, 2015.
March 10, 2015
By order of the Board of Directors,
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The telephone and Internet voting procedures set forth on the Notice and the proxy card are designed to authenticate stockholders’ identities, to allow stockholders to provide their voting instructions, and to confirm that their instructions have been properly recorded. If you vote by telephone or through the Internet, you should not return your proxy card.
Stephanie S. Greisch
If you are a “beneficial owner,” also known as a “street name” holder (that is, you hold your shares of the Corporation’s common stock through a broker, bank, or other nominee), you will receive from the record holder, in the form of a Notice or otherwise, voting instructions (including instructions, if any, on how to vote by telephone or through the Internet) that you must follow in order to have your shares voted at the annual meeting.Please note that the rules that guide how brokers vote your stock have changed. Brokers may no longer vote your shares on the election of directors or certain executive compensation matters without your specific instructions.Consequently, it is important that you communicate your voting instructions so your vote can be counted by using any of the following methods:
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If you own shares of common stock as a participant in The Northern Trust Company Thrift-Incentive Plan (“TIP”), or as a participant in any other employee benefit plan of the Corporation, you will receive a voting instruction card that covers the shares credited to each of your plan accounts.
Whether you vote by Internet, telephone or mail, your shares will be voted in accordance with your instructions. If you sign, date, and return your proxy card without indicating how you want to vote your shares, the proxy holders will vote your shares in accordance with the following recommendations of the board of directors:
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The proxy holders are authorized to vote as they shall determine in their sole discretion on any other business that may properly come before the annual meeting.
You may revoke your proxy at any timebefore it is voted at the annual meeting by:
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You may come to the annual meeting and vote your shares in person by obtaining and submitting a ballot that will be provided at the meeting. However, if your shares are held by a broker, bank, or other nominee in street name, to be able to vote at the meeting you must obtain a proxy, executed in your favor, from the record holder of your shares, indicating that you were the beneficial owner of the shares on February 22, 2012, the record date for voting.
If you need directions to the annual meeting, please call (312) 630-6000.
We are delivering only one annual report and proxy statement (or, as applicable, the Notice) to record stockholders who share the same address unless they have notified us that they wish to continue receiving multiple copies. This practice, known as “householding,” reduces duplicate mailings, saves printing and postage costs as well as natural resources and will not affect dividend check mailings. If you wish to receive separate copies of future proxy materials, please contact Broadridge toll free at 1-800-542-1061, or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Stockholders who wish to receive a separate set of proxy materials now should contact Broadridge at the same phone number or mailing address and the materials will be delivered to you promptly upon your request.
Quorum and Vote Required for Approval
A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if a majority of the outstanding shares entitled to vote at the meeting is present in person or by proxy at the annual meeting. Abstentions and broker non-votes, if any, will be counted as present for purposes of establishing a quorum. A “broker non-vote” will occur when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions from the beneficial owner.Please note that the rules that guide how brokers vote your stock have changed. Brokers may no longer vote your shares on the election of directors or certain executive compensation matters without your specific instructions. Please return your proxy card or vote by telephone or through the Internet so your vote can be counted. Inspectors of election appointed for the annual meeting will tabulate all votes cast in person or by proxy at the annual meeting. In the event a quorum is not present at the annual meeting, we expect that the annual meeting will be adjourned or postponed to solicit additional proxies.
The following table indicates the vote required for approval of each item to be presented to the stockholders at the annual meeting and the effect of “withhold” votes, abstentions, and broker non-votes.
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The Corporation will pay all costs of soliciting proxies. The Corporation has retained Georgeson Inc. to assist with the solicitation of proxies for a fee of $24,500, plus reimbursement of reasonable out-of-pocket expenses. In addition, we may also use our officers and employees, at no additional compensation, to solicit proxies either personally or by telephone, Internet, letter, or facsimile.
ADMITTANCE TO THE ANNUAL MEETING
Stockholders as of the record date, or their duly appointed proxies, may attend our annual meeting on April 17, 2012. Registration will begin at 9:30 a.m., and seating will begin at 10:00 a.m. If you attend, please note that you will need to bring with you an admission ticket (located on the top portion of the rear side of the proxy card) or proof of ownership of the Corporation’s common stock to enter the meeting. If you arrive at the meeting without an admission ticket, we will admit you only if we are able to verify that you are a stockholder of the Corporation. Also, you may be asked to present valid picture identification, such as a driver’s license or passport. For safety and security reasons, cameras and recording devices will not be permitted in the meeting.
If you are receiving a full set paper copy of our proxy materials and your shares of common stock are held by a broker, bank, or other nominee in street name, your admission ticket is the left side of your voting instruction form. If you do not bring the left side of your voting instruction form, you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or letter from a bank or broker is an example of proof of ownership.
If you are receiving the Notice without a full set paper copy of our proxy materials, your Notice will serve as your admission ticket.
Stockholders will be asked to elect 11 directors at this year’s annual meeting. Set forth below is detailed information with respect to the 11 nominees, all of whom are currently serving as directors of the Corporation and its principal subsidiary, The Northern Trust Company (the “Bank”). Robert C. McCormack, a director of the Corporation since 2000, and Enrique J. Sosa, a director of the Corporation since 2007, will not stand for reelection as directors at the annual meeting.
Each of the 11 director nominees has consented to serve as a director if elected at this year’s annual meeting. Each nominee elected as a director will serve until the next annual meeting and until his or her successor has been elected and qualified. If any nominee is unable to serve as a director at the time of the annual meeting, your proxy may be voted for the election of another nominee proposed by the board or the board may reduce the number of directors to be elected at the annual meeting.
Under the majority voting policy as set forth in the Corporation’s by-laws, a nominee for director in an uncontested election (such as this year’s election where the only nominees are those recommended by the board of directors) must receive the affirmative vote of a majority of the votes present and voting at a meeting of stockholders. In contested elections, the affirmative vote of a plurality of the votes present and voting will be required to elect a director. The Corporate Governance Guidelines require an incumbent director who fails to receive the affirmative vote of a majority of the votes present and voting in an uncontested election at a meeting of stockholders to submit his or her resignation, with such resignation to be considered by the members of the Corporate Governance Committee and the board other than such incumbent director. In such event, the board of directors will act to accept or reject the incumbent director’s resignation no later than 90 days following the date of the stockholders’ meeting.
The board of directors unanimously recommends that you voteFOR the election of each nominee.
INFORMATION ABOUT THE NOMINEES FOR DIRECTOR
The following information about the nominees for election to the board of directors of the Corporation at the 2012 annual meeting of stockholders is as of December 31, 2011, unless otherwise indicated.
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BOARD AND BOARD COMMITTEE INFORMATION
Current Members: Directors Mooney (Chair), Bynoe, Chabraja, Lane, McCormack, and Smith
Number of Meetings in 2011: Six
Oversight Activities:
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The board of directors has determined that, in its opinion, all current members of the Corporation’s Audit Committee are “independent” directors, as defined by The NASDAQ Stock Market (“NASDAQ”), and “audit committee financial experts,” as defined by the applicable SEC regulations.
The board of directors of the Corporation has adopted a formal charter, most recently revised in October 2009, that governs the duties and responsibilities of the Audit Committee. The Audit Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
Current Members: Directors Bynoe (Chair), Mooney, Slark, Smith, and Sosa
Number of Meetings in 2011: Five
Oversight Activities:
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The board of directors has determined that, in its opinion, all current members of the Corporation’s Business Risk Committee are “independent” directors as defined by NASDAQ. The board of directors of the Corporation has adopted a formal charter, most recently revised in January 2010, that governs the duties and responsibilities of the Business Risk Committee. The Business Risk Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
Current Members: Directors Jain (Chair), Lane, Slark, and Tribbett
Number of Meetings in 2011: Four
Oversight Activities:
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The board of directors has determined that, in its opinion, all current members of the Corporation’s Business Strategy Committee are “independent” directors as defined by NASDAQ.
The board of directors of the Corporation has adopted a formal charter, most recently revised in October 2010, that governs the duties and responsibilities of the Business Strategy Committee. The Business Strategy Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
Compensation and Benefits Committee
Current Members: Directors Chabraja (Chair), Crown, Jain, McCormack, Rowe, and Sosa
Number of Meetings in 2011: Five
Oversight Activities:
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The board of directors has determined that, in its opinion, all current members of the Corporation’s Compensation and Benefits Committee are “independent” directors as defined by NASDAQ.
The board of directors of the Corporation has adopted a formal charter, most recently revised in February 2012, that governs the duties and responsibilities of the Compensation and Benefits Committee. The Compensation and Benefits Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
The Committee retained Aon Hewitt (formerly Hewitt Associates, LLC) (“Aon Hewitt”), a nationally recognized compensation and benefits consulting firm, to provide compensation and benefits advice, including information regarding competitive market data, relevant legal and regulatory requirements, and corporate best practices in the compensation and benefits area. Representatives of Aon Hewitt attended all meetings of the Committee at which 2011 executive compensation decisions were made.
For information about the role of the Committee, compensation consultants, and management in the consideration and determination of executive and director compensation, please refer to the “Compensation Discussion and Analysis—Determining Awards” presented elsewhere in this proxy statement.
Corporate Governance Committee
Current Members: Directors Rowe (Chair), Crown, Mooney, and Tribbett
Number of Meetings in 2011: Five
Oversight Activities:
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The board of directors has determined that, in its opinion, all current members of the Corporation’s Corporate Governance Committee are “independent” directors as defined by NASDAQ.
The board of directors of the Corporation has adopted a formal charter, most recently revised in February 2010, that governs the duties and responsibilities of the Corporate Governance Committee. The Corporate Governance Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
Current Members: Directors Waddell (Chair), Bynoe, Chabraja, Jain, Mooney, and Rowe
Number of Meetings in 2011: None
Oversight Activities:
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The board of directors has determined that, in its opinion, all current members of the Corporation’s Executive Committee, other than Mr. Waddell, are “independent” directors as defined by NASDAQ.
The board of directors of the Corporation adopted a formal charter in November 2006 that governs the duties and responsibilities of the Executive Committee. The Executive Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
The Corporation’s board of directors held seven meetings during 2011. All persons who were directors during 2011 attended at least 75% of these meetings and meetings of committees on which they served. The Corporation has a Corporate Governance Guideline that states that all directors are expected to attend the annual meeting of the Corporation’s stockholders. All of the directors attended the 2011 annual meeting of stockholders.
The board of directors has determined that, in its opinion, each person who served as a director of the Corporation in 2011 (including William D. Smithburg who retired from the board of directors on April 19, 2011) and each director nominee for 2012 (other than Frederick H. Waddell, the Chairman and Chief Executive Officer of the Corporation and the Bank) is an “independent” director as defined under applicable NASDAQ rules. The board of directors has adopted categorical standards to assist it in making the annual determinations of independence. These categorical standards are attached as Exhibit 1 to this proxy statement, and a copy of the categorical standards is available on the Corporation’s website at www.northerntrust.com. In making its determinations of independence, the board considered the criteria for independence set forth in stock exchange corporate governance rules, the categorical standards of independence described above, and all relevant facts and circumstances to ascertain whether there was any relationship between a director or director nominee and the Corporation that, in the opinion of the board, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director, or any material relationship with the Corporation (either directly or as a partner, stockholder, or officer of an organization that has a relationship with the Corporation). The board also considered any transactions, relationships, or arrangements between the Corporation and each director of the Corporation in 2011 (including Mr. Smithburg) or director nominee for 2012 that constitute related party transactions under the RPT Policy described in the “Related Person Transaction Policy” section below. For 2011, the board considered the following categories and types of transactions, relationships, and arrangements:
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The board of directors also considered the following types of services provided by the Corporation or its subsidiaries in the ordinary course of business to directors of the Corporation in 2011 (including Mr. Smithburg) and their “related persons” as described in the “Related Person Transaction Policy” section below (as indicated by the name of the applicable current or former director or director nominee):
The current leadership structure of the board of directors includes the Chairman and CEO and a Lead Director appointed annually by the Corporation’s independent directors.
The board of directors believes that combining the positions of Chairman and CEO is the most appropriate for the Corporation at this time. Having one person as Chairman and CEO provides unified leadership and direction to the Corporation and strengthens the ability of the CEO to develop and implement strategic initiatives and respond efficiently in crisis situations. The board also believes the combination of the Chairman and CEO positions is appropriate in light of the substantial independent oversight provided by the board of directors.
The board of directors believes that leadership of the independent directors is important. Accordingly, the Corporation’s independent directors designate annually a Lead Director. Mr. Rowe currently serves as the Corporation’s Lead Director.
The Lead Director’s duties are described in the Corporation’s Corporate Governance Guidelines and include, among other things, (a) the authority to call at any time a special meeting of the board or a special executive session of the independent directors, (b) presiding at all regular and any special meetings of the board at which the Chairman is not present, including all regular and any special executive sessions of the independent directors, (c) agreeing annually with the Chairman and CEO on the number and length of regular board meetings, (d) the authority to add items to the agenda of any regular or special meeting of the board, (e) preparing the agenda for all regular and any special executive sessions of the independent directors, (f) presiding at all regular and any special executive sessions of the independent directors, and (g) conducting, by means of an interview with each independent director, the independent directors’ annual evaluation of the Chairman and CEO’s performance and then communicating the results to the Compensation and Benefits Committee and to the Chairman and CEO. A copy of the Corporate Governance Guidelines is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
In addition to the Lead Director, the board of directors has a substantial majority of independent directors. Ten out of eleven director nominees are “independent” directors as defined under applicable NASDAQ rules. The Audit Committee, Business Risk Committee, Business Strategy Committee, Compensation and Benefits Committee, and Corporate Governance Committee are composed solely of independent directors, and the Executive Committee, with the exception of Mr. Waddell, is composed of independent directors. Consequently, independent directors directly oversee critical matters and appropriately monitor the Chairman and CEO.
The board of directors conducts its risk oversight function through the Audit, Business Risk, Business Strategy, and Compensation and Benefits Committees.
The Audit Committee conducts the Corporation’s management of risks relating to financial reporting and the legal component of compliance risk. The Business Strategy Committee oversees the Corporation’s management of strategic risk for the Corporation and its subsidiaries.
The Business Risk Committee conducts the Corporation’s management of risks relating to the business of the Corporation and its subsidiaries in the following categories: credit risk, market and liquidity risk, fiduciary risk, operational risk, and the regulatory component of compliance risk. The Business Risk Committee has approved a corporate risk appetite statement articulating the Corporation’s expectation that risk is consciously considered as part of strategic decisions and in day-to-day activities. The Corporation’s business units are expected to manage business activities consistent with the corporate risk appetite statement. The Business Risk Committee also reviews and approves the framework by which risk based capital requirements are determined, including the capital adequacy assessment process for the Corporation and its subsidiaries. The entire board of directors reviews the level and adequacy of capital of the Corporation and its subsidiaries. For a further description of the risk management policies and practices of the Corporation’s management, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management” in the Corporation’s 2011 Annual Report to Stockholders.
The Compensation and Benefits Committee, at least annually, conducts a review, with appropriate input of risk management personnel, of management’s assessment of the effectiveness of the Corporation’s incentive compensation arrangements and practices to assess the extent to which such arrangements and practices discourage inappropriate risk-taking behavior by participants and are consistent with the Corporation’s safety and soundness.
The charters for the Audit, Business Risk, Business Strategy, and Compensation and Benefits Committees provide that the committees may meet with the individuals who supervise day-to-day risk management responsibilities of the Corporation and other members of management, consultants or advisors, as each committee deems appropriate.
The Audit, Business Risk, Business Strategy, and Compensation and Benefits Committees consist solely of independent directors.
The Corporation recognizes the importance of stockholder communications to help our investors understand our performance and strategies and to allow our stockholders to express their views on issues important to the Corporation. In light thereof and in connection with the results of our 2011 advisory vote on executive compensation, during the fourth quarter of 2011, we reached out to some of our institutional stockholders to invite comments on governance issues, executive compensation, and other matters. The board of directors considered our stockholders’ views when contemplating revisions, if any, to be made to the Corporation’s policies and practices. In particular, the Compensation and Benefits Committee carefully considered stockholder views when devising the Corporation’s 2012 executive compensation program and 2012 executives’ compensation packages. Refer to the “Compensation Discussion and Analysis” section included elsewhere in this proxy statement for a further discussion of the 2012 executive compensation updates.
In addition, during the first quarter of 2012, the Corporation reached out to two stockholders regarding their request to include stockholder proposals in this proxy statement. Through our engagements with the stockholders, the Corporation was able to better understand the stockholders’ views regarding our policies and procedures. The Corporation carefully considered recommendations made by the stockholders during our discussions and decided to revise certain of our corporate governance policies and procedures and public disclosure thereof. As a result, both stockholders withdrew their proposals.
The independent directors of the Corporation met in executive sessions separate from management six times during 2011. The Lead Director or, in his or her absence, another independent director designated by the Lead Director presides at executive sessions of the independent directors.
Corporate Governance Guidelines
The Corporation has had Corporate Governance Guidelines in place since May 2000. These guidelines were most recently revised in February 2010. The Corporate Governance Committee is responsible for reviewing and reassessing, at least annually, the adequacy of the Corporate Governance Guidelines and recommending any changes to the board of directors for its approval. The Corporate Governance Guidelines embody many of the Corporation’s long-standing practices and incorporate new policies and procedures that strengthen its commitment to corporate governance best practices. A copy of the Corporate Governance Guidelines is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
Management Development and Succession Planning
The Compensation and Benefits Committee oversees executive management and succession planning. Pursuant to the Corporate Governance Guidelines and the charter for the Compensation and Benefits Committee, the Compensation and Benefits Committee conducts an annual management development and succession planning review. All of the Corporation’s directors are invited to and typically all participate in this review. Following the review, the Compensation and Benefits Committee makes recommendations concerning management development and succession planning.
In connection with setting the compensation of the Corporation’s Chairman and CEO, as more fully described below in “Compensation Discussion and Analysis,” the Compensation and Benefits Committee and the board of directors review the performance of the Chairman and CEO in light of the Chairman and CEO’s responsibilities to the Corporation, including the development of short-term and long-term strategic plans, goals and objectives, the development of an effective senior management team, positioning of the Corporation for current and future success, and effective communications with all of the Corporation’s constituencies. These criteria, among others, would also be considered by the board of directors in evaluating any successor Chairman and CEO candidates. This management review process also includes a review of other senior employees of the Corporation, with a focus on developing internal candidates for advancement within the Corporation.
In the event of the unexpected death, incapacity, or resignation of the Chairman and CEO, the charter for the Corporate Governance Committee provides that the Corporate Governance Committee will discuss and make a recommendation to the board of directors, after consultation with the Chairman of the Compensation and Benefits Committee, for an appropriate successor. The board of directors also has adopted a Business Continuity Plan that, among other things, delineates a process for appointing an interim Chairman and CEO in the event the Chairman and CEO becomes incapacitated.
Director Nominations and Qualifications
The Corporate Governance Committee is responsible for considering, evaluating, and recommending candidates for director. The Committee will consider persons nominated by stockholders in accordance with the nomination procedures specified in the Corporation’s by-laws or
otherwise recommended by stockholders. The Corporation’s by-laws provide that stockholders may propose director nominations only if they give timely written notice, directed to the attention of the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement, not less than 120 days prior to the anniversary date of the prior year’s annual meeting. The notice must contain the information required by the by-laws. Stockholders may recommend candidates for director by following the procedures for communicating with directors described below under “Communications with the Board and Independent Directors.”
In its evaluation of director candidates, including persons recommended by stockholders, the Committee considers the factors specified in the Corporation’s Corporate Governance Guidelines to ensure the board has a diversity of perspectives and backgrounds, including the nature of the expertise and experience required for the performance of the duties of a director of a corporation engaged in the Corporation’s business and such matters as: relevant business and industry experience, professional background, age, current employment, community service, and other board service. The Committee also considers the racial, ethnic, and gender diversity of the board in assessing candidates. The Committee seeks to identify, as candidates for director, persons with a reputation for and record of integrity and good business judgment who (i) have experience in positions with a high degree of responsibility and are leaders in the organizations with which they are affiliated, (ii) are free from conflicts of interest that could interfere with a director’s duties to the Corporation and its stockholders, and (iii) are willing and able to make the necessary commitment of time and attention required for effective board service. The Committee also takes into account a candidate’s level of financial literacy, and monitors the mix of skills and experience of the directors in order to assess whether the board has the necessary tools to perform its oversight function effectively. A full listing of the characteristics and qualifications of director candidates considered by the Committee is set forth in the Corporate Governance Guidelines on the Corporation’s website at www.northerntrust.com. Following its evaluation process, the Committee recommends its director nominees to the full board of directors, and the board makes the final determination of director nominees based on its consideration of the Committee’s recommendation and report.
Communications with the Board and Independent Directors
Stockholders and other interested persons may communicate any concerns they may have regarding the Corporation, including recommendations of candidates for director, to the board of directors or to any member of the board of directors by writing to them at the following address:
Northern Trust Corporation
Attention: [Board of Directors]/[Board Member]
c/o Corporate Secretary
Northern Trust Corporation
50 South LaSalleLa Salle Street M-9
Chicago, Illinois 60603
Communications directed to the independent directors should be sent to the attention
— elect eleven directors to serve on the Corporate Secretary,Board of Directors until the 2016 Annual Meeting of Stockholders and until their successors are elected and qualified;
— approve, by an advisory vote, 2014 named executive officer compensation;
— ratify the appointment of KPMG LLP as Northern Trust Corporation’s independent registered public accounting firm for the 2015 fiscal year;
— consider a stockholder proposal regarding additional disclosure of political and lobbying contributions, if properly presented at the address indicated above.Annual Meeting; and
Any
— transact any other business that may properly come before the Annual Meeting.
A majority of the independent directors of the Corporation has approved procedures with respect to the receipt, review and processing of, and any response to, written communications sent by stockholders and other interested persons to the board of directors. Any written communication regarding accounting, internal accounting controls, or other matters are processed in accordance with procedures adopted by the Audit Committee.business on February 23, 2015.
March 10, 2015
By order of the Board of Directors,
Stephanie S. Greisch
Corporate Secretary
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 21, 2015
This Proxy Statement, other proxy materials, our Annual Report on Form 10-K for the year ended December 31, 2014 and a link to the means to vote by Internet or telephone are available at https://materials.proxyvote.com/665859.
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PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors (the “Board”) of Northern Trust Corporation (the “Corporation”) for use at the Corporation’s Annual Meeting of Stockholders to be held on Tuesday, April 21, 2015 (the “Annual Meeting”). On or about March 10, 2015, we began mailing or otherwise making available our proxy materials, including a copy of our Annual Report on Form 10-K for the year ended December 31, 2014, to all stockholders entitled to vote at the Annual Meeting.
A Notice Regarding the Availability of Proxy Materials
Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), for some of our stockholders we are providing access to our proxy materials via the Internet. The rules permit us to send a Notice Regarding the Availability of Proxy Materials (the “Notice”) to stockholders of record and beneficial owners. All stockholders have the ability to access the proxy materials on the website referred to in the Notice, www.proxyvote.com, or to request a printed set of proxy materials on this site or by calling toll-free 1-800-690-6903. Complete instructions for accessing the proxy materials on the Internet or requesting a printed copy may be found in the Notice. In addition, stockholders may request to receive all future proxy materials in printed form by mail or electronically by e-mail on the website above or when voting electronically. Choosing to receive your future proxy materials by e-mail will save us the cost of printing and mailing documents to you and will reduce the impact of our annual stockholders’ meetings on the environment. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.
Record holders of the Corporation’s common stock at the close of business on February 23, 2015 may vote at the Annual Meeting. On that date, the Corporation had 233,620,101 shares of common stock outstanding. The shares of common stock held in the Corporation’s treasury will not be voted.
You are entitled to one vote for each share of common stock that you owned of record at the close of business on February 23, 2015. The proxy card or Notice, as applicable, indicates the number of shares you are entitled to vote at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, we urge you to vote your shares promptly.
If you are a “stockholder of record” (that is, you hold your shares of the Corporation’s common stock in your own name), you may vote your shares by proxy using any of the following methods:
— | using the Internet site listed on the Notice or the proxy card; |
— | calling the toll-free telephone number listed on the proxy card; or |
— | completing, signing, dating and returning your proxy card. |
The Internet and telephone voting procedures set forth on the Notice and the proxy card are designed to authenticate stockholders’ identities, to allow stockholders to provide their voting instructions and to confirm that their instructions have been properly recorded. If you vote by Internet or telephone, you should not return your proxy card.
If you are a “beneficial owner,” also known as a “street name” holder (that is, you hold your shares of the Corporation’s common stock through a broker, bank or other nominee), you will receive from the record holder, in the form of a Notice or otherwise, voting instructions (including instructions, if any, on how to vote by Internet or telephone) that you must follow in order to have your shares voted at the Annual Meeting. Under the rules of various national and regional securities exchanges, brokers, banks and other nominees that hold securities on behalf of beneficial owners generally may vote on routine matters even if they have not received voting instructions from the beneficial owners for whom they hold securities, but are not permitted to vote on nonroutine matters unless they have received such voting instructions. While the ratification of the appointment of an issuer’s independent registered public accounting firm generally is considered to be a routine matter, the election of directors, executive compensation matters and stockholder proposals generally are considered to be nonroutine matters.Thus, if you fail to provide your specific voting instructions, your broker may only vote your shares on the ratification of the appointment of the Corporation’s independent registered public accounting firm.Consequently, it is important that you communicate your voting instructions by using any of the following methods so your vote can be counted:
— | using the Internet site listed on the voting instruction form; |
— | calling the toll-free telephone number listed on the voting instruction form; or |
— | completing, signing, dating and returning your voting instruction form. |
If you own shares of common stock as a participant in The Northern Trust Company Thrift-Incentive Plan (“TIP”), or as a participant in any other employee benefit plan of the Corporation, your proxy card will cover the shares credited to each of your plan accounts. The completed proxy card (or vote by Internet or telephone) will serve as your voting instructions to the TIP trustee. To allow sufficient time for voting by the trustee, your voting instructions must be received by 11:59 p.m., Eastern Time, on April 16, 2015.
Whether you vote by Internet, telephone or mail, your shares will be voted in accordance with your instructions. If you sign, date and return your proxy card without indicating how you want to vote your shares, the proxy holders will vote your shares in accordance with the following recommendations of the Board:
Item 1 | — | FOR the election of each nominee for director; | ||||
Item 2 | — | FOR the approval, by an advisory vote, of the 2014 compensation of the Corporation’s named executive officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC; | ||||
Item 3 | — | FOR the ratification of the appointment of KPMG LLP as the Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2015; and | ||||
Item 4 | — | AGAINST the stockholder proposal regarding additional disclosure of political and lobbying contributions. |
The proxy holders are authorized to vote as they shall determine in their sole discretion on any other business that may properly come before the Annual Meeting.
You may revoke your proxy at any time before it is voted at the Annual Meeting by:
— | sending a |
— | submitting another signed proxy card with a later date; |
— | voting by Internet or telephone at a later date; or |
— | attending the Annual Meeting and voting in person. |
If you hold your shares in the name of your broker, bank or other nominee and wish to revoke your proxy, you will need to contact that party to revoke your proxy.
You may come to the Annual Meeting and vote your shares in person by obtaining and submitting a ballot that will be provided at the meeting. However, if your shares are held by a broker, bank or other nominee in street name, to be able to vote at the meeting you must obtain a proxy, executed in your favor, from the record holder of your shares, indicating that you were the beneficial owner of the shares at the close of business on February 23, 2015.
We are delivering only one Annual Report on Form 10-K and Proxy Statement (or, as applicable, the Notice) to stockholders of record who share the same address unless they have notified us that they wish to continue receiving multiple copies. This practice, known as “householding,” reduces duplicate mailings, saves printing and postage costs as well as natural resources and will not affect dividend check mailings. If you wish to receive separate copies of proxy materials, please contact Broadridge at 1-800-542-1061 or Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Stockholders who wish
to receive a separate set of proxy materials now should contact Broadridge at the same telephone number or mailing address and the materials will be delivered to you promptly upon your request.
If you and other stockholders of record with whom you share an address currently receive multiple copies of our proxy materials or if you hold our stock in more than one account, and, in either case, you wish to receive only a single copy of such materials in the future, please contact Broadridge at the telephone number or mailing address above with the names in which all accounts are registered and the name of the account for which you wish to receive mailings.
Quorum and Vote Required for Approval
A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if a majority of the outstanding shares entitled to vote at the meeting is present in person or by proxy at the Annual Meeting. Abstentions and broker nonvotes, if any, will be counted as present for purposes of establishing a quorum. A “broker nonvote” will occur when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions from the beneficial owner. As noted above, brokers, banks and other nominees generally cannot vote your shares on the election of directors, executive compensation matters or stockholder proposals without your specific instructions. Please return your proxy card or voting instruction form, as applicable, or vote by Internet or telephone so your vote can be counted. An inspector of election appointed for the Annual Meeting will tabulate all votes cast in person or by proxy at the Annual Meeting. In the event a quorum is not present at the Annual Meeting, we expect that the Annual Meeting will be adjourned or postponed to solicit additional proxies.
The following table indicates the vote required for approval of each item to be presented to the stockholders at the Annual Meeting and the effect of abstentions and broker nonvotes.
Item | Required Vote | Effect of Abstentions and Broker Nonvotes | ||
Item 1—Election of directors | Affirmative vote of a majority of the votes cast with respect to each nominee. | — Abstentions with respect to a nominee will have no effect on the election of such nominee. — Broker nonvotes will have no effect on the voting for this item. | ||
Item 2—Advisory vote on executive compensation | Affirmative vote of a majority of the shares of common stock present and entitled to vote. | — Abstentions will have the effect of a vote AGAINST this proposal. — Broker nonvotes will have no effect on the voting for this item. | ||
Item 3—Ratification of the appointment of KPMG LLP as the Corporation’s independent registered public accounting firm for fiscal year 2015 | Affirmative vote of a majority of the shares of common stock present and entitled to vote. | — Abstentions will have the effect of a vote AGAINST this proposal. — Brokers may vote uninstructed shares on this | ||
Item 4—Stockholder proposal | Affirmative vote of a majority of the shares of common stock present and entitled to vote. | — Abstentions will have the effect of a vote AGAINST this proposal. — Broker nonvotes will have no effect on the voting for this item. |
Solicitation of Proxies; Costs
The Corporation will bear the cost of preparing, printing and mailing the materials in connection with this solicitation of proxies. In addition to mailing these materials, the Corporation’s officers and other employees may, without being additionally compensated, solicit proxies personally and by mail, telephone or electronic communication. The Corporation will reimburse banks and brokers for their reasonable out-of-pocket expenses related to forwarding proxy materials to beneficial owners of stock or otherwise in connection with this solicitation. In addition, the Corporation has retained Georgeson Inc. to assist in the solicitation of proxies for a fee of approximately $13,500, plus reasonable out-of-pocket expenses.
ADMITTANCE TO THE ANNUAL MEETING
Stockholders at the close of business on the record date, February 23, 2015, or their duly appointed proxies, may attend our Annual Meeting at our corporate headquarters on April 21, 2015 at 10:30 a.m., Central Time. Registration will begin at 9:30 a.m. Our corporate headquarters are located at 50 South La Salle Street (northwest corner of La Salle Street and Monroe Street) in Chicago, Illinois.
In order to be admitted to the meeting, you must bring documentation showing that you owned the Corporation’s common stock at the close of business on the record date, February 23, 2015. Acceptable documentation includes an admission ticket, a Notice Regarding the Availability of Proxy Materials or any other proof of ownership of the Corporation’s common stock at the close of business on February 23, 2015. A brokerage statement or letter from a bank or broker reflecting your holdings at the close of business on February 23, 2015 is an example of such other proof of ownership. Your admission ticket is located on the top portion of the rear side of your proxy card or on the left side of your voting instruction form if your shares are held by a broker, bank or other nominee in street name. You will be asked to present valid picture identification, such as a driver’s license or passport. For safety and security reasons, cameras and recording devices will not be permitted in the meeting.
Stockholders will be asked to elect eleven directors at the Annual Meeting. Set forth below is detailed information with respect to the eleven nominees, each of whom is currently serving as a director of the Corporation and its principal subsidiary, The Northern Trust Company (the “Bank”). Included in the incumbent directors nominated for re-election are Dean M. Harrison and Donald Thompson, who were recently appointed as directors of the Corporation by the Board, effective January 1, 2015 and March 6, 2015, respectively, in accordance with the Corporation’s By-laws and pursuant to the recommendation of the Corporation’s Chairman and CEO and Lead Director. Current directors not standing for re-election are Nicholas D. Chabraja, who has not been nominated for re-election in accordance with the director retirement age under the Corporation’s Corporate Governance Guidelines, and Robert W. Lane, who has notified the Board that he intends to retire from service as a director effective upon the conclusion of his current term at the Annual Meeting. Messrs. Chabraja and Lane have served as members of the Board since 2007 and 2009, respectively.
Each of the eleven director nominees has consented to serve as a director if elected at the Annual Meeting. Each nominee elected as a director will serve until the next Annual Meeting of Stockholders and until his or her successor is elected and qualified. If any nominee is unable to serve as a director at the time of the Annual Meeting, your proxy may be voted for the election of another nominee proposed by the Board or the Board may reduce the number of directors to be elected at the Annual Meeting.
Under the majority voting policy as set forth in the Corporation’s By-laws, a nominee for director in an uncontested election (such as this year’s election where the only nominees are those recommended by the Board) must receive the affirmative vote of a majority of the votes cast at a meeting of stockholders. In contested elections, the affirmative vote of a plurality of the votes cast will be required to elect a director. The Corporation’s Corporate Governance Guidelines require an incumbent director who fails to receive the affirmative vote of a majority of the votes cast in an uncontested election at a meeting of stockholders to submit his or her resignation following certification of the stockholder vote. Such resignation will first be considered by the members of the Corporate Governance Committee (other than the tendering director, if applicable), who will recommend to the Board whether to accept or reject the resignation after considering all factors deemed relevant by the Committee, including, without limitation, any stated reasons why stockholders did not support such director, the length of service and qualifications of such director, the director’s contributions to the Corporation and the Corporation’s Corporate Governance Guidelines. The Board (other than the tendering director) will then act to accept or reject the Committee’s recommendation no later than ninety days following the date of the stockholders’ meeting after considering the factors considered by the Committee and such additional information and factors as the Board believes to be relevant.
The Board unanimously recommends that you voteFOR the election of each nominee.
INFORMATION ABOUT THE NOMINEES FOR DIRECTOR
The following information about the nominees for election to the Board at the Annual Meeting is as of December 31, 2014, unless otherwise indicated.
![]() | LINDA WALKER BYNOE, Director since 2006, Age 62 President and Chief Executive Officer,Telemat Ltd. (project management and consulting firm) since 1995. Ms. Bynoe is a director of Anixter International Inc. and Prudential Retail Mutual Funds and a trustee of Equity Residential. She is a former director of Simon Property Group, Inc. The Board concluded that Ms. Bynoe should serve as a director based on her diverse consulting and investment experience, her expertise in public accounting, corporate governance, managing a private equity investment portfolio and strategy development and her experience as a director of financial services and other complex global corporations. | |
SUSAN CROWN, Director since 1997, Age 56 Vice President, Henry Crown and Company (global company with diversified investments in banking, transportation, manufacturing, real estate and other industries) since 1984,Chief Executive Officer, Owl Creek Partners LLC (venture capital investment vehicle) since 2010, andChairman and Founder, Susan Crown Exchange Inc. (social investment organization that connects talent and innovations with market forces to drive social change) since 2009. Ms. Crown is a director of Illinois Tool Works Inc. and Vice Chair of the Board of Trustees of Rush University Medical Center in Chicago. Ms. Crown is a former trustee of Yale University. The Board concluded that Ms. Crown should serve as a director based on her experience at Henry Crown and Company, her leadership and risk oversight experience as a director of Illinois Tool Works Inc. and her extensive experience with civic and not-for-profit organizations. The board also considered the valuable perspective on governance and corporate responsibility matters that Ms. Crown brings through her current and former board service at various large organizations, both commercial and not-for-profit. | ||
![]() | DEAN M. HARRISON, Director since 2015, Age 60 President and Chief Executive Officer, Northwestern Memorial HealthCare (the primary teaching affiliate of Northwestern University Feinberg School of Medicine and parent corporation of Northwestern Memorial Hospital) since 2006. Mr. Harrison served as President of Northwestern Memorial Hospital from 1999 to 2006. Mr. Harrison also serves as chairman of the Illinois Hospital Association. The Board concluded that Mr. Harrison should serve as a director based on his extensive experience leading a large, complex organization in a highly regulated industry. |
![]() | DIPAK C. JAIN, Director since 2004, Age 57 Director, Sasin Graduate Institute of Business
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![]() | JOSE LUIS PRADO,Director since 2012, Age 60
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JOHN W. ROWE, Director since 2002, Lead Director since April 2010, Age 69
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[PHOTO] | DAVID H. B. SMITH, JR., Director since April 2010, Age 48
The | |||||||||||
DONALD THOMPSON, Director since 2015, Age 52 Retired President and Chief Executive Officer, McDonald’s Corporation (global foodservice retailer). Mr. Thompson served as President and Chief Executive Officer of McDonald’s Corporation from 2012 until March 1, 2015. Previously, Mr. Thompson served as President and Chief Operating Officer of McDonald’s Corporation from 2010 to 2012 and President of McDonald’s USA from 2006 to 2010. Mr. Thompson also served as director of McDonald’s Corporation from 2011 to March 1, 2015 and of Exelon Corporation from 2007 to 2013. The Board concluded that Mr. Thompson should serve as a director based on his management and board experience at other complex corporations. |
CHARLES A. TRIBBETT III, Director since 2005, Age 59 Managing Director, Russell Reynolds Associates (global executive The Board concluded that Mr. Tribbett should serve as a director based on his global leadership consulting experience evaluating and identifying senior management professionals and his leadership experience as a Managing Director of Russell Reynolds Associates. | ||
![]() | FREDERICK H. WADDELL, Director since 2006, Age 61 Chairman of the Board of the Corporation and Mr. Waddell is a director of AbbVie, Inc. Since joining Northern Trust in 1975, Mr. Waddell has held leadership positions in a variety of the Corporation’s businesses. The Board concluded that Mr. Waddell should serve as a director based on his experience and ongoing responsibilities with respect to the Corporation’s businesses. |
BOARD AND BOARD COMMITTEE INFORMATION
Our Board currently consists of thirteen members. The Board has determined that each of the following twelve current directors is independent in accordance with our independence standards, which conform with SEC rules and the listing standards of The NASDAQ Stock Market LLC (“NASDAQ”): Linda Walker Bynoe, Nicholas D. Chabraja (who is not standing for re-election), Susan Crown, Dean M. Harrison, Dipak C. Jain, Robert W. Lane (who is not standing for re-election), Jose Luis Prado, John W. Rowe, Martin P. Slark, David H. B. Smith, Jr., Donald Thompson and Charles A. Tribbett III.
During 2014, the Corporation’s Board held ten meetings. All persons who were directors during 2014 attended at least 75% of these meetings and meetings of committees on which they served. Our Corporate Governance Guidelines state that all directors are expected to attend each Annual Meeting of Stockholders. In accordance with this expectation, all of the directors then serving attended the 2014 Annual Meeting of Stockholders held on April 15, 2014.
The standing committees of the Board are the Audit Committee, the Business Risk Committee, the Business Strategy Committee, the Compensation and Benefits Committee, the Corporate Governance Committee and the Executive Committee. With the exception of the Executive Committee, all standing committees are composed solely of independent directors. Consequently, independent directors directly oversee critical matters and appropriately oversee the Chairman and CEO.
Each committee is governed by a written charter. These charters detail the duties and responsibilities of each committee and are available on the Corporation’s website at www.northerntrust.com.
Current Members: Directors Smith (Chair), Chabraja, Harrison, Jain and Prado
Number of Meetings in 2014: 5
The Audit Committee’s purpose is to oversee the accounting and financial reporting processes of the Corporation and its subsidiaries and the audits of the consolidated financial statements of such entities, as well as to provide assistance to the Board in fulfilling its legal and fiduciary obligations with respect to matters involving the organization’s accounting, auditing, financial reporting, internal financial control and legal compliance functions, including, without limitation: (i) assisting the Board’s oversight of (a) the integrity of the organization’s consolidated annual and quarterly financial statements and earnings releases, (b) the organization’s compliance with legal and regulatory requirements, (c) the Corporation’s public accountants’ qualifications and independence and (d) the performance of the organization’s internal audit function and the Corporation’s public accountants; and (ii) preparing the report required to be prepared by the Committee pursuant to SEC rules for inclusion in the Corporation’s annual proxy statement.
The Board has determined that all members of the Audit Committee are independent under SEC rules and NASDAQ listing standards. The Board has also determined that all Audit Committee
members have the financial experience and knowledge required for service on the Committee, and has designated Mr. Smith as its “audit committee financial expert,” as defined by SEC rules.
Current Members: Directors Prado (Chair), Bynoe, Harrison and Smith
Number of Meetings in 2014: 4
The Business Risk Committee’s sole and exclusive function is responsibility for the risk-management policies of the Corporation’s global operations and oversight of the operations of the Corporation’s global risk-management framework. In furtherance of this function, the Business Risk Committee assists the Board in discharging its oversight duties with respect to: (i) the risks inherent in the businesses of the Corporation and its subsidiaries in the following categories: credit risk, market and liquidity risk, fiduciary risk, operational risk and compliance risk; (ii) the process by which risk-based capital requirements are determined, including the organization’s internal capital adequacy assessment process; and (iii) the resolution planning process.
The Board has determined that all members of the Business Risk Committee are independent under SEC rules and NASDAQ listing standards.
Current Members: Directors Crown (Chair), Jain, Lane and Slark
Number of Meetings in 2014: 4
The purpose of the Business Strategy Committee is to assist the Board in discharging its oversight duties with respect to: (i) the strategic direction of the Corporation; (ii) the strategic initiatives of the businesses of the Corporation and its subsidiaries; (iii) the management of strategic risk for the organization; and (iv) the (a) integration of corporate social responsibility principles related to environmental and social practices into the strategic direction and strategic initiatives of the organization and its businesses and (b) governance of those practices.
The Board has determined that all members of the Business Strategy Committee are independent under SEC rules and NASDAQ listing standards.
Compensation and Benefits Committee
Current Members: Directors Chabraja (Chair), Bynoe, Rowe, Slark and Tribbett
Number of Meetings in 2014: 5
The purpose of the Compensation and Benefits Committee is to assist the Board in discharging its duties and responsibilities relating to: (i) the compensation of the directors and executive officers of the Corporation and its subsidiaries; and (ii) the employee benefit and equity-based plans of the organization. The Committee also assists the Board with management development and succession planning and prepares the report required to be prepared by the Committee pursuant to SEC rules for inclusion in the Corporation’s annual proxy statement.
The Board has determined that all members of the Compensation and Benefits Committee are independent under SEC rules and NASDAQ listing standards.
Corporate Governance Committee
Current Members: Directors Rowe (Chair), Crown, Lane and Tribbett
Number of Meetings in 2014: 5
The purpose of the Corporate Governance Committee is to: (i) identify and recommend to the Board candidates for nomination or appointment as directors; (ii) review the Board’s committee structure and recommend appointments to committees; (iii) develop and recommend, to the Board, Corporate Governance Guidelines applicable to the Corporation; (iv) advise the Board on the appointment of a successor in the event of the unanticipated death, disability or resignation of the Corporation’s CEO, after consultation with the Chairman of the Corporation’s Compensation and Benefits Committee; (v) oversee the procedures relating to stockholder communications with the Board and review any proposals submitted by stockholders; and (vi) oversee the annual evaluation of the Board and its committees.
The Board has determined that all members of the Corporate Governance Committee are independent under SEC rules and NASDAQ listing standards.
Current Members: Directors Waddell (Chair), Chabraja, Crown, Prado, Rowe and Smith
Number of Meetings in 2014: 0
The Board appoints an Executive Committee so that there will be a committee of the Board empowered to act for the Board, to the full extent permitted by law, between meetings of the Board if necessary and appropriate. The Executive Committee is composed of the Chairman of the Board and the Chair of each of the other standing committees of the Board. The Executive Committee did not meet in 2014.
To be considered independent, the Board must affirmatively determine that a director has no relationship with the Corporation which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Corporation’s Corporate Governance Guidelines require that the Board be composed of a majority of directors who meet the criteria for “independence” under NASDAQ listing standards.
To assist the Board in making its independence determinations, the Board has adopted categorical standards. Under these standards, the following persons shall not be considered “independent”:
— | a director who is or was an employee or executive officer of the Corporation, or whose Family Member (as defined below) is or was an executive officer of the Corporation, at any time during the past three years; |
— | a director who receives or has received, or whose Family Member receives or has received, compensation from the Corporation in excess of $120,000 during any period of twelve consecutive months within the past three years, other than director and committee fees, benefits under a tax-qualified retirement plan or other forms of nondiscretionary compensation; provided, however, that compensation received by a Family Member of a director for service as an employee (other than an executive officer) of the Corporation need not be considered in determining independence; |
— | a director who is, or whose Family Member is, a current partner of the Corporation’s outside auditor, or who was a partner or employee of the Company’s outside auditor who worked on the Corporation’s |
— | a director who is,
|
“Family Member” means a person’s spouse, parents, children and siblings, whether by blood, marriage or adoption, or anyone residing in such person’s home.
As discussed above, the Board has determined that each current director (other than Mr. Waddell who serves as Chairman and CEO of the Corporation) is independent of the Corporation in accordance with the Corporation’s Corporate Governance Guidelines and categorical standards.
In addition to the categorical standards, the Board also considers any transactions, relationships, or arrangements between the Corporation and a director that constitutes a related person transaction under the Corporation’s Related Person Transactions Policy described below. In assessing the independence of the Corporation’s directors, the Board considered the fact that, during 2014, the Corporation or its subsidiaries provided financial services to each of its directors, or persons related to such directors, in the ordinary course of business. Services provided included trust and related services, brokerage services, asset servicing, asset management, securities lending, credit services and other banking services. These transactions were undertaken in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral for loan transactions) as those prevailing at the time for comparable transactions with other persons not related to the Corporation or any affiliated entities involved in the transactions. None of the transactions involved more than the normal risk of collectability or presented other unfavorable features. None of the transactions or any transactions in which the Corporation or any of its subsidiaries sold or purchased products and services were material to the Corporation or affiliated entities involved in the transactions, and none require disclosure pursuant to Item 404(a) of Regulation S-K of the Securities Exchange Act of 1934 (the “Exchange Act”). Any extensions of credit to directors and executive
officers of the Corporation were permitted under the provisions of Section 13(k) of the Exchange Act. In each case, the Board determined that these relationships were immaterial and did not affect the independence of any director.
Related Person Transactions Policy
The Board, through its Audit Committee, adopted a written Related Person Transactions Policy to govern the review, approval, and ratification of transactions between the Corporation or its subsidiaries and any related persons. “Related persons” means the Corporation’s directors, nominees for director, executive officers, greater than five percent beneficial owners, members of their immediate family and any person other than a tenant or employee sharing their household. The Related Person Transactions Policy also covers transactions in which any related person has an indirect interest.
The Related Person Transactions Policy provides that the Corporation may undertake certain pre-approved related person transactions in the ordinary course of business without specific review, approval or ratification, including the following pre-approved transactions:
— | an extension of credit to a related person that is made in the ordinary course of business |
— |
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— | a transaction involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture or similar services; |
— | a transaction where the rates or charges involved in the transaction are determined by competitive bids, or the transaction involves the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with |
— | a transaction with another company at which a related person’s only relationship is as an employee, a director, a limited partner or a beneficial owner of |
— | compensation paid to executive officers and |
Any other related person transaction involving amounts in excess of $120,000 must be approved or ratified by the Audit Committee or the Audit Committee Chair. In considering related person transactions, the Audit Committee or the Audit Committee Chair will consider all relevant facts and circumstances and approve only those related person transactions that are in, or otherwise not inconsistent with, the best interests of the Corporation and its subsidiaries.
As noted above, in 2014, certain related persons were clients of, and engaged in the types of transactions identified in the bullet points above with, the Corporation and one or more of its subsidiaries. These transactions were undertaken in the ordinary course of business and upon such other terms and conditions as permitted such transactions to qualify for pre-approval under the Related Person Transactions Policy. Further, as noted above, none of the transactions require disclosure pursuant to Item 404(a) of Regulation S-K of the Exchange Act.
The independent directors of the Corporation met in executive sessions separate from management six times during 2014. The Lead Director or, in his absence, another independent director designated by the Lead Director presides at executive sessions of the independent directors.
Board Leadership Structure; Lead Director
The current leadership structure of the Board consists of a combined Chairman and CEO position and a Lead Director appointed annually by the Corporation’s independent directors.
The Board has determined that combining the positions of Chairman and CEO is the most appropriate for the Corporation at this time. Having one person as Chairman and CEO provides unified leadership and direction to the Corporation and strengthens the ability of the CEO to develop and implement strategic initiatives and respond efficiently in crisis situations. The Board believes the combination of the Chairman and CEO positions is appropriate in light of the substantial independent oversight provided by the Board. The Board also believes that the desire for independent leadership of the Board is sufficiently achieved by the prominent role of the Lead Director.
The Lead Director’s primary duties are described in the Corporation’s Corporate Governance Guidelines. Among other things, the Lead Director’s duties include: (i) approving meeting agendas for the Board and the nature of information sent to the Board; (ii) approving Board meeting schedules to assure that there is sufficient time for discussion of all Board agenda items; (iii) the authority to call at any time a special meeting of the Board or a special executive session of the independent directors; (iv) the authority to add items to the agenda of any regular or special meeting of the Board; (v) preparing the agenda for all regular and any special executive sessions of the independent directors; (vi) presiding at all regular and special meetings of the Board at which the Chairman is not present; (vii) presiding at all regular and any special executive sessions of the independent directors; (viii) serving as a liaison between the independent directors and the Chairman and CEO;
(ix) conducting, by means of an interview with each independent director, the independent directors’ annual evaluation of the Chairman and CEO’s performance and then communicating the results to the Compensation and Benefits Committee and to the Chairman and CEO; (x) conducting, by means of an interview with each director, including the Chairman and CEO, the Board’s annual self-evaluation of its performance and then providing a summary report to the Board; and (xi) being available for consultation and direct communication with major stockholders.
The Board provides oversight of risk management directly as well as through its Audit, Business Risk, Business Strategy, and Compensation and Benefits Committees. The Business Risk Committee assumes primary responsibility and oversight with respect to credit risk, operational risk, fiduciary risk, compliance risk, market risk and liquidity risk, and the Business Strategy Committee provides oversight with respect to strategic risk for the Corporation and its subsidiaries. The Audit Committee provides oversight with respect to financial reporting and legal risk, while the Compensation and Benefits Committee oversees the development and operation of the incentive compensation program of the Corporation and its subsidiaries. The Compensation and Benefits Committee annually reviews management’s assessment of the effectiveness of the design and performance of the incentive compensation arrangements and practices in providing risk-taking incentives that are consistent with the safety and soundness of the Corporation and its subsidiaries. This assessment includes an evaluation of whether these incentive compensation arrangements and practices discourage inappropriate risk taking behavior by participants. The charters for the Audit, Business Risk, Business Strategy and Compensation and Benefits Committees provide that the Committees may meet with the individuals who supervise day-to-day risk management responsibilities of the Corporation and other members of management, consultants or advisors, as each committee deems appropriate.
The Board has approved a corporate risk appetite statement articulating the Corporation’s expectation that risk be consciously considered as part of strategic decisions and in day-to-day activities. For a further description of the risk management policies and practices of the Corporation’s management, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management and —Liquidity and Capital Resources—Liquidity Risk Management” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014.
Corporate Governance Guidelines
The Corporation has had Corporate Governance Guidelines in place since 2000. The Corporate Governance Committee reviews and reassesses the adequacy of the Corporate Governance Guidelines at least annually and recommends any changes to the Board for approval. The Corporation’s Corporate Governance Guidelines embody many of the Corporation’s long-standing practices and incorporate policies and procedures that strengthen its commitment to corporate governance best practices. A copy of the Corporate Governance Guidelines is available on the Corporation’s website at www.northerntrust.com.
Code of Business Conduct and Ethics
The Board of the Corporation has adopted a Code of Business Conduct and Ethics to:
Name | Common Stock (1) and Stock Units (2) Owned as of January 1, 2012 | |||||
No. of Shares | Percent of Class | No. of Stock Units | ||||
Linda Walker Bynoe | 2,000 | * | 9,735 | |||
Nicholas D. Chabraja | 9,224 | * | 3,326 | |||
Susan Crown | 22,400 | * | 16,689 | |||
Steven L. Fradkin | 457,985(3) | * | 68,977 | |||
Dipak C. Jain | 2,175 | * | 22,534 | |||
Robert W. Lane | 9,425 | * | 2,834 | |||
Robert C. McCormack | 6,090,932(4) | 2.53% | 8,252 | |||
Edward J. Mooney | 0 | * | 15,401 | |||
William L. Morrison | 545,333(3) | * | 75,914 | |||
Michael G. O’Grady | 0 | * | 32,234 | |||
Stephen N. Potter | 340,035(3) | * | 63,876 | |||
John W. Rowe | 11,000 | * | 29,266 | |||
Jana R. Schreuder | 316,786(3) | * | 59,500 | |||
Martin P. Slark | 1,000 | * | 1,849 | |||
David H. B. Smith, Jr. | 17,317(5)(6) | * | 1,849 | |||
Enrique J. Sosa | 1,000 | * | 14,978 | |||
Charles A. Tribbett III | 1,000 | * | 20,262 | |||
Frederick H. Waddell | 999,324(3) | * | 260,893 | |||
All directors and executive officers as a group | 10,511,362(3)(4)(5) | 4.36% | 958,817 |
— | promote honest and ethical conduct, including fair dealing and the ethical handling of actual or apparent conflicts of interest; |
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— | promote compliance with applicable laws and governmental rules, codes and regulations wherever the Corporation does business; |
— | ensure the protection of the Corporation’s legitimate business interests; and |
— | deter wrongdoing. |
The Code of Business Conduct and Ethics satisfies applicable SEC and NASDAQ requirements and applies to all directors, officers (including the Corporation’s principal executive officer, principal financial officer and principal accounting officer) and employees of the Corporation and its subsidiaries. The Corporation intends to disclose any amendments to, or waivers from, the Code of Business Conduct and Ethics for directors and executive officers by posting such information on its website. A copy of the Code of Business Conduct and Ethics is available on the Corporation’s website at www.northerntrust.com.
Management Development and Succession Planning
The Compensation and Benefits Committee oversees executive management and succession planning. Pursuant to the Corporate Governance Guidelines and the charter for the Compensation and Benefits Committee, the Compensation and Benefits Committee conducts an annual management development and succession planning review. All of the Corporation’s directors are invited to, and typically all participate in, this review. Following the review, the Compensation and Benefits Committee makes recommendations concerning management development and succession planning. This management review process also includes a review of other senior employees of the Corporation, with a focus on developing internal candidates for advancement within the Corporation.
In connection with setting the compensation of the Corporation’s Chairman and CEO, the Compensation and Benefits Committee and the Board review the performance of the Chairman and CEO in light of the Chairman and CEO’s responsibilities to the Corporation, including the development of short-term and long-term strategic plans, goals and objectives, the development of an effective senior management team, positioning of the Corporation for current and future success and effective communications with all of the Corporation’s constituencies. These criteria, among others, would also be considered by the Board in evaluating any successor Chairman and CEO candidates.
In the event of the unexpected death, incapacity, or resignation of the Chairman and CEO, pursuant to its charter, the Corporate Governance Committee will discuss and make a recommendation to the Board, after consultation with the Chairman of the Compensation and Benefits Committee, for an appropriate successor.
Director Nominations and Qualifications
The Corporate Governance Committee is responsible for considering, evaluating, and recommending candidates for director. The Committee will consider persons nominated by stockholders in accordance with the nomination procedures specified in the Corporation’s By-laws or otherwise recommended by stockholders. The Corporation’s By-laws provide that stockholders may propose director nominations only if they give timely written notice, directed to the attention of the Corporation’s Corporate Secretary, not less than 120 days nor more than 150 days prior to the anniversary date of the prior year’s Annual Meeting of Stockholders. If such Annual Meeting of Stockholders is called for a date that is not within thirty days before or after the anniversary date of the prior year’s Annual Meeting of Stockholders, notice by the stockholder in order to be timely must be received within ten days after notice of such subsequent Annual Meeting of Stockholders is mailed or public disclosure of the date of such Annual Meeting of Stockholders is made, whichever occurs first. In either case, the notice must contain the information required by the Corporation’s By-laws. Stockholders may also recommend candidates for director by following the procedures for communicating with directors described below under “Communications with the Board and Independent Directors.”
In its evaluation of director candidates, including persons recommended by stockholders, the Corporate Governance Committee considers the factors specified in the Corporation’s Corporate Governance Guidelines to ensure the Board has a diversity of perspectives and backgrounds, including the nature of the expertise and experience required for the performance of the duties of a director of a corporation engaged in the Corporation’s business and such matters as relevant business and industry experience, professional background, age, current employment, community service and other board service. The Committee also considers the racial, ethnic, and gender diversity of the Board in assessing candidates. The Committee seeks to identify, as candidates for director, persons with a reputation for and record of integrity and good business judgment who: (i) have experience in positions with a high degree of responsibility and are leaders in the organizations with which they are affiliated; (ii) are free from conflicts of interest that could interfere with a director’s duties to the Corporation and its stockholders; and (iii) are willing and able to make the necessary commitment of time and attention required for effective Board service. The Committee also takes into account a candidate’s level of financial literacy, and monitors the mix of skills and experience of the directors in order to assess whether the Board has the necessary tools to perform its oversight function effectively. A full listing of the characteristics and qualifications of director candidates considered by the Committee is set forth in the Corporate Governance Guidelines on the Corporation’s website at www.northerntrust.com. Following its evaluation process, the Committee recommends its director nominees to the full Board, and the Board makes the final determination of director nominees based on its consideration of the Committee’s recommendation and report.
The Corporation recognizes the importance of stockholder engagement to help our investors understand our performance and strategies and to allow our stockholders to express their views on issues important to the Corporation. Accordingly, it is the Corporation’s practice to proactively and routinely engage with stockholders throughout the year.
Communications with the Board and Independent Directors
Stockholders and other interested persons may communicate with any of the Corporation’s directors, including the Lead Director or the nonmanagement directors as a group, by writing a letter
addressed to the applicable director(s), c/o Northern Trust Corporation, 50 South La Salle Street, M-9, Chicago, Illinois 60603, Attention: Corporate Secretary. The Corporation’s Corporate Secretary will forward communications directly to the Lead Director, unless a different director is specified.
Any stockholder or other interested person who has a particular concern regarding accounting, internal accounting controls, or other audit matters that he or she wishes to bring to the attention of the Audit Committee may communicate those concerns to the Audit Committee or its Chairman, using the address indicated above. Any written communication regarding accounting, internal accounting controls or other matters are processed in accordance with procedures adopted by the Audit Committee.
Securities Trading Policy and Policy Against Hedging
Our securities trading policy prohibits directors, employees, including our named executive officers, and certain of their family members from purchasing or selling any type of security, whether issued by us or another company, while such persons are aware of material nonpublic information relating to the issuer of the security and from providing such material nonpublic information to any person who may trade while aware of such information. This policy also prohibits directors, employees, and certain of their family members from engaging in short selling, margining and pledging or hypothecating the Corporation’s securities, and from trading in options, warrants, puts, calls or similar instruments on the Corporation’s securities.
SECURITY OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the beneficial ownership of the Corporation’s common stock as of December 31, 2014 for each director, each named executive officer and all directors and executive officers of the Corporation as a group.
Name of Beneficial Owner | Shares (1) (2) | Shares under Options (3) | Total Beneficial of Common Stock | Percent of Class | ||||||||||||
Non-Employee Directors: | ||||||||||||||||
Linda Walker Bynoe | 14,178 | — | 14,178 | * | ||||||||||||
Nicholas D. Chabraja | 16,342 | — | 16,342 | * | ||||||||||||
Susan Crown | 33,515 | — | 33,515 | * | ||||||||||||
Dean M. Harrison (4) | 15 | — | 15 | * | ||||||||||||
Dipak C. Jain | 15,314 | — | 15,314 | * | ||||||||||||
Robert W. Lane | 15,799 | — | 15,799 | * | ||||||||||||
Jose L. Prado | 3,819 | — | 3,819 | * | ||||||||||||
John W. Rowe | 26,915 | — | 26,915 | * | ||||||||||||
Martin P. Slark | 6,642 | — | 6,642 | * | ||||||||||||
David H. B. Smith, Jr. (5) | 27,845 | — | 27,845 | * | ||||||||||||
Donald Thompson (6) | — | — | — | * | ||||||||||||
Charles A. Tribbett III | 14,515 | — | 14,515 | * | ||||||||||||
Named Executive Officers: | ||||||||||||||||
Frederick H. Waddell | 349,127 | 1,084,248 | 1,433,375 | * | ||||||||||||
S. Biff Bowman | 25,822 | 75,254 | 101,076 | * | ||||||||||||
Steven L. Fradkin | 121,372 | 359,191 | 480,563 | * | ||||||||||||
William L. Morrison | 109,847 | 396,706 | 506,553 | * | ||||||||||||
Michael G. O’Grady | 8,919 | 129,006 | 137,925 | * | ||||||||||||
Jana R. Schreuder | 60,757 | 336,700 | 397,457 | * | ||||||||||||
All directors and executive officers as a group (26 persons) | 1,041,017 | 3,159,462 | 4,200,479 | 1.77 | % |
* Less than 1%.
(1) Except as noted below, the nature of beneficial ownership for shares shown in this table is sole voting and investment power (including shares as to which spouses and minor children of the individuals covered by this table have such power).
(2) Amount includes restricted stock units payable on a one-for-one basis in shares of the Corporation’s common stock that are scheduled to vest within sixty days of December 31, 2014 in the following amounts: Mr. Waddell – 37,994 units; Mr. Bowman – 5,719 units; Mr. Fradkin – 11,873 units; Mr. Morrison – 11,873 units; Ms. Schreuder – 11,873 units; and all directors and officers as a group – 124,413 units.
(3) Amount of shares includes options that were exercisable as of December 31, 2014 and options that become exercisable within sixty days thereafter.
(4) Mr. Harrison was appointed as a director of the Corporation effective January 1, 2015.
(5) Mr. Smith is co-trustee with another individual on two separate trusts. He shares voting and investment power for 500 shares held in one trust and 1,704 in another trust, all of which such shares are reflected in the table. He is also a beneficiary of a trust that holds 1,362,880 shares; as Mr. Smith has no investment or voting power with respect to these shares, they are not reflected in the table.
(6) Mr. Thompson was appointed as a director of the Corporation effective March 6, 2015.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Corporation’s directors, executive officers and beneficial owners of more than 10% of the Corporation’s stock to file with the SEC initial reports of ownership and reports of changes in ownership of any equity securities of the Corporation. Based solely on the Corporation’s review of the reports that have been filed by or on behalf of such reporting persons in this regard and written representations from such reporting persons that no other reports were required, the Corporation believes that all reports required by Section 16(a) of the Exchange Act were made on a timely basis during or with respect to 2014, except for a Form 3 filed on August 22, 2014 reporting initial ownership information for Edward J. Mooney upon his appointment as an advisory director of the Corporation which should have been filed by July 25, 2014, and a Form 4 filed for Mr. Mooney on August 22, 2014 to report a transaction that should have been reported by July 17, 2014.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table includes information concerning stockholders who were the beneficial owners of more than 5% of the outstanding shares of the Corporation’s common stock as of December 31, 2014.
Name and Address | Shares | Percent of Class | ||||||
The Northern Trust Company (1) | 21,607,614 | 9.3 | % | |||||
T. Rowe Price Associates, Inc. (2) | 15,322,381 | 6.5 | % | |||||
BlackRock, Inc. (3) | 12,424,815 | 5.3 | % |
(1) As of December 31, 2014, the Bank and its affiliates individually acted as sole or co-fiduciary with respect to trusts and other fiduciary accounts which owned, held or controlled through intermediaries the shares. This aggregate number of shares includes 1,362,880 shares held by the trust described in footnote 5 to the “Security Ownership by Directors and Executive Officers” table in this Proxy Statement, or less than 0.6% of the outstanding common stock. Of these shares, the Bank and its affiliates had sole voting power with respect to 8,427,770 shares, or 3.6% of the outstanding common stock, and they shared voting power with respect to 11,648,715 shares, or 5.0% of the outstanding
common stock. They had sole investment power with respect to 2,153,402 shares, or 0.9% of the outstanding common stock, and they shared investment power with respect to 12,433,100 shares, or 5.3% of the outstanding common stock.
(2) As reported on a Schedule 13G/A filed on February 13, 2015. T. Rowe Price Associates, Inc. (“Price Associates”) has indicated that these shares are owned by various individual and institutional investors, for which Price Associates serves as an investment adviser with power to direct investments and, in certain cases, sole power to vote the securities. For the purposes of the reporting requirements of the Exchange Act, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. Of these shares, Price Associates had sole voting power with respect to 4,575,082 shares, or 2.0% of the outstanding common stock, and it did not have shared voting power with respect to any such shares. Price Associates had sole investment power with respect to all such shares.
(3) As reported on a Schedule 13G filed on February 6, 2015. Of the shares reported, BlackRock, Inc. (“BlackRock”) had sole voting power with respect to 10,566,300 shares, or 4.5% of the outstanding common stock, and it did not have shared voting power with respect to any shares reported. BlackRock had sole investment power with respect to all shares reported.
ITEM 2—ADVISORY VOTE ON EXECUTIVE COMPENSATION
Pursuant to Section 14A of the Exchange Act, and the rules and regulations promulgated thereunder by the SEC, the Corporation is required to include in this Proxy Statement a separate resolution, subject to an advisory vote, to approve the compensation of our named executive officers as disclosed in this Proxy Statement (commonly referred to as a “Say-on-Pay” advisory vote). In a nonbinding, advisory vote on the frequency of future Say-on-Pay votes held at our 2011 Annual Meeting of Stockholders, stockholders voted in favor of conducting Say-on-Pay votes annually. In light of this result, and other factors considered by the Board, the Board has determined that the Corporation will hold Say-on-Pay votes on an annual basis until the next advisory vote on such frequency, which is expected to take place at the 2017 Annual Meeting of Stockholders. Accordingly, the Board is requesting that stockholders vote FOR approval of the following resolution:
“Resolved, that the compensation paid to the Corporation’s named executive officers, as disclosed in its Proxy Statement dated March 10, 2015, pursuant to Item 402 of Regulation S-K of the Exchange Act, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby APPROVED.”
As an advisory vote, this proposal is not binding on the Corporation. Although the vote is nonbinding, the Board and the Compensation and Benefits Committee value the opinions of our stockholders and, consistent with past practice, will consider the outcome of the vote when determining compensation policies and making future compensation decisions for our named executive officers.
As outlined in the Compensation Discussion and Analysis that begins on page 25 of this Proxy Statement, the Corporation’s executive compensation program is designed to attract, motivate and retain individuals who will contribute to the Corporation’s success and the creation of stockholder value. The Compensation and Benefits Committee believes that executive officers are most effectively motivated when their incentive compensation is tied to the Corporation’s overall performance as well as their individual performance. That is why a significant portion of each executive officer’s short-term and long-term incentive compensation is variable and depends on such performance. Long-term incentive compensation delivered through annual equity awards is the most significant element of the Corporation’s executive compensation program. The Compensation and Benefits Committee believes that this emphasis on equity-based compensation aligns the interests of executive officers with our stockholders, discourages inappropriate risk-taking, and encourages executive officers to appropriately consider and control risk factors, which furthers the Corporation’s risk-mitigation strategy. In addition, the Corporation has adopted policies, like stock ownership guidelines, and incorporated provisions into compensation plans, like forfeiture and clawback provisions, to ensure long-term focus and discourage inappropriate risk-taking by executive officers.
The Corporation’s conservatively managed executive compensation philosophy, coupled with its sound balance sheet and prudent business model, have contributed to the Corporation’s strong strategic and financial positioning, despite an increasingly regulated and a persistent low interest rate environment. In 2014, the Corporation reported revenue of $4.3 billion, net income of $811.8 million and diluted earnings per share of $3.32. The Corporation’s 2014 return on equity increased to 10.0% from 9.5% in the prior year. For the year ended December 31, 2014, the Corporation’s average three- and five-year returns on equity were 9.6% and 9.5%, respectively, in line with the peer-group medians of 9.7% for each of such periods. Further, the Corporation’s average revenue growth of 5.9%, 4.7% and 2.7% over the one-, three- and five-year periods ended December 31, 2014, respectively, significantly outpaced peer-group median growth of 0.7%, 1.4% and (1.0)% over such periods.
The Board unanimously recommends that you voteFOR this proposal.
Compensation Discussion and Analysis
Executive Summary
In 2014, the performance and achievements of our named executive officers helped the Corporation deliver sound financial results and accelerate the strategic initiatives of the organization in a continued challenging global economic environment. New business and our measured approach to managing the business contributed to the Corporation’s strong financial performance.
Appropriately linking the compensation of our named executive officers to the performance of our business is important to the continued growth and success of the Corporation. Accordingly, performance is the most significant driver of compensation decisions. The following charts summarize our performance in 2014 and highlight important considerations in the development, review and approval of our 2014 named executive officers’ compensation.
2014 Performance (con’t) | ||
Leadership Changes | — At the — These changes impacted each of the |
Name and Address | Common Stock Owned as of January 1, 2012 | |||||||
No. of Shares | Percent of Class | |||||||
The Northern Trust Company (1) 50 South LaSalle Street Chicago, Illinois 60603 | 23,466,135 | 9.74 | % | |||||
T. Rowe Price Associates, Inc. (2) 100 E. Pratt Street Baltimore, Maryland 21202 | 19,646,684 | 8.15 | % |
The performance
Decisions and | ||||||||||||||
2014 Compensation Decisions | — Base salaries for 2014 remained unchanged for named executive officers, — Annual short-term incentive awards — determined in — Long-term incentive compensation awarded as follows: — 50% as performance stock units — 25% as stock options — 25% as restricted stock units | |||||||||||||
2015 Performance Stock Units | — Performance stock units granted in 2015 pay out at 100% only if the
Guiding Principles for Executive Compensation |
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2011 Advisory Vote on Executive Compensation and Federal Reserve Review
The Corporation’s executive compensation was approved, on an advisory basis, by its stockholders at the Corporation’s April 19, 2011 annual meeting. During the fourth quarter of 2011 and the first quarter of 2012, the Corporation engaged in discussions with a number of our institutional stockholders about the design of our executive compensation program and related topics. The Compensation and Benefits Committee (as used in this section, the Committee) carefully considered stockholder feedback received and the results of the 2011 advisory vote in both establishing the 2012 executive compensation program, which reflects the changes described above under “2012 Program Updates,” and determining the 2012 named executive officers’ compensation packages.
With stockholder feedback and the results of the 2011 advisory vote in mind, the Committee also:
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And, as a further consequence of stockholder feedback, this proxy statement clearly reflects the Committee’s 2011 decision to discontinue the inclusion of excise tax gross ups in all new executive employment security agreements.
Northern Trust also has been engaged with the Federal Reserve, who has been reviewing incentive compensation practices at large complex banking organizations (LCBOs), including Northern Trust. The Federal Reserve’s principal focus is to insure that compensation arrangements at LCBOs do not inappropriately encourage excessive risk-taking.
The Federal Reserve, in particular, views stock options as a form of incentive compensation that can create inappropriate risk-taking. In working with the Federal Reserve, Northern Trust has reduced the proportion of stock options relative to overall equity compensation, and increased the proportion of PSUs and long-term cash, which in the view of the Federal Reserve, do not present the same inherent risk.
2011 Compensation Decisions for Named Executive Officers
In determining total compensation for the named executive officers, the Committee reviews the Corporation’s business performance, the individual’s achievement of objectives, and the median total compensation packages paid by the Corporation’s peers (see pages 37-38 of this proxy statement for more details on the peer group).
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The Corporation’s compensation philosophy is to attract, motivate and retain talent, including executive-level talent who will contribute to our long-term success. With the goals of solid long-term financial performance and creating long-term stockholder value, the Corporation’s executive compensation program and compensation decisions are framed by the four core values described below.
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Linked to Long-Term Performance
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The Corporation’s executive compensation program strongly focuses on incentive compensation, which is intended to help drive long-term financial performance. Currently, 80% to 90% of each named executive officer’s total pay opportunity consists of performance-based compensation. Short-term cash and long-term incentive awards reflect the Corporation’s performance as well as each named executive officer’s individual performance. The Compensation and Benefits Committee determines and approves annual cash incentives for the Corporation’s named executive officers under the provisions of the stockholder-approved Management Performance Plan.
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1, 3 and 5 Year Return on Equity Peer Comparison
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Chairman and CEO
To determine the size of each element in the Chairman and CEO’s total compensation package, in addition to the business results listed above, the Committee considered a variety of performance factors including:
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Additionally, the Committee considered the Chairman and CEO’s success in achieving his individual objectives related to leadership, compliance and risk management, client service, employee relations, communication, ethics and diversity, and development of senior officers.
Weighing these performance factors and objectives collectively, the Committee determined that total compensation for the Chairman and CEO should remain consistent with the median compensation among the Corporation’s peer companies.
Base Salary
During its February 2011 meeting, the Committee increased the Chairman and CEO’s base salary to $975,000. This decision was guided by competitive market data from peer group companies, the Committee’s objective to align base salaries with the median level of the peer group, as well as the Chairman and CEO’s performance and tenure in the position.
At its February 2012 meeting, the Committee determined that the Chairman and CEO’s salary should remain unchanged since it is modestly higher than the 2011 median size-adjusted salary of the Corporation’s peer group.
Annual Cash Incentive
Under the provisions of the Management Performance Plan (MPP), the reported earnings of $603.6 million in 2011 provided for a maximum funding opportunity for the Chairman and CEO of $3,621,600. Additionally, based on the peer group market data, the Committee determined that the peer group median cash incentive level, adjusted for size, was $1,900,000.
Taking into consideration the limits set forth in the MPP, the available competitive market data, as well as the performance measures and individual objectives as listed above, the Committee determined the Chairman and CEO’s actual cash incentive award to be $1,600,000 for 2011. Compared to the 2010 cash incentive award of $2,000,000, the year over year decrease in the Chairman and CEO’s 2011 award reflected that the Corporation’s earnings for 2011 were down relative to 2010.
Long-Term Incentive
In determining the total long-term incentive grant for the Chairman and CEO, the Committee took into account the Corporation’s performance measures listed above, as well as the median and
size-adjusted total compensation packages paid by the Corporation’s peers. Based on these factors, as well as our objective to make long-term compensation the most significant component of overall compensation, the Committee set the Chairman and CEO’s long-term incentive compensation award in respect of 2011 performance, granted in February 2012, at $7,000,000, which was consistent with the blended 2011 median and size-adjusted long-term compensation level reported by our peer companies, and lower than the Chairman and CEO’s long-term incentive award of $8,000,000 made in February 2011 for 2010 performance.
As illustrated in the following chart, the Chairman and CEO’s compensation from 2010 to 2011 decreased by 12.3%.
Salary and Incentive Compensation1 | ||||||||||||||||||||||||||||||||
Annual Compensation | ||||||||||||||||||||||||||||||||
Incentive Compensation3 | ||||||||||||||||||||||||||||||||
Name | Year | Salary2 | Cash | Stock Options4 | RSUs | PSUs | Long- term Cash | Total | ||||||||||||||||||||||||
Frederick H. Waddell | 2011 | $ | 956,250 | $ | 1,600,000 | $ | 2,333,333 | $ | 0 | $ | 2,333,333 | $ | 2,333,334 | $ | 9,556,250 | |||||||||||||||||
2010 | $ | 900,000 | $ | 2,000,000 | $ | 4,000,000 | $ | 4,000,000 | $ | 0 | $ | 0 | $ | 10,900,000 |
1The Salary and Incentive Compensation chart above is an overview of the Committee’s salary, cash incentive, stock options, RSUs, PSUs and deferred cash compensation decisions for the Chairman and CEO with respect to 2011 and 2010. The equity grants described for 2011 were in fact made in 2012 in respect of 2011 performance and thus do not appear in the Summary Compensation Table on page 55 of this proxy statement. Further details of the Chairman and CEO’s compensation in 2011 can be found in the Summary Compensation Table on page 55 of this proxy statement.
2Actual salary paid in that year.
3Incentives earned for performance in that year but paid/granted in the following year (e.g. stock options listed for 2010 were granted in 2011 based on performance in 2010). The value of these awards is listed in the Summary Compensation Table for the year of grant pursuant to SEC rules.
4Northern Trust’s policies and internal valuation methodology treats stock options as equal to one-third of the grant price. A different valuation methodology is required to be used in the Summary Compensation Table pursuant to the SEC rules.
The mix of total compensation for our Chairman and CEO, as illustrated in the chart below, demonstrates our emphasis on variable compensation, with significant focus on long-term incentive components.
Other named executive officers
Similar to the approach for determining the Chairman and CEO’s annual compensation, the Committee evaluates the combination of business performance, individual achievement of objectives and competitive market data to determine the amount for each element of a named executive officer’s 2011 compensation.
Base Salaries
At its meeting in February 2011, based on updates in the competitive salary market data among the Corporation’s peer group companies, the Committee chose to increase the base salaries for Messrs. Fradkin, Morrison and Potter, and Ms. Schreuder by $50,000, each.
In October, Mr. Morrison received a $100,000 salary increase to reflect his appointment as President and COO.
During its February 2012 meeting, the Committee increased Mr. O’Grady’s salary by $25,000 to reflect the competitive salary market data for his position and left all other named executive officers’ salaries unchanged. The decision to leave salaries unchanged, similar to that for the Chairman and CEO, results in salary levels that remain consistent with median salaries for similar positions among the Corporation’s peer group.
Annual Cash Incentive
Based on the target and limits set forth in the MPP for each named executive officer, as well as the Corporation’s performance and achievement of individual objectives, the Committee set a cash incentive of $750,000 for Mr. Morrison, $675,000 for Mr. Fradkin and Ms. Schreuder, $650,000 for Mr. Potter, and $350,000 for Mr. O’Grady. Mr. O’Grady’s cash incentive reflects a partial year since he joined the Corporation during 2011. To reflect that earnings for 2011 were down relative to 2010, the annual cash awards for the majority of named officers were reduced.
The net income generated by the Corporation in the applicable fiscal year determines the maximum funding for annual cash incentives. Accordingly, no annual cash incentive can be paid in the absence of positive net income. The Corporation’s average annual rate of return on equity during the respective three-year performance period (as compared to pre-established targets) determines the payout under 50% of the Corporation’s annual long-term incentive awards, which are granted in the form of performance stock units. Payout of this component therefore generally requires the executive to remain with the company during the applicable performance period, as well as attainment of return on equity goals over multi-year periods. The overall performance of the Corporation’s common stock delivers the remainder of the value of annual long-term incentive awards; this portion of the award is granted in the form of stock options (25%), which have no economic value absent share price appreciation, and through restricted stock units (25%). The Corporation’s current performance schedule provides that officers will only receive 100% of their performance stock unit awards if the Corporation achieves an average annual return on equity of 10.25% over the three-year performance period, which aligns the payout of these awards to the target return on equity range.
Long-Term Incentive
In determining the total long-term incentive grants made in 2012 in respect of 2011 performance (which do not appear in the Summary Compensation Table on page 55 of this proxy), the Committee took into account the Corporation’s performance, as well as the median total compensation levels among the Corporation’s peers. Based on these factors, the Committee set the following long-term awards: $3,500,000 for Mr. Morrison and $2,100,000 for Messrs. Fradkin, O’Grady and Potter and Ms. Schreuder.
Philosophy and Approach to Executive Compensation
Northern Trust’s compensation philosophy is to attract, motivate and retain talent, including executive-level talent who will contribute to our long-term success. With the goals of solid long-term financial performance and creating long-term stockholder value, Northern Trust’s executive compensation program and compensation decisions are framed by four core values.
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Focused on Long-Term Performance
Northern Trust’s executive compensation program is strongly focused on incentive compensation, which is intended to help drive long-term financial performance. Currently, 80% to 90% of each named executive officer’s total pay opportunity consists of variable compensation. Cash and equity awards, as described in this proxy, are based on each named executive officer’s performance. The Committee determines and approves annual cash incentives for Northern Trust’s named executive officers under the provisions of the stockholder-approved MPP.
Aligned with Stockholder Interests
Northern Trust’sThe Corporation’s executive compensation program is designed to align the interests of the named executive officers with those of its stockholders by tying a significant portion of an executive’s total compensation to the longer-term performance of the Corporation’s common stock. Long-term equity-basedincentive compensation is the most significant component of overall compensation, as it generally provides 60% or morethe majority of named executive officers’ total target compensation. The emphasis on long-term multi-year vesting schedules applied to these incentives contributes to continuity and stability within the Corporation’s executive leadership and encourages executives to act as owners with a tangible stake in Northern Trust.
The following graph demonstrates how the value of Northern Trust’s equity-based compensation awarded over the past five years, including 2011, has been impacted by changes in our stock price.Corporation.
Supporting the alignment with stockholders’ interests, Northern Trustthe Corporation has a long-standing practice of emphasizing stock ownership and maintaining robust stock ownership guidelines for named executive officers at or above industry practice.
Stock Ownership Guidelines
Northern Trust maintains formal stock ownership guidelines for named Each executive officers with minimum ownership levels as shown in the following chart:
Itofficer is expected that each named executive officer willto meet thehis or her respective minimum ownership level not later thanwithin five years from the date the namedof becoming an executive officer becomes a member of a particular covered group.
officer. Until such time as any named executive officer meets the minimum ownership level requirement, he or she is expected to retain 100% of the net, after-tax shares received from share distributions or stock option exercises.
The calculation of shares of common stock includes those that are:
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As of February 13, 2012,December 31, 2014, the Chairman and CEO and each other named executive officer met or exceeded Northern Trust’sthe Corporation’s stock ownership guidelines. Consistent with those guidelines, Mr. O’Grady, who commenced employment with the Corporation on August 15, 2011, has five years from that date in which to reach the applicable share ownership threshold set forth in the chart above.
Stock Ownership Guidelines
Expected Stock Ownership as a Multiple of Base Salary | ||
Chairman and CEO | 10x | |
President | 7x | |
Chief Operating Officer | 7x | |
Chief Financial Officer and Business Presidents | 5x | |
All Other Executive Officers | 3x |
CompetitivePositioned Competitively in the Marketplace
The Corporation believesWe believe a competitive executive compensation program is key to attracting, retainingmotivating and motivatingretaining the best executive talent. Therefore, the Compensation and Benefits Committee evaluates the competitiveness of Northern Trust’sthe Corporation’s named executive officer compensation program against a peer group that reflects key trust and custody banks (The Bank of New York Mellon Corporation and State Street Corporation) as well as certain other U.S. banking organizations. Thisorganizations of varying size. The peer group used for assessing the competitiveness of named executive officer pay, specifically excludes certain other direct competitors whose size or scope are significantly larger and might distort the appropriate pay comparison comparisons.
The combination of the character and relative size of the Corporation’s businesses makes it challenging to identify any definitive, single group of companies as peers for compensation purposes. However, Northern Trust established theThe Corporation’s peer group was established based in part on data and analysis provided by management’s executive compensation consultant, Towers Watson, an independent compensation consultant. Watson.
The banks identified below comprise the Corporation’s peer group is identified below.group:
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The Bank of New York Mellon Corporation |
— | Comerica Incorporated |
— | Fifth Third Bancorp |
— | KeyCorp |
— | State Street Corporation |
— | SunTrust Banks, Inc. |
— | The PNC Financial Services Group, Inc. |
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U.S. Bancorp |
— | Wells Fargo & Company |
The CorporationCompensation and Benefits Committee believes that this group of peer companies fairly represents a wide range of our competitors and certain other U.S. banking organizations and is an appropriate group of companies against which Northern Trustthe Corporation can gauge the competitiveness of the Corporation’s executive compensation program for the named executive officers.
The Committee regularly reviews the composition of Northern Trust’sthe Corporation’s peer group using data and analysis provided by Towers Watson. The Committee makes updates based on changes within the peer group companies, industry consolidation and the Corporation’s own evolving global presence. In 2010,No modifications have been made to the Corporation used an extensive list of peer companies. For 2011, the Corporation identified a more targeted group of peer companies, as listed above, in order to focus on key trust and custody banks, as well as certain other U.S. banking organizations. The Committee believes that the revised peer group allows it to better gauge the competitiveness of our named executive officers compensation program against our peers.
Northern Trust does not use peer compensation data to set precise pay levels by position. Rather, the peer data and data provided by compensation consultants are used to validate relative competitive pay for our named executive officers.since 2011.
Designed to Discourage Inappropriate Risk-Taking
As noted above, theThe Corporation is involved in an ongoing assessment ofhas considered its incentive compensation program in connection withlight of the guidance provided by the Federal Reserve’s review ofReserve with respect to sound incentive compensation arrangementspolicies at LCBOs. Northern Trust concludedbanking organizations. The Corporation believes its compensation arrangements did not inappropriately encourage excessivediscourage inappropriate risk-taking behavior, in part because the Corporation is not involved with many of the lines of business that have often exposed other financial institutions to
excessive risk-taking,risk, such as significant proprietary derivatives trading or origination or securitization of sub-primesubprime mortgage loans orloans.
To align with the Federal Reserve’s guidance for the financial industry, the Corporation provided direction to its employees about risk management expectations and the incentive adjustments that may be made to awards for those who expose the Corporation to excessive risk. The Corporation actively monitors employees using programs, policies, and other tools that are designed to ensure that they work within established risk frameworks and limits. To reinforce the important role of effective risk management in our compensation framework, in recent years the Corporation has reduced the portion of its long-term incentive awards composed of stock options (now representing only 25% of long-term incentive compensation) and replaced a portion of those awards with performance stock units. Performance stock units, which contain meaningful performance targets for named executive officers and are payable in shares if these targets are attained, discourage inappropriate risk-taking behavior because they can only be earned by attaining long-term performance goals and because the value of the award is less susceptible to short-term fluctuations in share value than stock options. To further reinforce the important role of effective risk management in our compensation framework, long-term incentive compensation is the most significant proprietary derivatives trading.
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element of compensation for senior management. All grants of long-term equity vest over a multi-year period and hashave an inherent risk adjustment factor based on Northern Trust’s share value. And, consistentchanges in the value of the Corporation’s common stock. Consistent with the Corporation’s risk-mitigation strategies for its compensation programs, since 2012 all long-term incentive compensation for 2012arrangements for named executive officers incorporates more expansivehave incorporated clawback provisions that deter certain types of conduct, including conduct that could affect the accuracy of the Corporation’s financial statements. In 2013, expanded risk-based forfeiture and clawback provisions were included in restricted stock unit awards.
In order to address the Federal Reserve’s view that stock options can induce more risk taking than other types of equity based compensation, Northern Trust has reduced the proportion of its equity compensation awards generally that are composed of stock options
The Compensation and has replaced those awards with PSUs and long-term cash, which are viewed as less likely to induce inappropriate levels of risk taking.
TheBenefits Committee annually assesses with input from risk management personnelreviews management’s assessment of the effectiveness of Northern Trust’sthe design and performance of the Corporation’s incentive compensation arrangements and practices in providing risk-taking incentives that are consistent with the extent to which suchorganization’s safety and soundness. This assessment includes an evaluation of whether the Corporation’s incentive compensation arrangements and practices discourage inappropriate risk-taking.risk-taking behavior by participants. We expect towill continue to monitor and, if necessary, revise our incentive compensation program to ensure that it continues to appropriately balancesbalance the desiresobjectives of stockholders, the needs of the business and risk concerns.
Role of the Compensation and Benefits Committee
During its February meeting each year, the Compensation and Benefits Committee determines the appropriate level of executive compensation and each element of cash and equity compensation for all named executive officers. The Committee considers all elements of the Corporation’s executive compensation program holistically rather than each compensation element individually, and makes executive compensation decisions after careful review and analysis of appropriatefinancial and nonfinancial performance information, as well as historical and market compensation data.
The Committee considers all elements of Northern Trust’s executive compensation program together rather than each compensation element individually. The Committee also considers the impact that compensation decisions may have on the potential valuesvalue of other pay and benefit programs.
While performance in non-financial areas may or may not directly affect the specific financial metrics for a particular year, theThe Committee has the discretion to reward extraordinarydetermine compensation in the context of individual performance in non-financialnonfinancial areas that are important to long-range growth and the enhancement of stockholder value. This flexibility allows the Committee to modify individual incentive payouts and long-term incentive opportunities to best reflect:
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The Committee also evaluates the performance of the Chairman and CEO against his objectives for the past year as stated on page 32.year. The Committee shares this evaluation with the Board in order for the Board to set the Chairman and CEO’s compensation.
Role of the Chairman and CEO
As part of the Committee’s compensation review and approval process, the Committee receives recommendations from theThe Chairman and CEO presents the Compensation and Benefits Committee with recommendations on the total compensation packages for each of Northern Trust’s namedthe Corporation’s other executive officers other than his own.based in part upon data provided by management’s executive compensation consultant. The Chairman and CEO’s evaluations of the other named executive officers are based on performance against the past year’s performance expectations, initially formulated by the Chairman and CEO at the beginning of the performance period. These performance expectations are comprised of a mix of objective and subjective factors, which are not formulaically weighted or scored. With input from the Corporation’s Head of CorporateChief Risk Management,Officer, the Chairman and CEO also evaluates each namedof the other executive officer’s performance with regard to business unit risks and individual adherence to risk and compliance policies and procedures.
The Chairman and CEO presents recommendations in a report at the Committee’s February meeting. The Committee gives substantial weight to the recommendations of the Chairman and CEO, but retains the ultimate oversight and responsibility to make modifications to the totalset compensation package and individual compensation elements. The Committee provides the final approval of the compensation of each namedfor all executive officer.officers.
The Committee may grant additional equity awards during other times of the year to newly hired or newly promoted named executive officers based on the recommendation of the Chairman and CEO. In October 2011, subsequent to his hire in August 2011, Mr. O’Grady was granted equity awards valued at approximately $2,500,000. In July 2011, Mr. Morrison was granted 10,000 RSU’s valued at $436,400 in recognition of his promotion to President and COO effective October 1, 2011. In isolated cases, the Committee may grant additional equity awards for retention purposes. No such retention awards were granted to named executive officers in 2011.
Role of Human Resources
The Corporation’s Human Resources Department assistsfunction provides materials to assist the Compensation and Benefits Committee in making executive compensation decisions, including collecting and providing the Committee current and historical compensation data. Additionally, the Head ofdata for executive officers. The Corporation’s Executive Vice President, Human Resources and Administration attends and participates in all Committee meetings.
The Human Resources Departmentfunction also assists the Chairman and CEO in formulating thehis compensation recommendations for compensation of all other named executive officers other than the Chairman and CEO.officers. The Human Resources Departmentfunction provides historical and current market data for executive pay in the industry, information concerning the historical and current compensation of named executive officers and the comparison of stock ownership measured against the Corporation’s stock ownership guidelines approved by the Committee.guidelines.
Role of Aon Hewittthe Compensation and Benefits Committee’s Independent Compensation Consultant
TheIn February 2014, the Compensation and Benefits Committee has retained Compensation Advisory Partners (“CAP”), a nationally recognized compensation and benefits consulting firm, to replace Aon Hewitt as its human resources consulting firm for matters pertaining to executive compensation.independent compensation consultant. The Committee confers with Aon Hewittits independent compensation consultant to ensure that decisions and actions are consistent with stockholders’ long-term interests and compensation-related best practices within the financial services industry. Aon HewittThe Committee also directly provides to the Committeereferences market data which the Committee referencesprovided by its independent compensation consultant when determiningconsidering compensation for the named executive officers.
Aon Hewitt’s A representative generally attendsof CAP attended all meetings of the Committee throughout the year during which 2014 executive compensation is reviewed and approved. Aon Hewitt’s representativedecisions were made. CAP provides general insights into compensation trends and prevailing market practices, presents its views on the compensation proposed by the Committee and participates in Committee meeting discussions. Aon Hewitt also undertakes specific projects when assigneddiscussions and executive sessions.
Use of Peer Group Data
The Compensation and Benefits Committee uses peer group data to assess the competitiveness of the compensation paid to executive officers. The Corporation does not use peer compensation data to set precise pay levels by position. Rather, the Committee. In 2011,peer data and data provided by compensation consultants are used to validate relative competitive pay for our executive officers. With respect to 2014 compensation, the Corporation paid Aon HewittCommittee considered the Corporation’s performance relative to our peers across various performance and its affiliates $77,185 for executive compensation advisory servicesfinancial measures. Weighing these measures, the Committee determined that the Corporation’s overall performance generally compared favorably to the Committee.
Aon Hewitt and its affiliates have also provided services unrelated to executive compensation to the Corporation and the trust for The Northern Trust Company Pension Plan (the “Pension Plan”) in 2011 and prior years. In 2011, the Corporation paid Aon Hewitt and its affiliates $3,041,452 in fees for other services, which included the administration of the Northern Trust Corporation Deferred Compensation Plan (the “DCP”), TIP, the Northern Trust Corporation Supplemental Thrift-Incentive Plan (the “Supplemental TIP”), the Northern Trust Corporation Supplemental Pension Plan (the “Supplemental Pension Plan”) and certain other retiree benefit plans, as well as valuation, budgeting and other general communication and consulting services relating to retirement plans. In 2011, the trust for the Pension Plan paid Aon Hewitt and its affiliates $835,304 in fees for other services, which included administration, actuarial and tax services related to the Pension Plan.
The fees paid to Aon Hewitt and its affiliates for other services by the Corporation and the Pension Plan trust were not approved in advance by the board of directors or the Committee; however, the board of directors and the Committee were aware of the other services being provided to the Corporation by Aon Hewitt and its affiliates.
Timing of Equity Compensation Award Procedures
peer group performance. The Committee actstook these comparisons into account generally in strict compliance with the requirements of the Amended and Restated Northern Trust Corporation 2002 Stock Plan, including the requirement that stock options may not be granted at less than 100% of the fair market value of Northern Trust’s common stock on the date of grant. For each grant approved by the Committee, the date of grant is the date on which the Committee acts to approve the award. Northern Trust does not time the grants ofmaking its equity compensation awardsdecisions for the purpose of affecting the value of such executive compensation. Equity awards to named executive officers are generally made in February.2014.
Deductibility of Executive Compensation
The Corporation views the tax deductibility of executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as an importantamended (the “Internal Revenue Code”), as a factor in determining the forms and amounts of executive compensation. The Corporation, through the Compensation and Benefits Committee, reviews each material element of compensation on a continuing basis and takes steps to assure deductibility if that can be accomplished without sacrificing flexibility andor other important elements of the overall executive compensation program.
Elements of Northern Trust’sthe Corporation’s Executive Compensation Program
There are sevenfour principal elements of the Northern Trust ExecutiveCorporation’s executive compensation program, each of which is discussed below. In making determinations regarding these compensation elements, the Compensation Program. The Committee evaluates all elements of compensation collectively, rather than reviewing each independently. The Committee establishesand Benefits Committee’s overall goal is to establish total executive compensation that appropriately rewards performance, ensures alignmentaligns with stockholders’ interests, and remains responsive to competitive factorspositions the Corporation competitively in the marketplace for executive talent. While the Committee’s determinations with respect to these elements may reflect unique characteristics of that element (for instance, in the case of annual cash incentives, performance of the Corporation), the Committee’s overall decision-making is governed by a collective evaluation of the elements of compensation, with a view toward establishing an appropriate level of total executive compensation.
Element | Link to Compensation Philosophy | Rationale / Key Features | ||||
Base Salary | Targeted at competitive levels among peer group | Base salaries provide a fixed level of
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Long-Term Incentive Compensation |
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Retirement, | Targeted at the median level of |
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Base Salary
The Compensation and Benefits Committee believes that base salaries should provide a fixed level of annual income consistent with an executive officer’s position and responsibilities, competitive pay practices and internal equity among executive officers.
For 2012, refer to the changes to the Pension Plan as described on page 50.
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The Committee uses discretion in determining base salaries. It does not take a formulaic approach to setting target base salary levels but considers the following factors:
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For new and recently promoted executives, the Committee’s philosophyapproach is to gradually increase actual base salary gradually to the appropriate target pay level as the named executive officer gains experience and tenure in the new position.
In 2011, a majority of named executive officers received a base salary increase to reflect updates in the competitive market data or reflect individual performance or tenure. The changes included increasing the base salary of the Chairman and CEO to $975,000 based on his tenure and guideline adjustments, and increasing the base salaries of the other namedShort-Term Annual Cash Incentive
Annual cash incentives provide an opportunity for executive officers to $600,000.receive additional cash compensation based on the Corporation’s financial performance as well as each executive officer’s individual performance. The annual bonus pool is funded based on a targeted percentage range of pre-tax income. In approving the total funded cash incentive pool, the Corporation’s overall performance, as well as competitive requirements for incentive compensation, are considered.
Base salary adjustments generallyActual incentive allocations under the funded pool to each named executive officer are effective April 1. Salary adjustmentsmade based on a review of the Corporation’s performance in the context of key performance indicators on an absolute basis and relative to custody bank peers (e.g., growth in fees, total revenue and pre-tax income, return on equity, pre-tax margin, operating leverage, etc.), a review of the individual’s contribution to corporate performance and an assessment of competitive levels of pay for promoted executives typically take effect uponeach position.
The Compensation and Benefits Committee determines and approves annual cash incentives for the executive’s promotion date and assumptionCorporation’s executive officers under the provisions of new responsibilities. Upon his October 1, 2011 promotionthe stockholder-approved Management Performance Plan. These awards are intended to President and COO, Mr. Morrison received a salary increase to $700,000.
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As determined by the MPP, the annual cash incentive award under the Management Performance Plan is a percentage of the net income generated by the Corporation in the applicable year. The annual cash incentive maximums for executive officers are as follows:
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— | annual cash incentives for the President and Chief Operating Officer may not exceed 0.4% of consolidated net income; |
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Award limitations under the MPP reflect our executive compensation philosophy. By establishing the maximum funding opportunity as a percentage of net income for the prior year, Northern Trust directly aligns named executive officers’ incentives with the interests of its stockholders. If net income rises, the named executive officers’ potential award values rise as well. Furthermore, if the organization does not achieve positive net income, the MPP prohibits the granting of incentive awards for that year.
In February 2012, the Committee reviewed the maximum funding opportunity for each named executive officer based on the limits defined by the MPP. For the Chairman and CEO, the maximum funding opportunity was determined to be $3,621,600. The Committee considered overall performance results, the maximum funding limit defined by the MPP and the median cash incentive award data reported by peer firms and awarded the Chairman and CEO actual cash incentive award of $1,600,000. A similar rationale was applied by the Committee in determining the cash incentive awards for the other named executive officers, with actual awards aligned primarily with competitive peer group medians.
Awards are adjusted to reflectWhile the Corporation’s net income butestablishes the maximum annual cash incentive that may be paid to an officer, the final determination of annual cash incentives is not tied to any specific formula. Instead, the Committee usesexercises negative discretion to consider multiple financial measures such as return on equity, growthset the final award. In applying negative discretion in revenue, earnings per share growth, and pre-tax profit margin. To a lesser degree,2015 for 2014 performance, the Committee also considers non-financial measures in determining annual awards based on factors such as:considered the Corporation’s overall performance results, each officer’s individual performance and the cash incentive award data reported by peer firms, adjusted for size.
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Long-Term Incentive Compensation
Long-term equity-basedincentive compensation is the most significant componentelement of overall compensation and is designed to reward the performance of the named executive officers over time, as reflected intime. Under the Corporation’scurrent plan design, long-term stock performance. Equityincentive compensation typically takes the form of non-qualified50% performance stock options, RSUs or PSUs settled only in commonunits, 25% restricted stock of Northern Trust.units and 25% nonqualified stock options. The Compensation and Benefits Committee emphasizes long-term equityincentives to align compensation with the interests of the stockholders. The Committee believes that equitylong-term incentive compensation encourages executives to act as owners with an equity stake in Northern Trust,the Corporation, discourages inappropriate risk-taking and contributes to continuity and stability within the Corporation’s executive leadership.
At its February 2011 meeting, the Committee considered market data and the recommendations of Aon Hewitt in determining long-term compensation awards for 2011. The Committee decided to deliver the awards to all named executive officers in the form of 50% non-qualified stock options and 50% RSUs.
The Committee considers a variety of individual factors to determine the actual dollar value of equitylong-term incentive compensation for each named executive officer. The dollar value of equity compensation is generally has been defined as 100% of the fair market value at the time of grant for all RSUs or PSUsperformance stock units and restricted stock units and one-third of the fair market value of the shares underlying grants of stock options at the time of grant for all stock options. For 2011, consistent with both the prior year’s guideline andThese guidelines also applied to long-term incentive awards granted in 2015 for 2014 performance, with the new peer group’s median long-term compensation levels ,exception of the guideline dollar value of equity compensation was seven times base salary forstock option grants, which were valued at 30% of the Chairman and CEO and approximately three and one-half to five times base salary forfair market value of the other named executive officers.shares underlying such grants at the time they were made.
When determining equity compensation, the Committee has discretion to take consider the base salary adjustment, the annual cash incentive, prior equity awards granted to a named executive officer, and individual performance over the prior year. The Committee is allowedhas flexibility in determining the value of total equitylong-term incentive compensation for each named executive officer based on a review of objectivesobjective and subjective factors.
There is no formula that assigns specific weights to these factors and the importance of these factors may vary from year to year. In addition to consideration of the median long-term incentive compensation reported by peer banks, the following are the specific objective and subjective factors considered by the Committee in setting total 2014 and 2015 long-term incentive compensation for each named executive officer for 2011 at its February, 2012 meeting:officer:
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Stock option grants made in 2011 toIn February 2014 for 2013 performance, the named executive officers are shown in the Grants of Plan-Based Awards table presented on page 58. Stock options granted in 2011 vest in equal annual installments over a four-year vesting period.
RSU awards made in 2011 to the named executive officers are shown in the Grants of Plan-Based Awards table presented on page 58. RSUs awarded in 2011 vest on the third (50%) and the fourth (50%) anniversaries of grant, subject to the executive’s continued employment with Northern Trust.
For 2012,received the following changes are being made to long-term compensation. These changes apply to the grants made in February 2012
Long-term incentive compensation will be comprised of three elements. Each element will make up one-third of the valuedollar amounts of long-term incentive compensation:
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For named executive officers, incorporation of more expansive clawback provisions that deter certain types of conduct, including conduct that could affect the accuracy of the Corporation’s financial statements
Retirement, and Health and Welfare Benefits
Retirement benefits are generally designed with the Corporation’s entire Northern Trust workforce in mind and are not specifically structured for the named executive officers. The design of the Corporation’s retirement program for employees, including the named executive officers, reflects the following considerations:officers:
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The named executive officers are eligible for:
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The Pension Plan and the Supplemental Pension Plan provide all of the named executive officers, except for Mr. O’Grady, with an annual benefit determined under the Pension Plan’s Traditional Formula. The annual benefit under the Traditional Formula is equal to the participant’s average compensation for his or her highest 60 consecutive calendar months prior to retirement (“average compensation”) multiplied by 1.8% and then further multiplied by years of credited service, up to a maximum of 35 years. This amount is reduced by an amount based on the participant’s Social Security covered compensation and credited service.
Mr. O’Grady’s employment with the Corporation began on August 15, 2011. Therefore, under the terms of the Pension Plan, his benefits under the Pension Plan and Supplemental Pension Plan are calculated under the Pension Plan’s “Pension Equity Plan (PEP) Formula,” rather than the Traditional Formula. Under the PEP Formula, each year a participant earns a specific pension credit “percentage,” determined in accordance with a schedule in the Pension Plan, which varies directly with his or her total number of years of credited service. A participant’s PEP Formula lump sum amount is equal to the sum of his or her pension credit percentages multiplied by “average compensation.” A participant’s annual benefit under the PEP Formula is equal to a single life annuity commencing at age 65 that is the actuarial equivalent of his PEP Formula lump sum amount.
The portion of each named executive officer’s benefit, calculated under either the Traditional Formula or the PEP Formula as applicable, not in excess of various limits imposed by the Code and the Pension Plan, is paid under the Pension Plan. The portion of the executive’s benefit in excess of these amounts, if any, is paid under the Supplemental Pension Plan. A participant’s annual benefit under the Traditional Formula is reduced if the participant retires and begins receiving benefit payments before
age 62, or age 60 under certain circumstances. A participant’s annual benefit under the PEP Formula is reduced if the participant retires and begins receiving payments before age 65. All named executive officers, except for Mr. O’Grady, have completed three years of vesting service, and thus are fully vested in their pension benefits.
Like many companies, Northern Trust is looking to reduce both short and longer-term expense volatility of its Pension Plan while continuing to provide a compensation package that is competitive within its peer group. As a result, the Corporation has made the following changes to the Pension Plan effective April 1, 2012.
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As a result of these changes, the current named executive officers, other than Mr. O’Grady, will be entitled to an annual benefit equal to the sum of their accruals:
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Mr. O’Grady will continue to accrue a benefit based solely on the PEP Formula for his credited service. He will be entitled to an annual benefit equal to the sum of his accruals:
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Under TIP, named executive officers can defer a portion of their base salary and receive employer matching contributions equal to 50% of the first 6% of deferred salary. If the Corporation meets an annual earnings goal, the Corporation will make a contingent matching contribution of 50% of the first 3% of deferred salary to TIP, for a maximum matching contribution of 4.5% of salary. The contingent matching contribution was made to TIP for 2011, since the Corporation reached its earnings goal for that year. However, TIP has been amended to provide that no contingent matching contribution will be made for 2012, even if the Corporation meets it earnings goal for that year.
Under Supplemental TIP, named executive officers can contribute a portion of their base salary that exceeds the annual Code compensation limit ($245,000 in 2011). The Corporation makes a matching contribution under Supplemental TIP using the formula in TIP, provided, however, that Supplemental TIP matching contributions are limited to 50% of the first 6% of deferred salary. All named executive officers, except Mr. O’Grady, are fully vested in their retirement benefits under TIP and Supplemental TIP.
Specified values for each named executive officer’s retirement benefits appear on page 64.
The named executiveExecutive officers also participate in Northern Trust’sthe Corporation’s health and welfare benefits, including medical, retiree medical, dental, disability and life insurance programs, on the same terms as other employees.
PerquisitesSeverance Benefits and Employment Security Arrangements
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Committee annually reviews the types and costs of perquisites to ensure they remain aligned with the compensation philosophy of the Corporation.
Northern Trust provided the following types of perquisites to its named executive officers in 2011:
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The Corporation also reimburses named executive officers for the payment of personal income taxes in connection with the use of company automobiles for business-related purposes.
The dollar value of each perquisite provided to the named executive officers in 2009, 2010 and 2011 can be found in the Summary Compensation Table on page 55.
Change in Control (CIC) Benefits
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In order to receive benefits under the employment security agreements, two events must occur (except as noted above with respect to equity awards):
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A change in control is generally defined in the employment security agreements to include the acquisition of 20% or more of the Corporation’s common stock, certain mergers, consolidations and asset transfers, or the election—without the consent of two-thirds of the incumbent board of directors—of the lesser of three directors or a majority of the directors then in office. The employment security agreements also protect a named executive officer if the executive’s employment terminates during the period pending a change in control, defined generally as the period after the acquisition of 15% or more of the Corporation’s common stock or entry into an agreement with respect to, or public announcement of the intention to take, an action constituting a change in control event and prior to the effective time of the change in control event. Beginning in 2011, Northern Trust discontinued inclusion of excise tax gross ups in new employment security agreements.
Disclosure of potential change in control benefits payable to each named executive officer, assuming a change in control of the Corporation and termination of employment on December 31, 2011, is set forth in the Potential Payments Upon Termination of Employment or a Change in Control of the Corporation section on page 72.
Northern Trust has discontinued inclusion of tax gross ups in new employment security agreements for executive officers. The form of employment security agreement that reflects this change was filed as an exhibit to the Corporation’s second quarter 2011 Quarterly Report on a Form 10-Q. This change is reflected in the employment security agreement for Mr. O’Grady, who joined the Corporation in August 2011, and it is the Committee’s intention that all future employment security agreements will not include excise tax gross up provisions.
Severance Benefits
The purpose of the severance plan is to provide reasonable benefits to employees who are involuntarily terminated without cause due to a reduction in force, job elimination or similar reasons specified in the severance plan. Northern TrustThe Corporation believes that the availability of severance benefits allows the Corporation to compete with its peer group companies in attracting and retaining talent. The named executiveExecutive officers participate in this plan on the same terms as all other eligible and similarly situated Northern Trust employees.
Under such circumstances, named executiveExecutive officers generally are eligible to receive severance benefits that include:
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These benefits are contingent upon execution of a release, waiver and settlement agreement with the Corporation. Severance payments will be reduced by any severance payments made under employment security agreements or any other benefit plan, program or individual contract.
In addition to the severance benefits discussed above, the Corporation has entered into employment security arrangements for certain executive officers of the Corporation, including each named executive officer. The purpose of these agreements is to provide an executive with sufficient security to remain focused on his or her responsibilities before, during and after a transaction without undue concern for his or her personal circumstances. The Corporation believes the employment security agreements are critical to its ability to attract and retain key executives in light of the fact that all named executive officers are employed at will and change in control provisions for executives are a standard element of a competitive compensation program at peer group companies.
Further discussion with respect to the Corporation’s employment security agreements, including disclosure of potential change in control benefits payable to each named executive officer, assuming a change in control of the Corporation and termination of employment on December 31, 2014, is set forth in the “Potential Payments Upon Termination of Employment or a Change in Control of the Corporation” section beginning on page 62 of this Proxy Statement.
Perquisites
The Corporation provides a limited number of perquisites intended to assist executive officers in the performance of their duties on behalf of the Corporation. The Corporation provides financial consulting and tax return preparation services and personal use of company automobiles as perquisites to its executive officers. If circumstances warrant and if pre-approved by the Chairman and CEO, the Corporation permits personal use of company aircraft on a limited basis. The Corporation also reimburses executive officers for the payment of personal income taxes in connection with the use of company vehicles in certain circumstances and taxable relocation expenses. The Compensation and Benefits Committee periodically reviews the types and costs of perquisites to ensure they remain aligned with the compensation philosophy of the Corporation.
2014 Advisory Vote on Executive Compensation
The Corporation’s 2013 named executive officer compensation was approved on an advisory basis by its stockholders at the Corporation’s April 15, 2014 Annual Meeting of Stockholders. Approximately 86% of the votes cast, together with abstentions, supported approval of 2013 named executive officer compensation. Although such advisory votes are nonbinding, the Board reviews and thoughtfully considers the voting results when determining compensation policies and making future compensation decisions for named executive officers. Additionally, as mentioned under “Corporate Governance—Stockholder Outreach” beginning on page 19 of this Proxy Statement, it is the Corporation’s practice to proactively and routinely engage with stockholders throughout the year to help investors understand the Corporation’s performance and strategies and to allow stockholders to
express their views on issues important to the Corporation. Accordingly, the decisions made by the Board with respect to compensation in 2014—including the decision to maintain the overall structure of the Corporation’s executive compensation program—reflect consideration of stockholder feedback, particularly the results of the advisory vote on 2013 named executive officer compensation, as well as the other factors described above.
2014 Compensation Decisions for Named Executive Officers
In determining total compensation for the named executive officers, including Mr. Waddell, the Compensation and Benefits Committee considered a variety of performance factors. The Committee considered the Corporation’s 2014 financial performance as well as each officer’s success in achieving his or her individual qualitative performance objectives. The Committee also considered the total compensation paid to similarly situated executives by the Corporation’s peers. Although the same methodology is used to determine the compensation paid to the Chairman and CEO as for any other executive officer, Mr. Waddell’s compensation is measurably higher than the compensation paid to the other named executive officers due to his significantly greater responsibilities and obligations to the Corporation.
Chairman and Chief Executive Officer
Total Chairman and CEO Compensation.The table below summarizes the key compensation decisions made by the Committee for Mr. Waddell, the Corporation’s Chairman and CEO, for the 2014 compensation year and provides a comparison to his 2013 compensation. It should be noted that the amounts in this table are different than the amounts in the Summary Compensation Table as the table below does not include the Change in Pension Value and Nonqualified Deferred Compensation Earnings and All Other Compensation values. As illustrated in the chart, the Chairman and CEO’s salary and incentive compensation increased by 4.2% from 2013 to 2014.
Year | Annual Compensation | Total | ||||||||||||||||||||
Salary | Incentive Compensation (1) | |||||||||||||||||||||
Cash | Performance Stock Units | Stock Options (2) | Restricted Stock Units | |||||||||||||||||||
2014 | $ | 975,000 | $ | 2,300,000 | $ | 3,325,000 | $ | 1,662,500 | $ | 1,662,500 | $9,925,000 | |||||||||||
2013 | $ | 975,000 | $ | 1,900,000 | $ | 3,325,000 | $ | 1,662,500 | $ | 1,662,500 | $9,525,000 |
(1) The performance stock units, stock options, and restricted stock units included for 2014 were granted to Mr. Waddell in February 2015 for his 2014 performance and accordingly are not included in the “Summary Compensation Table” in this Proxy Statement.
(2) The Corporation’s policies and internal valuation methodology with respect to stock options reflected in the chart above differ from the valuation methodology required to be used in the “Summary Compensation Table” in this Proxy Statement.
The mix of total compensation for our Chairman and CEO, as illustrated in the chart below, demonstrates our emphasis on performance-based compensation and belief that long-term incentives should be the most significant element of overall compensation.
Mr. Waddell’s compensation for 2014 reflects each of the elements of the Corporation’s 2014 performance presented on pages 25-26 of this Proxy Statement, as his leadership was instrumental to these achievements. Mr. Waddell’s compensation also reflects his role in developing the senior leaders of the Corporation and maintaining a strong group of leaders in our succession plan through actions such as the organizational leadership changes implemented in 2014 at his direction. Consistent with the Corporation’s philosophy of aligning pay with performance, the Compensation and Benefits Committee determined that Mr. Waddell’s total 2014 compensation should compare favorably with the median compensation among the Corporation’s peer companies, relative to size, financial results and stockholder returns. As further explained below, the year-over-year increase in Mr. Waddell’s overall compensation was driven primarily by increases in the value of his pension benefits and the amount of his annual cash incentive award.
Base Salary.Based on competitive salary market data among the Corporation’s peer group companies, at its February 2014 meeting, the Compensation and Benefits Committee determined that Mr. Waddell’s annual base salary should remain unchanged for 2014.
Short-Term Annual Cash Incentive.Taking into consideration available competitive market data, the Corporation’s 2014 performance, and Mr. Waddell’s success in achieving his individual qualitative performance objectives, the Compensation and Benefits Committee set Mr. Waddell’s actual cash incentive award at $2,300,000 for 2014, as compared to $1,900,000 for 2013. The year-over-year increase in Mr. Waddell’s annual cash incentive award was reflective of the Corporation’s 2014 financial performance. Our earnings for 2014 increased 11.0% relative to 2013 and growth in new business was strong. The Corporation’s return on equity improved to 10.0% from 9.5%, within our target range. For 2014, Mr. Waddell’s individual qualitative performance objectives related to operating performance, client performance and leadership development. Under the provisions of the Management Performance Plan, the Corporation’s net income of $811.8 million in 2014 provided for a maximum funding opportunity for Mr. Waddell of $4,870,800; his actual incentive of $2,300,000 was well below this level.
Long-Term Incentive.In determining the total long-term incentive award for Mr. Waddell, the Compensation and Benefits Committee took into account the Corporation’s 2014 performance, as well as the total compensation paid by the Corporation’s peers, adjusted for size, financial results and stockholder returns. Based on these factors, the Committee set Mr. Waddell’s long-term incentive compensation award for 2014 performance at $6,650,000, equal to his long-term incentive award of $6,650,000 made in 2014 for 2013 performance.
Pension Benefits.While the Committee did not make any changes to the structure of the Corporation’s pension design in 2014, Mr. Waddell’s pension value increased by $2,762,043, compared to a decrease in 2013 of $444,845. The present value of Mr. Waddell’s benefits under the Pension Plan is sensitive to changes in interest rates. The decrease in value of Mr. Waddell’s benefits in 2013 was primarily driven by an increase in the discount rate used to value such benefits, while the increase in 2014 was influenced by a decrease in the applicable discount rate. The value of Mr. Waddell’s pension benefits reflects the thirty-five years of credited service he has accrued, which is the maximum permissible under the plan, as his tenure at the Corporation began in 1975. See “Pension Benefits” beginning on page 55 of this Proxy Statement for additional information on how benefits accrue under the Pension Plan.
S. Biff Bowman
Mr. Bowman has served as the Corporation’s Chief Financial Officer since September 1, 2014. Prior thereto, Mr. Bowman served as Executive Vice President, Human Resources. As the Corporation’s Executive Vice President, Human Resources, Mr. Bowman was primarily responsible for overseeing the Corporation’s Human Resources function. As Chief Financial Officer, Mr. Bowman is primarily responsible for financial reporting and control, management reporting and analysis, liquidity management, capital planning and investor relations. To determine Mr. Bowman’s 2014 compensation, the Compensation and Benefits Committee considered how well Mr. Bowman fulfilled his responsibilities in 2014, including with respect to the transition in his roles. The Compensation and Benefits Committee also considered the following performance factors:
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— | Mr. Bowman’s contributions to the Corporation as the head of a |
— | Mr. Bowman’s performance as the Chief Financial Officer from September 1, 2014, including with respect to the Corporation’s 2015 Capital Plan. |
Based on competitive salary market data among the Corporation’s peer group companies, the Committee chose to increase Mr. Bowman’s base salary by $25,000 to $500,000 in 2014.
Based on the limits set forth in the Management Performance Plan for Mr. Bowman, as well as the Corporation’s performance and achievement of Mr. Bowman’s individual objectives, the Committee determined a 2014 annual cash incentive of $650,000 for Mr. Bowman.
In determining the total long-term incentive grant made to Mr. Bowman in 2015 for 2014 performance, the Committee took into account the Corporation’s performance, the total compensation
levels among the Corporation’s peers, adjusted for size, financial results and stockholder returns, and the objective and subjective factors discussed on pages 34-35 of this Proxy Statement. Based on these factors, the Committee set a long-term award of $2,000,000 for Mr. Bowman.
Steven L. Fradkin
Mr. Fradkin has served as President of Wealth Management since September 1, 2014. Prior thereto, Mr. Fradkin served as President of Corporate & Institutional Services (“C&IS”). As President of C&IS and Wealth Management, Mr. Fradkin was primarily responsible for the overall performance of those businesses. To determine Mr. Fradkin’s 2014 compensation, the Compensation and Benefits Committee considered how well Mr. Fradkin fulfilled his responsibilities in 2014, including with respect to the transition in his roles. The Compensation and Benefits Committee also considered the following performance factors:
— | C&IS’s strong growth in 2014, with assets under custody increasing 7% to $5.5 trillion and assets under management increasing 7% to $709.6 billion; |
— | C&IS’s continued geographic expansion and strong growth in its client base; and |
— | Mr. Fradkin’s performance as President of Wealth Management since September 1, 2014. |
Based on competitive salary market data among the Corporation’s peer group companies, the Committee determined that Mr. Fradkin’s annual base salary should remain unchanged for 2014.
Based on the limits set forth in the Management Performance Plan for Mr. Fradkin, as well as the Corporation’s performance and achievement of Mr. Fradkin’s individual objectives, the Committee determined a 2014 annual cash incentive of $1,000,000 for Mr. Fradkin, compared to a 2013 annual cash incentive of $800,000.
In determining the total long-term incentive grant made to Mr. Fradkin in 2015 for 2014 performance, the Committee took into account C&IS’s and Wealth Management’s performance, the total compensation levels among the Corporation’s peers, adjusted for size, financial results and stockholder returns, and the objective and subjective factors discussed on pages 34-35 of this Proxy Statement. Based on these factors, the Committee set a long-term award of $2,000,000 for Mr. Fradkin, equal to the long-term incentive award of $2,000,000 made in 2014 for 2013 performance.
William L. Morrison
Mr. Morrison served as the Corporation’s President and Chief Operating Officer through August 31, 2014. Since September 1, 2014, Mr. Morrison has served as the Corporation’s President. As the Corporation’s Chief Operating Officer, Mr. Morrison was primarily responsible for the Corporation’s business operations. As President, he is primarily responsible for corporate marketing and strategy functions, driving business growth and overseeing the Corporation’s client-facing businesses. To determine Mr. Morrison’s 2014 compensation, the Compensation and Benefits Committee considered how well Mr. Morrison fulfilled his responsibilities in 2014, including with respect to the transition in his roles. The Compensation and Benefits Committee also considered the following performance factors:
— | Net income was $811.8 million in 2014, an improvement of 11.0% from 731.3 million in 2013; |
— | Return on equity improved to 10.0% in 2014 from 9.5% in 2013, within our target range; and |
— | The strength of the performance of the C&IS and Wealth Management businesses in 2014. |
Based on competitive salary market data among the Corporation’s peer group companies, the Committee determined that Mr. Morrison’s annual base salary should remain unchanged for 2014.
Based on the limits set forth in the Management Performance Plan for Mr. Morrison, as well as the Corporation’s performance and achievement of Mr. Morrison’s individual objectives, the Committee determined a 2014 annual cash incentive of $1,200,000 for Mr. Morrison, compared to a 2013 annual cash incentive of $1,000,000.
In determining the total long-term incentive award made to Mr. Morrison in 2015 in respect of 2014 performance, the Committee took into account the Corporation’s performance, the total compensation levels among the Corporation’s peers, adjusted for size, financial results and stockholder returns, and the objective and subjective factors discussed on pages 34-35 of this Proxy Statement. Based on these factors, the Committee set a long-term award of $3,250,000 for Mr. Morrison, equal to the long-term incentive award of $3,250,000 made in 2014 for 2013 performance.
Michael G. O’Grady
Mr. O’Grady has served as President of C&IS since September 1, 2014. Prior thereto, Mr. O’Grady served as the Corporation’s Chief Financial Officer. As the Corporation’s Chief Financial Officer, Mr. O’Grady was primarily responsible for financial reporting and control, management reporting and analysis, liquidity management, capital planning and investor relations. As President of C&IS, he is primarily responsible for the overall performance of that business. To determine Mr. O’Grady’s 2014 compensation, the Compensation and Benefits Committee considered how well Mr. O’Grady fulfilled his responsibilities in 2014, including with respect to the transition in his roles. The Compensation and Benefits Committee also considered the following performance factors:
— | The Corporation’s financial strength remained a hallmark in 2014, with asset quality in the loan, liquidity and securities portfolios contributing to sound credit ratings; |
— | Mr. O’Grady’s contributions related to the Corporation’s 2014 Capital Plan, which was not objected to by the Federal Reserve and which allowed the Corporation to return $792.4 million in capital to stockholders through quarterly dividend payments and share repurchases; |
— | The strength of the Corporation’s investor relations program, which results in significant engagement with analysts and investors throughout the year; and |
— | Mr. O’Grady’s performance as President of C&IS since September 1, 2014. |
Based on the competitive salary market data among the Corporation’s peer group companies, the Committee determined that Mr. O’Grady’s annual base salary should remain unchanged for 2014.
Based on the limits set forth in the Management Performance Plan for Mr. O’Grady, as well as the Corporation’s performance and achievement of Mr. O’Grady’s individual objectives, the Committee determined a 2014 annual cash incentive of $900,000 for Mr. O’Grady, compared to a 2013 annual cash incentive of $750,000.
In determining the total long-term incentive grant made to Mr. O’Grady in 2015 for 2014 performance, the Committee took into account the Corporation’s and C&IS’s performance, the total compensation levels among the Corporation’s peers, adjusted for size, financial results and stockholder returns, and the objective and subjective factors discussed on pages 34-35 of this Proxy Statement. Based on these factors, the Committee set a long-term award of $2,000,000 for Mr. O’Grady, equal to the long-term incentive award of $2,000,000 made in 2014 for 2013 performance.
Jana R. Schreuder
Ms. Schreuder has served as the Corporation’s Chief Operating Officer since September 1, 2014. Prior thereto, Ms. Schreuder served as President of Wealth Management. As President of Wealth Management, she was primarily responsible for the overall performance of that business. As the Corporation’s Chief Operating Officer, Ms. Schreuder is primarily responsible for business operations and enabling the Corporation’s businesses to grow faster, more efficiently and more profitably. To determine Ms. Schreuder’s compensation, the Compensation and Benefits Committee considered how well Ms. Schreuder fulfilled her responsibilities in 2014, including with respect to the transition in her roles. The Compensation and Benefits Committee also considered the following performance factors:
— | Wealth Management’s steady growth in 2014, with assets under custody increasing 4% to $515.7 billion and assets under management increasing 1% to $224.5 billion; |
— | In 2014, The Northern Trust Company was named by the Financial Times Group as Best Private Bank in the U.S. for the sixth year and as Best Private Bank for Socially Responsible Investing for the second year; and |
— | Ms. Schreuder’s performance as Chief Operating Officer since September 1, 2014. |
Based on competitive salary market data among the Corporation’s peer group companies, the Committee determined that Ms. Schreuder’s annual base salary should remain unchanged for 2014.
Based on the limits set forth in the Management Performance Plan for Ms. Schreuder, as well as the Corporation’s and Wealth Management’s performance and achievement of Ms. Schreuder’s individual objectives, the Committee determined a 2014 annual cash incentive of $900,000 for Ms. Schreuder, compared to a 2013 annual cash incentive of $785,000.
In determining the total long-term incentive grant made to Ms. Schreuder in 2015 in respect of 2014 performance, the Committee took into account the Corporation’s and Wealth Management’s performance, the compensation levels among the Corporation’s peers, adjusted for size, financial results and stockholder returns, and the objective and subjective factors discussed on pages 34-35 of this Proxy Statement. Based on these factors, the Committee set a long-term award of $2,500,000 for Ms. Schreuder, compared to a long-term incentive award of $2,000,000 made in 2014 for 2013 performance.
Compensation and Benefits Committee Report
The Compensation and Benefits Committee is responsible for providing oversight of the compensation of the directors and executive officers of the Corporation. In fulfilling its oversight responsibilities, the Committee has reviewed and discussed with management the Compensation
Discussion and Analysis contained in this Proxy Statement. Based upon this review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and this Proxy Statement for the 2015 Annual Meeting of Stockholders, each of which is filed with the SEC.
Compensation and Benefits Committee
Nicholas D. Chabraja (Chair)
Linda Walker Bynoe
John W. Rowe
Martin P. Slark
Charles A. Tribbett III
Compensation and Benefits Committee Interlocks and Insider Participation
None of the directors serving on the Compensation and Benefits Committee during 2014 was an officer or employee of the Corporation in 2014 or at any prior time or had any relationship with the Corporation requiring disclosure pursuant to Item 404 of Regulation S-K of the Exchange Act. In addition: (i) no executive officer of the Corporation served on the compensation committee of another entity, one of whose executive officers served on the Corporation’s Compensation and Benefits Committee; (ii) no executive officer of the Company served as a director of another entity, one of whose executive officers served on the Corporation’s Compensation and Benefits Committee; and (iii) no executive officer of the Corporation served on the compensation committee of another entity, one of whose executive officers served as a director of the Corporation.
SUMMARY COMPENSATION TABLESummary Compensation Table
The following table sets forth the information concerning the compensation information forpaid to or earned by the Corporation’s Chairman and CEO, current and former chief financial officer, and the three other most highly compensatednamed executive officers for the year ended December 31, 2011.2014, 2013 and 2012. In accordance with SEC rules, 2013 and 2012 compensation is not presented for Mr. Bowman because he was not a named executive officer in those years.
Name and Principal Position (a) | Year (b) | Salary ($)(1) (c) | Bonus ($) (d) | Stock Awards ($)(2) (e) | Option Awards ($)(3) (f) | Non-Equity Incentive Plan Compen- (g) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(5) (h) | All Other Compen- ($)(6) (i) | Total ($) (j) | |||||||||||||||||||||||||||
Frederick H. Waddell Chairman, and Chief Executive Officer | 2011 | $ | 956,250 | — | $ | 4,000,008 | $ | 3,581,932 | $ | 1,600,000 | $ | 4,078,538 | $ | 88,672 | $ | 14,305,400 | ||||||||||||||||||||
2010 | $ | 900,000 | — | $ | 3,500,005 | $ | 2,977,647 | $ | 2,000,000 | $ | 3,306,902 | $ | 75,527 | $ | 12,760,081 | |||||||||||||||||||||
2009 | $ | 900,000 | — | $ | 2,597,068 | $ | 4,968,921 | $ | 2,000,000 | $ | 1,332,078 | $ | 93,003 | $ | 11,891,070 | |||||||||||||||||||||
William L. Morrison President and Chief Operating Officer, Former Chief Financial Officer | 2011 | $ | 612,500 | — | $ | 1,686,442 | $ | 1,119,358 | $ | 750,000 | $ | 821,577 | $ | 32,194 | $ | 5,022,071 | ||||||||||||||||||||
2010 | $ | 550,000 | — | $ | 1,000,016 | $ | 850,769 | $ | 700,000 | $ | 612,218 | $ | 160,017 | $ | 3,873,020 | |||||||||||||||||||||
2009 | $ | 550,000 | — | $ | 865,689 | $ | 1,656,319 | $ | 700,000 | $ | 398,419 | $ | 31,750 | $ | 4,202,177 | |||||||||||||||||||||
Michael G. O’Grady Executive Vice-President and Chief Financial Officer(7) | 2011 | $ | 208,333 | $ | 325,000 | $ | 1,250,035 | $ | 854,260 | $ | 25,000 | $ | 7,380 | $ | 0 | $ | 2,670,008 | |||||||||||||||||||
2010 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
2009 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Steven L. Fradkin President—Corporate and Institutional Services | 2011 | $ | 587,500 | — | $ | 1,250,042 | $ | 1,119,358 | $ | 675,000 | $ | 1,012,591 | $ | 31,493 | $ | 4,675,984 | ||||||||||||||||||||
2010 | $ | 550,000 | — | $ | 1,000,016 | $ | 850,769 | $ | 725,000 | $ | 672,377 | $ | 27,284 | $ | 3,825,446 | |||||||||||||||||||||
2009 | $ | 550,000 | — | $ | 865,689 | $ | 1,656,319 | $ | 700,000 | $ | 313,677 | $ | 34,570 | $ | 4,120,255 | |||||||||||||||||||||
Stephen N. Potter President—Northern Trust Global Investments | 2011 | $ | 587,500 | — | $ | 1,250,042 | $ | 1,119,358 | $ | 650,000 | $ | 1,390,523 | $ | 26,821 | $ | 5,024,244 | ||||||||||||||||||||
2010 | $ | 537,500 | — | $ | 1,000,016 | $ | 850,769 | $ | 675,000 | $ | 1,017,805 | $ | 22,008 | $ | 4,103,098 | |||||||||||||||||||||
2009 | $ | 500,000 | — | $ | 865,689 | $ | 1,656,319 | $ | 675,000 | $ | 341,576 | $ | 28,102 | $ | 4,066,686 | |||||||||||||||||||||
Jana R. Schreuder President—Personal Financial Services | 2011 | $ | 587,500 | — | $ | 1,250,042 | $ | 1,119,358 | $ | 675,000 | $ | 1,501,040 | $ | 33,033 | $ | 5,165,973 | ||||||||||||||||||||
2010 | $ | 550,000 | — | $ | 1,000,016 | $ | 850,769 | $ | 700,000 | $ | 1,154,597 | $ | 23,133 | $ | 4,278,515 | |||||||||||||||||||||
2009 | $ | 550,000 | — | $ | 865,689 | $ | 1,656,319 | $ | 725,000 | $ | 427,703 | $ | 37,575 | $ | 4,262,286 |
Name and Principal Position(1) | Year | Salary ($) | Stock Awards ($)(2)(3) | Option Awards ($)(4) | Non-Equity Incentive Plan Compensation ($)(5) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(6) | All Other Compensation ($)(7) | Total ($) | ||||||||||||||||||||||
Frederick H. Waddell | 2014 | $ | 975,000 | $4,987,571 | $ | 1,329,507 | $ | 2,300,000 | $ | 2,762,043 | $ | 81,401 | $ | 12,435,522 | ||||||||||||||||
2013 | 975,000 | 4,987,530 | 1,211,083 | 1,900,000 | — | 94,387 | 9,168,000 | |||||||||||||||||||||||
2012 | 975,000 | 2,333,354 | 1,850,555 | 2,000,000 | 3,839,003 | 85,283 | 11,083,195 | |||||||||||||||||||||||
S. Biff Bowman | 2014 | 493,750 | 1,237,506 | 329,879 | 650,000 | 583,444 | 39,759 | 3,334,338 | ||||||||||||||||||||||
Steven L. Fradkin | 2014 | 600,000 | 1,500,013 | 399,854 | 1,000,000 | 1,131,157 | 23,348 | 4,654,372 | ||||||||||||||||||||||
2013 | 600,000 | 1,500,032 | 364,241 | 800,000 | — | 23,287 | 3,287,560 | |||||||||||||||||||||||
2012 | 600,000 | 700,015 | 555,165 | 800,000 | 1,069,699 | 25,799 | 3,750,678 | |||||||||||||||||||||||
William L. Morrison | 2014 | 800,000 | 2,437,590 | 649,766 | 1,200,000 | 387,764 | 44,155 | 5,519,275 | ||||||||||||||||||||||
2013 | 775,000 | 2,512,523 | 610,096 | 1,000,000 | — | 33,893 | 4,931,512 | |||||||||||||||||||||||
2012 | 700,000 | 1,166,677 | 925,283 | 1,000,000 | 852,901 | 31,364 | 4,676,225 | |||||||||||||||||||||||
Michael G. O’Grady | 2014 | 600,000 | 1,500,013 | 399,854 | 900,000 | 56,828 | 24,245 | 3,480,940 | ||||||||||||||||||||||
2013 | 593,750 | 1,500,032 | 364,241 | 750,000 | 56,745 | 25,819 | 3,290,587 | |||||||||||||||||||||||
2012 | 568,750 | 700,015 | 555,165 | 750,000 | 40,365 | 4,312 | 2,618,607 | |||||||||||||||||||||||
Jana R. Schreuder | 2014 | 600,000 | 1,500,013 | 399,854 | 900,000 | 1,363,916 | 31,781 | 4,795,564 | ||||||||||||||||||||||
2013 | 600,000 | 1,500,032 | 364,241 | 785,000 | — | 32,923 | 3,282,196 | |||||||||||||||||||||||
2012 | 600,000 | 700,015 | 555,165 | 825,000 | 1,495,879 | 29,733 | 4,205,792 |
(1)Salary.Effective April Positions reflected in this column reflect current positions. As noted above, effective September 1, 2011,2014, the salaryCorporation implemented certain leadership changes. Prior to these changes: Mr. Bowman served as Executive Vice President, Human Resources; Mr. Fradkin served as President of Mr. Waddell was increased to $975,000 and salaries forC&IS; Mr. Morrison Mr. Fradkin, Mr. Potter and Ms. Schreuder were increased to $600,000. In addition, effective October 1, 2011, Mr. Morrison’s annual base salary rate was increased to $700,000 in connection with his appointmentserved as President and Chief Operating Officer.Officer; Mr. O’Grady served as Chief Financial Officer; and Ms. Schreuder served as President of Wealth Management.
(2)Stock Awards. This Amounts in this column showsrepresent the grant date fair value of the restricted stock unit and performance stock unit awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation (“FASB ASC Topic 718.718”). See footnote 23“Note 22—Share-Based Compensation Plans” to the Consolidated Financial Statements containedconsolidated financial statements included in Item 8 of the Corporation’s 2011 Annual Report to Stockholderson Form 10-K for the year ended December 31, 2014 for a discussion of the assumptions made by the Corporation in the valuation of these stock unit awards, including that dividend equivalents will be paid on these stock unit awards.
Dividend equivalents on restricted stock units and This column includes the following amounts in 2014 with respect to performance stock units, held or deferred by a named executive officerwhich are paidbased on a current basis. Dividend equivalents paid on restricted stock unitsachievement of target performance levels: Mr. Waddell: $3,325,027; Mr. Bowman: $825,004; Mr. Fradkin: $1,000,009; Mr. Morrison: $1,625,060; Mr. O’Grady: $1,000,009; and Ms. Schreuder: $1,000,009. If the maximum level of performance were attained, the value of the performance stock units of each named executive officer in 2009 were:would be as follows: Mr. Waddell: $175,674;$4,156,298; Mr. Bowman: $1,031,286; Mr. Fradkin: $1,250,042; Mr. Morrison: $86,238;$2,031,356; Mr. Fradkin: $68,853; Mr. Potter: $48,170;O’Grady: $1,250,042; and Ms. Schreuder: $52,399. Dividend equivalents paid$1,250,042. See the narrative under “Description of Certain Awards Granted in 2014” beginning on restricted stock units andpage 48 of this Proxy Statement for more information on these awards.
(3) In February 2012 for 2011 performance, stock units of eachthe named executive officer in 2010 were:officers were awarded the following long-term cash incentive awards: Mr. Waddell: $243,720;$2,333,333; Mr. Fradkin: $700,000; Mr. Morrison: $72,012;$1,166,667; Mr. Fradkin: $72,593;
Mr. Potter: $58,954;O’Grady: $700,000; and Ms. Schreuder: $58,535. Dividend equivalents paid on restricted stock units of each named executive officer$700,000. In February 2015 these awards became fully vested. No such long-term cash incentive awards were granted in 2011 were: Mr. Waddell: $282,717; Mr. Morrison: $73,906; Mr. O’Grady $0; Mr. Fradkin: $74,536; Mr. Potter: $68,233; and Ms. Schreuder: $63,922.2013 or 2014 due to changes in the long-term incentive compensation plan design.
(3)Option Awards. This(4) Amounts in this column showsrepresent the grant date fair value of the option awards computed in accordance with FASB ASC Topic 718. See footnote 23“Note 22—Share-Based Compensation Plans” to the Consolidated Financial Statements containedconsolidated financial statements included in Item 8 of the Corporation’s 2011 Annual Report to Stockholderson Form 10-K for the year ended December 31, 2014 for a discussion of the assumptions made by the Corporation in the valuation of these option awards, including that dividend equivalent payments are factored intoawards. See the option valuation. The footnotes to the “Outstanding Equitynarrative under “Description of Certain Awards at Fiscal Year-End” tableGranted in 2014” beginning on page 6048 of this proxy statement contain vesting and other additionalProxy Statement for more information about the stock option awards madeon these awards.
(5) Amounts in 2009, 2010 and 2011.
(4)Non-Equity Incentive Plan Compensation. Thisthis column showsrepresent the annual cash incentives earned by the named executive officers in 2009, 2010, and 2011the applicable years under the MPP.Management Performance Plan.
(5)Change(6) Amounts in Pension Value and Nonqualified Deferred Compensation Earnings. Thisthis column showsrepresent the aggregate increase from each of December 31, 2008 to December 31, 2009, from December 31, 2009 to December 31, 2010 and from December 31, 2010 to December 31, 2011 (in each case, the measurement date used for reporting purposes in the Corporation’s applicable Annual Report to Stockholders) in the actuarial present valuevalues of accumulated benefits for each named executive officer under the Pension Plan and the Supplemental Pension Plan. It does not include any above-market or preferential earnings on deferred compensation asThe increase in discount rate used to calculate the Corporation does not pay above-market or preferential interest on the deferred compensation of its named executive officers.
(6)All Other Compensation. The table below providespension from 4.25% to 5.00% at December 31, 2013 resulted in a breakdown of the amounts showndecrease in the “All Other Compensation” column for each named executive officer in 2009, 2010 and 2011.
Perquisites (a) | Other Compensation | Total | ||||||||||||||||||||||||||
Name | Year | Financial Consulting/ Tax Return Preparation Services | Personal Use of Corporation’s Automobiles | Relocation (b) | Tax Reimburse- (c) | TIP/ TIP Contributions (d) | ||||||||||||||||||||||
Frederick H. Waddell | 2011 | $ | 13,500 | $ | 25,559 | — | $ | 17,250 | $ | 32,363 | $ | 88,672 | ||||||||||||||||
2010 | $ | 13,500 | $ | 21,782 | — | $ | 13,245 | $ | 27,000 | $ | 75,527 | |||||||||||||||||
2009 | $ | 13,500 | $ | 24,218 | — | $ | 14,785 | $ | 40,500 | $ | 93,003 | |||||||||||||||||
William L. Morrison | 2011 | $ | 7,500 | $ | 1,548 | — | $ | 1,096 | $ | 22,050 | $ | 32,194 | ||||||||||||||||
2010 | $ | 6,500 | $ | 1,611 | $ | 78,736 | $ | 56,670 | $ | 16,500 | $ | 160,017 | ||||||||||||||||
2009 | $ | 7,000 | — | — | — | $ | 24,750 | $ | 31,750 | |||||||||||||||||||
Michael G. O’Grady | 2011 | — | — | — | — | — | — | |||||||||||||||||||||
2010 | — | — | — | — | — | — | ||||||||||||||||||||||
2009 | — | — | — | — | — | — | ||||||||||||||||||||||
Steven L. Fradkin | 2011 | $ | 9,300 | $ | 523 | — | $ | 370 | $ | 21,300 | $ | 31,493 | ||||||||||||||||
2010 | $ | 9,500 | $ | 777 | — | $ | 507 | $ | 16,500 | $ | 27,284 | |||||||||||||||||
2009 | $ | 9,240 | $ | 351 | — | $ | 229 | $ | 24,750 | $ | 34,570 | |||||||||||||||||
Stephen N. Potter | 2011 | $ | 5,000 | $ | 305 | — | $ | 216 | $ | 21,300 | $ | 26,821 | ||||||||||||||||
2010 | $ | 5,000 | $ | 535 | — | $ | 348 | $ | 16,125 | $ | 22,008 | |||||||||||||||||
2009 | $ | 5,000 | $ | 412 | — | $ | 190 | $ | 22,500 | $ | 28,102 | |||||||||||||||||
Jana R. Schreuder | 2011 | $ | 11,733 | — | — | — | $ | 21,300 | $ | 33,033 | ||||||||||||||||||
2010 | $ | 6,633 | — | — | — | $ | 16,500 | $ | 23,133 | |||||||||||||||||||
2009 | $ | 12,825 | — | — | — | $ | 24,750 | $ | 37,575 |
(a)Perquisites. All perquisites are valued based on the aggregate incremental cost to the Corporation, as required by the SEC’s rules. The “Compensation Discussion and Analysis—Perquisites” sectionpresent value of this proxy statement contains additional information about the perquisites provided by the Corporation to its named executive officers.
(b)Relocation. The amounts in this column represent the payment of or reimbursement to Mr. Morrison for temporary living, travel, household goods transportation, and other expensesbenefits under the Corporation’s relocation program in connection with his relocation from Florida to Illinois.
(c)Tax Reimbursements. This column shows the amount of tax reimbursement associated with the use of the Corporation’s automobiles for business-related purposes and, in Mr. Morrison’s case, his relocation expenses.
(d)TIP/Supplemental TIP Contributions. This column reflects matching contributions made on behalf of the named executive officers to TIP and Supplemental TIP, both of which are defined contribution plans, as described above under “Compensation Discussion and Analysis—Retirement and Health and Welfare Benefits.”
(7) Mr. O’Grady joined the Corporation on August 15, 2011 as an Executive Vice-President and became Chief Financial Officer on October 1, 2011. His compensation is reported only from August 15, 2011 forward. The bonus amount represents a minimum bonus guaranteed to Mr. O’Grady in 2011 in connection with his commencement of employment with the Corporation.
The following table sets forth informationTraditional Formula for each named executive officer with respect to:2013 information provided at December 31, 2013 relative to December 31, 2012, except Mr. O’Grady whose benefits are accrued under the Pension Plan’s “Pension Equity Plan (PEP) Formula.” Accordingly, no amount is included for 2013 in this column for any named executive officer, except Mr. O’Grady. At December 31, 2014, the applicable discount rate decreased from 5.00% back down to 4.25%, resulting in an increase in the present value of benefits under the Traditional Formula. See “Pension Benefits” beginning on page 55 of this Proxy Statement for additional information.
(7) The following table sets forth a detailed breakdown of the items which comprise “All Other Compensation” for 2014:
Contributions Supplemental TIP ($)(a) Perquisites ($)(b) Tax Reimbursements ($)(c) Total ($) Mr. Waddell Mr. Bowman Mr. Fradkin Mr. Morrison Mr. O’Grady Ms. Schreuder (a) Includes matching contributions made by the Corporation on behalf of named executive officers participating in TIP and Supplemental TIP. (b) With respect to Mr. Waddell, includes financial consulting and tax return preparation services ($16,500) and personal use of company automobiles ($19,329). With respect to Mr. Bowman, includes relocation expenses ($22,833) relating to an overseas assignment. With respect to Mr. Fradkin, includes financial consulting and tax return preparation services ($4,335) and personal use of company automobiles ($537). With respect to Mr. Morrison, includes financial consulting and tax return preparation services ($14,850) and personal use of company automobiles ($2,814). With respect to Mr. O’Grady, includes personal use of company aircraft ($4,773). With respect to Ms. Schreuder, includes financial consulting and tax return preparation services ($13,781). (c) Includes tax reimbursements provided in connection with personal use of company vehicles and taxable relocation expenses. |
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Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(2) | Estimated Future Payouts Under Equity Incentive Plan Awards | All (i) | All Other (j) | Exercise (k) | Grant (l) | |||||||||||||||||||||||||||||||||||||
Name (a) | Grant (b) | Thresh- (c) | Target (d) | Maxi- (e) | Thresh- (f) | Target (g) | Maxi- (h) | |||||||||||||||||||||||||||||||||||
Frederick H. Waddell | — | — | 2,000,000 | 3,621,600 | ||||||||||||||||||||||||||||||||||||||
2/14/2011 | 227,964 | $ | 52.640 | $ | 3,581,932 | |||||||||||||||||||||||||||||||||||||
2/14/2011 | 0 | 0 | 0 | 75,988 | $ | 4,000,008 | ||||||||||||||||||||||||||||||||||||
William L. Morrison | — | — | 700,000 | 2,414,400 | ||||||||||||||||||||||||||||||||||||||
2/14/2011 | 71,239 | $ | 52.640 | $ | 1,119,358 | |||||||||||||||||||||||||||||||||||||
2/14/2011 | 0 | 0 | 0 | 23,747 | $ | 1,250,042 | ||||||||||||||||||||||||||||||||||||
7/19/2011 | 10,000 | $ | 436,400 | |||||||||||||||||||||||||||||||||||||||
Michael G. O’Grady | — | — | N/A | 1,810,800 | ||||||||||||||||||||||||||||||||||||||
10/18/2011 | 96,700 | $ | 38.780 | $ | 854,260 | |||||||||||||||||||||||||||||||||||||
10/18/2011 | 0 | 0 | 0 | 32,234 | $ | 1,250,035 | ||||||||||||||||||||||||||||||||||||
Steven L. Fradkin | — | — | 725,000 | 1,810,800 | ||||||||||||||||||||||||||||||||||||||
2/14/2011 | 71,239 | $ | 52.640 | $ | 1,119,358 | |||||||||||||||||||||||||||||||||||||
2/14/2011 | 0 | 0 | 0 | 23,747 | $ | 1,250,042 | ||||||||||||||||||||||||||||||||||||
Stephen N. Potter | — | — | 675,000 | 1,810,800 | ||||||||||||||||||||||||||||||||||||||
2/14/2011 | 71,239 | $ | 52.640 | $ | 1,119,358 | |||||||||||||||||||||||||||||||||||||
2/14/2011 | 0 | 0 | 0 | 23,747 | $ | 1,250,042 | ||||||||||||||||||||||||||||||||||||
Jana R. Schreuder | — | — | 700,000 | 1,810,800 | ||||||||||||||||||||||||||||||||||||||
2/14/2011 | 71,239 | $ | 52.640 | $ | 1,119,358 | |||||||||||||||||||||||||||||||||||||
2/14/2011 | 0 | 0 | 0 | 23,747 | $ | 1,250,042 |
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise or Base Price of Option Awards ($/sh) | Grant ($)(5) | |||||||||||||||||||||||||||||||||||||
Name | Grant Date | Thres- hold ($) | Target ($) | Maximum ($) | Thres- hold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||||
Mr. Waddell | $ | 1,900,000 | $ | 4,870,800 | ||||||||||||||||||||||||||||||||||||||
2/10/2014 | 81,964 | $ | 60.85 | $ | 1,329,507 | |||||||||||||||||||||||||||||||||||||
2/10/2014 | 27,322 | 1,662,544 | ||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 27,322 | 54,643 | 68,304 | 3,325,027 | ||||||||||||||||||||||||||||||||||||||
Mr. Bowman | 500,000 | 2,435,400 | ||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 20,337 | 60.85 | 329,879 | |||||||||||||||||||||||||||||||||||||||
2/10/2014 | 6,779 | 412,502 | ||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 6,779 | 13,558 | 16,948 | 825,004 | ||||||||||||||||||||||||||||||||||||||
Mr. Fradkin | 800,000 | 2,435,400 | ||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 24,651 | 60.85 | 399,854 | |||||||||||||||||||||||||||||||||||||||
2/10/2014 | 8,217 | 500,004 | ||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 8,217 | 16,434 | 20,543 | 1,000,009 | ||||||||||||||||||||||||||||||||||||||
Mr. Morrison | 1,000,000 | 3,247,200 | ||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 40,058 | 60.85 | 649,766 | |||||||||||||||||||||||||||||||||||||||
2/10/2014 | 13,353 | 812,530 | ||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 13,353 | 26,706 | 33,383 | 1,625,060 | ||||||||||||||||||||||||||||||||||||||
Mr. O’Grady | 750,000 | 2,435,400 | ||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 24,651 | 60.85 | 399,854 | |||||||||||||||||||||||||||||||||||||||
2/10/2014 | 8,217 | 500,004 | ||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 8,217 | 16,434 | 20,543 | 1,000,009 | ||||||||||||||||||||||||||||||||||||||
Ms. Schreuder | 785,000 | 3,247,200 | ||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 24,651 | 60.85 | 399,854 | |||||||||||||||||||||||||||||||||||||||
2/10/2014 | 8,217 | 500,004 | ||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 8,217 | 16,434 | 20,543 | 1,000,009 |
(1)Grant Date. In each case, the “Grant Date” reflects the date on which the Compensation and Benefits Committee acted to approve the grant of the award.
(2)Estimated Possible Payouts Under Non-Equity Incentive Plan Awards. These columns show the range of potentialinformation regarding payouts under the MPPManagement Performance Plan. The amount set forth under the Maximum column represents the highest potential payout under the plan based on the Corporation’s performance in 2011. “Threshold” is2014 performance. Although the plan does not applicable as the MPP authorizes the Compensation and Benefits Committee to award annual cash incentives ranging from $0 to the “Maximum”. The MPP defines the Maximumprovide for each position as follows: Chairman, the CEOa target or a combined Chairman and CEO position—0.6% of consolidated net income; President, any Vice Chairman, COO, or a combined President and COO—0.4% of consolidated
net income; and the other named executive officers—0.3% of consolidated net income. No target awards were established under the MPP for 2011. Pursuant to SEC regulations,threshold, the amount set forth under the targetTarget column represents the amount actually awarded to the named executive officer in 2014 in respect of 20102013 performance.
(2) The amounts set forth under the Threshold, Target and Maximum columns represent the number of shares of common stock that would be paid out under the performance (exceptstock units granted in February 2014 if the caseCorporation achieves a return on equity of Mr. O’Grady, who did not participate in the MPP in 2010). The Committee considers a range of financial and non-financial factors and exercises discretion in determining the actual award provided that such awards may not exceed the “Maximum” defined in the MPP.7.0%, 10.0% or 15.0%, respectively.
(3)All Other Stock Awards: Number of Shares of Stock or Units. This column shows the number of restricted stock units granted to the named executive officers in 2011.2014.
(4)All Other Option Awards: Number of Securities Underlying Options. This column shows the number of shares that may be issued to the named executive officers upon exercise of stock options granted in 2011.2014.
(5)Exercise Price. In 2011, Represents the exercise price for all stock options was the closing sale price of the Corporation’s common stock on the date of grant.
(6)Grant Date Fair Value. The grant date fair value of the stock and option awards waseach equity award, computed in accordance with FASB ASC Topic 718.718 (using the target level of performance for performance stock unit awards), disregarding any estimated forfeitures.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-ENDDescription of Certain Awards Granted in 2014
Performance Stock Units
Each performance stock unit constitutes the right to receive a share of the Corporation’s common stock and vests over a three-year performance period, subject to satisfaction of specified performance targets (“performance conditions”) that are a function of return on equity and continued employment until the end of the vesting period. Dividend equivalents on performance stock units are paid in cash on a current basis prior to vesting and distribution.
With respect to the performance stock units granted in 2014 and 2015, the Compensation and Benefits Committee identified specific types of objectively determinable factors that could affect return on equity if the factors occur during the performance period. In doing so, the Committee established that the effects of those factors will be excluded from the calculation of the performance measure if any of them, alone or in combination, would produce a change in net income in excess of $100 million. Factors that result in an adjustment to the calculation of the performance measure include: (i) acquisitions, dispositions, mergers, and similar transactions, and securities issuances and expenses in connection therewith; (ii) changes in accounting principles, tax laws or other laws that affect reported results that become effective during the performance period; (iii) litigation or regulatory settlements; (iv) charges and expenses for restructuring activity, including reductions in force; (v) discontinued operations; (vi) asset write-downs; and (vii) any other gain, loss, income or expense with respect to the performance period that is nonrecurring in nature. The Committee retains the power to exercise negative discretion, as it deems appropriate under the relevant circumstances, to reduce the actual payouts under the performance stock units below the payouts otherwise resulting from the application of adjustments for any of these factors.
The following table sets forth informationcharts illustrate the vesting requirements for eachthe performance stock unit grants to named executive officers in 2014 and 2015 and shows that the average annual rate of return on equity that must be attained in order for the awards to become fully or partially vested has been increased for the 2015 grants.
Performance Stock Unit February 2015 Grants | Performance Stock Unit February 2014 Grants | |||||||||||
Average Annual Rate of | Percentage of Stock Units Vested | Average Annual Rate of | Percentage of Stock Units Vested | |||||||||
Less than 7.5% | 0% | Less than 7.0% | 0% | |||||||||
7.5% | 50% | 7.0% | 50% | |||||||||
10.25% | 100% | 10% | 100% | |||||||||
12.5% | 115% | 12.5% | 115% | |||||||||
> 15% | 125% | > 15% | 125% |
As it is possible that there will be no payout under the performance stock units, these awards are completely “at-risk” compensation.
If an executive dies, becomes disabled, or retires during the performance period, or the executive’s employment terminates during the performance period under certain circumstances entitling the executive to benefits under the Corporation’s severance plan, the executive or the
executive’s beneficiary will be eligible for pro rata vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the performance conditions. In addition, if a named executive officer terminates employment on or after attainment of age 55, the executive will be eligible for pro rata vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the performance conditions.
Upon a change in control, performance stock units granted prior to December 31, 2012, become 100 percent vested and are to be immediately distributed. With respect to performance stock units granted after December 31, 2012, a pro rata portion of each performance stock unit award (based on the portion of the performance period that has elapsed as of the change in control) is eligible to vest based on the Corporation’s actual performance at the time of the change in control and are to be paid out at the end of the performance period, subject to accelerated distribution upon a qualifying termination. The remainder of the performance award converts at the target level of performance specified in the performance stock unit agreement into an award with respect to:
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Option Awards(1) | Stock Awards | |||||||||||||||||||||||||
Name (a) | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | Number of Securities Underlying Unexercised Options (#) Unexercisable (c) | Equity Incentive Plan Awards: Number of Securities Underlying Unexer- cised Unearned Options (#) (d) | Option Exercise Price ($) (e) | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#)(2) (g) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) (h) | |||||||||||||||||||
Frederick H. Waddell | 1,913 | 0 | 52.300000 | 5/20/2012 | 189,764 | $ | 7,526,040 | |||||||||||||||||||
23,087 | 0 | 52.300000 | 5/20/2012 | |||||||||||||||||||||||
22,024 | 0 | 32.615000 | 2/18/2013 | |||||||||||||||||||||||
90,000 | 0 | 49.120000 | 2/17/2014 | |||||||||||||||||||||||
75,000 | 0 | 44.465000 | 2/15/2015 | |||||||||||||||||||||||
76,761 | 0 | 52.095000 | 2/21/2016 | |||||||||||||||||||||||
65,105 | 0 | 63.360000 | 2/20/2017 | |||||||||||||||||||||||
94,764 | 31,588 | 71.230000 | 2/19/2018 | |||||||||||||||||||||||
135,404 | 135,404 | 57.540000 | 7/21/2019 | |||||||||||||||||||||||
51,481 | 154,442 | 50.990000 | 2/15/2020 | |||||||||||||||||||||||
0 | 227,964 | 52.640000 | 2/14/2021 | |||||||||||||||||||||||
William L. Morrison | 3,635 | 0 | 53.655000 | 2/19/2012 | 68,404 | $ | 2,712,903 | |||||||||||||||||||
1,913 | 0 | 52.300000 | 5/20/2012 | |||||||||||||||||||||||
38,087 | 0 | 52.300000 | 5/20/2012 | |||||||||||||||||||||||
3,066 | 0 | 32.615000 | 2/18/2013 | |||||||||||||||||||||||
6,934 | 0 | 32.615000 | 2/18/2013 | |||||||||||||||||||||||
5,519 | 0 | 32.615000 | 2/18/2013 | |||||||||||||||||||||||
90,000 | 0 | 49.120000 | 2/17/2014 | |||||||||||||||||||||||
75,000 | 0 | 44.465000 | 2/15/2015 | |||||||||||||||||||||||
63,328 | 0 | 52.095000 | 2/21/2016 | |||||||||||||||||||||||
40,247 | 0 | 63.360000 | 2/20/2017 | |||||||||||||||||||||||
31,589 | 10,529 | 71.230000 | 2/19/2018 | |||||||||||||||||||||||
45,135 | 45,135 | 57.540000 | 7/21/2019 | |||||||||||||||||||||||
14,709 | 44,127 | 50.990000 | 2/15/2020 | |||||||||||||||||||||||
0 | 71,239 | 52.640000 | 2/14/2021 | |||||||||||||||||||||||
Michael G. O’Grady | 0 | 96,700 | 38.780000 | 10/18/2021 | 32,234 | $ | 1,278,400 |
Name (a) Number of Securities Underlying Unexercised Options (#) Exercisable (b) Number of Securities Underlying Unexercised Options (#) Unexercisable (c) Equity Incentive Plan Awards: Number of Securities Underlying Unexer- cised Unearned Options (#) (d) Option Exercise Price ($) (e) Option Expiration Date (f) Number of Shares or Units of Stock That Have Not Vested (#)(2) (g) Market Value of Shares or Units of Stock That Have Not Vested ($)(3) (h) Steven L. Fradkin Stephen N. Potter Jana R. Schreuder Option Awards(1) Stock Awards 2,796 0 53.655000 2/19/2012 58,404 $ 2,316,303 1,913 0 52.300000 5/20/2012 28,087 0 52.300000 5/20/2012 50,000 0 49.120000 2/17/2014 55,000 0 44.465000 2/15/2015 57,571 0 52.095000 2/21/2016 40,247 0 63.360000 2/20/2017 31,589 10,529 71.230000 2/19/2018 45,135 45,135 57.540000 7/21/2019 14,709 44,127 50.990000 2/15/2020 0 71,239 52.640000 2/14/2021 1,295 0 53.655000 2/19/2012 58,404 $ 2,316,303 1,913 0 52.300000 5/20/2012 18,087 0 52.300000 5/20/2012 21,934 0 32.615000 2/18/2013 3,680 0 32.615000 2/18/2013 25,000 0 49.120000 2/17/2014 30,000 0 44.465000 2/15/2015 24,180 0 52.095000 2/21/2016 26,042 0 63.360000 2/20/2017 26,850 8,950 71.230000 2/19/2018 45,135 45,135 57.540000 7/21/2019 14,709 44,127 50.990000 2/15/2020 0 71,239 52.640000 2/14/2021 1,398 0 53.655000 2/19/2012 58,404 $ 2,316,303 1,913 0 52.300000 5/20/2012 18,087 0 52.300000 5/20/2012 25,000 0 49.120000 2/17/2014 42,219 0 52.095000 2/21/2016 35,512 0 63.360000 2/20/2017 31,589 10,529 71.230000 2/19/2018 45,135 45,135 57.540000 7/21/2019 14,709 44,127 50.990000 2/15/2020 0 71,239 52.640000 2/14/2021
to the acquirer of an equal economic value and vests subject only to the continued employment of the recipient through the remainder of the applicable performance period and is paid out at the end of the performance period, subject to acceleration of vesting upon a qualifying termination, in which event the units are distributed at that time. Notwithstanding the foregoing, in the event that both a change in control occurs and the acquirer refuses or is unable to agree to the foregoing conversion and vesting provisions, the award will be vested at the time of the change in control, and will be distributed in accordance with the provisions of Section 409A of the Internal Revenue Code, to the extent applicable. The performance stock unit awards provide that in such event the distribution may be in cash.
(1)Restricted Stock Units
Restricted stock units vest 50% on the third anniversary of the date of grant and 50% on the fourth anniversary of the date of grant. Each restricted stock unit award entitles an executive to receive one share of common stock in the year in which the award vests. Dividend equivalents on restricted stock units are paid in cash on a current basis prior to vesting and distribution.
If an executive dies, becomes disabled, or retires during the vesting period, or the executive’s employment is terminated during the vesting period under certain circumstances entitling the executive to benefits under the Corporation’s severance plan, the executive or the executive’s beneficiaries will be entitled to receive a distribution of a prorated number of restricted stock units. In addition, if a named executive officer is age 55 or older on the date of termination of employment, and does not compete with the Corporation during the vesting period, a prorated number of restricted stock units on each remaining vesting date in the vesting period become vested and are eligible for distribution.
Upon a change in control of the Corporation, all restricted stock units granted to executive officers prior to December 31, 2012, become fully vested immediately. Restricted stock units granted after December 31, 2012 would be converted into units of the acquirer and continue to vest in accordance with the regular vesting schedule; provided, however, that they become fully vested in connection with a change in control if the executive experiences a qualifying termination of employment following the change in control (in which case they are distributed within sixty days). A qualifying termination is an involuntary termination of employment without “cause” or termination for “good reason,” as those terms are defined in the award agreements, that occurs after the change in control and prior to the second anniversary thereof. Notwithstanding the foregoing, in the event that both a change in control occurs and the acquirer refuses or is unable to agree to the foregoing
conversion and vesting provisions, the award will be vested and will be distributed in accordance with the provisions of Section 409A of the Internal Revenue Code, to the extent applicable. The restricted stock unit awards provide that in such event distribution may be in cash.
Stock Options.Options
Stock options are granted with an exercise price equal to the closing sale price of the common stock on the date of grant and expire 10ten years after the date of the grant. This approach is designed to motivate the executive to contribute to the creation of stockholder value over the long term. The Corporation currently grants only non-qualified stockStock options because it believes that the tax benefits to the Corporation of non-qualified stock options outweigh the potential tax benefits to the executives of incentive stock options. All stock options granted in 2006 and thereafter are scheduled to
generally vest in equal annual installments over a four-year vesting period determined by the Compensation and Benefits Committee.
If thean executive dies or becomes disabled, the executive’s outstanding stock options (whether vested or unvested) become vested and may be exercised until the earlier of five years following death or disability or the expiration date of the option. If the executive retires, or if a named executive officer is age 55 or older with a minimum of ten years of employment on the date of termination of employment, and is not otherwise retirement-eligible pursuant to the Corporation’s retirement policy, the stock options continue to vest in accordance with their terms and, once vested, may be exercised until the earlier of five years following retirement or the expiration date of the option. If the executive’s employment is terminated under certain circumstances entitling the executive to severance benefits, the executive’s stock options (whether vested or unvested) may be exercised until the earlier of 180 days following termination of employment or the expiration date of the option, provided that if the executive is retirement eligible upon his or her termination of employment under the severance plan, the executive’s stock options (whether vested or unvested) become vested upon the executive’s termination of employment and may be exercised until the earlier of five years from the executive’s effective date of retirement or the expiration of the option. If the executive is a member of the Management Group on the date of grant, is age 55 or older with a minimum of 10 years of employment on the date of termination of employment, and is not otherwise retirement-eligible pursuant to the Corporation’s retirement policy, the stock options continue to vest and, once vested, may be exercised until the earlier of five years following termination of employment or the expiration date of the option. In other instances, in the absence of a change in control, vested stock options expire on the earlier of three months following termination of employment or the expiration date of the option, and unvested stock options expire on termination of employment.
Upon a change in control of the Corporation, all stock options granted prior to December 31, 2012 become vested and exercisable.
(2)Number of Restricted Stock Units. This column shows the number of unvested restricted stock units held by the named executive officers as ofoptions granted after December 31, 2011. Restricted2012 convert to options relating to the stock unitsof the acquirer and continue to vest 50%in accordance with the regular vesting schedule; provided, however, that they become fully vested in connection with a change in control if the executive experiences a qualifying termination of employment following the change in control (in which case the options on the third anniversaryacquirer stock remain exercisable until the expiration of the date of grant and 50% on the fourth anniversary of the date of grant. Restricted stock unit awards entitle an executive to receive one share of common stockoption), or if they are not assumed in the year intransaction (in which case the award vests. Restricted stock units vest overemployee is entitled to a specified vesting period determined bycash payment equal to the Committee. Dividend equivalents on“spread” between the transaction consideration and the option exercise price).
Outstanding Equity Awards at Fiscal Year-End
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares of Units of Stock That Have Not Vested ($)(1) | Equity Incentive Plan Awards: Number of Unearned Units or (#) | Equity Incentive Plan Awards: Market or | ||||||||||||||||||||||||
Mr. Waddell | 65,105 | — | 63.36 | 2/20/2017 | 96,869(8 | ) | $ | 6,528,971 | 171,204(14 | ) | $ | 11,539,150 | ||||||||||||||||||||
126,352 | — | 71.23 | 2/19/2018 | |||||||||||||||||||||||||||||
270,808 | — | 57.54 | 7/21/2019 | |||||||||||||||||||||||||||||
205,923 | — | 50.99 | 2/15/2020 | |||||||||||||||||||||||||||||
170,973 | 56,991 | (3) | 52.64 | 2/14/2021 | ||||||||||||||||||||||||||||
80,184 | 80,183 | (4) | 43.65 | 2/13/2022 | ||||||||||||||||||||||||||||
23,665 | 70,993 | (5) | 52.69 | 2/11/2023 | ||||||||||||||||||||||||||||
— | 81,964 | (6) | 60.85 | 2/10/2024 | ||||||||||||||||||||||||||||
Mr. Bowman | 5,919 | — | 63.36 | 2/20/2017 | 23,434(9 | ) | 1,579,452 | 27,793(15 | ) | 1,873,248 | ||||||||||||||||||||||
7,371 | — | 71.23 | 2/19/2018 | |||||||||||||||||||||||||||||
14,444 | — | 55.39 | 2/16/2019 | |||||||||||||||||||||||||||||
11,768 | — | 50.99 | 2/15/2020 | |||||||||||||||||||||||||||||
8,550 | 2,849 | (3) | 52.64 | 2/14/2021 | ||||||||||||||||||||||||||||
5,728 | 5,727 | (4) | 43.65 | 2/13/2022 | ||||||||||||||||||||||||||||
5,338 | 16,014 | (5) | 52.69 | 2/11/2023 | ||||||||||||||||||||||||||||
— | 20,337 | (6) | 60.85 | 2/10/2024 | ||||||||||||||||||||||||||||
Mr. Fradkin | 40,247 | — | 63.36 | 2/20/2017 | 29,580(10 | ) | 1,993,692 | 51,450(16 | ) | 3,467,730 | ||||||||||||||||||||||
42,118 | — | 71.23 | 2/19/2018 | |||||||||||||||||||||||||||||
90,270 | — | 57.54 | 7/21/2019 | |||||||||||||||||||||||||||||
58,836 | — | 50.99 | 2/15/2020 | |||||||||||||||||||||||||||||
53,430 | 17,809 | (3) | 52.64 | 2/14/2021 | ||||||||||||||||||||||||||||
24,055 | 24,055 | (4) | 43.65 | 2/13/2022 | ||||||||||||||||||||||||||||
7,118 | 21,351 | (5) | 52.69 | 2/11/2023 | ||||||||||||||||||||||||||||
— | 24,651 | (6) | 60.85 | 2/10/2024 | ||||||||||||||||||||||||||||
Mr. Morrison | 40,247 | — | 63.36 | 2/20/2017 | 46,121(11 | ) | 3,108,555 | 85,224(17 | ) | 5,744,098 | ||||||||||||||||||||||
42,118 | — | 71.23 | 2/19/2018 | |||||||||||||||||||||||||||||
90,270 | — | 57.54 | 7/21/2019 | |||||||||||||||||||||||||||||
58,836 | — | 50.99 | 2/15/2020 | |||||||||||||||||||||||||||||
53,430 | 17,809 | (3) | 52.64 | 2/14/2021 | ||||||||||||||||||||||||||||
40,092 | 40,092 | (4) | 43.65 | 2/13/2022 | ||||||||||||||||||||||||||||
11,922 | 35,763 | (5) | 52.69 | 2/11/2023 | ||||||||||||||||||||||||||||
— | 40,058 | (6) | 60.85 | 2/10/2024 |
Number of Securities Underlying Unexercised Options Exercisable (#) Number of Securities Underlying Unexercised Options Unexercisable (#) Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares of Units of Stock That Have Not Vested ($)(1) Equity Incentive Plan Awards: Number of Unearned Units or (#) Equity Incentive Plan Awards: Market or Mr. O’Grady Ms. Schreuder Option Awards Stock Awards Name
Shares,
Other
Rights
That
Have Not
Vested
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)(2) 72,525 24,175 (7) 38.78 10/18/2021 33,824(12 ) 2,279,738 51,450(18 ) 3,467,730 24,055 24,055 (4) 43.65 2/13/2022 7,118 21,351 (5) 52.69 2/11/2023 — 24,651 (6) 60.85 2/10/2024 17,756 — 63.36 2/20/2017 29,580(13 ) 1,993,692 51,450(19 ) 3,467,730 42,118 — 71.23 2/19/2018 90,270 — 57.54 7/21/2019 58,836 — 50.99 2/15/2020 53,430 17,809 (3) 52.64 2/14/2021 24,055 24,055 (4) 43.65 2/13/2022 7,118 21,351 (5) 52.69 2/11/2023 — 24,651 (6) 60.85 2/10/2024
(1) The market value of the restricted stock units are paid on a current basis prior to vesting and distribution. If the executive dies, becomes disabled, or retires during the vesting period, or the executive’s employmentincluded in this column is terminated during the vesting period under certain circumstances entitling the executive to severance benefits, the executive or the executive’s beneficiaries will be entitled to receive a distribution of a prorated number of restricted stock units immediately upon the occurrence of the triggering event. If the executive is a Management Group member on the date of grant, is age 55 or older on the date of termination of employment, and does not violate certain restrictive covenants concerning confidentiality and non-solicitation during the vesting period, a prorated number of stock units is eligible for distribution upon each remaining vesting date in the vesting period. In other instances where the executive leaves the Corporation during the vesting period, the restricted stock units are forfeited. In the event of a change in control, all restricted stock units become fully vested, and are immediately distributable.
(3)Market Value of Restricted Stock Units.This column shows the market value of the unvested restricted stock units held by the named executive officers, based on a price of $39.66$67.40 per share (the closing market price of the Corporation’s common stock on December 30,31, 2014).
(2) The market value of the performance stock units included in this column is based on a price of $67.40 per share (the closing market price of the Corporation’s common stock on December 31, 2014).
(3) Options originally granted February 14, 2011, as reported by NASDAQ).with 25% of the award vesting on each anniversary of the grant date. Accordingly, all remaining unvested options vest on February 14, 2015.
(4) Options originally granted February 13, 2012, with 25% of the award vesting on each anniversary of the grant date. Accordingly, the remaining unvested options vest in equal portions on each of February 13, 2015 and 2016.
(5) Options originally granted February 11, 2013, with 25% of the award vesting on each anniversary of the grant date. Accordingly, the remaining unvested options vest in equal portions on each of February 11, 2015, 2016 and 2017.
(6) Options originally granted February 10, 2014, with 25% of the award vesting on each anniversary of the grant date. Accordingly, the remaining unvested options vest in equal portions on each of February 10, 2015, 2016, 2017 and 2018.
(7) Options originally granted October 18, 2011, with 25% of the award vesting on each anniversary of the grant date. Accordingly, all remaining unvested options vest on October 18, 2015.
(8) Consists of 37,994 restricted stock units vesting on February 14, 2015, 15,777 units vesting on February 11, 2016, 13,661 units vesting on February 10, 2017, 15,776 units vesting on February 11, 2017 and 13,661 units vesting on February 10, 2018.
(9) Consists of 3,819 restricted stock units vesting on February 13, 2015, 1,900 units vesting on February 14, 2015, 3,559 units vesting on February 11, 2016, 3,818 units vesting on February 13, 2016, 3,390 units vesting on February 10, 2017, 3,559 units vesting on February 11, 2017 and 3,389 units vesting on February 10, 2018.
(10) Consists of 11,873 restricted stock units vesting on February 14, 2015, 4,745 units vesting on February 11, 2016, 4,109 units vesting on February 10, 2017, 4,745 units vesting on February 11, 2017 and 4,108 units vesting on February 10, 2018.
(11) Consists of 11,873 restricted stock units vesting on February 14, 2015, 5,000 units vesting on July 19, 2015, 7,948 units vesting on February 11, 2016, 6,677 units vesting on February 10, 2017, 7,947 units vesting on February 11, 2017 and 6,676 units vesting on February 10, 2018.
(12) Consists of 16,117 restricted stock units vesting on October 18, 2015, 4,745 units vesting on February 11, 2016, 4,109 units vesting on February 10, 2017, 4,745 units vesting on February 11, 2017 and 4,108 units vesting on February 10, 2018.
(13) Consists of 11,873 restricted stock units vesting on February 14, 2015, 4,745 units vesting on February 11, 2016, 4,109 units vesting on February 10, 2017, 4,745 units vesting on February 11, 2017 and 4,108 units vesting on February 10, 2018.
(14) Consists of the following number of target shares Mr. Waddell may receive under performance stock units: 53,456 shares vesting on February 13, 2015; 63,105 shares vesting on February 11, 2016; and 54,643 shares vesting on February 10, 2017. The actual number of shares distributed on the vesting date will be based upon the satisfaction of certain performance conditions.
(15) Consists of the following number of target shares Mr. Bowman may receive under performance stock units: 14,235 shares vesting on February 11, 2016; and 13,558 shares vesting on February 10, 2017. The actual number of shares distributed on the vesting date will be based upon the satisfaction of certain performance conditions.
(16) Consists of the following number of target shares Mr. Fradkin may receive under performance stock units: 16,037 shares vesting on February 13, 2015; 18,979 shares vesting on February 11, 2016; and 16,434 shares vesting on February 10, 2017. The actual number of shares distributed on the vesting date will be based upon the satisfaction of certain performance conditions.
(17) Consists of the following number of target shares Mr. Morrison may receive under performance stock units: 26,728 shares vesting on February 13, 2015; 31,790 shares vesting on February 11, 2016; and 26,706 shares vesting on February 10, 2017. The actual number of shares distributed on the vesting date will be based upon the satisfaction of certain performance conditions.
(18) Consists of the following number of target shares Mr. O’Grady may receive under performance stock units: 16,037 shares vesting on February 13, 2015; 18,979 shares vesting on February 11, 2016;
and 16,434 shares vesting on February 10, 2017. The actual number of shares distributed on the vesting date will be based upon the satisfaction of certain performance conditions.
(19) Consists of the following number of target shares Ms. Schreuder may receive under performance stock units: 16,037 shares vesting on February 13, 2015; 18,979 shares vesting on February 11, 2016; and 16,434 shares vesting on February 10, 2017. The actual number of shares distributed on the vesting date will be based upon the satisfaction of certain performance conditions.
OPTION EXERCISES AND STOCK VESTEDOption Exercises and Stock Vested
The following table sets forth information for each named executive officer with respect to:
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Option Awards | Stock Awards | |||||||||||||||
Name (a) | Number of Shares Acquired on Exercise (#) (b) | Value Realized on Exercise ($)(1) (c) | Number of Shares Acquired On Vesting (#) (d) | Value Realized On Vesting ($) (e) | ||||||||||||
Frederick H. Waddell | 22,024 | $ | 151,415 | 0 | $ | 0 | ||||||||||
William L. Morrison | 0 | $ | 0 | 0 | $ | 0 | ||||||||||
Michael G. O’Grady | 0 | $ | 0 | 0 | $ | 0 | ||||||||||
Steven L. Fradkin | 0 | $ | 0 | 0 | $ | 0 | ||||||||||
Stephen N. Potter | 0 | $ | 0 | 0 | $ | 0 | ||||||||||
Jana R. Schreuder | 851 | $ | 38,402 | 0 | $ | 0 |
Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired On Vesting (#) | Value Realized On Vesting ($)(2) | ||||||||||||
Mr. Waddell | 151,761 | $ | 2,477,299 | 72,314 | $ | 4,486,814 | ||||||||||
Mr. Bowman | 6,045 | 95,844 | 7,849 | 494,128 | ||||||||||||
Mr. Fradkin | 28,786 | 342,571 | 21,680 | 1,345,187 | ||||||||||||
Mr. Morrison | 138,328 | 2,157,012 | 26,680 | 1,670,412 | ||||||||||||
Mr. O’Grady | — | — | 16,117 | 1,028,829 | ||||||||||||
Ms. Schreuder | 59,975 | 669,597 | 21,680 | 1,345,187 |
(1)Value Realized on Exercise. The value realized on the exercise of stock options represents the pre-tax difference between the option exercise price and the fair market value of the common stock on the date of exercise,exercise.
(2) The value realized on the distribution of restricted stock units represents the average of the high and low sales prices on the distribution date of the applicable award multiplied by the number of shares of common stock covered by the stock optionsunits held by the named executive officers.
Name (a) | Plan Name (b) | Number of Years Credited Service (#) (c) | Present Value Benefit ($) (d) | Payments Fiscal Year ($) (e) | ||||||||||
Frederick H. Waddell | Qualified Pension Plan | 35.0 | $ | 1,535,428 | $ | 0 | ||||||||
Supplemental Pension Plan | 35.0 | $ | 13,348,325 | $ | 0 | |||||||||
William L. Morrison | Qualified Pension Plan | 15.8 | $ | 795,108 | $ | 0 | ||||||||
Supplemental Pension Plan | 15.8 | $ | 3,101,397 | $ | 0 | |||||||||
Michael G. O’Grady | Qualified Pension Plan | 0.4 | $ | 3,315 | $ | 0 | ||||||||
Supplemental Pension Plan | 0.4 | $ | 4,065 | $ | 0 | |||||||||
Steven L. Fradkin | Qualified Pension Plan | 26.7 | $ | 766,689 | $ | 0 | ||||||||
Supplemental Pension Plan | 26.7 | $ | 3,069,767 | $ | 0 | |||||||||
Stephen N. Potter | Qualified Pension Plan | 29.4 | $ | 1,086,643 | $ | 0 | ||||||||
Supplemental Pension Plan | 29.4 | $ | 3,675,924 | $ | 0 | |||||||||
Jana R. Schreuder | Qualified Pension Plan | 31.7 | $ | 1,082,368 | $ | 0 | ||||||||
Supplemental Pension Plan | 31.7 | $ | 4,161,551 | $ | 0 |
The information presented in the Pension Benefits table is as of the measurement date of December 31, 2011, which is the measurement date used for reporting purposes in the Corporation’s 2011 Annual Report to Stockholders.
Information with respect to accrued benefits of each named executive officer under the Pension Plan is as follows:
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Benefit ($) | Payments Fiscal Year ($) | ||||||||||
Mr. Waddell | Qualified Pension Plan | 35.0 | $ | 1,942,586 | — | |||||||||
Supplemental Pension Plan | 35.0 | 19,097,368 | — | |||||||||||
Mr. Bowman | Qualified Pension Plan | 29.5 | 1,020,734 | — | ||||||||||
Supplemental Pension Plan | 29.5 | 1,814,412 | — | |||||||||||
Mr. Fradkin | Qualified Pension Plan | 29.7 | 1,076,076 | — | ||||||||||
Supplemental Pension Plan | 29.7 | 4,658,243 | — | |||||||||||
Mr. Morrison | Qualified Pension Plan | 18.8 | 909,332 | — | ||||||||||
Supplemental Pension Plan | 18.8 | 3,957,522 | — | |||||||||||
Mr. O’Grady | Qualified Pension Plan | 3.4 | 36,250 | — | ||||||||||
Supplemental Pension Plan | 3.4 | 125,068 | — | |||||||||||
Ms. Schreuder | Qualified Pension Plan | 34.7 | 1,476,590 | — | ||||||||||
Supplemental Pension Plan | 34.7 | 6,344,466 | — |
Pension Plan and Supplemental Pension Plan
Defined benefit pension benefits are provided generally to employees under the Pension Plan and to certain employees (including the named executive officers) under the Supplemental Pension Plan, and are available to all employees of the Bank and affiliates and subsidiaries that have adopted the Plans.Plan. The Pension Plan is a tax-qualified retirement plan that provides a retirement benefit as described below, which is subject to various limitations of the Internal Revenue Code and the Pension Plan. The Supplemental Pension Plan is a non-qualifiednonqualified retirement plan that provides the portion of an employee’s benefit that cannot be paid under the Pension Plan due to theInternal Revenue Code and Pension Plan limits. The material terms and conditions of the Pension Plan and the Supplemental Pension Plan as they relate to the named executive officers include the following:
Eligibility:
Employees participate in the Pension Plan after completing six months of vesting service. Employees with six months of vesting service who would have a portion of their benefit from the Pension Plan limited due to theInternal Revenue Code or Pension Plan restrictions also participate in the Supplemental Pension Plan. All named executive officers participate in both Plans. Mr. O’Grady began participating in these Plans on February 15, 2012.
Benefit Formula—Formula—Traditional Formula: The
Prior to April 1, 2012, the benefits of the named executive officers, except for Mr. O’Grady, arewere determined under the Pension Plan’s Traditional“Traditional Formula. The Traditional Formula’s main components are service, eligible pay, age, and an offset for Social Security. The” To determine a participant’s benefit, the Traditional Formula first multiplies 1.8% by the average of the participant’s highest 60sixty consecutive calendar months of eligible pay. This amount is further multiplied by the participant’s years of credited
service (up to a maximum of 35thirty-five years). The Social Security offset is then determined by multiplying 0.5% by (i) the lesser of the participant’s Social Security Covered Compensationcovered compensation limit or the average of the participant’s eligible pay for the three consecutive years prior to retirement by (ii) the participant’s years of credited service (up to 35thirty-five years). This offset is subtracted from the benefit amount previously calculated to determine the annual benefit amount produced by the Traditional Formula.
The following definitions are used underFor purposes of the Traditional Formula:
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Benefit Formula—Formula—PEP Formula:Formula Since
Because Mr. O’Grady commenced employment on August 15, 2011, his benefits under the Pension Plan and Supplemental Pension Plan for his entire period of credited service are calculated under the Pension Plan’s “Pension Equity Plan (PEP) Formula”, rather than the Traditional Formula.” Under the PEP Formula, each year a participant earns a specific pension credit “percentage,” determined in accordance with a schedule in the Pension Plan that varies directly with his or her total number of years of credited service. Participants currently earn a 4% pension credit percentage for each of their first ten credited years of service, with the pension credit percentage increasing by one percentage point for the eleventh year of service and every fifth year thereafter through the end of their thirty-fifth year of service (after which no additional pension credit percentages are earned). A participant’s PEP Formula lump sum amount is equal to the sum of his or her pension credit percentages multiplied by the average of the participant’s highest 60sixty consecutive calendar months of eligible pay. (EligiblePrior to April 1, 2012, eligible pay iswas defined the same for the PEP Formula as for the Traditional Formula, except that eligible pay under the PEP Formula also includes Salesincluded cash sales and Technical Incentivestechnical incentives under the NPIP up to 50% of the participant’s prior year’s base pay.) Effective April 1, 2012, eligible pay under the PEP Formula includes all cash incentives under the NPIP. A participant’s annual benefit under the PEP Formula is equal to a single life annuity commencing at age 65 that is the actuarial equivalent of his or her PEP Formula lump sum amount. The single life annuity is calculated using interest rate and mortality assumptions specified in the Pension Plan.
Benefit Formula—Changes
Below isEffective June 1, 2001, the current schedule for determiningPension Plan was amended to provide that benefits of all newly hired employees of the applicable pension credit percentage inCorporation and its affiliates would be calculated under a version of the PEP Formula. All employees already employed by the Corporation and its affiliates prior to such time were provided the opportunity to elect whether to accrue future benefits under such PEP Formula for a given year:
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Benefit Formula—Changes:or the Traditional Formula. Effective April 1, 2012, the Pension Plan will bewas further amended to provide that for credited service earned after March 31, 2012 all employees, including those who had previously elected the named executive officersTraditional Formula, will accrue benefits pursuant to the revised PEP Formula which formula also will be modified effective April 1, 2012. Therefore,described above. Accordingly, the current named executive officers, other than Mr. O’Grady, will be entitled to an annual benefit equal to the sum of their accrualsaccruals: (i) under the Traditional Formula for periods of credited service before April 1, 2012,2012; and (ii) under the amended PEP Formula for their periods of credited service if any, after March 31, 2012. Each such executive’s pre-April 1, 2012 Traditional Formula benefits will be based on credited service and average compensation calculated as of March 31, 2012, provided that the executive’s average compensation as of March 31, 2012, will be indexed at a rate of 1.5% per year for any period on and after April 1, 2012 during which the executive earns credited service under the Pension Plan.
Although the April 1, 2012 changes made to the Pension Plan are anticipated to moderate any future pension value increases, the present value of benefits under the Traditional Formula is sensitive to changes in interest rates. The decrease in discount rate used to calculate the pension from 5.00% to 4.25% at December 31, 2014 resulted in an increase in value in the present value of benefits under the Traditional Formula for each of the named executive officers, except for Mr. O’Grady, will continue to accrue a benefit pursuant towhose benefits are all accrued under the PEP Formula with respect to allFormula. The other primary factors influencing pension values include an increase of his credited service. He will be entitled to an annual benefit equal to the sumfinal average pay calculation and the application of his accruals (i) under the current PEP Formula for periodsaverage pay across years of credited service before April 1, 2012, and (ii) under the amended PEP Formula for periods of credited service, if any, after March 31, 2012.Pension Plan.
Benefit Formula—Formula—Supplemental Pension Plan:
Pension benefits are first calculated under the combined Traditional Formula and PEP Formulas or solely under the PEP Formula, as applicable, without regard to theInternal Revenue Code limits and including in eligible pay the amounts deferred under the DCP.Deferred Compensation Plan. They are then recalculated applying theInternal Revenue Code limits and excluding DCPDeferred Compensation Plan deferrals from eligible pay to determine the amount of the benefit that is payable from the Pension Plan. The difference between the total benefit calculation and the Pension Plan calculation is paid from the Supplemental Pension Plan.
Benefit Entitlement:
A participant is eligible to receive a benefit under the Pension Plan and Supplemental Pension Plan after completing three years of vesting service.
Retirement:
A participant is generally eligible for a normal retirement benefit based on the combined Traditional Formulaand PEP Formulas or based solely on the PEP Formula, as described above, if his or her employment terminates on or after age 65 (or for participants who begin participation in the Pension Plan after age 60, upon the first to occur of reaching the fifth anniversary of commencement of participation or achieving five years of vesting service).65. A participant is eligible for an early retirement benefit if his or her employment terminates on or after age 55 and he or she has completed 15fifteen years of credited service. A participant who terminates
employment with three years of vesting service but prior to becoming eligible for a normal or early retirement benefit is eligible for a “vested terminee” benefit commencing any time after termination. Messrs.Mr. Waddell, Mr. Morrison and PotterMs. Schreuder are each eligible for early retirement benefits. All other named executives, other than Mr. O’Grady, have earned vested terminee benefits.
Under the Traditional Formula, the early retirement benefit is equal to the normal retirement benefit described above, reduced by 0.5% for each month payments are received prior to age 62 (or prior to age 60 under certain circumstances). A participant who terminates employment with three years of vesting service but prior to becoming eligible for a normal or early retirement benefit isParticipants eligible for a “vested terminee” benefit commencing any time after termination, withare entitled to benefit payments that are reduced by 0.5% for each month up to 120 months that payments are received prior to age 65, then actuarially reduced for each month that payments are received prior to age 55.
Under the PEP Formula, both the early retirement benefit and “vested terminee” benefit are equal to the normal retirement benefit (in the form of a monthly single life annuity as described above), adjusted for early commencement prior to age 65 (or for participants who begin participation in the Pension Plan after age 60, upon the first to occur of reaching the fifth anniversary of commencement of participation or achieving five years of vesting service).65. The adjustment is made using interest rate and mortality assumptions specified in the Pension Plan.
Form of Benefit Payment:Payment
The normal form of benefit payment under the Pension Plan is a single life annuity in the case of an unmarried participant and a 50% joint and survivor annuity in the case of a married participant, although optional forms of payment are available, depending on marital status and age and years of service. A lump sum option is available in all cases. All optional forms are the actuarial equivalent of the normal form of payment. The normal form of benefit under the Supplemental Pension Plan is a five-year certain annuity, payable to the participant in five annual installments; if the participant dies prior to receiving full benefits, payments will continue for the remainder of the five years to a designated beneficiary. TheAny installment payments are credited with interest equalpursuant to a market-based formula set forth in the greater of the annual yield on the monthly five-year Treasury securities with a constant maturity plus 150 basis points or the month-end Moody’s Long Term Aa Corporate Bond Index yield, determined as of the last month of the same calendar quarter as the interest rate used to calculate any lump sum benefit for the participant under theSupplemental Pension Plan. If however, the value of the Supplemental Pension Plan benefit is $125,000 or less, the benefit is paid in a single lump sum.
Assumptions.
The assumptions used in calculating the present value of the accumulated benefit are set forth in footnote 22“Note 21—Employee Benefits” to the Consolidated Financial Statements and “Management’s Discussion and Analysisconsolidated financial statements included in Item 8 of Financial Condition and Results of Operations,” each contained in the Corporation’s 2011 Annual Report to Stockholders.on Form 10-K for the year ended December 31, 2014. The Corporation does not grant extra years of credited service under the Pension Plan, other than as noted abovebelow under “Compensation Discussion and Analysis—“Potential Payment Upon Termination of Employment or a Change in Control (CIC) Benefits.of the Corporation.”
NON-QUALIFIED DEFERRED COMPENSATIONNonqualified Deferred Compensation
Name (a) | Form of Deferred Compensation (b) | Executive Contributions In Last FY(1) ($) (c) | Registrant Contributions ($) (d) | Aggregate Earnings Last FY(3) ($) (e) | Aggregate Withdrawals/ Distributions ($) (f) | Aggregate Balance Last ($) (g) | ||||||||||||||||
Frederick H. Waddell | Deferred Compensation Plan | 0 | 0 | |||||||||||||||||||
Supplemental TIP | 42,675 | 21,338 | (35,814 | ) | 0 | 710,663 | ||||||||||||||||
Deferred Stock Units | 0 | (1,120,282 | ) | 2,820,976 | ||||||||||||||||||
William L. Morrison | Deferred Compensation Plan | 0 | 0 | |||||||||||||||||||
Supplemental TIP | 22,050 | 11,025 | 542 | 0 | 578,052 | |||||||||||||||||
Deferred Stock Units | 0 | (118,283 | ) | 297,846 | ||||||||||||||||||
Michael G. O’Grady | Deferred Compensation Plan | 0 | 0 | |||||||||||||||||||
Supplemental TIP | 0 | 0 | ||||||||||||||||||||
Deferred Stock Units | 0 | 0 | ||||||||||||||||||||
Steven L. Fradkin | Deferred Compensation Plan | 0 | (1,318 | ) | (53,048 | ) | 68,082 | |||||||||||||||
Supplemental TIP | 20,550 | 10,275 | (9,549 | ) | 0 | 354,011 | ||||||||||||||||
Deferred Stock Units | 0 | (166,525 | ) | 419,325 | ||||||||||||||||||
Stephen N. Potter | Deferred Compensation Plan | 0 | 0 | |||||||||||||||||||
Supplemental TIP | 20,550 | 10,275 | (10,167 | ) | 0 | 248,371 | ||||||||||||||||
Deferred Stock Units | 0 | (86,184 | ) | 217,020 | ||||||||||||||||||
Jana R. Schreuder | Deferred Compensation Plan | 0 | 0 | |||||||||||||||||||
Supplemental TIP | 20,550 | 10,275 | (8,302 | ) | 0 | 287,953 | ||||||||||||||||
Deferred Stock Units | 0 | (17,262 | ) | 43,467 |
Name | Form of Deferred Compensation | Executive Contributions in Last FY ($)(1) | Registrant Contributions ($)(2) | Aggregate Earnings Last ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last ($)(4) | ||||||||||||
Mr. Waddell | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||
Supplemental TIP | $42,900 | $ | 21,450 | $ | 88,049 | — | $ | 1,379,594 | ||||||||||
Deferred Stock Units | — | — | 1,969,709 | — | 9,072,205 | |||||||||||||
Mr. Bowman | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||
Supplemental TIP | 23,375 | 7,013 | 7,921 | — | 145,633 | |||||||||||||
Deferred Stock Units | — | — | — | — | — | |||||||||||||
Mr. Fradkin | Deferred Compensation Plan | — | — | 10,860 | — | 114,194 | ||||||||||||
Supplemental TIP | 20,400 | 10,200 | 51,818 | — | 677,769 | |||||||||||||
Deferred Stock Units | — | — | 549,799 | — | 1,718,715 | |||||||||||||
Mr. Morrison | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||
Supplemental TIP | 32,400 | 16,200 | 1,029 | — | 717,864 | |||||||||||||
Deferred Stock Units | — | — | 546,647 | — | 1,680,162 | |||||||||||||
Mr. O’Grady | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||
Supplemental TIP | 20,400 | 10,200 | 385 | — | 61,259 | |||||||||||||
Deferred Stock Units | — | — | — | — | — | |||||||||||||
Ms. Schreuder | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||
Supplemental TIP | 20,400 | 10,200 | 65,780 | — | 604,499 | |||||||||||||
Deferred Stock Units | — | — | 497,581 | — | 1,079,966 |
(1)Executive Contributions. The amount of executive contributions made by each named executive officer as reported Amounts in this column (c) above, isare also included in each named executive officer’s compensation reported underin the Summary“Summary Compensation Table,” either as “Salary” or “Stock Awards.”
(2)Registrant Contributions. The amount of the contributions made by the Corporation to each named executive officer under Supplemental TIP, as reported Amounts in this column (d) above, isare also included in each named executive officer’s “All Other Compensation” underin the Summary“Summary Compensation Table.”
(3) Aggregate Earnings. The aggregate earnings in this column (e) above are not “above-market” and thus are not included in the “Summary Compensation Table.”
(4) All amounts in this column have previously been included in each named executive officer’s compensation reported in the Summary“Summary Compensation Table.
(4)Aggregate Balance. The aggregate balance at December 31, 2011, as reportedTable” to the extent that compensation data for each such officer, generally, has been included in column (g) above, reflects amounts that either are currently reported or were previously reported as compensation in the Summary Compensation Table for 2011 or prior years, except for the aggregate earnings on deferred compensation.such table.
The Corporation maintains the DCPDeferred Compensation Plan pursuant to which eligible employees, including the named executive officers, may defer all or a portion of their eligible annual incentive cash awards until a later date. The material terms and conditions of the DCPDeferred Compensation Plan as they relate to the named executive officers include the following:
Eligibility:Eligibility
An employee is eligible to participate in the DCPDeferred Compensation Plan for any calendar year if as of the preceding November 15 he or sheshe: (i) was actively employed by the Corporation or a subsidiary and either resided in the U.S.United States or was a U.S.an expatriate of the United States on temporary international assignment,assignment; (ii) participated in the Northern Partners IncentiveManagement Performance Plan (with respect to performance, sales or technical incentives) or the MPP,NPIP; and (iii) had an annual base salary of $100,000 or more or a combination of base salary and cash awards paid from April 1 of the prior year through March 31 of the current year equal to $150,000 or more.
Contributions:Contributions
Each participant must make an election prior to the beginning of a calendar year, and can elect to defer up to 100% of each eligible cash incentive award that will be paid forin the second calendar year following the year of the election, subject to a minimum deferral of $2,500 of each cash incentive award. All deferrals are credited to an account maintained for the participant under the DCP.Deferred Compensation Plan. No employer contributions are made under the DCP.Deferred Compensation Plan.
Vesting:Vesting
A participant is fully vested in his or her entire DCPDeferred Compensation Plan account balance at all times.
Investments:Investments
Each participant’s DCPDeferred Compensation Plan account is credited with earnings or losses based on various mutual fund investment alternatives made available under the DCPDeferred Compensation Plan and selected by the participant. On a monthly basis, participants can change their DCP investment alternatives among the alternatives offered in the DCP. The 2011 performance (net of fees) of the investment alternatives is as follows:
Distributions
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Distributions:At the time a participant makes a deferral election, he or she must elect a short-term deferral or a retirement deferral. If the participant elects a short-term deferral, distribution of such amount must be deferred until a later specified date, which is at least three years following the end of the year in which the cash incentive award would have otherwise been paid. The short-term deferral, including the attributable earnings or losses, is paid to the participant in a lump sum. If the participant elects a retirement deferral, distribution of such amount will be deferred until the participant retires after reaching eligibility for early or normal retirement under the Pension Plan. At the time the participant makes the retirement deferral election, he or she must also elect whether the deferral, including the attributable earnings or losses, will be paid in a lump sum or in installments payable over five or 10ten years. Notwithstanding the foregoing, if the participant’s employment terminates before the scheduled distribution date, the short-term or retirement deferral, and attributable earnings or losses, will be paid
in a lump sum within 60sixty days following the date of such termination. If the participant is deemed to be a “key employee” as defined by the Internal Revenue Code, any distribution that was deferred after December 31, 2004 and is payable due to retirement or termination of employment will be delayed for six months following the date of such retirement or termination.
Supplemental TIP is a non-qualifiednonqualified retirement plan that provides the portion of an employee’s benefit that cannot be paid under TIP due to the Internal Revenue Code’s limit on the amount of a participant’s compensation that can be taken into account in determining TIP benefits. Account information provided for Supplemental TIP also includes account balances in the Northern Trust Corporation Supplemental Employee Stock Ownership Plan, (“Supplemental ESOP”), which was frozen effective January 1, 2005 when the qualified Northern Trust Employee Stock Ownership Plan was merged into TIP. Contributions to Supplemental ESOP have not been permitted since January 1, 2005. The material terms and conditions of Supplemental TIP as they relate to the named executive officers include the following:
Eligibility:Eligibility
An employee is eligible to participate in Supplemental TIP for any calendar year if he or she participates in TIP and as of the prior November 30 his or her base salary exceeded the Internal Revenue Code compensation limit ($245,000 in 2011).limit. Employees are eligible to participate in TIP and elect salary deferrals immediately upon their hire, and are eligible for employer matching contributions after six months of service. All named executive officers other than Mr. O’Grady, participate in both Plans. Mr. O’Grady does not currently participate in Supplemental TIP.plans.
Contributions:Contributions
Each participant must make an election prior to the beginning of a calendar year to contribute to Supplemental TIP a portion of his or her base salary that exceeds the Internal Revenue Code compensation limit. A participant’s election remains in effect for subsequent calendar years until revised or revoked by the participant. Any revision or revocation must be made prior to the calendar year in which the revision or revocation is to become effective. The Corporation makes a matching contribution under Supplemental TIP using the formula in TIP, which is 50% of the first 6% of deferred salary, for a maximum matching contribution of 3% of salary. In addition, if the Corporation meets an annual earnings goal, the Corporation will make a contingent matching contribution of 50% of the first 3% of deferred salary to TIP. However, no contingent matching contributions will be made to Supplemental TIP. Further, TIP has been amended to provide that no contingent matching contribution will be made to TIP for 2012, even if the Corporation meets its earning goal for that year.
Vesting:Vesting
Each participant generally vests in the employer contributions under TIP and Supplemental TIP on a graduated basis of 20% per year over five years and is fully vested after five years. The named executive officers except Mr. O’Grady, are fully vested in their TIP and Supplemental TIP accounts.accounts, except for Mr. O’Grady, is not yetwhose employer contributions were 60% vested in his TIP account and does not currently participate in Supplemental TIP.under such plans as of December 31, 2014.
Investments:Investments
Each participant’s Supplemental TIP account is credited with earnings or losses based on various mutual fund investment alternatives made available under Supplemental TIP and selected by the participant (which are generally the same investment alternatives available to participants under TIP). On a monthly basis, participants can change their Supplemental TIP investment alternatives among the alternatives offered in Supplemental TIP. For 2011, the investment alternatives available to Supplemental TIP participants were the same as those for DCP participants. The 2011 performance of those investment alternatives is set forth on page 70 above.
Distributions
Distributions:No withdrawal or borrowing of Supplemental TIP assets is permitted during a participant’s employment. Distribution of the entire Supplemental TIP account balance generally is made to a participant within 90ninety days after the participant’s termination of employment. If the participant is deemed to be a “key employee”,employee,” as defined by the Internal Revenue Code, the portion of his or her Supplemental TIP account accruing after December 31, 2004 is distributed as a single lump sum following the six monthsix-month anniversary of the termination of employment.
Deferred Stock Units
Certain restricted stock units granted prior to 2010 may be required to be deferred until the earlier of: (i) the year in which the Compensation and Benefits Committee reasonably anticipates that, if the payment is made during that year, the deduction of the payment will not be barred by Internal Revenue Code Section 162(m); or (ii) the period beginning with the date of the participant’s separation from service (as defined in the Corporation’s Amended and Restated 2002 Stock Plan) and ending on the later of the last day of the Corporation’s taxable year in which the participant incurs a separation from service or the fifteenth day of the third month following such separation from service. “Aggregate Earnings in Last FY” in the Nonqualified Deferred Compensation table above represent the change in the value of deferred stock units, which is based on the change in the value of the underlying shares of common stock into which the stock units convert.
POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT OR A CHANGE IN CONTROL OF THE CORPORATIONPotential Payments Upon Termination of Employment or a Change in Control of the Corporation
TheIn addition to benefits to which the Corporation’s employees would be entitled upon a termination of employment generally, the Corporation provides certain additional benefits to eligible employees upon certain types of termination of employment, including a termination of employment involving a change in control of the Corporation. These benefits are in addition to the benefits to which the employees would be entitled upon a termination of employment generally (i.e., (i) vested retirement benefits accrued as of the date of termination, (ii) stock-based awards that are vested as of the date of termination, (iii) the right to continue medical coverage pursuant to COBRA, and (iv) severance payments to salaried employees upon an involuntary termination of employment due to a reduction in force or job elimination). These incremental benefits as they pertain tothat the named executive officers would receive in the event of a termination involving a change in control of the Corporation relative to the benefits they would otherwise receive are described below.
Employment Security Agreements
As discussed above, the Corporation has employment security agreements with the named executive officers and certain other executive officers. The Corporation’s decision to enter into these employment security agreements described below and the determination of the level of benefits under thosethese agreements, as well as under various termination of employment scenarios were exercises in judgment, informed byby: (i) the recognition that the Corporation does not have employment agreements with itsall named executive officers are employed at-will; (ii) the Corporation’s desire to provide the named executive officers with sufficient security to assure they are not distracted and remain focused on maximizing stockholder value during and after a change in control,control; (iii) the Corporation’s goal of providing executive compensation at levels that are competitive with similar positions to those in its peer group companies,companies; (iv) the nature and scope of the job responsibilities undertaken by the named executive officers,officers; and (v) the terms of other types of compensation paid by the Corporation to the named executive officers. In particular, in setting the terms of the benefits payable to the named executive officers under various termination scenarios, the Compensation and Benefits Committee was guided in large part by a desire to be sufficiently responsive to market forces and the environment in which the Corporation seeks to attract, retain,motivate and motivateretain its named executive officers by providing benefits consistent and competitive with those of the peer group companies with
which it competes for top executive talent. In initially establishing the form and level of post-termination benefits, the Committee received and reviewed relevant peer group company information provided by Aon Hewitt.its independent compensation consultant at the time. In particular, this competitive peer group data influenced the decision of the Committee to provide for employment security agreements, to set the level of lump sum payments equal to three years of salary and bonus and to provide for the vesting of equity compensation awards, the continuation of coverage under certain health and welfare plans and other protections afforded in the event of a termination of employment in connection with a change in control or under other termination of employment scenarios.
Employment Security Agreements
The Corporation has employment security agreements with the named executive officers and certain other executive officers. The employment security agreements provide benefits upon the occurrence of the following terminations of employment that are in connection with an actual or pending change in control of the Corporation (as defined below)in the agreements):
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The benefits provided to a named executive officer upon such a termination of employment would consist of the items identified in the following seven bullet points:
— | A lump sum payment equal to three times the sum |
The amount of this payment to each named executive officer, assuming the named executive officer became eligible for benefits under the agreement due to a termination of employment on December 30, 2011 (the last business day of 2011), would be as follows: Mr. Waddell: $6,925,000; Mr. Morrison: $3,500,000; Mr. O’Grady: $3,300,000; Mr. Fradkin: $3,225,000; Mr. Potter: $3,150,000; and Ms. Schreuder: $3,225,000.
— | A lump sum payment of a prorated portion of the average amounts paid to the named executive officer under the Corporation’s cash incentive plans for the last three fiscal years of participation in such plans prior to the date of termination, or, if higher, the date of the change in control, less any amounts paid to the named executive officer under those plans with respect to completed performance periods occurring in the year the named executive officer’s employment terminates. The amount of this payment to each named executive officer, assuming the executive became eligible for benefits under the employment security agreement due to a termination of employment on December 31, 2014, would be as follows: Mr. Waddell: $1,833,333; Mr. Bowman: $426,667; Mr. Fradkin: $758,333; Mr. Morrison: $916,667; Mr. O’Grady: $750,000; and Ms. Schreuder: $761,667. |
The amount of this payment to each named executive officer, assuming the executive became eligible for benefits under the employment security agreement due to a termination of employment on December 30, 2011, would be as follows: Mr. Waddell: $1,333,333; Mr. Morrison: $466,667; Mr. O’Grady: $550,000; Mr. Fradkin: $475,000; Mr. Potter: $450,000; and Ms. Schreuder: $475,000.
— | With respect to equity awards: (i) full vesting of all stock |
employment (or until the end of the option term, if earlier) |
Assuming a termination of employment under the employment security agreement on December 30, 2011 (the last business day of 2011), the fully vested equity awards would have the following values for each named executive officer:
Mr. Waddell: | $ | 0 | (stock options) | |||
$ | 4,443,222 | (restricted stock units) | ||||
Mr. Morrison: | $ | 0 | (stock options) | |||
$ | 1,716,468 | (restricted stock units) | ||||
Mr. O’Grady: | $ | 85,096 | (stock option) | |||
$ | 1,278,400 | (restricted stock units) | ||||
Mr. Fradkin: | $ | 0 | (stock options) | |||
$ | 2,316,303 | (restricted stock units) | ||||
Mr. Potter: | $ | 0 | (stock options) | |||
$ | 2,316,303 | (restricted stock units) | ||||
Ms. Schreuder: | $ | 0 | (stock options) | |||
$ | 2,316,303 | (restricted stock units) |
Name | Stock ($) | Restricted ($) | Performance ($) | |||||||||
Mr. Waddell | $ | 4,326,705 | $ | 2,716,504 | $ | 3,873,051 | ||||||
Mr. Bowman | 546,841 | 1,579,452 | 1,873,248 | |||||||||
Mr. Fradkin | 1,309,704 | 2,693,692 | 3,467,730 | |||||||||
Mr. Morrison | 2,003,499 | 1,375,283 | 1,914,205 | |||||||||
Mr. O’Grady | 1,738,732 | 2,979,738 | 3,467,730 | |||||||||
Ms. Schreuder | 1,309,704 | 818,253 | 1,164,829 |
The value of the fully vested stock options is based on the difference between the option exercise price and $39.66,$67.40, which was the closing market price of the Corporation’s common stock on December 30, 2011 (the last business day of 2011).31, 2014. The value of the fully vested restricted stock and performance units is also based on the $39.66$67.40 closing market price. In addition to the amounts noted above, the long-term cash incentive awards described in footnote 3 to the “Summary Compensation Table” also would vest with respect to Messrs. Fradkin and O’Grady.
— | Continued coverage under the Corporation’s health, dental, life, accident, disability, and other welfare benefit plans for three years (or if earlier, until the executive becomes covered under similar plans maintained by another entity that provides at least equal benefits). If the named executive officer cannot be covered under any plan of the Corporation due to legal or contractual restrictions, the Corporation would provide the executive with substantially similar benefits and coverage. The value of this continued benefit coverage for three years to each named executive officer, derived by multiplying the Corporation’s annual cost of providing such coverage in 2014 by three, would be as follows: Mr. Waddell: $34,878; Mr. Bowman: $34,633; Mr. Fradkin: $41,068; Mr. Morrison: $41,068; Mr. O’Grady: $34,633; and Ms. Schreuder: $41,068. |
The value of this continued benefit coverage for three years to each named executive officer would be as follows: Mr. Waddell: $30,649; Mr. Morrison: $36,005; Mr. O’Grady: $29,409; Mr. Fradkin: $36,005; Mr. Potter: $36,005; and Ms. Schreuder: $36,005. These amounts are derived by multiplying the Corporation’s annual cost of providing such coverage in 2011 by three, to reflect a three-year benefit continuation period.
— | Up to an additional three years of age and/or service credits for purposes of determining eligibility and subsidy for participation in the Corporation’s retiree medical plans and an additional three-year age and service credit for benefits under the Supplemental Pension Plan. Assuming a termination of employment under the employment security agreement on December 31, 2014, the value of these age and service credits to each named executive officer would be: Mr. Waddell: $0; Mr. Bowman: $220,311; Mr. Fradkin: $1,350,657; Mr. Morrison: $300,889; Mr. O’Grady: $143,098; and Ms. Schreuder: $40,468. The assumptions used in calculating the present value of the age and service credits are set forth in “Note 21—Employee Benefits” in the “Notes to the Consolidated Financial Statements” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014. |
Assuming a termination of employment under the employment security agreement on December 31, 2011, the value of these age and service credits to each named executive officer would be: Mr. Waddell: $0; Mr. Morrison: $738,534; Mr. O’Grady: $73,778; Mr. Fradkin: $348,489; Mr. Potter: $485,713; and Ms. Schreuder: $1,502,858. The assumptions used in calculating the present value of the age and service credits are set
forth in footnote 22 to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each contained in the Corporation’s 2011 Annual Report to Stockholders.
— | Full vesting in benefits accrued under the Supplemental Pension Plan and Supplemental TIP. All named executive |
— | A gross-up payment to the executive to cover any excise and related income tax liability arising under Section 280G of the Internal Revenue Code as a result of any payment or benefit arising under the employment security agreement. |
Assuming a termination of employment under the employment security agreement on December 31, 2011, Assuming a termination of employment under the employment security agreement on December 31, 2014, the named executive officers would be entitled to the following gross-up payments: Mr. Waddell: $3,505,181; Mr. Morrison: $0; Mr. O’Grady: $0; Mr. Fradkin: $0; Mr. Potter: $0; and Ms. Schreuder: $2,034,097.
For purposes of the employment security agreements:
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Equity Compensation Plans and Agreements
As described below,above under “Description of Certain Awards Granted in 2014” beginning on page 48, the Corporation’s equity compensation plans and agreements provide enhanced benefits to named executive officers upon a change in control of the Corporation or a named executive officer’s termination of employment with the Corporation or a subsidiary due to death, disability, or retirement (and which(when such termination is not a termination as described in his or her employment security agreement) can result in enhanced benefits under the Corporation’s equity compensation plans and agreements.
Restricted Stock Units. If the executive dies, becomes disabled, or retires during the vesting period, or the executive’s employment is terminated during the vesting/performance period under certain circumstances entitling the executive to benefits under the Corporation’s severance plan, the executive or the executive’s beneficiaries will be entitled to receive a distribution of a prorated number of restricted stock units. In addition, if an executive is a Management Group member on the date of grant, is age 55 or older on the date of termination of employment, and does not compete with the Corporation during the vesting/performance period, a prorated number of restricted stock units on each remaining vesting date in the vesting period are eligible for distribution. In other instances where the executive leaves the Corporation during the vesting period, the restricted stock units are forfeited. Upon a change in control of the Corporation, all restricted stock units become fully vested and immediately distributable.
Stock Options. If the executive dies or becomes disabled, the executive’s outstanding stock options become vested and may be exercised until the earlier of five years following death or disability or the expiration date of the option. If the executive retires, or if the executive is a member of the Management Group on the date of grant, is age 55 or older with a minimum of 10 years of employment on the date of termination of employment, and is not otherwise retirement-eligible pursuant to the Corporation’s retirement policy, the stock options continue to vest in accordance with their terms and, once vested, may be exercised until the earlier of five years following retirement or the expiration date of the option. If the executive’s employment is terminated under certain circumstances entitling the executive to severance benefits, the executive’s stock options (whether vested or unvested) may be exercised until the earlier of 180 days following termination of employment or the expiration date of the option, provided that if the executive is retirement eligible upon his or her termination of employment under the severance plan, the executive’s stock options (whether vested or unvested) become vested upon the executive’s termination of employment and may be exercised until the earlier of five years from the executive’s effective date of retirement or the expiration of the option. In other instances, vested stock options expire on the earlier of three months following termination of employment or the expiration date of the option, and unvested stock options expire on termination of employment. Upon a change in control of the Corporation, all stock options become vested and exercisable.
The Corporation’s equity award agreements contain provisions related to a change in control of the Corporation.. In the absence of an employment security agreement, the provisions of the equity award agreements provide for the same accelerated vesting of equity awards as outlined above in the discussion of employment security agreements. Therefore, in the event of a change in control, absent an employment security agreement, the value of all fully vested equity awards would be the same as reported for a termination of the named executive’s employment related to a change in control under the employment security agreement.
Assuming, in the absence of a change in control, a termination of the named executive officer’s employment due to death, disability, or retirement (including termination while a member of the Management Group at age 55 with the requisite service) occurred on December 31, 2011, stock options under the equity compensation plans would have accelerated or continued vesting and the value of these fully vested stock options would be the same as reported for a termination related to a change in control under the employment security agreements. Absent a change in control, in the eventcase of a termination of a named executive officer’s employment due to death, disability, or retirement (including termination while a member of the Management Group at age 55 with the requisite service) on December 31, 2011,, stock options under the equity compensation plans would have accelerated or continued vesting, and equity award agreements for restricted stock units and performance stock units provide for prorated vesting of units. The value of these prorated units for each named executive officer is:
Mr. Waddell: | $ | 2,957,050 | (restricted stock units | ) | ||||
Mr. Morrison: | $ | 954,537 | (restricted stock units | ) | ||||
Mr. O’Grady: | $ | 53,263 | (restricted stock units | ) | ||||
Mr. Fradkin: | $ | 913,211 | (restricted stock units | ) | ||||
Mr. Potter: | $ | 913,211 | (restricted stock units | ) | ||||
Ms. Schreuder: | $ | 913,211 | (restricted stock units | ) |
The value ofAssuming such a termination on December 31, 2014, the estimated values in the following table show the prorated restricted stock units is also based on the $39.66 closing market price. Unlike the valuations in the change in control context, these estimated values assume a prorated distribution (rather than full distribution)distributions of restricted stock units on each remaining vesting date in the vesting period.and performance stock units.
Name | Restricted Stock Units ($) | Performance Stock Units ($) | ||||||
Mr. Waddell | $ | 3,812,481 | $ | 7,666,076 | ||||
Mr. Bowman | 802,397 | 944,207 | ||||||
Mr. Fradkin | 1,175,456 | 2,302,923 | ||||||
Mr. Morrison | 1,733,258 | 3,829,870 | ||||||
Mr. O’Grady | 1,268,535 | 2,302,923 | ||||||
Ms. Schreuder | 1,175,456 | 2,302,923 |
The following table sets forth allNon-employee directors are compensated for their services with cash compensation paid to each non-employee directorand equity awards of the Corporation in 2011.
Name (a) | Fees in Cash ($) (b) | Stock ($)(1) (c) | Option ($) (d) | Non-Equity Compen- (e) | Change in Pension Value and Earnings ($) (f) | All Other Compen- ($)(2) (g) | Total ($) (h) | |||||||||||||||||||||
Linda Walker Bynoe | $ | 112,000 | $ | 90,000 | — | — | — | — | $ | 202,000 | ||||||||||||||||||
Nicholas D. Chabraja | $ | 107,356 | $ | 90,000 | — | — | — | — | $ | 197,356 | ||||||||||||||||||
Susan Crown | $ | 90,000 | $ | 90,000 | — | — | — | — | $ | 180,000 | ||||||||||||||||||
Dipak C. Jain | $ | 107,000 | $ | 90,000 | — | — | — | — | $ | 197,000 | ||||||||||||||||||
Robert W. Lane | $ | 96,848 | $ | 90,000 | — | — | — | — | $ | 186,848 | ||||||||||||||||||
Robert C. McCormack | $ | 96,848 | $ | 90,000 | — | — | — | — | $ | 186,848 | ||||||||||||||||||
Edward J. Mooney | $ | 110,000 | $ | 90,000 | — | — | — | — | $ | 200,000 | ||||||||||||||||||
John W. Rowe | $ | 122,000 | $ | 90,000 | — | — | — | — | $ | 212,000 | ||||||||||||||||||
Martin P. Slark(3) | $ | 65,049 | $ | 90,000 | — | — | — | — | $ | 155,049 | ||||||||||||||||||
David H.B. Smith, Jr. | $ | 96,848 | $ | 90,000 | — | — | — | — | $ | 186,848 | ||||||||||||||||||
William D. Smithburg(4) | $ | 31,690 | — | — | — | — | — | $ | 31,690 | |||||||||||||||||||
Enrique J. Sosa | $ | 92,000 | $ | 90,000 | — | — | — | — | $ | 182,000 | ||||||||||||||||||
Charles A. Tribbett III | $ | 90,000 | $ | 90,000 | — | — | — | — | $ | 180,000 |
(1)Stock Awards.This column shows the grant date fair value of the stock awards for all non-employee directors in 2011, computed in accordance with FASB ASC Topic 718. See footnote 23 to the Consolidated Financial Statements contained in the Corporation’s 2011 Annual Report to Stockholders for a discussion of the assumptions made by the Corporation in the valuation of these restricted stock unit awards. As of December 31, 2011, each non-employee director (other than Mr. Smithburg who retired as a member of the board effective April 19, 2011) held 1,849.19 unvested stock units, which, as described below, represented the stock unit award made by the Corporation in February 2011.
(2)All Other Compensation. Perquisites paid or provided to directors in 2011 were less than the SEC’s minimum threshold for disclosure ($10,000).
(3) Mr. Slark became a member of the board effective April 19, 2011.
(4) Mr. Smithburg retired as a member of the board effective April 19, 2011.
units. Directors who are employees of the Corporation receive no additional compensation for serving on the board of directorsBoard or on any boardBoard committee.
2011 Director CompensationAnnual Retainer and Other Fees
Cash Compensation. In 2011, non-employeeNon-employee directors of the Corporation received the following cash compensationan annual retainer of $200,000 for their service on the boardBoard in 2014, paid 50% in cash and 50% in the form of directors:
Annual Retainer | $ | 90,000 | ||
Additional Fee for the Chairman of each Board Committee (other than the Executive Committee) | $ | 15,000 | ||
Additional Fee for Audit Committee Members (including the Chairman) | $ | 5,000 | ||
Additional Fee for Lead Director | $ | 15,000 |
restricted stock units. In addition to the annual retainer, directors serving as the Chair of any Board committee were entitled to an additional $15,000 annually, directors serving on the Audit Committee (including the Chair) were entitled to an additional $5,000 annually and the Corporation’s Lead Director was entitled to receive an additional $25,000 annually, each of which such additional fees were paid in cash. All non-employee directors also arewere eligible to receive a per diem fee of $1,000 when required to attend orientation meetings or to perform specific services on behalf of the Corporation. The Corporation paid $10,000No payments for such services were made in 2011.2014.
Equity Compensation. In February 2011, each non-employee director then in office received a grant of stock units under the Corporation’s 2002 Stock Plan equal in value to $90,000, with the actual number of stock units (1,849.19 stock units) based on the closing sale price of the common stock on the date of the 2011 annual meeting of stockholders. All of theRestricted stock units granted to directors for their service on the Board were made in February 2011April 2014 and will vest on April 21, 2015, the date of the 2012 annual meeting2015 Annual Meeting of stockholders.Stockholders. Stock units do not have voting rights. Dividend equivalents on the non-employee directors’ stock units are subject to the same vesting, forfeiture and distribution provisions as the underlying stock units. Each stock unit entitles a director to one share of common stock at vesting, unless a director elects to defer receipt of the shares.
Stock Ownership Guidelines.As describedEffective January 1, 2015, the annual retainer to be paid in conjunction with each director’s service on the Compensation Discussion and Analysis section, Northern Trust has a long-standing practice of emphasizing stock ownership and maintaining formal stock ownership guidelines for named executive officers. Northern Trust also maintains formal stock ownership guidelines for its non-employee directors with minimum ownership levels as shown in the following chart.
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It is expected that each non-employee director will meet the minimum ownership level not later than five years from the date the director is initially electedBoard was increased to the board. In addition, non-employee directors are expected to meet a minimum share ownership level of 1,000 shares within one year from the date they are initially elected to the board.
Until such time as any non-employee director meets the minimum ownership level requirement, he or she is expected to retain 100% of the net, after-tax shares received from share distributions.
The calculation of shares of common stock includes shares that are:
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As of February 13, 2012, all non-employee directors met or exceeded Northern Trust’s stock ownership guidelines. Consistent with those guidelines, Mr. Slark, who was first elected to the Corporation’s board of directors on April 19, 2011, has five years from that date in which to reach the share ownership threshold level set forth in the chart above.
Insider Trading Policy and Policy Against Hedging. Our insider trading policy prohibits directors, employees, including our named executive officers, and certain of their family members from purchasing or selling any type of security, whether issued by us or another company, while such person is aware of material non-public information relating to the issuer of the security or from providing such material non-public information to any person who may trade while aware of such information. This policy also prohibits directors, employees, and certain of their family members from engaging in short selling, margining, and the pledging or hypothecation of Northern Trust securities, and trading in options, warrants, puts and calls or similar instruments on Northern Trust securities, except for pledging or hypothecation in connection with the cashless exercise of Northern Trust stock options.
All non-employee director compensation for 2012 is unchanged from 2011.$220,000.
Non-employee directors may elect to defer payment of their cash compensation and stock units until termination of their service as directors. Any deferred cash compensation is converted into stock units representing shares of common stock. The value of each such stock unit is based upon the market price of the stock at the end of the calendar quarter for which the cash compensation would have been paid. Dividend equivalentsDividends on all deferred stock units are paid quarterly to a cash account and accrue interest at an interest rate determined from time to time by the Compensation and Benefits Committee. Deferred cash compensation and dividend equivalentsdividends will be paid out in cash, and deferred stock units will be distributed in stock, in each case in a lump sum or in up to 10ten annual installments at the election of the director.
ITEM 2— ADVISORY VOTE ON EXECUTIVE COMPENSATIONOther Director Compensation
PursuantDirectors are eligible to participate in the Corporation’s matching gift program, under which the Corporation matches gifts made by employees and directors to eligible nonprofit organizations, on the same terms as employees. The maximum gift total for a non-employee director participant in the program is $2,000 in any calendar year.
Within five years of election to the Dodd-Frank Wall Street ReformBoard, non-employee directors are required to hold shares of the Corporation’s common stock equal to five times the annual cash retainer provided to directors. In addition, non-employee directors are expected to meet a minimum share ownership level of 1,000
shares within one year of the date they are initially elected to the Board. Until such time as any non-employee director meets the minimum ownership level requirement, he or she is expected to retain 100% of the net, after-tax shares received from share distributions.
As of December 31, 2014, all non-employee directors met or exceeded the stock ownership guidelines to which they were subject. Consistent with those guidelines, Messrs. Harrison, Prado, Slark and Consumer Protection Act,Thompson have until January 1, 2020, October 16, 2017, April 19, 2016 and March 6, 2020, respectively, to reach the SEC enacted requirementsshare ownership threshold.
The following table sets forth all compensation earned by each non-employee director of the Corporation in 2014. Messrs. Harrison and Thompson were appointed to the Board effective January 1, 2015 and March 6, 2015, respectively, and thus did not earn any compensation in 2014 relating to service on the Board.
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | All Other Compensation ($)(2) | Total ($) | ||||||||||||
Linda Walker Bynoe | $ | 105,769 | $ | 100,000 | $ | 2,322 | $ | 208,091 | ||||||||
Nicholas D. Chabraja | 120,000 | 100,000 | 2,322 | 222,322 | ||||||||||||
Susan Crown | 110,673 | 100,000 | 4,322 | 214,995 | ||||||||||||
Dipak C. Jain | 107,885 | 100,000 | 2,322 | 210,207 | ||||||||||||
Robert W. Lane | 101,442 | 100,000 | 2,322 | 203,764 | ||||||||||||
Edward J. Mooney(3) | 34,615 | — | 2,322 | 36,937 | ||||||||||||
Jose L. Prado | 114,231 | 100,000 | 2,322 | 216,553 | ||||||||||||
John W. Rowe | 140,000 | 100,000 | 2,322 | 242,322 | ||||||||||||
Martin P. Slark | 100,000 | 100,000 | 2,322 | 202,322 | ||||||||||||
David H. B. Smith, Jr. | 115,673 | 100,000 | 2,322 | 217,995 | ||||||||||||
Charles A. Tribbett III | 100,000 | 100,000 | 2,322 | 202,322 |
(1) This column shows the grant date fair value of the stock awards for all non-employee directors in 2014, computed in accordance with FASB ASC Topic 718. See “Note 22—Share-Based Compensation Plans” to the consolidated financial statements included in Item 8 of the Corporation’s Annual Report on Form 10-K for the Corporation to include in this proxy statementyear ended December 31, 2014 for a separate resolution, subject to an advisory vote, to approve the compensation of our named executive officers. This proposal is commonly referred to as a “Say on Pay” proposal. As required by these rules, we are asking you to vote FOR the adoptiondiscussion of the following resolution:assumptions made by the Corporation in the valuation of these stock unit awards. As of December 31, 2014, each non-employee director serving on such date held 1,677.01 unvested stock units, which represents the stock unit award made by the Corporation in April 2014 described above.
“Resolved, that the compensation paid(2) Includes $2,000 of contributions to eligible nonprofit organizations made on behalf of Susan Crown pursuant to the Corporation’s named executive officers,matching gift program. The matching gift program is available to directors on the same terms as disclosedit is available to all employees, with a maximum gift total of $2,000 in any calendar year. All other amounts in this column represent accumulated dividend payments to which the non-employee directors became entitled upon the vesting of underlying stock units in 2014.
(3) Amounts reported for Mr. Mooney reflect compensation earned through April 15, 2014, the effective date of his retirement from the Board pursuant to Item 402 of Regulation S-K of the Securities Exchange Act of 1934, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby APPROVED.”
As an advisory vote, this proposal is not binding on the Corporation. Although the vote is non-binding, the board of directors and the Compensation and Benefits Committee value the opinions of our stockholders and will consider the outcome of the vote when making future compensation decisions for our named executive officers.
As outlineddirector retirement age set forth in the Compensation Discussion and Analysis that begins at page 28, the Corporation has a conservative performance-based compensation system in place that provides appropriate levels of compensation. The Corporation’s executive compensation program is designed to attract, motivate, and retain individuals who will contribute to the Corporation’s success and the creation of stockholder value. The Compensation and Benefits Committee believes that executive officers are best motivated when their incentive compensation is tied to the Corporation’s overall performance and the performance of their individual business units and/or individual performance. That is why a significant portion of each executive officer’s short-term and long-term cash and equity compensation is variable and depends on such performance. In addition, our emphasis on equity-based compensation discourages inappropriate risk-taking and encourages named executive officers to appropriately consider and control risk factors, which furthers the Corporation’s risk-mitigation strategy.
The Corporation reported 2011 net income of $603.6 million, diluted earnings per share of $2.47 and a pre-tax profit margin of 23.4%. The Corporation’s 2011 return on equity of 8.6% was consistent with, although slightly lower than, its peer group median of 9.0%. However, for the period ending December 31, 2011, the Corporation’s average three and five year returns on equity were 10.5% and 13.0%, respectively, substantially higher than the peer group medians of 3.5% and 5.1%, respectively.
Despite the prolonged weakness in economic conditions that have particularly affected the financial performance of banks and other financial institutions, the Corporation’s conservatively managed executive compensation philosophy, coupled with its sound balance sheet and prudent business model, have contributed to the Corporation’s strong strategic and financial positioning.
As further described on page 18 of this proxy statement, in part in connection with the results of our 2011 advisory vote on executive compensation, during the fourth quarter of 2011, we engaged in discussions with a number of our institutional stockholders about the design of our executive compensation program and related topics. Our Compensation and Benefits Committee carefully considered stockholder feedback received in both establishing the 2012 executive compensation program and determining the 2012 named executive officer’ compensation packages. As further
described in the “Compensation Discussion and Analysis” section of this proxy statement, 2012 executive compensation updates included:
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The board of directors unanimously recommends that you voteFOR this proposal.Corporate Governance Guidelines.
ITEM 3—APPROVAL OF THE NORTHERN TRUST CORPORATION 2012 STOCKEQUITY COMPENSATION PLAN
Stockholders will be asked to approve the adoption of the Northern Trust Corporation 2012 Stock Plan (the “2012 Plan”) at this year’s annual meeting. The 2012 Plan was previously approved by our board of directors on February 13, 2012, and will become effective as of April 17, 2012, subject to approval by the stockholders at the annual meeting.
Why You Should Vote for the Adoption of the 2012 Plan
Equity Compensation is an Important Part of Our Compensation Program
The Compensation and Benefits Committee of the board of directors of the Corporation (as used in this section, the “Committee”) has established long-term, equity-based compensation as a significant component of overall compensation. The Committee emphasizes long-term equity-based compensation to align compensation with the interests of the stockholders. The Committee believes that equity compensation encourages executives to act as owners with an equity stake in Northern Trust, discourages inappropriate risk-taking and contributes to continuity and stability within the Corporation’s executive leadership.
Our Current Stock Plan Will Expire and Will No Longer Have Shares Available for Grant
The Corporation currently maintains the Northern Trust Corporation 2002 Stock Plan (the “2002 Plan”). The term of the 2002 Plan will expire on April 16, 2012, and no awards may be made under the 2002 Plan after that date. As of February 13, 2012, there were 9,534,103 shares of common stock available for issuance under the 2002 Plan, adjusted for 2012 equity grants of 1,724,861 options (with a weighted average exercise price of $43.65, and a 10-year term) and 1,146,213 full-value awards. The Corporation anticipates making no additional equity grants under the 2002 Plan between February 13, 2012 and April 16, 2012, the expiration date of the 2002 Plan. If the 2012 Plan is not approved by stockholders on April 17, 2012, the Corporation will have no equity-based compensation plan from which to make awards of long-term, equity-based compensation.
In considering and approving the 2012 Plan, the board of directors of the Corporation determined that the number of shares of common stock to be reserved for issuance under the 2012 Plan could be expected to allow us to continue our historical equity compensation practices through 2016.
The 2012 Plan Reflects Compensation and Governance Best Practices
In order to replace the 2002 Plan, the board of directors of the Corporation has approved, subject to stockholder approval, the 2012 Plan in the form attached to this proxy statement as Appendix A. The 2012 Plan is intended to replace the 2002 Plan as the plan under which the Corporation will grant equity awards to attract, motivate and retain highly qualified employees and directors of the Corporation by providing them with meaningful long-term financial incentives. The 2012 Plan contains provisions that are designed to protect our stockholders’ interests and to reflect corporate governance best practices, including:
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Approval of the 2012 Plan is also Approval of Performance Goals for Purposes of 162(m)
Voting for the 2012 Plan will provide the stockholder vote of approval necessary under the Internal Revenue Code (the “Code”) for grants under the Plan to qualify as performance-based executive compensation exempt from the limitation on deduction imposed on compensation in excess of $1 million to named executive officers of the Corporation in accordance with Section 162(m) of the Code (“Section 162(m)”). Section 162(m) generally limits the annual deduction that the Corporation may take for compensation of its covered officers, which consist of its CEO and three other most highly compensated executive officers (other than its CFO) who are serving at the end of the year. Under Section 162(m), certain compensation, including compensation based on the attainment of performance goals, will not be subject to this limitation if certain requirements are met. Among these requirements is a requirement that the material terms pursuant to which the performance-based compensation is to be paid be disclosed to and approved by the stockholders. Accordingly, if the 2012 Plan is approved by stockholders and the other conditions of Section 162(m) relating to performance-based compensation are satisfied, qualified performance-based compensation paid to covered officers pursuant to the 2012 Plan will not fail to be deductible due to the operation of Section 162(m). As a result, stockholders may benefit from a reduction in the Corporation’s tax obligations.
Set forth below is a summary of the material terms of the 2012 Plan. The summary does not purport to be complete, and is qualified in its entirety by the full text of the 2012 Plan attached to this proxy statement as Appendix A. Stockholders are encouraged to review the text of the 2012 Plan carefully.
Purpose. The purpose of the 2012 Plan is to promote the growth and profitability of the Corporation by (a) encouraging outstanding individuals to accept or continue employment with the Corporation and its subsidiaries or to serve as directors of the Corporation, (b) providing those persons with incentive compensation opportunities in the form of stock options, restricted stock units, performance shares and other equity or equity-based awards, thereby aligning their interests with those of the Corporation’s stockholders, and (c) furthering the Corporation’s risk mitigation strategy by enabling the Corporation to provide incentive compensation that appropriately balances risk and reward.
Administration. The 2012 Plan will be administered by the Committee. The Committee is comprised solely of non-employee directors, each of whom qualifies as an “outside director” under Section 162(m) and a “non-employee director” under Rule 16b-3 of the Securities Exchange Act of 1934. The Committee has full authority to select the individuals who will receive awards under the 2012 Plan, to determine the types of awards to be granted, and to establish the terms and conditions of awards, including the treatment of awards in the event of a participant’s death, disability, retirement, or termination of employment or service on the board of directors, or upon a “change in control” of the Corporation. The Committee has the authority to amend the 2012 Plan, in certain limited circumstances specified in the 2012 Plan, or the terms and conditions of awards under the 2012 Plan, including to the extent necessary or appropriate to comply with applicable laws, regulations and accounting rules in order to permit employees who are located outside of the United States to participate in the 2012 Plan, in all cases subject to applicable law, regulations and the rules of the stock exchange on which the Corporation’s common stock is then listed. The Committee also has the authority to interpret the 2012 Plan and to make all decisions relating to the administration of the 2012 Plan. Decisions of the Committee are final and binding. The Committee may delegate the administration of the 2012 Plan to one or more persons under certain circumstances described in the 2012 Plan.
Eligibility. All employees of the Corporation and its subsidiaries and all non-employee directors of the Corporation are eligible to receive awards under the 2012 Plan. As of December 31, 2011, the Corporation had approximately 14,100 employees and 12 non-employee directors.
Number of Shares of Common Stock.The maximum number of shares of common stock for issuance under the 2012 Plan will be equal to the sum of (i) 30,000,000 shares of common stock plus (ii) any shares of common stock that are represented by awards granted under the 2002 Plan that are forfeited, expire or are canceled after April 17, 2012, and that would have been added back to the reserve under the terms of the 2002 Plan. As of December 31, 2011, there are 19,538,484 shares of common stock subject to outstanding awards under the 2002 Plan, including 16,509,067 shares of common stock subject to outstanding options and 3,029,417 shares of common stock subject to other types of awards. The options outstanding as of December 31, 2011 have a weighted average exercise price of $52.35 and a weighted average remaining life of 5.2 years.
Shares issuable may be authorized but unissued shares or treasury shares. Shares representing the unexercised portion of any lapsed, cancelled or forfeited awards made under the 2012 Plan will not be deemed to have been delivered for purposes of the shares issuable under the 2012 Plan. To the extent that a share of common stock that was subject to an award under the 2012 Plan is returned to the 2012 Plan, the share reserve will be adjusted in accordance with the flexible share design described above; awards under the 2002 Plan which are returned to the 2012 Plan due to the forfeiture, expiration or cancellation after April 17, 2012 are returned to the 2012 Plan on a one for one basis. The maximum number of shares of common stock as to which a participant may receive stock options or stock appreciation rights in any one calendar year is 500,000. The maximum number of shares of common stock issuable under the 2012 Plan as incentive stock options is 22,000,000. The maximum number of shares for awards intended to qualify as “performance based compensation” under Section 162(m) that may be granted to any participant in any one calendar year is 150,000.
Types of Awards. The types of awards available for grant under the 2012 Plan are as follows:
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In addition to the foregoing, the Committee may use available shares of common stock as the form of payment for compensation, grants or rights earned or due under any other compensation plan or arrangement of the Company or a Subsidiary.
Business Criteria. Performance goals under the 2012 Plan may be based on one or more of the following business criteria: return on equity, earnings or earnings per share, common stock price, return on assets, return on investment, net income, expense management, credit quality, revenue growth, operating leverage and/or regulatory capital ratio. Corporate performance goals may be absolute in their terms or measured against or in relationship to the performance of other companies or indices selected by the Committee. In addition, corporate performance goals may be adjusted for any events or occurrences (including extraordinary charges, losses form discontinued operations, restatements and accounting charges, and other unplanned special charges such as restructuring expenses, acquisition expenses and strategic loan loss provisions) as may be determined by the Committee. Corporate performance goals may be particular to one or more business units, or lines of business or subsidiaries or may be based on the performance of the Corporation as a whole. The corporate performance goals and the performance targets established thereunder by the Committee may be identical for all participants for a given performance period, or at the discretion of the Committee, may differ among such participants. The Committee may provide that any award granted under the 2012 Plan will be subject to the attainment of performance goals in order to qualify the award as “performance based compensation” under Section 162(m).
Payment and Withholding. Payment of the exercise price of a stock option may be made in cash or previously owned shares of stock, shares of common stock, or withholding a portion of the shares otherwise deliverable to the participant, by cashless exercise, or as the Committee otherwise provides, in each case as set forth in the award agreement. In the event any withholding tax is required to be withheld in connection with an award, the Committee may permit the award recipient to elect to satisfy the minimum required tax obligation by payment in cash or the transfer of shares by the Corporation or withholding shares of common stock otherwise issuable in connection with the award having a fair market value equal to the amount required to be withheld, or a combination thereof in each case, as set forth in the award agreement.
Change in Control. In the event of a “change in control,” as defined in the 2012 Plan, outstanding awards may become fully vested and exercisable, restrictions applicable to awards may terminate or lapse, and performance goals applicable to any award may be deemed fully achieved, in each case as set forth in the applicable award agreement or as determined by the Committee.
Transfer Restrictions.Awards granted under the 2012 Plan may not be transferred other than by will or the laws of descent and distribution and may be exercised only by the participant during the participant’s lifetime or, in the event of disability, by the participant’s personal representative.
Adjustment.In the event of any reorganization, stock split, stock distribution, merger, consolidation, split-up, spin-off, combination, change in the capital structure of the Corporation or similar corporate transaction, the Committee or the board of directors shall make adjustments as necessary and appropriate to preserve the benefits of the 2012 Plan and awards granted under the 2012 Plan, including but not limited to adjustment of the number and kind of shares reserved for issuance under the 2012 Plan or covered by outstanding awards.
Amendment or Termination. The board of directors may amend, suspend, or terminate the 2012 Plan at any time, provided that no such action adversely affects the right of any participant under any outstanding award in any material way without the written consent of the participant, unless such amendment, suspension or termination is required by applicable law or necessary to comply with Section 409A. The Committee also has authority to amend the 2012 Plan in certain limited circumstances, including to comply with applicable local law. No amendment shall be made without stockholder approval if stockholder approval is required by law, regulation or stock exchange rule. No awards may be granted under the 2012 Plan on or after April 17, 2022.
Other Provisions. Any award under the 2012 Plan will be subject to other provisions as the Committee may determine, including the recoupment of all amounts received in connection with an award in the event of breach of non-competition, non-solicitation or confidentiality agreements, restatement of the financial statements of the Corporation, misconduct, or the occurrence of risk based events or conditions identified by the Committee, during or following termination of employment.
2012 UK Inland Revenue Addendum. An addendum to the 2012 Plan contains additional terms and conditions applicable to certain stock options that may be granted to participants in the United Kingdom (“UK”) and that are eligible for certain tax benefits under the UK tax laws.
If approved by the stockholders, participants in the 2012 Plan will be eligible for awards of shares as determined by the board of directors or the Committee. All employees of the Corporation and its subsidiaries and all directors of the Corporation are eligible to receive awards under the Plan. As of December 31, 2011, the Corporation had approximately 14,100 employees and 12 non-employee directors.
Awards under the 2012 Plan following its adoption will generally be made in the discretion of the board of directors or the Committee and are therefore not determinable at this time. Please refer to the “Grants of Plan-Based Awards Table” in this proxy statement to review equity awards made to our named executive officers in 2011. On February 27, 2012, the last reported sale price of a share of common stock on the Nasdaq National Market was $44.43 per share.
Summary of Federal Income Tax Consequences
The following is a summary of the federal income tax consequences of awards made under the 2012 Plan. It is based on the federal tax laws and regulations currently in effect and existing administrative rules of the Internal Revenue Service. Participants may also be subject to state and local taxes in connection with the grant of awards under the 2012 Plan. Participants should consult with their individual tax advisers to determine the tax consequences associated with awards granted to them under the 2012 Plan. This information may not be applicable to employees of foreign subsidiaries or to employees who are not residents of the United States.
Non-qualified Stock Options. No income, for federal income tax purposes, will be realized by a participant at the time a non-qualified stock option is granted. At the date of exercise of a non-qualified stock option, ordinary compensation income will be realized by the participant in an amount equal to the excess of the fair market value of the shares on the date of exercise over the exercise price (the amount paid for the shares), and the Corporation will receive a tax deduction for the same amount. Upon the sale of such shares, any gain or loss realized is treated as either short-term or long-term capital gain or loss depending on whether the shares have been held more than one year.
Incentive Stock Options. No income, for federal income tax purposes, will be realized by a participant at the time an incentive stock option is granted. If shares are issued to a participant pursuant to the exercise of an incentive stock option, and if no disqualifying disposition of such shares is made by such participant within one year after the date of exercise or within two years after the date of grant, (a) no income, for federal income tax purposes, will be realized by the participant at the date of exercise, (b) upon the sale of such shares, any amount realized in excess of the exercise price will be taxed to the participant, for federal income tax purposes, as a long-term capital gain and any loss sustained will be a long-term capital loss, and (c) no deduction will be allowed to the Corporation for federal income tax purposes. If, however, the shares are sold before the expiration of the holding periods, the participant will recognize ordinary income from any gain on such sale up to the difference between the exercise price and the fair market value at exercise, and the Corporation generally will receive a tax deduction in the same amount. Such amount also will be the tax basis for the shares the participant acquires. Upon exercise of an incentive stock option, the excess of the fair market value over the exercise price is an item of tax preference to the participant for purposes of determining the alternative minimum tax.
Stock Appreciation Rights. At the date of grant of stock appreciation rights, the participant will not be deemed to receive income, and the Corporation will not be entitled to a deduction. Upon exercise, the holder of a stock appreciation right will realize ordinary compensation income equal to the amount of cash or the market value of the shares received on exercise. The Corporation will be entitled to a deduction with respect to the ordinary income realized by the participant.
Stock Units. Stock units, whether paid in cash or shares of common stock, will not result in taxable income to a participant or provide a deduction to the Corporation until payment is made to the participant. Upon receipt of a payment, the participant will realize ordinary income equal to the amount of the cash received in the case of a cash payment or the market value of the shares received at the time of payment in the case of a payment in shares of common stock. Upon such payment, the Corporation will be entitled to a corresponding deduction with respect to the ordinary income realized by the participant. In addition, the holding period begins on the date any shares are received, if not subject to any restrictions, for purposes of determining short-term or long-term capital gain or loss on a subsequent sale of the shares.
Stock Awards and Performance Shares. Ordinary income will be realized by a recipient of a stock award or performance shares upon becoming entitled to transfer the shares at the end of the restriction period, if any, without forfeiture. The amount of income realized will be equal to the fair market value of the shares on the first day after the end of the restriction period, less the amount paid for the shares, if any. Such amount will also constitute the tax basis for the shares. In addition, the holding period will commence on the day the restriction expires for purposes of determining whether the recipient has long-term or short-term capital gain or loss on a subsequent sale of shares. The Corporation will be entitled to a deduction with respect to the ordinary compensation income realized by the participant.
A recipient of a stock award who makes an election under Section 83(b) of the Internal Revenue Code within 30 days after the date of the grant will recognize ordinary income equal to the fair market value on the date of grant less the amount paid for the shares if any, and will recognize no additional income until the shares are subsequently sold. Upon sale of the shares, the tax basis will be equal to the fair market value on the date of the grant, and the holding period for capital gains purposes will commence on the date of grant. If the shares subject to such election are forfeited, the recipient will not be entitled to any deduction refund or loss for tax purposes (other than a capital loss with respect to the amount of tax previously paid), and the Corporation will have to include the amount that it previously deducted from its gross income in the taxable year of the forfeiture.
Information About Other Equity Compensation Plans INFORMATION
Set forth below is information with respect to other equity compensation plans under which the common stock of the Corporation was authorized for issuance as of December 31, 2011.2014.
Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants, and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights(1) (b) | Number of Securities Remaining Available for Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column(a)) (c) | Number of Securities to Be Issued upon Exercise of Outstanding Options, Warrants, and Rights (#) | Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights ($) | Number of Securities Remaining Available for Issuance under Equity Compensation Plans (Excluding Securities Reflected in (#) | ||||||||||||||||||
Equity compensation plans approved by stockholders | 19,915,980 | (3) | $ | 52.39 | 12,423,266 | (4) | 13,302,608 | $ | 54.70 | (1) | 29,803,955 | (2) | ||||||||||||
Equity compensation plans not approved by stockholders | 114,852 | N/A | N/A | 109,002 | (3) | N/A | — | |||||||||||||||||
Total | 20,030,832 | $ | 52.39 | 12,423,266 | 13,411,610 | $ | 54.70 | (1) | 29,803,955 |
(1) Weighted-average exercise price of outstanding stock options (excludes restrictedRestricted stock units and performance stock units which were granted at no cost to participants).are excluded when determining the weighted-average exercise price of outstanding options.
(2) These plansAll shares are available for issuance under the Corporation’s Amended 1992 Incentive Plan and the 20022012 Stock Plan.
(3) Consists of 17,001,415 stock options and 2,914,565 units.
(4) All of these shares are issuable under the 2002 Plan.
(5) Consists of stock units under the terms of the 1997 Deferred Compensation Plan for Non-Employee Directors, as Amended and Restated. These stock unitsthat have been deferred at the election of certain directors andpursuant to the 1997 Deferred Compensation Plan for Non-Employee Directors. These units will be distributed on a one-for-one basis in shares of common stock following retirement.
Approval of the 2012 Plan requires the affirmative vote of the holders of a majority of the shares of common stock present in person or represented by proxy and entitled to vote at the annual meeting.
The board of directors unanimously recommends that you voteFOR approval of the Corporation’s 2012 Stock Plan.
The Audit Committee of the board is responsible for providing oversight of the Corporation’s financial reporting functions and internal controls. The board appoints the Audit Committee and its chairman annually, with the Committee consisting of at least four directors. The Audit Committee operates under a formal charter, which is available on the Corporation’s website at www.northerntrust.com. The Audit Committee charter sets forth in detail the duties and responsibilities of the Audit Committee.
The Audit Committee’s duties and responsibilities are onesfunction is one of oversight. In fulfilling their duties and responsibilities, itoversight, recognizing that: (i) management is recognized that members of the Committee are not full-time employees of the Corporation, and are not, and do not represent themselves to be, accountants or auditors by profession. Each member of the Committee shall be entitled to rely in good faith on (i) the integrity of those persons and organizations within and outside the Corporation from which he or she receives information, (ii) the accuracy of the financial and other information provided to the Committee absent actual knowledge to the contrary (which shall be promptly reported to the board), and (iii) representations made by management or third parties as to any information technology, internal audit, and other non-audit services provided by the Corporation’s independent registered public accountants to the Corporation. The responsibilityresponsible for the completenesscomplete and accuracyaccurate preparation of the Corporation’s consolidated financial statements rests with the Corporation’s management. The responsibility ofstatements; and (ii) KPMG LLP, the Corporation’s independent registered public accounting firm, is (i) to performresponsible for performing an audit on such financial statements and to expressexpressing an opinion as to whether the Corporation’s annual consolidated financial statementsthey are free of material misstatement and presented in accordance with generally accepted accounting principles and (ii) to perform an audit and to expressprinciples. KPMG LLP is also responsible for expressing an opinion as to whether the Corporation maintained effective internal control over financial reporting.
Consistent with its oversight responsibilities, the Audit Committee has reviewed and discussed with management and KPMG LLP the Corporation’s audited financial statements as of and for the year ended December 31, 2014. The Committee has also discussed with KPMG LLP the firm’s assessment of the Corporation’s internal controls and the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standards No. 16, “Communication with Audit Committees.” The Audit Committee has also received and discussed the written disclosures and the letter from KPMG LLP required by applicable requirements of the Public Company Accounting Oversight Board Rule 3526, “Communication with Audit Committees Concerning Independence” and has conducted a discussion with KMPG LLP regarding KPMG LLP’s communications with theits independence. The Audit Committee concerning independence. The disclosures described the relationships and fee arrangements between the firm and the Corporation. Consistent with the applicable requirements of the Public Company Accounting Oversight Board and the rules and regulations of the SEC, the Audit Committeealso considered at meetings held on February 13, 2012 whether the provision of non-audit services by the independent registered public accounting firmKPMG LLP to the Corporation for the fiscal year ended December 31, 2011 maintains2014 is compatible with maintaining KPMG LLP’s independence and has discussed with KPMG LLP the firm’s independence from the Corporation.
The Audit Committee reviewed and discussed with the Corporation’s independent registered public accounting firm the matters required to be discussed by the Statement on Auditing Standards No. 114, The Auditor’s Communication With Those Charged With Governance (which replaced Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended by SAS No. 90 Audit Committee Communications).
The Audit Committee reviewed and discussed with management and the Corporation’s independent registered public accounting firm the consolidated financial statements of the Corporation for the year ended December 31, 2011.independence.
Based on the above-mentioned reviews and discussions, with management and the Corporation’s independent registered public accounting firm, and subject to the limitations on the role and responsibilities of the Audit Committee referred to above, the Audit Committee exercising its
business judgment, recommended to the boardBoard that the Corporation’s audited consolidated financial statements be included in its Annual Report on Form 10-K for the year ended December 31, 2011,2014, for filing with the SEC.
This report is submitted on behalf of the members of the Audit Committee:Committee
Edward J. Mooney, Chairman, Linda Walker Bynoe, Nicholas D. Chabraja, Robert W. Lane, Robert C. McCormack, and David H. B. Smith, Jr. (Chair)
Nicholas D. Chabraja
Dipak C. Jain
Jose Luis Prado
ITEM 4—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMAUDIT MATTERS
Appointment of Independent Registered Public Accounting Firm
The independent registered public accounting firm is appointed annually by the Corporation’s Audit Committee. For the year ending December 31, 2012, the Audit Committee has authorized the engagement of KPMG LLP as the Corporation’s independent registered public accounting firm. KPMG LLP served as the Corporation’s independent registered public accounting firm for the fiscal year ended December 31, 2011. Representatives of KPMG LLP will be present at the annual meeting. They will have an opportunity to make a statement if they wish and will be available to respond to appropriate questions raised by stockholders at the meeting.
Stockholder ratification of the selection of KPMG LLP as the Corporation’s independent registered public accounting firm is not required. However, the board of directors is submitting the selection of KPMG LLP as the Corporation’s independent registered public accounting firm to the stockholders for ratification to learn the opinion of stockholders on this selection. If the stockholders fail to ratify KPMG LLP as the independent registered public accounting firm, the Audit Committee will reassess its appointment. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such change would be in the best interests of the Corporation and its stockholders.
Fees of Independent Registered Public Accounting Firm
Description of Fees | Amount of Fees Payable to KPMG LLP for Fiscal Year 2011 | Amount of Fees Payable to KPMG LLP for Fiscal Year 2010 | 2014 | 2013 | ||||||||||||
Audit Fees | $ | 4,300,000 | $ | 4,142,000 | $ | 4,446,680 | $ | 4,187,380 | ||||||||
Audit-Related Fees | $ | 1,168,900 | $ | 1,357,027 | 2,244,030 | 2,194,300 | ||||||||||
Tax Fees | $ | 222,340 | $ | 245,724 | 126,937 | 148,334 | ||||||||||
All Other Fees | $ | 307,973 | $ | 196,665 | 16,550 | 57,600 | ||||||||||
Additional Fees(5) | $ | 888,200 | $ | 730,100 | ||||||||||||
Total | $ | 6,834,197 | $ | 6,587,614 |
(1) IncludesAudit Fees include fees for professional services rendered for the annual integrated audit of the Corporation’s annual consolidated financial statements for the fiscal year (including services relating to the audit of internal control over financial reporting under the Sarbanes-Oxley Actreporting) audits of 2002)subsidiary financial statements and for reviews of the financial statements included in the Corporation’s Quarterly Reports on Form 10-Q and for other services that only an independent registered public accountant can reasonably provide.10-Q.
(2) IncludesAudit-Related Fees include fees for services that were reasonably related to performance of the audit of the annual consolidated financial statements for the fiscal year, other than Audit Fees, such as comfort letters, employee benefit plan audits, and internal control reviews.reviews, and other attestation services.
(3) IncludesTax Feesinclude fees for tax return preparation, tax compliance and tax planning.advice.
(4) IncludesAll Other Fees include fees for all services other than Audit Fees, Audit-Related Fees, and Tax Fees.
(5) Additional Fees, are fees forincluding ancillary services renderedprovided to the Corporation’s foreign subsidiaries in connection with audits for certain of the proprietary, common and securities lending collateral funds sponsored or managed by the Corporation. These funds are not included in the consolidated financial statements of the Corporation.foreign-jurisdiction requirements.
Pre-Approval Policies and Procedures of the Audit Committee
On October 19, 2009, theThe Audit Committee adoptedhas in place a policy regarding the revised Northern Trust Corporation Policy Regarding Engagementengagement of Independent Public Accounting Firmindependent public accounting firms to Provide Auditor Services, which supersededprovide auditor services to the Policy adopted by the Audit Committee on October 20, 2008.Corporation. The purpose of the Policypolicy is to establish procedures for Audit Committee pre-approval of all auditor services to be provided to the Corporation by its independent registered public accounting firm. Auditor services include audit services, audit-related services, tax services, and non-audit services. The Policypolicy provides that the Audit Committee, the Chairman, or any Audit Committee member delegated the authority (a “Designated Member”) has the authority to grant pre-approvals of auditor services. In addition, the Policypolicy provides that the independent registered public accounting firm may be engaged to provide only those non-audit servicesservices: (i) that are permitted by the SEC’s final rule entitled “Strengthening the Commission’s Requirements Regarding Auditor Independence”SEC rules; and (ii) that, in the judgment of the Audit Committee, maintain the independent registered public accounting firm’s independence from the Corporation. In evaluating whether a proposed engagement of the Corporation’s independent registered public accounting firm for a specific permitted non-audit service maintains the firm’s independence from the Corporation, the Audit Committee or a Designated Member thereof must consider whether the proposed engagement would cause the independent registered public accounting firm to (1)to: (a) audit its own work, (2)work; (b) perform management functions,functions; or (3)(c) act as an advocate for the Corporation. The independent registered public accounting firm shall in no event be engaged to perform any Prohibited Services,prohibited services, as definedset forth in the Policy.policy.
The following percentages of the Audit-Related Fees, Tax Fees,All audit, audit-related, tax and Other Feesother services provided by KPMG LLP in 2014 were approvedpre-approved in accordance with the exceptionsAudit Committee’s policy regarding the engagement of independent public accounting firms to pre-approval requirements set forth in 17 CFR 210.2-01(c)(7)(i)(C):provide auditor services to the Corporation.
ITEM 3—RATIFICATION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm is appointed annually by the Corporation’s Audit Committee. For the year ending December 31, 2015, the Audit Committee has authorized the engagement of KPMG LLP as the Corporation’s independent registered public accounting firm. KPMG LLP served as the Corporation’s independent registered public accounting firm for the fiscal year ended December 31, 2011, Audit-Related Fees: 0%, Tax Fees: 0%,2014. Representatives of KPMG LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they wish and Other Fees: 0%.will be available to respond to appropriate questions.
Stockholder ratification of the selection of KPMG LLP as the Corporation’s independent registered public accounting firm is not required. However, the Board is submitting the selection of KPMG LLP as the Corporation’s independent registered public accounting firm to the stockholders for ratification because it believes it is a governance best practice to do so. If the stockholders fail to ratify KPMG LLP as the independent registered public accounting firm, the Audit Committee will reassess its appointment, but in such event it may elect to retain KPMG LLP nonetheless. Further, even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such change would be in the best interests of the Corporation and its stockholders.
The board of directorsBoard unanimously recommends that you voteFOR the ratification of KPMG LLP as the Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2012.2015.
ITEM 5—4—STOCKHOLDER PROPOSAL REGARDING ACCELERATED VESTINGADDITIONAL DISCLOSURE OF EQUITY AWARDS IN A CHANGE IN CONTROL SITUATION
POLITICAL AND LOBBYING CONTRIBUTIONS
Information regarding a stockholder proposal is set forth below. The Corporation disclaims any responsibility for the content of this proposal and statement of support, which is presented as received from the stockholder. The Trustee of the Trowel Trades S&P 500 IndexMassachusetts Laborers’ Pension Fund, Post OfficeP.O. Box 75000, Detroit, Michigan 48275,3005, 14 New England Executive Park, Suite 200, Burlington, Massachusetts 01803, the owner of 5,204approximately 400 shares of our common stock, has given the Corporation notice that its representative intends to present this proposal at the annual meeting.Annual Meeting.
Ban Accelerated Vesting of Awards for Change in ControlResolved
Northern Trust
RESOLVED:The shareholders hereby ask the board of directors of Northern Trust Corporation (the “Company”) to adopt a policy, that in the event of a change of control of the Company, there shall be no acceleration in the vesting of any equity award to a senior executive, provided that any unvested award may vest on a pro rata basis up to the time of a change of control event. To the extent any such unvested awards are based on performance, the performance goals must have been met. This policy shall apply to future awards without affecting any contractual obligations that may exist at the time.
SUPPORTING STATEMENT: Under various employment agreements and plans, the Company’s senior executives will receive “golden parachute” awards under specified circumstances following a change in control of the Company.
We support the concept of performance-based equity awards to senior executives to the extent that such awards are tailored to promote performance and align executives’ interests with those of the shareholders. We also believe that severance payments may be appropriate in some circumstances following a change of control.
We are concerned, however, that the Company’s current practices can disregard performance criteria upon a change of control. Instead, they can permit full and immediate accelerated vesting of unearned equity awards.
The Company’s 2011 proxy summarizes the Company’s potential exposure if unvested equity awards should vest upon a change in control. According to the Company’s 2011 proxy, if there had been a change of control on December 31, 2010, CEO Frederick H. Waddell would have been eligible to receive approximately $8.3 million in fully vested equity awards. Other senior executives would have received fully vested awards worth between $2.5 and $3.1 million apiece.
The vesting of equity awards over a period of time is intended to promote long-term improvements in performance. The link between pay and long-term performance can be severed if awards pay out on an accelerated schedule.
We urge you to voteFOR this proposal.
Statement in Opposition:
After careful consideration, the board of directors unanimously recommends a voteAGAINST this proposal.
As further described elsewhere in this proxy statement, the Compensation and Benefits Committee oversees the development and operation of the Corporation’s incentive compensation polices and systems. The Committee, in consultation with independent outside advisers, develops compensation packages that best suit the Corporation’s compensation philosophy of attracting, motivating and retaining talent. Such compensation packages may, from time to time, include a provision for immediate vesting of the named executive officers’ equity awards upon a change in control of the Corporation.
In particular, the Committee believes that accelerated vesting of equity awards provides the following benefits to the Corporation:
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Accordingly, the Committee and the board of directors of the Corporation believe that the current structure of the Corporation’s executive compensation program, including the provisions of the Corporation’s program providing for the accelerated vesting of, and removal of restrictions involving, executive officer equity awards upon a triggering event, is appropriate and effective, is consistent with the Corporation’s compensation philosophy and is in the best interest of the Corporation and its stockholders.
The board of directors unanimously recommends a voteAGAINST this proposal.
The proposal is advisory in nature, and approval of the proposal would serve as a recommendation to the board to take the necessary steps to adopt a policy eliminating accelerated vesting of awards in change in control situations. If the proposal is not properly presented by the proponent at the Annual Meeting, it will not be voted upon.
ITEM 6—STOCKHOLDER PROPOSAL REGARDING INDEPENDENCE OF THE BOARD CHAIRMAN
Information regarding a stockholder proposal is set forth below. The Corporation disclaims any responsibility for the content of this proposal and statement of support, which is presented as received from the stockholder. American Federation of State, County, & Municipal Employees Capital Strategies, 1625 L Street, NW, Washington, D.C., 20036, the owner of 1,713 shares of our common stock, has given the Corporation notice that its representative intends to present this proposal at the annual meeting.
Stockholder Proposal
RESOLVED: That shareholders of Northern Trust Corporation (“Northern Trust” or the “Company”) ask the Board of Directors to adopt a policyhereby request that the Board’s ChairmanCompany provide a report, updated semi-annually, disclosing the amounts that the Company has paid or incurred in connection with influencing legislation; participating or intervening in any political campaign on behalf of (or in opposition to) any candidate for public office; and attempting to influence the general public, or segments thereof, with respect to elections, legislative matters or referenda.
The report should include (a) contributions to or expenditures on behalf of political candidates, political parties, political committees and other political entities and (b) the portions of any dues or other payments that are made to a tax-exempt organization for an expenditure or contribution that, if made directly by the Company, would not be deductible under section 162(e)(1) of the Internal Revenue Code. The report should identify each recipient, the amount paid to each, and the purpose of any contribution or expenditure.
Stockholder Supporting Statement
As long-term shareholders of Northern Trust, we support transparency and accountability in corporate spending on lobbying and political activities. The expenditures upon which we seek a report are those that Congress has said do not warrant a deduction as an independent director accordingordinary and necessary business expense, namely, lobbying participation in the political system by supporting or opposing candidates for office, and trying to influence the general public or segment thereof as to elections, legislative matters or referenda. This includes payments to third parties, including trade associations and other tax-exempt groups, which payments are used for expenditures that would not be deductible if made by the company itself.
Disclosure is consistent with public policy and we believe, in the best interest of the company and its shareholders. The Supreme Court’sCitizens United decision recognized the importance of political spending disclosure when it said “[D]isclosure permits citizens and shareholders to react to the definition set forthspeech of corporate entities in NASDAQ listing standards, unless Northern Trust common stock ceases being listed therea proper way. This transparency enables the electorate to make informed decisions and is listed on another exchange, at which point,give proper weight to different speakers and messages.”
Gaps in transparency and accountability may expose the company to reputational and business risks that exchange’s standard of independence should apply. If the Board determines thatcould threaten long-term shareholder value. Moreover, publicly available data does not provide a Chairman who was independent when he or she was selected is no longer independent, the Board shall promptly select a new Chairman who satisfies this independence requirement. Compliance with this requirement may be excused if no director who qualifies as independent is elected by shareholders or if no independent director is willing to serve as Chairman. This independence requirement shall apply prospectively so as not to violate any Company contractual obligation at the time this resolution is adopted.
SUPPORTING STATEMENT
Northern Trust’s CEO, Frederick Waddell, also serves as chairmancomplete picture of the Company’s board of directors. We believelobbying or political expenditures. Thus the combination ofCompany’s payments to trade associations for these two roles in a single person weakens a corporation’s governance whichpurposes are undisclosed and unknown, as are any payments to tax-exempt groups that work to influence legislation and political campaigns, as well as public opinion that could affect legislation or elections.
The sums involved can harm shareholder value. As Intel former chairman Andrew Grove stated, “The separation of the two jobs goesbe significant. A 2010Bloomberg story reported that several health insurers donated $86.2 million to the heartU.S. Chamber of the conception of a corporation. Is a company a sandboxCommerce in 2009-10 for the CEO, or is the CEO an employee? If he’s an employee, he needs a boss,advertisements, polling and that boss is the board. Thegrassroots events to drum up opposition to health care reform legislation. A former Federal Election Commission chairman runs the board. How can the CEO be his own boss?”
In our view, shareholder value is enhanced by an independent board chair who can provide a balance of power between the CEO and the board, and support strong board leadership. The primary duty of a board of directors is to oversee the management of a company on behalf of its shareholders. But if a CEO also servesdescribed this figure as chair, we believe this presents a conflict of interest that can result in excessive management influence on the board and weaken the board’s oversight of management.
An independent board chair has been found in academic studies to improve the financial performance of public companies. A 2007 Booz & Co. study found that in 2006, all of the underperforming North American companies whose CEOs had long tenure lacked an independent board chair(The Era of the Inclusive Leader,Booz Allen Hamilton, Summer 2007). A more recent study found worldwide, companies are now routinely separating the jobs of chair and CEO: in 2009 less than 12 percent of incoming CEOs were also made chair, compared with 48 percent in 2002(CEO Succession 2000-2009: A Decade of Convergence and Compression,Booz & Co., Summer 2010)“breathtaking”.
We believe that independent board leadership would be particularly constructive here, whereshareholders need improved disclosure in 2010 Waddell received over three timesorder to fully evaluate the average compensationuse of corporate assets on these activities. Thus, we urge you to vote FOR this critical governance reform.
Statement of the other named executive officers, as a study shows pay inequity is associated with lower firm value and greater CEO entrenchment. (Bebchuk, “Pay DistributionBoard of Directors in Opposition to the Top Executive Team,” February 2007).
Statement in Opposition:Stockholder Proposal
After careful consideration, the boardThe Board of directors unanimously recommends a voteAGAINST this proposal.
The board of directors is firmly committed to maintaining the highest standards of corporate governance. We believe there is no single approach to corporate governance that suits all companies and that the key consideration is whether the company’s corporate governance practices support and promote stockholder interests given the company’s specific circumstances. The board of directors stronglyDirectors believes that the decision of who should serve as the Corporation’s Chairman is the responsibility of the board of directors and the board should not be limited in its ability to select the most qualified and appropriate candidate for the position.
The Corporation’s corporate governance structure provides the board of directors with flexibility in deciding which director is best suited to serve as its Chairman, taking into account who is most qualified based upon the individual and the circumstances existing at the time. It allows the board to appoint a director who has hands-on knowledge of and experience in the operations of Northern Trust. Under this governance structure, at various points in its history, the Corporation maintained separate Chairman and CEO positions. At the present time, the board of directors believes that Mr. Waddell is best suited to act as the Corporation’s Chairman. Mr. Waddell has served Northern Trust since 1975 and he is uniquely situated to understand the business and culture of the Corporation. Having Mr. Waddell act as Chairman and CEO provides unified leadership and direction to the Corporation, particularly in times of market turmoil or crisis. Mr. Waddell has demonstrated visionary and independent leadership and provided strategic, operational and technical expertise and context for the matters considered by the board of directors.
The Corporation’s corporate governance structure already establishes substantial oversight of management:
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Adopting a rule requiring Chairman independence would only limit the board’s ability to select the director it believes best suited to serve as Chairman of the board, andproponent’s proposal is not in the best interests of the CorporationNorthern Trust and its stockholders. Although the board of directors may separate these positions in the future if circumstances warrant, implementing this proposal would deprive the board of its ability to organize its functionsstockholders and conduct its business in the most efficient and effective manner.
The board of directors unanimously recommends a voteAGAINST thisthe proposal.
As a leading provider of asset servicing, fund administration, asset management, fiduciary, and banking solutions for corporations, institutions, families, and individuals worldwide, Northern Trust is extensively regulated. Changes in the legal and regulatory environment for financial institutions may substantially impact the manner in which Northern Trust and its subsidiaries operate, serve their clients, and create value for stockholders. We believe it is in the best interests of Northern Trust’s stockholders for Northern Trust to support positions that enhance the safety of client assets and promote the safety and soundness of the financial system and a strong global economy. The proposal is advisorypotential impact that public policy changes can have on Northern Trust’s business and its stakeholders requires Northern Trust to participate in nature,the political process to advance and approvalprotect the long-term interests of Northern Trust.
Northern Trust’s philosophy and policies concerning political contributions and legislative lobbying are set forth in its “Statement Regarding Government Relations and Political Contributions,” which can be found under “Corporate Social Responsibility” in the “About Us” section of Northern Trust’s website. Northern Trust contributes to candidates for public office and related organizations in compliance with applicable law. Northern Trust sponsors both a federal-only political action committee and a multi-candidate political action committee. These political action committees, known as PACs, allow certain U.S. employees to pool their financial resources to support United States federal and state candidates who support legislation important to Northern Trust and its stockholders. All contributions to the PACs are voluntary. The PACs determine all political contributions based on the best interests of Northern Trust. Northern Trust also contributes to certain industry trade organizations relating to its public policy objectives.
We believe that the additional disclosure sought by the proposal would serve asbe of no appreciable benefit to stockholders. As required by law, each Northern Trust PAC reports its contributions on a recommendationperiodic basis to the boardFederal Election Commission and appropriate state election authorities. In addition, Northern Trust is required to takecomply with United States federal and state laws and regulations regarding the necessary stepsdisclosure of certain lobbying activities. These reports and disclosures are publicly available and there are direct links to require an independent board chairman policy. If the Federal Election Commission and the Lobbying Database included in Northern Trust’s publicly available “Statement Regarding Government Relations and Political Contributions.” The Board believes that in light of the fact that Northern Trust already provides all legally required disclosures regarding political contributions and lobbying activities, much of which is already publicly available, this proposal is not properly presented byduplicative and unwarranted, and would cause the proponent at the annual meeting, it will not be voted upon.Corporation to expend unnecessary time and resources without providing any appreciable benefit to its stockholders.
OTHER BUSINESSThe Board of Directors unanimously recommends that you voteAGAINST the proposal.
The board of directors knows of no business to be presented at the 2012 annual meeting other than that described above. The Corporation’s by-laws provide that stockholders may bring matters before an annual meeting only if they give timely written notice of the matter to be brought not less than 120 days prior to the anniversary date of the prior year’s annual meeting. The notice must be directed to the attention of the Corporation’s Corporate Secretary and contain the information required by the Corporation’s by-laws.
STOCKHOLDER PROPOSALS FOR 20132016 ANNUAL MEETING
Any stockholder proposals for the 2013 annual meetingCorporation’s 2016 Annual Meeting of Stockholders must be received by the Corporation, directed to the attention of the Corporation’s Corporate Secretary, no later than November 12, 20122015 in order to be eligible for inclusion in the Corporation’s proxy statement and form of proxy for that meeting. The proposal must comply in all respects with the rules and regulations of the SEC and the Corporation’s by-laws.By-laws.
Also, under the Corporation’s by-laws,By-laws, other proposals that are not included in the proxy statement will be considered timely and may be eligible for presentation at that meeting if they are received by the Corporation in the form of a written notice, directed to the attention of the Corporation’s Corporate Secretary, notno earlier than November 23, 2015 and no later than December 18, 2012.23, 2015. If the 2016 Annual Meeting of Stockholders is called for a date that is not within thirty days before or after the anniversary date of this Annual Meeting, notice by the stockholder in order to be timely must be received within ten days after notice of the 2016 Annual Meeting is mailed or public disclosure of the date of the Annual Meeting is made, whichever occurs first. The notice must contain the information required by the Corporation’s by-laws.
By Order of the Board of Directors,
Rose A. Ellis
Corporate Secretary
Chicago, Illinois
March 8, 2012By-laws.
EXHIBIT 1—NORTHERN TRUST CORPORATION CATEGORICAL STANDARDS OF DIRECTOR INDEPENDENCE
The following directors shall not be considered “independent”:
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
ANNUAL MEETING ADMISSION TICKET Northern Trust Corporation 50 South LaSalle Street Chicago, Illinois 60603 (northwest corner of LaSalle Street and Monroe Street) April 21, 2015 10:30 a.m. CDT You should present this admission ticket in order to gain admittance to the meeting. (Registration begins at 9:30 a.m., and seating will begin at 10:00 a.m.) This ticket admits only the stockholder(s) listed on the reverse side and is not transferable. Each stockholder will be asked to present valid picture identification, such as a driver’s license. Cameras, recording devices, and other electronic devices will not be permitted at the meeting. Directions to the Northern Trust corporation Annual Meeting of Stockholders
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: You may access the 2015 Notice of Annual Meeting and Proxy Statement and the Annual Report on Form 10-K for the year ended December 31, 2014 by going to the following website: https://materials.proxyvote.com/665859
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