1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [x]
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))
[X][x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) orUnder Rule 14a-12
The Charles Schwab Corporation
---------------------------------------------------------------------------- --------------------------------------------------------------------------------
(Name ofor Registrant as Specified in Its Charter)
---------------------------------------------------------------------------- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------------- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------------applied:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee was calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
---------------------------------------------------------------------------materials:
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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.
(1) Amount Previously Paid:
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(4) Date Filed:
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================================================================================
WE ARE BUILDING
A BROKERAGE FIRM
LIKE NO OTHER
THE
CHARLES
SCHWAB
CORPORATION
1999 PROXY STATEMENT
================================================================================2000 Proxy Statement
3
LETTER TO STOCKHOLDERS
[Photo of Charles R. Schwab
and David S. Pottruck]
MARCH 31, 199927, 2000
DEAR FELLOW STOCKHOLDERS:
We cordially invite you to attend our 19992000 Annual Meeting of Stockholders. The
meeting will be held on Monday,Wednesday, May 17, 19993, 2000, at 2:00 p.m., Pacific time, at
the Yerba BuenaSan Francisco War Memorial and Performing Arts Center, for the ArtsHerbst Theater, 700 Howard Street,401
Van Ness Avenue, San Francisco, California.
At the meeting we will:
- elect four directors for three-year terms,
- vote on a proposal to increasere-approve the number of authorized shares of
common stock,Corporate Executive Bonus Plan, as
amended, and
- vote on a proposal to increasetransact any other business properly coming before the annual, automatic stock option
grant to non-employee directors.meeting.
We also will also report on our performance in 19981999 and answer your questions. Our
products and services exhibit will be open before and after the meeting.
We are pleased that in July 1999 our Board recently elected Mark Pulido, President and Chief
Executive Officer of McKesson HBOC, Inc., and Arun Sarin, President and Chief
Operating Officer of AirTouch Communications, Inc., as members of the Board. We
are also pleased thatappointed Dr. Condoleezza Rice Provost of Stanford Universityas a
director. She is a Senior Fellow at the Hoover Institution and a distinguished
professorProfessor of political science, will joinPolitical Science at Stanford University. Formerly, she was Provost
of Stanford.
We continue our Board in July 1999.
Eachefforts to make the proxy and annual meeting process more
convenient for stockholders. This year, we tryare pleased to make it easierannounce that we are
broadcasting our annual meeting over the Internet for stockholders to vote. This year, all
stockholders may vote on the Internet. Simply follow the instructions on your
proxy card. We encourage you to vote on the Internet. It is the least expensive
wayfirst time. In doing
so, we join just a small number of companies who have utilized technology for
us to process your vote.
Nextthis purpose.
Again this year, we plan towill make our proxy statement and annual report widely
available
over the Internet. IfThis year, these materials will reach more stockholders over
the Internet because more of you are now enrolled in Internet delivery. Also,
all stockholders again will be able to vote on the Internet. Last year, a
significant number of our stockholders took advantage of Internet voting. WE
ENCOURAGE YOU TO VOTE ON THE INTERNET. IT IS A SIMPLE PROCESS AND THE LEAST
EXPENSIVE WAY FOR US TO PROCESS YOUR VOTE. Furthermore, if you vote on the
Internet, you will have the option at that time to enroll in Internet delivery.
We encourage you to enroll
in Internet delivery. It is the least expensive way for us to send you proxy
materials.WE ENCOURAGE STOCKHOLDERS WHO HAVE NOT YET DONE SO TO ENROLL IN INTERNET
DELIVERY. IT IS THE LEAST EXPENSIVE WAY FOR US TO SEND PROXY MATERIALS TO YOU.
We look forward to seeing you at the meeting. If you cannot attend the meeting
in person, we encourage you to join us via the Internet broadcast.
Sincerely,
/s/ CharlesCHARLES R. SchwabSCHWAB /s/ DavidDAVID S. PottruckPOTTRUCK
CHARLES R. SCHWAB DAVID S. POTTRUCK
CHAIRMAN OF THE BOARD AND PRESIDENT AND
CO-CHIEF EXECUTIVE OFFICER CO-CHIEF EXECUTIVE OFFICERChairman of the Board and President and
Co-Chief Executive Officer Co-Chief Executive Officer
1
[side bar]
EACH YEAR, WE TRY TO
MAKE IT EASIER FOR
STOCKHOLDERS TO VOTE.
THIS YEAR, ALL STOCK-
HOLDERS MAY VOTE ON
THE INTERNET.
1[Photo of Charles R. Schwab and David S. Pottruck appears here]
4
TABLE OF CONTENTS
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS.......................... 3
PROXY STATEMENT........................................................ 4
Questions and Answers............................................. 5
Proposals To Be Voted On.......................................... 10
The Board of Directors............................................ 13
Board and Committee Meetings...................................... 18
Compensation Committee Interlocks and Insider Participation....... 19
Director Compensation............................................. 20
Principal Stockholders............................................ 22
Performance Graph................................................. 25
Summary Compensation Table........................................ 26
Option Grants..................................................... 29
Options Exercised................................................. 31
Compensation Committee Report..................................... 33
Other Information................................................. 41
Certain Transactions........................................... 41
Section 16(a) Beneficial Ownership Reporting Compliance........ 41
Independent Certified Public Accountants....................... 41
Stockholder Proposals.......................................... 42
Costs of Proxy Solicitation.................................... 42
Incorporation by Reference..................................... 42
TICKETS TO THE ANNUAL MEETING.......................................... 43
APPENDIX A - - EMPLOYMENT AND SEVERANCE AGREEMENTS..................... 44
APPENDIX B - - DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN............ 48
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS..................................3
PROXY STATEMENT................................................................4
Questions and Answers.......................................................5
Proposals To Be Voted On...................................................10
The Board of Directors.....................................................12
Board and Committee Meetings...............................................17
Compensation Committee Interlocks and Insider Participation................18
Director Compensation......................................................19
Principal Stockholders.....................................................20
Performance Graph..........................................................22
Summary Compensation Table.................................................23
Option Grants..............................................................26
Options Exercised..........................................................27
Compensation Committee Report..............................................28
Other Information..........................................................34
Certain Transactions..................................................34
Section 16(a) Beneficial Ownership Reporting Compliance...............34
Independent Auditors..................................................34
Stockholder Proposals.................................................34
Costs of Proxy Solicitation...........................................35
Incorporation by Reference............................................35
TICKETS AND INTERNET ACCESS TO THE ANNUAL MEETING.............................35
APPENDIX A
Description of Employment and Severance Agreements....................36
APPENDIX B
Description of the Corporate Executive Bonus Plan.....................39
2
5
NOTICE OF 19992000 ANNUAL MEETING OF STOCKHOLDERS
The 19992000 Annual Meeting of Stockholders of The Charles Schwab Corporation will
be held on Monday,Wednesday, May 17, 19993, 2000, at 2:00 p.m., Pacific time, at the Yerba BuenaSan
Francisco War Memorial and Performing Arts Center, for the
ArtsHerbst Theater, 700 Howard Street,401 Van Ness
Avenue, San Francisco, California, to conduct the following items of business:
1. Elect- elect four directors for three-year terms,
2. Amend- vote on a proposal to re-approve the Certificate of Incorporation to increase the number of
authorized shares of common stock,
3. Amend the 1992 Stock IncentiveCorporate Executive Bonus Plan, to increase the annual,
automatic stock option grant to non-employee directors,as
amended, and
4. Transact- transact any other business properly coming before the
meeting.
Stockholders who owned shares of our stock at the close of business on March 18,
19996,
2000 are entitled to attend and vote at the meeting. A complete list of these
stockholders will be available at our principal executive offices at 120 Kearny
Street, San Francisco, California 94104,94108, prior to the meeting.
By Order of the Board of Directors,
/s/ Carrie E. Dwyer
CARRIE E. DWYER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
CORPORATE SECRETARYCARRIE E. DWYER
Executive Vice President,
General Counsel and
Corporate Secretary
3
[side bar]
THE 19992000 ANNUAL
MEETING OF
STOCKHOLDERS WILL BE
HELD ON MONDAY,WEDNESDAY
MAY 17, 19993, 2000 AT 2:00 P.M.
AT THE VERBA BUENASAN FRANCISCO
WAR MEMORIAL AND
PERFORMING ARTS
CENTER, FOR THE ARTS THEATREHERBST THEATER,
IN SAN FRANCISCO,
CALIFORNIA.
3
6
PROXY STATEMENT
As a stockholder of The Charles Schwab Corporation, you have a right to vote on
certain matters affecting the company. This proxy statement discusses the
proposals you are voting on this year. Please read itthis proxy statement
carefully because it contains important information for you to consider when
deciding how to vote. Your vote is important.YOUR VOTE IS IMPORTANT.
In this proxy statement, we refer to The Charles Schwab Corporation as the
"Company." We also refer to this proxy statement, the proxy card and our 19981999
annual report as the "proxy materials."
The Board of Directors is sending proxy materials to you and all other
stockholders on or about March 31, 1999.27, 2000. The Board is asking you to vote your
shares by completing and returning the proxy card.card or otherwise submitting your
vote in a manner described later in this proxy statement under "Questions and
Answers - How Do I Vote?"
Unless we state otherwise, all information in this proxy statement concerning
Company common stock reflects the three-for-twoJuly 1, 1999 two-for-one stock split that occurred on
December 11, 1998.split.
This proxy statement includes summary information on the Company's financial
performance. This information is historical and is not predictive of future
results.PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
4
[side bar]
STOCKHOLDERS OWNING
COMPANY SHARES AT THE
CLOSE OF BUSINESS ON
MARCH 18, 19996, 2000 ARE
ENTITLED TO ATTEND AND
VOTE AT
THE MEETING.
4
7
QUESTIONS AND ANSWERS
Q: WHO CAN VOTE AT THE ANNUAL MEETING?
A: Stockholders who owned Company common stock on March 18, 19996, 2000 may attend and
vote at the annual meeting. Each share is entitled to one vote. There were
406,353,252837,201,644 shares of Company common stock outstanding on March 18, 1999.6, 2000.
Q: WHY AM I RECEIVINGWHAT IS IN THIS PROXY STATEMENT?
A: This proxy statement describes the proposals on which we would like you, as a
stockholder, to vote. It also gives you information on thesethe proposals, as well as
other information, so that you can make an informed decision.
Q: WHAT IS THE PROXY CARD?
A: The proxy card enables you to appoint Charles R. Schwab and David S. Pottruck
as your representatives at the annual meeting. By completing and returning the
proxy card, you are authorizing Mr. Schwab and Mr. Pottruck to vote your shares
at the meeting as you have instructed them on the proxy card. This way, your
shares will be voted whether or not you attend the meeting. Even if you plan to
attend the meeting, it is a good idea to complete and return your proxy card
before the meeting date just in case your plans change.
If a proposal comes up for vote at the meeting that is not on the proxy card,
Mr. Schwab and Mr. Pottruck will vote your shares, under your proxy, according
to their best judgment.
Q: WHAT AM I VOTING ON?
A: We are asking you to vote on:
- the election of four directors - an amendment to the Certificatefor a term of Incorporation to increase the number of
authorized shares of common stock,three years, and
- an amendmenta proposal to re-approve the 1992 Stock IncentiveCorporate Executive Bonus Plan, to increase the annual,
automatic stock option grant to non-employee directors.as amended.
The section appearing later entitled "Proposals To Be Voted On" gives you more
information on thedirector nominees for election to our Board and the proposed
amendments to the Certificate of Incorporation and the 1992 Stock IncentiveCorporate Executive Bonus Plan.
Q: HOW DO I VOTE?
A: YOU MAY VOTE BY MAIL.
You do this by completing and signing your proxy card and mailing it in the
enclosed, prepaid and addressed envelope. If you mark your voting instructions
on the proxy card, your shares will be votedvoted:
- as you instruct.instruct, and
- according to the best judgment of Mr. Schwab and Mr. Pottruck if a propo-
sal comes up for a vote at the meeting that is not on the proxy card.
If you do not mark your voting instructions on the proxy card, your shares
will be voted:
- forFOR the four named nominees for directors,
- forFOR re-approval of the proposed amendmentCorporate Executive Bonus Plan, as amended, and
- according to the Certificatebest judgment of Incorporation to
[side bar]
WHO CAN VOTE AT THE
ANNUAL MEETING?
WHY AM I RECEIVING THIS PROXY STATEMENT?
WHAT IS THE PROXY CARD?
WHAT AM I VOTING ON?
HOW DO I VOTE?
5
8
QUESTIONS AND ANSWERS
increaseMr. Schwab and Mr. Pottruck if a
proposal comes up for a vote at the number of authorized shares of common stock, and
- formeeting that is not on the proposed amendment to the 1992 Stock Incentive Plan to increase
the annual, automatic stock option grant to non-employee directors.proxy
card.
YOU MAY VOTE BY TELEPHONE.
You do this by following the "Vote by Telephone" instructions that came with
your proxy statement. If you vote by telephone, you do not have to mail in your
proxy card.
5
[side bar]
WHO CAN VOTE AT THE
ANNUAL MEETING?
WHAT IS IN THIS PROXY
STATEMENT?
WHAT IS THE PROXY
CARD?
WHAT AM I VOTING ON?
HOW DO I VOTE?
QUESTIONS AND ANSWERS
YOU MAY VOTE ON THE INTERNET.
You do this by following the "Vote by Internet" instructions that came with your
proxy statement. If you vote on the Internet, you do not have to mail in your
proxy card.
YOU MAY VOTE IN PERSON AT THE MEETING.
We will pass out written ballots to anyone who wants to vote in person at the
meeting. However, if you hold your shares in street name, you must request a
proxy from your stockbroker in order to vote at the meeting. Holding shares in
"street name" means you hold them in an account atthrough a brokerage firm.firm, bank or other
nominee, and therefore the shares are not held in your individual name.
Q: HOW DO I VOTE MY DIVIDEND REINVESTMENT PLAN SHARES?
A: If you participate in the Dividend Reinvestment and Stock Purchase Plan
managed by our transfer agent, Norwest Bank Minnesota, N.A., the proxy card you
receive from Norwest will include your shares held under that plan.
If you participate in our Dividend Reinvestment and Stock Purchase Plan through
the Company's principal brokerage firm, Charles Schwab & Co., Inc., the proxy
card you receive from that firm will include Company shares held in your
brokerage account and under that plan.
We encourage you to examine your proxy card closely to make sure you are voting
all of your Company shares.WE ENCOURAGE YOU TO EXAMINE YOUR PROXY CARD AND VOTING INSTRUCTIONS CLOSELY TO
MAKE SURE YOU ARE VOTING ALL OF YOUR COMPANY SHARES.
Q: HOW DO I VOTE MY RETIREMENT PLAN SHARES?
A: The proxy card you receive from our transfer agent will include your shares
held under The SchwabPlan Retirement Savings and Investment Plan (formerly The
Charles Schwab Profit Sharing and Employee Stock Ownership Plan). By completing
and returning your proxy card, you provide voting instructions:
- - to the transfer agent for shares you hold in your individual name at
Norwest Bank Minnesota, N.A., and
-
- to the plan's purchasing agent for shares you hold through the plan.
If you hold Company shares in an account with Charles Schwab & Co., Inc., you
will receive a separate proxy card from that brokerage firm specifically for
voting the shares in that account.
[side bar]
HOW DO I VOTE MY
DIVIDEND REINVESTMENT
PLAN SHARES?
HOW DO I VOTE MY
RETIREMENT PLAN SHARES?
6
9
QUESTIONS AND ANSWERS
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A: It means that you have multiple accounts at the transfer agent or with stockbrokers.stock-
brokers. Please complete and return all proxy cards to ensure that all your
shares are voted.
Unless you need multiple accounts for specific purposes, we recommendit may be less
confusing if you consolidate as many of your transfer agent or brokerage
accounts as possible under the same name and address.
By doing so, you should receive better customer
service.6
[side bar]
HOW DO I VOTE MY
DIVIDEND REINVESTMENT
PLAN SHARES?
HOW DO I VOTE MY
RETIREMENT PLAN
SHARES?
WHAT DOES IT MEAN IF I
RECEIVE MORE THAN ONE
PROXY CARD?
QUESTIONS AND ANSWERS
Q: WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY?
A: You may revoke your proxy and change your vote at any timeby:
- signing another proxy card with a later date and returning it before the
polls close at the meeting. You may do this by:
- - signing another proxy with a later date,
-meeting,
- voting by telephone or on the Internet before 12:00 p.m., Central time,
on May 2, 2000 (your latestLATEST telephone or Internet vote is counted), or
-
- voting at the meeting.
Q: WILL MY SHARES BE VOTED IF I DO NOT RETURN MY PROXY CARD?PROXY?
A: If your shares are held in street name, your brokerage firm, under certain
circumstances, may vote your shares.IF YOUR SHARES ARE HELD IN STREET NAME, YOUR BROKERAGE FIRM, UNDER CERTAIN
CIRCUMSTANCES, MAY VOTE YOUR SHARES.
Brokerage firms have authority under New York Stock Exchange rules to vote
customers' unvoted shares on some "routine" matters. The New York Stock Exchange
has determined that all threeboth of our proposals described later under "Proposals To Be
Voted On" are considered routine matters.
If you do not give a proxy to vote your shares, your brokerage firm may either:
- - vote your shares on routine matters, or
-
- leave your shares unvoted.
As a brokerage firm, Charles Schwab & Co., Inc. may vote its customers' unvoted
shares on routine matters. But, becauseWhen our brokerage firm is voting on Company
proposals, however, it must follow a stricter set of New York Stock Exchange
rules. Specifically, our brokerage firm can vote unvoted Company shares held in
brokerage accounts only in the same proportion as all other stockholders vote.
When a brokerage firm votes its customers' unvoted shares on routine matters,
these shares are counted to determine if a quorum exists to conduct business at
the meeting. A brokerage firm cannot vote customers' unvoted shares on
non-routine matters. These shares are considered not entitled to vote on
non-routine matters, rather than as a vote against the matters.
We encourage you to provide instructions to your brokerage firm by giving your
proxy. This ensures your shares will be voted at the meeting.
YOU MAY HAVE GRANTED TO YOUR STOCKBROKER DISCRETIONARY VOTING AUTHORITY OVER
YOUR ACCOUNT.
Your stockbroker may be able to vote your shares depending on the terms of the
agreement you have with your stockbroker.
A PURCHASING AGENT UNDER A RETIREMENT PLAN MAY BE ABLE TO VOTE A PARTICIPANT'S
UNVOTED SHARES. IF YOU ARE A PARTICIPANT IN THE SCHWABPLAN RETIREMENT SAVINGS
AND INVESTMENT PLAN, THE PLAN'S PURCHASING AGENT, UNDER CERTAIN CIRCUMSTANCES,
CAN VOTE YOUR SHARES.
Specifically, the purchasing agent can vote shares you hold under the Employee
Stock Ownership Plan ("ESOP") component of the overall plan if the purchasing
agent does not receive voting instructions from you. The purchasing agent will
vote your unvoted shares held under the ESOP component of the overall plan in
the same pro-
7
[side bar]
WHAT DOES IT MEAN IF I
RECEIVE MORE THAN ONE
PROXY CARD?
WHAT IF I CHANGE MY
MIND AFTER I RETURN
MY PROXY?
WILL MY SHARES BE
VOTED IF I DO NOT
RETURN MY PROXY CARD?
7PROXY?
10
QUESTIONS AND ANSWERS
You may have granted to your stockbroker discretionary voting authority over
your account.
Your stockbroker may be able to vote your shares depending on the terms of the
agreement you have with your stockbroker.
A purchasing agent under a retirement plan may be able to vote a participant's
unvoted shares. If you are a participant in The SchwabPlan Retirement Savings
and Investment Plan, the plan's purchasing agent, under certain circumstances,
can vote your shares.
The purchasing agent can vote shares you hold under the plan if the purchasing
agent does not receive voting instructions from you. The purchasing agent will
vote your unvoted shares in the same proportionportion as all other plan participants vote their shares.shares held under the ESOP
component of the overall plan.
Similarly, the purchasing agent will vote shares held under the Employee Stock
Ownership Plan ("ESOP")ESOP component
of the overall plan that have not yet been allocated to the ESOP accounts of
individual participants. However, the purchasing agent can only vote these
shares in the same proportion as all other participants in the ESOP component of
the overall plan vote their shares (unless the purchasing agent receives
specific instructions from a plan fiduciary that has the power to direct the
purchasing agent).
Q: HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING?
A: To hold the meeting and conduct business, a majority of the Company's outstandingout-
standing shares as of March 18, 19996, 2000 must be present at the meeting. This is
called a quorum.
Shares are counted as present at the meeting if the stockholder either:
- - is present and votes in person at the meeting, or
- - has properly submitted a proxy card.(including by voting by telephone or over
the Internet).
Q: HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED AS DIRECTORS?
A: We use the phrase "yes vote" to mean a vote for a proposal.
The four nominees receiving the highest number of yes votes FOR election will be
elected as directors. This number is called a plurality.
Q: HOW MANY VOTES MUST THE CORPORATE EXECUTIVE BONUS PLAN RECEIVE TO BE
RE-APPROVED?
A: The Corporate Executive Bonus Plan, as amended, will be re-approved if a
majority of the shares present at the meeting in person or by proxy vote FOR
re-approval.
Q: WHAT HAPPENS IF A NOMINEE IS UNABLE TO STAND FOR ELECTION?
A: The Board may reduce the number of directors or select a substitute nominee.
In the latter case, if you have completed and returned your proxy, card, Charles R.
Schwab and David S. Pottruck can vote your shares for a substitute nominee. They
cannot vote for more than four nominees.
Q: HOW ARE VOTES COUNTED?
A: You may vote either "for" each director nominee or withhold your vote
from any one or more of the nominees.
You may vote "for" or "against" the proposal to re-approve the Corporate
Executive Bonus Plan, as amended, or "abstain" from voting on the proposal. If
you abstain from voting, it will have the same effect as a vote "against" the
proposal.
If you give your proxy without voting instructions, your shares will
be counted as a vote FOR each director nominee and FOR the proposal on the Bonus
Plan.
Voting results are tabulated and certified by our transfer agent, Norwest Bank
Minnesota, N.A.
8
[side bar]
HOW MANY SHARES MUST
BE PRESENT TO HOLD THE
MEETING?
HOW MANY VOTES MUST
THE NOMINEES HAVE TO
BE ELECTED AS
DIRECTORS?
HOW MANY VOTES MUST
THE CORPORATE
EXECUTIVE BONUS PLAN
RECEIVE TO BE RE-
APPROVED?
WHAT HAPPENS IF A
NOMINEE IS UNABLE TO
STAND FOR ELECTION?
8
11
QUESTIONS AND ANSWERS
Q: HOW MANY VOTES MUST THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION HAVE TO
PASS?
A: To pass, the amendment must receive a yes vote of a majority of the Company's
shares outstanding as of March 18, 1999.
Q: HOW MANY VOTES MUST THE AMENDMENT TO THE 1992 STOCK INCENTIVE PLAN HAVE TO
PASS?
A: To pass, the amendment must receive a yes vote of a majority of the shares
present at the meeting in person or by proxy.
Q: HOW ARE VOTES
COUNTED?
A: You may vote either "for" or "against" each nominee. You may vote "for,"
"against" or "abstain" on the proposals to amend the Certificate of
Incorporation and the 1992 Stock Incentive Plan.
If you abstain from voting on either amendment, it has the same effect as a vote
against.
If you give your proxy without voting instructions, your shares will be counted
as a yes vote for each nominee and for each amendment.
Voting results are tabulated and certified by our transfer agent, Norwest Bank
Minnesota, N.A.
QUESTIONS AND ANSWERS
Q: IS MY VOTE KEPT CONFIDENTIAL?
A: Proxies, ballots and voting tabulations identifying stockholders are kept
confidential and will not be disclosed except as may be necessary to meet legal
requirements.
Q: HOW DO I ACCESS THE ANNUAL MEETING ON THE INTERNET?
A: For information on how to receive the real-time broadcast of the annual
meeting over the Internet, go to WWW.SCHWABEVENTS.COM.
Q: WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?
A: We will announce preliminary voting results at the meeting. We will publish
the final results in our quarterly report on Form 10-Q for the second quarter of
1999.2000. We will file that report with the Securities and Exchange Commission, and
you can get a copy by contacting our Investor Relations Hotline at (415)
627-8786636-2787 or the SEC at (800) SEC-0330 for the location of its nearest public
reference room. You can also get a copy on the Internet at WWW.SCHWAB.COM by
clicking on "About Schwab" or through the SEC's electronic data system called
EDGAR at www.sec.gov.WWW.SEC.GOV.
9
[side bar]
HOW MANY VOTES
MUST THE AMENDMENT
TO THE CERTIFICATE OF
INCORPORATION HAVE
TO PASS?
HOW MANY VOTES MUST
THE AMENDMENT TO THE
1992 STOCK INCENTIVE
PLAN HAVE TO PASS?
HOW ARE VOTES COUNTED?
IS MY VOTE KEPT
CONFIDENTIAL?
HOW DO I ACCESS THE
ANNUAL MEETING ON THE
INTERNET?
WHERE DO I FIND THE
VOTING RESULTS
OF THE MEETING?
9
12
PROPOSALS TO BE VOTED ON
1. ELECTION OF DIRECTORS
Nominees for directors this year are FrankNancy H. Bechtle, C. Herringer, Stephen T. McLin,
Charles R. Schwab,Preston Butcher,
David S. Pottruck and Roger O. Walther.
The Board recommends a vote for these nominees.George P. Shultz.
Each nominee is presently a director of the Company and has consented to serve a
new three-year term.
THE BOARD RECOMMENDS A VOTE FOR THESE NOMINEES.
2. AMENDMENT TO THE CERTIFICATERE-APPROVAL OF INCORPORATIONCORPORATE EXECUTIVE BONUS PLAN, AS AMENDED
We are asking stockholders to approve an amendmentre-approve the Corporate Executive Bonus Plan, as
amended. Stockholders last approved the Bonus Plan at the Annual Meeting of
Stockholders in 1995. To meet certain tax law requirements, as explained below,
the Bonus Plan must now be re-approved by stockholders. The Bonus Plan has been
amended since the 1995 annual meeting, so we are asking for re-approval of the
Bonus Plan, as amended.
The Bonus Plan provides for the payment of bonuses to the CertificateCompany's executive
officers, based solely on the Company's attainment of Incorporation to increaseannual revenue growth and
profitability objectives. For more information about the numberBonus Plan, see the
description of authorized sharesits terms in Appendix B of common stock from
500 million to 2 billion. As of December 31, 1998, 452 millionthis proxy statement.
Section 162(m) of the 500Internal Revenue Code authorizes tax deductions for
certain executive compensation in excess of $1 million authorized shares had been used or reservedonly if such compensation
is based on performance and the plan under which it is paid is approved by
stockholders. Furthermore, stockholders must re-approve a plan that pays
performance-based compensation at least every five years in order for usesuch
compensation to continue to qualify for a tax deduction. Because stockholders
last approved the Corporate Executive Bonus Plan five years ago, we are seeking
re-approval now.
If stockholders re-approve the Bonus Plan, as follows:
- - 402 million issuedamended, and outstanding shares;
- - 33 million shares under stock options that have been granted; and
- - 17 million shares reserved for future grants under incentive plans.
Accordingly, the Company is now limitedcomplies
with certain other requirements set forth in Section 162(m), payments to
issuing 48 million shares of common
stockexecutive officers under the current authorized numberBonus Plan will qualify for deduction under Section
162(m). If stockholders do not re-approve the Bonus Plan, as amended, bonus
payments or portions of shares.
Increasingbonus payments to certain executive officers may not
qualify for deduction under Section 162(m) to the number of authorized shares of common stock will giveextent that certain
compensation paid to any such executive officer in any calendar year exceeds $1
million. In that case, the Company greater flexibility for:may not be able to deduct for tax purposes
all compensation paid to the affected executive officers.
The most significant amendments to the Bonus Plan:
- - stock splits and stock dividends,
- - grants under employee benefit and employee stock incentive plans,
- - financings, corporate mergers and acquisitions of property,
- - issuance of shares under the Company's Dividend Reinvestment and Stock
Purchase Plan, and
- - other general corporate purposes.
Having this additional authorized capital stock available for future use will allow the Company to issue additional shares of common stock without the expense
and delay of a special meeting of stockholders.
The additional authorized shares will:
- - be partpay some or all of the existing class of common stock,
- - not affectcompensation earned under
the terms of the commonBonus Plan in Company stock or other equity-based awards;
- increase both the rightsmaximum bonus target, as a percentage of base salary,
permitted by the holders of
common stock,Bonus Plan and the maximum amount by which the target
bonus amount can be multiplied to reflect the Company's financial
performance; and
- - havechange certain dates to those highlighted below, with the same rights and privileges asresult that the
shares of common stock presently
outstanding.
Stockholders' current ownership of common stock will not give them automatic
rights to purchase any of the additional authorized shares.
Any future issuance of additional authorized shares of common stock may, among
other things, have a dilutive effect on earnings per share of common stock and
on the equity and voting rights of those holding common stock at the time the
additional authorized shares are issued.
Although not a factor in the Board's decision to propose the amendment to the
Certificate of Incorporation, one of10
[side bar]
ELECTION OF DIRECTORS
- - FRANK C. HERRINGERNANCY H. BECHTLE
- - STEPHEN T. MCLINC. PRESTON BUTCHER
- - CHARLES R. SCHWABDAVID S. POTTRUCK
- - ROGER O. WALTHER
AMENDMENT TO THE
CERITIFCATEGEORGE P. SHULTZ
RE-APPROVAL OF
INCORPORATION
10CORPORATE EXECUTIVE
BONUS PLAN,
AS AMENDED
13
PROPOSALS TO BE VOTED ON
amount of base salary to be included in the effectscomputation of the
amendmenttarget bonus amount for each participant in any year may be to enable the Board to make more difficult
or to discourage an attempt to obtain controlnot exceed 250%
of the Company by meansbase salary, determined as of a
merger, tender offer, proxy contest or otherwise, and as a result protect the
continuityMARCH 31, 2000 (instead of
present management.
The Company is not presently negotiating with anyone concerning the issuance or
use of any of the additional authorized shares of common stock, and the Company
has no present arrangements, understandings or plans concerning the issuance or
use of the additional authorized shares.
The Board recommends a vote for the amendmentMarch 31, 1995), payable to the Company's Certificateparticipant holding the same or sub-
stantially similar position on MARCH 31, 2000 (instead of
Incorporation.
3. AMENDMENT TO THE 1992 STOCK INCENTIVE PLAN
We are asking you to approve an amendment to the 1992 Stock Incentive Plan to
increase by 1,000 the number of shares covered by stock option grants to
non-employee directors under the annual, automatic option grant.
Each year, our non-employee directors receive an automatic grant of options to
purchase Company common stock.
Currently, each non-employee director receives options on:
- - 1,500 shares if the option exercise price is $35 or more, or
- - 2,500 shares if the option exercise price is less than $35.
The amendment to the plan would increase the grant to options on:
- - 2,500 shares if the option exercise price is $35 or more, or
- - 3,500 shares if the option exercise price is less than $35.
STOCKHOLDER APPROVAL IS NOT REQUIRED BY THE PLAN OR LAW. HOWEVER, THE BOARD
WOULD LIKE TO GIVE STOCKHOLDERS THE OPPORTUNITY TO VOTE ON THE AMENDMENT. THE
AMENDMENT WILL BECOME EFFECTIVE ONLY IF IT IS APPROVED BY THE STOCKHOLDERS.
The Company compensates its directors with both cash and stock option grants and
believes that the stock option grants help to align directors' and stockholders'
interests.
The Board recently reviewed non-employee directors' compensation, which included
a comparison to peer group companies. The disinterested directors approved an
increase in the non-employee directors' fees beginning in 1999. They also
recommended an increase in the annual, automatic stock option grant to our
non-employee directors.March 31, 1995).
The Company believes that thisthe changes to the Bonus Plan are necessary to
maintain the Bonus Plan's competitiveness with executive compensation paid by
other companies, and that the changes are consistent with the Company's
compensation philosophy of emphasizing variable compensation based on the
Company's financial performance.
Currently, the Board's Compensation Committee has the authority to amend the
Bonus Plan without stockholders' approval in ways that could increase in the sizecost
of the option grant will better align our non-employee directors' compensation with
stockholders' interests and peer group compensation.Bonus Plan or change the allocation of benefits among the participants.
See the table at the end of Appendix B (Description of the Corporate Executive
Bonus Plan) for amounts that would be payable under the Bonus Plan in 2000,
based on certain assumptions.
THE BOARD RECOMMENDS A VOTE FOR RE-APPROVAL OF THE CORPORATE EXECUTIVE BONUS
PLAN, AS AMENDED.
OTHER BUSINESS
The Board had last reviewedknows of no other business to be considered at the directors' compensation program in 1995.
Our non-employee directorsmeeting. However,
if:
- other matters are properly presented at the meeting, or for any adjourn-
ment or postponement of the meeting, and
- you have an interest in this amendment.
[side bar]
AMENDMENT TO THE 1992
STOCK INCENTIVE PLANproperly submitted your proxy,
then Charles R. Schwab and David S. Pottruck will, with your proxy, vote your
shares on those matters according to their best judgment.
11 14
PROPOSALS TO BE VOTED ON
The Board recommends a vote for the amendment to the 1992 Stock Incentive Plan.
If you would like more information about the 1992 Stock Incentive Plan, a
summary of its terms is included as Appendix B to this proxy statement.
OTHER BUSINESS
THE BOARD KNOWS OF NO OTHER BUSINESS TO BE CONSIDERED AT THE MEETING. HOWEVER,
IF:
- - OTHER MATTERS ARE PROPERLY PRESENTED AT THE MEETING, OR FOR ANY ADJOURNMENT
OR POSTPONEMENT OF THE MEETING, AND
- - YOU HAVE COMPLETED AND RETURNED YOUR PROXY CARD,
THEN CHARLES R. SCHWAB AND DAVID S. POTTRUCK WILL, WITH YOUR PROXY, VOTE YOUR
SHARES ON THOSE MATTERS ACCORDING TO THEIR BEST JUDGMENT.
[side bar]
OTHER BUSINESS
12
15
THE BOARD OF DIRECTORS
NANCY H. BECHTLE
DIRECTOR SINCEDirector since 1992
Ms. Bechtle, age 61, has been62, was a director and Chief Financial Officer of J.R. Bechtle
& Co., an international consulting firm, since 1979.from 1979 to 1998. She has been the
President and Chief Executive Officer of the San Francisco Symphony since 1987,
and has served as a member of the San Francisco Symphony Board of Governors
since 1984. Ms. Bechtle also has served as Chairman and Chief Executive Officer
of Sugar Bowl Ski Resort, and as a director of Sugar Bowl Corporation, since
February 1998. Ms. Bechtle's term expires in the year 2000.Bechtle is a nominee for election this year.
C. PRESTON BUTCHER
DIRECTOR SINCEDirector since 1988
Mr. Butcher, age 60, is61, has been Chairman and Chief Executive Officer of the newly formed Legacy
Partners (formerly Lincoln Property Company N.C., Inc.), a real estate
development and management firm.firm, since 1998. Mr. Butcher served as President,
Chief Executive Officer and Regional Partner of Lincoln Property Company N.C.,
Inc. from 1967 until 1998. Mr. Butcher's term expires in the year 2000.Butcher is a nominee for election this year.
DONALD G. FISHER
DIRECTOR SINCEDirector since 1988
Mr. Fisher, age 70,71, is the Chairman of the Board of The Gap, Inc., a nationwide
specialty retail clothing chain. He was also Chief Executive Officer of The Gap,
Inc. and a director from 1969 to November 1995. Mr. Fisher is currently a director of Vodafone
AirTouch Communications, Inc.,Plc, a wireless telecommunications services company, and Wilson
Cornerstone Properties, Inc., a real estate development company. Mr. Fisher's
term expires in the year 2001.
ANTHONY M. FRANK
DIRECTOR SINCEDirector since 1993
Mr. Frank, age 67,68, has been theFounding Chairman of Belvedere Capital Partners, a
general partner of an investment fund specializing in financial institutions,
since 1993. From 1988 until 1992, Mr. Frank served as Postmaster General of the
United States. From April 1993 until November 1993, Mr. Frank was Chairman of
the Board of Independent Bancorp of Arizona, Inc., a registered bank holding
company. Mr. Frank is a director of Temple-Inland, Inc., a maker of containers,
and cardboard products and building products and a provider of financial services;
General American Investors, a closed-end investment company; and Bedford
Properties Investors Irvine Apartment Communities and Crescent Real Estate Equities, allboth real estate
investment trusts. Mr. Frank served as a director of the Company from April 1987
until February 1988 and from March 1992 until April 1993. He rejoined the Board
in December 1993. Mr. Frank's term expires in the
year 2001.
12
[side bar]
BIOGRAPHIES
- - NANCY H. BECHTLE
- - C. PRESTON BUTCHER
- - DONALD G. FISHER
- - ANTHONY M. FRANK
13
16
THE BOARD OF DIRECTORS
FRANK C. HERRINGER
DIRECTOR SINCEDirector since 1996
Mr. Herringer, age 56,57, is Chairman of the Board Chiefof both Transamerica Corporation
and Aegon U.S.A., and a member of the Executive Officer and
PresidentBoard of Transamerica Corporation,Aegon N.V., a life
insurance, pensions and financial services
company.related savings and investment products company
headquartered in The Netherlands. At Transamerica, he has been Chairman since
1996, and he was Chief Executive Officer sincefrom 1991 to 1999 and President since 1986.from
1986 to 1999, when Transamerica was acquired by Aegon N.V. Mr. Herringer is also
a director of Unocal Corporation, an oil company. Mr. Herringer is a nominee for election this
year.Herringer's term expires
in 2002.
STEPHEN T. MCLIN
DIRECTOR SINCEDirector since 1988
Mr. McLin, age 52,53, has been Chairman and Chief Executive Officer of STM Holdings
LLC, which offers merger and acquisition advice for the financial services
industry,technology companies, since
1998. From 1987 until 1998, he was the President and Chief Executive Officer of
America First Financial Corporation, a finance and investment banking firm. Mr.
McLin is a director of Bay View Capital
Corporation,Tuttle Decision Systems, a technology company which conductsis
20% owned by Microsoft, and Your:)Bank.com, a savings bank business and offers commercial and
consumer financing.wholly-owned subsidiary of Gateway
2000, Inc., a computer company. Mr. McLin is a nominee for election this year.McLin's term expires in 2002.
DAVID S. POTTRUCK
DIRECTOR SINCEDirector since 1994
Mr. Pottruck, age 50,51, is the President and Co-Chief Executive Officer of the
Company. He became the President in 1992, and the Co-Chief Executive Officer in January
1998. He was also the Company's Chief Operating Officer from 1994 until
September 1998. He became the Chief Executive Officer of Charles Schwab & Co., Inc.,
the Company's principal brokerage firm, in 1992. Mr. Pottruck is currently a
director of McKesson HBOC, Inc., the
world's largest healthcare services company; Intel Corporation, a maker of microcomputer components and related
products; and Preview Travel, Inc., an online travel services provider.provider; and Epoch
Partners, Inc., an online investment banking firm owned in part by the Company.
In July 1999, he was elected to the Board of Governors of the National
Association of Securities Dealers, Inc. In 1998, he was named to the Federal
Advisory Commission on Electronic Commerce. Mr. Pottruck's term expiresPottruck is a nominee for
election this year.
CONDOLEEZZA RICE
Director since July 1999
Dr. Rice, age 45, is currently a Senior Fellow at the Hoover Institution and
Professor of Political Science at Stanford University, where she has taught
political science since 1981. She was also Provost at Stanford from 1993 until
1999, a post in which she served as the year 2000.University's chief budget officer. From
1989 to 1991, Dr. Rice was Special Assistant to the President of the United
States for National Security Affairs. Dr. Rice is a member of the
13
[side bar]
BIOGRAPHIES
- - FRANK C. HERRINGER
- - STEPHEN T. McLINMCLIN
- - DAVID S. POTTRUCK
14- - CONDOLEEZZA RICE
17
THE BOARD OF DIRECTORS
MARK A. PULIDO
DIRECTOR SINCE DECEMBER 1998
Mr. Pulido, age 46, is President and Chief Executive Officerboard of McKesson HBOC,
Inc., which was formed fromdirectors of the merger of McKesson Corporation and HBO & Company
in January 1999. He served as Chief Executive Officer of McKesson Corporation
from April 1997 until the merger; President from April 1996 until the merger;
and Chief Operating Officer from April 1996 to April 1997. Between 1992 and
1994, Mr. Pulido held the positions of Chairman, President and Chief Executive
Officer of Red Line HealthcareChevron Corporation, an affiliateoil company, and the William
and Flora Hewlett Foundation. She is also a member of Sandozthe University of Notre
Dame Board of Trustees, J.P. Morgan's International Ltd.,Advisory Council and the nation's largest providerSan
Francisco Symphony Board of medical supplies and reimbursement
services to the long-term care industry. In 1994, he became Chief Operating
Officer of Sandoz Pharmaceuticals Corporation, and in 1996, he became Chief
Executive Officer. Mr. Pulido'sGovernors. Dr. Rice's term expires in the year 2001.
ARUN SARIN
DIRECTOR SINCE DECEMBERDirector since December 1998
Mr. Sarin, age 44,45, is Chief Executive Officer USA/Asia Pacific Region of
Vodafone AirTouch Plc. Until July 1999, he was President and Chief Operating
Officer of AirTouch Communications, Inc. Prior to his appointment to these
positions in 1997, Mr. Sarin was President and Chief Executive Officer of
AirTouch International. Mr. Sarin joined AirTouch (formerly Pacific Telesis
Group) in 1984 and held a variety of positions, including Vice President and
General Manager, Vice President - Chief Financial Officer and Controller, and
Vice President of Corporate Strategy. Mr. Sarin is a member of the board of
directors of Vodafone AirTouch Communications;Plc; PrimeCo Personal Communications, L.P., a
wireless telecommunications services company; and Cisco Systems, Inc., a
computer networking company. Mr. Sarin's term expires in the year 2001.
CHARLES R. SCHWAB
DIRECTOR SINCEDirector since 1986
Mr. Schwab, age 61,62, was a founder of Charles Schwab & Co., Inc. in 1971, and has
been its Chairman since 1978. He has been Chairman and a director of the Company
since its incorporation in 1986. He also served as the Chief Executive Officer from
1986 until January 1998, when he and David S. Pottruck became Co-Chief Executive
Officers. Mr. Schwab is a director of The Gap, Inc.; Vodafone AirTouch Plc;
AudioBase, Inc., Transamerica
Corporation, AirTouch Communications, Inc.a company that provides music and voice to Internet publishers,
advertisers and marketers; and Siebel Systems, Inc., a company that provides
support for software systems, andsystems. He is also a trustee of The Charles Schwab Family
of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity
Portfolios, all registered investment companies. Mr. Schwab is a nominee for
election this year.
[side bar]
BIOGRAPHIES
- - MARK A. PULIDO
- - ARUN SARIN
- - CHARLES R. SCHWAB
15
18
THE BOARD OF DIRECTORSSchwab's term expires in
2002.
GEORGE P. SHULTZ
DIRECTOR SINCEDirector since 1997
Dr. Shultz, age 78,79, is Professor Emeritus of International Economics at the
Graduate School of Business at Stanford University, and a Distinguished Fellow
at the Hoover Institution. He has held United States government positions as the
Secretary of Labor (1969-1970), Director of the Office of Management and Budget
(1970-1972), Secretary of the Treasury (1972-1974) and Secretary of State
(1982-1989). In 1989, he was awarded the Medal of Freedom, the nation's highest
civilian honor. Dr. Shultz is a director of AirTouch Communications, Inc.; Bechtel Group, Inc., a provider of
engineering, construction and related management services; Gulfstream Aerospace Corporation, a maker of intercontinental business jet
aircraft;Fremont Group, Inc.,
an investment company; and Gilead Sciences, Inc., a developer of treatments for viral
diseases.biotechnology
14
[side bar]
BIOGRAPHIES
- - ARUN SARIN
- - CHARLES R. SCHWAB
- - GEORGE P. SHULTZ
THE BOARD OF DIRECTORS
company. He is also Chairman of J.P. Morgan's International Advisory Council.
He was President of Bechtel Group, Inc. from 1974 to 1982. Dr. Shultz's term
expires in the year 2000.Shultz is a
nominee for election this year.
ROGER O. WALTHER
DIRECTOR SINCEDirector since 1989
Mr. Walther, age 63,64, has served as the Chairman and Chief Executive Officer of
Tusker Corporation, a real estate and business management company, since August
1997. He served as Chairman and Chief Executive Officer of ELS Educational
Services, Inc., the largesta provider of English as a second language courses in the United
States, from April 1992 through August 1997. Mr. Walther was President, Chief
Executive Officer and a director of AIFS, Inc., which designs and markets
educational and cultural programs internationally, from 1964 to February 1993.
Since 1985, Mr. Walther has served as Chairman and has been a director of First
Republic Bank. Mr. Walther is a nominee for election this
year.
[side bar]
BIOGRAPHIES
- - GEORGE P. SHULTZ
- - ROGER O. WALTHER
16
19
THE BOARD OF DIRECTORSWalther's term expires in 2002.
NUMBER OF DIRECTORS AND TERMS
The Company currently has twelve directors. Four directors are nominees for
election this year. The remaining eight directors will continue to serve the
terms described in their biographies.
Our directors serve staggered terms. This is accomplished as follows:
- each director who is elected at an annual meeting of stockholders serves
a three-year term,
- the directors are divided into three classes,
- the classes are as nearly equal in number as possible, and
- the term of each class begins on a staggered schedule.
CONDOLEEZZA RICE
Based on discussions betweenAGREEMENT TO APPOINT TWO DIRECTORS
In connection with its proposed acquisition of U.S. Trust Corporation, a bank
holding company whose principal businesses are personal wealth management
services and institutional services, the Company has agreed that if the
contemplated transaction closes, the Board of Directors will be expanded to 14
members and Dr. Condoleezza Rice, an
understanding exists betweenthe following persons will be appointed to serve on the Board of
Directors:
H. MARSHALL SCHWARZ
Mr. Schwarz, age 63, currently serves as Chairman of the Board and Dr. Rice that she will join the BoardChief
Executive Officer of U.S. Trust Corporation and United States Trust Company of
New York. Mr. Schwarz joined United States Trust Company in July 1999. Biographical information on Dr. Rice appears below.
Dr. Rice, age 44, has been Provost of Sanford University since 1993, and1967 after a
professor of political science at Stanford since 1981.seven-year association with Morgan Stanley & Co., Incorporated, an investment
banking firm. In 1984, she1972, he was the
recipient of the Walter J. Gores Award for Excellence in Teaching, and in 1993,
she was awarded the School of Humanities and Sciences Dean's Award for
Distinguished Teaching. Dr. Rice is a member of the board of directors of the
Chevron Corporation, Transamerica Corporation, the William and Flora Hewlett
Foundation, the University of Notre Dame, J.P. Morgan's International Advisory
Council and the San Francisco Symphony Board of Governors.elect-
15
[side bar]
BIOGRAPHIES
- - ROGER O. WALTHER
NUMBER OF DIRECTORS
AND TERMS
BIOGRAPHYAGREEMENT TO APPOINT
TWO DIRECTORS
BIOGRAPHIES
- - CONDOLEEZZA RICE
17H. MARSHALL SCHWARZ
20THE BOARD AND COMMITTEE MEETINGSOF DIRECTORS
ed a Senior Vice President and head of the Banking Division. He was elected
Executive Vice President and Chief Operating Officer of United States Trust
Company's Bank Group in 1977 and Chief Operating Officer of the Asset Management
Group in 1979. Mr. Schwarz served as President of U.S. Trust Corporation and
United States Trust Company from June 1986 through January 1990 and became
Chairman and Chief Executive Officer effective February 1, 1990. He is also a
director of Atlantic Mutual Companies, a property and casualty insurance
company, and Bowne & Co., Inc., a financial printer and information and document
management company. Mr. Schwarz is a trustee and former Chairman of the Board of
the American Red Cross in Greater New York, a trustee of Teachers
College-Columbia University and the Camille and Henry Dreyfus Foundation, Inc.,
and President of the Board of Trustees of Milton Academy.
JEFFREY S. MAURER
Mr. Maurer, age 52, currently serves as President of U.S. Trust Corporation and
United States Trust Company of New York and is a director of both companies. Mr.
Maurer joined United States Trust Company in 1970 and was made manager of the
Asset Management and Private Banking Group in 1978. He was elected Senior Vice
President in November 1980, Executive Vice President in May 1986, President
effective February 1990 and Chief Operating Officer in December of 1994. Mr.
Maurer is also a director of the Greater New York Mutual Insurance Companies, a
property and casualty insurance company. He is a trustee of Alfred University, a
director and Treasurer of The Children's Health Fund, a director of The Hebrew
Home for the Aged and the Riverdale Terrance Housing Fund Developmental Company,
Inc., a director of Roundabout Theatre Co., a member of the Advisory Board held eight regular meetingsof
The Salvation Army of Greater New York, and a director of the North Shore Long
Island Jewish Health System.
Mr. Schwarz will be appointed to the class of directors whose term expires in
1998. Each director, except Donald G.
Fisher2002, and Roger O. Walther, attended at least 75%Mr. Maurer will be appointed to the class of all Board and applicable
committee meetings during 1998.directors whose term
expires in 2001. These appointments will be made only if the proposed
acquisition of U.S. Trust Corporation is completed.
16
[side bar]
BIOGRAPHIES
- - JEFFREY S. MAURER
BOARD AND COMMITTEE MEETINGS
- ---------------------------------------------------------------------------------------------------------------
The Board held eight regular meetings in 1999. Each director attended at least
75% of all Board and applicable committee meetings during 1999. This table
describes the Board's committees. The Board does not have a nominating committee
or a committee serving a similar function.
NAME OF COMMITTEE FUNCTIONS NUMBER OF
AND MEMBERS OF THE COMMITTEE MEETINGS IN 19981999
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
AUDIT - confers with independent auditors and 4
accountants and internal
Nancy H. Bechtle auditors regarding scope of audits
Nancy H. Bechtle - reviews reports of independent auditors and
C. Preston Butcher examinationsinternal auditors
Donald G. Fisher - reviews reports of independentrecommendations about internal
Anthony M. Frank accountants and internalcontrols
Frank C. Herringer - recommends selection of independent auditors
Stephen T. McLin * - reviews recommendations about
Mark A. Pulido ** internal controls
Arun Sarin ** - recommends selection of
independent accountants to the Board
Arun Sarin
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
COMPENSATION - determines the compensation of 8
the Co-Chief 8
Executive Officers
Nancy H. Bechtle - reviews and approves:
C. Preston Butcher - executive compensation philosophy
Stephen T. McLin - programs for annual and long-term executive
Condoleezza Rice compensation
George P. Shultz long-term- other executive programs
Roger O. Walther * compensationWalther* - has authority to grant options and other
equity awards under stock incentive
plans and bonus awards under cash-basedexecutive
incentive plans
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CUSTOMER - monitors service quality 2
QUALITY - assesses customer satisfaction ASSURANCE and reviews
ASSURANCE results of Charles Schwab & Co., Inc.
customer surveys
Nancy H. Bechtle surveys
Donald G. Fisher - proposes initiatives to research service
Donald G. Fisher quality
Anthony M. Frank*
research service quality
Frank C. Herringer
Condoleezza Rice
Charles R. Schwab
George P. Shultz
Roger O. Walther
* Chairperson
- ---------------------------------------------------------------------------------------------------------------
* Chairperson
** Elected to the committee in January 199917
[side bar]
THIS TABLE DESCRIBES
THE BOARD'S
COMMITTEES.
18
21
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998:
-1999:
- none of the members of the Board Compensation Committee was an officer (or
former officer) or employee of the Company or any of its subsidiaries;
-
- none of the members of the Board Compensation Committee entered into (or
agreed to enter into) any transaction or series of transactions with the
Company or any of its subsidiaries in which the amount involved exceeds
$60,000;
-
- none of the Company's executive officers served on the compensation
committee (or another board committee with similar functions or, if there
was no committee like that, the entire board of directors) of another
entity where one of that entity's executive officers served on the
Company's Board Compensation Committee;
-
- none of the Company's executive officers was a director of another entity
where one of that entity's executive officers served on the Company's
Board Compensation Committee; and
-
- none of the Company's executive officers served on the compensation
committee (or another board committee with similar functions or, if there
was no committee like that, the entire board of directors) of another
entity where one of that entity's executive officers served as a director
on the Company's Board.
18
[side bar]
DURING 1998,1999, OUR BOARD
COMPENSATION
COMMITTEE CONSISTED
OF ALL NON-EMPLOYEE
MEMBERS, AND WE DID
NOT HAVE ANY
COMPENSATION
COMMITTEE INTERLOCKS.
19
22
DIRECTOR COMPENSATION
We do not pay directors who are also officers of the Company additional
compensation for their service as directors. In 1998,1999, compensation for
non-employee directors included the following:
- an annual retainer of $25,000,$35,000,
- $1,500$2,000 for each Board meeting attended,
- $300$500 for each Board committee meeting attended on the same day as a Board
meeting, and $1,000 for each other Board committee meeting attended,
- an annual retainer of $3,000 to committee chairpersons, and
- expenses of attending Board and committee meetings.
Non-employee directors may participate in the Directors' Deferred Compensation
Plan. ThisUnder this plan, permitsin 1999, non-employee directors tocould defer receipt of
all or a portion of their directors' fees and, at their election, receive
either:
- a grant of stock options which have:which:
- have a fair value on the grant valuedate equal to the amount of the deferred
fees (as determined under an appropriate options valuation method),
and
- have an option exercise price equal to the fair market value of Company
common stock on the date the deferred fee amount would have been paid,
and
- vest immediately upon grant and generally expire ten years after the
grant date,
- or -
- upon ceasing to serve as a director,leaving the Board, the amount that would have resulted from investing
the deferred fee amount in Company common stock.
Deferral of fees made after January 1, 2000 (other than deferred fees invested
in stock options) will be invested in shares of Company common stock, to be held
in a trust and distributed to the director (in shares) when the director leaves
the Board. Distributions of previously deferred fees (other than those invested
in stock options) will also be made in shares if a director so consents.
In 1998,1999, under the 1992 Stock Incentive Plan, non-employee directors were
entitled to an annual, automatic grant of either:
- options on 1,5002,500 shares of Company common stock if the fair market value
of the stock on the grant date was $35 or more, or
- options on 2,5003,500 shares of Company common stock if the fair market value
of the stock on the grant date was less than $35.
"Fair market value" is defined in the 1992 Stock Incentive Plan as the closing
price of Company common stock on the date the option is granted.
[side bar]
THE COMPANY
COMPENSATES ITS
DIRECTORS WITH CASH
AND STOCK OPTION
GRANTS.
20
23
DIRECTOR COMPENSATION
The annual, automatic option grant to non-employee directors of 1,5002,500 shares of
common stock was made on May 15, 199817, 1999 at an exercise price of $36.44$114.1875 per
share. As a result of the December 11, 1998 three-for-twoJuly 1, 1999 two-for-one stock split, this stock
option grant was adjusted to 2,2505,000 shares with an exercise price of $24.29.
If the amendment to the 1992 Stock Incentive Plan being voted on at the annual
meeting is approved, non-employee directors will become entitled to an annual,
automatic grant of either:
- options on 2,500 shares of Company common stock if the option exercise
price is $35 or more, or
- options on 3,500 shares of Company common stock if the option exercise
price is less than $35.
(See "Proposals To Be Voted On" discussed earlier in this proxy statement.")$57.09375.
19
[side bar]
THE COMPANY
PAYS ITS DIRECTORS
WITH CASH AND EQUITY-
BASED COMPENSATION.
SINCE THE INITIAL CASH
DIVIDEND IN 1989, THE
COMPANY HAS PAID 3943
CONSECUTIVE QUARTERLY
CASH DIVIDENDS AND
HAS INCREASED THE
CASH DIVIDEND 11 TIMES.
SINCE 1989, CASH DIVI-
DENDS HAVE GROWN ATINCREASED
BY A 38%34% COMPOUNDED
ANNUAL GROWTH RATE.
21
24
PRINCIPAL STOCKHOLDERS
This table shows how much Company common stock is owned by the directors,
certain executive officers and owners of more than 5% of the Company's
outstanding common stock, as of March 18, 1999.6, 2000.
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
NUMBERPERCENT OF
SHARES RIGHT TO RESTRICTED PERCENT OF
SHARESOUTSTANDING
NAME OWNED (#)(1) ACQUIRE (#)(2) STOCK (#)(3) OUTSTANDING
OWNED (1) SHARES
NAME
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CharlesCHARLES R. Schwab(4) 74,653,296 1,106,250 -- 18.6SCHWAB(4) 175,968,614 2,375,000 - 21.2
SCHWABPLAN RETIREMENT SAVINGS
AND INVESTMENT PLAN(5) 50,209,123 - - 6.0
DAVID S. POTTRUCK(6) 4,476,674 4,558,654 - 1.1
NANCY H. BECHTLE 39,520 217,211 - *
C. PRESTON BUTCHER(7) 683,789 108,897 - *
DONALD G. FISHER(8) 2,952,374 90,500 - *
ANTHONY M. FRANK 405,000 61,723 - *
FRANK C. HERRINGER(9) 66,824 73,042 - *
STEPHEN T. MCLIN(10) 101,354 100,574 - *
CONDOLEEZZA RICE 900 11,196 - *
ARUN SARIN 2,000 26,729 - *
GEORGE P. SHULTZ 45,000 62,405 - *
ROGER O. WALTHER (11) 90,111 58,946 - *
DAWN G. LEPORE(12) 317,874 885,454 120,000 *
LINNET F. DEILY 25,918 157,876 134,250 *
STEVEN L. SCHEID 39,431 329,413 120,000 *
LON GORMAN 15,764 174,044 156,000 *
DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (27 PERSONS)(13) 187,699,213 14,179,121 1,410,000 23.9
*Less than 1%
(1) Includes shares for which the named person:
- has sole voting and investment power,
- has shared voting and investment power with his or her spouse, or
- holds in an account under The SchwabPlan Retirement Savings and Investment Plan, unless otherwise indicated in the footnotes.
Excludes shares that:
- may be acquired through stock option exercises, or
- are restricted stock holdings.
(2) Shares that can be acquired through stock option exercises through May 5, 2000.
(3) Shares subject to a vesting schedule, forfeiture risk and other restrictions.
(4) Includes 5,493,977 shares held by Mr. Schwab's spouse.
Includes 30,135,972 shares held by a limited liability company.
20
[side bar]
NET INCOME FOR
1999 WAS $589 MILLION,
A 69% INCREASE
OVER 1998.
PRINCIPAL STOCKHOLDERS
Includes the following shares for which Mr. Schwab disclaims beneficial
ownership:
- 10,340,790 shares held by non-profit public benefit corporations.
- 63,080 shares held in trusts for which Mr. Schwab acts as trustee.
Includes the following shares for which Mr. Schwab may be deemed to have shared voting and investment power, but disclaims
beneficial ownership:
- 1,065,658 shares held by investment companies and managed by a wholly-owned subsidiary of the Company.
Mr. Schwab's address is c/o The Charles Schwab Corporation, 120 Kearny Street, San Francisco, California 94108.
(5) 29,921,306 -- -- 7.4
TransamericaAs of March 6, 2000, The SchwabPlan Retirement Savings and Investment Plan held a total of 50,209,123 shares of which:
- 49,581,990 shares were held by participants under the plan, and
- 627,133 unallocated shares were held under the Employee Stock Ownership Plan ("ESOP") component of the plan.
Participants direct the voting and disposition of shares held for their benefit or allocated to their plan accounts. The
purchasing agent votes and disposes of plan participants' unvoted shares and unallocated shares held under the ESOP component
of the overall plan. The plan's purchasing agent may only vote or dispose of these unvoted and unallocated shares held in the
ESOP component of the overall plan, in the same proportion as shares directed by participants in the ESOP component of the
overall plan, unless the purchasing agent receives specific instructions from a plan fiduciary that has power to direct the
purchasing agent.
The address of The SchwabPlan Retirement Savings and Investment Plan is c/o The Charles Schwab Corporation, 101 Montgomery
Street, San Francisco, California 94104.
(6) Includes 66,567 shares held by Mr. Pottruck's spouse and Transamerica
Investment Services, Inc.(6) 21,455,829 -- -- 5.3
David S. Pottruck(7) 2,229,251 3,368,040 -- 1.4
Nancy H. Bechtle 9,760 144,500 -- *
C. Preston Butcher(8) 349,784 42,750 -- *
Donald G. Fisher(9) 1,086,187 42,750 -- *
Anthony M. Frank 202,500 40,625 -- *
Frank C. Herringer(10) 33,412 28,125 -- *
Stephen T. McLin(11) 50,612 42,750 -- *
Mark A. Pulido(12) 1,950 10,000 -- *
Arun Sarin(13) 1,000 10,000 -- *
George P. Shultz 22,500 24,750 -- *
Roger O. Walther(14) 44,997 17,625 -- *
John Coghlan 207,045 1,183,104 69,375 *
Linnet F. Deily 15,014 69,752 79,500 *
Luis E. Valencia 102,095 158,417 71,250 *
Steven L. Scheid 573 133,125 60,000 *
Directors and Executive Officerschildren.
Includes the following shares for which Mr. Pottruck disclaims beneficial ownership:
- 407,795 shares held in trusts for which Mr. Pottruck acts as trustee.
- 240,624 shares held by a Group
(22 Persons) (15) 79,538,865 7,286,687 781,125 21.2
*Less than 1%
(1) Includes shares for which the named person:
- has sole voting and investment power,
- has shared voting and investment power with his or her spouse, or
- holds in an account under The SchwabPlan Retirement Savings and
Investment Plan,
unless otherwise indicated in the footnotes.
[side bar]
NET INCOME FOR
1998 WAS $348 MILLION,
A 29% INCREASE
OVER 1997.
22
25
PRINCIPAL STOCKHOLDERS
Excludes shares that:
- may be acquired through stock option exercises, or
- are restricted stock holdings.
(2) Shares that can be acquired through stock option exercises through May 17,
1999.
(3) Shares subject to a vesting schedule, forfeiture risk and other
restrictions.
(4) Includes 2,755,806 shares held by Mr. Schwab's spouse and children.
Includes the following shares for which Mr. Schwab disclaims beneficial
ownership:
- 5,251,895 shares held by non-profit public benefit
corporations.
- 32,915 shares held in trusts for which Mr. Schwab acts as
trustee.
Includes the following shares for which Mr. Schwab may be deemed to have
shared voting and investment power, but disclaims beneficial ownership:
- 453,329 shares held by investment companies and managed by a
wholly-owned subsidiary of the Company.
Mr. Schwab's address is c/o The Charles Schwab Corporation, 120 Kearny
Street, San Francisco, California 94104.
(5) As of March 18, 1999, The SchwabPlan Retirement Savings and Investment
Plan held a total of 29,921,306 shares of which:
- 29,564,853 shares were held by participants under the plan,
and
- 356,453 unallocated shares were held under the Employee
Stock Ownership Plan ("ESOP") component of the plan.
Participants direct the voting and disposition of shares held for their
benefit or allocated to their plan accounts. The purchasing agent votes
and disposes of plan participants' unvoted shares and unallocated shares
held under the ESOP component of the plan. The plan's purchasing agent may
only vote or dispose of these unvoted and unallocated shares in the same
proportion as shares directed by plan participants.
The address of The SchwabPlan Retirement Savings and Investment Plan is
c/o The Charles Schwab Corporation, 101 Montgomery Street, San Francisco,
California 94104.
(6) Based on information contained in a report on Schedule 13-G filed with the
SEC on February 16, 1999. The address of Transamerica Corporation is 600
Montgomery Street, San Francisco, California 94111 and the address of
Transamerica Investment Services, Inc. is 1150 South Olive Street, Los
Angeles, California 90015.
(7) Includes 30,288 shares held by Mr. Pottruck's spouse and children.
Includes the following shares for which Mr. Pottruck disclaims beneficial
ownership:
- 203,634 shares held in trusts for which Mr. Pottruck acts
as trustee.
- 115,312 shares held by a non-profit public benefit
corporation.
(8) Includes 94,972non-profit public benefit corporation.
(7) Includes 182,165 shares held by Mr. Butcher's spouse.
(8) Includes 2,358,250 shares held in certain charitable remainder trusts by Mr. Fisher and his spouse.
Includes the following shares for which Mr. Fisher has shared voting and investment power, but disclaims beneficial ownership:
- 260,000 shares held by a non-profit public benefit corporation established by Mr. Fisher.
(9) Includes 33,750 shares held by Mr. Herringer's spouse.
(10)Includes 9,145 shares held by a non-profit public benefit corporation established by Mr. McLin.
(11)Includes 17,763 shares held by Mr. Walther's spouse.
(12)Includes 13,974 shares held by Ms. Lepore's spouse.
(13)In addition to the officers and directors named in this table, 11 other executive officers are members of the group.
21
[side bar]
SINCE 1998,YEAR-END 1989,
THE MARKET PRICE PER
SHARE PRICE OF THE COMPANY'SCOMPANY
COMMON STOCK HAS
GROWN AT A
COMPOUNDED ANNUAL
RATE OF 62%56%. THIS
INCREASE CREATED
$22$31 BILLION IN
STOCKHOLDER WEALTH
23
26
PRINCIPAL STOCKHOLDERS
(9) Includes 919,125 shares held in certain charitable remainder trusts by Mr.
Fisher and his spouse.
(10) Includes 16,875 shares held by Mr. Herringer's spouse.
(11) Includes 4,567 shares held by a non-profit public benefit corporation
established by Mr. McLin.
(12) Mr. Pulido became a director in December 1998.
(13) Mr. Sarin became a director in December 1998.
(14) Includes 8,870 shares held by Mr. Walther's spouse.
(15) In addition to the officers and directors named in this table, six other
executive officers are members of the group.
[side bar]WEALTH.
A FUNDAMENTAL TENET
OF THE COMPANY'S
COMPENSATION POLICY IS
THAT SIGNIFICANT EQUITY
PARTICIPATION CREATES A
VITAL LONG-TERM
PARTNERSHIP BETWEEN
MANAGEMENT AND OTHER
STOCKHOLDERS.
24
27
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total returns for
Company common stock, the Dow Jones Securities Brokerage Group Index and the
Standard & Poor's 500 Index, each of which assumes an initial valueinvestment of $100
and reinvestment of dividends.
COMPARISON OF FIVE YEARFIVE-YEAR CUMULATIVE TOTAL RETURN
*
- -- THE CHARLES SCHWAB CORPORATIONThe Charles Schwab Corporation
- -- DOW JONES SECURITIES BROKERAGE GROUP INDEXDow Jones Securities Brokerage Group Index
- -- STANDARDStandard & POOR'SPoor's 500 INDEXIndex
[Graph Appears Here]appears here]
12/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- -------------------------------------------------------------------------------------------------------------------------
THE CHARLES SCHWAB CORPORATION $ 100 $ 109 $ 190 $ 304 $ 600 $1,211$100 $174 $279 $552 $1,114 $1,519
DOW JONES SECURITIES BROKERAGE GROUP INDEX $ 100 $ 88 $ 121 $ 182 $ 332 $ 377$100 $137 $207 $376 $428 $663
STANDARD & POOR'S 500 INDEX $ 100 $ 101 $ 139 $ 171 $ 229 $ 294$100 $138 $169 $226 $290 $351
* Information presented is as of the end of each fiscal year ended December 31.22
[side bar]
ON A DIVIDEND REIN-
VESTEDDIVIDEND-
REINVESTED BASIS, FROM
DECEMBER 31, 1994
THROUGH DECEMBER 31,
1999, THE VALUE OF OURCUMULATIVE
TOTAL RETURN FOR
COMPANY COMMON
STOCK INCREASED
102% IN 1998,WAS 1,419%,
COMPARED WITH AN
INCREASE OF 14%TO 563% FOR
THE DOW JONES
SECURITIES BROKERAGE
GROUP INDEX AND AN
INCREASE OF 29%251%
FOR THE STANDARD
& POOR'S 500 INDEX.
25
28
SUMMARY COMPENSATION TABLE
This table shows, for the last three fiscal years, compensation information for
the Company's Co-Chief Executive Officers and the next four most highly
compensated executive officers. We refer to each of these officers as a "named
executive officer."
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND COMPENSATION STOCK AWARDS UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) OTHER RESTRICTED SECURITIES ALL OTHER
($) ANNUAL STOCK UNDERLYING COMPENSATION
COMPEN- AWARDS(2)(3) ($) OPTIONS (#) ($) (6)
SATION (4)(5) OPTIONS(#)(5) ($) (2)
(3)(6)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 1999 $800,004 $8,200,225 - 0 0 $14,759
Chairman and Co-Chief Executive 1998 $800,004 $6,145,225 - 0 1,050,0002,100,000 $19,472
CHAIRMAN AND CO-CHIEF EXECUTIVEOfficer 1997 $800,004 $6,362,225 - 0 0 $16,601
OFFICER
1996DAVID S. POTTRUCK 1999 $800,004 $9,387,225$8,200,225 - 0 0 $18,280
DAVID S. POTTRUCK$14,759
President and Co-Chief Executive 1998 $800,004 $6,145,225 - 0 2,850,0005,700,000 $19,472
PRESIDENT AND CO-CHIEF EXECUTIVE
1997 $695,004 $4,319,225 - 0 0 $16,601
OFFICER
1996 $695,004 $6,436,225 -DAWN G. LEPORE 1999 $475,000 $1,830,537 $1,433,320 0 90,000 $14,759
Vice Chairman, Executive Vice 1998 $385,833 $650,225 $609,686 $1,569,996 225,002 $19,472
President and Chief 1997 $372,500 $839,730 $119,839 0 $18,280
JOHN COGHLAN 1998 $387,000 $ 790,225 $609,308 $1,406,559 97,501 $19,472
EXECUTIVE VICE PRESIDENT 1997 $381,667 $ 714,120 $119,834 0 33,751157,502 $16,601
1996 $362,500 $ 534,541 - 0 0 $18,280Information Officer
LINNET F. DEILY (7)1999 $452,500 $1,802,943 - 0 90,000 $14,759
Vice Chairman and Executive Vice 1998 $369,167 $ 800,225 $ 59,957$800,225 $59,957 $1,373,747 97,501195,002 $19,472
EXECUTIVE VICE PRESIDENTPresident 1997 $313,334 $ 479,637$479,637 $243,155 $ 117,374 53,250$117,375 106,500 $14,389
1996 $ 62,500 $ 80,265 - $ 244,998 112,500 0
LUIS E. VALENCIA 1998 $391,667 $ 765,225 $406,464 $1,569,996 97,501 $19,472
EXECUTIVE VICE PRESIDENT 1997 $368,334 $ 752,000 $ 79,889 0 78,751 $16,601
1996 $329,167 $ 938,084STEVEN L. SCHEID 1999 $439,167 $1,786,777 - 0 0 $18,280
STEVEN L. SCHEID(8)90,000 $14,759
Vice Chairman and Executive Vice 1998 $379,167 $ 775,225 $ 620$775,225 $620 $1,569,996 112,501225,002 $19,472
EXECUTIVE VICE PRESIDENT ANDPresident 1997 $345,833 $ 749,945 132,597$749,945 $132,597 0 67,500135,000 $16,601
CHIEF FINANCIAL OFFICER 1996 $189,583 $ 504,499LON GORMAN 1999 $399,933 $1,763,537 - 0 157,500 $ 6,644
(1) For Mr. Schwab, includes amounts paid under his employment agreement dated
March 31, 1995. (See "Employment Agreement and Name Assignment" in
Appendix A.)
26
29
SUMMARY COMPENSATION TABLE
(2) "Other Annual Compensation" includes payments, not properly categorized as
salary or bonus, to the named executive officers. The following chart
explains payments, which started in90,000 $14,759
Vice Chairman and Executive Vice 1998 $340,000 $810,225 $629 $1,569,996 225,002 $19,472
President 1997 $318,666 $492,569 $173 $463,500 45,000 $16,601
(1) For Mr. Schwab, includes amounts paid under his employment agreement dated March 31, 1995. (See "Employment Agreement and
Name Assignment" in Appendix A.)
(2) "Other Annual Compensation" includes payments that are not properly categorized as salary or bonus. The following chart
explains payments to the named executive officers listed below arising out of certain restricted stock grants.
23
SUMMARY COMPENSATION TABLE
CASH PAYMENT BASED ON PAR VALUE PAYMENT ONTOTAL
NAME YEAR SCHWAB PERFORMANCE* ON RESTRICTED STOCK**
TOTAL
1998 1997 1998 1997 1998 1997--------------------------------------------------------------------------------------------
MR. SCHWABMS. LEPORE 1999 $1,433,320 0 $1,433,320
1998 $608,766 $620 $609,386
1997 $119,602 $237 $119,839
MS. DEILY 1999 0 0 0
1998 0 $542 $542
1997 0 $201 $201
MR. SCHEID 1999 0 0 0
1998 0 $620 $620
1997 0 0 0
MR. POTTRUCKGORMAN 1999 0 0 0
1998 0 $629 $629
1997 0 0
MR. COGHLAN $608,766 $119,602 $542 $232 $609,308 $119,834
MS. DEILY 0 0 $542 $201 $ 542 $ 201
MR. VALENCIA $405,844 $ 79,734 $620 $155 $406,464 $ 79,889
MR. SCHEID 0 0 $620 0 $ 620 0
$173 $173
* Some executive officers received cash payments based on the return on Company common stock (including
price appreciation and dividend reinvestment) outperforming, by a specified margin, the
return on the Standard & Poor's 500 Index. These payments are intended to encourage
executives to continue holding Company stock after vesting by helping them satisfy the
income tax liability resulting from the vesting of the shares.
** Consists of payment by the Company of the par value of restricted stock awarded to named
executive officers.
(3) "Other Annual Compensation" includes relocation expenses and related tax gross-up payments
(explained below), in addition to other perquisites, as shown in the following chart.
RELOCATION TAX GROSS-UP
OTHER
EXPENSES PAYMENTS OTHER PERQUISITES TOTAL
1998 1997 1998 1997 1998 1997 1998 1997
----------- ------------ ------------- ---------------- -------------------------------------------------------------------------------------------------------------------
MS. DEILY $21,277 $163,252 $2,059 $42,032 $36,079 $37,670 $59,415 $242,954
MR. SCHEID -- $ 93,943$93,943 -- $ 8,962$8,962 -- $29,692 -- $29,692 -- $132,597
SEC regulations exclude from proxy statement reporting requirements a
named executive officer's perquisites if their value in any year does not
exceed the lesser of (a) $50,000 or (b) 10% of the total of the named
executive officer's annual salary and bonus for that year. Based on these
regulations, we have reported perquisites only for Ms. Deily for 1997 and
1998 and Mr. Scheid for 1997.
Ms. Deily's expenses were for relocation from Houston, Texas to San
Francisco, California, and Mr. Scheid's expenses were for relocation from
Scottsdale, Arizona to San Francisco. Because some of the relocation
expense payments were considered taxable income, Ms. Deily and Mr. Scheid
received tax gross-up payments to cover the taxes on that income.
[side bar]
DURING 1998, THE
COMPANY ACHIEVED ITS
NINTH CONSECUTIVE
YEAR OF RECORD
REVENUES AND EIGHTH
CONSECUTIVE YEAR OF
RECORD EARNINGS.
27
30
SUMMARY COMPENSATION TABLE
(4) RESTRICTED STOCK - - DATE OF GRANT VALUE. This column shows the market
value of restricted stock awards on date of grant.
RESTRICTED STOCK - - YEAR-END VALUE. The following chart shows the number
and year-end value of all shares of unvested restricted stock held by
named executive officers on December 31, 1998. The year-end value is based
on the closing sale price of Company common stock on that date ($56.1875):
$132,597
SEC regulations exclude from proxy statement reporting requirements a named executive officer's perquisites if their
value in any year does not exceed the lesser of (a) $50,000 or (b) 10% of the total of the named executive officer's
annual salary and bonus for that year. Based on these regulations, we have reported perquisites only for Ms. Deily
for 1997 and 1998 and Mr. Scheid for 1997.
Ms. Deily's expenses were for relocation from Houston, Texas to San Francisco, California, and Mr. Scheid's expenses were
for relocation from Scottsdale, Arizona to San Francisco. Because some of the relocation expense payments were considered
taxable income, Ms. Deily and Mr. Scheid received tax gross-up payments to cover the taxes on that income.
24
[side bar]
IN 1999, THE
COMPANY ACHIEVED ITS
TENTH CONSECUTIVE
YEAR OF RECORD
REVENUES AND NINTH
CONSECUTIVE YEAR OF
RECORD EARNINGS.
SUMMARY COMPENSATION TABLE
(4) RESTRICTED STOCK - - DATE OF GRANT VALUE. This column shows the market value of restricted stock awards on
date of grant.
RESTRICTED STOCK - - YEAR-END VALUE. The following chart shows the number and year-end value of all shares of
unvested restricted stock held on December 31, 1999 by named executive officers (except for Mr. Schwab and
Mr. Pottruck, who held none). The year-end value is based on the closing sale price of Company common stock on
that date ($38.25).
NUMBER OF YEAR-END
NAME SHARES VALUE
SHARES--------------------------------------------
MR. SCHWAB 0 0
MR. POTTRUCK 0 0
MR. COGHLAN 69,375 $3,898,008MS. LEPORE 120,000 $4,590,000
MS. DEILY 79,500 $4,466,906
MR. VALENCIA 71,250 $4,003,359141,000 $5,393,250
MR. SCHEID 60,000 $3,371,250
RESTRICTED STOCK - - RIGHTS. Restricted stockholders have voting and
dividend rights.
RESTRICTED STOCK - - ORIGINAL VESTING SCHEDULE. The restricted shares,
when originally issued, vested over a five-year period, with:
- 10% of the shares vesting two years after the grant date,
- an additional 10% of the shares vesting three years after the
grant date,
- an additional 15% of the shares vesting four years after the
grant date, and
- the remaining 65% of the shares vesting five years after the
grant date.
Some of the restricted shares vest more slowly or not at all, depending on
certain stock performance criteria. Thus, it is possible that a
substantial number of the restricted shares will not vest.
RESTRICTED STOCK - - AMENDED VESTING SCHEDULE. Effective January 1, 1997,
the Board Compensation Committee shortened the vesting period to four
years for all restricted stock granted after December 31, 1993. The
following vesting schedule applies to restricted stock granted between
January, 1, 1994 and December 31, 1996:
- 10% of the shares vest two years after the grant date,
- an additional 40% of the shares vest three years after the
grant date, and
- the remaining 50% of the shares vest four years after the
grant date.
For restricted stock granted after December 31, 1996, the following
vesting schedule applies:
- 50% of the shares vest three years after the grant date, and
- the remaining 50% of the shares vest four years after the
grant date.
Any restricted shares granted with pre-existing stock performance
conditions remained subject to those conditions.
(5) Adjusted for the December 11, 1998 three-for-two120,000 $4,590,000
MR. GORMAN 169,500 $6,483,375
RESTRICTED STOCK - - RIGHTS. Restricted stockholders have voting and dividend rights.
RESTRICTED STOCK - - VESTING SCHEDULE.
- 50% of the shares vest three years after the grant date, and
- the remaining 50% of the shares vest four years after the grant date.
(5) Adjusted for the July 1, 1999 two-for-one stock split of Company common stock.
(6) Represents Company contributions under The SchwabPlan Retirement Savings and Investment Plan.
(7) Ms. Deily joined the Company in October 1996.
(8) Mr. Scheid joined the Company in June 1996.
25
[side bar]
AT YEAR-END 1998,THE COMPANY AND ITS
SUBSIDIARIES PROVIDE
SECURITIES BROKERAGE
AND RELATED FINANCIAL
SERVICES FOR 6.6 MILLION
ACTIVE CUSTOMER
ACCOUNTS. CUSTOMER
ASSETS INVESTED IN SCHWABFUNDS*,
MUTUAL FUND
ONESOURCE* AND
OTHER MUTUAL FUND
MARKETPLACE* FUNDSTHESE
ACCOUNTS TOTALED
$210.6$725.2 BILLION AT
DECEMBER 31, 1999, UP
31%48% OVER YEAR-END
1997.
281998.
31
OPTION GRANTS
This table shows stock option grants to the named executive officers during the
last fiscal year.
OPTIONS GRANTED IN 1998
OPTIONS GRANTED IN 1999
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
TERM (3)
NAME(2)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO EXERCISE OR BASE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) (2) DATE 5% ($) 10% (1)($)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ------------------
CHARLES R. SCHWAB 1,050,000 10.43% $23.1250 5/11/2008 $15,448,509 $38,981,7510 0 - - 0 0
DAVID S. POTTRUCK (4) 1,050,000 10.43% $23.1250 5/11/2008 $15,448,509 $38,981,751
300,000 2.98% $33.3333 5/11/2008 $ 1,351,360 $ 8,075,143
300,000 2.98% $40.0000 5/11/2008 0 $ 6,075,143
300,000 2.98% $46.6667 5/11/2008 0 $ 4,075,143
300,000 2.98% $53.3333 5/11/2008 0 $ 2,075,143
300,000 2.98% $60.0000 5/11/2008 0 $75,143
300,000 2.98% $66.6667 5/11/2008 0 0 JOHN COGHLAN 97,501 0.97% $26.7917 7/24/2008 $ 1,573,330 $ 4,052,565- - 0 0
DAWN G. LEPORE 90,000 .72% $34.9688 2/25/2009 $1,883,043 $4,862,613
LINNET F. DEILY 97,501 0.97% $26.166790,000 .72% $34.9688 2/23/2008 $ 1,581,323 $ 4,029,197
LUIS E. VALENCIA 97,501 0.97% $26.1667 2/23/2008 $ 1,581,323 $ 4,029,19725/2009 $1,883,043 $4,862,613
STEVEN L. SCHEID 112,501 1.12% $26.166790,000 .72% $34.9688 2/23/2008 $ 1,824,601 $ 4,649,067
(1) Option grants in 199825/2009 $1,883,043 $4,862,613
LON GORMAN 90,000 .72% $34.9688 2/25/2009 $1,883,043 $4,862,613
(1) These options were granted in February 1999 under the 1992 Stock Incentive Plan. The grants have been adjusted for the
July 1, 1999 two-for-one stock split of Company common stock. These options:
- were generally granted as 50% non-qualified stock options and 50% incentive stock options (except as limited by tax law),
- were made under the 1992 Stock Incentive Plan. The
grants have been adjusted for the December 11, 1998 three-for-two stock
split of Company common stock. Except as noted in footnote 4, these
options:
- are generally granted as 50% non-qualified stock options and
50% incentive stock options (except as limited by tax law),
- are granted at an exercise price equal to 100% of the fair market value of the common stock on the date of grant,
- expire ten years from the date of grant, unless otherwise earlier terminated because of certain events related to
termination of employment, and
- vest in 25% increments on each anniversary date of the grant, subject to the terms and conditions of the plan.
(2) Based on the SEC's rules, we use a 5% and 10% assumed rate of appreciation over the ten-year option term. This does not
represent the Company's estimate or projection of the future common stock price. If Company common stock does not appreciate
above the exercise price, equal to 100% of the fair
market value of the common stock on the date of grant,
- expire ten years from the date of grant, unless otherwise
earlier terminated because of certain events related to
termination of employment, and
- vest in 25% increments on each anniversary date of the grant,
subject to the terms and conditions of the plan.
(2) Options with exercise prices of:
- $26.1667 were granted on February 23, 1998.
- $26.7917 were granted on July 24, 1998; and
- $23.1250 were granted on May 11, 1998, except as noted in
footnote 4.
29
32
OPTION GRANTS
(3) Based on the SEC's rules, we use a 5% and 10% assumed rate of appreciation
over the ten-year option term. This does not represent the Company's
estimate or projection of the future common stock price. If the Company
common stock does not appreciate above the exercise prices, the named executive officers will receive no benefit from the options.
(4) 1,800,000 of Mr. Pottruck's options were premium price options. This means
they were options with a series of escalating exercise prices that
exceeded the Company common stock closing price of $23.1250 on the May 11,
1998 grant date. One-sixth of Mr. Pottruck's premium price options vest
each year beginning in the year 2000.
[side bar]
OUR BOARD
COMPENSATION
COMMITTEE BELIEVES THAT
AN EMPHASIS ON
LARGE, BUT INFREQUENT,
AWARDS PROVIDES
A MORE POWERFUL
INCENTIVE TO
EXECUTIVE OFFICERS.
30
26
33
OPTIONS EXERCISED
This table shows stock option exercises and the value of unexercised stock
options held by the named executive officers during the last fiscal year.
- ------------------------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN 19981999
AND FISCAL YEAR-END OPTION VALUES(1)
SHARES ACQUIRED VALUE NO.NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS
ON EXERCISE (#)VALUE REALIZED UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
($)(2) AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(3)
NAME (#) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 1,500,000 $31,971,546 1,621,875 1,331,250 $ 81,177,316 $48,272,1371,956,250 $60,095,761 2,375,000 1,575,000 $74,238,716 $42,032,813
DAVID S. POTTRUCK 0 0 3,405,540 3,053,461 $179,747,114 $61,018,943
JOHN COGHLAN 95,625 $ 2,580,066 1,174,668 171,585 $ 62,326,615 $ 6,115,3242,984,348 $118,900,210 7,744,654 5,175,000 $274,115,659 $89,732,812
DAWN G. LEPORE 252,676 $11,596,064 767,328 337,500 $25,526,001 $6,805,696
LINNET F. DEILY 28,123 $ 425,557 41,440 193,688 $ 1,755,164 $ 6,968,084
LUIS E. VALENCIA 223,524 $ 4,551,777 430,831 196,898 $ 21,634,478 $ 7,071,101135,755 $5,186,405 78,751 383,637 $2,091,283 $8,507,475
STEVEN L. SCHEID 0 0 95,625 241,876 $ 4,293,932 $ 9,031,037
(1) Adjusted for the December 11, 1998 three-for-two stock split of Company
Common70,000 $2,477,906 290,000 405,002 $8,842,031 $9,081,144
LON GORMAN 119,670 $3,553,607 232,537 462,539 $7,305,075 $11,156,584
(1) Adjusted for the July 1, 1999 two-for-one stock split of Company common stock.
(2) This number is calculated as follows:
- if upon exercising the stock options, the named executive officer kept the shares he or she acquired, then by averaging the
high and low market prices of Company stock on the date of exercise to get the "market price," or
- if upon exercising the stock options, the named executive officer sold the shares he or she acquired, then by using the sale
price as the "market price,"
- then subtracting the option exercise price from the market price to get the "value realized per share," and
- then multiplying the value realized per share by the number of shares acquired upon exercise.
The amounts in this column may not represent amounts actually realized by the named executive officers.
(3) This number is calculated by:
- subtracting the option exercise price from the Company's December 31, 1999 average market price ($38.25 per share, as
reported in the New York Stock Exchange Composite Transactions Index) to get the "average value per option," and
- then multiplying the value realized per share by the number of
options exercised.
The amounts in this column may not represent amounts actually realized by
the named executive officers.
(3) This number is calculated by:
- subtracting the option exercise price from the Company's December
31, 1998 average market price ($56.9063 per share, as reported in
the New York Stock Exchange Composite Transactions Index) to get the
"average value per option," and
31
34
OPTIONS EXERCISED
- multiplying the average value per option by the number of exercisable and unexercisable options.
The amounts in this column may not represent amounts that will actually be realized by the named executive officers.
27
[side bar]
ON A DIVIDEND REIN-
VESTED BASIS, FROM
DECEMBER 31, 1993
THROUGH DECEMBER 31,
1998, THE CUMULATIVE
TOTAL RETURN OF THE COMPANY'S
STOCK WAS
1,111%, COMPARED TO
277% FOR THE DOW JONES
SECURITIES BROKERAGE
GROUP INDEX AND 194%
FOR THE STANDARD &
POOR'S 500 INDEX.
32REVENUES WERE
$3.945 BILLION IN 1999,
UP 44% OVER 1998.
35
COMPENSATION COMMITTEE REPORT
In this section, we describe our executive compensation policies and practices,
including the compensation we pay our Co-Chief Executive Officers and the next
four most highly compensated executive officers.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 1998,1999, the Compensation Committee of the Company's Board of Directors
consisted of Roger O. Walther, Nancy H. Bechtle, C. Preston Butcher, Stephen T.
McLin, Condoleezza Rice and George P. Shultz. No member of our committee during
19981999 was an employee of the Company or any of its subsidiaries. Each member
qualifies as a "non-employee director" under Rule 16b-3 of the Securities
Exchange Act of 1934 and as an "outside director" under Section 162(m) of the
Internal Revenue Code.
Our committee has overall responsibility for the Company's executive
compensation policies and practices. Our committee's functions include:
- determining the compensation of the Co-Chief Executive Officers, Charles
R. Schwab and David S. Pottruck,
- on recommendation of the Co-Chief Executive Officers, reviewing and
approving allthe other executive officers' compensation, including salary and
payments under the annual executive bonus plans, and
- granting awards under the Company's stock incentive plans.
Our committee is providing the following report on the Company's executive
compensation policies, the relationship of the Company's performance to
executive compensation, and the Co-Chief Executive Officers' compensation.
COMPENSATION POLICIES
The Company's executive compensation policies are designed to address a number
of objectives, including rewarding financial performance and motivating
executive officers to achieve significant returns for stockholders. The
Company's policies rely on two principles:
- First,first, a significant portion of executive officers' total compensation
should be in the form of stock and stock-based incentives.incentives, and
- Second,second, a large portion of their cash compensation should be at risk and
vary, depending on meeting stated financial objectives.
When establishing salaries, bonus levels and stock-based awards for executive
officers, our committee considers the individual's role, responsibilities and
performance during the past year, and the amount of compensation paid to
executive officers in similar positions of comparable companies, based on
periodic reviews of competitive data obtained from independent consultants. Our
committee reviews companies whose size, rates of growth and financial returns
are similar to the Company's, including some of the companies in the Dow Jones
Securities Brokerage Group Index.
Our committee selects companies outside the financial services industry for
inclusion
28
[side bar]
IN THIS SECTION, WE
DESCRIBE THE
COMPENSATION WE PAY
OUR CO-CHIEF EXECUTIVE
OFFICERS AND THE NEXT
FOUR MOST HIGHLY
COMPENSATED
EXECUTIVE OFFICERS.
COMPENSATION POLICIES
33
36
COMPENSATION COMMITTEE REPORT
Our committee selects companies outside the financial services industry for
inclusion
in the review based on the extent to which they satisfy a list of selection
criteria, including size, growth rates, similar financial performance,
leadership status in their industry, reputation for innovation, and the extent
to which they compete with the Company for executives. Not all of these criteria
will necessarily be satisfied in any particular case. Our committee includes in
its review companies other than those included in the Dow Jones Securities
Brokerage Group Index because the Company frequently recruits executives from
outside the financial services industry, depending on the specific skills
required for the position.
Our committee uses comparative data to set compensation targets that will
provide executive officers with total compensation that:
- exceeds the average amounts paid to similar executives of comparable
companies in years in which the Company achieves superior performance, and
- falls below the average of amounts paid to similar executives of comparablecompar-
able companies in years in which the Company fails to achieve superior
performance.
However, our committee also makes discretionary and subjective determinations of
appropriate compensation amounts to reflect, for example, the Company's
philosophy of compensating executives for the success they achieve in managing
specific enterprises.
In Mr. Pottruck's case, our committee places considerable weight on the
recommendations of Mr. Schwab, and in the case of executive officers other than
Mr. Schwab and Mr. Pottruck, our committee places considerable weight on the
recommendations of Mr. Schwab and Mr. Pottruck.
THE IMPORTANCE OF OWNERSHIP
A fundamental tenet of the Company's compensation policy is that significant
equity participation creates a vital long-term partnership between management
and other stockholders. Through various stock incentive plans and The SchwabPlan
Retirement Savings and Investment Plan, and various stock incentive plans, the benefits of equity ownership are
extended to executive officers and employees of the Company and its
subsidiaries. As of March 18, 1999,6, 2000, the directors and executive officers of the
Company owned an aggregate of 80,319,990189,109,213 shares (including restricted shares)
and had the right to acquire an additional 7,286,68714,179,121 shares upon the exercise
(on or before May 17, 1999)5, 2000) of employee stock options.
[side bar]
THE IMPORTANCE OF
OWNERSHIP
34
37
COMPENSATION COMMITTEE REPORT
The SchwabPlan Retirement Savings and Investment Plan held 29,564,85349,581,990 shares
which were allocated to participants' accounts on March 18, 1999.6, 2000. The Company
intends to continue its strategy of encouraging its employees to become
stockholders.
The performance graph on page 2522 of this proxy statement compares changes in the
Company's cumulative total returns with those of the Dow Jones Securities
Brokerage Group Index and the Standard & Poor's 500 Index. From December 31,
19931994 through December 31, 1998,1999, the cumulative total return of the Company'sfor Company common
stock was 1,111%1,419%. By comparison,
29
[side bar]
THE IMPORTANCE OF
OWNERSHIP
COMPENSATION COMMITTEE REPORT
in the same period the Dow Jones Securities Brokerage Group Index grew 277%563% and
the Standard & Poor's 500 Index grew 194%251%. Our committee believes employees'
equity participation in the Company is a meaningful factor contributing to the
Company's success.
ANNUAL BASE SALARY
The Company believes that base salary is frequently a significant factor in
attracting, motivating and retaining skilled executive officers. Accordingly,
our committee reviews base salaries of executive officers annually and generally
sets the base salary of executive officers at or near the average of the levels
paid by the other companies it reviews. (See "Compensation Policies" earlier in
this report.)
VARIABLE COMPENSATION
Corporate Executive Bonus PlanCORPORATE EXECUTIVE BONUS PLAN
The Corporate Executive Bonus Plan covers all executive officers except Mr.
Schwab, and pays bonuses each year based on corporate performance. (Mr. Schwab
is covered under an employment agreement with the Company. See "Co-Chief
Executive Officers' Compensation" later in this report.) Depending on the
Company's pre-tax profit margin and net revenue growth, the bonus plan is paid
out at a percentage of each participant's bonus target. Targets are expressed as
a percentage of base salary, which our committee determines based on the factors
discussed earlier in this report. (See "Compensation Policies.")
Our committee sets target bonuses in the first quarter of each year based on the
recommendations of Mr. Schwab and Mr. Pottruck (except that Mr. Pottruck's
target bonus is based on the recommendation of Mr. Schwab only). In the case of
Mr. Pottruck, who receives all of his annual incentive compensation under this
bonus plan, our committee determined that it would be appropriate to set a
target bonus for 19981999 that would result in an annual bonus payment to Mr.
Pottruck equal
[side bar]
ANNUAL BASE SALARY
VARIABLE COMPENSATION
35
38
COMPENSATION COMMITTEE REPORT to the annual bonus payable to Mr. Schwab under his employment
agreement, depending on our corporate performance. (See "Co-Chief Executive
Officers' Compensation" later in this report.) In the case of the remaining
executive officers, the target bonuses for 1999 under this bonus plan can be up
to 50% of base salary. These remaining executive officers also participate in
the Annual Executive Individual Performance Plan (discussed later in this
report).
The target bonus is adjusted upward or downward, according to a payout matrix
our committee adopted when we set the target bonus. This results in a payout of
a multiple (or fraction) of the target bonus depending on our corporate
performance. The factors determining bonuses in the matrix are pre-tax profit
margin and net revenue growth. In general, a given percentage change in pre-tax
profit margin will have a greater impact on the determination of bonus payments
than the same percentage change in the net revenue growth rate. In 1998,1999, the
Company achieved a pre-tax profit margin of 21%24.6% and net revenue growth of 19%44%.
Based on this performance, executive officers
30
[side bar]
ANNUAL BASE SALARY
VARIABLE COMPENSATION
COMPENSATION COMMITTEE REPORT
received bonuses exceeding their target bonus amounts in 1998.
Annual Executive Individual Performance Plan1999.
ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN
The Annual Executive Individual Performance Plan pays bonuses to executive
officers other than Mr. Schwab and Mr. Pottruck based on a subjective
determination of each officer's individual contribution to the attainment of
corporate performance objectives. Our committee makes this determination based
on the recommendations of Mr. Schwab and Mr. Pottruck. In general, their
recommendations are based in significant part on the officer's success in
achieving specific goals identified in the officer's business plan.
The amount available for payments under the individual performance plan is
generally calculated by multiplying the amounts payable to the participants
(other than Mr. Pottruck) under the Corporate Executive Bonus Plan by a fixed amount. Individual bonuses
under the individual performance plan may vary, depending on individual
achievements. However, the aggregate amount of bonuses payable to executive
officers, as a group, under the individual performance plan is based strictly on
our corporate performance.
[side bar]
VARIABLE COMPENSATION
36
39
COMPENSATION COMMITTEE REPORT
1992 Stock Incentive PlanSTOCK INCENTIVE PLAN
In 1992, the Board approved the 1992 Stock Incentive Plan, which was approved by
the Company's stockholders at the 1992 annual meeting and became effective on
May 8, 1992. Under the plan our committee grants stock options and restricted
stock to executive officers, based on the factors discussed earlier in this
report. (See "Compensation Policies.")
Our committee has adoptedhad a policy of granting infrequent and large stock option and
restricted stock awards to executive officers, supplemented with smaller annual
grants. Our committee believesgrants, because of our belief that an emphasis on large, but infrequent, awards
provides a more powerful incentive to executive officers to achieve sustained
growth over the long term. Our committee intends that stock-based incentives
will be the sole long-term incentives payable to executive officers.
During 1998,1999, our committee granted stock options to each of the Company's
executive officers. In addition, our committee granted restricted shares to each
executive officerofficers (except Mr. Schwab and Mr. Pottruck). To determine the size
of the grants, our committee reviewed data obtained from an independent
consultant concerning levels of long-term compensation for executive officers of
selected financial services companies and companies of comparable size, rates of
growth, and/or financial returns.
CO-CHIEF EXECUTIVE OFFICERS' COMPENSATION
CharlesCHARLES R. SchwabSCHWAB
Mr. Schwab, Chairman and Co-Chief Executive Officer, is compensated based on an
employment agreement that was entered into between the Company and Mr. Schwab
and approved by the stockholders, effective March 31, 1995. (See "Employment
Agreement and Name Assignment" in Appendix A.) Under the terms of his employment
agreement, Mr.
31
[side bar]
VARIABLE COMPENSATION
CO-CHIEF EXECUTIVE
OFFICERS' COMPENSATION
COMPENSATION COMMITTEE REPORT
Schwab receives a base salary of $800,000.$800,004. Mr. Schwab's annual bonus, if any, is
a multiple of his base salary. The multiple is based on our corporate pre-tax
profit margin and net revenue growth for the year, and is determined under a
matrix adopted by our committee. Our committee has the authority to adjust the
matrix from time to time (provided that for any year we may not change the
matrix more than 90 days after the beginning of the year).
Our committee believes that Mr. Schwab's leadership is a vital factor in our
corporate success. Specifically, our committee believes that:
- MR. SCHWAB PROVIDES THE LEADERSHIP, VISION AND INSPIRATION FOR INNOVATION
THAT HAS GENERATED CORPORATE GROWTH AND SUPERIOR PERFORMANCE,
- Mr. Schwab provides the leadership, vision and inspiration for innovation
that has generated corporate growth and superior performance,THE OVERALL STRATEGIC DIRECTION DEVELOPED BY MR. SCHWAB IS CRITICAL TO
ENHANCING THE FUTURE LONG-TERM VALUE OF THE COMPANY FOR ITS STOCKHOLDERS,
AND
- -MR. SCHWAB'S LEADERSHIP HAS ENABLED THE COMPANY, ON THE WHOLE, TO
SUBSTANTIALLY OUTPERFORM BOTH THE DOW JONES SECURITIES BROKERAGE GROUP
INDEX AND THE STANDARD & POOR'S 500 INDEX OVER THE PAST FIVE YEARS.
The overall strategic direction developed by Mr. Schwab is critical to
enhancing the future long-term value of the Company for its stockholders,
and
[side bar]
CO-CHIEF EXECUTIVE
OFFICERS' COMPENSATION
37
40
COMPENSATION COMMITTEE REPORT
- - Mr. Schwab's leadership has enabled the Company to substantially
outperform both the Dow Jones Securities Brokerage Group Index and the
Standard & Poor's 500 Index over the past five-year period.
Because the Company attained a pre-tax profit margin of 21%24.6% and net revenue growth of
19%44% in 1998,1999, which resulted in pre-tax profit of $577 million, the$971 million. The amount of Mr.
Schwab's annual bonus for 1998, calculated according to the
matrix,1999 was $6,145,000.
During 1998, our committee approved a grant to Mr. Schwab of 700,000 stock
options (which resulted in 1,050,000 stock options after being adjusted for the
three-for-two stock split which occurred in December 1998), with a term of ten
years, exercisable at a price equal to the closing price of the stock of the
Company on the date the options were granted. In determining the size of the
grant, our committee applied the same considerations that we apply generally in
determining the size of grants to executive officers. (See "1992 Stock Incentive
Plan" discussed earlier in this report.)
In making the grant to Mr. Schwab, our committee also took account of Mr.
Schwab's leadership over the past six years and the Company's superior
performance compared to the Dow Jones Securities Brokerage Group Index and the
Standard & Poors 500 Index. The grant also reflects our committee's desire to
provide Mr. Schwab with incentives which are comparable to similarly situated
executives.
David$8,200,000.
DAVID S. PottruckPOTTRUCK
Mr. Pottruck, President and Co-Chief Executive Officer, is compensated in the
form of a base salary and an annual bonus payable under the Corporate Executive
Bonus Plan that is dependent on our corporate pre-tax profit margin and net
revenue growth. (See "Corporate Executive Bonus Plan" earlier in this report.)
For 1998,1999, our committee determined that, based on the relative responsibilities
of Mr. Schwab and Mr. Pottruck, it was appropriate for Mr. Pottruck to receive a
base salary equal to the base salary payable to Mr. Schwab under his employment
agreement. For the same reason we determined it to be appropriate to set a
target bonus for Mr. Pottruck under the Corporate Executive Bonus Plan that
would cause Mr. Pottruck to receive an annual bonus equal to the annual bonus
payable to Mr. Schwab under his employment agreement, depending on our corporate
performance. Specifically, our committee believes that:
- MR. POTTRUCK PROVIDES STRATEGIC AND DAY-TO-DAY LEADERSHIP THAT HAS
CONTRIBUTED AND CONTINUES TO CONTRIBUTE SIGNIFICANTLY TO THE COMPANY'S
GROWTH AND SUPERIOR PERFORMANCE,
- Mr. Pottruck provides strategic and day-to-day leadership that has
contributed and continues to contribute significantly to the Company's
growth and superior performance,MR. POTTRUCK GUIDES THE COMPANY IN THE DELIVERY OF HIGHLY COMPETITIVE
PRODUCTS AND SERVICES TO ITS CUSTOMERS, AND THIS ABILITY TO
COMPETE IS IMPERATIVE TO BUILDING FUTURE LONG-TERM VALUE FOR STOCKHOLDERS,
AND
- OVER THE PAST FIVE YEARS, THE COMBINATION OF MR. POTTRUCK'S AND
MR. SCHWAB'S LEADERSHIP HAS ENABLED THE COMPANY, ON THE WHOLE, TO SUBSTAN-
TIALLY OUTPERFORM BOTH THE DOW JONES SECURITIES BROKERAGE GROUP INDEX AND
THE STANDARD & POOR'S 500 INDEX.
32
[side bar]
CO-CHIEF EXECUTIVE
OFFICERS' COMPENSATION
38
41
COMPENSATION COMMITTEE REPORT
- - Mr. Pottruck guides the Company in the delivery of highly competitive
products and services to its customers, and this ability to compete is
imperative to building future long-term value for stockholders, and
- - Over the past six years, the combination of Mr. Pottruck's and Mr.
Schwab's leadership has enabled the Company to substantially outperform
both the Dow Jones Securities Brokerage Group Index and the Standard &
Poor's 500 Index.
During 1998, our committee approved a grant to Mr. Pottruck of 700,000 stock
options (which resulted in 1,050,000 stock options after being adjusted for the
three-for-two stock split which occurred in December 1998), with a term of ten
years, exercisable at a price equal to the closing price of the stock of the
Company on the date the options were granted. In determining the size of this
grant, our committee applied the same considerations that we apply generally in
determining the size of the grants to the executive officers. (See "1992 Stock
Incentive Plan" discussed earlier in this report.)
During 1998, our committee also approved a special recognition grant to Mr.
Pottruck of 1,200,000 additional stock options (which resulted in 1,800,000
additional stock options after being adjusted for the three-for-two stock split
which occurred in December 1998). We granted these additional stock options with
a term of ten years, but in contrast with other option grants approved by our
committee, these options have a series of escalating exercise prices that were
all set higher than the closing price of the stock of the Company on the date
the options were granted. One-sixth of these options will vest each year,
beginning in the year 2000. In approving this special recognition grant with
significant hurdles before any value would be realized by Mr. Pottruck, we
intended to provide Mr. Pottruck with the incentive to produce superior
long-term performance, and to reward Mr. Pottruck only if those long-term
performance goals were achieved.
In making both grants to Mr. Pottruck, our committee also took account of Mr.
Pottruck's leadership over the past six years and the Company's superior
performance compared to the Dow Jones Securities Brokerage Group Index and the
Standard & Poor's 500 Index.
[side bar]
CO-CHIEF EXECUTIVE
OFFICERS' COMPENSATION
39
42
COMPENSATION COMMITTEE REPORT
TAX LAW LIMITS ON EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code limits tax deductions for certain
executive compensation over $1 million. Certain types of compensation are
deductible only if performance criteria are specified in detail, and
stockholders have approved the compensation arrangements. The Company believes
that while it is generally in the best interests of its stockholders to structure
compensation plans so that compensation is deductible under Section 162(m), there may be times when the benefit of the deduction would be outweighed
by other corporate objectives, such as the need for flexibility..
Accordingly, the Company's Corporate Executive Bonus Plan and 1992 Stock
Incentive Plan were approved by the stockholders in 1994 and 1995, and Mr.
Schwab's employment agreement was approved by the stockholders in 1995. (See
"Employment Agreement and Name Assignment" in Appendix A.) However, the Company
believes that there may be times when the benefit of the deduction would be
outweighed by other corporate objectives, such as the need for flexibility.
Our committee will continue to monitor issues concerning the tax deductibility
of executive compensation and will take appropriate action if we believe it is
warranted. Since corporate objectives may not always be consistent with the
requirements for full deductibility, our committee is prepared, if we believe it
is appropriate, to enter into compensation arrangements or provide compensation
under which payments may not be deductible under Section 162(m). Tax
deductibility will not be the sole factor we consider in determining appropriate
levels or types of compensation.
Compensation Committee of
the Board of DirectorsCOMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Roger O. Walther, Chairman
Nancy H. Bechtle
C. Preston Butcher
Stephen T. McLin
Condoleezza Rice
George P. Shultz
33
[side bar]
TAX LAW LIMITS ON
EXECUTIVE
COMPENSATION
40
43
OTHER INFORMATION
CERTAIN TRANSACTIONS
Directors and executive officers may maintain margin trading accounts with
Charles Schwab & Co., Inc. Extensions of credit in such accounts:
- - are made in the ordinary course of business,
-
- are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions
with unaffiliated persons, and
-
- do not involve more than the normal risk of collectibility or present
other unfavorable features.
Employees and directors of the Company who engage in brokerage transactions at
Charles Schwab & Co., Inc. receive a 20% discount from its standard commission
rates for brokerage transactions.
SECTION 16(A)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that during 1998,1999, all filings with the SEC by its officers,
directors and 10% stockholders complied with requirements for reporting
ownership and changes in ownership of Company common stock under Section 16(a)
of the Securities Exchange Act of 1934, except for Mark A. Pulido's and Gideon
Sasson'swith respect to Elizabeth G.
Sawi's initial beneficial ownership reports.report and John Coghlan's report concerning
his December 1999 transactions. The Company filed the initialboth reports on behalf of Ms.
Sawi and Mr. Coghlan. Although Ms. Sawi's report on Mr. Pulido's behalf following his election to the Board in December
1998. The Company filed the initial report on Mr. Sasson's behalf following his
appointment as an executive officer in November 1997. Although the reports
werewas filed on time, theyit
inadvertently omitted shares of Company common stock held indirectlyfor her account in the
Employee Stock Ownership Plan (ESOP) component of The SchwabPlan Retirement
Savings and Investment Plan. Mr. Coghlan's report was also filed on time, but it
inadvertently omitted two gifts of shares of Company common stock made by Mr.
Pulido and Mr. Sasson.Coghlan.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTSAUDITORS
Our Board has selected Deloitte & Touche LLP as the Company's independent
public
accountantsauditors for the current fiscal year. They have served as accountantsauditors for Charles
Schwab & Co., Inc. or the Company since 1976. We expect representatives of
Deloitte & Touche LLP to attend the meeting in order to respond to questions
from stockholders, and they will have the opportunity to make a statement.
[side bar]
CERTAIN TRANSACTIONS
SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING
COMPLIANCE
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
41
44
OTHER INFORMATION
STOCKHOLDER PROPOSALS
If you want us to consider including a proposal in our proxy statement next
year, you must deliver it to the Company's Corporate Secretary at our principal
executive office no later than December 2, 1999.November 27, 2000. The Company's bylaws contain
specific procedural requirements regarding a stockholder's ability to nominate a
director or submit a proposal to be considered at a meeting of stockholders. If
you would like a copy of the procedures contained in our bylaws, please contact:
Assistant Corporate Secretary
The Charles Schwab Corporation
101 Montgomery Street (88/5)
San Francisco, California 94104
(415) 636-1406636-1337
34
[side bar]
CERTAIN TRANSACTIONS
SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING
COMPLIANCE
INDEPENDENT AUDITORS
STOCKHOLDER
PROPOSALS
OTHER INFORMATION
COSTS OF PROXY SOLICITATION
The Company is paying for distributing and soliciting proxies. As a part of this
process, the Company reimburses brokers, nominees, fiduciaries and other
custodians reasonable fees and expenses in forwarding proxy materials to
stockholders. The Company is not using an outside proxy solicitation firm this
year, but employees of the Company or its subsidiaries may solicit proxies
through mail, telephone or other means. Employees do not receive additional
compensation for soliciting proxies.
INCORPORATION BY REFERENCE
The Company's filings with the SEC sometimes "incorporate information by
reference." This means that the Company is referring you to information that has
previously been filed with the SEC, so the information should be considered as
part of the filing you are reading. Based on the SEC's rules, the performance
graph on page 2522 of this proxy statement and the "Board Compensation Committee
Report on Executive Compensation" on page 3328 specifically are not incorporated
by reference into any other filings with the SEC.
You are receiving this proxy statement as part of the proxy materials for the
annual meeting of stockholders. You may not consider this proxy statement as
material for soliciting the purchase or sale of Company stock.
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STOCKHOLDER PROPOSALS
COSTS OF PROXY
SOLICITATION
INCORPORATION BY
REFERENCE
42
45
TICKETS TO THE ANNUAL MEETING
TICKETSAND INTERNET ACCESS TO THE ANNUAL MEETING
Seating is limited and, therefore, admission to the annual meeting is by ticket
only on a first-come, first-served basis. Please complete and return to us the ticketTo request postcard included with your
proxy materials. When we receive your postcard, we will mail you a ticket.
If you did not receive a ticket, request postcard and would likeyou may either:
- go to attendWWW.SCHWABEVENTS.COM,
- write the annual meeting, please contact:Assistant Corporate Secretary at this address:
Assistant Corporate Secretary
The Charles Schwab Corporation
101 Montgomery Street (88/5)
San Francisco, CA 94104
(415) 636-1406- or -
- call the Assistant Corporate Secretary at 415-636-1337.
We will also broadcast the annual meeting over the Internet. For information on
how to receive the real-time webcast, go to WWW.SCHWABEVENTS.COM.
By Order of the Board of Directors,
/s/ Carrie E. Dwyer
CARRIE E. DWYER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
CORPORATE SECRETARY- -------------------------
CARRIE E. DWYER
Executive Vice President,
General Counsel and
Corporate Secretary
MARCH 31, 1999
SAN FRANCISCO, CALIFORNIA27, 2000
San Francisco, California
35
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COSTS OF PROXY
SOLICITATION
INCORPORATION BY
REFERENCE
ADMISSION TO THE
ANNUAL MEETING IS BY
TICKET ONLY ON A FIRST-COME,
FIRST-SERVEDFIRST-
COME, FIRST SERVED
BASIS. 43YOU MAY ALSO
JOIN US VIA THE REAL-
TIME WEBCAST OF THE
ANNUAL MEETING.
46
APPENDIX A - -DESCRIPTION OF EMPLOYMENT AND SEVERANCE AGREEMENTS
This Appendix A includes descriptions of:
-
- agreements between the Company and Charles R. Schwab relating to his
employment and the use of the name "Schwab" by The Charles Schwab
Corporation, and
-
- certain severance arrangements between the Company and other executives.
EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT
The Company and Mr. Schwab entered into an employment agreement effective March
31, 1995. Stockholders approved the employment agreement. It has an initial term
of five years, and provides that as of each March 31, the term of the employment
agreement is automatically extended by an additional year, under the same terms
and conditions, unless beforehand either party provides notice to the other of
an intention not to extend it.
The employment agreement provides for an annual base salary of $800,000$800,004 and
provides that Mr. Schwab will participate in all compensation and fringe benefit
programs made available to other executive officers, including the stock
incentive plans. Instead of participating in the executive bonus plans, Mr.
Schwab's annual bonus, if any, is a multiple of his base salary. This multiple
is based on our corporate pre-tax profit margin and net revenue growth for the
year, and is determined under a matrix adopted by the Board Compensation
Committee. The committee has the authority to adjust the matrix periodically
(except the committee may not change the matrix more than 90 days after the
beginning of any year). The matrix is also adjusted automatically each year,
based on increases in the Consumer Price Index.
The employment agreement also provides that certain compensation and benefits
will be paid or provided to Mr. Schwab (or his immediate family or estate) if
his employment is terminated involuntarily, except for cause, before the
expiration of the employment agreement. "Cause" is defined as the commission of
a felony, or willful and gross negligence, or misconduct that results in
material harm to the Company.
"Involuntary termination" includes Mr. Schwab's resignation following a material
change in his capacities or duties at the Company or Charles Schwab & Co., Inc.
If an involuntary termination is not due to death, disability or "cause":
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EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
44
47
APPENDIX A -- EMPLOYMENT AND SEVERANCE AGREEMENTS
- - Mr. Schwab will be entitled to receive for a period of 36 months all
compensation to which he would have been entitled had he not been
terminated, including his base salary and participation in all bonus,
incentive and other compensation benefit plans for which he was or would
have been eligible (but excluding additional grants under stock incentive
plans), and
- - all his outstanding, unvested awards under stock incentive plans will vest
fully on the termination date.
If an involuntary termination is due to disability, Mr. Schwab will be entitled
to receive:
- - his base salary, less any payments under the corporate long-term disabilitydisabi-
lity plan,
36
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EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
APPENDIX A DESCRIPTION OF EMPLOYMENT AND SEVERANCE AGREEMENTS
and benefits (but not bonuses or other incentive compensation) for a
period of 36 months from the termination date, and
-
- a prorated portion of any bonus or incentive payments for the year in
which the disability occurs.
If an involuntary termination is due to death, a lump sum payment will be made
to Mr. Schwab's estate equal to five times his then base salary.
If Mr. Schwab voluntarily resigns his employment within 24 months of a change in
control of the Company, he will be entitled to receive a prorated portion of any
bonus or incentive payments payable for the year in which the resignation
occurs. In addition, if Mr. Schwab voluntarily resigns his employment, or his
employment is involuntarily terminated, within 24 months of a change in control
of the Company, he will have the right (but not the obligation) to enter into a
consulting arrangement with the Company. Under that arrangement Mr. Schwab would
provide certain consulting services to the Company for a period of five years
for an annual payment equal to $1 million or 75% of his then base salary,
whichever is less.
The employment agreement prohibits Mr. Schwab from becoming associated with any
business competing with the Company for a period of five years following a
voluntary resignation of employment. (However, that restriction woulddoes not apply
if Mr. Schwab resigns his employment within 24 months of a change in control of
the Company.)
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EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
45
48
APPENDIX A -- EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company and Charles Schwab & Co., Inc. also are parties to an Assignment and
License agreement with Mr. Schwab that was approved in July 1987 by the
Company's non-employee director.directors. Under the agreement, Mr. Schwab has assigned
to the Company all service mark, trademark, and trade name rights to Mr.
Schwab's name (and variations on the name) and likeness. However, Mr. Schwab has
retained the perpetual, exclusive, irrevocable right to use his name and
likeness for any activity other than the financial services business.
Beginning immediately after any termination of his employment, Mr. Schwab will
be entitled to use his likeness in the financial services business for some
purposes (specifically, the sale, distribution, broadcast and promotion of
books, videotapes, lectures, radio and television programs, and also any
financial planning services that do not directly compete with any business in
which the Company or its subsidiaries are then engaged or plan to enter within
three months). Beginning two years after any termination of his employment, Mr.
Schwab may use his likeness for all other purposes, as long as that use does not
cause confusion about whether the Company is involved with goods or services
actually marketed by Mr. Schwab or by third parties unrelated to the Company.
So long as Mr. Schwab does not cause actual confusion among customers, he will
at all times be able to use his own name to identify himself, but not as a
service mark, trademark or trade name in the financial services business. The
Assignment and License agreement defines the "financial
37
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EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
APPENDIX A DESCRIPTION OF EMPLOYMENT AND SEVERANCE AGREEMENTS
services business" as the business in which Charles Schwab & Co., Inc. is
currently engaged and any additional and related businesses in which that firm
or the Company is permitted to engage under rules and regulations of applicable
regulatory agencies. The Company's ability to assign or license the right to use
Mr. Schwab's name and likeness is severely limited during Mr. Schwab's lifetime.
No cash consideration is to be paid to Mr. Schwab for the name assignment while
he is employed by the Company or, after that employment terminates, while he is
receiving compensation under an employment agreement with the Company. Beginning
when all such compensation ceases, and continuing for a period of 15 years, Mr.
Schwab or his estate will receive three-tenths of one percent (0.3%) of the
aggregate net revenues of the Company (on a consolidated basis) and those of its
unconsolidated
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EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
46
49
APPENDIX A -- EMPLOYEE AND SEVERANCE AGREEMENTS assignees and licensees that use the name or likeness. These
payments may not, however, exceed $2 million per year, adjusted up or down to
reflect changes from the cost of living prevailing in the San Francisco Bay Area
during specified months in 1987, and they will terminate if the Company and its
subsidiaries cease using the name and likeness.
CERTAIN SEVERANCE ARRANGEMENTS
The Company has a Change in Control Severance Plan, which covers certain
executive officers, including those named in the Summary Compensation Table
(except Mr. Schwab). The plan provides that if:
- the executive is terminated other than for cause within three years after
a change in control of the Company, or
- the executive terminates his or her employment for good reason, as defined
in the plan, within that three-year period, or
- the executive voluntarily resigns during the thirty-day period following
the first anniversary of the change in control,
then the executive is entitled to receive:
- a lump sum severance payment equal to three times the sum of the executive'sexecu-
tive's base salary and highest annual bonus,
- certain other payments and benefits, including continuation of employee
welfare benefits, and
- an additional payment to compensate him or her for any excise taxes
imposed on payments under the severance arrangements.
38
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EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
CERTAIN SEVERANCE
ARRANGEMENTS
47AGREEMENTS
50
APPENDIX B - - DESCRIPTION OF THE 1992 STOCK INCENTIVECORPORATE EXECUTIVE BONUS PLAN
GENERAL DESCRIPTION OF THE 1992 STOCK INCENTIVECORPORATE EXECUTIVE BONUS PLAN
PurposePLAN PARTICIPANTS
The purposeparticipants in the Corporate Executive Bonus Plan, as amended, include the
President and Co-Chief Executive Officer, Vice Chairmen, Executive Vice
Presidents and, from time to time, certain other officers having comparable
positions. Currently, 17 executives participate in the Plan.
DETERMINATION OF BONUS AMOUNTS
The Plan specifies a target bonus for each executive officer, which is expressed
as a percentage of that executive's annual base salary, and which depends upon
an assessment of that executive's roles and responsibilities. The Board's
Compensation Committee sets target bonuses in the first quarter of each year,
based upon the recommendations of the 1992 Stock IncentiveChairman and Co-Chief Executive Officer
and, where appropriate, the President and Co-Chief Executive Officer. The
President and Co-Chief Executive Officer receives all of his annual incentive
compensation under the Plan. The other 16 executives also participate in the
Company's Annual Executive Individual Performance Plan, iswhich pays additional
annual bonuses based on the achievement of individual performance goals. The
target bonus percentages under the Corporate Executive Bonus Plan, as amended,
are:
- up to promote the long-term success500% of the CompanyPresident and increase stockholder value by:
- - encouraging non-employee directors and key employees to focus on
long-range objectives,
- - attracting and retaining non-employee directors and key employees with
exceptional qualifications,Co-Chief Executive Officer's annual base
salary, and
- - linking the interests of non-employee directors and key employees directlyup to stockholder interests.
Eligibility to Receive Awards
Key employees100% of the Companyannual base salaries of the other 16 executives.
The amount of the target bonus is then multiplied by a percentage, which is
derived from a matrix fixed by the Compensation Committee in advance, and which
can range from:
- 0% to 500% for the President and Co-Chief Executive Officer, and
- 0% to 400% for the other 16 executives.
The matrix establishes the relationship between the percentage and the Company's
performance for the year relative to its subsidiaries, including directors who are
also employees, are eligible for awardstargets of net revenue growth and
pre-tax profit margin. In the case of the President and Co-Chief Executive
Officer, the Compensation Committee has discretion, subject to the percentage
limits mentioned above, to reduce the amount of any payment otherwise required
under the plan. Non-employee directors
are eligiblePlan. In any event, the amount of base salary included in the
computation of the target bonus amount for an annual, automatic grant of non-qualified stock options.
As of December 31, 1998, approximately 3,132 persons had received awards under
the plan.
Limits on Awards
The following are the limits on the number of shares that may be granted to any
oneeach participant in any one year:
- 3,375,000 sharesyear may not
exceed 250% of the base salary, determined as of March 31, 2000, payable to the
participant holding the same or substantially similar position on March 31,
2000.
BONUS PAYMENTS
Payments under options,
- 1,350,000 restricted shares, and
- 1,350,000 performance share awards.
These annual limits are adjusted automaticallythe Plan for any stock split, declaration
of a stock dividend or other similar event.
Types of Awards
Awards under the 1992 Stock Incentive Plan may take the form of restricted
shares, performance share awards and options to acquireyear are made quarterly based on the Company's
common
stock.
- - Restricted shares are similar to common stock inyear-to-date performance for that they have the same
voting and dividend rights, but the recipient will forfeit the restricted
shares if the applicable vesting conditions are not satisfied.
- - Performance share awards are obligations of the Company to issue and
deliver in the future shares of common stock if the applicable conditions
are satisfied.
- - Options are the rights to acquire common stock at an exercise price at
least equalyear, except that payments to the fair market valuePresident
and Co-Chief Executive Officer are made annually within a reasonable time after
the end of the Company's stock on the date of
grant. Options include non-qualified stock options and incentive stock
options. Incentive stock optionsthat year. Payments are intended to qualify for special tax
treatment. Options vest according to a schedule.
An award under the plan may consist of one or more of these grant types,generally made in cash, except that non-employee directors will only be eligiblethe
Compensation Committee may decide to
receive non-qualified stock
options.39
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GENERAL DESCRIPTION OF
THE 1992 STOCK
INCENTIVECORPORATE
EXECUTIVE BONUS PLAN
48
51
APPENDIX B--DESCRIPTIONB DESCRIPTION OF THE 1992 STOCK INCENTIVECORPORATE EXECUTIVE BONUS PLAN
No payment is required on the grant of any award, except for paymentmake all or a portion of the $.01
per share par value of thepayments in Company stock awarded. Upon exercise of an option, the option
holder must pay the option exercise price to the Company. On March 18, 1999, the
closing priceor other equity-based
awards (including stock options or restricted stock) with equivalent value.
However, not more than 0.5% of the Company's common stock was $89.69 per share.
As of December 31, 1998, a total of 13,577,385outstanding shares couldmay be issued in
any year under the Plan (combined with any such shares issued under the plan as restricted shares,Annual
Executive Individual Performance Plan).
Amounts payable under the Plan are generally paid in the year in which they are
earned or under performance share awards and options. This
number adjusts automatically forduring the following year. However, a recipient may elect to defer
receipt of all or any stock split, declaration of a stock
dividend or other similar event.
Under the termsportion of the plan, if:
- -amounts payable under the recipient forfeits any restricted shares, performance share awardsPlan until a
specified date, or options,
- - any performance share awards terminate for any other reason without the
associated common stock being issued, or
- - options terminate for any other reason before exercise,
then the underlying shares again become available for awards.
Administration, Amendment and Termination
The 1992 Stock Incentive Plan is administereduntil termination of employment, but deferrals will be paid
immediately upon a change of control. Deferrals may be credited with growth
rates, determined by the Boardtotal return that would result from investments in
certain registered investment companies selected from time to time by the
Company, the allocation among which is determined by the participant.
PLAN ADMINISTRATION
The Compensation Committee. The committee, on advice ofCommittee administers the Company's executive management,
- - selects the key employees who will receive awards,
- - determines the amount, vesting requirements, performance criteria, if any,Plan and other conditions of each award,
- - interprets the provisions of the plan, and
- - makes all other decisions
regarding the operation of the plan.Plan and payments under it. The grant of non-qualified stock options to non-employee directors is made
annually,Compensation
Committee may amend or terminate the Plan at any time and the committee has no discretion with respect to those awards.
Grants of Options to Non-Employee Directors
Under the 1992 Stock Incentive Plan, each non-employee director receives an
annual, automatic grant of options to purchase 1,500 shares of common stock
(2,500 shares if the option exercise price is less than $35). This grant is made
on May 15 of each year, but if May 15 is not a business day, then the grant is
madefor any reason.
PLAN BENEFITS TABLE
The table on the next business day.
Ifpage identifies the stockholders approveamounts that would be payable under
the proposed amendmentCorporate Executive Bonus Plan, as amended, for 2000, based on:
- 1999 base salaries and target bonuses (except that the 2000 base salary
and target bonus is used for an executive officer who joined the Company
in February 2000), and
- the Company's 1999 net revenue growth of 44% and pre-tax profit margin of
24.6%.
On that basis, the Company's net revenues would increase by approximately $1.7
billion to $5.6 billion, and its pre-tax profit would increase by approximately
$420 million to $1.4 billion. On the plan, each
non-employee director will receive an annual, automatic grant of options to
purchase an additional 1,000 shares of common stock, bringing the total to 2,500
shares (3,500other hand, if the option exercise price is lessCompany's pre-tax profit
margin in 2000 were 15%, and net revenue declined by more than $35).5%, no bonuses
would be payable under the Plan.
40
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GENERAL DESCRIPTION OF
THE 1992 STOCK
INCENTIVECORPORATE
EXECUTIVE BONUS PLAN
49
52
APPENDIX B -- DESCRIPTION OF THE 1992CORPORATE EXECUTIVE BONUS PLAN
PLAN BENEFITS
CORPORATE EXECUTIVE
BONUS PLAN (3)
NAME DOLLAR VALUE ($)
- ----------------------------------------------------------------------------------------------
CHARLES R. SCHWAB N/A
Chairman and Co-Chief Executive Officer (1)
DAVID S. POTTRUCK $11,200,000
President and Co-Chief Executive Officer
DAWN G. LEPORE $555,156
Vice Chairman, Executive Vice President and Chief Information Officer
LINNET F. DEILY $528,859
Vice Chairman and Executive Vice President
STEVEN L. SCHEID $513,276
Vice Chairman and Executive Vice President
LON GORMAN $461,656
Vice Chairman and Executive Vice President
ALL CURRENT PARTICIPATING EXECUTIVE OFFICERS, AS A GROUP (17 PERSONS) $17,804,345
ALL CURRENT DIRECTORS WHO ARE NOT EXECUTIVE OFFICERS, AS A GROUP(2) N/A
ALL CURRENT EMPLOYEES, OTHER THAN EXECUTIVE OFFICERS, AS N/A
A GROUP(2)
(1) Mr. Schwab does not participate in the Corporate Executive Bonus Plan.
(2) Only executive officers are eligible to participate in the Corporate Executive Bonus Plan.
(3) The following chart lists the 1999 base salaries used in calculating the bonuses shown in the above table for the named
executive officers who participate in the Corporate Executive Bonus Plan.
NAME BASE SALARY
---------------------------------------
MR. POTTRUCK $800,004
MS. LEPORE $475,000
MS. DEILY $452,500
MR. SCHEID $439,167
MR. GORMAN $399,933
No executive officer had a 1999 base salary higher than Mr. Pottruck's.
41
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PLAN BENEFITS TABLE
WWW.SCHWAB.COM
THE CHARLES SCHWAB CORPORATION 101 MONTGOMERY STREET SAN FRANCISCO, CA 94104
415.627.7000 NYSE STOCK INCENTIVESYMBOL: SCH
[Recycled symbol appears here] PRINTED ON RECYCLED PAPER.
MKT3902-1 (3/00)
THE CHARLES SCHWAB CORPORATION
CORPORATE EXECUTIVE BONUS PLAN
In(AMENDED AND RESTATED, EFFECTIVE JANUARY 1, 2000)
I. PURPOSES
The purposes of this Corporate Executive Bonus Plan (the "Plan") are:
(a) to provide greater incentive for key executives continually to
exert their best efforts on behalf of The Charles Schwab Corporation
(the "Company") by rewarding them for services rendered with
compensation that is in addition to their regular salaries; (b) to
attract and to retain in the employ of the Company persons of
outstanding competence; and (c) to further the identity of interests of
such employees with those of the Company's stockholders through a
non-employee director who electsstrong performance-based reward system.
II. FORM OF AWARDS
1. Incentive compensation awards under this Plan shall be generally
granted in cash, less any applicable withholding taxes; provided
that the Committee may determine, from time to defer directors' fees undertime, that all or
a portion of any award may be paid in the Directors' Deferred Compensation Plan can elect to receive, insteadform of fees,
a grant of options:
- - with a fair market value (determined under an appropriateequity based
incentive, including without limitation stock options, valuation method) equal to the deferred fees, and
- - with an option exercise price equal to the fair market valuerestricted
shares, or outright grants of Company common stock on the date the deferred fees would have been paid.
Restricted Shares and Performance Share Awards
Recipientsstock. The number of restricted shares cannot transfer them before they vest (except
that the recipient can transfer them by gift to certain trusts and partnerships
formed for the benefit of family members).
Recipients of performance share awards cannot transfer them, and the recipients
have no voting or dividend rights until the associated shares of common stock
are issued. At that time the recipients will have the same voting, dividend and
other rights as the Company's other stockholders.
Generally, vesting of restricted shares
and performance share awards is
accelerated if the recipient dies, becomes disabled, or retires, and may be
accelerated if a "changestock options granted in control" occurs. (We explain that term later in this
Appendix B under "Change in Control.")
When granting an award, the Board Compensation Committee determinesany year, when added to the number
of performance share awards or restricted shares and stock options granted for such year pursuant to be included in the award as
well as the vesting or issuance conditions. The vesting or issuance conditions
may be based on:
- - the employee's individual performance,
- - the
Company's performance, or
- - other appropriate criteria.
When the committee uses the Company's performance as a vesting or issuance
condition, it establishes performance goals based on one or moreAnnual Executive Individual Performance Plan, shall in
no event exceed .5% of the following business criteria:
- - pretax income,
- - operating income,
- - cash flow,
- - stockholder return,
- - revenue,
- - revenue growth,
- - return on net assets,
- - net income,
- - earnings per share,
- - return on equity, or
- - return on investment.
[side bar]
GENERAL DESCRIPTIONoutstanding shares of the Company.
III. DETERMINATION OF THE 1992 STOCK
INCENTIVE PLAN
50
53
APPENDIX B -- DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN
Terms of Stock Options
The exercise price of any stock option granted under the plan must be equal to
or greaterAWARDS
1. Incentive awards for participants other than the fair market valuePresident/
Co-Chief Executive Officer shall be determined quarterly
according to a Corporate Performance Payout Matrix that shall
be adopted at the beginning of the Company's common stock on the date
of grant. The 1992 Stock Incentive Plan defines "fair market value" as the
closing price of the Company's stock as reportedeach year by the New York Stock Exchange
Composite Transactions Index for the date of grant.
The term of an incentive stock option cannot exceed 10 years. The Board
Compensation
Committee establishes vesting conditions when it grants an option.
Generally vesting is accelerated if the recipient dies, becomes disabled, or
retires, and may be accelerated if a "change in control" occurs. (We explain
that term in the following section of this Appendix B.)
Recipients may transfer options (other than incentive stock options, which must
be nontransferable to qualify as incentive stock options) to certain trusts and
partnerships formed for the benefit of family members.
Change in Control
Under the 1992 Stock Incentive Plan the term "change in control" means:
- - the Company undergoes any change in control which would have to be
disclosed in the Company's next proxy statement under SEC rules,
- - any person becomes the beneficial owner, directly or indirectly, of at
least 20% of the combined voting power of the Company's outstanding
securities, except from a repurchase by the Company of its own securities,
or
- - the composition of the Board of Directors changes,(the "Committee"). The
Management Committee Corporate Performance Payout Matrix shall
use net revenue growth and consolidated pretax profit margin
as the financial performance criteria to determine awards.
Awards shall be defined by reference to a result fewer
than two-thirdstarget percentage of
base salary determined, from time to time, by the Committee.
Payouts described in this subsection shall be calculated and paid
on a quarterly basis, based on year-to-date performance
compared with the comparable period in the preceding year.
2. With respect to payments made pursuant to Section III.1, the
amount of base salary included in the computation of incentive
awards shall not exceed 250% of the incumbent directors:
- had been directorsbase salary in effect for the
officer holding the same or substantially similar position on
March 31, 2000. In addition, for all participants other than the
President/Co-Chief Executive Officer, (i) the maximum target
incentive percentage shall be 100% of base salary and (ii) the
maximum award shall be 400% of the participant's target award.
3. Incentive awards for the President/Co-Chief Executive Officer
shall be determined in accordance with a Corporate Performance
Payout Matrix that shall be adopted at the beginning of each year
by the Committee. The Committee shall determine the
President/Co-Chief Executive Officer's award each year, up to the
maximum amount defined by the matrix for a given level of
performance. This matrix may, if the Committee deems appropriate,
differ from that described in Subsection III.1. However, the
performance criteria shall be the same as referred to above.
Payouts for the President/Co-Chief Executive Officer shall be
made on an annual basis, based on the Company's results for the
full year.
4. The maximum award payable for the President/Co-Chief Executive
Officer under this plan shall be no more than 500% of his target
incentive award. The target incentive amount shall be determined
each year by the Committee, but may not exceed 500% of base
salary. The amount of base salary taken into account for purposes
of computing the target incentive award may not exceed 250% of the
President/Co-Chief Executive Officer's base salary as of March 31,
2000.
5. Notwithstanding anything to the contrary contained in this Plan,
the Committee shall have the power, in its sole discretion, to
reduce the amount payable to any Participant (or to determine that
no amount shall be payable to such Participant) with respect to
any award prior to the time the amount otherwise would have become
payable hereunder. In the event of such a reduction, the amount of
such reduction shall not increase the amounts payable to other
participants under the Plan.
IV. ADMINISTRATION
1. Except as otherwise specifically provided, the Plan shall be
administered by the Committee. The Committee members shall be
appointed pursuant to the Bylaws of the Company, 24 months earlier, or
- had been elected or nominated withand the approval of at least a
majoritymembers
thereof shall be ineligible for awards under this Plan for
services performed while serving on said Committee.
2. The decision of the directorsCommittee with respect to any questions
arising as to interpretation of the Plan, including the
severability of any and all of the provisions thereof, shall be,
in its sole and absolute discretion, final, conclusive and
binding.
V. ELIGIBILITY FOR AWARDS
1. Awards under the Plan may be granted by the Committee to those
employees who hadhave contributed the most in a general way to the
Company's success by their ability, efficiency, and loyalty,
consideration being given to ability to succeed in more important
managerial responsibility in the Company. This is intended to
include the President/Co-Chief Executive Officer, Vice Chairmen,
Executive Vice Presidents, and from time to time, certain other
officers having comparable positions.
No award may be granted to a member of the Company's Board of
Directors except for services performed as an employee of the
Company.
2. Except in the event of retirement, death, or disability, to be
eligible for an award an employee shall be employed by the
Company as of the date awards are calculated and approved by the
Committee under this Plan.
3. For purposes of this Plan, the term "employee" shall include an
employee of a corporation or other business entity in which this
Company shall directly or indirectly own 50% or more of the
outstanding voting stock or other ownership interest.
VI. AWARDS
1. The Committee shall determine each year the payments, if any, to
be made under the Plan. Awards for any calendar year shall be
granted not later than the end of the first quarter of the
calendar year, and payments pursuant to the Plan shall be made as
soon as practicable after the close of each calendar quarter (or,
in the case of the President/Co-Chief Executive Officer, as soon
as practicable after the close of each calendar year).
2. Upon the granting of awards under this Plan, each participant
shall be informed of his or her award by his or her direct
manager and that such award is subject to the applicable
provisions of this Plan.
VII. DEFERRAL OF AWARDS
1. A participant in this Plan who is also eligible to participate in
The Charles Schwab Corporation Deferred Compensation Plan may
elect to defer payments pursuant to the terms of that plan.
VIII. RECOMMENDATIONS AND GRANTING OF AWARDS
1. Recommendations for awards shall be made to the Committee by the
Co-Chief Executive Officers, except that, with respect to the
President/Co-Chief Executive Officer, recommendations for awards
shall be made solely by the Chairman/Co-Chief Executive Officer.
2. Any award shall be made in the sole discretion of the Committee,
which shall take final action on any such award. No person shall
have a right to an award under this Plan until final action has
been directorstaken granting such award.
IX. AMENDMENTS AND EXPIRATION DATE
While it is the present intention of the Company 24
months earlier and who were still directors atto grant awards
annually, the Committee reserves the right to modify this Plan from
time to time or to repeal the Plan entirely, or to direct the
discontinuance of granting awards either temporarily or permanently;
provided, however, that no modification of this plan shall operate to
annul, without the consent of
the beneficiary, an award already granted hereunder; provided, also,
that no modification without approval of the incumbent directors' election or nomination.
FEDERAL TAX CONSEQUENCES
The following isstockholders shall in-
crease the maximum amount which may be awarded as hereinabove provided.
X. MISCELLANEOUS
All expenses and costs in connection with the operation of this Plan
shall be borne by the Company and no part thereof shall be charged
against the awards anticipated by the Plan. Nothing contained herein
shall be construed as a summaryguarantee of continued employment of any
participant hereunder. This Plan shall be construed and governed in
accordance with the laws of the federal income tax consequencesState of awards
under the 1992 Stock Incentive Plan.
Options
When the options are granted, there are no federal income tax consequences to
the Company or the option holder.
On the exercise of a non-qualified stock option, the option holder generally
will have ordinary income. The amount of the income will be equal to:
- - the fair market value of the shares on the exercise date, minus
- - the option exercise price.
[side bar]
FEDERAL TAX
CONSEQUENCES
51California.
54
APPENDIX B -- DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN
The income will be subject to tax withholding. Generally, in the same year that
the option holder has income from the option exercise the Company will be able
to take a deduction in the amount of that income.
On any subsequent disposition of the shares, any additional gain or loss
recognized by the holder generally will be capital gain or loss.
In contrast, the exercise of incentive stock options will not normally result in
any taxable income to the option holder at that time; nor will the Company be
entitled to any tax deduction. However, the exercise will result in an amount
that is taken into account in computing the option holder's alternative minimum
taxable income. This amount will be equal to:
- - the fair market value of the shares on the exercise date, minus
- - the option exercise price.
If the option holder exercises the options, holds the shares for the period
required by law, and then sells the shares, the difference between the sale
price and the exercise price generally will be taxed as capital gain or loss.
If the option holder does not hold the shares for the period required by law, he
or she generally will have ordinary income at the time of the early disposition.
The amount of the income will be equal to:
- - the fair market value of the shares on the exercise date (or, if less, the
sale price), minus
- - the option exercise price.
The Company generally will be entitled to a tax deduction in that same amount.
Any additional gain upon the disposition generally will be taxed as capital
gain.
Restricted Shares
Unless the recipient of restricted shares elects to be taxed when the shares are
granted, there will be no federal income tax consequences to the recipient or to
the Company while the shares have vesting restrictions. Upon vesting, the
recipient will have ordinary income. The amount of the income will be equal to:
- - the fair market value of the shares on the vesting date, minus
- - the amount paid for the shares.
The income will be subject to tax withholding. The Company generally will be
entitled to a tax deduction in the amount of the recipient's income. Upon any
subsequent disposition of the shares, any additional gain or loss recognized by
the holder generally will be capital gain or loss.
[side bar]
FEDERAL TAX
CONSEQUENCES
52
55
APPENDIX B -- DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN
Performance Share Awards
The grant of performance share awards will have no federal income tax
consequences to the Company or the recipient at the time of the grant. When a
recipient becomes entitled to receive any common stock under the terms of the
performance share award, the recipient generally will have ordinary income. The
amount of the income will be equal to:
- - the fair market value of the shares on that date, minus
- - any amount paid for the shares.
The income will be subject to tax withholding. The Company generally will be
entitled to a tax deduction in the amount the recipient's income. Upon any
subsequent disposition of the shares, any additional gain or loss recognized by
the holder generally will be capital gain or loss.
To date, no performance share awards have been granted under the 1992 Stock
Incentive Plan.
Options and Restricted Shares Granted Under the 1992 Stock Incentive Plan
As of December 31, 1998, current executive officers have received options and
restricted shares representing a total of 17,080,367 shares of the Company
common stock as follows:
CHARLES R. SCHWAB 4,453,125
DAVID S. POTTRUCK 6,459,001
JOHN COGHLAN 1,432,503
LINNET F. DEILY 345,001
LUIS E. VALENCIA 933,753
STEVEN L. SCHEID 397,501
OTHER SIX EXECUTIVE
OFFICERS AS A GROUP 3,059,483
Of shares granted under options or as restricted shares:
- - 309,125 shares have been granted to non-employee directors, and
- - 40,174,485 shares have been granted to employees other than executive
officers.
[side bar]
FEDERAL TAX
CONSEQUENCES
53
56
THE CHARLES SCHWAB CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
MONDAY,WEDNESDAY, MAY 17, 19993, 2000
2:00 P.M.
YERBA BUENASAN FRANCISCO WAR MEMORIAL AND
PERFORMING ARTS CENTER
FOR THE ARTSHERBST THEATER
700 HOWARD STREET401 VAN NESS AVENUE
SAN FRANCISCO, CALIFORNIA
[LOGO]
The Charles Schwab CorporationTHIS YEAR, THE ANNUAL MEETING OF STOCKHOLDERS WILL BE BROADCAST
OVER THE INTERNET. FOR INFORMATION ABOUT THE REAL-TIME
WEBCAST, VISIT WWW.SCHWABEVENTS.COM
[THE
CHARLES
SCHWAB
CORPORATION THE CHARLES SCHWAB CORPORATION
LOGO APPEARS 101 MONTGOMERY STREET
HERE] SAN FRANCISCO, CA 94104 PROXY
101 Montgomery Street
San Francisco, CA 94104- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 17, 1999.3, 2000.
The shares of stock you hold in your account, as well as any shares you hold
under The Charles Schwab Corporation Dividend Reinvestment and Stock Purchase
Plan and/or The SchwabPlan Retirement Savings and Investment Plan, will be voted
as you specify below.on the reverse side.
IF NO CHOICE IS SPECIFIED, THE PROXYYOUR SHARES WILL BE VOTED "FOR" ITEMS 1 2 AND 3.2.
By signing the proxy, you revoke all prior proxies and appoint Charles R. Schwab
and David S. Pottruck, and each of them, with full power of substitution, to
vote your shares on the matters shown on the reverse side and any other matters
which may come before the Annual Meeting and all adjournments.
See reverse for voting instructions.
57
CompanyCOMPANY #
ControlCONTROL #
THERE ARE THREE WAYS TO VOTE YOUR PROXYSHARES
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY PHONE --- TOLL FREE - 1-800-240-6326 - QUICK *** EASY *** IMMEDIATE
- - Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week.week, until 12:00 p.m., Central time, on May 2, 2000.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
- - Follow the simple instructions the voice provides you.
VOTE BY INTERNET - http:HTTP://www.eproxy.com/sch/WWW.EPROXY.COM/SCH - QUICK *** EASY *** IMMEDIATE
- - Use the Internetinternet to vote your shares 24 hours a day, 7 days a week.week until
12:00 p.m., Central time, on May 2. 2000.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.proxy.
- - You will have the option to receive all future materials via the Internet.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid
envelope we've provided or return it to The Charles Schwab Corporation, c/o
Shareowner Services (SM)Services(SM), P.O. Box 64873, St. Paul, MN 55164-0873.55164-0873
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD.
- Please detach here -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 2 AND 3.2.
1. Election of directors: 01 FrankNancy H. Bechtle 02 C. Herringer 02 Stephen T. McLinPreston Butcher |_| Vote FOR |_| Vote WITHHELD
03 CharlesDavid S. Pottruck 04 George P. Shultz all nominees from all nominees
(except as marked)
________________________________________
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, | |
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT) |________________________________________|
2. Re-approval Of Corporate Executive Bonus Plan, as amended. |_| For |_| Against |_| Abstain
WHEN THIS PROXY IS PROPERLY EXECUTED YOUR SHARES WILL BE VOTED: (1) AS DIRECTED; (2) FOR EACH PROPOSAL IF NO DIRECTION IS GIVEN;
---
AND (3) ACCORDING TO THE BEST JUDGMENT OF CHARLES R. Schwab 04 Roger O. Walther
/ / Vote FOR all nominees
/ / Vote WITHHELD from all nominees
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDICATED NOMINEE, WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE / /
BOX PROVIDED TO THE RIGHT.)
2. Approval of amendment to the Certificate of Incorporation to increase the
number of authorized shares of common stock.
/ / For / / Against / / Abstain
3. Approval of amendment to the 1992 Stock Incentive Plan.
/ / For / / Against / / Abstain
WHEN THIS PROXY IS PROPERLY EXECUTED YOUR SHARES WILL BE VOTED AS DIRECTED, OR,
IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box / / Date ______________________
Indicate changes below:
58
/ /
Signature(s) inSCHWAB AND DAVID S. POTTRUCK IF ANY OTHER MATTER COMES BEFORE THE ANNUAL
MEETING FOR A VOTE.
Address Change? Mark Box |__|
Indicate changes below: Date ______________________________
|------------------------------------------------|
| |
| |
| |
|------------------------------------------------|
Signature(s) In Box
Please sign exactly as your
name(s) appear on the proxy
card. If held in joint
tenancy, all persons must
sign. Trustees, administrators,
etc., should include title and
authority. Corporations
should provide full name of
corporation and title of
authorized officer signing the
proxy.