DEF 14A 1 d120350ddef14a.htm NOTICE & PROXY STATEMENT Notice & Proxy Statement
Table of Contents

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.     )

 

þ  Filed by the Registrant

   ¨  Filed by a Party other than the Registrant

 

 

Check the appropriate box:

   

¨  

  Preliminary Proxy Statement
   

¨

  CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
   

þ

  Definitive Proxy Statement
   

¨

  Definitive Additional Materials
   

¨

  Soliciting Material under §240.14a-12

THE PNC FINANCIAL SERVICES GROUP, INC.

 

LOGO

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

 

Payment of Filing Fee (Check the appropriate box):

   

þ  

  No fee required.
   

¨

  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
   
    (1) Title of each class of securities to which transaction applies:
   
    (2) Aggregate number of securities to which transaction applies:
   
    (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
   
    (4) Proposed maximum aggregate value of transaction:
   
    (5) Total fee paid:
   

¨

  Fee paid previously with preliminary materials.
   

¨

  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
   
    (1) Amount Previously Paid:
   
    (2) Form, Schedule or Registration Statement No.:
   
    (3) Filing Party:
   
    (4) Date Filed:


Table of Contents

 

Integrity.

Innovation.

Insight.

 

LOGO


Table of Contents
LOGO

 

 

  LOGO     

LETTER FROM THE CHAIRMAN AND
CHIEF EXECUTIVE OFFICER TO OUR
SHAREHOLDERS

 

 

 

Dear Shareholder

We invite you to attend the 2016 Annual Meeting of Shareholders of The PNC Financial Services Group, Inc. on Tuesday, April 26, 2016.

The meeting will be held in Pittsburgh, Pennsylvania in the James E. Rohr Auditorium in The Tower at PNC Plaza, 300 Fifth Avenue, beginning at 11:00 a.m., Eastern time. We will consider the matters described in this proxy statement and also review significant developments since last year’s meeting of shareholders.

We are again making our proxy materials available to you electronically. We hope that this continues to offer you convenience while allowing us to reduce the number of copies that we print.

The proxy statement contains important information and you should read it carefully. Even if you plan to attend the meeting in person, we strongly encourage you to designate the proxies named on the proxy card to vote your shares. If you will not be there in person, you will be able to listen to the meeting by webcast or conference call. Please see the notice that follows for more information.

We look forward to your participation and thank you for your support of PNC.

 

March 15, 2016

Sincerely,

 

LOGO

William S. Demchak

Chairman, President and Chief Executive Officer

 


Table of Contents

PARTICIPATE IN THE FUTURE OF PNC – PLEASE CAST YOUR VOTE

Your vote is important to us and we want your shares to be represented at the annual meeting. Please cast your vote on the proposals listed below.

Under New York Stock Exchange (NYSE) rules, if you hold your shares through a broker, bank, or other nominee (“street name”), and you do not provide any voting instructions, your broker has discretionary authority to vote on your behalf for items that are considered “routine”. The only routine item on this year’s ballot is the ratification of our auditor selection. If an item is non-routine and you do not provide voting instructions, no vote will be cast on your behalf.

Proposals requiring your vote

 

 

          More
information
  Board
recommendation
  Routine
item?
  Abstentions  

Votes

required

for

approval

Item 1   Election of 13 nominated directors   Page 12  

FOR

each nominee

  No  

Do not

count

 

Majority of shares

cast

 

Item 2

 

 

Ratification of independent registered public accounting firm for 2016

 

 

Page 81

 

 

FOR

 

 

Yes

   

 

Item 3

 

 

Approval of 2016 Incentive Award Plan

 

 

Page 84

 

 

FOR

 

 

No

   

 

Item 4

 

 

Advisory approval of the compensation of PNC’s named executive officers (say-on-pay)

 

 

Page 95

 

 

FOR

 

 

No

   

Vote your shares

 

Please read this proxy statement with care and vote right away. We offer a number of ways for you to vote your shares. We include voting instructions in the Notice of Availability of Proxy Materials and the proxy card. If you hold shares in street name, you will receive information on how to give voting instructions to your broker or bank. For registered holders, we offer the following methods to vote your shares and give us your proxy:

 

LOGO   LOGO   LOGO
www.envisionreports.com/PNC  

Follow the instructions

on the proxy card.

 

Complete, sign and date the proxy card

and return it in the envelope provided.

Attend our 2016 Annual Meeting of Shareholders

 

 

Directions to attend the annual meeting    Tuesday, April 26, 2016 at 11:00 a.m.
are available at    The Tower at PNC Plaza – James E. Rohr Auditorium
www.pnc.com/annualmeeting    300 Fifth Avenue
   Pittsburgh, Pennsylvania 15222

 

4    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

PROXY STATEMENT SUMMARY

 

Proxy Statement Summary

To assist you in reviewing the proposals to be acted upon, we have included a summary of certain information. This summary does not contain all of the information that you should consider, and you should review our entire proxy statement and the 2015 Annual Report before you vote.

You may also read our proxy statement and 2015 Annual Report at www.envisionreports.com/PNC.

Who can vote (page 98)

You are entitled to vote if you were a shareholder on the record date of January 29, 2016.

How to vote (page 99)

We offer our shareholders a number of ways to vote, including by Internet, telephone, or mail. Shareholders may also vote in person at the annual meeting.

Voting matters

Item 1:  Election of directors (page 12)

 

 

The proxy statement contains important information about the experience, qualifications, attributes, and skills of the 13 nominees to our Board of Directors. Our Board’s Nominating and Governance Committee performs an annual assessment to confirm that our directors continue to have the skills and experience to serve PNC, and that our Board and its committees continue to be effective in carrying out their duties.

 

 

Our Board recommends that you vote FOR all 13 director nominees.

Item 2:  Ratification of auditors (page 81)

 

 

Each year, our Board’s Audit Committee selects PNC’s independent registered public accounting firm. For 2016, the Audit Committee selected PricewaterhouseCoopers LLP (PwC) to fulfill this role.

 

 

Our Board recommends that you vote FOR the ratification of the Audit Committee’s selection of PwC as our independent registered public accounting firm for 2016.

Item 3:  Approval of 2016 Incentive Award Plan (page 84)

 

 

We ask shareholders to approve a new equity compensation plan, the 2016 Incentive Award Plan, allowing us to make equity-based compensation awards to employees and directors. If the 2016 Incentive Award Plan is approved, it will replace the 2006 Incentive Award Plan, and no further awards will be made under the 2006 Incentive Award Plan. Our Board adopted the 2016 Incentive Award Plan on March 3, 2016, and it will become effective as of April 26, 2016, subject to shareholder approval. We ask shareholders to approve the plan.

 

 

Our Board recommends that you vote FOR the approval of the 2016 Incentive Award Plan.

Item 4:  “Say-on-pay” (page 95)

 

 

We ask shareholders to cast a non-binding advisory vote on our executive compensation program – known generally as the “say-on-pay” vote. We have offered a say-on-pay vote since 2009, and our shareholders confirmed their preference for annual votes in 2011. Last year, 97% of the votes cast by our shareholders supported our executive compensation program, and PNC has averaged 92% support in its say-on-pay votes over the past five years.

 

 

We recommend that you read the Compensation Discussion and Analysis (CD&A) (beginning on page 39), which explains how and why our Board’s Personnel and Compensation Committee made executive compensation decisions for 2015.

 

 

Our Board recommends that you vote FOR the non-binding advisory vote on executive compensation (say-on-pay).

 



 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    5


Table of Contents

PROXY STATEMENT SUMMARY

 

2015 PNC performance (pages 39 to 40)

 

LOGO     In 2015, we delivered consistent results in a challenging operating environment, with net income of $4.1 billion (8% over budget) and diluted earnings per share of $7.39 (7.4% over budget) – we have earned at least $1 billion in net income during each of the past eleven quarters
LOGO     Our annual total shareholder return (TSR) was the second-highest in our peer group and our three-year TSR was the highest in our peer group – our stock price also reached an all-time high in 2015
LOGO     We diversified and improved our sources of revenue by successfully growing noninterest income and allowing our net interest income to decline – rather than adding riskier loans in a continued low interest rate environment
LOGO     We continued to manage our costs, reducing our expenses for the third year in a row and exceeding our revised continuous improvement goal of $500 million in expense savings (up from our initial 2015 goal of $400 million)
LOGO     We strengthened our capital throughout the year and returned capital to our shareholders through both a common stock dividend increase and share repurchases
LOGO     Continued to make strategic investments to position PNC for long-term success, including significant upgrades to our technology infrastructure, transforming the retail bank, and building a leading banking franchise in our underpenetrated markets

2015 compensation decisions (page 47)

The table below shows, for each NEO, the incentive compensation target for 2015 and the actual annual cash incentive and long-term equity-based incentives awarded in 2016 for 2015 performance.

 

  2015 incentive compensation decisions    William S.
Demchak
    

Robert Q.

Reilly

    

Michael P.

Lyons

    

E William

Parsley, III(1)

    

Joseph C.

Guyaux

 

Incentive compensation target

   $ 9,900,000       $ 3,000,000       $ 4,800,000       $ 5,500,000       $ 2,480,000   

Incentive compensation awarded

   $ 11,900,000       $ 3,300,000       $ 6,100,000       $ 6,100,000       $ 2,880,000   

Annual incentive award (cash)

   $ 4,100,000       $ 1,400,000       $ 2,020,000       $ 1,300,000       $ 1,130,000   

Long-term incentive award (equity-based)

   $ 7,800,000       $ 1,900,000       $ 4,080,000       $ 4,800,000       $ 1,750,000   
(1) Mr. Parsley’s incentive compensation award includes two grants – the grant of equity-based awards that all other NEOs would otherwise receive (valued at $1,800,000) and a separate grant of incentive performance units related to the management of our Asset & Liability Management (ALM) unit, valued at $3,000,000. Please see page 63 for a discussion of Mr. Parsley’s ALM units.

The amounts shown in the table above differ from the amounts reflected in the Summary compensation table on page 58. In accordance with SEC regulations, that table shows the long-term equity-based incentives granted in 2015 based on 2014 performance.

PNC governance (page 18)

 

 

You can find out more about our governance policies and principles at www.pnc.com/corporategovernance.

 

 

Our entire Board is re-elected every year; we have no staggered elections.

 

 

Our Board is subject to a majority voting requirement; any director not receiving a majority of votes in an uncontested election must tender his or her resignation to the Board.

 

 

Our corporate governance guidelines require the Board to have a substantial majority (at least 2/3) of independent directors. Currently, 15 out of 16 directors (94%) are independent, and our only non-independent director is our CEO. All but one of our nominees to the Board (12 out of 13, or 92%) are independent.

 

 

Our Board has had a Presiding Director, a lead independent director with specific duties, since 2004.

 

 

Our Presiding Director approves Board meeting schedules and agendas.

 

 

Our Board meets regularly in executive session, with no members of management present.

 



 

6    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

PROXY STATEMENT SUMMARY

 

 

 

In 2015, our Board met 10 times and each of our directors attended at least 75% of the aggregate number of meetings of the Board and the committees on which he or she served. The average attendance of all directors at Board and committee meetings was 99%. All current directors then serving attended our 2015 Annual Meeting of Shareholders.

 We have four primary standing board committees:

 

   

Audit Committee

 

   

Personnel and Compensation Committee (Compensation)

 

   

Nominating and Governance Committee (Governance)

 

   

Risk Committee

Board nominees (page 12)

 

 Name    Age      Director since      Independent      Primary Standing Committee Memberships

 Charles E. Bunch

   66      2007      þ     

Compensation; Governance

 Marjorie Rodgers Cheshire

   47      2014      þ     

Audit; Risk

 William S. Demchak

   53      2013      ¨     

Risk

 Andrew T. Feldstein

   51      2013      þ     

Compensation; Risk (Chair)

 Daniel R. Hesse

   62      2016      þ     

Risk

 Kay Coles James

   66      2006      þ     

Governance; Risk

 Richard B. Kelson

   69      2002      þ     

Audit (Chair); Compensation

 Jane G. Pepper

   70      1997      þ     

Risk

 Donald J. Shepard

   69      2007      þ     

Audit; Governance (Chair); Risk

 Lorene K. Steffes

   70      2000      þ     

Risk

 Dennis F. Strigl

   69      2001      þ     

Compensation (Chair); Governance

 Michael J. Ward

   65      2016      þ     

Compensation; Governance

 Gregory D. Wasson

   57      2015      þ     

Audit

 



 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    7


Table of Contents

Table of Contents

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS      11   
ELECTION OF DIRECTORS (ITEM 1)      12   
CORPORATE GOVERNANCE      18   

Recent corporate governance developments

     18   

Corporate governance guidelines

     18   

Annual meeting format

     19   

Our Board leadership structure

     19   

Communicating with our Board

     20   

Our code of ethics

     20   

Orientation and education

     21   

Board committees

     21   

Board meetings in 2015

     29   
DIRECTOR AND EXECUTIVE OFFICER RELATIONSHIPS      30   

Director independence

     30   

Transactions with directors

     32   

Code of ethics

     33   

Regulation O policies and procedures

     33   

Family relationships

     34   

Indemnification and advancement of costs

     34   
RELATED PERSON TRANSACTIONS      35   

Related person transactions policy

     35   

Certain related person transactions

     35   
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE      36   
DIRECTOR COMPENSATION      36   

Director compensation in 2015

     37   
COMPENSATION DISCUSSION AND ANALYSIS      39   

2015 PNC performance

     39   

Compensation philosophy and principles

     40   

Shareholder engagement and impact of 2015 say-on-pay vote

     41   

Compensation program summary

     41   

2015 compensation decisions

     46   

Compensation policies and practices

     50   
COMPENSATION COMMITTEE REPORT      55   

 

8    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents
COMPENSATION AND RISK      56   

Risk management at PNC

     56   

Risk review of compensation plans

     57   
COMPENSATION TABLES      58   

Summary compensation table

     58   

Grants of plan-based awards in 2015

     60   

Outstanding equity awards at 2015 fiscal year-end

     62   

Option exercises and stock vested in fiscal 2015

     66   

Pension benefits at 2015 fiscal year-end

     67   

Non-qualified deferred compensation in fiscal 2015

     69   
CHANGE IN CONTROL AND TERMINATION OF EMPLOYMENT      73   

Benefits upon termination of employment

     73   

Change in control agreements

     73   

Equity-based grants

     74   

Existing plans and arrangements

     76   

Estimated benefits upon termination

     76   
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS      79   

Security ownership of certain beneficial owners

     80   
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (ITEM 2)      81   

Audit, audit-related and permitted non-audit fees

     81   

Procedures for pre-approving audit, audit-related and permitted non-audit services

     82   
REPORT OF THE AUDIT COMMITTEE      83   
APPROVAL OF 2016 INCENTIVE AWARD PLAN (ITEM 3)      84   

Overview

     84   

Highlights of the 2016 Plan

     86   

Material Terms of the 2016 Plan

     86   

Types of Awards

     87   

Deferrals

     89   

Adjustment Provisions

     89   

Sub-plans

     90   

Amendment and Termination of the Plan

     90   

Federal Income Tax Consequences

     90   

New Plan Benefits

     92   

Equity Compensation Plan Information

     93   

The 1997 Long-Term Incentive Award Plan

     93   

The 2006 Incentive Award Plan

     93   

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    9


Table of Contents
“SAY-ON-PAY”: ADVISORY VOTE ON EXECUTIVE COMPENSATION (ITEM 4)      95   

What is the purpose of this item?

     95   

What does it mean to have a “say-on-pay” advisory vote?

     95   

Where can I find more information on executive compensation?

     96   

What are some of the performance and compensation program highlights for 2015?

     96   
GENERAL INFORMATION      97   

Attending the annual meeting

     97   

Reviewing proxy materials

     98   

Voting your shares

     98   

How a proposal gets approved

     100   

2015 annual meeting voting results

     101   
SHAREHOLDER PROPOSALS FOR THE 2017 ANNUAL MEETING      102   
OTHER MATTERS      102   
ANNEX A (NON-GAAP RECONCILIATIONS)      103   
ANNEX B (PROPOSED 2016 INCENTIVE AWARD PLAN)      104   
ANNEX C (REGULATIONS FOR CONDUCT AT ANNUAL MEETING)      119   

 

10    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

LOGO

 

 

   Notice of Annual Meeting

   of Shareholders

 

Tuesday, April 26, 2016

11:00 a.m. (Eastern time)

The Tower at PNC Plaza – James E. Rohr Auditorium, 300 Fifth Avenue, Pittsburgh, Pennsylvania 15222

WEBCAST

A listen-only webcast of our annual meeting will be available at www.pnc.com/annualmeeting. An archive of the webcast will be available on our website for thirty days.

CONFERENCE CALL

You may access the listen-only conference call of the annual meeting by calling 877-272-3498 or 303-223-2682 (international). A telephone replay will be available for one week by calling 800-633-8284 or 402-977-9140 (international), conference ID 21804913.

ITEMS OF BUSINESS

  1. Electing as directors the 13 nominees named in the proxy statement that follows, to serve until the next annual meeting and until their successors are elected and qualified;  
  2. Ratifying the Audit Committee’s selection of PricewaterhouseCoopers LLP as PNC’s independent registered public accounting firm for 2016;  
  3. Approval of the 2016 Incentive Award Plan;  
  4. An advisory vote to approve named executive officer compensation; and  
  5. Such other business as may properly come before the meeting.  

RECORD DATE

The close of business on January 29, 2016 is the record date for determining shareholders entitled to receive notice of and to vote at the meeting and any adjournment.

MATERIALS TO REVIEW

We began providing access to this proxy statement and a form of proxy card on March 15, 2016. We have made our proxy materials available electronically. Certain shareholders will receive a notice explaining how to access our proxy materials and vote. Other shareholders will receive a paper copy of this proxy statement and a proxy card.

PROXY VOTING

Even if you plan to attend the annual meeting in person, we encourage you to cast your vote over the Internet, or if you have a proxy card, by mailing the completed proxy card, or by telephone. This Notice of Annual Meeting and Proxy Statement and our 2015 Annual Report are available at www.envisionreports.com/PNC.

ADMISSION

To be admitted to our annual meeting you must present proof of your stock ownership as of the record date and valid photo identification. Each shareholder may bring one guest who must present valid photo identification. Please follow the admission procedures described beginning on page 97 of this proxy statement.

 

March 15, 2016

By Order of the Board of Directors,

 

LOGO

Christi Davis

Corporate Secretary

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    11


Table of Contents

ELECTION OF DIRECTORS (ITEM 1)

 

Our Board of Directors determines the number of directors to nominate for election. Our By-laws contemplate a Board that ranges in size from 5 to 36 directors. For this annual meeting, our Board fixed the number of directors to be elected at 13.

Each of the 13 nominees currently serves on our Board. Beginning on page 13, we include the following information for our nominees:

 

 

their names and ages

 

 

the years they first became directors of PNC

 

 

their principal occupations and public company directorships over the past five years

 

 

a brief discussion of the specific experience, qualifications, attributes or skills that led to our Board’s conclusion that the person should serve as a director

The directors will serve for one year, unless they leave the Board early. We do not stagger our elections—the entire Board will be considered for election at the 2016 meeting. If elected, each nominee will hold office until the next annual meeting of our shareholders, and until the election and qualification of his or her successor.

Each nominee consents to being named in this proxy statement and to serve if elected. Our Board has no reason to believe that any nominee will be unavailable or unable to serve as a director.

On July 2, 2015, the Board of Directors appointed Gregory D. Wasson to serve on the Board. Mr. Wasson was identified as a director candidate by a search firm retained by the Nominating and Governance Committee. On January 7, 2016, the Board of Directors appointed Daniel R. Hesse and Michael J. Ward to serve on the Board. Mr. Hesse and Mr. Ward were each recommended as a director by one of our non-management directors.

In addition to information on the background and qualifications of each director, this proxy statement contains other important information related to your evaluation of our nominees. We discuss:

 

 

our Board’s leadership structure

 

 

how our Board operates

 

 

relationships between PNC and our directors

 

 

how we evaluate director independence

 

 

how we pay our directors

 

 

our director stock ownership requirement

See the following sections for more details on these topics:

 

 

Corporate Governance (page 18)

 

 

Director and Executive Officer Relationships (page 30)

 

 

Related Person Transactions (page 35)

 

 

Director Compensation (page 36)

 

 

Security Ownership of Directors and Executive Officers (page 79)

If you sign, date and return your proxy card but do not give voting instructions, or if you do not provide voting instructions when voting over the Internet, we will vote your shares FOR all of the nominees named on pages 13 to 17. See page 100 regarding the vote required for election of the nominees as directors.

The Board of Directors recommends a vote FOR each of the nominees listed on pages 13 to 17.

 

 

12    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

ELECTION OF DIRECTORS (ITEM 1)

 

LOGO    

Charles E. Bunch

Age 66

 

Director Since 2007

 

Experience, Qualifications, Attributes, or Skills

 

Mr. Bunch is the Executive Chairman and former Chief Executive Officer of PPG

Industries, Inc., a Pittsburgh-based global supplier of paints, coatings, optical products, specialty materials, chemicals, glass and fiberglass.

Mr. Bunch received an undergraduate degree from Georgetown University and a master’s degree in business administration from Harvard University.

Mr. Bunch’s service as a public company CEO, his extensive management and finance experience and his involvement in the Pittsburgh community add significant value to our Board. In addition, Mr. Bunch brings regulatory and banking industry experience to our Board as he formerly served as a Director and the Chairman of the Federal Reserve Bank of Cleveland, our principal banking regulator.

PNC Board Committee Memberships

Nominating and Governance Committee

Personnel and Compensation Committee

Public Company Directorships

ConocoPhillips

H.J. Heinz Company (until June 2013)

Marathon Petroleum Corporation (September 2015)

PPG Industries, Inc.

LOGO    

Marjorie Rodgers Cheshire

Age 47

 

Director Since 2014

 

Experience, Qualifications, Attributes, or Skills

 

Marjorie Rodgers Cheshire is President and Chief Operating Officer of A&R Development

Corp., a diversified real estate development organization focused on the Baltimore and Washington markets. A&R’s portfolio includes residential, commercial and mixed-use developments, ranging in value from $1 million to $152 million, with an aggregate value of more than $900 million.

Prior to joining A&R, Ms. Cheshire spent many years in the media and sports industries. Her most recent position was as Senior Director of Brand & Consumer Marketing for the National Football League. Prior to that, Ms. Cheshire held positions as Vice President of Business Development for Oxygen Media, Director and Special Assistant to the Chairman & CEO of ESPN, and Manager of Strategic Marketing for ABC Daytime. Ms. Cheshire also worked as a consultant with The Boston Consulting Group, a strategic consulting firm serving Fortune 500 companies.

Ms. Cheshire has a B.S. in Economics from the Wharton School of the University of Pennsylvania and a MBA from the Stanford University Graduate School of Business. She is a Trustee of Baltimore Equitable Insurance, Baltimore School for the Arts, Johns Hopkins Bayview Medical Center, and Johns Hopkins Hospital.

Our Board values Ms. Cheshire’s executive management experience, her background in real estate, marketing and media; as well as her involvement in the Baltimore community and her familiarity with this important market for PNC.

PNC Board Committee Memberships

Audit Committee

Risk Committee

Special Compliance Committee

Public Company Directorships

None

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    13


Table of Contents

ELECTION OF DIRECTORS (ITEM 1)

 

LOGO    

William S. Demchak

Age 53

 

Director Since 2013

 

Experience, Qualifications, Attributes, or Skills

 

Mr. Demchak is Chairman, President and Chief Executive Officer of The PNC Financial

Services Group, Inc., one of the largest diversified financial services companies in the United States. Mr. Demchak joined PNC in 2002 as chief financial officer. In July 2005, he was named head of PNC’s Corporate & Institutional Banking segment responsible for PNC’s middle market and large corporate businesses, as well as capital markets, real estate finance, equity management and leasing. Mr. Demchak was promoted to senior vice chairman in 2009, named head of PNC businesses in August 2010, elected president in April 2012, chief executive officer in April 2013 and appointed as chairman in April 2014.

Before joining PNC in 2002, Mr. Demchak served as the global head of Structured Finance and Credit Portfolio for JPMorgan Chase. He also held key leadership roles at JPMorgan prior to its merger with the Chase Manhattan Corporation in 2000. He was actively involved in developing JPMorgan’s strategic agenda and was a member of the company’s capital and credit risk committees.

Mr. Demchak is director of BlackRock, Inc. He is a member of the Board of The Financial Services Roundtable. In addition, he serves on the boards of directors of the Extra Mile Education Foundation and the YMCA of Pittsburgh. He is Vice-Chair of the Allegheny Conference on Community Development, Vice-Chair of the Clearing House Corp., and a member of the Board of the Pittsburgh Cultural Trust. Mr. Demchak also is the Chair of the Advisory Committee of Envision Downtown.

Mr. Demchak received a Bachelor of Science degree from Allegheny College and earned an MBA with an emphasis in accounting from the University of Michigan.

The Board believes that the current CEO should also serve as a director. Under the leadership structure discussed elsewhere in this proxy statement, a CEO-director acts as a liaison between directors and management, and assists the Board in its oversight of the company. Mr. Demchak’s experiences and strong leadership provide our Board with insight into the business and strategic priorities of PNC.

PNC Board Committee Memberships

Executive Committee

Risk Committee

Public Company Directorships

BlackRock, Inc.

LOGO    

Andrew T. Feldstein

Age 51

 

Director Since 2013

 

Experience, Qualifications, Attributes, or Skills

 

Mr. Feldstein is the Chief Executive Officer and Co-Chief Investment Officer of

BlueMountain Capital Management, a leading alternative asset manager with $21 billion in assets under management and approximately 285 professionals worldwide. Mr. Feldstein is the Chair of the firm’s Management Committee and a member of the Investment and Risk Committees.

Prior to co-founding BlueMountain in 2003, Mr. Feldstein spent over a decade at JPMorgan where he was a Managing Director and served as Head of Structured Credit; Head of High Yield Sales, Trading and Research; and Head of Global Credit Portfolio. Mr. Feldstein is a Trustee of Third Way, a public policy think tank; a Trustee of the Santa Fe Institute, an independent research and education center; and a member of the Harvard Law School Leadership Council.

Mr. Feldstein received an undergraduate degree from Georgetown University and a J.D. from Harvard Law School.

Our Board values Mr. Feldstein’s extensive financial and risk management expertise. As founder and CEO of BlueMountain Capital and through his senior management positions at JPMorgan, Mr. Feldstein has built a reputation for innovation and significant insight into risk management. The board believes that these skills are particularly valuable to its effective oversight of risk management and will also be a valuable resource to PNC as it continues to grow its business and strengthen its balance sheet.

PNC Board Committee Memberships

Executive Committee

Personnel and Compensation Committee

Risk Committee (Chair)

Technology Subcommittee

Public Company Directorships

None

 

LOGO    

Daniel R. Hesse

Age 62

 

Director Since 2016

 

Experience, Qualifications, Attributes, or Skills

 

Daniel R. Hesse is the former President and Chief Executive Officer of Sprint Corporation, one of the United States’ largest wireless carriers.

Mr. Hesse received a bachelor’s degree from the University of Notre Dame, a MBA from Cornell University and a MS from Massachusetts Institute of Technology where he was awarded the Brooks Thesis prize.

Mr. Hesse brings extensive corporate leadership experience to our Board, having served in a variety of executive positions, including as CEO of Sprint Corporation. His years of experience in the wireless communications industry provide insight into the dynamic and strategic issues overseen by the Board. The broad spectrum of technological issues in this industry give him a strong understanding to assist the Board in its oversight of technological issues.

PNC Board Committee Memberships

Risk Committee

Technology Subcommittee

Public Company Directorships

None

 

 

14    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

ELECTION OF DIRECTORS (ITEM 1)

 

LOGO    

Kay Coles James

Age 66

 

Director Since 2006

 

Experience, Qualifications, Attributes, or Skills

 

Ms. James is President and Founder of The Gloucester Institute, a non-profit organization that trains and nurtures leaders in the

African- American community.

From 2001 to 2005, she served as director of the U.S. Office of Personnel Management, where she was President George W. Bush’s principal human resources advisor.

She has also provided consulting services as a former Senior Partner in The J.C. Watts Companies.

Ms. James received an undergraduate degree from Hampton University.

Having supervised the management of thousands of federal employees, Ms. James understands large-scale human resources operations. Our Board values these senior-level federal government and regulatory experiences, Ms. James’ experience as former chair of the Nominating and Governance Committee and the Compensation Committee at AMERIGROUP Corporation, and her leadership of a non-profit organization in the Greater Washington, D.C. area, a significant market for PNC.

PNC Board Committee Memberships

Nominating and Governance Committee

Risk Committee

Public Company Directorships

AMERIGROUP Corporation (until 2012)

Magellan Health, Inc.

LOGO    

Richard B. Kelson

Age 69

 

Director Since 2002

 

Experience, Qualifications, Attributes, or Skills

 

Mr. Kelson is the Chairman, President and Chief Executive Officer of ServCo, LLC, a

strategic sourcing and supply chain management company. He has also served as an Operating Advisor with Pegasus Capital Advisors, L.P., a private equity fund manager.

Mr. Kelson retired in 2006 as Chairman’s Counsel for Alcoa, a leader in the production and management of primary aluminum, fabricated aluminum, and alumina. At Alcoa, he served as a member of the executive council, the senior leadership group for the company. From 1994 to 1997, Mr. Kelson served as Alcoa’s General Counsel. From 1997 through 2005, he served as Alcoa’s Chief Financial Officer.

Mr. Kelson received an undergraduate degree from the University of Pennsylvania, and a law degree from the University of Pittsburgh.

Mr. Kelson’s service as a public company CFO and his designation as an “audit committee financial expert” assist the Board and Audit Committee with the oversight of financial and accounting issues. His financial background supports his strong leadership of our Audit Committee as its Chair. The Board also values Mr. Kelson’s executive management experience and his background as a public company general counsel, although he does not serve in a legal capacity or provide legal advice to PNC or our Board.

PNC Board Committee Memberships

Audit Committee (Chair)

Executive Committee

Personnel and Compensation Committee

Special Compliance Committee

Public Company Directorships

ANADIGICS, Inc.

Commercial Metals Company (Lead Director)

Lighting Science Group Corporation (until 2010)

MeadWestvaco Corp. (until 2015)

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    15


Table of Contents

ELECTION OF DIRECTORS (ITEM 1)

 

LOGO    

Jane G. Pepper

Age 70

 

Director Since 1997

 

Experience, Qualifications, Attributes, or Skills

 

In June 2010, Ms. Pepper retired as the President of The Pennsylvania Horticultural Society (PHS), a non-profit organization, and America’s first horticultural society.

Ms. Pepper received undergraduate and graduate degrees from the University of Delaware.

Ms. Pepper brings a diverse set of experiences to our Board, beginning with her management experience at PHS. For 30 years, Ms. Pepper led this Philadelphia-based organization, supervising over 100 employees, and executing a strategic plan with a vision of sustainability and community impact. Beyond this leadership, the Board appreciates her insights as PNC continues to expand our own environmentally conscious initiatives.

Ms. Pepper brings additional regulatory and banking industry experience to our Board, having formerly served as a director and the Chairwoman of the Federal Reserve Bank of Philadelphia.

PNC Board Committee Memberships

Risk Committee

Special Compliance Committee (Chair)

Public Company Directorships

None

 

LOGO    

Donald J. Shepard

Age 69

 

Director Since 2007

 

Experience, Qualifications, Attributes, or Skills

 

Mr. Shepard is the retired Chairman of the Executive Board and Chief Executive Officer of AEGON N.V., a large life insurance and pension company.

Mr. Shepard received a master’s degree in business administration from the University of Chicago.

Mr. Shepard joined our Board following PNC’s acquisition of Mercantile Bankshares Corporation. He joined the Mercantile Board of Directors in 1992.

Mr. Shepard’s service as the CEO of a large, international public company, particularly a company in the financial services sector, gives him insights into many issues facing PNC, and supports the Board’s ability to oversee complex and dynamic issues. Mr. Shepard’s duties and experiences at AEGON also assist our Board with its oversight of financial and risk issues. Our Board also values Mr. Shepard’s experience on the board of a public company in the banking business and his familiarity with the Baltimore community.

PNC Board Committee Memberships

Executive Committee

Audit Committee

Nominating and Governance Committee (Chair)

Risk Committee

Public Company Directorships

CSX Corporation

The Travelers Companies, Inc.

LOGO    

Lorene K. Steffes

Age 70

 

Director Since 2000

 

Experience, Qualifications, Attributes, or Skills

 

Ms. Steffes is an independent business advisor with executive, business management and technical expertise in the telecommunications

and information technology industries. She formerly served as Vice President and General Manager, Global Electronics Industry, for IBM, an information technology company. Ms. Steffes also served as the President and Chief Executive Officer of Transarc Corporation, a software development firm, which was later acquired by IBM.

Ms. Steffes received undergraduate and master’s degrees from Northern Illinois University.

Our Board values Ms. Steffes’s managerial experiences throughout the technology industry, including as a chief executive. Her wide array of experiences in this industry and her understanding of operational and technological issues assist the Board in its oversight of technological issues, which have become increasingly important for large, complex banking organizations.

PNC Board Committee Memberships

Risk Committee

Technology Subcommittee (Chair)

Public Company Directorships

RadiSys Corporation (until September 2015)

 

LOGO    

Dennis F. Strigl

Age 69

 

Director Since 2001

 

Experience, Qualifications, Attributes, or Skills

 

Mr. Strigl served as the President and Chief Operating Officer of Verizon Communications

Inc., one of the world’s leading providers of communications services, until his retirement in December 2009. Prior to that, he was the President and Chief Executive Officer of Verizon Wireless, a joint venture controlled by Verizon.

Mr. Strigl received an undergraduate degree from Canisius College and a master’s degree in business administration from Fairleigh Dickinson University.

Our Board values Mr. Strigl’s service as a senior executive at a large public company, and his former executive management expertise as the CEO of Verizon Wireless. His management of a large workforce at Verizon informs his judgment as the Chair of our Personnel and Compensation Committee and gives him a strong understanding of human resources and compensation matters. Mr. Strigl’s additional responsibility for internal functional services, such as finance and real estate, adds depth and experience to the Board’s ability to oversee the operations of our company.

PNC Board Committee Memberships

Executive Committee

Nominating and Governance Committee

Personnel and Compensation Committee (Chair)

Technology Subcommittee

Public Company Directorships

ANADIGICS, Inc. (2000-2008; 2010-Present)

Eastman Kodak Company (until September 2013)

Nokia Corporation (May 2014 to May 2015)

Tellabs, Inc. (until December 2013)

 

 

16    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

ELECTION OF DIRECTORS (ITEM 1)

 

  LOGO       

Michael J. Ward

Age 65

 

Director Since 2016

 

Experience, Qualifications, Attributes, or Skills

 

Michael J. Ward is the Chairman and Chief Executive Officer of CSX Corporation, one of the world’s largest railroad companies.

Mr. Ward received a bachelor’s degree from the University of Maryland and a MBA from the Harvard Business School.

Mr. Ward has extensive operations, sales, marketing and finance experience from his various management roles with CSX and its subsidiaries. As a public company CEO with years of corporate leadership experience in a regulated industry, he brings knowledge and insight to the Board in its oversight of complex issues. His management of an executive team and a large group of employees adds value to his oversight of compensation issues.

PNC Board Committee Memberships

Nominating and Governance Committee

Personnel and Compensation Committee

Public Company Directorships

CSX Corporation

Ashland Inc.

  LOGO       

Gregory D. Wasson

Age 57

 

Director Since 2015

 

Experience, Qualifications, Attributes, or Skills

 

Gregory D. Wasson is the former President and Chief Executive Officer of Walgreens Boots Alliance, a global pharmacy-led health and wellbeing enterprise.

Mr. Wasson received a bachelor’s degree from Purdue University in Pharmaceutical Science.

Mr. Wasson has extensive operational and executive management experience at a complex organization with a large, diverse workforce. Mr. Wasson brings an in-depth knowledge of the retail industry and insight into the consumer experience. His background of leading a company with thousands of retail locations in an industry that, like banking, is undergoing rapid transformation provides insight that benefits PNC as we work on our strategic priorities. His service as a public company CEO and his designation as an “audit committee financial expert” assist the Board and Audit Committee with the oversight of financial and accounting issues.

PNC Board Committee Memberships

Audit Committee

Technology Subcommittee

Public Company Directorships

Verizon Communications Inc.

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    17


Table of Contents

CORPORATE GOVERNANCE

 

Our Board is committed to strong corporate governance practices. Through the Nominating and Governance Committee, the Board evaluates its governance policies and practices against evolving best practices. This section highlights some of our corporate governance policies and practices. Please see www.pnc.com/corporategovernance for additional information about corporate governance at PNC, including:

 

 

Corporate governance guidelines

 

 

By-laws

 

 

Code of ethics

 

 

Board committee charters

To receive free, printed copies of any of these

documents, please send a request to:

Corporate Secretary

The PNC Financial Services Group, Inc.

300 Fifth Avenue

Pittsburgh, Pennsylvania 15222

or corporate.secretary@pnc.com

This proxy statement is also available at

www.pnc.com/proxystatement

 

 

Recent corporate governance developments

 

Two of our current directors, Paul W. Chellgren and Thomas J. Usher, reached the Board adopted mandatory retirement age of 72 in connection with the 2015 Annual meeting, but the Board approved a limited waiver of this mandatory retirement until the period ending with the 2016 annual meeting. The Board also approved a waiver of the provision in our corporate governance guidelines that the Presiding Director is the Chair of the Nominating and Governance Committee. Mr. Usher remained our Presiding Director for his term beginning on his election at the 2015 annual meeting, but Mr. Shepard was appointed Chair of the Nominating and Governance Committee at the Board’s

organizational meeting on April 28, 2015. As these waivers end in connection with the 2016 annual meeting, Mr. Chellgren and Mr. Usher are not nominated for election as directors. Anthony A. Massaro reaches the mandatory retirement age in connection with the 2016 annual meeting and is not nominated for election as a director. As part of its continuing efforts to provide for director succession and strong Board composition in light of these anticipated retirements, on July 2, 2015 on the advice of the Nominating and Governance Committee, the Board appointed Gregory D. Wasson as a director and on January 7, 2016, appointed Daniel R. Hesse and Michael J. Ward as directors.

 

Corporate governance guidelines

 

Our Board has approved corporate governance guidelines. Our Board’s Nominating and Governance Committee reviews the corporate governance guidelines at least once a year. Any changes recommended by the Committee are approved by the Board. The guidelines address important principles adopted by the Board, including:

 

 

The qualifications that we want to see in a director

 

 

The director nomination process

 

 

The duties of our lead independent director (Presiding Director)

 

 

How the Board committees serve to support the Board’s duties

 

 

A description of ordinary course relationships that will not impair a director’s independence

 

The importance of meeting in executive session without management

 

 

The importance of having access to management

 

 

The mandatory director retirement age (72)

 

 

How the Board evaluates our CEO’s performance

 

 

How the Board considers management succession planning

 

 

Our views on directors holding other board positions

 

 

How the Board continually evaluates its own performance

 

 

Our approach to director education

 

 

The Board’s role in strategic planning

 

 

18    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

CORPORATE GOVERNANCE

 

Annual meeting format

 

Although our By-laws provide the ability to hold a virtual only annual meeting of shareholders, PNC currently has no intention to conduct its annual meeting of shareholders in the form of a virtual only annual meeting. Our By-laws preserve our option under Pennsylvania law to hold a virtual annual meeting should we ever decide to do so. While we

will continue to monitor the development of corporate governance practices in regard to the conduct of annual meetings, we currently believe that we would move to a combined form of annual meeting, supplementing the in-person meeting with a virtual annual meeting before we would consider any further format changes to our annual meeting.

 

 

Our Board leadership structure

 

Based on an assessment of its current needs and the composition, skills, and qualifications of the directors, the Board believes that the appropriate leadership structure should include the following attributes:

 

 

A substantial majority (at least 2/3) of independent directors

 

 

A Presiding Director

 

 

Regular executive sessions of all independent directors without management present

The Board’s current leadership structure includes all three attributes. The Board has not adopted a policy with respect to separating the Chairman and CEO positions. The Board believes that the leadership structure should be flexible enough to accommodate different approaches based on an evaluation of relevant facts and circumstances. The Board considers its structure and leadership each year. The Personnel and Compensation Committee discusses whether to separate the positions of Chairman and CEO as part of its ongoing evaluation of management succession plans.

William S. Demchak, our current CEO, also serves as Chairman of the Board. Thomas J. Usher, the Board’s Presiding Director, serves as our lead independent director. We describe his duties in more detail below.

Substantial majority of independent directors. We have long maintained a Board with a substantial majority of directors who are not PNC employees. The NYSE requires at least a majority of our directors to be independent from management.

Mr. Demchak is the only director who is not independent under the NYSE’s “bright-line” rules because he is our CEO. The Board has affirmed the independence of each of our other 12 nominees for director. Please see Director and Executive Officer Relationships on pages 30 to 31 for a description of how we evaluate independence.

Presiding Director duties. As the Presiding Director, Mr. Usher is the lead independent director for our Board. The Board’s independent and non-management directors selected him for this role. The Board approved the following duties for the Presiding Director, which are included in our corporate governance guidelines:

 

 

Preside at meetings of the Board of Directors in the event of the Chairman’s unavailability.

 

 

Convene and preside at executive sessions of the Board’s independent directors whenever he or she deems it appropriate to do so.

 

 

Preside at executive sessions of the Board’s non-management and independent directors.

 

 

Confer with the Chairman or CEO immediately following the executive sessions of the Board’s non-management or independent directors to convey the substance of the discussions held during those sessions, subject to any limitations specified by the independent directors.

 

 

Act as the principal liaison between the Chairman and the CEO and the Board’s independent directors.

 

 

Be available for confidential discussions with any non-management or independent director who may have concerns which he or she believes have not been properly considered by the Board as a whole.

 

 

Following consultation with the Chairman, CEO and other directors as appropriate, approve the Board’s meeting schedule and agendas, and the information provided to the Board, in order to promote the effectiveness of the Board’s operation and decision making and help ensure that there is sufficient time for discussion of all agenda items.

 

 

Be available for consultation and direct communication with major shareholders as appropriate.

 

 

Discharge such other responsibilities as the Board’s independent directors may assign from time to time.

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    19


Table of Contents

CORPORATE GOVERNANCE

 

During the course of the year, the Presiding Director may suggest, revise, or otherwise discuss agenda items for the Board meetings with the Chairman or CEO. In between meetings, each director is encouraged to raise any topics or issues with the Presiding Director that the director believes should be discussed among the non-management or independent directors.

 

Regular executive sessions of independent directors. Our directors have met and will continue to meet in regularly scheduled executive sessions without management present. The NYSE requires our independent directors to meet once a year. Under our Board’s own policy, our independent directors meet by themselves at least quarterly. Our Presiding Director leads these executive sessions.

 

 

Communicating with our Board

 

Shareholders and other interested parties who wish to communicate with the Board of Directors, any director (including the Presiding Director), the non-management or independent directors as a group, or any Board committee may send either (1) an email to corporate.secretary@pnc.com, or (2) a letter to the following address:

 

Presiding Director

The PNC Financial Services Group, Inc.

Board of Directors

P.O. Box 2705

Pittsburgh, Pennsylvania 15230-2705

The Corporate Secretary will forward the email communication to the appropriate director(s) named. The Corporate Secretary may elect not to forward communications that she believes are: (i) a commercial, charitable or other solicitation; (ii) a

complaint about PNC products or services that would be customarily handled in the ordinary course of business; (iii) abusive, improper or otherwise irrelevant to the Board’s duties and responsibilities; or (iv) subject to the policies or procedures that specify the proper handling of a communication that addresses such subject matter.

The Corporate Secretary will not open the written communication addressed to the Board of Directors, any director (including the Presiding Director), the non-management or independent directors as a group, or any Board committee. He or she will forward the communication to the Presiding Director who will determine how to respond. Depending on the content, he or she may forward the communication to a PNC employee, a third party, another director, a committee, or the full board.

 

 

Our code of ethics

 

PNC has adopted, and the Audit Committee has approved, a Code of Business Conduct and Ethics that applies generally to all employees and directors.

Our code of ethics addresses these important topics, among others:

 

 

Our commitment to ethics and values

 

 

Fair dealing with customers, suppliers, competitors, and employees

 

 

Conflicts and potential conflicts of interest

 

 

Self-dealing and outside employment

 

 

Insider trading and other trading restrictions, including prohibitions on transactions in any derivative of PNC securities, including non-compensatory options

 

 

Transactions with PNC

 

 

Gifts and entertainment

 

 

Creating business records, document retention, and protecting confidential information

 

 

Protection and proper use of our assets, including intellectual property and electronic media

 

Communicating with the public

 

 

Political contributions and fundraising

 

 

Compliance with laws and regulations

 

 

Protection from retaliation

The code of ethics is available on our website at www.pnc.com/corporategovernance. Any shareholder may also request a free, printed copy by writing to our Corporate Secretary at the address given on page 18.

We intend that this code satisfies the SEC’s requirement to adopt a code that applies to a company’s CEO and senior financial officers. Our Board’s Audit Committee must approve any waivers or exceptions to code provisions for our directors or executive officers. We will post on our website any future amendments to, or waivers from, a provision of the code of ethics that applies to our directors or executive officers (including our Chairman and CEO, CFO, and Controller).

PNC has also adopted, and our Audit Committee has approved, Ethics Guidelines for Directors to supplement the PNC code of ethics.

 

 

20    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

CORPORATE GOVERNANCE

 

Orientation and education

 

All of our new directors undergo a director orientation program. In addition to written materials provided to new directors, in-person orientation sessions are held for each new director. In-person orientation sessions generally include meetings with members of senior management to familiarize new directors with PNC’s strategic plans, its significant financial, accounting and risk management issues, its capital markets activities, its compliance programs, its Code of Business Conduct and Ethics and related policies, its principal officers, its internal and independent auditors, and specific matters related to the committees to which a new director has been appointed.

Our continuing education program for directors considers the directors’ knowledge and experience and PNC’s risk profile and includes training on complex products and services, PNC’s lines of business, significant risks to PNC, appropriate laws, regulations, and supervisory requirements, and other topics identified by the board and management. It is provided through a combination of in-person sessions and coordination of attendance by directors at outside seminars relevant to the duties of a director. The in-person sessions may be held in connection with, or as part of, a meeting of the Board or a committee.

 

 

Board committees

 

Our Board currently has five standing committees. Four of these committees—Audit, Nominating and Governance, Personnel and Compensation, and Risk—meet on a regular basis. The Executive Committee meets as needed and is composed of our Chairman and CEO, and the chairs of our other four primary standing committees. The Executive Committee may act on behalf of the Board and reports regularly to the full Board. Our Presiding Director chairs the Executive Committee, which did not meet in 2015.

Our By-laws authorize the Board to create other committees. Unless otherwise stated in its charter, each committee may form and delegate authority to subcommittees of one or more committee members. Our Risk Committee has formed a Technology Subcommittee to facilitate Board-level oversight responsibilities with respect to technology risk, technology risk management, cybersecurity, information security, business continuity, and significant technology initiatives and programs. Our Board also created a Special Compliance Committee to assist the Board in its oversight and reporting responsibilities under certain regulatory consent orders.

Each committee operates under a written charter approved by the Board, or in the case of a subcommittee the applicable standing committee. Each committee and subcommittee annually reviews and reassesses its charter. The Nominating and Governance Committee assesses the Executive Committee charter.

Each committee and subcommittee, other than the Executive Committee, performs an annual self-evaluation to determine whether the committee and any of its subcommittees is functioning effectively and fulfilling its charter duties.

We describe the main responsibilities of the Board’s four primary standing committees below. The descriptions of the committee functions in this proxy statement are qualified by reference to the charters and our relevant By-law provisions. The charters for the four Board committees discussed in this section are all available on our website at www.pnc.com/corporategovernance.

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    21


Table of Contents

CORPORATE GOVERNANCE

 

Audit Committee

 

LOGO      Chair   Other members:
  

 

Richard B. Kelson

 

 

Paul W. Chellgren

     Marjorie Rodgers Cheshire
     Donald J. Shepard
     Gregory D. Wasson
    
    

The Audit Committee consists entirely of directors who are independent as defined in the NYSE’s corporate governance rules and in the regulations of the Securities and Exchange Commission related to audit committee members. When our Board meets on April 26, 2016 to organize its committees, only independent directors will be appointed to the Committee.

Mr. Chellgren will not stand for re-election to the Board at the annual meeting and, following the annual meeting, he will no longer be a member of the Committee.

The Board has determined that each Audit Committee member is financially literate and that at least two members possess accounting or related financial management expertise. The Board made these determinations in its business judgment, based on its interpretation of the NYSE’s requirements for committee members. Acting on the recommendation of the Nominating and Governance Committee, the Board of Directors determined that Mr. Chellgren, Mr. Kelson and Mr. Wasson are each an “audit committee financial expert,” as that term is defined by the SEC.

Our Board most recently approved the charter of the Audit Committee on November 19, 2015, and it is available on our website.

The Audit Committee satisfies the requirements of SEC Rule 10A-3, which includes the following topics:

 

   

The independence of committee members

 

 

   

The responsibility for selecting and overseeing our independent auditors

 

 

   

The establishment of procedures for handling complaints regarding our accounting practices

 

 

   

The authority of the committee to engage advisors

 

 

   

The determination of appropriate funding for payment of the independent auditors and any outside advisors engaged by the committee and for the payment of the committee’s ordinary administrative expenses

 

The Audit Committee’s primary purposes are to assist the Board by:

 

   

Monitoring the integrity of our consolidated financial statements

 

 

   

Monitoring internal control over financial reporting

 

 

   

Monitoring compliance with our code of ethics

 

 

   

Evaluating and monitoring the qualifications and independence of our independent auditors

 

 

   

Evaluating and monitoring the performance of our internal audit function and our independent auditors

 

At each in-person meeting of our full Board, the chair of the Committee presents a report of the items discussed and the actions approved at previous meetings.

The Audit Committee’s responsibility is one of oversight. Our management is responsible for preparing our consolidated financial statements, for maintaining internal controls, and for our compliance with laws and regulations, and the independent auditors are responsible for auditing our consolidated financial statements.

The Committee typically reviews and approves the internal and external audit plans. The Committee is directly responsible for the selection, appointment, compensation and oversight of our independent auditors (including the resolution of any disagreements between management and the auditors regarding financial reporting if disagreements occur) for the purpose of preparing or issuing an audit report or related work. We describe the role of the Committee in regard to the independent auditors, including consideration of rotation of the independent audit firm, in more detail on page 81. For work performed by the independent auditors, the Committee must pre-approve all audit engagement fees and terms, as well as all permitted non-audit engagements. The Committee (or delegate) pre-approves all audit services, audit-related services, and permitted non-audit services. The Committee considers whether providing audit services, audit-related services, and permitted non-audit services will impair the auditors’ independence.

 

22    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

CORPORATE GOVERNANCE

 

We describe the Committee’s procedures for the pre-approval of audit services, audit-related services, and permitted non-audit services on page 82. The Committee receives routine reports on finance, reserve adequacy, ethics, and internal and external audit.

The Committee has the authority to retain independent legal, accounting, economic, or other advisors. The Committee holds regular executive sessions with our management, the General Auditor, the Chief Ethics Officer, and the independent auditors. The independent auditors report directly to the Committee. The Committee appoints our General Auditor, who leads PNC’s internal audit function and reports directly to the Committee. The Committee reviews the performance and approves the compensation of our General Auditor.

Under our corporate governance guidelines, Audit Committee members may serve on the audit committee of no more than three public companies, including PNC.

The Audit Committee has approved the report on page 83 as required under its charter and in accordance with SEC regulations.

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    23


Table of Contents

CORPORATE GOVERNANCE

 

Nominating and Governance Committee

 

LOGO      Chair    Other members:
  

 

Donald J. Shepard

  

 

Charles E. Bunch

      Kay Coles James
      Anthony A. Massaro
      Dennis F. Strigl
      Thomas J. Usher
      Michael J. Ward

The Nominating and Governance Committee consists entirely of independent directors. When our Board meets on April 26, 2016, only independent directors will be appointed to the Committee.

Neither Mr. Massaro nor Mr. Usher will stand for re-election to the Board at the annual meeting and, following the annual meeting, neither will be a member of the Committee.

Our Board most recently approved the charter of the Nominating and Governance Committee on November 19, 2015, and it is available on our website.

At each in-person meeting of our full Board, the chair of the Committee presents a report of the items discussed and the actions approved at previous meetings. The primary purpose of our Nominating and Governance Committee is to assist our Board in promoting the best interests of PNC and its shareholders through the implementation of sound corporate governance principles and practices. The Committee also assists the Board by identifying individuals qualified to become Board members. The Committee recommends to the Board the director nominees for each annual meeting, and may also recommend the appointment of qualified individuals as directors between annual meetings.

In addition to its annual committee self-evaluation, the Nominating and Governance Committee oversees the annual evaluation of the performance of the Board and committees and reports to the Board on the evaluation results, as necessary or appropriate. The Committee annually reviews and recommends any changes to the Executive Committee charter.

How we evaluate directors and candidates. At least annually, the Committee assesses the skills, qualifications and experience of our directors and recommends a slate of nominees to the Board. From time to time, the Committee also considers whether to change the composition of our Board. In evaluating existing directors or new candidates, the Committee assesses the needs of the Board and the qualifications of the individual. Please see the discussion on pages 13 to 17 for more information on each of our current director nominees.

Our Board and its committees must satisfy SEC, NYSE, and other banking regulatory standards. At least a majority of our directors must be independent under the NYSE standards, however, our corporate governance guidelines require that a substantial majority (at least 2/3) of our directors be independent. We require a sufficient number of independent directors to satisfy the membership needs of committees that also require independence.

Beyond that, the Nominating and Governance Committee expects directors to gain a sound understanding of our strategic vision, our mix of businesses, and our approach to regulatory relations and risk management. The Board must possess a mix of qualities and skills to address the various risks facing PNC. For a discussion of our Board’s oversight of risk, please see the section entitled Risk Committee, on pages 28 and 29.

The Committee has not adopted any specific, minimum qualifications for director candidates. When evaluating each director, as well as new candidates for nomination, the Committee considers the following Board-approved criteria:

 

   

A sustained record of high achievement in financial services, business, industry, government, academia, the professions, or civic, charitable, or non-profit organizations

 

 

   

Manifest competence and integrity

 

 

   

A strong commitment to the ethical and diligent pursuit of shareholders’ best interest

 

 

   

The strength of character necessary to challenge management’s recommendations and actions when appropriate and to confirm the adequacy and completeness of management’s responses to such challenges to his or her satisfaction

 

 

   

Our Board’s strong desire to maintain its diversity in terms of race and gender

 

 

   

Personal qualities that will help to sustain an atmosphere of mutual respect and collegiality among the members of our Board

 

 

 

24    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

CORPORATE GOVERNANCE

 

 

The Committee also considers the diversity, age, skills, experience in the context of the current needs of the Board and its committees, meeting attendance and participation, and the value of a director’s contributions to the effectiveness of our Board and its committees.

Although the Board has not adopted a formal policy on diversity, the Board recognizes the value of a diverse Board. Therefore, the Committee considers the diversity of directors in the context of the Board’s overall needs. The Committee evaluates diversity in a broad sense, recognizing the benefits of demographic diversity, but also considering the breadth of diverse backgrounds, skills, and experiences that directors may bring to our Board.

How we identify new directors. The Nominating and Governance Committee may identify potential directors in a number of ways. The Committee may consider recommendations made by current or former directors or members of executive management. The Committee may also identify potential directors through contacts in the business, civic, academic, legal and non-profit communities. When appropriate, the Committee may retain a search firm to identify candidates.

In addition, the Committee will consider director candidates recommended by our shareholders for nomination at next year’s annual meeting. For the Committee to consider a director candidate for nomination, the shareholder must submit the recommendation in writing to the Corporate Secretary at our principal executive office. Each submission must include the information required under “Director nomination process” in Section 3 of our corporate governance guidelines found at www.pnc.com/corporategovernance and must be received by November 15, 2016.

The Committee will evaluate candidates recommended by a shareholder in the same manner as candidates identified by the Committee or recommended by others. The Committee will not consider any candidate with an obvious impediment to serving as one of our directors.

The Committee will meet to consider relevant information regarding a director candidate, in light of the Board approved evaluation criteria and needs of our Board. If the Committee does not recommend a candidate for nomination or appointment, or for more evaluation, no further action is taken. The chair of the Committee will later report this decision to the full Board. For shareholder-recommended candidates, the Corporate Secretary will communicate the decision to the shareholder.

If the Committee decides to recommend a candidate to our Board as a nominee for election at an annual meeting of shareholders or for appointment by our Board, the chair of the Committee will report that decision to the full Board. After allowing for a discussion, the full Board will vote on whether to nominate the candidate for election or appoint the candidate to the Board.

As our corporate governance guidelines describe, invitations to join the Board should come from the Presiding Director and the Chairman, jointly acting on behalf of our Board.

Shareholders who wish to directly nominate a director candidate at an annual meeting must do so in accordance with the procedures contained in our By-laws and should follow the instructions in the section entitled Shareholder proposals for 2017 annual meeting—Advance notice procedures on page 102.

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    25


Table of Contents

CORPORATE GOVERNANCE

 

Personnel and Compensation Committee

 

LOGO      Chair    Other members:
  

 

Dennis F. Strigl

  

 

Charles E. Bunch

      Paul W. Chellgren
      Andrew T. Feldstein
      Richard B. Kelson
      Thomas J. Usher
      Michael J. Ward

The Personnel and Compensation Committee consists entirely of independent directors. The Committee membership is intended to satisfy the independence standards established by applicable federal income tax and securities laws, as well as NYSE standards. When our Board meets on April 26, 2016, only independent directors will be appointed to the Committee.

Neither Mr. Chellgren nor Mr. Usher will stand for re-election to the Board at the annual meeting and, following the annual meeting, neither will be a member of the Committee.

Our Board most recently approved the charter of the Committee on November 19, 2015, and it is available on our website.

The Committee’s principal purpose is to discharge our Board’s oversight responsibilities relating to the compensation of our executive officers and other specified responsibilities related to personnel and compensation matters affecting PNC. The Committee may also evaluate and approve, or recommend for approval, benefit, incentive compensation, severance, equity-based or other compensation plans, policies, and programs. The Committee charter provides that approval of the compensation of the General Auditor and the Chief Risk Officer is made by the Audit Committee and the Risk Committee, respectively.

The Committee has the authority to retain independent legal, compensation, accounting, or other advisors. The charter provides the Committee with the sole authority to retain and terminate a compensation consultant acting on the Committee’s behalf, and to approve the consultant’s fees and other retention terms. The Committee retained an independent compensation consultant in 2015 and prior years. See Role of compensation consultants below.

The Committee also reviews the Compensation Discussion and Analysis (CD&A) section of the proxy statement with management. See the Compensation Committee Report on page 55. The CD&A begins on page 39. The Committee evaluates the relationship between risk management and our incentive compensation programs and plans. See Compensation and Risk on pages 56 and 57.

The Committee has responsibility for reviewing and evaluating the development of an executive management succession plan and for reviewing our workforce diversity objectives. The Committee reviews a detailed succession planning report at least annually. The materials typically include a discussion of the individual performance of executive officers as well as succession plans and development initiatives for other high potential employees. These materials provide necessary background and context to the Committee, and give each member a familiarity with the employee’s position, duties, responsibilities, and performance.

How the committee makes decisions. The Committee meets at least six times a year. Before each meeting, the chair of the Committee reviews the agenda, materials, and issues with members of our management and the Committee’s independent executive compensation consultant, as appropriate. The Committee may invite legal counsel or other external consultants to advise the Committee during meetings and preparatory sessions.

The Committee regularly meets in executive sessions without management present. At each in-person meeting of our full Board, the chair of the Committee presents a report of the items discussed and the actions approved at previous meetings. The chair provides these reports during an executive session of the Board. The Committee consults with independent directors before approving the CEO’s compensation.

The Committee adopted guidelines for information that will be presented to the Committee. The guidelines contemplate, among other things, that any major changes in policies or programs be considered over the course of two separate Committee meetings, with any vote occurring at the later meeting.

The Committee reviews all of the elements of the compensation programs periodically and adjusts those programs as appropriate. Each year, the Committee makes decisions regarding the amount of annual compensation and equity-based or other longer-term compensation for our executive officers and other designated senior employees. For the most part, these decisions are made in the first quarter of each year, following the evaluation of the prior year’s performance.

 

 

26    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

CORPORATE GOVERNANCE

 

Delegations of authority. The Committee has delegated authority to management to make certain decisions or to take certain actions with respect to compensation or benefit plans or arrangements (other than those that are solely or predominantly for the benefit of executive officers).

For employee benefit, bonus, incentive compensation, severance, equity-based and other compensation or incentive plans and arrangements, the Committee delegated to our Chief Human Resources Officer (or her designee) the ability to adopt a new plan or arrangement or amend an existing one if:

 

   

the decision is not expected to result in a material increase in incremental expense to PNC, defined as an expense that exceeds 5% of the relevant expense for that plan category, or

 

 

   

the change is of a technical nature or is otherwise not material.

 

This delegation also includes authority to take certain actions to implement, administer, interpret, construe or make eligibility determinations under the plans and arrangements.

For grants of equity or equity-based awards, the Committee has delegated to our Chief Executive Officer and our Chief Human Resources Officer (or the designee of either) the responsibility to make decisions with respect to equity grants for individuals who are not designated by the Committee as executives, including the determination of participants and grant sizes, allocation of the pool from which grants will be made, establishment of the terms of such grants, approval of amendments to outstanding grants and exercise of any discretionary authority pursuant to the terms of the grants.

The Committee has also delegated to the Audit Committee (or a qualified subcommittee) and to a qualified subcommittee of the Risk Committee the authority to make equity-based grants and other compensation under applicable plans to the General Auditor and Chief Risk Officer, respectively.

Management’s role in compensation decisions. Our executive officers, including our CEO and our Chief Human Resources Officer, often review information with the Committee during meetings and may present management’s views or recommendations. The Committee evaluates these recommendations, generally in consultation with an independent compensation consultant retained by the Committee, who attends each meeting.

The chair of the Committee typically meets with management and an independent compensation consultant before each Committee meeting to discuss agenda topics, areas of focus, or outstanding issues. The chair schedules other meetings with the Committee’s compensation consultant without management present, as needed. Occasionally, management will schedule meetings with each Committee member to discuss substantive issues. For more complicated issues, these one-on-one meetings provide a dedicated forum for Committee members to ask questions outside of the meeting environment.

During Committee meetings, the CEO often reviews corporate and individual performance as part of the compensation discussions, and other members of executive management may be invited to speak to the Committee about specific performance or risk management. The Committee reviews any compensation decisions for the Chief Human Resources Officer and CEO in executive session, without either officer present for the discussion of their compensation. Any recommendations for CEO compensation are also discussed with the full Board, with no members of management present for the discussion.

Role of compensation consultants. The Committee has the sole authority to retain and terminate any compensation consultant directly assisting it. The Committee also has the sole authority to approve fees and other engagement terms. The Committee receives comparative compensation data from our management, from proxy statements and other public disclosures, and through surveys and reports prepared by compensation consultants.

The Committee retained Meridian Compensation Partners as its independent compensation consultant for 2015. In this capacity, Meridian reports directly to the Committee. In 2015, one or more representatives attended all of the in-person and telephonic meetings of the Committee, and met regularly with the Committee without members of management present. Meridian also reviewed meeting agendas and materials prepared by management.

Meridian and members of management assisted the Committee in its review of proposed compensation packages for our executive officers. For the 2015 performance year, Meridian prepared discussion materials for the compensation of the CEO, which were reviewed in executive session without any members of management present. Meridian also prepared other benchmarking reviews and pay for performance analyses for the Committee. PNC did not pay any fees to Meridian in 2015 other than in connection with work for the Committee.

The Committee evaluated whether the work of Meridian raised any conflict of interest. The Committee considered various factors, including six factors mandated by the SEC rules, and determined that no conflict of interest was raised by the work of Meridian described in this proxy statement.

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    27


Table of Contents

CORPORATE GOVERNANCE

 

 

Our management retains other compensation consultants for its own use. In 2015, our management retained McLagan to provide certain market data in the financial services industry. It also uses Towers Watson, a global professional services firm, to provide, from time to time, various actuarial and management consulting services to us, including:

 

   

Preparing specific actuarial calculations on values under our retirement plans

 

 

   

Preparing surveys of competitive pay practices

 

 

   

Analyzing our director compensation packages and providing reports to our management and the Board’s Nominating and Governance Committee

 

 

   

Providing guidance on certain aspects of total rewards, talent management and other human resources initiatives

 

Reports prepared by Towers Watson and McLagan that relate to executive compensation may also be shared with the Committee.

Compensation committee interlocks and insider participation. None of the current members of the Personnel and Compensation Committee are officers or employees or former officers of PNC or any of our subsidiaries. No PNC executive officer served on the compensation committee of another entity that employed an executive officer who also served on our Board. No PNC executive officer served as a director of an entity that employed an executive officer who also served on our Personnel and Compensation Committee.

Certain members of the Personnel and Compensation Committee, their immediate family members, and entities with which they are affiliated, were our customers or had transactions with us (or our subsidiaries) during 2015. Transactions that involved loans or commitments by subsidiary banks were made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectability or present other unfavorable features and otherwise complied with regulatory restrictions on such transactions.

Please see Director and Executive Officer Relationships—Regulation O policies and procedures, which begins on page 33, for more information.

 

Risk Committee

 

LOGO      Chair    Other members:   
   Andrew T. Feldstein    Marjorie Rodgers Cheshire    Jane G. Pepper
      William S. Demchak    Donald J. Shepard
      Daniel R. Hesse    Lorene K. Steffes
      Kay Coles James   
      Anthony A. Massaro   
        

The Board performs its risk oversight function primarily through the Risk Committee, which includes both independent and management directors.

Mr. Massaro will not stand for re-election to the Board at the annual meeting as he has reached the mandatory retirement age set in PNC’s corporate governance guidelines and, following the annual meeting, he will no longer be a member of the Committee.

Our Board most recently approved the charter of the Committee on November 19, 2015, and it is available on our website.

At each in-person meeting of our full Board, the chair of the Committee presents a report of the items discussed and the actions approved at previous meetings. The Committee’s purpose is to require and oversee the establishment and implementation of our enterprise-wide risk governance framework, including related policies, procedures, activities and the processes to identify, measure, monitor, and manage direct and indirect risks of PNC. Direct risks consist of credit risk, market risk (includes interest rate and price risk), liquidity risk, compliance risk (includes fiduciary risk) and operational risk (includes legal, operating, insurance, and technology risk). Indirect risks include business risk, strategic risk, model risk, and reputation risk. PNC’s major financial risk exposures are the responsibility of the Audit Committee. The Risk Committee serves as the primary point of contact between our Board and the management-level committees dealing with risk management. The Committee’s responsibility is one of oversight, and the Committee has no duty to assure compliance with laws and regulations.

 

28    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

CORPORATE GOVERNANCE

 

The Committee receives regular reports on enterprise-wide risk management, credit risk, market and liquidity risk, operating risk, and capital management.

The Committee may also form subcommittees from time to time. The Committee has formed a subcommittee to assist in fulfilling the Committee’s oversight responsibilities with respect to technology risk, technology risk management, cybersecurity, information security, business continuity, and significant technology initiatives and programs.

The Committee appoints our Chief Risk Officer, who leads PNC’s risk management function. The Committee reviews the performance and approves the compensation of our Chief Risk Officer.

The Risk Committee, along with the Personnel and Compensation Committee, each reviews the risk components of our incentive compensation plans. For a discussion of the relationship between compensation and risk, please see Compensation and Risk, beginning on page 56.

Board meetings in 2015

 

The table below shows the names of our directors as of December 31, 2015. The table also shows the number of Board committee meetings held in 2015, and the members and chairs of each committee. We also identify each director who has been designated by our Board as an “audit committee financial expert,” as defined under SEC regulations.

Our Board held 10 meetings in 2015. Each director attended at least 75% of the combined total number of meetings of the Board and all committees on which the director served. Our Board has adopted a policy that strongly encourages each director to attend the annual meeting in person. We remind each director of this policy before the date of the annual meeting. All of our directors then serving attended PNC’s 2015 annual meeting of shareholders.

 

 

    LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO    

 

 
 

 

Meetings
Held

 

  
  

        (1)       (2)           (1)                       (3)   (1)      

 Audit

      l   l               LOGO             l               l     12   

 Nominating and Governance

  l                   l       l       LOGO         l   l         5   

 Personnel and Compensation

  l   l           l       l                   LOGO     l         6   

 Risk

          l   l   LOGO     l       l   l   l   l                 8   

 

 

LOGO Chair
(1) Designated as “audit committee financial expert” under SEC regulations
(2) Management director
(3) Presiding director (lead independent director)

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    29


Table of Contents

DIRECTOR AND EXECUTIVE OFFICER RELATIONSHIPS

 

This section discusses relationships between PNC and its subsidiaries and our directors, executive officers, immediate family members, or certain of their affiliated entities. These relationships include transactions that we analyzed to determine the independence of our directors.

In this section, we describe the NYSE independence standards for directors and our Board-adopted independence guidelines.

 

 

Director independence

 

To be independent under NYSE rules, our Board must affirmatively determine that a director does not have a “material relationship” with PNC. A material relationship between a director and PNC could also include a relationship between PNC and an organization affiliated with a director.

NYSE rules describe specific relationships that will always impair independence. The absence of one of these “bright-line” relationships does not mean that a director is automatically independent. The Board must consider all relevant facts and circumstances in determining whether a material relationship exists.

Material relationships that we may consider include commercial, industrial, banking, consulting, legal, accounting, charitable, and family relationships. The ownership of a significant amount of PNC stock, by itself, will not prevent a finding of independence under NYSE rules.

The NYSE bright-line independence tests. Each of the following relationships will automatically impair a director’s independence under the NYSE’s “bright-line” tests:

 

 

A director employed by PNC

 

 

A director whose immediate family member is a PNC executive officer

 

 

The director’s receipt of more than $120,000 a year in direct compensation from PNC, except for certain permitted payments (such as director fees)

 

 

Certain relationships with PNC’s external or internal auditors

 

 

A director (or immediate family member) who has been an executive officer of a company where a PNC executive officer serves or served on that company’s compensation committee

 

 

Business relationships involving certain companies affiliated with a director or immediate family member of a director that make payments to, or receive payments from, PNC in excess of certain amounts

An employee-director of PNC (or a director with an immediate family member who is a PNC executive officer) will not be independent until three years after the employment relationship ends. The other bright-line tests will impair independence if they existed at any time within the past three years.

For more information about the NYSE’s bright-line director independence tests, including the commentary explaining the application of the tests, please go to the NYSE’s website at www.nyse.com.

Our Board guidance on independence. To help assess whether a material relationship exists, our Board adopted guidelines that describe four categories of relationships that will not be considered material. If a relationship meets the criteria outlined in this guidance, it will not be deemed to be a material relationship. This guidance can be found in our corporate governance guidelines on our website at www.pnc.com/corporategovernance. The Board may then affirm a director’s independence without further analysis of this relationship, provided that the director otherwise meets the other relevant independence tests.

The four categories of relationships described in this guidance include:

 

 

Ordinary course business relationships, such as lending, deposit, banking, or other financial service relationships or other relationships involving the provision of products or services between PNC or its subsidiaries and a director, his or her immediate family members, or an affiliated entity of a director or immediate family member, which meet the criteria defined in the guidelines

 

 

Contributions made by PNC, its subsidiaries, or a PNC sponsored foundation to a charitable organization in which a director or an immediate family member is an executive officer, director, or trustee

 

 

Relationships involving a director’s relative who is not an immediate family member

 

 

30    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

DIRECTOR AND EXECUTIVE OFFICER RELATIONSHIPS

 

 

 

Relationships or transactions between PNC or its subsidiaries and a company or charitable organization where a director or an immediate family member serves solely as a non-management board member, or where an immediate family member is employed in a non-officer position

These guidelines also allow investors to assess the quality of a Board’s independence determinations.

In applying this guidance, an “immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home.

If a director has a relationship that would be not be considered material under our guidelines for independence, but crosses one of the NYSE’s bright-line tests, the NYSE test governs and the director will not be treated as independent.

Our Board’s independence determinations. At a meeting held on February 11, 2016, the Board made an independence determination for each of our 16 directors, including our 13 director nominees.

In making these determinations, our Board relied on the evaluation and recommendations made by the Nominating and Governance Committee. The Board considered relevant facts and circumstances when making these determinations, including an evaluation of the relationships described below.

Our Board based the independence decisions on information known as of February 11, 2016. Each director has been asked to provide updates on changes that could impact the director’s status as an independent director. The Nominating and Governance Committee and Board will consider

information throughout the year that may impact independence.

Non-independent directors. Our Board affirmatively determined that Mr. Demchak is the only non-independent director. Mr. Demchak meets the NYSE’s bright-line relationship test as an executive officer of PNC.

Independent directors. Our Board affirmatively determined that each of the directors listed below has no material relationship with PNC under the NYSE corporate governance listing standards. These determinations were based, in part, on an evaluation of the facts and circumstances of relevant relationships in light of PNC’s own independence guidelines. In some cases, the relationships that we analyzed include relationships that a director has as a partner, member, shareholder, officer or employee of an organization that has a relationship with PNC. They may also include relationships where an immediate family member of a director is a partner, member, shareholder or officer of an organization that has a relationship with PNC.

Based on these evaluations, our Board affirmatively determined that each of these directors qualifies as independent under the NYSE’s corporate governance listing standards: Charles E. Bunch, Paul W. Chellgren, Marjorie Rodgers Cheshire, Andrew T. Feldstein, Daniel R. Hesse, Kay Coles James, Richard B. Kelson, Anthony A. Massaro, Jane G. Pepper, Donald J. Shepard, Lorene K. Steffes, Dennis F. Strigl, Thomas J. Usher, Michael J. Ward and Gregory D. Wasson. Mr. Chellgren, Mr. Massaro and Mr. Usher are not nominees for director. Richard O Berndt, George H. Walls, Jr. and Helge H. Wehmeier, who served as directors until April 28, 2015, also qualified as independent until they retired from the Board.

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    31


Table of Contents

DIRECTOR AND EXECUTIVE OFFICER RELATIONSHIPS

 

Transactions with directors

 

This chart reflects banking relationships between PNC and the director, the director’s immediate family members, and a company of which the director is, or was during 2015, a partner, officer, employee, any immediate family member is, or was during 2015, a partner or officer, or in which the director or any immediate family member holds a

significant ownership or voting position (an affiliated entity). The chart also reflects relationships where PNC contributed to a charitable organization of which a director or immediate family member was a trustee, director or executive officer. All of these transactions meet our Board guidance on independence.

 

 

        LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO     LOGO `   LOGO     LOGO     LOGO  

 Personal or Family

 Relationships

  Deposit, Wealth Management and Similar Banking Products(1)   l   l   l   l   l       l   l   l   l   l   l   l   l        
  Credit Relationships(2)   l   l   l   l           l   l   l   l   l   l       l        
  Charitable Contributions(3)             l   l                  l        l   l             l   l     

 Affiliated Entity

 Relationships

  Deposit, Wealth Management and Similar Banking Products(1)   l   l   l                   l           l           l   l   l
  Credit Relationships or Commercial Banking Products(4)   l   l   l                   l                       l   l   l
(1) Includes deposit accounts, trust accounts, certificates of deposit, safe deposit boxes, workplace banking, or wealth management products.

 

(2) Includes extensions of credit, including mortgages, commercial loans, home equity loans, credit cards, or similar products, as well as credit and credit-related products.

 

(3) Does not include matching gifts provided to charities personally supported by the director because under our Board guidelines matching gifts are not a “material relationship” and are not included in considering the value of contributions against our guidance. Matching gifts are capped at $5,000 and are included as other compensation in the director compensation table.

 

(4) Includes extensions of credit, including commercial loans, credit cards, or similar products, as well as credit-related products, and other commercial banking products, including treasury management, purchasing card programs, foreign exchange, and global trading services.

 

Customer relationships. We provide financial services to most of our directors. We also provide financial services to some of their immediate family members and affiliated entities. We offer these services in the ordinary course of our business. We provide the services on substantially the same terms and conditions, including price, as we provide to other similarly situated customers.

We also extend credit to some of our directors and their immediate family members and affiliated entities. Federal banking law (Regulation O) governs these extensions of credit. We discuss the impact of Regulation O and our process for managing these extensions of credit on pages 33 and 34.

Business relationships. We also enter into other business relationships with entities affiliated with our directors or their immediate family members. These relationships are in the ordinary course of business.

Certain charitable contributions. We make contributions to charitable organizations where our directors serve as directors, trustees or executive officers. We also match charitable contributions made by our directors. We describe this matching gift program on page 37.

 

 

32    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

DIRECTOR AND EXECUTIVE OFFICER RELATIONSHIPS

 

Code of ethics

 

Our Code of Business Conduct and Ethics contains several provisions that regulate related person transactions. The Code of Business Conduct and Ethics applies generally to all employees, including our executive officers, and directors.

Doing business with PNC. An employee or an immediate family member may want to engage in a business arrangement, such as the sale or lease of property or the provision of services, with PNC. For these transactions, we require prior approval from a supervisor and our Corporate Ethics Office. If a director desires to engage in a business arrangement with PNC, approval is required from the Corporate Ethics Office and from a Board committee.

Financial services to employees. Our employees and their extended families are encouraged to use PNC for their personal financial services. Any services must be provided on the same terms as are available to the general public, all employees in a market or business, or all similarly situated employees.

Transacting PNC business. We prohibit directors and employees from transacting business on behalf of PNC with a supplier or customer in which the director, employee, or extended family member has a significant personal or financial interest. We also prohibit directors and employees from transacting business on behalf of PNC with respect to their own accounts, extended family member accounts, or accounts for anyone whose close relationship may reasonably be viewed as creating a conflict of interest. Our phrase “extended family member” is similar to the SEC’s definition of “immediate family member” in Item 404(a) of Regulation S-K. We have established procedures in certain of our businesses to permit employees to transact business with family members, subject to appropriate oversight and compliance with applicable laws and regulations, including Regulation O.

Employing relatives. We employ relatives of executive officers and directors, in some cases under circumstances that constitute related person transactions. See Family relationships on page 34. We track the employment and compensation of relatives of executive officers and directors. We have policies that restrict special treatment in the hiring or compensation of a relative of an executive officer or director. Our employment of a director’s relative would be a factor in the determination of the director’s independence under NYSE rules and our own adopted guidelines for director independence. See Director and Executive Officer Relationships—Director independence, which begins on page 30.

Waivers. Under the Code of Business Conduct and Ethics, employees may generally request waivers or exceptions from our Corporate Ethics Office. In the case of directors and executive officers, any proposed waiver or exception must be approved by both the Corporate Ethics Office and the appropriate committee of our Board. In 2015, no directors or executive officers requested an exemption under any of the provisions described above.

Ethics guidelines for directors. The Nominating and Governance Committee adopted Ethics Guidelines for Directors that contain comprehensive guidance regarding the various PNC policies that govern the conduct of our directors to supplement and assist directors in understanding these policies. These guidelines were most recently approved on August 12, 2015. The guidelines include reference to our policies and procedures applicable to directors, including our Code of Business Conduct and Ethics, described above, and our Related Person Transactions Policy and Regulation O policies and procedures, each described in more detail below, as well as our Director Pre-Clearance of Securities Policy, and our Anti-Corruption Policy.

 

 

Regulation O policies and procedures

 

We maintain additional policies and procedures to help ensure our compliance with Regulation O, which imposes various conditions on a bank’s extension of credit to directors and executive officers and related interests. Any extensions of credit we make must comply with our policies and procedures in accordance with Regulation O. A director can only meet our guidelines for independence for extensions of credit if the credit complied with Regulation O at the time PNC extended it.

Our Regulation O policies and procedures require:

 

 

Extensions of credit to covered individuals or entities be made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with those who are not covered. For credit extensions under a benefit or compensatory program widely available to all employees, we may not give preference to any covered individual.

 

 

The covered extension of credit be made following credit underwriting procedures no less stringent than those prevailing at the time for comparable transactions with non-covered

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    33


Table of Contents

DIRECTOR AND EXECUTIVE OFFICER RELATIONSHIPS

 

    individuals or entities. The extension of credit may not involve more than the normal risk of repayment or present other unfavorable features.

 

 

The amount of covered extensions of credit do not exceed individual and aggregate lending limits, depending on the identity of the borrower and the nature of the loan.

Our subsidiary bank, PNC Bank, National Association, has a Regulation O Credit Officer to review extensions of credit to determine our compliance with these policies. If an extension of credit would result in an aggregate credit extension of more than $500,000, the bank’s Board of Directors must approve it. The bank’s Board of Directors receives a report of all extensions of credit made to executive officers under Regulation O.

All loans to directors, executive officers, and related interests outstanding during 2015:

 

 

complied with our Regulation O policies and procedures;

 

 

were made in the ordinary course of business;

 

 

were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to PNC; and

 

 

did not involve more than the normal risk of collectability or present other unfavorable features.

 

 

Family relationships

 

No family relationship exists between any of our directors or executive officers and any of our other directors or executive officers. There are family relationships between certain directors and executive officers and some of the approximately 53,000 PNC employees. These employees participate in compensation and incentive plans or arrangements on the same basis as other similarly situated employees.

A brother-in law of Gregory Jordan, one of our executive officers, is employed by PNC and had been for many years before Mr. Jordan joined PNC in 2013. He participates in compensation and incentive plans or arrangements on the same basis as similarly situated employees. He does not share a household with Mr. Jordan, is not an executive officer of PNC, and does not report directly to an executive officer of PNC. His compensation paid in 2015 exceeded the $120,000 related person transaction threshold and as a result was reviewed by the Audit Committee.

A son of Michael Hannon, one of our executive officers, is employed by PNC. He participates in compensation and incentive plans or arrangements on the same basis as similarly situated employees. He is not an executive officer of PNC and does not report directly to an executive officer of PNC. His compensation paid in 2015 exceeded the $120,000 related person transaction threshold and as a result was reviewed by the Audit Committee.

The daughter of Charles E. Bunch, one of our non-management directors, has been employed by PNC for several years. She participates in compensation and incentive plans or arrangements on the same basis as similarly situated employees. She does not share a household with Mr. Bunch, is not an executive officer of PNC, and does not report directly to an executive officer of PNC. Her compensation paid in 2015 exceeded the $120,000 related person transaction threshold. Her compensation was reviewed by the Nominating and Governance Committee.

 

 

Indemnification and advancement of costs

 

We indemnify directors, officers and, in some cases, employees and agents, against certain liabilities. The covered person may have incurred a liability as a result of service on our behalf or at our request. On behalf of a covered person, we may also advance the costs of certain claims or proceedings. If we advance costs, the person agrees to repay us if it is determined that the person was not entitled to indemnification. The insurance policies we maintain for our directors and executive officers also provide coverage against certain liabilities.

The indemnification provisions, the advancement of costs, and our insurance coverage may provide benefits to our directors and executive officers. During 2015, we advanced costs with respect to pending litigation against us on behalf of certain former and current directors and officers, including our CEO, who were also named as defendants.

 

 

34    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

RELATED PERSON TRANSACTIONS

Related person transactions policy

 

Our policy for the review and approval of related person transactions was most recently approved on August 12, 2015. A related person transaction is generally any transaction in which PNC or its subsidiaries is or will be a participant, in which the amount involved exceeds $120,000, and a director (or nominee), executive officer, family member, or any beneficial owner of more than 5% of our common stock, has or will have a direct or indirect material interest.

This policy provides guidance on the framework for reviewing potential related person transactions, and approving, or ratifying related person transactions, and establishes our Presiding Director as the

individual who decides how transactions should be evaluated. In general, a potential related person transaction that involves a director would be reviewed by our Nominating and Governance Committee, as the transaction could also impact independence. A transaction involving an executive officer would generally be reviewed by the Audit Committee. Under this policy, our full Board receives reports on approved, disapproved and ratified transactions. Under the policy, a permitted related person transaction must be considered in, or not inconsistent with, the best interest of PNC and its shareholders.

 

 

Certain related person transactions

 

Based on information contained in a Schedule 13G filed with the SEC, BlackRock, Inc. (BlackRock), through certain of its subsidiaries, indicated that it beneficially owned more than 5% of our outstanding shares of common stock as of December 31, 2015 (see Security ownership of certain beneficial owners on page 80). BlackRock is the beneficial owner of our common stock as a result of being a parent company or control person of the subsidiaries disclosed in its Schedule 13G, each of which holds less than 5% of the outstanding shares of common stock.

During 2015, PNC paid BlackRock approximately $8 million for use of BlackRock’s enterprise investment system and related services, which include risk analytics, portfolio management, compliance and operational processing. PNC also paid BlackRock approximately $4 million for securities trading related services, and approximately $2 million for investment advisory and administration services provided to certain PNC subsidiaries and separate accounts assets for a fee based on assets under management. These transactions were entered into on an arm’s length basis and contain customary terms and conditions.

During 2015, PNC received approximately $9 million in fees from BlackRock for distribution and shareholder servicing activities. These transactions were entered into on an arm’s length basis and contain customary terms and conditions.

PNC may in the ordinary course of business engage in transactions with BlackRock mutual funds, including using the BlackRock funds as treasury management vehicles for PNC’s corporate clients, selling BlackRock investment products to PNC customers or placing PNC customer funds in

BlackRock mutual funds, using BlackRock funds as an investment vehicle for the PNC 401(k) accounts, providing commercial loan servicing to BlackRock funds, or providing shareholder services to PNC clients who are shareholders of BlackRock mutual funds.

PNC may also make loans to BlackRock or the BlackRock funds. These loans are made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to PNC; and do not involve more than the normal risk of collectability.

PNC holds an equity investment of approximately 22% in BlackRock. In connection with this equity investment, PNC has entered into various agreements governing the terms of this relationship. PNC received cash dividends from BlackRock of $320 million during 2015.

Based on information contained in separate Schedule 13G filings with the SEC, Wellington Management Group, LLP and certain subsidiaries (Wellington) and The Vanguard Group (Vanguard) each indicated that it beneficially owned more than 5% of our outstanding shares of common stock as of December 31, 2015 (see Security ownership of certain beneficial owners on page 80). In the ordinary course of business during 2015, PNC’s Corporate & Institutional Banking business engaged in treasury management and capital markets transactions with Vanguard. These transactions were entered into on an arm’s length basis and contain customary terms and conditions. This business is also a party to several credit facilities with Vanguard. The credit transactions were on substantially the same terms, including interest rates

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    35


Table of Contents

RELATED PERSON TRANSACTIONS

 

and collateral, as those prevailing at the time for comparable loans with persons not related to PNC, and do not involve more than the normal risk of collectability. In addition, PNC’s Asset Management Group and PNC Investments include Vanguard funds and Vanguard exchange traded funds in their

investment platforms. While we currently do not include Wellington funds in the platform, we may do so in the ordinary course when evaluating the funds included. Furthermore, our Deferred Compensation Plan included several Vanguard funds as an investment option during 2015.

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 requires persons who own more than ten percent of a registered class of our equity securities (currently, none) and our directors and executive officers to file with the SEC initial reports of ownership and reports in changes in ownership of any PNC equity

securities. To the best of our knowledge all forms were filed on a timely basis during 2015. In making this statement, we have relied in part on the written representations of our directors and executive officers and on copies of the reports provided to us.

 

 

DIRECTOR COMPENSATION

 

Our Board’s Nominating and Governance Committee reviews all elements of non-employee director compensation, explained below, and makes an annual compensation recommendation to the Board. In addition to annual compensation, the Committee may approve special compensation to a director for extraordinary service. The primary objectives of the Committee’s annual review are to confirm continued alignment with business and shareholder interests,

evaluate the competitiveness of our director compensation program relative to the peer group, and identify and respond to continued changes in director compensation in light of the competitive environment. The Nominating and Governance Committee conducted its annual compensation review for 2015 on April 28, 2015.

Mr. Demchak receives no additional compensation for serving as a PNC director.

 

 

The following table describes the components of director compensation in 2015:

 

 Annual Retainer

        

 Each Director

   $ 67,500   

 Presiding Director

   $ 30,000   

 Additional retainer for Chairs of Audit, Risk, and Personnel and Compensation Committees

   $ 20,000   

 Additional retainer for Chair of Nominating and Governance Committee

   $ 15,000   

 Additional retainer for Chair of Executive Committee

   $ 10,000   

 Meeting Fees (Board)

  

 Each meeting (except for quarterly scheduled telephonic meetings)

   $ 1,500   

 Each quarterly scheduled telephonic meeting

   $ 1,000   

 Meeting Fees (Committee/Subcommittee)

  

 First six meetings

   $ 1,500   

 All other meetings

   $ 2,000   

 Equity-Based Grants

  

 Value of 1,504 deferred stock units awarded as of April 28, 2015

   $ 137,481   

 

Deferred compensation plans. Our non-management directors may choose to defer the compensation they receive from meeting fees and retainers under our Directors Deferred Compensation Plan. Our Outside Directors Deferred Stock Unit Plan provides for automatic deferrals of any stock units that we may award from time to time. For compensation deferred under these plans:

 

 

The deferred compensation account tracks the price of PNC common stock (the Directors Deferred Compensation Plan allows a director to

   

track an interest rate option instead). Additionally, the accounts are credited with a number of units (including fractional shares) that could have been purchased with the equivalent of PNC common stock cash dividends. We do not pay above-market or preferential earnings on any director compensation that is deferred.

 

 

The director may choose the payout date and beneficiary (the stock unit plan does not allow a payout date until retirement or age 72).

 

 

The payouts will be made in cash.

 

 

36    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

DIRECTOR COMPENSATION

 

Other director benefits. We generally limit the benefits that we provide to our directors, but we regularly provide the following:

 

 

Charitable matching gifts. We will match a director’s personal gifts to qualifying charities up to a limit of $5,000 a year. Mr. Demchak is only eligible to participate in our employee matching gift program ($2,500 annual limit).

 

 

Insurance policies. We pay for various insurance policies that protect directors and their families from personal loss connected with Board service.

 

 

Benefits related to Board service. We pay for expenses connected with our directors’ Board service, including travel on corporate, private or commercial aircraft, lodging, meals, and incidentals.

We may also provide other incidental benefits to our directors from time to time, including tickets to cultural, social, sporting or other events and small gifts for holidays, birthdays, or special occasions. We may also provide travel for directors on corporate aircraft for personal purposes in limited circumstances, such as a family emergency or when

a seat is available on a previously scheduled flight. We determine the value of these benefits based on the incremental cost to PNC, as described on pages 52 and 53 and we include the amount in the “All Other Compensation” column below.

Director stock ownership requirement. Our Board has adopted a common stock purchase guideline for our non-management directors. Under this guideline, each director must own at least 5,000 shares of PNC common stock (including phantom stock units). Until a director meets this ownership level, he or she must purchase or acquire common stock or stock units that equal at least 25% of the annual retainer for that year. A director may satisfy this requirement through open market purchases, or by deferring compensation into stock units under the Directors Deferred Compensation Plan. As of December 31, 2015, the minimum ownership threshold for directors was valued at $476,550, and all of our directors serving at that time, other than Marjorie Rodgers Cheshire who was appointed in October 2014 and Gregory D. Wasson who was appointed in July 2015, satisfied the ownership guideline.

 

 

Director compensation in 2015

For the fiscal year 2015, we provided the following compensation to our non-employee directors:

 

 Director Name    Fees  Earned(a)      Stock  Awards(b)      All Other
Compensation(c)
     Total  

 Richard O. Berndt*

   $ 37,620         -       $ 20,455       $ 58,075   

 Charles E. Bunch

   $ 92,750       $ 137,481       $ 38,089       $ 268,320   

 Paul W. Chellgren

   $ 104,250       $ 137,481       $ 117,836       $ 359,567   

 Marjorie Rodgers Cheshire

   $ 123,250       $ 137,481       $ 2,027       $ 262,758   

 Andrew T. Feldstein

   $ 125,750       $ 137,481       $ 14,517       $ 277,748   

 Kay Coles James

   $ 96,750       $ 137,481       $ 48,079       $ 282,310   

 Richard B. Kelson

   $ 137,250       $ 137,481       $ 59,275       $ 334,006   

 Anthony A. Massaro

   $ 107,750       $ 137,481       $ 50,245       $ 295,476   

 Jane G. Pepper

   $ 110,250       $ 137,481       $ 63,532       $ 311,263   

 Donald J. Shepard

   $ 133,750       $ 137,481       $ 71,712       $ 342,943   

 Lorene K. Steffes

   $ 102,250       $ 137,481       $ 64,956       $ 304,687   

 Dennis F. Strigl

   $ 112,750       $ 137,481       $ 85,503       $ 335,734   

 Thomas J. Usher

   $ 130,250       $ 137,481       $ 110,942       $ 378,673   

 George H. Walls, Jr.*

   $ 37,620         -       $ 54,106       $ 91,726   

 Gregory D. Wasson**

   $ 46,380         -       $ 217       $ 46,597   

 Helge H. Wehmeier*

   $ 25,620         -       $ 62,409       $ 88,029   
* Mr. Berndt, Gen. Walls and Mr. Wehmeier served as directors through April 28, 2015.

 

** Mr. Wasson was appointed as a director on July 2, 2015.

 

(a) This column includes the annual retainers, additional retainers for chairs of standing committees and meeting fees earned for 2015. The amounts in this column also include the fees voluntarily deferred by the following directors under our Directors Deferred Compensation Plan, a non-qualified defined contribution plan: Paul W. Chellgren ($104,250); Marjorie Rodgers Cheshire ($49,300); Andrew T. Feldstein ($125,750); Jane G. Pepper ($27,563); Donald J. Shepard ($133,750); Lorene K. Steffes ($30,675); George H. Walls, Jr. ($37,620); and Gregory D. Wasson ($44,900).

 

(b) The dollar values in this column include the grant date fair value, under Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation, of 1,504 deferred stock units awarded to each director’s account under our Outside Directors Deferred Stock Unit Plan as of April 28, 2015, the date of grant. The closing stock price of PNC on the date of grant was $91.41 a share. See Note 13 in our Annual Report on Form 10-K for the year ended December 31, 2015 for more information.

 

     As of December 31, 2015, the non-employee directors listed in the table below had outstanding stock units in the following amounts:

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    37


Table of Contents

DIRECTOR COMPENSATION

 

 

 Director Name    Stock Units  

 Charles E. Bunch

     17,429   

 Paul W. Chellgren

     59,738   

 Marjorie Rodgers Cheshire

     1,935   

 Andrew T. Feldstein

     6,079   

 Kay Coles James

     22,466   

 Richard B. Kelson

     28,111   

 Anthony A. Massaro

     24,745   

 Jane G. Pepper

     29,320   

 Donald J. Shepard

     34,275   

 Lorene K. Steffes

     29,646   

 Dennis F. Strigl

     29,884   

 Thomas J. Usher

     54,163   

 Gregory D. Wasson

     428   
     None of our non-employee directors had any unvested stock awards as of December 31, 2015.

 

(c) This column includes income under the Directors Deferred Compensation Plan, the Outside Directors Deferred Stock Unit Plan, and the Mercantile Bankshares Corporation Deferred Compensation Plan (for Mr. Shepard only) as follows: Richard O. Berndt ($15,455); Charles E. Bunch ($33,089); Paul W. Chellgren ($117,836); Marjorie Rodgers Cheshire ($2,027); Andrew T. Feldstein ($9,517); Kay Coles James ($43,079); Richard B. Kelson ($54,275); Anthony A. Massaro ($50,245); Jane G. Pepper ($58,532); Donald J. Shepard ($66,712); Lorene K. Steffes ($61,293); Dennis F. Strigl ($85,503); Thomas J. Usher ($105,942); George H. Walls, Jr. ($49,106); Gregory D. Wasson ($217); and Helge H. Wehmeier ($57,409). This column also includes the dollar amount of matching gifts made by us in 2015 to charitable organizations. No director received any incidental benefits. No non-employee director had incremental cost to PNC for personal use of our corporate aircraft in 2015.

 

38    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

This section (CD&A) explains our executive compensation philosophy, describes our compensation programs and reviews compensation decisions for the following named executive officers (NEOs):

 

Name    Title

William S. Demchak

   Chairman, President and Chief Executive Officer

Robert Q. Reilly

   Executive Vice President and Chief Financial Officer

Michael P. Lyons

   Executive Vice President and Head of Corporate and Institutional Banking

E William Parsley, III

   Executive Vice President, Chief Investment Officer and Treasurer

Joseph C. Guyaux*

   Senior Vice Chairman and CEO and President of PNC Mortgage

 

* Effective January 31, 2015, Mr. Guyaux became the CEO and President of PNC Mortgage. Prior to that date, Mr. Guyaux was our Chief Risk Officer.

2015 PNC performance

 

LOGO

  In 2015, we delivered consistent results in a challenging operating environment, with net income of $4.1 billion (8% over budget) and diluted earnings per share of $7.39 (7.4% over budget) – we have earned at least $1 billion in net income during each of the past eleven quarters

LOGO

  Our annual total shareholder return (TSR) was the second-highest in our peer group and our three-year TSR was the highest in our peer group – our stock price also reached an all-time high in 2015

LOGO

  We diversified and improved our sources of revenue by successfully growing noninterest income and allowing our net interest income to decline – rather than adding riskier loans in a continued low interest rate environment

LOGO

  We continued to manage our costs, reducing our expenses for the third year in a row and exceeding our revised continuous improvement goal of $500 million in expense savings (up from our initial 2015 goal of $400 million)

LOGO

  We strengthened our capital throughout the year and returned capital to our shareholders through both a common stock dividend increase and share repurchases

We review various performance metrics with our Board’s Personnel and Compensation Committee each quarter and after the end of our performance year. For the key metrics listed below, we compare this year’s performance to how we performed last year, how we performed against this year’s budget, and how we performed against peers (see page 50 for the companies in our 2015 peer group). We also provide information to the Committee on other important capital, risk, expense and business metrics, some of which are shown below. For a general explanation of the metrics that we use to evaluate our compensation program, and our rationale for using them, see page 45.

 

 KEY PERFORMANCE METRICS    2015
actual(1)
     2014
actual(1)
    

2015

budget(2)

 

 Net interest income (in millions)

   $ 8,278       $ 8,525       $ 8,401   

 Noninterest income (in millions)

   $ 6,947       $ 6,850       $ 6,660   

 Diluted earnings per common share

   $ 7.39       $ 7.30       $ 6.88   

 Return on common equity (without goodwill)

     12.22%         12.84%         11.61%   

 Return on assets

     1.17%         1.28%         1.10%   

 Efficiency ratio(3)

     62.15%         61.71%         63.08%   
                      
      2015
actual(1)
     2014
actual(1)
         

 Annual total shareholder return

     6.81%         20.32%      

 Tangible book value per share

     $   63.65       $ 59.88      

 Tier 1 risk-based capital ratio

     12.00%         12.60%      

 Return on economic capital vs. cost of capital

     5.06%         5.02%            

These tables include non-GAAP financial measures. See Annex A for additional information.

 

(1)

To the extent permitted, the amounts may be adjusted to omit, among other things, the effect of extraordinary items (as such term is used under generally accepted accounting principles), discontinued operations, and merger integration and

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    39


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

  acquisition costs. The results also may include adjustments for select categories of events and transactions that are viewed as being outside of our ongoing management of the business, some categories of which are provided in footnote (b) on page 60 with respect to incentive performance units. When comparing performance metrics to our peers, we adjust their results comparably. We did not adjust PNC’s amounts in either 2014 or 2015, other than adjustments for the sale of Visa shares in each year, which impacted our return on economic capital.
(2) 2015 budget results were lower than 2014 actual results for several reasons, including, without limitation, the continued impact of the challenging economic environment on business results and our intent to manage balance sheet risk by avoiding loans and other assets that are outside of our enterprise risk appetite. The 2015 budget also included the impact of the continued, expected decrease in income recognized over time from the impaired loans we acquired through prior acquisitions (sometimes referred to purchase accounting accretion).
(3) As efficiency ratio compares our noninterest expense to revenue, a lower percentage is better.

The Committee also reviewed PNC’s performance against key strategic objectives. Despite a challenging revenue environment, management continued to drive growth throughout the franchise and make strategic investments to position PNC for long-term success.

 

 PERFORMANCE AGAINST STRATEGIC OBJECTIVES

 Drive growth in new and

 underpenetrated markets

 

LOGO

 

  

In the Southeast region, we increased 2015 market revenue and noninterest income from the prior year

 

 

LOGO

 

  

Continued growth across most lines of business in the Southeast

 

 Capture more investable assets

 

LOGO

 

  

Increased retail brokerage fees and asset management fees year over year

 

 

LOGO

 

  

Increased total noninterest income by 5% year over year, primarily driven by growth in consumer service fees and brokerage consistent with our strategy of growing share of wallet

 

 

 Redefine the retail banking business

 

LOGO

 

  

Continued to focus on transforming the customer experience – 52% of consumer customers used non-teller channels for the majority of their transactions (46% in 2014) and ATM and mobile deposits accounted for 43% of total deposit transactions (35% in 2014)

 

 

LOGO

 

  

More than 375 branches now operate under the universal model (up from 156 branches at the end of 2014)

 

 

 Build a stronger mortgage business

 

LOGO

 

  

PNC Bank complied with the terms of the 2011 residential mortgage consent order issued by the OCC to several banks and received notification that the OCC had terminated that order with respect to PNC Bank

 

 

LOGO

 

  

Increased mortgage originations by 11% over the prior year

 

 Bolster critical infrastructure and

 streamline core processes

 

LOGO

 

  

Exceeded continuous improvement goal of $500 million in expense savings

 

 

LOGO

 

  

Noninterest expense decreased from 2014 – the third straight year we decreased expenses

 

Compensation philosophy and principles

 

A well-designed compensation program provides incentives to achieve desired results, helps to retain and attract talent, and discourages excessive risk-taking. This section talks about how we view

compensation, and why we make the decisions that we do. Our Committee relies on several key principles to help guide its compensation decisions:

 

 

COMPENSATION PRINCIPLES

 1.   Pay for performance

 2.   Align executive compensation with long-term shareholder value creation

 3.   Provide competitive compensation opportunities to attract, retain, and motivate executives

 4.   Encourage the focus on the long-term success of PNC and discourage excessive risk-taking

 

The Committee believes that the successful application of these principles requires a thoughtful program design, which includes a balanced evaluation of performance metrics. The Committee believes that discretion, flexibility, and judgment are

critical to its ability to deliver incentive compensation that reflects near-term performance results and progress toward longer-term objectives that enhance PNC’s ability to continue to create value for our shareholders.

 

 

40    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

 

WHAT WE DO
LOGO     Pay for performance. Most executive pay is at risk and not guaranteed. Our standard long-term equity incentive awards are 100% performance-based.
LOGO     Discourage excessive risk taking. Multiple performance measures and deferral periods, along with robust stock ownership and retention policies, clawback and forfeiture provisions help discourage excessive risk taking.
LOGO     Engage with shareholders. We actively engage with our shareholders on governance and compensation issues.
LOGO     Require strong ownership and retention of equity. We have adopted strong share ownership guidelines, and all of our NEOs currently comply with those guidelines. Executives are subject to additional retention requirements as equity grants vest.
LOGO     Clawback. Our clawback policy permits recapture of prior incentive compensation awarded based on materially inaccurate performance metrics and canceling all or a portion of long-term incentive awards based on performance against risk metrics, risk-related actions or detrimental conduct. The amount of any clawback applied will be publicly disclosed as appropriate.
LOGO     Limit perquisites. We believe that perquisites should be modest and provide business-related benefits and we generally limit them to $10,000 in value with an additional $10,000 allowance for personal aircraft usage ($100,000 allowance for personal aircraft usage by the CEO). Executives are asked to reimburse the value of perquisites over that amount, if legally permissible.
LOGO     Provide reasonable post-employment benefits. We have closed our legacy supplemental defined benefit plans to new entrants and we require shareholder approval on change in control benefits above a certain level.
LOGO     Retain an independent compensation consultant. The Personnel and Compensation Committee retains an independent compensation consultant that provides no other services to PNC.

 

WHAT WE DON’T DO
û   No tax gross-ups. Since 2009, we have not entered into any new agreements that permit excise tax gross-ups upon a change in control. We also do not provide tax gross-ups on our perquisites.
û   No change in control agreements without shareholder approval. Without shareholder approval, we will not enter into new change in control arrangements that would pay more than 2.99 times base and bonus in the year of termination.
û   No “single trigger” acceleration of equity. Equity grants to our senior executives require a “double trigger” to vest upon a change in control – the change in control must occur and there must be a qualifying termination of employment.
û   No repricing of options. Our equity plan does not permit us to reprice stock options that are out-of-the-money, without shareholder approval. See pages 84 – 94 for a discussion of our equity plan.
û   No employment agreements for NEOs. Our named executives do not have individual employment agreements. They serve at the will of the Board, which enables us to set the terms of any termination of employment, preserving the Committee’s flexibility to consider the facts and circumstances of any particular situation.
û   No hedging, pledging, or short sales. We do not permit any of our directors or employees to hedge PNC securities, or short-sell PNC securities. In addition, we do not permit our directors or executive officers to pledge PNC securities.

Stakeholder engagement and impact of 2015 say-on-pay vote

 

In 2015, our shareholders voiced substantial support for the compensation of our NEOs, with approximately 97% of the votes cast approving the “say-on-pay” advisory vote on executive compensation. In seven years of say-on-pay votes, this represented the highest level of support that we have received from our shareholders.

For the past several years, we have initiated specific outreach efforts with certain institutional investors. In 2015, we invited many of our largest institutional

shareholders to participate in telephone conferences to discuss governance, compensation, and other matters included in the proxy statement. We had productive conversations with the shareholders who agreed to participate. Based on the results of these efforts and in light of the strong investor support in 2015, the Committee did not believe that any significant changes to the compensation program were needed. The Committee considered the results of this vote as one factor in its compensation decisions, among the other factors discussed in this CD&A.

 

 

Compensation program summary

 

The Committee reviews and approves the compensation to be paid to our CEO and a group of senior leaders that includes our NEOs. We strive for clarity and transparency in our compensation

structure, using several features to design a balanced program. While we try to reflect the expectations of various stakeholders, we want our compensation program to achieve multiple objectives, consistent with our compensation principles.

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    41


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

 

As a large financial institution, we must also comply with various regulatory requirements. The Board of Governors of the Federal Reserve (Federal Reserve) regulates PNC as a bank holding company and has provided guidance and set expectations with respect to our current compensation program. The Office of the Comptroller of the Currency (OCC) regulates our primary banking subsidiary, and also sets expectations for our compensation program. We expect that the Federal Reserve, the OCC and other financial industry regulatory entities, including the SEC, will remain closely involved in compensation matters.

Taken as a whole, our program provides incentives for performance over the short and long-term, rewards achievement against measurable goals and qualitative objectives, considers market data and discretion, and uses cash today as well as equity deferred into the future. The Committee evaluates multiple performance metrics, both on an absolute basis and as measured against our peers. The

Committee regularly reviews the operation of our compensation program to help ensure that our objectives continue to be met.

Total compensation targets

Each of our NEOs receives a total compensation target for the year – this includes the base salary and an incentive compensation target (payable in cash and equity-based awards). We set these targets in the first quarter of the year, or when an executive assumes new responsibilities.

In establishing total compensation targets, the Committee reviews available market data for each position. We do not set targets by formula. Instead, the Committee evaluates a variety of factors, including the appropriateness of the job match and market data, the responsibilities of the position at PNC and the executive’s demonstrated performance, skills, and experience.

 

 

The total compensation target for each NEO generally consists of the following components:

 

 

 

LOGO

Our Committee believes that annual compensation should include a substantial performance-based component that varies from year to year. For information on how our Committee evaluates performance to determine the annual incentive payout, see the discussion starting on page 44.

We want our NEOs to receive a significant portion of compensation in equity that pays out, if at all, over several years. To achieve that goal, at least 50% of the total compensation target is allocated to long-term equity awards. For our CEO (and one other NEO), this proportion increases to 60%. The remainder of the annual incentive payout is delivered as an annual cash incentive award.

The Committee believes that these components collectively provide an appropriate balance between fixed and variable amounts, short-term and long-term duration of payouts, and cash and equity-based awards.

 

42    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

Under our current programs, each NEO generally receives their long-term incentive award in two primary forms that are equally weighted by dollar value – the incentive performance unit, which measures PNC performance over a three-year period, and the performance-based restricted share unit (RSU), which vests in equal annual installments over a four-year period. In addition to the regular incentive performance unit, Mr. Parsley received an incentive performance unit tied to the performance of our Asset & Liability Management (ALM) function, which he manages. Each long-term incentive award also contains forfeiture provisions that can reduce or eliminate payouts if PNC does not meet risk-based criteria.

All of these equity-based awards are made under PNC’s shareholder-approved 2006 Incentive Award Plan. The table below summarizes the material terms and conditions of these awards.

 

     Incentive performance units   Performance-based RSUs    ALM incentive performance units

Who receives an award?

  All NEOs            All NEOs    Mr. Parsley

How do we

measure

performance?

 

    2016-2018 (three years)

 

    Vesting occurs at the end of the period

 

     Performance based on absolute and relative metrics

 

-    50% based on our return on common equity without goodwill (ROCE) compared to our cost of common equity (COCE)

 

-    50% based on our EPS growth rank against our peers

 

    0-125% of target award

 

    Units payable in PNC common stock up to target (0-100%) and payable in cash above target (100-125%)

 

    2016-2019 (four years)

 

    Vesting occurs in annual installments

 

    Vested amount adjusted based on PNC’s annual total shareholder return (TSR)

 

    Aligns executives’ interests directly with the interests of shareholders, and has a considerably stronger tie to performance than time-based restricted shares while also supporting retention

  

    2016-2018 (three years)

 

    Vesting occurs at the end of the period

 

    PNC’s ALM performance compared to a benchmark performance index

 

    0-200% of target award

 

    Units payable in cash

       

    75-125% of target award

 

    Units payable in PNC common stock

    

What is the

payout?

 

    The payout percentage grid ranges are listed below. Actual payout percentages will be interpolated – taking into account how close the performance metric or peer group rank is to the actual metric or rank above and below. For example, if EPS Growth Rank is closer to 5th than 6th, the actual payout percentage will be closer to 115% than 105%. If ROCE as a % of COCE is between 105% and 110%, the payout percentage will be between 100% and 125%.

    

 

ROCE

as % of

  COCE  

   Payout
%
 

 

EPS
Growth
Rank

   Payout %  

Annual

TSR

  

Payout %

  

ALM vs.

index

   Payout %
  >= 110%    125%   1    125%   >= +25%    125%    >= +40 basis points    200%
  105%    100%   2    125%   0%    100%    +20 basis points    150%
  100%    75%   3    125%   <= -25%    75%    0 to -25 basis points    100%
  75%    50%   4    120%         -35 basis points    40%
  <= 50%    0%   5    115%         <= -40 basis points    0%
       6    105%           
       7    95%           
       8    80%           
       9    60%           
       10    40%           
       11    0%           
           12    0%                   

How do we

adjust for risk?

 

    If PNC does not meet or exceed the required Tier 1 risk-based capital ratio for “well-capitalized” institutions in a specific year, the award will be forfeited.

 

    If our return on economic capital does not exceed our cost of capital for the year, the Committee may reduce or eliminate the award.

    

What are

other

important

provisions?

 

    No voting rights

 

    Dividends will accrue until vesting and be paid out in cash, adjusted for actual performance

  

    No voting rights

 

    No accrued dividends

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    43


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

Other compensation and benefits

In addition to the components included in the total compensation target outlined above, our executive compensation program also includes the following components:

 

Perquisites

  

  Few perquisites are permitted and they are limited in dollar value

  

  PNC requests reimbursement if executives exceed the prescribed dollar value

  

  No tax gross-ups permitted

Change in Control Arrangements

  

  Allow for continuity of management with respect to a change in control

  

  Provide compensation when an executive officer is involuntarily terminated following a change in control

  

  Equity will not be accelerated on a change in control – there must also be a qualifying termination of employment

  

  Described in more detail on pages 73 to 78

Health and Retirement Plans

  

  Promote health and wellness

  

  Help employees achieve financial security after retirement

Evaluating performance

 

The Committee evaluates several metrics when making compensation decisions. We design these metrics to align, to the extent possible, the objectives of our management, long-term shareholders and banking regulators. In some cases, these stakeholders have different objectives that cannot be easily reconciled – for example, long-term shareholders seeking higher returns may be willing to tolerate more risk than a federal banking

regulator would. That is one reason we use multiple metrics, representing achievement against both objective and subjective goals, as well as significant adjustments for risk management. The Committee does not necessarily favor one metric over another. Instead, the Committee uses these metrics to gain a comprehensive understanding of our overall performance.

 

 

44    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

The following chart describes some of the key metrics that the Committee evaluates, and a brief explanation of why we use them.

 

Category

   Metric   Why we use it

Capital and risk

   Economic capital  

Economic capital represents the amount of resources that we should hold to guard against unexpected losses. Economic capital serves as a “common currency” of risk that allows us to compare different risks on a similar basis across our company.

 

   Return on economic
capital (ROEC) vs.
cost of capital
 

ROEC is our annualized net income divided by our economic capital. Comparing our profits to how much capital we are holding against potential losses helps to provide a risk-based evaluation of profitability. When we compare ROEC to our cost of capital – that is, a minimum rate of return on the overall capital that we hold – it provides a good measure of the excess value that we provide to shareholders.

 

   Tier 1 risk-based
capital ratio
 

The Tier 1 risk-based capital ratio is used by banking regulators to assess the capital adequacy and financial strength of a bank. This capital ratio must exceed 6% for PNC to be considered “well-capitalized” by our regulators.

 

Expenses

   Efficiency ratio  

The efficiency ratio helps us evaluate how efficiently we operate our business. The ratio divides our noninterest expense (such as compensation and benefits, occupancy costs, equipment, and marketing) by our revenue. In general, a smaller ratio is better. A bank’s efficiency ratio will be affected, however, by its particular mix of businesses.

 

Profitability

   Earnings per share
(EPS)
 

EPS is a common metric used by investors to evaluate the profitability of a company. It shows the earnings (net income) we make on each share of stock that we issue.

 

   EPS growth  

While EPS represents a specific dollar amount, EPS growth represents the percentage growth of EPS since last year. EPS growth helps us to compare our annual earnings strength to our peers.

 

   Return on assets
(ROA)
 

Investors often evaluate banks by their asset size, with loans and investment securities making up the largest components of assets. ROA is our annualized net income divided by our average assets and represents how efficiently we use assets to generate profit.

 

   Return on common
equity
 

Return on common equity is our annualized net income attributable to our common shareholders divided by average common shareholders’ equity. It shows how efficiently we use our investor funds (common equity) to generate profit.

 

Revenue

   Net interest income  

Net interest income measures the revenue generated from lending and other activities minus all interest expenses (such as interest paid on deposits and borrowing). It is a good indicator of performance for banks given the importance of interest earning assets and interest bearing sources of funds.

 

   Noninterest income  

Noninterest income measures the fees and other revenue we derive from our businesses (other than interest income). A healthy mix of net interest income and noninterest income provides diverse earnings streams and lessens a bank’s reliance on the interest rate environment.

 

Valuation

   Tangible book value
per share
 

This measure takes our total tangible common shareholders’ equity (intangible assets, such as goodwill, are excluded) and divides that by the number of shares outstanding. This provides investors with an objective valuation method and allows them to compare relative values of similar companies.

 

   Total shareholder
return (TSR)
 

TSR is a common metric used to show the total return to an investor in our common stock. Annual TSR takes into account the change in stock price from the beginning to the end of the year, as well as the reinvestment of any dividends issued throughout the year.

 

 

After reviewing these metrics and evaluating our corporate performance, the Committee reviews the individual performance of each NEO. The CEO reviews his assessment of the performance of executives, including the NEOs, with the Committee. To help the Committee understand the market, management provides current benchmark compensation data for each NEO. The Committee

discusses, then approves the compensation amounts for each of our NEOs. In awarding compensation to each NEO, the Committee considers PNC’s overall performance for the year, as well as performance for the lines of business or functions managed by the NEO, and the individual performance of the NEO.

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    45


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

2015 compensation decisions

For 2015, the Committee set the following compensation targets for our NEOs:

 

      William S.
Demchak
    

Robert Q.

Reilly

    

Michael P.

Lyons

    

E William

Parsley, III(1)

    

Joseph C.

Guyaux

 

Base salary

   $ 1,100,000       $ 500,000       $ 700,000       $ 500,000       $ 620,000   

Incentive compensation target(2)

   $ 9,900,000       $ 3,000,000       $ 4,800,000       $ 5,500,000       $ 2,480,000   

Annual cash incentive portion

   $ 3,300,000       $ 1,250,000       $ 1,500,000       $ 1,000,000       $ 930,000   

Long-term incentive portion

   $ 6,600,000       $ 1,750,000       $ 3,300,000       $ 4,500,000       $ 1,550,000   

Total compensation target

   $ 11,000,000       $ 3,500,000       $ 5,500,000       $ 6,000,000       $ 3,100,000   
(1) Mr. Parsley’s long-term incentive target includes two anticipated grants – the grant of equity-based awards that all other NEOs would otherwise receive (valued at $1,500,000) and a separate grant of incentive performance units related to the management of our Asset & Liability Management (ALM) unit, valued at $3,000,000. Please see page 63 for a discussion of Mr. Parsley’s ALM units.
(2) For the 2015 performance year, the Committee approved increases in incentive compensation targets for Mr. Demchak (from $8,400,000 to $9,900,000) and Mr. Parsley (from $5,000,000 to $5,500,000). The Committee approved these increases based on the performance, skills and experience of the executive, as well as changes in market information for similar executives at other financial institutions.

 

The market data reviewed by the Committee show that our CEO’s total compensation target generally fell within 15% of the median compensation for peers, as adjusted for PNC’s size. The total compensation targets for our other NEOs generally fell near the unadjusted median compensation for peers, except for Mr. Guyaux whose target was positioned above the median. The Committee based Mr. Guyaux’s total compensation target on his demonstrated performance and leadership across a variety of roles at PNC throughout his career, and his agreement to take on a new role in 2015 as the CEO and President of our mortgage business, following the departure of the prior head of that business. For the 2016 performance year, the Committee also approved target increases for our CEO and two other NEOs. The Committee increased incentive compensation targets for Mr. Demchak ($10,500,000), Mr. Lyons ($6,050,000) and Mr. Parsley ($6,900,000). The Committee also increased Mr. Parsley’s base salary to $600,000. The Committee approved these increases based on the performance, skills and experience of each NEO, as well as changes in market information for similar executives at other financial institutions. Mr. Parsley’s target increase was also based on the significant expansion of his duties at the end of 2015 and beginning of 2016, as he now has responsibility for our mortgage business, and for retail lending and pricing, in addition to his previous responsibilities.

At meetings held during the first quarter of 2016, the Committee reviewed PNC’s performance for the 2015 performance year. As stated earlier in this CD&A, PNC delivered consistent performance in 2015, with solid net income in a difficult

environment, a well-positioned balance sheet, strong shareholder returns, and substantial execution against our main strategic objectives. We performed well against our peers in return on assets, a key metric for the banking industry. We were above the peer median for non-interest income (up 1.4% over last year), EPS growth (up 1.2% over last year) and efficiency ratio, and at the peer median for return on common equity adjusted without goodwill. We lagged our peer group in net interest income growth, but this reflected, in large part, the desire to stay within our risk appetite in the current low interest rate environment, which has limited our opportunities to grow loans. Based on an evaluation of PNC’s 2015 performance, including a review of the performance metrics described previously in this CD&A and management’s execution against strategic objectives, the Committee determined that it was appropriate to make above-target incentive compensation awards to our NEOs. The actual incentive compensation payouts also reflect individual performance, including business unit (or function) performance and consideration of risk management.

The CEO discussed the individual performance of the NEOs with the Committee, and, where appropriate, discussed the performance of the lines of business or functions managed by the NEOs. The Committee approved compensation awards for each NEO based on an evaluation of corporate, business and individual performance. For our CEO, the Committee approved the compensation amounts in an executive session, with no members of management present. Meridian, the Committee’s independent compensation consultant for 2015, participated in this discussion with the Committee.

 

 

46    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

 

The Committee also reviewed the CEO compensation decisions in an executive session of the independent members of the board of directors of PNC, with no members of management present. In that executive session, the Committee allowed time for the independent directors to provide

comments or questions about the CEO’s performance and compensation.

The table below shows, for each NEO, the incentive compensation target for 2015 and the actual annual cash incentive and long-term equity-based incentives awarded in 2016 for 2015 performance.

 

 

  2015 incentive compensation decisions    William S.
Demchak
    

Robert Q.

Reilly

    

Michael P.

Lyons

    

E William

Parsley, III(1)

    

Joseph C.

Guyaux

 

Incentive compensation target

   $ 9,900,000       $ 3,000,000       $ 4,800,000       $ 5,500,000       $ 2,480,000   

Incentive compensation awarded

   $ 11,900,000       $ 3,300,000       $ 6,100,000       $ 6,100,000       $ 2,880,000   

Annual incentive award (cash)

   $ 4,100,000       $ 1,400,000       $ 2,020,000       $ 1,300,000       $ 1,130,000   

Long-term incentive award (equity-based)

   $ 7,800,000       $ 1,900,000       $ 4,080,000       $ 4,800,000       $ 1,750,000   
(1) Mr. Parsley’s incentive compensation award includes two grants – the grant of equity-based awards that all other NEOs would otherwise receive (valued at $1,800,000) and a separate grant of incentive performance units related to the management of our Asset & Liability Management (ALM) unit, valued at $3,000,000. Please see page 63 for a discussion of Mr. Parsley’s ALM units.

The amounts shown in the table above differ from the amounts reflected in the Summary compensation table on page 58. In accordance with SEC regulations, that table shows the long-term equity-based incentives granted in 2015 based on 2014 performance.

 

Proxy statement disclosure    2015 performance year   

2014 performance year

2015 incentive compensation decisions table (above)

  

Annual incentive (cash)

 

Long-term incentive

(equity-based)

    
Summary compensation table (page 58)   

Annual incentive (cash)

   Long-term incentive (equity-based)

The charts below show the base salary for 2015 for each NEO, and the annual cash incentive and long-term incentive awarded in 2016 for 2015 performance. The bar surrounding each circle shows the amount of total compensation that is variable and at-risk.

 

 WILLIAM S. DEMCHAK – CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
 2015 KEY ACHIEVEMENTS   

 

  As our CEO, Mr. Demchak continued to deliver outstanding, consistent performance and leadership in a difficult economic environment by executing well against our strategic priorities.

 

  Delivered strong returns to our investors, with an annual total shareholder return (TSR) of 6.81%, placing us second among our peers.

 

  Grew the franchise strategically without departing from our desired risk appetite through purposeful loan and deposit growth, and a continued increase in our fee income.

 

  Maintained a strong, well-positioned balance sheet and returned more capital to shareholders through stock repurchases and higher dividends.

 

  Reduced expenses year over year, marking the third straight year of declining expenses.

 

  Despite a challenging revenue environment, continued to make strategic investments to position PNC for long-term success, including significant upgrades to our technology infrastructure, transforming the retail bank, and building a leading banking franchise in our underpenetrated markets.

  The Committee also noted Mr. Demchak’s consistent strong performance as CEO since his appointment in April 2013, and that the compensation decisions for 2015 reflected, in part, pay commensurate with the performance, skills, and experience of the CEO of a large bank holding company.

   LOGO

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    47


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

 ROBERT Q. REILLY – EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
 2015 KEY ACHIEVEMENTS   

  As CFO, Mr. Reilly provided effective supervision of major internal financial and accounting functions and continued to play an integral part in our achievement of financial priorities, including exceeding our continuous improvement goal of $500 million in cost savings and decreasing our overall expenses year over year.

 

  Continued to strengthen the linkages between our strategic planning, budgeting, and Comprehensive Capital Analysis and Review (CCAR) processes.

 

  Served as primary spokesperson with investors, the media and the investment community and continued to support our reputation with those stakeholders.

   LOGO
  

 MICHAEL P. LYONS – EXECUTIVE VICE PRESIDENT AND HEAD OF CORPORATE AND INSTITUTIONAL

 BANKING

 2015 KEY ACHIEVEMENTS   

  As the head of our Corporate & Institutional Banking segment, Mr. Lyons continued to lead a major business that contributed approximately 36% of our revenue and 49% of our net income in 2015.

 

  Delivered strong financial results, with record levels of adjusted pre-provision net revenue and fee income as a percentage of total revenue.

 

  Achieved loan and deposit growth while maintaining our desired risk appetite and credit quality.

 

  Continued to execute on cross-selling opportunities and new revenue initiatives, with record new clients in the Southeast, while successfully managing expenses.

   LOGO
  

 

48    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

 E WILLIAM PARSLEY, III – EXECUTIVE VICE PRESIDENT, CHIEF INVESTMENT OFFICER AND TREASURER
 2015 KEY ACHIEVEMENTS   

  As Chief Investment Officer and Treasurer, Mr. Parsley effectively manages our assets and liabilities, invests PNC’s balance sheet, oversees our broker-dealer activities, manages our alternative investments and leads our asset resolution efforts.

 

  In 2015, he continued to deliver outstanding performance on our core investment portfolio while continuing to improve the credit quality of the portfolio and enhancing our firm’s liquidity and capital profile.

 

  Partnered successfully with the Independent Risk Management and Finance functions to improve the evaluation and reporting of risks across the entire balance sheet.

 

  Continued to make significant improvements to the CCAR process.

   LOGO
  
 JOSEPH C. GUYAUX – SENIOR VICE CHAIRMAN AND CEO AND PRESIDENT OF PNC MORTGAGE
 2015 KEY ACHIEVEMENTS   

  In 2015, Mr. Guyaux successfully transitioned from our Chief Risk Officer position to the CEO of our Mortgage business.

 

  Helped PNC Bank satisfy all of the requirements of the residential mortgage consent order issued by the OCC in 2011, which was terminated in 2015.

 

  Continued to make solid progress in the acquisition of mortgage servicing rights, and the integration of our home equity and mortgage businesses.

   LOGO

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    49


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation policies and practices

 

The Committee adopts policies and procedures to assist in the fulfillment of its duties, and reviews these from time to time. We describe some of the significant policies and procedures in this section. In addition to formal policies and procedures, the Committee has several practices that it follows in the fulfillment of its duties and responsibilities. Some of these practices are described below.

Compensation and risk

The Committee evaluates the risks inherent in the incentive compensation program. For a detailed discussion of how the Committee evaluates risk, please see Compensation and Risk, which begins on page 56.

Independent compensation consultant

The Committee retains Meridian Compensation Partners, LLC as its independent compensation consultant. For a discussion of this relationship and the considerations that the Committee takes into account when determining independence, please see pages 27 and 28.

Peer group

The Committee selects a peer group each year. We use this group to measure relative performance and to determine our incentive performance unit payouts. We

also use this group for general compensation comparisons. In approving a peer group, the Committee analyzes several factors, including the mix and complexity of businesses, the markets being served, market capitalization, asset size, and changes resulting from mergers or shifts in strategic direction. We also look at the companies with whom we compete for talent.

The Committee annually reviews the composition of the peer group with management and its independent compensation consultant. For 2015, the Committee believed that the existing peer group generally provided a balanced mix of institutions in light of our mix and scope of businesses, products and services, and sources of executive talent. However, in performing this review, the Committee decided to remove Comerica Incorporated from the peer group. The Committee approved the removal of Comerica based on its relatively smaller size, business mix and geographic footprint as compared to PNC. Even with this change, PNC is larger than a majority of the peers, positioned between the median and the 75th percentile of the peer group, based on total assets, revenue and market capitalization.

The peer group for 2016 remained unchanged from 2015 and included 12 companies (including PNC), with assets, revenues and market capitalization for each company measured as of December 31, 2015:

 

 

Peer Group Company   Ticker
Symbol
        Peer   

Assets

(in billions)

          Peer   

Revenue

(in billions)

           Peer   

Market
Capitalization

(in billions)

 

Bank of America Corporation

  BAC      JPM    $ 2,351.7         JPM    $ 93.5          WFC    $ 276.8   

BB&T Corporation

  BBT      BAC    $ 2,144.3         WFC    $ 86.1          JPM    $ 241.9   

Capital One Financial Corporation

  COF      WFC    $ 1,787.6         BAC    $ 82.5          BAC    $ 174.7   

Fifth Third Bancorp

  FITB      USB    $ 421.9         COF    $ 23.4          USB    $ 74.5   

JPMorgan Chase & Co.

  JPM      PNC    $ 358.5         USB    $ 20.1          PNC    $ 48.0   

KeyCorp

  KEY      COF    $ 334.0         PNC    $ 15.2          COF      38.1   

M&T Bank Corporation

  MTB      BBT    $ 209.9         BBT    $ 9.6          BBT    $ 29.5   

Regions Financial Corporation

  RF      STI    $ 190.8         STI    $ 8.0          STI    $ 21.8   

SunTrust Banks, Inc.

  STI      FITB    $ 141.1         FITB    $ 6.5          MTB    $ 19.3   

U.S. Bancorp

  USB      RF    $ 126.1         RF    $ 5.4          FITB    $ 15.8   

Wells Fargo & Company

  WFC      MTB    $ 122.8         MTB    $ 4.7          RF    $ 12.5   
       KEY    $ 95.1         KEY    $ 4.2          KEY    $ 11.0   

 

Executive stock ownership and retention

Our executive officers historically have held a significant portion of their personal wealth in the form of our common stock (or other equity-based instruments that reflect the performance of our common stock). The Committee believes it is important to require our executive officers to meet minimum stock ownership guidelines, denominated in shares.

Each executive officer and other key employees is subject to additional ownership requirements, even after the original ownership target is met. The ownership requirements increase the number of PNC shares that an individual needs to own over time. As new awards vest, designated employees need to retain more shares of stock, which they must then hold until they retire or leave PNC. This ownership policy reflects compensation awards over an executive’s career, and also ties an executive’s personal wealth closely to the performance of PNC and the interests of our long-term shareholders.

 

 

50    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

 

Equity interests that count toward satisfaction of the ownership guidelines include shares owned outright by the officer, or his or her spouse and dependent children, restricted shares (subject to vesting requirements), certain equity awards and

shares or stock units held in a benefit plan. We count 50% of any unvested equity-based award toward satisfaction of the ownership guidelines. The guidelines are as follows:

 

 

 Officer/Category    Share ownership
(base requirement)
     Base requirement
(value as of
12/31/2015)(1)
     Ongoing retention
requirement
 

 President and Chief Executive Officer

     125,000         $11,913,750         33%   

 Management Executive Committee and Other

 Corporate Executive Group (CEG) Members(2)

     15,000 - 25,000       $ 1,429,650 - $2,382,750         25%   
 Executive Officers (non-CEG Members)      5,000         $476,550         10%   
(1) Value based on PNC closing price of $95.31 as of December 31, 2015.
(2) The CEG includes our CEO, our other NEOs, and certain other senior-level executives.

 

Newly hired or promoted employees who become subject to these guidelines will have up to six years to satisfy the guidelines. The Committee monitors compliance with these stock ownership guidelines and has determined that our current NEOs satisfy the guidelines. All other employees subject to the guidelines either satisfy the guidelines or are within the compliance period.

Clawback and forfeiture

We have a “clawback” policy that applies to all of our NEOs and other executive officers, as well as other senior employees and those employees receiving equity-based compensation.

 

 

A summary of PNC’s clawback and incentive compensation adjustment policy is included in the table below.

 

 Provision   Explanation   Eligible Compensation
Elements
  Applicable Employee
Population

 Clawback – Inaccurate Metrics

  Applies to incentive compensation awarded as the result of materially inaccurate performance metrics (see below for additional details)   All incentive compensation – vested or unvested   NEOs and other senior leaders

 Negative Adjustments – Risk Metrics Performance

  May apply when there is less than desired performance against corporate or business unit risk metrics, as applicable   All unvested long-term incentive compensation  

 Clawback – Detrimental Conduct

 

Applies in the following instances:

 

    when an individual engages in competitive activity without prior consent – either as an employee of PNC or for one year after employment

 

    when an individual commits fraud, misappropriation or embezzlement

 

    when an individual is convicted of a felony

  All unvested long-term incentive compensation   All equity recipients

 Negative Adjustments – Risk-Related Actions

  May apply when an individual’s actions, or the failure to act, either as an individual or a supervisor, demonstrates a failure to provide appropriate consideration of risk (see below for additional details)    

 

For purposes of the clawback for materially inaccurate performance metrics, performance metrics include any metric, including corporate financial results, used directly or indirectly to determine whether or not incentive compensation is to be provided to an executive (or group of executives) or to determine the amount of any such compensation. The portion of the incentive compensation that represents the excess over what

would have been provided if there had been no material inaccuracy in the performance metric will be subject to clawback. The Committee retains discretion, to the extent legally permissible, to determine that it would not be in PNC’s best interests to seek to enforce the clawback.

For purposes of the negative adjustment resulting from risk related actions, the Committee may

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    51


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

reduce or cancel unvested long-term incentive compensation granted to an employee who takes risk-related actions (or fails to take action) that result in or are reasonably expected to result in a material adverse impact to PNC or a business unit, such as:

 

 

Not following applicable risk management policies or procedures;

 

 

Disregarding the significant risks associated with a course of action for which the employee is responsible;

 

 

Violating, or permitting or enabling PNC to violate, statutory or regulatory requirements; or

 

 

Not escalating risk concerns to appropriate individuals, committees or other governing bodies.

This applies both to individual employees who took risk-related actions (or failed to take action) and their supervisors. The types of adverse impacts could include matters such as impacts to PNC’s or a business segment’s or corporate function’s financial performance, capital or liquidity positions, reputation or business prospects.

The negative adjustment resulting from risk related actions allows PNC to recoup unvested equity awards from recipients whose inappropriate risk-taking activities have resulted in or are expected to result in a material adverse impact to PNC in the future. By doing so, PNC is able to add further risk-balancing to our incentive arrangements by accounting for both forward- and backward-looking risk adjustments.

The policy provides that if PNC applies the policy to recoup or clawback incentive compensation or negatively adjust incentive compensation as a result of risk-related actions and the underlying factual circumstances are otherwise publicly reported by PNC (1) in a filing with the SEC or (2) in disclosure that would otherwise meet the requirements for public disclosure by PNC under the SEC’s Regulation FD or (3) are disclosed by a third party in a publicly available court or administrative filing, then PNC will disclose in its annual shareholder meeting proxy statement, a current report on Form 8-K or other public filing made by it with the SEC or a posting in a clearly identifiable location in the Investor Relations section of its corporate website:

 

 

a general description of the circumstances giving rise to the incentive compensation recovery or adjustment, including items such as number of employees, seniority of employees, and line of business impacted; and

 

 

the aggregate amount of incentive compensation recovered or adjusted.

PNC may limit such disclosure if it would be likely to result in, or exacerbate, any existing or threatened, employee, shareholder or other litigation, arbitration or proceeding against PNC.

Shareholder approval of severance agreements

We have a Board-approved policy regarding the shareholder approval of future severance arrangements. This policy applies to future severance arrangements with executive officers. Under this policy, PNC will not enter into an arrangement with an executive officer that provides for additional severance benefits in an amount exceeding 2.99 times the sum of the executive officer’s annual base salary and target bonus for the year of termination, unless the future severance arrangement is approved by the affirmative vote of a majority of votes cast by shareholders on the matter.

The policy applies only to future severance arrangements. Future severance arrangements do not include existing severance agreements or agreements to which PNC becomes obligated in connection with an acquisition, unless in each case the severance agreement is modified to materially increase benefits that would be considered additional severance benefits. Our Board retains the right to amend, terminate or waive the policy and will promptly disclose any such change. We have made this policy available at www.pnc.com/corporategovernance.

Since 2009, no new change in control agreement has included an excise tax gross-up. For a more detailed discussion on change in control arrangements, please see Change in control agreements on pages 73 and 74.

Limiting perquisites

The Committee believes in limiting the amount of perquisites provided to our executives.

We consider a benefit to be a perquisite or personal benefit unless its purpose is clearly and exclusively business-related. We value perquisites based on their incremental cost to us. Executive officers do not receive tax “gross-ups” on any perquisites.

The principal perquisites that we may provide to our executive officers include financial consulting and tax preparation services and limited personal use of corporate aircraft, as approved by our CEO. One of our executive officers also receives the reimbursement of costs related to home security services. We may provide additional perquisites to an executive officer from time to time, but this is not common.

Each executive officer receives a $10,000 allowance for general perquisites, with an additional $10,000 allowance for personal aircraft usage. This modest perquisite limit allows an NEO to receive financial consulting and tax preparation services and also allows for an occasional personal flight on the corporate aircraft (usually no more than 2-4 hours of flight time a year). In addition, as the Committee has previously recommended that Mr. Demchak take all flights (personal or business) on the

 

 

52    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

corporate aircraft, the Committee has approved a general perquisite allowance of $10,000 for Mr. Demchak with an additional allowance, not to exceed $100,000, for personal flights taken on the aircraft. If the executive exceeds his perquisite allowance, PNC requests reimbursement for the excess, unless reimbursement is legally impermissible.

The Committee has previously approved the execution of lease (“time-sharing”) agreements between PNC and certain executive officers, including our CEO and two other NEOs (Mr. Guyaux and Mr. Reilly). These agreements help us to comply with Federal Aviation Administration (FAA) rules and regulations that would otherwise prohibit executives from reimbursing PNC for the incremental cost of personal flights. Under the terms of these time-sharing agreements, Mr. Demchak, Mr. Guyaux and Mr. Reilly will pay for the costs of any personal flights that exceed the perquisite allowances described above.

Due to certain operational restrictions and administrative efficiencies, we operate our corporate aircraft under FAA rules and regulations that limit our ability to accept reimbursement for personal aircraft usage unless an individual has a time-sharing agreement. The time-sharing agreements provide a mechanism to obtain reimbursement from the executive. The costs paid by our executive officers under the terms of the agreements include incremental costs, as well as a federal excise tax and other fees. For flights subject to these time-sharing agreements, the officer is required to pay us for the following costs:

 

 

fuel, oil, lubricants, and other additives;

 

 

travel expenses of crew, including food, lodging, and ground transportation;

 

 

hangar and tie-down costs away from the aircraft’s base of operation;

 

 

insurance obtained for the specific flight;

 

 

landing fees, airport taxes, and similar assessments;

 

 

custom, foreign permit, and similar fees directly related to the flight;

 

 

in-flight food and beverages; and

 

 

passenger ground transportation.

The Committee has adopted an aviation policy and written procedures to document the principles to be applied in determining the classification of a flight as business or personal and the calculation of aggregate incremental cost for perquisite purposes, including definitions of personal use and enhanced methods for allocating costs between business and personal in complex situations and an approach for capturing deadhead flights where appropriate in the calculation of incremental costs for personal aircraft use. The Committee has also approved the use of an amended form of time-sharing agreement to bring amounts to be billed into alignment with the new

procedures (subject to FAA maximum billing limitations). As permitted by the FAA rules, the new form of agreement provides for the billing of an additional charge equal to 100% of the costs of fuel, oil and lubricants listed above to facilitate the alignment of incremental cost as currently calculated and amounts billed.

Guidelines on the use of discretion

The Committee has adopted guidelines regarding the use of discretion in incentive compensation plans. Under these guidelines, the use of discretion will be exercised so that incentive compensation awards are reasonably aligned with risk-adjusted performance. The guidance provides, among other things, that discretionary increases in compensation should be based on behaviors, actions, or results that are deemed to be extraordinary, exceed expectations, or provide meaningful direct or indirect benefits to PNC or our businesses. At the same time, discretionary reductions in compensation should be based on behaviors, actions, or results that fail to meet expectations or negatively impact our performance, reputation, or work environment. The guidelines specifically address the need to evaluate both inappropriate risk-taking behaviors during the performance year, as well as the outcome of prior inappropriate risk-taking behaviors, when making discretionary incentive compensation decisions. In addition, managers are generally required to document how discretion was applied in considering risk-taking behaviors and outcomes in employees’ performance evaluations or incentive compensation recommendations, particularly for our most senior level employees.

Restrictions on trading, hedging and pledging

Our Code of Business Conduct and Ethics and related policies, which apply to all of our employees, have for many years included anti-hedging provisions that prohibit all employees from day trading or short selling PNC securities and prohibit all employees from engaging in transactions in any derivative of PNC securities (other than securities issued under a PNC compensation plan), including buying and writing options.

We have a policy that prohibits certain employees, including all of our executive officers, from purchasing or selling our securities beginning the 16th day of the last month of each calendar quarter until the second business day after we release our earnings for that quarter. We may also impose additional trading restrictions on certain employees, including all of our executive officers, due to the availability of material, non-public information regarding PNC or our securities. In addition, we require certain employees, including all executive officers, to pre-clear personal investments (other than in specified types of securities) made by the individual or any immediate family members.

 

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    53


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

Additionally, the Restricted Employee Investment Transaction Rules, which covers executive officers, senior executives, and other employees who by the nature of their role must comply with additional restrictions and procedures that govern their personal investment transactions prohibits pledging PNC securities. This policy prohibits employees and directors from pledging PNC securities owned by them for loans or obligations on the margin or otherwise.

Consideration of tax deductibility

Section 162(m) of the Internal Revenue Code does not generally allow a company to deduct compensation over $1 million paid to certain executive officers. Under the tax rules, the executive officers whose compensation is subject to Section 162(m) includes the CEO and the next three highest-compensated executive officers (other than the CEO and the CFO).

 

One exception to this disallowance applies to performance-based compensation paid under shareholder-approved plans. Awards made under our shareholder-approved plans—the 1996 Executive Incentive Award Plan (annual incentive awards) and the 2006 Incentive Award Plan (other equity-based awards)—are intended to be eligible for the performance-based exception and therefore, deductible by PNC for federal income tax purposes.

Although the Committee considers the desirability of limiting PNC’s non-deductible expenses when it makes compensation decisions, the Committee believes in maintaining the flexibility and competitive effectiveness of the executive compensation program. Tax deductibility, while an important consideration, is analyzed as one component of the overall program.

 

 

54    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

COMPENSATION COMMITTEE REPORT

We have reviewed and discussed the Compensation Discussion and Analysis with PNC’s management, and based on our review and discussions, we recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

The Personnel and Compensation Committee of the Board of Directors of The PNC Financial Services Group, Inc.

Dennis F. Strigl, Chair

Charles E. Bunch

Paul W. Chellgren

Andrew T. Feldstein

Richard B. Kelson

Thomas J. Usher

Michael J. Ward

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    55


Table of Contents

COMPENSATION AND RISK

This section explains how we consider risk at PNC, and the relationship between risk management, performance, and compensation. We also discuss the risk reviews presented to our Board’s Personnel and Compensation Committee, and the methodology we use to assess the potential risks in our incentive compensation plans.

Risk management at PNC

 

We encounter risk as part of the normal course of operating our business. The successful execution of our strategy requires effective management of the risks we decide to take.

 

We want our decisions to reflect our desired risk appetite. It is our responsibility to establish an enterprise risk management framework that facilitates risk management for the benefit of our shareholders.

 

 

Enterprise risk appetite statement

We manage our risk appetite to optimize long-term shareholder value while supporting our employees, customers, and communities. In doing so, we:

 

  1. Achieve our business objectives and protect our brand by accepting risks that are understood, quantifiable, and analyzed through all phases of the economic cycle  

 

  2. Earn trust and loyalty from all stakeholders including employees, customers, communities, and shareholders  

 

  3. Reward individual and team performance by taking into account risk discipline and performance measurement  

 

  4. Practice disciplined capital and liquidity management so that the firm can operate effectively through all economic cycles  

 

We strive to embed a culture of risk management throughout PNC. With each of our employees, we reinforce the importance of managing risks in executing on our strategic objectives and in support of our desired risk appetite.

We approve our Enterprise Risk Management Framework and key risk policies at the Board level. We discuss our risk management approach in the Risk Management section of Item 7 of our 2015 Annual Report on Form 10-K.

We reflect our desired enterprise risk appetite by helping to ensure that our performance management and compensation arrangements for all employees are balanced in ways that do not create incentives for imprudent or excessive risk-taking and best reflect our strategic objectives, business model, and management structure.

Our compensation philosophy supports and reflects PNC’s risk appetite and risk management culture. Our risk policies and procedures guide our management decisions, including how we pay employees. By setting and communicating our risk appetite in advance, we seek to manage and control the risks that employees can take or influence, consistent with their roles and responsibilities.

All employees have performance goals tied to business and individual performance, but each

employee, no matter their role at PNC, also has risk management goals. We evaluate employee performance against these goals, including the risk management goals, in addition to considering risk outcomes from actions taken in prior years. We incorporate this comprehensive evaluation of employee risk management into our incentive compensation decisions. In addition, all employees are encouraged to collaborate across groups to identify and mitigate risks and elevate issues as required.

Our compensation program is designed to encourage management of risk within our appetite and discourage inappropriate risk-taking by granting a diverse portfolio of incentive compensation awards to our executives and other senior employees that is expected to reward desired behavior over time. Specifically, we balance our portfolio of awards between fixed and variable compensation; cash and equity-based compensation; and annual and long-term compensation. We base awards on the Committee’s assessment of a variety of quantitative and qualitative performance measurements, both on an absolute and a relative basis. Compensation decisions also rely on discretion to consider other factors, such as effective risk management, compliance with controls and ethical duties.

 

 

56    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

COMPENSATION AND RISK

 

 

As discussed in our CD&A, the long-term incentive program includes grants to our NEOs and certain other executives that include robust risk-based performance metrics. Payouts under these grants could be reduced or eliminated if we do not meet specific risk criteria over the vesting period. We also have a clawback policy described on pages 51 and 52.

We maintain an equity program for approximately 130 senior leaders below the executive levels to help ensure that their incentive compensation awards reflect risk-adjusted performance outcomes that would pay out, if at all, over a four-year period. These senior leaders receive a portion of their

incentive compensation in an equity-based award that is subject to a risk-based review trigger. The equity award agreements for our senior leaders all contain an enterprise-wide risk-based review trigger, while the agreements for senior leaders in business segments (as opposed to those in administrative or control functions) contain an additional, business-specific risk-based review trigger. If a risk-based review is triggered, the applicable review committee will determine whether a downward adjustment is warranted, up to a complete cancellation of the share units in that year’s tranche.

 

 

Risk review of compensation plans

 

Our Chief Risk Officer (CRO) reports at least quarterly to our Board’s Personnel and Compensation Committee to discuss risk management and review the connection between effective risk management and incentive compensation. Our CRO also presents the Committee with a risk assessment for each of our principal business units as well as a collective assessment of staff functions including finance, human resources, legal, operations and technology. In addition, we have a practice of having at least one director who is a member of both the Personnel and Compensation and Risk Committees. At present, the Chair of the Risk Committee also serves on the Personnel and Compensation Committee.

We also have systematically identified individuals — or groups of employees — who could potentially expose us to material financial loss, either individually or as a collective group. As with our incentive compensation plan assessment, we also established a cross-functional team that continues to identify and monitor these individuals or groups.

We have developed a governance framework for our incentive compensation plans to help monitor and validate these plans. We want our plans to achieve an appropriate balance of compensation and risk-adjusted performance — this framework helps to ensure that we have the appropriate

procedures, controls and reviews in place to do so. We will continue to assess and modify our incentive compensation plans as part of this framework to appropriately reflect risk considerations and the duration of the risks and to enhance the documentation of existing risk-balancing strategies. Examples of incentive plan modifications include:

 

 

Adding or increasing the visibility of risk metrics in plans based on the structure of the plan and the nature of the business and the roles of participants

 

 

Adding or formalizing language around delaying award payments or recapture of payments where subsequent risk metrics indicate excessive risk taking

 

 

Enhancing documentation of the plan design and use of discretion in non-formulaic plans at the pool funding, business allocation, or individual award level

Based on our approach to risk management, our comprehensive incentive plan governance framework, our risk assessments for significant businesses and staff functions, and the addition of risk-based metrics to long-term incentive compensation programs, we believe that the risks arising from our compensation plans, policies, and practices are not reasonably likely to have a material adverse effect on PNC.

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    57


Table of Contents

COMPENSATION TABLES

Summary compensation table

 

Name & Principal Position   Year    

Salary

($)(a)

   

Stock

Awards

($)(b)

   

Non-Equity

Incentive Plan

Compensation

($)(c)

   

Change in

Pension

Value &

Nonqualified

Deferred

Compensation

Earnings

($)(d)

   

All Other

Compensation

($)(e)

   

Total

($)

 

 William S. Demchak

    2015      $ 1,100,000      $ 6,959,910      $ 4,100,000      $ 393,715      $ 165,501      $ 12,719,126   

 Chairman, President

    2014      $ 1,089,615      $ 5,999,978      $ 3,540,000      $ 650,626      $ 57,685      $ 11,337,904   

 & Chief Executive Officer

    2013      $ 922,115      $ 3,863,752      $ 3,083,333      $ 53,668      $ 59,235      $ 7,982,103   

 Robert Q. Reilly

    2015      $ 500,000      $ 1,874,944      $ 1,400,000      $ 193,677      $ 43,344      $ 4,011,965   

 Executive Vice President &

    2014      $ 500,000      $ 1,549,936      $ 1,375,000      $ 316,836      $ 60,922      $ 3,802,694   

 Chief Financial Officer

    2013      $ 475,000      $ 1,189,642      $ 1,075,000      $ 35,169      $ 35,327      $ 2,810,138   

 Michael P. Lyons

    2015      $ 700,000      $ 4,019,824      $ 2,020,000      $ 22,953      $ 6,754      $ 6,769,531   

 Executive Vice President & Head of

    2014      $ 700,000      $ 4,079,882      $ 1,980,000      $ 21,677      $ 6,577      $ 6,788,136   

 Corporate & Institutional Banking

    2013      $ 700,000      $ 4,555,912      $ 2,020,000      $ 21,411      $ 2,154      $ 7,299,477   

 E William Parsley, III

    2015      $ 500,000      $ 4,549,900      $ 1,300,000      $ 50,634      $ 22,108      $ 6,422,642   

 Executive Vice President, Chief

    2014      $ 500,000      $ 4,574,917      $ 1,050,000      $ 164,669      $ 10,200      $ 6,299,786   

 Investment Officer & Treasurer

    2013      $ 500,000      $ 4,194,598      $ 1,075,000             $ 5,577      $ 5,775,175   

 Joseph C. Guyaux

    2015      $ 620,000      $ 1,999,842      $ 1,130,000      $ 708,458      $ 38,551      $ 4,496,851   

 Senior Vice Chairman & CEO &

    2014      $ 620,000      $ 1,874,984      $ 1,380,000      $ 725,352      $ 22,235      $ 4,622,571   

 President of PNC Mortgage

    2013      $ 620,000      $ 1,605,308      $ 1,255,000      $ 435,506      $ 34,253      $ 3,950,067   
(a) The “Salary” column includes any salary amounts deferred by an NEO under qualified (ISP) or non-qualified (DCIP) benefit plans. We describe these PNC plans on page 69. Please also see the Non-qualified deferred compensation in fiscal 2015 table on page 70 for the aggregate deferrals during 2015.

 

(b) The amounts in the “Stock Awards” column reflect the grant date fair value of stock awards (whole shares only). The grant date fair values are calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (FASB ASC Topic 718). See Note 13 in our Annual Report on Form 10-K for the year ended December 31, 2015 for more information. The value of any fractional shares is paid in cash and included in the All Other Compensation column. See footnote (e) for additional details. In 2015, stock awards were granted on February 13, 2015 consisting of long-term incentive performance units and performance-based restricted share units, and for Mr. Parsley, a grant of ALM incentive performance units. The grant date fair value of the incentive performance units, performance-based restricted share units and the ALM incentive performance units is calculated using the target number of units underlying the award and a per share value based on the NYSE closing price of our common stock on February 13, 2015 of $92.38. If PNC’s performance during the applicable measurement period results in the maximum number of units vesting, our executives would each be entitled to receive a maximum award with a grant date fair value of the maximum award as follows:

 

     Grant Date Fair Value of Maximum Award  
NEO    Incentive Performance Units      Performance-Based Restricted Share  Units  

 William S. Demchak

   $ 4,349,943       $ 4,349,943   

 Robert Q. Reilly

   $ 1,171,840       $ 1,171,840   

 Michael P. Lyons

   $ 2,512,390       $ 2,512,390   

 E William Parsley, III*

   $ 968,720       $ 968,720   

 Joseph C. Guyaux

   $ 1,249,901       $ 1,249,901   
  * The grant date fair value of Mr. Parsley’s ALM grant at the maximum value is $5,999,896.

 

     See the Grants of plan-based awards in 2015 table on pages 60 and 61 for more information regarding the grants we made in 2015, the Outstanding equity awards at 2015 fiscal year-end table on pages 64 and 65 for more information regarding options and other awards outstanding at December 31, 2015, and the Option exercises and stock vested in fiscal 2015 table on page 66 for more information regarding stock vesting during 2015.

 

(c) Our NEOs received an annual incentive award paid in cash early in 2016 which is reflected in this column for the 2015 performance year.

 

(d) The dollar amounts in this column include the increase in the actuarial value of our Qualified Pension Plan, ERISA Excess Pension Plan and Supplemental Executive Retirement Plan. We describe these plans on page 67. The amounts include both (1) the change in value due to an additional year of service, compensation changes and plan amendments (if any) and (2) the change in value attributable to other assumptions, most significantly discount rate. We do not pay above-market or preferential earnings on any compensation that is deferred on a basis that is not tax-qualified, including such earnings on non-qualified defined contribution plans. For an additional explanation on how we calculate the earnings on our deferred compensation plans, see the 2015 rates of return chart in the Non-qualified deferred compensation in fiscal 2015 table on page 72.

 

(e)

The amounts in this column include, for all NEOs, net of any reimbursements to PNC: (1) the dollar value of matching contributions made by us to the ISP; (2) the net insurance premiums paid by us in connection with our Key Executive Equity

 

58    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

SUMMARY COMPENSATION TABLE

 

  Program; (3) the executive long-term disability premiums paid by us; (4) perquisites and other personal benefits; (5) matching gifts made by us to charitable organizations under our employee charitable matching gift program; and (6) cash paid for fractional shares of the 2015 stock awards described in footnote (b) on page 58.

 

   “ All Other Compensation” for 2015 consisted of the following:

 

 NEO   Perquisites and Other
Personal Benefits*
    Registrant ISP
Contributions
    Insurance
Premiums**
    Other***     Total to Summary
Compensation Table
 

 William S. Demchak

  $ 109,975      $ 10,600      $ 44,835      $ 91      $ 165,501   

 Robert Q. Reilly

  $ 10,761      $ 10,600      $ 20,927      $ 1,056      $ 43,344   

 Michael P. Lyons

         $ 6,577             $ 177      $ 6,754   

 E William Parsley, III

  $ 11,108      $ 10,900             $ 100      $ 22,108   

 Joseph C. Guyaux

  $ 20,000      $ 10,600      $ 5,293      $ 2,658      $ 38,551   
  * The dollar amount of the perquisite represents the incremental cost of providing the benefit. For 2015, the incremental cost to PNC of the personal aircraft use is calculated by multiplying the total number of personal flight hours times the average direct variable operating costs (including costs related to fuel, maintenance expenses related to operation of the plane during the year and landing and parking fees) per flight hour for the particular aircraft for the year plus crew expenses attributable to the personal use. Since the aircraft are used primarily for business travel, we do not include in the calculation the fixed costs that do not change based on usage, such as crew salaries and other maintenance and inspection and capital improvement costs intended to cover a multiple-year period. Mr. Demchak, Mr. Reilly, Mr. Parsley and Mr. Guyaux used the aircraft for personal flights during 2015. For these flights, Mr. Demchak, Mr. Reilly and Mr. Guyaux did not use their time-sharing agreements. The incremental cost of Mr. Demchak’s use of the aircraft was $100,000. This column also includes the costs of financial preparation and tax consulting services for Mr. Demchak, Mr. Reilly, Mr. Parsley and Mr. Guyaux. Mr. Demchak, Mr. Reilly, and Mr. Lyons each have a corporate travel credit card not generally available to all employees for which there is no incremental cost to PNC.

 

  ** We pay premiums for certain of the NEOs in connection with our Key Executive Equity Program, which is a split-dollar insurance arrangement. However, new participants have not been permitted in this program since 2007. In addition, we pay long-term disability premiums on behalf of certain of our NEOs. The dollar amounts under the “Insurance Premiums” column include the 2015 net premiums we paid in connection with our Key Executive Equity Program on behalf of Mr. Demchak ($40,534) and Mr. Reilly ($16,732). These net premiums represent the full dollar amounts we paid for both the term and non-term portions of this plan, after any officer contributions. The amounts under this column also include the long-term disability premiums we paid on behalf of Mr. Demchak ($4,301), Mr. Reilly ($4,195) and Mr. Guyaux ($5,293).

 

  *** This column reflects the dollar amount of matching gifts made by us to charitable organizations under our employee charitable matching gift program for Mr. Reilly ($1,000) and Mr. Guyaux ($2,500) and the cash paid for fractional shares of the 2015 stock awards described in footnote (b) on page 58.

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    59


Table of Contents

GRANTS OF PLAN-BASED AWARDS IN 2015

 

Grants of plan-based awards in 2015

 

                Estimated Future Payouts
Under Non-Equity
Incentive

Plan Awards(a)
    Estimated Future Payouts
Under Equity

Incentive
Plan Awards(b)
   

Grant Date
Fair Value

of Stock
and Option
Awards

($)(c)

 
 Award Type   Grant Date     Thres-
hold
($)
   

Target

($)

   

Maximum

($)

    Thres-
hold
($)
    Target
(#)
    Maximum
(#)
   
 William S. Demchak                                                                
 Annual Incentive Award     February 13, 2015             $ 3,300,000      $ 10,152,000           
 Incentive Performance Units     February 13, 2015                     37,670        47,087      $ 3,479,955   
 Performance-Based Restricted Share Units     February 13, 2015                                       37,670        47,087      $ 3,479,955   
 Robert Q. Reilly                
 Annual Incentive Award     February 13, 2015             $ 1,250,000                  
 Incentive Performance Units     February 13, 2015                     10,148        12,685      $ 937,472   
 Performance-Based Restricted Share Units     February 13, 2015                                       10,148        12,685      $ 937,472   
 Michael P. Lyons                
 Annual Incentive Award     February 13, 2015             $ 1,500,000      $ 10,152,000           
 Incentive Performance Units     February 13, 2015                     21,757        27,196      $ 2,009,912   
 Performance-Based Restricted Share Units     February 13, 2015                                       21,757        27,196      $ 2,009,912   
 E William Parsley, III                
 Annual Incentive Award     February 13, 2015             $ 1,000,000      $ 10,152,000           
 Incentive Performance Units     February 13, 2015                     8,389        10,486      $ 774,976   
 Performance-Based Restricted Share Units     February 13, 2015                     8,389        10,486      $ 774,976   
 ALM Incentive Performance Units     February 13, 2015                                       32,474        64,948      $ 2,999,948   
 Joseph C. Guyaux                
 Annual Incentive Award     February 13, 2015             $ 930,000      $ 10,152,000           
 Incentive Performance Units     February 13, 2015                     10,824        13,530      $ 999,921   
 Performance-Based Restricted Share Units     February 13, 2015                                       10,824        13,530      $ 999,921   
  (a) The amounts listed in the “Target” column relate to the target annual incentive award for the 2015 performance year. Annual incentive awards for 2015 were paid in 2016. All incentive awards–cash and equity-based–are payable based on performance, and the targets help the Personnel and Compensation Committee to determine the appropriate amount of incentive compensation for target performance. The amount listed in the “Target” column shows the target annual incentive award included in the total compensation target approved by the Committee for each NEO as of the date listed. The amount listed in the “Maximum” column shows the amount that the Committee approves each year in order to preserve tax deductibility under Section 162(m) of the Internal Revenue Code of 1986, as amended. Mr. Reilly’s compensation is not subject to Section 162(m). The “Maximum” amount is not intended to be tied to performance – rather, it is a formulaic determination made under IRS regulations that provides PNC with the flexibility to receive tax deductions for performance-based compensation. The Committee looks to the performance for the year and the “target” annual incentive amount when making incentive compensation decisions, and exercises negative discretion to provide an award that is significantly smaller than the “Maximum” amount. For NEOs who are covered employees under §162(m) of the Internal Revenue Code of 1986, as amended, the calculation of the “Maximum” amount was approved by the Personnel and Compensation Committee on February 26, 2015, based on 0.2% of our “Incentive Income,” an adjusted net income metric that is defined in the 1996 Executive Incentive Award Plan. At the time the “Maximum” amount is set, the Committee uses a budgeted amount for 2015 which is included as $10,152,000 in the “Maximum” column.

 

  (b) The amounts listed in these columns include the incentive performance unit grants and the performance-based restricted share unit grants, as further described on page 43. As there is no guaranteed minimum payout for these awards and, in the case of the incentive performance unit grants, the Personnel and Compensation Committee has discretion to decrease any award otherwise payable, we have not included a “Threshold” amount in this column. The “Target” amount represents 100% of the grant and the “Maximum” amount represents 125% of the grant (rounded down to whole shares). For the incentive performance unit grants, the performance period began on January 1, 2015 and will end on December 31, 2017. For the performance-based restricted share unit grants, the performance period began on January 1, 2015 and will end on December 31, 2018, with vesting opportunities for a portion of the grant on each of the four applicable grant date anniversaries. In addition, for Mr. Parsley the amounts also include an ALM incentive performance unit grant as described in footnote (b) to the Summary compensation table on page 58. For a discussion of the terms, conditions and performance goals related to this incentive performance unit grant, see page 43. As there is no guaranteed minimum payout for Mr. Parsley’s award, and the Personnel and Compensation Committee has the discretion to decrease any award otherwise payable, we have not included a “Threshold” amount in this column for this award. The “Target” amount represents 100% of the grant and the “Maximum” amount represents 200% of the grant. For this grant, the performance period began on January 1, 2015 and will end on December 31, 2017.

 

60    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

GRANTS OF PLAN-BASED AWARDS IN 2015

 

 

     In determining the payout for regular grants of incentive performance units made in 2015, adjustments will be made on an after-tax basis for the impact of:

 

   

extraordinary items (as such term is used under GAAP)

   

items resulting from a change in tax law

   

discontinued operations

   

acquisition costs and merger integration costs

   

any costs or expense arising from specified Visa litigation and any other gains recognized on redemption or sale of Visa shares, as applicable

   

in PNC’s case, the net impact on PNC of significant gains or losses related to certain BlackRock transactions

   

acceleration of the accretion of any remaining issuance discount in connection with the redemption of any preferred stock

   

any other charges or benefits related to the redemption of trust preferred or other preferred securities

 

  (c) The grant date fair values for incentive performance units and performance-based restricted share units are all calculated in accordance with FASB ASC Topic 718. See Note 13 in our Annual Report on Form 10-K for the year ended December 31, 2015 for more information. The grant date fair values for incentive performance units, performance-based restricted share units and ALM incentive performance units represent the closing price for our common stock on February 13, 2015 of $92.38. The grant date fair values for incentive performance units and performance-based restricted share units represent the target amount of units in the grant.

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    61


Table of Contents

OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR-END

 

Outstanding equity awards at 2015 fiscal year-end

 

The following tables show, for each NEO, the outstanding equity awards as of December 31, 2015. These awards include the following:

 

 

Stock options exercisable over time

 

 

Incentive performance units, specifically:

 

   

Regular units granted in 2013, 2014 and 2015 that may pay out if PNC achieves specific performance and risk-based criteria. These awards measure our EPS growth against our peers and our return on common equity without goodwill (ROCE) compared to our cost of common equity (COCE). The awards are also subject to annual risk-based requirements and adjustments, which include meeting or exceeding the required Tier 1 risk-based capital ratio for “well-capitalized” institutions and return on economic capital (ROEC) meeting or exceeding our cost of capital.

 

   

In recognition of Mr. Parsley’s management responsibilities regarding the ALM function at

   

PNC during 2012, 2013 and 2014, units granted to Mr. Parsley in 2013, 2014 and 2015 will pay out based on our ALM unit performance against a benchmark index during the 2013 to 2015, 2014 to 2016 or 2015 to 2017 performance period, respectively.

 

 

Performance-based restricted share units, specifically:

 

   

Annual long-term incentive awards, each granted in 2012, 2013, 2014 and 2015, that will each pay out if PNC meets or exceeds the required Tier 1 risk-based capital ratio for “well-capitalized” institutions established by our primary regulator; payout may be adjusted by 25% up or down based on TSR in each year. The 2013, 2014 and 2015 awards also have an ROEC related risk metric that functions as a trigger to determine whether or not a risk review is required by the Committee. The Committee can decide to reduce, but not increase, payout amounts.

 

 

With respect to the following three forms of equity-based awards included in the table, the Committee made performance-based or risk-based determinations in the first quarter of 2016, as described in more detail below:

Performance-based restricted share units

 

 

The performance-based restricted share units that vest based on 2015 performance are included in the following table as of December 31, 2015. At a meeting held on January 28, 2016, our Board’s Personnel and Compensation Committee certified the levels of performance achieved for the 2015 tranche of each of the 2012 grants, the 2013 grants, the 2014 grants and the 2015 grants and determined the payout level. The Committee certified that the required Tier 1 risk-based capital ratio of 6% established by our primary regulator had been

achieved. The Committee then determined the size of the payout, which could range from 75% to 125% of the target number of units based on 2015 TSR. The Committee approved a payout at 106.81% for the applicable tranche of each of the 2012, 2013, 2014 and 2015 grants. As noted above, 2013, 2014 and 2015 awards also have an ROEC related risk metric that could trigger an additional review or adjustment. No additional review or adjustment was required as ROEC exceeded the Committee approved hurdle.

 

 

Metric   Status

Estimated Tier 1 risk-based capital ratio at least 6%

  12.0% (exceeded)

Total shareholder return (TSR)

  106.81% (Target + actual one-year TSR 6.81% for 2015)

 

62    THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement


Table of Contents

OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR-END

 

Incentive performance units

 

 

The incentive performance units granted in 2013 are included in the following table as of December 31, 2015. At a meeting held on February 10, 2016, our Board’s Personnel and Compensation Committee certified the levels of performance achieved for the January 1, 2013 to December 31, 2015 performance period and determined the payout level. The units provided an opportunity for the executive to receive a payout after the end of the performance period based on our earnings per share growth (EPS growth) as compared to our peers and our ROCE performance compared to our COCE, each adjusted as defined in the award agreement. The

Committee certified that the required Tier 1 risk-based capital ratio of 6% established by our primary regulator had been achieved. These awards were also subject to the same ROEC related risk metric as noted earlier which could have reduced the payout; however, no reduction was required as ROEC exceeded the cost of capital hurdle, and the Committee approved a payout at 109.78% for these awards. In accordance with the terms of these awards, the incentive performance units were payable in PNC common stock up to target (100%) and payable in cash above target.

 

 

      

Payout %

  

Overall Payout
Percentage

 

     
 Metric        2013        2014        2015     

 EPS Growth Payout

     125.00%      59.23%      99.45%      109.78%       

 (PNC Ranking in peer group)

     (2 out of 13)      (10 out of 13)      (7 out of 12)     

 ROCE Payout

     125.00%      125.00%      125.00%     

 (ROCE as a percentage of COCE)

     (180.00%)      (169.75%)      (160.41%)       

ALM incentive performance units

 

 

The ALM-based incentive performance units granted in 2013 to Mr. Parsley were outstanding as of December 31, 2015 and are included in the following table. At a meeting held on February 10, 2016, our Board’s Personnel and Compensation Committee certified the levels of performance achieved under Mr. Parsley’s ALM-based grant and determined the final award. The maximum potential

payout percentage was 200%. The maximum permitted payout for these units is generated by applying the performance factor to the number of target share units of 46,970. The Committee approved payout at 199.78% of target. In accordance with the terms of this award, the ALM-based units awarded to Mr. Parsley paid out entirely in cash share equivalents.

 

 

       Payout Percentage  
 Metric      2013        2014        2015        Overall  

 Performance of ALM unit against benchmark index

       200.00        199.33        200.00        199.78

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement    63


Table of Contents

OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR-END

 

 

Option Awards         Stock Awards  

 Grant Date or

 Performance Period(a)

  No. of
Securities
Underlying
Unexercised
Options (#)
Exercisable(b)
    Option
Exercise
Price
($)
   

Option Expiration

Date

        

Grant Date or
Performance

Period(a)

 

No. of
Shares or

Units of

Stock

That

Have Not

Vested

(#)(c)

   

Market

Value of

Shares or

Units of

Stock

That

Have Not

Vested

($)(d)

   

Equity

Incentive

Plan

Awards:

No. of

Unearned

Shares,

Units or

Other

Rights

That

Have Not

Vested

(#)(e)

   

Equity

Incentive

Plan

Awards:

Market or

Payout

Value of

Unearned

Shares,

Units or

Other

Rights

That

Have Not

Vested

($)(d)

 

 William S. Demchak