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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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EXCHANGE ACT OF 1934
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(as permitted by Rule 14
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KeyCorp Logo
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
April 15, 1999
DEAR SHAREHOLDER:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
of KeyCorp which will be held at The Forum Conference Center, One Cleveland
Center, 1375 East 9th Street, Cleveland, Ohio 44114, on Thursday, May 20, 1999,
at 8:30 a.m., local time.
All holders of record of KeyCorp Common Shares as of March 22, 1999, are
entitled to vote at the 1999 Annual Meeting.
As described in the accompanying Notice and Proxy Statement, you will be
asked to elect six directors for three-year terms expiring in 2002, to consider
a proposal submitted by a KeyCorp shareholder and to ratify the appointment of
Ernst & Young LLP as independent auditors for 1999.
KeyCorp's Annual Report for the year ended December 31, 1998, was mailed to
all shareholders of record as of March 22, 1999.
Your proxy card is enclosed. Please indicate your voting instructions and
sign, date, and mail this proxy card promptly in the return envelope.
Sincerely,
/s/ Robert W. Gillespie
ROBERT W. GILLESPIE
Chairman of the Board
and Chief Executive Officer
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KeyCorp Logo
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 20, 1999
The 1999 Annual Meeting of Shareholders of KeyCorp will be held at The
Forum Conference Center, One Cleveland Center, 1375 East 9th Street, Cleveland,
Ohio 44114, on Thursday, May 20, 1999, at 8:30 a.m., local time, for the
following purposes:
1. To elect six directors to serve for terms expiring in 2002;
2. To consider and act upon a shareholder proposal requesting
necessary steps to cause annual election of all directors;
3. To ratify the appointment by the Board of Directors of Ernst &
Young LLP as independent auditors for KeyCorp for the fiscal year ending
December 31, 1999; and
4. To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
Only holders of KeyCorp Common Shares of record as of the close of business
on March 22, 1999, have the right to receive notice of and to vote at the Annual
Meeting and any postponement or adjournment thereof.
By Order of the Board of Directors
/s/ Thomas C. Stevens
THOMAS C. STEVENS
Secretary
April 15, 1999
------------------------
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN, AND MAIL THE ENCLOSED
PROXY CARD AT YOUR EARLIEST CONVENIENCE. PLEASE USE THE RETURN ENVELOPE ENCLOSED
WITH THE PROXY CARD FOR THAT PURPOSE.
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TABLE OF CONTENTS
PAGE
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NOTICE OF ANNUAL MEETING
PROXY STATEMENT............................................. 1
ISSUE ONE -- Election of Directors.......................... 1
Nominees for Terms Expiring in 2002....................... 2
Continuing Directors Whose Terms Expire in 2000........... 4
Continuing Directors Whose Terms Expire in 2001........... 6
The Board of Directors and Its Committees................. 8
ISSUE TWO -- Shareholder Proposal Requesting Necessary Steps
to Cause Annual Election of All Directors................. 11
ISSUE THREE -- Independent Auditors......................... 12
Executive Officers.......................................... 13
Compensation of Executive Officers.......................... 15
Section 16(a) Beneficial Ownership Reporting Compliance..... 19
Employment and Change of Control Agreements................. 20
Compensation and Organization Committee Report on Executive
Compensation.............................................. 25
Compensation Committee Interlocks and Insider
Participation............................................. 30
KeyCorp Stock Price Performance............................. 31
Share Ownership and Phantom Stock Units..................... 32
Shareholder Proposals for the Year 2000..................... 33
General..................................................... 34
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KeyCorp Logo
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
PROXY STATEMENT
This Proxy Statement is furnished commencing on or about April 15, 1999, in
connection with the solicitation on behalf of the Board of Directors of KeyCorp
of proxies to be voted at the 1999 Annual Meeting of Shareholders on May 20,
1999, and at all postponements and adjournments thereof. All holders of record
of KeyCorp Common Shares at the close of business on March 22, 1999, are
entitled to vote. On that date there were 449,100,359 KeyCorp Common Shares
outstanding and entitled to vote at the meeting, and each such share is entitled
to one vote on each matter to be considered. At the meeting, a majority of the
outstanding KeyCorp Common Shares shall constitute a quorum.
ISSUE ONE
ELECTION OF DIRECTORS
In accordance with KeyCorp's Regulations, the Board of Directors of KeyCorp
(also sometimes referred to herein as the "Board") has established the size of
the Board at 18 members, divided into three classes of six members each. The
terms of these classes as of the 1999 Annual Meeting will expire in 2000, 2001,
and 2002, respectively. Six nominees for directors for terms expiring in 2002
are listed below. All properly executed and returned proxy cards will be voted
for these nominees unless contrary specifications are properly made in writing
directly on the proxy card in the space indicated for that purpose, in which
case the proxy will be voted or withheld in accordance with such specifications.
All nominees other than Mr. Sanford are current members of the Board. Should any
nominee become unable to accept nomination or election, the proxy cards will be
voted for the election of such person, if any, as shall be recommended by the
Board or for holding a vacancy to be filled by the Board at a later date. The
Board has no reason to believe that the persons listed as nominees will be
unable to serve. At the election of directors, the properly nominated candidates
receiving the greatest number of votes shall be elected.
Pursuant to rules promulgated under the Securities Exchange Act of 1934
(the "Exchange Act"), the following information lists, as of January 15, 1999,
as to nominees for director and directors whose terms of office will continue
after the 1999 Annual Meeting, the principal occupation or employment, age, the
year in which each first became a director of KeyCorp, and directorships in
registered investment companies or companies having securities which are
registered pursuant to, or which are subject to certain provisions of, the
Exchange Act. KeyCorp was formed as a result of the merger on March 1, 1994 (the
"Merger") of the former KeyCorp, a New York corporation ("Old Key"), into
Society Corporation, an Ohio corporation ("Society"), whereupon Society changed
its name to KeyCorp. In the case of nominees or continuing directors who were
directors of Old Key, the year in which such individual became a director of Old
Key is also included in the
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following information. Except as otherwise indicated, each nominee or continuing
director has had the same principal occupation or employment during the past
five years.
NOMINEES FOR TERMS EXPIRING IN 2002
ALBERT C. BERSTICKER
Since 1999, Chairman of the Board, Ferro Corporation
ALBERT C. BERSTICKER (industrial specialty chemicals) (announced retirement
PHOTO effective April 23, 1999). Previously, Chairman and
Chief Executive Officer, Ferro Corporation. Age 64.
KeyCorp director since 1991. Director, Ferro
Corporation, Brush Wellman, Inc. and Oglebay Norton
Company.
EDWARD P. CAMPBELL
Since 1997, President and Chief Executive Officer,
EDWARD P. CAMPBELL Nordson Corporation (capital equipment). Previously,
PHOTO President and Chief Operating Officer (1996-1997),
Nordson Corporation; Executive Vice President and Chief
Operating Officer, Nordson Corporation. Age 49. KeyCorp
director since 1999. Director, Nordson Corporation.
KENNETH M. CURTIS
Senior Member, Curtis, Thaxter, Stevens, Broder &
KENNETH M. CURTIS PHOTO Micoleau LLC (law firm). Previously, President, Maine
Maritime Academy (ocean-oriented college). Age 67.
KeyCorp director since 1994 (Old Key director since
1993). Director, Bowater Incorporated.
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CHARLES R. HOGAN
Co-Owner and Chief Executive Officer, C.R.H.
CHARLES R. HOGAN PHOTO Investments, Inc. (shopping center and real estate
development). Age 61. KeyCorp director since 1994 (Old
Key director since 1993).
BILL R. SANFORD
Chairman, President, and Chief Executive Officer of
BILL R. SANFORD PHOTO STERIS Corporation (infection prevention and surgical
support products). Age 56. Director, STERIS
Corporation.
DENNIS W. SULLIVAN
Executive Vice President, Parker-Hannifin Corporation
DENNIS W. SULLIVAN (industrial and aerospace motion control components and
PHOTO systems). Age 60. KeyCorp director since 1993.
Director, Parker-Hannifin Corporation and Ferro
Corporation.
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CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2000
WILLIAM G. BARES
Since 1996, Chairman, President and Chief Executive
WILLIAM G. BARES PHOTO Officer, The Lubrizol Corporation (chemicals for use in
lubricants and fuels). Previously, President and Chief
Executive Officer (1996), The Lubrizol Corporation;
President and Chief Operating Officer, The Lubrizol
Corporation. Age 57. KeyCorp director since 1987.
Director, The Lubrizol Corporation, Applied Industrial
Technologies (Bearings), Inc., and Oglebay Norton
Company.
DR. CAROL A. CARTWRIGHT
President, Kent State University (state university).
CAROL A. CARTWRIGHT Age 57. KeyCorp Director since 1997. Director,
PHOTO FirstEnergy Corp. and M.A. Hanna Company.
ROBERT W. GILLESPIE
Since 1997, Chairman and Chief Executive Officer,
ROBERT W. GILLESPIE KeyCorp. Previously, Chairman, President and Chief
PHOTO Executive Officer (1996-1997), KeyCorp; President and
Chief Executive Officer (1995-1996), KeyCorp; President
and Chief Operating Officer, KeyCorp. Age 54. KeyCorp
director since 1982.
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HENRY S. HEMINGWAY
President, Hemingway Enterprises, Inc. (holding
HENRY S. HEMINGWAY company); President, Town & Country Life Insurance
PHOTO Company, a subsidiary of Hemingway Enterprises, Inc.
Age 46. KeyCorp director since 1994 (Old Key director
since 1987).
STEVEN A. MINTER
Executive Director and President, The Cleveland
STEVEN A. MINTER PHOTO Foundation (philanthropic foundation). Age 60. KeyCorp
director since 1987. Director, Consolidated Natural Gas
Company, Goodyear Tire and Rubber Company, and
Rubbermaid, Inc.
RONALD B. STAFFORD
Senior Member, Stafford, Trombley, Purcell, Owens &
RONALD B. STAFFORD Curtin, P. C. (law firm); Member of the New York State
PHOTO Senate since 1966. Age 63. KeyCorp director since 1994
(Old Key director since 1983).
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CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2001
CECIL D. ANDRUS
Since 1995, Chairman, Andrus Center for Public
CECIL D. ANDRUS PHOTO Policy-Boise State University (non-profit educational
center). Previously, Governor, State of Idaho. Age 67.
KeyCorp director since 1996. Director, Albertson's,
Inc. and Coeur d'Alene Mines Corp.
THOMAS A. COMMES
President and Chief Operating Officer, The
THOMAS A. COMMES PHOTO Sherwin-Williams Company (paints and painting supplies
manufacture and distribution) (announced retirement
effective March 16, 1999). Age 56. KeyCorp director
since 1987. Director, The Sherwin-Williams Company.
STEPHEN R. HARDIS
Since 1995, Chairman and Chief Executive Officer, Eaton
STEPHEN R. HARDIS PHOTO Corporation (diversified manufacturing company).
Previously, Vice Chairman and Chief Financial and
Administrative Officer, Eaton Corporation. Age 63.
KeyCorp director since 1985. Director, Eaton
Corporation, Lexmark International, Inc., Nordson Cor-
poration, and Progressive Corporation.
DOUGLAS J. MCGREGOR
Since 1999, Principal, C.A.M. Investments (financial
DOUGLAS J. McGREGOR investor) and, since 1998, Retired Chairman and Chief
PHOTO Executive Officer, M.A. Hanna Company (specialty
chemicals). Previously, Chairman and Chief Executive
Officer (1997-1998), M.A. Hanna Company; President and
Chief Operating Officer, M.A. Hanna Company. Age 58.
KeyCorp Director since 1995. Director, Vulcan Materials
Company.
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HENRY L. MEYER III
Since 1997, President and Chief Operating Officer,
HENRY L. MEYER III KeyCorp. Previously, Vice Chairman of the Board and
PHOTO Chief Operating Officer (1996-1997), KeyCorp; Senior
Executive Vice President and Chief Operating Officer
(1995-1996), KeyCorp; Senior Executive Vice President
and Chief Banking Officer, KeyCorp. Age 49. KeyCorp
director since 1996. Director, Lincoln Electric
Holdings, Inc.
PETER G. TEN EYCK, II
President, Indian Ladder Farms (commercial orchard).
PETER G. TEN EYCK, II Age 60. KeyCorp director since 1994 (Old Key director
PHOTO since 1979).
Messrs. Curtis and Stafford, directors of KeyCorp, are members of law firms
that KeyCorp utilizes for legal services. Some of KeyCorp's executive officers
and directors were customers of one or more of KeyCorp's subsidiary banks or
other subsidiaries during 1998 and had transactions with such banks in the
ordinary course of business. In addition, some of the directors are officers of,
or have a relationship with, corporations or are members of partnerships which
were customers of such banks during 1998 and had transactions with such banks in
the ordinary course of business. All loans included in such transactions were
made on substantially the same terms, including rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than normal risks of collectibility or present other
unfavorable features. Similar transactions continue to be effected during 1999.
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THE BOARD OF DIRECTORS AND ITS COMMITTEES*
Board of Directors. During the year ended December 31, 1998, there were six
meetings of KeyCorp's Board of Directors. Each continuing member of KeyCorp's
Board attended at least 75% of the aggregate of the meetings held by KeyCorp's
Board of Directors and the meetings held by the committees of the Board on which
such member served during 1998.
KeyCorp's Board of Directors currently exercises certain of its powers
through its Audit, Compensation and Organization, Executive and Finance
Committees.
Audit Committee. Messrs. Bares (Chair), Hemingway, Hogan, Minter, Pogue,
Stafford, Sullivan, and Ten Eyck are the current members of KeyCorp's Audit
Committee. The functions of this Committee include review of the adequacy of
internal administrative, operating, and accounting policies and controls of
KeyCorp and its affiliates, review of the financial information provided to
shareholders and regulatory authorities, recommendation of the appointment of
KeyCorp's independent auditors, review of services and fees of the independent
public accountants, review with KeyCorp's management and its independent public
accountants the basis for annual reports, as required by the Federal Deposit
Insurance Corporation Improvement Act of 1991, review of KeyCorp's credit review
activities as they relate to examinations for compliance with credit and related
policies, review of the examinations of KeyCorp and its affiliates conducted by
federal and state regulatory and supervisory authorities, service as the audit
committee of KeyCorp's banking subsidiaries, review of the audit plans of the
internal audit and credit review staff and of the independent auditors and the
results and effectiveness of their audits, and supervision and direction of any
special projects or investigations considered necessary. KeyCorp's Audit
Committee met six times in 1998.
Compensation and Organization Committee. Messrs. Bersticker, Commes,
Curtis, Hardis (Chair) and McGregor are the current members of KeyCorp's
Compensation and Organization Committee. The functions of this Committee include
oversight of board and corporate governance issues, review and approval of
KeyCorp's salary administration programs, determination of the compensation and
terms of employment of senior management, determination of participants and
awards under executive incentive compensation plans and supplemental
compensation plans, approval of (or amendments to) employee and officer
retirement, compensation and benefit plans, review and recommendation of
director compensation plans, review of organization structure and staffing, and
review of management structure, development, and succession planning. KeyCorp's
Compensation and Organization Committee met ten times in 1998.
The Compensation and Organization Committee identifies and reviews the
qualifications of prospective directors and recommends candidates for election
as directors. Nominations for the election of directors by KeyCorp's Board of
Directors may only be made by the affirmative vote of a majority of the
directors then in office. The Committee will consider shareholder suggestions
concerning qualified candidates for election as directors that are forwarded to
such Committee. Any shareholder recommendation for a director nominee should
contain background information concerning the recommended nominee, including,
(a) the name, age, business, and residence address of such person; (b) the
principal occupation or employment of such person for the last five years; (c)
the class and number of shares of capital stock of KeyCorp that are beneficially
owned by such person; (d) all positions of such person as a director, officer,
partner, employee, or controlling
- ---------------
* Messrs. Dimmer, Moore, and Pogue are retiring as directors as of the Annual
Meeting. They are, however, included in the description of KeyCorp's current
Board of Directors and its committees.
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shareholder of any corporation or other business entity; (e) any prior position
as a director, officer, or employee of a depository institution or any company
controlling a depository institution; and (f) a statement of whether such
individual would be willing to serve if nominated or elected. Any shareholder
recommendation should also include, as to the shareholder giving the written
notice, (a) a representation that the shareholder is a holder of record of
shares of KeyCorp entitled to vote at such meeting and (b) a description of all
arrangements or understandings between the shareholder and such recommended
person and any other person or persons (naming such person or persons).
Executive Committee. Messrs. Bares, Curtis, Gillespie (Chair), Hardis,
Meyer, Moore, and Pogue are the current members of KeyCorp's Executive
Committee. The functions of the Executive Committee are to exercise the
authority of the Board of Directors, to the extent permitted by law, on any
matter requiring Board or Board committee action between Board or Board
committee meetings. KeyCorp's Executive Committee met one time in 1998.
Finance Committee. Dr. Cartwright and Messrs. Andrus, Campbell, Dimmer,
Meyer, and Moore (Chair) are the current members of KeyCorp's Finance Committee.
The functions of the Finance Committee include the review and oversight of
KeyCorp's capital structure and capital management strategies, the exercise of
the authority of the Board of Directors in connection with the authorization,
sale and issuance by KeyCorp of debt and equity securities, the making of
recommendations to the Board of Directors with respect to KeyCorp's dividend
policy, the review and oversight of KeyCorp's asset/liability management
policies and strategies, the review and oversight of compliance with regulatory
capital requirements of KeyCorp and its bank subsidiaries, and the review and
oversight of KeyCorp's capital expenditure process. The Finance Committee met
six times in 1998.
Director Compensation. Directors (other than Messrs. Gillespie and Meyer
who receive no director fees) receive fees consisting of a $27,000 annual
retainer, payable in quarterly installments, and $1,500 for attendance at each
Board or committee meeting. Outside directors who serve as committee
chairpersons receive additional compensation of $2,500 per quarter.
Under KeyCorp's Directors' Stock Option Plan (the "Directors' Plan"), each
of the non-employee directors is automatically granted, on an annual basis,
options to purchase KeyCorp Common Shares. The option awarded to each director
in 1998 covered 5,500 KeyCorp Common Shares (adjusted to reflect the two-
for-one split of KeyCorp Common Shares, effective March 6, 1998). The annual
option grant to each director has a value (determined on a formula basis) on the
grant date equal to 2.75 times the annual cash retainer payable to a director.
Messrs. Gillespie and Meyer were not eligible to participate in the Directors'
Plan during 1998 because they were employees of KeyCorp. All options granted
under the Directors' Plan are non-qualified stock options. Options generally
expire ten years after grant. The purchase price of the option shares is equal
to their fair market value on the date of grant and may be paid in cash or by
the surrender of previously acquired KeyCorp Common Shares.
Under the KeyCorp Director Deferred Compensation Plan, directors are given
the opportunity to defer payment of cash director fees for future distribution.
All such deferred payments are invested in either an interest bearing account
(at an interest rate equal to 1/2% higher than the effective annual yield of
the Moody's Average Corporate Bond Yield Index) or a KeyCorp Common Shares
account (in which the directors' deferred compensation is invested on a
bookkeeping basis in "phantom" KeyCorp Common Shares which
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are accrued quarterly but cannot be voted or transferred during the deferral
period). Distributions to the directors under the Director Deferred Compensation
Plan in respect to the interest bearing account are in the form of cash and
under the Common Shares account are in the form of KeyCorp Common Shares.
Corporate Governance Practices. The Board of Directors has established and
follows a corporate governance program and has assigned the Compensation and
Organization Committee responsibility for the program. Following are examples of
the Corporation's corporate governance practices. The Board conducts a biannual
self-assessment process under the auspices of the Compensation and Organization
Committee through self-assessment questionnaires to all Board members. The
results of the director self-assessment questionnaires are reviewed by the Board
and changes in the Corporation's corporate governance process are based on the
results of the Board's review and analysis of the self-assessment
questionnaires. The Board has adopted the guideline that not more than three
directors will be "inside" directors (i.e. directors who are at the time also
officers of the Corporation). The Board has also adopted a definition of
"Independent Director" and determined that at least two-thirds of the
Corporation's directors and, effective with the 1999 organizational meeting of
the Board, all members of the Board committees performing the audit,
compensation, and nominating functions must meet this definition. In addition to
defining "Independent Director" and adopting requirements based on this
definition, the Board has established maximum fees for a director or firm
affiliated with a director performing legal, consulting, or advisory services
for the Corporation. The Board has adopted a retirement policy whereby an
incumbent director is not eligible to stand for election as a director upon
reaching age 70. The Board has determined that approximately 50% (in value) of
the Board's compensation should be equity based compensation (presently in the
form of stock options) in order to more closely align the economic interests of
directors and shareholders. The Board, either directly or through its
committees, is actively involved in the evaluation of the performance of the
Chief Executive Officer and the senior management team, management succession
planning, the establishment of and changes in the committee structure and the
mission and functions of the various committees, and the agendas for Board and
committee meetings.
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ISSUE TWO
SHAREHOLDER PROPOSAL REQUESTING NECESSARY STEPS TO CAUSE
ANNUAL ELECTION OF ALL DIRECTORS
The following proposal was submitted for inclusion in this Proxy Statement
by Mr. Gerald R. Armstrong, 910 Fifteenth Street, #754, Denver, Colorado
80202-2924. Mr. Armstrong owns 20,080 KeyCorp Common Shares.
Shareholder Proposal. "Resolved: That the shareholders of KeyCorp,
assembled in person and by proxy in an annual meeting, request that the
Board of Directors take those steps necessary to cause annual elections for
all directors by providing that at future elections in annual meetings, all
directors be elected annually and not by classes as is now provided and
that on the expiration of the present terms their subsequent election shall
be on an annual basis."
Supporting Statement. Last year 124,837,512 shares, or 37.3% of the
shares represented in the annual meeting voted in favor of this proposal.
As earnings expectations of shareholders and professional investors
are not being met and directors continue to sell more shares than they
purchase, the proponent believes greater accountability is needed.
Anti-takeover provisions are present which negate any need for three
year terms for directors.
Ameritech, Time-Warner, Lockheed-Martin, Campbell Soups, Atlantic
Richfield, Pacific Enterprise, Westinghouse, and other corporations have
replaced three year terms with the annual election of all directors.
Occidental Petroleum Corporation stated in its 1997 proxy statement in
support of replacing three year terms with one year terms for its
directors:
"the current Board of Directors. . . .does recognize that under
current views of corporate governance a classified board is believed to
offer less protection against unfriendly takeover attempts than previously
assumed while frustrating stockholders in their exercise of oversight of
the board. The Board of Directors believes that the best interests of the
stockholders are not currently served by maintaining a classified board. .
. ."
These actions have increased shareholder voting rights by 300% -- and,
at no cost to the shareholders.
The proponent believes the current system produces only a facade of
continuity which should be displaced; and accountability and performance be
substituted as the basis for re-election to our board of directors.
At KeyCorp, this procedure will allow shareholders an opportunity to
register annually their reviews of the performance of the board
collectively and of each director, individually. Concern that annual
elections of all directors would leave KeyCorp without experienced
directors is unfounded.
If you agree, please vote FOR this proposal. If your proxy card is
unmarked on this issue, your shares will be automatically voted "AGAINST"
this proposal.
Board of Directors Recommendation and Statement. THE BOARD OF DIRECTORS
RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING
REASONS.
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KeyCorp's Board of Directors is divided into three classes of directors,
each of which serves for staggered three year terms. These staggered terms are
an effort to balance two very important concerns, those being the need for
shareholders to express their opinion about the Board's performance each year
and the need for KeyCorp's directors to focus on KeyCorp's long-term success.
The Board believes that KeyCorp's success in producing long-term
shareholder value requires long-term strategic planning, capital commitments and
careful and consistent application of financial and other resources.
Election of directors by classes is a common practice that has been adopted
by many companies and currently exists in 17 out of 24 major regional banks that
comprise the S&P Major Regional Bank Index and in approximately sixty percent of
the 500 companies comprising the 1998 Standard & Poor's Stock Price Index.
In the opinion of KeyCorp's Board, a classified board of directors
facilitates continuity and stability of leadership and policy by assuring that
experienced individuals familiar with the corporation and its business will be
on the board of directors at all times. A classified board of directors is also
intended to prevent precipitous changes in the composition of the board and,
thereby, serves to moderate corresponding precipitous changes in the
corporation's policies, business strategies and operations. As current newspaper
headlines demonstrate, no company, regardless of its size, is immune to a
take-over attempt. Board classification is intended to encourage any person
seeking to acquire control of KeyCorp to initiate such an action through
arm's-length negotiations with the Board of Directors so as to benefit the
Corporation's shareholders.
This proposal requests the Board to take all steps necessary to cause
annual elections of all directors. One of those steps would be to amend
KeyCorp's Regulations. Under KeyCorp's Regulations, the provisions providing for
a classified Board may only be amended, repealed or altered by the affirmative
vote of the holders of shares entitling them to exercise three-quarters of the
voting power of KeyCorp on such proposal unless such amendment, repeal, or
alteration is recommended by two-thirds of the Board of Directors, in which case
the amendment, repeal or alteration would require the affirmative vote of the
holders of shares entitling them to exercise a majority of the voting power of
KeyCorp on such proposal. Because the Board of Directors is recommending a vote
"AGAINST" this proposal and has not recommended a repeal or amendment of the
provisions in KeyCorp's Regulations providing for a classified Board,
implementation of this proposal would involve management submitting at a future
shareholder's meeting an appropriate amendment to KeyCorp's Regulations and such
amendment would require the affirmative vote of three-quarters of KeyCorp's
Common Shares. A vote in favor of this proposal is an advisory recommendation to
the Board of Directors.
Vote Required. Approval of this proposal will require the affirmative vote
of a majority of the KeyCorp Common Shares represented in person or by proxy at
the Annual Meeting.
ISSUE THREE
INDEPENDENT AUDITORS
The Board of Directors of KeyCorp, acting upon the recommendation of its
Audit Committee, has appointed Ernst & Young LLP as its independent auditors to
examine the financial statements of KeyCorp
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and its subsidiaries for the year 1999. Ernst & Young LLP has conducted the
annual audit of KeyCorp's financial statements since 1959. The Board of
Directors recommends ratification of the appointment of Ernst & Young LLP. The
favorable vote of the holders of a majority of the KeyCorp Common Shares
represented in person or by proxy at the Annual Meeting will be required for
such ratification.
A representative of Ernst & Young LLP will be present at the meeting with
an opportunity to make a statement if such representative desires to do so and
to respond to appropriate questions.
Although shareholder approval of this appointment is not required by law or
binding on the Board, the Board believes that shareholders should be given the
opportunity to express their views. If the shareholders do not ratify the
appointment of Ernst & Young LLP as KeyCorp's independent auditors, the Board
will consider this vote in determining whether or not to continue the engagement
of Ernst & Young LLP.
EXECUTIVE OFFICERS
The executive officers of KeyCorp are principally responsible for making
policy for KeyCorp, subject to the supervision and direction of KeyCorp's Board
of Directors. All officers are subject to annual election at the annual
organizational meeting of the directors. Messrs. Gillespie and Meyer have
employment agreements with KeyCorp. All executive officers other than Messrs.
Gillespie and Meyer have change of control agreements with KeyCorp.
There are no family relationships among directors, nominees or executive
officers. Other than Messrs. Bennett, Helfrich, Somers, Stevens, and Summers,
all have been employed in officer capacities with KeyCorp or one of its
subsidiaries for at least the past five years.
Set forth below are the names and ages of the executive officers of KeyCorp
as of January 15, 1999, positions held by them during the past five years and
the year from which held, and, in parentheses, the year they first became
executive officers of either KeyCorp or Old Key.
GARY R. ALLEN (50)
1994 to present: Senior Executive Vice President and Chief Banking Officer,
KeyCorp. (1993)
JAMES E. BENNETT III (56)
1998 to present: Senior Executive Vice President, KeyCorp; Previously,
Director, McKinsey & Company, Inc. (1998)
JAMES S. BINGAY (55)
1990 to present: Executive Vice President, KeyCorp. (1990)
JAMES A. FISHELL (47)
1997 to present: Executive Vice President, KeyCorp; 1997: Chairman and
President, Key Corporate Capital Inc. (subsidiary of KeyCorp); 1989-1996:
Executive Vice President, KeyBank National Association (formerly known as
Society National Bank). (1997)
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ROBERT W. GILLESPIE (54)
1996 to present: Chairman and Chief Executive Officer, KeyCorp; 1995-1996:
Chief Executive Officer and President, KeyCorp; 1994-1995: President and Chief
Operating Officer, KeyCorp. (1981)
ALLEN J. GULA, JR. (44)
1994 to present: Executive Vice President, KeyCorp. (1992)
R. B. HEISLER, JR. (50)
1996 to present: Executive Vice President, KeyCorp; 1995-1996: Chief
Executive Officer and President, KeyBank National Association; 1993-1995:
Executive Vice President, KeyCorp. (1996)
THOMAS E. HELFRICH (48)
1995 to present: Executive Vice President, KeyCorp; 1986-1995: Senior Vice
President-Human Resources, The Travelers Inc. (insurance and financial services
company). (1995)
LEE IRVING (50)
1995 to present: Executive Vice President and Chief Accounting Officer,
KeyCorp; 1994-1995: Executive Vice President, Treasurer, and Chief Accounting
Officer, KeyCorp. (1986)
ROBERT G. JONES (42)
1998 to present: Executive Vice President, KeyCorp; 1997-1998: President,
Retail Banking, KeyBank National Association; Previously, Senior Vice President,
KeyCorp. (1998)
HENRY L. MEYER III (49)
1997 to present: President and Chief Operating Officer, KeyCorp; 1996-1997:
Vice Chairman of the Board and Chief Operating Officer, KeyCorp; 1995-1996:
Senior Executive Vice President and Chief Operating Officer, KeyCorp; 1994-1995:
Senior Executive Vice President and Chief Banking Officer, KeyCorp. (1987)
K. BRENT SOMERS (50)
1996 to present: Senior Executive Vice President and Chief Financial
Officer, KeyCorp; 1994-1995: Executive Vice President and Chief Financial
Officer, The United States Shoe Corporation (manufacturing); 1990-1994: Vice
President and Chief Financial Officer, The United States Shoe Corporation.
(1996)
THOMAS C. STEVENS (49)
1997 to present: Senior Executive Vice President, General Counsel and
Secretary, KeyCorp; 1996-1997: Executive Vice President, General Counsel and
Secretary, KeyCorp; 1991-1996: Managing Partner, Thompson Hine & Flory LLP (law
firm). (1996)
WILLIAM B. SUMMERS, JR. (48)
1998 to present: Executive Vice President, KeyCorp; 1994-1998: Chief
Executive Officer, McDonald & Company Investments, Inc. and McDonald & Company
Securities, Inc. (1998)
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COMPENSATION OF EXECUTIVE OFFICERS
Summary. The following table sets forth the compensation paid by KeyCorp
and its subsidiaries for each of the previous three years to the individual who
served as KeyCorp's Chief Executive Officer during 1998 and each of the
remaining four highest paid executive officers of KeyCorp at December 31, 1998.
SUMMARY COMPENSATION TABLE
ALL OTHER
ANNUAL COMPENSATION LONG-TERM COMPENSATION COMPENSATION
------------------------------------ -------------------------------- ----------------
AWARDS PAYOUTS
------------------- ---------
SECURITIES LONG-TERM
OTHER ANNUAL UNDERLYING INCENTIVE
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS(#)(6) PAYOUTS
- --------------------------- ---- ------ ----- ------------ ------------------ ---------
Robert W. Gillespie 1998 $967,500 $1,100,000(2) -- (4) 343,200 $390,939(7) $168,124(8)
Chairman of the Board 1997 885,000 1,200,000(3) -- (4) 400,000 408,072(7) 186,265(9)
and Chief Executive 1996 830,000 520,000(3) -- (4) 130,000 378,909(7) 122,063(10)
Officer
Henry L. Meyer III 1998 587,501 600,000(2) -- (4) 80,000 231,729(7) 93,216(11)
President and Chief 1997 540,000 725,000(3) -- (4) 320,000 200,325(7) 95,396(12)
Operating Officer 1996 470,250 215,000(3) -- (4) 50,000 182,526(7) 59,187(13)
K. Brent Somers 1998 437,500 355,000(2) -- (4) 50,000 163,458(7) 68,405(14)
Senior Executive Vice 1997 434,375 400,000(3) -- (4) 200,000 -- 60,585(15)
President and Chief 1996 386,586(1) 172,000(3) 58,408(5) 100,000 -- 35,705(16)
Financial Officer
Gary R. Allen 1998 480,000 270,000(2) -- (4) 50,000 163,458(7) 61,552(17)
Senior Executive Vice 1997 476,250 400,000(3) -- (4) 200,000 180,577(7) 58,215(18)
President and Chief 1996 459,000 190,000(3) -- (4) 50,000 178,638(7) 56,543(19)
Banking Officer
Thomas C. Stevens 1998 405,000 355,000(2) -- (4) 50,000 144,330(7) 63,840(20)
Senior Executive Vice 1997 383,250 320,000(3) -- (4) 120,000 -- 51,066(21)
President, General 1996 186,298(1) 140,000(3) 41,650(5) 40,000 -- 120,359(22)
Counsel and Secretary
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(1) Messrs. Somers and Stevens commenced employment at KeyCorp on February 5,
1996 and July 1, 1996, respectively.
(2) Amounts awarded under KeyCorp's Annual Incentive Plan for 1998, whether
paid in cash or deferred.
(3) Amounts awarded under KeyCorp's Short Term Incentive Compensation Plan for
the respective fiscal years, whether paid in cash or deferred.
(4) Other annual compensation received in the respective fiscal years was in
the form of perquisites, the amount of which did not exceed the lesser of
$50,000 or 10% of the total annual salary and bonus reported for the
executive.
(5) Each perquisite or other personal benefit which exceeds 25% of the total
perquisites and other personal benefits received by Messrs. Somers and
Stevens are as follows: Mr. Somers (1996) -- $35,663 (moving allowance),
$22,745 (tax gross-up on moving allowance); Mr. Stevens (1996) -- $24,610
(club initiation fees), $13,222 (tax gross-up on club initiation fees).
(6) The information in this column has been adjusted to reflect the two-for-one
split of KeyCorp Common Shares which was effected by a 100% stock dividend,
effective March 6, 1998.
(7) Amounts awarded under the KeyCorp Long Term Cash Incentive Compensation
Plan for the three year cycle ending in the respective fiscal years,
whether paid in cash or deferred.
(8) $9,600 (amount contributed under the KeyCorp 401(k) Savings Plan); $137,905
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan and
KeyCorp Deferred Compensation Plan); $20,619 (universal life insurance
premiums).
(9) $9,500 (amount contributed under the KeyCorp 401(k) Savings Plan); $157,521
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan and
KeyCorp Deferred Compensation Plan); $19,244 (universal life insurance
premiums).
(10) $9,000 (amount contributed under the KeyCorp 401(k) Savings Plan); $94,735
(amount contributed under the KeyCorp Excess 401(k) Savings Plan); $18,328
(universal life insurance premiums).
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(11) $9,600 (amount contributed under the KeyCorp 401(k) Savings Plan); $75,554
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan and
KeyCorp Deferred Compensation Plan); $8,062 (universal life insurance
premiums).
(12) $9,500 (amount contributed under the KeyCorp 401(k) Savings Plan); $78,420
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan and
KeyCorp Deferred Compensation Plan); $7,476 (universal life insurance
premiums).
(13) $9,000 (amount contributed under the KeyCorp 401(k) Savings Plan); $43,067
(amount contributed under the KeyCorp Excess 401(k) Savings Plan); $7,120
(universal life insurance premiums).
(14) $9,600 (amount contributed under KeyCorp 401(k) Savings Plan); $47,757
(amount contributed under the KeyCorp Excess 401(k) Savings Plan); $11,048
(universal life insurance premiums).
(15) $9,500 (amount contributed under the KeyCorp 401(k) Savings Plan); $40,563
(amount contributed under the KeyCorp Excess 401(k) Savings Plan); $10,522
(universal life insurance premiums).
(16) $9,000 (amount contributed under the KeyCorp 401(k) Savings Plan); $24,515
(amount contributed under the KeyCorp Excess 401(k) Savings Plan); $2,190
(universal life insurance premiums).
(17) $9,600 (amount contributed under the KeyCorp 401(k) Savings Plan); $45,207
(amount contributed under the KeyCorp Excess 401(k) Savings Plan); $6,745
(split-dollar life insurance premiums).
(18) $9,500 (amount contributed under the KeyCorp 401(k) Savings Plan); $41,910
(amount contributed under the KeyCorp Excess 401(k) Savings Plan); $6,805
(split-dollar life insurance premiums).
(19) $9,000 (amount contributed under the KeyCorp 401(k) Savings Plan); $40,658
(amount contributed under the KeyCorp Excess 401(k) Savings Plan); $6,885
(split-dollar life insurance premiums).
(20) $9,600 (amount contributed under KeyCorp 401(k) Savings Plan); $44,659
(amount contributed under the KeyCorp Excess 401(k) Savings Plan); $9,581
(universal life insurance premiums).
(21) $9,500 (amount contributed under the KeyCorp 401(k) Savings Plan); $32,695
(amount contributed under the KeyCorp Excess 401(k) Savings Plan); $8,871
(universal life insurance premiums).
(22) $9,000 (amount contributed under the KeyCorp 401(k) Savings Plan); $10,578
(amount contributed under the KeyCorp Excess 401(k) Savings Plan); $781
(universal life insurance premiums); $100,000 (signing bonus).
Option Grants. The following table provides information regarding grants of
stock options made during the year ended December 31, 1998, to each of the
executive officers named in the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS EXERCISE OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR TEN YEAR OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------------
NAME GRANTED(#)(1) IN FISCAL YEAR ($/SH) DATE 5% 10%
---- ------------- -------------- -------- ---------- ----------- ------------
Robert W. Gillespie 213,200(2) 2.5% $35.156(4) 01/02/08 $4,713,768 $11,945,615
130,000(3) 1.5% 32.844(4) 01/14/08 2,685,188 6,804,793
Henry L. Meyer III 80,000(3) 0.9% 32.844(4) 01/14/08 1,652,423 4,187,565
K. Brent Somers 50,000(3) 0.6% 32.844(4) 01/14/08 1,032,764 2,617,228
Gary R. Allen 50,000(3) 0.6% 32.844(4) 01/14/08 1,032,764 2,617,228
Thomas C. Stevens 50,000(3) 0.6% 32.844(4) 01/14/08 1,032,764 2,617,228
- ---------------
(1) The information in this column has been adjusted to reflect the two-for-one
split of KeyCorp Common Shares which was effected by a 100% stock dividend,
effective March 6, 1998.
(2) These are Performance Options granted under the Amended and Restated 1991
Equity Compensation Plan with a specially designed vesting provision. The
Performance Options vest if the market value of KeyCorp Common Shares
exceeds $37.00 per share for seven consecutive trading dates by December 31,
2000, $41.00 per share for seven consecutive trading dates by December 31,
2001, or $45.00 per share for seven consecutive trading dates by December
31, 2002 and KeyCorp's basic earnings per share equal or exceed $2.60 for
the year 1999 or any year prior thereto or equal or exceed $2.92 per share
for the year 2000. The stock price requirement was satisfied in 1998, which
leaves the earnings per share test to be satisfied as a condition to these
options vesting. The options also vest upon certain changes of control as
set forth in the option agreement. The options are non-qualified options.
(3) Incentive Stock Options in an amount equal to the maximum number of
Incentive Stock Options that can be granted under applicable provisions of
the Internal Revenue Code were granted, and remaining options granted were
non-qualified stock options.
(4) The exercise price equals the market price of a KeyCorp Common Share on the
date of the option grant as adjusted for the two-for-one stock split on
March 6, 1998.
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Other than the Performance Options granted to Mr. Gillespie and described
in footnote (2), the options reported in the preceding table were granted on
January 14, 1998, at an exercise price equal to the market price of KeyCorp
Common Shares on that date, which was, after adjustment for the two-for-one
stock split on March 6, 1998, $32.844. Based on this adjusted stock price, the
market value of KeyCorp Common Shares at the end of the ten year option period
using 5% and 10% compounded annual returns would be $53.499 and $85.189,
respectively.
The Performance Options granted to Mr. Gillespie and described in footnote
(2) were granted on January 2, 1998, at an exercise price equal to the market
price of KeyCorp Common Shares on that date, which was after adjustment for the
two-for-one stock split on March 6, 1998, $35.156. Based on this adjusted stock
price, the market value of KeyCorp Common Shares at the end of the ten year
option period using 5% and 10% compounded annual returns would be $57.265 and
$91.186, respectively.
Option Exercises and Values. The following table provides information
regarding exercises of stock options during the year ended December 31, 1998, by
the executive officers named in the Summary Compensation Table, and the value of
such officers' unexercised stock options as of December 31, 1998. When
necessary, the information in the following table has been adjusted to reflect
the two-for-one stock split of KeyCorp Common Shares which was effected by a
100% stock dividend, effective March 6, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/ IN-THE-MONEY OPTIONS/
SHARES SARS AT FY-END (#) SARS AT FY-END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED UNEXERCISABLE UNEXERCISABLE(1)
---- ------------ -------- ------------------ ---------------------
Robert W. Gillespie 80,000 $2,438,250 806,666/786,534 $13,670,407/2,899,068
Henry L. Meyer III 64,000 2,091,000 465,333/416,667 8,330,328/2,054,877
K. Brent Somers 0 0 33,333/316,667 449,996/2,031,305
Gary R. Allen 5,574 136,892 129,563/266,667 2,236,194/1,376,097
Thomas C. Stevens 0 0 40,000/170,000 491,250/678,780
- ---------------
(1) Based on a December 31, 1998 mean between high and low prices for KeyCorp
Common Shares which equaled $31.8125.
Long Term Incentive Compensation. In 1998, KeyCorp's Compensation and
Organization Committee established a new Long Term Incentive Plan to replace the
existing long term plan for compensation cycles beginning in 1998 and
thereafter. Instead of the three year performance cycle under the existing plan
with a new cycle beginning each year, the new Long Term Incentive Plan has a
four year compensation cycle which will start every other year. In January 1998
the Committee selected participants in the new Long Term Incentive Plan for the
1998-2001 four-year compensation period. Messrs. Gillespie, Meyer, Somers,
Allen, and Stevens were included as participants. The Committee has determined
objective criteria by which KeyCorp's financial performance should be judged and
distributions under the Plan should be made. These criteria were based on the
Committee's judgment of a range of average return on common equity and
cumulative earnings per share growth that would warrant satisfactory to
excellent results for KeyCorp for the four-year compensation period. Based on
KeyCorp's 1998 job grade market points (i.e., average salaries for
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executives in the marketplace in similar positions) upon which payments under
the Plan will be based (which may change by the time the awards are actually
determined), the officers in the Summary Compensation Table would be eligible to
receive the following payments for the compensation period indicated. Based on
an evaluation of the executive's individual performance over the four-year
compensation period, the executive's amount will not be less than 70% nor more
than 130% of the amount determined by applying the financial performance
criteria under the Plan.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
PERFORMANCE ----------------------------------------------
NAME PERIOD THRESHOLD(1) TARGET MAXIMUM
---- ----------- ------------ -------- ----------
Robert W. Gillespie 1998-2001 $135,000 $540,000 $1,350,000
Henry L. Meyer III 1998-2001 87,750 351,000 877,500
K. Brent Somers 1998-2001 54,625 218,500 546,250
Gary R. Allen 1998-2001 54,625 218,500 546,250
Thomas C. Stevens 1998-2001 54,625 218,500 546,250
- ---------------
(1) If the threshold is not met, no payouts will be made.
These executives are participants in the existing Long Term Cash Incentive
Compensation Plan for the 1996-1998 compensation period, and are also
participants for the 1997-1999 compensation period. This Plan is the predecessor
to the new KeyCorp Long Term Incentive Plan under which awards for 1998-2001
will be made. Payouts under the 1996-1998 compensation period are reflected in
the Summary Compensation Table on page 15 of this Proxy Statement under the
heading "Long-Term Incentive Payouts."
Pension Plans. Substantially all officers and employees of KeyCorp and its
participating subsidiaries participate in the KeyCorp Cash Balance Pension Plan
(the "Pension Plan"). The Pension Plan is a cash balance plan that provides a
quarterly benefit accrual on behalf of each participant based on the
participant's years of vesting service and Pension Plan compensation.
Additionally, participants who attained age 50 with 15 years of vesting service
as of December 31, 1994 are also entitled, under the terms of the Pension Plan,
to receive either a grandfathered pension benefit or the cash balance benefit.
Mr. Gillespie is the only executive appearing in the Summary Compensation Table
on page 15, who is eligible under the Pension Plan to elect to receive either a
grandfathered pension benefit or cash balance Pension Plan benefit.
In addition to the Pension Plan, KeyCorp also maintains an Excess Pension
Plan ("Excess Plan"), which credits Excess Plan participants with the cash
balance Pension Plan benefit that would have accrued to the participant "but
for" the compensation limits of Section 401(a)(17) and benefit accrual limits of
Section 415 of the Internal Revenue Code. Messrs. Somers and Stevens are
participants in the Excess Plan.
Certain officers (including Messrs. Gillespie, Meyer, and Allen) of the
former Society or the former Old Key also participate in Supplemental Retirement
Plans. Such retirement benefits, for purposes of each respective Plan, are based
on the participant's years of participation in the relevant Plan and average
annual compensation for either the five highest consecutive years during the
participant's last ten years of employment (for former Society), or the three
highest years during the participant's last five years of employment (for former
Old Key).
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The following table sets forth the estimated maximum annual benefits
payable under the Pension Plan and related Excess Plan and Supplemental
Retirement Plans to participants who (1) have such benefits under the Pension
Plan and Excess Plan or Supplemental Retirement Plans, (2) attain Social
Security retirement age as of December 31, 1998, and (3) elect to receive a
single life annuity benefit payment.
ESTIMATED ANNUAL RETIREMENT BENEFITS
WITH INDICATED YEARS OF PARTICIPATION
AVERAGE FINAL --------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------- ---------- ---------- ---------- ---------- ----------
$ 400,000 $ 220,000 $ 260,000 $ 300,000 $ 300,000 $ 300,000
600,000 330,000 390,000 450,000 450,000 450,000
800,000 440,000 520,000 600,000 600,000 600,000
1,000,000 550,000 650,000 750,000 750,000 750,000
1,200,000 660,000 780,000 900,000 900,000 900,000
1,400,000 770,000 910,000 1,050,000 1,050,000 1,050,000
1,600,000 880,000 1,040,000 1,200,000 1,200,000 1,200,000
1,800,000 990,000 1,170,000 1,350,000 1,350,000 1,350,000
2,000,000 1,100,000 1,300,000 1,500,000 1,500,000 1,500,000
2,400,000 1,320,000 1,560,000 1,800,000 1,800,000 1,800,000
2,600,000 1,430,000 1,690,000 1,950,000 1,950,000 1,950,000
2,800,000 1,540,000 1,820,000 2,100,000 2,100,000 2,100,000
3,000,000 1,650,000 1,950,000 2,250,000 2,250,000 2,250,000
3,200,000 1,760,000 2,080,000 2,400,000 2,400,000 2,400,000
All benefit amounts are subject to the annual pension limitations imposed
by the Internal Revenue Code for qualified plans; however, the extent of any
reduction will vary according to the limits existing at the time pension
payments commence. Amounts under the Pension Plan reduced by the Internal
Revenue Code limitation may be paid under a supplemental or excess plan. The
benefits are not subject to any reduction for social security or any other
offset.
Compensation for purposes of computing benefits under the Pension Plan and
excess and supplemental plans is total base pay and incentive compensation paid
during a calendar year, plus amounts deducted for the 401(k) and flexible
benefits plans during such year, but does not include amounts attributable to
stock options or receipt of non-cash remuneration that is included in the
participant's income for Federal income tax purposes. Compensation for purposes
of the Pension Plan and excess and supplemental plans is substantially the same
as shown in the Summary Compensation Table after excluding stock options, "all
other compensation," and "other annual compensation." Normal retirement age is
65. The Pension Plan requires 5 years of service for vesting. The excess and
supplemental plans require 5 years of service for vesting for the former Old Key
employees, including Mr. Allen, and 10 years of service and the attainment of
age 55 for former Society employees, including Messrs. Gillespie and Meyer.
Messrs. Gillespie, Meyer, Somers, Allen, and Stevens were credited under the
excess or supplemental plans with 29, 25, 2, 25, and 2 years service,
respectively.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, KeyCorp's directors and
certain officers are required to report their ownership and changes in ownership
of KeyCorp Common Shares to the Securities and Exchange
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Commission ("Commission"). The Commission has established certain due dates for
these reports. The Corporation knows of no person who failed to timely file any
such report during 1998.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
KeyCorp is a party to employment agreements with Messrs. Gillespie and
Meyer and to change of control agreements with certain of its other executive
officers.
Employment Agreement With Mr. Gillespie. KeyCorp and Mr. Gillespie are
parties to an employment agreement pursuant to which Mr. Gillespie is to be
employed by KeyCorp as Chairman of the Board and Chief Executive Officer through
May 31, 2000. Under the employment agreement, Mr. Gillespie is to be paid a base
salary of not less than $840,000 per year and is entitled to participate in all
KeyCorp executive incentive compensation plans including KeyCorp's short and
long term incentive compensation plans. The employment agreement provides for an
additional two years of compensation and benefits to Mr. Gillespie (through May
31, 2002) if, in 2000, the employment agreement is not mutually extended or a
new employment agreement is not entered into.
Under the employment agreement, Mr. Gillespie may terminate his employment
for good reason (and receive post-termination benefits) under certain
circumstances whether or not a change of control of KeyCorp occurs. Those
circumstances that will constitute good reason under the employment agreement
whether or not a change of control occurs include (a) demotion or removal of Mr.
Gillespie from either of his executive positions (i.e., Chairman of the Board
and Chief Executive Officer); (b) a reduction in Mr. Gillespie's base salary or
participation in benefit plans; (c) a good faith determination by Mr. Gillespie
that his responsibilities, duties, and authority have been materially reduced
from those contemplated by the employment agreement; or (d) relocation of Mr.
Gillespie's principal place of employment outside the Cleveland metropolitan
area. Those circumstances that will constitute good reason under the employment
agreement after a change of control of KeyCorp occurs also include any reduction
in Mr. Gillespie's incentive compensation or a good faith determination by Mr.
Gillespie that his responsibilities or duties have been materially reduced from
their level before the change of control or that he is unable to carry out the
responsibilities of his positions as a result of the change of control.
Under the employment agreement, if Mr. Gillespie's employment with KeyCorp
is terminated before his 65th birthday for any reason other than voluntary
resignation by Mr. Gillespie (without good reason) before May 2000 or
termination by KeyCorp for cause, and Mr. Gillespie (or his estate or designated
beneficiary) is entitled to receive retirement benefits under any KeyCorp
retirement plan after March 26, 1999 (Mr. Gillespie's 55th birthday), KeyCorp
will pay a supplemental retirement benefit in an amount sufficient to provide
Mr. Gillespie the same aggregate benefit that he would have received if he had
continued in the employ of KeyCorp through his 65th birthday (by eliminating any
reduction because he started receiving benefits before his 65th birthday and
giving him credit for additional years of service for the period after his
termination date and before his 65th birthday). Under the employment agreement,
KeyCorp will have "cause" to terminate Mr. Gillespie's employment before a
change of control if he commits a felony, acts dishonestly in a way that is
materially inimical to the best interests of KeyCorp, competes with KeyCorp, or
abandons his duties and responsibilities. KeyCorp will have "cause" to terminate
Mr. Gillespie's employment
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after a change of control if he is convicted of a felony, acts dishonestly and
feloniously in a way that is materially inimical to the best interests of
KeyCorp, or competes with KeyCorp.
If a change of control occurs while Mr. Gillespie is employed under the
employment agreement and an exercise by him of the right referred to in this
paragraph would not conflict with the treatment for accounting purposes of any
transaction entered into in connection with the change of control as a pooling
of interests, Mr. Gillespie will be entitled to surrender his rights in any
outstanding KeyCorp stock options (whether or not then exercisable) in return
for a payment equal to the spread on those options.
If any amount of compensation otherwise payable to Mr. Gillespie as earned
would not be deductible by KeyCorp by reason of the disallowance rules of
Section 162(m) of the Internal Revenue Code (which rules generally disallow
deductions for certain compensation paid to any of certain "covered employees"
of a publicly held corporation in excess of $1,000,000 per year), but would be
deductible if it were deferred until a later year, that amount of compensation
will be so deferred until the earlier of the first date on which the
compensation can be paid without disallowance of the deduction to KeyCorp or
April 15 of the year immediately following the year in which Mr. Gillespie
ceases to be a covered employee of KeyCorp. Upon payment of any such deferred
amounts of compensation, KeyCorp will pay to Mr. Gillespie an additional amount
for interest on the deferred amounts.
Under the employment agreement, Mr. Gillespie is entitled to continuing
indemnification to the fullest extent permitted by Ohio law for actions against
him by reason of his being or having been a director or officer of KeyCorp or
any related entity; to payment of certain legal fees incurred in enforcing his
rights under his employment agreement; to ancillary benefits incident to the
performance of his duties under that agreement; and to a special supplemental
death benefit if he dies while employed by KeyCorp and he is survived by his
wife. The special supplemental death benefit, if payable, would consist of
monthly installments to Mr. Gillespie's wife (or to her estate), for her life
or, if longer, through the 15th anniversary of Mr. Gillespie's death. Each
monthly payment would be in an amount that, when added to the monthly survivor
benefits, if any, payable to Mr. Gillespie's wife under all KeyCorp retirement
plans, equals one third of Mr. Gillespie's monthly compensation (base salary and
incentive compensation). The employment agreement also provides that if Mr.
Gillespie's employment is terminated for any reason other than cause, voluntary
resignation before May 2000, death, or disability, KeyCorp is to provide to Mr.
Gillespie a furnished office, amenities, and secretarial support, appropriate to
his status as a former Chairman of the Board and Chief Executive Officer,
through May 31, 2007.
Events Constituting a Change of Control. Under the employment agreement
with Mr. Gillespie as well as under the employment agreement with Mr. Meyer and
the change of control agreements with certain other executive officers that are
described below, a change of control will be deemed to have occurred (a) if
KeyCorp merges with another corporation and either (i) KeyCorp shareholders
receive less than 65 percent of the outstanding voting securities of the
surviving corporation or (ii) directors of KeyCorp cease to constitute at least
51% of the directors of the surviving corporation; (b) a person becomes the
beneficial owner of 35% or more of KeyCorp's outstanding stock or files a report
disclosing the acquisition of that amount of such stock; (c) there is a sale,
lease, exchange, or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of KeyCorp, or (d)
without the prior approval of the Board of Directors of KeyCorp, an announcement
is made of an intention to engage in a transaction that, if consummated, would
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result in a "change event," or to solicit proxies in connection with a proposal
that is not approved or recommended by the Board of Directors or to engage in an
election contest relating to the election of directors of KeyCorp and at any
time within 24 months after the announcement, individuals who constituted the
directors of KeyCorp when the announcement was made (the "incumbent directors")
cease to constitute at least a majority thereof unless both all new directors
have been approved by at least 2/3 of the incumbent directors in office at the
time of nomination of each new director and the incumbent directors determine
that the change in composition of the Board that results in incumbent directors
no longer being a majority of the Board was not attributable to any change
event. For these purposes, a "change event" includes the making of a tender
offer for 25% or more of the outstanding voting stock of KeyCorp, any person
becoming the beneficial owner of 25% or more of the outstanding voting stock of
KeyCorp, or the filing of any report disclosing the acquisition of 25% or more
of the outstanding voting stock of KeyCorp; a merger of KeyCorp with another
corporation in a transaction that results in less than 50% of the outstanding
voting securities of the surviving corporation having been issued in exchange
for voting securities of KeyCorp or less than 51% of the directors of the
surviving corporation being individuals who were directors of KeyCorp
immediately before the transaction; or a sale or other transfer (in one
transaction or in a series of related transactions) of all or substantially all
the assets of KeyCorp.
Employment Agreement with Mr. Meyer. KeyCorp and Mr. Meyer are parties to
an employment agreement pursuant to which Mr. Meyer is employed by KeyCorp as
its President for a constantly renewing two year term at a base salary of not
less than $650,000 per annum (effective April 1, 1999) plus full participation
in all incentive and other compensatory plans available generally to KeyCorp's
senior officers. If Mr. Meyer's employment is terminated by KeyCorp without
cause before the occurrence of a change of control, he is to be paid an amount
equal to two times the sum of his base salary plus his average incentive
compensation in 24 monthly installments after the termination. If Mr. Meyer's
employment is terminated by KeyCorp without cause after the occurrence of a
change of control, he is to be paid an amount equal to three times the sum of
his base salary and his average annual incentive compensation in a lump sum
within 30 days after the termination, he is to be provided the benefit of
continuing participation in all KeyCorp retirement and savings plans through the
third anniversary of the termination, and his rights in KeyCorp's supplemental
retirement plan will be fully vested whether or not he has attained age 55. If,
during a six-month window period commencing one year after a change of control,
Mr. Meyer voluntarily terminates his employment for good reason, he is to be
paid an amount equal to two times the sum of his base salary and his average
annual incentive compensation in a lump sum within 30 days after the
termination, he is to be provided the benefit of continuing participation in all
KeyCorp retirement and savings plans through the second anniversary of the
termination, and his rights in KeyCorp's supplemental retirement plan will be
fully vested whether or not he has attained age 55.
Under the employment agreement, Mr. Meyer may consider himself
constructively terminated if, at any time, his base salary is reduced other than
in connection with an across-the-board salary reduction applicable to all senior
officers of KeyCorp, he is excluded from full participation in any incentive or
other compensatory plan generally applicable to senior officers of KeyCorp, he
is demoted or removed from office, he is asked to resign when KeyCorp does not
have cause for terminating his employment, or his principal place of employment
is relocated outside of the Cleveland metropolitan area. In addition, Mr. Meyer
may consider himself constructively terminated if, after a change of control,
his base salary is reduced (whether or not in connection with any reductions of
other base salaries), he is excluded from full participation in any incentive
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or other compensatory plan in effect during the year before the change of
control unless a substitute plan providing similar benefits is made available,
he is excluded from full participation in any incentive or other compensatory
plan that is generally applicable to senior officers of the surviving entity, or
the headquarters of the surviving entity is outside of the Cleveland
metropolitan region.
Under the employment agreement, KeyCorp will have "cause" to terminate Mr.
Meyer's employment before a change of control if he commits a felony, acts
dishonestly in a way that is materially inimical to the best interests of
KeyCorp, competes with KeyCorp, or abandons and consistently fails to attempt to
perform his duties or if a bank regulatory agency issues a final order requiring
KeyCorp to terminate or suspend his employment. KeyCorp will have "cause" to
terminate Mr. Meyer's employment after a change of control if he is convicted of
a felony, acts dishonestly and feloniously in a way that is materially inimical
to the best interests of KeyCorp, or competes with KeyCorp or if a bank
regulatory agency issues a final order requiring KeyCorp to terminate or suspend
his employment.
Mr. Meyer will have good reason to terminate his employment during a window
period after a change of control if, following notice by him and an opportunity
for the surviving entity to cure, he determines in good faith that his position,
duties, and responsibilities are materially reduced from those in effect before
the change of control, that his reporting relationships with superior officers
have materially changed from those in effect before the change of control, or
that he is unable to carry out his responsibilities and duties after the change
of control.
If any amount of compensation otherwise payable to Mr. Meyer as earned
would not be deductible by KeyCorp by reason of the disallowance rules of
Section 162(m) of the Internal Revenue Code, but would be deductible if it were
deferred until a later year, that amount of compensation will be so deferred
until the earlier of the first date on which the compensation can be paid
without disallowance of the deduction to KeyCorp or April 15 of the year
immediately following the year in which Mr. Meyer ceases to be a covered
employee of KeyCorp. Upon payment of any such deferred amounts of compensation,
KeyCorp will pay to Mr. Meyer an additional amount for interest on the deferred
amounts.
Under the employment agreement, Mr. Meyer is entitled to continuing
indemnification to the fullest extent permitted by Ohio law for actions against
him by reason of his being or having been a director or officer of KeyCorp or
any related entity and to payment of certain legal fees incurred in enforcing
his rights under his employment agreement.
Agreement With Mr. Stevens. KeyCorp and Mr. Stevens are parties to a 1996
letter agreement that will provide him with benefits if his employment with
KeyCorp is terminated either before July 1, 1999 or at any time within two years
of a change of control of KeyCorp (in either time frame, only if the termination
is other than (i) voluntarily by Mr. Stevens except for good reason or (ii) for
cause by KeyCorp (defined as dishonesty or a violation of KeyCorp's Code of
Ethics that is materially inimical to KeyCorp) or (iii) due to death or
disability). If such a termination occurs before July 1, 1999 and not within two
years of a change of control, KeyCorp will pay to Mr. Stevens a lump-sum
severance benefit equal to two times the sum of his base salary plus his target
short-term incentive compensation. If such a termination occurs within two years
of a change of control, KeyCorp will pay to Mr. Stevens a lump-sum severance
benefit equal to two and one half times the sum of his base salary plus his
target short-term and long-term incentive compensation. In addition, in either
such case, KeyCorp will maintain medical, disability, and group life insurance
or equivalent benefits
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for two years after the termination. For purposes of the letter agreement, Mr.
Stevens will have good reason for voluntarily terminating his employment if his
base salary is reduced other than in connection with an across-the-board salary
reduction applicable to all senior officers of KeyCorp, he is excluded from full
participation in any benefit plan or arrangement maintained for senior
executives of KeyCorp, his principal place of employment for KeyCorp is
relocated outside of the Cleveland metropolitan area, or he is removed from
KeyCorp's Management Committee or from the position of General Counsel and
Secretary of KeyCorp.
Change of Control Agreements. KeyCorp is a party to change of control
agreements with each of its executive officers other than Messrs. Gillespie and
Meyer (including Messrs. Somers, Allen, and Stevens) which provide that if, at
any time within two years after the occurrence of a change of control, the
officer's employment is terminated by KeyCorp (except for cause) or the officer
terminates employment because the officer's base salary is reduced or relocation
is made a condition of the officer's employment, KeyCorp will (a) pay to the
officer a lump sum severance benefit equal to two and one half years'
compensation (base salary and average annual incentive compensation), (b) pay
the cost of continuing health benefits until the earlier of the expiration of
the continuation period required by Federal law or the date the officer secures
other employment, and (c) assure continued participation in all applicable
KeyCorp retirement plans and savings plans for the period of thirty months from
the termination date. Each change of control agreement also provides a
three-month window period, commencing 15 months after the date of a change of
control, during which the officer may voluntarily resign and receive a lump sum
severance benefit equal to one and one half years' compensation (base salary and
average annual incentive compensation) if, at any time before the executive's
resignation, (a) the executive determines in good faith that the executive's
position, responsibilities, duties, or status with KeyCorp are materially less
than or reduced from those in effect before the change of control or that the
executive's reporting relationships with superior executive officers have been
materially changed from those in effect before the change of control, (b) the
executive is excluded from full participation in any incentive compensation plan
or stock option, stock appreciation, or similar equity based plan in which
similarly situated KeyCorp executives generally participate, or (c) the
headquarters that was the executive's principal place of employment before the
change of control (whether KeyCorp's headquarters or a regional headquarters) is
relocated to a site outside of the greater metropolitan area in which that
headquarters was located before the change of control. For purposes of the
change in control agreements, "cause" includes conviction of a felony,
dishonesty in the course of employment that constitutes a felony and is inimical
to the best interest of KeyCorp or a subsidiary, imposition by a bank regulatory
agency of a final order of suspension or removal, or competing with KeyCorp.
Section 280G Excise Tax on Payments. In general, the employment and change
of control agreements to which KeyCorp is a party provide for a tax gross-up if
any payment exceeds the Section 280G limits so that the officer will receive the
same after-tax payment as would have been the case if Section 280G did not
apply.
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COMPENSATION AND ORGANIZATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
KeyCorp's Board of Directors has delegated to its Compensation and
Organization Committee (the "Committee") responsibility for executive
compensation.
BACKGROUND ON OVERALL PROGRAM
In designing KeyCorp's executive compensation program, KeyCorp and the
Committee concluded that the program should:
- Operate as a primary motivator in driving executive decisions and
activities to enhance shareholder value.
- Pay total compensation that is commensurate with KeyCorp's
performance as compared with other comparable financial
institutions.
- Promote a strong pay for performance culture by ensuring that highly
competitive compensation is conditioned on the attainment of
challenging objectives.
- Permit KeyCorp to attract, retain, and motivate the best available
executive talent.
- Encourage substantial share ownership by executives.
The executive compensation program -- including the establishment of job
grades, salary ranges, and market points (the approximate average salary for
executives in similar jobs in the marketplace), and the assignment of senior
executives to job grades based upon their executive responsibilities -- was
designed and implemented with the aid of an independent outside executive
compensation consultant. Jobs within KeyCorp are valued on the basis of market
median total compensation levels at peer companies rather than on the basis of
internal job relationships within KeyCorp.
Under the compensation program adopted by KeyCorp and the Committee, the
total value of KeyCorp's compensation programs for executives will be positioned
at the median total compensation at peer companies for the comparable position,
although the individual compensation elements (base salary, annual and long term
incentive compensation, and stock options) may vary from peer medians. The
Committee each year identifies the companies to be included in the peer group.
The 1998 peer group included bank holding companies that, in the Committee's
judgment, have similar characteristics as KeyCorp. The 1998 peer group included
bank holding companies with assets ranging from approximately $30 billion to
$310 billion as of the beginning of 1998. All of the companies in the peer group
were included in the KBW 50 Index (which is used in the stock price performance
graph on page 31 of this Proxy Statement).
KeyCorp has established stock ownership guidelines for its senior
executives which specify that KeyCorp's Chief Executive Officer and KeyCorp's
President should own KeyCorp Common Shares with a value equal to at least five
times in the case of the Chief Executive Officer, and three times in the case of
the President, their respective annual salaries, senior executives on KeyCorp's
Management Committee (which includes Messrs. Somers, Allen, and Stevens) should
own KeyCorp Common Shares with a value equal to at least two times their salary,
and all other senior executives participating in KeyCorp's long term incentive
compensation plan should own KeyCorp Common Shares with a value at least equal
to their salary. Newly
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hired executives and executives whose stock ownership did not meet the
guidelines at the time established have a reasonable period of time to achieve
the level of ownership set forth in the guidelines. For purposes of these
guidelines, Common Shares include shares actually owned by the executives as
well as phantom shares owned under KeyCorp's Excess 401(k) Savings Plan and
Deferred Compensation Plan. At December 31, 1998, the senior executives covered
by KeyCorp's stock ownership guidelines owned, in the aggregate, 222% of the
KeyCorp Common Shares specified by the guidelines.
In order to facilitate estate planning by senior executives, certain
nonqualified stock options granted to senior executives are transferable by the
executive to family members or trusts for family members. No senior executive
may transfer options to a family member or a trust for a family member unless
the executive is in compliance with KeyCorp's stock ownership guidelines.
In 1998, the Committee reviewed its practice of granting only nonqualified
stock options as opposed to incentive stock options. Many companies stopped
granting incentive stock options when the capital gains tax rates approximated
ordinary income tax rates. Now that the spread between those rates has widened,
the Committee determined that, in granting options to senior executives in job
grade 89 or above, it would grant incentive stock options up to the maximum
limit prescribed by the Internal Revenue Code with any balance of options
awarded being nonqualified stock options.
The Committee on a regular periodic basis reviews each of the major
elements of the overall compensation program (i.e. salary, annual and long term
incentive compensation, and stock options) to determine whether that major
element is competitive in the marketplace and effective in incenting desired
performance behavior. In order to assist it with these periodic reviews, the
Committee generally retains an independent outside executive compensation
consultant.
1998 COMPENSATION
Adjustments to an individual executive's salary are considered annually
using competitive market comparisons and considering the executive's
contribution to KeyCorp's success and accomplishment of individual and unit
goals. Incentive compensation amounts are determined as described in more detail
below.
The Committee has determined that KeyCorp will be better able to attract,
retain and motivate executives to achieve superior financial performance if a
relatively large portion of senior executive compensation is "at risk," i.e.,
subject to incentive compensation plans. Thus, KeyCorp's compensation for senior
executives is designed to provide KeyCorp's senior executives with less total
compensation than that of senior executives of peer companies in periods when
KeyCorp's performance is poorer than performance of peer companies and to
provide superior total compensation when performance is superior to the
performance of such companies.
Under KeyCorp's annual incentive compensation plan, at the beginning of
each year, the Committee selects one or more financial criteria or performance
factors and, if more than one factor is selected, assigns a weight to each
factor. The factors are adjusted annually to incent specific performance
behavior designed to achieve the Corporation's operating plan for the year. In
January 1998, the Committee selected the following factors with the indicated
weights: earnings per share growth (40% weight), return on equity (40% weight),
and revenue per share growth (20% weight). For each factor, a threshold, target
and maximum performance goal is established. In establishing the target the
Committee considers the median performance of the peer
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companies with respect to that factor during the preceding 3 and 5 year periods,
as well as the forecast for the current year for the peer group and KeyCorp's
operating plan for the current year. At the conclusion of the year, KeyCorp's
actual performance on each of the factors is determined with the threshold being
50%, the target being 100%, and maximum being 200%. If the threshold is not
achieved for a factor, zero is assigned to that factor. Based on all the
factors, a target pool percentage is mathematically established between 0% and
200%. The Committee has the discretion to increase or decrease the target pool
percentage by 20%. In addition, at the beginning of each year, the Committee may
establish a "knock-out" factor, which is a minimum performance goal which,
unless waived or revised by the Committee, must be achieved before any incentive
compensation is payable under the annual incentive plan. For 1998, the
"knock-out" factor was based on return on equity. Once the target pool
percentage is established, it is multiplied against a target pool. The target
pool is determined by adding up for each officer who is eligible to participate
in the plan a specified percentage (ranging from 15% to 100%) of the market
point of the officer's job grade (for example, if an officer is in job grade 86,
25% of such officer's salary market point would be included in the target pool).
Multiplying the target pool percentage against the target pool establishes the
actual pool of incentive compensation available for distribution. Individual
payouts are based on the individual officer's performance and contribution to
KeyCorp, taking into account the performance and contribution of the group or
line of business in which the officer works. An officer may receive no incentive
compensation in any given year and the plan does not restrict the maximum
incentive award that may be paid to an individual participant so long as it is
within the actual pool of incentive compensation available for distribution for
the year.
Based on the factors specified by the plan, the target pool percentage for
1998 was mathematically calculated to be between 100% and 105%. The Committee,
in the exercise of its discretion, fixed the target pool percentage at 105%. In
the Committee's view, KeyCorp had a solid year, with return on equity being
slightly above the peer group median and earnings per share growth being
slightly below the peer group median (based on nine month results). While
KeyCorp did not fully achieve its 1998 operating plan, it overcame the effects
of a substantial reduction in the net interest margin by increasing loan
originations and achieving very substantial growth in noninterest income. The
Committee also considered qualitative factors and concluded that there has been
a constancy of strategic plan and that management was successful in
accomplishing the acquisition of McDonald & Company Investments, Inc., which was
a significant step in fulfilling the strategic vision of KeyCorp.
Under KeyCorp's long term incentive compensation plan as in effect prior to
January 1998, the Committee establishes objective criteria by which KeyCorp's
financial performance should be judged for each three year cycle. The criteria
is based on the Committee's judgment of a return on average common equity that
will warrant satisfactory to excellent results for the three year period. For
the three year period 1996-1998, the established criteria could result in a
payout that ranges from zero to 250% of target. The maximum amount for the
1996-1998 performance period would have been earned if return on average common
equity for such three year period, after adjustments which the Committee deems
to be appropriate, equals or exceeds 20%. An individual executive's target is
either 20%, 25%, or 30% of the market point of such officer's job grade. The
average return on common equity for this three year period was 17.53%. This
resulted in a payout of 151% of target. The awards were paid or credited to
participating executives in the first quarter of 1999.
In January 1998, the Committee established a new long term incentive
compensation plan which replaces the existing long term incentive plan for
cycles beginning in 1998 and thereafter. Instead of the three year
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performance cycle under the existing plan with a new cycle starting each year,
the new plan has a four year performance cycle which will start every other
year. Because the new plan will pay out every other year, the individual
executive's targets were correspondingly adjusted. The Committee made these
changes in order to increase retention by lengthening the cycle, distinguish
long term incentive compensation from annual incentive compensation by having
the plan payout every other year, and increase the importance of the incentive
payout by doubling the amount of the payout while decreasing by 50% the
frequency of the payout (i.e. no overall increase in cost). The new plan also
requires that any participant who is not in compliance with the stock ownership
guidelines receive the award in KeyCorp Common Shares (less the amount necessary
to pay applicable taxes) or defer the award into the KeyCorp phantom stock
account under KeyCorp's Deferred Compensation Plan.
For the four year cycle commencing in 1998, the Committee selected two
performance criteria: average return on equity at a 60% weighting (with the
maximum achieved at 20% average return on equity) and cumulative earnings per
share growth for the four year period at a 40% weighting (with the maximum
achieved at a compound annual growth rate of 12.5%). At the maximum for both
factors, a payout of 250% of target would be achieved. Once the four year pool
is determined, an individual executive's award will be determined at not less
than 70% nor more than 130% of such executive's target multiplied by the
percentage determined by applying the two performance criteria. Awards, if any,
will be payable in 2002 for the 1998-2001 cycle.
The Committee believes that senior executives will be motivated, and their
financial interests will be aligned with those of common shareholders, if stock
options are awarded to senior executives. The Committee determines the stock
option policies and makes the actual grants of options. In general, the number
of options granted to an executive is based on the executive's job grade. With
respect to the Chief Executive Officer and the President and certain senior
executives reporting directly to them, the Committee has determined that options
covering a specific number of shares of KeyCorp should be granted based on the
job position. For other executives the Committee has established a threshold,
target, and maximum number of shares to be covered by options for each job
grade. Within these guidelines, the Committee bases grants of stock options on
management's recommendation and other factors the Committee deems relevant.
The aggregate number and vesting terms of options may vary depending on the
Committee's judgment of the best form of long term motivation appropriate under
the particular circumstances. For 1998, the Committee continued its policy
initially established for regular option grants in 1996. Like the options
granted in 1996, these options vest one-third each year, resulting in full
vesting after three years. In 1998, 747 executives of KeyCorp (including Messrs.
Gillespie, Meyer, Somers, Allen, and Stevens) were awarded options covering
4,293,800 KeyCorp Common Shares. KeyCorp has also adopted a program whereby
stock options can be granted to those employees in lower positions identified as
high performers and/or the future leaders of the organization. Under this
program, in 1998, 619 of these employees received options covering a total of
521,400 KeyCorp Common Shares.
In 1997, the Committee granted performance options to Messrs. Gillespie,
Meyer, Somers, Allen, Stevens and 32 other senior executives. The reason for
these performance options was a recognition by the Committee that there was a
rapid transformation occurring in the financial services industry and the need
to incent superior financial performance in the near term. The number of
performance options awarded each executive officer was significantly greater
than a regular option grant because of the vesting terms which the
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Committee believes establish very high performance objectives. These performance
options vest if KeyCorp's basic earnings per share equal or exceed $2.60 per
share for the year 1999 or any year prior thereto, or equal or exceed $2.92 per
share for the year 2000, and, in addition to this earnings per share test,
KeyCorp's stock price exceeds $37 per share for seven consecutive trading days
by December 31, 2000, exceeds $41 per share for seven consecutive trading days
by December 31, 2001, or exceeds $45 per share for seven consecutive trading
days by December 31, 2002. The stock price requirement was satisfied in 1998,
which leaves the earnings per share test to be satisfied as a condition to these
options vesting. These options will vest upon a change of control occurring
prior to the time the options have vested under the performance criteria. In
order to reinforce the incentive to achieve these high performance objectives,
effective January 1998, Mr. Gillespie was awarded an additional 213,200
performance options.
In all instances, the option price was 100% of the market price of the
stock at the time the option was granted. It is the Committee's policy not to
reprice options.
Salary adjustments for senior executives of KeyCorp, the annual and long
term incentive compensation payments to such executives, and the grant of stock
options are based upon the above methodology. In the case of executives with
employment contracts, the same methodology is applied subject to compliance with
salary minimums specified in such contracts. In the case of executives other
than Mr. Gillespie, the Committee also solicited from Mr. Gillespie an
evaluation of such executive's performance and a compensation recommendation,
which evaluation and recommendation are additional factors considered by the
Committee, in its sole discretion, in applying the above methodology.
Internal Revenue Code Section 162(m) precludes a public corporation from
taking an income tax deduction for compensation in excess of $1 million for its
chief executive officer or any of its four other highest paid executive
officers. Certain performance-based compensation is exempted from the limit upon
deductibility. (For example, any compensation derived from the exercise of stock
options under employee stock option plans of KeyCorp is exempt from this limit.)
KeyCorp's short term and long term incentive compensation plans provide that the
Committee, in its sole discretion, has the authority to require deferral of
payment of all or a portion of awards under any such plan if the Committee
determines that KeyCorp would be denied a deduction for federal income tax
purposes for such award or the portion thereof.
Mr. Gillespie is subject to an employment agreement with KeyCorp (see pages
20-22 of this Proxy Statement).
As of April 1998, the Committee established Mr. Gillespie's base salary at
$990,000 per annum. In determining Mr. Gillespie's base salary, the Committee
reviewed and took into consideration the base salaries paid to chief executive
officers of peer companies, with the objective of having Mr. Gillespie's base
salary at or near the median. As in the case of other senior executives, Mr.
Gillespie is a participant in KeyCorp's long term incentive compensation plan.
For the three year period 1996-1998, his award under the plan was $390,939. As
described above (see page 27 of this Proxy Statement), the payout for the
1996-1998 three year cycle under the long term incentive compensation plan was
mathematically determined based on the Corporation's average return on equity
over the three year period. Under the annual incentive plan, Mr. Gillespie's
target bonus for 1998 was $900,000. The Committee determined that $1,100,000 was
the appropriate annual incentive for Mr. Gillespie for 1998. In establishing the
annual incentive amount for Mr. Gillespie, the Committee considered (i) the
annual incentive compensation paid to chief executive
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officers of peer companies over the last four most recent years, (ii) KeyCorp's
1998 performance which resulted in the target pool percentage under the annual
incentive plan being fixed at 105% (see page 27 of this Proxy Statement), and
(iii) Mr. Gillespie's personal performance and leadership. The Committee took
note of the acquisition of McDonald & Company Investments, Inc. The acquisition
represented the achievement of a long term strategic goal of KeyCorp to have
strong investment banking, brokerage and capital markets capabilities, and was a
significant step towards fulfilling KeyCorp's objective of increasing
noninterest income as a percentage of total revenues.
Compensation and Organization Committee
Board of Directors
KeyCorp
Albert C. Bersticker
Thomas A. Commes
Kenneth M. Curtis
Stephen R. Hardis (Chair)
Douglas J. McGregor
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Curtis is a senior member in the law firm of Curtis Thaxter Stevens
Broder & Micoleau LLC, which firm did certain legal work for KeyCorp and its
subsidiaries in 1998 and continues to perform legal work in 1999.
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KEYCORP STOCK PRICE PERFORMANCE
The following graph compares the stock price performance of KeyCorp's
Common Shares (assuming reinvestment of dividends) with that of the Standard &
Poor's 500 Index and the KBW 50 Index. The Standard & Poor's 500 Index is an
index of 500 stocks designed to measure the performance of the broad domestic
economy. The KBW 50 Index is an index of the stock of fifty banks of the United
States, including all money-center and most major regional banks. KeyCorp's
stock is included in the KBW 50 Index and in the Standard & Poor's 500 Index.
KEYCORP STOCK PERFORMANCE GRAPH* (1993-1998)
KEYCORP KBW 50 S&P 500
------- ------ -------
12/31/93 $100 $100 $100
$102 $ 98 $ 96
6/30/94 $109 $106 $ 97
$106 $103 $101
12/31/94 $ 88 $ 95 $101
$100 $108 $111
6/30/95 $113 $123 $122
$124 $143 $131
12/31/95 $133 $152 $139
$143 $168 $147
6/30/96 $145 $169 $153
$166 $190 $158
12/31/96 $192 $215 $171
$187 $225 $176
6/30/97 $215 $258 $207
$247 $297 $222
12/31/97 $276 $314 $229
$297 $350 $260
6/30/98 $282 $351 $269
$230 $276 $242
12/31/98 $257 $340 $294
AVERAGE ANNUAL TOTAL RETURNS
KEYCORP 21%
KBW 50 28%
S&P 500 24%
* This stock price performance is not necessarily indicative of future price
performance. The stock price performance in the graph above for the period
prior to March 1, 1994 is for Society.
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SHARE OWNERSHIP AND PHANTOM STOCK UNITS
Five Percent Beneficial Ownership. KeyCorp has been advised that as of
December 31, 1998, the following shareholder appeared to own more than 5% of the
outstanding KeyCorp Common Shares:
AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL COMMON SHARES
NAME AND ADDRESS OWNERSHIP OUTSTANDING
---------------- ----------------- -------------
Capital Research and Management Company..................... 22,875,000 5.0%
333 South Hope Street
Los Angeles, CA 90071
Beneficial Ownership of Common Shares and Investment in Phantom Stock
Units. The following table lists current directors of and nominees for director
of KeyCorp, the executive officers included in the Summary Compensation Table,
and all directors, nominees, and executive officers of KeyCorp as a group. The
table sets forth, as of January 15, 1999, certain information with respect to
(1) the amount and nature of beneficial ownership of KeyCorp Common Shares, (2)
the number of phantom stock units, if any, and (3) total phantom stock units and
beneficial ownership of KeyCorp Common Shares for such current directors,
nominees for director, and executive officers.
TOTAL PHANTOM
AMOUNT AND NATURE OF PERCENT OF PHANTOM STOCK UNITS AND
BENEFICIAL OWNERSHIP COMMON SHARES STOCK BENEFICIAL OWNERSHIP
NAME OF COMMON SHARES(1) OUTSTANDING(5) UNITS(6) OF COMMON SHARES
---- -------------------- -------------- -------- --------------------
Gary R. Allen...................... 239,579(2)(3) 8,768 248,347
Cecil D. Andrus.................... 21,500(3) 0 21,500
William G. Bares................... 38,300(3) 15,171 53,471
Albert C. Bersticker............... 37,500(3) 5,796 43,296
Edward P. Campbell................. 2,000(3) 0 2,000
Dr. Carol A. Cartwright............ 6,096(3) 0 6,096
Thomas A. Commes................... 53,500(3) 0 53,500
Kenneth M. Curtis.................. 21,910(3) 0 21,910
John C. Dimmer..................... 906,206(3) 0 906,206
Robert W. Gillespie................ 1,066,486(2)(3) 99,440 1,165,926
Stephen R. Hardis.................. 53,500(3) 83,411 136,911
Henry S. Hemingway................. 191,166(3)(4) 0 191,166
Charles R. Hogan................... 350,838(3) 0 350,838
Douglas J. McGregor................ 21,088(3) 6,952 28,040
Henry L. Meyer III................. 615,974(2)(3) 26,195 642,169
Steven A. Minter................... 37,058(3) 20,344 57,402
M. Thomas Moore.................... 37,500(3) 9,478 46,978
Richard W. Pogue................... 60,500(3) 0 60,500
Bill R. Sanford.................... 500(3) 0 500
K. Brent Somers.................... 121,246(2)(3) 4,946 126,192
Ronald B. Stafford................. 96,146(3) 0 96,146
Thomas C. Stevens.................. 71,239(2)(3) 2,738 73,977
Dennis W. Sullivan................. 35,900(3) 43,860 79,760
Peter G. Ten Eyck, II.............. 80,218(3) 0 80,218
All directors, nominees and
executive officers as a group
(33)............................. 5,892,050(2)(3) 377,625 6,269,675
- ---------------
(1) The above share ownership table and the following footnotes were adjusted to
reflect the two-for-one stock split in KeyCorp Common Shares which was
effected by a 100% stock dividend effective March 6, 1998.
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(2) With respect to KeyCorp Common Shares beneficially held by these individuals
or other executive officers under the KeyCorp 401(k) Savings Plan, the
shares included are as of December 31, 1998.
(3) Includes options vested as of March 15, 1999. The directors, nominees, and
executive officers listed above hold vested options as follows: Mr.
Allen -- 162,896; Mr. Andrus -- 19,500; Mr. Bares -- 33,500; Mr.
Bersticker -- 33,500; Mr. Campbell -- 0; Dr. Cartwright -- 5,500; Mr.
Commes -- 33,500; Mr. Curtis -- 19,500; Mr. Dimmer -- 42,536; Mr.
Gillespie -- 893,333; Mr. Hardis -- 33,500; Mr. Hemingway -- 51,572; Mr.
Hogan -- 42,536; Mr. McGregor -- 19,500; Mr. Meyer -- 508,666; Mr.
Minter -- 33,500; Mr. Moore -- 33,500; Mr. Pogue -- 29,500; Mr.
Sanford -- 0; Mr. Somers -- 116,666; Mr. Stafford -- 84,104; Mr. Stevens --
56,666; Mr. Sullivan -- 33,500; Mr. Ten Eyck -- 66,032; all directors,
nominees, and executive officers as a group -- 3,578,197.
(4) Certain of these KeyCorp Common Shares are held in trusts over which Mr.
Hemingway, as a co-trustee, has shared power to vote and dispose of such
Common Shares.
(5) No director or executive officer beneficially owns more than 1% of the total
of outstanding KeyCorp Common Shares plus options vested as of March 15,
1999.
(6) Investments in phantom stock units by directors are made pursuant to the
KeyCorp Director Deferred Compensation Plan, whereby directors may defer
payment of all or a portion of their directors fees in a Common Shares
Account consisting of "phantom stock units." On a quarterly basis, the
Common Shares Account is credited with an additional number of phantom stock
units equal to the number of Common Shares that could be purchased at market
value with the sum of the director's deferred fees for the quarter, plus the
amount of quarterly dividends on the phantom stock units in the Common
Shares Account during the quarter as if such phantom stock units were Common
Shares. At the time of distribution from the Common Shares Account, an
actual Common Share is issued for each phantom stock unit that is in the
account.
Investments in phantom stock units by KeyCorp executive officers are made
pursuant to the KeyCorp Excess 401(k) Savings Plan (the "Supplemental Plan")
and KeyCorp Deferred Compensation Plan (the "Deferred Plan"). Under both of
those Plans, contributions to a participant's phantom stock account are
treated if they were invested in KeyCorp Common Shares. At the time of
distribution, an actual Common Share is issued for each phantom stock unit
that is in the account.
No Common Shares are issued in connection with the Director Deferred
Compensation Plan, the Supplemental Plan or the Deferred Plan until the time
of distribution from the account (i.e. these are unfunded plans with
"phantom stock" units); accordingly, directors and executive officers
participating in these Plans do not have any voting rights or investment
power with respect to or on account of the phantom stock units until the
time of distribution from the account, whereupon actual Common Shares are
issued.
SHAREHOLDER PROPOSALS FOR THE YEAR 2000
The deadline for shareholders to submit proposals to be considered for
inclusion in the Proxy Statement for next year's Annual Meeting of Shareholders
is December 10, 1999. This deadline applies to proposals submitted for inclusion
in KeyCorp's Proxy Statement for the 2000 Annual Meeting under the provisions of
Rule 14a-8 of the Exchange Act.
In addition, proxies solicited by KeyCorp for the 2000 Annual Meeting will
confer discretionary authority on the proxy holders to vote the proxy on
proposals submitted by shareholders for consideration at the 2000 Annual Meeting
unless (a) the shareholder proposal has been given in writing to the Secretary
of KeyCorp, delivered to, or received at KeyCorp's principal executive offices
not less than 60 nor more than 90 days prior to the Annual Meeting (KeyCorp
intends to make a public disclosure of the date of the Annual Meeting at least
75 days prior to the Annual Meeting), (b) the shareholder submitting the
proposal has complied with the additional requirements set forth in Article 1,
Section 7, of KeyCorp's Amended and Restated Regulations which require that any
shareholder who submits a proposal shall deliver, together with the proposal, a
brief written statement setting forth the reasons for the proposal, such
shareholder's name and record address, the number and class of all shares of
each class of stock of the Corporation beneficially owned by the shareholder,
and any material interest the shareholder may have in the proposal and (c) the
shareholder has also complied with the further requirements regarding the
proposal under Rule 14a-4(c)(2)(i) through (iii) of the Exchange Act. The date
of the 2000 Annual Meeting of Shareholders has not
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yet been established by KeyCorp's Board of Directors, but it is tentatively
scheduled for May 18, 2000. If that tentative date is, in fact, fixed by the
Board of Directors as the Annual Meeting date, a proposal under (a) above must
be received at KeyCorp's principal executive offices not later than March 13,
2000 and not earlier than February 11, 2000.
GENERAL
The Board of Directors knows of no other matters which will be presented at
the meeting. However, if other matters properly come before the meeting or any
adjournment, the person or persons voting the proxy cards will vote them in
accordance with their best judgment on such matters.
Certain rules promulgated by the Securities and Exchange Commission
governing proxy disclosure specify the circumstances under which KeyCorp is
required to include in its proxy statement a shareholder proposal, including the
requirement for timely submission of the proposal to KeyCorp by the shareholder.
If a shareholder desires to bring a proposal before the Annual Meeting of
Shareholders which has not been included in KeyCorp's proxy statement, the
shareholder must strictly comply with the applicable notice and procedural
requirements set forth in KeyCorp's Regulations. A copy of the Regulations is
available to any shareholder, without charge, upon request to the Secretary of
KeyCorp. Pursuant to KeyCorp's Regulations, a shareholder must notify KeyCorp
not less than 60 nor more than 90 days prior to the meeting of any business the
shareholder proposes to bring before the meeting for a shareholder vote. These
provisions of the Regulations govern proper submission of items to be put to a
shareholder vote and do not preclude discussion by any shareholder of any
business properly brought before the meeting.
Shareholders may only nominate a person for election as a director of
KeyCorp at a meeting of shareholders if the nominating shareholder has strictly
complied with the applicable notice and procedural requirements set forth in
KeyCorp's Regulations, including, without limitation, timely providing to the
Secretary of KeyCorp the requisite notice (not less than 60 nor more than 90
days prior to the meeting) of the proposed nominee(s) containing all the
information specified by the Regulations. KeyCorp will provide to any
shareholder, without charge, a copy of the applicable procedures governing
nomination of directors set forth in KeyCorp's Regulations upon request to the
Secretary of KeyCorp.
KeyCorp will bear the expense of preparing, printing, and mailing this
Proxy Statement. In addition to solicitation by mail, officers and regular
employees of KeyCorp and its subsidiaries may solicit the return of proxies.
KeyCorp has engaged the services of Georgeson & Company Inc. to assist in the
solicitation of proxies at an anticipated cost of $30,000 plus expenses. KeyCorp
will request brokers, banks, and other custodians, nominees, and fiduciaries to
send proxy material to beneficial owners and will, upon request, reimburse them
for their expense in so doing.
You are urged to complete, date, sign, and return your proxy card promptly
in order to make certain your shares are voted at the meeting. KeyCorp Common
Shares represented by properly executed proxy cards will be voted in accordance
with any specification made thereon and, if no specification is made, will be
voted for the election as directors of the nominees named herein (Issue One of
this Proxy Statement), against the shareholder proposal (Issue Two of this Proxy
Statement), and in favor of ratifying the appointment of Ernst & Young LLP as
independent auditors for the fiscal year ending December 31, 1999 (Issue Three
of this Proxy Statement). Abstentions and, unless a broker's authority to vote
on a particular matter is limited, broker
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non-votes are counted in determining the votes present at a meeting. A broker's
authority to vote on Issue Two is limited but is not limited as to Issues One
and Three. As to Issue Three, a broker non-vote has the same effect as a vote
against the proposal and as to Issue Two a broker non-vote is treated as not
being present. As to Issues Two and Three, an abstention has the same effect as
a vote against the proposal. You may revoke your proxy by a later proxy received
by, or by giving notice to, KeyCorp, or in open meeting, without affecting any
vote previously taken. However, your mere presence at the meeting will not
operate to revoke your proxy.
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KEYCORP LOGO
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
KEYCORP FOR THE ANNUAL MEETING ON MAY 20, 1999
The undersigned hereby constitutes and appoints Robert W.
Gillespie, Henry L. Meyer III, and Thomas C. Stevens, and each of
them, his/her true and lawful agents and proxies with full power of
substitution in each to represent the undersigned at the Annual
Meeting of Shareholders of KeyCorp to be held on May 20, 1999, and
at any adjournments or postponements thereof, on all matters
properly coming before said meeting.
1. Election of Directors: The nominees of the Board of (change of address)
Directors to the class whose term of office will expire ------------------------------------
in 2002 are:
------------------------------------
Albert C. Bersticker, Edward P. Campbell, Kenneth M. ------------------------------------
Curtis, Charles R. Hogan, Bill R. Sanford, Dennis W.
Sullivan ------------------------------------
(If you have written in the above
2. Shareholder proposal requesting necessary steps to cause space, please mark the corresponding
the annual election of all directors. box on the reverse side of this
card.)
3. Proposal to ratify the appointment of Ernst & Young LLP
as independent auditors for the fiscal year ending
December 31, 1999.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE
APPROPRIATE BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY
BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS. YOUR SHARES CANNOT BE VOTED UNLESS YOU
SIGN AND RETURN THIS CARD.
SEE REVERSE
SIDE
................................................................................
DETACH CARD
41
KEYCORP
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. LOGO
FOR WITHHELD FOR ALL
ALL ALL EXCEPT:
1. Election of Directors -- [ ] [ ] [ ]
(See reverse)
- --------------------------------------------
Nominee exception
FOR AGAINST ABSTAIN
2. Shareholder proposal requesting [ ] [ ] [ ]
necessary steps to cause the annual
election of all directors.
3. Ratification of appointment of [ ] [ ] [ ]
independent auditors.
Address Change Requested [ ]
Date: , 1999
--------------------------------
-------------------------------------------
-------------------------------------------
Signature(s)
NOTE: Please sign exactly as name appears hereon.
Joint owners should each sign. When signing
as attorney, executor, administrator,
trustee or guardian, please give full title
as such.
This proxy when properly executed will be voted in
the manner directed herein by the undersigned
shareholder. If no direction is made, this proxy
will be voted FOR the election of the nominees
listed on the reverse, AGAINST Issue 2 and FOR
Issue 3. In accordance with their judgment, the
proxies are authorized to vote upon any other
matters that may properly come before the meeting.
The signer hereby revokes all proxies heretofore
given by the signer to vote at said meeting or any
adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE AGAINST ISSUE 2 AND FOR ISSUE 3.
................................................................................
FOLD AND DETACH HERE
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED
ENVELOPE.