DEF 14A 1 d305364ddef14a.htm DEFINITIVE NOTICE AND PROXY STATEMENT Definitive Notice and Proxy Statement
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SCHEDULE 14A

 

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

Exchange Act of 1934 (Amendment No.      )

 

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☐    Definitive Additional Materials

 

☐    Soliciting Material Pursuant to §240.14a-12

 

Wells Fargo & Company


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LOGO

Wells Fargo Logo Wells Fargo & Company 2017 Proxy Statement


Table of Contents

Letter to our Stockholders from

our Chairman and our Chief Executive Officer

 

March 15, 2017

 

    LOGO

Dear Fellow Stockholders,

 

Thank you for your support of Wells Fargo during 2016. It was a difficult year as unacceptable sales practices in our retail bank did not serve the interests of our customers, our team members, or our Company. Restoring your trust and the trust of all key stakeholders is our top priority and, while we have more work to do, we firmly believe we are on the right path. We have taken decisive actions, many of which are discussed in this proxy statement, to make things right for our customers and team members, and are fixing problems at their root cause and building a better Wells Fargo for the future.

 

Our focus on making things right for customers includes reviewing millions of checking, credit card, and line of credit accounts, dating from 2009 to 2016, and refunding charges and fees. We reached out to customers to confirm they still want and need their products. We are doing a number of things to earn back the trust of our team members, including communicating actively about the changes we are making and listening to their feedback. We also have increased the information we provide to our investors, so we are transparent about the effects of the sales practices issues on our business.

 

Fixing problems at their root cause is a second way we are working to rebuild trust. We have named new leadership in the Community Bank, eliminated product sales goals for our branch team members, and introduced a new compensation plan for our retail bankers. These changes keep our focus on what’s best for our customers.

 

As we look ahead and build a better Wells Fargo, we are focused on serving our customers, now and in the future. This includes strengthening core functions for effective risk management. It also means creating the next generation of payments capabilities and digital and online offerings for our customers.

 

Our Board is actively involved in oversight of our Company and management, and in February 2017 we were pleased to welcome two new members to our Board, Karen Peetz and Ron Sargent. Each brings deep and relevant experience to Wells Fargo. We want to extend our thanks to Elaine Chao, who resigned from our Board in January upon her confirmation as U.S. Secretary of Transportation, and Susan Engel, who will retire from our Board at our 2017 annual meeting of stockholders, after many years of distinguished service.

 

On behalf of our Board of Directors and our management team, we are pleased to invite you to attend our 2017 annual meeting of stockholders on April 25, 2017 at 10:00 a.m., Eastern Time, at the Sawgrass Marriott, 1000 PGA Tour Boulevard, Ponte Vedra Beach, Florida. A notice of the meeting and our 2017 Proxy Statement containing important information about the matters to be voted upon and instructions on how you can vote your shares follow this letter.

 

Your vote is important to us. Please vote as soon as possible even if you plan to attend the annual meeting.

 

Thank you for your interest in and support of Wells Fargo.

 

Sincerely,

   

 

 

 

LOGO

Stephen W. Sanger

Chairman

 

 

LOGO

Timothy J. Sloan

CEO and President

LOGO

Stephen W. Sanger

Chairman

  

LOGO

Timothy J. Sloan

CEO and President

   


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WELLS FARGO & COMPANY

420 Montgomery Street

San Francisco, California 94104

 

 

 

Notice of Annual Meeting of Stockholders

 

 

Tuesday, April 25, 2017

10:00 a.m., Eastern Time (ET)

Sawgrass Marriott

1000 PGA Tour Boulevard

Ponte Vedra Beach, Florida 32082

 

 

Items of Business

 

 

1.   Elect as directors the 15 nominees named in our proxy statement;

 

2.   Vote on an advisory resolution to approve executive compensation;

 

3.   Vote on an advisory proposal on the frequency (every year, every 2 years, or every 3 years) of future advisory votes to approve executive compensation;

 

4.   Ratify the appointment of KPMG LLP as our Company’s independent registered public accounting firm for 2017;

 

5.   Vote on six stockholder proposals (Items 5–10 in our proxy statement), if each is properly presented at the meeting and not previously withdrawn; and

 

6.   Consider any other business properly brought before the meeting or any adjournment or postponement thereof.

Record Date and Voting

 

You may vote if you owned shares of our common stock at the close of business on March 1, 2017, the record date for notice of and voting at our annual meeting.

It is important that your shares be represented and voted at the meeting. You can vote your shares over the internet, using your mobile device, or by telephone. If you received a paper proxy card or voting instruction form by mail, you may also vote by signing, dating, and returning the proxy card or voting instruction form in the envelope provided. Voting in any of these ways will not prevent you from attending or voting your shares at the meeting. For instructions on how to vote your shares, see the information under Voting and Other Meeting Information in this proxy statement.

Meeting Admission and Notice of Internet Availability of Proxy Materials

 

You or your legal proxy may attend the meeting if you owned shares of our common stock at the close of business on March 1, 2017. If you or your legal proxy plan to attend the meeting in person, you must follow the admission procedures described in Meeting Admission Information in this proxy statement. If you do not comply with these procedures, you or your legal proxy will not be admitted to the meeting.

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting To Be Held on April 25, 2017: Wells Fargo’s 2017 Proxy Statement, Annual Report to Stockholders for the year ended December 31, 2016, and other proxy materials are available at: www.proxypush.com/wfc (for record holders) or www.proxyvote.com (for street name holders and Company Plans participants).

 

By Order of our Board of Directors,
LOGO

Anthony R. Augliera

Corporate Secretary

This notice and the accompanying proxy statement, 2016 annual report, and proxy card or voting instruction form were first made available to stockholders beginning on March 15, 2017.


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Proxy Statement Summary

 

This summary highlights certain information contained in this proxy statement. This summary does not contain all of the information you should consider, and you should read the entire proxy statement carefully before voting.

Wells Fargo 2017 Annual Meeting Information

 

 

Date and Time:

Tuesday, April 25, 2017

10:00 a.m., ET

  

Place:

Sawgrass Marriott

1000 PGA Tour Boulevard

Ponte Vedra Beach, Florida 32082

 

 

Items for Vote

 

  

 

  Board Recommendation  

 

1.    Elect 15 directors    FOR all nominees
2.    Advisory resolution to approve executive compensation (Say on Pay)    FOR
3.    Advisory proposal on the frequency (every year, every 2 years, or every 3 years) of future advisory votes to approve executive compensation    EVERY YEAR
4.    Ratify the appointment of KPMG LLP as our Company’s independent registered public accounting firm for 2017   


FOR

5–10.   

Six stockholder proposals as described in this proxy statement, if each is properly presented at the meeting and not previously withdrawn

 

   AGAINST  these proposals

 

In addition, stockholders may be asked to consider any other business properly brought before the meeting or any adjournment or postponement thereof.

Voting and Admission Information

 

Voting.     Holders of our common stock as of the record date, March 1, 2017, are entitled to notice of and to vote at our annual meeting. Each share of common stock outstanding on the record date is entitled to one vote for each director nominee and one vote for each of the other proposals to be voted on at our annual meeting. Even if you plan to attend our annual meeting in person, please cast your vote as soon as possible.

 

 

REVIEW YOUR PROXY STATEMENT AND VOTE IN PERSON OR IN ONE OF THESE FOUR WAYS:

 

   
         LOGO     

Via the Internet

 

Visit the website listed in your notice of internet availability of proxy materials or your proxy or voting instruction form

     LOGO     

By Telephone

 

Call the toll-free voting number in your voting materials from the U.S., U.S. territories, or Canada

   
         LOGO     

By Mobile Device

 

Scan the QR Barcode on your voting materials

     LOGO     

By Mail

 

Mail your completed and signed proxy or voting instruction form

 

Admission.     Wells Fargo stockholders as of the record date are entitled to attend the annual meeting. To attend, stockholders must present an admission ticket available online or other proper verification of stock ownership and a valid photo ID. Please review the admission procedures in this proxy statement under Meeting Admission Information.

Live Audio of Meeting.     You may listen to live audio of the annual meeting, but will not be able to vote your shares or ask questions.

 

Each stockholder’s vote is important.

Please submit your vote by proxy over the internet, using your mobile device, or by

telephone, or complete, sign, date, and return your proxy or voting instruction form.

 

Wells Fargo & Company 2017 Proxy Statement            i


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Building a Better Wells Fargo

 

On September 8, 2016, we announced regulatory and legal settlements relating to our retail banking sales practices, which damaged the trust many of our stakeholders have in Wells Fargo. Our Board and management have taken decisive actions to rebuild the trust of our customers, team members, investors, and other stakeholders through a comprehensive action plan outlined below, and to strengthen our culture and make sure our practices align with our values.

Action plan focused on rebuilding trust

 

 

Rebuilding Trust

 

Making things right

for our customers and

team members

  

 

Fixing problems at their

root cause

  

 

Building a better

Wells Fargo for the future

 

 

How we are working to rebuild trust – our top priority

 

 

Our action plan starts at the top of our organization with our Board

 

 

Board Leadership Structure and Composition

 

  

>

 

  

Separated the roles of Chairman and CEO, elected an independent Chairman and Vice Chair, and amended our By-Laws to require that those roles be held by independent directors

 

  

>

 

  

Elected Timothy J. Sloan as CEO

 

  

>

 

  

As part of Board succession planning, added two new directors with expertise to enhance the overall mix of skills and experience on our Board and key committees

 

Executive Accountability

 

  

>

 

  

Our effective compensation design provides our Board with discretion to forfeit and adjust unpaid equity and annual incentive awards

 

  

>

 

  

Our Board used that discretion and took decisive compensation actions to hold our current and former executives accountable

 

Board Oversight of Risk

 

  

>

 

  

Our Board enhanced its oversight of conduct risk, including sales practices risk, through the Risk Committee’s oversight of enterprise-wide conduct risk and our Company’s new Office of Ethics, Integrity, and Oversight, and the expansion of other Board committees’ responsibilities for overseeing aspects of conduct risk

 

Board Independent Investigation

 

  

>

 

  

Launched a comprehensive independent investigation into our Company’s retail banking sales practices and related matters

 

  

>

 

  

Our Board expects to disclose findings from its investigation publicly in April prior to our annual meeting

 

 

How our Company is responding

 

 

Engagement and Transparency

 

  

>

 

  

Recommitting to our customers and earning back the trust of our team members

 

  

>

 

  

Engaging with and listening to our investors, including with the participation of our independent Chairman and independent Vice Chair

 

  

>

 

  

Engaged external consultants to review sales practices across our Company

 

  

>

 

  

Being more transparent in our disclosures to our investors, customers, team members, and our other stakeholders about the changes we are making and the impact of the retail banking sales practices matter on our business

 

Compensation and Performance Management Changes

 

  

>

 

  

Eliminated product sales goals for retail banking team members in our branches and call centers on October 1, 2016

 

  

>

 

  

Introduced new compensation and performance management programs in our Community Bank focused on the customer experience within our branches

 

  

>

 

  

Strengthened our incentive compensation risk management program and practices

 

Risk Management

Organization and

Controls

 

  

>

 

  

Improving our enterprise risk management practices and controls

 

  

>

 

  

Changed reporting lines for risk team members to report into our central Corporate Risk group and for staff groups throughout our Company to report into their central control groups rather than the line of business

 

Our Culture and Ethics   

>

 

  

Reviewing and strengthening our culture, including ethics and compliance culture

 

Our Company’s Leadership and Long-Term Business Strategy

 

  

>

 

  

Changed senior management of our Company and the Community Bank

 

  

>

 

  

Focused on our long-term business strategy, including our mission to satisfy our customers’ financial needs and help them succeed financially

 

 

ii            Wells Fargo & Company 2017 Proxy Statement


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Board Leadership Structure and Composition

Our Board is committed to sound and effective corporate governance principles and practices, including robust annual board self-evaluations, board succession planning, board refreshment, board diversity, and recruitment of new directors to complement the existing skills and experience of our Board in areas identified by our Board through its annual self-evaluation process. In addition, our Board considers the feedback it receives from our investors and has taken a number of actions to increase stockholder rights and enhance our Board’s structure that were based, in part, on input received from our investors.

 

 

 

Changed our Board Leadership Structure and Amended our By-Laws to Require that the Chairman and any Vice Chairman of our Board be Independent Directors

 

       

¡

  

Our Board separated the roles of Chairman and Chief Executive Officer on October 12, 2016, and elected Stephen W. Sanger, previously our Lead Director, as independent Chairman of our Board.

 

  

LOGO

 

LOGO

 

LOGO

       

¡

  

Our Board elected an independent Vice Chair, Elizabeth A. Duke. As a former Governor of the Federal Reserve, she has strong regulatory and financial services expertise and brings a fresh perspective to assist the Chairman.

 

  
        ¡   

Following engagement with our investors, our Board amended our Company’s By-Laws on November 29, 2016 to require that the Chairman and any Vice Chairman of our Board be independent directors.

 

  
   

Refreshed our Board in 2017

 

  
       

 

¡

  

Added two new directors, Karen B. Peetz and Ronald L. Sargent, who bring financial services, client services, regulatory, and consumer retail and marketing experience, as well as experience in the management of a large workforce serving customers globally through a variety of channels

 

  
       

 

¡

  

Refreshed the composition of key Board committees, including the Human Resources Committee and Governance and Nominating Committee

 

  
       

 

¡

  

Continued to demonstrate our commitment to Board diversity

 

  
       

 

¡

  

Following changes made to our Board composition, the average director tenure of our independent director nominees is 8.4 years.

 

  
 

 

Provided Stockholders a Proxy Access Right in our By-Laws

 

  
       

 

¡

   Our Board adopted a proxy access by-law in December 2015   

 

 

Qualifications and Experience Represented on Our Board

 

 

 

Management and/or

  Leadership Experience  

 

(15 directors)

 

   

 

  Financial Services  

 

(5 directors)

 

   

 

  Finance, Accounting, or  

Financial Reporting

 

(15 directors)

 

   

 

  Risk Management  

 

(8 directors)

 

   

 

Human Capital

Management,

  Corporate Governance,  

Management

Succession Planning

 

(13 directors)

 

               

 

  Information Security  

(including Cyber),

Technology

 

(3 directors)

 

   

 

  Marketing, Consumer  

 

(6 directors)

 

   

 

Community Affairs,

  Governmental Relations,  

Public Policy, Social

Responsibility

 

(11 directors)

 

   

 

International

 

  (8 directors)  

 

   

 

  Legal and/or Regulatory  

 

(10 directors)

 

 

Wells Fargo & Company 2017 Proxy Statement            iii


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Executive Accountability and Other Compensation Actions

Our Effective Compensation Design Provides Our Board Discretion to Hold Executives Accountable and to Pay for Performance.     The design and risk management features of our Company’s executive compensation program provide our Board with the discretion to forfeit and adjust unpaid equity and annual incentive awards.

Our Board Took Decisive Actions to Hold Executives Accountable.     Since the beginning of our Board’s independent investigation into our retail banking sales practices, our Board and its Human Resources Committee (HRC) have taken a number of decisive actions to promote executive accountability. None of these steps preclude our Board and the HRC from taking additional actions they deem appropriate, including actions based on findings from our Board’s independent investigation.

 

  In September 2016, our Board took the following actions to promote executive accountability in response to our unacceptable retail banking sales practices:

 

$41 million forfeited for Stumpf

  LOGO    Our Board and John G. Stumpf, former Chairman and CEO, agreed that he would forfeit all of his unvested equity awards and that he would forgo his salary during our Board’s independent investigation.

$19 million forfeited for Tolstedt

  LOGO    Carrie L. Tolstedt, former head of the Community Bank, left our Company and our Board determined that she would forfeit all of her unvested equity awards.

No stock option exercises for Tolstedt

  LOGO    Ms. Tolstedt agreed not to exercise any of her fully vested stock options pending our Board’s independent investigation and that, at the conclusion of the investigation, our Board would have the authority to determine the extent to which such options will be forfeited.

No 2016 bonuses for Stumpf or Tolstedt

 

  LOGO    Our Board determined that Mr. Stumpf and Ms. Tolstedt would not receive 2016 annual incentive award payments.
     Mr. Stumpf and Ms. Tolstedt will not receive any severance payments.

 

  In February 2017, based on its investigation into our retail banking sales practices, our Board took the following actions:

 

Additional terminations and forfeitures

  LOGO    Our Board terminated the employment of four current or former senior managers in our Community Bank for cause, with the result that they forfeited annual incentive awards and outstanding equity awards. None of these senior managers will be paid any severance.

 

  In February 2017, our Board took the following actions, after discussion with Mr. Sloan, for the eight members of our Operating Committee who were in place before it was reconstituted in November 2016 based on the accountability of all those in senior management for the overall operational and reputation risk of our Company:

 

No 2016 bonuses

  LOGO    The HRC eliminated their 2016 annual incentive award payments, with a total target value of approximately $6 million.

$26 million reduction to 2014 Performance Shares

  LOGO    The HRC significantly reduced the payout on their 2014 Performance Shares that vested following 2016, from the maximum amount (of 125% or 150% of target), which would have been earned based on our 2014 to 2016 financial performance, to 75% of target.

Our Board is Guided by Our Compensation Principles.     Based on our compensation principle to pay for performance, our Board took the following additional action in February 2017:

 

Additional

Performance

Share

reduction

  LOGO    The HRC reduced by 20% to 40% the payout on all 2014 Performance Shares held by other current senior managers, based on our Company’s overall performance in 2016.

 

iv            Wells Fargo & Company 2017 Proxy Statement


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Board Oversight of Risk

As part of its annual self-evaluation process, our Board made changes to enhance the risk oversight responsibilities of various Board committees, including its Risk Committee, and will continue to review its and each of its committee’s oversight responsibilities as part of its self-evaluation process.

 

    Enhanced Board Oversight of Conduct Risk.     Our Board has enhanced its oversight of conduct risk, including sales practices risk, by focusing management’s reporting to the Board on the alignment of team member conduct with (1) our Company’s risk appetite and (2) our Company’s culture as reflected in our Vision and Values and our Code of Ethics and Business Conduct.

In addition, our Board enhanced Board committee oversight of conduct risk as follows:

 

Risk Committee   

Expanded the Risk Committee’s oversight responsibilities to include our enterprise-wide conduct risk, risk culture, and new Office of Ethics, Oversight, and Integrity

 

The Risk Committee will continue to oversee our enterprise risk management framework, Corporate Risk function, and key risks identified by our Company.

 

Human Resources Committee (HRC)   

Expanded the HRC’s oversight responsibilities to include human capital management, culture, our Code of Ethics and Business Conduct, and implementation and effectiveness of our Company’s ethics, business conduct, and conflicts of interest program

 

The HRC will continue to oversee our incentive compensation risk management program.

 

Audit and Examination Committee (AEC)   

Expanded the AEC’s oversight responsibilities for legal and regulatory compliance to include our Company’s compliance culture

 

The AEC will continue to oversee our operational risk program and all operational risk types, as well as complaints and allegations related to accounting, internal accounting control, and auditing matters.

 

Corporate Responsibility Committee (CRC)   

The CRC will continue to oversee our Company’s reputation, customer complaints policy and processes, and complaints and allegations relating to customers and will receive enhanced reporting from management on complaints and allegations from all sources, including the EthicsLine, relating to customers.

 

 

 

Board Independent Investigation into our Retail Banking Sales Practices

Following the September 8, 2016 announcement of the legal and regulatory settlements, our Board’s independent directors launched a comprehensive independent investigation into our Company’s retail banking sales practices and related matters. The investigation covers a broad range of topics so that it addresses questions and concerns raised by our stockholders, customers, team members, regulators, and other government officials, including the actions of our Board, senior management, the Community Bank, and key corporate functions.

 

    Board Oversight of Investigation.     The investigation is being overseen by a special Board committee, which is chaired by our Board’s independent Chairman, Stephen W. Sanger, and includes three other independent directors (Elizabeth A. Duke, Vice Chair; Enrique Hernandez, Jr.; and Donald M. James). These members were chosen for their experience and background and have the full support of our Board. Mr. Sanger previously served as our Board’s Lead Director; Ms. Duke brings substantial regulatory expertise and industry experience as a former executive at several banks; and Messrs. Hernandez and James have legal backgrounds that are of assistance in structuring an investigation and digesting a vast investigative record. The independent directors have retained the law firm of Shearman & Sterling LLP to assist in the investigation.

 

    Our Board Is Committed to Public Disclosure of Findings from its Investigation.     Our Board expects to disclose findings from its independent investigation publicly in April prior to our 2017 annual meeting.

 

Wells Fargo & Company 2017 Proxy Statement            v


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How Our Company Is Responding — Our Path Forward

 

•      We Are Fully Committed to Serving our Customers and We Failed to Live Up To that Commitment. We recognize that the initial actions our Company took to address the retail banking sales practices matter were not quick or aggressive enough. In addition, our Company failed initially to fully appreciate the impact of this matter on our customers, team members, and other stakeholders.

 

•      Our Board and Company Are Taking Decisive Actions. Since September 2016, our Board and our Company have taken decisive and comprehensive actions to address retail banking sales practices issues, work to restore the trust of our many stakeholders, and build a better Wells Fargo for the future. Wells Fargo has not waited for the completion of our Board’s independent investigation, and has already taken actions to enhance our compensation and performance management programs, risk management organization and practices, and the ways we reinforce our culture.

 

•      These Actions Reflect Feedback Received. We have been listening to feedback and are committed to being more transparent about the changes we are making. Many of our actions were informed by our engagement with our investors, customers, team members, and other stakeholders.

 

•      We Are Confident that We Will Emerge as a Stronger Company. Though we have more work to do, we are confident that we will use the lessons learned from this experience to make Wells Fargo stronger in the years ahead.

 

 

 

Key Compensation and Performance Management Changes

 

    Modified our Compensation and Performance Management Programs.     We eliminated product sales goals for our retail bank team members who serve customers in our bank branches and call centers on October 1, 2016, to help ensure our retail bankers do not put their interests ahead of our customers. In addition, we made the following changes in our retail bank compensation program:

 

  ¡    Put in place a new incentive program effective January 1, 2017 for our retail branch team members, including managers, tellers, and personal bankers. Key aspects of the new program include:

 

    No product sales goals

 

    Rewards based on customer service, growth in branch primary customers, household relationship balance growth, and risk management, including a larger allocation of incentives associated with direct customer feedback

 

    Metrics take a longer term view of the customer relationship

 

    Additional centralized monitoring and controls to provide enhanced oversight of sales processes

 

    Strong controls, including periodic reviews and checkpoints, to monitor the new incentive compensation plan

 

  ¡    Changed our performance review processes for retail bank team members and managers

 

    Strengthened our Incentive Compensation Risk Management Practices.     We are expanding the scope of our incentive compensation risk management program, which is subject to HRC oversight, to include a broader population of team members, including team members in our retail branches and call centers.

 

 

Additional Information About Actions We Have Taken Is Included in the Following Sections

 

  

 

Page

 

•    Retail Banking Sales Practices – Our Path Forward

   2

•    Making Things Right for Our Customers

   3

•    Our Culture and Ethics

   4

•    Our Risk Management Organization and Controls

   6

•    Key Facts about Our Investor Outreach Program

   9

•    Board Composition

   10

•    Board Leadership and Management succession planning

   14

•    Our Board’s Role in Risk Oversight

   33

•    Compensation Governance and Risk Management, including changes to our retail bank incentive plan

   47

•    Compensation Discussion and Analysis, including executive accountability

 

   54

 

 

vi            Wells Fargo & Company 2017 Proxy Statement


Table of Contents

Our Director Nominees

 

 

 

   LOGO

 

     Our Board recommends that you vote FOR each of these director nominees for a one year term

 

Nominee

   Age    Director
Since
  

Principal Occupation

or Affiliation

   # of Other
Public Boards
  Indep-
endent
  

Committees

(*Chair)

John D. Baker II

   68    2009    Executive Chairman, FRP Holdings, Inc.        1   Yes    AEC; CRC; Credit

John S. Chen

   61    2006    Executive Chairman and Chief Executive Officer, BlackBerry Limited        2   Yes    HRC

Lloyd H. Dean

   66    2005    President, Chief Executive Officer and Director, Dignity Health        1   Yes    CRC; GNC; HRC*; Risk

Elizabeth A. Duke

   64    2015   

Vice Chair, Wells Fargo & Company

Former member of the Federal Reserve Board of Governors

       0   Yes    Credit; Finance; Risk

Enrique Hernandez, Jr.

   61    2003    Chairman, President, and Chief Executive Officer, Inter-Con Security Systems, Inc.        2 **   Yes    CRC; Finance*; Risk*

Donald M. James

   68    2009    Retired Chairman and Chief Executive Officer, Vulcan Materials Company        1   Yes    Finance; HRC

Cynthia H. Milligan

   70    1992    Dean Emeritus, College of Business Administration, University of Nebraska-Lincoln        1   Yes    CRC; Credit*; GNC; Risk

Karen B. Peetz

   61    2017    Retired President, The Bank of New York Mellon Corporation        0   Yes    Finance; HRC

Federico F. Peña

   70    2011    Senior Advisor, Colorado Impact Fund; Former U.S. Secretary of Energy and Former U.S. Secretary of Transportation        1   Yes    AEC; CRC*; GNC; Risk

James H. Quigley

   65    2013    CEO Emeritus and a retired Partner of Deloitte        2   Yes    AEC*; Credit; Risk

Stephen W. Sanger

   70    2003   

Chairman, Wells Fargo & Company

Retired Chairman and CEO, General Mills, Inc.

       1   Yes    GNC*; HRC; Risk

Ronald L. Sargent

   61    2017    Retired Chairman and Chief Executive Officer, Staples, Inc.        2   Yes    GNC; HRC

Timothy J. Sloan

   56    2016    Chief Executive Officer and President, Wells Fargo & Company        0   No    N/A

Susan G. Swenson

   68    1998    Chair and Chief Executive Officer, Inseego Corp.        2     Yes    AEC; GNC

Suzanne M. Vautrinot

   57    2015   

President, Kilovolt Consulting Inc.; Major General (retired), U.S. Air Force

 

       2   Yes    AEC; Credit

 

**   Reflects Mr. Hernandez’s announced retirement from one of his outside boards in May 2017.

 

AEC    Audit and Examination Committee      GNC      Governance and Nominating Committee
CRC    Corporate Responsibility Committee      HRC      Human Resources Committee
Credit    Credit Committee      Risk      Risk Committee

Finance

   Finance Committee      

 

 

Key Facts about our Director Nominees

 

 

93%

are

independent

   

 

8.4-year

average

tenure of

independent

director

nominees

 

   

 

5 new

independent

director

nominees

since 2013

 

   

33%

are

women

   

27%

are

ethnically

diverse

   

 

33%

have

financial

services

experience

 

   

 

100%

have

management

and/or

leadership

experience

 

 

 

 

Wells Fargo & Company 2017 Proxy Statement            vii


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Corporate Governance Highlights

 

 

Board Governance

  

–      Independent Chairman and independent Vice Chair with clearly defined powers and duties

 

–      Adopted overboarding policy in 2017, which limits the number of public company boards on which our directors may serve (a director who is the CEO of a public company may not serve on more than 3 total public company boards and other directors may not serve on more than 4 total public company boards, including Wells Fargo)

 

–      All of our directors are in compliance with our overboarding policy

 

–      Our CEO does not serve on any other public company boards

 

–      Robust annual Board self-evaluations, and similar annual self-evaluations are conducted by each Board committee

 

–      Two new directors added in 2017 who bring financial services, client services, regulatory, consumer retail and marketing, and large workforce management experience

 

–      9 of 15 director nominees are women or ethnically diverse

 

–      8.4-year average tenure of independent director nominees

 

–      No committee chair has served as chair of the same committee more than 10 years, consistent with the policy on committee chair service in our Corporate Governance Guidelines

 

–      14 of 15 director nominees are independent

 

–      All standing Board committees consist solely of independent directors

 

–      97.5% average Board attendance in 2016 at Board and committee meetings

Stockholder Rights

and Engagement

  

–      During 2016 our Company engaged with institutional investors representing more than 30% of our outstanding common shares

 

–      Independent Chairman or Vice Chair and senior management participate in investor outreach program

 

–      Annual director elections

 

–      Directors elected by a majority of votes cast in uncontested elections, and by plurality vote in contested elections

 

–      Stockholders may call special meetings and act by written consent

 

–      Proxy access by-law allowing an eligible stockholder (or a group of up to 20 stockholders) who has owned 3% of our Company’s stock for 3 years to nominate up to the greater of 2 directors and 20 percent of our Board, subject to the terms and conditions in our Company’s By-Laws

Compensation

  

–      Effective executive compensation design and risk management features provided our Board discretion to hold executives accountable

 

–      Multiple executive compensation clawback and forfeiture policies and provisions

 

–      Pay-for-performance compensation philosophy and approach

 

–      Robust stock ownership and retention policies for our executive officers and non-employee directors

 

–      Prohibit hedging of Company securities by team members and directors

 

–      Prohibit pledging by directors and executive officers of Company equity securities as collateral for margin or other similar loan transactions

 

–      Independent compensation consultant and independent legal advisor engaged by Human Resources Committee

 

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Table of Contents

 

 

 

             Page          
        

Retail Banking Sales Practices – Our Path Forward

     2  

Background

     2  

Our Board’s Independent Investigation

     2  

Our Path Forward

     2  

Making Things Right for Our Customers

     3  

Our Culture and Ethics

     4  

Our Risk Management Organization and Controls

     6  

Corporate Governance

     8  

Our Corporate Governance Framework and Governance Documents

     8  

Our Investor Outreach Program

     8  

Board Composition

     10  

Board Leadership and Management Succession Planning

     14  

Item 1 – Election of Directors

     17  

Director Nominees for Election

     17  

Director Election Standard and Nomination Process

     25  

Director Independence

     27  

Our Board and its Committees

     29  

Our Board’s Role in Risk Oversight

     33  

Communications with our Directors

     36  

Additional Information

     36  

Director Compensation

     37  

Information About Related Persons

     40  

Related Person Transactions

     40  

Related Person Transaction Policy and Procedures

     41  

Ownership of Our Common Stock

     43  

Directors and Executive Officers

     43  

Stock Ownership Requirements and Other Policies

     43  

Director and Executive Officer Stock Ownership Table

     44  

Section 16(a) Beneficial Ownership Reporting Compliance

     46  

Principal Stockholders

     46  

Executive Compensation

     47  

Compensation Governance and Risk Management

     47  

Our Company’s Incentive Compensation Risk Management Program

     47  

Key Retail Banking Performance Management and Compensation Changes

     50  

Item 2 – Advisory Resolution to Approve Executive Compensation

     52  

Item  3 – Advisory Proposal on the Frequency of Future Advisory Votes to Approve Executive Compensation

     53  

Compensation Discussion and Analysis

     54  

Compensation and 2016 Financial Performance Overview

     54  

Governance Framework for Compensation Decisions

     57  

How the HRC Considers Prior Say on Pay Votes and Investor Feedback

     60  

Clawback and Forfeiture Policies and Provisions

     60  

Compensation Elements

     61  

Compensation Decisions for Named Executives

     62  

Performance Shares Outstanding During 2016

     66  

Other Compensation Components

     66  

Tax Considerations

     67  

Conclusion

     67  

Compensation Committee Report

     67  

Executive Compensation Tables

     68  

2016 Summary Compensation Table

     68  

 

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2016 Grants of Plan-Based Awards

     70  

Outstanding Equity Awards at Fiscal Year-End 2016

     72  

2016 Option Exercises and Stock Vested

     74  

2016 Pension Benefits

     75  

2016 Nonqualified Deferred Compensation

     77  

Potential Post-Employment Payments

     81  

Audit Matters

     83  

Item  4 – Ratify Appointment of Independent Registered Public Accounting Firm for 2017

     83  

KPMG Fees

     83  

Audit and Examination Committee Pre-Approval Policies and Procedures

     83  

Audit and Examination Committee Report

     84  

Stockholder Proposals

     85  

Item 5 –   Stockholder Proposal – Retail Banking Sales Practices Report

     85  

Item 6 –   Stockholder Proposal – Cumulative Voting

     89  

Item 7 –   Stockholder Proposal – Divesting Non-Core Business Report

     91  

Item 8 –   Stockholder Proposal – Gender Pay Equity Report

     92  

Item 9 –   Stockholder Proposal – Lobbying Report

     94  

Item  10 – Stockholder Proposal – Indigenous Peoples’ Rights Policy

     96  

Voting and Other Meeting Information

     98  

Voting Information

     98  

Meeting Admission Information

     101  

Stockholder Information for Future Annual Meetings

     102  

Other Information

     103  

 

x            Wells Fargo & Company 2017 Proxy Statement


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WELLS FARGO & COMPANY

 

 

 

Proxy Statement

 

You are invited to attend Wells Fargo’s 2017 annual meeting of stockholders to be held on Tuesday, April 25, 2017, and to vote on the items of business described in this proxy statement.

Please read this proxy statement carefully and consider the information it contains when deciding how to vote your shares at the annual meeting. When we use the term “proxy materials” in this proxy statement, we mean the notice of the 2017 annual meeting of stockholders, this proxy statement, our annual report to stockholders for the fiscal year ended December 31, 2016, and the proxy card or voting instruction form.

The proxy materials were first made available to stockholders beginning on March 15, 2017.

Your vote is important.

Our Board is soliciting your proxy to vote your shares of our common stock at the annual meeting, or at any adjournment or postponement of the meeting. We encourage you to vote as soon as possible before the meeting, even if you plan to attend in person. Information about the annual meeting and voting your shares appears under Voting and Other Meeting Information.

Voting Matters

 

The following table describes the items to be considered at the meeting and how our Board recommends that you vote:

 

Items for Vote   

 Board
 Recommendation  

     Page  
   Management proposals      
1.    Elect 15 directors    FOR all nominees    17
2.    Advisory resolution to approve executive compensation    FOR    52
3.    Advisory proposal on the frequency (every year, every 2 years, or every 3 years) of future advisory votes to approve executive compensation    EVERY YEAR    53
4.    Ratify the appointment of KPMG LLP as our Company’s independent registered public accounting firm for 2017    FOR    83
   Stockholder Proposals      
5-10.    Vote on six stockholder proposals, if each is properly presented at the meeting and not previously withdrawn    AGAINST these proposals    85

 

Wells Fargo & Company 2017 Proxy Statement            1


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Retail Banking Sales Practices – Our Path Forward

 

Background

 

On September 8, 2016, we announced regulatory and legal settlements relating to our retail banking sales practices, which damaged the trust many of our stakeholders have in Wells Fargo. Our Board and management have taken decisive actions to rebuild the trust of our customers, team members, investors, and other stakeholders through a comprehensive action plan outlined below, and to strengthen our culture and make sure our practices align with our values.

Our action plan is focused on rebuilding trust in Wells Fargo.

 

Rebuilding Trust
     

Making things right

for our customers and

team members

 

  

Fixing problems at their

root cause

 

  

Building a better

Wells Fargo for the future

 

 

Our Board’s Independent Investigation

 

Our Board’s independent directors launched a comprehensive independent investigation into our Company’s retail banking sales practices and related matters. The investigation covers a broad range of topics so that it addresses questions and concerns raised by our stockholders, customers, team members, regulators, and other government officials, including the actions of our Board, senior management, the Community Bank, and key corporate functions.

The investigation is being overseen by a special Board committee, which is chaired by our Board’s independent Chairman, Stephen W. Sanger, and includes three other independent directors (Elizabeth A. Duke, Vice Chair; Enrique Hernandez, Jr.; and Donald M. James). These members were chosen for their experience and background and have the full support of our Board. Mr. Sanger previously served as our Board’s lead director; Ms. Duke brings substantial regulatory expertise and industry experience as a former executive at several banks; and Messrs. Hernandez and James have legal backgrounds that are of assistance in structuring an investigation and digesting a vast investigative record. The independent directors have retained the law firm of Shearman & Sterling LLP to assist in the investigation. Our Board is committed to public disclosure of findings from its independent investigation and expects to disclose findings in April prior to our 2017 annual meeting.

Our Path Forward

 

 

How Our Company is Responding — Our Path Forward

 

    We Are Fully Committed to Serving our Customers and We Failed to Live Up To that Commitment. We recognize that the initial actions our Company took to address the retail banking sales practices matter were not quick or aggressive enough. In addition, our Company failed initially to fully appreciate the impact of this matter on our customers, team members, and other stakeholders.  

 

    Our Board and Company Are Taking Decisive Actions. Since September 2016, our Board and our Company have taken decisive and comprehensive actions to address retail banking sales practices issues, work to restore the trust of our many stakeholders, and build a better Wells Fargo for the future. Wells Fargo has not waited for the completion of our Board’s independent investigation, and has already taken actions to enhance our compensation and performance management programs, risk management organization and practices, and the ways we reinforce our culture.  

 

    These Actions Reflect Feedback Received. We have been listening to feedback and are committed to being more transparent about the changes we are making. Many of our actions were informed by our engagement with our investors, customers, team members, and other stakeholders.

 

    We Are Confident that We Will Emerge as a Stronger Company. Though we have more work to do, we are confident that we will use the lessons learned from this experience to make Wells Fargo stronger in the years ahead.  

 

 

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Focused on our Long-Term Business Strategy

We remain focused on our long-term business strategy and how the changes we are making will help to build a better Wells Fargo for the future.

 

    Our mission is to satisfy our customers’ financial needs and help them succeed financially. We are focused on providing excellent customer service.

 

    Our long-term strategy is grounded in our three corporate strategic pillars: (1) deepen relationships and attract new customers; (2) seamlessly serve our customers, anywhere, any time; and (3) consistently earn customer trust.

 

    We discontinued reporting the cross-sell metric as a measure of success for our retail bank.

 

    We will continue to measure how we are growing our relationships with customers, but we will place the focus on measures that better reflect the kind of relationship our customers want to have with their primary bank.

 

    We are investing in digital, data, technology, and information security in order to deliver a seamless, easy, and engaging customer experience to better meet customers’ preferences for how they want to interact with us.

Making Things Right for Our Customers

 

We are dedicated to serving our customers and focusing on their financial needs.

Proactively Communicating with Our Customers and Making Things Right

 

    Leading up to the September 8, 2016 regulatory and legal settlements, Wells Fargo retained a third-party consulting firm, PricewaterhouseCoopers (PwC), to conduct large-scale data analysis of more than 94 million deposit, credit card, and unsecured line of credit accounts opened from May 2011 to mid-2015 to evaluate whether customers may have incurred financial harm from potentially unauthorized accounts.

 

    Wells Fargo directed PwC to take a conservative approach, erring on the side of the customer; if a deposit or credit card account could not be ruled out from being unauthorized, Wells Fargo designated those accounts for further analysis. Wells Fargo continues its ongoing data analysis, including its review and validation of the identification of potentially unauthorized accounts.

 

    Wells Fargo worked with PwC to analyze whether any of those accounts that in February 2016 we could not rule out from being unauthorized were charged fees. Wells Fargo began issuing reimbursement in February 2016 regardless of whether an account was proven unauthorized or not.

 

    We are working to complete the requirements of our regulatory consent orders and in some cases we are going beyond the requirements of the consent orders. For example:

 

  ¡    In addition to required account reviews for 2011 to 2016 that we are conducting under regulatory consent orders, our Company voluntarily expanded our reviews of retail and small business accounts to include 2009 and 2010. These reviews, as well as our ongoing data analysis, could lead to, among other things, an increase in the identified number of potentially impacted customers.

 

  ¡    To date, we have reached out to approximately 40 million retail and 3 million small business customers through statement messaging, mailings, and online communications.

 

  ¡    To date, we have refunded more than $3.2 million to customers on approximately 130,000 accounts that we could not rule out as being unauthorized, including the $2.6 million that was part of our regulatory and legal settlements in September 2016.

 

Wells Fargo & Company 2017 Proxy Statement            3


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  ¡    We are offering a nationwide mediation program at no charge to customers with sales practices claims.

 

  ¡    We are researching how customers’ credit scores may have been impacted as a result of potentially unauthorized credit cards — with the goal of aiding customers whose credit scores were negatively affected.

 

  ¡    We have engaged external consultants to review sales practices across our Company.

Focused on Serving our Customers and Putting Customer Interests First

 

    We are focused on our mission, which is to satisfy our customers’ financial needs and help them succeed financially.

 

    We eliminated product sales goals for our retail banking team members who serve customers in our branches and call centers effective October 1, 2016, so that their focus will be on meeting our customers’ financial needs, not meeting sales goals.

 

    We put in place a new incentive program in January 2017 for our retail bank team members to focus on the customer experience within our branches. We also have put additional centralized monitoring and controls in place to provide enhanced oversight of sales processes, including periodic reviews and checkpoints to monitor for any unintended outcomes or behavior prompted by the new compensation plan for retail bank team members. See Compensation Governance and Risk Management for additional information.

Full Transparency

 

    We have increased transparency by sending automatic notifications to customers after a personal or small business checking account, savings account, or credit card has been opened.

 

    We revised procedures for credit cards to require each applicant’s documented consent before a credit report is pulled.

 

    Customers can see their eligible accounts at any time when enrolled in Wells Fargo Online.

 

    If our customers have any concerns about their accounts or any aspect of their relationship with Wells Fargo, we have established a dedicated 24/7 toll-free number they can call, which is available on our website at https://www.wellsfargo.com/commitment/.

 

    We are making additional information about our efforts to make things right for our customers and our path forward available on our website at https://stories.wf.com/series/our-path-forward/.

Our Culture and Ethics

 

Our focus is to uphold our long-held values that respect and honor our customers, team members, stockholders, and community partners. We view our team members as our Company’s greatest asset and have been working to rebuild their trust, including by listening to their feedback and communicating with them about the changes we are making. We are doing a number of things to earn back the trust of our team members and engage them actively in our effort to rebuild trust.

Our Top Priority — Rebuilding Trust

 

    Our top priority — Rebuilding Trust — sharpens our focus on the task ahead, what our Company and team members must accomplish together, and how best to serve customers.

Listening and Introspection

 

    We are having more candid and frequent dialogue about our challenges and opportunities, including in connection with our Town Halls led by our CEO, Timothy J. Sloan, along with other Company executives who listen to questions and concerns from our team members and during in-person sessions with team members held across the country by members of our Operating Committee. These forums provide an open venue for team members to learn about our progress and to share their thoughts and perspective.

 

   

We launched listening sessions and a “Conversations” tour to create open dialogue between our senior leadership team and key stakeholders, including team members, around the progress we are making

 

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to earn back the trust of all stakeholders and gather ideas to build a better Wells Fargo. Since this outreach began, our senior leaders have reached more than 27,000 team members, either in-person, on TeamTV, or online using video streaming.

 

    We increased internal communications about changes we are making, including through live chats with members of our senior leadership team.

 

    We are surveying team members to understand their views on our approach to ethics and integrity. To date, we have reached out to over 80,000 team members through “pulse” surveys, in addition to conducting separate ethics surveys and engaging directly with smaller groups of team members through focus groups.

Improving Escalation and Providing Team Members Multiple Ways to Raise Concerns, including through the EthicsLine

 

    We are working to create an environment in which team member feedback is actively solicited and welcomed. In addition, we are putting team member feedback into action. For example, below are some of the things we have heard and implemented:

 

  ¡    We are providing more training and continuing education classes, particularly on leadership, management, ethics, reputation, and risk.

 

  ¡    We are expanding our “Raise your Hand” initiative, which is a program first introduced in our Wealth and Investment Management group, to encourage team members to speak up when they see something unethical or if they have an idea about how to help reduce risk.

 

  ¡    We are empowering managers to extend the Conversations tours and Town Halls so that managers can share the information they receive, and report recurring questions or ideas.

 

  ¡    We are providing managers and supervisors with easily shareable information for their teams and other stakeholders.

 

  ¡    We are making sure tough questions are asked and answered.

 

    We are looking into all allegations of retaliation and at every part of our escalation process, including the EthicsLine and policies and practices of all groups within Wells Fargo that are involved in researching or investigating issues.

 

    We have made changes to our organizational structure to improve objectivity so that issues and concerns are escalated more quickly, and to be more consistent about how we research and investigate concerns, and how we categorize and track them. See Our Risk Management Organization and Controls for more information on these organizational changes.

Independent Third-Party Reviews

 

    We are working with outside culture experts to help us understand where we have cultural weaknesses that need to be strengthened.

 

    We are conducting a thorough review of and making enhancements to our EthicsLine processes with the support of a third-party expert to help identify possibilities for additional improvements.

Training and Development

 

    We have invested in enhanced training on and monitoring of team members’ compliance with our Company’s Code of Ethics and Business Conduct to strengthen our Company’s ethics culture, including in connection with the update of our Code of Ethics and Business Conduct during 2016.

 

  ¡    Our Code of Ethics and Business Conduct states our policy and standards for ethical conduct by our team members, including executive officers, and directors.

 

Wells Fargo & Company 2017 Proxy Statement            5


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  ¡    We expect all of our team members and directors to adhere to the highest possible standards of ethics and business conduct with other team members, customers, stockholders, and the communities we serve and to comply with all applicable laws, rules, and regulations that govern our businesses.

 

    We have expanded training for our managers and bankers on acceptable sales practices and how to report unethical behavior; we are also reinforcing our non-retaliation policy in our Code of Ethics and Business Conduct.

Being More Transparent

 

    Part of our action plan to lead our Company forward is focused on outreach to our customers, team members, investors, regulators, elected officials, and the communities in which we do business. Our action plan includes being more transparent in our communications.

 

  ¡    We launched a new webpage at www.wellsfargo.com/commitment to keep our customers and other stakeholders updated on the latest developments.

 

  ¡    We are providing monthly updates on the impact of the sales practices matter on customer activity in our retail bank.

 

  ¡    We are enhancing disclosures on our website, including on a broad range of environmental, social, and governance matters in response to feedback from our investors and other stakeholders.

Our Risk Management Organization and Controls

 

We have made improvements to strengthen our risk management practices and controls, including through continued expansion of our central Corporate Risk group, organizational changes to provide more independent oversight, and enhanced monitoring and controls to allow us to assess how we are doing.

Changes in our Organizational Structure to Strengthen Risk Management

We have made structural changes to improve objectivity and be more consistent with how we research and investigate concerns, and how we categorize and track them. We believe these organizational changes create a stronger risk and control foundation that allows senior risk and other control function team members across our Company to provide more independent, credible challenges to how we operate.

 

    During 2016, we conducted a review of risk management across our Company and made several important changes in our organizational structure to provide greater role clarity, increased coordination, and stronger oversight.

 

  ¡    We changed reporting lines for approximately 4,100 risk team members, who previously reported within our businesses, to report into our central Corporate Risk group. We expect an additional 1,100 risk team members will also be realigned to report into Corporate Risk during 2017.

 

  ¡    We changed reporting lines for staff groups throughout our Company, including finance, marketing, communications, and human resources (including compensation and employee relations), to report into their central control groups rather than into the lines of business they support.

 

    We created a new Office of Ethics, Oversight, and Integrity, which is tasked with ensuring a consistent process for identifying, assessing, investigating, correcting, and reporting on practices that do not align with our expectations for high ethical standards and excellence in risk management. This new office combines our existing enterprise sales practices oversight, global ethics and integrity program, complaints oversight, and internal investigations groups. The head of the Office of Ethics, Oversight, and Integrity reports to our Chief Risk Officer.

 

    We formed a new Rebuilding Trust Office in early 2017, which organizes and accelerates our efforts to rebuild trust in Wells Fargo through one integrated program and oversees our Company’s compliance with the requirements under our sales practices consent orders with our regulators. The head of the Rebuilding Trust Office also reports to our Chief Risk Officer.

 

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Enhancements to our Systems and Controls

 

    We have made system and process enhancements, including sending automated confirmation emails to our customers every time a new personal or small business checking account or a savings account is opened; letter acknowledgements for credit card applications; and same-day emails to credit card customers.

 

    We have improved multi-factor authentication to protect our customers’ information.

 

    We are analyzing customer complaints, both those made to government agencies and those made directly to Wells Fargo, to identify any sales practice concerns.

 

    We have increased oversight of our retail bank monitoring activities and enhanced quality assurance monitoring – a $50 million investment annually – including through a third-party mystery shopper program involving 15,000 to 20,000 visits a year and an additional 600 conduct risk reviews each year in branches across the U.S.

 

    We have added risk professionals in our second line of defense to provide greater oversight of the retail bank and expanded our customer complaint servicing and resolution process.

Increased Training and Monitoring

 

    We are making changes and enhancements to our training and development programs to provide additional education regarding appropriate product delivery to customers.

 

    We are providing additional training to managers about how to support team members and escalate issues to more senior managers because they are often the first to hear about ethical concerns.

Independent Third-Party Reviews

 

    We have engaged external consultants to review sales practices in Community Banking as required under our regulatory consent orders.

 

    In addition, we have engaged external consultants to review sales practices across the rest of our Company.

Ongoing Assessment and Monitoring

 

    Our Rebuilding Trust Office will help monitor whether we are complying with our regulatory consent orders and achieving our objectives.

 

    Our Office of Ethics, Oversight, and Integrity will monitor alignment of behavior with our Vision and Values and Code of Ethics and Business Conduct.

 

    We established stronger controls and will monitor our new retail bank incentive compensation plan for any unintended outcomes or behaviors, and will make changes as needed.

 

    Our Board, including the Risk Committee and Human Resources Committee, will receive reports from the Rebuilding Trust Office and Office of Ethics, Oversight, and Integrity, respectively, on our efforts and progress towards achieving our objectives.

 

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Corporate Governance

 

 

Our Corporate Governance Framework and Governance Documents

 

Our Board is committed to sound and effective corporate governance principles and practices, and has adopted Corporate Governance Guidelines to provide the framework for the governance of our Board and our Company. These Guidelines address, among other matters, the role of our Board, Board membership criteria, director retirement and resignation policies, our Director Independence Standards, information about the committees of our Board, and information about other policies and procedures of our Board, including the majority vote standard for directors, management succession planning, our Board’s leadership structure, and director compensation. Our Board reviews its Corporate Governance Guidelines annually as part of its Board self-evaluation process.

 

Our Corporate Governance Documents

Information relating to the corporate governance of our Company, including the following corporate governance documents, is available on our website at https://www.wellsfargo.com/about/corporate/governance.

 

    The Board’s Corporate Governance Guidelines, including its Director Independence Standards  

 

    Our Code of Ethics and Business Conduct applicable to our team members, including our executive officers, and directors  

 

    Charters for each of the Board’s seven standing committees, including the Audit and Examination Committee, the Governance and Nominating Committee, and the Human Resources Committee  

 

    Our Board Communication Policy, which describes how stockholders and other interested parties can communicate with our Board  

 

    Our By-Laws, which were amended and restated effective November 29, 2016 to require that the Chairman and any Vice Chairman of our Board of Directors be independent directors  

 

Our Investor Outreach Program

 

As part of our commitment to effective corporate governance practices, since 2010 we have had an investor outreach program with independent director participation to help us better understand the views of our investors on key corporate governance and other topics.

In connection with our investor outreach program in 2016 and 2017, our independent Chairman, independent Vice Chair, and management have participated in meetings with many of our largest institutional stockholders and other stockholders upon their request. We greatly value our dialogue with our investors and believe our outreach efforts, which are in addition to other communication channels available to our stockholders and other interested parties, help us to continue to enhance our corporate governance practices in a way that reflects the insights and perspectives of our many stakeholders. We share the feedback received during our outreach process with the GNC and the full Board.

 

    Our Company contacted many of our largest institutional investors and engaged with institutional investors representing more than 30% of our Company’s outstanding common shares.

 

    We also met with other stakeholders interested in our corporate governance practices, policies, and disclosures.

 

    Discussion topics with our institutional investors included recent events relating to sales practices, Board composition, director tenure, Board oversight of risk, and our executive compensation program.

 

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Key Facts About Our Investor Outreach Program

 

 

Independent Director

Participation since 2010

    

Feedback Summarized and

Shared with our full Board

    

 

Meetings held with

institutional

investors representing

more than 30% of our

Company’s outstanding

common shares in 2016

and early 2017

 

  

Recent Actions Responsive To Investor Feedback

Our Board considers the feedback it receives from our investors and other stakeholders and has taken a number of actions to increase stockholder rights and enhance the Board’s structure. These actions were based, in part, on input received from our investors and other stakeholders.

By-Laws

Our Board amended our Company’s By-Laws to:

 

    Require that the Chairman and any Vice Chairman of our Board be independent directors beginning in November 2016.  

 

    Adopt a proxy access by-law in December 2015 allowing an eligible stockholder (or a group of up to 20 stockholders) who has owned 3% of our Company’s stock for 3 years to nominate up to the greater of 2 directors and 20 percent of our Board, subject to the terms and conditions in our Company’s By-Laws.  

Corporate Governance Guidelines

In addition, our Board amended its Corporate Governance Guidelines in late 2016 and early 2017 to:

 

    Reflect changes made in our Board’s leadership structure including our Board’s decision to separate the roles of Chairman and CEO and elect an independent Chairman and independent Vice Chair;  

 

    Specify the primary duties of our Board’s independent Chairman and independent Vice Chair; and  

 

    Adopt an overboarding policy applicable to our Company’s directors that limits the number of public company boards on which our directors may serve, unless the GNC determines that such other board service would not impair the director’s service to our Company, as follows:  

 

  ¡    directors shall not serve as a director of more than four total public companies, including Wells Fargo; and  

 

  ¡    a director who serves as the CEO of a public company shall not serve as a director of more than three total public companies, including the company for which he or she serves as CEO and Wells Fargo.  

Other Public Disclosures

We have enhanced disclosures on our website on a broad range of environmental, social, and governance (ESG) matters in response to feedback from our investors and other stakeholders. You can access our ESG Guide on our website at https://www.wellsfargo.com/about/investor-relations/environmental-social-governance-guide/ .

Our Code of Ethics and Business Conduct also reflects, among other things, our standards related to our commitment to core ESG principles, such as supporting our communities, respecting human rights, and protecting the environment.

 

Wells Fargo & Company 2017 Proxy Statement            9


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Board Composition

 

Board Succession Planning

Over the past year, our Board’s succession planning focused primarily on the composition of our Board and its committees, upcoming retirements of individual directors under the director retirement policy, succession plans for committee chairs, our commitment to Board diversity, and recruiting strategies for adding new directors.

In its succession planning, the GNC and our Board consider the results of our Board’s annual self-evaluation discussed below, as well as other appropriate information, including the overall mix of tenure and experience of our Board, the types of skills and experience desirable for future Board members, and the needs of our Board and its committees at the time. Our Board values the contributions of directors who have developed extensive experience and insight into our Company during the course of their service on our Board and, therefore, our Board does not believe arbitrary term limits on directors’ service are appropriate. At the same time, our Board recognizes the importance of Board refreshment to continue to provide an appropriate balance of experience and perspectives on our Board. In order to facilitate our Board’s recruitment of new directors with appropriate skills, experience, and backgrounds and provide for an orderly transition of leadership on our Board and its committees, in November 2014 our Board increased the retirement age for directors to 72 with the understanding that directors may not necessarily serve until their retirement age. Under the director retirement policy contained in our Corporate Governance Guidelines, six of our directors are scheduled to retire over the next four years.

Board Refreshment

Our Board continues to be committed to sound and effective corporate governance principles and practices, including board refreshment, board diversity, and recruitment of new directors to complement the existing skills and experience of our Board in areas identified by our Board through its annual self-evaluation process.

Recent changes in our Board composition include:

 

    Karen B. Peetz, an independent director with financial services, client services, and regulatory experience, joined our Board in February 2017 and serves on the Finance Committee and HRC.

 

    Ronald L. Sargent, an independent director with consumer retail and marketing experience, as well as experience in the management of a large workforce serving customers globally through a variety of channels, joined our Board in February 2017 and serves on the GNC and HRC.

 

    After over 5 years of dedicated service on our Board, Elaine L. Chao resigned as a director upon her confirmation on January 31, 2017 as Secretary of the U.S. Department of Transportation.

 

    After 18 years of dedicated service on our Board, Susan E. Engel decided not to stand for re-election and will retire from our Board at our 2017 annual meeting.

 

 

 

Board Composition Snapshot – Results of Board Succession Planning and Refreshment Efforts

 

 

•      15 director nominees; 14 are independent

 

•      Highly qualified directors with a diverse mix of qualifications, skills, and experience

 

•      2 new directors added in 2017 with key areas of expertise, which reflects our Board’s efforts to bring a fresh perspective to our Board

 

•      5 new independent directors since 2013; 3 of the 5 new independent directors are women

 

•      9 of 15 director nominees are women or ethnically diverse

 

•      8.4-year average tenure of independent director nominees

 

•      Continued Board refreshment expected; 6 directors scheduled to retire over the next 4 years

 

 

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The chart below illustrates the varying tenure (calculated by full years of completed service based on date of initial election) of our Board’s independent director nominees.

 

LOGO

Board Qualifications and Experience

Our Board has identified the following minimum qualifications for its directors:

 

    individuals of the highest character and integrity;

 

    a demonstrated breadth and depth of management and/or leadership experience, preferably in a senior leadership role, such as chief executive officer, president or partner, in a large or recognized organization or governmental entity;

 

    financial literacy or other professional or business experience relevant to an understanding of our Company and its business; and

 

    a demonstrated ability to think and act independently as well as the ability to work constructively in a collegial environment.

Our Board believes that the qualification referred to in the second bullet above provides our directors with substantial experience relevant to serving as a director of our Company, including in many of the areas highlighted in the accompanying chart that our Board views as important when evaluating director nominees.

Our Board believes that each of our nominees satisfies our director qualification standards and during the course of their business and professional careers as a chief executive officer or other senior leader has acquired extensive executive management experience in these and other areas. In addition, the GNC and our Board believe that each nominee brings to our Board his or her own unique background and range of expertise, knowledge, and experience, including as a result of his or her valued service on our Board and its committees, that provide our Board as a whole with an appropriate and diverse mix of qualifications, skills, and attributes necessary for our Board to fulfill its oversight responsibility to our Company’s stockholders.

 

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The following chart reflects areas of qualifications and experience that our Board views as important when evaluating director nominees. Additional information on the business experience and other skills and qualifications of each of our director nominees is included under Item 1 – Election of Directors. Each director also contributes other important skills, expertise, experience, and personal attributes to our Board.

 

   

 

Director Name

   Qualifications and Experience
   LOGO    LOGO    LOGO    LOGO    LOGO    LOGO    LOGO    LOGO    LOGO    LOGO

John D. Baker II

                                 

John S. Chen

                                 

Lloyd H. Dean

                                   

Elizabeth A. Duke

                               

Enrique Hernandez, Jr.

                                 

Donald M. James

                                 

Cynthia H. Milligan

                               

Karen B. Peetz

                               

Federico F. Peña

                                   

James H. Quigley

                                   

Stephen W. Sanger

                                     

Ronald L. Sargent

                                   

Timothy J. Sloan

                               

Susan G. Swenson

                                   

Suzanne M. Vautrinot

                                     

Total Directors with the Particular Qualifications and Experience

 

   15

 

   5

 

   15

 

   8

 

   13

 

   3

 

   6

 

   11

 

   8

 

   10

 

 

LOGO

  

 

Management and/or Leadership

 

LOGO

  

 

Financial Services

Industry

 

LOGO

  

 

Finance, Accounting, or Financial Reporting

 

LOGO

  

 

Risk Management

 

LOGO

   Human Capital, Corporate Governance, Management Succession Planning

 

LOGO

   Information Security (including Cyber), Technology  

 

LOGO

  

Marketing, Consumer

 

 

LOGO

   Community Affairs, Government Relations, Public Policy, Social Responsibility  

 

LOGO

   International  

 

LOGO

   Legal and/or Regulatory

Board Diversity

Although the GNC does not have a separate policy specifically governing diversity, in identifying first-time candidates or nominees for director and in evaluating individuals recommended by stockholders, as described in the Corporate Governance Guidelines and its charter, the GNC will consider the current composition of our Board in light of the diverse communities and geographies we serve and the interplay of the candidate’s or nominee’s experience, education, skills, background, gender, race, ethnicity, and other qualities and attributes with those of the other Board members. The GNC also incorporates this broad view of diversity into its director nomination process by taking into account all of the factors above when evaluating and recommending director nominees to serve on our Board so that our Board’s composition as a whole appropriately reflects the current and anticipated needs of our Board and our Company.

In implementing its practice of considering diversity, the GNC may place more emphasis on attracting or retaining director nominees with certain specific skills or experience, such as industry, regulatory, operational, or financial expertise, depending on the circumstances and the composition of our Board at the time. Gender, race, and ethnic diversity also have been, and will continue to be, a priority for the GNC and our Board in its director nomination process because the GNC and our Board believe that it is essential that the composition of our Board appropriately reflects the diversity of our Company’s team members and the customers and communities they serve.

The GNC believes that it has been successful in its past efforts to increase gender, race, and ethnic diversity on our Board, as reflected in the charts below. The GNC and our Board believe that the 15 nominees bring to our Board a variety of different backgrounds, skills, professional and industry experience, and other personal qualities, attributes, and perspectives that contribute to the overall diversity of our Board.

The GNC and our Board will continue to monitor the effectiveness of their practice of considering diversity through assessing the results of any new director search efforts, such as those involving Mses. Duke, Vautrinot, and Peetz during the last few years, and through the GNC’s and our Board’s annual self-evaluation processes in which directors discuss and evaluate the composition and functioning of our Board and its committees.

 

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LOGO

 

 

LOGO

 

 

LOGO

Annual Board and Committee Self-Evaluations

Our Board conducts an annual evaluation of its performance and the performance of its committees. The GNC annually reviews the format and scope of our Board’s annual evaluation process as well as our Board’s Corporate Governance Guidelines in light of general corporate governance developments and best practices and recommends changes it believes are appropriate. In addition, our Board’s annual performance evaluation is a key component of its director nomination process and succession planning. Each of our Board’s committees annually conducts a separate self-evaluation led by the committee chair, as provided in its charter. Each performance evaluation includes a review of the Corporate Governance Guidelines and its committee charter, respectively, to consider any proposed changes. As part of this self-evaluation process in 2016, our Board made changes discussed under Our Board’s Role in Risk Oversight to enhance the risk oversight responsibilities of various Board committees.

2016 Board Self-Evaluation Process

 

LOGO

 

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Board Leadership and Management Succession Planning

 

During 2016, we experienced a CEO transition and also made changes in our Board leadership structure, which took into account feedback from our investors, as discussed below.

Separated Chairman and CEO Roles

 

    On October 12, 2016, our Board separated the roles of Chairman and CEO of our Company and elected Stephen W. Sanger, our Company’s former Lead Director, as independent Chairman of our Board. Our Board also elected Timothy J. Sloan as CEO following the retirement of our former CEO, John G. Stumpf, on October 12, 2016.

 

    In addition, our Board elected Elizabeth A. Duke as independent Vice Chair of our Board on October 12, 2016, in light of her strong regulatory and financial services expertise, to assist the Chairman and provide the fresh perspective of a recently elected director. Ms. Duke joined our Board in January 2015.

Amended By-Laws to Require our Chairman and any Vice Chairman to be Independent

 

    On November 29, 2016, following further consideration about formalizing the separation of the Chairman and CEO roles and taking into account feedback received from our investors, our Board amended our Company’s By-Laws and its Corporate Governance Guidelines to reflect our new Board leadership structure and require that the Chairman of our Board and any Vice Chairman of our Board be independent directors.

Our Board Leadership Structure

 

Our Board’s Governance and Nominating Committee is responsible for periodically evaluating our Board’s leadership structure. Based on the recommendation of the GNC, our Board selects the Chairman annually and may elect a Vice Chairman to assist the Chairman from among its members.

 

Our Board believes that having an independent Chairman and independent Vice Chair, with clearly defined powers and responsibilities as described in the chart below, provides enhanced independent leadership and oversight for our Company and our Board.

 

The separation of the Chairman and CEO positions allows our independent Chairman to focus on governance of our Board, Board meeting agenda planning, Board committee succession planning, the recruitment of new directors, Board committee responsibilities, investor engagement and outreach on governance matters, and our relationships with our regulators, and our CEO to focus his attention on our business and execution of our Company’s strategy, including restoring the trust of our customers, team members, and other stakeholders.

    

 

•  Independent Chairman of the Board: Stephen W. Sanger — Presides over meetings of the Board and stockholders; approves Board meeting agendas and schedules; and serves as liaison between the independent directors and management and as an additional point of contact for our Company’s primary regulators

 

•  Independent Vice Chair of the Board: Elizabeth A. Duke — Assists the Chairman, including with the Board evaluation process and our relationships with our regulators

 

•  CEO and President: Timothy J. Sloan — Responsible for management of our Company’s business and our strategy

 

•  AEC, GNC, and HRC Chairs are independent

 

•  Additional information about Mr. Sanger and Ms. Duke and each of our Board committee chairs can be found on pages 18-25.

 

Mr. Sanger has an extensive leadership background, is actively engaged as Chairman on Board matters, and works closely with the CEO. As a former Governor of the Federal Reserve, Ms. Duke has an extensive financial services and regulatory background and brings a fresh perspective as a recently elected director. Mr. Sanger and Ms. Duke frequently interact with Mr. Sloan and other members of management to provide their perspectives on important issues facing our Company and the informational needs of our Board. In addition to the GNC, which he chairs, and the HRC and the Risk Committee, where he currently serves as a member, Mr. Sanger may attend the meetings of our Board’s other committees and frequently communicates with the chairs of those committees and with the other independent directors both inside and outside of our Board’s normal meeting schedule to discuss Board and Company issues as they arise. Mr. Sanger also serves as independent Chairman of Wells Fargo Bank, N.A., our Company’s principal banking subsidiary.

In addition, our Board has a significant majority of independent directors (14 of the 15 director nominees are independent under the Director Independence Standards) and all standing Board committees are comprised of independent directors.

 

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Although led by the Chair of the HRC, the Chairman also has an important role in the performance evaluation of the CEO, which is a multi-step process involving, among other things, individual director feedback and Board discussions regarding the CEO’s performance and discussions with the CEO regarding his assessment of his own performance. Mr. Sanger’s participation in the CEO performance evaluation, as well as his participation as a member of the HRC in the HRC’s management succession planning process, helps him evaluate the most effective Board leadership structure for our Company. In addition, Mr. Sanger’s participation in our Company’s investor outreach program and leadership role in facilitating our Board’s review and consideration of stockholder proposals provide him with valuable insight into the views of our investors regarding our Company’s corporate governance practices, including its Board leadership structure. Ms. Duke plays an important role assisting our Chairman, including in meetings with our regulators and other stakeholders, given her extensive regulatory background and financial services leadership experience. Our Board believes that these and the other activities of the independent Chairman and independent Vice Chair serve to enhance the independent leadership of our Board in order to provide robust oversight and promote overall Board effectiveness.

 

 

Powers and Duties of our Independent Chairman

 

•   Approves Board meeting agendas and schedules, and the types and forms of information provided to our Board

 

•   Presiding at meetings and executive sessions of our Board and meetings of stockholders

 

•   Serving as the principal liaison among the independent directors, and between the independent directors and the CEO and other members of senior management

 

•   Facilitating effective communication between our Board and stockholders

 

•   Calling and chairing special meetings of our Board and executive sessions or meetings of non-management or independent directors

 

•   Working with committee chairs to oversee coordinated coverage of Board responsibilities

 

•   Serving as an additional point of contact for our Company’s primary regulators

 

•   Facilitating our Board’s review and consideration of stockholder proposals

 

•   Evaluating potential Board candidates and making director candidate recommendations to the GNC

 

•   Serving as an advisor to the CEO

 

•   Evaluating the performance of the CEO

 

•   Setting the ethical tone for our Board and reinforcing a strong ethics culture

 

•   Leading our Board’s review of our Company’s strategic initiatives and plans and discussing the implementation of those initiatives and plans with the CEO

 

•   Recommending the retention of advisors or consultants who report directly to our Board

 

          

 

Powers and Duties of our Independent Vice Chair

 

•   Assisting the Chairman as needed, in connection with our Board and committee meeting agenda review process

 

•   Assisting the Chairman, as needed, in connection with advising the CEO and other members of senior management of our Board’s informational needs

 

•   At the request of the Chairman, chairing meetings of the non-management or independent directors

 

•   At the request of the Chairman, presiding over meetings of our Board

 

•   As appropriate and at the request of the Chairman, serving as an additional liaison between the independent directors and the CEO and other members of senior management

 

•   Assisting the Chairman with regard to direct communication with our Company’s primary regulators, as appropriate

 

•   Serving as an advisor to the Chairman

 

•   Contributing to the CEO’s performance evaluation

 

•   Reinforcing the ethical tone for our Board and a strong ethical culture for our Company

 

•   Performing other duties requested by the Chairman or our Board, including participating in our investor outreach program

    

 

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Management Succession Planning and Development

A primary responsibility of our Board is identifying and developing executive talent at our Company, especially the CEO and other senior leaders of our Company. Continuity of excellent leadership at all levels of our Company is part of our Board’s mandate for delivering superior performance to stockholders. Toward that goal, the executive talent development and succession planning process is integrated into our Board’s annual activities.

Our Corporate Governance Guidelines require that the CEO and management annually report to the HRC and our Board on succession planning (including plans in the event of an emergency) and management development. Our Board’s Corporate Governance Guidelines also require that the CEO and management provide the HRC and Board with an assessment of persons considered potential successors to certain senior management positions at least once each year. Our Board has assigned to the HRC, as set forth in its charter, the responsibility to oversee our Company’s talent management and succession planning process, including CEO evaluation and succession planning.

Management and our Board take succession planning very seriously and while the Corporate Governance Guidelines require an annual review, the process for management development and succession planning occurs much more frequently and involves regular interaction between management, the HRC, our Chairman, and our Board. Management regularly identifies high potential executives for additional responsibilities, new positions, promotions, or similar assignments to expose them to diverse operations within our Company, with the goal of developing well-rounded, experienced, and discerning senior leaders. Identified individuals are often positioned to interact more frequently with our Board so that directors may gain familiarity with these executives.

As part of the annual Board review, the CEO and human resources executives collaborate with the HRC to prepare and evaluate succession and management development plans. The HRC reports to the full Board on its reviews and our Board deliberates in executive session on the CEO and management succession plans.

Our Company had a CEO change and transition during 2016 when John G. Stumpf retired and our Board elected Timothy J. Sloan as CEO. Our Company also created a new Payments, Virtual Solutions, and Innovation group aligned with our long-term strategy, and made other management changes that bring important new leadership to our Company and businesses. These management changes reflect our thoughtful management succession planning process in alignment with our long-term business strategy.

 

    Election of New CEO.     Our Board elected Timothy J. Sloan as CEO following the retirement of former CEO, John G. Stumpf, on October 12, 2016. Mr. Sloan had previously been elected President and Chief Operating Officer by our Board in November 2015 as part of its management succession planning process. Our Board determined at that time and firmly believes that Mr. Sloan is the right individual to lead our Company and help restore the trust of our customers, team members, investors, and other stakeholders.

 

    Other Senior Executive Changes.     Our Company also made several other senior leadership changes during 2016 and 2017, which further reflect our management succession planning process:

 

  ¡    Community Bank.     We changed the leadership of the Community Bank and named Mary T. Mack, formerly head of our retail brokerage business, as head of the Community Bank in July 2016. Ms. Mack has decades of experience in the financial services industry, including within the brokerage and retail banking business as well as with Wachovia’s customer service based culture. She is an effective leader who our senior leadership team and our Board believe can effectuate the change that is needed within our retail banking business.

 

  ¡    New Payments, Virtual Solutions, and Innovation Group.     We formed a new Payments, Virtual Solutions, and Innovation group to focus on delivering the next generation of payments capabilities and advancing our digital and online offerings, and named Avid Modjtabai as the head of that group effective November 1, 2016. Our long-term business strategy includes investing in technology to provide customers timely and accurate information to make financial decisions, connect with us in new and convenient ways, and transact business safely and securely.

 

  ¡    Consumer Lending and Wholesale Banking.     We named Franklin R. Codel as the head of Consumer Lending and Perry G. Pelos as the head of Wholesale Banking, both effective November 1, 2016. Mr. Codel and Mr. Pelos were previously responsible for leading significant businesses in Consumer Lending and Wholesale Banking, respectively.

 

  ¡    Law Department.      We named C. Allen Parker as General Counsel effective March 27, 2017. Mr. Parker will join our Company from the law firm of Cravath, Swaine and Moore LLP, where he served as a partner in the firm’s Corporate Department and as a member of its Corporate Governance and Board Advisory Practice.

 

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Item 1 — Election of Directors

 

Below we provide information about our Board’s nominees, including their age and the month and year in which they first became a director of our Company, their business experience for at least the past five years, the names of publicly held companies (other than our Company) for which they currently serve as a director or served as a director during the past five years, and additional information about the specific experience, qualifications, skills, or attributes that led to our Board’s conclusion that each nominee should serve as a director of our Company.

Director Nominees for Election

Our Board has set 15 directors as the number to be elected at the annual meeting and has nominated the individuals named below. All nominees are currently directors of Wells Fargo & Company and have been previously elected by our stockholders, except for Karen B. Peetz, Ronald L. Sargent, and Timothy J. Sloan. Mr. Sloan was elected as a director by our Board on October 12, 2016; Ms. Peetz and Mr. Sargent were elected as directors by our Board on February 20, 2017; and each is standing for election by our stockholders for the first time at the annual meeting. Susan E. Engel, a current director, is not standing for re-election and will retire when her term expires at the 2017 annual meeting. Our Board has determined that each nominee for election as a director at the annual meeting is an independent director, except for Mr. Sloan, as discussed below under Director Independence.

Directors are elected to hold office until the next annual meeting and until their successors are elected and qualified. All nominees have told us that they are willing to serve as directors. If any nominee is no longer a candidate for director at the annual meeting, the proxy holders will vote for the rest of the nominees and may vote for a substitute nominee in their discretion. Alternatively, the proxy holders may vote just for the remaining nominees, leaving the vacancy, or our Board may reduce its size. In addition, as described below under Director Election Standard, each of the nominees has tendered his or her resignation as a director in accordance with our Corporate Governance Guidelines to be effective only if he or she fails to receive the required vote for election to our Board and our Board accepts the resignation.

 

 

       LOGO

 

   Item 1 – Our Board recommends that you vote FOR each of the director nominees below for a one year term

 

Wells Fargo & Company 2017 Proxy Statement            17


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LOGO

 

John D. Baker II

 

Age: 68

 

Director since:

January 2009

 

 

Other Current Public

Company Directorships:

 

FRP Holdings, Inc.

 

Committees:

 

Audit and Examination

Corporate Responsibility

Credit

 

   

 

Business Experience

 

Mr. Baker has served as Executive Chairman and a director of FRP Holdings, Inc. (formerly Patriot Transportation Holding, Inc. prior to the spin-off of its transportation business in early 2015), Jacksonville, Florida (real estate company) since October 2010. He served as President and Chief Executive Officer of Patriot from February 2008 until October 2010. He served as President from May 1989, and Chief Executive Officer from February 1996 of Florida Rock Industries, Inc., Jacksonville, Florida until November 2007. Mr. Baker also currently serves as Chairman of Panadero Aggregates Holdings, LLC, a construction aggregates company located in Jacksonville, Florida, and a senior advisor for Brinkmere Capital Partners, LLC, a private equity firm. He was formerly a director of Duke Energy Corporation, Progress Energy Inc., Texas Industries, Inc., and Patriot Transportation Holding, Inc.

 

Qualifications and Experience

 

–     As the CEO or chairman of two public companies during the past 20 years, including a company involved in real estate activities, Mr. Baker brings leadership and executive management experience to our Board.

–     Mr. Baker has led or founded several public and private companies doing business in the Southeast, including as the lead investor and senior advisor for a private equity firm, and his business development skills and deep knowledge of the business climate in the Southeast provide unique insight into the operating environment of some of our Company’s largest banking markets.

–     Mr. Baker has extensive financial management expertise that he gained as a CEO or chairman and as a past member of the audit committees of two other public companies.

–     Mr. Baker has a law degree from the University of Florida School of Law, and his experience as a lawyer and former member of the board of a large public utility company also contribute important risk management, regulatory oversight, and public policy skills to our Board.

 

 

 

 

 

 

LOGO

 

John S. Chen

 

Age: 61

 

Director since:

September 2006

 

 

Other Current Public

Company Directorships:

 

BlackBerry Limited

The Walt Disney Company

 

Committees:

 

Human Resources

 

   

 

Business Experience

 

Mr. Chen has served as Executive Chairman and Chief Executive Officer of BlackBerry Limited, Waterloo, Ontario, Canada (wireless telecommunications) since November 2013. Prior to joining BlackBerry, he served as Chairman and Chief Executive Officer of Sybase, Inc. from July 2010, when SAP AG acquired Sybase, until he retired in November 2012. He served as Chairman, CEO, President, and as a director of Sybase from November 1998 until July 2010. Mr. Chen also served as a Special Advisor to Silver Lake Partners, a private investment firm, from November 2012 to December 2016. He was formerly a director of Sybase, Inc.

 

Qualifications and Experience

 

–     As the executive chairman and CEO of BlackBerry Limited and as a former CEO of Sybase, Mr. Chen has over 18 years of leadership and executive management experience. Mr. Chen also served as president of the Open Enterprise Computing Division of Siemens Nixdorf, and president and chief operating officer of Pyramid Technology Corporation.

–     Mr. Chen’s experience and perspective on information technology, information security, and software matters are particularly important to our Company, which uses numerous complex information technology applications and systems.

–     Mr. Chen brings to our Board finance and business strategy experience and, as a result of his work with several public sector organizations, an important focus on international relations and business and community affairs.

–     His experience at BlackBerry and serving on the board of a large well-known entertainment company provides valuable insight into the importance of developing and maintaining an internationally recognized brand.

–     Mr. Chen holds a Master of Science from California Institute of Technology.

 

 

 

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Lloyd H. Dean

 

Age: 66

 

Director since:

June 2005

 

 

Other Current Public

Company Directorships:

 

McDonald’s Corporation

 

Committees:

 

Corporate Responsibility

Governance and Nominating Human Resources (Chair)

Risk

 

   

 

Business Experience

 

Mr. Dean has served as President, Chief Executive Officer, and a director of Dignity Health, San Francisco, California (health care) since April 2000. He was formerly a director of Cytori Therapeutics, Inc., Navigant Consulting, Inc., and Premier, Inc.

 

Qualifications and Experience

 

–     As the president and CEO of Dignity Health, a large multi-state health care organization that is the fifth largest hospital system in the nation, and as a former executive vice president and chief operating officer of Advocate Health Care and officer of The Upjohn Company, Mr. Dean brings over 25 years of leadership, executive management, and business strategy experience to our Board.

–     Similar to our Company, Dignity Health is subject to significant regulatory oversight, which provides Mr. Dean with additional insight into analyzing and advising on complex regulatory issues affecting our Company.

–     Our Board also benefits from Mr. Dean’s substantial finance, systems operations, service quality, human resources, and community affairs expertise, which he gained as a result of his responsibilities with Dignity Health.

–     Mr. Dean’s prior service as the non-executive chairman and a director of Cytori Therapeutics provides an additional corporate governance perspective to our Board.

–     Mr. Dean holds a Master’s Degree in Education from Western Michigan University and also is a graduate of Pennsylvania State University’s Executive Management Program.

 

 

 

 

 

 

LOGO

 

Elizabeth A. Duke

 

Age: 64

 

Director since:

January 2015

 

 

 

Other Current Public

Company Directorships:

 

None

 

Committees:

 

Credit

Finance

Risk

 

   

 

Business Experience

 

Ms. Duke has served as Vice Chair of Wells Fargo’s Board of Directors since October 2016. Ms. Duke served as a member of the Federal Reserve Board of Governors from August 2008 to August 2013, where she served as chair of the Federal Reserve’s Committee on Consumer and Community Affairs and as a member of its Committee on Bank Supervision and Regulation, Committee on Bank Affairs, and Committee on Board Affairs. From March 2014 to September 2015, she served as executive-in-residence at Old Dominion University, Norfolk, Virginia (higher education). Previously, she was chief operating officer of TowneBank from 2005 to 2008, and was an executive vice president at Wachovia Bank, N.A. (2004 to 2005), and at SouthTrust Bank (2001 to 2004), which was acquired by Wachovia in 2004. Ms. Duke also served as CEO of Bank of Tidewater, which was acquired by SouthTrust, and CFO of Bank of Virginia Beach.

 

Qualifications and Experience

 

–     As a former member of the Federal Reserve Board of Governors, Ms. Duke has broad experience and knowledge of the U.S. financial system, financial regulation, and economic and public policy matters.

–     Ms. Duke’s service as a Federal Reserve Governor during a critical time for the U.S. economy and banking system provides her with experience identifying, assessing, and managing risk exposures of financial firms such as our Company, and a unique understanding of risks and opportunities that contribute important risk management experience to our Board.

–     She also brings extensive financial services and financial management experience to our Board as a result of various senior leadership roles leading banking operations in markets where our Company does business, including as chief operating officer of TowneBank, chief executive officer of Bank of Tidewater, and as a senior officer of SouthTrust Bank and Wachovia Bank, N.A., the last three of which banks along with Bank of Virginia Beach are now part of our Company.

–     Ms. Duke has an M.B.A. from Old Dominion University.

 

 

 

Wells Fargo & Company 2017 Proxy Statement            19


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LOGO

 

Enrique Hernandez, Jr.

 

Age: 61

 

Director since:

January 2003

 

 

Other Current Public

Company Directorships:

 

Chevron Corporation

McDonald’s Corporation

Nordstrom, Inc.

(retiring from board in May 2017)

 

Committees:

 

Corporate Responsibility

Finance (Chair)

Risk (Chair)

 

   

 

Business Experience

 

Mr. Hernandez has served as Chairman, President, Chief Executive Officer, and a director of Inter-Con Security Systems, Inc., Pasadena, California (security services) since 1986.

 

Qualifications and Experience

 

–     Mr. Hernandez brings leadership and executive management experience to our Board as the chairman, president and CEO of Inter-Con Security Systems, Inc., a global security services provider, as the non-executive chairman of the board of McDonald’s Corporation, and as the former non-executive chairman of the board of Nordstrom, Inc., a large publicly traded retail company.

–     Our Board benefits from the valuable corporate governance and board leadership experience and expertise that Mr. Hernandez has acquired, particularly in areas such as business strategy, risk assessment, and succession planning.

–     Mr. Hernandez also has experience in the banking industry, as well as financial management expertise as a former member of the boards and audit committees of two other large financial institutions (Great Western Financial Corporation from 1993 to 1997 and Washington Mutual, Inc. from 1997 to 2002). Mr. Hernandez has served as past chair of the audit committees of McDonald’s and Nordstrom, which have further enhanced his finance experience.

–     Mr. Hernandez has a law degree from Harvard Law School and practiced as a litigation attorney for four years with a large law firm in California, which provides him with additional insight on risk management and litigation issues relevant to our Company’s operations.

 

 

 

 

 

LOGO

 

Donald M. James

 

Age: 68

 

Director since:

January 2009

 

 

Other Current Public

Company Directorships:

 

The Southern Company

 

Committees:

 

Finance

Human Resources

 

   

 

Business Experience

 

Mr. James served as Chairman and a director from 1997 until December 2015 and Chief Executive Officer from 1997 until July 2014 of Vulcan Materials Company, Birmingham, Alabama (construction materials). He was formerly a director of Vulcan Materials Company.

 

Qualifications and Experience

 

–     Mr. James brings extensive leadership and executive management experience to our Board as the former chairman and CEO of Vulcan Materials Company where he also served in various senior management positions, including as president, chief operating officer, and general counsel.

–     Before joining Vulcan, Mr. James practiced law as a partner in a large law firm in Alabama and was a member of the firm’s Executive Committee, which also provides him with additional perspective in dealing with complex legal, regulatory, and risk matters affecting our Company.

–     As a former board member of Wachovia, SouthTrust Corporation (which was acquired by Wachovia), and Protective Life Corporation, Mr. James has substantial knowledge and experience in the banking and financial services industry, and his service as Lead Director and chairman of the Governance Committee and Finance Committee of The Southern Company, a large public utility company, also brings important corporate governance, regulatory oversight, succession planning, financial management and business strategy experience to our Board.

–     Mr. James has an M.B.A from the University of Alabama and a law degree from the University of Virginia.

 

 

 

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LOGO

 

Cynthia H. Milligan

 

Age: 70

 

Director since:

July 1992

 

 

Other Current Public

Company Directorships:

 

Kellogg Company

 

Committees:

 

Corporate Responsibility

Credit (Chair)

Governance and Nominating

Risk

 

   

 

Business Experience

 

Ms. Milligan served as Dean of the College of Business Administration at the University of Nebraska-Lincoln, Lincoln, Nebraska (higher education) from June 1998 to May 2009, when she was named Dean Emeritus of the College of Business Administration. She was formerly a director of Raven Industries, Inc. and Calvert Funds.

 

Qualifications and Experience

 

–     Ms. Milligan has extensive experience in the financial services industry, including as a bank regulator, consultant, and lawyer, which provides valuable insight to our Board on banking, regulatory, and risk assessment and management issues.

–     Ms. Milligan served as the Director of Banking and Finance for the State of Nebraska from 1987 until 1991, responsible for supervising several hundred banks and other financial institutions, and she also served as a Director, Omaha Branch, of the Kansas City Federal Reserve for approximately six years.

–     In addition, she was president of her own consulting firm for financial institutions for approximately seven years and acquired significant banking and related financial management expertise in this role, as well as during her service as a bank regulator and as Dean of the College of Business Administration for the University of Nebraska-Lincoln.

–     Ms. Milligan serves as a trustee of the W.K. Kellogg Foundation, one of the largest philanthropic foundations in the U.S., which provides her with insight on social responsibility matters.

–     She has a law degree from George Washington University National Law Center and was a senior partner at a law firm in Nebraska, as well as an Adjunct Professor of Law in taxation at Georgetown University Law Center, and in banking and taxation at the University of Nebraska College of Law.

 

 

 

 

 

LOGO

 

Karen B. Peetz

 

Age: 61

 

Director since:

February 2017

 

 

Other Current Public

Company Directorships:

 

None

 

Committees:

 

Finance

Human Resources

 

   

 

Business Experience

 

Ms. Peetz served as President of The Bank of New York Mellon Corporation, New York, New York (global financial services company) from January 2013 until her retirement in December 2016. She served as chief executive officer of BNY Mellon’s financial markets and treasury services group and vice chair from 2007 until December 2012. Ms. Peetz served in leadership positions at JPMorgan Chase & Co. and its predecessor companies prior to joining BNY Mellon in 1998. She was formerly a director of SunCoke Energy, Inc.

 

Qualifications and Experience

 

–     Ms. Peetz has 35 years of large-bank experience and, as the former President of BNY Mellon, she oversaw the bank’s global client management and regional management, its treasury services business, and its regulatory oversight and human resources functions. Before joining BNY Mellon, Ms. Peetz spent 16 years with JPMorgan Chase in various management, sales, and corporate lending positions.

–     She brings to our Board significant insight into the financial services industry, including client services, and extensive expertise in financial management, risk management and the management of regulatory issues at large financial institutions as well as social responsibility experience from serving as executive sponsor of BNY Mellon’s corporate social responsibility program.

–     Her experience as a former chair of the board of trustees of Pennsylvania State University and as a trustee of Johns Hopkins University also provides her with experience in governance and related oversight issues.

–     Ms. Peetz holds a Master of Science from Johns Hopkins University.

 

 

 

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LOGO

 

Federico F. Peña

 

Age: 70

 

Director since:

November 2011

 

 

Other Current Public

Company Directorships:

 

Sonic Corp.

 

Committees:

 

Audit and Examination

Corporate Responsibility (Chair)

Governance and Nominating

Risk

 

   

 

Business Experience

 

Mr. Peña has served as a Senior Advisor to the Colorado Impact Fund (a venture capital fund dedicated to supporting local companies) since July 2014. Mr. Peña previously served as a Senior Advisor of Vestar Capital Partners, Denver, Colorado (private equity firm) from January 2009 to October 2016, and served as a Managing Director of Vestar from January 2000 to January 2009. He served as the U.S. Secretary of Energy from March 1997 until June 1998 and as the U.S. Secretary of Transportation from January 1993 until February 1997.

 

Qualifications and Experience

 

–     As the former U.S. Secretary of Energy and U.S. Secretary of Transportation, as well as Mayor of the City and County of Denver, Colorado for eight years and member of the Colorado House of Representatives for four years, Mr. Peña brings substantial leadership, executive management, regulatory, public policy, and community affairs expertise to our Board, which provide invaluable insight as our Company operates in the rapidly changing regulatory, political, and social environment for financial services companies.

–     Mr. Peña’s prior service with Vestar, including his work analyzing complex financial transactions and advising senior management teams, as well as his experience founding and leading his own investment management firm, contribute important financial management, investment, business strategy, business development, and governance skills to our Board.

–     He holds a law degree from the University of Texas, which enhances his understanding of legal and regulatory issues affecting our Company.

 

 

 

 

 

 

 

LOGO

 

James H. Quigley

 

Age: 65

 

Director since:

October 2013

 

 

Other Current Public

Company Directorships:

 

Hess Corporation

Merrimack Pharmaceuticals, Inc.

 

Committees:

 

Audit and Examination (Chair)

Credit

Risk

 

   

 

Business Experience

 

Mr. Quigley served as senior partner of Deloitte LLP, New York, New York (audit, financial advisory, risk management, tax, and consulting) from June 2011 until his retirement in June 2012, when he was named CEO Emeritus. Prior to his retirement, he served as CEO of Deloitte Touche Tohmatsu Limited (DTTL, the Deloitte global network) from June 2007 to June 2011, and as CEO of Deloitte LLP, the U.S. member firm of DTTL, from 2003 until 2007.

 

Qualifications and Experience

 

–     Mr. Quigley brings extensive leadership, accounting and financial reporting, auditing, and risk management experience to our Board. He served Deloitte for over 35 years in a wide range of leadership positions, including as CEO, and provided accounting, financial advisory, and consulting services to many of Deloitte’s leading clients in a range of industries.

–     Mr. Quigley’s broad management experience running a global firm, as well as his experience advising diverse multinational companies operating in complex environments, provides a key perspective on business operations, strategic planning, risk, regulatory, and corporate governance matters.

–     Mr. Quigley’s service as the non-executive chairman and a director of Hess Corporation provides additional corporate governance insights.

–     He previously was a member of the U.S. Securities and Exchange Commission Advisory Committee on Improvements to Financial Reporting and numerous committees of the American Institute of Certified Public Accountants.

–     His current service as trustee of the International Financial Reporting Standards Foundation and a member of the Board of Trustees of The German Marshall Fund of the United States also provides valuable insight on international business affairs.

–     He earned a Bachelor of Science degree and honorary Doctorate of Business from Utah State University.

 

 

 

 

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LOGO

 

Stephen W. Sanger

 

Age: 70

 

Director since:

July 2003

 

 

Other Current Public

Company Directorships:

 

Pfizer Inc.

 

Committees:

 

Governance and Nominating

(Chair)

Human Resources

Risk

 

   

 

Business Experience

 

Mr. Sanger has served as Chairman of our Board since October 2016, and served as our Lead Director from January 2012 to October 2016. Previously, Mr. Sanger served as Chairman of General Mills, Inc., Minneapolis, Minnesota (packaged food producer and distributor) from May 1995, and as a director since 1992, until he retired in May 2008. He also served as Chief Executive Officer of General Mills from May 1995 to September 2007. Mr. Sanger joined General Mills in 1974 and held various management positions before becoming chairman and CEO in 1995. He was formerly a director of Target Corporation.

 

Qualifications and Experience

 

–     Mr. Sanger brings leadership, executive management, and marketing and consumer experience to our Board, as well as valuable experience in corporate strategy and mergers and acquisitions.

–     Mr. Sanger led General Mills through the complex acquisition and integration of Pillsbury, creating one of the world’s largest food companies, and his extensive experience gained from leading a company responsible for developing and marketing some of the world’s best known consumer brands globally is beneficial to our Company and our Board.

–     He has served on the audit, compensation, and governance committees of several large public companies, including currently as a member of the audit committee and chair of the governance committee of Pfizer, and previously as a member of the compensation and governance committees of Target, which enhance his human resources, management succession planning, and corporate governance skills.

–     Mr. Sanger has an M.B.A. from the University of Michigan.

 

 

 

 

 

 

LOGO

 

Ronald L. Sargent

 

Age: 61

 

Director since:

February 2017

 

 

Other Current Public

Company Directorships:

 

Five Below, Inc.

The Kroger Co.

 

Committees:

 

Governance and Nominating

Human Resources

 

   

 

Business Experience

 

Mr. Sargent served as Chairman from March 2005 until January 2017 and Chief Executive Officer from February 2002 until June 2016 of Staples, Inc., Framingham, Massachusetts (business products retailer). He was formerly a director of Staples, Inc. and The Home Depot, Inc.

 

Qualifications and Experience

 

–     As the former chairman and CEO of Staples, Inc., Mr. Sargent brings leadership, executive management, corporate governance, and consumer retail and marketing experience to our Board.

–     He has over 35 years of retail experience and brings significant insight related to the transition toward more online and digital customer experiences.

–     His experience relating to the management of a large global workforce serving customers globally through a variety of channels is beneficial to our Company in light of our large workforce and diversified business model.

–     Mr. Sargent brings to our Board finance and business strategy experience as a result of his service at Staples and as the chair of the audit committee of The Kroger Co.

–     As a current member of Kroger’s public responsibilities committee he also adds a perspective on public and social policy issues facing a large consumer retail business.

–     Mr. Sargent has an M.B.A. from Harvard Business School.

 

 

 

 

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LOGO

 

Timothy J. Sloan

 

Age: 56

 

Director since:

October 2016

 

 

Other Current Public

Company Directorships:

 

None

 

   

 

Business Experience

 

Mr. Sloan has served as our Company’s Chief Executive Officer and a director since October 2016, and President since November 2015. He also served as our Chief Operating Officer from November 2015 to October 2016, Senior Executive Vice President (Wholesale Banking) from May 2014 to November 2015, and our Senior Executive Vice President and Chief Financial Officer from February 2011 to May 2014. He was formerly a director of California Resources Corporation.

 

Qualifications and Experience

 

–     Mr. Sloan has served with our Company or its predecessors for 29 years in a variety of management and senior management positions and he brings to our Board tremendous experience and knowledge regarding the financial services industry, the regulatory environment for financial services companies, and our Company’s businesses.

–     He has extensive leadership, financial, business strategy, and business operations experience, including through his prior roles as our Company’s Chief Financial Officer with responsibility for our financial management functions including controllers, financial reporting, asset liability management, treasury, investor relations, and investment portfolios; our Chief Operating Officer with responsibility for the operations of our four main business groups; and our Chief Administrative Officer with responsibility for managing Corporate Communications, Corporate Social Responsibility, Enterprise Marketing, Government Relations, and Corporate Human Resources.

–     Mr. Sloan has an M.B.A. in finance and accounting from the University of Michigan.

 

 

 

 

 

 

LOGO

 

Susan G. Swenson

 

Age: 68

 

Director since:

November 1998

 

 

Other Current Public

Company Directorships:

 

Harmonic Inc.

Inseego Corp.

 

Committees:

 

Audit and Examination

Governance and Nominating

 

   

 

Business Experience

 

Ms. Swenson has served as a director of Inseego Corp. (successor to Novatel Wireless, Inc.) since June 2012, as chair of Inseego’s board of directors since April 2014, and as CEO since October 2015. Previously, she served as President and Chief Executive Officer of Sage Software-North America, the North American operations of The Sage Group PLC, United Kingdom (business management software and services supplier) from March 2008 until April 2011. Ms. Swenson also held positions as the Chief Operating Officer of Atrinsic, Inc. (formerly known as New Motion, Inc.) from August 2007 to March 2008 and Amp’d Mobile, Inc. from October 2006 to July 2007. She was formerly a director of Spirent Communications plc.

 

Qualifications and Experience

 

–     Ms. Swenson brings extensive leadership, executive management, and technology experience to our Board. Ms. Swenson has over 32 years’ experience in the telecommunications industry, including as the CEO or COO of several public and private companies, and as chair of the board of the First Responder Network Authority, an independent U.S. governmental entity created to establish a nationwide, public safety broadband network.

–     Ms. Swenson’s experience and management responsibilities during her business career have included information technology, engineering, software research and development, marketing and sales, business operations, and customer care and loyalty, each of which is important to our Company, particularly in its retail, internet, and mobile banking businesses.

–     She has served on several public and private boards, including as chair of the audit committee for Palm, Inc. from 1999 to 2004, and has extensive financial management and governance expertise.

 

 

 

 

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LOGO

 

Suzanne M. Vautrinot

 

Age: 57

 

Director since:

February 2015

 

 

Other Current Public

Company Directorships:

 

Ecolab Inc.

Symantec Corporation

 

Committees:

 

Audit and Examination

Credit

 

   

 

Business Experience

 

Ms. Vautrinot has served as President of Kilovolt Consulting Inc., San Antonio, Texas (a cyber security strategy and technology consulting firm) since October 2013. Ms. Vautrinot retired from the United States Air Force in October 2013 after 31 years of service. During her distinguished career with the United States Air Force, she served in a number of leadership positions including as Major General and Commander, 24th Air Force, Air Forces Cyber and Air Force Network Operations from April 2011 to October 2013, Special Assistant to the Vice Chief of Staff of the United States Air Force in Washington, D.C. from December 2010 to April 2011, Director of Plans and Policy, U.S. Cyber Command from May 2010 to December 2010 and Deputy Commander, Network Warfare, U.S. Strategic Command from June 2008 to December 2010, and Commander, Air Force Recruiting Service from July 2006 to June 2008. She has been awarded numerous medals and commendations, including the Defense Superior Service Medal and Distinguished Service Medal.

 

Qualifications and Experience

 

–     As a result of more than 30 years of service in various leadership and command roles in the United States Air Force, Ms. Vautrinot brings extensive space and cyber technology and operations expertise to our Board at a time when protecting financial institutions and the financial system from cyber threats is a top priority.

–     In addition to her vast cyber expertise, Ms. Vautrinot has led large, complex, and global organizations, which brings operational, strategic, and innovative technology skills to our Board. She retired as a Major General and Commander, 24th Air Force, where she oversaw a multi-billion dollar cyber enterprise responsible for operating, extending, maintaining, and defending the Air Force portion of the Department of Defense global network.

–     As Commander, 24th Air Force, she led a workforce unit of approximately 14,000 military, civilian, and contractor personnel, which along with her other leadership roles and assignments in the United States Air Force, provides her with significant planning and policy, strategic security, and workforce development expertise.

–     She has a Bachelor of Science from the United States Air Force Academy, a Master of Science in systems management from the University of Southern California, and was a National Security Fellow at the John F. Kennedy School of Government at Harvard University.

 

 

 

Director Election Standard and Nomination Process

Director Election Standard

Our By-Laws provide that directors will be elected using a majority vote standard in an uncontested director election (i.e., an election where as of the record date the only nominees are those nominated by our Board, such as at this meeting). Under this standard, a nominee for director will be elected to our Board if the votes cast for the nominee exceed the votes cast against the nominee. However, directors will be elected by a plurality of the votes cast in a contested election.

Under Delaware law, directors continue in office until their successors are elected and qualified or until their earlier resignation or removal. Our Corporate Governance Guidelines provide that our Board will nominate for election and appoint to fill Board vacancies only those candidates who have tendered or agreed to tender an advance, irrevocable resignation that would become effective upon their failure to receive the required vote for election and Board acceptance of the tendered resignation. Each director nominee named in this proxy statement has tendered an irrevocable resignation as a director in accordance with our Corporate Governance Guidelines, which resignation will become effective if he or she fails to receive the required vote for election at the annual meeting and our Board accepts his or her resignation.

Our Corporate Governance Guidelines also provide that the GNC will consider the tendered resignation of a director who fails to receive the required number of votes for election, as well as any other offer to resign that is conditioned

 

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upon Board acceptance, and recommend to our Board whether or not to accept such resignation. The GNC, in deciding what action to recommend, and our Board, in deciding what action to take, may consider any factors they deem relevant. The director whose resignation is under consideration will abstain from participating in any decision of the GNC or our Board regarding such resignation. If our Board does not accept the resignation, the director will continue to serve until his or her successor is elected and qualified. Our Board will publicly disclose its decision on the resignation within 90 days after certification of the voting results.

Director Nomination Process

The GNC is responsible for leading the director nomination process, which includes identifying, evaluating, and recommending for nomination candidates for election as new directors and incumbent directors, regardless of who nominates a candidate for consideration. The goal of the GNC’s nominating process is to assist our Board in attracting and retaining competent individuals with the requisite leadership, executive management, financial, industry, and other expertise who will act as directors in the best interests of our Company and its stockholders. The GNC regularly reviews the composition of our Board in light of its understanding of the backgrounds, industry, professional experience, personal qualities and attributes, and various geographic and demographic communities represented by current members. As described above, the GNC also oversees our Board’s performance evaluation process.

The GNC identifies potential candidates for first-time nomination as a director through various sources, including recommendations it receives from our current and former Board members and executive officers as well as from our stockholders and contacts in the communities we serve. The GNC also has the authority to engage a third party search firm to identify and provide information on potential candidates. Karen B. Peetz, who became a director in 2017, was identified and recommended to the GNC by a third party search firm retained by the GNC. Ronald L. Sargent, who became a director in 2017, was identified and recommended by a non-management director of the Company to our Chairman for consideration by the GNC. In addition to identifying and providing information on a number of potential director candidates, the third party search firm reviewed and provided information about Ms. Peetz and Mr. Sargent for review by the GNC and our Board.

When the GNC has identified a potential new director nominee, it obtains publicly available information on the background of the potential nominee to make an initial assessment of the candidate in light of the following factors:

 

    Whether the individual meets our Board-approved minimum qualifications for director nominees described below;

 

    Whether there are any apparent conflicts of interest in the individual serving on our Board; and

 

    Whether the individual would be considered independent under our Director Independence Standards, which are described below under Director Independence.

Our Board requires that all nominees for service as a director have the following minimum qualifications:

 

    A demonstrated breadth and depth of management and/or leadership experience, preferably in a senior leadership role (e.g., chief executive officer, managing partner, president) in a large or recognized organization or governmental entity;

 

    Financial literacy or other professional or business experience relevant to an understanding of our Company and its businesses; and

 

    A demonstrated ability to think and act independently, as well as the ability to work constructively in a collegial environment.

Candidates also must be individuals of the highest character and integrity. The GNC determines, in its sole discretion after considering all factors it considers appropriate, whether a potential nominee meets these minimum qualifications and also considers the composition of the entire Board taking into account the particular qualifications, skills, experience, and attributes that our Board believes are important to our Company such as those described under Board Qualifications and Experience above. If a candidate passes this initial review, the GNC arranges an introductory meeting with the candidate and our Chairman, our CEO, and the GNC Chair and/or other directors, to determine the candidate’s interest in serving on our Board. If the candidate is interested in serving on our Board, members of the GNC, together with members of our Board, our CEO, and, if appropriate, other key executives of our Company, then conduct an interview with the candidate. If our Board and the candidate are both still interested in proceeding, the candidate provides us additional information for use in determining whether the candidate satisfies the applicable requirements of our Corporate Governance Guidelines, Code of Ethics and Business Conduct, and any other rules, regulations, or policies applicable to members of our Board and its committees and for making any required disclosures in our proxy statement. Assuming a satisfactory conclusion to the process outlined above, the GNC then presents the candidate’s name for approval by our Board or for nomination for approval by the stockholders at the next stockholders meeting, as applicable.

 

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The GNC will consider an individual recommended by one of our stockholders for nomination as a new director. In order for the GNC to consider a stockholder-recommended nominee for election as a director, the stockholder must submit the name of the proposed nominee, in writing, to our Corporate Secretary at: Wells Fargo & Company, MAC# D1053-300, 301 South College Street, 30th Floor, Charlotte, North Carolina 28202. All such submissions must include the following information:

 

    The stockholder’s name and address and proof of the number of shares of our common stock he or she beneficially owns;

 

    The name of the proposed nominee and the number of shares of our common stock he or she beneficially owns;

 

    Sufficient information about the nominee’s experience and qualifications for the GNC to make a determination whether the individual would meet the minimum qualifications for directors; and

 

    Such individual’s written consent to serve as a director of our Company, if elected.

Our Corporate Secretary will present all stockholder-recommended nominees to the GNC for its consideration. The GNC has the right to request, and the stockholder will be required to provide, any additional information with respect to the stockholder-recommended nominee as the GNC may deem appropriate or desirable to evaluate the proposed nominee in accordance with the nomination process described above.

Director Independence

Our Corporate Governance Guidelines provide that a significant majority of the directors on our Board, and all members of the AEC, GNC, HRC, and Risk Committee must be independent under applicable independence standards. Each year our Board affirmatively determines the independence of each director and each nominee for election as a director. Under NYSE rules, in order for a director to be considered independent, our Board must determine that the director has no material relationship with our Company (either directly or as a partner, stockholder, or officer of an organization that has a relationship with our Company). To assist our Board in making its independence determinations, our Board adopted the Director Independence Standards appended to our Corporate Governance Guidelines. These Director Independence Standards consist of the NYSE’s “bright line” standards of independence as well as additional standards, known as categorical standards of independence, adopted by our Board. The Director Independence Standards are available on our website at: https://www.wellsfargo.com/about/corporate/governance.

Based on the Director Independence Standards, our Board considered information in early 2017 regarding banking and financial services, commercial, charitable, familial, and other relationships between each director, his or her respective immediate family members, and/or certain entities affiliated with such directors and immediate family members, on the one hand, and our Company, on the other, to determine the director’s independence. After reviewing the information presented to it and considering the recommendation of the GNC, our Board determined that, except for Timothy J. Sloan, who is a Wells Fargo employee, all current directors and director nominees (John D. Baker II, John S. Chen, Lloyd H. Dean, Elizabeth A. Duke, Susan E. Engel, Enrique Hernandez, Jr., Donald M. James, Cynthia H. Milligan, Karen B. Peetz, Federico F. Peña, James H. Quigley, Stephen W. Sanger, Ronald L. Sargent, Susan G. Swenson, and Suzanne M. Vautrinot) are independent under the Director Independence Standards, including the NYSE “bright line” standards of independence. Susan E. Engel, a current director, is not standing for re-election and will retire from our Board at the 2017 annual meeting. Our Board determined, therefore, that 14 of our Board’s 15 director nominees are independent. Our Board previously determined that Elaine L. Chao was an independent director prior to her resignation from our Board in January 2017 and Judith M. Runstad was an independent director prior to her retirement from our Board in April 2016.

 

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In connection with making its independence determinations, our Board considered the following relationships, as well as the relationships with certain directors described under Related Person Transactions, under the Director Independence Standards and determined that all of these relationships satisfied the NYSE “bright line” standards of independence and were immaterial under our Board’s categorical standards of independence:

 

Banking and Financial Services Relationships    Our Company’s banking and other subsidiaries had ordinary course banking and financial services relationships in 2016 with certain of our directors, some of their immediate family members, and/or certain entities affiliated with such directors and their immediate family members, all of which were on substantially the same terms as those available at the time for comparable transactions with persons not affiliated with our Company and complied with applicable banking laws.
Business Relationships    Our Company and its subsidiaries purchase products or services in the ordinary course of business from wireless telecommunications carriers, including products and services provided to those carriers by BlackBerry Limited, where John S. Chen is executive chairman and chief executive officer. The aggregate amount of payments made by our Company during 2016 to these carriers and to BlackBerry for the use of BlackBerry devices did not exceed 1% of BlackBerry’s or our Company’s 2016 consolidated gross revenues.
Charitable Relationships    Our Company or its charitable foundation made charitable contributions during 2016 to Dignity Health, which is a large tax-exempt health care organization where Lloyd H. Dean is employed as an executive officer, in an aggregate amount less than $175,000, which is less than 0.002% of Dignity Health’s 2016 consolidated gross revenues.
Other Relationships   

Elizabeth A. Duke has outstanding pension and supplemental retirement plan balances with an aggregate actuarial present value of approximately $167,000 earned from her prior employment with SouthTrust Corporation and its successor, Wachovia Corporation, which employment ended in 2005. No additional service-based contributions or accruals will be made to either plan balance. Payment of the plan balances is not conditioned on any future service or performance by Ms. Duke and will be made in accordance with the applicable plan documents. Our Company assumed these preexisting obligations under the applicable plans following our Wachovia merger at the end of 2008.

 

 

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Our Board and its Committees

 

Board and Committee Meetings; Annual Meeting Attendance

Directors are expected to attend all Board meetings and meetings of committees on which they serve. Directors also are expected to attend each annual stockholders’ meeting. All of the 15 nominees for director in 2016 attended our Company’s 2016 annual stockholders’ meeting.

Our Board held 14 regular and special meetings, as well as additional update and informational sessions between Board meetings, during 2016. Attendance by our Board’s current directors at meetings of our Board and its committees averaged 97.5% during 2016. Each current director who served as a director during 2016 attended at least 75% of the total number of 2016 meetings of our Board and committees for the period for which he or she served. Our Board met in executive session without management present during 10 of its 2016 meetings. During 2016, our independent Chairman (Lead Director prior to October 12, 2016), Stephen W. Sanger, chaired each of the executive sessions of the non-management and independent directors as part of his duties.

Committees of our Board

Our Board has established seven standing committees: Audit and Examination, Corporate Responsibility, Credit, Finance, Governance and Nominating, Human Resources, and Risk. Our Board’s committees act on behalf of our Board and report on their activities to the entire Board. Our Board appoints the members and chair of each committee based on the recommendation of the GNC. No committee chair has served more than 10 years as the chair of the same committee, consistent with the policy on committee chair service in our Corporate Governance Guidelines. The following table provides current membership information for each of our Board’s standing committees.

 

Name

  

      AEC      

  

      CRC      

  

      Credit      

  

      Finance      

  

      GNC      

  

      HRC      

  

      Risk      

John D. Baker II

                            

John S. Chen

                                

Lloyd H. Dean

                        Chair   

Elizabeth A. Duke (1)

                            

Susan E. Engel

                            

Enrique Hernandez, Jr. (2)

                Chair              Chair

Donald M. James

                              

Cynthia H. Milligan

           Chair                

Karen B. Peetz (3)

                              

Federico F. Peña (4)

      Chair                     

James H. Quigley

   Chair                          

Stephen W. Sanger

                       Chair      

Ronald L. Sargent (5)

                              

Susan G. Swenson

                              

Suzanne M. Vautrinot (6)

                              

Number of Members

   5    5    6    5    6    7    7

 = Member

 

(1)   Effective January 26, 2016, Ms. Duke became a member of the Finance Committee.
(2)   Effective March 1, 2016, Mr. Hernandez ceased to be a member of the AEC.
(3)   Effective February 20, 2017, Ms. Peetz became a member of the Finance Committee and the Human Resources Committee.
(4)   Effective March 1, 2016, Mr. Peña succeeded Judith M. Runstad, who retired from our Board at the 2016 annual meeting, as Chair of the CRC and a member of the Risk Committee.
(5)   Effective February 20, 2017, Mr. Sargent became a member of the Governance and Nominating Committee and the Human Resources Committee.
(6)   Effective February 23, 2016, Ms. Vautrinot became a member of the Credit Committee.

Our Board has adopted a charter for each standing Board committee that addresses its purpose, authority, and responsibilities and contains other provisions relating to, among other matters, membership and meetings. In its discretion, each committee may form and delegate all or a portion of its authority to subcommittees of one or more of its members. As required by its charter, each committee annually reviews and assesses its charter’s adequacy and reviews its performance, and also is responsible for overseeing reputation risk related to its responsibilities. Committees may recommend charter amendments at any time, and our Board must approve any recommended charter amendments. Additional information about our Board’s seven standing committees, including their key responsibilities, appears below and a current copy of each committee’s charter is available on our website at: https://www.wellsfargo.com/about/corporate/governance.

 

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Audit and Examination Committee (AEC)

 

Number of meetings

in 2016:    20

(4 of these meetings

were joint meetings with

the Risk Committee)

 

Members:

Quigley (Chair)

Baker

Peña

Swenson

Vautrinot

  

Primary Responsibilities:

 

•  Assists our Board in fulfilling its responsibilities to oversee the integrity of our financial statements and the adequacy and reliability of disclosures to our stockholders, including our internal control over financial reporting;

 

•  Selects and evaluates our independent auditor, including its qualifications and independence, and approves all audit engagement fees and terms and all non-audit engagements of the independent auditor and engagement fees of any other external auditor for additional required audit, review, or attest services;

 

•  Approves the appointment and compensation of our Company’s Chief Auditor and oversees the performance of the Chief Auditor and the internal audit function;

 

•  Oversees our operational risk program, legal and regulatory compliance (including compliance culture), financial crimes risk (Bank Secrecy Act and Anti-Money Laundering), information security risk (including cyber), and technology risk; approves significant supporting operational risk, compliance, and financial crimes policies and programs, including our information security program; and reviews regulatory examination reports and communications; and

 

•  Oversees resolution planning.

 

Independence and Experience: Each member of the AEC is independent, as independence for audit committee members is defined by NYSE and SEC rules. Our Board has determined, in its business judgment, that each current member of the AEC listed above is financially literate as required by NYSE rules, and that each of John D. Baker II, Federico F. Peña, James H. Quigley, and Susan G. Swenson qualifies as an “audit committee financial expert” as defined by SEC regulations. No AEC member may serve on the audit committee of more than two other public companies.

 

Corporate Responsibility Committee (CRC)

 

Number of meetings

in 2016:    5

 

Members:

Peña (Chair)

Baker

Dean

Hernandez

Milligan

  

Primary Responsibilities:

 

•  Oversees our Company’s policies, programs, and strategies regarding social responsibility matters of significance to our Company and the public at large, including our Company’s community development and reinvestment activities and performance, fair and responsible lending, support of charitable organizations, and policies and programs related to environmental sustainability and human rights;

 

•  Oversees our Company’s government relations and public advocacy policies and programs and at least annually receives reports from management on political and lobbying activities, including payments made to trade associations by Wells Fargo;

 

•  Monitors our Company’s relationships with external stakeholders regarding significant social responsibility matters;

 

•  Monitors our Company’s reputation generally, including with its customers; and

 

•  Receives reports and updates on customer service matters and other matters relating to our Company’s brand and reputation, and on our Company’s complaints management policies and processes, including complaints relating to customers.

 

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Credit Committee (Credit)

 

Number of meetings

in 2016:    8

 

Members:

Milligan (Chair)

Baker

Duke

Engel

Quigley

Vautrinot

  

Primary Responsibilities:

 

•  Monitors and reviews the performance and quality of, and the trends affecting, our credit portfolios;

 

•  Oversees the effectiveness and administration of our credit risk management framework and other credit policies, including the organizational structure of Risk Asset Review (RAR), RAR’s examination of our Company’s credit portfolios, processes, and practices, our Company’s adherence to credit risk appetite metrics, and credit risk aggregation and concentration limits;

 

•  Reviews management’s assessment of the appropriateness of the allowance for credit losses, including the methodology and governance supporting the allowance for credit losses; and

 

•  Reviews and approves other credit-related activities as it deems appropriate or that are required to be approved by law or regulation, including our Company’s credit quality plan, credit stress testing framework and related stress test results.

 

Finance Committee (Finance)

 

Number of meetings

in 2016:    4

 

Members:

Hernandez (Chair)

Duke

Engel

James

Peetz

  

Primary Responsibilities:

 

•  Oversees the administration and effectiveness of financial risk management policies and processes used to assess and manage market risk, interest rate risk, and investment risk;

 

•  Reviews our Company’s capital levels relative to budgets and forecasts, as well as our Company’s risk profile; approves our Company’s capital management and stress-testing policies; and oversees the administration and effectiveness of our Company’s capital management and planning activities;

 

•  Reviews our Company’s annual financial plan and financial and investment performance, and recommends to our Board the declaration of common stock dividends, the repurchase of securities, and the approval of significant capital expenditures; and

 

•  Oversees recovery planning.

 

Governance and Nominating Committee (GNC)

 

Number of meetings

in 2016:    3

 

Members:

Sanger (Chair)

Dean

Milligan

Peña

Sargent

Swenson

  

Primary Responsibilities:

 

•  Assists our Board by identifying individuals qualified to become Board members and recommends to our Board nominees for director and committee membership;

 

•  Annually reviews and assesses the adequacy of our Corporate Governance Guidelines and oversees a review of our Board’s performance;

 

•  Recommends to our Board a determination of each non-employee director’s “independence” under applicable rules and guidelines;

 

•  Reviews director compensation and recommends any changes for approval by our Board; and

 

•  Oversees our Company’s engagement with stockholders and other interested parties concerning governance matters and works with our Board’s other committees in connection with stockholder engagement on matters subject to the oversight of such other committees.

     Independence: Each member of the GNC is independent, as independence is defined by NYSE rules.

 

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Human Resources Committee (HRC)

 

Number of meetings

in 2016:    11

 

Members:

Dean (Chair)

Chen

Engel

James

Peetz

Sargent

Sanger

  

Primary Responsibilities:

 

•  Approves our Company’s compensation philosophy and principles, and discharges our Board’s responsibilities relating to our Company’s overall compensation strategy and the compensation of our executive officers;

 

•  Oversees our Company’s incentive compensation risk management program and practices for senior executives and employees in a position, individually or collectively, to expose our Company to material financial or reputation risk;

 

•  Evaluates the CEO’s performance and approves and recommends the CEO’s compensation to our Board for ratification and approval and approves compensation for our other executive officers and any other officers or employees as the HRC determines appropriate;

 

•  Oversees human capital management, including talent management and succession planning and diversity and inclusion initiatives;

 

•  Oversees our Company’s culture, including management’s efforts to foster a culture of ethics throughout our Company;

 

•  Oversees our Company’s Code of Ethics and Business Conduct and ethics, business conduct, and conflicts of interest program, including training on ethical decision-making and processes for reporting and resolution of ethics issues;

 

•  Oversees actions taken by our Company regarding stockholder approval of executive compensation matters, including advisory votes on executive compensation; and

 

•  Has the sole authority to retain or obtain the advice of and terminate any compensation consultant, independent legal counsel, or other advisor to the HRC, and evaluates the independence of its advisors in accordance with NYSE rules.

 

The HRC may delegate certain of its responsibilities to one or more HRC members or to designated members of senior management or committees. The HRC has delegated authority to the Director of Human Resources and the Director of Compensation for the administration of our Company’s benefit and compensation programs; however, the HRC generally has sole authority relating to incentive compensation plans applicable to executive officers, the approval of awards under any equity-based plans or programs, and material amendments to any benefit or compensation plans or programs.

 

Independence: Our Board has determined that each member of the HRC is a “non-employee director” under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, an “outside director” for purposes of Section 162(m) of the Internal Revenue Code, as amended, and is independent, as independence for compensation committee members is defined by NYSE rules.

 

Risk Committee (Risk)

 

Number of meetings

in 2016:    10

(4 of these meetings

were joint meetings with

the AEC)

 

Members:

Hernandez (Chair)

Dean

Duke

Milligan

Peña

Quigley

Sanger

  

Primary Responsibilities:

 

•  Approves and oversees our Company’s enterprise-wide risk management framework and structure, including through the approval of the risk management framework which outlines our Company’s approach to risk management and the policies, processes, and governance structures necessary to execute the risk management program, and approves the framework and policies for managing our key risk types;

 

•  Oversees the Corporate Risk function and the performance of the Chief Risk Officer; approves the appointment and compensation of the Chief Risk Officer; and monitors the effectiveness of our enterprise-wide risk program;

 

•  Annually recommends to our Board, and monitors adherence to, our risk appetite, and reviews our aggregate enterprise-wide risk profile and its alignment with our strategy and risk appetite;

 

•  Oversees our enterprise-wide risk culture;

 

•  Oversees enterprise-wide conduct risk and the activities of our Office of Ethics, Oversight, and Integrity;

 

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•  Holds joint meetings with the AEC to focus on information security risk (including cyber) and technology risk; and

 

•  Oversees liquidity and funding risks, and risks associated with acquisitions and significant new business or strategic initiatives.

 

Independence: Each member of the Risk Committee is independent, as independence is defined by NYSE rules.

Our Board’s Role in Risk Oversight

Wells Fargo manages a variety of risks that can significantly affect our financial performance and our ability to meet the expectations of our customers, stockholders, regulators, and other stakeholders. Among the risks that we manage are conduct risk, operational risk, credit risk, and asset/liability management related risks, which include interest rate risk, market risk, liquidity risk, and funding related risks. We operate under a Board-level approved risk framework that outlines our company-wide approach to risk management and oversight, and describes the structures and practices employed to manage current and emerging risks inherent to Wells Fargo.

Risk Framework

Our risk framework consists of three lines of defense – (1) Wells Fargo’s lines of business and certain other corporate functions, (2) Corporate Risk, our Company’s primary second-line of defense led by our Chief Risk Officer who reports to our Board’s Risk Committee, and (3) Wells Fargo Audit Services, our internal audit function, which is led by our Chief Auditor who reports to our Board’s Audit & Examination Committee. Our Company’s primary risk management objectives are: (a) to support our Board as it carries out its risk oversight responsibilities; (b) to support members of senior management in achieving our Company’s strategic objectives and priorities by maintaining and enhancing our risk framework; and (c) to promote a strong risk culture, which emphasizes each team member’s accountability for appropriate risk management.

Key elements of our risk program include:

 

    Cultivating a strong risk culture, which emphasizes each team member’s accountability for appropriate risk management and our Company’s bias for conservatism through which we strive to maintain a conservative financial position measured by satisfactory asset quality, capital levels, funding sources, and diversity of revenues.

 

    Defining and communicating across our Company an enterprise-wide statement of risk appetite which serves to guide business and risk leaders as they manage risk on a daily basis. The enterprise-wide statement of risk appetite describes the nature and magnitude of risk that Wells Fargo is willing to assume in pursuit of its strategic and business objectives.

 

    Maintaining a risk management governance structure, including escalation protocols and a management-level committee structure, that enables the comprehensive oversight of our Company’s risk program and the effective and efficient escalation of risk issues to the appropriate level of our Company for information and decision-making.

 

    Designing risk frameworks, programs, policies, standards, procedures, controls, processes, and practices that are effective and aligned, and facilitate the active and timely management of current and emerging risks across our Company.

 

    Structuring an effective and independent Corporate Risk function whose primary responsibilities include: (a) establishing and maintaining an effective risk framework that supports the timely identification and escalation of risks, (b) maintaining an independent and comprehensive perspective on our Company’s current and emerging risks, (c) independently opining on the strategy and performance of our Company’s risk taking activities, (d) credibly challenging the intended business and risk management actions of Wells Fargo’s first-line of defense, and (e) reviewing risk management programs and practices across our Company to confirm appropriate coordination and consistency in the application of effective risk management approaches.

 

    Maintaining an independent internal audit function that is primarily responsible for adopting a systematic, disciplined approach to evaluating the effectiveness of risk management, control and governance processes and activities as well as evaluating risk framework adherence to relevant regulatory guidelines and appropriateness for Wells Fargo’s size and risk profile.

 

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Our Board and our management-level Operating Committee (composed of direct reports to the CEO and President, including the Chief Risk Officer and Chief Auditor who report to the CEO administratively, and to their respective Board committees functionally) have overall and ultimate responsibility to provide oversight for our three lines of defense and the risks we take, and carry out their oversight through management-level governance committees. Each risk-focused governance committee has a defined set of authorities and responsibilities specific to one or more risk types. The Enterprise Risk Management Committee, chaired by our Chief Risk Officer, oversees the management of all risk types across our Company, and additionally provides primary oversight for conduct risk, reputation risk, and strategic risk. The Enterprise Risk Management Committee reports to our Board’s Risk Committee, and serves as the focal point for risk governance and oversight at the management level.

Board Risk Oversight

Our Board carries out its risk oversight responsibilities directly and through the work of its seven standing committees, including its Risk Committee. All of these committees report to the whole Board and are composed solely of independent directors. Each Board committee has defined authorities and responsibilities for considering a specific set of risk issues, as outlined in its charter, and works closely with management to understand and oversee our Company’s key risk exposures. Allocating risk responsibilities among each Board committee increases the overall amount of attention devoted to risk management.

The Risk Committee serves as a focal point for enterprise-wide risks. In this role, the Risk Committee supports and assists our Board’s other standing committees that have primary oversight responsibility for specific risk matters as reflected in the chart below. The Risk Committee includes the chairs of each of our Board’s other standing committees so that it does not duplicate the risk oversight efforts of other Board committees and to provide it with a comprehensive perspective on risk across our Company and across all individual risk types. Additional information about our risk management framework and practices, as well as the responsibilities of each of our Board committees, is described in the Financial Review – Risk Management section of our 2016 annual report on Form 10-K and under Committees of our Board in this proxy statement.

 

Board of Directors

Annually approves overall enterprise statement of risk appetite

 

           
AEC   CRC   Finance   Risk   GNC   Credit   HRC

 

Financial

crimes risk

 

Information

security risk

 

Operational risk

 

Regulatory

 

Compliance

risk

 

Technology

risk

 

 

  Reputation risk  

 

 

Interest rate

risk

 

Market risk

 

 

Enterprise-

wide risks

 

Conduct risk

(enterprise-

wide)

 

Liquidity risk

 

Model risk

 

Strategic risk

 

 

 

Board-level

governance

matters

 

 

Credit risk

 

 

Conduct risk

(ethics and

integrity,

incentive

compensation)

           
           

In addition to providing a forum for risk issues at our Board level, the Risk Committee provides oversight of our Company’s Corporate Risk function and plays an active role in approving and overseeing our Company’s enterprise-wide risk management framework established by management to manage risk, and the functional framework and oversight policies developed by management for various categories of risk. The Risk Committee and the full Board review and approve the enterprise statement of risk appetite annually, and the Risk Committee actively monitors our Company’s risk profile relative to the approved risk appetite.

The Chief Risk Officer is appointed by and reports to our Board’s Risk Committee. The Chief Risk Officer, as well as the Chief Risk Officer’s direct reports, work closely with our Board’s committees and frequently provide reports and updates to the committees and the committee chairs on risk matters during and outside of regular committee meetings, as appropriate. The full Board receives reports at each of its meetings from our Board committee chairs about committee activities, including risk oversight matters, and receives a quarterly report from the Enterprise Risk Management Committee regarding current or emerging risk issues.

As part of our Board’s and each of its committee’s annual self-evaluation process, our Board’s committees annually review their respective charters in light of regulatory requirements, updates to our Company’s risk coverage statement (which defines the key risk types facing our Company), implementation and update of our Company’s risk

 

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management framework and other functional risk management frameworks, and director and committee feedback. As a result of its continuing review of committee responsibilities and oversight of risks, our Board has made recent changes to enhance the risk oversight responsibilities of various Board committees, including our Risk Committee, and will continue to review our Board’s and each of its committee’s oversight responsibilities as part of its annual self-evaluation process or more frequently as needed.

Recent Enhancements in Board Committee Risk Oversight Responsibilities

Our Board has taken a number of actions to enhance independent Board oversight of management and the key risks facing our Company, including sales practices risk.

 

    Our Board has enhanced its oversight of conduct risk, including sales practices risk, by focusing management’s reporting to the Board on the alignment of team member conduct with (1) our Company’s risk appetite and (2) our Company’s culture as reflected in our Vision and Values and our Code of Ethics and Business Conduct.

 

    In addition, our Board enhanced Board committee oversight of conduct risk as follows:

 

   
  Risk Committee   

Expanded the Risk Committee’s oversight responsibilities to include oversight of enterprise-wide conduct risk, risk culture, and our new Office of Ethics, Oversight, and Integrity

 

The Risk Committee will continue to oversee our enterprise risk management framework, Corporate Risk function, and key risks identified by our Company.

 

  Human Resources

  Committee (HRC)

  

Expanded the HRC’s oversight responsibilities to include human capital management, culture, our Code of Ethics and Business Conduct, and implementation and effectiveness of our Company’s ethics, business conduct, and conflicts of interest program (including training on ethical decision-making and processes for reporting and resolution of ethics issues)

 

The HRC will continue to oversee our incentive compensation risk management program.

 

  Audit and

  Examination

  Committee (AEC)

  

Expanded the AEC’s oversight responsibilities for legal and regulatory compliance to include our Company’s compliance culture

 

The AEC will continue to oversee our operational risk program and all operational risk types, as well as complaints and allegations related to accounting, internal accounting control, and auditing matters.

 

  Corporate

  Responsibility

  Committee (CRC)

 

  

The CRC will continue to oversee our Company’s reputation, customer complaints policy and processes, and complaints and allegations relating to customers and will receive enhanced reporting from management on complaints and allegations from all sources, including the EthicsLine, relating to customers.

 

Board Leadership Structure and Role in Risk Oversight

Our Board believes that its Board leadership structure, which includes an independent Chairman and independent Vice Chair who both serve on the Risk Committee, has the effect of enhancing our Board’s risk oversight function. Our independent Chairman promotes open communication regarding risk issues through his role as Chairman by approving Board agendas and serving as the principal liaison among our independent directors, and between our independent directors and our CEO and other members of senior management. Our Board also believes that, as a result of his role as CEO and a director, Mr. Sloan’s knowledge of our Company’s businesses, strategy, and risks significantly contributes to our Board’s understanding and appreciation of risk issues.

 

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Communications with our Directors

Stockholders and other interested parties who wish to communicate with our Board, including our Chairman or our non-employee or independent directors as a group, may send an e-mail to BoardCommunications@wellsfargo.com or a letter to Wells Fargo & Company, P.O. Box 63750, San Francisco, California 94163.

Additional information about communication with our directors and our Board’s process for reviewing communications sent to our Board or its members is provided on our website at: https://www.wellsfargo.com/about/corporate/governance.

Additional Information

Compensation Committee Interlocks and Insider Participation

John S. Chen, Lloyd H. Dean, Susan E. Engel, Donald M. James, and Stephen W. Sanger served as members of the HRC in 2016. During 2016, no member of the HRC was an employee, officer, or former officer of our Company. None of our executive officers served in 2016 on the board of directors or compensation committee (or other committee serving an equivalent function) of any entity that had an executive officer serving as a member of our Board or the HRC. Certain HRC members had banking or financial services transactions in the ordinary course of business with our banking and other subsidiaries, as described under Related Person Transactions.

Other Matters Relating to Directors

Susan E. Engel, one of our directors, served as chair and chief executive officer of Lenox Group Inc. (successor to Department 56), a tabletop, giftware, and collectibles company, from November 1996 until she retired in January 2007. In November 2008, Lenox Group filed a voluntary petition for relief under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York. Susan G. Swenson, one of our directors, served as chief operating officer of Amp’d Mobile, Inc., a mobile technology provider, from October 2006 until July 2007. In June 2007 Amp’d Mobile filed a voluntary petition for relief under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware, and in July 2007 Amp’d Mobile ceased operations and thereafter sold its assets.

 

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Director Compensation

 

 

The table below provides information on 2016 compensation for our non-employee directors other than Karen B. Peetz and Ronald L. Sargent who joined our Board in 2017. Mr. Sloan is an employee director and does not receive separate compensation for his Board service. In addition, Mr. Stumpf, as a former employee director, did not receive separate compensation for his Board service during 2016. Our Company reimburses directors for expenses incurred in their Board service, including the cost of attending Board and committee meetings. Additional information on our director compensation program follows the table.

2016 Director Compensation Table

 

Name (1)

   Fees
Earned
or Paid
in Cash
($)(2)(3)
     Stock
Awards
($)(4)
     Option
Awards
($)(5)
     Non-Equity
Incentive
Plan
Compensation
($)
     Change in
Pension

Value and
Nonqualified
Deferred
Compensation
Earnings
     All
Other
Compensation
($)(6)
     Total
($)
 
(a)    (b)      (c)      (d)      (e)      (f)      (g)      (h)  

John D. Baker II

     207,000        180,002        -            -            -            5,000        392,002    

Elaine L. Chao

     127,000        180,002        -            -            -            5,000        312,002    

John S. Chen

     123,000        180,002        -            -            -            -        303,002    

Lloyd H. Dean

     196,000        180,002        -            -            -            -        376,002    

Elizabeth A. Duke

     201,131        180,002        -            -            -            5,000        386,133    

Susan E. Engel

     159,000        180,002        -            -            -            -        339,002    

Enrique Hernandez, Jr.

     236,000        180,002        -            -            -            5,000        421,002    

Donald M. James

     141,000        180,002        -            -            -            5,000        326,002    

Cynthia H. Milligan

     192,000        180,002        -            -            -            5,000        377,002    

Federico F. Peña

     200,673        180,002        -            -            -            5,000        385,675    

James H. Quigley

     249,000        180,002        -            -            -            -        429,002    

Judith M. Runstad

     76,327        -        -            -            -            -        76,327    

Stephen W. Sanger

     300,628        180,002        -            -            -            5,000        485,630    

Susan G. Swenson

     177,000        180,002        -            -            -            -        357,002    

Suzanne M. Vautrinot

     153,000        180,002        -            -            -            -        333,002    

 

(1)   Ms. Chao resigned as a director effective January 31, 2017 upon her confirmation as Secretary of the U.S. Department of Transportation. Ms. Runstad retired as a director effective April 26, 2016, the date of our 2016 annual meeting.

 

(2)   Includes fees earned, whether paid in cash or deferred, for service on our Company’s Board in 2016 (including any such amounts paid in 2017) as described under “Cash Compensation” below. Also includes fees paid to non-employee directors who serve on the board of directors of Wells Fargo Bank, N.A. (“Bank”), a wholly owned subsidiary of our Company, or are members of one or more special purpose committees. Messrs. Dean, Hernandez, Peña, Quigley, and Sanger and Ms. Milligan, as the current directors of the Bank, and Ms. Runstad as a former director of the Bank from January 1, 2016 to February 29, 2016, received an annual cash retainer of $10,000, payable quarterly in arrears, and a fee of $2,000 for any separate meeting of the Bank Board not held concurrently with or immediately prior to or following a Company Board or committee meeting. Effective March 1, 2016, Mr. Peña succeeded Ms. Runstad, who retired from our Board at the 2016 annual meeting, as a director of the Bank. In 2016, all except for two Bank Board meetings were held concurrently with or immediately prior to or following a Company Board or standing committee meeting. A fee of $2,000 was paid for special purpose committee meetings attended that were not held concurrently with or immediately prior to or following a Company Board or committee meeting.

 

(3)   Includes fees earned in 2016 but deferred at the election of the director. The following table shows the number of stock units credited on a quarterly basis to our non-employee directors under our deferral program for deferrals of 2016 cash compensation paid quarterly in arrears and the grant date fair value of those stock units based on the closing price of our common stock on the date of deferral:

 

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Name

   Stock Units
(#)
     Grant Date
Fair Value ($)

John D. Baker II

     1,171.3106      56,750
     1,079.0984      50,750
     1,100.9485      48,750
     920.8855      50,750

Lloyd H. Dean

        245.0980        11,875
        231.2354        10,875
        268.1797        11,875
        260.8420        14,375

Donald M. James

        675.9546        32,750
        611.3119        28,750
        784.7787        34,750
        812.0123        44,750

Stephen W. Sanger

     1,289.9897        62,500
     1,243.8869        58,500
     1,411.4725        62,500
     2,125.3493      117,128

 

(4)   We granted 3,535 shares of our common stock to each non-employee director elected at the 2016 annual meeting of stockholders on April 26, 2016. The grant date fair value of each award is based on the number of shares granted and the NYSE closing price of our common stock on the grant date.

 

(5)   The table below shows for each non-employee director with outstanding options, the aggregate number of shares of our common stock underlying unexercised options at December 31, 2016. All options were fully exercisable at December 31, 2016. Directors who are not reflected in the table below do not hold any outstanding options with respect to our common stock.

 

Name

   Number of Securities
  Underlying Unexercised Options  

John D. Baker II

   22,570

John S. Chen

   37,784

Lloyd H. Dean

   25,454

Susan E. Engel

   34,540

Enrique Hernandez, Jr.

   37,784

Donald M. James

   22,570

Cynthia H. Milligan

   37,784

Judith M. Runstad

   37,784

Stephen W. Sanger

   37,784

Susan G. Swenson

   37,784

 

(6)   The amount under “All Other Compensation” for each of Messrs. Baker, Hernandez, James, Peña, and Sanger and Mses. Chao, Duke, and Milligan represents a Company matching contribution during 2016 under our Company’s charitable matching contribution program, which for 2016 matched charitable donations to qualified schools and educational institutions of up to $5,000 per year, on a dollar-for-dollar basis, per team member or non-employee director of our Company.

Structure of our Director Compensation Program

Cash Compensation

The following table shows the components of cash compensation paid to non-employee directors in 2016. Cash retainers and fees are paid quarterly in arrears. Directors who join our Board during the year receive a prorated annual cash retainer. Effective October 12, 2016, our Board and the GNC approved providing a $250,000 annual retainer for our Company’s independent Chairman, in lieu of the prior annual Lead Director fee of $60,000 and any Committee Chair fee the Chairman might otherwise receive, and a $100,000 annual retainer for the independent Vice Chairman, in lieu of any Committee Chair fee that the Vice Chairman might otherwise receive.

 

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2016 Component

       Amount ($)      

Annual Cash Retainer

     75,000  

Annual Independent Chairman Retainer1

     250,000  

Annual Independent Vice Chairman Retainer2

     100,000  

Annual Committee Chair Fees

  

AEC and Risk Committee

     40,000  

CRC, Credit Committee, Finance Committee, GNC and HRC

     25,000  

Regular or Special Board or Committee Meeting Fee3

     2,000  

 

  (1)   Effective October 12, 2016, our Board determined our Company’s independent Chairman would receive a $250,000 annual retainer, in lieu of the prior Lead Director Retainer of $60,000 and any committee chair fee the Chairman might otherwise receive.  

 

  (2)   Effective October 12, 2016, the Board determined our Company’s independent Vice Chairman would receive a $100,000 annual retainer, in lieu of any committee chair fee the Vice Chairman might otherwise receive.  

 

  (3)   Includes standing committee meetings, as well as special purpose committee meetings such as meetings of the Board’s special sales practices oversight committee, not held concurrently with or immediately prior to or following a Company Board or standing committee meeting.  

Equity Compensation

For 2016, each non-employee director elected to our Board at our Company’s annual meeting of stockholders received on that date an award of Company common stock having a value of $180,000. Each non-employee director who joins our Board as of any other date receives, as of such other date, an award of Company common stock having a value of $180,000 prorated to reflect the number of months (rounded up to the next whole month) until the next annual meeting of stockholders. The dollar value of each stock award is converted to a number of shares of Company common stock using the closing price on the grant date, rounded up to the nearest whole share.

Deferral Program

A non-employee director of our Company or the Bank may defer all or part of his or her cash compensation and stock awards. Cash compensation may be deferred into either an interest-bearing account or common stock units with dividends reinvested. The interest rate paid in 2016 on interest-bearing accounts was 2.14%. Stock awards may be deferred only into common stock units with dividends reinvested. Deferred amounts are paid either in a lump sum or installments as elected by the director.

Stock Ownership Policy

Our Board has adopted a director stock ownership policy that requires each non-employee director, within five years after joining our Board, to own shares of our common stock having a value equal to five times the annual cash retainer, and maintain at least that ownership level while a member of our Board and for one year after service as a director ends. Each director who has been on our Board for five years or more exceeded this ownership level as of December 31, 2016, and each director who has served less than five years is on track to meet this ownership level.

GNC Use of Compensation Consultant and Legal Advisors

The GNC is authorized to retain and obtain advice of legal, accounting, or other advisors at our expense without prior permission of management or our Board. The GNC retained FW Cook, a nationally recognized compensation consulting firm, to provide independent advice on non-employee director compensation matters for 2016. FW Cook compiles compensation data for the financial services companies the GNC considers our Labor Market Peer Group (which is the same peer group used to evaluate our Company’s executive compensation program) from time to time, and reviews with the GNC our Company’s non-employee director compensation programs generally and in comparison to those of our Labor Market Peer Group. In addition, in connection with its non-employee director compensation decisions during 2016, FW Cook compiled and the GNC considered compensation data for non-executive chairman positions where they exist at certain large companies, the practice of paying separate board and committee meeting fees, and the practice of paying additional compensation for service on special board committees. FW Cook also advises the GNC on the reasonableness of our non-employee director compensation levels compared to our Labor Market Peer Group. During 2016, the GNC also obtained independent legal advice regarding the payment of annual retainers to our Company’s independent Chairman and independent Vice Chairman.

 

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Information About Related Persons

 

Related Person Transactions

 

Lending and Other Ordinary Course Financial Services Transactions

During 2016, our executive officers, directors, and each of the persons we know of that beneficially owned more than 5% of our common stock on December 31, 2016 (Warren E. Buffett/Berkshire Hathaway Inc., BlackRock, Inc., and The Vanguard Group), and some of their respective immediate family members and/or affiliated entities had loans, other extensions of credit and/or other banking or financial services transactions with our banking and other subsidiaries in the ordinary course of business, including deposit and treasury management services, brokerage, investment advisory, capital markets, investment banking, and insurance transactions. Except for the relocation loans to two of our executive officers as described below, all of these lending, banking, and financial services transactions were on substantially the same terms, including interest rates, collateral, and repayment (as applicable), as those available at the time for comparable transactions with persons not related to our Company, and did not involve more than the normal risk of collectability or present other unfavorable features. In the ordinary course of business, we also purchase or sell insurance and other products and services of Berkshire Hathaway and its affiliates and purchase investment management technology products and advisory services from BlackRock and its affiliates. We and our customers also may invest in mutual funds, exchange traded funds and other products affiliated with BlackRock and Vanguard in the ordinary course of business. All of these transactions were entered into on an arms’ length basis and under customary terms and conditions.

Relocation Program

Under our Relocation Program, as in effect prior to the July 30, 2002 revisions described below, executive officers who relocated at our request were eligible to receive a first mortgage loan (subject to applicable lending guidelines) from Wells Fargo Home Lending on the same terms as those available to our team members, which terms included waiver of the loan origination fee. Executive officers who relocated to a designated high cost area were eligible to receive from our Company a mortgage interest subsidy on the first mortgage loan of up to 25% of the executive’s annual base salary, payable over a period of not less than the first three years of the first mortgage loan, and a 30-year, interest-free second mortgage down payment loan in an amount up to 100% of his or her annual base salary to purchase a new primary residence. The down payment loan must be repaid in full if the executive terminates employment with our Company or retires, or if the executive sells the home. Our Relocation Program was revised effective as of July 30, 2002 to eliminate these loan benefits for executive officers in compliance with the requirements under the Sarbanes-Oxley Act of 2002. Under the revised Relocation Program, any executive officer who received the mortgage interest subsidy and interest-free down payment loan benefit described above was allowed to continue to receive those benefits, but is not allowed to amend the terms of the loan to which these benefits relate.

We had interest-free loans outstanding under this Relocation Program to two of our executive officers during 2016, one of which was paid in full during the year. The following table provides information about these loans as of December 31, 2016:

 

Executive Officer

     Original  
Loan
Amount
   Highest
  Principal  
Balance
During
2016
     12/31/2016  
Balance
     Principal  
and
Interest
Paid
During
2016
     Interest  
Rate
 

Purpose

Richard D. Levy

Executive Vice President

and Controller

   $325,000    $325,000    $0    $325,000    0%   Loan made prior to his becoming an executive officer in September 2002 in connection with his relocation from New Jersey to California following his employment by our Company.

James M. Strother

Senior Executive Vice President and General

Counsel

   310,000    310,000    310,000    0    0   Loan made in connection with his relocation from Iowa to California after he assumed a new position with our Company and before he became an executive officer.

 

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Transactions with Entities Affiliated with Directors

Enrique Hernandez, Jr., one of our directors, is chairman, president, chief executive officer, and a majority owner of Inter-Con Security Systems, Inc. In 2016, Inter-Con provided guard services to certain of our Company’s retail banking stores under an agreement we first entered into in 2005. Payments in 2016 to Inter-Con under this contract did not exceed 1% of Inter-Con’s or our Company’s 2016 consolidated gross revenues, and each year since this contractual relationship began our Board has determined that our relationship with Inter-Con does not impair Mr. Hernandez’s independence under our Director Independence Standards. In 2016, we paid Inter-Con approximately $1.33 million for services under this contract. We believe that these services were provided on terms at least as favorable as would have been available from other parties. Our Company intends to continue its dealings with Inter-Con in the future on similar terms.

Family and Other Relationships

Since 1986, our Company has employed Mary T. Mack’s sister, Susan T. Hunnicutt, who is currently a Wholesale Banking relationship manager. In 2016, Ms. Hunnicutt received compensation of approximately $190,000. In February 2016, we also granted her 208 RSRs, which will convert to shares of common stock upon vesting and which had a grant date fair value of approximately $10,000 (based on the NYSE closing price per share of our common stock on the grant date of $48.10).

Since 2015, our Company has employed Richard D. Levy’s son-in-law, Matthew T. Bush, who is currently an Operational Risk Consultant in our Corporate Risk group. Although Mr. Bush received compensation of less than $120,000 in 2016, his compensation is expected to slightly exceed $120,000 in 2017.

We established the compensation paid to Ms. Hunnicutt and Mr. Bush in 2016 in accordance with our employment and compensation practices applicable to team members with equivalent qualifications and responsibilities and holding similar positions. In addition to this compensation, Ms. Hunnicutt and Mr. Bush also received employee benefits generally available to all of our team members. Neither Ms. Hunnicutt nor Mr. Bush is an executive officer of our Company and neither individual directly reports to an executive officer of our Company.

In 2010, our Board, based on the recommendation of the GNC, agreed as a matter of policy to strongly discourage our Company’s employment of any immediate family members of directors.

Related Person Transaction Policy and Procedures

 

Our Board has adopted a written policy and procedures for the review and approval or ratification of transactions between our Company and its related persons and/or their respective affiliated entities. We refer to this policy and procedures as our Related Person Policy. “Related persons” under this policy include our directors, director nominees, executive officers, holders of more than 5% of our common stock, and their respective immediate family members. Their “immediate family members” include spouses, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and any person (other than a tenant or employee) who shares the home of a director, director nominee, executive officer, or holder of more than 5% of our common stock.

Except as described below, the Related Person Policy requires either the GNC or AEC, depending upon the related person involved, to review and either approve or disapprove transactions, arrangements, or relationships in which:

 

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

 

    Our Company is, or will be a participant; and

 

    A related person or an entity affiliated with a related person has, or will have a direct or indirect interest.

We refer to these transactions, arrangements, or relationships in the Related Person Policy as “Interested Transactions.” Any potential Interested Transactions that are brought to our Company’s attention are analyzed by our Company’s Law Department, in consultation with management and with outside counsel, as appropriate, to determine whether the transaction or relationship does, in fact, constitute an Interested Transaction requiring compliance with the Related Person Policy. Our Board has determined that the GNC or AEC does not need to review or approve certain Interested Transactions even if the amount involved will exceed $120,000, including the following transactions:

 

    Lending and other financial services transactions with related persons or their affiliated entities that comply with applicable banking laws and are in the ordinary course of business, non-preferential, and do not involve any unfavorable features;

 

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    Employment of a “named executive officer” or of an executive officer if he or she is not an immediate family member of another Company executive officer or director and his or her compensation would be reported in our proxy statement if he or she was a “named executive officer” and the HRC approved (or recommended that our Board approve) such compensation;

 

    Compensation paid to one of our directors if the compensation is reported pursuant to SEC rules in our proxy statement;

 

    Transactions with another entity at which a related person’s only relationship with that entity is as a director, limited partner, or beneficial owner of less than 10% of that entity’s ownership interests (other than a general partnership interest);

 

    Transactions with another entity at which a related person’s only relationship with that entity is as an employee (other than an executive officer), if such transactions are in the ordinary course of business, non-preferential, and the amount involved does not exceed the greater of $1 million or 2% of such other entity’s consolidated gross revenues;

 

    Charitable contributions by our Company or a Company-sponsored charitable foundation to tax-exempt organizations at which a related person’s only relationship is as an employee (other than an executive officer) or a director or trustee (other than chairman of the board or board of trustees), if the amount involved (excluding Company matching funds) does not exceed the lesser of $1 million or 2% of such organization’s consolidated gross revenues; and

 

    Transactions with holders of more than 5% of our common stock and/or such holders’ immediate family members or affiliated entities, if such transactions are in the ordinary course of business of each of the parties, unless such stockholder is one of our executive officers, directors or director nominees, or an immediate family member of one of them.

The GNC approves, ratifies, or disapproves those Interested Transactions required to be reviewed by the GNC which involve a director and/or his or her immediate family members or affiliated entities. The AEC approves, ratifies, or disapproves those Interested Transactions required to be reviewed by the AEC that involve our executive officers, holders of more than 5% of our common stock, and/or their respective immediate family members or affiliated entities. Under the Related Person Policy, if it is not feasible to get prior approval of an Interested Transaction, then the GNC or AEC, as applicable, will consider the Interested Transaction for ratification at a future committee meeting. When determining whether to approve or ratify an Interested Transaction, the GNC and AEC will consider all relevant material facts, such as whether the Interested Transaction is in the best interests of our Company, whether the Interested Transaction is on non-preferential terms, and the extent of the related person’s interest in the Interested Transaction. No director is allowed to participate in the review, approval, or ratification of an Interested Transaction if that director, or his or her immediate family members, or their affiliated entities are involved. The GNC or AEC, as applicable, annually reviews all ongoing Interested Transactions.

 

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Ownership of Our Common Stock

 

 

Directors and Executive Officers

 

Stock Ownership Requirements and Other Policies

Stock Ownership Requirements

To reinforce the long-term perspective of stock-based compensation and emphasize the relationship between the interests of our directors and executive officers with your interests as stockholders, we require our non-employee directors and our executive officers to own shares of our common stock. Our Board has adopted robust stock ownership policies that apply to our directors and executive officers as summarized in the chart below.

 

 

Director Stock

Ownership Policy

Requirements

 

  

 

After five years on our Board, each non-management director must own stock having a value equal to five times the annual cash retainer we pay our directors, and maintain at least that stock ownership level while a member of our Board and for one year after service as a director terminates.

 

 

Executive Officer Stock

Ownership Policy

Requirements

 

  

 

Until one year following retirement, our executive officers must hold shares equal to at least 50% of the after-tax profit shares (assuming a 50% tax rate) acquired upon the exercise of options or vesting of RSRs and Performance Shares, subject to a maximum requirement of 10 times the executive officer’s cash salary.

 

Shares counted toward ownership include shares a non-employee director has deferred pursuant to the Directors Stock Compensation and Deferral Plan (Directors Plan) and any applicable predecessor director compensation and deferral plans, shares (or share equivalents) an executive officer holds in our Company 401(k) Plan, Supplemental 401(k) Plan, Deferred Compensation Plan, Direct Purchase and Dividend Reinvestment Plan, and shares owned by an executive officer’s spouse. Compliance with these stock ownership requirements is calculated annually and reported to the GNC (for non-employee directors) or to the HRC (for executive officers).

Anti-Hedging Policy

To further strengthen the alignment between stock ownership and your interests as stockholders, our Code of Ethics and Business Conduct requirements prohibit all team members, including our executive officers, and directors from engaging in derivative or hedging transactions involving any Company securities, including our common stock.

No Pledging Policy

Our Board has adopted policies that are reflected in our Corporate Governance Guidelines that prohibit our directors and executive officers from pledging Company equity securities as collateral for margin or other similar loan transactions.

 

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Director and Executive Officer Stock Ownership Table

The following table shows how many shares of common stock our current directors and nominees for director, our named executives, and all directors, named executives, and executive officers as a group owned on February 23, 2017, and the number of shares they had the right to acquire within 60 days of that date, including RSRs and Performance Shares that vest within 60 days of that date. This table also shows, as of February 23, 2017, the number of common stock units credited to the accounts of our non-employee directors, named executives, and all directors, named executives, and executive officers as of that date as a group under the terms of the benefit and deferral plans in which they participate. None of our directors, named executives, or executive officers, individually or as a group, beneficially own more than 1% of our outstanding common stock.

 

      Amount and Nature of Ownership (1)  

Name

   Common
Stock
Owned
(2)(3)
     Options
Exercisable
within 60 days
of 2/23/17
(4)
     Common
Stock Units
(5)(6)
     Total
(7)
 

Non-Employee Directors

     (a)        (b)        (c)        (d)  

John D. Baker II

     37,832        22,570        77,005        137,407  

John S. Chen

     38,674        30,390        12,509        81,573  

Lloyd H. Dean

     41,049        25,454        22,681        89,184  

Elizabeth A. Duke

     4,325        -        5,947        10,272  

Susan E. Engel

     19,189        34,540        101,212        154,941  

Enrique Hernandez, Jr.

     26,291        30,390        72,787        129,468  

Donald M. James

     3,863        22,570        72,598        99,031  

Cynthia H. Milligan

     104,835        30,390        31,871        167,096  

Karen B. Peetz

     273        -        758        1,031  

Federico F. Peña

     23,151        -        -        23,151  

James H. Quigley

     2,150        -        12,752        14,902  

Stephen W. Sanger

     21,592        37,784        116,289        175,665  

Ronald L. Sargent

     15        -        758        773  

Susan G. Swenson

     98,689        37,784        37,731        174,204  

Suzanne M. Vautrinot

     100        -        7,790        7,890  

Named Executives

           

David M. Carroll

     431,763        151,233        -        582,996  

Michael J. Loughlin

     280,741        44,217        13,318        338,276  

Avid Modjtabai

     379,870        372,755        16,223        768,848  

John R. Shrewsberry

     290,887        151,017        25,365        467,269  

Timothy J. Sloan*

     666,138        511,742        41,049        1,218,929  

John G. Stumpf

     2,425,160        -        75,792        2,500,952  

Carrie L. Tolstedt (8)

     960,142        1,408,118        31,541        2,399,801  
All directors, named executive officers, and executive officers as a group (28 persons)      6,520,404        3,435,985        869,508        10,825,897  

 

*   Mr. Sloan also serves as a director.

 

(1)   Unless otherwise stated in the footnotes below, each of the named individuals and each member of the group have sole voting and investment power for the applicable shares of common stock shown in the table.

 

(2)   The amounts shown for named executives and executive officers include shares of common stock allocated to the account of each named executive and executive officer under one or both of our Company’s 401(k) and Stock Purchase Plans as of February 23, 2017.

 

(3)   For the following directors, named executives, and for all directors, named executives, and executive officers as a group, the share amounts shown in column (a) of the table include certain shares over which they may have shared voting and investment power:
    John D. Baker II, 5,275 shares held in a trust of which he is a co-trustee and in a trust by a partnership in which he is a partner; also includes 25 shares held for the benefit of a family member for which he disclaims beneficial ownership;
    David M. Carroll, 428,590 shares held in a trust of which he is a co-trustee;
    John S. Chen, 4,000 shares held in a trust of which he is a co-trustee;
    Lloyd H. Dean, 35,095 shares held in a trust of which he is co-trustee, and 2,762 shares held in a joint account;
    Enrique Hernandez, Jr., 26,191 shares held in a trust of which he is a co-trustee;

 

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    Michael J. Loughlin, 272,332 shares held in a trust of which he is co-trustee;
    Cynthia H. Milligan, 8,675 shares held by spouse, and 1,061 shares held by spouse in an IRA account;
    Karen B. Peetz, 258 shares held in a joint account;
    Federico F. Peña, 22,966 shares held in a trust, and 85 shares held by spouse in an IRA account;
    Stephen W. Sanger, 21,492 shares held in a trust of which he is a co-trustee;
    John R. Shrewsberry, 276,756 shares held in a trust of which he is a co-trustee;
    Timothy J. Sloan, 664,940 shares held in a trust of which he is a co-trustee;
    John G. Stumpf, 1,982,353 shares held in trusts of which he is a co-trustee, and 5,387 shares held by spouse in an IRA account;
    Carrie L. Tolstedt, 942,206 shares held in a trust of which she is a co-trustee; and
    All directors, named executives, and executive officers as a group, 5,162,779 shares.

 

(4)   Includes the following number of RSRs and 2014 Performance Shares (including whole share dividend equivalents credited as of or within 60 days of February 23, 2017) that will vest within 60 days of February 23, 2017: Mr. Stumpf—0 RSRs and 0 Performance Shares; Mr. Shrewsberry—9,265 RSRs and 49,522 Performance Shares; Mr. Carroll—2,460 RSRs and 97,277 Performance Shares; Mr. Loughlin—0 RSRs and 44,217 Performance Shares; Ms. Modjtabai—2,248 RSRs and 97,277 Performance Shares; Mr. Sloan—2,885 RSRs and 97,277 Performance Shares; and Ms. Tolstedt—0 RSRs and 0 Performance Shares; and all named executives and executive officers as a group—58,765 RSRs and 588,378 Performance Shares.

 

(5)   For named executives and executive officers, includes the following whole common stock units credited to their accounts as of February 23, 2017 under the terms of the Supplemental 401(k) Plan and/or Deferred Compensation Plan, which amounts will be paid only in shares of common stock:

 

Name

       Supplemental    
401(k) Plan
     Deferred
     Compensation Plan    
 

David M. Carroll

     -        -  

Michael J. Loughlin

     12,424        894  

Avid Modjtabai

     15,992        231  

John R. Shrewsberry

     10,315        15,050  

Timothy J. Sloan

     41,049        -  

John G. Stumpf

     75,792        -  

Carrie L. Tolstedt

     31,541        -  

All executive officers as a group

     223,878        72,942  

 

(6)   For non-employee directors, includes common stock units credited to their accounts pursuant to deferrals made under the terms of the Directors Plan and predecessor director compensation and deferral plans. All of these units, which are credited to individual accounts in each director’s name, will be paid in shares of our common stock except for 24,952 shares in the aggregate, which will be paid in cash.

 

(7)   Total does not include the following RSRs and/or target number of Performance Shares (including dividend equivalents credited on that target number as of February 23, 2017) under our Company’s LTICP that were granted as of February 23, 2017, and were not vested or expected to vest within 60 days after February 23, 2017. Upon vesting, each RSR and Performance Share will convert to one share of common stock. Performance Share amounts are subject to increase or decrease depending upon our Company’s satisfaction of performance goals. See also the Outstanding Equity Awards at Fiscal Year-End table.

 

Name

           RSRs                  Performance    
Shares
 

David M. Carroll

     24,934        263,831  

Michael J. Loughlin

     12,044        132,481  

Avid Modjtabai

     24,723        263,831  

John R. Shrewsberry

     35,798        263,831  

Timothy J. Sloan

     37,402        346,574  

John G. Stumpf

     -        -  

Carrie L. Tolstedt

     -        -  

All executive officers as a group

     200,117        1,796,833  

 

(8)   Ms. Tolstedt agreed not to exercise any of her fully vested stock options pending our Board’s independent investigation and that, at the conclusion of such investigation, our Board would have the authority to determine the extent to which such options will be forfeited.

 

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, and related regulations require our directors, executive officers, and anyone holding more than 10% of our common stock to report their initial ownership of our common stock and any changes in that ownership to the SEC and the NYSE. We are required to disclose in this proxy statement the failure to file these reports by any reporting person when due. We assist our directors and executive officers in complying with these requirements. All reporting persons of our Company satisfied these filing requirements during 2016, except as described below. A required Form 4 report was not filed on a timely basis to report a purchase of shares by a third party investment manager on behalf of the spouse of Federico F. Peña, a director. In such case, the report was promptly filed after becoming aware of the transaction and the need to report it. In making these disclosures, we are relying on written representations of certain reporting persons and copies of the reports filed with the SEC.

Principal Stockholders

 

The following table contains information regarding the only persons and groups we know of that beneficially owned more than 5% of our common stock as of December 31, 2016.

 

Name and Address

of Beneficial Owner (1)(2)(3)

   Amount and Nature
of Beneficial Ownership
         of Common Stock (1)(2)(3)        
   Percent
of Common
            Stock  Owned (1)(2)(3)            
(a)    (b)    (c)

Warren E. Buffett

Berkshire Hathaway Inc.

3555 Farnam Street

Omaha, Nebraska 68131

   506,308,470    10.0%

The Vanguard Group, Inc.

100 Vanguard Boulevard

Malvern, Pennsylvania 19355

   300,638,322    5.98%

BlackRock, Inc.

55 East 52nd Street

New York, New York 10055

   280,518,866    5.6%

 

(1)   Based on a Schedule 13G/A filed on March 28, 2016 with the SEC by Warren E. Buffett and Berkshire Hathaway Inc., a diversified holding company that Mr. Buffett may be deemed to control. Mr. Buffett and Berkshire Hathaway share voting and dispositive power over 504,299,470 reported shares, which include shares beneficially owned by certain subsidiaries of Berkshire Hathaway. Mr. Buffett reports sole voting and dispositive power over 2,009,000 of the shares.

 

(2)   Based on a Schedule 13G/A filed on February 10, 2017 with the SEC by The Vanguard Group, Inc., on behalf of itself and certain of its subsidiaries. The Vanguard Group has sole voting power over 7,216,729 of the shares and shared voting power over 908,364 of the shares. The Vanguard Group has sole dispositive power over 292,581,935 of the shares and shared dispositive power over 8,056,387 of the shares.

 

(3)   Based on a Schedule 13G/A filed on January 27, 2017 with the SEC by BlackRock, Inc. on behalf of itself and certain of its subsidiaries. Each of BlackRock and its subsidiaries has sole voting power over 240,323,699 shares and shared voting power over 48,602 of the shares. Each of BlackRock and its subsidiaries has sole dispositive power over 280,470,264 shares and shared dispositive power over 48,602 of the shares.

 

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Executive Compensation

 

Compensation Governance and Risk Management

 

Described below are (1) our enterprise-wide Incentive Compensation Risk Management (ICRM) program and the changes we are making to strengthen the program and (2) changes we have made in our retail bank performance management and compensation programs.

Our Company’s Incentive Compensation Risk Management Program

The goal of our ICRM program is to promote incentive compensation arrangements that are consistent with appropriate risk taking, by balancing performance goals with the long-term strength and stability of our Company. Our ICRM program provides the governance framework, risk management standards, processes, and policies under which we manage incentive compensation risk. In response to the 2010 Interagency Guidance on Sound Incentive Compensation Policies, we established our ICRM program, which was initially focused primarily on financial (credit, market, and liquidity) risk. Over time, we have refined the ICRM program’s scope to better reflect Wells Fargo’s risk appetite and risk management goals and to meet evolving regulatory requirements. Recently, we have made enhancements to our program so that additional risks, such as reputation risk, are covered explicitly, rather than just through their ability to lead to material financial loss. In addition, we have accelerated enhancements to our ICRM program as one step toward restoring the trust of our investors, customers, team members, and other stakeholders.

ICRM Program Framework

The ICRM program framework has three main components supported by our overarching ICRM governance processes:

 

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We describe below each of these components of our ICRM program, including our ICRM governance, and provide details on enhancements we are making.

Incentive Compensation Risk Management Governance

Our ICRM program governance takes place at all levels of our Company:

 

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Each line of business is responsible for understanding the risks associated with each role covered by an incentive compensation arrangement and ensuring its incentive compensation arrangements are balanced appropriately and do not encourage unnecessary or inappropriate risk-taking.    Our centralized human resources group, partnering with our centralized risk group, is responsible for managing the ICRM program and providing independent oversight.    The ICC oversees the ICRM program. The ICC is chaired by our Director of Human Resources, and consists of our senior risk, human resources, and business executives.    The HRC establishes our overall incentive compensation strategy and oversees the effectiveness of our risk management practices relating to incentive compensation plans and programs for senior executives and those roles able to expose our Company to material risk.

 

 

Enhanced ICRM Governance

 

 

 

•      We recently centralized our control functions so that our risk, human resources, and finance team members now report to corporate leaders, rather than line of business leaders. We believe centralizing the reporting of our line of business control functions significantly strengthens the independent oversight of our incentive compensation programs within our lines of business.

 

•      As we enhance our Company-wide oversight of sales practices risk, we are improving the connections among our ICRM program, our performance management process, our risk oversight, and our new Office of Ethics, Oversight, and Integrity.

 

•      The HRC meets periodically with our Chief Risk Officer to discuss risk in relation to our incentive compensation plans and programs, and has revised its charter to reflect this practice.

 

•      The HRC’s oversight responsibilities have been expanded, as reflected in its charter, to include oversight responsibility for our Company’s human capital management, culture, Code of Ethics and Business Conduct, implementation and effectiveness of our Company’s ethics, business conduct, and conflicts of interest program (including training on ethical decision-making and processes for reporting and resolution of ethics issues), and our expanded ICRM program.

 

Roles Covered by the ICRM Program

Our ICRM program is intended to provide additional compensation oversight for team members serving in roles that may be able, individually or as a group, to expose Wells Fargo to material risk, as well as roles that are subject to specific regulatory requirements. To determine which roles should be covered by the ICRM program, we consider a combination of the role, and the type of risk over which the role has control or which it may impact (i.e., credit, market, liquidity, operational, or reputation risk). As a result of this annual assessment, the following team members are currently covered by our ICRM program due to their roles’ ability to expose our Company to material risk:

 

    Our executive officers;

 

    Senior management, including the heads of our lines of business and our control functions (our control functions include finance, human resources, compliance, audit, and risk); and

 

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    Revenue producers who take on financial risk (such as due to credit, litigation, or reputation risk) for our Company (e.g., commercial bankers, traders, and mortgage consultants).

In addition, other roles are covered by the ICRM program to comply with legal or regulatory requirements, or to meet our Company’s risk management objectives.

 

 

Broader ICRM Program Coverage

 

 

 

•      We are expanding our ICRM program to include additional roles (such as our Community Bank regional presidents and area and district managers), and to place greater emphasis on reputation risk issues, including sales practices, customer protection, and Company culture.

 

Incentive Compensation Risk Balancing

Risk management is incorporated into the design of all of our compensation programs. For our executive officers, our compensation risk-mitigation features include multi-year, performance-based vesting, clawback policies and forfeiture provisions, consideration of qualitative aspects of performance, and management’s and the HRC’s discretionary ability to adjust downward or eliminate long-term and annual incentive awards. Additional details on the compensation risk management features of our policies and practices applicable to our executive officers are provided in the CD&A.

Our human resources group coordinates our annual review of incentive compensation plans. During this review, we assess appropriate risk balancing, compliance with laws and regulations, and the potential to encourage team members to take unnecessary or inappropriate risks.

 

    Plans are developed, reviewed, and approved by cross-departmental teams that include team members from some or all of the following groups: business leaders; human resources; compensation; finance; compliance; and risk.

 

    For a new plan, an initial risk assessment is conducted. As part of this assessment, we evaluate the roles of team members covered by the plan, the inherent risks of those roles, the plan’s structure and risk-balancing features, and any additional controls in place to balance risk appropriately.

 

    Plans are reviewed annually with respect to compliance with applicable laws, regulations, and policies; alignment with incentivizing the right behaviors; and existence of appropriate risk balancing features to mitigate risk.

 

 

Expanded Incentive Compensation Risk Balancing

 

 

 

•      We are enhancing our incentive compensation design process to include stronger controls and oversight by our compensation, compliance, and risk groups, including through better integration of the risk assessment process described above.

 

•      We will use our plan risk assessments to address sales practices risk for all impacted incentive plans, and we will provide monitoring and governance over sales practices risks through this risk assessment process.

 

•      Select plans, such as those covering material risk takers or individuals or groups who could pose sales practices risk, will be subject to additional and more detailed reviews through this process, and we will expand the scope of the review requirements to capture additional roles that are deeper in the organization.

 

Monitoring and Validation

As part of the ICRM program and in compliance with our Company-wide guidelines, our business groups establish programs for monitoring compliance with policies and procedures and for validating incentive compensation award decisions. The goal of our monitoring program is to have processes and controls that lead to consistent application of our policies and procedures, especially in making downward adjustments to incentive compensation payments as a result of compliance, risk, or other issues. We also use the results of our monitoring program to facilitate enhancements to our policies and procedures, support pre-award decisions, and facilitate post-award validation efforts.

For select roles covered under our ICRM program, the focus of our monitoring has been on year-end performance evaluations and compensation decisions. As part of the incentive compensation process, our centralized risk and

 

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human resources groups conduct independent reviews of risk outcomes, such as loan losses or risk ratings. Human resources reviews and reports on compliance with defined procedures and guidelines, including on use of discretion, to help ensure risk outcomes, individual performance evaluations, and compensation adjustments are aligned.

Our Chief Risk Officer and our Director of Human Resources provide input on compensation decisions for our senior management. The HRC reviews and approves all incentive compensation recommendations for senior management, taking into account the summary of the risk evaluation provided by our Chief Risk Officer and our Director of Human Resources. For example, the HRC evaluates whether our executive officers have achieved their risk management responsibilities and confirms compliance with our Code of Ethics and Business Conduct and other policies.

In addition to monitoring requirements, we also validate outcomes following the completion of our annual incentive compensation process. Our validation analysis is conducted by the appropriate control functions to evaluate the effectiveness of our incentive compensation award decisions, with a focus on roles and responsibilities with a high degree of inherent risk and on any adverse risk outcomes. Through validation, we are able to adjust compensation decisions as we:

 

    Confirm that incentive compensation awards are reduced appropriately based on risks taken and risk outcomes; and

 

    Evaluate whether discretionary decisions are consistent and promote balanced risk-taking.

Our validation process also allows us to identify opportunities to enhance our incentive compensation plan designs and our processes.

For select roles covered by the ICRM program, the ICC reviews the risk assessment and monitoring and validation outcomes, and provides perspective on any enhancement opportunities that can be implemented for the following performance cycle. Management provides a report of these results to the HRC.

 

 

Stronger Monitoring and Validation

 

 

 

•      We are enhancing our monitoring and validation programs to include stronger controls and more consistent guidelines, including for use of discretion.

 

•      We are expanding our programs to include additional team members who may subject our Company to reputation risk.

 

•      Reporting to the ICC and HRC is being enhanced and will incorporate additional roles and requirements, to result in a stronger link between overall risk performance and compensation.

 

Key Retail Banking Performance Management and Compensation Changes

As a result of our unacceptable retail banking sales practices, we have enhanced our review of our compensation and performance evaluation practices in our retail branches to determine whether they have the potential to encourage unnecessary or inappropriate risk taking, unethical behavior, or harm to customers. Our overall objectives are to have our Community Bank performance management and rewards program align with our Vision and Values and support important business objectives, including building engaging work environments, delivering exceptional customer experiences, and growing and deepening lifelong customer relationships, all while effectively managing oversight and accountability, and maintaining the highest level of integrity and ethics.

To align with our objectives, we designed our new performance management and rewards program—which applies to our retail branch team members, including managers, tellers, and personal bankers—to incorporate performance management, incentives, and recognition to express what is expected of our retail branch team members, how their actions connect to business priorities, and how Wells Fargo rewards them for performance against these expectations. Our program was created based on our ICRM program standards through a collaborative effort led by human resources that included business leaders, and members of our risk, finance, compliance, and communications groups. Before finalizing the new program, we reviewed its design under the ICRM program to assess the roles of the team members covered by the new program, the risks inherent in the roles, the program’s risk-balancing features, and additional risk-balancing controls, as described above. As a result of this review, we concluded that the new program will effectively and appropriately balance our performance goals and our risk management goals.

Our new performance management and rewards program incorporates the following key principles:

 

    No product sales goals.     We eliminated product sales goals in our performance management and incentive plans so that performance and earning incentives are not dependent on, or measured by, reaching sales goals.

 

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    Longer-term performance metrics focused on customer growth and feedback.     We designed our new program to reward team members for providing exceptional customer experience, increasing the number of customers that use Wells Fargo as their primary financial institution, and satisfaction of our customers’ broad financial needs. We discontinued reporting the cross-selling metric as a measure of success for our retail bank. Our new metrics take a longer-term view of the customer relationship by emphasizing customer service, retention, and long-term relationship building.

 

    Adjusted pay mix.     We shifted to having a larger percentage of most branch team members’ total compensation comprised of base pay, rather than variable incentives.

 

    Team oriented.     We focus on the team, not just individual team members. Our new metrics are heavily weighted towards branch (team) goals, not just individual goals. For tellers, the metrics are all team goals. Manager’s incentives are based on customer outcomes, leadership, and risk management.

 

    Balanced judgment.     Our performance evaluations are qualitative and include more subjective assessments focused on teamwork, the quality of team members’ interactions with customers, and risk management.

 

    Stronger controls.     We established stronger controls to monitor for any unintended outcomes or behavior, including additional corporate oversight, and we have additional centralized monitoring, reporting, and controls to provide enhanced oversight of the sales process.

The following chart highlights key differences between our old and new retail bank incentive compensation plans:

 

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Item 2 – Advisory Resolution to Approve Executive Compensation

 

We provide our stockholders with an advisory vote to approve the compensation of our named executives or “say on pay.” Our Board has held an annual say on pay vote since 2011, consistent with the preference expressed by our stockholders. Our Board will consider the outcome of the vote under Item 3 below when deciding the frequency of future say on pay votes. If our Board continues to elect to hold an annual say on pay vote, the next vote after this year’s vote will occur at our 2018 annual meeting.

This year’s say on pay vote gives our stockholders an opportunity to express their views on our 2016 compensation program and related decisions for our named executives. This proxy statement describes actions taken in response to our retail banking sales practices, our named executives’ 2016 compensation, our compensation principles, and our incentive compensation risk management program changes.

Highlights include:

 

    Our independent Board members and Human Resource Committee (HRC) acted decisively on leadership succession and compensation as a result of our unacceptable retail banking sales practices. Our Board and the HRC caused the forfeiture of significant amounts of outstanding equity to promote executive accountability for our retail banking sales practices, eliminated our named executives’ 2016 annual incentive awards, and significantly reduced the payout of our continuing named executives’ earned long-term equity awards.

 

    Our Company is enhancing and broadening the scope of our incentive compensation risk management practices to discourage unnecessary or inappropriate risk taking, to improve our risk oversight process, and to help prevent detrimental reputation risk outcomes.

 

    For all 2016 compensation decisions for our named executives, our HRC continued to be guided by our compensation principles:

 

  1.

Pay for Performance

  2.

Foster Risk Management Culture

  3.

Attract and Retain Top Executive Talent

  4.

Encourage Creation of Long-Term Stockholder Value

Advisory Resolution (Say on Pay)

We are requesting your non-binding, advisory vote on the following resolution:

RESOLVED, that the compensation paid to the Company’s named executives, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables, and related material, is hereby APPROVED.

Voting and Effect of Vote

You may vote FOR, AGAINST, or ABSTAIN on this Item 2. Because your vote is advisory, it will not be binding on our Company, Board, or HRC and will not overrule any decision by our Board or require our Board to take any action. However, our Board values our stockholders’ views on executive compensation matters and will consider the outcome of this vote when making future compensation decisions for named executives.

Board Recommendation

As noted in the Compensation Discussion and Analysis (CD&A) section of this proxy statement, our HRC believes that its 2016 compensation decisions and the decisive executive accountability actions taken by our Board were consistent with our compensation principles, and that the compensation paid to our named executives for 2016 was reasonable and appropriate.

 

 

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Item 2 — Our Board recommends that you vote FOR the advisory resolution to approve the compensation paid to our Company’s named executives, as disclosed in this proxy statement in the CD&A, the compensation tables, and related material

 

 

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Item 3 – Advisory Proposal on the Frequency (Every Year, Every 2 Years, or Every 3 Years) of Future Advisory Votes to Approve Executive Compensation

 

In Item 2 above, our Company’s stockholders are asked to cast an advisory vote to approve the compensation of our named executives as described in this proxy statement. At least once every six years, our Company is required to ask stockholders to cast an advisory vote on how often our Company should include this say on pay vote in future proxy statements. Under this Item 3, stockholders may vote to have the say on pay vote every year, every 2 years, or every 3 years, or abstain.

Voting and Effect of Vote

Your proxy card or voting instruction form provides four choices for voting on Item 3: EVERY YEAR; EVERY 2 YEARS; EVERY 3 YEARS; or ABSTAIN.

Under our By-Laws, the option, if any, that receives the vote of a majority of the shares present in person or by proxy at the annual meeting and entitled to vote on this item will be the option selected by our stockholders. Because this proposal has multiple options, if none of the options receives the vote of a majority of the shares present in person or by proxy at the annual meeting and entitled to vote on this item, then we will consider the stockholders to have approved the option selected by the holders of a plurality of the issued and outstanding shares present in person or by proxy at the annual meeting and entitled to vote on this issue.

Our Board values the opinions of our stockholders as expressed through their votes on this Item 3. Although the vote is advisory and not binding on our Board, our Board will consider the outcome of this vote when making future decisions regarding the frequency of say on pay votes.

Board Recommendation

Our Board believes that an advisory vote on executive compensation that occurs every year continues to be the best alternative for our Company and our stockholders. In formulating its recommendation, our Board considered that the annual say on pay vote has worked well because it allows our stockholders to provide the most frequent input on our named executives’ compensation. Further, an annual say on pay vote aligns with our Board’s annual executive compensation decision-making process as described in this proxy statement.

 

 

 

 

 

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   Item 3 – Our Board recommends that you vote for the option of EVERY YEAR for the frequency of future advisory votes to approve executive compensation

 

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Compensation Discussion and Analysis

 

This CD&A describes our executive compensation philosophy, our 2016 executive compensation program, and our compensation decisions for the following current and former executive officers named in our Summary Compensation Table:

 

Named Executive        

  

Position

Timothy J. Sloan

  

CEO and President

John R. Shrewsberry

  

Senior Executive Vice President and CFO

David M. Carroll

  

Senior Executive Vice President, Wealth and Investment Management

Michael J. Loughlin

  

Senior Executive Vice President, Chief Risk Officer

Avid Modjtabai

  

Senior Executive Vice President, Payments, Virtual Solutions and Innovation

John G. Stumpf

  

Former Chairman and CEO

Carrie L. Tolstedt

  

Former Senior Executive Vice President, Community Banking

Mr. Sloan served as President and Chief Operating Officer (COO) prior to his promotion to CEO and President on October 12, 2016, upon Mr. Stumpf’s retirement. Prior to November 1, 2016, Ms. Modjtabai was Senior Executive Vice President, Consumer Lending and Operations. Ms. Tolstedt left our Company on September 27, 2016.

Compensation and 2016 Financial Performance Overview

Executive Compensation Actions to Promote Accountability

 

 

Since the beginning of our Board’s independent investigation into our retail banking sales practices, our Board and the HRC have taken a number of decisive actions to promote executive accountability. The design and risk management features of our Company’s executive compensation program provided our Board the discretion to forfeit and adjust unpaid equity and annual incentive awards. None of the decisions herein preclude our Board and the HRC from taking additional actions they deem appropriate, including actions based on findings from our Board’s investigation.

 

In September 2016, our Board took the following actions in response to our unacceptable retail banking sales practices:

 

    Our Board and Mr. Stumpf agreed that he would forfeit all of his unvested equity awards, forgo his salary during our Board’s independent investigation, and not receive a 2016 annual incentive award.

 

    Our Board caused Ms. Tolstedt to forfeit all of her unvested equity awards, not receive a 2016 annual incentive award, and agree not to exercise her fully vested stock options during our Board’s independent investigation.

Mr. Stumpf and Ms. Tolstedt received no severance payments or retirement enhancements in connection with their 2016 departures from our Company, other than a part-time driver available to Mr. Stumpf for security purposes, as described under Potential Post-Employment Payments.

Following Mr. Stumpf’s retirement in October 2016, our Board elected Mr. Sloan as CEO and elected Mr. Sanger, previously our Lead Director, as independent Chairman and Ms. Duke as independent Vice Chair of our Board, as discussed under Board Leadership and Management Succession Planning.

In February 2017, the HRC took the following additional actions, after discussion with Mr. Sloan, as a result of the senior leadership team’s collective accountability for the overall operational and reputation risk of our Company:

 

    Eliminated our continuing named executives’ 2016 annual incentive awards; and

 

    Significantly reduced the payout of our continuing named executives’ 2014 Performance Shares that vested following 2016 from the maximum of 150% or 125% of target—as otherwise would have been earned based on our 2014 to 2016 financial performance—to 75% of target, a reduction of 40% to 50%.

 

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The HRC’s compensation actions had meaningful consequences for our named executives. The individual impacts are described in more detail under Compensation Decisions for Named Executives. The approximate aggregate impacts were as follows:

 

 

Executive Compensation Actions to Promote Accountability

 

 

Initial actions to promote executive accountability for our retail banking sales practices:

   

$4.9 million

  =   Eliminated target values* of Mr. Stumpf’s and Ms. Tolstedt’s 2016 annual incentive awards
   

$60 million**

  =   Forfeited target amount of unvested equity for Mr. Stumpf and Ms. Tolstedt

 

Actions to reinforce accountability of those in senior management, including our continuing named executives, for our operational and reputation risk:

   

$4.4 million

  =   Eliminated target values of our continuing named executives’ 2016 annual incentive awards
   

$21 million**

 

=

 

  Reduced payout on our continuing named executives’ 2014 Performance Shares

 

*   For Mr. Stumpf, the HRC did not establish a pre-determined target annual incentive award opportunity below the overall limit, so the value of his actual 2015 award is included above.
**   Approximate dollar value at the time of forfeiture or reduction.

2016 Compensation Highlights

In line with our compensation principles discussed below, the HRC structured a high proportion of our named executives’ 2016 compensation in the form of long-term, performance-based equity that is forward-looking, contingent on financial performance and risk assessments, and subject to substantial holding requirements that extend beyond retirement to further support strong risk management. The following table summarizes our named executives’ 2016 compensation, including some of the compensation actions taken in response to our retail banking sales practices. The HRC’s decision to reduce the payout on the 2014 Performance Shares that were earned at maximum based on our 2014 to 2016 financial performance, and Mr. Stumpf’s and Ms. Tolstedt’s forfeiture of prior years’ equity awards, are not reflected in this table because those actions relate to compensation granted in a prior year. Performance Share values shown in the table are for awards made in 2016 that will vest at the end of three years based on our Return on Realized Common Equity (RORCE) performance, subject to the HRC’s discretion to reduce or eliminate these awards upon the occurrence of specified conditions. This table is not a substitute for, and should be read together with, the Summary Compensation Table, which presents named executive compensation paid, accrued, or awarded for 2016 in accordance with SEC disclosure rules and includes additional compensation elements and other important information.

 

Named Executive

     Base Salary  
($)(1)
     Annual Incentive  
Award

($)
       Long-Term Performance  
Share Award

($)(2)
               Total             
($)

Timothy J. Sloan

   2,329,502      0          10,500,000    12,829,502

John G. Stumpf

   2,070,498      0                  forfeited      2,070,498

John R. Shrewsberry

   1,741,188      0            7,500,000      9,241,188

David M. Carroll

   1,741,188      0            7,500,000      9,241,188

Michael J. Loughlin

   1,205,939      0            4,000,000      5,205,939

Avid Modjtabai

   1,741,188      0            7,500,000      9,241,188

Carrie L. Tolstedt

   1,285,249      0                  forfeited      1,285,249

 

(1)   The HRC approved the following base salary increases, effective March 6, 2016, to align with competitive market conditions and for Mr. Sloan, to reflect his increased responsibilities as President and COO: Mr. Sloan from $2,000,000 to $2,400,000; Messrs. Shrewsberry and Carroll and Mses. Modjtabai and Tolstedt from $1,700,000 to $1,750,000; and Mr. Loughlin from $1,000,000 to $1,250,000.

 

(2)   Dollar value on February 23, 2016, the date of grant, of 2016 Performance Shares at target. Actual pay delivered or realized for Performance Shares will be determined in the first quarter of 2019 and may range from zero to 150% of the target shares, plus dividend equivalents, depending on Company performance for 2016 to 2018 and risk assessments. No Performance Share value is set forth for Mr. Stumpf or Ms. Tolstedt because they forfeited their respective awards.

 

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Compensation Principles

In deciding 2016 named executive compensation, the HRC continued to be guided by the same four compensation principles that have historically governed its pay decisions for named executives:

 

  1.   Pay for Performance – Link compensation to Company, business line, and individual performance so that superior performance results in higher compensation and inferior performance results in lower compensation;

 

  2.   Foster Risk Management Culture – Structure compensation to promote a culture of prudent risk management consistent with our Company’s Vision and Values;

 

  3.   Attract and Retain Top Executive Talent – Offer competitive pay to attract, motivate, and retain industry executives with the skills and experience to drive superior long-term Company performance; and

 

  4.   Encourage Creation of Long-Term Stockholder Value – Use performance-based long-term stock awards with meaningful and lasting share retention requirements to encourage sustained stockholder value creation.

The following table illustrates how the executive accountability and 2016 compensation decisions for our named executives were tied to our compensation principles:

 

     Pay for
 Performance 
  Foster
Risk
    Management    
Culture
    Attract and  
Retain Top
Executive
Talent
  Encourage
Creation
of Long-Term
  Stockholder Value  

2016 Base Salary Increases

       

High Proportion of Long-Term Compensation

       

Long-Term Compensation in the form of Performance Share Awards

       

Forfeiture of Equity Awards

       

Elimination of Annual Incentive Awards and Reduction in Performance Share Payout

         

Company 2016 Financial Performance

We had solid financial performance in 2016. We continued to benefit from our diversified business model, generating $88.3 billion of revenue and earning $21.9 billion of net income in 2016, notwithstanding continued low interest rates, sluggish economic growth, global volatility that included a dramatic decline in oil prices, and significant challenges from our retail banking sales practices. We again grew deposits and loans, finishing 2016 with total deposits of $1.3 trillion and total loans of $967.6 billion, the largest loan portfolio of any U.S. bank. Our credit quality continued to be strong. Despite increased credit losses and higher nonaccruals in our oil and gas portfolio, our net charge-offs as a percentage of average loans remained near historic lows led by continued strength in residential real estate. We again grew our capital, and returned $12.5 billion in capital to stockholders through dividends and net share repurchases. Highlights of our Company’s 2016 financial performance include:

 

   

2016

Company

Financial

Performance

Highlights

  

•      Net income of $21.9 billion, compared with $22.9 billion for 2015

•      Diluted earnings per share of $3.99, compared with $4.12 for 2015

•      Revenue of $88.3 billion, compared with $86.1 billion for 2015

•      Noninterest expense of $52.4 billion, compared with $50.0 billion for 2015

•      Return on assets of 1.16%, compared with 1.31% for 2015

•      Return on equity of 11.49%, compared with 12.60% for 2015

•      Returned $12.5 billion to stockholders through dividends and net share repurchases

•      Strong capital position – Common Equity Tier 1 ratio (fully phased-in) well above the regulatory minimum, including regulatory buffers, and our internal buffer

•      Efficiency ratio of 59.3%, compared with 58.1% for 2015

•      Loans of $967.6 billion, compared with $916.6 billion at year end 2015

•      Deposits of $1.3 trillion, compared with $1.2 trillion at year end 2015

•      Total stockholder return of 4.6%, 9.7%, and 18.1%, respectively, for the 1-, 3- and 5-year periods ended December 31, 2016

 

 

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Governance Framework for Compensation Decisions

In making compensation decisions for our named executives, the HRC applies its discretion within a governance framework that includes consideration of risk management, absolute and relative company performance, business line performance for business line leaders, individual performance, and independent advice.

Risk Management

The HRC’s compensation governance framework includes assessments of the risks inherent in executive compensation practices. The HRC’s risk management assessments involve a number of senior executives from our Company’s risk management, human resources, legal, and compliance functions. As described under Compensation Governance and Risk Management, our Company is taking action to strengthen and further enhance the oversight of our executive compensation practices and the scope of its risk management processes. Summarized below are the risk management features of our compensation program for executive officers that allowed the HRC and our Board to take decisive action as a result of our retail banking sales practices, and thus were overriding factors for many of the decisions made with regard to our named executives’ 2016 compensation:

 

     Long-Term, Performance-Based, and At-Risk Compensation     
         
     
   

•      A high proportion of named executives’ compensation is in the form of long-term, performance-based equity.

 

•      Long-term equity remains at risk until payment, which allows the HRC to assess risk outcomes as they emerge over time.

 

•      Annual incentive awards are subject to risk assessments and, at the HRC’s discretion, may be paid in the form of long-term equity.

 

   
   
     Long-Term Compensation Risk-Balancing Features     
         
     
   

•      Our Performance Shares require achievement of absolute and relative financial performance targets.

 

•      Performance Shares are denominated in units that are equivalent to Company shares at the beginning of the performance period and are credited with dividend equivalents during the performance period, so earned and vested shares reflect absolute total stockholder return performance from the time the award is made.

 

•      Performance Share awards are reduced if our Company incurs a Net Operating Loss.

 

•      Equity compensation does not accelerate upon retirement (pays on the original payment schedule).

 

   
   
     Compensation Policies Reinforce Risk Management     
         
     
   

•      Our Company’s stock ownership policy applies to executives until one year after retirement.

 

•      Executive officers are prohibited from pledging Company equity securities in connection with a margin or other similar loan and from hedging and speculative trading in Company stock.

 

•      Equity compensation is subject to forfeiture conditions and clawback provisions that allow the HRC to consider risk outcomes.

 

   
   
     Compensation Programs and Individual Performance Evaluations Include Risk Considerations     
         
     
   

•      The HRC evaluates our named executives’ performance based on their focus on appropriate risk management practices and compliance with our Code of Ethics and Business Conduct and other policies to maintain individual accountability for risk outcomes and to encourage leadership that aligns with our Vision and Values.

 

•      The HRC oversees management’s review of our incentive and commission-based compensation practices to ensure pay aligns with our compensation principles, including risk management.

 

   

Company Performance

The HRC regularly assesses our Company’s absolute performance and its performance relative to peers. This focus on Company performance is demonstrated by the HRC’s decision to tie long-term incentive compensation to Company

 

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performance over time. Further, for each fiscal year, the HRC determines threshold performance measures under our Performance Policy that is part of the LTICP, at least one of which must be achieved for annual incentives to be earned by named executives. Upon satisfaction of a threshold performance goal, each named executive may be awarded a maximum amount of incentive compensation of 0.2% of our Company’s net income, as adjusted for certain items, or such lesser amount as the HRC determines in its discretion. However, even if one or more threshold performance goals are satisfied, we may not pay annual incentive awards to named executives if our Company does not have positive net income. As described below under HRC Discretion, the HRC retains discretion to adjust or eliminate annual incentive awards.

Peer Group Analysis

The HRC uses peer group data to inform its decisions regarding the compensation of named executives. The HRC periodically reviews and may adjust the peer groups as part of its regular review of executive compensation and pay practices. For 2016, the HRC continued to use two separate, but overlapping peer groups: (1) the Financial Performance Peer Group, which is a subset of the KBW Bank Sector Index and consists of 11 financial services companies that best match our Company in scope, scale, business model/mix, and geography, and with which we most directly compete for financial capital and customers; and (2) the Labor Market Peer Group, which consists of ten companies, also of similar scope and scale, with which we most directly compete for executive talent.

For 2016, the HRC used the Financial Performance Peer Group to assess our Company’s relative overall financial performance and to set and measure the RORCE performance for determining the earned Performance Share awards. The HRC used the Labor Market Peer Group to evaluate overall pay levels and practices for our named executives.

The members of the two peer groups are:

 

Financial Performance Peer Group

  

Labor Market Peer Group

  Bank of America Corporation

  

American Express Company

  BB&T Corporation

  

Bank of America Corporation

  Capital One Corporation

  

The Bank of New York Mellon Corporation

  Citigroup Inc.

  

Citigroup Inc.

  Fifth Third Bancorp

  

The Goldman Sachs Group, Inc.

  JPMorgan Chase & Co.

  

JPMorgan Chase & Co.

  KeyCorp

  

Morgan Stanley

  The PNC Financial Services Group, Inc.

  

The PNC Financial Services Group, Inc.

  Regions Financial Corporation

  

State Street Corporation

  SunTrust Banks, Inc.

  

U.S. Bancorp, Inc.

  U.S. Bancorp, Inc.

    

Financial Performance Peer Group.     For 2016, the HRC compared our Company’s financial performance with the Financial Performance Peer Group based on measures commonly used for analyzing financial services companies, including those relating to:

 

    Profitability, including earnings per share, revenue, net interest margin, efficiency ratio, operating leverage, and pre-tax pre-provision income;

 

    Stockholder returns, including return on average common equity, RORCE, total stockholder return, and price-earnings ratio;

 

    Balance sheet size and composition, including average total deposits, retail deposit market share, and average loans;

 

    Credit quality, including nonperforming assets ratios; and

 

    Capital ratios, including regulatory capital ratios.

The HRC does not have a pre-established formula for scoring and weighting financial measures in evaluating our Company’s performance. The HRC relies on its judgment in evaluating our Company’s overall performance compared to the Financial Performance Peer Group.

Labor Market Peer Group.     In considering the 2016 compensation actions for our named executives and to track competitive pay levels and trends generally, the HRC reviewed compensation data for the Labor Market Peer Group. The Labor Market Peer Group companies provide the basis for our competitive compensation comparisons that the HRC considers in establishing the total compensation opportunities for our named executives. In making its

 

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compensation decisions, the HRC reviewed total compensation levels for the Labor Market Peer Group, including at the estimated median and 75th percentile. The HRC targets total compensation that is competitive with total compensation for comparable positions and performance at peer companies.

Business Line Performance

In recent years, the HRC has assessed business line performance results for named executives with business line responsibilities. Because the HRC decided to eliminate all named executives’ 2016 annual incentive awards to reflect the senior leadership team’s collective accountability for our retail banking sales practices, 2016 business line performance was not specifically assessed for purposes of our named executives’ 2016 compensation.

Individual Performance

In recent years, the HRC has also considered a variety of individual performance factors to determine the annual incentive awards for our named executives. In deciding that our continuing named executives would not receive an annual incentive award for 2016, the HRC considered the leadership team’s collective accountability for the operational and reputation risk of our Company, and not any findings of improper behavior in our Board’s ongoing investigation. However, the HRC continued to review and evaluate each named executive’s individual performance as part of its responsibilities for talent management and succession planning, and for conducting our CEO’s performance evaluation.

Independent Compensation Consultant Advice

The HRC is authorized to retain and obtain advice of legal, accounting, or other advisors at our Company’s expense without prior permission of management or our Board. The HRC retained FW Cook to provide independent advice on executive compensation matters for 2016. To help maintain the independence of any consultant retained by the HRC, the HRC is required under its charter to pre-approve all services performed for our Company by FW Cook, other than the services performed for the GNC for non-employee director compensation. The HRC annually reviews the services performed by and the fees paid to FW Cook, and FW Cook does no other work for our Company or management other than to provide consulting services to the GNC, HRC, and Board that are directly related to executive and non-employee director compensation. All services provided to the HRC and our Board in 2016, other than those performed for the GNC for non-employee director compensation, were pre-approved by the HRC. In November 2016, the HRC assessed the independence of FW Cook and its Chairman, George Paulin, who is the lead advisor, and concluded that no conflict of interest exists.

From time to time, FW Cook compiles compensation data for the Labor Market Peer Group, and reviews with the HRC our executive compensation programs generally and compared to those of our Labor Market Peer Group. FW Cook also advises the HRC on the reasonableness of our compensation levels compared to our Labor Market Peer Group, and the appropriateness of our compensation program structure in supporting our business objectives. During 2016, the HRC reviewed data compiled by FW Cook, including FW Cook’s calculations of the 25th, 50th, 75th, and 90th percentile amounts of annual salary, annual incentive, long-term equity, and total compensation amounts for Labor Market Peer Group named executives. The HRC used this compensation information, together with any reported changes in Labor Market Peer Group compensation, to help develop a framework for evaluating the competitiveness of the 2016 compensation for our named executives. Mr. Paulin participated in all of our regular HRC meetings during 2016.

Independent Legal Advice

Shearman & Sterling LLP is serving as independent counsel to our Board’s independent directors in connection with our Board’s investigation into our Company’s retail banking sales practices and related matters. Shearman & Sterling also assisted the HRC in its deliberations concerning 2016 compensation for our executive officers by sharing selected findings from the investigation and by providing legal advice on our executive compensation plans.

HRC Discretion

The final element in our compensation governance framework is the HRC’s exercise of business judgment and discretion to make compensation decisions for our named executives after taking into account all other aspects of our framework. There are certain situations where the HRC has no discretion to award incentive compensation, such as when a performance goal required for payment of incentive compensation under our Performance Policy is not met. However, if a threshold performance goal under our Performance Policy is satisfied, the HRC has discretion to decline to make awards or to award less than the maximum amount under the Performance Policy, if in the exercise of its business judgment the HRC determines exercising such discretion would be in the best interests of stockholders. The HRC also has discretion to pay some or all of any earned annual incentive award in stock instead of cash, or to provide for vesting and payment over time.

The HRC believes that our compensation governance framework provides a reliable and structured approach for making pay decisions. The HRC also believes that use of rigid formulas may not always provide the best results for stockholders; therefore, it takes into account all of the factors in our framework when making its compensation decisions. As a result, the HRC uses its discretion to make annual incentive award decisions for our named executives, but informs the discretion based on market and performance considerations, as explained throughout this CD&A.

 

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How the HRC Considers Prior Say on Pay Votes and Investor Feedback

At our Company’s 2016 annual meeting, our stockholders approved the advisory resolution on the 2015 compensation of our named executives by 96.7% of shares present at the meeting and entitled to vote on the advisory resolution. Our Company, Board, and the HRC pay careful attention to communications received from our stockholders on executive compensation matters, including the say on pay vote. During 2016, the HRC considered feedback received from our major stockholders on our executive compensation program and disclosures through our investor outreach program and the approval by our stockholders of our say on pay resolution in 2016. That feedback was reflected in the HRC’s decision to continue to maintain the overarching framework for our named executives’ compensation for 2016. Our investor feedback was also considered in the executive accountability actions taken by the HRC. Additional details on our investor outreach program are provided under Our Investor Outreach Program above.

Clawback and Forfeiture Policies and Provisions

Wells Fargo employs multiple clawback and forfeiture policies and provisions that are designed to encourage the creation of long-term, sustainable performance and to discourage our executive officers from taking imprudent or excessive risks that would adversely impact our Company or harm our customers.

These policies allowed the HRC and our Board to take decisive actions to promote executive accountability related to retail bank sales practices, as described in this proxy statement. Following the conclusion of our Board’s independent investigation, our Board and the HRC will continue to assess the effectiveness of these policies to decide whether enhancements are warranted.

 

Policy/

Provision

 

Trigger for Clawback or Forfeiture

 

Applicable Compensation

 

Applicable
Population

Unearned

Compensation

Recoupment

Policy

  Misconduct by an executive that contributes to our Company having to restate all or a significant portion of its financial statements   Any bonus or incentive compensation that was based on achievement of financial results that were restated downward   Executive officers

Extended

Clawback Policy

  Incentive compensation was based on materially inaccurate financial information or other materially inaccurate performance metric criteria, whether or not the executive was responsible   Incentive compensation that was based on materially inaccurate financial information or other materially inaccurate performance metric criteria*   Executive officers; certain other highly compensated employees

Equity Award

Clawback

Provisions

  Our equity award agreements and our LTICP provide that all awards are subject to the terms of any clawback policy maintained by Wells Fargo or required by law   Equity awards granted under the LTICP, for which an applicable Company clawback policy or legal requirement is triggered   All team members who receive Wells Fargo equity awards under the LTICP

Equity Award

Forfeiture

Provisions

 

•   Misconduct that has or might reasonably be expected to cause reputation or other harm to our Company or any conduct that constitutes “cause,”

•   Misconduct or commission of a material error that causes or might be reasonably expected to cause significant financial or reputation harm to our Company or the executive’s business group,

•   Improper or grossly negligent failure, including in a supervisory capacity, to identify, escalate, monitor or manage, in a timely manner and as reasonably expected, risks material to our Company or the executive’s business group,

•   An award was based on materially inaccurate performance metrics, whether or not the executive was responsible for the inaccuracy, or

  Unpaid RSR and Performance Share awards are subject to forfeiture if the HRC determines that a trigger event has occurred   Executive officers; other team members who receive Performance Shares; team members who receive RSRs rather than cash for a portion of their earned annual incentive or bonus award
     
     
     
   

•   Our Company or the executive’s business group suffers a material downturn in financial performance or suffers a material failure of risk management

 

       

 

*   Our Board may effect reimbursement or recovery by seeking repayment, or by reducing or canceling amounts otherwise payable (subject to applicable law and the terms of the applicable plan or arrangement).

 

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If our Board or the HRC decides to clawback compensation following a determination that a senior executive has engaged in misconduct, including in a supervisory capacity, that results in significant financial or reputation harm to our Company or in a material financial restatement, our Board or the HRC will determine whether and to what extent public disclosure of information regarding such clawback, including the amount of compensation and the executive(s) impacted, is appropriate, subject to applicable legal and contractual restrictions, including privacy laws.

Compensation Elements

Our Company’s executive compensation program provides a mix of direct cash and equity compensation and participation in Company-sponsored plans that are generally available to other employees. In its discretion and guided by our compensation principles, the HRC determines the appropriate mix of direct compensation from the elements described below.

 

Pay Element

 

Description/Objectives

 

Performance Criteria

 

Vesting Period

Annual Compensation    
Base Salary  

•   Paid in cash

•   Reflects the executive’s experience and level of responsibility

•   Decreased focus on short-term risk-taking outweighs limits on tax-deductibility

 

•   Amount reviewed by the HRC and subject to adjustment based on changes in responsibilities or competitive market conditions

  N/A

Annual Incentive Award

(not earned by named executives for 2016 performance)

 

•   Typically paid in cash or a combination of cash and stock

•   Award decision based on Company, business line, and/or individual performance

 

•   Award opportunity and structure reviewed by HRC

•   Threshold performance criteria established by the HRC

 

•   Payout determined and awarded after end of fiscal year

•   A portion of award may vest over three years

Long-Term Compensation
Performance Shares  

•   Align management and stockholder interests

•   Emphasize performance-based culture

•   Include dividend equivalents subject to same vesting, performance, and forfeiture conditions

•   Strong long-term incentive, ownership, and retention tool

 

•   HRC determines performance criteria

•   2016 grants tied to Company’s RORCE ranking compared to the Financial Performance Peer Group, subject to absolute performance levels

•   2016 grants may vest from zero to 150% of target shares

•   2016 target shares adjusted downward by one-third for each year we incur a Net Operating Loss

•   Subject to forfeiture conditions

 

•   Typically “cliff” vest at end of three-year measurement period

•   Failure to achieve performance targets will reduce award to zero

RSRs

 

•   Align management and stockholder interests

•   Include dividend equivalents subject to same vesting and forfeiture conditions

•   Strong ownership and retention tool

 

•   HRC determines vesting criteria; typically time-based

•   Subject to forfeiture conditions

 

•   Typically ratable vest over three-to-five years

Stock Options

(not granted to named executives after 2009)

 

•   Ten-year term

•   Exercise price set at closing stock price on date of grant

 

•   Share price appreciation

 

•   Typically ratable vest over three years

Plans and Programs
Deferred Compensation  

•   Voluntary

•   Provides financial planning opportunity

•   Supplemental Company matching contributions and profit sharing contributions on deferrals that otherwise would have been made to our Company 401(k) Plan

 

•   Compensation deferred into accounts earning a return based on investment options similar to 401(k) Plan

 

•   Executive selects the time of payout

Benefit Programs  

•   Company 401(k) Plan with Company match and discretionary profit sharing contributions

•   Company Cash Balance Plan (frozen for future contributions in 2009)

•   Company health insurance, life insurance, and severance plans (employees pay certain costs for health insurance and life insurance)

•   No employment or severance agreements

 

•   Available to all Company employees on the same terms

 

N/A

Perquisites and Other Compensation  

•   De minimis overall absolute value

•   Our Company may pay certain filing and legal fees associated with an executive’s participation in our compensation program

  N/A  

N/A

 

 

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Compensation Decisions for Named Executives

Described below are the named executive compensation actions the HRC and our Board’s independent directors have taken since early 2016. These decisions were made within the compensation governance framework described above.

Executive Compensation Actions to Promote Accountability

Mr. Stumpf and Ms. Tolstedt.     In response to our retail banking sales practices, in September 2016, the independent directors of our Board and Mr. Stumpf agreed that he would forfeit all of his outstanding unvested equity awards, forgo his salary during the pendency of our Board’s independent investigation, and not receive an annual incentive award for 2016. Mr. Stumpf retired on October 12, 2016. He did not receive any severance payments or retirement enhancements in connection with his retirement, other than a part-time driver available for security purposes, as described under Potential Post-Employment Payments.

Also in September 2016, the independent directors of our Board determined that Ms. Tolstedt would forfeit all of her outstanding unvested equity awards and not receive an annual incentive award for 2016. Ms. Tolstedt was not paid severance and did not receive any retirement enhancements in connection with her separation from our Company. Ms. Tolstedt also agreed not to exercise her fully vested outstanding stock options during the pendency of our Board’s independent investigation and that, at the conclusion of such investigation, our Board would have the authority to determine the extent such options will be forfeited.

The RSR and Performance Share awards forfeited by Mr. Stumpf and Ms. Tolstedt, as long-term team members eligible for retirement, normally would have continued to vest after retirement, subject to any applicable performance and forfeiture conditions. The table below sets forth the value of these equity awards at the time of forfeiture based on the NYSE closing share price of our common stock on September 27, 2016, and all Performance Shares at target. Based on these assumptions, the forfeited value was approximately $41 million for Mr. Stumpf, and $19 million for Ms. Tolstedt. The actual pay that would have been delivered for the Performance Shares would have been determined after the conclusion of the three-year performance period and may have ranged from zero to 150% of the target shares, depending on Company performance. Based on our Company’s relative RORCE performance during 2014 to 2016, the 2014 Performance Shares would have delivered at 150% of target.

 

Named Executive

      

Award Type and Number of Shares Forfeited

(#)

        Value Forfeited
($)

John G. Stumpf

       2014 Performance Shares      (290,880        (13,115,773
       2014 RSRs (portion of 2013 bonus)      (7,757        (349,763
       2015 Performance Shares      (235,746        (10,629,775
       2015 RSRs (portion of 2014 bonus)      (12,573        (566,909
       2016 Performance Shares      (348,196        (15,700,160
       2016 RSRs (portion of 2015 bonus)      (17,587        (792,981
   

 

 

    Total         (912,739        (41,155,361

 

 

Carrie L. Tolstedt

       2014 Performance Shares      (127,987        (5,770,944
       2014 RSRs      (10,369        (467,560
       2014 RSRs (portion of 2013 bonus)      (1,370        (61,791
       2015 Performance Shares      (103,728        (4,677,091
       2015 RSRs      (13,554        (611,129
       2015 RSRs (portion of 2014 bonus)      (1,257        (56,691
       2016 Performance Shares      (158,271        (7,136,461
   

 

 

       

Total

          (416,536          (18,781,667

Continuing Named Executives.      On February 28, 2017, our Board took additional executive compensation actions to reinforce executive accountability for issues arising from our retail banking sales practices. These actions affected our highest-ranking executives based on the accountability of all those in senior management for our overall operational and reputation risk, and not on any findings of improper behavior in our Board’s ongoing independent investigation. None of these steps preclude our Board and the HRC from taking additional actions they deem appropriate, including actions based on findings from our Board’s independent investigation.

 

    Annual Incentive Awards.     The HRC decided in February 2017, after discussion with Mr. Sloan, our CEO, that the continuing named executives will not receive 2016 annual incentive awards. Although none of the continuing named executives have been found individually culpable for our retail banking sales practices, the HRC and Mr. Sloan viewed the senior leadership team as collectively responsible for our Company’s performance, including with regard to oversight of operational and reputation risk. Thus, the HRC made the decision to eliminate the senior leadership team’s 2016 annual incentive awards, despite our Company’s solid financial performance for 2016.

 

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The target, maximum, and actual values of our named executives’ 2016 annual incentive awards were as follows:

 

Named Executive

        Target 2016 Annual
Incentive Award ($)*
  Maximum 2016 Annual
Incentive Award ($)*
 

Actual 2016 Annual
Incentive Award ($)

    Timothy J. Sloan

       1,200,000               2,400,000             0        

    John G. Stumpf

       4,000,000       4,000,000     0        

    John R. Shrewsberry

       875,000       1,750,000     0        

    David M. Carroll

       875,000       1,750,000     0        

    Michael J. Loughlin

       625,000       1,250,000     0        

    Avid Modjtabai

       875,000       1,750,000     0        

    Carrie L. Tolstedt

       875,000       1,750,000     0        
    Total      9,325,000       14,650,000     0        
  *   For Mr. Stumpf, the HRC did not establish a pre-determined target and maximum incentive award opportunity below the overall limit, so the value of his actual 2015 award is included above.

 

    2014 Performance Shares.     Based on our RORCE performance for the three-year period from 2014 to 2016, our named executives listed below would have earned the maximum payout of 150% (125% for Mr. Shrewsberry, who was not a member of our Operating Committee at the time of grant) of the target number of Performance Shares granted in 2014. Our Company’s average RORCE performance of 12.7% resulted in a ranking equal to or greater than the 75th percentile compared with peers. However, to reinforce accountability of our leadership for the issues arising from our retail banking sales practices, and based on the accountability of senior management for our Company’s operational and reputation risk, the HRC exercised its discretion pursuant to the forfeiture provisions contained in the 2014 Performance Share award agreements to reduce the amounts that would have been earned, such that each of our named executives with outstanding 2014 Performance Shares received only 75% of the target number granted. This resulted in a 50% reduction in shares that would have been received for executives with a maximum payout of 150% and a 40% reduction for executives with a maximum payout of 125%. This reduced the value payable to the five continuing named executives by approximately $21 million in total (based on the NYSE closing price per share of our common stock on February 28, 2017, and including dividend equivalents), as shown below:

 

LOGO

Additional information regarding the actions taken with regard to team members who are not named executives is provided under Executive Accountability and Other Compensation Actions on page iv.

2016 Annual Base Salaries

The following changes were made to named executives’ base salaries in 2016:

 

    Effective March 6, 2016, the base salary of Mr. Sloan was increased from $2,000,000 to $2,400,000. This increase reflected his additional responsibilities following his election as President and COO in November 2015. Mr. Sloan retained his responsibilities as head of Wholesale Banking through October 12, 2016, when he was elected CEO and President.

 

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    Effective March 6, 2016, the base salary of each of Messrs. Shrewsberry and Carroll and Mses. Modjtabai and Tolstedt was increased from $1,700,000 to $1,750,000, and the base salary of Mr. Loughlin was increased from $1,000,000 to $1,250,000. These increases were intended to reflect market conditions, consistent with the considerations described above under Governance Framework for Compensation Decisions.

 

    Mr. Stumpf agreed to forgo his base salary during the course of our Board’s independent investigation, and thus did not earn a base salary from September 28, 2016 until his retirement on October 12, 2016.

Effective March 5, 2017, Mr. Shrewsberry’s base salary was increased to $2,000,000 to reflect his overall Company leadership responsibilities, including the expansion of his role during 2016 to include oversight of our Technology group.

2016 Long-Term Incentive Compensation

As described under Governance Framework for Compensation Decisions above, the HRC structures our named executives’ compensation to include a high proportion of long-term performance-based equity. Our long-term equity is subject to multi-year relative and absolute performance metrics that closely align management’s interests with our stockholders’ interests, remains “at risk” over time due to the awards’ forfeiture provisions and our clawback policies, and provides significant retention and motivational reward to our named executives.

In February 2016, the HRC granted the named executives Performance Shares. The HRC did not grant other forms of equity, including RSRs, to our named executives during 2016 (other than the portion of Mr. Stumpf’s 2015 annual incentive award that was paid in RSRs, which were subsequently forfeited). In granting the Performance Shares, the HRC continued to structure the vesting and the variability of the awards as an incentive and reward for our named executives to achieve continued superior financial performance, while managing risk appropriately, for our Company and our stockholders through the entire vesting period. The HRC also continued to incorporate a three-year RORCE metric in the Performance Shares because this metric:

 

    Focuses on long-term stockholder value creation;

 

    Reflects our objective to achieve profitability with strong capital levels, capturing the importance of both performance and risk management;

 

    Measures the return generated on our stockholders’ investment;

 

    Allows profitability benchmarking against our Financial Performance Peer Group; and

 

    Allows the awards to be tax-deductible under IRC Section 162(m), as RORCE is one of the stockholder-approved metrics in the LTICP.

The HRC also continued to include the downward Net Operating Loss adjustment to reduce the target number of Performance Shares in the event of poor absolute Company performance.

2016 Awards.     The HRC determined a dollar value of the February 2016 Performance Share grants, taking into account market data for the Labor Market Peer Group and individual experience and responsibilities, to align real pay delivery with long-term financial performance and value created for stockholders. The target dollar value of each executive’s Performance Share grant was converted to a number of shares of Company common stock using the closing stock price on the grant date, rounded up to the nearest whole share. The 2016 awards were as follows:

 

    Named Executive    

  Target Value
     of Performance     
Shares
  Target Number of
     Performance Shares     
 

     Number of Performance Shares     
that may be Earned

Based on RORCE

Performance Criteria

Timothy J. Sloan       $10,500,000       218,296  

0 – 150% of Target Performance

Shares Granted, plus dividend

equivalents reinvested during the

vesting period

John G. Stumpf       forfeited *       forfeited *  
John R. Shrewsberry       $7,500,000       155,926  
David M. Carroll       $7,500,000       155,926  
Michael J. Loughlin       $4,000,000       83,161  
Avid Modjtabai       $7,500,000       155,926  

Carrie L. Tolstedt

      forfeited *       forfeited *    

 

*   The HRC granted Mr. Stumpf 343,036 performance shares with a target value of $16,500,000, and Ms. Tolstedt 155,926 Performance Shares with a target value of $7,500,000. Mr. Stumpf’s and Ms. Tolstedt’s Performance Shares were forfeited in September 2016.

 

64            Wells Fargo & Company 2017 Proxy Statement


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Performance Share Metrics.     Each Performance Share entitles the holder to receive one share of Company common stock upon vesting plus dividend equivalents on the final number of earned and vested Performance Shares reinvested as additional Performance Shares from the date of grant and subject to the same vesting terms. The 2016 Performance Share awards are scheduled to vest in the first quarter of 2019 based on the average of our Company’s RORCE over the three-year performance period ending December 31, 2018, both relative to the Financial Performance Peer Group and subject to absolute performance levels. The final number of earned and vested Performance Shares is subject to adjustment upward to a maximum of 150% of the original target number granted, or downward to zero, and is also subject to adjustment in the event of a Net Operating Loss (NOL) and to forfeiture by the HRC, as described below.

RORCE, as defined in the LTICP, means the net income of our Company as reported in our consolidated financial statements (and subject to possible adjustments as specified in the LTICP), on an annualized basis less dividends accrued on outstanding preferred stock, divided by our Company’s average total common equity excluding average accumulated comprehensive income as reported in our consolidated financial statements for the relevant performance period.

Absolute RORCE Performance.     If our Company’s three-year average RORCE is equal to or greater than the specified maximum absolute performance level, the 2016 Performance Share award would result in vesting at maximum. If our Company’s three-year average RORCE is below the threshold absolute performance level, then the award would result in no payout.

 

    If Company RORCE is:      Then, Award % Vesting is:

Average three-year RORCE is greater than or equal to 15%

     150% x NOL-Adjusted Target Award Number (NOL adjustment is described below)

Average three-year RORCE is less than 2%

     Does not vest

Relative RORCE Performance.     If our Company’s three-year average RORCE is less than 15%, but equal to or greater than 2%, the 2016 Performance Share award would vest based on our Company’s relative performance among the companies in the Financial Performance Peer Group.

 

    If Company RORCE is:      Then, Award % Vesting is:

Top Quartile Ranking of 75% or more

     150% x NOL-Adjusted Target Award Number

Second Quartile Ranking of 50% or more

     100% to <150%* x NOL-Adjusted Target Award Number

Third Quartile Ranking of 25% or more

     50% to <100%* x NOL-Adjusted Target Award Number

Bottom Quartile Ranking below 25% (provided not lowest ranked)

     0% to <50%* x NOL-Adjusted Target Award Number

 

  *   Award percentage vesting is interpolated on a straight-line basis based on the actual level of performance within the applicable quartile, and rounded to the nearest whole percent.

Net Operating Loss Adjustment.     For any year in the three-year performance period that our Company incurs a Net Operating Loss, the target number of Performance Shares will be reduced by one-third. For purposes of the Performance Share awards, Net Operating Loss means a loss that results from adjusting a net loss as reported in our consolidated financial statements to eliminate the effect of the following items, each determined based on generally accepted accounting principles: (1) losses resulting from discontinued operations; (2) extraordinary losses; (3) the cumulative effect of changes in generally accepted accounting principles; and (4) any other unusual or infrequent loss that is separately identified and quantified.

Since 2013, the HRC has incorporated additional forfeiture conditions in Performance Share awards granted to our named executives to further balance risk and to reward our executives for focusing on long-term performance in a manner consistent with appropriate risk management practices and outcomes. The HRC has full discretion to cause the executives to forfeit all or a portion of these unpaid Performance Share awards upon the occurrence of specified conditions, including behavior that may have caused a material financial restatement or material reputation harm to our Company, as discussed above and under Clawback and Forfeiture Policies and Provisions.

Stock Ownership Policy.     Consistent with our stock ownership policy, and as a condition to receiving the 2016 Performance Share awards, each named executive has agreed to hold, while employed by our Company and for at least one year after retirement, shares of our common stock equal to at least 50% of the after-tax shares (assuming a 50% tax rate) acquired upon exercise or vesting of equity awards, up to a maximum shareholding requirement of ten times the executive’s base salary. This holding restriction is intended to align our named executives’ interests with our stockholders’ interests over the long-term and to mitigate compensation-related risk.

 

Wells Fargo & Company 2017 Proxy Statement            65


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Performance Shares Outstanding During 2016

The Performance Shares granted to our named executives during 2013, 2014, and 2015 had the same absolute and relative performance measures as the 2016 Performance Shares, as described above under 2016 Long-Term Incentive Compensation. For these four Performance Share awards that our named executives had outstanding in 2016, any amounts earned are summarized below:

 

Performance

Period

  

Performance Shares

Earned

Performance Shares granted March 2013

(2013-2015)

   150%1 of the target Performance Shares were earned based on the HRC’s certification in March 2016 of our Company’s average RORCE performance of 13.6%, which resulted in a ranking equal to or greater than the 75th percentile compared with peers; in addition, the HRC determined in March 2016 that no downward adjustment was applicable pursuant to the NOL provision or the forfeiture conditions

Performance Shares granted February 2014

(2014-2016)

   150%1 of the target Performance Shares were earned based on the HRC’s certification in February 2017 of our Company’s average RORCE performance of 12.7%, which resulted in a ranking equal to or greater than the 75th percentile compared with peers; however, the HRC caused each named executive to forfeit up to 50% of the award earned, as described above under 2014 Performance Shares2

Performance Shares granted February 2015

(2015-2017)

   To be determined between 0% and 150% of target number based on the HRC’s certification in the first quarter of 2018 of our Company’s average RORCE against the pre-established goals, subject to downward adjustment by 1/3 for each year our Company incurs a Net Operating Loss, and subject to forfeiture conditions, as described under Clawback and Forfeiture Policies and Provisions2

Performance Shares granted February 2016

(2016-2018)

   To be determined between 0% and 150% of target number based on the HRC’s certification in the first quarter of 2019 of our Company’s average RORCE against the pre-established goals, subject to downward adjustment by 1/3 for each year our Company incurs a Net Operating Loss, and subject to forfeiture conditions, as described under Clawback and Forfeiture Policies and Provisions2

 

(1)   125% for performance shares granted to Mr. Shrewsberry in each of March 2013 and February 2014, prior to his becoming a member of our Operating Committee.
(2)   The Performance Shares granted in 2014, 2015, and 2016 to Mr. Stumpf and Ms. Tolstedt were forfeited in September 2016 pursuant to the HRC’s discretion under the awards’ forfeiture conditions.

For additional information about the terms of these awards, see the CD&A discussion above, the narrative discussion following the Grants of Plan-Based Awards Table, footnotes (3), (4), and (5)  to the Outstanding Equity Awards at Fiscal Year-End Table, and our prior year proxy statements.

Other Compensation Components

Participation in Retirement and Other Benefit Programs

Our named executives have the same benefits generally available to all our team members, including health, disability, and other benefits, including our Company 401(k) Plan (with a Company match and potential discretionary profit sharing contribution). Our Company matched up to 6% of eligible participants’ certified compensation during 2016 and, in January 2017, the HRC authorized a discretionary profit sharing contribution of 1% of each eligible participant’s certified compensation under our Company 401(k) Plan based on our Company’s 2016 financial performance.

Employees hired prior to July 1, 2009 participate in our Company’s qualified Cash Balance Plan, which was frozen in July 2009. Certain of our named executives, together with team members whose covered compensation exceeds IRC limits for qualified plans, also participated in nonqualified Supplemental 401(k) and Supplemental Cash Balance Plans prior to those plans being frozen in July 2009. Following the freezing of the plans, our Company no longer makes additional contributions for participants in these plans, although additional investment income continues to accrue to participants’ individual accounts at the rates provided for in the plans.

Named executives and certain other highly compensated team members also can participate in our Deferred Compensation Plan. Subject to IRS limitations, this plan also provides for supplemental Company matching and profit sharing contributions for any compensation deferred into the Deferred Compensation Plan by a plan participant, including named executives, that otherwise would have been eligible for a matching or profit sharing contribution under our Company’s 401(k) Plan.

The HRC believes these programs are similar to and competitive with those offered by our Labor Market Peer Group. We provide information about the benefits under these plans in the Pension Benefits table and Nonqualified Deferred Compensation table and related narratives.

 

66            Wells Fargo & Company 2017 Proxy Statement


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Perquisites and Other Compensation

The HRC has intentionally limited perquisites to executive officers. For example, we do not provide executive officer benefits for relocation-related home purchase expenses and reimbursements for financial planning services, automobile allowance, club dues, and parking. For security or business purpose, we provide a car and driver to our CEO and from time to time to certain other executives, primarily for business travel and occasionally for commuting. In addition, the HRC may from time to time approve security measures, including residential security systems and services, if determined to be in the business interests of our Company for the safety and security of our executives and other team members. In 2016, our Company paid for the cost of assessing residential security, for the regular maintenance of previously installed home security systems, and for new systems for certain of our executive officers. From time to time we may pay the cost, if any, for a named executive’s spouse to attend a Wells Fargo business-related event where spousal attendance is expected or customary, including allowing an executive’s spouse to travel on our corporate aircraft for a Wells Fargo business purpose.

In January 2016, the HRC approved the payment of a $45,000 application fee and related legal expenses to prepare the application in connection with a filing by Mr. Stumpf under the Hart-Scott-Rodino Antitrust Improvements Act (HSR). Mr. Stumpf did not receive any tax gross-up on this amount. The filing was required because, due to stock price appreciation and Mr. Stumpf’s acquisition of shares under our long-term incentive compensation program, the dollar value of shares held by Mr. Stumpf approached thresholds established under HSR. The HRC considered it appropriate to pay these expenses because they arose as a result of the design and operation of our executive compensation program, which delivers a high proportion of total pay for our executives in long-term performance-based equity compensation.

Post-Retirement Arrangements

We do not have employment or other severance agreements with our named executives. We have a plan that provides salary continuation for team members, including named executives, who are discharged under the circumstances stated in that plan, such as following a reduction in force or other elimination of a team member’s position. Mr. Stumpf and Ms. Tolstedt did not receive any salary continuation, severance payments, or retirement enhancements in connection with their separations from our Company during 2016, other than a part-time driver available to Mr. Stumpf for security purposes, as described under Potential Post-Employment Payments.

Tax Considerations

Section 162(m) of the IRC limits the deductibility of compensation paid to certain executive officers in excess of $1,000,000, but excludes “performance-based compensation” from this limit. The Performance Shares granted to our named executives during 2016 are intended to satisfy the requirements for deductible compensation. However, no assurance can be given that compensation intended to satisfy the requirements for deductibility under Section 162(m) would, in fact, do so. In addition, the HRC retains the discretion to make awards and pay our named executives amounts such as base salary and RSRs that do not qualify as deductible compensation.

Conclusion

The HRC continues to review and revise our incentive plans, our incentive compensation oversight processes and procedures, and the awards made to team members we identify as able, individually or as a group, to expose our Company to material risk, including our executive officers. The HRC believes that its compensation decisions for our named executives in 2016 were consistent with our Company’s four compensation principles, and appropriately reflected the issues facing our Company during 2016. Based on the considerations described herein, the HRC believes the compensation paid to our named executives for 2016 was reasonable and appropriate.

Compensation Committee Report

 

In its capacity as the compensation committee of our Board, the HRC has reviewed and discussed with management the CD&A that immediately precedes this report. Based on this review and these discussions, the HRC has recommended to our Board that the CD&A be included in this proxy statement and incorporated by reference in our Annual Report on Form 10-K for the year ended December 31, 2016 for filing with the SEC.

 

  Members of the Human Resources Committee:
 

Lloyd H. Dean, Chair

John S. Chen

Susan E. Engel

  

Donald M. James

Stephen W. Sanger

 

Wells Fargo & Company 2017 Proxy Statement            67


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Executive Compensation Tables

 

 

Introduction to 2016 Summary Compensation Table

The following table, accompanying footnotes and narrative provide information about compensation paid, accrued, or awarded to our Company’s named executives for the years indicated, including compensation that was forfeited after it was awarded, as required by SEC rules. As discussed in the CD&A and in the footnotes to the table below, the HRC and our Board’s independent directors took actions during 2016 and 2017 to reduce, eliminate, or cause the forfeiture of certain compensation included in this table, as follows:

 

    Mr. Stumpf forfeited all of his unvested equity awards, effective September 27, 2016:  

 

  ¡    All 2014, 2015, and 2016 Performance Shares (included in columns (e) and (i)); and  

 

  ¡    Unvested portion of 2013, 2014, and 2015 annual incentive awards paid as RSRs (2014 and 2015 annual incentive awards are included in columns (f) and (i)).  

 

    Ms. Tolstedt forfeited all of her unvested equity awards, effective September 27, 2016:  

 

  ¡    All 2014, 2015, and 2016 Performance Shares (included in columns (e) and (i));  

 

  ¡    Unvested portion of RSRs granted in 2014 and 2015 (included in columns (e) and (i)); and  

 

  ¡    Unvested portion of 2013 and 2014 annual incentive awards paid as RSRs (2014 annual incentive award is included in columns (f) and (i)).  

 

    None of the named executives earned a 2016 annual incentive award, as shown in column (f).  

 

    For all of our named executives with outstanding 2014 Performance Shares (included in columns (e) and (i)), the HRC reduced by 50% (40% in the case of Mr. Shrewsberry) the amount that otherwise would have been payable in March 2017.  

The HRC structures the vesting and variability of long-term compensation to allow for adjustment based on risk outcomes over the performance period. All of our named executives’ outstanding RSRs and Performance Shares, including awards granted in 2016, remain subject to forfeiture provisions and our clawback policies.

For Mr. Stumpf and the other named executives, the table includes in column (g) changes in the actuarial present value of retirement benefits payable under frozen retirement plans. SEC rules require that this change be calculated using actuarial assumptions and methodologies specified in these rules. These retirement benefits have not been enhanced or increased since the plans were frozen in 2009.

 

2016 Summary Compensation Table

 

Name and

Principal Position (1)

  Year      Salary
($)(2)
     Stock
Awards
($)(3)(4)(5)
     Non-Equity
Incentive
Compensation
($)(6)
     Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(7)(8)
     All Other
Compensation
($)(9)
     Total
($)(10)
 
(a)   (b)      (c)      (e)      (f)      (g)      (h)      (i)  

Timothy J. Sloan

    2016        2,329,502        10,500,038        0        166,624        18,550              13,014,714