SCHEDULE 14A
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the Securities Exchange Act of 1934
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The Charles Schwab Corporation
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Preliminary Copy
THECHARLESSCHWABCORPORATION 2006PROXYSTATEMENT2012 Proxy Statement
Preliminary Copy
March 30, 2006
2012
Dear Fellow Stockholders,
We cordially invite you to attend our 2006 annual meeting2012 Annual Meeting of stockholders. The meeting willStockholders to be held on Thursday, May 18, 2006,17, 2012, at 2:00 p.m., Pacific Time,Time. We are pleased to host our annual meeting as a virtual event at www.schwabevents.com/corporation. You also may attend the Argent Hotel, 50 Thirdmeeting in person at 211 Main Street, San Francisco, California.
If you plan to attend the meeting virtually via the internet or in person, please follow the registration instructions as outlined in this proxy statement.
At the annual meeting, we will:
· | | elect three directors for three-year terms, |
· | | vote on a proposal to amend the certificate of incorporation and bylaws to provide for the annual election of directors, |
· | | vote on four stockholder proposals, and |
· | | consider any other business properly coming before the meeting. |
will conduct the items of business outlined in this proxy statement. We also will report on our corporate performance in 20052011 and answer your questions.
Your vote is important. We are pleasedencourage you to offerread this proxy statement carefully and to vote your shares as soon as possible, even if you the convenience of viewing our annual meeting by webcast atwww.schwabevents.com. If you preferplan to attend the meeting in person, please followmeeting. Voting instructions are contained on the advance registration instructions as outlined inproxy card or voting instruction form that you received with this proxy statement, as you will need a ticket for admission. statement.
We look forward to your participation.
Sincerely,
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CHARLES R. SCHWAB
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
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CHARLES R. SCHWAB | | WALTER W. BETTINGER II |
CHAIRMAN | | PRESIDENT AND CHIEF EXECUTIVE OFFICER |
Preliminary Copy
TABLE OF CONTENTS
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Preliminary Copy
TABLE OF CONTENTS
i
PROXY SUMMARY
This summary highlights information contained elsewhere in the proxy statement. This summary does not contain all of the information that you should consider, and you should review all of the information contained in the proxy statement before voting.
ANNUAL MEETING OF STOCKHOLDERS
VOTING PROPOSALS
| | | | | | |
| | Board Recommendation | | Page | |
Election of Directors | | | | | | |
Nancy H. Bechtle | | For | | | 2 | |
Walter W. Bettinger II | | For | | | 2 | |
C. Preston Butcher | | For | | | 2 | |
Ratification of Independent Auditors | | For | | | 13 | |
Advisory Approval of Named Executive Officer Compensation | | For | | | 16 | |
Proposal to amend Certificate of Incorporation and Bylaws to Declassify the Board | | For | | | 46 | |
Stockholder Proposal on Political Contributions | | Against | | | 51 | |
Stockholder Proposal to amend Bylaws regarding Proxy Access | | Against | | | 52 |
Exhibit E: Description of Alan J. Weber’s Separation Agreement
| | 53 |
DIRECTOR NOMINEES
We ask that you vote for the election of Nancy H. Bechtle, Walter W. Bettinger II, and C. Preston Butcher. The following table provides summary information on these nominees; complete biographical information is contained in the proxy statement.
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Name | | Age | | | Director Since | | | Occupation | | Skills | | Independent | | | Committees |
Nancy H. Bechtle | | | 74 | | | | 1992 | | | Chairman, Sugar Bowl Corporation | | Finance
Leadership | | | X | | | Nominating
Compensation |
| | | | | | |
Walter W. Bettinger II | | | 51 | | | | 2008 | | | President and Chief Executive Officer, The Charles Schwab Corporation | | Financial ServicesLeadership Strategic | | | | | | |
| | | | | | |
C. Preston Butcher | | | 73 | | | | 1988 | | | Chairman and Chief Executive Officer, Legacy Partners | | Finance
Leadership | | | X | | | Nominating
Audit |
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INDEPENDENT AUDITORS
We ask that you ratify the appointment of Deloitte & Touche LLP and the member firms of Deloitte Touche Tohmatsu (collectively referred to as “Deloitte”) as the company’s independent registered public accounting firm for the 2012 fiscal year. While the Audit Committee has the sole authority to retain the independent auditors, we are asking for your ratification as part of the Audit Committee’s evaluation process of the independent registered public accounting firm for the next fiscal year.
Fees for services provided by Deloitte in the last two fiscal years were:
| | | | | | | | |
| | 2011 | | | 2010 | |
| | (amounts in millions) | |
Audit Fees | | $ | 5.2 | | | $ | 4.4 | |
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Audit-Related Fees | | | 1.8 | | | | 1.8 | |
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Tax Fees | | | 0.1 | | | | 0.1 | |
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All Other Fees | | | None | | | | None | |
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Total | | $ | 7.1 | | | $ | 6.3 | |
EXECUTIVE COMPENSATION
We ask you to approve on an advisory basis the compensation of our named executive officers, i.e., the Chief Executive Officer, the Chief Financial Officer, and the next three most highly compensated executive officers. The advisory approval of named executive officer compensation is required by federal law, and while the vote is not binding, the Compensation Committee considers the vote as part of its evaluation of executive compensation programs.
2011 Executive Compensation Highlights
In 2011, our management team continued to position the company for future growth, invest in clients, and sustain expense discipline, which resulted in a pretax profit margin of 29.7% and return on stockholders’ equity of 12%.
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The company’s compensation programs are designed to link pay to the long-term performance of the company. Key elements of compensation include:
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Element | | Form | | Terms | | Objectives |
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Base Salary | | · Cash | | · Reviewed annually | | · Attract, motivate and retain executives |
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Annual Incentives | | · Cash | | · Subject to satisfaction of performance criteria | | · Attract, motivate and retain executives · Link pay with individual performance · Link pay with company financial performance |
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Long-Term Incentives | | · Performance-based restricted stock units | | · Restricted stock units vest 25% per year subject to satisfaction of performance criteria | | · Attract, motivate and retain executives · Link pay with individual performance |
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| | · Stock options | | · Stock options generally vest 25% per year and have a 10 year term | | · Link pay with company financial performance · Align with long-term interests of stockholders |
In 2011, the target for annual incentive compensation was set at earnings per share levels achieved prior to the onset of the financial crisis. Financial performance in 2011 supported a payout below this aggressive target, at 78% of the target award. The performance goal for performance-based restricted stock units was set as return on equity exceeding the cost of equity to align the executives’ interests with long-term interests of stockholders. These units vest only if the performance goals are satisfied for the annual performance period or the cumulative four-year performance period.
Preliminary Copyiv
Summary compensation information for the named executive officers in 2011 is contained in the following table. As discussed in the proxy statement, these amounts are presented in accordance with accounting assumptions and Securities and Exchange Commission rules, and the amount that the executive actually receives may vary substantially from what is reported in the equity columns of the table.
2011 SUMMARY COMPENSATION
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Name and Principal Position | | Salary ($) | | | Stock Awards ($) | | | Option Awards ($) | | | Non-Equity Incentive Plan Compensation ($) | | | All Other Compensation ($) | | | Total ($) | |
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Walter W. Bettinger II PRESIDENT AND CHIEF EXECUTIVE OFFICER | | | 900,000 | | | | 1,950,000 | | | | 4,550,000 | | | | 2,632,500 | | | | 71,877 | | | | 10,104,377 | |
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Joseph R. Martinetto CHIEF FINANCIAL OFFICER | | | 497,667 | | | | 390,000 | | | | 910,000 | | | | 582,269 | | | | 19,564 | | | | 2,399,500 | |
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Benjamin L. Brigeman EXECUTIVE VICE PRESIDENT – INVESTOR SERVICES | | | 543,500 | | | | 450,000 | | | | 1,050,000 | | | | 741,877 | | | | 21,627 | | | | 2,807,004 | |
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James D. McCool EXECUTIVE VICE PRESIDENT – INSTITUTIONAL SERVICES | | | 522,667 | | | | 420,000 | | | | 980,000 | | | | 713,440 | | | | 47,462 | | | | 2,683,569 | |
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Charles R. Schwab CHAIRMAN | | | 500,000 | | | | 900,000 | | | | 2,100,000 | | | | 975,000 | | | | 42,979 | | | | 4,517,979 | |
OTHER PROPOSALS
For a description of our proposal regarding declassification of the Board of Directors and the two stockholder proposals, and our reasons for our recommendation on each proposal, please see the information contained within the proxy statement.
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NOTICE OF 20062012 ANNUAL MEETING OF STOCKHOLDERS
The 2006 annual meeting2012 Annual Meeting of stockholdersStockholders of The Charles Schwab Corporation will be held as a virtual event on Thursday, May 18, 2006,17, 2012, at 2:00 p.m., Pacific Time, at the Argent Hotel, 50 Thirdwww.schwabevents.com/corporation. You also may attend in person at 211 Main Street, San Francisco, California, toCalifornia. At the annual meeting, we will conduct the following items of business:
· | | elect three directors for three-year terms, |
· | | vote to ratify the selection of independent auditors, |
· | | vote for the approval, on a proposalan advisory basis, of compensation of named executive officers, |
· | | vote to amend the certificate of incorporation and bylaws to provide fordeclassify the annual election of directors,board, |
· | | vote on fourtwo stockholder proposals, and |
· | | consider any other business properly coming before the meeting. |
Stockholders who owned shares of our common stock at the close of business on March 20, 200619, 2012 are entitled to attend and vote at the meeting and any adjournment or postponement of the meeting. A complete list of registered stockholders will be available prior to the meeting at our principal executive offices at 120 Kearny211 Main Street, San Francisco, California 94108.94105.
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By Order of the Board of Directors, |
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CARRIE E. DWYER |
EXECUTIVE VICE PRESIDENT, |
GENERAL COUNSEL AND |
CORPORATE SECRETARY |
Important Notice Regarding the Availability of Proxy Materials for the BoardAnnual Meeting of Directors,
Stockholders to be Held on May 17, 2012. The proxy statement and annual report to
security holders are available in the “Investor Relations” section of our web site at
www.aboutschwab.com.
Your Vote is Important
Please vote as promptly as possible by following the instructions on your proxy card or voting
instruction form. If you plan to attend the meeting virtually via the internet or in person, you must
register by following the instructions contained in the “Information about the Annual Meeting”
section of this proxy statement.
CARRIE E. DWYERvi
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
CORPORATE SECRETARY
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Preliminary CopyINFORMATION ABOUT THE ANNUAL MEETING
VOTING YOUR SHARES
Thisproxy statement describes the proposals on which you may vote as a stockholder of The Charles Schwab Corporation. It contains essential information to consider when voting.
We, the company’s Board of Directors areis sending these proxy materials to you on or about March 30, 2006.
VOTING YOUR SHARES
2012. Stockholders who owned the company’s common stock at the close of business on March 20, 200619, 2012 may attend and vote at the annual meeting. Each share is entitled to one vote. There were shares of common stock outstanding on March 20, 2006.
19, 2012.
How do I vote?register for the annual meeting?
ü | | You may vote on the Internet. |
You do this by followingmust register in advance to attend the “Vote by Internet” instructions that came with your proxy statement. Ifannual meeting in person or virtually via the internet. While you may watch the webcast without registering, you will not be able to access the area of the website where you can ask questions and vote on the Internet,if you do not haveregister.
To register to mailattend the annual meeting in your proxy card.person or virtually via the internet, please go to:
ü | | You may vote by telephone. |
www.schwabevents.com/corporation.
You dowill be asked to provide your name, complete mailing address, email address and proof that you own Schwab shares (such as the Schwab account number in which you hold the shares, or the name of the broker and number of shares that you hold in an account outside of Schwab).
You also may write the Assistant Corporate Secretary at the address in the “Corporate Governance Information” section of this by followingproxy statement or call the “Vote by Telephone” instructions that came with your proxy statement. Assistant Corporate Secretary at (415) 667-9979 if you plan to attend the in-person meeting.
How may I vote shares at the annual meeting?
If you vote by telephone, you do not have to mail in your proxy card.
You do this by completing and signing your proxy card and mailing it in the enclosed prepaid and addressed envelope.
ü | | You may vote in person at the meeting. |
We will pass out written ballots to anyone who wants to vote in person at the meeting. However, if you hold your shares in street name, you must request a proxy from your stockbroker in orderplan to vote at the meeting. Holdingannual meeting and your shares are held in “street name” means(e.g., through a bank or broker), you will need a legal proxy to vote your shares at the annual meeting. You may obtain a legal proxy from your bank or broker. If you plan to vote at the virtual meeting, please send your legal proxy to our transfer agent, Wells Fargo Bank, N.A., by fax to (651) 450-4026 or email to wfssproxyteam@wellsfargo.com. If you plan to vote at the in-person meeting, you may bring the legal proxy with you.
If you hold them throughshares registered in your name (e.g., in certificate form), you will not need a brokerage firm, banklegal proxy to vote your shares.
How do I access the virtual annual meeting?
To access the virtual annual meeting, please go to:
www.schwabevents.com/corporation.
If you register in advance to attend the annual meeting, we will email you information on how to access the area of the virtual meeting where you will be able to submit questions and vote.
How do I attend the in-person meeting?
If you plan to attend the in-person meeting, in accordance with our security procedures, you will be asked to present picture identification to enter the meeting. Attendance at the annual meeting is limited to stockholders or other nominee,one named representative of a stockholder. Seating is limited and, therefore, admission to the shares are not held inannual meeting is on a first-come, first-served basis. If you will be naming a representative to attend the meeting on your behalf, the name, address and telephone number of that individual name.must also be provided.
What am I voting on?
We are asking you to vote:
· | | forthe election of three directors for terms of three years, |
· | | for the proposal to amend the certificate of incorporation and bylaws to provide for the annual election of directors, and |
· | | against the four stockholder proposals. |
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PROPOSALS TO VOTE ONPROPOSAL ONE:
ELECTION OF DIRECTORS
Nominees for directors this year are:
· | | C. Preston ButcherWalter W. Bettinger II |
· | | Marjorie MagnerC. Preston Butcher |
Each nominee is presently a director of the company and has consented to serve a three-year term.
We recommend a votefor these nominees.
APPROVAL OF AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND BYLAWS
Our board is currently divided into three classes having three-year terms. The company’s stockholders approved the election of directors by classes in 1996. Stockholders voted in favor of a classified board at that time to ensure the continuity and stability Biographical information about each of the company’s directors and policies, so that a majority of directors at any given time would have prior experience as directors of the company.
While we believe that such continuitynominees is still a valid concern, the Nominating and Corporate Governance Committee reevaluated our board structurecontained in light of the level of support received for the stockholder proposal calling for the annual election of directors submitted last year by William C. Thompson, Jr., Comptroller, City of New York, on behalf of the Boards of Trustees of the New York City Pension Funds (approximately 57% of votes cast on the proposal). After careful deliberation and evaluation by both the Nominating and Corporate Governance Committee and the Board of Directors, our board approved submitting a proposal to amend the certificate of incorporation and bylaws to provide for the annual election of directors, beginning at the 2007 annual meeting.
To ensure a smooth transition to the system of annual election of the entire board, annual elections would be phased in as current terms expire. Directors elected atthe 2004 and 2005 annual meetings would serve the remainder of their three-year terms until 2007 and 2008, respectively, and annual elections would begin for those directors upon expiration of their terms. All directors (including directors elected at this year’s annual meeting) would be elected annually beginning in 2009. Directors elected by the board to fill vacancies prior to 2009 would serve for the remainder of the term of the class to which the director is elected.
The proposed amendments would delete, beginning with the complete declassification of the board in 2009, the existing requirement that provides, in accordance with the provisions of Delaware law applicable to classified boards of directors, that directors may be removed only for cause. Under Delaware law, directors of companies that do not have classified boards may be removed by stockholders with or without cause. The proposed amendments, if passed, also would eliminate the requirement that the affirmative vote of 80% of all outstanding shares of common stock is necessary to amend the provisions concerning the terms of directors.
The proposed amendments to the company’s Fifth Restated Certificate of Incorporation and Third Restated Bylaws are attached to this proxy statement as Exhibit A.
The affirmative vote of 80% of the outstanding shares of common stock is required for approval of this proposal.
We recommend a votefor the approval of the amendments to the certificate of incorporation and bylaws.
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PROPOSALS TO VOTE ON
STOCKHOLDER PROPOSALS
We have been notified that several stockholders intend to present proposals for consideration at the annual meeting. The stockholder proposals and supporting statements appear in italics below, and we present the proposals as they were submitted to us. Our responses are contained immediately after each proposal.
FIRST STOCKHOLDER PROPOSAL:
THE EFFECT OF A FLAT TAX
Thomas J. Borelli, 173 Oakland Avenue, Eastchester, NY 10709, who holds approximately 233 shares of company stock, has submitted the following proposal for consideration at the annual meeting.
Stockholder Resolution
Whereas:
Charles Schwab & Co., Inc.’s primary responsibility is to create value for shareholders and should pursue legal and ethical means to achieve that goal, including identifying public policies that would advance shareholder value in a transparent and lawful manner. [See National Legal and Policy Center, www.nlpc.org/cip.asp and Free Enterprise Action Fund, http://www.FreeEnterpriseActionFund.com/about.html]
Whereas:
Company profitability and shareholder value are significantly affected by the federal tax code.
The current federal corporate income tax is complex, costly, and burdensome for businesses and shareholders. The number of pages of federal tax laws and regulations exceed 50,000. Annual tax compliance costs are estimated to range from $100 billion and $200 billion.
The U.S. has the second-highest corporate tax rate among 69 countries [See Chris Edwards, “Corporate Tax Reform,” Cato Institute Tax & Budget Bulletin No. 21, September 2004, www.cato.org/pubs/tbb/tbb-0409-21.pdf.]
Tax reform is crucial to America’s business competitiveness. In 2005, the President’s Advisory Panel on Tax Reform developed proposals for simplifying the federal tax system to: reduce compliance costs and burdens to businesses andindividuals; promote economic growth and job creation; encourage capital investment; and to strengthen the ability of U.S. companies to compete in foreign markets.
Other tax reform proposals include the “flat tax” proposed in the book entitled “Flat Tax Revolution: Using a Postcard to Abolish the IRS” (Regnery, 2005) by Steve Forbes.
Whereas:
Schwab and its shareholders may significantly benefit from significant reform of the federal tax code, such as by replacing the current federal income tax with a flat tax.
Resolved: Schwab’s shareholders request that, by the 2006 annual shareholder meeting, the Board of Directors make available to shareholders a report on the estimated impacts of a flat tax for Schwab, omitting proprietary information and at a reasonable cost.
The report should provide estimates of the impact to Schwab of:
1. | | Taxing all profits at a flat rate of 17 percent and at other alternative flat rates; |
2. | | Limiting taxable income to only income earned in the U.S.; |
3. | | Replacing depreciation with capital expensing; |
4. | | Abolishing special “preferences” or “loopholes” in the corporate tax code; |
5. | | Savings attained from reduced business compliance costs. |
Stockholder’s Statement of Support
The flat tax might benefit Schwab and its shareholders by:
1. | | Increasing corporate dividend payouts to shareholders; |
2. | | Reducing corporate tax accounting, planning and compliance costs; |
3. | | Reducing incentives for questionable tax avoidance schemes that could backfire and attract litigation and penalties from federal authorities; |
4. | | Increasing transparency in accounting and improved planning for investment and other activities; |
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PROPOSALS TO VOTE ON
5. | | Spurring economic activity and growth, which might further increase company revenue, expand the financial services industry and increase shareholder value. |
For more information:
1. | | Chris Edwards, “Options for Tax Reform,” Policy Analysis No. 536, Cato Institute: Washington, DC, February 24, 2005. |
2. | | “The Flat Tax: Issue Home Page,” Freedom Works, http://www.freedomworks.org. |
3. | | Daniel Mitchell, “Making American Companies More Competitive,” Backgrounder 1691, Heritage Foundation: Washington, DC, September 25, 2003. |
Board of Directors’ Recommendation Against and Statement of Opposition to the Proposal Regarding the Effect of a Flat Tax
We do not believe that the annual meeting is an appropriate forum for political debates such as the rate of taxation. Nor do we believe that preparing such analyses on the effect of a flat tax is an effective use of company resources or stockholders’ equity.
We recommend a voteagainstthe stockholder proposal regarding the effect of a flat tax.
SECOND STOCKHOLDER PROPOSAL:
POLITICAL CONTRIBUTIONS
The International Brotherhood of Teamsters, 25 Louisiana Avenue NW, Washington, D.C. 20001, which holds approximately 1,400 shares of company stock, has submitted the following proposal for consideration at the annual meeting.
Stockholder Resolution
Resolved, that the shareholders of The Charles Schwab Corporation (“Charles Schwab,” “Schwab” or the “Company”) hereby request that the Company provide a report, updated semi-annually, disclosing the Company’s:
1. | | Policies and procedures for political contributions (both direct and indirect) made with corporate funds. |
2. | | Monetary and non-monetary contributions to political candidates, political parties, political committees andother political entities organized and operating under26USC Sec. 527 of the Internal Revenue Code including the following: |
a. | | An accounting of the Company’s funds contributed to any of the organizations described above; |
b. | | Identification of the person or persons in the Company who participated in making the decisions to contribute; and, |
c. | | The internal guidelines or policies, if any, governing the Company’s political contributions. |
This report shall be presented to the Board of Directors’ Audit Committee or other relevant oversight committee, and posted on the Company’s website.
Stockholder’s Statement of Support
As long-term shareholders of Charles Schwab, we [The International Brotherhood of Teamsters] support policies that apply transparency and accountability to corporate political giving. In our view, such disclosure is consistent with public policy in regard to public company disclosure. Absent a system of accountability, we believe that corporate executives will be free to use the Company’s assets for political objectives that are not shared by and may be inimical to the interests of the Company and its shareholders. We are concerned that there is currently no single source of information that provides all of the information sought by this resolution.
Working Americans do business with our Company as brokerage clients. They invest their retirement savings through Charles Schwab and own shares in the Company itself. We believe these relationships are based on the expectation of trust in Charles Schwab. In our view, this trust is imperiled by Schwab’s partisan role in the national debate on Social Security, which affects the retirement security of the Company’s depositors and investors. For this reason, we believe that complete disclosure by the Company is necessary for the Board and its shareholders to be able to fully evaluate the political use of corporate assets.
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PROPOSALS TO VOTE ON
Our Company has been a member of the Alliance for Worker Retirement Security, which is in our opinion the main business-backed lobby group for privatization of Social Security. Our Company also donated to the Cato Institute (Cleveland Plain Dealer, 12/19/99), the think tank that in our view has moved privatization from the political fringe to the mainstream, and Chairman and CEO Charles R. Schwab has personally contributed to the Club for Growth, which pledged to spend $10 million to promote privatization (Houston Chronicle, 2/14/05).
We believe that Schwab’s support for these groups creates a serious potential conflict of interest between the Company’s own interest in profits from managing private accounts and the interest of its clients in preserving Social Security in its current form. Particularly under these circumstances, we believe that the Company should fully disclose to its shareholders all political contributions identified in this proposal.
We urge your support FOR this critical governance reform.
Board of Directors’ Recommendation Against and Statement of Opposition to the Proposal Regarding Political Contributions
Please see our statement in opposition to the proposal regarding the effect of a flat tax, above. In addition, we note that in 2005, the company made the following contributions to the types of organizations listed in the stockholder’s resolution:
| | | |
Organization | | Amount |
| |
Committee on Jobs Government Reform Fund (SF non-partisan business association involved in civic affairs) | | $ | 35,000 |
| |
San Francisco Chamber of Commerce 21st Century Fund | | $ | 10,000 |
| |
Bay Area Democrats | | $ | 10,000 |
| |
Total | | $ | 55,000 |
We believe that our current policies advance the interests of the company’s stockholders and clients and that theminimal funding contributed to organizations listed above is a better use of company resources (generally in support of communities in which we live) than the expense of implementing this stockholder proposal.
We recommend a voteagainst the stockholder proposal regarding political contributions.
THIRD STOCKHOLDER PROPOSAL:
MAJORITY VOTING
The Sheet Metal Workers’ National Pension Fund, Edward F. Carlough Plaza, 601 N. Fairfax Street, Suite 500, Alexandria, VA 22314 which holds approximately 32,950 shares of company stock, has submitted the following proposal for consideration at the annual meeting.
Stockholder Resolution
Resolved: That the shareholders of Charles Schwab (“Company”) hereby request that the Board of Directors initiate the appropriate process to amend the Company’s governance documents (certificate of incorporation or bylaws) to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders.
Stockholder’s Statement of Support
Our Company is incorporated in Delaware. Delaware law provides that a company’s certificate of incorporation or bylaws may specify the number of votes that shall be necessary for the transaction of any business, including the election of directors. (DGCL, Title 8, Chapter 1, Subchapter VII, Section 216). The law provides that if the level of voting support necessary for a specific action is not specified in a corporation’s certificate or bylaws, directors “shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.”
Our Company presently uses the plurality vote standard to elect directors. This proposal requests that the Board initiate a change in the Company’s director election vote
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PROPOSALS TO VOTE ON
standard to provide that nominees for the board of directors must receive a majority of the vote cast in order to be elected or re-elected to the Board.
We [The Sheet Metal Workers] believe that a majority standard in director elections would give shareholders a meaningful role in the director election process. Under the Company’s current standard, a nominee in a director election can be elected with as little as a single affirmative vote, even if a substantial majority of the votes cast are “withheld” from that nominee. The majority vote standard would require that a director receive a majority of the vote cast in order to be elected to the Board.
The majority vote proposal received high levels of support last year, winning majority support at Advanced Micro Devices, Freeport McMoRan, Marathon Oil, Marsh & McLennan, Office Depot, Raytheon, and others. Leading proxy advisory firms recommended voting in favor of the proposal.
Some companies have adopted board governance policies requiring director nominees that fail to receive majority support from shareholders to tender their resignations to the board. We believe that these policies are inadequate for they are based on continued use of the plurality standard and would allow director nominees to be elected despite only minimal shareholder support. We contend that changing the legal standard to a majority vote is a superior solution that merits shareholder support.
Our proposal is not intended to limit the judgment of the Board in crafting requested governance change. For instance, the Board should address the status of incumbent director nominees who fail to receive a majority vote under a majority vote standard and whether a plurality vote standard may be appropriate in director elections when the number of director nominees exceeds the available board seats.
We urge your support of this important director election reform.
Board of Directors’ Recommendation Against and Statement of Opposition to the Proposal Regarding Majority Voting
While majority voting has been a highly debated topic in the investment community, we believe that it would be premature to vote on this proposal until stockholders know and can consider the outcome of the company’s proposal regarding declassification of the board. Whether or not directors continue to be elected to three-year terms is significant in deciding how to vote on this proposal, because the consequences of failing to receive a majority vote vary significantly, depending on whether the director has a one-year or three-year term.
The company is incorporated in Delaware. If this proposal were to pass, under Delaware law, a director failing to receive a majority vote (but still receiving a plurality of votes) would continue to serve “…until such director’s successor is elected and qualified.” Delaware General Corporation Law Section 141(b). This is known as a “holdover” term. If the company’s proposal regarding declassification of the board passes, and directors are elected to one-year terms, a director who fails to receive a majority vote would continue to serve with a holdover term of one year. If, however, the company’s proposal is defeated, and the board remains classified, a director would serve a holdover term of three years.
In addition, the company’s proposal to declassify the board, upon completion of declassification, would eliminate the Delaware law requirement that directors on classified boards be removed in the middle of their terms only for cause. Delaware General Corporation Law Section 141(k). If the current proposal to adopt majority voting were approved but the company’s proposal to declassify the board were rejected, absent a showing of cause, a director could not be removed who fails to garner majority support (such failure alone would not constitute “cause”). We will need to consider the effects of Delaware law in considering any potential change to voting procedures, which may limit our ability to implement this proposal.
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PROPOSALS TO VOTE ON
Before deciding whether or not to vote on a majority standard for the election of directors, we believe that it is important for stockholders to know what the effect will be on (1) the length of director “holdover” terms for directors who fail to receive a majority vote and (2) whether directors who are elected may be removed with or without cause during their terms. This is important information that may influence how a stockholder would vote on this proposal.
We recommend a voteagainst the stockholder proposal regarding majority voting.
FOURTH STOCKHOLDER PROPOSAL:
SEVERANCE PAYMENTS
The Trowel Trades S&P 500 Index Fund of the International Union of Bricklayers and Allied Craftworkers, P.O. Box 75000, Detroit, Michigan 48275, which holds approximately 35,381 shares of company stock, has submitted the following proposal for consideration at the annual meeting.
Stockholder Resolution
Resolved: that the shareholders of The Charles Schwab Corporation (“the Company”) urge the Board of Directors to seek shareholder approval of future severance agreements with senior executives that provide benefits in an amount exceeding 2.99 times the sum of the executives’ base salary plus bonus. “Future severance agreements” include employment agreements containing severance provisions, retirement agreements and agreements renewing, modifying or extending existing such agreements. “Benefits” include lump-sum cash payments and the estimated present value of periodic retirement payments, fringe benefits, perquisites and consulting fees to be paid to the executive.
Stockholder’s Statement of Support
In our [The Trowel Trades S&P 500 Index Fund’s] opinion, severance agreements as described in this resolution, commonly known as “golden parachutes”, are excessive in light of the high levels of compensation enjoyedby senior executives at the Company and U.S. corporations in general.
We believe that requiring shareholder approval of such agreements may have the beneficial effect of insulating the Board of Directors from manipulation in the event a senior executive’s employment must be terminated by the Company. Because it is not always practical to obtain prior shareholder approval, the Company would have the option if this proposal were implemented of seeking shareholder approval after the material terms of the agreement were agreed upon.
For those reasons, we urge shareholders to vote for this proposal.
Board of Directors’ Recommendation Against and Statement of Opposition to the Proposal Regarding Severance Payments
The company’s severance agreements and policies are part of the company’s overall compensation program, one designed to attract and retain highly qualified executives. The company operates in a highly competitive industry where executive talent is in high demand. We believe that this proposal would tie the hands of company management and the Compensation Committee in negotiating severance agreements they deem to be in the best interests of the company and its stockholders. The Compensation Committee is responsible for overseeing and administering the company’s compensation programs, including severance arrangements, for senior executives. The committee is composed entirely of independent directors and has access to an independent compensation consultant to assist it with making compensation decisions. The committee reviews the terms of senior executive separation agreements (that are not part of the company’s Severance Pay Plan) for fairness and comparability to similarly situated companies. The company’s overall philosophy regarding executive compensation is described in the Compensation Committee Report in this proxy statement.
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PROPOSALS TO VOTE ON
We believe that implementing this proposal will be costly and disruptive to our executive recruiting and retention efforts. In order to hire the best person for the job, the company will sometimes need to act decisively and within a short time frame. Under this proposal, however, in order to ratify a severance agreement with a potential executive, the company would either have to call a special meeting of stockholders or wait until the next occurring annual meeting of stockholders, neither of which is realistic in the context of a hiring situation. While the proposal’s supporting statement argues that the company could seek stockholder approval after the material terms are agreed, this does not provide any assurance to a potential senior executive that the employment and severance package he or she has negotiated will be honored by the company. The executive would be in the position of having to accept employment with the company (and perhaps resigning from another company) without knowing what his or her total compensation package would be. We strongly believe this would place the company at a disadvantage relative to its competitors.
We continue to believe that the company and its stockholders are best served by having compensation decisions, including severance arrangements, made by a Compensation Committee composed entirely of independent directors, charged with the fiduciary duty to make decisions in the best interests of the company and its stockholders, and taking into account all relevant factors.
We recommend a voteagainst the stockholder proposal regarding severance payments.
OTHER BUSINESS
We know of no other business to be considered at the meeting. However, if:
· | | other matters are properly presented at the meeting, or at any adjournment or postponement of the meeting, and |
· | | you have properly submitted your proxy, |
then Charles R. Schwab and Carrie E. Dwyer will vote your shares on those matters according to their best judgment.
8
THE BOARD OF DIRECTORS
section.
MEMBERS OF THE BOARD OF DIRECTORS
WILLIAM F. ALDINGER III
DIRECTOR SINCE JULY 2005
Mr. Aldinger, age 58, was Chairman and Chief Executive Officer of HSBC North America Holdings Inc., a financial services company, from 2003 until April 2005. Mr. Aldinger also served as Chairman and Chief Executive Officer of Household International (now HSBC Finance Corporation) from 1994 until April 2005. Mr. Aldinger is a director of MasterCard International, a global payments solutions company; Illinois Tool Works, Inc., a developer and processor of engineered components, industrial systems and consumables; AT&T, Inc., a voice, video and data communications company; and KKR Financial Corp., a real estate finance company. Mr. Aldinger’s term expires in 2007.
NANCY H. BECHTLE
DIRECTOR SINCE 1992
Ms. Bechtle, age 68,74, served as President and Chief Executive Officer of the San Francisco Symphony from 1987 until 2001 and has served as a member of the San Francisco Symphony Board of Governors since 1984. She was a director and Chief Financial Officer of J.R. Bechtle & Co., an international consulting firm, from 1979 to 1998. Ms. Bechtle has served as Chairman and a director of Sugar Bowl Ski Corporation, a ski resort operator, since 1998. She was appointed a director of the Presidio Trust in 2008 and currently serves as its Chairman. She also has served as Vice Chairman and a director of the National Park Foundation since February 2005.from 2002 until 2008 and was its Vice Chairman from 2005 until 2008. Ms. Bechtle is a nominee for election this year.
Ms. Bechtle brings leadership skills and financial experience to the board, having served as Chief Financial Officer of J.R. Bechtle & Co., Chairman of Sugar Bowl Corporation and Chief Executive Officer of the San Francisco Symphony. She has deep knowledge of the company and its business, having served on our board since 1992.
WALTER W. BETTINGER II
DIRECTOR SINCE 2008
Mr. Bettinger, age 51, has served as President and Chief Executive Officer of The Charles Schwab Corporation and a member of the Board of Directors since 2008. He also serves as Chief Executive Officer and a member of the Board of Directors of Charles Schwab Bank and Charles Schwab & Co., Inc., and as a trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust, Laudus Institutional Trust, and Schwab Strategic Trust, all registered investment companies. Prior to assuming his current role, he served as President and Chief Operating Officer of the company. He also served as Executive Vice President and President – Schwab Investor Services from 2005 until 2007, Executive Vice President and Chief Operating Officer – Individual Investor Enterprise from 2004 until 2005, Executive Vice President and President – Corporate Services from 2002 until 2004 and Executive Vice President and President – Retirement Plan Services from 2000 until 2002. Mr. Bettinger joined the company in 1995 as part of the acquisition of The Hampton Company, which he founded in 1983. Mr. Bettinger is a nominee for election this year.
Mr. Bettinger has significant financial services experience, having served in a senior executive role overseeing sales, service, marketing and operations. As Chief Executive Officer of the company, Mr. Bettinger works closely with the board in evaluating and enhancing the strategic position of the company.
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C. PRESTON BUTCHER
DIRECTOR SINCE 1988
Mr. Butcher, age 67,73, has been Chairman and Chief Executive Officer of Legacy Partners (formerly Lincoln Property Company N.C., Inc.), a real estate development and management firm, since 1998.1998 and Chairman of the Board, Chief Executive Officer and Director of KBS Legacy Partners Apartment REIT, Inc., a real estate investment trust, since 2009. Mr. Butcher served as President, Chief Executive Officer and Regional Partner of Lincoln Property Company N.C., Inc. from 1967 until1998.until 1998. He is a director of Northstar Realty Finance Corp. Mr. Butcher is a nominee for election this year.
DONALD G. FISHER
DIRECTOR SINCE 1988
Mr. Fisher, age 77, isButcher brings leadership skills and experience in complex financial transactions to the founder of Gap Inc., a nationwide specialty retail clothing chain. He is a directorboard as Chairman and Chairman Emeritus of the Board of Gap Inc. He also was Chief Executive Officer of Gap Inc. from 1969 to 1995. Mr. Fisher is a memberLegacy Partners. He has deep knowledge of the California State Board of Educationcompany and its business, having served on the Advisory Council for the Office of the U.S. Trade Representative from 1987 until 1998. Mr. Fisher’s term expires in 2007.
our board since 1988.
FRANK C. HERRINGER
DIRECTOR SINCE 1996
Mr. Herringer, age 63,69, has been Chairman of the Board of Transamerica Corporation, a financial services company, since 1996. He served as Chief Executive Officer of Transamerica from 1991 to 1999 and President from 1986 to 1999, when Transamerica was acquired by AegonAEGON N.V. From the date of the acquisition until 2000, Mr. Herringer served on the Executive Board of AegonAEGON N.V. and as Chairman of the Board of Aegon U.S.A.AEGON USA, Inc. Mr. Herringer is also a director of AEGON U.S. Corporation, the holding company for AEGON N.V.’s operations in the United States, Amgen Inc., a biotechnology company; Mirapoint,company, Safeway, Inc., an Internet message infrastructure equipment developer;a food and Hawaii Biotech, Inc.,drug retailer, and Cardax Pharmaceuticals, a biotechnology company. Mr. Herringer’s term expires in 2008.2014.
MARJORIE MAGNER
DIRECTOR SINCE JANUARY 2006
Ms. Magner, age 56,Mr. Herringer brings public company knowledge and leadership experience to the board, having served as Chairman and Chief Executive Officer of Transamerica, and his service at Transamerica and AEGON contribute to his knowledge of the Global Consumer Group for Citigroup, Inc., a financial services industry. Mr. Herringer brings insights to our board from his service on other public company from 2003 until October 2005. Ms. Magner joined Commercial Credit, a predecessor company to Citigroup, in 1987. She served as Chief Administrative Officer and Senior Executive Vice President, Global Consumer Group from 2000 until 2002, and Chief
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THE BOARD OF DIRECTORS
Operating Officer, Global Consumer Group from 2002 until 2003. Ms. Magner is a director of Gannett Company, Inc., a publishing company, and Accenture Ltd, a management consulting and technology services company. She also serves as Chairman of the Brooklyn College Foundation Board of Trustees and is a member of the Dean’s Advisory Council of the Krannert School of Management at Purdue University. Ms. Magner is a nominee for election this year.
boards.
STEPHEN T. MCLIN
DIRECTOR SINCE 1988
Mr. McLin, age 59,65, has been Chairman and Chief Executive Officer of STM Holdings LLC, which offers merger and acquisition advice, since 1998. From 1987 until 1998, he was President and Chief Executive Officer of America First Financial Corporation, a finance and investment banking firm, and parent of EurekaBank. Before that, he was an Executive Vice President of Bank of America. Mr. McLin is an advisory director of Headwaters MB, a merchant bank;bank, and Financial Technology Ventures, a private equity fund; and Webify, Inc., a software company.fund. Mr. McLin’s term expires in 2014.
Mr. McLin brings leadership experience to the board, having served as Chief Executive Officer of America First Financial Corporation and having extensive knowledge of the financial services industry through his experience at STM Holdings, LLC, America First Financial Corporation and Bank of America. His financial expertise is critical for his role as Audit Committee Chairman.
ARUN SARIN
DIRECTOR SINCE 2009
Mr. Sarin, age 57, served as Chief Executive Officer of Vodafone Group Plc, a mobile telecommunications company, from 2003 until his retirement in 2008. Beginning in 1984, he held a variety of management positions with Pacific
3
Telesis Group, a telecommunications company, and AirTouch Communications, Inc., a wireless telecommunications company, which was spun off from Pacific Telesis Group in 1994. He was appointed President and Chief Operating Officer of AirTouch in 1997. In 1999, Mr. Sarin was appointed Chief Executive Officer of Vodafone’s US/AsiaPacific region. He left Vodafone in 2000 to become Chief Executive Officer of Infospace, Inc., an information technology company. From 2002 until 2003, he served as Chief Executive Officer of Accel-KKR Telecom, a private equity firm. He served as a non-executive director of the Court of the Bank of England from 2005 until May 2009. He currently serves as senior advisor for KKR. Mr. Sarin is a director of Cisco Systems, Inc., a networking and communications technology company, and Safeway, Inc., a food and drug retailer. Mr. Sarin’s term expires in 2013.
Mr. Sarin brings public company knowledge and leadership experience to the board, having served as President and Chief Operating Officer of AirTouch Communications, Inc. and Chief Executive Officer of Vodafone Group Plc. He brings insights to our board from his service on other public company boards.
CHARLES R. SCHWAB
DIRECTOR SINCE 1986
Mr. Schwab, age 68,74, has been Chairman and a director of The Charles Schwab Corporation since its incorporation in 1986. Mr. Schwab was re-appointedserved as Chief Executive Officer of the company in July 2004.from 1986 to 1997 and from 2004 until 2008. He served as Co-Chief Executive Officer of the company from 1998 to 2003, and Chief Executive Officer of the company from 1986 to 1997.2003. Mr. Schwab was a founder of Charles Schwab & Co., Inc. in 1971, has been its Chairman since 1978, and served as its Chief Executive Officer since July 2004.from 2004 until 2008. Mr. Schwab is currently a director of U.S. Trust Corporation and United States Trust Company of New York (which are subsidiaries of The Charles Schwab Corporation). He is also Chairman of Charles Schwab Bank N.A., and aChairman and trustee of The Charles Schwab Family of Funds, Schwab Investments, SchwabCapitalSchwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust and Schwab Annuity Portfolios,Laudus Institutional Trust, all registered investment companies. Mr. Schwab’s term expires in 2008.2013.
Mr. Schwab is the founder of the company, was the Chief Executive Officer of the company, and has been the Chairman since its inception. His vision continues to drive the company’s growth.
PAULA A. SNEED
DIRECTOR SINCE 2002
Ms. Sneed, age 58, has been64, is Chairman and Chief Executive Officer of Phelps Prescott Group, LLC, a strategy and management consulting firm. She served as Executive Vice President, Global Marketing Resources and Initiatives, of Kraft Foods, Inc., a nationalglobal food packagingand beverage company, since July 2005. She served asfrom 2005 until her retirement in 2006; Senior Vice President, Global Marketing Resources and Initiatives from 2004 to 2005; and Group Vice President and President of E-Commerce and Marketing Services for Kraft Foods North America, part of Kraft Foods, Inc., from 2000 until 2004, and Senior Vice President, Global Marketing Resources and Initiatives from December 2004 to July 2005.2004. She joined General Foods Corporation (which later merged with Kraft Foods) in 1977 and has held a variety of management positions, including Vice President, Consumer Affairs; SeniorChief Marketing Officer, Executive Vice President and President Foodservice Division;Desserts division, and Executive Vice President and General Manager, Desserts Division; Executive Vice President and General Manager, Dinners and Enhancers Division; Senior Vice President, Marketing Service and Chief Marketing Officer; and Executive Vice President, President E-Commerce Division.eCommerce division. Ms. Sneed is a director of Airgas, Inc., a national distributor of industrial, medical and specialty gases and related equipment.equipment, and TE Connectivity, Ltd., a manufacturer of engineered electronic components, network solutions, wireless systems and telecommunications systems. Ms. Sneed’s term expires in 2007.2013.
Ms. Sneed brings marketing skills and general management and leadership experience to the board, having served as Executive Vice President, Global Marketing Resources and Initiatives, of Kraft Foods, her other management positions at Kraft, and as Chairman and Chief Executive Officer of Phelps Prescott Group. She brings insights to our board through her service on other public company boards.
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ROGER O. WALTHER
DIRECTOR SINCE 1989
Mr. Walther, age 70,76, has served as Chairman and Chief Executive Officer of Tusker Corporation, a real estate and business management company, since 1997. He served as Chairman and Chief Executive Officer of ELS Educational Services, Inc., a provider in the United States and internationally of courses in English as a second language, between 1992 and 1997. Mr. Walther was President, Chief Executive Officer and a director of AIFS, Inc., which designs and markets educational and cultural programs internationally, from 1964 to February 1993.
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THE BOARD OF DIRECTORS
Since 1985, Mr. Walther has served as Chairman and has been a director of First Republic Bank.Bank from 1985 until 2007. Mr. Walther’s term expires in 2008.2014.
Mr. Walther brings public company knowledge, leadership, and financial services industry experience to the board, having served as Chairman and Chief Executive Officer of Tusker Corporation, Chairman and a director of First Republic Bank, Chief Executive Officer of ELS Educational Services, Inc. and Chief Executive Officer of AIFS, Inc.
ROBERT N. WILSON
DIRECTOR SINCE 2003
Mr. Wilson, age 65, has been71, is Chairman of MEVION Medical Systems (formerly Still River Systems), a medical device company. Mr. Wilson was Chairman of Caxton Health Holdings, LLC, a healthcare-focused investment firm, since April 2004. Prior to his association with Caxton Health Holdings, Mr. Wilsonfrom 2004 through 2007, and was Vice Chairman of the board of directors of Johnson & Johnson, a manufacturer of health care products, from 1989 until 2003. Mr. Wilson had joined Johnson & Johnson in 1964. Mr. Wilson is also a director of U.S. Trust Corporation and United States Trust Company of New York; Amerada Hess Corporation, an integrated oil and gas company;company, and Synta Pharmaceuticals Corporation, a bio-pharmaceutical company. Mr. Wilson’s term expires in 2008.2014.
Mr. Wilson brings public company knowledge and leadership experience to the board, having served as Vice Chairman of Johnson & Johnson, Chairman of MEVION Medical Systems, and Chairman of Caxton Health Holdings. He brings insights to our board as a director of other public company boards.
DIRECTOR INDEPENDENCE
We have considered the independence of each member of the board in accordance with New York Stock Exchange corporate governance standards. To assist us in our determination, we also adopted general guidelines for independence. The guidelines for independence are available on the company’s website at www.aboutschwab.com/governance.
Based on our guidelines and New York Stock Exchange corporate governance standards, we have determined that the following directors are independent: Nancy H. Bechtle, C. Preston Butcher, Frank C. Herringer, Stephen T. McLin, Arun Sarin, Paula A. Sneed, Roger O. Walther, and Robert N. Wilson.
In determining independence, the Board of Directors considers broadly all relevant facts and circumstances regarding a director’s relationships with the company. All non-employee directors receive compensation from the company for their service as a director, as disclosed in the section “Director Compensation,” and are entitled to receive reimbursement for their expenses in traveling to and participating in board and committee meetings. As disclosed in the “Transactions with Related Persons” section of this proxy statement, some directors and entities with which they are affiliated have credit transactions with the company’s banking and brokerage subsidiaries, such as mortgage loans, revolving lines of credit, or other extensions of credit. These transactions with directors and their affiliates are made in the ordinary course of business and to the extent permitted by the Sarbanes-Oxley Act of 2002. Such transactions are on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with persons not related to the lender and do not involve more than the normal risk of collectability or present other unfavorable features.
DAVID B. YOFFIE5
DIRECTOR SINCE 2003
In addition to the relationships outlined above, the board considered the following types of relationships for the following directors:
Professor Yoffie, age 51, has been the Max and Doris Starr Professor of International Business Administration at the Harvard Business School since 1993 and has been a member of the Harvard University faculty since 1981. Professor Yoffie is also a director of the National Bureau of Economic Research; Intel Corporation, a maker of microcomputer and communications components; and Spotfire, Inc., a provider of analytic and visualization software applications. Professor Yoffie’s term expires in 2007.
· | | Nancy H. Bechtle: The director serves as a director of a nonprofit organization to which the company, its affiliates or its charitable foundation have made donations. |
· | | C. Preston Butcher: The director’s spouse serves as a director of a nonprofit organization to which the company, its affiliates or its charitable foundation have made donations. |
· | | Frank C. Herringer: The director’s spouse serves as a director of a nonprofit organization to which the company, its affiliates or its charitable foundation have made donations. |
· | | Stephen T. McLin: The director’s son is employed by the company in a non-executive officer, non-managerial capacity. |
· | | Paula A. Sneed: The director serves as a director of a nonprofit organization to which the company, its affiliates or its charitable foundation have made donations. |
NUMBER OF DIRECTORS AND TERMSCORPORATE GOVERNANCE INFORMATION
Board Leadership
The Chairman of the Board is Charles R. Schwab. The Chairman and Chief Executive Officer roles are split, and Mr. Bettinger serves as Chief Executive Officer. The Chairman of the Board approves the agenda for board meetings and leads the board in its discussions. Mr. Schwab and Mr. Bettinger, as the only two management directors, do not participate in sessions of non-management directors. As provided in our Corporate Governance Guidelines, non-management directors meet regularly in executive session without management. The Chairman of the Nominating and Corporate Governance Committee presides over the executive sessions of non-management directors.Mr. Herringer, as chairman of the Nominating and Corporate Governance Committee in 2011, led the non-management directors in executive session.
The board has three standing committees (Audit, Compensation, and Nominating and Corporate Governance) that are composed entirely of independent directors and are chaired by independent directors. Given the role and scope of authority of these committees, and that 80% of the board is composed of independent directors, the board believes that its leadership structure, with the Chairman of the Board leading board discussions, and the Chairman of the Nominating and Corporate Governance Committee leading non-management executive sessions, is appropriate.
Risk Oversight
As part of its oversight functions, the Board of Directors is responsible for oversight of risk management at the company. Responsibility for oversight of risk management is delegated to the Audit Committee, which reviews with management the company’s major risk exposures and the steps management has taken to monitor and control such exposures, including the company’s risk assessment and risk management policies. The Compensation Committee, as described in the Compensation Discussion and Analysis, separately reviews the compensation program with respect to incentives for risk-taking by employees. For further discussion of risk management at the company, please see “Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” of the company’s Form 10-K for the period ended December 31, 2011.
Board Structure and Committees
The authorized number of directors is twelvecurrently ten and the company currently has twelveten directors. Three directors are nominees for election this year and nineseven directors will continue to serve the terms described in their biographies.
Our directors6
Directors currently serve staggered terms. ThisEach director who is accomplished as follows:
· | | each director who is elected at an annual meeting of stockholders serves a three-year term, |
· | | the directors are divided into three classes, |
· | | the classes are as nearly equal in number as possible, and |
· | | the term of each class begins on a staggered schedule. |
If the proposal to amend the certificate of incorporation and bylaws to provide for the annual election of directors is approved, directors will be elected annually after their current three-year terms expire, beginning with the 2007 annual meeting.
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THE BOARD OF DIRECTORS
BOARD AND COMMITTEE MEETINGS
are divided into three classes.
The board held seven regular meetings and one special meeting in 2005.2011. Each director attended at least 75% of all board and applicable committee meetings during 2005. Non-management directors meet regularly in executive session. The chairman of the Nominating and Corporate Governance Committee presides over the executive sessions of non-management directors.2011. As provided in our Corporate Governance Guidelines, we expect directors to attend the annual meeting of stockholders. In 2005, all of the2011, nine directors attended the annual meeting.
We have an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. Each of these committees is composed entirely of “independent directors” as determined by the Board of Directors in accordance with its independence guidelines and New York Stock Exchange corporate governance standards. In addition to those standing committees, the board may from time to time establishad hoc committees to assist in various matters.
This table describesThe Audit Committee held twelve meetings in 2011 and is composed of the board’s standing committees.following members: Stephen T. McLin (Chairman), C. Preston Butcher, and Arun Sarin. None of the directors on the Audit Committee is or has been an employee of The Charles Schwab Corporation or any of its subsidiaries. None of the Audit Committee members simultaneously serves on the audit committees of more than three public companies, including ours. The board has determined that all of the members of the Audit Committee are financially literate in accordance with New York Stock Exchange listing standards and that Stephen T. McLin is an Audit Committee financial expert in accordance with Securities and Exchange Commission rules.
The Audit Committee:
| | | | |
| | |
NAME OF COMMITTEE AND·
MEMBERS(1)
| | FUNCTIONS OF THE COMMITTEE | | NUMBER OF MEETINGS IN 2005 |
| | |
AUDIT
Stephen T. McLin, Chairman(2)
William F. Aldinger III(2)(3)
Nancy H. Bechtle
C. Preston Butcher
Donald G. Fisher
Marjorie Magner(4)
| | ·reviews and discusses with management and the independent auditors the company’s annual and quarterly financial statements and the integrity of the financial reporting process,
|
· | | reviews the qualifications and independence of the independent auditors and performance of the company’s internal audit function and independent auditors, |
· retains sole authority | | reviews reports from management regarding major risk exposures and steps management has taken to select independent auditors, approve audit feesaddress such exposures, and establish policies and procedures regarding pre-approval of fees for non-audit services |
· | | reviews compliance with legal and regulatory requirementsrequirements. |
The Compensation Committee held seven meetings in 2011 and is composed of the following members: Roger O. Walther (Chairman), Nancy H. Bechtle, Frank C. Herringer, Paula A. Sneed, and Robert N. Wilson. The Compensation Committee:
· | | 10
|
| | |
COMPENSATION
Roger O. Walther, Chairman
Frank C. Herringer
Paula A. Sneed
Robert N. Wilson
David B. Yoffie(5)
| | ·annually reviews and approves corporate goals and objectives relating to compensation of executive officers and other senior officers,
|
· | | evaluates the performance of executive officers and other senior officers and determines their compensation levels, |
· | | reviews and approves compensatory arrangements for executive officers and other senior officers, and |
· | | approves long-term awards for executive officers and other senior officersofficers. |
The Nominating and Corporate Governance Committee held two meetings in 2011 and is composed of the following members: Frank C. Herringer (Chairman), Nancy H. Bechtle, C. Preston Butcher, Stephen T. McLin, Arun Sarin, Paula A. Sneed, Roger O. Walther, and Robert N. Wilson. The Nominating and Corporate Governance Committee:
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THE BOARD OF DIRECTORS
| | | | |
| | |
NAME OF COMMITTEE AND
MEMBERS(1)
| | FUNCTIONS OF THE COMMITTEE | | NUMBER OF MEETINGS IN 2005 |
| | |
NOMINATING AND CORPORATE GOVERNANCE
Frank C. Herringer, Chairman
William F. Aldinger III(3)
Nancy H. Bechtle
C. Preston Butcher
Donald G. Fisher
Marjorie Magner(4)
Stephen T. McLin
Paula A. Sneed
Roger O. Walther
Robert N. Wilson
David B. Yoffie(5)
| | ·identifies and evaluates individuals qualified to serve on the board,
|
· | | recommends nominees to fill vacancies on the board and each board committee and recommends a slate of nominees for election or re-election as directors by the stockholders, at the annual meeting to fill the seats of directors whose terms are expiring |
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· leads the board in its annual review of the board’s performance, develops corporate governance principles, policies and procedures and recommends their adoption by the board | | 3makes recommendations regarding succession planning for the Chief Executive Officer and executive management, and
|
(1)· | | In addition toassesses the standingperformance of the board and its committees we may from time to time establishad hoc committees to assist in various matters. and recommends corporate governance principles for adoption by the board. |
(2) | | We have determined that Mr. McLin and Mr. Aldinger are Audit Committee financial experts and “independent” under the Nasdaq Stock Market corporate governance rules and the rules of the Securities and Exchange Commission. |
(3) | | Mr. Aldinger was appointed to the Audit and Nominating and Corporate Governance Committees, effective July 28, 2005. |
(4) | | Ms. Magner was appointed to the Audit and Nominating and Corporate Governance Committees, effective January 26, 2006. |
(5) | | Mr. Yoffie was appointed to the Compensation and Nominating and Corporate Governance Committees, effective March 14, 2006. |
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THE BOARD OF DIRECTORS
CORPORATE GOVERNANCE INFORMATION
You may find our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and the charters for theThe Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee have written charters. You may find a copy of these charters, as well as our Corporate Governance Guidelines and Code of Business Conduct and Ethics, on the company’s website atwww.aboutschwab.com/governance. You also may obtain a paper copy of these items, without charge, from:
Assistant Corporate Secretary
The Charles Schwab Corporation
Mailstop SF120KNY-04SF211MN-05
101 Montgomery211 Main Street
San Francisco, California 94104
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee (the members of which are listed in the table in the “Board and Committee Meetings” section) is or has been an officer or employee of the company or any of its subsidiaries. There were no Compensation Committee interlocks as defined under Securities and Exchange Commission rules during 2005.
94105
DIRECTOR COMPENSATION
The following table shows compensation paid to each of our non-employee directors during 2011. The company does not provide any non-equity incentive plans, defined benefit and actuarial pension plans, or other defined contribution retirement plans for non-employee directors. The company does not offer above-market or preferential earnings under its nonqualified deferred compensation plans for directors.
All Directors2011 Director Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Fees Earned or Paid in Cash ($) | | | | | | | | | | | | | |
| Paid in Cash1 ($) | | | Deferred into Restricted Stock Units or Options2,6 ($) | | | Stock Awards3, 6 ($) | | | Option Awards4, 6 ($) | | | All Other Compen- sation5 ($) | | | Total ($) | |
| | | | | | |
Nancy H. Bechtle | | | 85,500 | | | | — | | | | 62,500 | | | | 62,500 | | | | 1,891 | | | | 212,391 | |
| | | | | | |
C. Preston Butcher | | | — | | | | 90,500 | | | | 62,500 | | | | 62,500 | | | | 1,891 | | | | 217,391 | |
| | | | | | |
Frank C. Herringer | | | — | | | | 100,000 | | | | 62,500 | | | | 62,500 | | | | 1,891 | | | | 226,891 | |
| | | | | | |
Stephen T. McLin | | | 79,000 | | | | 110,500 | | | | 82,500 | | | | 62,500 | | | | 2,496 | | | | 336,996 | |
| | | | | | |
Arun Sarin | | | 90,000 | | | | — | | | | 62,500 | | | | 62,500 | | | | 1,293 | | | | 216,293 | |
| | | | | | |
Paula A. Sneed | | | 85,000 | | | | — | | | | 62,500 | | | | 62,500 | | | | 1,891 | | | | 211,891 | |
| | | | | | |
Roger O. Walther | | | 100,000 | | | | — | | | | 62,500 | | | | 62,500 | | | | 1,891 | | | | 226,891 | |
| | | | | | |
Robert N. Wilson | | | 85,000 | | | | — | | | | 62,500 | | | | 62,500 | | | | 1,891 | | | | 211,891 | |
All directors are reimbursed first-class air travel, hotel, meals and related expenses for attending board and committee meetings.
(1) | | This column shows amounts paid in cash for retainers and meeting fees. For Mr. McLin, the amount in this column represents his cash retainer and fees for service on the Charles Schwab Bank board of directors. |
(2) | | This column shows the dollar amount of retainers and meeting fees deferred into restricted stock units or options under the Directors’ Deferred Compensation Plan II. The corresponding restricted stock units or options were as follows: 21,605 stock options for Mr. Butcher, 26,385 stock options for Mr. McLin, and 6,564 restricted stock units for Mr. Herringer. |
Employee Directors8
(3) | | The amounts shown in this column represent the grant date fair value of the restricted stock unit award. In 2011, all non-employee directors received an automatic grant of restricted stock units with a grant date fair value of $62,500. In addition, Mr. McLin received a grant of restricted stock units with a grant date fair value of $20,000 for his service on the Charles Schwab Bank board. |
(4) | | The amounts shown in this column represent the grant date fair value of the option award. In 2011, all non-employee directors received an automatic grant of stock options with a grant date fair value of $62,500. |
Directors who are also employees receive
(5) | | This column shows the dollar amount of cash dividends on unvested restricted shares and dividend equivalents on unvested restricted stock units. |
(6) | | The following table shows the aggregate number of outstanding restricted stock, stock option and restricted stock unit awards granted to the non-employee directors as of December 31, 2011: |
| | | | | | | | | | | | |
Name | | Restricted Stock Awards | | | Stock Option Awards | | | Restricted Stock Unit Awards | |
| | | |
Nancy H. Bechtle | | | 1,780 | | | | 93,901 | | | | 6,832 | |
| | | |
C. Preston Butcher | | | 1,780 | | | | 278,721 | | | | 33,708 | |
| | | |
Frank C. Herringer | | | 1,780 | | | | 92,669 | | | | 87,612 | |
| | | |
Stephen T. McLin | | | 2,350 | | | | 166,615 | | | | 38,144 | |
| | | |
Arun Sarin | | | — | | | | 24,000 | | | | 6,562 | |
| | | |
Paula A. Sneed | | | 1,780 | | | | 90,463 | | | | 49,964 | |
| | | |
Roger O. Walther | | | 1,780 | | | | 76,843 | | | | 33,872 | |
| | | |
Robert N. Wilson | | | 1,780 | | | | 91,559 | | | | 54,386 | |
During 2011, Mr. Schwab and Mr. Bettinger received no additional compensation for their service as directors.
Non-Employee Directors
Non-employee directors received the following retainers in 2011:
Cash Retainers
Each non-employee director received an annual cash retainer in the amount of $85,000. In addition, the Chair of the Audit Committee received an annual cash retainer of $25,000, and each other member of the Audit Committee received an annual cash retainer of $5,000. The Chair of the Compensation Committee and the Chair of the Nominating and Corporate Governance Committee each received an annual cash retainer of $15,000. There are no fees in 2005:for attendance at board or committee meetings, but the board retains the discretion to establish special committees and to pay a special retainer to the Chair and the members of any special committee. The board has authorized meeting fees for service on a special committee by Ms. Bechtle, Mr. Butcher and Mr. McLin. The meeting fees for that special committee consisted of $500 per meeting held on the same day as a board meeting and $2,000 per meeting held on a day other than a board meeting.
| | | |
Non-Employee Director Retainers and Fees |
| |
Annual retainer | | $ | 50,000 |
| |
Attendance fee for each board meeting | | $ | 2,800 |
| |
Attendance fee for each Audit Committee and Compensation Committee meeting held on the same day as a board meeting | | $ | 1,000 |
| |
Attendance fee for each other board committee meeting held on the same day as a board meeting | | $ | 500 |
| |
Attendance fee for each Audit Committee and Compensation Committee meeting held on a day other than a board meeting | | $ | 2,500 |
| |
Attendance fee for each other board committee meeting held on a day other than a board meeting | | $ | 2,000 |
| |
Additional annual retainer for service as Audit Committee chairman | | $ | 20,000 |
| |
Additional annual retainer for service as a board committee chairman other than the Audit Committee | | $ | 15,000 |
Equity Grants
Non-employee directors also are entitled to receive non-discretionaryEach non-employee director received an annual equity grantsgrant under the 2004 Stock Incentive Plan which was approved by stockholderswith an aggregate value of $125,000. Non-employee directors received the equity grant 50 percent in May 2004. In 2005, non-employee directors were entitled to grants as follows:stock options and 50 percent in restricted stock units.
| | |
Non-Employee Director Equity Grants |
| |
Annual grant of options
| | 5,000 options |
| |
Annual grant of restricted stock
| | 5,195 shares |
| |
Initial grant of options for new directors
| | 10,000 options |
149
THE BOARD OF DIRECTORSTerms and Conditions
Non-employee directors receive the initial grant of options on the date of the first board meeting after joining the board. They receivereceived the annual grants of options and restricted stock units on the second business day after eachthe annual meeting of stockholders. Non-employeeIn the event a new non-employee director is elected to the board during the year, a pro-rata amount of cash retainers and equity awards will be granted to that individual for the first calendar year in lieu of the full amount. The non-employee director equity grants are subject to the following terms and conditions:
· | | Annual grants of options and restricted stock units vest over the three-year period following the grant date, of grant, with 25% vesting on each of the first and second anniversary of the grant date and the remaining 50% on the third anniversary of the grant date. The options and restricted stock units become 100% vested in the event of the non-employee director’s death, disability or retirement. Initial grants of options (when a director joins the board) are fully vested on the date of the grant. |
· | | The number of shares for the annual grant of restricted stock units is determined by dividing $60,000$62,500 by the average of the high and low market pricesprice of the company’s common stock on the date of the grant.grant date. |
· | | The number of options for the annual grant of stock options is determined by dividing $62,500 by the fair value of an option on the grant date. |
· | | Each stock option is designated as a non-qualifiednonqualified stock option and has an exercise price equal to the fair market value of common stock on the date of the grant.grant date. |
· | | Each stock option expires on the earliest of (1) the date ten years after the grant date, of grant, (2) the date three months after termination of service for any reason other than death, disability or retirement, (3) the date one year after termination of service because of death or disability, or (4) the date two years after termination of service because of retirement. |
Non-employee directorsThe company also may participate in the Directors’ Deferred Compensation Plan. This plan allows them to defer receipt of all or a portion of their retainers and fees and, at their election, either to:
(1) | | receive stock options that: |
· | | have a fair value equal to the amounts deferred (as determined under the valuation method used by the company to value stock options at the time of the deferral), |
· | | have an option exercise price equal to the closing price of common stock on the date the deferred amount would have been paid, and |
· | | vest immediately upon grant and generally expire ten years after the grant date, |
- or -
(2) | | invest the deferred amount in restricted stock units that are funded by an equivalent number of shares of common stock to be held in a “rabbi” trust and distributed to the director when he or she ceases to be a director. |
We also havehas stock ownership guidelines for non-employee directors. Under our guidelines, each non-employee director should own company stock with a fair market value equal to or exceeding $200,000.$250,000. A new director should reach this target level upon completing five years of service. Once this target level is reached, the director is deemed to meet this target so long as he or she continues to hold an equivalent number of shares as on the date the target level was met.
Shares owned outright, deferred shares and restricted stock and stock units are counted in determining the threshold under our stock ownership guidelines. In addition, each non-employeeguidelines, but stock options are not.
Directors’ Deferred Compensation Plan
Non-employee directors also may participate in the Directors’ Deferred Compensation Plan II. This plan allows them to defer receipt of all or a portion of their retainers and, at their election, either to:
(1) receive stock options that:
· | | have a fair value equal to the amounts deferred (as determined under the valuation method used by the company to value stock options at the time of the deferral), |
· | | have an option exercise price equal to the closing price of common stock on the date the deferred amount would have been paid, and |
· | | vest immediately upon grant and generally expire ten years after the grant date, |
– or –
(2) receive restricted stock units that are funded by an equivalent number of shares of common stock to be held in a “rabbi” trust and distributed to the director is expectedwhen he or she ceases to hold for at least one year 50% of the net after-tax value of company stock acquired through the exercise ofbe a stock option or the vesting of restricted shares. Thereafter, the shares may be sold as of any date the target ownership level is met.director.
10
DIRECTOR INDEPENDENCECOMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We have considered the independence of eachNo member of the board in accordance withCompensation Committee is or has been an officer or employee of the Nasdaq Stock Market corporate governance rules. We have determined that the following directors are independent: William F. Aldinger III, Nancy H. Bechtle, C. Preston Butcher, Donald G. Fisher, Frank C. Herringer, Marjorie Magner, Stephen T. McLin, Paula A. Sneed, Roger O. Walther, Robert N. Wilson,company or any of its subsidiaries. There were no Compensation Committee interlocks as defined under Securities and David B. Yoffie.
15
THE BOARD OF DIRECTORS
Exchange Commission rules during 2011.
DIRECTOR NOMINATIONS
The Nominating and Corporate Governance Committee is composed entirely of “independent directors” as determined by the Board of Directors in accordance with the Nasdaq Stock Market corporate governance rules.
The Board of Directors has adopted a written Nominating and Corporate Governance Committee charter. The charter is available on our website atwww.aboutschwab.com/governance. One of the committee’s responsibilities is to recommend candidates for nomination to the board.
The Nominating and Corporate Governance Committee recommended all of the nominees for election included in this year’s proxy statement. Ms. Bechtle and Mr. Butcher have been previously elected by stockholders as directors. Ms. Magner was appointed to the board in January 2006, and this is the first year that she is a candidate for stockholder election to the board. The Chairman suggested Ms. Magner’s name as a candidate to the Nominating and Corporate Governance Committee, and the committee, comprised of independent directors, recommended Ms. Magner’s nomination as a candidate.
The Nominating and Corporate Governance Committee willhas a policy to consider candidates nominatedrecommended by stockholders for next year’s meeting if the nomination is madestockholders. The policy provides that stockholder recommendations must be in writing no later than November 30, 2006. Stockholder nominations must be made in accordanceand include the following information: (i) the name, address and contact information of the recommending stockholder; (ii) proof of the stockholder’s share ownership; (iii) a resume or statement of the candidate’s qualifications; and (iv) a statement of the stockholder’s relationship with the procedures outlinedproposed candidate or interest in the company’s bylaws andproposed candidacy. The written recommendation must be addressed to:
to the Assistant Corporate Secretary at the address provided in the “Corporate Governance Information” section of this proxy statement.
Diversity
When identifying director nominees, the board considers the qualifications and skills represented on the board. As discussed in the “Director Qualifications” section below, one of the considerations evaluated by the board is the diversity of experience and background of directors. This consideration is broad, is consistent with our company’s non-discrimination policies, and includes diversity of skill sets and experience as well as background, including race and gender.
The Charles Schwab Corporation
Mailstop SF120KNY-04
101 Montgomery Street
San Francisco, California 94104
The bylawsNominating and Corporate Governance Committee annually reviews the structure and size of the board to assure that the proper skills are availablerepresented on our website atwww.aboutschwab.com/governance.
the board. This assessment includes the effectiveness of board composition, including the qualifications, skills, and diversity represented on the board.
Director Qualifications
The qualifications for directors are described in our Corporate Governance Guidelines, which are available on our website.the company’s website atwww.aboutschwab.com/governance. In addition, the committee believes that the following specific, minimum qualifications must be met by a nominee for the position of director:
· | | the ability to work together with other directors, with full and open discussion and debate as an effective group, |
· | | current knowledge and experience in the company’s business or operations, or contacts in the community in which the company does business and in the industries relevant to the company’s business, or substantial business, financial or industry-related experience, and |
· | | the willingness and ability to devote adequate time to the company’s business. |
The committee also considers the following qualities and skills when making its determination whether a nominee is qualified for the position of director:
· | | relationships that may affect the independence of the director or conflicts of interest that may affect the director’s ability to discharge his or her duties, |
11
· | | diversity of experience and background, including the need for financial, business, academic, public sector and other expertise on the board or board committees, and |
· | | the fit of the individual’s skills and experience with those of the other directors and potential directors in comparison to the needs of the company. |
When evaluating a candidate for nomination, the committee does not assign specific weight to any of these factors or believe that all of the criteria necessarily apply to every candidate.
Identifying and Evaluating NomineesCandidates for Director
The Nominating and Corporate Governance Committee reviews the appropriate skills and characteristics
16
THE BOARD OF DIRECTORS
required of board members in the context of the current composition of the board. Candidates considered for nomination to the Board of Directors may come from several sources, including current and former directors, professional search firms and stockholder nominations.recommendations. Nominees for director are evaluated, in consultation with the company’s Chairman, by the committee, which may retain the services of a professional search firm to assist it in identifying or evaluating potential nominees.
candidates.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
If you wish to communicate with the board, the chairman of the Nominating and Corporate Governance Committee, or with the independent directors as a group, you may send your communication in writing to:
to the Assistant Corporate Secretary
The Charles Schwab Corporation
Mailstop SF120KNY-04
101 Montgomery Street
San Francisco, California 94104
at the address provided in the “Corporate Governance Information” section of this proxy statement. You must include your name and address in the written communication and indicate whether you are a stockholder of the company.
The Assistant Corporate Secretary will compile all communications, summarize lengthy, repetitive or duplicative communications and forward them to the appropriate director or directors. The Assistant Corporate Secretary will not forward non-substantive communications or communications that pertain to personal grievances, but instead will forward them to the appropriate department within the company for resolution. If this is the case,In such cases, the Assistant Corporate Secretary will retain a copy of such communication for review by any director upon his or her request.
1712
AUDITING INFORMATIONPROPOSAL TWO:
AUDIT COMMITTEE REPORT
The Audit Committee is composed entirely of “independent directors” as determined by the Board of Directors in accordance with the listing standards of the Nasdaq Stock Market. None of the directors on this committee is or has been an employee of The Charles Schwab Corporation or any of its subsidiaries. None of the committee members simultaneously serves on the audit committees of more than three public companies, including ours. All of the members of our committee are able to read and understand fundamental financial statements, including the company’s balance sheet, income statement, and cash flow statement. The board has determined that William F. Aldinger III and Stephen T. McLin are Audit Committee financial experts.
The Board of Directors has adopted a written Audit Committee charter. The charter is available on our website atwww.aboutschwab.com/governance. A copy of the charter is attached to this proxy statement as Exhibit B.
The committee has met and held discussions with management and the company’s independent registered public accounting firm. As part of this process, the committee has:
· | | reviewed and discussed the audited financial statements with management, |
· | | discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), and |
· | | received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and discussed with the auditors their independence. |
Based on the review and discussions referred to above, the committee recommended to the Board of Directors that the audited financial statements be included in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, for filing with the SEC.
AUDIT COMMITTEERATIFICATION OF THE BOARDSELECTION OF DIRECTORSINDEPENDENT AUDITORS
Stephen T. McLin, Chairman
William F. Aldinger III
Nancy H. Bechtle
C. Preston Butcher
Donald G. Fisher
Marjorie Magner
18
AUDITING INFORMATION
AUDITOR SELECTION AND FEES
Auditor Selection
The Audit Committee has selected Deloitte & Touche LLP and the member firms of Deloitte Touche Tohmatsu (collectively referred to as “Deloitte”) as the company’s independent registered public accounting firm for the 20062012 fiscal year. Deloitte has served in this capacity since the company’s inception. We expect representatives of Deloitte to attend the annual meeting of stockholders, where they will respond to appropriate questions from stockholders and have the opportunity to make a statement.
As required by federal law, the Audit Committee has the sole authority to retain the independent auditors. Although we are not required to submit the selection of the independent auditors to stockholders, we are asking for your ratification as part of the Audit Committee’s evaluation process of the independent registered public accounting firm for the next fiscal year.
Audit FeesAUDITOR FEES
The aggregate feesFees for professional services billedprovided by Deloitte in connection with their audits of the consolidated annual financial statements and management’s assessment of the effectiveness of internal control over financial reporting, and reviews of the consolidated financial statements included in quarterly reports on Form 10-Qlast two fiscal years were:
| | | | | | | | |
| | 2011 | | | 2010 | |
| | (amounts in millions) | |
| | |
Audit Fees1 | | $ | 5.2 | | | $ | 4.4 | |
| | |
Audit-Related Fees2 | | | 1.8 | | | | 1.8 | |
| | |
Tax Fees3 | | | 0.1 | | | | 0.1 | |
| | |
All Other Fees4 | | | None | | | | None | |
| | |
Total | | $ | 7.1 | | | $ | 6.3 | |
| | | |
Fiscal year ended December 31: |
| |
2004 (1) | | $ | 6.5 million |
| |
2005
| | $ | 5.0 millionAudit fees are the aggregate fees for professional services billed by Deloitte in connection with their audits of the consolidated annual financial statements and management’s assessment of the effectiveness of internal control over financial reporting, and reviews of the consolidated financial statements included in quarterly reports on Form 10-Q. |
Audit-Related Fees
“Audit-Related” fees include assurance and related services, such as reports on internal controls, review of Securities and Exchange Commission filings, merger and acquisition due diligence and related services. The aggregate fees billed by Deloitte for such services were:
(2) | | Audit-Related fees include assurance and related services, such as reports on internal controls, review of Securities and Exchange Commission filings, merger and acquisition due diligence and related services. |
| | | |
Fiscal year ended December 31: |
| |
2004 (3) | | $ | 1.6 million |
| |
2005
| | $ | 1.5 millionTax fees are limited by the Audit Committee to services by Deloitte for tax return review, preparation and compliance. |
Tax Fees
The Audit Committee has limited tax services by Deloitte to tax return review, preparation and compliance. The aggregate fees billed by Deloitte for these services were:
| | | |
Fiscal year ended December 31: |
| |
2004 (4) | | $ | 0.4 million |
| |
2005
| | $ | 0.1 millionAll other fees represent fees not included in “audit fees,” “audit-related fees,” and “tax fees.” |
All Other Fees
All other services represent fees not included in “audit fees,” “audit-related fees,” and “tax fees.” The aggregate fees billed by Deloitte for these services were:
| | |
Fiscal year ended December 31: |
| |
2004
| | None |
| |
2005
| | None |
In addition to the feesservices listed above, Deloitte provides audit fees in the amount of $1.6 million in 2004 and $1.8 million in 2005 were billed by Deloitte with respectservices to certain unconsolidated affiliated mutual funds managed by subsidiaries ofand foundations. The Charles Schwab Corporation. Ongoing mutual fund fees for such audit services are included in the expenses of the mutual funds and arefoundations and borne by the stockholders of the funds. Accordingly, theyfunds and foundations. Amounts billed by Deloitte for these services were $0.1 million in both 2011 and 2010. These amounts are not included in the expenses of The Charles Schwab Corporation.
13
Pre-ApprovalNon-Audit Services Policies and Procedures
The Audit Committee has adopted a policy regarding pre-approval of non-audit services performed by Deloitte. The Audit Committee’s pre-approval policy prohibits engaging Deloitte to perform the following services:
· | | any contingent fee arrangement, |
· | | bookkeeping or other services relating to accounting records or financial statements of the audit client, |
· | | broker-dealer services, |
19
AUDITING INFORMATION
· | | management and human resource functions, including executive search services, |
· | | legal servicesmanagement and expert services unrelated to the audit,human resource functions (including executive search services), |
· | | appraisallegal services and valuationexpert services fairness opinions or contribution-in-kind reports,unrelated to the audit, |
· | | internal audit outsourcing,appraisal and valuation services, fairness opinions or contribution-in-kind reports, |
· | | financial information systems design and implementation,internal audit outsourcing, |
· | | financial information systems design and implementation, |
· | | tax consulting or advice or a tax opinion on an “aggressive” tax position or on a “listed transaction” or a “confidential transaction” as defined by U.S. Department of Treasury regulations, and |
· | | tax services to employees who have a financial reporting oversight role. |
The policy requires the pre-approval of the Audit Committee for other non-audit services performed by Deloitte. The policy contains lists ofdivides non-audit services contained ininto three separate categories, which the Audit Committee has pre-approved subject to an annual aggregate dollar limit for each category. Once the dollar limit in each of these three categories is reached, the Audit Committee will decide whether to establish an additional spending limit for the category or specifically pre-approve each additional service in the category for the remainder of the year. The three categories are:
· | | accounting theory consultation (includes services such as guidance on the application of Generally Accepted Accounting Principles to various transactions and guidance on the effects of new accounting pronouncements), |
· | | assurance and due diligence (includes services such as certain reports on internal controls, review of Securities and Exchange Commission filings, merger and acquisition due diligence, employee benefit plan audits, and foreign statutory audits and regulatory reports), and |
· | | tax return review, preparation and compliance. |
Services not listedsubject to pre-approval limits in one of the three categories above require specific pre-approval from the Audit Committee. OnFees related to services requiring specific pre-approval are limited, on an annual basis, the policy limits the fees related to other non-audit services performed by Deloitte to 50% of the combination of audit fees, audit-related fees and tax fees.
The policy permits the Audit Committee to delegate pre-approval authority to one or more members of the Audit Committee, provided that the member or members report to the entire Audit Committee pre-approval actions taken since the last Audit Committee meeting. The policy expressly prohibits delegation of pre-approval authority to management.
In fiscal years 20042011 and 2005,2010, the Audit Committee pre-approved 100% of the services performed by Deloitte relating to “audit-related fees” and “tax fees.”
14
|
AUDIT COMMITTEE REPORT The Audit Committee has met and held discussions with management and the company’s independent registered public accounting firm. As part of this process, the committee has: · reviewed and discussed the audited financial statements with management, · discussed with the independent registered public accounting firm the matters required to be discussed pertaining to Public Company Accounting Oversight Board AU 380 (Communication with Audit Committees), and · received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with the independent registered public accounting firm its independence. Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, for filing with the SEC. AUDIT COMMITTEE OF THE BOARD OF DIRECTORS Stephen T. McLin, Chairman C. Preston Butcher Arun Sarin |
15
PROPOSAL THREE:
ADVISORY APPROVAL OF NAMED EXECUTIVE OFFICER COMPENSATION
This proxy statement contains detailed information in the Compensation Discussion and Analysis and executive compensation tables regarding compensation of the named executive officers. The “named executive officers” are those executive officers who are listed in the Summary Compensation Table. We ask that you provide an advisory vote to approve the following, non-binding resolution on named executive officer compensation:
RESOLVED, that the stockholders of The Charles Schwab Corporation approve the compensation paid to the named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and related footnotes, and narrative disclosures.
The advisory approval of named executive officer compensation is required by federal law. Although the vote is not binding on the Board of Directors or the Compensation Committee, the Compensation Committee intends to consider the vote as part of its evaluation of executive compensation programs.
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
This Compensation Discussion and Analysis describes the company’s compensation strategy, policies, program and practices for the named executive officers identified in the Summary Compensation Table. Our executive compensation program is designed to support the company’s objectives of achieving sustainable growth and long-term stockholder value by focusing on our clients and their needs across our diversified businesses of securities brokerage services, banking, asset management and related financial services. In 2011, in the face of the weak economic environment that has persisted over multiple years and posed challenges particular to the financial services industry, the company remained solidly profitable and continued to pursue its objectives and position itself, both strategically and operationally, for future growth.
Our management team’s performance includes its success in navigating a difficult economic environment and its focus on building the long-term strength of our franchise by executing on our business strategy. In 2011, business results demonstrating this success included:
· | | Core net new client assets of $82.3 billion, an increase of 5% year-over-year (core net new assets are net new client assets excluding significant one-time flows relating to certain mutual fund clearing services clients and the acquisition of optionsXpress Holdings, Inc. (“optionsXpress”)); |
· | | New brokerage accounts of 1.1 million, an increase of 7% year-over-year; |
· | | Total client assets of $1.68 trillion, representing a ten-year compound annual growth rate of 9%; and |
· | | Accounts in retail advisory solutions or under the guidance of independent investment advisors of 2.4 million, an increase of 6% year-over-year. |
Our business strategy is to meet the financial services needs of investors, advisors, and employers. Execution on our business strategy focuses on building client loyalty, innovating in ways that benefit clients, operating in a disciplined manner, and leveraging strengths through shared core processes and technology platforms. In 2011, examples of management’s execution on our strategy included: completion of the integration of Windhaven Investment Management, Inc., an investment advisory firm that manages diversified investment portfolios comprised primarily of exchange-traded funds; and the acquisition of optionsXpress, an online brokerage firm primarily focused on equity options securities and futures. A more thorough discussion of our business and business strategy is provided in our Annual Report on Form 10-K.
16
While management performed well in a difficult economic environment, the majority of their compensation is linked to the company’s financial performance. In 2011, our executive compensation program rewarded executives based on financial performance as measured by earnings per share, revenue growth, pre-tax profit margin, and return on equity.
· | | Earnings per share was used for the annual cash incentive program because it focuses executives on operating performance and capital management. |
· | | Revenue growth, pre-tax profit margin, and return on equity were used for the long-term incentive awards to focus management on earnings growth and the creation of stockholder value over the longer term. |
Our year-over-year results on key financial metrics demonstrate our performance despite the weak economic environment.
| | | | | | | | |
| | 2011 | | | 2010 | |
Net revenues (in millions) | | $ | 4,691 | | | $ | 4,248 | |
| | |
Net income (in millions) | | $ | 864 | | | $ | 454 | |
| | |
Diluted earnings per share (“EPS”) | | $ | 0.70 | | | $ | 0.38 | |
| | |
Revenue Growth | | | 10% | | | | 1% | |
| | |
Pre-tax profit margin | | | 29.7% | | | | 18.3% | |
| | |
Return on equity (“ROE”) | | | 12% | | | | 8% | |
The Compensation Committee balances various incentives to motivate and reward executive officers for effectively evaluating business opportunities and taking appropriate risks to grow the company and generate long-term value for stockholders. Our compensation program uses three key elements – base salary, annual cash incentives and long-term incentive awards (“LTI”) in the form of stock options and performance-based restricted stock units to:
· | | attract, motivate and retain executive officers, |
· | | link annual executive pay with individual performance (through target levels) and company financial performance (through actual payouts), and |
· | | align the interests of the executive officers with the long-term interests of the company and its stockholders and link executive pay with longer-term performance. |
We consider annual cash incentives, stock options and performance-based restricted stock units performance-based because they are valuable to the recipient only if performance goals are achieved or share price improves. In 2011, 90% of the total compensation opportunity for the Chief Executive Officer and an average of 82% for the other named executive officers was delivered in these performance-based incentives.
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* | | Pay Mix is based on amounts in the Summary Compensation Table |
The link between executive pay and the company’s financial performance is illustrated by the decline in value of compensation awarded to our Chief Executive Officer, Walt Bettinger, since his promotion to President and Chief Executive Officer on October 1, 2008. Upon his promotion, Mr. Bettinger was awarded an annual base salary of $900,000, a bonus target of 375% of base salary, and long-term incentive awards (which consist of stock options and restricted stock) with a grant date fair value of $10 million. As of December 31, 2011, Mr. Bettinger’s base salary and bonus target had not increased since his promotion. Starting in 2009, he also received annual long-term incentive awards with a grant date fair value of $6.5 million. Since October 1, 2008, the cumulative value of his compensation opportunity (including base salary, target annual cash incentive amounts and the grant date fair value of long-term incentive awards of restricted stock, performance-based restricted stock units, and stock options) was $43.6 million. As shown in the following chart, the value (based on the company’s December 30th stock price of $11.26) of the compensation awarded to Mr. Bettinger since he became Chief Executive Officer was $17 million, 61% less than the grant date fair value of that compensation. This decline in value includes actual cash payments of base salary and annual cash incentives for this period.
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* | | For restricted stock units (“RSUs”) and performance-based restricted stock units (“PBRSUs”), value reflects the total number of shares granted times $11.26, the company’s stock price on December 30, 2011. For options, value reflects the total number of options granted times the difference between $11.26 and the exercise price (if lower). As of December 31, 2011, Mr. Bettinger had not exercised any of the options granted since 2008. |
This example illustrates that the grant date fair value disclosed in the Summary Compensation Table and Grants of Plan Based Awards Table does not reflect the amount that may be realized, which depends on stock price performance. Comparing Mr. Bettinger’s cumulative compensation opportunity to the value on December 31, 2011 illustrates the link between our compensation program and the company’s financial and stock price performance over this period.
The compensation of the other named executive officers has followed a pattern similar to Mr. Bettinger’s. Upon Mr. Bettinger’s promotion to Chief Executive Officer, Mr. Schwab’s compensation was reduced, and his base salary, bonus target and long-term incentive award have not increased since 2009. The Compensation Committee has approved some increases to base salary, bonus targets and long-term incentive awards for certain named executive officers because of changes in their responsibilities, pay relative to internal peers, individual performance, and pay relative to external compensation data. These adjustments have been reported in prior proxy statements. In 2011, after the review described below in “The Decision Making Process”, the Compensation Committee approved the increases in base salary, bonus targets and long-term incentive awards for certain named executive officers, as described in the respective sections below.
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In 2011, the company continued to demonstrate its commitment to pay for performance by making the following decisions:
· | | Setting performance targets for the annual cash incentive at earnings per share levels last achieved prior to the financial crisis even though the company’s financial plan did not anticipate reaching these levels, so that annual cash incentives pay at target only when stockholders benefit from an increase in earnings per share over pre-crisis levels. |
· | | Paying annual cash incentives below target based on the company’s financial performance. Since 2008, annual cash incentives have paid out between 70% and 78% of target. |
· | | Establishing performance targets for the performance-based restricted stock units that will reward executives only when financial performance and long-term value has been delivered to stockholders. |
· | | Vesting portions of the performance-based equity awards granted from 2007-2010 only upon certification that financial goals set for revenue growth, pre-tax profit margin and return on equity were achieved for the performance period ended September 30, 2011. |
Elements of Compensation Awarded in 2011 and How They Support Our Objectives
Base salary, annual cash incentives and long-term incentives are the key compensation elements for achieving the objectives below.
Base Salary
In 2011 after a review of the factors outlined below in “The Decision Making Process”, the Compensation Committee increased base salaries for Mr. Brigeman 7.6%, Mr. McCool 2.7%, and Mr. Martinetto 2.9%, based on their responsibilities and individual performance.
In January 2012, the Compensation Committee approved a $100,000 increase in base salary for Mr. Bettinger to reward and recognize his accomplishments as Chief Executive Officer and encourage his continuing leadership. The Compensation Committee believes that Mr. Bettinger’s leadership has been a key factor in managing through a
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EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
difficult economic environment while continuing to build the long-term strength of our franchise by focusing on serving our clients, operating in a disciplined manner and building a leadership team for the future. This raise is the first base salary increase for Mr. Bettinger since his promotion in October 2008 and is effective as of March 1, 2012.
Membership and ResponsibilitiesAnnual Cash Incentives
Annual cash incentive awards in 2011 for the named executive officers were made pursuant to the Corporate Executive Bonus Plan. In the first quarter of the year, the Compensation Committee established the performance criteria and set performance goals and a bonus target for each executive officer, expressed as a percentage of base salary. After a review of the factors outlined below in “The Decision Making Process”, the Compensation Committee set the bonus target for each executive officer and increased bonus targets for Mr. Brigeman and Mr. McCool to 175% of base salary based on their responsibilities and individual performance. The performance goals for the company were based on overall corporate financial performance as measured by earnings per share and were the same for all individual executive officers.
The Compensation Committee selected earnings per share to focus executives on operating performance and capital management. The Compensation Committee believes earnings per share provides a comprehensive measure of the company’s profitability, and is composed entirelyan appropriate performance criterion for short-term cash awards. For purposes of “independent directors”the Corporate Executive Bonus Plan, earnings per share is calculated as determined by the Board of Directorsfully diluted earnings per share in accordance with U.S. generally accepted accounting principles, excluding losses from discontinued operations, extraordinary losses, unusual losses, the listing standardscumulative negative effect of changes in accounting principles, losses on acquisitions or divestitures, losses from foreign exchange transactions, and any unusual non-recurring losses. When reviewing whether the performance goals have been achieved, the Compensation Committee reviews unusual gains and losses and may exercise discretion to reduce payouts. Earnings per share amounts were set forth in a matrix, with an annual cash incentive payout percentage assigned to each amount of earnings per share. Award payouts under the matrix could range from 0% to 200% of the Nasdaq Stock Market.target award, with a 100% payout assigned to the earnings per share goal set by the Compensation Committee. Achieving earnings per share of less than the goal would result in a payout of between 0% and 100%, and achieving earnings per share of more than the goal would result in a payout of between 100% and 200% of the target.
In 2011, the goal for earnings per share was set at $0.90, consistent with earnings per share levels last achieved prior to the financial crisis. The Compensation Committee set this target even though the company’s financial plan reviewed by the board did not anticipate reaching $0.90 because the company believes that annual cash incentives should pay out at target only when stockholders benefit from an increase in earnings per share over pre-crisis levels.
For purposes of determining payouts under the Corporate Executive Bonus Plan for 2011, earnings per share was $0.70. The Compensation Committee reserves discretion to reduce payouts. For 2011, it approved payouts based on earnings per share of $0.70 per share, which supported a payout of 78% of the target award. The Compensation Committee determined that the company achieved these results while maintaining a low credit risk profile and remaining within its risk parameters for interest rate risk. The Compensation Committee did not exercise discretion to reduce the cash incentive award for any individual named executive officer and approved funding at 78% of target for each of the named executive officers.
In the first quarter of 2012, the Compensation Committee considered performance criteria for 2012 annual cash incentive awards under the Corporate Executive Bonus Plan. The Compensation Committee selected overall corporate performance as measured by earnings per share.
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Long-Term Incentives
At its January 2011 meeting, the Compensation Committee granted equity awards of stock options and performance-based restricted stock units to the named executive officers based on its review of the factors outlined below in “The Decision Making Process”. The Compensation Committee increased the value of the awards granted to Mr. Brigeman by $50,000 and Mr. Martinetto by $100,000 in recognition of their responsibilities and individual performance.
The Compensation Committee granted long-term equity awards to the named executive officers in the form of 70% stock options and 30% performance-based restricted stock units.
Stock Options
At its January 2011 meeting, the Compensation Committee approved stock options to be granted in three equal installments on the following predetermined dates: March 1, August 1, and November 1, 2011, with 25% vesting annually over four years. This approach essentially “dollar cost averages” the granting of stock options, which mitigates the risk that the exercise price of awards granted on a single day might be exceptionally high or low due to unusual market conditions on the grant date.
Performance-Based Restricted Stock Units
At its January 2011 meeting, the Compensation Committee also approved the grant of performance-based restricted stock units with a grant date of November 1, 2011. The performance-based restricted stock units have four one-year performance periods ending September 30, 2012, 2013, 2014 and 2015, and vest in installments of 25% after each performance period if the Compensation Committee certifies that the performance goal for that period has been met. Any units that do not vest at the conclusion of the corresponding one-year performance period may vest at the conclusion of the fourth one-year period (September 30, 2015) if the performance goal for the four-year period ending on September 30, 2015 has been met (the “second vesting opportunity”). The second vesting opportunity has been added to encourage stable performance and reduce the risk that a potential forfeiture may encourage inappropriate risk-taking. The Compensation Committee also granted accumulated dividend equivalent payments on the performance-based restricted stock units. The dividend equivalent payments are cash payments equal to the dividends paid on a share of company stock. These payments vest, if at all, at the same time as the underlying units. If the performance goals for the units are not met, the dividend equivalent payments are forfeited.
The Compensation Committee set the performance goal for each of the four one-year performance periods of the 2011 performance-based restricted stock units and for the second 25% tranche of the 2010 performance-based restricted stock units as cumulative return on equity exceeds cumulative cost of equity capital. The Compensation Committee approved this performance goal because it reflects the creation of financial value for stockholders in all phases of the business cycle and measures the earnings power of the company. Return on equity is responsiblecalculated in accordance with U.S. generally accepted accounting principles, excluding losses from discontinued operations, extraordinary losses, unusual losses, the cumulative negative effects of changes in accounting principles and laws, losses on acquisitions or divestitures, losses on foreign exchange transactions, and any unusual, non-recurring losses. When reviewing whether the performance goals have been achieved, the Compensation Committee reviews unusual gains and losses and may exercise discretion to reduce payouts. If the Compensation Committee certifies that the goal has been met for overseeing and administeringeach performance period, then the portion of the restricted stock unit award that is due to vest for that performance period (25% of the total grant) will vest. If the goal has not been met, then the restricted stock units due to vest for that one-year performance period will remain outstanding subject to the second vesting opportunity.
The Compensation Committee also set the performance goal for the second vesting opportunity for the 2011 performance-based restricted stock unit awards as cumulative return on equity exceeds cumulative cost of equity capital over for the four-year period ending September 30, 2015. If the performance goal for cumulative return on equity for the four-year period is not met, the performance-based restricted stock units are forfeited.
Cost of equity is calculated using the Capital Asset Pricing Model (“CAP-M”), which is a commonly-used financial metric that incorporates the risk-free interest rate (we use the 5-year Treasury rate), the beta of the company’s compensation programsequity
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(a measure of the volatility of the company’s common stock relative to the broader equity market), and a market equity risk premium (an estimate of the expected excess return required for holding equities instead of a risk-free asset). At December 31, 2011, cost of equity was 7.2%.
Vesting of Performance-Based Restricted Stock and Restricted Stock Units for One-year Performance Periods Ending September 30, 2011
In 2007, 2008, 2009 and 2010, the Compensation Committee granted performance-based equity awards with one-year performance periods ending on September 30, 2011. These awards only vest if the Compensation Committee certifies that the applicable performance goals have been achieved. In determining whether the performance goals are achieved, performance is calculated in accordance with U.S. generally accepted accounting principles with adjustments in recognition of unusual or nonrecurring events under the terms of the plan. In determining that the performance goals were met for the Chairmanone-year performance period ending on September 30, 2011, the Compensation Committee calculated performance excluding expenses associated with the regulatory settlement and class action reserve fund for YieldPlus Fund litigation because these expenses did not reflect the operating performance of the company during the performance period.
When granting the performance-based restricted stock units, the Compensation Committee evaluates appropriate measures of performance given the company’s business objectives and the economic environment. In 2011, the Compensation Committee chose cumulative return on equity exceeds cumulative cost of equity as a performance goal that measures the creation of financial value for stockholders in all phases of the business cycle. For the 2010 and 2009 grants, during a difficult economic environment, the Compensation Committee chose return on equity as the measure of performance. The performance goals for the portions of those awards vesting in 2011 were met as follows:
| | | | | | | | |
Grant Year | | Performance Metric | | Goal | | | 2011 Result |
2010 | | Return on equity | | | ³ 12% | | | 13% |
2009 | | Return on equity | | | ³ 13% | | |
For the 2008 and 2007 grants, the Compensation Committee used a combination of revenue growth and pre-tax contribution margin (pre-tax contribution margin is calculated by dividing the company’s pre-tax adjusted income by net revenues) to focus executives on earnings growth and creating stockholder value. The performance goals for the portions of those awards vesting in 2011 were met as follows:
| | | | | | | | |
Grant Year | | Performance Metric | | Goal | | 2011 Result | |
2008 | | Revenue Growth and Pre-Tax Contribution Margin | | 4% and 28% | | | 15% and 31.7% | |
2007 | | Revenue Growth and Pre-Tax Contribution Margin | | 15% and 29.8% | |
For the 2008 and 2007 grants, the performance goals for revenue growth and pre-tax contribution margin were based on a matrix where one axis represented revenue growth and the second axis represented pre-tax contribution margin. There is a tradeoff between achievements on each performance goal such that exceeding the target for one goal generally allows for vesting with a lower result on the second performance goal.
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2012 Long-Term Incentives
In the first quarter of 2012, the Compensation Committee approved long-term equity awards of 60% stock options and 40% performance-based restricted stock units. The Compensation Committee believes that a significant portion of executive compensation should be in the form of long-term incentives split between stock options and performance-based restricted stock units to align the long-term interest of the executives with the long-term interest of the stockholders. The stock options are granted in three equal installments on the following predetermined dates: March 1, August 1, and November 1, 2012, with 25% vesting annually over four years. The performance-based restricted stock units are granted on March 1, 2012. The performance-based restricted stock units have four one-year performance periods ending December 31, 2012, 2013, 2014 and 2015, and vest in installments of 25% after each performance period if the Compensation Committee certifies that the performance goal for that period has been met. Any units that do not vest at the conclusion of the corresponding one-year performance period may vest at the conclusion of the fourth one-year period (December 31, 2015) if the performance goal for the four-year period ending on December 31, 2015 has been met (the “2012 second vesting opportunity”). The Compensation Committee also granted accumulated dividend equivalent payments on the performance-based restricted stock units. If the performance goals for the performance-based restricted stock units are not met, the dividend equivalent payments are forfeited.
The Compensation Committee set the performance goal for each of the four one-year performance periods of the 2012 performance-based restricted stock units as cumulative return on equity exceeds cumulative cost of equity capital. The performance goal for the 2012 second vesting opportunity for the 2012 performance-based restricted stock unit awards is cumulative return on equity exceeds cumulative cost of equity capital for the four-year period ending December 31, 2015. If the performance goal for cumulative return on equity for the four-year period is not met, the performance-based restricted stock units are forfeited. For the 2012 performance-based restricted stock units, return on equity and cost of equity will be calculated in the same manner as they are calculated for the 2011 awards.
The Compensation Committee moved the grant date for the 2012 performance-based restricted stock units to March 1, 2012 (previously, performance-based restricted stock units have been granted on or about November 1st) and conformed the performance periods to the calendar year to align the long-term incentive awards with the company’s fiscal year, which is the calendar year.
Other Compensation
Executive Benefits and Perquisites
The company provides limited executive perquisites. The Compensation Committee approved certain benefits for Mr. Bettinger in connection with his promotion to President and Chief Executive Officer in 2008, including a car service for commuting purposes, which he has not used, and use of fractionally-owned aircraft consistent with company policies. In addition, the company has incurred costs for a driver and for the maintenance of security systems and equipment for Mr. Schwab.
The company:
· | | Does not provide financial planning assistance |
· | | Does not gross up payments to cover executives’ personal tax liability |
· | | Does not offer executive retirement or medical plans |
· | | Does not match contributions to the deferred compensation plan. |
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Employee Benefit Plans
The company offers no defined benefit plan, special retirement plan for executives or other nonqualified excess plans. Executive officers may participate in the company’s 401(k) plan and employee stock purchase plan available to all eligible employees subject to Internal Revenue Service limits (except Mr. Schwab, who is excluded from the employee stock purchase plan because he owns more than 5% of the company’s stock), and a deferred compensation plan available to officers and other seniorkey employees.
Severance
All employees, including executive officers other than Mr. Schwab, are eligible to receive severance benefits under the company’s Severance Pay Plan, which is described in the narrative following the Termination and Change in Control Benefits Table. Benefits are available under this plan only in the event of termination of employment on account of job elimination. Under the company. We report regularlyseverance program, executive officers are eligible to receive 15 days of base salary for each year of service with a minimum of seven months and a maximum of 12 months of severance pay. Mr. Schwab is entitled to severance benefits pursuant to his employment agreement described in the narrative to the board regarding our activities. In carrying out our responsibilities, we have direct access to an independent and experienced compensation consultant who provides advice on existing and new executive compensation practices and arrangements. If you would like further information about the committee’s membership and responsibilities, please refer to theSummary Compensation Committee charter, which is available on the company’s website atwww.aboutschwab.com/governance.
Table.
Compensation Policies
The company’s executive compensation philosophy is to link pay with performance and stockholder returns over the long term and to attract and retain key executives who are critical to the company’s long-term success. Pay is linked to the company’s long-term growth and stockholder returns by requiring that a significant portion of an executive’s total compensation package be in the form of stock, stock-based incentives and cash incentives (under the Long-Term Incentive Plan) based exclusively on corporate long-term performance. Pay also is linked to the company’s financial performance by requiring that executives’ cash incentive compensation be subject to performance-based criteria with significant upside potential and downside risk.
When establishing salaries, bonus levels and long-term incentive and stock-based awards for executive officers,we consider the individual’s role, responsibilities and performance during the past year, and the amount of overall compensation paid to executive officers in similar positions of peer group companies. When reviewing compensation, we look at each element of the executive officers’ compensation package, as well as the overall package of compensation, including the value of perquisites provided by the company. The absence of any traditional pension or supplemental executive retirement pension benefit for executive officers (other than officers of U.S. Trust, a subsidiary of the company) makes the long-term incentive and stock programs an even more critical, performance-based component of executive officers’ longer-term capital accumulation opportunity.
A fundamental objective is to provide executive officers with the opportunity to earn total compensation that is competitive with total compensation that peer companies provide to similarly situated executives. In making competitive comparisons, we engage an independent consultant to assist us in selecting the peer group of companies. The selection process for the companies in the peer group takes into account multiple factors including industry (with an emphasis on financial services), size, performance, leadership status in their industry and the extent to which each company competes with our company for executive talent.
Further, to link pay with performance, we consider peer group data provided by our independent consultant to establish compensation targets that provide executive officers with total compensation that:
· | | exceeds the average amounts paid to similar executives of comparable companies in years in which the company achieves superior performance, and |
· | | falls below the average amounts paid to similar executives of comparable companies in years in which the company fails to achieve superior performance. |
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EXECUTIVE COMPENSATION
Base SalaryStock Ownership Guidelines
Base salary is frequently a significant factor in attracting, motivating and retaining key executive officers. Accordingly, we annually review executive officers’ base salaries and make appropriate adjustments based on performance in the previous year, internal pay relationships with other executives and average base salaries paid to executives of peer group companies. In 2004, we modified our peer group of companies to be more closely aligned with our company’s current size and business operations. Overall, our executive officers’ base salaries in 2005 are above the median base salaries paid to executives of the peer group of companies. Our objective is to have the base salaries of our executive officers approximate the median base salaries of peer companies over time.
Cash Bonuses
The bonus of the Chairman and Chief Executive Officer and each other executive officer is calculated and paid in accordance with the company’s Corporate Executive Bonus Plan (CEBP). Under the CEBP, we set a target bonus for each executive officer in the first quarter of each year expressed as a percentage of his or her base salary. The target bonus is based on a number of factors, including the executive officer’s individual experience and performance, internal relationships of the executive leaders, and competitive market data and recommendations provided by our independent compensation consultant. In 2005, awards could range from 0% to 200% of the target bonus based on performance matrices that we adopted when we established target bonuses for executive officers. In 2005, we used revenue growth and profit margins as the key performance measures to determine the level of performance and bonus payouts under the matrices. Some executive officers were paid bonuses based solely on overall corporate performance, while other executives who lead either an enterprise or a business unit were paid bonuses based on a combination of overallcorporate performance and the performance of the enterprise or business unit that they oversee as follows:
· | | The bonus criteria for Charles R. Schwab – Chairman and Chief Executive Officer and Christopher V. Dodds – Executive Vice President and Chief Financial Officer were based solely on overall corporate performance. For 2005, overall corporate performance exceeded the company’s targets, which resulted in the payment of bonuses equal to 125% of their target bonus awards. |
· | | Walter W. Bettinger II – Executive Vice President & President, Schwab Investor Services, earned a bonus, 40% of which was based on overall corporate performance and 60% of which was based on the performance of the Schwab Investor Services business segment. Such performance exceeded the company’s target goals, which resulted in the payment of a bonus equal to 139% of his target bonus award. |
· | | Deborah D. McWhinney – Executive Vice President & President, Schwab Institutional, earned a bonus, 40% of which was based on overall corporate performance and 60% of which was based on the performance of the Schwab Institutional business segment. Such performance exceeded the company’s target goals, which resulted in the payment of a bonus equal to 136% of her target bonus award. |
· | | Peter K. Scaturro – Executive Vice President & Chief Executive Officer, U.S. Trust Corporation, earned a bonus, 30% of which was based on overall corporate performance and 70% of which was based on the performance of U.S. Trust. While overall corporate performance exceeded the company’s target goals, performance of U.S. Trust was below the company’s target goals, which resulted in the payment of a bonus equal to 74% of Mr. Scaturro’s target bonus award. |
All 2005 bonuses for named executive officers are set forth in further detail in the Summary Compensation Table, which follows this report.
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EXECUTIVE COMPENSATION
Long-Term Incentive Plan
The Long-Term Incentive Plan (LTIP) is designed to provide cash incentives to officers based strictly on the company’s corporate performance. In 2005, we established a 3 1/2-year performance period beginning July 1, 2005. Cash incentives for this performance period will be based on the company’s cumulative earnings per share over the performance period.
If cumulative earnings per share exceed $2.21 (the “threshold”), then cash incentive payments for the performance period will range between 50% of each officer’s target cash award (where cumulative earnings per share reach $2.22) and 400% of the officer’s target cash award (where cumulative earnings per share reach $3.42). If cumulative earnings per share do not exceed the threshold over the performance period, then cash incentive payments are entirely discretionary for the Committee and may be zero; however, such discretionary payments cannot exceed 49% of each officer’s target cash award.
The LTIP award opportunity granted to each of the company’s named executive officers in 2005 is set forth in the Long-Term Incentive Plan table, which follows this report.
Stock-Based Awards
A fundamental tenet of the company’s compensation policy is that significant equity participation creates a vital long-term partnership between management and other stockholders. Significant equity participation by executive officers is encouraged through annual grants of stock-based awards and application of the company’s stock ownership guidelines.
In 2005, stock-based awards to executive officers consisted of premium priced stock options. The premium was intended to ensure that these officers do not realize a gain from the options until after stockholders realize a meaningful gain in stock price, thereby introducing greater performance risk and rewarding the officers for achieving and sustaining significant growth in the company’s valuation. Theexercise prices of the options were set at premiums above the fair market value of the company’s common stock on the date of grant that are equivalent to compounded annual appreciation of 12%. For the Chairman and Chief Executive Officer, shares under the option had the following exercise prices expressed as a percentage of the closing price of the company’s common stock on the date of grant: one-third at 112%, one-third at 125%, and one-third at 140%. For each other executive officer, shares under the option had the following exercise prices expressed as a percentage of the closing price of the company’s common stock on the date of grant: one-half at 112% and one-half at 125%. The size of awards for each executive officer was determined based on title, performance ratings, potential for leadership and competitive market data concerning levels of long-term compensation for executive officers of peer group companies. The premium priced stock options granted to each of the company’s named executive officers in 2005 are set forth in the table entitled “Options Granted in Last Fiscal Year,” which follows this report.
The Board of Directors has adopted stock ownership guidelines for executives.to promote significant equity ownership by executives and further align their long-term financial interests with that of other stockholders. Under thesethe guidelines, the Chairman and Chief Executive Officer should haveis expected to maintain an investment position in company stock equal to at least $5 million.five times base salary. All other executive officers should haveare expected to maintain an investment position in company stock equal to at least $1.5 million. Thesethree times base salary. Shares owned directly, beneficially owned under company benefit plans, restricted stock, and restricted stock units are included in determining ownership levels, but stock options are not. The stock ownership guidelines should be attainedprovide for potential penalties if the target ownership levels are not met within five to seven years after the later of (i) establishmentyears. For 2011, all of the guidelinesnamed executive officers had stock ownership exceeding the guidelines.
Prohibition on Speculative Trading in Company Stock
Speculative trading in the company’s stock is prohibited. Prohibited speculative trading includes short-term trading, selling short, buying options to open a position and selling uncovered options.
Guidelines for Equity Awards
The company has no program, plan or (ii)practice to time the dategrant of stock-based awards relative to the officer becomes an executive officer. Each executive officer also is expectedrelease of material non-public information or other corporate events. All equity grants to hold for at least one year 50% of the net after-tax value of company stock acquired through the exercise of a stock option or the vesting of restricted shares.
As of the close of business on March 20, 2006, directors and executive officers owned an aggregateare approved by the Compensation Committee or the independent directors at regularly scheduled meetings or, in limited cases involving key recruits or promotions, by a special meeting or unanimous written consent. The grant date is the meeting date or a fixed, future date specified at the time of [ ] shares (including restricted shares) and hadthe grant. Under the terms of the company’s stock incentive plan, the exercise price of options cannot be less than the closing price of company stock on the grant date.
Recoupment Policies
In the first quarter of 2012, the Compensation Committee adopted a recoupment policy to recover incentive awards granted to executive officers in the event of a significant restatement of financial results due to material noncompliance with financial reporting requirements due to misconduct.
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In addition, in the event of certain securities law violations, the Compensation Committee reserves the right to acquire an additional [ ] shares uponreduce or cancel equity awards or require executives to disgorge any profit realized from equity awards.
The Decision Making Process
The Compensation Committee reviews and approves compensation for the exerciseChairman, the Chief Executive Officer, executive officers, and other senior officers. It reviews and recommends to the board compensation for the non-employee directors. The Compensation Committee evaluates as a committee, or together with the other independent directors and the Chairman, the performance and compensation of the Chief Executive Officer. The Compensation Committee also considers recommendations from the Chairman and the Chief Executive Officer regarding compensation for the other executive officers and performance criteria for annual and long-term incentives. These recommendations are developed in consultation with the Executive Vice President – Human Resources and Employee Services and, with respect to performance criteria and goals for annual and long-term incentives, the Chief Financial Officer. While the Compensation Committee considers these recommendations, it does not delegate authority to management for executive compensation decisions.
The Compensation Committee’s review of executive compensation in January 2011 included consideration of the economic environment, market trends, and new and proposed laws and regulations. It considered a competitive pay analysis of peer companies with data from proxy statements and the 2010 McLagan Top Management survey. The Compensation Committee also considered each executive’s experience, responsibilities, past and expected individual performance, and pay relative to internal peers in setting compensation in 2011. It reviewed reports prepared by the company’s Human Resources Department on each executive’s pay history with actual total compensation for 2007 to 2010, projected 2011 compensation, the value and vesting schedule of outstanding long-term awards, 401(k) balances, deferred compensation balances, each component of pay as a percentage of total compensation, and earnings from long-term compensation. The Compensation Committee did not use a formula or assign a weighting to various factors considered in setting compensation. It did not target a specific percentage mix between cash compensation and long-term incentives or any specific percentage of total compensation for each compensation component.
Competitive Market Assessment
The Compensation Committee reviewed benchmarking data based on functional title (where available) and ranking (based on proxy disclosures). The benchmarking data were used as market reference points to assess the competitiveness of compensation. The Compensation Committee considers competitive compensation to be base pay near the 50th percentile and total cash and long-term incentives between the 50th and 75th percentile. However, such market percentiles are not used as targets for setting compensation. In 2011, the Compensation Committee reviewed benchmarking data on each component of compensation for each named executive officer and on total direct compensation, which includes salary, annual cash incentives and long-term incentives valued at grant, excluding special awards (for example, promotion or new hire awards).
The Compensation Committee has approved a peer group as a source of benchmarking data. In October 2010, the Compensation Committee selected the 20 companies listed below as the peer group based on quantitative factors such as revenue, market capitalization and number of employees, and qualitative factors such as business model, geographic coverage, and competition for customers and/or employees.
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Since the company has few competitors that are comparable in terms of business model and geographic coverage, the Compensation Committee selected as peers a mix of brokerage firms, banking and asset management companies, as well as companies that process a significant daily volume of consumer financial transactions. The composition of our peer group is as follows:
Say-On-Pay Vote
At the 2011 Annual Meeting of Stockholders, the company’s advisory vote on its say-on-pay proposal received approval of approximately 81% of votes on the proposal. The Compensation Committee believes that the result of the say-on-pay vote is valuable to assess its compensation decisions and considered the vote in reviewing and evaluating its executive compensation program. For the 2012 fiscal year, the Compensation Committee has decided to change the mix of equity incentives to increase the percentage of performance-based restricted stock units from 30% of the total award to 40% (the percentage of stock options or underwill correspondingly decrease from 70% to 60%). The Compensation Committee also adopted the Directors’ Deferred Compensation Plans.
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EXECUTIVE COMPENSATION
recoupment policy described above.
Compensation of Chairman and Chief Executive OfficerRisk Assessment
The ChairmanCompensation Committee reviewed a report by management on compensation practices and Chief Executive Officer, Charles R. Schwab, is compensatedpolicies throughout the company and the potential impact on risk-taking by employees. The report assessed all employee compensation programs with an emphasis on changes made in accordance with his stockholder-approved employment agreement, which is described2011, all variable compensation including bank product incentives, and the oversight and approval process for new and existing compensation plans. The report also summarized regulations on incentive compensation practices in Exhibit C, as follows:the banking industry and the company’s implementation of this guidance. The report identified the following risk-mitigating factors currently in place:
· | | Annual salaryapproval of $900,000 subject to our annual review.executive compensation by an independent board committee; |
· | | Annual bonus determined under the CEBP, as described above. |
performance-based long-term incentive awards;
For 2005, Mr. Schwab earned a bonus of $3,937,500 based on his target bonus award and the formula-based matrix.
We believe that Mr. Schwab’s leadership is a vital factor to our corporate success. Specifically, we believe that:
· | | Mr. Schwab provides the leadership, vision and inspiration for innovation that has generated corporate growth and superior performance over the long term, and |
· | | The overall strategic direction developed by Mr. Schwab is criticala balanced suite of performance metrics with a strong link to enhancing the future long-term value of the company for its stockholders.stockholder value; |
· | | caps on annual incentive opportunities; |
· | | performance goals based on financial plans reviewed by the board; |
· | | a four-year vesting period for equity awards with limited opportunities for accelerated vesting; |
27
· | | meaningful executive stock ownership guidelines; |
· | | annual review of incentive plan performance, along with centralized design and administration of all incentive plans; and |
· | | modest severance benefits. |
Former Executive OfficersCompensation Consultant Role
We entered into separation agreements with William L. Atwell, who served as Executive Vice President – Individual Investor EnterpriseUnder its charter, the Compensation Committee is authorized to retain compensation consultants and Alan J. Weber, who served as Executive Vice President and Chairman andto approve the terms of the engagement. In 2011, the Compensation Committee engaged Semler Brossy Consulting Group LLC (“Semler Brossy”) to review pay trends across the financial services industry, advise directly on Chief Executive Officer U.S. Trust Corporation. Both former executive officers received severance benefits pursuant to their separation agreements, which are describedand Chairman compensation, provide an analysis of the peer group, review the company’s long-term incentives as well as the long-term incentives used by companies in the Summarypeer group, and provide general advice and counsel with respect to management programs, market practices and trends. Semler Brossy was engaged by the Compensation Table following this reportCommittee directly and are further described in Exhibits D and E, respectively,does not provide other services to this proxy statement.
the company.
Tax Limits on Executive Compensation
Section 162(m) of the Internal Revenue Code limits tax deductions for certain executive compensation over $1 million. Certain types of compensationSection 162(m)
Compensation plans generally are deductible only if they are performance-based and approved by the stockholders. We believe that it is generally in the best interests of stockholders to structure compensation plansstructured so that compensation is performance-based and therefore deductible under sectionSection 162(m) of the Internal Revenue Code. However, depending on business needs, the Compensation Committee may use its discretion to approve compensatory arrangements that are not deductible under Section 162(m). In 2011, compensation of the named executive officers was deductible under Section 162(m) except for portions of compensation in excess of $1 million received by a named executive officer due to the vesting of past equity awards that are not considered performance-based, such as time-vested restricted stock and the dividends on that stock.
Accordingly, the Corporate Executive Bonus Plan, the Long-Term Incentive Plan and the 2004 Stock Incentive Plan are designed to provide performance-based compensation and have been approved by stockholders. However, we believe that there are times when the benefit of the deduction is outweighed by other corporate objectives and strategic needs.
|
|
COMPENSATION COMMITTEE REPORT The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the company’s annual report on Form 10-K for the fiscal year ended December 31, 2011 and the proxy statement on Schedule 14A. We will continue to monitor issues concerning the tax deductibility of executive compensation and will take appropriate action if we believe it is warranted. Since corporate objectives and strategic needs may not always be consistent with the requirements for full deductibility, we are prepared to use our discretion, if we believe it is appropriate, to enter into compensation arrangements or provide compensation under which payments may not be fully deductible, including under section 162(m).
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS Roger O. Walther, Chairman Nancy H. Bechtle Frank C. Herringer Paula A. Sneed Robert N. Wilson David B. Yoffie
24
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
|
28
EXECUTIVE COMPENSATION TABLES
The following tables show compensation information for the named executive officers: Walter W. Bettinger II, President and Chief Executive Officer, Joseph R. Martinetto, the company’s Chief Financial Officer, and the next three most highly compensated executive officers as of December 31, 2011. No bonuses were paid to a named executive officer in the last three fiscal years, except as part of a non-equity incentive plan.
2011 Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
This table shows, for the last three fiscal years, compensation information for Name and Principal
Position | | Year | | | Salary ($) | | | Stock Awards1 ($) | | | Option Awards2 ($) | | | Non-Equity Incentive Plan Compen- sation3 ($) | | | All Other Compen- sation4 ($) | | | Total ($) | |
| | | | | | | |
Walter W. Bettinger II PRESIDENT AND CHIEF EXECUTIVE OFFICER | |
| 2011
2010 2009 |
| |
| 900,000
900,000 900,000 |
| |
| 1,950,000
2,117,300 1,950,000 |
| |
| 4,550,000
4,550,000 4,550,000 |
| |
| 2,632,500
2,362,500 2,531,250 |
| |
| 71,877
89,119 98,160 |
| |
| 10,104,377
10,018,919 10,029,410 |
|
| | | | | | | |
Joseph R. Martinetto CHIEF FINANCIAL OFFICER | |
| 2011
2010 2009 |
| |
| 497,667
486,000 450,000 |
| |
| 390,000
390,900 360,000 |
| |
| 910,000
840,000 840,000 |
| |
| 582,269
510,300 506,250 |
| |
| 19,564
19,440 56,564 |
| |
| 2,399,500
2,246,640 2,212,814 |
|
| | | | | | | |
Benjamin L. Brigeman EXECUTIVE VICE PRESIDENT – INVESTOR SERVICES | |
| 2011
2010 2009 |
| |
| 543,500
511,000 475,000 |
| |
| 450,000
472,300 435,000 |
| |
| 1,050,000
1,015,000 1,015,000 |
| |
| 741,877
536,550 534,375 |
| |
| 21,627
28,554 59,055 |
| |
| 2,807,004
2,563,404 2,518,430 |
|
| | | | | | | |
James D. McCool EXECUTIVE VICE PRESIDENT – INSTITUTIONAL SERVICES | |
| 2011
2010 2009 |
| |
| 522,667
511,000 475,000 |
| |
| 420,000
456,000 420,000 |
| |
| 980,000
980,000 980,000 |
| |
| 713,440
536,550 534,375 |
| |
| 47,462
68,684 243,291 |
| |
| 2,683,569
2,552,234 2,652,666 |
|
| | | | | | | |
Charles R. Schwab the company’s Chairman and Chief Executive Officer, and the next four most highly compensated executive officers as of December 31, 2005. It also provides information for William L. Atwell, who served as Executive Vice President and President – Individual Investor Enterprise until November 2005, and Alan J. Weber, who served as Executive Vice President and Chief Executive Officer of U.S. Trust until May 2005. We refer to each of these officers as a “named executive officer.”5 CHAIRMAN | |
| | | | | | | | | | | | | | | | | | | | | | | | | ANNUAL COMPENSATION | | | LONG-TERM (1) COMPENSATION AWARDS | | | | NAME AND PRINCIPAL POSITION | | YEAR | | SALARY | | BONUS | | | OTHER ANNUAL COMPEN- SATION (2) | | | RESTRICTED STOCK AWARDS (3) | | SECURITIES UNDERLYING OPTIONS | | | ALL OTHER COMPEN- SATION (4) | Charles R. Schwab (5) CHAIRMAN AND CHIEF EXECUTIVE OFFICER | | 2005 | | $ | 900,000 | | $ | 3,937,500 | | | $ | 396,860 | | | | 0 | | 2,400,000 | | | $ | 10,750 | | 2004 | | $ | 900,000 | | | 0 | (6) | | $ | 2,013,749 | | | | 0 | | 300,000 | | | $ | 10,500 | | 2003 | | $ | 900,000 | | | 0 | (6) | | $ | 319,531 | | | | 0 | | 0 | | | | 0 | | | | | | | | | Walter W. Bettinger II EXECUTIVE VICE PRESIDENT AND PRESIDENT – SCHWAB INVESTOR SERVICES | | 2005 | | $ | 520,833 | | $ | 1,061,059 | | | | — | | | | 0 | | 400,000 | | | $ | 10,750 | | 2004 | | $ | 465,600 | | $ | 330,185 | | | | — | | | $ | 1,000,004 | | 228,103 | | | $ | 10,500 | | 2003 | | $ | 416,667 | | $ | 186,995 | | | | — | | | $ | 280,002 | | 0 | | | | 0 | | | | | | | | | Christopher V. Dodds EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER | | 2005 | | $ | 550,000 | | $ | 962,500 | | | | — | | | | 0 | | 300,000 | | | $ | 10,750 | | 2004 | | $ | 550,000 | | $ | 640,769 | | | | — | | | | 0 | | 291,971 | | | $ | 10,500 | | 2003 | | $ | 543,333 | | $ | 329,973 | | | | — | | | $ | 2,662,496 | | 0 | | | | 0 | | | | | | | | | Deborah D. McWhinney EXECUTIVE VICE PRESIDENT AND PRESIDENT – SCHWAB INSTITUTIONAL | | 2005 | | $ | 500,000 | | $ | 848,750 | | | | — | | | | 0 | | 400,000 | | | $ | 10,750 | | 2004 | | $ | 443,733 | | $ | 404,132 | | | | — | | | $ | 1,000,004 | | 228,103 | | | $ | 10,500 | | 2003 | | $ | 355,000 | | $ | 163,213 | | | | — | | | $ | 367,928 | | 0 | | | | 0 | | | | | | | | | Peter K. Scaturro (7) EXECUTIVE VICE PRESIDENT AND CHIEF EXECUTIVE OFFICER, U.S. TRUST | | 2005 | | $ | 322,116 | | $ | 2,000,000 | (8) | | | — | | | $ | 2,000,002 | | 800,000 | | | $ | 8,355 | | | | | | | | | William L. Atwell (9) FORMER EXECUTIVE VICE PRESIDENT AND PRESIDENT – INDIVIDUAL INVESTOR ENTERPRISE | | 2005 | | $ | 655,837 | | $ | 1,280,895 | | | $ | 539,741 | | | | 0 | | 400,000 | | | $ | 985,750 | | 2004 | | $ | 596,667 | | $ | 564,553 | | | $ | 807,099 | | | | 0 | | 273,723 | | | $ | 10,500 | | 2003 | | $ | 560,833 | | $ | 412,929 | | | $ | 520,192 | | | $ | 2,908,786 | | 0 | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | Alan J. Weber (10) FORMER EXECUTIVE VICE PRESIDENT AND CHIEF EXECUTIVE OFFICER, U.S. TRUST | | 2005 | | $ | 256,415 | | | 0 | | | | — | | | | 0 | | 0 | | | $ | 1,408,681 | | 2004 | | $ | 625,001 | | $ | 788,556 | | | | — | | | | 0 | | 273,723 | | | $ | 10,500 | | 2003 | | $ | 625,000 | | $ | 468,750 | | | | — | | | $ | 2,272,521 | | 0 | | | | 0 |
| 2011
2010 2009 |
(1) | | A column under Long-Term Compensation Awards for “LTIP payouts” is not included because no payments could be made under the company’s Long-Term Incentive Plan until 2007. |
(2) | | The company incurs costs for security systems and equipment for the protection of its Chairman and Chief Executive Officer. These systems were established on the recommendation of an independent, third-party consulting firm retained in 2002 as part of the company’s business protection plans and are not maintained for the personal benefit of the Chairman and Chief Executive Officer. Pursuant to the consultant’s security study, the company provided Mr. Schwab with the installation and maintenance of a security system at his personal residence, as well as security at his personal residence prior to the installation of the security system. For
| |
| 500,000
500,000 500,000 |
| |
| 900,000
977,200 900,000 |
| |
| 2,100,000
2,100,000 2,100,000 |
| |
| 975,000
874,999 937,499 |
| |
| 42,979
67,167 221,604 |
| |
| 4,517,979
4,519,366 4,659,103 |
|
25(1) | | The amounts shown in this column represent the aggregate grant date fair value of the performance-based awards, computed in accordance with Statement of Financial Accounting Standards Board ASC Topic 718. The amounts shown do not reflect the amounts ultimately realized by the named executive officer. Performance-based restricted units awarded in 2009, 2010 and 2011 only vest upon satisfaction of the performance conditions of those awards. The value for those awards represents the aggregate compensation cost expected at the grant date to be recognized over the service period and is not adjusted for the effect of any estimated forfeitures. |
The value of the performance-based restricted stock units granted by the Compensation Committee on November 1, 2010 was the same as for the 2009 grant. The value included in the table for 2010, however, is determined in accordance with ASC Topic 718, which is the date on which all of the significant terms, including any performance criteria, were established. The accounting grant date in 2010 was December 14, 2010, and the value reflected in the table is the number of units granted multiplied by the average of the high and low market price of the company’s common stock on December 14, 2010. For further discussion of the company’s accounting for its equity compensation plans, including key assumptions, see “Part II – Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2. Summary of Significant Accounting Policies,” and “– Note 20. Employee Incentive, Deferred Compensation, and Retirement Plans” from the company’s Form 10-K for the period ending December 31, 2011.
29
EXECUTIVE COMPENSATION
(2) | | The amounts shown in this column represent the aggregate grant date fair value of the stock option awards and not the amount ultimately realized by the named executive officer. For further discussion of the company’s accounting for its equity compensation plans, including key assumptions, see “Part II – Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2. Summary of Significant Accounting Policies,” and “– Note 20. Employee Incentive, Deferred Compensation, and Retirement Plans” from the company’s Form 10-K for the period ending December 31, 2011. |
(3) | | The amounts shown in this column include amounts earned under the Corporate Executive Bonus Plan. |
| Mr. Schwab, this column includes the following security-related respective amounts during 2005, 2004 and 2003: $370,022, $2,000,315 and $309,966. These figures do not include those portions for installation of the security system in his personal residence that Mr. Schwab paid for personally.
(4) | | The amounts shown in this column for 2011 include the following: |
| | For Mr. Atwell, this column includes: |
| | | | | | | | | | | | | Named Executive Officer | | Employer Matching Contributionsa ($) | | | Dividends and Equivalentsb ($) | | | Relocationc ($) | | | | | | Walter W. Bettinger II | | | 12,500 | | | | 56,533 | | | | — | | | | | | Joseph R. Martinetto | | | 12,500 | | | | 6,306 | | | | — | | | | | | Benjamin L. Brigeman | | | 12,500 | | | | 8,329 | | | | — | | | | | | James D. McCool | | | 12,500 | | | | 6,740 | | | | 27,224 | | | | | | Charles R. Schwab | | | 12,500 | | | | 9,752 | | | | — | |
tax reimbursement(a) | | The amounts in this column are employer match payments under the following respective amounts during 2005, 2004 and 2003: $361,184, $190,734 and $128,491,a perquisite allowance in 2005 of $118,421, to cover expenses for travel between residences he maintained on the East Coast and certain business locations,
relocation assistance in the following respective amounts during 2004 and 2003: $219,281 and $151,377, and
personal use of corporate aircraft for commuting purposes in the following respective amounts during 2004 and 2003: $252,828 and $90,303 (amounts based on marginal operating cost).
(3) | | This column shows the market value of restricted stock awards on the date of grant for each named executive officer who received an award. The following chart shows the number of restricted shares awarded by year and describes the vesting schedule: |
| | | | | | | | | Year of
Grant | | | Number of
Restricted
Shares | | | | | Mr. Bettinger
| | 2004 | | | 117,028 | (a) | | | 2003 | | | 36,964 | (b) | | | | Mr. Dodds
| | 2003 | | | 82,509 | (b) | | | 2003 | | | 182,000 | (c) | | | | Ms. McWhinney
| | 2004 | | | 117,028 | (a) | | | 2003 | | | 26,403 | (b) | | | 2003 | | | 15,000 | (b) | | | | Mr. Scaturro
| | 2005 | | | 172,861 | (d) | | | | Mr. Atwell
| | 2003 | | | 82,509 | (b) | | | 2003 | | | 204,000 | (c) | | | | Mr. Weber
| | 2003 | | | 99,010 | (b) | | | 2003 | | | 136,000 | (c) |
| (a) | Twenty-five percent (25%) of the shares vest on each of the second and third anniversary of the grant date, and 50% of the shares vest on the fourth anniversary of the grant date. |
| (b) | Twenty-five percent (25%) of the shares vest on each of the first, second, third and fourth anniversary of the grant date. |
| (c) | Twenty-five percent (25%) of the shares vest on each of the third and fourth anniversary of the grant date, and 50% of the shares vest on the fifth anniversary of the grant date. |
| (d) | All shares vest on the earlier of (1) March 15, 2008, provided that U.S. Trust achieves certain performance targets related to revenue growth, pre-tax profit margin and net new assets; or (2) May 19, 2010. |
26
EXECUTIVE COMPENSATION
| | The vesting of 92,255 and 49,505 shares in the chart above granted to Mr. Atwell and Mr. Weber, respectively, were accelerated pursuant to their individual separation agreements and 153,000 and 136,000, respectively, of their restricted shares were canceled. |
| | The following chart shows the cumulative unvested restricted stock held by each named executive officer as of December 30, 2005 based on the closing price of common stock on that date ($14.67). |
| | | | | | | | | Number of Shares | | | Year-End Value | | | | Mr. Schwab | | 0 | | | | 0 | | | | Mr. Bettinger | | 135,510 | | | $ | 1,987,932 | | | | Mr. Dodds | | 223,255 | | | $ | 3,275,151 | | | | Ms. McWhinney | | 137,730 | | | $ | 2,020,499 | | | | Mr. Scaturro | | 172,861 | | | $ | 2,535,871 | | | | Mr. Atwell | | 0 | | | | 0 | | | | Mr. Weber | | 0 | | | | 0 |
| | Holders of restricted stock have voting and dividend rights. |
(4) | | The amounts shown in this column include the following: |
Matching contributions by the company undercompany’s defined contribution plan, the SchwabPlan Retirement Savings and Investment Plan. During 2005 and 2004, the company’s matching contributions were $10,750 and $10,500, respectively. Mr. Scaturro did not receive a matching contribution in 2005.
In the case of Mr. Scaturro, $8,355 was credited under the U.S. Trust Corporation Employees’ Retirement Plan, which is a tax-qualified cash balance plan. Under401(k) plan available to all eligible employees.
|
(b) | | The amounts in this column are dividend equivalent payments on vested performance-based restricted stock units and dividends paid on unvested restricted stock awards. These amounts are not included in the plan, a bookkeeping account is establishedfair market value of the stock on the grant date shown in the Grants of Plan-Based Awards Table. |
(c) | | In connection with his promotion to Executive Vice President – Institutional Services in 2008, the Compensation Committee approved relocation benefits for Mr. Scaturro, which is credited on a quarterly basisMcCool consistent with pay credits based on 5% of eligible compensationthe company’s relocation program for officers, and interest credits based on an average yield on ten-year Treasury securities. If Mr. Scaturro continuesMcCool continued to receive benefits in his current position and retires at age 65, his estimated annual benefit under the plan at retirement, payable as a single life annuity, is $42,600. This projected amount is based on current provisions of the plan, annual increases of 3.5%2011 due to the IRS limitation on tax-qualified plan compensation,relocation. The value shown for relocation expense is the aggregate incremental cost to the company, which includes the invoiced costs in 2011 for a cash subsidy to offset mortgage costs. |
In addition to the amounts shown in the table above, Mr. Bettinger has the use of parking and a car service for commuting purposes but did not utilize the car service in 2011. On certain occasions in 2011, Mr. Bettinger was accompanied by his spouse and other family members when traveling for business on fractionally-owned aircraft. There was no aggregate incremental cost to the company for guest travel on these flights, and Mr. Bettinger reimbursed the company for reduced tax deductions attributable to having guests on board certain of these flights. The company incurred driver costs for Mr. Schwab and costs for a security program for the protection of Mr. Schwab. (5) | | Mr. Schwab has had an employment contract with the company since 1987. His employment contract is described in the Narrative to Summary Compensation and rates currently used to determine interest credits and to convert account balances to annuities.Grants of Plan-Based Awards Tables. |
30
2011 Grants of Plan-Based Awards Table In the case | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | | Grant Date | | | Date of Mr. Atwell, a lump sum severance payment Action if Not Grant Date1 | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards2 | | | Estimated Future Payouts Under Equity Incentive Plan Awards3 | | | All Other Stock Awards: Number of Shares of $975,000 was paid in accordance with his separation agreement summarized in Exhibit D.Stock (#) | | | All Other Option Awards: Number of Securities Underlying Options4 (#) | | | Exercise or Base Price of Option Awards ($/Sh) | | | Grant Date Fair Value of Equity Awards ($)5 | | | | | Threshold ($) | | | Target ($) | | | Maximum ($) | | | Threshold (#) | | | Target (#) | | | Maximum (#) | | | | | | Walter W. Bettinger II | |
In the case of Mr. Weber, a lump sum severance payment of $1,408,681 was paid in accordance with his separation agreement summarized in Exhibit E.
(5) | | Mr. Schwab has had an employment contract with the company since 1987. His current employment contract is described in Exhibit C to this proxy statement. |
(6) | | Mr. Schwab declined recommended bonuses for 2004 (which was directed to bonuses for other employees and corporate charitable purposes) and for 2003 (which was directed to bonuses for other employees). |
(7) | | Mr. Scaturro joined the company on May 9, 2005. Under Mr. Scaturro’s offer letter dated May 4, 2005, during the first 24 months of his employment, if Mr. Scaturro is terminated without cause (as defined in the offer letter)
| 1/27/2011
3/1/2011 8/1/2011 11/1/2011 11/1/2011 |
| |
| —
1/27/2011 1/27/2011 1/27/2011 1/27/2011 |
| |
| —
— — — — |
| |
| 3,375,000
— — — — |
| |
| 6,750,000
— — — — |
| |
| —
— — — — |
| |
| —
— — — 164,280 |
| |
| —
— — — — |
| |
| —
— — — — |
| |
| —
274,759 320,649 359,400 — |
| |
| —
18.66 15.05 11.75 — |
| |
| —
1,516,667 1,516,667 1,516,667 1,950,000 |
| Joseph R. Martinetto | |
| 1/27/2011
3/1/2011 8/1/2011 11/1/2011 11/1/2011 |
| |
| —
1/27/2011 1/27/2011 1/27/2011 1/27/2011 |
| |
| —
— — — — |
| |
| 746,500
— — — — |
| |
| 1,493,000
— — — — |
| |
| —
— — — — |
| |
| —
— — — 32,856 |
| |
| —
— — — — |
| |
| —
— — — — |
| |
| —
54,952 64,130 71,880 — |
| |
| —
18.66 15.05 11.75 — |
| |
| —
303,333 303,333 303,333 390,000 |
| Benjamin L. Brigeman | |
| 1/27/2011
3/1/2011 8/1/2011 11/1/2011 11/1/2011 |
| |
| —
1/27/2011 1/27/2011 1/27/2011 1/27/2011 |
| |
| —
— — — — |
| |
| 951,125
— — — — |
| |
| 1,902,250
— — — — |
| |
| —
— — — — |
| |
| —
— — — 37,911 |
| |
| —
— — — — |
| |
| —
— — — — |
| |
| —
63,406 73,996 82,939 — |
| |
| —
18.66 15.05 11.75 — |
| |
| —
350,000 350,000 350,000 450,000 |
| James D. McCool | |
| 1/27/2011
3/1/2011 8/1/2011 11/1/2011 11/1/2011 |
| |
| —
1/27/2011 1/27/2011 1/27/2011 1/27/2011 |
| |
| —
— — — — |
| |
| 914,667
— — — — |
| |
| 1,829,333
— — — — |
| |
| —
— — — — |
| |
| —
— — — 35,384 |
| |
| —
— — — — |
| |
| —
— — — — |
| |
| —
59,179 69,063 77,410 — |
| |
| —
18.66 15.05 11.75 — |
| |
| —
326,667 326,667 326,667 420,000 |
| Charles R. Schwab | |
| 1/27/2011
3/1/2011 8/1/2011 11/1/2011 11/1/2011 |
| |
| —
1/27/2011 1/27/2011 1/27/2011 1/27/2011 |
| |
| —
— — — — |
| |
| 1,250,000
— — — — |
| |
| 2,500,000
— — — — |
| |
| —
— — — — |
| |
| —
— — — 75,822 |
| |
| —
— — — — |
| |
| —
— — — — |
| |
| —
126,812 147,992 165,877 — |
| |
| —
18.66 15.05 11.75 — |
| |
| —
700,000 700,000 700,000 900,000 |
|
27
EXECUTIVE COMPENSATION
| or resigns for good reason (as defined in the offer letter), Mr. Scaturro is entitled to one year’s salary and bonus, and vesting of his initial stock option and restricted stock awards based on years of service already completed plus one additional year of service. In the event of the sale or merger of U.S. Trust, if Mr. Scaturro is not employed by the surviving entity, Mr. Scaturro is entitled to two years’ salary and bonus, and vesting of his initial stock option and restricted stock awards based on years of service already completed plus two additional years of service. If Mr. Scaturro accepts an offer with the surviving entity, then Mr. Scaturro will be entitled to one year’s salary and bonus and vesting of his initial stock options and restricted stock awards based on years of service already completed plus one additional year of service.
|
(8) | | This amount represents a bonus awarded for 2005 under the Corporate Executive Bonus Plan in the amount of $953,461 and an estimated guaranteed payment of $1,046,539. Under the terms of Mr. Scaturro’s offer letter, if he has not received at least $2,500,000 in total compensation (which includes salary, bonus, or any other special awards or payments) attributable to his first 12 months of active employment, which commenced in May 2005, then the company will pay Mr. Scaturro the difference between what he received and $2,500,000. The difference will be determined at the end of June 2006 and will be paid to Mr. Scaturro approximately six weeks thereafter. The guarantee will not be paid if Mr. Scaturro resigns or is terminated for cause (as defined in the offer letter). The guarantee is paid if Mr. Scaturro is terminated without cause. |
(9) | | Mr. Atwell resigned and entered into a separation agreement as of November 29, 2005, described in Exhibit D. |
(10) | | Mr. Weber resigned and entered into a separation agreement as of May 23, 2005, described in Exhibit E.(1) | | This column shows the date that the Compensation Committee or the independent directors took action with respect to the equity award if that date is different than the grant date. If the grant date is not the meeting date, it is a fixed, future date specified at the time of the grant. |
28(2) | | These columns show the range of possible payouts for annual cash incentive awards granted in 2011 under the Corporate Executive Bonus Plan. The actual annual cash incentive awards paid for 2011 performance under this plan are shown in the “non-equity incentive plan compensation” column to the Summary Compensation Table. |
(3) | | These performance-based restricted stock unit awards were granted under the 2004 Stock Incentive Plan and vest in equal installments of 25% on the first, second, third, and fourth anniversary of the grant date, provided that a performance goal of cumulative return on equity exceeding the cumulative cost of equity is met for the one-year performance period. Any units that do not vest at the conclusion of the corresponding one-year performance period may vest at the conclusion of the fourth one-year period if the performance goal for the four-year period has been met. Any units that do not vest at the end of the fourth one-year period will be forfeited. |
(4) | | These stock option awards were granted under the 2004 Stock Incentive Plan and vest in equal installments of 25% on the first, second, third and fourth anniversary of the grant date and expire on the tenth anniversary of the grant date. |
31
EXECUTIVE(5) | | For option awards, the grant date fair value was determined by multiplying the number of shares granted by the fair value of the option as determined by a binomial option pricing model. The fair values of the options determined by the binomial pricing model on March 1, 2011, August 1, 2011 and November 1, 2011 were $5.52, $4.73 and $4.22, respectively. For restricted stock unit awards, the grant date fair value was determined by multiplying the number of units granted by the average of the high and low market price of the company’s common stock on the grant date of November 1, 2011, which was $11.87. |
NARRATIVE TO SUMMARY COMPENSATION AND GRANTS OF PLAN-BASED AWARDS TABLES Base Salaries In 2011, the Compensation Committee increased base salaries for Mr. Brigeman by $39,000 (7.6%), Mr. McCool by $14,000 (2.7%), and Mr. Martinetto by $14,000 (2.9%). The Compensation Committee made no other adjustments to base salary for the named executive officers in 2011. Defined Benefits and Deferred Compensation The company does not offer defined benefit and actuarial pension plans, special retirement plans or other nonqualified excess plans for executives. The company does not offer above-market or preferential earnings under nonqualified deferred compensation plans or defined contribution plans. All Other Compensation Restricted stock dividends are included in the “all other compensation” section of the Summary Compensation Table, because these dividends are not included in the fair value of the stock on the grant date as shown in the Grants of Plan-Based Awards Table. Employment Agreement for Mr. Schwab The company and Mr. Schwab entered into an amended employment agreement, effective March 31, 2003. Stockholders approved the amended employment agreement. The amended agreement has an initial term of five years, and provides that as of each March 31, the term of the employment agreement is automatically extended by an additional year, under the same terms and conditions, unless beforehand either party provides notice to the other of an intention not to extend it. To address potential penalty taxes on deferred compensation pursuant to Section 409A of the Internal Revenue Code and associated regulations, the Board of Directors and Mr. Schwab agreed to amendments to his employment agreement in 2008 to specify the timing of payments, establish definitions of triggering events that are consistent with the Internal Revenue Service’s guidance under Section 409A, and delay certain payments until six months after Mr. Schwab terminates employment, as required by Section 409A for certain employees. The amendments do not impact the amount of the payments. The amended employment agreement provides for an annual base salary of $900,000, subject to annual review by the board, and provides that Mr. Schwab will be entitled to participate in all compensation and fringe benefit programs made available to other executive officers, including stock-based incentive plans. Mr. Schwab’s bonus is determined under the Corporate Executive Bonus Plan, as described in the Compensation Discussion and Analysis. The employment agreement also provides that certain compensation and benefits will be paid or provided to Mr. Schwab (or his immediate family or estate) if his employment is terminated involuntarily, except for cause. “Cause” is defined as the commission of a felony, or willful and gross negligence, or misconduct that results in
32
material harm to the company. “Involuntary termination” includes a material change in Mr. Schwab’s capacities or duties at the company. If an involuntary termination is not due to death, disability or cause:
· | | Mr. Schwab will be entitled to receive for a period of 36 months all compensation to which he would have been entitled had he not been terminated, including his base salary and participation in all bonus, incentive and other compensation and benefit plans for which he was or would have been eligible (but excluding additional grants under stock incentive plans), and |
· | | all his outstanding, unvested shares and options under stock incentive plans will vest fully on the termination date. |
If an involuntary termination is due to disability, Mr. Schwab will be entitled to receive: OPTIONS GRANTED IN LAST FISCAL YEAR· | | his base salary and benefits, less any payments under the long-term disability plan, for a period of 36 months from the termination date, and |
· | | a prorated portion of any bonus or incentive payments for the year in which the disability occurs. |
If an involuntary termination is due to death, a lump sum payment will be made to Mr. Schwab’s estate equal to five times his then base salary. If Mr. Schwab voluntarily resigns his employment within 24 months of a change in control of the company, he will be entitled to receive his base salary up to the date of resignation, plus a prorated portion of any bonus or incentive payments payable for the year in which the resignation occurs. In addition, Mr. Schwab has the right (but not the obligation) to enter into a consulting arrangement with the company if he voluntarily resigns his employment upon 6 months’ written notice to the company, or within 24 months of a change in control of the company if he voluntarily resigns or his employment is involuntarily terminated. Under that arrangement, Mr. Schwab would provide certain consulting services to the company for a period of five years for an annual payment equal to $1 million or 75% of his then base salary, whichever is less. For estimated termination and change in control payments and benefits to Mr. Schwab, please refer to the Termination and Change in Control Benefits Table. The employment agreement prohibits Mr. Schwab from becoming associated with any business competing with the company during the term of the agreement and for a period of five years following a voluntary resignation of employment. (However, that restriction does not apply if Mr. Schwab resigns his employment within 24 months of a change in control of the company.) License Agreement for Mr. Schwab The company and Charles Schwab & Co., Inc. also are parties to an assignment and license agreement with Mr. Schwab that was approved in July 1987 by the company’s non-employee directors. Under the agreement, Mr. Schwab has assigned to the company all service mark, trademark, and trade name rights to Mr. Schwab’s name (and variations on the name) and likeness. However, Mr. Schwab has the perpetual, exclusive, irrevocable right to use his name and likeness for any activity other than the financial services business, so long as Mr. Schwab’s use of his name does not cause confusion about whether the company is involved with goods or services actually created, endorsed, marketed or sold by Mr. Schwab or by third parties unrelated to the company. The assignment and license agreement defines the “financial services business” as the business in which Charles Schwab & Co., Inc. is currently engaged and any additional and related business in which that firm or the company is permitted to engage under rules and regulations of applicable regulatory agencies. 33
Beginning immediately after any termination of his employment, Mr. Schwab will be entitled to use his likeness in the financial services business for some purposes (specifically, the sale, distribution, broadcast and promotion of books, videotapes, lectures, radio and television programs, and also any financial planning services that do not directly compete with any business in which the company or its subsidiaries are then engaged or plan to enter within three months). Beginning two years after any termination of his employment, Mr. Schwab may use his likeness for all other purposes, including in the financial services business, as long as that use does not cause confusion as described above. No cash consideration is to be paid to Mr. Schwab for the name assignment while he is employed by the company or, after his employment terminates, while he is receiving compensation under an employment agreement with the company. Beginning when all such compensation ceases, and continuing for a period of 15 years, Mr. Schwab or his estate will receive three-tenths of one percent (0.3%) of the aggregate net revenues of the company (on a consolidated basis) and those of its unconsolidated assignees and licensees that use the name or likeness. These payments may not, however, exceed $2 million per year, adjusted up or down to reflect changes from the cost of living prevailing in the San Francisco Bay Area in May 1987, and they will terminate if the company and its subsidiaries cease using Mr. Schwab’s name and likeness. For estimated payments to Mr. Schwab under his license agreement, please refer to the table below entitled “Termination and Change in Control Benefits.” The license agreement permits the company to continue using Mr. Schwab’s name and likeness even after he is no longer affiliated with the company and, under most circumstances, limits Mr. Schwab’s separate use of his name and likeness in the financial services business. However, the company’s ability to assign the license agreement, or to permit others to use Mr. Schwab’s name and likeness, is limited during Mr. Schwab’s lifetime. Thus, without Mr. Schwab’s consent, the company may not transfer the license, or any of the company’s rights under the license, to a third party, including by means of mergers or reorganizations in which the stockholders who held shares prior to the transaction do not retain the ability to elect the majority of the board immediately following such transaction (among other circumstances). 34
2011 Termination and Change in Control Benefits Table | | | | | | | | | | | | | | | | | | | Name | | Event1 | | Salary and Bonus | | | Early Vesting of Restricted Stock or Restricted Stock Units2 | | | Other | | | Total | | | | | | | | Walter W. Bettinger II | | Termination under Severance Plan | | | 1,063,841 | 3 | | | 2,183,145 | 4 | | | 22,484 | 5 | | | 3,269,471 | | | Change in control | | | — | | | | 4,599,260 | 6 | | | — | | | | 4,599,260 | | | Death or disability | | | — | | | | 4,599,260 | 6 | | | — | | | | 4,599,260 | | | | | | | | Joseph R. Martinetto | | Termination under Severance Plan | | | 492,941 | 3 | | | 252,044 | 4 | | | 18,141 | 5 | | | 763,125 | | | Change in control | | | — | | | | 719,446 | 6 | | | — | | | | 719,446 | | | Death or disability | | | — | | | | 719,446 | 6 | | | — | | | | 719,446 | | | | | | | | Benjamin L. Brigeman | | Termination under Severance Plan | | | 582,430 | 3 | | | 300,980 | 4 | | | 19,759 | 5 | | | 903,169 | | | Change in control | | | — | | | | 850,648 | 6 | | | — | | | | 850,648 | | | Death or disability | | | — | | | | 850,648 | 6 | | | — | | | | 850,648 | | | | | | | | James D. McCool | | Termination under Severance Plan | | | 620,569 | 3 | | | 289,010 | 4 | | | 15,316 | 5 | | | 924,896 | | | Change in control | | | — | | | | 809,414 | 6 | | | — | | | | 809,414 | | | Death or disability | | | — | | | | 809,414 | 6 | | | — | | | | 809,414 | | | | | | | | Charles R. Schwab | | Termination without cause | | | 4,425,000 | 7 | | | 293,492 | 8 | | | 60,948,216 | 9 | | | 65,666,708 | | | Change in control | | | — | | | | 1,639,355 | 6 | | | — | | | | 1,639,355 | | | Death | | | 2,500,000 | 10 | | | 1,639,355 | 6 | | | 59,879,130 | 11 | | | 64,018,485 | | | Disability | | | 1,500,000 | 12 | | | 1,639,355 | 6 | | | 59,879,130 | 11 | | | 63,018,485 | | | Resignation following a change in control | | | 1,875,000 | 13 | | | 1,639,355 | 6 | | | 59,879,130 | 11 | | | 63,393,485 | | | Retirement or voluntary resignation | | | 1,875,000 | 13 | | | 293,492 | 8 | | | 59,879,130 | 11 | | | 62,047,622 | |
(1) | | This table shows stock option grantsthe amount of benefits due to termination or change in control to be paid to the named executive officers during 2005. | | | | | | | | | | | | | | | | | | | | | INDIVIDUAL GRANTS | | | POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM (3) | | | NUMBER OF SECURITIES UNDERLYING OPTIONS GRANTED | | | % OF TOTAL OPTIONS GRANTED TO EMPLOYEES IN FISCAL YEAR | | | EXERCISE OR BASE PRICE PER SHARE | | EXPIRATION DATE | | | 5% | | 10% | Charles R. Schwab | | 800,000 | (1) | | 7.25 | % | | $ | 19.1240 | | 9/7/12 | | | $ | 4,424 | | $ | 5,895,047 | | | 800,000 | (1) | | 7.25 | % | | $ | 17.0750 | | 9/7/12 | | | $ | 1,643,624 | | $ | 7,534,247 | | | 800,000 | (1) | | 7.25 | % | | $ | 15.2992 | | 9/7/12 | | | $ | 3,064,264 | | $ | 8,954,887 | | | | | | | | Walter W. Bettinger II | | 200,000 | (1) | | 1.81 | % | | $ | 17.0750 | | 9/7/12 | | | $ | 410,906 | | $ | 1,883,562 | | | 200,000 | (1) | | 1.81 | % | | $ | 15.2992 | | 9/7/12 | | | $ | 766,066 | | $ | 2,238,722 | | | | | | | | Christopher V. Dodds | | 150,000 | (1) | | 1.36 | % | | $ | 17.0750 | | 9/7/12 | | | $ | 308,180 | | $ | 1,412,671 | | | 150,000 | (1) | | 1.36 | % | | $ | 15.2992 | | 9/7/12 | | | $ | 574,550 | | $ | 1,679,041 | | | | | | | | Deborah D. McWhinney | | 200,000 | (1) | | 1.81 | % | | $ | 17.0750 | | 9/7/12 | | | $ | 410,906 | | $ | 1,883,562 | | | 200,000 | (1) | | 1.81 | % | | $ | 15.2992 | | 9/7/12 | | | $ | 766,066 | | $ | 2,238,722 | | | | | | | | Peter K. Scaturro | | 500,000 | (2) | | 4.53 | % | | $ | 11.5800 | | 5/19/12 | | | $ | 2,350,076 | | $ | 5,483,328 | | | 150,000 | (1) | | 1.36 | % | | $ | 17.0750 | | 9/7/12 | | | $ | 308,180 | | $ | 1,412,671 | | | 150,000 | (1) | | 1.36 | % | | $ | 15.2992 | | 9/7/12 | | | $ | 574,550 | | $ | 1,679,041 | | | | | | | | William L. Atwell | | 200,000 | (1) | | 1.81 | % | | $ | 17.0750 | | 3/31/06 | | | | 0 | | | 0 | | | 200,000 | (1) | | 1.81 | % | | $ | 15.2992 | | 3/31/06 | | | | 0 | | | 0 | | | | | | | | Alan J. Weber | | 0 | | | — | | | | — | | — | | | | — | | | — |
(1) | | These premium priced options were granted on September 7, 2005 under the company’s 2004 Stock Incentive Plan and were fully exercisablepursuant to existing agreements (assuming the event triggering the termination or change in control took place as of December 31, 2011). There were no in-the-money options for any of the grant date. |
(2) | | These options were granted on May 19, 2005 under the company’s 2004 Stock Incentive Plan and vest 50% on each of the third and fourth anniversary of the grant date. |
(3) | | Based on SEC rules, we use a 5% and 10% assumed rate of appreciation over the option term. This does not represent the company’s estimate or projection of the future common stock price. If common stock does not appreciate above the exercise price, the named executive officer will receive no benefit from the options. |
29
EXECUTIVE COMPENSATION
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
This table shows stock option exercises and the value of unexercised stock options held by the named executive officers that would have accelerated under any of the conditions listed in the table as of December 31, 2005. 2011. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS AT FISCAL YEAR-END | | | VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL YEAR-END (2) | | | SHARES ACQUIRED ON EXERCISE | | | VALUE REALIZED (1) | | | EXERCISABLE | | UNEXERCISABLE | | | EXERCISABLE | | UNEXERCISABLE | Charles R. Schwab | | 1,687,500 | (3) | | $ | 16,954,966 | | | 5,850,000 | | 0 | | | $ | 22,409,251 | | | 0 | | | | | | | | Walter W. Bettinger II | | 0 | | | | 0 | | | 878,177 | | 117,492 | | | $ | 1,063,641 | | $ | 599,006 | | | | | | | | Christopher V. Dodds | | 33,750 | (3) | | $ | 356,226 | | | 1,319,688 | | 210,539 | | | $ | 2,403,372 | | $ | 1,011,386 | | | | | | | | Deborah D. McWhinney | | 0 | | | | 0 | | | 701,261 | | 108,742 | | | $ | 951,999 | | $ | 587,493 | | | | | | | | Peter K. Scaturro | | 0 | | | | 0 | | | 300,000 | | 500,000 | | | | 0 | | $ | 1,575,000 | | | | | | | | William A. Atwell | | 362,650 | | | $ | 834,296 | | | 818,473 | | 0 | | | $ | 1,901,650 | | | 0 | | | | | | | | Alan J. Weber | | 434,489 | | | $ | 1,010,370 | | | 0 | | 0 | | | | 0 | | | 0 |
| | The benefits payable to Mr. Schwab are based on the terms of his employment and license agreements and equity incentive award agreements. The events triggering payments are described more fully in the description of his employment and license agreements contained in the Narrative to Summary Compensation and Grants of Plan-Based Awards Tables. |
| | Except for Mr. Schwab, all other named executive officers are eligible for benefits in the event of job elimination under the Charles Schwab Severance Pay Plan (Severance Plan), and these benefits are included in amounts shown for “Termination under Severance Plan.” |
| | Equity award agreements may contain provisions for accelerated vesting due to a change in control, death or disability, or retirement, and these accelerated amounts are included in amounts shown for “change in control,” “death or disability,” and “retirement.” As of December 31, 2011, Mr. Schwab met the eligibility criteria for retirement under certain existing equity award agreements. |
| | Performance-based restricted stock and restricted stock unit award agreements may contain provisions for continued vesting following either termination under the Severance Plan or retirement, subject to achievement of performance goals established at the time such awards were granted. The value of awards subject to these |
(1) | | The amounts in this column are calculated35
| continued vesting and performance achievement provisions are included in amounts shown for “Termination under Severance Plan” and “Retirement” as applicable. |
(2) | | For restricted stock, the amounts are based on the closing price of a share of company common stock on December 30, 2011 ($11.26), multiplied by the number of shares subject to accelerated vesting. For performance-based restricted stock and restricted stock units, the amounts are based on $11.26 multiplied by the number of shares that may vest under the continued vesting provisions subject to achievement of performance goals established at the time such awards were granted. |
(3) | | Includes a base salary payable under the Severance Plan for the severance period and a 60-day notice period. Under the terms of the Severance Plan, an executive officer is eligible to receive a lump-sum severance pay benefit equal to base salary (at December 31, 2011 rate) for a specified period (a minimum of 7 months and a maximum of 12 months) based upon years of service. In addition, the Severance Plan provides for base salary during the 60-day notice period. To receive the lump-sum severance pay benefit, an employee must execute a severance agreement that provides the company and its affiliates with a general release and waiver of claims. |
(4) | | Under the Severance Plan, amounts result from accelerated vesting of outstanding restricted stock awards that would have vested during the 60-day notice period and the severance period, and continued vesting of outstanding performance-based restricted stock and restricted stock unit awards that would have vested during the 60-day notice period and the severance period. |
(5) | | Under the Severance Plan, amounts represent a lump-sum payment to cover the cost of COBRA premiums based on group health plan COBRA rates for the severance period. |
(6) | | Under equity award agreements, these awards become fully vested in the event of a change in control of the company or death or disability. |
(7) | | Under Mr. Schwab’s employment agreement, includes 36 months of salary (at December 31, 2011 rate of $500,000) and bonus (at 2011 cash incentive of $975,000), to be paid in 36 monthly installments. |
(8) | | Under equity award agreements, performance-based restricted stock unit awards granted more than two years prior to termination continue to vest after termination based on the achievement of the related performance goals if the employee meets the eligibility criteria for retirement at the time of termination. |
(9) | | Under Mr. Schwab’s employment and license agreements, includes: annual installments of $3,991,942 (which represents $2 million adjusted to the consumer price index from 1987 as specified in his license agreement) for 15 years, estimated cost of office space and secretarial support for 36 months of $799,763, and estimated security and personal driver for 36 months of $266,868. |
(10) | | Under Mr. Schwab’s employment agreement, represents a lump-sum death benefit payable to Mr. Schwab’s estate in an amount equal to five times annual salary (at December 31, 2011 rate of $500,000). |
(11) | | Under Mr. Schwab’s license agreement, represents annual installments of $3,991,942 for 15 years payable to Mr. Schwab or his estate. |
(12) | | Under Mr. Schwab’s employment agreement, represents 36 months of annual salary (at December 31, 2011 rate of $500,000), to be paid in monthly installments. A prorated bonus is not included, as it is already included in the 2011 Summary Compensation Table and is not an additional expense to the company. |
(13) | | Under Mr. Schwab’s employment agreement, represents $1,875,000 payable in 60 monthly installments of $31,250 in the event that Mr. Schwab elects to provide consulting services following a voluntary resignation or resignation or termination after a change in control. A prorated bonus is not included, as it is already included in the 2011 Summary Compensation Table and is not an additional expense to the company. |
36
Charles Schwab Severance Pay Plan Employees other than Mr. Schwab are eligible for benefits under the Severance Plan in the event of job elimination, as defined in the plan. Under the Severance Plan, an executive officer is eligible to receive a lump-sum severance pay benefit of base salary equal to 15 business days multiplied by his or her full years of service, with a minimum of seven months and maximum of twelve months of the base salary that would have been payable to the executive officer. Pro-rated benefits will be provided for partial years of service. The lump-sum amount is in addition to base salary for the 60-day notice period. An executive officer who becomes entitled to severance benefits under the plan is also eligible to receive a lump-sum payment to cover a portion of the cost of group health plan coverage. The amount of the payment is based upon the period of time for which he or she is eligible to receive severance pay and current COBRA rates for group health plan coverage. In addition, the portion of the executive officer’s long-term awards, except performance-based restricted stock or similar performance-based awards, which would have vested had the officer remained employed during the severance period will vest following his or her termination date. Executive officers are treated as employees during their severance period for purposes of determining their vesting in performance-based awards to the extent performance goals are met for the period. 37
OUTSTANDING EQUITY AWARDS AS OF DECEMBER 31, 2011 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | OPTION AWARDS | | | STOCK AWARDS | | Name | | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Option Exercise Price ($) | | | Option Expiration Date | | | Number of Shares or Units of Stock That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested1 ($) | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested1 ($) | | | | | | | | | | | Walter W. Bettinger II | |
| 47,199
31,467 209,780 209,780 141,743 1,048,900 348,190 341,649 342,620 60,861 70,477 71,812 |
| |
| 417,571
342,621 182,585 211,432 215,436 274,759 320,649 359,400 | 2
5 6 7 8 9 10 11 | |
| 12.50
9.26 14.59 16.28 18.29 18.65 23.33 24.37 17.38 18.25 15.00 15.43 18.66 15.05 11.75 |
| |
| 2/27/2012
11/8/2012 9/7/2012 9/7/2012 10/30/2013 2/20/2014 11/1/2014 10/1/2015 11/2/2019 3/1/2020 8/2/2020 11/1/2020 3/1/2021 8/1/2021 11/1/2021 |
| | | 93,01512 | | | | 1,047,349 | | | | 315,44514,15,16 | | | | 3,551,911 | | | | | | | | | | | Joseph R. Martinetto | |
| 5,244
20,789 34,972 104,457 92,190 63,253 11,236 13,011 13,257 |
| |
| 30,730
63,254 33,708 39,034 39,774 54,952 64,130 71,880 | 3
5 6 7 8 9 10 11 | |
| 9.26
18.29 19.99 23.33 19.36 17.38 18.25 15.00 15.43 18.66 15.05 11.75 |
| |
| 11/8/2012
10/30/2013 5/18/2014 11/1/2014 11/3/2018 11/2/2019 3/1/2020 8/2/2020 11/1/2020 3/1/2021 8/1/2021 11/1/2021 |
| | | — | | | | — | | | | 63,89413,14,15,16 | | | | 719,446 | |
38
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | OPTION AWARDS | | | STOCK AWARDS | | Name | | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Option Exercise Price ($) | | | Option Expiration Date | | | Number of Shares or Units of Stock That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested1 ($) | | | 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 Vested1 ($) | | Benjamin L. Brigeman | |
| 14,677
16,782 21,262 57,693 125,349 115,237 76,431 13,577 15,722 16,019 |
| |
| 38,413
76,431 40,731 47,166 48,060 63,406 73,996 82,939 | 3
5 6 7 8 9 10 11 | |
| 12.50
9.26 18.29 22.41 23.33 19.36 17.38 18.25 15.00 15.43 18.66 15.05 11.75 |
| |
| 2/27/2012
11/8/2012 10/30/2013 10/1/2014 11/1/2014 11/3/2018 11/2/2019 3/1/2020 8/2/2020 11/1/2020 3/1/2021 8/1/2021 11/1/2021 |
| | | — | | | | — | | | | 75,54613,14,15,16 | | | | 850,648 | | | | | | | | | | | James D. McCool | |
| 35,436
104,457 96,030 17,985 73,795 13,108 15,179 15,467 |
| |
| 32,011
5,996 73,796 39,327 45,540 46,402 59,179 69,063 77,410 | 3
4 5 6 7 8 9 10 11 | |
| 18.29
23.33 19.36 18.49 17.38 18.25 15.00 15.43 18.66 15.05 11.75 |
| |
| 10/30/2013
11/1/2014 11/3/2018 12/10/2018 11/2/2019 3/1/2020 8/2/2020 11/1/2020 3/1/2021 8/1/2021 11/1/2021 |
| | | 67912 | | | | 7,646 | | | | 71,20513,14,15,16 | | | | 810,768 | | | | | | | | | | | Charles R. Schwab | |
| 314,670
839,120 839,120 839,120 566,973 487,466 158,133 28,090 32,528 33,144 |
| |
| 158,133
84,270 97,584 99,432 126,812 147,992 165,887 | 5
6 7 8 9 10 11 | |
| 13.12
14.59 16.28 18.23 18.29 23.33 17.38 18.25 15.00 15.43 18.66 15.05 11.75 |
| |
| 1/20/2014
9/7/2012 9/7/2012 9/7/2012 10/30/2013 11/1/2014 11/2/2019 3/1/2020 8/2/2020 11/1/2020 3/1/2021 8/1/2021 11/1/2021 |
| | | — | | | | — | | | | 145,59114,15,16 | | | | 1,639,355 | |
(1) | | Represents the market value of unvested restricted stock and restricted stock units held as of December 31, 2011 based on the closing price of a share of common stock of $11.26 on December 30, 2011. |
39
(2) | | These nonqualified stock options were granted on October 1, 2008 under the 2004 Stock Incentive Plan and vest 15% on the first, second, third and fourth anniversary of the grant date and 40% on the fifth anniversary of the grant date. |
(3) | | These nonqualified stock options were granted on November 3, 2008 under the 2004 Stock Incentive Plan and vest in four equal annual installments beginning on the first anniversary of the grant date. |
(4) | | These nonqualified stock options were granted on December 10, 2008 under the 2004 Stock Incentive Plan and vest in four equal annual installments beginning on the first anniversary of the grant date. |
(5) | | These nonqualified stock options were granted on November 2, 2009 under the 2004 Stock Incentive Plan and vest in four equal annual installments beginning on the first anniversary of the grant date. |
(6) | | These nonqualified stock options were granted on March 1, 2010 under the 2004 Stock Incentive Plan and vest in four equal annual installments beginning on the first anniversary of the grant date. |
(7) | | These nonqualified stock options were granted on August 2, 2010 under the 2004 Stock Incentive Plan and vest in four equal annual installments beginning on the first anniversary of the grant date. |
(8) | | These nonqualified stock options were granted on November 1, 2010 under the 2004 Stock Incentive Plan and vest in four equal annual installments beginning on the first anniversary of the grant date. |
(9) | | These nonqualified stock options were granted on March 1, 2011 under the 2004 Stock Incentive Plan and vest in four equal annual installments beginning on the first anniversary of the grant date. |
(10) | | These nonqualified stock options were granted on August 1, 2011 under the 2004 Stock Incentive Plan and vest in four equal annual installments beginning on the first anniversary of the grant date. |
(11) | | These nonqualified stock options were granted on November 1, 2011 under the 2004 Stock Incentive Plan and vest in four equal annual installments beginning on the first anniversary of the grant date. |
(12) | | Time-based vesting for these restricted shares is set forth in the table below. |
| | | | | | | | | Name | | Vesting Date | | | Number of Shares | | | | | Walter W. Bettinger II | | | 10/1/2012 | | | | 93,015 | | | | | James D. McCool | | | 12/10/2012 | | | | 679 | |
(13) | | Includes performance-based restricted stock awards that were granted on November 3, 2008 and vest in equal installments of 25% on the first, second, third and fourth anniversary of the grant date. If, however, a corporate performance goal related to revenue growth and pre-tax contribution margin is not met for a performance period, then the associated shares will be forfeited. Vesting for these restricted shares is as follows: |
| | | | | | | | | Name | | Vesting Date | | | Number of Shares | | | | | Joseph R. Martinetto | | | 11/3/2012 | | | | 3,130 | | | | | Benjamin L. Brigeman | | | 11/3/2012 | | | | 3,913 | | | | | James D. McCool | | | 11/3/2012 | | | | 3,261 | |
40
(14) | | Includes performance-based restricted stock unit awards that were granted on November 2, 2009 and vest in increments of 25% on the first, second, third and fourth anniversary of the grant date, provided a performance goal related to return on equity for the one-year performance period ending on each September 30 preceding the vesting date is met. If a performance goal for any one-year performance period is not met, there will be a second opportunity to vest in any unvested restricted stock units at the end of the final performance period, if a performance goal related to the average of the return on equity over the four one-year performance periods is met. Units that have not vested by November 2, 2013 will be forfeited. Incremental vesting for these restricted stock units is as follows: |
| | | | | | | | | Name | | Vesting Date | | | Number of Units | | | | | Walter W. Bettinger II | |
| 11/2/2012
11/2/2013 |
| |
| 28,236
28,237 |
| | | | Joseph R. Martinetto | |
| 11/2/2012
11/2/2013 |
| |
| 5,213
5,213 |
| | | | Benjamin L. Brigeman | |
| 11/2/2012
11/2/2013 |
| |
| 6,299
6,299 |
| | | | James D. McCool | |
| 11/2/2012
11/2/2013 |
| |
| 6,082
6,082 |
| | | | Charles R. Schwab | |
| 11/2/2012
11/2/2013 |
| |
| 13,032
13,033 |
|
(15) | | Includes performance-based restricted stock unit awards that were granted on November 1, 2010 and vest in increments of 25% on the first, second, third and fourth anniversary of the grant date, provided a performance goal established by the Compensation Committee for each performance period is met. For the performance period ending on September 30, 2012, the performance goal is cumulative return on equity exceeds cumulative cost of equity. The restricted stock units that do not vest based on the performance for the applicable period will be forfeited. Incremental vesting for these restricted stock units is as follows: |
| | | | | | | | | Name | | Vesting Date | | | Number of Units | | | | | Walter W. Bettinger II | |
| 11/1/2012
11/1/2013 11/1/2014 |
| |
| 31,564
31,564 31,564 |
| | | | Joseph R. Martinetto | |
| 11/1/2012
11/1/2013 11/1/2014 |
| |
| 5,827
5,827 5,828 |
| | | | Benjamin L. Brigeman | |
| 11/1/2012
11/1/2013 11/1/2014 |
| |
| 7,041
7,041 7,042 |
| | | | James D. McCool | |
| 11/1/2012
11/1/2013 11/1/2014 |
| |
| 6,799
6,798 6,799 |
| | | | Charles R. Schwab | |
| 11/1/2012
11/1/2013 11/1/2014 |
| |
| 14,568
14,568 14,568 |
|
41
(16) | | Includes performance-based restricted stock unit awards that were granted on November 1, 2011 and vest in increments of 25% on the first, second, third and fourth anniversary of the grant date, provided that a performance goal of cumulative return on equity exceeding the cumulative cost of equity preceding the vesting date is met. Any units that do not vest at the conclusion of the corresponding one-year performance period may vest at the conclusion of the fourth one-year period if the performance goal for the four-year period has been met. Any units that do not vest at the end of the fourth one-year period will be forfeited. Incremental vesting for these restricted stock units is as follows: |
| | | | | | | | | Name | | Vesting Date | | | Number of Units | | | | | Walter W. Bettinger II | |
| 11/1/2012
11/1/2013 11/1/2014 11/1/2015 |
| |
| 41,070
41,070 41,070 41,070 |
| | | | Joseph R. Martinetto | |
| 11/1/2012
11/1/2013 11/1/2014 11/1/2015 |
| |
| 8,214
8,214 8,214 8,214 |
| | | | Benjamin L. Brigeman | |
| 11/1/2012
11/1/2013 11/1/2014 11/1/2015 |
| |
| 9,477
9,478 9,477 9,478 |
| | | | James D. McCool | |
| 11/1/2012
11/1/2013 11/1/2014 11/1/2015 |
| |
| 8,846
8,846 8,846 8,846 |
| | | | Charles R. Schwab | |
| 11/1/2012
11/1/2013 11/1/2014 11/1/2015 |
| |
| 18,955
18,956 18,955 18,956 |
|
2011 Option Exercises and Stock Vested Table | | | | | | | | | | | | | | | | | | | OPTION AWARDS | | | STOCK AWARDS | | | | | | | Name | | Number of Shares Acquired on Exercise (#) | | | Value Realized on Exercise ($)1 | | | Number of Shares Acquired on Vesting (#) | | | Value Realized on Vesting ($)2 | | | | | | | Walter W. Bettinger II | | | 407,918 | | | | 2,968,146 | | | | 215,804 | | | | 3,446,196 | | | | | | | Joseph R. Martinetto | | | 131,932 | | | | 821,858 | | | | 21,888 | | | | 290,619 | | | | | | | Benjamin L. Brigeman | | | 103,341 | | | | 577,472 | | | | 28,212 | | | | 332,920 | | | | | | | James D. McCool | | | — | | | | — | | | | 19,565 | | | | 235,170 | | | | | | | Charles R. Schwab | | | — | | | | — | | | | 27,600 | | | | 330,088 | |
42
(1) | | The value realized on exercise of stock options as shown in this chart was calculated by subtracting the option exercise price from the market price to obtain the value realized per share, and multiplying the value realized per share by the number of shares acquired upon exercise. The market price for each transaction was determined as follows: If upon exercising nonqualified stock options, the named executive officer sold the shares acquired, the market price was determined to be the sale price. If upon exercising nonqualified stock options, the named executive officer kept the shares he or she acquired, then by averagingthe market price was determined to be the average of the high and low market pricesprice of the company’s common stock on the date of exercise to obtain the “market price,” orexercise. If upon exercising theincentive stock options, the named executive officer sold the shares he or she acquired, then by usingthe market price was determined to be the lesser of the average of the high and low market price of the company’s common stock on the date of the exercise, or the sale price. If upon exercising incentive stock options, the named executive officer kept the shares acquired, then the market price aswas determined to be the “marketaverage of the high and low market price” then | ° | | subtracting the option exercise price from the market price to obtain the “value realized per share,” and |
| ° | | multiplying the value realized per share by the number of shares acquired upon exercise. |
| | of the company’s common stock on the date of the exercise. Accordingly, the amounts in this column may not represent amounts actually realized by the named executive officers. |
(2) | | The amounts in this column are calculated by: |
subtracting the option exercise price from the company’s December 30, 2005 average market price ($14.73) per share to get the “average value per option,” and
(2) | | Amounts in this column were calculated by multiplying the average value per option by the number of exercisableshares acquired on vesting by the average of the high and low market price of the company’s common stock on the vesting date. If the vesting date was a weekend or unexercisable options, as applicable.holiday, the next business day was used to value the shares. |
2011 Nonqualified Deferred Compensation Table | | The amounts in this column may not represent amounts that will actually be realized by the named executive officers. |
(3) | | All stock options exercised by Mr. Schwab in 2005 would have expired if not exercised by October 17, 2005. All stock options exercised by Mr. Dodds in 2005 would have expired if not exercised by December 7, 2005. | | | | | | | | | | | | | | | | | Name1 | | Plan | | | Aggregate Earnings in Last Fiscal Year2 ($) | | | Aggregate Withdrawals/ Distributions ($) | | | Aggregate Balance at Last Fiscal Year-End ($) | | | | | | | James D. McCool | | | DCP2 | | | | (22,368 | ) | | | — | | | | 1,219,811 | | | | | | | Charles R. Schwab | | | DCP1 | | | | 14,974 | | | | — | | | | 13,056,605 | 3 |
(1) | | Mr. Schwab participates in The Charles Schwab Corporation Deferred Compensation Plan I (DCP1) only, and Mr. McCool participates in The Charles Schwab Corporation Deferred Compensation Plan II (DCP2) only. Mr. Schwab and Mr. McCool made no contributions to the deferred compensation plans in 2011. The company does not make contributions to the deferred compensation plans. Mr. Bettinger, Mr. Brigeman and Mr. Martinetto do not participate in either of the company’s deferred compensation plans. |
30
EXECUTIVE COMPENSATION
(2) | | The earnings reported in this column are not above-market or preferential and therefore are not reported in the Summary Compensation Table. |
(3) | | For Mr. Schwab, includes executive contributions of $6,513,138 of annual cash incentives which were previously reported as compensation to Mr. Schwab in the Summary Compensation Tables for prior years (1994 – 1997), and aggregate plan earnings of $6,543,467. Mr. Schwab does not currently defer compensation. |
The Charles Schwab Corporation Deferred Compensation Plans In December 2004, the Compensation Committee adopted the DCP2. Deferrals for income earned prior to January 1, 2005 were made under the DCP1, and all deferrals for income earned after January 1, 2005 were made pursuant to the DCP2. Subject to the terms and conditions set forth in the plans, each eligible participant may elect to defer a portion of amounts earned under the company’s non-equity incentive plans (and in some cases, participants can elect to defer a portion of their base salary). All of a participant’s compensation deferrals are credited to a deferral account maintained for each participant. Amounts credited to deferral accounts are adjusted 43
periodically to reflect earnings and losses (calculated based on the market return of investment options selected by participants that the company makes available under the plans). Investment options available under the plans are similar to those offered under the company’s 401(k) plan, except that the self-directed brokerage feature and the company common stock funds are not available, and two additional funds offering short-term U.S. Treasury securities and inflation-protected U.S. Treasury securities are available. Participants may make investment changes at any time. With certain exceptions, deferral accounts are paid or commence to be paid upon a fixed payment date, as elected by the participant, or the participant’s retirement. Participants may generally elect that payments be made in a single lump sum or in annual installments over a period of four, five, ten or fifteen years. However, payment will be made in a lump sum after a change in control of the company or upon a termination of a participant’s employment for any reason other than retirement. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS The following table summarizes information as of December 31, 2011 with respect to equity compensation plans approved and not approved by stockholders (shares in millions): Securities Authorized for Issuance as of December 31, 2011 | | | | | | | | | | | | | PLAN CATEGORY | | (A) SHARES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS | | | (B) WEIGHTED-AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS | | | (C) SHARES AVAILABLE FOR FUTURE ISSUANCE (EXCLUDING SHARES IN COLUMN A) | | | | | | Equity compensation plans approved by stockholders | | | 63.7 | (1) | | | $16.38 | (2) | | | 95.2 | (3) | | | | | Equity compensation plans not approved by stockholders | | | 3.2 | (4) | | | $10.96 | (5) | | | 0 | | | | | | Total | | | 66.9 | | | | $16.26 | | | | 95.2 | |
(1) | | Consists of 55,058,019 stock options, 459,756 shares of restricted stock, and 8,144,932 restricted stock units outstanding under the company’s 1992, 2001 and 2004 Stock Incentive Plans. |
(2) | | The weighted-average exercise price does not take into account awards that have no exercise price such as restricted stock or restricted stock units. |
(3) | | Consists of 49,984,397 shares (including stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock and performance units) that may be awarded under the 2004 Stock Incentive Plan and 45,212,685 shares that may be purchased under the Employee Stock Purchase Plan (ESPP). An offering period under the ESPP had begun but was not completed as of December 31, 2005 with respect to equity compensation plans approved and not approved by stockholders (shares in millions): | | | | | | 2011 (424,815 shares were subsequently purchased at the end of this offering period). | PLAN CATEGORY | | (A)
|
SHARES TO BE ISSUED
UPON EXERCISE OF
OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS
| | (B)
WEIGHTED-AVERAGE
EXERCISE PRICE OF
OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS
| | (C)
SHARES AVAILABLE FOR
FUTURE ISSUANCE
(EXCLUDING SHARES
IN COLUMN A)
| | | | | Equity compensation plans approved by stockholders
| | 89 (1) | | $14.45 (2) | | 37
| | | | | Equity compensation plans not approved by stockholders
| | 26 (3) | | $18.31 (4) | | 0
| | | | | Total
| | 115
| | $15.33
| | 37 (5) |
(1) | | Consists of 89,109,571 stock options and 159,780 restricted stock units under the company’s 1987 Stock Option Plan, 1987 Executive Officer Stock Option Plan, and the 1992, 2001 and 2004 Stock Incentive Plans. |
(2) | | The weighted average exercise price does not take into account awards that have no exercise price such as restricted stock units. |
(3) | | Consists of 26,223,821(4) | | Consists of 1,269,417 stock options under the company’s Employee Stock Incentive Plan (ESIP) and 21,480 stock options under the CyBerCorp, Inc. 1996 Stock Incentive Plan (the CyBerCorp Plan). Grants under the ESIP were made to employees other than officers and directors and, accordingly, did not require shareholder approval under rules in effect at the time of grant. In connection with its acquisition of CyberCorp, Inc. in 2002, the company assumed stock options granted under the CyberCorp Plan. |
(4) | | Includes options granted under the ESIP and the CyberCorp Plan. Options granted under the ESIP and the CyberCorp Plan had weighted-average exercise prices of $18.31 and $16.59, respectively. |
(5) | | Represents stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock and performance units that may be awarded under the 2004 Stock Incentive Plan. No new shares are available for grant under any other stock incentive plan. |
31
EXECUTIVE COMPENSATION
MATERIAL FEATURES OF EMPLOYEE STOCK INCENTIVE PLAN
Purpose. The board approved the Employee Stock Incentive Plan (ESIP) approved in 1997. Grants under the ESIP were made to promoteemployees other than officers and directors and, accordingly, did not require stockholder approval under rules in effect at the long-term successtime of grant.
|
In connection with its acquisition of optionsXpress Holdings, Inc. in 2011, the company assumed stock options granted under the optionsXpress Holdings, Inc. 2008 Equity Incentive Plan, 2005 Equity Incentive Plan and 2001 Equity Incentive Plan (the “optionsXpress Plans”). There were 1,625,964 stock options and 306,880 restricted stock units outstanding under the optionsXpress Plans. 44
(5) | | Represents the company and the creation of incremental stockholder value by (a) encouraging employees to focus on long-range objectives, (b) encouraging the attraction and retention of employees with exceptional qualifications and (c) linking employee and stockholder interests. The plan seeks to achieve this objective by providing for grantsweighted-average exercise price of options and restricted stock to employees. No new shares are available for grant under this plan. All or a portion of the shares issuablegranted under the plan were granted in the form of options or restricted stock.Option Grants.ESIP. Options granted under the plan allow employees to purchase shares of common stock at anoptionsXpress Plans had a weighted-average exercise price of not less than 100% of the fair market value of a share on the grant date. Options become exercisable and expire within the times and upon theevents determined by the Compensation Committee or by persons to whom the committee delegates such responsibility. The exercise price of options must be paid in cash or, if permitted by the committee or its delegates, by the surrender of shares of common stock valued at their fair market value on the date when the new shares are purchased, or by the proceeds from a “same-day sale” commitment.$14.21.
|
Employee Stock Incentive Plan The Employee Stock Incentive Plan, which the board approved in 1997, provided for the grant of stock options and restricted stock to employees. No new shares are available for grant under this plan. Options granted under the plan allow employees to purchase shares of common stock at an exercise price of not less than 100% of the fair market value of a share on the grant date. Options become exercisable and expire within the times and upon the events determined by the Compensation Committee or by persons to whom the committee delegates such responsibility. All restricted stock granted under the plan has vested according to the terms of the plan. 45
PROPOSAL FOUR: AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BYLAWS TO DECLASSIFY THE BOARD The company’s Fifth Restated Certificate of Incorporation provides that the board is divided into three classes of directors, with each class elected every three years. The company’s stockholders approved the election of directors by classes in 1996. Stockholders voted in favor of a classified board at that time to ensure the continuity and stability of the company’s directors and policies, so that a majority of directors at any given time would have prior experience as directors of the company. We believe that our stockholders have benefited from the stability of the classified board structure in light of the economic uncertainty over the past few years. As part of its ongoing review of corporate governance matters, including a review of the level of support received for the stockholder proposal calling for the annual election of directors submitted last year by the AFSCME Employees Pension Plan, the Nominating and Corporate Governance Committee considered the advantages and disadvantages of maintaining the classified board structure. There are two sides to the argument: some stockholders believe that annual elections may increase accountability of directors because stockholders may evaluate and elect all directors on an annual basis, and the election of directors may be the primary means for stockholders to influence corporate governance policies of the company. Other stockholders may prefer to retain the benefits of the classified board structure, which has a long history in corporate law. A classified structure may allow directors to exercise greater independence on behalf of all stockholders if they do not face annual reelection campaigns, as well as provide continuity and stability in the management of the business and affairs of the company. In some circumstances classified boards may enhance stockholder value by forcing an entity seeking control of the company to initiate discussions at arm’s-length with the board of the company, because the entity cannot replace the entire board in a single election. After considering these interests, the board recommended submitting the proposed amendments to the stockholders regarding the proposed declassification of the board. The proposed amendments to the Fifth Restated Certificate of Incorporation eliminate the classification of the board over a three-year period and provide for the annual election of all directors beginning at the 2015 annual meeting of stockholders and make certain conforming changes to the Fifth Restated Certificate of Incorporation and the company’s Fourth Restated Bylaws. If approved, the proposed amendments to the certificate of incorporation would become effective upon the filing of a certificate of amendment with the Secretary of State of the State of Delaware, which the company would do promptly after stockholder approval is obtained for the proposed amendments. Board declassification would be phased-in over a three-year period, beginning at the 2013 Annual Meeting of Stockholders as follows: · | | Restricted Stock Grants. Restricted stock becomes vested, in full or in installments, uponFrom the satisfaction of certain conditions established by the Compensation Committee or its delegates.
Effect of Change in Control. At theeffective time of granting options or restricted stock, the Compensation Committee or its delegates may determine that the options or restricted stock shall become fully exercisable or vested if a change in control occurs with respect to the company.
32
EXECUTIVE COMPENSATION
LONG-TERM INCENTIVE PLAN — AWARDS IN LAST FISCAL YEAR
This table shows awards made under the company’s Long-Term Incentive Plan to the named executive officers during the last fiscal year. It shows cash amounts that would be payable after the 3 1/2-year performance period from July 1, 2005 through December 31, 2008 with respect to the cash component of long-term compensation awards for 2005, assuming the company’s cumulative earnings per share over that period reach a level that would result, alternatively, in threshold awards, target awards or maximum awards under the Long-Term Incentive Plan.
After the end of the 3 1/2-year performance period, units are valued according to a pre-established table that refers to the company’s cumulative earnings per share over the performance period. Units are paid in cash and vest over a 3 1/2-year period of continuous employment. Units may become 100% vested upon retirement, death or disability.
| | | | | | | | | | | | | | | | | | | | | | | | ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS | NAME | | NUMBER OF SHARES, UNITS OR OTHER RIGHTS | | | PERFORMANCE OR OTHER PERIOD UNTIL MATURATION OR PAYOUT | | | THRESHOLD | | TARGET | | MAXIMUM | | | | | | | Charles R. Schwab | | 0 | | | — | | | | — | | | — | | | — | | | | | | | Walter W. Bettinger II | | 920,000 | | | 2005 - 2008 | | | $ | 460,000 | | $ | 920,000 | | $ | 3,680,000 | | | | | | | Christopher V. Dodds | | 690,000 | | | 2005 - 2008 | | | $ | 345,000 | | $ | 690,000 | | $ | 2,760,000 | | | | | | | Deborah D. McWhinney | | 920,000 | | | 2005 - 2008 | | | $ | 460,000 | | $ | 920,000 | | $ | 3,680,000 | | | | | | | Peter K. Scaturro | | 690,000 | | | 2005 - 2008 | | | $ | 345,000 | | $ | 690,000 | | $ | 2,760,000 | | | | | | | William L. Atwell | | 920,000 | (1) | | 2005 - 2008 | | | $ | 115,000 | | $ | 230,000 | | $ | 920,000 | | | | | | | Alan J. Weber | | 0 | | | — | | | | — | | | — | | | — |
(1) | | Under the terms of his separation agreement, Mr. Atwell retained 230,000 of the 920,000 long-term incentive units granted to him in 2005. The estimated future payouts reflected in the table are based upon the 230,000 units retained. |
33
PRINCIPAL STOCKHOLDERS
This table shows common stock that is beneficially owned by the directors, the named executive officers, and owners of 5% or more of the outstanding company common stock, as of the close of business on March 20, 2006.
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
| | | | | | | | | | | NAME | | SHARES OWNED (1) | | RIGHT TO ACQUIRE (2) | | SHARES TO BE ACQUIRED UNDER THE DIRECTORS’ DEFERRED COMPENSATION PLAN (3) | | RESTRICTED STOCK (4) | | PERCENT OF OUTSTANDING SHARES | Charles R. Schwab (5) | | | | | | 0 | | 0 | | | | | | | | | William F. Aldinger III | | | | | | | | | | * | | | | | | | Nancy H. Bechtle | | | | | | | | | | * | | | | | | | C. Preston Butcher (6) | | | | | | | | | | * | | | | | | | Donald G. Fisher (7) | | | | | | | | | | * | | | | | | | Frank C. Herringer (8) | | | | | | | | | | * | | | | | | | Marjorie Magner | | | | | | | | | | * | | | | | | | Stephen T. McLin (9) | | | | | | | | | | * | | | | | | | Paula A. Sneed | | | | | | | | | | * | | | | | | | Roger O. Walther(10) | | | | | | | | | | * | | | | | | | Robert N. Wilson | | | | | | | | | | * | | | | | | | David B. Yoffie | | | | | | 0 | | | | * | | | | | | | Walter W. Bettinger II | | | | | | 0 | | | | * | | | | | | | Christopher V. Dodds | | | | | | 0 | | | | * | | | | | | | Deborah D. McWhinney | | | | | | 0 | | | | * | | | | | | | Peter K. Scaturro | | | | | | 0 | | | | * | | | | | | | William L. Atwell | | | | | | 0 | | | | * | | | | | | | Alan J. Weber | | | | | | 0 | | | | * | | | | | | | Directors and Executive Officers as a Group (23 Persons) (11) | | | | | | | | | | |
34
PRINCIPAL STOCKHOLDERS
(1) | | Includes shares for which the named person has sole voting and investment power, has shared voting and investment power with his or her spouse, or holds in an account under The SchwabPlan Retirement Savings and Investment Plan. |
| | Excludes shares that may be acquired through stock option exercises or are restricted stock holdings. |
(2) | | Shares that can be acquired through stock option exercises through May 18, 2006. |
(3) | | Shares to be acquired under the terms of Directors’ Deferred Compensation Plan in connection with service on the Board of Directors of the company or U.S. Trust Corporation. |
(4) | | Performance shares or shares subject to a vesting schedule, forfeiture risk and other restrictions. |
(5) | | Includes shares held by Mr. Schwab’s spouse, shares held by a limited liability company and the following shares for which Mr. Schwab disclaims beneficial ownership: shares held by a non-profit public benefit corporation established by Mr. Schwab, and shares held in a trust for which Mr. Schwab acts as trustee. |
| | Includes the following shares for which Mr. Schwab may be deemed to have shared voting and investment power but for which he disclaims beneficial ownership: shares held by investment companies and managed by a wholly-owned subsidiary of the company. |
Mr. Schwab’s address is c/o The Charles Schwab Corporation, 101 Montgomery Street, San Francisco, California 94104.
(6) | | Includes shares held by Mr. Butcher’s spouse. |
(7) | | Includes shares held by a non-profit public benefit corporation for which Mr. Fisher has shared voting and investment power but for which he disclaims beneficial ownership. |
(8) | | Includes shares held by Mr. Herringer’s spouse. |
(9) | | Includes shares held by a non-profit public benefit corporation established by Mr. McLin, but for which he disclaims beneficial ownership. |
(10) | | Includes shares held by Mr. Walther’s spouse. |
(11) | | In addition to the officers and directors named in this table, five other executive officers are members of this group. |
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PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total returns for the company’s common stock, the Dow Jones U.S. Investment Services Index, and the Standard & Poor’s 500 Index, each of which assumes an initial investment of $100 and reinvestment of dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
| | | | | | | | | | | | | | | 12/31/00 | | 12/31/01 | | 12/31/02 | | 12/31/03 | | 12/31/04 | | 12/31/05 | The Charles Schwab Corporation | | $100 | | $55 | | $38 | | $42 | | $43 | | $ 53 | | | | | | | | Dow Jones U.S. Investment Services Index | | $100 | | $76 | | $56 | | $80 | | $86 | | $105 | | | | | | | | Standard & Poor’s 500 Index | | $100 | | $88 | | $69 | | $88 | | $98 | | $103 |
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on its records and other information, the company believes that during 2005 all filings with the SEC by its officers, directors and 10% stockholders timely complied with requirements for reporting ownership and changes in ownership of common stock under Section 16(a) of the Securities Exchange Act of 1934, except as set forth in this paragraph. Due to an administrative error, one Form 4 for Randall W. Merk to report one transaction for an exercise of stock options was reported late. Mr. Merk held the shares of common stock acquired in the exercise. The report, due in February 2005, was filed in March 2005.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The directors identified below had the following relationships with the company in 2005:
· | | Stephen T. McLin, a director, has a son, Stephen D. McLin, who was employed in a non-officer position of Specialist, Technical Product Development during 2005 (and presently). Mr. McLin’s son earned aggregate compensation of approximately $80,000 during 2005. Mr. McLin’s son has been employed by the company for 12 years. |
· | | Charles R. Schwab, the company’s Chairman and Chief Executive Officer, has a daughter, Carolyn (“Carrie”) Schwab Pomerantz, who was employed as President of the Charles Schwab Foundation during 2005 (and presently). Mr. Schwab’s daughter earned aggregate compensation of approximately $266,000 during 2005. She also received a grant of 12,310 shares of restricted stock and an award of long-term incentive plan units with a target value of $125,000 during the year. Ms. Schwab Pomerantz has been employed by the company for 23 years. |
Some directors, executive officers and entities with which they are affiliated have credit transactions with the company’s banking and brokerage subsidiaries, such as mortgage loans, revolving lines of credit, or other extensions of credit. These transactions with directors, executive officers and their affiliates are made in the ordinary course of business and to the extent permitted by the Sarbanes-Oxley Act of 2002. Such transactions are on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than the normal risk of collectibility or present other unfavorable features.
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INFORMATION ABOUT VOTING PROCEDURES
How is my vote counted?
You may vote either “for” each director nominee or withhold your vote from any one or more of the nominees.
You may vote “for” or “against” or “abstain” from voting on the proposal to amend the certificate of incorporationamendment until the election of directors at the 2013 annual meeting, the board shall be divided into three classes of directors, Class I, Class II and bylawsClass III, with the directors in Class I having a term expiring at the 2013 annual meeting, the directors in Class II having a term expiring at the 2014 annual meeting and the four stockholder proposals. If you abstain from voting on any of these proposals, it will havedirectors in Class III having a term expiring at the same effect as a vote “against” that proposal.2015 annual meeting.
If you provide your voting instructions on your proxy, your shares will be voted:
· | | according to the best judgment of Mr. Schwab and Ms. Dwyer if a proposal comes up for a vote at the meeting that is not on the proxy. |
If you do not indicate a specific choice on the proxy you submit, your shares will be voted:
· | | for the three named nominees for directors, |
· | | Commencing with the election of directors at the 2013 annual meeting, the board shall be divided into two classes of directors, Class I and Class II, with the directors in Class I having a term that expires at the 2014 annual meeting and the directors in Class II having a term that expires at the 2015 annual meeting. The successors of the directors who, immediately prior to the 2013 annual meeting, were members of Class I (and whose terms expire at the 2013 annual meeting) shall be elected to Class I; the directors who, immediately prior to the 2013 annual meeting, were members of Class II and whose terms were scheduled to expire at the 2014 annual meeting shall become members of Class I; and the directors who, immediately prior to the 2013 annual meeting, were members of Class III and whose terms were scheduled to expire at the 2015 annual meeting shall become members of Class II with a term expiring at the 2015 annual meeting. |
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· | | Commencing with the election of directors at the 2014 annual meeting, there shall be a single class of directors, Class I, with all directors of such class having a term that expires at the 2015 annual meeting. The successors of the directors who, immediately prior to the 2014 annual meeting, were members of Class I (and whose terms expire at the 2014 annual meeting) shall be elected to Class I for a term that expires at the 2015 annual meeting, and the directors who, immediately prior to the 2014 annual meeting, were members of Class II and whose terms were scheduled to expire at the 2015 annual meeting shall become members of Class I with a term expiring at the 2015 annual meeting. |
· | | From and after the election of directors at the 2015 annual meeting, the board shall cease to be classified and the directors elected at the 2015 annual meeting (and each meeting thereafter) shall be elected for a term expiring at the next annual meeting. |
The proposed amendments would not affect the election of the class of directors at this 2012 annual meeting. Beginning with the 2015 annual meeting, all directors will stand for election at each annual meeting for one year terms. The proposed amendments would not change the present number of directors or the board’s authority to change that number and to fill any vacancies or newly created directorships. Delaware corporate law provides, unless otherwise provided in the certificate of incorporation, that members of a board that is classified may be removed only for cause. At present, because the board is classified, the certificate of incorporation and the bylaws provide that the members of the board are removable only for cause. The proposed amendments provide that, once the board has become declassified in 2015, directors may be removed with or without cause. The proposed amendments, if passed, also would eliminate the requirement that the affirmative vote of 80% of all outstanding shares of common stock is necessary to amend the provision concerning the annual election of directors once the board is fully declassified. The certificate of amendment to the certificate of incorporation and the proposed amendments to the bylaws are attached to this proxy statement as Exhibits A and B, respectively. 47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This table shows common stock that is beneficially owned by the directors, the named executive officers and owners of 5% or more of the outstanding company common stock, as of the close of business on March 19, 2012. | | | | | | | | | | | | | | | NAME OF BENEFICIAL OWNER | | AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP | | | | | SHARES OWNED1 | | | STOCK OPTIONS EXERCISABLE WITHIN 60 DAYS2 | | | TOTAL BENEFICIAL OWNERSHIP3 | | PERCENT OF OUTSTANDING SHARES | | | | | | | Charles R. Schwab | | | | 4 | | | | | | | | | | % | | | | | | Dodge & Cox | | | | 5 | | | — | | | | | | | % | | | | | | PRIMECAP Management Company | | | | 6 | | | — | | | | | | | % | | | | | | Nancy H. Bechtle | | | | | | | | | | | | | * | | | | | | | Walter W. Bettinger II | | | | 7 | | | | | | | | | * | | | | | | | C. Preston Butcher | | | | 8 | | | | | | | | | * | | | | | | | Frank C. Herringer | | | | 9 | | | | | | | | | * | | | | | | | Stephen T. McLin | | | | 10 | | | | | | | | | * | | | | | | | Arun Sarin | | | | | | | | | | | | | * | | | | | | | Paula A. Sneed | | | | | | | | | | | | | * | | | | | | | Roger O. Walther | | | | 11 | | | | | | | | | * | | | | | | | Robert N. Wilson | | | | 12 | | | | | | | | | * | | | | | | | Joseph R. Martinetto | | | | | | | | | | | | | * | | | | | | | Benjamin L. Brigeman | | | | | | | | | | | | | * | | | | | | | James D. McCool | | | | 13 | | | | | | | | | * | | | | | | | Directors and Executive Officers as a Group (17 Persons)14 | | | | | | | | | | | | | | % | | | | | | * Less than 1% | | | | | | | | | | | | | | |
Shares for which the named person has sole voting and investment power, has shared voting and investment power with his or her spouse, or holds in an account under The SchwabPlan Retirement Savings and Investment Plan, and Restricted stock or shares subject to a vesting schedule, performance conditions, forfeiture risk and other restrictions. This column excludes restricted stock units held by directors under the 2004 Stock Incentive Plan and the Directors’ Deferred Compensation Plans, which do not have voting rights. Under the Directors’ Deferred Compensation Plans, the restricted stock units are converted into shares of common stock and paid in a lump sum by the end of February in the year following a director’s termination of board service. As of March 19, 2012, there are no restricted stock units under the Directors’ Deferred Compensation Plans that are convertible within 60 days. Information on these restricted stock units is contained in the section under “Compensation Information – Director Compensation.” (2) | | Shares that can be acquired through stock option exercises within 60 days of March 19, 2012. |
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(3) | | This column includes the total number of shares beneficially owned, including shares owned and the number of shares underlying stock options exercisable within 60 days of March 19, 2012. |
(4) | | Includes shares held by Mr. Schwab’s spouse, shares held by family limited partnerships, shares held by 188 Corp, and the following shares for which Mr. Schwab disclaims beneficial ownership: shares held by a nonprofit public benefit corporation established by Mr. Schwab, and shares held in a trust for which Mr. Schwab acts as trustee. |
Includes shares held by investment companies and managed by a wholly-owned subsidiary of the company, over which Mr. Schwab may be deemed to have shared voting and investment power and for which he disclaims beneficial ownership. Mr. Schwab’s address is c/o The Charles Schwab Corporation, 211 Main Street, San Francisco, California 94105. (5) | | Includes shares held by Dodge & Cox as reported on its Schedule 13G filed with the Securities and Exchange Commission as of December 31, 2011. The address of Dodge & Cox is 555 California Street, 40th Floor, San Francisco, CA 94104. |
(6) | | Includes shares held by PRIMECAP Management Company as reported on its Schedule 13G filed with the Securities and Exchange Commission as of February 29, 2012. The address of PRIMECAP Management Company is 225 South Lake Avenue, Suite 400, Pasadena, CA 91101. |
(7) | | Includes shares held by Mr. Bettinger’s spouse. |
(8) | | Includes shares held by Mr. Butcher’s spouse. |
(9) | | Includes shares held by Mr. Herringer’s spouse. |
(10) | | Includes shares held by a nonprofit public benefit corporation established by Mr. McLin, for which he disclaims beneficial ownership. |
(11) | | Includes shares held by Mr. Walther’s spouse. |
(12) | | Includes shares held by Mr. Wilson’s spouse as custodian. |
(13) | | Includes shares held by a nonprofit public benefit corporation established by Mr. McCool, for which he disclaims beneficial ownership. |
(14) | | In addition to the officers and directors named in this table, three other executive officers are members of this group. |
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based on its records and other information, the company believes that during 2011 all filings with the SEC by its officers, directors and 10% stockholders timely complied with requirements for reporting ownership and changes in ownership of common stock under Section 16(a) of the Securities Exchange Act of 1934. TRANSACTIONS WITH RELATED PERSONS Charles R. Schwab, the company’s Chairman, has a daughter, Carolyn (Carrie) Schwab-Pomerantz, who was employed as President of the Charles Schwab Foundation during 2011 (and presently). Ms. Schwab-Pomerantz earned approximately $495,000 in salary, bonus and benefits during 2011. She also received a grant of 5,687 restricted stock units and 15,996 stock options. Ms. Schwab-Pomerantz has been employed by the company for 29 years. Some directors, executive officers and entities with which they are affiliated have credit transactions with the company’s banking and brokerage subsidiaries, such as mortgage loans, revolving lines of credit or other extensions of credit. These transactions with directors, executive officers and their affiliates are made in the ordinary course of business and to the extent permitted by the Sarbanes-Oxley Act of 2002. Such transactions are on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with persons not related to the lender and do not involve more than the normal risk of collectability or present other unfavorable features. The company has policies and procedures regarding the review and approval of related-person transactions. Such policies and procedures are in writing and have been approved by the Audit Committee. The transactions covered by the company’s policies and procedures include any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements or relationships in which the company participates and the amount involved exceeds $120,000, and a director or executive officer of the company has a direct or indirect material interest. The policies and procedures include transactions where the directors’ and executive officers’ children, stepchildren, parents, stepparents, spouse, siblings, mothers-in-law, fathers-in-law, sons-in-law, daughters-in-law, brothers-in-law, sisters-in-law or members of their household (other than a tenant or employee) have a personal interest. Any director or executive officer proposing a transaction covered by the company’s related party transaction policies and procedures must notify the company’s compliance department as soon as practicable after becoming aware of the transaction or proposed transaction and must provide a description of all material details and his or her interest in the transaction. The Audit Committee will consider the transaction at its next meeting. The Audit Committee may authorize or ratify the transaction only if the Audit Committee determines that the transaction is fair as to the company as of the time of authorization and in the best interests of the company. The transaction must be approved in good faith by a majority of the disinterested directors on the Audit Committee. Notice to and approval by the Audit Committee as described above is not required if the transaction involves compensation to an immediate family member of a director or executive officer, and the employment relationship has been approved in good faith by a majority of disinterested members of the Compensation Committee. As in the case of Ms. Schwab-Pomerantz, after initial employment, further approval of the Compensation Committee is not required if the immediate family member is not an executive officer and all compensation and benefits to him or her, including salary increases, bonuses, incentive awards, perquisites, benefits, severance payments, and all other forms of compensation, are made in accordance with the company’s compensation programs, policies and plans. 50
PROPOSALS FIVE AND SIX: STOCKHOLDER PROPOSALS We have been notified that two stockholders intend to present proposals for consideration at the annual meeting. The stockholder proposals and supporting statements appear in italics below, and we present the proposals as they were submitted to us. We recommend that you voteagainst the two stockholder proposals. Our responses are contained immediately after each proposal. FIRST STOCKHOLDER PROPOSAL John C. Liu, Comptroller, City of New York, on behalf of the Boards of Trustees of the New York City Pension Funds, 1 Centre Street, New York, New York 10007, which hold approximately 2,521,608 shares of company stock, has submitted the following proposal for consideration at the annual meeting. Stockholder Resolution Resolved, that the shareholders of Charles Schwab (“Company”) hereby request that the Company provide a report, updated semi-annually, disclosing the Company’s: 1. | | Policies and procedures for political contributions and expenditures (both direct and indirect) made with corporate funds. |
2. | | Monetary and non-monetary contributions and expenditures (direct and indirect) used to participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, and used in any attempt to influence the general public, or segments thereof, with respect to elections or referenda. The report shall include: |
a. | | An accounting through an itemized report that includes the identity of the recipient as well as the amount paid to each recipient of the Company’s funds that are used for political contributions or expenditures as described above; and |
b. | | The title(s) of the person(s) in the Company responsible for the decision(s) to make the political contributions or expenditures. |
The report shall be presented to the board of director or relevant board oversight committee and posted on the Company’s website. Stockholder’s Statement of Support As long-term shareholders of Charles Schwab, we support transparency and accountability in corporate spending on political activities. These include any activities considered intervention in any political campaign under the Internal Revenue Code, such as direct and indirect political contributions to candidates, political parties, or political organizations; independent expenditures; or electioneering communications on behalf of federal, state or local candidates. Disclosure is consistent with public policy, in the best interest of the company and its shareholders, and critical for compliance with federal ethics laws. Moreover, the Supreme Court’sCitizens United decision recognized the importance of political spending disclosure for shareholders when it said “[D]isclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.” Gaps in transparency and accountability may expose the company to reputational and business risks that could threaten long-term shareholder value. 51
Charles Schwab Corporation contributed at least $263,000 in corporate funds since the 2002 election cycle. (CQ:http://moneyline.cq.com/pml/home.do and National Institute on Money in State Politics:http://www.followthemoney.org/index.phtml.) However, relying on publicly available data does not provide a complete picture of the Company’s political spending. For example, the Company’s payments to trade associations used for political activities are undisclosed and unknown. In some cases, even management does not know how trade associations use their company’s money politically. The proposal asks the Company to disclose all of its political spending, including payments to trade associations and other tax exempt organizations for political purposes. This would bring our Company in line with a growing number of leading companies, including Exelon, Merck and Microsoft that support political disclosure and accountability and present this information on their websites. The Company’s Board and its shareholders need comprehensive disclosure to be able to fully evaluate the political use of corporate assets. Thus, we urge your support for this critical governance reform. | Board of Directors’ Recommendation Against and Statement of Opposition to the First Stockholder Proposal The Charles Schwab Corporation does not make contributions with corporate funds to candidates for public office, political parties, or candidate campaign committees. The company may make contributions to local organizations that are organized as political action committees and benefit the communities in which the company does business. Such contributions are overseen by the Office of Legislative and Regulatory Affairs and reviewed by the Audit Committee of the Board of Directors annually. These corporate contributions are subject to public reporting in accordance with applicable law. We recommend a voteagainst the first stockholder proposal. |
SECOND STOCKHOLDER PROPOSAL Norges Bank, P.O. Box 1179 Sentrum, 0107 Oslo, Norway, which holds more than $2,000 of shares of company stock, has submitted the following proposal for consideration at the annual meeting. Stockholder Resolution The Corporation’s Bylaws are hereby amended as follows: The following shall be added as Section 2.11: Proxy Access: The Corporation shall include in its proxy materials for a meeting of Stockholders at which any director is to be elected the name, together with the Disclosure and Statement (both defined below), of any person nominated for election to the Board of Directors by a Stockholder or group thereof that satisfied the requirements of this Section (the “Nominator”), and allow Stockholders to vote with respect to such nominee on the Corporation’s proxy card. Each Nominator may designate nominees representing up to 25% of the total number of the Corporation’s directors. 52
To be eligible to make a nomination, a Nominator must: (a) | | have beneficially owned 1% or more of the Corporation’s outstanding common stock (the “Required Shares”) continuously for 1 year prior to the submission of its nomination, and shall represent that it intends to hold the Required Shares through the date of the meeting; |
(b) | | provide written notice received by the Corporation’s Secretary in the form required and within the time period specified in section 2.06(a)(ii)(A) of the bylaws containing: (i) with respect to the nominee, the information required under 2.06(a)(ii)(A) (the “Disclosure”); and (ii) with respect to the Nominator, proof of ownership of the Required Shares in satisfaction of SEC Rule 14a-8; and |
(c) | | execute an undertaking that it agrees: (i) to assume all liability for any violation of law or regulation arising out of the Nominator’s communications with Stockholders, including the Disclosure; and (ii) to the extent it uses soliciting material other than the Corporation’s proxy materials, to comply with all laws and regulations relating thereto. |
The Nominator shall have the option to furnish a statement, not to exceed 500 words, in support of each nominee’s candidacy (the “Statement(s)”), at the time the Disclosure is submitted to the Corporation’s Secretary. The board of directors shall adopt a procedure for timely resolving disputes over whether notice was timely given and whether the Disclosure and Statements(s) comply with this Section and the rules under the Exchange Act. The following shall be added at the end of Section 3.03: Notwithstanding the foregoing, the total number of directors elected at any meeting may include candidates nominated under the procedures set forth in Section 2.11 representing no more than 25% of the total number of the Corporation’s directors. Stockholder’s Statement of Support Shareholders’ right to nominate board candidates is a fundamental principle of good corporate governance and board accountability. This proposal would enable shareholders to nominate candidates for election as directors, subject to reasonable limitations, including a 1% / 1 year holding requirement for nominators, permitting nominators to nominate no more than 25% of the company’s directors, and providing that, in any election, candidates nominated by shareholders under this procedure can be elected to fill no more than 25% of the Board seats. For more information seehttp://www.nbim.no/CharlesSchwabProxyAccessProposal Please vote FOR this proposal. 53
| | Board of Directors’ Recommendation Against and Statement of Opposition to the Second Stockholder Proposal This proposal is submitted as a binding amendment to the company’s bylaws and would allow a potentially unlimited number of stockholders or bloc of stockholders holding as low as one percent of the company’s common stock for as little as one year each to nominate up to 25% of the total number of directors for election each year. While the proposal limits the election of these directors nominated by these stockholders to 25% of the total number of directors in any year, our board is currently divided into three classes and each class is elected once every three years. If our proposal to declassify the board and have all directors elected annually does not pass, this proposal could result (at a rate of 25% each year) in the possible election of up to 75% of directors nominated by these stockholders over the course of three years. We believe that directors need to be responsible for the long-term interests of all stockholders. This proposal, however, allows certain stockholders representing special interests, and who may only have a short-term view, elect a significant number of directors and potentially control the board. The proposal, as written, is inconsistent with the provisions of the bylaws that already address requirements that a stockholder or group of stockholders must meet in order to be eligible to nominate persons for election to the board. Section 2.06 of the bylaws currently sets forth the requirements that stockholders must meet to nominate persons for election to the board. The proposal, without addressing each of the requirements in Section 2.06, purports to set forth different (and potentially fewer) requirements in Section 2.11 that stockholders must meet to nominate persons for election to the board. For example, Section 2.06 requires that the beneficial owner of company stock on whose behalf a director nomination is made disclose to the company the number of shares of the company’s stock owned beneficially and of record by such beneficial owner, while the proposal requires that the Nominator (as defined in the proposal) disclose to the company only that the Nominator has held one percent or more of the company’s common stock for one year prior to submitting the nomination. In addition, candidates nominated under the proposed procedures would bypass the process carefully established by the board’s Nominating and Corporate Governance Committee to screen for quality, complementary candidates capable of making informed decisions on behalf of all stockholders. This binding proposal is inconsistent with procedures already set forth in our bylaws. We believe that its operation favors the short-term interests of a few rather than the long-term interests of all stockholders. We recommend that you voteagainstthis proposal. |
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INFORMATION ABOUT VOTING PROCEDURES How is my vote counted? You may vote either “for” or “against” or “abstain” from voting on each director nominee, the ratification of the selection of independent auditors, the advisory approval of named executive officer compensation, the proposal to amend the certificate of incorporation and bylaws to declassify the board, and on the two stockholder proposals. If you abstain from voting on any director nominee, the abstention will not count as a vote cast on the proposal to elect that director. If you abstain from voting on the ratification of the selection of independent auditors, the advisory approval of named executive officer compensation, the proposal to amend the certificate of incorporation and bylaws to declassify the board, or the two stockholder proposals, it will have the same effect as a vote “against” that proposal. If you provide your voting instructions on your proxy, your shares will be voted as you instruct, and according to the best judgment of Charles R. Schwab, Walter W. Bettinger II and Carrie E. Dwyer if a proposal comes up for a vote at the meeting that is not on the proxy. If you do not indicate a specific choice on the proxy you submit for one or more proposals, your shares will be voted (with respect to the proposal or proposals on which you do not vote): · | | for the three named nominees for directors, |
· | | for the ratification of the selection of independent auditors, |
· | | for the advisory approval of named executive officer compensation, |
· | | for the approval of the amendment to the certificate of incorporation and bylaws to provide for the annual election of directors, |
· | | againsteach of the four stockholder proposals, and |
· | | according to the best judgment of Mr. Schwab and Ms. Dwyer if a proposal comes up for a vote at the meeting that is not on the proxy. |
What if I change my mind after I submit my proxy?
You may revoke your proxy and change your vote by:
· | | signing a proxy card with a later date and returning it before the polls close at the meeting, |
· | | voting by telephone or on the Internet before 12:00 p.m., Central Time, on May 17, 2006, or |
How many votes must the director nominees receive to be elected as directors?
Because three directors are to be elected at the annual meeting, the three individuals receiving the highest number of votes for election will be elected.
What happens if a director nominee is unable to stand for election?
The board may reduce the number of directors or select a substitute nominee. In the latter case, if you have submitted your proxy, Mr. Schwab and Ms. Dwyer can vote your shares for a substitute nominee. They cannot vote for more than three nominees.
How many votes are needed for the approval of the amendments to the certificate of incorporation and bylaws?
The amendments will be approved if 80% or more of the total shares of common stock outstanding as of March 20, 2006 vote for approval.
How many votes are needed for the approval of the stockholder proposals?
The stockholder proposals will be approved if a majority of the shares present at the meeting in person or by proxy and entitled to vote on the proposal vote for approval.
What is a “broker non-vote”?
A broker non-vote occurs when a brokerage firm holding shares in street name for a beneficial owner does not vote on a proposal because the broker has not received instructions from the beneficial owner and does not have discretionary voting power with respect to the proposal.
What is the effect of not providing voting instructions if my shares are held in street name?
Brokerage firms have authority to vote clients’ unvoted shares on some “routine” matters. When a brokerage
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INFORMATION ABOUT VOTING PROCEDURES
firm votes its clients’ unvoted shares on routine matters, these shares are counted to determine if a quorum exists to conduct business at the meeting. A brokerage firm cannot vote clients’ unvoted shares on non-routine matters, which results in a broker non-vote. A broker non-vote will be treated as not being entitled to vote on the proposal. For proposals that require a majority of votes voting on the proposal to be approved (such as the stockholder proposals), a broker non-vote will not be counted for purposes of determining whether the proposal has been approved. For proposals that require a percentage of all outstanding shares to be approved (such as the proposal regarding the amendments to the certificate of incorporation and bylaws), a broker non-vote has the same effect as a vote against the proposal.
The company’s proposal to elect directors is considered a routine matter, but the proposal concerning the approval of the amendments to the certificate of incorporation and bylaws andto declassify the stockholder proposals are not.
As a brokerage firm, Charles Schwab & Co., Inc. may vote its clients’ unvoted shares on routine matters. However, as the company’s subsidiary, when it is voting on company proposals, it can vote unvoted company shares held in brokerage accounts only in the same proportion as all other stockholders vote.
If you have a stockbroker or investment advisor, they may be able to vote your shares depending on the terms of the agreement you have with them.
What is the effect of not submitting my proxy if my shares are held in a retirement plan?board,
A purchasing agent under a retirement plan also may be able to vote a participant’s unvoted shares. For example, if you are a participant in The SchwabPlan Retirement Savings and Investment Plan, the plan’s purchasing agent, under certain circumstances, can vote your shares. Specifically, the purchasing agent will vote shares you hold under the Employee Stock Ownership Plancomponent of The SchwabPlan Retirement Savings and Investment Plan if the purchasing agent does not receive voting instructions from you. The purchasing agent will vote your unvoted shares held under the ESOP component of the overall plan in the same proportion as all other plan participants vote their shares held under the ESOP component of the overall plan.
What does it mean if I receive more than one proxy card?
It means that you have multiple accounts at the transfer agent or with stockbrokers. Please complete and submit all proxies to ensure that all your shares are voted.
Unless you need multiple accounts for specific purposes, it may be less confusing if you consolidate as many of your transfer agent or brokerage accounts as possible under the same name and address.
Is my vote kept confidential?
Proxies, ballots and voting tabulations identifying stockholders are kept confidential by our transfer agent and will not be disclosed except as may be necessary to meet legal requirements.
Where do I find voting results of the meeting?
We will announce preliminary voting results at the annual meeting. We will publish the final results in our quarterly report on Form 10-Q for the second quarter of 2006. You may access a copy electronically on our website atwww.aboutschwab.com/investor by clicking on “Financials & SEC Filings” or through the SEC’s electronic data system called EDGAR atwww.sec.gov. You may also obtain a copy by contacting our Investor Relations Hotline at (415) 636-2787.
Voting results are tabulated and certified by our transfer agent, Wells Fargo Bank, N.A.
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INFORMATION ABOUT THE PROXY STATEMENT AND PROPOSALS
Who pays the cost for proxy solicitation?
The company is paying for distributing and soliciting proxies. As a part of this process, the company reimburses brokers, nominees, fiduciaries and other custodians for reasonable fees and expenses in forwarding proxy materials to stockholders. The company is not using an outside proxy solicitation firm this year, but employees of the company or its subsidiaries may solicit proxies through mail, telephone, the Internet or other means. Employees do not receive additional compensation for soliciting proxies.
How do I submit a stockholder proposal for next year’s annual meeting?
If you want us to consider including a proposal in our proxy statement next year, you must deliver it to the Corporate Secretary at our principal executive office no later than November 30, 2006. The company’s bylaws contain specific procedural requirements regarding a stockholder’s ability to nominate a director or submit a proposal to be considered at a meeting of stockholders. The bylaws are available on our website atwww.aboutschwab.com/governance. In addition, you may obtain a copy of our bylaws by contacting:
Assistant Corporate Secretary
The Charles Schwab Corporation
Mailstop SF120KNY-04
101 Montgomery Street
San Francisco, California 94104
(415) 636-3087
For next year’s annual meeting of stockholders, the persons appointed by proxy to vote stockholders’ shares will vote those shares according to their best judgment on any stockholder proposal the company receives after March 20, 2007.
What is “householding”?
“Householding” means that we deliver a single set of proxy materials to households with multiple stockholders, provided such stockholders give theiraffirmative or implied consent and certain other conditions are met.
Some households with multiple stockholders already may have provided the company with their affirmative consent or given a general consent to householding. We will provide only one set of proxy materials to each such household, unless we receive contrary instructions.
We will promptly deliver separate copies of our proxy statement and annual report at the request of any stockholder who is in a household that participates in the householding of the company’s proxy materials. You may call the Assistant Corporate Secretary at (415) 636-3087 or send your request to:
Assistant Corporate Secretary
The Charles Schwab Corporation
Mailstop SF120KNY-04
101 Montgomery Street
San Francisco, California 94104
If you currently receive multiple copies of the company’s proxy materials and would like to participate in householding, please contact the Assistant Corporate Secretary at the above address.
What is meant by “incorporation by reference”?
“Incorporation by reference” means that we refer to information that previously has been filed with the SEC, so the information should be considered as part of the filing you are reading. Based on SEC rules, the sections entitled “Audit Committee Report,” “Compensation Committee Report on Executive Compensation,” and “Performance Graph” specifically are not incorporated by reference into any other filings with the SEC.
You receive this proxy statement as part of the proxy materials for the annual meeting of stockholders. You may not consider this proxy statement as material for soliciting the purchase or sale of our company’s common stock.
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INFORMATION ABOUT THE ANNUAL MEETING
How do I register for the annual meeting?
You must register in advance if you plan to attend the annual meeting. In accordance with our security procedures, you will be asked to present a ticket and picture identification to enter the meeting. Attendance at the annual meeting is limited to stockholders or one named representative of a stockholder. Seating is limited and, therefore, admission to the annual meeting is on a first-come, first-served basis.
To request a ticket, you may either:
· | | go towww.schwabevents.com, |
· | | write the Assistant Corporate Secretary at this address: |
· | | Assistant Corporate Secretaryagainstthe stockholder proposal on political contributions,
The Charles Schwab Corporation
Mailstop SF120KNY-04
101 Montgomery Street
San Francisco, California 94104,
- or -
· | | call the Assistant Corporate Secretary at (415) 636-3087. |
· | | You will be askedagainst the stockholder proposal regarding proxy access, and
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· | | according to provide your name, complete mailing address,the best judgment of Mr. Schwab, Mr. Bettinger and proof that you own Schwab shares (such as the number of the Schwab account in which you hold the shares, orMs. Dwyer if a photocopy ofproposal comes up for a current brokerage or other account statement). If you will be naming a representative to attendvote at the meeting that is not on your behalf, the name, address and telephone number of that individual must also be provided.proxy. |
How will my shares be voted if other business is presented at the annual meeting? We know of no business other than the proposals contained in the proxy statement to be considered at the meeting. However, if other matters are properly presented at the meeting, or at any adjournment or postponement of the meeting, and you have properly submitted your proxy, then Mr. Schwab, Mr. Bettinger and Ms. Dwyer will vote your shares on those matters according to their best judgment. What if I change my mind after I submit my proxy? You may revoke your proxy and change your vote by: · | | If you have questions regarding admissionsigning a proxy card with a later date and returning it before the polls close at the meeting,
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· | | voting by telephone or on the internet before 12:00 p.m., Central Time, on May 16, 2012, or |
How many votes must the director nominees receive to be elected as directors? A director must receive more “for” than “against” votes to be elected as a director. If a director does not receive more “for” than “against” votes, the director may be eligible under Delaware law to continue to serve a “holdover” term 55
until the next annual meeting of stockholders. However, in the event that a director does not receive more “for” than “against” votes, our corporate governance guidelines provide that the Nominating and Corporate Governance Committee shall meet within 90 days after the final certification of the vote and evaluate the director’s continued service for a holdover term. Under the guidelines, the Nominating and Corporate Governance Committee should consider the following: · | | the reasons for the director’s failure to receive an affirmative majority of votes, |
· | | the director’s qualifications and skills and contributions to the annual meeting, please call board and board committees, |
· | | the Assistanteffect on board composition without the director’s continued service during the holdover term on the board or board committees, |
· | | whether there are qualified candidates to fill a vacancy if the affected director immediately resigned from the board or board committees, and |
· | | the guidelines for considering director candidates established by the Nominating and Corporate Secretary at (415) 636-3087.Governance Committee. |
In making its evaluation, the Nominating and Corporate Governance Committee may determine that: · | | How do I access the webcast ofdirector should continue to serve a holdover term on the annual meeting?board,
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· | | For informationthe director should continue service on how to access the real-time webcast of board for a predetermined period (but less than a full holdover term),
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· | | the annual meeting, go towww.schwabevents.com.director should continue service on the board for a holdover term or predetermined period but resign from one or more board committees, or |
· | | the director should immediately resign from the board. |
If the Nominating and Corporate Governance Committee determines that the affected director should resign from the board or one or more board committees, the director will be expected to submit his or her resignation immediately upon such determination. The Nominating and Corporate Governance Committee’s determination, including the reasons for such determination, will be publicly disclosed on a Form 8-K filed with the Securities and Exchange Commission. What happens if a director nominee is unable to stand for election? The board may reduce the number of directors or select a substitute nominee. In the latter case, if you have submitted your proxy, Mr. Schwab, Mr. Bettinger and Ms. Dwyer can vote your shares for a substitute nominee. They cannot vote for more than three nominees. How many votes are needed for the ratification of independent auditors and the advisory approval of named executive officer compensation? The ratification of independent auditors and the advisory approval of named executive officer compensation will be approved if a majority of the shares present at the meeting in person or by proxy and entitled to vote on the proposal vote for approval. How many votes are needed for the amendments to the certificate of incorporation and bylaws to declassify the board? The proposal to amend the certificate of incorporation and bylaws to declassify the board will be approved if 80% of all outstanding common shares vote for approval. 56
How many votes are needed for the two stockholder proposals? The stockholder proposal regarding political contributions will be approved if a majority of the shares present at the meeting in person or by proxy and entitled to vote on the proposal vote for approval. The stockholder proposal regarding proxy access introduces a bylaw amendment that proposes nomination procedures different from and inconsistent with Section 2.06 of the bylaws. Article Fifth of the company’s Fifth Restated Certificate of Incorporation requires a vote of 80% of all outstanding common shares to approve an amendment inconsistent with Section 2.06 of the bylaws. The stockholder proposal regarding proxy access will be approved if 80% of all outstanding common shares vote for approval. What is a “broker non-vote”? A broker non-vote occurs when a brokerage firm holding shares in street name for a beneficial owner does not vote on a proposal because the broker has not received instructions from the beneficial owner and does not have discretionary voting power with respect to the proposal. What is the effect of not providing voting instructions if my shares are held in street name? Brokerage firms have authority to vote clients’ unvoted shares on some “routine” matters. When a brokerage firm votes its clients’ unvoted shares on routine matters, these shares are counted to determine if a quorum exists to conduct business at the meeting. A brokerage firm cannot vote clients’ unvoted shares on non-routine matters, which results in a broker non-vote. A broker non-vote will be treated as not being entitled to vote on the proposal and will not be counted for purposes of determining whether the proposal has been approved. The company’s proposal to ratify the selection of independent auditors is considered a routine matter, but the election of directors, the advisory approval of named executive officer compensation, the proposal to amend the certificate of incorporation and bylaws to declassify the board, and the stockholder proposals are not. As a brokerage firm, Charles Schwab & Co., Inc. may vote its clients’ unvoted shares on routine matters. However, as the company’s subsidiary, when it is voting on company proposals, it can vote unvoted company shares held in brokerage accounts only in the same proportion as all other stockholders vote. If you have a stockbroker or investment advisor, they may be able to vote your shares depending on the terms of the agreement you have with them. What is the effect of not submitting my proxy if my shares are held in a retirement plan? A purchasing agent under a retirement plan may be able to vote a participant’s unvoted shares. For example, if you are a participant in The SchwabPlan Retirement Savings and Investment Plan, the plan’s purchasing agent, under certain circumstances, can vote your shares. Specifically, the purchasing agent will vote shares you hold under the Employee Stock Ownership Plan (ESOP) component of The SchwabPlan Retirement Savings and Investment Plan if the purchasing agent does not receive voting instructions from you. The purchasing agent will vote your unvoted shares held under the ESOP component of the overall plan in the same proportion as all other plan participants vote their shares held under the ESOP component of the overall plan. What does it mean if I receive more than one proxy card? It means that you have multiple accounts at the transfer agent or with stockbrokers. Please complete and submit all proxies to ensure that all your shares are voted. 57
Unless you need multiple accounts for specific purposes, it may be less confusing if you consolidate as many of your transfer agent or brokerage accounts as possible under the same name and address. Is my vote kept confidential? Proxies, ballots and voting tabulations identifying stockholders are kept confidential by our transfer agent and will not be disclosed except as may be necessary to meet legal requirements. Where do I find voting results of the meeting? We will announce preliminary voting results at the annual meeting. We will announce the final results on a Form 8-K following the annual meeting. You may access a copy electronically on our website atwww.aboutschwab.com/investor by clicking on “Financials & SEC Filings” or through the SEC’s electronic data system atwww.sec.gov. You also may obtain a copy by contacting our Investor Relations Hotline at (415) 667-1959. Voting results are tabulated and certified by our transfer agent, Wells Fargo Bank, N.A. 58
INFORMATION ABOUT THE PROXY STATEMENT AND PROPOSALS Who pays the cost for proxy solicitation? The company is paying for distributing and soliciting proxies. As a part of this process, the company reimburses brokers, nominees, fiduciaries and other custodians for reasonable fees and expenses in forwarding proxy materials to stockholders. The company has retained D.F. King & Co., Inc. to act as proxy solicitor in conjunction with the annual meeting at an estimated fee of $12,500 plus reasonable out of pocket expenses. Employees of the company or its subsidiaries may solicit proxies through mail, telephone, the internet or other means. Employees do not receive additional compensation for soliciting proxies. How do I submit a stockholder proposal for next year’s annual meeting? If you want us to consider including a proposal in our proxy statement next year, you must deliver it to the Corporate Secretary at the company’s principal executive office no later than November 30, 2012. The company’s bylaws contain specific procedural requirements regarding a stockholder’s ability to nominate a director or submit a proposal to be considered at a meeting of stockholders. The bylaws are available on our website atwww.aboutschwab.com/governance. In addition, you may obtain a copy of our bylaws by contacting the Assistant Corporate Secretary at the address in the “Corporate Governance Information” section of this proxy statement. For next year’s annual meeting of stockholders, the persons appointed by proxy to vote stockholders’ shares will vote those shares according to their best judgment on any stockholder proposal the company receives after March 18, 2013. What is “householding”? “Householding” means that we deliver a single set of proxy materials to households with multiple stockholders, provided such stockholders give their affirmative or implied consent and certain other conditions are met. Some households with multiple stockholders already may have provided the company with their affirmative consent or given a general consent to householding. We will provide only one set of proxy materials to each such household, unless we receive contrary instructions. We will promptly deliver separate copies of our proxy statement and annual report at the request of any stockholder who is in a household that participates in the householding of the company’s proxy materials. You may call the Assistant Corporate Secretary at (415) 667-9979 or send your request to the Assistant Corporate Secretary at the address in the “Corporate Governance Information” section of this proxy statement. If you currently receive multiple copies of the company’s proxy materials and would like to participate in householding, please contact the Assistant Corporate Secretary. By Order of the Board of Directors, | | | CARRIE E. DWYER | EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY | | MARCH 30, 20062012 SAN FRANCISCO, CALIFORNIA 41
EXHIBIT A
PROPOSED AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND BYLAWS (marked to show proposed amendments)
This exhibit contains the changes to those sections of the certificate of incorporation and bylaws that we propose to amend, if stockholders approve. The proposed new provisions are underlined and lines are drawn through the current language that would be deleted by the proposed amendment. Complete versions of the current certificate of incorporation and bylaws are available on our website atwww.aboutschwab.com/governance.
FIFTHSIXTH RESTATED CERTIFICATE OF INCORPORATION
OF
THE CHARLES SCHWAB CORPORATION
(EffectiveMay 7, 2001 , 2006)
(Originally incorporated on November 25, 1986,
under the name CL Acquisition Corporation)
FIFTH. The Bylaws of the Corporation may be made, altered, amended, or repealed, and new Bylaws may be adopted, by the Board of Directors at any regular or special meeting by the affirmative vote of a majority of those directors present at any meeting of the directors; subject, however, to the right of the stockholders to alter, amend or repeal any Bylaws made or amended by the directors. Notwithstanding the foregoing,after the 1996 Annual Meeting of Stockholders,Sections 2.06, 2.10, 3.02, 3.05, 3.06 and 8.04 of the Corporation's
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EXHIBIT A PROPOSED AMENDMENT TO THE FIFTH RESTATED CERTIFICATE OF INCORPORATION OF THE CHARLES SCHWAB CORPORATION The Certificate of Incorporation is hereby amended by deleting Articles FIFTH, SIXTH and TWELFTH, and inserting in lieu thereof a new Article FIFTH, SIXTH and TWELFTH to read as follows: FIFTH. The Bylaws of the Corporation may be made, altered, amended, or repealed, and new Bylaws may be adopted, by the Board of Directors at any regular or special meeting by the affirmative vote of a majority of those directors present at any meeting of the directors; subject, however, to the right of the stockholders to alter, amend or repeal any Bylaws made or amended by the directors. Notwithstanding the foregoing, Sections 2.06, 2.10, 3.02(a), 3.02(b)(1), 3.02(b)(2), 3.02(b)(3), 3.02(c), 3.05, 3.06 and 8.04 of the Corporation’s Bylaws may not be amended, altered or repealed, nor may any provision inconsistent with such Sections be adopted, except by the affirmative vote of the holders of no less than 80% of the total voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. SIXTH. | (A)Number, Election and Terms. | | Except as otherwise fixed by or pursuant to the provisions of Article FOURTH hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the Board of the Corporation shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies. Commencing |
| (B) | | Subject to the rights of the holders of preferred stock to elect directors: |
| 1. | | From the effectiveness of this Article SIXTH filed with the 1996Secretary of State of the State of Delaware until the election of directors at the 2013 annual meeting of stockholders (each annual meeting of stockholders an “Annual Meeting”), pursuant to Section 141(d) of the directors, other than those who may be elected byGeneral Corporation Law of the holdersState of any class or series of stock having a preference overDelaware, the Common Stock as to dividends or upon liquidation,Board shall be classified, with respect to the time for which they severally hold office,divided into three classes of directors, Class I, Class II and Class III (each class as nearly equal in number as is reasonably possible, onepossible), with the directors in Class I having a term expiring at the 2013 Annual Meeting, the directors in Class II having a term expiring at the 2014 Annual Meeting and the directors in Class III having a term expiring at the 2015 Annual Meeting, and directors in each class may be removed only with cause pursuant to Section D of this Article Sixth. |
| 2. | | Commencing with the election of directors at the 2013 Annual Meeting, pursuant to Section 141(d) of the General Corporation Law of the State of Delaware, the Board shall be divided into two classes of directors, Class I and Class II, with the directors in Class I having a term that expires at the 2014 Annual Meeting and the directors in Class II having a term that expires at the 2015 Annual Meeting, and directors in each class may be removed only with cause pursuant to Section D of this Article Sixth. The successors of the directors who, immediately prior to the 2013 Annual Meeting, were members of Class I (and whose terms expire at the 2013 Annual Meeting) shall be elected to Class I; the directors who, immediately prior to the 2013 Annual Meeting, were members of Class II and whose terms were scheduled to expire at the 2014 Annual Meeting shall become members of Class I; and the directors who, immediately prior to the 2013 Annual Meeting, were members of Class III and whose terms were scheduled to expire at the 2015 Annual Meeting shall become members of Class II with a term expiring at the 2015 Annual Meeting. |
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| 3. | | Commencing with the election of directors at the 2014 Annual Meeting, pursuant to Section 141(d) of the General Corporation Law of the State of Delaware, there shall be a single class of directors, Class I, with all directors of such class having a term that expires at the 2015 Annual Meeting, and all such directors may be removed only with cause pursuant to Section D of this Article Sixth. The successors of the directors who, immediately prior to the 2014 Annual Meeting, were members of Class I (and whose terms expire at the 2014 Annual Meeting) shall be elected to Class I for a term that expires at the 2015 Annual Meeting, and the directors who, immediately prior to the 2014 Annual Meeting, were members of Class II and whose terms were scheduled to expire at the 2015 Annual Meeting shall become members of Class I with a term expiring at the 2015 Annual Meeting. |
| 4. | | From and after the election of directors at the 2015 Annual Meeting, the Board shall cease to be originallyclassified as provided in Section 141(d) of the General Corporation Law of the State of Delaware, and the directors elected at the 2015 Annual Meeting (and each Annual Meeting thereafter) shall be elected for a term expiring at the annual meetingnext Annual Meeting and may be removed with or without cause pursuant to Section D of stockholders to be heldthis Article Sixth. |
| (C) | In the event of any increase or decrease in 1997, the secondauthorized number of directors at any time during which the Board of Directors is divided into a class to be originally elected foror classes: |
| 1. | | Each director then serving shall nevertheless continue as a term expiring at the annual meeting of stockholders to be held in 1998, and the third class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1999, with each director to hold office until his or her successor is duly elected and qualified. At each annual meeting of the stockholders of the Corporation, commencing with the 1997 annual meeting of stockholders but prior to the 2007 annual meeting of stockholders, the successors of the class of which he is a member until the expiration of his term or his prior death, retirement, resignation or removal; and |
| 2. | | Except to the extent that an increase or decrease in the authorized number of directors whose term expires at that meetingoccurs in connection with the rights of holders of preferred stock to elect additional directors, the newly created or eliminated directorships resulting from any increase or decrease shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election, with each director to hold office until his or herdirectorsuccessor shall have been duly elected and qualified. At each annual meeting of stockholders of the Corporation commencing with the 2007 annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be electedapportioned by a plurality vote of all votes cast at such meeting to hold office for a term42
EXHIBIT A
expiring at the next annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified.Commencing with the 2009 annual meeting of stockholders of the Corporation, the foregoing classification of the Board of Directors shall cease. among the class or classes so as to keep the number of directors in each class as nearly equal as possible. |
(C)Vacancies. | (D) | Notwithstanding the provisions of Paragraphs B and C of this Article SIXTH, each director shall serve until his successor is elected and qualified or until his death, retirement, resignation or removal. Except as may otherwise be provided pursuant to Article FOURTH hereof with respect to any rights of holders of preferred stock, a director may be removed only by the affirmative vote of the stockholders holding at least 80% of the capital stock entitled to vote for the election of directors. |
| (E) | Subject to applicable law and except as otherwise provided for or fixed by or pursuant to the provisions of Article FOURTH hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, and directors so chosen(i) prior to the 2009 annual meeting of stockholders shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and, or (ii) subsequent to the 2009 annual meeting of stockholders shall hold office for a term expiring at the next annual meeting of stockholders, and in each case until such director'sdirector’s successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Board of Directors of the Corporation shall shorten the term of any incumbent director. |
| (F) | (D)Removal. Subject to the rights ofDuring any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office at any time, but onlyfor cause and onlyby the affirmative vote ofperiod when the holders of 80%any series of preferred stock have the right to elect additional directors as provided for or fixed pursuant to the provisions of Article FOURTH hereof, then upon commencement and for the duration of the combined voting powerperiod during which such right continues (i) the then otherwise total and authorized number of directors of the then outstanding sharesCorporation shall automatically be increased by such specified number of directors, and the holders of such preferred stock shall be entitled to vote generallyelect the additional directors so provided for or fixed pursuant to said provisions, and (ii) each such additional director shall serve until such director’s successor shall have been duly elected and qualified, or until such director’s right to hold such office terminates pursuant to said provisions, whichever occurs earlier, subject to his earlier death, disqualification,
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| resignation or removal. Except as otherwise provided by the Board of Directors in the resolution or resolutions establishing such series, whenever the holders of any series of preferred stock having such right to elect additional directors are divested of such right pursuant to the provisions of such stock, the terms of office of all such additional directors elected by the holders of such stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional directors, shall forthwith terminate and the total and authorized number of directors of the Corporation shall be reduced accordingly. |
| (G) | Advance notice of stockholder nominations for the election of directors voting together as a single class and, prior toshall be given in the 2009 annual meetingmanner provided in the Bylaws of stockholders, only for cause.the Corporation. |
TWELFTH. | (A) | This Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provisions contained herein, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law, and all rights, preferences, and privileges of whatsoever nature conferred upon shareholders, directors, or any other person whomsoever by or pursuant to the Restated Certificate of Incorporation in its present form or as hereafter are granted, subject to the rights reserved in this Article TWELFTH. |
| (B) | In addition to any requirements of law and any other provisions hereof (and notwithstanding the fact that approval by a lesser vote may be permitted by law or any other provision hereof), the affirmative vote of the holders of 80% or more of the combined voting power of the then-outstanding shares of Voting Stock, voting together as a single class, shall be required to amend, alter or repeal, or adopt any provision inconsistent with, this Article TWELFTH or Articles FIFTH,SIXTH,NINTH, TENTH, and, ELEVENTH,and paragraphs B,A, B(1), B(2), B(3), C, D, E, F and DG of Article SIXTH hereof. |
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EXHIBIT B PROPOSED AMENDMENT TO THE FOURTH RESTATED BYLAWS OF THE CHARLES SCHWAB CORPORATION Pursuant to Article VIII, Section 8.04 of the Fourth Restated Bylaws 1. Article III, Section 3.02 of the Fourth Restated Bylaws of the Corporation is hereby amended and restated to read in its entirety as set forth below: Section 3.02.Number, Election and Terms. ThisFifthSixth Restated Certificate of Incorporation of The Charles Schwab Corporation amendsparagraph A of Article FOURTHArticles FIFTH, SIXTH and TWELFTH of theFourthFifth Restated Certificate of Incorporation of The Charles Schwab Corporation and restates said Certificate, as amended, pursuant to Sections 242 and 245 of the Delaware General Corporation Law.
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EXHIBIT A
THIRDFOURTH RESTATED BYLAWS OF
THE CHARLES SCHWAB CORPORATION
(As Amended onMay 9, 2003 , 2006)
ARTICLE III
BOARD OF DIRECTORS
Section 3.02.Number, Election and Terms. | (a) | Except as otherwise fixed by or pursuant to the provisions of Article FOURTH of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the Board of the Corporation shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies. Commencing |
| (b) | Subject to the rights of the holders of preferred stock to elect directors: |
| 1. | | From the effectiveness of Article SIXTH of the Certificate of Incorporation filed with the 1996Secretary of State of the State of Delaware until the election of directors at the 2013 annual meeting of stockholders (each annual meeting of stockholders an “Annual Meeting”), pursuant to Section 141(d) of the directors, other than those who may be elected byGeneral Corporation Law of the holdersState of any class or series of stock having a preference overDelaware, the Common Stock as to dividends or upon liquidation,Board shall be classified, with respect to the time for which they severally hold office,divided into three classes of directors, Class I, Class II and Class III (each class as nearly equal in number as is reasonably possible, onepossible), with the directors in Class I having a term expiring at the 2013 Annual Meeting, the directors in Class II having a term expiring at the 2014 Annual Meeting and the directors in Class III having a term expiring at the 2015 Annual Meeting, and directors in each class may be removed only with cause pursuant to Section 3.05 of this Article III and Section D of Article Sixth of the Certificate of Incorporation. |
| 2. | | Commencing with the election of directors at the 2013 Annual Meeting, pursuant to Section 141(d) of the General Corporation Law of the State of Delaware, the Board shall be divided into two classes of directors, Class I and Class II, with the directors in Class I having a term that expires at the 2014 Annual Meeting and the directors in Class II having a term that expires at the 2015 Annual Meeting, and directors in each class may be removed only with cause pursuant to Section 3.05 of this Article III and Section D of Article Sixth of the Certificate of Incorporation. The successors of the directors who, immediately prior to the 2013 Annual Meeting, were members of Class I (and whose terms expire at the 2013 Annual Meeting) shall be elected to Class I; the directors who, immediately prior to the 2013 Annual Meeting, were members of Class II and whose terms were scheduled to expire at the 2014 Annual Meeting shall become members of Class I; and the directors who, immediately prior to the 2013 Annual Meeting, were members of Class III and whose terms were scheduled to expire at the 2015 Annual Meeting shall become members of Class II with a term expiring at the 2015 Annual Meeting. |
| 3. | | Commencing with the election of directors at the 2014 Annual Meeting, pursuant to Section 141(d) of the General Corporation Law of the State of Delaware, there shall be a single class of directors, Class I, with all directors of such class having a term that expires at the 2015 Annual Meeting, and all such directors may be removed only with cause pursuant to Section 3.05 of this Article III and Section D of Article Sixth of the Certificate of Incorporation. The successors of the directors who, immediately prior to the 2014 Annual Meeting, were members of Class I (and whose terms expire at the 2014 Annual Meeting) shall be |
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| elected to Class I for a term that expires at the 2015 Annual Meeting, and the directors who, immediately prior to the 2014 Annual Meeting, were members of Class II and whose terms were scheduled to expire at the 2015 Annual Meeting shall become members of Class I with a term expiring at the 2015 Annual Meeting. |
| 4. | | From and after the election of directors at the 2015 Annual Meeting, the Board shall cease to be originallyclassified as provided in Section 141(d) of the General Corporation Law of the State of Delaware, and the directors elected at the 2015 Annual Meeting (and each Annual Meeting thereafter) shall be elected for a term expiring at the annual meetingnext Annual Meeting and may be removed with or without cause pursuant to Section 3.05 of stockholders to be held in 1997, the second class to be originally elected for a term expiring at the annual meetingthis Article III and Section D of stockholders to be held in 1998, and the third class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1999, with each director to hold office until his or her successor is duly elected and qualified. At each annual meetingArticle Sixth of the stockholdersCertificate of Incorporation. |
| (c) | In the Corporation, commencing withevent of any increase or decrease in the 1997 annual meetingauthorized number of stockholders but prior todirectors at any time during which the 2007 annual meetingBoard of stockholders, the successorsDirectors is divided into a class or classes: |
| 1. | | Each director then serving shall nevertheless continue as a director of the class of which he is a member until the expiration of his term or his prior death, retirement, resignation or removal; and |
| 2. | | Except to the extent that an increase or decrease in the authorized number of directors whose term expires at that meetingoccurs in connection with the rights of holders of preferred stock to elect additional directors, the newly created or eliminated directorships resulting from any increase or decrease shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders of the Corporation commencing with the 2007 annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be electedapportioned by a plurality vote of all votes cast at such meeting to hold office for a term expiring at the next annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified. Commencing with the 2009 annual meeting of stockholders of the Corporation, the foregoing classification of the Board of Directors shall cease.Section 3.05.Removal. Subject toamong the rights of any class or series of stock having a preference over the Common Stockclasses so as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office at any time, but onlyfor cause and onlybykeep the affirmative vote of the holders of 80% of the combined voting power of the then outstanding shares of stock entitled to vote generally in the electionnumber of directors voting togetherin each class as a single class and, prior to the 2009 annual meeting of stockholders, only for causenearly equal as possible.
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2. Article III, Section 3.05 of the Fourth Restated Bylaws of the Corporation is hereby amended and restated to read in its entirety as set forth below: Section 3.05.Removal. Notwithstanding the provisions of Section 3.02(b)-(c) of these Bylaws or the provisions of paragraphs B and C of Article SIXTH of the Certificate of Incorporation, each director shall serve until his successor is elected and qualified or until his death, retirement, resignation or removal. Except as may otherwise be provided pursuant to Article FOURTH of the Certificate of Incorporation with respect to any rights of holders of preferred stock, a director may be removed only by the affirmative vote of the stockholders holding at least 80% of the capital stock entitled to vote for the election of directors. 3. Article III, Section 3.06 of the Fourth Restated Bylaws of the Corporation is hereby amended and restated to read in its entirety as set forth below: Section 3.06.Vacancies. Section 3.06.Vacancies. | (a) | Subject to applicable law and except as otherwise provided for or fixed by or pursuant to the provisions of Article FOURTH of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, and directors so chosen(i) prior to the 2009 annual meeting of stockholdersshall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and, or (ii) subsequent44
EXHIBIT A
tothe 2009 annual meeting of stockholders shall hold office for a term expiring at the next annual meeting of stockholders, and in each case until such director'sdirector’s successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Board of Directors of the Corporation shall shorten the term of any incumbent director.
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| (b) | ARTICLE VIII
MISCELLANEOUS
Section 8.04.Amendments. These Bylaws may be altered, amended or repealed atDuring any meeting of the Board or of the stockholders, provided notice of the proposed change was given in the notice of the meeting and, in the case of a meeting of the Board, in a notice given not less than two days prior to the meeting;provided, however, that, in the case of amendments by stockholders, notwithstanding any other provisions of these Bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote ofperiod when the holders of any particular class or series of preferred stock have the capital stockright to elect additional directors as provided for or fixed pursuant to the provisions of the Corporation required by law,Article FOURTH of the Certificate of Incorporation, then upon commencement and for the duration of these Bylaws, the affirmative voteperiod during which such right continues (i) the then otherwise total and authorized number of directors of the Corporation shall automatically be increased by such
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64
| specified number of directors, and the holders of at least 80% of the total voting power of all the then outstanding shares of Voting Stock of the Corporation, voting together as a single class,such preferred stock shall be required to alter, amend or repeal this Section 8.04 or any provision of Sections 2.06, 2.10, 3.02, 3.05 and 3.06 of these Bylaws.45
EXHIBIT B
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee of the Board of Directors assists the Board in fulfilling its oversight responsibilities by reviewing:
· | | The integrity of the company’s financial statements and financial reporting process; |
· | | The qualifications and independence of the independent auditors and performance of the company’s internal audit function and independent auditors; |
· | | Compliance with legal and regulatory requirements; and |
· | | Other matters as directed by the Board or this charter. |
The Audit Committee prepares the report required by the rules of the Securities and Exchange Commission to be included in the company’s annual proxy statement.
COMPOSITION AND MEMBERSHIP
The Board appoints the members of the Audit Committee on the recommendation of the Nominating and Corporate Governance Committee. The Audit Committee shall consist of at least three directors, all of whom shall meet independence and experience requirements in accordance with applicable laws, Securities and Exchange Commission and Nasdaq Stock Market rules. At least one member of the Audit Committee shall be an “audit committee financial expert” as defined by the Commission. Members of the Audit Committee shall not simultaneously serve on the audit committees of more than two other public companies.
AUTHORITY
The Audit Committee has the sole authority to hire, retain and terminate the independent auditors. The independent auditors shall report directly to the Audit Committee, and the Audit Committee shall be directly responsible for the oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting). The Audit Committee shall pre-approve all audit, internal control-related, and permitted non-audit services to be performed by the independent auditors. The Audit Committee shall establish a process for appropriating funding from the company for payment of the independent auditors and any advisors employed by the Audit Committee.
The Audit Committee shall have the sole authority to retain special independent legal, accounting or other consultants to advise the Committee. The Audit Committee shall meet separately and periodically with the independent auditors, the Chief Financial and Accounting Officer, the senior internal audit executive, and the General Counsel. The Audit Committee may request any officer or employee of the company or the company’s outside counsel or independent auditors to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.
While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the company’s financial statements and disclosures are complete and accurate and are in accordance with accounting principles generally accepted in the United States of America. This is the responsibility of management and the independent auditors.
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EXHIBIT B
MEETINGS
There shall be not less than five regular meetings each year and additional meetings may be held as circumstances warrant. A majority of members of the Committee shall constitute a quorum. The action of a majority of members at a meeting at which a quorum is present will be the action of the Committee.
RESPONSIBILITIES
The responsibilities of the Audit Committee include, but are not limited, to the following:
Oversight of Financial Disclosures
1. | | Meet to review and discuss with management and the independent auditors the company’s annual and quarterly financial statements (and the results of the independent auditors’ reviews of the quarterly financial statements), including reviewing specific disclosures made in management’s discussion and analysis. |
(a) | | Review and discuss with management and the independent auditors: |
| ° | | Significant financial reporting issues and judgments made in connection with the preparation of the company’s financial statements, including any significant changes in the company’s selection or application of accounting principles; |
| ° | | Management’s internal control assessment and independent auditor attestation, including any significant deficiencies in the design or operation of internal controls or material weaknesses therein, the adequacy of disclosures about changes in internal control over financial reporting, and any fraud involving management or other employees who have a significant role in the Company’s internal controls (as well as any special steps adopted in light of such control issues); |
| ° | | Analyses of the effect of alternative assumptions, estimates or GAAP methods on the company’s financial statements, and the treatment preferred by the independent auditors; |
| ° | | The effect of regulatory and accounting initiatives as well as off-balance sheet structures on the company’s financial statements; and |
| ° | | Matters (including correspondence or inquiries from regulators or governmental agencies, complaints or legal matters) that raise material issues regarding the company’s financial statements or accounting policies. |
(b) | | Discuss with the independent auditors: |
| ° | | Any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to requested information, and any significant disagreements with management; |
| ° | | Material written communications with management, such as the management letter provided by the independent auditors and the company’s response to that letter, and any accounting adjustments that were noted or proposed by the auditors; and |
| ° | | The quality, not just the acceptability, of the company’s accounting principles as applied to its financial reporting as required by Statement on Auditing Standards No. 61. |
2. | | Recommend to the Board whether the audited financial statements should be included in the company’s Form 10-K. |
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EXHIBIT B
3. | | Discuss with management the types of information and the type of presentation to be made in the company’s earnings press releases, including the use of “pro forma” or “adjusted” non-GAAP information, as well as the nature of and process for providing information to analysts and rating agencies. Such discussion may be done generally (consisting of discussing the types of information to be disclosed and the types of presentations to be made). |
Oversight of Auditors
4. | | Obtain and review annually a report by the independent auditors describing: |
| ° | | The firm’s internal quality control procedures; |
| ° | | Any material issues raised by the most recent internal quality-control review, peer review or inspection, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and |
| ° | | All relationships between the independent auditors and the company, consistent with Independence Standards Board Standard No. 1. |
5. | | Evaluate the qualifications, performance and independence of the independent auditors (in its evaluation, the Audit Committee may take into account the reports of the independent auditors and the opinions of management and the internal auditors), including: |
| ° | | Any disclosed relationships or services that may impact the objectivity and independence of the auditors and take or recommend that the full board take appropriate action to oversee the independence of the independent auditors; |
| ° | | The adequacy of the independent auditors’ quality controls; |
| ° | | The lead partner of the independent auditors; and |
| ° | | Whether it is appropriate to rotate the lead audit partner (at a minimum, audit partner rotation shall be required subject to the applicable legal deadlines), or the audit firm itself. |
6. | | Recommend to the Board policies for the company’s hiring of employees or former employees of the independent auditors. |
7. | | Discuss with the independent auditors issues on which their national office was consulted by the company’s audit team. |
8. | | Review the activities and performance of the internal audit department, including its organizational structure, budget and qualifications. Review the appointment, replacement and performance of the senior internal auditing executive. |
9. | | Review summaries of the significant reports to management prepared by the internal auditing department and management’s responses. |
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EXHIBIT B
Oversight of Risk and Legal and Regulatory Compliance Matters
10. | | Discuss with management the company’s major risk exposures and the steps management has taken to monitor and control such exposures, including the company’s risk assessment and risk management policies. |
11. | | Obtain and review reports from management, the General Counsel, the Chief Compliance Officer, the senior internal auditing executive and the independent auditors regarding the policies and procedures for ensuring compliance with, and whether the company and its affiliated entities are in compliance with, applicable legal requirements, conflicts of interest policies, and the company’s code of business conduct and ethics. The Audit Committee shall review and approve related-party transactions required to be disclosed under Item 404 of Regulation S-K. |
12. | | Review procedures for (a) the receipt, retention and treatment of complaints received by the company regarding accounting, internal accounting controls, or auditing matters; and (b) the confidential, anonymous submission by employees of the company of concerns regarding questionable accounting or auditing matters. |
Governance Responsibilities
13. | | Review annually the performance of the Audit Committee and review and reassess the adequacy of this charter. |
14. | | Report its activities to the full Board on a regular basis. |
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EXHIBIT C
DESCRIPTION OF CHARLES R. SCHWAB’S EMPLOYMENT AND LICENSE AGREEMENTS
This Exhibit C describes agreements with Charles R. Schwab relating to his employment and the use of the name “Schwab” by the company.
Employment Agreement
The company and Mr. Schwab entered into an amended employment agreement effective March 31, 2003. Stockholders approved the amended employment agreement. The amended agreement has an initial term of five years, and provides that as of each March 31, the term of the employment agreement is automatically extended by an additional year, under the same terms and conditions, unless beforehand either party provides notice to the other of an intention not to extend it.
The amended employment agreement provides for an annual base salary of $900,000, subject to annual review by the board, and provides that Mr. Schwab will be entitled to participate in all compensationelect the additional directors so provided for or fixed pursuant to said provisions, and fringe benefit programs made available to other executive officers, including stock-based incentive plans. Mr. Schwab’s bonus is determined under the Corporate Executive Bonus Plan, as described in the Compensation Committee Report.
The employment agreement also provides that certain compensation(ii) each such additional director shall serve until such director’s successor shall have been duly elected and benefits will be paidqualified, or provided to Mr. Schwab (or his immediate family or estate) if his employment is terminated involuntarily, except for cause, before the expiration of the employment agreement. “Cause” is defined as the commission of a felony, or willful and gross negligence, or misconduct that results in material harm to the company.
“Involuntary termination” includes a material change in Mr. Schwab’s capacities or duties at the company. If an involuntary termination is not due to death, disability or “cause”:
· | | Mr. Schwab will be entitled to receive for a period of 36 months all compensation to which he would have been entitled had he not been terminated, including his base salary and participation in all bonus, incentive and other compensation and benefit plans for which he was or would have been eligible (but excluding additional grants under stock incentive plans), and |
· | | all his outstanding, unvested awards under stock incentive plans will vest fully on the termination date. |
If an involuntary termination is due to disability, Mr. Schwab will be entitled to receive:
· | | his base salary and benefits, less any payments under the long-term disability plan, for a period of 36 months from the termination date, and |
· | | a prorated portion of any bonus or incentive payments for the year in which the disability occurs. |
If an involuntary termination is due to death, a lump sum payment will be made to Mr. Schwab’s estate equal to five times his then base salary.
If Mr. Schwab voluntarily resigns his employment within 24 months of a change in control of the company, he will be entitled to receive his base salary up to the date of resignation, plus a prorated portion of any bonus or incentive payments payable for the year in which the resignation occurs. In addition, if Mr. Schwab voluntarily resigns his employment, or his employment is involuntarily terminated, within 24 months of a change in control of the company, he will have the right (but not the obligation) to enter into a consulting arrangement with the company. Under that arrangement, Mr. Schwab would provide certain consulting services to the company for a period of five years for an annual payment equal to $1 million or 75% of his then base salary, whichever is less.
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EXHIBIT C
The employment agreement prohibits Mr. Schwab from becoming associated with any business competing with the company during the term of the agreement and for a period of five years following a voluntary resignation of employment. (However, that restriction does not apply if Mr. Schwab resigns his employment within 24 months of a change in control of the company.)
License Agreement
The company and Charles Schwab & Co., Inc. also are parties to an assignment and license agreement with Mr. Schwab that was approved in July 1987 by the company’s non-employee directors. Under the agreement, Mr. Schwab has assigned to the company all service mark, trademark, and trade name rights to Mr. Schwab’s name (and variations on the name) and likeness. However, Mr. Schwab has retained the perpetual, exclusive, irrevocableuntil such director’s right to use his name and likeness for any activity other than the financial services business.
Beginning immediately after any termination of his employment, Mr. Schwab will be entitledhold such office terminates pursuant to use his likeness in the financial services business for some purposes (specifically, the sale, distribution, broadcast and promotion of books, videotapes, lectures, radio and television programs, and also any financial planning services that do not directly compete with any business in which the company or its subsidiaries are then engaged or plan to enter within three months). Beginning two years after any termination of his employment, Mr. Schwab may use his likeness for all other purposes, as long as that use does not cause confusion about whether the company is involved with goods or services actually marketed by Mr. Schwab or by third parties unrelated to the company.
So long as Mr. Schwab does not cause actual confusion among clients, he will at all times be able to use his own name to identify himself, but not as a service mark, trademark or trade name in the financial services business. The assignment and license agreement defines the “financial services business” as the business in whichCharles Schwab & Co., Inc. is currently engaged and any additional and related businesses in which that firm or the company is permitted to engage under rules and regulations of applicable regulatory agencies. The company’s ability to assign or license the right to use Mr. Schwab’s name and likeness is severely limited during Mr. Schwab’s lifetime.
No cash consideration is to be paid to Mr. Schwab for the name assignment while he is employed by the company or, after his employment terminates, while he is receiving compensation under an employment agreement with the company. Beginning when all such compensation ceases, and continuing for a period of 15 years, Mr. Schwab or his estate will receive three-tenths of one percent (0.3%) of the aggregate net revenues of the company (on a consolidated basis) and those of its unconsolidated assignees and licensees that use the name or likeness. These payments may not, however, exceed $2 million per year, adjusted up or down to reflect changes from the cost of living prevailing in the San Francisco Bay Area during specified months in 1987, and they will terminate if the company and its subsidiaries cease using the name and likeness.
The license agreement permits the company to continue using Mr. Schwab’s name and likeness even after he is no longer affiliated with the company and, under most circumstances, limits Mr. Schwab’s separate use of his name and likeness in the financial services business. However, the company’s ability to assign the license agreement, or to permit others to use Mr. Schwab’s name and likeness, are constrained during Mr. Schwab’s lifetime. Thus, without Mr. Schwab’s consent, the company may not transfer the license, or any of the company’s rights under the license, to a third party, including by means of mergers or reorganizations in which the shareholders who held shares prior to the transaction do not retain the ability to elect the majority of the board immediately following such transaction (among other circumstances).
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EXHIBIT D
DESCRIPTION OF WILLIAM L. ATWELL’S SEPARATION AGREEMENT
This Exhibit D describes William L. Atwell’s separation agreement.
Separation Agreement
On November 29, 2005, Mr. Atwell entered into an agreement with the company in connection with his resignation as Executive Vice President and President – Individual Investor Enterprise, which was effective December 31, 2005. Under the terms of the separation agreement, Mr. Atwell received a lump sum payment in the amount of $975,000.
In addition, Mr. Atwell became fully vested in 92,000 shares of restricted stock, 250,000 stock options, and 1,450,000 cash units under the company’s Long-Term Incentive Plan. Mr. Atwell remained eligible toparticipate in the Corporate Executive Bonus Plan for 2005 based on his prior target bonus percentage, actual corporate and enterprise performance, and the pre-approved corporate and enterprise matrices for 2005.
Mr. Atwell provided the company and its affiliates with a general release and waiver of all claims. In addition, Mr. Atwell’s receipt of the benefits and payments under the agreement issaid provisions, whichever occurs earlier, subject to the satisfaction by Mr. Atwell of certain post-termination obligations, including his agreement not to solicit customersearlier death, disqualification, resignation or employees for a period of eighteen months after his resignation.
For specific information regarding the amounts paid to Mr. Atwell (including Mr. Atwell’s 2005 bonus under the Corporate Executive Bonus Plan), please refer to the Summary Compensation Table.
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EXHIBIT E
DESCRIPTION OF ALAN J. WEBER’S SEPARATON AGREEMENT
This Exhibit E describes Alan J. Weber’s separation agreement.
Separation Agreement
On May 23, 2005, Mr. Weber entered into an agreement with the company and U.S. Trust Corporation in connection with his retirementremoval. Except as Chairman and Chief Executive Officer of U.S. Trust.
Under the terms of the separation agreement, Mr. Weber retired as an officer of the company and from any and all U.S. Trust and company directorships he held, effective as of May 19, 2005. Mr. Weber was entitled to receive cash lump sum payments totaling $1.4 million.
In addition, Mr. Weber became fully vested in 150,000 shares of restricted stock, 181,000 stock options, and750,000 cash units under the company’s Long Term Incentive Plan. Mr. Weber retained the right to exercise vested non-qualified stock options for two years following his retirement.
Mr. Weberotherwise provided the company and its affiliates with a general release and waiver of all claims. In addition, Mr. Weber’s receipt of the benefits and payments under the separation agreement is subject to the satisfaction by Mr. Weber of certain post-termination obligations, including his agreement not to solicit customers or employees for a period of eighteen months after his resignation.
For specific information regarding the amounts paid to Mr. Weber, please refer to the Summary Compensation Table.
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THECHARLESSCHWABCORPORATION
101 Montgomery Street
San Francisco, California 94104
(415) 627-7000
www.schwab.com
www.aboutschwab.com
LGL-13902-07 (3/06)
THE CHARLES SCHWAB CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
Thursday, May 18, 2006
2:00 p.m. (PST)
Argent Hotel
50 Third Street
San Francisco, California
The Annual Meeting of Stockholders will be broadcast over the Internet. For
information about the real-time webcast, visitwww.schwabevents.com.
| | | THE CHARLES SCHWAB CORPORATION
101 Montgomery Street
San Francisco, CA 94104
| | proxy |
This proxy is solicited by the Board of Directors for use at the Annual Meeting on May 18, 2006.
The shares of stock you hold in your account, as well as any shares you hold under The Charles Schwab Corporation Dividend Reinvestment and Stock Purchase Plan and/or The SchwabPlan Retirement Savings and Investment Plan will be voted as you specify on the reverse side.
If you sign and return your proxy card and no choice is specified, your shares will be voted “FOR” Proposals 1 and 2, and “AGAINST” Proposals 3, 4, 5 and 6.
By signing the proxy, you revoke all prior proxies and appoint Charles R. Schwab and Carrie E. Dwyer with full power of substitution, to vote your shares on the matters shown on the reverse side and any other matters which may come before the Annual Meeting and all adjournments.
See reverse for voting instructions.
COMPANY #
There are three ways to vote your Proxy
Your Internet or telephone vote authorizes the Named Proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.
VOTE BY INTERNET — http://www.eproxy.com/schw/ — QUICK«««EASY«««IMMEDIATE
Useresolution or resolutions establishing such series, whenever the Internetholders of any series of preferred stock having such right to vote your proxy 24 hours a day, 7 days a week, until 12:00 p.m. (CT) on May 17, 2006.
Please have your proxy cardelect additional directors are divested of such right pursuant to the provisions of such stock, the terms of office of all such additional directors elected by the holders of such stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional directors, shall forthwith terminate and the last four digitstotal and authorized number of your Social Security Number or Tax Identification Number available. Followdirectors of the simple instructions the voice provides you.
VOTE BY PHONE — TOLL FREE — 1-800-560-1965 — QUICK«««EASY«««IMMEDIATECorporation shall be reduced accordingly.
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4. Article VIII, Section 8.04 of the Fourth Restated Bylaws of the Corporation is hereby amended and restated to read in its entirety as set forth below: Section 8.04Amendments. These Bylaws may be altered, amended or repealed at any meeting of the Board or of the stockholders, provided notice of the proposed change was given in the notice of the meeting and, in the case of a meeting of the Board, in a notice given not less than two days prior to the meeting;provided, however, that, in the case of amendments by stockholders, notwithstanding any other provisions of these Bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock of the Corporation required by law, the Certificate of Incorporation or these Bylaws, the affirmative vote of the holders of at least 80% of the total voting power of all the then outstanding shares of Voting Stock of the Corporation, voting together as a single class, shall be required to alter, amend or repeal this Section 8.04 or any provision of Sections 2.06, 2.10, 3.02(a), 3.02(b)(1), 3.02(b)(2), 3.02(b)(3), 3.02(c), 3.05 and 3.06 of these Bylaws. Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week, until 12:00 p.m. (CT) on May 17, 2006.
Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number available. Follow the simple instructions to obtain your records and create an electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we’ve provided or return it to The Charles Schwab Corporation, c/o Shareowner ServicesSM, P.O. Box 64873, St. Paul, MN 55164-0873.
If you vote by Internet or Phone, please do not mail your Proxy Card
The Board of Directors Recommends a Vote FOR Items 1 and 2, and AGAINST Items 3, 4, 5 and 6.
| | | | | | | | | | | | | | | | | 1. Election of directors: | | 01 Nancy H. Bechtle | | 03 Marjorie Magner | | ¨ | | Vote FOR | | ¨ | | Vote WITHHELD | | | | | | | 02 C. Preston Butcher | | | | | | all nominees | | | | from all nominees | | | | | | | | | | | | | (except as marked) | | | | | | | | | | | | | | | | | | | | | | | | | | (Instructions: To withhold authority to vote for any indicated nominee, write the number(s) of the nominee(s) in the box provided to the right.) | | | | òPlease fold hereò | | | | | | | | 2. Approval of amendments to the certificate of incorporation and bylaws to provide for the annual election of directors
| | ¨ | | For | | ¨ | | Against | | ¨ | | Abstain | | | | | | | | 3. Stockholder proposal regarding the effect of a flat tax
| | ¨ | | For | | ¨ | | Against | | ¨ | | Abstain | | | | | | | | 4. Stockholder proposal regarding political contributions
| | ¨ | | For | | ¨ | | Against | | ¨ | | Abstain | | | | | | | | 5. Stockholder proposal regarding majority voting
| | ¨ | | For | | ¨ | | Against | | ¨ | | Abstain | | | | | | | | 6. Stockholder proposal regarding severance payments
| | ¨ | | For | | ¨ | | Against | | ¨ | | Abstain |
WHEN THIS PROXY IS PROPERLY EXECUTED YOUR SHARES WILL BE VOTED: (1) AS DIRECTED; (2) IF NO DIRECTION IS GIVEN,FOR PROPOSALS 1 AND 2, ANDAGAINST PROPOSALS 3, 4, 5 and 6; AND (3) ACCORDING TO THE BEST JUDGMENT OF CHARLES R. SCHWAB AND CARRIE E. DWYER IF ANY OTHER MATTER COMES BEFORE THE ANNUAL MEETING FOR A VOTE.65
211 Main Street San Francisco, CA 94105 (415) 667-7000 www.schwab.com www.aboutschwab.com LGL-13902-13 (3/12) | | | | | Address Change? Mark Box¨ Indicate changes below: | | | |
Charles SCHWAB CORPORATION The Board of Directors Recommends a Vote “FOR” Proposals 1(a) through 1(c), 2, 3 and 4, and “AGAINST” Proposals 5 and 6. Election of directors: FOR AGAINST ABSTAIN 1(a) Nancy H. Bechtle 1(b) Walter W. Bettinger II 1(c) C. Preston Butcher 2. Ratification of independent auditors For Against Abstain 3. Advisory approval of named executive officer compensatio For Against Abstain 4. Approval of amendment to the Certificate of Incorporation and Bylaws to declassify the Board For Against Abstain 5. Stockholder poposal regarding political contributions For Against Abstain 6. Stockholder proposal to amend Bylaws regarding proxy access For Against Abstain WHEN THIS PROXY IS PROPERLY EXECUTED YOUR SHARES WILL BE VOTED: (1) AS DIRECTED; (2) IF NO DIRECTION IS GIVEN: FOR PROPOSALS 1(a) THROUGH 1(c), 2, 3 AND 4, AND AGAINST PROPOSALS 5 AND 6; AND (3) ACCORDING TO THE BEST JUDGMENT OF CHARLES R. SCHWAB, WALTER W. BETTINGER II AND/OR CARRIE E. DWYER IF ANY OTHER MATTER COMES BEFORE THE ANNUAL MEETING FOR A VOTE. Date _______________________ | | | | | | | | | | | | | | | | | | | | | Signature(s) in Box Please sign exactly as your name(s) appears on Proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the Proxy. COMPANY Please fold here Do not separate TO VOTE BY INTERNET OR TELEPHONE, SEE REVERSE SIDE OF THIS PROXY CARD. TO VOTE BY MAIL AS THE BOARD OF DIRECTORS RECOMMENDS ON ALL ITEMS BELOW, SIMPLY SIGN, DATE, AND RETURN THIS PROXY CARD. Address Change Mark box, sign, and indicate changes below: Shareowner Services P.O. Box 64945 St. Paul, MN 55164-0945
ANNUAL MEETING OF STOCKHOLDERS Thursday, May 17, 2012 2:00 p.m. (Pacific Time) 211 Main Street San Francisco, CA 94105 The Annual Meeting of Stockholders also will be hosted as a virtual event via the Internet. To attend the meeting via the Internet, visit www.schwabevents.com/corporation. Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on May 17, 2012: The proxy statement and annual report to security holders are available in the “Investor Relations” section of our web site at www.aboutschwab.com. Charles SCHWAB CORPORATION 211 Main Street San Francisco, CA 94105 proxy This proxy is solicited by the Board of Directors for use at the Annual Meeting on May 17, 2012. The shares of stock you hold in your account, as well as any shares you hold under The Charles Schwab Corporation Dividend Reinvestment Plan, Employee Stock Purchase Plan and/or The SchwabPlan Retirement Savings and Investment Plan will be voted as you specify on the reverse side. If you sign and return your proxy card and no choice is specified, your shares will be voted “FOR” Proposals 1(a) through 1(c), 2, 3 and 4, and “AGAINST” Proposals 5 and 6. By signing the proxy, you revoke all prior proxies and appoint Charles R. Schwab, Walter W. Bettinger II and/or Carrie E. Dwyer with full power of substitution, to vote your shares on the matters shown on the reverse side and any other matters which may come before the Annual Meeting and all adjournments. Vote by Internet, Telephone or Mail 24 Hours a Day, 7 Days a Week Your phone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. INTERNET PHONE MAIL www.eproxy.com/schw 1-800-560-1965 Mark, sign and date your proxy Use the Internet to vote your proxy Use a touch-tone telephone to card and return it in the until 12:00 p.m. (CT) on vote your proxy until 12:00 p.m. (CT) postage-paid envelope provided. May 16, 2012. on May 16, 2012. If you vote your proxy by Internet or by Telephone, you do NOT need to mail back your Proxy Card. Please sign exactly as your name(s) appear on the proxy card. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.
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