DEF 14A 1 a2227394zdef14a.htm DEF 14A

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

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Definitive Proxy Statement

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Soliciting Material under §240.14a-12


U.S. Bancorp

(Name of Registrant as Specified In Its Charter)

 

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Table of Contents

LOGO

PHOTO

March 8, 2016

Fellow Shareholders:

U.S. Bancorp is in the business of "making possible happen." Every single day. 67,000 committed bankers. We make possible happen for our shareholders, our customers, our communities, and each other. It is what our brilliant red shield represents: The Power of Possible.

We make possible happen for our shareholders by delivering consistent, predictable, repeatable, industry-leading financial results. And, by returning capital and running a trustworthy and reputable banking business, our shareholders know that we will do it well and we will do it right. That's why we were named one of the World's Most Ethical Companies™ in 2015 by the Ethisphere Institute — the largest U.S.-based bank to ever make the list. And, we returned to Ethisphere's list in 2016.

I am extremely proud of the remarkable financial performance that U.S. Bancorp delivered in 2015 and the value we created for our shareholders. Remarkable, because it was a year underscored by persistent and historically low interest rates, modest economic growth, increasing regulatory requirements, and rapidly evolving customer needs and expectations. More than any year in recent history, 2015 required strong management focus and conviction as we balanced decisions about operating efficiencies with opportunities for investing in future growth.

U.S. Bancorp rose to that challenge, delivering record net income and record diluted EPS for the year and returned 72 percent of our 2015 earnings back to shareholders through dividends and share buybacks. In addition, our return on average assets (ROA), return on average equity (ROE), and efficiency ratio continue to lead the industry.

At U.S Bancorp, leadership starts with our exceptional Board of Directors. I am grateful for their dedication and guidance. They provide us with the confidence and courage to make the best decisions and they represent our shareholders' interests in every action we take. I am also grateful for our Managing Committee, who provide their industry-leading expertise to every decision and turn day-to-day management into moments for everyday excellence.

I hope to see you at our 2016 annual meeting of shareholders on Tuesday, April 19, 2016, in Denver. Whether or not you plan to attend the meeting, please vote as promptly as possible to make sure your vote is counted. Every shareholder vote is important.

Sincerely,

SIGNATURE

Richard K. Davis
Chairman and Chief Executive Officer


Table of Contents

LOGO

PHOTO

March 8, 2016

Fellow Shareholders:

It is a great honor to serve as the Lead Director of our Board of Directors, a position I have held since January 2014. As Lead Director, I am focused on the obligations that our Board owes to you, our shareholders. One of the Board's most important obligations is to oversee the work our company does to deliver excellent financial results and to return capital to our investors, always making sure that this work is done responsibly and with the utmost integrity.

My duties as Lead Director are detailed in the attached proxy statement, and they include setting the agenda for our Board meetings, approving information sent from management to the Board, and meeting independently with representatives of various regulatory bodies that oversee our company and its operations. I also have regular contact with the CEO and other members of the Managing Committee, and I advise the chairs of our Board committees regarding the in-depth policy work those committees undertake.

We are continuously evaluating and improving our corporate governance practices, which are described in the proxy statement. After listening carefully to the views of our shareholders, the Board was pleased to adopt a proxy access bylaw recently with a "3/3/20/20" structure. This bylaw gives a shareholder or group of up to 20 shareholders that has held at least 3% of our company's stock for at least three years the ability to nominate up to 20% of the Board (but at least two directors) and have those nominees appear in our proxy statement, subject to notice and other specific requirements. We believe that the bylaw we adopted represents a balanced approach to a very complex issue and effectively serves the interests of all of our shareholders.

Our Board maintains its commitment to excellence through rigorous annual assessments and thoughtful selection of Board candidates who have a great diversity of skills, experiences and viewpoints. We elected three new directors in the past year — Warner L. Baxter, Marc N. Casper and Karen S. Lynch — each of whom brings fresh perspectives and new areas of expertise to our Board. We also said good-bye to Jerry W. Levin when he stepped down from the Board last May, and we will recognize Joel W. Johnson and Patrick T. Stokes when they retire at the annual meeting. Jerry, Joel and Pat have all been dedicated stewards of our shareholders' interests for many years, and we are grateful for their service.

I want to emphasize to all our shareholders that the Board is committed to the highest levels of ethics and integrity. U.S. Bancorp Chairman and CEO, Richard K. Davis, was named to the Ethisphere Institute's 100 Most Influential People in Business Ethics in 2015. This is a tremendous recognition, and we are proud of Richard and his personal commitment to integrity. We are even more proud of the 67,000 men and women who embrace this culture of integrity every day and work tirelessly to create value for shareholders, customers, and our communities — the right way.

It is a privilege to work with my fellow directors on behalf of our shareholders, and I look forward to continuing to serve you during 2016.

Sincerely,

SIGNATURE

Arthur D. Collins, Jr.
Lead Director


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LOGO

800 Nicollet Mall
Minneapolis, Minnesota 55402
651.466.3000

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS OF U.S. BANCORP

Date and Time:   Tuesday, April 19, 2016, at 11:00 a.m., local time

Place:

 

Sheraton Denver Downtown Hotel
Grand Ballroom
1550 Court Place
Denver, CO 80202

Items of Business:

 

1.

 

The election of 14 directors named in the proxy statement

 

 

2.

 

The ratification of the selection of Ernst & Young LLP as our independent auditor for the 2016 fiscal year

 

 

3.

 

An advisory vote to approve the compensation of our executives disclosed in this proxy statement

 

 

4.

 

A shareholder proposal seeking the adoption of a policy requiring that the Chairman of the Board be an independent director

 

 

5.

 

A shareholder proposal seeking the adoption of a policy requiring senior executives to retain a significant percentage of shares acquired as equity compensation

 

 

6.

 

Any other business that may properly be considered at the meeting or any adjournment of the meeting

Record Date:

 

You may vote at the meeting if you were a shareholder of record at the close of business on February 23, 2016.

Voting by Proxy:

 

It is important that your shares be represented and voted at the meeting. You may vote your shares by Internet or telephone by no later than 11:59 p.m., Eastern time, on April 18, 2016 (or April 14, 2016, for shares held in the U.S. Bank 401(k) Savings Plan), as directed in the proxy materials. If you received a printed copy of the proxy materials, you may also complete, sign and return the enclosed proxy card or voting instruction form by mail. Voting in any of these ways will not prevent you from attending or voting your shares at the meeting. We encourage you to vote by Internet or telephone to reduce mailing and handling expenses.

Internet Availability of Proxy Materials:

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on April 19, 2016: Our proxy statement and 2015 Annual Report are available at www.proxyvote.com.

By Order of the Board of Directors

SIGNATURE

James L. Chosy
Secretary

March 8, 2016


Table of Contents

GRAPHIC
Proxy Statement Table of Contents

Table of Contents

Proxy Summary

    1  

Proposal 1 — Election of Directors

    5  

▶ Director Selection and Qualifications

    5  

▶ 2016 Nominees for Director

    6  

Corporate Governance

    14  

▶ Director Independence

    14  

▶ Board Meetings and Committees

    14  

▶ Board Performance Evaluations and Director Education

    15  

▶ Shareholder Engagement

    15  

▶ Committee Member Qualifications

    16  

▶ Committee Responsibilities

    16  

▶ Risk Oversight by the Board of Directors

    18  

▶ Board Leadership Structure

    20  

▶ Majority Vote Standard for Election of Directors

    21  

▶ Director Policies

    22  

▶ Succession Planning and Management Development

    22  

Certain Relationships and Related Transactions

    23  

▶ Related Person Transactions

    23  

▶ Review of Related Person Transactions

    24  

Compensation Discussion and Analysis

    25  

▶ Executive Compensation Highlights

    26  

▶ Philosophy and Objectives of Our Executive Compensation Program

    30  

▶ Base Salary

    30  

▶ Annual Cash Incentive Awards

    31  

▶ Long-Term Incentive Awards

    34  

▶ Other Compensation Components

    36  

▶ Decision Making and Policies

    36  

Compensation Committee Report

    41  

Executive Compensation

    42  

▶ Summary Compensation Table

    42  

▶ Grants of Plan-Based Awards

    44  

▶ Outstanding Equity Awards

    46  

▶ Option Exercises and Stock Vested

    48  

▶ Pension Benefits

    48  

▶ Nonqualified Deferred Compensation

    51  

▶ Potential Payments Upon Termination or Change-in-Control

    52  

Director Compensation

    56  

Audit Committee Report and Payment of Fees to Auditor

    59  

Proposal 2 — Ratification of Selection of Independent Auditor

    61  

Proposal 3 — Advisory Vote on Executive Compensation

    62  

Proposal 4 — Shareholder Proposal Regarding Independent Chairman

    63  

Proposal 5 — Shareholder Proposal Regarding Executive Stock Retention

    65  

Security Ownership of Certain Beneficial Owners and Management

    68  

Questions and Answers About the Annual Meeting and Voting

    70  

Other Matters

    75  

▶ Annual Report to Shareholders and Form 10-K

    75  

▶ Section 16(a) Beneficial Ownership Reporting Compliance

    75  

▶ Contacting U.S. Bancorp's Board of Directors

    75  

▶ Deadlines for Submitting Proposals and Nominating Directors for 2017 Annual Meeting

    76  

▶ Other Matters for Consideration

    76  

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Proxy Summary
GRAPHIC


Proxy Summary

This summary highlights information described in more detail elsewhere in this proxy statement. It does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting. For more complete information about our company's 2015 performance, please review our 2015 Annual Report on Form 10-K.

2016 Annual Meeting of Shareholders

Date and Time:   Tuesday, April 19, 2016, at 11:00 a.m. local time

Place:

 

Sheraton Denver Downtown Hotel
Grand Ballroom
1550 Court Place
Denver, CO 80202

Record Date:

 

February 23, 2016

Voting Matters and Board Recommendations

Proposal
    Board
Recommendation


For More
Information
             
Proposal 1 —   The election of 14 directors named in the proxy statement   "FOR" all nominees   Page 5
Proposal 2 —   The ratification of the selection of Ernst & Young LLP as our independent auditor for the 2016 fiscal year   "FOR"   Page 61
Proposal 3 —   An advisory vote to approve the compensation of our executives disclosed in this proxy statement   "FOR"   Page 62
Proposal 4 —   A shareholder proposal seeking the adoption of a policy requiring that the Chairman of the Board be an independent director   "AGAINST"   Page 63
Proposal 5 —   A shareholder proposal seeking the adoption of a policy requiring senior executives to retain a significant percentage of shares acquired as equity compensation   "AGAINST"   Page 65

How to Cast Your Vote

The Board of Directors of U.S. Bancorp is soliciting proxies for use at the annual meeting of shareholders to be held on April 19, 2016, and at any adjournment or postponement of the meeting. The proxy materials were first made available to shareholders on or about March 8, 2016.

Your vote is important! Please cast your vote and play a part in the future of U.S. Bancorp.

Even if you plan to attend our annual meeting in person, please cast your vote as soon as possible by:

GRAPHIC   Internet
www.proxyvote.com
  GRAPHIC   Telephone   GRAPHIC   Mail       

The voting deadline is 11:59 p.m., Eastern time, on April 18, 2016 (or April 14, 2016, for shares held in the U.S. Bank 401(k) Savings Plan). For details on how to cast your vote, see "Questions and Answers about the Annual Meeting and Voting."

1 U.S. Bancorp 2016 Proxy Statement

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Proxy Summary

Director Nominees

Name

Age


Director
Since


Primary Occupation
Committee
Memberships


Independent
Douglas M. Baker, Jr.     57     2008   Chairman and Chief Executive Officer, Ecolab Inc.   G (Chair),
RM, E
  GRAPHIC
Warner L. Baxter     54     2015   Chairman, President and Chief Executive Officer, Ameren Corporation   A, CR   GRAPHIC
Marc N. Casper     47     2016   President and Chief Executive Officer, Thermo Fisher Scientific, Inc.   A, CR   GRAPHIC
Arthur D. Collins, Jr.
Lead Director
    68     1996   Retired Chairman and Chief Executive Officer, Medtronic, Inc.   C, G, E   GRAPHIC
Richard K. Davis     58     2006   Chairman and Chief Executive Officer, U.S. Bancorp   E (Chair), RM   CEO
Kimberly J. Harris     51     2014   President and Chief Executive Officer, Puget Energy, Inc. and Puget Sound Energy, Inc.   CR (Chair),
G, E
  GRAPHIC
Roland A. Hernandez     58     2012   Founding Principal and Chief Executive Officer, Hernandez Media Ventures   A (Chair),
CR, E
  GRAPHIC
Doreen Woo Ho     68     2012   Commissioner, San Francisco Port Commission   A, RM   GRAPHIC
Olivia F. Kirtley     65     2006   Business Consultant   C, RM   GRAPHIC
Karen S. Lynch     53     2015   President, Aetna Inc.   CR, RM   GRAPHIC
David B. O'Maley     69     1995   Retired Chairman, President and Chief Executive Officer, Ohio National Mutual Holdings, Inc. and Ohio National Financial Services, Inc.   C (Chair),
G, E
  GRAPHIC
O'dell M. Owens, M.D., M.P.H.     68     1991   Medical Director, Cincinnati Health Department   CR, C   GRAPHIC
Craig D. Schnuck     67     2002   Former Chairman and Chief Executive Officer, Schnuck Markets, Inc.   G, RM   GRAPHIC
Scott W. Wine     48     2014   Chairman and Chief Executive Officer, Polaris Industries Inc.   A, C   GRAPHIC

A   Audit Committee   G   Governance Committee
CR   Community Reinvestment and Public Policy Committee   RM   Risk Management Committee
C   Compensation and Human Resources Committee   E   Executive Committee
U.S. Bancorp 2016 Proxy Statement 2

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Proxy Summary
GRAPHIC

2015 Performance and Compensation Highlights

Strong Corporate Performance

Our superior performance during 2015 included the following achievements:

    ​We remained the top performer in our peer group in the common industry performance measures of return on average assets, return on average common equity, and efficiency ratio.

    ​We achieved record net income of $5.9 billion.

    ​We returned 72% of our earnings to our shareholders through dividends and share buybacks.

    ​We continued to make strategic investments to position our company for sustainable long-term growth.

Sound Compensation Practices

Our executive officer compensation varies from year to year because it is directly linked to achievement of targets we have set in our financial plans. This compensation program includes many strong "pay for performance" and prudent risk management features, such as:

    ​The annual cash incentive payouts for our Chief Executive Officer ("CEO") and other executive officers are based on a formula directly related to the level of achievement of corporate earnings per share and business line pretax income targets.

    ​Three-fourths of the value of the long-term incentive award made to our CEO and other executive officers is in the form of performance-based restricted stock units that are earned based on our absolute (compared to target) and relative (compared to our peers) performance with respect to return on average common equity.

    ​We place significant emphasis on long-term equity incentive pay in order to reinforce a long-term view of performance and enhance the alignment of the goals of our executive officers with those of our shareholders.

    ​We include provisions in our equity award agreements that cancel all or a portion of the vesting of the awards under certain circumstances if it is determined that an executive demonstrated an inadequate sensitivity to risk.

    ​We use formal "risk scorecard" analyses for our senior management, which may result in downward adjustments to annual cash incentive compensation payouts if executives demonstrate inadequate sensitivity to risk, and we have a "clawback" policy that allows us to recoup annual cash incentive payments attributable to incorrectly reported earnings.
3 U.S. Bancorp 2016 Proxy Statement

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Proxy Summary

Governance Highlights

Our Board of Directors and management are dedicated to exemplary corporate governance and they recognize that maintaining strong governance is vital to our continued success. Some of our strong governance features include:

    Director Independence: Every director other than our CEO is independent, and independent directors comprise 100% of each of the following principal Board committees: Audit, Community Reinvestment and Public Policy, Compensation and Human Resources, and Governance.

    Board Leadership: We have a strong independent Lead Director, with broad authority and responsibility over Board governance and operation.

    Board Risk Oversight: Our Risk Management Committee oversees our risk management infrastructure and processes.

    Proxy Access: A shareholder or group of up to 20 shareholders that has held at least 3% of our company's stock for at least three years is able to nominate up to 20% of the Board (but at least two directors) and have those nominees appear in our proxy statement, subject to notice and other specific requirements in our bylaws.

    Majority Voting: Our directors are elected annually by a majority of votes cast in uncontested elections.

    Board Evaluations: The Governance Committee annually conducts rigorous Board assessments, including individual director evaluations, which are designed to enhance performance and accountability.

    Executive Sessions: Our independent directors meet in executive sessions, without the CEO or any other member of management present, at the end of each regularly scheduled Board meeting, with our Lead Director presiding at these sessions.
U.S. Bancorp 2016 Proxy Statement 4

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Proposal 1 — Election of Directors
GRAPHIC

Proposal 1 — Election of Directors

Our Board of Directors currently has 16 members, and directors are elected annually to one-year terms. Fourteen of our current directors have been nominated for election by the Board to hold office until the 2017 annual meeting and the election of their successors. Joel W. Johnson and Patrick T. Stokes are currently serving as directors but will not stand for re-election at the 2016 annual meeting.

All of the nominees currently serve on our Board, and each of them has previously been elected by the shareholders except for Warner L. Baxter, Marc N. Casper and Karen S. Lynch. Each of the three new directors was recommended to the Governance Committee for consideration by a director search firm. The Board has determined that, except for Richard K. Davis, each nominee for election as a director at the annual meeting is independent from U.S. Bancorp as discussed later in this proxy statement under "Corporate Governance — Director Independence."

Director Selection and Qualifications

Director Nominee Selection Process

The selection process for first-time director candidates includes the following steps:

    ​identification of director candidates by the Governance Committee based upon suggestions from current directors and executive officers and recommendations received from shareholders;

    ​possible engagement of a director search firm to provide names and biographies of director candidates for the Governance Committee's consideration;

    ​interviews of candidates by the Lead Director and other Governance Committee members;

    ​reports to the Board by the Governance Committee on the selection process;

    ​recommendations by the Governance Committee; and

    ​formal nomination by the Board for inclusion in the slate of directors at the annual meeting.

Director candidates recommended by shareholders are given the same consideration as candidates suggested by a search firm, directors or executive officers. A shareholder seeking to recommend a prospective candidate for the Governance Committee's consideration should submit the candidate's name and sufficient written information about the candidate to permit a determination by the Governance Committee whether the candidate meets the director selection criteria set forth below and in our Corporate Governance Guidelines. Recommendations should be sent to the Chair of the Governance Committee in care of the Corporate Secretary of U.S. Bancorp at the address listed on page 75 of this proxy statement.

Director Qualification Standards

We will only consider individuals as candidates for director who possess the highest personal and professional ethics, integrity and values, and who are committed to representing the long-term interests of our shareholders. In evaluating candidates for nomination as a director of U.S. Bancorp, the Governance Committee will also consider other criteria, including:

    ​current or recent experience as a chief executive officer of a public company or as a leader of another major complex organization;

    ​business and financial expertise;

    ​geography;

    ​experience as a director of a public company;

    ​diversity of gender, ethnicity, viewpoints, background, experience and other demographic factors;

    ​independence;

    ​ability to work in a collegial manner with persons of different education, business and cultural backgrounds;
5 U.S. Bancorp 2016 Proxy Statement

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Proposal 1 — Election of Directors
    ​possession of skills and expertise that complement the attributes of the existing directors; and

    ​freedom from conflicts of interest.

For incumbent directors, the Governance Committee also considers the director's attendance, participation in the work of the Board and overall contribution to the Board. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively and should be committed to serving on the Board for an extended period of time. One or more of our directors must possess the education or experience required to qualify as an audit committee financial expert.

2016 Nominees for Director

Our Governance Committee continuously assesses the evolving opportunities and challenges facing our company in order to align the Board's composition with the company's leadership needs. When nominating incumbent and new directors, our Governance Committee considers, among other things:

    Business Experience:  Our Governance Committee considers the balance of business experience represented on the Board. Many of our directors have had experience as a chief executive officer of a large publicly held or private corporation. This background provides experience in risk assessment, corporate governance matters and interaction between management and the board of directors. It also provides experience in general management of large organizations, and oversight of finance, marketing, and execution of corporate strategy. Many of our directors have current or recent experience as a director of another large publicly held or private company, which also provides valuable experience in addressing complex governance and business issues relevant to our company. Given the current demands placed on our industry, the Governance Committee also places a high value on risk management expertise and leadership experience in a highly regulated environment.

    Diversity:  Our Governance Committee regularly reviews the composition of the Board in light of the backgrounds, industries, skills, professional experience, geographic communities, gender, race, ethnicity and other personal qualities and attributes represented by our current members. The Governance Committee also reviews Board self-evaluations and information with respect to the business and professional expertise represented by current members in order to identify any specific skills and backgrounds desirable in future Board members. The Governance Committee incorporates this broad view of diversity into its director nomination process by taking into account all of the above factors when evaluating and recommending director nominees to serve on the Board to ensure that the Board's composition as a whole appropriately reflects the current and anticipated needs of the Board and the company. In implementing this practice, the Governance Committee may place more emphasis on attracting or retaining directors with certain specific skills or experience, such as industry, regulatory, public policy, accounting or financial expertise, depending on the business strategy and environment and the composition of the Board at the time.

    Tenure:  Our Governance Committee also believes that it is important to maintain a balance of tenure on the Board, in order to include the business, industry and governance experience of longer-serving directors; the fresh perspectives contributed by new directors; and the value of continuity as Board composition changes. Our Governance Committee approaches its task of recommending candidates for election or re-election with the goal of having a mix of directors with long, medium and short tenures on the Board. Our Board has experienced a measured rate of refreshment in recent years, including the addition of three new directors and the resignation of one director in the past year. In accordance with the Board's director transition policy, described below under "Corporate Governance — Director Policies," the Governance Committee did not nominate two of our current directors to stand for re-election in 2016 because they had each reached the age of 72. The Governance Committee believes that the recent rate of refreshment is appropriate for our Board and company at this time.

Each of our director nominees meets the qualification standards described above and in our Corporate Governance Guidelines and has agreed to serve as a director if elected. Proxies may not be voted for more than 14 directors. If, for any reason, any nominee becomes unable to serve before the election, the persons named as proxies will vote your shares for a substitute nominee selected by the Board of Directors. Alternatively, the Board of Directors, at its option, may reduce the number of directors that are nominated for election. In addition, as described below under "Corporate

U.S. Bancorp 2016 Proxy Statement 6

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Proposal 1 — Election of Directors
GRAPHIC

Governance — Majority Vote Standard for Election of Directors," each of the nominees has tendered his or her contingent resignation as a director in accordance with our Corporate Governance Guidelines to be effective if he or she fails to receive the required vote for election to the Board and the Board accepts the tendered resignation.

Included below is certain information that the director nominees have provided as well as additional information that the Board considered in nominating them. Board service dates listed include service as directors of U.S. Bancorp's predecessor companies.

PHOTO Douglas M. Baker, Jr.
Director since 2008

Committees

Chair, Governance

Risk Management

Executive

  Business Experience: Mr. Baker, 57, is the Chairman and Chief Executive Officer of Ecolab Inc., a provider of water and hygiene services and technologies for the food, hospitality, industrial and energy markets. He has served as Chairman since May 2006 and Chief Executive Officer since July 2004. He served as President of Ecolab from 2002 until 2011. He joined Ecolab in 1989 and held various leadership positions within the company before being named President and Chief Operating Officer in 2002.

Other Directorships:

Ecolab Inc. since 2004 (Chairman; Safety, Health and Environment Committee)

Target Corporation since 2013 (Lead Director; Human Resources and Compensation and Nominating and Governance Committees)

Skills and Qualifications:

Chief Executive Experience: Mr. Baker provides the valuable perspective gained from leading a company through the current economic and corporate governance environment as the CEO of an S&P 500 industrial company with global operations.

Corporate Governance: Mr. Baker's experience leading public company boards, including as Chairman of Ecolab and Lead Director of Target, provides valuable corporate governance expertise to our Board.

        
        

PHOTO Warner L. Baxter
Director since 2015

Committees

Audit

Community Reinvestment and Public Policy

  Business Experience: Mr. Baxter, 54, is the Chairman, President and Chief Executive Officer of Ameren Corporation, a regulated electric and gas utility company serving customers in Missouri and Illinois. He has served in these positions since 2014. Mr. Baxter served as Chairman, President and Chief Executive Officer of Ameren Missouri from 2009 to 2014 and as Executive Vice President and Chief Financial Officer of Ameren Corporation from 2003 to 2009. In addition, he also served as President and Chief Executive Officer of Ameren Services from 2007 to 2009.

Other Directorships:

Ameren Corporation since 2014 (Chairman)

UMB Financial Corporation from 2013 to 2015

Skills and Qualifications:

Chief Executive Experience: Mr. Baxter's experience as a current CEO of a Fortune 500 company provides valuable leadership insight to the Board.

Risk Management: As the current President and CEO of a company in a critical infrastructure industry, Mr. Baxter brings valuable risk management expertise to our Board of Directors.

Regulated Industry Expertise: As the current President and CEO of a company in a highly regulated industry, Mr. Baxter provides valuable perspective on regulatory and business challenges facing our company.

Financial Reporting and Accounting: Through his past experience as the Chief Financial Officer and Controller of a large publicly-traded company, Mr. Baxter brings extensive financial reporting and accounting expertise to our Board.

7 U.S. Bancorp 2016 Proxy Statement

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Proposal 1 — Election of Directors

PHOTO Marc N. Casper
Director since 2016

Committees

Audit

Community Reinvestment and Public Policy

  Business Experience: Mr. Casper, 47, is the President and Chief Executive Officer of Thermo Fisher Scientific Inc., a leader in life sciences and healthcare technologies. He has served as President and Chief Executive Officer since 2009. He served as Executive Vice President and Chief Operating Officer from 2008 to 2009 and Executive Vice President of Thermo Fisher and President of its Analytical Technologies business from 2006 to 2009. He joined Thermo Electron Corporation, a predecessor to Thermo Fisher Scientific, in 2001 and held various leadership positions within that company before being named Executive Vice President of Thermo Fisher in 2006.

Other Directorships:

Thermo Fisher Scientific Inc. since 2009

Zimmer Holdings, Inc. from 2009 to 2013

Skills and Qualifications:

Chief Executive Experience: Mr. Casper's experience as the CEO of a large life sciences and healthcare technologies company gives him broad and valuable leadership experience.

Regulated Industry Expertise: Mr. Casper's experience as the leader of a company in a heavily regulated industry gives him valuable insight on regulatory challenges.

        
        

PHOTO Arthur D. Collins, Jr.
Director since 1996 Lead Director

Committees

Compensation and Human Resources

Governance

Executive

  Business Experience: Mr. Collins, 68, is the retired Chairman and Chief Executive Officer of Medtronic, Inc., a leading medical device and technology company. Mr. Collins served as Chairman of Medtronic from 2002 until August 2008 and Chief Executive Officer from 2002 until August 2007. Mr. Collins served as President of Medtronic from 1996 to 2002 and also as Chief Operating Officer from 1994 to 2002. Since April 2009, Mr. Collins has acted as a senior advisor for Oak Hill Capital Partners, which manages a private equity portfolio of over $8 billion of private equity capital and over $20 billion of investment capital.

Other Directorships:

Cargill, Incorporated since 2000 (Human Resources Committee Chair; Governance, Audit and Executive Committees)

The Boeing Company since 2007 (Compensation Committee Chair; Governance, Organization and Nominating Committee)

Alcoa Inc. since 2010 (Audit and Compensation and Benefits Committees)

Skills and Qualifications:

Chief Executive Experience: Mr. Collins's experience as CEO of Medtronic gives him a broad perspective on a variety of complex business and financial issues that is valuable in his service on our Board.

Corporate Governance: Mr. Collins's experience on the boards of several large public companies has given him corporate governance expertise that is particularly valuable in his role as Lead Director of our Board.

Regulated Industry Expertise: Mr. Collins gained extensive regulated industry expertise through his service as Chairman and CEO of a medical device and technology company.

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PHOTO Richard K. Davis
Director since 2006 Chairman

Committees

Chair, Executive

Risk Management

  Business Experience: Mr. Davis, 58, is Chairman and Chief Executive Officer of U.S. Bancorp. He has served as Chairman since December 2007 and as Chief Executive Officer since December 2006. He also served as President from October 2004 until January 2016 and was the Chief Operating Officer of U.S. Bancorp from October 2004 until December 2006. Mr. Davis has held management positions with our company since joining Star Banc Corporation, one of our predecessors, as Executive Vice President in 1993.

Other Directorships:

Xcel Energy Inc. since 2006 (Lead Director; Finance Committee)

The Dow Chemical Company since 2015 (Audit Committee)

Skills and Qualifications:

Chief Executive Experience: As Chairman and CEO of U.S. Bancorp, Mr. Davis brings to all Board discussions and deliberations deep knowledge of the company and its business.

Financial Services Industry Expertise: Mr. Davis brings to the Board extensive leadership experience and industry knowledge gained as Chairman of the Financial Services Roundtable, as Chairman of The Clearing House, and as representative for the Ninth District of the Federal Reserve, where he served on its Financial Advisory Committee.

Regulated Industry Expertise: Mr. Davis's service as Lead Director of the Xcel Energy board of directors broadens his experience in overseeing management in an industry subject to extensive regulation.

Risk Management: Mr. Davis brings valuable risk management expertise to our Board through his experience leading a large financial services company through the current risk environment, as well as through his leadership of the Board of Directors of Xcel Energy, a company in a critical infrastructure industry.

        
        

PHOTO Kimberly J. Harris
Director since 2014

Committees

Chair, Community Reinvestment and Public Policy

Governance

Executive

  Business Experience: Ms. Harris, 51, is the President and Chief Executive Officer of Puget Energy, Inc., an energy services holding company, and its subsidiary Puget Sound Energy, Inc., a utility company providing electric and natural gas service in the northwest United States. She has served in these positions since March 2011. Ms. Harris served as President of Puget Energy and Puget Sound Energy from July 2010 through February 2011 and as Executive Vice President and Chief Resource Officer from May 2007 until July 2010. Ms. Harris served as Senior Vice President Regulatory Policy and Energy Efficiency of these companies from 2005 until May 2007.

Other Directorships:

Puget Energy, Inc. and Puget Sound Energy, Inc. since 2011

Skills and Qualifications:

Chief Executive Experience: Ms. Harris's experience as a current CEO provides valuable leadership perspective to our Board of Directors gained by leading a large company through the current economic and regulatory environment.

Risk Management: As the current President and CEO of a company in a critical infrastructure industry, Ms. Harris brings valuable risk management experience to our Board of Directors.

Regulated Industry Expertise: Ms. Harris's experience as the leader of a company in a heavily regulated industry gives her valuable expertise in managing a complex business in the context of an extensive regulatory regime.

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PHOTO Roland A. Hernandez
Director since 2012

Committees

Chair, Audit

Community Reinvestment and Public Policy

Executive

  Business Experience: Mr. Hernandez, 58, is the Founding Principal and Chief Executive Officer of Hernandez Media Ventures, a privately held company engaged in the acquisition and management of media assets. He has served in this capacity since January 2001. Mr. Hernandez served as Chairman of Telemundo Group, Inc., a Spanish-language television and entertainment company, from 1998 to 2000 and as President and Chief Executive Officer from 1995 to 2000.

Other Directorships:

MGM Resorts International since 2002 (Lead Director; Audit Committee Chair; Corporate and Social Responsibility Committee)

Vail Resorts, Inc. since 2002 (Lead Director; Nominating and Governance Committee Chair; Executive and Audit Committees)

Belmond Ltd. (formerly Orient Express Hotels Ltd.) since 2013 (Chairman)

Sony Corporation from 2008 to 2013

The Ryland Group, Inc. from 2001 to 2012

Lehman Brothers Holdings, Inc. from 2005 to 2012

Skills and Qualifications:

Chief Executive Experience: As the Founding Principal and CEO of Hernandez Media Ventures and the former President, CEO and Chairman of a television and entertainment company, Mr. Hernandez has gained business expertise that is particularly relevant to a major consumer bank such as U.S. Bank.

Financial Reporting and Accounting: With his extensive past and current experience on the audit committees of the boards of four public companies, Mr. Hernandez brings broad financial reporting and accounting expertise to our Board.

Corporate Governance: As the Chairman or Lead Director of three public companies, Mr. Hernandez brings to our Board significant expertise in current corporate governance issues and practices.

        
        

PHOTO Doreen Woo Ho
Director since 2012

Committees

Audit

Risk Management

  Business Experience: Ms. Woo Ho, 68, is a Commissioner of the San Francisco Port Commission, the governing board responsible for the San Francisco, California, waterfront adjacent to San Francisco Bay. She has served on the Port Commission since May 2011 and served as President from 2012 to 2014. Ms. Woo Ho served as President and Chief Executive Officer of United Commercial Bank, a California commercial bank, from September 2009 to November 2009. She served as President of Community Banking at United Commercial from January 2009 to September 2009. Ms. Woo Ho served as Executive Vice President responsible for Enterprise Marketing, Student Loans and Corporate Trust, at Wells Fargo & Company, a diversified financial services company, in 2008. She served as President of the Consumer Credit Group of Wells Fargo from 1998 to 2007. Ms. Woo Ho was also a member of the Wells Fargo Management Committee from 1999 to 2008.

Skills and Qualifications:

Financial Services Industry Expertise: Ms. Woo Ho's over 35 years of commercial and consumer banking experience brings valuable industry experience and knowledge to our Board.

Risk Management: Through her experience as a senior leader in the banking industry, Ms. Woo Ho brings experience identifying, assessing and managing risk exposures of large, complex financial firms.

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PHOTO Olivia F. Kirtley
Director since 2006

Committees

Compensation and Human Resources

Risk Management
(incoming Chair)

  Business Experience: Ms. Kirtley, 65, a Certified Public Accountant and Chartered Global Management Accountant, has served as the President of the International Federation of Accountants (IFAC), the global organization for the accountancy profession which facilitates the establishment of international auditing, ethics and education standards, since November 2014. She served as Deputy President of IFAC from 2012 to 2014. Ms. Kirtley has also served as a business consultant on strategic, risk and corporate governance issues since 2000. Prior to 2000, she served as a senior manager at a predecessor to auditing firm Ernst & Young LLP, and as Treasurer, Vice President and Chief Financial Officer at Vermont American Corporation.

Other Directorships:

Res-Care, Inc. since 1998 (Audit Committee Chair; Governance & Nominating Committee)

Papa Johns International, Inc. since 2003 (Audit Committee Chair; Compensation Committee)

Skills and Qualifications:

Financial Reporting and Accounting: Ms. Kirtley's expertise in her field has been recognized in her service as President of IFAC, as well as her past service as Chair of the American Institute of Certified Public Accountants (AICPA) and Chair of the AICPA Board of Examiners.

Risk Management: Ms. Kirtley gained extensive audit, financial reporting, and risk management experience as the Chief Financial Officer of an international company and as a Certified Public Accountant at a large international accounting firm.

Corporate Governance: Ms. Kirtley brings to our Board a deep understanding of a wide range of current governance issues gained by her work as a corporate governance consultant and a faculty member of The Conference Board Directors' Institute.

        
        

PHOTO Karen S. Lynch
Director since 2015

Committees

Community Reinvestment and Public Policy

Risk Management

  Business Experience: Ms. Lynch, 53, is the President of Aetna Inc., a diversified health care benefits company. She has served as President since 2014. She served as Executive Vice President of Aetna's Local and Regional business from 2013 to 2014 and Executive Vice President of Aetna's Specialty Products business from 2012 to 2013. Ms. Lynch served as President of Magellan Health Services Inc., a health care management company, from 2009 to 2012. Prior to joining Magellan Health, she served in various leadership roles at Cigna Corporation, a global health insurance service company, from 1999 to 2009.

Skills and Qualifications:

Financial Services Industry Expertise: Ms. Lynch's over 24 years of insurance industry experience provides her with valuable financial services industry expertise.

Risk Management: Ms. Lynch contributes valuable risk management expertise in the financial services industry through her experience leading a large health care benefits company.

Financial Reporting and Accounting: Ms. Lynch's past experience as a CPA and public company auditor provides valuable financial reporting and accounting expertise to our Board.

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PHOTO David B. O'Maley
Director since 1995

Committees

Chair, Compensation and Human Resources

Governance

Executive

  Business Experience: Mr. O'Maley, 69, is the retired Chairman, President and Chief Executive Officer of Ohio National Mutual Holdings, Inc. and its subsidiary Ohio National Financial Services, Inc., an intermediate insurance holding company that markets insurance and financial products through its affiliates, including The Ohio National Life Insurance Company. Mr. O'Maley served as Executive Chairman of these companies from November 2010 to May 2012 after serving as Chairman, President and Chief Executive Officer of Ohio National Mutual Holdings and Ohio National Financial Services from 1994 until November 2010. He joined Ohio National in 1992.

Skills and Qualifications:

Chief Executive Experience: Mr. O'Maley's experience as the CEO of a large, complex company provides leadership and management expertise to our Board.

Financial Services Industry Expertise: As the retired Chairman, President and CEO of a large financial services company, Mr. O'Maley brings to our Board discussions expertise in managing regulatory and business challenges facing financial services companies.

Risk Management: Mr. O'Maley brings valuable risk management expertise to our Board through his experience leading a large financial services company.

        
        

PHOTO O'dell M. Owens, M.D., M.P.H.
Director since 1991

Committees

Community Reinvestment and Public Policy

Compensation and Human Resources

  Business Experience: Dr. Owens, 68, is the Medical Director for the Cincinnati Health Department and has served in this role since November 2015. He previously served as the President of Cincinnati State Technical and Community College, an institution of higher education, from September 2010 until September 2015. Dr. Owens has been a member of the Federal Reserve Bank of Cleveland's Cincinnati Business Advisory Council since 2012. He has also been providing services as an independent consultant in medicine, business, education and work-site employee benefits since 2001 and served as the President and Chairman of the Board for Project GRAD (Graduation Really Achieves Dreams), a national non-profit organization formed to improve inner-city education, from 2001 until 2015. From 2004 to 2010, Dr. Owens also served as Coroner of Hamilton County, Ohio.

Skills and Qualifications:

Community Leadership: Through his experience in public service leadership roles and as the President and Chairman of Project GRAD, Dr. Owens brings a unique perspective to our Board by combining business expertise and leadership with a strong focus on community service and public policy.

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PHOTO Craig D. Schnuck
Director since 2002

Committees

Governance

Risk Management

  Business Experience: Mr. Schnuck, 67, is the former Chairman and Chief Executive Officer of Schnuck Markets, Inc., a regional supermarket chain. He was elected President of Schnuck Markets in 1984 and served as Chief Executive Officer from 1989 until January 2006. He also served as Chairman from January 1991 until December 2006. Mr. Schnuck continued to be active in the Schnuck Markets business as Chair of its Executive Committee from 2007 until 2014 and was named Chairman Emeritus in 2014.

Skills and Qualifications:

Chief Executive Experience: Mr. Schnuck brings to our company substantial leadership experience gained as the long-serving Chairman, CEO and Chair of the Executive Committee of a large, regional food retailer.

Consumer Business Expertise: In addition to leading a large consumer goods business, Mr. Schnuck also served for nine years on the board of governors of the Uniform Code Council, the agency that oversees his industry's most fundamental technologies, serving as Chairman for two terms. This work has given him additional insight into technological innovation in retail business, which is an important focus in various U.S. Bancorp business lines.

        
        

PHOTO Scott W. Wine
Director since 2014

Committees

Audit

Compensation and Human Resources

  Business Experience: Mr. Wine, 48, is the Chairman and Chief Executive Officer of Polaris Industries Inc., a worldwide manufacturer and marketer of innovative high-performance motorized products. He has served as Chairman since 2013, and Chief Executive Officer since 2008. Mr. Wine served as President of Fire Safety Americas, a division of United Technologies Corporation, from 2007 to 2008. Prior to that time, Mr. Wine held various senior leadership positions at Danaher Corporation and Honeywell International, Inc. from 1996 to 2007.

Other Directorships:

Polaris Industries Inc. since 2008 (Technology Committee)

Terex Corporation since 2011 (Compensation and Governance and Nominating Committees)

Skills and Qualifications:

Chief Executive Experience: Mr. Wine's experience as the Chairman and CEO of a large international manufacturing company gives him broad and valuable experience in a business focused on growing operations within domestic and overseas markets.

Consumer Business Expertise: Mr. Wine contributes to the Board a current perspective on retail business gained from his leadership of a consumer-focused company.


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  FOR

    The Board of Directors recommends a vote "FOR" election of the 14 director nominees to serve until the next annual meeting and the election of their successors.

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Corporate Governance

Corporate Governance

Our Board of Directors and management are dedicated to exemplary corporate governance. Good corporate governance is vital to our continued success. Our Board of Directors has adopted Corporate Governance Guidelines to provide a corporate governance framework for our directors and management to effectively pursue our objectives for the benefit of our shareholders. The Board reviews and updates these guidelines and the charters of the Board committees at least annually in response to evolving best practices and the results of annual Board and committee evaluations. Our Corporate Governance Guidelines, as well as our Code of Ethics and Business Conduct, can be found at www.usbank.com by clicking on "About U.S. Bank" and then "Corporate Governance" and then, as applicable, "Corporate Governance Guidelines" or "Code of Ethics."

Director Independence

Our Board of Directors has determined that each of the following directors, comprising all of our non-employee directors, has no material relationship with U.S. Bancorp and is independent: Douglas M. Baker, Jr., Warner L. Baxter, Marc N. Casper, Arthur D. Collins, Jr., Kimberly J. Harris, Roland A. Hernandez, Doreen Woo Ho, Joel W. Johnson, Olivia F. Kirtley, Karen S. Lynch, David B. O'Maley, O'dell M. Owens, M.D., M.P.H., Craig D. Schnuck, Patrick T. Stokes and Scott W. Wine. Richard K. Davis, our only other director, is not independent because he is an executive officer of U.S. Bancorp.

Our Board has adopted a set of standards in our Corporate Governance Guidelines to assist it in assessing the independence of each of our non-employee directors. Absent other material relationships with U.S. Bancorp, a director of U.S. Bancorp who otherwise meets the independence qualifications of the New York Stock Exchange (the "NYSE") listing standards may be deemed "independent" by the Board of Directors after consideration of the relationships between U.S. Bancorp or any of our affiliates and the director or any of his or her immediate family members or other related parties. Our Board deems the following relationships to be categorically immaterial such that they will not, by themselves, affect an independence determination:

    ​a relationship between the company and an organization of which the director or a member of his or her immediate family is an executive officer if that role does not constitute that person's principal occupation;

    ​an ordinary banking relationship readily available from other large financial institutions;

    ​employment by the company of a member of the director's immediate family if that person's annual compensation does not exceed $120,000; and

    ​a relationship between the company and an organization with which the director or a member of his or her immediate family is affiliated if (a) the relationship arises in the ordinary course of both parties' operations and (b) the aggregate annual amount involved does not exceed $120,000.

The only business relationship between U.S. Bancorp and our directors or the directors' related interests that was considered by the Board when assessing the independence of our non-employee directors is the relationship between U.S. Bancorp and Schnuck Markets, Inc., a corporation with which our director Craig D. Schnuck is affiliated. The Board determined that this relationship, which is described later in this proxy statement under the heading "Certain Relationships and Related Transactions — Related Person Transactions," did not impair Mr. Schnuck's independence because the amounts involved are immaterial to Schnuck Markets' gross revenues and the relationship had no unique characteristics that could influence Mr. Schnuck's impartial judgment as a director of U.S. Bancorp.

Board Meetings and Committees

The Board of Directors conducts its business through meetings of the Board and the following standing committees: Audit, Governance, Compensation and Human Resources, Risk Management, Community Reinvestment and Public Policy, and Executive. The standing committees report on their deliberations and actions at each full Board meeting. Each of the standing committees has the authority to engage outside experts, advisors and counsel to the extent it considers appropriate to assist the committee in its work. Each of the standing committees has adopted and operates

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under a written charter. These charters can be found on our website at www.usbank.com by clicking on "About U.S. Bank" and then "Corporate Governance" and then "Board Committees."

The non-employee directors meet in executive session, without the CEO or any other member of management present, at the end of each regularly scheduled Board meeting and may meet without the CEO at any other time. The Lead Director presides over these executive sessions. See "Board Leadership Structure." In addition, the Board holds a session between the CEO and the independent directors at the beginning of each regularly scheduled meeting, which provides a platform for discussions outside the presence of the non-Board management attendees, as well as an opportunity for the independent directors to go into executive session (without the CEO). During each committee meeting, the committees have the opportunity to hold executive sessions without members of management present.

The Board of Directors held eight meetings during 2015. Each director attended at least 75% of the total meetings of the Board and Board committees on which he or she served during the year. The average attendance rate of all directors in 2015 was 98%.

Board Performance Evaluations and Director Education

Our Governance Committee conducts an annual assessment of the Board's performance to determine whether it and its committees are functioning effectively. Each director completes a questionnaire with respect to the Board and each committee on which he or she serves. The chair of the Governance Committee and the Lead Director review all survey responses, and the chairs of the other committees also review the survey responses for their respective committees. The Board and the committees discuss the results of the surveys at their next meeting. In addition, the chair of the Governance Committee annually evaluates each director's contributions to the Board, and the directors each perform a self-evaluation. The Governance Committee chair then has a one-on-one meeting with each director to discuss his or her performance, and reports on those conversations to the full Governance Committee.

We believe that it is of utmost importance that our directors receive additional information and training about issues that are critical to exercising prudent oversight of the management of our company. We have implemented a robust director education program that begins with in-depth training covering our industry, financial reporting, and each of our lines of business, and that continues with special education sessions throughout the year that highlight current business, industry, regulatory and governance topics presented by internal and external experts.

Shareholder Engagement

For the past several years, we have maintained an annual shareholder engagement program to help us better understand the views of our investors. We reach out to many of our largest institutional investors each fall to invite them to speak with us and provide feedback on corporate governance and executive compensation issues. The investors have the opportunity during these meetings to discuss their views on governance or compensation issues of particular importance to them. Management shares the feedback received during these meetings with the Governance Committee and Compensation and Human Resources Committee. The Lead Director (or, in the Lead Director's discretion, the chair of the relevant Board committee) may also be available to meet with shareholders as appropriate. Requests for such a meeting are considered on a case-by-case basis.

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Corporate Governance

Committee Member Qualifications

All of the Audit Committee members meet the independence and experience requirements of the NYSE and the Securities and Exchange Commission ("SEC"). As part of those requirements, our Board of Directors has determined that each member of the Audit Committee is independent and financially literate, and each of our audit committee financial experts has accounting or other financial management expertise. Our Board of Directors has identified Roland A. Hernandez, our Audit Committee Chair, and Warner L. Baxter, Marc N. Casper, Joel W. Johnson and Scott W. Wine as audit committee financial experts as defined under the rules of the SEC. The Audit Committee charter generally prohibits Audit Committee members from serving on more than two other public company audit committees. Currently, no Audit Committee member exceeds this restriction.

All of the Governance Committee members and Compensation and Human Resources Committee members also meet the independence requirements of the NYSE, including, with respect to the Compensation and Human Resources Committee members, the NYSE's independence requirements specific to members of compensation committees.

Committee Responsibilities

Committee
Primary Responsibilities and Membership

 

 

 
Audit

Held 12 meetings
during 2015

 

Assisting the Board of Directors in overseeing the quality and integrity of our financial statements, including matters related to internal controls; our compliance with legal and regulatory requirements; the qualifications, performance and independence of our independent auditor; and the integrity of the financial reporting processes, both internal and external;

appointing, compensating, retaining and overseeing the work of the independent auditor; and

overseeing the internal audit function and approving the appointment and compensation of the Chief Audit Executive.

 

Current Members: Roland A. Hernandez (Chair), Warner L. Baxter, Marc N. Casper, Doreen Woo Ho, Joel W. Johnson and Scott W. Wine

        
        

Governance

Held 6 meetings during 2015

 

Discharging the Board's responsibilities relating to corporate governance matters, including developing and recommending to the Board a set of corporate governance principles;

overseeing succession planning for our CEO;

identifying and recommending to the Board individuals qualified to become directors;

managing the performance review process for our current directors;

reviewing and evaluating significant capital expenditures and potential mergers and acquisitions;

overseeing the evaluation of management; and

making recommendations to the Board regarding any shareholder proposals.

 

Current Members: Douglas M. Baker, Jr. (Chair), Arthur D. Collins, Jr., Kimberly J. Harris, David B. O'Maley, Craig D. Schnuck and Patrick T. Stokes

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Committee
Primary Responsibilities and Membership

 

 

 
Compensation and
Human Resources

Held 6 meetings
during 2015

 

Discharging the Board's responsibilities relating to the compensation of our executive officers and non-employee directors;

recommending to the Board for approval executive officer incentive compensation plans and all equity-based incentive plans;

approving other compensation plans, practices and programs applicable to the company's executive officers, including performance goals and objectives;

evaluating and discussing with the appropriate officers of our company the incentives for risk-taking contained in our incentive compensation plans and programs; and

evaluating the CEO's performance and overseeing succession planning for executive officers other than our CEO.

 

Current Members: David B. O'Maley (Chair), Arthur D. Collins, Jr., Olivia F. Kirtley, O'dell M. Owens, M.D., M.P.H., and Scott W. Wine

        
        

Risk Management

Held 6 meetings
during 2015

 

Overseeing our overall risk management function, which governs the management of credit, interest rate, liquidity, market, capital, operational, compliance and strategic risk;

reviewing and approving our company's risk appetite statement; and

reviewing and approving the issuance or repurchase of equity securities and other significant financial transactions and equity investments.

 

Current Members: Patrick T. Stokes (Chair), Douglas M. Baker, Jr., Richard K. Davis, Doreen Woo Ho, Joel W. Johnson, Olivia F. Kirtley, Karen S. Lynch and Craig D. Schnuck

        
        

Community
Reinvestment and
Public Policy

Held 4 meetings
during 2015

 

Reviewing and considering our position and practices on matters of public interest and public responsibility and similar issues involving our relationship with the community at large;

reviewing our diversity and inclusion initiatives and progress;

reviewing our activities, performance and compliance with the Community Reinvestment Act and fair lending regulations;

reviewing our reputation-building and brand management activities; and

reviewing our policies and procedures with respect to sustainability and corporate political contributions and related activity.

 

Current Members: Kimberly J. Harris (Chair), Warner L. Baxter, Marc N. Casper, Roland A. Hernandez, Karen S. Lynch and O'dell M. Owens, M.D., M.P.H.

        
        

Executive

Held 0 meetings
during 2015

 

The Executive Committee has authority to exercise all powers of the Board of Directors between regularly scheduled Board meetings.
  
Current Members: Richard K. Davis (Chair), Arthur D. Collins, Jr. (Lead Director), Douglas M. Baker, Jr., Kimberly J. Harris, Roland A. Hernandez, David B. O'Maley and Patrick T. Stokes

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Corporate Governance

Risk Oversight by the Board of Directors

As part of its responsibility to oversee the management, business and strategy of our company, the Board of Directors has approved a risk management framework that establishes governance and risk management requirements for all risk-taking activities. This framework includes company- and business-level risk appetite statements that set boundaries for the types and amount of risk that may be undertaken in pursuing business objectives and initiatives.

The Board of Directors oversees management's performance relative to the risk management framework, risk appetite statements, and other policy requirements. While management is responsible for defining the various risks facing our company, formulating risk management policies and procedures, and managing risk exposures on a day-to-day basis, our Board's responsibility is to oversee our company's risk management processes by informing itself concerning our material risks and evaluating whether management has reasonable risk management and control processes in place to address the material risks.

To fulfill its risk oversight responsibility, the Board:

    ​reviews our company's strategic objectives and financial performance in light of its risk appetite;

    ​oversees the amounts and types of risk taken by management in executing the corporate strategy;

    ​oversees management's performance relative to risk management and control of the company's risk-taking activities;

    ​evaluates the role of incentive compensation in managing our company's risk appetite; and

    ​oversees talent management and succession planning.

The Board's risk oversight function is primarily carried out through its committees. As described in the preceding discussion of committee responsibilities:

    ​the Risk Management Committee is primarily responsible for oversight of overall enterprise risk, including credit, interest rate, liquidity, market, capital, operational, compliance and strategic risk;

    ​the Audit Committee is focused on financial statement and accounting risk and internal controls;

    ​the Compensation and Human Resources Committee (the "Compensation Committee") oversees our company's compensation policies and arrangements to ensure that they do not encourage inappropriate levels of risk-taking by management with respect to our company's strategic goals, and to determine whether any of them give rise to risks that are reasonably likely to have a material adverse effect on our company. More information on the evaluation performed by the Compensation Committee is included below in "Compensation Discussion and Analysis — Decision Making and Policies — Risk Considerations in Setting Compensation Plans and Programs";

    ​the Community Reinvestment and Public Policy Committee oversees our company's activities with respect to reputational risk; and

    ​the Governance Committee reviews the responsibilities of each Board committee to ensure that all significant risk categories are addressed by at least one committee. The Governance Committee is also responsible for reviewing significant capital expenditures and potential merger and acquisition transactions.

In addition, the Risk Management and Audit Committees meet annually in joint session to give each committee the opportunity to review the risk areas primarily overseen by the other. Finally, at each meeting of the full Board of Directors, each committee gives a detailed review of the matters it discussed and conclusions it reached during its recent meetings.

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The Board committees carry out their responsibilities using informational reports from management with respect to all risk areas that are relevant and important at the time. The committees must therefore be confident that an appropriate risk monitoring structure is in place at the management level in order to be provided accurate and useful informational reports. The management-level risk oversight structure is robust. Our company relies on comprehensive risk management processes to identify, aggregate and measure, manage, and monitor risks. This system enables the Board of Directors to establish a mutual understanding with management of the effectiveness of our company's risk management practices and capabilities, to review our company's risk exposure and to elevate certain key risks for discussion at the Board level. A framework exists designed to account for the introduction of emerging risks or any increase in risks routinely taken, which would either be largely controlled by the risk limits in place or identified through the frequent risk reporting that occurs throughout our company.

The Executive Risk Committee (the "ERC"), which is chaired by the Chief Risk Officer and which includes the CEO and other members of the executive management team, oversees execution against the risk management framework and risk appetite statements. The ERC meets monthly, and more frequently when circumstances merit, to provide executive management oversight of our risk management framework, assess appropriate levels of risk exposure and actions that may be required for identified risks to be adequately mitigated, promote effective management of all risk categories, and foster the establishment and maintenance of an effective risk culture. The ERC members manage large, sophisticated groups within our company that are dedicated to controlling and monitoring risk to the levels deemed appropriate by the Board of Directors and executive management. These individuals, together with our company's controller, treasurer and others, also provide the Board's committees with the information the committees need and request in order to carry out their oversight responsibilities.

The ERC focuses on current and emerging risks, including strategic and reputational risks, directing timely and comprehensive actions. The following senior operating committees have also been established, each responsible for overseeing a specified category of risk; except for the Incentive Review Committee, which reports to the Compensation Committee of the Board of Directors, all of these committees report to the ERC:

    ​the Operational Risk Committee provides direction and oversight of the company's operational risk management framework and corporate control programs, including significant operational risk events;

    ​the Compliance Risk Management Committee provides direction regarding the management of compliance risk to the company's business lines and risk management programs and shares institutional knowledge regarding compliance risk management and mitigation across the company;

    ​the Enterprise Financial Crimes Compliance Operating Committee is responsible for the management and implementation of the company's program on enterprise financial crimes across business lines to ensure a consistent control infrastructure and culture of compliance throughout the company;

    ​the Executive Credit Management Committee ensures that products that have credit risk are supported by sound credit practices; reviews asset quality, trends, portfolio performance statistics and loss forecasts; and reviews and adjusts credit policies accordingly;

    ​the Asset and Liability Management Committee ensures that the policies, guidelines and practices established to manage our financial risks, including interest rate risk, market risk, liquidity risk, operations risk and capital adequacy, are followed;

    ​the Incentive Review Committee reviews and evaluates all of our company's incentive compensation programs and policies for risk sensitivity and mitigation;
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Corporate Governance
    ​the Enterprise IT Governance Committee ensures that delivery of the company's information technology services, including information security and business continuity, are aligned with the company's priorities and risk appetite;

    ​the International Risk Oversight Committee is responsible for overseeing the company's foreign operations and cross-border activity;

    ​the Disclosure Committee assists the CEO and the Chief Financial Officer ("CFO") in fulfilling their responsibilities for oversight of the accuracy and timeliness of the disclosures made by the company;

    ​the Basel Steering Committee provides oversight of the company's compliance with the Basel Standardized Approach and other related capital regulation; and

    ​the Reputation Risk Oversight Committee is dedicated to the oversight of risk associated with activities and issues that may negatively impact the reputation of the company.

The company's Board and management-level committees are supported by a "three lines of defense" model for establishing effective checks and balances. The first line of defense, the business lines, manages risks in conformity with established limits and policy requirements. In turn, business leaders and their risk officers establish programs to ensure conformity with these limits and policy requirements. The second line of defense, which includes the Chief Risk Officer's organization as well as policy and oversight activities of corporate support functions, translates risk appetite and strategy into actionable risk limits and policies. The second line of defense monitors the conformity of the first line of defense with limits and policies, and provides reporting and escalation of emerging risks and other concerns to senior management and the Risk Management Committee of the Board of Directors. The third line of defense, internal audit, is responsible for providing the Audit Committee and senior management with independent assessment and assurance regarding the effectiveness of the company's governance, risk management, and control processes. Management provides various risk reports to the Risk Management Committee of the Board of Directors.

Board Leadership Structure

Our Board has carefully considered the critical issue of Board leadership. In the context of risk management, the leadership of each of the committees that is primarily responsible for risk management is vested in an independent committee chair. With regard to the leadership of the meetings of the full Board, our Board of Directors has adopted a flexible policy regarding the issue of whether the positions of Chairman and CEO should be separate or combined. This policy allows the Board to determine whether our company is best served at any particular time by having the CEO or another director hold the position of Chairman. If the position of Chairman is not held by an independent director, the independent directors elect a Lead Director with authority and responsibility similar to that of an independent Chairman.

Mr. Davis currently serves as Chairman and as CEO. The Board believes there are a number of important advantages to combining the positions of Chairman and CEO at this time. Critically, our current structure most effectively utilizes Mr. Davis's extensive experience and knowledge regarding our company and provides for the most efficient leadership of our Board and company. Mr. Davis, who has more than 21 years of experience at U.S. Bancorp, including 11 years as President and 9 years as CEO, has the knowledge, expertise and experience to understand and clearly articulate to the Board the opportunities and risks facing U.S. Bancorp and to lead discussions on important matters affecting our business. The Board believes that combining the CEO and Chairman positions creates a firm link between management and the Board and helps the Board respond quickly and effectively to the many business, market and regulatory challenges resulting from the rapidly changing financial services industry. Mr. Davis's service as Chairman also provides clarity of leadership for our company and more effectively allows our company to present its vision and strategy with a unified voice. The Board has also considered the views of our shareholders on this issue — expressed in conversations with some of our largest investors in our annual shareholder engagement program and in the voting results on the shareholder proposal made the last three years to adopt a policy that the Chairman be an independent director — which support the Board's determination that our current leadership structure is appropriate for our company at this time.

U.S. Bancorp 2016 Proxy Statement 20

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Corporate Governance
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Role of Lead Director

Although the Board believes that it is more effective to have one person serve as the Chairman and CEO at this time, it also recognizes the importance of strong independent leadership on the Board. Accordingly, it has reaffirmed the strong role of the Lead Director, who has the following responsibilities and authority:

lead executive sessions of the Board's independent or non-management directors, and preside at any session of the Board where the Chairman is not present;

act as a regular communication channel between our independent directors and the CEO;

approve the Board meeting agendas;

approve Board meeting schedules to ensure there is sufficient time for discussion of all agenda items;

approve information sent from management to the Board;

at the request of the CEO or the Board, be the representative of the independent directors in discussions with our major shareholders regarding their concerns and expectations;

may call special Board meetings or special meetings of the independent directors;

approve, on behalf of the Board, the retention of consultants who report directly to the Board;

assist the Board and company officers in assuring compliance with and implementation of our Corporate Governance Guidelines;

advise the independent Board committee chairs in fulfilling their designated roles and responsibilities to the Board;

review shareholder communications addressed to the full Board or to the Lead Director;

interview all Board candidates and make recommendations to the Governance Committee and the Board; and

communicate, as appropriate, with the company's regulators.

The powers and duties of the Chairman and Lead Director differ primarily in that the Chairman presides over the normal business portion of the meetings of the Board. Since the Lead Director may call for an executive session of independent directors at any time, and has the sole authority to approve meeting agendas and the information provided to directors for Board meetings, the Board does not believe that the fact that he does not preside over the normal Board meeting business sessions limits the ability of the Board to have open exchanges of views, or to address any issues the Board chooses, independently of the Chairman. In addition, much of the in-depth work of the Board is conducted through its committees, none of which, other than the Executive Committee, is chaired by the Chairman of the Board.

The Lead Director is elected by the independent directors upon the recommendation of the Governance Committee. Arthur D. Collins, Jr. has served as Lead Director since January 2014. Mr. Collins is actively engaged as Lead Director and works closely with Mr. Davis on Board matters. The Lead Director is elected annually with the expectation that he or she will generally serve three, and may serve up to five, consecutive terms.

Majority Vote Standard for Election of Directors

Our bylaws provide that in uncontested elections a nominee for director will be elected to the Board if the number of votes cast "FOR" the nominee's election exceeds the number of votes cast "AGAINST" that nominee's election. The voting standard for directors in a contested election is a plurality of the votes cast at the meeting.

Our Corporate Governance Guidelines provide that director nominees must submit a contingent resignation in writing to the Governance Committee, which becomes effective if the director fails to receive a sufficient number of votes for

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re-election at the annual meeting of shareholders and the Board accepts the resignation. The Board will nominate for election or re-election as director only candidates who have tendered such a contingent resignation.

Our Corporate Governance Guidelines further provide that if an incumbent director fails to receive the required vote for re-election, our Governance Committee will act within 90 days after certification of the shareholder vote to determine whether to accept the director's resignation, and will submit a recommendation for prompt consideration by the Board. The Board expects the director whose resignation is under consideration to abstain from participating in any decision regarding his or her resignation. The Governance Committee and the Board may consider any factors they deem relevant in deciding whether to accept a director's resignation.

If each member of the Governance Committee fails to receive the required vote in favor of his or her election in the same election, then those independent directors who did receive the required vote will appoint a committee amongst themselves to consider the resignations and recommend to the Board whether to accept them. However, if the only directors who received the required vote in the same election constitute three or fewer directors, all directors may participate in the decision regarding whether to accept the resignations.

Each director nominee named in this proxy statement has tendered an irrevocable, contingent resignation as a director in accordance with our Corporate Governance Guidelines, which resignation will become effective if he or she fails to receive the required vote for election at the annual meeting and the Board accepts his or her resignation.

Director Policies

Policy Regarding Service on Other Boards

Our Board of Directors has established a policy that restricts our directors from serving on the boards of directors of more than three public companies in addition to their service on our Board of Directors unless the Board determines that such service will not impair their service on our Board. Currently, no director exceeds this restriction.

Policy Regarding Attendance at Annual Meetings

Board members are expected to attend all annual meetings of shareholders in person. All of our then-current directors attended last year's annual meeting of shareholders.

Director Transition Policy

Our Board annually reviews each director's contributions to the Board and considers each director's effectiveness and the composition of the Board during the annual review process. The Board believes that any director's continued service on the Board should also be evaluated for continued appropriateness in each of the following circumstances: the director has a change in employment or other major responsibilities, an employee director ceases to be a company employee, and the director reaches the age of 72.

Succession Planning and Management Development

A primary responsibility of the Board is planning for succession with respect to the positions of Chairman of the Board and CEO, as well as overseeing succession planning for other senior management positions. The Board's process targets the building of enhanced management depth, considers continuity and stability within our company, and responds to our company's evolving needs and changing circumstances. Toward that goal, the executive talent development and succession planning process is integrated into the Board's annual activities.

The Board works with the Governance Committee to evaluate a number of potential internal and external candidates as successors to the CEO, and considers emergency, temporary as well as long-term succession. The Compensation Committee is responsible for reviewing succession planning for executive officer positions other than the CEO. The CEO makes available to the Board his or her recommendations and evaluations of potential successors, along with a review of any development plans recommended for those individuals.

U.S. Bancorp 2016 Proxy Statement 22

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Certain Relationships and Related Transactions
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Certain Relationships and Related Transactions

Related Person Transactions

Lending Transactions

During 2015, U.S. Bancorp and our banking and investment subsidiaries engaged in transactions in the ordinary course of business with some of our directors, executive officers and the persons that we know beneficially owned more than 5% of our common stock on December 31, 2015, and the entities with which they are associated. All loans and loan commitments and any transactions involving other financial products and services in connection with these transactions were made in the ordinary course of business, on substantially the same terms, including current interest rates and collateral, as those prevailing at the time for comparable transactions with others not related to our banking and investment subsidiaries and did not involve more than the normal risk of collectibility or present other unfavorable features.

Transactions with Entities Affiliated with Directors

During 2015, U.S. Bank operated 36 branches and 70 ATMs in grocery stores owned by Schnuck Markets, Inc., of which Craig D. Schnuck, one of our directors, beneficially owns approximately 13% of the outstanding capital stock. Mr. Schnuck's sister, Nancy A. Diemer, and his four brothers, Scott C. Schnuck, Todd R. Schnuck, Mark J. Schnuck and Terry E. Schnuck, each beneficially own approximately 13% of the outstanding capital stock of Schnuck Markets as well. In addition, each of Mr. Schnuck's brothers is a director of, and holds the following officer positions with, Schnuck Markets: Scott C. Schnuck, Chairman of the Executive Committee; Todd R. Schnuck, Chairman and Chief Executive Officer; Mark J. Schnuck, Vice President; and Terry E. Schnuck, Assistant Secretary. Rent and fee payments by U.S. Bank to Schnuck Markets were approximately $2.9 million in 2015. The consolidated gross revenues of Schnuck Markets in 2015 were approximately $2.7 billion. These transactions were conducted at arm's length in the ordinary course of business of each party to the transaction. As discussed above under the heading "Corporate Governance — Director Independence," the Board of Directors has determined that this relationship is immaterial to Mr. Schnuck, and that Mr. Schnuck is an independent director.

Transactions with Entities Affiliated with Executive Officers

During 2015, we paid Little & Co., a design and branding agency, approximately $2.8 million in professional fees for brand strategy and design work. The President of Little & Co. is the brother of Andrew Cecere, our newly appointed President and Chief Operating Officer. The selection of Little & Co. was made based on our regular sourcing and competitive bidding process, without the involvement of Andrew Cecere. The fees we paid to Little & Co. were negotiated on an arm's length basis and were not material to our 2015 marketing and advertising expense. The branding work will conclude in 2016, and we do not intend to continue the engagement or to have Little & Co. bid for future work, in order to avoid the appearance of any conflict of interest with Mr. Cecere.

During 2015, we paid the law firm of Taft Stettinius & Hollister LLP ("Taft") approximately $700,000 in legal fees. Gregory P. Rogers, a partner at Taft, is the spouse of Kathleen A. Rogers, our Vice Chairman and Chief Financial Officer. U.S. Bancorp's relationship with Taft dates back more than 20 years and significantly preceded Ms. Rogers's promotion to Vice Chairman and Chief Financial Officer in early 2015. Ms. Rogers does not direct the company's legal work in her role as CFO, and Mr. Rogers will have no direct involvement in services provided to us. The fees we paid to Taft in 2015 were negotiated on an arm's length basis, are an immaterial proportion of our annual legal expense, and were not material to Taft's annual revenues.

Transactions with 5% Shareholders

As shown below under the heading "Security Ownership of Certain Beneficial Owners and Management," each of BlackRock, Inc. and FMR LLC has reported that it, together with certain of its subsidiaries and affiliates, is the beneficial owner of more than 5% of our common stock. An affiliate of BlackRock provided us certain advisory services in 2015 related to the mortgage servicing rights valuation framework used by our home mortgage business line and was paid $607,000 for those services. In November 2015, we entered into an agreement under which an affiliate of FMR will provide us certain ministerial record-keeping and administrative services on behalf of our employees and directors who participate in our stock incentive plans. There were no fees related to this relationship in 2015 and fees for 2016 are currently expected to be less than $1 million. Each of these relationships was negotiated and conducted at arm's length in the ordinary course of business of each party to the relationship.

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Certain Relationships and Related Transactions

Review of Related Person Transactions

The Board has adopted a written Related Person Transactions Policy for the review, evaluation and approval or ratification of transactions between our company and its related persons. "Related persons" under this policy include our directors, director nominees, executive officers, holders of more than 5% of our common stock, and their respective immediate family members. Their "immediate family members" include children, stepchildren, parents, stepparents, spouses, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and any person (other than a tenant or employee) sharing the person's household.

Except as described below, the policy requires the Governance Committee of the Board to review and evaluate and either approve or disapprove all transactions or series of transactions in which:

    ​the amount involved will, or may be expected to, exceed $120,000 in any fiscal year;

    ​our company is or will be a participant; and

    ​a related person has or will have a direct or indirect interest.

The Board, however, has determined that the Governance Committee does not need to review or approve certain transactions even if the amount involved will exceed $120,000, including the following transactions:

    ​lending and other financial services transactions or relationships that are in the ordinary course of business and non-preferential, and comply with applicable laws;

    ​transactions in which the related person's interest derives solely from his or her services as a director of, and/or his or her ownership of less than ten percent of the equity interest (other than a general partner interest) in, another corporation or organization that is a party to the transaction;

    ​transactions in which the related person's interest derives solely from his or her ownership of a class of equity securities of our company and all holders of that class of equity securities received the same benefit on a pro rata basis;

    ​transactions where the rates or charges involved are determined by competitive bids, or that involve the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; and

    ​employment and compensation arrangements for any executive officer and compensation arrangements for any director, provided that such arrangements have been approved by the Compensation Committee.

When considering whether to approve or ratify a transaction, the Governance Committee will consider facts and circumstances that it deems relevant to its determination, including:

    ​the nature and extent of the related person's interest in the transaction;

    ​whether the transaction is on substantially the same terms as those prevailing at the time for comparable transactions with persons not affiliated with our company;

    ​the materiality of the transaction to each party;

    ​whether our company's Code of Ethics could be implicated, including whether the transaction would create a conflict of interest or appearance of a conflict of interest;

    ​whether the transaction is in the best interest of our company; and

    ​in the case of a non-employee director, whether the transaction would impair his or her independence.

No director is allowed to participate in the deliberations or vote on the approval or ratification of a transaction if that director is a related person with respect to the transaction under review. On an annual basis the Governance Committee assesses all ongoing relationships with related persons to confirm that the transactions are still appropriate.

U.S. Bancorp 2016 Proxy Statement 24

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Compensation Discussion and Analysis
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Compensation Discussion and Analysis

This section explains how we compensated the individuals who served as our CEO or CFO for all or a part of 2015 and each of our three other most highly compensated executive officers for 2015 (our named executive officers, or "NEOs"):

    Richard K. Davis, who served as our Chairman, President and Chief Executive Officer during 2015; Mr. Davis's title changed to Chairman and Chief Executive Officer on January 18, 2016, in connection with Mr. Cecere's promotion to President;

    Andrew Cecere, who served as our Vice Chairman and Chief Financial Officer until January 20, 2015, when he was promoted to Vice Chairman and Chief Operating Officer; Mr. Cecere was promoted again on January 18, 2016, and is currently our President and Chief Operating Officer;

    Kathleen A. Rogers, who has served as our Vice Chairman and Chief Financial Officer since January 20, 2015;

    Richard B. Payne, Jr., who serves as a Vice Chairman, Wholesale Banking;

    P.W. (Bill) Parker, who serves as a Vice Chairman and is our Chief Risk Officer; and

    Jeffry H. von Gillern, who serves as Vice Chairman, Technology and Operations Services.

Reference Guide

Executive Compensation Highlights

  26

Philosophy and Objectives of Our Executive Compensation Program

  30

Base Salary

  30

Annual Cash Incentive Awards

  31

▶ How We Determine Our NEOs' Annual Cash Incentive Awards

  31

▶ Setting the Target Award Amounts

  31

▶ Calculating the Bonus Funding Percentage

  31

▶ Factoring in Individual Performance and Risk Sensitivity

  33

▶ Recoupment of Annual Cash Incentive Payouts

  34

Long-Term Incentive Awards

  34

▶ Establishing the Structure and Value of the Equity Awards

  34

▶ Selecting the Performance Metrics for the PRSU Awards

  35

▶ Determining the Percentage of Target PRSUs Earned

  35

Other Compensation Components

  36

▶ Executive Benefits and Perquisites

  36

▶ Change-in-Control Agreements

  36

Decision Making and Policies

  36

▶ Who Is Involved in Making Compensation Decisions

  36

▶ What Information Is Considered When Determining Compensation

  37

▶ Peer Group Composition

  38

▶ Risk Considerations in Setting Compensation Plans and Programs

  39

▶ Stock Ownership Requirements

  40

▶ Deductibility of Performance-Based Compensation

  41
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Compensation Discussion and Analysis

Executive Compensation Highlights

    The following table sets forth the components of our NEOs' total direct compensation and results for 2015:

    Component   How It Works   2015 Actions and Results

GRAPHIC

 

Base Salary

 

Salary levels are intended to reward experience and demonstrated skills and competencies relative to the market value of the position

 

All of the NEOs received raises, which were based on market forces and individual performance and responsibility

 

Annual Cash Incentive Compensation

 

Target award amounts are set as a percentage of each NEO's base salary

Earnings per share ("EPS") is the performance metric for the corporate component (weighted 35%)

 

The cash incentive awards paid to the NEOs for 2015 performance ranged from 78.8% to 86.8% of their individual target award amounts

     

Pretax income is the performance metric for the business line component (weighted 65%)

Individual performance and sensitivity to risk during the year are taken into account when determining final payout amounts

 

These payout levels were primarily based on corporate EPS results of 96.9% of target performance and business line pretax income results that ranged from 15.4% to 121.2% of target performance

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Long-Term Incentive Compensation

    
Performance-Based Restricted Stock Units (75% of total annual grant value)

Return on average common equity ("ROE"), measured on both an absolute and relative basis, is the performance metric

One-year performance period provides the executives with a clear line of sight, while a four-year vesting period fosters a long-term perspective

Depending on performance, 0% to 125% of the target number of units may be earned

 

Based on absolute and relative ROE results in 2015, the NEOs earned 104.3% of the target number of performance-based restricted stock units ("PRSUs") granted to them in early 2015

        
Stock Options (25% of total annual grant value)

Value of option depends on our stock price

Four-year ratable vesting

 

 

                
U.S. Bancorp 2016 Proxy Statement 26

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Compensation Discussion and Analysis
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High Percentage of At-Risk Compensation

A high percentage of our NEOs' total direct compensation is dependent on our company's financial performance, both in the year in which the compensation is granted and in the long term. This structure provides our NEOs with incentives that are in line with the interests of our other shareholders. The charts below show the percentage of our NEOs' 2015 total direct compensation, as reported in the Summary Compensation Table, that is dependent on our company's financial performance (numbers do not add up to 100% because of rounding):

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Strong Corporate and Financial Performance

The Compensation Committee believes that the company's compensation structure has been effective at encouraging the achievement of superior financial and operating results relative to our peers in an uncertain economic environment, while maintaining reasonable risk tolerances.

Our financial performance fell short of goals during 2015, a year in which the financial services industry again faced the challenges of economic uncertainty, continued very low interest rates and increased regulation. Despite this environment, U.S. Bancorp outperformed its peers in most financial and operational measures. Our company's superior performance during 2015 included the following achievements:

    ​U.S. Bancorp has consistently been the top performer in our peer group in the common industry performance measures of return on average assets, return on average common equity, and efficiency ratio, and was again the leader in these measures in 2015.1

#1 in Return on Average Assets   #1 in Return on Average Common Equity


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Compensation Discussion and Analysis

#1 in Efficiency Ratio2

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1.
Source: Company reports. The peer group companies included in these tables are listed under the heading "Peer Group Composition" on page 38 of this proxy statement.
2.
Efficiency ratio computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses).

Total Shareholder Return3

    1-Year   3-Year   5-Year   10-Year  

 

 

 

 

 

 

 

 

 

 

 

 

 

 
U.S. Bancorp     –2.8 %   12.7 %   12.1 %   6.6 %
KBW Bank Index (BKX)     0.5 %   14.8 %   9.1 %   –1.1 %
S&P 500 Index     1.4 %   15.1 %   12.6 %   7.3 %

  
  
  
  
    

3.
Source: FactSet and Bloomberg as of December 31, 2015. Reflects annualized returns.
​U.S. Bancorp achieved record net income of $5.9 billion in 2015.

​Our consistent superior financial performance over time has increased long-term value for our shareholders.

​We continued to grow market share in many of our business lines, in part because our financial performance allowed us to invest in our businesses during the economic downturn and persistent slow recovery experienced globally since 2008.

​We continued to enjoy debt ratings that are among the highest in our industry, reflecting the ratings agencies' recognition of our strong, consistent financial performance, the quality of our balance sheet, our future earnings capacity and our strong management team.
U.S. Bancorp 2016 Proxy Statement 28

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Compensation Discussion and Analysis
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Sound Compensation Practices

Our executive compensation program includes many strong governance features, including the following:

  What We Do    

 

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We pay for performance:

 

 
    Our annual cash incentive awards use a formula based on achievement of corporate and business line financial targets    

 


 

PRSU awards (which make up 75% of the value of equity awards granted to our executive officers) are earned based on absolute and relative corporate performance

 

 

 

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We place primary emphasis on long-term equity incentive compensation

 

 

 

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We discourage excessive risk taking and adjust incentive compensation for any member of senior management who demonstrates inadequate sensitivity to risk

 

 

 

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We have a "clawback" policy that allows us to recoup annual cash incentive payouts attributable to incorrectly reported earnings

 

 

 

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We have meaningful stock ownership requirements, and executive officers must hold 100% of the after-tax value of equity awards until the applicable ownership level is met

 

 

 

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We review tally sheets when making executive compensation decisions

 

 

 

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The Compensation Committee retains an independent compensation consultant that provides no other services to our company

 

 


 


    


 


 


 


 

What We Don't Do

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We do not allow executives to hedge or pledge their company stock

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We do not have single-trigger accelerated vesting of equity awards or payment of cash benefits in the event of either a change in control or termination of employment

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We do not allow repricing of stock options

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We do not provide tax gross-ups on our limited perquisites

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We do not grant stock options with exercise prices below 100% of market value

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We do not pay dividends on unearned PRSUs

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We do not include the value of equity awards in pension or severance plan calculations

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We have adopted a policy stating that we will enter into no new agreements with executives that provide for excise tax gross-up payments upon termination of employment


    


 


 
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Compensation Discussion and Analysis

Philosophy and Objectives of Our Executive Compensation Program

Compensation Program Goals

The Compensation Committee has designed the executive compensation program to attract, motivate, reward and retain the management talent required to achieve our corporate objectives and increase shareholder value, while at the same time making the most efficient use of our resources and strongly emphasizing pay for performance.

The Compensation Committee achieves these objectives through a compensation package that:

    ​links a significant portion of total compensation to corporate, business line and individual performance, which we believe will create long-term shareholder value;

    ​provides total compensation that is market competitive, permitting us to hire and retain high-caliber individuals at all levels of management;

    ​emphasizes stock-based compensation, encouraging our executive officers to think and act as long-term shareholders;

    ​subjects a significant percentage of executive officer total compensation to multi-year vesting in order to enhance executive retention and encourage a long-term view of corporate achievement; and

    ​encourages an appropriate sensitivity to risk on the part of senior management, which protects long-term shareholder interests.

Pay for Performance

U.S. Bancorp operates in a highly complex business environment, where it competes with many well-established financial institutions. Our long-term business objective is to maximize shareholder value by increasing net income and earnings per share without exposing the company to undue risk. If we are successful in achieving this objective, the Compensation Committee believes the results will benefit our shareholders.

Accordingly, our executive compensation program is designed to reward our executives for achieving annual and long-term financial results that further our long-term business objective. The annual cash incentive plan rewards performance relative to corporate and business line financial plans established at the beginning of the fiscal year, and the PRSUs granted under the stock incentive plan are earned based on achievement of ROE targets that directly measure the return generated by the company on its shareholders' investment. At the same time, the Compensation Committee carefully weighs the risks inherent in these programs against the goals of the programs and the company's risk appetite. Additional discussion of the risk oversight undertaken by the Compensation Committee can be found below under "Decision Making and Policies — Risk Considerations in Setting Compensation Plans and Programs."

Base Salary

The Compensation Committee considers the salary of executive officers relative to those executives' peers in our industry and will make market-based adjustments as it deems appropriate. Salaries can also be adjusted to reflect experience and tenure in a position, increased scope of responsibilities and individual performance.

2015 Actions and Results: After considering market alignment, performance factors and changes in responsibility levels, the Compensation Committee increased the base salaries of all of the NEOs from their 2014 amounts. For those NEOs who were incumbent executive officers (i.e., all of the NEOs except Ms. Rogers, who was employed by our company but was not an executive officer before her appointment as Chief Financial Officer), the increases ranged from 3.4% to 13.6%. Mr. Parker received the most significant raise on a percentage basis so that his base salary more fully reflects the increased responsibilities of the Chief Risk Officer position to which he was appointed in December 2013.

U.S. Bancorp 2016 Proxy Statement 30

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Annual Cash Incentive Awards

How We Determine Our NEOs' Annual Cash Incentive Awards

All management-level employees, including the NEOs and our other executive officers, have the opportunity to earn annual cash incentive awards that reflect their responsibility levels and reward achievement of corporate, business line, and individual goals. These awards are granted under our 2006 Executive Incentive Plan (the "EIP").

The formula for calculating each NEO's Annual Cash Incentive Payout consists of three elements:

    1.
    Each NEO's Target Award Amount, which is set each year by the Compensation Committee as a percentage of his or her base salary
    2.
    The Bonus Funding Percentage applicable to each NEO, which includes a combination of corporate and business line performance metrics
    3.
    The Compensation Committee's assessment of each NEO's Individual Performance and Risk Sensitivity, which can increase or decrease the value of the Bonus Funding Percentage applied to each NEO's Target Award Amount

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Setting the Target Award Amounts

The target annual cash incentive award for each executive officer is based on the officer's level of responsibility within the organization as well as market-based considerations.

2015 Actions and Results: In January 2015, the following Target Award Amounts were set for the NEOs:

NEO   Target Award Amount (as percentage of base salary)  

Richard K. Davis

 

 

225

%
Andrew Cecere     150 %
Kathleen A. Rogers
Richard B. Payne, Jr.
P.W. (Bill) Parker
Jeffry H. von Gillern
    125 %

For the NEOs who were incumbent executive officers, these levels were not changed from their 2014 Target Award Amounts.

Calculating the Bonus Funding Percentage

Each year, the Compensation Committee targets an aggregate amount of annual cash incentive awards to be granted to all management-level employees in each business line. The actual amount paid out can range from 0% to 200% of the target amount (the Bonus Funding Percentage) based on the company's and the business line's performance against EPS and pretax income targets included in the annual financial plan. The Board establishes these financial targets at the beginning of the fiscal year with the intent that they be challenging yet reasonably achievable goals.

The Bonus Funding Percentage for a revenue-producing business line is based on the company's EPS performance compared to the target amount in the annual financial plan (weighted 35%) and that business line's pretax income performance compared to the target amount in the annual financial plan (weighted 65%); for a business line in a support function, the 65% of the Bonus Funding Percentage assigned to pretax income performance is calculated based on the weighted average results of all of the revenue-producing business lines in the same group. The calculation is described in detail below. Adjustments may be made to EPS or pretax income results to mitigate anomalies so that the results more realistically reflect the company's or business line's performance.

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Compensation Discussion and Analysis

The Compensation Committee believes that EPS and business line pretax income are appropriate performance metrics for the executive officers' annual cash incentive awards for the following reasons:

    ​EPS is an important indicator of profitability that aligns the interests of the executive officers with those of shareholders;

    ​EPS captures elements of corporate performance that are beyond those of the individual operating business lines, such as corporate funding policies and the management and use of capital;

    ​the business line pretax income targets are the fundamental drivers of the company's revenues and income before taxes;

    ​the EPS and pretax income targets are aligned with annual financial plan targets, which the Board and management have assessed for achievability; accordingly, the targets provide incentives to take appropriate amounts of risk to achieve those goals; and

    ​the Compensation Committee values the clear alignment of incentives for executive officers and other management-level employees resulting from shared performance metrics.

The Bonus Funding Percentage for each business line is calculated as follows:

    ​The percentages by which actual corporate EPS differs from the EPS target and actual business line pretax income differs from target pretax income are each multiplied by a leverage factor of four to magnify the positive or negative variation of actual results. For example, if the actual corporate EPS were 5% greater than the EPS target, the formula would multiply 5% by four to arrive at 20%. The 20% would then be added to 100% to get the EPS Bonus Funding Result of 120%. If the actual business line pretax income were 3% below target, the formula would multiply 3% by four to arrive at 12%. The 12% would then be subtracted from 100%, resulting in a Pretax Income Bonus Funding Result of 88%. Neither the EPS Bonus Funding Result nor the Pretax Income Bonus Funding Result may be less than 0% or greater than 200%.

    ​The EPS Bonus Funding Result is multiplied by 35% to yield the Corporate Component, and the Pretax Income Bonus Funding Result is multiplied by 65% to yield the Business Line Component.

    ​The Corporate Component is then added to the Business Line Component to arrive at the

    Bonus Funding Percentage for that business line. For example, a 120% EPS Bonus Funding Result weighted 35% and an 88% Pretax Income Bonus Funding Result weighted 65% results in a Bonus Funding Percentage of 99.2%.

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The Bonus Funding Percentage used for most annual cash incentive plan participants in corporate-wide support functions that do not produce revenue — the Overall Bonus Funding Percentage — is calculated slightly differently, with 35% based on the EPS Bonus Funding Result and 65% based on the weighted average Pretax Income Bonus Funding Results of all of the company's revenue-producing business lines.

2015 Actions and Results: Interest rates remained lower than planned, which contributed to revenue growth that was lower than had been contemplated in the company's annual financial plan. Target EPS was $3.25, compared to the

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actual EPS used for purposes of the annual cash incentive plan of $3.15. (Reported EPS of $3.16 was adjusted downward by $0.01 for purposes of calculating the EPS Bonus Funding Result to partially offset the effect that our higher-than-planned release of loan loss reserves had on our earnings.) After applying the leverage factor to the difference between target and actual EPS, the EPS Bonus Funding Result was 87.7%.

Pretax income results ranged from 15.4% to 121.2% of target performance across revenue-producing business lines, which generated Pretax Income Bonus Funding Results of 0% to 184.8% following application of the leverage factor.

After applying the 35% and 65% respective weightings to the above results and adding them together, the Bonus Funding Percentages for the revenue-producing business lines in 2015 ranged from 30.7% to 150.8%. The Overall Bonus Funding Percentage in 2015 was 81.8%.

The Bonus Funding Percentage used to calculate the annual cash incentive awards for each of Mr. Davis and Mr. Cecere was the Overall Bonus Funding Percentage because they both have leadership responsibilities for the entire company. Similarly, the Overall Bonus Funding Percentage was used to calculate Ms. Rogers's and Mr. Parker's annual cash incentive awards because they are among the executive officers who lead a corporate-wide support function.

The Bonus Funding Percentage for each executive officer who leads a revenue-producing group, including Mr. Payne, equals a weighted average of the Bonus Funding Percentages of all of the business lines for which he or she has responsibility. The Bonus Funding Percentage for the Technology and Operations Services business line, led by Mr. von Gillern, is calculated differently from all others in that 35% is based on the EPS Bonus Funding Result, 50% is based on the weighted average Pretax Income Bonus Funding Results of all of the company's revenue-producing business lines, and 15% is based on that business line's expense management performance compared to plan. The Compensation Committee considers expense management to be particularly important to Technology and Operations Services because this business line has responsibility for a significant portion of the company's overall expenditures.

The resulting Bonus Funding Percentage for each NEO was as follows:

NEO   Applicable Bonus Funding Percentage

Richard K. Davis
Andrew Cecere
Kathleen A. Rogers
P.W. (Bill) Parker

 

81.8% (the Overall Bonus Funding Percentage)
Richard B. Payne, Jr.   85.5% (equal to the weighted average of Bonus Funding Percentages for the 10 business lines for which Mr. Payne has responsibility)
Jeffry H. von Gillern   85.4% (the Bonus Funding Percentage for the Technology and Operations Services business line, for which Mr. von Gillern has responsibility)

Factoring in Individual Performance and Risk Sensitivity

The Compensation Committee considers the performance of the business lines managed by each executive officer and that executive officer's individual performance during the year. The Bonus Funding Percentage to be applied to an executive's Target Award Amount can be adjusted downward as well as upward based on these performance reviews. The Compensation Committee also uses a formal "risk scorecard" analysis, which can result in downward or upward adjustments to reflect the executives' demonstrated sensitivity to risk. The Compensation Committee believes that it is important to retain the ability to recognize outstanding individual performance and risk mitigation in determining Annual Cash Incentive Payouts, as well as to acknowledge circumstances where individual performance improvements are suggested or where inappropriate risk-taking behaviors have occurred.

Individual performance criteria for all executive officers include performance relative to risk management, leadership, employee engagement, community involvement, involvement in special projects and new initiatives, and talent management, as well as factors including credit quality and audit, regulatory and compliance results. Finally, the Compensation Committee reviews the level of our corporate performance relative to our peer group in the principal profitability measures used by the Board in assessing corporate performance, as well as in relative levels of total shareholder return, as a check on the appropriateness of the award levels in the context of these operational performance measures.

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Compensation Discussion and Analysis

2015 Actions and Results: The Compensation Committee determined that the payment amounts derived from multiplying each NEO's Target Award Amount by his or her applicable Bonus Funding Percentage appropriately reflected that executive's performance and contribution to the company in 2015. Accordingly, no performance-based adjustments were made to the NEOs' Bonus Funding Percentages. After analyzing the risk scorecard results, however, the Compensation Committee made adjustments to two of the NEOs' awards. The Bonus Funding Percentage applied to Mr. Davis's Target Award Amount was decreased by 3% in consideration of his oversight as CEO of ongoing compliance challenges in certain business lines. The Bonus Funding Percentage applied to Mr. Parker's Target Award Amount was increased by 5% in recognition of his success in leading the company's efforts to comply with the heightened risk standards recently imposed by regulators.

The resulting Annual Cash Incentive Payouts for 2015 were as follows:

NEO

  Percentage of Target
Award Amount Paid Out

 
Dollar Value
of Payout

Richard K. Davis

 

78.8%

 

$2,304,900

Andrew Cecere

  81.8%   $920,250

Kathleen A. Rogers

  81.8%   $485,688

Richard B. Payne, Jr.

  85.5%   $561,094

P.W. (Bill) Parker

  86.8%   $678,125

Jeffry H. von Gillern

  85.4%   $587,125

Recoupment of Annual Cash Incentive Payouts

The Compensation Committee will evaluate the facts and circumstances surrounding a restatement of earnings, if any, and, in its sole discretion, may adjust and recoup cash incentive amounts paid to our CEO, any executive officers or any other employees as it deems appropriate, if attributable to incorrectly reported earnings.

Long-Term Incentive Awards

Establishing the Structure and Value of the Equity Awards

The Compensation Committee grants the executive officers equity awards to align their interests with those of long-term shareholders. As in each of the last several years, 75% of the value of each NEO's long-term incentive award in 2015 was granted in the form of performance-based restricted stock units, and 25% was granted in the form of stock options. These awards were granted under the U.S. Bancorp Amended and Restated 2007 Stock Incentive Plan (the "2007 Stock Incentive Plan"). The Compensation Committee believes that this award structure provides appropriately balanced incentives: the PRSUs receive more weight to emphasize the critical importance of corporate financial performance, while the stock options represent a stable equity vehicle that fosters continued alignment with long-term shareholder interests, even in periods of uncertainty.

PRSUs are earned according to a formula tied to our one-year ROE performance, as described in detail below. Both earned PRSUs and stock options vest ratably over four years from the grant date, and PRSU awards are settled in shares of our common stock. Cash dividends on unvested PRSUs are accrued during the performance period, but accrued dividends are only paid after the end of the performance period on shares actually earned by the executives.

Each year in January, the Compensation Committee determines the dollar value of that year's long-term incentive awards to be granted to the executive officers, and the grants are made in February. In setting each year's award amounts, the Compensation Committee considers the relative market position of the awards and the total compensation for each executive, the proportion of each executive's total compensation to be delivered as a long-term incentive award, internal pay equity, executive performance and changes in responsibility, retention concerns, and corporate performance.

2015 Actions and Results: The long-term equity awards granted in early 2015 represented increases in value of 0% to 17.6% for our NEOs who were incumbent executive officers. The most significant increases on a percentage basis went to Mr. Cecere in recognition of his appointment to the Chief Operating Officer role and to Mr. Parker in recognition of the increasing responsibilities of his role as Chief Risk Officer.

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Selecting the Performance Metrics for the PRSU Awards

The number of PRSUs earned each year is determined according to a formula that uses a comparison of our actual ROE to target results established in our company's annual financial plan, as well as our ROE performance relative to that of our peer group companies. ROE is used as the performance metric because:

    ​it directly reflects the return generated by the company on our shareholders' investment;

    ​it encompasses profitability, efficiency, balance sheet management and financial leverage, and is among the most widely used indicators of financial performance in our industry;

    ​achieving a high ROE requires prudent management of the tradeoffs between risk and return, requiring an appropriate balance between achieving the highest return on invested capital and managing risk within the company's established risk tolerance levels; and

    ​using ROE as a performance metric aligns the interests of the executives with those of long-term shareholders, because sustaining a high ROE is a primary driver of strong earnings growth.

The Compensation Committee believes that using a one-year performance period for the PRSUs provides important clarity for the NEOs and a strong pay and performance link. The one-year performance period creates a clear sense that strong leadership and effort will directly affect the number of shares ultimately received. The Compensation Committee has carefully considered using a longer cycle for its performance-based equity grants, but believes that the continued uncertainty in the economy and the financial industry, as well as the regulatory environment affecting our business, could have a significant effect on the company's ROE over a longer time horizon that could mute the effects of management performance. The link between performance and pay would be weakened and the incentive effect of the award reduced if members of executive management perceived that the relationship between their performance and the ultimate value of their award may be largely diluted by factors outside of their control. In addition, the PRSUs vest over a four-year period, which encourages executives to improve corporate performance during this longer period so that the company's stock price, and consequently the value of the award, increase while the award vests.

Determining the Percentage of Target PRSUs Earned

At the time of each PRSU grant, the Compensation Committee establishes a one-year target level for U.S. Bancorp's absolute level of ROE, as well as a sliding scale of ROE achievement and corresponding increases or decreases in award earn-out amounts. The absolute ROE target aligns with the company's annual financial plan, which is approved by the company's Board of Directors after consideration of, among other things, the degree of achievability. Target ROE is therefore designed to be a goal that is challenging yet reasonably achievable. The Compensation Committee also establishes a sliding scale of ROE achieved relative to our peer companies' ROE, with median performance as the target level and corresponding increases or decreases in award earn-out amounts. The Compensation Committee uses a performance matrix reflecting both the absolute and relative ROE scales to determine the final PRSU award amounts earned by interpolation using the actual ROE level achieved during the year.

The Compensation Committee established the following performance matrix at the time the 2015 PRSU awards were granted, providing for the actual award amounts to range from 0% to 125% of the target number of units in each award:

                                 
    2015 ROE PERFORMANCE MATRIX
            Target Award Number Percentage
    Company       Company ROE of 18.5% or more       75%   112.5%   125%    
 
    ROE       Company ROE Target (14.7%)       50%   100%   112.5%    
 
    Result       Company ROE of 11.5% or less (but >0)       25%   50%   75%    
 
    (Vertical Axis)       Company ROE of 0% or less       0%   0%   0%    
                    Peer Group
ROE Ranking
at 25th %ile
or below
  Peer Group
ROE Ranking
at Median
  Peer Group
ROE Ranking
at 75th %ile
or above
   
                    Peer Group ROE Ranking (Horizontal Axis)    
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Compensation Discussion and Analysis

The Compensation Committee believes that the PRSU earn-out structure provides an important balance between rewarding the achievement of absolute performance goals and strong relative performance. For example, if our absolute ROE is less than the specified ROE minimum for U.S. Bancorp, the target award number will not be earned, even if our relative ROE is at or above the 75th percentile in the peer group ROE ranking. In such a case, the number of earned units will be below the target number, even if U.S. Bancorp substantially outperforms every other company in the peer group. Conversely, if our relative ROE is significantly below the median in the peer group, the executive will earn a below-target number of units, even if U.S. Bancorp's absolute ROE substantially exceeds the target ROE. Thus, executives are not rewarded for poor performance simply because peer group members have even worse performance, nor are they rewarded for exceeding expectations (set at the beginning of the performance year) if performance relative to peers is substandard. In addition, by using a sliding scale for each ROE performance metric, the matrix takes into account the amount of variance from the ROE target and peer group ROE results, rewarding performance while mitigating the incentive for excessive risk taking that may result from an "all-or-nothing" award.

2015 Actions and Results: Our ROE in 2015 was 14.0% compared to the target absolute level (on the vertical axis) of 14.7%. In comparison to its peer group, U.S. Bancorp's 2015 ROE ranked first, which was above the 75th percentile (on the horizontal axis). The final calculation resulted in the number of PRSUs earned being equal to 104.3% of the target number of units granted.

Other Compensation Components

Executive Benefits and Perquisites

In addition to the primary components of our executive compensation program, NEOs are also eligible to receive health benefits under the same plans available to our other employees, matching contributions to their U.S. Bank 401(k) Savings Plan accounts on the same basis as our other employees, and retirement benefits that are earned over their career with the company. Perquisites for NEOs are limited, consisting primarily of financial planning expenses, home security, parking and executive physicals. NEOs are not grossed up for tax liabilities resulting from perquisites.

Change-in-Control Agreements

We maintain change-in-control agreements with all of our NEOs except Ms. Rogers. We no longer enter into change-in-control agreements with new executive officers because investors' growing concerns with some aspects of those agreements began to outweigh the value new executives placed on them. The terms of the legacy agreements we have with the other NEOs are discussed below under the headings "Executive Compensation — Potential Payments Upon Termination or Change-in-Control — Potential Payments Upon Change-in-Control." These change-in-control agreements were designed to reinforce and encourage the continued attention and dedication of our executive officers to their assigned duties without distraction in the face of the potentially disruptive circumstances arising from the possibility of a change in control.

Decision Making and Policies

Who Is Involved in Making Compensation Decisions

Executive compensation is determined by the Compensation Committee, which is composed entirely of independent outside directors and is responsible for setting our compensation policy. The Compensation Committee has responsibility for setting each component of compensation for our CEO with the assistance and guidance of Frederic W. Cook & Co., Inc. ("Cook & Co."), its independent compensation consultant. Our CEO and our executive vice president of human resources, also with the help of Cook & Co., develop initial recommendations for all components of compensation for the executive officers other than the CEO and present their recommendations to the Compensation Committee for review and approval. The Compensation Committee also sets the total amount and types of compensation paid to members of the Board of Directors.

The Compensation Committee retains Cook & Co. to:

    ​provide advice regarding compensation program design, competitive practices, market trends and peer group composition;
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    ​make recommendations to the Compensation Committee in setting the pay of our CEO;

    ​provide the same advisory services to the Compensation Committee and our CEO and executive vice president of human resources regarding the compensation of the other executive officers; and

    ​advise the Compensation Committee on director compensation.

Cook & Co. does not provide any other services to our company. Following a review of the relationship between the company and Cook & Co. in 2015, the Compensation Committee concluded that Cook & Co.'s work for the Compensation Committee does not raise any conflicts of interest.

What Information Is Considered When Determining Compensation

In January of each year, the Compensation Committee makes the following decisions with respect to compensation of our executive officers for the previous and upcoming year:

    ​determine the Annual Cash Incentive Payout for each executive officer after consideration of that person's individual performance and sensitivity to risk during the previous year;

    ​set the upcoming year's base salary, Target Award Amount for the annual cash incentive plan, and value and structure of the long-term incentive award for each executive officer;

    ​establish performance and aggregate payout targets for the upcoming year's annual cash incentive plan; and

    ​establish the performance matrix for the upcoming year's PRSU awards.

These decisions are informed by a year's worth of information gathering and analysis on performance, risk, market practices and shareholder views, as summarized below:

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As indicated above, the Compensation Committee performs several market checks per year in which it assesses the alignment of relative compensation levels within our peer group with relative performance levels to ensure that our pay levels are competitive with those of the companies with whom we compete for executive talent, while remaining reasonable and appropriate. The Committee believes that the relative compensation of our NEOs within our peer group

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is appropriate, given U.S. Bancorp's asset size relative to the group and that it has consistently led its peers in the common industry measures of ROE, ROA and efficiency ratio over many years.

In making executive compensation determinations, our Compensation Committee has also considered the results of the non-binding, advisory shareholder votes on our executive compensation program in each year since 2009. Our shareholders approved our executive compensation program in each of those years, most recently approving it by 95.2% of votes cast at our 2015 annual meeting of shareholders. The Compensation Committee will continue to consider the results from this year's and future advisory shareholder votes regarding our executive compensation program.

In addition, the company continued its annual shareholder engagement program, described on page 15 of this proxy statement, which includes discussion of executive compensation matters with some of our largest shareholders. The Compensation Committee was mindful of our shareholders' endorsement of the Compensation Committee's decisions and policies to date and decided to retain its general approach to executive compensation during 2015, with an emphasis on short- and long-term incentive compensation that rewards our most senior executives when they deliver value for our shareholders.

Peer Group Composition

When performing market checks on the level of compensation of our CEO and the other executive officers, the Compensation Committee uses the same peer group of financial services companies that management and the Board use for annual financial performance comparisons. The Compensation Committee believes that it is appropriate to make executive compensation comparisons with respect to the same peer group that is used for financial performance comparisons in large part because this group includes our primary industry competitors for executive talent.

The peer group used in 2015 has been in place since 2009 and is composed of the following companies, ranked in order of asset size as of December 31, 2015:


2015 U.S. Bancorp Peer Group

JPMorgan Chase & Co.

Bank of America Corporation

Wells Fargo & Company

U.S. Bancorp

The PNC Financial Services Group, Inc.

 

BB&T Corporation

SunTrust Banks, Inc.

Fifth Third Bancorp

Regions Financial Corporation

KeyCorp

This group was recommended by management and chosen by the Board for financial comparison purposes because these financial institutions, along with U.S. Bancorp, are the ten largest financial services companies based in the United States that provide broadly comparable retail and commercial banking services, and they are the companies with which we compete for market share across our major business lines. Other companies that provide financial or similar services and are within the asset size range represented by our peer group have significantly different businesses and business strategies from ours. Specifically, we do not include Citigroup or Capital One Financial in our peer group because both companies' business mix is very different from our company's; Citigroup also has a different geographic footprint, including a significant international component.

Some of the companies in the peer group are significantly larger than we are, and some are significantly smaller. Within this group, U.S. Bancorp is the fourth largest by asset size, total revenue, and total deposits. All of these peer companies are included in the KBW Bank Index, which we believe is the most appropriate stock market index to use for financial comparison purposes, and which is used in the Stock Performance Chart presented on page 153 of our 2015 Annual Report.

The Compensation Committee also reviews and uses compensation data from a large group of diversified financial services companies as an additional point of comparison.

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Risk Considerations in Setting Compensation Plans and Programs

Taking carefully considered risks is an integral part of any business strategy, and our compensation program is not intended to encourage management decisions that eliminate risk. Rather, the combination of various elements in our program is designed to encourage appropriate sensitivity to risk and mitigate the potential to reward risk taking that may produce short-term results that appear in isolation to be favorable, but that may undermine the successful execution of our long-term business strategy and negatively affect shareholder value. Together with the company's processes for strategic planning, its internal control over financial reporting and other financial and compliance policies and practices, the design of our compensation program helps to discourage management actions that demonstrate insensitivity to risk. We also structure our compensation program to comply with all relevant regulatory requirements, including, where applicable, foreign regulations that may be different from those in the United States.

As a large financial services company, we have been subject to a continuing review of incentive compensation policies and practices undertaken by the Federal Reserve Board since 2009. While participating in that review, we have undertaken a thorough analysis of every incentive compensation plan of the company, the individuals covered by each plan and the risks inherent in each plan's design and implementation. The Incentive Review Committee was created to oversee that review and to provide more comprehensive oversight of the relationship between the various kinds of risk we manage and our company's incentive compensation plans and programs. The Incentive Review Committee meets throughout the year and is responsible for the ultimate review and recommendation of all company incentive plans. This committee reviews plan elements such as plan participants, performance measures, performance and payout curves or formulas, how target level performance is determined (including whether any thresholds and caps exist), how frequently payouts occur, and the mix of fixed and variable compensation that the plan delivers. The plans and programs are also reviewed from the standpoint of reasonableness (for example, how target pay levels compare to similar plans for similar employee groups at other companies, and how payout amounts relate to the results that generate the payments), how well the plans and programs are aligned with U.S. Bancorp's goals and objectives and with the company's risk appetite, and from an overall standpoint, whether these plans and programs represent an appropriate mix of short-term and long-term compensation.

As part of this review by our Incentive Review Committee, our management team, including senior risk officers and individuals from the compensation department, have identified the risks inherent in these programs and have modified plans and procedures where appropriate to mitigate certain potential risks. For example, most business line incentive compensation plans with a credit component track early defaults, or defaults that occur within the first 12 months, and must include a provision that allows the company to offset future payments by the amount of the previously paid incentives related to the early default. In addition, a "risk scorecard" analysis measuring adequacy of risk management is undertaken for all senior management-level employees, including the executive officers; all employees who have credit responsibility and who participate in annual corporate cash incentive plans; and all employees who have been identified by the company as persons able, individually or as part of a group, to engage in risk-taking behavior that could be material to the company and who participate in annual corporate cash incentive plans. This analysis serves as the basis for annual cash incentive plan adjustments for these employees. The Incentive Review Committee has reviewed its process with the Compensation Committee and discussed the areas where compensation-related risks were being addressed by plan modifications, or were mitigated by internal controls or otherwise.

The Compensation Committee also conducts an annual risk assessment of the compensation packages and components for the executive officers. The Compensation Committee assesses the incentives for risk taking contained in the compensation program and balances them with the other goals of the compensation program. The Compensation Committee meets at that time with our CFO, chief credit officer, chief risk officer, general counsel and executive vice president of human resources for a discussion of the material risks our company faces, in order to assess those risks and the overall risk tolerance of the company approved by the Board of Directors in relation to the levels of risk inherent in the compensation plans and programs and the performance targets set each year.

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Compensation Discussion and Analysis

In evaluating the incentives for risk taking in compensation plans and policies for executive officers, the Compensation Committee considered the following risk-mitigating aspects of those plans and policies:


  

 

Overall Compensation Program Risk Mitigation Factors

 

  

 


Long-Term Incentive Focus: The majority of the total compensation received by executive officers is in the form of equity awards with long-term vesting schedules, which helps to ensure that executives have significant value tied to long-term stock price performance and mitigates incentives to manage the company with an excessive focus on short-term gain.

 

 


 

 

Annual Cash Incentive Risk Mitigation Factors

 

 

 


Broad Corporate Focus: The award payouts for all participants in the annual cash incentive plan, including our executive officers, are dependent to a large degree on our corporate EPS performance. This structure provides a common, consistent focus on the achievement of annual goals important to our overall success, while mitigating the incentives to take excessive risks in order to achieve goals that are more closely linked to individual performance.

 

 

 


Specific Risk Sensitivity Analysis: A "risk scorecard" analysis is performed for all senior management-level employees, including executive officers, and is reviewed by our Incentive Review Committee. The results of this analysis may result in decreases in annual cash incentive compensation amounts when inadequate risk management is demonstrated.

 

 

 


Clawback Policy: The company's incentive compensation "clawback" policy discourages risk taking that would lead to improper financial reporting.

 

 


 

 

Long-Term Incentive Risk Mitigation Factors

 

 

 


Specific Equity Cancellation Provisions: Beginning in 2012, the equity award agreements for executive officers have contained a provision that cancels the vesting of equity awards if it is determined that the executive exhibited an inadequate sensitivity to risk that caused a material adverse impact on the company or the executive's line of business.

 

 

 


Choice of Performance Metric: The PRSUs use ROE as the measure of corporate performance for determining the final number of units earned under the award. Achieving a high ROE requires an appropriate balance between achieving the highest return on invested capital and managing risk within the company's established risk tolerance levels.

 

 

 


Maximum PRSU Amount Limited to 125% of Target: The number of units that may be earned under the performance formula is capped at a modest level, which limits the potential incentive to take excessive risk in order to receive a greater number of shares.

 

 

 


Meaningful Stock Ownership Requirements: As described below, executives are required to hold significant amounts of company stock, which fosters the alignment of executives' interests with long-term shareholder interests.

 

 

 


Policy Prohibiting Hedging of Shares: Executives are prohibited from actions designed to hedge or offset any decrease in the market value of our common stock.

 

 

Based on a consideration of the foregoing reviews and factors, the Compensation Committee has determined that risks arising from the company's compensation policies and practices for its employees are not reasonably likely to have a material adverse effect on the company.

Stock Ownership Requirements

The Compensation Committee believes that significant ownership of our common stock by our executive officers directly aligns their interests with those of our other shareholders and also helps balance the incentives for risk taking inherent in equity-based awards. We have had a requirement for many years that our senior executives hold significant amounts of company stock. The current required ownership levels are:


Executive Officer

 

Ownership Level

CEO

 

6x base salary

Other executive officers

 

3x base salary
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Unvested equity awards are not included in determining whether an executive officer satisfies these ownership levels. Until the applicable ownership level is met, the executive officers must hold 100% of the after-tax value of any vested stock award or exercised option.

As of December 31, 2015, all of our executive officers were in compliance with the stock ownership requirements. Most executive officers complied by holding stock valued in excess of their applicable salary multiple, and those who have not yet reached those levels (the most recently appointed executive officers) complied by holding their shares as required. Our executive officers' stock ownership levels often significantly exceed the requirements. For example, as of February 1, 2016, Mr. Davis owned shares valued at 22.3 times his 2015 base salary.

Deductibility of Performance-Based Compensation

Annual cash incentive awards for the NEOs are granted under the EIP, which is designed to allow the company to issue awards that qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended ("Section 162(m)"). Accordingly, the annual cash incentive plan sets the maximum award level that can be given to any NEO under the plan for any year at 0.2% of the company's net income for the year. The Compensation Committee then uses negative discretion to reduce the payout amount of an executive's cash incentive award to an amount that is determined based on the formula described above: Target Award Amount × (Bonus Funding Percentage +/- Individual Performance and Risk Sensitivity). The maximum award amount under the EIP was established principally to position these awards to comply with regulations under Section 162(m), and is not indicative of the expected payout amounts.

In 2015 and in previous years, PRSUs and stock options were awarded to our NEOs under the 2007 Stock Incentive Plan. Starting in 2016, annual equity awards are granted under the U.S. Bancorp 2015 Stock Incentive Plan. Based on the design of those plans, the PRSUs and stock options granted to NEOs are intended to qualify as performance-based compensation under Section 162(m).

We review all compensation programs and payments to determine the tax impact on the company as well as on the executive officers. In addition, we review the impact of our programs against other considerations, such as accounting impact, shareholder alignment, market competitiveness, effectiveness and perceived value to employees. Because many different factors influence a well-rounded, comprehensive executive compensation program, the Compensation Committee may award compensation that is not deductible under Section 162(m). In addition, there can be no assurance that compensation awards intended to qualify for tax deductibility under Section 162(m) will ultimately be determined by the Internal Revenue Service to so qualify.

Compensation Committee Report

The Compensation and Human Resources Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based upon this review and discussion, the Compensation and Human Resources Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in our 2015 Annual Report on Form 10-K.

Compensation and Human Resources Committee of the Board of Directors of U.S. Bancorp

David B. O'Maley, Chair   O'dell M. Owens, M.D., M.P.H.
Arthur D. Collins, Jr.   Scott W. Wine
Olivia F. Kirtley    
41 U.S. Bancorp 2016 Proxy Statement

Table of Contents

GRAPHIC
Executive Compensation

Executive Compensation

Summary Compensation Table

The following table shows the cash and non-cash compensation awarded to or earned by our NEOs for 2015.

Name and
Principal Position

 

Year


Salary
($)





Stock
Awards
($)1






Option
Awards
($)2







Non-Equity
Incentive Plan
Compensation
($)3












Change in
Pension Value
and
Non-Qualified
Deferred
Compensation
Earnings
($)4











All Other
Compensation
($)5




Total
($)
 

Richard K. Davis6

 

 

2015

 

 

1,300,000

 

 

5,812,500

 

 

1,937,500

 

 

2,304,900

 

 

202,478

 

 

27,632

 

 

11,585,010

 

Chairman, President and

    2014     1,200,000     5,625,000     1,875,000     2,465,100     8,192,618     15,358     19,373,076  

Chief Executive Officer

    2013     1,100,000     5,250,000     1,750,000     2,600,000     70,355     23,308     10,793,663  
Andrew Cecere7     2015     750,000     3,750,000     1,250,000     920,250     43,399     28,053     6,741,702  

Vice Chairman and

    2014     725,000     3,187,500     1,062,500     1,047,263     1,400,038     27,883     7,450,184  

Chief Operating Officer

    2013     675,000     3,093,750     1,031,250     1,121,850         32,219     5,954,069  

(former CFO)

                                                 
Kathleen A. Rogers8,9     2015     475,000     750,000     250,000     485,688     298,453     14,705     2,273,846  

Vice Chairman and
Chief Financial Officer

                                                 
Richard B. Payne, Jr.     2015     525,000     1,815,000     605,000     561,094     240,830     35,292     3,782,216  

Vice Chairman,

    2014     500,000     1,815,000     605,000     536,875     419,490     26,220     3,902,585  

Wholesale Banking

    2013     500,000     1,815,000     605,000     578,750     250,156     30,580     3,779,486  
P.W. (Bill) Parker     2015     625,000     1,500,000     500,000     678,125     241,507     24,545     3,569,177  

Vice Chairman and

    2014     550,000     1,312,500     437,500     627,688     471,963     24,170     3,423,821  

Chief Risk Officer

    2013     475,000     1,072,500     357,500     534,660     149,427     19,706     2,608,793  
Jeffry H. von Gillern9     2015     550,000     1,125,000     375,000     587,125     57,651     21,589     2,716,365  

Vice Chairman, Technology
and Operations Services

                                                 

1.
Stock Awards

    The amounts in this column are calculated based on the number of performance-based restricted stock units, or PRSUs, awarded and the fair market value of U.S. Bancorp common stock on the date the award was made in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718.

    The 2015 values in this table reflect the fair market value of each officer's target payout for the 2015 PRSUs on the grant date. The number of units subject to each of these awards that were earned based on our actual 2015 performance is equal to 104.3% of the awards' respective target amounts. The fair market value of the maximum potential payout amounts for these awards on the grant date were as follows: (i) Mr. Davis, $7,265,625; (ii) Mr. Cecere, $4,687,500; (iii) Ms. Rogers, $937,500; (iv) Mr. Payne, $2,268,750; (v) Mr. Parker, $1,875,000; and (vi) Mr. von Gillern, $1,406,250.

2.
Option Awards

    The amounts in this column are based on the fair value of the stock option awards as estimated using the Black-Scholes option-pricing model in accordance with FASB ASC Topic 718. The assumptions used to arrive at the Black-Scholes value are disclosed in Note 18 to our consolidated financial statements included in our 2015 Annual Report on Form 10-K.

3.
Non-Equity Incentive Plan Compensation

    The amounts in this column relate to awards granted under our EIP. The EIP and these awards are discussed above in the "Compensation Discussion and Analysis" section of this proxy statement.

U.S. Bancorp 2016 Proxy Statement 42

Table of Contents

Executive Compensation
GRAPHIC

4.
Change in Pension Value and Non-Qualified Deferred Compensation Earnings

    The amounts in this column represent the increase in the actuarial net present value of all future retirement benefits under the U.S. Bank Pension Plan and the U.S. Bancorp Non-Qualified Retirement Plan. A number of factors can cause the amounts reflected in this column to vary significantly, including volatility in the discount rate applied to determine the value of future payment streams and changes to mortality assumptions.

    The change in present value amounts reported for 2015 are substantially smaller than those reported for 2014 for the respective NEOs. These smaller "change" values are primarily due to the higher discount rates for year-end 2015, which are approximately 30 basis points higher than for year-end 2014, as well as annual cash incentive plan payout amounts at lower levels than in recent years for certain of the NEOs. For the amounts reported for 2015, the effect of the higher discount rate was offset or partially offset by increased age of the NEOs and increased service credited to the NEOs.

    The net present values of the pension benefits as of December 31, 2015, used to calculate the net change in pension benefits were determined using the same assumptions used to determine our pension obligations and expense for financial statement purposes. See Note 17 to our consolidated financial statements included in our 2015 Annual Report on Form 10-K for these specific assumptions. Additional information about our Pension Plan and Non-Qualified Retirement Plan is included below under the heading "Pension Benefits." We have not provided above-market or preferential earnings on any nonqualified deferred compensation and, accordingly, no such amounts are reflected in this column.

5.
All Other Compensation

    The following table describes each component of the All Other Compensation column for 2015:

Name  


Parking
Reimbursement
($)







Matching
Contribution into
401(k) Savings Plan
($)








Reimbursement
of Financial
Planning Expenses
($)







Executive
Physical
($)







Home Security
System
Expenses
($)






Other
($)a



Total
($)
 

Mr. Davis

 

 

4,220

 

 

10,600

 

 


 

 

11,657

 

 

819

 

 

336

 

 

27,632

 
Mr. Cecere     4,220     10,600     12,480         663     90     28,053  
Ms. Rogers     4,070     10,600                 35     14,705  
Mr. Payne     4,220     10,600     12,480     7,927         65     35,292  
Mr. Parker     4,220     10,600     7,000     2,690         35     24,545  
Mr. von Gillern     4,220     10,600         2,946     788     3,035     21,589  
    a.
    The amount for Mr. Davis includes a matching contribution of $250 under our charitable matching gifts program, which matches charitable gifts made by any of our employees and directors, and non-cash gifts with a value of $86. The amount for Mr. von Gillern includes a matching contribution of $3,000 and a non-cash gift with a value of $35. The amounts for all other NEOs are the result of non-cash gifts.

    Our company occasionally allows its executives the personal use of tickets for sporting and special events previously acquired by our company for the purpose of business entertainment. There is no incremental cost to our company for the use.

6.
Mr. Davis served as Chairman, President and Chief Executive Officer for all of 2015. His title changed to Chairman and Chief Executive Officer on January 18, 2016, in connection with Mr. Cecere's promotion to President.
7.
Mr. Cecere served as Vice Chairman and Chief Financial Officer until January 20, 2015, when he was promoted to Vice Chairman and Chief Operating Officer. He was further promoted to President and Chief Operating Officer on January 18, 2016.
8.
Ms. Rogers was appointed Vice Chairman and Chief Financial Officer on January 20, 2015.
9.
Ms. Rogers and Mr. von Gillern were not NEOs in 2013 or 2014. Accordingly, the table reflects only their compensation for 2015.
43 U.S. Bancorp 2016 Proxy Statement

Table of Contents

GRAPHIC
Executive Compensation

Grants of Plan-Based Awards

The following table summarizes the equity and non-equity plan-based awards granted in 2015 to the NEOs. The first line of information for each executive contains information about the 2015 annual cash incentive awards (paid in February 2016) that each executive was eligible to receive under our EIP, and the remaining information relates to performance-based restricted stock units and stock options granted in 2015 under the 2007 Stock Incentive Plan.

Grants of Plan-Based Awards for Fiscal 2015

     



Date of
Compensation
Committee
Meeting at







Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards1






Estimated Future Payouts
Under Equity
Incentive Plan Awards4









All Other
Option
Awards:
Number of
Securities
Underlying










Exercise
or Base
Price of
Option








Grant Date
Fair Value
of Stock
and Option
 
                   

Name




Grant
Date




Which Grant
Was Approved




Target
($)2




Maximum
($)3




Threshold
(#)




Target
(#)




Maximum
(#)




Options
(#)5




Awards
($/Sh)



Awards
($)6
 

Richard K.

   
   
   
2,925,000
   
11,758,000
   
   
   
   
   
   
 

Davis

    2/19/15     1/19/15             0     131,148     163,932             5,812,500  

    2/19/15     1/19/15                         158,165     44.32     1,937,500  

Andrew

            1,125,000     11,758,000                          

Cecere

    2/19/15     1/19/15             0     84,611     105,763             3,750,000  

    2/19/15     1/19/15                         102,044     44.32     1,250,000  

Kathleen A.

              593,750     11,758,000                          

Rogers

    2/19/15     1/19/15             0     16,922     21,150             750,000  

    2/19/15     1/19/15                         20,410     44.32     250,000  

Richard B.

            656,250     11,758,000                          

Payne, Jr.

    2/19/15     1/19/15             0     40,952     51,188             1,815,000  

    2/19/15     1/19/15                         49,388     44.32     605,000  

P.W. (Bill)

            781,250     11,758,000                          

Parker

    2/19/15     1/19/15             0     33,844     42,304