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Incentive Compensation “Clawback”

To protect the interests of FirstMerit and its shareholders, the Board of Directors has implemented a policy for the clawback of incentive payments in the event an executive officer’s conduct leads to a restatement of the Company’s financial results. If the Board of Directors learns of any misconduct by an executive officer that contributed to FirstMerit having to materially restate all or a significant portion of its financial statements, the Board of Directors shall take such action as it deems necessary to address the misconduct, prevent its recurrence and, if appropriate, based on all relevant facts and circumstances, pursue remedies it deems appropriate against the wrongdoer. In determining what remedies to pursue, the Board of Directors shall take into account all relevant factors and whether such restatement was the result of negligent, intentional or gross misconduct of the executive officer. The Board of Directors will, to the full extent permitted by applicable law, in all appropriate cases, require reimbursement of any bonus paid or incentive compensation awarded to an executive officer, and/or effect the cancellation of unvested equity awards previously granted to the executive officer if: (i) the amount of the bonus or incentive compensation was calculated based on the achievement of financial results that were subsequently the subject of a material restatement; (ii) the executive officer engaged in intentional misconduct that caused or partially caused the need for the restatement; and (iii) the amount of the bonus or incentive compensation that would have been awarded to the executive had the financial results been properly reported would have been lower than the amount actually awarded. FirstMerit may pursue other actions, such as dismissal, legal action for breach of fiduciary duty or other means to enforce the executive officer’s obligations to the Company, as may be appropriate under the particular circumstances. In determining the appropriate action, the Board of Directors may take into account penalties or punishments imposed by third parties, such as law enforcement agencies, regulators or other authorities, although FirstMerit’s power to determine appropriate remedial action is in addition to, and not in replacement of, remedies pursued by such entities.

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Shareholder Rights Plans

The Board of Directors evaluated and allowed FirstMerit’s shareholder rights plan to expire by its terms in 2006. The Board of Directors discussed at that time and confirmed its belief that it is important to retain the flexibility to adopt a shareholder rights plan in the future and to do so in advance of obtaining shareholder approval. At such time, the Board of Directors considered that rights plans can be effective to protect shareholders and FirstMerit from abusive takeover tactics and ensure that each shareholder is treated fairly in a potential acquisition of the Company. The Board of Directors noted that such plans have been effective in connection with bids for control of other companies by giving directors time to evaluate offers, investigate alternatives and take steps necessary to maximize shareholder value. The Board of Directors also has determined that adopting and disclosing a shareholder rights plan policy would be a matter of good corporate governance and of interest to FirstMerit’s shareholders.

It is the policy of the Board of Directors that it will adopt a shareholder rights plan only if either:

Ÿ

FirstMerit’s shareholders have approved the adoption of the shareholder rights plan in advance; or

Ÿ

at least a majority of the independent directors of the Board of Directors, in the exercise of their fiduciary responsibilities, determines that it is in the best interests of the shareholders under the circumstances to adopt a shareholder rights plan without the delay that would result from seeking advance shareholder approval; provided that, if such a plan has a stated term longer than 12 months, the Board will put the plan to a shareholder ratification vote within 12 months after it is adopted or the plan will expire automatically one year after it is adopted. If a shareholder rights plan is put to a shareholder vote by the Board of Directors and is not approved by a majority of the votes cast on the matter, then such plan will terminate immediately after the vote has been certified by the inspector of elections.

FirstMerit’s shareholders have approved the adoption of the shareholder rights plan in advance; or

at least a majority of the independent directors of the Board of Directors, in the exercise of their fiduciary responsibilities, determines that it is in the best interests of the shareholders under the circumstances to adopt a shareholder rights plan without the delay that would result from seeking advance shareholder approval; provided that, if such a plan has a stated term longer than 12 months, the Board will put the plan to a shareholder ratification vote within 12 months after it is adopted or the plan will expire automatically one year after it is adopted. If a shareholder rights plan is put to a shareholder vote by the Board of Directors and is not approved by a majority of the votes cast on the matter, then such plan will terminate immediately after the vote has been certified by the inspector of elections.

Director Nominations

The Corporate Governance and Nominating Committee will consider candidates for directors of FirstMerit, including those recommended by a shareholder who submits the person’s name and qualifications in writing. The Corporate Governance and Nominating Committee has no specific minimum qualifications for a recommended candidate, and does not consider shareholder recommended candidates differently from other candidates that are suggested by Board members, executive officers or other sources. The Corporate Governance and Nominating Committee considers:

Ÿ

personal qualities and characteristics, accomplishments and reputation in the business community;

Ÿ

current knowledge and contacts in the communities in which FirstMerit does business;

Ÿ

ability and willingness to commit adequate time to Board and committee matters;

Ÿ

the fit of the individual’s skills with those of other directors and potential directors in building a Board that is effective and responsive to the needs of FirstMerit;

Ÿ

diversity of viewpoints, background, experience and other demographics; and

Ÿ

the ability of the nominee to satisfy the independence requirements of NASDAQ.

personal qualities and characteristics, accomplishments and reputation in the business community;

current knowledge and contacts in the communities in which FirstMerit does business;

ability and willingness to commit adequate time to Board and committee matters;

the fit of the individual’s skills with those of other directors and potential directors in building a Board that is effective and responsive to the needs of FirstMerit;

diversity of viewpoints, background, experience and other demographics; and

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the ability of the nominee to satisfy the independence requirements of NASDAQ.

As listed above, diversity of viewpoints, background, experience and other demographics is one of several criteria on which the Corporate Governance and Nominating Committee bases its evaluation of potential candidates for director positions. The inclusion of diversity in the listed criteria reflects the Board of Director’s belief that diversity is an important component of an effective Board and the Corporate Governance and Nominating Committee considers diversity aspects when it evaluates director candidates and their specific skills, expertise and background.

Under

Pursuant to the Corporate Governance Guidelines, a director who is age 72 or olderterms of the agreement and plan of merger, dated as of September 12, 2012 (the “Merger Agreement”), between FirstMerit and Citizens, FirstMerit agreed, among other matters, to (i) increase the size of the Board by two directors, (ii) fill such newly created directorships with persons selected by the board of directors of Citizens and (iii) nominate such directors for election at the timeannual meeting. Pursuant to the terms of election shall not stand for re-election; provided, however,the Merger Agreement, the Board increased the number of directors from 13 to 15 and Lizabeth A. Ardisana and Robert S. Cubbin were recommended to the Corporate Governance and Nominating Committee retainsas director nominees by Citizens. The Corporate Governance and Nominating Committee recommended to the authority to recommendBoard that Ms. Ardisana and Mr. Cubbin be nominated as directors and the Board elected Ms. Ardisana and Mr. Cubbin as directors in 2013. The Corporate Governance and Nominating Committee recommended each of Ms. Ardisana and Mr. Cubbin to the Board of Directors thatfor election as a director age 72 or older may stand for re-election. at the annual meeting.

The Corporate Governance and Nominating Committee makes its recommendation to the Board of Directors, and nominees are selected by the Board of Directors.

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Under the Regulations, a shareholder entitled to vote for the election of directors who intends to nominate a director for election must deliver written notice to the Secretary of FirstMerit no later than: (i) with respect to an election to be held at an annual meeting of shareholders, 90 days in advance of such meeting; and (ii) with respect to an election to be held at a special meeting of shareholders, the close of business on the seventh day following the date on which notice of such meeting is first given to shareholders. Pursuant to the Corporate Governance Guidelines, each shareholder notice must include the following information regarding a director candidate:

1.	The name and address of the candidate;

2.	The number and class of all shares of each class of stock of FirstMerit owned of record and beneficially owned by the candidate, as reported to the nominating shareholder by the candidate;

3.	The information required of director nominees under Item 401(a), (d), (e), and (f) of Regulation S-K (relating to the nature and existence of certain business, family, and/or legal relationships between the candidate and FirstMerit, as well as the candidate’s prior business and directorship experience);

4.	The information required of nominees under Item 404(a) of Regulation S-K (relating to the nature and existence of current or potential related party transactions between the candidate and FirstMerit);

5.	A description of why the candidate meets the director criteria set forth in the Corporate Governance Guidelines;

6.	The consent of the candidate to serve as a director of FirstMerit if so elected;

7.	Any written or oral agreement or understanding with the nominating shareholder or any other person that relates in any way to FirstMerit or how the candidate would vote or serve as a director;

8.	Whether the candidate has been or is currently subject to any enforcement action or penalty or, to the candidate’s knowledge, is currently under any investigation that could lead to such an enforcement action or penalty or criminal actions; and

9.	All financial and business relationships of the candidate, or of any organization of which the candidate is an executive officer or principal shareholder or otherwise controls, with FirstMerit, the nominating shareholder or, to the candidate’s knowledge, any other shareholder of the Company that is acting in concert with the nominating shareholder.

In addition, the shareholder notice must also include the following information regarding the shareholder making the nomination:

A.	The name and address of the shareholder making the nomination;

B.	The number and class of all shares of each class of stock of FirstMerit owned of record and beneficially owned by the shareholder;

C.	A representation that the shareholder is a holder of record of FirstMerit common shares entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person specified in the notice;

D.	A description of any arrangements between the shareholder and the candidate pursuant to which the nominations are to be made;

E.	A description of any relationships, including business relationships, between the shareholder and the candidate;

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F.	Whether the shareholder is acting in concert with any person with respect to FirstMerit common shares;

G.	Whether the shareholder owns, holds or has the power to vote, individually or in concert with any other person, 5% or more of any class of voting stock of any other organization that competes with FirstMerit;

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H.

The information required by Item 401(f) of Regulation S-K (relating to the nature and existence of certain legal proceedings involving FirstMerit and the nominating shareholder) and whether the shareholder has been or is currently subject to any enforcement action or penalty or, to the shareholder’s knowledge, is currently under any investigation that could lead to such an enforcement action or penalty or criminal action;

I.	Whether the shareholder is acting on behalf of, or at the request of, any other shareholder; and

J.

If the shareholder is other than an individual: (i) the names of the shareholder’s five most senior executive officers (or persons performing similar roles); (ii) the names and addresses of each person that has a 10% or more voting, ownership or economic interest in the shareholder and the respective amounts of such interests; (iii) the names and addresses of each person that would be deemed to control the shareholder; and (iv) the name and address of any advisor to the shareholder that has the principal responsibility for its investment or voting decisions.

In the case of any investment fund or similar organization that is a nominating shareholder, these shareholder disclosure obligations shall also apply to the principal advisor to the fund. Also, if the shareholder is other than an individual, these disclosure requirements apply to the shareholder’s principal shareholders, CEO, and other controlling parties.

If a nominating shareholder or director candidate believes that information supplied in response to any of the above inquiries is confidential, the shareholder or nominee may request confidential treatment for such information. In such event, the information shall be maintained on a confidential basis unless the Corporate Governance and Nominating Committee is advised by counsel that disclosure is appropriate in connection with the solicitation of proxies relating to the director candidate.

In the event that it is subsequently determined that any of the information provided by the candidate or nominating shareholder is materially inaccurate, a director candidate who provided the materially inaccurate information or whose nominating shareholder provided the materially inaccurate information shall be required to resign from the Board of Directors, and, in the event of a refusal to resign, such a determination shall constitute “good cause” for removal from the Board, unless it is determined by the Corporate Governance and Nominating Committee that the inaccuracy was inadvertent.

Shareholder Proposals

Any proposals to be considered for inclusion in the proxy materials to be provided to shareholders of FirstMerit for its 20132015 Annual Meeting may be made only by a qualified shareholder and must be received by FirstMerit no later than November 8, 2012.

7, 2014.

If a shareholder intends to submit a proposal at FirstMerit’s 20132015 Annual Meeting that is not eligible for inclusion in the proxy materials relating to the meeting, and the shareholder fails to give the Company notice in accordance with the requirements set forth in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), by January 22, 2013,21, 2015, then the proxy holders will be allowed to use their discretionary authority with respect to such proposal if the proposal is properly raised at the Company’s Annual Meeting in 2013.2015. The submission of such a notice does not ensure that a proposal can be raised at FirstMerit’s Annual Meeting.

Shareholder Communications with Directors

All written communications addressed to an individual director at the address of FirstMerit or one of the offices of a subsidiary of the Company, except those clearly of a marketing nature, will be forwarded directly to the director. All written communications addressed to the Board of Directors at the address of FirstMerit or one of the offices of a subsidiary of the Company will be presented to the full Board of Directors at a meeting of the Board of Directors.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires FirstMerit’s directors, officers and persons who own beneficially more than ten percent of its common shares (“Section 16 Filers”) to file reports of ownership and transactions in the common shares with the Commission and to furnish FirstMerit with copies of all such forms filed. FirstMerit understands from the information provided to the Company by its Section 16 Filers that all transactions have been timely reported, except that: Mr. Isroff hasthat due to administrative error, one Section 16(a) filing reporting one transaction was filed an amended Form 4 to report one intra-family, exempt transaction that was not timely reported and a Form 5 to report four intra-family, exempt transactions that were not timely reported on prior Form 5s; andlate by each of Messrs. Terrence E. Bichsel, N. James Brocklehurst, Kenneth A. Dorsett, Mark N. DuHamel, David G. Goodall, Paul G. Greig, Christopher J. Maurer, William P. Richgels and Larry A. Shoff and Ms. Judith A. Steiner failed to timely file, by one day, one report on Form 4 with respect to one transaction consisting of a grant of restricted stock.

13

Michael G. Robinson.

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PROPOSAL ONE —

ELECTION OF DIRECTORS

Presently, the Regulations fix the number of directors at 12, subject to adjustment as provided in the Regulations, and there

There are currently 1215 directors in office, all of which have a term expiring at the Annual Meeting. Under the Corporate Governance Guidelines, a director who is age 72 or older at the time of election shall not stand for re-election unless the Corporate Governance and Nominating Committee determines that it is in the best interest of FirstMerit for such director to stand for re-election. Messrs. Blair, Colella and Isroff, whose terms as director expire at the Annual Meeting, have each reached the age of 72. However, the Corporate Governance and Nominating Committee and the Board of Directors have determined to nominate Messrs. Blair, Colella and Isroff for re-election based upon their significant accomplishments and leadership contributions as directors of FirstMerit. The Board of Directors has nominated each of the 1215 director nominees for re-electionelection and to serve as directors with a term expiring at the 20132015 Annual Meeting.

Proxies cannot be voted for a greater number of persons than the number of nominees named in the proxy statement. If any nominee should become unavailable to serve for any reason, it is intended that votes will be cast for a substitute nominee designated by the Corporate Governance and Nominating Committee and approved by the Board. The Corporate Governance and Nominating Committee has no reason to believe that any nominee named will be unable to serve if elected.

The following information, as of February 21, 2012,2014, with respect to the age, principal occupation or employment, other affiliations and business experience during the last five years of each director nominee, has been furnished to FirstMerit by each director. In addition, the following information provides the Corporate Governance and Nominating Committee’s evaluation regarding re-nomination of each of the director nominees and the key attributes, skills, and qualifications presented by each director nominee.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE NOMINEES NAMED BELOW.

NOMINEES FOR ELECTION AS DIRECTORS

(Term Expiring in 2013)

2015)

Lizabeth A. Ardisana, Age 62

Ms. Ardisana has served as a director of FirstMerit since 2013 and is a member of the Compensation Committee. Ms. Ardisana is a principal owner of ASG Renaissance, a technical and communications services firm. She holds a bachelor's degree in Mathematics and Computer Science from the University of Texas, a master's degree in Mechanical Engineering from the University of Michigan and a master's degree in Business Administration from the University of Detroit. Ms. Ardisana was a member of the board of directors of Citizens Republic Bancorp, Inc. from 2004 until 2013. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Ms. Ardisana has developed through her extensive experience in business allow her to provide continued regional business expertise to the Board of Directors and has nominated her for election.

Steven H. Baer, Age 62

64

Mr. Baer has served as a director of FirstMerit since 2007 and is a member of the Risk Management Committee. Mr. Baer currently is a partner at High Ridge Partners, Inc., Chicago, Illinois, a private turnaround, restructuring and financial consulting firm. From October 2003 until October 2013, Mr. Baer was a member of Rally Capital, LLC, Chicago, Illinois, a private investment banking and financial consulting firm, andfirm. Mr. Baer holds a BSBA.BSBA and an MSBA.MSBA in Economics from the University of Denver. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Mr. Baer has developed through his educational background in economics and his professional experiences in commercial banking, real estate and investment banking allow him to provide continued financial and regional business expertise to the Board of Directors and has nominated him for re-election.

Karen S. Belden, Age 69

71

Ms. Belden has served as a director of FirstMerit since 1996 and is a member of the Company’s Audit and Risk Management Committees. Ms. Belden currently is retired. Ms. Belden was a realtor with DeHoff Realtors, Canton, Ohio until January 2014, and isremains active with the Stark County, Ohio Board of Realtors. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Ms. Belden has developed through her extensive experience in the real estate field, as well as her knowledge of the northeast Ohio business community and markets, and her experience as a director of FirstMerit, allow her to provide continued local business and real estate expertise to the Board of Directors and has nominated her for re-election.

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R. Cary Blair, Age 72

74

Mr. Blair has served as a director of FirstMerit since 1996 and is a member of the Company’s Compensation and Executive Committees. Formerly, Mr. Blair served as Chairman and CEO of the Westfield Group, Westfield Center, Ohio, a group of financial services and insurance companies, and as a director for The Davey Tree Expert Company, a public company provider of horticultural services based in Kent, Ohio. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Mr. Blair has developed through

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his leadership experience in the financial services and insurance fields and his experiences as a director of FirstMerit and The Davey Tree Expert Company, allow him to provide continued financial and regional business expertise to the Board of Directors and has nominated him for re-election.

John C. Blickle, Age 61

63

Mr. Blickle has served as a director of FirstMerit since 1990 and is a member of the Company’s Audit, Compensation, Corporate Governance and Nominating and Executive Committees. Mr. Blickle is the President of Rubber City Arches, LLC, Akron, Ohio, which is the owner and operator of 20 McDonald’s franchises located throughout northeast Ohio. Previously, Mr. Blickle served in the accounting field and has extensive public accounting experience qualifying him as a financial expert for purposes of serving on and chairing the Audit Committee of the Board of Directors. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Mr. Blickle has developed through his educational background in business and accounting, his business and leadership experiences in the northeast Ohio market, as well as his knowledge and experience as a director of FirstMerit, allow him to provide continued accounting, local business and corporate governance expertise to the Board of Directors and has nominated him for re-election.

Robert W. Briggs, Age 70

72

Mr. Briggs has served as a director of FirstMerit since 1996 and is a member of the Company’s Executive and Risk Management Committees. Mr. Briggs was the President of the GAR Foundation until his retirement on December 31, 2011, is Chair of the John S. and James L. Knight Foundation, and is a Partner and Chairman Emeritus of the law firm of Buckingham, Doolittle & Burroughs, LLP, Akron, Ohio. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Mr. Briggs has developed through his education and experiences in the legal field generally and in the northeast Ohio business market, his leadership roles in philanthropic foundations, as well as his knowledge and experience as a director of FirstMerit, allow him to provide continued legal and local business expertise to the Board of Directors and has nominated him for re-election.

Richard Colella, Age 76

78

Mr. Colella has served as a director of FirstMerit since 1998 and is a member of the Company’s Risk Management Committee. Mr. Colella is the Managing Partner of the law firm of Colella & Weir, P.L.L., Lorain, Ohio. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Mr. Colella has developed through his education and experiences in the legal field generally and in the northeast Ohio business market, as well as his knowledge and experience as a director of FirstMerit, allow him to provide continued legal and local business expertise to the Board of Directors and has nominated him for re-election.

Robert S. Cubbin, Age 56

Mr. Cubbin has served as a director of FirstMerit since 2013 and is a member of the Audit Committee. Mr. Cubbin is the President and CEO of Meadowbrook Insurance Group, Inc., a publicly traded risk management organization. He holds a bachelor's degree from Wayne State University and a law degree from the Detroit College of Law. Mr. Cubbin has served as a member of the board of directors of Meadowbrook Insurance Group, Inc. since 1995 and was a member of the board of directors of Citizens Republic Bancorp, Inc. from 2008 until 2013. Mr. Cubbin served in the insurance field and has extensive public company experience qualifying him as a financial expert for purposes of serving on the Audit Committee of the Board of Directors. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Mr. Cubbin has developed through his public company background and business experience allow him to provide continued business expertise to the Board of Directors and has nominated him for election.

Gina D. France, Age 53

55

Ms. France has served as a director of FirstMerit since 2004 and is a member of the Company’s Audit and Corporate Governance and Nominating Committees. Ms. France is the President of France Strategic Partners LLC, Medina, Ohio, a private

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strategic and transaction advisory firm. Ms. France also serves as a director of Cedar Fair LP, Sandusky, Ohio, a regional amusement-resort operator. Previously, Ms. France served as an investment banker with Lehman Brothers and a managing director of Ernst & Young LLP, providing her with education and business experiences qualifying her as a financial expert for purposes of serving on the Audit Committee of the Board of Directors. Ms. France holds a Master of Management (Finance) degree from the J.L. Kellogg Graduate School of Management at Northwestern University. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Ms. France has developed through her education and leadership experiences in the investment banking, accounting and financial services industries, allow her to provide continued financial and regional business expertise to the Board of Directors and has nominated her for re-election.

Paul G. Greig, Age 56

58

Mr. Greig has served as Chairman, President and CEO of FirstMerit since 2006 and is a member of the Company’s Executive Committee. Mr. Greig is also the Chairman, President and CEO of FirstMerit Bank. Prior to joining FirstMerit, Mr. Greig served as President and CEO of Charter One Bank, Illinois from 2005-2006 and President and CEO of Bank One, Wisconsin from 1999-2005. The Corporate Governance and Nominating Committee

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believes that the attributes, skills and qualifications Mr. Greig has developed through his education and experiences in the banking and financial services industries, as well as his significant leadership positions with FirstMerit, allow him to provide continued business and leadership insight to the Board of Directors and has nominated him for re-election.

Terry L. Haines, Age 65

67

Mr. Haines has served as a director of FirstMerit since 1991 and is a member of the Company’s Compensation and Corporate Governance and Nominating Committees. Mr. Haines is currently retired and servesformerly served as a director of Ameron International Corporation, a public company producer of fiberglass-composite piping, concrete and steel pipe systems and specialized construction products. Formerly, Mr. Haines servedproducts and as Chairman, President and CEO of A. Schulman, Inc., Akron, Ohio, a public company manufacturer and wholesaler of plastic materials. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Mr. Haines has developed through his public company leadership experiences, his knowledge of the northeast Ohio business market, as well as his knowledge and experience as a director of FirstMerit, allow him to provide continued regional business and public company leadership expertise to the Board of Directors and has nominated him for re-election.

J. Michael Hochschwender, Age 51

53

Mr. Hochschwender has served as a director of FirstMerit since 2005 and is a member of the Company’s Audit and Compensation Committees. Mr. Hochschwender is the President and CEO of The Smithers Group, Akron, Ohio, a private group of companies that provides technology-based services to global clientele in a broad range of industries, and holds an M.B.A. from the Wharton School of Business, University of Pennsylvania. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Mr. Hochschwender has developed through his education and business leadership experiences in the northeast Ohio business market allow him to provide continued regional business and leadership expertise to the Board of Directors and has nominated him for re-election.

Clifford J. Isroff, Age 75

77

Mr. Isroff has served as a director of FirstMerit since 1981 and has served as the Company’s Lead Independent Director since 2003. Mr. Isroff is a member of FirstMerit’s Compensation, Corporate Governance and Nominating, Executive and Risk Management Committees. Mr. Isroff is currently retired and is actively involved with a number of significant non-profit organizations in the northeast Ohio area. Formerly, Mr. Isroff was the Chairman and Secretary of I Corp., Akron, Ohio, a manufacturing holding company, as well as the President and Chief Operating Officer of SterlingWesthall Jewelers, Akron, Ohio, which was acquired by SignetSterling Group plc. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Mr. Isroff has developed through his leadership and business experiences in the northeast Ohio business market, as well as experience as a director of FirstMerit and his exemplary service as the Company’s Lead Independent Director, allow him to provide continued local business and corporate governance expertise to the Board of Directors and has nominated him for re-election.

Philip A. Lloyd II, Age 65

67

Mr. Lloyd has served as a director of FirstMerit since 1988 and is a member of the Company’s Risk Management and Executive Committees. Mr. Lloyd is CEO of McDowell Family LLC and McDowell Properties, LLC, family owned entities

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involved in investments and investment real estate. Prior to his retirement from the firm in April 2011, Mr. Lloyd had been Of Counsel with the Vorys law firm, Akron, Ohio. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Mr. Lloyd has developed through his education and extensive experiences in the legal field and the northeast Ohio business market, his knowledge and experience as a director of FirstMerit, as well as his significant ownership interest in FirstMerit, allows him to provide continued legal and local business expertise to the Board of Directors and has nominated him for re-election.

16

Russ M. Strobel, Age 61

Mr. Strobel has served as a director of FirstMerit since 2012 and is a member of the Risk Management Committee. Mr. Strobel is the recently retired chairman, CEO and president of Nicor Inc. and Nicor Gas Company, Naperville, Ill. Prior to joining Nicor in 2000, Mr. Strobel served as a partner in the law firms of Altheimer & Gray, Jenner & Black and Friedman & Koven. Mr. Strobel holds a bachelor’s degree from Northwestern University and a law degree with high honors from the University of Illinois. The Corporate Governance and Nominating Committee believes that the attributes, skills and qualifications Mr. Strobel has developed through experiences in the legal field and his business experience, allows him to provide continued legal and local business expertise to the Board of Directors and has nominated him for re-election.

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BENEFICIAL OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The following table sets forth information as of February 21, 20122014 (except as otherwise indicated by footnote) regarding the beneficial ownership of the common shares of FirstMerit by each director, each of the named executive officers of the Company appearing in theSummary Compensation Table,, all directors, named executive officers and other executive officers of FirstMerit as a group and by each person known to the Company to own 5% or more of its common shares. Unless otherwise indicated, each beneficial owner has sole power to vote and dispose of the number of shares set forth in the table:

							Number of Common Shares(1)												Percent of
Name		Sole  Voting(2)(3)				Shared Voting				Options				Total				Class(4)
Steven H. Baer			9,136				1,400				—				10,536				*
Karen S. Belden			34,527				—				22,328				56,855				*
R. Cary Blair			38,334				2,902				22,328				63,564				*
John C. Blickle			31,767				33,658				22,328				87,753				*
Robert W. Briggs			20,570				—				22,328				42,898				*
Richard Colella			20,880				810				22,328				44,018				*
Gina D. France			9,266				—				9,135				18,401				*
Paul G. Greig			284,921				—				50,734				335,655				*
Terry L. Haines			57,444				—				22,328				79,772				*
J. Michael Hochschwender			21,084				300				6,090				27,474				*
Clifford J. Isroff			26,390				—				22,328				48,718				*
Philip A. Lloyd II(5)			64,164				418,066				22,328				504,558				*
Terrence E. Bichsel			85,617				—				154,232				239,849				*
William P. Richgels			57,441				—				15,221				72,662				*
David G. Goodall			35,507				—				—				35,507				*
Larry A. Shoff			47,384				—				107,456				154,840				*
All directors, named executive officers and other executive officers as a group (20 persons)			844,432				457,136				521,492				1,823,060				1.67	%
5% Or Greater Shareholders
BlackRock, Inc., 40 East 52nd Street, New York, New York 10022(6)															10,978,687				10.05	%
Capital World Investors, 333 South Hope Street, Los Angeles, California 90071(7)															5,495,000				5.03	%
FMR LLC, 82 Devonshire Street, Boston, Massachusetts 02109(8)															6,168,592				5.65	%

					Number of Common Shares(1)									Percent of
Name		Sole  Voting(2)(3)			Shared Voting			Options			Total			Class(4)
Lizabeth A. Ardisana		12,208			—			—			12,208			*
Steven H. Baer		14,689			1,400			—			16,089			*
Karen S. Belden		40,080			—			12,180			52,260			*
R. Cary Blair		28,196			11,769			12,180			52,145			*
John C. Blickle		3,066			16,326			12,180			31,572			*
Robert W. Briggs (5)		28,146			—			12,180			40,326			*
Richard Colella		26,433			810			12,180			39,423			*
Robert S. Cubbin		2,998			19,849			—			22,847			*
Gina D. France		14,865			—			9,135			24,000			*
Paul G. Greig		449,704			—			50,734			500,438			*
Terry L. Haines		76,427			—			12,180			88,607			*
J. Michael Hochschwender		28,253			300			6,090			34,643			*
Clifford J. Isroff		34,347			—			12,180			46,527			*
Philip A. Lloyd II (6)		73,484			418,066			12,180			503,730			*
Russ M. Strobel		9,066			—			—			9,066			*
Sandra E. Pierce		80,254			—			—			80,254			*
Terrence E. Bichsel		128,239			—			117,399			245,638			*
William P. Richgels		85,400			—			15,221			100,621			*
David G. Goodall		75,989			—			—			75,989			*
All directors, named executive officers and other executive officers as a group (26 persons)		1,465,403			507,986			423,874			2,397,263			1.40	%
5% Or Greater Shareholders
BlackRock, Inc., 40 East 52nd Street, New York, New York 10022 (7)											17,109,786			10.40	%
State Street Corporation, State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111 (8)											9,693,731			5.90	%
The Vanguard Group, 100 Vanguard Blvd., Malvern, Pennsylvania 19355 (9)											9,318,942			5.64	%

* Indicates less than 1% beneficial ownership.

*

Indicates less than 1% beneficial ownership.

(1)	The amounts shown represent the total outstanding common shares beneficially owned by the individuals and the common shares issuable upon the exercise of stock options within the next 60 days.

(2)

Includes the following number of restricted common shares for which the person has the right to vote, but not dispose of such common shares: (i) 2,4043,066 by Messrs. Baer, Blair, Blickle, Briggs, Colella, Haines, Hochschwender, Isroff, Lloyd and Mses. Belden and France; (ii) 176,6414,066 by Mr. Strobel; (iii) 2,998 by Ms. Ardisana and Mr. Cubbin (iv) 242,489 by Mr. Greig; (iii) 35,516(v) 53,333 by Ms. Pierce (vi) 53,051 by Messrs. Bichsel and Richgels; (iv) 32,744(vii) 39,073 by Mr. Goodall; (v) 19,889 by Mr. Shoff; and (vi) 408,590(viii) 620,738 by all executive officers and directors as a group.

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(3)

Excludes the following number of common shares deemed to be held under FirstMerit’s Director Deferred Compensation Plan and Executive Deferred Compensation Plan for which the person does not have the right to vote or dispose of such common shares: (i) 19,87521,410 by Ms. Belden; (ii) 68,22275,249 by Mr. Blickle; (iii) 15,98017,214 by Mr. Briggs; (iv) 6,6117,121 by Mr. Colella; (v) 9,749 by Ms. France; (vi) 27,056 by Mr. Haines; (vii) 15,821 by Mr. Hochschwender; (viii) 54,505 by Mr. Bichsel; (ix) 70 by Mr. Goodall; and (x) 225,647 all executive officers and directors as a group.

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(v) 10,502 by Ms. France; (vi) 15,493 by Mr. Haines; (vii) 22,309 by Mr. Hochschwender; (viii) 58,713 by Mr. Bichsel; (ix) 75 by Mr. Goodall; and (x) 236,443 all executive officers and directors as a group.

(4)

For all directors and executive officers, the percentage of class is based upon the sum of 108,768,784170,183,540 common shares issued and outstanding on February 21, 2012January 20, 2014 and the number of common shares, if any, as to which the named individual or group has the right to acquire beneficial ownership upon the exercise of options within 60 days of February 21, 2012.18, 2014. For all entities that are listed as beneficial owners of 5% or more of the common shares, the percentage of class is based upon 109,201,965170,183,540 common shares issued and outstanding on February 21, 2012.January 20, 2014.

(5)	Includes 8,168 common shares pledged as collateral for a loan.

(6)

Mr. Lloyd disclaims beneficial ownership with respect to 254,713 common shares held by his spouse directly and 55,010 held by McDowell Family LLC, of which Mr. Lloyd is CEO and Mr. Lloyd’s spouse is a managing member. The reported beneficial ownership of Mr. Lloyd also includes 108,343 common shares held directly by Mr. Lloyd’s two adult daughters, for whom Mr. Lloyd holds a general power of attorney.

(6)
(7)	As reported in a Schedule 13G/A filed with the Commission on January 10, 20122014 by BlackRock, Inc. The Schedule 13G/A discloses that the reporting entity had sole voting power as to 16,549,180 common shares and sole dispositive power as to all 10,978,68717,109,789 shares.

(7)
(8)	As reported in a Schedule 13G filed with the Commission on February 3, 2014 by State Street Corporation. The Schedule 13G discloses that State Street Corporation had shared voting and dispositive power as to 9,693,731 common shares.

(9)

As reported in a Schedule 13G/A filed with the Commission on February 10, 201211, 2014 by Capital World Investors and The Income Fund of America. The Schedule 13G/A indicates that Capital World Investors has sole voting and dispositive power over all 5,495,000 common shares. Capital World Investors is deemed to be the beneficial owner of such common shares as a result of Capital Research and Management Company (“CRMC”), of which Capital World Investors is a division, acting as an investment adviser to various companies registered under the Investment Company Act of 1940 (“Investment Company Act”). The Income Fund of America, an investment company under the Investment Company Act, is advised by CRMC.

(8)

As reported in a Schedule 13G filed with the Commission on February 14, 2012 by FMR LLC (“FMR”) and Edward C. Johnson 3d, chairman of FMR.Vanguard Group. The Schedule 13G indicatesdiscloses that FMRThe Vanguard Group has sole voting power as to 670,185247,687 common shares, sole dispositive power over 9,081,909 common shares and soleshared dispositive power as to all 6,168,592 shares. The Schedule 13G indicates that Mr. Johnson and various family members, through their ownership of FMR voting common stock and the execution of a shareholders’ voting agreement, may be deemed to form a controlling group with respect to FMR. The Schedule 13G indicates that 5,498,407 common shares are beneficially owned by Fidelity Management & Research Company (“Fidelity”) as a result of acting as an investment adviser to several investment companies (“ICs”). Mr. Johnson and FMR, through its control of Fidelity, and the ICs each have sole dispositive power as to all such shares. Neither Mr. Johnson nor FMR has sole voting power as to such shares, as such power resides with the ICs’ Boards of Trustees and is carried out by Fidelity under written guidelines established by such Boards. The Schedule 13G indicates that 11,500 common shares are beneficially owned by Strategic Advisers, Inc. (“Strategic Advisers”), a wholly-owned subsidiary of FMR, as a result of its serving as investment adviser to certain individuals. FMR’s beneficial ownership includes the 11,500 common shares beneficially owned through Strategic Advisers. The Schedule 13G indicates that 57,690 common shares are beneficially owned by Pyramis Global Advisors, LLC (“PGALLC”), an indirect wholly-owned subsidiary of FMR, as a result of its serving as investment adviser to certain institutional accounts, non-U.S. mutual funds or investment companies. Mr. Johnson and FMR, through its control of PGALLC, each has sole dispositive and sole voting power as to all such shares. The Schedule 13G also indicates that 600,995 common shares are beneficially owned by Pyramis Global Advisors Trust Company (“PGATC”), an indirect wholly-owned subsidiary of FMR, as a result of its serving as investment manager of certain institutional accounts. Mr. Johnson and FMR, through its control of PGATC, each has sole dispositive power over all such shares and sole voting power as to 600,995237,033 common shares.

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Compensation Discussion & Analysis

Executive Summary

Key 2013 Performance Highlights

Financial Highlights

•	We achieved our 59th consecutive quarter of profitability.

•

Our total shareholder return for the year was 62%, higher than the total shareholder return of any of our peers1. In addition, our total shareholder return since the beginning of the economic downturn remains above the 75th percentile of our peers, demonstrating our sustained record of success under a variety of economic conditions. The charts below illustrate our total shareholder return compared to that of our peers over a one-year and a seven-year period.

We generated earnings of $1.18 per share in spite of $49.5 million in one-time expenses related to the acquisition and integration of Citizens.

Our provision for loan losses decreased 38% from 2012.

•	As demonstrated in the charts below, we continued our trend of outperforming our peers on key operational measures, including profitability, net interest margin, and credit quality measures2.

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COMPENSATION DISCUSSION AND ANALYSIS¹

IntroductionData provided by SNL Financial. See page 25 for a listing of our 2013 peer group.

² Non-Performing Assets/Loans and Other Real Estate Owned (or NPAs/Loans & OREO) was not available as of December 31, 2013 for some peers when this document was published. For those peers, NPAs/Loans & OREO is shown as of the quarter ended September 30, 2013.

Strategic Highlights

Completed both the acquisition and integration of Citizens Republic Bancorp on schedule.

Reduced our merger-related expenses by 11% from our initial target.

Identified potential cost savings significantly above our initial target of 22% of Citizens' expense base.

Key 2013 NEO Compensation Decisions

The 2013 Incentive Compensation Program (ICP) was our short-term cash incentive program that was redesigned to assess corporate performance through 14 performance factors and individual performance through our annual performance review process. The performance assessments dictate an overall incentive score that directly corresponds to a calculated cash incentive award for each NEO. As shown in the chart on page 30, FirstMerit performed significantly above-target on both absolute and relative-to-peer measures under the ICP, which after consideration of individual performance resulted in ICP awards near maximum for each of the NEOs.

We also redesigned our equity incentive program to require that at least 52% of the restricted stock units (or RSUs) granted to NEOs in 2013 vest solely based on our return on average common equity, or ROACE, compared to our peers over the three-year vesting period. The number of RSUs granted to the CEO was based on a fixed percentage of his salary, while the number of RSUs granted to each NEO other than the CEO was based on a targeted percentage range of his or her position's salary grade midpoint. We made these changes in response to the 2012 Say on Pay vote in spite of the fact that a different equity program, which similar to our historical practice would have conditioned the amount of the 2013 awards on 2012 performance, had been approved prior to the 2012 Say on Pay vote.

We granted achievement bonuses to four of our NEOs in addition to their normal ICP awards as an acknowledgment of our executives’ successful leadership throughout the Citizens acquisition process. We determined that these awards were warranted based on the on-time completion of the acquisition and successful planning of the early steps of the integration, in addition to below-target merger costs and above-target potential cost savings. In addition, we believe that these awards are appropriate because the merger and integration represented a significant additional strategic initiative for our executives beyond the scope of our ICP and equity incentive programs, which reward executives for the annual operational success of our organization. The Compensation Committee determined that a subjective rather than formulaic review of merger accomplishments was an appropriate balance to the formulaic approach of the ICP.

Base salaries increased 8 to 17% in recognition of FirstMerit’s strong performance in 2012, individual performance in 2012 as well as expected contribution in 2013, and general market salary movement, as well as market salary levels at organizations similar to FirstMerit’s size following the Citizens acquisition. In addition, salary increases were influenced by the greater scope of responsibility assumed by many of our NEOs following the close of the acquisition.

We eliminated the excise tax gross-up from our CEO’s existing Change in Control and Displacement Agreements.

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We amended our Supplemental Executive Retirement Plan (or SERP) to freeze the benefit payable to Mr. Greig at the level accrued for him under the plan as of November 30, 2013. We undertook this action in order to protect FirstMerit from future liability increases and associated additional expenses under his SERP benefit formula, and to support our shift to a more performance-based pay opportunity. This change will also increase investor understanding of the correlation between pay and performance in future proxy statements by eliminating the impact of SERP accruals from Mr. Greig’s total compensation as reported in the Summary Compensation Table beginning in 2014. The benefit freeze resulted in a significant increase in the actuarial accrual for Mr. Greig's SERP in 2013, as reflected in the Summary Compensation Table on page 37 below. However, we expect that no further accruals will be reportable for this benefit in future proxy statements. In addition, this action did not increase the benefit to Mr. Greig beyond what was already payable to him as of November 30, 2013, nor will it result in any significant change in the cumulative expense to FirstMerit of Mr. Greig's SERP.

Introduction

This Compensation Discussion and Analysis, provides information regarding the 2011or CD&A, describes FirstMerit's 2013 executive compensation program. The objective of our executive compensation program is to attract, retain, and motivate the key leaders who serve our company and our shareholders. In particular, the following pages explain the process for and objectives and structure of the executive compensation decisions made by our Compensation Committee and our Board of Directors for 2013. This CD&A is intended to be read in conjunction with the tables beginning on page 37 below, which provide detailed historical compensation information for our named executive officers, whose compensation is detailed in the 2011 Summary Compensation Table on page 35 below and the other executive compensation tables and narratives contained in this proxy statement. The following information includes (1) the overall objectives ofor NEOs. For 2013, our 2011 named executive officer compensation program and what it was designed to reward, (2) each element of compensation that was provided to our named executive officers for 2011 and (3) an explanation of the Compensation Committee’s key decisions and actions regarding the 2011 compensation of our named executive officers.

For 2011, our named executive officersNEOs are:

Name		Title
Paul G. Greig		Chairman, President and Chief Executive Officer
Sandra E. Pierce	Vice Chairman, FirstMerit Corporation, and Chairman & CEO, FirstMerit Michigan
William P. Richgels	Senior Executive Vice President and Chief Credit Officer
Terrence E. Bichsel		Senior Executive Vice President and Chief Financial Officer
William P. Richgels David G. Goodall		Senior Executive Vice President and Chief Credit Officer
David G. Goodall		Executive Vice President —- Commercial Banking
Larry A. Shoff		Executive Vice President and Chief Information Officer

Executive Summary

Our Business

FirstMerit traces its corporate history back more than 160 years. Today, we are a diversified financial services company with assets of $14.4 billion as of December 31, 2011 and approximately 206 full service banking offices and 214 automated teller machines in Ohio, Western Pennsylvania, and the greater Chicago, Illinois area. We provide a full range of financial services to consumers and businesses through our core operations, which include retail banking, commercial banking and wealth management services.

Our community commitment and financial strength show that, from generation to generation, we have been a vital force in our communities and the lives of our customers. We strive to exceed our customers’ expectations through exceptional service experiences at every point of contact and through products and services that deliver what customers care about most. In order to maintain and build upon that record of service and excellence, which we feel has been a key aspect of our ability to provide value to our shareholders through these troubling economic times, we must continue to attract, retain and properly motivate exceptional financial services executives with the skills, knowledge and experience necessary to achieve our key business goals.

2011 Business Highlights

2011

2013 Performance Overview

2013 Financial Performance

2013 was yet another year of uncertainty and challenges in the financial markets, the financial services industry and the broader economy as a whole. During 2011, our focus on the basic fundamentals of sound banking practices led us through another year of strong financial performance relative tofor FirstMerit. We maintained our peers. In addition, our experienced senior leadership team succeeded in executing our business plans and achieving our strategic initiatives, which have positioned us to increase shareholder value and continue to grow our market share.

In what was a challenging year for the financial services industry, our strong fourth quarter financial performance marked our 51st consecutive quarter of profitability and capped a year of solid performance in which we increased earnings per share by 8% over 2010. We grew organically and invested back in the organization for future profitability. Our credit quality continued to improve and its performance has exceeded our peers for the last five years. Finally, we remain committedcommitment to the basic fundamentals of sound banking practices, to preservewhich we believe will translate into long-term shareholder value and grow shareholder value.translated into exceptional annual results in 2013. In particular, during 2011,2013, we accomplished the following significant goals:

	Ÿ
•		Achieved our 4856th, 4957th, 5058th, and 5159stth consecutive quarters of profitability.

Ÿ

Generated earnings per share of $1.10, an increase of nearly 8% over 2010.

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Ÿ

Generated net income of $119.6 million, compared to $102.9 Generated earnings of $1.18 per share, in spite of significant one-time expenses related to the acquisition and integration of Citizens. Continued our growth in the greater Chicago region, including a 16% year-over-year increase in commercial loan balances and a 26% year-over-year increase in commercial deposits. Reduced our provision for loan losses by $21 million, a decrease of 38% from 2012. 2013 continued our trend of outperforming our peers1 on key measures that influence the long-term value of our organization. The charts on page 18 illustrate that we have generally outperformed our peers on important profitability, net interest margin, and credit quality goals over an extended period of time. The measures shown were chosen as representative examples of our overall performance in these general categories, which are common in 2010, an increase of over 16%.

Ÿ

Achieved average commercial loan growth of $448 million or 10.32%, and average core deposit growth of 20.5%.

Ÿ

Reduced net charge-offs for loan losses to $61 million in 2011, a decrease of more than 27% from 2010.

Ÿ

Continued our growth activities in the greater Chicago, Illinois region, including the origination of more than $390 million in commercial loans in the region.

2011 Performance Analysis

How Has FirstMerit Performed Relative to Other Financial Institutions?

As previously mentioned, 2011 was a challenging year for the financial services industry as a whole. Returnsand dictate in large part the health and success of our organization. In addition, it is important to note that our profitability in 2013 was significantly impacted by $49.5 million in one-time expenses related to the Citizens acquisition. If not for those items, our return on shareholders’ investments in our industry were generally negative acrossaverage assets (or ROAA) would have been better than the board for 2011. As indicated in the table below, we did not outperform our peers75^1th in termspercentile of 2011 share price performance, but we continuedthe peer group, as were our net interest margin and credit quality.

¹ See page 25 for a listing of our 2013 peer group.

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The Compensation Committee believes that our strong historic and current relative performance is the result of management’s focus on credit quality and its refusal to adopt risky lending practices in pursuit of short-term gains, which has been, and continues to be, a primary reason for our exceptional relative and stable performance during the financial crisis that began in 2008. We further believe that our underlying financial performance, as described in this section, is the best indicator of our short-term performance given recent fluctuations in the financial markets.

How Did FirstMerit Perform Relative to Certain Strategic Initiatives?

In addition to our strong financial performance, the Compensation Committee also took note of our significant strategic accomplishments during 2011, including:

How Does FirstMerit View its Linkage Between Pay and Performance?

Consistent with our focus on long-term share price performance and relative total shareholder return, the Compensation Committee takes a longer-term view of how our named executive officers’ pay and performance should be linked. Committee members are not limited in their views on compensation decisions by just the values that we are required to report in the Summary Compensation Table under applicable SEC rules, but instead make thoughtful pay decisions to reward achievement and drive meaningful results regarding our key metrics and goals. Committee pay decisions for 2011 were based on corporate and individual performance against key metrics described below, the positioning of officers’ pay both in a historical context and against general market levels, and subjective evaluations designed to identify the degree to which our executives are helping us achieve our and your long-term goals. Our compensation decisions are not a pure science, and we recognize that the named executive officers’ pay potential as required to be reported under SEC rules may not perfectly track annual stock price results or clearly match our relative pay positioning among our peers from year to year. Yet, our Compensation Committee has reviewed our 2011 pay decisions in the context of our compensation program and business performance for the past few fiscal years, and we believe that the compensation earned by our named executive officers for 2011 continues to be aligned with our long-term achievement and success in creating shareholder value and achieving our key business goals.

In fact, we think it is important for our shareholders and their advisors to note how our pay-for-performance culture drove specific compensation results for our CEO for 2011 that are in alignment with our relative total shareholder return performance:

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Disregarding the amounts listed in the 2011 Summary Compensation Table under the heading “Change in Pension Value and Nonqualified Deferred Compensation Earnings,” a substantial portion of which resulted from Mr. Greig attaining certain age and service conditions under the terms of our retirement plans rather than affirmative decisions by us to pay him more with respect to 2011, the total compensation listed for Mr. Greig in the 2011 Summary Compensation Table for 2011 would have been about 9% less than the amount listed for him for 2010.

2011 Executive Compensation Highlights

In 2011, consistent with our past practices, we provided our named executive officers with a total compensation program consisting primarily of five elements: (1) base salary; (2) a performance-based annual cash incentive; (3) long-term equity incentive compensation; (4) pension and retirement benefits; and (5) health and welfare benefits. We believe that these five elements, when taken together, provide an optimum mix of fixed compensation and short- and long-term incentives that is the most effective means of attracting, retaining and motivating executives with the skills, knowledge and experience necessary to achieve our business goals and enhance shareholder value. At the same time, this mix of compensation elements is also designed to discourage our named executive officers from taking excessive risks that could harm our business.

While we continued to provide a performance-based annual cash incentive opportunity to our named executive officers in 2011, we modified our Incentive Compensation Program, or ICP, in 2011 to more effectively align pay and performance. This was accomplished through a re-design of the ICP implementing pay methodologies that are guided by our financial, strategic and individual performance, rely on well-defined and structured performance metrics and are based on informed subjective assessments, in order to easily and seamlessly adapt to regulatory and economic changes. We believe that the re-design of the ICP for 2011 helps ensure that the ICP continues to properly motivate our named executive officers to achieve our business goals and enhance shareholder value while avoiding excessive risk.

As further described below, we established three key financial performance goals and five relative financial performance goals at the beginning of 2011 to guide our 2011 ICP awards. Driving our 48^th, 49^th, 50^th and 51^st consecutive quarters of profitability in 2011, we achieved two of our three absolute financial performance goals and four of our five relative financial performance goals, and partially achieved (in other words, were within 5% variance of achieving) the other two financial performance goals. In addition, we achieved all of our strategic performance goals, and our named executive officers achieved all of their key individual performance goals for 2011. We further discuss our achievements and final payouts with respect to 2011 under “Analysis of 2011 Named Executive Officer Compensation Decisions and Actions” on page 26 below.

In addition to the ICP, we took the following specific actions with respect to the compensation of our named executive officers in 2011:

As a further enhancement to our pay-for performance culture, we did not pay any discretionary or retention bonuses to our named executive officers with respect to 2011. The only cash awards we paid to the named executive officers with respect to 2011 were paid pursuant to the ICP and based on achievement of the applicable performance criteria and the completion of the subjective assessments described further below.

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Are Base Salary Increases Applied Retroactively to the Beginning of the Calendar Year?

No. We have a practice of not retroactively applying base salary increases to the beginning of the calendar year.

What were the Target