DEF 14A 1 d832756ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

 

Filed by the Registrant                               Filed by a party other than the Registrant  

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Under Section 240.14a-12

NORTHERN TRUST CORPORATION

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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  No fee required
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  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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LOGO

Northern Trust Corporation

50 South La Salle Street

Chicago, Illinois 60603

March 10, 2020

Dear Stockholder:

You are cordially invited to attend the Northern Trust Corporation 2020 Annual Meeting of Stockholders on Tuesday, April 21, 2020, at 10:30 a.m., Central Time, at our corporate headquarters at 50 South La Salle Street in Chicago, Illinois.

For more than 130 years, our stockholders’ support has been essential to Northern Trust’s stability and success. Your vote plays a vital role and is very important for our future. Whether or not you plan to attend the Annual Meeting, I urge you to vote your shares as promptly as possible.

The attached Notice of Annual Meeting of Stockholders and Proxy Statement provide you with information about each proposal to be considered at the Annual Meeting, as well as other information you may find useful in voting your shares. If you plan to attend the Annual Meeting, please review the information on admittance procedures in the accompanying Proxy Statement.

If you choose not to attend in person, you may vote your shares by Internet or telephone. If you received a paper copy of the proxy materials, you also may complete, sign, date, and return your proxy card in the enclosed envelope. Instructions for voting by Internet or telephone can be found on your proxy card or your Notice Regarding the Availability of Proxy Materials.

Thank you for your continued support of Northern Trust Corporation, and your contribution to the future of our company.

Sincerely,

 

 

LOGO

Michael G. O’Grady

Chairman of the Board, President and Chief Executive Officer


Table of Contents

LOGO

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

Date:

  

Tuesday, April 21, 2020

Time:

  

10:30 a.m., Central Time

Place:*

  

Northern Trust Corporation

50 South La Salle Street

Chicago, Illinois 60603

Purposes:

  

The purposes of the Annual Meeting are to:

  

   elect thirteen directors to serve on the Board of Directors until the 2021 Annual Meeting of Stockholders or until their successors are elected and qualified;

 

   approve, by an advisory vote, 2019 named executive officer compensation;

 

   ratify the appointment of KPMG LLP as Northern Trust Corporation’s independent registered public accounting firm for the 2020 fiscal year; and

 

   transact any other business that may properly come before the Annual Meeting.

Record Date:

  

You can, and should, vote if you were a stockholder of record at the close of business on February 24, 2020.

March 10, 2020

By order of the Board of Directors,

 

LOGO

Susan C. Levy

Executive Vice President, General Counsel and Corporate Secretary

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR

THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 21, 2020

This Proxy Statement, other proxy materials, our Annual Report on Form 10-K for the year ended December 31, 2019 and a link to the means to vote by Internet or telephone are available at http://materials.proxyvote.com/665859.

 

 

*            We intend to hold our annual meeting in person. However, we continue to monitor the situation regarding COVID-19 (Coronavirus) closely, taking into account guidance from the Center for Disease Control and Prevention and the World Health Organization. The health and well-being of our various stakeholders is our top priority. Accordingly, we are planning for the possibility that the annual meeting may be held solely by means of remote communication if we determine that it is not advisable to hold an in-person meeting. In the event the annual meeting will be held solely by remote communication, we will announce that fact as promptly as practicable, and details on how to participate will be issued by press release, posted on our website (see “Helpful Resources” on page 71 of the attached Proxy Statement) and filed with the U.S. Securities and Exchange Commission as additional proxy material. As always, we encourage you to vote your shares prior to the annual meeting.


Table of Contents

TABLE OF CONTENTS

 

PROXY SUMMARY

     1  

 

ITEM 1—ELECTION OF DIRECTORS

     7  

 

INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

     8  

 

BOARD AND BOARD COMMITTEE INFORMATION

     15  

Board Committees

     15  

Audit Committee

     16  

Business Risk Committee

     16  

Capital Governance Committee

     16  

Compensation and Benefits Committee

     17  

Corporate Governance Committee

     17  

Executive Committee

     17  

 

CORPORATE GOVERNANCE

     18  

Key Governance Practices

     18  

Director Independence

     18  

Related Person Transactions Policy

     19  

Executive Sessions

     19  

Board Evaluations

     20  

Board Leadership Structure

     20  

Risk Oversight

     21  

Corporate Governance Guidelines

     22  

Code of Business Conduct and Ethics

     22  

Management Development and Succession Planning

     22  

Director Nominations and Qualifications and Proxy Access

     22  

Stockholder Engagement

     23  

Communications with the Board and Independent Directors

     23  

Securities Transactions Policy and Procedures and Policy Against Hedging

     23  

 

SECURITY OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS

     24  

Delinquent Section 16(a) Reports

     24  

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

     25  

 

ITEM  2—ADVISORY VOTE ON EXECUTIVE COMPENSATION

     26  

 

COMPENSATION DISCUSSION AND ANALYSIS

     27  

Our Named Executive Officers

     27  

Executive Summary

     27  

2019 Advisory Vote on Executive Compensation

     31  

Guiding Principles for Executive Compensation

     31  

Risk Management

     31  

Executive Compensation Program Elements

     32  

Award Determination Process

     33  

2019 Compensation Decisions and Design

     35  

Other Compensation Practices

     43  
COMPENSATION AND BENEFITS COMMITTEE REPORT      46  

 

EXECUTIVE COMPENSATION

     47  

Summary Compensation Table

     47  

Grants of Plan-Based Awards

     48  

Description of Certain Awards Granted in 2019

     49  

Outstanding Equity Awards at Fiscal Year-End

     50  

Option Exercises and Stock Vested

     52  

Pension Benefits

     52  

Nonqualified Deferred Compensation

     54  

Potential Payments Upon Termination of Employment or a Change in Control of the Corporation

     56  

CEO Pay Ratio

     59  

 

DIRECTOR COMPENSATION

     60  

Annual Retainer and Other Fees

     60  

Deferral of Compensation

     60  

Other Director Compensation

     60  

Stock Ownership Guidelines

     60  

Director Compensation Table

     61  

 

EQUITY COMPENSATION PLAN INFORMATION

     62  

 

AUDIT COMMITTEE REPORT

     63  

 

AUDIT MATTERS

     64  

Fees of Independent Registered Public Accounting Firm

     64  

Pre-Approval Policies and Procedures of the Audit Committee

     64  

 

ITEM  3—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     65  

 

STOCKHOLDER PROPOSALS FOR 2021 ANNUAL MEETING

     66  

 

GENERAL INFORMATION ABOUT THE ANNUAL MEETING

     67  

 

HELPFUL RESOURCES

     71  
 

 


 

2020 Proxy Statement | Northern Trust Corporation     i  


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LOGO

PROXY SUMMARY

This summary highlights certain information contained in this Proxy Statement. The accompanying proxy is solicited on behalf of the Board of Directors (the “Board”) of Northern Trust Corporation (the “Corporation”) for use at the Corporation’s Annual Meeting of Stockholders to be held on Tuesday, April 21, 2020 (the “Annual Meeting”). You should read the entire Proxy Statement carefully before voting. On or about March 10, 2020, we began mailing or otherwise making available our proxy materials, including a copy of our Annual Report on Form 10-K for the year ended December 31, 2019, to all stockholders entitled to vote at the Annual Meeting.

For more information on voting and attending the Annual Meeting, see “General Information about the Annual Meeting” on page 67 of this Proxy Statement.

 

 

VOTING MATTERS

 

  

 

Board
Recommendation

  

 

Page

 

Item 1 – Election of Directors

  

FOR

  

 

7

 

Item 2 – Advisory Vote on Executive Compensation

  

FOR

  

 

26

 

Item 3 – Ratification of the Independent Registered Public Accounting Firm

  

FOR

  

 

65

 

 

 

 

2019 PERFORMANCE HIGHLIGHTS

 

In 2019, we remained focused on the three pillars of our financial strategy:

 

   

Achieve Growth across the business, as demonstrated by continued growth in revenue and trust, investment and other servicing fees.

 

 

LOGO

 


 

2020 Proxy Statement | Northern Trust Corporation     1  


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PROXY SUMMARY

 


 

   

Drive Productivity and Profitability, as demonstrated by our low noninterest expense as a percentage of our trust, investment and other servicing fees relative to historical levels, which in turn drove continued strong pre-tax margin, net income and earnings per share levels. We remain focused on continuing to improve our productivity and profitability, including through expense management initiatives and ongoing efforts to further embed a culture of sustainable expense management across the organization.

 

LOGO   LOGO

 

LOGO

 

 

LOGO

 

   

Generate Strong and Sustainable Stockholder Returns, as demonstrated by our return on average common equity (“ROE”), which remains at the high end of our target range of 10 – 15%, and increases in the amount of capital we have returned to common stockholders through dividends and share repurchases.

 

LOGO    LOGO

We achieved these financial results while continuing to maintain strong capital ratios, with all ratios exceeding those required for classification as “well capitalized” under federal bank regulatory capital requirements.

 


 

2   2020 Proxy Statement | Northern Trust Corporation


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PROXY SUMMARY

 


 

 

 

2019 CORPORATE STRATEGIC ACHIEVEMENTS

 

Execution on our strategies also was demonstrated through various strategic achievements, including:

 

   

Our Wealth Management business’s continued strength within target markets, with Northern Trust named the “Best Private Bank” in the United States and “Best Global Private Bank for Succession Planning” by the Financial Times Group, and the business’s continued expansion into new markets, with the opening of a new Philadelphia office in 2019.

 

   

The continued success of our Corporate & Institutional Services (“C&IS”) business in further penetrating certain key markets, such as Australia, and the significant investments that have been made to further integrate data and digital capabilities into the business’s services, including through Northern Trust Matrix®, our new, event-driven data architecture.

 

   

Our Asset Management business’s expansion of investment management offerings in the areas of greatest demand, with the launch of several new environmental, social and governance (“ESG”), quality low-volatility, global credit, and multi-asset investment strategies across the globe in 2019.

 

   

Continued execution of our “Value for Spend” expense management initiative, announced in October 2017 with the goal of realizing $250 million of expense run-rate savings by 2020, and ongoing efforts to further embed a culture of sustainable expense management across the organization.

 

 

 

KEY DEVELOPMENTS – BOARD AND MANAGEMENT SUCCESSION

 

During 2019 and 2020, our Board and executive leadership team experienced the following changes:

 

   

Michael G. O’Grady succeeded Frederick H. Waddell as Chairman of the Board, effective January 23, 2019. This transition occurred in conjunction with Mr. Waddell’s retirement from the Corporation. Mr. O’Grady had previously succeeded Mr. Waddell as Chief Executive Officer (“CEO”) of the Corporation, effective January 1, 2018.

 

   

Jay L. Henderson succeeded John W. Rowe as Lead Director, effective April 23, 2019. This transition occurred in conjunction with Mr. Rowe’s retirement from service as a director of the Corporation upon conclusion of his term at the Corporation’s 2019 Annual Meeting of Stockholders.

 

   

Jason J. Tyler succeeded S. Biff Bowman as Chief Financial Officer (“CFO”), effective January 1, 2020. This transition occurred in conjunction with Mr. Bowman’s announced retirement from the Corporation, effective March 2, 2020.

 

   

Mark C. Gossett succeeded Wilson Leech as Chief Risk Officer, effective February 1, 2020. This transition occurred in conjunction with Mr. Leech’s anticipated retirement from the Corporation, effective March 31, 2020.

 


 

2020 Proxy Statement | Northern Trust Corporation     3  


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PROXY SUMMARY

 


 

 

 

2019 TOTAL DIRECT COMPENSATION

 

The table below provides a comprehensive summary of each named executive officer’s total direct compensation for 2019 and 2018 and may be useful in reviewing key incentive compensation decisions made for 2019 and 2018 performance. It should be noted that the table below is not intended to be a substitute for the Summary Compensation Table on page 47 as certain amounts in the table below are different than the amounts in the Summary Compensation Table. The most significant difference is that the long-term incentive awards included in the Summary Compensation Table for 2019 and 2018 were granted in February 2019 and February 2018, respectively, for 2018 and 2017 performance, while the awards shown below for 2019 and 2018 were granted in February 2020 and February 2019, respectively, for 2019 and 2018 performance.

 

                          Long-Term Incentives         
Executive   Year    

Salary

(1)

   

Short-Term
Annual
Cash
Incentive

(2)

   

Performance
Stock

Units

   

Restricted

Stock
Units

    Total  

 

Michael G. O’Grady

Chairman, President and Chief Executive Officer

 

 

2019

 

 

$

950,000

 

 

$

2,075,000

 

 

$

4,436,250

 

 

$

2,388,750

 

 

$

9,850,000

 

 

 

2018

 

 

 

900,000

 

 

 

2,075,000

 

 

 

4,046,250

 

 

 

2,178,750

 

 

 

9,200,000

 

 

S. Biff Bowman

Former Chief Financial Officer (Served through December 31, 2019)

 

 

2019

 

 

 

625,000

 

 

 

930,000

 

 

 

1,410,500

 

 

 

759,500

 

 

 

3,725,000

 

 

 

2018

 

 

 

625,000

 

 

 

990,000

 

 

 

1,501,500

 

 

 

808,500

 

 

 

3,925,000

 

 

Steven L. Fradkin

President—Wealth Management

 

 

2019

 

 

 

625,000

 

 

 

1,110,000

 

 

 

1,683,500

 

 

 

906,500

 

 

 

4,325,000

 

 

 

2018

 

 

 

625,000

 

 

 

1,140,000

 

 

 

1,729,000

 

 

 

931,000

 

 

 

4,425,000

 

 

Peter B. Cherecwich

President—Corporate & Institutional Services

 

 

2019

 

 

 

625,000

 

 

 

1,050,000

 

 

 

1,592,500

 

 

 

857,500

 

 

 

4,125,000

 

 

 

2018

 

 

 

625,000

 

 

 

1,110,000

 

 

 

1,683,500

 

 

 

906,500

 

 

 

4,325,000

 

 

Robert P. Browne (3)

Chief Investment Officer

 

 

2019

 

 

 

550,000

 

 

 

930,000

 

 

 

1,410,500

 

 

 

759,500

 

 

 

3,650,000

 

 

 

2018

 

 

 

550,000

 

 

 

975,000

 

 

 

1,478,750

 

 

 

796,250

 

 

 

3,800,000

 

 

(1) Represents the applicable named executive officer’s salary, as determined in February 2019 and 2018, respectively.

(2) Represents the short-term incentive award received by the applicable named executive officer in February 2020 for 2019 performance and February 2019 for 2018 performance, respectively.

(3) Although Mr. Browne was not a named executive officer in 2018, his 2018 total direct compensation is provided for comparative purposes.

 

 

 

2019 OVERALL PAY MIX

 

Consistent with our pay for performance philosophy, the pay mix for our CEO and each of our other named executive officers heavily emphasizes incentive compensation. Our long-term incentive mix further emphasizes performance-based pay, with 65% of the long-term incentives being awarded in performance stock units earned based on performance over a three-year period, and 35% being awarded in restricted stock units.

 

 

LOGO

 


 

4   2020 Proxy Statement | Northern Trust Corporation


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PROXY SUMMARY

 


 

 

BOARD OF DIRECTORS

 

 

 

                 Committees of the Board

                Director

   Age    Audit    Business
Risk
   Capital
Governance
  Compensation
and Benefits
   Corporate
Governance
   Executive  
   
LOGO  

Linda Walker Bynoe

Independent

Director Since 2006

  

67

                

  

C

  

   
LOGO  

Susan Crown

Independent

Director Since 1997

  

61

       

           

    
   
LOGO  

Dean M. Harrison

Independent

Director Since 2015

  

65

  

  

C

                

   
LOGO  

Jay L. Henderson

Lead Director / Independent

Director Since 2016

  

64

  

       

 

  

  

   
LOGO  

Marcy S. Klevorn

Independent

Director Since 2019

  

60

  

  

                  
   
LOGO  

Siddharth N. “Bobby” Mehta

Independent

Director Since 2019

  

61

       

  

             
   
LOGO  

Michael G. O’Grady

Chairman, President and

Chief Executive Officer

Director Since 2017

 

  

54

                          

C

   
LOGO  

Jose Luis Prado

Independent

Director Since 2012

  

65

                

  

    
   
LOGO  

Thomas E. Richards

Independent

Director Since 2015

  

65

       

      

         
   
LOGO  

Martin P. Slark

Independent

Director Since 2011

  

65

                            
   
LOGO  

David H.B. Smith, Jr.

Independent

Director Since 2010

  

53

  

C

       

           

   
LOGO  

Donald Thompson

Independent

Director Since 2015

  

56

  

       

C

           

   
LOGO  

Charles A. Tribbett III

Independent

Director Since 2005

  

64

                

C

  

  

C - Chair         - Member

 

Board Tenure, Age and Diversity Statistics

 

 

5.2 Years

Median Tenure

 

    

 

 

62

Average Age

 

    

 

 

38%

Racial/Ethnic Minority Nominees

 

    

 

 

23%

Female Nominees

 


 

2020 Proxy Statement | Northern Trust Corporation     5  


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PROXY SUMMARY

 


 

 

 

GOVERNANCE HIGHLIGHTS

 

 

 

What We Do

 

       

 

What We Don’t Do

 

   

 Majority Independent Directors

 

 Engaged Lead Director

 

 Proxy Access Rights

 

 Stockholder Right to Call Special Meetings

 

 Frequent Executive Sessions for Independent Directors

 

 Annual Strategic Planning Meeting with Board and Executive Officers

 

 Regular Rotations of Committee Chairs

 

 Regular Reviews of Governance Documents

 

 Annual Board and Committee Self-Evaluations

      

  Plurality Voting in Uncontested Director Elections

 

  Staggered Board

 

  Poison Pill

 

  Supermajority Voting Requirements

 

  Overboarding of Directors

 

 

EXECUTIVE COMPENSATION HIGHLIGHTS

 

 

 

What We Do

 

       

 

What We Don’t Do

 

   

  Ensure our executives meet robust stock ownership guidelines, including holding requirements for any executive below the stock ownership guidelines

 

  Ensure performance-based compensation comprises the most significant portion of incentive compensation, with 65% of long-term incentives being awarded in performance stock units based on performance over a three-year period

 

  Subject short- and long-term incentive awards to potential forfeiture or clawback in the event of misconduct resulting in a restatement of our financial statements and certain other types of misconduct

 

  Use an independent compensation consultant to advise the Compensation and Benefits Committee

 

  Ensure overlapping membership between the Compensation and Benefits Committee and our Audit and Business Risk Committees

 

  Closely align pay and performance, with the Compensation and Benefits Committee validating this alignment annually

      

  Excise tax gross-ups for executive change in control arrangements

 

  Single-trigger change in control benefits

 

  Short selling, margining, hedging, pledging or hypothecating company shares permitted under our Securities Transactions Policy and Procedures

 

  Compensation plans that encourage excessive risk-taking

 

  Excessive perquisites

 

  Repricing of underwater options

 

  Dividend equivalents distributed on unvested performance or restricted stock unit awards

 

 

 

IMPORTANT DATES FOR 2021 ANNUAL MEETING

 

 

 

Stockholder Submission

 

          

 

Window for Submission

 

   

   Proposals for inclusion in the proxy statement

   g     

On or before November 10, 2020

   

   Other proposals (not included in the proxy statement)

   g     

Between November 22, 2020 and December 22, 2020

   

   Director nomination under proxy access provisions

   g     

Between October 11, 2020 and November 10, 2020

 

 


 

6   2020 Proxy Statement | Northern Trust Corporation


Table of Contents

 


 

ITEM 1—ELECTION OF DIRECTORS

Stockholders will be asked to elect thirteen directors at the Annual Meeting. Each of the thirteen nominees is currently serving as a director of the Corporation and its principal subsidiary, The Northern Trust Company (the “Bank”).

Each of the thirteen director nominees has consented to serve as a director if elected at the Annual Meeting. Each nominee elected as a director will serve until the next Annual Meeting of Stockholders or until his or her successor is elected and qualified. If any nominee is unable to serve as a director at the time of the Annual Meeting, your proxy may be voted for the election of another nominee proposed by the Board or the Board may reduce the number of directors to be elected at the Annual Meeting.

As discussed further under “Corporate Governance—Director Nominations and Qualifications and Proxy Access,” in evaluating director nominees, the Corporate Governance Committee considers a variety of factors, including relevant business and industry experience; professional background; age; current employment; community service; other board service; and ethnic and gender diversity. Accordingly, the thirteen director nominees possess a wide variety of experience, qualifications and skills, which equip the Board with the collective expertise to perform its oversight function effectively. Each of the candidates also has a reputation for, and long record of, integrity and good business judgment; has experience in leadership positions with a high degree of responsibility; is free from conflicts of interest that could interfere with his or her duties to the Corporation and its stockholders; and is willing and able to make the necessary commitment of time and attention required for effective Board service.

A summary of certain key experience, qualifications and skills represented by the nominees for election to the Board at the Annual Meeting, collectively, is set forth below.

 

 
Key Experience, Qualifications and Skills
   
LOGO  

Corporate governance and social responsibility

  LOGO  

Marketing

   
LOGO  

Finance and accounting

  LOGO  

Operations

   
LOGO  

Financial services

  LOGO  

Public company board experience

   
LOGO  

Global and international experience

  LOGO  

Risk oversight and management

   
LOGO  

Leadership of large, complex, highly regulated organizations

  LOGO  

Strategic planning and oversight

   
LOGO  

Talent management and succession planning

 

  LOGO  

 

Technology and innovation

 

Further information with respect to the nominees is set forth on the following pages.

The Board unanimously recommends that you vote FOR the election of each nominee.

 


 

2020 Proxy Statement | Northern Trust Corporation     7  


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INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

The following information about the nominees for election to the Board at the Annual Meeting is as of the date of this Proxy Statement, unless otherwise indicated.

 

 

 

LINDA WALKER BYNOE

 

 

Independent Director

 

LOGO

 

Director Since: 2006

Age: 67

 

Board Committees

 

  Compensation and Benefits

 

  Corporate Governance (Chair)

 

  Executive

 

  

 

Professional Experience

 

   Telemat Ltd. (project management and consulting firm)

 

¡   President and Chief Executive Officer, since 1995

 

Current Public and/or Investment Company Directorships

 

   Anixter International Inc., since 2006

 

   Equity Residential, since 2009

 

   Prudential Retail Mutual Funds, since 2005

 

Qualifications

 

The Board concluded that Ms. Bynoe should serve as a director based on her diverse consulting and investment experience, her expertise in public accounting, corporate governance, managing a private equity investment portfolio and strategy development and her experience as a director of other complex global corporations.

 

 

 

 

SUSAN CROWN

 

 

Independent Director

 

LOGO

 

Director Since: 1997

Age: 61

 

Board Committees

 

  Business Risk

 

  Corporate Governance

 

  

 

Professional Experience

 

   Owl Creek Partners, LLC (private equity firm)

 

¡   Chairman and Chief Executive Officer, since 2010

 

   Susan Crown Exchange Inc. (social investment organization)

 

¡   Chairman and Founder, since 2009

 

   Henry Crown and Company (company with diversified investments)

 

¡   Vice President, 1984 to 2015

 

Current Public and/or Investment Company Directorships

 

   Illinois Tool Works Inc., since 1994

 

Qualifications

 

The Board concluded that Ms. Crown should serve as a director based on her leadership, risk oversight, governance, and corporate responsibility experience developed through service at various large organizations, both commercial and nonprofit, including as Chair of the Board of Trustees at Rush University Medical Center and the Rush System.

 

 


 

8   2020 Proxy Statement | Northern Trust Corporation


Table of Contents

INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 


 

 

 

DEAN M. HARRISON

 

 

Independent Director

 

   LOGO

 

Director Since: 2015

Age: 65

 

Board Committees

 

  Audit

 

  Business Risk (Chair)

 

  Executive

 

  

 

Professional Experience

 

   Northwestern Memorial HealthCare (the primary teaching affiliate of Northwestern University Feinberg School of Medicine and parent corporation of Northwestern Memorial Hospital)

 

¡   President and Chief Executive Officer, since 2006

 

Qualifications

 

The Board concluded that Mr. Harrison should serve as a director based on his extensive experience leading a large, complex organization in a highly regulated industry.

 

 

 

 

JAY L. HENDERSON

 

 

Lead Director / Independent Director

 

   LOGO

 

Director Since: 2016

Age: 64

 

Board Committees

 

  Audit

 

  Capital Governance

 

  Compensation and Benefits

 

  Corporate Governance

 

  Executive

 

  

 

Professional Experience

 

   PricewaterhouseCoopers LLP (professional services firm)

 

¡   Vice Chairman, Client Service for PricewaterhouseCoopers LLP, 2007 to 2016

 

¡   Managing Partner of the Greater Chicago Market, 2003 to 2013

 

Current Public and/or Investment Company Directorships

 

¡   Illinois Tool Works Inc., since 2016

 

¡   The J. M. Smucker Company, since 2016

 

Qualifications

 

The Board concluded that Mr. Henderson should serve as a director based on his extensive experience working with, and serving as a director of, various complex global organizations across multiple markets and industry sectors, as well as his leadership experience in various roles at PricewaterhouseCoopers LLP.

 

 


 

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INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 


 

 

 

MARCY S. KLEVORN

 

 

Independent Director

 

   LOGO

 

Director Since: 2019

Age: 60

 

Board Committees

 

  Audit

 

  Business Risk

 

  

 

Professional Experience

 

   Ford Motor Company (global automaker)

 

¡   Chief Transformation Officer, May 2019 to October 2019

 

¡   Executive Vice President and President, Mobility, 2017 to May 2019

 

¡   Chief Information Officer and Group Vice President, Information Technology, 2015 to 2017

 

¡   Director, Office of the Chief Information Officer, 2013 to 2015

 

Current Public and/or Investment Company Directorships

 

   Pivotal Software, Inc., since 2016

 

Qualifications

 

The Board concluded that Ms. Klevorn should serve as a director based on her extensive experience with respect to the innovation and application of cutting-edge technologies.

 

 

 

SIDDHARTH N. “BOBBY” MEHTA

 

 

Independent Director

 

   LOGO

 

Director Since: 2019

Age: 61

 

Board Committees

 

  Business Risk

 

  Capital Governance

 

  

 

Professional Experience

 

   TransUnion (global risk and information solutions provider)

 

¡   President and Chief Executive Officer, 2007 to 2012

 

   HSBC Finance Corporation (owner and servicer of a portfolio of residential real estate loans) and HSBC North America Holdings, Inc. (holding company for HSBC Holdings plc’s operations in the United States)

 

¡   Chief Executive Officer, 2005 to 2007

 

Current Public and/or Investment Company Directorships

 

   The Allstate Corporation, since 2014

 

   Jones Lang LaSalle Incorporated, since July 2019

 

   TransUnion, since 2007

 

Other Recent Public and/or Investment Company Directorships

 

   Piramal Enterprises Limited, 2013 to February 2020

 

Qualifications

 

The Board concluded that Mr. Mehta should serve as a director based on his management and board experience at large, complex organizations and his experience in the financial services industry.

 

 


 

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INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 


 

 

 

MICHAEL G. O’GRADY

 

 

Chairman, President and Chief Executive Officer

 

   LOGO

 

Director Since: 2017

Age: 54

 

Board Committees

 

  Executive (Chair)

 

  

 

Professional Experience

 

   Northern Trust Corporation and The Northern Trust Company

 

¡   Chairman of the Board, since January 2019

 

¡   Chief Executive Officer, since 2018

 

¡   President, since 2017

 

¡   President, Corporate & Institutional Services, 2014 to 2016

 

¡   Chief Financial Officer, 2011 to 2014

 

   Bank of America Merrill Lynch

 

¡   Managing Director, Investment Banking Group, 2000 to 2011

 

Qualifications

 

The Board concluded that Mr. O’Grady should serve as a director based on his experience and ongoing responsibilities with respect to Northern Trust’s businesses.

 

 

 

 

JOSE LUIS PRADO

 

 

Independent Director

 

   LOGO

 

Director Since: 2012

Age: 65

 

Board Committees

 

  Compensation and
Benefits

 

  Corporate Governance

 

  

 

Professional Experience

 

   Evans Food Group, Ltd. (global food company)

 

¡   Vice Chairman, since August 2019

 

¡   Chairman and Chief Executive Officer, 2016 to August 2019

 

   PepsiCo, Inc.

 

¡   President, Quaker Oats North America, 2011 to 2014

 

Current Public and/or Investment Company Directorships

 

   Hormel Foods Corporation, since March 2019

 

Other Recent Public and/or Investment Company Directorships

 

   Brinker International, Inc., 2015 to March 2019

 

Qualifications

 

The Board concluded that Mr. Prado should serve as a director based on his management, marketing and risk oversight experience at a complex global corporation and his substantial international experience.

 


 

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INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 


 

 

 

THOMAS E. RICHARDS

 

 

Independent Director

 

   LOGO

 

Director Since: 2015

Age: 65

 

Board Committees

 

  Business Risk

 

  Compensation and Benefits

 

  

 

Professional Experience

 

   CDW Corporation (provider of integrated information technology solutions in the United States, Canada and the United Kingdom)

 

¡   Executive Chairman, 2013 to December 2019

 

¡   Chief Executive Officer, 2011 to 2018

 

¡   President, 2009 to 2018

 

Recent Public and/or Investment Company Directorships

 

   CDW Corporation, 2011 to December 2019

 

Qualifications

 

The Board concluded that Mr. Richards should serve as a director based on his experience leading a large, complex organization and his experience in the information technology industry.

 

 

 

MARTIN P. SLARK

 

 

Independent Director

 

   LOGO

 

Director Since: 2011

Age: 65

 

  

 

Professional Experience

 

   Molex LLC (manufacturer of electronic, electrical and fiber optic interconnection products and systems)

 

¡   Chief Executive Officer, 2005 to 2018

 

Current Public and/or Investment Company Directorships

 

   Hub Group, Inc., since 1996

 

Qualifications

 

The Board concluded that Mr. Slark should serve as a director based on his experience leading a complex global corporation and his risk oversight experience as Chief Executive Officer of Molex LLC and as a director of other large, complex corporations, including Koch Industries, Inc. and Liberty Mutual Insurance Company.

 

 


 

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INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 


 

 

 

DAVID H. B. SMITH, JR.

 

 

Independent Director

 

   LOGO

 

Director Since: 2010

Age: 53

 

Board Committees

 

  Audit (Chair)

 

  Capital Governance

 

  Executive

 

 

  

 

Professional Experience

 

   Mutual Fund Directors Forum (nonprofit membership organization for investment company directors)

 

¡   Executive Vice President, Policy & Legal Affairs and General Counsel, since 2005

 

   U.S. Securities and Exchange Commission

 

¡   Associate Director, Division of Investment Management, 2001 to 2005

 

Current Public and/or Investment Company Directorships

 

   Illinois Tool Works Inc., since 2009

 

Qualifications

 

The Board concluded that Mr. Smith should serve as a director based on his regulatory and leadership experience in the finance industry gained from his roles at the U.S. Securities and Exchange Commission and the Mutual Fund Directors Forum. The Board also considered that Mr. Smith’s interest as a beneficiary of a trust that holds a significant amount of the Corporation’s common stock further aligns his interests with the interests of the Corporation’s stockholders.

 

 

 

DONALD THOMPSON

 

 

Independent Director

 

   LOGO

 

Director Since: 2015

Age: 56

 

Board Committees

 

  Audit

 

  Capital Governance (Chair)

 

  Executive

 

  

 

Professional Experience

 

   Cleveland Avenue, LLC (food and beverage accelerator and investment company)

 

¡   Founder and Chief Executive Officer, since 2015

 

   McDonald’s Corporation (global foodservice retailer)

 

¡   President and Chief Executive Officer, 2012 to 2015

 

Current Public and/or Investment Company Directorships

 

   Royal Caribbean Cruises Ltd., since 2015

 

   Beyond Meat, Inc., since 2015 (public company since May 2019)

 

Other Recent Public and/or Investment Company Directorships

 

   McDonald’s Corporation, 2011 to 2015

 

Qualifications

 

The Board concluded that Mr. Thompson should serve as a director based on his management and board experience at other complex global corporations.

 


 

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INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 


 

 

 

CHARLES A. TRIBBETT III

 

 

Independent Director

 

   LOGO

 

Director Since: 2005

Age: 64

 

Board Committees

 

  Compensation and
Benefits (Chair)

 

  Corporate Governance

 

  Executive

 

  

 

Professional Experience

 

   Russell Reynolds Associates (global executive recruiting firm)

 

¡   Managing Director, since 1989

 

¡   Chairman of Leadership Assessment and Promotions Board, since 2006

 

¡   Vice Chairman of Board and CEO Advisory Group, since 1995

 

Qualifications

 

The Board concluded that Mr. Tribbett should serve as a director based on his global leadership consulting experience evaluating and identifying senior management professionals and his leadership experience as a Managing Director of Russell Reynolds Associates.

 


 

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BOARD AND BOARD COMMITTEE INFORMATION

Our Board currently consists of thirteen members. The Board has determined that each of the following twelve current directors is independent in accordance with our independence standards, which conform with the U.S. Securities and Exchange Commission (the “SEC”) rules and the listing standards of The NASDAQ Stock Market LLC (“NASDAQ”): Linda Walker Bynoe, Susan Crown, Dean M. Harrison, Jay L. Henderson, Marcy S. Klevorn, Siddharth N. “Bobby” Mehta, Jose Luis Prado, Thomas E. Richards, Martin P. Slark, David H. B. Smith, Jr., Donald Thompson and Charles A. Tribbett III.

During 2019, the Corporation’s Board held seven meetings. All persons who were directors during 2019 attended at least 75% of the total meetings of the Board and the committees on which they served occurring during the period in which they served, except for Mr. Slark, who attended approximately 55% of such meetings due to an extended illness. Our Corporate Governance Guidelines state that all directors are expected to attend each Annual Meeting of Stockholders. In accordance with this expectation, all of the directors then serving attended the 2019 Annual Meeting of Stockholders held on April 23, 2019.

Board Committees

The standing committees of the Board are the Audit Committee, the Business Risk Committee, the Capital Governance Committee, the Compensation and Benefits Committee, the Corporate Governance Committee and the Executive Committee. With the exception of the Executive Committee, all standing committees are composed solely of independent directors. Consequently, independent directors directly oversee critical matters and appropriately oversee the Chairman and CEO and other members of senior management. Each standing committee is governed by a written charter. These charters detail the duties and responsibilities of each committee and are available on the Corporation’s website at www.northerntrust.com.

Additional information regarding the roles, responsibilities and composition of the Board’s standing committees is set forth below.

 


 

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AUDIT COMMITTEE

 

 

MEMBERS

 

David H.B. Smith, Jr. (Chair)

 

Dean M. Harrison

 

Jay L. Henderson

 

Marcy S. Klevorn

 

Donald Thompson

  

 

KEY RESPONSIBILITIES / AREAS OF OVERSIGHT

 

  

 

The Audit Committee assists the Board in its oversight of:

 

  the integrity of the organization’s consolidated annual and quarterly financial statements and earnings releases;

 

  the organization’s compliance with accounting, legal and regulatory requirements;

 

  the qualifications and independence of the Corporation’s public accountants; and

 

  the performance of the organization’s internal audit function and the Corporation’s public accountants.

 

The Board has determined that all members of the Audit Committee are independent under SEC rules and NASDAQ listing standards. The Board also has determined that all Audit Committee members have the financial experience and knowledge required for service on the Committee, and that Messrs. Harrison, Henderson, Smith, and Thompson each satisfy the definition of “audit committee financial expert,” under SEC rules.

 

The Audit Committee met six times in 2019.

 

 

BUSINESS RISK COMMITTEE

 

 

MEMBERS

 

Dean M. Harrison (Chair)

 

Susan Crown

 

Marcy S. Klevorn

 

Siddharth N. “Bobby” Mehta

 

Thomas E. Richards

  

 

KEY RESPONSIBILITIES / AREAS OF OVERSIGHT

 

  

 

The Business Risk Committee assists the Board in its oversight of:

 

  the risk management policies of the Corporation’s global operations;

 

  the operation of the Corporation’s global risk management framework; and

 

  management’s procedures for identifying, measuring, aggregating, and reporting on:

 

¡   the Corporation’s risk-based capital requirements; and

 

¡   the risks inherent in the businesses of the Corporation and its subsidiaries in the following categories: credit risk, market and liquidity risk, fiduciary risk, operational risk, compliance risk and strategic risk.

 

The Board has determined that all members of the Business Risk Committee are independent under SEC rules and NASDAQ listing standards.

 

The Business Risk Committee met six times in 2019.

 

 

CAPITAL GOVERNANCE COMMITTEE

 

 

MEMBERS

 

Donald Thompson (Chair)

 

Jay L. Henderson

 

Siddharth N. “Bobby” Mehta

 

David H.B. Smith, Jr.

  

 

KEY RESPONSIBILITIES / AREAS OF OVERSIGHT

 

  

 

The Capital Governance Committee assists the Board in its oversight of the capital management and resolution planning activities of the Corporation, including:

 

  the capital adequacy assessments, forecasting, and stress-testing processes and activities of the Corporation and its subsidiaries, including with respect to the annual Comprehensive Capital Analysis and Review (“CCAR”) exercise;

 

  the Corporation’s annual capital plan, including proposed capital actions;

 

  the Corporation’s and the Bank’s regulatory capital ratios and capital levels; and

 

  the Corporation’s resolution plans.

 

The Board has determined that all members of the Capital Governance Committee are independent under SEC rules and NASDAQ listing standards.

 

The Capital Governance Committee met nine times in 2019.

 


 

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BOARD AND BOARD COMMITTEE INFORMATION

 


 

 

COMPENSATION AND BENEFITS COMMITTEE

 

 

MEMBERS

 

Charles A. Tribbett III (Chair)

 

Linda Walker Bynoe

 

Jay L. Henderson

 

Jose Luis Prado

 

Thomas E. Richards

 

  

 

KEY RESPONSIBILITIES / AREAS OF OVERSIGHT

  

 

The Compensation and Benefits Committee assists the Board in its oversight of:

 

  the compensation of the directors and executive officers of the Corporation and its subsidiaries;

 

  the employee benefit and equity-based plans of the organization; and

 

  management development and succession planning, including with respect to the position of CEO.

 

 

The Board has determined that all members of the Compensation and Benefits Committee are independent under SEC rules and NASDAQ listing standards.

 

The Compensation and Benefits Committee met four times in 2019.

 

 

CORPORATE GOVERNANCE COMMITTEE

 

 

MEMBERS

 

Linda Walker Bynoe (Chair)

 

Susan Crown

 

Jay L. Henderson

 

Jose Luis Prado

 

Charles A. Tribbett III

  

 

KEY RESPONSIBILITIES / AREAS OF OVERSIGHT

 

  

 

The Corporate Governance Committee assists the Board with:

 

  the identification of candidates for nomination or appointment as directors;

 

  the oversight of the Board’s committee structure;

 

  the oversight of the annual evaluation of the Board and its committees;

 

  the development of the Corporation’s Corporate Governance Guidelines;

 

  the appointment of a successor in the event of the unanticipated death, disability or resignation of the Corporation’s CEO;

 

  the procedures relating to stockholder communications with the Board; and

 

  the corporate citizenship and social responsibility matters of significance to the Corporation and its subsidiaries.

 

 

The Board has determined that all members of the Corporate Governance Committee are independent under SEC rules and NASDAQ listing standards.

 

The Corporate Governance Committee met four times in 2019.

 

 

EXECUTIVE COMMITTEE

 

 

MEMBERS

 

Michael G. O’Grady (Chair)

 

Linda Walker Bynoe

 

Dean M. Harrison

 

Jay L. Henderson

 

David H.B. Smith, Jr.

 

Donald Thompson

 

Charles A. Tribbett III

 

  

 

KEY RESPONSIBILITIES / AREAS OF OVERSIGHT

 

  

 

The Board appoints an Executive Committee so that there will be a committee of the Board empowered to act for the Board, to the full extent permitted by law, between meetings of the Board if necessary and appropriate. In the event of a triggering event, the Executive Committee is also responsible for directing the execution of appropriate resolution and recovery plans.

 

 

 

The Executive Committee did not meet in 2019.

 


 

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CORPORATE GOVERNANCE

Key Governance Practices

We believe that the high standards set by our governance structure provide the foundation for the strength of our business. An overview of certain key governance practices reflective of our strong governance profile is set forth below.

 

 

 

What We Do

 

       

What We Don’t Do

 

   

  Majority Independent Directors

 

  Engaged Lead Director

 

  Proxy Access Rights

 

  Stockholder Right to Call Special Meetings

 

  Frequent Executive Sessions for Independent Directors

 

  Annual Strategic Planning Meeting with Board and Executive Officers

 

  Regular Rotations of Committee Chairs

 

  Regular Reviews of Governance Documents

 

  Annual Board and Committee Self-Evaluations

      

   Plurality Voting in Uncontested Director Elections

 

   Staggered Board

 

   Poison Pill

 

   Supermajority Voting Requirements

 

   Overboarding of Directors

Director Independence

To be considered independent, the Board must affirmatively determine that a director has no relationship with the Corporation which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Corporation’s Corporate Governance Guidelines require that a majority of the directors serving on the Board meet the criteria for “independence” under NASDAQ listing standards.

In making independence determinations, the Board considers, among all other relevant matters, the criteria for independence contained in the NASDAQ listing standards. Under these standards, the following persons shall not be considered “independent”:

 

   

a director who is or was an employee or executive officer of the Corporation, or whose Family Member (as defined below) is or was an executive officer of the Corporation, at any time during the past three years;

 

   

a director who receives or has received, or whose Family Member receives or has received, compensation from the Corporation in excess of $120,000 during any period of twelve consecutive months within the past three years, other than director and committee fees, benefits under a tax-qualified retirement plan or other forms of nondiscretionary compensation; provided, however, that compensation received by a Family Member of a director for service as an employee (other than as an executive officer) of the Corporation need not be considered in determining independence;

 

   

a director who is, or whose Family Member is, a current partner of the Corporation’s outside auditor, or who was a partner or employee of the Corporation’s outside auditor who worked on the Corporation’s audit at any time during any of the past three years;

 

   

a director of the Corporation who is, or has a Family Member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the Corporation serve on the compensation committee of such other entity; or

 

   

a director who is, or whose Family Member is, a partner in, a controlling stockholder of, or an executive officer of, any organization to which the Corporation made, or from which the Corporation received, payments for property or services in the current or any of the past three fiscal years that exceed the greater of $200,000 or 5% of the recipient’s consolidated gross revenue for that year, other than payments arising solely from investments in the Corporation’s securities or payments under nondiscretionary charitable contribution matching programs.

 


 

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“Family Member” means a person’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone (other than domestic employees) who shares the person’s home.

The Board has determined that each director serving during 2019 was, and each current director is, independent of the Corporation in accordance with the Corporation’s Corporate Governance Guidelines and categorical standards, except for Frederick H. Waddell, who retired from his role as Chairman of the Board effective January 23, 2019, and had previously served as the Corporation’s CEO through December 31, 2017, and Mr. O’Grady, who currently serves as the Corporation’s Chairman, President and CEO.

In addition to the categorical standards, the Board considered that the Corporation or its subsidiaries provided financial services to each of its directors, or persons or entities affiliated with such directors, except for Mr. Tribbett, including trust and related services, brokerage services, investment management, asset servicing, asset management, credit services and other banking services. These transactions were undertaken in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral for loan transactions) as those prevailing at the time for comparable transactions with other persons not related to the Corporation or any affiliated entities involved in the transactions. None of these transactions involved more than the normal risk of collectability or presented other unfavorable features, and any extensions of credit to directors and executive officers of the Corporation were permitted under the provisions of Section 13(k) of the Securities Exchange Act of 1934 (the “Exchange Act”). None of these transactions or any transactions in which the Corporation or any of its subsidiaries sold or purchased products and services to or from any of the Corporation’s directors, or persons or entities affiliated with its directors, were material to the Corporation or any affiliated entities involved in the transactions. With respect to Mr. Henderson, the Board also considered the related party transaction reviewed and approved by the Audit Committee in accordance with the Corporation’s Related Person Transactions Policy described below. In each case, the Board determined that these relationships did not affect any director’s ability to exercise independent judgment in carrying out his or her responsibilities as a director.

Related Person Transactions Policy

The Board, through its Audit Committee, has adopted a written Related Person Transactions Policy to govern the review, approval, and ratification of any transaction, arrangement or relationship in which the Corporation or its subsidiaries are party, the amount involved exceeds $120,000, and in which any related persons have a direct or indirect material interest. “Related persons” means the Corporation’s directors, nominees for director, executive officers, greater than five percent beneficial owners, members of their immediate family and any person (other than a tenant or employee) sharing their household.

Any related person proposing to enter into a potential related party transaction with the Corporation or its subsidiaries must notify the Corporate Secretary of the facts and circumstances of the proposed transaction. If the Corporate Secretary finds that the transaction would constitute a related party transaction, it must be reviewed and approved or ratified by the Audit Committee or the Audit Committee Chair. In considering related person transactions, the Audit Committee or the Audit Committee Chair will consider all relevant facts and circumstances and approve only those related person transactions that are in, or otherwise not inconsistent with, the best interests of the Corporation and its subsidiaries.

Kathleen Finley, Mr. Henderson’s daughter, has been employed by the Bank since 2005, currently serving as Chief Administrative Officer of the Wealth Management National Services team of the Bank. In such role, Ms. Finley earned compensation in excess of $120,000 in 2019, and received retirement, health and wellness benefits, all on comparable terms as those provided for other employees of the Bank. Pursuant to the Related Person Transactions Policy, our Audit Committee considers and approves Ms. Finley’s employment on an annual basis.

Executive Sessions

The independent directors of the Corporation met in executive sessions separate from management six times during 2019. The Lead Director or, in his absence, another independent director designated by the Lead Director, presides at executive sessions of the independent directors. The standing committees of the Board also regularly held executive sessions during 2019. These sessions were led by the respective independent committee Chairs.

 


 

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CORPORATE GOVERNANCE

 


 

Board Evaluations

The Board and each of its standing committees thoroughly evaluate their own effectiveness throughout the year. The evaluation is a multi-faceted process that includes discussions with our Lead Director, individual director input on Board and committee meeting agenda topics, executive sessions without management present, periodic input to our Chairman and CEO and other members of senior management on agenda topics and enhancements to Board and committee effectiveness, and an annual formal self-evaluation overseen by the Corporate Governance Committee. A summary of the self-evaluation process is as follows.

 

 

Determine Format

 

Each year, the Committee formally considers and approves the process through which Board and committee self-evaluations are to be conducted to ensure they remain efficient and effective means by which to assess, and foster the continual enhancement of, the Board and its committees.

  LOGO  

 

Conduct Evaluation

 

In recent years, the self-evaluation process has been led by the Lead Director, who conducts in-depth, one-on-one discussions with each of our directors guided by a list of thematic questions, including with respect to:

  Board Performance

  Board Composition

  Management’s Relationship with the Board

  Corporate Strategy

  Corporate and Board Culture

  Board Priorities

 

  LOGO  

 

Review Feedback

 

The Lead Director provides a summary of these discussions to the full Board for its consideration in executive session.

 

Each standing committee also meets in executive session to provide an opportunity to discuss the key takeaways from the evaluation process as they may apply to such committee’s effectiveness.

  LOGO  

 

Implement Feedback

 

In response to feedback from the evaluation process, the Board and committees work with management to improve policies and practices to enhance Board and committee effectiveness.

 

Ongoing Feedback Opportunities

In addition to the formal annual Board and committee self-evaluation process, all directors are encouraged to provide feedback at any time throughout the year to further the improvement of the Board’s practices. Opportunities for such feedback are provided through one-on-one conversations with our Lead Director and regular executive sessions of the Board and each of its committees without management present, among other means.

As a result of this evaluation process, certain enhancements have been made in recent years to Board and committee practices and meeting materials to further their effectiveness. For example, the Board’s 2019 self-evaluation process identified the Board’s desire for additional discussion regarding certain strategy and diversity, equity, and inclusion-related topics, as well for further third-party perspectives to be incorporated into certain Board agenda topics, all of which were implemented throughout 2019.

Board Leadership Structure

The current leadership structure of the Board consists of a combined Chairman and CEO position and a separate Lead Director who is appointed annually by the Corporation’s independent directors in accordance with the Corporation’s Corporate Governance Guidelines. The Board has determined that combining the positions of Chairman and CEO is the most appropriate for the Corporation at this time, as having one person serve as Chairman and CEO provides unified leadership and direction to the Corporation and strengthens the ability of the CEO to develop and implement strategic initiatives and respond effectively in crisis situations.

The Lead Director’s role with respect to the Corporation is a significant one, with primary responsibilities including the following:

 

   

approving Board meeting schedules and agendas to ensure that there is sufficient time for discussion of all Board agenda items and overseeing the information provided to the Board;

 


 

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calling at any time deemed necessary or advisable by the Lead Director a special meeting of the Board or a special executive session of the independent directors;

 

   

adding items to the agenda of any regular or special meeting of the Board deemed necessary or advisable by the Lead Director;

 

   

presiding at all meetings of the Board at which the Chairman is not present;

 

   

presiding at all regular and any special executive sessions of the independent directors;

 

   

serving as a liaison between the independent directors and the Chairman and CEO;

 

   

conducting, by means of an interview with each director, including the Chairman and CEO, the Board’s annual self-evaluation of its performance and then providing a summary report to the Board; and

 

   

being available for consultation and direct communication with major stockholders.

Taking into account the prominence of the Lead Director role at the Corporation, the Board has determined that the Corporation’s current Board leadership structure provides significant independent leadership of the Board and is most appropriate for the Corporation at this time. The Corporation has a strong independent Board, with all current directors except for Mr. O’Grady having been determined to be independent under NASDAQ listing standards and all standing committees of the Board except for the Executive Committee being composed solely of independent directors. The significant and meaningful responsibilities of the Corporation’s independent directors, together with those of the Lead Director, also foster good governance practices and provide for substantial independent oversight of critical matters related to the Corporation.

Risk Oversight

General

The Board provides oversight of risk management directly as well as through its Audit, Business Risk, Capital Governance and Compensation and Benefits Committees. The Board approves the Corporation’s risk management framework and Corporate Risk Appetite Statement, which reflects the expectation that risk be consciously considered as part of the Corporation’s strategic decisions and in its day-to-day activities. The Corporation actively monitors employees using programs, policies, and other tools that are designed to ensure that they work within established risk frameworks and limits. The Business Risk Committee assumes primary responsibility and oversight with respect to credit risk, market and liquidity risk, fiduciary risk, operational risk, compliance risk and strategic risk. The Audit Committee provides oversight with respect to financial reporting and legal risk, while the Compensation and Benefits Committee oversees the development and operation of the incentive compensation program of the Corporation and its subsidiaries. The Compensation and Benefits Committee annually reviews management’s assessment of the effectiveness of the design and performance of the incentive compensation arrangements and practices in providing incentives that are consistent with the safety and soundness of the Corporation and its subsidiaries. This assessment includes an evaluation of whether these incentive compensation arrangements and practices discourage inappropriate risk-taking behavior by participants. Pursuant to its charter, the Compensation and Benefits Committee is required to have at least one member who is a member of the Business Risk Committee and at least one member who is a member of the Audit Committee. Among other responsibilities, the Capital Governance Committee oversees the processes and activities of the Corporation and its subsidiaries related to resolution planning and capital adequacy assessments, forecasting and stress testing, including the annual CCAR exercise, and challenges management, as appropriate, on various elements of such processes and activities. Accordingly, the Capital Governance Committee provides oversight with respect to the linkage of the Corporation’s material risks to the capital adequacy assessment and resolution planning processes. The charters for the Audit, Business Risk, Capital Governance and Compensation and Benefits Committees provide that the Committees may meet with the individuals who supervise day-to-day risk management responsibilities of the Corporation and other members of management, consultants or advisors, as each committee deems appropriate.

Information Security and Technology Risk Oversight

As a financial services company entrusted with the safeguarding of sensitive information, the Board believes that a strong information security and technology risk management program is crucial to the Corporation’s success in an environment of increasing cyber threats. Accordingly, the Board and the Business Risk Committee play meaningful roles with respect to the oversight of information security and technology risk management at the Corporation. Specifically, in

 


 

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conjunction with its oversight of overall operational risk, the Business Risk Committee oversees management’s actions to identify, assess, mitigate and remediate material issues related to information security and technology risk; annually reviews and approves the Corporation’s information security and technology risk management policy and program; and receives regular updates from management, including the Chief Information Risk Officer, on the Corporation’s information security and technology risk management program and cyber risk profile. The Board also plays a role with respect to the oversight of such risks, meeting periodically with management and third-party experts to discuss its role in crisis management and to review tabletop exercises designed to evaluate the Corporation’s cybersecurity program.

For a further description of the risk management policies and practices of the Corporation’s management, including those related to information security and technology risk, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019.

Corporate Governance Guidelines

The Corporation has had Corporate Governance Guidelines in place since 2000. The Corporate Governance Committee reviews and reassesses the adequacy of the Corporate Governance Guidelines at least annually and recommends any changes to the Board for approval. The Corporation’s Corporate Governance Guidelines embody many of the Corporation’s long-standing practices and incorporate policies and procedures that strengthen its commitment to corporate governance best practices. A copy of the Corporate Governance Guidelines is available on the Corporation’s website at www.northerntrust.com.

Code of Business Conduct and Ethics

The Board of the Corporation has adopted a Code of Business Conduct and Ethics to:

 

   

promote honest and ethical conduct, including fair dealing and the ethical handling of actual or apparent conflicts of interest;

 

   

promote full, fair, accurate, timely and understandable public disclosure about the Corporation;

 

   

promote compliance with applicable laws and governmental rules, codes and regulations wherever the Corporation does business;

 

   

ensure the protection of the Corporation’s legitimate business interests; and

 

   

deter wrongdoing.

The Code of Business Conduct and Ethics satisfies applicable SEC and NASDAQ requirements and applies to all directors, officers (including the Corporation’s principal executive officer, principal financial officer and principal accounting officer) and employees of the Corporation and its subsidiaries. The Corporation intends to disclose any amendments to, or waivers from, the Code of Business Conduct and Ethics for directors and executive officers by posting such information on its website. A copy of the Code of Business Conduct and Ethics is available on the Corporation’s website at www.northerntrust.com.

Management Development and Succession Planning

The Board is responsible for succession planning for the position of CEO. The Board, led by the Compensation and Benefits Committee, annually conducts a formal management development and succession planning review with respect to the position of the CEO and other senior officers. This review focuses on CEO succession planning, as well as developing internal candidates for advancement within the Corporation. The Compensation and Benefits Committee makes recommendations to the Board concerning management development and succession planning. These recommendations reflect the Board’s annual management development and succession planning review, as well as Committee discussions with and without the CEO. The Corporate Governance Committee discusses succession planning in the event of the unexpected death, incapacity, or resignation of the CEO and recommends to the Board, after consultation with the Chairman of the Compensation and Benefits Committee, an appropriate successor under such circumstances.

Director Nominations and Qualifications and Proxy Access

The Corporate Governance Committee is responsible for considering, evaluating, and recommending candidates for director. The Committee will consider persons nominated by stockholders in accordance with the nomination procedures

 


 

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specified in the Corporation’s By-laws and described further under “Stockholder Proposals for 2021 Annual Meeting” on page 66. Stockholders also may recommend candidates for director by following the procedures for communicating with directors described below under “Communications with the Board and Independent Directors.”

In its evaluation of director candidates, including persons recommended by stockholders, the Corporate Governance Committee considers the factors specified in the Corporation’s Corporate Governance Guidelines to ensure the Board has a diversity of perspectives and backgrounds, including the nature of the expertise and experience required for the performance of the duties of a director of a corporation engaged in the Corporation’s business and such matters as relevant business and industry experience, professional background, age, current employment, community service and other board service. The Committee also considers the ethnic and gender diversity of the Board in assessing candidates. The Committee seeks to identify as candidates for director persons with a reputation for, and record of, integrity and good business judgment who: (i) have experience in positions with a high degree of responsibility and are leaders in the organizations with which they are affiliated; (ii) are free from conflicts of interest that could interfere with a director’s duties to the Corporation and its stockholders; and (iii) are willing and able to make the necessary commitment of time and attention required for effective Board service. The Committee also takes into account a candidate’s level of financial literacy, and monitors the mix of skills and experience of the directors in order to ensure the Board has the necessary collective expertise to perform its oversight function effectively. Following its evaluation process, the Committee recommends director nominees to the full Board, and the Board makes the final determination of director nominees based on its consideration of the Committee’s recommendation.

The Corporation’s By-laws also include a proxy access right, providing eligible stockholders the right to include, along with the candidates nominated by the Board, their own nominees for election to the Board in the Corporation’s proxy materials. This proxy access right permits any stockholder, or group of up to 20 stockholders, who has maintained continuous qualifying ownership of 3% or more of the Corporation’s outstanding common stock for at least the previous three years, and continues to own the required common stock through the date of the applicable annual meeting, to include in the Corporation’s proxy materials such stockholder’s own nominees for election to the Board constituting up to the greater of two individuals or 20% of the total number of directors, provided that such stockholder and its nominees satisfy the requirements specified in the Corporation’s By-laws.

Stockholder Engagement

The Corporation recognizes the importance of engaging with stockholders and other key constituents. Open and constructive dialogue with stockholders helps further their understanding of our performance and strategies and allows us to receive direct feedback on issues relating to the Corporation. Accordingly, it is the Corporation’s long-standing practice to engage proactively and routinely with stockholders throughout the year. This practice continued in 2019, with our CEO, CFO or other members of senior management engaging with stockholders representing approximately 51% of our outstanding shares regarding matters pertaining to the Corporation’s performance, strategies and governance.

Communications with the Board and Independent Directors

Stockholders and other interested persons may communicate with any of the Corporation’s directors, including the Lead Director or the independent directors as a group, by writing a letter addressed to the applicable director(s), c/o Northern Trust Corporation, 50 South La Salle Street, M-9, Chicago, Illinois 60603, Attention: Corporate Secretary. Any stockholder or other interested person who has a particular concern regarding accounting, internal accounting controls, or other audit matters that he or she wishes to bring to the attention of the Audit Committee may communicate those concerns to the Audit Committee or its Chairman, using the address indicated above. The Corporation’s Corporate Secretary will review and forward communications to the appropriate member or members of the Board. The Corporate Secretary need not forward or retain any communications determined to be mass mailings, routine solicitations for business or contributions, or communications determined not to be relevant to the performance of the duties of the Board.

Securities Transactions Policy and Procedures and Policy Against Hedging

Our Securities Transactions Policy and Procedures prohibits directors, employees, including our named executive officers, and certain of their family members from purchasing or selling any type of security, whether issued by us or another company, while such persons are aware of material nonpublic information relating to the issuer of the security and from providing such material nonpublic information to any person who may trade while aware of such information. This policy also prohibits directors, employees, and certain of their family members from (i) engaging in short selling, margining, pledging or hypothecating the Corporation’s securities; (ii) trading in options, warrants, puts, calls or similar instruments on the Corporation’s securities; and (iii) engaging in any other transaction that hedges or offsets, or is designed to hedge or offset, any decrease in the market value of a Northern Trust equity security.

 


 

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SECURITY OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS

The following table shows the beneficial ownership of the Corporation’s common stock as of December 31, 2019 for each director, each named executive officer and all directors and executive officers of the Corporation as a group.

 

Name of Beneficial Owner

Shares

(1)(2)

Shares under
Exercisable
Options

(3)

Total Beneficial
Ownership of
Common Stock

Percent

of
Class

Non-Employee Directors:

Linda Walker Bynoe

 

22,525

 

 

22,525

 

*

Susan Crown

 

43,085

 

 

43,085

 

*

Dean M. Harrison

 

9,757

 

 

9,757

 

*

Jay L. Henderson

 

7,407

 

 

7,407

 

*

Marcy S. Klevorn

 

245

 

 

245

 

*

Siddharth N. “Bobby” Mehta

 

240

 

 

240

 

*

Jose L. Prado

 

13,318

 

 

13,318

 

*

Thomas E. Richards

 

7,513

 

 

7,513

 

*

Martin P. Slark

 

13,665

 

 

13,665

 

*

David H.B. Smith, Jr.(4)

 

36,915

 

 

36,915

 

*

Donald Thompson

 

8,637

 

 

8,637

 

*

Charles A. Tribbett III

 

24,192

 

 

24,192

 

*

Named Executive Officers:

Michael G. O’Grady

 

113,849

 

286,645

 

400,494

 

*

S. Biff Bowman

 

62,801

 

51,960

 

114,761

 

*

Steven L. Fradkin

 

188,670

 

98,576

 

287,246

 

*

Peter B. Cherecwich

 

49,772

 

52,002

 

101,774

 

*

Robert P. Browne

 

20,094

 

21,967

 

42,061

 

*

All directors and executive officers as a group (24 persons)

 

824,841

 

686,610

 

1,512,304

 

*

 

* Less than 1%.

(1) Except as noted below, the nature of beneficial ownership for shares shown in this table is sole voting and investment power (including shares as to which spouses and minor children of the individuals covered by this table have such power).

(2) Amount includes restricted stock units payable on a one-for-one basis in shares of the Corporation’s common stock that are scheduled to vest within sixty days of December 31, 2019 in the following amounts: Mr. O’Grady – 19,210 units; Mr. Bowman – 11,356 units; Mr. Fradkin – 12,011 units; Mr. Cherecwich – 10,616 units; Mr. Browne – 11,349 units; and all directors and officers as a group – 105,233 units.

(3) Amount includes options that were exercisable as of December 31, 2019 and options that become exercisable within sixty days thereafter.

(4) Amount includes 1,704 shares held in a trust over which Mr. Smith shares voting and investment power with one other individual. Amount excludes 2,567,260 shares held in certain trusts over which Mr. Smith directly or indirectly shares voting and investment power with two or more other individuals. Mr. Smith is the beneficiary of a trust holding 1,362,880 of such excluded shares.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires the Corporation’s directors, executive officers and beneficial owners of more than 10% of the Corporation’s stock to file with the SEC initial reports of ownership and reports of changes in ownership of any equity securities of the Corporation. Based solely on the Corporation’s review of the reports that have been filed by or on behalf of such reporting persons in this regard and written representations from such reporting persons that no other reports were required, the Corporation believes that all reports required by Section 16(a) of the Exchange Act were made on a timely basis during or with respect to 2019, except for one Form 4 filed for Joyce M. St. Clair, which reported a transaction pursuant to which shares of the Corporation’s common stock were withheld in payment of tax obligations related to restricted stock units previously granted. The transaction was reported late due to administrative error.

 


 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table includes information concerning stockholders who were the beneficial owners of more than 5% of the outstanding shares of the Corporation’s common stock as of December 31, 2019.

 

     
Name and Address Shares Percent of Class
     

The Vanguard Group, Inc.(1)
100 Vanguard Boulevard
Malvern, Pennsylvania 19355

15,598,774 7.4%
     

BlackRock, Inc.(2)
55 East 52nd Street
New York, New York 10055

14,552,480 6.9%
     

The Northern Trust Company(3)
50 South La Salle Street
Chicago, Illinois 60603

13,395,463 6.3%
     

Wellington Management Group LLP(4) 
c/o Wellington Management Company LLP
280 Congress Street
Boston, Massachusetts 02210

11,620,723 5.5%

 

(1) As reported on a Schedule 13G/A filed on February 12, 2020, of the shares reported, The Vanguard Group, Inc. (“Vanguard”) had sole voting power with respect to 309,278 shares, or 0.1% of the outstanding common stock, and shared voting power with respect to 55,021 shares, or 0.03% of the outstanding common stock. Vanguard had sole investment power with respect to 15,252,603 shares, or 7.2% of the outstanding common stock, and shared investment power with respect to 346,171 shares, or 0.2% of the outstanding common stock.

(2) As reported on a Schedule 13G/A filed on February 5, 2020, of the shares reported, BlackRock, Inc. (“BlackRock”) had sole voting power with respect to 12,681,838 shares, or 6.0% of the outstanding common stock, and it did not have shared voting power with respect to any shares reported. BlackRock had sole investment power with respect to all shares reported.

(3) As of December 31, 2019, the Bank and its affiliates individually acted as sole or co-fiduciary with respect to trusts and other fiduciary accounts which owned, held or controlled through intermediaries the shares reported. Of the total shares owned, held or controlled by trusts and other fiduciary accounts for which the Bank and its affiliates acted as sole or co-fiduciary, as reported on a Schedule 13G/A filed by the Bank on February 12, 2020, the Bank and its affiliates had sole voting power with respect to 7,002,695 shares, or 3.3% of the outstanding common stock, and they shared voting power with respect to 5,044,515 shares, or 2.4% of the outstanding common stock. They had sole investment power with respect to 1,807,227 shares, or 0.9% of the outstanding common stock, and they shared investment power with respect to 4,885,788 shares, or 2.3% of the outstanding common stock.

(4) As reported on a Schedule 13G/A filed by Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP and Wellington Management Company LLP on January 27, 2020, Wellington Management Group LLP, Wellington Group Holdings LLP, and Wellington Investment Advisors Holdings LLP each had shared voting power with respect to 11,247,049 shares, or 5.3% of the outstanding common stock, and shared investment power with respect to all shares reported. Wellington Management Company LLP had shared voting power with respect to 11,237,416 shares, or 5.3% of the outstanding common stock, and shared investment power with respect to 11,441,275 shares, or 5.4% of the outstanding common stock. Based on the Schedule 13G/A, the securities as to which the Schedule 13G/A was filed are owned of record by clients of one or more investment advisers identified therein directly or indirectly owned by Wellington Management Group LLP.

 


 

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ITEM 2—ADVISORY VOTE ON EXECUTIVE COMPENSATION

Pursuant to Section 14A of the Exchange Act, and the rules and regulations promulgated thereunder by the SEC, the Corporation is required to include in this Proxy Statement a separate resolution, subject to an advisory vote, to approve the compensation of our named executive officers as disclosed in this Proxy Statement (commonly referred to as a “Say-on-Pay” advisory vote). In a nonbinding, advisory vote on the frequency of Say-on-Pay votes held at our 2017 Annual Meeting of Stockholders, stockholders voted in favor of conducting Say-on-Pay votes annually. In light of this result, and other factors considered by the Board, the Corporation will continue to hold Say-on-Pay votes on an annual basis. Accordingly, the Board is requesting that stockholders vote FOR approval of the following resolution:

“Resolved, that the compensation paid to the Corporation’s named executive officers, as disclosed in its Proxy Statement dated March 10, 2020, pursuant to Item 402 of Regulation S-K of the Exchange Act, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby APPROVED.”

As an advisory vote, this proposal is not binding on the Corporation. Although the vote is nonbinding, the Board and the Compensation and Benefits Committee value the opinions of our stockholders and, consistent with past practice, will consider the outcome of the vote when determining compensation policies and making future compensation decisions for our named executive officers.

The Corporation’s executive compensation program and the framework used in evaluating and making 2019 compensation decisions for our named executive officers are described in the Compensation Discussion and Analysis that begins on page 27 of this Proxy Statement.

The Board unanimously recommends that you vote FOR this proposal.

 


 

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COMPENSATION DISCUSSION AND ANALYSIS

Our Named Executive Officers

This Compensation Discussion and Analysis describes how we compensate our executives, including our 2019 named executive officers, which consist of the following individuals.

 

 

 

Name

 

  

 

Title

 

Michael G. O’Grady

  

Chairman, President and Chief Executive Officer

S. Biff Bowman

  

Former Chief Financial Officer (Served through December 31, 2019)

Steven L. Fradkin

  

President—Wealth Management

Peter B. Cherecwich

  

President—Corporate & Institutional Services

Robert P. Browne

  

Chief Investment Officer

Mr. Bowman served as the Corporation’s CFO for the entirety of 2019. Effective January 1, 2020, Mr. Bowman stepped down from the position of CFO, with Jason J. Tyler succeeding him in that capacity. Mr. Bowman subsequently retired from the Corporation on March 2, 2020.

Executive Summary

2019 Financial Performance

In 2019, we remained focused on the three pillars of our financial strategy:

 

   

Achieve Growth across the business, as demonstrated by continued growth in revenue and trust, investment and other servicing fees.

 

 

LOGO

 


 

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Drive Productivity and Profitability, as demonstrated by our low noninterest expense as a percentage of our trust, investment and other servicing fees relative to historical levels, which in turn drove continued strong pre-tax margin, net income and earnings per share levels. We remain focused on continuing to improve our productivity and profitability, including through expense management initiatives and ongoing efforts to further embed a culture of sustainable expense management across the organization.

 

LOGO    LOGO

 

LOGO

  

LOGO

 

   

Generate Strong and Sustainable Stockholder Returns, as demonstrated by our ROE, which remains at the high end of our target range of 10 - 15%, and increases in the amount of capital we have returned to common stockholders through dividends and share repurchases.

 

LOGO    LOGO

We achieved these financial results while continuing to maintain strong capital ratios, with all ratios exceeding those required for classification as “well capitalized” under federal bank regulatory capital requirements.

 


 

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Key Strategic Achievements

Execution on our strategies also was demonstrated through various strategic achievements, including:

 

   

Our Wealth Management business’s continued strength within target markets, with Northern Trust named the “Best Private Bank” in the United States and “Best Global Private Bank for Succession Planning” by the Financial Times Group, and the business’s continued expansion into new markets, with the opening of a new Philadelphia office in 2019.

 

   

The continued success of our C&IS business in further penetrating certain key markets, such as Australia, and the significant investments that have been made to further integrate data and digital capabilities into the business’s services, including through Northern Trust Matrix®, our new, event-driven data architecture.

 

   

Our Asset Management business’s expansion of investment management offerings in the areas of greatest demand, with the launch of several new ESG, quality low-volatility, global credit, and multi-asset investment strategies across the globe in 2019.

 

   

Continued execution of our “Value for Spend” expense management initiative, announced in October 2017 with the goal of realizing $250 million of expense run-rate savings by 2020, and ongoing efforts to further embed a culture of sustainable expense management across the organization.

Total Direct Compensation for 2019 and Overall Pay Mix

The table below provides a comprehensive summary of each named executive officer’s total direct compensation for 2019 and 2018 and may be useful in reviewing key incentive compensation decisions made for 2019 and 2018 performance. It should be noted that the table below is not intended to be a substitute for the Summary Compensation Table on page 47 as certain amounts in the table below are different than the amounts in the Summary Compensation Table. The most significant difference is that the long-term incentive awards included in the Summary Compensation Table for 2019 and 2018 were granted in February 2019 and February 2018, respectively, for 2018 and 2017 performance, while the awards shown below for 2019 and 2018 were granted in February 2020 and February 2019, respectively, for 2019 and 2018 performance.

 

        Long-Term Incentives  
Executive Year

Salary

(1)

Short-Term
Annual
Cash
Incentive

(2)

Performance
Stock
Units
Restricted
Stock
Units
Total

Michael G. O’Grady

Chairman, President and Chief Executive Officer

 

2019

$

950,000

$

2,075,000

$

4,436,250

$

2,388,750

$

9,850,000

 

2018

 

900,000

 

2,075,000

 

4,046,250

 

2,178,750

 

9,200,000

S. Biff Bowman

Former Chief Financial Officer (Served through December 31, 2019)

 

2019

 

625,000

 

930,000

 

1,410,500

 

759,500

 

3,725,000

 

2018

 

625,000

 

990,000

 

1,501,500

 

808,500

 

3,925,000

Steven L. Fradkin

President—Wealth Management

 

2019

 

625,000

 

1,110,000

 

1,683,500

 

906,500

 

4,325,000

 

2018

 

625,000

 

1,140,000

 

1,729,000

 

931,000

 

4,425,000

Peter B. Cherecwich

President—Corporate & Institutional Services

 

2019

 

625,000

 

1,050,000

 

1,592,500

 

857,500

 

4,125,000

 

2018

 

625,000

 

1,110,000

 

1,683,500

 

906,500

 

4,325,000

Robert P. Browne (3)

Chief Investment Officer

 

2019

 

550,000

 

930,000

 

1,410,500

 

759,500

 

3,650,000

 

2018

 

550,000

 

975,000

 

1,478,750

 

796,250

 

3,800,000

 

(1) Represents the applicable named executive officer’s salary, as determined in February 2019 and 2018, respectively.

(2) Represents the short-term incentive award received by the applicable named executive officer in February 2020 for 2019 performance and February 2019 for 2018 performance, respectively.

(3) Although Mr. Browne was not a named executive officer in 2018, his 2018 total direct compensation is provided for comparative purposes.

The increase in Mr. O’Grady’s total direct compensation for 2019 reflects consideration of peer compensation levels, the additional experience and tenure gained in his role as CEO and his appointment to the role of Chairman of the Board

 


 

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following Mr. Waddell’s retirement from such role on January 23, 2019. While Mr. O’Grady’s total direct compensation increased, his annual cash incentive remained flat relative to 2018, reflecting the Corporation’s 2019 financial performance, which, while strong by historical standards, was generally not as strong as the prior year. Incentives awarded to each of the other named executive officers in February 2020 are also reflective of such 2019 performance. Further information with respect to the performance factors impacting each named executive officer’s compensation for 2019 can be found under “2019 Performance Considerations” beginning on page 35.

Consistent with our pay for performance philosophy, the pay mix for our CEO and each of our other named executive officers heavily emphasizes incentive compensation. Our long-term incentive mix further emphasizes performance-based pay, with 65% of the long-term incentives being awarded in performance stock units earned based on performance over a three-year period, and 35% being awarded in restricted stock units.

 

LOGO

Compensation Governance Practices

We have implemented the compensation practices summarized below to ensure that our compensation program is effective in addressing stockholder objectives.

 

 

What We Do

 

  

 

What We Don’t Do

 

 

  Ensure our executives meet robust stock ownership guidelines, including holding requirements for any executive below the stock ownership guidelines

 

  Ensure performance-based compensation comprises the most significant portion of incentive compensation, with 65% of long-term incentives being awarded in performance stock units based on performance over a three-year period

 

  Subject short- and long-term incentive awards to potential forfeiture or clawback in the event of misconduct resulting in a restatement of our financial statements and certain other types of misconduct

 

  Use an independent compensation consultant to advise the Compensation and Benefits Committee

 

  Ensure overlapping membership between the Compensation and Benefits Committee and our Audit and Business Risk Committees

 

  Closely align pay and performance, with the Compensation and Benefits Committee validating this alignment annually

 

  

 

   Excise tax gross-ups for executive change in control arrangements

 

   Single-trigger change in control benefits

 

   Short selling, margining, hedging, pledging or hypothecating company shares permitted under our Securities Transactions Policy and Procedures

 

   Compensation plans that encourage excessive risk-taking

 

   Excessive perquisites

 

   Repricing of underwater options

 

   Dividend equivalents distributed on unvested performance or restricted stock unit awards

 


 

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2019 Advisory Vote on Executive Compensation

Our 2018 named executive officer compensation was approved on an advisory basis by our stockholders at our April 23, 2019 Annual Meeting of Stockholders. Approximately 97% of the votes present and entitled to vote at the meeting, including abstentions, supported approval of 2018 named executive officer compensation. Although such advisory votes are nonbinding, the Board reviews and thoughtfully considers the voting results when determining compensation policies and making future compensation decisions for named executive officers. Additionally, as mentioned under “Stockholder Engagement” beginning on page 23 of this Proxy Statement, it is our practice to engage proactively and routinely with stockholders throughout the year to help further their understanding of our performance and strategies and to allow us to receive direct feedback on issues relating to the Corporation. The decisions made by the Board and the Compensation and Benefits Committee with respect to compensation in 2019 reflect the Board and the Committee’s belief, based on the results of the advisory vote on 2018 named executive officer compensation and our ongoing dialogue with stockholders, that our stockholders generally support our overall executive compensation program.

Guiding Principles for Executive Compensation

Our compensation philosophy is to attract, reward and retain talent at all levels who will contribute to our long-term success. With the goals of strong long-term financial performance and creating long-term stockholder value, our executive compensation program and compensation decisions are framed by the four guiding principles described below.

 

 

Guiding Principle

 

 

 

Impact on Compensation Design

 

   

Linked to Long-Term Performance

 

  Performance stock units based on achievement of certain absolute ROE targets and, beginning with awards granted on February 18, 2020, our ROE relative to that of our financial performance peer group, constitute 65% of long-term incentive compensation.

 

   

Aligned with Stockholder Interests

 

  Majority of pay delivered in long-term incentives (approximately 69% of the total direct compensation of Mr. O’Grady).

 

  Executives are subject to robust stock ownership guidelines.

 

   

Positioned Competitively in the Marketplace

 

  Compensation levels are developed with reference to a peer group of comparable companies.

 

   

Discourages Inappropriate Risk-Taking

 

  Short- and long-term incentives are subject to potential forfeiture or clawback in the event of misconduct resulting in a restatement of our financial statements and certain other types of misconduct, including inappropriate risk-taking resulting in “significant risk outcomes”.

 

  Short-term cash incentive compensation awards and performance stock unit payouts are capped.

 

  Compensation and Benefits Committee can exercise negative discretion to reduce incentive compensation.

 

  Compensation program balances short-term and long-term performance objectives.

 

Risk Management

A key objective of our compensation program is to ensure that the incentive compensation design does not encourage inappropriate risk-taking. We have considered our incentive compensation program in light of the guidance provided by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) with respect to sound incentive compensation policies at financial institutions. We believe our compensation arrangements are consistent with our safety and soundness and appropriately aligned with our overall risk profile.

To reinforce the important role of effective risk management in our compensation framework, 65% of long-term incentive awards to named executive officers for 2019 performance were provided in performance stock units. Performance stock units, which contain meaningful performance targets for named executive officers and are payable in shares if those

 


 

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targets are attained, discourage inappropriate risk-taking behavior because they can only be earned by attaining long-term performance goals and because the value of the award is less susceptible than stock options to short-term fluctuations in share value. All long-term incentive awards vest over a multi-year period and have an inherent risk adjustment factor based on changes in the value of our common stock. Long-term incentive compensation arrangements for named executive officers have historically been subject to certain forfeiture and recoupment provisions. On February 19, 2018, we amended our Policy on Recoupment to apply to all short-term incentive compensation amounts for named executive officers made on or after such date, as well. Further information with respect to these forfeiture and recoupment provisions for our named executive officers can be found under “Other Compensation Practices—Forfeiture and Recoupment.”

The Compensation and Benefits Committee annually reviews management’s assessment of the effectiveness of the design and performance of our incentive compensation arrangements and practices in providing risk-taking incentives that are consistent with the safety and soundness of the Corporation and its subsidiaries. This assessment includes an evaluation of whether our incentive compensation arrangements and practices discourage inappropriate risk-taking behavior by participants. In connection with the Committee’s assessment, the Corporation’s Chief Risk Officer presents an annual incentive compensation risk performance review, discussing his observations and assessments of risk performance for the Corporation and each of its significant businesses. The Committee will continue to monitor and, if necessary, revise our incentive compensation program to ensure that it continues to balance appropriately the objectives of stockholders, the needs of the business and risk concerns.

Pursuant to its charter, the Compensation and Benefits Committee is required to have at least one member who is a member of the Business Risk Committee and at least one member who is a member of the Audit Committee. This overlap in composition is intended to ensure that compensation decisions reflect the input of the Audit and Business Risk Committees.

Executive Compensation Program Elements

The table below provides a brief description of the elements of our compensation program and how each element helps address our guiding principles for executive compensation.

 

 

Element

 

 

Link to Compensation Philosophy

 

 

Rationale/Key Features

     

Base Salary

 

  Targeted at competitive levels among peer group companies.

 

  Base salaries provide a fixed level of income consistent with a named executive officer’s position and responsibilities, competitive pay practices and internal equity principles.

 

     

Short-Term Annual Cash Incentive

 

  Total incentive funding for the Corporation is established as a percentage of pre-tax income.

 

  Individual awards targeted at competitive levels among peer group companies.

 

  The Compensation and Benefits Committee determines annual incentive awards based on both quantitative and qualitative considerations, including overall corporate performance, the individual performance of each executive officer and internal equity principles.

 

     

Long-Term Incentive Compensation

 

  Award levels for each performance year take into account prior-year performance results, with the ultimate value realized by executives linked to long-term performance.

 

  Aligned with stockholders’ interests by motivating executive officers to act as owners.

 

  Individual awards targeted at competitive levels among peer group companies.

 

  Long-term incentives are the most significant element of overall compensation.

 

  Long-term incentive compensation is comprised of performance stock units (65%) and restricted stock units (35%). The number of shares that is paid out upon the vesting of a performance stock unit award is determined based on certain absolute ROE targets and, beginning with awards granted on February 18, 2020, our ROE relative to that of our financial performance peer group.

 

     

Retirement, Health and Welfare Benefits

 

  Targeted at competitive levels among peer group companies.

 

  Benefits are designed with broader employee populations in mind and are not specifically structured for executive officers.

 

 


 

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Additional information with respect to each of the four principal elements of our compensation program can be found beginning on page 39.

Award Determination Process

Role of the Board of Directors

The full Board of Directors sets the compensation of our Chairman and CEO. In determining the appropriate level of compensation for the Chairman and CEO, the Board gives substantial weight to the recommendation of the Compensation and Benefits Committee, but retains ultimate oversight and responsibility for such compensation decisions.

Role of the Compensation and Benefits Committee

During its February meeting each year, the Compensation and Benefits Committee determines the appropriate level of compensation for all executive officers. The Committee considers all elements of our executive compensation program holistically rather than each compensation element individually, and makes executive compensation decisions after careful review and analysis of financial and nonfinancial performance information, as well as historical and market compensation data.

The Committee has the discretion to determine compensation in the context of individual performance in nonfinancial areas that are important to long-term growth and the enhancement of stockholder value. This flexibility allows the Committee to modify individual incentive payouts and long-term incentive awards to reflect:

 

   

our business model and strategy;

 

   

prevailing market trends;

 

   

evolution in the financial and regulatory environment; and

 

   

risk management objectives.

As discussed under “2019 Performance Considerations” beginning on page 35 of this Proxy Statement, in considering the compensation for the Chairman and CEO, the Committee also evaluates his performance against established objectives for the year to which such compensation relates. The Committee shares this evaluation with the Board in order for the Board to set the Chairman and CEO’s compensation.

Role of the Chairman and CEO

The Chairman and CEO presents the Compensation and Benefits Committee with recommendations on the total compensation for each of our other executive officers. These recommendations reflect performance against the past year’s performance expectations, a mix of financial and nonfinancial performance factors, which are not formulaically weighted or scored, and competitive market data. These recommendations also reflect each of the other executive officer’s performance with regard to business risks and individual adherence to risk and compliance policies and procedures. The Committee gives substantial weight to the recommendations of the Chairman and CEO, but retains the ultimate oversight and responsibility to set compensation for all executive officers, except for the Chairman and CEO, whose compensation is set by the Board with consideration given to the recommendations of the Committee.

Role of Human Resources

The Human Resources function provides materials to assist the Compensation and Benefits Committee in making executive compensation decisions, including current and historical compensation data for executive officers. Our Chief Human Resources Officer attends and participates in all Committee meetings. The Human Resources function also assists the Chairman and CEO in formulating his compensation recommendations for all other executive officers.

Role of the Compensation and Benefits Committee’s Independent Compensation Consultant

The Compensation and Benefits Committee has retained Meridian Compensation Partners, LLC (“Meridian”), a nationally recognized executive compensation consulting firm, as its independent compensation consultant. The Committee confers with its independent compensation consultant to ensure that decisions and actions are consistent with stockholders’

 


 

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long-term interests and compensation-related best practices within the financial services industry. The Committee also references market data provided by its independent compensation consultant when considering compensation for executive officers. At least one representative of the Committee’s independent compensation consultant attended all meetings of the Committee during 2019. The Committee’s independent compensation consultant provides insights into compensation trends and market practices, presents views on the compensation proposed by the Committee and participates in Committee meeting discussions and executive sessions. The Corporation does not engage the Committee’s independent compensation consultant for additional services outside of providing executive compensation consulting to the Committee. The Committee conducted assessments of potential conflicts of interest and independence issues with respect to Meridian pursuant to applicable SEC rules and NASDAQ listing standards and no such conflicts or issues were identified.

Use of Compensation Peer Group and Market Data

To help to inform its decision-making, the Compensation and Benefits Committee reviews peer group data regarding competitive pay levels and overall compensation program design in the market place. The peer group utilized by the Committee for setting compensation has historically consisted of the Corporation’s two most comparable trust and custody peers—The Bank of New York Mellon Corporation and State Street Corporation—as well as certain other banking, wealth management and asset management firms similar to the Corporation in certain respects, but not necessarily representing direct business competitors. The peer group utilized by the Committee in considering overall compensation plan design consists of a broader set of financial services firms with which the Corporation competes for business and talent.

The peer group reflected below was used to assess competitive compensation when developing 2019 base salary decisions and determining the size of short-term annual cash incentive awards and long-term incentive grants made in 2019 based on 2018 performance.

 

 

Compensation Peer Group (2019 Base Salary; Incentive Compensation Based on 2018 Performance)            

 

   

 Comerica Incorporated

  

 State Street Corporation

   

 Fifth Third Bancorp

  

 SunTrust Banks, Inc.

   

 Franklin Resources, Inc.

  

 T. Rowe Price Group, Inc.

   

 Invesco Ltd.

  

 The Bank of New York Mellon Corporation

   

 KeyCorp

  

 The PNC Financial Services Group, Inc.

   

 Legg Mason, Inc.

 

  

 U.S. Bancorp

 

In 2019, the Committee worked with Meridian to refine the peer group noted above, which had remained unchanged since 2015. As a result of this review, Comerica Incorporated, Invesco Ltd. and Legg Mason, Inc. were removed from the peer group, and BlackRock, Inc., First Republic Bank, The Charles Schwab Corporation, BB&T Corporation and M&T Bank Corporation were added to the peer group. BB&T Corporation and SunTrust Banks, Inc. subsequently merged, adopting the name Truist Financial Corporation. The Committee believes that the new peer group better reflects our business mix, complexity and geographical footprint, as well as the various regulatory frameworks to which we are subject. This peer group, illustrated below, was used when setting 2020 base salaries and determining the size of short-term annual cash incentive awards and certain long-term incentive grants made in 2020 based on 2019 performance.

 

 

Current Compensation Peer Group            

 

   

 BlackRock, Inc.

  

 Truist Financial Corporation

   

 Fifth Third Bancorp

  

 T. Rowe Price Group, Inc.

   

 First Republic Bank

  

 The Bank of New York Mellon Corporation

   

 Franklin Resources, Inc.

  

 The Charles Schwab Corporation

   

 KeyCorp

  

 The PNC Financial Services Group, Inc.

   

 M&T Bank Corporation

  

 U.S. Bancorp

   

 State Street Corporation

 

    

 


 

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When making compensation decisions, the Compensation and Benefits Committee considers how the recommended compensation levels will compare to the median compensation for comparable positions among the peer group companies. The Committee also considers market data for comparable positions reported in certain financial services industry surveys. However, the Committee recognizes that the compensation levels may vary from market median compensation levels based on our performance or specific individual circumstances, including the executive’s tenure in the role, the nature of the responsibilities of the executive and the executive’s individual performance.

2019 Compensation Decisions and Design

2019 Performance Considerations

In determining total compensation for the named executive officers, the Compensation and Benefits Committee considered the Corporation’s 2019 financial performance, the performance of the Corporation’s leadership team as a whole, and how well each officer performed in his role. Further detail with respect to performance factors for each of the named executive officers is set forth on the following pages.

 


 

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MICHAEL G. O’GRADY
Chairman, President and Chief Executive Officer

Key Responsibilities

As the Corporation’s Chairman, President and CEO, Mr. O’Grady is primarily responsible for leading the development and implementation of our corporate strategies; managing and developing our senior leaders; and embodying our guiding principles of service, expertise and integrity. To determine Mr. O’Grady’s 2019 compensation, the Compensation and Benefits Committee and the Board considered the performance of the Corporation under Mr. O’Grady’s leadership, the performance of the Corporation’s leadership team as a whole, and how well Mr. O’Grady fulfilled his specific individual performance objectives. Mr. O’Grady’s individual performance objectives were set in February 2019 at the direction of the Compensation and Benefits Committee and the full Board. In January 2020, the Compensation and Benefits Committee and the Board evaluated Mr. O’Grady’s performance against the individual objectives established in February 2019. The Compensation and Benefits Committee and the Board considered not only whether Mr. O’Grady satisfied each of his individual performance objectives, but also how he satisfied such objectives. The Compensation and Benefits Committee and the Board also considered how Mr. O’Grady’s compensation compared to that of peer CEOs and the additional experience and tenure gained in his role as CEO.

Key Achievements

Mr. O’Grady’s achievements and contributions to the Corporation’s performance in 2019, many of which correlate to the individual performance objectives established for Mr. O’Grady in February 2019, are reflected in:

 

   

Our overall financial performance, including our:

 

  ¡   

Growth in total consolidated revenue to $6.1 billion for 2019 from $6.0 billion in 2018, an increase of 2%.

 

  ¡   

Diluted earnings per share of $6.63 for 2019, compared to $6.64 in 2018.

 

  ¡   

Pre-tax margin of 32.0% and noninterest expense as a percentage of trust, investment and other services fees of 108% in 2019, compared to 32.8% and 107%, respectively, in 2018.

 

  ¡   

Continued strong ROE of 14.9%, at the high end of our target range of 10 - 15%.

 

   

Our continued execution of our “Value for Spend” expense management initiative and ongoing efforts to further embed a culture of sustainable expense management across the organization.

 

   

Mr. O’Grady’s role in maintaining and developing client relationships across the globe through client outreach and engagement efforts and his contributions to our solid new business performance in 2019.

 

   

Our continued high levels of client satisfaction.

 

   

The significant investments we made to maintain a robust technology environment focused on reliability, security, productivity and the delivery of high-value service and innovative solutions for our clients.

 

   

Mr. O’Grady’s appointment to the role of Chairman of the Board following Mr. Waddell’s retirement from such role on January 23, 2019, as well as his role in overseeing the various other Board and executive leadership team changes discussed under “Key Developments – Board and Management Succession” on page 3.

 

   

Mr. O’Grady’s role in advancing initiatives to promote a diverse, adaptive and engaged workforce across the Corporation.

 


 

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S. BIFF BOWMAN
Former Chief Financial Officer (Served through December 31, 2019)

Key Responsibilities

As the Corporation’s Chief Financial Officer through December 31, 2019, Mr. Bowman was primarily responsible for financial reporting and control, management reporting and analysis, liquidity management, capital planning and investor relations. To determine Mr. Bowman’s 2019 compensation, the Compensation and Benefits Committee considered how well Mr. Bowman fulfilled his responsibilities in 2019.

Key Achievements

Mr. Bowman’s achievements and contributions to the Corporation’s performance in 2019 are reflected in:

 

   

Our overall financial performance, including our:

 

  ¡   

Growth in total consolidated revenue to $6.1 billion for 2019 from $6.0 billion in 2018, an increase of 2%.

 

  ¡   

Diluted earnings per share of $6.63 for 2019, compared to $6.64 in 2018.

 

  ¡   

Pre-tax margin of 32.0% and noninterest expense as a percentage of trust, investment and other services fees of 108% in 2019, compared to 32.8% and 107%, respectively, in 2018.

 

  ¡   

Continued strong ROE of 14.9%, at the high end of our target range of 10 - 15%.

 

   

The robustness of our CCAR processes, capital management policies and 2019 capital plan, which was not objected to by the Federal Reserve, enabling us to return $1.7 billion in capital to common stockholders in 2019 through quarterly dividends and share repurchases.

 

   

Our continued financial strength, with ample liquidity and a high-quality securities portfolio contributing to sound credit ratings.

 

   

Our successful issuance of $500.0 million of 3.15% senior notes, due May 3, 2029, and $400.0 million of Series E Non-Cumulative Perpetual Preferred Stock.

 

   

The strength of our investor relations program and quality of our dialogue with stockholders.

 

STEVEN L. FRADKIN
President—Wealth Management

Key Responsibilities

As the Corporation’s President of Wealth Management, Mr. Fradkin is primarily responsible for the overall performance of such business. To determine Mr. Fradkin’s 2019 compensation, the Compensation and Benefits Committee considered how well Mr. Fradkin fulfilled his responsibilities in 2019.

Key Achievements

Mr. Fradkin’s achievements and contributions to the Corporation’s performance in 2019 are reflected in:

 

   

Growth in the Wealth Management business’s revenue, on a fully taxable equivalent basis, of 3% year over year, increasing from $2.5 billion in 2018 to $2.6 billion in 2019.

 

   

Growth in the Wealth Management business’s trust, investment and other servicing fees to $1.6 billion in 2019, an increase of 4% over 2018 levels.

 

   

The continued strong competitive position of the Wealth Management business within our target markets, with Northern Trust named the “Best Private Bank” in the United States and “Best Global Private Bank for Succession Planning” by the Financial Times Group.

 

   

The Wealth Management business’s success in further penetrating existing client and geographic markets and expanding into new markets, including through the opening of a new office in Philadelphia.

 

   

Continued success in the Wealth Management business’s holistic approach to addressing unique client needs, with assets under management for our Goals Driven Wealth Management solutions increasing significantly in 2019.

 

   

The Wealth Management business’s pre-tax margin, on a fully taxable equivalent basis, of 41% and noninterest expense as a percentage of trust, investment and other servicing fees of 93% in 2019, compared to 42% and 92%, respectively, in 2018.

 


 

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PETER B. CHERECWICH
President—Corporate & Institutional Services

Key Responsibilities

As the Corporation’s President of Corporate & Institutional Services, Mr. Cherecwich is primarily responsible for the overall performance of such business. To determine Mr. Cherecwich’s 2019 compensation, the Compensation and Benefits Committee considered how well Mr. Cherecwich fulfilled his responsibilities in 2019.

Key Achievements

Mr. Cherecwich’s achievements and contributions to the Corporation’s performance in 2019 are reflected in:

 

   

Growth in the C&IS business’s assets under custody/administration from $9.5 trillion at December 31, 2018, to $11.3 trillion at December 31, 2019, a 19% increase.

 

   

Growth in the C&IS business’s trust, investment and other servicing fees to $2.2 billion in 2019, an increase of 2% over 2018 levels.

 

   

The continued strong competitive position of the C&IS business within our target markets, with Northern Trust receiving “Global Custodian of the Year” and “Fund Administrator of the Year” by Global Custodian and Global Investor, respectively.

 

   

Continued expansion of the C&IS business’s product and service capabilities, including advanced currency management and outsourced front-office trading solutions.

 

   

The significant investments made to accelerate the digitalization of the C&IS business, including through the development of Northern Trust Matrix®, our new, event-driven data architecture.

 

   

Continued expansion of the C&IS business’s global client base, winning complex, sophisticated mandates around the world.

 

   

The C&IS business’s pre-tax margin, on a fully taxable equivalent basis, of 26% and noninterest expense as a percentage of trust, investment and other servicing fees of 118% in 2019, compared to 32% and 111%, respectively, in 2018.

 

ROBERT P. BROWNE
Chief Investment Officer

Key Responsibilities

As the Corporation’s Chief Investment Officer, Mr. Browne is primarily responsible for the investment results of the Corporation’s investment management business. To determine Mr. Browne’s 2019 compensation, the Compensation and Benefits Committee considered how well Mr. Browne fulfilled his responsibilities in 2019.

Key Achievements

Mr. Browne’s achievements and contributions to the Corporation’s performance in 2019 are reflected in:

 

   

Growth in our consolidated assets under management from $1.1 trillion at December 31, 2018, to $1.2 trillion at December 31, 2019, an increase of 15%.

 

   

Our continued expansion of investment management product offerings in the areas of greatest demand, with the launch of several new ESG, quality low-volatility, global credit, and multi-asset investment strategies across the globe.

 

   

Mr. Browne’s role in maintaining and developing client relationships across the globe through client outreach and engagement efforts and his contributions to the solid new business performance realized within our C&IS and Wealth Management businesses in 2019.

 

   

Mr. Browne’s leadership in setting Northern Trust’s investment policy, developing its Capital Market Assumptions forecast, and directing all portfolio management, research, trading, and investment strategy functions across the globe.

 


 

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Base Salary

The Compensation and Benefits Committee believes that base salaries should provide a fixed level of annual income consistent with an executive officer’s position and responsibilities, competitive pay practices and internal equity among executive officers.

The Committee uses discretion in determining base salaries, considering the following factors:

 

   

targeted base salary levels that balance market pay practices with internal equity principles;

 

   

experience and qualifications of the individual executive;

 

   

the executive officer’s tenure in the position or a position of similar level;

 

   

significant changes in assignment or scope of responsibility; and

 

   

individual performance over the prior year relative to established goals and expectations for the position.

For new and recently promoted executives, the Committee’s approach is to increase base salary incrementally to the appropriate target pay level as the executive officer gains experience and tenure in the new position.

In February 2019, based on competitive salary market data among our peer group companies and to account for additional experience and tenure in his role, Mr. O’Grady’s base salary increased from $900,000 to $950,000. No other action was taken in 2019 to increase the base salary of any other named executive officer.

Short-Term Annual Cash Incentive

Annual cash incentives provide an opportunity for our executive officers to receive additional cash compensation based on our financial performance, as well as each executive officer’s individual performance. The overall annual bonus pool is funded based on a targeted percentage of pre-tax income. Pursuant to the terms of the Corporation’s Management Performance Plan, under which the annual cash incentive awards to our named executive officers are made, the maximum funding for each officer’s annual cash incentive award is a percentage of the consolidated net income generated by us in the applicable year. The annual cash incentive maximums for our named executive officers are as follows:

 

   

annual cash incentives for the Chairman and the CEO may not exceed 0.6% of consolidated net income;

 

   

annual cash incentives for the President (if not serving as CEO) and Chief Operating Officer may not exceed 0.4% of consolidated net income;

 

   

annual cash incentives for the other named executive officers may not exceed 0.3% of consolidated net income; and

 

   

no annual incentives can be paid in the absence of positive net income.

 


 

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The final determination of individual annual cash incentives is not tied to any specific formula, rather the process that the Compensation and Benefits Committee uses to determine incentives relies on a discretionary assessment of quantitative and qualitative performance criteria for Northern Trust as a whole, specific businesses and individual executive officers. In setting 2019 short-term annual cash incentives in February 2020, the Committee gave consideration to our overall performance, the individual executive officer’s performance, internal equity principles and peer group compensation levels. Factors with respect to performance taken into consideration included:

 

   

Our overall financial performance, with a focus on key metrics, including:

 

  ¡   

Pre-tax income relative to plan and prior year; and

 

  ¡   

ROE.

 

   

The performance of individual businesses in the following areas:

 

  ¡   

Growth (fees and revenue);

 

  ¡   

Productivity (expense management and ratio of noninterest expense to trust, investment and other servicing fees);

 

  ¡   

Profitability (pre-tax margin and ROE); and

 

  ¡   

Risk management.

Based on the performance considerations discussed under “2019 Performance Considerations” above, in February 2020, the named executive officers were awarded the 2019 short-term annual cash incentives shown in the following table. Prior-year annual cash incentive awards are also provided for comparative purposes.

 

 
Short-Term Annual Cash Incentives  
   
Executive   Title    2019      2018  
       

Michael G. O’Grady

  Chairman, President and Chief Executive Officer    $ 2,075,000      $ 2,075,000  
       

S. Biff Bowman

  Former Chief Financial Officer (Served through December 31, 2019)      930,000        990,000  
       

Steven L. Fradkin

  President—Wealth Management      1,110,000        1,140,000  
       

Peter B. Cherecwich

  President—Corporate & Institutional Services      1,050,000        1,110,000  
       

Robert P. Browne

  Chief Investment Officer      930,000        975,000  

The Committee believes that its use of discretion in setting short-term annual cash incentives for the named executive officers is appropriate as it allows the Committee to assess performance holistically across multiple dimensions of performance; provides for a year-end assessment of how challenging the operating environment was and how well we performed relative to our direct peers; and ensures that the Committee has the ability to adjust incentives for how results were achieved (i.e., degree of risk taken, sustainability of results).

 


 

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Long-Term Incentive Compensation

Long-term incentive compensation is the most significant element of overall compensation and is designed to reward the performance of executive officers over time. Long-term incentive awards made in February 2020 for performance in 2019 were granted to named executive officers as a mix consisting of 65% performance stock units and 35% restricted stock units.

The table below summarizes the long-term incentive awards established by the Compensation and Benefits Committee for our named executive officers in February 2020 and February 2019. In establishing long-term incentive award opportunities for our named executive officers, consideration is given to market data, corporate performance, each executive’s performance, each executive’s potential for future contributions to the organization and internal equity principles.

 

 
Long-Term Incentive Awards  
   
Executive   Title    2019      2018  
     

Michael G. O’Grady

  Chairman, President and Chief Executive Officer    $ 6,825,000      $ 6,225,000  
     

S. Biff Bowman

  Former Chief Financial Officer (Served through December 31, 2019)      2,170,000        2,310,000  
     

Steven L. Fradkin

  President—Wealth Management      2,590,000        2,660,000  
     

Peter B. Cherecwich

  President—Corporate & Institutional Services      2,450,000        2,590,000  
     

Robert P. Browne

  Chief Investment Officer      2,170,000        2,275,000  

Performance Stock Units

Performance stock units make up 65% of the long-term incentive award opportunity provided to our named executive officers and are generally the largest portion of the total compensation mix for our named executive officers. Performance stock units granted to our named executive officers in 2019 will payout based on our average ROE performance over a three-year period relative to pre-established goals. Performance stock units granted in February 2020 will payout according to a formula that uses a comparison of our actual ROE to target results, as well as our ROE performance relative to that of our financial performance peer group, each measured over a three-year period.

The Compensation and Benefits Committee believes that ROE is the appropriate performance metric upon which to base performance stock unit payouts as it is the primary financial performance metric used internally and externally to assess our long-term performance. The Committee further believes that the addition of a relative performance component to the formula upon which performance stock units granted in February 2020 will payout will provide enhanced balance to the structure of the awards by taking into account the context in which our ROE is achieved. This balance ensures that executives will neither be rewarded for poor performance simply because it exceeds the performance of our financial performance peer group, nor will they be rewarded for performance that exceeds expectations if such performance is substandard relative to peers.

The financial performance peer group established by the Compensation and Benefits Committee and against which our ROE performance will be measured for purposes of performance stock unit vesting consists of the following institutions: Bank of America Corporation, Citigroup, Inc., JPMorgan Chase & Co., Morgan Stanley, State Street Corporation, The Bank of New York Mellon Corporation, The Charles Schwab Corporation, The Goldman Sachs Group, Inc., The PNC Financial Services Group, Inc., Truist Financial Corporation, U.S. Bancorp and Wells Fargo & Company. This group was selected by the Committee for performance comparison purposes because they represent those financial services companies based in the United States with the most comparable scale, cross-jurisdictional activity and regulatory regimes as the Corporation. Performance above the median of peers will result in increases in the award payout, while performance below the median of peers will result in decreases in the award payout. As illustrated below, the payout scale approved by the Committee for performance stock units granted to named executive officers in February 2020 requires the Corporation to outperform its entire financial performance peer group in order to earn a maximum payout of 150% of target on the relative ROE component of such scale.

 


 

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The following tables illustrate the vesting requirements for the performance stock unit grants to named executive officers in 2019 and 2020. In setting the absolute ROE target for the February 2020 performance stock unit awards at 15.0%, the Committee considered the Corporation’s historical results (including ROE of 14.9% for 2019) as well its updated internal forecasts and analyst expectations based on the current and projected economic environment. As it is possible that there will be no payout under the performance stock units, these awards are completely “at-risk” compensation.

 

 

Performance Stock Unit

Performance Schedule

February 2019 Grants

   

Average Annual

Rate of ROE

(100% Weighting)

   Percentage of
Stock Units  Vested
   

Less than 10.0%

 

LOGO

   0%        
   

10.0%

 

LOGO

   25%        
   

12.0%

 

LOGO

   50%        
   

16.0%

 

LOGO

   100%        
   

³ 20.0%

 

LOGO

   150%        

 

 

Performance Stock Unit

Performance Schedule

February 2020 Grants

 

 
   

Average Annual

Rate of ROE
(75% Weighting)

   Percentage
Stock Units
Vested
   

Average Annual
ROE vs. Performance

Peer Group

(25% Weighting)

   Percentage of
Stock Units
Vested
 
     

Less than 8.0%

 

LOGO

     0%        < 25th Percentile  

LOGO

     0%      
     

8.0%

 

LOGO

     25%        25th Percentile  

LOGO

     50%      
     

15.0%

 

LOGO

     100%        50th Percentile  

LOGO

     100%      
     

³ 18.5%

 

LOGO

     150%        Highest  

LOGO

     150%      

On January 21, 2020, shares of common stock underlying performance stock units granted in 2017 were distributed. The number of shares distributed was equal to 122.7% of target based on the Corporation’s adjusted average annual ROE of 13.4% (compared to a target of 12.0%) during the three-year performance period ended December 31, 2019, as determined by the Compensation and Benefits Committee.

In determining this average annual ROE, the Committee adjusted the Corporation’s 2018 and 2019 net income to exclude the effect of certain net tax benefits resulting from the Tax Cuts and Jobs Act and certain other one-time charges in accordance with the terms and conditions of the performance stock units. No such adjustments were made to the net income for 2017.

 


 

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COMPENSATION DISCUSSION AND ANALYSIS

 


 

The following table presents a reconciliation of the net income and ROE for each year within the three-year performance period applicable to performance stock units granted in 2017 prepared in accordance with generally accepted accounting principles (“GAAP”) to the adjusted net income and adjusted ROE determined by the Compensation and Benefits Committee, which are non-GAAP financial measures.

 

 
Reconciliation of Net Income and ROE to
Adjusted Net Income and Adjusted ROE
 
   
(in Millions)   2019     2018     2017     Average  
       

  Net Income Applicable to Common Stock (GAAP)

  $ 1,445.8     $ 1,510.0     $ 1,149.2     $ 1,368.3  
         

  Adjustment for net tax benefits resulting from the Tax Cuts and Jobs Act

    (169.3     (195.0           (121.4
       

  Adjustment for other one-time charges, net

    30.6       (5.0           8.5  
         

  Adjusted Net Income Applicable to Common Stock

    1,307.1       1,310.0       1,149.2       1,255.4  
       
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

         

  Average Common Equity (Reported)

    9,705.2       9,346.9       9,098.6       9.383.6  
       
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

         

  ROE (Reported)

    14.9 %       16.2     12.6     14.6
       

  Adjusted ROE

    13.5 %       14.0     12.6     13.4

Further discussion with respect to the performance stock units granted to our named executive officers is set forth in the “Description of Certain Awards Granted in 2019” section beginning on page 49 of this Proxy Statement.

Restricted Stock Units

Restricted stock units represent 35% of long-term incentive awards to our named executive officers and are viewed as an effective tool to align executives with stockholder interests by making them owners of our stock. Restricted stock units generally vest ratably over four years, which is effective in helping us to retain critical talent and ensuring that executives have significant outstanding unvested equity value over the course of their careers.

Further discussion with respect to the restricted stock units granted to our named executive officers is set forth in the “Description of Certain Awards Granted in 2019” section beginning on page 49 of this Proxy Statement.

Other Compensation Practices

Retirement, Health and Welfare Benefits

Retirement benefits are generally designed with our entire workforce in mind and are not specifically structured for the executive officers. The design of our retirement program for employees is market competitive. We target total retirement benefits at approximately the median level of retirement benefits of peer group companies. Our executive officers also participate in our health and welfare benefits, including medical, retiree medical, dental, disability and life insurance programs, on the same terms as other employees.

Severance Benefits and Change in Control Plan

We provide a severance plan to provide reasonable benefits to U.S. employees who are involuntarily terminated without cause due to a reduction in force, job elimination or similar reasons specified in the severance plan. We believe that the availability of severance benefits allows us to compete with our peer group companies in attracting and retaining talent. Executive officers in the United States participate in this plan on the same terms as all other similarly situated employees and may be eligible to receive severance benefits that include:

 

   

a lump sum payment of two weeks of base salary for each year of completed service up to but less than 25 years, or 52 weeks of base salary for 25 years or more of completed service to us; and

 

   

a COBRA subsidy based on their length of service to help cover the costs of continuation coverage under the employer’s medical and dental plans, full vesting under The Northern Trust Company Thrift-Incentive Plan (“TIP”), the Northern Trust Corporation Supplemental Thrift-Incentive Plan (“Supplemental TIP”), The Northern Trust Company Pension Plan (the “Pension Plan”), and the Northern Trust Corporation Supplemental Pension Plan (the “Supplemental Pension Plan”), and enhanced early retirement eligibility under the Pension Plan for employees who have reached age 54 with 14 years of credited service and outplacement assistance.

 

 


 

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These benefits are contingent upon execution of a release, waiver and settlement agreement with us. These benefits are also limited to the lesser of two times the applicable executive officer’s salary or two times the maximum amount that may be taken into account under a qualified plan pursuant to Internal Revenue Code Section 401(a)(17). In 2018 and 2019, these limits effectively capped benefits at $550,000 and $560,000, respectively. Further, these severance payments would be reduced by any severance payments made under any other benefit plan, program or individual contract.

In addition to the severance benefits discussed above, each named executive officer is a participant in the Northern Trust Corporation Executive Change in Control Severance Plan (the “Change in Control Plan”), providing participants with certain benefits upon a qualifying termination of employment within two years following a change in control. The purpose of the Change in Control Plan is to provide our executive officers with sufficient security to remain focused on their respective responsibilities during and after a change in control transaction without undue concern for their personal circumstances. We believe the Change in Control Plan is critical to our ability to attract and retain key executives in light of the fact that all named executive officers are employed at will and change in control benefits for executives are a standard element of a competitive compensation program at peer group companies.

Further discussion with respect to our Change in Control Plan, including disclosure of potential change in control benefits payable to each named executive officer, assuming a change in control of the Corporation and termination of employment on December 31, 2019, is set forth in the “Potential Payments Upon Termination of Employment or a Change in Control of the Corporation” section beginning on page 56 of this Proxy Statement.

Perquisites

We provide a limited number of perquisites intended to assist executive officers in the performance of their duties on behalf of the Corporation. We provide financial consulting and tax return preparation services and personal use of company automobiles as perquisites to our executive officers. If circumstances warrant and if pre-approved by our CEO, we permit personal use of private aircraft on a limited basis. We also reimburse executive officers for the payment of personal income taxes in connection with the use of company vehicles in certain circumstances and taxable relocation expenses. The Compensation and Benefits Committee periodically reviews the types and costs of perquisites to ensure they remain aligned with our compensation philosophy.

Stock Ownership Guidelines

Supporting our guiding principle of alignment with stockholders’ interests, we have a long-standing practice of emphasizing stock ownership and maintaining robust stock ownership guidelines for named executive officers. The stock ownership guidelines to which the Corporation’s executive officers currently are subject are as follows:

 

 

Stock Ownership Guidelines*

Expected Ownership as Multiple of Base Salary

 
   

Chairman / CEO

     8x  
   

President

     5x  
   

Chief Operating Officer / Chief Financial Officer / Business Unit Heads

     4x  
   

Chief Accounting Officer

     0.5x  
   

Other Executive Officers

     3x  

 

*  If an individual holds multiple positions subject to these stock ownership guidelines, he or she will be subject to the highest stock ownership guideline associated with his or her positions.

Each executive officer is expected to meet his or her respective minimum ownership level by the fifth anniversary of becoming an executive officer or assuming a new position with a higher stock ownership guideline. If the minimum ownership level requirement is not met upon or at any time after such date, he or she will be required to retain 100% of the net, after-tax shares received upon vesting of equity awards or stock option exercises until the minimum is met. As of December 31, 2019, each of our named executive officers met or exceeded our stock ownership guidelines.

 


 

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Forfeiture and Recoupment

All awards granted to named executive officers since 2012 under our long-term incentive compensation program are subject to forfeiture or recoupment in the event of misconduct resulting in a restatement of the Corporation’s financial statements and certain other types of misconduct. Such awards also are subject to forfeiture and recoupment provisions relating to “ex-post” risk, meaning risk resulting from the recipient’s inappropriate risk-taking that does not materialize until after the performance period in which such inappropriate risk-taking takes place. Additionally, since 2013, all restricted stock units awarded to named executive officers are subject to forfeiture or recoupment if it is determined that the applicable named executive officer has engaged in inappropriate risk-taking which resulted in certain events deemed to be “significant risk outcomes.” An analysis of significant risk outcomes is completed annually to determine if such significant risk outcomes were tied to inappropriate risk-taking. The results of this analysis are reviewed by the Compensation and Benefits Committee.

With respect to long-term incentive compensation awards made prior to February 21, 2017, the foregoing forfeiture and recoupment requirements are contained in the individual award agreements between the Corporation and our named executive officers. Forfeiture and recoupment requirements applicable to long-term incentive compensation awards made on or after such date are contained in the Policy on Recoupment adopted by the Compensation and Benefits Committee on February 20, 2017. Effective February 19, 2018, the Policy on Recoupment was amended to provide that awards under our short-term incentive compensation programs made on or after such date are also subject to each of the forfeiture and recoupment requirements described above.

Hedging and Pledging Policy

We maintain a Securities Transactions Policy and Procedures which, among other things, prohibits directors, employees, and certain of their family members from (i) engaging in short selling, margining, pledging or hypothecating our securities; (ii) trading in options, warrants, puts, calls or similar instruments on our securities; and (iii) engaging in any other transaction that hedges or offsets, or is designed to hedge or offset, any decrease in the market value of a Northern Trust equity security.

 


 

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COMPENSATION AND BENEFITS COMMITTEE REPORT

The Compensation and Benefits Committee is responsible for providing oversight of the compensation of the directors and executive officers of the Corporation. In fulfilling its oversight responsibilities, the Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based upon this review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and this Proxy Statement for the 2020 Annual Meeting of Stockholders, each of which is filed with the SEC.

Compensation and Benefits Committee

Charles A. Tribbett III (Chair)

Linda Walker Bynoe

Jay L. Henderson

Jose Luis Prado

Thomas E. Richards

 


 

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth the information concerning the compensation paid to or earned by the named executive officers for 2019, 2018 and 2017.

 

Name and

Principal

Position

  Year    

Salary

($)

   

Stock

Awards

($)(1)

   

Option

Awards

($)(2)

   

Non-Equity

Incentive

Plan

Compensation

($)(3)

   

Change in

Pension

Value and

Nonqualified

Deferred

Compensation

Earnings

($)(4)

   

All

Other

Compensation

($)(5)

   

Total

($)

 

Michael G. O’Grady

Chairman, President and
Chief Executive Officer

    2019     $ 937,500     $ 6,225,141     $     $ 2,075,000     $ 186,150     $ 35,977     $ 9,459,768  
    2018       900,000       4,850,107               2,075,000       112,894       33,985       7,971,986  
    2017       800,000       2,362,562       779,644       1,250,000       98,968       30,687       5,321,861  

S. Biff Bowman

Former Chief Financial Officer
(Served through December 31, 2019)

    2019       625,000       2,310,120             930,000       1,027,504       30,259       4,922,883  
    2018       625,000       2,100,055             990,000             29,857       3,744,912  
    2017       625,000       1,518,771       501,209       900,000       713,100       29,245       4,287,325  

Steven L. Fradkin

President—Wealth Management

    2019       625,000       2,660,079             1,110,000       1,782,456       25,219       6,202,754  
    2018       625,000       2,300,174             1,140,000             30,725       4,095,899  
    2017       625,000       1,620,128       534,621       1,100,000       1,235,854       30,532       5,146,135  

Peter B. Cherecwich

President—Corporate &
Institutional Services

    2019       625,000       2,590,143             1,050,000       166,670       35,441       4,467,254  
    2018       618,750       2,200,062             1,110,000       129,848       21,939       4,080,599  
                                               

Robert P. Browne

Chief Investment Officer

    2019       550,000       2,275,059             930,000       96,175       16,500       3,867,734  
                                               
                                               

 

(1) Amounts in this column represent the grant date fair value of the restricted stock unit and performance stock unit awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation (“FASB ASC Topic 718”). See “Note 24—Share-Based Compensation Plans” to the consolidated financial statements included in Item 8 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of the assumptions made by the Corporation in the valuation of these stock unit awards. This column includes the following amounts in 2019 with respect to performance stock units, which are based on achievement of target performance levels: Mr. O’Grady: $4,046,337; Mr. Bowman: $1,501,578; Mr. Fradkin: $1,729,056; Mr. Cherecwich: $1,683,579; and Mr. Browne: $1,478,793. If the maximum level of performance were attained, the value of the performance stock units would be as follows: Mr. O’Grady: $6,069,552; Mr. Bowman: $2,252,367; Mr. Fradkin: $2,593,584; Mr. Cherecwich: $2,525,415; and Mr. Browne: $2,218,236. See the narrative under “Description of Certain Awards Granted in 2019” beginning on page 49 of this Proxy Statement for more information on these awards.

(2) Amounts in this column represent the grant date fair value of the option awards computed in accordance with FASB ASC Topic 718. See “Note 24—Share-Based Compensation Plans” to the consolidated financial statements included in Item 8 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of the assumptions made by the Corporation in the valuation of these option awards. The Corporation discontinued the use of stock options beginning with the long-term incentive awards made in February 2018.

(3) Amounts in this column represent the annual cash incentives earned by the named executive officers in the applicable years under the Management Performance Plan.

(4) Amounts in this column represent the aggregate increase in actuarial present values of accumulated benefits under the Pension Plan and the Supplemental Pension Plan. As described further under “Pension Benefits” beginning on page 52 of this Proxy Statement, benefits for Messrs. Bowman and Fradkin are accrued under the Pension Plan’s “Traditional Formula,” while benefits for Messrs. O’Grady, Cherecwich, and Browne are accrued under the Pension Plan’s “PEP Formula.” At December 31, 2017, the applicable discount rate decreased to 3.79%, resulting in an increase in the present value of benefits under the Traditional Formula. At December 31, 2018, the applicable discount rate increased to 4.47%, resulting in decreases in the present value of benefits under the Traditional Formula for Messrs. Bowman and Fradkin relative to December 31, 2017, of $30,226 and $199,315, respectively. At December 31, 2019, the applicable discount rate decreased to 3.37%, resulting in an increase in the present value of benefits under the Traditional Formula.

 


 

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(5) The following table sets forth a detailed breakdown of the items which comprise “All Other Compensation” for 2019.

 

Name    Contributions
to TIP and
Supplemental
TIP
($)(a)
     Perquisites
and Other
Personal
Benefits
($)(b)
     Tax
Reimbursements
($)(c)
     Total
($)
 

Mr. O’Grady

   $ 28,125      $ 7,363      $ 489      $ 35,977  

Mr. Bowman

     18,750        10,088        1,421        30,259  

Mr. Fradkin

     18,750        6,062        407        25,219  

Mr. Cherecwich

     18,750        16,606        85        35,441  

Mr. Browne

     16,500                      16,500  

 

(a) Includes matching contributions made by the Corporation on behalf of named executive officers participating in TIP and Supplemental TIP.

(b) With respect to Mr. O’Grady, represents wealth planning and tax consulting services ($6,500) and personal use of company automobiles ($863). With respect to Mr. Bowman, represents wealth planning and tax consulting services ($8,450), including tax preparation services in conjunction with an overseas assignment, and personal use of company automobiles ($1,638). With respect to Mr. Fradkin, represents wealth planning and tax consulting services ($5,550) and personal use of company automobiles ($512). With respect to Mr. Cherecwich, represents wealth planning and tax consulting services ($16,500) and personal use of company automobiles ($106).

(c) Represents tax reimbursements provided in connection with personal use of company automobiles and, with respect to Mr. Bowman, taxable expenses relating to an overseas assignment.

Grants of Plan-Based Awards

 

           

Estimated Possible Payouts

Under Non-Equity Incentive

Plan Awards (1)

    Estimated Future
Payouts
Under Equity Incentive
Plan Awards (2)
   

All

Other

Stock

Awards:

Number

of

Shares

of Stock

or Units

(#)(3)

   

Grant

Date Fair

Value of

Stock and

Option

Awards

($)(4)

 
Name  

Grant

Date

    Thres-
hold
($)
    Target
($)
    Maximum
($)
    Thres-
hold
(#)
    Target
(#)
    Maximum
(#)
 

Mr. O’Grady

                $ 2,075,000     $ 8,953,200                                          
    2/19/2019                                                       23,428     $ 2,178,804  
    2/19/2019                               10,878       43,509       65,264               4,046,337  

Mr. Bowman

                  990,000       4,476,600                                          
    2/19/2019                                                       8,694       808,542  
    2/19/2019                               4,037       16,146       24,219               1,501,578  

Mr. Fradkin

                  1,140,000       4,476,600                                          
    2/19/2019                                                       10,011       931,023  
    2/19/2019                               4,648       18,592       27,888               1,729,056  

Mr. Cherecwich

                  1,100,000       4,476,600                                          
    2/19/2019                                                       9,748       906,564  
    2/19/2019                               4,526       18,103       27,155               1,683,579  

Mr. Browne

                  975,000       4,476,600                                          
    2/19/2019                                                       8,562       796,266  
    2/19/2019                               3,976       15,901       23,852               1,478,793  

 

(1) These columns show information regarding payouts under the Management Performance Plan. The amount set forth under the Maximum column represents the highest potential payout under the plan based on the Corporation’s 2019 performance. Although the plan does not provide for a target or threshold, the amount set forth under the Target column represents the amount actually awarded to the named executive officer in 2019 in respect of 2018 performance.

(2) The amounts set forth under the Threshold, Target and Maximum columns represent the number of shares of common stock that would be paid out under the performance stock units granted in February 2019 if the Corporation achieves a three-year ROE of 10.0%, 16.0% or 20.0% or greater, respectively.

 


 

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(3) This column shows the number of restricted stock units granted to the named executive officers in 2019.

(4) Represents the grant date fair value of each equity award, computed in accordance with FASB ASC Topic 718 (using the target level of performance for performance stock unit awards), disregarding any estimated forfeitures.

Description of Certain Awards Granted in 2019

Performance Stock Units

Each performance stock unit constitutes the right to receive a share of the Corporation’s common stock and vests over a three-year performance period, subject to satisfaction of specified performance targets (“performance conditions”) that are a function of ROE, and continued employment until the end of the vesting period. Dividend equivalents granted to named executive officers in 2019 are deferred into a cash account and paid at the time the award vests only with respect to the portion of the cash account attributable to performance stock units that actually vest upon satisfaction of the applicable performance conditions.

For awards granted to named executive officers in 2019, if during the performance period the executive’s employment is terminated under certain circumstances entitling the executive to benefits under the Corporation’s severance plan, such executive’s performance stock units will be eligible for full vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the applicable performance conditions. Upon the death or disability of an executive during the performance period, or if an executive retires after satisfying applicable age and service requirements, such executive’s performance stock units will be eligible for full vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the applicable performance conditions.

Upon a change in control of the Corporation, a pro rata portion of each performance stock unit award (based on actual performance during the portion of the performance period that has elapsed as of the change in control) will be converted into an award with respect to the acquirer of an equal economic value. The remainder of the performance award converts at the target level of performance specified in the performance stock unit agreement into an award with respect to the acquirer of an equal economic value. Both the portion of each performance stock unit award that is based on actual performance and the portion that is based on the target level of performance vest subject only to the continued employment of the recipient through the remainder of the applicable performance period, and are paid out at the end of the performance period, subject to acceleration of vesting upon a qualifying termination, in which event the units are distributed within sixty days. In the event that a change in control occurs and the acquirer refuses or is unable to agree to the foregoing conversion and vesting provisions, the award will be vested at the time of the change in control.

Restricted Stock Units

Restricted stock units granted to our named executive officers in 2019 vest 25% each year for four years. Each restricted stock unit award entitles an executive to receive one share of common stock when the award vests, subject to continued employment until the end of the vesting period. Dividend equivalents on these restricted stock units are deferred into a cash account and paid at the time the awards vest only with respect to the portion of the cash account attributable to restricted stock units that actually vest.

For awards granted to named executive officers in 2019, if during the vesting period an executive’s employment is terminated under certain circumstances entitling the executive to benefits under the Corporation’s severance plan, such executive’s restricted stock units will continue to vest in accordance with their terms. In addition, if an executive retires after satisfying applicable age and service requirements, such executive’s restricted stock units will continue to vest in accordance with their terms. Upon the death or disability of an executive during the vesting period, such executive’s restricted stock units will be eligible for full vesting and distribution.

Upon a change in control of the Corporation, all restricted stock units granted to executive officers will, under the terms and conditions of the applicable award agreements, be converted into units of the acquirer having the same value and continue to vest over a period no longer than the original vesting schedule; provided, however, that they become fully vested in connection with a change in control if the executive experiences a qualifying termination of employment following the change in control (in which case they are distributed within sixty days). In the event that a change in control occurs and the acquirer refuses or is unable to agree to the foregoing conversion and vesting provisions, the award will be vested at the time of the change in control.

 


 

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Outstanding Equity Awards at Fiscal Year-End

 

     
     Option Awards     Stock Awards  
   
Name  

Number

of
Securities
Underlying
Unexercised
Options
Exercisable

(#)

   

Number

of

Securities
Underlying
Unexercised
Options
Unexercisable

(#)

   

Option
Exercise
Price

($)

    Option
Expiration
Date
   

Number

of

Shares

or

Units

of

Stock
That

Have

Not
Vested

(#)

   

Market
Value

of

Shares

of

Units

of

Stock
That
Have Not
Vested

($)(1)

   

Equity
Incentive
Plan
Awards:
Number

of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested

(#)

   

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested

($)(2)

 

Mr. O’Grady

    96,700           $ 38.78       10/18/2021       49,356 (5)