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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:
[ ][x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X][ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) orUnder Rule 14a-12
The Charles Schwab Corporation
---------------------------------------------------------------------------- --------------------------------------------------------------------------------
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---------------------------------------------------------------------------- --------------------------------------------------------------------------------
(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:
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(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
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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
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================================================================================
WE ARE BUILDING
A BROKERAGE FIRM
LIKE NO OTHER
THE CHARLES SCHWAB CORPORATION 1999 PROXY STATEMENT
================================================================================The Charles Schwab Corporation
2001 Proxy Statement
3
LETTER TO STOCKHOLDERS
[PhotoPhoto of Charles R. Schwab and David S. Pottruck]
MARCH 31, 1999
DEAR FELLOW STOCKHOLDERS:Pottruck
March 26, 2001
Dear Fellow Stockholders:
We cordially invite you to attend our 19992001 Annual Meeting of Stockholders. The
meeting will be held on Monday, May 17, 19997, 2001, at 2:00 p.m., Pacific time, at the
Yerba Buena
Center for the Arts Theater, 700 HowardPalace Hotel, 2 New Montgomery Street, San Francisco, California.
At the meeting we will:
-* elect four directors -for three-year terms,
* vote on a proposal to amend the Certificate of Incorporation to increase
the number of authorized shares of common stock,
and
-* vote on a proposal to increaseapprove the annual, automatic stock option
grant2001 Stock Incentive Plan,
* vote on a proposal to non-employee directors.approve the Annual Executive Individual Performance
Plan, as amended, and
* transact any other business properly coming before the meeting.
We also will also report on our performance in 19982000 and answer your questions. Our[Our
products and services exhibit will be open before and after the meeting.]
In view of your interest in the webcast of last year's annual meeting, we will
offer a webcast of this year's meeting.
We are pleased that 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 that Dr. Condoleezza Rice, Provost of Stanford University and a
distinguished professor of political science, will join our Board in July 1999.
Each year, we try to make it easier 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
way for us to process your vote.
Next year, we plancontinuing to make our proxy statement and annual report widely
available over
the Internet. IfAlso, all stockholders again will be able to vote on the Internet.
WE ENCOURAGE YOU ONCE AGAIN TO TAKE ADVANTAGE OF INTERNET VOTING. 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 STOCKHOLDERS WHO HAVE NOT YET DONE SO TO ENROLL
IN INTERNET DELIVERY. IT IS THE LEAST EXPENSIVE AND QUICKEST WAY FOR US TO SEND
PROXY MATERIALS TO YOU.
We encourage youwant to enrollexpress our appreciation to Dr. Condoleezza Rice who, after 18 months
of valued service, resigned from our Board of Directors in Internet delivery. ItJanuary 2001, after
which time she began serving as the National Security Advisor of the United
States. While performing this governmental service, Dr. Rice is on leave from
Stanford University as a Senior Fellow at the least expensive way for us to send you proxy
materials.Hoover Institution and
distinguished Professor of Political Science.
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 OFFICER
[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
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 2001 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...............................................16
Compensation Committee Interlocks and Insider Participation................17
Director Compensation......................................................18
Principal Stockholders.....................................................19
Performance Graph..........................................................21
Summary Compensation Table.................................................22
Option Grants..............................................................25
Options Exercised..........................................................26
Compensation Committee Report..............................................27
Audit Committee Report.....................................................31
Auditor Independence.......................................................32
Other Information..........................................................33
Certain Transactions..................................................33
Section 16(a) Beneficial Ownership Reporting Compliance...............33
Stockholder Proposals.................................................33
Costs of Proxy Solicitation...........................................33
Incorporation by Reference............................................34
TICKETS AND INTERNET ACCESS TO THE ANNUAL MEETING.............................35
APPENDIX A - - DESCRIPTION OF EMPLOYMENT AND LICENSE AGREEMENTS...............36
APPENDIX B - - DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN...................38
APPENDIX C - - DESCRIPTION OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE
PLAN...........................................................43
APPENDIX D - - NEW PLAN BENEFITS TABLE........................................44
APPENDIX E - - AUDIT COMMITTEE CHARTER........................................45
2
5
NOTICE OF 19992001 ANNUAL MEETING OF STOCKHOLDERS
The 19992001 Annual Meeting of Stockholders of The Charles Schwab Corporation will
be held on Monday, May 17, 19997, 2001, at 2:00 p.m., Pacific time, at the Yerba Buena Center for the
Arts Theater, 700 HowardPalace Hotel,
2 New Montgomery Street, 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 amend the Certificate of Incorporation to increase
the number of authorized shares of common stock,
3. Amend* vote on a proposal to approve the 19922001 Stock Incentive Plan,
* vote on a proposal to increaseapprove the annual,
automatic stock option grant to non-employee directors,Annual Executive Individual Performance
Plan, as amended, and
4. Transact* transact any other business properly coming before the meeting.
Stockholders who owned shares of our common stock at the close of business on
March 18,
19998, 2001 are entitled to attend and vote at the meeting. A complete list of
theseregistered stockholders will be available prior to the meeting at our principal
executive offices at 120 Kearny Street, San Francisco, California 94104, prior to the meeting.94108.
By Order of the Board of Directors,
/s/ CarrieCARRIE E. DwyerDWYER
- -------------------
CARRIE E. DWYER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
CORPORATE SECRETARY
[side bar]
THE 1999 ANNUAL
MEETING OF
STOCKHOLDERS WILL BE
HELD ON MONDAY,
MAY 17, 1999 AT
2:00 P.M. AT THE
VERBA BUENA CENTER
FOR THE ARTS THEATRE
IN SAN FRANCISCO,
CALIFORNIA.
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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 19982000
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, 1999.26, 2001. 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 on page ____ of 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 May 2000 three-for-two 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.
[side bar]
STOCKHOLDERS OWNING
COMPANY SHARES AT THE
CLOSEPAST PERFORMANCE IS NOT PREDICTIVE OF BUSINESS ON
MARCH 18, 1999 ARE
ENTITLED TO ATTEND AND
VOTE AT THE MEETING.FUTURE RESULTS.
4
7
QUESTIONS AND ANSWERS
Q: WHO CAN VOTE AT THE ANNUAL MEETING?
A: Stockholders who owned Company common stock on March 18, 19998, 2001 may attend and
vote at the annual meeting. Each share is entitled to one vote. There were
406,353,252________________ shares of Company common stock outstanding on March 18, 1999.8, 2001.
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 amendmentfor terms of three years,
* a proposal to amend the Certificate of Incorporation to increase the
number of authorized shares of common stock,
and
- an amendment* a proposal to approve the 19922001 Stock Incentive Plan, and
* a proposal to increaseapprove the annual,
automatic stock option grant to non-employee directors.Annual Executive Individual Performance Plan,
as amended.
The section appearing later entitled "Proposals To Be Voted On"On," beginning on page ___, gives
you more information on the nominees for election to our Board and the proposed
amendments to the Certificate of Incorporation and the 1992 Stock Incentive
Plan.these matters.
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
proposal 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:
- for* FOR the four named nominees for directors,
- for* FOR approval of the proposed amendment to the Certificate 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
increase the number of authorized shares of common stock,
and
- for* FOR approval of the proposed amendment to the 19922001 Stock Incentive Plan,
5
* FOR approval of the Annual Executive Individual Performance Plan, as
amended, and
* according to increase
the annual, automatic stock option grant to non-employee directors.best judgment of Mr. Schwab and Mr.Pottruck if a proposal
comes up for a vote at the meeting that is not on the 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.
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, NorwestWells Fargo Bank Minnesota, N.A., the proxy card
you receive from NorwestWells Fargo will include your Company shares held under that
plan.
If you participate in our Dividend Reinvestment and Stock Purchase Plan through
the Company's principal brokerage firm,subsidiary, 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 Company
shares held under The SchwabPlan Retirement Savings and Investment Plan (formerly The
Charles Schwab Profit Sharing and Employee Stock Ownership Plan).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 NorwestWells
Fargo 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. 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.
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 4, 2001 (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 three of our proposals____________________________ ___________________ described later
under "Proposals To Be Voted On"On," beginning on page ___ , are considered routine
matters.matters [determine which proposals are routine].
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.
[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?
7
10
QUESTIONS AND ANSWERS
You may have granted to your stockbroker discretionary voting authority over
your account.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.
7
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,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 plan's purchasing agent, under certain circumstances,
can vote your shares.
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 proportion 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 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, 19998, 2001 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 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 AMENDMENT TO THE CERTIFICATE OF INCORPORATION
RECEIVE TO BE APPROVED?
A: The amendment will be approved if a majority of the Company's shares out-
standing as of March 8, 2001 vote FOR approval.
Q: HOW MANY VOTES MUST THE 2001 STOCK INCENTIVE PLAN RECEIVE TO BE APPROVED?
A: The 2001 Stock Incentive Plan will be approved if a majority of the shares
present at the meeting in person or by proxy vote FOR approval.
Q: HOW MANY VOTES MUST THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN RECEIVE
TO BE APPROVED?
A: The Annual Executive Individual Performance Plan will be approved if a
majority of the shares present at the meeting in person or by proxy vote FOR
approval.
Q: WHAT HAPPENS IF A DIRECTOR 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.
[side bar]
HOW MANY SHARES MUST
BE PRESENT TO HOLD THE
MEETING?
HOW MANY VOTES MUST
THE NOMINEES HAVE TO
BE ELECTED AS DIRECTORS?
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" each director nominee or "against" each nominee.withhold your vote from
any one or more of the nominees.
You may vote "for,""for" or "against" or "abstain" from voting on each of the proposals to amend the Certificate of
Incorporation and the 1992 Stock Incentive Plan.other
three proposals. If you abstain from voting on either amendment,any proposal, it haswill have the
same effect as a vote against."against" the proposal.
If you give your proxy without voting instructions, your shares will be counted
as a yes vote forFOR each director nominee and forFOR each amendment.of the other three proposals.
Voting results are tabulated and certified by our transfer agent, NorwestWells Fargo
Bank Minnesota, N.A.
Q: IS MY VOTE KEPT CONFIDENTIAL?
A: Proxies, ballots and voting tabulations identifying stockholders are kept
confidential by the Company's transfer agent 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
1999.2001. We will file that report with the Securities and Exchange Commission in
mid-August, 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.
[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?
WHERE DO I FIND THE
VOTING RESULTS OF
THE MEETING?WWW.SEC.GOV.
9
12
PROPOSALS TO BE VOTED ON
1. ELECTION OF DIRECTORS
Nominees for directors this year are Donald G. Fisher, Anthony M. Frank, C. Herringer, Stephen T. McLin,
Charles R. Schwab,Jeffrey
S. Maurer and Roger O. Walther.
The Board recommends a vote for these nominees.Arun Sarin.
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. APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
We are asking stockholders to approve an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of common stock
from 500 million2 billion to 23 billion. As of December 31, 1998, 452 million2000, 1.507 billion of the 500
million2
billion authorized shares had been used or reserved for use as follows:
- - 402 million* 1.386 billion issued and outstanding shares;
- - 33shares,
* 97 million shares underreserved for stock options that have been granted; and
- - 17granted,
* 22 million shares reserved for future grants under incentive plans.
Accordingly, the Company is now limited to issuing 48plans, and
* 2 million shares required for other purposes.
Therefore, there are 493 million remaining available authorized shares of common
stock under the current authorized number of shares.stock.
Increasing the number of authorized shares of common stock will give the Company
greater flexibility for:
- -* 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 part of the existing class of common stock,
- -* not affect the terms of the common stock or the rights of the holders of
common stock, and
- -* have the same rights and privileges as 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 will
decrease the existing stockholders' equity ownership and, depending upon the
price at which they are issued, 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.
10
Although not a factor in the Board's decision to propose the amendment to the
Certificate of Incorporation, one of
[side bar]
ELECTION OF DIRECTORS
- - FRANK C. HERRINGER
- - STEPHEN T. MCLIN
- - CHARLES R. SCHWAB
- - ROGER O. WALTHER
AMENDMENT TO THE
CERITIFCATE OF
INCORPORATION
10
13
PROPOSALS TO BE VOTED ON the effects of the amendment may be to
enable the Board to make more difficult or to discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and as a result protect the continuity of present management. The
Company is not aware of any effort to accumulate its securities or obtain
control of the Company by means of a tender offer, proxy contest or otherwise.
The Company is not presently negotiating with anyone concerning the issuance or
use of any material amount of the additional authorized shares of common stock,stock. Furthermore, except for
the 119 million shares reserved to cover past and future grants under incentive
plans (as identified above), 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 amendment to the Company's Certificatematerial amount of
Incorporation.
3.shares of common stock.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT TO THE 1992COMPANY'S CERTIFICATE OF
INCORPORATION.
3. APPROVAL OF 2001 STOCK INCENTIVE PLAN
We are asking youstockholders to approve an amendment tothe 2001 Stock Incentive Plan. This new
plan has been approved by the Board but will become effective only upon
stockholder approval. The new plan will replace the 1992 Stock Incentive Plan,
to
increase by 1,000which expires in March 2002 (before the numbernext annual meeting of shares covered by stock option grants to
non-employee directors understockholders).
The new plan is substantially the same as the 1992 plan, as amended.
Stockholders approved the 1992 plan at the 1992 annual automatic option grant.
Each year, our non-employee directors receive an automatic grantmeeting 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 cashstockholders
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. The Company believes that this increase in the size of
the option grant will better align our non-employee directors' compensation with
stockholders' interests and peer group compensation.
The Board had last reviewed the directors' compensation program in 1995.
Our non-employee directors have an interest in this amendment.
[side bar]
AMENDMENT TO THE 1992
STOCK INCENTIVE PLAN
11
14
PROPOSALS TO BE VOTED ON
The Board recommends a vote for the amendmentvarious amendments to the 1992 Stock Incentive Plan.plan in 1994, 1996, 1997, 1998 and
1999.
If you would likestockholders approve the new plan, we will be able to issue up to 70 million
shares of common stock under the new plan.
Non-employee directors and key employees will participate in the new plan. The
purpose of the new plan is to promote the long-term success of the Company and
increase stockholder value by:
* linking the interests of participants directly to stockholder interests,
* encouraging them to focus on long-term objectives, and
* attracting and retaining participants with exceptional qualifications.
For more information about the 1992 Stock Incentive Plan, a
summarynew plan, see the description of its terms in
Appendix B. See also the table in Appendix D for the amount of stock-based
compensation that would have been awarded under the new plan in 2000, based on
certain assumptions, had the new plan been in effect in 2000.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE 2001 STOCK INCENTIVE PLAN.
4. APPROVAL OF ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN
We are asking stockholders to approve the Annual Executive Individual
Performance Plan, as amended. This bonus plan, which covers executive officers
other than Co-Chief Executive Officers Charles R. Schwab and David S. Pottruck,
was originally adopted in 1995. In February 2001, the Board approved amendments
to the plan to meet certain tax requirements, as explained below. We will be
able to achieve the desired tax results for certain bonus payments under the
amended plan only if stockholders approve it.
Section 162 (m) of the Internal Revenue Code authorizes tax deductions for
certain executive compensation in excess of $1 million only if, among other
things, such compensation is includedbased on performance and the plan under which it is
paid is approved by stockholders. The aggregate amount of bonuses payable to
executive officers, as a group, under the Individual Performance Plan has always
been based strictly on our corporate performance. However, because the bonuses
of each executive within the group have been based on a subjective
determination, those bonuses have not qualified for deduction under Section
162(m). To meet certain requirements of Section 162(m), the amendments to the
plan approved by the Board establish objective performance-based criteria (I.E.,
net revenue growth and pre-tax profit margin) for bonus amounts payable to
each executive officer.
11
If stockholders approve the Individual Performance Plan, as amended, and the
Company complies with certain other requirements of Section 162(m), payments to
executive officers under the plan will qualify for deduction under Section
162(m). If stockholders do not approve the amended plan, the amendments will not
become effective and bonus payments made to certain executive officers may not
qualify for deduction under Section 162(m) to the extent that certain
compensation paid to any such executive officer in any calendar year exceeds $1
million. In that case, the Company would not be permitted a tax deduction for
certain compensation paid to the affected executive officers.
Under the Individual Performance Plan, as amended the Board's Compensation
Committee will continue to have the authority to amend the plan without
stockholder approval in ways that could increase the cost of the plan or change
the allocation of benefits among the participants.
For more information about the Individual Performance Plan, as amended, see the
description of its terms in Appendix B to this proxy statement.C. See also the table in Appendix D for the
bonus amounts that would have been payable under the amended plan in 2000, based
on certain assumptions, had the amended plan been in effect in 2000.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE ANNUAL EXECUTIVE INDIVIDUAL
PERFORMANCE PLAN, AS AMENDED.
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 CHARLESThe 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 adjourn-
ment or postponement of the meeting, and
* you have properly submitted your proxy,
then Charles R. SCHWAB AND DAVIDSchwab and David S. POTTRUCK WILL, WITH YOUR PROXY, VOTE YOUR
SHARES ON THOSE MATTERS ACCORDING TO THEIR BEST JUDGMENT.
[side bar]
OTHER BUSINESSPottruck will vote your shares on those
matters according to their best judgment.
12
15
THE BOARD OF DIRECTORS
NANCY H. BECHTLE
DIRECTOR SINCE 1992
Ms. Bechtle, age 61,63, has been a director and Chief Financial Officer of J.R.
Bechtle & Co., an international consulting firm, since 1979. 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. She was a director and Chief Financial
Officer of J.R. Bechtle & Co., an international consulting firm, from 1979 to
1998. 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 2000.2003.
C. PRESTON BUTCHER
DIRECTOR SINCE 1988
Mr. Butcher, age 60, is62, 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 2000.2003.
DONALD G. FISHER
DIRECTOR SINCE 1988
Mr. Fisher, age 70,72, 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 AirTouch Communications, Inc., a wireless telecommunications
services company, and Cornerstone Properties, Inc., a real estate development
company. Mr. Fisher's term expires in the year 2001.nominee for election this year.
ANTHONY M. FRANK
DIRECTOR SINCE 1993
Mr. Frank, age 67,69, 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 investmentCotelligent, Inc., an information technology services 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.
[side bar]
BIOGRAPHIES
- - NANCY H. BECHTLE
- - C. PRESTON BUTCHER
- - DONALD G. FISHER
- - ANTHONY M. FRANK
13
16
THE BOARD OF DIRECTORSFrank is a nominee for election this year.
FRANK C. HERRINGER
DIRECTOR SINCE 1996
Mr. Herringer, age 56,58, is Chairman of the Board Chief Executive Officer and
President of Transamerica Corporation, a life insurance and
financial services company. 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. From the date of the
acquisition until May 2000, Mr. Herringer served on the Executive Board of Aegon
N.V. and as Chairman of the Board of Aegon U.S.A. Mr. Herringer is also a
director of Unocal Corporation, an oil company; Mirapoint, Inc., an Internet
message infrastructure equipment developer; and uMogul, Inc., a financial
services firm focused on the entertainment industry. Mr. Herringer's term
expires in 2002.
JEFFREY S. MAURER
DIRECTOR SINCE May 2000
Mr. Maurer, age 53, has been an Executive Vice President of the Company since
May 2000. He also is Chief Executive Officer of U.S. Trust Corporation and
United States Trust Company of New York (each of which is a subsidiary of the
Company) 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 became Senior Vice President in November 1980,
Executive Vice President in May 1986, President in February 1990, Chief
Operating Officer in December 1994, and Chief Executive Officer in January 1,
2001. Mr. Maurer is also a director of Forbes.com and the Greater New York
Mutual Insurance Companies, a property and casualty insurance company. Mr.
HerringerMaurer is a nominee for election this year.
13
STEPHEN T. MCLIN
DIRECTOR SINCE 1988
Mr. McLin, age 52,54, 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 CapitalTuttle Decision Systems, a technology company
wholly-owned by Microsoft Corporation, which conductsand 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 SINCE 1994
Mr. Pottruck, age 50,52, 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.,U.S. Trust Corporation (a subsidiary of the world's largest healthcare services company;Company); Intel
Corporation, a maker of microcomputer components and related products; McKesson
HBOC, Inc., a healthcare services company; Dovebid, Inc., a provider of online
business-to-business capital asset auctions and Preview Travel,valuation services; and Epoch
Partners, Inc., an online travel services provider. In 1998, heinvestment banking firm owned in part by the Company.
He serves on the Board of Governors of the National Association of Securities
Dealers, Inc., and the Nasdaq Stock Market, and was named toa member of the Federal
Advisory Commission on Electronic Commerce.Commerce from 1998 until 1999. Mr. Pottruck's
term expires in the year 2000.
[side bar]
BIOGRAPHIES
- - FRANK C. HERRINGER
- - STEPHEN T. McLIN
- - DAVID S. POTTRUCK
14
17
THE BOARD OF DIRECTORS
MARK A. PULIDO2003.
ARUN SARIN
DIRECTOR SINCE DECEMBERDecember 1998
Mr. Pulido,Sarin, age 46, is President andwas Chief Executive Officer of McKesson HBOC,Infospace, Inc., whicha provider of
Internet infrastructure services, between April 2000 and January 2001. From July
1999 until April 2000, he was formed from 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 positionsUSA/Asia Pacific Region
of Chairman, President and Chief Executive
Officer of Red Line Healthcare Corporation, an affiliate of Sandoz International
Ltd., the nation's largest provider of medical supplies and reimbursementVodafone Group Plc, a wireless telecommunications 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's term expires in the year 2001.
ARUN SARIN
DIRECTOR SINCE DECEMBER 1998
Mr. Sarin, age 44, iscompany. He served
as President and Chief Operating Officer of AirTouch Communications, Inc. Priorfrom
1997 until July 1999, and 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 AirTouch
Communications; PrimeCo Personal Communications, L.P., a wireless
telecommunications services company;Vodafone
Group Plc; and Cisco Systems, Inc., a computer networking company. Mr. Sarin's term expires in the year 2001.Sarin is
a nominee for election this year.
CHARLES R. SCHWAB
DIRECTOR SINCE 1986
Mr. Schwab, age 61,63, 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 TheU.S. Trust Corporation (a subsidiary of
the Company); Gap, Inc.; Vodafone Group Plc; AudioBase, Inc., Transamerica
Corporation, AirTouch Communications, Inc.a company that
provides music and voice to Internet publishers, advertisers and marketers;
Siebel Systems, Inc., a company that provides support for software systems; and
Xign, Inc., a developer of electronic payment systems andusing digitally signed
electronic check technology. 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. SchwabSchwab's term expires in
2002.
H. MARSHALL SCHWARZ
DIRECTOR SINCE MAY 2000
Mr. Schwarz, age 64, has been an Executive Vice President of the Company since
May 2000. He also is Chairman of the Board of U.S. Trust Corporation and United
States Trust Company of New York (each of which is a nominee for
election this year.
[side bar]
BIOGRAPHIES
- - MARK A. PULIDO
- - ARUN SARIN
- - CHARLES R. SCHWAB
15subsidiary of the Company).
Mr. Schwarz joined United States Trust Company in 1967 after a seven-year
association with Morgan Stanley & Co., Incorporated, an investment banking firm.
In 1972, he was elected 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 stepped down as Chief Executive Officer on December 31, 2000. Mr. Schwarz 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' term expires in 2002.
14
18
THE BOARD OF DIRECTORS
GEORGE P. SHULTZ
DIRECTOR SINCE 1997
Dr. Shultz, age 78,80, 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; andFremont Group, Inc.,
an investment company; Gilead Sciences, Inc., a developer of treatments for viral
diseases.biotechnology company; and
UNext, a distance learning company. He is also Chairman of J.P. Morgan'sMorgan Chase's
International Advisory Council.Council and Chairman of the Advisory Board of
Infrastructure World, an Internet-based intermediary in infrastructure projects.
He was President of Bechtel Group, Inc. from 1974 to 1982. Dr. Shultz'sShultz' term
expires in the year 2000.2003.
ROGER O. WALTHER
DIRECTOR SINCE 1989
Mr. Walther, age 63,65, 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., a provider in the largest providerUnited States of courses in 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 twelvethirteen directors. Four directors are nominees for
election this year. The remaining eightnine 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 between Board members and Dr. Condoleezza Rice, an
understanding exists between the Board and Dr. Rice that she will join the Board
in July 1999. Biographical information on Dr. Rice appears below.
Dr. Rice, age 44, has been Provost of Sanford University since 1993, and a
professor of political science at Stanford since 1981. In 1984, she 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.
[side bar]
NUMBER OF DIRECTORS
AND TERMS
BIOGRAPHY
- - CONDOLEEZZA RICE
1715
20
BOARD AND COMMITTEE MEETINGS
The Board held eight regular meetings and three special meetings in 1998.2000. Each
director except Donald G.
Fisher and Roger O. Walther, attended at least 75% of all Board and applicable committee meetings
during 1998.2000, except Donald G. Fisher who had a 71% attendance record. 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 19982000
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
AUDIT - confers with independent* reviews the integrity of the financial 4
accountants and internalreporting process
Nancy H. Bechtle auditors regarding scope* reviews the adequacy of internal controls
C. Preston Butcher examinations* reviews the audit process, including the
Donald G. Fisher - reviews reportsindependence and performance of independentinternal
Anthony M. Frank accountants and internalexternal auditors
Frank C. Herringer auditors* recommends to the Board the selection of
Stephen T. McLin * - reviews recommendations about
Mark A. Pulido ** internal controlsindependent auditors
Arun Sarin
** - recommends selection of
independent accountants to the
Board
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
COMPENSATION -* determines the compensation of 8
the Co-Chief 9
Executive Officers
Nancy H. Bechtle -* reviews and approves:
C. Preston Butcher -* executive compensation philosophy
Stephen T. McLin -* programs for annual and long-term executive
George P. Shultz long-term executivecompensation
Roger O. Walther * compensation
-* other executive programs
* 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* proposes initiatives to research service
Donald G. Fisher - proposes initiatives toquality
Anthony M. Frank*
research service quality
Frank C. Herringer
Jeffrey S. Maurer
Arun Sarin
Charles R. Schwab
H. Marshall Schwarz
George P. Shultz
Roger O. Walther
* Chairperson
** Elected to the committee in January 1999
[side bar]
THIS TABLE DESCRIBES
THE BOARD'S COMMITTEES.
18
16
21
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998:
- -2000:
* 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 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 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.
[side bar]
DURING 1998, OUR
BOARD COMPENSATION
COMMITTEE CONSISTED
OF ALL NON-EMPLOYEE
MEMBERS, AND WE
DID NOT HAVE ANY
COMPENSATION
COMMITTEE INTERLOCKS.
19Board Compensation Committee or otherwise served on the
Company's Board; and
* 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.
17
22
DIRECTOR COMPENSATION
We do not pay directors who are also officers of the Company additional
compensation for their service as directors.
In 1998,2000, compensation for non-employee directors included the following:
-* an annual retainer of $25,000,
- $1,500$35,000,
* $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. ThisSince January 2000, this plan permitshas allowed non-employee directors to defer
receipt of all or a portion of their directors' fees and, receiveat their election,
either:
-* receive 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,* invest the amount that would have resulted
from investingof the deferred fee amountfees in shares of Company common stock.stock
to be held in a trust and distributed to the director (in shares) when
the director leaves the Board.
Each of the directors has elected to convert fees that were deferred before
January 1, 2000 (except for deferred fees already invested in stock options)
into Company stock to be held in the trust and distributed as described
immediately above.
In 1998,2000, 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, 19982000 at an exercise price of $36.44$43.3750 per
share. As a result of the December 11, 1998May 2000 three-for-two stock split, this stock option
grant was adjusted to 2,2503,750 shares with an exercise price of $24.29.$28.9167.
If the amendment to the 19922001 Stock Incentive Plan being voted on atis approved by stockholders, the annual
meeting is approved,number of
options non-employee directors will become entitled to anreceive in the annual, automatic grant of either:
- options on 2,500 shareswill
be determined by dividing $150,000 by the closing price of Company common stock
ifon 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.")
[side bar]
SINCE THE INITIAL CASH
DIVIDEND IN 1989, THE
COMPANY HAS PAID 39
CONSECUTIVE QUARTERLY
CASH DIVIDENDS AND
HAS INCREASED THE
CASH DIVIDEND 11 TIMES.
SINCE 1989, CASH DIVI-
DENDS HAVE GROWN AT
A 38% COMPOUNDED
ANNUAL RATE.
21grant date.
18
24
PRINCIPAL STOCKHOLDERS
This table shows how much Company common stock is beneficially owned by the
directors, certain executive officers and owners of more than 5% of the
Company's outstanding common stock, as of March 18, 1999.8, 2001.
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
NUMBER OF
SHARES RIGHT TO RESTRICTED PERCENT OF
OWNED ACQUIRE STOCK OUTSTANDING
NAME (#) (1) (#) (2) (#) (3) SHARES
ACQUIRE (2) STOCK (3) OUTSTANDING
OWNED (1) SHARES
NAME
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CharlesCHARLES R. Schwab(4) 74,653,296 1,106,250 -- 18.6SCHWAB(4)
-
SCHWABPLAN RETIREMENT SAVINGS AND - -
INVESTMENT PLAN (5)
DAVID S. POTTRUCK(6) -
NANCY H. BECHTLE - *
C. PRESTON BUTCHER(7) - *
DONALD G. FISHER(8) - *
ANTHONY M. FRANK - *
FRANK C. HERRINGER(9) - *
JEFFREY S. MAURER(10)
STEPHEN T. MCLIN(11) - *
ARUN SARIN - *
H. MARSHALL SCHWARZ(12)
GEORGE P. SHULTZ - *
ROGER O. WALTHER (13) - *
JOHN PHILIP COGHLAN *
STEVEN L. SCHEID *
DAWN G. LEPORE(14) *
LINNET F. DEILY *
LON GORMAN *
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(22 PERSONS) (15)
- -----------------------------------------------------------------------------------------------------
*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.
19
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 7, 2001.
(3) Shares subject to a vesting schedule, forfeiture risk and other restrictions.
(4) Includes __________ shares held by Mr. Schwab's spouse.
Includes ____________ shares held by a limited liability company.
Includes the following shares for which Mr. Schwab disclaims beneficial ownership:
* _____________ shares held by non-profit public benefit corporations.
* _____________ 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:
* __________ 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 8, 2001, The SchwabPlan Retirement Savings and Investment Plan held a total of ____________
shares of which:
* _____________ shares were held by participants under the plan, and
* _____________ unallocated shares were held under the Employee Stock
Ownership Plan ("ESOP") component of the overall 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 _______ 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 --children.
Includes the following shares for which Mr. Pottruck disclaims beneficial ownership:
* C. Preston Butcher(8) 349,784 42,750 --_______ shares held in trusts for which Mr. Pottruck acts as trustee.
* Donald G. Fisher(9) 1,086,187 42,750 --_______ shares held by a non-profit public benefit corporation.
(7) Includes _______ shares held by Mr. Butcher's spouse.
(8) Includes _______ 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:
* 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______ shares held by a non-profit public benefit corporation established by Mr. Fisher.
(9) Includes ______ shares held by Mr. Herringer's spouse.
(10)
(11) Includes ______ shares held by a non-profit public benefit corporation established by Mr. McLin.
(12)
(13) Includes ______ shares held by Mr. Walther's spouse.
(14) Includes ______ shares held by Ms. Lepore's spouse.
(15) In addition to the officers and Executive Officers as 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 94,972 shares held by Mr. Butcher's spouse.
[side bar]
SINCE 1998, THE SHARE
PRICE OF THE COMPANY'S
COMMON STOCK
HAS GROWN AT A
COMPOUNDED ANNUAL
RATE OF 62%. THIS
INCREASE CREATED
$22 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, sixdirectors named in this table, four other executive officers
are members of the group.
[side bar]
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
20
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 YEAR CUMULATIVE TOTAL RETURN *Comparison of Five-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 INDEX
[Graph Appears Here]Index
Graph here
12/93 12/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
THE CHARLES SCHWAB CORPORATION $ 100 $ 109 $ 190 $ 304 $ 600 $1,211
DOW JONES SECURITIES BROKERAGE GROUP INDEX $ 100 $ 88 $ 121 $ 182 $ 332 $ 377
STANDARDThe Charles Schwab Corporation $100 $160 $316 $639 $871 $970
Dow Jones Securities Brokerage Group Index $100 $151 $275 $322 $501 $622
Standard & POOR'SPoor's 500 INDEX $ 100 $ 101 $ 139 $ 171 $ 229 $ 294Index $100 $123 $164 $211 $255 $232
* Information presented is as of the end of each fiscal year ended December 31.
[side bar]
ON A DIVIDEND REIN-
VESTED BASIS, THE
VALUE OF OUR COMMON
STOCK INCREASED
102% IN 1998,
COMPARED WITH AN
INCREASE OF 14%
FOR THE DOW JONES
SECURITIES BROKERAGE
GROUP INDEX AND AN
INCREASE OF 29%
FOR THE STANDARD &
POOR'S 500 INDEX.
2521
28
SUMMARY COMPENSATION TABLE
This table shows, for the last three fiscal years, compensation information for
the Company's Co-Chief Executive Officers and the next fourfive most highly
compensated executive officers. We refer to each of these officers as a "named
executive officer."
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
NAME ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
OTHER RESTRICTED
NAME AND PRINCIPAL POSITION ANNUAL STOCK SECURITIE ALL OTHER
YEAR SALARY BONUS ($)(1) OTHER RESTRICTED SECURITIES ALL OTHER
($) ANNUAL STOCK UNDERLYING COMPENSATION
COMPEN- AWARDS ($) OPTIONS (#)UNDERLYING COMPENSATION
($) (6)
SATION (4)(5) (5)(1) ($) (2) (3) (4)(5) OPTIONS (#)(5) ($)(6)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 2000 $800,004 $8,101,000 - 0 300,000
CHAIRMAN AND CO-CHIEF EXECUTIVE 1999 $800,004 $8,200,225 - 0 0 $14,759
OFFICER
1998 $800,004 $6,145,225 - 0 1,050,0002,100,000 $19,472
CHAIRMANDAVID S. POTTRUCK 2000 $800,004 $8,101,000 - 0 300,000
PRESIDENT AND CO-CHIEF EXECUTIVE 19971999 $800,004 $6,362,225$8,200,225 - 0 0 $16,601$14,759
OFFICER
1996 $800,004 $9,387,225 - 0 0 $18,280
DAVID S. POTTRUCK
1998 $800,004 $6,145,225 - 0 2,850,0005,700,000 $19,472
JOHN PHILIP COGHLAN 2000 $481,666 $1,678,464 - 0 220,001
VICE CHAIRMAN AND EXECUTIVE VICE 1999 $439,167 $1,786,777 $1,433,320 0 90,000 $14,759
PRESIDENT
1998 $379,167 $775,225 $609,308 $1,569,996 225,002 $19,472
STEVEN L. SCHEID 2000 $501,282 $1,656,922 - 0 220,001
VICE CHAIRMAN AND EXECUTIVE VICE 1999 $439,167 $1,786,777 - 0 90,000 $14,759
PRESIDENT
1998 $379,167 $775,225 $620 $1,569,996 225,002 $19,472
DAWN G. LEPORE 2000 $521,667 $1,620,408 - 0 220,001
VICE CHAIRMAN, EXECUTIVE VICE 1999 $475,000 $1,830,537 $1,433,320 0 90,000 $14,759
PRESIDENT AND CO-CHIEF EXECUTIVE 1997 $695,004 $4,319,225 - 0 0 $16,601CHIEF
INFORMATION OFFICER 1996 $695,004 $6,436,225 - 0 0 $18,280
JOHN COGHLAN 1998 $387,000 $ 790,225 $609,308 $1,406,559 97,501$385,833 $650,225 $609,386 $1,569,996 225,002 $19,472
EXECUTIVE VICE PRESIDENT 1997 $381,667 $ 714,120 $119,834 0 33,751 $16,601
1996 $362,500 $ 534,541 - 0 0 $18,280
LINNET F. DEILY (7)2000 $510,833 $1,623,138 - 0 220,001
VICE CHAIRMAN AND EXECUTIVE VICE 1999 $452,500 $1,802,943 - 0 90,000 $14,759
PRESIDENT
1998 $369,167 $ 800,225 $ 59,957$800,225 $59,957 $1,373,747 97,501195,002 $19,472
LON GORMAN 2000 $474,782 $1,659,189 - 0 220,001
VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT 1997 $313,334 $ 479,637 $243,155 $ 117,374 53,250 $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 $ 938,0841999 $399,933 $1,763,537 - 0 0 $18,280
STEVEN L. SCHEID(8)90,000 $14,759
PRESIDENT
1998 $379,167 $ 775,225 $ 620$340,000 $810,225 $629 $1,569,996 112,501225,002 $19,472
EXECUTIVE VICE PRESIDENT AND 1997 $345,833 $ 749,945 132,597 0 67,500 $16,601
CHIEF FINANCIAL OFFICER 1996 $189,583 $ 504,499 - 0 157,500 $ 6,644
22
(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 that are not properly
categorized as salary or bonus, to the named executive officers.bonus. The following chart explains payments
which started in 1997,to the named executive officers listed below arising out of certain
restricted stock grants.
CASH PAYMENT BASED ON PAR VALUE PAYMENT ON RESTRICTED TOTAL
NAME YEAR SCHWAB PERFORMANCE* RESTRICTED STOCK**
TOTAL
1998 1997 1998 1997 1998 1997----------------------------------------------------------------------------------------------------------------
MR. SCHWABCOGHLAN 2000 0 0 0
1999 $1,433,320 0 $1,433,320
1998 $608,766 $542 $609,308
MR. SCHEID 2000 0 0 0
MR. POTTRUCK1999 0 0 0
1998 0 $620 $620
MS. LEPORE 2000 0 0 0
MR. COGHLAN1999 $1,433,320 0 $1,433,320
1998 $608,766 $119,602 $542 $232 $609,308 $119,834$620 $609,386
MS. DEILY 2000 0 0 $542 $201 $ 542 $ 201
MR. VALENCIA $405,844 $ 79,734 $620 $155 $406,464 $ 79,889
MR. SCHEID0
1999 0 0 $620 0
$ 620 0
* Some executive officers received cash payments based on the return on
Company1998 0 $542 $542
MR. GORMAN 2000 0 0 0
1999 0 0 0
1998 0 $629 $629
* Some executive officers received cash payments based on the Company's
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.
23
RELOCATION TAX GROSS-UP OTHER TOTAL
EXPENSES PAYMENTS 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 -- $ 8,962 -- $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 1997.1998.
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.California. 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 on
December 31, 2000 by named executive officers on December 31, 1998.(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 ($56.1875):
NUMBER OF YEAR-END VALUE
SHARES
MR. SCHWAB 0 0
MR. POTTRUCK 0 0
MR. COGHLAN 69,375 $3,898,008
MS. DEILY 79,500 $4,466,906
MR. VALENCIA 71,250 $4,003,359
MR. SCHEID 60,000 $3,371,250
28.375).
NUMBER OF YEAR-END
NAME SHARES VALUE
----------------------------------------------
MR. COGHLAN 150,866 $4,280,823
MR. SCHEID 180,000 $5,107,500
MS. LEPORE 180,000 $5,107,500
MS. DEILY 167,625 $4,756,359
MR. GORMAN 217,125 $6,160,922
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%* 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.
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, 1998May 2000 three-for-two 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.
[side bar]
AT YEAR-END 1998,
CUSTOMER ASSETS
INVESTED IN
SCHWABFUNDS*,
MUTUAL FUND
ONESOURCE* AND
OTHER MUTUAL FUND
MARKETPLACE* FUNDS
TOTALED $210.6
BILLION, UP 31% OVER
YEAR-END 1997.
2824
31
OPTION GRANTS
This table shows stock option grants to the named executive officers during the
last fiscal year.
OPTIONS GRANTED IN 1998
OPTIONS GRANTED IN 2000
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
TERM (3)(2)
NAME NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION DATE
GRANTED (#) FISCAL YEAR ($/SH) (2) DATE 5% ($) 10% ($)
(1)
- --------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 1,050,000 10.43% $23.1250 5/11/2008 $15,448,509 $38,981,751300,000 1.14% $26.375 2/23/2010 $4,650,350 $12,091,738
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 01.14% $26.375 2/23/2010 $4,650,350 $12,091,738
JOHN PHILIP COGHLAN 97,501 0.97% $26.7917 7/24/2008 $ 1,573,330 $ 4,052,565120,001 0.46% $26.375 2/23/2010 $1,860,155 $4,836,736
100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271
STEVEN L. SCHEID 120,001 0.46% $26.375 2/23/2010 $1,860,155 $4,836,736
100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271
DAWN G. LEPORE 120,001 0.46% $26.375 2/23/2010 $1,860,155 $4,836,736
100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271
LINNET F. DEILY 97,501 0.97% $26.1667120,001 0.46% $26.375 2/23/2008 $ 1,581,323 $ 4,029,197
LUIS E. VALENCIA 97,501 0.97% $26.16672010 $1,860,155 $4,836,736
100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271
LON GORMAN 120,001 0.46% $26.375 2/23/2008 $ 1,581,323 $ 4,029,197
STEVEN L. SCHEID 112,501 1.12% $26.1667 2/23/2008 $ 1,824,601 $ 4,649,0672010 $1,860,155 $4,836,736
100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271
(1) Option grantsThese options were granted in 1998 were madeFebruary and December 2000 under the 1992
Stock Incentive Plan. The February grants have been adjusted for the December 11, 1998May
2000 three-for-two stock split of Company common stock. Except as noted in footnote 4, theseThese options:
- are* were generally granted as 50% non-qualified stock options and 50%
incentive stock options (except as limited by tax law)law and except
that the options granted in December were all non-qualified
stock options),
- are* were granted at an exercise price equal to 100% of the fair market
value of the common stock on the date of grant, -and
* expire ten years from the date of grant, unless otherwise earlier
terminated because of certain events related to termination of
employment, and
-employment.
The options granted in February generally vest in 25% increments on each anniversaryof
the first four anniversaries of the date of grant, and the grant,
subject tooptions granted
in December vest in 50% increments on the termsthird anniversary and conditionsfourth
anniversary of the plan.date of grant.
(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.
25
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,price, 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 $23.1250 on the May 11,
1998 grant date. One-sixth of Mr. Pottruck's premium price options vest
each year beginning in the year 2000.
[side bar]
OUR BOARD
COMPENSATION
COMMITTEE BELIEVES THAT
AN EMPHASIS ON
LARGE, BUT INFREQUENT,
AWARDS PROVIDES
A MORE POWERFUL
INCENTIVE TO
EXECUTIVE OFFICERS.
30
33
OPTIONS EXERCISED
This table shows stock option exercises and the value of unexercised stock
options held by the named executive officers during the last fiscal year.
AGGREGATED OPTION EXERCISES IN 19982000
AND FISCAL YEAR-END OPTION VALUES(1)
SHARES ACQUIRED VALUE NO.NUMBER OF SECURITIES VALUE OF UNEXERCISED
ON EXERCISE (#) REALIZED UNDERLYING UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
($)(2) AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(3)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 1,500,000 $31,971,546 1,621,875 1,331,250 $ 81,177,316 $48,272,137750,000 $19,122,628 3,600,000 1,875,000 $84,121,876 $34,087,501
DAVID S. POTTRUCK 0 0 3,405,540 3,053,461 $179,747,114 $61,018,9432,239,500 $63,404,959 6,585,981 6,375,000 $156,323,283 $84,025,000
JOHN PHILIP COGHLAN 95,625 $ 2,580,066 1,174,668 171,585 $ 62,326,615 $ 6,115,3241,188,216 $34,411,973 898,738 492,812 $21,905,730 $4,363,008
STEVEN L. SCHEID 310,368 $8,973,712 411,508 540,628 $8,461,076 $5,417,461
DAWN G. LEPORE 632,337 $20,159,180 695,844 549,065 $15,545,069 $5,607,609
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 $ 7,071,101
STEVEN L. SCHEID 0 0 95,625 241,876 $ 4,293,932 $ 9,031,037207,500 $5,620,216 141,816 507,437 $2,564,070 $4,679,461
LON GORMAN 209,560 $6,149,763 221,691 506,879 $4,202,979 $4,649,438
(1) Adjusted for the December 11, 1998May 2000 three-for-two stock split of Company Commoncommon 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 options exercised.shares
acquired upon exercise.
The amounts in this column may not represent amounts actually realized by
the named executive officers.
(3) This number isThese numbers are calculated by:
-* subtracting the option exercise price from the Company's December 31, 19982000
average market price ($56.906328.875) 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
-* then multiplying the average value per option by the number of exercisable
andor unexercisable options.options, as applicable.
The amounts in this column may not represent amounts that will actually be
realized by the named executive officers.
[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.
3226
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
fourfive most highly compensated executive officers.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 1998,2000, 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 (who resigned as a director effective in January 2001)
and George P. Shultz. No member of our committee during 19982000 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.
- Second,incentives, and
* 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.
[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 comparable
companies in years in which the Company fails to achieve superior
performance.
27
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, 1999,8, 2001, the directors and executive officers of the
Company owned an aggregate of 80,319,990______ shares (including restricted shares) and
had the right to acquire an additional 7,286,687_____ shares upon the exercise (on or
before May 17, 1999)7, 2001) of employee stock options.
[side bar]
THE IMPORTANCE OF
OWNERSHIP
34
37
COMPENSATION COMMITTEE REPORTAs of March 8, 2001, The SchwabPlan Retirement Savings and Investment Plan held
29,564,853______ shares which werethat had been allocated to participants' accounts on March 18, 1999.accounts. The Company
intends to continue its strategy of encouraging its employees to become
stockholders.
The performance graph on page 25____ 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,
19931995 through December 31, 1998,2000, the cumulative total return of the Company'sfor Company stock
was 1,111%870%. By comparison, in the same period the Dow Jones Securities Brokerage
Group Index grew 277%522% and the Standard & Poor's 500 Index grew 194%132%. 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 operating profit margin and net revenue growth, the bonus plan
is paid out at a percentage of each participant's bonus target. (The pre-tax
operating profit margin represents an adjusted operating income measure which in
2000 excludes merger and acquisition related charges.) 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 19982000 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 2000 under this bonus plan cancould be
up to 50%100% of base salary. These remaining executive officers also participate
in the Annual Executive Individual Performance Plan (discussed later in this
report).
28
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 operating
profit margin and net revenue growth. In general, a given percentage change in
pre-tax operating 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 1998,2000, the Company achieved a pre-tax operating profit margin of 21%24% and
net revenue growth of 19%29%. Based on this performance, executive officers
received bonuses exceeding their target bonus amounts in 1998.
Annual Executive Individual Performance Plan2000.
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 committeeCommittee has adopted a policy of granting
infrequentannual stock options and large stock option
andoccasional restricted stock awards to executive
officers, supplemented with smaller
annual grants. Our committee believesbecause of our belief that an emphasis on large, but infrequent,annual awards provides a more
powerful incentive to executive officers to achieve
sustained growth over the long term.obtain superior performance results.
Our committee intends that stock-based incentives will be the sole long-term
incentives payable to executive officers.
During 1998,2000, our committee granted stock options to each of the Company's
executive officers. In addition, our committee granted restricted shares to each
executive officer (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. 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 operating 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.
29
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 operating profit margin of 21%24% and net revenue
growth of 19%29% in 1998,2000 [, which resulted in pre-tax profit of $577 million, the$1.388 billion.]
The amount of Mr. Schwab'sthe annual bonus for 1998, calculated according to the
matrix, was $6,145,000.
During 1998, our committee approved a grant2000 paid 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.
Davidunder his employment
agreement was $8,100,000.
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 operating profit margin
and net revenue growth. (See "Corporate Executive Bonus Plan" earlier in this
report.) For 1998,2000, 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,
[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* MR. POTTRUCK PROVIDES STRATEGIC AND DAY-TO-DAY LEADERSHIP THAT HAS CONTRI-
BUTED AND CONTINUES TO CONTRIBUTE SIGNIFICANTLY TO THE COMPANY'S GROWTH AND
SUPERIOR PERFORMANCE,
* MR. POTTRUCK GUIDES THE COMPANY IN THE DELIVERY OF HIGHLY COMPETITIVE PRO-
DUCTS 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 SUBSTANTIALLY
OUTPERFORM BOTH THE DOW JONES SECURITIES BROKERAGE GROUP INDEX AND THE
STANDARD & Poor'sPOOR'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 REPORTINDEX.
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),.
Accordingly, the Company's Corporate Executive Bonus Plan, 1992 Stock Incentive
Plan, and Mr. Schwab's employment agreement have been approved by stockholders.
(See "Employment Agreement and Name Assignment" in Appendix A.) In addition,
stockholders are being asked to approve the Annual Executive Individual
Performance Plan, as amended, at this year's annual meeting of stockholders.
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. 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.)
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
George P. Shultz
[side bar]
TAX LAW LIMITS ON
EXECUTIVE COMPENSATION
4030
43AUDIT COMMITTEE REPORT
The Audit Committee of the Company's Board of Directors consists of seven
directors who are not employees of the Company or any of its subsidiaries. The
Board believes that all of the members of our committee are "independent
directors" as defined under applicable listing standards.
The Board of Directors has adopted a written Audit Committee Charter. A copy of
the Charter is attached as Appendix E.
Our committee has met and held discussions with management and the independent
auditors. As part of this process, we have:
* reviewed and discussed the audited financial statements with management,
* discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees), and
* received the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and discussed with the
independent auditors the independent auditors' independence.
Based on the review and discussions referred to above, our committee recommended
to the Board of Directors that the audited financial statements be included in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2000, for filing with the SEC.
AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
Stephen T. McLin, Chairman
Nancy H. Bechtle
C. Preston Butcher
Donald G. Fisher
Anthony M. Frank
Frank C. Herringer
Arun Sarin
31
AUDITOR INDEPENDENCE
SELECTION
Our Board has selected Deloitte & Touche LLP as the Company's independent
auditors for the current fiscal year. They have served as auditors for Charles
Schwab & Co., Inc. or the Company since 1976. We expect representatives of
Deloitte & Touche to attend the meeting in order to respond to questions from
stockholders, and they will have the opportunity to make a statement.
AUDIT FEES
The aggregate fees for professional services rendered by Deloitte & Touche in
connection with their audit of our consolidated financial statements and reviews
of the consolidated financial statements included in our quarterly reports on
Form 10-Q for the fiscal year ended December 31, 2000 were $3.7 million.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The aggregate fees for information technology services rendered by Deloitte &
Touche relating to financial information systems design and implementation for
the fiscal year ended December 31, 2000 were $0.7 million.
ALL OTHER FEES
The aggregate fees for all other services rendered by Deloitte & Touche for the
fiscal year ended December 31, 2000 were $6.0 million and can be sub-categorized
as follows:
ATTESTATION FEES
The aggregate fees for attestation services for matters such as SEC regis-
tration statements, comfort letters, Statement on Auditing Standards No.70
reports, employee benefit plan audits, and agreed-upon procedures were
$1.0 million.
OTHER FEES
The aggregate fees for all other services, including due diligence related
to acquisitions, business and operational process improvement, tax
consulting and regulatory matters, were $5.0 million.
REVIEW OF AUDITOR INDEPENDENCE
The Board Audit Committee has considered whether the provision of non-audit
services by Deloitte & Touche, as described above in "Financial Information
Systems Design and Implementation Fees" and "All Other Fees," is compatible with
maintaining Deloitte & Touche's independence as the Company's principal auditor.
32
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.
In addition, the executive officers listed below have outstanding loans made by
the Company, as specified below. The Company made these loans to encourage the
executives to continue holding shares of Company restricted stock after vesting
by providing funds to satisfy the income tax liability resulting from the
vesting of the shares. These loans do not bear interest. However, under Internal
Revenue Code regulations, the executives will be taxed on imputed income in
amounts based on required IRS interest rates. These loans were made in the
fiscal year which began January 1, 2001.
LARGEST AMOUNT AMOUNT
OUTSTANDING OUTSTANDING AS OF
NAME AND TITLE AT ANY TIME 3/12/01
-------------- -------------- -----------------
Linnet F. Deily $638,499 $638,499
Vice Chairman and Executive Vice President
Lon Gorman $813,564 $813,564
Vice Chairman and Executive Vice President
Daniel O. Leemon $566,713 $566,713
Executive Vice President and Chief Strategy Officer
Dawn G. Lepore $647,672 $647,672
Vice Chairman, Executive Vice President and
Chief Information Officer
Steven L. Scheid $647,672 $647,672
Vice Chairman and Executive Vice President
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that during 1998,2000 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's initial beneficial ownership reports.that Karen Chang's January 2000
transaction was reported late. The Company filedtransaction involved only the initial
report on Mr. Pulido's behalf following his election toexercise of
stock options. Ms. Chang did not sell 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
were filed on time, they inadvertently omitted shares of Company common stock held indirectly by Mr. Pulido and Mr. Sasson.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Our Board has selected Deloitte & Touche LLP asacquired in the
Company's independent public
accountants for the current fiscal year. They have served as accountants for
Charles Schwab & Co., Inc. or the Company since 1976. We expect representatives
of Deloitte & Touche LLP to attend the meetingexercise. The report, which was due 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 INFORMATIONFebruary 2000, was filed in March 2000.
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 26, 2001. 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
For next year's annual meeting of stockholders, the persons appointed by proxy
to vote stockholders' shares will vote those shares according to their best
judgment on any stockholder proposal the Company receives after February 8,
2002.
33
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 25____ of this proxy statement, and the "Board Compensation"Compensation Committee Report
on Executive Compensation" on page 33 specifically____, the "Audit Committee Report" on page
____ the "Audit Committee Charter" (Appendix E) on pages ___ and ___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.
[side bar]
STOCKHOLDER PROPOSALS
COSTS OF PROXY
SOLICITATION
INCORPORATION BY
REFERENCE
4234
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/ CarrieCARRIE E. DwyerDWYER
- ------------------------
CARRIE E. DWYER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
CORPORATE SECRETARY
MARCH 31, 1999
SAN FRANCISCO, CALIFORNIA
[side bar]
ADMISSION IS BY TICKET
ONLY ON A FIRST-COME,
FIRST-SERVED BASIS.
4326, 2001
San Francisco, California
35
46
APPENDIX A - -DESCRIPTION OF EMPLOYMENT AND SEVERANCELICENSE AGREEMENTS
This Appendix A includescontains descriptions of:
- -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.Corporation.
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 operating 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":
[side bar]
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 disability
plan, 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.
36
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.)
[side bar]
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 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 [side bar]
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'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.
[side bar]
CERTAIN SEVERANCE
ARRANGEMENTS
4737
50
APPENDIX B - - DESCRIPTION OF THE 19922001 STOCK INCENTIVE PLAN
GENERAL DESCRIPTION OF THE 19922001 STOCK INCENTIVE PLAN
Purpose
The purpose of the 1992 Stock Incentive Plan is to promote the long-term success
of the Company 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, and
- - linking the interests of non-employee directors and key employees directly
to stockholder interests.
Eligibility to Receive AwardsELIGIBILITY TO RECEIVE AWARDS
Key employees of the Company and its subsidiaries, including directors who are
also employees, are eligible for awards under the plan. Non-employee directors
are eligible for an annual automatic grant of non-qualified stock options.
As of December 31, 1998,2000, approximately 3,1323,000 persons had received awards under
the plan.
Limits on Awards1992 Stock Incentive Plan, which is to be replaced by the 2001 Stock
Incentive Plan. We expect a comparable number of participants under the 2001
Stock Incentive Plan.
LIMITS ON AWARDS
The following are the limits on the number of shares that may be granted to any
one participant in any one year:
- 3,375,000* [3,375,000] shares under options,
- 1,350,000* [1,350,000] restricted shares, and
- 1,350,000* [1,350,000] performance share awards.
These annual limits are adjusted automatically for any stock split, declaration
of a stock dividend or other similar event.
Types of AwardsTYPES OF AWARDS
Awards under the 19922001 Stock Incentive Plan may take the form of restricted
shares, performance share awards and options to acquire the Company's common
stock.
- -stock, as described below.
* Restricted shares are similar to common stock in 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 equal to the fair market value of the Company's stock on the date of
grant. Options include non-qualified stock options and incentive stock
options. Incentive stock options 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,
except that non-employee directors will only be eligible to receive
non-qualified stock options.
[side bar]
GENERAL DESCRIPTION
OF THE 1992 STOCK
INCENTIVE PLAN
48
51
APPENDIX B--DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN
No payment is required on the grant of any award, except for(in the case of
restricted shares and performance shares) payment of the $.01 per share par
value of the stock awarded. Upon exercise of an option, the option holder must
pay the option exercise price to the Company. On March 18, 1999,8, 2001, the closing
price of the Company's common stock was $89.69$ per share.
As of December 31, 1998, aA total of 13,577,38570 million shares couldmay be issued under the plan as restricted shares, or under options and
performance share awards and options.as restricted shares. This number adjusts
automatically for any stock split, declaration of a stock dividend or other
similar event.
As of January 31, 2001, the number of remaining shares under the 1992 Stock
Incentive Plan was 13,061,529, and the number of remaining shares under all
other Company stock incentive plans was 9,156,781. The Company will continue to
make grants under the 1992 Stock Incentive Plan until all the remaining shares
have been used or until the plan expires in 2002, whichever is sooner.
Under the terms of the plan,2001 Stock Incentive Plan, if:
- -* the recipient forfeits any restricted shares, performance share awards 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 TerminationADMINISTRATION, AMENDMENT AND TERMINATION
The 19922001 Stock Incentive Plan is administered by the Board Compensation
Committee. The committee, on advice of the Company's executive management,
- -38
* selects the key employees who will receive awards,
- -* determines the amount, vesting requirements, performance criteria, if any,
and other conditions of each award,
- -* interprets the provisions of the plan, and
- -* makes all other decisions regarding the operation of the plan.
The grant of non-qualified stock options to non-employee directors is made
annually, and the committee has no discretion with respect to those awards.
Grants of Options to Non-Employee DirectorsGRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS
Under the 19922001 Stock Incentive Plan, each new director receives a grant of
options to purchase a total of 10,000 shares of Company common stock. Also, each
non-employee director receives an annual, automatic grant of options. The number
of options to purchase 1,500 sharesin the grant is determined by dividing $150,000 by the closing price
of Company common stock (2,500 shares ifon the option exercise price is less than $35).grant date. This grant is made on May 15 of each
year, but if May 15 is not a business day, then the grant is made on the next
business day.
If the stockholders approve the proposed amendment to 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 (3,500 if the option exercise price is less than $35).
[side bar]
GENERAL DESCRIPTION
OF THE 1992 STOCK
INCENTIVE PLAN
49
52
APPENDIX B -- DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN
In addition, a non-employee director who elects to defer directors' fees under
the Directors' Deferred Compensation Plan can, elect to receive, instead of receiving fees, elect
either to:
* receive a grant of options:
- - withstock options which:
* have a fair market value (determinedon the grant date equal to the amount of the deferred
fees (as determined under an appropriate options valuation method) equal to the deferred fees, and
- - with,
* have an option exercise price equal to the fair market value of
Company common stock on the date the deferred feesfee amount would have been
paid.
Restricted Sharespaid, and
Performance Share Awards* vest immediately upon grant and generally expire ten years after the
grant date,
- or -
* invest the amount of the deferred fees 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.
RESTRICTED SHARES AND PERFORMANCE SHARE AWARDS
Recipients 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 all or a portion of restricted shares and performance
share awards is accelerated if the recipient dies, becomes disabled, or retires,
and may be accelerated if a "change in control" occurs. (We explain that term
later in this Appendix B under "Change in Control.")
When granting an award, the Board Compensation Committee determines the number
of performance share awards or restricted shares 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 more of the
following business criteria:
- - pretax* pre-tax income,
- -* operating income,
- -* cash flow,
- -* stockholder return,
- -* revenue,
- -39
* revenue growth,
- -* return on net assets,
- -* net income, - -net new assets,
* earnings per share,
- -* return on equity, or
- -* return on investment.
[side bar]
GENERAL DESCRIPTION40
TERMS OF THE 1992 STOCK INCENTIVE PLAN
50
53
APPENDIX B -- DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN
Terms of Stock OptionsOPTIONS
The exercise price of any stock option granted under the plan must be equal to
or greater than the fair market value of the Company's common stock on the date
of grant. The 19922001 Stock Incentive Plan defines "fair market value" as the
closing price of the Company's stock as reported by the New York Stock Exchange
Compositecomposite 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 Controlmember.
CHANGE IN CONTROL
Under the 19922001 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, - -or
* any person becomes the beneficial owner, directly or indirectly, of ata least
20% of the combined voting power of the Company's outstanding securities,
except fromas a result of a repurchase by the Company of its own securities, or
- -* the composition of the Board of Directors changes, and as a result fewer
than two-thirds of the incumbent directors:
-* had been directors of the Company 24 months earlier, or
-* had been elected or nominated with the approval of at least a majority
of the directors who had been directors of the Company 24 months earlier
and who were still directors at the time of the incumbent directors'
election or nomination.
FEDERAL TAX CONSEQUENCES
The following is a summary of the federal income tax consequences of awards
under the 19922001 Stock Incentive Plan.
OptionsOPTIONS
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
51
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 tax 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.
41
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 SharesRESTRICTED 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 AwardsPERFORMANCE SHARE AWARDS
The grant of performance share awards will have no federal income tax
consequencesconsequence 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:
- -o the fair market value of the shares on that date, minus
- -o 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 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.
To date, no performance share awards have been granted42
APPENDIX C DESCRIPTION OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN
GENERAL DESCRIPTION OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN
PLAN PARTICIPANTS
The participants in the Annual Executive Individual Performance Plan, as
amended, include the Vice Chairmen, Executive Vice Presidents and, from time to
time, certain other officers having comparable positions. Currently, 9
executives participate in the Individual Performance Plan.
DETERMINATION OF BONUS AMOUNTS
The Individual Performance Plan specifies a maximum bonus for each participant,
which is 160% of the amount of the executive's bonus computed under the
1992 Stock
IncentiveCorporate Executive Bonus Plan. Options and Restricted Shares Granted UnderParticipants in the 1992 Stock IncentiveIndividual Performance Plan
Asmay receive some, all, or none of December 31, 1998, currenttheir maximum bonus under the plan, depending
upon an assessment of their achievement of individual performance goals, which
is made by the Compensation Committee. The following paragraph describes how an
executive's bonus is computed under the Corporate Executive Bonus Plan.
To determine the bonus payable to an executive officers have received options and
restricted shares representingunder the Corporate Executive
Bonus Plan, the Compensation Committee first determines a total of 17,080,367 sharestarget bonus for each
executive, which is expressed as a percentage of the executive's annual base
salary, and depends upon an assessment of the executive's roles and
responsibilities. The Committee sets target bonuses in the first quarter of each
year, based upon the recommendations of the Chairman and Co-Chief Executive
Officer and, where appropriate, the President and Co-Chief Executive Officer.
For the executives who participate in the Individual Performance Plan, the
target bonus percentages under the Corporate Executive Bonus Plan can be up to
100% of the executive's annual base salary. The amount of the target bonus is
then multiplied by a payout percentage, which is derived from a matrix fixed by
the Compensation Committee in advance, and which can range from 0% to 400% for
the executives who participate in the Individual Performance Plan. The matrix
establishes the relationship between the payout percentage and the Company's
performance for the year relative to its targets of net revenue growth and
pre-tax operating profit margin. In any event, the amount of base salary
included in the computation of the target bonus amount for each participant in
any year 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.
The amount so derived from multiplying the executive's target bonus by the
payout percentage determined pursuant to the matrix is the amount of the bonus
payable under the Corporate Executive Bonus Plan. This latter amount is then
multiplied by 160% to determine the maximum bonus payable to the executive under
the Individual Performance Plan.
BONUS PAYMENTS
Payments are generally made in cash, except that the Compensation Committee may
decide to make all or a portion of the payments in Company common stock as follows:or other
equity-based awards (including stock options or restricted stock) with
equivalent value. However, not more than 0.5% of the Company's outstanding
shares may be issued in any year under the Individual Performance Plan (combined
with any such shares issued under the Corporate Executive Bonus Plan).
Amounts payable under the Individual Performance Plan are generally paid within
a reasonable time after the end of the year in which they are earned. However, a
recipient may elect to defer receipt of all or any portion of the amounts
payable under the plan until a specified date, or until termination of
employment, but deferrals will be paid immediately if the Company undergoes a
change in control. Deferrals may be credited with growth rates, determined by
the total 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 administers the Individual Performance Plan and makes
all decisions regarding the operation of the plan and payments under it. The
Compensation Committee may amend or terminate the plan at any time and for any
reason.
43
APPENDIX D NEW PLAN BENEFITS TABLE
ANNUAL EXECUTIVE INDIVIDUAL
2001 STOCK INCENTIVE PLAN(1) PERFORMANCE PLAN (2)
NUMBER OF SHARES NUMBER OF RESTRICTED DOLLAR VALUE ($)
NAME UNDERLYING OPTIONS(#) AND OTHER SHARES(#)
- -----------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 4,453,125SCHWAB(3) 300,000 0 N/A
CHAIRMAN AND CO-CHIEF EXECUTIVE OFFICER
DAVID S. POTTRUCK 6,459,001POTTRUCK(3) 300,000 0 N/A
PRESIDENT AND CO-CHIEF EXECUTIVE OFFICER
JOHN PHILIP COGHLAN 1,432,503220,001 0 $ 826,478
VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT
STEVEN L. SCHEID 220,001 0 $ 843,553
VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT
DAWN G. LEPORE 220,001 0 $ 821,645
VICE CHAIRMAN, EXECUTIVE VICE PRESIDENT AND CHIEF
INFORMATION OFFICER
LINNET F. DEILY 345,001
LUIS E. VALENCIA 933,753
STEVEN L. SCHEID 397,501
OTHER SIX220,001 0 $ 876,683
VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT
LON GORMAN 220,001 0 $ 820,345
VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT
ALL CURRENT EXECUTIVE OFFICERS, AS A GROUP 3,059,4831,034,948 60,000 $6,523,864
(13 PERSONS -- 2001 STOCK INCENTIVE PLAN;
9 PERSONS -- 2001 ANNUAL EXECUTIVE INDIVIDUAL
PERFORMANCE PLAN)(3)
ALL CURRENT DIRECTORS WHO ARE NOT EXECUTIVE OFFICERS, AS 53,283 194 N/A
A GROUP (9 PERSONS) (4)
ALL CURRENT EMPLOYEES, OTHER THAN EXECUTIVE OFFICERS, AS 15,076,861 1,193,500 N/A
A GROUP
(1) This column assumes that had the 2001 Stock Incentive Plan been in effect in 2000 the same number of options and restricted
and other shares would have been granted in 2000 under that plan as were granted in 2000 under the 1992 Stock Incentive Plan.
(2) This column identifies the amounts that would have been payable under the Annual Executive Individual Performance Plan, as
amended, for 2000, had the amended plan been in effect in 2000, based on:
* 2000 base salaries and target bonuses,
* the Company's 2000 net revenue growth of 29% and pre-tax operating profit margin of 24%, and
* an assumption that each executive officer receives his or her full target bonus under the amended plan
(3) Mr. Schwab and Mr. Pottruck do not participate in the Annual Executive Individual Performance Plan.
(4) Only executive officers are eligible to participate in the Annual Executive Individual Performance Plan.
Of shares granted under options44
APPENDIX E AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee of the Board of Directors assists the Board in fulfilling
its oversight responsibilities by reviewing (1) the integrity of the Company's
financial reporting process; (2) the adequacy of the Company's internal
controls; (3) the audit process, including the independence and performance of
the Company's internal and external auditors; and (4) such other matters as
directed by the Board or this Charter.
COMPOSITION AND MEMBERSHIP
The Board appoints the members of the Audit Committee. The Audit Committee shall
consist of at least three independent directors, all of whom shall be
financially literate. At least one member of the Audit Committee shall have
accounting or related financial management experience. The term of each member
shall be two years, with alternating dates of expiration so as restricted shares:
- - 309,125 sharesto provide
continuity to the Audit Committee.
AUTHORITY
The Audit Committee shall have been grantedthe authority to non-employee directors,retain special legal, accounting
or other consultants to advise the Committee. The Audit Committee may request
any officer or employee of the Company or the Company's outside counsel or
independent auditor to attend a meeting of the Committee or to meet with any
members of, or consultants to the Committee.
MEETINGS
There shall be four regular meetings each year and - - 40,174,485 sharesadditional meetings may be
held as circumstances warrant.
RESPONSIBILITIES
The responsibilities of the Audit Committee include, but are not limited, to the
following:
1. Review and reassess the adequacy of this Charter annually and recommend any
proposed changes to the Board for approval.
2. Recommend to the Board the appointment of the independent auditors, which
firm is ultimately accountable to the Audit Committee and the Board.
3. Review the performance of the independent auditors and, if so determined by
the Audit Committee, recommend that the Board replace the independent
auditor.
4. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing principles and
practices as well as the adequacy of the internal controls that could
significantly affect the Company's financial statements.
5. Review any analyses prepared by management and/or the independent
auditors of significant financial reporting issues and judgments made in
connection with preparation of the Company's financial statements.
6. Review with the independent auditors any problems or difficulties the
auditors may have been grantedencountered and any management letter provided by the
auditors and the Company's response to employeesthat letter. Such review should
include any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to required
information.
7. Receive written periodic reports from the independent auditors regarding
the auditors' independence, discuss such reports with the auditor, and if so
determined by the Audit Committee, recommend that the Board take appropriate
action to ensure the independence of the auditors.
8. Review and approve fees for audit services provided by the independent
auditors. Review fees for information technology consulting and all other
than executive
officers.
[side bar]
FEDERAL TAX
CONSEQUENCES
53services provided by the independent auditors during the fiscal year.
9. Consider whether the provision of non-audit services by the independent
auditors is compatible with maintaining auditor independence.
45
56
THE CHARLES SCHWAB CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
MONDAY, MAY 17, 1999
2:00 P.M.
YERBA BUENA CENTER FOR THE ARTS THEATER
700 HOWARD STREET
SAN FRANCISCO, CALIFORNIA
[LOGO]10. Meet with the independent auditors prior to the audit to review the planning
and staffing of the audit.
11. Discuss with the independent auditors matters required to be discussed by
Statement on Auditing Standards No. 61 relating to the conduct of the audit.
12. Discuss, or delegate to the Chairman to discuss, matters communicated by
the independent auditors in connection with interim financial reviews prior
to the filing of interim financial information with a regulatory agency, if
practicable.
13. Review major changes to the Company's accounting principles and
auditing practices as suggested by the independent auditors, internal
auditors or management.
14. Review the appointment and replacement of the senior internal auditing
executive.
15. Review with the independent auditors the internal audit department
responsibilities, budget and staffing, and any changes required in the
planned scope of the internal audit.
16. Review the significant reports to management prepared by the internal audit-
ing department and management's responses.
17. Review with the Company's General Counsel legal matters that may have a
material impact on the financial statements, the Company's compliance
policies and any material reports or inquires received from regulators or
governmental agencies.
18. Meet periodically with management to review the Company's major
financial risk exposures and the steps management has taken to monitor and
control such exposures.
19. Maintain communication and, when appropriate, meet separately with the
independent auditors, the Chief Financial Officer, the Senior Vice President
of Internal Audit, and the General Counsel.
20. Review and approve disclosures required by the rules of the Securities
and Exchange Commission to be included in the Company's annual proxy
statement.
21. Oversee the process for determining Compliance with the Code of Corporate
Conduct. Review and approve significant revisions thereto.
22. Request reports from the independent and internal auditors regarding
any areas that may require the Audit Committee's special attention.
23. Report its activities to the full Board on a regular basis.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the company's financial statements are complete and accurate
and are in accordance with accounting principles generally accepted in the
United States of America. This is the responsibility of management and the
independent auditors. Nor is it the duty of the Audit Committee to conduct
investigations, to resolve disagreements, if any, between management and the
independent auditors or to assure compliance with laws and regulations and the
Company's Code of Conduct.
45
The Charles Schwab Corporation 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.proxy
________________________________________________________________________________
This proxy is solicited by the Board of Directors for use at the Annual Meeting
on May 7, 2001.
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.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTEDon the reverse side.
If no choice is specified, your shares will be voted "FOR" ITEMSitems 1, 2, AND 3.3 and 4.
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.
57
Company #
Control #
THERE ARE THREE WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZESSee reverse for voting instructions.
THE NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.CHARLES SCHWAB CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
Monday, May 7, 2001
2:00 p.m. (PST)
The Palace Hotel
2 New Montgomery Street
San Francisco, California
The Annual Meeting of Stockholders will be broadcast over the Internet. For
information about the real-time webcast, visitwww.schwabevents.com.
There are three ways to vote your shares
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 4, 2001.
* 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://www.eproxy.com/sch/ - QUICK--QUICK *** EASY *** IMMEDIATE
- -* Use the Internet to vote your shares 24 hours a day, 7 days a week.
- -week, until
12:00 p.m., Central time, on May 4, 2001.
* 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),ServicesSM, P.O. Box 64873, St. Paul, MN 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 VOTEIf you vote by phone or Internet, please do not mail your proxy card.
The Board of Directors Recommends a Vote FOR ITEMSItems 1, 2, AND 3.
1. Election of directors: 01 Frank C. Herringer 02 Stephen T. McLin
03 Charles R. Schwab 04 Roger O. Walther
/ /3 and 4.
1. Election of directors:
01 Donald G. Fisher
03 Jeffrey S. Maurer
02 Anthony M. Frank
04 Arun Sarin
[ ] Vote FOR all nominees
/ /(except as marked)
[ ] 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.(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 amendmentAmendment to the CertificateArticles of Incorporation to increase
the number of authorized shares of common stock. / / For / / Against / / Abstain
3. Approval of amendment to the 19922001 Stock Incentive Plan. / / For / / Against / /Abstain
4. Approval of Annual Executive Individual Performance Plan, as amended. For
Against Abstain
WHEN THIS PROXY IS PROPERLY EXECUTED YOUR SHARES WILL BE VOTEDVOTED: (1) AS DIRECTED, OR,DIRECTED;
(2) FOR EACH PROPOSAL IF NO DIRECTION IS GIVEN, WILL BE VOTEDGIVEN; AND (3) ACCORDING TO THE BEST
JUDGMENT OF CHARLES R. SCHWAB AND DAVID S. POTTRUCK IF ANY OTHER MATTER COMES
BEFORE THE ANNUAL MEETING FOR EACH PROPOSAL.A VOTE.
Address Change? Mark Box / / Date ______________________[ ] Indicate changes below:
58
/ /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.
COMPANY #
CONTROL #