DEF 14A 1 d656679ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 Pursuant to §240.14a-12

THE BANK OF NEW YORK MELLON 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)(1) and 0-11.

 

  (1)  

Title of each class of securities to which transaction applies:

   

 

  (2)  

Aggregate number of securities to which transaction applies:

 

   

 

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

   

 

  (4)  

Proposed maximum aggregate value of transaction:

   

 

  (5)   Total fee paid:
   

 

¨   Fee paid previously with preliminary materials.
¨  

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

  (1)  

Amount Previously Paid:

   

 

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Filing Party:

   

 

  (4)  

Date Filed:

   

 


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LOGO

 

NOTICE OF 2014 ANNUAL MEETING OF STOCKHOLDERS

 

 

Date and Time:   

Tuesday, April 8, 2014 at 9:00 a.m., local time

Place:   

101 Barclay Street, New York, New York 10286

Record Date:   

You can, and should, vote if you were a stockholder on February 7, 2014

Admission:   

To attend, you must bring a government-issued photo identification and evidence of ownership on the record date (such as a brokerage account statement). If you represent an entity that is a stockholder, you also will need proof of authority. If you plan to attend the Annual Meeting in person, we ask that you also complete and return the reservation form included at the end of the proxy statement. Complete instructions are outlined under “Annual Meeting Information” beginning on page 75 of the proxy statement.

 

Please note that no cameras, recording equipment, large bags or packages will be permitted in the Annual Meeting. The use of cell phones, smart phones, tablets and other personal communication devices during the Annual Meeting is strictly prohibited.

Agenda:   

1.     To elect the 13 nominees named in this proxy statement to serve on our Board of Directors until the 2015 annual meeting.

 

2.     To provide an advisory vote for approval of the 2013 compensation of our named executive officers, as disclosed in this proxy statement.

 

3.     To ratify the appointment of KPMG LLP as our independent auditor for 2014.

 

4.     To approve the amended and restated Long-Term Incentive Plan.

 

5.     To consider a stockholder proposal regarding an independent chair, if properly presented.

 

We will also act on any other business that may properly come before the meeting, although we have not received notice of any other matters that may be properly presented.

Voting:   

It is important that you vote your shares. To ensure that they are voted, please follow the instructions on the proxy card to either complete and return the proxy card or vote by telephone or over the Internet. Mailing your proxy card or voting by telephone or over the Internet does not prevent you from changing your vote in person at the meeting.

BY ORDER OF THE BOARD OF DIRECTORS,

 

LOGO

Jane Sherburne

General Counsel and Corporate Secretary

March 7, 2014

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on April 8, 2014: Our 2014 proxy statement and 2013 annual report to stockholders are available at www.edocumentview.com/bk.

 


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LOGO

 

PROXY SUMMARY

This summary is intended to assist you in reviewing the proposals. You should read the entire proxy statement carefully before voting. This proxy statement and the form of proxy are first being sent to stockholders on March 7, 2014. See “Annual Meeting Information” beginning on page 75 for details on the voting process and how to attend the annual meeting.

AGENDA AND BOARD RECOMMENDATIONS

 

 

Proposal    Board Voting Recommendation    Page Reference
(for more detail)

1.      Election of 13 directors

   FOR EACH
DIRECTOR NOMINEE
   1

2.      Advisory resolution to approve the 2013 compensation of our named executive officers

   FOR    26

3.      Ratification of the appointment of KPMG LLP as our independent auditor for 2014

   FOR    55

4.      Approval of the Amended and Restated Long-Term Incentive Plan of The Bank of New York Mellon Corporation

   FOR    60

5.      Stockholder proposal regarding an independent chair

   AGAINST    73

BOARD NOMINEES

 

 

Name   Age   Director
Since
  Occupation   Inde-
pendent
   Committee
Memberships

Ruth E. Bruch

  60   2007   Retired SVP and Chief Information
Officer of Kellogg Company
  ü    CSR (Chair), HRC, RC, TC

Nicholas M. Donofrio

  68   2007   Retired EVP, Innovation and
Technology of IBM Corporation
  ü    CSR, RC (Chair), TC, EC

Jeffrey A. Goldstein

  58     Managing Director, Hellman & Friedman LLP   ü    RC

Gerald L. Hassell

  62   2007   Chairman and CEO of The Bank of New York Mellon Corporation      EC

Edmund F. “Ted” Kelly

  68   2007   Retired Chairman of Liberty Mutual Group   ü    HRC, RC, TC (Chair)

Richard J. Kogan

  72   2007   Principal of The KOGAN Group LLC and RJKogan AP LLC, Retired Chairman, President and CEO of Schering Plough Corporation   ü    AC, CG&N, HRC

Michael J. Kowalski

  61   2007   Chairman and CEO of Tiffany & Co.   ü    AC, HRC

John A. Luke, Jr.

  65   2007   Chairman and CEO of
MeadWestvaco Corporation
  ü    CG&N (Chair), RC, EC

Mark A. Nordenberg

  65   2007   Chancellor, CEO and Distinguished Service Professor of Law at the University of Pittsburgh   ü    CSR, RC, TC

Catherine A. Rein

  71   2007   Retired Senior EVP and Chief Administrative Officer of MetLife, Inc.   ü    AC (Chair), CG&N, EC

William C. Richardson

  73   2007   President and CEO Emeritus of The W.K. Kellogg Foundation and Retired Chair and Co-Trustee of The W.K. Kellogg Foundation Trust   ü    AC, CG&N

Samuel C. Scott III

  69   2007   Retired Chairman, President and CEO of Corn Products International, Inc.   ü    AC, CSR, HRC (Chair), EC

Wesley W. von Schack

  69   2007   Chairman of AEGIS Insurance
Services, Inc.
  ü    CG&N, HRC, RC, EC (Chair)

 

     

AC

   Audit Committee    RC    Risk Committee

CG&N

   Corporate Governance and Nominating Committee    TC    Technology Committee

CSR

   Corporate Social Responsibility Committee    EC    Executive Committee

HRC

   Human Resources and Compensation Committee      

 

BNY Mellon LOGO 2014 Proxy Statement


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CORPORATE GOVERNANCE HIGHLIGHTS

 

 

ü      Independent board. Our board is comprised of all independent directors, other than our Chief Executive Officer (CEO), and our independent directors meet in executive sessions at each regularly scheduled board meeting.

 

ü      Independent lead director. Our independent lead director, Wesley W. von Schack, is selected by our independent directors and has broad powers, including approval of board meeting agendas, materials and schedules.

 

ü      Independent board committees. We have six standing committees made up entirely of independent directors.

 

ü      Annual board and committee self-evaluations.

 

ü      High rate of attendance. Average director attendance at board and committee meetings in 2013 was over 93%.

 

ü      No staggered board.

 

ü      Majority voting in uncontested director elections. Each director must be elected by a majority of votes cast, not a plurality.

 

 

  

 

ü      Continued engagement with stakeholders. We continue to engage with, and consider feedback received from, our stakeholders. In 2013, we invited comments from investors representing about 60% of our outstanding shares and reached investors representing almost 25% of our outstanding shares.

 

ü      No “poison pill” (stockholders’ rights plan).

 

ü      No supermajority voting. Action by stockholders requires only majority of votes cast (not majority of shares present and entitled to vote).

 

ü      Emphasis on ethical conduct. We have adopted codes of conduct which apply to all of our employees and directors to provide a framework for the highest standards of professional conduct and foster a culture of honesty and accountability.

 

ü      Deferred director compensation. A significant portion of director compensation is paid in deferred stock units, which must be held as long as the director serves on the board.

 

PERFORMANCE HIGHLIGHTS

 

 

2013 was marked by a somewhat improved operating environment, as improved equity market values and increased volumes and volatility, combined with our focus on organic growth, helped to mitigate continued global uncertainty, lower fixed income valuations and persistent low interest rates. Pre-tax income was up 12%, investment management and performance fees were up 7%, assets under management were up 14%, investment services fees were up 4%, and assets under custody and/or administration increased by $1.3 trillion, in each case, compared to the prior year. We also recorded net asset management inflows of $100 billion, exceeded Basel III Tier 1 common equity ratio guidelines by attaining an estimated ratio of 10.6%*, and returned approximately $1.7 billion to our stockholders in the form of share repurchases and common stock dividends. The charts below show our performance as measured by earnings per share and total shareholder return.

   

Earnings Per Share

LOGO

 

Total Shareholder Return

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*      Based on our interpretation of the Final Capital Rules released by the Federal Reserve on July 2, 2013, on a fully phased-in basis under the standardized approach.

**    Excludes the impact of the U.S. Tax Court’s rulings in 2013 disallowing some foreign tax credits from before The Bank of New York and Mellon merger.

 

 

BNY Mellon LOGO 2014 Proxy Statement


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COMPENSATION PROGRAM HIGHLIGHTS

 

   

We believe that our executive compensation program links pay to performance, aligns our named executive officers’ compensation with our stockholders’ interests and appropriately balances risk-taking.

 

Our 2013 pay-for-performance enhancements and changes for 2014 are summarized on the right. Our Human Resources and Compensation Committee (HRC Committee) determined to keep the structure of our program for 2014 essentially the same based on the results of last year’s say-on-pay vote and our outreach to investors, proxy advisory firms and other stakeholders.

 

Say on Pay Vote

 

LOGO

 

As we refine our compensation program, policies and practices, and determine compensation results going forward, we will continue to consider feedback from our stakeholders.

 

  

2013 Pay-For-Performance Enhancements

 

ü      Substantially increased the portion of pay that varies directly with yearly performance.

 

ü      Increased equity portion of the annual incentive.

 

ü      Introduced three-year performance share units (PSUs) as our long-term performance vehicle.

 

ü      Expanded risk-based forfeiture provisions.

 

Key Changes for 2014

 

ü      Setting threshold and maximum guideline ranges for our annual incentive corporate component to require higher percentage performance levels against our earnings per share (EPS) budget than in 2013 and providing for a zero corporate component payout for any level of performance below threshold. In addition, if we do not earn more in 2014 than we did in 2013 on an adjusted basis, the corporate component payout will be significantly less.

 

ü      Adding expense control/operating leverage as an additional key item that the HRC Committee considers when determining the corporate component payout.

 

ü      Adopting an approach that enhances the link between prior-year annual performance and long-term grant levels by communicating long-term and annual incentive targets in February 2014. Actual awards will be determined in 2015, based on 2014 performance.

 

ü      We continue to subject long-term awards to three-year performance conditions, have one regular grant of long-term awards each year and defer a significant portion of the annual incentive through restricted stock units (RSUs).

 

 

BNY Mellon LOGO 2014 Proxy Statement


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RATIFICATION OF INDEPENDENT AUDITOR

 

 

As a matter of good corporate governance, we are asking that our stockholders ratify the appointment of KPMG LLP as our independent registered public accountants for the year ending December 31, 2014. See “Proposal 3 – Ratification of the Appointment of KPMG LLP” for more information, including information regarding fees for services provided by KPMG LLP.

AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN

 

 

We are seeking stockholder approval of our amended and restated Long-Term Incentive Plan (Amended LTIP), which contains the following changes:

 

Increase in Authorized Shares

 

Increase the shares authorized for issuance under the Amended LTIP by 30 million shares.

Eligibility for Awards

 

Allow awards to be granted to former employees solely with respect to their final year of service.

Encompass Cash Awards for Directors  

Allow board service-related cash awards to be granted to non-employee directors under the Amended LTIP.

Limit on Non-Employee Director Awards  

Limit the aggregate awards that can be granted to a non-employee director, solely with respect to his or her service as a member of the Board, during a calendar year to $1,000,000.

Section 162(m) of the Internal Revenue Code (IRC)  

Approve the material terms of the performance goals under the Amended LTIP for purposes of Section 162(m) of the IRC.

Administrative Changes

 

Make certain other administrative changes.

See “Proposal 4 – Approval of the Amended and Restated Long-Term Incentive Plan of The Bank of New York Mellon Corporation” for more information and Exhibit A for the full text of the proposed Plan.

STOCKHOLDER PROPOSAL

 

 

If properly presented at the meeting, stockholders will be asked to vote on an advisory stockholder proposal urging the Board to adopt a policy requiring that the Chair of the Board be an independent director. For the reasons outlined under “Proposal 5 – Stockholder Proposal Regarding an Independent Chair,” we recommend that stockholders vote against this proposal.

 

BNY Mellon LOGO 2014 Proxy Statement


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TABLE OF CONTENTS

 

NOTICE OF 2014 ANNUAL MEETING OF STOCKHOLDERS

  

PROXY SUMMARY

  

PROPOSAL 1 – ELECTION OF DIRECTORS

     1   

Director Qualifications

     1   

Diversity of the Board

     2   

Information About the Nominees

     2   

Majority Voting Standard for Election of Directors

     10   

CORPORATE GOVERNANCE

     11   

Board Leadership

     11   

Director Independence

     12   

Board Oversight of Risk

     13   

Board Meetings and Board Committee Information

     15   

Executive Compensation Consultants to the Human Resources and Compensation Committee

     19   

Succession Planning

     20   

Board Executive Sessions, Evaluation and Education

     20   

Contacting the Board of Directors

     21   

COMPENSATION OF DIRECTORS

     22   

COMPENSATION AND RISK

     25   

PROPOSAL 2 – ADVISORY APPROVAL OF 2013 COMPENSATION OF NAMED EXECUTIVE OFFICERS

     26   

COMPENSATION DISCUSSION AND ANALYSIS

     27   

EXECUTIVE COMPENSATION

     44   

Summary Compensation Table

     44   

2013 Grants of Plan-Based Awards Table

     46   

Outstanding Equity Awards at Fiscal Year-End 2013

     47   

2013 Option Exercises and Stock Vested

     49   

2013 Pension Benefits

     49   

2013 Nonqualified Deferred Compensation

     51   

Potential Payments Upon Termination or Change in Control

     52   

PROPOSAL 3 – RATIFICATION OF THE APPOINTMENT OF KPMG LLP

     55   

Report of the Audit Committee

     56   

Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees

     56   

Other Services Provided by KPMG LLP

     57   

Pre-Approval Policy

     57   

INFORMATION ON STOCK OWNERSHIP

     58   

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     59   

PROPOSAL 4 – APPROVAL OF THE AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN OF THE BANK OF NEW YORK MELLON CORPORATION

     60   

Proposed Amendments

     61   

Best Practices

     62   

Key Data

     63   

Key Terms of the Amended LTIP

     63   

Plan Benefits

     67   

U.S. Federal Income Tax Aspects

     68   

Equity Compensation Plans Table

     71   

Board Recommendation

     72   

 

BNY Mellon LOGO 2014 Proxy Statement


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PROPOSAL 5 – STOCKHOLDER PROPOSAL REGARDING AN INDEPENDENT CHAIR

     73   

Supporting Statement

     73   

Board of Directors’ Response

     73   

ANNUAL MEETING INFORMATION

     75   

OTHER INFORMATION

     78   

Stockholder Proposals for 2015 Annual Meeting

     78   

Corporate Governance Guidelines and Codes of Conduct

     78   

Business Relationships and Related Party Transactions Policy

     78   

How Our Board Solicits Proxies; Expenses of Solicitation

     79   

Householding

     79   

Other Business

     80   

EXHIBIT A – THE AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN OF THE BANK OF NEW YORK MELLON CORPORATION

     81   

 

BNY Mellon LOGO 2014 Proxy Statement


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PROPOSAL 1 – ELECTION OF DIRECTORS

You are being asked to elect the 13 nominees named in this proxy statement to serve on the Board of Directors of The Bank of New York Mellon Corporation (which we refer to as “we,” “us,” the “company” or “BNY Mellon”) until the 2015 Annual Meeting of stockholders or until their successors have been duly elected and qualified. Each nominee currently serves on our Board of Directors other than Mr. Goldstein. Twelve nominees are independent directors and one nominee serves as the company’s Chairman and Chief Executive Officer.

We do not know of any reason why any nominee named in this proxy statement would be unable to serve as a director if elected. If any nominee is unable to serve, the shares represented by all valid proxies will be voted for the election of such other person as may be nominated in accordance with our by-laws, as described below. Proxies cannot be voted for a greater number of persons than the number of nominees named in this proxy statement.

The Board unanimously recommends you vote “FOR” each of the nominees described below.

DIRECTOR QUALIFICATIONS

 

 

Our Corporate Governance and Nominating Committee, which we refer to as the “CG&N Committee,” assists the Board in reviewing and identifying individuals qualified to become Board members. The CG&N Committee utilizes Board-approved criteria in recommending nominees for directors at Annual Meetings of stockholders and nominees to fill vacancies on the Board. Directors chosen to fill vacancies will hold office for a term expiring at the end of the next Annual Meeting.

In selecting nominees for election as directors of the company, our CG&N Committee’s charter provides, among other things, that the Committee must consider (but is not limited to consideration of) the candidate’s experience, accomplishments, education, skills and personal and professional integrity; the diversity of the Board (in all aspects of that term); and the candidate’s ability to devote the necessary time to serve as a director (including directorships held at other corporations and organizations). The CG&N Committee will evaluate a candidate recommended by a stockholder for nomination as a director in the same manner that it evaluates any other nominee. For information on recommending a candidate for nomination as a director see “Stockholder Proposals for 2015 Annual Meeting” on page 78 below. Mr. Goldstein was initially recommended to the CG&N Committee for consideration as a candidate by our CEO.

The Board and the CG&N Committee have concluded that each of our current Board members and Mr. Goldstein should be nominated as a director. As part of this determination, the Board and the CG&N Committee considered:

 

   

Professional background and experience. The individual’s specific experience, background and education, including experience with, among other things, asset management and other financial services, international business, risk management, operational

   

planning and business strategy, technology and innovation, financial reporting and accounting, legal matters, government and regulatory affairs, compensation and human resources, sales and marketing, and mergers and acquisitions.

 

   

Senior level policy-making positions. The individual’s effectiveness, business acumen and leadership skills as demonstrated by senior-level policy-making experience in business, government, education, technology and/or not-for-profit enterprises.

 

   

Other public company board experience. The individual’s service as a director on other public company boards.

 

   

Intangible attributes. The individual’s integrity; capacity to evaluate business issues and make practical and mature judgments; willingness to devote the necessary time and effort required to serve on our Board; skills and personality to work effectively and collegially with other directors on a board that is responsive to the company’s needs; and the self-confidence and articulateness to participate effectively in Board discussions.

 

   

Prior BNY Mellon Board experience. The individual’s years of service on our Board and on the legacy boards of directors of The Bank of New York Company, Inc., which we refer to as “Bank of New York,” and Mellon Financial Corporation, which we refer to as “Mellon,” as well as each individual’s service on standing committees of our Board and the legacy Bank of New York and Mellon boards.

 

   

Board attendance and participation. The individual’s attendance record and participation at Board and committee meetings.

 

 

BNY Mellon LOGO 2014 Proxy Statement 1


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DIVERSITY OF THE BOARD

 

 

In considering the diversity of the Board (in all aspects of that term) as a criterion for selecting nominees in accordance with its charter, the CG&N Committee takes into account various factors and perspectives, including differences of viewpoint, professional experience, education, skills and other individual qualities and attributes that contribute to Board heterogeneity, as well as race, gender, national origin and sexual preference. The CG&N

Committee seeks persons with leadership experience in a variety of contexts and, among public company leaders, across a variety of industries. The CG&N Committee believes that this conceptualization of diversity is the most effective means to implement Board diversity and will assess the effectiveness of this approach as part of its annual review of its charter and our Corporate Governance Guidelines.

 

 

INFORMATION ABOUT THE NOMINEES

 

 

Each of the following nominees for election as director was elected as a director at our 2013 Annual Meeting other than Jeffrey A. Goldstein, who is not currently a director. Our Board believes the nominees meet the criteria described above with diversity and depth of experience that enable them to effectively oversee management of the company. No director has a family relationship to any other

director, nominee for director or executive officer. Information relating to each nominee for election as director, including his or her period of service as a director of Bank of New York or Mellon prior to their merger on July 1, 2007, which we refer to as the “merger,” principal occupation, specific experience, other biographical material and qualifications, is presented on the following pages.

 

 

BNY Mellon LOGO 2014 Proxy Statement 2


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LOGO

 

Independent

 

Director since

2007

 

Age 60

 

 

RUTH E. BRUCH

Retired Senior Vice President and Chief Information Officer of Kellogg Company

 

Ms. Bruch served as Senior Vice President and Chief Information Officer of Kellogg Company, a food manufacturer focusing on cereal and convenience foods, from 2006 until her retirement in 2009. Prior to that, from 2002 to 2006, Ms. Bruch served as Senior Vice President and Chief Information Officer of Lucent Technologies Inc., which focuses on communications networking solutions. Ms. Bruch is currently a director of Teledyne Technologies Inc., where she serves on the Audit Committee and the Personnel and Compensation Committee. Ms. Bruch served as a director of Mellon from 2003 to 2007.

 

Ms. Bruch’s experience also includes senior-level management positions at Visteon Corporation, ZoneTrader.com, Union Carbide Corporation, Continental Bank Corporation, First Bank System, Inc. and Davenport (IA) Bank & Trust Co. Ms. Bruch has also served as a member of the board of directors of BlueStar Solutions, an IT outsourcing services provider, and Manchester Bidwell Corporation, a non-profit organization that provides instruction and mentoring in career education and the arts for youth and adults in the Pittsburgh, Pennsylvania region. Ms. Bruch holds a Bachelor of Business Administration degree from the University of Iowa.

 

 

Ms. Bruch’s service as chief information officer of several publicly-traded companies and other organizations for over 10 years, and her other extensive senior-level management positions, including service at three banks, will provide the Board with a perspective and resource on information technology and other technology-related matters, and the banking industry.

 

Other Public Company Board Service: Teledyne Technologies Inc.

 

     

 

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Independent

 

Director since

2007

 

Age 68

 

 

NICHOLAS M. DONOFRIO

Retired Executive Vice President, Innovation and Technology of International Business Machines (or “IBM”) Corporation

 

Mr. Donofrio served as Executive Vice President, Innovation and Technology of IBM Corporation, a developer, manufacturer and provider of advanced information technologies and services, from 2005 until his retirement in 2008. Mr. Donofrio previously served as Senior Vice President, Technology and Manufacturing of IBM Corporation from 1997 to 2005 and spent a total of 44 years as an employee of IBM Corporation. Mr. Donofrio is currently a director of Advanced Micro Devices, Inc., where he serves on the Nominating and Corporate Governance Committee and the Compensation Committee; Delphi Automotive PLC, where he chairs the Innovation and Technology Committee and serves on the Audit and Finance Committees; and Liberty Mutual Group, where he serves on the Audit Committee and the Nominating and Corporate Governance Committee. Mr. Donofrio served as a director of Bank of New York from 1999 to 2007.

 

Mr. Donofrio holds seven technology patents and is a member of numerous technical and science honor societies. Mr. Donofrio is Co-Chair Emeritus and a member of the Board of Trustees of the New York Hall of Science, is a director of TopCoder, Inc., is on the board of advisors of StarVest Partners, L.P., and is a member of the Board of Trustees of Syracuse University. Mr. Donofrio earned a Bachelor of Science degree from Rensselaer Polytechnic Institute and a Master of Science degree from Syracuse University.

 

Mr. Donofrio’s extensive background and experience in engineering, technology and innovation, including his 44 years of service at IBM, as well as his widely-recognized status in the field of engineering and his teaching and training in the area of innovation, will provide the Board with a perspective and resource on technology and innovation.

 

Other Public Company Board Service: Advanced Micro Devices, Inc.; Delphi Automotive PLC

 

     

 

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LOGO

 

Independent

 

Age 58

 

 

JEFFREY A. GOLDSTEIN

Managing Director, Hellman & Friedman LLC and Former Under Secretary of the Treasury for Domestic Finance

 

Mr. Goldstein is in private equity. He was Under Secretary of the Treasury for Domestic Finance and Counselor to the Secretary of the Treasury from 2009 to 2011. Since 2011, Mr. Goldstein has been a Managing Director at the private equity firm Hellman & Friedman LLC and was previously at the firm from 2004 to 2009.

 

Mr. Goldstein worked at James D. Wolfensohn Inc. and successor firms for 15 years. When Wolfensohn & Co. was purchased by Bankers Trust in 1996, he served as co-chairman of BT Wolfensohn and as a member of Bankers Trust’s management committee. In 1999, Mr. Goldstein became a managing director of the World Bank. He also served as its chief financial officer beginning in 2003. In July of 2009, President Barack Obama nominated Mr. Goldstein to be Under Secretary of the Treasury for Domestic Finance. In July 2011, Secretary of the Treasury Timothy F. Geithner awarded Mr. Goldstein with the Alexander Hamilton award, the highest honor for a presidential appointee. Earlier in his career Mr. Goldstein taught economics at Princeton University and worked at the Brookings Institution. Mr. Goldstein earned a Bachelor of Arts degree from Vassar College and a Master of Arts, Master of Philosophy and a Ph.D. in economics from Yale University.

 

Mr. Goldstein’s role as a managing director of a private equity firm, as well as his experience working at the Treasury and his extensive experience in banking, will provide the Board with a leadership and regulatory perspective on the management and operations of a large financial institution.

 

Other Public Company Board Service: None

 

     

 

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Management

 

Director since

2007

 

Age 62

 

 

GERALD L. HASSELL

Chairman and Chief Executive Officer of The Bank of New York Mellon Corporation

 

Mr. Hassell has served as our Chief Executive Officer since 2011 and served as our President since the merger in 2007 through 2012. Prior to the merger, Mr. Hassell served as President of Bank of New York from 1998 to 2007 as well as other prior leadership positions at Bank of New York. Mr. Hassell is currently a director of Comcast Corporation, where he serves on the Governance and Directors Nominating Committee and the Compensation Committee and chairs the Finance Committee. Mr. Hassell served as a director of Bank of New York from 1998 to 2007.

 

Since joining Bank of New York’s Management Development Program more than three decades ago, Mr. Hassell has held a number of key leadership positions within the company in securities servicing, corporate banking, credit, strategic planning and administration services. Mr. Hassell is also a director of the National September 11 Memorial & Museum and the New York Philharmonic, and is Vice Chair of Big Brothers/Big Sisters of New York. Mr. Hassell holds a Bachelor of Arts degree from Duke University and a Master in Business Administration degree from the New York University Stern School of Business.

 

 

Mr. Hassell’s knowledge of the company’s businesses and operations, as well as the financial services industry in general, based on his 40-year tenure with the company and Bank of New York, including service as President, and his participation in numerous financial services industry associations, will provide the Board with a perspective and resource on the company and the financial services industry in general.

 

Other Public Company Board Service: Comcast Corporation

 

     

 

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LOGO

 

Independent

 

Director since

2007

 

Age 68

 

 

EDMUND F. “TED” KELLY

Retired Chairman of Liberty Mutual Group

 

Mr. Kelly served as Chairman (from 2000 to 2013), President (from 1992 to 2010) and Chief Executive Officer (from 1998 to 2011) of Liberty Mutual Group, a multi-line insurance company. Mr. Kelly is currently a director of EMC Corporation, where he serves on the Finance Committee. Mr. Kelly served as a director of Mellon from 2004 to 2007.

 

Mr. Kelly’s experience also includes senior-level management positions at Aetna Life & Casualty Company. Mr. Kelly was a director of Citizens Financial Group Inc., where he served as Chair of the Audit Committee and Chair of the Joint Risk Assessment Committee. Mr. Kelly is also a member of the Board of Governors of the Property Casualty Insurers Association of America and a director of the Financial Services Roundtable; a member of the boards of the United Way of Massachusetts Bay, the American Red Cross of Massachusetts Bay, the American Ireland Fund and The Massachusetts Mentoring Partnership, among others; a past member of the Board of Trustees for Boston College and former President of the Boston Minuteman Council of the Boy Scouts of America. Mr. Kelly received a Bachelor of Arts degree from Queen’s University in Belfast and a Ph.D. from the Massachusetts Institute of Technology.

 

Mr. Kelly’s role for over 10 years as Chairman, Chief Executive Officer and President of a multi-national Fortune 500 insurance company, as well as his over 39 years of experience in the insurance industry, which is highly regulated and concentrates on risk management, will provide the Board with a critical perspective on the Board’s oversight of risk management of the company and an executive and leadership perspective on the management and operations of a large company in a highly regulated industry.

 

Other Public Company Board Service: EMC Corporation

 

     

 

LOGO

 

Independent

 

Director since

2007

 

Age 72

 

 

RICHARD J. KOGAN

Principal of The KOGAN Group LLC and RJKogan AP LLC

Retired Chairman, President and Chief Executive Officer of Schering-Plough Corporation

 

Mr. Kogan is currently a principal of The KOGAN Group LLC, which provides advice and counsel to chief executive officers of for-profit and not-for-profit enterprises, and RJKogan AP LLC. Mr. Kogan previously served as Chief Executive Officer of Schering-Plough Corporation, a global healthcare company, from 1996 to 2003, as President from 1986 to 1998 and 2001 to 2003 and as Chairman from 1998 to 2002. Mr. Kogan is currently a director of Colgate-Palmolive Company, where he serves on the Audit and the Finance Committees, chairs the Personnel and Organization Committee, and is a past Presiding Director. Mr. Kogan served as a director of Bank of New York from 1996 to 2007.

 

Mr. Kogan serves as Chairman of the Board of Trustees of Saint Barnabas Corporation and Medical Center, and is a member of the Board of Trustees of New York University, overseer and member of the Executive Committee of New York University’s Stern School of Business and a member of the Council on Foreign Relations. Mr. Kogan earned a Bachelor of Arts degree from The City College of The City University of New York and a Master in Business Administration degree from the New York University Stern School of Business.

 

Mr. Kogan’s role as Chairman, Chief Executive Officer and President of a publicly-traded global pharmaceutical company, as well as his other senior management positions during his over 30-year career in the pharmaceutical industry, will provide the Board with an executive and leadership perspective on the management and operations of a large public company in a highly regulated industry.

 

Other Public Company Board Service: Colgate-Palmolive Company

 

     

 

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LOGO

 

Independent

 

Director since

2007

 

Age 61

 

 

MICHAEL J. KOWALSKI

Chairman and Chief Executive Officer of Tiffany & Co.

 

Mr. Kowalski has served as Chairman and Chief Executive Officer of Tiffany & Co., an international designer, manufacturer and distributor of jewelry and fine goods, since 2003 and 1999, respectively. Mr. Kowalski has served in key leadership positions at Tiffany & Co. since 1983. Mr. Kowalski is currently a director of Tiffany & Co. and was a director of Fairmont Hotels & Resorts from 2002 to 2006. Mr. Kowalski served as a director of Bank of New York from 2003 to 2007.

 

Mr. Kowalski serves as Secretary of the Board of Jewelers of America and chairs the Board of Overseers of the University Museum of Archaeology and Anthropology at the University of Pennsylvania. Mr. Kowalski is a trustee of the University of Pennsylvania. Mr. Kowalski earned a Bachelor of Arts degree from the University of Pennsylvania and a Master in Business Administration degree from Harvard University.

 

Mr. Kowalski’s role as Chairman and Chief Executive Officer of a publicly-traded international manufacturer and retailer of jewelry and other specialty items, as well as his other senior operating and financial management positions during his 30-year career in the jewelry industry, will provide the Board with an executive and leadership perspective on the management, operations and financial oversight of a large public company. Other Public Company Board Service: Tiffany & Co.

 

     

 

LOGO

 

Independent

 

Director since

2007

 

Age 65

 

 

JOHN A. LUKE, JR.

Chairman and Chief Executive Officer of MeadWestvaco Corporation

 

Mr. Luke has served as Chairman and Chief Executive Officer of MeadWestvaco Corporation, a manufacturer of paper, packaging and specialty chemicals, since 2002. Mr. Luke is currently a director of MeadWestvaco Corporation and The Timken Company, where he serves on the Nominating and Corporate Governance Committee and chairs the Compensation Committee. Mr. Luke served as a director of Bank of New York from 1996 to 2007.

 

Mr. Luke is also a director and former Chairman of the American Forest & Paper Association. He is currently a director of FM Global, where he chairs the Compensation Committee and serves on the Executive Committee. Mr. Luke is ex-officio director and former Chairman of the Sustainable Forestry Initiative, Inc., a former member of the President’s Export Council, and a trustee of the American Enterprise Institute for Public Policy Research as well as the Virginia Museum of Fine Arts, among others. Mr. Luke served as an officer with the U.S. Air Force in Southeast Asia during the Vietnam conflict. Mr. Luke earned a Bachelor of Arts degree from Lawrence University and a Master in Business Administration degree from The Wharton School of Business at the University of Pennsylvania.

 

Mr. Luke’s role as Chairman and Chief Executive Officer of a publicly-traded global manufacturer of packaging solutions and other products, as well as his other senior management positions during his 35 years at MeadWestvaco Corporation and its predecessors, will provide the Board with an executive and leadership perspective on the management and operations of a large public company.

 

Other Public Company Board Service: MeadWestvaco Corporation; The Timken Company

 

     

 

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LOGO

 

Independent

 

Director since

2007

 

Age 65

 

 

MARK A. NORDENBERG

Chancellor, Chief Executive Officer and Distinguished Service Professor of Law of the University of Pittsburgh

 

Mr. Nordenberg has served as Chancellor and Chief Executive Officer of the University of Pittsburgh, a major public research university, since 1996. Mr. Nordenberg has announced that he will retire as Chancellor effective August 2014 but will remain at the University as Distinguished Service Professor of Law. Mr. Nordenberg served as a director of Mellon from 1998 to 2007.

 

Mr. Nordenberg joined the University of Pittsburgh’s law faculty in 1977 and served as Dean of the School of Law from 1985 until 1993. Mr. Nordenberg was the interim Provost and Senior Vice Chancellor for Academic Affairs from 1993 to 1994, and interim Chancellor from 1995 to 1996. A specialist in scholarly aspects of civil litigation, he has published books, articles and reports on this topic, and has served as a member of both the United States Supreme Court’s Advisory Committee on Civil Rules and the Pennsylvania Supreme Court’s Civil Procedural Rules Committee. He is a director and executive committee member of the Association of American Universities and has served on the boards of national and regional organizations promoting innovation and economic progress. Mr. Nordenberg received his Bachelor of Arts degree from Thiel College and his Juris Doctorate degree from the University of Wisconsin School of Law.

 

Mr. Nordenberg’s role for the past 18 years as Chancellor of a major research university and his other senior positions at the university, including Dean of its law school, over his 36-year career at the institution, as well as his legal expertise, will provide the Board with an executive, leadership and legal perspective on the management and operations of a large institution.

 

Other Public Company Board Service: None

 

     

 

LOGO

 

Independent

 

Director since

2007

 

Age 71

 

 

CATHERINE A. REIN

Retired Senior Executive Vice President and Chief Administrative Officer of MetLife, Inc.

 

Ms. Rein served as Senior Executive Vice President and Chief Administrative Officer of MetLife, Inc., an insurance and financial services company, from 2005 to 2008. Prior to that, Ms. Rein served as President and Chief Executive Officer of Metropolitan Property and Casualty Insurance Company from 1999 to 2005. Ms. Rein served in key leadership positions at MetLife, Inc. from 1985 to 1998. Ms. Rein is currently a director of FirstEnergy Corp., where she serves on the Audit Committee and chairs the Compensation Committee. Ms. Rein served as a director of Bank of New York from 1981 to 2007.

 

Before joining MetLife, Ms. Rein served as vice president and general counsel for The Continental Group, Inc., a property management company. Prior to that, she was associated with the New York City law firm of Dewey, Ballantine, Bushby, Palmer & Wood. Ms. Rein is a member of the Board of Visitors of the New York University Law School, previously chaired the MetLife Foundation and is a director emeritus of Corning, Inc. Ms. Rein received a Bachelor of Arts degree from The Pennsylvania State University and a Juris Doctorate degree from New York University School of Law.

 

 

Ms. Rein’s role in various senior management positions during her 25-year career at a multi-national insurance company that is a Fortune 500 company, as well as her experience as general counsel of another company, will provide the Board with an executive, leadership and legal perspective on the management and operations of a large public company in a highly-regulated industry.

 

Other Public Company Board Service: FirstEnergy Corp.

 

     

 

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LOGO

 

Independent

 

Director since

2007

 

Age 73

 

 

WILLIAM C. RICHARDSON

President and Chief Executive Officer Emeritus of The W.K. Kellogg Foundation and Retired Chair and Co-Trustee of The W.K. Kellogg Foundation Trust

 

Dr. Richardson previously served as President and Chief Executive Officer of The W.K. Kellogg Foundation, a private foundation, as well as Chair and Co-Trustee of The W.K. Kellogg Foundation Trust from 1995 to 2007. Dr. Richardson is currently the lead director of Exelon Corporation, where he serves on the Audit, the Compensation, the Investment Oversight and the Corporate Governance Committees, among others. Dr. Richardson is also a trustee of the Exelon Foundation. Dr. Richardson served as a director of Kellogg Company from 1996 to 2007, where he served on the Finance, Consumer Marketing, and Social Responsibility Committees, among others. He also served as a director of CSX Corporation from 1992 to 2008, where he served on the Audit, the Compensation and the Executive Committees, and as lead director. Dr. Richardson served as a director of Bank of New York from 1998 to 2007.

 

Dr. Richardson has devoted his academic career to research related to the organization and financing of health services in the U.S. He served as President of The Johns Hopkins University. He was also Graduate Dean and Vice Provost for Research at the University of Washington in Seattle; Executive Vice President and Provost of The Pennsylvania State University; and held various positions at the University of Chicago. Dr. Richardson has chaired numerous boards and commissions at the federal and state levels and in the philanthropic sector. He has served as a director of Mercantile Bankshares Corporation, among others. He served as Professor of Health Policy and Management at The Johns Hopkins University. Dr. Richardson received a Bachelor of Arts degree from Trinity College and a Master in Business Administration degree and a Ph.D. from the University of Chicago.

 

Dr. Richardson’s senior positions at a major research university and other institutions, and his position as Chief Executive Officer and President for over 10 years of a major foundation, will provide the Board with an executive and leadership perspective on the management and operations of both large institutions and a foundation.

 

Other Public Company Board Service: Exelon Corporation

 

     

 

LOGO

 

Independent

 

Director since

2007

 

Age 69

 

 

SAMUEL C. SCOTT III

Retired Chairman, President and Chief Executive Officer of Corn Products International, Inc.

 

Prior to his retirement in 2009, Mr. Scott served as Chairman (since 2001), Chief Executive Officer (since 2001), President (since 1997) and management director of Corn Products International, Inc., global producers of corn-refined products and ingredients. Mr. Scott previously served as President of Bestfoods Corn Refining from 1995 to 1997 and President of American Corn Refining from 1989 to 1997. Mr. Scott is currently a director of Motorola Solutions, Inc., where he chairs the Governance and Nominating Committee and serves on the Executive Committee, and a director of Abbott Laboratories, where he serves on the Audit and Compensation Committees. Mr. Scott also serves on the boards of, among others, Chicago Sister Cities, Northwestern Memorial HealthCare, the Chicago Urban League and The Chicago Council on Global Affairs. Mr. Scott received both a Bachelor of Arts degree and a Master in Business Administration degree from Farleigh Dickinson University. Mr. Scott served as a director of Bank of New York from 2003 to 2007.

 

Mr. Scott’s role as Chairman, Chief Executive Officer and President over the course of 13 years of a publicly-traded international food company, as well as executive positions at other food product companies during his 36-year career, will provide the Board with an executive and leadership perspective on the management and operations of a large public company.

 

Other Public Company Board Service: Motorola Solutions, Inc.; Abbott Laboratories

 

     

 

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LOGO

 

Independent

 

Lead Director

 

Director since

2007

 

Age 69

 

 

WESLEY W. VON SCHACK

Chairman, AEGIS Insurance Services, Inc.

 

Mr. von Schack has served as Chairman of the board of AEGIS Insurance Services, Inc., a mutual property and casualty insurance company since 2006. He is a non-executive director of AEGIS Managing Agency Limited, which manages Syndicate 1225 at Lloyd’s of London. Prior to his retirement in January, 2010, Mr. von Schack served as Chairman, President and Chief Executive Officer of Energy East Corporation, an energy services company, since 1996. Energy East Corporation is a wholly-owned subsidiary of Iberdrola, S.A. He is also a director of Teledyne Technologies Inc., where he serves on the Nominating and Governance and the Personnel and Compensation Committees, and a director of Edwards Lifesciences Corporation, where he serves as lead director and on the Audit Committee. Mr. von Schack was a director of Energy East until his retirement in January 2010. Mr. von Schack served as a director of Mellon from 1989 to 2007.

 

From 1986 to 1996, Mr. von Schack was Chairman, President and Chief Executive Officer of DQE, a diversified energy services company. Mr. von Schack is Director Emeritus of the Gettysburg Foundation and a former member of the President’s Council – Peconic Land Trust. Mr. von Schack received a Bachelor of Arts degree from Fordham University, a Master in Business Administration degree from St. John’s University and a Ph.D. from Pace University.

 

 

Mr. von Schack’s role as Chairman, Chief Executive Officer and President over the course of 24 years of two large publicly-traded energy services companies as well as his other senior management positions, including chief financial officer, during his 35-year career in the energy industry, will provide the Board with an executive and leadership perspective on the management, operations and financial reporting and accounting oversight of a large public company in a highly-regulated industry.

 

Other Public Company Board Service: Teledyne Technologies Inc.; Edwards Lifesciences Corporation

 

     

 

BNY Mellon LOGO 2014 Proxy Statement 9


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MAJORITY VOTING STANDARD FOR ELECTION OF DIRECTORS

 

 

Under our by-laws, in any uncontested election of directors, each director will be elected if more votes are cast “for” the director’s election than are cast “against” the director’s election, with abstentions and broker non-votes not being counted as a vote cast either “for” or “against” the director’s election. A plurality standard will apply in any contested election of directors, which is an election in which the number of nominees for director exceeds the number of directors to be elected. Pursuant to our Corporate Governance Guidelines, if any incumbent director fails to receive a majority of the votes cast in any uncontested election, the director will be required to tender his or her resignation to the Lead Director (or such other director designated by the Board if the director failing to receive the majority of votes cast is the Lead Director) promptly after the certification of the stockholder vote.

The CG&N Committee will promptly consider the tendered resignation and recommend to the Board whether to accept or reject it, or whether other actions should be taken. In considering whether to accept or reject the tendered resignation, the CG&N Committee will consider whatever factors its members deem relevant, including any stated reasons for the “against” votes, the length of service and qualifications of the director whose resignation has been tendered, the director’s contributions to the company, and the mix of skills and backgrounds of the Board members.

The Board will act on the CG&N Committee’s recommendation no later than 90 days following the certification of the election in question. In considering the recommendation of the CG&N Committee, the Board will consider the factors considered by the CG&N Committee and such additional information and factors as it deems relevant.

Following the Board’s decision, the company will publicly disclose the Board’s decision in a Current Report on Form 8-K filed with the Securities and Exchange Commission, which we refer to as the “SEC.” If the Board does not accept the director’s resignation, it may elect to address the underlying stockholder concerns or to take such other actions it deems appropriate and in the best interests of the company and its stockholders. A director who tenders his or her resignation pursuant to this provision will not vote on the issue of whether his or her tendered resignation will be accepted or rejected. If the Board accepts an incumbent director’s resignation pursuant to this provision, or if a nominee for director is not elected and the nominee is not an incumbent director, then the Board may fill the resulting vacancy pursuant to our by-laws. If the Board does not accept an incumbent director’s resignation pursuant to this provision, he or she will continue to serve on the Board until the election of his or her successor.

 

 

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CORPORATE GOVERNANCE

BOARD LEADERSHIP

OUR BOARD LEADERSHIP STRUCTURE

 

 

Our Board has reviewed its current leadership structure – which consists of a combined Chairman and Chief Executive Officer with an independent Lead Director – in light of the composition of the Board, the company’s size, the nature of the company’s business, the regulatory framework under which the company operates, the company’s stockholder base, the company’s peer group and other relevant factors. Our Board has determined that a combined Chairman and Chief Executive Officer position, with an independent Lead Director, is currently the most appropriate Board leadership structure for the company. Mr. von Schack, an independent director, currently serves as our Lead Director and his duties and powers are described below. The Board noted the following factors in reaching its determination:

 

 

The Board acts efficiently and effectively under its current structure, where the Chief Executive Officer also acts as Chairman with a strong independent Lead Director.

 

 

A combined Chairman/Chief Executive Officer is in the best position to be aware of major issues facing the company on a day-to-day and long-term basis, and to identify and bring key risks and developments facing the company to the Board’s attention (in coordination with the Lead Director as part of the agenda-setting process).

 

 

A combined Chairman/Chief Executive Officer position eliminates the potential for uncertainty as to who leads the company, providing the company with a single public “face” in dealing with stockholders, employees, regulators, analysts and other constituencies.

 

 

A strong independent Lead Director provides the Board with the ability to act with respect to management personnel decisions.

 

 

The Lead Director serves as an effective counterbalance to factors commonly cited as reasons to separate the Chairman and Chief Executive Officer positions, such as concerns that the Chairman/Chief Executive Officer will control the Board agenda or dominate Board meetings. In this regard, the Board noted the following in its review that, as set forth in our Corporate Governance Guidelines:

   

the Lead Director reviews and approves, in coordination with the Chairman/Chief Executive Officer, agendas for Board meetings, materials and information sent or presented to the Board and meeting schedules, and has the authority to add items to the agenda for any Board meeting;

 

   

the Lead Director presides at executive sessions of independent directors, which are held at each regular Board meeting;

 

   

the Lead Director serves as a non-exclusive liaison between the other independent directors and the Chairman/Chief Executive Officer;

 

   

the Lead Director can call meetings of the independent directors in his discretion;

 

   

the Lead Director is available to meet with major stockholders and regulators under appropriate circumstances; and

 

   

in conjunction with the chairman of the HRC Committee, the Lead Director discusses with the Chairman/Chief Executive Officer the Board’s annual evaluation of his performance as Chief Executive Officer.

 

 

The powers of the Chairman under our by-laws are limited – other than chairing meetings of the Board and stockholders, the powers conferred on the Chairman (e.g., ability to call special meetings of stockholders or the Board) can be exercised by the Board or a specified number of directors or, in some cases, the Lead Director, or are administrative in nature (e.g., authority to execute documents on behalf of the company).

 

 

The Lead Director chairs any meeting of the Board or stockholders at which the Chairman is absent.

 

 

A substantial majority of our peers utilize a similar board structure with a combined Chairman and Chief Executive Officer, as well as a lead or presiding independent director.

 

 

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DIRECTOR INDEPENDENCE

DIRECTOR INDEPENDENCE

 

 

Our Board has determined that 12 of our 13 director nominees are independent. Our independent director nominees are Ruth E. Bruch; Nicholas M. Donofrio; Jeffrey A. Goldstein; Edmund F. “Ted” Kelly; Richard J. Kogan; Michael J. Kowalski; John A. Luke, Jr.; Mark A.

Nordenberg; Catherine A. Rein; William C. Richardson; Samuel C. Scott III and Wesley W. von Schack. As our Chairman and Chief Executive Officer, Gerald L. Hassell is not independent.

 

 

OUR STANDARDS OF INDEPENDENCE

 

 

For a director to be considered independent, our Board must determine that the director does not have any direct or indirect material relationship with us. To assist it in determining director independence, our Board has established standards (which are also included in our Corporate Governance Guidelines, posted on our website at www.bnymellon.com/governance/guidelines/index.html) based on the specified categories and types of transactions, which conform to, or are more exacting than, the independence requirements of the New York Stock Exchange, or NYSE.

Our Board will also determine that a director is not independent if it finds that the director has material business arrangements with us that would jeopardize that director’s judgment. In making this determination, our Board reviews business arrangements between the company and the director and between the company and any other company for which the director serves as an officer or general partner, or of which the director directly or indirectly owns 10% of the equity. Our Board has determined that these arrangements will not be considered material if:

 

 

they are of a type that we usually and customarily offer to customers or vendors;

 

 

they are on terms substantially similar to those for comparable transactions with other customers or vendors under similar circumstances;

 

 

in the event that the arrangements had not been made or were terminated in the normal course of business, it is not reasonably likely that there would be a material adverse effect on the financial condition, results of operation or business of the recipient; or

 

 

in the case of personal loans, the loans are subject to and in compliance with Regulation O of the Board of Governors of the Federal Reserve System.

Our Board may also consider other factors as it may deem necessary to arrive at sound determinations as to the independence of each director, and such factors may override the conclusion of independence or non-

independence that would be reached simply by reference to the factors listed above.

In determining that each of the directors, other than Mr. Hassell, is independent, our Board reviewed these standards, the corporate governance rules of the NYSE and the SEC, and the individual circumstances of each director.

The following categories or types of transactions, relationships and arrangements were considered by the Board in determining that a director is independent. None of these transactions, relationships and arrangements rose to the level that would require disclosure under our related party transactions policy described on page 78, and none of the transactions described below were in an amount that exceeded the greater of $1 million or 2% of the other entity’s consolidated gross revenues, which is one of our standards for director independence:

 

 

Purchases of goods or services in the ordinary course of business. In 2013, the company and its subsidiaries purchased a small amount of goods and services from the following entities for which one of our independent directors served as an executive officer during 2013: Tiffany & Co. (Mr. Kowalski) and University of Pittsburgh (Mr. Nordenberg). All of these purchases were made in the ordinary course of business. These purchases, when aggregated by seller, did not exceed 0.002% of the selling entity’s annual revenue for its last reported fiscal year or 0.001% of our annual revenue for 2013.

 

 

Sales of goods or services in the ordinary course of business. The company and its subsidiaries provided various financial services, including asset management services, asset servicing, global markets services, issuer services, treasury services, liquidity investment services or credit services, to the following organizations for which one of our independent directors served as an executive officer during 2013: Hellman & Friedman LLC (Mr. Goldstein); Tiffany & Co. (Mr. Kowalski); MeadWestvaco Corporation (Mr. Luke); and University of Pittsburgh (Mr. Nordenberg). All of the services were provided in the ordinary course of our business and at

 

 

BNY Mellon LOGO 2014 Proxy Statement 12


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prevailing customer rates and terms. The amount of fees paid to us by each purchasing entity was less than 0.07% of that purchasing entity’s annual revenue for its last fiscal year and less than 0.01% of our annual revenue for 2013.

 

 

Customer relationships. We and our subsidiaries provide ordinary course services, including asset management services, banking services, broker services and home equity loans, to our directors, other than Messrs. Donofrio, Goldstein, Kelly, Kogan and Scott, in each case on terms substantially similar to those offered to other customers in similar circumstances.

 

 

Charitable contributions. We made (directly, through our subsidiaries or by the BNY Mellon Foundation or the BNY Mellon Foundation of Southwestern Pennsylvania) charitable contributions to not-for-profit, charitable, tax-exempt or non-profit organizations for which one of our independent directors served as a director, executive officer or trustee during 2013, namely Messrs. Donofrio, Kelly, Kogan, Nordenberg, Richardson, Scott and von Schack. In 2013, charitable contributions to these organizations totaled approximately $1,000,000 in the aggregate, and no organization received a contribution greater than $285,000. None of the organizations received contributions in excess of the greater of $1 million or 2% of the organization’s consolidated gross

   

revenues in a single fiscal year within the past three years, which is one of our standards for director independence.

 

 

Beneficial ownership or voting power. In the ordinary course of our investment management services business, we beneficially own or have the power to vote (through our subsidiaries or through funds advised by our subsidiaries) shares of companies for which one of our independent directors served as an executive officer in 2013, namely Tiffany & Co. (Mr. Kowalski) and MeadWestvaco Corporation (Mr. Luke). As of December 31, 2013, none of our subsidiaries or funds advised by our subsidiaries owned or had the power to vote more than 2% of the outstanding shares of either such company.

Our Board determined that none of the transactions, relationships and arrangements described above constituted a material relationship between the respective director and our company or its subsidiaries for the purpose of the corporate governance rules of the NYSE and SEC and our Corporate Governance Guidelines. As such, our Board determined that these transactions, relationships and arrangements did not affect the independence of such director and did not impair such director’s ability to act in the stockholders’ best interest.

 

 

BOARD OVERSIGHT OF RISK

 

Successful management of our company requires understanding, identification and management of risk. Risk oversight begins with the Board of Directors and two key Board committees: the Risk Committee and the Audit Committee.

Our Board’s Risk Committee consists of independent directors and meets on a regular basis to review and assess our risks, control processes with respect to such risks, and our risk management and fiduciary policies and activities. Our Risk Committee has primary oversight responsibility for risk management, subject to the role of our Audit Committee as described below. As set forth in our Risk Committee’s Charter, our Risk Committee’s responsibilities include, among others:

 

 

review and approval of the company’s risk appetite statement on an annual basis, and approval of any material amendment to the statement;

 

 

review of significant financial and other risk exposures and the steps management has taken to monitor, control and report such exposures;

 

 

evaluation of risk exposure and tolerance, and approval of appropriate transactional or trading limits;

 

review and evaluation of the company’s policies and practices with respect to risk assessment and risk management;

 

 

review, with respect to risk management and compliance, of (1) reports and significant findings of the company’s Risk Management and Compliance department, which we refer to as the “Risk department,” and the Internal Audit department, which we refer to as “Internal Audit,” (2) significant reports from regulatory agencies and management’s responses, and (3) the Risk department’s scope of work and its planned activities;

 

 

review of the company’s technology risk management programs; and

 

 

review of management reports concerning the company’s technology operations and approval, or recommendation to the Board for approval, of related plans or policies, as appropriate.

Our Risk Committee delegates policy formulation and day-to-day oversight of risk to our Chief Risk Officer, who is responsible for implementing an effective risk management structure. Our Risk Committee has the responsibility to

 

 

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review the appointment, performance and replacement of our Chief Risk Officer.

Our Board’s Audit Committee also plays a role in risk oversight. Our Audit Committee is currently entirely comprised of independent directors who are not members of our Risk Committee. Our Audit Committee reviews and discusses policies with respect to risk assessment and risk management. Our Audit Committee also has oversight responsibility with respect to the integrity of our company’s financial reporting and systems of internal controls regarding finance and accounting, as well as our financial statements. At the management level, Internal Audit is responsible for providing reliable and timely information to our Board and management regarding our company’s effectiveness in identifying and appropriately controlling risks. Annually, our Risk Committee presents to our Audit Committee a report summarizing our Risk Committee’s review of the company’s methods for identifying and managing risks. Semi-annually, our Risk Committee reports to our Audit Committee regarding corporate-wide compliance with laws and regulations. Our Risk Committee escalates to our Audit Committee any items that have significant financial statement impact or require significant financial statement/regulatory disclosures.

Since the financial crisis emerged in September 2008, the Risk and Audit Committees of our Board have held joint sessions at the beginning of each of their regular meetings to hear reports and discuss key risks affecting our company and our management of these risks. All independent directors are typically present during joint sessions, because all independent directors are currently members of either our Risk or Audit Committee. We have intentionally structured our Board committee meetings in a manner that facilitates discussion of major risks with all independent directors, including the Lead Director, at each regular meeting of the Board.

Our company has a comprehensive internal risk framework, which facilitates risk oversight by our Risk Committee. Our risk management framework is designed to:

 

 

provide that risks are identified, monitored, reported, and priced properly;

 

define and communicate the types and amount of risk the company is willing to take;

 

 

communicate the type and amount of risk taken to the appropriate management level;

 

 

maintain a risk management organization that is independent of risk-taking activities; and

 

 

promote a strong risk management culture that encourages a focus on risk-adjusted performance.

Under this framework, our company has formed a Senior Risk Management Committee, which we refer to as the “SRMC,” which consists of members of senior management and which reports to both the Risk Committee and the Audit Committee of our Board. The SRMC is the most senior focal point within the company to monitor, evaluate and recommend comprehensive policies and solutions to deal with all aspects of risk and to assess the adequacy of any risk remediation plans in our company’s businesses. The SRMC provides reports of its activities to our Risk Committee, and any significant changes in the key responsibilities of the SRMC must be reported to the Risk Committee.

In addition, our company has also formed several risk management sub-committees to identify, assess and manage risks. Each risk management sub-committee reports its activities to the SRMC and any significant changes in the key responsibilities of any sub-committee, or a change in chairmanship of any sub-committee, must be approved by our Chief Risk Officer and subsequently reported to the SRMC.

Our primary risk exposures as well as our risk management framework and methodologies are discussed in further detail on pages 69 to 75 in our 2013 Annual Report. See “Compensation and Risk” on page 25 below for a discussion of risk assessment as it relates to our compensation program.

 

 

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BOARD MEETINGS AND BOARD COMMITTEE INFORMATION

BOARD MEETINGS

 

 

Our Corporate Governance Guidelines provide that our directors are expected to attend our Annual Meeting of stockholders and all regular and special meetings of our Board and committees on which they sit. All of our directors, other than Mr. Luke, attended our 2013 Annual Meeting of stockholders, which was held on April 9, 2013.

Our Board held 12 meetings in 2013. Each incumbent director attended at least 75% of the aggregate number of meetings of our Board and of the committees on which he or she sat, and the average attendance rate was over 93%.

 

 

COMMITTEES AND COMMITTEE CHARTERS

 

Our Board has established several standing committees, including an Audit Committee, a Corporate Governance and Nominating Committee, a Corporate Social Responsibility Committee, a Human Resources and Compensation Committee, a Risk Committee, a Technology Committee and an Executive Committee. Each of the committees makes recommendations to our Board as appropriate and reports periodically to the entire Board. The charters of our Audit Committee, our CG&N Committee, our Corporate Social Responsibility Committee, our Technology Committee, our HRC Committee and our Risk Committee are available on our website at www.bnymellon.com/ governance/committees.

The following table identifies the individual members of our Board serving on each of the standing committees. Our Board determined that Mr. Goldstein will serve on the Risk Committee upon his election. Our Board will consider other committee memberships for the 2014 term following our Annual Meeting.

 

Director   Audit   Corporate
Governance and
Nominating
  Corporate
Social
Responsibility
  Human
Resources and
Compensation
  Risk   Technology   Executive

Ruth E. Bruch

      C   M   M   M  

Nicholas M. Donofrio

      M     C   M   M

Jeffrey A. Goldstein

          M    

Gerald L. Hassell

              M

Edmund F. “Ted” Kelly

        M   M   C  

Richard J. Kogan

  M   M     M      

Michael J. Kowalski

  M       M      

John A. Luke, Jr.

    C       M     M

Mark A. Nordenberg

      M     M   M  

Catherine A. Rein

  C   M           M

William C. Richardson

  M   M          

Samuel C. Scott III

  M     M   C       M

Wesley W. von Schack

    M     M   M     C

 

M — Member

C — Chair

 

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AUDIT COMMITTEE

 

 

In 2013, our Audit Committee, which consists entirely of independent directors, held 11 meetings. Our Audit Committee has direct responsibility for the appointment, compensation, retention and oversight of the work of the independent registered public accountants engaged to prepare an audit report or to perform other audit, review or attest services for us. The independent registered public accountants report directly to the committee. Annually, the committee recommends that our Board request stockholder ratification of the appointment of the independent registered public accountants.

The committee also acts on behalf of our Board in monitoring and overseeing the performance of our internal audit function. The committee oversees the operation of a comprehensive system of internal controls covering the integrity of our financial statements and reports, compliance with laws, regulations and corporate policies, and the qualifications, performance and independence of our independent registered public accountants. The committee has direct responsibility to annually evaluate and, as appropriate, replace the independent registered public accountants. The committee is responsible for the pre-approval of all audit and permitted non-audit services performed by our independent registered public accountants. The committee approves the appointment of our internal Chief Auditor, who functionally reports directly to the committee and administratively reports to the CEO. The committee has the direct responsibility to annually review the performance of the Chief Auditor and, as appropriate, replace the Chief Auditor. At least annually, the committee reviews the organizational structure, qualifications, independence and performance of Internal Audit and the scope of its planned activities. Quarterly, the committee reviews a report from the company’s Disclosure Committee

and reports concerning the status of our annual review of internal control over financial reporting, including (i) information about (a) any significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect our ability to record, process, summarize and report financial information and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in our internal control over financial reporting, and (ii) management’s responses to any such circumstance. The committee’s function is one of oversight, recognizing that our management is responsible for preparing our financial statements, and our independent registered public accountants are responsible for auditing those statements.

Our Board of Directors has determined that its Audit Committee consists entirely of directors who meet the independence requirements of listing standards of the NYSE, Rule 10A-3 under the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act,” and the rules and regulations of the Federal Deposit Insurance Corporation, which we refer to as the “FDIC.” Our Board has also determined that all members of its Audit Committee are financially literate and have accounting or related financial management expertise within the meaning of the NYSE listing standards as interpreted by our Board. Our Board has determined that Ms. Rein satisfies the definition of “audit committee financial expert” as set out in the rules and regulations under the Exchange Act, based upon her experience actively supervising a principal accounting or financial officer or public accountant. All members of the Audit Committee have “banking and financial management expertise” as set out in the FDIC’s rules and regulations.

 

 

CORPORATE GOVERNANCE AND NOMINATING COMMITTEE

 

 

In 2013, our CG&N Committee, which consists entirely of independent directors, held five meetings. As further described above, the committee assists our Board of Directors in reviewing and identifying individuals qualified to become Board members. In addition, the committee reviews non-employee director compensation and benefits on an annual basis and makes recommendations to our Board on appropriate compensation. The committee is also responsible for approving compensation arrangements for non-employee members of the Boards of Directors of our significant subsidiaries. The committee oversees

evaluations of our Board and its committees, reviews the structure and responsibilities of the Board’s committees and annually considers committee assignments and will recommend changes to those assignments as necessary. The committee also periodically considers the size of our Board and recommends changes to the size as warranted. The CG&N Committee has the responsibility to develop and recommend to our Board our Corporate Governance Guidelines and propose changes to these guidelines from time to time as may be appropriate.

 

 

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CORPORATE SOCIAL RESPONSIBILITY COMMITTEE

 

 

In 2013, our Corporate Social Responsibility Committee, which consists entirely of independent directors, held four meetings.

The committee’s purpose is to promote a culture that emphasizes and sets high standards for corporate citizenship and to review corporate performance against those standards. The committee is responsible for providing oversight of the company’s programs regarding strategic philanthropy and employee community involvement, public policy and advocacy, including lobbying and political contributions, environmental management, corporate social responsibility of suppliers, corporate social responsibility governance and reporting and human

rights. The committee also provides oversight for the company’s compliance with the Community Reinvestment Act and Fair Lending laws. The committee considers the impact of the company’s businesses, operations and programs from a social responsibility perspective, taking into account the interests of stockholders, clients, suppliers, employees, communities and regulators. For additional information regarding the company’s commitment to corporate social responsibility and the committee’s recent initiatives, please refer to our annual Corporate Social Responsibility Report, which is available on our website at www.bnymellon.com/csr.

 

 

HUMAN RESOURCES AND COMPENSATION COMMITTEE

 

 

In 2013, our HRC Committee, which consists entirely of independent directors, held seven meetings. The HRC Committee is generally responsible for overseeing our employee compensation and benefit policies and programs, our management development and succession programs, the development and oversight of a succession plan for the position of Chief Executive Officer and our diversity and inclusion programs. The committee also has overall responsibility for executive compensation matters and oversees the other incentive, retirement, welfare and equity plans in which our employees participate. In addition, the committee administers and makes equity and/or cash awards under plans adopted for the benefit of our officers and other employees to the extent required or permitted by the terms of these plans, establishes any related performance goals and determines whether and the extent to which these goals have been attained.

The committee reviews and approves corporate goals and objectives relevant to the compensation of our Chief Executive Officer, evaluates our Chief Executive Officer’s performance in light of those goals and objectives, and determines and approves our Chief Executive Officer’s compensation on the basis of its evaluation. Although the committee has overall responsibility for executive compensation matters, with respect to the performance evaluation and compensation decisions regarding our Chief Executive Officer, the committee reports its preliminary conclusions to the other independent directors of our full Board in executive session and solicits their input prior to finalizing the committee’s decisions. The committee reviews, evaluates and approves the total compensation of all other executive officers.

In addition, the committee makes recommendations concerning equity-based plans, which recommendations are subject to the approval of our entire Board. The committee administers and makes awards under our various equity-based employee incentive plans and oversees certain retirement plans that we sponsor to ensure that: (i) they provide an appropriate level of benefits in a cost-effective manner to meet our needs and objectives in sponsoring such plans; (ii) they are properly and efficiently administered in accordance with their terms to avoid unnecessary costs and minimize any potential liabilities to us; (iii) our responsibilities as plan sponsor are satisfied; and (iv) financial and other information with respect to such plans is properly recorded and reported in accordance with applicable legal requirements.

The committee has approved the delegation to our Chief Executive Officer of responsibility for determining equity awards to certain non-executive employees who are eligible to receive grants under our Long-Term Incentive Plan, or “LTIP.” This delegated authority is subject to certain limitations, including: (i) total aggregate shares represented by plan awards in any calendar year (1,100,000); (ii) aggregate shares represented by plan awards that may be granted to any one individual in any calendar year (100,000); and (iii) a sub-limit of shares represented by full value awards that may be granted in any calendar year (550,000). In addition, the committee may delegate limited authority to our Chief Executive Officer to grant awards under the LTIP beyond these limits in connection with specific acquisitions or similar transactions.

 

 

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Finally, as further described in the “Compensation Discussion and Analysis” beginning on page 27 below, our management provides information and recommendations for the committee’s decision-making process in connection with the amount and form of executive compensation, except that no member of management will participate in the decision-making process with respect to his or her own compensation. The Compensation Discussion and Analysis

discusses the role of our Chief Executive Officer in determining or recommending the amount and form of executive compensation. In addition, we address the role of our management and its independent compensation consultants and the role of the committee’s independent outside compensation advisor in determining and recommending executive compensation below.

 

 

RISK COMMITTEE

 

 

In 2013, our Risk Committee, which consists entirely of independent directors, held six meetings. See “Board

Oversight of Risk” on page 13 above for a discussion of the Risk Committee’s duties and responsibilities.

 

 

TECHNOLOGY COMMITTEE

 

 

In 2013, our Technology Committee, which consists entirely of independent directors, held three meetings.

The Technology Committee is responsible for reviewing and approving the company’s technology planning and strategy, reviewing significant technology investments and expenditures, and monitoring and evaluating existing and future trends in technology that may affect our strategic

plans, including monitoring overall industry trends. In addition, the committee receives reports from management concerning the company’s technology and approves related policies or recommends such policies to the Board for approval, as appropriate. Oversight of risks associated with technology remains the responsibility of the Risk Committee.

 

 

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EXECUTIVE COMPENSATION CONSULTANTS

TO THE HUMAN RESOURCES AND COMPENSATION COMMITTEE

 

The HRC Committee has the sole authority to retain, terminate and approve the fees and other engagement terms of any compensation consultant directly assisting the committee, and may select or receive advice from any

compensation consultant only after taking into consideration all factors relevant to the consultant’s independence from management, including the factors set forth in the NYSE’s rules.

 

 

COMPENSATION CONSULTANT FOR 2013 COMPENSATION

 

 

Aon Hewitt Consulting and its predecessor, Hewitt Associates, Inc., served as the HRC Committee’s independent compensation consultant from August 2009 to February 2014. Most recently, Aon Hewitt Consulting served as the HRC Committee’s independent compensation consultant with respect to 2013 compensation. As discussed in greater detail in the “Compensation Discussion and Analysis” beginning on page 27 below, throughout the year, Aon Hewitt Consulting assisted the HRC Committee in its analysis and evaluation of 2013 compensation matters relating to our executive officers. Aon Hewitt Consulting reported directly to the HRC Committee, attended the in-person and telephonic meetings of the HRC Committee, and met with the HRC Committee in executive session without members of management present. Aon Hewitt Consulting also reviewed and provided input on materials for the HRC Committee’s meetings and advised on other matters that the HRC Committee considered.

The company has historically used affiliates of Aon Hewitt Consulting for additional services, including insurance brokerage services, equity valuation services and compensation market survey data. Aon Risk Services, Inc., an affiliate of Aon Hewitt Consulting, which we refer to as “Aon Risk,” historically has acted as one of the insurance brokers used by the company, and the company has paid some of its insurance premiums to Aon Risk, which premiums are passed through by Aon Risk to the underlying insurance providers. Aon Risk receives commissions from the underlying insurance providers for its services as an insurance broker to the company, which are calculated based on the amount of premiums that the company pays. McLagan Partners, Inc., an affiliate of Aon Hewitt Consulting and an independent consulting firm, has provided the company with compensation market survey data. In addition, Radford Valuation Services, an affiliate of Aon Hewitt Consulting, has provided the company with equity valuation services. Beginning in July 2012, Aon Hewitt Consulting has also been providing health and welfare benefits administration services to the company.

The decisions to engage affiliates of Aon Hewitt Consulting for the services described above were made by management and were not approved by the HRC Committee or the Board of Directors; however, the HRC Committee and the Board of Directors were aware of other services being provided by affiliates of Aon Hewitt Consulting.

Aon Hewitt Consulting has developed safeguards to promote the independence of its executive compensation consulting advice. Aon Hewitt Consulting has informed us that these independence policies include: (i) strong confidentiality requirements and a code of conduct that effectively deters inappropriate behavior by the consultant; (ii) a strict policy against investing in client organizations; (iii) management of multiservice client relationships by separate account executives; (iv) clearly defined engagements with compensation committees that are separate from any other services provided; (v) formal segregation of executive compensation services into a separate business unit; (vi) no incentives for cross-selling of services and no compensation rewards based on other results; (vii) no offers of more favorable terms for companies that retain Aon Corporation for additional services; and (viii) consulting work limited to boards, compensation committees and companies, with no representation of individual executives in any capacity.

In 2013, the company paid approximately $67,392 in fees to Aon Hewitt Consulting for serving as the independent compensation consultant to the HRC Committee. In 2013, the company directly paid an aggregate of $7.25 million in fees to affiliates of Aon Corporation for the additional services described above. In addition, in 2013, Aon Risk received $2.286 million in commissions from insurance providers in connection with Aon Risk’s services as an insurance broker for the company. The HRC Committee has considered the company’s relationship with Aon Hewitt, including the provision of other services to the company by Aon Hewitt, and determined that a conflict of interest does not exist.

 

 

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COMPENSATION CONSULTANT FOR 2014 COMPENSATION

 

 

Due to the 2014 retirement of Aon Hewitt Consulting’s lead consultant, the HRC Committee interviewed a number of potential advisors and determined to engage Compensation Advisory Partners LLC, which we refer to as “CAP,” as its independent compensation consultant beginning with the determination of 2014 plan year compensation. For 2013, as described in detail in the “Compensation Discussion and Analysis” beginning on page 27 below, management engaged CAP to assist in executive compensation matters from time to time. In determining to engage CAP as its independent compensation consultant, the HRC Committee considered

CAP’s independence, including its prior role as management’s advisor. The HRC Committee assessed the independence of CAP pursuant to SEC and NYSE rules and concluded that CAP’s work for the committee does not raise any conflicts of interest that would prevent CAP from independently representing the HRC Committee. Going forward, CAP will work with management in executing its services to the HRC Committee, but will not provide services to management without pre-approval by the HRC Committee Chair. CAP maintains, and has provided to the HRC Committee, its written policy designed to avoid conflicts of interest.

 

 

SUCCESSION PLANNING

 

We have succession plans and succession processes in place for our Chairman and Chief Executive Officer, President, and for the team of approximately 170 senior leaders that make up our management Executive and Operating Committees. Our senior management succession planning process is an organization-wide practice designed to proactively identify, develop and retain the leadership talent that is critical for future business success.

The succession plan for our Chairman and Chief Executive Officer is reviewed annually by the HRC Committee and

the other independent directors. The plan identifies a “readiness” level and ranking for each internal candidate. The plan also incorporates the flexibility to define an external hire as a succession option. Formal succession planning for the rest of our senior leaders is also an annual process, which also includes identifying a rank and readiness level for each potential internal candidate and also strategically planning for external hires for positions where, for example, gaps are identified. The HRC Committee and the Board review the succession plans for all Executive Committee positions.

 

 

BOARD EXECUTIVE SESSIONS, EVALUATION AND EDUCATION

 

Our independent directors meet in executive sessions at each regularly scheduled Board meeting. These executive sessions are led by Mr. von Schack, our Lead Director.

Each year, our Board and our Audit, Corporate Governance and Nominating, Corporate Social Responsibility, Human Resources and Compensation, and Technology Committees evaluate their effectiveness. Our Board views self-evaluation as an ongoing process designed to achieve high levels of Board and committee performance.

During 2013, our Board participated in Board information sessions during regularly scheduled and special meetings. During these sessions, directors received business updates from senior management, risk executives and our General Counsel.

Our Board also encourages directors to participate in continuing director education programs and our company reimburses directors for the expenses of this participation. Additionally, any new directors would also participate in our director orientation program in their first six months as a director.

 

 

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CONTACTING THE BOARD OF DIRECTORS

 

Interested parties may send communications to our Board or our independent directors or any Board Committee through our Lead Director in accordance with the procedures set forth on our website at www.bnymellon.com/governance/contact.html.

Our Corporate Secretary is authorized to open and review any mail or other correspondence received that is addressed to the Board or any individual director unless the item is marked “Confidential” or “Personal.” If so marked and addressed to the Board, it will be delivered unopened to the Lead Director. If so marked and addressed to an individual director, it will be delivered to the addressee unopened. If, upon opening an envelope or package not so marked, the Corporate Secretary determines that it contains a magazine, solicitation or advertisement, the contents may be discarded.

The Audit Committee has approved procedures with respect to the receipt, review and processing of, and any response to, written communications sent by stockholders and other interested persons to our Board of Directors. Any written communication regarding accounting matters are processed in accordance with procedures adopted by the Audit Committee.

In addition, all directors are expected to attend each Annual Meeting of stockholders. While our bylaws, consistent with Delaware law, permit stockholder meetings to occur by remote communication, we intend this to be used only in exigent circumstances. Our Board believes that an in-person Annual Meeting provides an important opportunity for stockholders to meet with and ask questions of senior management and the Board.

 

 

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COMPENSATION OF DIRECTORS

DIRECTOR COMPENSATION

 

 

Our Corporate Governance Guidelines provide that compensation for our independent directors’ services may include annual cash retainers; shares of our common stock; deferred stock units or options on such shares; meeting fees; fees for serving as a committee chair; and fees for serving as a director of one of our subsidiaries. We also reimburse directors for their reasonable out-of-pocket expenses in connection with attendance at Board meetings. In the case of airfare, directors are reimbursed for their travel expenses not exceeding the first-class commercial rate. In addition, corporate aircraft and charter aircraft may be used for directors in accordance with the company’s aircraft usage policy. Directors will also be reimbursed for reasonable out-of-pocket expenses (including tuition and registration fees) relating to attendance at seminars and training sessions relevant to their service on the Board and in connection with meetings or conferences which they attend at the company’s request.

For 2013, our independent directors received an annual cash retainer of $75,000, a meeting fee of $1,800 for each committee meeting attended (including for any meeting of a special committee of the Board) and an annual equity award with a value of $110,000. In addition, the chairs of the Audit Committee, the HRC Committee and the Risk Committee each received an annual cash retainer of $15,000, the chairs of all other committees each received an annual cash retainer of $12,500, and our Lead Director received an annual cash retainer of $25,000. Other than an increase in the HRC Committee and Risk Committee retainers in 2012, the value of the equity award had remained the same since 2008 and the values of the cash retainers had remained the same since 2010.

Each year, the CG&N Committee is responsible for reviewing and making recommendations to the Board regarding independent director compensation. The CG&N Committee annually reviews independent director compensation to ensure that it is consistent with market practice and aligns our directors’ interests with those of long-term stockholders while not calling into question the directors’ objectivity. In undertaking its review, the CG&N Committee utilizes benchmarking data regarding independent director compensation of the company’s peer group based on public filings with the SEC, as well as survey information analyzing independent director compensation at U.S. public companies.

Based on its review, in December 2013, the CG&N Committee recommended, and the Board approved, the following changes to be effective in 2014:

 

 

an increase in the annual cash retainer from $75,000 to $110,000;

 

 

an increase in the annual equity award from a value of $110,000 to $130,000 for each independent director;

 

 

an increase in the annual cash retainer for our lead director from $25,000 to $50,000;

 

 

an increase in the annual cash retainer for the chairmen of the Audit Committee and the Risk Committee from $15,000 to $30,000;

 

 

an increase in the annual cash retainer for the chair of the HRC Committee from $15,000 to $25,000;

 

 

an increase in the annual cash retainer for the chairmen of all other committees from $12,500 to $20,000;

 

 

the elimination of standing committee meeting fees; and

 

 

the establishment of an annual membership fee of $10,000 for each member of the Audit Committee and the Risk Committee.

The Board also considered Aon Hewitt Consulting’s advice in determining to approve these changes. We believe that they are consistent with current market practice, recognize the critical role that our directors play in effectively managing the company and responding to stockholders, regulators and other key stakeholders, and will assist us in attracting and retaining highly qualified candidates.

The annual cash retainer will continue to be payable in quarterly installments in advance. The annual equity award will continue to be in the form of deferred stock units that vest on the earlier of one year after the date of the award or on the date of the next Annual Meeting of stockholders, and must be held for as long as the director serves on the Board. The units accrue dividends, which are reinvested in additional deferred stock units. For 2014, this award of deferred stock units will be granted shortly after the 2014 Annual Meeting.

 

 

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In the merger of Bank of New York and Mellon, we assumed the Deferred Compensation Plan for Non-Employee Directors of The Bank of New York Company, Inc., which we refer to as the “Bank of New York Directors Plan,” and the Mellon Elective Deferred Compensation Plan for Directors, which we refer to as the “Mellon Directors Plan.” Under the Bank of New York Directors Plan, participating legacy Bank of New York directors continued to defer receipt of all or part of their annual retainer and committee fees earned through 2007. Under the Mellon Directors Plan, participating legacy Mellon directors continued to defer receipt of all or part of their annual retainer and fees earned through 2007. Both plans are nonqualified plans, and neither plan is funded.

Although the Bank of New York Directors Plan and the Mellon Directors Plan continue to exist, all new deferrals of director compensation by any of the independent directors have been made under the Director Deferred Compensation Plan, which was adopted effective as of January 1, 2008. Under this plan, an independent director can direct all or a portion of his or her annual retainer or other fees into either (i) variable funds, credited with gains or losses that mirror market performance of market style funds or (ii) the company’s phantom stock.

 

 

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2013 DIRECTOR COMPENSATION TABLE

 

The following table provides information concerning the compensation of each independent director who served in 2013. Mr. Hassell did not receive any compensation for his service as a director.

 

Name

  Fees Earned or
Paid in Cash($)
    Stock
Awards($)(2)
    Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings(3)
    All Other
Compensation($)
(4)
    Total($)  

Ruth E. Bruch

  $           125,300      $         109,977      $      $      $     235,277   

Nicholas M. Donofrio(1)

  $ 115,200      $ 109,977      $      $ 772      $ 225,949   

Edmund F. Kelly

  $ 118,100      $ 109,977      $      $      $ 228,077   

Richard J. Kogan

  $ 118,200      $ 109,977      $      $      $ 228,177   

Michael J. Kowalski(1)

  $ 109,200      $ 109,977      $      $ 423      $ 219,600   

John A. Luke, Jr.

  $ 101,900      $ 109,977      $      $      $ 211,877   

Mark A. Nordenberg

  $ 123,600      $ 109,977      $ 8,730      $ 2,082      $ 244,389   

Catherine A. Rein

  $ 117,000      $ 109,977      $      $ 1,662      $ 228,639   

William C. Richardson

  $ 152,090      $ 109,977      $      $ 772      $ 262,839   

Samuel C. Scott III

  $ 129,600      $ 109,977      $      $ 422      $ 239,999   

Wesley W. von Schack(1)

  $ 172,900      $ 109,977      $             107,602      $                 3,119      $ 393,598   

 

 

(1) Elected to defer all or part of cash compensation in the Director Deferred Compensation Plan.

 

(2)

Amount shown represents the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board’s Accounting Standards Codification (or “FASB ASC”) 718 Compensation-Stock Compensation for 4,119 deferred stock units granted to each independent director in April 2013, using the valuation methodology for equity awards set forth in footnote 17 of the consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2013. As of December 31, 2013, each independent director owned 4,180 unvested deferred stock units.

 

(3)

The amounts disclosed in this column for Messrs. Nordenberg and von Schack represent the sum of the portion of interest accrued (but not currently paid or payable) on deferred compensation above 120% of the applicable federal long-term rate at the maximum rate payable under the Mellon Directors Plan. Under the Mellon Directors Plan, deferred amounts receive earnings based on (i) the declared rate, reflecting the return on the 120-month rolling average of the 10-year T-Note rate enhanced based on years of service and compounded annually, (ii) variable funds, which are credited with gains or losses that “mirror” the market performance of market-style funds or (iii) the company’s phantom stock. The fully enhanced declared rate for 2013 was 5.05%. The present value of Ms. Rein’s accumulated pension benefit under The Bank of New York Company, Inc. Retirement Plan for Non-Employee Directors decreased by $16,182 due to a change in the FASB ASC 715 discount rate used to calculate the pension value. Ms. Rein is the only current director who participates in this plan. Participation in this plan was frozen as to participants and benefit accruals as of May 11, 1999.

 

(4)

The amounts disclosed for Messrs. Donofrio, Kowalski, Richardson and Scott and Ms. Rein reflect the amount of a 5% discount on purchases of phantom stock when dividend equivalents are reinvested under the Bank of New York Directors Plan. The amounts disclosed for Messrs. Nordenberg and von Schack reflect the estimated cost of the legacy Mellon Directors’ Charitable Giving Program, which remains in effect for them and certain other legacy Mellon directors. Upon such legacy Mellon director’s death, the company will make an aggregate donation of $250,000 to one or more charitable or educational organizations of the director’s choice. The donations are paid in 10 annual installments to each organization.

 

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COMPENSATION AND RISK

 

On a regular basis, our Chief Risk Officer and our HRC Committee review the company’s employee compensation plans and practices for alignment with sound risk management. In 2013, our Chief Risk Officer met with the HRC Committee two times to discuss and review compensation plans, including the plans in which members of the Executive Committee, our most senior management committee, participate. With respect to employees broadly, we also monitor the company’s compensation plans through a management-level compensation oversight committee that includes our Chief Risk Officer, Chief Human Resources Officer, Chief Financial Officer and the Risk Management and Compliance Chief Administrative Officer. The committee receives regular reports, meets at least on a quarterly basis and reports to the HRC Committee on risk-related compensation issues.

We identify employees who, individually or as a group, are responsible for activities that may expose us to material amounts of risk, using a risk-related performance evaluation program with adjustments determined by a committee comprised of members of senior management responsible for control functions with such adjustments later reviewed by the HRC Committee. The incentive compensation of identified employees is directly linked to risk-taking either through a “risk scorecard” or through the inclusion of a standard risk goal as part of our performance management process.

With respect to the incentive program for our Executive Committee, which is comprised of our named executive officers as well as 11 other senior management employees, the 2013 features designed to mitigate imprudent risk-taking include:

 

 

Direct linkage of compensation and risk through use of a “risk scorecard” as described above, which can result in

   

negative risk-based adjustments to awards under our annual incentive plan, the “Executive Incentive Compensation Plan” or “EICP.”

 

 

Upfront adjustments to between 0-125% of target based on 2013 performance, including potential downward adjustments for risk scorecard results, in setting target 2013 long-term equity incentive awards under our LTIP.

 

 

Subjecting all equity awards to 100% forfeiture during the vesting period based on ongoing risk assessments, which contributes to a comprehensive risk adjustment process.

 

 

Clawback of some or all of a cash incentive award within three years of the award date if an executive officer is found to have engaged in fraud or to directly or indirectly to have contributed to a financial restatement or other irregularity during the award performance period.

 

 

Inclusion of risk-based and quantitative measures, including economic capital and earnings per share, in determining the “corporate component” of the EICP.

 

 

Achievement of a Basel I Tier 1 common ratio of at least 9% as a condition for funding awards under the EICP and time-based restricted stock units under the LTIP.

Based on the above, we do not believe that our compensation plans and practices create risks that are reasonably likely to have a material adverse effect on the company.

 

 

BNY Mellon LOGO 2014 Proxy Statement 25


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PROPOSAL 2 – ADVISORY APPROVAL OF

2013 COMPENSATION OF NAMED EXECUTIVE OFFICERS

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires public companies to provide their stockholders with an advisory vote to approve executive compensation at least once every three years. We are providing this stockholder advisory vote on our executive compensation in accordance with Section 14A of the Exchange Act and Exchange Act Rule 14a-21(a).

OUR BOARD SUPPORTS A SAY-ON-PAY VOTE, AND WE CONSIDER THE RESULTS CAREFULLY

 

 

Since our 2009 Annual Meeting, we have provided stockholders with an advisory vote on our executive compensation program each year. At last year’s Annual Meeting, 97% of the votes cast approved our 2012 executive compensation program (up from 59% for our 2011 program).

Our Board values our stockholders’ feedback. We continued our annual outreach process during the year, inviting comments from investors representing about 60% of our outstanding shares as well as from proxy advisory firms and other stakeholders. Our solicitations resulted in our having conversations with investors representing almost 25% of our outstanding shares. Our HRC Committee took into consideration the feedback received, including strong support from our stockholders last year for our compensation program, including our 2013 pay-for-performance enhancements. Based on this feedback and the

results of last year’s say-on-pay vote, our HRC Committee determined to keep the structure of our executive compensation program for 2014 essentially the same. Some of the changes are described in the “Compensation Discussion and Analysis” beginning on page 27 below. As we refine our compensation program, policies and practices, and determine compensation results going forward, we will continue to consider feedback from our stakeholders.

At our 2011 Annual Meeting, we also provided stockholders with an advisory vote with respect to how often the company should hold a say-on-pay vote and 86% of the votes cast voted in favor of holding an advisory vote on our executive compensation program annually. Consistent with the voting results, we intend to hold an advisory vote each year on our executive compensation program, until the next stockholder advisory vote on its frequency, which we expect will occur at our 2017 Annual Meeting.

 

 

EFFECT OF ADVISORY VOTE

 

Your vote on this resolution is an advisory vote. The Board is not required to take any action in response to the stockholder vote. However, the Board values our stockholders’ opinions, and, as in prior years, the Board intends to evaluate the results of the 2014 vote carefully when making future decisions regarding compensation of the named executive officers.

RESOLUTION

 

The Board of Directors recommends that stockholders approve the following resolution:

RESOLVED, that the stockholders approve the 2013 compensation of the named executive officers, as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K of the Securities and Exchange Commission (including the Compensation Discussion and Analysis, the compensation tables and other narrative executive compensation disclosures).

The Board of Directors unanimously recommends that you vote “FOR” approval of the 2013 compensation of our named executive officers, as disclosed in this proxy statement.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 
2013 PAY FOR PERFORMANCE SUMMARY
   

PROGRAM DESIGN

 

Our core compensation principles are pay for performance, alignment with stockholders’ interests and appropriate risk taking.

 

For 2013, we changed our executive compensation program to:

 

   substantially increase the portion of pay that varies directly with yearly performance,

 

   increase the part of the annual incentive deferred through restricted stock units (RSUs),

 

   introduce three-year performance share units (PSUs) as our exclusive long-term performance vehicle, and

 

   expand our risk-based forfeiture provisions.

 

Components of 2013 Target Variable
CEO Compensation

 

LOGO

   

PERFORMANCE RESULTS

 

We measure performance using a variety of corporate, business, risk and individual measures to ensure a balanced approach to incentive compensation. Our most significant measure for annual performance was earnings per share (EPS) and for long-term performance was return on risk-weighted assets (RRWA) against respective targets. We chose these measures based on investor feedback and because we believe they correlate to long-term stockholder value.

 

For 2013, our EPS, as adjusted for the impact of the U.S. Tax Court’s rulings in 2013 disallowing some foreign tax credits from before the Bank of New York and Mellon merger (the “Tax Ruling”), exceeded our budgeted EPS and our total shareholder return was 39%. The impact of the Tax Ruling was reflected directly in the earnout of our long-term incentive awards, but was excluded as an unplanned, unusual item from the calculation of the corporate component of our annual incentive pursuant to the provisions of the annual incentive program.

 

Our financial results also included year-over-year increases in pre-tax income (up 12%), investment management and performance fees (up 7%), investment services fees (up 4%), assets under management (up 14%), and assets under custody and/or administration (up $1.3 trillion). We recorded net asset management inflows of $100 billion and had a total shareholder return (TSR) above median relative to both the S&P 500 Financials Index and our peer group.

 

 

Earnings Per Share

 

LOGO

 

*    Excludes the impact of the Tax Ruling.

 

Total Shareholder Return

 

LOGO

 

 

BNY Mellon LOGO 2014 Proxy Statement 27


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In addition, we returned approximately $1.7 billion to stockholders in the form of dividends and stock buybacks, increased our Basel III Tier 1 common equity to an estimated ratio of 10.6% and continued to maintain high credit ratings relative to peer banks.

 

CEO PAY

 

In 2014, the HRC Committee awarded Mr. Hassell 97% of his annual incentive target and 100% of his long-term incentive target, reflecting our performance highlighted above. As part of this process, the HRC Committee set the corporate component of our annual incentive (which applies to all of our named executives) at the bottom of the guideline range, taking into account financial and risk metrics as detailed on pages 35 to 36.

 

In the first quarter of 2013, the HRC Committee awarded our CEO’s entire long-term award in the form of PSUs. The first third was earned at 87% based on 2013 RRWA. The PSU earnout reflects the negative impact of the Tax Ruling.

 

 

 

2013 CEO Award Determinations

LOGO

 

SAY ON PAY & STOCKHOLDER OUTREACH

 

Our 2013 say-on-pay vote received 97% approval. We continued our annual outreach process during the year, inviting comments from investors representing about 60% of our outstanding shares, as well as from proxy advisory firms and other stakeholders, and had conversations with investors representing almost 25% of our outstanding shares. We received strong support for our 2013 enhancements and, based in part on the feedback received, our HRC Committee determined to implement the changes described below.

 

2014 ENHANCEMENTS

 

For our 2014 annual program, we continue use of corporate component guidelines based on EPS but set the threshold and maximum guideline ranges at higher percentage performance levels against our EPS budget than in 2013 and provide for a zero corporate component payout for any level of performance below threshold. In addition, if we do not earn more in 2014 than we did in 2013 on an adjusted basis, the corporate component payout will be significantly less. We also added expense control/operating leverage as an additional key item that the HRC Committee considers when determining the corporate component payout.

 

For our 2014 long-term program, we adopted an approach that enhances the link between prior-year annual performance and year-end compensation decisions. In February 2013, we made long-term equity grants based on target amounts that were adjusted for 2012 results. In February 2014, we granted long-term equity awards based on 2013 performance, starting with the same targets as we used last year but at the same time set targets that will be used for determining annual and long-term incentives in first quarter 2015, based on 2014 performance. Although annual incentive targets were always communicated at the start of the year, this communication now also applies to the long-term incentive targets. 2014 target compensation for our CEO, which is shown on the right, was unchanged from 2013.

 

We continue our practices of subjecting long-term awards to three-year performance conditions, having one regular grant of long-term awards each year and deferring a significant portion of the annual incentive through RSUs.

 

 

Say-on-Pay Vote

 

LOGO

 

 

2014 Target CEO Compensation

(unchanged from 2013)

 

LOGO

 

 

 

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COMPENSATION PHILOSOPHY, PRACTICES AND PROCESS

COMPENSATION PHILOSOPHY

 

In making compensation decisions, the HRC Committee uses the following core principles of the company’s Global Remuneration Policy (available at http://www.bnymellon.com/policy) to ensure that our compensation structure is competitive and reflects our core values:

 

 

Pay for performance. Provide market competitive compensation with a focus on pay for performance both at the individual (which includes business unit performance for executives as applicable) and corporate levels.

 

 

Alignment with stockholders’ interests. Motivate actions that contribute to superior financial performance and long-term stockholder value.

 

 

Appropriate risk-taking. Ensure that our incentive compensation arrangements do not encourage our employees to take unnecessary and excessive risks, including risks beyond our risk appetite or that threaten the value of the company. Our risk appetite statement may be found in our 2013 Annual Report, available at www.edocumentview.com/bk.

 

KEY COMPENSATION PRACTICES

 

In addition to aligning executive pay with long-term stockholder interests, we are committed to good corporate governance practices and mitigation of inappropriate risk-taking. To further this commitment, our 2013 compensation program has the following features:

 

     Direct link to performance. Variable pay makes up more than 90% of 2013 target compensation for our named executive officers. The amount of variable pay realized depends directly on the achievement of pre-established performance metrics that support both our short- and long-term business and risk-related objectives.

 

     Direct link to sustained financial performance. The exclusive vehicle for our named executives’ long-term equity incentive awards are PSUs. The PSUs will be earned 0-125% based on our RRWA over each year of the performance period. Accordingly, strong performance is required over each of three separate years to fully earn PSUs.

 

     Balanced approach to annual incentives. Our named executives’ annual incentive awards are earned based on a “balanced scorecard” that measures performance against (1) corporate financial and capital results and (2) each named executive officer’s functional, strategic and operational results, including business financial results, if applicable, and expense management. This creates a comprehensive analysis of our named executives’ performance each year.

 

     Long-term equity ownership. About 65% of 2013 target compensation for our CEO and 55% for our other named executive officers is deferred in the form of RSUs and PSUs. The RSUs vest in equal installments over three years. Earned PSUs cliff vest after the end of the three-year performance periods.

   

 

What we do:

 

ü    Directly link pay to performance

 

ü    Balance risk and reward in compensation

 

ü    Require sustained financial performance to earn full amount of long-term awards

 

ü    Use a balanced approach for annual incentives with both corporate and individual goals

 

ü    Promote long-term stock ownership through deferred equity compensation

 

ü    Require compliance with stock ownership guidelines and post-vest holding requirements

 

ü    Subject cash incentive and equity awards to recoupment and forfeiture policies

 

ü    Engage an independent compensation consultant

 

ü    Review our compensation program annually

 

ü    Robust stockholder outreach program

 

What we don’t do:

 

û    No excessive change-in-control or other severance benefits

 

û    No single-trigger change-in-control benefits

 

û    No tax gross-ups on severance payments

 

û    No employment agreements

 

û    No guaranteed bonuses or equity grants

 

û    No excessive perquisites or benefits

 

û    No tax gross-ups for perquisites

 

û    No hedging or short sales of our stock

 

û    No stock options with exercise price below market

 

û    No stock options with reload provisions

 

û    No repricing of underwater stock options without stockholder approval

 

 

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Recoupment and forfeiture policies. Our named executive officers are subject to recoupment policies that provide for the cancellation or clawback of cash incentive and equity awards in the event of, among other things, failure to comply with company policies, fraud, or conduct contributing to any financial restatement or other irregularity.

 

   

Stock ownership guidelines. Our CEO must acquire and retain company stock equal to six times base salary, while our other named executive officers must acquire and retain stock equal to four times base salary.

 

   

Independent compensation consultant. Our HRC Committee engages an independent compensation consultant in its review of executive pay and our corporate governance practices and overall compensation program.

 

   

Annual review of compensation program. Each year, our HRC Committee reviews our compensation program to ensure that executive pay is aligned with long-term stockholder interests, sound risk policies and evolving regulatory requirements.

 

   

Balancing risk and reward. We engage in a risk review process that measures compliance with predetermined risk metrics that are appropriate for our business objectives. Risk performance by our named executive officers is documented through a risk scorecard, and unacceptable assessments result in the reduction or complete elimination of annual incentives. In addition, both RSUs and PSUs are subject to 100% forfeiture during the vesting period based on risk scorecard assessments.

HRC COMMITTEE ROLE AND RESPONSIBILITY

 

 

Our HRC Committee establishes the compensation for our named executive officers as it may determine is in the best interest of the company and our stockholders. The HRC Committee determines their compensation elements for each year, including the terms and conditions applicable to each element and the timing of the payments and awards.

In the first quarter of 2013, for each named executive officer, the HRC Committee:

 

 

approved base salary levels;

 

 

established target amounts for the annual incentive award for 2013, which may be earned based on performance under the corporate component and individual component of the award and payable in a combination of cash and RSUs; and

 

 

granted a long-term equity incentive award in the form of PSUs, following consideration and adjustment based on prior-year achievement of performance, strategic milestones and prior-year risk scorecard results.

In setting 2013 compensation targets, the HRC Committee, assisted by its independent compensation consultant, considered a variety of factors over multiple meetings, including our financial performance, data concerning peer companies’ executive compensation programs and market trends and outlook within the broader financial services industry. The HRC Committee also considered changes in responsibilities, internal pay positioning, competitive pay levels and prior compensation as part of its decision-making process. These factors were considered holistically, and no one factor had an assigned or specific quantifiable

impact on the target compensation levels established by the HRC Committee.

During the course of the year, the HRC Committee received regular updates on performance forecasts versus performance goals, regulatory and legislative developments and other relevant matters. In the first quarter of 2014, the HRC Committee evaluated 2013 corporate performance, using a combination of financial and qualitative measures as well as each named executive officer’s individual performance. This evaluation was used by the HRC Committee in determining final amounts for the 2013 annual incentive awards and upfront adjustments to the long-term equity incentive award granted in 2014, as discussed in more detail on pages 34 through 40. To highlight the connection between incentive opportunity and current-year performance, the HRC Committee also provided each named executive officer with incentive compensation targets for both their 2014 annual incentive and long-term incentive awards, with the actual award amounts to be determined in the first quarter of 2015 based on performance.

Although the HRC Committee has overall responsibility for executive compensation matters, the HRC Committee reports its preliminary conclusions and compensation decisions regarding our CEO, and information on the process used by the HRC Committee, to the other independent members of our Board in executive session and solicits their input prior to finalizing determinations concerning the CEO. The HRC Committee also advises and discusses with the other independent directors compensation decisions regarding our other named executive officers and the process used by the HRC Committee.

 

 

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RISK AND REGULATORY REVIEW

 

 

As described in the Compensation and Risk section above on page 25, our Chief Risk Officer and our HRC Committee review our compensation plans, including the plans in which each of our named executive officers and other members of the Executive Committee participate, on a regular basis. Based on these reviews and our approach to risk management, we believe that our compensation plans, arrangements and agreements with the named executive officers are well balanced and do not encourage imprudent risk-taking that threatens our company’s value. In addition, annual performance assessments for our named executive officers take into account a risk assessment for both the company as a whole and for each individual. The HRC

Committee does not believe that the risks arising from the company’s compensation plans, policies and practices are reasonably likely to have a material adverse effect on the company.

We are subject to regulation by various U.S. and international governmental and regulatory agencies with respect to executive compensation matters and the consideration of risk in the context of compensation. Our compensation programs have been designed to comply with these regulations, and the HRC Committee regularly monitors new and proposed regulations as they develop to determine if additional action is required.

 

 

ROLE OF COMPENSATION CONSULTANTS

 

 

The HRC Committee retained Aon Hewitt Consulting, an affiliate of Aon Corporation, to serve as the HRC Committee’s independent compensation consultant from August 2009 to February 2014. Aon Hewitt Consulting regularly attended HRC Committee meetings and, with respect to compensation decisions for 2013, provided advice on matters including market practices and trends, peer group composition and incentive programs and CEO target compensation and performance. We discuss payments to Aon Hewitt Consulting and Aon Corporation and its affiliates in greater detail on page 19 of this proxy statement. For 2013, the company engaged Compensation Advisory Partners LLC, which we refer to as “CAP,” to assist management with various executive compensation matters, including compiling data about our peer group and industry, compiling and analyzing data about the compensation

practices and programs of our peers and our industry, evaluating proposed aspects of our executive compensation program, preparing and presenting materials relative to our executive compensation program to the HRC Committee and providing advice and recommendations to management. Due to the upcoming retirement of Aon Hewitt Consulting’s lead consultant, the HRC Committee interviewed a number of potential advisors and determined to engage CAP as its independent compensation consultant beginning with the determination of 2014 plan year compensation. The HRC Committee considered, among other things, CAP’s performance in its prior role as compensation advisor to management and the potential of conflicts resulting from its prior engagement. We discuss the factors that the HRC Committee considered in more detail on page 20 of this proxy statement.

 

 

PEER GROUP COMPARISON

 

 

The HRC Committee and our management use compensation data from our peer group to provide a basis for assessing relative company performance, to provide data for the HRC Committee to assess competitiveness in determining targeted and actual compensation and to analyze market trends and practices. The HRC Committee also considered data from our peer group in its decision to follow management’s suggestion to use RRWA as the performance metric for our named executive officers’ long-term incentive awards.

In evaluating and selecting companies for inclusion in the peer group, the HRC Committee targets complex financial companies with which we typically compete for executive talent and business. In particular, the HRC Committee selected these companies based on:

 

 

mix of businesses (e.g., asset management, asset servicing and clearing services) and other financial

   

services companies with similar business models that operate in a similar regulatory environment;

 

 

relative size in terms of revenue, market capitalization and assets under management (AUM), as well as total assets and net income;

 

 

position as competitors for customers and clients, executive talent and investment capital; and

 

 

global presence.

 

 

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The HRC Committee reviewed data relating to our 2012 peer group and considered input from Aon Hewitt Consulting, management and CAP. The 2013 peer group selected by the HRC Committee was unchanged from 2012:

 

American Express Company

   Northern Trust Corporation

Bank of America Corporation

   The PNC Financial Services Group, Inc.

BlackRock, Inc.

   Prudential Financial, Inc.

The Charles Schwab Corporation

   State Street Corporation

Citigroup Inc.

   U.S. Bancorp

JPMorgan Chase & Co.

   Wells Fargo & Company

The following chart details how the company compared against our peer group on key financial metrics:

 

Metric    Comparison to Peer Group

2012 Revenue

   35th percentile

2012 Assets Under Management

   76th percentile

2012 Total Assets

   55th percentile

2012 Reported Net Income

   38th percentile

2012 Percentage of Foreign Sales

   80th percentile

2012 Year-End Market Capitalization

   35th percentile

 

For certain named executive officers, data relating to the peer group is supplemented with industry data from surveys conducted by national compensation consulting firms and other data to assess the compensation levels and practices in the businesses and markets in which we compete for executive talent. All peer group data and other information provided to the HRC Committee by Aon Hewitt Consulting, management and CAP was used by the HRC Committee in setting target levels of compensation for our named executive officers.

 

In February 2014, the HRC Committee determined to update the peer group that will be used for 2014 compensation decisions after considering input from Aon Hewitt Consulting, management and CAP. In particular, the HRC Committee replaced American Express Company, Bank of America Corporation and Citigroup Inc. with Franklin Resources, Inc. and Morgan Stanley to further align the peer group with our strategic direction and relative size.

 

 

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COMPENSATION DECISIONS

COMPENSATION ELEMENTS

 

 

Component   Form    Description      
Base Salary  

Cash

  

     Represents about 8% of total target pay for our CEO and about 8% on average for our other named executive officers

 

     Sole fixed source of cash compensation

 

     Set by the HRC Committee based on position, level of responsibilities, internal pay positioning, and competitive market data

 

   
Annual Incentives  

Cash – 43% for CEO, 57% for other NEOs

 

RSUs – 57% for CEO, 43% for other NEOs

  

     Represents about 65% of total target pay for our CEO and about 64% on average for our other named executive officers

 

     Earned using a “balanced scorecard” that includes corporate and individual performance goals and risk assessments

 

     Subject to a threshold Basel I Tier 1 common ratio of 9% as a condition to funding

 

     RSUs vest in equal installments over three years and are subject to forfeiture during their vesting period based on annual risk assessments

 

     Cash dividend equivalents are accrued and paid only at vesting

 

   
Long-Term Equity Incentives  

PSUs – 100%

  

     Represents about 27% of total target pay for our CEO and about 28% on average for our other named executive officers

 

     Granted annually based on prior-year performance results, strategic objectives and prior-year risk scorecard results

 

     Earned between 0-125% based on our RRWA over each year of the three-year performance period

 

     Subject to forfeiture during their vesting period based on annual risk assessments

 

     Earned PSUs cliff vest after the end of three-year performance periods

 

     Dividend equivalents are reinvested and paid only at vesting based on performance

 

   

 

BASE SALARY

 

 

In February 2013, the HRC Committee reviewed the base salaries of our named executive officers based on competitive market data, as well as each named executive officer’s position and level of responsibilities. After consulting with its independent compensation consultant, the HRC Committee decided to maintain all base salaries for the named executive officers except Messrs. Arledge and Keaney. The HRC Committee determined to increase each

of Messrs. Arledge and Keaney’s base salary from $600,000 to $650,000 effective July 1, 2013 to reflect their position and level of responsibility and better align internal base pay among members of the Executive Committee. Mr. Arledge’s salary increase was part of a pay mix adjustment and his total target compensation did not increase from 2012 to 2013.

 

 

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ANNUAL INCENTIVES

 

Executive Incentive Compensation Plan

 

Under the EICP approved by our stockholders in April 2011, our named executive officers have the opportunity to earn annual incentives based on achievement of pre-established goals for the year. Awards earned under the EICP are based on a “balanced scorecard” of both corporate and individual goals, and are subject to a minimum funding requirement based on the Basel I Tier 1 common ratio.

Awards under the EICP generally are designed with the intent of qualifying as “performance-based” compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended. In that regard, awards paid to any individual participant for the calendar year cannot exceed the sum of $3 million plus 0.5% of the company’s positive pre-tax income from continuing operations, before the impact of the cumulative effect of accounting changes and extraordinary items, as disclosed on our consolidated statement of income for such year included in our Annual Report on Form 10-K.

Minimum Funding Requirement. In February 2013, the HRC Committee determined that a Basel I Tier 1 common ratio of at least 9%, which was above the minimum regulatory threshold ratio for a “well capitalized” bank, continues to be an appropriate threshold goal to fund annual incentives. This threshold funding goal was met, with a Basel I Tier 1 common ratio of 14.5% as of December 31, 2013.

Balanced Scorecard Approach. We adopted the use of a “balanced scorecard” approach in 2009. In February 2013, the HRC Committee reevaluated this approach and determined that it continues to be appropriate. This approach measures (1) corporate financial and capital results, which we refer to as the “corporate component” and (2) each named executive officer’s functional, strategic and operational results, including business financial results, if applicable, and expense management, which we refer to as the “individual component.” The process is a comprehensive analysis of corporate and individual performance that includes discretion by the HRC Committee rather than a simple mathematical formula.

Interaction with Risk Scorecard. We adopted the use of a risk scorecard in 2011 to formally connect compensation and risk taking. The risk scorecard takes into account liquidity,

operational, reputation, market, credit and technology risks by measuring:

 

 

maintenance of an adequate compliance program, including adhering to the compliance rules and programs established by the company;

 

 

protection of the company’s reputation, including reviewing the company’s business practices to ensure that they comply with laws, regulations and policies, and that business decisions are free from actual or perceived conflicts;

 

 

management of operational risk, including managing operational losses and maintaining proper controls;

 

 

compliance with all applicable credit, market and liquidity risk limits, including understanding and monitoring risks associated with relevant businesses and new client acceptance, as well as appropriately resolving or escalating risk issues to minimize losses; and

 

 

meeting Internal Audit expectations, including establishing an appropriate governance culture, achieving acceptable audit results and remediating control issues in a timely manner.

The results of the HRC Committee’s review of the risk scorecard were taken into account by the HRC Committee in determining the corporate and individual components of the balanced scorecard as described below.

2013 Annual Incentive Metrics and Payouts

In early 2013, the HRC Committee established target payouts and the corporate and individual components of the scorecard. The weightings of these components are based on the executive officer’s role within the company. The corporate component is given more weight for Mr. Hassell, who is the most senior member of management, to more closely tie his compensation to corporate performance. The individual component is given more weight for Messrs. Arledge and Keaney, who are each responsible for a major business, and is equally weighted with the corporate component for the other named executive officers (Messrs. Gibbons and Rogan) who are each generally responsible for a corporate service function.

 

 

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The following table shows target 2013 annual incentive awards set in February 2013 and the corporate and individual component for each NEO.

 

          Weight
Name    Target Payout    Corporate Component   Individual Component*

Hassell

       $8,400,000        65%   35%

Gibbons

       $3,745,000        50%   50%

Arledge

       $9,345,000        35%   65%

Keaney

       $3,745,000        35%   65%

Rogan

       $3,745,000        50%   50%

  *including business financial performance, as applicable

The following table shows the actual amounts earned after the HRC Committee reviewed performance against each named executive’s goals in February 2014. The HRC Committee’s determinations are discussed in more detail below.

 

Name          Total Payout Components      Total Payout Components  
   Total Actual Payout    Corporate
Component
     Individual
Component
     Cash      RSUs  

Hassell

  

$8,127,000

about 97% of target

   $ 5,187,000       $ 2,940,000       $ 3,486,483       $ 4,640,517   

Gibbons

  

$3,651,376

about 98% of target

   $ 1,778,875       $ 1,872,501       $ 2,084,936       $ 1,566,440   

Arledge

  

$9,363,691

about 100% of target

   $ 3,107,213       $ 6,256,478       $ 5,346,668       $ 4,017,023   

Keaney

  

$3,677,591

about 98% of target

   $ 1,245,213       $ 2,432,378       $ 2,099,904       $ 1,577,687   

Rogan

  

$3,464,126

about 93% of target

   $ 1,778,875       $ 1,685,251       $ 1,978,016       $ 1,486,110   

 

Corporate Component. Under our program, the same corporate goals and component payouts apply to each named executive officer. In establishing the corporate component for 2013, the HRC Committee decided to adopt multiple measures of corporate performance using a combination of financial and qualitative measures to assess financial, risk and capital levels. The HRC Committee does not assign a specific weighting to any of these measures.

 

   

Earnings per share. In the first quarter of 2013, the Committee established corporate component guidelines based on our budgeted EPS of $2.10. The guidelines provide a range of incentive payouts that correspond to each of five different levels of EPS. The following chart shows the levels of EPS and corresponding corporate component payout ranges.

 

Earnings Per Share    Percent of
Budget ($2.10)
           Corporate
Component
Payout Range

<$1.47

   0% to 70%         0%-50%

$1.47-$2.03

   70% to 97%         50%-75%

$2.04-$2.10

   97% to 100%         75%-95%

$2.11-$2.35

   100% to 112%         95%-125%

>$2.35

   >112%           125%-150%

The corporate component guidelines give the HRC Committee discretion within the corporate component payout range. The guidelines also provided for the adjustment of EPS to account for certain unplanned items, such as unusual litigation expenses, sale of businesses, or other items, as determined in the HRC Committee’s discretion.

In the first quarter of 2014, the HRC Committee used the EPS of $1.74, as determined under generally accepted accounting principles in the United States (GAAP), as an initial starting point for consideration of our corporate component incentive payouts. The HRC Committee then evaluated the impact of any unplanned items, such as unusual litigation expenses or a sale of a business, and determined that the U.S. Tax Court’s rulings in 2013 disallowing certain foreign tax credits taken before the Bank of New York and Mellon merger (the “Tax Ruling”) was an unplanned, unusual event that should be excluded. In making its decision to exclude the Tax Ruling, the HRC Committee considered that the disallowed foreign tax credits were not reflective of the company’s 2013 performance and rather relate to actions taken prior to the merger. The adjusted EPS of $2.24, which is calculated by increasing 2013 net income applicable to common stockholders by $593 million (or $0.50 per share) to exclude the impact of the Tax Ruling,

 

 

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was used to determine the corporate component payout range of 95%-125%.

 

   

Other considerations. The HRC Committee then evaluated four other financial metrics, which could reduce or eliminate the corporate component of the award resulting from our EPS or increase the corporate component by up to 25 percentage points:

 

   

Relative TSR. Our 2013 one-year TSR of 39% was above median relative to both the S&P 500 Financials Index and our peer group, and up from our 2012 one-year TSR of 32%.

 

   

Return on economic capital, which is defined as adjusted operating earnings divided by economic capital. Adjusted operating earnings equals operating earnings less intangible amortization and reflects the cost of Tier 1 common equity for acquisitions. Economic capital represents the greater of risk-based allocation of Tier 1 common equity or regulatory capital. Economic capital represents the risk-based allocation of Tier 1 common equity. For 2013, our return on economic capital budget was 15.7% and our actual achievement was 14.1%, which excludes the Tax Ruling.

 

   

Relative EPS growth as determined under GAAP relative to the S&P 500 Financials Index. Our 2013 reported EPS of $1.74 represented growth at the 13th percentile of the companies in the S&P 500 Financials Index that had reported their EPS at the time of the HRC Committee’s consideration. Our adjusted EPS, after excluding the Tax Ruling, was $2.24.

 

   

Impact of market conditions. The HRC Committee evaluated the market conditions that affected the company in 2013 and determined that the positive impact of strong equity markets was offset by lower than expected short-term interest rates.

 

   

Risk assessment results. Finally, the HRC Committee determined whether it would make any downward adjustments, or eliminate the corporate component payout, based on the risk assessment measured by the risk scorecard. The metrics noted under “other considerations” above may not under any circumstances be used to increase the corporate component of the award if the risk scorecard result is lower than acceptable risk tolerance. No downward adjustment was made for 2013.

Based on an evaluation of the factors outlined above, none of which had any specific weighting, and its discussions with other independent directors, the HRC Committee considered the strong market conditions and the low relative EPS growth, as well as the fact that the Tax Ruling was excluded

from EPS for purposes of setting the payout range. The HRC Committee determined that a guideline payout of 95%, at the bottom of the targeted payout range, was appropriate for the corporate component.

Individual Component. In February 2013, the HRC Committee approved the individual objectives for our CEO, after discussion with the other independent directors, and for our other named executive officers, which were set by our CEO after discussion with the HRC Committee. In February 2014, the HRC Committee evaluated each named executive officer’s individual performance over the year. For Mr. Hassell, the HRC Committee reviewed his performance self-assessment, obtained feedback from each independent director, and finalized its decision after reporting its preliminary evaluation to the other independent directors and soliciting their input. For each of the other named executive officers, the HRC Committee reviewed his performance self-assessment, considered Mr. Hassell’s recommendation and summary of performance, and finalized its decision after soliciting input from the other independent directors.

 

   

Mr. Hassell. The HRC Committee awarded Mr. Hassell 100% of target under the individual component of his balanced scorecard. Combined with the amount awarded under the corporate component described above, Mr. Hassell’s total annual incentive for 2013 was about 97% of his target annual incentive, or $8,127,000. The HRC Committee considered the company’s 2013 achievements under Mr. Hassell’s leadership in determining his individual component, including:

 

   

Overall financial results that included a 12% year-over-year increase in pre-tax income, 7% year-over-year increase in investment management and performance fees, net AUM inflows of $100 billion for the year, 4% year-over-year increase in investment services fees, and 5% increase in assets under custody and/or administration for the year, while effectively managing credit and operational risks within our risk appetite;

 

   

A positive one-year TSR of 39%, positioning the company above the median relative to both the S&P 500 Financials Index and our peer group, and up from our 2012 one-year TSR of 32%;

 

   

Driving our performance culture by, among other things, enhancing efficiencies and productivity through cross-business collaboration and expense synergies, investing in enterprise-wide organic growth through new initiatives and innovative services, focusing on further developing our corporate brands, fostering an active and ongoing learning culture through our newly established “BNY Mellon University,” and focusing on our

 

 

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diversity in management by initiating reviews of candidate slates and succession plans for senior roles; and

 

   

Continued progress in risk management, including setting the “tone at the top” for a strong, sound and forward-looking risk culture, successful execution of key regulatory deliverables, and substantial progress in resolving litigation and other legal-related exposures.

 

   

Mr. Gibbons. The HRC Committee awarded Mr. Gibbons 100% of target under the individual component of his balanced scorecard. Combined with the amount awarded under the corporate component described above, Mr. Gibbons’ total annual incentive for 2013 was about 98% of his target annual incentive, or $3,651,376. The HRC Committee considered, among other things, the following 2013 achievements in determining his individual component:

 

   

Overall financial results and successful execution of our 2013 capital plan that included EPS of $2.24 (after adjusting for the Tax Ruling), year-over-year savings of $239 million from our Operational Excellence Initiatives program, net interest revenue of $3 billion (approximately flat to the prior year and in a low interest rate environment), an effective tax rate below target on an operating basis and overall reduction in expenses;

 

   

Continued support of a strong, sound and forward-looking risk culture by completing the “living will” plans required by the Dodd-Frank Wall Street Reform and Consumer Protection Act within the mandated timeline, building a new quality review function for regulatory reporting, and improving internal controls over regulatory reporting;

 

   

Redesigning the company’s business processes for improvements in quality, efficiency and cost, developing appropriate governance mechanisms, executing systems initiatives in a timely and cost-efficient manner and strengthening our finance function by, among other things, hiring new talent and establishing a global finance delivery center;

 

   

Successful execution of major initiatives to upgrade our financial management platform, complete our treasury business’s risk management platform, roll out cost basis reporting for our debt instruments and options, and restructure certain international legal entities; and

   

Resolution of outstanding tax audits and bringing tax reporting current with favorable impact to the company.

 

   

Mr. Arledge. The HRC Committee awarded Mr. Arledge 103% of target under the individual component of his balanced scorecard. Combined with the amount awarded under the corporate component described above, Mr. Arledge’s total annual incentive for 2013 was about 100% of his target annual incentive, or $9,363,691. The HRC Committee considered, among other things, the following 2013 achievements in determining his individual component:

 

   

Operating performance for the investment management business that included revenue and pre-tax income that were higher than plan and prior-year results, and net AUM inflows of $100 billion;

 

   

Refining the investment management business model to support long-term, sustainable organic growth and connect the investment management business with other businesses by, among other things, generation of new revenues through cross-business line solutions for our clients, identification of cross-platform opportunities and active linking of marketing and branding, reinforcing and restructuring the leadership team, expanding our distribution capability, continuing to rationalize the boutique structure of the business, expanding the reach of our wealth management group, and evaluating long-term incentive and other compensation plans across the business;

 

   

Continued support of a strong, sound and forward-looking risk culture by focusing on the accountability of leadership in the investment management business, providing input to the approach and rigor of our stress tests and achieving strong audit results with timely resolution of issues; and

 

   

Successful launching of a review of cost allocations across groups and identifying action items to manage costs more effectively going forward as part of an effort to focus on financial transparency and reduction in expenses.

 

 

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Mr. Keaney. The HRC Committee awarded Mr. Keaney about 100% of target under the individual component of his balanced scorecard. Combined with the amount awarded under the corporate component described above, Mr. Keaney’s total annual incentive for 2013 was about 98% of his target annual incentive, or $3,677,591. The HRC Committee considered, among other things, the following 2013 achievements in determining his individual component:

 

   

Operating performance for the investment services business that included pre-tax income and coverage ratio (investment services fees vs. adjusted expenses) that were higher than plan and, in the case of pre-tax income, prior-year results;

 

   

Leading enterprise-wide organic growth, while continuing to support a strong, sound and forward-looking risk culture, by, among other things, developing and launching key products and services, continuing to support greater integration of BNY Mellon Global Markets products and services within the investment services client base, meeting regulatory requirements and commitments, decreasing operating losses and achieving strong audit results while making substantial progress in resolving litigation and other legal-related exposures;

 

   

Achievement of positive operating leverage at the investment services business level by developing metrics to measure success and progress, supporting cost containment and expense management, delivering on synergy savings and increasing communication regarding investment services’ business strategy and progress with other business lines;

 

   

Leadership in the investment services industry and increased client satisfaction by, among other things, achieving top rankings in external surveys and continuing to participate in client advisory events, industry roundtables and industry publications; and

 

   

Advancing diversity efforts by continuing to appoint qualified, diverse candidates for senior positions and serving as the executive sponsor of one of our affinity network groups.

 

   

Mr. Rogan. The HRC Committee awarded Mr. Rogan 90% of target under the individual component of his balanced scorecard. Combined with the amount

   

awarded under the corporate component described above, Mr. Rogan’s total annual incentive for 2013 was about 93% of his target annual incentive, or $3,464,126. The HRC Committee considered, among other things, the following 2013 achievements in determining his individual component:

 

   

Overseeing operational risk management for several major corporate initiatives;

 

   

Continued strengthening of a sound and forward-looking risk culture by implementing policies, metrics, and education and training programs to instill a heightened risk awareness for all employees, supporting human resources in addressing risk in our compensation programs, preparing the company for potential operational and risk scenarios, and collaborating with various business units to support new credit revenue initiatives that are consistent with our risk appetite;

 

   

Successful completion of our Comprehensive Capital Analysis and Review (“CCAR”) for 2013 and our “living will” plans, as well as executing our CCAR;

 

   

Development of risk and data architecture to better measure and manage intra-day credit risk, although continued work needs to be done to better align our organizational design and structure with the evolving global regulatory landscape; and

 

   

Continued progress in addressing information security risk management, including improved reporting, tracking and escalation of outstanding information risks and developing measures to mitigate our exposure to cyber-attacks.

2014 Annual Incentive Metrics and Payouts

In early 2014, the HRC Committee determined to continue the use of a “balanced scorecard” approach, including both a corporate component and an individual component for the 2014 performance year. As with 2013, the HRC Committee established corporate component guidelines based on our budgeted EPS for the year, providing a range of incentive payouts corresponding to five levels of EPS. The guidelines for 2014 provide both the threshold and maximum guideline ranges at higher percentage performance levels against our EPS budget than in 2013 and provide for a zero corporate component payout for any level of performance below threshold. In addition, if we do not earn more in 2014 than we did in 2013 on an adjusted basis, the corporate component

 

 

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payout will be significantly less. We also added expense control/operating leverage as an additional key item that the HRC Committee considers when determining the corporate component payout.

The HRC Committee retains the discretion to adjust the payout (up or down) and to consider significant, unusual, unplanned items.

 

 

LONG-TERM EQUITY INCENTIVES

 

 

Long-term equity incentive awards, which are made pursuant to the company’s LTIP, are intended to be a key element of the company’s pay-for-performance compensation program by aligning a significant portion of our named executive officers’ compensation with changes in our stock price over a multi-year period. In 2013, we introduced PSUs as an integral part of our long-term incentive program in addition to RSUs earned through the balanced scorecard. The PSUs are granted each year and any earned PSUs cliff vest after the end of three-year performance periods. The PSUs are earned between 0-125% based on our RRWA over each year of the performance period. RRWA is defined as net income available to common stockholders, adjusted for capital charges on acquisitions as incurred, divided by the simple average of quarter-end risk weighted assets (estimated per Basel III, based on existing assumptions and approaches at the commencement of the performance period, and as reported in our reports on Forms 10-Q and 10-K). Granting awards annually with overlapping, multi-year performance periods allows the HRC Committee to annually review and update, as appropriate, the structure and performance metrics that we use in our PSUs program.

February 2014 Awards

At its February 2014 meeting, the HRC Committee determined that PSUs with three-year performance periods continue to be an appropriate long-term incentive vehicle for our named executive officers. In determining the value of the awards, the HRC Committee applied the following adjustment process to the same initial targets used for each named executive officer used in February 2013, consistent with our change in perspective.

 

   

Performance Results. Target long-term incentive award amounts were first subject to adjustment based on the HRC Committee’s review of 2013 annual performance against the corporate and individual goals of each executive’s 2013 annual incentive balanced scorecard:

 

Performance Results   Adjustment

Less than 90%

  0% to –25%

Between 90% and 110%

  0%

More than 110%

  0% to +25%

The initial target awards were not adjusted based on 2013 performance results.

   

Strategic Objectives. Adjustments resulting from the guidelines above may be modified, upward or downward, by an additional 25% in the HRC Committee’s discretion after considering strategic assessments of each named executive officer. The total reduction or increase cannot be greater than 25%. The initial target award for Mr. Rogan was adjusted downward by 10% in light of the continued work that needs to be achieved to better align our organizational design and structure with the evolving global regulatory landscape.

 

   

Risk Scorecard Results. Target long-term incentive award amounts are also subject to downward adjustment of up to 100% based on the risk scorecard results, which measure compliance with risk metrics and any unsatisfactory risk assessments. All negative adjustments under the guidelines are cumulative, and no positive adjustment may be applied if the risk scorecard result is lower than acceptable risk tolerance. The initial target awards were not adjusted on this basis.

After taking into account performance results, strategic objectives and risk scorecard results, the total possible adjustment is between -100% and +25%. The final long-term incentive award cannot be greater than 25% above target.

As a result of the above adjustments, the HRC Committee granted long-term incentive awards in February 2014 to each of the named executive officers as follows: $3,600,000 for Mr. Hassell, 100% of his target; $1,605,000 for Mr. Gibbons, 100% of his target; $4,005,000 for Mr. Arledge, 100% of his target; $1,605,000 for Mr. Keaney, 100% of his target; and $1,444,500 for Mr. Rogan, 90% of his target. In calculating the number of PSUs to grant, the HRC Committee divided these dollar amounts by $33.10, which was the average closing price of our common stock on the NYSE for the 25 trading days from January 2, 2014 through February 6, 2014, in order to mitigate the impact of short-term volatility in our stock price.

The PSUs will be earned between 0-125% based on future performance over the 2014 – 2016 performance period based on each year’s RRWA, and earned PSUs will cliff vest after the end of the performance period in 2017.

Reduction or Forfeiture in Certain Circumstances. The company may cancel all or any portion of the PSUs (as well as the RSUs that constitute a portion of our named executive officer’s annual incentive award), if, directly or indirectly,

 

 

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the named executive officer (1) engages, or is discovered to have engaged, in conduct that is materially adverse to the company’s interests during his employment with us, (2) violates certain non-solicitation or non-competition restrictions during his employment with us and for a certain period of time thereafter, (3) violates any post-termination obligation or duties owed to the company or (4) has received, or may receive, compensation that is required to be forfeited and/or repaid to the company pursuant to applicable regulatory requirements. In addition, in the event that the named executive officer’s risk scorecard rating is lower than acceptable risk tolerance, any unvested PSUs (as well as unvested RSUs) will be subject to review and potential forfeiture, as determined by our HRC Committee.

 

Go-Forward Approach for Long-Term Incentives. To highlight the connection between incentive opportunity and current-year performance, the HRC Committee has determined that, beginning in 2014, a target long-term equity incentive award will be communicated to each named executive officer in the first quarter of the year, with the actual award amount determined, based on current year performance, in the first quarter of the following year. This process is consistent with the determinations for our annual incentive awards, as well as our historic grant timing. The grant date value of 2014 long-term incentives will be determined in February 2015 based on 2014 performance and awarded in the form of PSUs earned over the 2015 – 2017 performance period based on each year’s RRWA.

 

 

February 2013 Awards included in Summary Compensation Table

As reported for 2013 in the Summary Compensation Table and discussed in last year’s Compensation Discussion and Analysis, in February 2013, the HRC Committee granted the following long-term incentive awards for our named executive officers based on target values, as adjusted based on prior-year performance:

 

Name    Value of Granted PSUs    Number of PSUs

Hassell

   $3,600,000    133,679

Gibbons

   $1,605,000      59,598

Arledge

   $4,005,000    148,718

Keaney

   $1,605,000      59,598

Rogan

   $1,700,000      63,126

In calculating the number of PSUs to be delivered, the HRC Committee used a share price of $26.93, which was the average closing price of our common stock on the NYSE for the 25 trading days from January 2, 2013 through February 6, 2013, in order to mitigate the impact of short-term volatility in our stock price. The target award was divided by $26.93 to determine the number of shares subject to the PSUs. These valuation methods differ from the accounting grant date fair values reported for these awards in the Summary Compensation Table and the 2013 Grants of Plan-Based Awards Table.

 

Consistent with the focus on sustained financial performance, the HRC Committee pre-established a target of 1.6% for RRWA for each year of the 2013-2015 performance period. Our RRWA in 2013 was 1.42%, resulting in an earnout percentage of 87%. Although the Tax Ruling negatively impacted the payout of the PSUs, the HRC Committee did not adjust the RRWA. Accordingly, the number of PSUs earned (excluding dividend equivalents) for the 2013 tranche of the February 2013 long-term equity incentive award was: 38,767 for Mr. Hassell; 17,283 for Mr. Gibbons; 43,129 for Mr. Arledge; 17,283 for Mr. Keaney; and 18,307 for Mr. Rogan. The remaining two tranches of the February 2013 award will be earned based on performance in 2014 and 2015. Any earned PSUs for all three tranches will cliff vest in 2016 after the end of the performance period and are subject to forfeiture prior to vesting.

  

 

Outstanding PSUs Granted in 2013

 

LOGO

 

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OTHER COMPENSATION AND BENEFITS ELEMENTS

 

Retirement and Deferred Compensation Plans

As a result of the merger of Bank of New York and Mellon in 2007, we assumed certain existing arrangements affecting the provision of retirement benefits to our named executive officers. We also maintain qualified and non-qualified defined benefit and defined contribution plans in which eligible employees, including our named executive officers, may participate. Our named executive officers are eligible to participate in deferred compensation plans, which enable eligible employees to defer the payment of taxes on a portion of their compensation until a later date. Details relating to these arrangements and plans are included under “2013 Pension Benefits” and “2013 Nonqualified Deferred Compensation” below.

Perquisites

In addition to the benefits that we offer to all our employees, we provide modest perquisites for our named executive officers. We believe that the benefits and perquisites help us attract and retain a talented leadership team and are reasonable in comparison to market practices. The following perquisites were provided in 2013 and are substantially unchanged from 2012:

 

Perquisites

  

Description

Car and Driver   

Each named executive officer has access to a pool of company cars and drivers for security purposes and to allow for more effective use of such officer’s travel time. The pool is also available for use by our other executives.

Executive Life Insurance   

The named executive officers are covered by certain life insurance plans, which are described in further detail in the footnotes to the Summary Compensation Table below.

Personal Use of Corporate Aircraft   

Company aircraft are intended to be used by employees, directors and authorized guests primarily for business purposes. Our aircraft usage policy provides that the CEO should make prudent use of the company aircraft for security purposes and to make the most efficient use of his time. The HRC Committee receives an aircraft usage report on a semi-annual basis.

Enhanced Matching of Charitable Gifts   

The company maintains a matching gift program for gifts to eligible charities. All of our employees are eligible to participate in the matching gift program, but our named executive officers are eligible for an additional match of up to $30,000.

We do not provide financial planning services, personal cars, parking, supplemental long-term disability insurance, medical physical examinations, personal use of club memberships, home security or personal liability insurance perquisites.

ADDITIONAL COMPENSATION POLICIES AND CONSIDERATIONS

STOCK OWNERSHIP GUIDELINES

 

 

The HRC Committee believes that stock ownership is one of the most direct ways to align the long-term interests of the named executive officers with the long-term interests of our stockholders. Under the company’s stock ownership guidelines, each named executive officer is required to own a number of shares of our common stock with a value equal to a multiple of base salary within five years of becoming a member of our Executive Committee. The officer cannot sell or transfer to a third party any shares until he achieves the ownership guideline.

Our CEO is subject to a 6-times base salary and our other named executive officers are subject to a 4-times base salary ownership guideline. All of our named executive officers meet the stock ownership guidelines. For purposes of determining their ownership stake, we include shares owned directly, shares held in our employee stock purchase and

retirement plans and shares held in certain trusts. We include 50% of unvested restricted stock and RSUs that do not have performance conditions or for which the applicable performance conditions have been met. Unearned performance shares, awards that remain subject to performance conditions and stock options are not counted toward compliance with the stock ownership guidelines.

In addition, named executive officers are subject to a retention requirement relating to shares received from the vesting of RSUs, PSUs, restricted stock and other long-term equity awards that were granted after their respective appointment to the Executive Committee and that were unvested as of August 2012. For the CEO, 50% of the net after-tax shares from these awards must be held until age 60 to allow for orderly diversification; for other named executive officers, 50% of the net after-tax shares must be held for one year from the vesting date.

 

 

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ANTI-HEDGING POLICIES

 

 

Our named executive officers are restricted from entering into hedging transactions with their company stock under various policies that we have adopted. These policies prohibit our named executive officers from engaging in short

sales of our stock, from purchasing our stock on margin and from buying or selling any puts, calls or other options involving our securities.

 

 

CLAWBACK AND RECOUPMENT POLICY

 

 

In addition to forfeiture provisions based on risk outcomes during the vesting period, the company has a comprehensive recoupment policy that applies to equity awards granted to our executives, including the named executive officers, and is administered by the HRC Committee. Under the policy, the company may cancel all or any portion of unvested equity awards made after the adoption of the policy and require repayment of any shares of common stock (or values thereof) or amounts that were acquired from the award if:

 

   

the executive directly or indirectly engages in conduct, or it is discovered that the executive engaged in conduct, that is materially adverse to the interests of the company, including failure to comply with the company’s rules or regulations, fraud or conduct contributing to any financial restatements or irregularities;

 

   

during the course of the executive’s employment, the executive engages in solicitation and/or diversion of customers or employees and/or competition with the company;

   

following termination of the executive’s employment with the company for any reason, the executive violates any post-termination obligations or duties owed to the company or any agreement with the company; or

 

   

any compensation otherwise payable or paid to the executive is required to be forfeited and/or repaid to the company pursuant to applicable regulatory requirements.

In addition, the company has a cash recoupment policy, which provides that the company may claw back some or all of a cash incentive award within three years of the award date if, during the award performance period, the employee (including the named executive officers) is found to have engaged in fraud or directly or indirectly to have contributed to a financial restatement or other irregularity. The company continues to monitor regulatory requirements as may be applicable to its recoupment policies.

 

LIMITED SEVERANCE BENEFITS

 

 

Stockholder Approval of Future Senior Officer Severance Arrangements. In July 2010, the Board adopted a policy regarding stockholder approval of future senior officer severance arrangements. The policy provides that the company will not enter into a future severance arrangement with a senior executive that provides for severance benefits (as defined in the policy) in an amount exceeding 2.99 times the sum of annual base salary and target bonus for the year

of termination (or, if greater, for the year before the year of termination), unless such arrangement receives the approval of our stockholders.

Executive Severance Plan. In July 2010, we adopted The Bank of New York Mellon Corporation Executive Severance Plan, which provides severance benefits as described in the following table:

 

 

Reason for termination

 

Severance payment

 

Bonus

  Benefit
continuation
  Outplacement
services
  Tax
gross-up
By the company without “cause”   2 times base salary   Pro-rata annual bonus for the year of termination  

Two years

 

One year

 

None

By the company without “cause” or by the executive for “good reason” within two years following a “change in control”   2 times base salary and 2 times target annual bonus   Pro-rata target annual bonus for the year of termination  

Two years

 

One year

 

None

 

 

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Plan participants are selected by the HRC Committee and include each of our named executive officers. In order to receive benefits under the plan, the participant must sign a release and waiver of claims in favor of the company and agree not to solicit our customers and employees for one year. If any payment under the plan would cause a participant to become subject to the excise tax imposed under Section 4999 of the Internal Revenue Code, then payments and benefits will be reduced to the amount that

would not cause the participant to be subject to the excise tax if such a reduction would put the participant in a better after-tax position than if the participant were to pay the tax. In addition, the amount of payments and benefits that are payable under the plan will be reduced to the extent necessary to comply with our policy regarding stockholder approval of future senior officer severance arrangements as described above.

 

 

SECTION 162(M) TAX CONSIDERATIONS

 

 

Generally, Section 162(m) of the Internal Revenue Code of 1986, as amended, which we refer to as the “IRC,” imposes a $1 million limit on the amount that a public company may deduct for compensation paid to its CEO and three other most highly compensated officers each year. This limitation does not apply to “qualifying performance-based” compensation as defined in the IRC. We generally design our compensation programs so that compensation paid to

the named executive officers can qualify for available income tax deductions. The HRC Committee believes, however, that stockholders’ interests may best be served by offering compensation that is not fully deductible, where appropriate, to attract, retain and motivate talented executives. Accordingly, the HRC Committee has discretion to authorize compensation that does not qualify for income tax deductibility.

 

 

REPORT OF THE HUMAN RESOURCES AND COMPENSATION COMMITTEE

 

The HRC Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. On the basis of such review and discussions, the HRC Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the company’s annual report on Form 10-K and this proxy statement.

By: The Human Resources and Compensation Committee

Samuel C. Scott III, Chairman

Ruth E. Bruch

Edmund F. “Ted” Kelly

Richard J. Kogan

Michael J. Kowalski

Wesley W. von Schack

 

 

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EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table shows the compensation of our principal executive officer, our principal financial officer, and the three other most highly compensated executive officers for 2013 in accordance with SEC rules.

 

Name and Principal

Position

  Year     Salary     Bonus     Stock
Awards(2)
    Option
Awards(2)
    Non-Equity
Incentive
Plan
Compensation
    Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(3)
    All Other
Compensation(4)
    Total
Compensation
 

GERALD L. HASSELL

    2013      $ 1,000,000      $         0      $ 4,682,101      $ 0      $ 3,486,483      $ 0      $ 282,191      $ 9,450,775   

Chairman and Chief Executive Officer(1)

    2012      $ 1,000,000      $ 0      $ 6,250,748      $ 2,389,266      $ 3,045,938      $ 978,595      $ 140,611      $ 13,805,158   
    2011      $ 866,667      $ 0      $ 2,490,064      $ 2,514,414      $ 4,000,000      $ 2,218,704      $ 260,411      $ 12,350,260   
                 

THOMAS P. “TODD” GIBBONS

    2013      $ 650,000      $ 0      $ 2,293,760      $ 0      $ 2,084,936      $ 0      $ 113,010      $ 5,141,706   

Vice Chairman and Chief Financial Officer

    2012      $ 650,000      $ 0      $ 1,848,009      $ 706,376      $ 1,968,169      $ 826,027      $ 112,579      $ 6,111,160   
    2011      $ 650,000      $ 0      $ 1,604,181      $ 1,619,856      $ 1,780,000      $ 1,006,638      $ 154,313      $ 6,814,988   
                 

CURTIS Y. ARLEDGE

    2013      $ 625,000      $ 0      $ 6,160,496      $ 0      $ 5,346,668      $ 0      $ 129,321      $ 12,261,485   

Vice Chairman and CEO of Investment Management(5)

    2012      $ 600,000      $ 0      $ 3,695,290      $ 1,412,477      $ 6,202,735      $ 0      $ 163,111      $ 12,073,613   
    2011      $ 600,000      $ 0      $ 6,081,530      $ 5,173,881      $ 6,043,400      $ 0      $ 156,866      $ 18,055,677   
                 

TIMOTHY F. KEANEY

    2013      $ 625,000      $ 0      $ 2,109,486      $ 0      $ 2,099,904      $ 2,224      $ 32,099      $ 4,868,713   

Vice Chairman and CEO of Investment Services(6)

                 
                 
                 

BRIAN G. ROGAN

    2013      $ 650,000      $ 0      $ 2,390,145      $ 0      $ 1,978,016      $ 0      $ 110,920      $ 5,129,081   

Vice Chairman and Chief Risk Officer

    2012      $ 650,000      $ 0      $ 1,848,009      $ 706,376      $ 1,968,169      $ 857,863      $ 147,604      $ 6,178,021   
    2011      $ 650,000      $ 0      $ 1,604,181      $ 1,619,856      $ 1,675,000      $ 1,051,798      $ 160,271      $ 6,761,106   
                 

 

(1)

Mr. Hassell also served as a director in 2011, 2012 and 2013. He did not receive any additional compensation for this service.

 

(2)

The amount disclosed in this column is computed in accordance with FASB ASC Topic 718, which we refer to as “ASC 718,” using the valuation methodology for equity awards set forth in footnote 17 of the consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2013, in footnote 18 of the consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2012 and in footnote 18 of the consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2011. The amount also includes the grant date fair value of RSUs granted in 2013, 2012 and 2011, respectively, for each named executive officer. For 2013, the amount also includes the grant date fair values of the PSUs granted on February 21, 2013 at target: $3,652,110 for Mr. Hassell; $1,628,217 for Mr. Gibbons; $4,062,976 for Mr. Arledge; $1,628,217 for Mr. Keaney; and $1,724,602 for Mr. Rogan. At the maximum, the PSU values would be: $4,565,138 for Mr. Hassell; $2,035,271 for Mr. Gibbons; $5,078,720 for Mr. Arledge; $2,035,271 for Mr. Keaney; and $2,155,753 for Mr. Rogan.

 

(3)

The amount disclosed in this column for each year represents the amount of increase in the present value of the executive’s accumulated pension benefit. The total amount disclosed for 2013 for Mr. Keaney consists solely of the increase in the present value of the accumulated benefit, as there are no above-market nonqualified deferred compensation earnings. Present values are determined in accordance with the assumptions used for purposes of measuring our pension obligations under FASB ASC 715 (formerly SFAS No. 87) as of December 31, 2013, including a discount rate of 4.99%, with the exception that benefit payments are assumed to commence at the earliest age at which unreduced benefits are payable. The present value of Messrs. Hassell, Gibbons, and Rogan’s accumulated pension benefit decreased by $1,160,598, $26,429, and $69,021, respectively, due to a change in the ASC 715 discount rate used to calculate the pension value.

The total amounts disclosed for 2012 and 2011 for Messrs. Hassell, Gibbons and Rogan consist solely of the increase in the present value of the accumulated benefit for each individual, as there are no above-market nonqualified deferred compensation earnings.

 

BNY Mellon LOGO 2014 Proxy Statement 44


Table of Contents
(4)

The following table sets forth a detailed breakdown of the items which comprise “All Other Compensation” for 2013:

 

Name

   Perquisites
and Other
Personal
Benefits(a)
     Contributions
to Defined
Contribution
Plans(b)
     Insurance
Premiums(c)
     Total  

GERALD L. HASSELL

   $ 254,791       $ 12,750       $ 14,650       $ 282,191   

THOMAS P. “TODD” GIBBONS

   $ 90,160       $ 12,750       $ 10,100       $ 113,010   

CURTIS Y. ARLEDGE

   $ 104,071       $ 25,250       $       $ 129,321   

TIMOTHY F. KEANEY

   $ 19,349       $ 12,750       $       $ 32,099   

BRIAN G. ROGAN

   $ 90,745       $ 12,750       $ 7,425       $ 110,920   

 

  (a)

The following is a description of the items comprising “Perquisites and Other Personal Benefits” for each named executive officer: Mr. Hassell: use of company car and driver ($86,064), use of company aircraft ($138,727), enhanced charitable gift match ($30,000); Mr. Gibbons: use of company car and driver ($78,160), enhanced charitable gift match ($12,000); Mr. Arledge: use of company car and driver ($92,071), enhanced charitable gift match ($12,000); Mr. Keaney: use of company car and driver ($3,174), enhanced charitable gift match ($10,525), relocation benefits ($5,650); and Mr. Rogan: use of company car and driver ($75,745), enhanced charitable gift match ($15,000).

Each amount disclosed in the table above as a perquisite and other personal benefit represents the aggregate incremental cost to us of the particular item being described. The dollar amounts identified in connection with use of the company pool car and driver reflect the individual’s share of the aggregate cost associated with personal use of the vehicles and drivers. The dollar amount associated with personal use of our corporate aircraft was calculated by multiplying the direct hourly operating cost for use of the aircraft by the number of hours of personal use. We calculated the direct hourly operating cost by adding the total amount spent by us for fuel, maintenance, landing fees, travel and catering associated with the use of corporate aircraft in 2013 and divided this number by the total number of flight hours logged in 2013. The dollar amounts identified in connection with the enhanced charitable gift match represent matching contributions to eligible charities made by the company in excess of matching contributions provided for other employees under the company’s gift matching programs.

 

  (b)

The amounts identified in the “Contributions to Defined Contribution Plans” column include matching contributions under our 401(k) plans. In addition, for Mr. Arledge, the amount includes non-discretionary company contributions totaling 2% of base salary under our 401(k) plan and The Bank of New York Mellon Corporation Defined Contribution IRC Section 401(a)(17) Plan, which we refer to as the “BNY Mellon 401(k) Benefits Restoration Plan.” See “2013 Nonqualified Deferred Compensation” below on page 51 for more details regarding the BNY Mellon 401(k) Benefits Restoration Plan.

 

  (c)

The amounts identified for Messrs. Hassell, Gibbons and Rogan represent taxable payments made by us for universal life insurance policies.

 

(5)

The value of Stock Awards for 2011 includes a $3,000,000 restricted stock award that was granted in 2011 for 2010 and the value of Option Awards for 2011 also includes a $2,000,000 stock option award that was granted in 2011 for 2010, in each case, pursuant to the letter agreement entered into between Mr. Arledge and the company at the time of his employment.

 

(6)

Because Mr. Keaney was only a named executive officer for 2013, no disclosure is included for him for 2012 and 2011.

 

BNY Mellon LOGO 2014 Proxy Statement 45


Table of Contents

2013 GRANTS OF PLAN-BASED AWARDS TABLE

The following table shows the details concerning the grant of any non-equity incentive compensation and equity-based compensation to each named executive officer during 2013. All non-equity incentive compensation grants were made under The Bank of New York Mellon Executive Incentive Compensation Plan. All equity awards were made under The Bank of New York Mellon Long-Term Incentive Plan.

 

                    Estimated Possible Payouts Under
Non-Equity Incentive Plan
                    Awards(1)(2)                     
    Estimated Possible  Payouts
Under Equity Incentive
Plan

            Awards(3)            
       

Name

  Award
Type
  Grant
Date
    Date HRC
Committee
took Action
to Grant
Award
    Thres-
hold

($)
  Target ($)     Maximum
($)
    Thres-
hold (#)
    Target
(#)
    Maximum
(#)
    Grant Date
Fair Value
of Stock
Awards
($)(4)
 
GERALD L. HASSELL   EICP                   $  8,400,000      $ 13,965,000                             —     
    PSUs     2/21/2013        2/21/2013                        66,840        133,679        167,099      $ 3,652,110     
THOMAS P. “TODD” GIBBONS   EICP                   $ 3,745,000      $ 6,085,625                             —     
    PSUs     2/21/2013        2/21/2013                        29,799        59,598        74,498      $ 1,628,217     
CURTIS Y. ARLEDGE   EICP                   $ 9,345,000      $ 15,208,988                             —     
    PSUs     2/21/2013        2/21/2013                        74,359        148,718        185,898      $ 4,062,976     
TIMOTHY F. KEANEY   EICP                   $ 3,745,000      $ 6,094,988                             —     
    PSUs     2/21/2013        2/21/2013                        29,799        59,598        74,498      $ 1,628,217     
BRIAN G. ROGAN   EICP                   $ 3,745,000      $ 6,085,625                             —     
  PSUs     2/21/2013        2/21/2013                        31,563        63,126        78,908      $ 1,724,602     

 

  (1)

Represents target and maximum amounts that were to be paid for performance during 2013 under The Bank of New York Mellon Corporation Executive Incentive Compensation Plan. The award was made 43% in the form of cash and 57% in the form of RSUs for Mr. Hassell and 57% in the form of cash and 43% in the form of RSUs for our other named executive officers. These amounts are subject to the condition that the company achieve a minimum Basel I Tier 1 common ratio of 9% as of December 31, 2013, which was satisfied. The RSUs vest in equal installments over three years. In the event that the named executive officer’s risk scorecard rating is lower than acceptable risk tolerance, any unvested RSUs will be subject to review and potential reduction or forfeiture, as determined by our HRC Committee. There was no threshold payout under this plan for 2013.

 

  (2)

The table above does not reflect the RSUs that were granted on February 21, 2013 with respect to each named executive officer’s 2012 annual incentive award, which was made 75% in the form of cash and 25% in the form of RSUs. The 2012 annual incentive award was previously reported in the 2012 Grants of Plan-Based Awards Table. See footnote (2) to the Summary Compensation Table for more information on these RSUs.

 

  (3)

Represents the named executive officer’s 2013 long-term incentive award granted in the form of PSUs. The amounts shown under the Threshold column represent the threshold payout level of 50% of target, and amounts shown under the Maximum column represent the maximum payout level of 125% of target. PSUs have transfer restrictions until they vest and, upon vesting, will be paid out in shares of BNY Mellon common stock. PSUs cannot be sold during the period of restriction. During this period, dividend equivalents on the PSUs will be reinvested and paid to the executives at the same time as the underlying earned shares. One-third of these units will be earned between 0-125% based on our return on risk-weighted assets over each year of a three-year performance period (2013 to 2015), and the earned units generally will cliff vest after the end of the performance period if the executive remains employed by us. In the event that the named executive officer’s risk scorecard rating is lower than acceptable risk tolerance, any unvested PSUs will be subject to review and potential reduction or forfeiture, as determined by our HRC Committee.

 

  (4)

The aggregate grant date fair value of awards presented in this column is calculated in accordance with ASC 718.

 

BNY Mellon LOGO 2014 Proxy Statement 46


Table of Contents

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2013

The following table shows the details concerning outstanding options (exercisable and unexercisable), and the number and value of any unvested or unearned stock awards outstanding as of December 31, 2013 for each named executive officer. The market value of any unvested or unearned awards as of December 31, 2013 is calculated based on $34.94 per share, the closing price of our common stock on the NYSE on December 31, 2013, the last trading day in 2013. The numbers have been rounded to the nearest whole dollar, share or unit, as applicable.

 

    Option Awards     Stock Awards  

Name

  Year of
Option
Grant
    Number of Securities
Underlying Unexercised
Options
(#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number of
Shares
or Units of
Stock That
Have  Not
Vested
(#)
    Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
    Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested

(#)
    Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested

($)
 
    Exercisable     Unexercisable              

GERALD L. HASSELL

    2004        165,095             $ 35.0800        3/4/2014        348,270 (15)    $ 12,168,554        89,119 (21)    $ 3,113,818   
    2006        155,661             $ 37.0900        3/14/2016        572 (20)    $ 19,986        1,316 (22)    $ 45,981   
    2007        191,042             $ 40.4000        3/13/2017           
    2007        86,180             $ 42.8300        4/2/2017           
    2007        471,700             $ 43.9300        6/29/2017           
    2007        35,896             $ 44.5900        7/23/2017           
    2008        380,916             $ 42.3100        3/10/2018           
    2009        329,593             $ 18.0200        3/9/2019           
    2010        239,853        79,950 (1)    $ 30.2500        3/15/2020           
    2011        147,560        147,559 (2)    $ 30.1300        2/23/2021           
    2012        108,603        325,809 (3)    $ 22.0300        2/22/2022           

 

   

 

 

THOMAS P. “TODD” GIBBONS

    2004        117,925             $ 35.0800        3/4/2014        150,810 (16)    $ 5,269,301        39,732 (21)    $ 1,388,236   
    2005        127,359             $ 32.2100        3/9/2015        255 (20)    $ 8,910        587 (22)    $ 20,510   
    2006        127,359             $ 37.0900        3/14/2016           
    2007        79,022             $ 40.4000        3/13/2017           
    2007        43,161             $ 42.8300        4/2/2017           
    2007        16,320             $ 44.5900        7/23/2017           
    2008        184,380             $ 42.3100        3/10/2018           
    2008        38,152             $ 34.6300        7/21/2018           
    2009        182,328             $ 18.0200        3/9/2019           
    2010        145,296        48,430 (4)    $ 30.2500        3/15/2020           
    2011        95,062        95,062 (5)    $ 30.1300        2/23/2021           
    2012        32,108        96,324 (6)    $ 22.0300        2/22/2022           

 

   

 

 

CURTIS Y. ARLEDGE

    2011        303,634        303,629 (7)    $ 30.1300        2/23/2021        456,907 (17)    $ 15,964,331        99,145 (21)    $ 3,464,126   
    2012        64,024        192,610 (8)    $ 22.0300        2/22/2022        637 (20)    $ 22,257        1,464 (22)    $ 51,152   

 

   

 

 

TIMOTHY F. KEANEY

    2004        35,378             $ 35.0800        3/4/2014        135,352 (18)    $ 4,729,199        39,732 (21)    $ 1,388,236   
    2005        37,736             $ 32.2100        3/9/2015        255 (20)    $ 8,910        587 (22)    $ 20,510   
    2006        37,736             $ 37.0900        3/14/2016           
    2007        48,628             $ 40.4000        3/13/2017           
    2007        27,594             $ 42.8300        4/2/2017           
    2007        8,964             $ 44.5900        7/23/2017           
    2008        121,569             $ 42.3100        3/10/2018           
    2009        105,189             $ 18.0200        3/9/2019           
    2009        43,936             $ 28.5400        6/8/2019           
    2010        92,253        30,748 (9)    $ 30.2500        3/15/2020           
    2011        78,036        78,036 (10)    $ 30.1300        2/23/2021           
    2012        32,581        97,742 (11)    $ 22.0300        2/22/2022           

 

BNY Mellon LOGO 2014 Proxy Statement 47


Table of Contents

BRIAN G. ROGAN

    2004        108,491             $ 35.0800        3/4/2014        151,384 (19)    $ 5,305,080        42,084 (21)    $ 1,470,415   
    2005        111,321             $ 32.2100        3/9/2015        270 (20)    $ 9,434        621 (22)    $ 21,698   
    2006        127,359             $ 37.0900        3/14/2016           
    2007        79,890             $ 40.4000        3/13/2017           
    2007        40,472             $ 42.8300        4/2/2017           
    2007        15,096             $ 44.5900        7/23/2017           
    2008        162,092             $ 42.3100        3/10/2018           
    2008        14,674             $ 34.6300        7/21/2018           
    2009        149,018             $ 18.0200        3/9/2019           
    2010        131,457        43,819 (12)    $ 30.2500        3/15/2020           
    2011        95,062        95,062 (13)    $ 30.1300        2/23/2021           
    2012        32,108        96,324 (14)    $ 22.0300        2/22/2022           

 

  (1)

79,950 options vest on March 16, 2014.

 

  (2)

73,780 options vested on February 24, 2014 and 73,779 options vest on February 24, 2015.

 

  (3)

108,603 options vested on February 23, 2014, 108,603 options vest on February 23, 2015 and 108,603 options vest on February 23, 2016.

 

  (4)

48,430 options vest on March 16, 2014.

 

  (5)

47,531 options vested on February 24, 2014 and 47,531 options vest on February 24, 2015.

 

  (6)

32,108 options vested on February 23, 2014, 32,108 options vest on February 23, 2015 and 32,108 options vest on February 23, 2016.

 

  (7)

151,817 options vested on February 24, 2014 and 151,812 options vest on February 24, 2015.

 

  (8)

64,204 options vested on February 23, 2014, 64,204 options vest on February 23, 2015 and 64,202 options vest on February 23, 2016.

 

  (9)

30,748 options vest on March 16, 2014.

 

  (10)

39,018 options vested on February 24, 2014 and 39,018 options vest on February 24, 2015.

 

  (11)

32,581 options vested on February 23, 2014, 32,581 options vest on February 23, 2015 and 32,580 options vest on February 23, 2016.

 

  (12)

43,819 options vest on March 16, 2014.

 

  (13)

47,531 options vested on February 24, 2014 and 47,531 options vest on February 24, 2015.

 

  (14)

32,108 options vested on February 23, 2014, 32,108 options vest on February 23, 2015 and 32,108 options vest on February 23, 2016.

 

  (15)

Represents the number of (A) RSUs: 82,644 shares vested on February 24, 2014, 94,580 shares vested on February 23, 2014, 94,578 shares vest on February 23, 2015, 12,567 shares vested on February 21, 2014, 12,567 shares vest on February 21, 2015, and 12,567 shares vest on February 21, 2016 and (B) earned PSUs: 38,767 shares vest on February 21, 2016.

 

  (16)

Represents the number of (A) RSUs: 53,242 shares vested on February 24, 2014, 27,962 shares vested on February 23, 2014 and 27,962 shares vest on February 23, 2015, 8,121 shares vested on February 21, 2014, 8,121 shares vest on February 21, 2015, and 8,119 shares vest on February 21, 2016 and (B) earned PSUs: 17,283 shares vest on February 21, 2016.

 

  (17)

Represents the number of (A) RSUs: 86,906 shares vest on November 1, 2014, 138,270 shares vested on February 24, 2014, 55,913 shares vested on February 23, 2014, 55,913 shares vest on February 23, 2015, 25,592 shares vested on February 21, 2014, 25,592 shares vest on February 21, 2015, and 25,592 shares vest on February 21, 2016 and (B) earned PSUs: 43,129 shares vest on February 21, 2016.

 

  (18)

Represents the number of (A) RSUs: 43,706 shares vested on February 24, 2014, 28,374 shares vested on February 23, 2014, 28,373 shares vest on February 23, 2015, 5,872 shares vested on February 21, 2014, 5,872 shares vest on February 21, 2015, and 5,872 shares vest on February 21, 2016 and (B) earned PSUs: 17,283 shares vest on February 21, 2016.

 

  (19)

Represents the number of (A) RSUs: 27,962 shares vested on February 23, 2014, 53,242 shares vested on February 24, 2014, 27,962 shares vest on February 23, 2015, 8,121 shares vested on February 21, 2014, 8,121 shares vest on February 21, 2015, and 8,119 shares vest on February 21, 2016 and (B) earned PSUs: 18,307 shares vest on February 21, 2016.

 

  (20)

Represents accrued dividends on earned PSUs that vest on February 21, 2016.

 

  (21)

Represents target number of unearned PSUs that vest on February 21, 2016. The PSUs will be earned between 0-125% of target based on our return on risk-weighted assets over 2014 for one half of the PSUs and 2015 for the other half.

 

  (22)

Represents accrued dividends on unearned PSUs that vest on February 21, 2016, assuming target performance.

 

BNY Mellon LOGO 2014 Proxy Statement 48


Table of Contents

2013 OPTION EXERCISES AND STOCK VESTED

The following table provides information concerning aggregate exercises of stock options and vesting of stock awards, including restricted stock, restricted share units and similar instruments, during 2013 for each named executive officer.

 

     Option Awards      Stock Awards  

Name

   Number of
Shares
Acquired on
Exercise (#)
     Value Realized on
Exercise ($)
     Number of
Shares Acquired
on Vesting

(#)
     Value Realized
on

Vesting ($)
 

Gerald L. Hassell

     353,775       $ 657,013.04         184,142       $ 5,197,109   

Thomas P. “Todd” Gibbons

     141,510       $ 262,939.73         82,216       $ 2,337,818   

Curtis Y. Arledge

           $         174,605       $ 5,235,402   

Timothy F. Keaney

     56,604       $ 106,186.27         62,821       $ 1,777,770   

Brian G. Rogan

     212,265       $ 394,228.97         77,049       $ 2,188,750   

2013 PENSION BENEFITS

The following table provides information with respect to each plan that provides for specified payments and benefits to the named executive officers following, or in connection with, retirement (other than defined contribution plans).

 

Name(1)

  

Plan Name

   Number of
Years
Credited
Service
(#)
     Present  Value
of
Accumulated
Benefit
($)(2)
     Payments
During
Last Fiscal Year
($)
 
Gerald L. Hassell    BNY Mellon Tax-Qualified Retirement Plan      37.25       $ 1,520,266       $   
   Legacy BNY Excess Plan      37.25       $ 4,148,148       $   
   Legacy BNY SERP      37.25       $ 11,230,969       $   
           
Thomas P. “Todd” Gibbons    BNY Mellon Tax-Qualified Retirement Plan      26.58       $ 1,156,402       $   
   Legacy BNY Excess Plan      26.58       $ 1,911,234       $   
   Legacy BNY SERP      26.58       $ 2,687,300       $   
           
Timothy F. Keaney    BNY Mellon Tax-Qualified Retirement Plan      12.33       $ 277,142       $   
   Legacy BNY Excess Plan      12.33       $ 178,173       $   
           
Brian G. Rogan    BNY Mellon Tax-Qualified Retirement Plan      31.17       $ 1,325,481       $   
   Legacy BNY Excess Plan      31.17       $ 1,712,834       $   
   Legacy BNY SERP      31.17       $ 2,824,622       $   

 

(1)

Mr. Arledge is not included in the table because he does not participate in any plan that provides for specified payments and benefits (other than defined contribution plans).

 

(2)

The present values shown above are based on benefits earned as of December 31, 2013 under the terms of the various plans as summarized below. Present values are determined in accordance with the assumptions used for purposes of measuring our pension obligations under FASB ASC 715 (formerly SFAS No. 87) as of December 31, 2013, including a discount rate of 4.99%, with the exception that benefit payments are assumed to commence at the earliest age at which unreduced benefits are payable.

 

BNY Mellon LOGO 2014 Proxy Statement 49


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BNY MELLON RETIREMENT PLANS

 

 

Effective January 1, 2009, The Bank of New York Mellon Corporation Pension Plan, which we refer to as the “BNY Mellon Tax-Qualified Retirement Plan,” was amended to change the benefit formula for participants under age 50 as of December 31, 2008 and for new participants to a cash balance formula for service earned on and after January 1, 2009. Plan participants who were age 50 or older as of December 31, 2008 continue to earn benefits under the provisions of the legacy plan in which they participated as of that date. Effective January 1, 2011, the plan was amended further to reduce future benefit accruals and limit participation to those persons participating in the plan as of December 31, 2010.

In 2013, Messrs. Hassell, Gibbons, Rogan, and Keaney participated in the BNY Mellon Tax-Qualified Retirement Plan and a pension benefits restoration plan, which we refer to as the “Legacy BNY Excess Plan.” Messrs. Hassell, Gibbons and Rogan also participated in a supplemental executive retirement plan, which we refer to as the “Legacy BNY SERP.” Because each of Messrs. Hassell, Gibbons and Rogan were all over age 50 as of December 31, 2008, they continue to earn benefits under the provisions of the legacy plans in which they participate. Because Mr. Keaney attained age 50 after that date, his benefit earned for service after 2008 is comprised of pay credits added to a cash balance account that range from 4.5% to 8.5% (5% to 10.5% before 2011) of eligible base pay based on a combination of age and service. The cash balance portion of his benefit under the BNY Mellon Tax-Qualified Retirement Plan (based on eligible pay up to IRS limits, maximum of $255,000 in 2013) is payable after termination of employment in a lump sum or as an annuity. The cash balance portion of his Legacy BNY Excess Plan benefit is payable in a lump sum. Mr. Keaney’s benefit also includes the accrued benefit he earned as of December 31, 2008 under the Legacy BNY Provisions described below. Mr. Arledge does not participate in any of these legacy plans.

BNY Mellon Tax-Qualified Retirement Plan — Legacy BNY Provisions. The Legacy BNY Tax-Qualified Retirement Plan, which we refer to as the “Legacy BNY Plan,” formula is a career average pay formula subject to IRC limits on eligible pay for determining benefits. Benefits are based on eligible base pay (maximum of $255,000 in 2013). Employees who participated in the Legacy BNY Plan prior to January 1, 2006 may choose between a monthly benefit and a lump sum at retirement, while other participants will receive monthly benefits at retirement.

Legacy BNY Excess Plan. This plan is an unfunded nonqualified plan designed to provide the same benefit

to Legacy BNY employees as under the BNY Mellon Tax-Qualified Retirement Plan to the extent their benefits are limited under such plan as a result of IRC limits on accrued benefits and eligible base pay. Benefits are paid in a lump sum.

Legacy BNY SERP. The Legacy BNY SERP is an unfunded nonqualified plan that provides benefits according to a benefit formula similar to that of the BNY Mellon Tax-Qualified Retirement Plan benefit formula but includes an annual bonus (capped at 100% of base salary after 2005) for senior executives who were selected to participate in this plan by Bank of New York’s board of directors prior to July 8, 2003. Benefits are paid in a lump sum. Participants are entitled to benefits in this plan only if they terminate service on or after age 60. The Legacy BNY SERP is closed to new participants.

Beginning with 2006, each of the plans generally provides benefits under a career average pay formula, rather than the final average pay formula under which benefits were based prior to 2006. In addition to the formula change, changes were also made to the Legacy BNY SERP that further limit future benefits by capping the amount of eligible pay used to calculate benefits. Because Messrs. Hassell, Gibbons and Rogan have attained at least age 55, they are each eligible for immediate retirement under the BNY Mellon Tax-Qualified Retirement Plan and the Legacy BNY Excess Plan. Unreduced benefits are payable under these plans at age 60, or at age 57 with 20 years of service. Messrs. Hassell and Gibbons are currently entitled to unreduced benefits from these plans. Mr. Rogan is entitled to unreduced benefits from these plans at age 57 and Mr. Keaney at age 59. Since Mr. Hassell is over age 60, he is also entitled to an unreduced benefit from the Legacy BNY SERP.

Beginning January 1, 2006, benefits accrued for all three plans are equal to 1% (increased to 1.1% effective January 1, 2009 and with respect to the BNY Mellon Tax-Qualified Retirement Plan and the Legacy BNY Excess Plan, decreased to 0.9%, effective January 1, 2011) of eligible pay earned after 2005. Benefits accrued before 2006 are based on a final average pay formula and service as of December 31, 2005. The prior accrued benefit is indexed at a rate of 1% per year. For the prior accrued benefit, the BNY Mellon Tax-Qualified Retirement Plan and the Legacy BNY Excess Plan use a five-year average period, whereas the Legacy BNY SERP was based on a three-year average period. Benefits under each of the plans are provided solely for service at Bank of New York or with us.

 

 

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2013 NONQUALIFIED DEFERRED COMPENSATION

The following table provides information with respect to each defined contribution or other plan that provides for nonqualified deferred compensation in which the named executive officers participate.

 

Name(1)

  Executive
Contributions  in

Fiscal Year 2013
    Registrant
Contributions in
Fiscal Year 2013
    Aggregate
Earnings in
Fiscal Year 2013
     Aggregate  Withdrawals/
Distributions
     Aggregate Balance at
End of Fiscal Year
2013
 
Curtis Y. Arledge   $ —              $ 7,400(2)(3)      $ 1,640       $ —                       $ 23,415(4)   
Thomas P. “Todd” Gibbons   $ —              $      $ 140,870       $ —                       $ 1,222,940(5)   

 

(1)

Messrs. Hassell, Keaney and Rogan are not included in the table, because, as of December 31, 2013, none of them had a balance in or made any contributions to or withdrawals from any nonqualified deferred compensation plan of the company.

 

(2)

Represents company contributions to Mr. Arledge pursuant to the BNY Mellon 401(k) Benefits Restoration Plan for the 2013 fiscal year.

 

(3)

This amount is included in the All Other Compensation column of the Summary Compensation Table on page 44.

 

(4)

In March, Mr. Arledge’s account was credited with company contributions of $14,375 for the 2011 and 2012 fiscal years. These amounts were previously reported in the All Other Compensation column of the Summary Compensation Table for 2012.

 

(5)

Mr. Gibbons contributed $1,025,000 to The Bank of New York Mellon Corporation Deferred Compensation Plan for Employees, which we refer to as the BNY Mellon Deferred Compensation Plan, in 2011. This amount was previously reported in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table for 2010.

 

BNY Mellon 401(k) Benefits Restoration Plan. On December 20, 2012, the company adopted the BNY Mellon 401(k) Benefits Restoration Plan, which is a nonqualified plan designed for the purpose of providing deferred compensation on an unfunded basis for eligible employees. The deferred compensation provided under the BNY Mellon 401(k) Benefits Restoration Plan is intended to supplement the benefit provided under the BNY Mellon 401(k) Savings Plan, our 401(k) Plan, for employees first participating in our 401(k) Plan after 2010 where the employee’s retirement contributions under the 401(k) Plan are limited due to the maximums imposed on “qualified” plans by section 401(a)(17) of the Internal Revenue Code. Pursuant to the BNY Mellon 401(k) Benefits Restoration Plan, we set up a notional account that is credited with an amount, if any, of company matching contributions that would have been credited to each eligible employee’s 401(k) Plan account absent those tax limitations, including for prior years in which the BNY Mellon 401(k) Benefits Restoration Plan was not yet in effect. The amounts credited to the notional accounts generally vest after three years of service, as defined and calculated under the 401(k) Plan. As of December 31, 2013, Mr. Arledge was the only named executive officer who participated in the BNY Mellon 401(k) Benefits Restoration Plan.

BNY Mellon Deferred Compensation Plan. The company adopted the BNY Mellon Deferred Compensation Plan effective as of April 1, 2008 for deferrals of cash compensation earned by eligible employees of the company after March 31, 2008. The BNY Mellon Deferred Compensation Plan permits executives to defer receipt of cash bonus/incentive amounts above the Social Security wage base (which was $113,700 in 2013) until a later date while employed, upon retirement or after retirement not to exceed age 70. Changes are permitted to the payment election once annually; however, they must comply with the regulations contained in The American Jobs Creation Act of 2004. Deferred compensation may be paid in a lump sum or annual payments over two to 15 years. If an executive terminates employment prior to age 55, his benefit is paid in a lump sum shortly after termination. Investment alternatives, based on a selection of variable rate options, must be selected when the executive makes a deferral election and may be changed each quarter for future deferrals. Previously deferred amounts may generally be reallocated among the investment options at the beginning of each quarter. The plan is a nonqualified unfunded plan.

 

 

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

The following discussion summarizes any arrangements, agreements and policies of the company relating to potential payments upon termination or change in control.

RETIREMENT BENEFITS

 

 

As shown in the 2013 Pension Benefits and the 2013 Nonqualified Deferred Compensation Tables above, we provide qualified and non-qualified pension retirement benefits and qualified and non-qualified defined contribution retirement benefits (with the specific plans varying depending on when participation began).

In addition, we provide accelerated or continued vesting of equity awards for participants who are eligible for retirement, with the eligibility dependent on the individual’s age and length of service and the terms of the

applicable plan. At December 31, 2013 and using the same assumptions as used for the Table of Other Potential Payments below, Mr. Hassell was eligible to receive accelerated or continued vesting of $5,290,920 in options and $12,205,517 in stock awards, Mr. Gibbons was eligible for $5,379,499 in stock awards and Mr. Rogan was eligible for in $5,325,556 stock awards. Messrs. Arledge and Keaney are not retirement-eligible. For the avoidance of doubt, accelerated or continued vesting is not provided on termination by the company for cause.

 

 

OTHER POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

 

 

Change in Control and Severance Arrangements. Since 2010, our Board has implemented a “Policy Regarding Stockholder Approval of Future Senior Officer Severance Arrangements.” The policy provides that the company will not enter into a future severance arrangement with a senior executive that provides for severance benefits (as defined) in an amount exceeding 2.99 times the sum of the senior executive’s annual base salary and target bonus for the year of termination (or, if greater, for the year before the year of termination), unless such arrangement receives approval of the stockholders of the company.

Under The Bank of New York Mellon Corporation Executive Severance Plan, if an eligible participant is terminated by the company without “cause” (as defined in the plan), the participant is eligible to receive a severance payment equal to two times the participant’s base salary for the year of termination (or, if greater, for the year before the year of termination), a pro-rata annual bonus for the year of termination, benefit continuation for two years and outplacement services for one year, provided the participant signs a release and waiver of claims in favor of the company and agrees not to solicit our customers and employees for one year. If a participant’s employment is terminated by the company without cause or if the participant terminates his or her employment for “good reason” (as defined in the plan) within two years following a “change in control” (as defined in the plan), then instead of receiving the benefits described above, the participant is eligible to receive a severance payment equal to two times the sum of the participant’s base salary and target annual bonus for the year of termination (or, if greater, for the year before the year of termination), a pro-rata target annual bonus for the year of termination, benefit continuation for two years and outplacement services

for one year, subject to the participant signing a release and agreeing not to solicit our customers and employees for one year. If any payment under the plan would cause a participant to become subject to the excise tax imposed under section 4999 of the Internal Revenue Code, then payments and benefits will be reduced to the amount that would not cause the participant to be subject to the excise tax if such a reduction would put the participant in a better after tax position than if the participant were to pay the tax.

Payments and benefits that are payable under the plan will be reduced to the extent that the amount of such payments or benefits would exceed the amount permitted to be paid under the company’s “Policy Regarding Stockholder Approval of Future Senior Officer Severance Arrangements” and such amounts are not approved by the company’s stockholders in accordance with the policy.

Unvested Equity Awards. Equity awards granted to our named executive officers through December 31, 2013 were granted under (i) the 1999 and 2003 Long-Term Incentive Plans of The Bank of New York and (ii) The Bank of New York Mellon Corporation Long-Term Incentive Plan, as applicable. Each award is evidenced by an award agreement that sets forth the terms and conditions of the award and the effect of any termination event or a change in control on unvested equity awards. Accordingly, the effect of a termination event or change in control on outstanding equity awards varies by executive officer and type of award.

Table of Other Potential Payments. The following table is based on the following:

 

 

The termination event listed in the table is assumed to be effective as of December 31, 2013.

 

 

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The value of our common stock of $34.94 per share is based on the closing price of our common stock on the NYSE on December 31, 2013, the last trading day in 2013.

 

 

The amounts shown in the table include the estimated potential payments and benefits that are payable as a result of the triggering event and do not include any pension, deferred compensation, or option/stock award vesting that would be earned on retirement as described above. We have only included amounts by which a named executive officer’s retirement benefit is enhanced by the triggering event, or additional option/stock awards that vest on the triggering event that would not vest on retirement alone. See “Retirement Benefits” on page 52 above for information on the acceleration or continued vesting of equity awards upon retirement.

 

 

The designation of an event as a termination in connection with a change of control is dependent upon the termination being either an involuntary termination

   

by the company without cause or a termination by the named executive officer for good reason.

 

 

“Cash Compensation” includes payments of salary, bonus, severance or death benefit amounts payable in the applicable scenario.

The actual amounts that would be payable in these circumstances can only be determined at the time of the executive’s separation, would include payments or benefits already earned or vested and may differ from the amounts set forth in the tables below. In some cases a release may be required before amounts would be payable. Although we may not have any contractual obligation to make a cash payment or provide other benefits to any named executive officer in the event of his or her death or upon the occurrence of any other event, a cash payment may be made or other benefit may be provided in our discretion. The incremental benefits that would be payable upon certain types of termination of employment as they pertain to the named executive officers are described below.

 

 

Named Executive Officer

   By
Company
without

Cause
     Termination
in Connection
with Change
of Control
     Death  

Gerald L. Hassell

        

Cash Severance(1)

   $ 2,000,000       $ 18,800,000       $   

Pro-rated Bonus(1)

   $ 8,127,000       $ 8,400,000       $   

Health and Welfare Benefits

   $ 27,199       $ 27,199       $   

Additional Retirement Benefits(2)

   $       $       $   

Additional Option Vesting(3)

   $       $       $   

Additional Stock Award Vesting(4)

   $       $       $   

Tax Gross-Up

   $       $       $   

TOTAL

   $ 10,154,199       $ 27,227,199       $   
        

Thomas P. “Todd” Gibbons

        

Cash Severance(1)

   $ 1,300,000       $ 8,790,000       $   

Pro-rated Bonus(1)

   $ 3,651,376       $ 3,745,000       $   

Health and Welfare Benefits

   $ 843       $ 843       $   

Additional Retirement Benefits(2)

   $       $       $ 3,268,658   

Additional Option Vesting(3)

   $ 1,513,413       $ 1,927,927       $ 1,927,927   

Additional Stock Award Vesting(4)

   $       $       $   

Tax Gross-Up

   $       $       $   

TOTAL

   $ 6,465,632       $ 14,463,770       $ 5,196,585   
        

Curtis Y. Arledge

        

Cash Severance(1)

   $ 1,300,000       $ 19,990,000       $   

Pro-rated Bonus(1)

   $ 9,363,691       $ 9,345,000       $   

Health and Welfare Benefits

   $ 30,493       $ 30,493       $   

Additional Retirement Benefits(2)

   $       $       $   

Additional Option Vesting(3)

   $ 3,118,204       $ 3,947,052       $ 3,947,052   

Additional Stock Award Vesting(4)

   $ 16,024,452       $ 16,024,452       $ 16,024,452   

Tax Gross-Up

   $       $       $   

TOTAL

   $ 29,836,840       $ 49,336,997       $ 19,971,504   

 

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Named Executive Officer

   By
Company
without

Cause
     Termination
in Connection
with Change
of Control
     Death  

Timothy F. Keaney

        

Cash Severance(1)

   $ 1,300,000       $ 8,790,000       $   

Pro-rated Bonus(1)

   $ 3,677,591       $ 3,745,000       $   

Health and Welfare Benefits

   $ 30,493       $ 30,493       $   

Additional Retirement Benefits(2)

   $       $       $ 175,189   

Additional Option Vesting(3)

   $ 1,360,804       $ 1,781,412       $ 1,781,412   

Additional Stock Award Vesting(4)

   $ 4,746,044       $ 4,746,044       $ 4,746,044   

Tax Gross-Up

   $       $       $   

TOTAL

   $ 11,114,932       $ 19,092,949       $ 6,702,645   
        

Brian G. Rogan

        

Cash Severance(1)

   $ 1,300,000       $ 8,790,000       $   

Pro-rated Bonus(1)

   $ 3,464,126       $ 3,745,000       $   

Health and Welfare Benefits

   $ 30,493       $ 30,493       $   

Additional Retirement Benefits(2)

   $       $       $ 4,119,543   

Additional Option Vesting(3)

   $ 1,491,787       $ 1,906,301       $ 1,906,301   

Additional Stock Award Vesting(4)

   $       $       $   

Tax Gross-Up

   $       $       $   

TOTAL

   $ 6,286,406       $ 14,471,794       $ 6,025,844   

 

(1)

Amounts represented assume that no named executive officer received payment from any displacement program, supplemental unemployment plan or other separation benefit other than the executive severance plan. Amounts have been calculated in accordance with the terms of the applicable agreements. For terminations by the company without cause, amounts will be paid in installments over a two-year period following termination. For terminations in connection with a change of control, amounts will be paid in a lump sum.

 

(2)

Amounts shown include amounts that would be payable automatically in a lump sum distribution upon death. For benefits that would not be payable automatically in a lump sum, the amount included is the present value based on the assumptions used for purposes of measuring pension obligations under FASB ASC 715 (formerly SFAS No. 87) as of December 31, 2013, including a discount rate of 4.99%. Amounts shown include only the amount by which a named executive officer’s retirement benefit is enhanced as a result of termination, pursuant to, where applicable, required notices given after the existence of a right to payment. Information relating to the present value, whether the amounts are paid in a lump sum or on an annual basis and the duration of each named executive officer’s accumulated retirement benefit can be found in “2013 Pension Benefits” on page 49 above.

 

(3)

The value of Additional Option Vesting represents the difference between the closing price of our common stock on December 31, 2013 ($34.94) and the exercise price of all unvested options that would vest on or after a separation from employment that would not vest on retirement alone. Information relating to the vesting of options on retirement can be found in “Retirement Benefits” on page 52 above.

 

(4)

The value of Additional Stock Award Vesting represents the value at December 31, 2013 of all shares of restricted stock, restricted stock units (along with cash dividends accrued on the restricted stock units), and earned PSUs (along with dividend equivalents on the PSUs) that on that date were subject to service-based restrictions, which restrictions lapse on or after certain terminations of employment, including following a change of control, to the extent such restrictions would not lapse on retirement alone. Information relating to the vesting of stock awards on retirement can be found in “Retirement Benefits” on page 52 above.

 

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PROPOSAL 3 – RATIFICATION OF THE APPOINTMENT OF KPMG LLP

The Audit Committee has appointed KPMG LLP as our independent registered public accountants for the year ending December 31, 2014.

Our Audit Committee has direct responsibility for the appointment, compensation, retention and oversight of the work of the independent registered public accountants engaged to prepare an audit report or to perform other audit, review or attest services for us. KPMG LLP or its predecessors have served as our independent registered public accounting firm since the merger in 2007 and previously served as the independent registered public accountant of Mellon since 1972. The Audit Committee is responsible for negotiating and approving the audit engagement fees and terms associated with the retention of KPMG LLP. In addition, the Audit Committee has the direct responsibility to annually evaluate and, as appropriate, replace KPMG LLP as our independent registered public accountant and discuss with management the timing and process for implementing the mandatory rotation of the lead engagement partner. The Audit Committee and the Board believe that the continued retention of KPMG LLP to serve as our independent registered public accounting firm for the 2014 fiscal year is in the best interests of the company and its stockholders.

The Board is submitting the selection of KPMG LLP to the stockholders for ratification upon the recommendation of the Audit Committee. Unless contrary instructions are given, shares represented by proxies solicited by the Board will be voted “for” the ratification of the selection of KPMG LLP as our independent registered public accountants for the year ending December 31, 2014. If the selection of KPMG LLP is not ratified by the stockholders, the Audit Committee will reconsider the matter. Even if the selection of KPMG LLP is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accountant at any time during the year if it determines that such a change is in our best interests.

Adoption of this proposal requires the affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting by the holders of our common stock voting in person or by proxy.

The Board of Directors unanimously recommends that you vote “FOR” ratification of the appointment of KPMG LLP as our independent registered public accountants for the year ending December 31, 2014.

We expect that representatives of KPMG LLP will be present at the Annual Meeting to respond to appropriate questions, and they will have the opportunity to make a statement if they desire.

 

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REPORT OF THE AUDIT COMMITTEE

 

On behalf of our Board of Directors, the Audit Committee oversees the operation of a comprehensive system of internal controls in respect of the integrity of our financial statements and reports, compliance with laws, regulations and corporate policies and the qualifications, performance and independence of our independent registered public accounting firm. The committee’s function is one of oversight, recognizing that our management is responsible for preparing our financial statements, and our independent registered public accountants are responsible for auditing those statements.

Consistent with this oversight responsibility, the committee has reviewed and discussed with management the audited financial statements for the year ended December 31, 2013 and management’s assessment of internal control over financial reporting as of December 31, 2013. KPMG LLP, our independent registered public accounting firm, issued its unqualified report on our financial statements and the operating effectiveness of our internal control over financial reporting.

The committee has also discussed with KPMG LLP the matters required to be discussed in accordance with Public

Company Accounting Oversight Board Auditing Standard, Communications with Audit Committees. The committee has also received the written disclosures and the letter from KPMG LLP required by applicable requirements of the Public Company Accounting Oversight Board, which we refer to as the “PCAOB,” regarding the independent accountants’ communications with the audit committee concerning auditor independence, and has conducted a discussion with KPMG LLP regarding its independence. The committee has determined that KPMG LLP’s provision of non-audit services is compatible with its independence.

Based on these reviews and discussions, the committee recommended to the Board of Directors that our audited financial statements for the year ended December 31, 2013 be included in our 2013 annual report on Form 10-K.

Catherine A. Rein, Chair

Richard J. Kogan

Michael J. Kowalski

William C. Richardson

Samuel C. Scott III

 

 

AUDIT FEES, AUDIT-RELATED FEES, TAX FEES AND ALL OTHER FEES

We have been advised by KPMG LLP that it is an independent public accounting firm registered with the PCAOB and that it complies with the auditing, quality control and independence standards and rules of the PCAOB and the SEC. The appointment of KPMG LLP as our independent registered public accounting firm for the 2013 fiscal year was ratified at our 2013 Annual Meeting. The following table reflects the fees earned by KPMG LLP for services provided to us for 2013 and 2012:

 

Description of Fees   

Amount of Fees Paid to

KPMG LLP for 2013

   Amount of Fees Paid to
KPMG LLP for 2012

Audit Fees(1)

   $19,096,000    $18,004,000

Audit-Related Fees(2)

   $14,060,000    $13,541,000

Tax Fees(3)

   $  3,320,000    $  2,172,000

All Other Fees(4)

   $     604,000    $       83,000

Total

   $37,080,000    $33,800,000

 

(1)

Includes fees for professional services rendered for the audit of our annual financial statements for the fiscal year (including services relating to the audit of internal control over financial reporting under the Sarbanes-Oxley Act of 2002) and for reviews of the financial statements included in our quarterly reports on Form 10-Q and for other services that only our independent registered public accountant can reasonably provide.

(2)

Includes fees for services that were reasonably related to performance of the audit of the annual financial statements for the fiscal year, other than Audit Fees, such as service organization reports (under Statement on Standards for Attestation Engagements (or “SSAE”) 16), employee benefit plan audits and internal control reviews.

(3)

Includes fees for tax return preparation and tax planning.

(4)

Includes fees for regulatory and other advisory services.

 

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OTHER SERVICES PROVIDED BY KPMG LLP

 

KPMG LLP also provided services to entities associated with us that were charged directly to those entities and accordingly were not included in the amounts disclosed in the table above. These amounts included $12.4 million for 2013 and $12.7 million for 2012 for the audits and tax

compliance services for mutual funds, collective funds and other funds advised by us. Also excluded from the amounts disclosed in the table above are fees billed by KPMG LLP to joint ventures or equity method investments in which we have an interest of 50% or less.

 

 

PRE-APPROVAL POLICY

 

Our Audit Committee has established pre-approval policies and procedures applicable to all services provided by our independent registered public accountants. In accordance with SEC rules, our pre-approval policy has two different approaches to pre-approving audit and permitted non-audit services performed by our independent registered public accountants. Proposed services may be pre-approved pursuant to policies and procedures established by the Audit Committee that are detailed as to a particular class of service without consideration by the Audit Committee of the specific case-by-case services to be performed. We refer to this pre-approval method as “class pre-approval.” If a class of service has not received class pre-approval, the service

will require specific pre-approval by the Audit Committee before such service is provided by our independent registered public accountants. We refer to this pre-approval method as “specific pre-approval.” A list of services that has received class pre-approval from our Audit Committee (or its delegate) is attached to our Audit and Permitted Non-Audit Services Pre-Approval Policy. A copy of our Audit and Permitted Non-Audit Services Pre-Approval Policy is available on our website at www.bnymellon.com/governance/auditpolicy.pdf. For 2013, all of the fees associated with the independent registered public accounting firm services were pre-approved by the Audit Committee.

 

 

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INFORMATION ON STOCK OWNERSHIP

BENEFICIAL OWNERSHIP OF SHARES BY HOLDERS OF 5% OR MORE OF OUTSTANDING STOCK

As of February 7, 2014, we had 1,135,249,897 shares of common stock outstanding. Based on filings made under Section 13(d) and 13(g) of the Exchange Act reporting ownership of shares and percent of class as of December 31, 2013, as of February 7, 2014, the only persons known by us to be beneficial owners of more than 5% of our common stock were as follows:

 

Name and Address of Beneficial Owner

  Shares of Common Stock Beneficially Owned   Percent of Class

Davis Selected Advisers, L.P.(1)

2949 East Elvira Road, Suite 101

Tucson, Arizona 85756

  83,323,238   7.3%

Massachusetts Financial Services Company(2)

111 Huntington Avenue

Boston, MA 02199

  71,756,797   6.2%

Dodge & Cox(3)

555 California Street, 40th Floor

San Francisco, CA 94104

  57,967,724   5.0%

 

(1)

Based on a review of the Schedule 13G filed on February 14, 2014 by Davis Selected Advisers, L.P. The Schedule 13G discloses that Davis Selected Advisers, L.P. had sole voting power as to 79,819,390 shares, no voting power as to 3,503,848 shares and sole dispositive power as to all 83,323,238 shares.

 

(2)

Based on a review of the Schedule 13G filed on February 12, 2014 by Massachusetts Financial Services Company. The Schedule 13G discloses that Massachusetts Financial Services Company had sole voting power as to 58,215,939 shares and sole dispositive power as to all 71,756,797 shares.

 

(3)

Based on a review of the Schedule 13G filed on February 13, 2014 by Dodge & Cox. The Schedule 13G discloses that Dodge & Cox had sole voting power as to 54,561,494 shares and sole dispositive power as to all 57,967,724 shares.

BENEFICIAL OWNERSHIP OF SHARES BY DIRECTORS AND EXECUTIVE OFFICERS

The table below sets forth the number of shares of our common stock beneficially owned as of the close of business on February 7, 2014 by each director, each individual included in the “Summary Compensation Table” on page 44 above and our current directors and executive officers as a group, based on information furnished by each person. Except as otherwise indicated, sole voting and sole investment power with respect to the shares shown in the table below are held either by the individual alone or by the individual together with his or her immediate family.

 

Beneficial Owners

   Shares of Common Stock
Beneficially Owned(1)(2)

Curtis Y. Arledge

   1,129,064

Ruth E. Bruch

   38,113

Nicholas M. Donofrio

   51,549

Thomas P. “Todd” Gibbons

   1,724,113(3)

Gerald L. Hassell

   3,588,801(4)(5)

Timothy F. Keaney

   1,062,342

Edmund F. “Ted” Kelly

   39,568

Richard J. Kogan

   52,546

Michael J. Kowalski

   62,862

John A. Luke, Jr.

   52,168

Mark A. Nordenberg

   36,768

Catherine A. Rein

   119,273

William C. Richardson

   52,693

Brian G. Rogan

   1,755,259

 

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Beneficial Owners

   Shares of Common Stock
Beneficially Owned(1)(2)

Samuel C. Scott III

   43,236

Wesley W. von Schack

   170,835(4)

All current directors and executive officers, as a group (21 persons)

   12,216,883

 

(1)

On February 7, 2014, none of the individuals named in the above table beneficially owned more than 1% of our outstanding shares of common stock. On that date, all current directors and executive officers as a group beneficially owned approximately 1.1% of our outstanding stock.

 

(2)

Includes the following amounts of common stock which the indicated individuals and group have the right to acquire under our equity plans and deferred compensation plans within 60 days of February 7, 2014: Mr. Arledge, 771,848; Ms. Bruch, 32,588; Mr. Donofrio, 13,487; Mr. Gibbons, 1,405,866; Mr. Hassell, 2,764,223; Mr. Keaney, 849,899; Mr. Kelly, 35,568; Mr. Kogan, 24,466; Mr. Kowalski, 56,434; Mr. Luke, 24,466; Mr. Nordenberg, 35,948; Ms. Rein, 21,779; Dr. Richardson, 51,561; Mr. Rogan, 1,279,823; Mr. Scott, 39,274; Mr. von Schack, 45,208; and directors and executive officers as a group, 9,199,917.

Also includes the following additional number of RSUs, deferred share units and phantom stock: Mr. Arledge, 107,097; Ms. Bruch, 3,359; Mr. Donofrio, 38,062; Mr. Gibbons, 44,202; Mr. Hassell, 119,712; Mr. Keaney, 40,117; Ms. Rein, 61,014; Mr. Rogan, 44,202; Mr. von Schack, 15,371; and directors and executive officers as a group, 619,166. These individuals do not have voting or investment power with respect to the underlying shares, nor do they have the right to acquire the underlying shares within 60 days of February 7, 2014.

 

(3)

Includes 145,667 shares over which Mr. Gibbons exercises investment discretion held in trusts, and 38,956 shares held by his children.

 

(4)

Includes the following shares held in Grantor Retained Annuity Trusts: Mr. Hassell, 49,674 shares; and Mr. von Schack, 71,957 shares.

 

(5) Includes 56,604 shares held by Mr. Hassell’s spouse, as to which Mr. Hassell disclaims beneficial ownership. Also includes 224,280 shares over which Mr. Hassell exercises investment discretion held in trusts.

 

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Exchange Act requires our directors and executive officers and any beneficial owner of more than 10% of any class of our equity securities to file with the SEC initial reports of beneficial ownership and reports of changes in ownership of any of our securities. These reports are made on documents referred to as Forms 3, 4 and 5. Our directors and executive officers must also

provide us with copies of these reports. We have reviewed the copies of the reports that we have received and written representations from the individuals required to file the reports. Based on this review, we believe that during 2013 each of our directors and executive officers timely complied with applicable reporting requirements for transactions in our equity securities.

 

 

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PROPOSAL 4 – APPROVAL OF THE AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN OF THE BANK OF NEW YORK MELLON CORPORATION

The Board is recommending that stockholders vote in favor of amending and restating our Long-Term Incentive Plan (the Amended LTIP) to, among other things, increase the number of shares that we are able to offer to participants. Upon recommendation of the HRC Committee, our Board adopted the Amended LTIP on February 24, 2014, subject to stockholder approval. If this proposal is not approved, the current LTIP, amended and restated through February 25, 2011, will remain in effect.

The following summary of the material terms of the Amended LTIP is qualified in its entirety by reference to the complete text of the Amended LTIP, which is attached hereto as Exhibit A. Capitalized terms used in this proposal that are not otherwise defined have the meanings given to them in the Amended LTIP.

 

HIGHLIGHTS OF OUR AMENDED LTIP

We are requesting that stockholders approve the Amended LTIP, including the following changes:

 

Increase in Authorized Shares

  

Increase the shares authorized for issuance under the Amended LTIP by 30 million shares.

Eligibility for Awards

  

Allow awards to be granted to former employees solely with respect to their final year of service.

Encompass Cash
Awards for Directors
  

Allow board service-related cash awards to be granted to non-employee directors under the Amended LTIP.

Limit on Non-Employee Director Awards   

Limit the aggregate awards that can be granted to a non-employee director, solely with respect to his or her service as a member of the Board, during a calendar year to $1,000,000.

Section 162(m) of the IRC

  

Approve the material terms of the performance goals under the Amended LTIP for purposes of Section 162(m) of the IRC.

Administrative Changes

  

Make certain other administrative changes as described below.

The Board recommends that stockholders approve the Amended LTIP to permit the continued use of equity-based compensation awards. Equity-based awards are an important part of our compensation structure and serve the best interests of our stockholders by:

 

   

Aligning interests with those of our stockholders. We believe that providing equity-based compensation motivates our employees and non-employee directors to contribute to superior financial performance and focus on long-term stockholder value.

 

 

   

Attracting and retaining talent. We believe that equity-based awards are a necessary tool to attract and retain talented employees who are critical to successfully executing our business strategies. If the Amended LTIP is not approved, we may need to replace equity-based components with cash, which would increase cash compensation expense and reduce alignment with stockholder interests.

 

 

   

Maintaining ability to benefit from a federal income tax deduction. The Amended LTIP will give us the flexibility to continue to deliver “performance-based compensation” that is not subject to the limit on federal income tax deduction for compensation in excess of $1 million per year paid to certain executive officers.

 

The Amended LTIP also includes a number of features that promote best practices and protect stockholders’ interests, including:

 

   Minimum vesting requirements

 

    No dividend equivalents on unearned performance share units

   No liberal share recycling

 

    Best practices for options and stock appreciation rights

   No “evergreen” provision

 

    No transferability of awards

   Forfeiture and clawback

 

    No single-trigger change in control vesting

In addition, our three-year average burn rate of 2.2% is well below the average of 3.65% for our industry – per Institutional Shareholder Services (which we refer to as “ISS”) – and approximates the median for our peer group. Had the additional 30 million shares been available for grant as of February 24, 2014, our fully diluted overhang would have increased by about 2.1 percentage points. See “Key Data” below for information on how we define and calculate these measures.

 

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PROPOSED AMENDMENTS

 

Increase in Authorized Shares by 30 Million Shares

If this proposal is approved, 30 million shares will be added to the number of shares authorized for issuance under the Amended LTIP, subject to proportionate adjustment in the event of stock splits and similar events. We believe that this increase in shares will provide a sufficient number of shares for future grants under the Amended LTIP until our 2018 annual meeting. The current LTIP provides that, in the event the number of shares available for “full-value” awards (which are awards pursuant to which a participant is not required to pay the fair market value, as measured on the grant date) has been used, the company may grant additional full-value awards from the remaining shares available, with each share subject to a full-value award counting as 2.75 shares against the remaining available shares. If this proposal is approved, all of the additional 30 million shares may be issued in connection with full-value awards.

As a result, the aggregate number of shares of our common stock which may be issued under the Amended will be (1) 30 million shares plus (2) the aggregate number of shares remaining available under the current LTIP. As of February 24, 2014, the date our Board adopted the Amended LTIP, the aggregate number of shares remaining available under the current LTIP was approximately 18,395,574, of which the number of remaining shares available for full value awards was approximately 4,477,708, in each case, subject to the counting, adjustment and substitution provisions of the LTIP; any full-value awards granted from the remaining 13,917,866 shares will continue to be counted as 2.75 shares against such remaining shares. The actual number of shares which may be issued under the Amended LTIP and the number of shares available for full-value awards will be determined as of the close of business on April 8, 2014, the date of proposed approval of the Amended LTIP.

Eligibility for Awards

The current LTIP allows awards to be granted only to current employees and to non-employee directors of the company. As proposed, the Amended LTIP would also allow awards to be granted to former employees as well, but solely within 12 months of the termination of their employment and solely with respect to their final year of service with the company. This amendment would allow the HRC Committee the discretion to grant awards to employees in conne