DEF 14A 1 d272923ddef14a.htm NOTICE & PROXY STATEMENT Notice & Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.     )

 

  Filed by the  Registrant

     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))
   

  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):

   

  

  No fee required.
   

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  Fee paid previously with preliminary materials.
   

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

LOGO

2017 PROXY STATEMENT THE PNC FINANCIAL SERVICES GROUP Together, We Prosper


Table of Contents
LOGO

 

 

    LOGO   

LETTER FROM THE CHAIRMAN AND
CHIEF EXECUTIVE OFFICER TO OUR
SHAREHOLDERS

 

 

 

Dear Shareholder

We invite you to attend the 2017 Annual Meeting of Shareholders of The PNC Financial Services Group, Inc. on Tuesday, April 25, 2017.

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, 2017

Sincerely,

 

LOGO

William S. Demchak

Chairman, President and Chief Executive Officer

 


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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?

Item 1   Election of 13 nominated directors   Page 11   FOR

each nominee

  No

 

Item 2

 

 

Ratification of independent registered public accounting firm

for 2017

 

 

Page 80

 

 

FOR

 

 

Yes

 

Item 3

 

 

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

 

 

Page 83

 

 

FOR

 

 

No

 

Item 4

 

 

Advisory approval of the frequency of future votes on executive compensation (frequency of say-on-pay)

 

 

Page 85

 

 

FOR

one year

 

 

No

 

Item 5

 

 

Shareholder proposal requesting additional diversity disclosure, if properly presented

 

 

Page 86

 

 

AGAINST

 

 

No

With respect to each item, a majority of the votes cast will be required for approval. Abstentions will not be included in the total votes cast and will not affect the results.

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 2017 Annual Meeting of Shareholders

 

 

Directions to attend the annual meeting    Tuesday, April 25, 2017 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. - 2017 Proxy Statement


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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 2016 Annual Report before you vote.

You may also read our proxy statement and 2016 Annual Report at www.envisionreports.com/PNC.

Who can vote (page 89)

You are entitled to vote if you were a shareholder on the record date of February 3, 2017.

How to vote (page 90)

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 13 nominated directors (page 11)

 

  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 independent registered public accounting firm for 2017 (page 80)

 

  Each year, our Board’s Audit Committee selects PNC’s independent registered public accounting firm. For 2017, 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 2017.

Item 3:  “Say-on-pay” (page 83)

 

  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 an annual say-on-pay vote since 2009. 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 38), which explains how and why our Board’s Personnel and Compensation Committee made executive compensation decisions for 2016.

 

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

Item 4:  Frequency of “say-on-pay” (page 85)

 

  We ask shareholders to cast a non-binding advisory vote on the frequency of future votes on our executive compensation program. After our shareholders voted in 2011 recommending that we hold an annual say-on-pay vote, the Board affirmed that recommendation and elected to hold future say-on-pay votes on an annual basis. We are once again soliciting input from our shareholders on how frequently we should hold a say-on-pay vote in the future. You may vote for a say-on-pay vote to be held every one, two or three years, or you may abstain from voting.

 

  Our Board recommends that you vote FOR a frequency of “ONE YEAR” for future advisory votes on executive compensation.

Item 5:  Shareholder proposal requesting additional diversity disclosure (page 86)

 

  You are asked to consider a shareholder proposal described in this proxy statement. The proposal requests PNC to prepare a diversity report including a chart identifying employees according to gender and race in major Equal Employment Opportunity Commission-defined job categories and certain other diversity disclosures.

 

  Our Board recommends that you vote AGAINST the shareholder proposal.

 



 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement    5


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PROXY STATEMENT SUMMARY

 

2016 PNC performance (page 38)

 

LOGO

  We delivered consistent results in a challenging operating environment, with net income of approximately $4.0 billion and diluted earnings per common share of $7.30.

LOGO

  We grew net interest income despite the low interest rate environment, and we increased our fee income. We grew deposits and loans and managed our loan portfolio within our desired risk appetite. We maintained strong capital and liquidity positions.

LOGO

  We delivered value for our shareholders. Our one-year total shareholder return (TSR) was 25.8% and our three-year TSR was 17.3%, which was the highest in our peer group.

 

LOGO

  We met our continuous improvement goal of $400 million in expense savings and continued to keep our noninterest expenses stable.

LOGO

  We continued to execute against our strategic priorities of building a leading banking franchise in our underpenetrated markets, capturing more investable assets, reinventing the retail banking experience, and bolstering critical infrastructure and streamlining core processes.

 

LOGO

  We returned more than $3 billion in capital to our shareholders through share repurchases and common stock dividends, including raising the quarterly common stock dividend.

2016 compensation decisions (page 46)

The table below shows, for each named executive officer, the incentive compensation target for 2016 and the actual annual cash incentive and long-term equity-based incentives awarded in 2017 for 2016 performance.

 

      William S.
Demchak
    

Robert Q.

Reilly

    

Michael P.

Lyons

    

E William

Parsley, III

   

Steven C.

Van Wyk

 

Incentive compensation target

   $ 10,500,000      $ 3,000,000      $ 6,050,000      $ 6,900,000     $ 2,750,000  

Incentive compensation awarded for 2016 performance

   $ 10,150,000      $ 3,050,000      $ 5,900,000      $ 6,600,000     $ 2,660,000  

Annual cash incentive portion

   $ 3,400,000      $ 1,275,000      $ 1,940,000      $ 2,250,000     $ 1,080,000  

Long-term incentive portion

   $ 6,750,000      $ 1,775,000      $ 3,960,000      $ 4,350,000 (1)    $ 1,580,000  

Incentive compensation disclosed in the Summary compensation table(2)

   $ 11,200,000      $ 3,175,000      $ 6,020,000      $ 7,050,000     $ 2,680,000  

Annual cash incentive portion (2016 performance)

   $ 3,400,000      $ 1,275,000      $ 1,940,000      $ 2,250,000     $ 1,080,000  

Long-term incentive portion (2015 performance)

   $ 7,800,000      $ 1,900,000      $ 4,080,000      $ 4,800,000     $ 1,600,000  
(1) Mr. Parsley’s incentive compensation target and award includes two grants – the grant of equity-based awards that all other NEOs would otherwise receive (with a target value of $3,000,000) and a separate grant of incentive performance units related to the management of our Asset & Liability Management (ALM) unit, with a target value of $1,500,000. Please see page 61 for a discussion of Mr. Parsley’s ALM units.
(2) Due to SEC regulations, the incentive compensation amounts disclosed in the Summary compensation table on page 56 include the cash incentive award paid in 2017 (for 2016 performance) and the long-term incentive award granted in 2016 (for 2015 performance).

PNC governance (page 17)

 

  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, 12 out of 13 directors (92%) are independent, and our only non-independent director is our CEO. All of our current directors are nominees to the Board.

 

  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. - 2017 Proxy Statement


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PROXY STATEMENT SUMMARY

 

 

  In 2016, our Board met 13 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 97%. All current directors then serving attended our 2016 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 11)

 

 Name    Age      Director since      Independent      Primary Standing Committee Memberships

 Charles E. Bunch

   67      2007          

Compensation; Governance

 Marjorie Rodgers Cheshire

   48      2014          

Audit; Risk

 William S. Demchak

   54      2013          

Risk

 Andrew T. Feldstein

   52      2013          

Compensation; Risk (Chair)

 Daniel R. Hesse

   63      2016          

Risk

 Kay Coles James

   67      2006          

Governance; Risk

 Richard B. Kelson

   70      2002          

Audit (Chair); Compensation

 Jane G. Pepper

   71      1997          

Risk

 Donald J. Shepard

   70      2007          

Audit; Governance (Chair); Risk

 Lorene K. Steffes

   71      2000          

Risk

 Dennis F. Strigl

   70      2001          

Compensation (Chair); Governance

 Michael J. Ward

   66      2016          

Compensation; Governance

 Gregory D. Wasson

   58      2015          

Audit

 



 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement    7


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Table of Contents

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS      10  
ELECTION OF DIRECTORS (ITEM 1)      11  
CORPORATE GOVERNANCE      17  

Corporate governance guidelines

     17  

Our Board leadership structure

     17  

Communicating with our Board

     18  

Our Code of Business Conduct and Ethics

     19  

Orientation and education

     19  

Board committees

     19  

Board meetings in 2016

     28  
DIRECTOR AND EXECUTIVE OFFICER RELATIONSHIPS      29  

Director independence

     29  

Transactions with directors

     31  

Code of Business Conduct and Ethics

     32  

Regulation O policies and procedures

     32  

Family relationships

     33  

Indemnification and advancement of costs

     33  
RELATED PERSON TRANSACTIONS      34  

Related person transactions policy

     34  

Certain related person transactions

     34  
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE      35  
DIRECTOR COMPENSATION      35  

Director compensation in 2016

     36  
COMPENSATION DISCUSSION AND ANALYSIS      38  

2016 PNC performance

     38  

Compensation philosophy

     38  

Stakeholder engagement and impact of 2016 say-on-pay vote

     39  

Compensation program summary

     40  

2016 compensation decisions

     44  

Compensation policies and practices

     48  
COMPENSATION COMMITTEE REPORT      53  
COMPENSATION AND RISK      54  

Risk management at PNC

     54  

Risk review of compensation plans

     55  

 

8    THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement


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COMPENSATION TABLES      56  

Summary compensation table

     56  

Grants of plan-based awards in 2016

     58  

Outstanding equity awards at 2016 fiscal year-end

     60  

Option exercises and stock vested in fiscal 2016

     64  

Pension benefits at 2016 fiscal year-end

     65  

Non-qualified deferred compensation in fiscal 2016

     67  
CHANGE IN CONTROL AND TERMINATION OF EMPLOYMENT      71  

Benefits upon termination of employment

     71  

Change in control agreements

     71  

Equity-based grants

     72  

Existing plans and arrangements

     74  

Estimated benefits upon termination

     74  
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS      78  

Security ownership of directors and executive officers

     78  

Security ownership of certain beneficial owners

     79  
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (ITEM 2)      80  

Audit, audit-related and permitted non-audit fees

     80  

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

     81  
REPORT OF THE AUDIT COMMITTEE      82  
“SAY-ON-PAY”: ADVISORY VOTE ON EXECUTIVE COMPENSATION (ITEM 3)      83  

What is the purpose of this item?

     83  

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

     83  

Where can I find more information on executive compensation?

     84  

What are some of the performance and compensation program highlights for 2016?

     84  
FREQUENCY OF “SAY-ON-PAY” VOTE (ITEM 4)      85  
SHAREHOLDER PROPOSAL REQUESTING ADDITIONAL DIVERSITY DISCLOSURE (ITEM 5)      86  

Supporting statement

     86  

Statement by the Board of Directors in opposition to the proposal

     87  
GENERAL INFORMATION      88  

Attending the annual meeting

     88  

Reviewing proxy materials

     89  

Voting your shares

     89  

How a proposal gets approved

     91  
SHAREHOLDER PROPOSALS FOR THE 2018 ANNUAL MEETING      93  
OTHER MATTERS      94  
ANNEX A (NON-GAAP TO GAAP RECONCILIATIONS)      95  
ANNEX B (REGULATIONS FOR CONDUCT AT ANNUAL MEETING)      97  

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement    9


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LOGO

 

 

 Notice of Annual Meeting

 of Shareholders

 

Tuesday, April 25, 2017

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 303-223-4384 (international). A telephone replay will be available for one week by calling 800-633-8284 or 402-977-9140 (international), conference ID 21843204.

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 2017;  
  3. An advisory vote to approve named executive officer compensation;  
  4. An advisory vote to approve the frequency of future votes on executive compensation;  
  5. Considering a shareholder proposal requesting additional diversity disclosure, if properly presented before the meeting; and  
  6. Such other business as may properly come before the meeting.  

RECORD DATE

The close of business on February 3, 2017 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, 2017. 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 2016 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 88 of this proxy statement.

 

March 15, 2017

By Order of the Board of Directors,                              

 

LOGO

Christi Davis

Corporate Secretary

 

10    THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement


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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 five 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 12, 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 2017 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.

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 17)

 

  Director and Executive Officer Relationships (page 29)

 

  Related Person Transactions (page 34)

 

  Director Compensation (page 35)

 

  Security Ownership of Management and Certain Beneficial Owners (page 78)

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 12 to 16. See page 91 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 12 to 16.

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement    11


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ELECTION OF DIRECTORS (ITEM 1)

 

 

LOGO  

Charles E. Bunch

Age 67

 

Director Since 2007

 

Experience, Qualifications, Attributes, or Skills

 

Mr. Bunch is the retired 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 an MBA from the Harvard Business School.

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

Mondelēz International, Inc.

PPG Industries, Inc. (until September 2016)

LOGO  

Marjorie Rodgers Cheshire

Age 48

 

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 BS in Economics from the Wharton School of the University of Pennsylvania and an 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

 

 

12    THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement


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ELECTION OF DIRECTORS (ITEM 1)

 

 

LOGO  

William S. Demchak

Age 54

 

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 and chief executive officer in April 2013 and appointed 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 a 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, Chairman of The Clearing House, 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 52

 

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 $22 billion in assets under management and approximately 238 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 JD 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 63

 

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, an 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

Akamai Technologies, Inc.

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement    13


Table of Contents

ELECTION OF DIRECTORS (ITEM 1)

 

 

LOGO  

Kay Coles James

Age 67

 

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 70

 

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 provides 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. (until 2016)

Commercial Metals Company (Lead Director)

Ingevity Corporation (Non-Executive Chairman of Board)

MeadWestvaco Corp. (until 2015)

 

 

14    THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement


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ELECTION OF DIRECTORS (ITEM 1)

 

 

LOGO  

Jane G. Pepper

Age 71

 

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 70

 

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

Audit Committee

Executive Committee (Chair)

Nominating and Governance Committee (Chair)

Risk Committee

Public Company Directorships

CSX Corporation

The Travelers Companies, Inc.

LOGO  

Lorene K. Steffes

Age 71

 

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 and cyber security, 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 70

 

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. (until March 2016)

Eastman Kodak Company (until September 2013)

Nokia Corporation (May 2014 to May 2015)

Tellabs, Inc. (until December 2013)

 

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement    15


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ELECTION OF DIRECTORS (ITEM 1)

 

 

LOGO  

Michael J. Ward

Age 66

 

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 an 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 58

 

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 will provide 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.

 

 

16    THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement


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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 Business Conduct and 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

 

 

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
 

 

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. Donald J. Shepard, the Board’s Presiding Director and Chair of the Nominating and Governance Committee, 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

 

 

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independence of each of our other 12 nominees for director. Please see Director and Executive Officer Relationships on pages 29 and 30 for a description of how we evaluate independence.

Presiding Director duties. As the Presiding Director, Mr. Shepard 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 regularly scheduled 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.

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.

As Chairman of the Nominating and Governance Committee, the Presiding Director leads the board and committee annual self-evaluation process and the evaluation of the independence of directors. That committee also reviews, and the Presiding Director as chairman of the committee reports to the board, significant developments in corporate governance.

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. The Corporate Secretary will forward the communication to the Presiding Director who will determine how to respond. Depending on the content, the Presiding Director may forward the communication to a PNC employee, a third party, another director, a committee, or the full board.

 

 

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Our Code of Business Conduct and 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 Business Conduct and 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

 

  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 Business Conduct and 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 17.

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 Business Conduct and 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 Business Conduct and Ethics.

 

 

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 2016.

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.

 

 

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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 or

subcommittee 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.

 

 

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Audit Committee

 

LOGO    Chair   Other members:
  

 

Richard B. Kelson

 

 

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 25, 2017 to organize its committees, only independent directors will be appointed to 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. 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 17, 2016, 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 Business Conduct and 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 80. 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.

 

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We describe the Committee’s procedures for the pre-approval of audit services, audit-related services, and permitted non-audit services on page 81. 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 annually reviews with the CEO the General Auditor succession plan. 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 82 as required under its charter and in accordance with SEC regulations.

 

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Nominating and Governance Committee

 

LOGO    Chair    Other members:
  

 

Donald J. Shepard

  

 

Charles E. Bunch

      Kay Coles James
      Dennis F. Strigl
      Michael J. Ward
     
     

The Nominating and Governance Committee consists entirely of independent directors. When our Board meets on April 25, 2017, only independent directors will be appointed to the Committee.

Our Board most recently approved the charter of the Nominating and Governance Committee on November 17, 2016, 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 12 to 16 for more information on each of our current director nominees.

Our Board and its committees must satisfy SEC, NYSE, and 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 27 and 28.

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 interests  

 

    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  

 

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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, to be considered for the 2018 annual meeting, 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, 2017.

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 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 or nominate and include a candidate in PNC’s annual meeting proxy materials 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 2018 annual meeting—Advance notice procedures or —Proxy access procedures, respectively, on page 93.

 

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Personnel and Compensation Committee

 

LOGO    Chair    Other members:
  

 

Dennis F. Strigl

  

 

Charles E. Bunch

      Andrew T. Feldstein
      Richard B. Kelson
      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 25, 2017, only independent directors will be appointed to the Committee.

Our Board most recently approved the charter of the Committee on November 17, 2016, 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 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 an independent 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 2016 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 53. The CD&A begins on page 38. The Committee evaluates the relationship between risk management and our incentive compensation programs and plans. See Compensation and Risk on pages 54 and 55.

The Committee has responsibility for reviewing and evaluating the development of an executive management succession plan and for reviewing our workforce diversity objectives. The executive management succession plan, including for the CEO, is reviewed with the full Board from time to time. 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 emerging talent. 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 we make decisions. The Committee meets at least four 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.

 

 

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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 except for plans that are overseen by the PNC administrative committee under its charter.

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 2016. In this capacity, Meridian reported directly to the Committee. In 2016, 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 2016 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 2016 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.

 

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Our management retains other compensation consultants for its own use. In 2016, our management retained McLagan to provide certain market data in the financial services industry. It also uses Willis 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 insurance brokerage and consulting services to mitigate certain property and casualty risks  

 

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

Reports prepared by Willis 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 2016. 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 32, 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   
        
        

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

Our Board most recently approved the charter of the Committee on November 17, 2016, 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 material risks at PNC including (Credit, Liquidity, Market, Operational (including compliance), Strategic and Reputational risks). 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.

The Committee receives regular reports on enterprise-wide risk management and Credit, Liquidity, Market, Operational (including compliance), Strategic and Reputational risks.

 

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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 54.

Board meetings in 2016

 

The table below shows the names of our directors as of December 31, 2016, the number of Board committee meetings held in 2016, 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 13 meetings in 2016. 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 2016 annual meeting of shareholders.

 

 

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

 

 

 

Meetings
Held

 

 
 

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

 Audit

      l                   LOGO       l               l     12  

 Nominating and Governance

  l                   l           LOGO       l   l         5  

 Personnel and Compensation

  l           l           l               LOGO   l         6  

 Risk

      l   l   LOGO   l   l       l   l   l                 9  

 

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

 

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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

 

Our Board must affirmatively determine that a director does not have a “material relationship” with PNC for the director to be independent under NYSE rules. 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.

More information about the NYSE’s bright-line director independence tests, including the commentary explaining the application of the tests, can be found on 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
 

 

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  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 16, 2017, the Board made an independence determination for each of our 13 directors, including our 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 16, 2017. 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 our directors, other than Mr. Demchak, qualifies as independent under the NYSE’s corporate governance listing standards. Paul W. Chellgren, Anthony A. Massaro and Thomas J. Usher, who served as directors until April 26, 2016, also qualified as independent until they retired from the Board.

 

 

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Transactions with directors

 

This chart reflects banking relationships between PNC and each director, the director’s immediate family members, and a company of which the director is, or was during 2016, a partner, officer, employee, any immediate family member is, or was during 2016, 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 transactions that do not impair independence.

 

 

        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        
  Credit Relationships(2)   l   l   l   l   l   l   l   l   l   l       l    
  Charitable Contributions(3)        l   l        l        l   l   l             l   l

 Affiliated Entity

 Relationships

  Deposit, Wealth Management and Similar Banking Products(1)   l   l                   l       l           l   l
  Credit Relationships or Commercial Banking Products(4)   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 32 and 33.

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 36.

 

 

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Code of Business Conduct and 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 33. 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 29.

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 2016, no directors or executive officers requested an exemption under any of the provisions described above.

Ethics guidelines for directors. The Audit 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 10, 2016. 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

 

 

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    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 2016:

 

  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 52,000 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 2016 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 does not share a household with Mr. Hannon, is not an executive officer of PNC, and does not report directly to an executive officer of PNC. His compensation paid in 2016 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 2016 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 2016, we advanced costs on behalf of an executive officer with respect to pending litigation in which neither PNC nor the executive officer was named as a defendant.

 

 

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RELATED PERSON TRANSACTIONS

Related person transactions policy

 

Our policy for the review and approval of related person transactions was most recently approved on August 11, 2016. 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, 2016 (see Security ownership of certain beneficial owners on page 79). 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 2016, PNC paid BlackRock approximately $6 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 $1 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 2016, PNC received approximately $8 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 $331 million during 2016.

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, 2016 (see Security ownership of certain beneficial owners on page 79). In the ordinary course of business during 2016, 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 and a counterparty clearing line with Wellington. These credit transactions were on substantially the same terms, including interest rates and collateral, as those prevailing at the time for

 

 

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RELATED PERSON TRANSACTIONS

 

comparable facilities with persons not related to PNC, and do not involve more than the normal risk of collectability. In addition, PNC’s Asset Management Group includes Vanguard and Wellington funds and Vanguard exchange traded funds in its investment platform. PNC Investments

includes Vanguard funds and exchange traded funds in its investment platform. While PNC investments does not currently include Wellington funds in its platform, it may do so in the ordinary course when evaluating the funds to be included.

 

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 2016. 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 2016 on April 26, 2016.

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

 

 

The following table describes the components of director compensation in 2016:

 

 Annual Retainer

        

 Each director

   $ 67,500  

 Additional retainer for 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  

 Additional retainer for Chairs of Special Compliance Committee and Technology Subcommittee

   $ 15,000  

 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 1,547 deferred stock units awarded as of April 26, 2016

   $ 137,497  

 

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, used for director stock unit grants through 2016, provided for automatic deferrals of

any stock units that we awarded under the plan. 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

 

 

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DIRECTOR COMPENSATION

 

    (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 (under the Outside Directors Deferred Stock Unit Plan, directors may elect payout upon any of the following: retirement, age 72, the earlier of retirement and age 72 or the later of a specified date and retirement).

 

  The payouts will be made in cash.

In November 2016, our Nominating and Governance Committee approved a new deferred stock unit program under the 2016 Incentive Award Plan, for any stock unit grants made to non-management directors beginning in 2017.

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 page 51 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, 2016, the minimum ownership threshold for directors was valued at $584,800, and all of our directors serving at that time, other than Marjorie Rodgers Cheshire, who was appointed in October 2014, and Daniel R. Hesse and Michael J. Ward, who were appointed in January 2016, satisfied the ownership guideline.

 

 

Director compensation in 2016

For the fiscal year 2016, we provided the following compensation to our non-employee directors:

 

 Director Name    Fees Earned(a)      Stock Awards(b)     

All Other

Compensation(c)

     Total  

 Charles E. Bunch

   $ 101,500      $ 137,497      $ 42,754      $ 281,751  

 Paul W. Chellgren*

   $ 47,750        -      $ 100,307      $ 148,057  

 Marjorie Rodgers Cheshire

   $ 127,000      $ 137,497      $ 16,696      $ 281,193  

 Andrew T. Feldstein

   $ 141,000      $ 137,497      $ 21,838      $ 300,335  

 Daniel R. Hesse**

   $ 109,350      $ 137,497      $ 2,404      $ 249,251  

 Kay Coles James

   $ 108,000      $ 137,497      $ 54,783      $ 300,280  

 Richard B. Kelson

   $ 143,000      $ 137,497      $ 66,863      $ 347,360  

 Anthony A. Massaro*

   $ 49,250        -      $ 34,880      $ 84,130  

 Jane G. Pepper

   $ 122,000      $ 137,497      $ 63,790      $ 323,287  

 Donald J. Shepard

   $ 167,000      $ 137,497      $ 81,584      $ 386,081  

 Lorene K. Steffes

   $ 130,000      $ 137,497      $ 72,866      $ 340,363  

 Dennis F. Strigl

   $ 135,000      $ 137,497      $ 99,920      $ 372,417  

 Thomas J. Usher*

   $ 59,750        -      $ 60,413      $ 120,163  

 Michael J. Ward**

   $ 94,850      $ 137,497      $ 2,927      $ 235,274  

 Gregory D. Wasson

   $ 121,000      $ 137,497      $ 4,338      $ 262,835  
* Mr. Chellgren, Mr. Massaro and Mr. Usher served as directors through April 26, 2016.

 

** Mr. Hesse and Mr. Ward were appointed as directors on January 7, 2016.

 

(a)

This column includes the annual retainers, additional retainers for chairs of standing committees and meeting fees earned for 2016. 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 ($47,750); Marjorie Rodgers

 

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DIRECTOR COMPENSATION

 

  Cheshire ($50,800); Andrew T. Feldstein ($141,000); Daniel R. Hesse ($106,945); Jane G. Pepper ($122,000); Donald J. Shepard ($167,000); Lorene K. Steffes ($39,000); Michael J. Ward ($92,445); and Gregory D. Wasson ($121,000).

 

(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 1,547 deferred stock units awarded to each director’s account under our Outside Directors Deferred Stock Unit Plan as of April 26, 2016, the date of grant. The closing stock price of PNC on the date of grant was $88.88 a share. See Note 12 in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2016 for more information.

 

     As of December 31, 2016, the non-employee directors listed in the table below had outstanding stock units in the following amounts:

 

 Director Name    Stock Units  

 Charles E. Bunch

     19,423  

 Marjorie Rodgers Cheshire

     4,098  

 Andrew T. Feldstein

     9,450  

 Daniel R. Hesse

     1,913  

 Kay Coles James

     24,584  

 Richard B. Kelson

     28,161  

 Jane G. Pepper

     30,805  

 Donald J. Shepard

     37,562  

 Lorene K. Steffes

     31,982  

 Dennis F. Strigl

     32,183  

 Michael J. Ward

     2,604  

 Gregory D. Wasson

     3,358  
     None of our non-employee directors had any unvested stock awards as of December 31, 2016.

 

(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: Charles E. Bunch ($39,004); Paul W. Chellgren ($100,307); Marjorie Rodgers Cheshire ($6,696); Andrew T. Feldstein ($16,838); Daniel R. Hesse ($2,404); Kay Coles James ($49,783); Richard B. Kelson ($61,863); Anthony A. Massaro ($34,880); Jane G. Pepper ($63,790); Donald J. Shepard ($76,584); Lorene K. Steffes ($68,666); Dennis F. Strigl ($89,920); Thomas J. Usher ($55,413); Michael J. Ward ($2,927); and Gregory D. Wasson ($4,338). This column also includes the dollar amount of matching gifts made by us in 2016 to charitable organizations. For two directors, the 2016 matching gift amount included above exceeds $5,000 because their director donations from prior years were matched in 2016. No director received any incidental benefits. No non-employee director had incremental cost to PNC for personal use of our corporate aircraft in 2016.

 

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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 of NEO    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 & Institutional Banking

E William Parsley, III

  

Executive Vice President, Chief Investment Officer, Treasurer and Head of Consumer Lending

Steven C. Van Wyk

  

Executive Vice President and Head of Technology and Operations

2016 PNC performance

 

LOGO

  We delivered consistent results in a challenging operating environment, with net income of approximately $4.0 billion and diluted earnings per common share of $7.30.

LOGO

  We grew net interest income despite the low interest rate environment, and we increased our fee income. We grew deposits and loans and managed our loan portfolio within our desired risk appetite. We maintained strong capital and liquidity positions.

LOGO

  We delivered value for our shareholders. Our one-year total shareholder return (TSR) was 25.8% and our three-year TSR was 17.3%, which was the highest in our peer group.

 

LOGO

  We met our continuous improvement goal of $400 million in expense savings and continued to keep our noninterest expenses stable.

LOGO

  We continued to execute against our strategic priorities of building a leading banking franchise in our underpenetrated markets, capturing more investable assets, reinventing the retail banking experience, and bolstering critical infrastructure and streamlining core processes.

 

LOGO

  We returned more than $3 billion in capital to our shareholders through share repurchases and common stock dividends, including raising the quarterly common stock dividend.

On pages 44 to 48, we discuss in more detail how our 2016 performance affected our compensation decisions.

Compensation philosophy

 

This section talks about how we view executive compensation, and why we make the decisions that we do. Our Board’s Personnel and Compensation

Committee (the Committee) relies on key principles to help guide its executive compensation decisions:

 

 

COMPENSATION PRINCIPLES

 

Pay for performance

Provide appropriate compensation for demonstrated performance across the enterprise

 

  

Create value

Align executive compensation with long-term shareholder value creation

 

  

Engage talent

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

 

 

 

Discourage excessive

risk-taking

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

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

The Committee believes that the successful application of these principles requires a thoughtful program design, which includes a balanced evaluation of performance. 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 priorities that allow PNC to create value for our shareholders. The following table illustrates some important features of our executive compensation program:

 

 

WHAT WE DO   WHAT WE DON’T DO

 

LOGO    

   We pay for performance. The vast majority of our executive pay is not guaranteed. Our standard long-term equity incentive awards are 100% performance-based.  

 

û   

   We do not allow tax gross-ups. We do not provide excise tax gross-ups in our current change in control agreements and we have eliminated these gross-ups from all existing agreements. We do not provide tax gross-ups on the limited perquisites that we offer.

 

LOGO    

   We discourage excessive risk taking. We build in several features to discourage our executives from taking excessive risks – including a reliance on multiple performance metrics, long deferral periods, and clawback, forfeiture and stock ownership provisions.  

 

û   

   We will not enter into substantial severance arrangements without shareholder approval. If a severance arrangement would pay more than 2.99 times base and bonus (in the year of termination), it requires shareholder approval.

 

LOGO    

   We require executives to hold PNC stock. Our executives must hold a substantial amount of stock and this amount continues to increase as their equity awards vest.  

 

û   

   We will not accelerate equity upon a change in control (no “single trigger”). We require a “double trigger” for equity to vest upon a change in control – not only must the change in control occur, but the executive must be terminated.

 

LOGO    

   We have clawback and forfeiture policies. Our policy requires us to claw back prior incentive compensation that we awarded based on materially inaccurate performance metrics. Our policy gives us broad discretion to cancel unvested equity awards due to risk-related issues or detrimental conduct.  

 

û   

   We do not reprice stock options. Although we currently do not grant stock options, our equity plan does not permit us to reprice stock options that are out-of-the-money, unless approved by shareholders.

 

LOGO    

   We limit the perquisites we provide. We limit our perquisites to financial planning and tax preparation services, executive physicals (for four individuals) and occasional personal use of the aircraft, subject to an annual limit ($100,000 for the CEO and $10,000 for other NEOs).  

 

û   

   We do not enter into employment agreements. We do not enter into individual employment agreements with our NEOs – they serve at the will of the Board.

 

LOGO    

   We retain an independent compensation consultant. Our Board’s Personnel and Compensation Committee retains an independent compensation consultant that provides no other services to PNC.  

 

û   

   We prohibit hedging, pledging, or short sales of PNC securities. We do not allow any director or employee to hedge or short-sell PNC securities. We do not allow any director or executive officer to pledge PNC securities.

 

LOGO    

   We engage with our shareholders. We actively engage with our shareholders on governance and compensation issues.     

Stakeholder engagement and impact of 2016 say-on-pay vote

 

 

LOGO

   We have given our shareholders the annual right to cast an advisory vote on executive compensation (“say-on-pay”) for seven years. In 2016, we received the support of 97% of our shareholders who voted - our highest-ever support for say-on-pay.

 

LOGO

   For several years, we have initiated outreach efforts with certain institutional investors. In 2016, 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.

 

LOGO

   Based on the results of these efforts and in light of our record investor support in 2016, the Committee did not recommend any significant changes to the compensation program. The Committee considered the results of the say-on-pay vote as one factor in its compensation decisions, among the other factors discussed in this CD&A.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation program summary

Key program features

 

The Committee reviews and approves the compensation to be paid to our NEOs and other senior leaders. We strive for clarity and transparency in our compensation structure, using features that we believe will help to create 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 Committee also regularly reviews the operation of our compensation program to help ensure that our objectives continue to be met.

 

 

Taken as a whole, our executive compensation program includes several complementary features:

 

 

LOGO

   We provide incentives for performance over different time horizons (short and long-term).

 

LOGO

   We embed performance goals in our long-term incentives, and include risk-based triggers that could reduce or eliminate the awards.

 

LOGO

   We reward achievement against both quantitative and qualitative goals, while allowing for discretion.

 

LOGO

   We connect pay to our own performance, as well as the performance of a carefully selected peer group.

 

LOGO

   We consider market data and trends when making pay decisions.

 

LOGO

   We place a substantial majority of compensation at risk, with all incentive compensation being performance-based.

 

LOGO

   We pay some incentive compensation in cash today, while deferring potential equity-based payouts for several years.

 

Regulatory expectations

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 continue to provide periodic guidance on compensation matters.

Total compensation targets

Each NEO receives a total compensation target for the year – consisting of a base salary and an incentive compensation target (cash and equity-based awards). We generally set these targets in the first quarter of the year, or when an executive joins PNC or assumes new responsibilities.

 

 

A total compensation target includes the following components:

 

 

 

LOGO

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

When constructing an appropriate total compensation target for an NEO, the Committee uses a framework that is consistent with our compensation principles:

 

LOGO

  Targets are informed by data but take several factors into account. The Committee reviews available market data, but does not use a formula to set the target. The Committee evaluates many factors, including the appropriateness of the job match and market data, the responsibilities of the position and the executive’s demonstrated performance, skills, and experience.

LOGO

  At least 50% of compensation is equity-based and not payable for several years. The Committee believes that a significant portion of compensation should be at risk, tied to PNC stock performance, and not payable, if at all, for several years. Long-term equity-based awards make up at least 50% of the value of the total compensation target, with that percentage rising to 60% for our CEO (and one other NEO). The remainder of the annual incentive payout is delivered as an annual cash incentive award.

LOGO

  The equity-based incentive is split evenly between two forms of awards. Each NEO generally receives a long-term incentive award in two primary forms that are equally weighted by dollar value – the standard incentive performance unit (Standard IPU), 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 light of Mr. Parsley’s management of our Asset & Liability Management (ALM) function, he also receives an incentive performance unit (ALM IPU), tied to the performance of that function. Each long-term incentive award also contains forfeiture provisions that can reduce or eliminate payouts if PNC does not meet risk-based criteria.

The equity-based awards are made under PNC’s shareholder-approved 2016 Incentive Award Plan. The table below summarizes the material terms and conditions of these awards:

 

      Incentive performance units                            Performance-based RSUs        

How do we

measure

performance?

  

Standard IPUs:

 

  Vests after a three-year performance 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, payable in common stock up to target (0-100%) and payable in cash above target (100-125%)

 

ALM IPUs:

 

  Vests after a three-year performance period

 

  Performance based on PNC’s ALM performance compared to a benchmark performance index

 

  0-200% of target award, payable in cash

                             

  Vests in annual installments over a four-year performance period

 

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

 

  75-125% of target award

 

  Units payable in PNC common stock

 

        

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Incentive performance units

  

Performance-based RSUs    

  

What is the payout?

 

  The payout percentage grid ranges are listed below. Actual payout percentages will be interpolated, which takes into account how close the performance metric or peer group rank is to the actual metric or rank above and below.

        
 

Standard IPUs:    

     
   

 

EPS
Growth
Rank

   Payout %   

 

ROCE

as % of

COCE  

    

 

 

Payout %

      

Annual TSR

   Payout %  
    1    125%   

>= 110%

    

125%

       >= +25%    125%  
    2    125%   

105%

    

100%

       0%    100%  
    3    125%   

100%

    

75%

       <= -25%    75%  
    4    120%   

75%

    

50%

               
    5    115%   

<= 50%

    

0%

               
    6    105%                            
    7    95%                            
    8    80%                            
    9    60%                            
    10    40%                            
    11    0%                            
    12    0%                            
 

ALM IPUs:    

             
        ALM vs. Index        Payout %                       
    >= +40 basis points    200%                       
    +20 basis points    150%                       
    0 to -25 basis points    100%                       
    -35 basis points    40%                       
    <= -40 basis points    0%                       
What are other important provisions?  

   If we do not meet or exceed the Tier 1 risk-based capital ratio for “well-capitalized” institutions, the award will not vest.

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

   No long-term incentive award has voting rights.

   Dividends will accrue until vesting and be paid out in cash, adjusted for actual performance (Standard IPUs and performance-based RSUs) – the ALM IPUs do not have any accrued dividends.

 

    

    

    

    

 

The Committee believes that the total compensation targets collectively provide an appropriate balance between fixed and variable amounts, measuring short-term and long-term performance, immediate and deferred payouts, and

cash and equity-based awards. For information on how the 2016 incentive compensation decisions by the Committee compared to the targets, please see page 46.

 

 

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

  

   Limited perquisites provided to executives, with a modest dollar value.

   No tax gross-ups on the perquisites we provide.

 

Change in Control Arrangements

  

   Provide for continuity of management in connection with a change in control.

   Described in more detail on pages 71 to 77.

 

Health and Retirement Plans

  

   Promote health and wellness.

   Help employees achieve financial security after retirement.

Evaluating performance:

 

The Committee uses several metrics to help evaluate performance when making compensation decisions. These metrics 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

 

 

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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.

 

 

The following chart describes some of the key metrics that the Committee evaluates, and a brief explanation of why we use them. We consider all of these metrics in our overall evaluation of executive compensation, and some of these metrics are also used to calculate payouts under the long-term incentive program.

 

Capital and risk metrics      

Economic capital

   Economic capital represents the capital that we should hold 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.
Expense metrics      

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 metrics      

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 outstanding share of common stock.

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 metrics      

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 borrowings). 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 metrics      

Tangible book value per share

   This non-GAAP financial 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 returns 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.

 

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2016 compensation decisions

2016 total compensation targets

For 2016, the Committee set the following total compensation targets for our NEOs:

 

      William S.
Demchak
    

Robert Q.

Reilly

    

Michael P.

Lyons

    

E William

Parsley, III

   

Steven C.

Van Wyk

 

Base salary (annualized)

   $ 1,100,000      $ 500,000      $ 700,000      $ 600,000     $ 500,000  

Incentive compensation target

   $ 10,500,000      $ 3,000,000      $ 6,050,000      $ 6,900,000     $ 2,750,000  

Annual cash incentive portion

   $ 3,540,000      $ 1,250,000      $ 2,000,000      $ 2,400,000     $ 1,125,000  

Long-term incentive portion

   $ 6,960,000      $ 1,750,000      $ 4,050,000      $ 4,500,000 (1)    $ 1,625,000  

Total compensation target

   $ 11,600,000      $ 3,500,000      $ 6,750,000      $ 7,500,000     $ 3,250,000  
(1) Mr. Parsley’s long-term incentive (LTI) target includes two anticipated grants – the grant of equity-based awards that all other NEOs would otherwise receive and a separate grant of incentive performance units related to the management of our Asset & Liability Management (ALM) unit. The overall target LTI amount remained the same for 2015 and 2016, but the Committee changed the amounts allocated to each award in 2016, decreasing the ALM performance unit value (from $3,000,000 to $1,500,000) and increasing the value of the other equity-based by the same amount (from $1,500,000 to $3,000,000). The Committee made this decision in light of Mr. Parsley’s increasing responsibilities for lines of business other than the ALM unit. Please see page 61 for more information about Mr. Parsley’s ALM units.

 

The market data reviewed by the Committee show that our CEO’s total compensation target generally fell within 20% of the median compensation for peers, as adjusted for PNC’s size. The total compensation targets for our other NEOs are generally aligned with the market, based on our size relative to peers. For the 2016 performance year, the Committee increased the incentive compensation targets for Mr. Demchak (from $9,900,000 to $10,500,000), Mr. Lyons (from $4,800,000 to $6,050,000), and Mr. Parsley (from $5,500,000 to $6,900,000). The Committee also approved a base salary increase for Mr. Parsley (from $500,000 to $600,000). 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. Mr. Parsley’s target increase was also based on the significant expansion of his duties at the end of 2015 and beginning of 2016, which

includes responsibility for our mortgage and home equity businesses, and for consumer lending and pricing, in addition to his previous responsibilities.

2016 performance

We review various performance metrics with the Committee each quarter and after the end of our performance year. For the key metrics listed below, we compared 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 49 for the companies in our 2016 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 43.

 

 

 KEY PERFORMANCE METRICS    2016
actual(1)
     2015
actual(1)
    

2016

budget

 

 Net interest income (in millions)

   $ 8,391      $ 8,278      $ 8,528  

 Noninterest income (in millions)

   $ 6,771      $ 6,947      $ 6,902  

 Diluted EPS

   $ 7.30      $ 7.39      $ 7.40  

 Return on common equity without goodwill (non-GAAP)

     11.32%        12.22%        11.48%  

 Return on assets

     1.10%        1.17%        1.11%  

 Efficiency ratio

     62%        62%        62%  
            
   

 Net income (in millions)

   $ 3,985      $ 4,143     

 Annual total shareholder return

     25.8%        6.81%     

 Tangible book value per common share (non-GAAP)

   $ 67.26      $ 63.65     

 Tier 1 risk-based capital ratio

     12.00%        12.00%     

 Return on economic capital vs. cost of capital (non-GAAP)

     5.64%        5.06%           

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

 

(1) The actual amounts in 2015 and 2016 may be adjusted to omit, among other things, the effect of extraordinary items (2015 results only), discontinued operations (as such term is used under GAAP), and merger integration and 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 pages 58 and 59 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 2015 or 2016, other than adjustments for the sale of Visa shares in each year, which impacted our return on economic capital.

 

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At meetings held during the first quarter of 2017, the Committee reviewed PNC’s performance for the 2016 performance year. PNC delivered consistent performance in 2016, with net income somewhat down from 2015, but with net interest income and fee income growth, strong shareholder returns, and continued execution against our strategic priorities. We also maintained disciplined risk and expense management, and positioned our balance sheet to benefit from a rising interest rate environment.

Despite showing net interest income growth year over year, we lagged our peer group. This reflected, in part, our deliberate choices to stay within our risk appetite and not grow our loan portfolio without receiving appropriate returns. Recognizing the cyclicality of the traditional lending business, we believe that this approach positions us well for the future. We also trailed our peers in noninterest income growth, which was driven primarily by a year-over-year decrease in our other income (such as lower net gains on sales of our Visa stock) – while our fee income, a non-GAAP financial measure, was up 1% from last year. Our return on common equity (without

goodwill), a non-GAAP financial measure, and our efficiency ratio were both near the median for our peers, and our return on assets was above the median. See Annex A for more information on non-GAAP financial measures.

The Committee noted the ongoing impact of a low interest rate environment on our business results, and our strategy to manage balance sheet risk by not pursuing loans and other assets that are outside of our enterprise risk appetite. The Committee also noted that we grew net interest income despite continuing to lose income from the impaired loans that we acquired in prior acquisitions (referred to as purchase accounting accretion runoff), and that we grew fee income.

The Committee also reviewed PNC’s performance against the following key strategic priorities, which were reviewed with our Board at the beginning of 2016. Despite the challenging environment, management continued to drive growth across the franchise and make strategic investments to position PNC for long-term success.

 

 

 Building a leading banking franchise in  our underpenetrated markets   LOGO      

We continued growth across most lines of business in the Southeast, with year-over-year increases in average loans (Retail and Corporate & Institutional Bank), discretionary assets under management, and residential mortgage origination volume.

 

 Capturing more investable assets

  LOGO      

We increased our assets under administration, brokerage fees, and brokerage account client assets year over year.

 

 Reinventing the retail banking

 experience

 

LOGO   

 

 

 

LOGO   

 

  

We continued to focus on transforming the customer experience – 58% of consumer customers used non-teller channels for the majority of their transactions (52% in 2015) and ATM and mobile deposits accounted for 49% of total retail deposit transactions (43% in 2015).

 

Approximately 21% of our branch network now operates under our universal model. Universal branches are designed to leverage enhanced technologies and allow branch personnel to focus on sales and services.

 

 Bolstering critical infrastructure and

 streamlining core processes

 

LOGO   

 

LOGO   

 

LOGO   

  

We completed a $400 million continuous improvement program in 2016.

 

We continued to manage our expenses well, with noninterest expenses remaining stable.

 

We achieved completion of approximately 80% of our five-year “Vision 13” program, which includes global enhancements to our technological capabilities and infrastructure.

 

 

In addition to evaluating our corporate performance based on these financial and strategic metrics, the Committee also reviewed the individual performance of each NEO. 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 2016, participated in this discussion with the Committee.

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 or compensation.

Based on an evaluation of PNC’s 2016 performance, including a review of the performance metrics described above and management’s execution against the strategic priorities, the Committee determined that it was appropriate to award incentive compensation for each NEO that was generally below the target amount, and generally below last year’s awards. While the Committee believed that PNC continued to deliver consistent results in a challenging environment, overall enterprise performance was generally lower than in 2015, and lower than our 2016 budget, and the incentive compensation decisions for

 

 

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the NEOs reflected that relatively lower performance. The actual incentive compensation payouts also reflect individual performance, including business unit (or function) performance and consideration of risk management. Mr. Reilly’s incentive compensation award amount was slightly higher than his target amount. This reflected, in part, current market data

for compensation for chief financial officers. In light of that data and Mr. Reilly’s skills and performance, the Committee increased Mr. Reilly’s 2017 incentive compensation target to $3,250,000. In making the 2016 incentive compensation awards, the Committee considered, among other things the achievements described on pages 46 to 48 for each NEO.

 

 

2016 compensation decisions

The table below shows, for each NEO, the incentive compensation target for 2016 and the actual annual cash incentive and long-term equity-based incentives awarded in 2017 for 2016 performance.

 

      William S.
Demchak
    

Robert Q.

Reilly

    

Michael P.

Lyons

    

E William

Parsley, III

   

Steven C.

Van Wyk

 

Incentive compensation target

   $ 10,500,000      $ 3,000,000      $ 6,050,000      $ 6,900,000     $ 2,750,000  

Incentive compensation awarded for 2016 performance

   $ 10,150,000      $ 3,050,000      $ 5,900,000      $ 6,600,000     $ 2,660,000  

Annual cash incentive portion

   $ 3,400,000      $ 1,275,000      $ 1,940,000      $ 2,250,000     $ 1,080,000  

Long-term incentive portion

   $ 6,750,000      $ 1,775,000      $ 3,960,000      $ 4,350,000 (1)    $ 1,580,000  

Incentive compensation disclosed in the Summary compensation table(2)

   $ 11,200,000      $ 3,175,000      $ 6,020,000      $ 7,050,000     $ 2,680,000  

Annual cash incentive portion (2016 performance)

   $ 3,400,000      $ 1,275,000      $ 1,940,000      $ 2,250,000     $ 1,080,000  

Long-term incentive portion (2015 performance)

   $ 7,800,000      $ 1,900,000      $ 4,080,000      $ 4,800,000     $ 1,600,000  
(1) Mr. Parsley’s incentive compensation target and award includes two grants – the grant of equity-based awards that all other NEOs would otherwise receive (with a target value of $3,000,000) and a separate grant of incentive performance units related to the management of our Asset & Liability Management (ALM) unit, with a target value of $1,500,000. Please see page 61 for a discussion of Mr. Parsley’s ALM units.
(2) Due to SEC regulations, the incentive compensation amounts disclosed in the Summary compensation table on page 56 include the cash incentive award paid in 2017 (for 2016 performance) and the long-term incentive award granted in 2016 (for 2015 performance).

The charts below show the base salary for 2016 for each executive, and the annual cash incentive and long-term incentive awarded in 2017 for 2016 performance. The bar surrounding each circle shows the amount of total compensation that is at-risk and not guaranteed.

 

 William S. Demchak

 Chairman, President and Chief Executive Officer

 2016 KEY ACHIEVEMENTS   

LOGO

  As our CEO, Mr. Demchak continued to deliver consistent results for PNC, with the company earning net income of $4 billion and reported EPS of $7.30, and a tangible book value per common share of $67.26 at year-end.

 

 Delivered strong returns to our investors – while our one-year TSR lagged our peer median, PNC’s three-year TSR was the highest in our peer group.

 

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

 

 Maintained a strong, well-positioned balance sheet and returned more than $3 billion in capital to our shareholders.

 

 Continued to execute against our strategic priorities of building a leading banking franchise in our underpenetrated markets, capturing more investable assets, redefining the retail banking experience, and bolstering critical infrastructure and streamlining core processes.

 

  
  

 

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 Robert Q. Reilly

 Executive Vice President and Chief Financial Officer

 2016 KEY ACHIEVEMENTS

 

As our CFO, Mr. Reilly provided effective supervision of major financial and accounting functions and continued to play an integral part in achieving our financial priorities.

 

Continued to manage our expenses well in a challenging economic environment, including reaching our continuous improvement goal of $400 million in cost savings, which helped to fund key investments in our business, and kept overall expenses stable year over year.

 

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 & Institutional Banking

 2016 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 over half of our net income in 2016.

 

Delivered strong financial results in 2016, despite increases in provision and the continued run-off in purchase accounting accretion.

 

Expanded new clients in the Southeast.

 

Grew the franchise by expanding into three new markets.

  

LOGO

  
  

 

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 E William Parsley, III

 Executive Vice President, Chief Investment Officer, Treasurer, and Head of Consumer Lending

 2016 KEY ACHIEVEMENTS

 

 As our Chief Investment Officer and Treasurer, Mr. Parsley continued to provide effective management of our assets, liabilities, and capital, and continued to provide strong oversight of our capital markets, alternative investments and balance sheet hedging activities.

 

 Led the process of substantially improving our CCAR qualitative performance, and led efforts to achieve early compliance with the Liquidity Coverage Ratio, a regulatory liquidity requirement.

 

 Continued to lead and enhance our Analytics and Portfolio Management function while taking on new leadership of our Home Lending business.

 

 Expanded his responsibility to include our entire Consumer Lending business, and made key organizational changes and infrastructure investments to facilitate the fundamental transformation of this important business.

   LOGO
  

 Steven C. Van Wyk

 Executive Vice President and Head of Technology and Operations

 2016 KEY ACHIEVEMENTS

 

 As our head of Technology & Operations, Mr. Van Wyk helped us to execute against our strategic priority of bolstering critical infrastructure and streamlining core processes.

 

 Oversaw the completion of approximately 80% of our five-year “Vision13” program, which includes global enhancements to our technology capabilities and infrastructure.

 

 Rolled out communications and technology enhancements to the majority of our employees.

 

 Introduced new approaches to innovation, and a new operating model to improve the speed to market and quality of PNC products.

   LOGO
  

Compensation policies and practices

 

The Committee adopts policies and procedures to assist in the fulfillment of its duties, and 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 those 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 54.

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 page 26.

 

 

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Peer group

The Committee selects a peer group each year. We use this group to help 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 generally compete for talent.

The Committee annually reviews the composition of the peer group with management and its

independent compensation consultant. For 2016, the Committee believed that the existing peer group generally provided a balanced mix of institutions in light of our size, mix and scope of businesses, products and services, and sources of executive talent. 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 2017 remained unchanged from 2016 and included 12 companies (including PNC), with assets, revenues and market capitalization for each company measured as of December 30, 2016:

 

 

Peer Group Company   Ticker
Symbol
        Peer   

Assets

(in billions)

            Peer   

Revenue

(in billions)

             Peer   

Market
Capitalization

(in billions)

 

Bank of America Corporation

  BAC      JPM    $ 2,491.0        JPM    $ 95.7         JPM    $ 307.3  

BB&T Corporation

  BBT      BAC    $ 2,187.7        WFC    $ 88.3         WFC    $ 276.4  

Capital One Financial Corporation

  COF      WFC    $ 1,930.1        BAC    $ 83.7         BAC    $ 222.2  

Fifth Third Bancorp

  FITB      USB    $ 446.0        COF    $ 25.5         USB    $ 87.2  

JPMorgan Chase & Co.

  JPM      PNC    $ 366.4        USB    $ 21.1         PNC    $ 56.7  

KeyCorp

  KEY      COF    $ 357.0        PNC    $ 15.2         COF    $ 41.9  

M&T Bank Corporation

  MTB      BBT    $ 219.3        BBT    $ 10.8         BBT    $ 38.1  

Regions Financial Corporation

  RF      STI    $ 204.9        STI    $ 8.6         STI    $ 26.9  

SunTrust Banks, Inc.

  STI      FITB    $ 142.2        FITB    $ 6.3         MTB    $ 24.4  

U.S. Bancorp

  USB      KEY    $ 136.5        RF    $ 5.6         FITB    $ 20.2  

Wells Fargo & Company

  WFC      RF    $ 126.0        MTB    $ 5.3         KEY    $ 19.7  
       MTB    $ 123.4        KEY    $ 5.0         RF    $ 17.4  

 

Executive stock ownership and retention

Our executive officers historically have held a significant portion of their assets 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 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 executives 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.

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 (that is payable in common shares) toward satisfaction of the ownership guidelines. The guidelines are as follows:

 

 

  Officer/Category  

Base ownership
requirement (in shares)

 

Base ownership
requirement
(in dollars)(1)

 

Ongoing retention
requirement

(as a % of newly vested
equity)

President and Chief Executive Officer

  125,000   $14,620,000   33%

All other NEOs(2)

  15,000 – 25,000   $1,754,400 – $2,924,000   25%
(1) Value based on PNC closing price of $116.96 as of December 30, 2016.
(2) The stock ownership guidelines apply to certain other senior executives as well, including all executive officers. One executive officer (not an NEO) has a requirement to own 5,000 shares ($584,800 in value as of December 30, 2016) with a 10% ongoing retention requirement.

 

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Newly hired or promoted executives 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 executives 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 executives and those employees receiving equity-based compensation. This policy applies to all incentive compensation provided on or after January 1, 2013, although some elements of the policy were in effect previously.

 

 

A summary of PNC’s clawback and incentive compensation adjustment policy is described below.

 

     Clawback   Negative Adjustments / Forfeiture

 Trigger

 

Inaccurate Metrics

 

Applies to incentive compensation awarded as the result of materially inaccurate performance metrics (see below for additional details)

 

Detrimental Conduct

 

Applies when an individual (1) engages in competitive activity without prior consent – either as an employee of PNC or for one year after employment; (2) commits fraud, misappropriation or embezzlement; or (3) is convicted of a felony

 

Risk Metrics Performance

 

May apply when there is less than desired performance against corporate or business unit risk metrics, as applicable

 

Risk-Related Actions

 

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

   
 Applies to   All incentive compensation – vested or unvested   All unvested long-term incentive compensation  

All unvested long-term

incentive compensation

   
Employees affected   NEOs and other senior leaders   All equity recipients   All equity recipients

 

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 reduce or cancel unvested long-term incentive compensation granted to an employee who takes action (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

 

 

50    THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement


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COMPENSATION DISCUSSION AND ANALYSIS

 

    adjustment, including items such as the 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. 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.

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. In addition, in 2016, we eliminated excise tax gross-ups for all existing change in control agreements. For a more detailed discussion on change in control arrangements, please see Change in control agreements beginning on page 71.

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.

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. In 2016, the Committee also approved a perquisite for Mr. Demchak related to the installation of home security services. With respect to that perquisite, Mr. Demchak has agreed to pay the ongoing maintenance costs personally. The perquisites that we provide to our executive officers under this program do not include any tax “gross ups”. We may provide additional perquisites to an executive officer from time to time, but this is not common.

In addition to these perquisites, each executive officer (other than the CEO) receives a $10,000 allowance for personal aircraft usage. As the

Committee has previously recommended that Mr. Demchak take all flights (personal or business) on the corporate aircraft, the Committee has approved an allowance, not to exceed $100,000, for personal flights taken on the aircraft by Mr. Demchak.

The Committee has previously approved the execution of lease (“time-sharing”) agreements between PNC and certain executive officers, including our CEO and one other NEO (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 and Mr. Reilly will pay for the costs of any personal flights that exceed the 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 PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement    51


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COMPENSATION DISCUSSION AND ANALYSIS

 

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 executives.

Restrictions on trading, hedging and pledging

Our Code of Business Conduct and Ethics and related policies, which apply to all of our employees, include anti-hedging provisions that prohibit all employees from day trading or short selling PNC securities and 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 prohibit 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.

Additionally, we do not allow directors, executive officers and certain other senior employees to pledge PNC securities.

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 2016 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.

 

 

52    THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement


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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

Andrew T. Feldstein

Richard B. Kelson

Michael J. Ward

 

THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement    53


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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 to maintain the trust of our customers and provide the best overall customer experience.

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 customers and 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:

 

 

 

LOGO

 

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

 

 

 

LOGO

 

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

 

 

 

LOGO

 

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

 

 

 

LOGO

 

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 this year’s 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, are designed to provide a superior customer experience, and are reflective of our business model, management structure, and risk appetite.

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

customer focus and risk management goals. We evaluate employee performance against these goals, in addition to considering risk outcomes from actions taken in prior years. We incorporate this comprehensive evaluation of employee risk management into our performance and incentive compensation decisions. In addition, all employees are encouraged to collaborate across groups to identify and mitigate risks and elevate and address identified issues or concerns.

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, commitment to delivering a superior customer experience, compliance with controls and ethical duties, competition for top talent, market-based pay levels, and the need to attract and engage our leaders.

 

 

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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 broad-based clawback policy described on pages 50 and 51.

We maintain an equity program for approximately 120 senior leaders below the executive levels that is designed 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 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 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 risk assessment, we have established a cross-functional team that continues to identify and monitor these individuals or groups.

We have developed a standardized 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, customer orientation, and risk-adjusted performance — this framework helps to ensure that we have the appropriate procedures,

controls and independent challenges in place to do so. We continue to assess and modify our incentive compensation plans in accordance with this framework to help ensure our plans 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 and customer focus metrics to 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 inclusion of risk-based metrics in our 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.

 

 

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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

    2016     $ 1,100,000     $ 7,799,958     $ 3,400,000     $ 623,494     $ 218,008     $ 13,141,460  

 Chairman, President

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

 & Chief Executive Officer

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

 Robert Q. Reilly

    2016     $ 500,000     $ 1,899,844     $ 1,275,000     $ 295,003     $ 47,495     $ 4,017,342  

 Executive Vice President &

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

 Chief Financial Officer

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

 Michael P. Lyons

    2016     $ 700,000     $ 4,079,848     $ 1,940,000     $ 22,610     $ 36,228     $ 6,778,686  

 Executive Vice President & Head of

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

 Corporate & Institutional Banking

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

 E William Parsley, III

    2016     $ 588,462     $ 4,799,872     $ 2,250,000     $ 123,239     $ 148,341     $ 7,909,914  

 Executive Vice President, Chief Investment

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

 Officer, Treasurer & Head of Consumer Lending

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

 Steven C. Van Wyk

    2016     $ 500,000     $ 1,599,984     $ 1,080,000     $ 19,399     $ 20,591     $ 3,219,974  

 Executive Vice President, Head of

             

 Technology & Operations

                                                       
(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 67. Please also see the Non-qualified deferred compensation in fiscal 2016 table on page 68 for the aggregate deferrals during 2016.

 

(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 12 in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2016 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 2016, stock awards were granted on February 11, 2016 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 11, 2016 of $78.17. 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

    $4,874,916       $4,874,916  

 Robert Q. Reilly

    $1,187,402       $1,187,402  

 Michael P. Lyons

    $2,549,905       $2,549,905  

 E William Parsley, III*

    $1,124,944       $1,124,944  

 Steven C. Van Wyk

    $   999,951       $   999,951  
  * The grant date fair value of Mr. Parsley’s ALM grant at the maximum value is $5,999,860.

 

     See the Grants of plan-based awards in 2016 table on pages 58 and 59 for more information regarding the grants we made in 2016, the Outstanding equity awards at 2016 fiscal year-end table on pages 62 and 63 for more information regarding options and other awards outstanding at December 31, 2016, and the Option exercises and stock vested in fiscal 2016 table on page 64 for more information regarding stock vesting during 2016.

 

(c) Our NEOs received an annual incentive award paid in cash early in 2017 which is reflected in this column for the 2016 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 65. 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 2016 rates of return chart in the Non-qualified deferred compensation in fiscal 2016 table on page 70.

 

56    THE PNC FINANCIAL SERVICES GROUP, INC. - 2017 Proxy Statement


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SUMMARY COMPENSATION TABLE

 

 

(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 insurance premiums paid by us in connection with our Key Executive Equity 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; (6) cash paid for fractional shares of the 2016 stock awards described in footnote (b) on page 56; and (7) a cash payment for each NEO, with the exception of Mr. Van Wyk, in respect of the 2012-2014 incentive performance unit award and for Mr. Parsley, a cash payment made with respect to the 2012-2014 ALM incentive performance units, in each case payment was made in light of additional information that became known following the original payout approvals by the Personnel and Compensation Committee in 2015.

 

   “All Other Compensation” for 2016 consisted of the following:

 

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

 William S. Demchak

  $ 141,772     $ 10,600     $ 45,129     $ 20,507     $ 218,008  

 Robert Q. Reilly

  $ 11,143     $ 10,600     $ 20,927     $ 4,825     $ 47,495  

 Michael P. Lyons

  $ 9,843     $ 10,600           $ 15,785     $ 36,228  

 E William Parsley, III

  $ 11,596     $ 10,600           $ 126,145     $ 148,341  

 Steven C. Van Wyk

  $ 9,975     $ 10,600           $ 16     $ 20,591  
  * The dollar amount of the perquisite represents the incremental cost of providing the benefit. For 2016, 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 and Mr. Parsley used the aircraft for personal flights during 2016. For these flights, Mr. Demchak and Mr. Reilly 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 consulting and tax preparation services for Mr. Demchak, Mr. Reilly and Mr. Parsley. 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. For Mr. Demchak, this column also includes $31,797 for residential and related security paid by PNC, all of which was approved by the Committee as a one-time expenditure.

 

  ** 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 2016 premiums we paid in connection with our Key Executive Equity Program on behalf of Mr. Demchak ($40,534) and Mr. Reilly ($16,732). These premiums represent the full dollar amounts we paid for both the term and non-term portions of this plan. The amounts under this column also include the long-term disability premiums we paid on behalf of Mr. Demchak ($4,595) and Mr. Reilly ($4,195).

 

  *** 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 ($500) and the cash paid for fractional shares of the 2016 stock awards described in footnote (b) on page 56. In light of additional information that became known following the original payout approvals for the 2012-2014 incentive performance units (see footnote (b) on page 56), the Committee approved an additional payment reflecting the full potential value of the award had the information been available at the time the Committee approved payouts in 2015. These amounts were as follows: Mr. Demchak ($20,466), Mr. Reilly ($4,169), Mr. Lyons ($15,634) and Mr. Parsley ($6,396). Mr. Van Wyk did not have a 2012-2014 incentive performance unit award and therefore did not receive an additional payment. In addition and as disclosed in PNC’s 2016 proxy statement in the Option exercises and stock vested in fiscal 2015 table, the Committee authorized an additional cash payment for Mr. Parsley’s 2012-2014 ALM incentive performance units in the amount of $119,622 which was paid to Mr. Parsley in 2016. This payment to Mr. Parsley is reflected in this column.

 

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GRANTS OF PLAN-BASED AWARDS IN 2016

 

Grants of plan-based awards in 2016

 

                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 11, 2016           $ 3,540,000     $ 10,836,000          
 Incentive Performance Units     February 11, 2016                   49,891       62,363     $ 3,899,979  
 Performance-Based Restricted  Share Units     February 11, 2016                                     49,891       62,363     $ 3,899,979  
 Robert Q. Reilly                
 Annual Incentive Award     February 11, 2016           $ 1,250,000                
 Incentive Performance Units     February 11, 2016                   12,152       15,190     $ 949,922  
 Performance-Based Restricted  Share Units     February 11, 2016                                     12,152       15,190     $ 949,922  
 Michael P. Lyons                
 Annual Incentive Award     February 11, 2016           $ 2,000,000     $ 10,836,000          
 Incentive Performance Units     February 11, 2016                   26,096       32,620     $ 2,039,924  
 Performance-Based Restricted  Share Units     February 11, 2016                                     26,096       32,620     $ 2,039,924  
 E William Parsley, III                
 Annual Incentive Award     February 11, 2016           $ 2,400,000     $ 10,836,000          
 Incentive Performance Units     February 11, 2016                   11,513       14,391     $ 899,971  
 Performance-Based Restricted  Share Units     February 11, 2016                   11,513       14,391     $ 899,971  
 ALM Incentive Performance Units     February 11, 2016                                     38,377       76,754     $ 2,999,930  
 Steven C. Van Wyk                
 Annual Incentive Award     February 11, 2016           $ 1,125,000     $ 10,836,000          
 Incentive Performance Units     February 11, 2016                   10,234       12,792     $ 799,992  
 Performance-Based Restricted  Share Units     February 11, 2016                                     10,234       12,792     $ 799,992  
(a) The amounts listed in the “Target” column relate to the target annual incentive award for the 2016 performance year. Annual incentive awards for 2016 were paid in 2017. 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 amount 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 Section 162(m), the calculation of the “Maximum” amount was approved by the Committee on February 25, 2016, 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 2016 which is included as $10,836,000 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 pages 41 and 42. 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, 2016 and will end on December 31, 2018. For the performance-based restricted share unit grants, the performance period began on January 1, 2016 and will end on December 31, 2019, 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 56. For a discussion of the terms, conditions and performance goals related to this incentive performance unit grant, see pages 41 and 42. 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

 

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GRANTS OF PLAN-BASED AWARDS IN 2016

 

  the grant and the “Maximum” amount represents 200% of the grant. For this grant, the performance period began on January 1, 2016 and will end on December 31, 2018.

 

  In determining the payout for standard grants of incentive performance units made in 2016, adjustments will be made on an after-tax basis for the impact of:

 

    items resulting from a change in tax law
    discontinued operations (as such term is used under GAAP)
    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 12 in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2016 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 11, 2016 of $78.17. The grant date fair values for incentive performance units and performance-based restricted share units represent the target amount of units in the grant.

 

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OUTSTANDING EQUITY AWARDS AT 2016 FISCAL YEAR-END

 

Outstanding equity awards at 2016 fiscal year-end

 

The following tables show, for each NEO, the outstanding equity awards as of December 31, 2016. These awards include the following:

 

  Stock options exercisable over time

 

  Incentive performance units, specifically:

 

    Standard units granted in 2014, 2015 and 2016 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 2013, 2014 and 2015, units granted to Mr. Parsley in 2014, 2015 and 2016 will pay out based on our ALM unit performance against a benchmark index during the 2014 to 2016, 2015 to 2017 or 2016 to 2018 performance period, respectively.

 

  Performance-based restricted share units, specifically:

 

    Annual long-term incentive awards 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 for these awards may be adjusted by 25% up or down based on TSR in each year. These awards 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 2017, as described in more detail below:

Performance-based restricted share units

 

 

The performance-based restricted share units that vest based on 2016 performance are included in the following table as of December 31, 2016. At a meeting held on January 26, 2017, our Board’s Personnel and Compensation Committee certified the levels of performance achieved for the 2016 tranche of each of the 2013 grants, the 2014 grants, the 2015 grants and the 2016 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 2016 TSR. The Committee approved a payout at 125% for the applicable tranche of each of the 2013, 2014, 2015 and 2016 grants. As noted above, these 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)

  125% (Target + 25% maximum adjustment; actual TSR 25.8% for 2016)

 

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OUTSTANDING EQUITY AWARDS AT 2016 FISCAL YEAR-END

 

Incentive performance units

 

 

The incentive performance units granted in 2014 are included in the following table as of December 31, 2016. At a meeting held on February 15, 2017, our Board’s Personnel and Compensation Committee certified the levels of performance achieved for the January 1, 2014 to December 31, 2016 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 99.54% for these awards. In accordance with the terms of these awards, the incentive performance units were payable in PNC common stock.

 

 

      

Payout %

  

Overall Payout
Percentage

 

       
 Metric        2014        2015        2016     

 EPS Growth Payout

     61.90%      86.73%      73.62%      99.54%          

 (PNC Ranking in peer group)

     (10 out of 13)      (8 out of 12)      (8 out of 12)     

 ROCE Payout

     125.00%      125.00%      125.00%     

 (ROCE as a percentage of COCE)

     (169.75%)      (160.41%)      (161.41%)           

ALM incentive performance units

 

 

The ALM incentive performance units granted in 2014 to Mr. Parsley were outstanding as of December 31, 2016 and are included in the following table. At a meeting held on January 26, 2017, 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 36,973. The Committee approved payout at 200% of target. In accordance with the terms of this award, the ALM incentive performance units awarded to Mr. Parsley paid out entirely in cash share equivalents.

 

 

                                                                           
       Payout Percentage
 Metric      2014      2015      2016      Overall

 Performance of ALM unit against benchmark index

     200.00%      200.00%      200.00%      200.00%

 

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OUTSTANDING EQUITY AWARDS AT 2016 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

 

                                                              

Options

          Performance-Based Restricted Share Units    

February 12, 2009

    180,000     $ 31.07       February 12, 2019      

Jan. 1, 2013–Dec. 31, 2016

     9,452      $ 1,105,506       

April 26, 2010

    75,000     $ 66.77       April 26, 2020      

Jan. 1, 2014–Dec. 31, 2017

     11,553      $ 1,351,239        9,244     $ 1,081,178  
         

Jan. 1, 2015–Dec. 31, 2018

     11,771      $ 1,376,736        18,836     $ 2,203,059  
         

Jan. 1, 2016–Dec. 31, 2019

     15,590      $ 1,823,406        37,419     $ 4,376,526  
          Incentive Performance Units          
         

Jan. 1, 2014–Dec. 31, 2016

     36,802      $ 4,304,362       
         

Jan. 1, 2015–Dec. 31, 2017

           47,087     $ 5,507,296  
         

Jan. 1, 2016–Dec. 31, 2018

           49,891     $ 5,835,251  

Robert Q. Reilly

 

                                                              

Options

          Performance-Based Restricted Share Units    

January 22, 2008

    33,000     $ 57.21       January 22, 2018      

Jan. 1, 2013–Dec. 31, 2016

     2,911      $ 340,471       

July 21, 2008

    65,000     $ 63.69       July 21, 2018      

Jan. 1, 2014–Dec. 31, 2017

     2,985      $ 349,126        2,388     $ 279,300  

February 12, 2009

    19,800     $ 31.07       February 12, 2019      

Jan. 1, 2015–Dec. 31, 2018

     3,171      $ 370,880        5,074     $ 593,455  

February 12, 2009

    50,000     $ 31.07       February 12, 2019      

Jan. 1, 2016–Dec. 31, 2019

     3,797      $ 444,097        9,114     $ 1,065,973  

April 26, 2010

    25,000     $ 66.77       April 26, 2020       Incentive Performance Units          
         

Jan. 1, 2014–Dec. 31, 2016

     9,507      $ 1,111,939       
         

Jan. 1, 2015–Dec. 31, 2017

           12,685     $ 1,483,638  
         

Jan. 1, 2016–Dec. 31, 2018

           12,152     $ 1,421,298  

Michael P. Lyons

 

                                                              
          Performance-Based Restricted Share Units    
         

Jan. 1, 2013–Dec. 31, 2016

     7,715      $ 902,346       
         

Jan. 1, 2014–Dec. 31, 2017

     7,856      $ 918,838        6,286     $ 735,211  
         

Jan. 1, 2015–Dec. 31, 2018

     6,798      $ 795,094        10,879     $ 1,272,408  
         

Jan. 1, 2016–Dec. 31, 2019

     8,155      $ 953,809        19,572     $ 2,289,141  
          Incentive Performance Units          
         

Jan. 1, 2014–Dec. 31, 2016

     25,025      $ 2,926,924       
         

Jan. 1, 2015–Dec. 31, 2017

           27,196     $ 3,180,844  
         

Jan. 1, 2016–Dec. 31, 2018

           26,096     $ 3,052,188  

E William Parsley, III

 

                                                              

Options

          Performance-Based Restricted Share Units    

July 21, 2008

    25,000     $ 63.69       July 21, 2018      

Jan. 1, 2013–Dec. 31, 2016

     2,922      $ 341,757       

February 12, 2009

    50,000     $ 31.07       February 12, 2019      

Jan. 1, 2014–Dec. 31, 2017

     3,032      $ 354,623        2,427     $ 283,862  
         

Jan. 1, 2015–Dec. 31, 2018

     2,621      $ 306,552        4,195     $ 490,647  
         

Jan. 1, 2016–Dec. 31, 2019

     3,597      $ 420,705        8,635     $ 1,009,950  
          Incentive Performance Units          
         

Jan. 1, 2014–Dec. 31, 2016

     9,660      $ 1,129,834       
         

Jan. 1, 2014–Dec. 31, 2016(f)

     73,946      $ 8,648,724       
         

Jan. 1, 2015–Dec. 31, 2017(f)

           64,948     $ 7,596,318  
         

Jan. 1, 2015–Dec. 31, 2017

           10,486     $ 1,226,443  
         

Jan. 1, 2016–Dec. 31, 2018(f)

           76,754     $ 8,977,148  
                                   

Jan. 1, 2016–Dec. 31, 2018