NOTICE & PROXY STATEMENT
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NORTHERN TRUST CORPORATION | ||||
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Northern Trust Corporation
50 South La Salle Street
Chicago, Illinois 60603
March 4, 201410, 2015
Dear Stockholder:
You are cordially invited to attend the Northern Trust Corporation 20142015 Annual Meeting of Stockholders on Tuesday, April 15, 2014,21, 2015, at 10:30 ama.m., Central Time, at our corporate headquarters at 50 South La Salle Street in Chicago, Illinois.
For nearlymore 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, |
Frederick H. Waddell Chairman of the Board and Chief Executive Officer |
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date: | Tuesday, April | |
Time: | 10:30 | |
Place: | Northern Trust Corporation 50 South La Salle Street Chicago, Illinois 60603 | |
Purposes: | The purposes of the Annual Meeting are to: | |
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Record Date: | You can, and should, vote if you were a stockholder of record at the close of business on February |
March 4, 201410, 2015
By order of the Board of Directors,
Stephanie S. Greisch
Corporate Secretary
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE STOCKHOLDERANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 15, 201421, 2015
This Proxy Statement, the 2013other proxy materials, our Annual Report to Stockholders,on Form 10-K for the year ended December 31, 2014 and a link to the means to vote by Internet or telephone are available at https://materials.proxyvote.com/665859.
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ITEM 3—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | ||||
ITEM 4—STOCKHOLDER PROPOSAL REGARDING ADDITIONAL DISCLOSURE OF POLITICAL AND LOBBYING CONTRIBUTIONS | ||||
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Statement of Board of Directors in Opposition to the Stockholder Proposal | 73 | |||
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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 15, 2014.21, 2015 (the “Annual Meeting”). On or about March 4, 2014,10, 2015, 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, 2014, to all stockholders entitled to vote at the Annual Meeting. Our proxy materials include our 2013 Annual Report to Stockholders, which contains detailed information about the Corporation’s activities and financial performance in 2013.
A Notice Regarding the Availability of Proxy Materials
Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), for some of our stockholders we are providing access to our proxy materials via the Internet. The rules permit us to send a Notice Regarding the Availability of Proxy Materials (the “Notice”) to stockholders of record and beneficial owners. All stockholders have the ability to access the proxy materials on the website referred to in the Notice, www.proxyvote.com, or to request a printed set of proxy materials on this site or by calling toll-free 1-800-690-6903. Complete instructions for accessing the proxy materials on the Internet or requesting a printed copy may be found in the Notice. In addition, stockholders may request to receive all future proxy materials in printed form by mail or electronically by e-mail on the website above or when voting electronically.
Electronic Access to the Proxy Materials
The Notice provides instructions regarding how to view our proxy materials for the Annual Meeting on the Internet and how to instruct us to send our future proxy materials to you electronically by e-mail.
Choosing to receive your future proxy materials by e-mail will save us the cost of printing and mailing documents to you and will reduce the impact of our annual stockholders’ meetings on the environment. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.
Record holders of the Corporation’s common stock at the close of business on February 18, 201423, 2015 may vote at the Annual Meeting. On that date, the Corporation had 237,309,755233,620,101 shares of common stock outstanding. The shares of common stock held in the Corporation’s treasury will not be voted.
You are entitled to one vote for each share of common stock that you owned of record at the close of business on February 18, 2014.23, 2015. 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:
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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, executive compensation matters and stockholder proposals generally are considered to be nonroutine matters.IfThus, if you fail to provide your specific voting instructions, your broker may only vote your shares on the ratification of the appointment of the Corporation’s independent registered public accounting firm.Consequently, it is important that you communicate your voting instructions so your vote can be counted by using any of the following methods:methods so your vote can be counted:
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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, 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 11, 2014.16, 2015.
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:Board:
Item 1 | — | FOR the election of each nominee for director; | ||||
Item 2 | — | FOR the approval, by an advisory vote, of the | ||||
Item 3 | — | FOR the ratification of the appointment of KPMG LLP as the Corporation’s independent registered public accounting firm for the fiscal year ending December 31, | ||||
Item 4 | — | AGAINST the stockholder proposal regarding additional disclosure of political and lobbying contributions. |
The proxy holders are authorized to vote as they shall determine in their sole discretion on any other business that may properly come before the Annual Meeting.
You may revoke your proxy at any time before it is voted at the Annual Meeting by:
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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 18, 2014, the record date for voting.23, 2015.
We are delivering only one annual reportAnnual Report on Form 10-K and proxy statementProxy Statement (or, as applicable, the Notice) to stockholders of record stockholders who share the same address unless they have notified us that they wish to continue receiving multiple copies. This practice, known as “householding,” reduces duplicate mailings, saves printing and postage costs as well as natural resources and will not affect dividend check mailings. If you wish to receive separate copies of future proxy materials, please contact Broadridge toll free at 1-800-542-1061 or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Stockholders who wish
to receive a separate set of proxy materials now should contact Broadridge at the same telephone number or mailing address and the materials will be delivered to you promptly upon your request.
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 AnnualMeeting.Annual Meeting. Abstentions and broker non-votes,nonvotes, if any, will be counted as present for purposes of establishing a quorum. A “broker non-vote”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.Brokers As noted above, brokers, banks and other nominees generally cannot vote your shares on the election of directors, executive compensation matters or stockholder proposals without your specific instructions. Please return your proxy card or voting instruction form, as applicable, or vote by Internet or telephone so your vote can be counted. InspectorsAn 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 “withhold” votes, abstentions and broker non-votes.nonvotes.
Item | Required Vote | Effect of Abstentions and Broker | ||
Item 1—Election of | Affirmative vote of a majority of the votes cast with respect to each nominee. | — 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 |
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Item 3—Ratification of the appointment of KPMG LLP as the Corporation’s independent registered public accounting firm for fiscal year | Affirmative vote of a majority of the shares of common stock present and | — Abstentions will have the effect of a vote AGAINST
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Item 4—Stockholder | Affirmative vote of a majority of the shares of common stock present and | — Abstentions will have the effect of a vote AGAINST this proposal.
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Solicitation of ProxiesProxies; Costs
The Corporation will pay all costsbear the cost of solicitingpreparing, 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 within the solicitation of proxies for a fee of approximately $13,500, plus reimbursement of reasonable out-of-pocket expenses.
ADMITTANCE TO THE ANNUAL MEETING
Stockholders at the close of business on the record date, February 18, 2014,23, 2015, or their duly appointed proxies, may attend our Annual Meeting at our corporate headquarters on April 15, 201421, 2015 at 10:30 ama.m., Central Time. Registration will begin at 9:30 am.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 18, 2014.23, 2015. Acceptable documentation includes an admission ticket, a Notice Regarding the Availability of Proxy Materials or any other proof of ownership of the Corporation’s common stock at the close of business on February 18, 2014.23, 2015. A brokerage statement or letter from a bank or broker reflecting your holdings at the close of business on February 18, 201423, 2015 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 maywill 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 11eleven directors at this year’sthe Annual Meeting of Stockholders.Meeting. Set forth below is detailed information with respect to the 11eleven nominees, alleach of whom areis currently serving as directorsa director of Northern Trustthe Corporation (the “Corporation” or “Northern Trust”) and its principal subsidiary, The Northern Trust Company (the “Bank”). Edward J. MooneyIncluded in the incumbent directors nominated for re-election are Dean M. Harrison and Donald Thompson, who were recently appointed as directors of the Corporation by the Board, effective January 1, 2015 and March 6, 2015, respectively, in accordance with the Corporation’s By-laws and pursuant to the recommendation of the Corporation’s Chairman and CEO and Lead Director. Current directors not standing for re-election are Nicholas D. Chabraja, who has not been nominated for re-election as he has reachedin accordance with the director retirement age under the Corporation’s Corporate Governance Guidelines. Mr. MooneyGuidelines, and Robert W. Lane, who has notified the Board that he intends to retire from service as a director effective upon the conclusion of his current term at the Annual Meeting. Messrs. Chabraja and Lane have served as a membermembers of the Board of Directors since 1996.2007 and 2009, respectively.
Each of the 11eleven director nominees has consented to serve as a director if elected at this year’sthe Annual Meeting. Each nominee elected as a director will serve until the next Annual Meeting of Stockholders and until his or her successor is elected and qualified. If any nominee is unable to serve as a director at the time of the Annual Meeting, your proxy may be voted for the election of another nominee proposed by the Board of Directors (the “Board”) or the Board may reduce the number of directors to be elected at the Annual Meeting.
Under the majority voting policy as set forth in the Corporation’s By-laws, a nominee for director in an uncontested election (such as this year’s election where the only nominees are those recommended by the Board of Directors)Board) must receive the affirmative vote of a majority of the votes present and votingcast at a meeting of stockholders. In contested elections, the affirmative vote of a plurality of the votes present and votingcast will be required to elect a director. The Corporation’s Corporate Governance Guidelines require an incumbent director who fails to receive the affirmative vote of a majority of the votes present and votingcast in an uncontested election at a meeting of stockholders to submit his or her resignation with suchfollowing certification of the stockholder vote. Such resignation towill 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 why stockholders did not support such director, 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(other than such incumbent director. In such event, the Board of Directorstendering director) will then act to accept or reject the incumbent director’s resignationCommittee’s recommendation no later than 90ninety days following the date of the stockholders’ meeting.meeting after considering the factors considered by the Committee and such additional information and factors as the Board believes to be relevant.
The Board of Directors unanimously recommends that you voteFOR the election of each nominee.
INFORMATION ABOUT THE NOMINEES FOR DIRECTOR
The following information about the nominees for election to the Board of Directors of the Corporation at the 2014 Annual Meeting of Stockholders is as of December 31, 2013,2014, unless otherwise indicated.
LINDA WALKER BYNOE, Director since 2006, Age
President and Chief Executive Officer,Telemat Ltd.
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 Board | ||
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SUSAN CROWN, Director since 1997, Age
Vice President, Henry Crown and Company
Ms. Crown is a director of Illinois Tool Works Inc. and Vice Chair of the Board of Trustees of Rush University Medical Center in Chicago. Ms. Crown is a former trustee of Yale University.
The Board | ||
DEAN M. HARRISON, Director since 2015, Age 60 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 serves as chairman of the Illinois Hospital Association. 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
Mr. Jain is a director of Deere & Company, Reliance Industries Limited, India, and Global Logistics Properties Limited, Singapore.
The Board |
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JOSE LUIS PRADO,Director since 2012, Age
Retired President of Quaker Oats North America, a division of PepsiCo, Inc. (global food and beverage company)
Mr. Prado joined PepsiCo in Mexico in 1984 and
The Board | ||
JOHN W. ROWE, Director since 2002, Lead Director since April 2010, Age
Chairman Emeritus, Exelon Corporation(producer and wholesale marketer of energy) since 2012. Mr. Rowe served as Chairman and Chief Executive Officer of Exelon Corporation from 2002 to 2012.
Mr. Rowe is a director of Allstate Corporation, American DG Energy Inc., and SunCoke Energy, Inc. Mr. Rowe is a former director of Sunoco Corporation and Exelon Corporation.
The Board |
MARTIN P. SLARK, Director since 2011, Age
Mr. Slark is a director of
The Board | ||
[PHOTO] | DAVID
Executive Vice President,Policy & Legal Affairs and General Counsel, Mutual Fund Directors Forum
Mr. Smith is a director of Illinois Tool Works Inc. and a trustee of Carleton College.
The Board | |
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 McDonald’s Corporation from 2012 until March 1, 2015. Previously, Mr. Thompson served as President and Chief Operating Officer of McDonald’s Corporation from 2010 to 2012 and President of McDonald’s USA from 2006 to 2010. Mr. Thompson also served as director of McDonald’s Corporation from 2011 to March 1, 2015 and of Exelon Corporation from 2007 to 2013. The Board concluded that Mr. Thompson should serve as a director based on his management and board experience at other complex corporations. |
CHARLES A. TRIBBETT III, Director since 2005, Age
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 |
FREDERICK H. WADDELL, Director since 2006, Age
Chairman of the Board of the Corporation and the Bank since 2009 andChief Executive Officer of the Corporation and the Bank since 2008. Previously, Mr. Waddell served as President of the Corporation and the Bank from 2006 to 2011, Chief Operating Officer of the Corporation and the Bank from 2006 to January 2008 and Executive Vice President of the Bank from 1997 to 2006 and of the Corporation from 2003 to 2006.
Mr. Waddell is a
Since joining Northern Trust in 1975, Mr. Waddell has held leadership positions in a variety of the Corporation’s |
BOARD AND BOARD COMMITTEE INFORMATION
Our Board of Directors currently consists of twelvethirteen members. The Board of Directors has determined that each of the following eleventwelve 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, Nicholas D. Chabraja (who is not standing for re-election), Susan Crown, Dean M. Harrison, Dipak C. Jain, Robert W. Lane Edward J. Mooney (who is not standing for re-election), Jose Luis Prado, John W. Rowe, Martin P. Slark, David H.B.H. B. Smith, Jr., Donald Thompson and Charles A. Tribbett III.
During 2013,2014, the Corporation’s Board of Directors held 10ten meetings. All persons who were directors during 20132014 attended at least 75% of these meetings and meetings of committees on which they served. In accordance with theOur Corporate Governance Guideline that statesGuidelines state that all directors are expected to attend theeach Annual Meeting of Stockholders,Stockholders. In accordance with this expectation, all of the current directors then serving attended the 20132014 Annual Meeting of Stockholders held on April 16, 2013.15, 2014.
The standing committees of the Board of Directors are the Audit Committee, the Business Risk Committee, the Business Strategy Committee, the Compensation and Benefits Committee, the Corporate Governance Committee and the Executive Committee. With the exception of the Executive Committee, all standing committees are composed solely of independent directors. Consequently, independent directors directly oversee critical matters and appropriately oversee the Chairman and CEO.
Each committee is governed by a written charter. These charters detail the duties and responsibilities of each committee and are available on the Corporation’s website at www.northerntrust.com.
Current Members: Directors MooneySmith (Chair), Bynoe, Chabraja, Lane,Harrison, Jain and SmithPrado
Number of Meetings in 2013:2014: 5
The Audit Committee’s purpose is to oversee the accounting and financial reporting processes of Northern Trustthe Corporation and its subsidiaries and the audits of the consolidated financial statements of Northern Trust andsuch 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, of Northern Trust, including, without limitation,limitation: (i) assisting the Board’s oversight of (a) the integrity of Northern Trust’sthe organization’s consolidated annual and quarterly financial statements and earnings releases, filed on Form 8-K, (b) Northern Trust’sthe organization’s compliance with legal and regulatory requirements, (c) the Corporation’s public accountants’ qualifications and independence and (d) the performance of Northern Trust’sthe organization’s internal audit function and the Corporation’s public accountants,accountants; and (ii) preparing the report required to be prepared by the Committee pursuant to SEC rules for inclusion in the Corporation’s annual proxy statement.
The Board has determined that all members of the Audit Committee are independent under SEC rules and NASDAQ listing standards. The Board has also determined that all Audit Committee
members arehave the financial experience and knowledge required for service on the Committee, and has designated Mr. Smith as its “audit committee financial experts,expert,” as defined by SEC rules.
Current Members: Directors BynoePrado (Chair), Mooney, Prado, Slark,Bynoe, Harrison and Smith
Number of Meetings in 2013:2014: 4
The purposeBusiness Risk Committee’s sole and exclusive function is responsibility for the risk-management policies of the Corporation’s global operations and oversight of the operations of the Corporation’s global risk-management framework. In furtherance of this function, the Business Risk Committee is to assistassists the Board in (i) discharging its oversight duties with respect to (a)to: (i) the risks inherent in the businesses of Northern Trustthe 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, and (b)risk; (ii) the process by which risk-based capital requirements are determined, including Northern Trust’sthe organization’s internal capital adequacy assessment processprocess; and (ii) promoting a culture that encourages ethical conduct and compliance with applicable rules and standards.(iii) the resolution planning process.
The Board has determined that all members of the Business Risk Committee are independent under SEC rules and NASDAQ listing standards.
Current Members: Directors JainCrown (Chair), Prado,Jain, Lane and Slark and Tribbett
Number of Meetings in 2013:2014: 4
The purpose of the Business Strategy Committee is to assist the Board in discharging its oversight duties with respect to: (i) the strategic direction of the Corporation,Corporation; (ii) the strategic initiatives of the business unitsbusinesses of Northern Trust,the Corporation and its subsidiaries; (iii) the management of strategic risk for Northern Trust,the organization; and (iv) the (a) the integration of corporate social responsibility principles related to environmental and social practices into the strategic direction and strategic initiatives of Northern Trustthe organization and its business unitsbusinesses and (b) the governance of those practices.
The Board has determined that all members of the Business Strategy Committee are independent under SEC rules and NASDAQ listing standards.
Compensation and Benefits Committee
Current Members: Directors Chabraja (Chair), Crown, Jain, Mooney,Bynoe, Rowe, Slark and RoweTribbett
Number of Meetings in 2013:2014: 5
The principal purpose of the Compensation and Benefits Committee is to (i) assist the Board in discharging its duties and responsibilities relating to (a)to: (i) the compensation of the directors and executive officers of Northern Trust, (b) governancethe Corporation and oversightits subsidiaries; and (ii) the employee benefit and equity-based plans of Northern Trust’s compensation programs, and (c)the organization. The Committee also assists the Board with management development and succession planning and (ii) prepareprepares the report required to be prepared by the Committee pursuant to SEC rules for inclusion in the Corporation’s annual proxy statement.
The Board has determined that all members of the Compensation and Benefits Committee are independent under SEC rules and NASDAQ listing standards.
In 2013, the Committee engaged Aon Hewitt, a nationally recognized compensation and benefits consulting firm, as its independent compensation consultant. During 2013, Aon Hewitt provided compensation and benefits advice to the Committee, including information regarding
competitive market data, relevant legal and regulatory requirements, and corporate best practices in the compensation and benefits area. The primary representative of Aon Hewitt advising the Committee attended all meetings of the Committee at which 2013 executive compensation decisions were made. The Corporation paid Aon Hewitt approximately $50,000 for the services it provided to the Committee in 2013.
Aon Hewitt and its affiliates provided unrelated services to the Corporation and The Northern Trust Company Pension Plan during 2013. These services included benefit and retirement plan administration services, market data services, and other consulting services. Aon Hewitt and its affiliates were paid approximately $4.0 million in fees for these unrelated services. The primary representative of Aon Hewitt advising the Committee did not participate in the provision of any of these services. The specific fees paid to Aon Hewitt and its affiliates for these services were not approved in advance by the Board of Directors or the Committee; however, the Board of Directors and the Committee were aware of the other services being provided to the Corporation by Aon Hewitt and its affiliates.
The Committee considered the independence of Aon Hewitt in light of SEC rules and NASDAQ listing standards, which include the following factors: (i) other services provided to the Corporation by the consultant; (ii) fees paid by the Corporation as a percentage of the consulting firm’s total revenue; (iii) policies or procedures maintained by the consulting firm that are designed to prevent a conflict of interest; (iv) any business or personal relationships between the individual consultants involved in the engagement and a member of the Committee; (v) any company stock owned by the individual consultants involved in the engagement; and (vi) any business or personal relationships between the Corporation’s executive officers and the consulting firm or the individual consultants involved in the engagement. In connection with its evaluation of the independence of Aon Hewitt, the Committee considered the unrelated services that Aon Hewitt and its affiliates provide to the Corporation and The Northern Trust Company Pension Plan as further discussed above and concluded that the provision of these services did not present any conflict of interest.
In February 2014, the Committee engaged Compensation Advisory Partners to replace Aon Hewitt as its independent compensation consultant due to the retirement from Aon Hewitt of the Committee’s primary advisor.
Corporate Governance Committee
Current Members: Directors Rowe (Chair), Crown, Lane and Tribbett
Number of Meetings in 2013:2014: 5
The purpose of the Corporate Governance Committee is toto: (i) identify and recommend to the Board candidates for nomination or appointment as directors,directors; (ii) review the Board’s committee structure and recommend appointments to committees,committees; (iii) develop and recommend, to the Board, Corporate Governance Guidelines applicable to the Corporation,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,Committee; (v) oversee the procedures relating to stockholder communications with the Board and (v)review any proposals submitted by stockholders; and (vi) oversee the annual evaluation of the Board in conjunction with the Board’s Lead Director.and its committees.
The Board has determined that all members of the Corporate Governance Committee are independent under SEC rules and NASDAQ listing standards.
Current Members: Directors Waddell (Chair), Bynoe, Chabraja, Jain, Mooney,Crown, Prado, Rowe and RoweSmith
Number of Meetings in 2013: 12014: 0
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.Board if necessary and appropriate. The Board expects that theExecutive Committee will meet only infrequently and in special circumstances such as when, in the judgmentis composed of the Committee, prompt action is needed and it is not practical to convene a Board meeting, orChairman of the matter is not consequential enough to submit to the full Board and action is needed before the Board’s next regularly scheduled meeting.Chair of each of the other standing committees of the Board. The Executive Committee did not meet in 2013.2014.
To be considered independent, the Board must affirmatively determine that a director has no relationship with Northern Trustthe Corporation which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and has no material relationship with Northern Trust (either directly or as a partner, shareholder or officer of an organization that has a relationship with Northern Trust). Northern Trust’sdirector. The Corporation’s Corporate Governance Guidelines require that the Board be composed of a majority of directors who meet the criteria for “independence” under theNASDAQ listing standards of The NASDAQ Stock Market.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 Corporation, or whose Family Member (as defined below) is or was an executive officer of the Corporation, at any time during the past three years; |
— | a director who receives or has received, or whose Family Member receives or has received, compensation from the Corporation in excess of $120,000 during any period of twelve consecutive months within the past three years, other than director and committee fees, benefits under a tax-qualified retirement plan or other forms of |
— | 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 |
— | 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 |
“Family Member” means a person’s spouse, parents, children and siblings, whether by blood, marriage or adoption, or anyone residing in such person’s home.
As discussed above, the Board of Directors has determined that each current director (other than Mr. Waddell who serves as Chairman and CEO)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 transactions, relationships, or arrangements between the Corporation and a director that constitutes a related person transaction under the Northern Trust Corporation Policy and Procedures with respect toCorporation’s Related Person Transactions (the “Related Party Policy”).
For 2013,Policy described below. In assessing the independence of the Corporation’s directors, the Board considered the following categoriesfact that, during 2014, the Corporation or its subsidiaries provided financial services to each of its directors, or persons related to such directors, in the ordinary course of business. Services provided included trust and typesrelated services, brokerage services, asset servicing, asset management, securities lending, 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 relationships,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 arrangements, someservices were material to the Corporation or affiliated entities involved in the transactions, and none require disclosure pursuant to Item 404(a) of which are covered byRegulation S-K of the Related Party Policy,Securities Exchange Act of 1934 (the “Exchange Act”). Any extensions of credit to directors and inexecutive
officers of the Corporation were permitted under the provisions of Section 13(k) of the Exchange Act. In each case, the Board determined that theythese relationships were immaterial and did not affect the independence of any director:director.
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Related Person TransactionTransactions Policy
The Board, of Directors of the Corporation, through its Audit Committee, adopted thea written Related PartyPerson Transactions Policy to govern the review, approval, orand ratification of transactions between the Corporation or its subsidiaries and any related persons. “Related persons” means the Corporation’s directors, nominees for director, executive officers, greater than five percent beneficial owners, and members of their immediate family.family and any person other than a tenant or employee sharing their household. The Related PartyPerson Transactions Policy also covers transactions in which any Related Personrelated person has an indirect interest.
The Related PartyPerson 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:
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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 shallwill consider all relevant facts and circumstances and shall approve only those related person transactions that are in, or otherwise not inconsistent with, the best interests of the Corporation and its subsidiaries.
In 2013,As noted above, in 2014, 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 substantiallyupon such other terms and conditions as permitted such transactions to qualify for pre-approval under the same terms (including interest rates and collateral for loan transactions)Related Person Transactions Policy. Further, as those prevailing at the time for comparable transactions with other persons not related to the Corporation or the Northern Trust entities involved in the transactions. Nonenoted above, none of the transactions involved more than the normal risk of collectability or presented other unfavorable features. None of the transactions or any transactions in which the Corporation or any of its subsidiaries sold or purchased products and services were material to the Corporation or the Northern Trust entities involved in the transactions, and none require
disclosure pursuant to Item 404(a) of Regulation S-K of the Securities Exchange Act of 1934. Any extensions of credit to directors and executive officers of the Corporation were permitted under the provisions of Section 13(k) of the Securities Exchange Act of 1934.Act.
The independent directors of the Corporation met in executive sessions separate from management six times during 2013.2014. The Lead Director or, in his absence, another independent director designated by the Lead Director presides at executive sessions of the independent directors.
Board Leadership Structure; Lead Director
The current leadership structure of the Board of Directors consists of a combined Chairman and CEO position and a Lead Director appointed annually by the Corporation’s independent directors.
The Board of Directors has determined that combining the positions of Chairman and CEO is the most appropriate for the Corporation at this time. Having one person as Chairman and CEO provides unified leadership and direction to the Corporation and strengthens the ability of the CEO to develop and implement strategic initiatives and respond efficiently in crisis situations. The Board believes the combination of the Chairman and CEO positions is appropriate in light of the substantial independent oversight provided by the Board of Directors.Board. The Board also believes that the desire for independent leadership of the Board is sufficiently balancedachieved by the prominent role of the Lead Director.
The Lead Director’s primary duties are described in the Corporation’s Corporate Governance Guidelines. Among other things, the Lead Director’s duties includeinclude: (i) approving meeting agendas for the Board and the nature of information sent to the Board,Board; (ii) approving Board meeting schedules to assure that there is sufficient time for discussion of all Board agenda items,items; (iii) the authority to call at any time a special meeting of the Board or a special executive session of the independent directors,directors; (iv) the authority to add items to the agenda of any regular or special meeting of the Board,Board; (v) preparing the agenda for all regular and any special executive sessions of the independent directors,directors; (vi) presiding at all regular and special meetings of the Board at which the Chairman is not present,present; (vii) presiding at all regular and any special executive sessions of the independent directors,directors; (viii) serving as a liaison between the independent directors and the Chairman and CEO, CEO;
(ix) conducting, by means of an interview with each independent director, the independent directors’ annual evaluation of the Chairman and CEO’s performance and then communicating the results to the Compensation and Benefits Committee and to the Chairman and CEO,CEO; (x) conducting, by means of an interview with each director, including the Chairman and CEO, the Board’s annual self-evaluation of its performance and then providing a summary report to the Board,Board; and (xi) meeting with regulators periodically separate from management, and (xii) being available for consultation and direct communication with major stockholders. A copy of the Corporate Governance Guidelines is available on the Corporation’s website at www.northerntrust.com.
The Board of Directors provides oversight of risk management directly as well as through its Audit, Business Risk, Business Strategy, and Compensation and Benefits Committees.
The AuditBusiness Risk Committee providesassumes primary responsibility and oversight with respect to risks relating to financial reportingcredit risk, operational risk, fiduciary risk, compliance risk, market risk and liquidity risk, and the legal component of compliance risk. The Business Strategy Committee provides oversight with respect to strategic risk for the Corporation and its subsidiaries.
The Business RiskAudit Committee provides oversight with respect to financial reporting and legal risk, while the following risks inherent in Northern Trust’s businesses: credit risk, marketCompensation and liquidity risk, fiduciary risk, operational risk,Benefits Committee oversees the development and the regulatory component of compliance risk. The Board of Directors has approved a corporate risk appetite statement articulating the Corporation’s expectation that risk is consciously considered as part of strategic decisions and in day-to-day activities. The Corporation’s business units are expected to manage business activities consistent with the corporate risk appetite statement. For a further descriptionoperation of the risk management policies and practicesincentive compensation program of the Corporation’s management, see the section entitled “Management’s DiscussionCorporation and Analysis of Financial Condition and Results of Operations—Risk Management” in the Corporation’s 2013 Annual Report to Stockholders.
its subsidiaries. The Compensation and Benefits Committee at least annually conducts a review, with input of risk management personnel, ofreviews management’s assessment of the effectiveness of the Corporation’sdesign and performance of the incentive compensation arrangements and practices to assessin providing risk-taking incentives that are consistent with the extent to which suchsafety and soundness of the Corporation and its subsidiaries. This assessment includes an evaluation of whether these incentive compensation arrangements and practices discourage inappropriate risk-takingrisk taking behavior by participants and are consistent with the Corporation’s safety and soundness.
participants. 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 Committeecommittee deems appropriate.
The Board has approved a corporate risk appetite statement articulating the Corporation’s expectation that risk be consciously considered as part of strategic decisions and in day-to-day activities. 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 and —Liquidity and Capital Resources—Liquidity Risk Management” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014.
Corporate Governance Guidelines
The Corporation has had Corporate Governance Guidelines in place since 2000. The Corporate Governance Committee reviews and reassesses the adequacy of the Corporate Governance Guidelines at least annually and recommends any changes to the Board of Directors for approval. Northern Trust’sThe Corporation’s Corporate Governance Guidelines embody many of the Corporation’s long-standing practices and incorporate new policies and procedures that strengthen its commitment to corporate governance best practices. A copy of the Corporate Governance Guidelines is available on the Corporation’s website at www.northerntrust.com.
Code of Business Conduct and Ethics
The Board of Directors of the Corporation has adopted a Code of Business Conduct and Ethics to:
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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 controller),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 Compensation and Benefits Committee oversees executive management and succession planning. Pursuant to the Corporate Governance Guidelines and the charter for the Compensation and Benefits Committee, the Compensation and Benefits Committee conducts an annual management development and succession planning review. All of the Corporation’s directors are invited to, and typically all participate in, this review. Following the review, the Compensation and Benefits Committee makes recommendations concerning management development and succession planning. This management review process also includes a review of other senior employees of the Corporation, with a focus on developing internal candidates for advancement within the Corporation.
In connection with setting the compensation of the Corporation’s Chairman and CEO, the Compensation and Benefits Committee and the Board of Directors review the performance of the Chairman and CEO in light of the Chairman and CEO’s responsibilities to the Corporation, including the development of short-term and long-term strategic plans, goals and objectives, the development of an effective senior management team, positioning of the Corporation for current and future success and effective communications with all of the Corporation’s constituencies. These criteria, among others, would also be considered by the Board of Directors in evaluating any successor Chairman and CEO candidates.
In the event of the unexpected death, incapacity, or resignation of the Chairman and CEO, pursuant to its charter, the Corporate Governance Committee will discuss and make a recommendation to the Board, of Directors, after consultation with the Chairman of the Compensation and Benefits Committee, for an appropriate successor. The Board of Directors also has adopted a Business Continuity Plan that, among other things, delineates a process for appointing an interim Chairman and CEO in the event the Chairman and CEO becomes incapacitated.
Director Nominations and Qualifications
The Corporate Governance Committee is responsible for considering, evaluating, and recommending candidates for director. The Committee will consider persons nominated by stockholders in accordance with the nomination procedures specified in the Corporation’s By-laws or otherwise recommended by stockholders. The Corporation’s By-laws provide that stockholders may propose director nominations only if they give timely written notice, directed to the attention of the Corporation’s Corporate Secretary, at the address indicated on the cover page of this Proxy Statement, not less than 120 days nor more than 150 days prior to the anniversary date of the prior year’s Annual Meeting.Meeting of Stockholders. If such Annual Meeting of Stockholders is called for a date that is not within 30thirty 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 business days after notice of such subsequent Annual Meeting.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” on page 22.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:as relevant business and industry experience, professional background, age, current employment, community service and other Boardboard 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 whowho: (i) have experience in positions with a high degree of responsibility and are leaders in the organizations with which they are affiliated,affiliated; (ii) are free from conflicts of interest that could interfere with a director’s duties to the Corporation and its stockholders,stockholders; and (iii) are willing and able to make the necessary commitment of time and attention required for effective Board service. The Committee also takes into account a candidate’s level of financial literacy, and monitors the mix of skills and experience of the directors in order to assess whether the Board has the necessary tools to perform its oversight function effectively. A full listing of the characteristics and qualifications of director candidates considered by the Committee is set forth in the Corporate Governance Guidelines on the Corporation’s website at www.northerntrust.com. Following its evaluation process, the Committee recommends its director nominees to the full Board, of Directors, and the Board makes the final determination of director nominees based on its consideration of the Committee’s recommendation and report.
The Corporation recognizes the importance of stockholder engagement to help our investors understand our performance and strategies and to allow our stockholders to express their views on issues important to the Corporation. Accordingly, it is the Corporation’s practice to proactively and routinely engage with stockholders throughout the year. Consistent with our proactive engagement with stockholders, during 2013, we reached out to certain institutional stockholders to invite their feedback on governance issues, executive compensation, and other matters.
Communications with the Board and Independent Directors
Stockholders and other interested persons may communicate with any of the Corporation’s directors, including the Lead Director or the non-managementnonmanagement directors as a group, by writing a letter
addressed to the applicable director(s), c/o Northern Trust Corporation, 50 South La Salle Street, M-9, Chicago, Illinois 60603, Attention: Corporate Secretary. Northern Trust’sThe 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 Trading Policy and Policy Against Hedging
Our securities trading policy prohibits directors, employees, including our named executive officers, and certain of their family members from purchasing or selling any type of security, whether issued by us or another company, while such person ispersons are aware of material non-publicnonpublic information relating to the issuer of the security orand from providing such material non-publicnonpublic information to any person who may trade while aware of such information. This policy also prohibits directors, employees, and certain of their family members from engaging in short selling, margining and the pledging or hypothecation of Northern Trusthypothecating the Corporation’s securities, and from trading in options, warrants, puts, and calls or similar instruments on Northern Trust securities, except for pledging or hypothecation in connection with the cashless exercise of Northern Trust stock options.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, 20132014 for each director, each named executive officer and all directors and named executive officers of the Corporation as a group.
Name of Beneficial Owner | Shares (1) | Shares under Exercisable Options (2) | Shares (1) (2) | Shares under Options (3) | Total Beneficial of Common Stock | Percent of Class | ||||||||||||||
Non-Employee Directors: | ||||||||||||||||||||
Linda Walker Bynoe | 18,093 | — | 14,178 | — | 14,178 | * | ||||||||||||||
Nicholas D. Chabraja | 14,469 | — | 16,342 | — | 16,342 | * | ||||||||||||||
Susan Crown | 44,671 | — | 33,515 | — | 33,515 | * | ||||||||||||||
Dean M. Harrison (4) | 15 | — | 15 | * | ||||||||||||||||
Dipak C. Jain | 30,874 | — | 15,314 | — | 15,314 | * | ||||||||||||||
Robert W. Lane | 14,178 | — | 15,799 | — | 15,799 | * | ||||||||||||||
Edward J. Mooney | 17,321 | — | ||||||||||||||||||
Jose L. Prado | 3,700 | — | 3,819 | — | 3,819 | * | ||||||||||||||
John W. Rowe | 47,187 | — | 26,915 | — | 26,915 | * | ||||||||||||||
Martin P. Slark | 4,769 | — | 6,642 | — | 6,642 | * | ||||||||||||||
David H.B. Smith, Jr. (3) | 25,277 | — | ||||||||||||||||||
David H. B. Smith, Jr. (5) | 27,845 | — | 27,845 | * | ||||||||||||||||
Donald Thompson (6) | — | — | — | * | ||||||||||||||||
Charles A. Tribbett III | 26,844 | — | 14,515 | — | 14,515 | * | ||||||||||||||
Named Executive Officers: | ||||||||||||||||||||
Frederick H. Waddell | 288,677 | 1,094,771 | 349,127 | 1,084,248 | 1,433,375 | * | ||||||||||||||
Michael G. O’Grady | — | 79,523 | ||||||||||||||||||
S. Biff Bowman | 25,822 | 75,254 | 101,076 | * | ||||||||||||||||
Steven L. Fradkin | 95,520 | 344,860 | 121,372 | 359,191 | 480,563 | * | ||||||||||||||
William L. Morrison | 84,818 | 475,243 | 109,847 | 396,706 | 506,553 | * | ||||||||||||||
Michael G. O’Grady | 8,919 | 129,006 | 137,925 | * | ||||||||||||||||
Jana R. Schreuder | 43,776 | 353,558 | 60,757 | 336,700 | 397,457 | * | ||||||||||||||
All directors and executive officers as a group (22 persons) | 941,303 | 3,400,433 | ||||||||||||||||||
All directors and executive officers as a group (26 persons) | 1,041,017 | 3,159,462 | 4,200,479 | 1.77 | % |
* Less than 1%.
(1) Except as noted below, the nature of beneficial ownership for shares shown in this table is sole voting and/orand investment power (including shares as to which spouses and minor children of the individuals covered by this table have such power). As of December 31, 2013, the number of
(2) Amount includes restricted stock units payable on a one-for-one basis in shares of the Corporation’s common stock beneficially owned bythat are scheduled to vest within sixty days of December 31, 2014 in the following amounts: Mr. Waddell – 37,994 units; Mr. Bowman – 5,719 units; Mr. Fradkin – 11,873 units; Mr. Morrison – 11,873 units; Ms. Schreuder – 11,873 units; and all directors and executive officers as a group was 1.83%.– 124,413 units.
(2)(3) Amount of shares includes options that arewere exercisable as of December 31, 20132014 and options that become exercisable within 60sixty days thereafter.
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(4) Mr. Harrison was appointed as a director of the Corporation effective January 1, 2015.
(5) Mr. Smith is co-trustee with another individual on two separate trusts. He shares voting and investment power for 500 shares held in one trust and 1,704 in another trust.trust, all of which such shares are reflected in the table. He is also a beneficiary of a trust that holds 1,362,880 shares. Asshares; as Mr. Smith has no investment or voting power with respect to these shares, they are not reflected in the table.
(6) Mr. Thompson was appointed as a director of the Corporation effective March 6, 2015.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Corporation’s directors, executive officers and beneficial owners of more than 10% of the Corporation’s stock to file with the SEC initial reports of ownership and reports of changes in ownership of any 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 Securities Exchange Act of 1934, as amended, were made on a timely basis during or with respect to 2013,2014, except for a Form 3 filed on August 22, 2014 reporting initial ownership information for Edward J. Mooney upon his appointment as an advisory director of the Corporation which should have been filed by July 25, 2014, and a Form 4 filed for the Corporation’s former Controller, Richard D. Kukla,Mr. Mooney on February 4, 2013August 22, 2014 to report a transaction that should have been reported by February 1, 2013.July 17, 2014.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table includes information concerning stockholders who were the beneficial owners of more than 5% of the outstanding shares of the Corporation’s common stock as of December 31, 2013. The beneficial ownership information for the Bank relates to shares held by trusts and other fiduciary accounts for which the Bank and its affiliates individually acted as sole or co-fiduciary.2014.
Name and Address | Shares | Percent of Class | Shares | Percent of Class | ||||||||||||
The Northern Trust Company (1) | 22,320,133 | 9.4 | % | 21,607,614 | 9.3 | % | ||||||||||
T. Rowe Price Associates, Inc. (2) | 16,828,249 | 7.1 | % | 15,322,381 | 6.5 | % | ||||||||||
BlackRock, Inc. (3) | 12,424,815 | 5.3 | % |
(1) As of December 31, 2013,2014, the Bank and its affiliates individually acted as sole or co-fiduciary with respect to trusts and other fiduciary accounts which owned, held or controlled through intermediaries the securities.shares. This aggregate number of shares includes 1,362,880 shares held by the trust described in footnote 35 to the “Security Ownership by Directors and Executive Officers” table in this Proxy Statement, or less than 0.6% of the outstanding common stock. Of these shares, the Bank and its affiliates had sole voting power with respect to 8,552,2488,427,770 shares, or 3.6% of the outstanding common stock, and they shared voting power with respect to 11,965,87211,648,715 shares, or 5.0% of the outstanding
common stock. They had sole investment power with respect to 2,143,7812,153,402 shares, or 0.9% of the outstanding common stock, and they shared investment power with respect to 13,072,50412,433,100 shares, or 5.5%5.3% of the outstanding common stock.
(2) These securitiesAs reported on a Schedule 13G/A filed on February 13, 2015. T. Rowe Price Associates, Inc. (“Price Associates”) has indicated that these shares are owned by various individual and institutional investors, for which T. Rowe Price Associates Inc. (Price Associates) serves as an investment adviser with power to direct investments and, in certain cases, sole power to vote the securities. For the purposes of the reporting requirements of the Securities Exchange Act, of 1934, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. Of these shares, Price Associates had sole voting power with respect to 5,084,4164,575,082 shares, or 2.1%2.0% of the outstanding common stock, and theyit did not have shared voting power with respect to any such shares. Price Associates had sole investment power with respect to all such shares.
(3) As reported on a Schedule 13G filed on February 6, 2015. Of the shares reported, BlackRock, Inc. (“BlackRock”) had sole voting power with respect to 10,566,300 shares, or 4.5% 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.
ITEM 2—ADVISORY VOTE ON EXECUTIVE COMPENSATION
Pursuant to Section 14A of the Dodd-Frank Wall Street ReformExchange Act, and Consumer Protection Act,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 of Directors is requesting that stockholders vote FOR approval of the following resolution:
“Resolved, that the compensation paid to the Corporation’s named executive officers, as disclosed in its Proxy Statement dated March 10, 2015, pursuant to Item 402 of Regulation S-K of the Securities Exchange Act, of 1934, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby APPROVED.”
As an advisory vote, this proposal is not binding on the Corporation. Although the vote is non-binding,nonbinding, the Board of Directors and the Compensation and Benefits Committee value the opinions of our stockholders and, consistent with past practice, will consider the outcome of the vote when determining compensation policies and making future compensation decisions for our named executive officers.
As outlined in the Compensation Discussion and Analysis that begins on page 2625 of this Proxy Statement, the Corporation’s executive compensation program is designed to attract, motivate and retain individuals who will contribute to the Corporation’s success and the creation of stockholder value. The Compensation and Benefits Committee believes that executive officers are most effectively motivated when their incentive compensation is tied to the Corporation’s overall performance as well as their individual performance. That is why a significant portion of each executive officer’s short-term and long-term incentive compensation is variable and depends on such performance. Long-term incentive compensation delivered through annual equity awards is the most significant element of the Corporation’s executive compensation program. The Compensation and Benefits Committee believes that this emphasis on equity-based compensation aligns the interests of executive officers with our stockholders, discourages inappropriate risk-taking, and encourages executive officers to appropriately consider and control risk factors, which furthers the Corporation’s risk-mitigation strategy. In addition, the Corporation has adopted policies, like stock ownership guidelines, and incorporated provisions into compensation plans, like forfeiture and clawback provisions, to ensure long-term focus and discourage inappropriate risk-taking by executive officers.
The Corporation’s conservatively managed executive compensation philosophy, coupled with its sound balance sheet and prudent business model, have contributed to the Corporation’s strong strategic and financial positioning, despite an increasingly regulated and a persistent low interest rate environment. In 2013,2014, the Corporation reported 2013revenue of $4.3 billion, net income of $731.3$811.8 million and diluted earnings per share of $2.99, and a pre-tax profit margin of 27.0%.$3.32. The Corporation’s 20132014 return on equity increased to 9.5%10.0% from 9.3%9.5% in the prior year. For the period endingyear ended December 31, 2013,2014, the Corporation’s average threethree- and five yearfive-year returns on equity were 9.2%9.6% and 10.1%9.5%, respectively, compared toin line with the peer grouppeer-group medians of 9.5%9.7% for each of such periods. Further, the Corporation’s average revenue growth of 5.9%, 4.7% and 4.7%2.7% over the one-, respectively.three- and five-year periods ended December 31, 2014, respectively, significantly outpaced peer-group median growth of 0.7%, 1.4% and (1.0)% over such periods.
The Board of Directors unanimously recommends that you voteFOR this proposal.
Compensation Discussion and Analysis
In 2013,2014, the performance and achievements of our named executive officers helped Northern Trustthe Corporation deliver sound financial results in a challenging global economic environment and accelerate the strategic initiatives of the organization.organization in a continued challenging global economic environment. New business and our measured approach to managing the business contributed to the Corporation’s continued strong financial position.performance.
Appropriately linking the compensation of our named executive officers to the performance of our business is important to the continued growth and success of Northern Trust.the Corporation. Accordingly, performance is the most significant driver of compensation decisions. The following charts summarize our performance in 20132014 and highlight important considerations in the development, review and approval of our 20132014 named executive officers’ compensation.
— Net income was $811.8 million in 2014, an improvement of 11% from $731.3 million in 2013 — Revenue grew 6% to $4.3 billion in 2014 from — Trust, investment and other servicing fees, which represent the single largest source of — Earnings per diluted common share totaled $3.32 in 2014, compared to $2.99 in 2013 — Our
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Capital Planning | — — — We grew our capital base by 7% due to the issuance of 16,000 shares of preferred stock for net proceeds of $388.5 million and continued growth in retained earnings — The Board of Governors of the Federal Reserve System (the “Federal Reserve”) did not object to | |
Risk Management | — Our risk profile remained strong, with no material changes in — The quality of our balance sheet | |
Strategic Developments | — Assets under — Our growth in clients continues to be diversified across our businesses, services and geographies — We |
2014 Performance (con’t) | ||
Leadership Changes | — At the Chairman and CEO’s direction, the Corporation made a number of leadership changes across the organization in 2014 — These changes impacted each of the named executive officers, except for Mr. Waddell, and were designed to position the organization for faster growth and expand the experience of its leaders |
Guiding Principles for Executive Compensation | ||
Compensation Philosophy | — Attract, motivate and retain the best talent — Link compensation to long-term performance — Align programs with stockholder interests — Position pay competitively in the marketplace — Discourage inappropriate risk-taking
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Total Pay Guidelines | — 80% to 90% of total pay opportunity focused on — Majority of total pay opportunity linked to long-term incentives — Multi-year vesting schedules for equity grants link total pay to long-term performance — Stock ownership guidelines equal or exceed requirements at most peer banks | |
Forfeiture (“Clawback”) Provisions | — All equity granted to named executive officers is subject to forfeiture, or “clawback” provisions, that may be triggered upon the occurrence of certain events,
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Factors Guiding Compensation Decisions | — Financial performance, as measured by pre-tax income, revenue growth, expense management, assets under custody and management and return on equity — — — Chairman and CEO recommendations for other named — Advice of the Compensation and Benefit Committee’s independent compensation consultant — Peer bank pay practices,
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2014 Compensation Decisions | — Base salaries — Annual — Long-term incentive compensation awarded as follows: — 50% as performance stock units — 25% as stock options — 25% as restricted stock units
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2013 Compensation Decisions for Named Executive Officers
In determining total compensation for the named executive officers, including Mr. Waddell, the Committee considered a variety of performance factors. The Committee considered the Corporation’s 2013 financial performance as well as each officer’s success in achieving his or her individual qualitative performance objectives. The Committee also considered the total compensation paid to similarly-situated executives by the Corporation’s peers. Although the same methodology is used to determine the compensation paid to the Chairman and Chief Executive Officer as for any other executive officer, Mr. Waddell’s compensation is measurably higher than the compensation paid to the other named executive officers due to his significantly greater responsibilities and obligations to the Corporation.
Chairman and ChiefGuiding Principles for Executive Officer
For his service as Northern Trust’s Chairman and Chief Executive Officer in 2013, Mr. Waddell received total compensation of $9,168,000, compared to $11,083,195 for 2012. Mr. Waddell’s compensation for 2013 reflects each of the elements of the Corporation’s 2013 performance presented on page 26 of this Proxy Statement as his leadership was instrumental to these achievements. Mr. Waddell’s compensation also reflects his role in developing the senior leaders of the Corporation and maintaining a strong group of leaders in our succession plan. Consistent with the Corporation’s philosophy of aligning pay with performance, the Committee determined that Mr. Waddell’s total 2013 compensation should compare favorably with the median compensation among the Corporation’s peer companies, relative to size, financial results, and stockholder returns.
Base Salary
The Committee determined that Mr. Waddell’s salary should remain unchanged for 2013, although it remained modestly lower than the 2012 salary of the Corporation’s peer group, adjusted for size, financial results, and stockholder returns.
Short-Term Annual Cash Incentive
Under the provisions of the Management Performance Plan, the Corporation’s reported earnings of $731.3 million in 2013 provided for a maximum funding opportunity for Mr. Waddell of $4,387,992. Taking into consideration available competitive market data, the Corporation’s 2013 performance, and Mr. Waddell’s success in achieving his individual qualitative performance objectives, the Committee set Mr. Waddell’s actual cash incentive award at $1,900,000 for 2013, as compared to $2,000,000 for 2012. The year over year decrease in the Chairman and CEO’s annual cash incentive award was consistent with the Corporation’s 2013 financial performance. Our earnings for 2013 increased 6.4% relative to 2012 and growth in new business was strong. The Corporation’s return on equity improved to 9.5% from 9.3% but was below our externally communicated target range. For 2013, Mr. Waddell’s individual qualitative performance objectives related to leadership, compliance, client service, corporate social responsibility, employee relations, communication, ethics, diversity, and the development of senior officers.
Long-Term Incentive
In determining the total long-term incentive award for Mr. Waddell, the Committee took into account the Corporation’s 2013 performance, as well as the median and total compensation paid by the Corporation’s peers, adjusted for size, financial results, and stockholder returns. Based on these factors, the Committee set the Chairman and CEO’s long-term incentive compensation award for 2013 performance at $6,650,000, equal to his long-term incentive award of $6,650,000 made in 2013 for 2012 performance.
Pension Benefits
In 2013, Mr. Waddell’s pension value decreased by $444,845, compared to an increase in 2012 of $3,839,003, primarily due to the increase in the discount rate used to calculate the pension from 4.25% to 5.00% at December 31, 2013. See “Pension Benefits” beginning on page 55 of this Proxy Statement for additional information on how benefits accrue under the Pension Plan.
Total Chairman and CEO Compensation
The chart below provides an overview of the Committee’s decisions with respect to the salary and incentive compensation awarded to the Chairman and CEO for his 2013 and 2012 performance. As illustrated in the chart, the Chairman and CEO’s salary and incentive compensation decreased by 1% from 2012 to 2013.
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Salary | Incentive Compensation (1) | |||||||||||||||||||||
Cash | Performance Stock Units | Stock Options (2) | Restricted Stock Units | |||||||||||||||||||
2013 | $ | 975,000 | $ | 1,900,000 | $ | 3,325,000 | $ | 1,662,500 | $ | 1,662,500 | $9,525,000 | |||||||||||
2012 | $ | 975,000 | $ | 2,000,000 | $ | 3,325,000 | $ | 1,662,500 | $ | 1,662,500 | $9,625,000 |
(1) The performance stock units, stock options, and restricted stock units included for 2013 were granted to Mr. Waddell in 2014 for his 2013 performance and accordingly are not included in the “Summary Compensation Table” in this Proxy Statement.
(2) Northern Trust’s policies and internal valuation methodology treat stock options as having a value equal to one-third of the grant price. This valuation methodology is reflected in the chart above. A different valuation methodology is required to be used in the “Summary Compensation Table” in this Proxy Statement.
The mix of total compensation for our Chairman and CEO, as illustrated in the chart below, demonstrates our emphasis on variable compensation and belief that long-term incentives should be the most significant element of overall compensation.
Michael G. O’Grady
For his service as Northern Trust’s Chief Financial Officer in 2013, Mr. O’Grady received total compensation of $3,290,587, compared to $2,618,607 for 2012. As Northern Trust’s Chief Financial Officer, Mr. O’Grady is primarily responsible for financial reporting and control, management reporting and analysis, liquidity management, capital planning, and investor relations. To determine Mr. O’Grady’s 2013 compensation, the Committee considered how well Mr. O’Grady fulfilled his responsibilities in 2013. Mr. O’Grady’s compensation also reflects the following performance factors:
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In addition, the Committee considered Mr. O’Grady’s success in achieving his individual qualitative performance objectives related to leadership, compliance and risk management, employee relations, communication, ethics, diversity, and development of talent.
Based on the competitive salary market data among the Corporation’s peer group companies, the Committee chose to increase the annual base salary for Mr. O’Grady by $25,000 to $600,000 for 2013.
Based on the limits set forth in the Management Performance Plan for Mr. O’Grady, as well as the Corporation’s performance and achievement of Mr. O’Grady’s individual objectives, the Committee determined a 2013 annual cash incentive of $750,000 for Mr. O’Grady.
In determining the total long-term incentive grant made to Mr. O’Grady in 2014 for 2013 performance, the Committee took into account the Corporation’s performance, as well as the total compensation levels among the Corporation’s peers, adjusted for size, financial results, and stockholder returns. Based on these factors, the Committee set a long-term award of $2,000,000 for Mr. O’Grady.
Steven L. Fradkin
For his service as President of the Corporate & Institutional Services business unit (“C&IS”) in 2013, Mr. Fradkin received total compensation of $3,287,560, compared to $3,750,678 for 2012. To determine Mr. Fradkin’s 2013 compensation, the Committee considered a variety of performance factors including:
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The Committee also considered Mr. Fradkin’s success in achieving his individual qualitative performance objectives related to leadership, compliance and risk management, client service, employee relations, communication, ethics, diversity, and development of talent.
Based on competitive salary market data among the Corporation’s peer group companies, the Committee chose to leave the base salary for Mr. Fradkin unchanged for 2013.
Based on the limits set forth in the Management Performance Plan for Mr. Fradkin, as well as the Corporation’s performance and achievement of Mr. Fradkin’s individual objectives, the Committee determined a 2013 annual cash incentive of $800,000 for Mr. Fradkin.
In determining the total long-term incentive grant made to Mr. Fradkin in 2014 for 2013 performance, the Committee took into account C&IS performance, as well as the total compensation levels among the Corporation’s peers, adjusted for size, financial results, and stockholder returns. Based on these factors, the Committee set a long-term award of $2,000,000 for Mr. Fradkin.
William L. Morrison
For his service as Northern Trust’s President and Chief Operating Officer in 2013, Mr. Morrison received total compensation of $4,931,512, compared to $4,676,225 for 2012. As Northern Trust’s President and Chief Operating Officer, Mr. Morrison is primarily responsible for the Corporation’s business operations. To determine Mr. Morrison’s 2013 compensation, the Committee considered how well Mr. Morrison fulfilled his responsibilities in 2013. Mr. Morrison’s compensation also reflects the following performance factors:
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In addition, the Committee considered Mr. Morrison’s success in achieving his individual qualitative performance objectives related to leadership, compliance and risk management, client service, employee relations, communication, ethics, diversity, and development of senior officers.
Based on competitive salary market data among the Corporation’s peer group companies, the Committee chose to increase the annual base salary of Mr. Morrison by $100,000 to $800,000.
Based on the limits set forth in the Management Performance Plan for Mr. Morrison, as well as the Corporation’s performance and achievement of Mr. Morrison’s individual objectives, the Committee determined a 2013 annual cash incentive of $1,000,000 for Mr. Morrison.
In determining the total long-term incentive award made to Mr. Morrison in 2014 in respect of 2013 performance, the Committee took into account the Corporation’s performance, as well as the total compensation levels among the Corporation’s peers, adjusted for size, financial results, and stockholder returns. Based on these factors, the Committee set a long-term award of $3,250,000 for Mr. Morrison.
Jana R. Schreuder
For her service as President of the Wealth Management business unit in 2013, Ms. Schreuder received total compensation of $3,282,196, compared to $4,205,792 for 2012. To determine Ms. Schreuder’s 2013 compensation, the Committee considered a variety of performance factors including:
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The Committee also considered Ms. Schreuder’s success in achieving her individual qualitative performance objectives related to leadership, compliance and risk management, client service, employee relations, communication, ethics, diversity, and development of senior officers.
Based on competitive salary market data among the Corporation’s peer group companies, the Committee chose to leave the base salary for Ms. Schreuder unchanged for 2013.
Based on the limits set forth in the Management Performance Plan for Ms. Schreuder, as well as Wealth Management performance and achievement of Ms. Schreuder’s individual objectives, the Committee determined a 2013 annual cash incentive of $785,000 for Ms. Schreuder.
In determining the total long-term incentive grant made to Ms. Schreuder in 2014 in respect of 2013 performance, the Committee took into account the Corporation’s performance, as well as the compensation levels among the Corporation’s peers, adjusted for size, financial results, and stockholder returns. Based on these factors, the Committee set a long-term award of $2,000,000 for Ms. Schreuder.
Guiding Principles for Executive Compensation
Northern Trust’s compensation philosophy is to attract, motivate and retain talent, including executive-level talent who will contribute to our long-term success. With the goals of solid long-term financial performance and creating long-term stockholder value, Northern Trust’sthe Corporation’s executive compensation program and compensation decisions are framed by the four core values described below.
Linked to Long-Term Performance
Northern Trust’sThe Corporation’s executive compensation program strongly focuses on incentive compensation, which is intended to help drive long-term financial performance. Currently, 80% to 90% of each named executive officer’s total pay opportunity consists of variableperformance-based compensation. Short-term cash and long-term incentive awards reflect the Corporation’s performance as well as each named executive officer’s individual performance. The Compensation and Benefits Committee determines and approves annual cash incentives for Northern Trust’sthe Corporation’s named executive officers under the provisions of the stockholder-approved Management Performance Plan.
The net income generated by the Corporation in the applicable fiscal year determines the maximum funding for annual cash incentives. Accordingly, no annual cash incentive can be paid in the absence of positive net income. Northern Trust’sThe Corporation’s average annual rate of return on equity during the respective three yearthree-year performance period (as compared to pre-established targets) determines the payout under 50% of the Corporation’s annual long-term incentive awards, which are granted in the form of performance stock units. Payout of this component therefore generally requires the executive to remain with the company during the applicable performance period, as well as attainment of return on equity goals over multi-year periods. The overall performance of Northern Trust’sthe Corporation’s common stock delivers the remainder of the value of annual long-term incentive awards; this portion of the award is granted in the form of stock options (25%), which have no economic value absent share price appreciation, and through restricted stock units (25%). In connection with the 2014 performance stock unit grants, theThe Corporation’s current performance schedule was modified to provideprovides that officers will only receive 100% of their performance stock unit awards if the Corporation achieves aan average annual return on equity of 10%. The Committee made this change to better align10.25% over the three-year performance period, which aligns the payout of these awards to the target return on equity range externally communicated.range.
Aligned with Stockholder Interests
Northern Trust’sThe Corporation’s executive compensation program is designed to align the interests of the named executive officers with those of its stockholders by tying a significant portion of an executive’s total compensation to the longer-term performance of the Corporation’s common stock. Long-term incentive compensation is the most significant component of overall compensation, as it provides the majority of named executive officers’ compensation. The emphasis on long-term multi-year vesting schedules applied to these incentives contributes to continuity and stability within the Corporation’s executive leadership and encourages executives to act as owners with a tangible stake in Northern Trust.
Supporting the alignment with stockholders’ interests, Northern Trustthe Corporation has a long-standing practice of emphasizing stock ownership and maintaining robust stock ownership guidelines for named executive officers at or above industry practice. As of February 28, 2014, the Chairman and CEO and each other named executive officer met or exceeded Northern Trust’s stock ownership guidelines.
Stock Ownership Guidelines
In order to further align the interests of executive officers with those of our stockholders, Northern Trust maintains the following stock ownership guidelines for executive officers:
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Each executive officer is expected to meet his or her respective minimum ownership level within five years of becoming an executive officer. Until such time as any executive officer meets the minimum ownership level requirement, he or she is expected to retain 100% of the net, after-tax shares received from share distributions or stock option exercises. As of December 31, 2014, the Chairman and CEO and each other named executive officer met or exceeded the Corporation’s stock ownership guidelines.
Stock Ownership Guidelines
Expected Stock Ownership as a Multiple of Base Salary | ||
Chairman and CEO | 10x | |
President | 7x | |
Chief Operating Officer | 7x | |
Chief Financial Officer and Business Presidents | 5x | |
All Other Executive Officers | 3x |
Positioned Competitively in the Marketplace
We believe a competitive executive compensation program is key to attracting, motivating and retaining the best executive talent. Therefore, the Compensation and Benefits Committee evaluates the competitiveness of Northern Trust’sthe Corporation’s named executive officer compensation program against a peer group that reflects key trust and custody banks (The Bank of New York Mellon Corporation and State Street Corporation) as well as certain other U.S. banking organizations of varying size. The Bank of New York Mellon Corporation and State Street Corporation are included in the peer group because they are the trust and custody banks that Northern Trust directly competes against for global talent in virtually all lines of business. The peer group specifically excludes certain direct competitors whose size or scope are significantly larger and might distort the appropriate pay comparisons. The combination of the character and relative size of the Corporation’s businesses makes it challenging to identify any definitive, single group of companies as peers for compensation purposes. Northern Trust’sThe Corporation’s peer group was established based in part on data and analysis provided by management’s executive compensation consultant, Towers Watson, an outside compensation consultant.Watson.
The banks identified below comprise Northern Trust’sthe Corporation’s peer group.group:
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The Bank of New York Mellon Corporation |
— | Comerica Incorporated |
— | Fifth Third Bancorp |
— | KeyCorp |
— | State Street Corporation |
— | SunTrust Banks, Inc. |
— | The PNC Financial Services Group, Inc. |
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U.S. Bancorp |
— | Wells Fargo & Company |
The Compensation and Benefits Committee believes that this group of peer companies fairly represents a wide range of our competitors and certain other U.S. banking organizations and is an appropriate group of companies against which Northern Trustthe Corporation can gauge the competitiveness of the Corporation’s executive compensation program for the named executive officers.
The Committee regularly reviews the composition of Northern Trust’sthe Corporation’s peer group using data and analysis provided by Towers Watson. The Committee makes updates based on changes within the peer group companies, industry consolidation and the Corporation’s own evolving global presence. No modifications have been made to the peer group since 2011.
Discourage Inappropriate Risk-Taking
The Corporation continues to assesshas considered its incentive compensation program in considerationlight of the guidance provided by the Federal Reserve’s guidance onReserve with respect to sound incentive compensation policies at banking organizations. Northern TrustThe Corporation believes its compensation arrangements discourage inappropriate risk-taking behavior, in part because the Corporation is not involved with many of the lines of business that have exposed other financial institutions to excessive risk, such as significant proprietary derivatives trading or origination or securitization of sub-primesubprime mortgage loans.
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because the value of the award (a full value award with respect to a smaller number of shares) is less susceptible to short-term fluctuations in share value than other typesstock options. To further reinforce the important role of awards (such as stock options, which generally pertain to a larger number of shares). Long-termeffective risk management in our compensation framework, long-term incentive compensation is the most
significant element of compensation for senior management. All grants of long-term equity vest over a multi-year period and have an inherent risk adjustment factor based on changes in Northern Trust’s share value.the value of the Corporation’s common stock. Consistent with the Corporation’s risk-mitigation strategies for its compensation programs, since 2012 all long-term incentive compensation arrangements for named executive officers have incorporated clawback provisions that deter certain types of conduct, including conduct that could affect the accuracy of the Corporation’s financial statements. In 2013, expanded risk-based forfeiture and clawback provisions were included in restricted stock unit awards.
In order to address the Federal Reserve’s view that stock options can induce more risk taking than other types of equity based compensation, in 2012 Northern Trust reduced the proportion of its long-term incentive awards composed of stock options
The Compensation and replaced a portion of those awards with performance stock units and long-term cash, which are viewed as less likely to incent inappropriate levels of risk taking. In 2013, Northern Trust further reduced the proportion of its long-term incentive awards composed of stock options to one-quarter of the total value of each named executive officer’s long-term incentive compensation, down from one-third in 2012.
Utilizing input from risk management personnel, theBenefits Committee annually assessesreviews management’s assessment of the effectiveness of Northern Trust’sthe design and performance of the Corporation’s incentive compensation arrangements and practices in providing risk-taking incentives that are consistent with the organization’s safety and soundness. This assessment includes an evaluation of whether the extent to which suchCorporation’s incentive compensation arrangements and practices appropriately balance risk and reward.discourage inappropriate risk-taking behavior by participants. We will continue to monitor and, if necessary, revise our incentive compensation program soto ensure that it continues to appropriately balance the objectives of stockholders, the needs of the business and risk concerns.
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 Northern Trust’sthe Corporation’s executive compensation program holistically rather than each compensation element individually. The Committeeindividually, and makes executive compensation decisions after careful review and analysis of financial and non-financialnonfinancial performance information, as well as historical and market compensation data. The Committee also considers the impact that compensation decisions may have on the potential value of other pay and benefit programs.
The Committee has the discretion to reward extraordinarydetermine compensation in the context of individual performance in non-financialnonfinancial areas that are important to long-range growth and the enhancement of stockholder value. This flexibility allows the Committee to modify individual incentive payouts and long-term incentive opportunities to best reflect:
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The Committee also evaluates the performance of the 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 Northern Trust’sthe Corporation’s other executive officers.officers based in part upon data provided by management’s executive compensation consultant. The Chairman and CEO’s evaluations of the other named 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 the Corporation’s Chief Risk Officer, the Chairman and CEO also evaluates each of the other executive officer’s performance with regard to business unit 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 set compensation for all executive officers.
Role of Human Resources
The Corporation’s Human Resources Departmentfunction provides materials to assist the Compensation and Benefits Committee in making executive compensation decisions, including current and historical compensation data for the named executive officers. The Corporation’s Executive Vice President, Human Resources attends and participates in all Committee meetings.
The Human Resources Departmentfunction also assists the Chairman and CEO in formulating his compensation recommendations for all other executive officers. The Human Resources Departmentfunction provides historichistorical and current market data for executive pay in the industry, information concerning the historical and current compensation of named executive officers and the comparison of stock ownership measured against the Corporation’s stock ownership guidelines.
Role of the Compensation and Benefits Committee’s Independent Compensation Consultant
For 2013,In February 2014, the Compensation and Benefits Committee retained Compensation Advisory Partners (“CAP”), a nationally recognized compensation and benefits consulting firm, to replace Aon Hewitt as its independent compensation consultant. The Committee confers with Aon Hewittits independent compensation consultant to ensure that decisions and actions are consistent with stockholders’ long-term interests and compensation-related best practices within the financial services industry. Aon HewittThe Committee also directly provides to the Committeereferences market data which the Committee referencesprovided by its independent compensation consultant when determiningconsidering compensation for the named executive officers.
Aon Hewitt’s A representative attendsof CAP attended all meetings of the Committee during which 2014 executive compensation is reviewed and approved. Aon Hewitt’s representativedecisions were made. CAP provides insights into compensation trends and market practices, presents his views on the compensation proposed by the Committee and participates in Committee meeting discussions.
Use of Peer Group Data
The Compensation and Benefits Committee uses peer group data to assess the competitiveness of the compensation paid to executive officers. Northern TrustThe Corporation does not use peer compensation data to set precise pay levels by position. Rather, the peer data and data provided by independent compensation consultants are used to validate relative competitive pay for our named executive officers. With respect to 20132014 compensation, the Committee considered the Corporation’s performance relative to our peers across various measures including growth in assets under custodyperformance and management, pre-tax profit margin, return on equity, short and long-term total stockholder returns, price/earnings ratio and price/book ratios.financial measures. Weighing these measures, of performance, among others, the Committee determined that the Corporation’s overall performance was comparablegenerally compared favorably to the peer group performance. The Committee took these comparisons into account generally in making its compensation decisions for 2013.2014.
Deductibility of Executive Compensation
The Corporation views the tax deductibility of executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), as an importanta factor in determining the forms and amounts of executive compensation. The Corporation, through the Compensation and Benefits Committee, reviews each material element of compensation on a continuing basis and takes steps to assure deductibility if that can be accomplished without sacrificing flexibility or other important elements of the overall executive compensation program.
Elements of Northern Trust’sthe Corporation’s Executive Compensation Program
There are four principal elements of Northern Trust’sthe Corporation’s executive compensation program, each of which is discussed below. In making determinations regarding these compensation elements, the Compensation and Benefits Committee’s overall goal is to establish total executive compensation that appropriately rewards performance, aligns with stockholders’ interests, and positions the Corporation competitively in the marketplace for executive talent. While the Committee’s determinations with respect to these elements may reflect unique characteristics of that element (for instance, in the case of annual cash incentives, performance of the Corporation), the Committee’s overall decision makingdecision-making is governed by a collective evaluation of the elements of compensation, with a view toward establishing an appropriate level of total executive compensation.
Element | Link to Compensation Philosophy | |||
Base Salary | Targeted at competitive levels among peer group companies. | Base salaries provide a fixed level of income consistent with a named executive officer’s position and responsibilities, competitive pay practices, and internal equity principles. | ||
Short-Term Annual Cash Incentive | Aligned with stockholders’ interests by linking maximum award to a percentage of net income and actual award to executive’s performance. Targeted at competitive levels among the peer group companies. | Annual cash incentives are intended to qualify as performance-based compensation as they are tied to net income results and may not exceed a fixed maximum. Annual cash incentives also reflect the individual performance of each | ||
Long-Term Incentive Compensation | Aligned with stockholders’ interests by motivating | Given the Corporation’s focus on pay for performance, long-term incentives are the most significant element of overall compensation. Long-term incentive compensation is comprised of performance stock units (50%), restricted stock units (25%) The number of shares that | ||
Retirement, Health and Welfare Benefits | Targeted at the median level of peer group companies. | Benefits are designed with the entire |
Base Salary
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The Committee uses discretion in determining base salaries. It does not take a formulaic approach to setting base salary levels but considers the following factors:
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For new and recently promoted executives, the Committee’s approach is to gradually increase actual base salary to the appropriate target pay level as the named executive officer gains experience and tenure in the new position.
Short-Term Annual Cash Incentive
Annual cash incentives provide an opportunity for Actual incentive allocations under the funded pool to each named executive officer are made based on a review of the Corporation’s performance in the context of key performance indicators on an absolute basis and relative to custody bank peers (e.g., growth in fees, total revenue and pre-tax income, return on equity, pre-tax margin, operating leverage, etc.), a review of the individual’s contribution to corporate performance and an assessment of competitive levels of pay for each position. The Compensation and Benefits Committee determines and approves annual cash incentives for the Corporation’s |
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While the Corporation’s net income establishes the maximum annual cash incentive that may be paid to an officer, the final determination of annual cash incentives is not tied to any specific formula. Instead, the Committee exercises negative discretion to set the final award. In applying negative discretion in 20142015 for 20132014 performance, the Committee considered the Corporation’s overall performance results, each officer’s individual performance and the cash incentive award data reported by peer firms, adjusted for size, financial results, and stockholder returns.size.
Long-Term Incentive Compensation
Long-term incentive compensation is the most significant element of overall compensation and is designed to reward the performance of the named executive officers over time. Under the current plan design, long-term incentive compensation takes the form of 50% performance stock units, 25% restricted stock units and 25% non-qualifiednonqualified stock options. The Compensation and Benefits Committee emphasizes long-term incentives to align compensation with the interests of the stockholders. The Committee believes that long-term incentive compensation encourages executives to act as owners with an equity stake in Northern Trust,the Corporation, discourages inappropriate risk-taking and contributes to continuity and stability within the Corporation’s executive leadership.
The Committee considers a variety of individual factors to determine the actual dollar value of long-term incentive compensation for each named executive officer. The dollar value of equity compensation is
generally has been defined as 100% of the fair market value at the time of grant for all performance stock units and restricted stock units and one-third of the fair market value of the shares underlying grants of stock options at the time of grant for all stock options. For grants in 2013 for 2012 performance, the guideline dollar value of long-term compensation was approximately seven times 2012 year end base salary for the Chairman and CEO, approximately five times 2012 year end base salary for the President and Chief Operating Officer, and approximately three and one-half times 2012 year end base salary for the other named executive officers. These guidelines also applied to long-term incentive awards granted in 2015 for 2014 for 2013 performance.performance, with the exception of the dollar value of stock option grants, which were valued at 30% of the fair market value of the shares underlying such grants at the time they were made.
The Committee has flexibility in determining the value of total long-term incentive compensation for each named executive officer based on a review of objectivesobjective and subjective factors. There is no formula that assigns specific weights to these factors and the importance of these factors may vary from year to year. In addition to consideration of the long-term incentive compensation reported by peer banks, the following are the specific objective and subjective factors considered by the Committee in setting total 20132014 and 20142015 long-term incentive compensation for each named executive officer:
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In February 20132014 for 20122013 performance, the named executive officers received the following dollar amounts of long-term incentive compensation: Mr. Waddell, $6,650,000 (97% of guideline);$6,650,000; Mr. Bowman, $1,650,000; Mr. Fradkin, $2,000,000; Mr. Morrison, $3,250,000; Mr. O’Grady, $2,000,000 (99% of guideline); Mr. Morrison, $3,350,000 (96% of guideline); Mr. Fradkin, $2,000,000 (95% of guideline);$2,000,000; and Ms. Schreuder, $2,000,000 (95% of guideline).$2,000,000. The Committee believes that these awards reflect appropriate differentiation among the officers in light of their respective responsibilities at the time of grant. In addition to internal equity principles, these awards also reflect the Committee’s consideration of each of the factors listed above.
Retirement, Health and Welfare Benefits
Retirement benefits are generally designed with the Corporation’s entire Northern Trust workforce in mind and are not specifically structured for the named executive officers. The design of the Corporation’s retirement program for employees, including the named executive officers, reflects the following considerations:officers:
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The named executiveExecutive officers also participate in Northern Trust’sthe Corporation’s health and welfare benefits, including medical, retiree medical, dental, disability and life insurance programs, on the same terms as other employees.
Severance Benefits and Employment Security Arrangements
The Corporation provides 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. The Corporation believes that the availability of severance benefits allows the Corporation to compete with its 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.
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Under such circumstances, named executiveExecutive officers generally are eligible to receive severance benefits that generally include:
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These benefits are contingent upon execution of a release, waiver and settlement agreement with the Corporation. Severance payments will be reduced by any severance payments made under employment security agreements or any other benefit plan, program or individual contract.
In addition to the severance benefits discussed above, Northern Trustthe Corporation has entered into employment security arrangements for certain key executive officers of the Corporation, including each named executive officer. The purpose of these agreements is to provide an executive with sufficient security for executives to remain focused on theirhis or her responsibilities before, during and after a transaction without undue concern for theirhis or her personal circumstances. Providing for payments in a change of control situation is consistent with market practice across the industry and ensures alignment between executives and stockholders when a change of control is in in the best interest of stockholders.
The Corporation believes the employment security agreements are critical to its ability to attract and retain key executives in light of the fact that all named executive officers are employed at will and change in control provisions for executives are a standard element of a competitive compensation program at peer group companies.
Further discussion with respect to the following reasons:
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In order to receive benefits under theCorporation’s employment security agreements, two events must occur (except as noted below with respect to equity awards):
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This “double-trigger” approach to vesting equity and equity-based compensation in connection with a change in control of the Corporation was adopted in 2012 after the Corporation undertook a review of the Corporation’s treatment of equity and equity-based compensation in connection with a “change in control” of the Corporation, a topic about which stockholders had previously expressed particular concern. The Corporation believes that this “double trigger” approach accords with current best practices in this area.
Change in control provisions under Northern Trust’s employment security agreements generally include:
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In addition, the terms and conditions for equity awards made prior to October 2012 provide for full vesting of unvested stock options, restricted stock units and performance stock units upon an actual change in control, with or without termination of employment, or upon termination during a pending change in control. As noted above, equity awards made in October 2012 and thereafter provide for
“double-trigger” vesting in connection with a change in control (which requires that (i) both a change in control and a qualifying termination occur prior to acceleration of vesting or (ii) a change in control occur and the acquirer refuses or is unable to assume the existing awards).
Disclosureincluding disclosure of potential change in control benefits payable to each named executive officer, assuming a change in control of the Corporation and termination of employment on December 31, 2013,2014, is set forth in the “Potential Payments Upon Termination of Employment or a Change in Control of the Corporation” section beginning on page 6162 of this Proxy Statement.
Perquisites
The Corporation provides a limited number of perquisites intended to assist named executive officers in the performance of their duties on behalf of Northern Trustthe Corporation. The Corporation provides financial consulting and provide compensation for activities that have a combined personal and business purpose. More specifically, Northern Trust provided financial consulting/tax return preparation services and personal use of company automobiles as perquisites to its named executive officers in 2013.officers. If circumstances warrant and if pre-approved by the Chairman and CEO, the Corporation permits personal use of company aircraft on a limited basis. The Corporation also reimburses named executive officers for the payment of personal income taxes in connection with the use of company automobiles for business-related purposes.
vehicles in certain circumstances and taxable relocation expenses. The Compensation and Benefits Committee annuallyperiodically reviews the types and costs of perquisites to ensure they remain aligned with the compensation philosophy of the Corporation.
20132014 Advisory Vote on Executive Compensation
The Corporation’s 20122013 named executive officer compensation was approved on an advisory basis by its stockholders at the Corporation’s April 16, 201315, 2014 Annual Meeting.Meeting of Stockholders. Approximately 87%86% of the votes cast, together with abstentions, supported approval of 20122013 named executive officer compensation. Although such advisory votes are non-binding,nonbinding, the Board reviews and thoughtfully considers the voting results when determining compensation policies and making future compensation decisions for named executive officers. Additionally, as mentioned under “Corporate Governance—Stockholder Outreach” beginning on page 19 of this Proxy Statement, it is the Corporation’s practice to proactively and routinely engage with stockholders throughout the year to help investors understand the Corporation’s performance and strategies and to allow stockholders to
express their views on issues important to the Corporation. Accordingly, the decisions made by the Board with respect to compensation in 2013 2014—including the decision to maintain the overall structure of the Corporation’s executive compensation program—reflect consideration of stockholder feedback, particularly the results of the advisory vote on 20122013 named executive officer compensation, as well as the other factors described above.
2014 Compensation Decisions for Named Executive Officers
In determining total compensation for the named executive officers, including Mr. Waddell, the Compensation and Benefits Committee considered a variety of performance factors. The Committee considered the Corporation’s 2014 financial performance as well as each officer’s success in achieving his or her individual qualitative performance objectives. The Committee also considered the total compensation paid to similarly situated executives by the Corporation’s peers. Although the same methodology is used to determine the compensation paid to the Chairman and CEO as for any other executive officer, Mr. Waddell’s compensation is measurably higher than the compensation paid to the other named executive officers due to his significantly greater responsibilities and obligations to the Corporation.
Chairman and Chief Executive Officer
Total Chairman and CEO Compensation.The table below summarizes the key compensation decisions made by the Committee for Mr. Waddell, the Corporation’s Chairman and CEO, for the 2014 compensation year and provides a comparison to his 2013 compensation. It should be noted that the amounts in this table are different than the amounts in the Summary Compensation Table as the table below does not include the Change in Pension Value and Nonqualified Deferred Compensation Earnings and All Other Compensation values. As illustrated in the chart, the Chairman and CEO’s salary and incentive compensation increased by 4.2% from 2013 to 2014.
Year | Annual Compensation | Total | ||||||||||||||||||||
Salary | Incentive Compensation (1) | |||||||||||||||||||||
Cash | Performance Stock Units | Stock Options (2) | Restricted Stock Units | |||||||||||||||||||
2014 | $ | 975,000 | $ | 2,300,000 | $ | 3,325,000 | $ | 1,662,500 | $ | 1,662,500 | $9,925,000 | |||||||||||
2013 | $ | 975,000 | $ | 1,900,000 | $ | 3,325,000 | $ | 1,662,500 | $ | 1,662,500 | $9,525,000 |
(1) The performance stock units, stock options, and restricted stock units included for 2014 were granted to Mr. Waddell in February 2015 for his 2014 performance and accordingly are not included in the “Summary Compensation Table” in this Proxy Statement.
(2) The Corporation’s policies and internal valuation methodology with respect to stock options reflected in the chart above differ from the valuation methodology required to be used in the “Summary Compensation Table” in this Proxy Statement.
The mix of total compensation for our Chairman and CEO, as illustrated in the chart below, demonstrates our emphasis on performance-based compensation and belief that long-term incentives should be the most significant element of overall compensation.
Mr. Waddell’s compensation for 2014 reflects each of the elements of the Corporation’s 2014 performance presented on pages 25-26 of this Proxy Statement, as his leadership was instrumental to these achievements. Mr. Waddell’s compensation also reflects his role in developing the senior leaders of the Corporation and maintaining a strong group of leaders in our succession plan through actions such as the organizational leadership changes implemented in 2014 at his direction. Consistent with the Corporation’s philosophy of aligning pay with performance, the Compensation and Benefits Committee determined that Mr. Waddell’s total 2014 compensation should compare favorably with the median compensation among the Corporation’s peer companies, relative to size, financial results and stockholder returns. As further explained below, the year-over-year increase in Mr. Waddell’s overall compensation was driven primarily by increases in the value of his pension benefits and the amount of his annual cash incentive award.
Base Salary.Based on competitive salary market data among the Corporation’s peer group companies, at its February 2014 meeting, the Compensation and Benefits Committee determined that Mr. Waddell’s annual base salary should remain unchanged for 2014.
Short-Term Annual Cash Incentive.Taking into consideration available competitive market data, the Corporation’s 2014 performance, and Mr. Waddell’s success in achieving his individual qualitative performance objectives, the Compensation and Benefits Committee set Mr. Waddell’s actual cash incentive award at $2,300,000 for 2014, as compared to $1,900,000 for 2013. The year-over-year increase in Mr. Waddell’s annual cash incentive award was reflective of the Corporation’s 2014 financial performance. Our earnings for 2014 increased 11.0% relative to 2013 and growth in new business was strong. The Corporation’s return on equity improved to 10.0% from 9.5%, within our target range. For 2014, Mr. Waddell’s individual qualitative performance objectives related to operating performance, client performance and leadership development. Under the provisions of the Management Performance Plan, the Corporation’s net income of $811.8 million in 2014 provided for a maximum funding opportunity for Mr. Waddell of $4,870,800; his actual incentive of $2,300,000 was well below this level.
Long-Term Incentive.In determining the total long-term incentive award for Mr. Waddell, the Compensation and Benefits Committee took into account the Corporation’s 2014 performance, as well as the total compensation paid by the Corporation’s peers, adjusted for size, financial results and stockholder returns. Based on these factors, the Committee set Mr. Waddell’s long-term incentive compensation award for 2014 performance at $6,650,000, equal to his long-term incentive award of $6,650,000 made in 2014 for 2013 performance.
Pension Benefits.While the Committee did not make any changes to the structure of the Corporation’s pension design in 2014, Mr. Waddell’s pension value increased by $2,762,043, compared to a decrease in 2013 of $444,845. The present value of Mr. Waddell’s benefits under the Pension Plan is sensitive to changes in interest rates. The decrease in value of Mr. Waddell’s benefits in 2013 was primarily driven by an increase in the discount rate used to value such benefits, while the increase in 2014 was influenced by a decrease in the applicable discount rate. The value of Mr. Waddell’s pension benefits reflects the thirty-five years of credited service he has accrued, which is the maximum permissible under the plan, as his tenure at the Corporation began in 1975. See “Pension Benefits” beginning on page 55 of this Proxy Statement for additional information on how benefits accrue under the Pension Plan.
S. Biff Bowman
Mr. Bowman has served as the Corporation’s Chief Financial Officer since September 1, 2014. Prior thereto, Mr. Bowman served as Executive Vice President, Human Resources. As the Corporation’s Executive Vice President, Human Resources, Mr. Bowman was primarily responsible for overseeing the Corporation’s Human Resources function. As 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 2014 compensation, the Compensation and Benefits Committee considered how well Mr. Bowman fulfilled his responsibilities in 2014, including with respect to the transition in his roles. The Compensation and Benefits Committee also considered the following performance factors:
— | Mr. Bowman’s contributions to the leadership changes implemented across the organization during 2014; |
— | Mr. Bowman’s contributions to the Corporation as the head of a function with a significant role in positioning the company for future success through talent management; and |
— | Mr. Bowman’s performance as the Chief Financial Officer from September 1, 2014, including with respect to the Corporation’s 2015 Capital Plan. |
Based on competitive salary market data among the Corporation’s peer group companies, the Committee chose to increase Mr. Bowman’s base salary by $25,000 to $500,000 in 2014.
Based on the limits set forth in the Management Performance Plan for Mr. Bowman, as well as the Corporation’s performance and achievement of Mr. Bowman’s individual objectives, the Committee determined a 2014 annual cash incentive of $650,000 for Mr. Bowman.
In determining the total long-term incentive grant made to Mr. Bowman in 2015 for 2014 performance, the Committee took into account the Corporation’s performance, the total compensation
levels among the Corporation’s peers, adjusted for size, financial results and stockholder returns, and the objective and subjective factors discussed on pages 34-35 of this Proxy Statement. Based on these factors, the Committee set a long-term award of $2,000,000 for Mr. Bowman.
Steven L. Fradkin
Mr. Fradkin has served as President of Wealth Management since September 1, 2014. Prior thereto, Mr. Fradkin served as President of Corporate & Institutional Services (“C&IS”). As President of C&IS and Wealth Management, Mr. Fradkin was primarily responsible for the overall performance of those businesses. To determine Mr. Fradkin’s 2014 compensation, the Compensation and Benefits Committee considered how well Mr. Fradkin fulfilled his responsibilities in 2014, including with respect to the transition in his roles. The Compensation and Benefits Committee also considered the following performance factors:
— | C&IS’s strong growth in 2014, with assets under custody increasing 7% to $5.5 trillion and assets under management increasing 7% to $709.6 billion; |
— | C&IS’s continued geographic expansion and strong growth in its client base; and |
— | Mr. Fradkin’s performance as President of Wealth Management since September 1, 2014. |
Based on competitive salary market data among the Corporation’s peer group companies, the Committee determined that Mr. Fradkin’s annual base salary should remain unchanged for 2014.
Based on the limits set forth in the Management Performance Plan for Mr. Fradkin, as well as the Corporation’s performance and achievement of Mr. Fradkin’s individual objectives, the Committee determined a 2014 annual cash incentive of $1,000,000 for Mr. Fradkin, compared to a 2013 annual cash incentive of $800,000.
In determining the total long-term incentive grant made to Mr. Fradkin in 2015 for 2014 performance, the Committee took into account C&IS’s and Wealth Management’s performance, the total compensation levels among the Corporation’s peers, adjusted for size, financial results and stockholder returns, and the objective and subjective factors discussed on pages 34-35 of this Proxy Statement. Based on these factors, the Committee set a long-term award of $2,000,000 for Mr. Fradkin, equal to the long-term incentive award of $2,000,000 made in 2014 for 2013 performance.
William L. Morrison
Mr. Morrison served as the Corporation’s President and Chief Operating Officer through August 31, 2014. Since September 1, 2014, Mr. Morrison has served as the Corporation’s President. As the Corporation’s Chief Operating Officer, Mr. Morrison was primarily responsible for the Corporation’s business operations. As President, he is primarily responsible for corporate marketing and strategy functions, driving business growth and overseeing the Corporation’s client-facing businesses. To determine Mr. Morrison’s 2014 compensation, the Compensation and Benefits Committee considered how well Mr. Morrison fulfilled his responsibilities in 2014, including with respect to the transition in his roles. The Compensation and Benefits Committee also considered the following performance factors:
— | Net income was $811.8 million in 2014, an improvement of 11.0% from 731.3 million in 2013; |
— | Return on equity improved to 10.0% in 2014 from 9.5% in 2013, within our target range; and |
— | The strength of the performance of the C&IS and Wealth Management businesses in 2014. |
Based on competitive salary market data among the Corporation’s peer group companies, the Committee determined that Mr. Morrison’s annual base salary should remain unchanged for 2014.
Based on the limits set forth in the Management Performance Plan for Mr. Morrison, as well as the Corporation’s performance and achievement of Mr. Morrison’s individual objectives, the Committee determined a 2014 annual cash incentive of $1,200,000 for Mr. Morrison, compared to a 2013 annual cash incentive of $1,000,000.
In determining the total long-term incentive award made to Mr. Morrison in 2015 in respect of 2014 performance, the Committee took into account the Corporation’s performance, the total compensation levels among the Corporation’s peers, adjusted for size, financial results and stockholder returns, and the objective and subjective factors discussed on pages 34-35 of this Proxy Statement. Based on these factors, the Committee set a long-term award of $3,250,000 for Mr. Morrison, equal to the long-term incentive award of $3,250,000 made in 2014 for 2013 performance.
Michael G. O’Grady
Mr. O’Grady has served as President of C&IS since September 1, 2014. Prior thereto, Mr. O’Grady served as the Corporation’s Chief Financial Officer. As the Corporation’s Chief Financial Officer, Mr. O’Grady was primarily responsible for financial reporting and control, management reporting and analysis, liquidity management, capital planning and investor relations. As President of C&IS, he is primarily responsible for the overall performance of that business. To determine Mr. O’Grady’s 2014 compensation, the Compensation and Benefits Committee considered how well Mr. O’Grady fulfilled his responsibilities in 2014, including with respect to the transition in his roles. The Compensation and Benefits Committee also considered the following performance factors:
— | The Corporation’s financial strength remained a hallmark in 2014, with asset quality in the loan, liquidity and securities portfolios contributing to sound credit ratings; |
— | Mr. O’Grady’s contributions related to the Corporation’s 2014 Capital Plan, which was not objected to by the Federal Reserve and which allowed the Corporation to return $792.4 million in capital to stockholders through quarterly dividend payments and share repurchases; |
— | The strength of the Corporation’s investor relations program, which results in significant engagement with analysts and investors throughout the year; and |
— | Mr. O’Grady’s performance as President of C&IS since September 1, 2014. |
Based on the competitive salary market data among the Corporation’s peer group companies, the Committee determined that Mr. O’Grady’s annual base salary should remain unchanged for 2014.
Based on the limits set forth in the Management Performance Plan for Mr. O’Grady, as well as the Corporation’s performance and achievement of Mr. O’Grady’s individual objectives, the Committee determined a 2014 annual cash incentive of $900,000 for Mr. O’Grady, compared to a 2013 annual cash incentive of $750,000.
In determining the total long-term incentive grant made to Mr. O’Grady in 2015 for 2014 performance, the Committee took into account the Corporation’s and C&IS’s performance, the total compensation levels among the Corporation’s peers, adjusted for size, financial results and stockholder returns, and the objective and subjective factors discussed on pages 34-35 of this Proxy Statement. Based on these factors, the Committee set a long-term award of $2,000,000 for Mr. O’Grady, equal to the long-term incentive award of $2,000,000 made in 2014 for 2013 performance.
Jana R. Schreuder
Ms. Schreuder has served as the Corporation’s Chief Operating Officer since September 1, 2014. Prior thereto, Ms. Schreuder served as President of Wealth Management. As President of Wealth Management, she was primarily responsible for the overall performance of that business. 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 compensation, the Compensation and Benefits Committee considered how well Ms. Schreuder fulfilled her responsibilities in 2014, including with respect to the transition in her roles. The Compensation and Benefits Committee also considered the following performance factors:
— | Wealth Management’s steady growth in 2014, with assets under custody increasing 4% to $515.7 billion and assets under management increasing 1% to $224.5 billion; |
— | In 2014, The Northern Trust Company was named by the Financial Times Group as Best Private Bank in the U.S. for the sixth year and as Best Private Bank for Socially Responsible Investing for the second year; and |
— | Ms. Schreuder’s performance as Chief Operating Officer since September 1, 2014. |
Based on competitive salary market data among the Corporation’s peer group companies, the Committee determined that Ms. Schreuder’s annual base salary should remain unchanged for 2014.
Based on the limits set forth in the Management Performance Plan for Ms. Schreuder, as well as the Corporation’s and Wealth Management’s performance and achievement of Ms. Schreuder’s individual objectives, the Committee determined a 2014 annual cash incentive of $900,000 for Ms. Schreuder, compared to a 2013 annual cash incentive of $785,000.
In determining the total long-term incentive grant made to Ms. Schreuder in 2015 in respect of 2014 performance, the Committee took into account the Corporation’s and Wealth Management’s performance, the compensation levels among the Corporation’s peers, adjusted for size, financial results and stockholder returns, and the objective and subjective factors discussed on pages 34-35 of this Proxy Statement. Based on these factors, the Committee set a long-term award of $2,500,000 for Ms. Schreuder, compared to a long-term incentive award of $2,000,000 made in 2014 for 2013 performance.
Compensation and Benefits Committee Report
The Compensation and Benefits Committee is responsible for providing oversight of the compensation of the directors and executive officers of Northern Trust.
the Corporation. In fulfilling its oversight responsibilities, the Compensation and Benefits Committee has reviewed and discussed with management the Compensation
Discussion and Analysis contained in this Proxy Statement.
Based upon this review and discussion, the Compensation and Benefits Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 20132014 and this Proxy Statement for the 20142015 Annual Meeting of Stockholders, each of which will beis filed with the SEC.
Compensation and Benefits Committee
Nicholas D. Chabraja (Chair)
Susan Crown
Dipak C. Jain
Edward J. MooneyLinda Walker Bynoe
John W. Rowe
Martin P. Slark
Charles A. Tribbett III
Compensation and Benefits Committee Interlocks and Insider Participation
None of the directors serving on the Compensation and Benefits Committee during 2014 was an officer or employee of the Corporation in 2014 or at any prior time or had any relationship with the Corporation requiring disclosure pursuant to Item 404 of Regulation S-K of the Exchange Act. In addition: (i) no executive officer of the Corporation served on the compensation committee of another entity, one of whose executive officers served on the Corporation’s Compensation and Benefits Committee; (ii) no executive officer of the Company served as a director of another entity, one of whose executive officers served on the Corporation’s Compensation and Benefits Committee; and (iii) no executive officer of the Corporation served on the compensation committee of another entity, one of whose executive officers served as a director of the Corporation.
The following table shows forsets forth the years indicated belowinformation concerning the compensation providedpaid to or earned by the Corporation to its named executive officers.officers for 2014, 2013 and 2012. In accordance with SEC rules, 2013 and 2012 compensation is not presented for Mr. Bowman because he was not a named executive officer in those years.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(5) | All Other Compensation ($)(6) | Total ($) | |||||||||||||||||||||||||||
Frederick H. Waddell Chairman and Chief Executive Officer | 2013 | $ | 975,000 | — | $ | 4,987,530 | $ | 1,211,083 | $ | 1,900,000 | — | $ | 94,387 | $ | 9,168,000 | |||||||||||||||||||||
2012 | 975,000 | — | 2,333,354 | 1,850,555 | 2,000,000 | $ | 3,839,003 | 85,283 | 11,083,195 | |||||||||||||||||||||||||||
2011 | 956,250 | — | 4,000,008 | 3,581,932 | 1,600,000 | 4,078,538 | 88,672 | 14,305,400 | ||||||||||||||||||||||||||||
Michael G. O’Grady (7) Executive Vice President and Chief Financial Officer | 2013 | 593,750 | — | 1,500,032 | 364,241 | 750,000 | 56,745 | 25,819 | 3,290,587 | |||||||||||||||||||||||||||
2012 | 568,750 | — | 700,015 | 555,165 | 750,000 | 40,365 | 4,312 | 2,618,607 | ||||||||||||||||||||||||||||
2011 | 208,333 | $ | 325,000 | 1,250,035 | 854,260 | 25,000 | 7,380 | — | 2,670,008 | |||||||||||||||||||||||||||
Steven L. Fradkin President—Corporate and Institutional Services | 2013 | 600,000 | — | 1,500,032 | 364,241 | 800,000 | — | 23,287 | 3,287,560 | |||||||||||||||||||||||||||
2012 | 600,000 | — | 700,015 | 555,165 | 800,000 | 1,069,699 | 25,799 | 3,750,678 | ||||||||||||||||||||||||||||
2011 | 587,500 | — | 1,250,042 | 1,119,358 | 675,000 | 1,012,591 | 31,493 | 4,675,984 | ||||||||||||||||||||||||||||
William L. Morrison President and Chief Operating Officer | 2013 | 775,000 | — | 2,512,523 | 610,096 | 1,000,000 | — | 33,893 | 4,931,512 | |||||||||||||||||||||||||||
2012 | 700,000 | — | 1,166,677 | 925,283 | 1,000,000 | 852,901 | 31,364 | 4,676,225 | ||||||||||||||||||||||||||||
2011 | 612,500 | — | 1,686,442 | 1,119,358 | 750,000 | 821,577 | 32,194 | 5,022,071 | ||||||||||||||||||||||||||||
Jana R. Schreuder President—Wealth Management | 2013 | 600,000 | — | 1,500,032 | 364,241 | 785,000 | — | 32,923 | 3,282,196 | |||||||||||||||||||||||||||
2012 | 600,000 | — | 700,015 | 555,165 | 825,000 | 1,495,879 | 29,733 | 4,205,792 | ||||||||||||||||||||||||||||
2011 | 587,500 | — | 1,250,042 | 1,119,358 | 675,000 | 1,501,040 | 33,033 | 5,165,973 |
Name and Principal Position(1) | Year | Salary ($) | Stock Awards ($)(2)(3) | Option Awards ($)(4) | Non-Equity Incentive Plan Compensation ($)(5) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(6) | All Other Compensation ($)(7) | Total ($) | ||||||||||||||||||||||
Frederick H. Waddell | 2014 | $ | 975,000 | $4,987,571 | $ | 1,329,507 | $ | 2,300,000 | $ | 2,762,043 | $ | 81,401 | $ | 12,435,522 | ||||||||||||||||
2013 | 975,000 | 4,987,530 | 1,211,083 | 1,900,000 | — | 94,387 | 9,168,000 | |||||||||||||||||||||||
2012 | 975,000 | 2,333,354 | 1,850,555 | 2,000,000 | 3,839,003 | 85,283 | 11,083,195 | |||||||||||||||||||||||
S. Biff Bowman | 2014 | 493,750 | 1,237,506 | 329,879 | 650,000 | 583,444 | 39,759 | 3,334,338 | ||||||||||||||||||||||
Steven L. Fradkin | 2014 | 600,000 | 1,500,013 | 399,854 | 1,000,000 | 1,131,157 | 23,348 | 4,654,372 | ||||||||||||||||||||||
2013 | 600,000 | 1,500,032 | 364,241 | 800,000 | — | 23,287 | 3,287,560 | |||||||||||||||||||||||
2012 | 600,000 | 700,015 | 555,165 | 800,000 | 1,069,699 | 25,799 | 3,750,678 | |||||||||||||||||||||||
William L. Morrison | 2014 | 800,000 | 2,437,590 | 649,766 | 1,200,000 | 387,764 | 44,155 | 5,519,275 | ||||||||||||||||||||||
2013 | 775,000 | 2,512,523 | 610,096 | 1,000,000 | — | 33,893 | 4,931,512 | |||||||||||||||||||||||
2012 | 700,000 | 1,166,677 | 925,283 | 1,000,000 | 852,901 | 31,364 | 4,676,225 | |||||||||||||||||||||||
Michael G. O’Grady | 2014 | 600,000 | 1,500,013 | 399,854 | 900,000 | 56,828 | 24,245 | 3,480,940 | ||||||||||||||||||||||
2013 | 593,750 | 1,500,032 | 364,241 | 750,000 | 56,745 | 25,819 | 3,290,587 | |||||||||||||||||||||||
2012 | 568,750 | 700,015 | 555,165 | 750,000 | 40,365 | 4,312 | 2,618,607 | |||||||||||||||||||||||
Jana R. Schreuder | 2014 | 600,000 | 1,500,013 | 399,854 | 900,000 | 1,363,916 | 31,781 | 4,795,564 | ||||||||||||||||||||||
2013 | 600,000 | 1,500,032 | 364,241 | 785,000 | — | 32,923 | 3,282,196 | |||||||||||||||||||||||
2012 | 600,000 | 700,015 | 555,165 | 825,000 | 1,495,879 | 29,733 | 4,205,792 |
(1) Positions reflected in this column reflect current positions. As noted above, effective September 1, 2014, the Corporation implemented certain leadership changes. Prior to these changes: Mr. Bowman served as Executive Vice President, Human Resources; Mr. Fradkin served as President of C&IS; Mr. Morrison served as President and Chief Operating Officer; Mr. O’Grady served as Chief Financial Officer; and Ms. Schreuder served as President of Wealth Management.
(2) 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 BasedShare-Based Compensation Plans” to the consolidated financial statements included in the “Notes to Consolidated Financial Statements” inItem 8 of the Corporation’s 2013 Annual Report to Stockholderson Form 10-K for the year ended December 31, 2014 for a discussion of the assumptions made by the Corporation in the valuation of these restricted stock unit awards. This column includes the following amounts in 2014 with respect to performance stock units, andwhich are based on achievement of target performance levels: Mr. Waddell: $3,325,002;$3,325,027; Mr. Bowman: $825,004; Mr. Fradkin: $1,000,009; Mr. Morrison: $1,625,060; Mr. O’Grady: $1,000,004; Mr. Fradkin: $1,000,004; Mr. Morrison: $1,675,015;$1,000,009; and Ms. Schreuder: $1,000,004.$1,000,009. If the maximum level of performance were attained, the value of the performance stock units would be as follows: Mr. Waddell: $4,156,293;$4,156,298; Mr. Bowman: $1,031,286; Mr. Fradkin: $1,250,042; Mr. Morrison: $2,031,356; Mr. O’Grady: $1,250,018; Mr. Fradkin: $1,250,018; Mr. Morrison: $2,093,795;$1,250,042; and Ms. Schreuder: $1,250,018.$1,250,042. See the narrative under “Description of Certain Awards Granted in 2013”2014” beginning on page 5048 of this Proxy Statement for more information on these awards.
(2)
(3) In February 2012 for 2011 performance, the named executive officers were awarded the following long-term cash incentive awards that will vest 100% after three years and are subject to forfeiture upon the occurrence of certain events:awards: Mr. Waddell: $2,333,333; Mr. O’Grady: $700,000; Mr. Fradkin: $700,000; Mr. Morrison: $1,166,667; Mr. O’Grady: $700,000; and Ms. Schreuder: $700,000. In February 2015 these awards became fully vested. No such long-term cash incentive awards were granted in 2013 or 2014 due to changes in the long-term incentive compensation plan design.
(3)(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 BasedShare-Based Compensation Plans” to the consolidated financial statements included in the “Notes to Consolidated Financial Statements” inItem 8 of the Corporation’s 2013 Annual Report to Stockholderson Form 10-K for the year ended December 31, 2014 for a discussion of the assumptions made by the Corporation in the valuation of these option awards. See the narrative under “Description of Certain Awards Granted in 2013”2014” beginning on page 5048 of this Proxy Statement for more information on these awards.
(4)(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.
(5)(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% to 5.00% at December 31, 2013 resulted in a year over year decrease in value in the present value of benefits under the Traditional Formula for each named executive officer with 2013 information provided at December 31, 2013 relative to December 31, 2012, except Mr. O’Grady whose benefits are accrued under the PEPPension Plan’s “Pension Equity Plan (PEP) Formula.” Accordingly, no amount is included for 2013 in this column for any named executive officer, except Mr. O’Grady. 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. See “Pension Benefits” beginning on page 55 of this Proxy Statement for additional information.
(6) Amounts in this column represent (i) the cost of financial consulting/tax return preparation services; (ii) the cost of personal use(7) The following table sets forth a detailed breakdown of the Corporation’s automobiles; (iii) tax reimbursements provided in connection with the use of company automobilesitems which comprise “All Other Compensation” for business-related purposes; and (iv)2014:
Name | Contributions Supplemental TIP ($)(a) | Perquisites ($)(b) | Tax Reimbursements ($)(c) | Total ($) | ||||||||||||
Mr. Waddell | $ | 29,250 | $ | 35,829 | $ | 16,322 | $ | 81,401 | ||||||||
Mr. Bowman | 14,812 | 22,833 | 2,114 | 39,759 | ||||||||||||
Mr. Fradkin | 18,000 | 4,872 | 476 | 23,348 | ||||||||||||
Mr. Morrison | 24,000 | 17,664 | 2,491 | 44,155 | ||||||||||||
Mr. O’Grady | 18,000 | 4,773 | 1,472 | 24,245 | ||||||||||||
Ms. Schreuder | 18,000 | 13,781 | — | 31,781 |
(a) Includes matching contributions made by the Corporation on behalf of named executive officers participating in the TIP and Supplemental TIP. The following table quantifies the amounts paid
(b) With respect to each named executive officer in 2013 for eachMr. Waddell, includes financial consulting and tax return preparation services ($16,500) and personal use of these components:company automobiles ($19,329). With respect to Mr. Bowman, includes relocation expenses ($22,833) relating to an overseas assignment. With respect to Mr. Fradkin, includes financial consulting and tax return preparation services ($4,335) and personal use of company
Name | Financial Consulting/ Tax Return Preparation Services ($) | Personal Use of Company Automobiles ($) | Tax Reimbursements ($) | TIP/ Supplemental TIP Contributions ($) | ||||||||||||
Mr. Waddell | $ | 17,000 | $ | 26,338 | $ | 21,799 | $ | 29,250 | ||||||||
Mr. O’Grady | 10,000 | — | — | 15,819 | ||||||||||||
Mr. Fradkin | 3,875 | 749 | 663 | 18,000 | ||||||||||||
Mr. Morrison | 6,875 | 1,999 | 1,769 | 23,250 | ||||||||||||
Ms. Schreuder | 14,923 | — | — | 18,000 |
(7)automobiles ($537). With respect to Mr. Morrison, includes financial consulting and tax return preparation services ($14,850) and personal use of company automobiles ($2,814). With respect to Mr. O’Grady, joined the Corporation on August 15, 2011 as an Executive Vice Presidentincludes personal use of company aircraft ($4,773). With respect to Ms. Schreuder, includes financial consulting and became Chief Financial Officer on October 1, 2011. Mr. O’Grady received a $325,000 guaranteed minimum bonus in 2011tax return preparation services ($13,781).
(c) Includes tax reimbursements provided in connection with his commencementpersonal use of employment with the Corporation.company vehicles and taxable relocation expenses.
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise or Base Price of Option Awards ($/sh) | Grant ($)(5) | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise or Base Price of Option Awards ($/sh) | Grant ($)(5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Thres- hold ($) | Target ($) | Maximum ($) | Thres- hold (#) | Target (#) | Maximum (#) | Grant Date | Thres- hold ($) | Target ($) | Maximum ($) | Thres- hold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Waddell | $ | 2,000,000 | $ | 4,387,992 | $ | 1,900,000 | $ | 4,870,800 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 94,658 | $ | 52.690 | $ | 1,211,083 | 2/10/2014 | 81,964 | $ | 60.85 | $ | 1,329,507 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 31,553 | 1,662,528 | 2/10/2014 | 27,322 | 1,662,544 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 31,553 | 63,105 | 78,882 | 3,325,002 | 2/10/2014 | 27,322 | 54,643 | 68,304 | 3,325,027 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. O’Grady | 750,000 | 2,193,996 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 28,469 | 52.690 | 364,241 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 9,490 | 500,028 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 9,490 | 18,979 | 23,724 | 1,000,004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Bowman | 500,000 | 2,435,400 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 20,337 | 60.85 | 329,879 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 6,779 | 412,502 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 6,779 | 13,558 | 16,948 | 825,004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Fradkin | 800,000 | 2,193,996 | 800,000 | 2,435,400 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 28,469 | 52.690 | 364,241 | 2/10/2014 | 24,651 | 60.85 | 399,854 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 9,490 | 500,028 | 2/10/2014 | 8,217 | 500,004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 9,490 | 18,979 | 23,724 | 1,000,004 | 2/10/2014 | 8,217 | 16,434 | 20,543 | 1,000,009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Morrison | 1,000,000 | 2,925,328 | 1,000,000 | 3,247,200 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 47,685 | 52.690 | 610,096 | 2/10/2014 | 40,058 | 60.85 | 649,766 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 15,895 | 837,508 | 2/10/2014 | 13,353 | 812,530 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 15,895 | 31,790 | 39,738 | 1,675,015 | 2/10/2014 | 13,353 | 26,706 | 33,383 | 1,625,060 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. O’Grady | 750,000 | 2,435,400 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 24,651 | 60.85 | 399,854 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 8,217 | 500,004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/10/2014 | 8,217 | 16,434 | 20,543 | 1,000,009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ms. Schreuder | 825,000 | 2,193,996 | 785,000 | 3,247,200 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 28,469 | 52.690 | 364,241 | 2/10/2014 | 24,651 | 60.85 | 399,854 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 9,490 | 500,028 | 2/10/2014 | 8,217 | 500,004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/11/2013 | 9,490 | 18,979 | 23,724 | 1,000,004 | 2/10/2014 | 8,217 | 16,434 | 20,543 | 1,000,009 |
(1) These columns show the range of potentialinformation regarding payouts under the Management Performance PlanPlan. The amount set forth under the Maximum column represents the highest potential payout under the plan based on the Corporation’s performance in 2013.2014 performance. Although the Management Performance Planplan 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 20132014 in respect of 20122013 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 20132014 if Northern Trustthe Corporation achieves a return on equity of 6.5%7.0%, 8.5%10.0% or 13.5%15.0%, respectivelyrespectively.
(3) This column shows the number of restricted stock units granted to the named executive officers in 2013.2014.
(4) This column shows the number of shares that may be issued to the named executive officers upon exercise of stock options granted in 2013.2014.
(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 20132014
Performance Stock Units
Each performance stock unit constitutes the right to receive a share of the Corporation’s common stock and vests over a three-year performance period, subject to satisfaction of specified performance targets (“performance conditions”) that are a function of return on equity and continued employment until the end of the vesting period. Dividend equivalents on performance stock units are paid in cash on a current basis prior to vesting and distribution.
With respect to the performance stock units granted in 20132014 and 2014,2015, the Compensation and Benefits Committee identified specific types of objectively determinable factors that could affect return on equity if the factors occur during the performance period. In doing so, the Committee established that the effects of those factors will be excluded from the calculation of the performance measure if any of them, alone or in combination, would produce a change in net income in excess of $100 million. Factors that result in an adjustment to the calculation of the performance measure include: (i) acquisitions, dispositions, mergers, and similar transactions, and securities issuances and expenses in connection therewith; (ii) changes in accounting principles, tax laws or other laws that affect reported results that become effective during the performance period; (iii) litigation or regulatory settlements; (iv) charges and expenses for restructuring activity, including reductions in force; (v) discontinued operations; (vi) asset write-downs; and (vii) any other gain, loss, income or expense with respect to the performance period that is nonrecurring in nature. The Committee retains the power to exercise negative discretion, as it deems appropriate under the relevant circumstances, to reduce the actual payouts under the performance stock units below the payouts otherwise resulting from the application of adjustments for any of these factors.
The following chart showscharts illustrate the vesting requirements for the performance stock unit grants to named executive officers in 2013 and 2014 and illustrates2015 and shows that the average annual rate of return on equity that must be attained in order for the awards to become fully or partially vested has been increased for the 20142015 grants.
Performance Stock Unit February 2013 Grants | Performance Stock Unit February 2014 Grants | |||||||||||
Average Annual Rate of | Percentage of Stock Units Vested | Average Annual Rate of | Percentage of Stock Units Vested | |||||||||
Less than 6.5% | 0% | Less than 7.0% | 0% | |||||||||
6.5% | 50% | 7.0% | 50% | |||||||||
8.5% to 10.5% | 100% | 10% | 100% | |||||||||
11.5% | 115% | 12.5% | 115% | |||||||||
> 13.5% | 125% | > 15% | 125% |
Performance Stock Unit February 2015 Grants | Performance Stock Unit February 2014 Grants | |||||||||||
Average Annual Rate of | Percentage of Stock Units Vested | Average Annual Rate of | Percentage of Stock Units Vested | |||||||||
Less than 7.5% | 0% | Less than 7.0% | 0% | |||||||||
7.5% | 50% | 7.0% | 50% | |||||||||
10.25% | 100% | 10% | 100% | |||||||||
12.5% | 115% | 12.5% | 115% | |||||||||
> 15% | 125% | > 15% | 125% |
As it is possible that there will be no payout under the performance stock units, these awards are completely “at-risk” compensation.
If an executive dies, becomes disabled, or retires during the performance period, or the executive’s employment terminates during the performance period under certain circumstances entitling the executive to benefits under the Corporation’s severance plan, the executive or the
executive’s beneficiary will be eligible for pro rata vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the performance conditions. In addition, if an
a named executive is a Management Group member on the date of grant andofficer terminates employment on or after attainment of age 55, the executive will be eligible for pro rata vesting and distribution at the end of the performance period, subject to certain conditions, including satisfaction of the performance conditions. Accelerated pro rata vesting and distribution provisions also apply in the case of Management Group members who satisfy certain conditions (including the performance condition applied to the modified period) and who terminate employment for a government position, or terminate employment and thereafter accept a government position, and must dispose of any interest in the Corporation to satisfy ethics or conflict of interest laws or agreements.
Upon a change in control, performance stock units granted prior to December 31, 2012, become 100 percent vested and are to be immediately distributed; withdistributed. With respect to performance stock units granted after December 31, 2012, a pro rata portion of each performance stock unit award (based on the portion of the performance period that has elapsed as of the change in control) areis eligible to vest based on the Corporation’s actual performance at the time of the change in control and are to be paid out at the end of the performance period, subject to accelerated distribution upon a qualifying termination. The remainder of the performance award converts at the target level of performance specified in the performance stock unit agreement into an award with respect to the acquirer of an equal economic value and vests subject only to the continued employment of the recipient through the remainder of the applicable performance period and is paid out at the end of the performance period, subject to acceleration of vesting upon a qualifying termination, in which event the units are distributed at that time. Notwithstanding the foregoing, in the event that both a change in control occurs and the acquirer refuses or is unable to agree to the foregoing conversion and vesting provisions, the award will be vested at the time of the change in control, and will be distributed in accordance with the provisions of Section 409A of the Internal Revenue Code, Section 409A, to the extent applicable. The agreements have been drafted toperformance stock unit awards provide that in such event the distribution may be in cash.
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. RestrictedEach restricted stock unit awards entitleaward entitles an executive to receive one share of common stock in the year in which the award vests. Dividend equivalents on restricted stock units are paid in cash on a current basis prior to vesting and distribution.
If an executive dies, becomes disabled, or retires during the vesting period, or the executive’s employment is terminated during the vesting period under certain circumstances entitling the executive to benefits under the Corporation’s severance plan, the executive or the executive’s beneficiaries will be entitled to receive a distribution of a prorated number of restricted stock units. In addition, if ana named executive is a Management Group member on the date of grant,officer is age 55 or older on the date of termination of employment, and does not compete with the Corporation during the 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. In the case of restricted stock units granted after December 31, 2012, accelerated pro rata vesting and distribution provisions also apply in the case of Management Group members who satisfy certain conditions and who terminate employment for a government position, or terminate employment and thereafter accept a government position, and must dispose of any interest in the Corporation to satisfy ethics or conflict of interest laws or agreements.
Upon a change in control of the Corporation, all restricted stock units granted to named executive officers prior to December 31, 2012, become fully vested immediately; restrictedimmediately. Restricted stock units granted after December 31, 2012 arewould be converted into units of the acquirer and continue to vest in accordance with the regular vesting schedule; provided, however, that they become fully vested in connection with a change in control if the executive experiences a qualifying termination of employment following the change in control
(in (in which case they are distributed within 60sixty days). A qualifying termination is an involuntary termination of employment without “cause” or termination for “good reason,” as those terms are defined in the award agreements, that occurs after the change in control and prior to the second anniversary thereof. Notwithstanding the foregoing, in the event that both a change in control occurs and the acquirer refuses or is unable to agree to the foregoing
conversion and vesting provisions, the award will be vested and will be distributed in accordance with the provisions of Section 409A of the Internal Revenue Code, Section 409A, to the extent applicable. The agreements have been drafted torestricted stock unit awards provide that in such event distribution may be in cash.
Stock Options
Stock options are granted with an exercise price equal to the closing sale price of the common stock on the date of grant and expire 10ten years after the date of the grant. Stock options generally vest in equal annual installments over a four-year vesting period determined by the Compensation and Benefits Committee.
If an executive dies or becomes disabled, the executive’s outstanding stock options become vested and may be exercised until the earlier of five years following death or disability or the expiration date of the option. If the executive retires, or if thea named executive is a member of the Management Group on the date of grant,officer is age 55 or older with a minimum of 10ten years of employment on the date of termination of employment, and is not otherwise retirement-eligible pursuant to the Corporation’s retirement policy, the stock options continue to vest in accordance with their terms and, once vested, may be exercised until the earlier of five years following retirement or the expiration date of the option. If the executive’s employment is terminated under certain circumstances entitling the executive to severance benefits, the executive’s stock options (whether vested or unvested) may be exercised until the earlier of 180 days following termination of employment or the expiration date of the option, provided that if the executive is retirement eligible upon his or her termination of employment under the severance plan, the executive’s stock options (whether vested or unvested) become vested upon the executive’s termination of employment and may be exercised until the earlier of five years from the executive’s effective date of retirement or the expiration of the option. In addition, subject to certain conditions, Management Group members who hold options granted in 2012 and thereafter are eligible for accelerated vesting upon termination of employment to commence government service (or upon acceptance of government employment after termination of employment with the Corporation but prior to a vesting date) in instances where divesture of equity interests in the Corporation is required by law or is otherwise reasonably necessary, and may exercise their options for 90 days following their government service termination date or commencement of government employment, as applicable, or until the expiration of the option, if earlier. In other instances, in the absence of a change in control, vested stock options expire on the earlier of three months following termination of employment or the expiration date of the option, and unvested stock options expire on termination of employment.
Upon a change in control of the Corporation, all stock options granted prior to December 31, 2012 become vested and exercisable. Stock options granted after December 31, 2012 convert to options onrelating to the stock of the acquirer and continue to vest in accordance with the regular vesting schedule,schedule; provided, however, that they become fully vested in connection with a change in control if the executive experiences a qualifying termination of employment following the change in control (in which case the options on the acquirer stock remain exercisable until the expiration of the option), or if they are not assumed in the transaction (in which case the employee is entitled to a cash payment equal to the “spread” between the transaction consideration and the option exercise price). The Corporation’s equity award agreements contain provisions related to a change in control of the Corporation.
Outstanding Equity Awards at Fiscal Year-End
Option Awards (1) | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares of Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Units or (#)(4) | Equity Incentive Plan Awards: Market or | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares of Units of Stock That Have Not Vested ($)(1) | Equity Incentive Plan Awards: Number of Unearned Units or (#) | Equity Incentive Plan Awards: Market or | ||||||||||||||||||||||||||||||||||||||||||||
Mr. Waddell | 75,000 | 0 | $ | 44.465 | 2/15/2015 | 141,861 | $ | 8,779,777 | 116,561 | $ | 7,213,960 | 65,105 | — | 63.36 | 2/20/2017 | 96,869(8 | ) | $ | 6,528,971 | 171,204(14 | ) | $ | 11,539,150 | |||||||||||||||||||||||||||||||||||||
76,761 | 0 | 52.095 | 2/21/2016 | 126,352 | — | 71.23 | 2/19/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
65,105 | 0 | 63.360 | 2/20/2017 | 270,808 | — | 57.54 | 7/21/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
126,352 | 0 | 71.230 | 2/19/2018 | 205,923 | — | 50.99 | 2/15/2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
270,808 | 0 | 57.540 | 7/21/2019 | 170,973 | 56,991 | (3) | 52.64 | 2/14/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
154,443 | 51,480 | 50.990 | 2/15/2020 | 80,184 | 80,183 | (4) | 43.65 | 2/13/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
113,982 | 113,982 | 52.640 | 2/14/2021 | 23,665 | 70,993 | (5) | 52.69 | 2/11/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
40,092 | 120,275 | 43.650 | 2/13/2022 | — | 81,964 | (6) | 60.85 | 2/10/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | 94,658 | 52.690 | 2/11/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. O’Grady | 48,350 | 48,350 | 38.780 | 10/18/2021 | 41,724 | 2,582,298 | 35,016 | 2,167,140 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
12,028 | 36,082 | 43.650 | 2/13/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | 28,469 | 52.690 | 2/11/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Bowman | 5,919 | — | 63.36 | 2/20/2017 | 23,434(9 | ) | 1,579,452 | 27,793(15 | ) | 1,873,248 | ||||||||||||||||||||||||||||||||||||||||||||||||||
7,371 | — | 71.23 | 2/19/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
14,444 | — | 55.39 | 2/16/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11,768 | — | 50.99 | 2/15/2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
8,550 | 2,849 | (3) | 52.64 | 2/14/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5,728 | 5,727 | (4) | 43.65 | 2/13/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5,338 | 16,014 | (5) | 52.69 | 2/11/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | 20,337 | (6) | 60.85 | 2/10/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Fradkin | 28,786 | 0 | 52.095 | 2/21/2016 | 43,043 | 2,663,931 | 35,016 | 2,167,140 | 40,247 | — | 63.36 | 2/20/2017 | 29,580(10 | ) | 1,993,692 | 51,450(16 | ) | 3,467,730 | ||||||||||||||||||||||||||||||||||||||||||
40,247 | 0 | 63.360 | 2/20/2017 | 42,118 | — | 71.23 | 2/19/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
42,118 | 0 | 71.230 | 2/19/2018 | 90,270 | — | 57.54 | 7/21/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
90,270 | 0 | 57.540 | 7/21/2019 | 58,836 | — | 50.99 | 2/15/2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
44,127 | 14,709 | 50.990 | 2/15/2020 | 53,430 | 17,809 | (3) | 52.64 | 2/14/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
35,620 | 35,619 | 52.640 | 2/14/2021 | 24,055 | 24,055 | (4) | 43.65 | 2/13/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
12,028 | 36,082 | 43.650 | 2/13/2022 | 7,118 | 21,351 | (5) | 52.69 | 2/11/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | 28,469 | 52.690 | 2/11/2023 | — | 24,651 | (6) | 60.85 | 2/10/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Morrison | 75,000 | 0 | 44.465 | 2/15/2015 | 59,448 | 3,679,237 | 58,518 | 3,621,679 | 40,247 | — | 63.36 | 2/20/2017 | 46,121(11 | ) | 3,108,555 | 85,224(17 | ) | 5,744,098 | ||||||||||||||||||||||||||||||||||||||||||
63,328 | 0 | 52.095 | 2/21/2016 | 42,118 | — | 71.23 | 2/19/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
40,247 | 0 | 63.360 | 2/20/2017 | 90,270 | — | 57.54 | 7/21/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
42,118 | 0 | 71.230 | 2/19/2018 | 58,836 | — | 50.99 | 2/15/2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
90,270 | 0 | 57.540 | 7/21/2019 | 53,430 | 17,809 | (3) | 52.64 | 2/14/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
44,127 | 14,709 | 50.990 | 2/15/2020 | 40,092 | 40,092 | (4) | 43.65 | 2/13/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
35,620 | 35,619 | 52.640 | 2/14/2021 | 11,922 | 35,763 | (5) | 52.69 | 2/11/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
20,046 | 60,138 | 43.650 | 2/13/2022 | — | 40,058 | (6) | 60.85 | 2/10/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | 47,685 | 52.690 | 2/11/2023 |
Option Awards (1) | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares of Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Units or (#)(4) | Equity Incentive Plan Awards: Market or | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares of Units of Stock That Have Not Vested ($)(1) | Equity Incentive Plan Awards: Number of Unearned Units or (#) | Equity Incentive Plan Awards: Market or | ||||||||||||||||||||||||||||||||||||||||||||
Mr. O’Grady | 72,525 | 24,175 | (7) | 38.78 | 10/18/2021 | 33,824(12 | ) | 2,279,738 | 51,450(18 | ) | 3,467,730 | |||||||||||||||||||||||||||||||||||||||||||||||||
24,055 | 24,055 | (4) | 43.65 | 2/13/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7,118 | 21,351 | (5) | 52.69 | 2/11/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
— | 24,651 | (6) | 60.85 | 2/10/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ms. Schreuder | 42,219 | 0 | 52.095 | 2/21/2016 | 43,043 | 2,663,931 | 35,016 | 2,167,140 | 17,756 | — | 63.36 | 2/20/2017 | 29,580(13 | ) | 1,993,692 | 51,450(19 | ) | 3,467,730 | ||||||||||||||||||||||||||||||||||||||||||
35,512 | 0 | 63.360 | 2/20/2017 | 42,118 | — | 71.23 | 2/19/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
42,118 | 0 | 71.230 | 2/19/2018 | 90,270 | — | 57.54 | 7/21/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
90,270 | 0 | 57.540 | 7/21/2019 | 58,836 | — | 50.99 | 2/15/2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
44,127 | 14,709 | 50.990 | 2/15/2020 | 53,430 | 17,809 | (3) | 52.64 | 2/14/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
35,620 | 35,619 | 52.640 | 2/14/2021 | 24,055 | 24,055 | (4) | 43.65 | 2/13/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
12,028 | 36,082 | 43.650 | 2/13/2022 | 7,118 | 21,351 | (5) | 52.69 | 2/11/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | 28,469 | 52.690 | 2/11/2023 | — | 24,651 | (6) | 60.85 | 2/10/2024 |
(1) Stock options generally vest in equal annual installments over a four-year vesting period determined by the Committee.
(2) This column shows the number of restricted stock units held by the named executive officers as of December 31, 2013. Restricted stock units vest 50% on the third anniversary of the date of grant and 50% on the fourth anniversary of the date of grant.
(3) The market value of the restricted stock units included in this column is based on a price of $61.89$67.40 per share (the closing market price of the Corporation’s common stock on December 31, 2013)2014).
(4) Represents the target number of shares that a named executive officer may receive under the performance stock units granted in 2012 and 2013.
(5)(2) The market value of the performance stock units included in this column is based on a price of $61.89$67.40 per share (the closing market price of the Corporation’s common stock on December 31, 2013)2014).
(3) Options originally granted February 14, 2011, with 25% of the award vesting on each anniversary of the grant date. Accordingly, all remaining unvested options vest on February 14, 2015.
(4) Options originally granted February 13, 2012, 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 13, 2015 and 2016.
(5) 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, 2015, 2016 and 2017.
(6) 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, 2015, 2016, 2017 and 2018.
(7) Options originally granted October 18, 2011, with 25% of the award vesting on each anniversary of the grant date. Accordingly, all remaining unvested options vest on October 18, 2015.
(8) Consists of 37,994 restricted stock units vesting on February 14, 2015, 15,777 units vesting on February 11, 2016, 13,661 units vesting on February 10, 2017, 15,776 units vesting on February 11, 2017 and 13,661 units vesting on February 10, 2018.
(9) Consists of 3,819 restricted stock units vesting on February 13, 2015, 1,900 units vesting on February 14, 2015, 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 and 3,389 units vesting on February 10, 2018.
(10) Consists of 11,873 restricted stock units vesting on February 14, 2015, 4,745 units vesting on February 11, 2016, 4,109 units vesting on February 10, 2017, 4,745 units vesting on February 11, 2017 and 4,108 units vesting on February 10, 2018.
(11) Consists of 11,873 restricted stock units vesting on February 14, 2015, 5,000 units vesting on July 19, 2015, 7,948 units vesting on February 11, 2016, 6,677 units vesting on February 10, 2017, 7,947 units vesting on February 11, 2017 and 6,676 units vesting on February 10, 2018.
(12) Consists of 16,117 restricted stock units vesting on October 18, 2015, 4,745 units vesting on February 11, 2016, 4,109 units vesting on February 10, 2017, 4,745 units vesting on February 11, 2017 and 4,108 units vesting on February 10, 2018.
(13) Consists of 11,873 restricted stock units vesting on February 14, 2015, 4,745 units vesting on February 11, 2016, 4,109 units vesting on February 10, 2017, 4,745 units vesting on February 11, 2017 and 4,108 units vesting on February 10, 2018.
(14) Consists of the following number of target shares Mr. Waddell may receive under performance stock units: 53,456 shares vesting on February 13, 2015; 63,105 shares vesting on February 11, 2016; and 54,643 shares vesting on February 10, 2017. The actual number of shares distributed on the vesting date will be based upon the satisfaction of certain performance conditions.
(15) Consists of the following number of target shares Mr. Bowman may receive under performance stock units: 14,235 shares vesting on February 11, 2016; and 13,558 shares vesting on February 10, 2017. The actual number of shares distributed on the vesting date will be based upon the satisfaction of certain performance conditions.
(16) Consists of the following number of target shares Mr. Fradkin may receive under performance stock units: 16,037 shares vesting on February 13, 2015; 18,979 shares vesting on February 11, 2016; and 16,434 shares vesting on February 10, 2017. The actual number of shares distributed on the vesting date will be based upon the satisfaction of certain performance conditions.
(17) Consists of the following number of target shares Mr. Morrison may receive under performance stock units: 26,728 shares vesting on February 13, 2015; 31,790 shares vesting on February 11, 2016; and 26,706 shares vesting on February 10, 2017. The actual number of shares distributed on the vesting date will be based upon the satisfaction of certain performance conditions.
(18) Consists of the following number of target shares Mr. O’Grady may receive under performance stock units: 16,037 shares vesting on February 13, 2015; 18,979 shares vesting on February 11, 2016;
and 16,434 shares vesting on February 10, 2017. The actual number of shares distributed on the vesting date will be based upon the satisfaction of certain performance conditions.
(19) Consists of the following number of target shares Ms. Schreuder may receive under performance stock units: 16,037 shares vesting on February 13, 2015; 18,979 shares vesting on February 11, 2016; and 16,434 shares vesting on February 10, 2017. The actual number of shares distributed on the vesting date will be based upon the satisfaction of certain performance conditions.
Option Exercises and Stock Vested
The following table sets forth information for each named executive officer with respect to:
Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired On Vesting (#) | Value Realized On Vesting ($)(2)(3) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired On Vesting (#) | Value Realized On Vesting ($)(2) | ||||||||||||||||||||||||
Mr. Waddell | 90,000 | $ | 529,914 | 56,888 | $ | 3,105,421 | 151,761 | $ | 2,477,299 | 72,314 | $ | 4,486,814 | ||||||||||||||||||||
Mr. Bowman | 6,045 | 95,844 | 7,849 | 494,128 | ||||||||||||||||||||||||||||
Mr. Fradkin | 133,785 | 1,355,848 | 17,328 | 358,998 | 28,786 | 342,571 | 21,680 | 1,345,187 | ||||||||||||||||||||||||
Mr. Morrison | 90,000 | 898,596 | 17,328 | 947,988 | 138,328 | 2,157,012 | 26,680 | 1,670,412 | ||||||||||||||||||||||||
Mr. O’Grady | — | — | 16,117 | 1,028,829 | ||||||||||||||||||||||||||||
Ms. Schreuder | 25,000 | 117,000 | 17,328 | 947,988 | 59,975 | 669,597 | 21,680 | 1,345,187 |
(1) The value realized on the exercise of stock options represents the pre-tax difference between the option exercise price and the fair market value of the common stock on the date of exercise.
(2) The value realized on the distribution of restricted stock units represents the average of the high and low sales prices on February 15, 2013, the distribution date approved byof the Committee, which was $53.315,applicable award multiplied by the number of stock units held by the named executive officers.
(3) Under the provisions of the applicable restricted stock unit agreements, a portion of the restricted stock units listed in the table as vesting in 2013 was required to be deferred as follows: Mr. Waddell: 22,567 deferred stock units ($1,275,600); Mr. Fradkin: 7,522 deferred stock units ($425,181); Mr. Morrison: 7,522 deferred stock units ($425,181); and Ms. Schreuder: 7,522 deferred stock units ($425,181).
Information with respect to accrued benefits of each named executive officer under the Pension Plan is as follows:
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Benefit ($) | Payments Fiscal Year ($) | ||||||||||
Mr. Waddell | Qualified Pension Plan | 35.0 | $ | 1,687,574 | — | |||||||||
Supplemental Pension Plan | 35.0 | 16,590,337 | — | |||||||||||
Mr. O’Grady | Qualified Pension Plan | 2.4 | 25,314 | — | ||||||||||
Supplemental Pension Plan | 2.4 | 79,176 | — | |||||||||||
Mr. Fradkin | Qualified Pension Plan | 28.7 | 867,904 | — | ||||||||||
Supplemental Pension Plan | 28.7 | 3,735,258 | — | |||||||||||
Mr. Morrison | Qualified Pension Plan | 17.8 | 843,110 | — | ||||||||||
Supplemental Pension Plan | 17.8 | 3,635,980 | — | |||||||||||
Ms. Schreuder | Qualified Pension Plan | 33.7 | 1,223,693 | — | ||||||||||
Supplemental Pension Plan | 33.7 | 5,233,447 | — |
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Benefit ($) | Payments Fiscal Year ($) | ||||||||||
Mr. Waddell | Qualified Pension Plan | 35.0 | $ | 1,942,586 | — | |||||||||
Supplemental Pension Plan | 35.0 | 19,097,368 | — | |||||||||||
Mr. Bowman | Qualified Pension Plan | 29.5 | 1,020,734 | — | ||||||||||
Supplemental Pension Plan | 29.5 | 1,814,412 | — | |||||||||||
Mr. Fradkin | Qualified Pension Plan | 29.7 | 1,076,076 | — | ||||||||||
Supplemental Pension Plan | 29.7 | 4,658,243 | — | |||||||||||
Mr. Morrison | Qualified Pension Plan | 18.8 | 909,332 | — | ||||||||||
Supplemental Pension Plan | 18.8 | 3,957,522 | — | |||||||||||
Mr. O’Grady | Qualified Pension Plan | 3.4 | 36,250 | — | ||||||||||
Supplemental Pension Plan | 3.4 | 125,068 | — | |||||||||||
Ms. Schreuder | Qualified Pension Plan | 34.7 | 1,476,590 | — | ||||||||||
Supplemental Pension Plan | 34.7 | 6,344,466 | — |
Pension Plan and Supplemental Pension Plan
Defined benefit pension benefits are provided generally to employees under the Pension Plan and to certain employees (including the named executive officers) under the Supplemental Pension Plan. The Pension Plan is a tax-qualified retirement plan that provides a retirement benefit as described below, which is subject to various limitations of the Internal Revenue Code and the Pension Plan. The Supplemental Pension Plan is a non-qualifiednonqualified retirement plan that provides the portion of an employee’s benefit that cannot be paid under the Pension Plan due to Internal Revenue Code and Pension Plan limits. The material terms and conditions of the Pension Plan and the Supplemental Pension Plan as they relate to the named executive officers include the following:
Eligibility:
Employees participate in the Pension Plan after completing six months of vesting service. Employees with six months of vesting service who would have a portion of their benefit from the Pension Plan limited due to Internal Revenue Code or Pension Plan restrictions also participate in the Supplemental Pension Plan.
Benefit Formula—Traditional Formula:
Prior to April 1, 2012, the benefits of the named executive officers, except for Mr. O’Grady, were determined under the Pension Plan’s Traditional“Traditional Formula.” To determine a participant’s benefit, the Traditional Formula first multiplies 1.8% by the average of the participant’s highest 60sixty consecutive calendar months of eligible pay. This amount is further multiplied by the participant’s years of credited service (up to a maximum of 35thirty-five years). The Social Security offset is then determined by multiplying 0.5% by (i) the lesser of the participant’s Social Security Covered Compensationcovered compensation limit or the average of the participant’s eligible pay for the three consecutive years prior to retirement by (ii) the participant’s years of credited service (up to 35thirty-five years). This offset is subtracted from the benefit amount previously calculated to determine the annual benefit amount produced by the Traditional Formula.
For purposes of the Traditional Formula:
— | “Eligible pay” means base salary (including any before-tax payroll deductions), shift differentials, overtime and certain types of performance-based incentive compensation, including cash, Northern Performance Incentives under the Northern Partners Incentive Plan (“NPIP”), compensation under the Management Performance Plan, payments from the former Annual Performance Plan and the cash value of stock options which were specifically paid in lieu of cash incentives from January 1, 2002 through April 30, 2004. Cash incentives deferred under the Northern Trust Corporation Deferred Compensation Plan (the “Deferred Compensation Plan”) are not included in eligible pay under the Pension Plan but are included in eligible pay under the Supplemental Pension Plan. |
— | “Social Security covered compensation” means the average of the Social Security taxable wage base for each of the thirty-five calendar years ending in the year in which the participant attains Social Security retirement age. In determining Social Security covered compensation as of a certain year, the taxable wage base for any subsequent year is assumed to be the same as for the determination year. |
Benefit Formula—PEP Formula:Formula Since
Because Mr. O’Grady commenced employment on August 15, 2011, his benefits under the Pension Plan and Supplemental Pension Plan for his entire period ofcreditedof credited service are calculated under the Pension Plan’s “Pension Equity Plan (PEP) Formula.” Under the PEP Formula, each year a participant earns a specific pension credit “percentage,” determined in accordance with a schedule in the Pension Plan that varies directly with his or her total number of years of credited service. Participants currently earn a 4% pension credit percentage for each of their first ten credited years of service, with the pension credit percentage increasing by one percentage point for the eleventh year of service and every fifth year thereafter through the end of their thirty-fifth year of service (after which no additional pension credit percentages are earned). A participant’s PEP Formula lump sum amount is equal to the sum of his or her pension credit percentages multiplied by the average of the participant’s highest 60sixty consecutive calendar months of eligible pay. Prior to April 1, 2012, eligible pay was defined the same for the PEP Formula as for the Traditional Formula, except that eligible pay under the PEP Formula also included cash sales and technical incentives under the NPIP up to 50% of the participant’s prior year’s base pay. Effective April 1, 2012, eligible pay under the PEP Formula includes all cash incentives under the NPIP. A participant’s annual benefit under the PEP Formula is equal to a single life annuity commencing at age 65 that is the actuarial equivalent of his or her PEP Formula lump sum amount. The single life annuity is calculated using interest rate and mortality assumptions specified in the Pension Plan.
Benefit Formula—Changes:
Effective June 1, 2001, the Pension Plan was amended to provide that benefits of all newly hired employees of the Corporation and its affiliates would be calculated under a version of the PEP Formula. All employees already employed by the Corporation and its affiliates prior to such time were provided the opportunity to elect whether to accrue future benefits under such PEP Formula or the Traditional Formula. Effective April 1, 2012, the Pension Plan was further amended to provide that for credited service earned after March 31, 2012 all employees, including those who had previously elected the named executive officersTraditional Formula, will accrue benefits pursuant to the revised PEP Formula which formula was also modified effective April 1, 2012. Therefore,described above. Accordingly, the named executive officers, other than Mr. O’Grady, will be entitled to an annual benefit equal to the sum of their accrualsaccruals: (i) under the Traditional Formula for periods of credited service before April 1, 2012,2012; and (ii) under the amended PEP Formula for their periods of credited service if any, after March 31, 2012. Each such executive’s pre-April 1, 2012 Traditional Formula benefits will be based on credited service and average compensation calculated as of March 31, 2012, provided that the executive’s average compensation as of March 31, 2012, will beindexedbe indexed at a rate of 1.5% per year for any period on and after April 1, 2012 during which the executive earns credited service under the Pension Plan.
In 2013, the Chairman and CEO’s pension value decreased by $444,845. Although the April 1, 2012 changes made to the Pension Plan are anticipated to moderate any future pension value increases, the present value of benefits under the Traditional Formula is sensitive to changes in interest rates. The increasedecrease in discount rate used to calculate the pension from 4.25%5.00% to 5.00%4.25% at December 31, 20132014 resulted in a decreasean increase in value in the present value of benefits under the Traditional Formula for each of the named executive officers, except for Mr. O’Grady, whose benefits are all accrued under the PEP Formula. The other primary factors influencing pension values include an increase of the final average pay calculation and the application of the average pay across years of credited service under the Pension Plan.
Benefit Formula—Supplemental Pension Plan:
Pension benefits are first calculated under the combined Traditional Formula and PEP Formulas or solely under the PEP Formula, as applicable, without regard to Internal Revenue Code limits and including in eligible pay the amounts deferred under the deferred compensation plan.Deferred Compensation Plan. They are then recalculated applying Internal Revenue Code limits and excluding deferred compensation planDeferred Compensation Plan deferrals from eligible pay to determine the amount of the benefit that is payable from the Pension Plan. The difference between the total benefit calculation and the Pension Plan calculation is paid from the Supplemental Pension Plan.
Benefit Entitlement:
A participant is eligible to receive a benefit under the Pension Plan and Supplemental Pension Plan after completing three years of vesting service.
Retirement:
A participant is 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 65 (or for participants who begin participation in the Pension Plan after age 60, upon the first to occur of reaching the fifth anniversary of commencement of participation or achieving five years of vesting service).65. A participant is eligible for an early retirement benefit if his or her employment terminates on or after age 55 and he or she has completed 15fifteen years ofcreditedof credited service. A participant who terminates employment with three years of vesting service but priortoprior to becoming eligible for a normal or early retirement benefit is eligible for a “vested terminee” benefit commencing any time after termination. Mr. Waddell, Mr. Morrison and Ms. Schreuder are each eligible for early retirement benefits.
Under the Traditional Formula, the early retirement benefit is equal to the normal retirement benefit described above, reduced by 0.5% for each month payments are received prior to age 62 (or prior to age 60 under certain circumstances). Participants eligible for a “vested terminee” benefit are entitled to benefit payments that are reduced by 0.5% for each month up to 120 months that payments are received prior to age 65, then actuarially reduced for each month that payments are received prior to age 55.
Under the PEP Formula, both the early retirement benefit and “vested terminee” benefit are equal to the normal retirement benefit (in the form of a monthly single life annuity as described above), adjusted for early commencement prior to age 65 (or for participants who begin participation in the Pension Plan after age 60, upon the first to occur of reaching the fifth anniversary of commencement of participation or achieving five years of vesting service).65. The adjustment is made using interest rate and mortality assumptions specified in the Pension Plan.
Form of Benefit Payment:Payment
The normal form of benefit payment under the Pension Plan is a single life annuity in the case of an unmarried participant and a 50% joint and survivor annuity in the case of a married participant, although optional forms of payment are available, depending on marital status and age and years of service. A lump sum option is available in all cases. All optional forms are the actuarial equivalent of the normal form of payment. The normal form of benefit under the Supplemental Pension Plan is a five-year certain annuity, payable to the participant in five annual installments; if the participant dies prior to receiving full benefits, payments will continue for theremainderthe remainder of the five years to a designated beneficiary. Any installment payments are credited with interest pursuant to a market-based formula set forth in the respectiveSupplemental Pension Plan. If the value of the Supplemental Pension Plan benefit is $125,000 or less, the benefit is paid in a single lump sum.
Assumptions.
The assumptions used in calculating the present value of the accumulated benefit are set forth in “Note 21—Employee Benefits” to the consolidated financial statements included in the “Notes to Consolidated Financial Statements” inItem 8 of the Corporation’s 2013 Annual Report to Stockholders.on Form 10-K for the year ended December 31, 2014. The Corporation does not grant extra years of credited service under the Pension Plan, other than as noted below under “Potential Payment Upon Termination of Employment or a Change in Control of the Corporation.”
Non-QualifiedNonqualified Deferred Compensation
Name | Form of Deferred Compensation | Executive Contributions In Last FY ($)(1) | Registrant Contributions ($)(2) | Aggregate Earnings Last ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last ($) | Form of Deferred Compensation | Executive Contributions in Last FY ($)(1) | Registrant Contributions ($)(2) | Aggregate Earnings Last ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last ($)(4) | ||||||||||||||||||||||||
Mr. Waddell | Deferred Compensation Plan | — | — | — | — | — | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||||||||||||||
Supplemental TIP | $43,200 | $ | 21,600 | 275,234 | — | $ | 1,227,195 | Supplemental TIP | $42,900 | $ | 21,450 | $ | 88,049 | — | $ | 1,379,594 | ||||||||||||||||||||
Deferred Stock Units | 1,221,449 | — | 1,208,593 | — | 7,102,496 | Deferred Stock Units | — | — | 1,969,709 | — | 9,072,205 | |||||||||||||||||||||||||
Mr. O’Grady | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||||||||||||||||||||
Mr. Bowman | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||||||||||||||||||||
Supplemental TIP | 20,325 | 10,163 | (214 | ) | — | 30,273 | Supplemental TIP | 23,375 | 7,013 | 7,921 | — | 145,633 | ||||||||||||||||||||||||
Deferred Stock Units | — | — | — | — | — | Deferred Stock Units | — | — | — | — | — | |||||||||||||||||||||||||
Mr. Fradkin | Deferred Compensation Plan | — | — | 24,324 | — | 103,334 | Deferred Compensation Plan | — | — | 10,860 | — | 114,194 | ||||||||||||||||||||||||
Supplemental TIP | 20,700 | 10,350 | 125,496 | — | 595,351 | Supplemental TIP | 20,400 | 10,200 | 51,818 | — | 677,769 | |||||||||||||||||||||||||
Deferred Stock Units | 407,093 | — | 175,704 | — | 1,168,917 | Deferred Stock Units | — | — | 549,799 | — | 1,718,715 | |||||||||||||||||||||||||
Mr. Morrison | Deferred Compensation Plan | — | — | — | — | — | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||||||||||||||
Supplemental TIP | 31,200 | 15,600 | 1,436 | — | 668,236 | Supplemental TIP | 32,400 | 16,200 | 1,029 | — | 717,864 | |||||||||||||||||||||||||
Deferred Stock Units | 407,093 | — | 168,994 | — | 1,133,515 | Deferred Stock Units | — | — | 546,647 | — | 1,680,162 | |||||||||||||||||||||||||
Mr. O’Grady | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||||||||||||||||||||
Supplemental TIP | 20,400 | 10,200 | 385 | — | 61,259 | |||||||||||||||||||||||||||||||
Deferred Stock Units | — | — | — | — | — | |||||||||||||||||||||||||||||||
Ms. Schreuder | Deferred Compensation Plan | — | — | — | — | — | Deferred Compensation Plan | — | — | — | — | — | ||||||||||||||||||||||||
Supplemental TIP | 20,700 | 10,350 | 112,980 | — | 508,120 | Supplemental TIP | 20,400 | 10,200 | 65,780 | — | 604,499 | |||||||||||||||||||||||||
Deferred Stock Units | 407,093 | — | 64,539 | — | 582,385 | Deferred Stock Units | — | — | 497,581 | — | 1,079,966 |
(1) Amounts in this column are also included in each named executive officer’s compensation reported underin the “Summary Compensation Table,” either as “Salary” or “Stock Awards.”
(2) Amounts in this column are also included in each named executive officer’s “All Other Compensation” underin the “Summary Compensation Table.”
(3) The aggregate earnings in this column are not “above-market” and thus are not included in the “Summary Compensation Table.”
(4) All amounts in this column have previously been included in each named executive officer’s compensation reported in the “Summary Compensation Table” to the extent that compensation data for each such officer, generally, has been included in such table.
Deferred Compensation Plan
The Corporation maintains the Northern Trust Corporation Deferred Compensation Plan pursuant to which eligible employees, including the named executive officers, may defer all or a portion of their eligible annual incentive cash awards until a later date. The material terms and conditions of the deferred compensation planDeferred Compensation Plan as they relate to the named executive officers include the following:
Eligibility:Eligibility
An employee is eligible to participate in the deferred compensation planDeferred Compensation Plan for any calendar year if as of the preceding November 15 he or sheshe: (i) was actively employed by the Corporation or a subsidiary and either resided in the U.S.United States or was a U.S.an expatriate of the United States on temporary international assignment,assignment; (ii) participated in the Management Performance Plan or the NPIP; and (iii) had an annual base salary of $100,000 or more or a combination of base salary and cash awards paid from April 1 of the prior year through March 31 of the current year equal to $150,000 or more.
Contributions:Contributions
Each participant must make an election prior to the beginning of a calendar year, and can elect to defer up to 100% of each eligible cash incentive award that will be paid in the second calendar year following the year of the election, subject to a minimum deferral of $2,500 of each cash incentive award. All deferrals are credited to an account maintained for the participant under the deferred compensation plan.Deferred Compensation Plan. No employer contributions are made under the deferred compensation plan.Deferred Compensation Plan.
Vesting:Vesting
A participant is fully vested in his or her entire deferred compensation planDeferred Compensation Plan account balance at all times.
Investments:Investments
Each participant’s deferred compensation planDeferred Compensation Plan account is credited with earnings or losses based on various mutual fund investment alternatives made available under the deferred compensation planDeferred Compensation Plan and selected by the participant.
Distributions:Distributions
At the time a participant makes a deferral election, he or she must elect a short-term deferral or a retirement deferral. If the participant elects a short-term deferral, distribution of such amount must be deferred until a later specified date, which is at least three years following the end of the year in which the cash incentive award would have otherwise been paid. The short-term deferral, including the attributable earnings or losses, is paid to the participant in a lump sum. If the participant elects a retirement deferral, distribution of such amount will be deferred until the participant retires after reaching eligibility for early or normal retirement under the Pension Plan. At the time the participant makes the retirement deferral election, he or she must also elect whether the deferral, including the attributable earnings or losses, will be paid in a lump sum or in installments payable over five or 10ten years. Notwithstanding the foregoing, if the participant’s employment terminates before the scheduled distribution date, the short-term or retirement deferral, and attributable earnings or losses, will be paid
in a lump sum within 60sixty days following the date of such termination. If the participant is deemed to be a “key employee” as defined by the Internal Revenue Code, any distribution that was deferred after December 31, 2004 and is payable due to retirement or termination of employment will be delayed for six months following the date of such retirement or termination.
Supplemental TIP
Supplemental TIP is a non-qualifiednonqualified retirement plan that provides the portion of an employee’s benefit that cannot be paid under TIP due to the Internal Revenue Code’s limit on the amount of a
participant’s compensation that can be taken into account in determining TIP benefits. Account information provided for Supplemental TIP also includes account balances in the Northern Trust Corporation Supplemental Employee Stock Ownership Plan, which was frozen effective January 1, 2005 when the qualified Northern Trust Employee Stock Ownership Plan was merged into TIP. The material terms and conditions of Supplemental TIP as they relate to the named executive officers include the following:
Eligibility:Eligibility
An employee is eligible to participate in Supplemental TIP for any calendar year if he or she participates in TIP and as of the prior November 30 his or her base salary exceeded the Internal Revenue Code compensation limit. Employees are eligible to participate in TIP and elect salary deferrals immediately upon their hire, and are eligible for employer matching contributions after six months of service. All named executive officers participate in both Plans.plans.
Contributions:Contributions
Each participant must make an election prior to the beginning of a calendar year to contribute to Supplemental TIP a portion of his or her base salary that exceeds the Internal Revenue Code compensation limit. The Corporation makes a matching contribution under Supplemental TIP using the formula in TIP, which is 50% of the first 6% of deferred salary, for a maximum matching contribution of 3% of salary.
Vesting:Vesting
Each participant generally vests in the employer contributions under TIP and Supplemental TIP on a graduated basis of 20% per year over five years and is fully vested after five years.Theyears. The named executive officers except Mr. O’Grady, are fully vested in their TIP and Supplemental TIP accounts.accounts, except for Mr. O’Grady, whose employer contributions were 60% vested under such plans as of December 31, 2014.
Investments:Investments
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.
Distributions
Distributions:No withdrawal or borrowing of Supplemental TIP assets is permitted during a participant’s employment. Distribution of the entire Supplemental TIP account balance generally is made to a participant within 90ninety days after the participant’s termination of employment. If the participant is deemed to be a “key employee”,employee,” as defined by the Internal Revenue Code, the portion of his or her Supplemental TIP account accruing after December 31, 2004 is distributed as a single lump sum following the six monthsix-month anniversary of the termination of employment.
Deferred Stock Units
As referenced in footnote 3 to the “Option Exercises and Stock Vested” table,Certain restricted stock units granted prior to 2010 may be required to be deferred until the earlier of (a)of: (i) the year in which the Compensation and Benefits Committee reasonably anticipates that, if the payment is made during that year, the deduction of the payment will not be barred by the Internal Revenue Code Section 162(m),; or (b)(ii) the period beginning with the date of the participant’s separation from service (as defined in the Corporation’s Amended and Restated 2002 Stock Plan) and ending on the later of the last day of the Corporation’s taxable year in which the participant incurs a separation from service or the 15thfifteenth day of the third month following such separation from service. “Executive Contribution“Aggregate Earnings in Last FY” in the Nonqualified Deferred Compensation table above represent the value of the restricted stock units required to be deferred, and “Aggregate Earnings in Last FY” represent the change in the value of the deferred stock units, which is based on the change in the value of the underlying shares of common stock into which the stock units convert.
Potential Payments Upon Termination of Employment
or a Change in Control of the Corporation
In addition to benefits to which Northern Trust’sthe Corporation’s employees would be entitled upon a termination of employment generally, the Corporation provides certain additional benefits to eligible employees upon certain types of termination of employment, including a termination of employment involving a change in control of the Corporation. These incremental benefits as they pertain tothat the named executive officers would receive in the event of a termination involving a change in control of the Corporation relative to the benefits they would otherwise receive are described below.
Employment Security Agreements
TheAs 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 and the determination of the level of benefits under these agreements, as well as under various termination of employment scenarios were exercises in judgment, informed byby: (i) the recognition that all named executive officers are employed at-will,at-will; (ii) the Corporation’s desire to provide the named executive officers with sufficient security to assure they are not distracted and remain focused on maximizing stockholder value during and after a change in control,control; (iii) the Corporation’s goal of providing executive compensation at levels that are competitive with similar positions to those in its peer group companies,companies; (iv) the nature and scope of the job responsibilities undertaken by the named executive officers,officers; and (v) the terms of other types of compensation paid by the Corporation to the named executive officers. In particular, in setting the terms of the benefits payable to the named executive officers under various termination scenarios, the Compensation and Benefits Committee was guided in large part by a desire to be sufficiently responsive to market forces and the environment in which the Corporation seeks to attract, motivate and retain its named executive officers by providing benefits consistent and competitive with those of the peer group companies with
which it competes for top executive talent. In initially establishing the form and level of post-termination benefits, the Committee received and reviewed relevant peer group company information provided by Aon Hewitt.its independent compensation consultant at the time. In particular, this competitive peer group data influenced the decision of the Committee to provide for employment security agreements, to set the level of lump sum payments equal to three years of salary and bonus and to provide for the vesting of equity compensation awards, the continuation of coverage under certain health and welfare plans and other protections afforded in the event of a termination of employment in connection with a change in control or under other termination of employment scenarios.
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 in the agreements):
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The benefits provided to a named executive officer upon such a termination of employment would consist of the items identified in the following seven bullet points:
— | A lump sum payment equal to three times the sum |
The amount of this payment to each named executive officer, assuming the named executive officer became eligible for benefits under the agreement due to a termination of employment on December 31, 2013, would be as follows: Mr. Waddell: $8,525,000; Mr. O’Grady: $4,050,000; Mr. Fradkin: $4,000,000; Mr. Morrison: $4,850,000; and Ms. Schreuder: $4,000,000.
— | A lump sum payment of a prorated portion of the average amounts paid to the named executive officer under the Corporation’s cash incentive plans for the last three fiscal years of participation in such plans prior to the date of termination, or, if higher, the date of the change in control, less any amounts paid to the named executive officer under those plans with respect to completed performance periods occurring in the year the named executive officer’s employment terminates. The amount of this payment to each named executive officer, assuming the executive became eligible for benefits under the employment security agreement due to a termination of employment on December 31, 2014, would be as follows: Mr. Waddell: $1,833,333; Mr. Bowman: $426,667; Mr. Fradkin: $758,333; Mr. Morrison: $916,667; Mr. O’Grady: $750,000; and Ms. Schreuder: $761,667. |
The amount of this payment to each named executive officer, assuming the executive became eligible for benefits under the employment security agreement due to a termination of employment on December 31, 2013, would be as follows: Mr. Waddell: $1,866,667; Mr. O’Grady: $750,000; Mr. Fradkin: $733,333; Mr. Morrison: $816,667; and Ms. Schreuder: $733,333.
— | With respect to equity awards: (i) full vesting of all stock |
employment (or until the end of the option term, if earlier) |
Assuming a termination of employment under the employment security agreement on December 31, 2013, the fully vested equity awards would have the following values for each named executive officer:
Name | Stock ($) | Restricted ($) | Performance ($) | Stock ($) | Restricted ($) | Performance ($) | ||||||||||||||||||
Mr. Waddell | $ | 4,680,135 | $ | 3,006,160 | $ | 3,706,509 | $ | 4,326,705 | $ | 2,716,504 | $ | 3,873,051 | ||||||||||||
Mr. O’Grady | 2,037,419 | 2,582,298 | 2,167,140 | |||||||||||||||||||||
Mr. Bowman | 546,841 | 1,579,452 | 1,873,248 | |||||||||||||||||||||
Mr. Fradkin | 1,409,854 | 2,663,931 | 2,167,140 | 1,309,704 | 2,693,692 | 3,467,730 | ||||||||||||||||||
Mr. Morrison | 2,025,423 | 1,477,727 | 1,863,054 | 2,003,499 | 1,375,283 | 1,914,205 | ||||||||||||||||||
Mr. O’Grady | 1,738,732 | 2,979,738 | 3,467,730 | |||||||||||||||||||||
Ms. Schreuder | 1,409,854 | 918,925 | 1,113,917 | 1,309,704 | 818,253 | 1,164,829 |
The value of the fully vested stock options is based on the difference between the option exercise price and $61.89,$67.40, which was the closing market price of the Corporation’s common stock on December 31, 2013.2014. The value of the fully vested restricted stock and performance units is also based on the $61.89$67.40 closing market price. The outstandingIn addition to the amounts noted above, the long-term cash incentive awards described in footnote 23 to the “Summary Compensation Table” in this Proxy Statementalso would also vest with respect to Messrs. Fradkin and O’Grady.
— | Continued coverage under the Corporation’s health, dental, life, accident, disability, and other welfare benefit plans for three years (or if earlier, until the executive becomes covered under similar plans maintained by another entity that provides at least equal benefits). If the named executive officer cannot be covered under any plan of the Corporation due to legal or contractual restrictions, the Corporation would provide the executive with substantially similar benefits and coverage. The value of this continued benefit coverage for three years to each named executive officer, derived by multiplying the Corporation’s annual cost of providing such coverage in 2014 by three, would be as follows: Mr. Waddell: $34,878; Mr. Bowman: $34,633; Mr. Fradkin: $41,068; Mr. Morrison: $41,068; Mr. O’Grady: $34,633; and Ms. Schreuder: $41,068. |
The value of this continued benefit coverage for three years to each named executive officer would be as follows: Mr. Waddell: $35,464; Mr. O’Grady: $32,026; Mr. Fradkin: $41,843; Mr. Morrison: $41,843; and Ms. Schreuder: $41,843. These amounts are derived by multiplying the Corporation’s annual cost of providing such coverage in 2013 by three, to reflect a three-year benefit continuation period.
— | Up to an additional three years of age and/or service credits for purposes of determining eligibility and subsidy for participation in the Corporation’s retiree medical plans and an additional three-year age and service credit for benefits under the Supplemental Pension Plan. Assuming a termination of employment under the employment security agreement on December 31, 2014, the value of these age and service credits to each named executive officer would be: Mr. Waddell: $0; Mr. Bowman: $220,311; Mr. Fradkin: $1,350,657; Mr. Morrison: $300,889; Mr. O’Grady: $143,098; and Ms. Schreuder: $40,468. The assumptions used in calculating the present value of the age and service credits are set forth in “Note 21—Employee Benefits” in the “Notes to the Consolidated Financial Statements” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014. |
eligibility and subsidy for participation in the Corporation’s retiree medical plans and an additional three-year age and service credit for benefits under the Supplemental Pension Plan.
Assuming a termination of employment under the employment security agreement on December 31, 2013, the value of these age and service credits to each named executive officer would be: Mr. Waddell: $0; Mr. O’Grady: $236,088; Mr. Fradkin: $313,085; Mr. Morrison: $238,644; and Ms. Schreuder: $142,650. The assumptions used in calculating the present value of the age and service credits are set forth in “Note 21—Employee Benefits” in the “Notes to the Consolidated Financial Statements” in the Corporation’s 2013 Annual Report to its Stockholders.
— | Full vesting in benefits accrued under the Supplemental Pension Plan and Supplemental TIP. All named executive |
— | A gross-up payment to the executive to cover any excise and related income tax liability arising under Section 280G of the Internal Revenue Code as a result of any payment or benefit arising under the employment security agreement. Assuming a termination of employment under the employment security agreement on December 31, 2014, the named executive officers would be entitled to the following gross-up payments: Mr. Waddell: $6,758,328; Mr. Fradkin: $4,854,269; Mr. Morrison: $3,873,156; and Ms. Schreuder: $2,807,250. Mr. Bowman’s and Mr. O’Grady’s agreements do not contain such provisions. Since 2011, the Corporation has discontinued inclusion of tax gross-up payments in new employment security agreements for executive officers. |
Assuming a termination of employment under the employment security agreement on December 31, 2013, the named executive officers would be entitled to the following gross-up payments: Mr. Waddell: $7,188,519; Mr. Fradkin: $3,824,311; Mr. Morrison: $3,729,564; and Ms. Schreuder: $2,794,314.
Since 2011, Northern Trust has discontinued inclusion of tax gross-up payments in new employment security agreements for executive officers. Accordingly, Mr. O’Grady’s agreement does not contain such provisions.
Equity Compensation Plans and Agreements
As described above under “Description of Certain Awards Granted in 2013”2014” beginning on page 50,48, the Corporation’s equity compensation plans and agreements provide enhanced benefits to named executive officers upon a change in control of the Corporation or a termination of employment with the Corporation or a subsidiary due to death, disability, or retirement (when such termination is not a termination described in his or her employment security agreement). In the case of a termination of a named executive officer’s employment due to death, disability, or retirement (including termination while a member of the Management Group at age 55 with the requisite service), stock options under the equity compensation plans would have accelerated or continued vesting, and equity award agreements for restricted stock units and performance stock units provide for prorated vesting of units. Assuming such a termination on December 31, 2013,2014, the estimated values in the following table show the prorated distributions of restricted stock units and performance stock units.
Name | Restricted Stock Units ($) | Performance Stock Units ($) | Restricted Stock Units ($) | Performance Stock Units ($) | ||||||||||||
Mr. Waddell | $ | 5,773,656 | $ | 3,507,430 | $ | 3,812,481 | $ | 7,666,076 | ||||||||
Mr. O’Grady | 1,202,956 | 1,053,182 | ||||||||||||||
Mr. Bowman | 802,397 | 944,207 | ||||||||||||||
Mr. Fradkin | 1,744,989 | 1,053,182 | 1,175,456 | 2,302,923 | ||||||||||||
Mr. Morrison | 2,201,489 | 1,694,301 | 1,733,258 | 3,829,870 | ||||||||||||
Mr. O’Grady | 1,268,535 | 2,302,923 | ||||||||||||||
Ms. Schreuder | 1,744,989 | 1,053,182 | 1,175,456 | 2,302,923 |
Non-employee directors are compensated for their services with cash compensation and equity awards of stock units. Directors who are employees of the Corporation receive no additional compensation for serving on the Board of Directors or on any Board committee.
Cash CompensationAnnual Retainer and Other Fees
In 2013, non-employeeNon-employee directors of the Corporation received the following cash compensationan annual retainer of $200,000 for their service on the Board in 2014, paid 50% in cash and 50% in the form of Directors:
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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 receive an additional $25,000 annually, each of which such additional fees were paid in cash. All non-employee directors also arewere eligible to receive a per diem fee of $1,000 when required to attend orientation meetings or to perform specific services on behalf of the Corporation. No payments for such services were made in 2013.2014.
Equity Compensation
In April 2013, each non-employee director received a grant of stock units under the Corporation’s 2012 Stock Plan equal in value to $100,000, with the actual number of stock units based on the closing sale price of the common stock on the date of the 2013 Annual Meeting of Stockholders. All of theRestricted stock units granted to directors for their service on the Board were made in April 20132014 and will vest on April 21, 2015, the date of the 20142015 Annual Meeting of Stockholders. Stock units do not have voting rights. Dividend equivalents on the non-employee directors’ stock units are subject to the same vesting, forfeiture and distribution provisions as the underlying stock units. Each stock unit entitles a director to one share of common stock at vesting, unless a director elects to defer receipt of the shares.
Effective January 1, 2015, the annual retainer to be paid in conjunction with each director’s service on the Board was increased to $220,000.
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 price of the stock at the end of the calendar quarter for which the cash compensation would have been paid. Dividends on all deferred stock units are paid quarterly to a cash account and accrue interest at an interest rate determined from time to time by the Compensation and Benefits Committee. Deferred cash compensation and dividends will be paid out in cash, and deferred stock units will be distributed in stock, in each case in a lump sum or in up to ten annual installments at the election of the director.
Directors are eligible to participate in Northern Trust’sthe Corporation’s matching gift program, under which Northern Trustthe Corporation matches gifts made by employees and directors to eligible non-profitnonprofit organizations, on the same terms as employees. The maximum gift total for a non-employee director participant in the program is $2,000 in any calendar year.
Within five years of election to the Board, non-employee directors are required to hold Northern Trustshares of the Corporation’s common stock equal to five times the annual cash retainer provided to directors. In addition, non-employee directors are expected to meet a minimum share ownership level of 1,000
shares within one year fromof the date they are initially elected to the Board.
Until such time as any non-employee director meets the minimum ownership level requirement, he or she is expected to retain 100% of the net, after-tax shares received from share distributions.
As of December 31, 2013,2014, all non-employee directors met or exceeded Northern Trust’sthe stock ownership guidelines.guidelines to which they were subject. Consistent with those guidelines, Mr.Messrs. Harrison, Prado, Slark and Mr. PradoThompson have until January 1, 2020, October 16, 2017, April 19, 2016 and October 16, 2017,March 6, 2020, respectively, to reach the share ownership threshold.
The following table sets forth all compensation paid toearned by each non-employee director of the Corporation in 2013.2014. Messrs. Harrison and Thompson were appointed to the Board effective January 1, 2015 and March 6, 2015, respectively, and thus did not earn any compensation in 2014 relating to service on the Board.
Name | Fees in Cash ($) | Stock ($)(1) | All Other Compensation ($)(2) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | All Other Compensation ($)(2) | Total ($) | ||||||||||||||||||||||||
Linda Walker Bynoe | $ | 120,000 | $ | 100,000 | — | $ | 220,000 | $ | 105,769 | $ | 100,000 | $ | 2,322 | $ | 208,091 | |||||||||||||||||
Nicholas D. Chabraja | 120,000 | 100,000 | $ | 2,321 | 222,321 | 120,000 | 100,000 | 2,322 | 222,322 | |||||||||||||||||||||||
Susan Crown | 100,000 | 100,000 | 2,000 | 202,000 | 110,673 | 100,000 | 4,322 | 214,995 | ||||||||||||||||||||||||
Dipak C. Jain | 115,000 | 100,000 | — | 215,000 | 107,885 | 100,000 | 2,322 | 210,207 | ||||||||||||||||||||||||
Robert W. Lane | 105,000 | 100,000 | 2,321 | 207,321 | 101,442 | 100,000 | 2,322 | 203,764 | ||||||||||||||||||||||||
Edward J. Mooney | 120,000 | 100,000 | — | 220,000 | 34,615 | — | 2,322 | 36,937 | ||||||||||||||||||||||||
Jose L. Prado | 100,000 | 100,000 | 610 | 200,610 | 114,231 | 100,000 | 2,322 | 216,553 | ||||||||||||||||||||||||
John W. Rowe | 140,000 | 100,000 | — | 240,000 | 140,000 | 100,000 | 2,322 | 242,322 | ||||||||||||||||||||||||
Martin P. Slark | 100,000 | 100,000 | 2,321 | 202,321 | 100,000 | 100,000 | 2,322 | 202,322 | ||||||||||||||||||||||||
David H.B. Smith, Jr. | 105,000 | 100,000 | 2,321 | 207,321 | ||||||||||||||||||||||||||||
David H. B. Smith, Jr. | 115,673 | 100,000 | 2,322 | 217,995 | ||||||||||||||||||||||||||||
Charles A. Tribbett III | 100,000 | 100,000 | — | 200,000 | 100,000 | 100,000 | 2,322 | 202,322 |
(1) This column shows the grant date fair value of the stock awards for all non-employee directors in 2013,2014, computed in accordance with FASB ASC Topic 718. See “Note 22—Share-Based Compensation Plans” to the consolidated financial statements included in the “Notes to Consolidated Financial Statements” inItem 8 of the Corporation’s 2013 Annual Report to Stockholderson Form 10-K for the year ended December 31, 2014 for a discussion of the assumptions made by the Corporation in the valuation of these stock unit awards. As of December 31, 2013,2014, each non-employee director serving on such date held 1,872.661,677.01 unvested stock units, which represents the stock unit award made by the Corporation in April 20132014 described above.
(2) Amounts in this column includeIncludes $2,000 of contributions to eligible nonprofit organizations made on behalf of Susan Crown pursuant to Northern Trust’sthe Corporation’s matching gift program. The matching gift program is available to directors on the same terms as it is available to all employees.employees, with a maximum gift total of $2,000 in any calendar year. All other amounts in this column represent accumulated dividend payments on stock units held byto which the non-employee directors and fractional shares paidbecame entitled upon the vesting of underlying stock units in cash during 2013.2014.
(3) Amounts reported for Mr. Mooney reflect compensation earned through April 15, 2014, the effective date of his retirement from the Board pursuant to the director retirement age set forth in the Corporation’s Corporate Governance Guidelines.
EQUITY COMPENSATION PLAN INFORMATION
Set forth below is information with respect to other equity compensation plans under which the common stock of the Corporation was authorized for issuance as of December 31, 2013.2014.
Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants, and Rights (#) | Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights ($) | Number of Securities Remaining Available for Issuance under Equity Compensation Plans (Excluding Securities Reflected in (#) | Number of Securities to Be Issued upon Exercise of Outstanding Options, Warrants, and Rights (#) | Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights ($) | Number of Securities Remaining Available for Issuance under Equity Compensation Plans (Excluding Securities Reflected in (#) | ||||||||||||||||||
Equity compensation plans approved by stockholders | 15,768,347 | $ | 53.64 | (1) | 31,034,922 | (2) | 13,302,608 | $ | 54.70 | (1) | 29,803,955 | (2) | ||||||||||||
Equity compensation plans not approved by stockholders | 116,999 | (3) | N/A | — | 109,002 | (3) | N/A | — | ||||||||||||||||
Total | 15,885,346 | $ | 53.64 | (1) | 31,034,922 | 13,411,610 | $ | 54.70 | (1) | 29,803,955 |
(1) Restricted stock units and performance stock units are excluded when determining the weighted-average exercise price of outstanding options.
(2) All shares are available for issuance under the Corporation’s 2012 Stock Plan.
(3) Consists of stock units that have been deferred at the election of certain directors pursuant to the 1997 Deferred Compensation Plan for Non-Employee Directors. These units will be distributed on a one-for-one basis in shares of common stock following retirement.
The Audit Committee is responsible for providing oversight of the Corporation’s financial reporting functions and internal controls. In fulfilling his or her duties and responsibilities, each memberThe Audit Committee’s function is one of the Committee shall be entitled to rely in good faith onoversight, recognizing that: (i) the integrity of those persons and organizations within and outside the Corporation from which he or she receives information, (ii) the accuracy of the financial and other information provided to the Committee absent actual knowledge to the contrary, and (iii) representations made by management or third parties as to any information technology, internal audit, and other non-audit services provided by the Corporation’s independent registered public firm to the Corporation. The responsibilityis responsible for the completenesscomplete and accuracyaccurate preparation of the Corporation’s consolidated financial statements rests with the Corporation’s management.statements; and (ii) KPMG LLP, the Corporation’s independent registered public accounting firm, is responsible for performing an audit on such financial statements and expressing an opinion as to whether (i) the Corporation’s annual consolidated financial statementsthey are free of material misstatement and presented in accordance with U.S. generally accepted accounting principles and (ii)principles. KPMG LLP is also responsible for expressing an opinion as to whether the Corporation maintained effective internal control over financial reporting.
In that context,Consistent with its oversight responsibilities, the Audit Committee reportshas reviewed and discussed with management and KPMG LLP the Corporation’s audited financial statements as follows:of and for the year ended December 31, 2014. 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 Public Company Accounting Oversight Board Rule 3526, “Communication with Audit Committees Concerning Independence” and has conducted a discussion with KMPG LLP regarding its independence. The Audit Committee also considered whether the provision of non-audit services by KPMG LLP to the Corporation for the fiscal year ended December 31, 2014 is compatible with maintaining KPMG LLP’s independence.
Based on the above-mentioned reviews and discussions, and subject to the limitations on the role and responsibilities of the Audit Committee referred to above, the Audit Committee recommended to the Board that the Corporation’s audited consolidated financial statements be included in its Annual Report on Form 10-K for the year ended December 31, 2013,2014, for filing with the SEC.
Audit Committee
Edward J. MooneyDavid H. B. Smith, Jr. (Chair)
Linda Walker Bynoe
Nicholas D. Chabraja
Robert W. LaneDipak C. Jain
David H.B. Smith, Jr.Jose Luis Prado
Fees of Independent Registered Public Accounting Firm
Description of Fees | 2013 | 2012 | 2014 | 2013 | ||||||||||||
Audit Fees | $ | 4,187,380 | $ | 4,188,780 | $ | 4,446,680 | $ | 4,187,380 | ||||||||
Audit-Related Fees | 2,194,300 | 2,309,000 | 2,244,030 | 2,194,300 | ||||||||||||
Tax Fees | 148,334 | 228,513 | 126,937 | 148,334 | ||||||||||||
All Other Fees | 57,600 | 201,709 | 16,550 | 57,600 | ||||||||||||
Additional Fees | 1,030,749 | 1,175,800 | ||||||||||||||
Total | $ | 7,618,363 | $ | 8,103,802 | $ | 6,834,197 | $ | 6,587,614 |
Audit Fees include fees for professional services rendered for the annual integrated audit of the Corporation’s consolidated financial statements for the fiscal year (including services relating to the audit of internal control over financial reporting under the Sarbanes-Oxley Act of 2002)reporting) audits of subsidiary financial statements comfort letters, and reviews of the financial statements included in the Corporation’s Quarterly Reports on Form 10-Q.
Audit-Related Fees include fees for services that were reasonably related to performance of the audit of the annual consolidated financial statements for the fiscal year, other than Audit Fees, such as comfort letters, employee benefit plan audits, internal control reviews, and other attestation services.
Tax Feesinclude fees for tax return preparation, tax compliance and tax compliance.advice.
All Other Fees include fees for all services other than Audit Fees, Audit-Related Fees, and Tax Fees.
Additional Fees, are fees for including ancillary services renderedprovided to the Corporation’s foreign subsidiaries in connection with audits for certain of the proprietary, common and securities lending collateral funds sponsored or managed by the Corporation. These funds are not included in the consolidated financial statements of the Corporation.foreign-jurisdiction requirements.
Pre-Approval Policies and Procedures of the Audit Committee
On October 14, 2013, theThe Audit Committee adoptedhas in place a policy regarding the revised Northern Trust Corporation Policy regarding Engagementengagement of Independent Public Accounting Firmindependent public accounting firms to Provide Auditor Services.provide auditor services to the Corporation. The purpose of the Policypolicy is to establish procedures for Audit Committee pre-approval of all auditor services to be provided to the Corporation by its independent registered public accounting firm. Auditor services include audit services, audit-related services, tax services, and non-audit services. The Policypolicy provides that the Audit Committee, the Chairman, or any Audit Committee member delegated the authority (a “Designated Member”) has the authority to grant pre-approvals of auditor services. In addition, the Policypolicy provides that the independent registered public accounting firm may be engaged to provide only those non-audit servicesservices: (i) that are permitted by the SEC’s final rule entitled “Strengthening the Commission’s Requirements Regarding Auditor Independence”SEC rules; and (ii) that, in the judgment of the Audit Committee, maintain the independent registered public accounting firm’s independence from the Corporation. In evaluating whether a proposed engagement of the Corporation’s independent registered public accounting firm for a specific permitted non-audit service maintains the firm’s independence from the Corporation, the Audit Committee or a Designated
Member thereof must consider whether the proposed engagement would cause the independent registered public accounting firm toto: (a) audit its own work,work; (b) perform management functions,functions; or (c) act as an advocate for the Corporation. The independent registered public accounting firm shall in no event be engaged to perform any Prohibited Services,prohibited services, as definedset forth in the Policy.policy.
All audit, audit-related, tax and other services provided by KPMG LLP in 20132014 were pre-approved in accordance with the Northern Trust Corporation PolicyAudit Committee’s policy regarding Engagementthe engagement of Independent Public Accounting Firmindependent public accounting firms to Provide Auditor Services.provide auditor services to the Corporation.
ITEM 3—RATIFICATION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm is appointed annually by the Corporation’s Audit Committee. For the year ending December 31, 2014,2015, 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, 2013.2014. Representatives of KPMG LLP willare expected to be present at the annual meeting.Annual Meeting. They will have an opportunity to make a statement if they wish and will be available to respond to appropriate questions.
Stockholder ratification of the selection of KPMG LLP as the Corporation’s independent registered public accounting firm is not required. However, the Board of Directors is submitting the selection of KPMG LLP as the Corporation’s independent registered public accounting firm to the stockholders for ratification because it believes it is a governance best practice to learn the opinion of stockholders on this selection.do so. If the stockholders fail to ratify KPMG LLP as the independent registered public accounting firm, the Audit Committee will reassess its appointment. Evenappointment, 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 Board of Directors unanimously recommends that you voteFOR the ratification of KPMG LLP as the Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2014.2015.
ITEM 4—STOCKHOLDER PROPOSAL REGARDING ADDITIONAL DISCLOSURE OF
POLITICAL AND LOBBYING CONTRIBUTIONS
Information regarding a stockholder proposal is set forth below. The Corporation disclaims any responsibility for the content of this proposal and statement of support, which is presented as received from the stockholder. The Massachusetts Laborers’ Pension Fund, P.O. Box 3005, 14 New England Executive Park, Suite 200, Burlington, Massachusetts 01803-5201,01803, the owner of approximately 350400 shares of our common stock, has given the Corporation notice that its representative intends to present this proposal at the Annual Meeting.
Resolved, that the shareholders of Northern Trust Corporation (“Northern Trust” or “Company”) hereby request that the Company provide a report, updated semi-annually, disclosing the amounts that the Company has paid or incurred in connection with influencing legislation; participating or intervening in any political campaign on behalf of (or in opposition to) any candidate for public office; and attempting to influence the general public, or segments thereof, with respect to elections, legislative matters or referenda.
The report should include (a) contributions to or expenditures on behalf of political candidates, political parties, political committees and other political entities and (b) the portions of any dues or other payments that are made to a tax-exempt organization for an expenditure or contribution that, if made directly by the Company, would not be deductible under section 162(e)(1) of the Internal Revenue Code. The report should identify each recipient, the amount paid to each, and the purpose of any contribution or expenditure.
Stockholder Supporting Statement
As long-term shareholders of Northern Trust, we support transparency and accountability in corporate spending on lobbying and political activities. The expenditures upon which we seek a report are those that Congress has said do not warrant a deduction as an ordinary and necessary business expense, namely, lobbying participation in the political system by supporting or opposing candidates for office, and trying to influence the general public or segment thereof as to elections, legislative matters or referenda. This includes payments to third parties, including trade associations and other tax-exempt groups, which payments are used for expenditures that would not be deductible if made by the company itself.
Disclosure is consistent with public policy and we believe, in the best interest of the company and its shareholders. The Supreme Court’sCitizens United decision recognized the importance of political spending disclosure when it said “[d]D]isclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.”
Gaps in transparency and accountability may expose the company to reputational and business risks that could threaten long-term shareholder value. Moreover, publicly available data does not provide a complete picture of the Company’s lobbying or political expenditures. Thus the Company’s payments to trade associations for these purposes are undisclosed and unknown, as are any payments to tax-exempt groups that work to influence legislation and political campaigns, as well as public opinion that could affect legislation or elections.
The sums involved can be significant. A 2010Bloomberg story reported that several health insurers donated $86.2 million to the U.S. Chamber of Commerce in 2009-10 for advertisements, polling and grassroots events to drum up opposition to health care reform legislation. A former Federal Election Commission chairman described this figure as “breathtaking”.
We believe that shareholders need improved disclosure in order to fully evaluate the use of corporate assets on these activities. Thus, we urge you to vote FOR this critical governance reform.
Statement of the Board of Directors in Opposition to the Stockholder Proposal
The Board of Directors believes that the proponent’s proposal is not in the best interests of Northern Trust and its stockholders and unanimously recommends a voteAGAINST the proposal.
As a leading provider of asset servicing, fund administration, asset management, fiduciary, and banking solutions for corporations, institutions, families, and individuals worldwide, Northern Trust is extensively regulated. Changes in the legal and regulatory environment for financial institutions may substantially impact the manner in which Northern Trust and its subsidiaries operate, serve their clients, and create value for stockholders. We believe it is in the best interests of Northern Trust’s stockholders for Northern Trust to support positions that enhance the safety of client assets and promote the safety and soundness of the financial system and a strong global economy. The potential impact that public policy changes can have on Northern Trust’s business and its stakeholders requires Northern Trust to be an active participantparticipate in the political process to advance and protect the long-term interests of Northern Trust.
Northern Trust’s philosophy and policies concerning political contributions and legislative lobbying are set forth in its “Statement Regarding Government Relations and Political Contributions,” which can be found onunder “Corporate Social Responsibility” in the “About Us” section of Northern Trust’s website. Northern Trust contributes to candidates for public office and related organizations in compliance with applicable law. Northern Trust sponsors both a federal-only political action committee and a multi-candidate political action committee. These political action committees, known as PACs, allow certain U.S. employees to pool their financial resources to support United States federal and state candidates who support legislation important to Northern Trust and its stockholders. All contributions to the PACs are voluntary. The PACs determine all political contributions based on the best interests of Northern Trust. Northern Trust also contributes to certain industry trade organizations relating to its public policy objectives.
We believe that the additional disclosure sought by the proposal would be of no appreciable benefit to stockholders. As required by law, each Northern Trust PAC reports its contributions on a periodic basis to the Federal Election Commission and appropriate state election authorities. In addition, Northern Trust is required to comply with United States federal and state laws and regulations regarding the disclosure of certain lobbying activities. These reports and disclosures are publicly available and there are direct links to the Federal Election Commission and the Lobbying Database included in Northern Trust’s publicly available “Statement Regarding Government Relations and Political Contributions.” The Board of Directors believes that in light of the fact that Northern Trust already provides all legally required disclosures regarding political contributions and lobbying activities, much of which is already publicly available, this proposal is duplicative and unwarranted, and would cause the Corporation to expend unnecessary time and resources without providing any appreciable benefit to its stockholders.
The Board of Directors unanimously recommends that you voteAGAINST the proposal.
STOCKHOLDER PROPOSALS FOR 20152016 ANNUAL MEETING
Any stockholder proposals for the 2015Corporation’s 2016 Annual Meeting of Stockholders must be received by the Corporation, directed to the attention of the Corporation’s Corporate Secretary, no later than November 3, 201412, 2015 in order to be eligible for inclusion in the Corporation’s proxy statement and form of proxy for that meeting. The proposal must comply in all respects with the rules and regulations of the SEC and the Corporation’s By-laws.
Also, under the Corporation’s By-laws, other proposals that are not included in the proxy statement will be considered timely and may be eligible for presentation at that meeting if they are received by the Corporation in the form of a written notice, directed to the attention of the Corporation’s Corporate Secretary, no earlier than November 23, 2015 and no later than December 16, 2014.23, 2015. If the 20152016 Annual Meeting of Stockholders is called for a date that is not within 30thirty days before or after the anniversary date of this Annual Meeting, notice by the stockholder in order to be timely must be received within ten business days after notice of the 20152016 Annual Meeting.Meeting is mailed or public disclosure of the date of the Annual Meeting is made, whichever occurs first. The notice must contain the information required by the Corporation’s By-laws.
NORTHERN TRUST CORPORATION 50 SOUTH LASALLE STREET CHICAGO, IL 60603 | VOTE BY INTERNET -www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59
VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Northern Trust Corporation, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.Pleasemail in advance, so that your instruction may be received no later than11:59 |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | ||||||
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
NORTHERN TRUST CORPORATION
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The Board of Directors recommends you vote FOR each of the following proposals: | For | Against | Abstain | |||||||||||||||||||||||||||||||||
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1a. | Linda Walker Bynoe | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||||
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4. Stockholder proposal regarding additional disclosure of political and lobbying contributions, if properly presented at the Annual Meeting. | For ¨ | Against ¨ | Abstain ¨ | |||||||||||||||||||||||||||||
1c. | Dean M. Harrison |
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1d. | Dipak C. Jain | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||||
1e. | Jose Luis Prado | ¨ | ¨ | |||||||||||||||||||||||||||||||||
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1f. | John W. Rowe | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||||
1g. | Martin P. Slark | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||||
1h. | David H. B. Smith, Jr. | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||||
1i. | Donald Thompson | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||||
1j. | Charles A. Tribbett III | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||||
1k. | Frederick H. Waddell | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||||
2. Approval, by an advisory vote, of the 2014 compensation of the Corporation’s named executive officers. | ¨ | ¨ | ¨ | For address changes and/or comments, please check this box and write them on the back where indicated. | ¨ | |||||||||||||||||||||||||||||||
3. Ratification of the appointment of KPMG LLP as the Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2015. | ¨ | ¨ | ¨ | |||||||||||||||||||||||||||||||||
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. |
Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date |
ANNUAL MEETING ADMISSION TICKET
Northern Trust Corporation
50 South LaSalle Street
Chicago, Illinois 60603
(northwest corner of LaSalle Street and Monroe Street)
April 15, 201421, 2015
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 maywill be asked to present valid picture identification, such as a driver’s license. Cameras, recording devices, and other electronic devices will not be permitted at the meeting.
Directions to the Northern Trust Corporationcorporation Annual Meeting of Stockholders
Lake Shore Drive(coming from
Take Lake Shore Drive to the Randolph Street exit. Continue on Randolph Street to LaSalle Street. Turn left (southbound) on LaSalle Street to Madison Street. Turn right (westbound) on Madison Street to the parking garage that is between LaSalle Street and Wells | Kennedy Expressway (I90 - I94)
Take I90-I94 east to the Monroe Street exit. Turn left (eastbound) on Monroe Street. Continue on Monroe Street to LaSalle Street. Turn left (northbound) on LaSalle Street and continue one block north to Madison Street. Turn left (westbound) on Madison Street to the parking garage that is between LaSalle Street and Wells | |
Stevenson Expressway (I55)
Take I55 east to Lake Shore Drive north. Take Lake Shore Drive to the Randolph Street exit. Continue on Randolph Street to LaSalle Street. Turn left (southbound) on LaSalle Street to Madison Street. Turn right (westbound) on Madison Street to the parking garage that is between LaSalle Street and Wells | Eisenhower Expressway (I290)
Take I290 east to the Franklin Street exit. |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
You may access the 20142015 Notice of Annual Meeting and Proxy Statement and the 2013 Annual Report on Form 10-K for the year ended December 31, 2014 by going to the following Web site:website: https://materials.proxyvote.com/665859
M67105-P46112-Z62262
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NORTHERN TRUST CORPORATION Annual Meeting of Stockholders Tuesday, April This proxy is solicited by the Board of Directors
The undersigned hereby appoint(s) Frederick H. Waddell and
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,
Whether
The proxy holders are authorized to vote those shares for which they receive proxies as they shall determine in their sole discretion on any other business that may properly come before the meeting.
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(If Continued and to be signed on reverse side
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