NOTICE & PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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¨ | Definitive Additional Materials | |||
¨ | Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 |
NORTHERN TRUST CORPORATION | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
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Northern Trust Corporation
50 South La Salle Street
Chicago, Illinois 60603
March 4, 2014
Dear Stockholder:
You are cordially invited to attend the Northern Trust Corporation 2014 Annual Meeting of Stockholders on Tuesday, April 15, 2014, at 10:30 am Central Time, at our corporate headquarters at 50 South La Salle Street in Chicago, Illinois.
For nearly 125 years, our stockholders’ support has been essential to Northern Trust’s stability and success.Your vote plays a vital role and is very important for our future. Whether or not you plan to attend the Annual Meeting, I urge you to vote your shares as promptly as possible.
The attached Notice of Annual Meeting of Stockholders and Proxy Statement provide you with information about each proposal to be considered at the Annual Meeting, as well as other information you may find useful in voting your shares. If you plan to attend the Annual Meeting, please review the information on admittance procedures in the accompanying Proxy Statement.
If you choose not to attend in person, you may vote your shares by Internet or telephone. If you received a paper copy of the proxy materials, you also may complete, sign, date, and return your proxy card in the enclosed envelope. Instructions for voting by Internet or telephone can be found on your proxy card or your Notice Regarding the Availability of Proxy Materials.
Thank you for your continued support of Northern Trust Corporation, and your contribution to the future of our company.
Sincerely, |
Frederick H. Waddell Chairman of the Board and Chief Executive Officer |
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF NORTHERN TRUST CORPORATION
Date: | Tuesday, April | |
Time: | 10:30 | |
Place: | Northern Trust Corporation 50 South
Chicago, Illinois 60603 | |
Purposes: | The purposes of the | |
— Elect | ||
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— Ratify the appointment of KPMG LLP as the Corporation’s independent registered public accounting firm for the | ||
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— Transact any other business that may properly come before the | ||
Record Date: | You | |
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March 1, 20134, 2014
ROSE A. ELLISBy order of the Board of Directors,
Stephanie S. Greisch
Corporate Secretary
Northern Trust Corporation
Chicago, Illinois 60603
TABLE OF CONTENTS— Elect 11 directors to serve on the Board of Directors until the 2015 Annual Meeting of Stockholders and until their successors are elected and qualified;
— Approve, by an advisory vote, named executive officer 2013 compensation; | ||||
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NORTHERN TRUST CORPORATION—
50 South LaSalle Street
Chicago, Illinois 60603
March 1, 2013
PROXY STATEMENT
Our 2013 annual meeting Consider a stockholder proposal regarding additional disclosure of stockholders will be held on Tuesday, April 16, 2013 at 10:30 a.m., Chicago time,political and lobbying contributions, if properly presented at the office of Northern Trust Corporation (the “Corporation” or “Northern Trust”) located at 50 South LaSalle Street (northwest corner of LaSalle StreetAnnual Meeting; and Monroe Street) in Chicago, Illinois. We invite you to attend
— Transact any other business that may properly come before the annual meetingAnnual Meeting.
You do not need to attend the annual meeting to vote your shares. Instead, you may vote your shares by telephone or through the Internet, or you may complete, sign, date, and return your proxy card (a postage-paid envelope is included with your proxy materials if you receivedwere a full set of the proxy materials). Instructions for voting by telephone or through the Internet can be found on your proxy card or your notice regarding the availability of proxy materials.
The Corporation’s board of directors is soliciting your proxy to encourage your participation in the voting at the annual meeting. This proxy statement provides you with information about each proposal and other matters that you may find useful in voting your shares.
On or about March 7, 2013, we expect to mail or otherwise make available our proxy materials to all stockholders entitled to vote at the annual meeting. Our proxy materials include our 2012 annual report to stockholders, which contains detailed information about the Corporation’s activities and financial performance in 2012.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON APRIL 16, 2013
This proxy statement, the 2012 annual report to stockholders, and a link to the means to vote by Internet or telephone are available at www.proxyvote.com.
COMMON QUESTIONS REGARDING OUR ANNUAL MEETING
AND PROXY STATEMENT
A Notice Regarding the Availability of Proxy Materials
Pursuant to the rules recently adopted by the Securities and Exchange Commission (the “SEC”), for some of our stockholders we are providing access to our proxy materials over the Internet. The rules permit us to send a Notice Regarding the Availability of Proxy Materials (the “Notice”) to some or all of our stockholders of record and beneficial owners. All stockholders have the ability to access the proxy materials on the website referred to in the Notice, www.proxyvote.com, or to request a printed set of proxy materials on this site or by calling toll-free 1-800-690-6903. Complete instructions for accessing the proxy materials over the Internet or requesting a printed copy may be found in the Notice. In addition, stockholders may request to receive all future proxy materials in printed form by mail or electronically by e-mail on the website above or when voting electronically.
Electronic Access to the Proxy Materials
The Notice provides instructions regarding how to view our proxy materials for the annual meeting on the Internet and how to instruct us to send our future proxy materials to you electronically by e-mail.
Choosing to receive your future proxy materials by e-mail will save us the cost of printing and mailing documents to you and will reduce the impact of our annual stockholders’ meetings on the environment. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.
Record holders of the Corporation’s common stock at the close of business on February 18, 2013 may vote at the annual meeting. On that date, the Corporation had 239,157,282 shares of common stock outstanding. The shares of common stock held in the Corporation’s treasury will not be voted.
You are entitled to one vote for each share of common stock that you ownedstockholder of record at the close of business on February 18, 2013. The proxy card or Notice, as applicable, indicates the number of shares you are entitled to vote at the annual meeting.
Whether or not you plan to attend the annual meeting, we urge you to vote your shares promptly.
If you are a “stockholder of record” (that is, you hold your shares of the Corporation’s common stock in your own name), you may vote your shares by proxy using any of the following methods:2014.
March 4, 2014
By order of the Board of Directors,
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The telephone and Internet voting procedures set forth on the Notice and the proxy card are designed to authenticate stockholders’ identities, to allow stockholders to provide their voting instructions, and to confirm that their instructions have been properly recorded. If you vote by telephone or through the Internet, you should not return your proxy card.Stephanie S. Greisch
If you are a “beneficial owner,” also known as a “street name” holder (that is, you hold your shares of the Corporation’s common stock through a broker, bank, or other nominee), you will receive from the record holder, in the form of a Notice or otherwise, voting instructions (including instructions, if any, on how to vote by telephone or through the Internet) that you must follow in order to have your shares voted at the annual meeting.Brokers cannot vote your shares on the election of directors or certain executive compensation matters without your specific instructions.Consequently, it is important that you communicate your voting instructions so your vote can be counted by using any of the following methods:
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If you own shares of common stock as a participant in The Northern Trust Company Thrift-Incentive Plan (“TIP”), or as a participant in any other employee benefit plan of the Corporation, you will receive a voting instruction card that covers the shares credited to each of your plan accounts.
Whether you vote by Internet, telephone or mail, your shares will be voted in accordance with your instructions. If you sign, date, and return your proxy card without indicating how you want to vote your shares, the proxy holders will vote your shares in accordance with the following recommendations of the board of directors:
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The proxy holders are authorized to vote as they shall determine in their sole discretion on any other business that may properly come before the annual meeting.
You may revoke your proxy at any timebefore it is voted at the annual meeting by:
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You may come to the annual meeting and vote your shares in person by obtaining and submitting a ballot that will be provided at the meeting. However, if your shares are held by a broker, bank, or other nominee in street name, to be able to vote at the meeting you must obtain a proxy, executed in your favor, from the record holder of your shares, indicating that you were the beneficial owner of the shares on February 18, 2013, the record date for voting.
If you need directions to the annual meeting, please call (312) 630-6000.
We are delivering only one annual report and proxy statement (or, as applicable, the Notice) to record stockholders who share the same address unless they have notified us that they wish to continue receiving multiple copies. This practice, known as “householding,” reduces duplicate mailings, saves printing and postage costs as well as natural resources and will not affect dividend check mailings. If you wish to receive separate copies of future proxy materials, please contact Broadridge toll free at 1-800-542-1061, or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Stockholders who wish to receive a separate set of proxy materials now should contact Broadridge at the same phone number or mailing address and the materials will be delivered to you promptly upon your request.
Quorum and Vote Required for Approval
A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if a majority of the outstanding shares entitled to vote at the meeting is present in person or by proxy at the annual meeting. Abstentions and broker non-votes, if any, will be counted as present for purposes of establishing a quorum. A “broker non-vote” will occur when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions from the beneficial owner.Brokers cannot vote your shares on the election of directors or certain executive compensation matters without your specific instructions. Please return your proxy card or vote by telephone or through the Internet so your vote can be counted. Inspectors of election appointed for the annual meeting will tabulate all votes cast in person or by proxy at the annual meeting. In the event a quorum is not present at the annual meeting, we expect that the annual meeting will be adjourned or postponed to solicit additional proxies.
The following table indicates the vote required for approval of each item to be presented to the stockholders at the annual meeting and the effect of “withhold” votes, abstentions, and broker non-votes.
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The Corporation will pay all costs of soliciting proxies. The Corporation has retained Georgeson Inc. to assist with the solicitation of proxies for a fee of $24,500, plus reimbursement of reasonable out-of-pocket expenses. In addition, we may also use our officers and employees, at no additional compensation, to solicit proxies either personally or by telephone, Internet, letter, or facsimile.
ADMITTANCE TO THE ANNUAL MEETING
Stockholders as of the record date, or their duly appointed proxies, may attend our annual meeting on April 16, 2013. Registration will begin at 9:30 a.m., and seating will begin at 10:00 a.m. If you attend, please note that you will need to bring with you an admission ticket (located on the top portion of the rear side of the proxy card) or proof of ownership of the Corporation’s common stock to enter the meeting. If you arrive at the meeting without an admission ticket, we will admit you only if we are able to verify that you are a stockholder of the Corporation. Also, you may be asked to present valid picture identification, such as a driver’s license or passport. For safety and security reasons, cameras and recording devices will not be permitted in the meeting.
If you are receiving a full set paper copy of our proxy materials and your shares of common stock are held by a broker, bank, or other nominee in street name, your admission ticket is the left side of your voting instruction form. If you do not bring the left side of your voting instruction form, you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or letter from a bank or broker is an example of proof of ownership.
If you are receiving the Notice without a full set paper copy of our proxy materials, your Notice will serve as your admission ticket.
Stockholders will be asked to elect 12 directors at this year’s annual meeting. Set forth below is detailed information with respect to the 12 nominees, all of whom are currently serving as directors of the Corporation and its principal subsidiary, The Northern Trust Company (the “Bank”).
Each of the 12 director nominees has consented to serve as a director if elected at this year’s annual meeting. Each nominee elected as a director will serve until the next annual meeting and until his or her successor has been elected and qualified. If any nominee is unable to serve as a director at the time of the annual meeting, your proxy may be voted for the election of another nominee proposed by the board or the board may reduce the number of directors to be elected at the annual meeting.
Under the majority voting policy as set forth in the Corporation’s by-laws, a nominee for director in an uncontested election (such as this year’s election where the only nominees are those recommended by the board of directors) must receive the affirmative vote of a majority of the votes present and voting at a meeting of stockholders. In contested elections, the affirmative vote of a plurality of the votes present and voting will be required to elect a director. The Corporate Governance Guidelines require an incumbent director who fails to receive the affirmative vote of a majority of the votes present and voting in an uncontested election at a meeting of stockholders to submit his or her resignation, with such resignation to be considered by the members of the Corporate Governance Committee and the board other than such incumbent director. In such event, the board of directors will act to accept or reject the incumbent director’s resignation no later than 90 days following the date of the stockholders’ meeting.
The board of directors unanimously recommends that you voteFOR the election of each nominee.
INFORMATION ABOUT THE NOMINEES FOR DIRECTOR
The following information about the nominees for election to the board of directors of the Corporation at the 2013 annual meeting of stockholders is as of December 31, 2012, unless otherwise indicated.
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BOARD AND BOARD COMMITTEE INFORMATION
Current Members: Directors Mooney (Chair), Bynoe, Chabraja, Lane, and Smith
Number of Meetings in 2012: Six
Oversight Activities:
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The board of directors has determined that, in its opinion, all current members of the Corporation’s Audit Committee are “independent” directors, as defined by The NASDAQ Stock Market (“NASDAQ”), and “audit committee financial experts,” as defined by the applicable SEC regulations.
The board of directors of the Corporation has adopted a formal charter, most recently revised in October 2009, that governs the duties and responsibilities of the Audit Committee. The Audit Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
Current Members: Directors Bynoe (Chair), Mooney, Prado, Slark, and Smith
Number of Meetings in 2012: Five
Oversight Activities:
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The board of directors has determined that, in its opinion, all current members of the Corporation’s Business Risk Committee are “independent” directors as defined by NASDAQ. The board of directors of the Corporation has adopted a formal charter, most recently revised in October 2012, that governs the duties and responsibilities of the Business Risk Committee. The Business Risk Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
Current Members: Directors Jain (Chair), Prado, Slark, and Tribbett
Number of Meetings in 2012: Four
Oversight Activities:
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The board of directors has determined that, in its opinion, all current members of the Corporation’s Business Strategy Committee are “independent” directors as defined by NASDAQ.
The board of directors of the Corporation has adopted a formal charter, most recently revised in October 2012, that governs the duties and responsibilities of the Business Strategy Committee. The Business Strategy Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
Compensation and Benefits Committee
Current Members: Directors Chabraja (Chair), Crown, Jain, Mooney, and Rowe
Number of Meetings in 2012: Five
Oversight Activities:
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The board of directors has determined that, in its opinion, all current members of the Corporation’s Compensation and Benefits Committee are “independent” directors as defined by NASDAQ.
The board of directors of the Corporation has adopted a formal charter, most recently revised in October 2012, that governs the duties and responsibilities of the Compensation and Benefits Committee. The Compensation and Benefits Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
The Committee retained Aon Hewitt (formerly Hewitt Associates, LLC) (“Aon Hewitt”), a nationally recognized compensation and benefits consulting firm, to provide compensation and benefits advice, including information regarding competitive market data, relevant legal and regulatory requirements, and corporate best practices in the compensation and benefits area. Representatives of Aon Hewitt attended all meetings of the Committee at which 2012 executive compensation decisions were made.
For information about the role of the Committee, compensation consultants, and management in the consideration and determination of executive and director compensation, please refer to the “Compensation Discussion and Analysis—Determining Awards” presented elsewhere in this proxy statement.
Corporate Governance Committee
Current Members: Directors Rowe (Chair), Crown, Lane, and Tribbett
Number of Meetings in 2012: Five
Oversight Activities:
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The board of directors has determined that, in its opinion, all current members of the Corporation’s Corporate Governance Committee are “independent” directors as defined by NASDAQ.
The board of directors of the Corporation has adopted a formal charter, most recently revised in February 2010, that governs the duties and responsibilities of the Corporate Governance Committee. The Corporate Governance Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
Current Members: Directors Waddell (Chair), Bynoe, Chabraja, Jain, Mooney, and Rowe
Number of Meetings in 2012: One
Oversight Activities:
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The board of directors has determined that, in its opinion, all current members of the Corporation’s Executive Committee, other than Mr. Waddell, are “independent” directors as defined by NASDAQ.
The board of directors of the Corporation adopted a formal charter in November 2006 that governs the duties and responsibilities of the Executive Committee. The Executive Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
The Corporation’s board of directors held eight meetings during 2012. All persons who were directors during 2012 attended at least 75% of these meetings and meetings of committees on which they served, including Robert C. McCormack and Enrique J. Sosa who retired from the board of directors on April 17, 2012 and attended at least 75% of the 2012 board meetings and meetings of the committees on which they served until their retirement. The Corporation has a Corporate Governance Guideline that states that all directors are expected to attend the annual meeting of the Corporation’s stockholders. All of the current directors other than Mr. Prado, who became a director in October 2012, attended the 2012 annual meeting of stockholders held on April 17, 2012. Messrs. McCormack and Sosa also attended the 2012 annual meeting of stockholders.
The board of directors has determined that, in its opinion, each person who served as a director of the Corporation in 2012 (including Robert C. McCormack and Enrique J. Sosa who retired from the board of directors on April 17, 2012) and each director nominee for 2013 (other than Frederick H. Waddell, the Chairman and Chief Executive Officer of the Corporation and the Bank) is an “independent” director as defined under applicable NASDAQ rules.
Our categorical standards of director independence:
The board of directors has adopted categorical standards to assist it in making the annual determinations of independence. The categorical standards described below are also available on the Corporation’s website at www.northerntrust.com. Under these standards, the following persons shall not be considered “independent”:
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In making its determinations of independence, the board considered the criteria for independence set forth in stock exchange corporate governance rules, the categorical standards of independence described above, and all relevant facts and circumstances to ascertain whether there was any relationship between a director or director nominee and the Corporation that, in the opinion of the board, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director, or any material relationship with the Corporation (either directly or as a partner, stockholder, or officer of an organization that has a relationship with the Corporation).
The board also considered any transactions, relationships, or arrangements between the Corporation and each director of the Corporation in 2012 (including Messrs. McCormack and Sosa) or director nominee for 2013 that constitutes a related person transaction under the “Northern Trust Corporation Policy and Procedures with Respect to Related Person Transactions” (the “RPT Policy”) described in the “Related Person Transaction Policy” section below. None of the transactions described below were in an amount which exceeded the greater of $200,000 or 5% of the recipient’s revenues or the greater of $1,000,000 or 2% of the other company’s revenues during the most recent completed fiscal year. For 2012, the board considered the following categories and types of transactions, relationships, and arrangements, some of which are covered by the RPT Policy, and, in each case, determined that they were immaterial and did not affect the independence of any director:
Purchases and sales of goods or services in the ordinary course of business:
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Financial services provided in the ordinary course of business:
The board of directors also considered the following types of financial services provided by the Corporation or its subsidiaries in the ordinary course of business to the independent directors (including Messrs. McCormack and Sosa) and director nominees of the Corporation in 2012 (other than Mr. Waddell) and their “related persons” as described in the “Related Person Transaction Policy” section below (as indicated by the name of the applicable current or former director or director nominee):
The financial services were provided to the directors and their related persons on substantially the same terms (including price, interest rates, and collateral requirements) as those prevailing at the time for comparable transactions with other persons not related to or affiliated with the Corporation and in compliance with applicable banking laws. None of the transactions involved more than the normal risk of collectability or presented other unfavorable features.
Related Person Transaction Policy
The board of directors of the Corporation, through its Audit Committee, has adopted the RPT Policy, which was most recently revised in February 2012. The RPT Policy governs the review, approval, or ratification of transactions between the Corporation or its subsidiaries and any related persons. “Related persons” means the Corporation’s directors, nominees for director, executive officers, greater than five percent beneficial owners, members of their immediate family, and any firm, corporation, or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such person and all other related persons has a 10% or greater beneficial interest.
The RPT Policy provides that the Corporation may undertake certain pre-approved related person transactions in the ordinary course of business without specific review, approval or ratification, including the following pre-approved transactions:
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Any other related person transaction involving amounts in excess of $120,000 must be approved or ratified by the Audit Committee or the Audit Committee Chair. In considering related person transactions, the Audit Committee or the Audit Committee Chair shall consider all relevant facts and circumstances and shall approve only those related person transactions that are in, or otherwise not inconsistent with, the best interests of the Corporation and its subsidiaries. The RPT Policy also provides that (a) the Corporation shall not hire an immediate family member of an executive officer or director unless the employment arrangement is reviewed and approved by the Compensation and Benefits Committee and (b) no child, stepchild, or parent of an executive officer shall be hired by the Corporation.
In 2012, certain related persons were clients of, and engaged in the types of transactions identified in the bullet points above with, the Corporation and one or more of its subsidiaries. These transactions were undertaken in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral for loan transactions) as those prevailing at the time for comparable transactions with persons not related to the Corporation or the Northern Trust entities involved in the transactions. In addition, loan transactions did not involve more than the normal risk of
collectibility or present other unfavorable features. None of the foregoing transactions or any transactions in which the Corporation or any of its subsidiaries sold or purchased products and services were material to the Corporation or the Northern Trust entities involved in the transactions, and none require disclosure of additional information pursuant to Item 404(a) of Regulation S-K of the Securities Exchange Act of 1934. Any extensions of credit to directors and executive officers of the Corporation were permitted under the provisions of the Sarbanes-Oxley Act of 2002.
The current leadership structure of the board of directors includes the Chairman and CEO and a Lead Director appointed annually by the Corporation’s independent directors.
The board of directors believes that combining the positions of Chairman and CEO is the most appropriate for the Corporation at this time. Having one person as Chairman and CEO provides unified leadership and direction to the Corporation and strengthens the ability of the CEO to develop and implement strategic initiatives and respond efficiently in crisis situations. The board also believes the combination of the Chairman and CEO positions is appropriate in light of the substantial independent oversight provided by the board of directors.
The board of directors believes that leadership of the independent directors is important. Accordingly, the Corporation’s independent directors designate annually a Lead Director. Mr. Rowe currently serves as the Corporation’s Lead Director.
The Lead Director’s duties are described in the Corporation’s Corporate Governance Guidelines and include, among other things, (a) approving meeting agendas for the board and the nature of information sent to the board, (b) approving board meeting schedules to assure that there is sufficient time for discussion of all board agenda items, (c) the authority to call at any time a special meeting of the board or a special executive session of the independent directors, (d) the authority to add items to the agenda of any regular or special meeting of the board, (e) preparing the agenda for all regular and any special executive sessions of the independent directors, (f) presiding at all regular and special meetings of the board at which the Chairman is not present, (g) presiding at all regular and any special executive sessions of the independent directors, (h) serving as a liaison between the independent directors and the Chairman and CEO, (i) conducting, by means of an interview with each independent director, the independent directors’ annual evaluation of the Chairman and CEO’s performance and then communicating the results to the Compensation and Benefits Committee and to the Chairman and CEO, (j) conducting, by means of an interview with each director, including the Chairman and CEO, the board’s annual self-evaluation of its performance and then providing a summary report to the board, and (k) being available for consultation and direct communication with major stockholders, if they so request. A copy of the Corporate Governance Guidelines is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
Eleven out of twelve director nominees, including the Lead Director, are “independent” directors as defined under applicable NASDAQ rules. The Audit Committee, Business Risk Committee, Business Strategy Committee, Compensation and Benefits Committee, and Corporate Governance Committee are composed solely of independent directors, and the Executive Committee, with the exception of Mr. Waddell, is composed of independent directors. Consequently, independent directors directly oversee critical matters and appropriately oversee the Chairman and CEO.
The board of directors conducts its risk oversight function through the Audit, Business Risk, Business Strategy, and Compensation and Benefits Committees, as well as the full board of directors.
The Audit Committee conducts the Corporation’s management of risks relating to financial reporting and the legal component of compliance risk. The Business Strategy Committee oversees the Corporation’s management of strategic risk for the Corporation and its subsidiaries.
The Business Risk Committee conducts the Corporation’s management of risks relating to the business of the Corporation and its subsidiaries in the following categories: credit risk, market and liquidity risk, fiduciary risk, operational risk, and the regulatory component of compliance risk. The Business Risk Committee has approved a corporate risk appetite statement articulating the Corporation’s expectation that risk is consciously considered as part of strategic decisions and in day-to-day activities. The Corporation’s business units are expected to manage business activities consistent with the corporate risk appetite statement. The Business Risk Committee also reviews and approves the framework by which risk based capital requirements are determined, including the capital adequacy assessment process for the Corporation and its subsidiaries. The entire board of directors reviews the level and adequacy of capital of the Corporation and its subsidiaries. For a further description of the risk management policies and practices of the Corporation’s management, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management” in the Corporation’s 2012 annual report to stockholders.
The Compensation and Benefits Committee, at least annually, conducts a review, with appropriate input of risk management personnel, of management’s assessment of the effectiveness of the Corporation’s incentive compensation arrangements and practices to assess the extent to which such arrangements and practices discourage inappropriate risk-taking behavior by participants and are consistent with the Corporation’s safety and soundness.
The charters for the Audit, Business Risk, Business Strategy, and Compensation and Benefits Committees provide that the Committees may meet with the individuals who supervise day-to-day risk management responsibilities of the Corporation and other members of management, consultants or advisors, as each Committee deems appropriate.
The Audit, Business Risk, Business Strategy, and Compensation and Benefits Committees consist solely of independent directors.
The Corporation recognizes the importance of stockholder communications to help our investors understand our performance and strategies and to allow our stockholders to express their views on issues important to the Corporation. At the 2012 annual meeting, stockholders voted on stockholder proposals regarding the acceleration of vesting of equity awards in a change in control situation and the independence of the chairman of the board of directors. Both before and after our 2012 annual meeting, we reached out to some of our institutional stockholders to discuss these proposals. Although both proposals failed to receive enough votes to pass, the Corporation took specific action to respond to the concerns raised following the 2012 annual meeting.
With regard to the 2012 stockholder proposal regarding the acceleration of vesting of equity awards in a change in control situation, the Corporation changed its practice of providing single-trigger change in control vesting in its equity compensation awards to “double-trigger” vesting in July 2012.
With regard to the 2012 stockholder proposal regarding the independence of the chairman of the board of directors, the Corporation amended its Corporate Governance Guidelines to expand the responsibilities of the Lead Director as discussed in the “Board Leadership Structure” on page 20.
Given our proactive engagement with stockholders, during 2012 we also reached out to some of our institutional stockholders to invite general comments on governance issues, executive compensation, and other matters. Refer to the “Compensation Discussion and Analysis” section included elsewhere in this proxy statement for a further discussion of the 2013 executive compensation updates.
The independent directors of the Corporation met in executive sessions separate from management five times during 2012. The Lead Director or, in his or her absence, another independent director designated by the Lead Director presides at executive sessions of the independent directors.
Corporate Governance Guidelines
The Corporation has had Corporate Governance Guidelines in place since May 2000. These guidelines were most recently revised in July 2012. The Corporate Governance Committee is responsible for reviewing and reassessing, at least annually, the adequacy of the Corporate Governance Guidelines and recommending any changes to the board of directors for its approval. The Corporate Governance Guidelines embody many of the Corporation’s long-standing practices and incorporate new policies and procedures that strengthen its commitment to corporate governance best practices. A copy of the Corporate Governance Guidelines is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.
Management Development and Succession Planning
The Compensation and Benefits Committee oversees executive management and succession planning. Pursuant to the Corporate Governance Guidelines and the charter for the Compensation and Benefits Committee, the Compensation and Benefits Committee conducts an annual management development and succession planning review. All of the Corporation’s directors are invited to and typically all participate in this review. Following the review, the Compensation and Benefits Committee makes recommendations concerning management development and succession planning.
In connection with setting the compensation of the Corporation’s Chairman and CEO, as more fully described below in “Compensation Discussion and Analysis,” the Compensation and Benefits Committee and the board of directors review the performance of the Chairman and CEO in light of the Chairman and CEO’s responsibilities to the Corporation, including the development of short-term and long-term strategic plans, goals and objectives, the development of an effective senior management team, positioning of the Corporation for current and future success, and effective communications with all of the Corporation’s constituencies. These criteria, among others, would also be considered by the
board of directors in evaluating any successor Chairman and CEO candidates. This management review process also includes a review of other senior employees of the Corporation, with a focus on developing internal candidates for advancement within the Corporation.
In the event of the unexpected death, incapacity, or resignation of the Chairman and CEO, the charter for the Corporate Governance Committee provides that the Corporate Governance Committee will discuss and make a recommendation to the board of directors, after consultation with the Chairman of the Compensation and Benefits Committee, for an appropriate successor. The board of directors also has adopted a Business Continuity Plan that, among other things, delineates a process for appointing an interim Chairman and CEO in the event the Chairman and CEO becomes incapacitated.
Director Nominations and Qualifications
The Corporate Governance Committee is responsible for considering, evaluating, and recommending candidates for director. The Committee will consider persons nominated by stockholders in accordance with the nomination procedures specified in the Corporation’s by-laws or otherwise recommended by stockholders. The Corporation’s by-laws provide that stockholders may propose director nominations only if they give timely written notice, directed to the attention of the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement, not less than 120 days prior to the anniversary date of the prior year’s annual meeting. The notice must contain the information required by the by-laws. Stockholders may recommend candidates for director by following the procedures for communicating with directors described below under “Communications with the Board and Independent Directors.”
In its evaluation of director candidates, including persons recommended by stockholders, the Committee considers the factors specified in the Corporation’s Corporate Governance Guidelines to ensure the board has a diversity of perspectives and backgrounds, including the nature of the expertise and experience required for the performance of the duties of a director of a corporation engaged in the Corporation’s business and such matters as: relevant business and industry experience, professional background, age, current employment, community service, and other board service. The Committee also considers the racial, ethnic, and gender diversity of the board in assessing candidates. The Committee seeks to identify, as candidates for director, persons with a reputation for and record of integrity and good business judgment who (i) have experience in positions with a high degree of responsibility and are leaders in the organizations with which they are affiliated, (ii) are free from conflicts of interest that could interfere with a director’s duties to the Corporation and its stockholders, and (iii) are willing and able to make the necessary commitment of time and attention required for effective board service. The Committee also takes into account a candidate’s level of financial literacy, and monitors the mix of skills and experience of the directors in order to assess whether the board has the necessary tools to perform its oversight function effectively. A full listing of the characteristics and qualifications of director candidates considered by the Committee is set forth in the Corporate Governance Guidelines on the Corporation’s website at www.northerntrust.com. Following its evaluation process, the Committee recommends its director nominees to the full board of directors, and the board makes the final determination of director nominees based on its consideration of the Committee’s recommendation and report.
Communications with the Board and Independent Directors
Stockholders and other interested persons may communicate any concerns they may have regarding the Corporation, including recommendations of candidates for director, to the board of directors or to any member of the board of directors by writing to them at the following address:
Northern Trust Corporation
Attention: [Board of Directors]/[Board Member]
c/o Corporate Secretary
Northern Trust Corporation
50 South LaSalleLa Salle Street M-9
Chicago, Illinois 60603
Communications directed— Elect 11 directors to serve on the Board of Directors until the 2015 Annual Meeting of Stockholders and until their successors are elected and qualified;
— Approve, by an advisory vote, named executive officer 2013 compensation;
— Ratify the appointment of KPMG LLP as the Corporation’s independent registered public accounting firm for the 2014 fiscal year;
— Consider a stockholder proposal regarding additional disclosure of political and lobbying contributions, if properly presented at the Annual Meeting; and
— Transact any other business that may properly come before the Annual Meeting.
March 4, 2014
By order of the Board of Directors,
Stephanie S. Greisch
Corporate Secretary
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE STOCKHOLDER MEETING TO BE HELD ON APRIL 15, 2014
This Proxy Statement, the 2013 Annual Report to Stockholders, and a link to the means to vote by Internet or telephone are available at https://materials.proxyvote.com/665859.
i
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors for use at the Annual Meeting of Stockholders to be held on Tuesday, April 15, 2014. On or about March 4, 2014, we began mailing or otherwise making available our proxy materials to all stockholders entitled to vote at the Annual Meeting. Our proxy materials include our 2013 Annual Report to Stockholders, which contains detailed information about the Corporation’s activities and financial performance in 2013.
A Notice Regarding the Availability of Proxy Materials
Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), for some of our stockholders we are providing access to our proxy materials via the Internet. The rules permit us to send a Notice Regarding the Availability of Proxy Materials (the “Notice”) to stockholders of record and beneficial owners. All stockholders have the ability to access the proxy materials on the website referred to in the Notice, www.proxyvote.com, or to request a printed set of proxy materials on this site or by calling toll-free 1-800-690-6903. Complete instructions for accessing the proxy materials on the Internet or requesting a printed copy may be found in the Notice. In addition, stockholders may request to receive all future proxy materials in printed form by mail or electronically by e-mail on the website above or when voting electronically.
Electronic Access to the Proxy Materials
The Notice provides instructions regarding how to view our proxy materials for the Annual Meeting on the Internet and how to instruct us to send our future proxy materials to you electronically by e-mail.
Choosing to receive your future proxy materials by e-mail will save us the cost of printing and mailing documents to you and will reduce the impact of our annual stockholders’ meetings on the environment. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.
Record holders of the Corporation’s common stock at the close of business on February 18, 2014 may vote at the Annual Meeting. On that date, the Corporation had 237,309,755 shares of common stock outstanding. The shares of common stock held in the Corporation’s treasury will not be voted.
You are entitled to one vote for each share of common stock that you owned of record at the close of business on February 18, 2014. The proxy card or Notice, as applicable, indicates the number of shares you are entitled to vote at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, we urge you to vote your shares promptly.
If you are a “stockholder of record” (that is, you hold your shares of the Corporation’s common stock in your own name), you may vote your shares by proxy using any of the following methods:
— | Using the Internet site listed on the Notice or the proxy card; |
— | Calling the toll-free telephone number listed on the proxy card (Notice recipients should |
— | Completing, signing, dating, and returning your proxy card. |
The Internet and telephone voting procedures set forth on the Notice and the proxy card are designed to authenticate stockholders’ identities, to allow stockholders to provide their voting instructions, and to confirm that their instructions have been properly recorded. If you vote by Internet or telephone, you should not return your proxy card.
If you are a “beneficial owner,” also known as a “street name” holder (that is, you hold your shares of the Corporation’s common stock through a broker, bank, or other nominee), you will receive from the record holder, in the form of a Notice or otherwise, voting instructions (including instructions, if any, on how to vote by Internet or telephone) that you must follow in order to have your shares voted at the Annual Meeting.If you fail to provide your specific voting instructions, your broker may only vote your shares on the ratification of the appointment of the Corporation’s independent registered public accounting firm.Consequently, it is important that you communicate your voting instructions so your vote can be counted by using any of the following methods:
— | Using the Internet site listed on the voting instruction form; |
— | Calling the toll-free telephone number listed on the voting instruction form; or |
— | Completing, signing, dating, and returning your voting instruction form. |
If you own shares of common stock as a participant in The Northern Trust Company Thrift-Incentive Plan (“TIP”), or as a participant in any other employee benefit plan of the Corporation, your proxy card will cover the shares credited to each of your plan accounts. The completed proxy card (or vote by Internet or telephone) will serve as your voting instructions to the TIP trustee. To allow sufficient time for voting by the trustee, your voting instructions must be received by April 11, 2014.
Whether you vote by Internet, telephone or mail, your shares will be voted in accordance with your instructions. If you sign, date and return your proxy card without indicating how you want to vote your shares, the proxy holders will vote your shares in accordance with the following recommendations of the Board of Directors:
Item 1 | — | FOR the election of each nominee for director; | ||||
Item 2 | — | FOR the approval, by an advisory vote, of the 2013 compensation of the Corporation’s named executive officers, as disclosed in this Proxy Statement pursuant to the | ||||
Item 3 | — | FOR the ratification of the appointment of KPMG LLP as the Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2014; and | ||||
Item 4 | — | AGAINST the stockholder proposal regarding additional disclosure of political and lobbying contributions. |
The proxy holders are authorized to vote as they shall determine in their sole discretion on any other business that may properly come before the Annual Meeting.
You may revoke your proxy at any time before it is voted at the Annual Meeting by:
— | Sending a written notice of revocation to the Corporation’s Corporate Secretary at the address indicated |
— | Submitting another signed proxy card with a later date; |
— | Voting by Internet or telephone at a later date; or |
— | Attending the Annual Meeting and voting in person. |
You may come to the Annual Meeting and vote your shares in person by obtaining and submitting a ballot that will be provided at the meeting. However, if your shares are held by a broker, bank, or other nominee in street name, to be able to vote at the meeting you must obtain a proxy, executed in your favor, from the record holder of your shares, indicating that you were the beneficial owner of the shares at the close of business on February 18, 2014, the record date for voting.
We are delivering only one annual report and proxy statement (or, as applicable, the Notice) to record stockholders who share the same address unless they have notified us that they wish to continue receiving multiple copies. This practice, known as “householding,” reduces duplicate mailings, saves printing and postage costs as well as natural resources and will not affect dividend check mailings. If you wish to receive separate copies of future proxy materials, please contact Broadridge toll free at 1-800-542-1061, or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Stockholders who wish to receive a separate set of proxy materials now should contact Broadridge at the same telephone number or mailing address and the materials will be delivered to you promptly upon your request.
Quorum and Vote Required for Approval
A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if a majority of the outstanding shares entitled to vote at the meeting is present in person or by proxy at the AnnualMeeting. Abstentions and broker non-votes, if any, will be counted as present for purposes of establishing a quorum. A “broker non-vote” will occur when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions from the beneficial owner.Brokers cannot vote your shares on the election of directors, executive compensation matters or stockholder proposals without your specific instructions. Please return your proxy card or voting instruction form, as applicable, or vote by Internet or telephone so your vote can be counted. Inspectors of election appointed for the Annual Meeting will tabulate all votes cast in person or by proxy at the Annual Meeting. In the event a quorum is not present at the Annual Meeting, we expect that the Annual Meeting will be adjourned or postponed to solicit additional proxies.
The following table indicates the vote required for approval of each item to be presented to the stockholders at the Annual Meeting and the effect of “withhold” votes, abstentions, and broker non-votes.
The Corporation will pay all costs of soliciting proxies. The Corporation has retained Georgeson Inc. to assist with the solicitation of proxies for a fee of approximately $13,500, plus reimbursement of reasonable out-of-pocket expenses.
ADMITTANCE TO THE ANNUAL MEETING
Stockholders at the close of business on the record date, February 18, 2014, or their duly appointed proxies, may attend our Annual Meeting at our corporate headquarters on April 15, 2014 at 10:30 am Central Time. Registration will begin at 9:30 am. Our corporate headquarters are located at 50 South La Salle Street (northwest corner of La Salle Street and Monroe Street) in Chicago, Illinois.
In order to be admitted to the meeting, you must bring documentation showing that you owned the Corporation’s common stock at the close of business on the record date, February 18, 2014. Acceptable documentation includes an admission ticket, a Notice Regarding the Availability of Proxy Materials or any other proof of ownership of the Corporation’s common stock at the close of business on February 18, 2014. A brokerage statement or letter from a bank or broker reflecting your holdings at the close of business on February 18, 2014 is an example of such other proof of ownership. Your admission ticket is located on the top portion of the rear side of your proxy card or on the left side of your voting instruction form if your shares are held by a broker, bank, or other nominee in street name. You may be asked to present valid picture identification, such as a driver’s license or passport. For safety and security reasons, cameras and recording devices will not be permitted in the meeting.
Stockholders will be asked to elect 11 directors at this year’s Annual Meeting of Stockholders. Set forth below is detailed information with respect to the 11 nominees, all of whom are currently serving as directors of Northern Trust Corporation (the “Corporation” or “Northern Trust”) and its principal subsidiary, The Northern Trust Company (the “Bank”). Edward J. Mooney has not been nominated for re-election as he has reached retirement age under the Corporation’s Corporate Governance Guidelines. Mr. Mooney has served as a member of the Board of Directors since 1996.
Each of the 11 director nominees has consented to serve as a director if elected at this year’s Annual Meeting. Each nominee elected as a director will serve until the next Annual Meeting and until his or her successor is elected and qualified. If any nominee is unable to serve as a director at the time of the Annual Meeting, your proxy may be voted for the election of another nominee proposed by the Board of Directors (the “Board”) or the Board may reduce the number of directors to be elected at the Annual Meeting.
Under the majority voting policy as set forth in the Corporation’s By-laws, a nominee for director in an uncontested election (such as this year’s election where the only nominees are those recommended by the Board of Directors) must receive the affirmative vote of a majority of the votes present and voting at a meeting of stockholders. In contested elections, the affirmative vote of a plurality of the votes present and voting will be required to elect a director. The Corporation’s Corporate Governance Guidelines require an incumbent director who fails to receive the affirmative vote of a majority of the votes present and voting in an uncontested election at a meeting of stockholders to submit his or her resignation, with such resignation to be considered by the members of the Corporate Governance Committee and the Board other than such incumbent director. In such event, the Board of Directors will act to accept or reject the incumbent director’s resignation no later than 90 days following the date of the stockholders’ meeting.
The Board of Directors unanimously recommends that you voteFOR the election of each nominee.
INFORMATION ABOUT THE NOMINEES FOR DIRECTOR
The following information about the nominees for election to the Board of Directors of the Corporation at the 2014 Annual Meeting of Stockholders is as of December 31, 2013, unless otherwise indicated.
Name | Common Stock (1) and Stock Units (2) Owned as of January 1, 2013 | |||||||
No. of Shares | Percent of Class | No. of Stock Units | No. of Performance Stock Units (3) | |||||
Linda Walker Bynoe | 2,000 | * | 13,988 | — | ||||
Nicholas D. Chabraja | 11,073 | * | 3,397 | — | ||||
Susan Crown | 22,400 | * | 20,517 | — | ||||
Steven L. Fradkin | 496,789(4) | * | 62,566 | 16,037 | ||||
Dipak C. Jain | 2,175 | * | 26,682 | — | ||||
Robert W. Lane | 11,274 | * | 2,905 | — | ||||
Edward J. Mooney | 0 | * | 17,321 | — | ||||
William L. Morrison | 560,616(4) | * | 71,994 | 26,728 | ||||
Michael G. O’Grady | 36,203(4) | * | 32,234 | 16,037 | ||||
Jose L. Prado | 1,000 | * | 947 | — | ||||
John W. Rowe | 11,000 | * | 33,731 | — | ||||
Jana R. Schreuder | 360,453(4) | * | 53,089 | 16,037 | ||||
Martin P. Slark | 2,849 | * | 1,920 | — | ||||
David H. B. Smith, Jr. | 22,544(5)(6)(7) | * | 1,920 | — | ||||
Charles A. Tribbett III | 1,000 | * | 24,090 | — | ||||
Frederick H. Waddell | 1,179,418(4) | * | 260,347 | 53,456 | ||||
All directors and executive officers as a group | 4,368,365(4)(5)(6) | 1.83% | 864,034 | 198,552 |
LINDA WALKER BYNOE, Director since 2006, Age 61
Ms. Bynoe is a director of Anixter International Inc. and Prudential Retail Mutual Funds and a trustee of Equity Residential. She is a former director of Simon Property Group, Inc. The | ||
NICHOLAS D. CHABRAJA, Director since 2007, Age 71 Retired Chairman and Chief Executive Officer, General Dynamics Corporation (global defense, aerospace, and other technology products manufacturer). Mr. Chabraja served as Chief Executive Officer of General Dynamics Corporation from 1997 to 2009 and as Chairman from 1997 to 2010. Mr. Chabraja is a director of General Dynamics Corporation and the non-executive chairman of Tower International, Inc. The Board of Directors concluded that Mr. Chabraja should serve as a director based on his experience leading a complex global corporation and risk oversight experience as Chairman and Chief Executive Officer of General Dynamics Corporation. |
SUSAN CROWN, Director since 1997, Age 55 Vice President, Henry Crown and Company since 1984 (global company with diversified investments in banking, transportation, manufacturing, real estate, and other industries),Chief Executive Officer, Owl Creek Partners, LLP since 2010 (venture capital investment vehicle), andChairman and Founder, Susan Crown Exchange Inc. (SCE) since 2009 (social investment organization that connects talent and innovations with market forces to drive social change). Ms. Crown is a director of Illinois Tool Works Inc. and Vice Chair of the Board of Trustees of Rush University Medical Center in Chicago. Ms. Crown is a former trustee of Yale University. The Board of Directors concluded that Ms. Crown should serve as a director based on her experience at Henry Crown and Company, her leadership and risk oversight experience as a director of Illinois Tool Works Inc., and her extensive experience with civic and not-for-profit organizations. The Board also considered the valuable perspective on governance and corporate responsibility matters that Ms. Crown brings through her current and former Board service at various large organizations, both commercial and not-for-profit. | ||
DIPAK C. JAIN, Director since 2004, Age 56 Chaired Professor of Marketing at INSEAD (international graduate business school). Mr. Jain served as Dean of INSEAD from 2011 to 2013 and became the INSEAD Chaired Professor of Marketing in 2013. Previously, Mr. Jain served as a member of the faculty of Northwestern University’s Kellogg School of Management in a number of capacities, including as Dean Emeritus from 2009 to 2011, Dean from 2001 to 2009, Associate Dean for Academic Affairs from 1996 to 2001, and Sandy and Morton Goldman Professor in Entrepreneurial Studies and Professor of Marketing. Mr. Jain is a visiting Professor of Marketing at the following institutions: Sasin Graduate Institute of Business Administration at Chulalongkorn University, Bangkok, Thailand; Nijenrode University, The Netherlands; WHU-Otto Beisheim Graduate School of Management, Koblenz, Germany; Indian School of Business, Hyderabad, India; Hong Kong University of Science and Technology, Hong Kong; and Recanati Graduate School of Business Administration at Tel Aviv University, Israel. Mr. Jain is a director of Deere & Company, Reliance Industries Limited, India, and Global Logistics Properties, Singapore. He is a former director of Hartmarx Corporation The Board of Directors concluded that Mr. Jain should serve as a director based on his academic experience, his business administration positions both in the |
ROBERT W. LANE, Director since 2009, Age 64 Retired Chairman and Chief Executive Officer, Deere & Company (global provider of agricultural, construction, and forestry equipment and financial services). Mr. Lane served as Chairman of Deere & Company from 2000 to 2010 and as Chief Executive Officer from 2000 to 2009. Mr. Lane is a director of Bayerische Motoren Werke (BMW) A.G., General Electric Company, and Verizon Communications Inc. He is a former director of Deere & Company. The Board of Directors concluded that Mr. Lane should serve as a director based on his experience leading a complex global corporation and risk oversight experience as Chairman and Chief Executive Officer of Deere & Company and as a director of other complex global corporations, including his global management experience. | ||
JOSE LUIS PRADO, Director since 2012, Age 59 President of Quaker Oats North America, a division of PepsiCo, Inc. (global food and beverage company), since 2011. Mr. Prado served as President and Chief Executive Officer of Grupo Gamesa-Quaker, PepsiCo International, Monterrey, Mexico, from 2002 to 2010. Mr. Prado joined PepsiCo in Mexico in 1984 and has served in a variety of positions at PepsiCo, including: Regional Vice President Andean Region, Frito-Lay International; President of PepsiCo Snacks Argentina, Buenos Aires, Argentina; and President of Frito-Lay Snacks Caribbean, San Juan, Puerto Rico. His early career at PepsiCo included assignments in sales, finance, and information technology. The Board of Directors concluded that Mr. Prado should serve as a director based on his management and risk oversight experience at a complex global corporation and his substantial international experience. | ||
JOHN W. ROWE, Director since 2002, Lead Director since 2010, Age 68 Chairman Emeritus, Exelon Corporation(producer and wholesale marketer of energy) since 2012. Mr. Rowe served as Chairman and Chief Executive Officer of Exelon Corporation from 2002 to 2012. Mr. Rowe is a director of Allstate Corporation, American DG Energy Inc., and SunCoke Energy, Inc. Mr. Rowe is a former director of Sunoco Corporation and Exelon Corporation. The Board of Directors concluded that Mr. Rowe should serve as a director based on his management, regulatory, government relations, and risk oversight experience as Chief Executive Officer at Exelon Corporation and prior to that, at New England Electric System and Central Maine Power Company, and his experience as a director of other complex corporations. |
MARTIN P. SLARK, Director since 2011, Age 59 Vice Chairman and Chief Executive Officer, Molex Incorporated (manufacturer of electronic, electrical, and fiber optic interconnection products and systems) since 2005. Previously, Mr. Slark served as President and Chief Operating Officer of Molex Incorporated from 2001 to 2005. Mr. Slark is a director of Molex Incorporated, Hub Group, Inc., and Liberty Mutual Insurance Company (not a public company). The Board of Directors concluded that Mr. Slark should serve as a director based on his experience leading a complex global corporation and risk oversight experience as Vice Chairman and Chief Executive Officer of Molex Incorporated and as a director of other complex global corporations. | ||
DAVID H.B. SMITH, JR., Director since 2010, Age 47 Executive Vice President, Policy & Legal Affairs and General Counsel, Mutual Fund Directors Forum (nonprofit membership organization for investment company directors) since 2005. Previously, Mr. Smith held several positions at the
Mr. Smith is a director The Board of Directors concluded that Mr.
| ||
CHARLES A. TRIBBETT III, Director since 2005, Age 58 Managing Director, Russell Reynolds Associates (global executive recruiting firm) since 1989,Chairman of the firm’s Leadership Assessment and Promotions Board since 2006, andCo-Leader of the firm’s CEO/Succession Planning and Board Services Practice since 1995. The Board of Directors concluded that Mr. Tribbett should serve as a director based on his global leadership consulting experience evaluating and identifying senior management professionals and his leadership experience as a Managing Director of Russell Reynolds Associates. |
FREDERICK H. WADDELL, Director since 2006, Age 60 Chairman of the Board of the Corporation and the Bank since 2009 andChief Executive Officer of the Corporation and the Bank since 2008. Previously, Mr. Waddell served as President of the Corporation and the Bank from 2006 to 2011, Chief Operating Officer of the Corporation and the Bank from 2006 to 2008, and Executive Vice President of the Bank from 1997 to 2006 and of the Corporation from 2003 to 2006. Mr. Waddell is a Class A Director of the Federal Reserve Bank of Chicago and a director of AbbVie, Inc. Since joining Northern Trust in 1975, Mr. Waddell has |
BOARD AND BOARD COMMITTEE INFORMATION
Our Board of Directors currently consists of twelve members. The Board of Directors has determined that each of the following eleven current directors is independent in accordance with our independence standards, which conform with SEC rules and the listing standards of The NASDAQ Stock Market (“NASDAQ”): Linda Walker Bynoe, Nicholas D. Chabraja, Susan Crown, Dipak C. Jain, Robert W. Lane, Edward J. Mooney (who is not standing for re-election), Jose Luis Prado, John W. Rowe, Martin P. Slark, David H.B. Smith, Jr., and Charles A. Tribbett III.
During 2013, the Corporation’s Board of Directors held 10 meetings. All persons who were directors during 2013 attended at least 75% of these meetings and meetings of committees on which they served. In accordance with the Corporate Governance Guideline that states that all directors are expected to attend the Annual Meeting of Stockholders, all of the current directors attended the 2013 Annual Meeting of Stockholders held on April 16, 2013.
The standing committees of the Board of Directors are the Audit Committee, the Business Risk Committee, the Business Strategy Committee, the Compensation and Benefits Committee, the Corporate Governance Committee and the Executive Committee. With the exception of the Executive Committee, all standing committees are composed solely of independent directors. Consequently, independent directors directly oversee critical matters and appropriately oversee the Chairman and CEO.
Each committee is governed by a written charter. These charters detail the duties and responsibilities of each committee and are available on the Corporation’s website at www.northerntrust.com.
Current Members: Directors Mooney (Chair), Bynoe, Chabraja, Lane, and Smith
Number of Meetings in 2013: 5
The Audit Committee’s purpose is to oversee the accounting and financial reporting processes of Northern Trust and the audits of the consolidated financial statements of Northern Trust and to provide assistance to the Board in fulfilling its legal and fiduciary obligations with respect to matters involving the accounting, auditing, financial reporting, internal financial control and legal compliance functions of Northern Trust, including, without limitation, (i) assisting the Board’s oversight of (a) the integrity of Northern Trust’s consolidated annual and quarterly financial statements and earnings releases filed on Form 8-K, (b) Northern Trust’s compliance with legal and regulatory requirements, (c) the Corporation’s public accountants’ qualifications and independence, and (d) the performance of Northern Trust’s internal audit function and the Corporation’s public accountants, and (ii) preparing the report required to be prepared by the Committee pursuant to SEC rules for inclusion in the Corporation’s annual proxy statement.
The Board has determined that all members of the Audit Committee are independent under SEC rules and NASDAQ listing standards. The Board has also determined that all Audit Committee members are “audit committee financial experts,” as defined by SEC rules.
Current Members: Directors Bynoe (Chair), Mooney, Prado, Slark, and Smith
Number of Meetings in 2013: 4
The purpose of the Business Risk Committee is to assist the Board in (i) discharging its oversight duties with respect to (a) the risks inherent in the businesses of Northern Trust in the following categories: credit risk, market and liquidity risk, fiduciary risk, operational risk and the regulatory component of compliance risk, and (b) the process by which risk-based capital requirements are determined, including Northern Trust’s internal capital adequacy assessment process and (ii) promoting a culture that encourages ethical conduct and compliance with applicable rules and standards.
The Board has determined that all members of the Business Risk Committee are independent under SEC rules and NASDAQ listing standards.
Current Members: Directors Jain (Chair), Prado, Slark, and Tribbett
Number of Meetings in 2013: 4
The purpose of the Business Strategy Committee is to assist the Board in discharging its oversight duties with respect to: (i) the strategic direction of the Corporation, (ii) the strategic initiatives of the business units of Northern Trust, (iii) the management of strategic risk for Northern Trust, and (iv) (a) the integration of corporate social responsibility principles related to environmental and social practices into the strategic direction and strategic initiatives of Northern Trust and its business units and (b) the governance of those practices.
The Board has determined that all members of the Business Strategy Committee are independent under SEC rules and NASDAQ listing standards.
Compensation and Benefits Committee
Current Members: Directors Chabraja (Chair), Crown, Jain, Mooney, and Rowe
Number of Meetings in 2013: 5
The principal purpose of the Compensation and Benefits Committee is to (i) assist the Board in discharging its duties and responsibilities relating to (a) the compensation of the directors and executive officers of Northern Trust, (b) governance and oversight of Northern Trust’s compensation programs, and (c) management development and succession planning, and (ii) prepare the report required to be prepared by the Committee pursuant to SEC rules for inclusion in the Corporation’s annual proxy statement.
The Board has determined that all members of the Compensation and Benefits Committee are independent under SEC rules and NASDAQ listing standards.
In 2013, the Committee engaged Aon Hewitt, a nationally recognized compensation and benefits consulting firm, as its independent compensation consultant. During 2013, Aon Hewitt provided compensation and benefits advice to the Committee, including information regarding
competitive market data, relevant legal and regulatory requirements, and corporate best practices in the compensation and benefits area. The primary representative of Aon Hewitt advising the Committee attended all meetings of the Committee at which 2013 executive compensation decisions were made. The Corporation paid Aon Hewitt approximately $50,000 for the services it provided to the Committee in 2013.
Aon Hewitt and its affiliates provided unrelated services to the Corporation and The Northern Trust Company Pension Plan during 2013. These services included benefit and retirement plan administration services, market data services, and other consulting services. Aon Hewitt and its affiliates were paid approximately $4.0 million in fees for these unrelated services. The primary representative of Aon Hewitt advising the Committee did not participate in the provision of any of these services. The specific fees paid to Aon Hewitt and its affiliates for these services were not approved in advance by the Board of Directors or the Committee; however, the Board of Directors and the Committee were aware of the other services being provided to the Corporation by Aon Hewitt and its affiliates.
The Committee considered the independence of Aon Hewitt in light of SEC rules and NASDAQ listing standards, which include the following factors: (i) other services provided to the Corporation by the consultant; (ii) fees paid by the Corporation as a percentage of the consulting firm’s total revenue; (iii) policies or procedures maintained by the consulting firm that are designed to prevent a conflict of interest; (iv) any business or personal relationships between the individual consultants involved in the engagement and a member of the Committee; (v) any company stock owned by the individual consultants involved in the engagement; and (vi) any business or personal relationships between the Corporation’s executive officers and the consulting firm or the individual consultants involved in the engagement. In connection with its evaluation of the independence of Aon Hewitt, the Committee considered the unrelated services that Aon Hewitt and its affiliates provide to the Corporation and The Northern Trust Company Pension Plan as further discussed above and concluded that the provision of these services did not present any conflict of interest.
In February 2014, the Committee engaged Compensation Advisory Partners to replace Aon Hewitt as its independent compensation consultant due to the retirement from Aon Hewitt of the Committee’s primary advisor.
Corporate Governance Committee
Current Members: Directors Rowe (Chair), Crown, Lane, and Tribbett
Number of Meetings in 2013: 5
The purpose of the Corporate Governance Committee is to (i) identify and recommend to the Board candidates for nomination or appointment as directors, (ii) review the Board’s committee structure and recommend appointments to committees, (iii) develop and recommend, to the Board, Corporate Governance Guidelines applicable to the Corporation, (iv) advise the Board on the appointment of a successor in the event of the unanticipated death, disability or resignation of the Corporation’s CEO, after consultation with the Chairman of the Corporation’s Compensation and Benefits Committee, and (v) oversee the annual evaluation of the Board, in conjunction with the Board’s Lead Director.
The Board has determined that all members of the Corporate Governance Committee are independent under SEC rules and NASDAQ listing standards.
Current Members: Directors Waddell (Chair), Bynoe, Chabraja, Jain, Mooney, and Rowe
Number of Meetings in 2013: 1
The Board appoints an Executive Committee so that there will be a committee of the Board empowered to act for the Board, to the full extent permitted by law, between meetings of the Board. The Board expects that the Committee will meet only infrequently and in special circumstances such as when, in the judgment of the Committee, prompt action is needed and it is not practical to convene a Board meeting, or the matter is not consequential enough to submit to the full Board and action is needed before the Board’s next regularly scheduled meeting. The Executive Committee did not meet in 2013.
To be considered independent, the Board must affirmatively determine that a director has no relationship with Northern Trust which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and has no material relationship with Northern Trust (either directly or as a partner, shareholder or officer of an organization that has a relationship with Northern Trust). Northern Trust’s Corporate Governance Guidelines require that the Board be composed of a majority of directors who meet the criteria for “independence” under the listing standards of The NASDAQ Stock Market.
To assist the Board in making its independence determinations, the Board has adopted categorical standards. Under these standards, the following persons shall not be considered “independent”:
— | a director who is or was an employee or executive officer of the Corporation, or whose Family Member is or was an executive officer of the Corporation, at any time during the past three years; |
— | a director who receives or has received, or whose Family Member receives or has received, compensation from the Corporation in excess of $120,000 during any period of twelve consecutive months within the past three years, other than director and committee fees, benefits under a tax-qualified retirement plan, or other forms of non-discretionary compensation; provided, however, that compensation received by a Family Member of a director for service as an employee (other than an executive officer) of the Corporation need not be considered in determining independence; |
— | a director who is, or whose Family Member is, a current partner of the Corporation’s outside auditor, or who was a partner or employee of the Company’s outside auditor who worked on the Corporation’s audit at any time during any of the past three years; |
— | a director of the Company who is, or has a Family Member who is, employed as an Executive Officer of another entity where at any time during the past three years any of the Executive Officers of the Company serve on the compensation committee of such other entity; or |
— | a director who is, or whose Family Member is, a partner in, a controlling stockholder of, or an executive officer of, any organization to which the Corporation made, or from which the Corporation received, payments for property or services in the |
“Family Member” means a person’s spouse, parents, children and siblings, whether by blood, marriage or adoption, or anyone residing in such person’s home.
As discussed above, the Board of Directors has determined that each current director (other than Mr. Waddell who serves as Chairman and CEO) is independent of the Corporation in accordance with the Corporation’s Corporate Governance Guidelines and categorical standards.
In addition to the categorical standards, the Board also considers any transactions, relationships, or arrangements between the Corporation and a director that constitutes a related person transaction under the Northern Trust Corporation Policy and Procedures with respect to Related Person Transactions (the “Related Party Policy”).
For 2013, the Board considered the following categories and types of transactions, relationships, and arrangements, some of which are covered by the Related Party Policy, and, in each case, determined that they were immaterial and did not affect the independence of any director:
— | The Corporation paid for legal services from Vedder Price, a law firm at which Mr. Chabraja’s son is a partner. As a result of these payments, Mr. Chabraja is expected to be deemed an affiliated outside director under ISS Proxy Advisory Services guidelines. The Board, however, has confirmed Mr. Chabraja is independent for the following reasons: |
— | Mr. Chabraja meets all independence standards under SEC rules, NASDAQ listing standards and our categorical standards; |
— | The fees paid to the law firm where Mr. Chabraja’s son is a member amounted to less than $200,000 and less than 0.1% of the law firm’s consolidated gross annual revenue; |
— | The law firm where Mr. Chabraja’s son is a member was first retained by Northern Trust more than a decade ago, well before Mr. Chabraja was elected to the Board or his son joined the law firm; |
— | Mr. Chabraja’s son does not perform or supervise any legal services that the law firm provides to Northern Trust and does not receive any compensation based on the services the law firm provides to Northern Trust; and |
— | The Board is confident that the family and professional relationships described above do not affect Mr. Chabraja’s ability to exercise his independent judgment with respect to any matter before the Board or any of the Committees on which Mr. Chabraja serves. |
Section 16(a) Beneficial Ownership Reporting Compliance
— | During 2013, the Corporation paid net underwriting discounts to, and received net referral fees from Loop Capital Markets LLC, an entity at which a member of Ms. Bynoe’s immediate family was employed until the third quarter of 2013. Ms. Bynoe’s family member did not undertake any work or play an advisory or supervisory role on the transactions with the Corporation and did not receive compensation based on the services Loop Capital Markets LLC provides or has provided to the Corporation. The discounts paid and net referral fees received were on non-preferential terms in the ordinary course of business. The discounts paid and net referral fees received amounted to less than 1.0% of the consolidated gross annual revenue of Loop Capital Markets LLC during the most recent completed fiscal year. |
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Trust and related services | Chabraja, Lane, Mooney, Rowe, and Smith | |
Credit services and other banking services (e.g.,deposits, checking, treasury management) | Bynoe, Chabraja, Crown, Jain, Lane, Mooney, Prado, Rowe, Slark, Smith, and Tribbett | |
Asset servicing, asset management, securities lending, foreign exchange, and related services | Bynoe, Chabraja, Crown, Lane, Mooney, Prado, Rowe, Slark, Smith, and Tribbett | |
Qualified retirement plan services | Chabraja and Tribbett | |
Brokerage services | Bynoe, Chabraja, Crown, Jain, Lane, Rowe, Smith, and Tribbett |
Related Person Transaction Policy
The Board of Directors of the Corporation, through its Audit Committee, adopted the Related Party Policy, to govern the review, approval, or ratification of transactions between the Corporation or its subsidiaries and any related persons. “Related persons” means the Corporation’s directors, nominees for director, executive officers, greater than five percent beneficial owners, and members of their immediate family. The Related Party Policy also covers transactions in which any Related Person has an indirect interest.
The Related Party Policy provides that the Corporation may undertake certain pre-approved related person transactions in the ordinary course of business without specific review, approval or ratification, including the following pre-approved transactions:
— | An extension of credit to a related person that is made in the |
— | Certain other ordinary course transactions in which the Corporation or its subsidiaries provide products or services to related persons on terms no less favorable to the Corporation and its subsidiaries as those prevailing at the time for comparable services to non-related persons; |
— | A transaction involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture, or similar services; |
— | A transaction where the rates or charges involved in the transaction are determined by competitive bids, or the transaction involves the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; |
— | A transaction with another company at which a related person’s only relationship is as an employee, a limited partner or a beneficial
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— | Contributions or grants, or pledges of contributions or grants, by the Corporation,
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— | Transactions where the related person’s interest arises solely from the ownership of the Corporation’s common stock |
— | Compensation paid to executive officers and directors of
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Any other related person transaction involving amounts in excess of $120,000 must be approved or ratified by the Audit Committee or the Audit Committee Chair. In considering related person transactions, the Audit Committee or the Audit Committee Chair shall consider all relevant facts and circumstances and shall approve only those related person transactions that are in, or otherwise not inconsistent with, the best interests of the Corporation and its subsidiaries.
In 2013, certain related persons were clients of, and engaged in the types of transactions identified in the bullet points above with, the Corporation and one or more of its subsidiaries. These transactions were undertaken in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral for loan transactions) as those prevailing at the time for comparable transactions with other persons not related to the Corporation or the Northern Trust entities involved in the transactions. None of the transactions involved more than the normal risk of collectability or presented other unfavorable features. None of the transactions or any transactions in which the Corporation or any of its subsidiaries sold or purchased products and services were material to the Corporation or the Northern Trust entities involved in the transactions, and none require
disclosure pursuant to Item 404(a) of Regulation S-K of the Securities Exchange Act of 1934. Any extensions of credit to directors and executive officers of the Corporation were permitted under the provisions of Section 13(k) of the Securities Exchange Act of 1934.
The independent directors of the Corporation met in executive sessions separate from management six times during 2013. The Lead Director or, in his absence, another independent director designated by the Lead Director presides at executive sessions of the independent directors.
Board Leadership Structure; Lead Director
The current leadership structure of the Board of Directors consists of a combined Chairman and CEO position and a Lead Director appointed annually by the Corporation’s independent directors.
The Board of Directors has determined that combining the positions of Chairman and CEO is the most appropriate for the Corporation at this time. Having one person as Chairman and CEO provides unified leadership and direction to the Corporation and strengthens the ability of the CEO to develop and implement strategic initiatives and respond efficiently in crisis situations. The Board believes the combination of the Chairman and CEO positions is appropriate in light of the substantial independent oversight provided by the Board of Directors. The Board also believes that the desire for independent leadership of the Board is sufficiently balanced by the prominent role of the Lead Director.
The Lead Director’s primary duties are described in the Corporation’s Corporate Governance Guidelines. Among other things, the Lead Director’s duties include (i) approving meeting agendas for the Board and the nature of information sent to the Board, (ii) approving Board meeting schedules to assure that there is sufficient time for discussion of all Board agenda items, (iii) the authority to call at any time a special meeting of the Board or a special executive session of the independent directors, (iv) the authority to add items to the agenda of any regular or special meeting of the Board, (v) preparing the agenda for all regular and any special executive sessions of the independent directors, (vi) presiding at all regular and special meetings of the Board at which the Chairman is not present, (vii) presiding at all regular and any special executive sessions of the independent directors, (viii) serving as a liaison between the independent directors and the Chairman and CEO, (ix) conducting, by means of an interview with each independent director, the independent directors’ annual evaluation of the Chairman and CEO’s performance and then communicating the results to the Compensation and Benefits Committee and to the Chairman and CEO, (x) conducting, by means of an interview with each director, including the Chairman and CEO, the Board’s annual self-evaluation of its performance and then providing a summary report to the Board, (xi) meeting with regulators periodically separate from management, and (xii) being available for consultation and direct communication with major stockholders. A copy of the Corporate Governance Guidelines is available on the Corporation’s website at www.northerntrust.com.
The Board of Directors provides oversight of risk management directly as well as through its Audit, Business Risk, Business Strategy, and Compensation and Benefits Committees.
The Audit Committee provides oversight with respect to risks relating to financial reporting and the legal component of compliance risk. The Business Strategy Committee provides oversight with respect to strategic risk for the Corporation and its subsidiaries.
The Business Risk Committee provides oversight with respect to the following risks inherent in Northern Trust’s businesses: credit risk, market and liquidity risk, fiduciary risk, operational risk, and the regulatory component of compliance risk. The Board of Directors has approved a corporate risk appetite statement articulating the Corporation’s expectation that risk is consciously considered as part of strategic decisions and in day-to-day activities. The Corporation’s business units are expected to manage business activities consistent with the corporate risk appetite statement. For a further description of the risk management policies and practices of the Corporation’s management, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management” in the Corporation’s 2013 Annual Report to Stockholders.
The Compensation and Benefits Committee, at least annually, conducts a review, with input of risk management personnel, of management’s assessment of the effectiveness of the Corporation’s incentive compensation arrangements and practices to assess the extent to which such arrangements and practices discourage inappropriate risk-taking behavior by participants and are consistent with the Corporation’s safety and soundness.
The charters for the Audit, Business Risk, Business Strategy, and Compensation and Benefits Committees provide that the Committees may meet with the individuals who supervise day-to-day risk management responsibilities of the Corporation and other members of management, consultants or advisors, as each Committee deems appropriate.
Corporate Governance Guidelines
The Corporation has had Corporate Governance Guidelines in place since 2000. The Corporate Governance Committee reviews and reassesses the adequacy of the Corporate Governance Guidelines at least annually and recommends any changes to the Board of Directors for approval. Northern Trust’s Corporate Governance Guidelines embody many of the Corporation’s long-standing practices and incorporate new policies and procedures that strengthen its commitment to corporate governance best practices. A copy of the Corporate Governance Guidelines is available on the Corporation’s website at www.northerntrust.com.
Code of Business Conduct and Ethics
The Board of Directors of the Corporation has adopted a Code of Business Conduct and Ethics to:
— | Promote honest and ethical conduct, including fair dealing and the |
— | Promote full, fair, accurate, timely, and understandable public disclosure about the |
— | Promote compliance with applicable laws and |
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The Code of Business Conduct and Ethics satisfies applicable SEC and NASDAQ requirements and applies to all directors, officers (including the Corporation’s principal executive officer, principal financial officer, principal accounting officer and controller), and employees of the Corporation and its subsidiaries. The Corporation intends to disclose any amendments to, or waivers from, the Code of Business Conduct and Ethics for directors and executive officers, by posting such information on its website. A copy of the Code of Business Conduct and Ethics is available on the Corporation’s website at www.northerntrust.com.
Management Development and Succession Planning
The Compensation and Benefits Committee oversees executive management and succession planning. Pursuant to the Corporate Governance Guidelines and the charter for the Compensation and Benefits Committee, the Compensation and Benefits Committee conducts an annual management development and succession planning review. All of the Corporation’s directors are invited to and typically all participate in this review. Following the review, the Compensation and Benefits Committee makes recommendations concerning management development and succession planning. This management review process also includes a review of other senior employees of the Corporation, with a focus on developing internal candidates for advancement within the Corporation.
In connection with setting the compensation of the Corporation’s Chairman and CEO, the Compensation and Benefits Committee and the Board of Directors review the performance of the Chairman and CEO in light of the Chairman and CEO’s responsibilities to the Corporation, including the development of short-term and long-term strategic plans, goals and objectives, the development of an effective senior management team, positioning of the Corporation for current and future success, and effective communications with all of the Corporation’s constituencies. These criteria, among others, would also be considered by the Board of Directors in evaluating any successor Chairman and CEO candidates.
In the event of the unexpected death, incapacity, or resignation of the Chairman and CEO, pursuant to its charter, the Corporate Governance Committee will discuss and make a recommendation to the Board of Directors, after consultation with the Chairman of the Compensation and Benefits Committee, for an appropriate successor. The Board of Directors also has adopted a Business Continuity Plan that, among other things, delineates a process for appointing an interim Chairman and CEO in the event the Chairman and CEO becomes incapacitated.
Director Nominations and Qualifications
The Corporate Governance Committee is responsible for considering, evaluating, and recommending candidates for director. The Committee will consider persons nominated by stockholders in accordance with the nomination procedures specified in the Corporation’s By-laws or otherwise recommended by stockholders. The Corporation’s By-laws provide that stockholders may propose director nominations only if they give timely written notice, directed to the attention of the Corporation’s Corporate Secretary at the address indicated on the cover page of this Proxy Statement, not less than 120 days prior to the anniversary date of the prior year’s Annual Meeting. If such Annual Meeting is called for a date that is not within 30 days before or after the anniversary date of the prior year’s Annual Meeting, notice by the stockholder in order to be timely must be received within ten business days after notice of such subsequent Annual Meeting. In either case, the notice must contain the information required by the Corporation’s By-laws. Stockholders may also recommend candidates for director by following the procedures for communicating with directors described below under “Communications with the Board and Independent Directors” on page 22.
In its evaluation of director candidates, including persons recommended by stockholders, the Committee considers the factors specified in the Corporation’s Corporate Governance Guidelines to ensure the Board has a diversity of perspectives and backgrounds, including the nature of the expertise and experience required for the performance of the duties of a director of a corporation engaged in the Corporation’s business and such matters as: relevant business and industry experience, professional background, age, current employment, community service, and other Board service. The Committee also considers the racial, ethnic, and gender diversity of the Board in assessing candidates. The Committee seeks to identify, as candidates for director, persons with a reputation for and record of integrity and good business judgment who (i) have experience in positions with a high degree of responsibility and are leaders in the organizations with which they are affiliated, (ii) are free from conflicts of interest that could interfere with a director’s duties to the Corporation and its stockholders, and (iii) are willing and able to make the necessary commitment of time and attention required for effective Board service. The Committee also takes into account a candidate’s level of financial literacy, and monitors the mix of skills and experience of the directors in order to assess whether the Board has the necessary tools to perform its oversight function effectively. A full listing of the characteristics and qualifications of director candidates considered by the Committee is set forth in the Corporate Governance Guidelines on the Corporation’s website at www.northerntrust.com. Following its evaluation process, the Committee recommends its director nominees to the full Board of Directors, and the Board makes the final determination of director nominees based on its consideration of the Committee’s recommendation and report.
The Corporation recognizes the importance of stockholder engagement to help our investors understand our performance and strategies and to allow our stockholders to express their views on issues important to the Corporation. Accordingly, it is the Corporation’s practice to proactively and routinely engage with stockholders throughout the year. Consistent with our proactive engagement with stockholders, during 2013, we reached out to certain institutional stockholders to invite their feedback on governance issues, executive compensation, and other matters.
Communications with the Board and Independent Directors
Stockholders and other interested persons may communicate with any of the Corporation’s directors, including the Lead Director or the non-management directors as a group, by writing a letter addressed to the applicable director(s), c/o Northern Trust Corporation, 50 South La Salle Street, M-9, Chicago, Illinois 60603, Attention: Corporate Secretary. Northern Trust’s Corporate Secretary will forward communications directly to the Lead Director, unless a different director is specified.
Any stockholder or other interested person who has a particular concern regarding accounting, internal accounting controls, or other audit matters that he or she wishes to bring to the attention of the Audit Committee may communicate those concerns to the Audit Committee or its Chairman, using the address indicated above. Any written communication regarding accounting, internal accounting controls, or other matters are processed in accordance with procedures adopted by the Audit Committee.
Securities Trading Policy and Policy Against Hedging
Our securities trading policy prohibits directors, employees, including our named executive officers, and certain of their family members from purchasing or selling any type of security, whether issued by us or another company, while such person is aware of material non-public information relating to the issuer of the security or from providing such material non-public information to any person who may trade while aware of such information. This policy also prohibits directors, employees, and certain of their family members from engaging in short selling, margining, and the pledging or hypothecation of Northern Trust securities, and trading in options, warrants, puts and calls or similar instruments on Northern Trust securities, except for pledging or hypothecation in connection with the cashless exercise of Northern Trust stock options.
SECURITY OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the beneficial ownership of the Corporation’s common stock as of December 31, 2013 for each director, each named executive officer, and all directors and named executive officers of the Corporation as a group.
Name of Beneficial Owner | Shares (1) | Shares under Exercisable Options (2) | ||
Non-Employee Directors: | ||||
Linda Walker Bynoe | 18,093 | — | ||
Nicholas D. Chabraja | 14,469 | — | ||
Susan Crown | 44,671 | — | ||
Dipak C. Jain | 30,874 | — | ||
Robert W. Lane | 14,178 | — | ||
Edward J. Mooney | 17,321 | — | ||
Jose L. Prado | 3,700 | — | ||
John W. Rowe | 47,187 | — | ||
Martin P. Slark | 4,769 | — | ||
David H.B. Smith, Jr. (3) | 25,277 | — | ||
Charles A. Tribbett III | 26,844 | — | ||
Named Executive Officers: | ||||
Frederick H. Waddell | 288,677 | 1,094,771 | ||
Michael G. O’Grady | — | 79,523 | ||
Steven L. Fradkin | 95,520 | 344,860 | ||
William L. Morrison | 84,818 | 475,243 | ||
Jana R. Schreuder | 43,776 | 353,558 | ||
All directors and executive officers as a group (22 persons) | 941,303 | 3,400,433 |
(1) Except as noted below, the nature of beneficial ownership for shares shown in this table is sole voting and/or investment power (including shares as to which spouses and minor children of the individuals covered by this table have such power). As of December 31, 2013, the number of shares of the Corporation’s common stock beneficially owned by the directors and executive officers as a group was 1.83%.
(2) Amount of shares includes options that are exercisable as of December 31, 2013 and options that become exercisable within 60 days thereafter.
(3) Mr. Smith is co-trustee with another individual on two separate trusts. He shares voting and investment power for 500 shares held in one trust and 1,704 in another trust. He is also a beneficiary of a trust that holds 1,362,880 shares. As Mr. Smith has no investment or voting power with respect to these shares, they are not reflected in the table.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Corporation’s directors, executive officers, and beneficial owners of more than 10% of the Corporation’s stock to file with the SEC initial reports of ownership and reports of changes in ownership of any securities of the Corporation. Based solely on the Corporation’s review of the reports that have been filed by or on behalf of such reporting persons in this regard and written representations from such reporting persons that no other reports were required, the Corporation believes that all reports required by Section 16(a) of the Securities Exchange Act of 1934, as amended, were made on a timely basis during or with respect to 2013, except for a Form 4 filed for the Corporation’s former Controller, Richard D. Kukla, on February 4, 2013 to report a transaction that should have been reported by February 1, 2013.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table includes information concerning stockholders who were the beneficial owners of more than 5% of the outstanding shares of the Corporation’s common stock as of December 31, 2013. The beneficial ownership information for the Bank relates to shares held by trusts and other fiduciary accounts for which the Bank and its affiliates individually acted as sole or co-fiduciary.
Name and Address | Shares | Percent of Class | ||||||
The Northern Trust Company (1) | 22,320,133 | 9.4 | % | |||||
T. Rowe Price Associates, Inc. (2) | 16,828,249 | 7.1 | % |
(1) As of December 31, 2013, the Bank and its affiliates individually acted as sole or co-fiduciary with respect to trusts and other fiduciary accounts which owned, held or controlled through intermediaries the securities. This aggregate number of shares includes 1,362,880 shares held by the trust described in footnote 3 to the “Security Ownership by Directors and Executive Officers” table in this Proxy Statement, or less than 0.6% of the outstanding common stock. Of these shares, the Bank and its affiliates had sole voting power with respect to 8,552,248 shares or 3.6% of the outstanding common stock, and they shared voting power with respect to 11,965,872 shares or 5.0% of the outstanding common stock. They had sole investment power with respect to 2,143,781 shares or 0.9% of the outstanding common stock, and they shared investment power with respect to 13,072,504 shares or 5.5% of the outstanding common stock.
(2) These securities are owned by various individual and institutional investors, for which T. Rowe Price Associates, Inc. (Price Associates) serves as an investment adviser with power to direct investments and, in certain cases, sole power to vote the securities. For the purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. Of these shares, Price Associates had sole voting power with respect to 5,084,416 shares or 2.1% of the outstanding common stock, and they did not have shared voting power with respect to any such shares. Price Associates had sole investment power with respect to all such shares.
ITEM 2—ADVISORY VOTE ON EXECUTIVE COMPENSATION
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Corporation is required to include in this Proxy Statement a separate resolution, subject to an advisory vote, to approve the compensation of our named executive officers as disclosed in this Proxy Statement (commonly referred to as a “Say-on-Pay” advisory vote). Accordingly, the Board of Directors is requesting that stockholders vote FOR approval of the following resolution:
“Resolved, that the compensation paid to the Corporation’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K of the Securities Exchange Act of 1934, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby APPROVED.”
As an advisory vote, this proposal is not binding on the Corporation. Although the vote is non-binding, the Board of Directors and the Compensation and Benefits Committee value the opinions of our stockholders and, consistent with past practice, will consider the outcome of the vote when determining compensation policies and making future compensation decisions for our named executive officers.
As outlined in the Compensation Discussion and Analysis that begins on page 26 of this Proxy Statement, the Corporation’s executive compensation program is designed to attract, motivate, and retain individuals who will contribute to the Corporation’s success and the creation of stockholder value. The Compensation and Benefits Committee believes that executive officers are most effectively motivated when their incentive compensation is tied to the Corporation’s overall performance as well as their individual performance. That is why a significant portion of each executive officer’s short-term and long-term incentive compensation is variable and depends on such performance. Long-term incentive compensation delivered through annual equity awards is the most significant element of the Corporation’s executive compensation program. The Compensation and Benefits Committee believes that this emphasis on equity-based compensation aligns the interests of executive officers with our stockholders, discourages inappropriate risk-taking, and encourages executive officers to appropriately consider and control risk factors, which furthers the Corporation’s risk-mitigation strategy. In addition, the Corporation has adopted policies, like stock ownership guidelines, and incorporated provisions into compensation plans, like forfeiture and clawback provisions, to ensure long-term focus and discourage inappropriate risk-taking by executive officers.
The Corporation’s conservatively managed executive compensation philosophy, coupled with its sound balance sheet and prudent business model, have contributed to the Corporation’s strong strategic and financial positioning, despite an increasingly regulated and a persistent low interest rate environment. In 2013, the Corporation reported 2013 net income of $731.3 million, diluted earnings per share of $2.99, and a pre-tax profit margin of 27.0%. The Corporation’s 2013 return on equity increased to 9.5% from 9.3% in the prior year. For the period ending December 31, 2013, the Corporation’s average three and five year returns on equity were 9.2% and 10.1%, respectively, compared to the peer group medians of 9.5% and 4.7%, respectively.
The Board of Directors unanimously recommends that you voteFOR this proposal.
Compensation Discussion and Analysis
In 2013, the performance and achievements of our named executive officers helped Northern Trust deliver sound financial results in a challenging global economic environment and accelerate the strategic initiatives of the organization. New business the integration of recent acquisitions, and our measured approach to managing the business contributed to the Corporation’s continued strong financial position.
Appropriately linking the compensation of our named executive officers to the performance of our business is important to the continued growth and success of Northern Trust. Accordingly, performance is the most significant driver of compensation decisions. The following charts summarize our performance in 2013 and highlight important considerations in the development, review and approval of our 2013 named executive officers’ compensation.
2013 Performance | ||
2013 Financial Results | — Net income was $731.3 million in 2013, an improvement of 6.4% from $687.3 million in 2012 — Trust, investment and other servicing fees, which represent the single largest source of revenues to the Corporation, increased 8% in 2013 — Our Driving Performance initiative, announced in 2012 to improve productivity, delivered significant pre-tax income benefits in the year and exceeded our target of $250 million in pre-tax income improvement — Our pre-tax profit margin improved to 27.0% in 2013 from 25.5% in 2012 — Northern Trust’s return on equity was 9.5% in 2013, an increase from 9.3% in 2012 and represents progress toward our long-term target of 10-15% | |
Capital Planning | — The Corporation’s capital ratios are well above the ratios that are a requirement for regulatory classification as “well-capitalized” — Our capital actions for the year included an increase in the quarterly dividend to $0.31 per share and the repurchase of 5.5 million common shares, returning $609 million in capital to our stockholders — The Federal Reserve did not object to the Corporation’s | |
Risk Management | — Our risk profile remained strong,
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Strategic Developments | — Assets under management rose 17% to $884.5 billion, while assets under custody rose 16% to $5.575 trillion — Our growth in clients continues to be diversified across our businesses, services and geographies — We continue to expand our geographic footprint by establishing new offices in Germany and Saudi Arabia in 2013 |
Guiding Principles for Executive Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation Philosophy | — Attract, motivate and retain the — Link compensation to — Align programs with stockholder interests — Position pay competitively in the — Discourage inappropriate risk-taking
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Total Pay Guidelines | — 80% to 90% of total pay opportunity focused on variable incentives
— Chairman and CEO — Advice of independent compensation consultant — Peer bank pay practices — Current and historical compensation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 Compensation Decisions | — Base salaries remain unchanged for named executive officers, except for Mr. O’Grady and Mr. Morrison — Annual cash awards — determined in 2014 for 2013 performance — reflect that earnings for 2013 increased 6.4% from the prior year — Long-term incentive compensation awarded as follows: — 50% as performance stock units (up from one-third in 2012) — 25% as stock options (down from one-third in 2012) — 25% as restricted stock units — Expanded risk-based forfeiture and clawback provisions in certain equity awards beginning in February 2013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2014 Compensation Program Updates | — Performance stock units granted in 2014 pay out at 100% only if the Corporation achieves a return on equity of 10%, in line with the
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2013 Compensation Decisions for Named Executive Officers
In determining total compensation for the named executive officers, including Mr. Waddell, the Committee considered a variety of performance factors. The Committee considered the Corporation’s 2013 financial performance as well as each officer’s success in achieving his or her individual qualitative performance objectives. The Committee also considered the total compensation paid to similarly-situated executives by the Corporation’s peers. Although the same methodology is used to determine the compensation paid to the Chairman and Chief Executive Officer as for any other executive officer, Mr. Waddell’s compensation is measurably higher than the compensation paid to the other named executive officers due to his significantly greater responsibilities and obligations to the Corporation.
Chairman and Chief Executive Officer
For his service as Northern Trust’s Chairman and Chief Executive Officer in 2013, Mr. Waddell received total compensation of $9,168,000, compared to $11,083,195 for 2012. Mr. Waddell’s compensation for 2013 reflects each of the elements of the Corporation’s 2013 performance presented on page 26 of this Proxy Statement as his leadership was instrumental to these achievements. Mr. Waddell’s compensation also reflects his role in developing the senior leaders of the Corporation and maintaining a strong group of leaders in our succession plan. Consistent with the Corporation’s philosophy of aligning pay with performance, the Committee determined that Mr. Waddell’s total 2013 compensation should compare favorably with the median compensation among the Corporation’s peer companies, relative to size, financial results, and stockholder returns.
Base Salary
The Committee determined that Mr. Waddell’s salary should remain unchanged for 2013, although it remained modestly lower than the 2012 salary of the Corporation’s peer group, adjusted for size, financial results, and stockholder returns.
Short-Term Annual Cash Incentive
Under the provisions of the Management Performance Plan, the Corporation’s reported earnings of $731.3 million in 2013 provided for a maximum funding opportunity for Mr. Waddell of $4,387,992. Taking into consideration available competitive market data, the Corporation’s 2013 performance, and Mr. Waddell’s success in achieving his individual qualitative performance objectives, the Committee set Mr. Waddell’s actual cash incentive award at $1,900,000 for 2013, as compared to $2,000,000 for 2012. The year over year decrease in the Chairman and CEO’s annual cash incentive award was consistent with the Corporation’s 2013 financial performance. Our earnings for 2013 increased 6.4% relative to 2012 meeting, the Committee determined that the Chairman and CEO’s salary should remain unchanged. This decision was guided by competitive market data from peer group companies, as well as the Chairman and CEO’s performance and tenure in the position.
At its February 2013 meeting, the Committee determined that the Chairman and CEO’s salary should remain unchanged, although it is modestly lower than the 2012 salary of the Corporation’s peer group, adjusted for size, financial results, and shareholder returns.
Short-Term Annual Cash Incentive
Under the provisions of the MPP, the reported earnings of $687.3 million in 2012 provided for a maximum funding opportunity for the Chairman and CEO of $4,123,800. Additionally, based on the peer group market data, the Committee determined that the peer group median cash incentive level, adjusted for size, financials, and returns, was slightly below $2,000,000.
Taking into consideration the limits set forth in the MPP, the available competitive market data, as well as the performance measures and individual objectives as listed above, the Committee determined the Chairman and CEO’s actual cash incentive award to be $2,000,000 for 2012. Compared to the 2011 cash incentive award of $1,600,000, the year over year increase in the Chairman and CEO’s 2012 award reflected that the Corporation’s earnings for 2012 were up 14% relative to 2011. In addition, ROE improved to 9.3% from 8.6% and growth in new business was strong. The Corporation’s return on equity improved to 9.5% from 9.3% but was below our externally communicated target range. For 2013, Mr. Waddell’s individual qualitative performance objectives related to leadership, compliance, client service, corporate social responsibility, employee relations, communication, ethics, diversity, and the development of senior officers.
Long-Term Incentive
In determining the total long-term incentive award for the Chairman and CEO,Mr. Waddell, the Committee took into account the Corporation’s 2013 performance, measures listed above, as well as the median and total compensation packages paid by the Corporation’s peers, adjusted for size, financial results, and shareholderstockholder returns. Based on these factors, as well as our objective to make long-term compensation the most significant component of overall compensation, the Committee set the Chairman and CEO’s long-term incentive compensation award in respect of 2012for 2013 performance granted in 2013, at $6,650,000, which was above the 2012 long-term compensation level reported by our peer companies, and lower than the Chairman and CEO’sequal to his long-term incentive award of $7,000,000$6,650,000 made in 20122013 for 20112012 performance.
Pension Benefits
In 2013, Mr. Waddell’s pension value decreased by $444,845, compared to an increase in 2012 of $3,839,003, primarily due to the increase in the discount rate used to calculate the pension from 4.25% to 5.00% at December 31, 2013. See “Pension Benefits” beginning on page 55 of this Proxy Statement for additional information on how benefits accrue under the Pension Plan.
Total Chairman and CEO Compensation
The chart below provides an overview of the Committee’s decisions with respect to the salary and incentive compensation awarded to the Chairman and CEO for his 2013 and 2012 performance. As illustrated in the following chart, the Chairman and CEO’s salary and incentive compensation increased less thandecreased by 1% from 20112012 to 2012.2013.
Salary and Incentive Compensation1 | ||||||||||||||||||||||||||||||||
Name | Annual Compensation | |||||||||||||||||||||||||||||||
Incentive Compensation3 | ||||||||||||||||||||||||||||||||
Year | Salary2 | Cash | PSUs | Stock Options4 | RSUs | Long- term Cash | Total | |||||||||||||||||||||||||
Frederick H. Waddell | 2012 | $ | 975,000 | $ | 2,000,000 | $ | 3,325,000 | $ | 1,662,500 | $ | 1,662,500 | $ | 0 | $ | 9,625,000 | |||||||||||||||||
2011 | $ | 956,250 | $ | 1,600,000 | $ | 2,333,333 | $ | 2,333,333 | $ | 0 | $ | 2,333,334 | $ | 9,556,250 |
Year | Annual Compensation | Total | ||||||||||||||||||||
Salary | Incentive Compensation (1) | |||||||||||||||||||||
Cash | Performance Stock Units | Stock Options (2) | Restricted Stock Units | |||||||||||||||||||
2013 | $ | 975,000 | $ | 1,900,000 | $ | 3,325,000 | $ | 1,662,500 | $ | 1,662,500 | $9,525,000 | |||||||||||
2012 | $ | 975,000 | $ | 2,000,000 | $ | 3,325,000 | $ | 1,662,500 | $ | 1,662,500 | $9,625,000 |
1
(1) The Salary and Incentive Compensation chart above is an overview of the Committee’s salary, cash incentive,performance stock units, stock options, RSUs, PSUs and deferred cash compensation decisionsrestricted stock units included for the Chairman and CEO with respect2013 were granted to 2012 and 2011. The long-term incentives describedMr. Waddell in 2014 for 2012 were in fact made inhis 2013 in respect of 2012 performance and thus doaccordingly are not appearincluded in the Summary“Summary Compensation Table on page 60 ofTable” in this proxy statement. Further details of the Chairman and CEO’s compensation in 2012 can be found in the Summary Compensation Table on page 60 of this proxy statement.Proxy Statement.
2 Actual salary paid in that year.
3Incentives earned for performance in that year but paid/granted in the following year (e.g. stock options listed for 2011 were granted in 2012 based on performance in 2011). The value of these awards is listed in the Summary Compensation Table for the year of grant pursuant to SEC rules.
4(2) Northern Trust’s policies and internal valuation methodology treat stock options as having a value equal to one-third of the grant price. This valuation methodology is reflected in the chart above. A different valuation methodology is required to be used in the Summary“Summary Compensation Table pursuant to the SEC rules.Table” in this Proxy Statement.
The mix of total compensation for our Chairman and CEO, as illustrated in the chart below, demonstrates our emphasis on variable compensation withand belief that long-term incentives should be the most significant focus on long-term incentive components.element of overall compensation.
Other named executive officers
In determining total compensation for the named executive officers, the Committee reviews the Corporation’s business performance, the individual’s achievement of objectives, and the total compensation packages paid by the Corporation’s peers (see pages 41-42 of this proxy statement for more details on the peer group). The Committee considered a variety of performance factors for each individual, as indicated below:
William L. Morrison
Mr. Morrison is the Corporation’s President and Chief Operating Officer. To determine the size of each element in Mr. Morrison’s total compensation package, in addition to the business results listed above (see pages 32-33), the Committee considered a variety of performance factors including:
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Additionally, the Committee considered Mr. Morrison’s success in achieving his individual non-financial performance objectives related to leadership, compliance and risk management, client service, employee relations, communication, ethics and diversity, and development of senior officers.
At its meeting in February 2013, based on performance, his tenure in the role, and updates in the competitive salary market data among the Corporation’s peer group companies, the Committee chose to increase the base salary for Mr. Morrison, by $100,000.
Based on the target and limits set forth in the MPP for Mr. Morrison, as well as the Corporation’s performance and achievement of Mr. Morrison’s individual objectives, the Committee set a cash incentive of $1,000,000 for Mr. Morrison.
In determining the total long-term incentive award made to Mr. Morrison in 2013 in respect of 2012 performance (which does not appear in the Summary Compensation Table on page 60 of this proxy), the Committee took into account the Corporation’s performance, as well as the total compensation levels among the Corporation’s peers, adjusted for size, financial results, and shareholder returns. Based on these factors, the Committee set a long-term award of $3,350,000 for Mr. Morrison.
Michael G. O’Grady
For his service as Northern Trust’s Chief Financial Officer in 2013, Mr. O’Grady received total compensation of $3,290,587, compared to $2,618,607 for 2012. As Northern Trust’s Chief Financial Officer, Mr. O’Grady is the Corporation’s Executive Vice Presidentprimarily responsible for financial reporting and Chief Financial Officer. He heads the Corporate Financial Management Group.control, management reporting and analysis, liquidity management, capital planning, and investor relations. To determine the size of each element in Mr. O’Grady’s total2013 compensation, package, in addition to the business results listed above (see pages 32-33), the Committee considered a variety ofhow well Mr. O’Grady fulfilled his responsibilities in 2013. Mr. O’Grady’s compensation also reflects the following performance factors including:factors:
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— | The Driving Performance initiative |
— | The Corporation maintained an active investor relations program in |
TheIn addition, the Committee also considered Mr. O’Grady’s success in achieving his individual non-financialqualitative performance objectives related to leadership, compliance and risk management, employee relations, communication, ethics, and diversity, and development of senior officers.talent.
At its meeting in February 2013, basedBased on updates in the competitive salary market data among the Corporation’s peer group companies, the Committee chose to increase the annual base salary for Mr. O’Grady by $25,000.$25,000 to $600,000 for 2013.
Based on the target and limits set forth in the MPPManagement Performance Plan for Mr. O’Grady, as well as the Corporation’s performance and achievement of Mr. O’Grady’s individual objectives, the Committee setdetermined a 2013 annual cash incentive of $750,000 for Mr. O’Grady.
In determining the total long-term incentive grant made to Mr. O’Grady in 2014 for 2013 in respect of 2012 performance, (which does not appear in the Summary Compensation Table on page 60 of this
proxy), the Committee took into account the Corporation’s performance, as well as the total compensation levels among the Corporation’s peers, adjusted for size, financial results, and shareholderstockholder returns. Based on these factors, the Committee set a long-term award of $2,000,000 for Mr. O’Grady.
Steven L. Fradkin
Mr. Fradkin isFor his service as President of the Corporate & Institutional Services business unit (“C&IS”). in 2013, Mr. Fradkin received total compensation of $3,287,560, compared to $3,750,678 for 2012. To determine the size of each element in Mr. Fradkin’s total2013 compensation, package, in addition to the business results listed above (see pages 32-33), the Committee considered a variety of performance factors including:
— | C&IS net income was $335.7 million in 2013 compared with $289.2 million in |
— | C&IS assets under custody increased |
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The Committee also considered Mr. Fradkin’s success in achieving his individual non-financialqualitative performance objectives related to leadership, compliance and risk management, client service, employee relations, communication, ethics, and diversity, and development of senior officers.talent.
At its meeting in February 2013, basedBased on updates in the competitive salary market data among the Corporation’s peer group companies, the Committee chose to leave the base salary for Mr. Fradkin unchanged resulting in a salary level for Mr. Fradkin that remained consistent with salaries for similar positions among the Corporation’s peer group.2013.
Based on the target and limits set forth in the MPPManagement Performance Plan for Mr. Fradkin, as well as the Corporation’s performance and achievement of Mr. Fradkin’s individual objectives, the Committee setdetermined a 2013 annual cash incentive of $800,000 for Mr. Fradkin.
In determining the total long-term incentive grant made to Mr. Fradkin in 2014 for 2013 performance, the Committee took into account C&IS performance, as well as the total compensation levels among the Corporation’s peers, adjusted for size, financial results, and stockholder returns. Based on these factors, the Committee set a long-term award of $2,000,000 for Mr. Fradkin.
William L. Morrison
For his service as Northern Trust’s President and Chief Operating Officer in 2013, Mr. Morrison received total compensation of $4,931,512, compared to $4,676,225 for 2012. As Northern Trust’s President and Chief Operating Officer, Mr. Morrison is primarily responsible for the Corporation’s business operations. To determine Mr. Morrison’s 2013 compensation, the Committee considered how well Mr. Morrison fulfilled his responsibilities in 2013. Mr. Morrison’s compensation also reflects the following performance factors:
— | Net income was $731.3 million, an increase of 6.4% from 2012. |
— | Return on equity improved in 2013 to 9.5% from 9.3% in 2012 and represents progress toward our externally communicated long-term target of 10-15%. |
— | The Driving Performance initiative delivered significant pre-tax income benefits in the year and exceeded our target of $250 million in pre-tax income improvement in 2013. |
— | Both our C&IS and Wealth Management business units had strong new business in 2013. |
— | In 2013, significant progress was made in furthering the Corporation’s strategic initiatives around technology under Mr. Morrison’s leadership. |
In addition, the Committee considered Mr. Morrison’s success in achieving his individual qualitative performance objectives related to leadership, compliance and risk management, client service, employee relations, communication, ethics, diversity, and development of senior officers.
Based on competitive salary market data among the Corporation’s peer group companies, the Committee chose to increase the annual base salary of Mr. Morrison by $100,000 to $800,000.
Based on the limits set forth in the Management Performance Plan for Mr. Morrison, as well as the Corporation’s performance and achievement of Mr. Morrison’s individual objectives, the Committee determined a 2013 annual cash incentive of $1,000,000 for Mr. Morrison.
In determining the total long-term incentive award made to Mr. Morrison in 2014 in respect of 20122013 performance, (which does not appear in the Summary Compensation Table on page 60 of this proxy), the Committee took into account the Corporation’s performance, as well as the total compensation levels among the Corporation’s peers, adjusted for size, financial results, and shareholderstockholder returns. Based on these factors, the Committee set a long-term award of $2,000,000$3,250,000 for Mr. Fradkin.Morrison.
Jana R. Schreuder
Ms. Schreuder isFor her service as President of the Personal Financial ServicesWealth Management business unit (“PFS”).in 2013, Ms. Schreuder received total compensation of $3,282,196, compared to $4,205,792 for 2012. To determine the size of each element in Ms. Schreuder’s total2013 compensation, package, in addition to the business results listed above (see pages 32-33), the Committee considered a variety of performance factors including:
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The Committee also considered Ms. Schreuder’s success in achieving her individual non-financialqualitative performance objectives related to leadership, compliance and risk management, client service, employee relations, communication, ethics, and diversity, and development of senior officers.
At its meeting in February 2013, basedBased on updates in the competitive salary market data among the Corporation’s peer group companies, the Committee chose to leave the base salary for Ms. Schreuder unchanged resulting in a salary level for Ms. Schreuder that remained consistent with salaries for similar positions among the Corporation’s peer group.2013.
Based on the target and limits set forth in the MPPManagement Performance Plan for Ms. Schreuder, as well as the Corporation’sWealth Management performance and achievement of Ms. Schreuder’s individual objectives, the Committee setdetermined a 2013 annual cash incentive of $825,000$785,000 for Ms. Schreuder.
In determining the total long-term incentive grant made to Ms. Schreuder in 20132014 in respect of 20122013 performance, (which does not appear in the Summary Compensation Table on page 60 of this proxy), the Committee took into account the Corporation’s performance, as well as the compensation levels among the Corporation’s peers, adjusted for size, financial results, and shareholderstockholder returns. Based on these factors, the Committee set a long-term award of $2,000,000 for Ms. Schreuder.
Guiding Principles for Executive Compensation
Northern Trust’s compensation philosophy is to attract, motivate and retain talent, including executive-level talent who will contribute to our long-term success. With the goals of solid long-term financial performance and creating long-term stockholder value, Northern Trust’s executive compensation program and compensation decisions are framed by the four core values.values described below.
Linked to Long-Term Performance
Northern Trust’s executive compensation program is strongly focusedfocuses on incentive compensation, which is intended to help drive long-term financial performance. Currently, 80% to 90% of each named executive officer’s total pay opportunity consists of variable compensation. Short-term cash and long-term incentive awards reflect the Corporation’s performance as described in this proxy, are based onwell as each named executive officer’s individual performance. The Committee determines and approves annual cash incentives for Northern Trust’s named executive officers under the provisions of the stockholder-approved MPP.Management Performance Plan.
The net income generated by the Corporation in the applicable fiscal year determines the maximum funding for annual cash incentives. Accordingly, no annual cash incentive can be paid in the absence of positive net income. Northern Trust’s average annual rate of return on equity during the respective three year performance period (as compared to pre-established targets) determines the payout under 50% of the Corporation’s annual long-term incentive awards, which are granted in the form of performance stock units. Payout of this component therefore generally requires the executive to remain with the company during the applicable performance period, as well as attainment of return on equity goals over multi-year periods. The overall performance of Northern Trust’s common stock delivers the remainder of the value of annual long-term incentive awards; this portion of the award is granted in the form of stock options (25%), which have no economic value absent share price appreciation, and through restricted stock units (25%). In connection with the 2014 performance stock unit grants, the performance schedule was modified to provide that officers will only receive 100% of their awards if the Corporation achieves a return on equity of 10%. The Committee made this change to better align the payout of these awards to the target return on equity range externally communicated.
Aligned with Stockholder Interests
Northern Trust’s executive compensation program is designed to align the interests of the named executive officers with those of its stockholders by tying a significant portion of an executive’s total compensation to the longer-term performance of the Corporation’s common stock. Long-term incentive compensation is the most significant component of overall compensation as it generally provides the majority of named executive officers’ total target compensation. The emphasis on long-term multi-year vesting schedules applied to these incentives contributes to continuity and stability within the Corporation’s executive leadership and encourages executives to act as owners with a tangible stake in Northern Trust.
The following chart demonstrates how the value of Northern Trust’s equity-based compensation awarded over the past five years, including 2012, has been impacted by changes in our stock price.
Supporting the alignment with stockholders’ interests, Northern Trust has a long-standing practice of emphasizing stock ownership and maintaining robust stock ownership guidelines for named executive officers at or above industry practice. As of February 28, 2014, the Chairman and CEO and each other named executive officer met or exceeded Northern Trust’s stock ownership guidelines.
Stock Ownership Guidelines
In order to further align the interests of executive officers with those of our stockholders, Northern Trust maintains formalthe following stock ownership guidelines for named executive officers with minimum ownership levels as shown in the following chart:officers:
Stock Ownership Guidelines | ||
Chairman and CEO | Expected to maintain minimum share ownership levels to a value of ten times base salary | |
President and Chief Operating Officer | Expected to maintain minimum share ownership levels to a value of seven times base salary | |
Other | Expected to maintain minimum share ownership levels to a value of five times base salary |
ItEach executive officer is expected that each named executive officer willto meet thehis or her respective minimum ownership level not later thanwithin five years from the date the namedof becoming an executive officer becomes a member of a particular covered group.
officer. Until such time as any named executive officer meets the minimum ownership level requirement, he or she is expected to retain 100% of the net, after-tax shares received from share distributions or stock option exercises.
The calculation of shares of common stock includes those that are:
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As of December 31, 2012, the Chairman and CEO and each other named executive officer met or exceeded Northern Trust’s stock ownership guidelines. Consistent with those guidelines, Mr. O’Grady, who commenced employment with the Corporation in August 2011, has five years from that date in which to reach the applicable share ownership threshold set forth in the chart above.
Positioned Competitively in the Marketplace
The Corporation believesWe believe a competitive executive compensation program is key to attracting, retainingmotivating and motivatingretaining the best executive talent. Therefore, the Committee evaluates the competitiveness of Northern Trust’s named executive officer compensation program against a peer group that reflects key trust and custody banks (The Bank of New York Mellon and State Street Corporation) as well as certain other U.S. banking organizations. Thisorganizations of varying size. The Bank of New York Mellon Corporation and State Street Corporation are included in the peer group usedbecause they are the trust and custody banks that Northern Trust directly competes against for assessing the competitivenessglobal talent in virtually all lines of named executive officer pay,business. The peer group specifically excludes certain other direct competitors whose size or scope are significantly larger and might distort the appropriate pay comparisons.
The combination of the character and relative size of the Corporation’s businesses makes it challenging to identify any definitive, single group of companies as peers for compensation purposes. However, Northern Trust established theTrust’s peer group was established based in part on data and analysis provided by Towers Watson, an independentoutside compensation consultant.
The banks identified below comprise Northern Trust’s peer group is identified below.group.
Northern Trust | ||
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The Bank of New York Mellon Corporation
Comerica Incorporated
Fifth Third Bancorp
KeyCorp
The PNC Financial Services Group, Inc. | State Street Corporation
SunTrust Banks, Inc.
U.S. Bancorp
Wells Fargo & Company |
The CorporationCommittee believes that this group of peer companies fairly represents a wide range of our competitors and certain other U.S. banking organizations and is an appropriate group of companies against which Northern Trust can assessgauge the competitiveness of the Corporation’s executive compensation program for the named executive officers.
The Committee regularly reviews the composition of Northern Trust’s peer group using data and analysis provided by Towers Watson. The Committee makes updates based on changes within the peer group companies, industry consolidation and the Corporation’s own evolving global presence. For both 2011 and 2012, the Corporation utilized the same targeted group of peer companies, as listed above, in orderNo modifications have been made to focus on key trust and custody banks, as well as certain other U.S. banking organizations. The Committee believes that the peer group allows it to gauge the competitiveness of our named executive officers compensation program against our peers.
Northern Trust does not use peer compensation data to set precise pay levels by position. Rather, the peer data and data provided by compensation consultants are used to validate relative competitive pay for our named executive officers.since 2011.
Discourage Inappropriate Risk-Taking
As noted above, theThe Corporation is involved in an ongoing assessment ofcontinues to assess its incentive compensation program in connection withconsideration of the Federal Reserve’s review ofguidance on sound incentive compensation arrangementspolicies at Large Complex Banking Organizations.banking organizations. Northern Trust concludedbelieves its compensation arrangements did not inappropriately encourage excessivediscourage inappropriate risk-taking behavior, in part because the Corporation is not involved with many of the lines of business that have often exposed other financial institutions to excessive risk-taking,risk, such as significant proprietary derivatives trading or origination or securitization of sub-prime mortgage loans or significant proprietary derivatives trading.loans.
Northern Trust actively monitors employees using programs, policies, and other tools that are designed to ensure that they work within established risk frameworks and limits. To reinforce the | Risk Management Expectations
To align with Federal Reserve
It is our expectation that all executive officers appropriately understand the Northern Trust risk management framework and how the framework reinforces the Corporation’s compensation strategy. | |
because the value of the award (a full value award with respect to a smaller number of shares) is less susceptible to short-term fluctuations in share value than other types of awards (such as stock options, which generally pertain to a larger number of shares). Long-term incentive compensation is the most
significant element of compensation for senior management. All grants of long-term equity vest over a multi-year period and have an inherent risk adjustment factor based on changes in Northern Trust’s share value. Consistent with the Corporation’s risk-mitigation strategies for its compensation programs, since 2012 all long-term compensation arrangements for named executive officers have incorporated clawback provisions that deter certain types of conduct, including conduct that could affect the accuracy of the Corporation’s financial statements. In 2013, expanded risk-based forfeiture and clawback provisions were included in restricted stock unit awards.
In order to address the Federal Reserve’s view that stock options can induce more risk-takingrisk taking than other types of equity based compensation, in 2012 Northern Trust reduced the proportion of its long-term incentive awards composed of stock options and replaced a portion of those awards with PSUsperformance stock units and long-term cash, which are viewed as less likely to induceincent inappropriate levels of risk-taking.risk taking. In 2013, Northern Trust made additional changes tofurther reduced the compositionproportion of its long-term incentive awards for the named executive officers to further reinforce performance and the link between compensation and increasing shareholder value. Beginning in 2013, PSUs, which carry vesting provisions that incorporate performance and discourage inappropriate risk-taking, will represent one-halfcomposed of long-term incentive compensation, up from one-third in 2012; stock options will representto one-quarter of the total value of each named executive officer’s long-term incentive compensation, down from one-third in 2012; and RSUs, which include expanded risk-based forfeiture and clawback provisions, will represent one-quarter of long-term incentives.2012.
The Committee annually assesses withUtilizing input from risk management personnel, the Committee annually assesses the effectiveness of Northern Trust’s incentive compensation arrangements and practices and the extent to which such arrangements and practices discourage inappropriate risk-taking.appropriately balance risk and reward. We expect towill continue to monitor and, if necessary, revise our incentive compensation program to ensureso that it continues to appropriately balancesbalance the desiresobjectives of stockholders, the needs of the business, and risk concerns.
Role of the Committee
During its February meeting, the Committee determines the appropriate level of executive compensation and each element of cash and equity compensation for all named executive officers. The Committee makes executive compensation decisions after careful review and analysis of appropriate performance information, as well as historical and market compensation data.
The Committee considers all elements of Northern Trust’s executive compensation program holistically rather than each compensation element individually. The Committee makes executive compensation decisions after careful review and analysis of financial and non-financial performance information, as well as historical and market compensation data. The Committee also considers the impact that compensation decisions may have on the potential valuesvalue of other pay and benefit programs.
While performance in non-financial areas may or may not directly affect the specific financial metrics for a particular year, theThe Committee has the discretion to reward extraordinary individual performance in non-financial areas that are important to long-range growth and enhancement of stockholder value. This flexibility allows the Committee to best reflect:
— | Northern Trust’s business model and strategy |
— | Prevailing market trends |
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The Committee also evaluates the performance of the Chairman and CEO against his objectives for the past year as stated on pages 33-34.year. The Committee shares this evaluation with the Board in order for the Board to set the Chairman and CEO’s compensation.
Role of the Chairman and CEO
As part of the Committee’s compensation review and approval process, the Committee receives recommendations from theThe Chairman and CEO presents the Committee with recommendations on the total compensation packages for each of Northern Trust’s namedother executive officers, other than his own.officers. The Chairman and CEO’s evaluations of the other named executive officers are based on performance against the past year’s performance expectations, initially formulated by the Chairman and CEO at the beginning of the performance period. These performance expectations are comprised of a mix of objective and subjective factors, which are not formulaically weighted or scored. With input from the Corporation’s Chief Risk Officer, the Chairman and CEO also evaluates each namedof the other executive officer’s performance with regard to business unit risks and individual adherence to risk and compliance policies and procedures.
The Chairman and CEO presents recommendations in a report at the Committee’s February meeting. The Committee gives substantial weight to the recommendations of the Chairman and CEO, but retains the ultimate oversight and responsibility to make modifications to the totalset compensation package and individual compensation elements. The Committee provides the final approval of the compensation of each namedfor all executive officer.
The Committee may grant additional long-term incentive awards during other times of the year to newly hired or newly promoted named executive officers based on the recommendation of the Chairman and CEO. In isolated cases, the Committee may grant additional long-term incentive awards for retention purposes. No such retention awards were granted to named executive officers in 2012.officers.
Role of Human Resources
The Corporation’s Human Resources Department assistsprovides materials to assist the Committee in making executive compensation decisions, including collecting and providing the Committee current and historical compensation data. Additionally,data for the Head ofnamed executive officers. The Executive Vice President, Human Resources attends and participates in all Committee meetings.
The Human Resources Department also assists the Chairman and CEO in formulating thehis compensation recommendations for compensation of all other named executive officers other than the Chairman and CEO.officers. The Human Resources Department provides historicalhistoric and current market data for executive pay in the industry, information concerning the historical and current compensation of named executive officers, and the comparison of stock ownership measured against the Corporation’s stock ownership guidelines approved by the Committee.guidelines.
Role of Aon Hewittthe Committee’s Independent Compensation Consultant
TheFor 2013, the Committee has retained Aon Hewitt as its human resources consulting firm for matters pertaining to executive compensation.independent compensation consultant. The Committee confers with Aon Hewitt to ensure that decisions and actions are consistent with stockholders’ long-term interests and compensation-related best practices within the financial services industry. Aon Hewitt also directly provides to the Committee market data, which the Committee references when determining compensation for the named executive officers.
Aon Hewitt’s representative generally attends all meetings of the Committee throughout the year during which compensation is reviewed and approved. Aon Hewitt’s representative provides general insights into compensation trends and prevailing market practices, presents itshis views on the compensation proposed by the Committee and participates in Committee meeting discussions. Aon Hewitt also undertakes specific projects when assigned by the Committee. In 2012, the Corporation paid Aon Hewitt and its affiliates $59,031 for executive compensation advisory services to the Committee.
Aon Hewitt and its affiliates have also provided services unrelated to executive compensation to the Corporation and the trust for The Northern Trust Company Pension Plan (the Pension Plan) in 2012 and prior years. In 2012, the Corporation paid Aon Hewitt and its affiliates $2,211,709 in fees for other services, which included the administration of the Northern Trust Corporation Deferred Compensation Plan (the “DCP”), TIP, the Northern Trust Corporation Supplemental Thrift-Incentive Plan (the “Supplemental TIP”), the Northern Trust Corporation Supplemental Pension Plan (the “Supplemental Pension Plan”) and certain other retiree benefit plans, as well as valuation, budgeting and other general communication and consulting services relating to retirement plans. In 2012, the trust for the Pension Plan paid Aon Hewitt and its affiliates $1,158,665 in fees for other services, which included administration, actuarial and tax services related to the Pension Plan. Northern Trust management also paid $76,350 to McLagan, a consulting firm owned by Aon Hewitt to provide market data services.
The fees paid to Aon Hewitt and its affiliates for other services by the Corporation and the Pension Plan trust were not approved in advance by the board of directors or the Committee; however, the board of directors and the Committee were aware of the other services being provided to the Corporation by Aon Hewitt and its affiliates.
The Committee considered the independence of Aon Hewitt in light of new SEC rules and NASDAQ listing standards. The Committee evaluated Aon Hewitt’s independence, including consideration of the following factors: (1) other services provided to the Corporation by the consultant; (2) fees paid by the Corporation as a percentage of the consulting firm’s total revenue; (3) policies or procedures maintained by the consulting firm that are designed to prevent a conflict of interest; (4) any business or personal relationships between the individual consultants involved in the engagement and a member of the Committee; (5) any company stock owned by the individual consultants involved in the engagement; and (6) any business or personal relationships between the Corporation’s executive officers and the consulting firm or the individual consultants involved in the engagement. The Committee discussed these considerations and concluded that the work of the consultant did not raise any conflict of interest.
TimingUse of Equity Compensation Award ProceduresPeer Group Data
The Committee complies withuses peer group data to assess the requirementscompetitiveness of the Northern Trust Corporation 2012 Stock Plan, including the requirement that stock options may not be granted at less than 100% of the fair market value of Northern Trust’s common stock on the date of grant. For each grant approved by the Committee, the date of grant is the date on which the Committee actscompensation paid to approve the award.executive officers. Northern Trust does not timeuse peer compensation data to set precise pay levels by position. Rather, the grants of its equitypeer data and data provided by independent compensation awardsconsultants are used to validate relative competitive pay for the purpose of affecting the value of such executive compensation. Equity awards toour named executive officers areofficers. With respect to 2013 compensation, the Committee considered the Corporation’s performance relative to our peers across various measures including growth in assets under custody and management, pre-tax profit margin, return on equity, short and long-term total stockholder returns, price/earnings ratio and price/book ratios. Weighing these measures of performance, among others, the Committee determined that the Corporation’s overall performance was comparable to the peer group performance. The Committee took these comparisons into account generally made in February.making its compensation decisions for 2013.
Deductibility of Executive Compensation
The Corporation views the tax deductibility of executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), as an important factor in determining the forms and amounts of executive compensation. The Corporation, through the Committee, reviews each material element of compensation on a continuing basis and takes steps to assure deductibility if that can be accomplished without sacrificing flexibility andor other important elements of the overall executive compensation program.
Elements of Northern Trust’s Executive Compensation Program
There are sevenfour principal elements of the Northern Trust Executive Compensation Program,Trust’s executive compensation program, each of which is discussed below. In making determinations regarding these compensation elements, of compensation, the Committee’s overall goal is to establish total executive compensation that appropriately rewards performance, ensures alignmentaligns with stockholders’ interests, and remains responsive to competitive factorspositions the Corporation competitively in the marketplace for executive talent. Thus, whileWhile the Committee’s determinations with respect to each of these elements of compensation may reflect unique characteristics of that element (for instance, in the case of annual cash incentives, performance of the Corporation), the Committee’s overall decision making is governed by a collective evaluation of the elements of compensation, with a view toward establishing an appropriate level of total executive compensation.
Compensation Element | Link to Compensation Philosophy | Rationale/Key Features | ||||
Base Salary | Targeted at competitive levels among peer group | Base salaries provide a fixed level of
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Short-Term Annual Cash Incentive |
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Long-Term Compensation |
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Long-term incentive compensation is comprised of The number of
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Retirement, | Targeted at the median level of |
| Benefits are designed with the entire Northern Trust workforce in mind and are not specifically structured for the named executive officers.
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Base Salary
The Committee believes that base salaries should provide a fixed level of | ||||||
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Base salary levels for executive officers are consistent with competitive salary market data among peer group companies. |
The Committee uses discretion in determining base salaries. It does not take a formulaic approach to setting base salary levels but considers the following factors:
— | Individual performance over the prior year relative to established goals and expectations for the position |
— | Internal pay equity for comparable key executive officer positions |
— | Targeted base salary levels that balance market pay practice with internal equity |
— | Experience and qualifications of the individual executive |
— | The named executive officer’s tenure in the position or a position of similar level |
— | Significant changes in assignment or scope of responsibility |
For new and recently promoted executives, the Committee’s approach is to gradually increase actual base salary to the appropriate target pay level as the named executive officer gains experience and tenure in the new position.
Short-Term Annual Cash Incentive
Annual cash incentives provide an opportunity for named executive officers to receive additional cash compensation based on the Corporation’s financial performance as well as each named executive officer’s individual performance. The Committee determines and approves annual cash incentives for the Corporation’s named executive officers under the provisions of the stockholder-approved Management Performance Plan. These awards are intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. The maximum funding for each officer’s annual cash incentive award under the Management Performance Plan is a percentage of the net income generated by the Corporation in the applicable year. The annual cash incentive maximums for named executive officers are | Annual Cash Incentive Aligned with Stockholders’ Interests By establishing the maximum for If the Corporation does not achieve positive net income, the Management Performance Plan prohibits the granting of incentive awards for that year. |
— | Annual cash incentives for the Chairman and CEO may not exceed 0.6% of consolidated net income |
— | Annual cash incentives for the President and Chief Operating Officer may not exceed 0.4% of consolidated net income |
— | Annual cash incentives for all other named executive officers may not exceed 0.3% of consolidated net income |
— | No annual incentives can be paid in the absence of positive net income |
While the Corporation’s net income establishes the maximum annual cash incentive that may be paid to an officer, the final determination of annual cash incentives is not tied to any specific formula. Instead, the Committee exercises negative discretion to set the final award. In applying negative discretion in 2014 for 2013 performance, the Committee considered the Corporation’s overall performance results, each officer’s individual performance, and the cash incentive award data reported by peer firms, adjusted for size, financial results, and stockholder returns.
Long-Term Compensation
Long-term incentive compensation is the most significant element of overall compensation and is designed to reward the performance of the named executive officers over time. Under the current plan design, long-term incentive compensation takes the form of 50% performance stock units, 25% restricted stock units, and 25% non-qualified stock options. The Committee emphasizes long-term incentives to align compensation with the interests of the stockholders. The Committee believes that long-term incentive compensation encourages executives to act as owners with an equity stake in Northern Trust, discourages inappropriate risk-taking, and contributes to continuity and stability within the Corporation’s executive leadership.
The Committee considers a variety of individual factors to determine the actual dollar value of long-term compensation for each named executive officer. The dollar value of equity compensation is
generally defined as 100% of the fair market value at the time of grant for all performance stock units and restricted stock units and one-third of the fair market value of the shares underlying grants of stock options at the time of grant for all stock options. For grants in 2013 for 2012 performance, the guideline dollar value of long-term compensation was approximately seven times 2012 year end base salary for the Chairman and CEO, approximately five times 2012 year end base salary for the President and Chief Operating Officer, and approximately three and one-half times 2012 year end base salary for the other named executive officers. These guidelines also applied to long-term incentive awards granted in 2014 for 2013 performance.
The Committee has flexibility in determining the value of total long-term incentive compensation for each named executive officer based on a review of objectives and subjective factors. There is no formula that assigns specific weights to these factors and the importance of these factors may vary from year to year. In addition to consideration of the long-term incentive compensation reported by peer banks, the following are the specific objective and subjective factors considered by the Committee in setting total 2013 and 2014 long-term incentive compensation for each named executive officer:
— | Experience and tenure |
— | Prior and expected individual performance |
— | Potential long-term impact on the financial success of Northern Trust |
— | Strategic leadership, teamwork and individual contributions as a member of Northern Trust’s Management Group |
— | Committee’s desire to |
— | Mix of total compensation relative to each element of compensation |
— | Recommendations of the |
— | Advice of the |
In February 2013 for 2012 performance, the named executive officers received the following dollar amounts of long-term compensation: Mr. Waddell, $6,650,000 (97% of guideline); Mr. O’Grady, $2,000,000 (99% of guideline); Mr. Morrison, $3,350,000 (96% of guideline); Mr. Fradkin, $2,000,000 (95% of guideline); and Ms. Schreuder, $2,000,000 (95% of guideline). The Committee believes that these awards reflect appropriate differentiation among the officers in light of their respective responsibilities at the time of grant. In addition to internal equity principles, these awards also reflect the Committee’s consideration of each of the factors listed above.
Retirement, Health and Welfare Benefits
Retirement benefits are generally designed with the entire Northern Trust workforce in mind and are not specifically structured for the named executive officers. The design of the Corporation’s retirement program for employees, including the named executive officers, reflects the following considerations:
— | Competitiveness: Northern Trust targets total retirement benefits at approximately the median level of a retirement benefits peer group of companies |
— | Individual savings: The retirement program encourages employees to contribute to their individual retirement savings through participation in TIP and the Supplemental TIP |
The named executive officers also participate in Northern Trust’s health and welfare benefits, including medical, retiree medical, dental, disability and life insurance programs, on the same terms as other employees.
Severance Benefits and Employment Security Arrangements
| Change in Control and Severance Provisions Help Northern Compete with Peer Group Companies Northern Trust believes the employment security agreements and severance benefits are critical to compete with its peer group companies to attract and retain talent, including at the executive level. |
Under such circumstances, named executive officers are eligible to receive severance benefits that generally include:
— | A lump sum payment of two weeks of base salary for each year of completed service up to, but less than 25 years, or 52 weeks of base salary for 25 years or more of completed service to the Corporation. |
— | A COBRA subsidy based on their length of service to help cover the costs of continuation coverage under the employer’s medical and dental plans, full vesting under TIP, Supplemental TIP, the Pension Plan, and the Supplemental Pension Plan, enhanced early retirement eligibility under the Pension Plan for employees who have reached age 54 with 14 years of credited service, and outplacement assistance. |
These benefits are contingent upon execution of a release, waiver and settlement agreement with the Corporation. Severance payments will be reduced by any severance payments made under employment security agreements or any other benefit plan, program or individual contract.
In addition to the severance benefits discussed above, Northern Trust has entered into employment security arrangements for certain key executive officers of the Corporation, including each named executive officer. The purpose of these agreements is to provide an executive with sufficient security for executives to remain focused on their responsibilities before, during and after a transaction without undue concern for their personal circumstances. Providing for payments in a change of control situation is consistent with market practice across the industry and ensures alignment between executives and stockholders when a change of control is in in the best interest of stockholders.
The Corporation believes the employment security agreements are critical to its ability to attract and retain key executives for the following reasons:
— | Change in control provisions for executives are standard among peer group companies and are an important element of a competitive compensation program |
— | All named executive officers are employed at-will |
In order to receive benefits under the employment security agreements, two events must occur (except as noted below with respect to equity awards):
— | A change in control must occur;and |
— | The executive’s employment must be terminated by the Corporation “without good cause” in connection with the change in control or the executive must terminate employment “with good reason” as those terms are defined in the employment security agreements. |
This “double-trigger” approach to vesting equity and equity-based compensation in connection with a change in control of the Corporation was adopted in 2012 after the Corporation undertook a review of the Corporation’s treatment of equity and equity-based compensation in connection with a “change in control” of the Corporation, a topic about which stockholders had previously expressed particular concern. The Corporation believes that this “double trigger” approach accords with current best practices in this area.
Change in control provisions under Northern Trust’s employment security agreements generally include:
— | A lump sum cash payment equivalent to three years’ base salary and bonus, and a prorated bonus for the year of termination; |
— | Continuation of medical, dental, life insurance and other similar benefits for three years; and |
— | A three-year age and service credit for benefits under the Supplemental Pension Plan, and up to an additional three years of age and/or service credit to determine eligibility and subsidy for participation in Northern Trust’s retiree medical program |
In addition, the terms and conditions for equity awards made prior to October 2012 provide for full vesting of unvested stock options, restricted stock units and performance stock units upon an actual change in control, with or without termination of employment, or upon termination during a pending change in control. As noted above, equity awards made in October 2012 and thereafter provide for
“double-trigger” vesting in connection with a change in control (which requires that (i) both a change in control and a qualifying termination occur prior to acceleration of vesting or (ii) a change in control occur and the acquirer refuses or is unable to assume the existing awards).
Disclosure of potential change in control benefits payable to each named executive officer, assuming a change in control of the Corporation and termination of employment on December 31, 2013, is set forth in the “Potential Payments Upon Termination of Employment or a Change in Control of the Corporation” section beginning on page 61 of this Proxy Statement.
Perquisites
The Corporation provides a limited number of perquisites intended to assist named executive officers in the performance of their duties on behalf of Northern Trust and provide compensation for activities that have a combined personal and business purpose. More specifically, Northern Trust provided financial consulting/tax return preparation services and personal use of company automobiles as perquisites to its named executive officers in 2013. The Corporation also reimburses named executive officers for the payment of personal income taxes in connection with the use of company automobiles for business-related purposes.
The Committee annually reviews the types and costs of perquisites to ensure they remain aligned with the compensation philosophy of the Corporation.
2013 Advisory Vote on Executive Compensation
The Corporation’s 2012 named executive officer compensation was approved on an advisory basis by its stockholders at the Corporation’s April 16, 2013 Annual Meeting. Approximately 87% of the votes cast, together with abstentions, supported approval of 2012 named executive officer compensation. Although such advisory votes are non-binding, the Board reviews and thoughtfully considers the voting results when determining compensation policies and making future compensation decisions for named executive officers. Accordingly, the decisions made by the Board with respect to compensation in 2013 reflect consideration of the results of the advisory vote on 2012 named executive officer compensation as well as the other factors described above.
Compensation and Benefits Committee Report
The Compensation and Benefits Committee is responsible for providing oversight of the compensation of the directors and executive officers of Northern Trust.
In fulfilling its oversight responsibilities, the Compensation and Benefits Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement.
Based upon this review and discussion, the Compensation and Benefits Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and this Proxy Statement for the 2014 Annual Meeting of Stockholders, each of which will be filed with the SEC.
Compensation and Benefits Committee
Nicholas D. Chabraja (Chair)
Susan Crown
Dipak C. Jain
Edward J. Mooney
John W. Rowe
The following table shows for the years indicated below the compensation provided by the Corporation to its named executive officers.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(5) | All Other Compensation ($)(6) | Total ($) | |||||||||||||||||||||||||||
Frederick H. Waddell Chairman and Chief Executive Officer | 2013 | $ | 975,000 | — | $ | 4,987,530 | $ | 1,211,083 | $ | 1,900,000 | — | $ | 94,387 | $ | 9,168,000 | |||||||||||||||||||||
2012 | 975,000 | — | 2,333,354 | 1,850,555 | 2,000,000 | $ | 3,839,003 | 85,283 | 11,083,195 | |||||||||||||||||||||||||||
2011 | 956,250 | — | 4,000,008 | 3,581,932 | 1,600,000 | 4,078,538 | 88,672 | 14,305,400 | ||||||||||||||||||||||||||||
Michael G. O’Grady (7) Executive Vice President and Chief Financial Officer | 2013 | 593,750 | — | 1,500,032 | 364,241 | 750,000 | 56,745 | 25,819 | 3,290,587 | |||||||||||||||||||||||||||
2012 | 568,750 | — | 700,015 | 555,165 | 750,000 | 40,365 | 4,312 | 2,618,607 | ||||||||||||||||||||||||||||
2011 | 208,333 | $ | 325,000 | 1,250,035 | 854,260 | 25,000 | 7,380 | — | 2,670,008 | |||||||||||||||||||||||||||
Steven L. Fradkin President—Corporate and Institutional Services | 2013 | 600,000 | — | 1,500,032 | 364,241 | 800,000 | — | 23,287 | 3,287,560 | |||||||||||||||||||||||||||
2012 | 600,000 | — | 700,015 | 555,165 | 800,000 | 1,069,699 | 25,799 | 3,750,678 | ||||||||||||||||||||||||||||
2011 | 587,500 | — | 1,250,042 | 1,119,358 | 675,000 | 1,012,591 | 31,493 | 4,675,984 | ||||||||||||||||||||||||||||
William L. Morrison President and Chief Operating Officer | 2013 | 775,000 | — | 2,512,523 | 610,096 | 1,000,000 | — | 33,893 | 4,931,512 | |||||||||||||||||||||||||||
2012 | 700,000 | — | 1,166,677 | 925,283 | 1,000,000 | 852,901 | 31,364 | 4,676,225 | ||||||||||||||||||||||||||||
2011 | 612,500 | — | 1,686,442 | 1,119,358 | 750,000 | 821,577 | 32,194 | 5,022,071 | ||||||||||||||||||||||||||||
Jana R. Schreuder President—Wealth Management | 2013 | 600,000 | — | 1,500,032 | 364,241 | 785,000 | — | 32,923 | 3,282,196 | |||||||||||||||||||||||||||
2012 | 600,000 | — | 700,015 | 555,165 | 825,000 | 1,495,879 | 29,733 | 4,205,792 | ||||||||||||||||||||||||||||
2011 | 587,500 | — | 1,250,042 | 1,119,358 | 675,000 | 1,501,040 | 33,033 | 5,165,973 |
(1) WhenAmounts in this column represent the PSUsgrant date fair value of the restricted stock unit and performance stock unit awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation (“FASB ASC Topic 718”). See “Note 22—Share Based Compensation Plans” in the “Notes to Consolidated Financial Statements” in the Corporation’s 2013 Annual Report to Stockholders for a discussion of the assumptions made by the Corporation in the valuation of these restricted stock unit awards. This column includes the following amounts with respect to performance stock units and are based on achievement of target performance levels: Mr. Waddell: $3,325,002; Mr. O’Grady: $1,000,004; Mr. Fradkin: $1,000,004; Mr. Morrison: $1,675,015; and Ms. Schreuder: $1,000,004. If maximum level of performance were attained, the value of the performance stock units would be as follows: Mr. Waddell: $4,156,293; Mr. O’Grady: $1,250,018; Mr. Fradkin: $1,250,018; Mr. Morrison: $2,093,795; and Ms. Schreuder: $1,250,018. See the narrative under “Description of Certain Awards Granted in 2013” beginning on page 50 of this Proxy Statement for more information on these awards.
(2) In February 2012 for 2011 performance, the named executive officers were awarded the following long-term cash incentive awards that will vest 100% after three years and are subject to forfeiture upon the occurrence of certain events: Mr. Waddell: $2,333,333; Mr. O’Grady: $700,000; Mr. Fradkin: $700,000; Mr. Morrison: $1,166,667; Ms. Schreuder: $700,000. No such long-term cash incentive awards were granted in 2013 due to changes in the long-term incentive compensation plan design.
(3) Amounts in this column represent the grant date fair value of the option awards computed in accordance with FASB ASC Topic 718. See “Note 22—Share Based Compensation Plans” in the “Notes to Consolidated Financial Statements” in the Corporation’s 2013 Annual Report to Stockholders for a discussion of the assumptions made by the Corporation in the valuation of these option awards. See the narrative under “Description of Certain Awards Granted in 2013” beginning on page 50 of this Proxy Statement for more information on these awards.
(4) Amounts in this column represent the annual cash incentives earned by the named executive officers in the applicable years under the Management Performance Plan.
(5) Amounts in this column represent the aggregate increase in actuarial present values of accumulated benefits under the Pension Plan and the Supplemental Pension Plan. The increase in discount rate used to calculate the pension from 4.25% to 5.00% at December 31, 2013 resulted in a year over year decrease in value in the present value of benefits under the Traditional Formula for each named executive officer, except Mr. O’Grady whose benefits are accrued under the PEP Formula. Accordingly, no amount is included for 2013 in this column for any named executive officer, except Mr. O’Grady. See “Pension Benefits” beginning on page 55 of this Proxy Statement for additional information.
(6) Amounts in this column represent (i) the cost of financial consulting/tax return preparation services; (ii) the cost of personal use of the Corporation’s automobiles; (iii) tax reimbursements provided in connection with the use of company automobiles for business-related purposes; and (iv) matching contributions made by the Corporation on behalf of named executive officers participating in the TIP and Supplemental TIP. The following table quantifies the amounts paid to each named executive officer in 2013 for each of these components:
Name | Financial Consulting/ Tax Return Preparation Services ($) | Personal Use of Company Automobiles ($) | Tax Reimbursements ($) | TIP/ Supplemental TIP Contributions ($) | ||||||||||||
Mr. Waddell | $ | 17,000 | $ | 26,338 | $ | 21,799 | $ | 29,250 | ||||||||
Mr. O’Grady | 10,000 | — | — | 15,819 | ||||||||||||
Mr. Fradkin | 3,875 | 749 | 663 | 18,000 | ||||||||||||
Mr. Morrison | 6,875 | 1,999 | 1,769 | 23,250 | ||||||||||||
Ms. Schreuder | 14,923 | — | — | 18,000 |
(7) Mr. O’Grady joined the Corporation on August 15, 2011 as an Executive Vice President and became Chief Financial Officer on October 1, 2011. Mr. O’Grady received a $325,000 guaranteed minimum bonus in 2011 in connection with his commencement of employment with the Corporation.
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise or Base Price of Option Awards ($/sh) | Grant ($)(5) | |||||||||||||||||||||||||||||||||||||
Name | Grant Date | Thres- hold ($) | Target ($) | Maximum ($) | Thres- hold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||||
Mr. Waddell | $ | 2,000,000 | $ | 4,387,992 | ||||||||||||||||||||||||||||||||||||||
2/11/2013 | 94,658 | $ | 52.690 | $ | 1,211,083 | |||||||||||||||||||||||||||||||||||||
2/11/2013 | 31,553 | 1,662,528 | ||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 31,553 | 63,105 | 78,882 | 3,325,002 | ||||||||||||||||||||||||||||||||||||||
Mr. O’Grady | 750,000 | 2,193,996 | ||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 28,469 | 52.690 | 364,241 | |||||||||||||||||||||||||||||||||||||||
2/11/2013 | 9,490 | 500,028 | ||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 9,490 | 18,979 | 23,724 | 1,000,004 | ||||||||||||||||||||||||||||||||||||||
Mr. Fradkin | 800,000 | 2,193,996 | ||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 28,469 | 52.690 | 364,241 | |||||||||||||||||||||||||||||||||||||||
2/11/2013 | 9,490 | 500,028 | ||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 9,490 | 18,979 | 23,724 | 1,000,004 | ||||||||||||||||||||||||||||||||||||||
Mr. Morrison | 1,000,000 | 2,925,328 | ||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 47,685 | 52.690 | 610,096 | |||||||||||||||||||||||||||||||||||||||
2/11/2013 | 15,895 | 837,508 | ||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 15,895 | 31,790 | 39,738 | 1,675,015 | ||||||||||||||||||||||||||||||||||||||
Ms. Schreuder | 825,000 | 2,193,996 | ||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 28,469 | 52.690 | 364,241 | |||||||||||||||||||||||||||||||||||||||
2/11/2013 | 9,490 | 500,028 | ||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 9,490 | 18,979 | 23,724 | 1,000,004 |
(1) These columns show the range of potential payouts under the Management Performance Plan based on the Corporation’s performance in 2013. Although the Management Performance Plan does not provide for a target or threshold, the amount set forth under the Target column represents the amount actually awarded to the named executive officer in 2013 in respect of 2012 performance.
(2) The amounts set forth under the Threshold, Target and Maximum columns represent the number of shares of common stock that would be paid out under the performance stock units granted in February 2013 if Northern Trust achieves a return on equity of 6.5%, 8.5% or 13.5%, respectively
(3) This column shows the number of restricted stock units granted to the named executive officers in 2013.
(4) This column shows the number of shares that may be issued to the named executive officers upon exercise of stock options granted in 2013.
(5) Represents the grant date fair value of each equity award, computed in accordance with FASB ASC Topic 718 (using the target level of performance for performance stock unit awards), disregarding any estimated forfeitures.
Description of Certain Awards Granted in 2013
Performance Stock Units
Each performance stock unit constitutes the right to receive a share of the Corporation’s common stock and vests over a three-year performance period, subject to satisfaction of specified performance targets (“performance conditions”) that are a function of return on equity and continued employment until the end of the vesting period. Dividend equivalents on performance stock units are paid in cash on a current basis prior to vesting and distribution.
With respect to the performance stock units granted in 2013 and 2014, the Committee identified specific types of objectively determinable factors that could affect the performance measure (returnreturn on equity)equity if the factors occur during the performance period. In doing so, the Committee established that the effects of those factors will be excluded from the calculation of the performance measure if any of them, alone or in combination, would produce a change in net income in excess of $100 million. Factors that result in an adjustment to the calculation of the performance measure include: acquisitions, dispositions, mergers, and similar transactions, and securities issuances and expenses in connection therewith; changes in accounting principles, tax laws or other laws that affect reported results that become effective during the performance period; litigation or regulatory settlements; charges and expenses for restructuring activity, including reductions in force; discontinued operations; asset write-downs; and any other gain, loss, income or expense with respect to the performance period that is nonrecurring in nature. The Committee retains the power to exercise negative discretion, as it deems appropriate under the relevant circumstances, to reduce the actual payouts under the PSUsperformance stock units below the payouts otherwise resulting from the application of adjustments for any of these factors.
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The Committee uses discretion in determining base salaries. It does not take a formulaic approach to setting target base salary levels but considersfollowing chart shows the following factors:
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For new executives, the Committee’s philosophy is to gradually increase actual base salary to the appropriate target pay level as the named executive officer gains experience and tenure in the new position.
The base salaries of all named executive officers remained unchanged in 2012 with the exception of the CFO, whose salary was increased by $25,000 to reflect the competitive salary market for his position.
Base salary adjustments generally are effective April 1. Salary adjustments for promoted executives typically take effect upon the executive’s promotion date and assumption of new responsibilities.
Short-Term Annual Cash Incentive
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As determined by the MPP, the annual cash incentive maximums are as follows:
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Award limitations under the MPP reflect our executive compensation philosophy. By establishing the maximum funding opportunity as a percentage of net incomevesting requirements for the prior year, Northern Trust directly aligns named executive officers’ incentives with the interests of its stockholders. If net income rises, the named executive officers’ potential award values rise as well. Furthermore, if the organization does not achieve positive net income, the MPP prohibits the granting of incentive awards for that year.
In February 2013, the Committee reviewed the maximum funding opportunity for each named executive officer based on the limits defined by the MPP. For the Chairman and CEO, the maximum funding opportunity was determinedperformance stock unit grants to be $4,123,800. The Committee considered overall performance results, the maximum funding limit defined by the MPP and the cash incentive award data reported by peer firms, adjusted for size, financial results, and shareholder returns, and awarded the Chairman and CEO actual cash incentive award of $2,000,000. A similar rationale was applied by the Committee in determining the cash incentive awards for the other named executive officers.
Awards are calculated in light of the Corporation’s net income, but the final determination of annual cash incentives is not tied to any specific formula. Instead, the Committee exercises negative discretion to set the final award. In doing so, the Committee considers multiple financial measures such as return on equity, growth in revenue, earnings per share growth, and pre-tax profit margin. To a lesser degree, the Committee also considers non-financial measures in determining annual awards based on factors such as:
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Long-Term Compensation
Long-term incentive compensation is the most significant component of overall compensation and is designed to reward the performance of the named executive officers over time, as reflected in
the Corporation’s long-term stock performance. Long-term incentive compensation typically takes the form of non-qualified stock options, PSUs or RSUs. The Committee emphasizes long-term incentives to align compensation with the interests of the stockholders. The Committee believes that long-term incentive compensation encourages executives to act as owners with an equity stake in Northern Trust, discourages inappropriate risk-taking and contributes to continuity and stability within the Corporation’s executive leadership.
At its February 2012 meeting, the Committee considered market data and the recommendations of Aon Hewitt in determining long-term compensation awards for performance in 2011. The Committee decided to deliver the awards to all named executive officers in 2013 and 2014 and illustrates that the formaverage annual rate of one-third PSUs, one-third stock options and one-third long-term cash.
In 2013,return on equity that must be attained in order for the Corporation delivered long-term incentive awards to named executive officers for performance in 2012 in the form of 50% PSUs, 25% stock options, and 25% RSUs.
The Committee considers a variety of individual factors to determine the actual dollar value of long-term compensation for each named executive officer. The dollar value of equity compensation is generally defined as 100% of the fair market value at the time of grant for all RSUsbecome fully or PSUs and one-third of the fair market value of the shares underlying grants of stock options at the time of grant for all stock options. For grants in 2012 for 2011 performance, consistent with both the prior year’s guideline and with the peer group’s long-term compensation levels, adjusted for size, financial results, and shareholder returns, the guideline dollar value of long-term compensation was approximately seven times 2011 year end base salarypartially vested has been increased for the Chairman and CEO, approximately five times 2011 year end base salary for the President and Chief Operating Officer and approximately three and one-half times 2011 year end base salary for the other named executive officers. Based upon the dollar value definition described above, the named executive officers received the following dollar amounts of long-term compensation in 2012 in respect of 2011: Mr. Waddell, $7,000,000 (103% of guideline); Mr. Morrison, $3,500,000 (100% of guideline); Mr. O’Grady, $2,100,000 (109% of guideline); and each of Mr. Fradkin and Ms. Schreuder, $2,100,000 (100% of guideline). Long-term incentive awards were made at this level in 2012 for 2011 performance due to the Committee’s determination2014 grants.
Performance Stock Unit February 2013 Grants | Performance Stock Unit February 2014 Grants | |||||||||||
Average Annual Rate of | Percentage of Stock Units Vested | Average Annual Rate of | Percentage of Stock Units Vested | |||||||||
Less than 6.5% | 0% | Less than 7.0% | 0% | |||||||||
6.5% | 50% | 7.0% | 50% | |||||||||
8.5% to 10.5% | 100% | 10% | 100% | |||||||||
11.5% | 115% | 12.5% | 115% | |||||||||
> 13.5% | 125% | > 15% | 125% |
As it is possible that there shouldwill be differentiation betweenno payout under the CEO, COO and the other named executive officers. As to the named executive officers other than the CEO and COO, the Committee desired to maintain internal equity in the long-term incentive opportunity amongperformance stock units, these individuals. In addition, the Committee referenced experience and tenure, prior and expected individual performance, potential long-term impact on the financial success of Northern Trust, strategic leadership, teamwork and individual contributions as a member of Northern Trust’s Management Group, mix of total compensation relative to each element of compensation, recommendations of the Chairman and CEO with respect to other named executive officers, and advice of the Committee’s independent compensation consultant.
When determining long-term incentive compensation, the Committee has discretion to consider the base salary adjustment, the annual cash incentive, prior long-term incentive awards granted to a named executive officer, and individual performance over the prior year. The Committee is allowed flexibility in determining the value of total long-term incentive compensation for each named executive officer based on a review of objectives and subjective factors.
There is no formula that assigns specific weights to these factors and the importance of these factors may vary from year to year. In addition to consideration of the long-term incentive
compensation reported by peer banks, the following are the specific objective and subjective factors considered by the Committee in setting total long-term incentive compensation for each named executive officer for 2012 at its February, 2013 meeting:
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Stock option grants made in 2012 to the named executive officers are shown in the Grants of Plan-Based Awards table presented on page 64. Stock options granted in 2012 vest in equal annual installments over a four-year vesting period.
RSU awards made in 2012 to the named executive officers are shown in the Grants of Plan-Based Awards table presented on page 64. RSUs awarded in 2012 vest on the third (50%) and the fourth (50%) anniversaries of grant, subject to the executive’s continued employment with Northern Trust.
For 2013, the following changes are being made to long-term compensation. These changes apply to the grants made in February 2013
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These changes to the composition of long-term incentive awards are to further reinforcecompletely “at-risk” compensation.
If an executive dies, becomes disabled, or retires during the performance and the link between compensation and increasing stockholder value.
Retirement and Health and Welfare Benefits
Retirement benefits are generally designed with the entire Northern Trust workforce in mind and are not specifically structured for the named executive officers. The design of the Corporation’s retirement program for employees, including the named executive officers, reflects the following considerations:
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The named executive officers are eligible for:
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Prior to April 1, 2012, the Pension Plan and the Supplemental Pension Plan provided all of the named executive officers, except for Mr. O’Grady, with an annual benefit determined under the Pension Plan’s Traditional Formula. The annual benefit under the Traditional Formula is equal to the participant’s average compensation for hisperiod, or her highest 60 consecutive calendar months prior to retirement (“average compensation”) multiplied by 1.8% and then further multiplied by years of credited service, up to a maximum of 35 years. This amount is reduced by an amount based on the participant’s Social Security covered compensation and credited service.
Mr. O’Grady’s employment with the Corporation began on August 15, 2011. Therefore, under the terms of the Pension Plan, his benefits under the Pension Plan and Supplemental Pension Plan for his entire period of credited service are calculated under the Pension Plan’s “Pension Equity Plan (PEP) Formula,” rather than the Traditional Formula. Under the PEP Formula, each year a participant earns a specific pension credit “percentage,” determined in accordance with a schedule in the Pension Plan, which varies directly with his or her total number of years of credited service. A participant’s PEP Formula lump sum amount is equal to the sum of his or her pension credit percentages multiplied by “average compensation.” A participant’s annual benefit under the PEP Formula is equal to a single life annuity commencing at age 65 that is the actuarial equivalent of his or her PEP Formula lump sum amount.
The portion of each named executive officer’s benefit, calculated under either the Traditional Formula or the PEP Formula as applicable, not in excess of various limits imposed by the Code and the Pension Plan, is paid under the Pension Plan. The portion of the executive’s benefit in excess of these amounts, if any, is paid under the Supplemental Pension Plan. A participant’s annual benefit under the Traditional Formula is reduced if the participant retires and begins receiving benefit payments before age 62, or age 60 under certain circumstances. A participant’s annual benefit under the PEP Formula is
reduced if the participant retires and begins receiving payments before age 65. All named executive officers, except for Mr. O’Grady, have completed three years of vesting service, and thus are fully vested in their pension benefits.
Like many companies, Northern Trust has taken steps to reduce both short and longer-term expense volatility of its Pension Plan while continuing to provide a compensation package that is competitive within its peer group. As part of these efforts, the Corporation made the following changes to the Pension Plan effective April 1, 2012.
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As a result of these changes, the current named executive officers, other than Mr. O’Grady, are entitled to an annual benefit equal to the sum of their accruals:
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Mr. O’Grady will continue to accrue a benefit based solely on the PEP Formula for his credited service. He will be entitled to an annual benefit equal to the sum of his accruals:
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Under TIP, named executive officers can defer a portion of their base salary and receive employer matching contributions equal to 50% of the first 6% of deferred salary. For 2011, if the Corporation met an annual earnings goal, the Corporation made a contingent matching contribution of 50% of the first 3% of deferred salary to TIP, for a maximum matching contribution of 4.5% of salary. The contingent matching contribution was made to TIP for 2011, since the Corporation reached its earnings goal for that year. However, TIP was amended to provide that no contingent matching contribution would be made for 2012, even if the Corporation met its earnings goal for that year. TIP was further amended to discontinue contingent matching contributions for 2013 and subsequent years, but with the Committee retaining the discretion to authorize a discretionary employer contribution to TIP, which may be in the form of a profit sharing contribution, or other form of employer contribution, as determined by the Committee.
Under Supplemental TIP, named executive officers can contribute a portion of their base salary that exceeds the annual Code compensation limit ($250,000 in 2012). The Corporation makes a
matching contribution under Supplemental TIP using the formula in TIP, provided, however, that Supplemental TIP matching contributions are limited to 50% of the first 6% of deferred salary. All named executive officers, except Mr. O’Grady, are fully vested in their retirement benefits under TIP and Supplemental TIP.
Specified values for each named executive officer’s retirement benefits appear on page 70.
The named executive officers also participate in Northern Trust’s health and welfare benefits, including medical, retiree medical, dental, disability and life insurance programs, on the same terms as other employees.
Perquisites
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Northern Trust provided the following types of perquisites to its named executive officers in 2012:
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The Corporation also reimburses named executive officers for the payment of personal income taxes in connection with the use of company automobiles for business-related purposes.
The dollar value of each perquisite provided to the named executive officers in 2010, 2011 and 2012 can be found in the Summary Compensation Table on page 60.
Employment Security Arrangements
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The Corporation further believes the employment security agreements are critical to its ability to attract and retain key executives for the following reasons:
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In order to receive benefits under the employment security agreements, two events must occur (except as noted above with respect to equity awards):
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A change in control is generally defined in the employment security agreements to include the acquisition of 20% or more of the Corporation’s common stock, certain mergers, consolidations and asset transfers, or the election—without the consent of two-thirds of the incumbent board of directors—of the lesser of three directors or a majority of the directors then in office. The employment
security agreements also protect a named executive officer if the executive’s employment terminates during the performance period pendingunder certain circumstances entitling the executive to benefits under the Corporation’s severance plan, the executive or the executive’s beneficiary will be eligible for pro rata vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the performance conditions. In addition, if an
executive is a Management Group member on the date of grant and terminates employment on or after attainment of age 55, the executive will be eligible for pro rata vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the performance conditions. Accelerated pro rata vesting and distribution provisions also apply in the case of Management Group members who satisfy certain conditions (including the performance condition applied to the modified period) and who terminate employment for a government position, or terminate employment and thereafter accept a government position, and must dispose of any interest in the Corporation to satisfy ethics or conflict of interest laws or agreements.
Upon a change in control, defined generally as the period after the acquisition of 15% or more of the Corporation’s commonperformance stock or entry into an agreementunits granted prior to December 31, 2012, become 100 percent vested and are to be immediately distributed; with respect to or public announcementperformance stock units granted after December 31, 2012, a pro rata portion of each performance stock unit award (based on the portion of the intention to take, an action constituting aperformance period that has elapsed as of the change in control event and priorcontrol) are eligible to vest based on the effectiveCorporation’s actual performance at the time of the change in control event. Beginningand are to be paid out at the end of the performance period, subject to accelerated distribution upon a qualifying termination. The remainder of the performance award converts at the target level of performance specified in 2011, Northern Trust discontinued inclusionthe performance stock unit agreement into an award with respect to the acquirer of excise tax gross-upsan equal economic value and vests subject only to the continued employment of the recipient through the remainder of the applicable performance period and is paid out at the end of the performance period, subject to acceleration of vesting upon a qualifying termination, in new employment security agreements.
In addition,which event the Terms and Conditions for 2012 equity awards made prior to October 2012 provide for full vesting of unvested stock options, RSUs and PSUs upon an actual changeunits are distributed at that time. Notwithstanding the foregoing, in control, with or without termination of employment, or upon termination during a pending change in control. As noted above, equity awards made in October 2012 and thereafter provide for “double-trigger” vesting in connection with a change in control (which requiresthe event that (i) both a change in control and a qualifying termination occur prior to acceleration of vesting or (ii) a change in control occuroccurs and the acquirer refuses or is unable to assumeagree to the existing awards).
Disclosureforegoing conversion and vesting provisions, the award will be vested at the time of potentialthe change in control, benefits payable to each named executive officer, assuming a change in control of the Corporation and termination of employment on December 31, 2012, is set forth in the Potential Payments Upon Termination of Employment or a Change in Control of the Corporation section on page 80.
Northern Trust has discontinued inclusion of tax gross-ups in new employment security agreements for executive officers. The form of employment security agreement that reflects this change was filed as an exhibit to the Corporation’s second quarter 2011 Quarterly Report on a Form 10-Q. This change is reflected in the employment security agreements for the three executive officers whose agreements were entered into after March 2011.
Severance Benefits
The purpose of the severance plan is to provide reasonable benefits to employees who are involuntarily terminated without cause due to a reduction in force, job elimination or similar reasons specified in the severance plan. Northern Trust believes that the availability of severance benefits allows the Corporation to compete with its peer group companies in attracting and retaining talent. The named executive officers participate in this plan on the same terms as all other eligible and similarly situated Northern Trust employees.
Under such circumstances, named executive officers are eligible to receive severance benefits that include:
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The following table sets forth compensation information for the Corporation’s Chairman and CEO, current and former chief financial officer, and the three other most highly compensated executive officers for the year ended December 31, 2012.
Name and Principal Position (a) | Year (b) | Salary ($)(1) (c) | Bonus ($) (d) | Stock Awards ($)(2) (e) | Option Awards ($)(3) (f) | Non-Equity Incentive Plan Compen- ($)(4) (g) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(5) (h) | All Other Compen- sation ($)(6) (i) | Total ($) (j) | |||||||||||||||||||||||||||
Frederick H. Waddell Chairman and Chief Executive Officer | 2012 | $ | 975,000 | — | $ | 2,333,354 | $ | 1,850,555 | $ | 2,000,000 | $ | 3,839,003 | $ | 85,283 | $ | 11,083,195 | ||||||||||||||||||||
2011 | $ | 956,250 | — | $ | 4,000,008 | $ | 3,581,932 | $ | 1,600,000 | $ | 4,078,538 | $ | 88,672 | $ | 14,305,400 | |||||||||||||||||||||
2010 | $ | 900,000 | — | $ | 3,500,005 | $ | 2,977,647 | $ | 2,000,000 | $ | 3,306,902 | $ | 75,527 | $ | 12,760,081 | |||||||||||||||||||||
William L. Morrison President and Chief Operating Officer | 2012 | $ | 700,000 | — | $ | 1,166,677 | $ | 925,283 | $ | 1,000,000 | $ | 852,901 | $ | 31,364 | $ | 4,676,225 | ||||||||||||||||||||
2011 | $ | 612,500 | — | $ | 1,686,442 | $ | 1,119,358 | $ | 750,000 | $ | 821,577 | $ | 32,194 | $ | 5,022,071 | |||||||||||||||||||||
2010 | $ | 550,000 | — | $ | 1,000,016 | $ | 850,769 | $ | 700,000 | $ | 612,218 | $ | 160,017 | $ | 3,873,020 | |||||||||||||||||||||
Michael G. O’Grady Executive Vice President and Chief Financial Officer(7) | 2012 | $ | 568,750 | — | $ | 700,015 | $ | 555,165 | $ | 750,000 | $ | 40,365 | $ | 4,312 | $ | 2,618,607 | ||||||||||||||||||||
2011 | $ | 208,333 | $ | 325,000 | $ | 1,250,035 | $ | 854,260 | $ | 25,000 | $ | 7,380 | $ | 0 | $ | 2,670,008 | ||||||||||||||||||||
2010 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Steven L. Fradkin President—Corporate and Institutional Services | 2012 | $ | 600,000 | — | $ | 700,015 | $ | 555,165 | $ | 800,000 | $ | 1,069,699 | $ | 25,799 | $ | 3,750,678 | ||||||||||||||||||||
2011 | $ | 587,500 | — | $ | 1,250,042 | $ | 1,119,358 | $ | 675,000 | $ | 1,012,591 | $ | 31,493 | $ | 4,675,984 | |||||||||||||||||||||
2010 | $ | 550,000 | — | $ | 1,000,016 | $ | 850,769 | $ | 725,000 | $ | 672,377 | $ | 27,284 | $ | 3,825,446 | |||||||||||||||||||||
Jana R. Schreuder President—Personal Financial Services | 2012 | $ | 600,000 | — | $ | 700,015 | $ | 555,165 | $ | 825,000 | $ | 1,495,879 | $ | 29,733 | $ | 4,205,792 | ||||||||||||||||||||
2011 | $ | 587,500 | — | $ | 1,250,042 | $ | 1,119,358 | $ | 675,000 | $ | 1,501,040 | $ | 33,033 | $ | 5,165,973 | |||||||||||||||||||||
2010 | $ | 550,000 | — | $ | 1,000,016 | $ | 850,769 | $ | 700,000 | $ | 1,154,597 | $ | 23,133 | $ | 4,278,515 |
(1)Salary.The base salaries of all named executive officers remained unchanged in 2012 with the exception of Mr. O’Grady, whose salary was increased by $25,000 to reflect the competitive salary market for his position.
(2)Stock Awards. This column shows the grant date fair value of the restricted stock unit and performance stock unit awards computed in accordance with FASB ASC Topic 718. See footnote 22 to the Consolidated Financial Statements contained in the Corporation’s 2012 annual report to stockholders for a discussion of the assumptions made by the Corporation in the valuation of these stock unit awards, including that dividend equivalents will be paid on these stock unit awards. Included in this table are performance stock unit awards, as follows: 53,456 units awarded to Mr. Waddell; 26,728 units awarded to Mr. Morrison; 16,037 units awarded to Mr. O’Grady; 16,037 units awarded to Mr. Fradkin; and 16,037 units awarded to Ms. Schreuder. Such units are eligible to vest based on the Corporation’s return on equity generallydistributed in accordance with the following schedule:
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Dividend equivalents on restricted stock units and performance stock units held or deferred by or with respect to a named executive officer are paid on a current basis. Dividend equivalents paid on restricted stock units and performance stock unitsprovisions of each named executive officer in 2010 were: Mr. Waddell: $243,720; Mr. Morrison: $72,012; Mr. Fradkin: $72,593; and Ms. Schreuder: $58,535. Dividend equivalents paid on restricted stock units and performance stock units of each named executive officer in 2011 were: Mr. Waddell: $282,717; Mr. Morrison: $73,906; Mr. O’Grady $0; Mr. Fradkin: $74,536; and Ms. Schreuder: $63,922. Dividend equivalents paid on restricted stock units and performance stock units of each named executive officer in 2012 were: Mr. Waddell: $349,677; Mr. Morrison: $111,581; Mr. O’Grady: $51,504; Mr. Fradkin: $94,126; and Ms. Schreuder: $83,133.
(3)Option Awards. This column shows the grant date fair value of the option awards computed in accordance with FASB ASC Topic 718. See footnote 22Internal Revenue Code Section 409A, to the Consolidated Financial Statements containedextent applicable. The agreements have been drafted to provide that in such event the Corporation’s 2012 annual report to stockholders for a discussion of the assumptions made by the Corporation in the valuation of these option awards, including that dividend equivalent payments are factored into the option valuation. The footnotes to the “Outstanding Equity Awards at Fiscal Year-End” table beginning on page 66 of this proxy statement contain vesting and other additional information about the stock option awards made in 2010, 2011 and 2012.
(4)Non-Equity Incentive Plan Compensation. This column shows the annual cash incentives earned by the named executive officers in 2010, 2011, and 2012 under the MPP. It does not include 2012 long-term cash incentive awards as long-term cash incentive awards are only reflected in the table when earned and not when granted. In February 2012, in respect of 2011 performance, the named executive officers were awarded the following long-term cash incentive awards that will vest 100% after three years and are subject to forfeiture upon the occurrence of certain risk-based events: Mr. Waddell: $2,333,333; Mr. Morrison: $1,166,667; Mr. O’Grady: $700,000; Mr. Fradkin: $700,000; and Ms. Schreuder: $700,000.
(5)Change in Pension Value and Nonqualified Deferred Compensation Earnings. This column shows the increase from each of December 31, 2009 to December 31, 2010, from December 31, 2010 to
December 31, 2011 and from December 31, 2011 to December 31, 2012 (in each case, the measurement date used for reporting purposes in the Corporation’s applicable annual report to stockholders) in the actuarial present value of accumulated benefits for each named executive officer under the Pension Plan and the Supplemental Pension Plan. It does not include any above-market or preferential earnings on deferred compensation as the Corporation does not pay above-market or preferential interest on the deferred compensation of its named executive officers.
(6)All Other Compensation. The table below provides a breakdown of the amounts shown in the “All Other Compensation” column for each named executive officer in 2010, 2011 and 2012.
Perquisites (a) | Other Compensation | Total | ||||||||||||||||||||||||||
Name | Year | Financial Consulting/ Tax Return Preparation Services | Personal Use of Corporation’s Automobiles | Relocation (b) | Tax Reimburse- (c) | TIP/ TIP Contributions (d) | ||||||||||||||||||||||
Frederick H. Waddell | 2012 | $ | 10,000 | $ | 27,411 | — | $ | 18,622 | $ | 29,250 | $ | 85,283 | ||||||||||||||||
2011 | $ | 13,500 | $ | 25,559 | — | $ | 17,250 | $ | 32,363 | $ | 88,672 | |||||||||||||||||
2010 | $ | 13,500 | $ | 21,782 | — | $ | 13,245 | $ | 27,000 | $ | 75,527 | |||||||||||||||||
William L. Morrison | 2012 | $ | 7,575 | $ | 1,633 | — | $ | 1,156 | $ | 21,000 | $ | 31,364 | ||||||||||||||||
2011 | $ | 7,500 | $ | 1,548 | — | $ | 1,096 | $ | 22,050 | $ | 32,194 | |||||||||||||||||
2010 | $ | 6,500 | $ | 1,611 | $ | 78,736 | $ | 56,670 | $ | 16,500 | $ | 160,017 | ||||||||||||||||
Michael G. O’Grady | 2012 | — | — | — | — | $ | 4,312 | $ | 4,312 | |||||||||||||||||||
2011 | — | — | — | — | — | — | ||||||||||||||||||||||
2010 | — | — | — | — | — | — | ||||||||||||||||||||||
Steven L. Fradkin | 2012 | $ | 6,860 | $ | 563 | — | $ | 376 | $ | 18,000 | $ | 25,799 | ||||||||||||||||
2011 | $ | 9,300 | $ | 523 | — | $ | 370 | $ | 21,300 | $ | 31,493 | |||||||||||||||||
2010 | $ | 9,500 | $ | 777 | — | $ | 507 | $ | 16,500 | $ | 27,284 | |||||||||||||||||
Jana R. Schreuder | 2012 | $ | 11,733 | — | — | — | $ | 18,000 | $ | 29,733 | ||||||||||||||||||
2011 | $ | 11,733 | — | — | — | $ | 21,300 | $ | 33,033 | |||||||||||||||||||
2010 | $ | 6,633 | — | — | — | $ | 16,500 | $ | 23,133 |
(a)Perquisites. All perquisites are valued based on the aggregate incremental cost to the Corporation, as required by the SEC’s rules. The “Compensation Discussion and Analysis—Perquisites” section of this proxy statement contains additional information about the perquisites provided by the Corporation to its named executive officers.
(b)Relocation. The amounts in this column represent the payment of or reimbursement to Mr. Morrison for temporary living, travel, household goods transportation, and other expenses under the Corporation’s relocation program in connection with his relocation from Florida to Illinois.
(c)Tax Reimbursements. This column shows the amount of tax reimbursement associated with the use of the Corporation’s automobiles for business-related purposes and, in Mr. Morrison’s case, his relocation expenses.
(d)TIP/Supplemental TIP Contributions. This column reflects matching contributions made on behalf of the named executive officers to TIP and Supplemental TIP, both of which are defined contribution plans, as described above under “Compensation Discussion and Analysis—Retirement and Health and Welfare Benefits.”
(7) Mr. O’Grady joined the Corporation on August 15, 2011 as an Executive Vice President and became Chief Financial Officer on October 1, 2011. His compensation is reported only from August 15, 2011 forward. The bonus amount represents a minimum bonus guaranteed to Mr. O’Grady in 2011 in connection with his commencement of employment with the Corporation.
The following table sets forth information for each named executive officer with respect to:
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Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(2) | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) (i) | All Other Option Awards: Number of Securities Underlying Options (#)(4) (j) | Exercise or Base Price of Option Awards ($/sh)(5) (k) | Grant Date Fair Value of Stock and Option Awards(6) (l) | |||||||||||||||||||||||||||||
Name (a) | Grant Date(1) (b) | Thresh- old ($) (c) | Target ($) (d) | Maxi- mum ($) (e) | Thresh- old (#) (f) | Target (g) | Maxi- mum (#) (h) | |||||||||||||||||||||||||||
Frederick H. Waddell | — | — | 1,600,000 | 4,123,800 | ||||||||||||||||||||||||||||||
2/13/2012 | 160,367 | $ | 43.650 | $ | 1,850,555 | |||||||||||||||||||||||||||||
2/13/2012 | 0 | 53,456 | 66,820.00 | $ | 2,333,354 | |||||||||||||||||||||||||||||
William L. Morrison | — | — | 750,000 | 2,749,200 | ||||||||||||||||||||||||||||||
2/13/2012 | 80,184 | $ | 43.650 | $ | 925,283 | |||||||||||||||||||||||||||||
2/13/2012 | 0 | 26,728 | 33,410.00 | $ | 1,166,677 | |||||||||||||||||||||||||||||
Michael G. O’Grady | — | — | 350,000 | 2,061,900 | ||||||||||||||||||||||||||||||
2/13/2012 | 48,110 | $ | 43.650 | $ | 555,165 | |||||||||||||||||||||||||||||
2/13/2012 | 0 | 16,037 | 20,046.25 | $ | 700,015 | |||||||||||||||||||||||||||||
Steven L. Fradkin | — | — | 675,000 | 2,061,900 | ||||||||||||||||||||||||||||||
2/13/2012 | 48,110 | $ | 43.650 | $ | 555,165 | |||||||||||||||||||||||||||||
2/13/2012 | 0 | 16,037 | 20,046.25 | $ | 700,015 | |||||||||||||||||||||||||||||
Jana R. Schreuder | — | — | 675,000 | 2,061,900 | ||||||||||||||||||||||||||||||
2/13/2012 | 48,110 | $ | 43.650 | $ | 555,165 | |||||||||||||||||||||||||||||
2/13/2012 | 0 | 16,037 | 20,046.25 | $ | 700,015 |
(1)Grant Date. In each case, the “Grant Date” reflects the date on which the Compensation and Benefits Committee acted to approve the grant of the award.
(2)Estimated Possible Payouts Under Non-Equity Incentive Plan Awards. These columns show the range of potential payouts under the MPP based on the Corporation’s performance in 2012. “Threshold” and “Target” are not applicable here as the MPP provides for awards of cash incentives equal to the “Maximum”, subject to the Compensation and Benefits Committee discretion to reduce the amount of each award. The MPP defines the Maximum for each position as follows: Chairman, the CEO or a combined Chairman and CEO position—0.6% of consolidated net income; President, any Vice Chairman, COO, or a combined President and COO—0.4% of consolidated net income; and the other named executive officers—0.3% of consolidated net income. Pursuant to SEC regulations, the amount set forth under the “Target” column represents the amount awarded to the named executive officer in 2012 in respect of 2011 performance. Mr. O’Grady’s award reflects a partial year since he joined the Corporation during 2011. Awards under the MPP may not exceed the Maximum and are
subject to the Committee’s exercise of negative discretion to reduce them. The Committee considers a range of financial and non-financial factors in connection with the exercise of its negative discretion.
(3)All Other Stock Awards: Number of Shares of Stock or Units. This column shows the number of restricted stock units granted to the named executive officers in 2012. See footnote 2 to the “Summary Compensation Table” beginning on page 60 of this proxy statement for information about performance stock unit awards granted to named executive officers in 2012.
(4)All Other Option Awards: Number of Securities Underlying Options. This column shows the number of shares thatdistribution may be issued to the named executive officers upon exercise of stock options granted in 2012.cash.
(5)Exercise Price. In 2012, the exercise price for all stock options was the closing sale price of the Corporation’s common stock on the date of grant.
(6)Grant Date Fair Value. The grant date fair value of the stock and option awards was computed in accordance with FASB ASC Topic 718.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information for each named executive officer with respect to:
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|
Option Awards(1) | Stock Awards | |||||||||||||||||||||||||||||
Name (a) | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | Number of Securities Underlying Unexercised Options (#) Unexercisable (c) | Equity Incentive Plan Awards: Number of Securities Underlying Unexer- cised Unearned Options (#) (d) | Option Exercise Price ($) (e) | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#)(2) (g) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) (h) | Equity Incentive Plan Awards: Number of Unearned Units or (#)(4) | Equity Incentive Plan Awards: Market or | |||||||||||||||||||||
Frederick H. Waddell | 90,000 | 0 | $ | 49.120 | 2/17/2014 | 167,196 | $ | 8,386,551 | 53,456 | $ | 2,681,353 | |||||||||||||||||||
75,000 | 0 | $ | 44.465 | 2/15/2015 | ||||||||||||||||||||||||||
76,761 | 0 | $ | 52.095 | 2/21/2016 | ||||||||||||||||||||||||||
65,105 | 0 | $ | 63.360 | 2/20/2017 | ||||||||||||||||||||||||||
126,352 | 0 | $ | 71.230 | 2/19/2018 | ||||||||||||||||||||||||||
203,106 | 67,702 | $ | 57.540 | 7/21/2019 | ||||||||||||||||||||||||||
102,962 | 102,961 | $ | 50.990 | 2/15/2020 | ||||||||||||||||||||||||||
56,991 | 170,973 | $ | 52.640 | 2/14/2021 | ||||||||||||||||||||||||||
0 | 160,367 | $ | 43.650 | 2/13/2022 | ||||||||||||||||||||||||||
William L. Morrison | 90,000 | 0 | $ | 49.120 | 2/17/2014 | 60,881 | $ | 3,053,791 | 26,728 | $ | 1,340,676 | |||||||||||||||||||
75,000 | 0 | $ | 44.465 | 2/15/2015 | ||||||||||||||||||||||||||
63,328 | 0 | $ | 52.095 | 2/21/2016 | ||||||||||||||||||||||||||
40,247 | 0 | $ | 63.360 | 2/20/2017 | ||||||||||||||||||||||||||
42,118 | 0 | $ | 71.230 | 2/19/2018 | ||||||||||||||||||||||||||
67,703 | 22,567 | $ | 57.540 | 7/21/2019 | ||||||||||||||||||||||||||
29,418 | 29,418 | $ | 50.990 | 2/15/2020 | ||||||||||||||||||||||||||
17,810 | 53,429 | $ | 52.640 | 2/14/2021 | ||||||||||||||||||||||||||
0 | 80,184 | $ | 43.650 | 2/13/2022 | ||||||||||||||||||||||||||
Michael G. O’Grady | 24,175 | 72,525 | $ | 38.780 | 10/18/2021 | 32,234 | $ | 1,616,857 | 16,037 | $ | 804,416 | |||||||||||||||||||
0 | 48,110 | $ | 43.650 | 2/13/2022 |
Name (a) Number of Securities Underlying Unexercised Options (#) Exercisable (b) Number of Securities Underlying Unexercised Options (#) Unexercisable (c) Equity Incentive Plan Awards: Number of Securities Underlying Unexer- cised Unearned Options (#) (d) Option Exercise Price ($) (e) Option Expiration Date (f) Number of Shares or Units of Stock That Have Not Vested (#)(2) (g) Market Value of Shares or Units of Stock That Have Not Vested ($)(3) (h) Equity Incentive Plan Awards: Number of Unearned Units or (#)(4) Equity Incentive Plan Awards: Market Steven L. Fradkin Jana R. Schreuder Option Awards(1) Stock Awards
Shares,
Other
Rights
That
Have Not
Vested
(i)
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)(5)
(j) 50,000 0 $ 49.120 2/17/2014 50,881 $ 2,552,191 16,037 $ 804,416 55,000 0 $ 44.465 2/15/2015 57,571 0 $ 52.095 2/21/2016 40,247 0 $ 63.360 2/20/2017 42,118 0 $ 71.230 2/19/2018 67,703 22,567 $ 57.540 7/21/2019 29,418 29,418 $ 50.990 2/15/2020 17,810 53,429 $ 52.640 2/14/2021 0 48,110 $ 43.650 2/13/2022 25,000 0 $ 49.120 2/17/2014 50,881 $ 2,552,191 16,037 $ 804,416 42,219 0 $ 52.095 2/21/2016 35,512 0 $ 63.360 2/20/2017 42,118 0 $ 71.230 2/19/2018 67,703 22,567 $ 57.540 7/21/2019 29,418 29,418 $ 50.990 2/15/2020 17,810 53,429 $ 52.640 2/14/2021 0 48,110 $ 43.650 2/13/2022
(1)Stock Options. Stock options are granted with an exercise price equal to the closing sale price of the common stock on the date of grant and expire 10 years after the date of the grant. This approach is designed to motivate the executive to contribute to the creation of stockholder value over the long term. The Corporation currently grants only non-qualified stock options because it believes that the tax benefits to the Corporation of non-qualified stock options outweigh the potential tax benefits to the executives of incentive stock options. All stock options granted in 2006 and thereafter are scheduled to vest in equal annual installments over a four-year vesting period determined by the Committee. Please see “Equity Compensation Plans and Agreements—Stock Options” on pages 85-86 of this proxy statement for additional information about the vesting and exercise of stock options.
(2)Number of Restricted Stock Units. This column shows the number of unvested restricted stock units held by the named executive officers as of December 31, 2012. Units
Restricted stock units vest 50% on the third anniversary of the date of grant and 50% on the fourth anniversary of the date of grant. Restricted stock unit awards entitle an executive to receive one share of common stock in the year in which the award vests. Restricted stock units vest over a specified vesting period determined by the Committee. Dividend equivalents on the restricted stock units are paid in cash on a current basis prior to vesting and distribution. Please see “Equity Compensation Plans
If an executive dies, becomes disabled, or retires during the vesting period, or the executive’s employment is terminated during the vesting period under certain circumstances entitling the executive to benefits under the Corporation’s severance plan, the executive or the executive’s beneficiaries will be entitled to receive a distribution of a prorated number of restricted stock units. In addition, if an executive is a Management Group member on the date of grant, is age 55 or older on the date of termination of employment, and Agreements—Restricted Stock Units”does not compete with the Corporation during the vesting period, a prorated number of restricted stock units on page 84each remaining vesting date in the vesting period become vested and are eligible for distribution. In the case of this proxy statement for additional information about therestricted stock units granted after December 31, 2012, accelerated pro rata vesting and distribution provisions also apply in the case of Management Group members who satisfy certain conditions and who terminate employment for a government position, or terminate employment and thereafter accept a government position, and must dispose of any interest in the Corporation to satisfy ethics or conflict of interest laws or agreements.
Upon a change in control of the Corporation, all restricted stock units.units granted to named executive officers prior to December 31, 2012, become fully vested immediately; restricted stock units granted after December 31, 2012, are converted into units of the acquirer and continue to vest in accordance with the regular vesting schedule; provided, however, that they become fully vested in connection with a change in control if the executive experiences a qualifying termination of employment following the change in control
(in which case they are distributed within 60 days). A qualifying termination is an involuntary termination of employment without “cause” or termination for “good reason,” as those terms are defined in the award agreements, that occurs after the change in control and prior to the second anniversary thereof. Notwithstanding the foregoing, in the event that both a change in control occurs and the acquirer refuses or is unable to agree to the foregoing conversion and vesting provisions, the award will be vested and will be distributed in accordance with the provisions of Internal Revenue Code Section 409A, to the extent applicable. The agreements have been drafted to provide that in such event distribution may be in cash.
Stock Options
(3)Market ValueStock options are granted with an exercise price equal to the closing sale price of Restrictedthe common stock on the date of grant and expire 10 years after the date of the grant. Stock Units.options generally vest in equal annual installments over a four-year vesting period determined by the Committee.
If an executive dies or becomes disabled, the executive’s outstanding stock options become vested and may be exercised until the earlier of five years following death or disability or the expiration date of the option. If the executive retires, or if the executive is a member of the Management Group on the date of grant, is age 55 or older with a minimum of 10 years of employment on the date of termination of employment, and is not otherwise retirement-eligible pursuant to the Corporation’s retirement policy, the stock options continue to vest in accordance with their terms and, once vested, may be exercised until the earlier of five years following retirement or the expiration date of the option. If the executive’s employment is terminated under certain circumstances entitling the executive to severance benefits, the executive’s stock options (whether vested or unvested) may be exercised until the earlier of 180 days following termination of employment or the expiration date of the option, provided that if the executive is retirement eligible upon his or her termination of employment under the severance plan, the executive’s stock options (whether vested or unvested) become vested upon the executive’s termination of employment and may be exercised until the earlier of five years from the executive’s effective date of retirement or the expiration of the option. In addition, subject to certain conditions, Management Group members who hold options granted in 2012 and thereafter are eligible for accelerated vesting upon termination of employment to commence government service (or upon acceptance of government employment after termination of employment with the Corporation but prior to a vesting date) in instances where divesture of equity interests in the Corporation is required by law or is otherwise reasonably necessary, and may exercise their options for 90 days following their government service termination date or commencement of government employment, as applicable, or until the expiration of the option, if earlier. In other instances, in the absence of a change in control, vested stock options expire on the earlier of three months following termination of employment or the expiration date of the option, and unvested stock options expire on termination of employment.
Upon a change in control of the Corporation, all stock options granted prior to December 31, 2012, become vested and exercisable. Stock options granted after December 31, 2012, convert to options on stock of the acquirer and continue to vest in accordance with the regular vesting schedule, provided, however, that they become fully vested in connection with a change in control if the executive experiences a qualifying termination of employment following the change in control (in which case the options on the acquirer stock remain exercisable until the expiration of the option), or if they are not assumed in the transaction (in which case the employee is entitled to a cash payment equal to the “spread” between the transaction consideration and the option exercise price). The Corporation’s equity award agreements contain provisions related to a change in control of the Corporation.
Outstanding Equity Awards at Fiscal Year-End
Option Awards (1) | Stock Awards | |||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares of Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Units or (#)(4) | Equity Incentive Plan Awards: Market or | ||||||||||||||||||||
Mr. Waddell | 75,000 | 0 | $ | 44.465 | 2/15/2015 | 141,861 | $ | 8,779,777 | 116,561 | $ | 7,213,960 | |||||||||||||||||
76,761 | 0 | 52.095 | 2/21/2016 | |||||||||||||||||||||||||
65,105 | 0 | 63.360 | 2/20/2017 | |||||||||||||||||||||||||
126,352 | 0 | 71.230 | 2/19/2018 | |||||||||||||||||||||||||
270,808 | 0 | 57.540 | 7/21/2019 | |||||||||||||||||||||||||
154,443 | 51,480 | 50.990 | 2/15/2020 | |||||||||||||||||||||||||
113,982 | 113,982 | 52.640 | 2/14/2021 | |||||||||||||||||||||||||
40,092 | 120,275 | 43.650 | 2/13/2022 | |||||||||||||||||||||||||
0 | 94,658 | 52.690 | 2/11/2023 | |||||||||||||||||||||||||
Mr. O’Grady | 48,350 | 48,350 | 38.780 | 10/18/2021 | 41,724 | 2,582,298 | 35,016 | 2,167,140 | ||||||||||||||||||||
12,028 | 36,082 | 43.650 | 2/13/2022 | |||||||||||||||||||||||||
0 | 28,469 | 52.690 | 2/11/2023 | |||||||||||||||||||||||||
Mr. Fradkin | 28,786 | 0 | 52.095 | 2/21/2016 | 43,043 | 2,663,931 | 35,016 | 2,167,140 | ||||||||||||||||||||
40,247 | 0 | 63.360 | 2/20/2017 | |||||||||||||||||||||||||
42,118 | 0 | 71.230 | 2/19/2018 | |||||||||||||||||||||||||
90,270 | 0 | 57.540 | 7/21/2019 | |||||||||||||||||||||||||
44,127 | 14,709 | 50.990 | 2/15/2020 | |||||||||||||||||||||||||
35,620 | 35,619 | 52.640 | 2/14/2021 | |||||||||||||||||||||||||
12,028 | 36,082 | 43.650 | 2/13/2022 | |||||||||||||||||||||||||
0 | 28,469 | 52.690 | 2/11/2023 | |||||||||||||||||||||||||
Mr. Morrison | 75,000 | 0 | 44.465 | 2/15/2015 | 59,448 | 3,679,237 | 58,518 | 3,621,679 | ||||||||||||||||||||
63,328 | 0 | 52.095 | 2/21/2016 | |||||||||||||||||||||||||
40,247 | 0 | 63.360 | 2/20/2017 | |||||||||||||||||||||||||
42,118 | 0 | 71.230 | 2/19/2018 | |||||||||||||||||||||||||
90,270 | 0 | 57.540 | 7/21/2019 | |||||||||||||||||||||||||
44,127 | 14,709 | 50.990 | 2/15/2020 | |||||||||||||||||||||||||
35,620 | 35,619 | 52.640 | 2/14/2021 | |||||||||||||||||||||||||
20,046 | 60,138 | 43.650 | 2/13/2022 | |||||||||||||||||||||||||
0 | 47,685 | 52.690 | 2/11/2023 |
Number of Securities Underlying Unexercised Options Exercisable (#) Number of Securities Underlying Unexercised Options Unexercisable (#) Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#)(2) Market Value of Shares of Units of Stock That Have Not Vested ($)(3) Equity Incentive Plan Awards: Number of Unearned Units or (#)(4) Equity Incentive Plan Awards: Market or Ms. Schreuder Option Awards (1) Stock Awards Name
Shares,
Other
Rights
That
Have Not
Vested
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)(5) 42,219 0 52.095 2/21/2016 43,043 2,663,931 35,016 2,167,140 35,512 0 63.360 2/20/2017 42,118 0 71.230 2/19/2018 90,270 0 57.540 7/21/2019 44,127 14,709 50.990 2/15/2020 35,620 35,619 52.640 2/14/2021 12,028 36,082 43.650 2/13/2022 0 28,469 52.690 2/11/2023
(1) Stock options generally vest in equal annual installments over a four-year vesting period determined by the Committee.
(2) This column shows the market valuenumber of the unvested restricted stock units held by the named executive officers as of December 31, 2013. Restricted stock units vest 50% on the third anniversary of the date of grant and 50% on the fourth anniversary of the date of grant.
(3) The market value of the restricted stock units included in this column is based on a price of $50.16$61.89 per share (the closing market price of the Corporation’s common stock on December 31, 2012, as reported by NASDAQ)2013).
(4)Number of Performance Stock Units. This column shows Represents the target number of unvested performance stock units held by theshares that a named executive officers as of December 31, 2012. Performance stock units entitle an executive toofficer may receive shares of common stock, on a one-for-one basis, in the year in which the award vests, subject to satisfaction of pre-determined performance goals. Dividend equivalents onunder the performance stock units are paid on a current basis prior to vestinggranted in 2012 and distribution. Please see “Equity Compensation Plans and Agreements—Performance Stock Units” on pages 84-85 of this proxy statement for additional information about the vesting and distribution of performance stock units.2013.
(5)Market Value of Performance Stock Units. This column shows the The market value of the unvested performance stock units held by the named executive officers,included in this column is based on a price of $50.16$61.89 per share (the closing market price of the Corporation’s common stock on December 31, 2012, as reported by NASDAQ)2013).
OPTION EXERCISES AND STOCK VESTEDOption Exercises and Stock Vested
The following table sets forth information for each named executive officer with respect to:
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Name (a) Number of Shares Acquired on Exercise (#) (b) Value Realized on Exercise ($)(1) (c) Number of Shares Acquired On Vesting (#) (d) Value Realized On Vesting ($)(2) (e) Frederick H. Waddell(3) William L. Morrison(3) Michael G. O’Grady Steven L. Fradkin(3) Jana R. Schreuder(3) Number of Shares Acquired on Exercise (#) Value Realized on Exercise ($)(1) Number of Shares Acquired On Vesting (#) Value Realized On Vesting ($)(2)(3) Mr. Waddell Mr. Fradkin Mr. Morrison Ms. Schreuder Option Awards Stock Awards 22,024 $ 262,684 22,568 $ 1,076,945 15,519 $ 236,195 7,523 $ 358,998 7,523 $ 358,998 7,523 $ 358,998 Option Awards Stock Awards Name 90,000 $ 529,914 56,888 $ 3,105,421 133,785 1,355,848 17,328 358,998 90,000 898,596 17,328 947,988 25,000 117,000 17,328 947,988
(1)Value Realized on Exercise. The value realized on the exercise of stock options represents the pre-tax difference between the option exercise price and the fair market value of the common stock on the date of exercise, multiplied by the number of shares of common stock covered by the stock options held by the named executive officers.exercise.
(2)Value Realized on Vesting. The value realized on the distribution of restricted stock units represents the average of the high and low sales prices on October 19, 2012,February 15, 2013, the distribution date approved by the Committee, as reported by NASDAQ, which was $47.72,$53.315, multiplied by the number of stock units held by the named executive officers.
(3)Deferred Stock Units. Under the provisions of the applicable restricted stock unit agreements, for Mr. Waddell, Mr. Morrison, Mr. Fradkin, and Ms. Schreuder, a portion of the restricted stock units listed in the table as vesting in 20122013 was required to be deferred until the earlier of (a) the year in which the Committee reasonably anticipates that, if the payment is made during that year, the deduction of the payment will not be barred by the Code Section 162(m), or (b) the period beginning with the date of the participant’s separation from service (as defined in the Amended and Restated 2002 Stock Plan) and ending on the later of the last day of the Corporation’s taxable year in which the participant incurs a separation from service or the 15th day of the third month following such separation from service. Based on this requirement, of the shares listed in the table above as acquired or vesting in 2012, the following shares representfollows: Mr. Waddell: 22,567 deferred stock units:units ($1,275,600); Mr. Fradkin: 7,522 deferred stock units ($425,181); Mr. Morrison: 7,522 deferred stock units ($425,181); and Ms. Schreuder: 7,522 deferred stock units ($425,181).
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PENSION BENEFITSPension Benefits
Name (a) | Plan Name (b) | Number of Years Credited Service (#) (c) | Present Value of Benefit ($) (d) | Payments Fiscal Year ($) (e) | ||||||||||
Frederick H. Waddell | Qualified Pension Plan | 35.0 | 1,748,913 | $ | 0 | |||||||||
Supplemental Pension Plan | 35.0 | 16,973,843 | $ | 0 | ||||||||||
William L. Morrison | Qualified Pension Plan | 16.8 | 904,117 | $ | 0 | |||||||||
Supplemental Pension Plan | 16.8 | 3,845,289 | $ | 0 | ||||||||||
Michael G. O’Grady | Qualified Pension Plan | 1.4 | 14,555 | $ | 0 | |||||||||
Supplemental Pension Plan | 1.4 | 33,190 | $ | 0 | ||||||||||
Steven L. Fradkin | Qualified Pension Plan | 27.7 | 933,165 | $ | 0 | |||||||||
Supplemental Pension Plan | 27.7 | 3,972,990 | $ | 0 | ||||||||||
Jana R. Schreuder | Qualified Pension Plan | 32.7 | 1,289,493 | $ | 0 | |||||||||
Supplemental Pension Plan | 32.7 | 5,450,305 | $ | 0 |
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Benefit ($) | Payments Fiscal Year ($) | ||||||||||
Mr. Waddell | Qualified Pension Plan | 35.0 | $ | 1,687,574 | — | |||||||||
Supplemental Pension Plan | 35.0 | 16,590,337 | — | |||||||||||
Mr. O’Grady | Qualified Pension Plan | 2.4 | 25,314 | — | ||||||||||
Supplemental Pension Plan | 2.4 | 79,176 | — | |||||||||||
Mr. Fradkin | Qualified Pension Plan | 28.7 | 867,904 | — | ||||||||||
Supplemental Pension Plan | 28.7 | 3,735,258 | — | |||||||||||
Mr. Morrison | Qualified Pension Plan | 17.8 | 843,110 | — | ||||||||||
Supplemental Pension Plan | 17.8 | 3,635,980 | — | |||||||||||
Ms. Schreuder | Qualified Pension Plan | 33.7 | 1,223,693 | — | ||||||||||
Supplemental Pension Plan | 33.7 | 5,233,447 | — |
The information presented in the Pension Benefits table is as of the measurement date of December 31, 2012, which is the measurement date used for reporting purposes in the Corporation’s 2012 annual report to stockholders.
Pension Plan and Supplemental Pension Plan
Defined benefit pension benefits are provided generally to employees under the Pension Plan and to certain employees (including the named executive officers) under the Supplemental Pension Plan, and are available to all employees of the Bank and affiliates and subsidiaries that have adopted the Plans.Plan. The Pension Plan is a tax-qualified retirement plan that provides a retirement benefit as described below, which is subject to various limitations of the Internal Revenue Code and the Pension Plan. The Supplemental Pension Plan is a non-qualified retirement plan that provides the portion of an employee’s benefit that cannot be paid under the Pension Plan due to theInternal Revenue Code and Pension Plan limits. The material terms and conditions of the Pension Plan and the Supplemental Pension Plan as they relate to the named executive officers include the following:
Eligibility: Employees participate in the Pension Plan after completing six months of vesting service. Employees with six months of vesting service who would have a portion of their benefit from the Pension Plan limited due to theInternal Revenue Code or Pension Plan restrictions also participate in the Supplemental Pension Plan. All named executive officers participate in both Plans. Mr. O’Grady began participating in these Plans on February 15, 2012.
Benefit Formula—Formula—Traditional Formula: Prior to April 1, 2012, the benefits of the named executive officers, except for Mr. O’Grady, were determined under the Pension Plan’s Traditional Formula. The Traditional Formula’s main components are service, eligible pay, age, and an offset for Social Security. TheTo determine a participant’s benefit, the Traditional Formula first multiplies 1.8% by the average of the participant’s highest 60 consecutive calendar months of eligible pay. This amount is further multiplied by the participant’s years of credited service (up to a maximum of 35 years). The Social Security offset is then determined by multiplying 0.5% by (i) the lesser of the participant’s Social Security Covered Compensation limit or the average of the participant’s eligible pay for the three consecutive years prior
to retirement by (ii) the participant’s years of credited service (up to 35 years). This offset is subtracted from the benefit amount previously calculated to determine the annual benefit amount produced by the Traditional Formula.
The following definitions are used under the Traditional Formula:
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Benefit Formula—Formula—PEP Formula: Since Mr. O’Grady commenced employment on August 15, 2011, his benefits under the Pension Plan and Supplemental Pension Plan for his entire period of creditedofcredited service are calculated under the Pension Plan’s “Pension Equity Plan (PEP) Formula”, rather than the Traditional Formula.” Under the PEP Formula, each year a participant earns a specific pension credit “percentage,” determined in accordance with a schedule in the Pension Plan that varies directly with his or her total number of years of credited service. A participant’s PEP Formula lump sum amount is equal to the sum of his or her pension credit percentages multiplied by the average of the participant’s highest 60 consecutive calendar months of eligible pay. (Prior to April 1, 2012, eligible pay was defined the same for the PEP Formula as for the Traditional Formula, except that eligible pay under the PEP Formula also included cash Sales and Technical Incentives under the NPIP up to 50% of the participant’s prior year’s base pay. Effective April 1, 2012, eligible pay under the amended PEP Formula includes all cash incentives under the NPIP.) A participant’s annual benefit under the PEP Formula is equal to a single life annuity commencing at age 65 that is the actuarial equivalent of his or her PEP Formula lump sum amount. The single life annuity is calculated using interest rate and mortality assumptions specified in the Pension Plan.
Below is the schedule that was in effect until April 1, 2012, for determining the applicable pension credit percentage in the PEP Formula for a given year:
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Benefit Formula—Formula—Changes: Effective April 1, 2012, the Pension Plan was amended to provide that for credited service earned after March 31, 2012, all employees, including the named executive officers will accrue benefits pursuant to the PEP Formula, which formula was also modified effective April 1, 2012. Therefore, the current named executive officers, other than Mr. O’Grady, will be entitled to an annual benefit equal to the sum of their accruals (i) under the Traditional Formula for periods of credited service before April 1, 2012, and (ii) under the amended PEP Formula for their periods of credited service, if any, after March 31, 2012. Each such executive’s pre-April 1, 2012 Traditional Formula benefits will be based on credited service and average compensation calculated as of March 31, 2012, provided that the executive’s average compensation as of March 31, 2012, will be indexedbeindexed at a rate of 1.5% per year for any period on and after April 1, 2012 during which the executive earns credited service under the Pension Plan.
In 2012,2013, the Chairman and CEO’s pension value increaseddecreased by $3,839,003. The$444,845. Although the April 1, 2012 changes made to the Pension Plan are anticipated to moderate any future pension value increases. For 2012,increases, the present value of benefits under the Traditional Formula is sensitive to changes in interest rates. The increase in discount rate used to calculate the pension from 4.25% to 5.00% at December 31, 2013 resulted in a decrease in value in the present value of benefits under the Traditional Formula for each of the named executive officers, except for Mr. O’Grady whose benefits are all accrued under the PEP Formula. The other primary factors influencing the Chairman and CEO’s pension value increasevalues include an increase of histhe final average pay calculation and the application of the average pay across his 35 years of credited service under the plan, and a decrease in the discount rate from 4.75% to 4.25% that resulted in an increase to the present value of his pension.
Mr. O’Grady will continue to accrue a benefit pursuant to the PEP Formula with respect to all of his credited service. He will be entitled to an annual benefit equal to the sum of his accruals (i) under the prior PEP Formula for periods of credited service before April 1, 2012, and (ii) under the amended PEP Formula for periods of credited service, if any, after March 31, 2012.
Below is the schedule that is currently in effect for determining the applicable pension credit percentage in the PEP Formula for a given year:
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In applying the foregoing schedule, a participant’s credited service prior to April 1, 2012 is taken into account solely for purposes of determining the pension credit percentage applicable to credited service after that date.Pension Plan.
Benefit Formula—Formula—Supplemental Pension Plan: Pension benefits are first calculated under the combined Traditional Formula and PEP Formulas or solely under the PEP Formula, as applicable, without regard to theInternal Revenue Code limits and including in eligible pay the amounts deferred under the DCP.deferred compensation plan. They are then recalculated applying theInternal Revenue Code limits and excluding DCPdeferred compensation plan deferrals from eligible pay to determine the amount of the benefit that is payable from the Pension Plan. The difference between the total benefit calculation and the Pension Plan calculation is paid from the Supplemental Pension Plan.
Benefit Entitlement: A participant is eligible to receive a benefit under the Pension Plan and Supplemental Pension Plan after completing three years of vesting service.
Retirement: A participant is eligible for a normal retirement benefit based on the combined Traditional and PEP Formulas or based solely on the PEP Formula, as described above, if his or her employment terminates on or after age 65 (or for participants who begin participation in the Pension Plan after age 60, upon the first to occur of reaching the fifth anniversary of commencement of participation or achieving five years of vesting service). A participant is eligible for an early retirement benefit if his or her employment terminates on or after age 55 and he or she has completed 15 years of creditedofcredited service. A participant who terminates employment with three years of vesting service but prior topriorto becoming eligible for a normal or early retirement benefit is eligible for a “vested terminee” benefit commencing any time after termination. Messrs.Mr. Waddell, Mr. Morrison and MorrisonMs. Schreuder are each eligible for early retirement benefits. All other named executives, other than Mr. O’Grady, have earned vested terminee benefits.
Under the Traditional Formula, the early retirement benefit is equal to the normal retirement benefit described above, reduced by 0.5% for each month payments are received prior to age 62 (or prior to age 60 under certain circumstances). A participant who terminates employment with three years of vesting service but prior to becoming eligible for a normal or early retirement benefit is eligible for a “vested terminee” benefit commencing any time after termination, with payments reduced by 0.5% for each month up to 120 months that payments are received prior to age 65, then actuarially reduced for each month that payments are received prior to age 55.
Under the PEP Formula, both the early retirement benefit and “vested terminee” benefit are equal to the normal retirement benefit (in the form of a monthly single life annuity as described above), adjusted for early commencement prior to age 65 (or for participants who begin participation in the Pension Plan after age 60, upon the first to occur of reaching the fifth anniversary of commencement of participation or achieving five years of vesting service). The adjustment is made using interest rate and mortality assumptions specified in the Pension Plan.
Form of Benefit Payment: The normal form of benefit payment under the Pension Plan is a single life annuity in the case of an unmarried participant and a 50% joint and survivor annuity in the case of a married participant, although optional forms of payment are available, depending on marital status and age and years of service. A lump sum option is available in all cases. All optional forms are the actuarial equivalent of the normal form of payment. The normal form of benefit under the Supplemental Pension Plan is a five-year certain annuity, payable to the participant in five annual installments; if the participant dies prior to receiving full benefits, payments will continue for the remaindertheremainder of the five years to a designated beneficiary. TheAny installment payments are credited with interest equalpursuant to a market-based formula set forth in the greater of the annual yield on the monthly five-year Treasury securities with a constant maturity plus 150 basis points or the month-end Moody’s Long Term Aa Corporate Bond Index yield, determined as of the last month of the same calendar quarter as the interest rate used to calculate any lump sum benefit for the participant under the Pensionrespective Plan. If however, the value of the Supplemental Pension Plan benefit is $125,000 or less, the benefit is paid in a single lump sum.
Assumptions. The assumptions used in calculating the present value of the accumulated benefit are set forth in footnote 21“Note 21—Employee Benefits” in the “Notes to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each containedStatements” in the Corporation’s 2012 annual report2013 Annual Report to stockholders.Stockholders. The Corporation does not grant extra years of credited service under the Pension Plan, other than as noted abovebelow under “Compensation Discussion and Analysis—“Potential Payment Upon Termination of Employment or a Change in Control (CIC) Benefits.of the Corporation.”
NON-QUALIFIED DEFERRED COMPENSATIONNon-Qualified Deferred Compensation
Name (a) | Form of Deferred Compensation (b) | Executive Contributions In Last FY(1) ($) (c) | Registrant Contributions ($) (d) | Aggregate Earnings Last ($) (e) | Aggregate Withdrawals/ Distributions ($) (f) | Aggregate Balance at Last ($) (g) | ||||||||||||
Frederick H. Waddell | Deferred Compensation Plan | 0 | 0 | |||||||||||||||
Supplemental TIP | 43,500 | 21,750 | 111,248 | 887,161 | ||||||||||||||
Deferred Stock Units | 1,076,945 | 746,855 | 4,644,776 | |||||||||||||||
William L. Morrison | Deferred Compensation Plan | 0 | 0 | |||||||||||||||
Supplemental TIP | 27,000 | 13,500 | 1,448 | 619,999 | ||||||||||||||
Deferred Stock Units | 176,230 | 78,855 | 552,932 | |||||||||||||||
Michael G. O’Grady | Deferred Compensation Plan | 0 | 0 | |||||||||||||||
Supplemental TIP | 0 | 0 | ||||||||||||||||
Deferred Stock Units | 0 | 0 | ||||||||||||||||
Steven L. Fradkin | Deferred Compensation Plan | 68,082 | 10,929 | 79,011 | ||||||||||||||
Supplemental TIP | 21,000 | 10,500 | 53,294 | 438,805 | ||||||||||||||
Deferred Stock Units | 54,401 | 111,017 | 584,743 | |||||||||||||||
Jana R. Schreuder | Deferred Compensation Plan | 0 | 0 | |||||||||||||||
Supplemental TIP | 21,000 | 10,500 | 44,636 | 364,090 | ||||||||||||||
Deferred Stock Units | 54,401 | 11,508 | 109,376 |
Name | Form of Deferred Compensation | Executive Contributions In Last FY ($)(1) | Registrant Contributions ($)(2) | Aggregate Earnings Last ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last ($) | ||||||||||||
Mr. Waddell | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||
Supplemental TIP | $43,200 | $ | 21,600 | 275,234 | — | $ | 1,227,195 | |||||||||||
Deferred Stock Units | 1,221,449 | — | 1,208,593 | — | 7,102,496 | |||||||||||||
Mr. O’Grady | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||
Supplemental TIP | 20,325 | 10,163 | (214 | ) | — | 30,273 | ||||||||||||
Deferred Stock Units | — | — | — | — | — | |||||||||||||
Mr. Fradkin | Deferred Compensation Plan | — | — | 24,324 | — | 103,334 | ||||||||||||
Supplemental TIP | 20,700 | 10,350 | 125,496 | — | 595,351 | |||||||||||||
Deferred Stock Units | 407,093 | — | 175,704 | — | 1,168,917 | |||||||||||||
Mr. Morrison | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||
Supplemental TIP | 31,200 | 15,600 | 1,436 | — | 668,236 | |||||||||||||
Deferred Stock Units | 407,093 | — | 168,994 | — | 1,133,515 | |||||||||||||
Ms. Schreuder | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||
Supplemental TIP | 20,700 | 10,350 | 112,980 | — | 508,120 | |||||||||||||
Deferred Stock Units | 407,093 | — | 64,539 | — | 582,385 |
(1)Executive Contributions. The amount of executive contributions made by each named executive officer as reported Amounts in this column (c) above isare also included in each named executive officer’s compensation reported under the Summary“Summary Compensation Table,” either as “Salary” or “Stock Awards.”
(2)Registrant Contributions. The amount of the contributions made by the Corporation to each named executive officer under Supplemental TIP, as reported Amounts in this column (d) above, isare also included in each named executive officer’s “All Other Compensation” under the Summary“Summary Compensation Table.”
(3) Aggregate Earnings. The aggregate earnings in this column (e) aboveare “above-market” and thus are not reportedincluded in the Summary“Summary Compensation Table.
(4)Aggregate Balance. The aggregate balance at December 31, 2012, as reported in column (g) above, reflects amounts that either are currently reported or were previously reported as compensation in the Summary Compensation Table for 2012 or prior years, except for the aggregate earnings on deferred compensation.”
The Corporation maintains the DCPNorthern Trust Corporation Deferred Compensation Plan pursuant to which eligible employees, including the named executive officers, may defer all or a portion of their eligible annual incentive cash awards until a later date. The material terms and conditions of the DCPdeferred compensation plan as they relate to the named executive officers include the following:
Eligibility: An employee is eligible to participate in the DCPdeferred compensation plan for any calendar year if as of the preceding November 15 he or she (i) was actively employed by the Corporation or a subsidiary and either resided in the U.S. or was a U.S. expatriate on temporary international assignment, (ii) participated in the Northern Partners IncentiveManagement Performance Plan, (with respect to performance, sales or technical incentives) or the MPP, and (iii) had an annual base salary of $100,000 or more or a combination of base salary and cash awards paid from April 1 of the prior year through March 31 of the current year equal to $150,000 or more.
Contributions: Each participant must make an election prior to the beginning of a calendar year, and can elect to defer up to 100% of each eligible cash incentive award that will be paid forin the second calendar year following the year of the election, subject to a minimum deferral of $2,500 of each cash incentive award. All deferrals are credited to an account maintained for the participant under the DCP.deferred compensation plan. No employer contributions are made under the DCP.deferred compensation plan.
Vesting: A participant is fully vested in his or her entire DCPdeferred compensation plan account balance at all times.
Investments: Each participant’s DCPdeferred compensation plan account is credited with earnings or losses based on investment alternatives made available under the DCPdeferred compensation plan and selected by the participant. On a monthly basis, participants can change their DCP investment alternatives among the alternatives offered in the DCP. The 2012 performance (net of fees) of the investment alternatives is as follows:
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Distributions: At the time a participant makes a deferral election, he or she must elect a short-term deferral or a retirement deferral. If the participant elects a short-term deferral, distribution of such amount must be deferred until a later specified date, which is at least three years following the end of the year in which the cash incentive award would have otherwise been paid. The short-term deferral, including the attributable earnings or losses, is paid to the participant in a lump sum. If the participant elects a retirement deferral, distribution of such amount will be deferred until the participant retires after reaching eligibility for early or normal retirement under the Pension Plan. At the time the participant makes the retirement deferral election, he or she must also elect whether the deferral, including the attributable earnings or losses, will be paid in a lump sum or in installments payable over five or 10 years. Notwithstanding the foregoing, if the participant’s employment terminates before the scheduled distribution date, the short-term or retirement deferral, and attributable earnings or losses, will be paid in a lump sum within 60 days following the date of such termination. If the participant is
deemed to be a “key employee” as defined by the Internal Revenue Code, any distribution that was deferred after December 31, 2004 and is payable due to retirement or termination of employment will be delayed for six months following the date of such retirement or termination.
Supplemental TIP is a non-qualified retirement plan that provides the portion of an employee’s benefit that cannot be paid under TIP due to the Internal Revenue Code’s limit on the amount of a
participant’s compensation that can be taken into account in determining TIP benefits. Account information provided for Supplemental TIP also includes account balances in the Northern Trust Corporation Supplemental Employee Stock Ownership Plan, (“Supplemental ESOP”), which was frozen effective January 1, 2005 when the qualified Northern Trust Employee Stock Ownership Plan was merged into TIP. Contributions to Supplemental ESOP have not been permitted since January 1, 2005. The material terms and conditions of Supplemental TIP as they relate to the named executive officers include the following:
Eligibility: An employee is eligible to participate in Supplemental TIP for any calendar year if he or she participates in TIP and as of the prior November 30 his or her base salary exceeded the Internal Revenue Code compensation limit ($250,000 in 2012).limit. Employees are eligible to participate in TIP and elect salary deferrals immediately upon their hire, and are eligible for employer matching contributions after six months of service. All named executive officers other than Mr. O’Grady, participate in both Plans. Mr. O’Grady does not currently participate in Supplemental TIP.
Contributions: Each participant must make an election prior to the beginning of a calendar year to contribute to Supplemental TIP a portion of his or her base salary that exceeds the Internal Revenue Code compensationlimit. A participant’s election remains in effect for subsequent calendar years until revised or revoked by the participant. Any revision or revocation must be made prior to the calendar year in which the revision or revocation is to become effective. The Corporation makes a matching contribution under Supplemental TIP using the formula in TIP, which is 50% of the first 6% of deferred salary, for a maximum matching contribution of 3% of salary. In addition, for 2011, since the Corporation met its annual earnings goal, the Corporation made a contingent matching contribution of 50% of the first 3% of deferred salary to TIP. However, no contingent matching contributions are ever made to Supplemental TIP. Further, TIP was amended to provide that no contingent matching contribution would be made to TIP for 2012, even if the Corporation met its earning goal for that year. TIP has been further amended to discontinue the contingent matching contribution for 2013 and subsequent years, but with the Committee retaining the discretion to authorize a discretionary employer contribution to TIP, which may be in the form of a profit sharing contribution, or other form of employer contribution, as determined by the Committee.compensation limit.
Vesting: Each participant generally vests in the employer contributions under TIP and Supplemental TIP on a graduated basis of 20% per year over five years and is fully vested after five years. Theyears.The named executive officers, except Mr. O’Grady, are fully vested in their TIP and Supplemental TIP accounts. Mr. O’Grady is not yet vested in his TIP account and does not currently participate in Supplemental TIP.
Investments: Each participant’s Supplemental TIP account is credited with earnings or losses based on investment alternatives made available under Supplemental TIP and selected by the participant (which are generally the same investment alternatives available to participants under TIP). On a monthly basis, participants can change their Supplemental TIP investment alternatives among the
alternatives offered in Supplemental TIP. For 2012, the investment alternatives available to Supplemental TIP participants were the same as those for DCP participants. The 2012 performance of those investment alternatives is set forth on page 77.
Distributions: No withdrawal or borrowing of Supplemental TIP assets is permitted during a participant’s employment. Distribution of the entire Supplemental TIP account balance generally is made to a participant within 90 days after the participant’s termination of employment. If the participant is deemed to be a “key employee”, as defined by the Internal Revenue Code, the portion of his or her Supplemental TIP account accruing after December 31, 2004 is distributed as a single lump sum following the six month anniversary of the termination of employment.
As noted abovereferenced in footnote 3 underto the Option“Option Exercises and Stock VestedVested” table, restricted stock units granted prior to 2010 may be required to be deferred until the earlier of (a) the year in which the Committee reasonably anticipates that, if the payment is made during that year, the deduction of the payment will not be barred by the Internal Revenue Code Section 162(m), or (b) the period beginning with the with date of the participant’s separation from service (as defined in the Amended and Restated 2002 Stock Plan) and ending on the later of the last day of the Corporation’s taxable year in which the participant incurs a separation from service or the 15th day of the third month following such separation from service. “Executive Contribution in Last FY” in the table above represent the value of the restricted stock units required to be deferred, and “Aggregate Earnings in Last FY” represent the change in the value of the deferred stock units, which is based on the change in the value of the underlying shares of common stock into which the stock units convert.
POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT OR A CHANGE IN CONTROL OF THE CORPORATIONPotential Payments Upon Termination of Employment
Theor a Change in Control of the Corporation
In addition to benefits to which Northern Trust’s employees would be entitled upon a termination of employment generally, the Corporation provides certain additional benefits to eligible employees upon certain types of termination of employment, including a termination of employment involving a change in control of the Corporation. These benefits are in addition to the benefits to which the employees would be entitled upon a termination of employment generally (i.e., (i) vested retirement benefits accrued as of the date of termination, (ii) stock-based awards that are vested as of the date of termination, (iii) the right to continue medical coverage pursuant to COBRA, and (iv) severance payments to salaried employees upon an involuntary termination of employment due to a reduction in force or job elimination). These incremental benefits as they pertain to the named executive officers are described below.
Employment Security Agreements
The Corporation has employment security agreements with the named executive officers and certain other executive officers. The Corporation’s decision to enter into these employment security agreements described below and the determination of the level of benefits under thosethese agreements, as well as under various termination of employment scenarios were exercises in judgment, informed by (i) the recognition that the Corporation does not have employment agreements with itsall named executive officers are employed at-will, (ii) the Corporation’s desire to provide the named executive officers with sufficient security to assure they are not distracted and remain focused on maximizing stockholder value during and after a change in control, (iii) the Corporation’s goal of providing executive compensation at levels that are competitive with similar positions to those in its peer group companies, (iv) the nature and scope of the job responsibilities undertaken by the named executive officers, and (v) the terms of other types of compensation paid by the Corporation to the named executive officers. In particular, in setting the terms of the benefits payable to the named executive officers under various termination scenarios, the Committee was guided in large part by a desire to be sufficiently responsive to market forces and the environment in which the Corporation seeks to attract, retain,motivate and motivateretain its named executive officers by providing benefits consistent and competitive with those of the peer group companies with which it competes for top executive talent. In initially establishing the form and level of post-termination benefits, the Committee received and reviewed relevant peer group company information provided by Aon Hewitt. In particular, this competitive peer group data influenced the decision of the Committee to provide for employment security agreements, to set the level of lump sum payments equal to three years of salary and bonus, and to provide for the vesting of equity compensation awards, the continuation of coverage under certain health and welfare plans, and other protections afforded in the event of a termination of employment in connection with a change in control or under other termination of employment scenarios.
Employment Security Agreements
The Corporation has employment security agreements with the named executive officers and certain other executive officers. The employment security agreements provide benefits upon the occurrence of the following terminations of employment that are in connection with an actual or pending change in control of the Corporation (as defined below)in the agreements):
— | A termination of the executive’s employment by the Corporation or a subsidiary without “good cause” that occurs either within two years after a change in control of the Corporation or during the period pending a change in control of the Corporation; or |
— | An executive’s voluntary termination of employment with the Corporation or a subsidiary for “good reason” that occurs either within two years after a change in control of the Corporation or during the period pending a change in control of the Corporation. |
The benefits provided to a named executive officer upon such a termination of employment would consist of the items identified in the following seven bullet points:
— | A lump sum payment equal to three times the sum of (i) the named executive officer’s annual salary in effect on the date of employment termination, or if higher, the date of the change in control and (ii) the average of the named executive officer’s awards under the Corporation’s cash incentive plans for the last three fiscal years of participation in such plans prior to the date of termination, or, if higher, the date of the change in control. |
The amount of this payment to each named executive officer, assuming the named executive officer became eligible for benefits under the agreement due to a termination of employment on December 31, 2012 (the last business day of 2012),2013, would be as follows: Mr. Waddell: $8,525,000; Mr. Morrison: $4,250,000; Mr. O’Grady: $3,450,000;$4,050,000; Mr. Fradkin: $3,900,000;$4,000,000; Mr. Morrison: $4,850,000; and Ms. Schreuder: $3,900,000.$4,000,000.
— | A lump sum payment of a prorated portion of the average amounts paid to the named executive officer under the Corporation’s cash incentive plans for the last three fiscal years of participation in such plans prior to the date of termination, or, if higher, the date of the change in control, less any amounts paid to the named executive officer under those plans with respect to completed performance periods occurring in the year the named executive officer’s employment terminates. |
The amount of this payment to each named executive officer, assuming the executive became eligible for benefits under the employment security agreement due to a termination of employment on December 30, 2012,31, 2013, would be as follows: Mr. Waddell: $1,866,667; Mr. Morrison: $716,667; Mr. O’Grady: $575,000;$750,000; Mr. Fradkin: $700,000;$733,333; Mr. Morrison: $816,667; and Ms. Schreuder: $700,000.$733,333.
— | With respect to equity awards: (i) full vesting of all stock options, (ii) all outstanding nonqualified stock options |
Assuming a termination of employment under the employment security agreement on December 31, 2012 (the last business day of 2012),2013, the fully vested equity awards would have the following values for each named executive officer:
Mr. Waddell: | $ | 1,043,989 | (stock options) | |||
$ | 3,121,461 | (restricted stock units) | ||||
Mr. Morrison: | $ | 521,998 | (stock options) | |||
$ | 1,273,629 | (restricted stock units) | ||||
Mr. O’Grady: | $ | 1,138,531 | (stock option) | |||
$ | 2,316,857 | (restricted stock units) | ||||
Mr. Fradkin: | $ | 313,196 | (stock options) | |||
$ | 3,252,191 | (restricted stock units) | ||||
Ms. Schreuder: | $ | 313,196 | (stock options) | |||
$ | 3,252,191 | (restricted stock units) |
Name | Stock ($) | Restricted ($) | Performance ($) | |||||||||
Mr. Waddell | $ | 4,680,135 | $ | 3,006,160 | $ | 3,706,509 | ||||||
Mr. O’Grady | 2,037,419 | 2,582,298 | 2,167,140 | |||||||||
Mr. Fradkin | 1,409,854 | 2,663,931 | 2,167,140 | |||||||||
Mr. Morrison | 2,025,423 | 1,477,727 | 1,863,054 | |||||||||
Ms. Schreuder | 1,409,854 | 918,925 | 1,113,917 |
The value of the fully vested stock options is based on the difference between the option exercise price and $50.16,$61.89, which was the closing market price of the Corporation’s common stock on December 31, 2012 (the last business day of 2012).2013. The value of the fully vested restricted stock and performance units is also based on the $50.16$61.89 closing market price. The outstanding long-term cash incentive awards described in footnote 2 to the “Summary Compensation Table” in this Proxy Statement would also vest with respect to Messrs. Fradkin and O’Grady.
— | Continued coverage under the Corporation’s health, dental, life, accident, disability, and other welfare benefit plans for three years (or if earlier, until the executive becomes covered under similar plans maintained by another entity that provides at least equal benefits). If the named executive officer cannot be covered under any plan of the Corporation due to legal or contractual restrictions, the Corporation would provide the executive with substantially similar benefits and coverage. |
The value of this continued benefit coverage for three years to each named executive officer would be as follows: Mr. Waddell: $32,327;$35,464; Mr. O’Grady: $32,026; Mr. Fradkin: $41,843; Mr. Morrison: $38,191; Mr. O’Grady: $31,497; Mr. Fradkin: $38,191;$41,843; and Ms. Schreuder: $38,191.$41,843. These amounts are derived by multiplying the Corporation’s annual cost of providing such coverage in 20122013 by three, to reflect a three-year benefit continuation period.
— | Up to an additional three years of age and/or service credits for purposes of determining |
eligibility and subsidy for participation in the Corporation’s retiree medical plans and an additional three-year age and service credit for benefits under the Supplemental Pension Plan.
Assuming a termination of employment under the employment security agreement on December 31, 2012,2013, the value of these age and service credits to each named executive officer would be: Mr. Waddell: $0; Mr. Morrison: $209,250; Mr. O’Grady: $151,390;$236,088; Mr. Fradkin: $294,317;$313,085; Mr. Morrison: $238,644; and Ms. Schreuder: $1,461,009.$142,650. The assumptions used in calculating the present value of the age and service credits are set forth in footnote 21“Note 21—Employee Benefits” in the “Notes to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each containedStatements” in the Corporation’s 2012 annual report2013 Annual Report to stockholders.
— | Full vesting in benefits accrued under the Supplemental Pension Plan and Supplemental TIP. All named executive officers, other than Mr. O’Grady, are already vested in these benefits. |
— | A gross-up payment to the executive to cover any excise and related income tax liability arising under Section 280G of the Internal Revenue Code as a result of any payment or benefit arising under the employment security agreement. |
Assuming a termination of employment under the employment security agreement on December 31, 2012,2013, the named executive officers would be entitled to the following gross-up payments: Mr. Waddell: $5,108,565;$7,188,519; Mr. Fradkin: $3,824,311; Mr. Morrison: $0; Mr. O’Grady: $0; Mr. Fradkin: $2,377,376;$3,729,564; and Ms. Schreuder: $2,924,178.$2,794,314.
For purposesSince 2011, Northern Trust has discontinued inclusion of thetax gross-up payments in new employment security agreements:agreements for executive officers. Accordingly, Mr. O’Grady’s agreement does not contain such provisions.
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Equity Compensation Plans and Agreements
As described below,above under “Description of Certain Awards Granted in 2013” beginning on page 50, the Corporation’s equity compensation plans and agreements provide enhanced benefits to named executive officers upon a change in control of the Corporation or a named executive officer’s termination of employment with the Corporation or a subsidiary due to death, disability, or retirement (and which(when such termination is not a termination as described in his or her employment security agreement) can result in enhanced benefits under the Corporation’s equity compensation plans and agreements.
Restricted Stock Units. If the executive dies, becomes disabled, or retires during the vesting period, or the executive’s employment is terminated during the vesting/performance period under certain circumstances entitling the executive to benefits under the Corporation’s severance plan, the executive or the executive’s beneficiaries will be entitled to receive a distribution of a prorated number of restricted stock units.. In addition, if an executive is a Management Group member on the date of grant, is age 55 or older on the date of termination of employment, and does not compete with the Corporation during the vesting/performance period, a prorated number of restricted stock units on each remaining vesting date in the vesting period become vested and are eligible for distribution. In addition, in the case of restricted stock units granted after December 31, 2012, accelerated pro rata vesting and distribution provisions apply in the case of Management Group employees who satisfy certain conditions and who terminate employment for a government position, or terminate employment and thereafter accept a government position, and must dispose of any interest in the Corporation to satisfy ethics or conflict of interest laws or agreements. In other instances where the executive leaves the Corporation during the vesting period, the restricted stock units are forfeited.
Upon a change in control of the Corporation, all restricted stock units granted to named executive officers prior to December 31, 2012, become fully vested immediately, and are distributable upon the date they would otherwise have been distributed in the absence of a change in control; restricted stock units granted after December 31, 2012, are converted into units of the acquirer and continue to vest in accordance with the regular vesting schedule; provided, however, that they become fully vested in connection with a change in control if the executive experiences a qualifying termination of employment following the change in control (in which case they are distributed within 60 days). A qualifying termination is an involuntary termination of employment without “cause” or termination for “good reason,” as those terms are defined in the award agreements, that occurs after the change in control and prior to the second anniversary thereof. Notwithstanding the foregoing, in the event that both a change in control occurs and the acquirer refuses or is unable to agree to the foregoing conversion and vesting provisions, the award will be vested and will be distributed in accordance with the provisions of Code Section 409A, to the extent applicable. The agreements have been drafted to provide that in such event distribution may be in cash.
Performance Stock Units.PSUs were granted in 2012 and 2013 to members of the Management Group. Each PSU constitutes the right to receive a share of the Corporation’s common stock and vests over a three-year performance period, subject to satisfaction of specified performance targets (“performance conditions”) that are a function of return on equity and continued employment until the end of the vesting period.
If the executive dies, becomes disabled, or retires during the vesting/performance period, or the executive’s employment terminates during the vesting/performance period under certain circumstances entitling the executive to benefits under the Corporation’s severance plan, the executive or the executive’s beneficiary will be eligible for pro rata vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the performance conditions. In addition if the executive is a Management Group employee on the date of grant and terminates employment on or after attainment of age 55, the executive will be eligible for pro rata vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the performance conditions. In addition, accelerated pro rata vesting and distribution provisions apply in the case of Management Group employees who satisfy certain conditions (including the performance condition applied to modified period) and who terminate employment for a government position, or terminate employment and thereafter accept a government position, and must dispose of any interest in the Corporation to satisfy ethics or conflict of interest laws or agreements.
Upon a change in control, performance stock units granted prior to December 31, 2012, become 100 percent vested and are to be immediately distributed; with respect to performance stock units granted after December 31, 2012, a pro rata portion of each performance stock unit award (based on the portion of the performance period that has elapsed as of the change in control) are eligible to vest based on the Corporation’s actual performance at the time of the change in control and are to be paid out at the end of the performance period, subject to accelerated distribution upon a qualifying termination. The remainder of the performance award converts at the target level of performance specified in the performance stock unit agreement into an award with respect to the acquirer of an equal economic value and vests subject only to the continued employment of the recipient through the remainder of the applicable performance period and is paid out at the end of the performance period, subject to acceleration of vesting upon a qualifying termination, in which event the units are distributed at that time. Notwithstanding the foregoing, in the event that both a change in control occurs and the acquirer refuses or is unable to agree to the foregoing conversion and vesting provisions, the award will be vested at the time of the change in control, and will be distributed in accordance with the provisions of Code Section 409A, to the extent applicable. The agreements have been drafted to provide that in such event distribution may be in cash.
Stock Options.If the executive dies or becomes disabled, the executive’s outstanding stock options become vested and may be exercised until the earlier of five years following death or disability or the expiration date of the option. If the executive retires, or if the executive is a member of the Management Group on the date of grant, is age 55 or older with a minimum of 10 years of employment on the date of termination of employment, and is not otherwise retirement-eligible pursuant to the Corporation’s retirement policy, the stock options continue to vest in accordance with their terms and, once vested, may be exercised until the earlier of five years following retirement or the expiration date of the option. If the executive’s employment is terminated under certain circumstances entitling the executive to severance benefits, the executive’s stock options (whether vested or unvested) may be exercised until the earlier of 180 days following termination of employment or the expiration date of the option, provided that if the executive is retirement eligible upon his or her termination of employment under the severance plan, the executive’s stock options (whether vested or unvested) become vested upon the executive’s termination of employment and may be exercised until the earlier of five years from the executive’s effective date of retirement or the expiration of the option. In addition, subject to certain conditions, Management Group members who hold options granted in 2012 are eligible for accelerated vesting upon termination of employment to commence government service (or upon acceptance of government employment after termination of employment with the Corporation
but prior to a vesting date) in instances where divesture of equity interests in the Corporation is required by law or is otherwise reasonably necessary, and may exercise their options for 90 days following their government service termination date or commencement of government employment, as applicable, or until the expiration of the option, if earlier. In other instances, in the absence of a change in control, vested stock options expire on the earlier of three months following termination of employment or the expiration date of the option, and unvested stock options expire on termination of employment. Upon a change in control of the Corporation, all stock options granted prior to December 31, 2012, become vested and exercisable. Stock options granted after December 31, 2012, convert to options on stock of the acquirer and continue to vest in accordance with the regular vesting schedule, provided, however, that they become fully vested in connection with a change in control if the executive experiences a qualifying termination of employment following the change in control (in which case the options on the acquirer stock remain exercisable until the expiration of the option), or if they are not assumed in the transaction (in which case the employee is entitled to a cash payment equal to the “spread” between the transaction consideration and the option exercise price). The Corporation’s equity award agreements contain provisions related to a change in control of the Corporation.
Assuming, in the absence of a change in control, a termination of thea named executive officer’s employment due to death, disability, or retirement (including termination while a member of the Management Group at age 55 with the requisite service) occurred on December 31, 2012,, stock options under the equity compensation plans would have accelerated or continued vesting, and the value of these fully vested stock options would be the same as reported for a termination related to a change in control under the employment security agreements. Absent a change in control, in the event of a termination of a named executive officer’s employment due to death, disability or retirement (including termination in circumstances in which the executive is entitled to severance or while a member of the Management Group at age 55 with the requisite service) on December 31, 2012, equity award agreements for restricted stock units and performance stock units provide for prorated vesting of units. The value of these prorated units for each named executive officer is:
Mr. Waddell: | $ | 5,270,612 | (restricted stock units) | |||
$ | 819,313 | (performance stock units) | ||||
Mr. Morrison: | $ | 1,782,034 | (restricted stock units) | |||
$ | 409,657 | (performance stock units) | ||||
Mr. O’Grady: | $ | 471,604 | (restricted stock units) | |||
$ | 245,784 | (performance stock units) | ||||
Mr. Fradkin: | $ | 1,604,368 | (restricted stock units) | |||
$ | 245,784 | (performance stock units) | ||||
Ms. Schreuder: | $ | 1,604,368 | (restricted stock units) | |||
$ | 245,784 | (performance stock units) |
The value of the prorated restricted stock units and performance stock units is also based on the $50.16 closing market priceAssuming such a termination on December 31, 2012. Unlike2013, the valuationsestimated values in the change in control context, these estimated values assume afollowing table show the prorated distribution (rather than full distribution)distributions of restricted stock units and performance stock units.
Name | Restricted Stock Units ($) | Performance Stock Units ($) | ||||||
Mr. Waddell | $ | 5,773,656 | $ | 3,507,430 | ||||
Mr. O’Grady | 1,202,956 | 1,053,182 | ||||||
Mr. Fradkin | 1,744,989 | 1,053,182 | ||||||
Mr. Morrison | 2,201,489 | 1,694,301 | ||||||
Ms. Schreuder | 1,744,989 | 1,053,182 |
The following table sets forth allNon-employee directors are compensated for their services with cash compensation paid to each non-employee directorand equity awards of the Corporation in 2012.
Name (a) | Fees in Cash ($) (b) | Stock ($)(1) (c) | Option ($) (d) | Non-Equity Compen- (e) | Change in Pension Value and Earnings ($) (f) | All Other Compen- ($)(2) (g) | Total ($) (h) | |||||||||||||||||||||
Linda Walker Bynoe | $ | 110,000 | $ | 90,000 | — | — | — | — | $ | 200,000 | ||||||||||||||||||
Nicholas D. Chabraja | $ | 112,086 | $ | 90,000 | — | — | — | — | $ | 202,086 | ||||||||||||||||||
Susan Crown | $ | 90,000 | $ | 90,000 | — | — | — | — | $ | 180,000 | ||||||||||||||||||
Dipak C. Jain | $ | 105,000 | $ | 90,000 | — | — | — | — | $ | 195,000 | ||||||||||||||||||
Robert W. Lane | $ | 97,086 | $ | 90,000 | — | — | — | — | $ | 187,086 | ||||||||||||||||||
Edward J. Mooney | $ | 110,000 | $ | 90,000 | — | — | — | — | $ | 200,000 | ||||||||||||||||||
Jose L. Prado(3) | $ | 20,832 | $ | 45,000 | — | — | — | — | $ | 65,832 | ||||||||||||||||||
John W. Rowe | $ | 120,000 | $ | 90,000 | — | — | — | — | $ | 210,000 | ||||||||||||||||||
Martin P. Slark | $ | 92,086 | $ | 90,000 | — | — | — | — | $ | 182,086 | ||||||||||||||||||
David H.B. Smith, Jr. | $ | 97,086 | $ | 90,000 | — | — | — | — | $ | 187,086 | ||||||||||||||||||
Charles A. Tribbett III | $ | 90,000 | $ | 90,000 | — | — | — | — | $ | 180,000 |
(1)Stock Awards.This column shows the grant date fair value of the stock awards for all non-employee directors in 2012, computed in accordance with FASB ASC Topic 718. See footnote 22 to the Consolidated Financial Statements contained in the Corporation’s 2012 annual report to stockholders for a discussion of the assumptions made by the Corporation in the valuation of these restricted stock unit awards. As of December 31, 2012, each non-employee director (other than Mr. Prado) held 1,920.20 unvested stock units, which, as described below, represented the stock unit award made by the Corporation in February 2012. As of December 31, 2012, Mr. Prado held an aggregate of 946.77 unvested stock units, which, as described below, represented the stock unit awards made by the Corporation on October 16, 2012 as part of Mr. Prado’s compensation for services as a non-employee director from October 16, 2012 through December 31, 2012.
(2)All Other Compensation. Perquisites paid or provided to directors in 2012 were less than the SEC’s minimum threshold for disclosure ($10,000).
(3) Mr. Prado became a member of the board effective October 16, 2012.
units. Directors who are employees of the Corporation receive no additional compensation for serving on the boardBoard of directorsDirectors or on any boardBoard committee.
2012 DirectorCash Compensation
2012 director compensation was unchanged from 2011.
Cash Compensation.In 2012,2013, non-employee directors of the Corporation received the following cash compensation for their service on the boardBoard of directors:Directors:
Annual Retainer | $ | 90,000 | ||
Additional Fee for the Chairman of each Board Committee (other than the Executive Committee) | $ | 15,000 | ||
Additional Fee for Audit Committee Members (including the Chairman) | $ | 5,000 | ||
Additional Fee for Lead Director | $ | 15,000 |
Annual Retainer | $100,000 | |||
Additional Fee for the Chair of each Board Committee | $15,000 | |||
Additional Fee for Audit Committee Members (including the Chair) | $5,000 | |||
Additional Fee for Lead Director | $25,000 |
All non-employee directors also are eligible to receive a per diem fee of $1,000 when required to attend orientation meetings or to perform specific services on behalf of the Corporation. The Corporation paid $2,000No payments for such services were made in 2012.2013.
Equity Compensation.Compensation
In February 2012,April 2013, each non-employee director then in office received a grant of stock units under the Corporation’s 2012 Stock Plan equal in value to $90,000,$100,000, with the actual number of stock units based on the closing sale price of the common stock on the date of the 2012 annual meeting2013 Annual Meeting of stockholders. Mr. Prado, who became a non-employee director of the Corporation effective October 16, 2012, received a grant of stock units on October 16, 2012, equal in value to $45,000, an amount equal to the portion of $90,000 prorated from October 16, 2012, with the actual number of stock units (946.77 stock units) based on the closing sale price of the common stock on October 16, 2012.Stockholders. All of the stock units granted to directors in February 2012 and the award granted to Mr. Prado on October 16, 2012April 2013 will vest on the date of the 2013 annual meeting2014 Annual Meeting of stockholders.Stockholders. Stock units do not have voting rights. Dividend equivalents on the non-employee directors’ stock units are subject to the same vesting, forfeiture, and distribution provisions as the underlying stock units. Each stock unit entitles a director to one share of common stock at vesting, unless a director elects to defer receipt of the shares.
Stock Ownership Guidelines. As described in the Compensation Discussion and Analysis section, Northern Trust has a long-standing practice of emphasizing stock ownership and maintaining formal stock ownership guidelines for named executive officers. Northern Trust also maintains formal stock ownership guidelines for its non-employee directors with minimum ownership levels as shown in the following chart.
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It is expected that each non-employee director will meet the minimum ownership level not later than five years from the date the director is initially elected to the board. In addition, non-employee directors are expected to meet a minimum share ownership level of 1,000 shares within one year from the date they are initially elected to the board.
Until such time as any non-employee director meets the minimum ownership level requirement, he or she is expected to retain 100% of the net, after-tax shares received from share distributions.
The calculation of shares of common stock includes shares that are:
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As of December 31, 2013, all non-employee directors met or exceeded Northern Trust’s stock ownership guidelines. Consistent with those guidelines, Mr. Slark and Mr. Prado, who were first elected to the Corporation’s board of directors on April 19, 2011 and October 16, 2012, respectively, have five years from the date elected to reach the share ownership threshold level set forth in the chart above.
Effective as of January 1, 2013, the Corporation increased the annual retainer and the value of stock units granted under the Corporation’s 2012 Stock Plan to $100,000 each and the additional annual retainer for the Lead Director to $25,000. All other non-employee director compensation in 2013 will remain the same as it was in 2012. In approving the foregoing increases, the Compensation and Benefits Committee and the Board considered, among other things, competitive director compensation data, current market practices, and the fact that non-employee director compensation had remained the same since January 1, 2010.
Non-employee directors may elect to defer payment of their cash compensation and stock units until termination of their service as directors. Any deferred cash compensation is converted into stock units representing shares of common stock. The value of each such stock unit is based upon the market price of the stock at the end of the calendar quarter for which the cash compensation would have been paid. Dividend equivalentsDividends on all deferred stock units are paid quarterly to a cash account and accrue interest at an interest rate determined from time to time by the Committee. Deferred cash compensation and dividend equivalentsdividends will be paid out in cash, and deferred stock units will be distributed in stock, in each case in a lump sum or in up to 10ten annual installments at the election of the director.
Other Director Compensation
Directors are eligible to participate in Northern Trust’s matching gift program, under which Northern Trust matches gifts made by employees and directors to eligible non-profit organizations, on the same terms as employees. The maximum gift total for a non-employee director participant in the program is $2,000 in any calendar year.
Stock Ownership Guidelines
Within five years of election to the Board, non-employee directors are required to hold Northern Trust common stock equal to five times the annual cash retainer provided to directors. In addition, non-employee directors are expected to meet a minimum share ownership level of 1,000 shares within one year from the date they are initially elected to the Board.
Until such time as any non-employee director meets the minimum ownership level requirement, he or she is expected to retain 100% of the net, after-tax shares received from share distributions.
As of December 31, 2013, all non-employee directors met or exceeded Northern Trust’s stock ownership guidelines. Consistent with those guidelines, Mr. Slark and Mr. Prado have until April 19, 2016 and October 16, 2017, respectively, to reach the share ownership threshold.
The following table sets forth all compensation paid to each non-employee director of the Corporation in 2013.
Name | Fees in Cash ($) | Stock ($)(1) | All Other Compensation ($)(2) | Total ($) | ||||||||||||
Linda Walker Bynoe | $ | 120,000 | $ | 100,000 | — | $ | 220,000 | |||||||||
Nicholas D. Chabraja | 120,000 | 100,000 | $ | 2,321 | 222,321 | |||||||||||
Susan Crown | 100,000 | 100,000 | 2,000 | 202,000 | ||||||||||||
Dipak C. Jain | 115,000 | 100,000 | — | 215,000 | ||||||||||||
Robert W. Lane | 105,000 | 100,000 | 2,321 | 207,321 | ||||||||||||
Edward J. Mooney | 120,000 | 100,000 | — | 220,000 | ||||||||||||
Jose L. Prado | 100,000 | 100,000 | 610 | 200,610 | ||||||||||||
John W. Rowe | 140,000 | 100,000 | — | 240,000 | ||||||||||||
Martin P. Slark | 100,000 | 100,000 | 2,321 | 202,321 | ||||||||||||
David H.B. Smith, Jr. | 105,000 | 100,000 | 2,321 | 207,321 | ||||||||||||
Charles A. Tribbett III | 100,000 | 100,000 | — | 200,000 |
(1) This column shows the grant date fair value of the stock awards for all non-employee directors in 2013, computed in accordance with FASB ASC Topic 718. See “Note 22—Share-Based Compensation Plans” in the “Notes to Consolidated Financial Statements” in the Corporation’s 2013 Annual Report to Stockholders for a discussion of the assumptions made by the Corporation in the valuation of these stock unit awards. As of December 31, 2013, each non-employee director held 1,872.66 unvested stock units, which represents the stock unit award made by the Corporation in April 2013 described above.
(2) Amounts in this column include contributions made pursuant to Northern Trust’s matching gift program. The matching gift program is available to directors on the same terms as it is available to all employees. All other amounts in this column represent dividend payments on stock units held by the non-employee directors and fractional shares paid in cash during 2013.
EQUITY COMPENSATION PLAN INFORMATION
Set forth below is information with respect to other equity compensation plans under which the common stock of the Corporation was authorized for issuance as of December 31, 2012.2013.
Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants, and Rights (a) | Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights (1) (b) | Number of Securities Remaining Available for Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants, and Rights (#) | Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights ($) | Number of Securities Remaining Available for Issuance under Equity Compensation Plans (Excluding Securities Reflected in (#) | ||||||||||||||||||
Equity compensation plans approved by stockholders | 18,807,470 | (3) | $ | 52.53 | 32,093,120 | (4) | 15,768,347 | $ | 53.64 | (1) | 31,034,922 | (2) | ||||||||||||
Equity compensation plans not approved by stockholders | 109,064 | N/A | N/A | 116,999 | (3) | N/A | — | |||||||||||||||||
Total | 18,916,534 | $ | 52.53 | 32,093,120 | 15,885,346 | $ | 53.64 | (1) | 31,034,922 |
(1) Weighted-average exercise price of outstanding stock options (excludes restrictedRestricted stock units and performance stock units which were granted at no cost to participants).are excluded when determining the weighted-average exercise price of outstanding options.
(2) These plans are the 2012 Stock Plan and the 2002 Stock Plan.
(2) | All shares are available for issuance under the Corporation’s 2012 Stock Plan. |
(3) Consists of 15,302,474 stock options and 3,504,996 units.
(4) All of these shares are issuable under the 2012 Stock Plan.
(5) Consists of stock units under the terms of the 1997 Deferred Compensation Plan for Non-Employee Directors, as Amended and Restated. These stock unitsthat have been deferred at the election of certain directors andpursuant to the 1997 Deferred Compensation Plan for Non-Employee Directors. These units will be distributed on a one-for-one basis in shares of common stock following retirement.
ITEM 2— ADVISORY VOTE ON EXECUTIVE COMPENSATION
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC enacted requirements for the Corporation to include in this proxy statement a separate resolution, subject to an advisory vote, to approve the compensation of our named executive officers. This proposal is commonly referred to as a “Say on Pay” proposal. As required by these rules, we are asking you to vote FOR the adoption of the following resolution:
“Resolved, that the compensation paid to the Corporation’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K of the Securities Exchange Act of 1934, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby APPROVED.”
As an advisory vote, this proposal is not binding on the Corporation. Although the vote is non-binding, the board of directors and the Compensation and Benefits Committee value the opinions of our stockholders and will consider the outcome of the vote when making future compensation decisions for our named executive officers.
As outlined in the Compensation Discussion and Analysis that begins at page 30, the Corporation has a conservative performance-based compensation system in place that provides appropriate levels of compensation. The Corporation’s executive compensation program is designed to attract, motivate, and retain individuals who will contribute to the Corporation’s success and the creation of stockholder value. The Compensation and Benefits Committee believes that executive officers are best motivated when their incentive compensation is tied to the Corporation’s overall performance and the performance of their individual business units and/or individual performance. That is why a significant portion of each executive officer’s short-term and long-term compensation is variable and depends on such performance. In addition, our emphasis on equity-based compensation discourages inappropriate risk-taking and encourages named executive officers to appropriately consider and control risk factors, which furthers the Corporation’s risk-mitigation strategy. In February 2013, the Corporation enhanced the risk-related forfeiture and clawback provisions in certain equity awards to further align those provisions with regulatory guidance and shareholder interests.
The Corporation reported 2012 net income of $687.3 million, diluted earnings per share of $2.81 and a pre-tax profit margin of 25.5%. The Corporation’s 2012 return on equity increased to 9.3%, consistent with, although slightly lower than, its peer group median of 9.6% and in line with its trust and custody bank peers. For the period ending December 31, 2012, the Corporation’s average three and five year returns on equity were 9.3% and 11.3%, respectively, higher than the peer group medians of 8.5% and 4.5%, respectively.
Despite the prolonged weakness in economic conditions that have particularly affected the financial performance of banks and other financial institutions, the Corporation’s conservatively managed executive compensation philosophy, coupled with its sound balance sheet and prudent business model, have contributed to the Corporation’s strong strategic and financial positioning.
The board of directors unanimously recommends that you voteFOR this proposal.
The Audit Committee of the board is responsible for providing oversight of the Corporation’s financial reporting functions and internal controls. The board appoints the Audit Committee and its chairman annually, with the Committee consisting of at least four directors. The Audit Committee operates under a formal charter, which is available on the Corporation’s website at www.northerntrust.com. The Audit Committee charter sets forth in detail theIn fulfilling his or her duties and responsibilities, of the Audit Committee.
The Audit Committee’s duties and responsibilities are ones of oversight. In fulfilling their duties and responsibilities, it is recognized that members of the Committee are not full-time employees of the Corporation, and are not, and do not represent themselves to be, accountants or auditors by profession. Eacheach member of the Committee shall be entitled to rely in good faith on (i) the integrity of those persons and organizations within and outside the Corporation from which he or she receives information, (ii) the accuracy of the financial and other information provided to the Committee absent actual knowledge to the contrary, (which shall be promptly reported to the board), and (iii) representations made by management or third parties as to any information technology, internal audit, and other non-audit services provided by the Corporation’s independent registered public accountantsfirm to the Corporation. The responsibility for the completeness and accuracy of the Corporation’s consolidated financial statements rests with the Corporation’s management. The responsibility of KPMG LLP, the Corporation’s independent registered public accounting firm, is (i) to performresponsible for performing an audit and to expressexpressing an opinion as to whether (i) the Corporation’s annual consolidated financial statements are free of material misstatement and presented in accordance with U.S. generally accepted accounting principles and (ii) to perform an audit and to express an opinion as to whether the Corporation maintained effective internal control over financial reporting.
The Audit Committee received the written disclosures and the letter from KPMG LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG LLP’s communications withIn that context, the Audit Committee concerning independence. The disclosures described the relationships and fee arrangements between the firm and the Corporation. Consistent with the applicable requirements of the Public Company Accounting Oversight Board and the rules and regulations of the SEC, the Audit Committee considered at meetings held on February 11, 2013 whether the provision of non-audit services by the independent registered public accounting firm to the Corporation for the fiscal year ended December 31, 2012 maintains KPMG LLP’s independence and has discussed with KPMG LLP the firm’s independence from the Corporation.reports as follows:
1. | The Audit Committee received the written disclosures and the letter from KPMG LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG LLP’s communications with the Audit Committee concerning independence, and has discussed with KPMG LLP the firm’s independence from the Corporation. |
2. | The Audit Committee considered whether the provision of non-audit services by the independent registered public accounting firm to the Corporation for the fiscal year ended December 31, 2013 is compatible with maintaining KPMG LLP’s independence. |
3. | The Audit Committee reviewed and discussed with the Corporation’s independent registered public accounting firm the matters required to be discussed by PCAOB Auditing Standard No. 16 Communications with Audit Committees. |
4. | The Audit Committee reviewed and discussed
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Based on the above-mentioned reviews and discussions, and subject to the limitations on the role and responsibilities of the Audit Committee referred to above, the Audit Committee exercising its
business judgment, recommended to the boardBoard that the Corporation’s audited consolidated financial statements be included in its Annual Report on Form 10-K for the year ended December 31, 2012,2013, for filing with the SEC.
This report is submitted on behalf of the members of the Audit Committee:Committee
Edward J. Mooney Chairman, (Chair)
Linda Walker Bynoe
Nicholas D. Chabraja
Robert W. Lane and
David H. B.H.B. Smith, Jr.
ITEM 3—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMAUDIT MATTERS
Appointment of Independent Registered Public Accounting Firm
The independent registered public accounting firm is appointed annually by the Corporation’s Audit Committee. For the year ending December 31, 2013, the Audit Committee has authorized the engagement of KPMG LLP as the Corporation’s independent registered public accounting firm. KPMG LLP served as the Corporation’s independent registered public accounting firm for the fiscal year ended December 31, 2012. Representatives of KPMG LLP will be present at the annual meeting. They will have an opportunity to make a statement if they wish and will be available to respond to appropriate questions raised by stockholders at the meeting.
Stockholder ratification of the selection of KPMG LLP as the Corporation’s independent registered public accounting firm is not required. However, the board of directors is submitting the selection of KPMG LLP as the Corporation’s independent registered public accounting firm to the stockholders for ratification to learn the opinion of stockholders on this selection. If the stockholders fail to ratify KPMG LLP as the independent registered public accounting firm, the Audit Committee will reassess its appointment. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such change would be in the best interests of the Corporation and its stockholders.
Fees of Independent Registered Public Accounting Firm
Description of Fees | Amount of Fees Payable to KPMG LLP for Fiscal Year 2012 | Amount of Fees Payable to KPMG LLP for Fiscal Year 2011 | 2013 | 2012 | ||||||||||||
Audit Fees | $ | 4,154,280 | $ | 4,341,250 | $ | 4,187,380 | $ | 4,188,780 | ||||||||
Audit-Related Fees | $ | 2,279,000 | $ | 1,108,158 | 2,194,300 | 2,309,000 | ||||||||||
Tax Fees | $ | 228,513 | $ | 155,799 | 148,334 | 228,513 | ||||||||||
All Other Fees | $ | 201,709 | $ | 307,973 | 57,600 | 201,709 | ||||||||||
Additional Fees | $ | 1,175,800 | $ | 888,200 | 1,030,749 | 1,175,800 | ||||||||||
Total | $ | 7,618,363 | $ | 8,103,802 |
(1) IncludesAudit Fees include fees for professional services rendered for the annual integrated audit of the Corporation’s annual consolidated financial statements for the fiscal year (including services relating to the audit of internal control over financial reporting under the Sarbanes-Oxley Act of 2002) audits of subsidiary financial statements, comfort letters, and for reviews of the financial statements included in the Corporation’s Quarterly Reports on Form 10-Q and for other services that only an independent registered public accountant can reasonably provide.10-Q.
(2) IncludesAudit-Related Fees include fees for services that were reasonably related to performance of the audit of the annual consolidated financial statements for the fiscal year, other than Audit Fees, such as employee benefit plan audits, and internal control reviews.reviews, and other attestation services.
(3) IncludesTax Feesinclude fees for tax return preparation and tax planning.compliance.
(4) IncludesAll Other Fees include fees for all services other than Audit Fees, Audit-Related Fees, and Tax Fees.
(5) Additional Fees are fees for services rendered in connection with audits for certain of the proprietary, common and securities lending collateral funds sponsored or managed by the Corporation. These funds are not included in the consolidated financial statements of the Corporation.
Pre-Approval Policies and Procedures of the Audit Committee
On October 19, 2009,14, 2013, the Audit Committee adopted the revised Northern Trust Corporation Policy Regardingregarding Engagement of Independent Public Accounting Firm to Provide Auditor Services, which superseded the Policy adopted by the Audit Committee on October 20, 2008.Services. The purpose of the Policy is to establish procedures for Audit Committee pre-approval of all auditor services to be provided to the Corporation by its independent registered public accounting firm. Auditor services include audit services, audit-related services, tax services, and non-audit services. The Policy provides that the Audit Committee, the Chairman, or any Audit Committee member delegated the authority (a “Designated Member”) has the authority to grant pre-approvals of auditor services. In addition, the Policy provides that the independent registered public accounting firm may be engaged to provide only those non-audit services (i) that are permitted by the SEC’s final rule entitled “Strengthening the Commission’s Requirements Regarding Auditor Independence” and (ii) that, in the judgment of the Audit Committee, maintain the independent registered public accounting firm’s independence from the Corporation. In evaluating whether a proposed engagement of the Corporation’s independent registered public accounting firm for a specific permitted non-audit service maintains the firm’s independence from the Corporation, the Audit Committee or a Designated
Member thereof must consider whether the proposed engagement would cause the independent registered public accounting firm to (1)(a) audit its own work, (2)(b) perform management functions, or (3)(c) act as an advocate for the Corporation. The independent registered public accounting firm shall in no event be engaged to perform any Prohibited Services, as defined in the Policy.
The following percentages of the Audit-Related Fees, Tax Fees,All audit, audit-related, tax and Other Feesother services provided by KPMG LLP in 2013 were approvedpre-approved in accordance with the exceptionsNorthern Trust Corporation Policy regarding Engagement of Independent Public Accounting Firm to pre-approval requirements set forth in 17 CFR 210.2-01(c)(7)(i)(C):Provide Auditor Services.
ITEM 3—RATIFICATION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm is appointed annually by the Corporation’s Audit Committee. For the year ending December 31, 2014, the Audit Committee has authorized the engagement of KPMG LLP as the Corporation’s independent registered public accounting firm. KPMG LLP served as the Corporation’s independent registered public accounting firm for the fiscal year ended December 31, 2012, Audit-Related Fees: 0%, Tax Fees: 0%,2013. Representatives of KPMG LLP will be present at the annual meeting. They will have an opportunity to make a statement if they wish and Other Fees: 0%.will be available to respond to appropriate questions.
Stockholder ratification of the selection of KPMG LLP as the Corporation’s independent registered public accounting firm is not required. However, the Board of Directors is submitting the selection of KPMG LLP as the Corporation’s independent registered public accounting firm to the stockholders for ratification to learn the opinion of stockholders on this selection. If the stockholders fail to ratify KPMG LLP as the independent registered public accounting firm, the Audit Committee will reassess its appointment. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such change would be in the best interests of the Corporation and its stockholders.
The boardBoard of directorsDirectors unanimously recommends that you voteFOR the ratification of KPMG LLP as the Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2013.2014.
ITEM 4—STOCKHOLDER PROPOSAL REGARDING ADDITIONAL DISCLOSURE OF POLITICAL AND LOBBYING CONTRIBUTIONS
Information regarding a stockholder proposal is set forth below. The Corporation disclaims any responsibility for the content of this proposal and statement of support, which is presented as received from the stockholder. The Massachusetts Laborers’ Pension Fund, 14 New England Executive Park, Suite 200, Burlington, Massachusetts 01803-5201, the owner of approximately 13,250350 shares of our common stock, has given the Corporation notice that its representative intends to present this proposal at the annual meeting.Annual Meeting.
RESOLVED,Resolved, that the shareholders of Northern Trust Corporation (“Northern Trust” or “Company”) hereby request that the Company provide a report, updated semi-annually, disclosing the amounts that the Company has paid or incurred in connection with influencing legislation; participating or intervening in any political campaign on behalf of (or in opposition to) any candidate for public office; and attempting to influence the general public, or segments thereof, with respect to elections, legislative matters or referenda.
The report should include (a) contributions to or expenditures on behalf of political candidates, political parties, political committees and other political entities and (b) the portions of any dues or other payments that are made to a tax-exempt organization for an expenditure or contribution that, if made directly by the Company, would not be deductabledeductible under section 162(e)(1) of the Internal Revenue Code. The report should identify each recipient, the amount paid to each, and the purpose of any contribution or expenditure.
STOCKHOLDER SUPPORTING STATEMENTStockholder Supporting Statement
As long-term shareholders of Northern Trust, we support transparency and accountability in corporate spending on lobbying and political activities. The expenditures upon which we seek a report are those that Congress has said do not warrant a deduction as an ordinary and necessary business expense, namely, lobbying participation in the political system by supporting or opposing candidates for office, and trying to influence the general public or segment thereof as to elections, legislative matters or referenda. This includes payments to third parties, including trade associations and other tax-exempt groups, which payments are used for expenditures that would not be deductible if made by the company itself.
Disclosure is consistent with public policy and we believe, in the best interest of the company and its shareholders. The Supreme Court’sCitizens United decision recognized the importance of political spending disclosure when it said “[D]d]isclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.”
Gaps in transparency and accountability may expose the company to reputational and business risks that could threaten long-term shareholder value. Moreover, publicly available data does not provide a complete picture of the Company’s lobbying or political expenditures. Thus the Company’s payments to trade associations for these purposes are undisclosed and unknown, as are any payments to tax-exempt groups that work to influence legislation and political campaigns, as well as public opinion that could affect legislation or elections.
The sums involved can be significant. A 2010Bloomberg story reported that several health insurers donated $86.2 million to the U.S. Chamber of Commerce in 2009-10 for advertisements, polling and grassroots events to drum up opposition to health care reform legislation. A former Federal Election Commission chairman described this figure as “breathtaking”.
We believe that shareholders need improved disclosure in order to fully evaluate the use of corporate assets on these activities. Thus, we urge you to vote FOR this critical governance reform.
Statement of the Board of Directors in Opposition to the ShareholderStockholder Proposal
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPONENT’S PROPOSAL IS NOT IN THE BEST INTERESTS OF NORTHERN TRUST AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE “AGAINST” THE PROPOSAL.The Board of Directors believes that the proponent’s proposal is not in the best interests of Northern Trust and its stockholders and unanimously recommends a voteAGAINST the proposal.
As a leading provider of asset servicing, fund administration, asset management, fiduciary, and banking solutions for corporations, institutions, families, and individuals worldwide, Northern Trust is extensively regulated. Changes in the legal and regulatory environment for financial institutions may substantially impact the manner in which Northern Trust and its subsidiaries operate, serve their clients, and create value for shareholders.stockholders. We believe it is in the best interests of Northern Trust’s shareholdersstockholders for Northern Trust to support positions that enhance the safety of client assets and promote the safety and soundness of the financial system and a strong global economy. The potential impact that public policy changes can have on ourNorthern Trust’s business employees, communities, clients, and shareholdersits stakeholders requires usNorthern Trust to be an active participant in the political process to advance and protect the long-term interests of Northern Trust.
Northern Trust’s philosophy and policies concerning political contributions and legislative lobbying are set forth in ourits “Statement Regarding Government Relations and Political Contributions,” which can be found on our public web site at http://www.northerntrust.com/about-us/investor-relations/corporate-governance/government-relations-political-contributions.Northern Trust’s website. Northern Trust contributes to candidates for public office and related organizations in compliance with applicable law. Northern Trust sponsors both a federal-only political action committee and a multi-candidate political action committee. These political action committees, known as a PAC, which allowsPACs, allow certain U.S. employees to pool their financial resources to support United States federal and state candidates who support legislation important to Northern Trust and its shareholders.stockholders. All contributions to the PACPACs are voluntary. The PAC determinesPACs determine all political contributions based on the best interests of Northern Trust. Northern Trust also contributes to certain industry trade organizations relating to its public policy objectives.
We believe that the additional disclosure sought by the proposal would be of no appreciable benefit to shareholders.stockholders. As required by law, alleach Northern Trust’sTrust PAC reports its contributions are reported on a periodic basis to the Federal Election Commission and appropriate state election authorities. A direct link to Federal Election Commission reports is included in Northern Trust’s publicly available “Statement Regarding Government Relations and Political Contributions” and annual “Corporate Social Responsibility Report.” In addition, Northern Trust is required to comply with United States federal and state laws and regulations regarding the disclosure of certain lobbying activities. All suchThese reports and disclosures ofare publicly available and there are direct links to the Federal Election Commission and the Lobbying Database included in Northern Trust’s lobbying activities are already publicly available.available “Statement Regarding Government Relations and Political Contributions.” The Board of Directors believes that in light of the fact that Northern Trust already provides all legally required disclosures regarding political contributions and lobbying activities, and the fact that much of this
informationwhich is already publicly available, this proposal is duplicative and unwarranted, and would cause the Corporation to expend unnecessary time and resources without providing any appreciable benefit to shareholders.
FOR THE ABOVE REASONS, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “AGAINST” THE PROPOSAL.its stockholders.
OTHER BUSINESSThe Board of Directors unanimously recommends that you voteAGAINST the proposal.
The board of directors knows of no business to be presented at the 2013 annual meeting other than that described above. The Corporation’s by-laws provide that stockholders may bring matters before an annual meeting only if they give timely written notice of the matter to be brought not less than 120 days prior to the anniversary date of the prior year’s annual meeting. The notice must be directed to the attention of the Corporation’s Corporate Secretary and contain the information required by the Corporation’s by-laws.
STOCKHOLDER PROPOSALS FOR 20142015 ANNUAL MEETING
Any stockholder proposals for the 2014 annual meeting2015 Annual Meeting must be received by the Corporation, directed to the attention of the Corporation’s Corporate Secretary, no later than November 7, 20133, 2014 in order to be eligible for inclusion in the Corporation’s proxy statement and form of proxy for that meeting. The proposal must comply in all respects with the rules and regulations of the SEC and the Corporation’s by-laws.By-laws.
Also, under the Corporation’s by-laws,By-laws, other proposals that are not included in the proxy statement will be considered timely and may be eligible for presentation at that meeting if they are received by the Corporation in the form of a written notice, directed to the attention of the Corporation’s Corporate Secretary, notno later than December 17, 2013.16, 2014. If the 2015 Annual Meeting is called for a date that is not within 30 days before or after the anniversary date of this Annual Meeting, notice by the stockholder in order to be timely must be received within ten business days after notice of the 2015 Annual Meeting. The notice must contain the information required by the Corporation’s by-laws.
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Chicago, Illinois
March 1, 2013By-laws.
NORTHERN TRUST CORPORATION 50 SOUTH LASALLE STREET CHICAGO, IL 60603 | VOTE BY INTERNET -www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. EDT April 14,
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by
VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. EDT April 14,
VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Northern Trust Corporation, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.Please mail in advance, so that your instruction may be received no later than 11:59 P.M. EDT on April 14, |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | ||||||
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
NORTHERN TRUST CORPORATION
The Board of Directors recommends you vote FOR the following: | For All | Withhold All | For All Except | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. | ||||||||||||||||||||||||||||||
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Linda Walker Bynoe Nicholas D. Chabraja Susan Crown Dipak C. Jain Robert W. Lane
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The Board of Directors recommends you vote FOR the following proposals: |
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2. Approval, by an advisory vote, of the |
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4. Stockholder proposal regarding additional disclosure of political and lobbying contributions, if properly presented at the |
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3. Ratification of the appointment of KPMG LLP as the Corporation’s independent registered public accounting firm for the fiscal year ending December 31, | ¨ | ¨ | ¨ | |||||||||||||||||||||||||||||||
For address changes and/or comments, please check this box and write them on the back where indicated. |
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | ||||||||||||||||||||||||||||||||||
Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date |
ANNUAL MEETING ADMISSION TICKET
Northern Trust Corporation
50 South LaSalle Street
Chicago, Illinois 60603
(northwest corner of LaSalle Street and Monroe Street)
April 16, 201315, 2014
10:30 a.m.
You should present this admission ticket in order to gain admittance to the meeting.
(Registration begins at 9:30 a.m., and seating will begin at 10:00 a.m.)
This ticket admits only the stockholder(s) listed on the reverse side and is not transferable. Each stockholder may be asked to present valid picture identification, such as a driver’s license. Cameras, recording devices, and other electronic devices will not be permitted at the meeting.
If you submit your proxy by telephone or Internet, do not return your proxy card.
Thank you for your proxy submission.
Directions to the Northern Trust Corporation Annual Meeting of Stockholders
Lake Shore Drive(coming from North or South) Take Lake Shore Drive to the Randolph Street exit. Continue on Randolph Street to LaSalle Street. Turn left (southbound) on LaSalle Street to Madison Street. Turn right (westbound) on Madison Street to the parking garage that is between LaSalle and Wells streets. | Kennedy Expressway (I90 - I94) Take I90-I94 east to the Monroe Street exit. Turn left (eastbound) on Monroe Street. Continue on Monroe Street to LaSalle Street. Turn left (northbound) on LaSalle Street and continue one block north to Madison Street. Turn left (westbound) on Madison Street to the parking garage that is between LaSalle and Wells streets. | |
Stevenson Expressway (I55) Take I55 east to Lake Shore Drive north. Take Lake Shore Drive to the Randolph Street exit. Continue on Randolph Street to LaSalle Street. Turn left (southbound) on LaSalle Street to Madison Street. Turn right (westbound) on Madison Street to the parking garage that is between LaSalle and Wells streets. | Eisenhower Expressway (I290) Take I290 east to the Franklin Street exit. Turn left (northbound) on Franklin Street to Monroe Street. Turn right (eastbound) on Monroe Street to LaSalle Street. At LaSalle Street turn left and continue one block north to Madison Street. Turn left on Madison Street to the parking garage that is between LaSalle and Wells streets. |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
You may access the 20132014 Notice of Annual Meeting and Proxy Statement and the 20122013 Annual Report by going to the following Web site: https://materials.proxyvote.com/665859
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NORTHERN TRUST CORPORATION Annual Meeting of Stockholders Tuesday, April This proxy is solicited by the Board of Directors
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
You may access the 2013 Notice of Annual Meeting and Proxy Statement and the 2012 Annual Report
by going to the following Web site: https://materials.proxyvote.com/665859
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M52255-P33437-Z59566
Whether you vote by mail, telephone or through the Internet, your shares (including shares held under TIP) will be voted in accordance with your instructions.If you
The proxy holders are authorized to vote those shares for which they receive proxies as they shall determine in their sole discretion on any other business that may properly come before the meeting.
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(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side
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