DEF 14A 1 d868781ddef14a.htm DEF 14A DEF 14A
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SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

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   Preliminary Proxy Statement       Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

   Definitive Proxy Statement

   Definitive Additional Materials

   Soliciting Material Pursuant to Section 240.14a-12

The Charles Schwab Corporation

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Table of Contents

LOGO

corporation2020proxystatement


Table of Contents

 

 

 

March 31, 2020

Dear Fellow Stockholders,

We cordially invite you to attend our 2020 Annual Meeting of Stockholders to be held on Tuesday, May 12, 2020, at 1:30 p.m. Pacific Time. The annual meeting will be held via the internet at www.schwabevents.com/corporation. Please follow the registration instructions as outlined in this proxy statement to attend the meeting virtually via the internet.

We extend our sincerest thanks to Stephen T. McLin, who will retire as a director at the annual meeting following 32 years of service to our board. We appreciate Mr. McLin’s longstanding and distinguished contributions to the company throughout its history, exemplified by his effective guidance and leadership.

At the annual meeting, we will conduct the items of business outlined in this proxy statement. We also will report on our corporate performance in 2019 and answer your questions.

Your vote is important. We encourage you to read this proxy statement carefully and to vote your shares as soon as possible, even if you plan to attend the meeting. Voting instructions are contained on the proxy card or voting instruction form that you received with this proxy statement.

We look forward to your participation.

Sincerely,

 

LOGO

  

LOGO

CHARLES R. SCHWAB    WALTER W. BETTINGER II
CHAIRMAN    PRESIDENT AND CHIEF EXECUTIVE OFFICER


Table of Contents

TABLE OF CONTENTS

 

Proxy Summary

     ii  

Notice of 2020 Annual Meeting of Stockholders

     vi  

Proxy Statement

     1  

Voting Your Shares

     1  

Attending the Annual Meeting

     1  

Corporate Governance

     2  

The Company

     2  

The Board of Directors

     2  

Board Leadership

     2  

Director Independence

     3  

Board Structure and Committees

     4  

Board Qualifications and Composition

     7  

Proposal One: Election of Directors

     11  

Members of the Board of Directors

     11  

Director Nominations

     24  

Communications with the Board of Directors

     24  

Director Compensation

     24  

Compensation Committee Interlocks and Insider Participation

     27  

Proposal Two: Ratification of the Selection of Independent Auditors

     28  

Auditor Fees

     28  

Audit Committee Report

     30  

Proposal Three: Advisory Approval of Named Executive Officer Compensation

     31  

Compensation Discussion and Analysis

     31  

Compensation Committee Report

     45  

2019 CEO Pay Ratio

     46  

Executive Compensation Tables

     47  

2019 Summary Compensation Table

     47  

2019 Grants of Plan-Based Awards Table

     48  

Narrative to Summary Compensation and Grants of Plan-Based Awards Tables

     49  

2019 Termination and Change in Control Benefits Table

     52  

Outstanding Equity Awards as of December 31, 2019

     55  

2019 Option Exercises and Stock Vested Table

     58  

2019 Nonqualified Deferred Compensation Table

     59  

Securities Authorized for Issuance under Equity Compensation Plans

     60  

Proposal Four: Approval of 2013 Stock Incentive Plan as Amended and Restated

     61  

Proposal Five: Approval of Amended and Restated Bylaws to Adopt Proxy Access

     68  

Security Ownership of Certain Beneficial Owners and Management

     72  

Transactions with Related Persons

     73  

Proposals Six and Seven: Stockholder Proposals

     75  

Information about Voting Procedures and Proxies

     80  

Exhibit A: 2013 Stock Incentive Plan as Amended and Restated

     A-i  

Exhibit B: Amended and Restated Bylaws

     B-1  

 

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PROXY SUMMARY

This summary highlights information contained in the proxy statement. This summary does not contain all of the information that you should consider, and you should review all of the information contained in the proxy statement before voting.

ANNUAL MEETING OF STOCKHOLDERS

 

Date:    Tuesday, May 12, 2020
Time:    1:30 p.m., Pacific Time
Location:   

www.schwabevents.com/corporation

Record Date:    March 16, 2020
Voting:    Stockholders as of the record date are entitled to vote. Each share of common stock is entitled to
one vote.
Registration:    Please follow the advance registration instructions contained in the proxy statement on page 1.

VOTING PROPOSALS

 

    Board Recommendation   Page
Election of Directors        

William S. Haraf

 

For

  17

Frank C. Herringer

 

For

  18

Roger O. Walther

 

For

  23
Ratification of Independent Auditors  

For

  28
Advisory Approval of Named Executive Officer Compensation  

For

  31
Approval of 2013 Stock Incentive Plan as Amended and Restated  

For

  61
Approval of Amended and Restated Bylaws to Adopt Proxy Access  

For

  68
Stockholder Proposal on Annual Disclosure of EEO-1 Data  

Against

  75
Stockholder Proposal on Lobbying Payments  

Against

  77


 

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DIRECTOR NOMINEES

We ask that you vote for the election of William S. Haraf, Frank C. Herringer, and Roger O. Walther. The following table provides summary information on these nominees. Complete biographical information is contained in the proxy statement.

 

Name   Age   Director
Since
  Occupation   Skills   Independent   Committees

William S. Haraf

  71   2015   Former Special Advisor, Promontory Financial Group   Financial
services

industry and

regulatory
experience

  X   Audit
Risk
           

Frank C. Herringer

  77   1996   Retired Chairman and Chief Executive Officer, Transamerica Corporation   Public company

knowledge and

leadership
experience

  X   Compensation

Nominating

           

Roger O. Walther

  84   1989   Chairman and Chief Executive Officer, Tusker Corporation   Public company

knowledge,

leadership and

financial
services

industry
experience

  X   Compensation

INDEPENDENT AUDITORS

We ask that you ratify the appointment of Deloitte & Touche LLP and the member firms of Deloitte Touche Tohmatsu Limited (collectively referred to as Deloitte) as the company’s independent registered public accounting firm for the 2020 fiscal year. While the Audit Committee has the sole authority to retain the independent auditors, we are asking for your ratification as part of the Audit Committee’s evaluation process of the independent registered public accounting firm for the next fiscal year.

Fees for services provided by Deloitte in the last two fiscal years were:

 

     2019    2018
     (amounts in millions)

Audit Fees

     $ 8.1      $ 7.6
 

Audit-Related Fees

       4.1        3.7
 

Tax Fees

             
 

All Other Fees

             
 

Total

     $ 12.2      $ 11.3


 

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EXECUTIVE COMPENSATION

We ask that you approve, on an advisory basis, the compensation of our named executive officers. The named executive officers are those executive officers listed in the Summary Compensation Table. The advisory approval of named executive officer compensation is required by federal law, and while the vote is not binding, the Compensation Committee considers the vote as part of its evaluation of executive compensation programs.

2019 Executive Compensation Highlights

In 2019, our management team continued to execute on its strategy of helping our clients – individual investors and the people and institutions who serve them – by placing their perspectives, needs, and desires at the forefront. This “Through Clients’ Eyes” strategy, combined with ongoing expense discipline, aided us in producing record core net new assets of $211.7 billion, total client assets of $4.04 trillion, and a record pre-tax profit margin of 45.2%. Earnings per share (EPS) was $2.67 (up 9% over the prior year), and return on common equity (ROCE) was 19% for the second consecutive year.

The company’s compensation programs are designed to link pay to the long-term performance of the company. Key elements of 2019 compensation included:

 

Element   Form   Terms   Objectives
     

Base Salary

 

· Cash

 

· Reviewed annually

 

· Attract, motivate and retain executives

     

Annual Incentives

 

· Cash

 

· Subject to satisfaction of performance criteria

 

· Attract, motivate and retain executives

 

· Reward executives for individual performance

 

· Link pay with company financial performance

     

Long-term Incentives

 

· Performance-based restricted stock units

 

 

· Restricted stock units with cliff-vesting based on a three-year performance period, subject to satisfaction of performance criteria

 

· Attract, motivate and retain executives

 

· Reward executives for individual performance

     
   

· Stock options

 

· Stock options generally vest 25% per year and have a ten-year term

 

· Link pay with company financial performance

 

· Align with long-term interests of stockholders

Given the company’s financial performance in 2019, the Compensation Committee approved funding at 98.17% of the target award for the named executive officers for annual cash incentives. The performance goal for performance-based restricted stock units (PBRSUs) granted in 2019 was based on ROCE divided by cost of equity capital (COE) to align the executives’ incentives with the long-term interests of stockholders. The PBRSUs have cliff-vesting based on a three-year performance period.

Summary compensation information for the named executive officers is contained in the following table. As discussed in the proxy statement, these amounts are presented in accordance with accounting assumptions and Securities and Exchange Commission (SEC) rules, and the amount that the executive actually receives may vary substantially from what is reported in the equity columns of the table.



 

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2019 SUMMARY COMPENSATION

 

Name and Principal Position Salary
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
All Other
Compensation
($)
Total
($)
           

Walter W. Bettinger II

President and Chief Executive Officer

  1,300,000   5,000,000   5,000,000   4,785,787   15,354   16,101,141
           

Peter B. Crawford

Executive Vice President and Chief Financial Officer

  516,667   625,000   625,000   887,620   14,774   2,669,061
           

Charles R. Schwab

Chairman

  700,000   1,850,000   1,850,000   1,717,975   14,482   6,132,457
           

Joseph R. Martinetto

Senior Executive Vice President and Chief Operating Officer

  700,000   1,625,000   1,625,000   1,443,099   15,023   5,408,122
           

Jonathan M. Craig

Senior Executive Vice President

  633,333   1,075,000   1,075,000   1,243,486   14,857   4,041,676

2013 STOCK INCENTIVE PLAN AS AMENDED AND RESTATED

We ask that you approve amendments to the 2013 Stock Incentive Plan that would, among other things, increase the annual non-employee director equity awards by $25,000 and change the awards granted to 40% stock options and 60% restricted stock units from 50% stock options and 50% restricted stock units.

AMENDED AND RESTATED BYLAWS TO ADOPT PROXY ACCESS

Proxy access allows eligible stockholders who comply with the requirements set forth in the company’s bylaws to include their own nominees for directors in the company’s proxy materials along with the candidates nominated by the board. We approved amended and restated bylaws to implement proxy access, subject to stockholder approval at the 2020 Annual Meeting of Stockholders.

STOCKHOLDER PROPOSALS

There are stockholder proposals to vote on that are described in the proxy statement.



 

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LOGO

   NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERS

Date:

  

Tuesday, May 12, 2020

Time:    1:30 p.m., Pacific Time
Location:   

www.schwabevents.com/corporation

Agenda:    ·  elect three directors for three-year terms,

 

·  vote to ratify the selection of independent auditors,

 

·  vote for the approval, on an advisory basis, of compensation of named executive officers,

 

·  vote for the approval of the 2013 Stock Incentive Plan, as amended and restated,

 

·  vote for the approval of Amended and Restated Bylaws to adopt proxy access,

 

·  vote on two stockholder proposals, if properly presented, and

 

·  consider any other business properly coming before the meeting.

Stockholders who owned shares of our common stock at the close of business on March 16, 2020 are entitled to attend and vote at the meeting and any adjournment or postponement of the meeting. A complete list of registered stockholders will be available prior to the meeting at our principal executive offices at 211 Main Street, San Francisco, California 94105.

 

By Order of the Board of Directors,

LOGO

PETER J. MORGAN III
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
CORPORATE SECRETARY

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of

Stockholders to be Held on May 12, 2020. The proxy statement and annual report to

security holders are available in the “Investor Relations” section of our website at

www.aboutschwab.com.

 

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PROXY STATEMENT

The Board of Directors of The Charles Schwab Corporation (the company) is making the solicitation for proxies to be voted at the 2020 Annual Meeting of Stockholders to be held on May 12, 2020 (the annual meeting) and is sending these proxy materials to you on or about March 31, 2020. Stockholders who owned the company’s common stock at the close of business on March 16, 2020 may attend and vote at the annual meeting. Each share is entitled to one vote. There were 1,287,275,802 shares of common stock outstanding on March 16, 2020.

VOTING YOUR SHARES

Please vote as promptly as possible by following the instructions on your proxy card or voting instruction form. You may vote by internet, telephone or mail in advance of the meeting by following the instructions on your proxy card or voting instruction form.

If you do not vote in advance and plan to submit your vote at the virtual annual meeting, you will need a legal proxy to vote your shares if your shares are held in “street name” (e.g., through a bank or broker). You may obtain a legal proxy from your bank or broker. Please send your legal proxy to our transfer agent, Equiniti Trust Company, by fax to 651-450-4078 or email to EQSS-ProxyTabulation@equiniti.com. If you hold shares registered in your name (e.g., in certificate form), you will not need a legal proxy to vote your shares at the virtual annual meeting.

ATTENDING THE ANNUAL MEETING

You must register in advance to attend the annual meeting virtually via the internet. To register, please go to:

www.schwabevents.com/corporation.

You will be asked to provide your name, mailing address, email address and proof that you own Schwab shares (such as the Schwab account number in which you hold the shares, or the name of the broker and number of shares that you hold in an account outside of Schwab).

If you register in advance to attend the virtual annual meeting, we will email you information on how to access the area of www.schwabevents.com where you will be able to submit questions and vote. While you may watch the webcast without registering in advance, you will not be able to access the area of the website where you can ask questions and vote.

 

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CORPORATE GOVERNANCE


THE COMPANY

The Charles Schwab Corporation is a savings and loan holding company that engages, through its subsidiaries, in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. At December 31, 2019, the company had $4.04 trillion in client assets, 12.3 million active brokerage accounts, 1.7 million corporate retirement plan participants, and 1.4 million banking accounts.

The company was founded on the belief that all Americans deserve access to a better investing experience. Although much has changed in the intervening years, our purpose remains clear – to champion every client’s goals with passion and integrity. Guided by this purpose and our vision of creating the most trusted leader in investment services, management has adopted a strategy described as “Through Clients’ Eyes.”

 


THE BOARD OF DIRECTORS

The board is committed to the company’s vision of being the most trusted leader in investment services. The board has the responsibility to hold management accountable for carrying out the company’s daily operations consistent with its strategic vision while navigating changes in the financial services industry, effectively managing risks, and responding to competitive pressures, new technologies, and an evolving regulatory environment.

Our practices to maintain board effectiveness include the following:

 

LOGO

BOARD LEADERSHIP

The Chairman of the Board of Directors is Mr. Schwab. The Chairman and Chief Executive Officer roles are split, and Mr. Bettinger serves as Chief Executive Officer. The Chairman approves the agenda for board meetings and leads the board in its discussions. Mr. Schwab and Mr. Bettinger, as the only two management directors, do not participate in sessions of non-management directors. As provided in our Corporate Governance Guidelines, non-management directors meet regularly in executive session without management. The Chairman of the Nominating and Corporate Governance Committee, Mr. Herringer, presides over the executive sessions of non-management directors.

 

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The board has four standing committees (Audit, Compensation, Nominating and Corporate Governance, and Risk). Given the role and scope of authority of these committees, and that over 85% of the board is composed of independent directors, the board believes that its leadership structure, with the Chairman of the Board of Directors leading board discussions, and the Chairman of the Nominating and Corporate Governance Committee leading non-management executive sessions, is appropriate.

DIRECTOR INDEPENDENCE

We have considered the independence of each member of the board in accordance with New York Stock Exchange corporate governance standards. To assist us in our determination, we have general guidelines for independence. The guidelines for independence are available on the company’s website at www.aboutschwab.com/governance.

Based on our guidelines and New York Stock Exchange corporate governance standards, we have determined that each of the company’s directors, except Mr. Bettinger and Mr. Schwab, is independent. We have determined that Robert N. Wilson, who retired from the board during 2019, was independent during the time he served on the board in 2019.

In determining independence, the board considers broadly all relevant facts and circumstances regarding a director’s relationships with the company. All non-employee directors receive compensation from the company for their service as directors, as disclosed in the section “Director Compensation,” and are entitled to receive reimbursement for their expenses in traveling to and participating in board and committee meetings. As disclosed in the “Transactions with Related Persons” section of this proxy statement, some directors and entities with which they are affiliated have credit transactions with the company’s banking and brokerage subsidiaries, such as mortgage loans, revolving lines of credit, or other extensions of credit. These transactions with directors and their affiliates are made in the ordinary course of business and as permitted by the Sarbanes-Oxley Act of 2002. Such transactions are on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with persons not related to the lender and do not involve more than the normal risk of collectability or present other unfavorable features.

In addition to the relationships outlined above, the board considered the following as part of its determination of independence:

 

·  

Joan T. Dea: The director’s spouse serves as a trustee of a nonprofit organization to which the company, its affiliates or its charitable foundation have made donations.

 

·  

Stephen A. Ellis: The director serves as a director of a technology company that the company’s charitable foundation has engaged.

 

·  

Mark A. Goldfarb: The director serves as a managing partner of a firm that the company has engaged. The director also serves as a member of an advisory council of a nonprofit organization to which the company, its affiliates or its charitable foundation have made donations.

 

·  

William S. Haraf: The director serves as a director of a nonprofit organization to which the company, its affiliates or its charitable foundation have made donations.

 

·  

Frank C. Herringer: The director’s spouse serves as a trustee of a nonprofit organization to which the company, its affiliates or its charitable foundation have made donations.

 

·  

Arun Sarin: The director serves as a director of a consulting firm that the company has engaged.

 

·  

Roger O. Walther: The director serves as a committee member of a nonprofit organization to which the company, its affiliates or its charitable foundation have made donations.

 

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BOARD STRUCTURE AND COMMITTEES

The authorized number of directors is currently fourteen and the company has fourteen directors. The board has approved a decrease in the authorized number of directors to thirteen, effective as of Mr. McLin’s retirement at the annual meeting. There are three nominees for election this year and ten directors will continue to serve the terms described in their biographies.

Directors currently serve staggered terms. Each director who is elected at an annual meeting of stockholders serves a three-year term, and the directors are divided into three classes.

The board held eleven meetings in 2019. Each director attended at least 75% of all applicable board and committee meetings during 2019. As provided in our Corporate Governance Guidelines, we expect directors to attend the annual meeting of stockholders. In 2019, thirteen of the fourteen directors attended the annual meeting.

Risk Oversight

As part of its oversight functions, the board is responsible for oversight of risk management at the company. The Risk Committee assists the board in fulfilling its oversight responsibilities with respect to the company’s risk management program and provides reports to the board and the Audit Committee. The Audit Committee reviews reports from management and the Risk Committee concerning the company’s risk assessment and major risk exposures and the steps management has taken to monitor and control such exposures. The Compensation Committee oversees incentive compensation risk and reviews the compensation program with respect to the potential impact of risk taking by employees. For further discussion of risk management at the company, please see “Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” of the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Committees

Each of our four standing committees is chaired by an independent director and composed entirely of independent directors as determined by the board in accordance with its independence guidelines and New York Stock Exchange corporate governance standards. In addition to these standing committees, the board may from time to time establish ad hoc committees to assist in various matters.

 

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The board and its committees are currently comprised of the following individuals:

 

 
    COMMITTEE MEMBERSHIPS
         
  NAME INDEPENDENT AC CC NCGC RC
         

  Charles R. Schwab

                             
         

  Walter W. Bettinger II

                             
         

  John K. Adams, Jr.

      C                 X  
         

  Joan T. Dea

            X     X        
         

  Christopher V. Dodds

      X                 C  
         

  Stephen A. Ellis

      X           X        
         

  Mark A. Goldfarb

      X                    
         

  William S. Haraf

      X                 X  
         

  Frank C. Herringer

            X     C        
         

  Stephen T. McLin

                        X  
         

  Charles A. Ruffel

                        X  
         

  Arun Sarin

                  X     X  
         

  Paula A. Sneed

            X              
         

  Roger O. Walther

            C              

 

AC

CC

  

Audit Committee

Compensation Committee

       NCGC    Nominating and Corporate Governance Committee        RC    Risk Committee      

Committee Member X

Committee Chair C

 


AUDIT COMMITTEE

John K. Adams, Jr. (Chair) • Christopher V. Dodds • Stephen A. Ellis • Mark A Goldfarb • William S. Haraf

 


The Audit Committee held twelve meetings in 2019. None of the directors on the Audit Committee is, or during the past three years, has been an employee of The Charles Schwab Corporation or any of its subsidiaries. None of the Audit Committee members simultaneously serves on the audit committees of more than three public companies, including ours. Mr. Adams was appointed Chair of the Audit Committee effective January 1, 2020. Mr. Goldfarb served as Chair of the Audit Committee in 2019. The board has determined that all of the members of the Audit Committee are financially literate in accordance with New York Stock Exchange listing standards and are Audit Committee financial experts in accordance with SEC rules.

Primary responsibilities:

 

  ·  

reviews and discusses with management and the independent auditors the company’s annual and quarterly financial statements and the integrity of the financial reporting process,

 

  ·  

reviews the qualifications, independence and performance of the independent auditors,

 

  ·  

reviews the activities and performance of the internal auditors,

 

  ·  

reviews processes in place to assess and manage major risk exposures, and

 

  ·  

reviews compliance with legal and regulatory requirements.

 

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COMPENSATION COMMITTEE

Roger O. Walther (Chair) • Joan T. Dea • Frank C. Herringer • Paula A. Sneed

 


The Compensation Committee held six meetings in 2019.

Primary responsibilities:

 

  ·  

annually reviews and approves corporate goals and objectives relating to compensation of executive officers and other senior officers,

 

  ·  

reviews and determines the compensation of executive officers and other senior officers based on the achievement of performance goals and objectives,

 

  ·  

reviews and approves compensatory arrangements for executive officers and other senior officers,

 

  ·  

approves long-term awards for executive officers and other senior officers,

 

  ·  

reviews and recommends incentive compensation plans for executive officers and all equity plans, and

 

  ·  

oversees risk management of incentive compensation practices.

 


NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

Frank C. Herringer (Chair) • Joan T. Dea • Stephen A. Ellis • Arun Sarin

 


The Nominating and Corporate Governance Committee held four meetings in 2019.

Primary responsibilities:

 

  ·  

identifies and evaluates individuals qualified to serve on the board,

 

  ·  

recommends nominees to fill vacancies on the board and each standing committee and recommends a slate of nominees for election or re-election as directors by the stockholders,

 

  ·  

makes recommendations regarding succession planning for the Chief Executive Officer and executive management, and

 

  ·  

assesses the performance of the board and its committees and recommends corporate governance principles for adoption by the board.

 


RISK COMMITTEE

Christopher V. Dodds (Chair) • John K. Adams, Jr. • William S. Haraf • Stephen T. McLin

Charles A. Ruffel • Arun Sarin

 


The Risk Committee held five meetings in 2019.

Primary responsibilities:

 

  ·  

reviews the company’s overall risk governance and approves the enterprise-wide risk management framework to identify, measure, monitor and control the major types of risk posed by the business of the company,

 

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  ·  

reviews the performance and activities of the company’s independent risk management function,

 

  ·  

reviews capital and liquidity planning and the assessment of capital adequacy, and

 

  ·  

reviews and approves key policies with respect to oversight of specific risks, including capital, compliance, credit, liquidity, market, model, third-party, interest rate, information security, data governance, reputational, strategic, and operational risk.

Each standing committee has a written charter. You may find a copy of these charters, as well as our Corporate Governance Guidelines and Code of Business Conduct and Ethics, on the company’s website at www.aboutschwab.com/governance. You also may obtain a paper copy of these items, without charge, from:

Assistant Corporate Secretary

The Charles Schwab Corporation

Mailstop SF211MN-08

211 Main Street

San Francisco, California 94105

(415) 667-9979

BOARD QUALIFICATIONS AND COMPOSITION

The Nominating and Corporate Governance Committee regularly assesses the board’s composition in light of our business operations, strategic direction and risk profile to assure appropriate succession, and our Corporate Governance Guidelines provide that the board should be composed of directors who have the qualifications necessary for effective service as determined in this assessment.

Director Qualifications

The qualifications for directors are described in our Corporate Governance Guidelines, which are available on the company’s website at www.aboutschwab.com/governance. In addition, the Nominating and Corporate Governance Committee believes that the following specific, minimum qualifications must be met by a nominee for the position of director:

 

·  

the ability to work together with other directors, with full and open discussion and debate as an effective group,

 

·  

current knowledge of and experience in the company’s business or operations, or contacts in the community in which the company does business and in the industries relevant to the company’s business, or substantial business, financial or industry-related experience commensurate with the size, complexity and risk profile of the company, and

 

·  

the willingness and ability to devote adequate time to the company’s business.

The Nominating and Corporate Governance Committee also considers the following qualities and skills when making its determination whether a nominee is qualified for the position of director:

 

·  

relationships that may affect the independence of the director or conflicts of interest that may affect the director’s ability to discharge his or her duties,

 

·  

diversity of experience, including the need for financial, business, academic, public sector and other expertise on the board or board committees,

 

·  

diversity of background, including race, ethnicity and gender, and

 

·  

the fit of the individual’s skills and experience with those of the other directors and potential directors in comparison to the needs of the company.

 

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When evaluating a candidate for nomination, the committee does not assign specific weight to any of these factors or believe that all of the criteria necessarily apply to every candidate.

Diversity

The Nominating and Corporate Governance Committee considers the qualifications and experience represented on the board when identifying director nominees and assessing the composition of the board. The board recognizes that a variety of viewpoints is vital to effective decision-making, constructive dialogue, and a healthy boardroom culture. As discussed in the “Director Qualifications” section above, the board’s evaluation encompasses the diversity of experience and background of directors. This consideration includes diversity of skill sets and experience as well as background, including race, ethnicity and gender.

The Nominating and Corporate Governance Committee considers these qualifications and regularly assesses the overall effectiveness of the board in maintaining a balance of perspectives important to the company’s business.

Skills and Competencies

Set forth below are some of the experience, skills and competencies that the Nominating and Corporate Governance Committee views as important for the board as a whole to possess in light of the board’s areas of oversight of management. For simplicity, each qualification is assigned to one category of oversight, even though some qualifications may pertain to multiple areas.

 

  Board Oversight of Management          Related Qualifications and Experience

  Carrying out the company’s daily operations consistent with its strategic vision

        

·  Financial Services

 

·  Banking

 

·  Asset Management

 

·  Brokerage/Investment Banking

 

·  Business Operations

 

  Navigating changes in the financial services industry and responding to competitive pressures and new technologies

        

·  Strategic Planning

 

·  Information Technology/Cybersecurity

 

·  Marketing

 

·  Academia

 

  Overseeing the integrity of the company’s financial statements and financial reporting process

        

·  Finance

 

·  Accounting

 

·  Public Company Executive Experience

 

·  Public Company Board Experience

 

  Ensuring compliance with legal and regulatory requirements

        

·  Regulatory

 

·  Government Service

 

·  International Business

 

  Implementing the board’s approved risk tolerance, maintaining the company’s risk management and control program, and operating the company’s business in a safe and sound manner

        

·  Risk Management

 

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The following matrix highlights the qualifications and skills represented on the board:

 

LOGO

John K. Adams, Jr. Walter W. Bettinger II Joan T. Dea Christopher V. Dodds Stephen A. Ellis Mark A. Goldfarb William S. Haraf Frank C. Herringer Charles A. Ruffel Arun Sarin Charles R. Schwab Paula A. Sneed Roger O. Walther Qualifications and Experience Public Company Executive Experience Public Company Board Experience Financial Services Banking Asset Management Brokerage/Investment Banking Strategic Planning Finance Business Operations Information Technology/Cybersecurity Marketing Regulatory Accounting Risk Management Government Service International Business Academia Additional Qualifications and Information Audit Committee Financial Expert Other Current Public Boards 3 1 Board Tenure and Age Tenure 5 12 3 6 8 8 5 24 2 11 34 18 31 Age 64 59 56 60 57 68 71 77 64 65 82 72 84

Succession Planning and Refreshment

The board views the annual nomination process conducted by the Nominating and Corporate Governance Committee, including its review of the skills and competencies represented on the board, and the self-assessment process as critical elements in planning for board succession. In addition, the chair of the Nominating and Corporate Governance Committee discusses with each board member his or her perspective on succession planning, including overall size and composition, tenure, and the effectiveness of the board and board committees. The chair of the Nominating and Corporate Governance Committee also speaks with the chairs of the Audit Committee, Compensation Committee and Risk Committee about any particular succession issues that may affect their committees. As part of the succession planning process, the Nominating and Corporate Governance Committee considers the contributions made by directors with deep knowledge and experience with the company and its business through continued service over the years, as well as the need to refresh the board with new insights and perspectives.

 

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As part of board succession planning, the Nominating and Corporate Governance Committee will plan for anticipated vacancies and the timing thereof, including those due to directors’ plans for retirement or expected changes in status. The Nominating and Corporate Governance Committee will evaluate potential needs for skills and experience due to anticipated departures.

Board and Committee Evaluations

The Nominating and Corporate Governance Committee leads the board in its annual self-evaluation of the performance of the board and its committees to determine whether they are functioning effectively. The charters of each committee require an annual performance evaluation. Committee self-evaluations are conducted by the chair of each committee and are reported to the full board by the respective chairs. The chair of the Nominating and Corporate Governance Committee reviews any issues arising from the committee self-evaluations with the chairs of the other board committees. The chair of the Nominating and Corporate Governance Committee also discusses the results of the board self-evaluation with the full board. The respective committee or the full board, as appropriate, will take such steps as are necessary or advisable to address weaknesses or deficiencies identified as part of the performance evaluation process.

 

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PROPOSAL ONE:

ELECTION OF DIRECTORS


Nominees for directors this year are:

 

·  

William S. Haraf

 

·  

Frank C. Herringer

 

·  

Roger O. Walther

Each nominee has consented to serve a three-year term and is presently a director of the company. Biographical information about each of the company’s directors and nominees is contained in the following section.

 


MEMBERS OF THE BOARD OF DIRECTORS

 

         LOGO

 

                Director since 2015

                Age at Annual

                Meeting: 64

 

                Independent

                Director

 

                Committees

                Audit

                Risk

 

John K. Adams, Jr.

 

Mr. Adams served as managing director in the Financial Institutions Group at UBS Investment Bank, a financial services firm, from 2002 until 2013. Prior to joining UBS, Mr. Adams was with Credit Suisse’s Financial Institutions Group from 1985 until 2002. He has served as a member of the Board of Directors of Charles Schwab Bank since 2015. He served as a member of the Board of Directors of Navient Corporation from 2014 to 2018. Mr. Adams’ term expires in 2022.

 

Mr. Adams has significant experience with respect to the financial services industry, investment banking, capital markets and mergers and acquisitions, having served as head of UBS’ North American banks practice and in Credit Suisse’s Financial Institutions Group.

 

 

Career Experience

UBS Investment Bank

Managing Director (2002-2013)

Credit Suisse

Financial Institutions Group

(1985-2002)

  

Qualifications

Public Company Board

Financial Services

Banking

Asset Management

Brokerage/Investment Banking

Strategic Planning

Finance

Regulatory

 

 

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         LOGO

 

                Director since 2008

                Age at Annual

                Meeting 59

 

Walter W. Bettinger II

 

Mr. Bettinger has served as President and Chief Executive Officer of The Charles Schwab Corporation and a member of the Board of Directors since 2008. He also serves as a member of the Board of Directors of Charles Schwab Bank and Charles Schwab & Co., Inc., subsidiaries of the company, and as a trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust and Schwab Strategic Trust, all registered investment companies and affiliates of the company. Prior to assuming his current role, he served as President and Chief Operating Officer of the company. He also served as Executive Vice President and President – Schwab Investor Services from 2005 until 2007, Executive Vice President and Chief Operating Officer – Individual Investor Enterprise from 2004 until 2005, Executive Vice President and President – Corporate Services from 2002 until 2004 and Executive Vice President and President – Retirement Plan Services from 2000 until 2002. Mr. Bettinger joined the company in 1995 as part of the acquisition of The Hampton Company, which he founded in 1983. Mr. Bettinger’s term expires in 2021.

 

Mr. Bettinger has significant financial services experience, having served in a senior executive role overseeing sales, service, marketing and operations for over 35 years. As Chief Executive Officer of the company, Mr. Bettinger works closely with the board in evaluating and enhancing the strategic position of the company.

 

 

Career Experience

The Charles Schwab Corporation

President and Chief Executive

Officer (2008-present)

President and Chief Operating

Officer (2007-2008)

Multiple Executive Vice President

positions (2000-2007)

  

Qualifications

Public Company Executive

Financial Services

Banking

Asset Management

Brokerage/Investment Banking

Strategic Planning

Finance

Business Operations

Marketing

Regulatory

Accounting

Risk Management

International Business

 

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         LOGO

 

                Director since 2017

                Age at Annual

                Meeting: 56

 

                Independent

                Director

 

                Committees

                Compensation

                Nominating and Corporate                     Governance

 

Joan T. Dea

 

Ms. Dea is the founder of Beckwith Investments, a private investment and consulting firm, and has served as managing director since 2008. She served on the Executive Committee of BMO Financial Group from 2003 to 2008, most recently as Executive Vice President, Strategic Management and Corporate Marketing. She was previously a partner and director at Boston Consulting Group from 1994 to 2003, where she was a leader in the global financial services practice. She has served as a member of the Board of Directors of Charles Schwab Bank since 2011 and Cineplex Inc. since 2006. She served as a member of the Board of Directors of Performance Sports Group from 2015 to 2017 and Torstar Corporation from 2009 to 2015. Ms. Dea’s term expires in 2021.

 

Ms. Dea brings public company, leadership, strategy, governance and financial services experience to the board, having served in a variety of executive leadership positions at BMO Financial Group and Boston Consulting Group.

 

 

Career Experience

Beckwith Investments

Managing Director (2008-present)

BMO Financial Group

Executive Committee (2003-2008)

Boston Consulting Group

Partner and Director (1994-2003)

  

Qualifications

Public Company Executive

Public Company Board

Financial Services

Banking

Asset Management

Brokerage/Investment Banking

Strategic Planning

Finance

Marketing

International Business

 

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         LOGO

 

                Director since 2014

                Age at Annual

                Meeting: 60

 

                Independent

                Director

 

                Committees

                Audit

                Risk

 

Christopher V. Dodds

 

Mr. Dodds has served as a senior advisor at The Cynosure Group, a private equity firm, since 2018. He served as a senior advisor at The Carlyle Group, a private equity firm, from 2008 to 2018. From 1986 to 2007, Mr. Dodds held several key positions at The Charles Schwab Corporation, including Executive Vice President and Chief Financial Officer. He has served as a member of the Board of Directors of Charles Schwab Bank since 2007. He served as a member of the Board of Directors of Investment Technology Group, Inc. from 2008 to 2015. Mr. Dodds’ term expires in 2021.

 

Mr. Dodds brings leadership skills, knowledge of the financial services industry, and financial and accounting experience to the board. He has deep knowledge of the company and its business, having served as its Chief Financial Officer from 1999 until 2007, and as a director of Charles Schwab Bank since 2007.

 

 

Career Experience

The Cynosure Group

Senior Advisor (2018-present)

The Carlyle Group

Senior Advisor (2008-2018)

The Charles Schwab Corporation

Chief Financial Officer (1999-2007)

  

Qualifications

Public Company Executive

Public Company Board

Financial Services

Banking

Asset Management

Brokerage/Investment Banking

Strategic Planning

Finance

Regulatory

Accounting

Risk Management

 

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         LOGO

 

                Director since 2012

                Age at Annual

                Meeting: 57

 

                Independent

                Director

 

                Committees

                Audit

                Nominating and Corporate                     Governance

 

Stephen A. Ellis

 

Mr. Ellis is a managing partner at TPG, a private equity and alternative investment firm. Prior to joining TPG in 2015, Mr. Ellis served as Chief Executive Officer of Asurion, LLC, a provider of consumer technology protection services, from 2012 through 2014. Prior to Asurion, Mr. Ellis served as worldwide managing director of Bain & Company, a management consulting firm, from 2005 until 2012, and as managing partner for Bain’s West Coast offices from 1999 through 2004. Mr. Ellis joined Bain in 1993. Mr. Ellis served as a member of the Board of Directors of e.l.f. Beauty, Inc. in 2019. Mr. Ellis’ term expires in 2022.

 

Mr. Ellis brings leadership and management skills, investment expertise and experience in global management consulting to the board, having served as worldwide managing director of Bain & Company, Chief Executive Officer of Asurion, LLC, and as a managing partner at TPG.

 

 

Career Experience

TPG

Managing Partner (2015-present)

Asurion, LLC

Chief Executive Officer (2012-2014)

Bain & Company

Worldwide Managing Director

(2005-2012)

  

Qualifications

Public Company Board

Financial Services

Asset Management

Strategic Planning

Finance

Business Operations

International Business

Academia

 

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         LOGO

 

                Director since 2012

                Age at Annual

                Meeting: 68

 

                Independent

                Director

 

                Committees

                Audit

 

Mark A. Goldfarb

 

Mr. Goldfarb has served as managing partner of BDO USA, LLP, an accounting and consulting firm, since January 2015. He was a founder of SS&G, Inc., an accounting and business consulting firm, and served as managing partner of SS&G from 1987 until 2012, and as senior managing director of SS&G from 2012 until January 2015, at which time SS&G merged with BDO USA, LLP. Mr. Goldfarb served on the Board of Trustees and as Chairman of the Audit Committee of Schwab Strategic Trust, a registered investment company, from 2009 until 2012. He is also a past president of Cascade Capital Corporation. Mr. Goldfarb’s term expires in 2021.

 

Mr. Goldfarb brings financial and operational leadership experience to the board, having served as a founder and senior managing director of SS&G and a managing partner with BDO USA, LLP.

 

 

Career Experience

BDO USA, LLP

Managing Partner (2015-present)

SS&G, Inc.

Senior Managing Director

(2012-2015)

Managing Partner (1987-2012)

  

Qualifications

Financial Services

Asset Management

Brokerage/Investment Banking

Strategic Planning

Finance

Business Operations

Marketing

Accounting

Risk Management

 

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         LOGO

 

                Director since 2015

                Age at Annual

                Meeting: 71

 

                Independent

                Director

 

                Committees

                Audit

                Risk

 

William S. Haraf

 

Mr. Haraf served as a special advisor for Promontory Financial Group, a financial consulting firm, from 2014 to 2019. He was a managing director of Promontory Financial Group from 2012 until 2014. From 2008 until 2012, he served as Commissioner of the California Department of Financial Institutions. Mr. Haraf served as a member of the Financial Stability Oversight Council from 2010 until 2012, as managing director of Banc of America Securities from 1999 until 2003 and as Senior Vice President of Strategic Policy Development and Planning at Bank of America from 1994 until 1999. He has served as a member of the Board of Directors of Charles Schwab Bank since 2015. Mr. Haraf is a nominee for election this year.

 

Mr. Haraf brings substantial financial services and regulatory experience to the board, having served as managing director of Promontory Financial Group, Commissioner of the California Department of Financial Institutions and a member of the Financial Stability Oversight Council.

 

 

Career Experience

Promontory Financial Group

Special Advisor (2014-2019)

Managing Director (2012-2014)

California Department of Financial Institutions

Commissioner (2008-2012)

  

Qualifications

Public Company Executive

Financial Services

Banking

Brokerage/Investment Banking

Strategic Planning

Regulatory

Accounting

Risk Management

Government Service

Academia

 

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         LOGO

 

                Director since 1996

                Age at Annual

                Meeting: 77

 

                Independent

                Director

 

                Committees

                Compensation

                Nominating and Corporate                     Governance

 

Frank C. Herringer

 

Mr. Herringer is the retired Chairman of the Board and Chief Executive Officer of Transamerica Corporation, a financial services company. He served as Chairman of the Board of Transamerica from 1996 until 2015, Chief Executive Officer from 1991 until 1999 and President from 1986 until 1999, when Transamerica was acquired by AEGON N.V. From the date of the acquisition until 2000, Mr. Herringer served on the Executive Board of AEGON N.V. and as Chairman of the Board of AEGON USA, Inc. Mr. Herringer served as a member of the Board of Directors of Transamerica Corporation from 1986 to 2018. Mr. Herringer served as a member of the Boards of Directors of Amgen Inc. from 2004 to 2019, Cardax Pharmaceuticals, Inc. from 2006 to 2015 and Safeway, Inc. from 2008 to 2015. Mr. Herringer is a nominee for election this year.

 

Mr. Herringer brings public company knowledge and leadership experience to the board, having served as Chief Executive Officer of Transamerica, and his service at Transamerica and AEGON contributes to his knowledge of the financial services industry. Mr. Herringer brings insights to the board from his service on other public company boards.

 

 

Career Experience

Transamerica Corporation

Chairman of the Board (1996-2015)

Chief Executive Officer (1991-1999)

  

Qualifications

Public Company Executive

Public Company Board

Financial Services

Strategic Planning

Finance

Regulatory

Risk Management

Government Service

 

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         LOGO

 

                Director since 2018

                Age at Annual

                Meeting: 64

 

                Independent

                Director

 

                Committees

                Risk

 

Charles A. Ruffel

 

Mr. Ruffel is the founder and managing partner of Kudu Investment Management, LLC, a private equity firm. He served as Chief Executive Officer and managing partner of Kudu Advisors, LLC, an investment banking company, from 2009 to 2015. He was the founder and Chief Executive Officer of Asset International, Inc., an information provider in the field of asset management, retirement, and bank services, from 1989 to 2010. He served as a trustee of Schwab Strategic Trust from 2009 to 2018 and as a trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios, Laudus Trust and Laudus Institutional Trust from 2015 to 2018. He has served as a member of the Board of Directors of Charles Schwab Bank since 2018. Mr. Ruffel served as a member of the Board of Directors of Aspire Financial Services, LLC, a financial services and retirement planning company, from 2012 to 2019. He served as a member of the Board of Directors of Case Interactive Media, Inc., a financial media business, from 2010 to 2014. Mr. Ruffel’s term expires in 2021.

 

Mr. Ruffel brings financial and leadership experience to the board, having served as Chief Executive Officer of Kudu Advisors, LLC and Asset International, Inc. He brings insight to the board from his service as a trustee of numerous asset management funds of the company.

 

 

Career Experience

Kudu Investment Management, LLC

Managing Partner (2015-present)

Kudu Advisors, LLC

Managing Partner (2009-2015)

Asset International, Inc.

Chief Executive Officer (1998-2010)

  

Qualifications

Asset Management

Brokerage/Investment Banking

Strategic Planning

Business Operations

Information Technology/Cybersecurity

Marketing

Risk Management

International Business

 

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         LOGO

 

                Director since 2009

                Age at Annual

                Meeting: 65

 

                Independent

                Director

 

                Committees

                Nominating and Corporate                     Governance

                Risk

 

 

Arun Sarin

 

Mr. Sarin served as Chief Executive Officer of Vodafone Group Plc, a mobile telecommunications company, from 2003 until his retirement in 2008. Beginning in 1984, he held a variety of management positions with Pacific Telesis Group, a telecommunications company, and AirTouch Communications, Inc., a wireless telecommunications company, which was spun off from Pacific Telesis Group in 1994. He was appointed President and Chief Operating Officer of AirTouch in 1997. In 1999, Mr. Sarin was appointed Chief Executive Officer of Vodafone’s US/AsiaPacific region. He left Vodafone in 2000 to become Chief Executive Officer of Infospace, Inc., an information technology company. From 2002 until 2003, he served as Chief Executive Officer of Accel-KKR Telecom, a private equity firm. He served as a non-executive director of the Court of the Bank of England from 2005 until 2009. Mr. Sarin has served as a member of the Boards of Directors of Cisco Systems, Inc., a networking and communications technology company, since 2009 and Accenture PLC, a consulting and information technology services company, since 2015. He has served as Chairman of the Board of Directors of Cerence Inc., an automotive software company, since 2019. He served as a member of the Board of Directors of Blackhawk Network Holdings, Inc. from 2009 to 2018 and Safeway, Inc. from 2009 to 2015. Mr. Sarin’s term expires in 2022.

 

Mr. Sarin brings public company knowledge, information technology/cybersecurity experience, and leadership experience to the board, having served as President and Chief Operating Officer of AirTouch Communications, Inc. and Chief Executive Officer of Vodafone Group Plc. He brings insights to the board from his service on other public company boards.

 

 

Career Experience

Vodafone Group, Plc

Chief Executive Officer (2003-2008)

Accel-KKR Telecom

Chief Executive Officer (2001-2002)

Infospace, Inc.

Chief Executive Officer (2000-2001)

  

Qualifications

Public Company Executive

Public Company Board

Strategic Planning

Finance

Business Operations

Information Technology/Cybersecurity

Marketing

Regulatory

Risk Management

International Business

 

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         LOGO

 

                Director since 1986

                Age at Annual

                Meeting: 82

 

 

 

 

Charles R. Schwab

 

Mr. Schwab has been Chairman and a director of The Charles Schwab Corporation since its incorporation in 1986. Mr. Schwab served as Chief Executive Officer of the company from 1986 to 1997 and from 2004 until 2008. He served as Co-Chief Executive Officer of the company from 1998 to 2003. Mr. Schwab was a founder of Charles Schwab & Co., Inc. in 1971 and served as its Chief Executive Officer from 2004 until 2008. Mr. Schwab is Chairman of Charles Schwab Bank. Mr. Schwab served as Chairman and trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust, all registered investment companies, through 2015. He served as a director of Yahoo! Inc. from 2014 to 2016. Mr. Schwab’s term expires in 2022.

 

Mr. Schwab is the founder of the company, was the Chief Executive Officer of the company, and has been the Chairman since its inception. His vision continues to drive the company’s growth.

 

 

Career Experience

The Charles Schwab Corporation

Chairman (1986-present)

Chief Executive Officer (1986-1997;

    2004-2008)

Co-Chief Executive Officer (1998-

    2003)

Charles Schwab & Co. Inc.

Chief Executive Officer (2004-2008)

  

Qualifications

Public Company Executive

Public Company Board

Financial Services

Banking

Asset Management

Brokerage/Investment Banking

Strategic Planning

Finance

Business Operations

Marketing

Regulatory

International Business

 

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         LOGO

 

                Director since 2002

                Age at Annual

                Meeting: 72

 

                Independent

                Director

 

                Committees

                Compensation

 

Paula A. Sneed

 

Ms. Sneed is Chairman and Chief Executive Officer of Phelps Prescott Group, LLC, a strategy and management consulting firm. She served as Executive Vice President, Global Marketing Resources and Initiatives, of Kraft Foods, Inc., a global food and beverage company, from 2005 until her retirement in 2006; Senior Vice President, Global Marketing Resources and Initiatives from 2004 to 2005; and Group Vice President and President of E-Commerce and Marketing Services for Kraft Foods North America, part of Kraft Foods, Inc., from 2000 until 2004. She joined General Foods Corporation (which later merged with Kraft Foods) in 1977 and held a variety of senior executive positions, including Chief Marketing Officer, Executive Vice President and President eCommerce division, Executive Vice President and President Desserts division, and Senior Vice President and President Food Service division. Ms. Sneed has served as a member of the Board of Directors of Berry Global Group, Inc., a package manufacturing company, since 2018. She served as a member of the Board of Directors of TE Connectivity, Ltd., a manufacturer of engineered electronic components, network solutions, and telecommunications systems, from 2007 to 2020. She served as a member of the Board of Directors of Airgas, Inc. from 1999 to 2016. Ms. Sneed’s term expires in 2022.

 

Ms. Sneed brings marketing skills and general management and executive leadership experience to the board, having served in a variety of senior executive positions at Kraft Foods, and as Chairman and Chief Executive Officer of Phelps Prescott Group. She brings insights to the board through her service on other public company boards.

 

 

Career Experience

Phelps Prescott Group, LLC

Chairman and Chief Executive

Officer (2007-present)

Kraft Foods, Inc.

Executive Vice President

(2005-2006)

Senior Vice President (2004-2005)

Kraft Foods North America

Executive Vice President

(2000-2004)

  

Qualifications

Public Company Executive

Public Company Board

Strategic Planning

Business Operations

Marketing

 

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         LOGO

 

                Director since 1989

                Age at Annual

                Meeting: 84

 

                Independent

                Director

 

                Committees

                Compensation

 

Roger O. Walther

 

Mr. Walther has served as Chairman and Chief Executive Officer of Tusker Corporation, a real estate and business management company, since 1997. He served as Chairman and Chief Executive Officer of ELS Educational Services, Inc., a provider in the United States and internationally of courses in English as a second language, between 1992 and 1997. Mr. Walther was President, Chief Executive Officer and a director of AIFS, Inc., which designs and markets educational and cultural programs internationally, from 1964 until 1993. He served as Chairman and a member of the Board of Directors of First Republic Bank from 1985 to 2007. Mr. Walther is a nominee for election this year.

 

Mr. Walther brings public company knowledge, leadership, and financial services industry experience to the board, having served as Chairman and Chief Executive Officer of Tusker Corporation, Chairman and a director of First Republic Bank, Chief Executive Officer of ELS Educational Services, Inc. and Chief Executive Officer of AIFS, Inc.

 

 

Career Experience

Tusker Corporation

Chairman and Chief Executive

Officer (1997-present)

ELS Educational Services, Inc.

Chairman and Chief Executive

Officer (1992-1997)

AIFS, Inc.

President, Chief Executive Officer

(1964-1993)

  

Qualifications

Public Company Executive

Public Company Board

Banking

Strategic Planning

Finance

Business Operations

Marketing

International Business

 

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DIRECTOR NOMINATIONS

The Nominating and Corporate Governance Committee recommended all of the nominees for election included in this year’s proxy statement.

The Nominating and Corporate Governance Committee has a policy to consider candidates recommended by stockholders. The policy requires written stockholder recommendations that include the following information: (i) the name, address and contact information of the recommending stockholder; (ii) proof of the stockholder’s share ownership; (iii) a resume or statement of the candidate’s qualifications; and (iv) a statement of the stockholder’s relationship with the proposed candidate or interest in the proposed candidacy. The written recommendation must be addressed to the Assistant Corporate Secretary at the address provided in the “Corporate Governance” section of this proxy statement.

IDENTIFYING AND EVALUATING CANDIDATES FOR DIRECTOR

The Nominating and Corporate Governance Committee reviews the appropriate skills and characteristics required of board members in the context of the current composition of the board, as well as director qualifications as determined by the board. The Nominating and Corporate Governance Committee evaluates capabilities valuable to the company’s business and commensurate with the size, complexity and risk profile of the company and, as needed, to bring fresh perspective to the board. Candidates considered for nomination to the Board of Directors may come from several sources, including current and former directors, professional search firms and stockholder recommendations. Nominees for director are evaluated, in consultation with the company’s Chairman, by the Nominating and Corporate Governance Committee, which may retain the services of a professional search firm to assist it in identifying or evaluating potential candidates.

 


COMMUNICATIONS WITH THE BOARD OF DIRECTORS

If you wish to communicate with the board, the Chairman of the Nominating and Corporate Governance Committee, or the independent directors as a group, you may send your communication in writing to the Assistant Corporate Secretary at the address provided in the “Corporate Governance” section of this proxy statement. You must include your name and address in the written communication and indicate whether you are a stockholder of the company.

The Assistant Corporate Secretary will compile all communications, summarize lengthy, repetitive or duplicative communications and forward them to the appropriate director or directors. The Assistant Corporate Secretary will not forward non-substantive communications or communications that pertain to personal grievances, but instead will forward them to the appropriate department within the company for resolution. In such cases, the Assistant Corporate Secretary will retain a copy of such communication for review by any director upon his or her request.

 


DIRECTOR COMPENSATION

Mr. Schwab and Mr. Bettinger, who are employed by the company, receive no additional compensation for their service as directors. In 2019, non-employee directors received the following cash retainers and equity grants:

CASH RETAINERS

Each non-employee director received an annual cash retainer in the amount of $100,000. In addition, the Chairs of the Audit Committee and the Risk Committee each received an annual cash retainer of $40,000, and the other members of the Audit Committee and the Risk Committee each received an annual cash retainer of $15,000. The Chair of the Compensation Committee received an annual cash retainer of $30,000, and the other members of the Compensation Committee each received an annual cash retainer of $10,000. The Chair of the Nominating and Corporate Governance

 

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Committee received an annual cash retainer of $25,000, and the other members of the Nominating and Corporate Governance Committee each received an annual cash retainer of $10,000.

There are no fees for attendance at board or committee meetings, but the board retains the discretion to establish special committees and to pay a special retainer to the Chair and the members of any special committee.

EQUITY GRANTS

Each non-employee director received an annual equity grant under the 2013 Stock Incentive Plan with an aggregate value of $160,000. Non-employee directors received this equity grant 50% in stock options and 50% in restricted stock units (RSUs).

CHANGES TO DIRECTOR COMPENSATION FOR 2020

On December 11, 2019, the Board of Directors approved a $25,000 increase in the annual equity grants for non-employee directors, subject to stockholder approval at the 2020 Annual Meeting of Stockholders. If the $25,000 increase in the annual equity grants for non-employee directors is approved by stockholders at the 2020 Annual Meeting of Stockholders, each non-employee director would receive an annual equity grant under the 2013 Stock Incentive Plan with an aggregate value of $185,000. Non-employee directors would receive this equity grant 40% in stock options and 60% in RSUs.

TERMS AND CONDITIONS

Non-employee directors receive the annual grants of options and RSUs on the second business day after the annual meeting of stockholders. In the event a new non-employee director is elected to the board during the year, a pro-rata amount of cash retainers and equity awards is granted to that individual for the first calendar year in lieu of the full amount. The non-employee director equity grants are subject to the following terms and conditions:

 

·  

The annual grants of options and RSUs vest over the three-year period following the grant date, with 25% vesting on each of the first and second anniversary of the grant date and the remaining 50% on the third anniversary of the grant date. The options and RSUs become 100% vested in the event of the non-employee director’s death, disability or retirement.

 

·  

For 2019, the number of RSUs for the 2019 annual grant was determined by dividing 50% of the aggregate value of the annual equity grant by the average of the high and low market price of the company’s common stock on the grant date.

 

·  

For 2019, the number of options for the 2019 annual grant of stock options was determined by dividing 50% of the aggregate value of the annual equity grant by the fair value of an option on the grant date.

 

·  

Each stock option is designated as a nonqualified stock option and has an exercise price equal to the fair market value of common stock on the grant date.

 

·  

Each stock option expires on the earliest of (1) the date ten years after the grant date, (2) the date three months after termination of service for any reason other than death, disability or retirement, or (3) the date one year after termination of service because of death or disability.

The company also has stock ownership guidelines for non-employee directors. Under our guidelines, each non-employee director should own company stock with a fair market value equal to or exceeding $400,000. A new director should reach this target level upon completing five years of service. Once this target level is reached, the director is deemed to meet this target so long as he or she continues to hold an equivalent number of shares as on the date the target level was met. Shares owned outright, deferred shares and RSUs are counted in determining the threshold under our stock ownership guidelines, but stock options are not.

 

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DIRECTORS’ DEFERRED COMPENSATION PLAN

Non-employee directors also may participate in the Directors’ Deferred Compensation Plan II. This plan allows them to defer receipt of all or a portion of their cash retainers and, at their election, either to:

(1) receive stock options that:

 

·  

have a fair value equal to the amounts deferred (as determined under the valuation method used by the company to value stock options at the time of the deferral),

 

·  

have an option exercise price equal to the closing price of common stock on the date the deferred amount would have been paid, and

 

·  

vest immediately upon grant and generally expire ten years after the grant date,

– or –

 

(2)   receive RSUs that are funded by an equivalent number of shares of common stock to be held in a “rabbi” trust and distributed to the director when he or she ceases to be a director.

The company does not provide any non-equity incentive plans, defined benefit and actuarial pension plans, or other defined contribution retirement plans for non-employee directors. The company does not offer above-market or preferential earnings under its nonqualified deferred compensation plans for directors. The following table shows compensation paid to each of our non-employee directors during 2019.

2019 DIRECTOR COMPENSATION TABLE

 

Name    Fees Earned or Paid in Cash ($)                       
  

Cash1

($)

    

Deferred into
Restricted Stock
Units or Options2, 5

($)

    

Stock
Awards3, 5

($)

    

Option
Awards4, 5

($)

    

Total

($)

 
       

John K. Adams, Jr.

     236,500        —                   155,000          80,000           471,500  
       

Joan T. Dea

     198,000        —                   155,000          80,000           433,000  
       

Christopher V. Dodds

     255,500        —                   155,000          80,000           490,500  
       

Stephen A. Ellis

     62,500        62,500                   80,000          80,000           285,000  
       

Mark A. Goldfarb

     140,000        —                   80,000          80,000           300,000  
       

William S. Haraf

     221,500        —                   155,000          80,000           456,500  
       

Frank C. Herringer

            135,000                   80,000          80,000           295,000  
       

Stephen T. McLin

     78,000        115,000                   155,000          80,000           428,000  
       

Charles A. Ruffel

     139,396        56,896                   155,000          80,000           431,292  
       

Arun Sarin

     125,000        —                   80,000          80,000           285,000  
       

Paula A. Sneed

     110,000        —                   80,000          80,000           270,000  
       

Roger O. Walther

     130,000        —                   80,000          80,000           290,000  
       

Robert N. Wilson6

     31,250        —                   —          —           31,250  

 

(1)   This column shows cash amounts earned for retainers and special meeting fees. For Mr. Adams, Ms. Dea, Mr. Dodds, Mr. Haraf, Mr. McLin, and Mr. Ruffel, the amount in this column includes their cash retainer and meeting fees for service on the Board of Directors of Charles Schwab Bank.

 

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(2)   This column shows the dollar amount of retainers and meeting fees deferred into RSUs or options under the Directors’ Deferred Compensation Plan II. The corresponding RSUs or options were as follows: 6,843 options for Mr. Ellis, 3,300 RSUs for Mr. Herringer, 12,589 options for Mr. McLin, and 6,248 options for Mr. Ruffel.

 

(3)   The amounts shown in this column represent the grant date fair value of the RSU award. In 2019, non-employee directors who served the full year received an automatic grant of RSUs with a grant date fair value of $80,000. For Mr. Adams, Ms. Dea, Mr. Dodds, Mr. Haraf, Mr. McLin, and Mr. Ruffel, the amount in this column includes an additional grant of RSUs with a grant date fair value of $75,000 for service on the Board of Directors of Charles Schwab Bank.

 

(4)   The amounts shown in this column represent the grant date fair value of the stock option award. In 2019, non-employee directors who served the full year received an automatic grant of stock options with a grant date fair value of $80,000.

 

(5)   The following table shows the aggregate number of outstanding stock option and RSU awards held by the non-employee directors as of December 31, 2019. This includes stock options and RSUs acquired under the Directors’ Deferred Compensation Plans.

 

Name     Stock Option    
Awards
    Restricted Stock    
Unit Awards
   

John K. Adams, Jr.

  36,589   7,297
   

Joan T. Dea

  14,663   6,497
   

Christopher V. Dodds

  23,030   7,297
   

Stephen A. Ellis

  105,762   11,690
   

Mark A. Goldfarb

  47,813   3,771
   

William S. Haraf

  36,589   7,297
   

Frank C. Herringer

  89,993   130,895
   

Stephen T. McLin

  266,334   39,886
   

Charles A. Ruffel

  17,830   4,158
   

Arun Sarin

  89,993   3,771
   

Paula A. Sneed

  62,158   51,456
   

Roger O. Walther

  73,502   33,891
   

Robert N. Wilson

  39,229   55,851

 

(6)   Mr. Wilson retired from the board on January 15, 2019.

 


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee is or has been an officer or employee of the company or any of its subsidiaries. There were no Compensation Committee interlocks as defined under SEC rules during 2019.

 

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PROPOSAL TWO:

RATIFICATION OF THE SELECTION OF

INDEPENDENT AUDITORS


The Audit Committee has the sole authority to hire, retain and terminate the independent auditors. The independent auditors report directly to the Audit Committee, and the Audit Committee is directly responsible for oversight of the work of the independent auditors. The Audit Committee oversees fees paid to the independent auditors and pre-approves all audit, internal control-related and permitted non-audit services to be performed by the independent auditors. The Audit Committee evaluates the qualifications, performance and independence of the independent auditors, including the rotation and selection of the lead audit partner and whether it is appropriate to rotate the audit firm itself.

The Audit Committee has selected Deloitte & Touche LLP and the member firms of Deloitte Touche Tohmatsu Limited (collectively referred to as Deloitte) as the company’s independent registered public accounting firm for the 2020 fiscal year. Deloitte has served in this capacity since the company’s inception. The Audit Committee and the Board of Directors believe that the retention of Deloitte for the 2020 fiscal year is in the best interests of the company and its stockholders. Although we are not required to submit the selection of the independent auditors to stockholders, we are asking for your ratification as part of the Audit Committee’s evaluation process of the independent registered public accounting firm for the next fiscal year.

We expect representatives of Deloitte to attend the annual meeting of stockholders, where they will respond to appropriate questions from stockholders and have the opportunity to make a statement.

 


AUDITOR FEES

Fees for services provided by Deloitte in the last two fiscal years were:

 

     2019      2018  
     (amounts in millions)  

Audit Fees1

   $ 8.1      $ 7.6  
 

Audit-Related Fees2

     4.1        3.7  
 

Tax Fees3

             
 

All Other Fees4

             
 

Total

   $ 12.2      $ 11.3  

 

(1)   Audit fees are the aggregate fees for professional services billed by Deloitte in connection with their audits of the consolidated annual financial statements and the effectiveness of internal control over financial reporting, and reviews of the consolidated financial statements included in quarterly reports on Form 10-Q.

 

(2)   Audit-Related fees include assurance and related services, service auditor reports over internal controls, review of Securities and Exchange Commission filings, merger and acquisition due diligence and related services.

 

(3)   Tax fees include permitted compliance and advisory services such as tax return review, preparation and compliance, advice on the application of rules or changes to tax laws, and review of tax issues in connection with merger and acquisition activity.

 

(4)   All other fees represent fees not included in “audit fees,” “audit-related fees,” and “tax fees.”

 

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In addition to the services listed above, Deloitte provides audit and tax return review, preparation and compliance services to certain unconsolidated charitable trusts and foundations. The fees for such services are included in the expenses of the charitable trusts and foundations and borne by the stockholders of the funds and foundations. Amounts billed by Deloitte for these services were $0.2 million in each of 2019 and 2018. These amounts are not included in the expenses of The Charles Schwab Corporation.

NON-AUDIT SERVICES POLICIES AND PROCEDURES

The Audit Committee has adopted a policy regarding non-audit services performed by Deloitte. The Audit Committee’s policy prohibits engaging Deloitte to perform the following services:

 

·  

any contingent fee arrangement,

 

·  

bookkeeping or other services relating to accounting records or financial statements of the audit client,

 

·  

broker-dealer, investment advisor, or investment banking services,

 

·  

actuarial services,

 

·  

management and human resource functions (including executive search services),

 

·  

legal services or expert services unrelated to the audit,

 

·  

appraisal and valuation services, fairness opinions or contribution-in-kind reports,

 

·  

internal audit outsourcing,

 

·  

financial information systems design and implementation,

 

·  

tax consulting or advice or a tax opinion on an “aggressive” tax position or on a “listed transaction” or a “confidential transaction” as defined by U.S. Department of Treasury regulations, and

 

·  

tax services to employees who have a financial reporting oversight role.

The Audit Committee may approve other non-audit services in advance of their performance as part of its review and approval of Deloitte’s audit service plan. In addition, the Audit Committee has pre-approved three separate categories of non-audit services under the policy subject to an annual aggregate dollar limit for each category. Once the dollar limit in each of these three categories is reached, the Audit Committee will decide whether to establish an additional spending limit for the category or specifically pre-approve each additional service in the category for the remainder of the year. The three categories are:

 

·  

accounting theory consultation (includes services such as guidance on the application of Generally Accepted Accounting Principles to various transactions and guidance on the effects of new accounting pronouncements),

 

·  

assurance and due diligence (includes services such as certain service auditor reports over internal controls, review of Securities and Exchange Commission filings, consents related to financings that include audited financial statements, merger and acquisition due diligence, audit consultation pertaining to acquisitions or the calculation of gain or loss from dispositions, and employee benefit plan audits), and

 

·  

tax related services (includes tax return review, preparation and compliance, advice on the application of rules or changes to tax laws, and review of tax issues in connection with merger and acquisition activity).

Services not subject to pre-approval limits in one of the three categories above require specific pre-approval from the Audit Committee. Fees related to services requiring specific pre-approval are limited, on an annual basis, to 50% of the combination of audit fees, audit-related fees and tax fees.

 

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The policy permits the Audit Committee to delegate pre-approval authority to one or more members of the Audit Committee, provided that the member or members report to the entire Audit Committee pre-approval actions taken since the last Audit Committee meeting. The policy expressly prohibits delegation of pre-approval authority to management. In fiscal year 2019, audit-related fees representing a total of 0.06% of Deloitte’s total fees were approved by the Audit Committee pursuant to the de minimis exception provided by Rule 2-01(c)(7)(i)(C) of Regulation S-X.

 

AUDIT COMMITTEE REPORT

 

The Audit Committee has met and held discussions with management and the company’s independent registered public accounting firm. As part of this process, the committee has:

 

·  reviewed and discussed the audited financial statements with management,

 

·  discussed with the independent registered public accounting firm the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the Securities and Exchange Commission, and

 

·  received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the audit committee concerning independence, and has discussed with the independent registered public accounting firm its independence.

 

Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, for filing with the SEC.

 

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

John K. Adams, Jr., Chairman

Christopher V. Dodds

Stephen A. Ellis

Mark A. Goldfarb

William S. Haraf

 

 

 

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PROPOSAL THREE:

ADVISORY APPROVAL OF NAMED

EXECUTIVE OFFICER COMPENSATION


This proxy statement contains detailed information in the Compensation Discussion and Analysis and executive compensation tables regarding compensation of the named executive officers. The “named executive officers” are those executive officers who are listed in the Summary Compensation Table. We ask that you provide an advisory vote to approve the following, non-binding resolution on named executive officer compensation:

RESOLVED, that the stockholders of The Charles Schwab Corporation approve the compensation paid to the named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and related footnotes, and narrative disclosures.

The advisory approval of named executive officer compensation is required by federal law, and the company currently conducts annual advisory votes on that compensation. Although the vote is not binding on the Board of Directors or the Compensation Committee, the Compensation Committee intends to consider the vote as part of its evaluation of executive compensation programs.

 


COMPENSATION DISCUSSION AND ANALYSIS

EXECUTIVE SUMMARY

This section describes the company’s executive compensation program, policies and practices and how executive compensation is designed to support the company’s strategic objectives.

Key Business Results

The company’s strategy is to put clients’ perspectives, needs, and desires at the forefront by seeing business “Through Clients’ Eyes.” Because investing plays a fundamental role in building financial security, the company strives to deliver a better investing experience for its clients – individual investors and the people and institutions who serve them – by disrupting longstanding industry practices on their behalf and providing superior service. In pursuing this strategy, the company:

 

·  

Offers a broad range of products and solutions to meet client needs with a focus on transparency, value, and trust,

 

·  

Combines its scale and resources with ongoing expense discipline to keep costs low and ensure that products and solutions are affordable as well as responsive to client needs, and

 

·  

Seeks to maximize its market valuation and stockholder returns over time.

Effective execution of this strategy in 2019 (which included eliminating commissions for stock, exchange-traded funds and options listed on U.S. and Canadian exchanges), bolstered by strength in the equity markets for much of the year, was reflected in key client metrics:

 

·  

Core net new assets of $211.7 billion marked the second consecutive year above $200 billion and a 7% annual organic growth rate.

 

·  

12.3 million active brokerage accounts and 1.4 million banking accounts at year end, up 6% and 7% respectively, over year-end 2018.

 

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·  

Total client assets of $4.04 trillion as of December 31, 2019, up 24% from year-end 2018. Of these assets, more than half ($2.11 trillion) were receiving some form of ongoing advisory service, up 23%: consisting of $1.77 trillion under the guidance of an independent advisor and $337 billion enrolled in a retail advisory solution.

Success with clients combined with rising equity markets and ongoing expense discipline in 2019 led to record financial performance:

 

·  

Net revenues of $10.7 billion were up 6% over 2018, and net income of $3.7 billion was also up 6% – both amounts are records for the firm.

 

·  

Pre-tax profit margin of 45.2% was up 20 basis points over the prior year.

 

·  

Earnings per share (EPS) of $2.67 was up 9% over the prior year.

 

·  

Return on common equity (ROCE) was 19% for the second consecutive year.

A more thorough discussion of the company’s business, business strategy and results is provided in the company’s Annual Report on Form 10-K.

Executive Compensation Program

The executive compensation program is intended to support the company’s strategic objectives by:

 

·  

attracting, motivating and retaining talented, highly capable executive officers,

 

·  

rewarding executives for individual performance,

 

·  

linking executive pay with the company’s financial performance, and

 

·  

aligning incentives for executive officers with the interests of the company and its stockholders by linking pay with long-term performance.

 

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The compensation program uses three elements – base salary, annual cash incentives and long-term incentive awards (LTI) – to achieve these objectives. As illustrated by the charts below, the majority of compensation is delivered through variable performance-based incentives: 92% for the Chief Executive Officer and 85% on average for the other Named Executive Officers. This approach maintains a strong link between executive pay and the company’s financial performance, rewards executives only when value has been created for stockholders, and drives long-term performance.

 

 

LOGO

 

*   Pay mix is based on amounts in the Summary Compensation Table. Annual cash incentive is the amount reported for the Corporate Executive Bonus Plan under Non-Equity Incentive Plan Compensation. Long-term Incentive Awards are amounts reported for Stock Awards and Option Awards.

Key Compensation Decisions

The company’s “Through Clients’ Eyes” strategy is based on the principle that developing trusted relationships will translate into more assets from new and existing clients, ultimately driving more revenue and, along with expense discipline, generating earnings growth and building long-term stockholder value.

The Compensation Committee’s decisions for 2019 aligned with this disciplined focus on financial results. In 2019, the Compensation Committee:

 

·  

Continued to use EPS as the performance criterion for the Corporate Executive Bonus Plan because it measures profitability and focuses executive officers on operating performance and decisions around capital structure.

 

·  

Set the target EPS goal for 100% payout upon achieving the company’s financial plan for 2019 approved by the board.

 

·  

Approved annual cash incentive payouts under the Corporate Executive Bonus Plan of 98.17% of the target set by the Compensation Committee based on the company’s financial performance.

 

·  

Awarded PBRSUs with cliff-vesting based on a three-year performance period to ensure continued focus on long-term performance and retention.

 

·  

Continued to use ROCE equaling or exceeding COE as the performance goal for the 2019 PBRSUs, because it reflects the creation of financial value for stockholders in all phases of the business cycle and measures the earnings power of the company.

 

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The Compensation Committee continuously reviews and evaluates the company’s compensation program and policies and considers stockholder views regarding executive compensation. For the 2020 program, the Compensation Committee made decisions that maintain the strong relationship between compensation opportunity and the management team’s success in executing on the business strategy. For 2020, the Compensation Committee:

 

·  

Selected EPS as the performance criterion for the Corporate Executive Bonus Plan and set the target EPS goal for 100% payout upon achieving the company’s financial plan approved by the board.

 

·  

Changed the mix of equity incentives to increase the percentage awarded as PBRSUs from 50% to 60% and decrease the percentage awarded as stock options from 50% to 40%.

 

·  

Awarded PBRSUs with cliff-vesting based on a three-year performance period to ensure continued focus on long-term performance and retention.

 

·  

Selected the performance criteria of return on tangible common equity (ROTCE) and COE for the PBRSUs because ROTCE reflects the capital position of the company absent the effects of intangible assets and preferred stock.

SUMMARY OF THE EXECUTIVE COMPENSATION PROGRAM

The compensation program uses three key elements: base salary, annual cash incentives and long-term incentives. The table below identifies how each of these elements supports the objectives articulated above.

 

 
   Objective   Element of Compensation
  Base
Salary
    Annual  Cash
Incentives
  Long-Term Incentives
   

  Attract, Motivate and Retain

         
   

  Reward Executives for Individual Performance

           
   

  Link Pay with Company Financial Performance

           
   

  Align Incentives with Long-term Interests of Stockholders

             
   

  Performance Metric

          EPS measures profitability and reflects the annual impact of operational actions and decisions around capital structure.  

PBRSUs: ROCE compared to COE measures earnings on stockholder equity and long-term profitability.

 

Stock options: reward share price appreciation by delivering compensation only when the stock price appreciates above the exercise price.

COMPENSATION PLANNING AND THE DECISION-MAKING PROCESS

The Compensation Committee reviews and approves compensation for the Chairman, the Chief Executive Officer, executive officers, and other senior officers, and it reviews and recommends to the Board of Directors compensation for the non-employee directors.

The Compensation Committee evaluates as a committee, or together with the other independent directors and the Chairman, the performance and compensation of the Chief Executive Officer. The Compensation Committee also evaluates the performance and compensation of the Chairman. The Compensation Committee also considers:

 

·  

recommendations from the Chairman and the Chief Executive Officer regarding compensation for the other executive officers and performance criteria for annual and long-term incentives, developed in consultation with the Executive Vice President – Human Resources,

 

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·  

recommendations from the Chief Financial Officer regarding performance criteria and goals for annual and long-term incentives,

 

·  

advice from the Executive Vice President – Corporate Risk regarding the design and results of incentive compensation programs to ensure consistency with the company’s financial plan, strategic objectives and risk profile, and

 

·  

guidance and advice of its independent compensation consultant, Semler Brossy Consulting Group (Semler Brossy).

While the Compensation Committee considers the information provided by management and its independent compensation consultant, it does not delegate authority to management for executive compensation decisions.

The Compensation Committee’s review of named executive officer compensation in 2019 included consideration of:

 

·  

the company’s performance, the economic environment, market trends, and proposed regulations,

 

·  

a competitive pay analysis of peer companies with data from proxy statements,

 

·  

each executive’s experience, responsibilities, individual performance, and pay relative to internal peers, and

 

·  

reports prepared by the independent compensation consultant and the company’s Human Resources Department on each executive’s pay history with:

 

  ·  

actual total compensation from 2015 to 2018,

 

  ·  

proposed 2019 total compensation,

 

  ·  

option exercises, equity vesting amounts, dividend equivalents, 401(k) balances, deferred compensation balances, and other cash compensation (e.g., company match for the 401(k) plan),

 

  ·  

the value and vesting schedule of outstanding long-term awards, and

 

  ·  

each component of pay as a percentage of total compensation.

The Compensation Committee does not use a formula or assign a weighting to various factors considered in setting compensation. It does not target a specific percentage mix between cash compensation and long-term incentives or any specific percentage of total compensation for each compensation component.

The Compensation Committee uses a peer group as a source of market data to assess the competitiveness of compensation and pay practices for executive officers and non-employee directors. The data is not used to set compensation targets. Peers were selected considering the following factors:

 

·  

Quantitative: revenue, market capitalization, and number of employees.

 

·  

Qualitative: business model, geographic coverage, and competition for customers and/or employees.

 

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Because the company has few competitors comparable in terms of business model and geographic coverage, the peer group includes a mix of brokerage firms, banking and asset management companies, and companies that provide custody services and process a significant daily volume of consumer financial transactions. The peer group of 24 companies used for compensation for 2019 was:

 

 

LOGO

Compensation Consultant

Under its charter, the Compensation Committee is authorized to retain compensation consultants and to approve the terms of the engagement. In 2019, the Compensation Committee engaged Semler Brossy to review pay trends across the financial services industry and in the peer group, advise directly on Chief Executive Officer, Chairman and non-employee director compensation, provide competitive assessments of executive compensation, review long-term incentives as well as the long-term incentives used by companies in the peer group, assist with the review and analysis of the peer group, and provide general advice and counsel with respect to executive compensation programs, market practices and trends. Semler Brossy was engaged by the Compensation Committee directly and does not provide other services to the company. In 2019, the Compensation Committee reviewed information regarding potential conflicts of interest with Semler Brossy, including: other services it might provide to the company, fees received from the company as a percentage of its total revenue, policies and procedures designed to prevent conflicts of interest, any business and/or personal relationships with members of the Compensation Committee, company stock owned, and any business and/or personal relationships between Semler Brossy consultants and any executive officer of the company.

 

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ELEMENTS OF COMPENSATION

Base salary, annual cash incentives and long-term incentives are the key compensation elements for achieving the company’s objectives. The following adjustments were made to base salary, annual cash incentives and long-term incentives of the named executive officers in 2019:

 

   
   Executive    Compensation Adjustments       
  

Base Salary

$ Increase

     Increase in Bonus   
    Target (% of salary)      
   LTI $ Increase      Reason for Adjustments
     

Walter W. Bettinger II

               $1,000,000     

·  To reward and recognize accomplishments as CEO

     

Peter B. Crawford

     $50,000      25%      $250,000     

·  Individual performance

·  Pay relative to internal peers

·  Pay relative to external compensation data

     

Charles R. Schwab

               $250,000     

·  To reward and recognize accomplishments as Executive Chairman

     

Joseph R. Martinetto

               $250,000     

·  Individual performance

·  Pay relative to internal peers

·  Pay relative to external compensation data

     

Jonathan M. Craig

     $100,000      25%      $500,000     

·  Individual performance

·  Pay relative to internal peers

·  Pay relative to external compensation data

 

Base Salary

Base salaries are established at levels intended to attract, motivate and retain highly capable executive officers. As illustrated by the pay mix charts in the Executive Summary above, executive officers receive a small percentage of their overall compensation in base salary. The Compensation Committee approved the following base salaries effective March 1, 2019:

 

 
Executive   

2019 Base Salary

Effective March 1, 2019   

 

Walter W. Bettinger II

   $1,300,000
 

Peter B. Crawford

   $   525,000
 

Charles R. Schwab

   $   700,000
 

Joseph R. Martinetto

   $   700,000
 

Jonathan M. Craig

   $   650,000

Annual Cash Incentives

Annual cash incentive awards for the named executive officers were made pursuant to the Corporate Executive Bonus Plan. In the first quarter of 2019, the Compensation Committee established the performance criterion, set performance goals and approved a target bonus award, expressed as a percentage of salary, for each named executive officer. In January 2020, the Compensation Committee reviewed performance, certified the achievement of performance goals, and determined bonus awards based on the approved target percentage, which is applied to salary

 

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earned during the performance period by each named executive officer. The Compensation Committee approved the following annual incentives for 2019:

 

     
   Executive 2019 Target  Cash
Incentive (%)
2019 Target  Cash
Incentive ($)
2019 Actual  Cash   
Incentive ($)
   

Walter W. Bettinger II

375% $4,875,000 $4,785,787
   

Peter B. Crawford

175% $   904,167 $   887,620
   

Charles R. Schwab

250% $1,750,000 $1,717,975
   

Joseph R. Martinetto

210% $1,470,000 $1,443,099
   

Jonathan M. Craig

200% $1,266,667 $1,243,486

EPS was established as the performance criterion for all named executive officers. The Compensation Committee believes EPS provides a comprehensive measure of the company’s profitability and focuses executive officers on operating performance and decisions around capital structure. For purposes of the Corporate Executive Bonus Plan, EPS is calculated as fully diluted EPS calculated in accordance with Generally Accepted Accounting Principles, subject to categories of adjustments and exclusions approved by the Compensation Committee at the time the performance criterion was established. EPS goals were summarized in a matrix with potential payouts ranging from 50% to 200% of the target bonus award, with a 100% payout assigned to the EPS goal set by the Compensation Committee based on achieving the company’s financial plan approved by the board. Achieving EPS of less than 50% of the target EPS goal would result in no bonus payment; achieving EPS between 50% and 100% of the target EPS goal would result in a payout of between 50% and 100% of the target bonus award; and achieving EPS of more than the target EPS goal would result in a payout of between 100% and 200% of the target bonus award. The threshold of 50% of target EPS was adopted to establish the minimum level of achievement for a bonus payment, and a cap on bonus payout was set at 200% of the target award. When determining whether the performance goals have been achieved, the Compensation Committee reviews unusual gains and losses and whether results have been achieved in a manner consistent with the company’s risk profile. Based on this review, the Compensation Committee may exercise discretion to reduce payouts.

 

LOGO

In 2019, the target EPS goal was set at $2.73; the maximum payment was 200% of the target bonus award for EPS of $5.46 or higher; and the minimum payment was 50% of the target bonus award for EPS of $1.37. The target EPS goal of $2.73 was set to result in a payout of 100% of the target bonus award for performance in line with the company’s financial plans approved by the board. For 2019, the Compensation Committee approved payouts based on EPS of

 

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$2.68, which excluded charges related to the pending acquisition of the assets of USAA Investment Management Company (USAA Acquisition Expense) and charges related to the pending acquisition of TD Ameritrade Holding Corporation (TDA Acquisition Expense). The share repurchase programs announced in October 2018 and January 2019 were factored into the company’s board-approved financial plans when setting the 2019 EPS target. The Compensation Committee determined that the company achieved these results while maintaining a low credit risk profile. The Compensation Committee did not apply negative discretion to reduce the cash incentive award for any individual named executive officer and approved funding at 98.17% of target for each of the named executive officers.

Long-Term Incentives

At its January 2019 meeting, the Compensation Committee approved equity awards to be granted on March 1, 2019 for the named executive officers pursuant to the 2013 Stock Incentive Plan. Of the total target equity awards granted, 50% was granted in stock options and 50% was granted in PBRSUs to align the incentives of executives with the long-term interests of stockholders.

The Compensation Committee approved the following equity awards for 2019:

 

     
   Executive    2019 PBRSUs
($)
   2019 Stock Options
($)
   2019 Total LTI
($)
   

Walter W. Bettinger II

   $5,000,000    $5,000,000    $10,000,000
   

Peter B. Crawford

   $   625,000    $   625,000    $  1,250,000
   

Charles R. Schwab

   $1,850,000    $1,850,000    $  3,700,000
   

Joseph R. Martinetto

   $1,625,000    $1,625,000    $  3,250,000
   

Jonathan M. Craig

   $1,075,000    $1,075,000    $  2,150,000

Stock Options

The Compensation Committee approved stock options to be granted on March 1, 2019 vesting 25% annually over four years. The stock options provide for accelerated vesting due to a change in control, death or disability, or retirement, and the amounts associated with accelerated vesting are included in the Termination and Change in Control Benefits Table. The stock options also provide for accelerated vesting on awards that would otherwise vest during the severance period following termination under the Charles Schwab Severance Pay Plan (Severance Plan) and the value of awards subject to the accelerated vesting is included in the Termination and Change in Control Benefits Table.

 

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Performance-Based Restricted Stock Units

The Compensation Committee approved PBRSUs with cliff-vesting based on the three-year performance period from January 1, 2019 to December 31, 2021. The main features of the 2019 PBRSUs are summarized below.

 

  Feature   Comments

  Grant Date

 

·  March 1, 2019

 

  Vesting Schedule

 

·  100% vesting on the third anniversary of the grant date

 

·  All vesting is subject to Compensation Committee certification that the performance goal for that period has been met

 

  Performance Period

 

·  January 1, 2019 to December 31, 2021

 

  Dividend Equivalent Payments

 

·  Dividend equivalent payments equal to the dividends paid on a share of company stock will accumulate and be paid in cash when, and if, the underlying units vest

 

·  If the performance goals for the units are not met, the dividend equivalent payments are forfeited

 

  Payment

 

·  The number of shares of company stock payable upon vesting will vary based upon performance

 

·  200% of the target award is the maximum number of shares of company stock payable for each unit that vests

 

  Performance Criteria

 

·  ROCE

 

·  COE

The Compensation Committee approved performance goals based on ROCE and COE with potential payouts ranging from 100% to 200% of the target shares granted. Where ROCE divided by COE equals at least one and no more than two, 100% of target shares are paid. Where ROCE divided by COE equals less than one, the target shares are forfeited. Where ROCE divided by COE equals more than two, the target shares are paid out in a range from 100% to 200% of target. When determining whether the performance goals have been achieved, the Compensation Committee reviews unusual gains and losses and whether results have been achieved in a manner consistent with the company’s risk profile. Based on this review, the Compensation Committee may exercise discretion to reduce payouts.

The Compensation Committee approved performance criteria based on ROCE and COE because it reflects the creation of financial value for stockholders in all phases of the business cycle and measures the earnings power of the company. The opportunity for a payout up to 200% of the target award incents executives to exceed target performance and directly links the magnitude of the payout to the company’s performance up to a cap of 200%. If the Compensation Committee certifies that the goal has been met for the performance period, then the award for that performance period will vest. If the goal has not been met, then the PBRSUs and associated dividend equivalent payments will be forfeited.

ROCE is calculated as net income available to common stockholders divided by average common stockholders’ equity, for the performance period, subject to categories of adjustments and exclusions approved by the Compensation Committee at the time the performance criteria were established.

COE is calculated using the Capital Asset Pricing Model (CAP-M), which is a commonly used financial metric that incorporates the risk-free interest rate (the company uses the six-month average of the five-year Treasury rate), the beta of the company’s equity (a measure of the volatility of the company’s common stock relative to the broader equity market), and a market equity risk premium (an estimate of the expected excess return required for holding equities instead of a risk-free asset).

 

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In determining whether the performance goals have been met, the Compensation Committee excludes losses from any unusual or non-recurring items, including, but not limited to charges, or costs associated with reorganizations or restructurings, discontinued operations, goodwill, other intangible assets, long-lived assets (non-cash), real estate strategy (e.g., costs related to lease terminations or facility closure obligations), litigation or the resolution of litigation, or currency or commodity fluctuations, and the effects of changes in applicable laws, regulations or accounting principles, and any other unusual or non-recurring losses.

The PBRSUs provide for accelerated vesting and payment of target awards due to a change in control, death or disability. The PBRSUs also provide for continued vesting following termination under the Severance Plan or retirement, subject to achievement of performance goals established at the time such awards were granted. The values of awards subject to these accelerated vesting and continued vesting provisions are included in the Termination and Change in Control Benefits Table.

Vesting of Performance-Based Restricted Stock Units for the Performance Period Ending December 31, 2019

In January 2017, the Compensation Committee approved the grant of performance-based equity awards with cliff-vesting and a three-year performance period ending December 31, 2019, subject to the Compensation Committee certifying achievement of the applicable performance goals. The Compensation Committee chose ROCE compared to COE as the performance criterion for these equity awards, because it reflects the creation of financial value for stockholders in all phases of the business cycle and measures the earnings power of the company. Shares are earned at target when ROCE divided by COE equals at least one and no more than two. Shares are earned above target when ROCE divided by COE is greater than two. For PBRSUs vesting based on the three-year performance period ending December 31, 2019, the Compensation Committee determined the performance goal was met and approved payouts based on ROCE of 17.9% and COE of 8.9%, exceeding target performance at 201.4% and resulting in a payout above target at 100.7%. The Compensation Committee determined the achievement of the performance goals excluding 2017 charges related to tax reform and location strategy and a gain related to a tax benefit associated with equity compensation and excluding 2019 charges related to the USAA Acquisition Expense and TDA Acquisition Expense. The share repurchase programs announced in October 2018 and January 2019 were not factored into the Compensation Committee’s determination due to the long-term vesting of the PBRSU awards and the long-term nature of the company’s capital deployment strategy. The share repurchase programs did not have a material impact on the performance results. The Compensation Committee certified the following achievement of performance goals for 2019:

 

   Grant     
Year   
   Performance Goal   

Performance

Period

    ROCE           COE           Performance Goal  
Met
     Payout  
           
2017   

ROCE greater

than or equal to

COE

   January 1, 2017 to
December 31, 2019
  17.9%      8.9%      Exceeded    100.7% of
Target

Other Compensation

Executive Benefits and Perquisites

The company provides limited executive perquisites. The Compensation Committee previously approved certain benefits for Mr. Bettinger, including a car service for commuting purposes, which he has not used, parking, and use of fractionally-owned aircraft consistent with company policies.

For named executive officers, the company:

 

·  

does not provide financial planning assistance,

 

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·  

does not gross up payments to cover executives’ personal tax liability,

 

·  

does not offer executive retirement or medical plans, and

 

·  

does not match contributions to the deferred compensation plan.

Employee Benefit Plans

The company offers no defined benefit plan, special retirement plan for executives or other nonqualified excess plans to named executive officers. Executive officers may participate in the company’s 401(k) plan and employee stock purchase plan available to all eligible employees subject to Internal Revenue Service limits (except Mr. Schwab, who is excluded from the employee stock purchase plan because he owns more than 5% of the company’s stock), and a deferred compensation plan available to officers and other key employees.

Severance

All employees, including executive officers other than Mr. Schwab, are eligible to receive severance benefits under the Severance Plan, which is described in the narrative following the Termination and Change in Control Benefits Table. Benefits are available under this plan only in the event of termination of employment on account of job elimination. Under the severance program, executive officers are eligible to receive 15 days of base salary for each year of service with a minimum of seven months and a maximum of 12 months of severance pay. Mr. Schwab is entitled to severance benefits pursuant to his employment agreement, as described in the narrative to the Summary Compensation Table.

COMPENSATION POLICIES

Stock Ownership Guidelines

The Board of Directors has adopted stock ownership guidelines to promote significant equity ownership by executives and further align their long-term financial interests with those of other stockholders. Under the guidelines:

 

·  

The Chief Executive Officer is expected to maintain an investment position in company stock equal to at least five times base salary.

 

·  

All other executive officers are expected to maintain an investment position equal to at least three times base salary.

Shares owned directly, shares beneficially owned under company benefit plans, restricted stock, RSUs, and PBRSUs are included in determining ownership levels, but stock options are not. The stock ownership guidelines allow the Compensation Committee to take action if the target ownership levels are not met within five years. For 2019, all of the named executive officers had stock ownership exceeding the guidelines.

Prohibition on Speculative Trading and Certain Types of Hedging Activity

Speculative trading in the company’s stock, including short term trading, is prohibited. The company’s policies prohibiting speculative trading apply to employees and non-employee directors and prohibit certain types of hedging activities, including selling short, buying options to open a position and selling uncovered options.

Guidelines for Equity Awards

The company has no program, plan or practice to time the grant of stock-based awards relative to the release of material non-public information or other corporate events. All equity grants to directors and executive officers are

 

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approved by the Compensation Committee or the independent directors at regularly scheduled meetings or, in limited cases involving key recruits or promotions, by a special meeting or unanimous written consent. The grant date is the meeting date or a fixed, future date specified at the time the Compensation Committee or the independent directors take action. Under the terms of the company’s stock incentive plan, the exercise price of options cannot be less than the closing price of company stock on the grant date.

Recoupment Policies

The company has a recoupment policy to recover incentive awards granted to executive officers in the event of a significant restatement of financial results from material noncompliance with financial reporting requirements due to misconduct.

In addition, in the event of certain securities law violations, the Compensation Committee reserves the right to reduce or cancel equity awards or require executives to disgorge any profit realized from equity awards.

The company also reserves the right to cancel equity awards of employees who are terminated for cause.

Response to Advisory Vote on Say-on-Pay and Stockholder Engagement

The Compensation Committee considers the result of the stockholders’ advisory say-on-pay vote when reviewing and evaluating the executive compensation program throughout the year. The Compensation Committee noted the strong support of the stockholders, who approved the company’s advisory say-on-pay proposal by approximately 95% at the 2019 Annual Meeting of Stockholders, and believes this vote reflects broad support of our compensation program and policies.

The Compensation Committee continues to review and evaluate the company’s compensation program and policies in the context of our business, regulatory requirements, and evolving best practices. As part of this process, the Compensation Committee takes into consideration stockholder views regarding executive compensation that the company receives from time to time.

Given the positive feedback received through stockholder engagement and the results of our 2019 say-on-pay vote, the Compensation Committee determined that the 2019 executive compensation program should remain consistent with the 2018 program. In addition, members of our investor relations and legal teams met with stockholders who provided feedback on a variety of topics, including executive compensation, corporate governance, and environmental and social goals.

Risk Assessment

The Compensation Committee reviewed a report by the company’s Human Resources and Corporate Risk Management Departments on incentive compensation practices and policies throughout the company and the potential impact on risk-taking by employees. The report reviewed payouts, risk ratings and balancing methods for all employee incentive compensation plans, changes in incentive compensation plans and programs made in 2019, bank product incentives, and enhancements to the incentive compensation risk management program. The annual report identified the following risk-mitigating factors currently in place:

 

·  

approval of executive compensation by an independent board committee,

 

·  

review of plan design and performance results for all executive incentive plans by the corporate risk officer,

 

·  

performance-based long-term incentive awards,

 

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·  

payments may be subject to adjustment based on risk management factors,

 

·  

a balanced suite of performance metrics with a strong link to stockholder value,

 

·  

caps on annual incentive opportunities,

 

·  

performance goals based on financial plans approved by the board,

 

·  

a four-year vesting period for stock options with limited opportunities for accelerated vesting,

 

·  

a three-year performance period and cliff-vesting for PBRSUs with limited opportunities for accelerated vesting,

 

·  

meaningful executive stock ownership guidelines, and

 

·  

annual review of incentive plan performance, along with centralized design and administration of all incentive plans.

In addition, when reviewing the design of and payments pursuant to incentive compensation programs, the Compensation Committee considers the review by the Executive Vice President – Corporate Risk regarding consistency with the company’s financial plan, strategic objectives and risk profile.

Internal Revenue Code Section 162(m)

Historically, the company’s compensation plans were structured so that compensation would be performance-based and deductible under Section 162(m) of the Internal Revenue Code, as amended (Section 162(m)), with the Compensation Committee approving compensatory arrangements that were not deductible under Section 162(m) based on business needs. The Tax Cuts and Jobs Act enacted on December 22, 2017 eliminated the performance-based compensation exemption from the Section 162(m) one million dollar deduction limit, with an exception for certain agreements in effect on November 2, 2017 (the 162(m) Grandfather). The company intends to administer outstanding arrangements and plans to the extent compatible with business needs to preserve potential deductions that may be available under the 162(m) Grandfather.

COMPENSATION DECISIONS MADE FOR 2020

2020 Compensation for the Chief Executive Officer

In January 2020, the Compensation Committee approved a $100,000 increase in base salary and a $500,000 increase in long-term incentives for Mr. Bettinger to reward and recognize his accomplishments as CEO. The Compensation Committee believes that Mr. Bettinger’s leadership is a key factor in growing the long-term strength of our franchise by focusing on serving clients, operating in a disciplined manner and building a leadership team for the future.

2020 Annual Cash Incentives

In January 2020, the Compensation Committee considered performance criteria for 2020 annual cash incentive awards under the Corporate Executive Bonus Plan. The Compensation Committee selected overall corporate performance as measured by EPS.

2020 Long-Term Incentives

In January 2020, the Compensation Committee approved long-term equity awards of 40% stock options and 60% PBRSUs under the 2013 Stock Incentive Plan to align the long-term incentives of the executives with the long-term interests of the stockholders. These equity awards were granted on March 2, 2020. The stock options will vest 25%

 

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annually over four years. The PBRSUs will have cliff-vesting based on the three-year performance period from January 1, 2020 to December 31, 2022. The main features of the 2020 PBRSUs are summarized below.

 

  Feature   Comments

  Grant Date

 

·  March 2, 2020

 

  Vesting Schedule

 

·  100% vesting on the third anniversary of the grant date

 

·  All vesting is subject to Compensation Committee certification that the performance goal for that period has been met

 

  Performance Period

 

·  January 1, 2020 to December 31, 2022

 

  Dividend Equivalent Payments

 

·  Dividend equivalent payments equal to the dividends paid on a share of company stock will accumulate and be paid in cash when, and if, the underlying units vest

 

·  If the performance goals for the units are not met, the dividend equivalent payments are forfeited

 

  Payment

 

·  The number of shares of company stock payable upon vesting will vary based upon performance

 

·  200% of the target award is the maximum number of shares of company stock payable for each unit that vests

 

  Performance Criteria

 

·  ROTCE

 

·  COE

The shift in the long-term equity mix to 60% PBRSUs will increase the amount of performance-based long-term incentives.

The company changed the performance measure to ROTCE over COE to reflect the capital position of the company absent the effects of intangible assets and preferred stock. ROTCE is defined as net income available to common stockholders from continuing operations for the calendar year divided by average tangible common stockholders’ equity (defined as the balance of tangible common stockholders’ equity at the beginning of the calendar year plus the balance of tangible common stockholders’ equity at the end of the calendar year divided by two), calculated in accordance with accounting principles generally accepted in the U.S. Tangible common stockholder’s equity equals total stockholder’s equity minus the sum of preferred stock, goodwill, intangible assets, and deferred tax liabilities related to goodwill and intangible assets.

 

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and the proxy statement on Schedule 14A.

 

COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

 

Roger O. Walther, Chairman

Joan T. Dea

Frank C. Herringer

Paula A. Sneed

 

 

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2019 CEO PAY RATIO

The following is a reasonable estimate, calculated in accordance with SEC rules, of the ratio of the 2019 annual total compensation of the company’s median employee to the 2019 annual total compensation of Mr. Bettinger, the President and Chief Executive Officer:

 

·  

the annual total compensation of the median employee, calculated in accordance with Summary Compensation Table rules, was $105,565;

 

·  

the annual total compensation of the CEO, as reported in the Summary Compensation Table, was $16,101,141; and

 

·  

the ratio of the annual total compensation of the CEO to the annual total compensation of the median employee was 153 to 1.

The same median employee was used for 2019 as was used in both 2018 and 2017 as there was no material change in each year to the employee population or compensation arrangements that would have significantly impacted the pay ratio disclosure.

In order to identify the company’s median employee in 2017, the employee population as of October 1, 2017, which equaled 16,623 individuals, including full-time, part-time, temporary and seasonal employees, was determined based on the company’s internal records. Of those 16,623 individuals, 16,570 were in the United States and 53 outside the United States. The company’s 53 non-U.S. employees, which accounted for less than 5% of the total employee population, were excluded from the analysis. Such employees were located in: Australia (16 employees); Hong Kong (24 employees); Singapore (five employees); and the United Kingdom (eight employees).

The company’s payroll records were used to calculate total cash compensation for each employee, other than the CEO and non-U.S. employees identified as excluded above, based on such employee’s annual rate of salary as of October 1, 2017 and actual bonus paid for performance in 2016, including quarterly advances paid in 2016 and the final 2016 bonus payment on March 3, 2017. The median employee was identified by consistently applying this compensation measure to all employees included in the analysis.

 

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EXECUTIVE COMPENSATION TABLES

The following tables show compensation information for the named executive officers: Walter W. Bettinger II, President and Chief Executive Officer, Peter B. Crawford, Executive Vice President and Chief Financial Officer, and the next three most highly compensated executive officers as of December 31, 2019.

2019 SUMMARY COMPENSATION TABLE

 

NAME AND PRINCIPAL
POSITION
  YEAR    

SALARY

($)

   

BONUS1

($)

    STOCK
AWARDS2
($)
    OPTION
AWARDS3
($)
    NON-EQUITY
INCENTIVE
PLAN
COMPEN-
SATION4
($)
    ALL  OTHER
COMPEN-
SATION5
($)
    TOTAL
($)
 
             

Walter W. Bettinger II

President and Chief Executive Officer

   

2019

2018

2017

 

 

 

   

1,300,000

1,275,000

1,133,333

 

 

 

   


 

 

 

   

5,000,000

4,500,000

4,250,000

 

 

 

   

5,000,000

4,500,000

4,250,000

 

 

 

   

4,785,787

5,335,875

4,613,375

 

 

 

   

15,354

16,732

102,029

 

 

 

   

16,101,141

15,627,607

14,348,737

 

 

 

             

Peter B. Crawford

Executive Vice President and
Chief Financial Officer

   

2019

2018

2017

 

 

 

   

516,667

470,833

444,167

 

 

 

   


76,325

 

 

 

   

625,000

500,000

500,000

 

 

 

   

625,000

500,000

500,000

 

 

 

   

887,620

788,175

482,142

 

 

 

   

14,774

15,069

17,754

 

 

 

   

2,669,061

2,274,077

2,020,388

 

 

 

             

Charles R. Schwab6

Chairman

   

2019

2018

2017

 

 

 

   

700,000

683,333

583,333

 

 

 

   


 

 

 

   

1,850,000

1,725,000

1,650,000

 

 

 

   

1,850,000

1,725,000

1,650,000

 

 

 

   

1,717,975

1,906,500

1,583,021

 

 

 

   

14,482

14,428

53,119

 

 

 

   

6,132,457

6,054,261

5,519,473

 

 

 

             

Joseph R. Martinetto

Senior Executive Vice President and
Chief Operating Officer

   

2019

2018

2017

 

 

 

   

700,000

687,500

625,000

 

 

 

   


 

 

 

   

1,625,000

1,500,000

1,000,000

 

 

 

   

1,625,000

1,500,000

1,000,000

 

 

 

   

1,443,099

1,611,225

1,356,875

 

 

 

   

15,023

15,485

36,647

 

 

 

   

5,408,122

5,314,210

4,018,522

 

 

 

             

Jonathan M. Craig

Senior Executive Vice President

    2019       633,333             1,075,000       1,075,000       1,243,486       14,857       4,041,676  

 

(1)   The amount shown in this column represents a bonus paid outside of the Corporate Executive Bonus Plan, a non-equity incentive plan, for the officer who received a promotion after the beginning of the performance period.

 

(2)   The amounts shown in this column represent the aggregate grant date fair value of PBRSUs and RSUs and do not reflect the amounts ultimately realized by the named executive officer. The values shown are as of the grant date determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, which is the date on which all of the significant terms, including any performance criteria, were established. The values represent the aggregate compensation cost expected at the grant date to be recognized over the service period and are not adjusted for the effect of any estimated forfeitures. The maximum value of the 2019 PBRSU grants on the grant date, assuming the performance conditions are met at 200% of the target award, would be: $10,000,000 for Mr. Bettinger; $1,250,000 for Mr. Crawford; $3,700,000 for Mr. Schwab; $3,250,000 for Mr. Martinetto; and $2,150,000 for Mr. Craig.

 

     PBRSUs awarded in 2019, 2018 and 2017 vest only upon satisfaction of the performance conditions of those awards. For the 2019, 2018 and 2017 PBRSUs, the date the Compensation Committee granted the units and the date all significant terms of the award were finalized were the same. The values reflected in the table for the grants are the number of units granted multiplied by the average of the high and low market price of the company’s common stock on the accounting grant date.

 

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     For further discussion of the company’s accounting for its equity compensation plans, including key assumptions, see “Part II – Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2. Summary of Significant Accounting Policies,” and “Note 19. Employee Incentive, Retirement, Deferred Compensation, and Career Achievement Plans” from the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

 

(3)   The amounts shown in this column represent the aggregate grant date fair value of the stock option awards as determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, and not the amount ultimately realized by the named executive officer. For further discussion of the company’s accounting for its equity compensation plans, including key assumptions, see “Part II – Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2. Summary of Significant Accounting Policies,” and “Note 19. Employee Incentive, Retirement, Deferred Compensation, and Career Achievement Plans” from the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

 

(4)   The amounts shown in this column include amounts earned under the Corporate Executive Bonus Plan.

 

(5)   The amounts shown in this column for 2019 include $14,250 for each named executive officer for employer match contributions under the company’s defined contribution plan, the SchwabPlan Retirement Savings and Investment Plan, which is a 401(k) plan available to all eligible employees.

 

(6)   Mr. Schwab has had an employment contract with the company since 1987. His employment contract is described in the Narrative to Summary Compensation and Grants of Plan-Based Awards Tables.

2019 GRANTS OF PLAN-BASED AWARDS TABLE

 

NAME   GRANT
DATE
    DATE OF
ACTION IF
NOT
GRANT
DATE1
    ESTIMATED POSSIBLE
PAYOUTS UNDER
NON-EQUITY INCENTIVE
PLAN AWARDS2
    ESTIMATED FUTURE
PAYOUTS UNDER
EQUITY INCENTIVE
PLAN AWARDS3
   

ALL OTHER
OPTION
AWARDS:
NUMBER OF
SECURITIES
UNDERLYING
OPTIONS4

(#)

    EXERCISE
OR BASE
PRICE OF
OPTION
AWARDS
($/SH)
    GRANT
DATE FAIR
VALUE OF
EQUITY
AWARDS
($)5
 
 

THRESHOLD

($)

   

TARGET

($)

   

MAXIMUM

($)

   

THRESHOLD

(#)

 

TARGET

(#)

   

MAXIMUM

(#)

 
                       

Walter W. Bettinger II

   

1/30/2019

3/1/2019

3/1/2019

 

 

 

   


1/30/2019

1/30/2019

 

 

 

   

2,437,500

 

 

 

   

4,875,000

 

 

 

   

9,750,000

 

 

 

 

   


106,907

 

 

 

   


213,814

 

 

 

   


405,187

 

 

 

   


46.81

 

 

 

   


5,000,000

5,000,000

 

 

 

             

Peter B. Crawford

   

1/30/2019

3/1/2019

3/1/2019

 

 

 

   


1/30/2019

1/30/2019

 

 

 

   

452,083

 

 

 

   

904,167

 

 

 

   

1,808,333

 

 

 

 

   


13,364

 

 

 

   


26,728

 

 

 

   


50,649

 

 

 

   


46.81

 

 

 

   


625,000

625,000

 

 

 

             

Charles R. Schwab

   

1/30/2019

3/1/2019

3/1/2019

 

 

 

   


1/30/2019

1/30/2019

 

 

 

   

875,000

 

 

 

   

1,750,000

 

 

 

   

3,500,000

 

 

 

 

   


39,556

 

 

 

   


79,112

 

 

 

   


149,919

 

 

 

   


46.81

 

 

 

   


1,850,000

1,850,000

 

 

 

             

Joseph R. Martinetto

   

1/30/2019

3/1/2019

3/1/2019

 

 

 

   


1/30/2019

1/30/2019

 

 

 

   

735,000

 

 

 

   

1,470,000

 

 

 

   

2,940,000

 

 

 

 

   


34,745

 

 

 

   


69,490

 

 

 

   


131,686

 

 

 

   


46.81

 

 

 

   


1,625,000

1,625,000

 

 

 

             

Jonathan M. Craig

   

1/30/2019

3/1/2019

3/1/2019

 

 

 

   


1/30/2019

1/30/2019

 

 

 

   

633,333

 

 

 

   

1,266,667

 

 

 

   

2,533,333

 

 

 

 

   


22,985

 

 

 

   


45,970

 

 

 

   


87,116

 

 

 

   


46.81

 

 

 

   


1,075,000

1,075,000

 

 

 

 

(1)   This column shows the date that the Compensation Committee or the independent directors took action with respect to the award if that date is different than the grant date. If the grant date is not the meeting date, it is a fixed, future date specified at the time of the grant.

 

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(2)   These columns show, for the January 30, 2019 grant date for each named executive officer, the range of possible payouts for annual cash incentive awards granted in 2019 under the Corporate Executive Bonus Plan. The actual annual cash incentive awards paid for 2019 performance under this plan are shown in the “non-equity incentive plan compensation” column of the Summary Compensation Table. The “threshold” column shows the bonus payment for achieving 50% of the target EPS goal; achieving less than 50% of the target EPS goal would result in no bonus payment.

 

(3)   These PBRSU awards were granted under the 2013 Stock Incentive Plan and vest on the third anniversary of the grant date, provided that a target performance goal based on ROCE divided by COE for the three-year performance period ending December 31, 2021 is met. Shares are forfeited if the performance target is not met or will be paid in a range from 100% to 200% of the target award when performance equals or exceeds target.

 

(4)   These stock option awards were granted under the 2013 Stock Incentive Plan, vest in four equal annual installments beginning on the first anniversary of the grant date and expire on the tenth anniversary of the grant date.

 

(5)   Represents the grant date fair value of each equity award as determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. For the option awards approved on January 30, 2019 with a grant date of March 1, 2019, the grant date fair value was determined by multiplying the number of shares granted by the fair value of the option as determined by an options pricing model. The fair value of the option determined by the pricing model on March 1, 2019 was $12.34. For PBRSU awards, the grant date fair value was determined by multiplying the number of units granted by the average of the high and low market price of the company’s common stock on the grant date of March  1, 2019, which was $46.77.

NARRATIVE TO SUMMARY COMPENSATION AND GRANTS OF PLAN-BASED AWARDS TABLES

Base Salaries

In 2019, the Compensation Committee increased the base salary for Mr. Crawford by $50,000 (11%) and for Mr. Craig by $100,000 (18%). The Compensation Committee made no other adjustments to base salary for the named executive officers in 2019.

Annual Cash Incentives

In 2019, the Compensation Committee increased Mr. Crawford’s annual cash incentive target from 150% to 175% of base salary and increased Mr. Craig’s annual cash incentive from 175% to 200% of base salary. The Compensation Committee made no other adjustments to annual cash incentive targets for the named executive officers in 2019.

Long-Term Incentives

In 2019, the Compensation Committee increased the annual long-term incentive awards for Mr. Bettinger by $1,000,000, for Mr. Crawford by $250,000, for Mr. Schwab by $250,000, for Mr. Martinetto by $250,000, and for Mr. Craig by $500,000.

Defined Benefits and Deferred Compensation

The company does not offer defined benefit and actuarial pension plans, special retirement plans or other nonqualified excess plans for executives. The company does not offer above-market or preferential earnings under nonqualified deferred compensation plans or defined contribution plans.

 

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Employment Agreement for Mr. Schwab

The company and Mr. Schwab entered into an amended employment agreement, effective March 31, 2003, and stockholders approved the annual bonus provision contained in the employment agreement. The amended agreement has an initial term of five years, and provides that as of each March 31, the term of the employment agreement is automatically extended by an additional year, under the same terms and conditions, unless beforehand either party provides notice to the other of an intention not to extend it. To address potential penalty taxes on deferred compensation pursuant to Section 409A of the Internal Revenue Code and associated regulations, the Board of Directors and Mr. Schwab agreed to amendments to his employment agreement in 2008 to specify the timing of payments, establish definitions of triggering events that are consistent with the Internal Revenue Service’s guidance under Section 409A, and delay certain payments until six months after Mr. Schwab terminates employment, as required by Section 409A for certain employees. The amendments do not impact the amount of the payments.

The amended employment agreement provides for an annual base salary of $900,000, subject to annual review by the board, and provides that Mr. Schwab will be entitled to participate in all compensation and fringe benefit programs made available to other executive officers, including stock-based incentive plans. Mr. Schwab’s bonus is determined under the Corporate Executive Bonus Plan, as described in the Compensation Discussion and Analysis.

The employment agreement also provides that certain compensation and benefits will be paid or provided to Mr. Schwab (or his immediate family or estate) if his employment is terminated involuntarily, except for cause. “Cause” is defined as the commission of a felony, or willful and gross negligence, or misconduct that results in material harm to the company. “Involuntary termination” includes a material change in Mr. Schwab’s capacities or duties at the company.

If an involuntary termination is not due to death, disability or cause:

 

·  

Mr. Schwab will be entitled to receive for a period of 36 months all compensation to which he would have been entitled had he not been terminated, including his then current base salary and participation in all bonus, incentive and other compensation and benefits for which he was or would have been eligible (but excluding additional grants under stock incentive plans), and

 

·  

all his outstanding, unvested shares and options under stock incentive plans will vest fully on the termination date.

If an involuntary termination is due to disability, Mr. Schwab will be entitled to receive:

 

·  

his base salary and benefits, less any payments under the long-term disability plan, for a period of 36 months from the termination date, and

 

·  

a prorated portion of any bonus or incentive payments for the year in which the disability occurs.

If an involuntary termination is due to death, a lump sum payment will be made to Mr. Schwab’s estate equal to five times his then base salary.

If Mr. Schwab voluntarily resigns his employment within 24 months of a change in control of the company, he will be entitled to receive his base salary up to the date of resignation, plus a prorated portion of any bonus or incentive payments payable for the year in which the resignation occurs. In addition, Mr. Schwab has the right (but not the obligation) to enter into a consulting arrangement with the company if he voluntarily resigns his employment upon 6 months’ written notice to the company, or within 24 months of a change in control of the company if he voluntarily resigns or his employment is involuntarily terminated. Under that arrangement, Mr. Schwab would provide certain consulting services to the company for a period of five years for an annual payment equal to $1 million or 75% of his then base salary, whichever is less.

 

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For estimated termination and change in control payments and benefits to Mr. Schwab, please refer to the Termination and Change in Control Benefits Table.

The employment agreement prohibits Mr. Schwab from becoming associated with any business competing with the company during the term of the agreement and for a period of five years following a voluntary resignation of employment. (However, that restriction does not apply if Mr. Schwab resigns his employment within 24 months of a change in control of the company.)

License Agreement for Mr. Schwab

The company and Charles Schwab & Co., Inc. also are parties to an assignment and license agreement with Mr. Schwab that was approved in July 1987 by the company’s non-employee directors. Under the agreement, Mr. Schwab has assigned to the company all service mark, trademark, and trade name rights to Mr. Schwab’s name (and variations on the name) and likeness. However, Mr. Schwab has the perpetual, exclusive, irrevocable right to use his name and likeness for any activity other than the financial services business, so long as Mr. Schwab’s use of his name does not cause confusion about whether the company is involved with goods or services actually created, endorsed, marketed or sold by Mr. Schwab or by third parties unrelated to the company. The assignment and license agreement defines the “financial services business” as the business in which Charles Schwab & Co., Inc. is currently engaged and any additional and related business in which that firm or the company is permitted to engage under rules and regulations of applicable regulatory agencies.

Beginning immediately after any termination of his employment, Mr. Schwab will be entitled to use his likeness in the financial services business for some purposes (specifically, the sale, distribution, broadcast and promotion of books, videotapes, lectures, radio and television programs, and also any financial planning services that do not directly compete with any business in which the company or its subsidiaries are then engaged or plan to enter within three months). Beginning two years after any termination of his employment, Mr. Schwab may use his likeness for all other purposes, including in the financial services business, as long as that use does not cause confusion as described above.

No cash consideration is to be paid to Mr. Schwab for the name assignment while he is employed by the company or, after his employment terminates, while he is receiving compensation under an employment agreement with the company. Beginning when all such compensation ceases, and continuing for a period of 15 years, Mr. Schwab or his estate will receive three-tenths of one percent (0.3%) of the aggregate net revenues of the company (on a consolidated basis) and those of its unconsolidated assignees and licensees that use the name or likeness. These payments may not, however, exceed $2 million per year, adjusted up or down to reflect changes from the cost of living prevailing in the San Francisco Bay Area in May 1987, and they will terminate if the company and its subsidiaries cease using Mr. Schwab’s name and likeness. For estimated payments to Mr. Schwab under his license agreement, please refer to the Termination and Change in Control Benefits Table below.

The license agreement permits the company to continue using Mr. Schwab’s name and likeness even after he is no longer affiliated with the company and, under most circumstances, limits Mr. Schwab’s separate use of his name and likeness in the financial services business. However, the company’s ability to assign the license agreement, or to permit others to use Mr. Schwab’s name and likeness, is limited during Mr. Schwab’s lifetime. Thus, without Mr. Schwab’s consent, the company may not transfer the license, or any of the company’s rights under the license, to a third party, including by means of mergers or reorganizations in which the stockholders who held shares prior to the transaction do not retain the ability to elect the majority of the board immediately following such transaction (among other circumstances).

 

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2019 TERMINATION AND CHANGE IN CONTROL BENEFITS TABLE

 

NAME   EVENT1  

SALARY
AND

BONUS

($)

   

EARLY
VESTING
OF
STOCK
OPTIONS2

($)

   

EARLY OR
CONTINUED
VESTING OF
RESTRICTED
STOCK
UNITS2

($)

   

OTHER

($)

   

TOTAL

($)

 
         

Walter W. Bettinger II

  Termination under Severance Plan     1,536,667 3      3,505,406 4      13,964,710 4      24,947 5      19,031,730  
  Change in control           3,505,406 6      13,964,710 6            17,470,116  
  Death or disability           3,505,406 6      13,964,710 6            17,470,116  
  Retirement or voluntary resignation           3,505,406 4      13,964,710 4            17,470,116  
         

Peter B. Crawford

  Termination under Severance Plan     620,569 3      265,165 7      914,769 7      24,947 5      1,825,450  
  Change in control           306,151 6      1,588,314 6            1,894,465  
  Death or disability           306,151 6      1,588,314 6            1,894,465  
         

Charles R. Schwab

  Termination without cause     7,253,925 8      1,352,596 9      5,308,933 4      77,281,713 10      91,197,167  
  Change in control           1,352,596 6      5,308,933 6            6,661,529  
  Death     3,500,000 11      1,352,596 6      5,308,933 6      76,263,120 12      86,424,649  
  Disability     2,100,000 13      1,352,596 6      5,308,933 6      76,263,120 12      85,024,649  
    Resignation following a change in control     2,625,000 14      1,352,596 6      5,308,933 6      76,263,120 12      85,549,649  
  Retirement or voluntary resignation     2,625,000 14      1,352,596 4      5,308,933 4      76,263,120 12      85,549,649  
         

Joseph R. Martinetto

  Termination under Severance Plan     827,439 3      908,075 4      4,152,083 4      25,295 5      5,912,892  
  Change in control           908,075 6      4,152,083 6            5,060,158  
  Death or disability           908,075 6      4,152,083 6            5,060,158  
  Retirement or voluntary resignation           908,075 4      4,152,083 4            5,060,158  
         

Jonathan M. Craig

  Termination under Severance Plan     768,333 3      437,337 7      1,131,405 7      2,689 5      2,339,764  
  Change in control           470,005 6      2,411,340 6            2,881,345  
  Death or disability           470,005 6      2,411,340 6            2,881,345  

 

(1)   This table shows the amount of benefits due to termination or change in control to be paid to the named executive officers pursuant to existing agreements (assuming the event triggering the termination or change in control took place as of December 31, 2019).

 

     The benefits payable to Mr. Schwab are based on the terms of his employment, license, and equity incentive award agreements. The events triggering payments are described more fully in the description of his employment and license agreements contained in the Narrative to Summary Compensation and Grants of Plan-Based Awards Tables.

 

     Except for Mr. Schwab, all other named executive officers are eligible for benefits in the event of job elimination under the Severance Plan, and these benefits are included in amounts shown for “termination under Severance Plan.”

 

     Stock option and RSU agreements contain provisions for accelerated vesting due to a change in control, death or disability, or retirement, and these accelerated amounts are included in amounts shown for “change in control,” “death or disability,” and “retirement or voluntary resignation.” As of December 31, 2019, Mr. Bettinger, Mr. Martinetto and Mr. Schwab met the eligibility criteria for retirement under certain existing equity award agreements.

 

    

PBRSU award agreements contain provisions for accelerated vesting and payment of target awards due to a change in control, death or disability. These accelerated amounts are included in the amounts shown for “change

 

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  in control” or “death or disability.” PBRSU award agreements contain provisions for continued vesting following either termination under the Severance Plan or retirement, subject to achievement of performance goals established at the time such awards were granted. The value of awards subject to these continued vesting and performance achievement provisions is included in amounts shown for “termination under Severance Plan” and “retirement or voluntary resignation” as applicable.

 

(2)   For stock options, the amounts are based on the spread between the exercise price and the closing price of a share of company common stock on December 31, 2019 ($47.56), multiplied by the number of shares subject to accelerated vesting. For RSUs, the amounts are based on the closing price of a share of company common stock on December 31, 2019 ($47.56), multiplied by the number of shares subject to accelerated vesting. For the 2017 PBRSUs with the performance period ending December 31, 2019, the amount is based on $47.56 multiplied by the number of shares granted at 100.7% of the target based on the achievement of performance goals. For the 2018 and 2019 PBRSUs, the amounts are based on $47.56 multiplied by the target number of shares that would vest, to the extent not already forfeited, under accelerated vesting provisions (in the case of death, disability or change in control), or the number of shares that will continue to vest, to the extent not already forfeited, under continued vesting provisions (in the case of retirement or severance under the Severance Plan) subject to achievement of performance goals established at the time such awards were granted.

 

(3)   Includes a base salary payable under the Severance Plan for the severance period and a 60-day notice period. Under the terms of the Severance Plan, an executive officer is eligible to receive a lump-sum severance benefit equal to base salary (at December 31, 2019 rate) for a specified period (a minimum of seven months and a maximum of 12 months) based upon years of service. In addition, the Severance Plan provides for base salary during the 60-day notice period. To receive the lump-sum severance benefit, an employee must execute a severance agreement that provides the company and its affiliates with a general release and waiver of claims.

 

(4)   Under equity award agreements, if the employee meets the eligibility criteria for retirement at the time of termination, stock options and RSUs vest and PBRSUs continue to vest based on the achievement of the related performance goals.

 

(5)   Under the Severance Plan, amounts represent a lump-sum payment to cover part of the cost of COBRA premiums based on group health plan COBRA rates for the severance period.

 

(6)   Under equity award agreements, these awards fully vest in the event of a change in control of the company, death or disability.

 

(7)   Under the Severance Plan, amounts result from vesting of outstanding long-term awards that would have vested during the 60-day notice period, accelerated vesting of outstanding stock options and RSU awards that would have vested during the severance period after termination, and continued vesting of PBRSU awards that may vest during the severance period after termination.

 

(8)   Under Mr. Schwab’s employment agreement, includes 36 months of salary (at December 31, 2019 rate of $700,000) and bonus (at 2019 cash incentive of $1,717,975 under the Corporate Executive Bonus Plan), to be paid in 36 monthly installments.

 

(9)   Under Mr. Schwab’s employment agreement, unvested stock options fully vest upon an involuntary separation from service other than for cause.

 

(10)   Under Mr. Schwab’s employment and license agreements, includes: annual installments of $5,084,208 (which represents $2 million adjusted to the consumer price index from 1987 as specified in his license agreement) for 15 years, and estimated cost of office space and secretarial support for 36 months of $1,018,593.

 

(11)   Under Mr. Schwab’s employment agreement, represents a lump-sum death benefit payable to Mr. Schwab’s estate in an amount equal to five times annual salary (at December 31, 2019 rate of $700,000).

 

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(12)   Under Mr. Schwab’s license agreement, represents annual installments of $5,084,208 for 15 years payable to Mr. Schwab or his estate.

 

(13)   Under Mr. Schwab’s employment agreement, represents 36 months of annual salary (at December 31, 2019 rate of $700,000), to be paid in monthly installments. A prorated bonus is not included, as it is already included in the 2019 Summary Compensation Table and is not an additional expense to the company.

 

(14)   Under Mr. Schwab’s employment agreement, represents 60 monthly installments of $43,750 in the event that Mr. Schwab elects to provide consulting services following a voluntary resignation, or resignation or termination after a change in control. A prorated bonus is not included, as it is already included in the 2019 Summary Compensation Table and is not an additional expense to the company.

Charles Schwab Severance Pay Plan

Employees other than Mr. Schwab are eligible for benefits under the Severance Plan in the event of job elimination, as defined in the plan.

Under the Severance Plan, an executive officer is eligible to receive a lump-sum severance pay benefit of base salary equal to 15 business days multiplied by his or her full years of service, with a minimum of seven months and maximum of 12 months of the base salary that would have been payable to the executive officer. Prorated benefits will be provided for partial years of service. The lump-sum amount is in addition to base salary for the 60-day notice period.

An executive officer who becomes entitled to severance benefits under the plan is also eligible to receive a lump-sum payment to cover a portion of the cost of group health plan coverage. The amount of the payment is based upon the period of time for which he or she is eligible to receive severance pay and current COBRA rates for group health plan coverage. In addition, the portion of the executive officer’s long-term awards, except PBRSUs or similar performance-based awards, which would have vested had the officer remained employed during the severance period will vest following his or her termination date. Executive officers are treated as employees during their severance period for purposes of determining their vesting in PBRSUs to the extent performance goals are met or exceeded for the period.

 

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OUTSTANDING EQUITY AWARDS AS OF DECEMBER 31, 2019

 

    OPTION AWARDS     STOCK AWARDS  
NAME  

NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS (#)

EXERCISABLE

   

NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS (#)

UNEXERCISABLE

   

OPTION
EXERCISE
PRICE

($)

    OPTION
EXPIRATION
DATE
   

NUMBER
OF
SHARES
OR UNITS
OF STOCK
THAT
HAVE
NOT
VESTED

(#)

   

MARKET
VALUE OF
SHARES
OR UNITS
OF STOCK
THAT
HAVE NOT
VESTED1

($)

   

EQUITY
INCENTIVE
PLAN
AWARDS:
NUMBER
OF
UNEARNED
SHARES,
UNITS
OR OTHER
RIGHTS
THAT
HAVE NOT
VESTED

(#)

    EQUITY
INCENTIVE
PLAN
AWARDS:
MARKET
OR
PAYOUT
VALUE OF
UNEARNED
SHARES,
UNITS OR
OTHER
RIGHTS
THAT
HAVE NOT
VESTED1
($)
 
   

Walter W. Bettinger II

   

36,501

33,770

451,264

348,471

162,462

71,474

 

 

 

 

 

 

   

116,158

162,462

214,422

405,187

2 

3 

4 

5 

   

27.45

28.44

30.17

26.39

42.99

52.05

46.81

 

 

 

 

 

 

 

   

8/1/2024

11/3/2024

3/2/2025

3/1/2026

3/1/2027

3/1/2028

3/1/2029

 

 

 

 

 

 

 

    100,9858       4,802,847       192,6389,10       9,161,863  
   

Peter B. Crawford

   

8,292

27,500

17,292

14,963

22,910

22,482

14,335

5,595

7,941

 

 

 

 

 

 

 

 

 

   

7,495

14,335

5,596

23,826

50,649

2 

3 

6 

4 

5 

   

11.75

13.64

23.12

28.44

34.70

26.39

42.99

39.70

52.05

46.81

 

 

 

 

 

 

 

 

 

 

   

11/1/2021

11/1/2022

11/1/2023

11/3/2024

8/3/2025

3/1/2026

3/1/2027

6/1/2027

3/1/2028

3/1/2029

 

 

 

 

 

 

 

 

 

 

    10,5068,11       499,665       22,8909,10       1,088,648  
   

Charles R. Schwab

   

112,360

130,112

132,576

126,812

147,992

165,877

123,967

156,658

150,000

121,066

77,640

72,047

71,226

67,386

62,345

180,506

134,892

63,073

27,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

44,965

63,074

82,196

149,919

2 

3 

4 

5 

   

18.25

15.00

15.43

18.66

15.05

11.75

13.91

12.45

13.64

16.40

22.67

23.12

25.86

27.45

28.44

30.17

26.39

42.99

52.05

46.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

3/1/2020

8/2/2020

11/1/2020

3/1/2021

8/1/2021

11/1/2021

3/1/2022

8/1/2022

11/1/2022

3/1/2023

8/1/2023

11/1/2023

3/3/2024

8/1/2024

11/3/2024

3/2/2025

3/1/2026

3/1/2027

3/1/2028

3/1/2029

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    39,2068       1,864,637       72,4209,10       3,444,295  

 

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    OPTION AWARDS     STOCK AWARDS  
NAME  

NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS (#)

EXERCISABLE

   

NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS (#)

UNEXERCISABLE

   

OPTION
EXERCISE
PRICE

($)

    OPTION
EXPIRATION
DATE
   

NUMBER
OF
SHARES
OR UNITS
OF STOCK
THAT
HAVE
NOT
VESTED

(#)

   

MARKET
VALUE OF
SHARES
OR UNITS
OF STOCK
THAT
HAVE NOT
VESTED1

($)

   

EQUITY
INCENTIVE
PLAN
AWARDS:
NUMBER
OF
UNEARNED
SHARES,
UNITS
OR OTHER
RIGHTS
THAT
HAVE NOT
VESTED

(#)

    EQUITY
INCENTIVE
PLAN
AWARDS:
MARKET
OR
PAYOUT
VALUE OF
UNEARNED
SHARES,
UNITS OR
OTHER
RIGHTS
THAT
HAVE NOT
VESTED1
($)
 
   

Joseph R. Martinetto

   

38,820

36,024

35,613

33,693

31,173

105,295

30,121

89,928

38,226

17,868

6,151

 

 

 

 

 

 

 

 

 

 

 

   

29,977

38,227

53,606

18,456

131,686

2 

3 

4 

7 

5 

   

22.67

23.12

25.86

27.45

28.44

30.17

31.44

26.39

42.99

52.05

50.41

46.81

 

 

 

 

 

 

 

 

 

 

 

 

   

8/1/2023

11/1/2023

3/3/2024

8/1/2024

11/3/2024

3/2/2025

6/1/2025

3/1/2026

3/1/2027

3/1/2028

4/2/2028

3/1/2029

 

 

 

 

 

 

 

 

 

 

 

 

    23,7628       1,130,121       63,5409,10,12       3,021,962  
   

Jonathan M. Craig

   

12,651

12,612

11,440

10,508

17,807

16,847

15,587

51,144

44,964

19,113

9,927

3,281

 

 

 

 

 

 

 

 

 

 

 

 

   

14,989

19,114

29,781

9,843

87,116

2 

3 

4 

7 

5 

   

12.88

16.40

22.67

23.12

25.86

27.45

28.44

30.17

26.39

42.99

52.05

50.41

46.81

 

 

 

 

 

 

 

 

 

 

 

 

 

   

10/1/2022

3/1/2023

8/1/2023

11/1/2023

3/3/2024

8/1/2024

11/3/2024

3/2/2025

3/1/2026

3/1/2027

3/1/2028

4/2/2028

3/1/2029

 

 

 

 

 

 

 

 

 

 

 

 

 

    11,8818       565,060       38,8209,10,12       1,846,279  

 

(1)   Represents the market value of unvested RSUs or PBRSUs held as of December 31, 2019 based on the closing price of a share of common stock of $47.56 on December 31, 2019.

 

(2)   These non-qualified stock options were approved on January 28, 2016 under the 2013 Stock Incentive Plan with a grant date of March 1, 2016 and vest in four equal annual installments beginning on the first anniversary of the grant date.

 

(3)   These non-qualified stock options were approved on January 26, 2017 under the 2013 Stock Incentive Plan with a grant date of March 1, 2017 and vest in four equal annual installments beginning on the first anniversary of the grant date.

 

(4)   These non-qualified stock options were approved on January 25, 2018 under the 2013 Stock Incentive Plan with a grant date of March 1, 2018 and vest in four equal annual installments beginning on the first anniversary of the grant date.

 

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(5)   These non-qualified stock options were approved on January 30, 2019 under the 2013 Stock Incentive Plan with a grant date of March 1, 2019 and vest in four equal annual installments beginning on the first anniversary of the grant date.

 

(6)   These non-qualified stock options were approved on April 20, 2017 under the 2013 Stock Incentive Plan with a grant date of June 1, 2017 and vest in four equal annual installments beginning on the first anniversary of the grant date.

 

(7)   These non-qualified stock options were approved on March 27, 2018 under the 2013 Stock Incentive Plan with a grant date of April 2, 2018 and vest in four equal annual installments beginning on the first anniversary of the grant date.

 

(8)   Includes PBRSU awards that were approved on January 26, 2017 under the 2013 Stock Incentive Plan with a grant date of March 1, 2017 and vest 100% on the third anniversary of the grant date, provided a performance goal based on ROCE divided by COE for the three-year performance period preceding the vesting date is met. Shares are forfeited if the performance target is not met or paid in a range from 100% to 200% of the target award when performance equals or exceeds target. The shares underlying the PBRSU awards granted on March 1, 2017 were paid based on an achievement of performance goals of 100.7% as follows:

 

NAME    VESTING
DATE
     NUMBER
OF UNITS
 
   

Walter W. Bettinger II

     3/1/2020        100,985  
   

Peter B. Crawford

     3/1/2020        8,910  
   

Charles R. Schwab

     3/1/2020        39,206  
   

Joseph R. Martinetto

     3/1/2020        23,762  
   

Jonathan M. Craig

     3/1/2020        11,881  

 

(9)   Includes PBRSU awards that were approved on January 25, 2018 under the 2013 Stock Incentive Plan with a grant date of March 1, 2018 and vest 100% on the third anniversary of the grant date, provided a performance goal based on ROCE divided by COE for the three-year performance period preceding the vesting date is met. Shares are forfeited if the performance target is not met or paid in a range from 100% to 200% of the target award when performance equals or exceeds target. Based on a target of 100%, future vesting for the PBRSUs is as follows:

 

NAME    VESTING
DATE
     NUMBER
OF UNITS
 
   

Walter W. Bettinger II

     3/1/2021        85,731  
   

Peter B. Crawford

     3/1/2021        9,526  
   

Charles R. Schwab

     3/1/2021        32,864  
   

Joseph R. Martinetto

     3/1/2021        21,433  
   

Jonathan M. Craig

     3/1/2021        11,908  

 

(10)  

Includes PBRSU awards that were approved on January 30, 2019 under the 2013 Stock Incentive Plan with a grant date of March 1, 2019 and vest 100% on the third anniversary of the grant date, provided a performance goal based on ROCE divided by COE for the three-year performance period preceding the vesting date is met.

 

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  Shares are forfeited if the performance target is not met or paid in a range from 100% to 200% of the target award when performance equals or exceeds target. Based on a target of 100%, future vesting for the PBRSUs is as follows:

 

NAME    VESTING
DATE
     NUMBER
OF UNITS
 
   

Walter W. Bettinger II

     3/1/2022        106,907  
   

Peter B. Crawford

     3/1/2022        13,364  
   

Charles R. Schwab

     3/1/2022        39,556  
   

Joseph R. Martinetto

     3/1/2022        34,745  
   

Jonathan M. Craig

     3/1/2022        22,985  

 

(11)   Includes time-based RSUs that were approved on April 20, 2017 under the 2013 Stock Incentive Plan with a grant date of June 1, 2017 and vest in four equal annual installments beginning on the first anniversary of the grant date. Vesting for these RSUs is as follows:

 

NAME    VESTING
DATE
     NUMBER
OF UNITS
 
   

Peter B. Crawford

    

6/1/2020

6/1/2021

 

 

    

798

798

 

 

 

(12)   Includes PBRSU awards that were approved on March 27, 2018 under the 2013 Stock Incentive Plan with a grant date of April 2, 2018 and vest 100% on the third anniversary of the grant date, provided a performance goal based on ROCE divided by COE for the three-year performance period preceding the vesting date is met. Shares are forfeited if the performance target is not met or paid in a range from 100% to 200% of the target award when performance equals or exceeds target. Based on a target of 100%, future vesting for the PBRSUs is as follows:

 

NAME    VESTING
DATE
     NUMBER
OF UNITS
 
   

Joseph R. Martinetto

Jonathan M. Craig

    

4/2/2021

4/2/2021

 

 

    

7,362

3,927

 

 

2019 OPTION EXERCISES AND STOCK VESTED TABLE

 

     OPTION AWARDS      STOCK AWARDS  
   
NAME    NUMBER OF
SHARES
ACQUIRED
ON EXERCISE
(#)
     VALUE
REALIZED
ON
EXERCISE
($)1
     NUMBER OF
SHARES
ACQUIRED
ON VESTING
(#)
     VALUE
REALIZED
ON
VESTING
($)2
 
   

Walter W. Bettinger II

                   149,614        6,997,447  
   

Peter B. Crawford

                   11,894        541,355  
   

Charles R. Schwab

     316,266        7,177,589        57,916        2,708,731  
   

Joseph R. Martinetto

                   40,595        1,888,763  
   

Jonathan M. Craig

     14,959        402,209        19,306        902,942  

 

(1)  

The value realized on exercise of stock options as shown in this chart was calculated by subtracting the option exercise price from the market price to obtain the value realized per share, and multiplying the value realized

 

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  per share by the number of shares acquired upon exercise. The market price for each transaction was determined as follows: If upon exercising, the named executive officer sold the shares acquired, the market price was determined to be the sale price. If upon exercising, the named executive officer kept the shares acquired, then the market price was determined to be the average of the high and low market price of the company’s common stock on the date of the exercise.

 

(2)   Amounts in this column were calculated by multiplying the number of shares acquired on vesting by the average of the high and low market price of the company’s common stock on the vesting date. If the vesting date was a weekend or holiday, the next business day’s prices were used to value the shares.

2019 NONQUALIFIED DEFERRED COMPENSATION TABLE

 

NAME1 PLAN EXECUTIVE
CONTRIBUTIONS IN
LAST FISCAL
YEAR2
($)

AGGREGATE
EARNINGS IN LAST
FISCAL YEAR3

($)

AGGREGATE
WITHDRAWALS/

DISTRIBUTIONS

($)

AGGREGATE BALANCE
AT LAST  FISCAL
YEAR-END
($)
         

Walter W. Bettinger II

  DCP2     448,450     20,819,283 4 
         

Peter B. Crawford

  DCP2     408,525     2,181,259
         

Charles R. Schwab

  DCP1     5,907,854     28,815,961 5 
         

Jonathan M. Craig

  DCP2     247,478     1,293,623

 

(1)   Mr. Schwab participates in The Charles Schwab Corporation Deferred Compensation Plan I (DCP1) only, and Mr. Bettinger, Mr. Crawford, and Mr. Craig participate in The Charles Schwab Corporation Deferred Compensation Plan II (DCP2) only. No named executive officers participating in the deferred compensation plans made contributions to the deferred compensation plans in 2019. Mr. Martinetto did not participate in the company’s deferred compensation plans.

 

(2)   The company does not make contributions to the deferred compensation plans.

 

(3)   The earnings reported in this column are not above-market or preferential and therefore are not reported in the Summary Compensation Table.

 

(4)   For Mr. Bettinger, includes executive contributions of $19,746,990 of compensation previously reported as compensation to Mr. Bettinger in the Summary Compensation Table for prior years (2014 – 2017) and aggregate plan earnings of $1,072,293.

 

(5)   For Mr. Schwab, includes executive contributions of $6,513,138 of compensation previously reported as compensation in the Summary Compensation Tables for prior years (1994 – 1997), and aggregate plan earnings of $22,302,823.

The Charles Schwab Corporation Deferred Compensation Plans

In December 2004, the Compensation Committee adopted the DCP2. Deferrals for income earned prior to January 1, 2005 were made under the DCP1, and all deferrals for income earned after January 1, 2005 were made pursuant to the DCP2. Subject to the terms and conditions set forth in the plans, each eligible participant may elect to defer a portion of amounts earned under the company’s non-equity incentive plans (and in some cases, participants can elect to defer a portion of their base salary). All of a participant’s compensation deferrals are credited to a deferral account maintained for each participant. Amounts credited to deferral accounts are adjusted periodically to reflect earnings and losses (calculated based on the market return of investment options selected by participants that the company

 

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makes available under the plans). Investment options available under the plans are listed mutual funds and the Schwab Managed Retirement Trust Funds. Participants may make investment changes at any time. With certain exceptions, deferral accounts are paid or commence payment upon a fixed payment date, as elected by the participant, or upon the participant’s retirement. Participants generally may elect that payments be made in a single lump sum or in annual installments over a period of four, five, ten or fifteen years. However, payment will be made in a lump sum after a change in control of the company or upon a termination of a participant’s employment for any reason other than retirement.

 


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table summarizes information as of December 31, 2019 with respect to equity compensation plans approved and not approved by stockholders (shares in millions):

Securities Authorized for Issuance as of December 31, 2019

 

PLAN CATEGORY   

(A)

NUMBER OF SECURITIES
TO BE ISSUED UPON
EXERCISE OF

OUTSTANDING
OPTIONS, WARRANTS

AND RIGHTS

 

(B)

WEIGHTED-AVERAGE

EXERCISE PRICE OF

OUTSTANDING
OPTIONS, WARRANTS
AND RIGHTS1

  

(C)

NUMBER OF SECURITIES
REMAINING AVAILABLE
FOR FUTURE ISSUANCE
UNDER EQUITY
COMPENSATION PLANS

 

Equity compensation plans approved by stockholders

       33.44 2        $32.10        98.78 3 
 

Equity compensation plans not approved by stockholders

                   
 

Total

       33.44       $32.10        98.78

 

(1)   The weighted-average exercise price does not take into account awards that have no exercise price, such as RSUs.

 

(2)   Consists of 25,556,934 stock options and 7,887,797 RSUs outstanding under the company’s 2004 and 2013 Stock Incentive Plans.

 

(3)   Consists of 64,773,632 shares (including stock options, stock appreciation rights, restricted stock, RSUs, performance stock, PBRSUs, and performance units) that may be awarded under the 2013 Stock Incentive Plan and 34,002,862 shares that may be purchased under the Employee Stock Purchase Plan (ESPP). An offering period under the ESPP had begun but was not completed as of December 31, 2019 (393,829 shares were subsequently purchased at the end of this offering period).

 

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PROPOSAL FOUR:

APPROVAL OF 2013 STOCK INCENTIVE

PLAN AS AMENDED AND RESTATED


Upon recommendation of the Compensation Committee, on January 29, 2020, the board adopted amendments to the 2013 Stock Incentive Plan, subject to and effective upon approval by the stockholders of the 2013 Stock Incentive Plan, as amended and restated (the 2013 Stock Incentive Plan), at the annual meeting. If approved by stockholders, the amendments would increase the annual non-employee director equity awards by $25,000 and change the awards granted to 40% stock options and 60% restricted stock units from 50% stock options and 50% restricted stock units.

If stockholders do not approve the amendments to 2013 Stock Incentive Plan, awards will continue to be made under the existing plan in accordance with its terms until the plan expires in May 2023.

SUMMARY OF THE 2013 STOCK INCENTIVE PLAN

The following is a summary of the principal features of the 2013 Stock Incentive Plan, as amended and restated, and its operation. The summary is qualified in its entirety by reference to the plan, a copy of which is attached to this proxy statement as Exhibit A, and which is incorporated by reference.

Purpose

The purposes of the 2013 Stock Incentive Plan are to promote the long-term success of the company and the creation of incremental stockholder value by:

 

  (i)

Encouraging non-employee directors, employees and consultants to focus on long-range objectives;

 

  (ii)

Encouraging the attraction and retention of non-employee directors, employees and consultants with exceptional qualifications; and

 

  (iii)

Linking non-employee directors, employees and consultants directly to stockholder interests by providing them stock options and other stock and cash incentives.

Description of the 2013 Stock Incentive Plan

The company’s stockholders approved the 2013 Stock Incentive Plan at the 2018 Annual Meeting of Stockholders. The 2013 Stock Incentive Plan permits the grant of stock options, stock appreciation rights (SARs), restricted stock, restricted stock units (RSUs), performance stock, performance-based restricted stock units (PBRSUs), performance units and other stock or cash awards. The Compensation Committee may also grant other incentives payable in cash or in common stock under the plan subject to such terms and conditions as it deems appropriate. As of March 16, 2020, the market value of a share of the company’s common stock was $30.56, based on its closing price on that date.

Administration of the Plan

The Compensation Committee administers the plan. The Compensation Committee is responsible for, among other things, approving the aggregate benefits and the individual benefits for executive officers and non-employee directors. The Compensation Committee may delegate its authority for certain other matters under the 2013 Stock Incentive Plan in accordance with its terms. Awards may be subject to such terms and conditions as the Compensation Committee deems appropriate.

 

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Eligibility

Employees, non-employee directors and consultants of the company and its subsidiaries are eligible for awards under the 2013 Stock Incentive Plan. There are approximately 19,300 employees of the company and its subsidiaries, 12 non-employee directors (including Mr. McLin, who is retiring from the board as of the date of the annual meeting), and one non-employee director of Charles Schwab Bank who are eligible for awards under the plan. Under the plan, no participant may receive in any fiscal year stock options and SARs that collectively relate to more than 5 million shares, or restricted stock, RSUs, PBRSUs, performance stock and performance units that collectively relate to more than 1 million shares, and performance units denominated in cash or other cash awards that could entitle the participant to more than $10 million in the aggregate from that year’s awards considering the maximum that could be payable, including for above-target performance. The Compensation Committee will adjust these annual limits for any stock split, stock dividend, recapitalization or other similar event.

Shares Available for Issuance

The aggregate number of shares of common stock that may be issued under the plan may not exceed:

 

·  

105 million shares of common stock; plus

 

·  

any shares of common stock outstanding under prior stock incentive plans as of May 16, 2013 that cease to be subject to outstanding awards after May 16, 2013 (e.g. as a result of the expiration, cancellation or forfeiture of awards granted under such plans); plus

 

·  

any shares of common stock that were issued under such plans and are reacquired by the company after May 16, 2013.

The aggregate maximum number of shares of common stock available under the predecessor plans as described above is 150 million. As of March 16, 2020, there are 25,837,667 stock options to purchase shares of common stock with a weighted average exercise price of $32.83, 8,132,548 RSUs to acquire shares of common stock (including 1,146,622 PBRSUs assuming the achievement of the target level of performance during the performance period), and a total of 63,091,303 shares of common stock remain authorized for issuance under 2013 Stock Incentive Plan. The Compensation Committee will adjust the limit on the number of shares to account for any stock split, stock dividend, recapitalization or other similar event.

AWARDS

Stock Options

Stock options awarded under the plan provide a right to acquire common stock at an exercise price at least equal to the fair market value of the company’s common stock on the date of grant. Stock options include nonqualified and incentive stock options. Incentive stock options are intended to qualify for special tax treatment. Stock options vest according to a schedule established by the Compensation Committee. The plan permits the payment of the stock option exercise price by cash, check, other shares of common stock (with some restrictions), broker-assisted same-day sales, or any other form of consideration permitted by applicable law. The term of an option cannot exceed ten years. The plan prohibits the repricing of outstanding options.

Stock Appreciation Rights

SARs allow the recipient to receive the appreciation, if any, in the fair market value of the company’s common stock between the grant date and the exercise date, and may be granted in tandem with stock options at the Compensation Committee’s discretion. In addition, the Compensation Committee may substitute SARs for stock options. The

 

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Compensation Committee determines the terms of SARs, including when such rights become exercisable and whether to pay the increased appreciation in cash or in shares of our common stock. The grant price of free-standing SARs is equal to the fair market value of our common stock on the grant date and the term of any SAR may not exceed ten years. The plan prohibits the repricing of outstanding SARs.

Restricted Stock

Restricted stock awards are shares of common stock that vest in accordance with terms and conditions established by the Compensation Committee. The Compensation Committee will determine the number of shares of restricted stock granted to any employee. The Compensation Committee sets vesting criteria that determine the number of shares to be released to the employee. Shares of restricted stock that do not vest are subject to a right of repurchase by the company or forfeiture.

Restricted Stock Units

RSUs represent the right to receive shares of the company’s common stock after satisfying the vesting conditions established by the Compensation Committee. RSUs may be settled in cash, stock, or a combination of cash and stock. The Compensation Committee sets vesting criteria that determine the number of RSUs that will be paid out to the employee. The Compensation Committee, in its discretion, may permit or require the participant to defer the receipt of the award.

Performance-Based Awards

Performance-based awards, including among other things units, RSUs and stock, are awards that will result in a payment to a participant only if performance goals established by the Compensation Committee are achieved and the awards otherwise vest. The Compensation Committee determines the number of units, RSUs or shares, the performance period and other terms and conditions of these awards, including whether the award is to be paid in cash or common stock.

Awards under the 2013 Stock Incentive Plan may be made subject to the attainment of performance goals relating to one or more business criteria, including income; operating income; pre-tax income; after-tax income; profit; pre-tax operating profits; pre-tax reported profits; pre-tax operating profit margin; pre-tax reported profit margin; after-tax operating profit margin; after-tax reported profit margin; revenue; revenue growth; operating revenue growth; cash flow; stockholder return; net income; client net new assets; levels of client assets or sales (of products, offers or services); earnings per share; return on stockholders’ equity; return on stockholders’ common equity; return on investment; earnings; earnings before interest and taxes (EBIT); earnings before interest, taxes, depreciation and amortization (EBITDA); consolidated pre-tax earnings; net earnings; operating cash flow; free cash flow; free cash flow per share; cash flow return; economic value added; market value added; total stockholder return; debt/capital ratio; return on total capital; market share of assets; return on assets; return on net assets; return on capital employed; cost control; company common stock price; capital expenditures; price/earnings growth ratio; sales; sales volume; and book value per share; cost of capital; and cost of equity. Performance goals of any of the criteria permitted under the plan also may be measured by changes between years or periods or by reference to relative performance of the company as a whole, or any business unit, department, division region or function of the company or any subsidiary or relative to a peer group or index. The plan provides that, in determining whether any performance goals have been satisfied, the Compensation Committee has the discretion to include or exclude any or all items that are unusual or nonrecurring, including but not limited to charges, costs, benefits, gains or income associated with reorganizations or restructurings of the company, discontinued operations, goodwill, other intangible assets, long-lived assets, real estate strategy, litigation or the resolution of litigation, or currency or commodity fluctuations, or the effects of changes in applicable laws, regulations or accounting principles.

 

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Other Awards

In addition, the Compensation Committee may grant other incentives payable in stock and cash under the plan subject to such terms and conditions as it deems appropriate.

Awards to Directors

Upon recommendation by the Compensation Committee, and approval of the board, the 2013 Stock Incentive Plan increases the annual equity retainer granted to non-employee directors from $160,000 to $185,000. If approved by stockholders, the 2013 Stock Incentive Plan would provide for an automatic equity grant valued at $185,000 granted 40% in stock options and 60% in RSUs. The number of stock options would be calculated by dividing $74,000 by the fair value of a stock option as determined by an options pricing model on the date of grant, and the number of RSUs by dividing $111,000 by the fair market value, defined as the average of the high and low price of a share of common stock on the date of grant. The automatic equity grants to directors vest 25% on the first and second anniversaries of the grant date and 50% on the third anniversary of the grant date. These awards vest in full upon a director’s death, disability or retirement. Retirement is defined as resignation or removal from the board of the company and or a board of its subsidiaries at any time after attaining age 70 or completing five years of service as a non-employee director on the board of the company and or a board of its subsidiaries.

The plan also provides that non-employee directors may elect to receive annual cash retainers from the company in the form of nonqualified stock options, restricted stock, RSUs, other stock awards or a combination of them.

Deferral of Awards

Subject to the requirements of section 409A of the Code, the Compensation Committee may permit or require a participant to have cash or shares that otherwise would be paid under the plan credited to a deferred compensation account. The account may be credited with interest or other forms of investment return, as determined by the Compensation Committee, consistent with the requirements of section 409A of the Code.

Adjustments

If the company changes the number of shares of common stock issued by stock dividend, stock split, spin-off, split-off, spin-out, recapitalization, or other change in the capital structure of the company or similar event, the Compensation Committee shall equitably adjust the total number of shares of common stock reserved for issuance under the 2013 Stock Incentive Plan, the maximum number of shares that may be made subject to an award in any fiscal year, the number of shares covered by each outstanding award and the price thereof, if any. The Compensation Committee shall also adjust the terms and conditions of, and the criteria included in, awards in recognition of unusual or nonrecurring events affecting the company or the financial statements of the company or of changes in applicable laws, regulations, or accounting principles.

Corporate Transactions

If the company is party to a merger or other reorganization, outstanding awards will be subject to the agreement of merger or reorganization; and such agreement shall provide for the continuation of the outstanding awards by the company, the assumption of the outstanding awards by the surviving corporation or its parent or subsidiary, the substitution by the surviving corporation or its parent or subsidiary of its own awards for the outstanding awards, full exercisability or vesting and accelerated expiration of the outstanding awards, or payment of the full value of the outstanding awards in cash or cash equivalents and cancellation of such awards.

 

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Change in Control

The Compensation Committee may determine at the time of or after the grant of an award, that upon a “Change in Control” (as defined in the 2013 Stock Incentive Plan), that any outstanding options or SARs shall become vested and exercisable; all restrictions on any restricted stock or RSUs will lapse; all performance goals shall be deemed achieved at target levels and all other terms and conditions met; performance stock will be delivered; a PBRSU shall be paid out as promptly as practicable; a performance unit or RSU will be paid out as promptly as practicable; and any other stock or cash award will be delivered or paid.

Amendment and Termination

The board or the Compensation Committee may alter, amend, suspend, or terminate the 2013 Stock Incentive Plan at any time. No such action will reduce the amount of any existing award or change the terms and conditions thereof without the participant’s consent unless such action is necessary or desirable for the continued validity of the 2013 Stock Incentive Plan or compliance with applicable laws or to avoid any adverse consequences under applicable laws.

Federal Tax Consequences

Stock Options. When options are granted, there are no federal income tax consequences to the company or the option holder. On the exercise of a nonqualified stock option, the option holder generally will have ordinary income. The amount of the income will be equal to the fair market value of the shares on the exercise date minus the aggregate option exercise price. The income will be subject to tax withholding. Generally, in the same year that the option holder has income from the option exercise, the company will be able to realize a tax deduction in the amount of that income.

In contrast, the exercise of incentive stock options generally will not result in taxable income to the option holder at exercise, nor will the company be entitled to a tax deduction. The exercise will result in an amount that is included in computing the option holder’s alternative minimum taxable income. This amount will be equal to the fair market value of the shares on the exercise date minus the aggregate option exercise price.

If the holder of an incentive stock option exercises the options, holds the shares for the period required by law, and then sells the shares, the difference between the sale price and the exercise price generally will be taxed as long-term capital gain or loss. If the option holder does not hold the shares for the period required by law, he or she generally will have ordinary income at the time of the sale. The amount of ordinary income will be equal to the fair market value of the stock on the exercise date (or, if less, the sale price) minus the option exercise price. The company generally will be entitled to a tax deduction in that same amount. Any additional gain upon the sale generally will be taxed as a capital gain.

Stock Appreciation Rights. No taxable income is reportable when a SAR is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the amount of cash received or the fair market value of any shares of stock received. The company generally will be entitled to a tax deduction in the same amount as the participant recognizes ordinary income. Any additional gain or loss recognized upon any later disposition of the shares received, if any, would be capital gain or loss.

Restricted Stock. Unless the recipient of restricted stock elects to be taxed when the shares are granted, there will be no federal income tax consequences to the recipient or to the company while the restricted shares have vesting restrictions. Upon vesting, the recipient will have ordinary income equal to the fair market value of the shares on the vesting date. The income will be subject to tax withholding. The company generally will be entitled to a tax deduction in the amount of the recipient’s income. Upon any subsequent sale of the shares, any additional gain or loss recognized by the holder generally will be a capital gain or loss.

Restricted Stock Units. There are no immediate tax consequences of receiving an award of RSUs. A participant who is awarded RSUs will be required to recognize ordinary income in an amount equal to the fair market value of shares

 

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issued to such participant at the end of the applicable vesting period or, if later, the settlement date elected by the administrator or a participant. Any additional gain or loss recognized upon any later disposition of any shares received would be capital gain or loss. The company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the vesting or settlement date, as applicable, except to the extent such deduction is limited by the Internal Revenue Code.

Performance-Based Awards. A participant generally will not recognize income upon the grant of a performance share or performance unit award. Upon the settlement or payment of such awards, participants normally will recognize ordinary income equal to the cash received and the fair market value of any shares received. The company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the payment date, except to the extent such deduction is limited by the Code.

If the participant is an employee, the ordinary income generally is subject to withholding of income and employment taxes.

Company Deductions. Compensation provided under the 2013 Stock Incentive Plan is generally deductible by the company. However, compensation provided to so-called “covered employees,” in connection with awards granted under the amended and restated 2013 Stock Incentive Plan will be subject to a $1 million dollar annual cap on the company’s deduction for each covered employee’s annual compensation. The “covered employees” are the CEO, CFO and the top three other highest compensated executive officers for each year. In addition, once an executive is a covered employee, the $1 million deduction limit continues to apply to compensation paid to these executive officers at any time, including any termination or retirement payments, and payments occurring after their death.

Withholding. A participant may pay all or a portion of the company’s withholding obligation at the minimum statutory withholding rates (or at any greater rates that will not result in adverse accounting, tax or section 16 of the Exchange Act treatment, as determined by the Compensation Committee) arising in connection with the exercise of a stock option or SAR or the receipt or vesting of shares by electing to have the company withhold shares of common stock having a fair market value equal to such amount.

Section 409A. Section 409A of the Code provides additional tax rules governing non-qualified deferred compensation. Generally, section 409A will not apply to awards granted under the plan, but may apply in some cases to RSUs. For awards subject to section 409A, for certain officers of the company there may be a delay of up to six months in the settlement of the awards.

New Plan Benefits

The table below shows new plan benefits to be provided to the non-employee directors as a group as a result of the proposed amendments to the 2013 Stock Incentive Plan.

 

New Plan Benefits(1)   

Total Dollar Value of Annual,

Automatic Grants to Non-Employee
Directors
(3)

 
    

Options

($)

  

Restricted
Stock Units

($)

 

    All current directors who are not executive officers, as a group (12)(2)

   888,000    1,332,000

 

(1)   This table shows the dollar value of stock option and restricted stock unit awards that would be made in 2020 to non-employee directors if the proposed amendments to the 2013 Stock Incentive Plan are approved. Since the proposed amendments regarding specific grants relate only to non-employee directors, executive officers and other employees of the company are not included in the table.

 

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(2)   Mr. McLin is included in the value of grants above but he will retire from the board as of the date of the annual meeting and will not receive a grant of stock options or restricted stock units in 2020.

 

(3)   The number of stock options is determined by dividing $74,000 by the fair value of a stock option as determined by an options pricing model on the date of grant. The number of restricted stock units is determined by dividing $111,000 by the fair market value (defined as the average of the high and low price) of a share of common stock on the grant date. If the proposed amendments are approved by stockholders, the grant date for the 2020 annual grant would be May 14, 2020. Accordingly, the number of options and restricted stock units cannot yet be determined, and columns with those amounts are therefore not included in this table.

 

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PROPOSAL FIVE:

APPROVAL OF AMENDED AND RESTATED

BYLAWS TO ADOPT PROXY ACCESS


The board recommends that stockholders adopt amendments to the company’s bylaws to include proxy access. The proposed amendments (the Amendments) are contained in Sections 2.06, 2.11, and 3.03 of our Fifth Restated Bylaws, a copy of which is attached to this proxy statement as Exhibit B (the Amended and Restated Bylaws). In addition, the Amended and Restated Bylaws reflect certain updates to applicable law and certain conforming changes. Proxy access allows eligible stockholders who comply with the requirements set forth in our Amended and Restated Bylaws to include their own nominees for director in the company’s proxy materials along with the candidates nominated by the board. After considering various factors with respect to the implementation of proxy access including, among other things, the views expressed by our stockholders, the board approved the Amended and Restated Bylaws, subject to approval by stockholders at the 2020 annual meeting.

The following description of the proposed Amendments is only a summary and is qualified in its entirety by reference to the complete text of the Amended and Restated Bylaws. You are urged to read the Amended and Restated Bylaws in their entirety.

Eligibility of Stockholders to Nominate Directors Pursuant to the Proxy Access Provisions

A stockholder or group of up to 20 stockholders (such stockholder or stockholder group, an “eligible stockholder”) that has maintained continuous qualifying ownership of at least 3% of the company’s outstanding common stock for at least the previous three years would be permitted to nominate and include up to a specified number of proxy access nominees in the company’s proxy materials for its annual meeting of stockholders provided that the eligible stockholder and proxy access nominee(s) satisfy the requirements of the Amended and Restated Bylaws.

Calculation of Qualifying Ownership

To ensure that the interests of stockholders seeking to include proxy access nominees in the company’s proxy materials are aligned with those of other stockholders, an eligible stockholder would be deemed to own only those outstanding common shares of the company as to which the eligible stockholder possesses both (1) the full voting and investment rights pertaining to the shares and (2) the full economic interest in (including the opportunity for profit from and risk of loss on) such shares. The following shares would not count as “owned” shares for purposes of the Amendments:

 

·  

shares sold by the eligible stockholder or any of its affiliates in any transaction that has not been settled or closed, including any short sale;

 

·  

shares borrowed by the eligible stockholder or any of its affiliates for any purposes or purchased by the eligible stockholder or any of its affiliates pursuant to an agreement to resell;

 

·  

shares subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar agreement entered into by the eligible stockholder or any of its affiliates which has, or is intended to have, the purpose or effect of (1) reducing in any manner, to any extent or at any time in the future, the eligible stockholder’s or its affiliates’ full right to vote or direct the voting of any such shares, and/or (2) hedging, offsetting or altering to any degree any gain or loss realized or realizable from maintaining the full economic ownership of such shares by the eligible stockholder or affiliate.

 

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Number of Proxy Access Nominees

The maximum number of proxy access nominees that the company would be required to include in its proxy materials would not exceed the greater of (a) two and (b) 25% of the directors in office at the time of nomination (rounded down to the nearest whole number). If one or more vacancies occur on the board, and the board decides to reduce the size of the board in connection therewith, after the nomination deadline, the proxy access nominee limit would be calculated based on the reduced number of directors. Any proxy access nominee who is either subsequently withdrawn or included in the company’s proxy materials as a nominee of the board, or any nominee included in the company’s proxy materials as unopposed by the company pursuant to an agreement, would be counted against the proxy access nominee limit. Any director currently serving on the board who was a proxy access nominee at any of the two preceding annual meetings and any director currently serving on the board who was a proxy access nominee at the third preceding annual meeting and who the board decides to nominate as a board nominee at the upcoming annual meeting would also be counted against the proxy access nominee limit.

Procedure for Selecting Proxy Access Nominees if Proxy Access Nominee Limit Exceeded

Any eligible stockholder that submits more than one proxy access nominee would be required to provide a ranking of its proposed proxy access nominees. If the number of proxy access nominees exceeds the proxy access nominee limit, the highest ranking qualified individual from the list proposed by each eligible stockholder, beginning with the eligible stockholder with the largest qualifying ownership and proceeding through the list of eligible stockholders in descending order of qualifying ownership, would be selected for inclusion in the proxy materials until the proxy access nominee limit is reached.