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| | | We Do Not | Ø | No employment contracts for NEOs: We do not have individual employment agreements with any of our NEOs. | Ø | ûNo special benefit plans:We do not provide any benefit plans to our executives that are not generally available to other employees and we do not provide any supplemental executive retirement plan benefits to any executive. | Ø | ûNo hedging or pledging:Directors and executive officers, including NEOs, are prohibited from hedging Company securities, holding Company securities in a margin account or otherwise pledging Company securities, including as collateral for a loan. | Ø | ûNo excise tax gross ups:gross-ups: We do not provide excise tax gross upsgross-ups for any employee. | | |
Compensation Discussion and Analysis Compensation Program and Objectives The Company's 20172020 executive compensation program and compensation decisions were based on the following principles: | | | | | | | | | | | | Pay for Performance:Pay-for-Performance
Our compensation should reflect financial and non-financial performance over short- and long-term periods at the Company business segment, and individual performance.performance levels.
| Balanced Compensation Structure:Structure
We seek to deliver a mix of fixed and variable compensation that is aligned with shareholder interests andaligns the long-term interests of the Companyour executive officers with our shareholders and that appropriately balances risk and reward. | Market-Competitive Pay Opportunity:Opportunity
Our compensation should be competitive relative to our peers and the broader market in order to attract, motivate and retain a talentedtop executive team.talent.
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Pay for Performance
 Our compensation program is grounded onin a pay for performancepay-for-performance philosophy andthat is designed to reward achievement of the Company's financial and strategic goals included in our business plans established before each performance cycle. We considerobjectives. In determining executive compensation, the Compensation Committee considers financial performance and strategic performance factors, relative performance, risk performance, regulatory compliance, internal pay equity and individual NEO performance. The majority of compensation for our NEOs is in the form of variable compensation, a substantial portion of which is paid in deferred RSUs and PSUs tied to the long-term performance of the Company and designed to be aligned with shareholder interests. Performance factors considered by the Compensation Committee in setting and determining executive compensation included the following: •Financial Performance: How well the Company performed compared to its 2017 Annual Plan. For 2017,2020, the main factorfactors the Compensation Committee considered in evaluating financial performance waswere the Company's PBTR.PBTR performance and EPS. •Other Performance Factors: How wellThe Compensation Committee also considered Company performance with respect to the following factors: –Other Financial Metrics: Company performance relative to the Company's Annual Operating Plan (the "Annual Plan"), and prior year results for the following: net income; return on equity ("ROE") (and risk-adjusted returns); total revenue (defined as net interest income plus other income); net charge-offs; and operating expenses. –Key Focus Areas: Extent to which the Company performed compared toaccelerated profitable growth, enhanced capabilities and operating model, grew consumer deposits, profitably scaled Payments business, and progress on maturing risk management and compliance. –Relative Performance: Company performance against a select group of competitors on profitability, credit performance, growth,Total Shareholder Return (" TSR"), and other secondary financial metrics, key focus areas as well as relative to competitors.measures. | | – | Other Financial Metrics:• How well the Company performed compared to other secondary financial metrics, including net income, return on equity ("ROE") (and risk-adjusted returns), earnings per share ("EPS"), total revenue (defined as net interest income plus other income), net charge-offs and operating expenses. |
| | – | Key Focus Areas: How well the Company accelerated profitable growth, enhanced capabilities and operating models, and matured risk management.
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| | – | Relative Performance: How well the Company performed against a select group of competitors on profitability, credit performance, growth, total shareholder return and other measures.
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Risk Performance: How well the Company performedperformance with respect to risk management, capital adequacy, and regulatory compliance. •Individual Performance: How well each NEO performedEach NEO's performance relative to individual objectives, including relative role impact, experience, and internal pay equity.
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Compensation Discussion and Analysis
Balanced Compensation Structure The Compensation Committee determines the total direct compensation targets (aggregateopportunity (sum of base salary, target short-term incentive ("STI")STI and LTI opportunity)opportunities) for theeach of our NEOs at the beginning of the year, based on Company and individual performance forduring the pastprior year as well as the overall skills and experiences of the executive, internal pay equity and the Compensation Committee's assessment of their future potential. Target STI and LTI opportunities are established for, and communicated to, the NEOs.NEOs at the beginning of the year or, if later, at the time of any subsequent change in STI or LTI opportunity. The actual year-end STI awards paid and LTI awards made to the NEOs are determined by the Compensation Committee based on its evaluation of financial performance, primarily PBTR for STI, and other performance factors, risk performance and individual performance, and adjusted EPS for LTI (as described above)beginning on page 36). The Compensation Committee also considers compensation levels of other executives in similar roles both within the Company and at industry peers before making compensation decisions. The Compensation Committee usesexercises discretion to exercisein its judgment instead of solely relying on a formulaic structure, which it believes provides the right level of transparency while maintaining the flexibility necessary to pay appropriatelyamounts it deems appropriate for performance. The Compensation Committee has determined that a balance of the following pay components provides an effective combination of risk and reward: | | | | Base Salary: | | | | | | | | | | | | | | | | | (At Risk) | | | | | Element | Base Salary | Short-Term Incentive ("STI") | Long-Term Incentive ("LTI") | | Highlights | Fixed cash compensation based on scope of responsibility, impact on the organization, expertise, experience, and individual performance. | Annual cash bonus opportunity based on Company financial performance, primarily PBTR, other performance factors, risk and individual performance. | Annual equity award opportunity based on financial performance, other performance factors, risk and individual performance; granted as a mix of PSUs and RSUs with PSU awards vesting based on adjusted EPS. | | 2020 CEO Target Pay Mix | 10.7% | 21.4% | RSUs 17.0% | PSUs 50.9% | | | | | | 2020 Average of All Other Named Executive Officers ("NEOs") Target Pay Mix | 17.4% | 26.1% | RSUs 22.6% | PSUs 33.9% | | | | |
Fixed compensation based on scope of responsibility, impact on the organization, expertise, experience, and individual performance.
| Short-Term Incentive:
Annual cash bonus opportunity based on Company financial performance, primarily PBTR, and other performance factors, risk and individual performance.
| Long-Term Incentive:
Annual stock award opportunity based on financial performance, other performance factors, risk and individual performance. The award is granted using a mix of PSUs and RSUs.
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Review of Compensation Policies and Practices Related to Risk Management The Compensation Committee is responsible for overseeing risk management associated with the Company's compensation practices. The Compensation Committee at least annually meets with the Company's Chief Risk Officer to review all employee compensation plans, in which employees (including the NEOs) participate, and to evaluate whether these plans havecontain any features that might encourage excessiveimprudent risk-taking that could threaten the value of the Company or are reasonably likely to have a material adverse effect on the Company. The Compensation Committee also continues to monitor a separate, on-going risk assessment by senior management of the Company's employee compensation practices in order to evaluate compliance with the Interagency Guidance on Sound Incentive Compensation Policies issued by the Federal Reserve Board and other bank regulators in 2010.2010, and any updates thereto that may be issued from time to time. Based on an assessment of enterprise risk events, the Company's Chief Risk Officer may direct senior leaders from the Company's Human Resources, Legal, and Risk Management teams to compile and analyze information about the Company's incentive compensation practices and payment history and to holdconduct interviews with business line managers to understand how evaluation of business risk events affect certain STI and LTI performance measures and compensation decisions. After evaluation of the data, and prior to current year incentive compensation decisions, the Chief Risk Officer prepares a report of the risk assessment, which includes any recommendations for risk adjustments to incentive compensation in connection with risk events. In addition, prior to vesting, the Chief Risk Officer reviews a risk assessment of business and individual risk performance over the past three years and certifies whether outstanding LTI awards should vest without adjustment. The Chief Risk Officer's performance during the period is reviewed by the Risk Oversight Committee. In 2017,2020, the Compensation Committee conducted its assessment with the assistance of our Chief Risk Officer to consider whether any element of the compensation structure, design, review, or decision-making process could be reasonably likely to have a material adverse effect on the Company. The Compensation Committee found that incentive compensation continues to be firmly tied to current and future Company performance and is designed to appropriately balance risk and reward and does not have a material adverse effect on the
Compensation Discussion and Analysis Company. The Compensation Committee evaluated our NEOs' performance against risk goals before determining compensation for our NEOs, creating a direct link between our incentive compensation and risk management. In 2020, in connection with makingits compensation decisions, the Compensation Committee reviewed reports from and met with the Company's Chief Risk Officer and the Risk Oversight and Audit Committees of the Board of Directors in a joint meetingmeetings (the "Joint Meeting"Meetings") to discuss the annual incentive compensation risk assessment and to review outcomes of certain risk events and any impact on compensation decisions. The annual risk assessment did not result in the identification of any risks related to our incentive compensation plans that are, either individually or in the aggregate, reasonably likely to encourage excessiveimprudent risk-taking that could threaten the value of the Company or have a material adverse effect on the Company. Following the Joint Meeting,Meetings, the Committee assessed and finalized incentive compensation decisions without any adjustment based on the risk assessment.decisions.
Market-Competitive Pay Opportunity The Compensation Committee reviewed and considered competitive market data from the following two sources when approving NEO compensation: proxy data from an established peer group of companies (discussed below) and other market survey data. We use competitive market data as a reference pointfrom companies within the financial services industry and others with whom we compete for elements of NEO compensation, and not to make any specific decisions.talent. For the proxy data,benchmarking purposes, the peer group used in the analysis consists of 16 financial services companies of a
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similar business nature and revenue size to the Company, from which the Company might expect to draw and compete for executive talent. Given that the Company has few direct competitors of similar scope, size, and business model, this peer group is somewhat varied in nature and primarily represents companies that are similar in business areas with a focus on credit card providers, regional financial institutions that have significant credit card and/or loan operations, payments processing and data/transaction processing companies. In 2017,2019, the Compensation Committee reviewed the companies that met the foregoing criteria, along with all incumbent peers,2019 peer group and, after evaluating thesethe companies with Pearl Meyerthe Compensation Consultant, made no changes into the peer group.group to be used for evaluating 2020 compensation decisions. In 2017, theThe peer group consisted of the following companies:
| | | | | | | | | | | | •Ally Financial, Inc. | | •American Express Company •Ameriprise Financial, Inc. •Capital One Financial Corporation •CIT Group Inc. | | Fiserv, Inc. | | Regions Financial Corporation | American Express Company | | •Comerica Incorporated | | KeyCorp | | Synchrony Financial | Ameriprise Financial, Inc. | | •Fidelity National Information Services, Inc. | | •Fifth Third Bancorp •Fiserv, Inc. •KeyCorp •M&T Bank Corporation | | •Mastercard Incorporated •Regions Financial Corporation •Synchrony Financial •Visa Inc. | Capital One Financial Corporation | | Fifth Third Bancorp | | Mastercard Incorporated | | •The Western Union Company | | | | | | | |
In 2020, the Compensation Committee reviewed the peer group based on the criteria noted above and decided to remove Ameriprise Financial, Inc. from the peer group and add PayPal Holdings, Inc. PayPal Holdings, Inc. was identified as a better size and business-appropriate peer while Amerprise Financial, Inc. was determined by the Compensation Committee, based on lack of peer group overlap and operations almost exclusively in wealth management, to be a less suitable peer. This change will be effective with respect to the peer group used to evaluate 2021 compensation decisions. 2017
Components of Compensation 2020 compensation decisions for our NEOs were closely tied to our 2020 financial performance and consisted of three key components - base salary, STI, and LTI, with a significant portion of total compensation tied to long-term Company performance. These components are summarized below. Base Salary We provide our NEOs with market-competitive annual base salaries to attract and retain an appropriate caliber of talent for each position. Annually, we review our competitive market, including market data provided by the Compensation Consultant for our proxy peer group and the broader market. In early 2020, in recognition of Mr. Hochschild's performance as CEO, and to bring his compensation closer to market-competitive levels, the Compensation Committee approved a $154,500 increase to his base salary. None of the other NEOs received a base salary adjustment in 2020. See "2020 Summary Compensation Table" for a summary of 2020 NEO base salaries. Short-Term Incentive Program In 2020, we continued to offer our NEOs the opportunity to earn a market-competitive annual cash award through our STI program. Awards may be earned based primarily on the Company's financial performance, while incorporating other secondary performance factors, risk performance, and individual performance. The STI opportunity is provided to create additional motivation for the executives to achieve our annual business goals and to enable us to attract and retain an appropriate caliber of talent for each position, recognizing that similar annual STI opportunities are provided at other companies with which we compete for talent. Our NEOs have target STI opportunities, represented on the "2020 Grants of Plan-Based Awards" table, which were communicated to them at the beginning of the year.
Compensation Discussion and Analysis In early 2020, in recognition of Mr. Hochschild's performance as CEO, and to bring his compensation closer to market-competitive levels, the Compensation Committee approved a 14% increase in his STI target. In recognition of their experience and performance, the Compensation Committee also approved a 20% increase to the STI target for Mses. Offereins and Loeger and Mr. Minetti. The Compensation Committee considered market changes, individual performance, experience, and internal pay equity amongst the Company's executive officers in setting 2020 STI targets. In 2020, PBTR was the primary performance factor considered when the Committee approved annual and long-term incentive funding. PBTR performance against Compensation Committee-approved targets establishes the pool for funding company-wide STI awards. PBTR is derived by adding changes in the allowance for credit losses and reserves for unfunded commitments to pretax income. PBTR is a non-GAAP financial measure that should be viewed in addition to, and not as a substitute for, the Company's reported results. The Compensation Committee believes that PBTR is a critical measure of the core operating performance of the business and focuses on factors the Company's incentive-eligible employees are most able to directly impact and influence and mitigates variability due to significant macroeconomic impacts. In 2019, the Compensation Committee approved changes to the Company's STI program taking effect for 2020. For 2020, the Committee approved target STI funding for achievement of 2% year-over-year PBTR growth and a performance/ payout curve defining potential funding levels based on various levels of PBTR performance. The curve was structured to provide threshold funding of 70% of target and maximum funding of 130% based on PBTR performance. For NEOs, a 1.5x multiplier is then applied resulting in threshold funding of 55% of target and maximum funding of 145% of target. The Committee reviews multiple facets of Company performance when ultimately approving the STI funding level. When the Committee approved the 2020 funding goal and curve in January 2020, it considered multiple factors, including the business plan, historical performance and general market conditions and determined that a 2% growth goal reflected appropriate challenge. The Compensation Committee did not make adjustments to the 2020 PBTR targets or performance/ payout curve in response to the COVID-19 pandemic. In 2020, based on net income of $1,141 million, the Company achieved PBTR of $3,834 million(1), reflecting a 8%(1) year-over-year decrease. The Committee made adjustments to the results for incentive purposes, as defined in the Omnibus Incentive Plan document, to account for approximately $100 million of non-recurring expenses primarily associated with software write-offs and the reduction of the Company’s real estate footprint. When determining individual 2020 STI compensation decisions for NEOs, the Compensation Committee assessed PBTR versus prior-year performance and made discretionary adjustments to the STI payouts for each of the NEOs based on a number of factors, including individual performance and risk performance. In making final assessments and award decisions for individual NEOs in 2020, the Compensation Committee conducted a qualitative assessment of NEO performance against individual goals, which included specific goals to help manage the impact of COVID-19. The Compensation Committee also considered secondary Company performance factors, including performance against the Annual Plan, net income, ROE (and risk-adjusted returns), EPS, total revenue (defined as net interest income plus other income), net charge-offs, operating expenses, key focus areas, relative performance, risk performance, regulatory compliance, internal pay equity, and individual performance. The Compensation Committee believes this approach provides the appropriate level of transparency while maintaining the flexibility to adjust awards for extraordinary circumstances that positively or negatively affect the Company's financial performance. This approach also allows the Compensation Committee to evaluate whether pay is commensurate with risks taken and the quality of performance results. Shortly following the COVID-19 outbreak, management considered the actions necessary to sustain the business through the pandemic and established as COVID-19-related key focus areas: protecting employees and our franchise; maintaining strong liquidity position; managing credit and collections; reducing operating expenses; sustaining brand capabilities; and sustaining profitable growth momentum. Management shared these focus areas with the Committee and regularly measured and updated the Committee on its performance against these stated goals. Through the fourth quarter, management achieved each of the goals, and continues to monitor its performance as a number of these items continue as priorities in 2021. The Compensation Committee considered performance in these key focus areas in addition to management's regular and previously stated goals in awarding compensation to our executives. See "2020 Decision-Making Process" below for more details on the factors considered by the Compensation Committee in compensation decisions and see "2020 Summary Compensation Table" for actual STI payouts to the NEOs.
____________________ (1)Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for credit losses of $2,382 million, the build of the liability for expected credit losses on unfunded commitments for $17 million, and income tax expense of $294 million to net income of $1,141 million. The Compensation and Leadership Development Committee believes that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts. Please see "Annex A" for a reconciliation of PBTR growth to net income growth calculated in accordance with GAAP.
Compensation Discussion and Analysis Long-Term Incentive Program The Compensation Committee, with input from the Compensation Consultant, continues to emphasize stock-based compensation for our NEOs to align their long-term interests with those of our shareholders. The Compensation Committee believes that the use of RSUs and PSUs that vest over a multi-year period focuses executives on the Company's long-term interests without leading to imprudent risk-taking. In addition, we believe time-vested RSUs and time-vested and performance-based PSUs represent an efficient method of delivering long-term stock compensation, generally using fewer shares than other types of stock-based award vehicles while delivering value that is ultimately tied to Company operational or stock price performance. For 2020, the Compensation Committee approved a combination of RSUs that generally vest ratably over a three-year period and at-risk PSUs tied to a three-year Company performance and vesting period (all pending evaluation against the Company's risk policies). Awards of RSUs and PSUs are subject to a clawback that allows the Company to reclaim previously granted awards under certain circumstances. The Compensation Committee sets long-term stock compensation commensurate with level in the organization to appropriately motivate the individuals and further align their interests with those of our shareholders. The Compensation Committee established a target LTI value for the NEOs, represented as a percentage of their base salaries, and determined that 68% of the target compensation of the CEO and, on average, 57% of the target compensation of the other NEOs, would be in the form of long-term stock compensation. In addition, the Compensation Committee established a target PSU and RSU mix as a percentage of the total target LTI of each NEO, as represented below. | | | | | | | LONG-TERM INCENTIVE ANNUAL TARGET AWARD MIX | | CEO | All other NEOs | | |
The LTI award consists of a forward-looking stock award with an initial grant value determined based primarily on the prior year's annual Company PBTR performance and may vary year-to-year. Based primarily upon the 2019 PBTR results, the 2020 LTI award pool was funded at 105% of target. The Compensation Committee also considers secondary Company performance factors, key focus areas and relative performance, risk performance, regulatory compliance, and other factors relevant to the year when setting the LTI award pool. The number of PSUs and RSUs granted is determined by dividing the dollar value of each recipient's award by the fair market value of a share of common stock on the date of grant. The PSU and RSU grants were made in January 2020 to each of the NEOs. In early 2020, in recognition of Mr. Hochschild's performance as CEO, and to bring his compensation closer to market-competitive levels, the Compensation Committee approved a 9% increase in his long-term incentive target. In early 2020, in recognition of their experience and performance, the Compensation Committee approved an 8% increase to the 2020 LTI target for both Mses. Loeger and Offereins and Mr. Minetti. The Compensation Committee made no other changes to the 2020 LTI targets of the other then-serving NEOs. See "2020 Decision-Making Process" below for more details on how the factors considered by the Compensation Committee impacted compensation decisions and see "2020 Summary Compensation Table" for the actual LTI grant values. Performance Stock Units 2020 PSU Awards At-risk PSUs are granted annually at the beginning of a three-year Company performance period to further reinforce the NEOs' accountability for the Company's future financial and strategic goals by tying a significant portion of compensation directly to the Company's EPS and stock price. The majority of the 2020 LTI awards for NEOs consisted of PSUs (75% for the CEO, and 60% for the other NEOs), which were granted under the Company's 2014 Omnibus Incentive Plan. Under this program, PSUs will generally vest and convert to shares of Common Stock if and to the extent the Company achieves specific cumulative EPS performance goals over a three-year performance period and provided the executive remains employed by the Company for the three-year performance period (with exceptions for certain termination events), and are subject to an evaluation of compliance with the Company's risk policies over the three-year period prior to vesting. The performance period for the 2020 award of PSUs began on January 1, 2020 and ends on December 31, 2022. The EPS performance target is established during the annual business planning process and is intended to push the Company and the NEOs to achieve higher performance within the Company's risk framework. Target PSU payout will be achieved if the Company meets its cumulative business plan goals, while achievement of maximum and threshold performance goals are each expected to be infrequent in occurrence. Participants will receive no portion of the award if the minimum performance is not met. If the Company exceeds the target performance hurdles, the NEO can potentially earn an award in excess of the target, up to a maximum of one and one-half times the target award based on Company performance. The awards will receive dividend equivalents in cash which will accumulate and pay out if and when the underlying shares are released to the NEOs.
Compensation Discussion and Analysis 2018 PSU Payouts The performance period for our PSUs granted in February 2018 was completed on December 31, 2020. The cumulative diluted EPS over the three-year period was $20.47 versus a target of $25.54, which would have resulted in a payout factor of 67% of the target amount. An EPS of $12.77 and $29.37 were required to receive a minimum and maximum payout, respectively. In assessing the appropriate payout for these PSUs, the Compensation Committee considered the EPS over the performance period attributable to effective NEO execution of key business decisions and strategies, including strong focus on growth and credit risk management. The Compensation Committee also considered the impact of accounting changes related to reserving under the current expected credit losses ("CECL") on Company performance. 2018 PSU EPS targets were established pre-CECL using the incurred reserve methodology, and the Compensation Committee therefore considered whether adjustments should be made to performance and appropriate metrics to account for CECL. Consistent with the Company's pay-for-performance philosophy and in accordance with the provisions of the 2014 Omnibus Incentive Plan, the Compensation Committee may adjust target amounts to reflect the impact of factors that management cannot directly control and to ensure that payout factors are not artificially inflated or impaired by factors unrelated to the ongoing operations of the business. Based on its assessment of the impact of CECL, the Compensation Committee increased the payout factor to 79% of target. The final payout of these PSUs was determined after confirmation of compliance with the Company’s risk policies, and employees received earned shares (which remain subject to clawback provisions, and for NEOs, subject to the share ownership guidelines and share retention requirements) when they vested in February 2021. Restricted Stock Units In addition to time-based vesting, RSUs are subject to market variability tied to the Company stock price and are intended to align the interests of senior executives with the long-term interests of the Company and its shareholders as well as motivate future contributions and decisions aimed at increasing shareholder value. RSUs generally vest and convert to shares ratably over a three-year period, subject to compliance with the Company's risk policies and assuming the executive remains employed by the Company through the vesting date (with exceptions for certain termination events). The awards deliver dividend equivalents in cash, which are paid to the NEOs in the same amount and at the same time as dividends are paid to all Company common shareholders. 2020 Decision-Making Process Factors Affecting Compensation Decisions The primary Company performance factor considered by the Compensation Committee when assessing performance for purposes of making variable compensation decisions for 20172020 was the Company's PBTR. Although no set weight is assigned to any performance metric or goal, we believe that a profit-based measure best reflects overall Company performance and drives EPS, which we believe is the representative measure most directly tied to the return to our common shareholders. We believe PBTR is also a balanced measure aligned with overalltotal performance to motivate executives to focus on the overall returns of the Company and not drive performance on one measure or one business unit over another. In 2017,2020, the Compensation Committee considered the Company's PBTR along with other performance factors, including: performance against Annual Plan; net income,income; ROE (and risk-adjusted returns), EPS,; EPS; total revenue (defined as net interest income plus other income),; net charge-offs and operating expenses,expenses; key focus areas; relative performance; risk performance; regulatory compliance; internal pay equity; and individual performance. In 2020, the Company was forced to adjust and adapt to the impact of the COVID-19 global pandemic. While our performance remained solid, the impact of the pandemic on our business, and particularly the credit portion of our business was significant. On a year-over-year basis, our PBTR decreased 8%(1) from $4,180 million to $3,834 million(1) on an unadjusted basis. Management's clear vision and quick action at the outset of the pandemic, along with proactive steps to minimize the impact on our lending business and offset performance headwinds through cost reductions helped to mute the impact of the COVID-19 pandemic on our business and workforce. Despite the impact of the COVID-19 pandemic on company performance, management did not request nor were adjustments made to the 2020 Annual Plan or Company performance targets under the Company's bonus plan and PSU program to account for COVID-19.
____________________ (1)Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for credit losses of $2,382 million, the build of the liability for expected credit losses on unfunded commitments of $17 million, and income tax expense of $294 million to net income of $1,141 million. The Compensation and Leadership Development Committee believes that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts. Please see "Annex A" for a reconciliation of PBTR growth to net income growth calculated in accordance with GAAP.
Compensation Discussion and Analysis Given our business model that relies heavily on the contribution of U.S.-based call center employees, management was forced to quickly act to move those and other employees from on-premise service to a work-from-home model. Within a period of three weeks, we moved nearly 98% of our global workforce to a work-form-home environment. Accordingly, the Company's 2020 business performance was impacted, and leadership and management priorities for 2020 were adjusted to account for the impact of COVID-19. Rather than rework 2020 performance goals and targets, management incorporated additional COVID-19 key focus areas relative performance, risk performance, internal pay equitythat were necessary to successfully manage through the pandemic in addition to continuing corporate and individual performance.performance goals. The Compensation Committee considered performance against these focus areas in addition to other qualitative performance metrics applicable to our executives. For the PSU portion of the LTI program, the primary metric the Compensation Committee established for performance-vesting purposes was cumulative EPS achievement over a three-year performance period. In making final award determinations for the 2018-2020 PSUs, the Compensation Committee also factored in individual compliance with the Company's risk policies andincluding an assessment of any inappropriateimprudent risks taken over the three-year vesting period, inclusive of the performance period. In 2017, theThe Compensation Committee in consultation with Pearl Meyer, considered alternative performance metrics for PSUs. The Committee also met with the Company's Chief Financial Officer, Mr. Graf, to discuss Company performance. After considering alternatives, the Committee chose to continue to use EPS as the sole PSU metric because it is deemed to be transparent, directly tied to the return to our shareholders and a commonly-used indicator of profitability for publicly-traded companies. The Committee continues to maintainretains discretion to adjust EPS performance for the impact of unusual or non-recurring events not reflected in business plan assumptions including legislative, accounting or other regulatory changes;changes, one-time, unusual tax events, and significant changes in planned share repurchases where such events are not attributable to NEO performance for purposes of PSU vesting. In December 2017, in light of the then pending tax legislation, the Committee clarified such events included the impact of any tax code changes. The Compensation Committee also considered the need to attract, motivate, and retain a talented management team and to design our compensation program in a way that remains competitive with other companies with which we compete for senior executive talent. For 2017,2020, after consideration of all the aforementioned factors and the Compensation Committee’s emphasis on pay for performance,pay-for-performance, the Compensation Committee made compensation decisions for each of the NEOs as detailed in the "2017"2020 Summary Compensation Table." Consistent with past practice, STI was paid after the Compensation Committee meeting in January 2021 and LTI was granted after the regularly scheduled Committee meeting in February 2018.2020.
Overall Company and Business Segment Performance The Compensation Committee believes that the actions taken by the Company's CEO and the other NEOs throughout 2017 contributed greatly to the Company's results and better positioned2020 helped the Company for 2018to overcome the unique challenges that accompanied the COVID-19 global pandemic while continuing to pursue our business objectives and beyond. Furthermore, throughout 2017,placed the Company continuedin a position to benefit from certain strategic choices made by the Company's senior managementsucceed in prior years.2021 and beyond. The following key strategic decisions, among other things, enabled the Company to be profitable during 2017maintain profitability in 2020 and we believe placed the Company in a strong position going forward: •Credit performance was strong across all of our lending products driven by the actions we’ve taken in underwriting, credit line management and collections, and the resiliency of our prime customer base. •Total loans decreased 6% year-over year, resulting from tightened underwriting criteria combined with elevated payment rates. However, we took substantial share in private student lending and gained share in card lending. •Operating efficiency ratio(1) of 41% reflects lower revenue driven by decreased net interest income and increased operating expenses. The increase in expenses was primarily driven by higher compensation expense and several one-time items, partially offset by lower marketing costs. •Delivered on our commitment to cut planned expenses by $400 million in 2020. •Continued to invest in analytics, automation and core technology capabilities to support long-term growth and efficiency improvement. •Payment Services continued to have strong network volume growth, up 7% year-over-year and generated $172 million in pre-tax income, driven primarily by strong PULSE performance. •In early 2021 our Board of Directors approved a new $1.1 billion repurchase plan, and we may begin share buybacks as soon as the first quarter subject to the Federal Reserve’s limitations.
____________________ (1)Operating efficiency ratio represents total other expense divided by revenue net of interest expense. 22
Accelerated revenue growth while also generating faster loan growthCompensation Discussion and maintaining a disciplined approach to credit.Analysis
Maintained a disciplined focus on key initiatives including the launch of Social Security Number Alerts and New Account Alerts, aimed at helping Discover cardmembers protect themselves from identity theft or fraud.
Enhanced digital and mobile capabilities providing operational efficiencies and building upon our position as a customer service leader.
Improved network acceptance, domestically and internationally, through increased merchant and acquirer relationships and network-to-network partnerships.
Utilized deposit growth initiatives and capital markets transactions to maintain a balance sheet position to benefit from a rising interest rate environment.
| | • | Maintained strong capital position while returning over $2.5 billion(1) of capital to shareholders in buybacks and Common Stock dividends.
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Achieved termination of the FDIC consent order relating to Discover Bank’s AML program.
Continued to enhance governance practices and the risk management and control environment, focused on meeting regulatory guidance.
Financial Performance The primary factor that our Compensation Committee considered in making 20172020 compensation decisions was the Company's PBTR. The Company's 2017 Annual Plan target for PBTR was modestly lower than prior year results due to our increased projected loan loss provision from loan growth seasoning and industry credit normalization and as we increased our growth investments to accelerate growth and long-term profits.growth. The Company achieved PBTR of $3,997$3,834 million(2)(1), which exceededrepresented a year-over-year decrease of 8%(1). While our 2017 Annual Plan targetinitial 2020 business plan contemplated year-over-year growth in PBTR, the impact of $3,929 million.the COVID-19 global pandemic was substantial and significantly impacted the Company's PBTR performance. Notwithstanding the setbacks resulting from COVID-19, PBTR performance was encouraging and we believe reflects the strength and resiliency of Discover's digital banking business model. The Compensation Committee consideredconcluded that PBTR performance was drivenimpacted by favorability in revenueCOVID-19 but remained solid due to strong operational and operating expenses partially offsetfinancial actions by higher charge-offs.management.
Other Performance Factors Other Financial Metrics The Compensation Committee considered other secondary 20172020 financial metrics set forth below. No single secondary financial metric was by itself significant to the Compensation Committee's determination of any individual's compensation. The Committee reviewed the impact of unplanned events, including the Tax Cuts and Jobs Act, and subjectively balanced 20172020 financial performance across these secondary metrics in the aggregate in determining individual compensation. | The following financial metrics were considered by the Committee (dollars in millions, except per share amounts): | | | | | | | | | 2017 | | Change from 2016 | Total Revenue(3) | $9,897 | | 9 | % | | Net Charge-off Dollars | $2,119 | | 36 | % | | Operating Expense | $3,781 | | 5 | % | | Net Income | $2,099 | | (12 | %) | | Diluted Earnings Per Share | $5.42 | | (6 | %) | | Return on Equity | 19 | % | | (2 | %) | | | | | |
| | (1) | The sum of Common Stock dividends and share repurchases, net of Common Stock issued under stock-based compensation plans. |
| | (2) | Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of $460 million and income tax expense of $1,438 million to net income of $2,099 million. The Committee believes that PBTR is a better measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts.
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| | (3) | Total revenue equals the sum of net interest income and other income. |
The following financial metrics were considered by the Compensation Committee (dollars in millions, except per share amounts):
| | | | | | | | | | 2020 | Change from 2019 | Total Revenue(2) | $11,088 | (3)% | | Net Charge-off Dollars | $2,735 | (5)% | | Operating Expense | $4,519 | 3% | | Net Income | $1,141 | (61)% | | Diluted Earnings Per Share | $3.60 | (60)% | | Return on Equity | 11% | (15)% |
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Key Focus Areas The Compensation Committee also considered the Company's progress on key focus areas, including accelerating profitableloan and deposit growth, enhancing capabilities and operating models, reducing charge-offs and disciplined expense management, growing the Payments business, progress on maturing risk management, and compliance when making overall compensation decisions. For 2020, management also added and the Compensation Committee approved as an additional performance factor a special Key Focus Area COVID-19 Response, which included protecting employees and our franchise, maintaining strong capital and liquidity positions, managing credit and collections, reducing operating expenses, and sustaining brand capabilities and profitable growth momentum. The Compensation Committee reviewed and subjectively balanced performance in these key focus areas with other secondary factors and PBTR in the aggregate in determining individual compensation.
____________________ (1)Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for credit losses of $2,382 million, the build of the liability for expected credit losses on unfunded commitments of $17 million, and income tax expense of $294 million to net income of $1,141 million. The Compensation and Leadership Development Committee consideredbelieves that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts. Please see "Annex A" for a reconciliation of credit normalizationPBTR growth to net income growth calculated in accordance with GAAP. (2)Total revenue equals the sum of net interest income and loan growth, as well as total network transaction volume. other income.
Compensation Discussion and Analysis The following secondary growth and performance metricsfactors were reviewed by the Compensation Committee: •Total loan growth of receivables decreased 6% year-over year, resulting from tightened underwriting criteria combined with elevated payment rates. However, we took substantial share in private student lending and gained share in card lending. •9% was above the 2016 performance of 7%, supported by strong sales growth and continued payment rate favorability. Loan growth is a key driver of revenue and future profitability, and 9% organic loan growth was our best performance since becoming a public company in 2007. Direct Banking revenue was higherlower than 2016 by 9%2019 driven by loan growth as well as net interest margin expansion.repayment trends and lower sales volume.
•Direct-to-Consumer Deposits grew year-over-year by $9,088 million, or 17%. •Total net charge-off rate on average loans outstanding of 2.70%3.03% was updown from the prior year rate of 3.17% . •2.16%Operating efficiency ratio(1) dueof 41% reflects lower revenue driven by decreased net interest income and increased operating expenses. The increase in expenses was primarily driven by higher compensation expense and several one-time items, partially offset by lower marketing costs. •Payment Services continued to supply-driven credit normalization and the seasoning of loan growth from the last few years. | | • | The Company achieved an operating efficiency ratio(1) of 38.2%, which was an improvement when compared to the 2016 ratio of 39.4%. Strong growth in Direct Banking revenue was the primary contributor to the improvement.
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Totalhave strong network volume was higher than the prior year by 10%growth, up 7% year-over-year and generated $172 million in pre-tax income, driven primarily by strong PULSE network volume growth of performance.
•14%.Company and individual risk performance with respect to legal and regulatory matters. Payment Services pre-tax earnings of $145 million were above 2016 by $38 million driven by higher PULSE transaction processing revenue and expense favorability.
The Company made significant investments and has made substantial progress in enhancing risk management and compliance, including its AML/BSA program.
Relative Performance The Compensation Committee also considers the Company's performance relative performance againstto our largest business competitors in the U.S. market in both the DirectDigital Banking and Payment Services segments. Relative performance results considered byIn 2020, Discover performed better than the Committee for 2017 are described below. Unless otherwise noted, the Committee reviewed competitor results for trailing four calendar quarters through completionmajority of the fourth calendar quarterits largest competitors on metrics including ROE and efficiency ratio and continued to gain market share in 2017. | | • | Card Credit:3% net charge-off rate average; better than the average competitor rate(2)
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| | • | Card Loans:9% receivables growth: better than the average competitor growth rate(2)(3)
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| | • | Credit Volume: 5% U.S. credit dollar volume growth; lower than the average network competitors(4)
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| | • | Debit Volume:14% U.S. debit dollar volume growth; better than the average competitor growth rate(5)
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| | • | Card Return on Assets: 6% one-year return on assets; better than the average competitor return(6)(7)
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| | • | Return on Equity:19% one-year return on equity; better than the average competitor return(8)
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| | • | Shareholder Return: 9% one-year total shareholder return; lower than the average competitor return(9)
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| | • | Shareholder Return: 25% three-year total shareholder return; lower than the average competitor return(9)
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primary lending products and grow consumer deposits.
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| | (1) | Operating efficiency ratio represents total other expense divided by revenue net of interest expense. |
| | (2) | Card comparison based on peer group of American Express (U.S. Consumer Card), Bank of America (U.S. Card), Capital One (U.S. Card), Chase (Card Services), Citibank, N.A. (Branded-Cards North America), Synchrony Financial (Retail Card) and Wells Fargo (Consumer Card). |
| | (3) | Card receivables growth is on a year-over-year basis. |
| | (4) | Network competitors are American Express, Visa and Mastercard. Credit volume growth is on a year-over-year basis. |
| | (5) | Competitor average based on peer group of Visa and Mastercard. Debit volume growth is on a year-over-year basis. |
| | (6) | Card competitor average based on peer group of American Express (U.S. Consumer Card), Capital One (U.S. Card), Citibank, N.A. (Branded-Cards North America) and Synchrony Financial (Total Company). |
| | (7) | Card return on assets is calculated by dividing profit before taxes and reserves by average credit card loan receivables. |
| | (8) | Competitor average based on peer group of American Express, Bank of America, Capital One, JP Morgan Chase, Citigroup, Mastercard, Synchrony Financial, Visa and Wells Fargo. |
| | (9) | As of December 31, 2017, based on peer group of American Express, Bank of America, Capital One, Citigroup, JP Morgan Chase, Mastercard, Synchrony Financial, Visa and Wells Fargo. The Company's shareholder return represents the total return of a share of Common Stock to an investor (capital gain/loss plus dividends) assuming dividends are reinvested in the security. |
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Risk Performance The Compensation Committee considers risk performance across the Company and within each business segment in making final compensation decisions for each NEO, both as it relates to an individual’s specific objectives as well as contributions to the successstrengthening of the business in strengthening its risk management, internal controls, and compliance practices. The Compensation Committee notedreviewed overall performance in line withand risk adjusted returns and capital levels relative to the Annual Plan and within established business risk appetite limits, strong risk adjusted returns, strong capital levels and termination of the FDIC consent order relating to Discover Bank's AML program.limits. The Compensation Committee also considered the Company's substantial efforts in ongoing remediation to address previously disclosed legal and regulatory matters including a Written Agreement with the Federal Reserve relating to the Company's AML program as well as a2020 consent order with the CFPB related to the Company’s Student Loan business.
____________________ (1)Operating efficiency ratio represents total other expense divided by revenue net of interest expense.
Compensation Discussion and Analysis Individual Performance The Compensation Committee considers individual performance in making final compensation decisions for each NEO, both as it relates to an individual's specific objectives as well as each individual's relative role impact, experience, internal pay equity, and contributions to the success of the overall enterprise. As noted above, as part of its compensation determinations, the Compensation Committee also assesses each NEO’s contributions to the success of the business in strengthening its risk management, internal controls, and compliance practices, which reinforces these objectives as priorities throughout the organization. The Compensation Committee believes this holistic approach optimizes the link between executive rewards and the benefits to shareholders. Highlights of individual performance and contributions are described below.
In 2020, the Compensation Committee recognized the contribution of management in identifying, addressing, managing and mitigating the impact of COVID-19 on the Company's business operations, including, but not limited to its impact on our customers, our employees and our business partners. Management did not recommend and the Compensation Committee did not pursue adjustments to Company PBTR performance targets under the STI Program, and instead focused on individual contribution to managing COVID-19 as reflected in the COVID-19 key focus areas described above, while simultaneously pursuing existing company and individual goals. The highlights below therefore reflect each member of management's contribution to managing the impact of COVID-19 on our business while also pursuing our established business strategy. | | | | | | | | | David W. NelmsROGER C. HOCHSCHILD
Chairman and Chief Executive Officer and President
| | | | | 2020 COMPENSATION | Key Achievements | | | •Maintained strong PBTR performance and performance relative to competitors in challenging COVID-19 environment •Managed successful response to COVID-19 pandemic including seamless transition to work-from-home, $400 million expense reduction and rapid credit policy and customer service adjustments •Continued progress on build out of physical and digital acceptance | l•Exceeded Annual Plan target for PBTRContinued progress on technology transformation and loan growthmatched industry roll out of contactless payment
lManaged •strong EPS performance, despite provision higher than Annual PlanExpanded the company’s commitment to diversity, equity and inclusion by establishing a strategic Office and quick response Task Force dedicated to advancing these efforts
l•Achieved favorable company efficiency ratio of 38%
lRenewed payments volume and profit growth
lDrove timely progress on addressingSupported maturing risk management, including regulatory matters including related to the AML/BSA program which resulted in the termination of the FDIC consent orderrisk
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| | | | | | | | | R. Mark GrafJOHN T. GREENE
Executive Vice President, Chief Financial Officer
| | | | | 2020 COMPENSATION | Key Achievements | | | l•Exceeded treasury funding goalsManaged successful response to COVID-19 pandemic including implementing actions to assure strong liquidity and capital positions while executing expense reduction activities resulting in the aggregate$400 million of savings versus planned spend
l•Drove positive operating leverageSignificantly enhanced procurement and drovesourcing functions yielding $100 million savings through corporate procurementon third party vendor spend
| •Enhanced Financial Planning and Analysis ("FP&A") and line of business finance process resulting in efficiency and quicker cycle time l•FortifiedMaintained strong investor relations and enhanced business planning and reporting processes
•Developed a high quality capital plan and strengthened the corporate balance sheet through effective •Supported maturing risk management, including regulatory risk and capital management; supportedfinancial risks from COVID-19 pandemic |
Compensation Discussion and Analysis | | | | | | | | | CARLOS M. MINETTI
Executive Vice President, President - Consumer Banking | | | | | 2020 COMPENSATION | Key Achievements | | | •Exceeded goals on Lending (PBTR), Personal Loans, Student Loans, Net Charge-Off Rates, and Deposits all governing•Co-sponsored a company-wide effort to improve operations, compliance, and risk management committee requirements
lContinued strength in investor relations, including industry recognition for this function
l•Launched new IRA Savings and Parent Loan products
| •Reduced the time to fund home loans from the time the application is submitted •Created an award winning home loan digital experience •Supported timely satisfaction ofmaturing risk management, including regulatory mattersrisk |
| | | | | | | | | Roger C. Hochschild
President and Chief Operating Officer
| lLed business segments to achieve strong financial performance
lContinued build out and maturation of the Company's Chief Information Security Office function and capabilities
lContinued roll out of "Discover Management System," a new operating model
leveraging lean and agile principles; leading the Executive Committee through learning journey and adoption of management tools and principles
lSupported progress on addressing regulatory matters including related to the AML/BSA program which resulted in the termination of the FDIC consent order
lCompleted several talent rotations at the officer level to build succession depth; successful transition of new Executive Committee member into Credit and Decision Management role
| | | DianeDIANE E. OffereinsOFFEREINS
Executive Vice President, President - Payment Services
| | | | | 2020 COMPENSATION | Key Achievements | | | l•Exceeded Payments segment Annual Plan targetDelivered strong year-over-year performance in the aggregatedespite COVID-19 through aggressive cost cutting and actions to minimize counter-party losses
l•Increased global acceptance, stabilizedMaintained momentum with payments volume and increased Payment
Services profits
l Increased network acceptance, network-to-network partners and issuer base for PULSEdespite challenging environment
l•Launched Samsung Pay, Android Pay app provisioning, and PayPal in Android PayContinued successful implementation of technology roadmap
| •Successfully implemented Discover Card’s contactless initiative l•Launched Apple Pay for two Discover Debit issuersEstablished an operating model, transaction framework, and Pay with Cashback Bonus for Discover cardmembersnear-term roadmap
l •Supported progress on addressingmaturing risk management, including regulatory matters including related to the AML/ BSA sanctionsrisk
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| | | | | | | | | Carlos Minetti
JULIE A. LOEGER
Executive Vice President, President of Consumer Banking- US Cards | | | | | 2020 COMPENSATION | Key Achievements | | | l•Implemented strategies to balance growth, risk and profitability across Consumer
Banking
lExceeded Consumer Banking Plan target for PBTR Delivered strong year-over-year sales performance despite COVID-19
l•Exceeded Annual Plan target for New DepositsManaged successful response to COVID-19 pandemic including aggressive cost cutting and met targets for other banking product new originationsadjustments to strategy to address customer needs
l •Implemented measures for sustained improvement in Discover Home EquityLaunched a highly effective No Annual Fee and Card Acceptance campaign
| •Launched black-owned restaurant initiative with focus on social media and influencers l •Continued focus on building next generation capabilities in OTIS banking system platformLaunched several new innovative products and mobile enhancements to improve the customer experience
l •Supported progress on addressingmaturing risk management, including regulatory matters including related to the AML/BSA program which resulted in the termination of the FDIC consent orderrisk
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Compensation Discussion and Analysis RolePerformance Stock Units
2020 PSU Awards At-risk PSUs are granted annually at the beginning of NEOs in Compensation Decisions Our CEO, COO, seniora three-year Company Human Resources personnel, Chief Risk Officer and Pearl Meyer met withperformance period to further reinforce the Committee to discuss preliminary compensation decisionsNEOs' accountability for the NEOsCompany's future financial and senior officers considering overall contribution to Company performance and individual responsibility for business segment, functional, and/or strategic goals during the Committee's December 2017 meeting and presented final recommendations to the Committee during the Committee's February 2018 meeting. The Committee also met with the Risk Oversight and Audit Committees of the Board of Directors to discuss the impact of risk performance on compensation recommendations. This allowed for ample review and consideration of 2017 Company, business segment, individual and risk performance in determining 2017 compensation decisions. No NEO was involved in his or her own pay recommendations or decisions. The role of the Committee and its consultant are discussed under "Executive and Director Compensation — Executive Compensation." The decisions of the Committee for 2017 performance are reflected below under "Components of Compensation."
Components of Compensation
2017 compensation decisions for our NEOs were closely tied to our 2017 financial performance and consisted of three key components - base salary, STI, and LTI - withby tying a significant portion of total compensation (PSUsdirectly to the Company's EPS and RSUs) tied to long-term Company performance. These components are summarized below.
Base Salary
We provide ourstock price. The majority of the 2020 LTI awards for NEOs and other executives with a market-competitive annual base salary to attract and retain an appropriate caliberconsisted of talentPSUs (75% for the position. Annually, we review our competitive market, including market dataCEO, and 60% for the other NEOs), which were granted under the Company's 2014 Omnibus Incentive Plan. Under this program, PSUs will generally vest and convert to shares of Common Stock if and to the extent the Company achieves specific cumulative EPS performance goals over a three-year performance period and provided the executive remains employed by Pearl Meyerthe Company for our proxy peer groupthe three-year performance period (with exceptions for certain termination events), and are subject to an evaluation of compliance with the Company's risk policies over the three-year period prior to vesting. The performance period for the 2020 award of PSUs began on January 1, 2020 and ends on December 31, 2022. The EPS performance target is established during the annual business planning process and is intended to push the Company and the broader market. The Committee uses market information as one data pointNEOs to consider among many, and changes in base compensation are not made frequently. For example, the base pay of Mr. Nelms has not changed since 2008, and the base salaries of Mr. Minetti and Ms. Offereins have not changed since 2011. After considering 2016 market increases in base pay, individualachieve higher performance and experience, the Committee approved a $100,000 increase in Mr. Nelms base salary for 2017. After considering 2017 market increases in base pay, individual performance, relative role impact, experience, and internal pay equity amongstwithin the Company's executive officers,risk framework. Target PSU payout will be achieved if the Committee approvedCompany meets its cumulative business plan goals, while achievement of maximum and threshold performance goals are each expected to be infrequent in occurrence. Participants will receive no portion of the award if the minimum performance is not met. If the Company exceeds the target performance hurdles, the NEO can potentially earn an award in excess of the target, up to a $50,000 increase inmaximum of one and one-half times the 2018 base salaries for each of Messrs. Graf, Hochschild, and Minetti and Ms. Offereins. The Company applies any applicable annual base salary increases for all employees, including NEOs, as of a specified date in the first three and a half months of each year. See "2017 Summary Compensation Table" for a summary of 2017 NEO base salaries.
Short-Term Incentive Program
In 2017, we continued to offer our NEOs the opportunity to earn a market competitive annual cashtarget award based on Company performance. The awards will receive dividend equivalents in cash which will accumulate and pay out if and when the underlying shares are released to the NEOs.
Compensation Discussion and Analysis 2018 PSU Payouts The performance period for our PSUs granted in February 2018 was completed on December 31, 2020. The cumulative diluted EPS over the three-year period was $20.47 versus a target of $25.54, which would have resulted in a payout factor of 67% of the target amount. An EPS of $12.77 and $29.37 were required to receive a minimum and maximum payout, respectively. In assessing the appropriate payout for these PSUs, the Compensation Committee considered the EPS over the performance period attributable to effective NEO execution of key business decisions and strategies, including strong focus on growth and credit risk management. The Compensation Committee also considered the impact of accounting changes related to reserving under the current expected credit losses ("CECL") on Company performance. 2018 PSU EPS targets were established pre-CECL using the incurred reserve methodology, and the Compensation Committee therefore considered whether adjustments should be made to performance and appropriate metrics to account for CECL. Consistent with the Company's financial performance,pay-for-performance philosophy and in accordance with the provisions of the 2014 Omnibus Incentive Plan, the Compensation Committee may adjust target amounts to reflect the impact of factors that management cannot directly control and to ensure that payout factors are not artificially inflated or impaired by factors unrelated to the ongoing operations of the business. Based on its assessment of the impact of CECL, the Compensation Committee increased the payout factor to 79% of target. The final payout of these PSUs was determined after confirmation of compliance with the Company’s risk policies, and employees received earned shares (which remain subject to clawback provisions, and for NEOs, subject to the share ownership guidelines and share retention requirements) when they vested in February 2021. Restricted Stock Units In addition to time-based vesting, RSUs are subject to market variability tied to the Company stock price and are intended to align the interests of senior executives with the long-term interests of the Company and its shareholders as well as other secondarymotivate future contributions and decisions aimed at increasing shareholder value. RSUs generally vest and convert to shares ratably over a three-year period, subject to compliance with the Company's risk policies and assuming the executive remains employed by the Company through the vesting date (with exceptions for certain termination events). The awards deliver dividend equivalents in cash, which are paid to the NEOs in the same amount and at the same time as dividends are paid to all Company common shareholders. 2020 Decision-Making Process Factors Affecting Compensation Decisions The primary Company performance factors, riskfactor considered by the Compensation Committee for purposes of making variable compensation decisions for 2020 was the Company's PBTR. Although no set weight is assigned to any performance metric or goal, we believe that a profit-based measure best reflects overall Company performance and individual performance. The STI opportunitydrives EPS, which we believe is providedthe representative measure most directly tied to the return to our common shareholders. We believe PBTR is also a balanced measure aligned with total performance to motivate executives to achieve our annual business goals and to attract and retain an appropriate caliber of talent for the position, recognizing that similar annual STI opportunities are provided at other companies with which we compete for talent. After consideration of market data provided by Pearl Meyer, the Committee made no changes to 2017 target STI opportunities from 2016 target STI opportunities. Our NEOs have target STI opportunities, representedfocus on the "2017 Grantsoverall returns of Plan-Based Awards" table, which were communicatedthe Company and not drive performance on one measure or one business unit over another. In 2020, the Compensation Committee considered the Company's PBTR along with other performance factors, including: performance against Annual Plan; net income; ROE (and risk-adjusted returns); EPS; total revenue (defined as net interest income plus other income); net charge-offs and operating expenses; key focus areas; relative performance; risk performance; regulatory compliance; internal pay equity; and individual performance. In 2020, the Company was forced to themadjust and adapt to the impact of the COVID-19 global pandemic. While our performance remained solid, the impact of the pandemic on our business, and particularly the credit portion of our business was significant. On a year-over-year basis, our PBTR decreased 8%(1) from $4,180 million to $3,834 million(1) on an unadjusted basis. Management's clear vision and quick action at the beginningoutset of the year.
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In 2017,pandemic, along with proactive steps to minimize the Committee again considered market data provided by Pearl Meyer, including forimpact on our proxy peers. Market data is only one factor used bylending business and offset performance headwinds through cost reductions helped to mute the Committee,impact of the COVID-19 pandemic on our business and is generallyworkforce. Despite the impact of the COVID-19 pandemic on company performance, management did not independently used as a basis for changesrequest nor were adjustments made to STI targets. The Committee considered market changes, individualthe 2020 Annual Plan or Company performance experience, and internal pay equity amongsttargets under the Company's executive officers,bonus plan and decidedPSU program to increase the 2018 target STI opportunityaccount for Messrs. GrafCOVID-19.
____________________ (1)Profit before taxes and Minetti and Ms. Offereins by 10%, and the increases were communicated to them at the beginning of 2018. PBTR is the primary factor considered when funding incentive compensation. PBTR is derived by adding changes in the allowance for loan losses to pretax income. PBTRreserves ("PBTR") is a non-GAAP financial measure thatwhich should be viewed in addition to, and not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for credit losses of $2,382 million, the build of the liability for expected credit losses on unfunded commitments of $17 million, and income tax expense of $294 million to net income of $1,141 million. The Compensation and Leadership Development Committee believes that PBTR is a bettercritical measure of the core operating performance of the business and is consistent with the evolution of our STI program in recent years to increasethat increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts. Please see "Annex A" for a reconciliation of PBTR growth to net income growth calculated in accordance with GAAP.
Compensation Discussion and Analysis Given our business model that relies heavily on the contribution of U.S.-based call center employees, management was forced to quickly act to move those and other employees from on-premise service to a work-from-home model. Within a period of three weeks, we moved nearly 98% of our global workforce to a work-form-home environment. Accordingly, the Company's 2020 business performance was impacted, and leadership and management priorities for 2020 were adjusted to account for the impact of COVID-19. Rather than rework 2020 performance goals and targets, management incorporated additional COVID-19 key focus areas that were necessary to successfully manage through the pandemic in addition to continuing corporate and individual performance goals. The Compensation Committee considered performance against these focus areas in addition to other qualitative performance metrics applicable to our executives. For 2017, the PSU portion of the LTI program, the primary metric the Compensation Committee established for performance-vesting purposes was cumulative EPS achievement over a three-year performance period. In making final award determinations for the 2018-2020 PSUs, the Compensation Committee also factored in individual compliance with the Company's risk policies including an assessment of any imprudent risks taken over the three-year vesting period, inclusive of the performance period. The Compensation Committee retains discretion to adjust EPS performance for the impact of unusual or non-recurring events not reflected in business plan assumptions including legislative, accounting or other regulatory changes, one-time, unusual tax events, and significant changes in planned share repurchases where such events are not attributable to NEO performance for purposes of PSU vesting. The Compensation Committee also considered secondary Company financial performance metrics, including net income, ROE (and risk-adjusted returns), EPS, total revenue (defined as net interest income plusthe need to attract, motivate, and retain a talented management team and to design our compensation program in a way that remains competitive with other income), net charge-offs, operating expenses, key focus areas, relative performance, risk performance, internal pay equity and individual performance. The Committee believes this providescompanies with which we compete for senior executive talent. For 2020, after consideration of all the right level of transparency while maintaining the flexibility to adjust for extraordinary circumstances that positively or negatively affect the Company's financial performance. This approach also allows the Committee to evaluate whether pay is commensurate with risks takenaforementioned factors and the quality of performance results. In 2017,Compensation Committee’s emphasis on pay-for-performance, the Company achieved PBTR of $3,997 million(1), which exceeded our 2017 Annual Plan PBTR target of $3,929 million. Accordingly, when determining 2017 STICompensation Committee made compensation decisions the Committee assessed PBTR versus the Annual Plan target and made a discretionary judgment on appropriate 2017 STI compensation for each of the NEOs based on a number of factors, including strong loan growth.as detailed in the "2020 Summary Compensation Table." STI was paid after the Compensation Committee meeting in January 2021 and LTI was granted after the regularly scheduled Committee meeting in February 2020.
Overall Company and Business Segment Performance The Company pays STI for eligible employees, including NEOs, as of a specified date in the first three and a half months of each year. See "2017 Decision-Making Process" above for more details on the factors considered by the Committee in compensation decisions and see "2017 Summary Compensation Table" for the actual STI decisions.
Long-Term Incentive Program
The Committee, with input from Pearl Meyer, continues to emphasize stock-based compensation for our NEOs to align their long-term interests with our shareholders. The Committee believes that the use of RSUs and PSUs that vest over a multi-year period focuses executives onactions taken by the Company's CEO and the other NEOs throughout 2020 helped the Company to overcome the unique challenges that accompanied the COVID-19 global pandemic while continuing to pursue our business objectives and placed the Company in a position to succeed in 2021 and beyond. The following key strategic decisions, among other things, enabled the Company to maintain profitability in 2020 and we believe placed the Company in a strong position going forward:
•Credit performance was strong across all of our lending products driven by the actions we’ve taken in underwriting, credit line management and collections, and the resiliency of our prime customer base. •Total loans decreased 6% year-over year, resulting from tightened underwriting criteria combined with elevated payment rates. However, we took substantial share in private student lending and gained share in card lending. •Operating efficiency ratio(1) of 41% reflects lower revenue driven by decreased net interest income and increased operating expenses. The increase in expenses was primarily driven by higher compensation expense and several one-time items, partially offset by lower marketing costs. •Delivered on our commitment to cut planned expenses by $400 million in 2020. •Continued to invest in analytics, automation and core technology capabilities to support long-term interests without leadinggrowth and efficiency improvement. •Payment Services continued to imprudent risk taking. have strong network volume growth, up 7% year-over-year and generated $172 million in pre-tax income, driven primarily by strong PULSE performance. •In addition, time-vested RSUsearly 2021 our Board of Directors approved a new $1.1 billion repurchase plan, and performance-vested PSUs represent an efficient methodwe may begin share buybacks as soon as the first quarter subject to the Federal Reserve’s limitations.
____________________ (1)Operating efficiency ratio represents total other expense divided by revenue net of delivering long-term stockinterest expense.
Compensation Discussion and Analysis Financial Performance The primary factor that our Compensation Committee considered in making 2020 compensation generally using fewer shares thandecisions was the Company's PBTR growth. The Company achieved PBTR of $3,834 million(1), which represented a year-over-year decrease of 8%(1). While our initial 2020 business plan contemplated year-over-year growth in PBTR, the impact of the COVID-19 global pandemic was substantial and significantly impacted the Company's PBTR performance. Notwithstanding the setbacks resulting from COVID-19, PBTR performance was encouraging and we believe reflects the strength and resiliency of Discover's digital banking business model. The Compensation Committee concluded that PBTR performance was impacted by COVID-19 but remained solid due to strong operational and financial actions by management. Other Performance Factors Other Financial Metrics The Compensation Committee considered other typessecondary 2020 financial metrics set forth below. No single secondary financial metric was by itself significant to the Compensation Committee's determination of stock-based award vehicles while having value that is ultimately tied to Company performance. LTI awards are made to eligible employees, including NEOs, as of a specified dateany individual's compensation. The Committee subjectively balanced 2020 financial performance across these secondary metrics in the first threeaggregate in determining individual compensation. The following financial metrics were considered by the Compensation Committee (dollars in millions, except per share amounts): | | | | | | | | | | 2020 | Change from 2019 | Total Revenue(2) | $11,088 | (3)% | | Net Charge-off Dollars | $2,735 | (5)% | | Operating Expense | $4,519 | 3% | | Net Income | $1,141 | (61)% | | Diluted Earnings Per Share | $3.60 | (60)% | | Return on Equity | 11% | (15)% |
Key Focus Areas The Compensation Committee also considered the Company's progress on key focus areas, including loan and a half months of each year. deposit growth, enhancing capabilities and operating models, reducing charge-offs and disciplined expense management, growing the Payments business, progress on maturing risk management, and compliance when making overall compensation decisions. For 2017,2020, management also added and the Compensation Committee approved as an additional performance factor a combinationspecial Key Focus Area COVID-19 Response, which included protecting employees and our franchise, maintaining strong capital and liquidity positions, managing credit and collections, reducing operating expenses, and sustaining brand capabilities and profitable growth momentum. The Compensation Committee reviewed and subjectively balanced performance in these key focus areas with other secondary factors and PBTR in the aggregate in determining individual compensation.
____________________ (1)Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for credit losses of RSUs$2,382 million, the build of the liability for expected credit losses on unfunded commitments of $17 million, and income tax expense of $294 million to net income of $1,141 million. The Compensation and Leadership Development Committee believes that generally vest ratably overPBTR is a three-year periodcritical measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and at-risk PSUs tiedinfluence and controls for variability in significant macroeconomic impacts. Please see "Annex A" for a reconciliation of PBTR growth to a three-year net income growth calculated in accordance with GAAP. (2)Total revenue equals the sum of net interest income and other income.
Compensation Discussion and Analysis The following secondary performance factors were reviewed by the Compensation Committee: •Total loan receivables decreased 6% year-over year, resulting from tightened underwriting criteria combined with elevated payment rates. However, we took substantial share in private student lending and gained share in card lending. •Banking revenue was lower than 2019 driven by repayment trends and lower sales volume. •Direct-to-Consumer Deposits grew year-over-year by $9,088 million, or 17%. •Total net charge-off rate on average loans outstanding of 3.03% was down from the prior year rate of 3.17% . •Operating efficiency ratio(1) of 41% reflects lower revenue driven by decreased net interest income and increased operating expenses. The increase in expenses was primarily driven by higher compensation expense and several one-time items, partially offset by lower marketing costs. •Payment Services continued to have strong network volume growth, up 7% year-over-year and generated $172 million in pre-tax income, driven primarily by strong PULSE performance. •Company and individual risk performance with respect to legal and regulatory matters. Relative Performance The Compensation Committee also considers the Company's performance relative to our largest business competitors in the U.S. market in both the Digital Banking and Payment Services segments. In 2020, Discover performed better than the majority of its largest competitors on metrics including ROE and efficiency ratio and continued to gain market share in primary lending products and grow consumer deposits. Risk Performance The Compensation Committee considers risk performance across the Company and within each business segment in making final compensation decisions for each NEO, both as it relates to an individual’s specific objectives as well as contributions to the strengthening of risk management, internal controls, and compliance practices. The Compensation Committee reviewed overall performance and vesting period (pending evaluation againstrisk adjusted returns and capital levels relative to the Annual Plan and established risk appetite limits. The Compensation Committee also considered the Company's risk policies).efforts to address previously disclosed legal and regulatory matters including the 2020 consent order with the CFPB related to the Company’s Student Loan business.
____________________ (1)Operating efficiency ratio represents total other expense divided by revenue net of interest expense.
Compensation Discussion and Analysis Individual Performance The Compensation Committee sets long-term stockconsiders individual performance in making final compensation commensurate with level in the organizationdecisions for each NEO, both as it relates to appropriately motivate the individuals with the mostan individual's specific objectives as well as each individual's relative role impact, on drivingexperience, internal pay equity, and contributions to the success of the organization and creating shareholder value. Theoverall enterprise. As noted above, as part of its compensation determinations, the Compensation Committee established a target LTI value foralso assesses each NEO’s contributions to the NEOs, represented as a percentage of their base salaries, and determined that 67%success of the target compensationbusiness in strengthening its risk management, internal controls, and compliance practices, which reinforces these objectives as priorities throughout the organization. The Compensation Committee believes this holistic approach optimizes the link between executive rewards and the benefits to shareholders. Highlights of individual performance and contributions are described below. In 2020, the CEOCompensation Committee recognized the contribution of management in identifying, addressing, managing and mitigating the impact of COVID-19 on average, 59% of the target compensation ofCompany's business operations, including, but not limited to its impact on our customers, our employees and our business partners. Management did not recommend and the other NEOs, would beCompensation Committee did not pursue adjustments to Company PBTR performance targets under the STI Program, and instead focused on individual contribution to managing COVID-19 as reflected in the formCOVID-19 key focus areas described above, while simultaneously pursuing existing company and individual goals. The highlights below therefore reflect each member of long-term stock compensation. In addition,management's contribution to managing the Committeeimpact of COVID-19 on our business while also pursuing our established a target PSU and RSU mix as a percentage of the total target LTI of each NEO, as represented on the following page.business strategy.
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| | | | | | | | | (1)ROGER C. HOCHSCHILD
Chief Executive Officer and President | | Profit before taxes | | | 2020 COMPENSATION | Key Achievements | | | •Maintained strong PBTR performance and reservesperformance relative to competitors in challenging COVID-19 environment •Managed successful response to COVID-19 pandemic including seamless transition to work-from-home, $400 million expense reduction and rapid credit policy and customer service adjustments •Continued progress on build out of physical and digital acceptance | •Continued progress on technology transformation and matched industry roll out of contactless payment •Expanded the company’s commitment to diversity, equity and inclusion by establishing a strategic Office and quick response Task Force dedicated to advancing these efforts •Supported maturing risk management, including regulatory risk |
| | | | | | | | | JOHN T. GREENE
Executive Vice President, Chief Financial Officer | | | | | 2020 COMPENSATION | Key Achievements | | | •Managed successful response to COVID-19 pandemic including implementing actions to assure strong liquidity and capital positions while executing expense reduction activities resulting in $400 million of savings versus planned spend •Significantly enhanced procurement and sourcing functions yielding $100 million savings on third party vendor spend | •Enhanced Financial Planning and Analysis ("PBTR"FP&A") and line of business finance process resulting in efficiency and quicker cycle time •Maintained strong investor relations and enhanced business planning and reporting processes •Developed a high quality capital plan and strengthened the corporate balance sheet •Supported maturing risk management, including regulatory risk and financial risks from COVID-19 pandemic |
Compensation Discussion and Analysis | | | | | | | | | CARLOS M. MINETTI
Executive Vice President, President - Consumer Banking | | | | | 2020 COMPENSATION | Key Achievements | | | •Exceeded goals on Lending (PBTR), Personal Loans, Student Loans, Net Charge-Off Rates, and Deposits •Co-sponsored a company-wide effort to improve operations, compliance, and risk management •Launched new IRA Savings and Parent Loan products | •Reduced the time to fund home loans from the time the application is submitted •Created an award winning home loan digital experience •Supported maturing risk management, including regulatory risk |
| | | | | | | | | DIANE E. OFFEREINS
Executive Vice President, President - Payment Services | | | | | 2020 COMPENSATION | Key Achievements | | | •Delivered strong year-over-year performance despite COVID-19 through aggressive cost cutting and actions to minimize counter-party losses •Maintained momentum with payments partners despite challenging environment •Continued successful implementation of technology roadmap | •Successfully implemented Discover Card’s contactless initiative •Established an operating model, transaction framework, and near-term roadmap •Supported maturing risk management, including regulatory risk |
| | | | | | | | | JULIE A. LOEGER
Executive Vice President, President - US Cards | | | | | 2020 COMPENSATION | Key Achievements | | | • Delivered strong year-over-year sales performance despite COVID-19 •Managed successful response to COVID-19 pandemic including aggressive cost cutting and adjustments to strategy to address customer needs •Launched a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of $460 millionhighly effective No Annual Fee and income tax expense of $1,438 million to net income of $2,099 million. The Committee believes that PBTR is a better measure of the core operating performance of the business that increasesCard Acceptance campaign | •Launched black-owned restaurant initiative with focus on factorssocial media and influencers •Launched several new innovative products and mobile enhancements to improve the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts.customer experience •Supported maturing risk management, including regulatory risk |
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Compensation Discussion and Analysis
The LTI award consists of a forward-looking stock award with an initial value that varies based primarily on annual Company PBTR performance. The Committee also considers secondary Company financial performance metrics, key focus areas and relative performance, risk performance and other factors relevant to the year. The number of PSUs and RSUs granted is determined by dividing the dollar value of the award by the fair market value on the date of grant. The PSU and RSU grants were made in February 2017. See "2017 Decision-Making Process" above for more details on how the factors considered by the Committee impacted compensation decisions and see "2017 Summary Compensation Table" for the actual LTI decisions.
Performance Stock Units 20172020 PSU Awards
At-risk PSUs are granted annually at the beginning of a three-year Company performance period to further reinforce the NEOs' accountability for the Company's future financial and strategic goals by tying a greatersignificant portion of compensation directly to the Company's EPS and ultimately the Company's stock price. The majority of the 20172020 LTI awards for NEOs consisted of PSUs (75% for the CEO, and 60% for the other NEOs), which were granted under the Company's 2014 Omnibus Incentive Plan. Under this program, PSUs will generally vest and convert to shares of Common Stock if and to the extent the Company achieves specific cumulative EPS performance goals over a three-year performance period and provided the executive remains employed by the Company for athe three-year performance period (with exceptions for certain termination events, e.g. retirement, disability or death)events), and are subject to an evaluation of compliance with the Company's risk policies over the three-year period prior to vesting. The performance period for the 20172020 award of PSUs began on January 1, 20172020 and ends on December 31, 2019.2022. The EPS performance target is established during the annual business planning process and incorporates a degree of stretch that is intended to push the Company and the NEOs to achieve higher performance within the Company's risk framework. Target PSU payout will be achieved if the Company meets its cumulative business plan goals, while achievement of maximum and threshold performance goals are each expected to be infrequent in occurrence. Participants will receive no portion of the award if the minimum performance threshold is not met. If the Company exceeds the target performance hurdles, the NEO can potentially earn an award in excess of the target, up to a maximum of one and one-half times the target award.award based on Company performance. The awards will receive dividend equivalents in cash which will accumulate and pay out if and when the underlying shares are released to the NEOs.
Compensation Discussion and Analysis 2018 PSU Payouts The performance period for our PSUs granted in January 2015February 2018 was completed on December 31, 2017.2020. The cumulative diluted EPS over the three-year period was $16.32$20.47 versus a target of $15.78.$25.54, which would have resulted in a payout factor of 67% of the target amount. An EPS of $7.89$12.77 and $18.15$29.37 were required to receive a minimum and maximum payout, respectively. The actual EPS measured for the performance period would have resulted in a payout factor of 111% of the target amount. In assessing the appropriate payout for these PSUs, the Compensation Committee considered the EPS over the performance period attributable to effective NEO execution of key business decisions and strategies, including strong focus on growth and credit risk management. The Compensation Committee also considered the adverse one-time impact of accounting changes related to reserving under the Tax Cutscurrent expected credit losses ("CECL") on Company performance. 2018 PSU EPS targets were established pre-CECL using the incurred reserve methodology, and Jobs Act on EPS in the fourth quarter of 2017.Compensation Committee therefore considered whether adjustments should be made to performance and appropriate metrics to account for CECL. Consistent with the Company's pay for performancepay-for-performance philosophy the Committee exercised discretion by adjusting our reported EPS for the three-year period ending December 31, 2017 by $0.52 to control for the Company's actions takenand in connectionaccordance with the unplanned tax event, and in considerationprovisions of the operating performance2014 Omnibus Incentive Plan, the Compensation Committee may adjust target amounts to reflect the impact of factors that management cannot directly control and to ensure that payout factors are not artificially inflated or impaired by factors unrelated to the ongoing operations of the Company whichbusiness. Based on its assessment of the PSU eligible employees were most able to directly impact and influence. As a result,of CECL, the tax-adjusted diluted EPS used for purposes of PSU vesting was $16.84(1), resulting in aCompensation Committee increased the payout factor to 79% of 122% of the target amount.target. The final payout of these PSUs was determined after confirmation of compliance with the Company’s risk policies, and employees received earned shares (which remain subject to clawback provisions, and for NEOs, subject to the share ownership guidelines and share retention requirements) when they vested in February 2018.2021. ____________________
(1) Tax-adjusted diluted EPS (excluding one-time items) is a non-GAAP financial measure which should be viewed in addition to, and not as a substitute for, the Company's reported results. Management believes that this information provides investors with useful metrics to evaluate the ongoing operating performance of the Company. See Annex A for a reconciliation.
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Restricted Stock Units A portion of the LTI grant for 2017 consisted of RSUs. TheseIn addition to time-based vesting, RSUs are subject to market riskvariability tied to the Company stock price and are intended to align the interests of senior executives with the long-term interests of the Company and its shareholders as well as motivate future contributions and decisions aimed at increasing shareholder value. RSUs generally vest and convert to shares ratably over a three-year period, subject to compliance with the Company's risk policies and assuming the executive remains employed by the Company through the vesting date (with exceptions for certain termination events, e.g. retirement, disability or death)events). The awards will receivedeliver dividend equivalents in cash, which are paid to the NEOs in the same amount and at the same time as dividends are paid to all Company common shareholders.
Summary of Chief Executive Officer2020 Decision-Making Process
Factors Affecting Compensation Decisions Consistent with our philosophy, a large portion of NEO compensation is at-risk performance-based compensation. The chart below approximates the 2017 elements of compensation that composed target total direct compensation for Mr. Nelms. Approximately 89% of his target total direct compensation is variable and tied toprimary Company financial and/or stock price performance. See "2017 Decision-Making Process" above for more details on how the factorsperformance factor considered by the Compensation Committee impacted compensation decisions and see "2017 Summary Compensation Table" for the Committee's actualpurposes of making variable compensation decisions for Mr. Nelms.2020 was the Company's PBTR. Although no set weight is assigned to any performance metric or goal, we believe that a profit-based measure best reflects overall Company performance and drives EPS, which we believe is the representative measure most directly tied to the return to our common shareholders. We believe PBTR is also a balanced measure aligned with total performance to motivate executives to focus on the overall returns of the Company and not drive performance on one measure or one business unit over another. In 2020, the Compensation Committee considered the Company's PBTR along with other performance factors, including: performance against Annual Plan; net income; ROE (and risk-adjusted returns); EPS; total revenue (defined as net interest income plus other income); net charge-offs and operating expenses; key focus areas; relative performance; risk performance; regulatory compliance; internal pay equity; and individual performance.
2017In 2020, the Company was forced to adjust and adapt to the impact of the COVID-19 global pandemic. While our performance remained solid, the impact of the pandemic on our business, and particularly the credit portion of our business was significant. On a year-over-year basis, our PBTR decreased 8%(1) from $4,180 million to $3,834 million(1) on an unadjusted basis. Management's clear vision and quick action at the outset of the pandemic, along with proactive steps to minimize the impact on our lending business and offset performance headwinds through cost reductions helped to mute the impact of the COVID-19 pandemic on our business and workforce. Despite the impact of the COVID-19 pandemic on company performance, management did not request nor were adjustments made to the 2020 Annual Plan or Company performance targets under the Company's bonus plan and PSU program to account for COVID-19.
____________________ (1)Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for credit losses of $2,382 million, the build of the liability for expected credit losses on unfunded commitments of $17 million, and income tax expense of $294 million to net income of $1,141 million. The Compensation and Leadership Development Committee believes that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts. Please see "Annex A" for a reconciliation of PBTR growth to net income growth calculated in accordance with GAAP.
Compensation Discussion and Analysis Given our business model that relies heavily on the contribution of U.S.-based call center employees, management was forced to quickly act to move those and other employees from on-premise service to a work-from-home model. Within a period of three weeks, we moved nearly 98% of our global workforce to a work-form-home environment. Accordingly, the Company's 2020 business performance was impacted, and leadership and management priorities for 2020 were adjusted to account for the impact of COVID-19. Rather than rework 2020 performance goals and targets, management incorporated additional COVID-19 key focus areas that were necessary to successfully manage through the pandemic in addition to continuing corporate and individual performance goals. The Compensation Committee considered performance against these focus areas in addition to other qualitative performance metrics applicable to our executives. For the PSU portion of the LTI program, the primary metric the Compensation Committee established for performance-vesting purposes was cumulative EPS achievement over a three-year performance period. In making final award determinations for the 2018-2020 PSUs, the Compensation Committee also factored in individual compliance with the Company's risk policies including an assessment of any imprudent risks taken over the three-year vesting period, inclusive of the performance period. The Compensation Committee retains discretion to adjust EPS performance for the impact of unusual or non-recurring events not reflected in business plan assumptions including legislative, accounting or other regulatory changes, one-time, unusual tax events, and significant changes in planned share repurchases where such events are not attributable to NEO performance for purposes of PSU vesting. The Compensation Committee also considered the need to attract, motivate, and retain a talented management team and to design our compensation program in a way that remains competitive with other companies with which we compete for senior executive talent. For 2020, after consideration of all the aforementioned factors and the Compensation Committee’s emphasis on pay-for-performance, the Compensation Committee made compensation decisions for each of the NEOs as detailed in the "2020 Summary Compensation Table." STI was paid after the Compensation Committee meeting in January 2021 and LTI was granted after the regularly scheduled Committee meeting in February 2020. Overall Company and Business Segment Performance The Compensation Committee believes that the actions taken by the Company's CEO Target Mixand the other NEOs throughout 2020 helped the Company to overcome the unique challenges that accompanied the COVID-19 global pandemic while continuing to pursue our business objectives and placed the Company in a position to succeed in 2021 and beyond. The following key strategic decisions, among other things, enabled the Company to maintain profitability in 2020 and we believe placed the Company in a strong position going forward: •Credit performance was strong across all of Compensationour lending products driven by the actions we’ve taken in underwriting, credit line management and collections, and the resiliency of our prime customer base.  •Operating efficiency ratio(1) of 41% reflects lower revenue driven by decreased net interest income and increased operating expenses. The increase in expenses was primarily driven by higher compensation expense and several one-time items, partially offset by lower marketing costs. •Delivered on our commitment to cut planned expenses by $400 million in 2020. •Continued to invest in analytics, automation and core technology capabilities to support long-term growth and efficiency improvement. •Payment Services continued to have strong network volume growth, up 7% year-over-year and generated $172 million in pre-tax income, driven primarily by strong PULSE performance. •In early 2021 our Board of Directors approved a new $1.1 billion repurchase plan, and we may begin share buybacks as soon as the first quarter subject to the Federal Reserve’s limitations.
____________________ (1)Operating efficiency ratio represents total other expense divided by revenue net of interest expense.
Compensation Discussion and Analysis Financial Performance The primary factor that our Compensation Committee considered in making 2020 compensation decisions was the Company's PBTR growth. The Company achieved PBTR of $3,834 million(1), which represented a year-over-year decrease of 8%(1). While our initial 2020 business plan contemplated year-over-year growth in PBTR, the impact of the COVID-19 global pandemic was substantial and significantly impacted the Company's PBTR performance. Notwithstanding the setbacks resulting from COVID-19, PBTR performance was encouraging and we believe reflects the strength and resiliency of Discover's digital banking business model. The Compensation Committee concluded that PBTR performance was impacted by COVID-19 but remained solid due to strong operational and financial actions by management. Other Performance Factors Other Financial Metrics The Compensation Committee considered other secondary 2020 financial metrics set forth below. No single secondary financial metric was by itself significant to the Compensation Committee's determination of any individual's compensation. The Committee subjectively balanced 2020 financial performance across these secondary metrics in the aggregate in determining individual compensation. The following financial metrics were considered by the Compensation Committee (dollars in millions, except per share amounts): | | | | | | | | | | 2020 | Change from 2019 | Total Revenue(2) | $11,088 | (3)% | | Net Charge-off Dollars | $2,735 | (5)% | | Operating Expense | $4,519 | 3% | | Net Income | $1,141 | (61)% | | Diluted Earnings Per Share | $3.60 | (60)% | | Return on Equity | 11% | (15)% |
Key Focus Areas The Compensation Committee also considered the Company's progress on key focus areas, including loan and deposit growth, enhancing capabilities and operating models, reducing charge-offs and disciplined expense management, growing the Payments business, progress on maturing risk management, and compliance when making overall compensation decisions. For 2020, management also added and the Compensation Committee approved as an additional performance factor a special Key Focus Area COVID-19 Response, which included protecting employees and our franchise, maintaining strong capital and liquidity positions, managing credit and collections, reducing operating expenses, and sustaining brand capabilities and profitable growth momentum. The Compensation Committee reviewed and subjectively balanced performance in these key focus areas with other secondary factors and PBTR in the aggregate in determining individual compensation.
____________________ (1)Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for credit losses of $2,382 million, the build of the liability for expected credit losses on unfunded commitments of $17 million, and income tax expense of $294 million to net income of $1,141 million. The Compensation and Leadership Development Committee believes that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts. Please see "Annex A" for a reconciliation of PBTR growth to net income growth calculated in accordance with GAAP. (2)Total revenue equals the sum of net interest income and other income.
Compensation Discussion and Analysis The following secondary performance factors were reviewed by the Compensation Committee: •Total loan receivables decreased 6% year-over year, resulting from tightened underwriting criteria combined with elevated payment rates. However, we took substantial share in private student lending and gained share in card lending. •Banking revenue was lower than 2019 driven by repayment trends and lower sales volume. •Direct-to-Consumer Deposits grew year-over-year by $9,088 million, or 17%. •Total net charge-off rate on average loans outstanding of 3.03% was down from the prior year rate of 3.17% . •Operating efficiency ratio(1) of 41% reflects lower revenue driven by decreased net interest income and increased operating expenses. The increase in expenses was primarily driven by higher compensation expense and several one-time items, partially offset by lower marketing costs. •Payment Services continued to have strong network volume growth, up 7% year-over-year and generated $172 million in pre-tax income, driven primarily by strong PULSE performance. •Company and individual risk performance with respect to legal and regulatory matters. Relative Performance The Compensation Committee also considers the Company's performance relative to our largest business competitors in the U.S. market in both the Digital Banking and Payment Services segments. In 2020, Discover performed better than the majority of its largest competitors on metrics including ROE and efficiency ratio and continued to gain market share in primary lending products and grow consumer deposits. Risk Performance The Compensation Committee considers risk performance across the Company and within each business segment in making final compensation decisions for each NEO, both as it relates to an individual’s specific objectives as well as contributions to the strengthening of risk management, internal controls, and compliance practices. The Compensation Committee reviewed overall performance and risk adjusted returns and capital levels relative to the Annual Plan and established risk appetite limits. The Compensation Committee also considered the Company's efforts to address previously disclosed legal and regulatory matters including the 2020 consent order with the CFPB related to the Company’s Student Loan business.
____________________ (1)Operating efficiency ratio represents total other expense divided by revenue net of interest expense.
Compensation Discussion and Analysis Individual Performance The Compensation Committee considers individual performance in making final compensation decisions for each NEO, both as it relates to an individual's specific objectives as well as each individual's relative role impact, experience, internal pay equity, and contributions to the success of the overall enterprise. As noted above, as part of its compensation determinations, the Compensation Committee also assesses each NEO’s contributions to the success of the business in strengthening its risk management, internal controls, and compliance practices, which reinforces these objectives as priorities throughout the organization. The Compensation Committee believes this holistic approach optimizes the link between executive rewards and the benefits to shareholders. Highlights of individual performance and contributions are described below. In 2020, the Compensation Committee recognized the contribution of management in identifying, addressing, managing and mitigating the impact of COVID-19 on the Company's business operations, including, but not limited to its impact on our customers, our employees and our business partners. Management did not recommend and the Compensation Committee did not pursue adjustments to Company PBTR performance targets under the STI Program, and instead focused on individual contribution to managing COVID-19 as reflected in the COVID-19 key focus areas described above, while simultaneously pursuing existing company and individual goals. The highlights below therefore reflect each member of management's contribution to managing the impact of COVID-19 on our business while also pursuing our established business strategy. | | | | | | | | | ROGER C. HOCHSCHILD
Chief Executive Officer and President | | | | | 2020 COMPENSATION | Key Achievements | | | •Maintained strong PBTR performance and performance relative to competitors in challenging COVID-19 environment •Managed successful response to COVID-19 pandemic including seamless transition to work-from-home, $400 million expense reduction and rapid credit policy and customer service adjustments •Continued progress on build out of physical and digital acceptance | •Continued progress on technology transformation and matched industry roll out of contactless payment •Expanded the company’s commitment to diversity, equity and inclusion by establishing a strategic Office and quick response Task Force dedicated to advancing these efforts •Supported maturing risk management, including regulatory risk |
| | | | | | | | | JOHN T. GREENE
Executive Vice President, Chief Financial Officer | | | | | 2020 COMPENSATION | Key Achievements | | | •Managed successful response to COVID-19 pandemic including implementing actions to assure strong liquidity and capital positions while executing expense reduction activities resulting in $400 million of savings versus planned spend •Significantly enhanced procurement and sourcing functions yielding $100 million savings on third party vendor spend | •Enhanced Financial Planning and Analysis ("FP&A") and line of business finance process resulting in efficiency and quicker cycle time •Maintained strong investor relations and enhanced business planning and reporting processes •Developed a high quality capital plan and strengthened the corporate balance sheet •Supported maturing risk management, including regulatory risk and financial risks from COVID-19 pandemic |
Compensation Discussion and Analysis | | | | | | | | | CARLOS M. MINETTI
Executive Vice President, President - Consumer Banking | | | | | 2020 COMPENSATION | Key Achievements | | | •Exceeded goals on Lending (PBTR), Personal Loans, Student Loans, Net Charge-Off Rates, and Deposits •Co-sponsored a company-wide effort to improve operations, compliance, and risk management •Launched new IRA Savings and Parent Loan products | •Reduced the time to fund home loans from the time the application is submitted •Created an award winning home loan digital experience •Supported maturing risk management, including regulatory risk |
| | | | | | | | | DIANE E. OFFEREINS
Executive Vice President, President - Payment Services | | | | | 2020 COMPENSATION | Key Achievements | | | •Delivered strong year-over-year performance despite COVID-19 through aggressive cost cutting and actions to minimize counter-party losses •Maintained momentum with payments partners despite challenging environment •Continued successful implementation of technology roadmap | •Successfully implemented Discover Card’s contactless initiative •Established an operating model, transaction framework, and near-term roadmap •Supported maturing risk management, including regulatory risk |
| | | | | | | | | JULIE A. LOEGER
Executive Vice President, President - US Cards | | | | | 2020 COMPENSATION | Key Achievements | | | • Delivered strong year-over-year sales performance despite COVID-19 •Managed successful response to COVID-19 pandemic including aggressive cost cutting and adjustments to strategy to address customer needs •Launched a highly effective No Annual Fee and Card Acceptance campaign | •Launched black-owned restaurant initiative with focus on social media and influencers •Launched several new innovative products and mobile enhancements to improve the customer experience •Supported maturing risk management, including regulatory risk |
Compensation Discussion and Analysis Role of NEOs in Compensation Decisions Our CEO, senior Company Human Resources personnel, Chief Risk Officer, and the Compensation Consultant met with the Compensation Committee to discuss preliminary compensation decisions for the NEOs and senior officers. They considered overall contribution to Company performance and individual responsibility for business segment, functional, and/or strategic goals during the Compensation Committee's December 2020 meeting and presented final recommendations to the Compensation Committee during the Compensation Committee's January 2021 meeting. The Compensation Committee also met with the Risk Oversight and Audit Committees of the Board of Directors to discuss the impact of risk performance on compensation recommendations. This allowed for ample review and consideration of Company, business segment, individual and risk performance in determining 2020 compensation decisions. No NEO was involved in his or her own pay recommendations or decisions. The role of the Compensation Committee and its consultant are discussed under "Other Compensation Decision Considerations — Role of the Compensation Consultants." The decisions of the Compensation Committee for 2020 performance are reflected above under "Components of Compensation." Other Compensation Decision Considerations Role of the Compensation and Leadership Development Committee The Compensation Committee is responsible for the review and approval of all aspects of the Company’s executive compensation program and makes all decisions regarding the compensation of the Company’s NEOs. Specifically, the Compensation Committee has responsibility to, among other things: •Review, approve, and administer all compensation programs affecting NEOs and evaluate whether such plans are aligned with the Company’s compensation structure policies; •Annually review and approve: –Performance criteria, goals, and award vehicles used in our compensation plans for our NEOs, and –Performance of and compensation delivered to our NEOs; •Review the Company’s compensation practices to evaluate whether such practices take into account risk outcomes in making compensation determinations and do not encourage imprudent risk-taking; •Oversee the Company’s management development and succession planning efforts; and •Review and approve any contracts, policies, or programs related to compensation, contractual arrangements, or severance plans affecting NEOs. As described under “2020 Decision-Making Process — Role of NEOs in Compensation Decisions,” the Compensation Committee consults with management with respect to the compensation of the NEOs, other than the CEO. The Compensation Committee’s charter is available through the investor relations page of our internet site, www.discover.com. Role of the Compensation Consultant The Compensation Committee regularly consults with its external independent Compensation Consultant in performing its duties. The Compensation Consultant attended Compensation Committee meetings, including executive sessions without management present. The Compensation Committee has broad authority to retain and dismiss its Compensation Consultant, and establish the scope of its consultant's work. While the Compensation Consultant reports to the Compensation Committee, the Compensation Consultant also works with the Company’s Human Resources department and senior management to facilitate Compensation Committee work, as approved by the Committee Chair. The Compensation Consultant provides experiential guidance to the Compensation Committee on what is considered fair and competitive practice in the industry, primarily with respect to the compensation of the CEO, but also for other senior Company officers. Pay Governance is independent of management and under the terms of its agreement with the Compensation Committee, the Compensation Consultant generally provides services only to the Compensation Committee. Other than executive compensation consulting services noted above, the Compensation Consultant performs no other services for the Company and has no relationship with the Company or management except as it may relate to performing such services. The Compensation Committee has assessed the independence of the Compensation Consultant pursuant to SEC rules and concluded that no conflict of interest exists that would prevent the Compensation Consultant from independently representing the Compensation Committee. During 2020, management retained the services of Willis Towers Watson to assist the Company in conducting an assessment of the competitiveness of the pay opportunity and practices provided to Company executives. The Company has assessed the independence of Willis Towers Watson and concluded that Willis Towers Watson’s work did not raise any conflict of interest.
Compensation Discussion and Analysis Other Arrangements, Policies and Practices Related to Our Executive Compensation Program Share Ownership Guidelines The Employee Compensation Policy provides for share ownership guidelinesCompany maintains Share Ownership Guidelines for NEOs and other executives, and the Nominating and Governance Committee maintains guidelines for directors.executives. The guidelines recommend that the following multiples set forth below of annual base salary or, in the case of our directors, annual cash retainer, be held in shares of Company Common Stock at the close of each year: | | | Participants | Share Ownership Guidelines
(as Multiple of Cash Base Salary or
Annual Cash Retainer)
| Director | 5X | Chief Executive Officer | 7X | President and Chief Operating Officer | 5X | All other NEOs | 3X | | |
year. The guidelines are reviewed annually by the Compensation Committee.
Shares to be counted toward ownership targets includesinclude actual Common Stock held, including stock held in "street" accounts, and unvested RSUs. The guidelines provide that recommended ownership levels must be attained within five years of appointment (or the inception or modification date of the guidelines, if later). To monitor progress toward meeting the
29
guidelines, the Compensation Committee reviews current executive ownership levels at each December meeting, ahead of year-end executive compensation decisions. The Nominating and Governance Committee reviews director ownership levels. If ana NEO or other executive is not on schedule to meet the guidelines, the Compensation Committee may award the executive compensation in the form of stock that would have otherwise been awarded as cash bonus year-end compensation. As of December 2017,2020, using the ten-day10-day average closing stock price ending prior to December 31, 2017,2020, the following multiples of base salary were held in shares of Company Common Stock by each of our NEOs: | | | | | | | | | | Executive Officer | Required
Multiple
| | Actual
Multiple
| David W. Nelms | 7X | | 100X | R. Mark Graf | 3X | | 9X | | Roger C. Hochschild | 5X7X | 68X | | John T. Greene | 80X3X | 3X | | Carlos M. Minetti | 3X | 20X | | Diane E. Offereins | 3X | | 17X18X | Carlos MinettiJulie A. Loeger | 3X | | 19X | | | | 9X |
Share Retention Requirements The Company's Employee Compensation Policy andFor equity awards provide that for grants madegranted prior to 2016,2020, the Company maintained share retention requirements for NEOs must hold 50 percent of net shares received upon settlement of stock awards for one year and for grants made in 2016 and later,other executives. These requirements provided that senior executives, including the NEOs, must hold 100 percent100% of net shares for one year after the vesting date. Following a review of market practice in late 2019, the Compensation Committee approved changes to LTI award agreements taking effect for awards in 2020 and thereafter eliminated the one-year net holding requirement, instead including explicit repayment obligations that are triggered in the event of violation of the Company clawback procedure or risk measures that are reflected in the award agreements. The Committee continuesdetermined that the share ownership requirements along with revised award agreements provide significant protection to believe share retention requirements further promote shareholder alignment.the Company in the event of a breach of applicable policy while also allowing the Company to effectively pursue recoupment in the event of breach.
Clawbacks Our Employee Compensation Policy and equity awards include clawback provisions that allow for the recovery of shares issued pursuant to a stock grant under certain circumstances. The Company is authorized to reclaim any shares received upon conversion of RSUs and PSUs for a three-year period preceding the date on which the Company restates its financial statements due to material noncompliance with financial reporting requirements. In addition, the Company may recover equity compensation paid to our NEOs within two years prior to termination with the Company if the NEO violates non-competition and non-solicitation covenants.covenants or breaches obligations to the Company under the confidentiality, intellectual property, or other restrictive covenants including breach of the Company's risk policies and Code of Conduct. Prohibition on Hedging and Pledging Under Company policy, directors and executivesmembers of the Management Committee (which include all our executive officers) who are subject to the requirements of Section 16 of the Exchange Act are prohibited from hedging Company securities, holding Company securities in a margin account, or otherwise pledging Company securities, including as collateral for a loan.
Retirement and Other Benefits The Company offers benefits such as medical, disability, and life coverage to promote employee health and protect against catastrophic expenses. The Discover 401(k) Plan provides employees with the opportunity to save for retirement. We also maintain the Discover Pension Plan which was frozen as of December 31, 2008. All employees are offered a benefits package that is deemed to be competitive with those offered by companies with which we compete for talent, and our NEOs participate in our benefit plans on the same basis as our employees generally. The Company does not currently offer any supplemental benefits or deferred compensation programs to our NEOs.
Compensation Discussion and Analysis Additional information regarding Company contributions to the Discover 401(k) Plan is provided in the footnotes to the "2017"2020 Summary Compensation Table." Additional information regarding the Discover Pension Plan is provided after the "2017"2020 Pension Benefits Table." In 2020, at the suggestion of the Board of Directors, the Compensation Committee approved and required the use of chartered aircraft by Mr. Hochschild and his family for all travel, including personal travel. While the Company generally limits perquisites provided to senior executives, the Compensation Committee believes that this benefit, provided initially until November 2021, but with possible extension beyond, will serve the best interest of the Company and its shareholders by allowing Mr. Hochschild to reduce the risk of COVID-19 exposure that might result from his and his family's commercial air travel. The benefit is taxable to Mr. Hochschild and will be recorded and reported as a perquisite provided by the Company in the Summary Compensation Table for the applicable year.
Executive Change in Control Severance Policy and Severance Pay Plan The Company provides severance protection to our NEOs and other executives under a Change in Control Severance Policy so as to allow executives to focus on acting in the best interests of shareholders regardless of the impact on their own employment. Change in control severance protections are commonly provided at other companies with which
30
we compete for talent. Benefits under our policy are paid in the event of a double trigger, meaning an involuntary termination (by the Company without just cause or by the executive for good reason or death or disability)disability as set forth in the Change in Control Severance Policy) within two years following or six months prior to a change in control. No excise tax gross-ups are provided for any employees. The Company also sponsors a broad-based Severance Pay Plan that provides severance benefits to eligible employees, including NEOs, who are involuntarily terminated (without cause in connection with a workforce reduction, closure or other similar event)event as set forth in the Severance Plan) to provide security in the event of an unanticipated job loss. The Severance Pay Plan will not pay benefits to an employee receiving benefits under the Change in Control Severance Policy. As noted above, Ms. Loeger retired from the Company on December 31, 2020 and did not receive any benefits under the Severance Plan in connection with such retirement. The Change in Control Severance Policy, the Severance Pay Plan, and the estimated payments for each of our NEOs are detailed in the "2017"2020 Potential Payments upon a Termination or Change in Control Table."
Accounting and Tax Information
Historically, Internal Revenue Code ("IRC") Section 162(m) generally disallowed a tax deduction to public companies for compensation in excess of $1 million per year paid to the CEO or other employee who is an NEO for the tax year by reason of being among the three highest compensated executive officers for the tax year (other than the CEO or the Chief Financial Officer). In addition, historically, certain compensation, including "performance-based compensation," could qualify for an exemption from the deduction limit if it satisfied various technical requirements under IRC Section 162(m). With respect to our annual incentive awards, in February 2017, theCompensation Committee approved an incentive pool that was designed to qualify certain incentive compensation awarded to our executive officers as "performance-based." The 2017 incentive pool was 5% of our net income, with our NEOs allocated no more than a specified percentage of the pool, as follows: Mr. Nelms - 32%; Mr. Hochschild - 16%; Mr. Graf - 9%; Ms. Offereins - 9%; and Mr. Minetti - 9%.
Effective for tax years beginning after December 31, 2017, U.S. tax law changes will expand the definition of covered employees under Section 162(m) to, include among others, the Chief Financial Officer, and eliminate the performance-based compensation exception beginning in 2018, except with respect to grandfathered arrangements.
The Committee views the tax deductibility of executive compensation as one factor to be considered in the context of our overall compensation philosophy, and evaluates the impact of tax law and other changes as they arise. The Committee reviews each material element of compensation on a continuing basis to determine whether deductibility can be accomplished without sacrificing flexibility and other important elements of the overall executive compensation program.
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COMPENSATION COMMITTEE REPORTReport
The Compensation and Leadership Development Committee (the "Compensation Committee") establishes the compensation program for the Chief Executive Officer and for the other named executive officers of Discover Financial Services (the "Company"“Company”). The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis of the Company with management and, based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement, its Annual Report on Form 10-K, and such other filings with the Securities and Exchange Commission as may be appropriate. Submitted by the Compensation and Leadership Development Committee of the Board of Directors:
Gregory C. Case (Chair)
Jeffrey S. Aronin
Richard H. Lenny
Mark A. Thierer
32www.discover.com 44
2017 EXECUTIVE COMPENSATION2020 Executive Compensation Tables
The narrative, tables, and footnotes below describe the total compensation paid for 20172020 to the Chief Executive Officer, Chief Financial Officer, and the next three most highly compensated individuals (collectively, the "NEOs") who were serving as executive officers of the Company on December 31, 2017.2020. 20172020 Summary Compensation Table
The following table contains information regarding the components of total compensation of the NEOs for the Company’s years ended December 31, 2017, 2016,2020, and 2015.to the extent required by SEC executive compensation disclosure rules, 2019 and 2018. The information included in this table reflects compensation earned by the NEOs for services rendered to the Company during the respective period. | | | | | | | | | | | | | | | | | | | | | | | | | Executive | Year | Salary(1) ($) | Stock
Awards(2) ($) | Non-Equity
Incentive Plan
Compensation(3) ($) | Change in
Pension Value
and NQDC
Earnings(4) ($) | All Other
Compensation(5) ($) | Total
($) | | Roger C. Hochschild | 2020 | 1,118,539 | | 7,350,078 | 1,771,000 | | 49,654 | 67,988 | 10,357,259 | | CEO and President | 2019 | 927,135 | | 6,500,016 | 1,700,000 | | 50,585 | 72,700 | 9,250,436 | | 2018 | 840,385 | | 3,569,969 | 1,211,250 | | 0 | 42,498 | 5,664,102 | John T. Greene(6) | 2020 | 726,923 | | 2,389,093 | 845,000 | | — | | 32,613 | 3,993,629 | | EVP, Chief Financial | 2019 | 169,615 | | 1,000,001 | 326,000 | | — | 12,565 | 1,508,181 | | Officer | | | | | | | | | Carlos M. Minetti | 2020 | 726,923 | | 2,389,093 | 930,000 | | 32,894 | 27,525 | 4,106,435 | | EVP, President - | 2019 | 700,000 | | 2,100,042 | 813,000 | | 34,462 | 54,403 | 3,701,907 | | Consumer Banking | 2018 | 690,385 | | 2,204,990 | 787,500 | | 0 | 41,158 | 3,724,033 | | Diane E. Offereins | 2020 | 726,923 | | 2,389,093 | 845,000 | | 39,376 | 42,795 | 4,043,187 | | EVP, President - | 2019 | 700,000 | | 2,100,042 | 988,000 | | 44,153 | 44,038 | 3,876,233 | | Payment Services | 2018 | 690,385 | | 2,204,990 | 962,500 | | 0 | 44,758 | 3,902,633 | Julie A. Loeger(7) | 2020 | 726,923 | | 2,389,093 | 1,050,000 | | 86,039 | 42,025 | 4,294,080 | | EVP, President - | 2019 | 700,000 | | 2,100,042 | 944,000 | | 90,534 | 43,250 | 3,877,826 | | US Cards | 2018 | 648,077 | 1,876,885 | 897,850 | | 0 | | 44,366 | | 3,467,178 |
(1)Represents the actual payments made to the NEOs. In 2020 NEOs received an extra pay-cycle payment due to the timing of bi-weekly payments. | | | | | | | | | | | | | | | | | | Executive | Year | | Salary(1) ($) | | Stock
Awards(2) ($) | | Non-Equity
Incentive Plan
Compensation(3)
($)
| | Change in
Pension Value
and NQDC
Earnings(4) ($) | | All Other
Compensation(5) ($) | | Total ($) | | David W. Nelms | 2017 | | 1,100,000 |
| | 6,600,021 |
| | 2,500,000 | | 29,391 | | 18,750 | | 10,248,162 | | Chairman and Chief | 2016 | | 1,000,000 |
| | 6,000,039 |
| | 1,741,250 | | 16,184 | | 18,550 | | 8,776,023 | | Executive Officer | 2015 | | 1,000,000 |
| | 6,000,028 |
| | 1,487,500 | | — | | 18,400 | | 8,505,928 | | R. Mark Graf | 2017 | | 650,000 |
| | 1,950,058 |
| | 822,250 | | — | | 18,750 | | 3,441,058 | | EVP, Chief Financial | 2016 | | 650,000 |
| | 1,950,014 |
| | 781,150 | | — | | 18,550 | | 3,399,714 | | Officer | 2015 | | 625,000 |
| | 5,718,748 |
| | 656,000 | | — | | 18,400 | | 7,018,148 | | Roger C. Hochschild | 2017 | | 800,000 |
| | 3,200,017 |
| | 1,320,000 | | 32,668 | | 18,750 | | 5,371,435 | | President and Chief | 2016 | | 800,000 |
| | 3,199,992 |
| | 1,254,000 | | 14,457 | | 18,550 | | 5,286,999 | | Operating Officer | 2015 | | 750,000 |
| | 8,387,957 |
| | 956,250 | | — | | 18,400 | | 10,112,607 | | Diane E. Offereins | 2017 | | 650,000 |
| | 1,950,058 |
| | 863,375 | | 28,228 | | 18,750 | | 3,510,411 | | EVP, President - | 2016 | | 650,000 |
| | 3,500,035 |
| | 863,375 | | 17,168 | | 18,550 | | 5,049,128 | | Payment Services | 2015 | | 650,000 |
| | 1,950,026 |
| | 787,500 | | — | | 18,400 | | 3,405,926 | | Carlos Minetti | 2017 | | 650,000 |
| | 1,950,058 |
| | 781,150 | | 22,718 | | 18,750 | | 3,422,676 | | EVP, President - | 2016 | | 650,000 |
| | 3,500,035 |
| | 781,150 | | 10,344 | | 18,550 | | 4,960,079 | | Consumer Banking | 2015 | | 650,000 |
| | 1,950,026 |
| | 710,000 | | — | | 18,400 | | 3,328,426 | | | | | | | | | | | | | | | |
| | (1) | Represents the base salary earned during the year. |
| | (2) | Represents the aggregate grant date fair value of RSU and PSU awards made to the NEOs pursuant to FASB ASC Topic 718. The value of PSUs is based on the probable outcome of the performance conditions on the grant date. The grant date value of the PSUs granted for 2017, assuming the highest level of performance conditions is met was $7,425,024 for Mr. Nelms, $1,755,052 for Mr. Graf, $3,360,007 for Mr. Hochschild, $1,755,052 for Ms. Offereins and $1,755,052 for Mr. Minetti.(2)Represents the aggregate grant date fair value of RSU and PSU awards granted to the NEOs pursuant to FASB ASC Topic 718. The value of PSUs is based on the probable outcome of the performance conditions on the grant date. The grant date fair value of the PSUs granted in 2020, assuming the highest level of performance conditions is met, was $8,268,849 for Mr. Hochschild; $2,150,227 for Mr. Greene; $2,150,227 for Mr. Minetti; $2,150,227 for Ms. Offereins; and $2,150,227 for Ms. Loeger. Please see "Components of Compensation" for further details on our LTI program. Additional details on accounting for stock-based compensation can be found in Note 2: "Summary of Significant Accounting Policies — Stock-based Compensation" and Note 10: "Stock-Based Compensation Plans" of our consolidated financial statements in our Annual Report on Form 10-K.
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| | (3) | Represents the annual cash short-term incentive earned for the year and paid to NEOs within the first three and a half months of the following year if employed on payment date. |
| | (4) | Represents the actuarial increase during the year in the pension value, primarily due to the change in the Pension Plan discount rate and mortality tables. For details on the valuation method and assumptions used in calculating the present value of accumulated benefit, please see Note 11: "Employee Benefit Plans" of our consolidated financial statements in our Annual Report on Form 10-K. There were no above market nonqualified deferred compensation earnings for the plans in which each NEO participated. A description of the Company's pension benefits is provided under "2017 Pension Benefits." |
| | (5) | Represents the Company's contributions to the Discover 401(k) Plan for each NEO during each calendar year. The 401(k) Plan allows for pre-tax deferrals up to 30% of eligible earnings, including base salary, bonus and commissions, up to the IRC Section 401(a)(17) compensation limit ($270,000 in 2017) ("Eligible Earnings") and, if age 50 or older as of December 31 of the plan year, catch-up contributions, each subject to the maximum allowable amount under the IRC. The 401(k) Plan is a safe harbor plan. Company contributions are vested after two years of service and include a fixed contribution of 3% of Eligible Earnings for those employed on the last day of the calendar year or a prorated fixed contribution for a partial year after certain termination events such as death, disability or retirement, plus a match contribution that varies based upon the pretax deferrals, up to the IRC Section 402(g) pretax deferral limit ($18,000 for 2017), with a maximum match of 4% of Eligible Earnings.
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(3)Represents the annual cash short-term incentive earned for the year and paid to the NEOs within the first two and a half months of the following year if employed on the payment date.
(4)Represents the actuarial increase during the year in the pension value, primarily due to the change in the Pension Plan discount rate and mortality tables. For details on the valuation method and assumptions used in calculating the present value of accumulated benefit, please see Note 11: "Employee Benefit Plans" of our consolidated financial statements in our Annual Report on Form 10-K. There were no above market nonqualified deferred compensation earnings for the NEOs. A description of the Company's pension benefits is provided under "2020 Pension Benefits."
3345 2021 Proxy Statement
2020 Executive Compensation Tables (5)Represents the incremental cost to the Company of providing certain perquisites and other personal benefits. For 2020, these amounts include: | | | | | | | | | | | | | | | | | | | Executive | 401(k) Contributions(a) ($) | Charitable Contributions(b) ($) | Air Travel(c) ($) | Other(d) ($) | Total
($) | | Roger C. Hochschild | 22,650 | | 14,200 | | 12,168 | | 18,970 | | 67,988 | | | John T. Greene | 19,338 | | 10,500 | | — | | 2,775 | | 32,613 | | | Carlos M. Minetti | 22,650 | | — | | — | | 4,875 | | 27,525 | | | Diane E. Offereins | 22,650 | | 15,270 | | — | | 4,875 | | 42,795 | | | Julie A. Loeger | 22,650 | | 14,500 | | — | | 4,875 | | 42,025 | |
(a) Represents the Company's contributions to the Discover 401(k) Plan for each NEO during each calendar year. All named executive officers received 401(k) plan matching contributions consistent with the formula applicable to all eligible U.S. employees. (b) Represents contributions made by the Company to charitable organizations chosen by each NEO, as well as contributions made on behalf of certain NEOs under our charitable contribution matching programs, under which personal contributions meeting the guidelines of our program are eligible for Company matching contributions (exceeding the amount generally available to the broader employee population). (c) For Mr. Hochschild, in late 2020, the Compensation Committee approved and requires until late 2021 at the earliest, his use of charter aircraft for all of his and his family's travel, including personal travel, during the COVID-19 period, and the amount disclosed therefore includes the amount included in his income for such travel in 2020. (d) Includes the incremental cost to Discover for airline concierge keys, personal security assessment and additional personal security services to each NEO, access to/use of the Company’s Executive Fitness Center, and estimated resale value of Company tickets for sporting, cultural or other events for personal use when they are not otherwise used for business purposes. (6) Mr. Greene was not an NEO during 2018. (7) Ms. Loeger served as the Company's Executive Vice President, President - US Cards until she retired from the Company on December 31, 2020.
2020 Executive Compensation Tables Grants of Plan-Based Awards for 20172020 The following table includes the 20172020 target STI opportunities, and the RSU and PSU LTI awards made to the NEOs in the year ending December 31, 2017. No options were awarded to the NEOs.2020. For more information regarding these grants, see the discussion in the Compensation"Compensation Discussion and Analysis beginningAnalysis" (beginning on page 17.26). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated future 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) (#) | Grant Date Fair Value of Stock and Option Awards(4) ($) | | Name | Grant Date | | Threshold
(#) | Target
($) | Maximum
($) | | Threshold
(#) | Target
(#) | Maximum
(#) | | Roger C. Hochschild | | | 1,210,000 | | 2,200,000 | | 3,190,000 | | | | | | | | | 1/22/2020 | | | | | | | | | 21,532 | | 1,837,541 | | | 1/22/2020 | | | | | | 0 | 64,595 | | 96,893 | | | 5,512,537 | | | John T. Greene | | | 577,500 | | 1,050,000 | | 1,522,500 | | | | | | | | | 1/22/2020 | | | | | | | | | 11,198 | | 955,637 | | | 1/22/2020 | | | | | | 0 | 16,797 | | 25,196 | | | 1,433,456 | | | Carlos M. Minetti | | | 577,500 | | 1,050,000 | | 1,522,500 | | | | | | | | | 1/22/2020 | | | | | | | | | 11,198 | | 955,637 | | | 1/22/2020 | | | | | | 0 | 16,797 | | 25,196 | | | 1,433,456 | | | Diane E. Offereins | | | 577,500 | | 1,050,000 | | 1,522,500 | | | | | | | | | 1/22/2020 | | | | | | | | | 11,198 | | 955,637 | | | 1/22/2020 | | | | | | 0 | 16,797 | | 25,196 | | | 1,433,456 | | | Julie A. Loeger | | | 577,500 | | 1,050,000 | | 1,522,500 | | | | | | | | | 1/22/2020 | | | | | | | | | 11,198 | | 955,637 | | | 1/22/2020 | | | | | | 0 | 16,797 | | 25,196 | | | 1,433,456 | | | | | | | | | | | | | |
(1)Represents potential payout under the annual STI program. Awards can range from 55% to 145% of target, primarily based on annual Company PBTR performance including a 1.5x multiplier for NEOs. The Compensation Committee also considers other secondary Company-wide metrics as described in more detail under "Components of Compensation — Short-Term Incentive Program." Actual payout amounts for 2020 are included in the "Non-Equity Incentive Plan Compensation" column of the "2020 Summary Compensation Table". (2)Represents PSUs awarded in January 2020 under the 2014 Omnibus Incentive Plan. PSUs will vest and convert to shares of Common Stock on February 1, 2023, within the represented threshold and maximum amounts, depending on the extent the Company exceeds specific cumulative EPS performance goals over the three-year period and provided the executive remains employed by the Company (with exceptions for certain termination events as detailed below), and are subject to an evaluation of compliance with the Company’s risk policies. The entire PSU award will be canceled if the minimum cumulative EPS performance threshold is not met. To the extent the NEO voluntarily terminates from the Company or is terminated for cause prior to the scheduled vesting date, other than as described below, none of the PSUs will vest and the entire award will be forfeited. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed and subject to a risk review or (ii) the executive's eligible retirement, a pro-rata portion of the PSUs will vest and convert to shares following the conclusion of the performance and vesting periods, based on actual performance. In the event of death or disability, the award will vest and shares will convert and be paid at the end of the performance period based on actual performance achieved. In the event of a change in control of the Company during the first year of the performance period, the award will convert to cash at target performance and be paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. In the event of a change in control of the Company during the second or third year of the performance period, performance will be measured through the last day of the Company’s quarter preceding the change in control and the award will then be converted to cash and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. (3)Represents RSUs awarded in January 2020 under the 2014 Omnibus Incentive Plan, which are expected to vest and convert in three equal installments on February 1, 2021, 2022 and 2023. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed and subject to a risk review or (ii) the executive's eligible retirement, a pro-rata portion of the RSUs will vest and convert to shares. Vesting of these RSUs will be accelerated in the event of termination of the executive’s employment due to (i) a change in control or (ii) the executive’s death or disability. Unvested RSUs will be canceled in the event of a termination of employment for any other reason. (4)Represents the aggregate grant date fair value of the awards pursuant to FASB ASC Topic 718. Additional details on accounting for stock-based compensation can be found in Note 2: "Summary of Significant Accounting Policies - Stock-based Compensation" and Note 10: "Stock-Based Compensation Plans" of our consolidated financial statements contained in our Annual Report on Form 10-K.
| | | | | | | | | | | | | | | | | | | | | | | | | Estimated future 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) (#) | | Grant Date Fair Value of Stock and Option Awards(4) ($) | | Name | Grant Date | | Target ($) | | Threshold (#) | | Target (#) | | Maximum (#) | | | David W. Nelms |
| | 2,200,000 |
| |
|
| |
|
| |
|
| |
|
| |
|
| | | 2/22/2017 | |
|
| |
|
| |
|
| |
|
| | 23,184 |
| | 1,650,005 |
| | | 2/22/2017 | |
|
| | — |
| | 69,552 |
| | 104,328 |
| |
|
| | 4,950,016 |
| | R. Mark Graf |
| | 747,500 |
| |
|
| |
|
| |
|
| |
|
| |
|
| | | 2/22/2017 | |
|
| |
|
| |
|
| |
|
| | 10,960 |
| | 780,023 |
| | | 2/22/2017 | |
|
| | — |
| | 16,440 |
| | 24,660 |
| |
|
| | 1,170,035 |
| | Roger C. Hochschild |
| | 1,200,000 |
| |
|
| |
|
| |
|
| |
|
| |
|
| | | 2/22/2017 | |
|
| |
|
| |
|
| |
|
| | 13,489 |
| | 960,012 |
| | | 2/22/2017 | |
|
| | — |
| | 31,474 |
| | 47,211 |
| |
|
| | 2,240,005 |
| | Diane E. Offereins |
| | 747,500 |
| |
|
| |
|
| |
|
| |
|
| |
|
| | | 2/22/2017 | |
|
| |
|
| |
|
| |
|
| | 10,960 |
| | 780,023 |
| | | 2/22/2017 | |
|
| | — |
| | 16,440 |
| | 24,660 |
| |
|
| | 1,170,035 |
| | Carlos Minetti |
| | 747,500 |
| |
|
| |
|
| |
|
| |
|
| |
|
| | | 2/22/2017 | |
|
| |
|
| |
|
| |
|
| | 10,960 |
| | 780,023 |
| | | 2/22/2017 | |
|
| | — |
| | 16,440 |
| | 24,660 |
| |
|
| | 1,170,035 |
| | | | | | | | | | | | | | | |
| | (1) | Represents the target payout under the annual STI program. Payments can range above or below target primarily based on annual Company PBTR. The Compensation Committee also considers other secondary Company-wide metrics as described in more detail under "Components of Compensation — Short-Term Incentive Program." Because there is no threshold or maximum payout, those columns have been omitted in accordance with SEC rules. Actual payout amounts for 2017 are included in the "Non-Equity Incentive Plan Compensation" column of the "2017 Summary Compensation Table." |
| | (2) | Represents PSUs awarded in February 2017, under the 2014 Omnibus Incentive Plan. PSUs that will vest and convert to shares of Common Stock on February 1, 2020, within the represented threshold and maximum amounts, depending on the extent the Company exceeds specific cumulative EPS performance goals over the three-year period and provided the executive remains employed by the Company (with exceptions for certain termination events as detailed below), and are subject to an evaluation of compliance with the Company’s risk policies. The entire PSU award will be canceled if the minimum cumulative EPS performance threshold is not met. To the extent the NEO voluntarily terminates from the Company or is terminated for cause prior to the scheduled vesting date, other than as described below, none of the PSUs will vest and the entire award will be forfeited. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed or (ii) the executive's eligible retirement, a pro-rata portion of the PSUs will vest and convert to shares following the conclusion of the performance and vesting period, based on actual performance. In the event of death or disability, the award will vest and shares are converted and paid at the end of the cycle based on actual performance achieved. In the event of a change in control of the Company during the first year of the performance period, the award will be converted to cash at target performance and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. In the event of a change in control of the Company during the second or third year of the performance period, performance will be measured through the last day of the Company’s quarter preceding the change in control and the award will then be converted to cash and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. |
| | (3) | Represents RSUs awarded in February 2017, under the 2014 Omnibus Incentive Plan, which are expected to vest and convert in three equal installments on February 1, 2018, 2019 and 2020. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed or (ii) the executive's eligible retirement, a pro-rata portion of the RSUs will vest and convert to shares. Vesting of these RSUs will be accelerated in the event of termination of the executive’s employment due to (i) a change in control and (ii) the executive’s death or disability. Unvested RSUs will be canceled in the event of a termination of employment for any other reason. |
| | (4) | Represents the aggregate grant date fair value of the awards pursuant to FASB ASC Topic 718. Additional details on accounting for stock-based compensation can be found in Note 2: "Summary of Significant Accounting Policies - Stock-based Compensation" and Note 10: "Stock-Based Compensation Plans" of our consolidated financial statements contained in our Annual Report on Form 10-K. |
34
2020 Executive Compensation Tables
Outstanding Equity Awards at 20172020 Year-End The following table provides information for each NEO regarding outstanding stock awards held by each of the NEOs as of December 31, 2017. There2020. | | | | | | | | | | | | | | | | | | | | | | | | | Stock Awards(1) | | Number of Shares, Units or Other Rights That Have Not Vested
(#) | | Market Value of Shares, Units or Other Rights That Have Not Vested
($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($) | Roger C. Hochschild(2) | 4,591 | (3) | 415,623 | | | 71,558 | (8) | 6,478,146 | | | 12,798 | (4) | 1,158,603 | | | 64,595 | (9) | 5,847,785 | | | 21,532 | (5) | 1,949,292 | | | | | | | 25,391 | (6) | 2,298,647 | | | | | | | John T. Greene | 7,906 | (7) | 715,730 | | | 16,797 | (9) | 1,520,632 | | | 11,198 | (5) | 1,013,755 | | | | | | | Carlos M. Minetti | 3,781 | (3) | 342,294 | | | 17,593 | (8) | 1,592,694 | | | 7,818 | (4) | 707,764 | | | 16,797 | (9) | 1,520,632 | | | 11,198 | (5) | 1,013,755 | | | | | | | 13,443 | (6) | 1,216,995 | | | | | | | Diane E. Offereins | 3,781 | (3) | 342,294 | | | 17,593 | (8) | 1,592,694 | | | 7,818 | (4) | 707,764 | | | 16,797 | (9) | 1,520,632 | | | 11,198 | (5) | 1,013,755 | | | | | | | 13,443 | (6) | 1,216,995 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Julie A. Loeger | 3,218 | (3) | 291,326 | | | 17,593 | (8) | 1,592,694 | | | 7,818 | (4) | 707,764 | | | 16,797 | (9) | 1,520,632 | | | 11,198 | (5) | 1,013,755 | | | | | | | 11,442 | | (6) | 1,035,844 | | | | | |
(1)All equity award values are no outstanding stock options as ofbased on a December 31, 2017.2020 closing stock price of $90.53 per share of our Common Stock. RSUs include the right to receive dividend equivalents in the same amount and at the same time as dividends are paid to all Company common shareholders. PSUs include the right to receive dividend equivalents, which will accumulate and pay out in cash, if and when the underlying shares are released to the NEOs. (2)Excludes 430,763 deferred RSUs for Mr. Hochschild, as described in "2020 Nonqualified Deferred Compensation Table." These shares will convert to shares of Common Stock when Mr. Hochschild leaves the Company. (3)These RSUs vested and converted to shares of Common Stock on February 1, 2021. (4)These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on February 1, 2021 and 2022. (5)These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on February 1, 2021, 2022 and 2023. (6)These PSUs vested and converted to shares of Common Stock on February 1, 2021, based on EPS performance and after a satisfactory risk policies review. Amounts reported reflect the actual delivery level as determined by the Compensation Committee following its review of performance and risk assessment. (7)These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on August 1, 2021 and 2022. (8)Assuming applicable performance conditions based on cumulative EPS and successful risk policy review are satisfied, PSUs will vest and convert to shares of Common Stock on February 1, 2022. As required under applicable SEC guidance, because cumulative performance did not exceed the target level, unvested PSUs are shown at the amounts corresponding to target. The final payout will be determined by the Compensation Committee and may be less than amount shown. (9)Assuming applicable performance conditions based on cumulative EPS and successful risk policy review are satisfied, PSUs will vest and convert to shares of Common Stock on February 1, 2023. As required under applicable SEC guidance, because performance during the first year of the performance period did not exceed the target level, unvested PSUs are shown at the amounts corresponding to target. The final payout will be determined by the Compensation Committee and may be less than amount shown.
| | | | | | | | | | | | | | | Stock Awards(1) | | | Number of Shares, Units or Other Rights That Have Not Vested (#) | | Market Value of Shares, Units or Other Rights That Have Not Vested ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | David W. Nelms(2) | 200,000 |
| (3) | 15,384,000 |
| | 138,918 |
| (9) | 10,685,573 |
| | | 8,723 |
| (4) | 670,973 |
| | 104,328 |
| (10) | 8,024,910 |
| | | 20,580 |
| (5) | 1,583,014 |
| | | | | | | 23,184 |
| (6) | 1,783,313 |
| | | | | | | 95,779 |
| (7) | 7,367,321 |
| | | | | | R. Mark Graf | 3,998 |
| (4) | 307,526 |
| | 36,119 |
| (9) | 2,778,273 |
| | | 34,298 |
| (5) | 2,638,202 |
| | 24,660 |
| (10) | 1,896,847 |
| | | 10,702 |
| (5) | 823,198 |
| | | | | | | 10,960 |
| (6) | 843,043 |
| | | | | | | 21,949 |
| (7) | 1,688,317 |
| | | | | Roger C. Hochschild(2) | 5,233 |
| (4) | 402,522 |
| | 69,150 |
| (9) | 5,319,018 |
| | | 13,170 |
| (5) | 1,013,036 |
| | 47,211 |
| (10) | 3,631,470 |
| | | 13,489 |
| (6) | 1,037,574 |
| | | | | | | 44,696 |
| (7) | 3,438,016 |
| | | | | | | 100,000 |
| (8) | 7,692,000 |
| | | | | | Diane E. Offereins | 4,536 |
| (4) | 348,909 |
| | 64,829 |
| (9) | 4,986,647 |
| | | 19,208 |
| (5) | 1,477,479 |
| | 24,660 |
| (10) | 1,896,847 |
| | | 10,960 |
| (6) | 843,043 |
| | | | | | | 24,903 |
| (7) | 1,915,539 |
| | | | | | Carlos Minetti | 4,536 |
| (4) | 348,909 |
| | 64,829 |
| (9) | 4,986,647 |
| | | 19,208 |
| (5) | 1,477,479 |
| | 24,660 |
| (10) | 1,896,847 |
| | | 10,960 |
| (6) | 843,043 |
| | | | | | | 24,903 |
| (7) | 1,915,539 |
| | | | | | | | | | | | | |
| | (1) | All equity award values are based on a December 29, 2017 closing stock price of $76.92 per share of our Common Stock. RSUs include the right to receive dividend equivalents in the same amount and at the same time as dividends are paid to all Company common shareholders. PSUs include the right to receive dividend equivalents which will accumulate and pay out in cash if and when the underlying shares are released to the NEOs.
|
| | (2) | Excludes 502,557 deferred RSUs for Mr. Nelms and 430,763 deferred RSUs for Mr. Hochschild, as described in "2017 Nonqualified Deferred Compensation Table." These shares will convert to shares of Common Stock when Mr. Nelms and Mr. Hochschild leave the Company.
|
| | (3) | These RSUs are expected to vest and convert to shares of Common Stock on December 31, 2018. |
| | (4) | These RSUs vested and converted to shares of Common Stock on February 1, 2018. |
| | (5) | These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on February 1, 2018 and 2019. |
| | (6) | These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on February 1, 2018, 2019 and 2020. |
| | (7) | These PSUs vested and converted to shares of Common Stock on February 1, 2018, after a satisfactory risk policies review. |
| | (7) | These RSUs are expected to vest and convert to shares of Common Stock on December 17, 2020. |
| | (9) | These PSUs are expected to vest and convert to shares of Common Stock on February 1, 2019, if the performance conditions are met and the risk policies review is satisfactory. As required under applicable SEC guidance, because cumulative performance exceeded the target level, unvested PSUs are shown at the amounts corresponding to, and assuming achievement of, the maximum performance level for the full performance period. The final payout will be determined by the Committee and may be less than amount shown. |
| | (10) | These PSUs are expected to vest and convert to shares of Common Stock on February 1, 2020, if the performance conditions are met and the risk policies review is satisfactory. As required under applicable SEC guidance, because performance during the first year of the performance period exceeded the target level, unvested PSUs are shown at the amounts corresponding to, and assuming achievement of, the maximum performance level for the full performance period. The final payout will be determined by the Committee and may be less than amount shown. |
35
2020 Executive Compensation Tables
Stock Vested for 20172020 The following table provides information regarding the number of stock awards that vested and the subsequent value realized from the vesting of such stock awards during the 20172020 year. There are no outstanding stock options as of December 31, 2017. | | | | | | | | | | Stock Awards | | Name | Number of Shares
Acquired on
Vesting
(#) | Value Realized on Vesting(1)
($) | | Roger C. Hochschild | 152,313 | | 12,678,276 | | | John T. Greene | 3,955 | | 195,496 | | | Carlos M. Minetti | 30,580 | | 2,297,475 | | | Diane E. Offereins | 30,580 | | 2,297,475 | | | Julie A. Loeger | 28,843 | | 2,166,975 | |
| | | | | | | | | | | Stock Awards | | Name | | Number of Shares
Acquired on
Vesting
(#) | | Value Realized on Vesting(1)
($) | | David W. Nelms | | 129,881 |
| | 8,931,916 |
| | R. Mark Graf | | 56,563 |
| | 3,889,838 |
| | Roger C. Hochschild | | 69,628 |
| | 4,788,318 |
| | Diane E. Offereins | | 48,252 |
| | 3,318,290 |
| | Carlos Minetti | | 48,252 |
| | 3,318,290 |
| | | | | | |
(1) The amount shown represents the closing price of a share of our Common Stock on the scheduled vesting date multiplied by the number of RSUs and PSUs that vested. 20172020 Pension Benefits
The following table lists the amounts we estimate as the present value of accumulated benefits that the Discover Pension Plan will pay to each of the NEOs upon the normal retirement age of 65. | | | | | | | | | | | | | Name | Plan Name | Number of Years of Credited Service(1) (#) | Present Value of Accumulated Benefit(2)(3) ($) | | Roger C. Hochschild | Discover Financial Services Pension Plan | 9.1667 | 293,131 | | John T. Greene(4) | Discover Financial Services Pension Plan | n/a | n/a | | Carlos M. Minetti | Discover Financial Services Pension Plan | 7.0000 | | 214,314 | | | Diane E. Offereins | Discover Financial Services Pension Plan | 9.0833 | 325,638 | | | Julie A. Loeger | Discover Financial Services Pension Plan | 16.8333 | 537,388 | |
| | | | | | | | | | Name | Plan Name | | Number of Years of Credited Service(1) (#) | | Present Value of Accumulated Benefit(2)(3) ($) | | David W. Nelms | Discover Financial Services Pension Plan | | 9.3333 |
| | 225,124 |
| R. Mark Graf(4) | Discover Financial Services Pension Plan | | n/a |
| | n/a |
| | Roger C. Hochschild | Discover Financial Services Pension Plan | | 9.1667 |
| | 210,977 |
| | Diane E. Offereins | Discover Financial Services Pension Plan | | 9.0833 |
| | 254,125 |
| | Carlos Minetti | Discover Financial Services Pension Plan | | 7.0000 |
| | 158,592 |
| | | | | | | |
| | (1) | For actuarial valuation purposes, credited service is attributed through the measurement date of December 31, 2008, the date that the Discover Pension Plan was frozen. |
| | (2) | Service credit and actuarial values are calculated as of December 31, 2017, the plan’s measurement date for the last year. |
| | (3) | For details on the valuation method and assumptions used in calculating the present value of accumulated benefit, please see Note 11: "Employee Benefit Plans" of our consolidated financial statements in our Annual Report on Form 10-K. |
| | (4) | Mr. Graf does not participate in the Discover Pension Plan as he was hired after it was frozen. |
(2)Service credit and actuarial values are calculated as of December 31, 2020, the plan’s measurement date for the last year. (3)For details on the valuation method and assumptions used in calculating the present value of accumulated benefit, please see Note 11: "Employee Benefit Plans" of our consolidated financial statements in our Annual Report on Form 10-K. (4)Mr. Greene does not participate in the Discover Pension Plan as he was hired after it was frozen. Effective December 31, 2008, the Discover Pension Plan, a defined benefit pension plan, was frozen for all participants, although additional service will count towards vesting and retirement eligibility for any participant, including NEOs, in the Discover Pension Plan as of December 31, 2008. Accrued, frozen benefits under the Discover Pension Plan are determined with reference to career-average pay limited to $170,000 per year, and for each calendar year of service prior to 2009 generally equal to: (i) 1% of the participant’s eligible annual pay; plus (ii) 0.5% of the participant’s eligible annual pay which exceeded the participant's Social Security covered compensation limit for that year. The estimated annual benefits payable under the Discover Pension Plan at the earliest age at which a participant may retire with an unreduced benefit (age 65) are set forth above. Early retirement terms under the Pension Plan vary depending upon service dates. Certain participants are eligible for early retirement upon reaching age 55 with 10 years of service. Other participants must reach age 55 with 20 years of service. Messrs. NelmsMr. Hochschild and MinettiMses. Offereins and Ms. OffereinsLoeger are eligible for early retirement. In the event of early retirement, the accumulated benefit presented in the table above would be reduced under factors that vary based upon a participant's age at the time of early retirement commencement.
3649 2021 Proxy Statement
2020 Executive Compensation Tables
20172020 Nonqualified Deferred Compensation
The founder'sfounders' grant of RSU awardsRSUs reflected in the table below werewas a one time awardsaward made under the 2007 Omnibus Incentive Plan in connection with the Company's spin-off. These RSUs vested and will convert to shares of Company common stock following a termination of service. | | | | | | | | | | | | | | | | | | | | | | Name | Plan Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) | Aggregate Earnings in Last FY(1) ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) | | Roger C. Hochschild | 2007 Omnibus Incentive Plan | — | | — | | 2,459,657 | | — | | 38,996,974 | |
| | | | | | | | | | | | | | | | | | | Name | Plan Name | | Executive Contributions in Last FY ($) | | Registrant Contributions in Last FY ($) | | Aggregate Earnings in Last FY(1) ($) | | Aggregate Withdrawals/ Distributions ($) | | Aggregate Balance at Last FYE(2) ($) | | David W. Nelms | 2007 Omnibus Incentive Plan | | — |
| | — |
| | 2,427,350 |
| | — |
| | 38,656,684 |
| | Roger C. Hochschild | 2007 Omnibus Incentive Plan | | — |
| | — |
| | 2,080,585 |
| | — |
| | 33,134,290 |
| | | | | | | | | | | | | |
| | (1) | Reflects change in value of deferred RSUs due to fluctuations in stock price. Excludes cash dividend equivalent payments of $653,324 and $559,992 paid on deferred RSUs for Mr. Nelms and Mr. Hochschild, respectively.
|
| | (2) | Includes the value of RSUs that vested but were not converted into shares of Common Stock per the terms of the founder's grant of RSU awards awarded in connection with the Company's spin-off. |
Potential Payments upon a Termination or Change in Control Change in Control Severance Policy The Company sponsors a Change in Control Severance Policy (the "Policy"), which that applies to members of our management including the NEOs. If any NEO is involuntarily terminated, other than for cause (such as a material breach, fraud, violation of law, etc., as defined in the Policy), or voluntarily terminates for good reason (such as a material diminution in authority or base salary, target annual incentiveSTI and/or target long-term incentiveLTI compensation, etc., as defined in the Policy), or has a termination of employment due to death or disability, within six months prior to or two years following the occurrence of a change in control (as defined in the Policy), upon Discover's timely receipt of a fully-executed irrevocable release in a form satisfactory to Discover, such NEO would be entitled to receive: a•A lump sum cash payment equal to 1.5 times the sum of his or her annual base salary plus average cash bonus paid in the prior three years or, if the NEO has been an employee for less than three years, the number of years the NEO has been employed by the Company;
a•A lump sum cash payment equal to the prorated target cash bonus under the Company'sCompany’s incentive compensation plans for the year of termination, or if no target was established for the year of termination, the annual cash bonus for the prior year;
full•Full vesting of all stock-based awards granted to the NEO under the Company'sCompany’s incentive compensation plans;
outplacement•Outplacement services for a period of two years at the Company’s expense with a firm selected by the Company;
certain•Certain legal fees if the NEO commences litigation after exhausting the internal administrative claims procedure and, as a result, becomes entitled to receive benefits in an amount greater than those offered by the Company prior to such litigation; and
a•A lump sum cash payment equal to the difference between COBRA (for medical, dental and vision) and active employee premiums for 24 months.
Any NEO eligible for change in control benefits described above will be given the opportunity to enter into a non-competition agreement with the Company, and if he or she enters into the non-competition agreement, he or she would be eligible to receive a salary continuation payment equal to 1.5 times the sum of his or her annual base salary plus average cash bonus paid in the prior three years or, if the NEO has been an employee for less than three years, the number of years the NEO has been employed by the Company. If benefits payable under the Policy together with other Company benefits payable to the NEO would subject the NEO to an excise tax under the IRC, the benefits payable under the Policy will be reduced to the extent necessary to prevent any portion of the benefits from becoming nondeductible by the Company or subject to the excise tax, but only if,
37
by reason of that reduction, the net after-tax benefit received by the NEO exceeds the net after-tax benefit the NEO would receive if no reduction was made. No excise tax gross-ups are provided for any employees.
2020 Executive Compensation Tables Severance Pay Plan The Company sponsors a broad-based welfare benefits plan whichthat provides severance benefits to eligible employees, including the NEOs, who are involuntarily terminated in connection with a workforce reduction, closure, or other similar event.event as set forth in the Severance Plan. The Severance Pay Plan will not pay benefits to an employee terminated for cause (as defined in the plan), or an employee receiving benefits under the Change in Control Severance Policy. If any NEO is terminated, other than for cause (asexperiences an eligible termination, as defined in the Severance Pay Plan),Plan, upon Discover’s timely receipt of a fully-executed irrevocable release in a form satisfactory to Discover, such NEO would be entitled to receive: a•A lump sum cash payment of up to one times12 months of his or her annual base salary;salary plus target annual cash bonus;
a•A lump sum cash payment equal to the prorated target annual cash bonus under the Company’s incentive compensation plan for any prior year (to the extent not yet paid) and the year of termination;termination (to the extent earned and not yet paid);
outplacement•Outplacement services for a period of one year at the Company'sCompany’s expense with a firm selected by the Company; and
a•A lump sum cash payment equal to 12 months of the applicable premium for group health plan coverage in place prior to termination of employment, plus a payment for income taxes on such amount.
20172020 Potential Payments upon a Termination or Change in Control Table
The following table sets forth the payments that each of our NEOs would have received under various termination scenarios on December 31, 2017.2020. With regard to the payments upon a change in control, the amounts detailed below assume that each NEO's employment was terminated by the Company without "cause" or by the executive for "good reason" within the specified time period prior to or following the change in control. The table below assumes a stock price of $76.92,$90.53, the closing price of a share of our Common Stock on December 29, 2017.31, 2020. Pursuant to the terms of our stock plans and outstanding stock award agreements, the vesting of certain outstanding unvested stock awards is accelerated in whole or in part in the event of a termination of the NEO's employment in connection with (i) a change in control, (ii) the NEO's death, disability, retirement, or (iii) an involuntary termination such as a reduction in force or elimination of the NEO's position, provided that a fully-executed irrevocable release agreement is executed. The vesting of the special retention grants madeexecuted and subject to Messrs. Nelms and Hochschild in 2013 and 2015, respectively, is accelerated in the event of a termination of employment in connection with a change in control, in the event of death or disability, or an involuntary termination without cause, provided a fully-executable irrevocable release agreement is executed, but not upon retirement.risk review. Unvested RSUs and PSUs will be canceled in the event of a termination of employment for any other reason. NEOs who violate non-competition, non-solicitation, confidentiality, intellectual property, or other restrictive covenants within one year after a termination of employment will be required to pay to the Company the value of any RSUs and PSUs that vested on or after, or within one year, or, for grants made in 2016 or later, two years prior to such termination.
51 2021 Proxy Statement
38
2020 Executive Compensation Tables
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Executive
Payment Elements | | Termination in
Connection
with a Change
in Control
($) | | Involuntary
Termination
Without
Cause
($) | | Death
($) | Disability
($) | Voluntary Termination or Involuntary Termination with Cause
($) | Retirement(7) ($) | | Roger C. Hochschild | | | | | | | | | | | Salary and Other Cash Payments | | 7,531,250 | (1), (2) | 3,300,000 | | 91,667 | — | — | — | Target Annual Incentive Plan Payout(3) | | 2,200,000 | | 2,200,000 | | 2,200,000 | 2,200,000 | — | 2,200,000 | Equity Awards(4) | | 15,809,204 | | 12,232,320 | | 12,232,320 | 12,232,320 | — | 12,232,320 | Health Coverage(5) | | 31,838 | | 34,046 | | — | — | — | — | Other(6) | | 25,000 | | 12,500 | | — | — | — | — | | Total | | 25,597,292 | | 17,778,866 | | 14,523,987 | 14,432,320 | — | 14,432,320 | | John T. Greene | | | | | | | | | | | Salary and Other Cash Payments | | 5,502,000 | (1), (2) | 1,750,000 | | 58,333 | — | — | n/a | Target Annual Incentive Plan Payout(3) | | 1,050,000 | | 1,050,000 | | 1,050,000 | 1,050,000 | — | n/a | Equity Awards(4) | | 3,279,680 | | 2,349,563 | | 2,349,563 | 2,349,563 | — | n/a | Health Coverage(5) | | 32,092 | | 35,790 | | — | — | — | n/a | Other(6) | | 25,000 | | 12,500 | | — | — | — | n/a | | Total | | 9,888,772 | | 5,197,853 | | 3,457,896 | 3,399,563 | — | — | | Carlos M. Minetti | | | | | | | | | | | Salary and Other Cash Payments | | 4,481,650 | (1), (2) | 1,750,000 | | 58,333 | — | — | — | Target Annual Incentive Plan Payout(3) | | 1,050,000 | | 1,050,000 | | 1,050,000 | 1,050,000 | — | 1,050,000 | Equity Awards(4) | | 5,856,241 | | 4,926,124 | | 4,926,124 | 4,926,124 | — | 4,926,124 | Health Coverage(5) | | 33,805 | | 32,018 | | — | — | — | — | Other(6) | | 25,000 | | 12,500 | | — | — | — | — | | Total | | 11,446,696 | | 7,770,642 | | 6,034,457 | 5,976,124 | — | 5,976,124 | | Diane E. Offereins | | | | | | | | | | | Salary and Other Cash Payments | | 4,913,875 | (1), (2) | 1,750,000 | | 58,333 | — | — | — | Target Annual Incentive Plan Payout(3) | | 1,050,000 | | 1,050,000 | | 1,050,000 | 1,050,000 | — | 1,050,000 | Equity Awards(4) | | 5,856,241 | | 4,926,124 | | 4,926,124 | 4,926,124 | — | 4,926,124 | Health Coverage(5) | | 9,721 | | 11,003 | | — | — | — | — | Other(6) | | 25,000 | | 12,500 | | — | — | — | — | | Total | | 11,854,837 | | 7,749,627 | | 6,034,457 | 5,976,124 | — | 5,976,124 | Julie A. Loeger(8) | | | | | | | | | | | Salary and Other Cash Payments | | n/a |
| n/a | | n/a | n/a | n/a | — | Target Annual Incentive Plan Payout(3) | | n/a | | n/a | | n/a | n/a | n/a | 1,050,000 | Equity Awards(4) | | n/a | | n/a | | n/a | n/a | n/a | 4,684,188 | Health Coverage(5) | | n/a | | n/a | | n/a | n/a | n/a | — | Other(6) | | n/a | | n/a | | n/a | n/a | n/a | — | | Total | | — | | — | | — | — | — | 5,734,188 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)Includes change in control severance plus consideration for entering into a non-competition agreement. For Mr. Greene who was hired during 2019, actual annualized 2019 STI is used to estimate the severance amount. (2)Payments made in the event of a qualified termination following a change in control of the Company that would qualify as “parachute payments” under Section 280G of the Internal Revenue Code may be subject to a reduction, referred to here as the “Section 280G Cut-Back,” to the extent that they are deductible under that section, provided that the after-tax benefit (inclusive of any applicable excise tax) is greater than that which the executive would have received if no reduction was made. In 2020, none of our NEOs would have been subject to such a reduction. (3)Includes one-time pro-rata bonus at target. Since termination is as of December 31, 2020, the value is equal to the target disclosed in the Estimated Future Payouts Under Non-Equity Incentive Plan Awards column under "Grants of Plan-Based Awards for 2020". | | | | | | | | | | | | | | | | Executive Payment Elements | Termination in Connection with a Change in Control ($) | | Involuntary Termination Without Cause ($) | | Death(6) ($) | Disability(6) ($) | Voluntary Termination or Involuntary Termination with Cause ($) | Retirement(7) ($) | | David W. Nelms | | | | | | | | | | Salary and Other Cash Payments | 8,028,750 |
| (1) | 1,100,000 |
| (5) | — |
| — |
| — |
| — |
| Equity Awards(2) | 41,221,951 |
| | 38,330,314 |
| | 38,330,314 |
| 38,330,314 |
| — |
| 38,330,314 |
| Health Coverage(3) | 19,054 |
| | 17,323 |
| | — |
| — |
| — |
| — |
| Other(4) | 19,800 |
| | 7,200 |
| | — |
| — |
| — |
| — |
| | Total | 49,289,555 |
| | 39,454,837 |
| | 38,330,314 |
| 38,330,314 |
| — |
| 38,330,314 |
| | R. Mark Graf | | | | | | | | | | Salary and Other Cash Payments | 4,112,150 |
| (1) | 650,000 |
| (5) | — |
| — |
| — |
|
|
| Equity Awards(2) | 9,914,433 |
| | 9,162,651 |
| | 9,162,651 |
| 9,162,651 |
| — |
| | Health Coverage(3) | 27,180 |
| | 23,050 |
| | — |
| — |
| — |
| | Other(4) | 19,800 |
| | 7,200 |
| | — |
| — |
| — |
| | | Total | 14,073,563 |
| | 9,842,901 |
| | 9,162,651 |
| 9,162,651 |
| — |
| n/a |
| | Roger C. Hochschild | | | | | | | | | | Salary and Other Cash Payments | 5,847,750 |
| (1) | 800,000 |
| (5) | — |
| — |
| — |
|
|
| Equity Awards(2) | 20,481,934 |
| | 19,072,531 |
| | 19,072,531 |
| 19,072,531 |
| — |
| | Health Coverage(3) | 26,631 |
| | 28,248 |
| | — |
| — |
| — |
| | Other(4) | 19,800 |
| | 7,200 |
| | — |
| — |
| — |
| | | Total | 26,376,115 |
| | 19,907,979 |
| | 19,072,531 |
| 19,072,531 |
| — |
| n/a |
| | Diane E. Offereins | | | | | | | | | | Salary and Other Cash Payments | 4,425,875 |
| (1) | 650,000 |
| (5) | — |
| — |
| — |
| — |
| Equity Awards(2) | 10,002,358.00 |
| | 10,002,358 |
| | 10,002,358 |
| 10,002,358 |
| — |
| 10,002,358 |
| Health Coverage(3) | 8,428 |
| | 9,179 |
| | — |
| — |
| — |
| — |
| Other(4) | 19,800 |
| | 7,200 |
| | — |
| — |
| — |
| — |
| | Total | 14,456,461 |
| | 10,668,737 |
| | 10,002,358 |
| 10,002,358 |
| — |
| 10,002,358 |
| | Carlos Minetti | | | | | | | | | | Salary and Other Cash Payments | 4,206,150 |
| (1) | 650,000 |
| (5) | — |
| — |
| — |
| — |
| Equity Awards(2) | 10,002,358 |
| | 8,652,971 |
| | 8,652,971 |
| 8,652,971 |
| — |
| 8,652,971 |
| Health Coverage(3) | 28,993 |
| | 26,565 |
| | — |
| — |
| — |
| — |
| Other(4) | 19,800 |
| | 7,200 |
| | — |
| — |
| — |
| — |
| | Total | 14,257,301 |
| | 9,336,736 |
| | 8,652,971 |
| 8,652,971 |
| — |
| 8,652,971 |
| | | | | | | | | | |
| | (1) | For purposes of illustration, includes change in control severance and consideration for entering into the non-competition agreement, but excludes pro-rata bonus at target based on actual bonus captured in the Non-Equity Incentive Plan Compensation column under "2017 Summary Compensation Table." |
| | (2) | Represents the intrinsic value of the accelerated RSUs, PSUs, and accrued PSU dividends, all as of December 31, 2017. 2015 PSUs are shown at actual payout level of 122%, 2016 PSUs are shown at an above target payout level (based on actual performance), and 2017 PSUs are shown at target. For the PSUs, in the event of a change in control of the Company during the first year of the performance period, the award will be converted to cash at target performance and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. In the event of a change in control of the Company during the second or third year of the performance period, performance will be measured through the last day of the Company's quarter preceding the change in control and the award will then be converted to cash and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. RSUs and PSUs have double trigger acceleration provisions. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed or (ii) the executive's eligible retirement, a pro-rata portion of the PSUs will vest and convert to shares following the conclusion of the performance and vesting period, based on actual performance and a pro-rata portion of the RSUs will vest and convert to shares. In the event of death or disability, the PSUs will vest and shares are converted and paid at the end of the cycle based on actual performance achieved, and RSUs will vest and convert to shares. |
| | (3) | For termination in connection with a change in control, lump sum payment equal to the difference between COBRA (for medical, dental and vision) and active employee health and welfare premiums for 24 months. For involuntary termination without cause, lump sum payment equal to 12 months of COBRA premiums (for medical, dental and vision) plus a payment for income taxes on such amount. |
| | (4) | Includes value of expected outplacement benefits for a 24-month period for termination in connection with a change in control and for a 12-month period for involuntary termination without cause. |
| | (5) | For purposes of illustration, includes severance, but excludes pro-rata bonus at target based on actual bonus captured in the Non-Equity Incentive Plan Compensation column under "2017 Summary Compensation Table." |
| | (6) | For purposes of illustration, excludes accelerated bonus at target based on actual bonus captured in the Non-Equity Incentive Plan Compensation column under "2017 Summary Compensation Table." |
39www.discover.com 52
2020 Executive Compensation Tables
| | (7) | Messrs. Nelms and Minetti and Ms. Offereins are eligible for retirement. For purposes of illustration, includes a proration of outstanding equity awards, but excludes pro-rata bonus at target based on actual bonus captured in the Non-Equity Incentive Plan Compensation column under "2017 Summary Compensation Table" and the pension benefits described under "2017 Pension Benefits." |
(4)Represents the intrinsic value of the accelerated RSUs, PSUs, and accrued PSU dividends, all as of December 31, 2020. For the PSUs, in the event of a qualified termination following a change in control of the Company during the first year of the performance period, the award will convert to cash at target performance and be paid out according to the vesting schedule, or sooner in the event of a qualified termination following the change in control event. In the event of a change in control of the Company during the second or third year of the performance period, performance will be measured through the last day of the Company’s quarter preceding the change in control and the award will then be converted to cash and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. RSUs and PSUs have double trigger acceleration provisions. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed and subject to a risk review or (ii) the executive’s eligible retirement, a pro-rata portion of the PSUs will vest and convert to shares following the conclusion of the performance and vesting period based on actual performance and a pro-rata portion of the RSUs will vest and convert to shares. In the event of death or disability, the PSUs will vest and shares will convert and be paid at the end of the performance period based on actual performance achieved, and RSUs will vest and convert to shares. Since actual performance for the 2019 and 2020 PSUs cannot be determined until the respective performance periods conclude (which will occur in 2022 and 2023), the figures shown reflect performance estimated through the termination date. 2017(5)For termination in connection with a change in control, a lump sum payment equal to the difference between COBRA (for medical, dental and vision) and active employee health and welfare premiums for 24 months. For involuntary termination without cause, a lump sum payment equal to 12 months of COBRA premiums (for medical, dental and vision) plus a payment for income taxes on such amount.
(6)Includes value of expected outplacement benefits for a 24-month period for termination in connection with a change in control and for a 12-month period for involuntary termination without cause. (7)Mr. Hochschild, Mr. Minetti, Ms. Offereins, and Ms. Loeger are eligible for retirement. For purposes of illustration, includes a proration of outstanding equity awards as well as the bonus at target equal to the value disclosed in the Estimated Future Payouts Under Non-Equity Incentive Plan Awards column under “Grants of Plan-Based Awards for 2020,” but excludes the pension benefits described under “2020 Pension Benefits". (8)Due to Ms. Loeger's retirement on 12/31/2020, all termination and change in control calculations besides retirement are not applicable. 2020 Pay Ratio We believe in pay for performance,pay-for-performance, and in programs that balance the interests of employees with the interests of our shareholders and customers, as well as the safety and soundness of the Company. We strive to deliver compensation that is both market-competitive and fair and equitable internally. Our compensation program is designed to attract, retain, and motivate highly qualified and diverse team members to ensure the continued success of our business. As required under and calculated in accordance with Item 402(u) of Regulation S-K, we have determined a reasonable estimate of the pay ratio of the annual total compensation of our CEOChief Executive Officer ("CEO") and the median of the annual total compensation of all Company employees for 20172020 was 213:169:1. This ratio was calculated as described below using the annual total compensation of Mr. Nelms,Hochschild, reported in the Total column of our 20172020 Summary Compensation Table, of $10,248,162$10,357,259 compared to the median of the annual total compensation of all employees excluding Mr. Nelms for 2017our median employee in 2020 of $48,155. $61,430. The SEC rules allow companies to use estimates, assumptions, adjustments, statistical sampling and unique definitions of compensation to identify the median employee and calculate the pay ratio. Our estimated pay ratio should not be used as a basis for comparison to other companies because of the differences in how pay ratios may be calculated. The SEC rules allow companies to identify the median employee whose compensation will be used for the annual total compensation calculation once every three (3) years provided that there have not been any changes in the company’s employee population or employee compensation arrangements that it is reasonably believed would result in a significant change in its pay ratio disclosure. In 2020 we selected a new median employee in accordance with SEC rules. To identify our median employee, we began with our entire active employee population of 16,42717,369 as of December 31, 2017.2020. We excluded our 358558 international employees from our calculation because they accountaccounted for approximately 2%3% of our employees, leaving an active U.S. based employee population of 16,069.16,811(1) We used the total amount of salary and wages paid as reflected in our payroll records and reported to the Internal Revenue Service in Box 5 on Form W-2 for 20172020 to identify our median employee and two additional employees with compensation above and below the median employee. Our median employee is eligible for an accrued benefit from our frozen Pension Plan. Fewer than 25% of all of our employees have an accrued pension benefit, so we consider this atypical compensation for our employees. When reviewing the five employees with compensation closest to and including the compensation of the median employee, only the median employee had an accrued pension benefit. As permitted under SEC rules, the median employee we used to calculate the pay ratio is an employee with compensation that was closest to the median employee compensation, but with compensation deemed to be representative of our current compensation program.
Finally, we calculated the identified median employee’s annual total compensation for 2017 using the requirements of Item 402(c)(2)(x) of Regulation S-K, and divided Mr. Nelms compensation of $10,248,162 by the median employees compensation of $48,155 to calculate the ratio of 213:1.
____________________ (1) We excluded employees from the following countries: four from Canada, 177 from China, four from France, four from Germany, eleven from Hong Kong, ten from India, one from Japan, twenty-seven from Singapore, one from Sweden, one from Switzerland, three from Taiwan, one from Turkey, two from the United Arab Emirates, and 312 from the United Kingdom.
Audit Matters | | (1) | We excluded employees from the following countries: four from Canada, 180 from China, four from France, two from Germany, five from India, one from Japan, eight from Singapore, one from Sweden, one from Switzerland, one from Turkey, one from the United Arab Emirates, and 150 from the United Kingdom. |
40
BENEFICIAL OWNERSHIP OF COMPANY COMMON STOCK
We encourage our directors, officers and employees to own our Common Stock as owning our Common Stock aligns their interests with shareholders. All Executive Committee members, including our NEOs, are subject to share ownership guidelines and share retention requirements as described above in "Compensation Discussion and Analysis." This commitment ties a portion of their net worth to the Company's stock price and provides a continuing incentive for them to work towards superior long-term stock performance.
The following table sets forth the beneficial ownership of our Common Stock, as of February 22, 2018, by the persons and groups specified below. Except for the 5% beneficial owners, the percentage of calculations below are based on the number of shares of Common Stock outstanding as of February 22, 2018.
| | | | | | | | 5% Beneficial Owners | Shares of Discover Common Stock Beneficially Owned (1) | | Percentage of Discover Common Stock Outstanding | BlackRock Inc., 55 East 52nd Street, New York, New York 10055(2) | 23,915,199 |
| | 6.75 | % | The Vanguard Group, 100 Vanguard Boulevard, Malvern, Pennsylvania 19355(3) | 24,952,013 |
| | 7.04 | % | | Executive Officers and Directors | | | | David W. Nelms(4) | 1,205,202 |
| | * |
| Roger C. Hochschild(5) | 711,288 |
| | * |
| | R. Mark Graf | 30,741 |
| | * |
| Diane E. Offereins(6) | 130,638 |
| | * |
| Carlos Minetti(6) | 160,739 |
| | * |
| Jeffrey S. Aronin(7) | 61,886 |
| | * |
| Mary K. Bush(8) | 54,425 |
| | * |
| Gregory C. Case(9) | 61,886 |
| | * |
| Candace H. Duncan(10) | 6,870 |
| | * |
| | Joseph F. Eazor | 3,213 |
| | * |
| | Cynthia A. Glassman | 50,193 |
| | * |
| Richard H. Lenny(11) | 17,138 |
| | * |
| Thomas G. Maheras(12) | 46,811 |
| | * |
| Michael H. Moskow(13) | 48,042 |
| | * |
| Mark A. Thierer(14) | 9,811 |
| | * |
| Lawrence A. Weinbach(15) | 46,698 |
| | * |
| Directors and executive officers as a group (23 persons)(16) | 2,867,494 |
| | * |
| | | | | |
| | | | * | Represents beneficial ownershipPROPOSAL 3 Ratification of less than 1%.Appointment of Independent Registered Public Accounting Firm The Board of Directors recommends a vote “FOR” the ratification of Deloitte & Touche LLP’s appointment as our independent registered public accounting firm for the 2021 year. Proxies solicited by the Board will be voted “FOR” this ratification unless otherwise instructed. The Audit Committee has the sole authority and responsibility to appoint, compensate, retain, oversee, evaluate and, when appropriate, replace the independent public accounting firm. Each year the Audit Committee evaluates the qualifications and performance of the independent public accounting firm and considers, as appropriate, the rotation of the independent audit firm. Based on this evaluation, the Board of Directors and the Audit Committee recommend that you approve the ratification of the appointment of Deloitte & Touche LLP (“Deloitte”) to serve as our independent registered public accounting firm for the 2021 year. The Board of Directors and the Audit Committee believe the continued retention of Deloitte is in the best interest of the Company and its shareholders. Deloitte has served as the independent registered public accounting firm for the Company since 2007 and its former parent company, Morgan Stanley, prior to that time. Consistent with the regulations adopted pursuant to the Sarbanes-Oxley Act of 2002 and the Audit Committee’s Charter, the lead audit partner having primary responsibility for the audit and the concurring audit partner are rotated every five years. In connection with this mandated rotation, the Audit Committee and its chair are directly involved in the selection of any new lead audit partner. The current lead Deloitte audit partner was designated commencing with the 2017 audit. A representative of Deloitte will be present at the Annual Meeting, will have the opportunity to make a statement, if desired, and will be available to respond to appropriate questions. | |
| | (1) | Does not include shares underlying unvested RSUs unless otherwise noted. |
| | (2) | Based on a Schedule 13G/A filed on January 29, 2018 by BlackRock Inc. regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of December 31, 2017. The Schedule 13G/A discloses that BlackRock Inc. had sole voting power as to 20,618,182 shares and sole dispositive power as to 23,915,199 shares. The ownership percentage is based on the assumption that BlackRock Inc. continued to own the number of shares reflected in the table on February 22, 2018. |
| | (3) | Based on a Schedule 13G/A filed on February 9, 2018 by The Vanguard Group regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of December 31, 2017. The Schedule 13G/A discloses that The Vanguard Group had sole voting power as to 514,620 shares, shared voting power as to 90,562 shares, sole dispositive power as to 24,364,221 shares, and shared dispositive power as to 587,792 shares. The ownership percentage is based on the assumption that The Vanguard Group continued to own the number of shares reflected in the table on February 22, 2018. |
| | (4) | Includes 502,557 shares underlying vested RSUs that would convert following a termination of service, 32,584 shares underlying RSUs that would vest and convert following a termination of service, and 199 shares of Common Stock that Mr. Nelms is expected to acquire within 60-days pursuant to his participation in Company Employee Stock Purchase Plan.
|
| | (5) | Includes 430,763 shares underlying vested RSUs that would convert following a termination of service.
|
| | (6) | Includes 20,391 shares underlying RSUs that would vest and convert following a termination of service.
|
| | (7) | Includes 57,307 shares underlying vested RSUs that would convert following a termination of service.
|
| | (8) | Includes 52,075 shares underlying vested RSUs that would convert following a termination of service.
|
| | (9) | Includes 61,886 shares underlying vested RSUs that would convert following a termination of service.
|
| | (10) | Includes 6,870 shares underlying vested RSUs that would convert following a termination of service.
|
41
| | (11) | Includes 17,138 shares underlying vested RSUs that would convert following a termination of service.
|
| | (12) | Includes 38,638 shares underlying vested RSUs that would convert following a termination of service.
|
| | (13) | Includes 44,990 shares underlying vested RSUs that would convert following a termination of service.
|
| | (14) | Includes 9,811 shares underlying vested RSUs that would convert following a termination of service.
|
| | (15) | Includes 46,698 shares underlying vested RSUs that would convert following a termination of service.
|
| | (16) | Includes 1,268,733 shares underlying vested RSUs that would convert following a termination of service and 94,556 shares underlying RSUs that would vest and convert following a termination of service.
|
PROPOSAL 2. ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
What are shareholders being asked to approve?
Pursuant to SEC rules, we must conduct an advisory, non-binding vote on the compensation of our NEOs at least once every three years. At our 2017 annual meeting, we recommended, and our shareholders overwhelmingly supported an annual frequency for this advisory, non-binding vote. As such, the Board has determined that the Company will continue to hold this advisory, non-binding vote on the compensation of our NEOs each year.
Therefore, we are asking you to approve the compensation of our NEOs as disclosed in the "Compensation Discussion and Analysis" (beginning on page 17), the compensation tables (beginning on page 33), and any related material contained in this Proxy Statement. This proposal, commonly known as a "Say-on-Pay" proposal, gives you, as a shareholder, the opportunity to endorse or not endorse our executive pay program and policies through the following resolution:
"Resolved, that the shareholders approve, on an advisory, non-binding basis, the compensation of our NEOs, as disclosed in the 'Compensation Discussion and Analysis,' the compensation tables and any related narrative contained in this Proxy Statement."
What is the Board's recommendation on voting on this proposal?
The Board unanimously recommends a vote "FOR" approval of the NEO compensation as disclosed pursuant to Item 402 of SEC Regulation S-K, including in the "Compensation Discussion and Analysis," the compensation tables, and any related information contained in this Proxy Statement. Proxies solicited by the Board will be voted "FOR" this proposal unless otherwise instructed.
As previously described in detail in the "Compensation Discussion and Analysis" (beginning on Page on 17), our compensation program for our NEOs is substantially performance based and designed to attract, retain and motivate our NEOs, who are critical to our success. The compensation our NEOs earned in 2017 reflected Company performance and remained consistent with our balanced compensation structure and commitment to aligning NEO's interests with those of our shareholders. The Board continues to believe the compensation program for our NEOs are effective in achieving the desired results.
Is the shareholder advisory vote to approve NEO compensation binding on the Company?
No. Under the SEC rules, your vote is advisory and will not be binding upon the Company or the Board. However, the Compensation Committee values the opinions of our shareholders and will review and consider the voting results when considering future executive compensation arrangements.
How many votes are required to approve this proposal?
This advisory vote requires the affirmative vote of a majority of the shares of Common Stock represented at the Annual Meeting and entitled to vote thereon. You may "abstain" from voting on this proposal. Shares voting "abstain" on this proposal will be counted as present at the Annual Meeting for purposes of this proposal and your abstention will have the effect of a vote against this proposal.
PROPOSAL 3. RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has the sole authority and responsibility to appoint, compensate, retain, oversee, evaluate and, when appropriate, replace the independent public accounting firm. Each year the Audit Committee evaluates the qualifications and performance of the independent public accounting firm and considers, as appropriate, the rotation of the independent audit firm. Based on this evaluation, the Board of Directors and the Audit Committee recommend that you approve the ratification of the appointment of Deloitte & Touche LLP ("Deloitte") to serve as our independent
42
registered public accounting firm for the 2018 year. The Board of Directors and the Audit Committee believe the continued retention of Deloitte is in the best interest of the Company and its shareholders. Deloitte has served as the independent registered public accounting firm for the Company since 2007 and its former parent company, Morgan Stanley, prior to that time. Consistent with the regulations adopted pursuant to the Sarbanes-Oxley Act of 2002 and the Audit Committee's Charter, the lead audit partner having primary responsibility for the audit and the concurring audit partner are rotated every five years. In connection with this mandated rotation, the Audit Committee and its chair are directly involved in the selection of any new lead engagement partner. The current lead Deloitte partner was designated commencing with the 2017 audit. A representative of Deloitte will be present at the Annual Meeting, will have the opportunity to make a statement, if desired, and will be available to respond to appropriate questions.
Our Board recommends a vote "FOR" the ratification of Deloitte's appointment as our independent registered public accounting firm for the 2018 year. Proxies solicited by the Board will be voted "FOR" this ratification unless otherwise instructed.
Independent Registered Public Accounting Firm Fees The Audit Committee approves the audit fees associated with the Company'sCompany’s retention of Deloitte. The following table summarizes the aggregate fees (including related expenses) for professional services provided by Deloitte related to 20172020 and 20162019 (amounts in thousands). | | | | | | | | | | 2020 ($) | 2019 ($) | Audit Fees(1) | 5,888 | 5,933 | Audit-Related Fees(2) | 1,540 | 1,534 | | Tax Fees | — | | — | | All Other Fees(3) | 109 | 4 | | Total | 7,537 | 7,471 |
(1)Audit Fees services include: (i) the audit of our consolidated financial statements included in our Annual Report on Form 10-K and services attendant to, or required by, statute or regulation; (ii) accounting consultation attendant to the audit; (iii) reviews of the interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q; (iv) consents and other services related to SEC and other regulatory filings; and (v) statutory or financial audits of subsidiaries. (2)Audit-Related Fees services include: (i) data verification and agreed-upon procedures related to asset securitizations; (ii) assessment and testing of internal controls and risk management processes beyond the level required as part of the audit pursuant to Statement on Standards for Attestation Engagements No. 18; and (iii) agreed-upon procedures related to XBRL tagging of our consolidated financial statements included in our Annual Report on Form 10-K and our interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q. (3)All Other Fees include fees for research tools and consulting services. | | | | | | | | | | | 2017 | | 2016 | Audit Fees(1) | $ | 5,256 |
| | $ | 5,190 |
| Audit-Related Fees(2) | 1,507 |
| | 1,412 |
| | Tax Fees | — |
| | — |
| All Other Fees(3) | 4 |
| | 31 |
| | Total | $ | 6,767 |
| | $ | 6,633 |
| | | | | |
| | (1) | Audit Fees services include: (i) the audit of our consolidated financial statements included in our Annual Report on Form 10-K and services attendant to, or required by, statute or regulation; (ii) accounting consultation attendant to the audit; (iii) reviews of the interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q; (iv) consents and other services related to SEC and other regulatory filings; and (v) statutory or financial audits of subsidiaries. |
| | (2) | Audit-Related Fees services include: (i) data verification and agreed-upon procedures related to asset securitizations; (ii) assessment and testing of internal controls and risk management processes beyond the level required as part of the audit pursuant to Statement on Standards for Attestation Engagements No. 16; (iii) agreed-upon procedures related to XBRL tagging of our consolidated financial statements included in our Annual Report on Form 10-K and our interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q; and (iv) other consultations on financial accounting and reporting matters not classified as audit. |
| | (3) | All Other Fees include fees for Deloitte's accounting research tool and, in 2016 only, expenses related to a review of cybersecurity. |
Policy Regarding Pre-Approval of Independent Registered Public Accounting Firm Services In order to assure the continued independence of our independent registered public accounting firm, the Audit Committee has adopted a policy requiring pre-approval of audit and non-audit services performed by our independent registered public accounting firm. Under that policy, the Audit Committee pre-approves a list of audit, audit-related and permitted non-audit services that may be provided by the independent registered public accounting firm without obtaining specific pre-approval from the Audit Committee. In addition, the Audit Committee sets pre-approved fee levels for the pre-approved services. Any type of service that is not included on the list of pre-approved services or that exceeds pre-approved fee levels must be specifically pre-approved by the Audit Committee. The Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve any audit or permitted non-audit service to be performed by the independent registered public accounting firm, provided that such approvals are presented to the full Audit Committee at the next scheduled meeting and that estimated fees for such services are not in excess of certain limits. The Audit Committee reviews its pre-approval policy annually for purposes of assuring its continued appropriateness and compliance with applicable law and listing standards.
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Audit Committee Report
The Audit Committee of the Discover Financial Services Board of Directors is comprised of fournon-management directors, each of whom is independent under the listing standards of the New York Stock Exchange rules("NYSE"), where the Company's securities are listed, and applicable securities laws. The Board of Directors has determined that each member of the Audit Committee is "financially literate"“financially literate” as required under New York Stock ExchangeNYSE rules and is an "audit“audit committee financial expert"expert” as defined by the SEC.Securities and Exchange Commission ("SEC"). The Audit Committee operates under a written charter adopted by the Board.Board, which is reviewed and assessed annually to ensure the document is consistent with the listing standards of the NYSE and the provisions of the Sarbanes-Oxley Act of 2002. The Audit Committee charter is available through the investor relations page of our internet site, www.discover.com. The Audit Committee oversees the Company'sCompany’s financial reporting process on behalf of the Board of Directors. The Audit Committee assists the Board of Directors with the oversight overof the quality and integrity of the Company’s financial statements, compliance with legal and regulatory requirements and ethical standards adopted by the Company, as well as the system of internal controls. As part of the Audit Committee’s oversight of compliance with legal and regulatory requirements, it reviews certain reports, correspondence and inquiries from the Company’s regulators. The Audit Committee has oversight responsibility for the Company's Internal Audit function, including approval of the appointment and, when and if appropriate, replacement of the Company's Chief Audit Executive,review and approval of the charter, audit plan and overall risk assessment methodology as well as approval of annual performance and compensation of the Chief Audit Executive. The Audit Committee is responsible for the appointment, compensation, oversight, evaluation and retention of the independent auditors with respect to the issuance of the report on the Company’s financial statements and internal controls over financial reporting. In connection with required rotations, the Audit Committee makes the selection of the lead audit partner and the advisory partner. Additionally, the Audit Committee annually reviews and evaluates the qualifications, performance and independence of the firm, includingand the lead audit partner and makes the selection of any new partners on the engagement team.partner. It is within the Audit Committee’s authority to engage independent counsel and other advisors as necessary to carry out its duties. In addition, the Audit Committee’s activities include responsibility for establishing procedures for receipt, retention and treatment for complaints regarding accounting, internal controls and auditing matters from employees and others; taking into account the Board’sBoard of Director’s allocation of risk among the various committees, receiving and reviewing risk reporting; and periodically meeting in joint session with the Risk Oversight and the Compensation Committees of the Board of Directors. While the Board of Directors has oversight with respect to risk management related to the COVID-19 pandemic, its committees are overseeing the management of COVID-19 risks specific to duties delegated to them. The Audit Committee has overseen the management of risks from the COVID-19 pandemic related to the Company’s internal controls over financial reporting, the external independent audit, and the way in which risks and impacts to the business related to COVID-19 are disclosed in the Company’s SEC filings. Throughout the year, the Audit Committee met with and received reports from the Company’s Chief Risk Officer, head of InternalChief Audit Executive, General Counsel, Chief Financial Officer, Chief Accounting Officer, Chief Information Security Officer, Anti-Money Laundering Compliance and Sanctions Officer, and Chief Compliance Officer, among others. These meetings, reports, and reportsdiscussions covered a wide variety of topics, including, cybersecurity, risk management, financial results, new accounting and regulatory guidance, the Company’s Anti-Money Laundering/Bank Secrecy Act programs, and the Company’s AML/BSA program.impact of the COVID-19 pandemic to the Company. The Audit Committee also met with the Company’s independent auditors 1014 times over the course of the year.
Management is responsible for the Company'sCompany’s financial reporting process, including establishing and maintaining adequate internal controls over financial reporting and the preparation of financial statements. The Company'sCompany’s independent registered public accounting firm, Deloitte & Touche LLP ("Deloitte"), is responsible for performing an independent audit of the Company'sCompany’s consolidated financial statements and expressing an opinion on the conformity of the Company'sCompany’s audited financial statements with generally accepted accounting principles as well as a separate opinion on the effectiveness of the Company'sCompany’s internal controls over financial reporting. The Company is responsible for providing appropriate funding for audit fees, compensation for advisors engaged by the Audit Committee and the ordinary administrative expenses of the Audit Committee. The Audit Committee relies, without independent verification, on the information provided to it and on the representations made by management, the internal auditor and Deloitte. Consistent with its charter responsibilities, the Audit Committee has reviewed and discussed with management and Deloitte the Company'sCompany’s audited financial statements for the 20172020 fiscal year. This included a review of the Company's critical accounting policies, the reasonableness of significant accounting estimates and judgments, and the clarity of disclosures in the Company's financial statements. The Audit Committee has reviewed and discussed with Deloitte the matters required to be discussed relating toby the applicable requirements of the Public Company Accounting Oversight Board ("PCAOB") and the SEC, including the overall audit scope, approach, and strategy as set forth in accordancethe terms of their engagement letter; critical audit matters (“CAMs”) that arose during the current period audit; and any issues encountered. The Audit Committee concurs with applicable audit standards.Deloitte’s assessment and identification of CAMs contained in its Annual Report included within Company’s 2020 Annual Report on Form 10-K. Deloitte has also provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight BoardPCAOB regarding communication with the Audit Committee concerning independence. The Audit Committee discussed with Deloitte the firm'sfirm’s independence and considered whether the provision of services to the Company by Deloitte and compensation received by Deloitte for such services, including non-audit services, when applicable, is consistent with maintaining the firm'sfirm’s independence. In addition to annually reviewing Deloitte’s independence, the Audit Committee annually reviews Deloitte’s qualifications and performance in connection with the determination as to whether to select Deloitte as the Company’s independent registered public accounting firm. In conducting its review, the Audit Committee considers among other things, historical and recent performance of the current independent auditor, the auditor’s tenure, an analysis of known significant legal or regulatory proceedings related to the auditor, whether the auditor has the necessary expertise and resources, the appropriateness of the auditor’s fees on an absolute basis and as compared with fees paid by certain peer firms, the auditor’s professional skepticism, the auditor’s ideas to improve efficiency and effectiveness, and external data including PCAOB reports.
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Based upon the discussions and reviews described above, and subject to the limitations on the Audit Committee'sCommittee’s role and responsibilities referred to above and in the Audit Committee charter, the Audit Committee recommended to the Board that the Company'sCompany’s audited consolidated financial statements for the 20172020 fiscal year be included in the Company'sCompany’s Annual Report on Form 10-K. The Audit Committee also selected Deloitte as the Company'sCompany’s independent registered public accounting firm for the 20182021 fiscal year and is presenting the selection to the Company'sCompany’s shareholders for ratification. Submitted by the Audit Committee of the Board of Directors: Cynthia A. Glassman (Chair)
Candace H. Duncan
Joseph F. Eazor
Lawrence A. Weinbach
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Stock Ownership Information
SHAREHOLDER PROPOSAL
Beneficial Ownership of Company Common Stock
We encourage our directors, officers and employees to own our Common Stock as owning our Common Stock aligns their interests with shareholders. All Executive Committee members, including our NEOs, are subject to share ownership guidelines and share retention requirements as described above in “Compensation Discussion and Analysis.” This commitment ties a portion of their net worth to the Company’s stock price and provides a continuing incentive for them to work towards superior long-term stock performance. The textfollowing table sets forth the beneficial ownership of the shareholder proposal and supporting statement appears exactlyour Common Stock, as receivedof March 8, 2021, by the Company, unless otherwise noted. All statements contained inpersons and groups specified below. Except for the shareholder proposal and supporting statement5% beneficial owners, the percentage of calculations below are the sole responsibility of the proponent. The shareholder proposal may contain assertions about the Company or other matters that the Company believes are incorrect, but the Company has not attempted to refute all such assertions. All website links included in the shareholder proposal, supporting statement, and statement in opposition are not part of the Proxy Statement. The Board recommends a vote against the shareholder proposal based on the reasons set forth in the Board's statement in opposition which follows the shareholder proposal. The name and share ownershipnumber of the shareholder proponent is set forth below. The address of the proponent, and the name and share ownership of any co-filer, are available, and will be provided promptly, upon request by calling (224) 405-0900 or by sending a request to Discover Financial Services, Attention: Secretary and General Counsel, 2500 Lake Cook Road, Riverwoods, Illinois 60015.
PROPOSAL 4. ADVISORY VOTE ON A SHAREHOLDER PROPOSAL RELATING TO SIMPLE MAJORITY VOTE
Myra K. Young has notified the Company that she intends to submit the following proposal at this year's Annual Meeting of Shareholders. As explained below, the Board recommends that you vote AGAINST this shareholder proposal. The proponent states that she beneficially owns 50 shares of Discover's common stock, and there were 353,550,463 sharesCommon Stock outstanding as of the Record Date (excluding treasury stock)March 8, 2021.
| | | | | | | | | | 5% Beneficial Owners | Shares of Discover Common Stock Beneficially Owned(1) | Percentage
of Discover
Common Stock
Outstanding | BlackRock, Inc., 55 East 52nd Street, New York, New York 10055(2) | 19,519,979 | 6.37 | % | FMR LLC, 245 Summer Street, Boston, Massachusetts 02210(3) | 20,765,936 | 6.78 | % | The Vanguard Group, 100 Vanguard Boulevard, Malvern, Pennsylvania 19355(4) | 33,470,438 | 10.93 | % | | Executive Officers and Directors | | | Roger C. Hochschild(5) | 844,480 | * | | John T. Greene | 9,827 | * | Carlos M. Minetti (6) | 150,523 | * | Diane E. Offereins(6) | 122,455 | * | Julie A. Loeger(7) | n/a | * | Jeffrey S. Aronin(8) | 71,939 | * | Mary K. Bush(9) | 55,899 | * | Gregory C. Case(10) | 71,939 | * | Candace H. Duncan(11) | 16,923 | * | Joseph F. Eazor(12) | 13,266 | * | Cynthia A. Glassman(12) | 49,605 | * | Thomas G. Maheras(13) | 56,864 | * | Michael H. Moskow(14) | 53,786 | * | David L. Rawlinson II(15) | 394 | * | Mark A. Thierer(16) | 19,864 | * | Jennifer L. Wong(17) | 5,355 | * | Directors and executive officers as a group (22 persons)(7), (18) | 1,664,976 | * |
* Represents beneficial ownership of less than 1%. (1)Does not include shares underlying unvested RSUs unless otherwise noted. (2)Based on a Schedule 13G/A filed on January 29, 2021 by BlackRock, Inc. regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of December 31, 2020. The proponentSchedule 13G/A discloses that BlackRock, Inc. had sole voting power as to 17,081,290 shares, and sole dispositive power as to 19,519,979 shares. The ownership percentage is responsible forbased on the contentassumption that BlackRock, Inc. continued to own the number of shares reflected in the table on March 8, 2021. (3)Based on a Schedule 13G filed on February 8, 2021 by FMR LLC regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of December 31, 2020. The Schedule 13G discloses that FMR LLC had sole voting power as to 1,754,752 shares, and sole dispositive power as to 20,765,936 shares. The ownership percentage is based on the assumption that FMR LLC continued to own the number of shares reflected in the table on March 8, 2021.
Stock Ownership Information
(4)Based on a Schedule 13G/A filed on February 10, 2021 by The Vanguard Group regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of December 31, 2020. The Schedule 13G/A discloses that The Vanguard Group had shared voting power as to 492,310 shares, sole dispositive power as to 32,121,797 shares, and shared dispositive power as to 1,348,641 shares. The ownership percentage is based on the assumption that The Vanguard Group continued to own the number of shares reflected in the table on March 8, 2021. (5)Includes 430,763 shares underlying vested RSUs that would convert following proposal, for whicha termination of service, and 27,496 shares underlying RSUs that would vest and convert following a termination of service. (6)Includes 14,603 shares underlying RSUs that would vest and convert following a termination of service. (7)Does not include ownership by Ms. Loeger as she is no longer employed by the Company and the Board accept no responsibility:Company does not have access to information regarding her ownership. Shareholder Proposal
Proposal 4 - Simple Majority Vote
RESOLVED, Discover Financial Services shareholders request(8)Includes 57,307 shares underlying vested RSUs that our board take each step necessary so that each voting requirement in our charterwould convert following a termination of service, and bylaws that calls for a greater than simple majority vote be eliminated, and replaced by a requirement for a majority of the votes cast for and against applicable proposals, or a simple majority in compliance with applicable laws. This means the closest standard to a majority of the votes cast for and against such proposals consistent with applicable laws. It is important that our company take each step necessary to adopt this proposal topic. It is also important that our company take each step necessary to avoid a failed vote on this proposal topic.
Supporting Statement: Shareowners are willing to pay a premium for3,824 shares of companies that have excellent corporate governance. Supermajority voting requirements have been found to be one of six entrenching mechanismsunderlying RSUs that are negatively relatedscheduled to company performance according to “What Matters in Corporate Governance” by Lucien Bebchuk, Alma Cohen and Allen Ferrellvest within 60-days of the Harvard Law School (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=593423).
Supermajority requirements are used to block initiatives supported by most shareowners but opposed by a status quo management. The majority of S&P 500 and S&P 1500 companies have no supermajority voting requirements. Additionally, unlike the majority of S&P 500 and S&P 1500 companies, our company prohibits shareholders from calling special meetings.
This proposal topic won from 74% to 99% support at Weyerhaeuser, Alcoa, Waste Management, Goldman Sachs, FirstEnergy, McGraw-Hill, Macy’s, Ferro Arconic, and Cognizant Technology Solutions. Currently a 1%-minority can frustrate the will of our 66%-shareholder majority. In other words a 1%-minority could have the power to prevent shareholders from improving our corporate governance.
Please vote to enhance shareholder value:
Simple Majority Vote - Proposal 4
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The Board's Statement in Opposition
The Board of Directors has carefully considered the proposal and believes that the existing voting standards under the Company’s Certificate of Incorporation and Bylaws are appropriate and necessary. These voting standards, only one of which exceeds the simple majority standard advocated by the proponent, are designed to benefit all shareholders. Where the Company has supermajority voting provisions—only with respect to the amendment or repeal of the Company’s Bylaws—the Board believes that, in this limited circumstance, the higher voting requirements help to ensure broad shareholder support for any changes that could address significant matters related to the Company’s corporate governance.
Benefit to Shareholders of Supermajority Provisions
Delaware law permits companies to adopt supermajority voting requirements, and a number of publicly-traded companies have adopted these provisions to preserve and maximize long-term value for all shareholders. Supermajority voting requirements on fundamental corporate matters help to protect shareholders against the self-interested actions of a few large shareholders, who may have an agenda opposed to the long-term value of the Company. These voting standards ensure that fundamental changes to our Company are only enacted when the shareholders have reached a broad consensus to take action.
Discover has a Strong Corporate Governance Structure
The Company’s Board of Directors is committed to strong and prudent corporate governance practices, which are described in this Proxy Statement. We regularly review our practices in light of current circumstances and take action when it is advisable to do so. Our Board has adopted a range of practices and procedures that promote effective Board oversight. Some of the Company’s strong governance policies and practices include:
directors are elected annually by a majority of votes cast in uncontested elections;
the Nominating and Governance Committee evaluates each director and makes a recommendation to the Board on his or her nomination for election;
shareholders have the right to nominate directors and have those nominations included in the Company’s Proxy Statement; and
the Board has appointed an independent Lead Director who also chairs our Nominating and Governance Committee and presides over regular executive sessions and other meetings of the independent directors on the Board.
Consistent with its current practice, the Board will continue to evaluate the future implementation of appropriate corporate governance measures. However, after careful consideration of this proposal, the Board has determined that retention of the supermajority voting requirements related to the amendment or repeal of the Company’s Bylaws remains in the long-term, best interests of the Company and its shareholders.
The Board unanimously recommends a vote "AGAINST" the shareholder proposal relating to a simple majority vote. Proxies solicited by the Board will be voted "AGAINST" this proposal unless otherwise instructed.
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
Why did I receive these materials?
This Proxy Statement provides notice of the Annual Meeting, describes the proposals presented for shareholder action and includes information required to be disclosed to shareholders. The Proxy Card provides shareholders with a way to vote on the described proposals without having to attend the Annual Meeting in person. Shareholders of the Company at the close of business on the Record Date are entitled to vote at the Annual Meeting.
Can I attend the Annual Meeting?
Yes. To gain admission to the Annual Meeting, you will need to show that you are a shareholder of the Company. All shareholders will be required to show valid, government-issued, picture identification or an employee badge issued by the Company. If your shares are registered in your name, your name will be compared to the list of registered shareholders to verify your share ownership. If your shares are held in the name of your broker or bank, you will need to bring evidence of your share ownership, such as your most recent brokerage account statement or a legal proxy from your broker. If you do not have valid picture identification and proof that you own Company shares, you will not be admitted to the Annual Meeting. In the interest of security, all packages and bags are subject to inspection. Please arrive before the start of the Annual Meeting to allow time for identity verification. You may also listen to a live audio webcast of the Annual Meeting through the investor relations page of our internet site, www.discover.com.
What proposals am I being asked to vote on and how does the Board of Directors recommend that I vote?
You are asked to vote on the following matters at the annual meeting:
| | | Proposal | Our Board’s Recommendation | Proposal 1. Election of Directors
| "FOR" the election of each director nominee | Proposal 2. Advisory Vote to Approve Named Executive Officer Compensation
| "FOR" | Proposal 3. Ratification of Appointment of Independent Registered Public Accounting Firm
| "FOR" | Proposal 4. Advisory Vote on One Shareholder Proposal, if properly presented
| "AGAINST"
|
What does it mean if I receive more than one set of materials?
This means you hold shares of the Company in more than one way. For example, you may own some shares directly as a "registered holder" and other shares through a broker or you may own shares through more than one broker. In these situations you may receive multiple sets of proxy materials. In order to vote all of the shares you own, you must follow the voting procedures on each Notice of Internet Availability of Proxy Materials that you receive or sign and return each of the Proxy Cards that you receive. Each Proxy Card you receive comes with its own prepaid return envelope. If you vote by mail, make sure you return each Proxy Card in the return envelope which accompanied that Proxy Card.
Does my vote matter?
YES! We are required to obtain shareholder approval for the election of directors and other important matters. Each share of Common Stock is entitled to one vote on each matter voted upon at the meeting. In order for the Company to obtain the necessary shareholder approval of proposals, a "quorum" of shareholders (i.e., a majority of the issued and outstanding shares entitled to vote, excluding treasury stock) must be represented at the Annual Meeting in person or by proxy. If a quorum is not obtained, the Company must postpone the Annual Meeting and solicit additional proxies; this is an expensive and time-consuming process that is not in the best interests of the Company or its shareholders. Since few shareholders typically attend shareholder meetings in person, voting by proxy is important to obtain a quorum and complete the shareholder vote.
How do I vote?
You may vote using any of the following methods:
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By Internet or telephone. The Internet and telephone voting procedures we have established for shareholders of record are designed to authenticate your identity, allow you to give your voting instructions and confirm that these instructions have been properly recorded. The availability of Internet and telephone voting for beneficial owners will depend on the voting processes of your broker, bank or nominee. Therefore, we recommend that you follow the voting instructions in the materials you receive.March 8, 2021.
Annual Proxy Card.(9) Be sureIncludes 52,075 shares underlying vested RSUs that would convert following a termination of service, and 3,824 shares underlying RSUs that are scheduled to complete, signvest within 60-days of March 8, 2021.
(10)Includes 68,115 shares underlying vested RSUs that would convert following a termination of service, and date the card3,824 shares underlying RSUs that are scheduled to vest within 60-days of March 8, 2021. (11)Includes 13,099 shares underlying vested RSUs that would convert following a termination of service, and return it in the prepaid envelope. If you3,824 shares underlying RSUs that are scheduled to vest within 60-days of March 8, 2021. (12)Includes 3,824 shares underlying RSUs that are scheduled to vest within 60-days of March 8, 2021. (13)Includes 44,867 shares underlying vested RSUs that would convert following a shareholdertermination of recordservice, and you return your signed Proxy Card without indicating your voting preferences, the persons named in the Proxy Card will vote FOR the election3,824 shares underlying RSUs that are scheduled to vest within 60-days of directors, FOR the approval on an advisory, non-binding basis,March 8, 2021. (14)Includes 44,990 shares underlying vested RSUs that would convert following a termination of NEO compensation, FOR the ratificationservice, and 3,824 shares underlying RSUs that are scheduled to vest within 60-days of the appointmentMarch 8, 2021. (15) Includes 394 shares underlying RSUs that are scheduled to vest within 60-days of Deloitte & Touche LLP as our independent registered public accounting firm for 2018,March 8, 2021. (16) Includes 16,040 shares underlying vested RSUs that would convert following a termination of service, and AGAINST the shareholder proposal. By voting by Internet or telephone, or by returning your signed3,824 shares underlying RSUs that are scheduled to vest within 60-days of March 8, 2021. (17) Includes 1,531 shares underlying vested RSUs that would convert following a termination of service, and dated Proxy Card in time3,824 shares underlying RSUs that are scheduled to be received for the Annual Meeting, you authorize Kathryn McNamara Corleyvest within 60-days of March 8, 2021. (18) Includes 728,787 shares underlying vested RSUs that would convert following a termination of service, 56,702 shares underlying RSUs that would vest and Jennifer Schott (the "Proxies") to act as your proxies to vote yourconvert following a termination of service, 293 shares of Common Stock as instructedthat Executive Officers are expected to acquire pursuant to their participation in the proxy card. In person atCompany's Employee Stock Purchase Plan, and 38,634 shares underlying RSUs that are scheduled to vest and convert within 60-days of March 8, 2021. The aforementioned amounts as well as the Annual Meeting. All shareholders may vote in person at the Annual Meeting. If youtotal amount of 1,664,976 shares are a beneficial ownerreflective of shares you must obtain a legal proxy from your broker, bank or nomineebeneficially owned by our Executive Officers and present it to the Company’s inspectorsDirectors as of elections (the "Inspector of Elections") with your ballot when you vote at the meeting.March 8, 2021.
How many votes are required to approve a proposal?Each director will be elected by a majority of the votes cast with respect to such director. A "majority of the votes cast" means that the number of votes cast "for" a given director exceeds the number of votes cast “against” that director. Under Delaware law, if a director is not elected at the Annual Meeting, the director will continue to serve on the Board as a "holdover director." As required by the Company’s Bylaws, each current director has submitted an irrevocable letter of resignation as a director that becomes effective if he or she is not elected by shareholders and if the Board accepts such resignation. If a director is not elected, the Nominating and Governance Committee will consider the director’s resignation and recommend to the Board whether to accept or reject the resignation. The Board will decide whether to accept or reject the resignation and publicly disclose its decision and, if it rejects the resignation, the rationale behind such decision, within 90 days after the election results for the Annual Meeting are certified.
The advisory, nonbinding vote to approve NEO compensation, the advisory vote to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018, and the advisory vote on the shareholder proposal each requires the affirmative vote of a majority of the shares of Common Stock represented at the Annual Meeting and entitled to vote thereon.
You may "abstain" from voting on any of the proposals in this Proxy Statement. Shares voting “abstain” on any nominee for director will be excluded entirely from the vote and will have no effect on the election of directors. Shares voting "abstain" on the advisory, nonbinding vote to approve NEO compensation, the advisory vote to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018, and the advisory vote on the shareholder proposal will be counted as present at the Annual Meeting for purposes of each such applicable proposal, and your abstention will have the effect of a vote against the applicable vote or proposal.
What is the effect of not voting?
The effect of not voting depends on how ownership of your shares is registered and the proposal to be voted upon. If you own shares as a registered holder, rather than through a broker, your unvoted shares will not be represented at the Annual Meeting and will not count toward the quorum requirement. Except as described below, assuming a quorum is obtained, your unvoted shares will not affect whether a proposal is approved or rejected.
If you own shares through a broker and do not vote, your broker may represent your shares at the Annual Meeting for purposes of obtaining a quorum. As described in the answer to the following question, in the absence of your voting instructions, your broker may or may not vote your shares.
If I don’t vote, will my broker vote for me?
If you own your shares through a broker and you don't vote, your broker may vote your shares at its discretion on certain "routine matters." The ratification of the appointment of Deloitte and Touche LLP as our independent registered public accounting firm for 2018 is a "routine matter" on which brokers will be permitted to vote any unvoted shares. All
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Other Matters
of the other proposals set forth in this Proxy Statement are "non-discretionary" items, and your broker may not be able to vote your shares for you. The aggregate number of unvoted shares is reported as the "broker non-vote." "Broker non-vote" shares are counted toward the quorum requirement but they do not affect the determination of whether a matter is approved.
If I own my shares through a broker, how is my vote recorded?
Brokers typically hold shares of Common Stock for many shareholders. In this situation, the registered holder on the Company’s stock register is the broker or its nominee. This often is referred to as holding shares in "street name." The "beneficial owners" do not appear in the Company’s shareholder register. Therefore, for shares held in street name, distributing the proxy materials and tabulating votes are both two-step processes. Brokers will inform the Company how many of their clients are beneficial owners and the Company will provide the broker with that number of proxy materials. Each broker will then forward the proxy materials to its clients who are beneficial owners to obtain their votes. When you receive proxy materials from your broker, they will provide instructions for sending your vote to your broker. Before the Annual Meeting, each broker will total the votes it has received and submit a Proxy Card reflecting the aggregate votes of the beneficial owners for whom it holds shares.
Are my votes confidential?
Yes. The vote of any shareholder will not be revealed to anyone other than a non-employee tabulator of votes or the independent Inspector of Elections, except (i) as necessary to meet legal requirements or to assist in the pursuit or defense of legal action; (ii) if the Company concludes in good faith that a bona fide dispute exists as to the authenticity of one or more proxies, ballots or votes, or as to the accuracy of any tabulation of such proxies, ballots or votes; (iii) in the event of a proxy contest or other solicitation in opposition to the voting recommendation of the Board; or (iv) if you request, or consent to, disclosure of your vote or if you write comments on your Proxy Card or ballot.
Can I revoke my proxy and change my vote?
Yes. You have the right to revoke your proxy at any time prior to the time your shares are voted. If you are a registered holder, your proxy can be revoked in several ways: (i) by timely delivery of a written revocation to the Corporate Secretary; (ii) by submitting another valid proxy bearing a later date (including by voting on the Internet or telephone or mailing a new Proxy Card); or (iii) by attending the Annual Meeting and giving notice to the Inspector of Elections that you intend to vote your shares in person. If you are the beneficial owner of shares held by a broker, you must contact your broker in order to revoke your proxy.
Will any other business be transacted at the Annual Meeting? If so, how will my proxy be voted?
Management does not know of any business to be transacted at the Annual Meeting other than the matters described in this Proxy Statement. The period specified in the Company’s Bylaws for submitting additional proposals to be considered at the Annual Meeting has passed and there are no such proposals to be considered. However, should any other matters properly come before the Annual Meeting, or any adjournments and postponements thereof, shares to which voting authority has been granted to the Proxies will be voted by the Proxies in accordance with their judgment.
Who counts the votes?
Votes will be counted and certified by the Inspector of Elections, who are employees of Computershare Shareowner Services (“Computershare”). If you are a registered holder, your executed Proxy Card is returned directly to Computershare for tabulation. As noted above, if you hold your shares through a broker, your broker returns one Proxy Card to Computershare on behalf of all its clients.
How much does the proxy solicitation cost?
The largest expense in the proxy process is printing and mailing the proxy materials. We also reimburse brokers, fiduciaries and custodians for their costs in forwarding proxy materials to beneficial owners of our Common Stock. Proxies may be solicited on behalf of the Company by directors, officers or employees of the Company in person or by mail, telephone, over the Internet or facsimile transmission. No additional compensation will be paid to such directors, officers, or employees for soliciting proxies. The Company will bear the entire cost of solicitation of proxies, including the preparation, assembly, printing and mailing of this Proxy Statement and the accompanying Proxy Card, Notice of Annual Meeting and Annual Report to Shareholders. The Company has retained Georgeson Inc. to assist with the solicitation of proxies from certain shareholders for a fee of approximately $7,500 plus reimbursement for certain expenses.
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OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Based on a review of reports filed with the SEC and written representations that no other reports were required under Section 16(a) of the Exchange Act, the Company believes that all required reports have been timely filed by its directors, officers and beneficial owners of more than 10% of its Common Stock except: (i) two transactions in 2017 by Mr. Schneider that were not timely filed on a Form 4 due to administrative error; (ii) one transaction in 2014 by Mr. Lenny that was not timely filed on a Form 4 due to administrative error; and (iii) one transaction in 2017 by each of Messrs. Graf, Hochschild, Hughes, McGrogan, Minetti, Nelms, Panzarino and Rose, and Mmes. Corley, Loeger and Offereins that was not timely filed on Form 4 due to administrative error. All of the transactions were subsequently reported on Form 4, and all transactions are reflected in this Proxy Statement.
Code of Ethics and Business Conduct
The Company maintains a Code of Ethics and Business Conduct applicable to all directors, officers and employees, including senior financial officers. The Code of Ethics and Business Conduct is available without charge through the investor relations page of our internet site, www.discover.com, or by writing to the attention of: Investor Relations, Discover Financial Services, 2500 Lake Cook Road, Riverwoods, Illinois 60015. Any waivers of the provisions of this Code of Ethics and Business Conduct for directors or executive officers may be granted only in exceptional circumstances by the Board, or an authorized committee thereof, and will be promptly disclosed to the Company's shareholders as may be required under SEC or NYSE rules.
Certain Transactions Certain of our directors, officers and certain members of their immediate families have received, from time to time, extensions of credit from us in connection with mortgage loans, credit card transactions and lines of credit. The extensions of credit were 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 transactions with other persons not related to us and did not involve more than normal risk of collectability or present other unfavorable terms. We or one of our subsidiaries may occasionally enter into transactions with certain "related“related persons."” Related persons include our executive officers, directors, nominees for directors, beneficial owners of 5% or more of our Common Stock and immediate family members of these persons. We refer to transactions involving amounts in excess of $120,000 and in which the related person has a direct or indirect material interest as "related“related person transactions."” Each related person transaction must be approved or ratified in accordance with the Company'sCompany’s written Related Person Transactions Policy as follows: (i) proposed related person transactions involving executive officers (and/or their immediate family members) other than our CEO or our General Counsel will be referred to our CEO and our General Counsel for approval or ratification, as applicable; (ii) proposed related person transactions involving our General Counsel (and/or the General Counsel'sCounsel’s immediate family members) will be referred to our CEO for approval; and (iii) proposed related person transactions involving 5% Company shareholders, directors, director nominees or our CEO (and/or their immediate family members) will be referred to the Nominating and Governance Committee for approval or, if the Nominating and Governance Committee determines that the approval or ratification of such related person transaction should be considered by all disinterested members of the Board, by the vote of a majority of such disinterested members. Those reviewing proposed related person transactions shall be provided with full details of the proposed related person transaction. All determinations by our CEO and our General Counsel under the Related Person Transactions Policy shall be reported to the Nominating and Governance Committee at its next regularly scheduled meeting. The determinations made under the Related Person Transactions Policy consider all relevant factors when determining whether to approve a related person transaction including, without limitation, the following: •the commercial reasonableness of the terms of the proposed transaction; •the benefit to the Company; •the availability and/or opportunity costs of alternate transactions; •the materiality and character of the related person’s direct or indirect interest; •whether the transaction would, or would be perceived to, present an improper conflict of interest for the related person, taking into account: (i) the business of the Company; (ii) the size of the transaction; (iii) the overall financial position of the related person; (iv) the direct or indirect nature of the related person'sperson’s interest
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in the transaction; (v) whether the transaction is of an ongoing nature; and (vi) any other relevant factors; and •if the related person is a director (or an immediate family member of a director), the impact on the director'sdirector’s independence. Other Business Management does not know of any matters to be presented at the Annual Meeting other than those mentioned in the Notice of Annual Meeting of Shareholders. However, if other matters come before the Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote said proxy in accordance with their judgment on such matters.
Shareholder Proposals and Director Nominations for the 20192022 Annual Meeting Shareholders intending to present a proposal at the 20192022 Annual Meeting and have it included in our proxy statement for that meeting must submit the proposal in writing to Kathryn McNamara Corley,Discover Financial Services, c/o Corporate Secretary, 2500 Lake Cook Road, Riverwoods, Illinois 60015. We must receive the proposal no later than November 16, 2018.24, 2021. Shareholders intending to nominate a person for election as a director at the 20192022 Annual Meeting and have the candidate included in our proxy statement and form of proxy for that meeting under the proxy access provisions in Section 2.08 of our Bylaws must comply with the requirements set forth in our Bylaws. The Bylaws require, among other things, that our Secretary receive written notice from the record shareholder or group of shareholders of such nomination no more than 150 days and no less than 120 days prior to the first anniversary of the date that the proxy statement was first mailed to shareholders in connection with the previous year’s annual meeting. Therefore, the Company must receive notice of such a nomination for the 20192022 Annual Meeting no earlier than the close of business on October 17, 201825, 2021 and no later than the close of business on November 16, 2018.24, 2021. The notice must contain the information required by the Bylaws, a copy of which is available upon request to our Secretary at the above address. Shareholders intending to present a proposal or to nominate a person for election as a director under the advance notice provisions in Section 2.07 of our Bylaws at the 20192022 Annual Meeting, but not to include the proposal or director candidate in our proxy statement and form of proxy, must comply with the requirements set forth in our Bylaws. The Bylaws require, among other things, that our Secretary receive written notice from the record shareholder of intent to present such proposal or nomination no more than 120 days and no less than 90 days prior to the anniversary of the preceding year’s annual meeting. Therefore, the Company must receive notice of such a proposal or nomination for the 20192022 Annual Meeting no earlier than January 2, 20195, 2022 and no later than February 1, 2019.4, 2022. The notice must contain the information required by the Bylaws, a copy of which is available upon request to our Secretary at the above address. This Proxy Statement is provided to you at the direction of the Board of Directors. D. Christopher Greene
Vice President, Secretary and Deputy General Counsel | | | | | | Kathryn McNamara Corley | | | Executive Vice President, General Counsel and Secretary |
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Annex A
Reconciliation of GAAP to Non-GAAP Financial Measures | | | | | | | | | | | | | (in millions) | 2020 ($) | 2019 ($) | % Change | | Net income-GAAP | 1,141 | | 2,957 | | (61) | % | | Allowance for credit losses | 2,382 | | 345 | | | | Liability for expected credit losses on unfunded commitments | 17 | | 0 | | | | Income tax expenses | 294 | | 878 | |
| | Profit before taxes and reserves-Non-GAAP | 3,834 | | 4,180 | | (8) | % |
| | | | | | | | 2017 | 2016 | 2015 | 3-Year Cumulative | | Diluted EPS | $5.42 | $5.77 | $5.13 | $16.32 | | Adjusted for: | | | | | | Employee compensation one-time bonus | 0.03 | | | 0.03 | | Tax related one-time items | 0.49 | | | 0.49 | Tax-Adjusted diluted EPS1 | $5.94 | $5.77 | $5.13 | $16.84 |
(1) Tax-adjusted diluted earnings per share (excluding one-time items) is a non-GAAP financial measure which should be viewed in addition to,Questions and not as a substitute for,Answers About the Company’s reporting results. Management believes this informationAnnual Meeting and Voting
Why did I receive these materials? This Proxy Statement provides investors with useful metrics to evaluate the ongoing operating performancenotice of the Company.
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IMPORTANT ANNUAL MEETING INFORMATION
Vote by Internet
GoAnnual Meeting, describes the proposals presented for shareholder action and includes information required to www.investorvote.com/dfs
Or scan the QR codebe disclosed to shareholders. The Proxy Card provides shareholders with your smartphone
Follow the steps outlineda way to vote on the secure website
Shareholder Meeting Notice
Important Notice Regardingdescribed proposals without having to attend the Availabilityvirtual Annual Meeting. Shareholders of Proxy Materials for the Discover Financial Services Shareholder Meeting to be Held on May 2, 2018
Under Securities and Exchange Commission rules, you are receiving this notice thatCompany at the proxy materials for the annual shareholders’ meeting are availableclose of business on the Internet. FollowRecord Date are entitled to vote at the instructions belowAnnual Meeting.
How can I register and attend the Annual Meeting? Our 2021 Annual Meeting will be a completely virtual meeting of shareholders, which will be conducted exclusively by audio webcast. You are entitled to viewparticipate in the materials and vote online or requestAnnual Meeting only if you were a copy. The items to be voted on and the locationshareholder of the annual meeting are on the reverse side. Your vote is important! This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting. The proxy statement and annual report to shareholders are available at
www.investorvote.com/dfs
Easy Online Access - A Convenient Way to View Proxy Materials and Vote
When you go online to view materials, you can also vote your shares.
Step 1: Go to www.investorvote.com/dfs.
Step 2: Click on the icon on the right to view current meeting materials.
Step 3: Return to the investorvote.com window and follow the instructions on the screen to log in.
Step 4: Make your selection as instructed on each screen to select delivery preferences and vote.
When you go online, you can also help the environment by consenting to receive electronic delivery of future materials.
Obtaining a Copy of the Proxy Materials
If you want to receive a paper or email copy of these documents, you must request one. There is no charge to you for requesting a copy. Please make your request for a copy as instructed on the reverse side on or before April 18, 2018 to facilitate timely delivery.
Shareholder Meeting Notice
The Discover Financial Services Annual Meeting of Shareholders will be held on May 2, 2018 at the Company’s corporate headquarters located at 2500 Lake Cook Road, Riverwoods, IL 60015, at 9:00 a.m. local time for holders of recordCompany as of the close of business on March 5, 2018. Proposalsthe Record Date, or if you hold a valid proxy for the Annual Meeting. No physical in-person meeting will be held.
The online meeting will begin promptly at 9 a.m. Central Time. We encourage you to access the meeting prior to the start time leaving ample time for the check in. You will be votedable to attend the Annual Meeting online, vote and submit your questions during the meeting by visiting www.meetingcenter.io/220551899. The password for the meeting is DFS2021. Please follow the registration instructions as outlined below. If your shares are registered in your name (i.e., you hold your shares registered in your name through the Company's transfer agent, Computershare), you do not need to register to attend the annual meeting virtually on the Internet. Please follow the instructions on the Proxy Card or Notice that you received with this Proxy Statement to attend the meeting. If you cannot locate your notice or proxy card but would like to attend the meeting, you can enter as a guest. Guest attendees will not be allowed to vote. If your shares are held in the name of your broker or bank, you must register in advance to attend the annual meeting virtually on the Internet. To register in advance to attend the Annual Meeting virtually on the Internet, you must submit a copy of the voting instruction form you received from your bank or broker, a copy of a brokerage statement validating your holdings as of the meeting record date or a Legal Proxy that reflects proof of your proxy power. The Legal Proxy will show your Discover Financial Services holdings with your name. Please forward a copy of one of these documents along with your email address to Computershare. Requests for registration should be directed to Computershare at the following: By email: to legalproxy@computershare.com; or by mail: Computershare, Discover Financial Services Legal Proxy, P.O. Box 43001, Providence, RI 02940-3001. Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m. Eastern Time on April 30, 2021. You will receive a confirmation of your registration by email after Computershare receives your registration materials. If you did not submit a Legal Proxy, but did submit a voting instruction form or brokerage statement, you will not be entitled to vote at the meeting. However, you will be able to attend and ask questions. If you do not submit any of the above documents but would like to attend the meeting, are listed below along withyou can enter as a guest. Guest attendees will not be allowed to vote. What proposals am I being asked to vote on and how does the Board of Directors’ recommendations. ProposalsDirectors recommend that I vote? You are asked to be votedvote on the following matters at the meeting are listed below along with the Board of Directors' recommendations. Discover Financial Services’ Board recommends a vote "for" each nominee listed below and "for" Proposals 2 and 3:
1. Election of Directors: For Against Abstain
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| | | | | | | | | | | | | | | | | | | 01 - Jeffrey S. Aronin | 02 - Mary K. Bush | 03 - Gregory C. CaseProposal | 04 - Candace H. DuncanOur Board’s
Recommendation | | | 1 | Election of Directors | “FOR” the election of each director nominee | 05 - Joseph F. Eazor | 06 - Cynthia A. Glassman | 07 - Thomas G. Maheras2 | 08 - Michael H. MoskowAdvisory Vote to Approve Named Executive Officer Compensation | “FOR” | | | 3 | | 09 - David W. NelmsRatification of Appointment of Independent Registered Public Accounting Firm | 10 - Mark A. Thierer | 11 - Lawrence A. Weinbach | “FOR” |
Questions and Answers About the Annual Meeting and Voting What does it mean if I receive more than one set of materials? This means you hold shares of the Company in more than one way. For example, you may own some shares directly as a “registered holder” and other shares through a broker or you may own shares through more than one broker. In these situations you may receive multiple sets of proxy materials. In order to vote all of the shares you own, you must follow the voting procedures on each Notice of Internet Availability of Proxy Materials that you receive or sign and return each of the Proxy Cards that you receive. Each Proxy Card you receive comes with its own prepaid return envelope. If you vote by mail, make sure you return each Proxy Card in the return envelope which accompanied that Proxy Card. Does my vote matter? YES! We are required to obtain shareholder approval for the election of directors and other important matters. Each share of Common Stock is entitled to one vote on each matter voted upon at the meeting. In order for the Company to obtain the necessary shareholder approval of proposals, a “quorum” of shareholders (i.e., a majority of the issued and outstanding shares entitled to vote, excluding treasury stock) must be represented at the Annual Meeting in person or by proxy. If a quorum is not obtained, the Company must postpone the Annual Meeting and solicit additional proxies; this is an expensive and time-consuming process that is not in the best interests of the Company or its shareholders. Since few shareholders typically attend shareholder meetings in person, voting by proxy is important to obtain a quorum and complete the shareholder vote. Virtual attendance at our Annual Meeting constitutes presence in person for purposes of the vote required under our Bylaws. How do I vote? You may vote using any of the following methods: By Internet or telephone.The Internet and telephone voting procedures we have established for shareholders of record are designed to authenticate your identity, allow you to give your voting instructions and confirm that these instructions have been properly recorded. The availability of Internet and telephone voting for beneficial owners will depend on the voting processes of your broker, bank or nominee. Therefore, we recommend that you follow the voting instructions in the materials you receive. Annual Proxy Card.Be sure to complete, sign and date the card and return it in the prepaid envelope. If you are a shareholder of record and you return your signed Proxy Card without indicating your voting preferences, the persons named in the Proxy Card will vote FOR the election of directors, FOR the approval on an advisory, non-binding basis, of NEO compensation and FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2021. By voting by Internet or telephone, or by returning your signed and dated Proxy Card in time to be received for the Annual Meeting, you authorize Wanjiku J. Walcott and D. Christopher Greene (the “Proxies”) to act as your proxies to vote your shares of Common Stock as instructed in the proxy card. At the Annual Meeting.All shareholders may vote at the Annual Meeting. If your shares are registered in your name, to vote you will need your 15-digit Control Number provided with the Notice of the Meeting or on your Proxy Card. If you are a beneficial owner (i.e. your shares are held in the name of your broker or bank), please refer to “How can I register and attend the Annual Meeting?” above for information on how to register to attend the Annual Meeting in order to vote your shares at the Annual Meeting. How many votes are required to approve a proposal? Each director will be elected by a majority of the votes cast with respect to such director. A “majority of the votes cast” means that the number of votes cast “for” a given director exceeds the number of votes cast “against” that director. Under Delaware law, if a director is not elected at the Annual Meeting, the director will continue to serve on the Board as a “holdover director.” As required by the Company’s Bylaws, each current director has submitted an irrevocable letter of resignation as a director that becomes effective if he or she is not elected by shareholders and if the Board accepts such resignation. If a director is not elected, the Nominating and Governance Committee will consider the director’s resignation and recommend to the Board whether to accept or reject the resignation. The Board will decide whether to accept or reject the resignation and publicly disclose its decision and, if it rejects the resignation, the rationale behind such decision, within 90 days after the election results for the Annual Meeting are certified. The advisory, non-binding vote to approve named executive officer compensation: For Against Abstain 3. ToNEO compensation and the advisory vote to ratify the appointment of Deloitte & Touche LLP as the Company’sour independent registered public accounting firm: For Against Abstain
Discover Financial Services’ Board recommendsfirm for 2021 each requires the affirmative vote of a vote "against" Proposal 4:
4. Advisory vote on a shareholder proposal regarding simple majority vote in the Company's governing documents, if properly presented: For Against Abstain
5. To transact any other business as may properly come before the meeting, or any adjournment or postponement of the meeting.shares of Common Stock represented at the Annual Meeting and entitled to vote thereon.
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PLEASE NOTE - YOU CANNOT VOTE BY RETURNING THIS NOTICE. To vote your shares you must vote online, by telephone, by mail or in person. You may vote by mail by requesting a paper copy“abstain” from voting on any of the proxy materials whichproposals in this Proxy Statement. Shares voting “abstain” on any nominee for director will include a proxy card. If you wish to attendbe excluded entirely from the vote and vote at the meeting, please bring this notice with you.
Here’s how to order a copy of the proxy materials and select a future delivery preference:
Paper copies: Current and future paper delivery requests can be submitted via the telephone, Internet or email options below.
Email copies: Current and future email delivery requests must be submitted via the Internet following the instructions below. If you request an email copy of current materials you will receive an email with a link to the materials.
PLEASE NOTE: You must use the number in the shaded barhave no effect on the reverse side when requesting a setelection of proxy materials.
Internet - Go to www.investorvote.com/dfs. Follow the instructions to log in and order a copy of the current meeting materials and submit your preference for email or paper delivery of future meeting materials.
Telephone - Call us free of charge at 1-866-641-4276 and follow the instructions to log in and order a paper copy of the materials by mail for the current meeting. You can also submit a preference to receive a paper copy for future meetings.
Email - Send an email to investorvote@computershare.com with “Proxy Materials Discover Financial Services” in the subject line. Include in the message your full name and address, plus the number located in the shaded bardirectors. Shares voting “abstain” on the reverse side, and state in the email that you want a paper copy of current meeting materials. You can also state your preference to receive a paper copy for future meetings. To facilitate timely delivery, all requests for a paper copy of the proxy materials must be received by April 18, 2018.
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IMPORTANT ANNUAL MEETING INFORMATION
Electronic Voting Instructions
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one
of the voting methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the Internet or telephone must be received by
11:59 PM Eastern Time, on May 1, 2018.
Vote by Internet
Go to www.investorvote.com/dfs
Or scan the QR code with your smartphone
Follow the steps outlined on the secure website
Vote by telephone Call toll free 1-800-652-VOTE (8683) within the USA,
US territories & Canada on a touch tone telephone.
Follow the instructions provided by the recorded message
Annual Meeting Proxy Card
IF YOU HAVE NOT VOTED VIA THE INTERNEW OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
A - Proposals
Discover Financial Services’ Board recommends a vote "for" each nominee listed below and "for" Proposals 2 and 3:
1. Election of Directors: For Against Abstain.
| | | | | 01 - Jeffrey S. Aronin | 02 - Mary K. Bush | 03 - Gregory C. Case | 04 - Candace H. Duncan | | | | | 05 - Joseph F. Eazor | 06 - Cynthia A. Glassman | 07 - Thomas G. Maheras | 08 - Michael H. Moskow | | | | | 09 - David W. Nelms | 10 - Mark A. Thierer | 11 - Lawrence A. Weinbach | |
2. Advisoryadvisory, non-binding vote to approve named executive officer compensation: For Against Abstain.
3. ToNEO compensation and the advisory vote to ratify the appointment of Deloitte & Touche LLP as the Company’sour independent registered public accounting firm: For Against Abstain.
Discover Financial Services’ Board recommends a vote "against" Proposal 4:
4. Advisory vote on a shareholder proposal regarding simple majority vote in the Company's governing documents, if properly presented: For Against Abstain
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B - Authorized Signatures - This section mustfirm for 2021 will be completed for your vote to be counted. Date and sign below. Please signcounted as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
| | | | | | | | | | | | Signature 1 | | Signature 2 | | | | | | | | | | | | | Date (mm/dd/yyyy) - Please print date | | | |
Proxy - DISCOVER FINANCIAL SERVICES
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS, MAY 2, 2018
The undersigned hereby appoints Kathryn McNamara Corley and Jennifer Schott, and each of them, attorneys and proxies with full power of substitution, to represent and to vote on behalf of the undersigned all of the shares of common stock of Discover Financial Services that the undersigned is entitled in any capacity to vote if personally present at the Annual Meeting for purposes of Shareholderseach such applicable proposal, and your abstention will have the effect of a vote against the applicable vote or proposal.
Questions and Answers About the Annual Meeting and Voting What is the effect of not voting? The effect of not voting depends on how ownership of your shares is registered and the proposal to be heldvoted upon. If you own shares as a registered holder, rather than through a broker, your unvoted shares will not be represented at the Annual Meeting and will not count toward the quorum requirement. Except as described below, assuming a quorum is obtained, your unvoted shares with respect to any nominee for director will be excluded entirely from the vote and will have no effect on May 2, 2018 and at any adjournments or postponements thereof, in accordance with the instructions set forth on the reverse and with the same effect as though the undersigned were present in person and voting such shares. The proxies are authorized in their discretion to vote for the election of directors. Your unvoted shares will also have no effect on the advisory, non-binding vote to approve NEO compensation and the advisory vote to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2021. If you own shares through a personbroker and do not vote, your broker may represent your shares at the Annual Meeting for purposes of obtaining a quorum. As described in the answer to the Boardfollowing question, in the absence of Directors ifyour voting instructions, your broker may or may not vote your shares. If I don’t vote, will my broker vote for me? If you own your shares through a broker and you don’t vote, your broker may vote your shares at its discretion on certain “routine matters.” The ratification of the appointment of Deloitte and Touche LLP as our independent registered public accounting firm for 2021 is a “routine matter” on which brokers will be permitted to vote any unvoted shares. The other proposals set forth in this Proxy Statement are “non-discretionary” items, and your broker may not be able to vote your shares for you. The aggregate number of unvoted shares is reported as the “broker non-vote.” “Broker non-votes” with respect to any nominee named herein becomes unablefor director will be excluded entirely from the vote and will have no effect on the election of directors. “Broker non-votes” will also have no effect on the advisory, non-binding vote to serveapprove NEO compensation proposal. If I own my shares through a broker, how is my vote recorded? Brokers typically hold shares of Common Stock for many shareholders. In this situation, the registered holder on the Company’s stock register is the broker or its nominee. This often is referred to as holding shares in “street name.” The “beneficial owners” do not appear in the Company’s shareholder register. Therefore, for good causeshares held in street name, distributing the proxy materials and tabulating votes are both two-step processes. Brokers will inform the Company how many of their clients are beneficial owners and the Company will provide the broker with that number of proxy materials. Each broker will then forward the proxy materials to its clients who are beneficial owners to obtain their votes. When you receive proxy materials from your broker, they will provide instructions for sending your vote to your broker. Before the Annual Meeting, each broker will total the votes it has received and submit a Proxy Card reflecting the aggregate votes of the beneficial owners for whom it holds shares. Are my votes confidential? Yes. The vote of any shareholder will not serve, upon all matters incidentbe revealed to anyone other than a non-employee tabulator of votes or the independent Inspector of Elections, except (i) as necessary to meet legal requirements or to assist in the pursuit or defense of legal action; (ii) if the Company concludes in good faith that a bona fide dispute exists as to the conductauthenticity of one or more proxies, ballots or votes, or as to the accuracy of any tabulation of such proxies, ballots or votes; (iii) in the event of a proxy contest or other solicitation in opposition to the voting recommendation of the meeting,Board; or (iv) if you request, or consent to, disclosure of your vote or if you write comments on your Proxy Card or ballot. Can I revoke my proxy and upon suchchange my vote? Yes. You have the right to revoke your proxy at any time prior to the time your shares are voted. If you are a registered holder, your proxy can be revoked in several ways: (i) by timely delivery of a written revocation to the Corporate Secretary; (ii) by submitting another valid proxy bearing a later date (including by voting on the Internet or telephone or mailing a new Proxy Card); or (iii) by voting during your attendance at the virtual annual meeting. If you are the beneficial owner of shares held by a broker, you must contact your broker in order to revoke your proxy.
Questions and Answers About the Annual Meeting and Voting Will any other business as maybe transacted at the Annual Meeting? If so, how will my proxy be voted? Management does not know of any business to be transacted at the Annual Meeting other than the matters described in this Proxy Statement. The period specified in the Company’s Bylaws for submitting additional proposals to be considered at the Annual Meeting has passed and there are no such proposals to be considered. However, should any other matters properly come before the meeting.Annual Meeting, or any adjournments and postponements thereof, shares to which voting authority has been granted to the Proxies will be voted by the Proxies in accordance with their judgment. Who counts the votes? Votes will be counted and certified by the Inspector of Elections, who are employees of Computershare, Inc. (“Computershare”). If you are a registered holder, your executed Proxy Card is returned directly to Computershare for tabulation. As noted above, if you hold your shares through a broker, your broker returns one Proxy Card to Computershare on behalf of all its clients. How much does the proxy solicitation cost? The largest expense in the proxy process is printing and mailing the proxy materials. We also reimburse brokers, fiduciaries and custodians for their costs in forwarding proxy materials to beneficial owners of our Common Stock. Proxies may be solicited on behalf of the Company by directors, officers or employees of the Company in person or by mail, telephone, over the Internet or facsimile transmission. No additional compensation will be paid to such directors, officers, or employees for soliciting proxies. The Company will bear the entire cost of solicitation of proxies, including the preparation, assembly, printing and mailing of this Proxy Statement and the accompanying Proxy Card, Notice of Annual Meeting and Annual Report to Shareholders. The Company has retained Georgeson Inc. to assist with the solicitation of proxies from certain shareholders for a fee of approximately $7,500 plus reimbursement for certain expenses. PLEASE RETURN THIS PROXY CARD AFTER SIGNING AND DATING IT. THIS PROXY WILL BE VOTED AS DIRECTED. IF THIS PROXY IS SIGNED, BUT NO DIRECTION IS MADE, IT WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF DISCOVER FINANCIAL SERVICES’ BOARD OF DIRECTORS.C - Non-Voting Items
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