NOTICE & PROXY STATEMENTUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x☒ Filed by a Partyparty other than the Registrant ¨☐
Check the appropriate box:
| Preliminary Proxy Statement | |
| ||
| Definitive Proxy Statement | |
| Definitive Additional Materials | |
| Soliciting Material Under Section 240.14a-12 |
NORTHERN TRUST CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| No fee required | ||||||
| Fee computed on table below per Exchange Act Rules14a-6(i)(4) and0-11. | ||||||
(1) | Title of each class of securities to which transaction applies:
| ||||||
(2) | Aggregate number of securities to which transaction applies:
| ||||||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule0-11
| ||||||
| |||||||
(4) | Proposed maximum aggregate value of transaction:
| ||||||
(5) | Total fee paid:
| ||||||
| Fee paid previously with preliminary materials. | ||||||
| Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | ||||||
(1) | Amount Previously Paid:
| ||||||
| |||||||
(2) | Form, Schedule or Registration Statement No.:
| ||||||
| |||||||
(3) | Filing Party:
| ||||||
| |||||||
(4) | Date Filed:
| ||||||
|
Northern Trust Corporation
50 South La Salle Street
Chicago, Illinois 60603
March 10, 201516, 2017
Dear Stockholder:
You are cordially invited to attend the Northern Trust Corporation 20152017 Annual Meeting of Stockholders on Tuesday, April 21, 2015,25, 2017, 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, |
Frederick H. Waddell |
Chairman of the Board and Chief Executive Officer |
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date: | Tuesday, April | |
Time: | 10:30 a.m., Central Time | |
Place: | Northern Trust Corporation 50 South La Salle Street Chicago, Illinois 60603 | |
Purposes: | The purposes of the Annual Meeting are to: | |
● approve the Northern Trust Corporation 2017 Long-Term Incentive Plan; ● ratify the appointment of KPMG LLP as Northern Trust Corporation’s independent registered public accounting firm for the
| ||
Record Date: | You can, and should, vote if you were a stockholder of record at the close of business on February |
March 10, 201516, 2017
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, 201525, 2017
This Proxy Statement, other proxy materials, our Annual Report on Form 10-K for the year ended December 31, 20142016 and a link to the means to vote by Internet or telephone are available at https://materials.proxyvote.com/665859.
1 | ||||
1 | ||||
1 | ||||
3 | ||||
3 | ||||
3 | ||||
4 | ||||
14 | ||||
16 | ||||
17 | ||||
Securities | ||||
ITEM 3—ADVISORY VOTE ON THE FREQUENCY OF STOCKHOLDER VOTES ON EXECUTIVE COMPENSATION | 29 |
i
| ||||
Potential Payments Upon Termination of Employment or a Change in Control of the Corporation | ||||
ITEM 4—APPROVAL OF THE NORTHERN TRUST CORPORATION 2017 LONG-TERM INCENTIVE PLAN | 78 | |||
78 | ||||
78 | ||||
79 | ||||
85 | ||||
85 | ||||
ITEM | ||||
| ||||
| ||||
ii
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, 201525, 2017 (the “Annual Meeting”). On or about March 10, 2015,16, 2017, 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, 2014,2016, 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 1-800-690-6903.1-800-579-1639. 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, 201527, 2017 may vote at the Annual Meeting. On that date, the Corporation had 233,620,101229,484,933 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, 2015.27, 2017. 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“stockholder of record”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“beneficial owner,,” also known as a “street name”“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’sthe Corporation’s independent registered public accounting firm generally is considered to be a routine matter, each of the election of directors, executive compensationother matters and stockholder proposals generally areto be presented to the stockholders at the Annual Meeting described in this Proxy Statement is considered to be a nonroutine matters.matter.Thus, if you fail to provideyour 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.,p.m, Eastern Time, on April 16, 2015.20, 2017.
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 | ||||
Item 3 | — | EVERY YEARfor the frequency with which the Corporation should hold advisory votes on executive compensation; | ||||
Item 4 | — | FOR the approval of the Northern Trust Corporation 2017 Long-Term Incentive Plan; and | ||||
Item 5 | — | FORthe ratification of the appointment of KPMG LLP as the Corporation’s independent registered public accounting firm for the fiscal year ending December 31, | ||||
|
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 written notice of revocation to the Corporation’s Corporate Secretary; |
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, 2015.27, 2017.
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 1-800-542-10611-866-540-7095 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 any of the electionmatters to be presented to stockholders at the Annual Meeting described in this Proxy Statement, other than the ratification of directors, executive compensation matters or stockholder proposalsthe appointment of KPMG LLP as the Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2017, 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. See below for further detail. |
| ||
Item 2—Advisory vote on executive compensation | Affirmative vote of a majority of the shares of common stock present and entitled to vote. |
| ||
Item 3— | Affirmative vote of a plurality of the | ● Abstentions will have no effect on the ● Broker nonvotes will have no effect on the voting for this item. | ||
Item 4—Approval of the Northern Trust Corporation 2017 Long-Term Incentive Plan | Affirmative vote of a majority of the shares of common stock present and entitled to vote. |
| ||
Item | Affirmative vote of a majority of the shares of common stock present and entitled to vote. |
|
Pursuant to 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 with respect to his or her election at a meeting of stockholders to be elected. 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 with respect to his or her election 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 as to why stockholders did not support the director whose resignation has been tendered, 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.
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,$12,500, plus reasonable out-of-pocket expenses.
ADMITTANCE TO THE ANNUAL MEETING
Stockholders at the close of business on the record date, February 23, 2015,27, 2017, or their duly appointed proxies, may attend our Annual Meeting at our corporate headquarters on April 21, 201525, 2017 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, 2015.27, 2017. 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, 2015.27, 2017. A brokerage statement or letter from a bank or broker reflecting your holdings at the close of business on February 23, 201527, 2017 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 eleventhirteen directors at the Annual Meeting. Set forth below is detailed information with respect toEach of the eleventhirteen 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. HarrisonJay L. Henderson and Donald Thompson,Michael G. O’Grady, who were recently appointed as directors of the Corporation by the Board, effective July 18, 2016 and January 1, 2015 and March 6, 2015,2017, respectively, each in accordance with the Corporation’s By-laws and pursuant to the recommendation of the Corporation’s Chairman and CEOChief Executive Officer (“CEO”) and Lead Director. Current directorsDipak C. Jain will not be 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 thatas he intends to retirewill be retiring from service as a director effective upon the conclusion of his current term at the Annual Meeting. Messrs. Chabraja and Lane haveMr. Jain has served as membersmember of the Board since 2007 and 2009, respectively.2004.
Each of the eleventhirteen 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 andor 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 forthAs discussed further under “Corporate Governance—Director Nominations and Qualifications,” in the Corporation’s By-laws, a nominee forevaluating 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 thanconsiders a variety of factors, including relevant business and industry experience; professional background; age; current employment; community service; other board service; and racial, ethnic, and gender diversity. Accordingly, the tenderingthirteen director if applicable), whonominees possess a wide variety of experience, qualifications and skills, which will recommend toequip the Board whetherwith the collective expertise to acceptperform its oversight function effectively. Each of the candidates also has a reputation for, and long record of, integrity and good business judgment; has experience in leadership positions with a high degree of responsibility; is free from conflicts of interest that could interfere with his 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 contributionsher duties to the Corporation and its stockholders; and is willing and able to make the Corporation’s Corporate Governance Guidelines. Thenecessary commitment of time and attention required for effective Board (other than the tendering director) will then act to accept or reject the Committee’s recommendation no later than ninety days following the dateservice.
A summary of the stockholders’ meeting after considering the factors consideredcertain key experience, qualifications and skills represented by the Committee and such additional information and factors asnominees for election to the Board believesat the Annual Meeting, collectively, is set forth below.
Key Experience, Qualifications and Skills | ||
● Corporate governance and social responsibility | ● Marketing | |
● Finance and accounting | ● Operations | |
● Financial services | ● Public company board experience | |
● Global experience | ● Risk management | |
● Leadership of large, complex, highly regulated organizations ● Management development and succession | ● Strategic thinking ● Technology |
Further information with respect to be relevant.the nominees is set forth on the following pages.
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,the date of this Proxy Statement, unless otherwise indicated.
LINDA WALKER BYNOE, Director since 2006, Age
President and Chief Executive Officer,Telemat
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
Ms. Crown is a director of Illinois Tool Works Inc.
The Board concluded that Ms. Crown should serve as a director based on her business experience, | ||
DEAN M. HARRISON, Director since 2015, Age
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.
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. |
Mr.
The Board concluded that Mr. | ||
MICHAEL G. O’GRADY, Director since 2017, Age 51 President of the Corporation and the Bank since January 1, 2017. Previously, Mr. O’Grady served as President of Northern Trust’s Corporate & Institutional Services business from 2014 to 2016 and as Chief Financial Officer of the Corporation and the Bank from 2011 to 2014. Before joining Northern Trust in 2011, Mr. O’Grady served as a Managing Director in Bank of America Merrill Lynch’s Investment Banking Group. The Board concluded that Mr. O’Grady should serve as a director based on his experience and ongoing responsibilities with respect to the Corporation’s businesses. | ||
JOSE LUIS PRADO,Director since 2012, Age
Mr. Prado
The Board concluded that Mr. Prado should serve as a director based on his management, marketing and risk oversight experience at a complex global corporation and his substantial international experience. |
THOMAS E. RICHARDS, Director since 2015, Age 62 Chairman, President and Chief Executive Officer, CDW Corporation (provider of integrated information technology solutions in the United States, Canada and the United Kingdom). Mr. Richards has served as CDW Corporation’s President since 2009, its Chief Executive Officer since 2011 and its Chairman since 2013. Prior to serving as Chief Executive Officer, Mr. Richards served as CDW Corporation’s Chief Operating Officer from 2009 to 2011. Mr. Richards is a director of CDW Corporation. The Board concluded that Mr. Richards should serve as a director based on his experience leading a large, complex organization and his experience in the information technology industry. | ||
JOHN W. ROWE, Director since 2002, Lead Director since April 2010, Age
Chairman Emeritus, Exelon Corporation
Mr. Rowe is a director of Allstate Corporation, American DG Energy Inc., and SunCoke Energy, Inc. Mr. Rowe is a former director of Sunoco,
The Board concluded that Mr. Rowe should serve as a director based on his management, regulatory, government relations and risk oversight experience as Chief Executive Officer at Exelon Corporation (and, prior to that, at New England Electric System and Central Maine Power Company) and his experience as a director of other complex corporations. |
MARTIN P. SLARK, Director since 2011, Age
Chief Executive Officer, Molex
Mr. Slark is a director of Hub Group, Inc., Koch Industries, Inc. and Liberty Mutual Insurance
The Board concluded that Mr. Slark should serve as a director based on his experience leading a complex global corporation and his risk oversight experience as Chief Executive Officer of Molex |
| DAVID H. B. SMITH, JR.,
Executive Vice President,Policy & Legal Affairs and General Counsel, Mutual Fund Directors Forum
Mr. Smith is a director of Illinois Tool Works Inc. and a trustee of Carleton College.
The Board concluded that Mr. Smith should serve as a director based on his regulatory and leadership experience in the finance industry gained from his roles at the U.S. Securities and Exchange Commission and the Mutual Fund Directors Forum. The Board also considered that Mr. Smith’s interest as a beneficiary of a trust that holds a significant amount of the Corporation’s common stock further aligns his interests with the interests of the Corporation’s stockholders. | |
DONALD THOMPSON, Director since 2015, Age
Founder and Chief Executive Officer, Cleveland Avenue, LLC (food and beverage incubator and accelerator) since May 2015 andRetired 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 Mr. Thompson
The Board concluded that Mr. Thompson should serve as a director based on his management and board experience at other complex global corporations. |
CHARLES A. TRIBBETT III, Director since 2005, Age
Managing Director, Russell Reynolds Associates (global executive recruiting firm) since 1989,Chairman of the firm’s Leadership Assessment and Promotions Board since 2006, andCo-Leader of the firm’s
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
Chairman of the Board of the Corporation and the Bank since 2009 andChief Executive Officer of the Corporation and the Bank since 2008.
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 thirteenfourteen 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), Jay L. Henderson, Jose Luis Prado, Thomas E. Richards, John W. Rowe, Martin P. Slark, David H. B. Smith, Jr., Donald Thompson and Charles A. Tribbett III.
During 2014,2016, the Corporation’s Board held tenseven meetings. All persons who were directors during 20142016 attended at least 75% of these meetings andthe total meetings of the Board and the committees on which they served occurring during the period in 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 20142016 Annual Meeting of Stockholders held on April 15, 2014.19, 2016.
The standing committees of the Board are the Audit Committee, the Business Risk Committee, the Business StrategyCapital Governance Committee, the Compensation and Benefits Committee, the Corporate Governance Committee, the Corporate Social Responsibility 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 standing 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.
Additional information regarding the roles, responsibilities and composition of the Board’s standing committees is set forth below.
A summary of the composition of each of the Board’s current standing committees is set forth below.
Director | Audit | Business Risk | Capital Governance | Compensation and Benefits | Corporate Governance | Corporate Social Responsibility | Executive | |||||||
Bynoe | ✓ | ✓ | ||||||||||||
Crown | ✓ | C | ✓ | |||||||||||
Harrison | ✓ | ✓ | ||||||||||||
Henderson | ✓ | ✓ | ||||||||||||
Jain | ✓ | ✓ | ||||||||||||
O’Grady | ||||||||||||||
Prado | C | ✓ | ✓ | |||||||||||
Richards | ✓ | ✓ | ||||||||||||
Rowe | ✓ | ✓ | C | ✓ | ||||||||||
Slark | ✓ | ✓ | ||||||||||||
Smith | C | ✓ | ✓ | ✓ | ||||||||||
Thompson | ✓ | ✓ | C | ✓ | ||||||||||
Tribbett | C | ✓ | ✓ | |||||||||||
Waddell | C |
C - Chair ✓ - Member
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 of the Corporation’s public accountants 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 each year in the Corporation’s annual proxy statement.statement relating to its Annual Meeting of Stockholders.
The Board has determined that all members of the Audit Committee are independent under SEC rules and NASDAQ listing standards. The Board also has also determined that all Audit Committee
members have the financial experience and knowledge required for service on the Committee, and has designated Mr.that Messrs. Smith, as itsHarrison, Slark and Thompson each satisfy the definition of “audit committee financial expert,” as defined byexpert” under SEC rules. The Audit Committee met five times in 2016.
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 operationsoperation 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, compliance risk and compliancestrategic risk; and (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.determined.
The Board has determined that all members of the Business Risk Committee are independent under SEC rules and NASDAQ listing standards. The Business Risk Committee met six times in 2016.
Business StrategyCapital Governance Committee
Current Members: Directors Crown (Chair), Jain, Lane and Slark
Number of Meetings in 2014: 4
The purpose of the Business StrategyCapital Governance 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 businessesto capital management and planning activities of the Corporation and its subsidiaries;subsidiaries. Among other matters, the Capital Governance Committee performs the following functions: (i) oversees the capital adequacy assessments, forecasting, and stress testing processes and activities of the Corporation and its subsidiaries, including with respect to the annual Comprehensive Capital Analysis and Review (“CCAR”) exercise, and challenges management, as appropriate, on various elements of such processes and activities; (ii) reviews and recommends to the Board for approval the Corporation’s annual capital plan, including proposed capital actions, and reviews and challenges management, as appropriate, with respect to the assumptions, limitations and weaknesses related to the Corporation’s annual capital plan, including regarding risk identification and estimation approaches; (iii) receives reports on the management of strategic riskCorporation’s material risks and exposures to inform decisions on capital adequacy and actions, including capital distributions; (iv) unless reviewed and approved by the Board, reviews and approves capital policies for the organization;Corporation and (iv) the Bank, including the Corporation’s and the Bank’s capital management goals and targets and the Corporation’s payout ratios; (v) reviews and discusses with management the Corporation’s and the Bank’s regulatory capital ratios and capital levels; and (vi) reviews and recommends to the Board for approval (a) integration of corporate social responsibility principles relateddividend declarations with respect to environmentalthe Corporation’s common and social practices into the strategic direction and strategic initiatives of the organization and its businessespreferred stock and (b) governanceissuances or repurchases of those practices.debt or equity securities.
The Board has determined that all members of the Business StrategyCapital Governance Committee are independent under SEC rules and NASDAQ listing standards. The Capital Governance Committee met ten times in 2016.
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, including with respect to the position of CEO, and prepares the report required to be prepared by the Committee pursuant to SEC rules for inclusion in the Corporation’s annual proxy statement.statement relating to its Annual Meeting of Stockholders.
The Board has determined that all members of the Compensation and Benefits Committee are independent under SEC rules and NASDAQ listing standards. The Compensation and Benefits Committee met five times in 2016.
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) developprovide leadership in shaping the corporate governance of the Corporation, including through the development and recommend,recommendation to the Board of 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. The Corporate Governance Committee met four times in 2016.
Corporate Social Responsibility Committee
The purpose of the Corporate Social Responsibility Committee is to assist the Board in discharging its oversight duties with respect to corporate citizenship and social responsibility matters of significance to the Corporation and its subsidiaries. Among other matters, the Corporate Social Responsibility Committee receives and reviews reports on each of the following as they pertain to the Corporation and its subsidiaries: (i) political, lobbying and other public advocacy activities, including significant trade association memberships; (ii) strategic philanthropy and charitable contributions; (iii) sustainability initiatives and other social responsibility matters of significance, including environmental, social, and governance issues; (iv) diversity and inclusion initiatives; (v) human rights matters; and (vi) compliance with the Community Reinvestment Act and Fair Lending laws. The Corporate Social Responsibility Committee also provides oversight with respect to the Corporation’s policies, programs and strategies in respect of each of these matters.
The Board has determined that all members of the Corporate Social Responsibility Committee are independent under SEC rules and NASDAQ listing standards. The Corporate Social Responsibility Committee met three times in 2016.
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 2014.2016.
We believe that the high standards set by our governance structure provide the foundation for the strength of our business. An overview of certain key governance practices reflective of our strong governance profile is set forth below.
What We Do | What We Don’t Do | |||||
✓ | Majority Independent Directors | × | No Plurality Voting in Uncontested Director Elections | |||
✓ | Engaged Lead Director | × | No Staggered Board | |||
✓ | Frequent Executive Sessions for Independent Directors | × | No Poison Pill | |||
✓ | Annual Strategic Planning Meeting with Board and Executive Officers | × | No Supermajority Voting Requirements | |||
✓ | Regular Rotations of Committee Chairs | × | No Overboarding of Directors | |||
✓ | Regular Reviews of Governance Documents | |||||
✓ | Annual Board and Committee Self-Evaluations |
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 the directors whoserving on the Board 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 as 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 audit at any time during any of the past three years; |
a director of the Corporation who is, or has a Family Member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the Company serve on the compensation committee of such other entity; or |
a director who is, or whose Family Member is, a partner in, a controlling stockholder of, or an executive officer of, any organization to which the Corporation made, or from which the Corporation received, payments for property or services in the current or any of the past three fiscal years that exceed the greater of $200,000 or 5% of the recipient’s consolidated gross revenue for that year, other than payments arising solely from investments in the Corporation’s securities or payments under nondiscretionary charitable contribution matching programs. |
“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, theThe Board has determined that each director serving during 2016 was, and each current director (other than Mr. Waddell, who serves as Chairman and CEO of the Corporation, and Mr. O’Grady, who serves as President 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,transaction, relationship, or arrangementsarrangement between the Corporation and a director that constitutes a related person transaction under the Corporation’s Related Person Transactions Policy, describeddescriptions of which are provided under “Related Person Transactions Policy” 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’s ability to exercise independent judgment in carrying out his or her responsibilities as a director.
Related Person Transactions Policy
The Board, through its Audit Committee, has adopted a written Related Person Transactions Policy to govern the review, approval, and ratification of transactions betweento which the Corporation or its subsidiaries are party and in which any related persons.persons have a direct or indirect material interest. “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(other than a tenant or employeeemployee) 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 by the Corporation or any of its subsidiaries to a related person that is made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender and does not involve more than the normal risk of collectability or present other unfavorable features; |
certain other ordinary course transactions in which the Corporation or its subsidiaries provide products or services to related persons on terms no less favorable to the Corporation and its subsidiaries as those prevailing at the time for comparable services to nonrelated persons; |
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 law or governmental authority; |
a transaction with another company |
contributions or grants, or pledges of contributions or grants, by the Corporation, any of its subsidiaries, or The Northern Trust Company Charitable Trust to a charitable, nonprofit, or educational organization for which a |
transactions where the related person’s interest arises solely from the ownership of the Corporation’s common stock and all stockholders receive the same benefit on a pro rata basis; |
compensation paid to executive officers of the Corporation that is required to be reported in the Corporation’s proxy statement under Item 402 of Regulation S-K, or to executive officers that are not immediate family members of another related person and such compensation would be reported in the Corporation’s proxy statement under Item 402 of Regulation S-K if such executive officers were named executive officers, and the Corporation’s Compensation and Benefits Committee approved such compensation (or recommended it for approval by the Board); and |
● | compensation paid to directors of the Corporation that is required to be reported in the Corporation’s proxy statement |
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,
During 2016, certain related persons were clients of, andand/or otherwise engaged in the types of transactions identified in the bullet points above with, the Corporation andor one or more of its subsidiaries. The Corporation or its subsidiaries provided financial services to each of its directors, or persons related to such directors, except for Mr. Tribbett, in the ordinary course of business. Services provided included trust and related services, brokerage services, investment management, asset servicing, asset management, 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 these transactions involved more than the normal risk of collectability or presented other unfavorable features, and any extensions of credit to directors and executive officers of the Corporation were permitted under the provisions of Section 13(k) of the Securities Exchange Act of 1934 (the “Exchange Act”). None of these transactions or any transactions in which the Corporation or any of its subsidiaries sold or purchased products and services to or from any of the Corporation’s directors, or persons or entities affiliated with its directors, were material to the Corporation or any affiliated entities involved in the transactions, and all such transactions were undertaken upon such other terms and conditions as permitted such transactions to qualify for pre-approval under the Related Person Transactions Policy. Further,In addition to the foregoing, Kathleen Finley, Mr. Henderson’s daughter, has been employed by the Bank since 2005, currently serving as noted above, noneVice President on the Client and Partner Experience team of the Bank. In such role, Ms. Finley earned compensation in excess of $120,000 in 2016, and received retirement, health and wellness benefits, all on comparable terms as those provided for other employees of the Bank. Pursuant to the Related Person Transactions Policy, our Audit Committee considered and approved Ms. Finley’s employment in conjunction with Mr. Henderson’s appointment to the Board. None of the foregoing transactions require disclosure pursuant to Item 404(a) of Regulation S-K of the Exchange Act.Act, except with respect to the compensation earned by Ms. Finley.
The independent directors of the Corporation met in executive sessions separate from management six times during 2014.2016. The Lead Director or, in his absence, another independent director designated by the Lead Director, presides at executive sessions of the independent directors. The standing committees of the Board also regularly held executive sessions during 2016. These sessions were led by the respective independent committee Chairs.
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. Pursuant to our Corporate Governance Guidelines, the full Board is responsible for direct oversight of the strategic direction and initiatives of the Corporation and its subsidiaries. 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 theMr. Rowe as Lead Director.
The Lead Director’s primary duties are described in the Corporation’s Corporate Governance Guidelines. Among other things,matters, 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 assureensure that there is sufficient time for discussion of all Board agenda items; (iii) the authority to callcalling at any time deemed necessary or advisable by such Lead Director a special meeting of the Board or a special executive session of the independent directors; (iv) the authority to addadding items to the agenda of any regular or special meeting of the Board;Board deemed necessary or advisable by such Lead Director; (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)(vi) presiding at all regular and any special executive sessions of the independent directors; (viii)(vii) 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) (viii) conducting, by means of an interview with each director, including the Chairman and CEO, the Board’s annual self-evaluation of its performance, as well as the Board’s annual evaluation of the CEO’s performance, and then providing a summary report to the Board; and (xi)(ix) being available for consultation and direct communication with major stockholders.stockholders, as appropriate. Mr. Rowe has served as our Lead Director since 2010.
The Board provides oversight of risk management directly as well as through its Audit, Business Risk, Business Strategy,Capital Governance and Compensation and Benefits Committees. The Board annually approves the Corporation’s enterprise risk management framework, risk universe and Corporate Risk Appetite Statement. The Corporate Risk Appetite Statement reflects the expectation that risk be consciously considered as part of the Corporation’s strategic decisions and in its day-to-day activities. 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. The Business Risk Committee assumes primary responsibility and oversight with respect to credit risk, operationalmarket and liquidity risk, fiduciary risk, operational 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.risk. 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 takingrisk-taking behavior by participants. Pursuant to its charter, the Compensation and Benefits Committee is required to have at least one member who is a member of the Business Risk Committee and at least one member who is a member of the Audit Committee. Among other responsibilities, the Capital Governance Committee oversees the capital adequacy assessments, forecasting, and stress testing processes and activities of the Corporation and its subsidiaries, including the annual CCAR exercise. Accordingly, the Capital Governance Committee provides oversight with respect to the linkage of the Corporation’s material risks to capital planning and stress testing. The charters for the Audit, Business Risk, Business StrategyCapital Governance 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 sectionsections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk ManagementManagement” and —Liquidity“—Liquidity and Capital Resources—Liquidity Risk Management” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014.2016.
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:
promote honest and ethical conduct, including fair dealing and the ethical handling of actual or apparent conflicts of interest; |
promote full, fair, accurate, timely and understandable public disclosure about the Corporation; |
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 andBoard is responsible for succession planning. Pursuant toplanning for the Corporate Governance Guidelines and the charter forposition of CEO. The Board, led by the Compensation and Benefits Committee, the Compensation and Benefits Committeeannually conducts an annuala formal management development and succession planning review. Allreview with respect to the position of the Corporation’s directors are invited to,CEO 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 focusofficers. This review focuses on CEO succession planning, as well as developing internal candidates for advancement within the Corporation.
In connection with setting the compensation of the Corporation’s Chairman and CEO, the The Compensation and Benefits Committee andmakes recommendations to the Board concerning management development and succession planning, which recommendations reflect the Board’s annual management development and succession planning review, as well as Committee discussions with and without the performance of the Chairman and CEOCEO. The Corporate Governance Committee discusses succession planning 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 ChairmanCEO and CEO, pursuant to its charter, the Corporate Governance Committee will discuss and make a recommendationrecommends to the Board, after consultation with the Chairman of the Compensation and Benefits Committee, for an appropriate successor.successor under such circumstances.
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 whetherensure the Board has the necessary toolscollective expertise 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.recommendation.
Stockholder OutreachEngagement
The Corporation recognizes the importance of stockholder engagement to help our investors understandengaging with stockholders and other key constituents. Open and constructive dialogue with stockholders helps further their understanding of our performance and strategies and allows us to allow our stockholders to express their viewsreceive direct feedback on issues importantrelating to the Corporation. Accordingly, it is the Corporation’s long-standing practice to engage proactively and routinely engage with stockholders throughout the year. This practice continued in 2016, with our CEO and/or CFO engaging with stockholders representing approximately 40% of our outstanding shares regarding matters pertaining to the Corporation’s performance, strategies and governance.
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 nonmanagementindependent 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 controlsThe Corporation’s Corporate Secretary will forward communications to the appropriate member or other matters are processed in accordance with procedures adopted bymembers of the Audit Committee.Board. The Corporate Secretary need not forward or retain any communications determined to be mass mailings, routine solicitations for business or contributions, or communications determined not to be relevant to the performance of the duties of the Board.
Securities TradingTransactions Policy and Procedures and Policy Against Hedging
Our securities trading policySecurities Transactions Policy and Procedures 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, 20142016 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 | Shares (1) (2) | Shares under Exercisable Options (3) | Total Beneficial Ownership of Common Stock | Percent of | ||||||||||||||||||||||||
Non-Employee Directors: | ||||||||||||||||||||||||||||||||
Linda Walker Bynoe | 14,178 | — | 14,178 | * | 17,385 | — | 17,385 | * | ||||||||||||||||||||||||
Nicholas D. Chabraja | 16,342 | — | 16,342 | * | ||||||||||||||||||||||||||||
Susan Crown | 33,515 | — | 33,515 | * | 36,722 | — | 36,722 | * | ||||||||||||||||||||||||
Dean M. Harrison (4) | 15 | — | 15 | * | ||||||||||||||||||||||||||||
Dean M. Harrison | 2,042 | — | 2,042 | * | ||||||||||||||||||||||||||||
Jay L. Henderson | 4,000 | — | 4,000 | * | ||||||||||||||||||||||||||||
Dipak C. Jain | 15,314 | — | 15,314 | * | 18,521 | — | 18,521 | * | ||||||||||||||||||||||||
Robert W. Lane | 15,799 | — | 15,799 | * | ||||||||||||||||||||||||||||
Jose L. Prado | 3,819 | — | 3,819 | * | 7,026 | — | 7,026 | * | ||||||||||||||||||||||||
Thomas E. Richards | 1,149 | — | 1,149 | * | ||||||||||||||||||||||||||||
John W. Rowe | 26,915 | — | 26,915 | * | 30,122 | — | 30,122 | * | ||||||||||||||||||||||||
Martin P. Slark | 6,642 | — | 6,642 | * | 9,849 | — | 9,849 | * | ||||||||||||||||||||||||
David H. B. Smith, Jr. (5) | 27,845 | — | 27,845 | * | ||||||||||||||||||||||||||||
David H.B. Smith, Jr. (4) | 30,552 | — | 30,552 | * | ||||||||||||||||||||||||||||
Donald Thompson | — | — | — | * | 1,743 | — | 1,743 | * | ||||||||||||||||||||||||
Charles A. Tribbett III | 14,515 | — | 14,515 | * | 17,722 | — | 17,722 | * | ||||||||||||||||||||||||
Named Executive Officers: | ||||||||||||||||||||||||||||||||
Frederick H. Waddell | 349,127 | 1,084,248 | 1,433,375 | * | 379,029 | 657,075 | 1,036,104 | * | ||||||||||||||||||||||||
S. Biff Bowman | 25,822 | 75,254 | 101,076 | * | 43,741 | 80,265 | 124,006 | * | ||||||||||||||||||||||||
Steven L. Fradkin | 121,372 | 359,191 | 480,563 | * | ||||||||||||||||||||||||||||
William L. Morrison | 109,847 | 396,706 | 506,553 | * | 71,442 | 116,784 | 188,226 | * | ||||||||||||||||||||||||
Michael G. O’Grady | 8,919 | 129,006 | 137,925 | * | 52,587 | 212,261 | 264,848 | * | ||||||||||||||||||||||||
Jana R. Schreuder | 60,757 | 336,700 | 397,457 | * | 76,399 | 192,641 | 269,040 | * | ||||||||||||||||||||||||
All directors and executive officers as a group (26 persons) | 1,041,017 | 3,159,462 | 4,200,479 | 1.77 | % | |||||||||||||||||||||||||||
All directors and executive officers as a group (27 persons) | 1,201,214 | 1,730,842 | 2,932,056 | 1.27 | % |
* 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, 20142016 in the following amounts: Mr. Waddell – 37,99429,437 units; Mr. Bowman – 5,719 units; Mr. Fradkin – 11,8736,949 units; Mr. Morrison – 11,87314,624 units; Mr. O’Grady – 8,854 units; Ms. Schreuder – 11,8738,854 units; and all directors and officers as a group – 124,413122,719 units.
(3) Amount of shares includes options that were exercisable as of December 31, 20142016 and options that become exercisable within sixty days thereafter.
(4) Mr. Harrison was appointed asAmount includes 1,704 shares held in a director of the Corporation effective January 1, 2015.
(5)trust over which Mr. Smith is co-trustee with another individual on two separate trusts. He shares voting and investment power foras co-trustee with one other individual. Amount excludes 500 shares held in onea trust over which Mr. Smith shares voting and 1,704investment power as co-trustee with three other individuals. Amount also excludes 1,362,880 shares held in anothera trust all of which such shares are reflected in the table. HeMr. Smith 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.such shares.
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 2014,2016, 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 afor: (i) one Form 4 filed for Mr. MooneyWilson Leech on August 22, 2014November 28, 2016, which related to report a transaction that should have been reported by July 17, 2014.the exercise of options to purchase 10,142 shares of the Corporation’s common stock and the subsequent sale of such stock, each occurring on November 4, 2016, and (ii) one Form 4 filed for Jane Karpinski on December 14, 2016, which related to the exercise of options to purchase 244 shares of the Corporation’s common stock and the subsequent sale of such stock, each occurring on November 15, 2016. Each of the foregoing Form 4s was filed late due to administrative error.
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, 2014.2016.
Name and Address | Shares | Percent of Class | Shares | Percent of Class | ||||||||||||
The Northern Trust Company (1) | 21,607,614 | 9.3 | % | 20,136,222 | 8.8 | % | ||||||||||
T. Rowe Price Associates, Inc. (2) | 15,322,381 | 6.5 | % | |||||||||||||
The Vanguard Group, Inc. (2) | 13,364,907 | 5.8 | % | |||||||||||||
BlackRock, Inc. (3) | 12,424,815 | 5.3 | % | |||||||||||||
Wellington Management Group LLP (3) | 12,888,691 | 5.6 | % | |||||||||||||
BlackRock, Inc. (4) | 12,866,759 | 5.6 | % |
(1) As of December 31, 2014,2016, 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.shares reported. This aggregate number of shares includes 1,362,880 shares held by the trust
described in footnote 54 to the “Security Ownership by Directors and Executive Officers” table in this Proxy Statement, or less than 0.6%approximately 0.60% of the outstanding common stock. Of thesethe total shares owned, held or controlled by trusts and other fiduciary accounts for which the Bank and its affiliates acted as sole or co-fiduciary, the Bank and its affiliates had sole voting power with respect to 8,427,7707,398,994 shares, or 3.6%3.24% of the outstanding common stock, and they shared voting power with respect to 11,648,71511,263,277 shares, or 5.0%4.93% of the outstanding
common stock. They had sole investment power with respect to 2,153,4022,021,659 shares, or 0.9%0.88% of the outstanding common stock, and they shared investment power with respect to 12,433,10012,056,105 shares, or 5.3%5.27% of the outstanding common stock.
(2) As reported on a Schedule 13G/A filed on February 13, 2015. T. Rowe Price Associates,10, 2017, of the shares reported, The Vanguard Group, Inc. (“Price Associates”Vanguard”) 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 4,575,082336,193 shares, or 2.0%0.15% of the outstanding common stock, and it did not have shared voting power with respect to any such shares. Price Associates38,471 shares, or 0.02% of the outstanding common stock. Vanguard had sole investment power with respect to all such shares.12,997,946 shares, or 5.69% of the outstanding common stock, and shared investment power with respect to 366,961 shares, or 0.16% of the outstanding common stock.
(3) As reported on a Schedule 13G13G/A filed by Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP and Wellington Management Company LLP on February 9, 2017, Wellington Management Group LLP, Wellington Group Holdings LLP, and Wellington Investment Advisors Holdings LLP each had shared voting power with respect to 5,035,273 shares, or 2.20% of the outstanding common stock, and shared investment power with respect to all shares reported. Wellington Management Company LLP had shared voting power with respect to 4,068,954 shares, or 1.78% of the outstanding common stock, and shared investment power with respect to 11,433,428 shares, or 5.00% of the outstanding common stock. None of the entities had sole voting or investment power with respect to any shares reported. Based on the Schedule 13G/A, the securities as to which the Schedule 13G/A was filed are owned of record by clients of one or more investment advisers identified therein directly or indirectly owned by Wellington Management Group LLP.
(4) As reported on a Schedule 13G/A filed on February 6, 2015. OfJanuary 25, 2017, of the shares reported, BlackRock, Inc. (“BlackRock”) had sole voting power with respect to 10,566,30011,074,996 shares, or 4.5%4.84% 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 BoardCorporation has determined that the Corporation will holdheld 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.since 2011. 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, 2015,16, 2017, 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 outlinedThe Corporation’s executive compensation program and the framework used in evaluating and making 2016 compensation decisions for our named executive officers are described in the Compensation Discussion and Analysis that begins on page 2530 of this Proxy Statement,Statement. A proposal regarding the Corporation’s executive compensation programfrequency with which Say-on-Pay votes should be held 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 performanceincluded 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 thatItem 3 in 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.Proxy Statement.
The Board unanimously recommends that you voteFOR this proposal.
ITEM 3—ADVISORY VOTE ON THE FREQUENCY OF STOCKHOLDER VOTES 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, on the frequency with which stockholders shall conduct advisory Say-on-Pay votes on executive compensation, such as the proposal in Item 2 above.
The advisory vote on the frequency of Say-on-Pay votes is a nonbinding vote as to how often Say-on-Pay votes should occur: every year, every two years or every three years. Section 14A of the Exchange Act requires the Corporation to hold an advisory vote on the frequency of Say-on-Pay votes at least once every six years. We most recently held such an advisory vote at our 2011 Annual Meeting of Stockholders. At that meeting, 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 determined that the Corporation would hold Say-on-Pay votes on an annual basis until the next advisory vote on such frequency. The Board continues to believe that an annual Say-on-Pay vote will allow us to obtain information on stockholders’ views of the compensation of our named executive officers on an appropriate basis. Additionally, we believe an annual Say-on-Pay vote aligns with our objective to engage in regular dialogue with our stockholders on corporate governance and executive compensation matters.
Although the Board recommends an annual Say-on-Pay vote, stockholders are not voting to approve or disapprove the Board’s recommendation. Rather, stockholders are being asked to vote on the following resolution:
“Resolved, that the stockholders of Northern Trust Corporation determine, on an advisory basis, that the frequency with which the stockholders shall have an advisory vote on executive compensation set forth in the Corporation’s Proxy Statement for its annual meeting of stockholders is (i) every year, (ii) every two years, or (iii) every three years.”
The choice which receives the highest number of votes will be deemed the choice of the stockholders.
Although the vote on this proposal 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 the frequency with which to hold Say-on-Pay votes.
The Board unanimously recommends that you vote for theEVERY YEAR alternative with respect to the frequency with which the Corporation should hold advisory votes on executive compensation.
Compensation Discussion and Analysis
Our Named Executive Officers
This Compensation Discussion and Analysis describes how we compensate our executives, including our 2016 named executive officers, which consist of the following individuals.
Name | Title | |
Frederick H. Waddell | Chairman and Chief Executive Officer | |
S. Biff Bowman | Chief Financial Officer | |
William L. Morrison | Vice Chairman | |
Michael G. O’Grady | President | |
Jana R. Schreuder | Chief Operating Officer |
The Corporation made a number of leadership changes across the organization in 2016 and 2017 to position the Corporation for continued success and expand the experience of its leaders. Changes affecting our named executive officers include the following: (i) effective October 1, 2016, Mr. Morrison transitioned from President of the Corporation to Vice Chairman, with Mr. Waddell assuming the role of President in addition to his roles as Chairman and Chief Executive Officer; (ii) effective January 1, 2017, Mr. O’Grady assumed the role of President from Mr. Waddell in addition to his role as President of Corporate & Institutional Services (“C&IS”); and (iii) in conjunction with certain other leadership changes, Peter B. Cherecwich, who is not a named executive officer, assumed the role of President of C&IS from Mr. O’Grady, effective February 1, 2017. The titles for our named executive officers provided throughout this Proxy Statement, including the table above, reflect their current titles.
Executive Summary
2016 Financial Performance
In 2014,2016, we remained focused on the performance and achievementsthree pillars 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.strategy:
| ||
| ||
| ||
|
|
|
● |
|
● |
| ||
|
Our overall financial performance compares favorably with that of our peer group discussed on page 39. Our average annual returns on equity for the three- and five-year periods ended December 31, 2016, were 11.1% and 10.5%, respectively, compared to peer-group medians of 9.7% and 9.8%, respectively. Further, our average annual revenue growth of 5.5%, 6.7% and 5.7% for the one-, three- and five-year periods ended December 31, 2016, respectively, significantly outpaced the peer-group medians of (0.1)%, 0.8% and 1.4%.
We achieved these financial results while continuing to maintain strong capital ratios, with all ratios exceeding those required for classification as “well capitalized” under federal bank regulatory capital requirements.
Key Strategic Achievements
Execution on our strategies also was demonstrated through various strategic achievements, including:
● | Further expansion of our client base, business development opportunities and |
● | Continued success in using technology to deliver innovative solutions and improve client experience, as evidenced by multiple awards that we have received with respect to cloud infrastructure, mobile experience, fund administration analytics, client reporting and foreign exchange services; |
● |
growth within our FlexShares
|
● | Continued execution of our location strategy, with more than 30% of our employees in our Bangalore, Limerick, Manila, Pune and Tempe locations as of December 31, 2016; and |
● | Further deepening of our global equity expertise, distinctive research offerings and trading efficiencies. |
2016 Compensation of our Chairman and CEO
For his performance in 2016, Mr. Waddell received total direct compensation—consisting of base salary, short-term annual cash incentive compensation and long-term incentive compensation—of $10,180,000. This compared to $11,000,000 for his 2015 performance, representing a decrease of 7.5%. Further information with respect to the performance factors impacting Mr. Waddell’s compensation for 2016 can be found under “2016 Performance Considerations” beginning on page 40.
The chart below summarizes Mr. Waddell’s total direct compensation for 2015 and 2016. Base salary for 2015 and 2016 reflects Mr. Waddell’s base salary, as determined by the Board in February 2015 and February 2016, respectively. Short-term annual cash incentive compensation represents amounts awarded in February 2016 and February 2017 for 2015 and 2016 performance, respectively. Long-term incentive compensation represents grants relating to 2015 and 2016 performance made in February 2016 and February 2017, respectively. It should be noted that the amounts in the chart below are different than the amounts in the Summary Compensation Table on page 53. The most significant difference is that the long-term incentive award amounts included in the Summary Compensation Table for 2015 and 2016 were granted in February 2015 and February 2016, respectively, for 2014 and 2015 performance. We believe the chart below may be useful in summarizing key incentive compensation decisions made for 2015 and 2016 performance.
As illustrated by the chart below and consistent with our pay for performance philosophy, the Chairman and CEO’s pay mix heavily emphasizes incentive compensation, with the greatest weight placed on long-term incentives. Our long-term incentive mix emphasizes performance-based pay, with half of the long-term incentives being awarded in performance stock units earned based on our return on equity over a three-year period, one-quarter being awarded in stock options and one-quarter being awarded in restricted stock units.
Compensation Governance Practices
We have implemented the compensation practices summarized below to ensure that our compensation program is effective in addressing stockholder objectives.
What We Don’t Do | ||||||
✓ | Ensure our executives meet robust stock ownership guidelines | No excise tax gross-ups for any new executive severance agreements | ||||
✓ | Ensure performance-based compensation comprises the most significant portion of incentive compensation | × | No short selling, margining, hedging, pledging or hypothecating company shares permitted under our Securities Transactions Policy and Procedures | |||
✓ | Position target pay at median levels among peer group companies | × |
| |||
✓ | Subject long-term incentive awards granted to named executive officers | ×
| ||||
No dividend equivalents distributed on unvested performance or restricted stock | ||||||
✓ | Use an independent compensation consultant to advise the Compensation and Benefits Committee | |||||
✓ | Closely align pay |
Guiding Principles for Executive Compensation
The Corporation’sOur 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’sour executive compensation program and compensation decisions are framed by the four core valuesguiding principles described below.
Linked to Long-Term Performance
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.
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.
Aligned with Stockholder Interests
The 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 incentive compensation is the most significant component of overall compensation, as it provides the majority of named executive officers’ 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 the Corporation.
Supporting the alignment with stockholders’ interests, the 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. Each executive officer is expected to meet his or her respective minimum ownership level within five years of becoming an executive officer. Until such time as any 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. As of December 31, 2014, the Chairman and CEO and each other named executive officer met or exceeded the Corporation’s stock ownership guidelines.
Stock Ownership Guidelines
| ● Performance stock units based on three-year return on equity constitute 50% of long-term incentive compensation | |
| ● Majority of pay delivered in long-term incentives (approximately 64% of the Chairman and CEO’s total direct compensation) ● Executives are subject to robust stock ownership guidelines | |
| ● Compensation levels are developed with reference to a peer group of comparable companies | |
| ● Long-term incentives are subject to potential forfeiture and clawback in the event of a restatement of our financial statements and certain types of misconduct ● Short-term cash incentive compensation awards are capped ● Compensation and Benefits Committee can exercise negative discretion to reduce incentives ● Compensation program balances short-term and long-term performance objectives |
Positioned Competitively in the MarketplaceRisk Management
We believe a competitive executiveA key objective of our compensation program is key to attracting, motivating and retainingensure that the best executive talent. Therefore, the Compensation and Benefits Committee evaluates the competitiveness of the Corporation’s named executive officerincentive 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 of varying size. The peer group specifically excludes certain direct competitors whose size or scope are significantly larger and might distort the appropriate pay 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. The Corporation’s peer group was established based in part on data and analysis provided by management’s executive compensation consultant, Towers Watson.
The banks identified below comprise the Corporation’s peer group:
|
|
|
|
|
|
|
|
|
The Compensation and Benefits Committee believes that this group of peer companies fairly represents a range ofdesign does not encourage inappropriate risk-taking. We have considered our competitors and certain other U.S. banking organizations and is an appropriate group of companies against which the Corporation can gauge the competitiveness of the Corporation’s executive compensation program for the named executive officers. The Committee regularly reviews the composition of the 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. No modifications have been made to the peer group since 2011.
Discourage Inappropriate Risk-Taking
The Corporation has considered its incentive compensation program in light of the guidance provided by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) with respect to sound incentive compensation policies at banking organizations. The Corporation believes itsfinancial institutions. We believe our compensation arrangements discourage inappropriate risk-taking behavior,are consistent with our safety and soundness, in part because the Corporation iswe are not involved with many of the lines of business that have exposed other financial institutions to excessive risk, such as significant proprietary derivatives trading or origination or securitization of subprime mortgage loans.risk.
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 portion50% 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 withto named executive officers are provided in performance stock units. Performance stock units, which contain meaningful performance targets for named executive officers and are payable in shares if thesethose 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 than stock options to short-term fluctuations in share value than stock options. To further reinforce the important role of effective risk management in our compensation framework,value. All long-term incentive compensation is the most significant element of compensation for senior management. All grants of long-term equityawards vest over a multi-year period and have an inherent risk adjustment factor based on changes in the value of the Corporation’sour common stock. Consistent with the Corporation’s risk-mitigation strategies for its compensation programs, since 2012 allAll long-term incentive compensation arrangements for named executive officers from February 14, 2012, through February 20, 2017, have 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-basedincluded forfeiture and clawbackrecoupment provisions. On February 20, 2017, we adopted a Policy on Recoupment containing similar forfeiture and recoupment provisions were included in restricted stock unit awards.applicable to long-term incentive compensation arrangements entered into on or after such date. Further information with respect to these provisions for our named executive officers can be found under “Other Compensation Practices—Forfeiture and Recoupment.”
The Compensation and Benefits Committee annually reviews management’s assessment of the effectiveness of the design and performance of the Corporation’sour incentive compensation arrangements and practices in providing risk-taking incentives that are consistent with the organization’s safety and soundness.soundness of the Corporation and its subsidiaries. This assessment includes an evaluation of whether the Corporation’sour incentive compensation arrangements and practices discourage inappropriate risk-taking behavior by participants. WeIn connection with the Committee’s assessment, the Corporation’s Chief Risk Officer presents an annual incentive compensation risk performance review, discussing his observations and assessments of risk performance for the performance year for the Corporation and each of its significant businesses. The Committee will continue to monitor and, if necessary, revise our incentive compensation program to ensure that it continues to balance appropriately balance the objectives of stockholders, the needs of the business and risk concerns.
Pursuant to its charter, the Compensation and Benefits Committee is required to have at least one member who is a member of the Business Risk Committee and at least one member who is a member of the Audit Committee. This overlap in composition is intended to ensure that compensation decisions reflect the input of the Audit and Business Risk Committees.
Executive Compensation Program Elements
The table below provides a brief description of the elements of our compensation program and how each element helps address our guiding principles for executive compensation.
Element | Link to Compensation Philosophy | Rationale/Key Features | ||
Base Salary | ● Targeted at competitive levels among peer group companies. | ● Base salaries provide a fixed level of income consistent with a named executive officer’s position and responsibilities, competitive pay practices, and internal equity principles. | ||
Short-Term Annual Cash Incentive | ● Total incentive funding is established as a percentage of pre-tax income. ● Targeted at competitive levels among peer group companies. | ● The Compensation and Benefits Committee determines annual incentive funding and awards based on both quantitative and qualitative considerations, including the individual performance of each executive officer and internal equity principles. | ||
Long-Term Incentive Compensation | ● Linked to long-term performance. ● Aligned with stockholders’ interests by motivating executive officers to act as owners. ● Targeted at competitive levels among peer group companies. | ● Long-term incentives are the most significant element of overall compensation. ● Long-term incentive compensation is comprised of performance stock units (50%), restricted stock units (25%) and stock options (25%). The number of shares that is paid out upon the vesting of a performance stock unit award is determined based on our return on equity. | ||
Retirement, Health and Welfare Benefits | ● Targeted at competitive levels among peer group companies. | ● Benefits are designed with broader employee populations in mind and are not specifically structured for executive officers. |
Additional information with respect to each of the four principal elements of our compensation program can be found beginning on page 44.
Determining Awards
Role of the Compensation and Benefits Committee
During its February meeting each year, the Compensation and Benefits Committee determines the appropriate level of compensation for all executive officers. The Committee considers all elements of the Corporation’sour executive compensation program holistically rather than each compensation element
individually, and makes executive compensation decisions after careful review and analysis of financial and nonfinancial performance information, as well as historical and market compensation data. The Committee also considers the impact that compensation decisions may have on the potential value of other pay and benefit programs.
The Committee has the discretion to determine compensation in the context of individual performance in nonfinancial areas that are important to long-rangelong-term 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:
|
prevailing market trends; |
|
cross-function executive assignments; and |
risk management objectives. |
TheAs discussed under “2016 Compensation Decisions and Design—2016 Performance Considerations” beginning on page 40 of this Proxy Statement, the Committee also evaluates the performance of theour Chairman and CEO against his objectives for the past 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
The Chairman and CEO presents the Compensation and Benefits Committee with recommendations on the total compensation for each of the Corporation’sour other executive officers based in part upon competitive market data provided by management’s executive compensation consultant.for our peer group. The Chairman and CEO’s evaluations of the other executive officers are based on performance against the past year’s performance expectations, and are comprised of a mix of objectivefinancial and subjectivenonfinancial performance factors, which are not formulaically weighted or scored. With input from the Corporation’sour Chief Risk Officer, the Chairman and CEO also evaluates each of the other executive officer’s performance with regard to business risks and individual adherence to risk and compliance policies and procedures. The Committee gives substantial weight to the recommendations of the Chairman and CEO, but retains the ultimate oversight and responsibility to set compensation for all executive officers.officers, except for the Chairman and CEO, whose compensation is set by the Board with consideration given to the recommendations of the Committee.
Role of Human Resources
The Human Resources function provides materials to assist the Compensation and Benefits Committee in making executive compensation decisions, including current and historical compensation data for executive officers. The Corporation’sOur Executive Vice President, Human Resources attends and participates in all Committee meetings. The Human Resources function also assists the Chairman and CEO in formulating his compensation recommendations for all other executive officers. The Human Resources function provides historical and current market data for executive pay in the industry and information concerning the historical and current compensation of executive officers and the comparison of stock ownership measured against the Corporation’s stock ownership guidelines.officers.
Role of the Compensation and Benefits Committee’s Independent Compensation Consultant
In February 2014, theThe Compensation and Benefits Committee has retained Compensation Advisory Partners (“CAP”), a nationally recognized executive compensation and benefits consulting firm, to replace Aon Hewitt as its independent compensation consultant. The Committee confers with its 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. The Committee also references market data provided by its independent compensation consultant when considering compensation for executive officers. A representative of CAP attended all meetings of the Committee during which 2014 executive compensation decisions were made.2016. CAP provides insights into compensation trends and market practices, presents views on the compensation proposed by the Committee and participates in Committee meeting discussions and executive sessions.
Use of Peer Group and Market Data
To help to inform its decision-making, the Compensation and Benefits Committee reviews peer group data regarding competitive pay levels in the market place. The peer group currently utilized by the Committee consists of the Corporation’s two most comparable trust and custody peers—The Bank of New York Mellon Corporation and State Street Corporation—as well as certain other banking, wealth management and asset management firms similar to the Corporation in certain respects, but not necessarily representing direct business competitors. This peer group, reflected below, was developed by the Committee, working with CAP and management’s executive compensation consultant, Towers Watson, in 2015 and was used when setting 2016 base salaries and determining the size of short-term annual cash incentive awards and long-term incentive grants made in 2017 and 2016 based on 2016 and 2015 performance, respectively. The Compensation and Benefits Committee usesbelieves that the current peer group data to assessprovides the competitivenessCommittee with a representative view of the market for executive talent and reflects our business mix, complexity and global footprint.
Current Peer Group | ||
● Comerica Incorporated | ● State Street Corporation | |
● Fifth Third Bancorp | ● SunTrust Banks Inc. | |
● Franklin Resources, Inc. | ● T. Rowe Price Group, Inc. | |
● Invesco Ltd. | ● The Bank of New York Mellon Corporation | |
● KeyCorp | ● The PNC Financial Services Group, Inc. | |
● Legg Mason, Inc. | ● U.S. Bancorp |
When making compensation paiddecisions, the Compensation and Benefits Committee considers how the recommended compensation levels will compare to executive officers. The Corporation does not use peerthe median 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 executive officers. With respect to 2014 compensation, the Committee considered the Corporation’s performance relative to our peers across various performance and financial measures. Weighing these measures, the Committee determined that the Corporation’s overall performance generally compared favorably tocomparable positions among the peer group performance.companies. The Committee took these comparisons into account generallyalso considers market data for comparable positions reported in making itscertain financial services industry surveys. However, the Committee recognizes that the compensation decisions for 2014.levels may vary from market median compensation levels based on our performance or specific individual circumstances, including the executive’s tenure in the role, the nature of the responsibilities of the executive and the executive’s individual performance.
The Committee regularly reviews the composition of the Corporation’s peer group and will make further updates, as appropriate, based on changes within the peer group companies, industry consolidation and the Corporation’s own evolving global presence.
Deductibility of Executive Compensation
The CorporationCompensation and Benefits Committee views the tax deductibility of executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (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 assureensure deductibility if that can be accomplished without sacrificing flexibility or other important elements of the overall executive compensation program. For example, the Committee approves all short-term annual cash incentives for U.S.-based executive officers under the provisions of the stockholder-approved Management Performance Plan to ensure such awards qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code.
Elements of the Corporation’s2016 Advisory Vote on Executive Compensation Program
There are four principal elementsOur 2015 named executive officer compensation was approved on an advisory basis by our stockholders at our April 19, 2016 Annual Meeting of Stockholders. Approximately 90% of the Corporation’svotes present and entitled to vote at the meeting, together with abstentions, supported approval of 2015 named executive officer compensation. Although such advisory votes are nonbinding, the Board reviews and thoughtfully considers the voting results when determining compensation program, eachpolicies and making future compensation decisions for named executive officers. Additionally, as mentioned under “Corporate Governance—Stockholder Engagement” beginning on page 23 of whichthis Proxy Statement, it is discussed below. In making determinations regarding these compensation elements,our practice to engage proactively and routinely with stockholders throughout the year to help further their understanding of our performance and strategies and to allow us to receive direct feedback on issues relating to the Corporation. The decisions made by the Board and the Compensation and Benefits Committee’s overall goal is to establish total executive compensation that appropriately rewards performance, aligns with stockholders’ interests, and positions the Corporation competitively in the marketplace for executive talent. While the Committee’s determinationsCommittee with respect to these elements may compensation in 2016—including the decision to maintain the overall structure of our executive compensation program—reflect unique characteristicsthe Board and the Committee’s belief, based on the results of the advisory vote on 2015 named executive officer compensation and our ongoing dialogue with stockholders, that element (for instance,our stockholders generally support our overall executive compensation program.
2016 Compensation Decisions and Design
2016 Performance Considerations
In determining total compensation for the named executive officers, the Compensation and Benefits Committee considered a variety of performance factors. The Committee considered the Corporation’s 2016 financial performance, as well as how well each officer fulfilled his or her individual performance objectives. Further detail with respect to factors considered in determining the casetotal compensation for the named executive officers is set forth below.
Frederick H. Waddell
As the Corporation’s Chairman and CEO, Mr. Waddell is responsible for, among other things: developing and implementing our corporate strategies; managing and developing our senior leaders; and embodying our guiding principles of annual cash incentives,service, expertise and integrity. In determining his compensation for 2016, the Compensation and Benefits Committee and the Board considered the performance of the Corporation),Corporation under Mr. Waddell’s leadership, as well as how well Mr. Waddell fulfilled his specific individual performance objectives. Mr. Waddell’s individual performance
objectives are set in February of each year at the Committee’s overall decision-making is governed by a collective evaluationdirection of the elementsCompensation and Benefits Committee and the full Board. Mr. Waddell’s individual performance objectives are divided into the following three categories: Operating Performance, Client Development and Satisfaction and Leadership Development. In January of each year, the Compensation and Benefits Committee and the Board evaluate an assessment of Mr. Waddell’s performance against the individual objectives established in February of the prior year. The Committee and the Board consider not only whether Mr. Waddell satisfied each of his individual performance objectives, but also how he satisfied such objectives. The Committee and the Board also consider whether Mr. Waddell appropriately prioritized his individual performance objectives with his other responsibilities as Chairman and CEO, recognizing that the needs of the Corporation and its stockholders evolve as a given performance year progresses.
In determining Mr. Waddell’s compensation with a view toward establishing an appropriate levelfor 2016, the Compensation and Benefits Committee and the Board considered the following performance factors, many of total executive compensation.which correlate to the individual performance objectives established for Mr. Waddell in February 2016:
Operating Performance
Growth in our net income, with net income in 2016 exceeding $1.0 billion for the first time in the Corporation’s history. |
● | Improvement in our return on equity from 11.5% in 2015 to 11.9% in 2016, continuing a multi-year trend of moving further within our target range. |
● | Our continued financial strength, including our strong balance sheet demonstrating high asset quality, ample liquidity and a strong capital base. |
● | Growth in our trust, investment and other servicing fees from $3.0 billion to $3.1 billion, an increase of |
● | Our pre-tax margin of 30.6% and noninterest expense as a percentage of |
● | Mr. Waddell’s oversight of the CCAR process and 2016 capital plan, which was not objected to |
Client Development and Satisfaction
● | Mr. Waddell’s role in maintaining and developing client relationships across the globe through client outreach and engagement efforts. |
● | Our continued high levels of client satisfaction. |
● | Mr. Waddell’s oversight of our continued efforts to respond to new regulations impacting the financial sector and our clients, including the implementation of U.S. money market mutual fund reform. |
● | Mr. Waddell’s contributions to our strong new business performance in 2016. |
● | Mr. Waddell’s oversight of our progress in the areas of building data platforms, digital innovation and process optimization, all of which support the evolving requirements of our clients and client growth. |
Leadership Development
● | Mr. Waddell’s role in overseeing the various leadership changes discussed under “Our Named Executive Officers” on page 30, including Mr. Morrison’s transition to Vice Chairman, effective October 1, 2016, and Mr. O’Grady’s appointment as |
● | Mr. Waddell’s role in developing senior leaders, maintaining a strong group of leaders in our succession plans and attracting and retaining talent throughout the Corporation, particularly in 2016 within Wealth Management. |
● | Mr. Waddell’s role in advancing diversity and inclusion initiatives across the Corporation and driving our high level of employee engagement and low levels of employee turnover. |
S. Biff Bowman
As the Corporation’s 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 2016 compensation, the Compensation and Benefits Committee considered how well Mr. Bowman fulfilled his responsibilities in 2016. In doing so, the Committee considered the following performance factors:
● | Mr. Bowman’s contributions to our 2016 financial performance, including with respect to: |
● | Improvement in our return on equity from 11.5% in 2015 to 11.9% in 2016; |
● | Growth in our diluted earnings per share from $3.99 in 2015 to $4.32 in 2016, an increase of 8%; and |
● | Our pre-tax margin of 30.6% and noninterest expense as |
● | Our continued financial strength, with ample liquidity and a high-quality securities portfolio contributing to sound credit ratings. |
● | Mr. Bowman’s role in our successful offering of $500.0 million of our Series D Non-Cumulative Perpetual Preferred Stock. |
● | Mr. Bowman’s contributions to our CCAR process, capital management policies and 2016 capital plan, which was not objected to by the Federal Reserve, enabling us to return $754.7 million in capital to common stockholders in 2016 through quarterly dividends and share repurchases. |
● | The strength of our investor relations program and Mr. Bowman’s contributions to the quality of our dialogue with stockholders. |
William L. Morrison
Effective October 1, 2016, Mr. Morrison was named Vice Chairman of the Corporation. Prior to such date, Mr. Morrison served as President. As the Corporation’s President, Mr. Morrison was primarily responsible for driving business growth and overseeing the Corporation’s client-facing businesses and corporate marketing and strategy functions. To determine Mr. Morrison’s 2016 compensation, the Compensation and Benefits Committee considered how well Mr. Morrison fulfilled these responsibilities in 2016. In doing so, the Committee considered the following performance factors:
● | Continued growth in each of our client-facing businesses, with the Corporation’s total consolidated revenue growing from $4.7 billion in 2015 to $5.0 billion in 2016, an increase of 6%. |
● | Growth in trust, investment and other servicing fees from 2015 to 2016 of 5% within our C&IS business and 3% within our Wealth Management business. |
● | Our continued high levels of client satisfaction, which helped drive strong new business results for our C&IS and Wealth Management businesses. |
● | Mr. Morrison’s role in overseeing the comprehensive brand refresh implemented by the Corporation during 2016. |
In connection with his transition to Vice Chairman, the Compensation and Benefits Committee awarded Mr. Morrison a $1,500,000 retention award consisting of 21,142 restricted stock units, effective October 18, 2016. This award reflects expectations for Mr. Morrison’s continued contributions to the Corporation. Pursuant to its terms, 100% of such retention award will vest on October 18, 2018. The award will be forfeited if Mr. Morrison retires or voluntarily terminates his employment prior to such date.
Michael G. O’Grady
Effective January 1, 2017, Mr. O’Grady assumed the role of President of the Corporation. Prior to such date, including for the entirety of 2016, Mr. O’Grady served as President of C&IS. As the Corporation’s President of C&IS, Mr. O’Grady was primarily responsible for the overall performance of such business. To determine Mr. O’Grady’s 2016 compensation, the Compensation and Benefits Committee considered how well Mr. O’Grady fulfilled these responsibilities in 2016, as well as his appointment as President. In doing so, the Committee considered the following performance factors:
● | Mr. O’Grady’s role in implementing C&IS’s long-term growth strategies. |
● | Growth in C&IS assets under custody/administration from $7.3 trillion at December 31, 2015 to $8.0 trillion at December 31, 2016, a 10% increase. |
● | Growth in C&IS trust, investment and other servicing fees from $1.7 billion in 2015 to $1.8 billion in 2016, an increase of 5%. |
● | Growth in C&IS revenue, on a fully taxable equivalent basis, from $2.5 billion in 2015 to $2.7 billion in 2016, an increase of 8%. |
● | Growth in C&IS net income |
● | Continued expansion of C&IS product capabilities to |
Jana R. Schreuder
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 2016 compensation, the Compensation and Benefits Committee considered how well Ms. Schreuder fulfilled her responsibilities in 2016. In doing so, the Committee considered the following performance factors:
● | Ms. Schreuder’s leadership in progressing initiatives designed to enable sustainable and profitable growth of |
● | Ms. Schreuder’s contributions to our efforts to deliver increased productivity, high-value service and innovative solutions for clients using emerging technologies. |
● | Our continued introduction of agile solutions to enable our success in an increasingly complex, fast-paced and digitally connected global environment. |
● | Ms. Schreuder’s role in the |
● | Our pre-tax margin of 30.6% and noninterest expense as a percentage of trust, investment and other servicing fees of 112% in |
● | The recognition we have received for |
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.
The Committee uses discretion in determining base salaries. It does not take a formulaic approach to setting base salary levels but considerssalaries, considering the following factors:
individual performance over the prior year relative to established goals and expectations for the position; |
targeted base salary levels that balance market pay |
experience and qualifications of the individual executive; |
the executive officer’s tenure in the position or a position of similar level; and |
significant changes in assignment or scope of responsibility. |
For new and recently promoted executives, the Committee’s approach is to gradually increase incrementally base salary to the appropriate target pay level as the executive officer gains experience and tenure in the new position.
In February 2016, based on competitive salary market data among our peer group companies and to account for additional experience and tenure in their current roles, the Committee increased the base salary for: Mr. Bowman — from $550,000 to $625,000; Mr. O’Grady — from $600,000 to $625,000; and Ms. Schreuder — from $675,000 to $750,000. No other named executive officer’s base salary was increased in 2016.
Short-Term Annual Cash Incentive
Annual cash incentives provide an opportunity for our executive officers to receive additional cash compensation based on the Corporation’sour financial performance, as well as each executive officer’s individual performance. The overall 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.
Actual incentive allocations under the funded pool to each named executive officer are made 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 each position.
The Compensation and Benefits Committee determines and approves annual cash incentives for the Corporation’s executive officers under the provisions of the stockholder-approved Management Performance Plan. These awards are intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. The maximum funding for each officer’s annual cash incentive award under the Management Performance Plan is a percentage of the consolidated net income generated by the Corporationus in the applicable year. The annual cash incentive maximums for executive officers are as follows:
annual cash incentives for the Chairman and CEO may not exceed 0.6% of consolidated net income; |
annual cash incentives for the President, |
annual cash incentives for all other executive officers may not exceed 0.3% of consolidated net income; and |
no annual incentives can be paid in the absence of positive net income. |
While the Corporation’s net income establishes the maximum annual cash incentive that may be paid to an officer, theThe final determination of annual cash incentives is not tied to any specific formula. Instead,formula, rather the process that the Compensation and Benefits Committee uses to determine incentives relies on a discretionary assessment of quantitative and qualitative performance criteria for Northern Trust as a whole, specific businesses and individual executive officers. The Committee believes that its use of discretion:
● | allows the Committee to assess performance holistically across multiple dimensions of performance; |
● | provides for a year-end assessment of how challenging the operating environment was and how well we performed relative to our direct peers; and |
● | ensures that the Committee has the ability to adjust incentives for how results were achieved (i.e., degree of risk taken, sustainability of results). |
In determining overall annual incentive funding and how incentives will be allocated among different businesses, the Committee exercisesconsiders the following factors:
● | Our overall financial performance, with a focus on key metrics, including: |
● | Pre-tax income relative to plan and prior year |
● | Return on equity |
● | The performance of individual businesses in the following areas: |
● | Growth (fees and revenue) |
● | Productivity (expense management and ratio of noninterest expense to trust, investment and other servicing fees) |
● | Profitability (pre-tax margin and return on equity) |
● | Risk management |
● | Internal equity principles |
The Committee then uses negative discretion to set the final award. In applying negative discretion in 2015 for 2014awards based on consideration of our overall performance, the individual executive officer’s performance, internal equity principles and peer group compensation levels. Using this process, the Committee consideredrecommended the Corporation’s overall performance results, each officer’s individual performanceshort-term cash annual incentive for our Chairman and CEO to the Board for approval. For the other named executive officers, the Chairman and CEO recommended a short-term cash annual incentive award data reportedwhich was approved by peer firms, adjustedthe Committee. The table below summarizes the 2016 short-term annual cash incentives for size.the named executive officers awarded in February 2017, along with 2015 short-term annual cash incentives awarded in February 2016 for comparative purposes.
Short-Term Annual Cash Incentives | ||||||||||
Executive | Title | 2016 | 2015 | |||||||
Frederick H. Waddell | Chairman and Chief Executive Officer | $ | 2,700,000 | $ | 2,800,000 | |||||
S. Biff Bowman | Chief Financial Officer | 825,000 | 850,000 | |||||||
William L. Morrison | Vice Chairman | 1,200,000 | 1,400,000 | |||||||
Michael G. O’Grady | President | 955,000 | 1,000,000 | |||||||
Jana R. Schreuder | Chief Operating Officer | 950,000 | 1,000,000 |
Long-Term Incentive Compensation
Long-term incentive compensation is the most significant element of overall compensation and is designed to reward the performance of executive officers over time. Under the current plan design,For long-term incentive compensation takesawards made in February 2017 and February 2016 for performance in 2016 and 2015, respectively, we have granted the formlong-term incentive awards to named executive officers as a mix of 50% performance stock units, 25% restricted stock units and 25% nonqualified stock options. The relative mix of these components is as follows.
In February 2017, the Compensation and Benefits Committee emphasizesestablished long-term incentivesincentive award opportunities for our Chairman and Chief Executive Officer and approved long-term incentive recommendations for our other named executive officers after receiving input from our Chairman and CEO. In establishing long-term incentive award opportunities for our named executive officers, the Committee considers an executive’s performance, as well as potential for future contributions to align compensation with the interestsorganization, while also taking into account internal equity principles.
The table below summarizes the long-term incentive awards for our named executive officers made in February 2017 and February 2016 for performance in 2016 and 2015, respectively.
Long-Term Incentive Awards | ||||||||||
Executive | Title | 2016 | 2015 | |||||||
Frederick H. Waddell | Chairman and Chief Executive Officer | $ | 6,480,000 | $ | 7,200,000 | |||||
S. Biff Bowman | Chief Financial Officer | 2,025,000 | 2,250,000 | |||||||
William L. Morrison | Vice Chairman | 1,200,000 | (1) | 3,500,000 | ||||||
Michael G. O’Grady | President | 3,150,000 | 2,250,000 | |||||||
Jana R. Schreuder | Chief Operating Officer | 2,925,000 | 3,000,000 |
(1) Amount excludes a retention award granted to Mr. Morrison effective October 18, 2016 in the amount of $1,500,000, as discussed on page 43. The long-term incentive award granted to Mr. Morrison in February 2017 for performance in 2016 reflects his transition to Vice Chairman, effective October 1, 2016.
Performance Stock Units.Performance stock units make up 50% of our long-term incentive award opportunity and typically the largest portion of the stockholders.total compensation mix for our named executive officers. Our performance stock units are earned based on our average return on equity
performance over a three-year period relative to pre-established goals. Return on equity is the primary financial performance metric used internally and externally to assess our long-term performance. The Committee believesfollowing charts illustrate the vesting requirements for the performance stock unit grants to named executive officers in 2016 and 2017.
Performance Stock Unit Performance Schedule February 2016 Grants | Performance Stock Unit Performance Schedule February 2017 Grants | |||||||||||||
Average Annual Rate of Return on Equity | Percentage of Stock Units Vested | Average Annual Rate of Return on Equity | Percentage of Stock Units Vested | |||||||||||
Less than 7.5% | 0% | Less than 7.5% | 0% | |||||||||||
7.5% | 50% | 7.5% | 25% | |||||||||||
11.0% | 100% | 9.0% | 50% | |||||||||||
13.0% | 115% | 12.0% | 100% | |||||||||||
³ 15.0% | 125% | ³ 15.0% | 150% |
As it is possible that there will be no payout under the performance stock units, these awards are completely “at-risk” compensation. Since performance stock units were reintroduced as an element of the Corporation’s long-term incentive compensation encourages executivesprogram in 2012, the average annual rate of return on equity required for awards to act as ownersbecome 100% vested has increased from 8.0% to 12.0%. These increases emphasize the “at-risk” element of these awards.
On January 17, 2017, shares of common stock underlying performance stock units granted in 2014 were distributed. The number of shares distributed was equal to 106.6% of target based on the Corporation’s average annual return on equity of 11.1% during the three-year performance period ended December 31, 2016.
Further discussion with an equity stakerespect to the performance stock units granted to our named executive officers is set forth in the Corporation, discourages inappropriate risk-taking“Description of Certain Awards Granted in 2016” section beginning on page 57 of this Proxy Statement.
Restricted Stock Units.Restricted stock units are an effective tool to align executives with stockholder interests by making them owners of our stock. Another critical aspect of our restricted stock unit design is that they generally vest over four years, with 50% vesting at the third anniversary of grant and contributesthe remaining 50% vesting at the fourth anniversary of grant. This vesting schedule is effective in helping us to continuityretain critical talent and stability withinensuring that executives have significant outstanding unvested equity value over the Corporation’s leadership.course of their careers. Further discussion with respect to the restricted stock units granted to our named executive officers is set forth in the “Description of Certain Awards Granted in 2016” section beginning on page 57 of this Proxy Statement.
The Committee considers a varietyStock Options.Stock options are included as part of individual factors to determine the actual dollar value ofour long-term incentive compensation for each executive officer. The dollar value of equity compensation generally has been defined as 100% of the fair market value at the time of grant for allto ensure that our executives remain focused on increasing our stock price over time. When used in combination with performance stock units and restricted stock units, and one-third of the fair market value of the shares underlying grants of stock options at the timehelp to ensure that executives will take a balanced view towards risk-taking. The key features of grant for all stock options. These guidelines also applied to long-term incentive awards granted in 2015 for 2014 performance, with the exception of the dollar value ofour stock option grants, which were valued at 30% of the fair market value of the shares underlying such grants at the time they were made.
The Committee has flexibility in determining the value of total long-term incentive compensation for each executive officer based on a review of objective 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 long-term incentive compensation reported by peer banks, the followingprogram are the specific objective and subjective factors considered by the Committee in setting total 2014 and 2015 long-term incentive compensation for each executive officer:summarized below:
|
|
|
|
option awards vest 25% per year over the |
|
|
|
In February 2014 for 2013 performance,It is the view of the Compensation and Benefits Committee that stock options are a performance-based form of compensation, as they only have value to the extent that the stock price appreciates from the grant date price. The Committee also believes that with a ten-year term, stock options encourage executives to focus on long-term, sustainable performance. Further discussion with respect to the stock options granted to our named executive officers receivedis set forth in the following dollar“Description of Certain Awards Granted in 2016” section beginning on page 57 of this Proxy Statement.
Total Direct Compensation for 2016 and Overall Pay Mix
The table below provides a comprehensive summary of each named executive officer’s total direct compensation for 2016. Base salary reflects the applicable named executive officer’s salary, as determined in February 2016. Short-term annual cash incentive compensation represents amounts of long-termawarded in February 2017 for 2016 performance. Long-term incentive compensation: Mr. Waddell, $6,650,000; Mr. Bowman, $1,650,000; Mr. Fradkin, $2,000,000;compensation represents grants made in February 2017 relating to 2016 performance.
Total Direct Compensation | ||||||||||||||||||||||||||
Executive | Title | Salary | Short-Term Annual | Performance Units | Stock Options | Restricted Stock Units | Total | |||||||||||||||||||
Frederick H. Waddell | Chairman and Chief Executive Officer | $ | 1,000,000 | $ | 2,700,000 | $ | 3,240,000 | $ | 1,620,000 | $ | 1,620,000 | $ | 10,180,000 | |||||||||||||
S. Biff Bowman | Chief Financial Officer | 625,000 | 825,000 | 1,012,500 | 506,250 | 506,250 | 3,475,000 | |||||||||||||||||||
William L. Morrison | Vice Chairman | 800,000 | 1,200,000 | 600,000 | 300,000 | 300,000 | (1) | 3,200,000 | ||||||||||||||||||
Michael G. O’Grady | President | 625,000 | 955,000 | 1,575,000 | 787,500 | 787,500 | 4,730,000 | |||||||||||||||||||
Jana R. Schreuder | Chief Operating Officer | 750,000 | 950,000 | 1,462,500 | 731,250 | 731,250 | 4,625,000 |
(1) Amount excludes a retention award granted to Mr. Morrison $3,250,000; Mr. O’Grady, $2,000,000; and Ms. Schreuder, $2,000,000. The Committee believes that these awards reflect appropriate differentiation amongeffective October 18, 2016 in the officers in lightamount of their respective responsibilities at the time of grant. In addition to internal equity principles, these awards also reflect the Committee’s consideration of each of the factors listed above.$1,500,000, as discussed on page 43.
Other Compensation Practices
Retirement, Health and Welfare Benefits
Retirement benefits are generally designed with the Corporation’sour entire workforce in mind and are not specifically structured for the executive officers. The design of the Corporation’sour retirement program for employees, including executive officers:
reflects competitiveness in that |
encourages employees to contribute to their individual retirement savings through participation in TIP and the Northern Trust Corporation Supplemental Thrift-Incentive Plan (“Supplemental TIP”). |
Executive
Our executive officers also participate in the Corporation’sour health and welfare benefits, including medical, retiree medical, dental, disability and life insurance programs, on the same terms as other employees.
Severance Benefits and Employment Security Arrangements
The Corporation providesWe provide a severance plan 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. The Corporation believesWe believe that the availability of severance benefits allows the Corporationus to compete with itsour peer group companies in attracting and retaining talent. Executive officers participate in this plan on the same terms as all other eligible and similarly situated employees.
ExecutiveOur executive officers generally are eligible to receive severance benefits that include:
a lump sum payment of two weeks of base salary for each year of completed service up to, but less than |
a COBRA subsidy based on their length of service to help cover the costs of continuation coverage under the employer’s medical and dental plans, full vesting under TIP, Supplemental TIP, The Northern Trust Company Pension Plan (the “Pension Plan”), and the Northern Trust Corporation Supplemental Pension Plan (the “Supplemental Pension Plan”), enhanced early retirement eligibility under the Pension Plan for employees who have reached age 54 with 14 years of credited service and outplacement assistance. |
These benefits are contingent upon execution of a release, waiver and settlement agreement with us. These benefits are also limited to the Corporation. Severancelesser of two times the applicable executive officer’s salary or two times the maximum amount that may be taken into account under a qualified plan pursuant to Internal Revenue Code Section 401(a)(17). In 2015 and 2016, these limits effectively capped benefits at $530,000. Further, these severance payments willwould 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 haswe have entered into employment security arrangements forwith 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 change in control transaction without undue concern for his or her personal circumstances. The Corporation believesWe believe the employment security agreements are critical to itsour 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 provisionsbenefits for executives are a standard element of a competitive compensation program at peer group companies.
Further discussion with respect to the Corporation’sour 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, 2014,2016, is set forth in the “Potential Payments Upon Termination of Employment or a Change in Control of the Corporation” section beginning on page 6271 of this Proxy Statement.
Perquisites
The Corporation providesWe provide a limited number of perquisites intended to assist executive officers in the performance of their duties on behalf of the Corporation. The Corporation providesWe provide financial consulting and tax return preparation services and personal use of company automobiles as perquisites to itsour executive officers. If circumstances warrant and if pre-approved by theour Chairman and CEO, the Corporation permitswe permit personal
use of companyprivate aircraft on a limited basis. The CorporationWe also reimbursesreimburse 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 our compensation philosophy.
Stock Ownership Guidelines
Supporting our guiding principle of alignment with stockholders’ interests, we have a long-standing practice of emphasizing stock ownership and maintaining robust stock ownership guidelines for named executive officers at or above industry practice. Each executive officer is expected to meet his or her respective minimum ownership level within five years of becoming an executive officer. Until such time as any executive officer meets the compensation philosophyminimum ownership level requirement, he or she is expected to retain 100% of the Corporation.net, after-tax shares received upon vesting of equity awards or stock option exercises. As of December 31, 2016, our Chairman and CEO and each of our other named executive officers met or exceeded our stock ownership guidelines.
Stock Ownership Guidelines | ||||
Expected Ownership as Multiple of Base Salary | ||||
Chairman & CEO | 10x | |||
President, Chief Operating Officer and Vice Chairman | 7x | |||
Chief Financial Officer and Business Presidents | 5x | |||
All Other Executive Officers | 3x |
2014 Advisory Vote on Executive CompensationForfeiture and Recoupment
TheAll awards granted to named executive officers since 2012 under our long-term incentive compensation program are subject to forfeiture or recoupment in the event of a restatement of the Corporation’s financial statements and certain types of misconduct. Such awards also are subject to forfeiture and recoupment provisions relating to “ex-post” risk, meaning risk resulting from the recipient’s inappropriate risk-taking that does not materialize until after the performance period in which such inappropriate risk-taking takes place. Additionally, since 2013, all restricted stock unit awards to named executive officers are subject to forfeiture or recoupment if it is determined that the applicable named executive officer has engaged in inappropriate risk-taking which resulted in certain events deemed to be “significant risk outcomes.” An analysis of significant risk outcomes is completed annually to determine if such significant risk outcomes were tied to inappropriate risk-taking. The results of this analysis are reviewed by the Compensation and Benefits Committee.
With respect to long-term incentive compensation was approved on an advisory basis by its stockholders atawards made prior to February 21, 2017, the Corporation’s April 15, 2014 Annual Meeting of Stockholders. Approximately 86% offoregoing forfeiture and recoupment requirements are contained in the votes cast, together with abstentions, supported approval of 2013 named executive officer compensation. Although such advisory votes are nonbinding,individual award agreements between the Board reviewsCorporation and thoughtfully considers the voting results when determining compensation policies and making future compensation decisions forour named executive officers. Additionally, as mentioned under “Corporate Governance—Stockholder Outreach” beginningForfeiture and recoupment requirements applicable to long-term incentive compensation awards made on page 19 of this Proxy Statement, it isor after such date are contained in 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 viewsPolicy on issues important to the Corporation. Accordingly, the decisions madeRecoupment adopted 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.on February 20, 2017.
Chairman and Chief Executive OfficerHedging Policy
Total ChairmanWe maintain a Securities Transactions Policy and CEO Compensation.The table below summarizes the key compensation decisions made by the Committee for Mr. Waddell, the Corporation’s ChairmanProcedures which, among other things, prohibits directors, employees, and CEO, for the 2014 compensation yearcertain of their family members from engaging in short selling, margining, pledging or hypothecating our securities, and provides a comparison to his 2013 compensation. It should be noted that the amountsfrom trading 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.warrants, puts, calls or similar instruments on our securities.
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:
|
|
|
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:
|
|
|
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:
|
|
|
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:
|
|
|
|
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:
|
|
|
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, 20142016, and this Proxy Statement for the 20152017 Annual Meeting of Stockholders, each of which is filed with the SEC.
Compensation and Benefits Committee
Nicholas D. ChabrajaCharles A. Tribbett III (Chair)
Linda Walker Bynoe
Thomas E. Richards
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.
The following table sets forth the information concerning the compensation paid to or earned by the named executive officers for 2014, 20132016, 2015 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.2014.
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 ($)(7) | Total ($) | Year | Salary ($) | Bonus ($)(2) | Stock Awards ($)(3) | Option Awards ($)(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 | 2016 | $ | 1,000,000 | — | $5,400,067 | $ | 1,637,386 | $ | 2,700,000 | $333,477 | $ | 96,392 | $ | 11,167,322 | ||||||||||||||||||||||||||||||||||
2013 | 975,000 | 4,987,530 | 1,211,083 | 1,900,000 | — | 94,387 | 9,168,000 | 2015 | 993,750 | td,413,689 | 4,987,508 | 1,477,612 | 2,800,000 | — | 87,991 | 12,760,550 | ||||||||||||||||||||||||||||||||||||||||||||||
2012 | 975,000 | 2,333,354 | 1,850,555 | 2,000,000 | 3,839,003 | 85,283 | 11,083,195 | 2014 | 975,000 | — | 4,987,571 | 1,329,507 | 2,300,000 | 2,762,043 | 81,401 | 12,435,522 | ||||||||||||||||||||||||||||||||||||||||||||||
S. Biff Bowman | 2014 | 493,750 | 1,237,506 | 329,879 | 650,000 | 583,444 | 39,759 | 3,334,338 | 2016 | 568,750 | — | 1,687,561 | 511,696 | 825,000 | 434,598 | 26,507 | 4,054,112 | |||||||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
S. Biff Bowman Chief Financial Officer | 2015 | 537,500 | — | 1,500,037 | 444,407 | 850,000 | 31,870 | 20,545 | 3,384,359 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
2014 | 493,750 | — | 1,237,506 | 329,879 | 650,000 | 583,444 | 39,759 | 3,334,338 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
2016 | 800,000 | — | 4,125,062 | 795,963 | 1,200,000 | 218,018 | 39,974 | 7,179,017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
William L. Morrison Vice Chairman | 2015 | 800,000 | 1,206,845 | 2,437,550 | 722,145 | 1,400,000 | — | 35,908 | 6,602,448 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
2014 | 800,000 | — | 2,437,590 | 649,766 | 1,200,000 | 387,764 | 44,155 | 5,519,275 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
2016 | 606,250 | — | 1,687,561 | 511,696 | 955,000 | 80,023 | 24,750 | 3,865,280 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Michael G. O’Grady President | 2015 | 600,000 | 724,107 | 1,500,037 | 444,407 | 1,000,000 | 62,938 | 18,000 | 4,349,489 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
2014 | 600,000 | — | 1,500,013 | 399,854 | 900,000 | 56,828 | 21,135 | 3,477,830 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
2014 | 600,000 | 1,500,013 | 399,854 | 900,000 | 1,363,916 | 31,781 | 4,795,564 | 2016 | 693,750 | — | 2,250,081 | 682,256 | 950,000 | 765,294 | 37,562 | 5,378,943 | ||||||||||||||||||||||||||||||||||||||||||||||
Jana R. Schreuder | 2013 | 600,000 | 1,500,032 | 364,241 | 785,000 | — | 32,923 | 3,282,196 | 2015 | 656,250 | 724,107 | 1,875,028 | 555,495 | 1,000,000 | 8,270 | 34,588 | 4,853,738 | |||||||||||||||||||||||||||||||||||||||||||||
2012 | 600,000 | 700,015 | 555,165 | 825,000 | 1,495,879 | 29,733 | 4,205,792 | 2014 | 600,000 | — | 1,500,013 | 399,854 | 900,000 | 1,363,916 | 31,781 | 4,795,564 |
(1) Positions reflected in this column reflect current positions. As noted above, effective September 1, 2014,In addition to the leadership changes described under “Our Named Executive Officers” on page 30, the Corporation had previously implemented certain leadership changes. Priorchanges in 2014, certain of which were applicable to these changes:our current named executive officers. Namely, prior to September 1, 2014: (i) Mr. Bowman served as Executive Vice President, Human Resources; Mr. Fradkin served as President of C&IS;(ii) Mr. Morrison served as President and Chief Operating Officer; (iii) Mr. O’Grady served as Chief Financial Officer; and (iv) Ms. Schreuder served as President of Wealth Management.
(2) Amounts in this column represent long-term cash incentive awards, granted in February 2012 for 2011 performance, which vested in February 2015. Long-term cash incentive awards were granted to named executive officers in February 2012 due to changes in the long-term incentive compensation plan design and no such awards have been granted since February 2012. The amount of the award granted to each named executive officer in February 2012 is as follows: Mr. Waddell: $2,333,333; Mr. Morrison: $1,166,667; Mr. O’Grady: $700,000; and Ms. Schreuder: $700,000. Amounts in this column also include interest credited on such awards from the date of grant through the vesting date at a rate equal to the mid-term applicable federal rate for the month of February 2012, compounded annually, in accordance with the terms of such awards.
(3) Amounts in this column represent 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”). 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 year ended December 31, 20142016 for a discussion of the assumptions made by the Corporation in the valuation of these stock unit awards. This column includes the following amounts in 20142016 with respect to performance stock units, which are based on achievement of target
performance levels: Mr. Waddell: $3,325,027;$3,600,025; Mr. Bowman: $825,004; Mr. Fradkin: $1,000,009;$1,125,041; Mr. Morrison: $1,625,060;$1,750,005; Mr. O’Grady: $1,000,009;$1,125,041; and Ms. Schreuder: $1,000,009.$1,500,054. If the maximum level of performance were attained, the value of the performance stock units would be as follows: Mr. Waddell: $4,156,298;$4,500,046; Mr. Bowman: $1,031,286; Mr. Fradkin: $1,250,042;$1,406,330; Mr. Morrison: $2,031,356;$2,187,521; Mr. O’Grady: $1,250,042;$1,406,330; and Ms. Schreuder: $1,250,042.$1,875,068. See the narrative under “Description of Certain Awards Granted in 2014”2016” beginning on page 4857 of this Proxy Statement for more information on these awards.
(3) In February 2012 for 2011 performance, the named executive officers were awarded the following long-term cash incentive awards: Mr. Waddell: $2,333,333; Mr. Fradkin: $700,000; Mr. Morrison: $1,166,667; Mr. O’Grady: $700,000; and Ms. Schreuder: $700,000. In February 2015 these awards became fully vested. No such long-term cash incentive awards were granted in 2013 or 2014 due to changes in the long-term incentive compensation plan design.
(4) Amounts in this column represent the grant date fair value of the option awards 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 year ended December 31, 20142016 for a discussion of the assumptions made by the Corporation in the valuation of these option awards. See the narrative under “Description of Certain Awards Granted in 2014”2016” beginning on page 4857 of this Proxy Statement for more information on these awards.
(5) Amounts in this column represent the annual cash incentives earned by the named executive officers in the applicable years under the Management Performance Plan.
(6) Amounts in this column represent the aggregate increase in actuarial present values of accumulated benefits under the Pension Plan and the Supplemental Pension Plan. The increase inAt December 31, 2014, the applicable discount rate used to calculate the pension decreased from 4.25%5.00% down to 5.00% at December 31, 2013 resulted4.25%, resulting in a decreasean increase in the present value of benefits under the Traditional Formula for each named executive officer with 2013 information provided at December 31, 2013 relative to December 31, 2012,2013, except for 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, 2014,2015, the applicable discount rate increased to 4.71%, resulting in a decrease in the present value of benefits under the Traditional Formula. This decrease was more than offset by increases in the present value of benefits attributable to other factors for Mr. Bowman and Ms. Schreuder, while the present value of benefits for Mr. Waddell and Mr. Morrison decreased by $387,577 and $102,918, respectively. At December 31, 2016, the applicable discount rate decreased from 5.00% back down to 4.25%4.46%, resulting in an increase in the present value of benefits under the Traditional Formula. See “Pension Benefits” beginning on page 5564 of this Proxy Statement for additional information.
(7) The following table sets forth a detailed breakdown of the items which comprise “All Other Compensation” for 2014:2016.
Name | Contributions Supplemental TIP ($)(a) | Perquisites ($)(b) | Tax Reimbursements ($)(c) | Total ($) | Contributions to TIP and Supplemental TIP ($)(a) | Perquisites and Other Personal Benefits ($)(b) | Tax Reimbursements ($)(c) | Total ($) | ||||||||||||||||||||||||
Mr. Waddell | $ | 29,250 | $ | 35,829 | $ | 16,322 | $ | 81,401 | $ | 30,000 | $ | 44,424 | $ | 21,968 | $ | 96,392 | ||||||||||||||||
Mr. Bowman | 14,812 | 22,833 | 2,114 | 39,759 | 17,063 | 9,044 | 400 | 26,507 | ||||||||||||||||||||||||
Mr. Fradkin | 18,000 | 4,872 | 476 | 23,348 | ||||||||||||||||||||||||||||
Mr. Morrison | 24,000 | 17,664 | 2,491 | 44,155 | 24,000 | 14,204 | 1,770 | 39,974 | ||||||||||||||||||||||||
Mr. O’Grady | 18,000 | 4,773 | 1,472 | 24,245 | 18,188 | 6,534 | 28 | 24,750 | ||||||||||||||||||||||||
Ms. Schreuder | 18,000 | 13,781 | — | 31,781 | 20,813 | 16,350 | 399 | 37,562 |
(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, includesrepresents financial consulting and tax return preparation services ($16,500) and personal use of company automobiles ($19,329)27,924). With respect to Mr. Bowman, includes relocation expenses ($22,833) relating to an overseas assignment. With respect to Mr. Fradkin, includesrepresents financial consulting and tax return preparation services ($4,335)8,900), including tax preparation
services in conjunction with an overseas assignment, and personal use of company
automobiles ($537)144). With respect to Mr. Morrison, includesrepresents financial consulting and tax return preparation services ($14,850)12,100) and personal use of company automobiles ($2,814)2,104). With respect to Mr. O’Grady, includes personal use of company aircraft ($4,773). With respect to Ms. Schreuder, includesrepresents financial consulting and tax return preparation services ($13,781)6,500) and personal use of company automobiles ($34). With respect to Ms. Schreuder, represents financial consulting and tax return preparation services ($15,740) and personal use of company automobiles ($610).
(c) IncludesRepresents tax reimbursements provided in connection with personal use of company vehiclesautomobiles and, with respect to Mr. Bowman, taxable relocation expenses.expenses relating to an overseas assignment.
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise or Base Price of Option Awards ($/sh) | Grant ($)(5) | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise or Base Price of Option Awards ($/sh) | Grant Date Fair Value of Stock and Option Awards ($)(5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Thres- hold ($) | Target ($) | Maximum ($) | Thres- hold (#) | Target (#) | Maximum (#) | Grant Date | Thres- hold ($) | Target ($) | Maximum ($) | Thres- hold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Waddell | $ | 1,900,000 | $ | 4,870,800 | — | $ | 2,800,000 | $ | 6,195,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 81,964 | $ | 60.85 | $ | 1,329,507 | 2/16/2016 | 110,362 | $ | 58.25 | $ | 1,637,386 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 27,322 | 1,662,544 | 2/16/2016 | 30,902 | 1,800,042 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 27,322 | 54,643 | 68,304 | 3,325,027 | 2/16/2016 | 30,902 | 61,803 | 77,254 | 3,600,025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Bowman | 500,000 | 2,435,400 | — | 850,000 | 3,097,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 20,337 | 60.85 | 329,879 | 2/16/2016 | 34,489 | 58.25 | 511,696 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 6,779 | 412,502 | 2/16/2016 | 9,657 | 562,520 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 6,779 | 13,558 | 16,948 | 825,004 | 2/16/2016 | 9,657 | 19,314 | 24,143 | 1,125,041 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | — | 1,400,000 | 4,130,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1,000,000 | 3,247,200 | 2/16/2016 | 53,649 | 58.25 | 795,963 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 40,058 | 60.85 | 649,766 | 2/16/2016 | 15,022 | 875,032 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 13,353 | 812,530 | 10/18/2016 | 21,142 | 1,500,025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 13,353 | 26,706 | 33,383 | 1,625,060 | 2/16/2016 | 15,022 | 30,043 | 37,554 | 1,750,005 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. O’Grady | 750,000 | 2,435,400 | — | 1,000,000 | 3,097,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 24,651 | 60.85 | 399,854 | 2/16/2016 | 34,489 | 58.25 | 511,696 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 8,217 | 500,004 | 2/16/2016 | 9,657 | 562,520 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 8,217 | 16,434 | 20,543 | 1,000,009 | 2/16/2016 | 9,657 | 19,314 | 24,143 | 1,125,041 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ms. Schreuder | 785,000 | 3,247,200 | — | 1,000,000 | 4,130,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 24,651 | 60.85 | 399,854 | 2/16/2016 | 45,985 | 58.25 | 682,256 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 8,217 | 500,004 | 2/16/2016 | 12,876 | 750,027 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 8,217 | 16,434 | 20,543 | 1,000,009 | 2/16/2016 | 12,876 | 25,752 | 32,190 | 1,500,054 |
(1) These columns show information regarding payouts under the Management Performance Plan. The amount set forth under the Maximum column represents the highest potential payout under the plan based on the Corporation’s 20142016 performance. Although the plan does not provide for a target or threshold, the amount set forth under the Target column represents the amount actually awarded to the named executive officer in 20142016 in respect of 20132015 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 stock units granted in February 20142016 if the Corporation achieves a three-year return on equity of 7.0%7.5%, 10.0%11.0% or 15.0%, or greater, respectively.
(3) This column shows the number of restricted stock units granted to the named executive officers in 2014.2016.
(4) This column shows the number of shares that may be issued to the named executive officers upon exercise of stock options granted in 2014.2016.
(5) Represents the grant date fair value of each equity award, computed in accordance with FASB ASC Topic 718 (using the target level of performance for performance stock unit awards), disregarding any estimated forfeitures.
Description of Certain Awards Granted in 20142016
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 granted prior to February 16, 2016 are paid in cash on a current basis prior to vesting and distribution.
With respect to the Dividend equivalents on performance stock units granted in 2014on or after February 16, 2016, including performance stock units granted for 2015 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 the2016 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 producedeferred into a change in net income in excess of $100 million. Factors that result in an adjustmentcash account and paid, with interest credited at a rate equal to the calculation ofmid-term applicable federal rate for the performance measure include: (i) acquisitions, dispositions, mergers, and similar transactions, and securities issuances and expensesmonth in connection therewith; (ii) changes in accounting principles, tax laws or other laws that affect reported results that become effective duringwhich 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 expensegrant was made, compounded annually, only with respect to the performance period that is nonrecurring in nature. The Committee retainsportion of the powercash account attributable to exercise negative discretion, as it deems appropriate under the relevant circumstances, to reduce the actual payouts under the performance stock units belowthat actually vest upon satisfaction of the payouts otherwise resulting from the application of adjustments for any of these factors.
The following charts illustrate the vesting requirements for theapplicable 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.conditions.
If, an executive dies, becomes disabled, or retires during the performance period relating to performance stock units granted to an executive, such executive retires or the executive’sterminates employment terminates during the performance period under certain circumstances entitling the executive to benefits under the Corporation’s severance plan, the executive or the
such executive’s beneficiaryperformance stock units 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, for awards granted prior to February 21, 2017, 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.
For awards granted on or after February 21, 2017, if during the performance period an executive terminates employment under certain circumstances entitling the executive to benefits under the Corporation’s severance plan, such executive’s performance stock units will be eligible for pro rata vesting (with an extra twelve months of vesting) and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the performance conditions. In addition, for awards granted on or after February 21, 2017, if an executive retires after satisfying applicable age and service requirements, such executive’s performance stock units will be eligible for full vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the applicable performance conditions. Upon a change in control,the death or disability of an executive during the performance period, performance stock units granted prior to December 31, 2012, become 100 percent vestedFebruary 17, 2015 will be eligible for pro rata vesting and aredistribution at the end of the performance period, subject to be immediately distributed.certain conditions, including satisfaction of the performance conditions. With respect to performance stock units granted on or after December 31, 2012,February 17, 2015, the performance stock units will be eligible for full 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, for awards granted prior to February 21, 2017, 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 areis 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 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. NotwithstandingFor awards granted on or after February 21, 2017, both the foregoing,portion of each performance stock unit award that is based on actual performance and the portion that is based on the target level of performance, convert into an award with respect to the acquirer of an equal economic value, vest subject only to the continued employment of the recipient through the remainder of the applicable performance period, and are 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. 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. The foregoing notwithstanding, each of our current named executive officers is party to an employment security agreement, pursuant to which all performance stock units granted to such named executive officer would become fully vested at the target level in the event of a change in control. See “Potential Payments Upon Termination of Employment or a Change in Control of the Corporation” beginning on page 71 for further information.
Restricted Stock Units
Restricted stock units generally 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 whichwhen the award vests. Dividend equivalents onFor restricted stock units granted prior to February 21, 2017, dividend equivalents are paid in cash on a current basis prior to vesting and distribution. Dividend equivalents on restricted stock units granted on or after February 21, 2017, including grants made in 2017 for 2016 performance, will be deferred into a cash account and paid, with interest credited at a rate equal to the mid-term applicable federal rate for the month in which the grant was made, compounded annually, only with respect to the portion of the cash account attributable to restricted stock units that actually vest.
If, an executive dies, becomes disabled, or retires during the vesting period relating to restricted stock units granted to an executive for awards granted prior to February 21, 2017, such executive retires or the executive’sterminates 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, for awards granted prior to February 21, 2017, 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. For awards granted on or after February 21, 2017, if an executive terminates employment under certain circumstances entitling the executive to benefits under the Corporation’s severance plan, the executive will be entitled to receive a distribution of a prorated number of restricted stock units which will provide for an extra twelve months of vesting. In addition, for awards granted on or after February 21, 2017, if an executive retires after satisfying applicable age and service requirements, such executive’s restricted stock units will continue to vest in accordance with their terms. Upon the death or disability of an executive during the vesting period, such executive will be entitled to receive a distribution of a prorated number of any unvested restricted stock units granted prior to February 17, 2015. With respect to restricted stock units granted on or after
February 17, 2015, such executive will be entitled to the full vesting and distribution of any unvested restricted stock units.
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, under the terms and conditions of the applicable award agreements, 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, inIn 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 the distribution may be in cash. The foregoing notwithstanding, each of our current named executive officers is party to an employment security agreement which specifies that in the event of a change in control all restricted stock units granted to such named executive officer would become fully vested. See “Potential Payments Upon Termination of Employment or a Change in Control of the Corporation” beginning on page 71 for further information.
Stock 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 ten years after the date of the grant. Stock options generally vest in equal annual installments over a four-year vesting period determined by the Compensation and Benefits Committee.period.
If an executive dies or becomes disabled,retires after satisfying applicable age and service requirements, 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 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 an 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. 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. Stock options granted after December 31, 2012 convert to options relating to the stock 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 the options on the acquirer stock remain exercisable until the expiration of the option), or if they are not assumed in the transaction (in which case the employee is entitled to a cash payment equal to the “spread” between the transaction consideration and the option exercise price). The foregoing
notwithstanding, each of our current named executive officers is party to an employment security agreement which specifies that in the event of a change in control all options granted to such named executive officer would become fully vested. See “Potential Payments Upon Termination of Employment or a Change in Control of the Corporation” beginning on page 71 for further information.
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 |
Option Awards | Stock Awards | 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 | Number of (#) | Number of Securities (#) | Option ($) | Option Expiration Date | Number of Shares or Units of Stock Have Not (#) | Market of Shares of Units of Stock That ($)(1) | Equity of (#) | Equity ($)(2) | ||||||||||||||||||||||||||||||||||||||||||||||
Mr. Waddell | 205,923 | — | $ | 50.99 | 2/15/2020 | 97,679(7) | $ | 8,698,315 | 204,756(12) | $ | 18,233,522 | |||||||||||||||||||||||||||||||||||||||||||||||||||
227,964 | — | 52.64 | 2/14/2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
70,994 | 23,664(3) | 52.69 | 2/11/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
40,982 | 40,982(4) | 60.85 | 2/10/2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
19,733 | 59,197(5) | 70.21 | 2/17/2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | 110,362(6) | 58.25 | 2/16/2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Bowman | 11,768 | — | 50.99 | 2/15/2020 | 27,117(8) | 2,414,769 | 58,895(13) | 5,244,600 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
11,399 | — | 52.64 | 2/14/2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
16,014 | 5,338(3) | 52.69 | 2/11/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10,169 | 10,168(4) | 60.85 | 2/10/2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5,935 | 17,804(5) | 70.21 | 2/17/2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | 34,489(6) | 58.25 | 2/16/2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Morrison | 42,118 | — | 71.23 | 2/19/2018 | 69,037(9) | 6,147,745 | 99,868(14) | 8,893,245 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | 11,921(3) | 52.69 | 2/11/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
20,030 | 20,028(4) | 60.85 | 2/10/2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
9,644 | 28,931(5) | 70.21 | 2/17/2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | 53,649(6) | 58.25 | 2/16/2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. O’Grady | 96,700 | — | 38.78 | 10/18/2021 | 29,741(10) | 2,648,436 | 62,490(15) | 5,564,735 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
48,110 | — | 43.65 | 2/13/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
72,525 | 24,175 | (7) | 38.78 | 10/18/2021 | 33,824(12 | ) | 2,279,738 | 51,450(18 | ) | 3,467,730 | 21,352 | 7,117(3) | 52.69 | 2/11/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||
24,055 | 24,055 | (4) | 43.65 | 2/13/2022 | 12,326 | 12,325(4) | 60.85 | 2/10/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
7,118 | 21,351 | (5) | 52.69 | 2/11/2023 | 5,935 | 17,804(5) | 70.21 | 2/17/2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | 24,651 | (6) | 60.85 | 2/10/2024 | — | 34,489(6) | 58.25 | 2/16/2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ms. Schreuder | 17,756 | — | 63.36 | 2/20/2017 | 29,580(13 | ) | 1,993,692 | 51,450(19 | ) | 3,467,730 | 71,239 | — | 52.64 | 2/14/2021 | 34,740(11) | 3,093,597 | 74,988(16) | 6,677,681 | ||||||||||||||||||||||||||||||||||||||||||||
42,118 | — | 71.23 | 2/19/2018 | 48,110 | — | 43.65 | 2/13/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
90,270 | — | 57.54 | 7/21/2019 | 21,352 | 7,117(3) | 52.69 | 2/11/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
58,836 | — | 50.99 | 2/15/2020 | 12,326 | 12,325(4) | 60.85 | 2/10/2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
53,430 | 17,809 | (3) | 52.64 | 2/14/2021 | 7,419 | 22,254(5) | 70.21 | 2/17/2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
24,055 | 24,055 | (4) | 43.65 | 2/13/2022 | — | 45,985(6) | 58.25 | 2/16/2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 included in this column is based on a price of $67.40$89.05 per share (the closing market price of the Corporation’s common stock on December 31, 2014)30, 2016).
(2) The market value of the performance stock units included in this column is based on a price of $67.40$89.05 per share (the closing market price of the Corporation’s common stock on December 31, 2014)30, 2016).
(3) Options originally granted February 14, 2011,11, 2013, with 25% of the award vesting on each anniversary of the grant date. Accordingly, all remaining unvested options vest on February 14, 2015.11, 2017.
(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)(5) Options originally granted October 18, 2011,February 17, 2015, with 25% of the award vesting on each anniversary of the grant date. Accordingly, allthe remaining unvested options vest in equal portions on October 18, 2015.
(6) Options originally granted February 16, 2016, 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 16, 2017, 2018, 2019 and 2020.
(8)(7) 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 stock2018, 11,840 units vesting on February 13, 2015, 1,90017, 2018, 15,451 units vesting on February 14, 2015, 3,55916, 2019, 11,839 units vesting on February 11, 2016, 3,81817, 2019, and 15,451 units vesting on February 13, 2016,16, 2020.
(8) Consists of 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 stock2018, 3,561 units vesting on February 14, 2015, 4,74517, 2018, 4,829 units vesting on February 16, 2019, and 3,561 units vesting on February 17, 2019, and 4,828 units vesting on February 16, 2020.
(9) Consists of 6,677 units vesting on February 10, 2017, 7,947 units vesting on February 11, 2016,2017, 6,676 units vesting on February 10, 2018, 5,787 units vesting on February 17, 2018, 21,142 units vesting on October 18, 2018, 7,511 units vesting on February 16, 2019, 5,786 units vesting on February 17, 2019, and 7,511 units vesting on February 16, 2020.
(10) Consists of 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 stock2018, 3,561 units vesting on February 14, 2015, 5,000 units vesting on July 19, 2015, 7,94817, 2018, 4,829 units vesting on February 11, 2016, 6,67716, 2019, 3,561 units vesting on February 10, 2017, 7,94717, 2019, and 4,828 units vesting on February 11, 2017 and 6,676 units vesting on February 10, 2018.16, 2020.
(12)(11) 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 stock2018, 4,451 units vesting on February 14, 2015, 4,74517, 2018, 6,438 units vesting on February 11, 2016, 4,10916, 2019, 4,451 units vesting on February 10, 2017, 4,74517, 2019, and 6,438 units vesting on February 11, 2017 and 4,108 units vesting on February 10, 2018.16, 2020.
(14)(12) Consists of the following maximum number of target shares Mr. Waddell may receive under performance stock units: 53,45668,304 shares vestingunderlying performance stock units granted in 2014; 59,198 shares underlying performance stock units granted in 2015; and 77,254 shares underlying performance stock units granted in 2016. The distribution of shares underlying the performance stock units granted in 2014 took place on February 13, 2015; 63,105January 17, 2017, with 58,249 shares vesting on February 11, 2016; and 54,643 shares vesting on February 10, 2017.actually being distributed to Mr. Waddell. The actual number of shares distributed on the vesting datewith respect to performance stock units granted in 2015 and 2016 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units.
(15)
(13) Consists of the following maximum number of target shares Mr. Bowman may receive under performance stock units: 14,23516,948 shares vestingunderlying performance stock units granted in 2014; 17,804 shares underlying performance stock units granted in 2015; and 24,143 shares underlying performance stock units granted in 2016. The distribution of shares underlying the performance stock units granted in 2014 took place on February 11, 2016; and 13,558January 17, 2017, with 14,453 shares vesting on February 10, 2017.actually being distributed to Mr. Bowman. The actual number of shares distributed on the vesting datewith respect to performance stock units granted in 2015 and 2016 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units.
(16)(14) Consists of the following maximum number of target shares Mr. FradkinMorrison may receive under performance stock units: 16,03733,383 shares vestingunderlying performance stock units granted in 2014; 28,931 shares underlying performance stock units granted in 2015; and 37,554 shares underlying performance stock units granted in 2016. The distribution of shares underlying the performance stock units granted in 2014 took place on February 13, 2015; 18,979January 17, 2017, with 28,469 shares vesting on February 11, 2016; and 16,434 shares vesting on February 10, 2017.actually being distributed to Mr. Morrison. The actual number of shares distributed on the vesting datewith respect to performance stock units granted in 2015 and 2016 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units.
(17)(15) Consists of the following maximum number of target shares Mr. MorrisonO’Grady may receive under performance stock units: 26,72820,543 shares vestingunderlying performance stock units granted in 2014; 17,804 shares underlying performance stock units granted in 2015; and 24,143 shares underlying performance stock units granted in 2016. The distribution of shares underlying the performance stock units granted in 2014 took place on February 13, 2015; 31,790January 17, 2017, with 17,519 shares vesting on February 11, 2016; and 26,706 shares vesting on February 10, 2017.actually being distributed to Mr. O’Grady. The actual number of shares distributed on the vesting datewith respect to performance stock units granted in 2015 and 2016 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units.
(18)(16) Consists of the following maximum number of target shares Mr. O’GradyMs. Schreuder may receive under performance stock units: 16,03720,543 shares vestingunderlying performance stock units granted in 2014; 22,255 shares underlying performance stock units granted in 2015; and 32,190 shares underlying performance stock units granted in 2016. The distribution of shares underlying the performance stock units granted in 2014 took place on February 13, 2015; 18,979January 17, 2017, with 17,519 shares vesting on February 11, 2016;
and 16,434 shares vesting on February 10, 2017.actually being distributed to Ms. Schreuder. The actual number of shares distributed on the vesting datewith respect to performance stock units granted in 2015 and 2016 will be based upon the satisfaction of certain performance conditions.
(19) Consists Accordingly, it is possible that no shares of the following number of target shares Ms. Schreuder may receivecommon stock will be distributed under these 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.units.
Option Exercises and Stock Vested
The following table sets forth information regarding exercises of stock options and vesting of stock awards for each named executive officer with respect to:in 2016.
Option Awards | Stock Awards | 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 ($)(2) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired On Vesting (#) | Value Realized On Vesting ($)(2) | ||||||||||||||||||||||||
Mr. Waddell | 151,761 | $ | 2,477,299 | 72,314 | $ | 4,486,814 | 557,527 | $10,596,677 | 78,882 | $4,935,909 | ||||||||||||||||||||||
Mr. Bowman | 6,045 | 95,844 | 7,849 | 494,128 | 36,230 | 844,538 | 21,612 | 1,335,160 | ||||||||||||||||||||||||
Mr. Fradkin | 28,786 | 342,571 | 21,680 | 1,345,187 | ||||||||||||||||||||||||||||
Mr. Morrison | 138,328 | 2,157,012 | 26,680 | 1,670,412 | 257,566 | 3,982,783 | 39,738 | 2,486,538 | ||||||||||||||||||||||||
Mr. O’Grady | — | — | 16,117 | 1,028,829 | — | — | 23,724 | 1,484,489 | ||||||||||||||||||||||||
Ms. Schreuder | 59,975 | 669,597 | 21,680 | 1,345,187 | 191,224 | 3,412,197 | 23,724 | 1,484,489 |
(1) The value realized on the exercise of stock options represents the pre-tax difference between the option exercise price and the fair market value of the common stock on the date of exercise.
(2) The value realized on the distribution of restricted stock units represents the average of the high and low sales prices on the distribution date of the applicable award multiplied by the number of stock units heldthat vested multiplied by the named executive officers.fair market value of the common stock on the date of vesting.
Information with respect to accrued benefits of each named executive officer under the Pension Plan as of December 31, 2016 is as follows:follows.
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Benefit ($) | Payments Fiscal Year ($) | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($) | Payments During Last Fiscal Year ($) | ||||||||||||||||||||
Mr. Waddell | Qualified Pension Plan | 35.0 | $ | 1,942,586 | — | Qualified Pension Plan | 35.0 | td,937,591 | — | |||||||||||||||||||
Supplemental Pension Plan | 35.0 | 19,097,368 | — | |||||||||||||||||||||||||
Supplemental Pension Plan | 35.0 | 19,048,263 | — | |||||||||||||||||||||||||
Mr. Bowman | Qualified Pension Plan | 29.5 | 1,020,734 | — | Qualified Pension Plan | 31.5 | 1,148,697 | — | ||||||||||||||||||||
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 | — | |||||||||||||||||||||||||
Supplemental Pension Plan | 31.5 | 2,152,917 | — | |||||||||||||||||||||||||
Mr. Morrison | Qualified Pension Plan | 18.8 | 909,332 | — | Qualified Pension Plan | 20.8 | 910,861 | — | ||||||||||||||||||||
Supplemental Pension Plan | 18.8 | 3,957,522 | — | |||||||||||||||||||||||||
Supplemental Pension Plan | 20.8 | 4,071,093 | — | |||||||||||||||||||||||||
Mr. O’Grady | Qualified Pension Plan | 3.4 | 36,250 | — | Qualified Pension Plan | 5.4 | 58,648 | — | ||||||||||||||||||||
Supplemental Pension Plan | 3.4 | 125,068 | — | |||||||||||||||||||||||||
Supplemental Pension Plan | 5.4 | 245,631 | — | |||||||||||||||||||||||||
Ms. Schreuder | Qualified Pension Plan | 34.7 | 1,476,590 | — | Qualified Pension Plan | 35.0 | 1,617,580 | — | ||||||||||||||||||||
Supplemental Pension Plan | 34.7 | 6,344,466 | — | |||||||||||||||||||||||||
Supplemental Pension Plan | 35.0 | 6,977,040 | — |
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. 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 nonqualified retirement plan that provides the portion of an employee’s benefit that cannot be paid under the Pension Plan due to Internal 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: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 Internal Revenue Code or Pension Plan restrictions also participate in the Supplemental Pension Plan.
Benefit Formula—Traditional Formula
Prior to April 1, 2012, the benefits of the named executive officers, except for Mr. O’Grady, were determined under the Pension Plan’s “Traditional Formula.” To determine a participant’s benefit, the Traditional Formula first multiplies 1.8% by the average of the participant’s highest sixty consecutive calendar months of eligible pay. This amount is further multiplied by the participant’s years of credited service (up to a maximum of thirty-five years). The Social Security offset is then determined by multiplying 0.5% by (i) the lesser of the participant’s Social Security covered compensation limit or the average of the participant’s eligible pay for the three consecutive calendar years prior to retirement, with calendar year compensation not to exceed the Social Security taxable wage base in effect for a given calendar year, by (ii) the participant’s years of credited service (up to thirty-five years). This offset is subtracted from the benefit amount previously calculated to determine the annual benefit amount produced by the Traditional Formula.
For purposes of the Traditional Formula:
“Eligible pay” means base salary (including any before-tax payroll deductions), shift differentials, overtime and certain types of performance-based incentive compensation, including cash, Northern Performance Incentives under the Northern Partners Incentive Plan (“NPIP”), compensation under the Management Performance Plan, payments from the former Annual Performance Plan and the cash value of stock options which were specifically paid in lieu of cash incentives from January 1, 2002 through April 30, 2004. Cash incentives deferred under the Northern Trust Corporation Deferred Compensation Plan (the “Deferred Compensation Plan”) are not included in eligible pay under the Pension Plan but are included in eligible pay under the Supplemental Pension Plan. |
“Social Security covered compensation” means the average of the Social Security taxable wage base for each of the thirty-five calendar years ending in the year in which the participant attains Social Security retirement age. In determining Social Security covered compensation as of a certain year, the taxable wage base for any subsequent year is assumed to be the same as for the determination year. |
Benefit Formula—PEP Formula
Effective June 1, 2001, the Pension Plan was amended to provide that benefits of all newly hired employees of the Corporation and its affiliates would be calculated under the Pension Plan’s “Pension Equity Plan (PEP) Formula.” 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)PEP 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 sixty consecutive calendar months of eligible pay. Prior to April 1, 2012, eligible pay was defined the same for the PEP Formula as for the Traditional Formula, except that eligible pay under the PEP Formula also included cash sales and technical 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
EffectiveAs noted above, effective June 1, 2001, the Pension Plan was amended to provide that benefits of all newly hired employees of the Corporation 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 or the Traditional Formula. Effective April 1, 2012, the Pension Plan was further amended to provide that for credited service earned after March 31, 2012, all employees, including those who had previously elected the Traditional Formula, will accrue benefits pursuant to the revised PEP Formula described above. Accordingly, the named executive officers, other than Mr. O’Grady, will be entitled to an annual benefit equal to the sum of their accruals: (i) under the Traditional Formula for periods of credited service before April 1, 2012; and (ii) under the amended PEP Formula for their periods of credited service 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%4.71% to 4.25%4.46% at December 31, 20142016 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, whose benefits are all accrued under the PEP Formula. The other primary factors influencing pension values include an increase of the final average pay calculation and the application of the average pay across years of credited service under the Pension Plan.
Benefit 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 Internal Revenue Code limits and including in eligible pay the amounts deferred under the Deferred Compensation Plan. They are then recalculated applying Internal Revenue Code limits and excluding Deferred 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 and PEP Formulas or based solely on the PEP Formula, as described above, if his or her employment terminates on or after age 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 fifteen 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. Mr. Waddell, Mr. Morrison and Ms. Schreuder are each eligible for early retirement 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). Participants eligible for a “vested terminee” benefit are 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. The adjustment is made using interest rate and mortality assumptions specified in the Pension Plan.
Form of Benefit 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. Any installment payments are credited with interest pursuant to a market-based formula set forth in the Supplemental Pension Plan. If the value of the Supplemental Pension Plan benefit is $125,000 or less, the benefit is paid in a single lump sum.
Assumptions
The assumptions used in calculating the present value of the accumulated benefit are set forth in “Note 21—Employee Benefits” to the consolidated financial statements included in Item 8 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014.2016. The Corporation does not grant extra years of credited service under the Pension Plan, other than as noted below under “Potential Payment Upon Termination of Employment or a Change in Control of the Corporation.”
Nonqualified Deferred Compensation
Name | Form of Deferred Compensation | Executive Contributions in Last FY ($)(1) | Registrant Contributions ($)(2) | Aggregate Earnings Last ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last ($)(4) | Form of Deferred Compensation | Executive Contributions in Last FY ($)(1) | Registrant Contributions in Last FY ($)(2) | Aggregate Earnings in Last FY ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($)(4) | ||||||||||||||||||||||||||||
Mr. Waddell | Deferred Compensation Plan | — | — | — | — | — | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||||||||||||||||||
Supplemental TIP | $42,900 | $ | 21,450 | $ | 88,049 | — | $ | 1,379,594 | Supplemental TIP | $ | 44,100 | $ | 22,050 | $ | 147,937 | — | $ | 1,645,727 | ||||||||||||||||||||||
Deferred Stock Units | — | — | 1,969,709 | — | 9,072,205 | Deferred Stock Units | — | — | 1,946,330 | — | 10,219,378 | |||||||||||||||||||||||||||||
Mr. Bowman | Deferred Compensation Plan | — | — | — | — | — | 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 | Supplemental TIP | 30,375 | 9,113 | 13,562 | — | 232,656 | |||||||||||||||||||||||||||||
Deferred Stock Units | — | — | 549,799 | — | 1,718,715 | Deferred Stock Units | — | — | — | — | — | |||||||||||||||||||||||||||||
Mr. Morrison | Deferred Compensation Plan | — | — | — | — | — | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||||||||||||||||||
Supplemental TIP | 32,400 | 16,200 | 1,029 | — | 717,864 | Supplemental TIP | 32,100 | 16,050 | 2,814 | — | 817,029 | |||||||||||||||||||||||||||||
Deferred Stock Units | — | — | 546,647 | — | 1,680,162 | Deferred Stock Units | — | — | 310,622 | — | 1,630,950 | |||||||||||||||||||||||||||||
Mr. O’Grady | Deferred Compensation Plan | — | — | — | — | — | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||||||||||||||||||
Supplemental TIP | 20,400 | 10,200 | 385 | — | 61,259 | Supplemental TIP | 20,475 | 10,238 | 5,748 | — | 125,216 | |||||||||||||||||||||||||||||
Deferred Stock Units | — | — | — | — | — | Deferred Stock Units | — | — | — | — | — | |||||||||||||||||||||||||||||
Ms. Schreuder | Deferred Compensation Plan | — | — | — | — | — | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||||||||||||||||||
Supplemental TIP | 20,400 | 10,200 | 65,780 | — | 604,499 | Supplemental TIP | 25,725 | 12,863 | 78,070 | — | 761,417 | |||||||||||||||||||||||||||||
Deferred Stock Units | — | — | 497,581 | — | 1,079,966 | Deferred Stock Units | — | — | 159,594 | — | 837,961 |
(1) Amounts in this column also are also included in each named executive officer’s compensation reported in the “Summary Compensation Table,” either as “Salary” or “Stock Awards.“Salary.”
(2) Amounts in this column also are also included in each named executive officer’s “All Other Compensation” in the “Summary Compensation Table.”
(3) The aggregate earnings in this column 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 Compensation Table” to the extent that compensation data for each such officer, generally, has been included in such table.
Deferred Compensation Plan
The Corporation maintains the Deferred 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 Deferred Compensation Plan as they relate to the named executive officers include the following:following.
Eligibility
An employee is eligible to participate in the Deferred Compensation Plan for any calendar year if as of the preceding November 15 he or she: (i) was actively employed by the Corporation or a subsidiary and either resided in the United States or was an expatriate of the United States on temporary international assignment; (ii) participated in the Management Performance Plan or the 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
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 in 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 Deferred Compensation Plan. No employer contributions are made under the Deferred Compensation Plan.
Vesting
A participant is fully vested in his or her entire Deferred Compensation Plan account balance at all times.
Investments
Each participant’s Deferred Compensation Plan account is credited with earnings or losses based on various mutual fund investment alternatives made available under the Deferred Compensation Plan and selected by the participant.
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 ten 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 sixty 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
Supplemental TIP is a nonqualified 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, which was frozen effective January 1, 2005, when the qualified Northern Trust Employee Stock Ownership Plan was merged into TIP. The material terms and conditions of Supplemental TIP as they relate to the named executive officers include the following:following.
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. 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 participate in both plans.
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. 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.
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 are fully vested in their TIP and Supplemental TIP accounts, except for Mr. O’Grady, whose employer contributions were 60% vested under such plans as of December 31, 2014.accounts.
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.
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 ninety days after the participant’s termination of employment. If the participant is deemed to be a “key 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-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 Corporation
In 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 incrementalDescribed below are the benefits that the named executive officers would receive in the event of change in control of the Corporation, as well as the benefits they would receive in the event of a termination involvingfollowing a change in control of the Corporation relative to the benefits they would otherwise receive are described below.Corporation.
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 and the determination of the level of benefits under these agreements, as well as under various termination of employment scenarios were exercises in judgment, informed by: (i) the recognition that all named executive officers are employed at-will; (ii) the Corporation’s desire to provide the named executive officers with sufficient security to assureensure they are not distracted and remain focused on maximizing stockholder value during and after a change in 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; (iv) the nature and scope of the job responsibilities undertaken by the named executive 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, motivate and retain 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 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 or two 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.
The benefits provided to a named executive officer upon the occurrence of an actual change in control of the Corporation would consist of the following, even if there is no termination of employment:
● | Full vesting of all stock options. |
● | All outstanding nonqualified stock options remain exercisable for five years following termination of employment (or until the end of the option term, if earlier). |
● | Full vesting of all outstanding restricted stock units. |
● | Full vesting and immediate distribution of all outstanding performance stock units at target as provided in the awards. |
● | Full vesting in benefits accrued under the Supplemental Pension Plan and Supplemental TIP. All named executive officers are already vested in these benefits. |
The employment security agreements also 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 in the agreements):Corporation:
a termination of the executive’s employment by the Corporation or a subsidiary without “good cause” that occurs either within two years after a change in control of the Corporation or during the one-year period pending a change in control of the Corporation; or |
an executive’s voluntary termination of employment with the Corporation or a subsidiary for “good reason” that occurs either within two years after a change in control of the Corporation or during the one-year period pending a change in control of the Corporation. |
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:following:
A lump sum payment equal to three times (or two times for Mr. Morrison, as Vice Chairman) the sum of: (i) the named executive officer’s annual salary in effect on the date of employment termination, or if higher, the date of the change in control; and (ii) the average of the named executive officer’s awards 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. |
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. |
|
|
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 $67.40, which was the closing market price of the Corporation’s common stock on December 31, 2014. The value of the fully vested restricted stock and performance units is also based on the $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 two years for Mr. Morrison) or, if earlier, until the executive becomes covered under similar plans maintained by another entity that provides at least equal |
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. |
|
|
The foregoing notwithstanding, payments to Mr. Bowman, Mr. O’Grady and Mr. Morrison may be subject to a reduction in benefits received to the extent it would cause them to receive an “excess parachute payment” (as defined in the Internal Revenue Code) unless the change in control payments, less the amount of any excise taxes payable by them, is greater than the reduced payment.
Equity Compensation Plans and Agreements
As described above under “Description of Certain Awards Granted in 2014”2016” beginning on page 48,57, 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 termination of employment with the Corporation or a subsidiary due to death, disability, or retirement (when such termination is not a termination described in his or her employment security agreement).
In the case of a termination of a named executive officer’s employment due to death, disability or severance, stock options granted under equity compensation plans will accelerate. In the case of a termination of a named executive officer’s employment due to retirement (including termination at(after satisfying applicable age 55 with the requisite service)and service requirements), stock options granted under the equity compensation plans would have acceleratedwill continue vesting. In the case of a termination of a named executive officer’s employment due to death or continueddisability, equity award agreements for restricted stock units and performance stock units granted prior to February 17, 2015 provide for prorated vesting of units and awards granted on or after February 17, 2015 provide for the full vesting of such units. In the case of a termination of a named executive officer’s employment due to severance or retirement (after satisfying applicable age and service requirements), equity award agreements for restricted stock units and performance stock units provide for prorated vesting of units. Assuming such
The following table quantifies the additional amounts described above that each named executive officer would receive upon the related triggering event:
Retirement* | Death* | Disability* | Severance | Change in Control | Termination in connection with a Change in Control | |||||||||||||||||||||
Mr. Waddell | Stock Options | $ | 6,530,537 | $ | 6,530,537 | $ | 6,530,537 | $ | 6,530,537 | $ | 6,530,537 | $ | 6,530,537 | |||||||||||||
Restricted Stock Units | 4,609,584 | 7,930,259 | 7,930,259 | 4,609,584 | 8,698,315 | 8,698,315 | ||||||||||||||||||||
Performance Stock Units(1) | 9,543,785 | 14,682,208 | 14,682,208 | 9,543,785 | 14,682,208 | 14,682,208 | ||||||||||||||||||||
Cash Severance | — | 10,000,000 | ||||||||||||||||||||||||
Pro-Rata Bonus | — | 2,333,333 | ||||||||||||||||||||||||
Supplemental Pension Plan / TIP(2) | — | — | ||||||||||||||||||||||||
Welfare Benefits(3) | — | 39,227 | ||||||||||||||||||||||||
Reduction to Prevent Excise Tax | n/a | n/a | ||||||||||||||||||||||||
Excise Tax Gross-Up | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 20,683,906 | $ | 29,143,004 | $ | 29,143,004 | $ | 20,683,906 | $ | 29,911,060 | $ | 42,283,620 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Mr. Bowman(4) | Stock Options | n/a | $ | 1,878,516 | $ | 1,878,516 | $ | 1,878,516 | $ | 1,878,516 | $ | 1,878,516 | ||||||||||||||
Restricted Stock Units | n/a | 2,225,538 | 2,225,538 | 1,523,824 | 2,414,769 | 2,414,769 | ||||||||||||||||||||
Performance Stock Units(1) | n/a | 4,225,423 | 4,225,423 | 3,058,927 | 4,225,423 | 4,225,423 | ||||||||||||||||||||
Cash Severance | — | 3,875,000 | ||||||||||||||||||||||||
Pro-Rata Bonus | — | 666,667 | ||||||||||||||||||||||||
Supplemental Pension Plan / TIP(2) | — | 816,350 | ||||||||||||||||||||||||
Welfare Benefits(3) | — | 37,984 | ||||||||||||||||||||||||
Reduction to Prevent Excise Tax | (6,746 | ) | — | |||||||||||||||||||||||
Excise Tax Gross-Up | n/a | n/a | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | — | $ | 8,329,477 | $ | 8,329,477 | $ | 6,461,267 | $ | 8,511,962 | $ | 13,914,709 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Mr. Morrison | Stock Options | $ | 3,195,715 | $ | 3,195,715 | $ | 3,195,715 | $ | 3,195,715 | $ | 3,195,715 | $ | 3,195,715 | |||||||||||||
Restricted Stock Units | 2,271,576 | 5,771,509 | 5,771,509 | 2,428,483 | 6,147,745 | 6,147,745 | ||||||||||||||||||||
Performance Stock Units(1) | 4,659,426 | 7,160,965 | 7,160,965 | 4,659,426 | 7,160,965 | 7,160,965 | ||||||||||||||||||||
Cash Severance | — | 4,000,000 | ||||||||||||||||||||||||
Pro-Rata Bonus | — | 1,200,000 | ||||||||||||||||||||||||
Supplemental Pension Plan / TIP(2) | — | 258,300 | ||||||||||||||||||||||||
Welfare Benefits(3) | — | 30,921 | ||||||||||||||||||||||||
Reduction to Prevent Excise Tax | — | — | ||||||||||||||||||||||||
Excise Tax Gross-Up | n/a | n/a | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 10,126,717 | $ | 16,128,189 | $ | 16,128,189 | $ | 10,283,624 | $ | 16,504,425 | $ | 21,993,646 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Mr. O’Grady | Stock Options | n/a | $ | 2,004,028 | $ | 2,004,028 | $ | 2,004,028 | $ | 2,004,028 | $ | 2,004,028 | ||||||||||||||
Restricted Stock Units | n/a | 2,417,440 | 2,417,440 | 1,393,098 | 2,648,436 | 2,648,436 | ||||||||||||||||||||
Performance Stock Units(1) | n/a | 4,481,531 | 4,481,531 | 2,892,226 | 4,481,531 | 4,481,531 | ||||||||||||||||||||
Cash Severance | — | 4,525,000 | ||||||||||||||||||||||||
Pro-Rata Bonus | — | 883,333 | ||||||||||||||||||||||||
Supplemental Pension Plan / TIP(2) | — | 169,609 | ||||||||||||||||||||||||
Welfare Benefits(3) | — | 37,984 | ||||||||||||||||||||||||
Reduction to Prevent Excise Tax | — | — | ||||||||||||||||||||||||
Excise Tax Gross-Up | n/a | n/a | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 0 | $ | 8,902,999 | $ | 8,902,999 | $ | 6,289,352 | $ | 9,133,995 | $ | 14,749,921 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Ms. Schreuder | Stock Options | $ | 2,441,942 | $ | 2,441,942 | $ | 2,441,942 | $ | 2,441,942 | $ | 2,441,942 | $ | 2,441,942 | |||||||||||||
Restricted Stock Units | 1,525,427 | 2,862,601 | 2,862,601 | 1,525,427 | 3,093,597 | 3,093,597 | ||||||||||||||||||||
Performance Stock Units(1) | 3,298,046 | 5,381,886 | 5,381,886 | 3,298,046 | 5,381,886 | 5,381,886 | ||||||||||||||||||||
Cash Severance | — | 4,935,000 | ||||||||||||||||||||||||
Pro-Rata Bonus | — | 895,000 | ||||||||||||||||||||||||
Supplemental Pension Plan / TIP(2) | — | — | ||||||||||||||||||||||||
Welfare Benefits(3) | — | 46,382 | ||||||||||||||||||||||||
Reduction to Prevent Excise Tax | n/a | n/a | ||||||||||||||||||||||||
Excise Tax Gross-Up | — | 3,396,647 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 7,265,415 | $ | 10,686,429 | $ | 10,686,429 | $ | 7,265,415 | $ | 10,917,425 | $ | 20,190,454 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Note: The value of each equity award included in this table is based on a price of $89.05 per share (the closing market price of the Corporation’s common stock on December 30, 2016).
* Under retirement, death and disability each named executive officer remains eligible to receive a termination onyear bonus under the Management Performance Plan at the discretion of the Compensation and Benefits Committee.
(1) Performance stock unit award values are based upon the target number of shares underlying 2014, 2015 and 2016 awards outstanding as of December 31, 2014,2016.
(2) The assumptions used in calculating the estimated valuespresent value of the age and service credits are set forth in “Note 21—Employee Benefits” in the following table show“Notes to the prorated distributionsConsolidated Financial Statements” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016.
(3) The value of this continued benefit coverage for three years (or two years for Mr. Morrison) is derived by multiplying the Corporation’s annual cost of providing such coverage in 2016 by three (or two for Mr. Morrison).
(4) Mr. Bowman is entitled to a twelve-month enhancement to his pro-rata severance that applies to outstanding restricted stock units granted in 2013, 2014, and 2015 as well as outstanding performance stock units.units granted in 2015.
Name | Restricted Stock Units ($) | 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 |
Non-employeeThe Compensation and Benefits Committee is responsible for reviewing non-employee director compensation and making a recommendation with respect thereto to the Board. In doing so, the Committee works with CAP and has access to such other resources as it deems appropriate. Under the current plan design, non-employee directors are compensated for their services with cash compensation and equity awards in the form of restricted stock units. Directors who are employees of the Corporation receive no additional compensation for serving on the Board or on any Board committee.
Annual Retainer and Other Fees
Non-employee directors of the Corporation received an annual retainer of $200,000$220,000 for their service on the Board in 2014,2016, paid 50% in cash and 50% in the form of 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. Directors serving on the Audit Committee (including the Chair thereof) were entitled to an additional $5,000 annually each of which suchthrough February 16, 2016 and $10,000 annually thereafter. Directors serving on the Business Risk and Capital Governance Committees (including the Chairs thereof) were entitled to an additional $10,000 annually, beginning February 16, 2016. All fees werethat are in addition to the annual retainer noted above are paid in cash. All non-employee directors also were 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. No payments for such services were made in 2014.
Restricted stock units granted to directors for their service on the Board were made in April 20142016 and will vest on April 21, 2015,25, 2017, the date of the 20152017 Annual Meeting of 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.
Effective January 1, 2015, the annual retainer to be paid in conjunction with each director’s service on the Board was increased to $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 price of the stock at the end of the calendar quarter for which the cash compensation would have been paid. Dividends 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. DeferredThe value of stock units representing deferred cash compensation, andas well as all dividends on stock units representing deferred compensation of any form, will be paid out in cash, and stock units representing deferred stock unitsunit compensation will be distributed in stock, in each case in a lump sum or in up to ten annual installments at the election of the director.
Directors 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 $2,000 in any calendar year.
Within five years of election to the Board, non-employee directors are required to hold shares of the Corporation’s common stock equal to five times the annual cash retainer provided to directors. In addition, non-employee directors are expected to meet a minimum share ownership level of 1,000
shares within one year of the date they are initially elected to the Board. Until such time as any non-employee director meets the minimum ownership level requirement, he or she is expected to retain 100% of the net, after-tax shares received from share distributions.the vesting of equity awards.
As of December 31, 2014,2016, all non-employee directors met or exceeded the stock ownership guidelines to which they were subject. Consistent with those guidelines, Messrs. Harrison, Prado, Slark and Thompson have until January 1, 2020, October 16, 2017, April 19, 2016 and March 6, 2020, respectively, to reach the share ownership threshold.
The following table sets forth all compensation earned by each non-employee director of the Corporation in 2014. Messrs. Harrison and Thompson were appointed to the Board effective January 1, 2015 and March 6, 2015, respectively, and thus did not earn any compensation in 2014 relating to service on the Board.2016.
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | All Other Compensation ($)(2) | Total ($) | Fees Earned or ($) | Stock Awards ($)(1) | All Other ($)(2) | Total ($) | ||||||||||||||||||||||||
Linda Walker Bynoe | $ | 105,769 | $ | 100,000 | $ | 2,322 | $ | 208,091 | $ | 110,000 | $ | 110,000 | $ | 2,203 | $ | 222,203 | ||||||||||||||||
Nicholas D. Chabraja | 120,000 | 100,000 | 2,322 | 222,322 | ||||||||||||||||||||||||||||
Susan Crown | 110,673 | 100,000 | 4,322 | 214,995 | 125,000 | 110,000 | 2,203 | 237,203 | ||||||||||||||||||||||||
Dean M. Harrison | 128,104 | 110,000 | 2,203 | 240,308 | ||||||||||||||||||||||||||||
Jay L. Henderson | 58,995 | 83,400 | — | 142,395 | ||||||||||||||||||||||||||||
Dipak C. Jain | 107,885 | 100,000 | 2,322 | 210,207 | 119,368 | 110,000 | 2,203 | 231,571 | ||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||
Jose Luis Prado | 133,736 | 110,000 | 2,203 | 245,939 | ||||||||||||||||||||||||||||
Thomas E. Richards | 118,736 | 110,000 | 1,241 | 229,977 | ||||||||||||||||||||||||||||
John W. Rowe | 140,000 | 100,000 | 2,322 | 242,322 | 158,736 | 110,000 | 2,203 | 270,939 | ||||||||||||||||||||||||
Martin P. Slark | 100,000 | 100,000 | 2,322 | 202,322 | 119,368 | 110,000 | 2,203 | 231,571 | ||||||||||||||||||||||||
David H. B. Smith, Jr. | 115,673 | 100,000 | 2,322 | 217,995 | 151,841 | 110,000 | 2,203 | 264,044 | ||||||||||||||||||||||||
Donald Thompson | 151,841 | 110,000 | 2,203 | 264,044 | ||||||||||||||||||||||||||||
Charles A. Tribbett III | 100,000 | 100,000 | 2,322 | 202,322 | 125,000 | 110,000 | 2,203 | 237,203 |
(1) This column shows the grant date fair value of the stock awards for all non-employee directors in 2014,2016, 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 year ended December 31, 20142016 for a discussion of the assumptions made by the Corporation in the valuation of these stock unit awards. As of December 31, 2014,2016, each non-employee director serving on such date held 1,677.011,531 unvested stock units, which represents the stock unit award made by the Corporation in April 20142016 described above.
(2) Includes $2,000 of contributions to eligible nonprofit organizations made on behalf of Susan Crown pursuant to the Corporation’s matching gift program. The matching gift program is available to directors on the same terms as it is available to all employees, with a maximum gift total of $2,000 in any calendar year. All other amounts in this column representRepresents accumulated dividend payments to which the non-employee directors became entitled upon the vesting of underlying stock units in 2014.2016.
(3) Amounts reported for Mr. Mooney reflect compensation earned through April 15, 2014,
ITEM 4—APPROVAL OF THE NORTHERN TRUST CORPORATION 2017 LONG-TERM INCENTIVE PLAN
At the effective date of his retirement fromAnnual Meeting, our stockholders will be asked to approve the Northern Trust Corporation 2017 Long-Term Incentive Plan (the “2017 Plan”). The 2017 Plan was approved by the Board on February 21, 2017, subject to stockholder approval. The purposes of the 2017 Plan are to:
● | align the interests of our stockholders and recipients of awards under the 2017 Plan by increasing the proprietary interest of such recipients in the Corporation’s growth and success; |
● | advance the interests of the Corporation by attracting and retaining non-employee directors, officers, and other employees; |
● | motivate such persons to act in the long-term best interests of the Corporation and its stockholders; and |
● | further the Corporation’s risk mitigation strategy by enabling the Corporation to provide incentive compensation that appropriately balances risk and reward. |
Under the 2017 Plan, the Corporation may grant:
● | non-qualified stock options; |
● | incentive stock options (within the meaning of Section 422 of the Internal Revenue Code); |
● | stock appreciation rights (“SARs”), either in tandem with stock options (“tandem SARs”) or not in tandem with stock options (“free-standing SARs”); |
● | restricted stock, restricted stock units and other stock awards (collectively, “Stock Awards”); and |
● | performance awards representing the right to receive an amount of cash, common stock (including restricted stock), or a combination thereof, upon the satisfaction of specified performance measures within a specified period of time (“Performance Awards”). |
As of December 31, 2016, approximately 17,000 employees and thirteen non-employee directors would be eligible to participate in the 2017 Plan; however, employee participation in our long-term incentive plans has historically been limited to certain senior-level and other key employees of the Corporation and its subsidiaries, and this group included approximately 1,100 employees as of December 31, 2016. Upon approval of the 2017 Plan, no additional awards will be granted under the Northern Trust Corporation 2012 Stock Plan (the “2012 Stock Plan”).
The following features of the 2017 Plan are designed to reinforce alignment between the equity compensation arrangements awarded pursuant to the director retirement age2017 Plan and our stockholders’ interests:
● | administered by a committee of at least two directors, each of whom is independent; |
● | 20,000,000 shares initially available for awards; |
● | no discounting of stock options or SARs; |
● | no repricing or replacement of underwater stock options or SARs without stockholder approval; |
● | no dividend equivalents on stock options or SARs; |
● | no currently paid dividends or dividend equivalents on unearned Performance Awards or unvested Stock Awards; |
● | no liberal share recycling; |
● | no liberal change in control definition; and |
● | subject to certain exceptions, “double-trigger” vesting for the acceleration of equity awards following a change in control of the Corporation. |
The following description is qualified in its entirety by reference to the full text of the 2017 Plan, a copy of which is attached as Appendix A and incorporated into this Proxy Statement by reference.
Administration
The 2017 Plan will be administered by the Compensation and Benefits Committee of the Board, or a subcommittee thereof, or such other committee designated by the Board (as used in this Item 4, the “Committee”), in each case consisting of two or more members of the Board. Each member of the Committee is intended to be (i) a “Non-Employee Director” within the meaning of Rule 16b-3 under the Exchange Act, (ii) an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code, and (iii) “independent” within the meaning of applicable NASDAQ listing standards.
Subject to the express provisions of the 2017 Plan, the Committee has the authority to select eligible persons to receive awards and determine all of the terms and conditions of each award. All awards are evidenced by an agreement containing such provisions not inconsistent with the 2017 Plan as the Committee approves. The Committee also has authority to establish rules and regulations for administering the 2017 Plan and to decide questions of interpretation or application of any provision of the 2017 Plan. The Committee may, in its sole discretion and for any reason at any time, take action such that (i) any or all outstanding options and SARs become exercisable in part or in full, (ii) all or a portion of the restriction period applicable to any outstanding awards will lapse, (iii) all or a portion of any performance period applicable to any outstanding awards will lapse, and (iv) any performance measures applicable to any outstanding awards be deemed satisfied at the target, maximum or any other level.
The Committee may delegate some or all of its power and authority under the 2017 Plan to the Board, a subcommittee of the Board, a member of the Board, the Chief Executive Officer or other executive officer of the Corporation as the Committee deems appropriate, except that (i) it may not delegate its power and authority with regard to awards to persons who are “covered employees” within the meaning of Section 162(m) of the Internal Revenue Code or are likely to become such while an
award is outstanding, and (ii) it may not delegate its power and authority to a member of the Board, the Chief Executive Officer or any executive officer with regard to awards to persons subject to Section 16 of the Exchange Act.
Available Shares
Under the 2017 Plan, the maximum number of shares of common stock initially available for awards will be 20,000,000. This amount is subject to adjustment in the event of any equity restructuring that causes the per share value of shares of common stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary cash dividend. The number of available shares will be reduced by the aggregate number of shares of common stock which become subject to outstanding options, free-standing SARs, Stock Awards and Performance Awards. To the extent that shares of common stock subject to an outstanding award granted under the 2017 Plan or any other equity plan maintained by the Corporation under which awards are outstanding, including the 2012 Stock Plan (collectively, the “Prior Plans”), are not issued or delivered by reason of (i) the expiration, termination, cancellation or forfeiture of such award (excluding shares of common stock subject to an option cancelled upon settlement of a related tandem SAR or subject to a tandem SAR cancelled upon exercise of a related option), or (ii) the settlement of such award in cash, then such shares of common stock will again be available under the 2017 Plan. The number of shares that again become available in accordance with the preceding sentence will be equal to one share for each share subject to an option, free-standing SAR, Stock Award or Performance Award; provided, however, any shares from a Prior Plan that become available under the 2017 Plan in accordance with the preceding sentence will be calculated based on the share deduction ratio set forth in such Prior Plan (2.11 shares for Stock Awards and Performance Awards granted under the 2012 Stock Plan). Shares of common stock subject to an award under the 2017 Plan or a Prior Plan will not again be available for issuance under the 2017 Plan if such shares are (i) shares that were subject to an option or a stock-settled SAR and were not issued or delivered upon the net settlement or net exercise of such option or SAR, (ii) shares delivered to or withheld by the Corporation to pay the purchase price or the withholding taxes related to an outstanding award or (iii) shares repurchased by the Corporation on the open market with the proceeds of an option exercise. Under the terms of the 2017 Plan, all shares of common stock available for award may be granted as “incentive stock options.”
To the extent necessary for an award to be qualified performance-based compensation under Section 162(m) of the Internal Revenue Code, (i) the maximum number of shares of common stock with respect to which options or SARs, or a combination thereof, may be granted during any fiscal year to any person will be 1,000,000, subject to adjustment in the event of a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary cash dividend, (ii) the maximum number of shares of common stock with respect to which Stock Awards subject to performance measures or Performance Awards denominated in common stock that may be granted during any fiscal year of the Corporation to any person will be 500,000, subject to adjustment in the event of a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary cash dividend and (iii) the maximum amount that may be payable with respect to Performance Awards denominated in cash that may be granted during any fiscal year of the Corporation to any person will be $10,000,000; provided, however, each of the per person limits included in this sentence will be multiplied by two for awards granted to a participant in the year in which the participant’s employment with the Corporation commences. The aggregate value of cash compensation and the grant date fair value of shares of common stock that may be paid or granted during any fiscal year to any non-employee director will not exceed $500,000; provided, however, that the per person limit included in this sentence shall be multiplied by two with respect to compensation and awards granted to any non-executive chairman of the Board.
On February 27, 2017, the closing sale price of the Corporation’s Corporate Governance Guidelines.common stock, as reported on NASDAQ, was $87.53.
Eligibility
Participants in the 2017 Plan will consist of such officers, other employees, and non-employee directors of the Corporation and its subsidiaries (and such persons who are expected to become any of the foregoing) as selected by the Committee.
Types of Awards
Stock Options and SARs
The 2017 Plan provides for the grant of stock options and SARs. An option is the right to purchase a specified number of shares of common stock at such exercise price as is fixed by the Committee on the date of grant. An SAR is the right to receive upon exercise shares of common stock (which may be restricted stock) or, to the extent provided in the award agreement, cash or a combination thereof, with an aggregate value equal to the difference between the fair market value of a share of common stock on the exercise date and the base price of the SAR. The Committee will determine the conditions to the exercisability of each option and SAR.
Each option will be exercisable for no more than ten years after its date of grant. If the option is an incentive stock option and the optionee owns greater than ten percent of the voting power of all shares of capital stock of the Corporation (a “ten percent holder”), then the option will be exercisable for no more than five years after its date of grant. Except in the case of substitute awards granted in connection with a corporate transaction, the purchase price of an option will not be less than 100% of the fair market value of a share of common stock on the date of grant, unless the option is an incentive stock option and the optionee is a ten percent holder, in which case the purchase price will be the price required by the Internal Revenue Code.
Each SAR will be exercisable for a period determined by the Committee, with no free-standing SAR exercisable later than ten years after its date of grant. Other than in the case of substitute awards granted in connection with a corporate transaction, the base price of an SAR will not be less than 100% of the fair market value of a share of common stock on the date of grant, provided that the base price of a tandem SAR granted will be the exercise price of the related option.
All of the terms relating to the exercise, cancellation or other disposition of stock options and SARs (i) upon a termination of employment of a participant, whether by reason of disability, retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, are determined by the Committee. Notwithstanding anything in the award agreement to the contrary, the holder of an option or SAR will not be entitled to receive dividend equivalents with respect to the shares of common stock subject to such option or SAR.
Stock Awards
The 2017 Plan provides for the grant of Stock Awards. The Committee may grant a Stock Award as a restricted stock award, restricted stock unit award or other stock award. Restricted stock is common stock that, during a period designated by the Committee (the “Restriction Period”), may not be sold, transferred, assigned, pledged, hypothecated or otherwise encumbered or disposed of by the
participant. A restricted stock unit is the right to receive shares of common stock (or, to the extent permitted in the award agreement, the fair market value in cash of such shares), subject to the expiration of a specified Restriction Period. Other stock awards include, without limitation, shares of immediately vested common stock granted as a bonus, dividend equivalents, deferred stock units, stock purchase rights and shares of common stock issued in lieu of obligations of the Corporation to pay cash under any compensatory plan or arrangement. Restricted stock awards and restricted stock unit awards are subject to forfeiture if the holder does not remain continuously in the employment of the Corporation or its subsidiaries during the Restriction Period or if specified performance measures (if any) are not attained during the performance period.
Unless otherwise set forth in a restricted stock award agreement, the holder of shares of restricted stock has rights as a stockholder of the Corporation, including the right to vote and receive dividends with respect to shares of restricted stock and to participate in any capital adjustments applicable to all holders of the Corporation’s common stock; provided, however, that a distribution with respect to shares of common stock, including a regular cash dividend, will be deposited by the Corporation and will be subject to the same restrictions as the restricted stock.
The agreement awarding restricted stock units will specify (i) whether such award may be settled in shares of common stock, cash or a combination thereof, and (ii) whether the holder will be entitled to receive dividend equivalents, and, if determined by the Committee, interest on, or the deemed reinvestment of, any deferred dividend equivalents, with respect to the number of shares of common stock subject to such award. Any dividend equivalents with respect to restricted stock units will be subject to the same restrictions as such restricted stock units. Prior to settlement of a restricted stock unit in shares of common stock, the holder of a restricted stock unit has no rights as a stockholder of the Corporation.
All of the terms relating to the satisfaction of performance measures and the termination of a Restriction Period or performance period relating to a Stock Award, or the forfeiture and cancellation of a Stock Award (i) upon a termination of employment, whether by reason of disability, retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, will be determined by the Committee.
Performance Awards
The 2017 Plan also provides for the grant of Performance Awards. A Performance Award is the right to receive an amount of cash, common stock (including restricted stock), or a combination thereof, upon the satisfaction of specified performance measures within a specified period of time. The agreement relating to a Performance Award will specify whether such award may be settled in shares of common stock (including shares of restricted stock) or cash or a combination thereof. The agreement relating to a Performance Award will provide, in the manner determined by the Committee, for the vesting of such Performance Award if the specified performance measures are satisfied or met during the specified performance period and for the forfeiture of such award if the specified performance measures are not satisfied or met during the specified performance period. Any dividends or dividend equivalents with respect to a Performance Award will be subject to the same restrictions as such Performance Award. Prior to the settlement of a Performance Award in shares of common stock, the holder of such award has no rights as a stockholder of the Corporation with respect to such shares. All of the terms relating to the satisfaction of performance measures and the termination of a performance period, or the forfeiture and cancellation of a Performance Award upon (i) a termination of employment, whether by reason of disability, retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, will be determined by the Committee.
Performance Measures
Under the 2017 Plan, the grant, vesting, exercisability or payment of certain awards, or the receipt of shares of common stock subject to certain awards, may be made subject to the satisfaction of performance measures. The performance goals applicable to a particular award will be determined by the Committee at the time of grant. To the extent an award is intended to qualify for the performance-based exemption from the $1 million deduction limit under Section 162(m), as described under “Federal Income Tax Consequences—Section 162(m)” below, the performance goals will be one or more of the following corporate-wide or subsidiary, division, operating unit, line of business, project, geographic or individual measures: (i) the attainment by a share of common stock of a specified fair market value for a specified period of time;(ii) increase in stockholder value; (iii) earnings or earnings per share; (iv) return on assets or net assets; (v) return on equity; (vi) return on investments; (vii) return on capital or invested capital; (viii) total stockholder return; (ix) earnings or income of the Corporation before or after taxes and/or interest; (x) earnings before interest, taxes, depreciation and amortization (“EBITDA”); (xi) EBITDA margin; (xii) operating income; (xiii) revenues; (xiv) operating expenses, attainment of expense levels, or the ratio of expenses to trust and investment fees; (xv) cost reduction goals; (xvi) market share; (xvii) cash flow, cash flow per share, cash flow margin or free cash flow; (xviii) interest expense; (xix) economic value created; (xx) gross profit or margin; (xxi) operating profit or margin; (xxii) net cash provided by operations; (xxiii) price-to-earnings growth; (xxiv) credit quality; (xxv) operating leverage; (xxvi) regulatory capital ratios; and (xxvii) strategic business criteria, consisting of one or more objectives based on meeting specified goals relating to market penetration, customer acquisition, business expansion, cost targets, customer satisfaction, reductions in errors and omissions, reductions in lost business, management of employment practices and employee benefits, supervision of litigation, supervision of information technology, quality and quality audit scores, efficiency, acquisitions or divestitures, or any combination of the foregoing goals.
Each goal may be expressed on an absolute or relative basis and may include comparisons based on current internal targets, the past performance of the Corporation (including the performance of one or more subsidiaries, divisions, or operating units) or the past or current performance of other companies or market indices (or a combination of such past and current performance). Performance goals may include comparisons relating to capital (including, but not limited to, the cost of capital), stockholders’ equity, shares outstanding, assets or net assets, sales, or any combination thereof. The applicable performance measures may be applied on a pre- or post-tax basis and may be adjusted in accordance with Section 162(m) of the Internal Revenue Code to include or exclude objectively determinable components of any performance measure, including, without limitation: (i) foreign exchange gains and losses; (ii) asset write-downs; (iii) acquisitions and divestitures; (iv) change in fiscal year; (v) unbudgeted capital expenditures; (vi) special charges such as restructuring or impairment charges; (vii) debt refinancing costs; (viii) extraordinary or noncash items; (ix) unusual, infrequently occurring, nonrecurring or one-time events affecting the Corporation or its financial statements; or (x) changes in law or accounting principles (“Adjustment Events”). In the sole discretion of the Committee, unless such action would cause a grant to a “covered employee” within the meaning of Section 162(m) of the Internal Revenue Code to fail to qualify as qualified performance-based compensation under Section 162(m) of the Internal Revenue Code, the Committee may amend or adjust the performance measures or other terms and conditions of an outstanding award in recognition of any Adjustment Events.
Change in Control
Under the terms of the 2017 Plan, a change in control is generally defined as (i) the election to our Board, without recommendation or approval of two-thirds of the incumbent Board, of directors constituting a majority of the number of directors of the Corporation then in office; (ii) certain acquisitions of securities of the Corporation representing 30% or more of the combined voting power of the Corporation’s then-outstanding securities; (iii) the consummation of certain mergers, consolidations, statutory share exchanges or similar corporate transactions involving the Corporation or any of its subsidiaries; or (iv) the consummation of a sale of all or substantially all of the Corporation’s assets or stockholder approval of a complete liquidation or dissolution of the Corporation.
In the case of change in control in which outstanding awards are not effectively replaced in accordance with the terms of the 2017 Plan, then, upon such change in control, all outstanding stock options and SARs will become immediately exercisable and remain exercisable for the remainder of their term, all restrictions on Stock Awards will lapse and all Stock Awards will become fully vested and Performance Awards will vest or become exercisable or payable in accordance with the applicable award agreement. In addition, our Board (as constituted before the change in control) may, in its sole discretion, require outstanding awards, in whole or in part, to be cancelled, and to provide for the holder to receive a cash payment (or shares in the resulting corporation or its parent corporation) in an amount (or having a value) equal to (i) in the case of a stock option or SAR, the number of shares then subject to the portion of such award cancelled multiplied by the excess, if any, of the highest per share price offered to holders of common stock in the change in control transaction, over the purchase price or base price per share subject to the award, (ii) in the case of Stock Awards and Performance Awards denominated in common stock, the number of shares of common stock then subject to the portion of such award cancelled to the extent the performance criteria (if any) applicable to such award are satisfied multiplied by the highest per share price offered to holders of common stock in the change in control transaction and (iii) in the case of Stock Awards and Performance Awards denominated in cash, the value of the award then subject to the portion of such award surrendered to the extent the performance criteria applicable to such award are satisfied.
In the event of the termination of a participant’s employment by the Corporation or any of its subsidiaries without cause or, to the extent permitted in the award agreement, the termination of a participant’s employment by the participant due to constructive termination or good reason, in each case, within the 24-month period following the occurrence of a change in control in which the outstanding awards were effectively assumed or otherwise remained outstanding, then, upon such termination of employment, all outstanding stock options and SARs will become immediately exercisable and remain exercisable for the remainder of their term, all restrictions on Stock Awards will lapse and all Stock Awards will become fully vested and Performance Awards will vest or become exercisable or payable in accordance with the applicable award agreement.
No Repricing
The Committee may not, without the approval of stockholders, (i) reduce the purchase price or base price of any previously granted stock option or SAR, (ii) cancel any previously granted stock option or SAR in exchange for another stock option or SAR with a lower purchase price or base price or (iii) cancel any previously granted stock option or SAR in exchange for cash or another award if the purchase price of such stock option or the base price of such SAR exceeds the fair market value of a share of common stock on the date of such cancellation, in each case, other than in connection with a change in control or pursuant to the plan’s adjustment provisions.
Clawback of Awards
The awards granted under the 2017 Plan and any cash payment or shares of common stock delivered pursuant to an award are subject to forfeiture, recovery by the Corporation or other action pursuant to the applicable award agreement or any clawback or recoupment policy which the Corporation may adopt from time to time, including any such policy which the Corporation may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by law.
Effective Date, Termination and Amendment
The 2017 Plan will become effective as of the date of stockholder approval and will terminate as of the first annual meeting of the Corporation’s stockholders to occur on or after the tenth anniversary of the date of such stockholder approval, unless earlier terminated by our Board. The Board may amend the 2017 Plan at any time, subject to any requirement of stockholder approval required by applicable law, rule or regulation, including Section 162(m) of the Internal Revenue Code and any rule of NASDAQ, and provided that no amendment may be made that seeks to modify the prohibition on repricing of stock options and SARs without stockholder approval under the 2017 Plan or that materially impairs the rights of a holder of an outstanding award without the consent of such holder.
The number of stock options and other forms of awards that will be granted under the 2017 Plan is not currently determinable.
Federal Income Tax Consequences
The following is a brief summary of certain U.S. federal income tax consequences generally arising with respect to awards under the 2017 Plan. This discussion does not address all aspects of the U.S. federal income tax consequences of participating in the 2017 Plan that may be relevant to participants in light of their personal investment or tax circumstances and does not discuss any state, local or non-U.S. tax consequences of participating in the 2017 Plan. Each participant is advised to consult his or her particular tax advisor concerning the application of the U.S. federal income tax laws to such participant’s particular situation, as well as the applicability and effect of any state, local or non-U.S. tax laws before taking any actions with respect to any awards.
Section 162(m)
Section 162(m) generally limits to $1 million the amount that a publicly held corporation is allowed each year to deduct for the compensation paid to the corporation’s chief executive officer and the corporation’s three most highly compensated executive officers other than the chief executive officer or the chief financial officer. However, “qualified performance-based compensation” is not subject to the $1 million deduction limit. To qualify as performance-based compensation, the following requirements must be satisfied: (i) the performance goals are determined by a committee consisting solely of two or more “outside directors;” (ii) the material terms under which the compensation is to be paid, including the performance goals, are disclosed to and approved by the corporation’s stockholders; and (iii) the committee certifies that the applicable performance goals were satisfied before payment of any performance-based compensation is made.
Stock Options
A participant will not recognize taxable income at the time an option is granted and the Corporation will not be entitled to a tax deduction at that time. A participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) upon exercise of a non-qualified stock option equal to the excess of the fair market value of the shares purchased over their purchase price, and the Corporation will be entitled to a corresponding deduction. A participant will not recognize income (except for purposes of the alternative minimum tax) upon exercise of an incentive stock option. If the shares acquired by exercise of an incentive stock option are held for the longer of two years from the date the option was granted and one year from the date it was exercised, any gain or loss arising from a subsequent disposition of those shares will be taxed as long-term capital gain or loss, and the Corporation will not be entitled to any deduction. If, however, those shares are disposed of within the above-described period, then in the year of that disposition the participant will recognize compensation taxable as ordinary income equal to the excess of the lesser of (i) the amount realized upon that disposition, and (ii) the excess of the fair market value of those shares on the date of exercise over the purchase price, and the Corporation will be entitled to a corresponding deduction.
SARs
A participant will not recognize taxable income at the time SARs are granted and the Corporation will not be entitled to a tax deduction at that time. Upon exercise, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) in an amount equal to the fair market value of any shares delivered and the amount of cash paid by the Corporation, and the Corporation will be entitled to a corresponding deduction.
Stock Awards
A participant will not recognize taxable income at the time restricted stock is granted and the Corporation will not be entitled to a tax deduction at that time, unless the participant makes an election to be taxed at that time. If such election is made, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time of the grant in an amount equal to the excess of the fair market value for the shares at such time over the amount, if any, paid for those shares. If such election is not made, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time the restrictions constituting a substantial risk of forfeiture lapse in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for those shares. The amount of ordinary income recognized by making the above-described election or upon the lapse of restrictions constituting a substantial risk of forfeiture is deductible by the Corporation as compensation expense, except to the extent the deduction limits of Section 162(m) of the Internal Revenue Code apply.
A participant will not recognize taxable income at the time a restricted stock unit is granted and the Corporation will not be entitled to a tax deduction at that time. Upon settlement of restricted stock units, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) in an amount equal to the fair market value of any shares delivered and the amount of any cash paid by the Corporation, and the Corporation will be entitled to a corresponding deduction, except to the extent the deduction limits of Section 162(m) of the Internal Revenue Code apply.
A participant who receives shares of common stock that are not subject to any restrictions under the 2017 Plan will recognize compensation taxable as ordinary income on the date of grant in an amount equal to the fair market value of such shares on that date, and the Corporation will be entitled to a corresponding deduction, except to the extent the deduction limits of Section 162(m) of the Internal Revenue Code apply.
Performance Awards
A participant will not recognize taxable income at the time Performance Awards are granted and the Corporation will not be entitled to a tax deduction at that time. Upon settlement of Performance Awards, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) in an amount equal to the fair market value of any shares delivered and the amount of any cash paid by the Corporation, and the Corporation will be entitled to a corresponding deduction, except to the extent the deduction limits of Section 162(m) of the Internal Revenue Code apply.
The Board unanimously recommends that you voteFOR the approval of the Northern Trust Corporation 2017 Long-Term Incentive Plan.
EQUITY COMPENSATION PLAN 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, 2014.2016.
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 ($) | Number of Securities Remaining Available for Issuance under Equity Compensation Plans (Excluding Securities Reflected in (#) | |||||||||
Equity compensation plans approved by stockholders | 13,302,608 | $ | 54.70 | (1) | 29,803,955 | (2) | ||||||
Equity compensation plans not approved by stockholders | 109,002 | (3) | N/A | — | ||||||||
Total | 13,411,610 | $ | 54.70 | (1) | 29,803,955 |
Plan Category | Number of Securities (#) | Weighted-Average ($) | Number of Securities (#) | |||||||||
Equity compensation plans approved by stockholders | 9,384,042 | (1) | $ | 55.20 | (2) | 20,022,297 | (3) | |||||
Equity compensation plans not approved by stockholders | 2,100 | (4) | N/A | N/A | ||||||||
Total | 9,386,142 | $ | 55.20 | (2) | 20,022,297 |
(1) Includes shares of common stock underlying outstanding or deferred restricted stock unit, performance stock unit and stock option awards.
(2) Restricted stock units and performance stock units are excluded when determining the weighted-average exercise price of outstanding options.price.
(2)(3) All shares are available for issuance under the Corporation’s 2012 Stock Plan. As noted under “Item 4—Approval of the Northern Trust Corporation 2017 Long-Term Incentive Plan” beginning on page 78, upon approval of the 2017 Plan no additional awards will be granted under the 2012 Stock Plan.
(3)(4) Consists of shares of common stock underlying stock units that have been deferred at the election of certain directors pursuant 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.
The Audit Committee is responsible for providing oversight of the Corporation’s financial reporting functions and internal controls.control over financial reporting. The Audit Committee’s function is one of oversight, recognizing that: (i) management is responsible for the complete and accurate preparation of the Corporation’s financial statements;statements, including internal control over financial reporting; and (ii) KPMG LLP, the Corporation’s independent registered public accounting firm, is responsible for performing an audit on such financial statements and expressing an opinion as to whether they are free of material misstatement and presented in accordance with U.S. generally accepted accounting principles. 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, 2014.2016. 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 Public Company Accounting Oversight Board Rule 3526, “Communication with Audit Committees Concerning Independence” and has conducted a discussion with KMPG LLP regarding its independence. The Audit Committee also considered whether the provision of non-audit services by KPMG LLP to the Corporation for the fiscal year ended December 31, 20142016 is compatible with maintaining KPMG LLP’s independence.
Based on the above-mentioned reviews and discussions, and subject to the limitations on the role and responsibilities of the Audit Committee referred to above, the Audit Committee recommended to the Board that the Corporation’s audited consolidated financial statements be included in its Annual Report on Form 10-K for the year ended December 31, 2014,2016 for filing with the SEC.
Audit Committee
David H. B. Smith, Jr. (Chair)
Nicholas D. ChabrajaDean M. Harrison
Dipak C. Jain
Jose Luis PradoMartin P. Slark
Donald Thompson
Fees of Independent Registered Public Accounting Firm
Description of Fees | 2014 | 2013 | 2016 | 2015 | ||||||||||||
Audit Fees | $ | 4,446,680 | $ | 4,187,380 | $ | 5,084,731 | $ | 4,995,395 | ||||||||
Audit-Related Fees | 2,244,030 | 2,194,300 | 2,891,256 | 2,638,295 | ||||||||||||
Tax Fees | 126,937 | 148,334 | 136,721 | 150,467 | ||||||||||||
All Other Fees | 16,550 | 57,600 | 146,766 | 811,634 | ||||||||||||
Total | $ | 6,834,197 | $ | 6,587,614 | $ | 8,259,474 | $ | 8,595,791 |
Audit Fees include fees for professional services rendered for the annual integrated audit of the Corporation’s consolidated financial statements for the fiscal year (including services relating to the audit of internal control over financial reporting) audits of subsidiary financial statements and reviews of the financial statements included in the Corporation’s Quarterly Reports on Form 10-Q.
Audit-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, internal control reviews, and other attestation services.
Tax Feesinclude fees for tax return preparation, tax compliance and tax advice.
All Other Fees include fees for all services other than Audit Fees, Audit-Related Fees, and Tax Fees, including ancillary services provided to the Corporation’s foreign subsidiaries in connection with certain foreign-jurisdiction requirements.various advisory and assurance services.
Pre-Approval Policies and Procedures of the Audit Committee
The Audit Committee has in place a policy regarding the engagement of independent public accounting firms to provide auditor services to the Corporation. The purpose of the policy 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, taxand non-audit services, and non-auditincluding tax services. The policy 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 policy provides that the independent registered public accounting firm may be engaged to provide only those non-audit services: (i) that are permitted by 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: (a) audit its own work; (b) perform management functions; or (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, as set forth in the policy.
All audit, audit-related, tax and other services provided by KPMG LLP in 20142016 were pre-approved in accordance with the Audit Committee’s policy regarding the engagement of independent public accounting firms to provide auditor services to the Corporation.
ITEM 35—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, 2015,2017, 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, 2014.2016. 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 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 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, 2015.
ITEM 4—STOCKHOLDER PROPOSAL REGARDING ADDITIONAL DISCLOSURE OF
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 Massachusetts Laborers’ Pension Fund, P.O. Box 3005, 14 New England Executive Park, Suite 200, Burlington, Massachusetts 01803, the owner of approximately 400 shares of our common stock, has given the Corporation notice that its representative intends to present this proposal at the Annual Meeting.
Resolved, that the shareholders of Northern Trust Corporation (“Northern Trust” or “Company”) hereby request that the Company 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 ordinary 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 speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.”
Gaps in transparency and accountability may expose the company to reputational and business risks that could threaten long-term shareholder value. Moreover, publicly available data does not provide a complete picture of the Company’s lobbying or political expenditures. Thus the Company’s payments to trade associations for these purposes 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 be significant. A 2010Bloomberg story reported that several health insurers donated $86.2 million to the U.S. Chamber of Commerce in 2009-10 for advertisements, polling and grassroots events to drum up opposition to health care reform legislation. A former Federal Election Commission chairman described this figure as “breathtaking”.
We believe that shareholders need improved disclosure in order to fully evaluate the use of corporate assets on these activities. Thus, we urge you to vote FOR this critical governance reform.
Statement of the Board of Directors in Opposition to the Stockholder Proposal
The Board of Directors believes that the proponent’s proposal is not in the best interests of Northern Trust and its stockholders and unanimously recommends a voteAGAINST the 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 potential impact that public policy changes can have on Northern Trust’s business and its stakeholders requires Northern Trust to participate in the political process to advance and protect 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 be of no appreciable benefit to stockholders. As required by law, each Northern Trust PAC reports its contributions on a periodic basis to the Federal Election Commission and appropriate state election authorities. In addition, Northern Trust is required to comply with United States federal and state laws and regulations regarding the disclosure of certain lobbying activities. These reports and disclosures are publicly available and there are direct links to 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 duplicative and unwarranted, and would cause the Corporation to expend unnecessary time and resources without providing any appreciable benefit to its stockholders.
The Board of Directors unanimously recommends that you voteAGAINST the proposal.2017.
STOCKHOLDER PROPOSALS FOR 20162018 ANNUAL MEETING
Any stockholder proposals for the Corporation’s 20162018 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, 201516, 2017 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.
Also, under the Corporation’s 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, no earlier than November 23, 201526, 2017 and no later than December 23, 2015.26, 2017. If the 20162018 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 20162018 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.
Appendix A
NORTHERN TRUST CORPORATION
2017 LONG-TERM INCENTIVE PLAN
I. INTRODUCTION
1.1Purposes. The purposes of the Northern Trust Corporation 2017 Long-Term Incentive Plan (this “Plan”) are (i) to align the interests of the Corporation’s stockholders and the recipients of awards under this Plan by increasing the proprietary interest of such recipients in the Corporation’s growth and success, (ii) to advance the interests of the Corporation by attracting and retaining Non-Employee Directors, officers, and other employees, (iii) to motivate such persons to act in thelong-term best interests of the Corporation and its stockholders and (iv) to further the Corporation’s risk mitigation strategy by enabling the Corporation to provide incentive compensation that appropriately balances risk and reward.
1.2Certain Definitions.
“Affiliate” shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act.
“Agreement” shall mean the written or electronic agreement evidencing an award hereunder between the Corporation and the recipient of such award.
“Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities with respect to which such Person has properly filed a form 13-G.
“Board” shall mean the Board of Directors of the Corporation.
“Change in Control” shall have the meaning set forth inSection 5.8(c).
“Code” shall mean the Internal Revenue Code of 1986, as amended.
“Committee” shall mean the Compensation and Benefits Committee of the Board, or a subcommittee thereof, or such other committee designated by the Board, in each case, consisting of two or more members of the Board, each of whom is intended to be (i) a “Non-Employee Director” within the meaning of Rule 16b-3 under the Exchange Act, (ii) an “outside director” within the meaning of Section 162(m) of the Code and (iii) “independent” within the meaning of the rules of the NASDAQ Stock Market or, if the Common Stock is not listed on the NASDAQ Stock Market, within the meaning of the rules of the principal stock exchange on which the Common Stock is then traded.
“Common Stock” shall mean the common stock, par value $1.66 2/3 per share, of the Corporation, and all rights appurtenant thereto.
“Corporation” shall mean Northern Trust Corporation, a corporation organized under the laws of the State of Delaware, or any successor thereto.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
“Fair Market Value” shall mean the fair market value of the Common Stock, as determined by the Committee and, to the extent applicable, in compliance with Section 409A of the Code.
“Free-Standing SAR” shall mean an SAR which is not granted in tandem with, or by reference to, an option, which entitles the holder thereof to receive, upon exercise, shares of Common Stock (which may be Restricted Stock) or, to the extent set forth in the applicable Agreement, cash or a combination thereof, with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of such SARs which are exercised.
“Incentive Stock Option” shall mean an option to purchase shares of Common Stock that meets the requirements of Section 422 of the Code, or any successor provision, which is intended by the Committee to constitute an Incentive Stock Option.
“Non-Employee Director” shall mean any director or advisory director of the Corporation who is not an officer or employee of the Corporation or any Subsidiary.
“Nonqualified Stock Option” shall mean an option to purchase shares of Common Stock which is not an Incentive Stock Option.
“Other Stock Award” shall mean an award granted pursuant toSection 3.4 of the Plan.
“Performance Award” shall mean a right to receive an amount of cash, Common Stock, or a combination of both, contingent upon the attainment of specified Performance Measures within a specified Performance Period.
“Performance Measures” shall mean the criteria and objectives, established by the Committee, which shall be satisfied or met (i) as a condition to the grant or exercisability of all or a portion of an option or SAR or (ii) during the applicable Restriction Period or Performance Period as a condition to the vesting of the holder’s interest, in the case of a Restricted Stock Award, of the shares of Common Stock subject to such award, or, in the case of a Restricted Stock Unit Award, Other Stock Award or Performance Award, to the holder’s receipt of the shares of Common Stock subject to such award or of payment with respect to such award. To the extent necessary for an award to be qualified performance-based compensation under Section 162(m) of the Code and the regulations thereunder, such criteria and objectives shall include one or more of the following corporate-wide or Subsidiary, division, operating unit, line of business, project, geographic or individual measures: the attainment by a share of Common Stock of a specified Fair Market Value for a specified period of time; increase in stockholder value; earnings or earnings per share; return on assets or net assets; return on equity; return on investments; return on capital or invested capital; total stockholder return; earnings or income of the Corporation before or after taxes and/or interest; earnings before interest, taxes, depreciation and amortization (“EBITDA”); EBITDA margin; operating income; revenues; operating expenses, attainment of expense levels, or the ratio of expenses to trust and investment fees; cost reduction goals; market share; cash flow, cash flow per share, cash flow margin or free cash flow; interest expense; economic value created; gross profit or margin; operating profit or margin; net cash provided by operations; price-to-earnings growth; credit quality; operating leverage; regulatory capital ratios; and strategic business criteria, consisting of one or more objectives based on meeting specified goals relating to market penetration, customer acquisition, business expansion, cost targets, customer satisfaction, reductions in errors and omissions, reductions in lost business, management of employment practices and employee benefits, supervision of litigation, supervision of information technology, quality and quality audit scores, efficiency, and acquisitions or divestitures, or any combination of the foregoing. Each such goal may be expressed on an absolute or relative basis and
may include comparisons based on current internal targets, the past performance of the Corporation (including the performance of one or more Subsidiaries, divisions, or operating units) or the past or current performance of other companies or market indices (or a combination of such past and current performance). In addition to the ratios specifically enumerated above, performance goals may include comparisons relating to capital (including, but not limited to, the cost of capital), stockholders’ equity, shares outstanding, assets or net assets, sales, or any combination thereof. The applicable performance measures may be applied on a pre- or post-tax basis and may be adjusted in accordance with Section 162(m) of the Code to include or exclude objectively determinable components of any performance measure, including, without limitation, foreign exchange gains and losses, asset writedowns, acquisitions and divestitures, change in fiscal year, unbudgeted capital expenditures, special charges such as restructuring or impairment charges, debt refinancing costs, extraordinary or noncash items, unusual, infrequently occurring, nonrecurring or one-time events affecting the Corporation or its financial statements or changes in law or accounting principles (“Adjustment Events”). In the sole discretion of the Committee, unless such action would cause a grant to a covered employee to fail to qualify as qualified performance-based compensation under Section 162(m) of the Code, the Committee may amend or adjust the Performance Measures or other terms and conditions of an outstanding award in recognition of any Adjustment Events. With respect to participants who are not “covered employees” within the meaning of Section 162(m) of the Code and who, in the Committee’s judgment, are not likely to be covered employees at any time during the applicable performance period or during any period in which an award may be paid following a performance period, the performance goals may consist of any objective or subjective corporate-wide or Subsidiary, division, operating unit or individual measures, whether or not listed herein. Performance goals shall be subject to such other special rules and conditions as the Committee may establish at any time;provided,however, that to the extent such goals relate to awards to “covered employees” within the meaning of Section 162(m) of the Code, such special rules and conditions shall not be inconsistent with the provisions of Treasury regulation Section 1.162-27(e) or any successor regulation describing “qualified performance-based compensation.”
“Performance Period” shall mean any period designated by the Committee during which (i) the Performance Measures applicable to an award shall be measured and (ii) the conditions to vesting applicable to an award shall remain in effect.
“Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Corporation or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefits plan of the Corporation or any of its Subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation.
“Prior Plan” shall mean the Northern Trust Corporation 2012 Stock Plan and each other equity plan maintained by the Corporation under which awards are outstanding as of the effective date of this Plan.
“Replacement Award” shall mean an award granted in place of outstanding awards in connection with a Change in Control if: (i) it is of the same type as the replaced award; (ii) it has a value intended to preserve the value of the replaced award; (iii) it relates to publicly traded equity securities of the Corporation or its successor in the Change in Control or another entity that is affiliated
with the Corporation or its successor following the Change in Control; and (iv) its other terms and conditions are not less favorable to the participant than the terms and conditions of the replaced award (including the provisions that would apply in the event of a subsequent Change in Control). Without limiting the generality of the foregoing, the Replacement Award may take the form of a continuation of the replaced award if the requirements of the preceding sentence are satisfied. The determination of whether the conditions for Replacement Awards are satisfied shall be made by the Board, as constituted immediately before the Change in Control, in its sole discretion.
“Restricted Stock” shall mean shares of Common Stock which are subject to a Restriction Period and which may, in addition thereto, be subject to the attainment of specified Performance Measures within a specified Performance Period.
“Restricted Stock Award” shall mean an award of Restricted Stock under this Plan.
“Restricted Stock Unit” shall mean a right to receive one share of Common Stock or, in lieu thereof and to the extent set forth in the applicable Agreement, the Fair Market Value of such share of Common Stock in cash, which shall be contingent upon the expiration of a specified Restriction Period and which may, in addition thereto, be contingent upon the attainment of specified Performance Measures within a specified Performance Period.
“Restricted Stock Unit Award” shall mean an award of Restricted Stock Units under this Plan.
“Restriction Period” shall mean any period designated by the Committee during which (i) the Common Stock subject to a Restricted Stock Award may not be sold, transferred, assigned, pledged, hypothecated or otherwise encumbered or disposed of, except as provided in this Plan or the Agreement relating to such award, or (ii) the conditions to vesting applicable to a Restricted Stock Unit Award or Other Stock Award shall remain in effect.
“SAR” shall mean a stock appreciation right which may be aFree-Standing SAR or a Tandem SAR.
“Stock Award” shall mean a Restricted Stock Award, Restricted Stock Unit Award or Other Stock Award.
“Subsidiary” shall mean any corporation, limited liability company, partnership, joint venture or similar entity in which the Corporation owns, directly or indirectly, an equity interest possessing more than 50% of the combined voting power of the total outstanding equity interests of such entity.
“Substitute Award” shall mean an award granted under this Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity in connection with a corporate transaction, including a merger, combination, consolidation or acquisition of property or stock;provided,however, that in no event shall the term “Substitute Award” be construed to refer to an award made in connection with the cancellation and repricing of an option or SAR.
“Tandem SAR” shall mean an SAR which is granted in tandem with, or by reference to, an option (including a Nonqualified Stock Option granted prior to the date of grant of the SAR), which
entitles the holder thereof to receive, upon exercise of such SAR and surrender for cancellation of all or a portion of such option, shares of Common Stock (which may be Restricted Stock) or, to the extent set forth in the applicable Agreement, cash or a combination thereof, with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of shares of Common Stock subject to such option, or portion thereof, which is surrendered.
“Tax Date” shall have the meaning set forth inSection 5.5.
“Ten Percent Holder” shall have the meaning set forth inSection 2.1(a).
1.3Administration. This Plan shall be administered by the Committee. Any one or a combination of the following awards may be made under this Plan to eligible persons: (i) options to purchase shares of Common Stock in the form of Incentive Stock Options or Nonqualified Stock Options; (ii) SARs in the form of Tandem SARs orFree-Standing SARs; (iii) Stock Awards in the form of Restricted Stock, Restricted Stock Units or Other Stock Awards; and (iv) Performance Awards. The Committee shall, subject to the terms of this Plan, select eligible persons for participation in this Plan and determine the form, amount and timing of each award to such persons and, if applicable, the number of shares of Common Stock subject to an award, the number of SARs, the number of Restricted Stock Units, the dollar value subject to a Performance Award, the purchase price or base price associated with the award, the time and conditions of exercise or settlement of the award and all other terms and conditions of the award, including, without limitation, the form of the Agreement evidencing the award. The Committee may, in its sole discretion and for any reason at any time, take action such that (i) any or all outstanding options and SARs shall become exercisable in part or in full, (ii) all or a portion of the Restriction Period applicable to any outstanding awards shall lapse, (iii) all or a portion of the Performance Period applicable to any outstanding awards shall lapse and (iv) the Performance Measures (if any) applicable to any outstanding awards shall be deemed to be satisfied at the target, maximum or any other level. The Committee shall, subject to the terms of this Plan, interpret this Plan and the application thereof, establish rules and regulations it deems necessary or desirable for the administration of this Plan and may impose, incidental to the grant of an award, conditions with respect to the award, such as limiting competitive employment or other activities. All such interpretations, rules, regulations and conditions shall be conclusive and binding on all parties.
The Committee may delegate some or all of its power and authority hereunder to the Board (or any members thereof) or, subject to applicable law, to a subcommittee of the Board, a member of the Board, the Chief Executive Officer or other executive officer of the Corporation as the Committee deems appropriate;provided,however, that (i) the Committee may not delegate its power and authority to the Board (or any members thereof) or the Chief Executive Officer or other executive officer of the Corporation with regard to the grant of an award to any person who is a “covered employee” within the meaning of Section 162(m) of the Code or who, in the Committee’s judgment, is likely to be a covered employee at any time during the period an award hereunder to such employee would be outstanding and (ii) the Committee may not delegate its power and authority to a member of the Board, the Chief Executive Officer or other executive officer of the Corporation with regard to the selection for participation in this Plan of an officer, director or other person subject to Section 16 of the Exchange Act or decisions concerning the timing, pricing or amount of an award to such an officer, director or other person.
No member of the Board or Committee, and neither the Chief Executive Officer nor any other executive officer to whom the Committee delegates any of its power and authority hereunder, shall be
liable for any act, omission, interpretation, construction or determination made in connection with this Plan in good faith, and the members of the Board and the Committee and the Chief Executive Officer or other executive officer shall be entitled to indemnification and reimbursement by the Corporation in respect of any claim, loss, damage or expense (including attorneys’ fees) arising therefrom to the full extent permitted by law (except as otherwise may be provided in the Corporation’s Certificate of Incorporation and/or By-laws) and under any directors’ and officers’ liability insurance that may be in effect from time to time.
1.4Eligibility. Participants in this Plan shall consist of such officers, other employees, Non-Employee Directors, and persons expected to become officers, other employees, and Non-Employee Directors of the Corporation and its Subsidiaries as the Committee in its sole discretion may select from time to time. The Committee’s selection of a person to participate in this Plan at any time shall not require the Committee to select such person to participate in this Plan at any other time. Except as otherwise provided for in an Agreement, for purposes of this Plan, references to employment by the Corporation shall also mean employment by a Subsidiary, and references to employment shall include service as a Non-Employee Director. The Committee shall determine, in its sole discretion, the extent to which a participant shall be considered employed during an approved leave of absence.
1.5Shares Available. Subject to adjustment as provided inSection 5.7 and to all other limits set forth in this Plan, 20,000,000 shares of Common Stock shall initially be available for all awards under this Plan, other than Substitute Awards (all of such available shares may be issued in connection with Incentive Stock Options). The number of shares of Common Stock that remain available for future grants under the Plan shall be reduced by the sum of the aggregate number of shares of Common Stock which become subject to outstanding options, outstanding Free-Standing SARs, outstanding Stock Awards and outstanding Performance Awards denominated in shares of Common Stock, other than Substitute Awards.
To the extent that shares of Common Stock subject to an outstanding option, SAR, Stock Award or Performance Award granted under the Plan or a Prior Plan (including shares subject to a Stock Unit or Stock Award, as defined in the Northern Trust Corporation 2012 Stock Plan), other than Substitute Awards, are not issued or delivered by reason of (i) the expiration, termination, cancellation or forfeiture of such award (excluding shares subject to an option cancelled upon settlement in shares of a related Tandem SAR or shares subject to a Tandem SAR cancelled upon exercise of a related option) or (ii) the settlement of such award in cash, then such shares of Common Stock shall again be available under this Plan;provided,however, that shares of Common Stock subject to an award under this Plan or a Prior Plan shall not again be available for issuance under this Plan if such shares are (x) shares that were subject to an option or stock-settled SAR and were not issued or delivered upon the net settlement or net exercise of such option or SAR, (y) shares delivered to or withheld by the Corporation to pay the purchase price or the withholding taxes related to an outstanding award or (z) shares repurchased by the Corporation on the open market with the proceeds of an option exercise. The number of shares that again become available pursuant to this paragraph shall be equal to one share for each share subject to an option, Free-Standing SAR, Stock Award or Performance Award described herein;provided,however, any shares from a Prior Plan that become available under this Plan pursuant to this paragraph shall be calculated based on the share deduction ratio set forth in such Prior Plan. At the time this Plan becomes effective, none of the shares of Common Stock available for future grant under the Prior Plans shall be available for grant under such Prior Plans or this Plan.
The number of shares of Common Stock available for awards under this Plan shall not be reduced by (i) the number of shares of Common Stock subject to Substitute Awards or (ii) available
shares under a stockholder approved plan of a company or other entity which was a party to a corporate transaction with the Corporation (as appropriately adjusted to reflect such corporate transaction) which become subject to awards granted under this Plan (subject to applicable stock exchange requirements).
Shares of Common Stock to be delivered under this Plan shall be made available from authorized and unissued shares of Common Stock, or authorized and issued shares of Common Stock reacquired and held as treasury shares or otherwise or a combination thereof.
1.6Per Person Limits.To the extent necessary for an award to be qualified performance-based compensation under Section 162(m) of the Code and the regulations thereunder (i) the maximum number of shares of Common Stock with respect to which options or SARs, or a combination thereof, may be granted during any fiscal year of the Corporation to any person shall be 1,000,000, subject to adjustment as provided inSection 5.7; (ii) the maximum number of shares of Common Stock with respect to which Stock Awards subject to Performance Measures or Performance Awards denominated in Common Stock that may be granted during any fiscal year of the Corporation to any person shall be 500,000, subject to adjustment as provided inSection 5.7; and (iii) the maximum amount that may be payable with respect to Performance Awards denominated in cash that may be granted during any fiscal year of the Corporation to any person shall be $10,000,000;provided,however, that each of the per person limits set forth in this sentence shall be multiplied by two for awards granted to a participant in the year in which such participant’s employment with the Corporation commences. The aggregate value of cash compensation and the grant date fair value of shares of Common Stock that may be paid or granted during any fiscal year of the Corporation to any Non-Employee Director shall not exceed $500,000;provided,however, that the per person limit set forth in this sentence shall be multiplied by two with respect to compensation and awards granted to any Non-Executive Chairman of the Board.
II. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
2.1Stock Options. The Committee may, in its discretion, grant options to purchase shares of Common Stock to such eligible persons as may be selected by the Committee. Each option, or portion thereof, that is not an Incentive Stock Option, shall be a Nonqualified Stock Option. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of shares of Common Stock with respect to which options designated as Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under this Plan or any other plan of the Corporation, or any parent or Subsidiary) exceeds the amount (currently $100,000) established by the Code, such options shall constitute Nonqualified Stock Options.
Options shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable:
(a)Number of Shares and Purchase Price. The number of shares of Common Stock subject to an option and the purchase price per share of Common Stock purchasable upon exercise of the option shall be determined by the Committee;provided,however, that the purchase price per share of Common Stock purchasable upon exercise of an option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such option;providedfurther, that if an Incentive Stock Option shall be granted to any person who, at the time such option is granted, owns capital stock possessing more than 10 percent of the total combined voting power of all classes of
capital stock of the Corporation (or of any parent or Subsidiary) (a “Ten Percent Holder”), the purchase price per share of Common Stock shall not be less than the price (currently 110% of Fair Market Value) required by the Code in order to constitute an Incentive Stock Option.
Notwithstanding the foregoing, in the case of an option that is a Substitute Award, the purchase price per share of the shares subject to such option may be less than 100% of the Fair Market Value per share on the date of grant, provided, that the excess of: (a) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award, over (b) the aggregate purchase price thereof does not exceed the excess of: (x) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Committee) of the shares of the predecessor company or other entity that were subject to the grant assumed or substituted for by the Corporation, over (y) the aggregate purchase price of such shares.
(b)Option Period and Exercisability. The period during which an option may be exercised shall be determined by the Committee;provided,however, that no option shall be exercised later than ten years after its date of grant;providedfurther, that if an Incentive Stock Option shall be granted to a Ten Percent Holder, such option shall not be exercised later than five years after its date of grant. The Committee may, in its discretion, establish Performance Measures which shall be satisfied or met as a condition to the grant of an option or to the exercisability of all or a portion of an option. The Committee shall determine whether an option shall become exercisable in cumulative or non-cumulative installments and in part or in full at any time. An exercisable option, or portion thereof, may be exercised only with respect to whole shares of Common Stock.
(c)Method of Exercise. An option may be exercised (i) by giving written notice to the Corporation specifying the number of whole shares of Common Stock to be purchased and accompanying such notice with payment therefor in full (or arrangement made for such payment to the Corporation’s satisfaction) either (A) in cash, (B) by delivery (either actual delivery or by attestation procedures established by the Corporation) of shares of Common Stock having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (C) authorizing the Corporation to withhold whole shares of Common Stock which would otherwise be delivered having an aggregate Fair Market Value, determined as of the date of exercise, equal to the amount necessary to satisfy such obligation, (D) in cash by a broker-dealer acceptable to the Corporation to whom the participant has submitted an irrevocable notice of exercise or (E) a combination of (A), (B) and (C), in each case to the extent set forth in the Agreement relating to the option, (ii) if applicable, by surrendering to the Corporation any Tandem SARs which are cancelled by reason of the exercise of the option and (iii) by executing such documents as the Corporation may reasonably request. Any fraction of a share of Common Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the participant. No shares of Common Stock shall be issued and no certificate representing Common Stock shall be delivered until the full purchase price therefor and any withholding taxes thereon, as described inSection 5.5, have been paid (or arrangement made for such payment to the Corporation’s satisfaction).
2.2Stock Appreciation Rights. The Committee may, in its discretion, grant SARs to such eligible persons as may be selected by the Committee. The Agreement relating to an SAR shall specify whether the SAR is a Tandem SAR or a Free-Standing SAR.
SARs shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable:
(a)Number of SARs and Base Price. The number of SARs subject to an award shall be determined by the Committee. Any Tandem SAR related to an Incentive Stock Option shall be granted at the same time that such Incentive Stock Option is granted. The base price of a Tandem SAR shall be the purchase price per share of Common Stock of the related option. The base price of a Free-Standing SAR shall be determined by the Committee;provided,however, that such base price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such SAR (or, if earlier, the date of grant of the option for which the SAR is exchanged or substituted).
Notwithstanding the foregoing, in the case of an SAR that is a Substitute Award, the base price per share of the shares subject to such SAR may be less than 100% of the Fair Market Value per share on the date of grant, provided, that the excess of: (a) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award, over (b) the aggregate base price thereof does not exceed the excess of: (x) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Committee) of the shares of the predecessor company or other entity that were subject to the grant assumed or substituted for by the Corporation, over (y) the aggregate base price of such shares.
(b)Exercise Period and Exercisability. The period for the exercise of an SAR shall be determined by the Committee;provided,however, that (i) no Tandem SAR shall be exercised later than the expiration, cancellation, forfeiture or other termination of the related option and (ii) no Free-Standing SAR shall be exercised later than ten years after its date of grant. The Committee may, in its discretion, establish Performance Measures which shall be satisfied or met as a condition to the grant of an SAR or to the exercisability of all or a portion of an SAR. The Committee shall determine whether an SAR may be exercised in cumulative or non-cumulative installments and in part or in full at any time. An exercisable SAR, or portion thereof, may be exercised, in the case of a Tandem SAR, only with respect to whole shares of Common Stock and, in the case of aFree-Standing SAR, only with respect to a whole number of SARs. If an SAR is exercised for shares of Restricted Stock, a certificate or certificates representing such Restricted Stock shall be issued in accordance withSection 3.2(c), or such shares shall be transferred to the holder in book entry form with restrictions on the shares duly noted, and the holder of such Restricted Stock shall have such rights of a stockholder of the Corporation as determined pursuant toSection 3.2(d). Prior to the exercise of a stock-settled SAR, the holder of such SAR shall have no rights as a stockholder of the Corporation with respect to the shares of Common Stock subject to such SAR.
(c)Method of Exercise. A Tandem SAR may be exercised (i) by giving written notice to the Corporation specifying the number of whole SARs which are being exercised, (ii) by surrendering to the Corporation any options which are cancelled by reason of the exercise of the Tandem SAR and (iii) by executing such documents as the Corporation may reasonably request. A Free-Standing SAR may be exercised (A) by giving written notice to the Corporation specifying the whole number of SARs which are being exercised and (B) by executing such documents as the Corporation may reasonably request. No shares of Common Stock shall be issued and no certificate representing Common Stock shall be delivered until any withholding taxes thereon, as described inSection 5.5, have been paid (or arrangement made for such payment to the Corporation’s satisfaction).
2.3Termination of Employment or Service. All of the terms relating to the exercise, cancellation or other disposition of an option or SAR (i) upon a termination of employment with or service to the Corporation of the holder of such option or SAR, as the case may be, whether by reason of disability, retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, shall be determined by the Committee and set forth in the applicable award Agreement.
2.4No Repricing. The Committee shall not, without the approval of the stockholders of the Corporation, (i) reduce the purchase price or base price of any previously granted option or SAR, (ii) cancel any previously granted option or SAR in exchange for another option or SAR with a lower purchase price or base price or (iii) cancel any previously granted option or SAR in exchange for cash or another award if the purchase price of such option or the base price of such SAR exceeds the Fair Market Value of a share of Common Stock on the date of such cancellation, in each case, other than in connection with a Change in Control or the adjustment provisions set forth inSection 5.7.
2.5No Dividend Equivalents.Notwithstanding anything in an Agreement to the contrary, the holder of an option or SAR shall not be entitled to receive dividend equivalents with respect to the number of shares of Common Stock subject to such option or SAR.
III. STOCK AWARDS
3.1Stock Awards. The Committee may, in its discretion, grant Stock Awards to such eligible persons as may be selected by the Committee. The Agreement relating to a Stock Award shall specify whether the Stock Award is a Restricted Stock Award, a Restricted Stock Unit Award or, in the case of an Other Stock Award, the type of award being granted.
3.2Terms of Restricted Stock Awards. Restricted Stock Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable.
(a)Number of Shares and Other Terms. The number of shares of Common Stock subject to a Restricted Stock Award and the Restriction Period, Performance Period (if any) and Performance Measures (if any) applicable to a Restricted Stock Award shall be determined by the Committee.
(b)Vesting and Forfeiture. The Agreement relating to a Restricted Stock Award shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of the shares of Common Stock subject to such award (i) if the holder of such award remains continuously in the employment of the Corporation during the specified Restriction Period and (ii) if specified Performance Measures (if any) are satisfied or met during a specified Performance Period, and for the forfeiture of the shares of Common Stock subject to such award (x) if the holder of such award does not remain continuously in the employment of the Corporation during the specified Restriction Period or (y) if specified Performance Measures (if any) are not satisfied or met during a specified Performance Period.
(c)Stock Issuance. During the Restriction Period, the shares of Restricted Stock shall be held by a custodian in book entry form with restrictions on such shares duly noted or, alternatively, a certificate or certificates representing a Restricted Stock Award shall be registered in the holder’s name and may bear a legend, in addition to any legend which may be required pursuant toSection 5.6, indicating that the ownership of the shares of Common Stock represented by such certificate is subject
to the restrictions, terms and conditions of this Plan and the Agreement relating to the Restricted Stock Award. All such certificates shall be deposited with the Corporation, together with stock powers or other instruments of assignment (including a power of attorney), each endorsed in blank with a guarantee of signature if deemed necessary or appropriate, which would permit transfer to the Corporation of all or a portion of the shares of Common Stock subject to the Restricted Stock Award in the event such award is forfeited in whole or in part. Upon termination of any applicable Restriction Period (and the satisfaction or attainment of applicable Performance Measures), subject to the Corporation’s right to require payment of any taxes in accordance withSection 5.5, the restrictions shall be removed from the requisite number of any shares of Common Stock that are held in book entry form, and all certificates evidencing ownership of the requisite number of shares of Common Stock shall be delivered to the holder of such award.
(d)Rights with Respect to Restricted Stock Awards. Unless otherwise set forth in the Agreement relating to a Restricted Stock Award, and subject to the terms and conditions of a Restricted Stock Award, the holder of such award shall have all rights as a stockholder of the Corporation, including, but not limited to, voting rights and the right to participate in any capital adjustment applicable to all holders of Common Stock;provided,however, that a distribution with respect to shares of Common Stock, including a regular cash dividend, shall be deposited with the Corporation and shall be subject to the same restrictions as the shares of Common Stock with respect to which such distribution was made.
3.3Terms of Restricted Stock Unit Awards. Restricted Stock Unit Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable.
(a)Number of Shares and Other Terms. The number of shares of Common Stock subject to a Restricted Stock Unit Award, including the number of shares that are earned upon the attainment of any specified Performance Measures, and the Restriction Period, Performance Period (if any) and Performance Measures (if any) applicable to a Restricted Stock Unit Award shall be determined by the Committee.
(b)Vesting and Forfeiture. The Agreement relating to a Restricted Stock Unit Award shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of such Restricted Stock Unit Award (i) if the holder of such award remains continuously in the employment of the Corporation during the specified Restriction Period and (ii) if specified Performance Measures (if any) are satisfied or met during a specified Performance Period, and for the forfeiture of the shares of Common Stock subject to such award (x) if the holder of such award does not remain continuously in the employment of the Corporation during the specified Restriction Period or (y) if specified Performance Measures (if any) are not satisfied or met during a specified Performance Period.
(c)Settlement of Vested Restricted Stock Unit Awards. The Agreement relating to a Restricted Stock Unit Award shall specify (i) whether such award may be settled in shares of Common Stock or cash or a combination thereof and (ii) whether the holder thereof shall be entitled to receive dividend equivalents, and, if determined by the Committee, interest on, or the deemed reinvestment of, any deferred dividend equivalents, with respect to the number of shares of Common Stock subject to such award. Any dividend equivalents with respect to Restricted Stock Units shall be subject to the same restrictions as such Restricted Stock Units. Prior to the settlement of a Restricted Stock Unit Award,
the holder of such award shall have no rights as a stockholder of the Corporation with respect to the shares of Common Stock subject to such award.
3.4Other Stock Awards. Subject to the limitations set forth in the Plan, the Committee is authorized to grant other awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of Common Stock, including without limitation shares of Common Stock granted as a bonus and not subject to any vesting conditions, dividend equivalents, deferred stock units, stock purchase rights and shares of Common Stock issued in lieu of obligations of the Corporation to pay cash under any compensatory plan or arrangement, subject to such terms as shall be determined by the Committee. The Committee shall determine the terms and conditions of such awards, whichmay include the right to elective deferral thereof, subject to such terms and conditions as the Committee may specify in its discretion. Any distribution, including a regular cash dividend, with respect to shares of Common Stock granted pursuant to this section and subject to restriction pursuant to the terms and conditions of the applicable award shall be deposited with the Corporation and shall be subject to the same restrictions as the shares of Common Stock with respect to which such distribution was made, and any dividend equivalents with respect to other awards granted pursuant to this section shall be subject to the same restrictions as the award to which they relate.
3.5Termination of Employment or Service. All of the terms relating to the satisfaction of Performance Measures and the termination of the Restriction Period or Performance Period relating to a Stock Award, or any forfeiture and cancellation of such award (i) upon a termination of employment with or service to the Corporation of the holder of such award, whether by reason of disability, retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, shall be determined by the Committee and set forth in the applicable award Agreement.
IV. PERFORMANCE AWARDS
4.1Performance Awards. The Committee may, in its discretion, grant Performance Awards to such eligible persons as may be selected by the Committee.
4.2Terms of Performance Awards.Performance Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable.
(a)Value of Performance Awards and Performance Measures. The method of determining the value of the Performance Award and the Performance Measures and Performance Period applicable to a Performance Award shall be determined by the Committee.
(b)Vesting and Forfeiture. The Agreement relating to a Performance Award shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of such Performance Award if the specified Performance Measures are satisfied or met during the specified Performance Period and for the forfeiture of such award if the specified Performance Measures are not satisfied or met during the specified Performance Period.
(c)Settlement of Vested Performance Awards. The Agreement relating to a Performance Award shall specify whether such award may be settled in shares of Common Stock (including shares of Restricted Stock) or cash or a combination thereof. If a Performance Award is settled in shares of
Restricted Stock, such shares of Restricted Stock shall be issued to the holder in book entry form or a certificate or certificates representing such Restricted Stock shall be issued in accordance withSection 3.2(c) and the holder of such Restricted Stock shall have such rights as a stockholder of the Corporation as determined pursuant toSection 3.2(d). Any dividends or dividend equivalents with respect to a Performance Award shall be subject to the same restrictions as such Performance Award. Prior to the settlement of a Performance Award in shares of Common Stock, including Restricted Stock, the holder of such award shall have no rights as a stockholder of the Corporation.
4.3Termination of Employment or Service. All of the terms relating to the satisfaction of Performance Measures and the termination of the Performance Period relating to a Performance Award, or any forfeiture and cancellation of such award (i) upon a termination of employment with or service to the Corporation of the holder of such award, whether by reason of disability, retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, shall be determined by the Committee and set forth in the applicable award Agreement.
V. GENERAL
5.1Effective Date and Term of Plan. This Plan shall be submitted to the stockholders of the Corporation for approval at the Corporation’s 2017 annual meeting of stockholders and, if approved by the affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy at such annual meeting of stockholders and entitled to vote, shall become effective as of the date on which the Plan was approved by stockholders. This Plan shall terminate as of the first annual meeting of the Corporation’s stockholders to occur on or after the tenth anniversary of its effective date, unless terminated earlier by the Board. Termination of this Plan shall not affect the terms or conditions of any award granted prior to termination.
Awards hereunder may be made at any time prior to the termination of this Plan, provided that no Incentive Stock Option may be granted later than ten years after the date on which the Plan was approved by the Board. In the event that this Plan is not approved by the stockholders of the Corporation, this Plan and any awards hereunder shall be void and of no force or effect.
5.2Amendments. The Board may amend this Plan as it shall deem advisable;provided,however, that no amendment to the Plan shall be effective without the approval of the Corporation’s stockholders if (i) stockholder approval is required by applicable law, rule or regulation, including Section 162(m) of the Code and any rule of the NASDAQ Stock Market, or any other stock exchange on which the Common Stock is then traded, or (ii) such amendment seeks to modifySection 2.4 hereof;provided further, that no amendment may materially impair the rights of a holder of an outstanding award without the consent of such holder.
5.3Agreement. Each award under this Plan shall be evidenced by an Agreement setting forth the terms and conditions applicable to such award. No award shall be valid until an Agreement is executed by the Corporation and, to the extent required by the Corporation, executed or electronically accepted by the recipient of such award. Upon such execution or acceptance and delivery of the Agreement to the Corporation within the time period specified by the Corporation, such award shall be effective as of the effective date set forth in the Agreement.
5.4Non-Transferability. No award shall be transferable other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Corporation or, to the
extent expressly permitted in the Agreement relating to such award, to the holder’s family members, a trust or entity established by the holder for estate planning purposes, a charitable organization designated by the holder or pursuant to a domestic relations order, in each case, without consideration. Except to the extent permitted by the foregoing sentence or the Agreement relating to an award, each award may be exercised or settled during the holder’s lifetime only by the holder or the holder’s legal representative or similar person. Except as permitted by the second preceding sentence, no award may be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any award, such award and all rights thereunder shall immediately become null and void.
5.5Tax Withholding. The Corporation shall have the right to require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash pursuant to an award made hereunder, payment by the holder of such award of any federal, state, local or other taxes which may be required to be withheld or paid in connection with such award. An Agreement may provide that (i) the Corporation shall withhold whole shares of Common Stock which would otherwise be delivered to a holder, having an aggregate Fair Market Value determined as of the date the obligation to withhold or pay taxes arises in connection with an award (the “Tax Date”), or withhold an amount of cash which would otherwise be payable to a holder, in the amount necessary to satisfy any such obligation or (ii) the holder may satisfy any such obligation by any of the following means: (A) a cash payment to the Corporation; (B) delivery (either actual delivery or by attestation procedures established by the Corporation) to the Corporation of previously owned whole shares of Common Stock having an aggregate Fair Market Value, determined as of the Tax Date, equal to the amount necessary to satisfy any such obligation; (C) authorizing the Corporation to withhold whole shares of Common Stock which would otherwise be delivered having an aggregate Fair Market Value, determined as of the Tax Date, or withhold an amount of cash which would otherwise be payable to a holder, in either case equal to the amount necessary to satisfy any such obligation; (D) in the case of the exercise of an option, a cash payment by a broker-dealer acceptable to the Corporation to whom the participant has submitted an irrevocable notice of exercise or (E) any combination of (A), (B) and (C), in each case to the extent set forth in the Agreement relating to the award. Shares of Common Stock to be delivered or withheld may not have an aggregate Fair Market Value in excess of the amount determined by applying the minimum statutory withholding rate (or, if permitted by the Corporation, such other rate as will not cause adverse accounting consequences under the accounting rules then in effect, and is permitted under applicable IRS withholding rules). Any fraction of a share of Common Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the holder.
5.6Restrictions on Shares. Each award made hereunder shall be subject to the requirement that if at any time the Corporation determines that the listing, registration or qualification of the shares of Common Stock subject to such award upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of shares thereunder, such shares shall not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Corporation. The Corporation may require that certificates evidencing shares of Common Stock delivered pursuant to any award made hereunder bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited except in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder.
5.7Adjustment. In the event of any equity restructuring (within the meaning of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation or any successor or replacement accounting standard) that causes the per share value of shares of Common Stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary cash dividend, the number and class of securities available under this Plan, the terms of each outstanding option and SAR (including the number and class of securities subject to each outstanding option or SAR and the purchase price or base price per share), the terms of each outstanding Stock Award (including the number and class of securities subject thereto), the terms of each outstanding Performance Award (including the number and class of securities subject thereto, if applicable), the maximum number of securities with respect to which options or SARs may be granted during any fiscal year of the Corporation to any one grantee, the maximum number of shares of Common Stock that may be awarded during any fiscal year of the Corporation to any one grantee pursuant to a Stock Award that is subject to Performance Measures or a Performance Award, as set forth inSection 1.6, shall be appropriately adjusted by the Committee, such adjustments to be made in the case of outstanding options and SARs in accordance with Section 409A of the Code. In the event of any other change in corporate capitalization, including a merger, consolidation, reorganization, or partial or complete liquidation of the Corporation, such equitable adjustments described in the foregoing sentence may be made as determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights of participants. In either case, the decision of the Committee regarding any such adjustment shall be final, binding and conclusive.
5.8Change in Control.
(a) Notwithstanding anything contained in this Plan or any Agreement to the contrary, in the event of a Change in Control pursuant to which the outstanding awards are not replaced with Replacement Awards, the following shall occur upon a Change in Control with respect to any such awards outstanding as of such Change in Control:
(1) | any and all options and SARs granted hereunder shall become immediately exercisable, and shall remain exercisable for the remainder of their term, subject to any limitations on such term provided in the Agreement; |
(2) | any restrictions imposed on Stock Awards shall lapse and all Stock Awards shall become fully vested; |
(3) | Performance Awards shall vest or become exercisable or payable in accordance with the applicable Agreements; and |
(4) | the Board (as constituted prior to such Change in Control) may, in its discretion, require outstanding awards, in whole or in part, to be surrendered to the Corporation by the holder, and to be immediately cancelled by the Corporation, and to provide for the holder to receive (A) a cash payment in an amount equal to (i) in the case of an option or SAR, the number of shares of Common Stock then subject to the portion of such award surrendered multiplied by the excess, if any, of the highest per share price offered to holders of Common Stock in any transaction whereby the Change in Control takes place, over the purchase price or base price per share of Common Stock subject to such award, (ii) in the case of Stock Awards and Performance Awards denominated in Common Stock, the number of shares of Common Stock then subject to the portion of such award surrendered |
to the extent the performance criteria (if any) applicable to such award are satisfied pursuant to the terms of the applicable Agreement multiplied by the highest per share price offered to holders of Common Stock in any transaction whereby the Change in Control takes place and (iii) in the case of Stock Awards and Performance Awards denominated in cash, the value of the award then subject to the portion of such award surrendered to the extent the performance criteria applicable to such Award are satisfied pursuant to the terms of the applicable Agreement; (B) shares of capital stock of the corporation resulting from such Change in Control, or a parent corporation thereof, having a Fair Market Value not less than the amount determined under clause (A) above; or (C) a combination of the payment of cash pursuant to clause (A) above and the issuance of shares pursuant to clause (B) above. |
(b) Except as otherwise provided for inSection 5.8(a), notwithstanding anything contained in this Plan or any Agreement to the contrary, in the event of the termination of a participant’s employment by the Corporation without cause (as defined the Agreement) or, to the extent permitted in the Agreement, the termination of a participant’s employment by the participant for a constructive termination or good reason (as defined in the Agreement when applicable), in each case, within the 24-month period following the occurrence of a Change in Control, then the following shall occur with respect to any and all awards held by the participant as of such termination of employment:
(1) | any and all options and SARs shall become immediately exercisable, and shall remain exercisable for the remainder of their term, subject to any limitations on such term provided in the Agreement; |
(2) | any restrictions imposed on Stock Awards shall lapse and all Stock Awards shall become fully vested; and |
(3) | Performance Awards shall vest or become exercisable or payable in accordance with the applicable Agreements. |
(c) | For purposes of this Plan, a “Change in Control” shall be deemed to have occurred if: |
(1) | any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its Affiliates) representing 30% or more of the combined voting power of the Corporation’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (3) below; |
(2) | the election to the Board, without the recommendation or approval of two-thirds of the incumbent Board, of directors constituting a majority of the number of directors of the Corporation then in office, provided, however, that directors whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Corporation will not be considered as incumbent members of the Board for purposes of this section; |
(3) | there is consummated a merger or consolidation of the Corporation or any direct or indirect Subsidiary of the Corporation with any other company, other than (A) a merger or consolidation which would result in the voting securities of the Corporation outstanding |
immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), at least 60% of the combined voting power of the securities of the Corporation or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Corporation or its Affiliates) representing 20% or more of the combined voting power of the Corporation’s then outstanding securities; or |
(4) | there is consummated the sale or disposition by the Corporation of all or substantially all of the Corporation’s assets, other than a sale or disposition by the Corporation of all or substantially all of the Corporation’s assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Corporation in substantially the same proportions as their ownership of the Corporation immediately prior to such sale or the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation; |
provided, that with respect to any nonqualified deferred compensation that becomes payable on account of the Change in Control, the transaction or event described in clause (1), (2), (3) or (4) also constitutes a “change in control event,” as defined in Treasury Regulation §1.409A-3(i)(5) if required in order for the payment not to violate Section 409A of the Code. Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Common Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Corporation immediately following such transaction or series of transactions.
5.9Deferrals.The Committee may determine that the delivery of shares of Common Stock or the payment of cash, or a combination thereof, upon the settlement of all or a portion of any award made hereunder shall be deferred, or the Committee may, in its sole discretion, approve deferral elections made by holders of awards. Deferrals shall be for such periods and upon such terms as the Committee may determine in its sole discretion, subject to the requirements of Section 409A of the Code.
5.10No Right of Participation, Employment or Service. Unless otherwise set forth in an employment agreement, no person shall have any right to participate in this Plan. Neither this Plan nor any award made hereunder shall confer upon any person any right to continued employment by or service with the Corporation, any Subsidiary or any affiliate of the Corporation or affect in any manner the right of the Corporation, any Subsidiary or any affiliate of the Corporation to terminate the employment or service of any person at any time without liability hereunder.
5.11Rights as Stockholder. No person shall have any right as a stockholder of the Corporation with respect to any shares of Common Stock or other equity security of the Corporation which is subject to an award hereunder unless and until such person becomes a stockholder of record with respect to such shares of Common Stock or equity security.
5.12Designation of Beneficiary. To the extent permitted by the Corporation and in accordance with any procedures established by the Corporation or its third-party stock plan administrator, a holder of an
award may file with the Corporation a written designation of one or more persons as such holder’s beneficiary or beneficiaries (both primary and contingent) in the event of the holder’s death or incapacity. To the extent an outstanding option or SAR granted hereunder is exercisable, such beneficiary or beneficiaries shall be entitled to exercise such option or SAR pursuant to procedures prescribed by the Corporation. Each beneficiary designation shall become effective only when filed in writing with the Corporation during the holder’s lifetime on a form prescribed by the Corporation. The spouse of a married holder domiciled in a community property jurisdiction shall join in any designation of a beneficiary other than such spouse. The filing with the Corporation of a new beneficiary designation shall cancel all previously filed beneficiary designations. If a holder fails to designate a beneficiary, or if all designated beneficiaries of a holder predecease the holder, then each outstanding award held by such holder, to the extent vested or exercisable, shall be payable to or may be exercised by such holder’s executor, administrator, legal representative or similar person.
5.13Awards Subject to Clawback.The awards granted under this Plan and any cash payment or shares of Common Stock delivered pursuant to such an award are subject to forfeiture, recovery by the Corporation or other action pursuant to the applicable award Agreement or any clawback or recoupment policy which the Corporation may adopt from time to time, including without limitation any such policy which the Corporation may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by law.
5.14Governing Law.This Plan, each award hereunder and the related Agreement, and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws.
5.15Foreign Employees. Without amending this Plan, the Committee may grant awards to eligible persons who are foreign nationals and/or reside outside of the United States on such terms and conditions different from those specified in this Plan as may in the judgment of the Committee be necessary or desirable to foster and promote achievement of the purposes of this Plan and, in furtherance of such purposes the Committee may make such modifications, amendments, procedures, subplans and the like as may be necessary or advisable to comply with provisions of laws in other countries or jurisdictions in which the Corporation or its Subsidiaries operates or has employees.
NORTHERN TRUST CORPORATION 50 SOUTH LASALLE STREET CHICAGO, IL 60603 | VOTE BY INTERNET -www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. EDT April
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. EDT April
VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Northern Trust Corporation, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.Pleasemail in advance, so that your instruction may be received no later than11:59 p.m. EDT on April |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | ||||||
KEEP THIS PORTION FOR YOUR RECORDS |
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
NORTHERN TRUST CORPORATION
| |||||||||||||||||||||||||||||||||
The Board of Directors recommends you vote FOR |
|
|
| ||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||
1. Election of 13 Directors | For | Against | Abstain | ||||||||||||||||||||||||||||||
1a. | Linda Walker Bynoe | ☐ | |||||||||||||||||||||||||||||||
1b. |
Susan Crown |
|
|
| ☐ |
|
|
|
| ||||||||||||||||||||||||
1c. |
Dean M. Harrison |
|
|
| ☐ | Every Year | Every 2 Years | Every 3 Years | Abstain | ||||||||||||||||||||||||
1d. |
|
|
|
| ☐ | 3. Recommendation, by an advisory vote, on the frequency with which the Corporation should hold advisory votes on executive compensation. | ☐ | ☐ | ☐ | ☐ | |||||||||||||||||||||||
1e. | Michael G. O'Grady | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||
1f. | Jose Luis Prado | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||
1g. | ☐ | For | Against | Abstain | |||||||||||||||||||||||||||||
1h. | ☐ | 4. Approval of the Northern Trust Corporation 2017 Long-Term Incentive Plan. | ☐ | ☐ | ☐ | ||||||||||||||||||||||||||||
1i. | Martin P. Slark | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||
1j. | David H. B. Smith, Jr. | ☐ | ☐ | ☐ | 5. Ratification of the appointment of KPMG LLP as the Corporation's independent registered public accounting firm for the fiscal year ending December 31, 2017. | ☐ | ☐ | ☐ | |||||||||||||||||||||||||
1k. | Donald Thompson | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||
1l. | Charles A. Tribbett III | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||
1m. | Frederick H. Waddell | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||
| For address changes and/or comments, please check this box and write them on the back where indicated. | ☐ | |||||||||||||||||||||||||||||||
2. Approval, by an advisory vote, of the | ☐ | ☐ | ☐ | ||||||||||||||||||||||||||||||
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. |
Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date |
ANNUAL MEETING ADMISSION TICKET
Northern Trust Corporation
50 South LaSalle Street
Chicago, Illinois 60603
(northwest corner of LaSalle Street and Monroe Street)
April 21, 201525, 2017
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 corporationCorporation Annual Meeting of Stockholders
Lake Shore Drive(coming from north or south) | Kennedy Expressway (I90 - I94) | |
Take Lake Shore Drive to the Randolph Street exit. Continue on Randolph Street to LaSalle Street. Turn left (southbound) on LaSalle Street to Madison Street. Turn right (westbound) on Madison Street to the parking garage that is between LaSalle Street and Wells Street. |
Take I90-I94 east to the Monroe Street exit. Turn left (eastbound) on Monroe Street. Continue on Monroe Street to LaSalle Street. Turn left (northbound) on LaSalle Street and continue one block north to Madison Street. Turn left (westbound) on Madison Street to the parking garage that is between LaSalle Street and Wells Street. | |
Stevenson Expressway (I55) | Eisenhower Expressway (I290) | |
Take I55 east to Lake Shore Drive north. Take Lake Shore Drive to the Randolph Street exit. Continue on Randolph Street to LaSalle Street. Turn left (southbound) on LaSalle Street to Madison Street. Turn right (westbound) on Madison Street to the parking garage that is between LaSalle Street and Wells Street. |
Take I290 east to the Franklin Street exit. Continue northbound on Franklin Street to Monroe Street. Turn right (eastbound) on Monroe Street to LaSalle Street. At LaSalle Street turn left and continue one block north to Madison Street. Turn left on Madison Street to the parking garage that is between LaSalle Street and Wells Street. |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
You may access the 20152017 Notice of Annual Meeting and Proxy Statement and the Annual Report on Form 10-K for the year ended December 31, 20142016 by going to the following website: https://materials.proxyvote.com/665859
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
|
NORTHERN TRUST CORPORATION Annual Meeting of Stockholders Tuesday, April 25, 2017, 10:30 a.m. CDT This proxy is solicited by the Board of Directors The undersigned hereby appoint(s) Frederick H. Waddell and S. Biff Bowman, and each of them, as proxy holders, each with the power of substitution, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all shares of common stock of Northern Trust Corporation which the undersigned is entitled to vote on the proposals at the Annual Meeting of Stockholders on April 25, 2017, at 50 S. LaSalle St., Chicago, IL 60603, and any adjournment or postponement thereof (the "Annual Meeting"). The above proxy holders cannot vote the undersigned's shares unless the undersigned votes in one of the manners specified on this card. If any shares of common stock have been allocated to the undersigned's account under The Northern Trust Company Thrift-Incentive Plan ("TIP"), this proxy card will serve as voting instructions for such shares and the undersigned hereby directs The Northern Trust Company, as trustee of TIP(the "TIP Trustee"), to vote such shares, in person or by proxy, in the manner specified on this card, at the Annual Meeting. The TIP Trustee will vote allocated shares for which no direction is received and unallocated shares, if any, in the same proportion as the shares for which direction is received, except as otherwise provided in accordance with applicable law. To allow sufficient time for voting by the TIP Trustee, voting instructions must be recorded by 11:59 p.m. EDT on April 20, 2017. Whether voting by mail, telephone or Internet, the undersigned's shares (including shares held under TIP) will be voted in accordance with the undersigned's instructions.If this proxy card is returned without indication as to how shares are to be voted, the proxy holders will vote the undersigned's shares, including any held in TIP: for the election of each nominee for director; for the approval, by an advisory vote, of the 2016 compensation of the Corporation's named executive officers; for the recommendation to hold advisory votes on the compensation of the Corporation's named executive officers every year; for the approval of the Northern Trust Corporation 2017 Long-Term Incentive Plan; and 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, 2017. The proxy holders are authorized to vote those shares for which they receive proxies as they shall determine in their sole discretion on any other business that may properly come before the meeting.
(If any Address Changes/Comments are noted above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side |