NOTICE & PROXY STATEMENTUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x Filed by a Partyparty other than the Registrant ¨
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¨ | Preliminary Proxy Statement | |||
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x | Definitive Proxy Statement | |||
¨ | Definitive Additional Materials | |||
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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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50 South La Salle Street
Chicago, Illinois 60603
March 9, 2016
Dear Stockholder:
You are cordially invited to attend the Northern Trust Corporation 2016 Annual Meeting of Stockholders on Tuesday, April 19, 2016, at 10:30 a.m., Central Time, at our corporate headquarters at 50 South La Salle Street in Chicago, Illinois.
For more than 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, |
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| 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 a.m., | |
| Place: | Northern Trust Corporation 50 South
Chicago, Illinois 60603 | |
| Purposes: | The purposes of the | |
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● approve, by an advisory vote, | ||
● ratify the appointment of KPMG LLP as | ||
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| Record Date: | You | |
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March 1, 20139, 2016
ROSE A. ELLISBy order of the Board of Directors,
Stephanie S. Greisch
Corporate Secretary
Northern Trust Corporation
TABLE OF CONTENTS50 South La Salle Street
Chicago, Illinois 60603
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● elect twelve directors to serve on the Board of Directors until the 2017 Annual Meeting of Stockholders or until their successors are elected and qualified;
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NORTHERN TRUST CORPORATION
50 South LaSalle Street
Chicago, Illinois 60603
March 1, 2013
PROXY STATEMENT
Our 2013 annual meeting● ratify the appointment of stockholders will be held on Tuesday, April 16, 2013 at 10:30 a.m., Chicago time, at the office ofKPMG LLP as Northern Trust Corporation (the “Corporation” or “Northern Trust”) located at 50 South LaSalle Street (northwest corner of LaSalle StreetCorporation’s independent registered public accounting firm for the 2016 fiscal year; 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:22, 2016.
March 9, 2016
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 to the independent directors should be sent to the attention
● elect twelve directors to serve on the Corporate Secretary,Board of Directors until the 2017 Annual Meeting of Stockholders or until their successors are elected and qualified;
● approve, by an advisory vote, 2015 named executive officer compensation;
● ratify the appointment of KPMG LLP as Northern Trust Corporation’s independent registered public accounting firm for the 2016 fiscal year; and
● transact any other business that may properly come before the Annual Meeting.
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 attentionclose of the Audit Committee of the board of directors may communicate those concerns to the Audit Committee or its Chairman, using the address indicated above.
A majority of the independent directors of the Corporation has approved procedures with respect to the receipt, review and processing of, and any response to, written communications sent by stockholders and other interested persons to the board of directors. Any written communication regarding accounting, internal accounting controls, or other matters are processed in accordance with procedures adopted by the Audit Committee.business on February 22, 2016.
March 9, 2016
By order of the Board of Directors,
Stephanie S. Greisch
Corporate Secretary
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 19, 2016
This Proxy Statement, other proxy materials, our Annual Report on Form 10-K for the year ended December 31, 2015 and a link to the means to vote by Internet or telephone are available at materials.proxyvote.com/665859.
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PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors (the “Board”) of Northern Trust Corporation (the “Corporation”) for use at the Corporation’s Annual Meeting of Stockholders to be held on Tuesday, April 19, 2016 (the “Annual Meeting”). On or about March 9, 2016, we began mailing or otherwise making available our proxy materials, including a copy of our Annual Report on Form 10-K for the year ended December 31, 2015, to all stockholders entitled to vote at the Annual Meeting.
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 1-800-579-1639. 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. 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 22, 2016 may vote at the Annual Meeting. On that date, the Corporation had 228,731,503 shares of common stock outstanding.
You are entitled to one vote for each share of common stock that you owned of record at the close of business on February 22, 2016. 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; or |
| ● | 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. Under the rules of various national and regional securities exchanges, brokers, banks and other nominees that hold securities on behalf of beneficial owners generally may vote on routine matters even if they have not received voting instructions from the beneficial owners for whom they hold securities, but are not permitted to vote on nonroutine matters unless they have received such voting instructions. While the ratification of the appointment of an issuer’s independent registered public accounting firm generally is considered to be a routine matter, the election of directors and executive compensation matters generally are considered to be nonroutine matters.Thus, 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 by using any of the following methods so your vote can be counted:
| ● | 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 11:59 p.m, Eastern Time, on April 14, 2016.
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:
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; |
| ● | 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. |
If you hold your shares in the name of your broker, bank or other nominee and wish to revoke your proxy, you will need to contact that party to revoke your proxy.
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 22, 2016.
We are delivering only one Annual Report on Form 10-K and Proxy Statement (or, as applicable, the Notice) to stockholders of record 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 proxy materials, please contact Broadridge at 1-866-540-7095 or 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.
If you and other stockholders of record with whom you share an address currently receive multiple copies of our proxy materials or if you hold our stock in more than one account, and, in either case, you wish to receive only a single copy of such materials in the future, please contact Broadridge at the telephone number or mailing address above with the names in which all accounts are registered and the name of the account for which you wish to receive mailings.
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 nonvotes, if any, will be counted as present for purposes of establishing a quorum. A “broker nonvote” 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. As noted above, brokers, banks and other nominees generally cannot vote your shares on the election of directors or executive compensation matters 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. An inspector 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 abstentions and broker nonvotes.
| Item | Required Vote | Effect of Abstentions and Broker Nonvotes | ||
| Item 1—Election of directors | Affirmative vote of a majority of the votes cast with respect to each nominee. See below for further detail. | ● Abstentions with respect to a nominee will have no effect on the election of such nominee. ● Broker nonvotes will have no effect on the voting for this item. | ||
| Item 2—Advisory vote on executive compensation | Affirmative vote of a majority of the shares of common stock present and entitled to vote. | ● Abstentions will have the effect of a vote AGAINST this proposal. ● Broker nonvotes will have no effect on the voting for | ||
| Item 3—Ratification of the | Affirmative vote of a | ● Abstentions will have the effect of a vote AGAINST this proposal. ● Brokers may vote uninstructed shares on this item. |
Pursuant to 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) must receive the affirmative vote of a majority of the votes cast with respect to his or her election at a meeting of stockholders to be elected. In contested elections, the affirmative vote of a plurality of the votes cast
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 cast with respect to his or her election in an uncontested election at a meeting of stockholders to submit his or her resignation following certification of the stockholder vote. Such resignation will first be considered by the members of the Corporate Governance Committee (other than the tendering director, if applicable), who will recommend to the Board whether to accept or reject the resignation after considering all factors deemed relevant by the Committee, including, without limitation, any stated reasons as to why stockholders did not support the director whose resignation has been tendered, the length of service and qualifications of such director, the director’s contributions to the Corporation and the Corporation’s Corporate Governance Guidelines. The Board (other than the tendering director) will then act to accept or reject the Committee’s recommendation no later than ninety days following the date of the stockholders’ meeting after considering the factors considered by the Committee and such additional information and factors as the Board believes to be relevant.
Solicitation of Proxies; Costs
The Corporation will bear the cost of preparing, printing and mailing the materials in connection with this solicitation of proxies. In addition to mailing these materials, the Corporation’s officers and other employees may, without being additionally compensated, solicit proxies personally and by mail, telephone or electronic communication. The Corporation will reimburse banks and brokers for their reasonable out-of-pocket expenses related to forwarding proxy materials to beneficial owners of stock or otherwise in connection with this solicitation. In addition, the Corporation has retained Georgeson Inc. to assist in the solicitation of proxies for a fee of approximately $12,500, plus reasonable out-of-pocket expenses.
ADMITTANCE TO THE ANNUAL MEETING
Stockholders at the close of business on the record date, February 22, 2016, or their duly appointed proxies, may attend our Annual Meeting at our corporate headquarters on April 19, 2016 at 10:30 a.m., Central Time. Registration will begin at 9:30 a.m. 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 22, 2016. 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 22, 2016. A brokerage statement or letter from a bank or broker reflecting your holdings at the close of business on February 22, 2016 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 will 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 twelve directors at the Annual Meeting. Each of the twelve nominees is currently serving as a director of the Corporation and its principal subsidiary, The Northern Trust Company (the “Bank”). Included in the incumbent directors nominated for re-election is Thomas E. Richards, who was appointed as a director of the Corporation by the Board, effective July 21, 2015, in accordance with the Corporation’s By-laws and pursuant to the recommendation of the Corporation’s Chairman and Chief Executive Officer (“CEO”) and Lead Director.
Each of the twelve director nominees has consented to serve as a director if elected at the Annual Meeting. Each nominee elected as a director will serve until the next Annual Meeting of Stockholders or until his or her successor is elected and qualified. If any nominee is unable to serve as a director at the time of the Annual Meeting, your proxy may be voted for the election of another nominee proposed by the Board or the Board may reduce the number of directors to be elected at the Annual Meeting.
As discussed further under “Corporate Governance — Director Nominations and Qualifications,” in evaluating director nominees, the Corporate Governance Committee considers a variety of factors, including relevant business and industry experience; professional background; age; current employment; community service; other board service; and racial, ethnic, and gender diversity. Accordingly, the twelve director nominees possess a wide variety of experience, qualifications and skills, which will equip the Board with the collective expertise to perform its oversight function effectively. Each of the candidates also has a reputation for, and long record of, integrity and good business judgment; has experience in leadership positions with a high degree of responsibility; is free from conflicts of interest that could interfere with his or her duties to the Corporation and its stockholders; and is willing and able to make the necessary commitment of time and attention required for effective Board service.
A summary of certain key experience, qualifications and skills represented by the nominees for election to the Board at the Annual Meeting, collectively, is set forth below.
| Key Experience, Qualifications and Skills | ||
● Corporate governance and social responsibility | ● Marketing | |
● Finance and accounting | ● Operations | |
● Financial services | ● Public company board experience | |
● Global experience | ● Risk management | |
● Leadership of large, complex, highly regulated organizations ● Management development and succession | ● Strategic thinking ● Technology | |
Further information with respect to the nominees is set forth on the following pages.
The Board 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 at the Annual Meeting is as of December 31, 2015, 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 63
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 | |
| SUSAN CROWN, Director since 1997, Age 57 Chairman and Chief Executive Officer of Owl Creek Partners, LLC (private equity firm) since 2010, andChairman and Founder, Susan Crown Exchange Inc. (social investment organization) since 2009. Ms. Crown previously served as Vice President of Henry Crown and Company (company with diversified investments) from 1984 to 2015. Ms. Crown is a director of Illinois Tool Works Inc. Ms. Crown also serves as Vice Chair of the The Board concluded that Ms. Crown should serve as a director based on her business experience, 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 | |
 | DEAN M. HARRISON, Director since 2015, Age 61 President and Chief Executive Officer, Northwestern Memorial HealthCare (the primary teaching affiliate of Northwestern University Feinberg School of Medicine and parent corporation of Northwestern Memorial Hospital) since 2006. Mr. Harrison served as President of Northwestern Memorial Hospital from 1999 to 2006. Mr. Harrison also served as the chairman of the Illinois Hospital Association through December 31, 2015. The Board concluded that Mr. Harrison should serve as a director based on his extensive experience leading a large, complex organization in a highly regulated industry. | |
 | DIPAK C. JAIN, Director since 2004, Age 58 Director, Sasin Graduate Institute of Business Administration (international graduate business school) since July 2014. Mr. Jain served as the INSEAD Chaired Professor of Marketing from 2013 to July 2014 and the Dean of INSEAD from 2011 to 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 from 2001 to 2009, Sandy and Morton Goldman Professor in Entrepreneurial Studies and Professor of Marketing from 1994 to 2001, and Associate Dean for Academic Affairs from 1996 to 2001. Mr. Jain is a director of Deere & Company, Reliance Industries Limited, India, and Global Logistics Properties Limited, Singapore. The Board concluded that Mr. Jain should serve as a director based on his academic experience, his business administration positions both in the | |
 | JOSE LUIS PRADO, Director since 2012, Age 61 Retired President of Quaker Oats North America, a division of PepsiCo, Inc. (global food and beverage company). Mr. Prado served as Mr. Prado is The Board concluded that Mr. Prado should serve as | |
| THOMAS E. RICHARDS, Director since 2015, Age 61 Chairman, President and Chief Executive Officer, CDW Corporation (provider of
Mr. Richards is a director The Board concluded that Mr. | |
| DONALD THOMPSON, Director since 2015, Age 52 Retired President and Chief Executive Officer, McDonald’s Corporation (global foodservice retailer). Mr. Thompson served as President and Chief Executive Officer of Mr. Thompson is a director of Royal Caribbean Cruises Ltd. Mr. Thompson served as director of McDonald’s Corporation from 2011 to March 2015 and of Exelon Corporation from 2007 to 2013. The | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CHARLES A. TRIBBETT III, Director since 2005, Age 60 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 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 62 Chairman of the Board of the Corporation and the Bank
Mr. Waddell is a director of AbbVie, Inc.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BOARD AND BOARD COMMITTEE INFORMATION
Our Board currently consists of twelve members. The Board 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 LLC (“NASDAQ”): Linda Walker Bynoe, Susan Crown, Dean M. Harrison, Dipak C. Jain, Jose Luis Prado, Thomas E. Richards, John W. Rowe, Martin P. Slark, David H. B. Smith, Jr., Donald Thompson and Charles A. Tribbett III.
During 2015, the Corporation’s Board held nine meetings. All persons who were directors during 2015 attended at least 75% of the total meetings of the Board and the committees on which they served occurring during the period in which they served. Our Corporate Governance Guidelines state that all directors are expected to attend each Annual Meeting of Stockholders. In accordance with this expectation, all of the directors then serving attended the 2015 Annual Meeting of Stockholders held on April 21, 2015.
The standing committees of the Board are the Audit Committee, the Business Risk Committee, the Capital Governance Committee, the Compensation and Benefits Committee, the Corporate Governance Committee, the Corporate Social Responsibility 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 standing committee is governed by a written charter. These charters detail the duties and responsibilities of each committee and are available on the Corporation’s website at www.northerntrust.com.
Pursuant to its charter, the Corporate Governance Committee periodically reviews and makes recommendations to the Board with respect to the Board’s committee structure. Following such a review, on November 17, 2015, the Board took the following actions:
| ● | formally assumed direct oversight of the strategic direction and |
| ● | established the Capital Governance Committee, to assist the Board in discharging its oversight duties with respect to capital management and planning activities of the |
| ● | established the Corporate Social Responsibility Committee, to assist the Board in discharging its oversight duties with respect to corporate citizenship and social responsibility matters of |
Additional information regarding the roles, responsibilities and composition of the Board’s standing committees is set forth below. The Business Strategy Committee met four times in 2015. All such meetings were well attended by the Board, as the full Board was invited to attend all Business Strategy Committee meetings.
A summary of the composition of each of the Board’s current standing committees is set forth below.
| Director | Audit | Business Risk | Capital Governance | Compensation and Benefits | Corporate Governance | Corporate Social Responsibility | Executive | |||||||
Bynoe | ü | ü | ||||||||||||
Crown | ü | C | ü | |||||||||||
Harrison | ü | ü | ||||||||||||
Jain | ü | ü | ||||||||||||
Prado | C | ü | ü | |||||||||||
Richards | ü | ü | ||||||||||||
Rowe | ü | ü | C | ü | ||||||||||
Slark | ü | ü | ||||||||||||
Smith | C | ü | ü | ü | ||||||||||
Thompson | ü | ü | C | ü | ||||||||||
Tribbett | C | ü | ü | |||||||||||
Waddell | C |
C - Chair ü - Member
The Audit Committee’s purpose is to oversee the accounting and financial reporting processes of the Corporation and its subsidiaries and the audits of the consolidated financial statements of such entities, as well as to provide assistance to the Board in fulfilling its legal and fiduciary obligations with respect to matters involving the organization’s accounting, auditing, financial reporting, internal financial control and legal compliance functions, including, without limitation: (i) assisting the Board’s oversight of (a) the integrity of the organization’s consolidated annual and quarterly financial statements and earnings releases, (b) the organization’s compliance with legal and regulatory requirements, (c) the qualifications and independence of the Corporation’s public accountants and (d) the performance of the organization’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 each year in the Corporation’s proxy statement relating to its Annual Meeting of Stockholders.
The Board has determined that all members of the Audit Committee are independent under SEC rules and NASDAQ listing standards. The Board also has determined that all Audit Committee members have the financial experience and knowledge required for service on the Committee, and has designated Mr. Smith as its “audit committee financial expert,” as defined by SEC rules. The Audit Committee met five times in 2015.
The Business Risk Committee’s sole and exclusive function is responsibility for the risk-management policies of the Corporation’s global operations and oversight of the operation of the Corporation’s global risk-management framework. In furtherance of this function, the Business Risk
Committee assists the Board in discharging its oversight duties with respect to: (i) the risks inherent in the businesses of the Corporation and its subsidiaries in the following categories: credit risk, market and liquidity risk, fiduciary risk, operational risk, compliance risk and strategic risk; and (ii) the process by which risk-based capital requirements are determined.
The Board has determined that all members of the Business Risk Committee are independent under SEC rules and NASDAQ listing standards. The Business Risk Committee met four times in 2015.
The Capital Governance Committee was established on November 17, 2015. The purpose of the Capital Governance Committee is to assist the Board in discharging its oversight duties with respect to capital management and planning activities of the Corporation and its subsidiaries. Among other matters, the Capital Governance Committee performs the following functions: (i) oversees the capital adequacy assessments, forecasting, and stress testing processes and activities of the Corporation and its subsidiaries, including with respect to the annual CCAR exercise; (ii) reviews and recommends to the Board for approval the Corporation’s annual capital plan, including proposed capital actions; (iii) unless reviewed and approved by the Board, reviews and approves capital policies for the Corporation and the Bank, including the Corporation’s and the Bank’s capital management goals and targets and the Corporation’s payout ratios; (iv) reviews and discusses with management the Corporation’s and the Bank’s regulatory capital ratios and capital levels; (v) reviews and recommends to the Board for approval (a) dividend declarations with respect to the Corporation’s common and preferred stock and (b) issuances or repurchases of debt or equity securities.
The Board has determined that all members of the Capital Governance Committee are independent under SEC rules and NASDAQ listing standards. The Capital Governance Committee met two times in 2015.
Compensation and Benefits Committee
The purpose of the Compensation and Benefits Committee is to assist the Board in discharging its duties and responsibilities relating to: (i) the compensation of the directors and executive officers of the Corporation and its subsidiaries; and (ii) the employee benefit and equity-based plans of the organization. The Committee also assists the Board with management development and succession planning, including with respect to the position of CEO, and prepares the report required to be prepared by the Committee pursuant to SEC rules for inclusion in the Corporation’s proxy statement relating to its Annual Meeting of Stockholders.
The Board has determined that all members of the Compensation and Benefits Committee are independent under SEC rules and NASDAQ listing standards. The Compensation and Benefits Committee met four times in 2015.
Corporate Governance Committee
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) provide leadership in shaping the corporate governance of the Corporation, including through the development and recommendation to the Board of 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; (v) oversee the procedures relating to stockholder communications with the Board and review any proposals submitted by stockholders; and (vi) oversee the annual evaluation of the Board and its committees.
The Board has determined that all members of the Corporate Governance Committee are independent under SEC rules and NASDAQ listing standards. The Corporate Governance Committee met four times in 2015.
Corporate Social Responsibility Committee
The Corporate Social Responsibility Committee was established on November 17, 2015. The purpose of the Corporate Social Responsibility Committee is to assist the Board in discharging its oversight duties with respect to corporate citizenship and social responsibility matters of significance to the Corporation and its subsidiaries. Among other matters, the Corporate Social Responsibility Committee receives and reviews reports on each of the following as they pertain to the Corporation and its subsidiaries: (i) political, lobbying and other public advocacy activities, including significant trade association memberships; (ii) strategic philanthropy and charitable contributions; (iii) sustainability initiatives and other social responsibility matters of significance, including environmental, social, and governance issues; (iv) diversity and inclusion initiatives; and (v) compliance with Community Reinvestment Act and Fair Lending laws. The Corporate Social Responsibility Committee also provides oversight with respect to policies, programs and strategies in respect of each of these matters.
The Board has determined that all members of the Corporate Social Responsibility Committee are independent under SEC rules and NASDAQ listing standards. The Corporate Social Responsibility Committee did not meet in 2015.
The Board appoints an Executive Committee so that there will be a committee of the Board empowered to act for the Board, to the full extent permitted by law, between meetings of the Board if necessary and appropriate. The Executive Committee is composed of the Chairman of the Board and the Chair of each of the other standing committees of the Board. The Executive Committee did not meet in 2015.
We believe that the high standards set by our governance structure provide the foundation for the strength of our business. An overview of certain key governance practices reflective of our strong governance profile is set forth below.
| What We Do | What We Don’t Do | |||||
| ü | Majority Independent Directors (11 of 12 Current Directors) | × | No Plurality Voting in Uncontested Director Elections | |||
| ü | Engaged Lead Director | × | No Staggered Board | |||
| ü | Regular Executive Sessions for CEO and Independent Directors | × | No Poison Pill | |||
| ü | Annual Strategy Retreat with Board and Executive Officers | × | No Supermajority Voting | |||
| ü | Regular Rotations of Committee Chairs | × | No Overboarding | |||
| ü | Regular Reviews of Governance Documents | |||||
| ü | Annual Board and Committee Self-Evaluations | |||||
To be considered independent, the Board must affirmatively determine that a director has no relationship with the Corporation which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Corporation’s Corporate Governance Guidelines require that the Board be composed of a majority of directors who meet the criteria for “independence” under NASDAQ listing standards.
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 |
| ● | a director who receives or |
| ● | 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 Corporation who is, or has a Family Member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the 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 current or any of the past three fiscal years that exceed the greater of $200,000 or 5% of the recipient’s consolidated gross revenue for that year, other than payments arising solely from investments in the Corporation’s securities or payments under nondiscretionary charitable contribution matching programs. |
“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.
The Board has determined that each director serving during 2015 was, and each current director (other than Mr. Waddell, who serves as Chairman and CEO of the Corporation) 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 transaction, relationship, or arrangement between the Corporation and a director that constitutes a related person transaction under the Corporation’s Related Person Transactions Policy described below. In assessing the independence of the Corporation’s directors, the Board considered the fact that, during 2015, the Corporation or its subsidiaries provided financial services to each of its directors, or persons related to such directors, except for Mr. Tribbett, in the ordinary course of business. Services provided included trust and related services, brokerage services, investment management, asset servicing, asset management, credit services and other banking services. These transactions were undertaken in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral for loan transactions) as those prevailing at the time for comparable transactions with other persons not related to the Corporation or any affiliated entities involved in the transactions. None of 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 affiliated 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 (the “Exchange Act”). Any extensions of credit to directors and executive officers of the Corporation were permitted under the provisions of Section 13(k) of the Exchange Act. In each case, the Board determined that these relationships were immaterial and did not affect the independence of any director.
Related Person Transactions Policy
The Board, through its Audit Committee, has adopted a written Related Person Transactions Policy to govern the review, approval, and ratification of transactions to which the Corporation or its
subsidiaries are party and in which any related persons have a direct or indirect material interest. “Related persons” means the Corporation’s directors, nominees for director, executive officers, greater than five percent beneficial owners, members of their immediate family and any person other than a tenant or employee sharing their household. The Related Person Transactions Policy also covers transactions in which any related person has an indirect interest.
The Related Person Transactions 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 by the Corporation or any of its subsidiaries to a related person that is made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender and does not involve more than the normal risk of collectability or present other unfavorable features; |
| ● | 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 |
| ● | 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 |
| ● | a transaction with another company to
|
| ● | contributions or grants, or pledges of contributions or grants, by the Corporation, any of its subsidiaries, or The Northern Trust Company Charitable Trust to a charitable, nonprofit, or educational organization for which a related person serves as an executive officer, provided that the aggregate amount involved does not exceed the greater of $200,000 or 5% of the organization’s total annual receipts; |
| ● | transactions where the related person’s interest arises solely from the ownership of the Corporation’s |
| ● | compensation paid to directors
|
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 will consider all relevant facts and circumstances and approve only those related person transactions that are in, or otherwise not inconsistent with, the best interests of the Corporation and its subsidiaries.
As noted above, in 2015, certain related persons were clients of, and engaged in the types of transactions identified in the bullet points above with, the Corporation or one or more of its subsidiaries. These transactions were undertaken in the ordinary course of business and upon such other terms and conditions as permitted such transactions to qualify for pre-approval under the Related Person Transactions Policy. Further, as noted above, none of the transactions requires disclosure pursuant to Item 404(a) of Regulation S-K of the Exchange Act.
The independent directors of the Corporation met in executive sessions separate from management seven times during 2015. 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 consists of a combined Chairman and CEO position and a Lead Director appointed annually by the Corporation’s independent directors.
The Board 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. The Board also believes that the desire for independent leadership of the Board is sufficiently achieved 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 matters, 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 ensure 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) presiding at all regular and special meetings of the Board at which the Chairman is not present; (vi) presiding at all regular and any special executive sessions of the independent directors; (vii) serving as a liaison between the independent directors and the Chairman and CEO; (viii) 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 (ix) being available for consultation and direct communication with major stockholders. Mr. Rowe has served as our Lead Director since 2010.
The Board provides oversight of risk management directly as well as through its Audit, Business Risk, Capital Governance and Compensation and Benefits Committees. The Board annually approves the Corporation’s enterprise risk management framework, risk universe and Corporate Risk Appetite Statement. The Corporate Risk Appetite Statement reflects the expectation that risk be consciously considered as part of the Corporation’s strategic decisions and in its day-to-day activities. The Corporation actively monitors employees using programs, policies, and other tools that are designed to ensure that they work within established risk frameworks and limits. The Business Risk Committee assumes primary responsibility and oversight with respect to credit risk, operational risk, fiduciary risk, compliance risk, market risk and liquidity risk, and strategic risk. The Audit Committee provides oversight with respect to financial reporting and legal risk, while the Compensation and Benefits Committee oversees the development and operation of the incentive compensation program of the Corporation and its subsidiaries. The Compensation and Benefits Committee annually reviews management’s assessment of the effectiveness of the design and performance of the incentive compensation arrangements and practices in providing incentives that are consistent with the safety and soundness of the Corporation and its subsidiaries. This assessment includes an evaluation of whether these incentive compensation arrangements and practices discourage inappropriate risk-taking behavior by participants. Pursuant to its charter, the Compensation and Benefits Committee is required to have at least one member who is a member of the Business Risk Committee and at least one member who is a member of the Audit Committee. Among other responsibilities, the Capital Governance Committee oversees the capital adequacy assessments, forecasting, and stress testing processes and activities of the Corporation and its subsidiaries, including the annual CCAR exercise. Accordingly, the Capital Governance Committee provides oversight with respect to the Corporation’s risk identification for the capital adequacy assessment process. The charters for the Audit, Business Risk, Capital Governance and Compensation and Benefits Committees provide that the Committees may meet with the individuals who supervise day-to-day risk management responsibilities of the Corporation and other members of management, consultants or advisors, as each committee deems appropriate.
For a further description of the risk management policies and practices of the Corporation’s management, see the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management” and “—Liquidity and Capital Resources—Liquidity Risk Management” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015.
Corporate Governance Guidelines
The Corporation has had Corporate Governance Guidelines in place since 2000. The Corporate Governance Committee reviews and reassesses the adequacy of the Corporate Governance Guidelines
at least annually and recommends any changes to the Board for approval. The Corporation’s Corporate Governance Guidelines embody many of the Corporation’s long-standing practices and incorporate policies and procedures that strengthen its commitment to corporate governance best practices. A copy of the Corporate Governance Guidelines is available on the Corporation’s website at www.northerntrust.com.
Code of Business Conduct and Ethics
The Board of the Corporation has adopted a Code of Business Conduct and Ethics to:
| ● | promote honest and
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| ● | promote full, fair, accurate, timely and |
| ● | promote compliance with applicable laws and governmental rules, codes and regulations wherever the |
| ● |
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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 and principal accounting officer) and employees of the Corporation and its subsidiaries. The Corporation intends to disclose any amendments to, or waivers from, the Code of Business Conduct and Ethics for directors and executive officers by posting such information on its website. A copy of the Code of Business Conduct and Ethics is available on the Corporation’s website at www.northerntrust.com.
Management Development and Succession Planning
The Board of Directors, led by the Compensation and Benefits Committee, annually conducts a formal management development and succession planning review with respect to the position of the CEO and other senior officers. This review focuses on CEO succession planning, as well as developing internal candidates for advancement within the Corporation. The Compensation and Benefits Committee makes recommendations to the Board concerning management development and succession planning, which recommendations reflect the Board’s annual management development and succession planning review, as well as Committee discussions with and without the CEO. The Corporate Governance Committee discusses succession planning in the event of the unexpected death, incapacity, or resignation of the CEO and recommends to the Board, after consultation with the Chairman of the Compensation and Benefits Committee, an appropriate successor under such circumstances. The full Board is responsible for succession planning for the position of the CEO.
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, not less than 120 days nor more than 150 days prior to the anniversary date of the prior year’s Annual Meeting of Stockholders. If such Annual Meeting of Stockholders is called for a date that is not within thirty days before or after the anniversary date of the prior year’s Annual Meeting of Stockholders, notice by the stockholder in order to be timely must be received within ten days after notice of such subsequent Annual Meeting of Stockholders is mailed or public disclosure of the date of such Annual Meeting of Stockholders is made, whichever occurs first. 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.”
In its evaluation of director candidates, including persons recommended by stockholders, the Corporate Governance Committee considers the factors specified in the Corporation’s Corporate Governance Guidelines to ensure the Board has a diversity of perspectives and backgrounds, including the nature of the expertise and experience required for the performance of the duties of a director of a corporation engaged in the Corporation’s business and such matters as relevant business and industry experience, professional background, age, current employment, community service and other board service. The Committee also considers the 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 ensure the Board has the necessary collective expertise to perform its oversight function effectively. Following its evaluation process, the Committee recommends director nominees to the full Board, and the Board makes the final determination of director nominees based on its consideration of the Committee’s recommendation.
The Corporation recognizes the importance of engaging with stockholders and other key constituents. Open and constructive dialogue with stockholders helps further their understanding of our performance and strategies and allows us to receive direct feedback on issues relating to the Corporation. Accordingly, it is the Corporation’s long-standing practice to engage proactively and routinely with stockholders throughout the year. In 2015, the Corporation expanded its engagement efforts through a proactive outreach campaign focused on fostering dialogue with certain of the Corporation’s large institutional stockholders. Through this initiative, our CEO and/or CFO, along with members of our investor relations and governance teams, engaged with stockholders representing approximately 40% of our outstanding shares regarding matters pertaining to the Corporation’s performance, strategies and governance.
Communications with the Board and Independent Directors
Stockholders and other interested persons may communicate with any of the Corporation’s directors, including the Lead Director or the independent directors as a group, by writing a letter
addressed to the applicable director(s), c/o Northern Trust Corporation, 50 South La Salle Street, M-9, Chicago, Illinois 60603, Attention: Corporate Secretary. The Corporation’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 Transactions Policy and Procedures and Policy Against Hedging
Our Securities Transactions Policy and Procedures prohibits directors, employees, including our named executive officers, and certain of their family members from purchasing or selling any type of security, whether issued by us or another company, while such persons are aware of material nonpublic information relating to the issuer of the security and from providing such material nonpublic information to any person who may trade while aware of such information. This policy also prohibits directors, employees, and certain of their family members from engaging in short selling, margining, pledging or hypothecating the Corporation’s securities, and from trading in options, warrants, puts, calls or similar instruments on the Corporation’s securities.
SECURITY OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the beneficial ownership of the Corporation’s common stock as of December 31, 2015 for each director, each named executive officer and all directors and executive officers of the Corporation as a group.
| Name of Beneficial Owner | Shares (1) (2) | Shares under Exercisable Options (3) | Total Beneficial Ownership of Common Stock | Percent of | ||||||||||||
Non-Employee Directors: | ||||||||||||||||
Linda Walker Bynoe | 15,855 | — | 15,855 | * | ||||||||||||
Susan Crown | 35,192 | — | 35,192 | * | ||||||||||||
Dean M. Harrison | 512 | — | 512 | * | ||||||||||||
Dipak C. Jain | 16,991 | — | 16,991 | * | ||||||||||||
| 5,496 | — | 5,496 | * | ||||||||||||
Thomas E. Richards | — | — | — | * | ||||||||||||
John W. Rowe | 28,592 | — | 28,592 | * | ||||||||||||
Martin P. Slark | 8,319 | — | 8,319 | * | ||||||||||||
David H.B. Smith, Jr. (4) | 29,022 | — | 29,022 | * | ||||||||||||
Donald Thompson | 213 | — | 213 | * | ||||||||||||
Charles A. Tribbett III | 16,192 | — | 16,192 | * | ||||||||||||
Named Executive Officers: | ||||||||||||||||
Frederick H. Waddell | 345,842 | 1,123,123 | 1,468,965 | * | ||||||||||||
S. Biff Bowman | 31,255 | 91,515 | 122,770 | * | ||||||||||||
Steven L. Fradkin | 131,308 | 370,310 | 501,618 | * | ||||||||||||
William L. Morrison | 130,982 | 329,358 | 460,340 | * | ||||||||||||
Jana R. Schreuder | 66,538 | 351,670 | 418,208 | * | ||||||||||||
All directors and executive officers as a group (26 persons) | 1,124,304 | 3,296,046 | 4,420,350 | 1.90 | % | |||||||||||
* Less than 1%.
(1) Except as noted below, the nature of beneficial ownership for shares shown in this table is sole voting and investment power (including shares as to which spouses and minor children of the individuals covered by this table have such power).
(2) Amount includes restricted stock units payable on a one-for-one basis in shares of the Corporation’s common stock that are scheduled to vest within sixty days of December 31, 2015 in the following amounts: Mr. Waddell – 15,777 units; Mr. Bowman – 7,377 units; Mr. Fradkin – 4,745 units; Mr. Morrison – 7,948 units; Ms. Schreuder – 4,745 units; and all directors and officers as a group – 85,658 units.
(3) Amount includes options that were exercisable as of December 31, 2015 and options that become exercisable within sixty days thereafter.
(4) Amount includes 1,704 shares held in a trust over which Mr. Smith shares voting and investment power as co-trustee with one other individual. Amount excludes 500 shares held in a trust over which
Mr. Smith shares voting and investment power as co-trustee with three other individuals. Amount also excludes 1,362,880 shares held in a trust of which Mr. Smith is a beneficiary, as Mr. Smith has no investment or voting power with respect to such shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Corporation’s directors, executive officers and beneficial owners of more than 10% of the Corporation’s stock to file with the SEC initial reports of ownership and reports of changes in ownership of any equity securities of the Corporation. Based solely on the Corporation’s review of the reports that have been filed by or on behalf of such reporting persons in this regard and written representations from such reporting persons that no other reports were required, the Corporation believes that all reports required by Section 16(a) of the Exchange Act were made on a timely basis during or with respect to 2015, except for: (i) two Form 4s filed for each of Linda Walker Bynoe, Dipak C. Jain, Jose Luis Prado and Charles A. Tribbett III, and one Form 4 filed for each of Susan Crown, Dean M. Harrison and John W. Rowe, each of which related to an acquisition of stock units representing the deferral of cash compensation pursuant to the Corporation’s 1997 Deferred Compensation Plan for Non-Employee Directors and was filed late due to administrative error; and (ii) a Form 4 filed for Steven L. Fradkin to report a transaction resulting from the rebalancing of his 401(k) savings account which was filed late due to administrative error.
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, 2015.
| Name and Address | Shares | Percent of Class | ||||||
The Northern Trust Company (1) | 20,876,098 | 9.1 | % | |||||
Wellington Management Group LLP (2) | 16,497,251 | 7.2 | % | |||||
T. Rowe Price Associates, Inc. (3) | 14,397,685 | 6.3 | % | |||||
BlackRock, Inc. (4) | 12,623,186 | 5.5 | % | |||||
The Vanguard Group, Inc. (5) | 12,357,347 | 5.4 | % | |||||
(1) As of December 31, 2015, the Bank and its affiliates individually acted as sole or co-fiduciary with respect to trusts and other fiduciary accounts which owned, held or controlled through intermediaries the shares reported. This aggregate number of shares includes 1,362,880 shares held by the trust described in footnote 4 to the “Security Ownership by Directors and Executive Officers” table in this Proxy Statement, or approximately 0.59% of the outstanding common stock. Of the total shares owned, held or controlled by trusts and other fiduciary accounts for which the Bank and its affiliates acted as sole or co-fiduciary, the Bank and its affiliates had sole voting power with respect to 8,036,253 shares, or 3.50% of the outstanding common stock, and they shared voting power with respect to 11,296,876 shares, or 4.93% of the outstanding common stock. They had sole investment power with respect to 2,224,439 shares, or 0.97% of the outstanding common stock, and they shared investment power with respect to 12,166,974 shares, or 5.31% of the outstanding common stock.
(2) As reported on a Schedule 13G filed by Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP and Wellington Management Company LLP on February 11, 2016. Wellington Management Group LLP, Wellington Group Holdings LLP, and Wellington Investment Advisors Holdings LLP each had shared voting power with respect to 7,781,068 shares, or 3.39% of the outstanding common stock, and shared investment power with respect to all shares reported. Wellington Management Company LLP had shared voting power with respect to 6,560,735 shares, or 2.86% of the outstanding common stock, and shared investment power with respect to 14,556,824 shares, or 6.35% of the outstanding common stock. None of the entities had sole voting or investment power with respect to any shares reported. Based on the Schedule 13G, the securities as to which the Schedule 13G was filed are owned of record by clients of one or more investment advisers identified therein directly or indirectly owned by Wellington Management Group LLP.
(3) As reported on a Schedule 13G/A filed on February 10, 2016. T. Rowe Price Associates, Inc. (“Price Associates”) has indicated that these shares are owned by various individual and institutional investors, for which 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 Exchange Act, 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 4,288,952 shares, or 1.87% of the outstanding common stock, and it did not have shared voting power with respect to any such shares. Price Associates had sole investment power with respect to all such shares.
(4) As reported on a Schedule 13G/A filed on February 10, 2016. Of the shares reported, BlackRock, Inc. (“BlackRock”) had sole voting power with respect to 10,781,949 shares, or 4.70% of the outstanding common stock, and it did not have shared voting power with respect to any shares reported. BlackRock had sole investment power with respect to all shares reported.
(5) As reported on a Schedule 13G filed on February 11, 2016. Of the shares reported, The Vanguard Group, Inc. (“Vanguard”) had sole voting power with respect to 403,396 shares, or 0.18% of the outstanding common stock, and shared voting power with respect to 21,300 shares, or 0.01% of the outstanding common stock. Vanguard had sole investment power with respect to 11,926,300 shares, or 5.20% of the outstanding common stock, and shared investment power with respect to 431,047 shares, or 0.19% of the outstanding common stock.
ITEM 2—ADVISORY VOTE ON EXECUTIVE COMPENSATION
Pursuant to Section 14A of the Exchange Act, and the rules and regulations promulgated thereunder by the SEC, the Corporation is required to include in this Proxy Statement a separate resolution, subject to an advisory vote, to approve the compensation of our named executive officers as disclosed in this Proxy Statement (commonly referred to as a “Say-on-Pay” advisory vote). In a nonbinding, advisory vote on the frequency of future Say-on-Pay votes held at our 2011 Annual Meeting of Stockholders, stockholders voted in favor of conducting Say-on-Pay votes annually. In light of this result, and other factors considered by the Board, the Board has determined that the Corporation will hold Say-on-Pay votes on an annual basis until the next advisory vote on such frequency, which is expected to take place at the 2017 Annual Meeting of Stockholders. Accordingly, the Board is requesting that stockholders vote FOR approval of the following resolution:
“Resolved, that the compensation paid to the Corporation’s named executive officers, as disclosed in its Proxy Statement dated March 9, 2016, pursuant to Item 402 of Regulation S-K of the Exchange Act, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby APPROVED.”
As an advisory vote, this proposal is not binding on the Corporation. Although the vote is nonbinding, the Board and the Compensation and Benefits Committee value the opinions of our stockholders and, consistent with past practice, will consider the outcome of the vote when determining compensation policies and making future compensation decisions for our named executive officers.
The Corporation’s executive compensation program and the framework used in evaluating and making 2015 compensation decisions for our named executive officers are described in the Compensation Discussion and Analysis that begins on page 27 of this Proxy Statement.
The Board unanimously recommends that you voteFOR this proposal.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis describes how we compensate our executives, including our 2015 named executive officers, which consist of the following individuals.
| Name | Title | |
Frederick H. Waddell | Chairman and Chief Executive Officer | |
S. Biff Bowman | Chief Financial Officer | |
Steven L. Fradkin | President—Wealth Management | |
William L. Morrison | President | |
Jana R. Schreuder | Chief Operating Officer |
Executive Summary
2015 Financial Performance
Our strong results in 2015 demonstrated continued progress executing on the three pillars of our financial strategy:
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Our financial performance compares favorably with that of our peers. For the year ended December 31, 2015, our average three- and five-year returns on equity were 10.3% and 9.8%, respectively, compared to peer-group medians of 10.1% and 9.7%, respectively, for such periods. Further, our average revenue growth of 8.6%, 6.5% and 5.2% over the one-, three- and five-year periods ended December 31, 2015, respectively, significantly outpaced peer-group median growth of 0.8%, 1.9% and 2.0% over such periods.
We achieved these financial results while continuing to maintain strong capital ratios, with all ratios applicable to classification as “well capitalized” under U.S. regulatory requirements having exceeded all “well capitalized” ratio guidelines.
Key Strategic Achievements
In addition to our strong financial performance, the successful execution of our strategies also was demonstrated through various strategic achievements, including:
| ● | the |
| ● | our continued strong growth in key markets, including Australia with respect to our C&IS business and New York with respect to our Wealth Management business; |
| ● | the continued successful implementation of our location strategy, with approximately 30% of our employees in our Limerick, Bangalore, Manila and Tempe locations as of December 31, 2015, and the announcement of a new location in Pune, India in 2016; and |
| ● | the recognition we have received for our technology, including three first-place awards in mobile, private cloud and analytics. |
2015 Compensation of our Chairman and CEO
Based on the strength of our performance in 2015 and Mr. Waddell’s contributions thereto, the Board determined that an increase in our Chairman and CEO’s incentive compensation for 2015 was appropriate. As a result, Mr. Waddell’s total direct compensation—consisting of base salary,short-term annual cash incentive compensation and long-term incentive compensation—increased by 11% from 2014 to 2015.
The chart below summarizes Mr. Waddell’s total direct compensation for 2014 and 2015. Base salary for 2014 and 2015 reflects Mr. Waddell’s base salary, as determined by the Board in February 2014 and February 2015, respectively. Short-term annual cash incentive compensation represents amounts awarded in February 2015 and February 2016 for 2014 and 2015 performance, respectively. Long-term incentive compensation represents grants relating to 2014 and 2015 performance made in February 2015 and February 2016, respectively. It should be noted that the amounts in the chart below are different than the amounts in the Summary Compensation Table on page 48. The most significant difference is that the long-term incentive award amounts included in the Summary Compensation Table for 2014 and 2015 were granted in February 2014 and February 2015, respectively, for 2013 and 2014 performance. We believe the chart below may be useful in summarizing key incentive compensation decisions made for 2014 and 2015 performance.
As illustrated by the chart below and consistent with our pay for performance philosophy, the Chairman and CEO’s pay mix heavily emphasizes incentive compensation, with the greatest weight placed onlong-term incentives. Our long-term incentive mix emphasizes performance-based pay, with half of the long-term incentives being awarded in the form of performance stock units earned based on our return on equity over a three-year period.
Compensation Governance Practices
We have implemented the compensation practices summarized below to ensure that our compensation program is effective in addressing stockholder objectives.
2016 Compensation Program Enhancements
The Compensation and Benefits Committee approved the following program enhancements in February 2016. These provisions apply to the performance stock units granted in 2016 for 2015 performance.
| ● | The average annual rate of return on equity during the three-year performance period required to become fully vested is 11.0%, up from 10.25% for grants in |
| ● | Dividend equivalents will be distributed only with respect to those performance stock units that actually vest upon satisfaction of the |
Guiding Principles for Executive Compensation
Our 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, our executive compensation program and compensation decisions are framed by the four guiding principles described below.
| Guiding Principle | Impact on Compensation Design | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Linked to Long-Term Performance | ● Performance stock units based on three-year return on equity
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Risk Management A key objective of our compensation program is to ensure that the incentive compensation design does not encourage inappropriate risk-taking. We have considered our incentive compensation program in light of the guidance provided by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) with respect to sound incentive compensation policies at financial institutions. We believe our compensation arrangements are consistent with our safety and soundness, in part because we are not involved with many of the lines of business that have exposed other financial institutions to excessive risk. To reinforce the important role of effective risk management in our compensation framework, in recent years we have increased the portion of long-term incentive awards composed of performance stock units. Performance stock units, which contain meaningful performance targets for named executive officers and are payable in shares if these targets are attained, discourage inappropriate risk-taking behavior because they can only be earned by attaining long-term performance goals and because the value of the award is less susceptible to short-term fluctuations in share value than stock options. All long-term incentive awards vest over a multi-year period and have an inherent risk adjustment factor based on changes in the value of our common stock. Since 2012 all long-term incentive compensation arrangements for named executive officers have included forfeiture and recoupment provisions. Further information with respect to these provisions for our named executive officers can be found under “Other Compensation Practices—Clawback Provisions.” The Compensation and Benefits Committee annually reviews management’s assessment of the effectiveness of the design and performance of our incentive compensation arrangements and practices in providing risk-taking incentives that are consistent with the safety and soundness of the Corporation and its subsidiaries. This assessment includes an evaluation of whether our incentive compensation arrangements and practices discourage inappropriate risk-taking behavior by participants. In connection with the Committee’s assessment, the Corporation’s Chief Risk Officer presents an annual incentive compensation risk performance review, discussing his observations and assessments of risk performance for the performance year for the Corporation and each of its significant businesses. The Committee will continue to monitor and, if necessary, revise our incentive compensation program to ensure that it continues to balance appropriately the objectives of stockholders, the needs of the business and risk concerns. Pursuant to its charter, the Compensation and Benefits Committee is required to have at least one member who is a member of the Business Risk Committee and at least one member who is a member of the Audit Committee. This overlap in composition is intended to ensure that compensation decisions reflect the input of the Audit and Business Risk Committees. Executive Compensation Program Elements The table below provides a brief description of the elements of our compensation program and how each element helps address our guiding principles for executive compensation.
Additional information with respect to each of the four principal elements of our compensation program can be found beginning on page 40. Determining Awards Role of the Compensation and Benefits Committee During its February meeting each year, the Compensation and Benefits Committee determines the appropriate level of compensation for all executive officers. The Committee considers all elements of our executive compensation program holistically rather than each compensation element individually, and makes executive compensation decisions after careful review and analysis of financial and nonfinancial performance information, as well as historical and market compensation data. The Committee has the discretion to determine compensation in the context of individual performance in nonfinancial areas that are important to long-term growth and the enhancement of stockholder value. This flexibility allows the Committee to modify individual incentive payouts and long-term incentive opportunities to reflect best:
As discussed under “2015 Compensation Decisions and Design—2015 Performance Considerations” beginning on page 37 of this Proxy Statement, the Committee also evaluates the performance of our Chairman and CEO against his objectives for the past 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
The Chairman and CEO presents the Compensation and Benefits Committee with recommendations on the total compensation for each of our other executive officers based in part upon competitive market data for our peer group. The Chairman and CEO’s evaluations of the other executive officers are based on performance against the past year’s performance expectations, and are comprised of a mix of objective and subjective factors, which are not formulaically weighted or scored. With input from our Chief Risk Officer, the Chairman and CEO also evaluates each of the other executive officer’s performance with regard to business risks and individual adherence to risk and compliance policies and procedures. The Committee gives substantial weight to the recommendations of the Chairman and CEO, but retains the ultimate oversight and responsibility to
Role of Human Resources The all Committee meetings. The Human Resources Role of The Compensation and Benefits Committee has retained
Use of Peer Group Data To help to inform its decision-making, the
In 2015, the Compensation and Benefits Committee worked with CAP and Towers Watson to refine the peer group noted above, which had remained unchanged since 2011. As a result of this review, Wells Fargo & Company was removed from the peer group, as it operates a different business model and is significantly larger than us. In addition, Franklin Resources, Inc., Invesco Ltd., Legg Mason, Inc. and T. Rowe Price Group, Inc. were added to the
Our current peer group, as refined, is as follows.
When making compensation decisions, the Compensation and
Deductibility of Executive Compensation The
2015 Compensation Decisions and Design 2015 Performance Considerations In determining total compensation for the named executive officers, the Compensation and Benefits Committee considered a variety of performance factors. The Committee considered the Corporation’s 2015 financial performance, as well as each officer’s success in achieving his or her individual performance objectives. Further detail with respect to factors considered in determining the total compensation for the named executive officers is set forth below. Frederick H. Waddell As the Corporation’s Chairman and CEO, Mr. Waddell is responsible for, among other things: developing and implementing our corporate strategies; managing and developing our senior leaders; and embodying our guiding principles of service, expertise and integrity. In determining his compensation for 2015, the Compensation and Benefits Committee and the Board considered the performance of the Corporation under Mr. Waddell’s leadership, as well as Mr. Waddell’s success in achieving his specific individual performance objectives. The Committee’s considerations included the following: Financial Performance
Client Development and Satisfaction
Leadership Development
S. Biff Bowman As the Corporation’s Chief Financial Officer, Mr. Bowman is primarily responsible for financial reporting and control, management reporting and analysis, liquidity management, capital planning and investor relations. To determine Mr. Bowman’s 2015 compensation, the Compensation and Benefits Committee considered how well Mr. Bowman fulfilled his responsibilities in 2015. In doing so, the Committee considered the following performance factors:
Steven L. Fradkin As the Corporation’s President of Wealth Management, Mr. Fradkin is primarily responsible for the overall performance of such business. To determine Mr. Fradkin’s 2015 compensation, the Compensation and Benefits Committee considered how well Mr. Fradkin fulfilled his responsibilities in 2015. In doing so, the Committee considered the following performance factors:
William L. Morrison As the Corporation’s President, Mr. Morrison is primarily responsible for driving business growth and overseeing the Corporation’s client-facing businesses and corporate marketing and strategy functions. To determine Mr. Morrison’s 2015 compensation, the Compensation and Benefits Committee considered how well Mr. Morrison fulfilled his responsibilities in 2015. In doing so, the Committee considered the following performance factors:
Jana R. Schreuder As the Corporation’s Chief Operating Officer, Ms. Schreuder is primarily responsible for business operations and enabling the Corporation’s businesses to grow faster, more efficiently and more profitably. To determine Ms. Schreuder’s 2015 compensation, the Compensation and Benefits Committee considered how well Ms. Schreuder fulfilled her responsibilities in 2015. In doing so, the Committee considered the following performance factors:
Base Salary The Compensation and Benefits Committee believes that base salaries should provide a fixed level of annual income consistent with an executive officer’s position and responsibilities, competitive pay practices and internal equity among executive officers. The Committee uses discretion in determining base salaries, considering the following factors:
For new and recently promoted executives, the Committee’s approach is to increase incrementally base salary to the appropriate target pay level as the executive officer gains experience and tenure in the new position. In February 2015, based on competitive salary market data among our peer group companies, the Committee increased the base salary for Mr. Waddell from $975,000 to $1,000,000. Prior to this action, Mr. Waddell had not received an increase in base salary since 2011. In February 2015, the Committee also approved more meaningful base salary increases for Mr. Bowman — from $500,000 to $550,000 — and Ms. Schreuder — from $600,000 to $675,000 — to account for additional experience and tenure in their current roles, to which they were appointed in 2014. No other named executive officer’s base salary was increased in 2015. Short-Term Annual Cash Incentive Annual cash incentives provide an opportunity for our executive officers to receive additional cash compensation based on our financial performance, as well as each executive officer’s individual performance. The overall annual bonus pool is funded based on a targeted percentage of pre-tax income. The maximum funding for each officer’s annual cash incentive award under the Management Performance Plan is a percentage of the consolidated net income generated by us in the applicable year. The annual cash incentive maximums for executive officers are as follows:
The final determination of annual cash incentives is not tied to any specific formula, rather the process that the Compensation and Benefits Committee uses to determine incentives relies on a discretionary assessment of quantitative and qualitative performance criteria for Northern Trust as a whole, specific businesses and individual executive officers. The Committee believes that its use of discretion:
In determining overall annual incentive funding and how incentives will be allocated among different businesses, the Committee considers the following factors:
The Committee then uses negative discretion to set the final awards based on consideration of our overall performance, the individual executive officer’s performance, internal equity principles and peer group compensation levels. Using this process, the Committee recommended the short-term cash annual incentive for our Chairman and CEO to the Board for approval. For the other named executive officers, the Chairman and CEO recommended a short-term cash annual incentive which was approved by the Committee. The table below summarizes the 2015 short-term annual cash incentives for the named executive officers awarded in February 2016, along with 2014 short-term annual cash incentives awarded in February 2015 for comparative purposes.
Long-Term Incentive Compensation Long-term incentive compensation is the most significant element of overall compensation and is designed to reward the performance of executive officers over time. For long-term incentive awards made in February 2016 and February 2015 for performance in 2015 and 2014, respectively, we have granted the long-term incentive awards to named executive officers as a mix of performance stock units, restricted stock units and stock options. The relative mix of these components is as follows.
In February 2016, the Compensation and Benefits Committee established long-term incentive award opportunities for our Chairman and Chief Executive Officer and approved long-term incentive recommendations for our other named executive officers after receiving input from our Chairman and CEO. In establishing long-term incentive award opportunities for our named executive officers, the Committee places greater emphasis on an executive’s long-term contributions to the organization, while taking into account internal equity principles among comparable roles. The table below summarizes the long-term incentive awards for our named executive officers made in February 2016 and February 2015 for performance in 2015 and 2014, respectively.
Performance Stock Units.Performance stock units make up 50% of our long-term incentive award opportunity and the largest portion of the total compensation mix for our named executive officers. Our performance stock units are earned based on our average return on equity performance over a three-year period relative to pre-established goals. Return on equity is the primary financial performance metric used internally and externally to assess our long-term performance. Further discussion with respect to the performance stock units granted to our named executive officers is set forth in the “Description of Certain Awards Granted in 2015” section beginning on page 52 of this Proxy Statement. Restricted Stock Units.Restricted stock units are an effective tool to align executives with stockholder interests by making them owners of our stock. Another critical aspect of our restrictedstock unit design is that they vest over four years, with 50% vesting at the third anniversary of grant and the remaining 50% vesting at the fourth anniversary of grant. This vesting schedule is effective in helping us to retain critical talent and ensuring that executives have significant outstanding unvested equity value over the course of their careers. Further discussion with respect to the restricted stock units granted to our named executive officers is set forth in the “Description of Certain Awards Granted in 2015” section beginning on page 52 of this Proxy Statement. Stock Options.Stock options are included as part of our long-term incentive compensation to ensure that our executives remain focused on increasing our stock price over time. When used in combination with performance stock units and restricted stock units, stock options help to ensure that executives will take a balanced view towards risk-taking. The key features of our stock option program are summarized below:
It is the view of the Compensation Total Direct Compensation for 2015 and Overall Pay Mix The table below provides a comprehensive summary of each named executive officer’s total direct compensation for 2015. Base salary reflects the applicable named executive officer’s salary, as determined in February 2015. Short-term annual cash incentive compensation represents amounts awarded in February 2016 for 2015 performance. Long-term incentive compensation represents grants made in February 2016 relating to 2015 performance.
Other Compensation Practices Retirement, Health and Welfare Benefits Retirement benefits are generally designed with our entire workforce in mind and are not specifically structured for the executive officers. The design of our retirement program for employees, including executive officers:
Our executive officers also participate in our health and welfare benefits, including medical, retiree medical, dental, disability and life insurance programs, on the same terms as other employees. Severance Benefits and Employment Security Arrangements We provide a severance plan 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. We believe that the availability of severance benefits allows us to compete with our peer group companies in attracting and retaining talent. Executive officers participate in this plan on the same terms as all other eligible and similarly situated employees. Our executive officers generally are eligible to receive severance benefits that include:
These benefits are contingent upon execution of a release, waiver and settlement agreement with us. 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, we have entered into employment security arrangements with certain executive officers of the Corporation, including each named executive officer. The purpose of these agreements is to agreements are critical to our ability to attract and retain key executives in light of the fact that all named executive officers are employed at will and change in control benefits for executives are a standard element of a competitive compensation Further discussion with respect to our employment security agreements, including disclosure of potential change in control benefits payable to each named executive officer, assuming a change in control of the Corporation and termination of employment on December 31, 2015, is set forth in the “Potential Payments Upon Termination of Employment or a Change in Control of the Corporation” section beginning on page 67 of this Proxy Statement. Perquisites We provide a limited number of perquisites intended to assist executive officers in the performance Stock Ownership Guidelines Supporting our guiding principle of alignment with stockholders’ interests, we have a long-standing practice of emphasizing stock ownership and
Clawback Provisions All awards granted to named executive officers since 2012 under our long-term incentive compensation program include certain forfeiture provisions pertaining to unpaid amounts, as well as recoupment of paid amounts, under such awards in the event of a restatement of the Corporation’s financial statements and certain types of misconduct. Such awards also are subject to forfeiture and recoupment provisions relating to “ex-post” risk, meaning risk resulting from the recipient’s inappropriate risk-taking that does not materialize until after the performance period in which such inappropriate risk-taking takes place. Beginning in 2013 we began to include certain provisions in our restricted stock unit award agreements with named executive officers requiring the forfeiture or recoupment of awards if it were determined that the applicable named executive officer had engaged in inappropriate risk-taking which resulted in a “significant risk outcome,” as defined in the form of agreement. An analysis of significant risk outcomes is completed annually to determine if such significant risk outcomes were tied to inappropriate risk-taking. The results of this analysis are reviewed by the Compensation and Benefits Committee. Hedging Policy We maintain a Securities Transactions Policy and Procedures that, among other things, prohibits directors, employees, and certain of their family members from engaging in short selling, margining, pledging or hypothecating our securities, and from trading in options, warrants, puts, calls or similar instruments on our securities. Compensation and Benefits Committee Report The Compensation and Benefits Committee is responsible for providing oversight of the compensation of the directors and executive officers of the Corporation. In fulfilling its oversight responsibilities, the Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based upon this review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and this Proxy Statement for the 2016 Annual Meeting of Stockholders, each of which is filed with the SEC. Compensation and Benefits Committee Charles A. Tribbett III (Chair) Linda Walker Bynoe Thomas E. Richards John W. Rowe Martin P. Slark The following table sets forth the information concerning the compensation paid to or earned by the named executive officers for 2015, 2014 and 2013. In accordance with SEC rules, 2013 compensation is not presented for Mr. Bowman because he was not a named executive officer in that year.
(1) (2) Amounts in this column represent long-term cash incentive awards, granted in February 2012 for 2011 performance, which vested in February 2015. Long-term cash incentive awards were granted to named executive officers in February 2012 due to changes in the long-term incentive compensation plan design and no such awards have been granted since February 2012. The amount of the award granted to each named executive officer in February 2012 is as follows: Mr. Waddell: $2,333,333; Mr. Fradkin: $700,000; Mr. Morrison: $1,166,667; and Ms. Schreuder: $700,000. Amounts in this column also include interest credited on such awards from the date of grant through the vesting date at a rate equal to the mid-term applicable federal rate for the month of February 2012, compounded annually, in accordance with the terms of such awards. (3) Amounts in this column represent the grant date fair value of the restricted stock unit and performance stock unit awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation (“FASB ASC Topic 718”). See “Note 22—Share-Based Compensation Plans” to the consolidated financial statements included in Item 8 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of the assumptions made by the Corporation in the valuation of these stock unit awards. This column includes the following amounts in 2015 with respect to performance stock units, which are based on achievement of target performance levels: Mr. Waddell: $3,325,005; Mr. Bowman: $1,000,001; Mr. Fradkin: $1,000,001; Mr. Morrison: $1,625,010; and Ms. Schreuder: $1,250,019. If the maximum level of performance were attained, the value of the performance stock units would be as follows: Mr. Waddell: $4,156,292; Mr. Bowman: $1,250,019; Mr. Fradkin: $1,250,019; Mr. Morrison: $2,031,316; and Ms. Schreuder: $1,562,524. See the narrative under “Description of Certain Awards Granted in 2015” beginning on page 52 of this Proxy Statement for more information on these awards. (4) 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” to the consolidated financial statements included in Item 8 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015 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 2015” beginning on page 52 of this Proxy Statement for more information on these awards. (5) Amounts in this column represent the annual cash incentives earned by the named executive officers in the applicable years under the Management Performance Plan. (6) 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% at December 31, 2012 to 5.00% at December 31, 2013 resulted in a decrease in the present value of benefits under the Traditional Formula for each named executive officer with 2013 information provided at December 31, 2013 relative to December 31, 2012. Accordingly, no amount is included for 2013 in this column for any named executive officer. At December 31, 2014, the applicable discount rate decreased from 5.00% back down to 4.25%, resulting in an increase in the present value of benefits under the Traditional Formula. At December 31, 2015, the applicable discount rate increased to 4.71%, resulting in a decrease in the present value of benefits under the Traditional Formula. This decrease was more than offset by increases in the present value of benefits attributable to other factors for all named executive officers, except for Mr. Waddell and Mr. Morrison, the present value of benefits for whom decreased by $387,577 and $102,918, respectively. See “Pension Benefits” beginning on page 60 of this Proxy Statement for additional information. (7) The following table sets forth a detailed breakdown of the items which comprise “All Other Compensation” for 2015.
(a) Includes matching contributions made by the Corporation on behalf of named executive officers participating in TIP and Supplemental TIP. (b) With respect to Mr. Waddell, represents financial consulting and tax return preparation services ($16,500) and personal use of company automobiles ($23,302). With respect to Mr. Bowman, represents tax return preparation services in conjunction with an overseas assignment. With respect to Mr. Fradkin, represents financial consulting and tax return preparation services ($3,400) and personal use of company automobiles ($680). With respect to Mr. Morrison, represents financial consulting and tax return preparation services ($7,000) and personal use of company automobiles ($2,677). With respect to Ms. Schreuder, represents financial consulting and tax return preparation services ($14,570) and personal use of company automobiles ($255). (c) Represents tax reimbursements provided in connection with personal use of company automobiles and, with respect to Mr. Bowman, taxable expenses relating to an overseas assignment.
(1) These columns show information regarding payouts under the Management Performance Plan. The amount set forth under the Maximum column represents the highest potential payout under the plan based on the Corporation’s 2015 performance. Although the plan does not provide for a target or threshold, the amount set forth under the Target column represents the amount actually awarded to the named executive officer in 2015 in respect of 2014 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 2015 if the Corporation achieves a three-year return on equity of 7.5%, 10.25% or 15.0%, respectively. (3) This column shows the number of restricted stock units granted to the named executive officers in 2015. (4) This column shows the number of shares that may be issued to the named executive officers upon exercise of stock options granted in 2015. (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 2015 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 granted prior to February 16, 2016, including grants made in 2015 for 2014 performance, are paid in cash on a current basis prior to vesting and distribution. Dividend equivalents on performance stock units granted on or after February 16, 2016, including performance stock units granted for 2015 performance, will be deferred into a cash account and paid, with interest credited at a rate equal to the mid-term applicable federal rate for the month of February 2016, compounded annually, only with respect to the portion of the cash account attributable to performance stock units that actually vest upon satisfaction of the applicable performance conditions (provided, however, that the amount of deferred dividends and interest will not accrue on more than 100% of the performance stock units granted, even if greater than 100% of such performance stock units may vest upon satisfaction of the applicable performance conditions). With respect to the performance stock units granted in 2015 and 2016, the Compensation and Benefits Committee identified specific types of objectively determinable factors that could affect
The
As it is possible that there will be no payout under the
If, during the
Restricted Stock 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. Each restricted stock unit award entitles an executive to receive one share of common stock when the award vests. Dividend equivalents on restricted stock units are paid in cash on a current basis prior to vesting and distribution. If, during the vesting period relating to restricted stock units granted to an executive, such executive retires or terminates employment under certain circumstances entitling the executive to benefits vesting period, a prorated number of restricted stock units on each remaining vesting date in the vesting period become vested and are eligible for distribution. Upon the death or disability of an executive during the vesting period, such executive, or the executive’s beneficiary, will be entitled to receive a distribution of a prorated number of any unvested restricted stock units granted prior to February 17, 2015. With respect to restricted stock units granted on or after February 17, 2015, such executive, or the executive’s beneficiary, will be entitled to the full vesting and distribution of any unvested restricted stock units. Upon a change in control of the Corporation,
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 ($)(3) (h) Equity Incentive Plan Awards: Number of Unearned Units or (#)(4) Equity Incentive Plan Awards: Market Steven L. Fradkin Jana R. Schreuder
Upon a change in control of the Corporation, all stock options relating to the stock of the acquirer and continue to vest in accordance with the regular vesting schedule; provided, however, that they become fully vested in connection with a change in control if the executive Outstanding Equity Awards at Fiscal Year-End
Number of (#) Number of Securities (#) Option ($) Number of Shares or Units of Stock Have Not (#) Market of Shares of Units of Stock That ($)(1) Equity of (#) Equity ($)(2) Ms. Schreuder (1) The market value of the restricted stock units
(3) Options originally granted February 13, 2012, (4) Options originally granted February 11, 2013, with 25% of the award vesting on each anniversary of the grant date. Accordingly, the remaining unvested options vest in equal portions on each of February 11, 2016 and 2017. (5) Options originally granted February 10, 2014, with 25% of the award vesting on each anniversary of the grant date. Accordingly, the remaining unvested options vest in equal portions on each of February 10, 2016, 2017 and 2018. (6) Options originally granted February 17, 2015, with 25% of the award vesting on each anniversary of the grant date. Accordingly, the remaining unvested options vest in equal portions on each of February 17, 2016, 2017, 2018 and 2019. (7) Consists of 15,777 units vesting on February 11, 2016, 13,661 units vesting on February 10, 2017, 15,776 units vesting on February 11, 2017, 13,661 units vesting on February 10, 2018, 11,840 units vesting on February 17, 2018 and 11,839 units vesting on February 17, 2019. (8) Consists of 3,559 units vesting on February 11, 2016, 3,818 units vesting on February 13, 2016, 3,390 units vesting on February 10, 2017, 3,559 units vesting on February 11, 2017, 3,389 units vesting on February 10, 2018, 3,561 units vesting on February 17, 2018 and 3,561 units vesting on February 17, 2019. (9) Consists of 4,745 units vesting on February 11, 2016, 4,109 units vesting on February 10, 2017, 4,745 units vesting on February 11, 2017, 4,108 units vesting on February 10, 2018, 3,561 units vesting on February 17, 2018 and 3,561 units vesting on February 17, 2019. (10) Consists of 7,948 units vesting on February 11, 2016, 6,677 units vesting on February 10, 2017, 7,947 units vesting on February 11, 2017, 6,676 units vesting on February 10, 2018, 5,787 units vesting on February 17, 2018 and 5,786 units vesting on February 17, 2019. (11) Consists of 4,745 units vesting on February 11, 2016, 4,109 units vesting on February 10, 2017, 4,745 units vesting on February 11, 2017, 4,108 units vesting on February 10, 2018, 4,451 units vesting on February 17, 2018 and 4,451 units vesting on February 17, 2019. (12) Consists of the following maximum number of shares Mr. Waddell may receive under performance stock units: 78,882 shares underlying performance stock units granted in 2013; 68,304 shares underlying performance stock units granted in 2014; and 59,198 shares underlying performance stock units granted in 2015. The distribution of shares underlying the performance stock units granted in 2013 took place on January 19, 2016, with 63,105 shares actually being distributed to Mr. Waddell. The actual number of shares distributed with respect to performance stock units granted in 2014 and 2015 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units. (13) Consists of the following maximum number of shares Mr. Bowman may receive under performance stock units: 17,794 shares underlying performance stock units granted in 2013; 16,948 shares underlying performance stock units granted in 2014; and 17,804 shares underlying performance stock units granted in 2015. The distribution of shares underlying the performance stock units granted in 2013 took place on January 19, 2016, with 14,235 shares actually being distributed to Mr. Bowman. The actual number of shares distributed with respect to performance stock units granted in 2014 and 2015 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units. (14) Consists of the following maximum number of shares Mr. Fradkin may receive under performance stock units: 23,724 shares underlying performance stock units granted in 2013; 20,543 shares underlying performance stock units granted in 2014; and 17,804 shares underlying performance stock units granted in 2015. The distribution of shares underlying the performance stock units granted in 2013 took place on January 19, 2016, with 18,979 shares actually being distributed to Mr. Fradkin. The actual number of shares distributed with respect to performance stock units granted in 2014 and 2015 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units. (15) Consists of the following maximum number of shares Mr. Morrison may receive under performance stock units: 39,738 shares underlying performance stock units granted in 2013; 33,383 shares underlying performance stock units granted in 2014; and 28,932 shares underlying performance stock units granted in 2015. The distribution of shares underlying the performance stock units granted in 2013 took place on January 19, 2016, with 31,790 shares actually being distributed to Mr. Morrison. The actual number of shares distributed with respect to performance stock units granted in 2014 and 2015 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units. (16) Consists of the following maximum number of shares Ms. Schreuder may receive under performance stock units: 23,724 shares underlying performance stock units granted in 2013; 20,543 shares underlying performance stock units granted in 2014; and 22,255 shares underlying performance stock units granted in 2015. The distribution of shares underlying the performance stock units granted in 2013 took place on January 19, 2016, with 18,979 shares actually being distributed to Ms. Schreuder. The actual number of shares distributed with respect to performance stock units granted in 2014 and 2015 will be based upon the satisfaction of certain performance conditions. Accordingly, it is possible that no shares of common stock will be distributed under these performance stock units.
The following table sets forth information regarding exercises of stock options and vesting of stock awards for each named executive officer
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) Mr. Waddell Mr. Bowman Mr. Fradkin Mr. Morrison Ms. Schreuder
(1) (2)
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 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 Benefit Prior to April 1, 2012, the benefits of the named executive officers to retirement, with calendar year compensation not to exceed the Social Security taxable wage base in effect for a given calendar year, by (ii) the participant’s years of credited service (up to
Benefit Effective June 1, 2001, the Pension Plan was amended to provide that benefits of all newly hired employees of the Corporation and Benefit Formula—Changes
Benefit Pension benefits are first calculated under the combined Traditional Formula and PEP Formulas or solely under the PEP Formula, as applicable, without regard to 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 generally 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 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). 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 Form of Benefit 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 remainder of the five years to a designated beneficiary. Assumptions The assumptions used in calculating the present value of the accumulated benefit are set forth in
(1) (2) (3) (4) All amounts in this column have previously been included in each named executive officer’s compensation reported in the
The Corporation maintains the
An employee is eligible to participate in the
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
A participant is fully vested in his or her entire
Each participant’s Distributions
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
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
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
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. The named executive officers
Each participant’s Supplemental TIP account is credited with earnings or losses based on various mutual fund 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.
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
Employment Security Agreements As discussed above, 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
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
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:
The value of the fully vested stock options is based on the difference between the option exercise price and
Equity Compensation Plans and Agreements As described
The
units. Directors who are employees of the Corporation receive no additional compensation for serving on the
restricted stock units. In addition to the annual retainer, directors serving as the Chair of any Board committee were entitled to an additional $15,000 annually, directors serving on the Audit Committee (including the Chair) were entitled to an additional $5,000 annually and the Corporation’s Lead Director was entitled to an additional $25,000 annually, each of which additional fees were paid in cash. All non-employee directors also
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 Directors are eligible to participate in the Corporation’s matching gift program, under which the Corporation matches gifts made by employees and directors to eligible nonprofit 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. Within five years of election to the Board, non-employee directors are required to hold shares of the Corporation’s 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 of 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 the vesting of equity awards. As of December 31, 2015, all non-employee directors met or exceeded the stock ownership guidelines to which they were subject. Consistent with those guidelines, Messrs. Harrison, Prado, Richards and Thompson have until January 1, 2020, October 16, 2017, July 21, 2020 and March 6, 2020, respectively, to reach the share ownership threshold. The following table sets forth all compensation earned by each non-employee director of the Corporation in 2015.
(1) This column shows the grant date fair value of the stock awards for all non-employee directors in 2015, computed in accordance with FASB ASC Topic 718. See “Note 22—Share-Based Compensation Plans” to the consolidated financial statements included in Item 8 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of the assumptions made by the Corporation in the valuation of these stock unit awards. As of December 31, 2015, each non-employee director serving on such date held 1,530 unvested stock units, which represents the stock unit award made by the Corporation in April 2015 described above. (2) Represents accumulated dividend payments to which the non-employee directors became entitled upon the vesting of underlying stock units in 2015. (3) Amounts reported for Messrs. Chabraja and Lane reflect compensation earned through April 21, 2015, the effective date of their retirement from the Board. EQUITY COMPENSATION PLAN INFORMATION Set forth below is information with respect to
(1) (2) (3) Consists of
The Audit Committee control over financial reporting. The Audit Committee’s Consistent with its oversight responsibilities, the Audit Committee has reviewed and discussed with management and KPMG LLP the Corporation’s audited financial statements as of and for the year ended December 31, 2015. The Committee has also discussed with KPMG LLP the firm’s assessment of the Corporation’s internal controls and the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standards No. 16, “Communication with Audit Committees.” The Audit Committee has also received and discussed the written disclosures and the letter from KPMG LLP required by
Based on the above-mentioned reviews and discussions,
Dean M. Harrison Dipak C. Jain Martin P. Slark Donald Thompson
Fees of Independent Registered Public Accounting Firm
Pre-Approval Policies and Procedures of the Audit Committee
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, 2016, 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, Stockholder ratification of the selection of KPMG LLP as the Corporation’s independent registered public accounting firm is not required. However, the Board is submitting the selection of KPMG LLP as the Corporation’s independent registered public accounting firm to the stockholders for ratification because it believes it is a governance best practice to do so. If the stockholders fail to ratify KPMG LLP as the independent registered public accounting firm, the Audit Committee will reassess its appointment, but in such event it may elect to retain KPMG LLP nonetheless. Further, 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
STOCKHOLDER PROPOSALS FOR Any stockholder proposals for the Also, under the Corporation’s
DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
ANNUAL MEETING ADMISSION TICKET Northern Trust Corporation 50 South LaSalle Street Chicago, Illinois 60603 (northwest corner of LaSalle Street and Monroe Street) April 10:30 a.m. CDT 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
Directions to the Northern Trust Corporation Annual Meeting of Stockholders
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: You may access the
If any shares have been allocated to the undersigned’s account under The Northern Trust Company Thrift-Incentive Plan (“TIP”), this proxy card will serve as voting instructions for any shares, including shares held by the undersigned in TIP, and the undersigned hereby directs The Northern Trust Company, as trustee of TIP(the “TIP Trustee”), to vote such shares, in person or by proxy, in the manner specified on this card, at the Annual Meeting. The TIP Trustee will vote allocated shares for which no direction is received and unallocated shares, if any, in the same proportion as the shares for which direction is received, except as otherwise provided in accordance with applicable law. To allow sufficient time for voting by the TIP Trustee, voting instructions must be recorded by 11:59 p.m. EDT on April 14, 2016. Whether voting by mail, telephone or Internet, the undersigned’s shares (including shares held under TIP) will be voted in accordance with the undersigned’s instructions.If this proxy card is returned without indication as to how shares are to be voted, the proxy holders will vote the undersigned’s shares, including any held in TIP: for the
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