UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x Filed by a party other than the Registrant ¨
Check the appropriate box:
¨ | Preliminary Proxy Statement | |
¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
x | Definitive Proxy Statement | |
¨ | Definitive Additional Materials | |
¨ | Soliciting Material Under Section 240.14a-12 |
NORTHERN TRUST CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x | No fee required | |||
¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. | |||
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(2) | Aggregate number of securities to which transaction applies:
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(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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¨ | Fee paid previously with preliminary materials. | |||
¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
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Northern Trust Corporation
50 South La Salle Street
Chicago, Illinois 60603
March 9, 2016
Dear Stockholder:
You are cordially invited to attend the Northern Trust Corporation 2016 Annual Meeting of Stockholders on Tuesday, April 19, 2016, at 10:30 a.m., Central Time, at our corporate headquarters at 50 South La Salle Street in Chicago, Illinois.
For more than 125 years, our stockholders support has been essential to Northern Trusts stability and success. Your vote plays a vital role and is very important for our future. Whether or not you plan to attend the Annual Meeting, I urge you to vote your shares as promptly as possible.
The attached Notice of Annual Meeting of Stockholders and Proxy Statement provide you with information about each proposal to be considered at the Annual Meeting, as well as other information you may find useful in voting your shares. If you plan to attend the Annual Meeting, please review the information on admittance procedures in the accompanying Proxy Statement.
If you choose not to attend in person, you may vote your shares by Internet or telephone. If you received a paper copy of the proxy materials, you also may complete, sign, date, and return your proxy card in the enclosed envelope. Instructions for voting by Internet or telephone can be found on your proxy card or your Notice Regarding the Availability of Proxy Materials.
Thank you for your continued support of Northern Trust Corporation, and your contribution to the future of our company.
Sincerely, |
Frederick H. Waddell |
Chairman of the Board and Chief Executive Officer |
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date: | Tuesday, April 19, 2016 | |
Time: | 10:30 a.m., Central Time | |
Place: | Northern Trust Corporation 50 South La Salle Street Chicago, Illinois 60603 | |
Purposes: | The purposes of the Annual Meeting are to: | |
● elect twelve directors to serve on the Board of Directors until the 2017 Annual Meeting of Stockholders or until their successors are elected and qualified;
● approve, by an advisory vote, 2015 named executive officer compensation;
● ratify the appointment of KPMG LLP as Northern Trust Corporations independent registered public accounting firm for the 2016 fiscal year; and
● transact any other business that may properly come before the Annual Meeting. | ||
Record Date: | You can, and should, vote if you were a stockholder of record at the close of business on February 22, 2016. |
March 9, 2016
By order of the Board of Directors,
Stephanie S. Greisch
Corporate Secretary
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 19, 2016
This Proxy Statement, other proxy materials, our Annual Report on Form 10-K for the year ended December 31, 2015 and a link to the means to vote by Internet or telephone are available at materials.proxyvote.com/665859.
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Securities Transactions Policy and Procedures and Policy Against Hedging |
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ITEM 3RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
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PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors (the Board) of Northern Trust Corporation (the Corporation) for use at the Corporations Annual Meeting of Stockholders to be held on Tuesday, April 19, 2016 (the Annual Meeting). On or about March 9, 2016, we began mailing or otherwise making available our proxy materials, including a copy of our Annual Report on Form 10-K for the year ended December 31, 2015, to all stockholders entitled to vote at the Annual Meeting.
A Notice Regarding the Availability of Proxy Materials
Pursuant to rules adopted by the Securities and Exchange Commission (the SEC), for some of our stockholders we are providing access to our proxy materials via the Internet. The rules permit us to send a Notice Regarding the Availability of Proxy Materials (the Notice) to stockholders of record and beneficial owners. All stockholders have the ability to access the proxy materials on the website referred to in the Notice, www.proxyvote.com, or to request a printed set of proxy materials on this site or by calling toll-free 1-800-579-1639. Complete instructions for accessing the proxy materials on the Internet or requesting a printed copy may be found in the Notice. In addition, stockholders may request to receive all future proxy materials in printed form by mail or electronically by e-mail on the website above or when voting electronically. Choosing to receive your future proxy materials by e-mail will save us the cost of printing and mailing documents to you and will reduce the impact of our annual stockholders meetings on the environment. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.
Record holders of the Corporations common stock at the close of business on February 22, 2016 may vote at the Annual Meeting. On that date, the Corporation had 228,731,503 shares of common stock outstanding.
You are entitled to one vote for each share of common stock that you owned of record at the close of business on February 22, 2016. The proxy card or Notice, as applicable, indicates the number of shares you are entitled to vote at the Annual Meeting.
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Whether or not you plan to attend the Annual Meeting, we urge you to vote your shares promptly.
If you are a stockholder of record (that is, you hold your shares of the Corporations common stock in your own name), you may vote your shares by proxy using any of the following methods:
● | using the Internet site listed on the Notice or the proxy card; |
● | calling the toll-free telephone number listed on the proxy card; or |
● | completing, signing, dating and returning your proxy card. |
The Internet and telephone voting procedures set forth on the Notice and the proxy card are designed to authenticate stockholders identities, to allow stockholders to provide their voting instructions and to confirm that their instructions have been properly recorded. If you vote by Internet or telephone, you should not return your proxy card.
If you are a beneficial owner, also known as a street name holder (that is, you hold your shares of the Corporations common stock through a broker, bank or other nominee), you will receive from the record holder, in the form of a Notice or otherwise, voting instructions (including instructions, if any, on how to vote by Internet or telephone) that you must follow in order to have your shares voted at the Annual Meeting. Under the rules of various national and regional securities exchanges, brokers, banks and other nominees that hold securities on behalf of beneficial owners generally may vote on routine matters even if they have not received voting instructions from the beneficial owners for whom they hold securities, but are not permitted to vote on nonroutine matters unless they have received such voting instructions. While the ratification of the appointment of an issuers independent registered public accounting firm generally is considered to be a routine matter, the election of directors and executive compensation matters generally are considered to be nonroutine matters. Thus, if you fail to provide your specific voting instructions, your broker may only vote your shares on the ratification of the appointment of the Corporations independent registered public accounting firm. Consequently, it is important that you communicate your voting instructions by using any of the following methods so your vote can be counted:
● | using the Internet site listed on the voting instruction form; |
● | calling the toll-free telephone number listed on the voting instruction form; or |
● | completing, signing, dating and returning your voting instruction form. |
If you own shares of common stock as a participant in The Northern Trust Company Thrift-Incentive Plan (TIP), or as a participant in any other employee benefit plan of the Corporation, your proxy card will cover the shares credited to each of your plan accounts. The completed proxy card (or vote by Internet or telephone) will serve as your voting instructions to the TIP trustee. To allow sufficient time for voting by the trustee, your voting instructions must be received by 11:59 p.m, Eastern Time, on April 14, 2016.
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Whether you vote by Internet, telephone or mail, your shares will be voted in accordance with your instructions. If you sign, date and return your proxy card without indicating how you want to vote your shares, the proxy holders will vote your shares in accordance with the following recommendations of the Board:
Item 1 |
| FOR the election of each nominee for director; | ||||
Item 2 |
| FOR the approval, by an advisory vote, of the 2015 compensation of the Corporations named executive officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC; and | ||||
Item 3 |
| FOR the ratification of the appointment of KPMG LLP as the Corporations independent registered public accounting firm for the fiscal year ending December 31, 2016. |
The proxy holders are authorized to vote as they shall determine in their sole discretion on any other business that may properly come before the Annual Meeting.
You may revoke your proxy at any time before it is voted at the Annual Meeting by:
● | sending a written notice of revocation to the Corporations Corporate Secretary; |
● | submitting another signed proxy card with a later date; |
● | voting by Internet or telephone at a later date; or |
● | attending the Annual Meeting and voting in person. |
If you hold your shares in the name of your broker, bank or other nominee and wish to revoke your proxy, you will need to contact that party to revoke your proxy.
You may come to the Annual Meeting and vote your shares in person by obtaining and submitting a ballot that will be provided at the meeting. However, if your shares are held by a broker, bank or other nominee in street name, to be able to vote at the meeting you must obtain a proxy, executed in your favor, from the record holder of your shares, indicating that you were the beneficial owner of the shares at the close of business on February 22, 2016.
We are delivering only one Annual Report on Form 10-K and Proxy Statement (or, as applicable, the Notice) to stockholders of record who share the same address unless they have notified us that they wish to continue receiving multiple copies. This practice, known as householding, reduces duplicate mailings, saves printing and postage costs as well as natural resources and will not affect dividend check mailings. If you wish to receive separate copies of proxy materials, please contact Broadridge at 1-866-540-7095 or Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Stockholders who wish to receive a separate set of proxy materials now should contact Broadridge at the same telephone number or mailing address and the materials will be delivered to you promptly upon your request.
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If you and other stockholders of record with whom you share an address currently receive multiple copies of our proxy materials or if you hold our stock in more than one account, and, in either case, you wish to receive only a single copy of such materials in the future, please contact Broadridge at the telephone number or mailing address above with the names in which all accounts are registered and the name of the account for which you wish to receive mailings.
Quorum and Vote Required for Approval
A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if a majority of the outstanding shares entitled to vote at the meeting is present in person or by proxy at the Annual Meeting. Abstentions and broker nonvotes, if any, will be counted as present for purposes of establishing a quorum. A broker nonvote will occur when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions from the beneficial owner. As noted above, brokers, banks and other nominees generally cannot vote your shares on the election of directors or executive compensation matters without your specific instructions. Please return your proxy card or voting instruction form, as applicable, or vote by Internet or telephone so your vote can be counted. An inspector of election appointed for the Annual Meeting will tabulate all votes cast in person or by proxy at the Annual Meeting. In the event a quorum is not present at the Annual Meeting, we expect that the Annual Meeting will be adjourned or postponed to solicit additional proxies.
The following table indicates the vote required for approval of each item to be presented to the stockholders at the Annual Meeting and the effect of abstentions and broker nonvotes.
Item | Required Vote | Effect of Abstentions and Broker Nonvotes | ||
Item 1Election of directors | Affirmative vote of a majority of the votes cast with respect to each nominee. See below for further detail. |
● Abstentions with respect to a nominee will have no effect on the election of such nominee.
● Broker nonvotes will have no effect on the voting for this item. | ||
Item 2Advisory vote on executive compensation | Affirmative vote of a majority of the shares of common stock present and entitled to vote. |
● Abstentions will have the effect of a vote AGAINST this proposal.
● Broker nonvotes will have no effect on the voting for this item. | ||
Item 3Ratification of the appointment of KPMG LLP as the Corporations independent registered public accounting firm for the 2016 fiscal year | Affirmative vote of a majority of the shares of common stock present and entitled to vote. |
● Abstentions will have the effect of a vote AGAINST this proposal.
● Brokers may vote uninstructed shares on this item. |
Pursuant to the Corporations By-laws, a nominee for director in an uncontested election (such as this years election where the only nominees are those recommended by the Board) must receive the affirmative vote of a majority of the votes cast with respect to his or her election at a meeting of stockholders to be elected. In contested elections, the affirmative vote of a plurality of the votes cast
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will be required to elect a director. The Corporations Corporate Governance Guidelines require an incumbent director who fails to receive the affirmative vote of a majority of the votes cast with respect to his or her election in an uncontested election at a meeting of stockholders to submit his or her resignation following certification of the stockholder vote. Such resignation will first be considered by the members of the Corporate Governance Committee (other than the tendering director, if applicable), who will recommend to the Board whether to accept or reject the resignation after considering all factors deemed relevant by the Committee, including, without limitation, any stated reasons as to why stockholders did not support the director whose resignation has been tendered, the length of service and qualifications of such director, the directors contributions to the Corporation and the Corporations Corporate Governance Guidelines. The Board (other than the tendering director) will then act to accept or reject the Committees recommendation no later than ninety days following the date of the stockholders meeting after considering the factors considered by the Committee and such additional information and factors as the Board believes to be relevant.
Solicitation of Proxies; Costs
The Corporation will bear the cost of preparing, printing and mailing the materials in connection with this solicitation of proxies. In addition to mailing these materials, the Corporations officers and other employees may, without being additionally compensated, solicit proxies personally and by mail, telephone or electronic communication. The Corporation will reimburse banks and brokers for their reasonable out-of-pocket expenses related to forwarding proxy materials to beneficial owners of stock or otherwise in connection with this solicitation. In addition, the Corporation has retained Georgeson Inc. to assist in the solicitation of proxies for a fee of approximately $12,500, plus reasonable out-of-pocket expenses.
ADMITTANCE TO THE ANNUAL MEETING
Stockholders at the close of business on the record date, February 22, 2016, or their duly appointed proxies, may attend our Annual Meeting at our corporate headquarters on April 19, 2016 at 10:30 a.m., Central Time. Registration will begin at 9:30 a.m. Our corporate headquarters are located at 50 South La Salle Street (northwest corner of La Salle Street and Monroe Street) in Chicago, Illinois.
In order to be admitted to the meeting, you must bring documentation showing that you owned the Corporations common stock at the close of business on the record date, February 22, 2016. Acceptable documentation includes an admission ticket, a Notice Regarding the Availability of Proxy Materials or any other proof of ownership of the Corporations common stock at the close of business on February 22, 2016. A brokerage statement or letter from a bank or broker reflecting your holdings at the close of business on February 22, 2016 is an example of such other proof of ownership. Your admission ticket is located on the top portion of the rear side of your proxy card or on the left side of your voting instruction form if your shares are held by a broker, bank or other nominee in street name. You will be asked to present valid picture identification, such as a drivers license or passport. For safety and security reasons, cameras and recording devices will not be permitted in the meeting.
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Stockholders will be asked to elect twelve directors at the Annual Meeting. Each of the twelve nominees is currently serving as a director of the Corporation and its principal subsidiary, The Northern Trust Company (the Bank). Included in the incumbent directors nominated for re-election is Thomas E. Richards, who was appointed as a director of the Corporation by the Board, effective July 21, 2015, in accordance with the Corporations By-laws and pursuant to the recommendation of the Corporations Chairman and Chief Executive Officer (CEO) and Lead Director.
Each of the twelve director nominees has consented to serve as a director if elected at the Annual Meeting. Each nominee elected as a director will serve until the next Annual Meeting of Stockholders or until his or her successor is elected and qualified. If any nominee is unable to serve as a director at the time of the Annual Meeting, your proxy may be voted for the election of another nominee proposed by the Board or the Board may reduce the number of directors to be elected at the Annual Meeting.
As discussed further under Corporate Governance Director Nominations and Qualifications, in evaluating director nominees, the Corporate Governance Committee considers a variety of factors, including relevant business and industry experience; professional background; age; current employment; community service; other board service; and racial, ethnic, and gender diversity. Accordingly, the twelve director nominees possess a wide variety of experience, qualifications and skills, which will equip the Board with the collective expertise to perform its oversight function effectively. Each of the candidates also has a reputation for, and long record of, integrity and good business judgment; has experience in leadership positions with a high degree of responsibility; is free from conflicts of interest that could interfere with his or her duties to the Corporation and its stockholders; and is willing and able to make the necessary commitment of time and attention required for effective Board service.
A summary of certain key experience, qualifications and skills represented by the nominees for election to the Board at the Annual Meeting, collectively, is set forth below.
Key Experience, Qualifications and Skills | ||
● Corporate governance and social responsibility |
● Marketing | |
● Finance and accounting |
● Operations | |
● Financial services |
● Public company board experience | |
● Global experience |
● Risk management | |
● Leadership of large, complex, highly regulated organizations
● Management development and succession |
● Strategic thinking
● Technology |
Further information with respect to the nominees is set forth on the following pages.
The Board unanimously recommends that you vote FOR the election of each nominee.
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INFORMATION ABOUT THE NOMINEES FOR DIRECTOR
The following information about the nominees for election to the Board at the Annual Meeting is as of December 31, 2015, unless otherwise indicated.
LINDA WALKER BYNOE, Director since 2006, Age 63
President and Chief Executive Officer, Telemat Ltd. (project management and consulting firm) since 1995.
Ms. Bynoe is a director of Anixter International Inc. and Prudential Retail Mutual Funds and a trustee of Equity Residential. She is a former director of Simon Property Group, Inc.
The Board concluded that Ms. Bynoe should serve as a director based on her diverse consulting and investment experience, her expertise in public accounting, corporate governance, managing a private equity investment portfolio and strategy development and her experience as a director of financial services and other complex global corporations. | ||
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SUSAN CROWN, Director since 1997, Age 57
Chairman and Chief Executive Officer of Owl Creek Partners, LLC (private equity firm) since 2010, and Chairman and Founder, Susan Crown Exchange Inc. (social investment organization) since 2009. Ms. Crown previously served as Vice President of Henry Crown and Company (company with diversified investments) from 1984 to 2015.
Ms. Crown is a director of Illinois Tool Works Inc. Ms. Crown also serves as Vice Chair of the Board of Trustees of Rush University Medical Center in Chicago and as a director of CARE USA and Navy Pier, Inc. Ms. Crown previously served two terms as a Fellow of Yale Corporation.
The Board concluded that Ms. Crown should serve as a director based on her business experience, her leadership and risk oversight experience as a director of Illinois Tool Works Inc. and her extensive experience with civic and not-for-profit organizations. The board also considered the valuable perspective on governance and corporate responsibility matters that Ms. Crown brings through her current and former board service at various large organizations, both commercial and not-for-profit. | |
DEAN M. HARRISON, Director since 2015, Age 61
President and Chief Executive Officer, Northwestern Memorial HealthCare (the primary teaching affiliate of Northwestern University Feinberg School of Medicine and parent corporation of Northwestern Memorial Hospital) since 2006. Mr. Harrison served as President of Northwestern Memorial Hospital from 1999 to 2006. Mr. Harrison also served as the chairman of the Illinois Hospital Association through December 31, 2015.
The Board concluded that Mr. Harrison should serve as a director based on his extensive experience leading a large, complex organization in a highly regulated industry. |
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DIPAK C. JAIN, Director since 2004, Age 58
Director, Sasin Graduate Institute of Business Administration (international graduate business school) since July 2014. Mr. Jain served as the INSEAD Chaired Professor of Marketing from 2013 to July 2014 and the Dean of INSEAD from 2011 to 2013. Previously, Mr. Jain served as a member of the faculty of Northwestern Universitys Kellogg School of Management in a number of capacities, including as Dean from 2001 to 2009, Sandy and Morton Goldman Professor in Entrepreneurial Studies and Professor of Marketing from 1994 to 2001, and Associate Dean for Academic Affairs from 1996 to 2001.
Mr. Jain is a director of Deere & Company, Reliance Industries Limited, India, and Global Logistics Properties Limited, Singapore.
The Board concluded that Mr. Jain should serve as a director based on his academic experience, his business administration positions both in the United States and abroad, his global consulting experience, including his experience and research in marketing and competitive market analysis, and his experience as a director of other complex global corporations. | ||
JOSE LUIS PRADO, Director since 2012, Age 61
Retired President of Quaker Oats North America, a division of PepsiCo, Inc. (global food and beverage company). Mr. Prado served as President of Quaker Oats North America from 2011 to September 2014 and as President and Chief Executive Officer of Grupo Gamesa-Quaker, PepsiCo International, Monterrey, Mexico, from 2002 to 2010. Mr. Prado joined PepsiCo in Mexico in 1984 and served in a variety of positions at PepsiCo, including: Regional Vice President Andean Region, Frito-Lay International; President of PepsiCo Snacks Argentina, Buenos Aires, Argentina; and President of Frito-Lay Snacks Caribbean, San Juan, Puerto Rico. His early career at PepsiCo included assignments in sales, finance, and information technology.
Mr. Prado is a director of Brinker International, Inc.
The Board concluded that Mr. Prado should serve as a director based on his management, marketing and risk oversight experience at a complex global corporation and his substantial international experience. | ||
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THOMAS E. RICHARDS, Director since 2015, Age 61
Chairman, President and Chief Executive Officer, CDW Corporation (provider of integrated information technology solutions in the United States, Canada and the United Kingdom). Mr. Richards has served as CDW Corporations President since 2009, its Chief Executive Officer since 2011 and its Chairman since 2013. Prior to serving as Chief Executive Officer, Mr. Richards served as CDW Corporations Chief Operating Officer from 2009 to 2011.
Mr. Richards is a director of CDW Corporation.
The Board concluded that Mr. Richards should serve as a director based on his experience leading a large, complex organization and his experience in the information technology industry. |
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JOHN W. ROWE, Director since 2002, Lead Director since April 2010, Age 70
Chairman Emeritus, Exelon Corporation (producer and wholesale marketer of energy) since 2012. Mr. Rowe served as Chairman and Chief Executive Officer of Exelon Corporation from 2002 to 2012.
Mr. Rowe is a director of Allstate Corporation, American DG Energy Inc., and SunCoke Energy, Inc. Mr. Rowe is a former director of Sunoco Corporation and Exelon Corporation.
The Board concluded that Mr. Rowe should serve as a director based on his management, regulatory, government relations and risk oversight experience as Chief Executive Officer at Exelon Corporation (and, prior to that, at New England Electric System and Central Maine Power Company) and his experience as a director of other complex corporations. | |
MARTIN P. SLARK, Director since 2011, Age 61
Chief Executive Officer, Molex Incorporated (manufacturer of electronic, electrical, and fiber optic interconnection products and systems) since 2005. Previously, Mr. Slark served as President and Chief Operating Officer of Molex Incorporated from 2001 to 2005.
Mr. Slark is a director of Hub Group, Inc. and Liberty Mutual Insurance Company (not a public company).
The Board concluded that Mr. Slark should serve as a director based on his experience leading a complex global corporation and his risk oversight experience as Chief Executive Officer of Molex Incorporated and as a director of other complex global corporations. | ||
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DAVID H. B. SMITH, JR., Director since 2010, Age 49
Executive Vice President, Policy & Legal Affairs and General Counsel, Mutual Fund Directors Forum (nonprofit membership organization for investment company directors) since 2005. Previously, Mr. Smith held several positions at the U.S. Securities and Exchange Commission from 1996 to 2005, including Associate Director in the Division of Investment Management.
Mr. Smith is a director of Illinois Tool Works Inc. and a trustee of Carleton College.
The Board concluded that Mr. Smith should serve as a director based on his regulatory and leadership experience in the finance industry gained from his roles at the U.S. Securities and Exchange Commission and the Mutual Fund Directors Forum. The Board also considered that Mr. Smiths interest as a beneficiary of a trust that holds a significant amount of the Corporations common stock further aligns his interests with the interests of the Corporations stockholders. |
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DONALD THOMPSON, Director since 2015, Age 52
Retired President and Chief Executive Officer, McDonalds Corporation (global foodservice retailer). Mr. Thompson served as President and Chief Executive Officer of McDonalds Corporation from 2012 until March 2015. Previously, Mr. Thompson served as President and Chief Operating Officer of McDonalds Corporation from 2010 to 2012 and President of McDonalds USA from 2006 to 2010.
Mr. Thompson is a director of Royal Caribbean Cruises Ltd. Mr. Thompson served as director of McDonalds Corporation from 2011 to March 2015 and of Exelon Corporation from 2007 to 2013.
The Board concluded that Mr. Thompson should serve as a director based on his management and board experience at other complex global corporations. | |
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CHARLES A. TRIBBETT III, Director since 2005, Age 60
Managing Director, Russell Reynolds Associates (global executive recruiting firm) since 1989, Chairman of the firms Leadership Assessment and Promotions Board since 2006, and Co-Leader of the firms CEO/Succession Planning and Board Services Practice since 1995.
The Board concluded that Mr. Tribbett should serve as a director based on his global leadership consulting experience evaluating and identifying senior management professionals and his leadership experience as a Managing Director of Russell Reynolds Associates. | |
FREDERICK H. WADDELL, Director since 2006, Age 62
Chairman of the Board of the Corporation and the Bank since 2009 and Chief Executive Officer of the Corporation and the Bank since 2008. Previously, Mr. Waddell served as President of the Corporation and the Bank from 2006 to 2011, Chief Operating Officer of the Corporation and the Bank from 2006 to 2008 and Executive Vice President of the Bank from 1997 to 2006 and of the Corporation from 2003 to 2006.
Mr. Waddell is a director of AbbVie, Inc.
Since joining Northern Trust in 1975, Mr. Waddell has held leadership positions in a variety of the Corporations businesses. The Board concluded that Mr. Waddell should serve as a director based on his experience and ongoing responsibilities with respect to the Corporations businesses. |
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BOARD AND BOARD COMMITTEE INFORMATION
Our Board currently consists of twelve members. The Board has determined that each of the following eleven current directors is independent in accordance with our independence standards, which conform with SEC rules and the listing standards of The NASDAQ Stock Market LLC (NASDAQ): Linda Walker Bynoe, Susan Crown, Dean M. Harrison, Dipak C. Jain, Jose Luis Prado, Thomas E. Richards, John W. Rowe, Martin P. Slark, David H. B. Smith, Jr., Donald Thompson and Charles A. Tribbett III.
During 2015, the Corporations Board held nine meetings. All persons who were directors during 2015 attended at least 75% of the total meetings of the Board and the committees on which they served occurring during the period in which they served. Our Corporate Governance Guidelines state that all directors are expected to attend each Annual Meeting of Stockholders. In accordance with this expectation, all of the directors then serving attended the 2015 Annual Meeting of Stockholders held on April 21, 2015.
The standing committees of the Board are the Audit Committee, the Business Risk Committee, the Capital Governance Committee, the Compensation and Benefits Committee, the Corporate Governance Committee, the Corporate Social Responsibility Committee and the Executive Committee. With the exception of the Executive Committee, all standing committees are composed solely of independent directors. Consequently, independent directors directly oversee critical matters and appropriately oversee the Chairman and CEO. Each standing committee is governed by a written charter. These charters detail the duties and responsibilities of each committee and are available on the Corporations website at www.northerntrust.com.
Pursuant to its charter, the Corporate Governance Committee periodically reviews and makes recommendations to the Board with respect to the Boards committee structure. Following such a review, on November 17, 2015, the Board took the following actions:
● | formally assumed direct oversight of the strategic direction and initiatives of the Corporation and its subsidiaries, due to the critical importance of such matters, by dissolving the Business Strategy Committee; |
● | established the Capital Governance Committee, to assist the Board in discharging its oversight duties with respect to capital management and planning activities of the Corporation and its subsidiaries, including the annual Comprehensive Capital Analysis and Review (CCAR) exercise; and |
● | established the Corporate Social Responsibility Committee, to assist the Board in discharging its oversight duties with respect to corporate citizenship and social responsibility matters of significance to the Corporation and its subsidiaries. |
Additional information regarding the roles, responsibilities and composition of the Boards standing committees is set forth below. The Business Strategy Committee met four times in 2015. All such meetings were well attended by the Board, as the full Board was invited to attend all Business Strategy Committee meetings.
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A summary of the composition of each of the Boards current standing committees is set forth below.
Director | Audit | Business Risk |
Capital Governance |
Compensation and Benefits |
Corporate Governance |
Corporate Social Responsibility |
Executive | |||||||
Bynoe |
ü | ü | ||||||||||||
Crown |
ü | C | ü | |||||||||||
Harrison |
ü | ü | ||||||||||||
Jain |
ü | ü | ||||||||||||
Prado |
C | ü | ü | |||||||||||
Richards |
ü | ü | ||||||||||||
Rowe |
ü | ü | C | ü | ||||||||||
Slark |
ü | ü | ||||||||||||
Smith |
C | ü | ü | ü | ||||||||||
Thompson |
ü | ü | C | ü | ||||||||||
Tribbett |
C | ü | ü | |||||||||||
Waddell |
C |
C - Chair ü - Member
The Audit Committees purpose is to oversee the accounting and financial reporting processes of the Corporation and its subsidiaries and the audits of the consolidated financial statements of such entities, as well as to provide assistance to the Board in fulfilling its legal and fiduciary obligations with respect to matters involving the organizations accounting, auditing, financial reporting, internal financial control and legal compliance functions, including, without limitation: (i) assisting the Boards oversight of (a) the integrity of the organizations consolidated annual and quarterly financial statements and earnings releases, (b) the organizations compliance with legal and regulatory requirements, (c) the qualifications and independence of the Corporations public accountants and (d) the performance of the organizations internal audit function and the Corporations public accountants; and (ii) preparing the report required to be prepared by the Committee pursuant to SEC rules for inclusion each year in the Corporations proxy statement relating to its Annual Meeting of Stockholders.
The Board has determined that all members of the Audit Committee are independent under SEC rules and NASDAQ listing standards. The Board also has determined that all Audit Committee members have the financial experience and knowledge required for service on the Committee, and has designated Mr. Smith as its audit committee financial expert, as defined by SEC rules. The Audit Committee met five times in 2015.
The Business Risk Committees sole and exclusive function is responsibility for the risk-management policies of the Corporations global operations and oversight of the operation of the Corporations global risk-management framework. In furtherance of this function, the Business Risk
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Committee assists the Board in discharging its oversight duties with respect to: (i) the risks inherent in the businesses of the Corporation and its subsidiaries in the following categories: credit risk, market and liquidity risk, fiduciary risk, operational risk, compliance risk and strategic risk; and (ii) the process by which risk-based capital requirements are determined.
The Board has determined that all members of the Business Risk Committee are independent under SEC rules and NASDAQ listing standards. The Business Risk Committee met four times in 2015.
The Capital Governance Committee was established on November 17, 2015. The purpose of the Capital Governance Committee is to assist the Board in discharging its oversight duties with respect to capital management and planning activities of the Corporation and its subsidiaries. Among other matters, the Capital Governance Committee performs the following functions: (i) oversees the capital adequacy assessments, forecasting, and stress testing processes and activities of the Corporation and its subsidiaries, including with respect to the annual CCAR exercise; (ii) reviews and recommends to the Board for approval the Corporations annual capital plan, including proposed capital actions; (iii) unless reviewed and approved by the Board, reviews and approves capital policies for the Corporation and the Bank, including the Corporations and the Banks capital management goals and targets and the Corporations payout ratios; (iv) reviews and discusses with management the Corporations and the Banks regulatory capital ratios and capital levels; (v) reviews and recommends to the Board for approval (a) dividend declarations with respect to the Corporations common and preferred stock and (b) issuances or repurchases of debt or equity securities.
The Board has determined that all members of the Capital Governance Committee are independent under SEC rules and NASDAQ listing standards. The Capital Governance Committee met two times in 2015.
Compensation and Benefits Committee
The purpose of the Compensation and Benefits Committee is to assist the Board in discharging its duties and responsibilities relating to: (i) the compensation of the directors and executive officers of the Corporation and its subsidiaries; and (ii) the employee benefit and equity-based plans of the organization. The Committee also assists the Board with management development and succession planning, including with respect to the position of CEO, and prepares the report required to be prepared by the Committee pursuant to SEC rules for inclusion in the Corporations proxy statement relating to its Annual Meeting of Stockholders.
The Board has determined that all members of the Compensation and Benefits Committee are independent under SEC rules and NASDAQ listing standards. The Compensation and Benefits Committee met four times in 2015.
Corporate Governance Committee
The purpose of the Corporate Governance Committee is to: (i) identify and recommend to the Board candidates for nomination or appointment as directors; (ii) review the Boards committee structure and recommend appointments to committees; (iii) provide leadership in shaping the corporate governance of the Corporation, including through the development and recommendation to the Board of Corporate Governance Guidelines applicable to the Corporation; (iv) advise the Board on the appointment of a successor in the event of the unanticipated death, disability or resignation of the Corporations CEO, after
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consultation with the Chairman of the Corporations Compensation and Benefits Committee; (v) oversee the procedures relating to stockholder communications with the Board and review any proposals submitted by stockholders; and (vi) oversee the annual evaluation of the Board and its committees.
The Board has determined that all members of the Corporate Governance Committee are independent under SEC rules and NASDAQ listing standards. The Corporate Governance Committee met four times in 2015.
Corporate Social Responsibility Committee
The Corporate Social Responsibility Committee was established on November 17, 2015. The purpose of the Corporate Social Responsibility Committee is to assist the Board in discharging its oversight duties with respect to corporate citizenship and social responsibility matters of significance to the Corporation and its subsidiaries. Among other matters, the Corporate Social Responsibility Committee receives and reviews reports on each of the following as they pertain to the Corporation and its subsidiaries: (i) political, lobbying and other public advocacy activities, including significant trade association memberships; (ii) strategic philanthropy and charitable contributions; (iii) sustainability initiatives and other social responsibility matters of significance, including environmental, social, and governance issues; (iv) diversity and inclusion initiatives; and (v) compliance with Community Reinvestment Act and Fair Lending laws. The Corporate Social Responsibility Committee also provides oversight with respect to policies, programs and strategies in respect of each of these matters.
The Board has determined that all members of the Corporate Social Responsibility Committee are independent under SEC rules and NASDAQ listing standards. The Corporate Social Responsibility Committee did not meet in 2015.
The Board appoints an Executive Committee so that there will be a committee of the Board empowered to act for the Board, to the full extent permitted by law, between meetings of the Board if necessary and appropriate. The Executive Committee is composed of the Chairman of the Board and the Chair of each of the other standing committees of the Board. The Executive Committee did not meet in 2015.
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We believe that the high standards set by our governance structure provide the foundation for the strength of our business. An overview of certain key governance practices reflective of our strong governance profile is set forth below.
What We Do | What We Dont Do | |||||
ü | Majority Independent Directors (11 of 12 Current Directors) | × | No Plurality Voting in Uncontested Director Elections | |||
ü | Engaged Lead Director | × | No Staggered Board | |||
ü | Regular Executive Sessions for CEO and Independent Directors | × | No Poison Pill | |||
ü | Annual Strategy Retreat with Board and Executive Officers | × | No Supermajority Voting | |||
ü | Regular Rotations of Committee Chairs | × | No Overboarding | |||
ü | Regular Reviews of Governance Documents | |||||
ü | Annual Board and Committee Self-Evaluations |
To be considered independent, the Board must affirmatively determine that a director has no relationship with the Corporation which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Corporations Corporate Governance Guidelines require that the Board be composed of a majority of directors who meet the criteria for independence under NASDAQ listing standards.
To assist the Board in making its independence determinations, the Board has adopted categorical standards. Under these standards, the following persons shall not be considered independent:
● | a director who is or was an employee or executive officer of the Corporation, or whose Family Member (as defined below) is or was an executive officer of the Corporation, at any time during the past three years; |
● | a director who receives or has received, or whose Family Member receives or has received, compensation from the Corporation in excess of $120,000 during any period of twelve consecutive months within the past three years, other than director and committee fees, benefits under a tax-qualified retirement plan or other forms of nondiscretionary compensation; provided, however, that compensation received by a Family Member of a director for service as an employee (other than an executive officer) of the Corporation need not be considered in determining independence; |
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● | a director who is, or whose Family Member is, a current partner of the Corporations outside auditor, or who was a partner or employee of the Companys outside auditor who worked on the Corporations audit at any time during any of the past three years; |
● | a director of the Corporation who is, or has a Family Member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the Company serve on the compensation committee of such other entity; or |
● | a director who is, or whose Family Member is, a partner in, a controlling stockholder of, or an executive officer of, any organization to which the Corporation made, or from which the Corporation received, payments for property or services in the current or any of the past three fiscal years that exceed the greater of $200,000 or 5% of the recipients consolidated gross revenue for that year, other than payments arising solely from investments in the Corporations securities or payments under nondiscretionary charitable contribution matching programs. |
Family Member means a persons spouse, parents, children and siblings, whether by blood, marriage or adoption, or anyone residing in such persons home.
The Board has determined that each director serving during 2015 was, and each current director (other than Mr. Waddell, who serves as Chairman and CEO of the Corporation) is, independent of the Corporation in accordance with the Corporations Corporate Governance Guidelines and categorical standards.
In addition to the categorical standards, the Board also considers any transaction, relationship, or arrangement between the Corporation and a director that constitutes a related person transaction under the Corporations Related Person Transactions Policy described below. In assessing the independence of the Corporations directors, the Board considered the fact that, during 2015, the Corporation or its subsidiaries provided financial services to each of its directors, or persons related to such directors, except for Mr. Tribbett, in the ordinary course of business. Services provided included trust and related services, brokerage services, investment management, asset servicing, asset management, credit services and other banking services. These transactions were undertaken in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral for loan transactions) as those prevailing at the time for comparable transactions with other persons not related to the Corporation or any affiliated entities involved in the transactions. None of the transactions involved more than the normal risk of collectability or presented other unfavorable features. None of the transactions or any transactions in which the Corporation or any of its subsidiaries sold or purchased products and services were material to the Corporation or affiliated entities involved in the transactions, and none require disclosure pursuant to Item 404(a) of Regulation S-K of the Securities Exchange Act of 1934 (the Exchange Act). Any extensions of credit to directors and executive officers of the Corporation were permitted under the provisions of Section 13(k) of the Exchange Act. In each case, the Board determined that these relationships were immaterial and did not affect the independence of any director.
Related Person Transactions Policy
The Board, through its Audit Committee, has adopted a written Related Person Transactions Policy to govern the review, approval, and ratification of transactions to which the Corporation or its
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subsidiaries are party and in which any related persons have a direct or indirect material interest. Related persons means the Corporations directors, nominees for director, executive officers, greater than five percent beneficial owners, members of their immediate family and any person other than a tenant or employee sharing their household. The Related Person Transactions Policy also covers transactions in which any related person has an indirect interest.
The Related Person Transactions Policy provides that the Corporation may undertake certain pre-approved related person transactions in the ordinary course of business without specific review, approval or ratification, including the following pre-approved transactions:
● | an extension of credit by the Corporation or any of its subsidiaries to a related person that is made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender and does not involve more than the normal risk of collectability or present other unfavorable features; |
● | certain other ordinary course transactions in which the Corporation or its subsidiaries provide products or services to related persons on terms no less favorable to the Corporation and its subsidiaries as those prevailing at the time for comparable services to nonrelated persons; |
● | a transaction involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture or similar services; |
● | a transaction where the rates or charges involved in the transaction are determined by competitive bids, or the transaction involves the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; |
● | a transaction with another company to which a related persons only relationship is as an employee, a director, a beneficial owner of less than 10% of the companys outstanding common equity (when aggregated with all other directors, executive officers or nominees for election of as a director of the Corporation), or, in the case of partnerships, a limited partner with less than 10% interest in the partnership (when aggregated with all other directors, executive officers or nominees for election of as a director of the Corporation) and who is not a general partner of, or holder of another position with, that partnership, provided in each case the aggregate amount of the transaction does not exceed the greater of $200,000 or 5% of the other companys annual revenue; |
● | contributions or grants, or pledges of contributions or grants, by the Corporation, any of its subsidiaries, or The Northern Trust Company Charitable Trust to a charitable, nonprofit, or educational organization for which a related person serves as an executive officer, provided that the aggregate amount involved does not exceed the greater of $200,000 or 5% of the organizations total annual receipts; |
● | transactions where the related persons interest arises solely from the ownership of the Corporations common stock and all stockholders receive the same benefit on a pro rata basis; |
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● | compensation paid to executive officers of the Corporation that is required to be reported in the Corporations proxy statement under Item 402 of Regulation S-K, or to executive officers that are not immediate family members of another related person and such compensation would be reported in the Corporations proxy statement under Item 402 of Regulation S-K if such executive officers were named executive officers, and the Corporations Compensation and Benefits Committee approved such compensation (or recommended it for approval by the Board of Directors); and |
● | compensation paid to directors of the Corporation that is required to be reported in the Corporations proxy statement under Item 402 of Regulation S-K. |
Any other related person transaction involving amounts in excess of $120,000 must be approved or ratified by the Audit Committee or the Audit Committee Chair. In considering related person transactions, the Audit Committee or the Audit Committee Chair will consider all relevant facts and circumstances and approve only those related person transactions that are in, or otherwise not inconsistent with, the best interests of the Corporation and its subsidiaries.
As noted above, in 2015, certain related persons were clients of, and engaged in the types of transactions identified in the bullet points above with, the Corporation or one or more of its subsidiaries. These transactions were undertaken in the ordinary course of business and upon such other terms and conditions as permitted such transactions to qualify for pre-approval under the Related Person Transactions Policy. Further, as noted above, none of the transactions requires disclosure pursuant to Item 404(a) of Regulation S-K of the Exchange Act.
The independent directors of the Corporation met in executive sessions separate from management seven times during 2015. The Lead Director or, in his absence, another independent director designated by the Lead Director, presides at executive sessions of the independent directors.
Board Leadership Structure; Lead Director
The current leadership structure of the Board consists of a combined Chairman and CEO position and a Lead Director appointed annually by the Corporations independent directors.
The Board has determined that combining the positions of Chairman and CEO is the most appropriate for the Corporation at this time. Having one person as Chairman and CEO provides unified leadership and direction to the Corporation and strengthens the ability of the CEO to develop and implement strategic initiatives and respond efficiently in crisis situations. The Board believes the combination of the Chairman and CEO positions is appropriate in light of the substantial independent oversight provided by the Board. The Board also believes that the desire for independent leadership of the Board is sufficiently achieved by the prominent role of the Lead Director.
The Lead Directors primary duties are described in the Corporations Corporate Governance Guidelines. Among other matters, the Lead Directors duties include: (i) approving meeting agendas for the Board and the nature of information sent to the Board; (ii) approving Board meeting schedules to ensure that there is sufficient time for discussion of all Board agenda items; (iii) the authority to call at any time a special meeting of the Board or a special executive session of the independent directors;
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(iv) the authority to add items to the agenda of any regular or special meeting of the Board; (v) presiding at all regular and special meetings of the Board at which the Chairman is not present; (vi) presiding at all regular and any special executive sessions of the independent directors; (vii) serving as a liaison between the independent directors and the Chairman and CEO; (viii) conducting, by means of an interview with each director, including the Chairman and CEO, the Boards annual self-evaluation of its performance and then providing a summary report to the Board; and (ix) being available for consultation and direct communication with major stockholders. Mr. Rowe has served as our Lead Director since 2010.
The Board provides oversight of risk management directly as well as through its Audit, Business Risk, Capital Governance and Compensation and Benefits Committees. The Board annually approves the Corporations enterprise risk management framework, risk universe and Corporate Risk Appetite Statement. The Corporate Risk Appetite Statement reflects the expectation that risk be consciously considered as part of the Corporations strategic decisions and in its day-to-day activities. The Corporation actively monitors employees using programs, policies, and other tools that are designed to ensure that they work within established risk frameworks and limits. The Business Risk Committee assumes primary responsibility and oversight with respect to credit risk, operational risk, fiduciary risk, compliance risk, market risk and liquidity risk, and strategic risk. The Audit Committee provides oversight with respect to financial reporting and legal risk, while the Compensation and Benefits Committee oversees the development and operation of the incentive compensation program of the Corporation and its subsidiaries. The Compensation and Benefits Committee annually reviews managements assessment of the effectiveness of the design and performance of the incentive compensation arrangements and practices in providing incentives that are consistent with the safety and soundness of the Corporation and its subsidiaries. This assessment includes an evaluation of whether these incentive compensation arrangements and practices discourage inappropriate risk-taking behavior by participants. Pursuant to its charter, the Compensation and Benefits Committee is required to have at least one member who is a member of the Business Risk Committee and at least one member who is a member of the Audit Committee. Among other responsibilities, the Capital Governance Committee oversees the capital adequacy assessments, forecasting, and stress testing processes and activities of the Corporation and its subsidiaries, including the annual CCAR exercise. Accordingly, the Capital Governance Committee provides oversight with respect to the Corporations risk identification for the capital adequacy assessment process. The charters for the Audit, Business Risk, Capital Governance and Compensation and Benefits Committees provide that the Committees may meet with the individuals who supervise day-to-day risk management responsibilities of the Corporation and other members of management, consultants or advisors, as each committee deems appropriate.
For a further description of the risk management policies and practices of the Corporations management, see the sections entitled Managements Discussion and Analysis of Financial Condition and Results of OperationsRisk Management and Liquidity and Capital ResourcesLiquidity Risk Management in the Corporations Annual Report on Form 10-K for the year ended December 31, 2015.
Corporate Governance Guidelines
The Corporation has had Corporate Governance Guidelines in place since 2000. The Corporate Governance Committee reviews and reassesses the adequacy of the Corporate Governance Guidelines
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at least annually and recommends any changes to the Board for approval. The Corporations Corporate Governance Guidelines embody many of the Corporations long-standing practices and incorporate policies and procedures that strengthen its commitment to corporate governance best practices. A copy of the Corporate Governance Guidelines is available on the Corporations website at www.northerntrust.com.
Code of Business Conduct and Ethics
The Board of the Corporation has adopted a Code of Business Conduct and Ethics to:
● | promote honest and ethical conduct, including fair dealing and the ethical handling of actual or apparent conflicts of interest; |
● | promote full, fair, accurate, timely and understandable public disclosure about the Corporation; |
● | promote compliance with applicable laws and governmental rules, codes and regulations wherever the Corporation does business; |
● | ensure the protection of the Corporations legitimate business interests; and |
● | deter wrongdoing. |
The Code of Business Conduct and Ethics satisfies applicable SEC and NASDAQ requirements and applies to all directors, officers (including the Corporations principal executive officer, principal financial officer and principal accounting officer) and employees of the Corporation and its subsidiaries. The Corporation intends to disclose any amendments to, or waivers from, the Code of Business Conduct and Ethics for directors and executive officers by posting such information on its website. A copy of the Code of Business Conduct and Ethics is available on the Corporations website at www.northerntrust.com.
Management Development and Succession Planning
The Board of Directors, led by the Compensation and Benefits Committee, annually conducts a formal management development and succession planning review with respect to the position of the CEO and other senior officers. This review focuses on CEO succession planning, as well as developing internal candidates for advancement within the Corporation. The Compensation and Benefits Committee makes recommendations to the Board concerning management development and succession planning, which recommendations reflect the Boards annual management development and succession planning review, as well as Committee discussions with and without the CEO. The Corporate Governance Committee discusses succession planning in the event of the unexpected death, incapacity, or resignation of the CEO and recommends to the Board, after consultation with the Chairman of the Compensation and Benefits Committee, an appropriate successor under such circumstances. The full Board is responsible for succession planning for the position of the CEO.
Director Nominations and Qualifications
The Corporate Governance Committee is responsible for considering, evaluating, and recommending candidates for director. The Committee will consider persons nominated by stockholders in accordance with the nomination procedures specified in the Corporations By-laws or
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otherwise recommended by stockholders. The Corporations By-laws provide that stockholders may propose director nominations only if they give timely written notice, directed to the attention of the Corporations Corporate Secretary, not less than 120 days nor more than 150 days prior to the anniversary date of the prior years Annual Meeting of Stockholders. If such Annual Meeting of Stockholders is called for a date that is not within thirty days before or after the anniversary date of the prior years Annual Meeting of Stockholders, notice by the stockholder in order to be timely must be received within ten days after notice of such subsequent Annual Meeting of Stockholders is mailed or public disclosure of the date of such Annual Meeting of Stockholders is made, whichever occurs first. In either case, the notice must contain the information required by the Corporations By-laws. Stockholders may also recommend candidates for director by following the procedures for communicating with directors described below under Communications with the Board and Independent Directors.
In its evaluation of director candidates, including persons recommended by stockholders, the Corporate Governance Committee considers the factors specified in the Corporations Corporate Governance Guidelines to ensure the Board has a diversity of perspectives and backgrounds, including the nature of the expertise and experience required for the performance of the duties of a director of a corporation engaged in the Corporations business and such matters as relevant business and industry experience, professional background, age, current employment, community service and other board service. The Committee also considers the racial, ethnic, and gender diversity of the Board in assessing candidates. The Committee seeks to identify as candidates for director persons with a reputation for, and record of, integrity and good business judgment who: (i) have experience in positions with a high degree of responsibility and are leaders in the organizations with which they are affiliated; (ii) are free from conflicts of interest that could interfere with a directors duties to the Corporation and its stockholders; and (iii) are willing and able to make the necessary commitment of time and attention required for effective Board service. The Committee also takes into account a candidates level of financial literacy, and monitors the mix of skills and experience of the directors in order to ensure the Board has the necessary collective expertise to perform its oversight function effectively. Following its evaluation process, the Committee recommends director nominees to the full Board, and the Board makes the final determination of director nominees based on its consideration of the Committees recommendation.
The Corporation recognizes the importance of engaging with stockholders and other key constituents. Open and constructive dialogue with stockholders helps further their understanding of our performance and strategies and allows us to receive direct feedback on issues relating to the Corporation. Accordingly, it is the Corporations long-standing practice to engage proactively and routinely with stockholders throughout the year. In 2015, the Corporation expanded its engagement efforts through a proactive outreach campaign focused on fostering dialogue with certain of the Corporations large institutional stockholders. Through this initiative, our CEO and/or CFO, along with members of our investor relations and governance teams, engaged with stockholders representing approximately 40% of our outstanding shares regarding matters pertaining to the Corporations performance, strategies and governance.
Communications with the Board and Independent Directors
Stockholders and other interested persons may communicate with any of the Corporations directors, including the Lead Director or the independent directors as a group, by writing a letter
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addressed to the applicable director(s), c/o Northern Trust Corporation, 50 South La Salle Street, M-9, Chicago, Illinois 60603, Attention: Corporate Secretary. The Corporations Corporate Secretary will forward communications directly to the Lead Director, unless a different director is specified.
Any stockholder or other interested person who has a particular concern regarding accounting, internal accounting controls, or other audit matters that he or she wishes to bring to the attention of the Audit Committee may communicate those concerns to the Audit Committee or its Chairman, using the address indicated above. Any written communication regarding accounting, internal accounting controls or other matters are processed in accordance with procedures adopted by the Audit Committee.
Securities Transactions Policy and Procedures and Policy Against Hedging
Our Securities Transactions Policy and Procedures prohibits directors, employees, including our named executive officers, and certain of their family members from purchasing or selling any type of security, whether issued by us or another company, while such persons are aware of material nonpublic information relating to the issuer of the security and from providing such material nonpublic information to any person who may trade while aware of such information. This policy also prohibits directors, employees, and certain of their family members from engaging in short selling, margining, pledging or hypothecating the Corporations securities, and from trading in options, warrants, puts, calls or similar instruments on the Corporations securities.
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SECURITY OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the beneficial ownership of the Corporations common stock as of December 31, 2015 for each director, each named executive officer and all directors and executive officers of the Corporation as a group.
Name of Beneficial Owner | Shares (1) (2) | Shares under Exercisable Options (3) |
Total Beneficial Ownership of Common Stock |
Percent of |
||||||||||||
Non-Employee Directors: |
||||||||||||||||
Linda Walker Bynoe |
15,855 | | 15,855 | * | ||||||||||||
Susan Crown |
35,192 | | 35,192 | * | ||||||||||||
Dean M. Harrison |
512 | | 512 | * | ||||||||||||
Dipak C. Jain |
16,991 | | 16,991 | * | ||||||||||||
Jose L. Prado |
5,496 | | 5,496 | * | ||||||||||||
Thomas E. Richards |
| | | * | ||||||||||||
John W. Rowe |
28,592 | | 28,592 | * | ||||||||||||
Martin P. Slark |
8,319 | | 8,319 | * | ||||||||||||
David H.B. Smith, Jr. (4) |
29,022 | | 29,022 | * | ||||||||||||
Donald Thompson |
213 | | 213 | * | ||||||||||||
Charles A. Tribbett III |
16,192 | | 16,192 | * | ||||||||||||
Named Executive Officers: |
||||||||||||||||
Frederick H. Waddell |
345,842 | 1,123,123 | 1,468,965 | * | ||||||||||||
S. Biff Bowman |
31,255 | 91,515 | 122,770 | * | ||||||||||||
Steven L. Fradkin |
131,308 | 370,310 | 501,618 | * | ||||||||||||
William L. Morrison |
130,982 | 329,358 | 460,340 | * | ||||||||||||
Jana R. Schreuder |
66,538 | 351,670 | 418,208 | * | ||||||||||||
All directors and executive officers as a group (26 persons) |
1,124,304 | 3,296,046 | 4,420,350 | 1.90 | % |
* Less than 1%.
(1) Except as noted below, the nature of beneficial ownership for shares shown in this table is sole voting and investment power (including shares as to which spouses and minor children of the individuals covered by this table have such power).
(2) Amount includes restricted stock units payable on a one-for-one basis in shares of the Corporations common stock that are scheduled to vest within sixty days of December 31, 2015 in the following amounts: Mr. Waddell 15,777 units; Mr. Bowman 7,377 units; Mr. Fradkin 4,745 units; Mr. Morrison 7,948 units; Ms. Schreuder 4,745 units; and all directors and officers as a group 85,658 units.
(3) Amount includes options that were exercisable as of December 31, 2015 and options that become exercisable within sixty days thereafter.
(4) Amount includes 1,704 shares held in a trust over which Mr. Smith shares voting and investment power as co-trustee with one other individual. Amount excludes 500 shares held in a trust over which
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Mr. Smith shares voting and investment power as co-trustee with three other individuals. Amount also excludes 1,362,880 shares held in a trust of which Mr. Smith is a beneficiary, as Mr. Smith has no investment or voting power with respect to such shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Corporations directors, executive officers and beneficial owners of more than 10% of the Corporations stock to file with the SEC initial reports of ownership and reports of changes in ownership of any equity securities of the Corporation. Based solely on the Corporations review of the reports that have been filed by or on behalf of such reporting persons in this regard and written representations from such reporting persons that no other reports were required, the Corporation believes that all reports required by Section 16(a) of the Exchange Act were made on a timely basis during or with respect to 2015, except for: (i) two Form 4s filed for each of Linda Walker Bynoe, Dipak C. Jain, Jose Luis Prado and Charles A. Tribbett III, and one Form 4 filed for each of Susan Crown, Dean M. Harrison and John W. Rowe, each of which related to an acquisition of stock units representing the deferral of cash compensation pursuant to the Corporations 1997 Deferred Compensation Plan for Non-Employee Directors and was filed late due to administrative error; and (ii) a Form 4 filed for Steven L. Fradkin to report a transaction resulting from the rebalancing of his 401(k) savings account which was filed late due to administrative error.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table includes information concerning stockholders who were the beneficial owners of more than 5% of the outstanding shares of the Corporations common stock as of December 31, 2015.
Name and Address | Shares | Percent of Class | ||||||
The
Northern Trust Company (1) |
20,876,098 | 9.1 | % | |||||
Wellington Management Group LLP (2) |
16,497,251 | 7.2 | % | |||||
T. Rowe
Price Associates, Inc. (3) |
14,397,685 | 6.3 | % | |||||
BlackRock, Inc. (4) |
12,623,186 | 5.5 | % | |||||
The
Vanguard Group, Inc. (5) |
12,357,347 | 5.4 | % |
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(1) As of December 31, 2015, the Bank and its affiliates individually acted as sole or co-fiduciary with respect to trusts and other fiduciary accounts which owned, held or controlled through intermediaries the shares reported. This aggregate number of shares includes 1,362,880 shares held by the trust described in footnote 4 to the Security Ownership by Directors and Executive Officers table in this Proxy Statement, or approximately 0.59% of the outstanding common stock. Of the total shares owned, held or controlled by trusts and other fiduciary accounts for which the Bank and its affiliates acted as sole or co-fiduciary, the Bank and its affiliates had sole voting power with respect to 8,036,253 shares, or 3.50% of the outstanding common stock, and they shared voting power with respect to 11,296,876 shares, or 4.93% of the outstanding common stock. They had sole investment power with respect to 2,224,439 shares, or 0.97% of the outstanding common stock, and they shared investment power with respect to 12,166,974 shares, or 5.31% of the outstanding common stock.
(2) As reported on a Schedule 13G filed by Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP and Wellington Management Company LLP on February 11, 2016. Wellington Management Group LLP, Wellington Group Holdings LLP, and Wellington Investment Advisors Holdings LLP each had shared voting power with respect to 7,781,068 shares, or 3.39% of the outstanding common stock, and shared investment power with respect to all shares reported. Wellington Management Company LLP had shared voting power with respect to 6,560,735 shares, or 2.86% of the outstanding common stock, and shared investment power with respect to 14,556,824 shares, or 6.35% of the outstanding common stock. None of the entities had sole voting or investment power with respect to any shares reported. Based on the Schedule 13G, the securities as to which the Schedule 13G was filed are owned of record by clients of one or more investment advisers identified therein directly or indirectly owned by Wellington Management Group LLP.
(3) As reported on a Schedule 13G/A filed on February 10, 2016. T. Rowe Price Associates, Inc. (Price Associates) has indicated that these shares are owned by various individual and institutional investors, for which Price Associates serves as an investment adviser with power to direct investments and, in certain cases, sole power to vote the securities. For the purposes of the reporting requirements of the Exchange Act, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. Of these shares, Price Associates had sole voting power with respect to 4,288,952 shares, or 1.87% of the outstanding common stock, and it did not have shared voting power with respect to any such shares. Price Associates had sole investment power with respect to all such shares.
(4) As reported on a Schedule 13G/A filed on February 10, 2016. Of the shares reported, BlackRock, Inc. (BlackRock) had sole voting power with respect to 10,781,949 shares, or 4.70% of the outstanding common stock, and it did not have shared voting power with respect to any shares reported. BlackRock had sole investment power with respect to all shares reported.
(5) As reported on a Schedule 13G filed on February 11, 2016. Of the shares reported, The Vanguard Group, Inc. (Vanguard) had sole voting power with respect to 403,396 shares, or 0.18% of the outstanding common stock, and shared voting power with respect to 21,300 shares, or 0.01% of the outstanding common stock. Vanguard had sole investment power with respect to 11,926,300 shares, or 5.20% of the outstanding common stock, and shared investment power with respect to 431,047 shares, or 0.19% of the outstanding common stock.
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ITEM 2ADVISORY VOTE ON EXECUTIVE COMPENSATION
Pursuant to Section 14A of the Exchange Act, and the rules and regulations promulgated thereunder by the SEC, the Corporation is required to include in this Proxy Statement a separate resolution, subject to an advisory vote, to approve the compensation of our named executive officers as disclosed in this Proxy Statement (commonly referred to as a Say-on-Pay advisory vote). In a nonbinding, advisory vote on the frequency of future Say-on-Pay votes held at our 2011 Annual Meeting of Stockholders, stockholders voted in favor of conducting Say-on-Pay votes annually. In light of this result, and other factors considered by the Board, the Board has determined that the Corporation will hold Say-on-Pay votes on an annual basis until the next advisory vote on such frequency, which is expected to take place at the 2017 Annual Meeting of Stockholders. Accordingly, the Board is requesting that stockholders vote FOR approval of the following resolution:
Resolved, that the compensation paid to the Corporations named executive officers, as disclosed in its Proxy Statement dated March 9, 2016, pursuant to Item 402 of Regulation S-K of the Exchange Act, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby APPROVED.
As an advisory vote, this proposal is not binding on the Corporation. Although the vote is nonbinding, the Board and the Compensation and Benefits Committee value the opinions of our stockholders and, consistent with past practice, will consider the outcome of the vote when determining compensation policies and making future compensation decisions for our named executive officers.
The Corporations executive compensation program and the framework used in evaluating and making 2015 compensation decisions for our named executive officers are described in the Compensation Discussion and Analysis that begins on page 27 of this Proxy Statement.
The Board unanimously recommends that you vote FOR this proposal.
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Compensation Discussion and Analysis
This Compensation Discussion and Analysis describes how we compensate our executives, including our 2015 named executive officers, which consist of the following individuals.
Name | Title | |
Frederick H. Waddell |
Chairman and Chief Executive Officer | |
S. Biff Bowman |
Chief Financial Officer | |
Steven L. Fradkin |
PresidentWealth Management | |
William L. Morrison |
President | |
Jana R. Schreuder |
Chief Operating Officer |
Executive Summary
2015 Financial Performance
Our strong results in 2015 demonstrated continued progress executing on the three pillars of our financial strategy:
● | Achieve Growth across the business, as demonstrated by continued growth in Corporate & Institutional Services (C&IS) and Wealth Management trust, investment and other servicing fees. |
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● | Improve Profitability and Productivity, as demonstrated by the decrease in our noninterest expense as a percentage of trust, investment and other servicing fees, which in turn resulted in significant improvements in pre-tax margin and growth in pre-tax income. |
● | Increase Stockholder Returns through an improved return on equity, with return on equity within our target range of 10%15%, and increases in dividends. |
Our financial performance compares favorably with that of our peers. For the year ended December 31, 2015, our average three- and five-year returns on equity were 10.3% and 9.8%, respectively, compared to peer-group medians of 10.1% and 9.7%, respectively, for such periods. Further, our average revenue growth of 8.6%, 6.5% and 5.2% over the one-, three- and five-year periods ended December 31, 2015, respectively, significantly outpaced peer-group median growth of 0.8%, 1.9% and 2.0% over such periods.
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We achieved these financial results while continuing to maintain strong capital ratios, with all ratios applicable to classification as well capitalized under U.S. regulatory requirements having exceeded all well capitalized ratio guidelines.
Key Strategic Achievements
In addition to our strong financial performance, the successful execution of our strategies also was demonstrated through various strategic achievements, including:
● | the expansion of our client base, as we developed relationships across the globe; |
● | our continued strong growth in key markets, including Australia with respect to our C&IS business and New York with respect to our Wealth Management business; |
● | the continued successful implementation of our location strategy, with approximately 30% of our employees in our Limerick, Bangalore, Manila and Tempe locations as of December 31, 2015, and the announcement of a new location in Pune, India in 2016; and |
● | the recognition we have received for our technology, including three first-place awards in mobile, private cloud and analytics. |
2015 Compensation of our Chairman and CEO
Based on the strength of our performance in 2015 and Mr. Waddells contributions thereto, the Board determined that an increase in our Chairman and CEOs incentive compensation for 2015 was appropriate. As a result, Mr. Waddells total direct compensationconsisting of base salary, short-term annual cash incentive compensation and long-term incentive compensationincreased by 11% from 2014 to 2015.
The chart below summarizes Mr. Waddells total direct compensation for 2014 and 2015. Base salary for 2014 and 2015 reflects Mr. Waddells base salary, as determined by the Board in February 2014 and February 2015, respectively. Short-term annual cash incentive compensation represents amounts awarded in February 2015 and February 2016 for 2014 and 2015 performance, respectively. Long-term incentive compensation represents grants relating to 2014 and 2015 performance made in February 2015 and February 2016, respectively. It should be noted that the amounts in the chart below are different than the amounts in the Summary Compensation Table on page 48. The most significant difference is that the long-term incentive award amounts included in the Summary Compensation Table for 2014 and 2015 were granted in February 2014 and February 2015, respectively, for 2013 and 2014 performance. We believe the chart below may be useful in summarizing key incentive compensation decisions made for 2014 and 2015 performance.
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As illustrated by the chart below and consistent with our pay for performance philosophy, the Chairman and CEOs pay mix heavily emphasizes incentive compensation, with the greatest weight placed on long-term incentives. Our long-term incentive mix emphasizes performance-based pay, with half of the long-term incentives being awarded in the form of performance stock units earned based on our return on equity over a three-year period.
Compensation Governance Practices
We have implemented the compensation practices summarized below to ensure that our compensation program is effective in addressing stockholder objectives.
What We Do | What We Dont Do | |||||
ü | Ensure our executives meet robust stock ownership guidelines | × | No excise tax gross-ups for any new executive severance agreements | |||
ü | Ensure performance-based compensation comprises the most significant portion of incentive compensation; 50% of long-term incentives are provided in performance stock units tied to return on equity | × | No short selling, margining, hedging, pledging or hypothecating company shares permitted under our Securities Transactions Policy and Procedures | |||
ü | Include clawback provisions in long-term incentive awards granted to named executive officers | × | No compensation plans that encourage excessive risk-taking | |||
ü | Use an independent compensation consultant to advise the Compensation and Benefits Committee | × | No repricing of underwater options | |||
ü | Closely align pay and performance, with the Compensation and Benefits Committee validating this alignment annually | |||||
ü | Position target pay at competitive levels among peer group companies | |||||
ü | Solicit and consider feedback from investors |
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2016 Compensation Program Enhancements
The Compensation and Benefits Committee approved the following program enhancements in February 2016. These provisions apply to the performance stock units granted in 2016 for 2015 performance.
● | The average annual rate of return on equity during the three-year performance period required to become fully vested is 11.0%, up from 10.25% for grants in 2015. |
● | Dividend equivalents will be distributed only with respect to those performance stock units that actually vest upon satisfaction of the applicable performance conditions rather than being paid in cash on a current basis prior to vesting and distribution. |
Guiding Principles for Executive Compensation
Our compensation philosophy is to attract, motivate and retain talent, including executive-level talent, who will contribute to our long-term success. With the goals of solid long-term financial performance and creating long-term stockholder value, our executive compensation program and compensation decisions are framed by the four guiding principles described below.
Guiding Principle | Impact on Compensation Design | |
Linked to Long-Term Performance |
● Performance stock units based on three-year return on equity constitute 50% of long-term incentive compensation | |
Aligned with Stockholder Interests |
● Majority of pay delivered in long-term incentives (approximately 66% of the Chairman and CEOs total direct compensation)
● Executives are subject to robust stock ownership guidelines | |
Positioned Competitively in the Marketplace |
● Compensation levels are developed with reference to a peer group of comparable companies | |
Discourages Inappropriate Risk-Taking |
● Long-term incentives are subject to risk-based forfeiture and clawback provisions
● Short-term cash incentive compensation awards are capped
● Compensation and Benefits Committee can exercise negative discretion to reduce incentives
● Compensation program balances short-term and long-term performance objectives |
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Risk Management
A key objective of our compensation program is to ensure that the incentive compensation design does not encourage inappropriate risk-taking. We have considered our incentive compensation program in light of the guidance provided by the Board of Governors of the Federal Reserve System (the Federal Reserve) with respect to sound incentive compensation policies at financial institutions. We believe our compensation arrangements are consistent with our safety and soundness, in part because we are not involved with many of the lines of business that have exposed other financial institutions to excessive risk.
To reinforce the important role of effective risk management in our compensation framework, in recent years we have increased the portion of long-term incentive awards composed of performance stock units. Performance stock units, which contain meaningful performance targets for named executive officers and are payable in shares if these targets are attained, discourage inappropriate risk-taking behavior because they can only be earned by attaining long-term performance goals and because the value of the award is less susceptible to short-term fluctuations in share value than stock options. All long-term incentive awards vest over a multi-year period and have an inherent risk adjustment factor based on changes in the value of our common stock. Since 2012 all long-term incentive compensation arrangements for named executive officers have included forfeiture and recoupment provisions. Further information with respect to these provisions for our named executive officers can be found under Other Compensation PracticesClawback Provisions.
The Compensation and Benefits Committee annually reviews managements assessment of the effectiveness of the design and performance of our incentive compensation arrangements and practices in providing risk-taking incentives that are consistent with the safety and soundness of the Corporation and its subsidiaries. This assessment includes an evaluation of whether our incentive compensation arrangements and practices discourage inappropriate risk-taking behavior by participants. In connection with the Committees assessment, the Corporations Chief Risk Officer presents an annual incentive compensation risk performance review, discussing his observations and assessments of risk performance for the performance year for the Corporation and each of its significant businesses. The Committee will continue to monitor and, if necessary, revise our incentive compensation program to ensure that it continues to balance appropriately the objectives of stockholders, the needs of the business and risk concerns.
Pursuant to its charter, the Compensation and Benefits Committee is required to have at least one member who is a member of the Business Risk Committee and at least one member who is a member of the Audit Committee. This overlap in composition is intended to ensure that compensation decisions reflect the input of the Audit and Business Risk Committees.
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Executive Compensation Program Elements
The table below provides a brief description of the elements of our compensation program and how each element helps address our guiding principles for executive compensation.
Element | Link to Compensation Philosophy | Rationale/Key Features | ||
Base Salary |
● Targeted at competitive levels among peer group companies. |
● Base salaries provide a fixed level of income consistent with a named executive officers position and responsibilities, competitive pay practices, and internal equity principles. | ||
Short-Term Annual Cash Incentive |
● Total incentive funding is established as a percentage of pre-tax income.
● Targeted at competitive levels among peer group companies. |
● The Compensation and Benefits Committee determines annual incentive funding and awards based on both qualitative and quantitative considerations, including the individual performance of each executive officer. | ||
Long-Term Incentive Compensation |
● Linked to long-term performance.
● Aligned with stockholders interests by motivating executive officers to act as owners.
● Targeted at competitive levels among peer group companies. |
● Long-term incentives are the most significant element of overall compensation.
● Long-term incentive compensation is comprised of performance stock units (50%), restricted stock units (25%) and stock options (25%). The number of shares that is paid out upon the vesting of a performance stock unit award is determined based on our return on equity. | ||
Retirement, Health and Welfare Benefits |
● Targeted at competitive levels among peer group companies. |
● Benefits are designed with broader employee populations in mind and are not specifically structured for executive officers. |
Additional information with respect to each of the four principal elements of our compensation program can be found beginning on page 40.
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Determining Awards
Role of the Compensation and Benefits Committee
During its February meeting each year, the Compensation and Benefits Committee determines the appropriate level of compensation for all executive officers. The Committee considers all elements of our executive compensation program holistically rather than each compensation element individually, and makes executive compensation decisions after careful review and analysis of financial and nonfinancial performance information, as well as historical and market compensation data.
The Committee has the discretion to determine compensation in the context of individual performance in nonfinancial areas that are important to long-term growth and the enhancement of stockholder value. This flexibility allows the Committee to modify individual incentive payouts and long-term incentive opportunities to reflect best:
● | our business model and strategy; |
● | prevailing market trends; |
● | evolving financial and regulatory environment; |
● | cross-function executive assignments; and |
● | risk management objectives. |
As discussed under 2015 Compensation Decisions and Design2015 Performance Considerations beginning on page 37 of this Proxy Statement, the Committee also evaluates the performance of our Chairman and CEO against his objectives for the past year. The Committee shares this evaluation with the Board in order for the Board to set the Chairman and CEOs compensation.
Role of the Chairman and CEO
The Chairman and CEO presents the Compensation and Benefits Committee with recommendations on the total compensation for each of our other executive officers based in part upon competitive market data for our peer group. The Chairman and CEOs evaluations of the other executive officers are based on performance against the past years performance expectations, and are comprised of a mix of objective and subjective factors, which are not formulaically weighted or scored. With input from our Chief Risk Officer, the Chairman and CEO also evaluates each of the other executive officers performance with regard to business risks and individual adherence to risk and compliance policies and procedures. The Committee gives substantial weight to the recommendations of the Chairman and CEO, but retains the ultimate oversight and responsibility to set compensation for all executive officers.
Role of Human Resources
The Human Resources function provides materials to assist the Compensation and Benefits Committee in making executive compensation decisions, including current and historical compensation data for executive officers. Our Executive Vice President, Human Resources attends and participates in
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all Committee meetings. The Human Resources function also assists the Chairman and CEO in formulating his compensation recommendations for all other executive officers. The Human Resources function provides historical and current market data for executive pay in the industry, information concerning the historical and current compensation of executive officers and the comparison of stock ownership measured against our stock ownership guidelines.
Role of the Compensation and Benefits Committees Independent Compensation Consultant
The Compensation and Benefits Committee has retained Compensation Advisory Partners (CAP), a nationally recognized compensation and benefits consulting firm, as its independent compensation consultant. The Committee confers with its independent compensation consultant to ensure that decisions and actions are consistent with stockholders long-term interests and compensation-related best practices within the financial services industry. The Committee also references market data provided by its independent compensation consultant when considering compensation for executive officers. A representative of CAP attended all meetings of the Committee during 2015. CAP provides insights into compensation trends and market practices, presents views on the compensation proposed by the Committee and participates in Committee meeting discussions and executive sessions.
Use of Peer Group Data
To help to inform its decision-making, the Compensation and Benefits Committee reviews peer group data regarding competitive pay levels in the market place. Historically, the Committee has worked with managements executive compensation consultant, Towers Watson, to develop the relevant peer group of companies that would provide the Committee with a representative view of the market for executive talent. The Corporations two most comparable direct peers are The Bank of New York Mellon Corporation and State Street Corporation, as they are also trust and custody banks. The remainder of our peer group historically has been made up of large, regional banks similar to us in certain respects, but not generally representing direct business competitors. The peer group described below was used to assess competitive compensation when developing 2015 base salary decisions and determining the size of short-term annual cash incentive awards and long-term incentive grants made in 2015 based on 2014 performance.
Peer Group (2015 Base Salary; Incentive Compensation Based on 2014 Performance) | ||
● Comerica Incorporated |
● The Bank of New York Mellon Corporation | |
● Fifth Third Bancorp |
● The PNC Financial Services Group, Inc. | |
● KeyCorp |
● U.S. Bancorp | |
● State Street Corporation |
● Wells Fargo & Company | |
● SunTrust Banks, Inc. |
In 2015, the Compensation and Benefits Committee worked with CAP and Towers Watson to refine the peer group noted above, which had remained unchanged since 2011. As a result of this review, Wells Fargo & Company was removed from the peer group, as it operates a different business model and is significantly larger than us. In addition, Franklin Resources, Inc., Invesco Ltd., Legg Mason, Inc. and T. Rowe Price Group, Inc. were added to the peer group to reflect better our significant presence in wealth management and asset management. The Compensation and Benefits Committee believes that the new peer group reflects better our business mix, complexity, and global footprint and includes peer companies with more comparable revenues and market capitalizations.
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Our current peer group, as refined, is as follows.
Current Peer Group | ||
● Comerica Incorporated |
● State Street Corporation | |
● Fifth Third Bancorp |
● SunTrust Banks Inc. | |
● Franklin Resources, Inc. |
● T. Rowe Price Group, Inc. | |
● Invesco Ltd. |
● The Bank of New York Mellon Corporation | |
● KeyCorp |
● The PNC Financial Services Group, Inc. | |
● Legg Mason, Inc. |
● U.S. Bancorp |
When making compensation decisions, the Compensation and Benefits Committee considers how the recommended compensation levels will compare to the median compensation for comparable positions among the peer group companies. However, the Committee recognizes that the compensation levels may vary from the peer group median compensation level based on our performance or specific individual circumstances, including the executives tenure in the role, the nature of the responsibilities of the executive and the executives individual performance.
Deductibility of Executive Compensation
The Compensation and Benefits Committee views the tax deductibility of executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), as a factor in determining the forms and amounts of executive compensation. The Committee reviews each material element of compensation on a continuing basis and takes steps to ensure deductibility if that can be accomplished without sacrificing flexibility or other important elements of the overall executive compensation program. For example, the Committee approves all short-term annual cash incentives for executive officers under the provisions of the stockholder-approved Management Performance Plan to ensure such awards qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code.
2015 Advisory Vote on Executive Compensation
Our 2014 named executive officer compensation was approved on an advisory basis by our stockholders at our April 21, 2015 Annual Meeting of Stockholders. Approximately 89% of the votes present and entitled to vote at the meeting, together with abstentions, supported approval of 2014 named executive officer compensation. Although such advisory votes are nonbinding, the Board reviews and thoughtfully considers the voting results when determining compensation policies and making future compensation decisions for named executive officers. Additionally, as mentioned under Corporate GovernanceStockholder Outreach beginning on page 21 of this Proxy Statement, it is our practice to engage proactively and routinely with stockholders throughout the year to help further their understanding of our performance and strategies and to allow us to receive direct feedback on issues relating to the Corporation. The decisions made by the Board with respect to compensation in 2015including the decision to maintain the overall structure of our executive compensation programreflect the Boards belief, based on the results of the advisory vote on 2014 named executive officer compensation and our stockholder outreach, that our stockholders generally support our overall executive compensation program.
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2015 Compensation Decisions and Design
2015 Performance Considerations
In determining total compensation for the named executive officers, the Compensation and Benefits Committee considered a variety of performance factors. The Committee considered the Corporations 2015 financial performance, as well as each officers success in achieving his or her individual performance objectives. Further detail with respect to factors considered in determining the total compensation for the named executive officers is set forth below.
Frederick H. Waddell
As the Corporations Chairman and CEO, Mr. Waddell is responsible for, among other things: developing and implementing our corporate strategies; managing and developing our senior leaders; and embodying our guiding principles of service, expertise and integrity. In determining his compensation for 2015, the Compensation and Benefits Committee and the Board considered the performance of the Corporation under Mr. Waddells leadership, as well as Mr. Waddells success in achieving his specific individual performance objectives. The Committees considerations included the following:
Financial Performance
● | Our continued financial strength, including our strong balance sheet demonstrating high asset quality, ample liquidity and a strong capital base. |
● | Growth in our trust, investment and other servicing fees from $2.8 billion in 2014 to $3.0 billion in 2015, an increase of 5%. |
● | Growth in our pre-tax income from $1.2 billion in 2014 to $1.5 billion in 2015, an increase of 23%. |
● | An increase in our pre-tax margin from 27.5% in 2014 to 31.2% in 2015. |
● | Continued progress in lowering our noninterest expense as a percentage of trust, investment and other servicing fees, with noninterest expense representing 110% of such fees in 2015 compared to 111% in 2014. |
● | Improvement in our return on equity from 10.0% in 2014 to 11.5% in 2015, within our target range. |
Client Development and Satisfaction
● | Mr. Waddells contributions to our strong new business performance in 2015. |
● | Mr. Waddells role in maintaining and developing client relationships across the globe through client outreach and engagement efforts. |
● | Our continued high levels of client satisfaction, and the implementation of new tools to improve our ability to identify and address client needs or concerns. |
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Leadership Development
● | Mr. Waddells role in developing senior leaders, maintaining a strong group of leaders in our succession plans and attracting and retaining talent throughout the Corporation. |
● | Mr. Waddells role in creating a Chief Capital Management Officer position as a part of broader enhancements to our CCAR framework in 2015. |
● | Mr. Waddells role in advancing diversity and inclusion initiatives across the Corporation and driving our high level of employee engagement. |
S. Biff Bowman
As the Corporations Chief Financial Officer, Mr. Bowman is primarily responsible for financial reporting and control, management reporting and analysis, liquidity management, capital planning and investor relations. To determine Mr. Bowmans 2015 compensation, the Compensation and Benefits Committee considered how well Mr. Bowman fulfilled his responsibilities in 2015. In doing so, the Committee considered the following performance factors:
● | Improvement in our return on equity from 10.0% in 2014 to 11.5% in 2015, enabling us to return $829.9 million in capital to common stockholders in 2015 through quarterly dividends and share repurchases. |
● | Growth in our diluted earnings per share from $3.32 in 2014 to $3.99 in 2015, an increase of 20%. |
● | Growth of 6% in our net interest income from $1.0 billion in 2014 to $1.1 billion in 2015. |
● | Our continued financial strength, with ample liquidity and a high-quality securities portfolio contributing to sound credit ratings. |
● | Mr. Bowmans role in enhancing our profitability and productivity, demonstrated through continued progress in lowering our noninterest expense as a percentage of trust, investment and other servicing fees, with noninterest expense representing 110% of such fees in 2015 compared to 111% in 2014. |
● | Mr. Bowmans contributions to our CCAR process, our capital management policies and our 2015 capital plan, which was not objected to by the Federal Reserve. |
● | The strength of our investor relations program and his contributions to the expanded outreach campaign conducted in 2015, as discussed under Corporate GovernanceStockholder Outreach on page 21 of this Proxy Statement. |
Steven L. Fradkin
As the Corporations President of Wealth Management, Mr. Fradkin is primarily responsible for the overall performance of such business. To determine Mr. Fradkins 2015 compensation, the
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Compensation and Benefits Committee considered how well Mr. Fradkin fulfilled his responsibilities in 2015. In doing so, the Committee considered the following performance factors:
● | Improvement in Wealth Management financial performance across financial metrics such as revenue, fees, credit quality, net income, assets under management, loans, deposits and return on equity. |
● | Growth in Wealth Management net income from $389.2 million in 2014 to $439.7 million in 2015, a 13% increase. |
● | Growth in Wealth Management revenue, on a fully taxable equivalent basis, from $1.9 billion in 2014 to $2.0 billion in 2015, an increase of 4%. |
● | Increased loan and deposit balances within Wealth Management, resulting in an increase in net interest income, on a fully taxable equivalent basis, from $536.1 million in 2014 to $568.1 million in 2015, an increase of 6%. |
● | Wealth Managements continued strong competitive position within our target markets. |
● | Expansion of our client base, facilitated by our continued investment in talent acquisition, with particular successes in mega-market geographies, such as New York, and the wealthiest client segments. |
● | Enhancements made to our client capabilities, including with respect to Goals Driven Investing,TM family education, art lending, business owner initiatives and family office innovations. |
William L. Morrison
As the Corporations President, Mr. Morrison is primarily responsible for driving business growth and overseeing the Corporations client-facing businesses and corporate marketing and strategy functions. To determine Mr. Morrisons 2015 compensation, the Compensation and Benefits Committee considered how well Mr. Morrison fulfilled his responsibilities in 2015. In doing so, the Committee considered the following performance factors:
● | Continued strength in each of the C&IS and Wealth Management businesses, with the Corporations total consolidated revenue growing from $4.3 billion in 2014 to $4.7 billion in 2015, an increase of 9%. |
● | Strong growth in our core businesses, including 7% growth in trust, investment and other servicing fees within our C&IS business from 2014 to 2015 and 3% growth in such fees within our Wealth Management business. |
● | Growth in our net income from $811.8 million in 2014 to $973.8 million in 2015, an increase of 20%. |
● | Our continued high levels of client satisfaction, which helped drive strong new business results. |
● | Mr. Morrisons contributions to initiatives designed to enable efficient and profitable growth in our businesses. |
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Jana R. Schreuder
As the Corporations Chief Operating Officer, Ms. Schreuder is primarily responsible for business operations and enabling the Corporations businesses to grow faster, more efficiently and more profitably. To determine Ms. Schreuders 2015 compensation, the Compensation and Benefits Committee considered how well Ms. Schreuder fulfilled her responsibilities in 2015. In doing so, the Committee considered the following performance factors:
● | Ms. Schreuders role in establishing and executing upon a comprehensive roadmap to support growth in our businesses efficiently and profitably. |
● | Our continued introduction of agile solutions to ensure success in an increasingly complex, fast-paced and digitally connected global environment. |
● | Ms. Schreuders role in the continued implementation of our location strategy and the prioritization of capital expenditures. |
● | Ms. Schreuders leadership in establishing our innovation lab, the aim of which is to enhance client and employee experiences and ensure that such experiences are delivered through relevant and contemporary channels. |
● | Our continued investments in building a robust technology environment focused on reliability and security. |
● | Ms. Schreuders contributions to continued progress in lowering our noninterest expense as a percentage of trust, investment and other servicing fees, with noninterest expense representing 110% of such fees in 2015 compared to 111% in 2014. |
Base Salary
The Compensation and Benefits Committee believes that base salaries should provide a fixed level of annual income consistent with an executive officers position and responsibilities, competitive pay practices and internal equity among executive officers.
The Committee uses discretion in determining base salaries, considering the following factors:
● | individual performance over the prior year relative to established goals and expectations for the position; |
● | targeted base salary levels that balance market pay practice with internal equity principles; |
● | experience and qualifications of the individual executive; |
● | the executive officers tenure in the position or a position of similar level; and |
● | significant changes in assignment or scope of responsibility. |
For new and recently promoted executives, the Committees approach is to increase incrementally base salary to the appropriate target pay level as the executive officer gains experience and tenure in the new position.
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In February 2015, based on competitive salary market data among our peer group companies, the Committee increased the base salary for Mr. Waddell from $975,000 to $1,000,000. Prior to this action, Mr. Waddell had not received an increase in base salary since 2011. In February 2015, the Committee also approved more meaningful base salary increases for Mr. Bowman from $500,000 to $550,000 and Ms. Schreuder from $600,000 to $675,000 to account for additional experience and tenure in their current roles, to which they were appointed in 2014. No other named executive officers base salary was increased in 2015.
Short-Term Annual Cash Incentive
Annual cash incentives provide an opportunity for our executive officers to receive additional cash compensation based on our financial performance, as well as each executive officers individual performance. The overall annual bonus pool is funded based on a targeted percentage of pre-tax income. The maximum funding for each officers annual cash incentive award under the Management Performance Plan is a percentage of the consolidated net income generated by us in the applicable year. The annual cash incentive maximums for executive officers are as follows:
● | annual cash incentives for the Chairman and CEO may not exceed 0.6% of consolidated net income; |
● | annual cash incentives for the President and the Chief Operating Officer may not exceed 0.4% of consolidated net income; |
● | annual cash incentives for all other executive officers may not exceed 0.3% of consolidated net income; and |
● | no annual incentives can be paid in the absence of positive net income. |
The final determination of annual cash incentives is not tied to any specific formula, rather the process that the Compensation and Benefits Committee uses to determine incentives relies on a discretionary assessment of quantitative and qualitative performance criteria for Northern Trust as a whole, specific businesses and individual executive officers. The Committee believes that its use of discretion:
● | allows the Committee to assess performance holistically across multiple dimensions of performance; |
● | provides for a year-end assessment of how challenging the operating environment was and how well we performed relative to our direct peers; and |
● | ensures that the Committee has the ability to adjust incentives for how results were achieved (i.e., degree of risk taken, sustainability of results). |
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In determining overall annual incentive funding and how incentives will be allocated among different businesses, the Committee considers the following factors:
● | Our overall financial performance, with a focus on key metrics, including: |
● | Pre-tax income relative to plan and prior year |
● | Return on equity |
● | The performance of individual businesses in the following areas: |
● | Growth (fees and revenue) |
● | Productivity (expense management and ratio of noninterest expense to trust, investment and other servicing fees) |
● | Profitability (pre-tax margin and return on equity) |
● | Risk management |
● | Internal equity principles |
The Committee then uses negative discretion to set the final awards based on consideration of our overall performance, the individual executive officers performance, internal equity principles and peer group compensation levels. Using this process, the Committee recommended the short-term cash annual incentive for our Chairman and CEO to the Board for approval. For the other named executive officers, the Chairman and CEO recommended a short-term cash annual incentive which was approved by the Committee. The table below summarizes the 2015 short-term annual cash incentives for the named executive officers awarded in February 2016, along with 2014 short-term annual cash incentives awarded in February 2015 for comparative purposes.
Short-Term Annual Cash Incentives | ||||||||||
Executive | Title | 2015 | 2014 | |||||||
Frederick H. Waddell |
Chairman and Chief Executive Officer | $ | 2,800,000 | $ | 2,300,000 | |||||
S. Biff Bowman |
Chief Financial Officer | 850,000 | 650,000 | |||||||
Steven L. Fradkin |
PresidentWealth Management | 1,000,000 | 1,000,000 | |||||||
William L. Morrison |
President | 1,400,000 | 1,200,000 | |||||||
Jana R. Schreuder |
Chief Operating Officer | 1,000,000 | 900,000 |
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Long-Term Incentive Compensation
Long-term incentive compensation is the most significant element of overall compensation and is designed to reward the performance of executive officers over time. For long-term incentive awards made in February 2016 and February 2015 for performance in 2015 and 2014, respectively, we have granted the long-term incentive awards to named executive officers as a mix of performance stock units, restricted stock units and stock options. The relative mix of these components is as follows.
In February 2016, the Compensation and Benefits Committee established long-term incentive award opportunities for our Chairman and Chief Executive Officer and approved long-term incentive recommendations for our other named executive officers after receiving input from our Chairman and CEO. In establishing long-term incentive award opportunities for our named executive officers, the Committee places greater emphasis on an executives long-term contributions to the organization, while taking into account internal equity principles among comparable roles.
The table below summarizes the long-term incentive awards for our named executive officers made in February 2016 and February 2015 for performance in 2015 and 2014, respectively.
Long-Term Incentive Awards | ||||||||||
Executive | Title | 2015 | 2014 | |||||||
Frederick H. Waddell |
Chairman and Chief Executive Officer | $ | 7,200,000 | $ | 6,650,000 | |||||
S. Biff Bowman |
Chief Financial Officer | 2,250,000 | 2,000,000 | |||||||
Steven L. Fradkin |
PresidentWealth Management | 2,250,000 | 2,000,000 | |||||||
William L. Morrison |
President | 3,500,000 | 3,250,000 | |||||||
Jana R. Schreuder |
Chief Operating Officer | 3,000,000 | 2,500,000 |
Performance Stock Units. Performance stock units make up 50% of our long-term incentive award opportunity and the largest portion of the total compensation mix for our named executive officers. Our performance stock units are earned based on our average return on equity performance over a three-year period relative to pre-established goals. Return on equity is the primary financial performance metric used internally and externally to assess our long-term performance. Further discussion with respect to the performance stock units granted to our named executive officers is set forth in the Description of Certain Awards Granted in 2015 section beginning on page 52 of this Proxy Statement.
Restricted Stock Units. Restricted stock units are an effective tool to align executives with stockholder interests by making them owners of our stock. Another critical aspect of our restricted stock unit design is that they vest over four years, with 50% vesting at the third anniversary of grant
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and the remaining 50% vesting at the fourth anniversary of grant. This vesting schedule is effective in helping us to retain critical talent and ensuring that executives have significant outstanding unvested equity value over the course of their careers. Further discussion with respect to the restricted stock units granted to our named executive officers is set forth in the Description of Certain Awards Granted in 2015 section beginning on page 52 of this Proxy Statement.
Stock Options. Stock options are included as part of our long-term incentive compensation to ensure that our executives remain focused on increasing our stock price over time. When used in combination with performance stock units and restricted stock units, stock options help to ensure that executives will take a balanced view towards risk-taking. The key features of our stock option program are summarized below:
● | option exercise price equals the closing sale price on the date of grant; |
● | option awards vest 25% per year over the first four anniversaries of the grant date; and |
● | option awards expire on the tenth anniversary of the grant date. |
It is the view of the Compensation and Benefits Committee that stock options are a performance-based form of compensation, as they only have value to the extent that the stock price appreciates from the grant date price. The Committee also believes that with a ten-year term, stock options encourage executives to focus on long-term, sustainable performance. Further discussion with respect to the stock options granted to our named executive officers is set forth in the Description of Certain Awards Granted in 2015 section beginning on page 52 of this Proxy Statement.
Total Direct Compensation for 2015 and Overall Pay Mix
The table below provides a comprehensive summary of each named executive officers total direct compensation for 2015. Base salary reflects the applicable named executive officers salary, as determined in February 2015. Short-term annual cash incentive compensation represents amounts awarded in February 2016 for 2015 performance. Long-term incentive compensation represents grants made in February 2016 relating to 2015 performance.
Total Direct Compensation | ||||||||||||||||||||||||||
Executive | Title | Salary | Short-Term Annual |
Performance Units |
Stock Options |
Restricted Stock Units |
Total | |||||||||||||||||||
Frederick H. Waddell |
Chairman and Chief Executive Officer | $ | 1,000,000 | $ | 2,800,000 | $ | 3,600,000 | $ | 1,800,000 | $ | 1,800,000 | $ | 11,000,000 | |||||||||||||
S. Biff Bowman |
Chief Financial Officer | 550,000 | 850,000 | 1,125,000 | 562,500 | 562,500 | 3,650,000 | |||||||||||||||||||
Steven L. Fradkin |
PresidentWealth Management | 600,000 | 1,000,000 | 1,125,000 | 562,500 | 562,500 | 3,850,000 | |||||||||||||||||||
William L. Morrison |
President |
800,000 | 1,400,000 | 1,750,000 | 875,000 | 875,000 | 5,700,000 | |||||||||||||||||||
Jana R. Schreuder |
Chief Operating Officer | 675,000 | 1,000,000 | 1,500,000 | 750,000 | 750,000 | 4,675,000 |
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Other Compensation Practices
Retirement, Health and Welfare Benefits
Retirement benefits are generally designed with our entire workforce in mind and are not specifically structured for the executive officers. The design of our retirement program for employees, including executive officers:
● | reflects competitiveness in that we target total retirement benefits at approximately the median level of retirement benefits of peer group companies; and |
● | encourages employees to contribute to their individual retirement savings through participation in TIP and the Northern Trust Corporation Supplemental Thrift-Incentive Plan (Supplemental TIP). |
Our executive officers also participate in our health and welfare benefits, including medical, retiree medical, dental, disability and life insurance programs, on the same terms as other employees.
Severance Benefits and Employment Security Arrangements
We provide a severance plan to provide reasonable benefits to employees who are involuntarily terminated without cause due to a reduction in force, job elimination or similar reasons specified in the severance plan. We believe that the availability of severance benefits allows us to compete with our peer group companies in attracting and retaining talent. Executive officers participate in this plan on the same terms as all other eligible and similarly situated employees.
Our executive officers generally are eligible to receive severance benefits that include:
● | a lump sum payment of two weeks of base salary for each year of completed service up to, but less than 25 years, or 52 weeks of base salary for 25 years or more of completed service to us; and |
● | a COBRA subsidy based on their length of service to help cover the costs of continuation coverage under the employers medical and dental plans, full vesting under TIP, Supplemental TIP, The Northern Trust Company Pension Plan (the Pension Plan), and the Northern Trust Corporation Supplemental Pension Plan (the Supplemental Pension Plan), enhanced early retirement eligibility under the Pension Plan for employees who have reached age 54 with 14 years of credited service and outplacement assistance. |
These benefits are contingent upon execution of a release, waiver and settlement agreement with us. Severance payments will be reduced by any severance payments made under employment security agreements or any other benefit plan, program or individual contract.
In addition to the severance benefits discussed above, we have entered into employment security arrangements with certain executive officers of the Corporation, including each named executive officer. The purpose of these agreements is to provide an executive with sufficient security to remain focused on his or her responsibilities before, during and after a change in control transaction without undue concern for his or her personal circumstances. We believe the employment security
45
agreements are critical to our ability to attract and retain key executives in light of the fact that all named executive officers are employed at will and change in control benefits for executives are a standard element of a competitive compensation program at peer group companies.
Further discussion with respect to our employment security agreements, including disclosure of potential change in control benefits payable to each named executive officer, assuming a change in control of the Corporation and termination of employment on December 31, 2015, is set forth in the Potential Payments Upon Termination of Employment or a Change in Control of the Corporation section beginning on page 67 of this Proxy Statement.
Perquisites
We provide a limited number of perquisites intended to assist executive officers in the performance of their duties on behalf of the Corporation. We provide financial consulting and tax return preparation services and personal use of company automobiles as perquisites to our executive officers. If circumstances warrant and if pre-approved by our Chairman and CEO, we permit personal use of private aircraft on a limited basis. We also reimburse executive officers for the payment of personal income taxes in connection with the use of company vehicles in certain circumstances and taxable relocation expenses. The Compensation and Benefits Committee periodically reviews the types and costs of perquisites to ensure they remain aligned with our compensation philosophy.
Stock Ownership Guidelines
Supporting our guiding principle of alignment with stockholders interests, we have a long-standing practice of emphasizing stock ownership and maintaining robust stock ownership guidelines for named executive officers at or above industry practice. Each executive officer is expected to meet his or her respective minimum ownership level within five years of becoming an executive officer. Until such time as any executive officer meets the minimum ownership level requirement, he or she is expected to retain 100% of the net, after-tax shares received upon vesting of equity awards or stock option exercises. As of December 31, 2015, our Chairman and CEO and each of our other named executive officers met or exceeded our stock ownership guidelines.
Stock Ownership Guidelines | ||||
Expected Ownership as Multiple of Base Salary | ||||
Chairman & CEO |
10x | |||
President |
7x | |||
Chief Operating Officer |
7x | |||
Chief Financial Officer and Business Presidents |
5x | |||
All Other Executive Officers |
3x |
Clawback Provisions
All awards granted to named executive officers since 2012 under our long-term incentive compensation program include certain forfeiture provisions pertaining to unpaid amounts, as well as recoupment of paid amounts, under such awards in the event of a restatement of the Corporations financial statements and certain types of misconduct. Such awards also are subject to forfeiture and recoupment provisions relating to ex-post risk, meaning risk resulting from the recipients
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inappropriate risk-taking that does not materialize until after the performance period in which such inappropriate risk-taking takes place. Beginning in 2013 we began to include certain provisions in our restricted stock unit award agreements with named executive officers requiring the forfeiture or recoupment of awards if it were determined that the applicable named executive officer had engaged in inappropriate risk-taking which resulted in a significant risk outcome, as defined in the form of agreement. An analysis of significant risk outcomes is completed annually to determine if such significant risk outcomes were tied to inappropriate risk-taking. The results of this analysis are reviewed by the Compensation and Benefits Committee.
Hedging Policy
We maintain a Securities Transactions Policy and Procedures that, among other things, prohibits directors, employees, and certain of their family members from engaging in short selling, margining, pledging or hypothecating our securities, and from trading in options, warrants, puts, calls or similar instruments on our securities.
Compensation and Benefits Committee Report
The Compensation and Benefits Committee is responsible for providing oversight of the compensation of the directors and executive officers of the Corporation. In fulfilling its oversight responsibilities, the Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based upon this review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and this Proxy Statement for the 2016 Annual Meeting of Stockholders, each of which is filed with the SEC.
Compensation and Benefits Committee
Charles A. Tribbett III (Chair)
Linda Walker Bynoe
Thomas E. Richards
John W. Rowe
Martin P. Slark
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The following table sets forth the information concerning the compensation paid to or earned by the named executive officers for 2015, 2014 and 2013. In accordance with SEC rules, 2013 compensation is not presented for Mr. Bowman because he was not a named executive officer in that year.
Name and Principal Position(1) |
Year |
Salary ($) |
Bonus ($)(2) |
Stock Awards ($)(3) |
Option Awards ($)(4) |
Non-Equity Incentive Plan Compensation ($)(5) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(6) |
All Other Compensation ($)(7) |
Total ($) |
|||||||||||||||||||||||||
Frederick H. Waddell Chairman and Chief Executive Officer |
2015 | $ | 993,750 | $ | 2,413,689 | $4,987,508 | $ | 1,477,612 | $ | 2,800,000 | $ | $ | 87,991 | $ | 12,760,550 | |||||||||||||||||||
2014 | 975,000 | | 4,987,571 | 1,329,507 | 2,300,000 | 2,762,043 | 81,401 | 12,435,522 | ||||||||||||||||||||||||||
2013 | 975,000 | | 4,987,530 | 1,211,083 | 1,900,000 | | 94,387 | 9,168,000 | ||||||||||||||||||||||||||
S. Biff Bowman Chief Financial Officer |
2015 | 537,500 | | 1,500,037 | 444,407 | 850,000 | 31,870 | 20,545 | 3,384,359 | |||||||||||||||||||||||||
2014 | 493,750 | | 1,237,506 | 329,879 | 650,000 | 583,444 | 39,759 | 3,334,338 | ||||||||||||||||||||||||||
Steven L. Fradkin PresidentWealth Management |
2015 | 600,000 | 724,107 | 1,500,037 | 444,407 | 1,000,000 | 21,367 | 22,652 | 4,312,570 | |||||||||||||||||||||||||
2014 | 600,000 | | 1,500,013 | 399,854 | 1,000,000 | 1,131,157 | 23,348 | 4,654,372 | ||||||||||||||||||||||||||
2013 | 600,000 | | 1,500,032 | 364,241 | 800,000 | | 23,287 | 3,287,560 | ||||||||||||||||||||||||||
William L. Morrison President |
2015 | 800,000 | 1,206,845 | 2,437,550 | 722,145 | 1,400,000 | | 35,908 | 6,602,448 | |||||||||||||||||||||||||
2014 | 800,000 | | 2,437,590 | 649,766 | 1,200,000 | 387,764 | 44,155 | 5,519,275 | ||||||||||||||||||||||||||
2013 | 775,000 | | 2,512,523 | 610,096 | 1,000,000 | | 33,893 | 4,931,512 | ||||||||||||||||||||||||||
Jana R. Schreuder Chief Operating Officer |
2015 | 656,250 | 724,107 | 1,875,028 | 555,495 | 1,000,000 | 8,270 | 34,588 | 4,853,738 | |||||||||||||||||||||||||
2014 | 600,000 | | 1,500,013 | 399,854 | 900,000 | 1,363,916 | 31,781 | 4,795,564 | ||||||||||||||||||||||||||
2013 | 600,000 | | 1,500,032 | 364,241 | 785,000 | | 32,923 | 3,282,196 |
(1) Positions reflected in this column reflect current positions. Effective September 1, 2014, the Corporation implemented certain leadership changes. Prior to these changes: Mr. Bowman served as Executive Vice President, Human Resources; Mr. Fradkin served as President of C&IS; Mr. Morrison served as President and Chief Operating Officer; and Ms. Schreuder served as President of Wealth Management.
(2) Amounts in this column represent long-term cash incentive awards, granted in February 2012 for 2011 performance, which vested in February 2015. Long-term cash incentive awards were granted to named executive officers in February 2012 due to changes in the long-term incentive compensation plan design and no such awards have been granted since February 2012. The amount of the award granted to each named executive officer in February 2012 is as follows: Mr. Waddell: $2,333,333; Mr. Fradkin: $700,000; Mr. Morrison: $1,166,667; and Ms. Schreuder: $700,000. Amounts in this column also include interest credited on such awards from the date of grant through the vesting date at a rate equal to the mid-term applicable federal rate for the month of February 2012, compounded annually, in accordance with the terms of such awards.
(3) Amounts in this column represent the grant date fair value of the restricted stock unit and performance stock unit awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation (FASB ASC Topic 718). See Note 22Share-Based Compensation Plans to the consolidated financial statements included in Item 8 of the Corporations Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of the assumptions made by the Corporation in the valuation of these stock unit awards. This column includes the following amounts in 2015 with respect to performance stock units, which are based on achievement of target performance levels: Mr. Waddell: $3,325,005; Mr. Bowman: $1,000,001; Mr. Fradkin: $1,000,001; Mr. Morrison: $1,625,010; and Ms. Schreuder: $1,250,019. If the maximum level of performance were
48
attained, the value of the performance stock units would be as follows: Mr. Waddell: $4,156,292; Mr. Bowman: $1,250,019; Mr. Fradkin: $1,250,019; Mr. Morrison: $2,031,316; and Ms. Schreuder: $1,562,524. See the narrative under Description of Certain Awards Granted in 2015 beginning on page 52 of this Proxy Statement for more information on these awards.
(4) Amounts in this column represent the grant date fair value of the option awards computed in accordance with FASB ASC Topic 718. See Note 22Share-Based Compensation Plans to the consolidated financial statements included in Item 8 of the Corporations Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of the assumptions made by the Corporation in the valuation of these option awards. See the narrative under Description of Certain Awards Granted in 2015 beginning on page 52 of this Proxy Statement for more information on these awards.
(5) Amounts in this column represent the annual cash incentives earned by the named executive officers in the applicable years under the Management Performance Plan.
(6) Amounts in this column represent the aggregate increase in actuarial present values of accumulated benefits under the Pension Plan and the Supplemental Pension Plan. The increase in discount rate used to calculate the pension from 4.25% at December 31, 2012 to 5.00% at December 31, 2013 resulted in a decrease in the present value of benefits under the Traditional Formula for each named executive officer with 2013 information provided at December 31, 2013 relative to December 31, 2012. Accordingly, no amount is included for 2013 in this column for any named executive officer. At December 31, 2014, the applicable discount rate decreased from 5.00% back down to 4.25%, resulting in an increase in the present value of benefits under the Traditional Formula. At December 31, 2015, the applicable discount rate increased to 4.71%, resulting in a decrease in the present value of benefits under the Traditional Formula. This decrease was more than offset by increases in the present value of benefits attributable to other factors for all named executive officers, except for Mr. Waddell and Mr. Morrison, the present value of benefits for whom decreased by $387,577 and $102,918, respectively. See Pension Benefits beginning on page 60 of this Proxy Statement for additional information.
(7) The following table sets forth a detailed breakdown of the items which comprise All Other Compensation for 2015.
Name |
Contributions to TIP and Supplemental TIP ($)(a) |
Perquisites and Other Personal Benefits ($)(b) |
Tax Reimbursements ($)(c) |
Total ($) |
||||||||||||
Mr. Waddell |
$ | 29,813 | $ | 39,802 | $ | 18,376 | $ | 87,991 | ||||||||
Mr. Bowman |
16,125 | 2,400 | 2,020 | 20,545 | ||||||||||||
Mr. Fradkin |
18,000 | 4,080 | 572 | 22,652 | ||||||||||||
Mr. Morrison |
24,000 | 9,677 | 2,231 | 35,908 | ||||||||||||
Ms. Schreuder |
19,688 | 14,825 | 75 | 34,588 |
(a) Includes matching contributions made by the Corporation on behalf of named executive officers participating in TIP and Supplemental TIP.
(b) With respect to Mr. Waddell, represents financial consulting and tax return preparation services ($16,500) and personal use of company automobiles ($23,302). With respect to Mr. Bowman, represents tax return preparation services in conjunction with an overseas assignment. With respect to
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Mr. Fradkin, represents financial consulting and tax return preparation services ($3,400) and personal use of company automobiles ($680). With respect to Mr. Morrison, represents financial consulting and tax return preparation services ($7,000) and personal use of company automobiles ($2,677). With respect to Ms. Schreuder, represents financial consulting and tax return preparation services ($14,570) and personal use of company automobiles ($255).
(c) Represents tax reimbursements provided in connection with personal use of company automobiles and, with respect to Mr. Bowman, taxable expenses relating to an overseas assignment.
50
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) |
Estimated Future Payouts Under Equity Incentive Plan Awards (2) |
All Other Stock Awards: Number of Shares of Stock or Units (#)(3) |
All Other Option Awards: Number of Securities Underlying Options (#)(4) |
Exercise or Base Price of Option Awards ($/sh) |
Grant Date Fair Value of Stock and Option Awards ($)(5) |
|||||||||||||||||||||||||||||||||||||
Name |
Grant Date |
Thres- hold ($) |
Target ($) |
Maximum ($) |
Thres- hold (#) |
Target (#) |
Maximum (#) |
|||||||||||||||||||||||||||||||||||
Mr. Waddell |
$ | 2,300,000 | $ | 5,842,800 | ||||||||||||||||||||||||||||||||||||||
2/17/2015 | 78,930 | $ | 70.21 | $ | 1,477,612 | |||||||||||||||||||||||||||||||||||||
2/17/2015 | 23,679 | 1,662,503 | ||||||||||||||||||||||||||||||||||||||||
2/17/2015 | 23,679 | 47,358 | 59,198 | 3,325,005 | ||||||||||||||||||||||||||||||||||||||
Mr. Bowman |
650,000 | 2,921,400 | ||||||||||||||||||||||||||||||||||||||||
2/17/2015 | 23,739 | 70.21 | 444,407 | |||||||||||||||||||||||||||||||||||||||
2/17/2015 | 7,122 | 500,036 | ||||||||||||||||||||||||||||||||||||||||
2/17/2015 | 7,122 | 14,243 | 17,804 | 1,000,001 | ||||||||||||||||||||||||||||||||||||||
Mr. Fradkin |
1,000,000 | 2,921,400 | ||||||||||||||||||||||||||||||||||||||||
2/17/2015 | 23,739 | 70.21 | 444,407 | |||||||||||||||||||||||||||||||||||||||
2/17/2015 | 7,122 | 500,036 | ||||||||||||||||||||||||||||||||||||||||
2/17/2015 | 7,122 | 14,243 | 17,804 | 1,000,001 | ||||||||||||||||||||||||||||||||||||||
Mr. Morrison |
1,200,000 | 3,895,200 | ||||||||||||||||||||||||||||||||||||||||
2/17/2015 | 38,575 | 70.21 | 722,145 | |||||||||||||||||||||||||||||||||||||||
2/17/2015 | 11,573 | 812,540 | ||||||||||||||||||||||||||||||||||||||||
2/17/2015 | 11,573 | 23,145 | 28,932 | 1,625,010 | ||||||||||||||||||||||||||||||||||||||
Ms. Schreuder |
900,000 | 3,895,200 | ||||||||||||||||||||||||||||||||||||||||
2/17/2015 | 29,673 | 70.21 | 555,495 | |||||||||||||||||||||||||||||||||||||||
2/17/2015 | 8,902 | 625,009 | ||||||||||||||||||||||||||||||||||||||||
2/17/2015 | 8,902 | 17,804 | 22,255 | 1,250,019 |
(1) These columns show information regarding payouts under the Management Performance Plan. The amount set forth under the Maximum column represents the highest potential payout under the plan based on the Corporations 2015 performance. Although the plan does not provide for a target or threshold, the amount set forth under the Target column represents the amount actually awarded to the named executive officer in 2015 in respect of 2014 performance.
(2) The amounts set forth under the Threshold, Target and Maximum columns represent the number of shares of common stock that would be paid out under the performance stock units granted in February 2015 if the Corporation achieves a three-year return on equity of 7.5%, 10.25% or 15.0%, respectively.
(3) This column shows the number of restricted stock units granted to the named executive officers in 2015.
(4) This column shows the number of shares that may be issued to the named executive officers upon exercise of stock options granted in 2015.
(5) Represents the grant date fair value of each equity award, computed in accordance with FASB ASC Topic 718 (using the target level of performance for performance stock unit awards), disregarding any estimated forfeitures.
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Description of Certain Awards Granted in 2015
Performance Stock Units
Each performance stock unit constitutes the right to receive a share of the Corporations common stock and vests over a three-year performance period, subject to satisfaction of specified performance targets (performance conditions) that are a function of return on equity and continued employment until the end of the vesting period. Dividend equivalents on performance stock units granted prior to February 16, 2016, including grants made in 2015 for 2014 performance, are paid in cash on a current basis prior to vesting and distribution. Dividend equivalents on performance stock units granted on or after February 16, 2016, including performance stock units granted for 2015 performance, will be deferred into a cash account and paid, with interest credited at a rate equal to the mid-term applicable federal rate for the month of February 2016, compounded annually, only with respect to the portion of the cash account attributable to performance stock units that actually vest upon satisfaction of the applicable performance conditions (provided, however, that the amount of deferred dividends and interest will not accrue on more than 100% of the performance stock units granted, even if greater than 100% of such performance stock units may vest upon satisfaction of the applicable performance conditions).
With respect to the performance stock units granted in 2015 and 2016, the Compensation and Benefits Committee identified specific types of objectively determinable factors that could affect return on equity if the factors occur during the performance period. In doing so, the Committee established that the effects of those factors will be excluded from the calculation of the performance measure if any of them, alone or in combination, would produce a change in net income in excess of $100 million. Factors that result in an adjustment to the calculation of the performance measure include: (i) acquisitions, dispositions, mergers, and similar transactions, and securities issuances and expenses in connection therewith; (ii) changes in accounting principles, tax laws or other laws that affect reported results that become effective during the performance period; (iii) litigation or regulatory settlements; (iv) charges and expenses for restructuring activity, including reductions in force; (v) discontinued operations; (vi) asset write-downs; and (vii) any other gain, loss, income or expense with respect to the performance period that is nonrecurring in nature. The Committee retains the power to exercise negative discretion, as it deems appropriate under the relevant circumstances, to reduce the actual payouts under the performance stock units below the payouts otherwise resulting from the application of adjustments for any of these factors.
The following charts illustrate the vesting requirements for the performance stock unit grants to named executive officers in 2015 and 2016.
Performance Stock Unit Performance Schedule February 2016 Grants |
Performance Stock Unit Performance Schedule February 2015 Grants |
|||||||||||
Average Annual Rate of Return on Equity |
Percentage of Stock Units Vested |
Average Annual Rate of Return on Equity |
Percentage of Stock Units Vested |
|||||||||
Less than 7.5% |
0% | Less than 7.5% |
0% | |||||||||
7.5% |
50% | 7.5% |
50% | |||||||||
11.0% |
100% |
10.25% |
100% | |||||||||
13.0% |
115% | 12.5% |
115% | |||||||||
> 15% |
125% |
> 15% |
125% |
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As it is possible that there will be no payout under the performance stock units, these awards are completely at-risk compensation. Since performance stock units were reintroduced as an element of the Corporations long-term incentive compensation program in 2012, the average annual rate of return on equity required for awards to become fully vested has increased from 8.0% to 11.0%. These increases emphasize the at-risk element of these awards.
If, during the performance period relating to performance stock units granted to an executive, such executive retires or terminates employment under certain circumstances entitling the executive to benefits under the Corporations severance plan, such executives performance stock units will be eligible for pro rata vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the performance conditions. In addition, if a named executive officer terminates employment on or after attainment of age 55, the executive will be eligible for pro rata vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the performance conditions. Upon the death or disability of an executive during the performance period, performance stock units granted prior to February 17, 2015 will be eligible for pro rata vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the performance conditions. With respect to performance stock units granted on or after February 17, 2015, the performance stock units will be eligible for full vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the performance conditions.
Upon a change in control, a pro rata portion of each performance stock unit award (based on the portion of the performance period that has elapsed as of the change in control) is eligible to vest based on the Corporations actual performance at the time of the change in control and is to be paid out at the end of the performance period, subject to accelerated distribution upon a qualifying termination. The remainder of the performance award converts at the target level of performance specified in the performance stock unit agreement into an award with respect to the acquirer of an equal economic value and vests subject only to the continued employment of the recipient through the remainder of the applicable performance period and is paid out at the end of the performance period, subject to acceleration of vesting upon a qualifying termination, in which event the units are distributed at that time. Notwithstanding the foregoing, in the event that both a change in control occurs and the acquirer refuses or is unable to agree to the foregoing conversion and vesting provisions, the award will be vested at the time of the change in control, and will be distributed in accordance with the provisions of Section 409A of the Internal Revenue Code, to the extent applicable. The performance stock unit awards provide that in such event the distribution may be in cash.
Restricted Stock Units
Restricted stock units vest 50% on the third anniversary of the date of grant and 50% on the fourth anniversary of the date of grant. Each restricted stock unit award entitles an executive to receive one share of common stock when the award vests. Dividend equivalents on restricted stock units are paid in cash on a current basis prior to vesting and distribution.
If, during the vesting period relating to restricted stock units granted to an executive, such executive retires or terminates employment under certain circumstances entitling the executive to benefits under the Corporations severance plan, the executive will be entitled to receive a distribution of a prorated number of restricted stock units. In addition, if a named executive officer is age 55 or older on the date of termination of employment, and does not compete with the Corporation during the
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vesting period, a prorated number of restricted stock units on each remaining vesting date in the vesting period become vested and are eligible for distribution. Upon the death or disability of an executive during the vesting period, such executive, or the executives beneficiary, will be entitled to receive a distribution of a prorated number of any unvested restricted stock units granted prior to February 17, 2015. With respect to restricted stock units granted on or after February 17, 2015, such executive, or the executives beneficiary, will be entitled to the full vesting and distribution of any unvested restricted stock units.
Upon a change in control of the Corporation, all restricted stock units granted to executive officers prior to December 31, 2012, become fully vested immediately. Restricted stock units granted after December 31, 2012, would be converted into units of the acquirer and continue to vest in accordance with the regular vesting schedule; provided, however, that they become fully vested in connection with a change in control if the executive experiences a qualifying termination of employment following the change in control (in which case they are distributed within sixty days). A qualifying termination is an involuntary termination of employment without cause or termination for good reason, as those terms are defined in the award agreements, that occurs after the change in control and prior to the second anniversary thereof. Notwithstanding the foregoing, in the event that both a change in control occurs and the acquirer refuses or is unable to agree to the foregoing conversion and vesting provisions, the award will be vested and will be distributed in accordance with the provisions of Section 409A of the Internal Revenue Code, to the extent applicable. The restricted stock unit awards provide that in such event the distribution may be in cash.
Stock Options
Stock options are granted with an exercise price equal to the closing sale price of the common stock on the date of grant and expire ten years after the date of the grant. Stock options generally vest in equal annual installments over a four-year vesting period.
If an executive retires, or if a named executive officer is age 55 or older with a minimum of ten years of employment on the date of termination of employment, and is not otherwise retirement-eligible pursuant to the Corporations retirement policy, the executives outstanding stock options continue to vest in accordance with their terms and, once vested, may be exercised until the earlier of five years following retirement or the expiration date of the option. If the executives employment is terminated under certain circumstances entitling the executive to severance benefits, the executives stock options (whether vested or unvested) may be exercised until the earlier of 180 days following termination of employment or the expiration date of the option, provided that if the executive is retirement eligible upon his or her termination of employment under the severance plan, the executives stock options (whether vested or unvested) become vested upon the executives termination of employment and may be exercised until the earlier of five years from the executives effective date of retirement or the expiration of the option. If an executive dies or becomes disabled, the executives outstanding stock options become vested and may be exercised until the earlier of five years following death or disability or the expiration date of the option. In other instances, in the absence of a change in control, vested stock options expire on the earlier of three months following termination of employment or the expiration date of the option, and unvested stock options expire on termination of employment.
Upon a change in control of the Corporation, all stock options granted prior to December 31, 2012 become vested and exercisable. Stock options granted after December 31, 2012 convert to
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options relating to the stock of the acquirer and continue to vest in accordance with the regular vesting schedule; provided, however, that they become fully vested in connection with a change in control if the executive experiences a qualifying termination of employment following the change in control (in which case the options on the acquirer stock remain exercisable until the expiration of the option), or if they are not assumed in the transaction (in which case the employee is entitled to a cash payment equal to the spread between the transaction consideration and the option exercise price).
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Outstanding Equity Awards at Fiscal Year-End
Option Awards | Stock Awards | |||||||||||||||||||||||||||||
Name |
Number of (#) |
Number of Securities (#) |
Option ($) |
Option Expiration Date |
Number of Shares or Units of Stock Have Not (#) |
Market of Shares of Units of Stock That ($)(1) |
Equity of (#) |
Equity ($)(2) |
||||||||||||||||||||||
Mr. Waddell |
126,352 | | 71.23 | 2/19/2018 | 82,554(7) | $ | 5,951,318 | 206,384(12) | $ | 14,878,223 | ||||||||||||||||||||
270,808 | | 57.54 | 7/21/2019 | |||||||||||||||||||||||||||
205,923 | | 50.99 | 2/15/2020 | |||||||||||||||||||||||||||
227,964 | | 52.64 | 2/14/2021 | |||||||||||||||||||||||||||
120,276 | 40,091(3) | 43.65 | 2/13/2022 | |||||||||||||||||||||||||||
47,329 | 47,329(4) | 52.69 | 2/11/2023 | |||||||||||||||||||||||||||
20,491 | 61,473(5) | 60.85 | 2/10/2024 | |||||||||||||||||||||||||||
| 78,930(6) | 70.21 | 2/17/2025 | |||||||||||||||||||||||||||
Mr. Bowman |
2,960 | | 63.36 | 2/20/2017 | 24,837(8) | 1,790,499 | 52,546(13) | 3,788,041 | ||||||||||||||||||||||
7,371 | | 71.23 | 2/19/2018 | |||||||||||||||||||||||||||
14,444 | | 55.39 | 2/16/2019 | |||||||||||||||||||||||||||
11,768 | | 50.99 | 2/15/2020 | |||||||||||||||||||||||||||
11,399 | | 52.64 | 2/14/2021 | |||||||||||||||||||||||||||
8,592 | 2,863(3) | 43.65 | 2/13/2022 | |||||||||||||||||||||||||||
10,676 | 10,676(4) | 52.69 | 2/11/2023 | |||||||||||||||||||||||||||
5,085 | 15,252(5) | 60.85 | 2/10/2024 | |||||||||||||||||||||||||||
| 23,739(6) | 70.21 | 2/17/2025 | |||||||||||||||||||||||||||
Mr. Fradkin |
20,124 | | 63.36 | 2/20/2017 | 24,829(9) | 1,789,923 | 62,071(14) | 4,474,698 | ||||||||||||||||||||||
42,118 | | 71.23 | 2/19/2018 | |||||||||||||||||||||||||||
90,270 | | 57.54 | 7/21/2019 | |||||||||||||||||||||||||||
58,836 | | 50.99 | 2/15/2020 | |||||||||||||||||||||||||||
71,239 | | 52.64 | 2/14/2021 | |||||||||||||||||||||||||||
36,083 | 12,027(3) | 43.65 | 2/13/2022 | |||||||||||||||||||||||||||
14,235 | 14,234(4) | 52.69 | 2/11/2023 | |||||||||||||||||||||||||||
6,163 | 18,488(5) | 60.85 | 2/10/2024 | |||||||||||||||||||||||||||
| 23,739(6) | 70.21 | 2/17/2025 | |||||||||||||||||||||||||||
Mr. Morrison |
40,247 | | 63.36 | 2/20/2017 | 40,821(10) | 2,942,786 | 102,053(15) | 7,357,001 | ||||||||||||||||||||||
42,118 | | 71.23 | 2/19/2018 | |||||||||||||||||||||||||||
90,270 | | 57.54 | 7/21/2019 | |||||||||||||||||||||||||||
71,239 | | 52.64 | 2/14/2021 | |||||||||||||||||||||||||||
| 20,046(3) | 43.65 | 2/13/2022 | |||||||||||||||||||||||||||
23,843 | 23,842(4) | 52.69 | 2/11/2023 | |||||||||||||||||||||||||||
10,015 | 30,043(5) | 60.85 | 2/10/2024 | |||||||||||||||||||||||||||
| 38,575(6) | 70.21 | 2/17/2025 |
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Option Awards | Stock Awards | |||||||||||||||||||||||||||||
Name |
Number of (#) |
Number of Securities (#) |
Option ($) |
Option Expiration Date |
Number of Shares or Units of Stock Have Not (#) |
Market of Shares of Units of Stock That ($)(1) |
Equity of (#) |
Equity ($)(2) |
||||||||||||||||||||||
Ms. Schreuder |
42,118 | | 71.23 | 2/19/2018 | 26,609(11) | 1,918,243 | 66,522(16) | 4,795,571 | ||||||||||||||||||||||
90,270 | | 57.54 | 7/21/2019 | |||||||||||||||||||||||||||
58,836 | | 50.99 | 2/15/2020 | |||||||||||||||||||||||||||
71,239 | | 52.64 | 2/14/2021 | |||||||||||||||||||||||||||
36,083 | 12,027(3) | 43.65 | 2/13/2022 | |||||||||||||||||||||||||||
14,235 | 14,234(4) | 52.69 | 2/11/2023 | |||||||||||||||||||||||||||
6,163 | 18,488(5) | 60.85 | 2/10/2024 | |||||||||||||||||||||||||||
| 29,673(6) | 70.21 | 2/17/2025 |
(1) The market value of the restricted stock units included in this column is based on a price of $72.09 per share (the closing market price of the Corporations common stock on December 31, 2015).
(2) The market value of the performance stock units included in this column is based on a price of $72.09 per share (the closing market price of the Corporations common stock on December 31, 2015).
(3) Options originally granted February 13, 2012, with 25% of the award vesting on each anniversary of the grant date. Accordingly, all remaining unvested options vest on February 13, 2016.
(4) Options originally granted February 11, 2013, with 25% of the award vesting on each anniversary of the grant date. Accordingly, the remaining unvested options vest in equal portions on each of February 11, 2016 and 2017.
(5) Options originally granted February 10, 2014, with 25% of the award vesting on each anniversary of the grant date. Accordingly, the remaining unvested options vest in equal portions on each of February 10, 2016, 2017 and 2018.
(6) Options originally granted February 17, 2015, with 25% of the award vesting on each anniversary of the grant date. Accordingly, the remaining unvested options vest in equal portions on each of February 17, 2016, 2017, 2018 and 2019.
(7) Consists of 15,777 units vesting on February 11, 2016, 13,661 units vesting on February 10, 2017, 15,776 units vesting on February 11, 2017, 13,661 units vesting on February 10, 2018, 11,840 units vesting on February 17, 2018 and 11,839 units vesting on February 17, 2019.
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(8) Consists of 3,559 units vesting on February 11, 2016, 3,818 units vesting on February 13, 2016, 3,390 units vesting on February 10, 2017, 3,559 units vesting on February 11, 2017, 3,389 units vesting on February 10, 2018, 3,561 units vesting on February 17, 2018 and 3,561 units vesting on February 17, 2019.
(9) Consists of 4,745 units vesting on February 11, 2016, 4,109 units vesting on February 10, 2017, 4,745 units vesting on February 11, 2017, 4,108 units vesting on February 10, 2018, 3,561 units vesting on February 17, 2018 and 3,561 units vesting on February 17, 2019.
(10) Consists of 7,948 units vesting on February 11, 2016, 6,677 units vesting on February 10, 2017, 7,947 units vesting on February 11, 2017, 6,676 units vesting on February 10, 2018, 5,787 units vesting on February 17, 2018 and 5,786 units vesting on February 17, 2019.
(11) Consists of 4,745 units vesting on February 11, 2016, 4,109 units vesting on February 10, 2017, 4,745 units vesting on February 11, 2017, 4,108 units vesting on February 10, 2018, 4,451 units vesting on February 17, 2018 and 4,451 units vesting on February 17, 2019.
(12) Consists of the following maximum number of shares Mr. Waddell may receive under performance stock units: 78,882 shares underlying performance stock units granted in 2013; 68,304 shares underlying performance stock units granted in 2014; and 59,198 shares underlying performance stock units granted in 2015. The distribution of shares underlying the performance stock units granted in 2013 took place on January 19, 2016, with 63,105 shares actually being distributed to Mr. Waddell. The actual number of shares distributed with respect to performance stock units granted in 2014 and 2015 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units.
(13) Consists of the following maximum number of shares Mr. Bowman may receive under performance stock units: 17,794 shares underlying performance stock units granted in 2013; 16,948 shares underlying performance stock units granted in 2014; and 17,804 shares underlying performance stock units granted in 2015. The distribution of shares underlying the performance stock units granted in 2013 took place on January 19, 2016, with 14,235 shares actually being distributed to Mr. Bowman. The actual number of shares distributed with respect to performance stock units granted in 2014 and 2015 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units.
(14) Consists of the following maximum number of shares Mr. Fradkin may receive under performance stock units: 23,724 shares underlying performance stock units granted in 2013; 20,543 shares underlying performance stock units granted in 2014; and 17,804 shares underlying performance stock units granted in 2015. The distribution of shares underlying the performance stock units granted in 2013 took place on January 19, 2016, with 18,979 shares actually being distributed to Mr. Fradkin. The actual number of shares distributed with respect to performance stock units granted in 2014 and 2015 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units.
(15) Consists of the following maximum number of shares Mr. Morrison may receive under performance stock units: 39,738 shares underlying performance stock units granted in 2013; 33,383 shares underlying performance stock units granted in 2014; and 28,932 shares underlying performance stock units granted in 2015. The distribution of shares underlying the performance stock units granted in 2013 took place on January 19, 2016, with 31,790 shares actually being distributed to Mr. Morrison.
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The actual number of shares distributed with respect to performance stock units granted in 2014 and 2015 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units.
(16) Consists of the following maximum number of shares Ms. Schreuder may receive under performance stock units: 23,724 shares underlying performance stock units granted in 2013; 20,543 shares underlying performance stock units granted in 2014; and 22,255 shares underlying performance stock units granted in 2015. The distribution of shares underlying the performance stock units granted in 2013 took place on January 19, 2016, with 18,979 shares actually being distributed to Ms. Schreuder. The actual number of shares distributed with respect to performance stock units granted in 2014 and 2015 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units.
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Option Exercises and Stock Vested
The following table sets forth information regarding exercises of stock options and vesting of stock awards for each named executive officer in 2015.
Option Awards | Stock Awards | |||||||||||||||
Name |
Number of Shares Acquired on Exercise (#) |
Value Realized on Exercise ($)(1) |
Number of Shares Acquired On Vesting (#) |
Value Realized On Vesting ($)(2) |
||||||||||||
Mr. Waddell |
65,105 | $816,725 | 91,450 | $5,988,890 | ||||||||||||
Mr. Bowman |
2,959 | 28,377 | 5,719 | 401,571 | ||||||||||||
Mr. Fradkin |
20,123 | 192,980 | 27,910 | 1,829,930 | ||||||||||||
Mr. Morrison |
118,974 | 3,249,738 | 43,601 | 2,887,026 | ||||||||||||
Ms. Schreuder |
17,756 | 188,924 | 27,910 | 1,829,930 |
(1) The value realized on the exercise of stock options represents the pre-tax difference between the option exercise price and the fair market value of the common stock on the date of exercise.
(2) The value realized on the distribution of stock units represents the number of stock units vesting multiplied by the fair market value of the common stock on such date.
Information with respect to accrued benefits of each named executive officer under the Pension Plan as of December 31, 2015 is as follows.
Name | Plan Name |
Number of Years Credited Service (#) |
Present Value of Accumulated Benefit ($) |
Payments During Last |