UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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o☐ | Preliminary Proxy Statement |
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o☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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x☒ | Definitive Proxy Statement |
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o☐ | Definitive Additional Materials |
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o☐ | Soliciting Material Pursuant to §240.14a-11(c) orunder §240.14a-12 |
DISCOVER FINANCIAL SERVICES
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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2500 Lake Cook Road
Riverwoods, Illinois 60015
March 12, 2018
Dear Fellow Shareholder:
I cordially invite you to attend Discover Financial Services' 2018 Annual Meeting of Shareholders to be held at 9:00 a.m., local time, on May 2, 2018, at our corporate headquarters located at 2500 Lake Cook Road, Riverwoods, Illinois 60015.
All shareholders of record of our outstanding shares of common stock at the close of business on March 5, 2018 will be entitled to vote at the Annual Meeting.
Your vote is important!Whether or not you plan to attend the Annual Meeting,please read the enclosed proxy statement and vote as soon as possible via the Internet, by telephone or, if you receive a paper Proxy Card or voting instruction form in the mail, by mailing the completed Proxy Card or voting instruction form. Using the Internet or telephone voting systems or mailing your completed Proxy Card will not prevent you from voting in person at the meeting if you are a shareholder of record and wish to do so.
Important information about the matters to be acted upon at the meeting is included in the notice of meeting and proxy statement. Our 2017 Annual Report contains information about our Company and its financial performance.
I am very much looking forward to our 2018 Annual Meeting of Shareholders.
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| | Very truly yours, |
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| | David W. Nelms |
| | Chairman and Chief Executive Officer |
This proxy statement is dated March 12, 2018 and is first being sent or made available to shareholders on or about March 16, 2018.
NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS
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Time and Date | | 9:00 a.m., local time, on May 2, 2018 |
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Place | | Discover Financial Services
2500 Lake Cook Road
Riverwoods, IL 60015
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Webcast | | A live audio webcast of our Annual Meeting will be available through our investor relations page of our internet site, www.discover.com, starting at 9:00 a.m., local time, on May 2, 2018. Information included on our website, other than our Proxy Statement and form of proxy, is not a part of our proxy solicitation materials. |
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Items of Business | | (1) To elect 11 members of the Board of Directors named in the Proxy Statement as nominees, each for a term of one year.
(2) To conduct an advisory, non-binding vote to approve named executive officer compensation.
(3) To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018.
(4) To consider an advisory vote on one shareholder proposal, if properly presented.
(5) To transact any other business as may properly come before the meeting or any adjournment or postponement of the meeting. |
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Record Date | | You are entitled to notice of and to vote at the meeting and at any adjournment or postponement of the meeting if you were a shareholder of record as of the close of business on March 5, 2018. |
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Materials to Review | | This booklet contains our Notice of Annual Meeting and 2018 Proxy Statement. Our 2017 Annual Report contains information about our Company and its financial performance. Our Annual Report is not a part of our proxy solicitation materials. |
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Proxy Voting | | It is important that your shares be represented and voted at the Annual Meeting. You can vote your shares by completing and returning your Proxy Card or by voting on the Internet or by telephone. See the Questions and Answers section beginning on page 50 for more details. |
You are cordially invited to attend the Annual Meeting, but whether or not you expect to attend in person, you are urged to vote. Your prompt action will aid the Company in reducing the expense of proxy solicitation.
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| | By Order of the Board of Directors, |
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| | Kathryn McNamara Corley |
| | Executive Vice President, General Counsel and Secretary |
| | March 12, 2018 |
Table of Contents
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PAY RATIO DISCLOSURE | |
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PROPOSAL 3 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | |
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Shareholder Proposals and Director Nominations for the 2091 Annual Meeting | |
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Except as otherwise indicated or unless the context otherwise requires, “Discover Financial Services,” “Discover,” “DFS,” “we,” “us,” “our,” and “the Company” refer to Discover Financial Services and its subsidiaries.
We own or have rights to use the trademarks, trade names and service marks that we use in conjunction with the operation of our business, including, but not limited to: Discover®, PULSE®, Cashback Bonus®, Discover Cashback Checking®, Discover it®, College Covered®, and Diners Club International®. All other trademarks, trade names and service marks included in this proxy statement are the property of their respective owners.
DISCOVER FINANCIAL SERVICES
2500 Lake Cook Road(Name of Registrant as Specified In Its Charter)
Riverwoods, Illinois 60015
(224) 405-0900
_________________________________________________
Proxy Statement
INTRODUCTION
The Board(Name of Directors of Discover Financial Services is soliciting your proxy to vote at the Annual Meeting of Shareholders to be held on May 2, 2018, at 9:00 a.m., local time, and any adjournment or postponement of that meeting (the "Annual Meeting"). The Annual Meeting will be held at our corporate headquarters located at 2500 Lake Cook Road, Riverwoods, Illinois 60015. ThisPerson(s) Filing Proxy Statement, andif other than the accompanying proxy card (the "Proxy Card"), Registrant)
Payment of Filing Fee (Check all boxes that apply):
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| ☐ | Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. |
Message from our independent chairman
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| | March 15, 2024 Dear Fellow Shareholders: It is an honor to have the opportunity to once again write you as your independent Board Chairman and invite you to the Discover Financial Services virtual 2024 Annual Meeting of Shareholders. 2023 was not a typical year for Discover. Throughout the year, Discover and the Board met multiple challenges, including leadership transition, regulatory and compliance matters, and refocusing Discover’s business on our core banking products. I, along with the other members of your Board, actively worked with senior management to respond to and overcome these challenges. Last month, we announced Discover’s next chapter: Combining with Capital One represents a unique opportunity to bring together two very successful companies and build a payments network that can compete with the largest payments networks and payments companies. The combined company represents tremendous upside for Discover’s shareholders. You will be voting on the proposed merger at a separate meeting, and there is still much to do before our combination can be completed. Until then, we will continue striving towards our vision of being the leading digital bank and payments partner; accomplishing our mission to help people spend smarter, manage debt better, and save more money so they may achieve a brighter financial future; and living our values of doing the right thing, innovation, simplicity, collaboration, openness, volunteerism, enthusiasm, and respect. Over the past year, the Company has invested significant resources in risk management, compliance, legal, and corporate governance. Strengthening the confidence of all our stakeholders—customers, shareholders, regulators, employees, and communities—continues to be a primary objective. The Board, management, and over 21,000 Discover employees remain committed to strengthening our corporate culture of accountability and transparency, building and protecting long-term shareholder value, and positioning the Company for continued success. We have a strong mix of expertise and tenure on our Board today. Since last year’s Annual Meeting, we have added Kathy Lonowski, Daniela O’Leary-Gill, and Michael Shepherd to the Board. With these additions, we have supplemented our financial, banking operations, and regulatory compliance expertise. Also added to our Board in 2024 is the Company’s new CEO, Michael Rhodes, whose appointment followed a comprehensive process to identify the right leader to help ensure Discover delivers on its strategic and financial goals. Your vote is important! Whether or not you plan to attend the Annual Meeting, please read the enclosed Proxy Statement and vote as soon as possible via the Internet, telephone, or paper proxy card or voting instruction form. Important information about the matters to be acted upon at the meeting is included in the notice of meeting and Proxy Statement. All shareholders of record of our outstanding shares of common stock at the close of business on March 11, 2024, will be entitled to vote at the Annual Meeting. On behalf of your Board and management team, I thank you for your continued support, investment, and engagement. I am very much looking forward to our 2024 Annual Meeting of Shareholders and for what the coming year holds in store for Discover. Very truly yours, Thomas G. Maheras Independent Chairman |
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| Strengthening the confidence of all our stakeholders—customers, shareholders, regulators, employees, and communities—continues to be a primary objective. | |
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This Proxy Statement is dated as of and being made first available to shareholders on March 15, 2024. | |
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Discover | 2024 Proxy Statement | 1 |
Notice of Meeting and Annual Report to Shareholders will be first sent or made available on or about March 16, 2018 to2024 annual meeting of shareholders of record as of
Important Notice Regarding the close of business on March 5, 2018 (the "Record Date"). For those shareholders receiving a Notice of Internet Availability of Proxy Materials for the Notice of Internet Availability ofShareholder Meeting To Be Held on May 9, 2024: The Proxy Materials will be first mailed or made available on or about March 16, 2018 to shareholders of record as of the Record Date. The only voting securities of the Company are shares of our common stock, $0.01 par value per share (the "Common Stock"), of which there were 353,550,463 shares outstanding as of the Record Date (excluding treasury stock). We need a majority of the shares of Common Stock outstanding on the Record Date to be present, in person or by proxy, to hold the Annual Meeting.
Our Annual Report to Shareholders, which containsStatement and our Annual Report, onwhich includes our Form 10-K including consolidated financial statements for the fiscal year endingended December 31, 2017, accompanies this Proxy Statement. Our Annual Report is not a part of our proxy solicitation materials. We make2023, for Discover Financial Services are available free of charge throughon our website at: www.discover.com.
You are cordially invited to attend the investor relationsAnnual Meeting via the website below, but whether or not you attend, you are urged to vote. Your prompt action will aid the Company in reducing the expense of proxy solicitation.
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| Date and Time May 9, 2024 9:00 a.m., Central Time | | Website www.meetnow.global/MH7YUMP | | Record Date You are entitled to notice of and to vote at the meeting and at any adjournment or postponement of the meeting if you were a shareholder of record as of the close of business on March 11, 2024. |
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| Items of Business | Board Recommendation |
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| 1 | To elect 11 members of the Board named in the Proxy Statement as nominees, each for a term of one year. | | FOR each director nominee |
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| 2 | To conduct an advisory, non-binding vote to approve named executive officer compensation. | | FOR |
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| 3 | To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2024. | | FOR |
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| Other business as may properly come before the meeting or any adjournment or postponement of the meeting | | |
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| Advance voting methods | | It is important that your shares be represented and voted at the Annual Meeting. You can vote your shares by completing and returning your Proxy Card or by voting on the Internet or by telephone. The only voting securities of the Company are shares of our common stock, $0.01 par value per share (the “Common Stock”), of which there were 250,564,864 shares outstanding as of the Record Date (excluding treasury stock). See the “Questions and answers about the annual meeting and voting” section beginning on page117 for more details. Attending the virtual annual meeting The 2024 Annual Meeting for Discover® will be a virtual meeting, conducted via live audio webcast. No physical meeting will be held. If you plan to attend the meeting virtually via the website listed above, please follow the registration instructions as outlined in the “Questions and answers about the annual meeting and voting” section beginning on page 117 for more details. These proxy materials contain our Notice of Annual Meeting and 2024 Proxy Statement. Our 2023 Annual Report contains information about our Company and its financial performance, and our 2022 ESG Report, which was our inaugural full ESG Report, contains additional information about the many environmental sustainability, social, and corporate governance practices and activities taking place at Discover. Our ESG Report is not a part of our proxy solicitation materials. By Order of the Board of Directors, Hope D. Mehlman Executive Vice President, Chief Legal Officer, General Counsel, and Corporate Secretary
March 15, 2024 |
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| A separate Proxy Statement will be delivered, and a separate Special Meeting of Shareholders will be held, in connection with the Agreement and Plan of Merger, between Discover, Capital One Financial Corporation, and Vega Merger Sub, Inc., a wholly-owned subsidiary of Capital One. This annual meeting does not relate to the special meeting that will be held in connection with our proposed merger with Capital One. | |
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| 2 | Discover | 2024Proxy Statement |
Table of contents
Except as otherwise indicated or unless the context otherwise requires, “Discover Financial Services,” “Discover,” “DFS,” “we,” “us,” “our,” and “the Company” refer to Discover Financial Services and its subsidiaries.
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Discover | 2024 Proxy Statement | 3 |
Proxy statement tear sheet
The following table provides high-level information on many aspects of our internet site, www.discover.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Forms 3, 4,policies and 5 filed on behalfpractices that are of our directors and executive officers, and any amendmentsinterest to those documents filed with or furnished toshareholders. This table is not, however, a substitute for a complete reading of this year’s Proxy Statement. Shareholders should read the Securities and Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"). These filings are available as soon as reasonably practicable after they are filed with or furnished to the SEC. We do not intend to incorporate the content of our website into thisentire Proxy Statement.Statement before voting their shares.
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| Governance, environmental, social, or compensation topic | Discover’s practice |
| Board and leadership |
| Number of director nominees | 11 |
| Number of Independent directors | 10 |
| Independence of Audit; Compensation; NGPR; and Risk Oversight Committees under NYSE listing standards | 100% |
| Separate Chairman and CEO | Yes |
| Average director nominee age | 60 |
| Mandatory director retirement age | 75 unless an exception is made |
| Average director nominee tenure | 4 years |
| Tenure limit for directors | Beginning with nominations related to the 2025 Annual Meeting of Shareholders, generally, 14 years for non-employee directors |
| Gender diversity of the director nominees | 45% |
| Racial/ethnic diversity of the director nominees | 27% |
| Overall diversity of the director nominees | 55% |
| Board skills and diversity matrix | Yes, a director-by-director skills and diversity matrix is disclosed in this year’s Proxy Statement |
| Limit on overboarding | Generally, no director shall serve on more than a total of four public company boards. A director who is an executive officer of a publicly traded company may only serve on a total of two public company boards. |
| Board evaluations | Typically conducted at the Board-, committee-, and director-levels; engaged a third-party consultant to facilitate the individual director discussions during 2023 |
| Director onboarding and ongoing education | Yes, enhanced during 2023 |
| Director election voting standard | Majority – Discover has a resignation policy if a director fails to receive a majority of votes cast; the acceptance or rejection of a director’s resignation would be subject to Board action and subsequent disclosure |
| Director election frequency | Annual |
| Blank check preferred stock | Yes, but Discover’s capital plan is submitted to the Federal Reserve |
| Number of Board meetings held in 2023 | 22 |
| Number of Board and committee meetings held in 2023 | 88 |
| Average meeting attendance for the Board and each standing committee in 2023 | At least 95% |
| Executive Sessions with only independent directors | Occurs regularly |
| Access to management and other employees | Yes, the Board has direct access |
| Overall diversity among the executive officers | 13% |
| Shareholder rights |
| Right to call special meetings | Yes, 25% threshold |
| Right to act by written consent | Not permitted |
| One share, one vote policy | Yes |
| Dual-class common stock | No |
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| 4 | Discover | 2024Proxy Statement |
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PROXY STATEMENT TEAR SHEET | |
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| Governance, environmental, social, or compensation topic | Discover’s practice |
| Cumulative voting | Not permitted |
| Confidential voting | Yes |
| Supermajority voting requirements | No |
| Poison pill | No |
| Proxy access bylaw | Yes, 3% Common Stock ownership (up to 20 shareholders may aggregate shares) for 3 years needed to nominate up to the greater of 20% or 2 of the Board seats |
| Exclusive forum bylaw | Yes, for certain actions |
| Fee shifting bylaw | No |
| Other governance information |
| Corporate governance shareholder engagement | Yes, new program for 2023 |
| Council of Institutional Investors member | Yes |
| Independent auditor | Deloitte & Touche LLP, since 2007 |
| Environmental and social practices and disclosures |
| Board oversight of environmental and social matters | Yes, through the NGPR Committee |
| Annual ESG Report | Yes, first full report published for 2022 |
| SASB Index disclosed | Yes, included within our ESG Report |
| GRI Index disclosed | Yes, included within our ESG Report |
| Political contributions disclosure | Yes |
| Supplier Code of Conduct | Yes |
| EEO-1 data disclosure | Yes |
| Diversity goals | Yes, we have adopted “North Star Goals” with respect to diversity hiring and promotion |
| Executive compensation |
| CEO Pay Ratio | 145:1 |
| Pay-versus-performance metric | Adjusted PBTR |
| Stock ownership guidelines | Yes, 7x of base salary for CEO and 3x of base salary for other NEOs |
| Prohibition on director and executive officer hedging and pledging of Discover stock | Yes |
| Clawback policy | Yes, we have adopted a clawback policy in accordance with NYSE listing standards |
| Say-on-pay vote frequency | Annual |
| Double-trigger change-in-control provisions | Yes |
| Excise tax gross-ups | No |
| Independent compensation consultant | Pay Governance |
| Corporate information |
| Common stock symbol | DFS |
| Stock Exchange | NYSE |
| Record Date | March 11, 2024 |
| Common stock outstanding as of the Record Date | 250,564,864 |
| State of incorporation | Delaware |
| Corporate headquarters | 2500 Lake Cook Road, Riverwoods, Illinois 60015 |
| Registrar and transfer agent | Computershare |
| Corporate website | discover.com |
| Investor Relations website | investorrelations.discover.com |
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Discover | 2024 Proxy Statement | 5 |
Company highlights
The following summary highlightssections highlight selected information about the matters to be voted on at the Annual Meeting. You should read the entire Proxy Statement before voting. For more complete information regarding the Company's 2017Company’s 2023 performance, please review the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2017.2023.
Voting RoadmapNew for this year’s proxy statement
Shareholders and other readers should notice a significantly revamped Proxy Statement for 2024. We have worked with internal and external partners to revise the layout, flow, and language throughout the document, with the goals of transparency and readability. Further, we have focused on increasing the number of tables, charts, and info graphics to assist in digesting information and breaking up dense text. The reader experience was kept in mind during the uplift process.
You are askedWe have also added several new features and sections this year. For example, this year’s Proxy Statement includes a new “Proxy statement tear sheet” that compiles much of the information that shareholders may review before deciding how to vote their shares. Similarly, significant effort was put into this year’s “Company highlights” and “Proxy statement summary” in an effort to summarize the key voting issues and related information for shareholders. Also new this year is a new section highlighting our strategy and business operations. Shareholders are, however, encouraged to read the entire Proxy Statement before casting their votes. We have built out and/or created new sub-sections within “Corporate governance,” which is also now a standalone section, such as corporate governance shareholder engagement and board refreshment. We have also expanded the discussion to highlight our robust environmental and social programs, goals, and progress at Discover.
Company overview
Our business
Discover is a digital banking and payment services company known for its credit cards offering leading rewards, award-winning customer service, and no annual fee; however, we are much more than our credit cards. Discover also offers online banking services and personal and home loans and, through January of this year, offered private student loans.
Additionally, Discover operates the Discover Network, the PULSE® network, and Diners Club International®, which are collectively known as the Discover Global Network. The Discover Network processes transactions for Discover-branded credit and debit cards and provides payment transaction processing and settlement services. PULSE operates an electronic funds transfer network, providing financial institutions issuing debit cards on the following matters atPULSE network with access to ATMs domestically and internationally, as well as merchant acceptance throughout the Annual Meeting:U.S. for debit card transactions. Diners Club is a global payments network of licensees, which are generally financial institutions, that issue Diners Club branded charge cards and/or provide card acceptance services.
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| 6 | Discover | 2024Proxy Statement |
We manage our business activities in two segments: Digital Banking and Payment Services. Our Digital Banking segment includes consumer banking and lending products, specifically Discover-branded credit cards issued to individuals on the Discover Network and other consumer banking products and services, including private student loans, personal loans, home loans, and deposit products. Our Payment Services segment includes PULSE, Diners Club, and our Network Partners business, which provides payment transaction processing and settlement services on the Discover Global Network.
Additional information can be found under “Business - Introduction” and “Business - Operating Model” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Strategy linked to value
Strategic planning
Our central strategy is to be a digital provider of banking, lending, and payments services. This strategy derives from our unique business model, in which we are a leading card issuing bank and owner of credit and debit card networks, as well as offering other consumer loans and a range of savings and deposit products. We distinguish our products through the absence of fees by offering no-fee savings and deposit accounts, and no annual fee credit cards. We also offer consumers a financial incentive to use our credit card and debit card products in the form of a cashback reward. This cashback award is funded by our merchant discount rate, around which we have sustainable and defensible economics. We offer superior service in our entirely on-shore 24/7 call center-based service model. We believe we have a differentiated approach to loan underwriting, which focuses on meeting the everyday spending, borrowing, and liquidity needs of our customer base. This strategy has produced resilient economic returns through a range of economic environments while maintaining high standards of customer care.
Discover values and behaviors
At Discover, our Values drive us and provide a roadmap of how we conduct our business. Along with our Behaviors, our Values dictate how we will operate. Each of our Behaviors is linked to one or more Values to help the Company’s employees live out the Values. The following table demonstrates how Discover’s Values are supported by our Behaviors.
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| Behaviors supporting our values | Discover values |
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| We set ambitious goals | Innovation |
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| We take responsibility | Our Board’s RecommendationDoing the right thing |
| Proposal 1. Election of Directors
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| We stay ahead | "FOR" the election of each director nomineeInnovation |
| Proposal 2. Advisory Vote to Approve Named Executive Officer Compensation
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| We are curious | "FOR"Innovation |
| Proposal 3. Ratification of Appointment of Independent Registered Public Accounting Firm
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| We innovate & simplify | "FOR"Innovation, Simplicity |
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| We develop ourselves | Proposal 4. Advisory Vote on One Shareholder Proposal, if properly presentedOpenness
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| We are good partners | Collaboration, Volunteerism |
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| We create positive energy | Enthusiasm, Respect |
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| We develop others | Openness |
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Discover | 2024 Proxy Statement | "AGAINST"7 |
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Director Nominees
Performance highlights
In 2023, the Company’s accomplishments included:
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| Company earned net income of $2,940 million from 19% revenue growth and a robust net interest margin of 11.07% | | | | | | Delivered second highest profit before taxes and reserves (“PBTR”) of $5,802 million(1)and third best diluted EPS of $11.26 in Company history |
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| Continued to invest in branding and acquisition | DirectorSuccessfully launched Cashback Debit on a national scale contributing toconsumer deposit growth of 19%. Total loans up 15% driven by investments in new account acquisition, payment rate moderation and sales volume growth
Since
| Other Public Company Boards | Independent | Committees |
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| Disciplined expense management | | | AC | C&LD | N&G | ROCAchieved a 38% efficiency ratio(versus 39% in 2022) while investing over $500MM in compliance and risk management capabilities |
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Jeffrey S. Aronin
Chairman and CEO of Paragon Pharmaceutical Capital, LLC and Paragon Biosciences, LLC | 2007Strong shareholder returns | None | Yes | | X | | 21% return on equity for the year; increased quarterly dividend by 17% to $0.70 per share |
| Mary K. Bush | |
(1)PBTR is a non-GAAP financial measure that should be viewed in addition to, not as a substitute for, the Company’s reported results. PBTR is derived by adding the change in the allowance for credit losses of $1,977 million, the adjustment to the liability for expected credit losses on unfunded commitments of ($1) million, and income tax expense of $886 million to net income of $2,940 million. The Compensation Committee believes that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company’s incentive-eligible employees are most able to directly impact and influence. Please see “Annex A” for a reconciliation of PBTR to net income.
Chairman of Bush International, LLC
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| 8 | ManTech International CorporationDiscover | 2024Proxy Statement
Marriott International, Inc.
T. Rowe Price Group, Inc.
| Yes | | | X | X |
Gregory C. Case
President and CEO of Aon plc
| 2007 | Aon plc | Yes | | C | | |
Candace H. Duncan
Former Managing Partner
KPMG LLP, Washington D.C. Metropolitan Area
| 2014 | FTD Companies, Inc.
Teleflex Inc.
| Yes | X | | X(1)
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Joseph F. Eazor
CEO of Rackspace
| 2016 | Commvault Systems | Yes | X | | | |
Cynthia A. Glassman
Former Under Secretary for Economic Affairs
U.S. Department of Commerce
| 2009 | Navigant Consulting, Inc. | Yes | C | | | |
Thomas G. Maheras
Managing Partner
Tegean Capital Management, LLC
| 2008 | None | Yes | | | | X |
Michael H. Moskow
Retired President and CEO
Federal Reserve Bank of Chicago
| 2007 | Commonwealth Edison Company | Yes | | | | C |
David W. Nelms
Chairman and CEO
Discover Financial Services
| 2007 | CDW Corporation | No | | | | |
Mark A. Thierer
Managing Partner, AssetBlue Investment Group
| 2013 | None | Yes | | X | | |
Lawrence A. Weinbach
Independent Lead Director Chairman, Great Western Products Holdings, LLC
Managing Director, Yankee Hill Capital Management, LLC
| 2007 | None | Yes | X | | C | |
"AC": Audit Committee, "C&LD": Compensation and Leadership Development Committee, "N&G": Nominating and Governance Committee, and "ROC": Risk Oversight Committee.
"C": Chairperson of the Committee, and "X": Member of the Committee.
(1) As of the date of this Proxy Statement, Director Richard H. Lenny serves as a member of the N&G Committee. In December 2017, Mr. Lenny announced that he would retire from the Board, effective as of the 2018 Annual Meeting of Shareholders. As a result, the Board elected Director Candace H. Duncan, a nominee for reelection to the Board, to serve on the N&G Committee, beginning on the date of Mr. Lenny's retirement.
2
As a group, our Director nominees have the following characteristics, skills and experience:
Environmental and social programs at Discover
Our approach
Our programs and practices help us deliver on our Company’s mission of creating brighter financial futures by advancing sustainability and equity across our business. We do this by focusing on key areas including governance, DEI, financial inclusion, social impact, and environmental sustainability. Creating related goals across these areas helps us to measure our progress and reinforces our commitment to meeting our shareholders’ and other stakeholders’ interests.
The NGPR Committee, in coordination with other committees of the Board, oversees our policies, programs, strategies, reporting, and goals related to environmental and social matters. We execute program initiatives through our ESG Steering Committee and ESG Working Groups, comprised of practitioners and senior leaders with responsibility for environmental and social focus areas. These groups meet at least quarterly throughout the year. Regular engagement with our key stakeholders is critical to advancing our related strategies. We do this through a variety of mechanisms including shareholder outreach, surveys, meetings, partnerships, and events.
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| Our philosophy | We make it our mission every day to contribute to a more equitable and sustainable world so everyone can achieve a brighter financial future. |
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| DEI | | We make DEI a part of everything we do so our employees can thrive, and we can best serve our customers. |
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| Social impact | We use our full platform of jobs, products, business spend, philanthropy, and more to advance equity—and motivate others to effect change. |
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| Environmental sustainability | We contribute to a more sustainable world through resource conservation and the reduction of our operational impact. |
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| Governance | We commit to “Doing the Right Thing” by being transparent, accountable, and ethical in everything we do. |
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Our goals and highlights
See Discover’s most recent ESG Report for our current environmental- and social-based goals and progress against those goals (as of the publication of the report). Discover’s progress will be further updated in forthcoming ESG reporting. We encourage readers to review the various reporting documents available on our website.
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Discover | 2024 Proxy Statement | 9 |
Human capital management
The success of our business is highly dependent on attracting, retaining, and developing employees with the necessary skills and experience to support our customers, our business, and our strategy. We employed approximately 21,100 individuals at December 31, 2023, which consisted primarily of full-time employees in the U.S. Additionally, we employ 100% of our customer service agents within the U.S., which we believe offers a distinct competitive advantage.
Our purpose-driven, people-first culture and human capital management strategy is built on a foundational set of core values and Discover Behaviors and powered by significant investments in employee learning and development, market-competitive compensation and benefits, and DEI. One place we see the results from our human capital strategy is in our consistently high levels of employee engagement, which we measure through employee surveys.
Additional information can be found under “Business - Human Capital” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
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Employee
Learning and
Development | Market-Competitive
Compensation and
Benefits | DEI | Pay Equity | Employee
Engagement |
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| 10 | Discover | 2024Proxy Statement |
Proxy statement summary
The board at a glance
Our Board selected the following nominees based on their broad and diverse spectrum of experience and expertise, reputation for integrity, experience in positions with a high degree of responsibility, and their commitment to represent the interest of all shareholders. Detailed information about each nominee’s qualifications, experience, skills, and expertise along with professional contributions can be found starting on page24. | | | | | |
Discover | 2024 Proxy Statement | 11 |
Director nominees
A snapshot view of this year’s director nominees is shown below:
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| Director nominees | Age | Director since | Standing Discover board committees | Other current public company directorships |
| Candace H. Duncan IND Former Managing Partner, Washington, D.C. metropolitan area of KPMG LLP | 70 | 2014 | •Audit (Chair) •NGPR | •Teleflex Inc. |
| Joseph F. Eazor IND Former CEO and President, Clario | 61 | 2016 | •Audit | |
| Kathy L. Lonowski IND Former Regional Director, FDIC, San Francisco Region | 62 | 2023 | •Risk Oversight | |
| Thomas G. Maheras Independent Chairman Managing Partner, Tegean Capital Management, LLC | 61 | 2008 | •Risk Oversight | |
| Daniela O’Leary-Gill IND Former Chief Auditor and COO, Bank of Montreal | 59 | 2023 | •Audit •Risk Oversight (Interim Chair) | |
| John B. Owen IND Former COO, Regions Financial Corporation | 63 | 2022 |
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| David L. Rawlinson II IND CEO and President, Qurate Retail, Inc. | 48 | 2021 | •NGPR (Chair) | •Qurate Retail, Inc. |
| Michael G. Rhodes CEO and President, Discover and President, Discover Bank | 58 | 2024 | | |
| J. Michael Shepherd IND Former CEO, BancWest Corporation and Bank of the West | 68 | 2023 | •Risk Oversight | |
| Beverley A. Sibblies IND Founder and President, BAS Financial Corp. | 62 | 2023 | •Audit | |
| Jennifer L. Wong IND COO, Reddit, Inc. | 49 | 2019 | •Risk Oversight | •IMAX Corporation |
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| 12 | Discover | 2024Proxy Statement |
Director nominee snapshot
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| Director nominee tenure | | Director nominee age |
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Director nominee overall diversity
Note that some percentages may not equal 100% due to rounding.
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Discover | 2024 Proxy Statement | 13 |
Qualifications and experience
Leading up to the annual self-assessment and year end questionnaire processes, the directors, with input from management, took a fresh look at the Board skills needed to help properly oversee the Company. Following thorough discussions and analysis, this year’s matrix contains several new and revised skills that the Board believes are critical to its oversight role. For a more detailed director-by-director matrix, refer to the “Election of directors” section.
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| CEO or CFO | | Public Board | Financial Services Industry | TechnologyRisk management |
| Strategy and Business Development | | | |
| Finance, Accounting and Financial ReportingPublic Board | | Government/Regulatory | Risk ManagementCorporate governance |
| Corporate Governance | | | |
| Consumer banking and financial services | | | Brand marketing |
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| Payments | | | International business |
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| Audit, accounting, finance, and capital planning | | | Strategic planning, business development, and operations |
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| Technology, digital, innovation, and artificial intelligence | | | Compensation and Succession Planningbenefits |
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| MarketingInformation security and cybersecurity | | International | Human capital management |
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| Government and public policy | | | ESG |
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| Legal, regulatory, and compliance | | | |
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| 14 | Discover | 2024Proxy Statement |
Corporate Governance Highlightsgovernance highlights
The Board believes strongis striving to oversee the implementation of corporate governance is critical topractices necessary for achieving the Company’s long-term goals and maintaining the trust and confidence of investors, employees, customers, regulatory agencies, and other stakeholders. The following are highlights of our 2023 Corporate Governance Program:
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Board Independence  All directors are independent under NYSE Guidelines except CEO;our CEO Board committeescommittee chairs and members are 100% independent | Strong Lead Independent Director Role under NYSE Guidelines
Non-Executive Board Chairman is independent | Executive Regular executive sessions of independent directors held at all in-person | Board meetings | Performance and CompositionAll directors attended more thanat least 75% of meetings of our Board and committees on which they served, and there was at least 95% average attendance for the Board and theireach standing committee meetings |
Diverse Board with mix of skills, tenure, and age; 25%age 45% of our directorsdirector nominees are women, 27% of our director nominees are racially/ethnically diverse, and 75% of the Board’s standing committees are chaired by diverse directors |
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Best Practices Corporate governance shareholder engagement program Annual Board, committee, and director performance evaluations Ongoing director education and access to experts, management, and employees Risk aware culture overseen by the Risk Oversight Committee Significant shareholder ownership requirements for executives and Board Longstanding commitment to sustainability | Shareholder Rights Annual election of directors with majority voting standard | Annual Board, committee and director performance evaluations | Director education and access to experts |
Risk aware culture overseen by a separate Risk Oversight Committee | Significant shareholder ownership No supermajority voting requirements for Executives and Board | Shareholders have proxy access with market standard conditions for director nominations All directors attend the annual meeting Shareholders have the right to call special meetings at market standard threshold in accordance with our Bylaws Confidential shareholder voting |
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Discover | 2024 Proxy Statement | Longstanding commitment to sustainability15 |
Business Highlights
In 2017, the Company's accomplishments included:
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| PROXY STATEMENT SUMMARY |
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| Exceeded key plan profit target with higher revenues offsetting credit normalizationAccelerated card loan growth and originated record level of personal and student loans | Significant AML/BSA regulatory progress | Strong return on equity and significant capital deployment |
Executive Compensation Highlightscompensation highlights
The Company structured its 2017Company’s 2023 executive compensation program to align with shareholder interests and the long-term interests of the Company, appropriately balance risk and reward, and attract and retain a talented executive team. The program was designedcompensation decisions were based on the following principles:
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| Pay-for-Performance | | Balanced Compensation Structure | | Market-Competitive Pay Opportunity |
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| Our compensation should reflect financial and non-financial performance over short- and long-term periods at the Company and individual performance levels. | | We seek to deliver a mix of fixed and variable compensation that aligns the interests of our executive officers with our shareholders and appropriately balances risk and reward. | | Our compensation should be competitive relative to our peers and the broader market in order to attract, motivate, and retain top executive talent. |
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| | (Performance-Based) |
| Element | Base Salary | Short-Term Cash Incentive (“STI”) | Long-Term Incentive (“LTI”) |
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| Highlights | Fixed cash compensation based on scope of responsibility, impact on the organization, expertise, experience, and individual performance. | Annual cash bonus opportunity based on Company financial performance, primarily PBTR, other performance factors, risk and individual performance. | Annual equity award opportunity based on financial and other performance factors, risk and individual performance; granted as a mix of PSUs and RSUs with PSU awards determined based on three-year adjusted EPS performance. |
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| 2023 former CEO target pay mix | | | | |
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| 2023 average of all other NEOs’ target pay mix | | | | |
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PROXY STATEMENT SUMMARY | | |
| Pay for Performance
| Balanced Compensation StructureMarket-Competitive Pay |
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Compensation governance highlights
Highlights of our program include:
Auditor ratification
Shareholders are being requested to ratify Deloitte as the Company’s independent auditor for 2024. The Board and Audit Committee believe that the continued retention of Deloitte to serve as our independent registered public accounting firm is in the best interests of the Company and its shareholders. The Audit Committee will reconsider Deloitte’s appointment if not ratified by the shareholders. Even if the selection is ratified, the Audit Committee, at its discretion, may select a different independent registered public accounting firm at any time during the year if the committee determines that such a change would be in the best interests of the Company and our shareholders.
Questions and Answersanswers
Please see the “Questions and Answersanswers about the annual meeting and voting” section beginning on page 50117 for important information about the proxy materials, voting, and the Annual Meeting.
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Discover | 2024 Proxy Statement | 17 |
Election of directors
PROPOSAL 1. ELECTION OF DIRECTORS
The Board believes strong corporate governance is critical
Shareholders are being requested to achievingvote on a proposal to elect 11 nominees to the Company's long-term goals and maintainingBoard. After consideration of the trust and confidence of investors, employees, customers, regulatory agencies, and other stakeholders. The Board oversees the Company's business and directs its management. The non-employee directorscurrent composition of the Board, are not involvedthe Board’s most recently completed self-evaluation, and the skills needed to oversee the Company both now and in day-to-day operations. Instead,the future, the Board meets periodically with management to reviewhas nominated the Company's annual business plan (the "Annual Plan"), multi-year strategic plan and performance against such plans, risks, and business strategies. Directors also consult with management about the Company's performance outside of formal meetings, which last year included opportunities for directors to have in-depth conversations with management about particular areas of the business.
All of the director nominees set forth below are standingfollowing individuals for election at the 2024 Annual Meeting.Meeting of Shareholders:
Directors Lonowski and Shepherd were appointed to the Board during 2023 based on recommendations from management. Director O’Leary-Gill was on the Discover Bank Board of Directors prior to joining Discover’s Board in June 2023. Director Rhodes was appointed as the Company’s CEO and President and to the Board, effective February 1, 2024. He was recommended to the Company by an outside search firm. All other nominees are standing for reelection.
The Board and Company wish to thank directors Aronin, Case, and Thierer, each of whom has not been renominated this year, for their service on the Company’s Board. These directors have demonstrated significant leadership and commitment during their tenure on the Board. We have benefited from their insights and perspectives over the years.
Pursuant to the Discover Bylaws, all director nominees shall serve one-year terms and stand for election at each annual meeting of shareholders. Each director holds office until his or hertheir successor has been duly elected and qualified or the director’s earlier resignation, death, or removal. In December 2017, Richard H. Lenny informed the Company that he would retire from the Board and not stand for reelection at the next annual meetingEach of shareholders. Thethis year’s nominees below are current directors of Discover Financial Services,the Company, and each such nominee has indicated that he or shethey will serve if elected. We do not anticipate that any nominee will be unable or unwilling to stand for election, but if that happens, your proxy will be voted for another person nominated by the Board. The Board may also choose to reduce the number of directors to be elected, as permitted by our Bylaws. The experience, qualifications, attributes, and skills of each of the Company’s director nominees are set forth below.
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| 18 | Discover | 2024Proxy Statement |
Our board of directors
Overview
Ongoing board refreshment
In its goal to implement leading practices with respect to refreshment, the Board, primarily through its NGPR Committee, continually reviews Board and committee composition and leadership, the skills represented by the current directors, and the current and future needs of the Board and committees. The Company’s Corporate Governance Guidelines reflect the Board’s recognition of the importance of ongoing Board refreshment and maintaining an appropriate balance of tenure, diversity, skills, experience, and perspectives on the Board.
The following highlights some of the changes to the Board over the past five years:
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| 16 Board changes since 2019 | | Diversity of newly added directors | | Skills of newly added directors | |
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| 8 new directors have been added to the Board since 2019 | | 4 new directors are female | | | Consumer Banking and Financial Services | |
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| 8 directors have exited the Board since 2019 | | 3 new directors identify as part of a racial or ethnic minority group | |
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Director retirement age
In 2022, the Corporate Governance Guidelines were amended to provide that directors shall not be eligible for nomination or election after their 75th birthday. The Board believesmay, however, waive this requirement on the recommendation of the NGPR Committee if, in light of all of the circumstances, a director’s continued service is in the best interests of the Company and its shareholders.
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Discover | 2024 Proxy Statement | 19 |
Director tenure
The NGPR Committee considers the tenure of directors when nominating individuals each year and strives to have a balance among newer, mid-tenured, and longer-serving directors. In doing so, the Board gains fresh perspectives from newer directors and builds a leadership pipeline with mid-tenured directors while retaining institutional knowledge through those directors who are longer serving. To assist with this balancing, the Board has implemented a 14-year tenure policy for non-employee directors beginning with nominations related to the Company’s 2025 Annual Meeting of Shareholders. To ensure the appropriate mix of skills and experience is maintained and allow for an orderly transition of leadership on the Board and its committees, if more than two directors are impacted by this requirement at the same annual meeting of shareholders, the Board may determine to extend a director’s service until the subsequent annual meeting of shareholders.
Director overboarding
In 2023, the Board reduced the total number of public company boards on which directors are typically permitted to serve. Generally, no director shall serve on more than a total of four public company boards (i.e., including the Company’s Board). A director who is an executive officer of a publicly traded company may only serve on a total of two public company boards (i.e., including the Company’s Board).
Board diversity
Our Corporate Governance Guidelines state that the Board considers the diversity of a candidate’s perspectives, background, and other demographics and experience. Further, the Board seeks to maintain an appropriate balance of tenure, diversity, skills, perspectives, and experience needed to provide effective oversight in light of the Company’s current and future strategic needs. In addition to gender and race/ethnicity, directors are requested to disclose whether they identify as LGBTQ+, if they have any disabilities, and whether they are a veteran. The following charts and Board skills and diversity matrix demonstrate the NGPR Committee’s and Board’s commitment to diversity among this year’s nominees.
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| Overall diversity | Gender diversity |
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Racial/Ethnic diversity
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| 20 | Discover | 2024Proxy Statement |
Board skills, experience, and qualifications
The Board understands that an effective board consists of a diverse group of individuals who bring a variety of complementary skills and experiences. The Nominating and Governance Committee and the Board consider the skills and experiences of the directors in the broader context of the Board’s overall composition, with a view toward constituting a board that has the best skill set and experience to oversee the Company’s business. As indicated below, our directors have a combined wealth of leadership experience derived from extensive service guiding large, complex organizations as executive leaders or board members, and in government and academia. They collectively have substantive knowledge and skills applicable to our business, including in the areas of regulation, public accounting and financial reporting, finance, risk management, business development, technology, marketing, operations, strategic planning, management development and succession, compensation, corporate governance, public policy, international matters, banking, and financial services.
The Nominating and GovernanceNGPR Committee regularly reviews the composition of the Board and its assessment of the Board’s performance in light of our evolving business requirements to maintain a Board with the appropriate mix of skills and experiences needed for the broad set of challenges that the Company confronts. Annually,The NGPR Committee and the Lead Director conducts individual interviewsBoard consider the skills and experiences of the directors in the broader context of the Board’s overall composition, with each directora view toward constituting a Board that include topics suchhas the best skill set and experience to oversee the Company’s business.
Our directors have a combined wealth of leadership experience derived from extensive experience guiding large, complex organizations as Boardexecutive leaders or board members, as well as through government service. Collectively, the directors have the substantive knowledge and committee performance and effectiveness, leadershipskills applicable to our business, which are set forth as part of the Board skills and committees,diversity matrix.
The NGPR Committee and the performance of individual directors. The Lead Director then reports the results of these interviews to the full Board, duringin coordination with management, refreshed its self-evaluation. The full Board evaluates such results and also conducts an evaluationconsideration of the Lead Director and Chairskills the Board believes are most critical to its oversight of the Nominating and Governance Committee. In addition, each committee annually conducts a self-evaluation.
Information Concerning Nominees for Election as Directors
Jeffrey S. Aronin, 50. Director since 2007. Mr. Aronin has been chairman and chief executive officer of Paragon Pharmaceutical Capital, LLC, a global pharmaceutical development company, since 2010. He is also chairman and chief executive officer of Paragon Biosciences, LLC, an affiliated global healthcare development and biopharmaceutical investment firm. From 2010 to 2017, Mr. Aronin was also chairman and chief executive officer of Marathon Pharmaceuticals, a research based prescription biopharmaceutical company. From 2000 to 2009, Mr. Aronin was president and chief executive officer of Ovation Pharmaceuticals Inc., a biopharmaceutical company he founded in 2000. In 2009, Ovation Pharmaceuticals was acquired by Lundbeck, Inc. Mr. Aronin served as president and chief executive officer of Lundbeck, Inc. during its acquisition and integration of Ovation Pharmaceuticals.
Mr. Aronin has experience as a chief executive officer leading several global biopharmaceutical companies. HisCompany. This included adding new skills include strategy and business development, finance and brand marketing. He brings valuable leadership experience and knowledge in the operations and day-to-day management of a global corporation in a regulated industry. Mr. Aronin also has experience in the structuring and execution of strategic corporate transactions, including mergers and acquisitions.
Mary K. Bush, 69. Director since 2007. Ms. Bush has served as the chairman of Bush International, LLC, a financial and business strategy advisory firm, since 1991. Ms. Bush is a member of the board of directors of ManTech
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International Corporation, Marriott International, Inc. and T. Rowe Price Group, Inc. In the past five years, she has also served as a director of the Pioneer Family of Mutual Funds.
Ms. Bush brings extensive financial market, banking, government and international experience to the Board. She advises U.S. companies and foreign governments on international financial markets, banking and economic matters. She has served as managing director of the Federal Housing Finance Board, where she established financial policies and oversaw management and safety and soundness for 12 Federal Home Loan Banks. She served as vice president and head of International Finance of Fannie Mae, where she led funding transactions globally, and as the U.S. Alternate Executive Director of the International Monetary Fund Board. In 2007, she served on the U.S. Department of the Treasury’s Advisory Commission on the Auditing Profession. Ms. Bush brings a broad understanding of the operations and business and economic challenges of public companies and the financial services industry.
Gregory C. Case, 55. Director since 2007. Mr. Case has been president and chief executive officer of Aon plc, a leading global provider of risk management, insurance and reinsurance brokerage, since 2005 and is a member of Aon's board of directors. Prior to joining Aon, Mr. Case was with McKinsey & Company, an international management consulting firm, for 17 years, most recently serving as head of the Financial Services Practice. Prior to joining McKinsey, he worked for the investment banking firm of Piper, Jaffray and Hopwood and the Federal Reserve Bank in Kansas City.
Mr. Case has approximately 20 years of experience in the insurance and financial services industries, including in the areas of risk management services, insurance and reinsurance brokerage, and through his management consulting and banking experience. He brings valuable leadership experience and knowledge of business operations and the day-to-day management of a large, regulated global financial corporation. His skills include strategy and business development, risk management and people management.
Candace H. Duncan, 64. Director since 2014. Ms. Duncan retired from KPMG LLP, a global network of professional firms providing audit, tax and advisory services, in November 2013 where she was managing partner of the Washington, D.C. metropolitan area since 2009. Ms. Duncan also was on the KPMG LLP board of directors from 2009 to 2013, and served as chair of the board’s nominating committee as well as the partnership and employer of choice committee. Prior thereto, she served in various roles at the firm, including managing partner for audit for the Midatlantic area and audit partner in charge for the Virginia business unit. Ms. Duncan was admitted to the KPMG LLP partnership in 1987 and had more than 35 years of experience as a professional with the firm. Ms. Duncan is a member of the board of directors of FTD Companies, Inc. and Teleflex Inc.
Ms. Duncan has experience leading and managing a large accounting firm’s growth priorities across its audit, tax and advisory functions in key markets. In addition, she has a strong financial and accounting background, gained through her many years of experience at KPMG LLP, including her experience as a lead audit partner for major international and domestic companies. She has served clients on a wide range of accounting and operational issues, public securities issuances and strategic corporate transactions. Her thorough knowledge of public company accounting, financial statements and corporate finance is of significant value to the Company.
Joseph F. Eazor, 55. Director since 2016. Mr. Eazor has been the chief executive officer of Rackspace, a leading managed cloud company, since 2017. He previously served as the president and chief executive officer of EarthLink, Inc., a leading communications and IT services provider, and was a member of EarthLink's board from January 2014 until February 2017. From 2011 to 2013, he served as executive vice president and chief operating officer of global sales and customer operations at EMC and prior to that he served in a variety of leadership roles at Hewlett Packard and Electronic Data Systems. Mr. Eazor serves on the board of Commvault, a data protection and information management company.
Mr. Eazor has a proven track record of leading successful global companies. He has extensive experience in international strategy and business development and in technology and IT services. In addition to his corporate roles, Mr. Eazor was a senior partner with McKinsey & Co. from 2010 to 2011 and a partner and board member of A.T. Kearney, Inc. from 1990-1999. Mr. Eazor also served on the board of Mphasis, a publicly traded company in India, and on the Asia Advisory Board of the University of Chicago's Booth School of Business.
Cynthia A. Glassman, Ph.D., 70. Director since 2009. Dr. Glassman was appointed by President Bush as Under Secretary for Economic Affairs at the U.S. Department of Commerce from 2006 to 2009 and as Commissioner of the U.S. Securities and Exchange Commission from 2002 to 2006, including serving as acting chair during the summer of 2005. Dr. Glassman is a director of Navigant Consulting, Inc. She is also a Senior Research Scholar at the Institute for Corporate Responsibility at the George Washington University School of Business.
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Dr. Glassman brings extensive regulatory, governance, risk management, financial services and banking experience to the Board. She holds a Ph.D. in economics and has spent over 40 years in the public and private sectors focusing on financial services regulatory and public policy issues. She held various positions over 12 years at the Federal Reserve, including as Chief of the Financial Reports Section and an Economist in the Capital Markets Section. She also has 15 years of experience in financial services consulting, including as a Principal of Ernst & Young LLP and Managing Director of Furash & Company. Through her experience, she brings a thorough and insightful perspective to a wide range of banking, financial, risk management, regulatory and corporate governance issues.
Thomas G. Maheras, 55. Director since 2008. Mr. Maheras is the managing partner of Tegean Capital Management, LLC, an investment advisory firm based in New York since 2008. Prior to that he was chairman and co-chief executive officer of Citi Markets and Banking, the investment banking division of Citigroup, Inc., where he held roles of increasing responsibility after starting his career as a fixed-income trader at Salomon Brothers. He has served as chairman of the U.S. Treasury Department Borrowing Advisory Committee and as an executive committee member of the Board of Directors of the Securities Industry and Financial Markets Association.
Mr. Maheras has extensive risk management, banking and capital markets experience, including 23 years at Citigroup where his responsibilities included leading the global capital markets business. He also brings valuable leadership experience and knowledge of operations and the day-to-day management of a global financial services organization. Mr. Maheras’ financial background and banking and financial services experience includes a knowledge of financial statements, corporate finance, accounting and capital markets.
Michael H. Moskow, 80. Director since 2007. Mr. Moskow retired as president and chief executive officer of the Federal Reserve Bank of Chicago in 2007, where he had served since 1994. Mr. Moskow serves on the board of directors of Education Corporation of America, CityBase, and Commonwealth Edison Company, a subsidiary of Exelon Corporation. In the past five years, he has also served as a director of Taylor Capital Group Inc. and Northern Trust Mutual Funds.
Mr. Moskow brings extensive regulatory, financial services and banking experience to the Board skills and diversity matrix, and revising certain prior ones. For example, last year’s “Financial Services Industry” skill is now more closely tailored to Discover’s needs and labeled “Consumer Banking and Financial Services.” Similarly, the “Technology and/or Cybersecurity” skill that was disclosed in the prior Proxy Statement has extensive knowledgebeen expanded and split into separate skills—“Technology, Digital, Innovation, and Artificial Intelligence” and “Information Security and Cybersecurity”—to reflect the Company’s opportunities and challenges. Revised definitions for each of the economy and financial markets. He is currently Vice Chair and Distinguished Fellow, Global Economy at The Chicago Council on Global Affairs. From 1993skills are also included in this year’s Proxy Statement.
Further, rather than simply checking a box as to 1994, he waswhether they have or do not have a full-time faculty member at Northwestern University’s Kellogg Schoolparticular skill, director nominees were asked to provide the level of Management. Prior to teaching at Northwestern, Mr. Moskow was a Deputy U.S. Trade Representative, following his appointment by President Bush in 1991. From 1969 to 1977, he held a number of senior positionsproficiency they have with the U.S. government, including undersecretary of labor at the U.S. Department of Labor, directoreach of the Council on Wageskills and Price Stability and senior staff economist with the Council of Economic Advisers. Through his senior regulatory positions, particularlyto explain how they obtained their self-identified skills. Directors were asked to state whether they had no, limited, moderate, or substantial experience in the financial services arena, and service on the boards of other financial institutions, he brings a thorough and insightful perspective to a wide range of banking, financial, regulatory and risk management issues.
David W. Nelms, 57. Director since 2007 and Chairman since 2009. Mr. Nelms has served as the chief executive officer of Discover since 2004 and served as our president and chief operating officer from 1998 to 2004. Mr. Nelms led our business as a director from 1998 and our Chairman from 2004 until the June 2007 spin-off from Morgan Stanley, our former parent company. Mr. Nelms currently serves on the Federal Reserve Board of Chicago Board of Directors. He also serves on the board of directors of CDW Corporation, a leading provider of technology solutions to business, government, education and healthcare. Prior to joining Discover, Mr. Nelms worked at MBNA America Bank from 1991 to 1998, most recently as a vice chairman. From 1990 to 1991, Mr. Nelms was a senior product manager for Progressive Insurance. From 1986 to 1990, Mr. Nelms was a management consultant with Bain & Company.
Mr. Nelms’ deep understandingeach of the Company’s business and the financial services industry provides critical expertisefollowing areas. The summary table below only reflects those skills where directors indicated moderate to the Company and makes him well-qualified to serve as Chairman. He also brings valuable leadership experience in risk management, consumer financial services, including operating in the current regulatory environment, corporate finance, information technology and knowledge of operations and the day-to-day management of a global financial corporation, which plays a critical role in board discussions regarding strategic planning and business development for the Company.
Mark A. Thierer, 58. Director since 2013. Mr. Thierer currently serves as the managing partner of AssetBlue Investment Group, a position he has held since June 2017. From October 2017 through February 2018, Mr. Thierer also served as the interim chief executive officer of Dentsply Sirona Inc., a manufacturer of dental implants. Mr. Thierer was chief executive officer of OptumRx, a pharmacy care services company, from July 2015 until September 2017. He previously served as chairman and chief executive officer of Catamaran Corporation, one of the nation's largest pharmacy benefit management companies, from March 2011 until it combined with OptumRx in 2015.
substantial experience.
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Discover | 2024 Proxy Statement | 21 |
Mr. Thierer has experience as a chief executive officer leading a national pharmacy benefit and healthcare information technology solutions company. HisThe following sets forth the revised skills include strategy and business development, technology, finance and marketing. He brings valuable leadership experience and knowledge(along with new definitions) that the Board believes are most critical to their oversight responsibilities:
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| CEO or CFO | Experience serving as a chief executive officer or chief financial officer of a private or publicly listed financial institution, financial services company, or other business entity. |
| Public board | Experience serving as a director of a publicly listed company (other than Discover) in the United States or Canada. |
| Consumer banking and financial services | Experience in consumer banking or the financial services industry. |
| Payments | Experience in bank card issuance, merchant acquiring, card processing, or payment systems. |
| Audit, accounting, finance, and capital planning | Sufficient understanding of and familiarity with audit practices, financial accounting, corporate finance, and capital planning to effectively monitor and oversee the integrity of the Company’s financial reporting process, financial statements, stress testing, and capital planning. This experience may be obtained by serving as a current or former chief financial officer, auditor, accountant, or finance industry executive. |
| Technology, digital, innovation, and artificial intelligence | Experience in assessing, managing, overseeing, or advising on technology, digital, innovation, or artificial intelligence strategies, risks, systems, programs, products, or services for a private or publicly listed financial institution, financial services company, or other business or governmental entity. |
| Information security and cybersecurity | Experience in assessing, managing, overseeing, or advising on information security or cybersecurity strategies, risks, or programs for a private or publicly listed financial institution, financial services company, or other business or governmental entity. |
| Government and public policy | Experience in government and public policy, including working with state or federal agencies, regulators, and policymakers and directing or influencing public policy decisions and outcomes. |
| Legal, regulatory, and compliance | Experience serving as, or actively managing, a senior legal, regulatory, or compliance officer for a private or publicly listed financial institution, financial services company, or other business or governmental entity. |
| Risk management | Experience identifying, assessing, and managing financial and non-financial risks or overseeing risk management of a private or publicly listed financial institution, financial services company, or other business or governmental entity. This experience may be obtained by serving as or actively managing a chief risk officer or similar risk executive or serving as a chair or member of a board risk committee. |
| Corporate governance | Experience in implementing or overseeing governance practices for publicly listed companies and financial institutions, including an understanding of applicable legal and regulatory requirements. This experience may be obtained by serving as or actively managing a corporate secretary or similar governance executive or by serving as a chair or member of a board governance committee. |
| Brand marketing | Experience in brand marketing in the banking, payments, or financial services industries or other consumer-facing industries. |
| International business | Experience serving in an executive or advisory role in an overseas market in which the Company operates or managing or overseeing international business operations for a multi-national entity. |
| Strategic planning, business development, and operations | Experience in developing, implementing, or overseeing corporate strategies or business development plans, or managing or overseeing business operations for an entity of generally comparable or greater size and complexity as the Company. |
| Compensation and benefits | Experience managing or overseeing compensation and benefits programs, including an understanding of the legal and regulatory frameworks governing such programs at publicly listed companies or financial institutions. |
| Human capital management | Experience with human resources, workforce planning, or talent management. This experience may be obtained by serving as or actively managing a chief human resources officer or similar HR executive or by serving as a chair or member of a board committee with human capital and talent management oversight responsibilities. |
| ESG | Experience managing or overseeing ESG strategies or risks of a private or publicly listed financial institution, financial services company, or other business or governmental entity. This may include experience identifying, evaluating, or addressing current, emerging, or potential risks or opportunities relating to corporate culture, diversity and inclusion, social responsibility, governance, or the environment (including climate change and sustainable finance). |
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| 22 | Discover | 2024Proxy Statement |
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| Total number of public company boards | 2 | 1 | 1 | 1 | 1 | 1 | 2 | 1 | 1 | 1 | 2 |
| Tenure (years) | 9 | 7 | >1 | 15 | >1 | 1 | 2 | >1 | >1 | >1 | 4 |
| Age | 70 | 61 | 62 | 61 | 59 | 63 | 48 | 58 | 68 | 62 | 49 |
| Gender - Male (M)/Female (F) /Non-Binary (NB) | F | M | F | M | F | M | M | M | M | F | F |
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Discover | 2024 Proxy Statement | 23 |
Biographies of operations and the day-to-day management of a national corporation. Mr. Thierer also has experience in the structuring and execution of strategic corporate transactions, including mergers and acquisitions.our director nominees
Lawrence A. Weinbach, 78. Director since 2007 and Lead Director since 2009. Mr. Weinbach has been chairman of Great Western Products Holdings, LLC, a manufacturer and master distributor of food and nonfood concession products, since 2009 and has been a managing director of Yankee Hill Capital Management, LLC, a private equity firm, since 2006. Prior to that, he was the executive chairman of Unisys Corporation, a worldwide information services and technology company, from 2005 to 2006, and its chairman and chief executive officer from 1997 to 2004. He also served as a director of Quadra Realty Trust, UBS, AG and Avon Products, Inc. | | | | | |
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Other Public Company Board Service •Current: Teleflex Inc. (since 2015) •During Past Five Years: FTD Companies, Inc. (2014-2019) Standing Discover Committees •Audit (Chair) •NGPR | Career Highlights •Retired managing partner of the Washington, D.C. metropolitan area of KPMG LLP, a global network of professional firms providing audit, tax, and advisory services, serving until November 2013 •Member of KPMG board of directors from 2009 to 2013 •Served as chair of the KPMG board’s nominating committee, as well as the partnership and employer of choice committee •Served in various roles at KPMG, including managing partner for audit for the Mid-Atlantic area and audit partner in charge for the Virginia business unit Relevant Skills and Experience •Leading and managing a large accounting firm’s growth priorities across its audit, tax, and advisory functions in key markets •Strong financial and accounting background, gained through her many years of experience at KPMG, including her experience as a lead audit partner for major international and domestic companies •Served clients on a wide range of accounting and operational issues, public securities issuances, and strategic corporate transactions •Public company accounting, financial statements and corporate finance, corporate governance, and risk management |
Mr. Weinbach has experience in the financial and accounting industry and the information technology and financial services sectors. He began his career in 1961 at Arthur Andersen, ultimately serving as managing partner and chief executive of Andersen Worldwide, a global professional services organization, which included Arthur Andersen and the company now known as Accenture from 1989 to 1997. Mr. Weinbach's strong financial background, gained through his private equity, accounting, investment banking and financial services experience, includes knowledge of risk management, governance, financial statements, corporate finance, accounting and capital markets. As a former chief executive officer, he also brings valuable leadership experience and knowledge of operations, corporate governance and the day-to-day management of a global corporation.The Board recommends that you vote "FOR" the election of each director nominee. Proxies solicited by our Board will be voted "FOR" the election of each nominee unless otherwise instructed. | | | | | |
| 24 | Discover | 2024Proxy Statement |
CORPORATE GOVERNANCE | | | | | |
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Other Public Company Board Service •Current: None •During Past Five Years: Clario (formerly ERT and Bioclinica) (2020-2023) Standing Discover Committees •Audit | Career Highlights •Retired CEO and president of Clario (formerly ERT and Bioclinica), a global data and technology company for clinical trials, from October 2020 to August 2022 •Former CEO and president of Conifer Health Solutions, LLC, a healthcare business solutions organization, from January 2020 to August 2020 •Former executive vice president and chief customer officer of Oracle Corporation, from July 2019 to January 2020 •Former CEO of Rackspace, a leading managed cloud company, from 2017 to 2019 •Former CEO and president of EarthLink, Inc., a leading communications and IT services provider, from 2014 to 2017 •Former business unit leader for Hewlett-Packard and Electronic Data Systems Corporation Relevant Skills and Experience •Public company CEO with experience in technology and cybersecurity •Cybersecurity experience, including business operations incorporating data protection and transmission; proactive strategy and response development; and incident evaluation, management and communications strategy •International strategy and business development in technology and IT services •Management consulting experience from his time as a senior partner with McKinsey & Company and as a partner and board member of A.T. Kearney, Inc. |
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Discover | 2024 Proxy Statement | 25 |
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Other Public Company Board Service •Current: None •During Past Five Years: None Standing Discover Committees •Risk Oversight | Career Highlights •Retired Regional Director of the FDIC, San Francisco region, a role she held from 2016 to 2023, where she evaluated the operations of 350 insured financial institutions, led the risk management and consumer protection divisions covering 11 states, supported the management of examination and legal risk-related technical issues, and assessed solutions related to potential enforcement actions and civil money penalties •Previously served as a Deputy Regional Director, Risk Management Supervision and as Field Supervisor, Risk Management Supervision at the FDIC •Serves on the boards of directors of Pacific Coast Bankers’ Bancshares and its subsidiary bank, Pacific Coast Bankers’ Bank Relevant Skills and Experience •Nearly 40 years of bank regulatory experience and overseeing financial institutions •Significant experience in assessing and evaluating banking operations •Deep understanding in risk management and mitigation |
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| 26 | Discover | 2024Proxy Statement |
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Other Public Company Board Service •Current: None •During Past Five Years: None Standing Discover Committees •Risk Oversight | Career Highlights •Managing partner of Tegean Capital Management, LLC since 2008 and a partner of Iron Park Capital Management, LLC from 2019 to 2023, two investment advisory firms •Serves as a senior advisor to General Atlantic •Former chairman and co-CEO of Citi Markets and Banking, the corporate and investment banking division of Citigroup, Inc., where he held roles of increasing responsibility after starting his career as a fixed-income trader at Salomon Brothers •Served as chairman of the U.S. Treasury Department Borrowing Advisory Committee •Served as an executive committee member of the board of directors of the Securities Industry and Financial Markets Association Relevant Skills and Experience •Leadership within organizations impacting the financial services industry •Significant risk management, banking, and capital markets experience, including 23 years at Citigroup, Inc. where his responsibilities included leading the global capital markets business •Operations and the day-to-day management of a global financial services organization •CEO leadership experience, financial background, and banking and financial services understanding |
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Discover | 2024 Proxy Statement | 27 |
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Other Public Company Board Service •Current: None •During Past Five Years: None Standing Discover Committees •Audit •Risk Oversight (Interim Chair) | Career Highlights •Retired from Bank of Montreal (“BMO”) in 2021 as its COO, a position she held since 2018 •Served over 25 years at BMO, where she held multiple C-suite roles, including chief auditor and head of the anti-money laundering program and remediation •At BMO, oversaw P&L, risk management, regulatory affairs, and investor relations •Founding chair of BMO’s Diversity & Leadership Inclusion Council •Before joining BMO, served as a commissioned National Bank Examiner at the Office of the Comptroller of the Currency •Served on the Board of Directors of Discover Bank since July 2022 •Previously served as a trustee on the board of BMO Funds, Inc. Relevant Skills and Experience •Over 25 years of financial services leadership experience with emphasis in consumer banking operations •Deep understanding of governance, risk management, and regulatory oversight of financial institutions •Advocate of DEI at large financial institutions |
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| 28 | Discover | 2024Proxy Statement |
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Other Public Company Board Service •Current: None •During Past Five Years: None Standing Discover Committees •None | Career Highlights •Served as Interim CEO and President of Discover and Interim President of Discover Bank from August 2023 to January 2024 •Retired in March 2021 as COO of Regions Financial Corporation, one of the nation’s largest full-service providers of consumer and commercial banking, wealth management, and mortgage products and services after a successful 12-year tenure •Held various senior management roles at Regions including head of Operations and Technology, head of Consumer Services Group, head of Regional Banking Group, and head of Enterprise Services and Consumer Banking •Served on the boards of directors for the Birmingham Business Alliance, Innovation Depot, and the United Way of Central Alabama, as well as the advisory board for the UAB Collat School of Business Relevant Skills and Experience •Over 38 years of experience in banking and information technology that spans multiple industries including banking, insurance, airlines, and the defense industry •Valuable expertise in information security, cybersecurity, strategy and operations, and technological innovation within the financial services industry •Leadership and oversight with digital banking through overhauling mobile banking applications •Experience in overseeing technological transformation, including the deployment of new mobile applications and the streamlining of technical infrastructure to improve the customer experience all within a full-service digital environment •Leadership and clear understanding of the overall governance structure associated with a highly regulated industry •Public company compliance, technology, and climate and sustainability experience |
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Discover | 2024 Proxy Statement | 29 |
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Other Public Company Board Service •Current: Qurate Retail, Inc. (since 2021) •During Past Five Years: Nielson Holdings plc (2017-2021) Standing Discover Committees •NGPR (Chair) | Career Highlights •CEO and President of Qurate Retail, Inc., a Fortune 500 global retailer, since October 2021, and previously served as CEO-elect and president for Qurate Retail, Inc. beginning August 2021 •CEO of NielsenIQ (formerly Nielsen Global Connect), a global data company from February 2020 to August 2021 •Joined W.W. Grainger, Inc., an industrial supplies company in 2012 and, beginning in November 2015, served as President of the Global Online Business until February 2020 •Served as a White House Fellow and in appointed positions for both the George W. Bush and Barack Obama administrations •Serves on the board of NielsonIQ, a leading consumer intelligence company Relevant Skills and Experience •Global e-commerce, consumer trends, consumer data, and digital business-to-business operations •Formerly ran or oversaw compliance and cybersecurity functions or projects •Public company CEO, strategy and business development, and audit qualified •Government, regulatory, and climate and sustainability experience |
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| 30 | Discover | 2024Proxy Statement |
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Other Public Company Board Service •Current: None •During Past Five Years: None Standing Discover Committees •None | Career Highlights •CEO and President of Discover and President of Discover Bank since February 2024 •Previously served as group head, Canadian Personal Banking at TD Bank Group beginning in 2021 •Group head, Innovation, Technology and Shared services at TD from 2017 to 2021 •Joined TD in 2011 to lead the North American Credit Card and Merchant Services business •Held leadership roles at Bank of America and MBNA America Bank Relevant Skills and Experience •Over three decades in the financial services industry •Significant banking leadership experience •Deep insight into regulatory and risk matters that impact financial services |
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Discover | 2024 Proxy Statement | 31 |
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Other Public Company Board Service •Current: None •During Past Five Years: CoreLogic (2019-2021); First Hawaiian, Inc. (2007-2019) Standing Discover Committees •Risk Oversight | Career Highlights •Former chairman and CEO of BancWest Corporation and its subsidiary, Bank of the West, the US retail arm of BNP Paribas Group (prior to Bank of the West’s acquisition by BMO in February 2023) •Held positions of increasing responsibility at Bank of West, including as general counsel and chief administrative officer, and president since joining in 2004 •Served as chairman and as a director of BNP Paribas USA, Inc. from July 2016 to February 2023 and as its CEO prior to assuming the chairman position •Before joining Bank of the West, was general counsel of The Bank of New York Company, Inc. and of Shawmut National Corporation •Previously served as Senior Deputy Comptroller of the Currency, Associate Counsel to the President of the United States, and Deputy Assistant Attorney General •Serves on the board of directors of Pacific Mutual Holding Company Relevant Skills and Experience •Over two decades years of experience in various financial services institutions •Significant risk management and consumer banking experience •Proficient in compliance and regulatory matters from industry experience and government service |
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| 32 | Discover | 2024Proxy Statement |
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Other Public Company Board Service •Current: None •During Past Five Years: None Standing Discover Committees •Audit | Career Highlights •Founder and president of BAS Financial Corp., a family office that provides personalized financial services, since 2009 •Former CFO and chief accounting officer of HSBC Finance Corporation, a multi-product, multi-channel consumer finance company with operations in the United States, Canada, and the United Kingdom •Former executive vice president and CFO of EMC Mortgage Corporation, a Texas based, wholly-owned subsidiary of Bear Stearns Companies Inc. •Began her career with Deloitte in 1986 and was named a partner in 1997 •Served on the Board of Directors of Discover Bank since July 2015 Relevant Skills and Experience •Nearly four decades of combined experience in the financial services and audit industries •Maintaining a corporate culture that emphasizes the importance of compliance with laws and regulations and consumer protection •Articulate in corporate strategy, as well as institutional risk appetite and polices |
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Discover | 2024 Proxy Statement | 33 |
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Other Public Company Board Service •Current: IMAX Corporation (since 2023) •During Past Five Years: Group Nine Acquisition Corp. (2021 - 2022) Standing Discover Committees •Risk Oversight | Career Highlights •COO of Reddit, Inc., a community and discussion platform, since 2018, where she oversees business strategy and growth, and related teams for the company •Previously served as president of Digital at Time, Inc. and then its COO from 2016 to 2018, where she led growth strategy and digital business transformation •Chief business officer from 2011 to 2015 at Popsugar, Inc., a media and technology company, where she led business operations and the company’s media and commerce businesses •Held several executive management roles at AOL and worked with a range of digital media and technology clients at McKinsey & Company earlier in her career •Serves on the board of directors of Marfeel, an ad technology platform that allows publishers to create, optimize, and monetize their mobile websites Relevant Skills and Experience •Building consumer and business digital products and platforms and understanding of digital advertising, digital ecosystems, and social media as an essential marketing tool •Cybersecurity experience, including proactive strategy and response development and incident evaluation, management and communications strategy •Technology, business strategy and growth development, acquisition, and brand marketing |
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| 34 | Discover | 2024Proxy Statement |
Director Independenceindependence
Our Board of Directors adopted our Corporate Governance Policies,Guidelines, which contain the director independence guidelines and provide that a majority of the members of the Board and each member of the Audit Committee, the Compensation and Leadership Development Committee (the "Compensation Committee"), the Nominating and GovernanceNGPR Committee, and the Risk Oversight Committee must consist of directors who are independent. The Board uses these guidelines to assist it in determining whether directors qualify as "independent"“independent” pursuant to the guidelines and the requirements set forth in the New York Stock Exchange's Corporate Governance RulesNYSE’s listing standards (the "Rules"“NYSE Rules”). In each case, the Board broadly considers all relevant facts and circumstances and applies the guidelines and the NYSE Rules in determining whether directors qualify as "independent." Our Corporate Governance Policies are available through“independent.”
When assessing the investor relations pageindependence of director nominees, the NGPR Committee considers the impact that tenure may have on the independence of certain longer-tenured Board nominees. The NGPR Committee and Board determined that our internet site, www.discover.com,longer-tenured directors remain independent of management and in print freecontinue to provide independent, reasoned, and balanced guidance to management. The Board values the perspectives that such directors contribute to Board discussions, having served Discover during periods of charge to any shareholder who requests a copy.various industry and Company-specific developments and with different members of management over the years.
Pursuant to our Corporate Governance PoliciesGuidelines and the NYSE Rules, the Board reviewed the independence of all of oureach current directors.director. During this review, the Board considered transactions and relationships between each directordirectors or any member of his or hertheir immediate family (or any entity of which a director or an immediate family member is an executive officer, general partner, or significant equity holder) and the Company and its subsidiaries and affiliates. The Board also considered whether there were any transactions or relationships between directors or any member of their immediate family and members of the Company’s senior management. The purpose of this review was to determine whether any such relationships or transactions existed that were inconsistent with a determination that the director is independent.
As a result of this review, the Board affirmatively determined that current directors Jeffrey S. Aronin, Mary K. Bush, Gregory C. Case, Candace H. Duncan, Joseph F. Eazor, Cynthia A. Glassman, Richard H. Lenny,Kathy L. Lonowski, Thomas G. Maheras, Daniela O’Leary-Gill, John B. Owen, David L. Rawlinson, J. Michael H. Moskow,Shepherd, Beverley A. Sibblies, Mark A. Thierer, and Lawrence A. WeinbachJennifer L. Wong are independent of the Company and its management under the standards set forth in the Corporate Governance PoliciesGuidelines and the NYSE Rules. The Board determined that one of our directors, David W. Nelms,Michael G. Rhodes is not independent because of his employment as our Chief Executive Officer ("CEO").CEO and President.
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| Independent nominees |
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| Candace H. Duncan | Joseph F. Eazor | Kathy L. Lonowski | Thomas G. Maheras | Daniela O’Leary-Gill |
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| John B. Owen | David L. Rawlinson | J. Michael Shepherd | Beverley A. Sibblies | Jennifer L. Wong |
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| Non-independent nominees |
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| Michael G. Rhodes |
In determining that each of the directors, other than Mr. NelmsRhodes, is independent, the Board considered, among other things, certain relationships, which it determined were immaterial to the directors’ independence. The Board considered that the Company and its subsidiaries in the ordinary course of business have, during the last three years, sold products and services to, and/or purchased products and services from, companies at which some of our directors were officers during 2017.2023. In each case, the amount paid to or received from these companies in each of the last three years did not
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exceed the greater of $1,000,000 or 2% of that organization’s consolidated gross revenues, the threshold set forth in our Corporate Governance PoliciesGuidelines and the NYSE Rules. Our Corporate Governance Guidelines are available through the Investor Relations page of our website, www.discover.com, and in print free of charge to any shareholder who requests a copy.
Board Attendance at Annual Shareholder Meeting | | | | | |
Discover | 2024 Proxy Statement | 35 |
Selection of directors
Director nomination process
To assist with its responsibility with respect to identifying potential director candidates, the NGPR Committee engaged a director search firm, Russell Reynolds Associates. Russell Reynolds met with the NGPR Committee multiple times over the past year to refine the list of possible candidates (including the skills being sought by the NGPR Committee and the Board) and help build a pipeline of individuals who could best complement the current skills represented on the Board.
The Company'sfollowing sets forth the Board’s typical process for identifying and recruiting potential directors.
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| Source candidates | | The NGPR Committee and Board seek out candidates from a variety of sources: •Outside search firms; •Recommendations from directors and management; and •Recommendations and nominations from shareholders. |
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| Review of candidates by the NGPR committee | | The NGPR Committee has the primary responsibility for identifying, vetting, and nominating candidates. Regardless of the source of the recommendation, the NGPR Committee reviews the recommended candidate to determine whether they are an appropriate fit for the Board based on the criteria set forth in the Company’s Corporate Governance Guidelines. |
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| Recommend selected candidate(s) for appointment | | After reviewing the individual’s skills, background, and expertise, among other factors, the NGPR Committee may then hold discussions with the candidate in order to evaluate whether they would add to the Board’s oversight capabilities. The NGPR Committee would then determine whether to recommend the candidate to the full Board for appointment or nomination, as the case may be. |
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| Review by the full board | | Similar to the NGPR Committee, the full Board conducts a review of the recommended candidate to determine appropriateness, compatibility, and potential contribution. |
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| Select directors and begin onboard process | | New directors undergo an onboarding process to help them get acclimated to the Company and Board. They are also assigned to committees, which may also include a committee-specific onboarding process. |
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| 36 | Discover | 2024Proxy Statement |
Director qualifications
Our Corporate Governance Policies stateGuidelines describe the Board’s qualifications for directorship. Pursuant to the Guidelines, the Board seeks members who combine a broad and relevant spectrum of experience and expertise with a reputation for ethics and integrity. Further, directors should have experience in positions with a high degree of responsibility, be leaders in the companies or institutions with which they are affiliated, and be selected based upon contributions they can make to the Board and management, their ability to represent the interests of shareholders, their ability to think independently, and their willingness to appropriately challenge management while working constructively as part of a team. The Board will also consider the diversity of a candidate’s perspectives, background, and other demographics and experience.
As discussed in the “Election of directors” section previously, the incumbent directors were requested to provide additional detail with respect to the level of experience with respect to the skills included in the director skills and diversity matrix in this Proxy Statement.
Nomination of directors
The NGPR Committee is responsible for identifying, evaluating, and recommending candidates to the Board. The NGPR Committee may consider director candidates from a wide range of sources, including search firms, shareholders, officers, and directors. The Board is responsible for nominating directors for election by the shareholders and filling any vacancies on the Board that may occur. Each director serves a one-year term and must be renominated annually.
Shareholder recommendations for director candidates
Fulfilling its responsibility to identify, evaluate, and recommend director candidates, the NGPR Committee accepts shareholder recommendations of director candidates and evaluates such candidates in the same manner as other candidates. The process for director candidates recommended by shareholders would follow the same process described above.
Shareholders who wish to recommend a candidate for the NGPR Committee’s consideration must submit the recommendation in writing in accordance with the Policy Regarding Director Candidates Recommended by Shareholders, available through the investor relations page of our internet site, www.discover.com.
Shareholders may make recommendations at any time. Nominees at the annual meeting of shareholders must be made in accordance with our Bylaws. See the “Questions and answers about the annual meeting and voting” section in this Proxy Statement for information about submitting director recommendations to the Company.
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Discover | 2024 Proxy Statement | 37 |
Director compensation
Elements of director compensation
In 2023, the Company paid non-employee directors through cash compensation, stock compensation, and reimbursements. Each of these is described below:
Annual cash retainer fee:
Independent chairman
Other non-employee directors
Annual RSU grant:
All non-employee directors
Additional cash retainer for committee membership:
Audit
Risk oversight
Compensation
NGPR
Cash compensation
Each non-employee director receives the following cash compensation under the Directors’ Compensation Plan for service on our Board and each standing committee of our Board:
•An annual retainer fee of $105,000;
•An Independent Chairman annual retainer of $210,000;
•A committee chair retainer fee of: (i) $30,000 each for the chairs of the Audit Committee and Risk Oversight Committee; (ii) $25,000 for the chair of the Compensation Committee; and (iii) $20,000 for the chair of the NGPR Committee; and
•A non-chair committee membership fee of: (i) $20,000 for each member of each of the Audit Committee and Risk Oversight Committee; (ii) $15,000 for each member of the Compensation Committee; and (iii) $10,000 for each member of the NGPR Committee.
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| 38 | Discover | 2024Proxy Statement |
Each non-employee director may elect to defer receipt of his or her cash compensation under the Directors’ Voluntary Nonqualified Deferred Compensation Plan until the director terminates service with the Company. A bookkeeping account is maintained for each participant and interest is credited to the deferred amount based on 120% of the quarterly long-term applicable federal rate in effect.
The NGPR Committee also approved (i) a one-time cash fee award, prorated as applicable, for certain current and former members of the Audit Committee, specifically Ms. Duncan, $35,000, and $30,000 for each Mr. Eazor, Ms. Sibblies, Ms. O’Leary-Gill, and Mr. Rawlinson and (ii) chair and membership retainers for the special Governance and Controls Committee formed in 2023. No cash or equity compensation was granted to members of the special Search Committee formed in 2023.
Stock compensation
Pursuant to the Directors’ Compensation Plan, we may issue awards of up to a total of 1,000,000 shares of our Common Stock to our non-employee directors. Each non-employee director receives an annual grant of $170,000 in RSUs for service on our Board, beginning with the first annual meeting at which the director is elected to our Board. For those directors joining our Board on a date other than the date of an annual meeting, each director will attendreceives a grant of $170,000 in RSUs on the date on which the director becomes a member of our Board, adjusted on a pro-rata basis by multiplying such award by a fraction where the numerator is the number of months between such date and the next annual meetingsmeeting of shareholders unless heand the denominator is twelve.
The number of RSUs granted is determined by dividing the grant date fair value by our share closing price on the date of grant and converting into a whole number of RSUs. The 2023 RSU grants vest on the earlier of the first anniversary of the date of grant or sheimmediately prior to the first annual meeting of shareholders following the date of grant, subject to the director’s continued service through such date. Unless provided otherwise in the RSU agreement, RSUs granted to each non-employee director will become fully vested before the end of the regular restriction period if (i) such director is unable to attend a meetingterminated due to extenuating circumstances. Alldisability or death or (ii) a change in control occurs. Upon vesting, the RSUs are converted into shares of our Common Stock. RSUs include the right to receive dividend equivalents in the same amount and at the same time as dividends are paid to all Discover common shareholders. Each non-employee director may elect to defer the receipt of his or her stock compensation until the director terminates service with the Company. A bookkeeping account is maintained for each participant, which reflects the number of RSUs to which the participant is entitled under the terms of the Directors’ Compensation Plan.
Reimbursements
Directors are reimbursed for reasonable expenses incurred in attending Board, committee, and shareholder meetings, including reasonable expenses for travel, meals, and lodging.
Director compensation policies and practices
Our Directors’ Compensation Plan was approved by our shareholders in 2011, and provides for annual compensation for our non-employee directors. Directors who also are our employees do not receive any compensation under the Directors’ Compensation Plan. The compensation paid to our non-employee directors is delivered to further advance the interests of the Company and its shareholders by encouraging increased share ownership to promote long-term shareholder value.
Role of the NGPR committee
The NGPR Committee is responsible for reviewing the effectiveness of the non-employee director compensation and benefit programs in supporting the Company’s ability to attract, retain, and motivate qualified directors. The NGPR Committee reviews director compensation at least every other year and considers a variety of factors, including our financial performance, general market conditions, director compensation at companies with which we compete for talent, director responsibilities, and trends in director compensation practices. Any changes in director compensation are recommended by the NGPR Committee to the Board for approval.
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Discover | 2024 Proxy Statement | 39 |
Director compensation changes for 2024
In December 2023, the NGPR Committee recommended, and the Board approved, changes to the Directors’ Compensation Plan that became effective January 1, 2024. Such changes included:
•Increasing the frequency of reviewing director compensation to annually;
•Implementing per meeting fees once a specified number of Board or committee meetings have been surpassed in a given year;
•Increasing the annual equity retainer to from $170,000 to $190,000;
•Increasing the NGPR member compensation from $10,000 to $15,000; and
•Increasing the committee chair retainers as follows:
•Audit Committee: from $30,000 to $45,000
•Compensation Committee: from $25,000 to $30,000
•NGPR Committee: from $20,000 to $25,000
•Risk Oversight Committee: from $30,000 to $40,000.
Annual cash retainer fee:
Independent chairman
Other non-employee directors
Annual RSU grant
All non-employee directors
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| n | Increase effective January 1, 2024 |
Additional cash retainer for committee membership:
Audit
Risk oversight
Compensation
NGPR
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| n | Chair | n | Non-Chair | n | Increase effective January 1, 2024 |
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Share ownership guidelines
The NGPR Committee maintains guidelines that recommend that directors hold five times the annual cash retainer in Company stock within five years of appointment to the Board. By requiring stock ownership, the interests of directors are more closely aligned with those of shareholders. As of the Record Date, all of our non-employee directors have met and exceeded the Company’s stock ownership guidelines for directors or are within the five-year attainment window. The directors who have not yet reached the required ownership amount are on track to meet the ownership guidelines within the timeframe specified in the guidelines.
2023 director compensation
The table below sets forth cash and stock compensation (including deferred compensation) paid to non-employee directors for their Board service for the year ended December 31, 2023.
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Director(1) | Fees earned or paid in cash ($) | Stock awards ($)(2) | Total ($) |
| Jeffrey S. Aronin | 120,000 | | 170,002 | | 290,002 | |
Mary K. Bush(3) | 72,500 | | 170,002 | | 242,502 | |
Gregory C. Case(4), (8) | 130,000 | | 170,002 | | 300,002 | |
Candace H. Duncan(4), (5), (6), (8) | 186,667 | | 170,002 | | 356,669 | |
Joseph F. Eazor(5), (8) | 155,000 | | 170,002 | | 325,002 | |
Cynthia A. Glassman(3) | 56,250 | | — | | 56,250 | |
Kathy L. Lonowski(6), (7) | 48,333 | | 113,385 | | 161,718 | |
| Thomas G. Maheras | 335,000 | | 170,002 | | 505,002 | |
Michael H. Moskow(3) | 56,250 | | — | | 56,250 | |
Daniela O’Leary-Gill(5), (6), (7), (8)(9) | 120,417 | | 155,913 | | 276,330 | |
David L. Rawlinson II(5), (8) | 161,667 | | 170,002 | | 331,669 | |
J. Michael Shepherd(4), (6), (7), (8) | 60,417 | | 127,594 | | 188,011 | |
Beverley A. Sibblies(5), (6)(10) | 127,500 | | 170,002 | | 297,502 | |
Mark A. Thierer(8) | 130,000 | | 170,002 | | 300,002 | |
Jennifer L. Wong(8) | 125,000 | | 170,002 | | 295,002 | |
(1)Mr. Owen’s compensation received for his role as a director prior to serving as the Interim CEO and President starting in August 2023 is set forth in the “2023 Summary compensation table."
(2)Reflects RSUs granted under the Directors’ Compensation Plan described above. Amounts reflect the grant date fair value of the 2023 RSUs, which were granted on (i) May 11, 2023 for all then-serving non-employee directors, (ii) June 14, 2023 for Ms. O’Leary-Gill, (iii) July 14, 2023 for Mr. Shepherd, and (iv) September 5, 2023 for Ms. Lonowski. These amounts reflect the RSUs’ grant date fair value calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation (“FASB ASC Topic 718”) and may not correspond to the actual value that may be realized by the individual directors. Additional details on accounting for stock-based compensation can be found in Note 2: “Summary of Significant Accounting Policies - Stock-based Compensation” and Note 10: “Stock-Based Compensation Plans” of our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023. As of December 31, 2023, each non-employee director held the following number of RSUs, including deferred RSUs: Mr. Aronin - 59,081; Ms. Bush - 0;
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Discover | 2024 Proxy Statement | 41 |
Mr. Case - 76,638; Ms. Duncan - 21,622; Mr. Eazor - 4,699; Ms. Glassman - 0; Ms. Lonowski - 1,235; Mr. Maheras - 50,465; Mr. Moskow - 0; Ms. O’Leary-Gill - 1,331; Mr. Rawlinson - 5,093; Mr. Shepherd - 1,243; Ms. Sibblies - 1,774; Mr. Thierer - 20,739; and Ms. Wong - 10,054. Ms. Bush, Ms. Glassman, and Mr. Moskow balances are zero as shares were released when their services ended. In connection with Ms. Bush’s retirement from the Board effective June 2, 2023, her award granted on May 11, 2023 was forfeited.
(3)The following Directors retired from the Board during 2023: Ms. Bush (June 2, 2023), Ms. Glassman (May 11, 2023), and Mr. Moskow (May 11, 2023).
(4)The amounts listed for these individuals in the “Fees earned or paid in cash” column were deferred under the Directors’ Voluntary Nonqualified Deferred Compensation Plan.
(5)Includes one-time cash fee award, prorated as applicable, for certain current directors attendedand former members of the 2017 Annual Meeting of Shareholders.Audit Committee, specifically Ms. Duncan, $35,000, and $30,000 for each Mr. Eazor, Ms. Sibblies, Ms. O’Leary-Gill, and Mr. Rawlinson.
(6)Includes chair and membership retainers for the special Governance and Controls Committee. (7)Ms. Lonowski, Ms. O’Leary-Gill, and Mr. Shepherd’s fees were pro-rated based on their appointment dates. In addition, they received a pro-rata grant for the period commencing on the date they joined the Board and Committee Meetingsending on the date immediately prior to the 2024 Annual Meeting. Their stock award amounts includes the grant date fair value of their pro-rated awards.
Our(8)The amounts listed for these individuals in the “Stock Awards” column will be deferred upon vesting and payable 75 days post separation.
(9)Prior to joining Discover’s Board held 11 meetings during 2017. Each director attended at least 75% or morein June 2023, Ms. O’Leary-Gill served on the Board of Directors of Discover Bank, for which she was paid $67,500.
(10)Prior to joining Discover’s Board in May 2023, Ms. Sibblies served on the total numberBoard of meetingsDirectors of Discover Bank, for which she was paid $87,500.
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| 42 | Discover | 2024Proxy Statement |
Corporate governance
Highlights of our corporate governance practices
Discover has implemented many leading corporate governance practices; however, the Board and the Company and its employees are seeking to build on what is already in place. For that reason, we are continually reevaluating and revising practices in an effort to remain ahead of shareholders’ evolving expectations. For a high-level overview of our corporate governance practices, readers should refer to the “Proxy statement tear sheet” at the beginning of this year’s Proxy Statement. The other portions of the Proxy Statement, particularly this “Corporate governance” section, are designed to provide more detail on our various corporate governance practices.
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| Over the past year, senior management has made significant investment in those groups within the Company that help with the ongoing implementation of corporate governance. The Board and senior management understand that strong corporate governance remains a key consideration for many of our stakeholders, especially shareholders. As such, it is critical we stay current with—and seek to exceed, where possible—the expectations in a constantly changing governance landscape. |
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The following chart highlights many of the leading corporate governance practices that Discover has in place:
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Discover | 2024 Proxy Statement | 43 |
Board structure and operations
Board leadership structure
The Company has had an Independent Chairman separate from the CEO role since 2019. Mr. Maheras has served as the Company’s Independent Chairman since May 2020.
The Company’s Bylaws, as well as the Corporate Governance Guidelines, provide that the office of the Chairman and the office of the CEO may be, but need not be, held by the same person. The Company has an overwhelmingly independent Board, with all directors except for Mr. Rhodes having been determined to be independent under NYSE Rules. Further, as previously noted, all standing committees on which such director servedof the Board are comprised solely of independent directors under NYSE Rules. The Board continues to believe that werehaving an Independent Chairman, separate from the CEO role, is the most appropriate leadership structure at this time. The Board recognizes its responsibility for the establishment and maintenance of the most effective leadership structure for the Company, taking into account all relevant facts and circumstances. Pursuant to the Corporate Governance Guidelines, the Board has indicated that it will appoint a Lead Director whenever the position of Chairman is not held whileby an independent director.
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| Independent Chairman | •presides at all meetings of the Board, and has the authority to call, and will lead, non-employee director sessions and independent director sessions; •approves Board meeting agenda items and the schedule of Board meetings; •helps facilitate communication between senior management and the independent directors; •will be available, as appropriate, for consultation and direct communication with shareholders; •acts as a mentor to the CEO; and •participates and provides leadership on CEO performance evaluation, succession planning, and compensation decisions. |
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Committee chairs and rotation process As part of the Board’s refreshment process, the NGPR Committee and Board consider committee membership and chair rotation. Balancing fresh leadership and ideas with the knowledge that is garnered through longer service is important when determining committee and leadership assignments. As such, three of the Board’s standing committee chairs have served as such for fewer than two years. |
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| 44 | Discover | 2024Proxy Statement |
Committees of the director was a member. board
Our Board has established the following standing committees: Audit, Compensation, and Leadership Development, Nominating and Governance,NGPR, and Risk Oversight. Thecurrent membership and function of each committee and the number of meetings held by each committee during 20172023 is described below.
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| Committee members | Audit | Compensation | NGPR | Risk oversight |
| Jeffrey S. Aronin | | | | | |
Committee/MembersGregory C. Case | | | | Primary Responsibilities |
Candace H. Duncan  | # of  | | Meetings | |
Joseph F. Eazor | | | | |
Kathy L. Lonowski  | | | | |
Thomas G. Maheras | | | | |
Daniela O’Leary-Gill | | | | |
| John B. Owen | | | | |
| David L. Rawlinson II | | | | |
| Michael G. Rhodes | | | | |
J. Michael Shepherd | | | | |
Beverley A. Sibblies | | | | |
| Mark A. Thierer | | | | |
| Jennifer L. Wong | | | | |
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| Audit committee financial expert | | Risk management expert under the Federal Reserve’s Regulation YY |
| Member | l | Chair |
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Members: Ms. Duncan (Chair) Mr. Eazor Ms. O’Leary-Gill Ms. Sibblies | Primary responsibilities •Oversee the integrity of our consolidated financial statements,statements; our system of internal control over financial reporting, our risk management,controls and disclosure controls and procedures; and the qualifications and independence of our independent registered public accounting firm. l•Oversee the internal audit function, including the performance of our internal auditor and independent registered public accounting firm and our compliance with legal and regulatory requirements.Chief Audit Executive.
l•Sole authority and responsibility to select, determine the compensation of,compensate, oversee, evaluate, and, when appropriate, replace our independent registered public accounting firm.
l•Oversee the Company'sCompany’s compliance with legal and regulatory requirements.
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Dr. Glassman | | | | | |
Discover | 2024 Proxy Statement | 45 |
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Members: Mr. Case (Chair) Ms. DuncanMr. Aronin
Mr. EazorThierer Mr. WeinbachREPORT: Page 91 | | |
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Compensation and Leadership Development | | lPrimary responsibilities
•Annually review and approve the corporate goals and objectives relevant to the compensation of the CEO and evaluate histheir performance in light of these goals. l•Determine the compensation of our executive officers and other appropriate officers.
l•Oversee risk management associated with our compensation practices.
l Administer•Oversee our incentive and stock-based compensation plans.
l•Oversee plans for management development and succession.
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Mr. Case (Chair) | | | | | |
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Members: Mr. AroninRawlinson (Chair) Mr. LennyMs. Duncan
Mr. Thierer | | |
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Nominating and Governance | | lPrimary responsibilities
•Identify and recommend candidates for election to our Board and each Board committee. l Consider matters•Review and assess the adequacy of corporate governancethe Company’s Corporate Governance Guidelines.
•Oversee our policies, programs, strategies, and make recommendations or take action.reporting related to ESG matters. l•Oversee the annual evaluation of the members of our Board, and its committees, and senior management.
l Recommend•Review the effectiveness of director compensation and benefits.benefits programs.
l Review annually our Corporate Governance Policies.•Oversee director orientation and ongoing education.
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Mr. Weinbach (Chair) | | | | | |
| 46 | Discover | 2024Proxy Statement |
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Members: Ms. BushO’Leary-Gill (Interim Chair) Ms. Lonowski Mr. LennyMaheras Mr. Shepherd Ms. Wong | | |
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Risk Oversight | | lPrimary responsibilities
•Oversee the enterprise-wide risk management framework, make recommendations to the Board on key risk management policies and the Company'sCompany’s risk appetite and tolerance, oversee risk management governance and policies, and perform other functions pursuant to the Federal Reserve's enhanced prudential standards.Reserve’s regulations. l•Review the adequacy of the risk appetite that has been established for each area of enterprise risk and receive reports on compliance with the Company’s risk appetite and limit structure and risk management policies, procedures, and controls.
•Oversee the performance of our Chief Risk Officer.CRO. l•Review and approve the Company’s information security program and review the quality and effectiveness of the Company’s technology security.
•Oversee capital planning and liquidity risk management and resolution planning activities. | | 8 |
| Mr. Moskow (Chair)
Ms. Bush
Mr. Maheras
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Our Board has adopted a written charter for each of the Audit, Compensation, Nominating and GovernanceNGPR, and Risk Oversight Committees setting forth the roles and responsibilities of each committee. The committee charters are available through the investor relationsInvestor Relations page of our internet site, www.discover.com.www.discover.com.
All members of the Audit, Compensation, Nominating and GovernanceNGPR, and Risk Oversight Committees satisfy the standards of independence applicable to members of such committees. In addition, the Board has determined that all members of the Audit Committee are financially literate and are “audit committee financial experts” as such term is defined in Item 407(d) of Regulation S-K under the Securities and Exchange Act of 1934 (the “Exchange Act”) and have accounting or related financial management expertise.
NominationIn order to better align with prevalent and leading practices, the Board determined, in May 2023, to completely overlap its membership with that of Directorsits wholly-owned banking subsidiary, Discover Bank. This overlapping membership structure allows the Board to more easily hold joint meetings with that of Discover Bank and provides the directors with a more clear line of sight into the Company’s most significant subsidiary.
Director engagement
Board and committee meetings
The Nominatingfollowing chart sets forth the number of meetings held by the Board’s standing committees throughout 2023. All directors attended at least 75% of meetings of our Board and standing committees on which they serve.
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Discover | 2024 Proxy Statement | 47 |
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| Number of meetings held during 2023 |
| Board | 22 |
| Audit Committee | 23 |
| Compensation Committee | 9 |
| NGPR Committee | 9 |
| Risk Oversight Committee | 7 |
| Special Governance and Controls Committee | 18 |
| Total Board and Committee Meetings Held in 2023 | 88 |
Note that the number of Board and committee meetings include joint meetings when such meeting was minuted separately from the standalone committee meetings.
As noted in the previous table, in 2023, the Board formed a special Governance and Controls Committee, is responsiblewhose membership currently includes directors Sibblies (Interim Chair), Duncan, Lonowski, O’Leary-Gill, and Shepherd. Note that the Governance and Controls Committee assumed the responsibilities of another special committee that was formed in January 2023, and the meeting count for identifying, evaluatingthe Governance and recommending candidates toControls Committee in the Board. The Nominating and Governance Committee may consider director candidates from a wide range of sources, including shareholders, officers, and directors.above table includes the predecessor committee. The Board also formed a special Search Committee to oversee the search for the Company’s new CEO, whose membership included directors Maheras, Owen, Rawlinson, and Wong, which met between August 2023 and January 2024; this special Search Committee was dissolved in February 2024. The Board also has an Executive Committee, whose membership currently includes directors Maheras (Chair), Owen, and Sibblies, that meets on an ad hoc basis as needed; the Executive Committee did not meet during 2023.
The special committee referenced in Discover’s 2023 Proxy Statement was dissolved in January 2023.
Board attendance at annual shareholder meeting
The Company’s Corporate Governance Guidelines state that each director, unless he or she is responsible for nominatingunable to attend a meeting due to extenuating circumstances, will attend annual meetings of shareholders where all of our shareholders are invited to attend, ask questions, and express their views. All of our then-serving directors for election byattended the shareholders and filling any vacancies on the Board that may occur. Effective at the 20182023 Annual Meeting of Shareholders, Director Lenny will retire from the Board. After careful consideration, the Board has determined that it is in the best interests of all shareholders to decrease the size of the Board from 12 to 11 directors, effective upon Mr. Lenny's retirement. The Nominating and Governance Committee will continue to evaluate the composition of the Board, including the mix of skills and experiences of existing directors, as well as the potential benefits from new and different perspectives and skill sets.which was held virtually.
Director Qualifications
Our Corporate Governance Policies describe our director qualifications. The Board seeks members who combine a broad spectrum of experience and expertise with a reputation for integrity. Directors should have experience in positions with a high degree of responsibility and be leaders in the companies or institutions with which they are affiliated. Directors should be selected based upon their potential contributions to the Board and management and their ability to represent the interests of shareholders. Also, the Board will consider the diversity of a candidate’s perspectives, background and other demographics. Generally, no director is permitted to serve on more than four additional public company boards (in addition to the Company's Board).
Board Leadership Structure
The Board believes that the combined position of Chairman and CEO enhances the effectiveness of the Board and is the most appropriate leadership structure for the Company. Because of his position as CEO, Mr. Nelms is the director most familiar with Discover’s business and industry and best positioned to set and execute the Company’s strategic priorities. Mr. Nelms' leadership, driven by his deep business and financial services expertise, enhances the Board’s ability to exercise its responsibilities. In addition, this model provides enhanced efficiency, effective decision-making and clear accountability.
The Company appointed a lead independent director (the "Lead Director") to strengthen the Board’s independence and autonomous oversight of our business as well as Board communication and effectiveness. The Board evaluates its leadership structure periodically, including the appointment and performance of the Lead Director.
The Board designated Lawrence A. Weinbach, who is Chairman of the Nominating and Governance Committee, as the Lead Director. The Lead Director:
presides at all meetings of the Board at which the Chairman is not present, and has the authority to call, and will lead, non-employee directorExecutive sessions and independent director sessions;
helps facilitate communication between the Chairman and the independent directors;
advises the Chairman;
approves Board meeting agenda items and the schedule of Board meetings; and
may request inclusion of additional agenda items for Board meetings.
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Non-Employee Director Meetings
In accordance with our Corporate Governance Policies,Guidelines, the non-employee directors meet regularly in executive sessions without management present. Our Corporate Governance PoliciesGuidelines also require that if any non-employee directors are not independent, then the independent directors will meet in a separate independent director session at least once per year. Currently, all non-employee directors are independent. The Lead Director, who is independent,Independent Chairman presides over executive and independent director sessions.
Director orientation and continuing education In 2023, management developed, and the Board Roleapproved, a new Director Onboarding and Ongoing Education Program to assist new directors with getting up to speed once joining the Board and to help all directors remain abreast of matters impacting the Company and financial services industry.
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| 48 | Discover | 2024Proxy Statement |
Orientation for new directors
We provide orientation to new directors to help familiarize them with our industry and lines of business as well as our legal, compliance, regulatory, and risk profile. In order to help new directors acclimate to their new position on the Company’s Board, the comprehensive onboarding process includes a combination of written materials, presentations, and meetings with members of the Board and management. Topics covered during onboarding may include Company history, revenue streams, strategy, risks, and safety and soundness.
Additionally, we assist directors in Risk Oversightscheduling various onboarding activities and meetings, such as meetings with segments, divisions, or business groups and attending analyst meetings. As with other onboarding activities, these activities and meetings serve to help directors more fully understand the intricacies of the Company so that they can begin making a meaningful impact on the Board more quickly.
Similarly, we provide directors joining a new committee orientation on the requirements and responsibilities relevant to that particular committee.
Continuing education for directors
Discover also periodically offers educational sessions on a variety of topics throughout the year for all directors. The Board recognizes that (i) fostering an atmosphere of continuous enhancement is important, (ii) ongoing education can help create long-term value and strengthen shareholder confidence, and (iii) stakeholders expect directors at public companies to continually enhance their skills and remain abreast of Company and industry matters.
Educational sessions, generally with a focus on topics specific to the Company and the financial services industry, are facilitated by management and other employees within the Company or through internal training programs. Educational topics provided to directors may include, but are not limited to: shareholder base, engagement, activism, and other considerations; external perceptions; financing profile; derivative activities; capital planning; cybersecurity; revenue streams; environmental, social, and corporate governance developments and leading practices; key regulatory, accounting, and auditing developments; laws, regulations, and supervisory requirements applicable to the Company; complex products, services, and lines of business and risks that can significantly impact the Company; ongoing director responsibilities and activities; and emerging issues.
From time to time, external experts and facilitators, such as attorneys, consultants, and scholars, may be invited to attend (either in person or virtually) Board or committee meetings to discuss various leading practices or issues germane to the Company, the financial services industry, or public companies. Such experts bring an array of experience and perspectives and can foster dialogue among Board members on topics relevant to the Company or industry.
The Company also periodically provides directors with a list of director education programs. These programs are offered at various times during the year by reputable organizations and at various facilities and locations and cover a range of important issues facing directors of public companies.
Board evaluation process
In order to monitor and improve its effectiveness, and to solicit and act upon feedback they receive, the Board and its committees annually engage in a formal self-evaluation process. The NGPR Committee, which is responsible for overseeing the Board’s self-evaluation process, begins the annual process by reviewing and approving the self-evaluation process to ensure the independence and integrity thereof. In addition, the members consider the substantive topics that will be used as a springboard for the discussions taking place during the self-evaluation.
The self-evaluation process is typically split into three distinct phases, with each focusing on a different aspect: the Board, its committees, and individual directors. Periodically, the NGPR Committee will engage an outside consultant/advisor to assist with facilitating all or a portion of the process.
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Discover | 2024 Proxy Statement | 49 |
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As part of the annual self-evaluation process, the NGPR Committee facilitates confidential discussions with each of the individual directors. Such conversations may take place with the Chair of the NGPR Committee, Independent Chairman of the Board, or an outside advisor. In 2023, the NGPR Committee engaged an outside advisor to assist with these discussions. The results of the individual discussions were presented to the NGPR Committee and then the full Board. | Each of the Board’s standing committees typically conducts a standalone self-evaluation during their respective executive sessions taking place during the December meeting cycle. These separate committee-level evaluations allow the committee members to dive more deeply into the topics that are of the most importance to those committees. In addition to focusing on specific topics, these evaluations allow each of the committees to focus on their own performance, membership, and resources. During the full Board’s self-evaluation, the directors typically also conduct an evaluation of the Independent Chairman to ensure they are appropriately fulfilling their leadership role. | The self-evaluation process typically culminates in the Board-level evaluation, taking place at an executive session during the December meeting cycle. During the full Board self-evaluation, the directors address a broad array of topics, including matters related to Board performance, culture, and operations; Board oversight; risk management and governance; Board structure, composition, leadership, and succession planning; and training. As applicable and appropriate, the results of the individual director discussions and the committee-level evaluations are reviewed with the full Board. |
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The following sets forth a typical timeline of the annual self-evaluation process:
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| June - July | Management works to update the self-evaluation materials from the prior year based on known developments and information from articles and other sources. |
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| August | Proposed updates to the prior year’s self-evaluation materials are presented to the NGPR Committee and other committees for review and approval. |
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| August - December | Confidential discussions are held with the individual directors to obtain their candid feedback on various matters. |
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| December | During the December meeting cycle, the Board and committees engage in their respective self-evaluations during executive sessions. As appropriate and applicable, the results from the director discussions and the committee-level evaluations are discussed with the full Board. Compiled responses from the conversations may be discussed. The revised Director & Officer Questionnaire also include several “operational” questions focused on matters such as logistics. These questions are included within the questionnaire so as to free up time during the formal evaluations to allow the directors to focus on the more substantive topics. |
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| December - February | As appropriate, the Board and committees develop takeaways and action items based on the results of the self-evaluation. |
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| March | The Company discloses, at a high level and as appropriate, certain of the takeaways and action items from the most recently completed self-evaluation process in its Proxy Statement. |
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Throughout the year The Board and committees work on applicable takeaways and action items throughout the year. |
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Ongoing Despite the Board having a formal self-evaluation process that takes place at a definitive time of the year, directors can raise any issue at any point throughout the year. Issues can be raised with the Chairman of the Board, the NGPR Committee, or any other appropriate director or member of management. As appropriate, the matter may then be raised with a particular committee or the full Board. |
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Discover | 2024 Proxy Statement | 51 |
The board’s role and responsibilities
The Board understands that having the right corporate governance practices in place is critical to achieving the Company’s long-term goals and maintaining the trust and confidence of investors, employees, customers, regulatory agencies, and other stakeholders. The Board oversees the Company’s business and directs its management. The non-employee directors of the Board are not involved in day-to-day operations. Instead, the Board meets periodically with management to review the Company’s executive succession plans; Annual Operating Plan (the “Annual Plan”); multi-year strategic plan; and performance against such plans, risks, and business strategies. Directors also consult with management about the Company’s performance outside of formal meetings, which include opportunities for directors to have in-depth conversations with management about particular areas of the business.
Oversight of strategy
Oversight of the Company’s strategy is one of the most important responsibilities that the Board is responsible for fulfilling. Throughout the year, management regularly discusses strategy, strategic goals, and progress against those goals with the Board. While management is responsible for determining and setting Discover’s near-term and long-term strategy, and the Board is responsible for challenging management and overseeing management’s implementation of our strategy.
See the “Proxy statement summary” of this Proxy Statement for additional information about Discover’s strategy.
Oversight of risk management
At Discover, risk management is implemented throughout the organization and is overseen by the Board and its committees. The Board is responsible for approving the Company's enterprise-wide risk management framework, which is described in the Company's Enterprise Risk Management Policy and certain additional risk management policies. The Board receives reports of material exceptions to such policies. Additionally, the Board approves the risk appetite and limits, and capital targets and thresholds of the Company. It also appoints the Chief Risk Officer, and other risk management function leaders, as appropriate. The Board regularly devotes time during its meetings to review and discuss the most significant risks facing the Company, and management’s responses to those risks. During these discussions, the CEO, the General Counsel, the Chief Financial Officer and/or the Chief Risk Officer present management’s assessment of risks, a description of the most significant risks facing the Company, and any mitigating factors and plans or practices in place to address and monitor those risks. In addition to these discussions, the Board receives annual information security training and, in 2017, had an independent third party provide training tailored specifically to cybersecurity issues and risks that the Company faces. The Board has also delegated certain of its risk oversight responsibilities to its committees as set forth below, and regularly receives reports from the committees on risk management matters.
Risk Oversight Committee
The Risk Oversight Committee is responsible for overseeing our risk management policies and the operations of the Company'sCompany’s enterprise-wide risk management framework, and capital planning, liquidityeach of the Board’s committees have oversight of those types of risk falling under their areas of responsibility. The Board believes its approach to overseeing risk management ensures that the Board can choose many leadership structures while continuing to effectively oversee risk management.
The following graphic depicts how risk is overseen by the Board and resolutionmanaged by Discover’s leadership. Notably, it is important that information pertaining to risk flows both up and down throughout the organization and that no one group is operating in a silo. Working together is critical to mitigating and managing the risks applicable to the Company.
See the Risk Management section of our 2023 annual report on Form 10-K for additional information.
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| 52 | Discover | 2024Proxy Statement |
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The board The Board is responsible for approving the Company’s enterprise-wide risk management framework, which is described in the Company’s Enterprise Risk Management Policy and certain additional risk management policies. The Board receives reports of material exceptions to such policies. The Board has also delegated certain of its risk oversight responsibilities to its committees and regularly receives reports from the committees on risk management matters. Additionally, the Board approves the risk appetite and limits, and capital targets and thresholds of the Company. It also appoints the CRO, Chief Compliance Officer (who reports to the CRO), Chief Audit Executive, and other risk management function leaders, as appropriate. The Board regularly devotes time during its meetings to review and discuss the most significant risks facing the Company over the short-, medium-, and long-term, and management’s responses to those risks. |
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| Risk oversight committee |
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The Risk Oversight Committee is responsible for overseeing our risk management policies and the operations of the Company’s enterprise-wide risk management framework, and capital planning and liquidity risk management activities. The Risk Oversight Committee is responsible for, among other things: •approving and periodically reviewing our risk management policies; •overseeing the operation of policies and procedures that establish risk management governance and risk-control infrastructure; •overseeing the operation of processes and systems for implementing and monitoring compliance with such policies and procedures; •reviewing and making recommendations to the Board, as appropriate, regarding the Company’s risk management framework, key risk management policies, and the Company’s risk appetite and tolerance; | •receiving and reviewing regular reports from our CRO on current and emerging risks, the status of and changes to risk exposures, policies, procedures, and practices and the steps management has taken to monitor and control risk exposures; •reviewing and approving the Company’s information security program, which seeks to mitigate information security risks, including cybersecurity risks; •reviewing the quality and effectiveness of the Company’s technology security and periodically reviewing, appraising, and discussing with management the quality and effectiveness of the Company’s information technology security, data privacy, and disaster recovery capabilities; and •receiving reports regarding compliance with risk appetite limits, risk management policies, procedures, and controls. |
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| Audit committee |
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The Audit Committee assists the Board in the oversight of, among other things, the integrity of our consolidated financial statements, our compliance with legal and regulatory requirements, our system of internal controls, and the qualifications and independence of our independent registered public accounting firm. The Audit Committee is responsible for, among other things: •providing oversight of the Company’s internal audit function; •reviewing and approving the appointment, replacement, and compensation of the Chief Audit Executive and the charter, budget, and staffing levels of the Company’s internal audit function; | •reviewing and approving the rolling twelve-month audit plan; •receiving periodic reports from the Chief Audit Executive on the status of the annual audit plan, including significant results and the status of corrective actions; •providing oversight of the Company’s compliance with legal and regulatory requirements; and •reviewing and approving the budget and staffing levels of the Company’s Compliance department, its annual testing plan, and the Company’s Compliance policy. |
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Discover | 2024 Proxy Statement | 53 |
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| Compensation committee |
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The Compensation Committee is responsible for overseeing risk management associated with the Company’s employee compensation practices. The Compensation Committee is responsible for, among other things: •annually reviewing the Company’s compensation plans and practices to assess whether employee plans contain features that might encourage excessive risk-taking that could threaten the value of the Company, are reasonably likely to have a material adverse effect on the Company, or could result in a failure to comply with regulatory requirements; | •reviewing reports from the Company’s CRO, and meeting with the CRO and the Risk Oversight and Audit Committees to discuss the annual employee incentive compensation risk assessment and to review outcomes of certain risk events and any impact to compensation decisions; and •meeting with the Company’s CRO to monitor the results of the Company’s incentive compensation program payments for certain employees, including our NEOs. |
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| NGPR committee |
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The NGPR Committee is responsible for overseeing risk management with respect to many of the Company’s governing documents and Board composition. The NGPR Committee is responsible for, among other things: •evaluating whether the skills necessary for overseeing management and the Company are present on the Board and consistent with the Company’s Corporate Governance Guidelines; •facilitating the Board’s self-evaluation process to ensure the right individuals are on the Board; | •overseeing the Company’s corporate governance engagement efforts with institutional shareholders, which can highlight current and future risks; •overseeing the Company’s commitment to ESG matters and its ESG strategies; and •receiving reports from management with respect to ESG risks and reporting. |
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| Governance and controls committee |
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The Governance and Controls Committee was formed in 2023 to assist the Board in fulfilling its oversight responsibilities with regard to significant regulatory remediation activities, including consent orders. The Governance and Controls Committee is responsible for, among other things: •overseeing and monitoring the establishment and timely implementation by management of remediation actions to address specific corrective actions required by the Company’s regulators; | •overseeing the Company’s Office of Remediation, approving the head of the Office of Remediation, and reviewing that individual’s performance; •reviewing and approving, or recommending for Board approval, any action plans made in response to supervisory feedback; and •reviewing and approving any submissions to the Company’s regulators related to compliance with consent orders. |
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| Management |
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| The CEO; CRO; Chief Legal Officer, General Counsel, and Secretary; and/or CFO are responsible for presenting management’s assessment of risks, the timeframe over which the risks may occur, a description of the most significant risks facing the Company, and any mitigating factors and plans or practices in place to address and monitor those risks. Within these discussions, the Board receives updates from senior executives, including the CRO and the CISO on the risks posed to the Company by cybersecurity threats and the Company’s information security program, including the results of tabletop simulations performed by management. In addition to these discussions, the Board receives annual information security training. |
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Other risk-related functions and operations of the Risk Oversight Committee is responsible for, among other things: (i) approving and periodically reviewing our risk management policies; (ii) overseeingAudit Committee include the operation of policies and procedures which establish risk management governance, and risk-control infrastructure; (iii) overseeing the operation of processes and systems for implementing and monitoring compliance with such policies and procedures; (iv) reviewing and making recommendations to the Board, as appropriate, regarding the Company's risk management framework, key risk management policies and the Company's risk appetite and tolerance; (v) receiving and reviewing regular reports from our Chief following:
Risk Officer on current and emerging risks, the status of and changes to risk exposures, policies, procedures and practices, and the steps management has taken to monitor and control risk exposures; (vi) reviewing and approving the Company's information security program, which seeks to mitigate information security risks, including cybersecurity risks; and (vii) receiving reports regarding compliance with risk appetite limits, risk management policies, procedures and controls. oversight committee
The Risk Oversight Committee shares information with (which it may do through the Chair of the Committee)its Chair) and meets in joint session with the Audit Committee as necessary or desirable to provide the committees with the information necessary to permit them to fulfill their duties and responsibilities with respect to oversight of risk management matters. For example, at least quarterly, the Risk Oversight and Audit Committees meet in joint session and receive updates from the CISO on the Company'sCompany’s information security program, including trends and developments regarding information security risks.risks and threats and the results of any tabletop simulations performed by management.
The Risk Oversight Committee also authorizes the Company’s Management Risk Committee, which is comprisedan executive management-level committee that establishes and oversees a comprehensive enterprise risk management program that includes (i) providing a regular forum for representatives of our different functional groups to identify and discuss key risk issues and to recommend to senior management actions that should be taken to manage the memberslevel of risk taken by the Company’s Executive Committeebusiness lines; (ii) establishing and overseeing an enterprise-wide approach to risk management through the development of our Enterprise Risk Management Policy and the Discover Bank President. The Chief Risk Officer,associated oversight framework for the identification, measurement, monitoring, management, and reporting of enterprise risk; (iii) communicating our risk appetite and philosophy, including establishing limits and thresholds for managing enterprise-wide risks; and (iv) reviewing, on a memberperiodic basis, our aggregate enterprise-wide risk exposures and the effectiveness of risk identification, measurement, monitoring, management, and reporting policies and procedures and related controls within the Executive Committee, serves as the Risk Committee chair. The Risk Committee provides a forum for key memberslines of our executive management team to review and discuss credit, market, liquidity, operational, legal and compliance and strategic risks across the Company and for each business unit. The Risk Committee regularly reports to the Risk Oversight Committee on risks and risk management.business.
Audit Committeecommittee
Our Audit Committee assists the Board in the oversight of, among other things, the integrity of our consolidated financial statements, our compliance with legal and regulatory requirements, and our system of internal controls. With respect to compliance matters, our Audit Committee approves our Compliance Policy and reinforces the importance of compliance risk management. The Audit Committee assists the Board in its oversight of the Company'sCompany’s anti-money laundering program. In addition, the Audit Committee receives reporting on the effectiveness of our Compliance Risk Management Program.Program. Our Audit Committee also, taking into consideration the Board’s allocation of the review of risk among various committees of the Board, receives and reviews reports from the CRO, Chief RiskCompliance Officer, and other members of
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management as the Audit Committee deems appropriate onappropriate. These reports include a review of the guidelines and policies for assessing and managing the Company'sCompany’s exposure to risks, the corporation'sCompany’s major financial risk exposures, and the steps management has taken to monitor and control such exposures. The Audit Committee shares information with (which it may do through the Chair of the Committee)its Chair) and meets in joint session with the Risk Oversight Committee as necessary or desirable to provide the committees with the information necessary to permit them to fulfill their duties and responsibilities with respect to oversight of risk management matters.
See the Risk Management section of our 2023 annual report on Form 10-K for additional information.
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Discover | 2024 Proxy Statement | 55 |
Enterprise risk management process
Our Risk Management Framework is broken down into four primary pieces: governance and oversight, business strategy, risk infrastructure, and risk culture. Working together, these pieces seek to identify, measure, manage, monitor, and report (“IMMMR”) the risks that are impacting or could impact Discover.
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| Governance & Oversight | •Board and executive management •Committees •Policies and standards •Escalation structure •Risk appetite •Risk categorization |
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| Business Strategy | •Executing business strategies across the Company that drives profitable growth and delivers values for our customers •Aligning to mission, values, and defined risk appetite |
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| Risk Infrastructure | •People: Three lines of defense and roles and responsibilities •Process: Risk programs, IMMMR, procedures, and audit and reviews •Technology: Risk systems and tools |
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| Risk Culture | •Proactive demonstration at all levels of shared core values, principles, and behaviors that drive our collective ability to manage risk as part of day-to-day work to create benefits that align with our business strategies •Continuous learning culture to raise awareness and competence as managing risk evolves |
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Oversight of cybersecurity risk
We prioritize the security of our employees’ and customers’ data and seek to provide them with the information and skills they need to protect themselves. Our Information Security Policy sets the foundation and direction concerning information risk on an enterprise-wide basis. Our CISO, who has over 20 years of information technology experience, leads our Information Security Program and, along with other members of management, provides updates, at least five times per year, to the Board on significant cybersecurity, information security, data privacy, and similar matters. The Audit Committee provides oversightand Risk Oversight Committees review and approve the Information Security Program and review the quality and effectiveness of our technology security.
The Information Security Program is designed to safeguard the Company's internal audit function. The Audit Committee reviewsconfidentiality, integrity, and approvesavailability of information assets. We continuously monitor the appointment, replacementcyber threat landscape and compensationtechnological changes to mitigate risks to the organization and to our customers. Together with our lines of business and corporate functions, our enterprise-wide incident management framework lets us manage risk mitigation activities that stem from incidents—including governance structure and organization, an incident management program, incident management and escalation principles, requirements for testing and exercising the Company's Chief Audit Executive and the charter, budget and staffing levels of the Company's internal audit function. The Audit Committee reviews and approves the annual audit plan. The Audit Committee also receives periodic reports from the Chief Audit Executive on the status of the annual audit plan, including significant results and the status of corrective actions.
Compensation Committee
The Compensation Committee is responsible for overseeingprogram, risk management associated withprinciples, and external reporting guidance.
Readers should also review the Company’s employee compensation practices, including anCybersecurity section of our 2023 annual review of the Company’s risk assessment ofreport on Form 10-K for additional information.
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CEO and management succession planning
Pursuant to its compensation plans and practices to assess whether employee plans have features that might encourage excessive risk-taking that could threaten the value of the Company, are reasonably likely to have a material adverse effect on the Company or could result in a failure to comply with regulatory requirements. The Compensation Committee reviews reports from and meets with the Company's Chief Risk Officer and the Risk Oversight and Audit Committees of the Board of Directors to discuss the annual employee incentive compensation risk assessment and to review outcomes of certain risk events and any impact to compensation decisions.
Separately,charter, the Compensation Committee meets with the Company's Chief Risk Officer to monitor the results of the Company's incentive compensation program payments for certain employees, including our NEOs.
The Compensation Committee also oversees the Company’s succession planning process. On an annual basis, management conducts succession planning for all of the Company'sCompany’s officer level roles, including our NEOs. Management further identifies critical roles beyond the officer level where there are or may be uniquely strong needs for immediate successors, where restructuring of the role is not likely to be a viable succession plan, and where having the role unfilled for a period of time could create regulatory, risk management, or business continuity gaps. Annually, our CEO President and Chief Operating Officer ("COO") and Chief Human & Resources Officer partner to conduct succession planning for our NEOs and other executives. For each of our NEOs, the role is reviewed to determine options for succession and development needed to increase succession readiness. Consideration is given to external hiring where appropriate. Management then reviews NEOcertain succession plans with the Compensation Committee and the Board.
Oversight of sustainability/environmental & social/human capital management We make it part of our mission to contribute to a more equitable and sustainable world so everyone can achieve a brighter financial future. Guided by our ESG philosophy, and our value of “Doing the right thing,” our approach identifies strategic environmental and social areas to further scale our impact:
•DEI: We integrate DEI throughout the organization so that our employees can thrive, and we can best serve our customers.
•Social Impact: We use our full platform of jobs, products, supplier spend, philanthropy, and more to advance equity and motivate others to effect change.
•Environmental Sustainability: We contribute to a more sustainable world through resource conservation and reducing our operational impact.
The NGPR Committee, in coordination with other committees of the Board, oversees our policies, programs, strategies, and reporting related to environmental and social matters. We execute program initiatives through our ESG Steering Committee and ESG Working Groups, comprised of practitioners and senior leaders with responsibility for ESG focus areas.
We plan to issue our 2023 ESG Report later this year, which will detail our progress across these areas.
Oversight of culture
As set forth in the Company’s revised Code of Conduct and Business Ethics, the Board, along with management, is responsible for setting the “tone at the top” for Discover. This means not only creating and reinforcing a culture of ethics and compliance, but also striving to accomplish Discover’s Mission and Vision while living out our Values. By having a diverse set of directors, the Board also sets the tone at the top with respect to the Company’s DEI efforts.
See the “Code of conduct and business ethics” section of this Proxy Statement for additional information.
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Shareholder engagement and director communications
Corporate governance shareholder engagement
Discover and its Board and management value the feedback and perspectives of our shareholders. For many years, Discover, primarily through its Investor Relations team, has engaged with our shareholders through roadshows, presentations, earnings calls, and direct meetings. During such engagements, the primary audiences were the portfolio managers and analysts at our institutional shareholders.
Beginning in 2023, the Company augmented its shareholder outreach by launching its corporate governance shareholder engagement program, which primarily targets our institutional investors’ stewardship, proxy voting, ESG, and similar teams. This corporate governance engagement is intended to complement the traditional engagement being performed by our Investor Relations team. In doing so, we are building stronger relationships with our institutional investors.
We believe it is important for Discover to build meaningful relationships with our shareholders over time. This means continual engagements and touchpoints throughout the year. The following graphic demonstrates Discover’s ongoing corporate governance shareholder engagement efforts that take place throughout the year. Each piece of the engagement process feeds into the next.
Throughout 2023, we implemented the corporate governance shareholder engagement program by meeting with shareholders directly at corporate governance events and conferences, such as the Council of Institutional Investors’ 2023 Fall Conference and the 2023 Fall Engagement Summit. We also launched our inaugural fall outreach program, during which we reached out to the Company’s largest institutional shareholders to update them on Discover and our practices and to better understand their points of view on various matters. For these calls, we compiled a cross-functional engagement team consisting of individuals from several groups, including: Corporate Governance, Investor Relations, ESG, Legal, Total Rewards, and DEI.
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Through our in-person and virtual corporate governance shareholder engagements that took place over the past year, we spoke with investors owning or representing over one third of our Common Stock, based on year-end data. During most of these discussions, we covered topics such as corporate governance; executive compensation; and environmental and social disclosures, progress, and goals.
As part of its chartered responsibilities, the NGPR Committee oversees the Company’s shareholder engagement efforts. As such, the NGPR Committee received reports during the year that summarized our corporate governance shareholder engagement meetings.
The following chart describes some of the common feedback/questions we received during the engagements and how we have responded:
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| Common feedback/questions from shareholders | How we responded |
| Shareholders sought information about the CEO search. | The Board engaged an outside search firm to assist in carrying out its responsibility of hiring and overseeing the CEO search. The Board was focused on candidates who could bring a strong background and experience with consumer banking and regulatory compliance. Both internal and external candidates were considered for the position. Following several months of searching, the Company announced a new CEO in December 2023. |
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| Although shareholders appreciated the diversity and workforce metrics Discover had been disclosing, several expressed a desire for us to also disclose our EEO-1 reporting data. | Following submission of its 2022 data to the U.S. Equal Employment Opportunity Commission, Discover has begun disclosing its EEO-1 reporting data on its website. |
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| Shareholders wanted to understand the actions taken in response to publicly disclosed regulatory matters. | In 2023, Discover invested over $500 million in compliance and risk management capabilities. |
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| Additional disclosures around Discover’s executive compensation program would allow shareholders to better understand our practices and how they impact long-term shareholder value. | We have begun making additional and clarifying disclosures within the CD&A to provide shareholders with more transparency around our executive compensation. The revised disclosures are intended to further explain how Discover pays for performance. |
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| Shareholders routinely supported strong environmental and social disclosures and were generally complimentary of our full inaugural ESG Report. | Because our shareholders remain focused on such disclosures, we intend to continue enhancing our environmental and social reporting incrementally over time. We anticipate including several new and updated metrics and disclosures in our next ESG Report. |
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Director communications
Policy regarding communications
Discover has adopted a Policy Regarding Communications by Shareholders and Other Interested Parties with the Board of Directors
, which is available on the Investor Relations page of our website. Shareholders and other interested parties maystakeholders are welcome to contact any member of our Board by writing to: Discover Financial Services, 2500 Lake Cook Road, Riverwoods, Illinois 60015, Attention: SecretaryCorporate Secretary. Shareholder and General Counsel. Allinterested party communications received in this manner will be handled in accordance with the policy and applicable procedures.
To facilitate engagement, correspondence should be accompanied byinclude the following information: (i) if the person submitting the communication is a shareholder, a statement of the type and amount of the Company’s securities of the Company that the person beneficially owns; (ii) if the person submitting the communication is not a shareholder and is submitting the communication to the non-management directors as an interested party, the nature of the person’s interest in the Company; (iii) any special interest, meaning an interest not in the capacity of a shareholder of the Company, of the person in the subject matter of the communication; and (iv) the address, telephone number, and e-mail address, if any, of the person submitting the communication.
Other governance policies and practices
Guiding documents
The Board's following documents are available on or through our website at investorrelations.discover.com:
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| Corporate governance documents | Board committee charters |
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Amended and Restated Bylaws Certificate of Incorporation Corporate Governance Guidelines Policy Regarding Director Candidates Recommended by Shareholders Policy Regarding Communications by Shareholders and Other Interested Parties with the Board of Directors | Audit Committee Charter Compensation Committee Charter NGPR Committee Charter Risk Oversight Committee Charter |
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| Codes of conduct | ESG documents |
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Code of Conduct and Business Ethics (including supplements covering the Code of Ethics for Senior Financial Officers, Proprietary Rights, and Shanghai employees) Integrity Hotline Supplier Code of Conduct | ESG Report SASB Index, included within the ESG Report GRI Index, included within the ESG Report EEO-1 Disclosure Modern Slavery Act Transparency Statements UK Gender Pay Gap Reports Political Disclosures, including Discover PAC Fund Recipients Reporting |
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Code of conduct and business ethics
At the end of 2023, management recommended, and the Board of Directors is available through the investor relations page of our internet site, www.discover.com. Shareholder and interested party communications received in this manner will be handled in accordance with procedures approved, by our independent directors.
Shareholder Recommendations for Director Candidates
Our Nominating and Governance Committee is responsible for identifying individuals qualified to become Board members consistent with the director qualification criteria described above and set forth in the Company's Corporate Governance Policies. The Nominating and Governance Committee may consider director candidates recommended by shareholders. The procedures to submit recommendations are described in the Policy Regarding Director Candidates Recommended by Shareholders, available through the investor relations page of our internet site, www.discover.com.
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The Nominating and Governance Committee identifies, evaluates and recommends director candidatessignificant revisions to the Board. The NominatingCompany’s code of conduct, which has been renamed the Code of Conduct and Governance Committee accepts shareholder recommendationsBusiness Ethics. Chief among the revisions was the consolidation of director candidatesmultiple documents, both internal and evaluates such candidates in the same manner as other candidates. The Nominatingexternal, into a single document. This change is designed to increase efficiency and Governance Committee determines the needmake it easier for additional or replacement Board members, then identifiesemployees and evaluates the director candidate under the criteria described above based ondirectors to find the information the Nominatingthey are seeking. By putting all of this information into a single document, employees and Governance Committee receives with the recommendation or which it otherwise possesses, which may be supplemented by certain inquiries. If the Nominating and Governance Committee determines, in consultation with other directors, including the Chairmanmembers of the Board that a more comprehensive evaluation is warranted,can better understand their responsibilities, the Nominatingactions they are expected to take (or avoid), and Governance Committee may then obtain additional information aboutwhere to find help with any questions.
The updates were intended to achieve the director candidate's backgroundfollowing:
•Emphasize the importance of reporting illegal, unethical, or improper conduct, and experience, including by meanshighlight the availability of interviews. The Nominating and Governance Committee will then evaluate the director candidate further, again using the qualification criteria described above. The Nominating and Governance Committee receives input on such director candidates from other directors,Integrity Hotline, including the Chairmanability to report anonymously;
•Enhance clarity around the prohibition of retaliation against persons who make good faith reports about any potential or actual violation of the Board,Code;
•Enhance clarity around Confidential Supervisory Information and recommends director candidatesthe need to protect it;
•Enhance clarity around the prohibition against employees establishing incentive plans or practices other than those specifically allowed by the Company’s incentive programs;
•Highlight prohibition against self-dealing; and
•Outline expectation of compliance with applicable federal and state laws that prohibit unfair, deceptive, or abusive acts or practices;
The revised Code also includes three supplemental documents: a Code of Ethics for Senior Financial Officers supplement, a Proprietary Rights supplement, and a Shanghai supplement.
As part of the revisions to the full BoardCode, employees will be expected to complete a new training module, including a specific acknowledgement that they received the Code and understand their duties thereunder.
Any waivers of the provisions of the Code of Conduct and Business Ethics for nomination. The Nominating and Governance Committeedirectors or executive officers may engage a third party to assistbe granted only in identifying director candidates or to assist in gathering information regarding a director candidate's background and experience. If the Nominating and Governance Committee engages a third party, the Company pays for these services.
Shareholders who wish to recommend a candidate for the Nominating and Governance Committee's consideration must submit the recommendation in writing in accordance with the Board's Policy Regarding Communicationsexceptional circumstances by Shareholders and Other Interested Parties with the Board, of Directors discussed above. In 2017, there were no director candidates submitted by shareholders. Shareholders may make recommendations at any time, but recommendations for consideration as nominees at the annual meeting of shareholders must be received not less than 120 days before the first anniversary of the date that the proxy statement was released to shareholders in connection with the previous year’s annual meeting.
To submit a candidate for consideration for nomination at the 2019 Annual Meeting of Shareholders, shareholders must submit the recommendation, in writing, by November 16, 2018. The written notice must demonstrate that it is being submitted by a shareholder of record of the Companyor an authorized committee thereof, and include information about each proposed director candidate, including name, age, business address, principal occupation, principal qualifications and other relevant biographical information. In addition, the shareholder must confirm the candidate's consent to serve as a director. Shareholders must send recommendations to Discover Financial Services, 2500 Lake Cook Road, Riverwoods, Illinois 60015, Attention: Secretary and General Counsel, and they will be forwardeddisclosed as required by the rules of either the SEC or NYSE on our website.
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Executive compensation
What are shareholders being asked to the Nominating and Governance Committee.approve?
In addition, shareholders may nominate director candidates by complying with the advance notice or proxy access Bylaw provisions discussed at the end of this Proxy Statement in the Shareholder Proposals and Director Nominations for the 2019 Annual Meeting section.
EXECUTIVE AND DIRECTOR COMPENSATION
Executive Compensation
The Compensation Committee is responsible for the review and approval of the Company's executive compensation program. The Committee works with its independent compensation consultant, Pearl Meyer & Partners, LLC ("Pearl Meyer"),Pursuant to develop recommendations for the Compensation Committee.
Role of the Compensation and Leadership Development Committee
The Compensation Committee is responsible for the review and approval of all aspects of the Company's executive compensation program and makes all decisions regardingSEC rules, we must conduct an advisory, non-binding vote on the compensation of our NEOs at least once every three years. At our 2023 Annual Meeting, we recommended, and our shareholders overwhelmingly supported an annual frequency for this vote. As such, the Company'sBoard has determined that the Company will continue to hold this vote on the compensation of our NEOs namedeach year.
Therefore,pursuant to Section 14A of the Exchange Act we are asking you to approve the compensation of our NEOs as disclosed in the executiveCD&A (beginning on page 63), the compensation tables below. Specifically,(beginning on page 92), and any related narrative contained in this Proxy Statement. This proposal, commonly known as a “Say-on-Pay” proposal, gives you, as a shareholder, the Compensation Committee has responsibilityopportunity to among other things:endorse or not endorse our executive pay program and policies through the following resolution: review,“Resolved, that the shareholders approve, and administer all compensation programs affecting NEOs and evaluate whether such plans are aligned with the Company's compensation structure policies;
annually review and approve:
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– | performance criteria, goals and award vehicles used in our compensation plans for our NEOs, and |
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– | performance of and compensation delivered to our NEOs; |
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review the Company's compensation practices to evaluate whether such practices take into account risk outcomes in making compensation determinations and do not encourage excessive risk taking;
oversee the Company's management development and succession planning efforts; and
review and approve any contracts, policies, or programs related to compensation, contractual arrangements, or severance plans affecting NEOs.
As described under "2017 Decision-Making Process — Role of Chief Executive Officer in Compensation Decisions," the Compensation Committee consults with management with respect toon an advisory, non-binding basis, the compensation of the NEOs, other thanas disclosed in the CEO.‘Compensation discussion and analysis,’ the compensation tables, and any related narrative contained in this Proxy Statement.”
What is the board’s recommendation on voting on this proposal?
The Compensation Committee's charter is available through the investor relations page of our internet site, www.discover.com.
Compensation and Leadership Development Committee Interlocks and Insider Participation
The following persons served on our Compensation Committee during 2017: Messrs. Case, Aronin, Lenny and Thierer. No memberBoard unanimously recommends a vote “FOR” approval of the Compensation Committee was, during 2017, an officer, former officer or employeeNEO compensation as disclosed pursuant to Item 402 of SEC Regulation S-K, including in the Company or any of our subsidiaries. None of our executives served as a member of (i)CD&A, the compensation committee of another entitytables, and any related narrative contained in which one of the executive officers of such entity served on our Compensation Committee or (ii) the compensation committee of another entity in which one of the executive officers of such entity served as a member of our Board.
Role of the Compensation Consultants
The Compensation Committee regularly consults with its external independent compensation consultant, Pearl Meyer, in performing its duties. Pearl Meyer attends the Compensation Committee meetings, including executive sessions without management present. The Compensation Committee has broad authority to retain and dismiss Pearl Meyer, and establish the scope of Pearl Meyer's work. While the consultant reports to the Compensation Committee, the consultant also works with the Company’s Human Resources department and senior management to facilitate Compensation Committee work, as approvedthis Proxy Statement. Proxies solicited by the Compensation Committee Chair. Pearl Meyer provides experiential guidance to the Compensation Committee on what is considered fair and competitive practiceBoard will be voted “FOR” this proposal unless otherwise instructed.
As described in detail in the industry, primarily with respect to theCD&A, our compensation of the CEO, but also for other senior Company officers. Pearl Meyer is independent of management and under the terms of its agreement with the Compensation Committee, Pearl Meyer will generally provide services only to the Compensation Committee. Other than executive compensation consulting services noted above, Pearl Meyer performs no other services for the Company and has no relationship with the Company or management except as it may relate to performing such services. The Compensation Committee has assessed the independence of Pearl Meyer pursuant to SEC rules and concluded that no conflict of interest exists that would prevent Pearl Meyer from independently representing the Compensation Committee.
Director Compensation and Role of the Nominating and Governance Committee
Our Directors' Compensation Plan was approved by our shareholders in 2011, and provides for a specific amount of annual compensationprogram for our non-employee directors. Directors who also are our employees do not receive any compensation under the Directors' Compensation Plan. The compensation paid to our non-employee directors further advances the interests of the CompanyNEOs is substantially performance-based and its shareholders by encouraging increased share ownership to promote long-term shareholder value. As more fully described in "Other Arrangements, Policies and Practices Related to Our Executive Compensation Program — Share Ownership Guidelines," the Nominating and Governance Committee maintains guidelines which recommend that directors hold five times the annual cash retainer in Company stock.
The Nominating and Governance Committee is responsible for reviewing the effectiveness of the non-employee director compensation and benefit programs in supporting the Company's abilitydesigned to attract, retain, and motivate qualified directors. The Nominating and Governance Committee reviews director compensation at least every other year and considers a variety of factors, including our financial performance, general market conditions, director compensation at companies with which we compete for talent, director responsibilities and trends in director compensation practices. Any recommendations for changes in director compensation are made to our Board.
In 2017, management conducted a general market review of the director compensation of the Company's proxy peers, and after considering the same, the Nominating and Governance Committee did not recommend any change to
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the director compensation program. In 2018, Willis Towers Watson, the Company's compensation consultant, conducted a market review of vesting provisions of equity awards made to the non-employee directors of our peers and a broad-based industry group. The Nominating and Governance Committee reviewed the market data, and after consideration of the same, recommended that the Board amend (i) the Directors' Compensation Plan; (ii) the May 2017 RSU awards granted to our non-employee directors; and (iii) the form of award for future RSU grants to provide for a vesting date that is the earlier of (1) the first anniversary of the date of grant; or (2) immediately prior to the first annual meeting of shareholders following the date of grant. The Board considered the recommendation and amended the vesting date accordingly, effective February 22, 2018.
The compensation payable under the Directors' Compensation Plan is described below.
Cash Compensation
Each non-employee director receives the following cash compensation under the Directors' Compensation Plan for service on our Board and each standing committee of our Board:
An annual retainer fee of $100,000;
A Lead Director retainer fee of $75,000;
A committee chair retainer fee of: (i) $30,000 each for the chairpersons of the Audit Committee and Risk Oversight Committee; (ii) $25,000 for the chairperson of the Compensation Committee; and (iii) $20,000 for the chairperson of the Nominating and Governance Committee; and
A non-chair committee membership fee of: (i) $20,000 for each member of each of the Audit Committee and Risk Oversight Committee; (ii) $10,000 for each member of the Compensation Committee; and (iii) $5,000 for each member of the Nominating and Governance Committee.
Each non-employee director may elect to defer receipt of his or her cash compensation under the Directors' Voluntary Nonqualified Deferred Compensation Plan until the director terminates all services for the Company. A bookkeeping account is maintained for each participant and interest is credited to the deferred amount based on 120% of the quarterly long-term applicable federal rate in effect.
Stock Compensation
Pursuant to the Directors' Compensation Plan, we may issue awards of up to a total of 1,000,000 shares of our Common Stock to our non-employee directors. Each non-employee director receives an annual grant of $140,000 in RSUs for service on our Board, beginning with the first annual meeting at which the director is elected to our Board. For those directors joining our Board on a date other than the date of an annual meeting, each director receives a grant of $140,000 in RSUs on the date on which the director becomes a member of our Board, adjusted on a pro-rata basis by multiplying such award by a fraction where the numerator is the number of months between such date and the next annual meeting of shareholders and the denominator is twelve.
The number of RSUs granted is determined by dividing the dollar amount by our share closing price on the date of grant. Effective February 22, 2018, each grant vests in its entirety on the earlier of the first anniversary of its date of grant or immediately prior to the first annual meeting of shareholders following the date of grant, subject to the director's continued service through such date. Unless provided otherwise in the RSU agreement, RSUs granted to each non-employee director may become fully vested before the end of the regular restriction period if (i) such director is terminated due to disability or death or (ii) a change in control occurs. Upon vesting, the RSUs are converted into shares of our Common Stock. RSUs include the right to receive dividend equivalents in the same amount and at the same time as dividends paid to all Discover common shareholders. Each non-employee director may elect to defer the receipt of his or her stock compensation until the director terminates all services for the Company. A bookkeeping account is maintained for each participant, which reflects the number of RSUs to which the participant is entitled under the terms of the Directors' Compensation Plan.
Reimbursements
Directors are reimbursed for reasonable expenses incurred in attending Board, committee and shareholder meetings, including reasonable expenses for travel, meals and lodging.
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2017 Non-Employee Director Compensation Table
The table below sets forth cash and stock compensation (including deferred compensation) paid to non-employee directors for their Board service in the year ended December 31, 2017.
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| Director | Fees Earned or
Paid in Cash
($) | | Stock Awards
($)(1) | | Total
($) |
| Jeffrey S. Aronin | 110,000 |
| | 139,998 |
| | 249,998 |
|
| Mary K. Bush | 125,000 |
| | 139,998 |
| | 264,998 |
|
Gregory C. Case(2) | 125,000 |
| | 139,998 |
| | 264,998 |
|
Candace H. Duncan(2) | 120,000 |
| | 139,998 |
| | 259,998 |
|
| Joseph F. Eazor | 120,000 |
| | 139,998 |
| | 259,998 |
|
| Cynthia A. Glassman | 130,000 |
| | 139,998 |
| | 269,998 |
|
| Richard H. Lenny | 115,000 |
| | 139,998 |
| | 254,998 |
|
| Thomas G. Maheras | 120,000 |
| | 139,998 |
| | 259,998 |
|
| Michael H. Moskow | 130,000 |
| | 139,998 |
| | 269,998 |
|
Mark A. Thierer(2) | 110,000 |
| | 139,998 |
| | 249,998 |
|
| Lawrence A. Weinbach | 215,000 |
| | 139,998 |
| | 354,998 |
|
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(1) | Reflects RSUs granted under the Directors' Compensation Plan described above. Amounts reflect the grant date fair value of the 2017 RSUs, which were granted on May 11, 2017 for all non-employee directors. These amounts reflect the RSUs' grant date fair value in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation ("FASB ASC Topic 718") and may not correspond to the actual value that might be realized by the named individuals. Additional details on accounting for stock-based compensation can be found in Note 2: "Summary of Significant Accounting Policies - Stock-based Compensation" and Note 10: "Stock-Based Compensation Plans" of our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2017. As of December 31, 2017, each non-employee director held the following number of RSUs, including deferred RSUs: Mr. Aronin held 59,631; Ms. Bush held 54,399; Mr. Case held 64,210; Ms. Duncan held 9,194; Mr. Eazor held 2,324; Dr. Glassman held 2,324; Mr. Lenny held 19,462; Mr. Maheras held 40,962; Mr. Moskow held 47,314; Mr. Thierer held 12,135; and Mr. Weinbach held 49,022.
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(2) | The amounts listed for these individuals in the "Fees Earned or Paid in Cash" column were deferred under the Directors' Voluntary Nonqualified Deferred Compensation Plan. |
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COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis focuses on the Company's NEOs, who are named in the 2017 Executive Compensation tables below. We summarize below our executive compensation program and provide an overview of how and why the Compensation and Leadership Development Committee (the "Committee") made specific decisions involving our NEOs. We also refer youcritical to our Annual Report on Form 10-K for the year ended December 31, 2017, for additional information regarding 2017 financial results for our Company.
Overview of Performance and Compensation |
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Exceeded key plan profit target with higher revenues offsetting credit normalization | Accelerated card loan growth and originated record level of personal and student loans | Significant AML/BSA regulatory progress | Strong return on equity and significant capital deployment |
In 2017, we delivered a 19% return on equity to our shareholders while investing in profitable growth and new capabilities. Highlights of 2017 results are noted below.
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• | Based on net income of $2,099 million, the Company achieved profit before taxes and reserves ("PBTR") of $3,997 million(1), exceeding 2017 Annual Plan target of $3,929 million by 2%. PBTR favorability was driven primarily by higher revenue growth net of increases in credit losses. Net income for 2017 included one-time charges of $189 million resulting from actions taken by the Company in connection with the Tax Cuts and Jobs Act.
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The Company's period end loan growth accelerated to 9% year-over-year, exceeding Annual Plan target by 3%. The growth was supported by double digit growth in the Company's credit card new accounts and personal loan and student loan originations.
Credit performance was favorable as compared to most competitors, but unfavorable compared to the prior year and the Annual Plan as the Company exited a period of historic lows. Total provision expense increased $720 million year-over-year driven primarily by supply-driven credit normalization and the seasoning of loan growth from the last few years. The total net charge-off rate on average loans outstanding was 2.70%, up from the prior year rate of 2.16%.
The Company made significant investments and made substantial progress in enhancing compliance, including its Bank Secrecy Act ("BSA") anti-money laundering ("AML") program. On August 30, 2017, the FDIC terminated the consent order relating to Discover Bank's AML program. The Company has made substantial progress in addressing a Written Agreement with the Federal Reserve relating to the Company's AML program as well as a consent order with the CFPB related to the Company's Student Loan business.
Other non-interest expenses in our Direct Banking segment matched the Annual Plan target but were higher than the prior year by 6% as the Company invested in profitable loan growth and new capabilities and product enhancements.
Payment Services segment pre-tax income increased $38 million, primarily driven by strong revenue growth at PULSE and lower expenses. Transaction dollar volume for the segment was higher by 12% from the prior year, primarily driven by increases in PULSE network volume. Diners Club International volumes increased 10% over the prior year. In Network Partners, volume increased 3% from the prior year based on continued expansion with our AribaPay product.
In 2017, the Company launched Social Security Number Alerts, a free service that monitors risky websites known to illegally sell or trade personal data and alerts Discover cardmembers who have enrolled in the service if their Social Security numbers are found. In addition, New Account Alerts notify enrolled cardmembers if any new credit cards, mortgages, car loans or other accounts are opened on their Experian credit report. These new alerts are aimed at helping Discover cardmembers protect themselves from identity theft or fraud and manage their credit.
Direct-to-consumer deposit balances increased 9% year-over-year and represented 46% of the Company’s funding at year-end.
____________________
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(1) | Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of $460 million and income tax expense of $1,438 million to net income of $2,099 million. The Committee believes that PBTR is a better measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts.
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Discover Bank issued approximately $5.1 billion of public credit card asset-backed securitizations and approximately $8.2 billion of brokered deposits. The Company issued $1.0 billion of senior unsecured debt and continued to access the debt capital markets through its retail notes program. In addition, the Company issued $570 million preferred stock to refinance the existing Series B preferred stock. These wholesale funding activities are part of the Company's strategy to maintain access to a broad and diverse set of funding channels that complement growth in core deposit funding.
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• | The Company increased its quarterly dividend by 17% to $0.35 per share of Common Stock and repurchased approximately 32 million shares, or approximately 8%, of the Company’s outstanding Common Stock in 2017. The Company had a 123% payout ratio(1). This is the seventh year in a row that we have increased our dividend and payout ratio.
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success. The compensation that our senior executivesNEOs earned for 2017in 2023 reflected Company performance and remained consistent with our balanced compensation structure and commitment to aligning NEOs'NEOs’ interests with those of our shareholders. A significant portion ofThe Board continues to believe the compensation program for our NEOs is effective in achieving the desired results.
Is the shareholder advisory vote to approve NEO compensation binding on the company?
No. Under the SEC rules, your vote is advisory and will not be binding upon the Company or the Board; however, the Compensation Committee values the opinions of our shareholders and will review and consider the voting results when considering future executive compensation arrangements.
How many votes are required to approve this proposal?
This advisory vote requires the affirmative vote of a majority of the shares of Common Stock represented at the Annual Meeting and entitled to vote. You may “abstain” from voting on this proposal. Shares voting “abstain” on this proposal will be counted as present at the Annual Meeting for purposes of this proposal and your abstention will have the effect of a vote against this proposal.
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Compensation discussion and analysis
Table of contents
Executive summary
This Compensation Discussion and Analysis focuses on the executive compensation amounts and programs for the Company’s NEOs who are shown below and listed in the “2023 Executive Compensation Tables.” We summarize below the structure of our executive compensation program and provide an overview of how and why the Compensation Committee made specific compensation decisions involving NEO compensation. Our fundamental objective was to create a highly motivational compensation program that was retentive and also aligned with shareholders’ interests. We also refer shareholders to our Annual Report on Form 10-K for the year ended December 31, 2023, for additional information regarding the Company’s 2023 financial results and our ESG Report for the current state of other employee-related initiatives.
Fiscal 2023 was a transformative year for Discover. In addition to our solid performance for the year, we continued to evolve our organizational structure to support building common platforms and processes across products, strengthen first-line compliance and risk activities, and increase our effectiveness and efficiency - all while delivering industry-leading experiences for our customers and employees. This required significant changes in our executive leadership team in addition to changes in our organizational structure.
As part of this transformation all consumer banking products were combined under a single business unit, Consumer Banking, led by Dan P. Capozzi, who serves as Executive Vice President, President - Consumer Banking. In this new role Mr. Capozzi assumed responsibility for Card, Lending, and Deposit products, as well as Enterprise Marketing and Field Operations. To better leverage and advance our data and analytics across the enterprise, Keith E. Toney assumed an expanded role as Executive Vice President, President - Credit & Decision Management where he oversees all data-driven decisions for consumer-facing products with added responsibility over the Company’s fraud and collections strategy teams, as well as the Customer Digital Channels & Communications team. Lastly, in November 2023, the Company announced its intent to explore the sale of our student loans portfolio.
In support of these important transitions to drive value for our shareholders and customers alike, there were several executive officer transitions during 2023, including the following:
•In August 2023, we announced that Mr. Hochschild resigned as CEO and President. The Board appointed Mr. Owen, a non-employee member of the Board, the Interim CEO and President, while the
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Board conducted a search for a permanent CEO. In December 2023, our Board appointed Michael Rhodes as our new CEO and President. Mr. Rhodes succeeded Mr. Owen effective February 1, 2024. Mr. Owen returned to serving as a non-employee director of the Board also effective February 1, 2024.
•In September 2023, Mr. Minetti’s position as Executive Vice President, President - Consumer Banking was eliminated as part of the Consumer Banking re-organization.
•As disclosed in our 2023 proxy statement, Mr. Arooni resigned as Executive Vice President, Chief Information Officer, effective September 30, 2023.
Accordingly, our 2023 NEOs are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| John B. Owen | | John T. Greene | | Hope D. Mehlman | | Daniel P. Capozzi | | Keith E. Toney |
Interim CEO
and President | | Executive Vice
President, CFO | | Executive Vice
President, Chief Legal Officer, General Counsel, and Corporate Secretary | | Executive Vice
President, President- Consumer Banking | | Executive Vice
President, President- Credit & Decision Management |
We are also required to include in the CD&A other NEOs who terminated employment with the Company in 2023:
•Roger C. Hochschild, former CEO and President
•Carlos M. Minetti, former Executive Vice President, President - Consumer Banking
•Amir S. Arooni, former Executive Vice President, Chief Information Officer
Chief executive officer transition
In August 2023, we announced a CEO transition plan in which Mr. Owen, a member of the Board, would temporarily succeed Mr. Hochschild as Interim CEO and President until a permanent successor to Mr. Hochschild was identified and began employment.
In connection with his appointment, Mr. Owen received the following compensation while serving as Interim CEO and President:
•An annual base salary of $950,000.
•A RSU award with a grant date value of $500,000, which vested on January 31, 2024.
To assist with the transition, Mr. Hochschild remained employed by the Company as an advisor to the Chairman of the Board through December 31, 2023, pursuant to the terms of a transition employment letter (the “Transition Letter”). Mr. Hochschild and the Company entered into the Transition Letter on August 13, 2023. Mr. Hochschild continued to receive his base salary but forfeited his eligibility for 2023 short-term incentive awards, and his 2023 long-term incentive awards granted in February 2023 were forfeited. Mr. Hochschild received no additional compensation or benefits for serving in his advisor role.
On December 11, 2023, we announced that Michael Rhodes was appointed as restricted stock units ("RSUs")the CEO and at-risk performance-based stock units ("PSUs") tiedPresident, the permanent successor to Mr. Hochschild. Mr. Rhodes and the Company performanceentered into a letter agreement that entitles him to the following compensation as approved by the Compensation Committee:
•An annual base salary of $1,000,000, prorated in 2024 as of his February 1, 2024, start date.
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•An annual target bonus of 200% of his annual base salary.
•An annual LTI target of $7,000,000, consisting of (1) PSUs weighted 75%, and (2) RSUs weighted 25%. The annual LTI awards will be granted at the same time and subject to the same terms and conditions as those granted to other NEOs.
•A make-whole RSU award of $5,035,548 (reduced from the previously disclosed amount of $7,100,000 due to receipt of PSUs from his prior employer, as disclosed in our Form 8-K filed on December 11, 2023). The award will vest ratably over three years (with one-third vesting on each of December 31 of 2024, 2025, and 2026.
•A make-whole cash award of $93,500 (reduced from the previously disclosed amount of $1,500,000 due to receipt of an annual cash incentive from his prior employer, as disclosed in our Form 8-K filed on December 11, 2023).
•A cash transition award of $750,000.
In recognition of Mr. Owen’s service as Interim CEO and President, the Compensation Committee approved the following compensation awards as disclosed in our Form 8-K filed on January 29, 2024:
•A RSU award with a three-year performance period.grant date value of $1,600,000, which fully vested on January 31, 2024, and will settle ratably over three years (with one-third settling on each of the first, second, and third anniversaries of January 31, 2024).
•A cash award of $500,000, which was paid on January 31, 2024.
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Compensation principles
The Company's Employee Compensation Policy provides thatCompany’s 2023 executive compensation program and compensation decisions were based on the RSUsfollowing principles:
Performance highlights
In 2023, the Company’s accomplishments included:
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| Company earned net income of $2,940 million from 19% revenue growth and a robust net interest margin of 11.07% | Delivered second highest profit before taxes and reserves (“PBTR”) of $5,802 million(1)and third best diluted EPS of $11.26 in Company history |
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| Continued to invest in branding and acquisition | Successfully launched Cashback Debit on a national scale contributing to consumer deposit growth of 19%. Total loans up 15% driven by investments in new account acquisition, payment rate moderation and sales volume growth |
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| Disciplined expense management | Achieved a 38% efficiency ratio(versus 39% in 2022) whileinvesting over $500MM in compliance and risk management capabilities |
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| Strong shareholder returns | 21% return on equity for the year; increased quarterly dividend by 17% to $0.70 per share |
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The operating backdrop in 2023 was impacted by the Federal Reserve’s restrictive monetary policy. While this policy stance contributed to some abatement in inflation, consumer behavior nonetheless reflected some level of economic pressure, as spending volumes slowed throughout the year and PSUs are subjectcredit performance deteriorated. Nonetheless, our organization approached these topics with focus and determination. We invested in growth and risk management and compliance capabilities and announced our intent to a clawback that allowsexplore the Company to reclaim previously granted awards under certain circumstances. Additionally, the policy provides for share ownership guidelines and share retention requirements that tie a portionsale of our executives’ net worthstudent loans portfolio, which will better enable us to focus on our core business. Throughout this period, the underlying stability of our unique business model remained. Total revenue was up 19% year-over-year, we finished with diluted earnings per share of $11.26, our third-best in Company history, and we achieved a 21% return on equity.
(1)PBTR is a non-GAAP financial measure that should be viewed in addition to, not as a substitute for, the Company’s reported results. 2023 PBTR is derived by adding the change in the allowance for credit losses of $1,977 million, the adjustment to the Company's stock priceliability for expected credit losses on unfunded commitments of ($1) million, and provide a continuing incentiveincome tax expense of $886 million to achieve superior long-term stock price performance.
net income of $2,940 million. The Committee uses PBTR as the primary measure of the Company's financial performance to assess annual cash awards for our NEOs. TheCompensation Committee believes that PBTR is the besta critical measure of the core operating performance of the business that focusesincreases focus on factors the Company'sCompany’s incentive-eligible employees are most able to directly impact and influence and controlsinfluence. Please see “Annex A” for variability in significant macroeconomic events.a reconciliation of PBTR to net income.
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Highlights of 2023 results include:
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Strong execution against business priorities drove net income of$2,940 million, and PBTR of $5,802 million.(1) | Revenue net of interest expense was $15.9 billion, up 19% from 2022, driven by higher net interest income from loan growth. | Total expenses were up15%from 2022 driven by investments in risk management and compliance. | Credit performance was within expectations across all of our lending products driven by normalization and seasoning of recent card vintages. |
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Payment Services had strongnetwork volume growth, up 10%year-over-year. | Card loans were up 13%reflecting payment rate moderation, new account growth, and a 3% year-over-year increase in sales volume. | Personal loans were up 23%from 2022 due to higher originations and lower payment rates. | Successfully expanded our deposit franchise, growing consumer deposits by 19% |
The Committee is advised by Pearl MeyerCompany reviewed its compensation plans and our Chief Risk Officerprograms in 2023 and determined that they are not designed to, consider whether any element of the compensation structure, design, review, or decision-making process could benor do they create an incentive to, engage in excessive risk-taking, nor are they reasonably likely to have a material adverse effect on the Company. As a result, incentive compensation continues to be firmly tied to current and future Company performance and is designed to appropriately balance risk and reward. At the end of 2017, in connection with making compensation decisions, the Committee used reports from and met with the Chief Risk Officer and the Risk Oversight and Audit Committees of the Board of Directors to discuss the annual incentive compensation risk assessment, and to review outcomes of certain risk events and any related impact on compensation decisions. The Committee evaluated our NEOs performance against risk goals before determining compensation for our NEOs, creating a direct link between our incentive compensation and risk management.
More details regarding our 20172023 performance and executive compensation can be found in the sections below,that follow, including a summary of the compensation approachstructure for our former CEO under "Summary“Summary of Chief Executive Officer Compensation."and all other NEOs’ compensation.” We encourage you to read this section of the Proxy Statement in conjunction with the advisory, non-binding vote that we are conducting on the compensation of our NEOs.NEOs.
Our executive compensation program is designed to motivate, retain, and attract top executive talent to achieve our strategic objectives and align shareholders’ and executives’ interests. Annual cash incentives use PBTR to measure the Company’s financial performance to establish award levels. The Compensation Committee and the full Board believe that PBTR is a critical measure of the core operating performance of the business and focuses on factors the Company’s incentive-eligible employees are most able to directly impact and influence. When determining awards under our annual cash incentive program, the Compensation Committee considers a variety of additional factors, including but not limited to, risk and compliance outcomes, individual performance and contribution, and TSR. LTI awards are granted in the form of RSUs and PSUs, with PSU award values and vesting tied to cumulative EPS performance over a three-year performance period. We believe the link between our financial results and executive incentives demonstrates our continued commitment to paying executives for performance. (1)PBTR is a non-GAAP financial measure that should be viewed in addition to, not as a substitute for, the Company’s reported results. 2023 PBTR is derived by adding the change in the allowance for credit losses of 2017$1,977 million, the adjustment to the liability for expected credit losses on unfunded commitments of ($1) million, and income tax expense of $886 million to net income of $2,940 million. The Compensation Committee believes that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company’s incentive-eligible employees are most able to directly impact and influence. Please see “Annex A” for a reconciliation of PBTR to net income.
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2023 highlighted the strength of our integrated digital banking and payments model and advancement of our strategic priorities despite an economic backdrop characterized by restrictive monetary policy and modest economic pressure. Significant investments in branding and acquisition continued to drive new accounts, and we added field personnel to support this robust growth. We focused on maturing our risk management and compliance capabilities by making significant investments in staffing, technology, and process management. We continued to actively manage our funding costs and remained disciplined around credit management. Year-over-year loan growth was driven by payment rate moderation, robust new account growth, and strong but decelerating consumer spending. We remained flexible and committed to our employees’ needs as our workforce continued to return to the office in 2023. We believe that these and other factors allowed our business to successfully navigate through the challenges of the last several years and emerge well positioned to create long-term value for our customers and shareholders.
Our financial results and compensation earned by NEOs for 2023 reflected a strong year for earnings, and we believe the 2023 compensation earned by our NEOs remained consistent with our balanced compensation structure, risk management, and commitment to aligning our NEOs’ interests with those of our shareholders. We performed well against our goals in 2023 in many areas, such as delivering second highest PBTR and third best diluted EPS performance in Company history, providing great customer experiences at every customer touchpoint, and continuing to build a stronger risk and compliance framework and culture.
While our 2021 to 2023 PSU performance payouts were funded at maximum, our 2023 STI was funded below target at 79.5%, which includes the impact of the Compensation Committee’s decision to recognize the prior period impacts of the card misclassification matter in the 2023 performance year. The STI plan for the CEO and executive officers, including the NEOs, includes a 1.5x bonus multiplier (described below under “Short-term incentive compensation”) that negatively adjusted STI funding to 69.3%. The Compensation Committee further reduced STI payouts to the NEOs by 20% due to their performance against specific Executive Committee Risk Scorecard outcomes, which reduction applied uniformly to all NEOs regardless of an individual NEO’s performance. The Compensation Committee believes that the alignment of our incentive payouts and performance demonstrate the effectiveness of our incentive plans.
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Summary of Chief Executive Officer and all other NEOs’ compensation
Consistent with our compensation philosophy, a large portion of each NEO’s compensation is performance-based. The chart below summarizes the 2023 elements of compensation that comprised our former CEO’s target total direct compensation opportunity and the average target total direct compensation for all other NEOs.
Approximately 91% of the former CEO’s 2023 target total direct compensation and approximately 82% of all other NEOs target total direct compensation were variable and tied to Company financial performance. See “Factors affecting 2023 compensation decisions” for more details on how the factors considered by the Compensation Committee impacted compensation decisions, and see “2023 Summary compensation table” for the Compensation Committee’s actual compensation decisions.
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2023 former CEO target pay mix(1) | 2023 average of all other NEOs’ target pay mix(2) |
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(1)The CEO target pay mix is based on compensation approved for the former CEO, Mr. Hochschild, in February 2023. Our Interim CEO, John B. Owen, is excluded as his compensation structure reflected his interim role. In connection with his resignation, Mr. Hochschild forfeited his eligibility to receive any 2023 short-term cash incentive, and his equity awards granted in 2023 were canceled.
(2)The NEO target pay mix excludes Mr. Arooni who, as part of his exit agreement, forfeited eligibility for the 2023 short-term cash incentive and 2023 equity awards. Also excludes our Interim CEO, Mr. Owen.
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| Element | Highlights | Objectives | 2023 former CEO target pay mix | 2023 average of all other NEOs’ target pay mix |
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| Base Salary | Fixed cash compensation based on scope of responsibility, impact on the organization, expertise, experience, and individual performance. | To provide a fixed amount for performing the duties and responsibilities of the position. | | |
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| Short-Term Cash Incentive (“STI”) | Annual cash bonus opportunity based on Company financial performance, primarily PBTR, other performance factors, risk and individual performance. | To motivate executive officers to achieve Company-wide, business-unit, and individual performance goals. | | |
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| Long-Term Incentive (“LTI”) | Annual equity award opportunity based on financial and other performance factors, risk and individual performance; granted as a mix of PSUs and RSUs with PSU awards determined based on three-year adjusted EPS performance. | PSUs motivate executive officers to achieve long-term goals. RSUs, along with PSUs, create alignment with shareholders’ interests. | | | | |
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2023 Advisory Vote onvote of NEO Compensationcompensation
Each year we provideAt our 2023 Annual Meeting, shareholders indicated strong support for our executive compensation program with a "Say-on-Pay" vote.approximately 92% of votes cast in favor of our Say-on-Pay proposal. The Compensation Committee values the opinions of our shareholders and will continue to review and considerconsidered the votingSay-on-Pay vote results in connection with its evaluation of the shareholder advisory vote on NEO compensation in addition to other factors when considering futureCompany’s executive compensation arrangements. In light of the strong support for our NEO compensation at our 2017 annual meeting of shareholders, weprogram and, after considering such vote results, did not make any changes to the Company'sCompany’s executive compensation program in response to the 2017 "Say-on-Pay" vote, and we intend to continue to use PBTR, along with other secondary performance factors, to fund our incentive compensation programs for 2018.2023 Say-on-Pay vote.
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(1) Payout ratio represents capital returned to common shareholders divided by net income allocated to common shareholders.
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Practices and Policies Supporting Strong Corporate Governance and Compensation Programs
We continue to maintain our disciplined approach to executive compensation with a focus on pay for performance,pay-for-performance, strong governance, risk management, and simplicity as evidenced by the following practices:
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| We Do | | We Do Not |
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| Pay for performance: Pay-for-performance: The majority of the compensation for our NEOs is in the form of variable cash and equity compensation linked to the short-term and long-term financial and strategic goalsperformance of the Company over a three-year performance period.Company. Incentive compensation metrics are tied to the Company's strategic planprofitable operation and NEOs'growth of the Company, and NEOs’ individual goals are designed to be aligned to the plan.financial, strategic, as well as risk and compliance outcomes. |
ü | Shareholder alignment: Our compensation program alignsis designed to be aligned with our long-term interests and those of our shareholders, with deferred long-term incentives ("LTI")a majority of NEO target direct compensation delivered as LTI awards. LTI awards are granted in the form of PSUs and RSUs, andthe value of which are directly impacted by the Company’s stock performance. PSUs linked to stock price appreciation. PSUs arerepresent the primary componentmajority of the target annual LTI grant value for our NEOs and in addition to being deferred for three years, are subject to Companyearned based on performance and stock priceagainst EPS targets over thea three-year performance period. |
ü | Independent oversight: Our Compensation Committee includes only directors who are independent under applicable NYSE listing standards, and the Compensation Committee is advised by an independent compensation consultant. |
ü | Share ownership guidelines for NEOs: Our CEO must own shares with a value of at least seven times his base salary, our President and COO must own shares with a value of at least five times his base salary and our other NEOs must own shares with a value of at least three times their respective base salaries. Each NEO must achieve his or her ownership guideline within five years of appointment. |
ü | Share retention requirements: For annual grants prior to 2016, our NEOs must hold 50% of the net shares received upon vesting and, beginning with 2016 grants, NEOs must hold 100% of net shares received upon vesting for one year post-vesting to promote continued shareholder alignment.Incentive award limits: Incentive awards have maximum payout caps. |
ü | Clawback of incentive compensation: Our Employee Compensation STI and LTI compensation is subject to clawback in accordance with our Recoupment Policy, and our equity award agreements also allow the Company to forfeit or recoup LTI awards provide for clawbacks that allow us to recover shares issued pursuant to RSUsin the event of a financial restatement and PSUs under certainother circumstances. |
ü | Risk management: We regularly evaluate the risk impact of the design of our incentive compensation program, and theprogram. The compensation decisions for our NEOs include a risk review that is consideredconducted before we make annual short-termSTI and long-term incentiveLTI awards and before the determination of vesting for all outstanding stock grants, which may result in a reduction in the number of the shares vesting.vested. |
ü | BalancedDouble trigger change in control: Our change in control severance policy includes aand equity award agreements include double trigger and does not provide excise tax gross-ups fortriggers before any employees.payments are made. |
ü | Restrictive covenants: LTI awards to NEOs are subject to non-competitionnon-competition and non-solicitation provisions. |
ü | Limited perquisites: Perquisites provided We provide limited perquisites to our NEOs, which are generally limited to access to an executive gym. On occasion, our NEOs may use the Company's tickets for sporting, cultural or other events for personal use when they are not otherwise used for business purposes.described in detail below under “2023 Summary compensation table.” |
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We Do Not |
Ø |  No employment contracts for NEOs: We do not have individual employment agreementscontracts with any of our NEOs. |
Ø | No special benefit plans: We do not provide any benefit plans to our executives that are not generally available to other employees, and we do not provideoffer any supplemental executive retirement plan benefits to any executive.our executives. |
Ø | No hedging or pledging: Directors and executive officers, including NEOs, are prohibited from hedging Company securities, holding Company securities in a margin account, or otherwise pledging Company securities, including as collateral for a loan. |
Ø | No excise tax gross gross-ups: We do not provide excise tax gross ups forgross-ups on any employee.perquisites. |
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Executive compensation decision-making process
Compensation Programprograms and Objectivesobjectives
The Company's 2017Company’s 2023 executive compensation program and compensation decisions were based on the following principles:
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| Pay-for-Performance | | Balanced Compensation Structure | | Market-Competitive Pay Opportunity |
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Pay for Performance:Our compensation should reflect financial and non-financial performance over short- and long-term periods at the Company business segment, and individual performance.
performance levels. | | Balanced Compensation Structure:We seek to deliver a mix of fixed and variable compensation that is aligned with shareholder interests andaligns the long-term interests of the Companyour executive officers with our shareholders and that appropriately balances risk and reward. | | Market-Competitive Pay Opportunity:
Our compensation should be competitive relative to our peers and the broader market in order to attract, motivate, and retain a talentedtop executive team.talent. |
Pay for Performance
Our compensation program is grounded onin a pay for performancepay-for-performance philosophy andthat is designed to reward achievement of the Company'sCompany’s financial and strategic goals included inperformance objectives, as well as to hold our business plans established before each performance cycle. We considerexecutive officers accountable for achieving certain risk and compliance outcomes. In determining executive compensation, the Compensation Committee considers financial performance and strategic performance factors, relative performance, risk performance, regulatory compliance, internal pay equity, and individual NEO performance. The majority of compensation for our NEOs is in the form of variable compensation, a substantial portion of which is paid in deferred RSUs and PSUs tied to the long-term performance of the Company and designed to be aligned with shareholder interests. Performance factors considered by the Compensation Committee in setting and determining executive compensation included the following:
•Financial Performance: How well the Company performed compared to its 2017 Annual Plan. For 2017,2023, the main factorfactors the Compensation Committee considered in evaluating financial performance waswere the Company's PBTR.
Company’s PBTR and EPS.Other Performance Factors: How well the Company performed compared to other secondary financial metrics, key focus areas as well as relative to competitors.
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– | Other Financial Metrics: How well the Company performed compared to other secondary financial metrics, including net income, return on equity ("ROE") (and risk-adjusted returns), earnings per share ("EPS"), total revenue (defined as net interest income plus other income), net charge-offs and operating expenses.
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– | Key Focus Areas: How well the Company accelerated profitable growth, enhanced capabilities and operating models, and matured risk management.
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– | Relative Performance: How well the Company performed against a select group of competitors on profitability, credit performance, growth, total shareholder return and other measures.
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•Risk Performance: How well the Company performedperformance with respect to risk management, capital adequacy, and regulatory compliance.
•Other Performance Factors: The Compensation Committee also considered Company performance with respect to the following factors:
•Other Financial Metrics: Company performance relative to the Annual Plan and prior year results for the following: net income, total revenue (defined as net interest income plus other income), net charge-offs, and operating expenses.
•Relative Performance: Company performance against a select group of competitors on profitability, credit performance, growth, TSR, and other measures.
•Individual Performance: How well each NEO performed Each NEO’s performance relative to individual objectives, including relative role impact, experience, and internal pay equity.
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Balanced compensation structure
BalancedThe Compensation Structure
The Committee determines the total direct compensation targets (aggregateopportunity (sum of base salary, target short-term incentive ("STI")STI, and LTI opportunity)opportunities) for theeach of our NEOs at the beginning of the year, based on Company and individual performance forduring the pastprior year as well as the overall skills and experiences of the executive, internal pay equity, and the Committee'sCompensation Committee’s assessment of their future potential. Target STI and LTI opportunities are established for and communicated to the NEOs.NEOs at the beginning of the year or, if applicable, at the time of any subsequent change in target STI or LTI opportunity. The actual year-end STI awards paid and LTI awards made to the NEOs are determined by the Compensation Committee based on its evaluation of financial performance. For STI, the Compensation Committee evaluates PBTR performance, primarily PBTR,achievement of risk and compliance outcomes, performance against other performance factors, risk performance and individual performance. For the PSU portion of the LTI program, the Compensation Committee evaluates EPS results over the performance period (as described above)under “Long-term equity incentives”).
The Compensation Committee also considers compensation levels of other executives in similar roles, both within the Company and at industry peers, before making compensation decisions. The Compensation Committee uses discretion to exercise its judgment instead of solely relying on a formulaic structure, which it believes provides the right level of transparency while maintaining the flexibility necessary to pay appropriatelyamounts it deems appropriate for performance. The Compensation Committee has determined that a balance of the following pay components provides an effective combination of risk and reward:reward.
Market-competitive pay opportunity
The Compensation Committee reviewed and considered competitive market data from the following sources when approving NEO compensation: proxy data from an established peer group of companies (discussed below) and other market survey data from companies within the financial services industry and other companies with which we compete for talent. For benchmarking purposes, the peer group used in the analysis consists of 15 financial services companies of a similar business nature and revenue size to the Company, from which the Company might expect to draw and compete for executive talent. Given that the Company has few direct competitors of similar scope, size, and business model, this peer group is somewhat varied in nature and primarily represents companies that are similar in business areas with a focus on credit card providers, regional financial institutions that have significant credit card and/or loan operations, payments processing, and data/transaction processing companies.
In 2022, the Compensation Committee reviewed the peer group based on the criteria noted above and removed Bread Financial Holdings, Inc. and The Western Union Company and add Citizens Financial Group, Inc. Bread Financial Holdings, Inc. and The Western Union Company were determined to be less suitable peers based on their total assets and market capitalization. Citizens Financial Group, Inc. was identified as an appropriate peer based on comparable financials and market size, significant peer group overlap, and industry. These changes were effective with respect to the peer group used to evaluate 2023 compensation decisions.
The peer group for 2023 compensation decisions consists of the following companies:
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Base Salary:•Ally Financial, Inc. (ALLY)
Fixed compensation based on scope of responsibility, impact on the organization, expertise, experience, and individual performance.•American Express Company (AXP)
•Capital One Financial Corporation (COF) •Citizens Financial Group, Inc. (CFG) •Comerica Incorporated (CMA) | Short-Term Incentive:•Fidelity National Information Services, Inc. (FIS)
Annual cash bonus opportunity based on Company financial performance, primarily PBTR, and other performance factors, risk and individual performance.•Fifth Third Bancorp (FITB)
•Fiserv, Inc. (FI) •KeyCorp (KEY) •M&T Bank Corporation (MTB) | Long-Term Incentive:
Annual stock award opportunity based on financial performance, other performance factors, risk and individual performance. The award is granted using a mix of PSUs and RSUs.•Mastercard Incorporated (MA)
•PayPal Holdings, Inc. (PYPL) •Regions Financial Corporation (RF) •Synchrony Financial (SYF) •Visa Inc. (V) |
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Discover | 2024 Proxy Statement | 73 |
Review of Compensation Policies and Practices Related to Risk ManagementFactors affecting 2023 compensation decisions
The primary Company performance factor considered by the Compensation Committee for purposes of making STI compensation decisions for 2023 was the Company’s PBTR. Although no set weight is assigned to any performance metric or goal, we believe that a profit-based measure best reflects overall Company performance and drives EPS, which we believe is the representative measure most directly tied to the return to our common shareholders. We believe PBTR is also a balanced measure aligned with total performance to motivate executives to focus on the overall returns of the Company and not drive performance on one measure or one business unit over another. In 2023, the Compensation Committee considered the Company’s PBTR and EPS along with other performance factors, including performance versus peers, risk performance, including performance against the Executive Committee Risk Scorecard, regulatory compliance, internal pay equity, and individual performance.
For the PSU portion of the LTI program, the primary metric the Compensation Committee established for performance-vesting purposes was cumulative EPS achievement over a three-year performance period. In making final award determinations for the 2021 to 2023 PSUs, the Compensation Committee also factored in individual compliance with the Company’s risk policies including an assessment of any imprudent risks that may have been taken over the three-year vesting period, inclusive of the performance period. The Compensation Committee retains discretion to adjust EPS performance for the impact of unusual or non-recurring events not reflected in business plan assumptions including legislative, accounting, or other regulatory changes; one-time, unusual tax events; and significant changes in planned share repurchases, where such events are not attributable to NEO performance for purposes of PSU vesting.
The Compensation Committee also considered the need to attract, motivate, and retain a talented management team and to design our compensation program in a way that remains competitive with other companies with which we compete for senior executive talent.
For 2023, after consideration of all the aforementioned factors and the Compensation Committee’s emphasis on pay-for-performance, the Compensation Committee made compensation decisions for each of the NEOs as detailed in the “2023 Summary compensation table.” LTI was granted after the regularly scheduled Compensation Committee meeting in February 2023, and 2023 STI was paid shortly after the Compensation Committee meeting in January 2024.
Overall company performance
The Compensation Committee believes that the actions taken throughout 2023 by the Company’s CEO (both former and Interim) and the other NEOs helped the Company pursue our business objectives, including continued growth. The following achievements, among other factors, contributed to the Company’s success in 2023, and we believe provides the Company with significant momentum heading into 2024 and beyond:
•Total loans increased 15% year-over-year, driven by payment rate moderation, new account growth, and a modest increase in sales.
•Operating efficiency ratio(1) of 38% reflects strong revenue expansion and our focus on maturing our risk management and compliance capabilities by making significant investments in staffing, technology, and process management.
•Credit performance was within expectations across all of our lending products driven by normalization and seasoning of recent card vintages.
•Payment Services had strong network volume growth, up 10% year-over-year.
(1)Operating efficiency ratio represents total operating expense divided by revenue net of interest expense.
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Financial performance
The primary factor that our Compensation Committee considered in making 2023 variable compensation decisions was the Company’s PBTR results. The Company achieved PBTR of $5,802 million,(1) which represented a year-over-year decrease of 7%.(1) The PBTR was $474 million lower than our 2023 Annual Plan primarily driven by Company’s significant investments in risk management and compliance capabilities.
Other performance factors
Other financial metrics
The Compensation Committee considered other 2023 financial metrics set forth below. No single financial metric was by itself decisive to the Compensation Committee’s determination of any NEO’s compensation, rather the Compensation Committee subjectively balanced 2023 financial performance across these metrics in the aggregate in determining individual compensation.
The following financial metrics were considered by the Compensation Committee (dollars in millions, except per share amounts):
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| 2023 | 2022(1) | % Change |
Total revenue(2) | | $ | 15,860 | | | $ | 13,293 | | 19 | % |
| Net charge-off dollars | | $ | 4,042 | | | $ | 1,817 | | 122 | % |
| Operating expense | | $ | 6,016 | | | $ | 5,216 | | 15 | % |
| Net income | | $ | 2,940 | | | $ | 4,374 | | (33) | % |
| Diluted earnings per share | | $ | 11.26 | | | $ | 15.44 | | (27) | % |
(1)The comparative prior year ended December 31, 2022, has been restated to reflect immaterial corrections to the financial statements. See Note 26: “Immaterial Restatement of Prior Period Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
(2)Total revenue equals the sum of net interest income and other income.
(1)PBTR is a non-GAAP financial measure that should be viewed in addition to, not as a substitute for, the Company’s reported results. PBTR is derived by adding the change in the allowance for credit losses of $1,977 million, the adjustment to the liability for expected credit losses on unfunded commitments of ($1) million, and income tax expense of $886 million to net income of $2,940 million. The Compensation Committee believes that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company’s incentive-eligible employees are most able to directly impact and influence. Please see “Annex A” for a reconciliation of PBTR to net income.
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Discover | 2024 Proxy Statement | 75 |
Relative performance
The Compensation Committee also considers the Company’s performance relative to our largest business competitors in the U.S. market in both the Digital Banking and Payment Services segments. In 2023, Discover outperformed the majority of its largest competitors on ROE and continued to grow new accounts in our lending and banking products.
Risk performance
The Compensation Committee considers risk performance across the Company and within each business segment in making final compensation decisions for each NEO, both as it relates to an individual’s specific objectives as well as contributions to the strengthening of risk management, internal controls, and compliance practices. The Compensation Committee reviewed overall performance and risk adjusted returns and capital levels relative to the Annual Plan and established risk appetite limits. The Compensation Committee also considered the Company’s progress in addressing legal and regulatory matters and performance against compliance goals that were established under the Executive Committee Risk Scorecard. See section “Compensation risk assessment.”
Roles and responsibilities in compensation decisions
How compensation decisions are made for our NEOs
The following describes the comprehensive process in determining compensation decisions that allows for ample review and consideration of Company, business segment, individual, and risk performance:
•Our CEO, Chief Human Resources Officer, senior Human Resources’ personnel, and the Compensation Consultant meet with the Compensation Committee to discuss preliminary compensation decisions for the NEOs and other senior officers.
•The CRO reviews and confirms all preliminary compensation decisions for NEOs.
•The Compensation Committee considers overall contribution to Company performance and individual responsibility for business segment, functional, and/or strategic goals.
•The Compensation Committee also meets with the Risk Oversight and Audit Committees of the Board to discuss the impact of risk performance on compensation recommendations.
•The Board or the Compensation Committee reviews the findings from any risk reviews as presented by the CRO and may approve reductions to the NEOs’ compensation based on the findings.
•The Compensation Committee, with input from the CRO, evaluates NEOs’ achievements against business and risk goals, along with the Company’s Executive Committee Risk Scorecard and approves adjustments to the NEOs’ compensation based on the results.
(1)Operating efficiency ratio represents total other expense divided by revenue net of interest expense.
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As described in the Compensation Committee Charter, the Compensation Committee is responsible for the review and approval of all aspects of the Company’s executive compensation program and makes all decisions regarding the compensation of the NEOs. Specifically, the Compensation Committee has the responsibility to, among other things: •Review, approve, and administer all compensation programs affecting NEOs and evaluate whether such programs are aligned with the Company’s compensation policies; •Annually review and approve: •Performance criteria, goals, and award vehicles used in our compensation plans for our NEOs, •Any negative adjustments to be applied to the NEOs STI payouts based on achievement against the Company’s Executive Committee Risk Scorecard and/or findings from any risk events, and •Performance of and compensation delivered to our NEOs; •Review the Company’s compensation practices to evaluate whether such practices take into account risk outcomes in making compensation determinations and do not encourage imprudent risk-taking; •Oversee the Company’s management development and succession planning efforts; and •Review and approve any contracts, policies, or programs related to compensation, contractual arrangements, or severance plans affecting NEOs. As described in the preceding section, the Compensation Committee consults with management with respect to the compensation of the NEOs, other than the CEO. The Compensation Committee’s charter is available through the investor relations page of our internet site, www.discover.com. |
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The Compensation Committee regularly consults with its external independent Compensation Consultant, Pay Governance, in performing its duties. The Compensation Consultant attends Compensation Committee meetings, including executive sessions without management present. The Compensation Committee has broad authority to retain and dismiss the Compensation Consultant and establish the scope of the Compensation Consultant’s work. The Compensation Consultant reports to the Compensation Committee, and provides experiential guidance to the Compensation Committee on what is considered reasonable and competitive practice in the industry, primarily with respect to the compensation of the CEO, but also for other senior Company officers. The Compensation Consultant also works with the Company’s Human Resources department and senior management to facilitate Compensation Committee work, as approved by the Compensation Committee Chair. The Compensation Consultant is independent of management and under the terms of its agreement with the Compensation Committee, provides services only to the Compensation Committee. Other than executive compensation consulting services noted above, the Compensation Consultant performs no other services for the Company and has no relationship with the Company or management except as it may relate to performing such services. The Compensation Committee assessed the independence of the Compensation Consultant pursuant to SEC rules and concluded that no conflict of interest exists that would prevent the Compensation Consultant from independently representing the Compensation Committee. During 2023, management also retained the services of Willis Towers Watson to assist the Company in conducting an assessment of the competitiveness of the pay opportunity and practices provided to Company executives. |
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Discover | 2024 Proxy Statement | 77 |
Compensation risk assessment
The Compensation Committee is responsible for overseeing risk management associated with the Company'sCompany’s compensation practices. The Committee annually meetsCRO reviews with the Company's Chief Risk Officer to review all employeeCompensation Committee, at least annually, the Company’s incentive compensation plans in which employees (including the NEOs) participate, and to evaluate whetherensure these plans havedo not contain any features that mightmay encourage excessiveimprudent risk-taking that couldor threaten the value of the Company, or are reasonably likely to have a material adverse effect on the Company.
The Compensation Committee also continues to monitormonitors, through a separate on-goingvalidation and back-testing process, a review of select Covered Employees’ incentive compensation awards, prior to payout, and as approved by the CRO, to ensure the Company’s approach to incentive compensation does not promote excessive risk assessment by senior managementtaking. Our Covered Employees, which include the NEOs, are individuals who have the authority, through span of influence, responsibility, or control, to make decisions independently or as a group that could expose the Company to substantial or material risk.
In addition, at the direction of the Company's employeeCRO, the Company completes an annual Cumulative Risk Review for select Covered Employees with RSUs and PSUs. The Cumulative Risk Review covers a total of three years that coincides with the Company’s annual LTI award’s vesting date, and is designed to assess if an individual engaged in any willful or reckless violations of the Company’s risk policies. If any such violation or breach is found, the Company may determine that all or a portion of the individual’s current year awards will be forfeited. To accomplish the Cumulative Risk Review, the Company takes into consideration the results of previously conducted risk reviews. Risk reviews are conducted quarterly to examine the Company’s high-risk events for potential excessive or imprudent risk taking and include the evaluation of items such as regulatory and internal audit findings and issues rated “critical” and “high.” After evaluation of the data, and prior to current year incentive compensation practices in orderpayouts, the Cumulative Risk Review is compiled and reviewed by the CRO, who then certifies whether outstanding LTI awards should vest without adjustment. The CRO’s performance during the period is reviewed by the Risk Oversight Committee.
The processes described above reflect our rigorous risk management framework with respect to evaluate complianceour incentive compensation programs that is consistent with the Interagency Guidance on Sound Incentive Compensation Policies issued by the Federal Reserve Board and other bank regulators in 2010. Basedregulatory agencies and related guidance.
In 2023, the Compensation Committee conducted its assessment with the assistance of the CRO to consider whether any element of the compensation structure, design, review, or decision-making process could be reasonably likely to have a material adverse effect on an assessment of enterprise risk events, the Chief Risk Officer may direct senior leaders from the Company's Human Resources, Legal, and Risk Management teams to compile and analyze information about the Company'sCompany. The Compensation Committee concluded that incentive compensation practicescontinues to be firmly tied to current and payment historyfuture Company performance and is designed to hold interviewsappropriately balance risk and reward and our incentive compensation plans do not provide employees with business line managersincentives to understand how evaluation of businesstake risk events affect certain STIthat could jeopardize the safety and LTI performance measures and compensation decisions. After evaluationsoundness of the data,Company. The Compensation Committee evaluated our NEOs’ performance against risk management goals before determining compensation for our NEOs, creating a direct link between our incentive compensation and prior to current year incentiverisk management.
In connection with its 2023 compensation decisions, the Chief Risk Officer prepares a report of the risk assessment, which includes any recommendations for risk adjustments to incentive compensation in connection with risk events. In addition, prior to vesting, the Chief Risk Officer reviews a risk assessment of business and individual risk performance over the past three years and certifies whether outstanding LTI awards should vest without adjustment.
In 2017, in connection with making compensation decisions, theCompensation Committee reviewed reports from, and met with, the Company's Chief Risk OfficerCompany’s CRO and the Risk Oversight and Audit Committees of the Board of Directors in a joint meetingmeetings (the "Joint Meeting"“Joint Meetings”) to discuss the annual incentive compensation risk assessment and to review outcomes of certain risk events and any impact on compensation decisions. The annual risk assessment did not result in the identification of any risks related to our incentive compensation plans that are, either individually or in the aggregate, reasonably likely to encourage imprudent or excessive risk-taking that could threaten the value of the Company or have a material adverse effect on the Company. Following the Joint Meeting,Meetings, the Committee assessed and finalized incentive compensation decisions without any adjustment based on the risk assessment.
Market-Competitive Pay Opportunity
The Committee reviewed and considered competitive market data from the following two sources when approving NEO compensation: proxy data from an established peer group of companies (discussed below) and other market survey data. We use competitive market data as a reference point for elements of NEO compensation, and not to make any specific decisions. For the proxy data, the peer group used in the analysis consists of 16 financial services companies of a
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similar business nature and revenue size to the Company, from which the Company might expect to draw executive talent. Given that the Company has few direct competitors of similar scope, size and business model, this peer group is somewhat varied in nature and primarily represents companies that are similar in business areas with a focus on credit card providers, regional financial institutions that have significant credit card and/or loan operations, and data/transaction processing companies. In 2017, the Committee reviewed the companies that met the foregoing criteria, along with all incumbent peers, and after evaluating these companies with Pearl Meyer made no changes in the peer group.
In 2017, the peer group consisted of the following companies:
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Ally Financial, Inc. | | CIT Group Inc. | | Fiserv, Inc. | | Regions Financial Corporation |
American Express Company | | Comerica Incorporated | | KeyCorp | | Synchrony Financial |
Ameriprise Financial, Inc. | | Fidelity National Information Services, Inc. | | M&T Bank Corporation | | Visa Inc. |
Capital One Financial Corporation | | Fifth Third Bancorp | | Mastercard Incorporated | | The Western Union Company |
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2017 Decision-Making Process
Factors Affecting Compensation Decisions
The primary factor considered by the Committee when assessing performance for purposes of making variable compensation decisions for 2017 was the Company's PBTR. Although no set weight is assigned to any performance metric or goal, we believe that a profit-based measure best reflects overall Company performance and drives EPS, which is the representative measure most directly tied to the return to our common shareholders. PBTR is also a balanced measure aligned with overall performance to motivate executives to focus on the overall returns of the Company and not drive performance on one measure or one business unit over another. In 2017, the Committee considered the Company's PBTR along with other performance factors, including: net income, ROE (and risk-adjusted returns), EPS, total revenue (defined as net interest income plus other income), net charge-offs and operating expenses, key focus areas, relative performance, risk performance, internal pay equity and individual performance.
For the PSU portion of the LTI program, the primary metric the Committee established was cumulative EPS achievement over a three-year performance period. In making final award determinations, the Committee also factored in individual compliance with the Company's risk policies and an assessment of any inappropriate risks taken over the three-year vesting period, inclusive of the performance period. In 2017, the Committee, in consultation with Pearl Meyer, considered alternative performance metrics for PSUs. The Committee also met with the Company's Chief Financial Officer, Mr. Graf, to discuss Company performance. After considering alternatives, the Committee chose to continue to use EPS as the sole PSU metric because it is deemed to be transparent, directly tied to the return to our shareholders and a commonly-used indicator of profitability for publicly-traded companies. The Committee continues to maintain discretion to adjust EPS performance for the impact of unusual or non-recurring events not reflected in business plan assumptions including legislative, accounting or other regulatory changes; one-time, unusual tax events and significant changes in planned share repurchases where such events are not attributable to NEO performance for purposes of PSU vesting. In December 2017, in light of the then pending tax legislation, the Committee clarified such events included the impact of any tax code changes.
The Committee also considered the need to attract, motivate and retain a talented management team and to design our compensation program in a way that remains competitive with other companies with which we compete for senior executive talent.
For 2017, after consideration of all the aforementioned factors and the Committee’s emphasis on pay for performance, the Committee made compensation decisions for each of the NEOs as detailed in the "2017 Summary Compensation Table." Consistent with past practice, STI was paid and LTI was granted after the regularly scheduled Committee meeting in February 2018.
Overall Company and Business Segment Performance
The Committee believes that the actions taken by the Company's CEO and the other NEOs throughout 2017 contributed greatly to the Company's results and better positioned the Company for 2018 and beyond. Furthermore, throughout 2017, the Company continued to benefit from certain strategic choices made by the Company's senior management in prior years. The following key strategic decisions, among other things, enabled the Company to be profitable during 2017 and placed the Company in a strong position going forward:
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Accelerated revenue growth while also generating faster loan growth and maintaining a disciplined approach to credit.
Maintained a disciplined focus on key initiatives including the launch of Social Security Number Alerts and New Account Alerts, aimed at helping Discover cardmembers protect themselves from identity theft or fraud.
Enhanced digital and mobile capabilities providing operational efficiencies and building upon our position as a customer service leader.
Improved network acceptance, domestically and internationally, through increased merchant and acquirer relationships and network-to-network partnerships.
Utilized deposit growth initiatives and capital markets transactions to maintain a balance sheet position to benefit from a rising interest rate environment.
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• | Maintained strong capital position while returning over $2.5 billion(1) of capital to shareholders in buybacks and Common Stock dividends.
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Achieved termination of the FDIC consent order relating to Discover Bank’s AML program.
Continued to enhance governance practices and the risk management and control environment, focused on meeting regulatory guidance.
Financial Performance
The primary factor that our Committee considered in making 2017 compensation decisions was the Company's PBTR. The Company's 2017 Annual Plan target for PBTR was modestly lower than prior year results due to our increased projected loan loss provision from loan growth seasoning and industry credit normalization and as we increased our growth investments to accelerate growth and long-term profits. The Company achieved PBTR of $3,997 million(2), which exceeded our 2017 Annual Plan target of $3,929 million. The Committee considered that PBTR performance was driven by favorability in revenue and operating expenses partially offset by higher charge-offs.
Other Performance Factors
Other Financial Metrics
The Committee considered other secondary 2017 financial metrics set forth below. No single secondary financial metric was by itself significant to the Committee's determination of any individual's compensation. The Committee reviewed the impact of unplanned events, including the Tax Cuts and Jobs Act, and subjectively balanced 2017 financial performance across these secondary metrics in the aggregate in determining individual compensation.| The following financial metrics were considered by the Committee (dollars in millions, except per share amounts): |
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| | 2017 | | Change from 2016 |
Total Revenue(3) | $9,897 | | 9 | % |
| Net Charge-off Dollars | $2,119 | | 36 | % |
| Operating Expense | $3,781 | | 5 | % |
| Net Income | $2,099 | | (12 | %) |
| Diluted Earnings Per Share | $5.42 | | (6 | %) |
| Return on Equity | 19 | % | | (2 | %) |
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(1) | The sum of Common Stock dividends and share repurchases, net of Common Stock issued under stock-based compensation plans. |
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(2) | Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of $460 million and income tax expense of $1,438 million to net income of $2,099 million. The Committee believes that PBTR is a better measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts.
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(3) | Total revenue equals the sum of net interest income and other income. |
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Key Focus Areas
The Committee also considered the Company's progress on key focus areas, including accelerating profitable growth, enhancing capabilities and operating models, and maturing risk management when making overall compensation decisions. The Committee reviewed and subjectively balanced performance in these key focus areas with other secondary factors and PBTR in the aggregate in determining individual compensation.
The Committee considered the impact of credit normalization and loan growth, as well as total network transaction volume. The following secondary growth and performance metrics were reviewed by the Committee:
Total loan growth of 9% was above the 2016 performance of 7%, supported by strong sales growth and continued payment rate favorability. Loan growth is a key driver of revenue and future profitability, and 9% organic loan growth was our best performance since becoming a public company in 2007.
Direct Banking revenue was higher than 2016 by 9% driven by loan growth as well as net interest margin expansion.
Total net charge-off rate on average loans outstanding of 2.70% was up from the prior year rate of 2.16% due primarily to supply-driven credit normalization and the seasoning of loan growth from the last few years.
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• | The Company achieved an operating efficiency ratio(1) of 38.2%, which was an improvement when compared to the 2016 ratio of 39.4%. Strong growth in Direct Banking revenue was the primary contributor to the improvement.
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Total network volume was higher than the prior year by 10% driven by strong PULSE network volume growth of 14%.
Payment Services pre-tax earnings of $145 million were above 2016 by $38 million driven by higher PULSE transaction processing revenue and expense favorability.
The Company made significant investments and has made substantial progress in enhancing risk management and compliance, including its AML/BSA program.
Relative Performance
The Committee also considers the Company's relative performance against our largest business competitors in the U.S. market in both the Direct Banking and Payment Services segments. Relative performance results considered by the Committee for 2017 are described below. Unless otherwise noted, the Committee reviewed competitor results for trailing four calendar quarters through completion of the fourth calendar quarter in 2017.
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• | Card Credit:3% net charge-off rate average; better than the average competitor rate(2)
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• | Card Loans:9% receivables growth: better than the average competitor growth rate(2)(3)
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• | Credit Volume: 5% U.S. credit dollar volume growth; lower than the average network competitors(4)
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• | Debit Volume:14% U.S. debit dollar volume growth; better than the average competitor growth rate(5)
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• | Card Return on Assets: 6% one-year return on assets; better than the average competitor return(6)(7)
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• | Return on Equity:19% one-year return on equity; better than the average competitor return(8)
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• | Shareholder Return: 9% one-year total shareholder return; lower than the average competitor return(9)
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• | Shareholder Return: 25% three-year total shareholder return; lower than the average competitor return(9)
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(1) | Operating efficiency ratio represents total other expense divided by revenue net of interest expense. |
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(2) | Card comparison based on peer group of American Express (U.S. Consumer Card), Bank of America (U.S. Card), Capital One (U.S. Card), Chase (Card Services), Citibank, N.A. (Branded-Cards North America), Synchrony Financial (Retail Card) and Wells Fargo (Consumer Card). |
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(3) | Card receivables growth is on a year-over-year basis. |
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(4) | Network competitors are American Express, Visa and Mastercard. Credit volume growth is on a year-over-year basis. |
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(5) | Competitor average based on peer group of Visa and Mastercard. Debit volume growth is on a year-over-year basis. |
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(6) | Card competitor average based on peer group of American Express (U.S. Consumer Card), Capital One (U.S. Card), Citibank, N.A. (Branded-Cards North America) and Synchrony Financial (Total Company). |
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(7) | Card return on assets is calculated by dividing profit before taxes and reserves by average credit card loan receivables. |
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(8) | Competitor average based on peer group of American Express, Bank of America, Capital One, JP Morgan Chase, Citigroup, Mastercard, Synchrony Financial, Visa and Wells Fargo. |
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(9) | As of December 31, 2017, based on peer group of American Express, Bank of America, Capital One, Citigroup, JP Morgan Chase, Mastercard, Synchrony Financial, Visa and Wells Fargo. The Company's shareholder return represents the total return of a share of Common Stock to an investor (capital gain/loss plus dividends) assuming dividends are reinvested in the security. |
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Risk Performance
The Committee considers risk performance across the Company and within each business segment in making final compensation decisions for each NEO, both as it relates to an individual’s specific objectives as well as contributions to the success of the business in strengthening its risk management, internal controls and compliance practices. The Committee noted overall performance in line with the Annual Plan and within established business risk appetite limits, strong risk adjusted returns, strong capital levels and termination of the FDIC consent order relating to Discover Bank's AML program. The Committee also considered the Company's substantial efforts in ongoing remediation to address previously disclosed legal and regulatory matters including a Written Agreement with the Federal Reserve relating to the Company's AML program as well as a consent order with the CFPB related to the Company’s Student Loan business.
Individual Performance
The Committee considers individual performance in making final compensation decisions for each NEO, both as it relates to an individual's specific objectives as well as each individual's relative role impact, experience, internal pay equity and contributions to the success of the overall enterprise. The Committee believes this holistic approach optimizes the link between executive rewards and the benefits to shareholders. Highlights of individual performance and contributions are described below.
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David W. Nelms
Chairman and Chief Executive OfficerEXECUTIVE COMPENSATION
| | lExceeded Annual Plan target for PBTR and loan growth
lManaged strong EPS performance, despite provision higher than Annual Plan
lAchieved favorable company efficiency ratio of 38%
lRenewed payments volume and profit growth
lDrove timely progress on addressing regulatory matters including related to the AML/BSA program which resulted in the termination of the FDIC consent order
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| R. Mark Graf
Executive Vice President, Chief Financial Officer
lExceeded treasury funding goals in the aggregate
lDrove positive operating leverage and drove savings through corporate procurement
lFortified the balance sheet through effective risk and capital management; supported
all governing and risk management committee requirements
lContinued strength in investor relations, including industry recognition for this function
lSupported timely satisfaction of regulatory matters
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Roger C. Hochschild
President and Chief Operating Officer
| lLed business segments to achieve strong financial performance
lContinued build out and maturation of the Company's Chief Information Security Office function and capabilities
lContinued roll out of "Discover Management System," a new operating model
leveraging lean and agile principles; leading the Executive Committee through learning journey and adoption of management tools and principles
lSupported progress on addressing regulatory matters including related to the AML/BSA program which resulted in the termination of the FDIC consent order
lCompleted several talent rotations at the officer level to build succession depth; successful transition of new Executive Committee member into Credit and Decision Management role
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Diane E. Offereins
Executive Vice President, President - Payment Services
| lExceeded Payments segment Annual Plan target performance in the aggregate
lIncreased global acceptance, stabilized payments volume and increased Payment
Services profits
l Increased network acceptance, network-to-network partners, and issuer base for PULSE
lLaunched Samsung Pay, Android Pay app provisioning, and PayPal in Android Pay
lLaunched Apple Pay for two Discover Debit issuers and Pay with Cashback Bonus for Discover cardmembers
l Supported progress on addressing regulatory matters including related to the AML/ BSA sanctions
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Carlos Minetti
Executive Vice President, President of Consumer Banking
| lImplemented strategies to balance growth, risk and profitability across Consumer
Banking
lExceeded Consumer Banking Plan target for PBTR
lExceeded Annual Plan target for New Deposits and met targets for other banking product new originations
l Implemented measures for sustained improvement in Discover Home Equity
l Continued focus on building next generation capabilities in OTIS banking system platform
l Supported progress on addressing regulatory matters including related to the AML/BSA program which resulted in the termination of the FDIC consent order
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Role of NEOs in Compensation Decisions
Our CEO, COO, senior Company Human Resources personnel, Chief Risk Officer and Pearl Meyer met with the Committee to discuss preliminary compensation decisions for the NEOs and senior officers considering overall contribution to Company performance and individual responsibility for business segment, functional, and/or strategic goals during the Committee's December 2017 meeting and presented final recommendations to the Committee during the Committee's February 2018 meeting. The Committee also met with the Risk Oversight and Audit Committees of the Board of Directors to discuss the impact of risk performance on compensation recommendations. This allowed for ample review and consideration of 2017 Company, business segment, individual and risk performance in determining 2017 compensation decisions. No NEO was involved in his or her own pay recommendations or decisions. The role of the Committee and its consultant are discussed under "Executive and Director Compensation — Executive Compensation." The decisions of the Committee for 2017 performance are reflected below under "Components of Compensation."
Components of Compensationcompensation
20172023 compensation decisions for our NEOs were closely tied to our 20172023 financial performance and consisted of three key components - components—base salary, STI, and LTI - LTI—with a significant portion of total compensation (PSUs and RSUs) tied to long-term Company performance. These components are summarized below.
Base Salary
We provide our NEOs and other executives with a market-competitive annual base salarysalaries to attract and retain an appropriate caliber of talent for theeach position. Annually, we review our competitive market, including market data provided by Pearl Meyerthe Compensation Consultant, for our proxy peer group and the broader market. TheBased on our review of the competitive market data, management recommended to the Compensation Committee uses market information as one data point to consider among many, and changes in base compensation are not made frequently. For example, the base pay of Mr. Nelms has not changed since 2008, and the base salaries of Mr. Minetti and Ms. Offereins have not changed since 2011. After considering 2016 market increases in base pay, individual performance and experience, the Committee approved a $100,000 increase in Mr. Nelms base salary for 2017. After considering 2017 market increases in base pay, individual performance, relative role impact, experience, and internal pay equity amongst the Company's executive officers, the Committee approved a $50,000 increase in the 2018 base salaries for each of Messrs. Graf, Hochschild, and Minetti and Ms. Offereins. The Company applies any applicable annualminor 2023 base salary increases for all employees, including NEOs, asMessrs. Greene and Capozzi. Base salary increases were based on their performance and alignment with competitive market data. After considering management’s recommendation, the Compensation Committee approved the base salary increases for 2023. The 2023 base salary below represents annualized base salary for Mr. Owen, Ms. Mehlman, and Messrs. Minetti and Arooni, each of whom received a specified date inprorated salary based on the first three and a half monthsperiod of each year.time served during 2023. See "2017“2023 Summary Compensation Table"compensation table” for a summary of 2017 NEO2023 base salaries.salaries earned by our NEOs.
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| Named executive officer | 2022 Base salary | 2023 Base salary | Increase amount | Change (%) |
| John B. Owen | | $ | — | | | $ | 950,000 | | | $ | — | | — | % |
| John T. Greene | | $ | 700,000 | | | $ | 735,000 | | | $ | 35,000 | | 5 | % |
| Hope D. Mehlman | | $ | — | | | $ | 575,000 | | | $ | — | | — | % |
| Daniel P. Capozzi | | $ | 700,000 | | | $ | 735,000 | | | $ | 35,000 | | 5 | % |
| Keith E. Toney | | $ | — | | | $ | 650,000 | | | $ | — | | — | % |
| Former named executive officers |
| Roger C. Hochschild | | $ | 1,100,000 | | | $ | 1,100,000 | | | $ | — | | — | % |
| Carlos M. Minetti | | $ | — | | | $ | 700,000 | | | $ | — | | — | % |
| Amir S. Arooni | | $ | 640,000 | | | $ | 640,000 | | | $ | — | | — | % |
Short-term incentive compensation
Short-Term Incentive Program
In 2017, we continued to offer ourOur NEOs have the opportunity to earn a market competitivemarket-competitive annual cash award through our STI program. Awards may be earned based primarily on the Company'sCompany’s financial performance, as well aswhile incorporating other secondary performance factors, risk performance, and individual performance. The STI opportunity is provided to motivatecreate additional motivation for the executives to achieve our annual business goals and to enable us to attract and retain an appropriate caliber of talent for theeach position, recognizing that similar annual STI opportunities are provided at other companies with which we compete for talent. After consideration of market data provided by Pearl Meyer, the Committee made no changes to 2017 target STI opportunities from 2016 target STI opportunities. Our NEOs have target STI opportunities, represented onas disclosed in the "2017 Grants“Grants of Plan-Based Awards"plan-based awards for 2023” table, which were communicated to them at the beginning of the year.
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In 2017, the Committee again considered market data provided by Pearl Meyer, including for our proxy peers. Market data is only one factor used by the Committee, and is generally not independently used as a basis for changes to STI targets. The Compensation Committee considered market changes, individual performance, experience, and internal pay equity amongst the Company's executive officers, and decided to increase the 2018 targetin setting 2023 STI opportunity for Messrs. Graf and Minetti and Ms. Offereins by 10%, and the increases were communicated to themtargets at the beginning of 2018.the year. Based on a review of competitive market data, management recommended to the Compensation Committee no changes to the NEOs’ STI targets in 2023. After considering management’s recommendation, the Compensation Committee approved in early 2023 the STI targets of the NEOs for 2023 that were unchanged from those for 2022. Given Ms. Mehlman joined the company in 2023, the Compensation Committee established her 2023 STI target based on a review of market data across a competitive set of peer organizations and input from the Compensation Consultant. For Mr. Toney, after considering the impact of his expanded role compared with that of our other executive officers following our Consumer Banking re-organization, the Compensation Committee approved an increase of his 2023 STI target from 125% to 150%, effective July 1, 2023.
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The 2023 short-term incentive target opportunities for our NEOs were as follows:
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Named executive officer(1) | 2023 Short-term incentive target (%) | 2023 Short-term incentive target ($) |
John B. Owen(2) | — | % | | $ | — | |
| John T. Greene | 150 | % | | $ | 1,102,500 | |
Hope D. Mehlman(3) | 100 | % | | $ | 562,397 | |
| Daniel P. Capozzi | 150 | % | | $ | 1,102,500 | |
Keith E. Toney(4) | 150 | % | | $ | 894,418 | |
(1)Excludes Messrs. Hochschild, Minetti, and Arooni. Mr. Hochschild’s STI target was 200% of his base salary, and he was not eligible for a 2023 STI award in connection with his resignation. Mr. Minetti’s STI target was 150% of his base salary, and due to the elimination of his position, he received a prorated payout of his STI target based on the number of days worked through his termination date of September 30, 2023. In connection with Mr. Arooni’s voluntary resignation, he was not eligible for a 2023 STI award, his STI target was 125% of his base salary.
(2)The terms of Mr. Owen’s compensation arrangement for his service as Interim CEO and President provided that he was not eligible for a 2023 STI award.
(3)Ms. Mehlman’s STI target dollar value was prorated for the number of days worked in 2023, beginning with her January 9, 2023, start date.
(4)Mr. Toney’s STI target dollar value was prorated for the number of days worked through June 30, 2023, applying a 125% STI target and the number of days worked from July 1, 2023, his job expansion effective date, through December 31, 2023, applying a 150% STI target.
In 2023, the Compensation Committee considered financial performance based on PBTR iswhen approving annual incentive funding. PBTR performance against Compensation Committee-approved targets established the primary factor considered whenpool for funding incentive compensation.Company-wide STI awards. PBTR is derived by adding changes in the allowance for loancredit losses and adjustment to the liability for expected credit losses on unfunded commitments to pretax income. PBTR is a non-GAAP financial measure that should be viewed in addition to, and not as a substitute for, the Company'sCompany’s reported results. The Compensation Committee believes that PBTR is a bettercritical measure of the core operating performance of the business and is consistent with the evolution of our STI program in recent years to increase focusfocuses on factors the Company'sCompany’s incentive-eligible employees are most able to directly impact and influenceinfluence.
In 2023, the Compensation Committee considered multiple factors, including historical performance and controls for variability in significant macroeconomic impacts.general market conditions, and approved STI funding goals that aligned with the Company’s 2023 Annual Plan. The performance/payout curve defined potential funding levels based on various levels of PBTR performance. The curve was structured to provide threshold funding of 70% of target and maximum funding of 130% of target based on PBTR performance.
For 2017, the CEO and other executive officers, including the NEOs, a 1.5x bonus multiplier is then applied to reflect the contribution to and responsibility for overall organization performance resulting in threshold funding of 55% of target and maximum funding of 145% of target. In each case, the Compensation Committee has discretion to reduce or increase the funded amounts by applying an individual performance modifier of +/- 20%, which can result in individual STI awards ranging from a minimum of 44% of target to a maximum of 174 % of target.
When the Compensation Committee approved the 2023 funding goal and curve in February 2023, it considered multiple factors, including the Company’s 2023 Annual Plan, historical performance, and general market conditions and determined that a PBTR goal based on the 2023 Annual Plan reflected appropriate challenge and incentive for our executive officers, including our NEOs, to deliver strong performance for the Company and our shareholders.
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| 80 | Discover | 2024Proxy Statement |
Our STI payout formula is as follows:
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| Final STI payout is subject to reduction based on the Compensation Committee’s review of both (i) achievement of NEOs’ progress against the Executive Committee Risk Scorecard (which applies uniformly to all NEOs regardless of an individual NEO’s performance) and (ii) the results of any risk management matters that may impact an individual NEO. |
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Results of the 2023 STI plan are as follows:
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| PBTR goals | Results prior to adjustments | Final results after adjustments | Final NEO STI funding % after 1.5x bonus multiplier |
| Min | Target | Max | Result | STI funding % | Result | STI funding % |
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| $4.85Bn | $6.28Bn | $7.44Bn | $5.8Bn | 87.8% | $5.5Bn | 79.5% | 69.3% |
In 2023, based on net income of $2,940 million, the Company achieved PBTR of $5,802 million,(1) reflecting a 7%(1) year-over-year decrease and $474 million less than our 2023 Annual Plan, resulting in STI funding of 87.8%. The Compensation Committee approved, consistent with management’s recommendation, to reduce STI funding only for executive management, including the NEOs, to account for the card misclassification matter.(2) Applying the prior periods’ financial impact of the card misclassification matter resulted in Adjusted PBTR of $5,478 million,(3) which reduced STI funding by 8.3% for executive management to 79.5%. After applying the 1.5x bonus multiplier for the NEOs, STI funding was further negatively adjusted to 69.3% (((79.5%-1)*1.5)+1).
When determining individual 2023 STI compensation decisions for NEOs, the Compensation Committee made adjustments to the STI payouts for each of the NEOs based on a number of factors, including performance against individual and established compliance goals. In evaluating progress against compliance goals in the Executive Committee Risk Scorecard, the Compensation Committee recognized that progress has been made in resolving and remedying issues, but the 2023 goals were not fully achieved. The Compensation Committee, in recognition of the importance of performance against the Executive Committee Risk Scorecard, approved a 20% reduction uniformly to all NEOs’ final STI payouts, regardless of an NEO’s individual performance.
(1)PBTR is a non-GAAP financial measure that should be viewed in addition to, not as a substitute for, the Company’s reported results. PBTR is derived by adding the change in the allowance for credit losses of $1,977 million, the adjustment to the liability for expected credit losses on unfunded commitments for ($1) million, and income tax expense of $886 million to net income of $2,940 million. The Compensation Committee believes that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company’s incentive-eligible employees are most able to directly impact and influence. Please see “Annex A” for a reconciliation of PBTR to net income.
(2)As reported in the second quarter of 2023, the Company misclassified certain credit card accounts into its highest merchant and merchant acquirer pricing tier beginning in 2007. The Company determined the revenue impact of the card misclassification was immaterial to the consolidated financial statements for all impacted prior periods. See Note 26: “Immaterial Restatement of Prior Period Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
(3)Adjusted PBTR is derived by adjusting PBTR for one or more unusual or extraordinary items that the Compensation Committee, in its sole discretion, has determined should be added to or subtracted from PBTR. Adjusted PBTR is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company’s reported results. Please see “Annex A” for a reconciliation of Adjusted PBTR to net income.
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The Compensation Committee also considered secondaryother Company financial performance metrics,factors, including performance against the 2023 Annual Plan, net income, ROE (and risk-adjusted returns), EPS, total revenue (defined as net interest income plus other income), net charge-offs, operating expenses, key focus areas, relative performance, risk performance, regulatory compliance, internal pay equity, and individual performance. The Compensation Committee believes this approach provides the rightappropriate level of transparency while maintaining the flexibility to adjust awards for extraordinary circumstances that positively or negatively affect the Company'sCompany’s financial performance. This approach is also allowsdesigned to allow the Compensation Committee to evaluate whether pay is commensurate with risks taken and the quality of performance results.
In 2017, the Company achieved PBTR of $3,997 million(1), which exceeded our 2017 Annual Plan PBTR target of $3,929 million. Accordingly, when determining 2017 STISee prior section “Factors affecting 2023 compensation decisions, the Committee assessed PBTR versus the Annual Plan target and made a discretionary judgment on appropriate 2017 STI compensationdecisions” for each of the NEOs based on a number of factors, including strong loan growth.
The Company pays STI for eligible employees, including NEOs, as of a specified date in the first three and a half months of each year. See "2017 Decision-Making Process" above for moreadditional details onregarding the factors considered by the Compensation Committee inwhen making compensation decisions and see "2017“2023 Summary Compensation Table"compensation table” for the actual STI decisions.payouts to the NEOs.
Long-Term Incentive Program
The Compensation Committee, with input from Pearl Meyer,the Compensation Consultant, continues to emphasize stock-based compensation for our NEOs and other senior executives to align their long-term interests with those of our shareholders. The Compensation Committee believes that the use of RSUs and PSUs that vest over a multi-year period focusesincentivizes the executives to focus on the Company'sCompany’s long-term interests without leading to imprudent risk taking.or excessive risk-taking. In addition, we believe time-vested RSUs and performance-vestedperformance-based PSUs represent an efficient method of delivering long-term stockincentive compensation, generally using fewer shares than other types of stock-based award vehicles while havingdelivering value that is ultimately tied to Company operational or stock price performance. LTI awards are made to eligible employees, including NEOs, as of a specified date in the first three and a half months of each year.
For 2017,2023, the Compensation Committee approved granting NEOs a combination of RSUs that generally vest ratably over a three-year periodthree years and at-riskperformance-based PSUs tied to a three-year Company performance period and vesting period (pending evaluation against the Company's risk policies).generally cliff vests after three years.
The Compensation Committee sets long-term stockLTI compensation opportunities commensurate with the NEOs’ level and responsibility in the organization, as well as considering external market data, to appropriately motivate the individuals and further align their interests with the most impact on driving the successthose of the organization and creating shareholder value.our shareholders. The Compensation Committee established a target LTI value for the NEOs,each NEO, represented as a percentage of their base salaries,salary, and determined that 67%approximately 74% of the target compensation of the former CEO and, on average, 59%approximately 57% of the target compensation of the other NEOs, would be in the form of long-term stockLTI compensation. In addition, the Compensation Committee established a target PSUallocation between PSUs and RSU mixRSUs as a percentage of the total target LTI offor each NEO, as represented onbelow (excluding Mr. Toney’s one-time RSU grant described in the following page.“2023 Summary compensation table” footnotes).
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(1) | Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of $460 million and income tax expense of $1,438 million to net income of $2,099 million. The Committee believes that PBTR is a better measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts. |
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The LTI award consists of a forward-looking stock award with an initialgrant value that varies based primarily on annual Company PBTR performance. The Committee also considers secondary Company financialthe NEO’s established LTI target. Actual LTI awards may vary from target based on the Compensation Committee’s assessment of performance, metrics, key focus areassuccession planning considerations, and relative performance, risk performance and other factors relevant to the year.increases in scope of responsibility. The number of PSUs and RSUs granted is determined by dividing the dollar value of theeach recipient’s award by the fair market valueclosing price of a share of Common Stock on the date of grant. The PSU and RSU grants were made in February 2017.2023 to each of the NEOs. In early 2023, to continue to bring Mr. Hochschild’s compensation closer to market-competitive levels, the Compensation Committee approved an 18% increase in his LTI target. In connection with Mr. Hochschild’s resignation in August 2023, his 2023 equity awards were forfeited. For the other NEOs, management recommended, and the Compensation Committee approved, for Messrs. Greene and Capozzi, an increase of their LTI targets from 325% to 375%, to align their compensation with market-competitive levels. Mr. Toney’s LTI target was increased mid-year to 335% in connection with his mid-year job expansion following the Consumer Banking re-organization where he assumed additional responsibility of overseeing all data-driven decisions for consumer-facing products, and in recognition of his expanded role as compared to our other executive officers. See "2017 Decision-Making Process" aboveprior section “Factors affecting 2023 compensation decisions” for more details on how the factors considered by the Compensation
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Committee impacted compensation decisions, and see "2017the “2023 Summary Compensation Table"compensation table” for the actual LTI decisions.grant values.
Long-term incentive annual target award mix Performance Stock Unitsstock units
20172023 PSU Awardsawards
At-riskPerformance-based PSUs are granted annually at the beginning of a three-year Company performance period to further reinforce the NEOs'NEOs’ accountability for the Company'sCompany’s future financial and strategic goals and performance by tying a greatersignificant portion of compensation directly to the Company's EPS and ultimately the Company's stock price.Company’s EPS. The majority of the 20172023 LTI awards for NEOs consisted of PSUs (75% for the former CEO, and 60% for the other NEOs), which were granted under the Company'sCompany’s 2014 Omnibus Incentive Plan. Under thisour LTI program, PSUsthe PSUs’ will generally vest and convert to shares of Common Stock if and to the extent the Company achieves specific cumulative EPS performance goals over a three-year performance period, andprovided the executive remains employed by the Company for athe three-year performance period (with exceptions for certain termination events, e.g. retirement, disability or death)events), and are subject to an evaluation of compliance with the Company'sCompany’s risk policies over the three-year period prior to vesting. The performance period for the 2017 award2023 grant of PSUs began on January 1, 20172023 and ends on December 31, 2019.2025. The EPS performance target is established during the annual business planning process and incorporates a degree of stretch that is intended to push the Company andmotivate the NEOs to achieve higher performance within the Company'sCompany’s risk framework. Target PSU payout will be achieved if the Company meets its cumulative business plan goals, while achievement of maximum and threshold performance goals are each expected to be infrequent in occurrence. Participants will receive no portion of the award if the minimum performance threshold is not met. If the Company exceeds the target performance hurdles, the NEONEOs can potentially earn an award in excess of the target, up to a maximum of one and one-half times150% of the target award. The awards will receiveaward based on Company performance. For the PSUs, dividend equivalents will accumulate in cash which will accumulate and pay out if and when the PSUs are earned and the underlying shares are released to the NEOs.
20152021 to 2023 PSU Payoutspayouts
The performance period for our PSUs granted in January 2015 was completedFebruary 2021 ended on December 31, 2017.2023. The Compensation Committee approved performance targets at the start of the 2021 PSU performance period. Following the completion of the performance period in 2023, the Compensation Committee approved a payout factor of 150% of target. The cumulative diluted EPS over the three-year period was $16.32$44.44 versus a target of $15.78. An$31.34, which resulted in a payout factor of 150% of the target amount. A cumulative diluted EPS of $7.89$15.67 and $18.15 were$34.47 was required to receive a minimum and maximum payout, respectively. The actual EPS measured for the performance period would have resulted in a payout factor of 111% of the target amount.
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Discover | 2024 Proxy Statement | 83 |
In assessing the appropriate payout for thesethe 2021 PSUs, the Compensation Committee considered the EPS over the performance period attributable to our NEOs’ effective NEO execution of key business decisions and strategies, including strong focus on growth and credit risk management. The Committee also considered the adverse one-time impact of the Tax Cuts and Jobs Act on EPS in the fourth quarter of 2017. Consistent with the Company's pay for performanceCompany’s pay-for-performance philosophy the Committee exercised discretion by adjusting our reported EPS for the three-year period ending December 31, 2017 by $0.52 to control for the Company's actions takenand in connectionaccordance with the unplanned tax event, and in considerationprovisions of the operating performance2014 Omnibus Incentive Plan, the Compensation Committee may adjust target amounts to reflect the impact of factors that management cannot directly control and to minimize payout factors from being artificially inflated or impaired by factors unrelated to the ongoing operations of the Company which the PSU eligible employees were most able to directly impact and influence. As a result, the tax-adjusted diluted EPS used for purposes of PSU vesting was $16.84(1), resulting in a payout factor of 122% of the target amount.business. The final payout of these PSUs was determined after confirmation of compliance with the Company’s risk policies, and employees received earnedNEOs were paid shares of Common Stock (which remain subject to clawback provisions,in certain situations and for NEOs, subject to the NEOs’ share ownership guidelines and share retention requirements)guidelines) when theythe PSUs vested in February 2018.2024.
____________________Restricted stock units
(1) Tax-adjusted diluted EPS (excluding one-time items) is a non-GAAP financial measure which should be viewed inIn addition to and not as a substitute for, the Company's reported results. Management believes that this information provides investors with useful metrics to evaluate the ongoing operating performance of the Company. See Annex A for a reconciliation.
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Restricted Stock Units
A portion of the LTI grant for 2017 consisted of RSUs. Thesetime-based vesting, RSUs are subject to market risk tied tofluctuations of the Company stock price and are intended to align the interests of senior executivesour NEOs with the long-term interests of the Company and its shareholders as well as motivateand incentivize NEOs to make future contributions and decisions aimed at increasing shareholder value. RSUs generally vest and convert to shares ratably over a three-year period, subject to compliance with the Company'sCompany’s risk policies and assuming the executive remainsremaining employed by the Company through the vesting date (with exceptions for certain termination events, e.g. retirement, disability or death)events). The awards will receiveFor the RSUs, dividend equivalents will accumulate in cash which areand be paid to the NEOs in the same amount and at the same time as dividends are paid to all Company commonCommon Stock shareholders.
Summary Additional RSU grants may be made for purposes of Chief Executive Officerrecruiting, promoting, or retaining executives as may be approved by the Compensation
Consistent with our philosophy, Committee. Ms. Mehlman, as part of her employment offer, received a large portionRSU award of NEO compensation is at-risk performance-based compensation. The chart below approximates$900,000 to make her whole for equity forfeited by her previous employer when joining the 2017 elementsCompany. Her RSU award vests ratably over three years. Mr. Toney also received a one-time RSU award of compensation that composed target total direct compensation for Mr. Nelms. Approximately 89%$500,000 as part of his target total direct compensation is variablejob expansion related to the Consumer Banking re-organization to focus his efforts in leveraging and tied to Company financial and/or stock price performance.advancing our data and analytics across the enterprise. Mr. Toney’s RSU award will vest ratably over three years. See "2017 Decision-Making Process" abovethe table, “Outstanding equity awards at 2023 year-end” for more details on how the factors considered by thedetails.
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| 84 | Discover | 2024Proxy Statement |
Individual performance
The Compensation Committee impacted compensation decisions and see "2017 Summary Compensation Table" for the Committee's actualconsiders individual performance in making final compensation decisions for each NEO, as it relates to an individual’s specific goals as well as each individual’s relative role impact and contributions to the success of the Company overall. As noted above, as part of its compensation determinations, the Compensation Committee also assesses each NEO’s contributions to the success of the business in strengthening its risk management, internal controls, and compliance practices, in recognition of their importance to the Company. The Compensation Committee believes this holistic approach optimizes the link between executive rewards and the benefits to shareholders and recognizes the importance of a compliance-focused culture. 2023 STI payouts are displayed in the “2023 Summary compensation table.”
The highlights below reflect each member of management’s contribution to managing our business while also pursuing our established business strategy. The tables below exclude Messrs. Hochschild, Minetti, and Arooni. Mr. Nelms.Hochschild’s 2023 STI award was forfeited in connection with his resignation. As part of Mr. Minetti’s position elimination due to our Consumer Banking re-organization, he received a prorated payout of his STI target of 150% based on days worked through his termination date of September 30, 2023. In connection with Mr. Arooni’s voluntary termination, he was not eligible for a 2023 STI award.
2017 CEO Target MixThe key achievements, combined with PBTR and EPS results and risk and compliance performance, including progress against the Executive Committee Risk Scorecard (which applied uniformly to all NEOs regardless of Compensationan individual NEO’s performance), and the results of risk management matters, if any, were all considered to determine compensation decisions.
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|
| |
| Key achievements | 2023 COMPENSATION |
•Accepted the appointment as Interim CEO and President and dutifully performed the required responsibilities while leading the Company through a time of significant change and transformation. •Continued the effort to build a stronger risk and compliance framework and culture. •Through his interim CEO experience, held a pivotal role in identifying the Company’s ideal permanent CEO successor, and then led the development and execution of the CEO transition plan. •Maintained high employee engagement to continue the Company’s focus on providing great customer experiences at every customer touchpoint. | |
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| Key achievements | 2023 COMPENSATION |
•Led efforts to strengthen risk management with a focus on the financial control environment, identifying areas of opportunity to further influence the risk profile of the Company. •Led strategic review that resulted in the Board authorizing management to explore the sale of the Discover Student Loan portfolio and exit non-core operations to mitigate compliance risk, simplify operations, and improve EPS. •Executed against digital strategy, delivering enhanced Card loss forecasting model, Source to Pay System transformation, and automation of key models. •Developed governance of Deposits marketing investments, which has led to additional insights and better controls. •Delivered $95 million in supplier savings and increased spending with diverse suppliers by over 20% from 2022. •Reduced real estate costs by $25 million, square footage by 476k, and work-seats by 5,122 since the start of the pandemic. | |
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| 86 | Discover | 2024Proxy Statement |
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|
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| Key achievements | 2023 COMPENSATION |
•Demonstrated thought leadership to strengthen risk management, with a focus on controls within the Legal function to better identify and serve risk and compliance needs. •Continued to expand leadership responsibilities beyond Chief Legal Officer, General Counsel, and Corporate Secretary duties, which included assuming responsibility for the Corporate Communications department, in addition to the Company’s ESG Program. •Spearheaded structural changes to the DFS and Bank Boards, consolidating oversight, and enhancing visibility into Company-wide operations and risks. •Established an Office of the Corporate Secretary to support the DFS and Bank Board, staffing it with experienced individuals in corporate governance for public companies and regulated entities. •Created a Corporate Governance Shareholder Engagement Program, demonstrating Discover’s commitment to building and strengthening relationships with our institutional investors. •Revamped Discover’s Proxy Statement for enhanced transparency and clarity by adding new content, increasing use of graphics, tables, and images, and reorganizing the document for improved readability and flow. •Consistent and diligent management of legal matters, which resulted in positive resolutions for the Company, with approximately 50% of matters resolved within 120 days of receipt. | |
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| Key achievements | 2023 COMPENSATION |
•Attracted new customers to Discover with the relaunch of Cashback Debit, the only major debit card with rewards on debit purchases with no fees. •Achieved higher than plan loan growth for Card, reaching $102 billion. •Home Loan celebrated its 10-year anniversary, surpassing $5 billion in loans and exceeding PBTR plan for 2023. •Launched new “Especially for Everyone” mass market campaign, with ads in market performing at or above key performance metric norms. •Expanded rewards capabilities to deliver best-fit offers with enhanced personalization, relevancy, and alternative offers, driving $600 million in incremental sales. | |
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| Key achievements | 2023 COMPENSATION |
•Demonstrated engagement with Risk and Compliance partners while continuously working to improve issue management progress. •In 2023, we ranked #1 in Customer Satisfaction for Direct Bank Savings Accounts in the J.D. Power 2023 U.S. Direct Banking Satisfaction Study. •Since inception in 2022, the Advanced Analytics Resource Center’s (AARC) two-year development program has delivered 200+ analytics projects across the Company. Fifty percent of employees in the first cohort have been placed in full-time analytics roles one year into the program. | |
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| 88 | Discover | 2024Proxy Statement |
Other Arrangements, Policiesarrangements, policies and Practices Relatedpractices related to Our Executive Compensation Programour executive compensation program
Share ownership guidelines The Company maintains Share Ownership Guidelines
The Employee Compensation Policy provides for share ownership guidelines for NEOs and other executives, and the Nominating and Governance Committee maintains guidelines for directors.senior executives. The guidelines recommend that the following multiples set forth below of annual base salary or, in the case of our directors, annual cash retainer, be held in shares of Company Common Stock at the close of each year:year. The guidelines are reviewed annually by the Compensation Committee.
|
| |
Participants | Share Ownership Guidelines
(as Multiple of Cash Base Salary or
Annual Cash Retainer)
|
Director | 5X |
Chief Executive Officer | 7X |
President and Chief Operating Officer | 5X |
All other NEOs | 3X |
| |
Shares to be counted toward ownership targets includes actual Common Stock held, including stock held in "street" accounts, and unvested RSUs. The guidelines provide that recommended ownership levels must be attained within five years of appointment (or the inception or modification date of the guidelines, if later). To monitor progress toward meeting the
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guidelines, the Compensation Committee reviewsreviewed current executive ownership levels at each Decemberits October meeting, ahead of year-end executive compensation decisions. The Nominating and Governance Committee reviews director ownership levels. If ana NEO or other senior executive is not on schedule to meet the guidelines, the Compensation Committee may award the executive compensation in the form of stockCommon Stock that would have otherwise been awarded as cash bonus year-end compensation.
As of December 2017,31, 2023, using the ten-day10-day average closing stock price ending prior to December 31, 2017,2023, the following multiples of base salary were held in shares of Company Common Stock by each of our NEOs:
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| | | |
Executive OfficerNamed executive officer(1) | Required Multiplemultiple
| | Actual Multiplemultiple
| Shares counted toward ownership targets include actual Common Stock held, including stock held in “street” accounts, and unvested RSUs. Unearned PSUs do not count towards ownership targets. |
David W. NelmsJohn T. Greene | 7X 3X | | 100X8X |
R. Mark GrafHope D. Mehlman | 3X | | 9X3X |
Roger C. HochschildDaniel P. Capozzi | 5X 3X | | 80X7X |
DianeKeith E. OffereinsToney | 3X | | 17X |
Carlos Minetti | 3X | | 19X |
| | | 6X |
Share Retention Requirements
The Company's Employee Compensation Policy(1)Excludes Messrs. Hochschild, Minetti, and equity awards provide that for grants madeArooni, all of whom terminated employment on or prior to 2016, NEOs must hold 50 percentDecember 31, 2023, but met their respective share ownership guidelines at the time of net shares received upon settlementtheir termination. In his role as Interim CEO and President, Mr. Owen was not subject to the Share Ownership Guidelines for NEOs. As a member of the Board, he is subject to the director stock awards for one yearownership guidelines, of which he was in compliance at the end of 2023.
Clawbacks
In 2023, the Compensation Committee adopted the Discover Compensation Recoupment Policy (the “Recoupment Policy”), effective as of October 2, 2023. In accordance with the SEC’s clawback rules under the Dodd-Frank Act and for grants made in 2016the NYSE listing standards, the Recoupment Policy requires the Company to recoup or “clawback” incentive compensation (including certain STI and later,LTI compensation) from senior executives, including our NEOs, in the NEOs, must hold 100 percentevent the Company is required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the federal securities laws. If the Compensation Committee determines that the incentive compensation received by a senior executive exceeds the amount of net sharesincentive compensation that otherwise would have been received had it been calculated based on the restated amounts, the excess incentive compensation will be recouped or clawed back. A copy of the Compensation Recoupment Policy is included as Exhibit 97 to our Annual Report on Form 10-K for onethe fiscal year after the vesting date. The Committee continues to believe share retention requirements further promote shareholder alignment.ended December 31, 2023.
Clawbacks
Our Employee Compensation Policy andAdditionally, our equity awards include clawback provisions that allow for the recovery of shares issued pursuant to a stock grantLTI awards under certain circumstances. The Company is authorized to reclaim any shares received upon conversion of RSUs and PSUs for a three-year period preceding the date on which the Company restates its financial statements due to material noncompliance with any financial reporting requirements.requirement under securities laws or Company policy. In addition, the Company may recover equity compensation paid to our NEOs within two yearsone year prior to termination with the Company if the NEO violates non-competition andor non-solicitation covenants.covenants or breaches obligations to the Company under any confidentiality, intellectual property, or other restrictive covenant.
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Prohibition on Hedginghedging and Pledging
Under Company policy, directors and executivesmembers of the Executive Management Committee who are subject to the requirements of Section 16 of the Exchange Act (which include all our executive officers) are prohibited from hedging Company securities, holding Company securities in a margin account, or otherwise pledging Company securities, including as collateral for a loan.
Retirement and Other Benefitsother benefits
All employees are offered a benefits package that is intended to be competitive with those offered by companies with which we compete for talent, and our NEOs participate in our benefit plans and programs generally on the same basis as our employees. Relocation benefits are also made available to our NEOs and certain senior executives. The Company offers benefits such as medical, disability, and life coverage to promote employee health and protect against catastrophic expenses. The Discover 401(k) Plan provides employees with the opportunity to save for retirement. We also maintain the Discover Pension Plan, which was frozen as of December 31, 2008. All employees are offered a benefits package that is deemed to be competitive with those offered by companies with which we compete for talent, and our NEOs participate in our benefit plans on the same basis as our employees generally. The Company does not currently offer any supplemental executive retirement benefits or other special deferred compensation programs tofor our NEOs.
Our equity award agreements allow for prorated vesting of awards if an NEO terminates employment due to retirement, which is defined as either reaching age 65 or having a combined age and number of years of service equal to or greater than 65. Mr. Hochschild met the definition of retirement at the time of his resignation, and therefore, his 2021 PSU awards vested on February 1, 2024, and his 2022 PSU awards will vest on February 1, 2025, based on the achievement of the established performance metrics. His RSU awards granted in 2021 and 2022, as well as his Founders’ Grant, comprised of deferred RSUs, vested and will convert to Company common stock on June 30, 2024. Mr. Hochschild’s equity awards granted in 2023 were forfeited in connection with his resignation.
Additional information regarding Company contributions to the Discover 401(k) Plan is provided in the footnotes to the "2017“2023 Summary Compensation Table."compensation table.” Additional information regarding the Discover Pension Plan is provided after the "2017“2023 Pension Benefits Table."benefits” table.
We provide relocation assistance to newly hired and current senior executives who relocate to accept a position or new role with the Company. Such relocation assistance is generally pursuant to our relocation program, which is designed to cover the costs directly resulting from a Company-requested relocation and includes tax gross-up payments for taxable relocation benefits under the program. In connection with Ms. Mehlman’s 2023 relocation to Riverwoods, Illinois, she was provided relocation assistance starting in 2023 when she joined the Company in accordance with the program.
In early 2023, Mr. Arooni notified the Company of his intention to resign. In order to allow for a smooth transition to a new CIO, the Company entered into an arrangement to retain Mr. Arooni through September 30, 2023. The Compensation Committee approved a transition bonus in an amount not to exceed $3 million, with the actual payout to be based on the successful transition to the new CIO. In reviewing and approving the transition bonus, the Compensation Committee considered, among other items, the awards Mr. Arooni would forfeit upon termination, including a pro-rata portion of Mr. Arooni’s target cash bonus and 2023 LTI award. The final payout of his transition bonus was $2,173,356. See the “2023 Summary compensation table” for the additional details.
The Compensation Committee approved the ongoing use of chartered aircraft for Mr. Hochschild, and subsequently Mr. Owen, and their respective families for all travel, including personal travel, while serving as CEO. The Compensation Committee believes this benefit serves the interests of the Company and its shareholders by providing for Mr. Hochschild’s, and subsequently Mr. Owen’s, personal security and allowing for efficiency in their air travel. The benefit is taxable to both Mr. Hochschild and Mr. Owen and is reflected as a perquisite provided by the Company in the “2023 Summary compensation table” for the applicable year. For disclosure purposes under this proxy statement in accordance with the SEC rules, the foregoing benefits related to family and personal travel are valued on the basis of incremental cost to the Company. The Company does not reimburse or provide a “gross up” to Mr. Hochschild or Mr. Owen for the taxes incurred due to the personal use of the chartered aircraft.
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| 90 | Discover | 2024Proxy Statement |
Executive Changechange in Control Severance Policycontrol severance policy and Severance Pay Planseverance plan
The Company provides severance protection to our NEOs and other executives under a Change in Control Severance Policy so as to allow executives to focus on acting in the best interests of shareholders regardless of the impact on their own employment. Change in control severance protections are commonly provided at other companies with which
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we compete for talent. Benefits under our policy are paid only in the event of a double“double trigger,” meaning there must be both a change in control and a qualifying termination of employment. A qualifying termination includes an executive’s involuntary termination (byby the Company without just cause“cause” or by the executive for good reason“good reason” (as defined in the Change in Control Severance Policy) or death or disability) within two years following ordisability with six months prior to or 24 months after a change in control. No excise tax gross-ups are provided forto any employees.employees under the policy.
The Company also sponsors a broad-based Severance Pay Planseverance plan that provides severance benefits to eligible employees, including NEOs, who are involuntarily terminated (without cause in connection withcertain situations such as the closure of an office or facility, the elimination of a position, or a workforce reduction, closure or other similar event)event described in the Severance Plan, to provide financial security in the event of an unanticipated job loss. The Severance Pay Plan will does not pay benefits to an employee receivingwho receives benefits under the Change in Control Severance Policy.
The Potential payments to each of our NEOs in the event of a qualifying termination under the Change in Control Severance Policy the Severance Pay Plan and the estimated payments for each of our NEOsSeverance Plan are detailed in the "2017“2023 Potential Paymentspayments upon a Terminationtermination or Changechange in Control Table."control table.”
Accounting and Tax Information
Historically, Internal Revenue Code ("IRC") Section 162(m) generally disallowed a tax deduction to public companies for compensation in excess of $1 million per year paid to the CEO or other employee who is an NEO for the tax year by reason of being among the three highest compensated executive officers for the tax year (other than the CEO or the Chief Financial Officer). In addition, historically, certain compensation, including "performance-based compensation," could qualify for an exemption from the deduction limit if it satisfied various technical requirements under IRC Section 162(m). With respect to our annual incentive awards, in February 2017, the Committee approved an incentive pool that was designed to qualify certain incentive compensation awarded to our executive officers as "performance-based." The 2017 incentive pool was 5% of our net income, with our NEOs allocated no more than a specified percentageReport of the pool, as follows: Mr. Nelms - 32%; Mr. Hochschild - 16%; Mr. Graf - 9%; Ms. Offereins - 9%;compensation and Mr. Minetti - 9%.
Effective for tax years beginning after December 31, 2017, U.S. tax law changes will expand the definition of covered employees under Section 162(m) to, include among others, the Chief Financial Officer, and eliminate the performance-based compensation exception beginning in 2018, except with respect to grandfathered arrangements.
The Committee views the tax deductibility of executive compensation as one factor to be considered in the context of our overall compensation philosophy, and evaluates the impact of tax law and other changes as they arise. The Committee reviews each material element of compensation on a continuing basis to determine whether deductibility can be accomplished without sacrificing flexibility and other important elements of the overall executive compensation program.
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COMPENSATION COMMITTEE REPORTleadership development committee
The Compensation and Leadership Development Committee (the "Compensation Committee")on behalf of the Board of Directors establishes the compensation program for the Chief Executive OfficerCEO and for the other named executive officers of Discover Financial Services (the "Company").NEOs. The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis of the Company with management, and based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 2024 Proxy Statement, its Annual Report on Form 10-K and such other filings with the Securities and Exchange Commission as may be appropriate.Statement.
Submitted by the Compensation and Leadership Development Committee of the Board of Directors:
Gregory C. Case (Chair)
Jeffrey S. Aronin
Richard H. Lenny
Mark A. Thierer
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| Gregory C. Case (Chair) | Jeffrey S. Aronin | Mark A. Thierer |
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Discover | 2024 Proxy Statement | 91 |
2017 EXECUTIVE COMPENSATION2023 Executive compensation tables
The narrative, tables and footnotes below describe the total
2023 Summary compensation paid for 2017 to the Chief Executive Officer, Chief Financial Officer and the next three most highly compensated individuals (collectively, the "NEOs") who were serving as executive officers of the Company on December 31, 2017.
2017 Summary Compensation Tabletable
The following table contains information regarding the components of total compensation of the NEOs for the Company’s year ended December 31, 2023, and to the extent required by SEC executive compensation disclosure rules, the years ended December 31, 2017, 2016,2022 and 2015.2021. The information included in this table reflects compensation earned by the NEOs for services rendered to the Company during the respective period.
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| Executive | Year | Salary(1) ($) | Bonus(2) ($) | Stock awards(3) ($) | Non-equity incentive plan compensation(4) ($) | Change in pension value and NQDC earnings(5) ($) | All other compensation(6) ($) | Total ($) |
John B. Owen(7) | 2023 | 343,462 | | 500,000 | | 670,011 | | | — | | 675,178 | | 2,188,651 | |
| Interim CEO and | | | | | | | | — | |
| President | | | | | | | | — | |
| John T. Greene | 2023 | 730,962 | | | 2,756,430 | | 550,103 | | — | | 47,833 | | 4,085,328 | |
| EVP, Chief Financial | 2022 | 700,000 | | — | | 2,275,211 | | 1,507,275 | | — | | 45,790 | | 4,528,276 | |
| Officer | 2021 | 700,000 | | — | | 2,275,118 | | 1,522,500 | | — | | 42,690 | | 4,540,308 | |
Hope D. Mehlman(7) | 2023 | 552,885 | | 3,430,000 | | 2,193,878 | | 342,972 | | — | | 81,091 | | 6,600,826 | |
| EVP, Chief Legal Officer, | | | | | | | | — | |
| General Counsel, and Corporate Secretary | | | | | | | | — | |
| Daniel P. Capozzi | 2023 | 730,962 | | | 2,756,430 | | 145,166 | | 1,101 | | 37,341 | | 3,671,000 | |
| EVP, President - | 2022 | 700,000 | | — | | 2,575,068 | | 1,575,788 | | — | | 41,169 | | 4,892,025 | |
| Consumer Banking | 2021 | 698,462 | | — | | 2,275,118 | | 1,522,500 | | — | | 42,528 | | 4,538,608 | |
Keith E. Toney(7) | 2023 | 618,269 | | | 2,450,313 | | 471,072 | | — | | 32,991 | | 3,572,645 | |
| EVP, President - Credit | | | | | | | | — | |
| & Decision Management | | | | | | | | — | |
| Roger C. Hochschild | 2023 | 1,100,000 | | | 9,425,219 | | | 15,554 | | 350,741 | | 10,891,514 | |
| Former CEO and | 2022 | 1,100,000 | | — | | 8,000,133 | | 1,196,250 | | — | | 345,692 | | 10,642,075 | |
| President | 2021 | 1,100,000 | | — | | 7,600,006 | | 3,190,000 | | — | | 197,212 | | 12,087,218 | |
Carlos M. Minetti(7) | 2023 | 595,000 | | | 2,275,106 | | | 11,376 | | 2,675,396 | | 5,556,878 | |
| Former EVP, President - | | | | | | | | — | |
| Consumer Banking | 2021 | 700,000 | | | 2,275,118 | | 1,522,500 | | — | | 42,528 | | 4,540,146 | |
Amir S. Arooni(7) | 2023 | 566,154 | | | — | | | — | | 3,020,481 | | 3,586,635 | |
| Former EVP, Chief | 2022 | 640,000 | | — | | 2,080,144 | | 1,044,000 | | — | | 518,632 | | 4,282,776 | |
| Information Officer | | | | | | | | — | |
(1)Represents the base salary paid to each NEO.
(2)Represents bonuses paid. Mr. Owen’s bonus was in recognition of his service as Interim CEO and President. Ms. Mehlman’s bonus consists of (i) $330,000 to make up for the annual bonus she forfeited when she left her former employer to join to join Discover, and (ii) $3,100,000 to make up for a change-in-control payment she would have otherwise received had she remained employed with her former employer. The change-in-control payment was made by Discover upon the completion of her former employer’s acquisition and would not have been paid if the acquisition did not occur.
(3)Represents the aggregate grant date fair value of RSU and PSU awards granted to the NEOs pursuant to FASB ASC Topic 718. The value of PSUs is based on the probable outcome of the performance conditions on the grant date. The grant date fair value of the PSUs granted in 2023, assuming the highest level of performance conditions is met, was $0 for Mr. Owen; $2,480,787 for Mr. Greene; $1,164,564 for Ms. Mehlman; $2,480,787 for Mr. Capozzi; $1,755,149 for
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| Executive | Year | | Salary(1) ($) | | Stock
Awards(2) ($) | | Non-Equity
Incentive Plan
Compensation(3)
($)
| | Change in
Pension Value
and NQDC
Earnings(4) ($) | | All Other
Compensation(5) ($) | | Total ($) |
| David W. Nelms | 2017 | | 1,100,000 |
| | 6,600,021 |
| | 2,500,000 | | 29,391 | | 18,750 | | 10,248,162 |
| Chairman and Chief | 2016 | | 1,000,000 |
| | 6,000,039 |
| | 1,741,250 | | 16,184 | | 18,550 | | 8,776,023 |
| Executive Officer | 2015 | | 1,000,000 |
| | 6,000,028 |
| | 1,487,500 | | — | | 18,400 | | 8,505,928 |
| R. Mark Graf | 2017 | | 650,000 |
| | 1,950,058 |
| | 822,250 | | — | | 18,750 | | 3,441,058 |
| EVP, Chief Financial | 2016 | | 650,000 |
| | 1,950,014 |
| | 781,150 | | — | | 18,550 | | 3,399,714 |
| Officer | 2015 | | 625,000 |
| | 5,718,748 |
| | 656,000 | | — | | 18,400 | | 7,018,148 |
| Roger C. Hochschild | 2017 | | 800,000 |
| | 3,200,017 |
| | 1,320,000 | | 32,668 | | 18,750 | | 5,371,435 |
| President and Chief | 2016 | | 800,000 |
| | 3,199,992 |
| | 1,254,000 | | 14,457 | | 18,550 | | 5,286,999 |
| Operating Officer | 2015 | | 750,000 |
| | 8,387,957 |
| | 956,250 | | — | | 18,400 | | 10,112,607 |
| Diane E. Offereins | 2017 | | 650,000 |
| | 1,950,058 |
| | 863,375 | | 28,228 | | 18,750 | | 3,510,411 |
| EVP, President - | 2016 | | 650,000 |
| | 3,500,035 |
| | 863,375 | | 17,168 | | 18,550 | | 5,049,128 |
| Payment Services | 2015 | | 650,000 |
| | 1,950,026 |
| | 787,500 | | — | | 18,400 | | 3,405,926 |
| Carlos Minetti | 2017 | | 650,000 |
| | 1,950,058 |
| | 781,150 | | 22,718 | | 18,750 | | 3,422,676 |
| EVP, President - | 2016 | | 650,000 |
| | 3,500,035 |
| | 781,150 | | 10,344 | | 18,550 | | 4,960,079 |
| Consumer Banking | 2015 | | 650,000 |
| | 1,950,026 |
| | 710,000 | | — | | 18,400 | | 3,328,426 |
| | | | | | | | | | | | | | |
Mr. Toney; $10,603,289 for Mr. Hochschild (2023 awards were forfeited due to his termination); $2,047,618 for Mr. Minetti; and $0 for Mr. Arooni (no 2023 awards were granted due to his resignation). Please see “Components of compensation” for further details on our LTI program. Additional details on accounting for stock-based compensation can be found in Note 2: “Summary of Significant Accounting Policies — Stock-based Compensation” and Note 10: “Stock-Based Compensation Plans” of our consolidated financial statements in our Annual Report on Form 10-K.
Mr. Owen’s awards include his annual equity retainer granted while serving as a non-employee member of the Board and his RSU award granted when he was appointed Interim CEO and President.
Ms. Mehlman’s awards include her sign-on RSU award to make up for the outstanding equity she forfeited when she left her former employer to join Discover.
Mr. Toney’s award includes a one-time RSU in connection with his job expansion due to the Consumer Banking re-organization where he assumed responsibility to oversee all data-driven decisions for consumer-facing products.
Mr. Minetti’s award represents the full value of his award when granted in February 2023.
Mr. Arooni did not receive an annual equity award under the terms of his exit agreement.
(4)Represents the annual cash STI earned for the year and paid to the NEOs within the first two and a half months of the following year if employed on the payment date. Mr. Owen was not eligible for the annual cash STI under the terms of his agreement as Interim CEO and President.
Mr. Arooni did not receive annual cash STI under the terms of his exit agreement.
(5)Represents the actuarial increase during the year in the pension value, primarily due to the change in the Pension Plan discount rate and mortality tables. Messrs. Owen, Greene, Toney, Arooni, and Ms. Mehlman do not participate in the Pension Plan. For details on the valuation method and assumptions used in calculating the present value of accumulated benefit, see Note 11: “Employee Benefit Plans” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. There were no above market nonqualified deferred compensation earnings for the NEOs. A description of the Company’s pension benefits is provided under “2023 Pension benefits.”
(6)Represents the incremental cost to the Company of providing certain perquisites and other personal benefits. For 2023, these amounts include:
| | | | | | | | | | | | | | | | | | | | | | | |
| Executive | 401(k) contributions(a) ($) | Charitable contributions(b) ($) | Air travel(c) ($) | Relocation(d) | Termination related payments(e) | Other(f) ($) | Total ($) |
| John B. Owen | — | | — | | 534,679 | | 37,222 | | — | | 103,277 | | 675,178 | |
| John T. Greene | 25,650 | | 14,500 | | — | | — | | — | | 7,683 | | 47,833 | |
| Hope D. Mehlman | 16,500 | | — | | — | | 61,306 | | — | | 3,285 | | 81,091 | |
| Daniel P. Capozzi | 25,650 | | 4,500 | | — | | — | | — | | 7,191 | | 37,341 | |
| Keith E. Toney | 25,650 | | — | | — | | — | | — | | 7,341 | | 32,991 | |
| Roger C. Hochschild | 25,650 | | — | | 202,828 | | — | | 116,346 | | 5,917 | | 350,741 | |
| Carlos M. Minetti | 25,650 | | 14,500 | | — | | — | | 2,631,424 | | 3,822 | | 2,675,396 | |
| Amir S. Arooni | 25,650 | | — | | — | | — | | 2,247,202 | | 747,629 | | 3,020,481 | |
(a)Represents the Company’s contributions to the Discover 401(k) Plan for each NEO during each calendar year. All NEOs, other than Mr. Owen, received Company contributions to the Discover 401(k) Plan consistent with the terms of the Plan applicable to all eligible U.S. employees.
(b)Represents contributions made by the Company to charitable organizations chosen by each NEO, as well as contributions made on behalf of certain NEOs under our charitable contribution matching programs, under which personal contributions meeting the guidelines of our program are eligible for Company matching contributions (exceeding the amount generally available to the broader employee population).
(c)For Mr. Owen and Mr. Hochschild, the Compensation Committee approved the use of chartered aircraft for their own travel, including their family, which can also be used for personal travel. The amounts disclosed include the incremental costs to the Company and represents the amount accrued for payment or paid directly to the third-party vendor from which the Company leases corporate aircraft for such travel in 2023. The Company does not reimburse or “gross up” Mr. Owen or Mr. Hochschild for the taxes associated with the personal use of the chartered aircraft.
(d)Represents amounts paid to or on behalf of NEOs.
Mr. Owen’s expenses are related to his temporary housing near Discover’s corporate headquarters in Riverwoods, IL, while serving as Interim CEO and President, inclusive of: (i) temporary accommodations, $26,651, (ii) administrative fees, $796, and (iii) tax gross-ups, $9,775.
| | | | | |
Discover | 2024 Proxy Statement | 93 |
| | | | | |
| EXECUTIVE COMPENSATION |
| (1)
| Represents the base salary earned during the year.
Ms. Mehlman’s expenses are related to her relocation to Discover’s corporate headquarters in Riverwoods, IL, inclusive of: (i) relocation related expenses, $46,920, (ii) administrative fees, $442, and (iii) tax gross-ups, $13,944, . These reimbursement expenses were valued on the basis of the aggregate incremental cost to the Company and represent the amount accrued for payment or paid directly to Ms. Mehlman or the third-party vendor, as applicable.
(e)Represents Mr. Hochschild’s payment for accrued and unused paid time off days as of his last day.
Represents Mr. Minetti’s severance payment related to his position elimination due to the Consumer Banking re-organization inclusive of (i) payment equal to his annual base salary and annual target bonus, $1,750,000, (ii) his 2023 annual bonus paid at target and prorated for the number of days he worked in 2023 through his last day of September 30, 2023, $785,342, (iii) cost of COBRA coverage for twelve months, $39,544, and (iv) payment for accrued and unused paid time off days as of his last day, $56,538.
Represents Mr. Arooni’s agreed upon exit payment to stay with Discover until his replacement was hired, inclusive of (i) his exit payment, $2,173,356, and (ii) payment of accrued and unused paid time off days as of his last day, $73,846.
(f)Includes the incremental cost to Discover for personal security assessment and additional personal security services to each NEO, access to/use of the Company’s Executive Fitness Center, estimated resale value of Company tickets for sporting, cultural, or other events for personal use when they are not otherwise used for business purposes, and stipends for home internet and personal phone expenses that employees may incur while working remotely.
Mr. Owen’s amount includes the retainers he received while serving as a non-employee member of Discover’s Board, $102,917.
Mr. Arooni’s amount includes expenses paid by the Company related to his time working from his home in the Netherlands inclusive of (i) tax equalization, $719,396, (ii) tax preparation fees, $22,031, and (iii) imputed income, $2,154.
(7)Mr. Owen was not an NEO during 2021 or 2022; Ms. Mehlman joined the Company in 2023 and, therefore, was not an NEO during 2021 or 2022; Mr. Toney was not an NEO during 2021 or 2022; Mr. Minetti was not an NEO during 2022; and Mr. Arooni was not an NEO during 2021.
| | | | | |
(2)94 | Represents the aggregate grant date fair value of RSU and PSU awards made to the NEOs pursuant to FASB ASC Topic 718. The value of PSUs is based on the probable outcome of the performance conditions on the grant date. The grant date value of the PSUs granted for 2017, assuming the highest level of performance conditions is met was $7,425,024 for Mr. Nelms, $1,755,052 for Mr. Graf, $3,360,007 for Mr. Hochschild, $1,755,052 for Ms. Offereins and $1,755,052 for Mr. Minetti. Please see "Components of Compensation" for further details on our LTI program. Additional details on accounting for stock-based compensation can be found in Note 2: "Summary of Significant Accounting Policies — Stock-based Compensation" and Note 10: "Stock-Based Compensation Plans" of our consolidated financial statements in our Annual Report on Form 10-K.Discover | 2024Proxy Statement
|
| | | | | |
(3)EXECUTIVE COMPENSATION | | Represents the annual cash short-term incentive earned for the year and paid to NEOs within the first three and a half months of the following year if employed on payment date.
| |
| (4)Represents the actuarial increase during the year in the pension value, primarily due to the change in the Pension Plan discount rate and mortality tables. For details on the valuation method and assumptions used in calculating the present value of accumulated benefit, please see Note 11: "Employee Benefit Plans" of our consolidated financial statements in our Annual Report on Form 10-K. There were no above market nonqualified deferred compensation earnings for the plans in which each NEO participated. A description of the Company's pension benefits is provided under "2017 Pension Benefits." |
| |
| (5)Represents the Company's contributions to the Discover 401(k) Plan for each NEO during each calendar year. The 401(k) Plan allows for pre-tax deferrals up to 30% of eligible earnings, including base salary, bonus and commissions, up to the IRC Section 401(a)(17) compensation limit ($270,000 in 2017) ("Eligible Earnings") and, if age 50 or older as of December 31 of the plan year, catch-up contributions, each subject to the maximum allowable amount under the IRC. The 401(k) Plan is a safe harbor plan. Company contributions are vested after two years of service and include a fixed contribution of 3% of Eligible Earnings for those employed on the last day of the calendar year or a prorated fixed contribution for a partial year after certain termination events such as death, disability or retirement, plus a match contribution that varies based upon the pretax deferrals, up to the IRC Section 402(g) pretax deferral limit ($18,000 for 2017), with a maximum match of 4% of Eligible Earnings.
|
33
Grants of Plan-Based Awardsplan-based awards for 20172023
The following table includes the 20172023 target STI opportunities, and the RSU and PSU LTI awards made to the NEOs in the year ending December 31, 2017. No options were awarded to the NEOs.2023. For more information regarding these grants, see the discussion in the Compensation Discussion“Compensation discussion and Analysis beginninganalysis” (beginning on page 17.63). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name(1) | Grant date | Estimated future payouts under non-equity incentive plan awards(2) | | Estimated future payouts under equity incentive plan awards(3) | All other stock awards: number of shares of stock or units(4) (#) | Grant date fair value of stock and option awards(5) ($) |
Threshold ($) | Target ($) | Maximum ($) | | Threshold (#) | Target (#) | Maximum (#) |
John B. Owen(6) | | — | | — | | — | | | | | | | |
| 5/11/2023 | | | | | | | | 1,774 | | 170,002 | |
| 8/14/2023 | | | | | | | | 4,871 | | 500,008 | |
| — | | | | | | — | | — | | — | | | — | |
| John T. Greene | | 485,100 | | 1,102,500 | | 1,918,350 | | | | | | | |
| 2/23/2023 | | | | | | | | 9,960 | | 1,102,572 | |
| 2/23/2023 | | | | | — | | 14,940 | | 22,410 | | | 1,653,858 | |
| Hope D. Mehlman | | 247,455 | | 562,397 | | 978,571 | | | | | | | |
| 1/9/2023 | | | | | | | | 8,664 | | 900,016 | |
| 2/23/2023 | | | | | | | | 4,675 | | 517,523 | |
| 2/23/2023 | | | | | — | | 7,013 | | 10,520 | | | 776,339 | |
| Daniel P. Capozzi | | 485,100 | | 1,102,500 | | 1,918,350 | | | | | | | |
| 2/23/2023 | | | | | | | | 9,960 | | 1,102,572 | |
| 2/23/2023 | | | | | — | | 14,940 | | 22,410 | | | 1,653,858 | |
| Keith E. Toney | | 393,544 | | 894,418 | | 1,556,287 | | | | | | | |
| 2/23/2023 | | | | | | | | 7,047 | | 780,103 | |
| 7/3/2023 | | | | | | | | 4,235 | | 500,111 | |
| 2/23/2023 | | | | | — | | 10,570 | | 15,855 | | | 1,170,099 | |
Roger C. Hochschild(7) | | 968,000 | | 2,200,000 | | 3,828,000 | | | | | | | |
| 2/23/2023 | | | | | | | | 21,286 | | 2,356,360 | |
| 2/23/2023 | | | | | — | | 63,856 | | 95,784 | | | 7,068,859 | |
Carlos M. Minetti(8) | | 462,000 | | 1,050,000 | | 1,827,000 | | | | | | | |
| 2/23/2023 | | | | | | | | 8,221 | | 910,065 | |
| 2/23/2023 | | | | | — | | 12,331 | | 18,497 | | | 1,365,042 | |
(1)Excludes Amir Arooni who forfeited eligibility for 2023 STI and LTI awards under the terms of his exit agreement.
(2)Represents potential payout under the annual STI program. Awards can range from 55% to 145% of target, primarily based on annual Company PBTR performance with results subject to a 1.5x bonus multiplier for NEOs, and the ability to recognize individual performance through the use of an individual performance modifier of +/- 20%, which when applied can result in a STI award range from 44% of target to a maximum payout of 174%. The numbers presented are guides, and the Committee has discretion to reduce awards to 0 or increase awards but not above maximum payout. The Compensation Committee also considers other Company-wide metrics as described in more detail under “Components of compensation — Short-term incentive compensation.” Actual payout amounts for 2023 are included in the “Non-equity incentive plan compensation” column of the “2023 Summary compensation table.”
Ms. Mehlman’s STI target dollar value was prorated for the number of days worked in 2023, beginning with her January 9, 2023, start date.
Mr. Toney’s STI target dollar value was prorated for the number of days worked through June 30, 2023, applying a 125% STI target, and the number of days worked from July 1, 2023 (his job expansion date) through December 31, 2023, applying a 150% STI target.
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Discover | 2024 Proxy Statement | 95 |
|
| | | | | | | | | | | | | | | | | | | |
| | | | Estimated future 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) (#) | | Grant Date Fair Value of Stock and Option Awards(4) ($) |
| Name | Grant Date | | Target ($) | | Threshold (#) | | Target (#) | | Maximum (#) | |
| David W. Nelms |
| | 2,200,000 |
| |
|
| |
|
| |
|
| |
|
| |
|
|
| | 2/22/2017 | |
|
| |
|
| |
|
| |
|
| | 23,184 |
| | 1,650,005 |
|
| | 2/22/2017 | |
|
| | — |
| | 69,552 |
| | 104,328 |
| |
|
| | 4,950,016 |
|
| R. Mark Graf |
| | 747,500 |
| |
|
| |
|
| |
|
| |
|
| |
|
|
| | 2/22/2017 | |
|
| |
|
| |
|
| |
|
| | 10,960 |
| | 780,023 |
|
| | 2/22/2017 | |
|
| | — |
| | 16,440 |
| | 24,660 |
| |
|
| | 1,170,035 |
|
| Roger C. Hochschild |
| | 1,200,000 |
| |
|
| |
|
| |
|
| |
|
| |
|
|
| | 2/22/2017 | |
|
| |
|
| |
|
| |
|
| | 13,489 |
| | 960,012 |
|
| | 2/22/2017 | |
|
| | — |
| | 31,474 |
| | 47,211 |
| |
|
| | 2,240,005 |
|
| Diane E. Offereins |
| | 747,500 |
| |
|
| |
|
| |
|
| |
|
| |
|
|
| | 2/22/2017 | |
|
| |
|
| |
|
| |
|
| | 10,960 |
| | 780,023 |
|
| | 2/22/2017 | |
|
| | — |
| | 16,440 |
| | 24,660 |
| |
|
| | 1,170,035 |
|
| Carlos Minetti |
| | 747,500 |
| |
|
| |
|
| |
|
| |
|
| |
|
|
| | 2/22/2017 | |
|
| |
|
| |
|
| |
|
| | 10,960 |
| | 780,023 |
|
| | 2/22/2017 | |
|
| | — |
| | 16,440 |
| | 24,660 |
| |
|
| | 1,170,035 |
|
| | | | | | | | | | | | | | |
| | | | | |
| EXECUTIVE COMPENSATION |
| (1)
|
(3)Represents PSUs awarded in February 2023 under the 2014 Omnibus Incentive Plan. PSUs will vest and convert to shares of Common Stock on February 1, 2026, within the represented threshold and maximum amounts, depending on the extent the Company exceeds specific cumulative EPS performance goals over the three-year performance period and provided the executive remains employed by the Company through the vesting date (with exceptions for certain termination events as detailed below), and are subject to an evaluation of compliance with the Company’s risk policies. The entire PSU award will be canceled if the minimum cumulative EPS performance threshold is not met. To the extent the NEO voluntarily terminates from the Company or is terminated for cause prior to the scheduled vesting date, other than as described below, none of the PSUs will vest and the entire award will be forfeited. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed and subject to a risk review or (ii) the executive’s eligible retirement, a pro-rata portion of the PSUs will vest and convert to shares following the conclusion of the performance and vesting periods, based on actual performance. In the event of death or disability, the award will vest and shares will convert and be paid at the end of the performance period based on actual performance achieved. In the event of a change in control of the Company during the first year of the performance period, the award will convert to cash at target performance and be paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. In the event of a change in control of the Company during the second or third year of the performance period, performance will be measured through the last day of the Company’s quarter preceding the change in control and the award will then be converted to cash and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event.
(4) In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed and subject to a risk review or (ii) the executive’s eligible retirement, a pro-rata portion of the RSUs will vest and convert to shares. Vesting of these RSUs will be accelerated in the event of termination of the executive’s employment due to (i) a change in control or (ii) the executive’s death or disability. Unvested RSUs will be canceled in the event of a termination of employment for any other reason.
(5)Represents the aggregate grant date fair value of the awards pursuant to FASB ASC Topic 718. Additional details on accounting for stock-based compensation can be found in Note 2: “Summary of Significant Accounting Policies - Stock-based Compensation” and Note 10: “Stock-Based Compensation Plans” of our consolidated financial statements contained in our Annual Report on Form 10-K.
(6)Mr. Owen is not eligible for any non-equity incentive plan awards under the terms of his employment agreement. His equity award granted on May 11, 2023, represents his annual equity retainer received while serving as a member of Discover’s Board of Directors.
(7)Mr. Hochschild’s 2023 non-equity incentive plans awards and equity incentive plans awards were forfeited as part of his resignation that was announced in August 2023.
(8)Mr. Minetti’s 2023 non-equity incentive plan awards represent his annualized amount. Under the Severance Plan he received a prorated amount of his target award based on number of days worked in 2023 through his termination date. His equity incentive plan awards represent the actual awards granted in February 2023. Under the Severance Plan he is eligible for a prorated portion based on the number of completed months of active employment in 2023.
| | | | | |
| 96 | Represents the target payout under the annual STI program. Payments can range above or below target primarily based on annual Company PBTR. The Compensation Committee also considers other secondary Company-wide metrics as described in more detail under "Components of Compensation — Short-Term Incentive Program." Because there is no threshold or maximum payout, those columns have been omitted in accordance with SEC rules. Actual payout amounts for 2017 are included in the "Non-Equity Incentive Plan Compensation" column of the "2017 Summary Compensation Table."Discover | 2024Proxy Statement |
| | | | | |
(2)EXECUTIVE COMPENSATION | | Represents PSUs awarded in February 2017, under the 2014 Omnibus Incentive Plan. PSUs that will vest and convert to shares of Common Stock on February 1, 2020, within the represented threshold and maximum amounts, depending on the extent the Company exceeds specific cumulative EPS performance goals over the three-year period and provided the executive remains employed by the Company (with exceptions for certain termination events as detailed below), and are subject to an evaluation of compliance with the Company’s risk policies. The entire PSU award will be canceled if the minimum cumulative EPS performance threshold is not met. To the extent the NEO voluntarily terminates from the Company or is terminated for cause prior to the scheduled vesting date, other than as described below, none of the PSUs will vest and the entire award will be forfeited. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed or (ii) the executive's eligible retirement, a pro-rata portion of the PSUs will vest and convert to shares following the conclusion of the performance and vesting period, based on actual performance. In the event of death or disability, the award will vest and shares are converted and paid at the end of the cycle based on actual performance achieved. In the event of a change in control of the Company during the first year of the performance period, the award will be converted to cash at target performance and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. In the event of a change in control of the Company during the second or third year of the performance period, performance will be measured through the last day of the Company’s quarter preceding the change in control and the award will then be converted to cash and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event.
| |
| (3)Represents RSUs awarded in February 2017, under the 2014 Omnibus Incentive Plan, which are expected to vest and convert in three equal installments on February 1, 2018, 2019 and 2020. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed or (ii) the executive's eligible retirement, a pro-rata portion of the RSUs will vest and convert to shares. Vesting of these RSUs will be accelerated in the event of termination of the executive’s employment due to (i) a change in control and (ii) the executive’s death or disability. Unvested RSUs will be canceled in the event of a termination of employment for any other reason. |
| |
| (4)Represents the aggregate grant date fair value of the awards pursuant to FASB ASC Topic 718. Additional details on accounting for stock-based compensation can be found in Note 2: "Summary of Significant Accounting Policies - Stock-based Compensation" and Note 10: "Stock-Based Compensation Plans" of our consolidated financial statements contained in our Annual Report on Form 10-K. |
34
Outstanding Equity Awardsequity awards at 2017 Year-End2023 year-end
The following table provides information for each NEO regarding outstanding stock awards held by each of the NEOs as of December 31, 2017. There are no outstanding stock options as2023. As of December 31, 2017.2023, none of our NEOs held outstanding stock options.
| | | | | | | | | | | | | | | | | | | | |
| Stock awards(1) |
| Number of shares or units that have not vested (#) | Market value of shares or units that have not vested ($) | Equity incentive plan awards: number of unearned shares or units that have not vested (#) | Equity incentive plan awards: market or payout value of unearned shares or units that have not vested ($) |
| John B. Owen | 4,871 | | (2) | 547,500 | | | | |
| 1,774 | | (3) | 199,398 | | | | |
| John T. Greene | 3,230 | | (4) | 363,052 | | 11,008 | | (8) | 1,237,299 | |
| 4,892 | | (5) | 549,861 | | 14,940 | | (8) | 1,679,256 | |
| 9,960 | | (6) | 1,119,504 | | | | |
| 21,801 | | (7) | 2,450,432 | | | | |
| Hope D. Mehlman | 8,664 | | (6) | 973,834 | | — | | | — | |
| 4,675 | | (6) | 525,470 | | 7,013 | | (8) | 788,261 | |
| Daniel P. Capozzi | 3,230 | | (4) | 363,052 | | 12,459 | | (8) | 1,400,392 | |
| 5,536 | | (5) | 622,246 | | 14,940 | | (8) | 1,679,256 | |
| 9,960 | | (6) | 1,119,504 | | | | |
| 21,801 | | (7) | 2,450,432 | | | | |
| Keith E. Toney | 1,419 | | (4) | 159,496 | | 7,684 | | (8) | 863,682 | |
| 3,414 | | (5) | 383,734 | | 10,570 | | (8) | 1,188,068 | |
| 7,047 | | (6) | 792,083 | | | | |
| 4,235 | | (12) | 476,014 | | | | |
| 9,584 | | (7) | 1,077,242 | | | | |
Roger C. Hochschild (9) | 6,743 | | (10), (11) | 757,913 | | 48,384 | | (8) | 5,438,362 | |
| 10,752 | | (10), (11) | 1,208,525 | | | | |
| 91,035 | | (7) | 10,232,334 | | | | |
| Carlos M. Minetti | 3,230 | | (14) | 363,052 | | 11,008 | | (8) | 1,237,299 | |
| 4,892 | | (14) | 549,861 | | 9,248 | | (8), (13) | 1,039,475 | |
| 5,935 | | (11), (13), (14) | 667,094 | | | | |
| 21,801 | | (7) | 2,450,432 | | | | |
(1)All equity award values are based on a December 30, 2023 closing stock price of $112.40 per share of our Common Stock. RSUs include the right to receive dividend equivalents in the same amount and at the same time as dividends are paid to all Company common shareholders. PSUs include the right to receive dividend equivalents, which will accumulate and pay out in cash, if and when the underlying shares are released to the NEOs.
Excludes Mr. Arooni as his unvested equity awards were canceled as of his last day worked of September 30, 2023.
(2)These RSUs vested and converted to shares of Common Stock on January 31, 2024, which was Mr. Owen’s final date of employment as Interim CEO and President.
(3)These RSUs are expected to vest and convert to shares of Common Stock on May 8, 2024.
(4)These RSUs vested and converted to shares of Common Stock on February 1, 2024.
(5)These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on February 1, 2024 and 2025.
(6)These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on February 1, 2024, 2025, and 2026.
| | | | | |
Discover | 2024 Proxy Statement | 97 |
|
| | | | | | | | | | | |
| | Stock Awards(1) |
| | Number of Shares, Units or Other Rights That Have Not Vested (#) | | Market Value of Shares, Units or Other Rights That Have Not Vested ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
David W. Nelms(2) | 200,000 |
| (3) | 15,384,000 |
| | 138,918 |
| (9) | 10,685,573 |
|
| | 8,723 |
| (4) | 670,973 |
| | 104,328 |
| (10) | 8,024,910 |
|
| | 20,580 |
| (5) | 1,583,014 |
| | | | |
| | 23,184 |
| (6) | 1,783,313 |
| | | | |
| | 95,779 |
| (7) | 7,367,321 |
| | | | |
| R. Mark Graf | 3,998 |
| (4) | 307,526 |
| | 36,119 |
| (9) | 2,778,273 |
|
| | 34,298 |
| (5) | 2,638,202 |
| | 24,660 |
| (10) | 1,896,847 |
|
| | 10,702 |
| (5) | 823,198 |
| | | | |
| | 10,960 |
| (6) | 843,043 |
| | | | |
| | 21,949 |
| (7) | 1,688,317 |
| | | | |
Roger C. Hochschild(2) | 5,233 |
| (4) | 402,522 |
| | 69,150 |
| (9) | 5,319,018 |
|
| | 13,170 |
| (5) | 1,013,036 |
| | 47,211 |
| (10) | 3,631,470 |
|
| | 13,489 |
| (6) | 1,037,574 |
| | | | |
| | 44,696 |
| (7) | 3,438,016 |
| | | | |
| | 100,000 |
| (8) | 7,692,000 |
| | | | |
| Diane E. Offereins | 4,536 |
| (4) | 348,909 |
| | 64,829 |
| (9) | 4,986,647 |
|
| | 19,208 |
| (5) | 1,477,479 |
| | 24,660 |
| (10) | 1,896,847 |
|
| | 10,960 |
| (6) | 843,043 |
| | | | |
| | 24,903 |
| (7) | 1,915,539 |
| | | | |
| Carlos Minetti | 4,536 |
| (4) | 348,909 |
| | 64,829 |
| (9) | 4,986,647 |
|
| | 19,208 |
| (5) | 1,477,479 |
| | 24,660 |
| (10) | 1,896,847 |
|
| | 10,960 |
| (6) | 843,043 |
| | | | |
| | 24,903 |
| (7) | 1,915,539 |
| | | | |
| | | | | | | | |
| | | | | |
| EXECUTIVE COMPENSATION |
| (1)All equity award values are based on a December 29, 2017 closing stock price of $76.92 per share of our Common Stock. RSUs include the right to receive dividend equivalents in the same amount and at the same time as dividends are paid to all Company common shareholders. PSUs include the right to receive dividend equivalents which will accumulate and pay out in cash if and when the underlying shares are released to the NEOs.
|
| |
| (2)Excludes 502,557 deferred RSUs for Mr. Nelms and 430,763 deferred RSUs for Mr. Hochschild, as described in "2017 Nonqualified Deferred Compensation Table." These shares will convert to shares of Common Stock when Mr. Nelms and Mr. Hochschild leave the Company.
|
| |
(3) | These RSUs are expected to vest and convert to shares of Common Stock on December 31, 2018. |
| |
(4) | These RSUs vested and converted to shares of Common Stock on February 1, 2018. |
| |
(5) | These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on February 1, 2018 and 2019. |
| |
(6) | These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on February 1, 2018, 2019 and 2020. |
| |
(7) | These PSUs vested and converted to shares of Common Stock on February 1, 2018, after a satisfactory risk policies review. |
| |
(7) | These RSUs are expected to vest and convert to shares of Common Stock on December 17, 2020. |
| |
(9) | These PSUs are expected to vest and convert to shares of Common Stock on February 1, 2019, if the performance conditions are met and the risk policies review is satisfactory. As required under applicable SEC guidance, because cumulative performance exceeded the target level, unvested PSUs are shown at the amounts corresponding to, and assuming achievement of, the maximum performance level for the full performance period. The final payout will be determined by the Committee and may be less than amount shown. |
| |
(10) | These PSUs are expected to vest and convert to shares of Common Stock on February 1, 2020, if the performance conditions are met and the risk policies review is satisfactory. As required under applicable SEC guidance, because performance during the first year of the performance period exceeded the target level, unvested PSUs are shown at the amounts corresponding to, and assuming achievement of, the maximum performance level for the full performance period. The final payout will be determined by the Committee and may be less than amount shown. |
(7)These PSUs vested and converted to shares of Common Stock on February 1, 2024, based on EPS performance and after a satisfactory risk policies review. Amounts reported reflect the actual delivery level as determined by the Compensation Committee following its review of performance and risk assessment.
35
(8)Assuming applicable performance conditions based on cumulative EPS and successful risk policy review are satisfied, PSUs will vest and convert to shares of Common Stock on February 1, 2025. As required under applicable SEC guidance, because cumulative performance did not exceed the target level, unvested PSUs are shown at the amounts corresponding to target. The final payout will be determined by the Compensation Committee and may be less than amount shown. Assuming applicable performance conditions based on cumulative EPS and successful risk policy review are satisfied, PSUs will vest and convert to shares of Common Stock on February 1, 2026. As required under applicable SEC guidance, because performance during the first year of the performance period did not exceed the target level, unvested PSUs are shown at the amounts corresponding to target. The final payout will be determined by the Compensation Committee and may be less than amount shown.
(9)Excludes 430,763 deferred RSUs for Mr. Hochschild, as described in “2023 Nonqualified deferred compensation” table. Due to his termination on December 31, 2023, these shares will convert to shares of Common Stock six months following termination on June 30, 2024, to comply with Section 409A of the Internal Revenue Code.
(10)These RSUs are expected to vest and convert to shares of Common Stock on June 30, 2024.
(11)Balance is reduced by the number of shares withheld to satisfy the tax withholding obligation incurred in connection with the satisfaction of the Company’s retirement eligibility provision whereby the NEO has attained either age 65 or a combined age and years of service equal to or greater than 65.
(12)These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on August 1, 2024, 2025, and 2026.
(13)Represents the prorated portion of Mr. Minetti’s awards granted in February 2023 that he is eligible for under the Severance Plan.
(14)These RSUs are expected to vest and convert to shares of Common Stock on March 30, 2024.
Stock Vestedvested for 20172023
The following table provides information regarding the number of stock awards that vested and the subsequent value realized from the vesting of such stock awards during the 20172023 year. There are no outstanding stock options as of December 31, 2017.
| | | | | | | | |
| Stock awards |
| Name | Number of Shares
Acquired on
Vesting
(#) | Value realized on vesting(1) ($) |
John B. Owen (2) | 1,404 | | 133,871 | |
| John T. Greene | 34,605 | | 4,008,297 | |
| Hope D. Mehlman | — | | — | |
| Daniel P. Capozzi | 30,799 | | 3,567,448 | |
| Keith E. Toney | 13,478 | | 1,561,157 | |
| Roger C. Hochschild | 115,532 | | 13,382,072 | |
Carlos M. Minetti (3) | 40,473 | | 4,585,461 | |
| Amir S. Arooni | 11,364 | | 1,316,292 | |
|
| | | | | | |
| | | Stock Awards |
| Name | | Number of Shares
Acquired on
Vesting
(#) | | Value Realized on Vesting(1)
($) |
| David W. Nelms | | 129,881 |
| | 8,931,916 |
|
| R. Mark Graf | | 56,563 |
| | 3,889,838 |
|
| Roger C. Hochschild | | 69,628 |
| | 4,788,318 |
|
| Diane E. Offereins | | 48,252 |
| | 3,318,290 |
|
| Carlos Minetti | | 48,252 |
| | 3,318,290 |
|
| | | | | |
(1)The amount shown represents the closing price of a share of our Common Stock on the scheduled vesting date multiplied by the number of RSUs and PSUs that vested.
(2)Balance includes shares that were issued to Mr. Owen while on the Board. 2017(3)Balance includes shares withheld to satisfy the tax withholding obligation incurred in connection with the satisfaction of the Company’s retirement eligibility provision whereby the NEO has attained either age 65 or a combined age and years of service equal to or greater than 65.
| | | | | |
| 98 | Discover | 2024Proxy Statement |
2023 Pension Benefitsbenefits
The following table lists the amounts we estimate as the present value of accumulated benefits that the Discover Pension Plan will pay to each of the participating NEOs upon the normal retirement age of 65.
| | | | | | | | | | | |
| Name | Plan name | Number of years of credited service(1) (#) | Present value of accumulated benefit(2)(3) ($) |
John B. Owen(4) | Discover Financial Services Pension Plan | n/a | n/a |
John T. Greene(4) | Discover Financial Services Pension Plan | n/a | n/a |
Hope D. Mehlman(4) | Discover Financial Services Pension Plan | n/a | n/a |
| Daniel P. Capozzi | Discover Financial Services Pension Plan | 0.5833 | | 11,715 | |
Keith E. Toney(4) | Discover Financial Services Pension Plan | n/a | n/a |
| Roger C. Hochschild | Discover Financial Services Pension Plan | 9.1667 | | 209,467 | |
| Carlos M. Minetti | Discover Financial Services Pension Plan | 7.0000 | | 162,218 | |
Amir S. Arooni(4) | Discover Financial Services Pension Plan | n/a | n/a |
|
| | | | | | | |
| Name | Plan Name | | Number of Years of Credited Service(1) (#) | | Present Value of Accumulated Benefit(2)(3) ($) |
| David W. Nelms | Discover Financial Services Pension Plan | | 9.3333 |
| | 225,124 |
|
R. Mark Graf(4) | Discover Financial Services Pension Plan | | n/a |
| | n/a |
|
| Roger C. Hochschild | Discover Financial Services Pension Plan | | 9.1667 |
| | 210,977 |
|
| Diane E. Offereins | Discover Financial Services Pension Plan | | 9.0833 |
| | 254,125 |
|
| Carlos Minetti | Discover Financial Services Pension Plan | | 7.0000 |
| | 158,592 |
|
| | | | | | |
| |
(1) | For actuarial valuation purposes, credited service is attributed through the measurement date of December 31, 2008, the date that the Discover Pension Plan was frozen. |
| |
(2) | Service credit and actuarial values are calculated as of December 31, 2017, the plan’s measurement date for the last year. |
| |
(3) | For details on the valuation method and assumptions used in calculating the present value of accumulated benefit, please see Note 11: "Employee Benefit Plans" of our consolidated financial statements in our Annual Report on Form 10-K. |
| |
(4) | Mr. Graf does not participate in the Discover Pension Plan as he was hired after it was frozen. |
(2)Service credit and actuarial values are calculated as of December 31, 2023, the plan’s measurement date for the last year.
(3)For details on the assumptions used in calculating the present value of the accumulated benefits and additional information about the Discover Pension Plan, see Note 11: “Employee Benefit Plans” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
(4)Messrs. Owen, Greene, Toney, and Arooni and Ms. Mehlman and do not participate in the Discover Pension Plan as they were hired after it was frozen.
Effective December 31, 2008, the Discover Pension Plan, a defined benefit pension plan, was frozen for all participants, although additional service will count towards vesting and retirement eligibility for any participant, including NEOs, in the Discover Pension Plan as of December 31, 2008.
Accrued, frozen benefits under the Discover Pension Plan are determined with reference to career-average pay limited to $170,000 per year, and for each calendar year of service prior to 2009 generally equal to: (i) 1% of the participant’s eligible annual pay; plus (ii) 0.5% of the participant’s eligible annual pay whichthat exceeded the participant'sparticipant’s Social Security covered compensation limit for that year. The estimated annual benefits payable under the Discover Pension Plan at the earliest age at which a participant may retire with an unreduced benefit (age 65) are set forth above. Early retirement terms under the Pension Plan vary depending upon service dates. Certain participants are eligible for early retirement upon reaching age 55 with 10 years of service. Other participants must reach age 55 with 20 years of service. Messrs. NelmsMr. Hochschild and Mr. Minetti and Ms. Offereins arewere eligible for early retirement. In the event of early retirement, the accumulated benefit presented in the table above would be reduced under factors that vary based upon a participant'sparticipant’s age at the time of early retirement commencement.
36
20172023 Nonqualified Deferred Compensationdeferred compensation
The founder's grantFounders’ Grant of RSU awardsRSUs reflected in the table below were one time awardswas a one-time award made under the 2007 Omnibus Incentive Plan in connection with the Company'sCompany’s 2007 spin-off. These RSUs vested and will convert to shares of Company common stockCommon Stock following a termination of service. In connection with his resignation from the Company, these RSUs will convert to shares of Company common stock on June 30, 2024, following the six-month hold under Section 409A of the Internal Revenue Code.
| | | | | | | | | | | | | | | | | | | | |
| Name | Plan name | Executive contributions in last FY ($) | Registrant contributions in last FY ($) | Aggregate earnings in last FY(1) ($) | Aggregate withdrawals/ distributions(2) ($) | Aggregate balance at last FYE ($) |
| Roger C. Hochschild | 2007 Omnibus Incentive Plan | — | | — | | 6,276,217 | | 1,163,060 | | 48,417,761 | |
| | | | | |
Discover | 2024 Proxy Statement | 99 |
|
| | | | | | | | | | | | | | | | |
| Name | Plan Name | | Executive Contributions in Last FY ($) | | Registrant Contributions in Last FY ($) | | Aggregate Earnings in Last FY(1) ($) | | Aggregate Withdrawals/ Distributions ($) | | Aggregate Balance at Last FYE(2) ($) |
| David W. Nelms | 2007 Omnibus Incentive Plan | | — |
| | — |
| | 2,427,350 |
| | — |
| | 38,656,684 |
|
| Roger C. Hochschild | 2007 Omnibus Incentive Plan | | — |
| | — |
| | 2,080,585 |
| | — |
| | 33,134,290 |
|
| | | | | | | | | | | | |
| | | | | |
| EXECUTIVE COMPENSATION |
| (1)Reflects change in value of deferred RSUs due to fluctuations in stock price. Excludes cash dividend equivalent payments of $653,324 and $559,992 paid on deferred RSUs for Mr. Nelms and Mr. Hochschild, respectively.
|
| |
| (2)Includes the value of RSUs that vested but were not converted into shares of Common Stock per the terms of the founder's grant of RSU awards awarded in connection with the Company's spin-off. |
(1)Reflects increase in value of deferred RSUs due to increase in stock price as compared to December 31, 2022. (2)Reflects cash dividend equivalents paid on deferred RSUs in the same manner as dividends are paid to Common Stock shareholders.
Potential Paymentspayments upon a Terminationtermination or Changechange in Control
Change in Control Severance Policycontrol severance policy
The Company sponsors a Change in ControlChange-in-Control Severance Policy (the "Policy"“Policy”), which that applies to members of our management including the NEOs.
If any NEO is involuntarily terminated, other than for cause (such as a material breach, fraud, violation of law, etc., as(as defined in the Policy), or voluntarily terminates for good reason (such as a material diminution in authority or base salary, target annual incentive and/or target long-term incentive compensation, etc., as(as defined in the Policy), or has a termination of employment due to death or disability, within six months prior to or two years following the occurrence of a change in control (as defined in the Policy), upon Discover'sthe Company’s timely receipt of a fully-executed irrevocablefully-executed release in a form satisfactory to Discover,the Company, such NEO would be entitled to receive:
a•A lump sum cash payment equal to 1.5 times the sum of his or her annual base salary plus average cash bonus paid in the prior three years or, if the NEO has been an employee for less than three years, the number of years the NEO has been employed by the Company;
a•A lump sum cash payment equal to the prorated target cash bonus under the Company'sCompany’s incentive compensation plans for the year of termination, or if no target was established for the year of termination, the annual cash bonus for the prior year;
full•Full vesting of all stock-based awards granted to the NEO under the Company'sCompany’s incentive compensation plans;plans (unless accelerated vesting in the event of a change in control is otherwise prohibited under the applicable award agreements);
outplacement•Outplacement services for a period of two years at the Company’s expense with a firm selected by the Company;
certain•Certain legal fees if the NEO commences litigation after exhaustingor pursues the internal administrative claims procedure and, as a result, becomes entitled to receive benefits in an amount greater than those offered by the Company prior to such litigation;litigation or claim; and
•If the NEO elects continued group health coverage under COBRA, a lump sum cash payment equal to the difference between COBRA premiums (for medical, dental and vision) and active employee premiums for 24 months.
Any NEO eligible for change in control benefits described above will be given the opportunity to enter into a non-competition agreement with the Company to refrain from competitive activity (as defined under the non-competition agreement) for 18 months, and if he or she enters into the non-competition agreement, he or she would be eligibleentitled to receive a salary continuation payment equal to 1.5 times the sum of his or her annual base salary plus average cash bonus paid in the prior three years or, if the NEO has been an employee for less than three years, the number of years the NEO has been employed by the Company.
If benefits payable under the Policy together with other Company benefits payable to the NEO would subject the NEO to an excise tax under the IRC,Internal Revenue Code, the benefits payable under the Policy will be reduced to the extent necessary to prevent any portion of the benefits from becoming nondeductible by the Company or subject to the excise tax, but only if,
37
by reason of that reduction, the net after-tax benefit received by the NEO exceeds the net after-tax benefit the NEO would receive if no reduction was made. No excise tax gross-ups are provided for any employees.
Severance Pay Plan
The Company sponsors a broad-based welfare benefits plan whichthat provides severance benefits to eligible employees, including the NEOs, who are involuntarily terminated in connection withcertain situations such as the closure of an office or facility, the elimination of a position, or a workforce reduction, closure or other similar event.event described in the Severance Plan. The Severance Pay Plan will does not pay benefits to an employee receivingwho receives benefits under the Change in Control Severance Policy.Policy.
| | | | | |
| 100 | Discover | 2024Proxy Statement |
If any NEO is terminated, other than for cause (asexperiences an eligible termination, as defined in the Severance Pay Plan),Plan, upon Discover’s timely receipt of a fully-executed irrevocable release in a form satisfactory to Discover, such NEO would be entitled to receive:
a•A lump sum cash payment of up to one times12 months of his or her annual base salary;salary plus target annual cash bonus;
a•A lump sum cash payment equal to the prorated target annual cash bonus under the Company’s incentive compensation plan for any prior year (to the extent not yet paid) and the year of termination;termination (to the extent earned and not yet paid);
outplacement•A pro-rata portion of the PSUs will vest and convert to shares following the conclusion of the performance and vesting periods based on actual performance and a pro-rata portion of the RSUs will vest and convert to shares;
•Outplacement services for a period of one year at the Company'sCompany’s expense with a firm selected by the Company; and
a•A lump sum cash payment equal to 12 months of the applicable premium for group health plan coverage in place prior to termination of employment, plus a payment for income taxes on such amount.
In connection with Mr. Hochschild’s termination of employment on December 31, 2023, he was not eligible for severance under the Severance Plan.
Mr. Minetti’s employment ended on September 30, 2023. Mr. Minetti received severance under the Severance Plan in the amount of $2,631,424, consisting of a payment for his annual base salary plus target annual cash bonus of $1,750,000, a payment equal to his prorated target annual cash bonus through September 30, 2023, of $785,342, a payment for the cost of COBRA coverage for twelve months of $39,544, and payment for his accrued and unused paid time off days as of his last day, of $56,538. His PSU awards granted in 2021 vested on February 1, 2024, and his PSU awards granted in 2022 and 2023 will vest on February 1, 2025 and February 1, 2026, respectively, based on the achievement of the established performance metrics. His RSU awards granted in 2021, 2022, and 2023 vested on September 30, 2023 and will settle on March 30, 2024, following the six-month hold under Section 409A of the Internal Revenue Code. Per the terms of the applicable award agreements, he will receive only a pro-rata portion of his PSUs and RSUs granted in 2023.
20172023 Potential Paymentspayments upon a Terminationtermination or Changechange in Control Table
The following table sets forth the payments that each of our NEOs would have received under various termination scenarios on December 31, 2017.2023. With regard to the payments upon a change in control, the amounts detailed below assume that each NEO'sNEO’s employment was terminated by the Company without "cause"“cause” or by the executive for "good reason"“good reason” within the specified time period prior to or following the change in control. The table below assumes a stock price of $76.92,$112.40, the closing price of a share of our Common Stock on December 29, 2017.2023.
The amounts described in the table do not reflect the terms of the Agreement and Plan of Merger between the Company, Capital One Financial Corporation, and Vega Merger Sub, Inc., a wholly-owned subsidiary of Capital One, which was entered into after December 31, 2023. Information regarding amounts payable in connection with the proposed merger with Capital One will be available in a separate Proxy Statement relating to the proposed transaction.
Pursuant to the terms of our stock plans and outstanding stock award agreements, the vesting of certain outstanding unvested stock awards is accelerated in whole or in part in the event of a termination of the NEO'sNEO’s employment in connection with (i) a change in control,control; (ii) the NEO'sNEO’s death, disability, retirement,or retirement; or (iii) an involuntary termination such as a reduction in force or elimination of the NEO'sNEO’s position, provided that a fully-executed irrevocable release agreement is executed. The vesting of the special retention grants madeexecuted and subject to Messrs. Nelms and Hochschild in 2013 and 2015, respectively, is accelerated in the event of a termination of employment in connection with a change in control, in the event of death or disability, or an involuntary termination without cause, provided a fully-executable irrevocable release agreement is executed, but not upon retirement.risk review.
Unvested RSUs and PSUs will be canceled in the event of a termination of employment for any other reason. NEOs who violate non-competition, non-solicitation, confidentiality, intellectual property, or other restrictive covenants within one year after a termination of employment will be required to pay to the Company the value of any RSUs and PSUs that vested on or after, or within one year or, for grants made in 2016 or later, two years, prior to such termination.
38
| | | | | |
Discover | 2024 Proxy Statement | 101 |
|
| | | | | | | | | | | | | | |
Executive Payment Elements | Termination in Connection with a Change in Control ($) | | Involuntary Termination Without Cause ($) | | Death(6) ($) | Disability(6) ($) | Voluntary Termination or Involuntary Termination with Cause ($) | Retirement(7) ($) |
| David W. Nelms | | | | | | | | |
| Salary and Other Cash Payments | 8,028,750 |
| (1) | 1,100,000 |
| (5) | — |
| — |
| — |
| — |
|
Equity Awards(2) | 41,221,951 |
| | 38,330,314 |
| | 38,330,314 |
| 38,330,314 |
| — |
| 38,330,314 |
|
Health Coverage(3) | 19,054 |
| | 17,323 |
| | — |
| — |
| — |
| — |
|
Other(4) | 19,800 |
| | 7,200 |
| | — |
| — |
| — |
| — |
|
| Total | 49,289,555 |
| | 39,454,837 |
| | 38,330,314 |
| 38,330,314 |
| — |
| 38,330,314 |
|
| R. Mark Graf | | | | | | | | |
| Salary and Other Cash Payments | 4,112,150 |
| (1) | 650,000 |
| (5) | — |
| — |
| — |
|
|
|
Equity Awards(2) | 9,914,433 |
| | 9,162,651 |
| | 9,162,651 |
| 9,162,651 |
| — |
| |
Health Coverage(3) | 27,180 |
| | 23,050 |
| | — |
| — |
| — |
| |
Other(4) | 19,800 |
| | 7,200 |
| | — |
| — |
| — |
| |
| Total | 14,073,563 |
| | 9,842,901 |
| | 9,162,651 |
| 9,162,651 |
| — |
| n/a |
|
| Roger C. Hochschild | | | | | | | | |
| Salary and Other Cash Payments | 5,847,750 |
| (1) | 800,000 |
| (5) | — |
| — |
| — |
|
|
|
Equity Awards(2) | 20,481,934 |
| | 19,072,531 |
| | 19,072,531 |
| 19,072,531 |
| — |
| |
Health Coverage(3) | 26,631 |
| | 28,248 |
| | — |
| — |
| — |
| |
Other(4) | 19,800 |
| | 7,200 |
| | — |
| — |
| — |
| |
| Total | 26,376,115 |
| | 19,907,979 |
| | 19,072,531 |
| 19,072,531 |
| — |
| n/a |
|
| Diane E. Offereins | | | | | | | | |
| Salary and Other Cash Payments | 4,425,875 |
| (1) | 650,000 |
| (5) | — |
| — |
| — |
| — |
|
Equity Awards(2) | 10,002,358.00 |
| | 10,002,358 |
| | 10,002,358 |
| 10,002,358 |
| — |
| 10,002,358 |
|
Health Coverage(3) | 8,428 |
| | 9,179 |
| | — |
| — |
| — |
| — |
|
Other(4) | 19,800 |
| | 7,200 |
| | — |
| — |
| — |
| — |
|
| Total | 14,456,461 |
| | 10,668,737 |
| | 10,002,358 |
| 10,002,358 |
| — |
| 10,002,358 |
|
| Carlos Minetti | | | | | | | | |
| Salary and Other Cash Payments | 4,206,150 |
| (1) | 650,000 |
| (5) | — |
| — |
| — |
| — |
|
Equity Awards(2) | 10,002,358 |
| | 8,652,971 |
| | 8,652,971 |
| 8,652,971 |
| — |
| 8,652,971 |
|
Health Coverage(3) | 28,993 |
| | 26,565 |
| | — |
| — |
| — |
| — |
|
Other(4) | 19,800 |
| | 7,200 |
| | — |
| — |
| — |
| — |
|
| Total | 14,257,301 |
| | 9,336,736 |
| | 8,652,971 |
| 8,652,971 |
| — |
| 8,652,971 |
|
| | | | | | | | | |
| | | | | |
| EXECUTIVE COMPENSATION |
| (1)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Executive payment elements | Termination in connection with a change in control ($) | Involuntary termination without cause ($) | Death ($) | Disability ($) | Voluntary termination or involuntary termination with cause ($) | Retirement ($) |
| John B. Owen | | | | | | | | |
| Salary and Other Cash Payments | n/a | (1), (2) | — | | | n/a | — | | — | | n/a |
Target Annual Incentive Plan Payout(3) | n/a | | — | | | — | | — | | — | | n/a |
Equity Awards(4) | n/a | | n/a | | n/a | n/a | — | | n/a |
Health Coverage(5) | n/a | | n/a | | n/a | n/a | — | | n/a |
Other(6) | n/a | | n/a | | n/a | n/a | — | | n/a |
| Total | — | | | — | | | — | | — | | — | | — | |
| John T. Greene | | | | | | | | |
| Salary and Other Cash Payments | 6,079,775 | | (1), (2) | 1,837,500 | | | 61,250 | | — | | — | | n/a |
Target Annual Incentive Plan Payout(3) | 1,102,500 | | | 1,102,500 | | | — | | — | | — | | n/a |
Equity Awards(4) | 7,629,677 | | | 6,666,704 | | | 6,666,704 | | 6,666,704 | | — | | n/a |
Health Coverage(5) | 40,673 | | | 42,469 | | | — | | — | | — | | n/a |
Other(6) | 18,518 | | | 9,259 | | | — | | — | | — | | n/a |
| Total | 14,871,143 | | | 9,658,432 | | | 6,727,954 | | 6,666,704 | | — | | n/a |
| Hope D. Mehlman | | | | | | | | |
| Salary and Other Cash Payments | 1,725,000 | | (1), (2) | 1,150,000 | | | 47,917 | | — | | — | | n/a |
Target Annual Incentive Plan Payout(3) | 562,397 | | | 562,397 | | | — | | — | | — | | n/a |
Equity Awards(4) | 2,306,500 | | | 1,854,470 | | | 1,854,470 | | 1,854,470 | | — | | n/a |
Health Coverage(5) | 26,811 | | | 27,949 | | | — | | — | | — | | n/a |
Other(6) | 18,518 | | | 9,259 | | | — | | — | | — | | n/a |
| Total | 4,639,226 | | | 3,604,075 | | | 1,902,387 | | 1,854,470 | | — | | n/a |
| Daniel P. Capozzi | | | | | | | | |
| Salary and Other Cash Payments | 6,028,288 | | (1), (2) | 1,837,500 | | | 61,250 | | — | | — | | n/a |
Target Annual Incentive Plan Payout(3) | 1,102,500 | | | 1,102,500 | | | — | | — | | — | | n/a |
Equity Awards(4) | 7,871,684 | | | 6,908,711 | | | 6,908,711 | | 6,908,711 | | — | | n/a |
Health Coverage(5) | 42,352 | | | 38,786 | | | — | | — | | — | | n/a |
Other(6) | 18,518 | | | 9,259 | | | — | | — | | — | | n/a |
| Total | 15,063,342 | | | 9,896,756 | | | 6,969,961 | | 6,908,711 | | — | | n/a |
| Keith E. Toney | | | | | | | | |
| Salary and Other Cash Payments | 4,032,625 | | (1), (2) | 1,625,000 | | | 54,167 | | — | | — | | n/a |
Target Annual Incentive Plan Payout(3) | 894,418 | | | 894,418 | | | — | | — | | — | | n/a |
Equity Awards(4) | 5,065,096 | | | 4,383,796 | | | 4,383,796 | | 4,383,796 | | — | | n/a |
Health Coverage(5) | 27,488 | | | 26,164 | | | — | | — | | — | | n/a |
Other(6) | 18,518 | | | 9,259 | | | — | | — | | — | | n/a |
| Total | 10,038,145 | | | 6,938,637 | | | 4,437,963 | | 4,383,796 | | — | | n/a |
| | | | | | | | |
| | | | | |
| 102 | For purposes of illustration, includes change in control severance and consideration for entering into the non-competition agreement, but excludes pro-rata bonus at target based on actual bonus captured in the Non-Equity Incentive Plan Compensation column under "2017 Summary Compensation Table."Discover | 2024Proxy Statement |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Executive payment elements | Termination in connection with a change in control ($) | Involuntary termination without cause ($) | Death ($) | Disability ($) | Voluntary termination or involuntary termination with cause ($) | Retirement ($) |
| Roger C. Hochschild | | | | | | | | |
| Salary and Other Cash Payments | n/a | | n/a | | n/a | n/a | | n/a |
Target Annual Incentive Plan Payout(3) | n/a | | n/a | | n/a | n/a | | n/a |
Equity Awards(4) | n/a | | n/a | | n/a | n/a | 66,858,888 | | n/a |
Health Coverage(5) | n/a | | n/a | | n/a | n/a | | n/a |
Other(6) | n/a | | n/a | | n/a | n/a | 116,346 | | n/a |
| Total | — | | | — | | | — | | — | | 66,975,234 | | n/a |
| Carlos M. Minetti | | | | | | | | |
| Salary and Other Cash Payments | n/a | (1), (2) | 1,750,000 | | (7) | n/a | n/a | n/a | n/a |
Target Annual Incentive Plan Payout(3) | n/a | | 785,342 | | | n/a | n/a | n/a | n/a |
Equity Awards(4) | n/a | | 5,926,029 | | | n/a | n/a | n/a | n/a |
Health Coverage(5) | n/a | | 39,544 | | | — | | n/a | n/a | n/a |
Other(6) | n/a | | 65,797 | | | — | | n/a | n/a | n/a |
| Total | — | | | 8,566,712 | | | — | | — | | — | | n/a |
Amir S. Arooni(8) | | | | | | | | |
Other(6) | n/a | | n/a | | n/a | n/a | 73,846 | | n/a |
| Total | — | | | — | | | — | | — | | 73,846 | | n/a |
(1)Includes change in control severance plus consideration for entering into a non-competition agreement.
(2)Payments made in the event of a qualified termination following a change in control of the Company that would qualify as “parachute payments” under Section 280G of the Internal Revenue Code may be subject to a reduction, referred to here as the “Section 280G Cut-Back,” to the extent that they are deductible under that section, provided that the after-tax benefit (inclusive of any applicable excise tax) is greater than that which the executive would have received if no reduction was made. The amounts reflected in this table do not reflect the application of any reduction in compensation or benefits pursuant to the terms of the Policy. In 2023, none of our NEOs would have been subject to such a reduction.
(3)Includes one-time pro-rata bonus at target. Since termination is as of December 31, 2023, the value is equal to the target disclosed in the Estimated future payouts under non-equity incentive plan awards column under “Grants of plan-based awards for 2023.”
Ms. Mehlman’s Target Annual Incentive Plan Payout is prorated for actual days worked in 2023 as of her January 9, 2023, hire date.
Mr. Toney’s Target Annual Incentive Plan Payout is prorated for the number of days worked through June 30, 2023, applying a 125% STI target and the number of days worked from July 31, 2023 (his job expansion date) through December 31, 2023, applying a 150% STI target.
Mr. Minetti’s Target Annual Incentive Plan Payout is prorated for actual days worked through his termination date of September 30, 2023.
In connection with Mr. Hochschild’s resignation, he forfeited eligibility for any 2023 annual incentive plan payout.
(4)Represents the intrinsic value of the accelerated RSUs, PSUs, and accrued PSU dividends, all as of December 31, 2023. For the PSUs, in the event of a change in control of the Company during the first year of the performance period, the award will convert to cash at target performance and be paid out according to the vesting schedule, or sooner in the event of a qualified termination following the change in control event. In the event of a change in control of the Company during the second or third year of the performance period, performance will be measured through the last day of the Company’s quarter preceding the change in control and the award will then be converted to cash and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. RSUs and PSUs have double trigger acceleration provisions. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed and subject to a risk review or (ii) the executive’s eligible retirement, a pro-rata portion of the PSUs will vest and convert to shares following the conclusion of the
| | | | | |
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| | | | | |
| EXECUTIVE COMPENSATION |
| (2)Represents the intrinsic value of the accelerated RSUs, PSUs, and accrued PSU dividends, all as of December 31, 2017. 2015 PSUs are shown at actual payout level of 122%, 2016 PSUs are shown at an above target payout level (based on actual performance), and 2017 PSUs are shown at target. For the PSUs, in the event of a change in control of the Company during the first year of the performance period, the award will be converted to cash at target performance and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. In the event of a change in control of the Company during the second or third year of the performance period, performance will be measured through the last day of the Company's quarter preceding the change in control and the award will then be converted to cash and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. RSUs and PSUs have double trigger acceleration provisions. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed or (ii) the executive's eligible retirement, a pro-rata portion of the PSUs will vest and convert to shares following the conclusion of the performance and vesting period, based on actual performance and a pro-rata portion of the RSUs will vest and convert to shares. In the event of death or disability, the PSUs will vest and shares are converted and paid at the end of the cycle based on actual performance achieved, and RSUs will vest and convert to shares. |
| |
| (3)For termination in connection with a change in control, lump sum payment equal to the difference between COBRA (for medical, dental and vision) and active employee health and welfare premiums for 24 months. For involuntary termination without cause, lump sum payment equal to 12 months of COBRA premiums (for medical, dental and vision) plus a payment for income taxes on such amount. |
| |
(4) | Includes value of expected outplacement benefits for a 24-month period for termination in connection with a change in control and for a 12-month period for involuntary termination without cause. |
| |
(5) | For purposes of illustration, includes severance, but excludes pro-rata bonus at target based on actual bonus captured in the Non-Equity Incentive Plan Compensation column under "2017 Summary Compensation Table." |
| |
(6) | For purposes of illustration, excludes accelerated bonus at target based on actual bonus captured in the Non-Equity Incentive Plan Compensation column under "2017 Summary Compensation Table." |
performance and vesting period based on actual performance and a pro-rata portion of the RSUs will vest and convert to shares. In the event of death or disability, the PSUs will vest and shares will convert and be paid at the end of the performance period based on actual performance achieved, and RSUs will vest and convert to shares. Since actual performance for the 2022 and 2023 PSUs cannot be determined until the respective performance periods conclude (which will occur in 2025 and 2026), the figures shown reflect performance estimated through December 31, 2023.
39
In connection with Mr. Hochschild’s resignation, his awards granted in February 2023 were forfeited. The equity awards displayed include only his awards granted prior to 2023, which are eligible for retirement treatment under the award agreements definition of retirement. Balance includes 430,763 deferred RSUs for Mr. Hochschild, as described in the “2023 Nonqualified deferred compensation” table. These deferred RSUs are fully vested and will convert to shares of Common Stock six months following termination on June 30, 2024, to comply with Section 409A of the Internal Revenue Code.
| |
(7) | Messrs. Nelms and Minetti and Ms. Offereins are eligible for retirement. For purposes of illustration, includes a proration of outstanding equity awards, but excludes pro-rata bonus at target based on actual bonus captured in the Non-Equity Incentive Plan Compensation column under "2017 Summary Compensation Table" and the pension benefits described under "2017 Pension Benefits." |
(5)For termination in connection with a change in control, a lump sum payment equal to the difference between COBRA (for medical, dental and vision) and active employee health and welfare premiums for 24 months. For involuntary termination without cause, a lump sum payment equal to 12 months of COBRA premiums (for medical, dental and vision) plus a payment for income taxes on such amount. 2017 Pay Ratio(6)Includes value of expected outplacement benefits for a 24-month period for termination in connection with a change in control and for a 12-month period for involuntary termination without cause.
Amounts for Messrs. Hochschild, Minetti, and Arooni include a payout for their accrued and unused paid time off days as of their termination date.
(7)Mr. Minetti’s cash payment is equal to his base salary and target annual cash bonus in accordance with Discover’s severance plan.
(8)For Mr. Arooni, the disclosure relates to amounts actually paid in connection with his terminations during the 2023 fiscal year.
2023 CEO pay ratio
We believe in pay for performance,pay-for-performance, and in programs that balance the interests of employees with the interests of our shareholders and customers, as well as the safety and soundness of the Company. We strive to deliver compensation that is both market-competitive and fair and equitable internally. Our compensation program is designed to attract, retain, and motivate highly qualified and diverse team members to ensure the continued success of our business.
As required under and calculated in accordance with Item 402(u) of Regulation S-K, we have determined a reasonable estimate of the pay ratio of the annual total compensation to our CEOCEOs, and the median of the annual total compensation of all Company employees for 20172023 was 213:145:1. This ratio was calculated as described below usingby determining a total annual CEO compensation by taking into account the compensation received by Mr. Hochschild and Mr. Owen for the time each served as CEO, of $8,659,519 compared to the annual total compensation of Mr. Nelms, reportedour median employee in the Total column2023 of our 2017 Summary Compensation Table, of $10,248,162 compared to the median of the annual total compensation of all employees excluding Mr. Nelms for 2017 of $48,155. $59,905.
The SEC rules allow companies to use estimates, assumptions, adjustments, statistical sampling and unique definitions of compensation to identify the median employee and calculate the pay ratio. Our estimated pay ratio should not be used as a basis for comparison to other companies because of the differences in how pay ratios may be calculated.
The SEC rules allow companies to identify the median employee whose compensation will be used for the annual total compensation calculation once every three (3) years provided that there have not been any changes in the company’s employee population or employee compensation arrangements that it is reasonably believed would result in a significant change in its pay ratio disclosure. Because there have been no changes in our employee population or employee compensation arrangements that we believe would result in a significant change in our pay ratio disclosure, we are using the median employee that we identified in 2022.
For purposes of the CEO Pay Ratio, the 2023 CEO compensation is based on the annual total compensation as presented in the “2023 Summary compensation table” for Mr. Hochschild and Mr. Owen, and adjusted for (i) Mr. Hochschild’s annual total compensation is prorated for the time period he served as CEO (January 1, 2023 to August 14, 2023), and (ii) Mr. Owen’s annual total compensation for the time
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| 104 | Discover | 2024Proxy Statement |
period he served as Interim CEO (August 15, 2023 to December 31, 2023) and subtracts compensation he received as a member of the Board of Directors.
To identify our median employee, we began with our entire active employee population of 16,42720,109 as of December 31, 2017.2022. We excluded our 358652 international employees from our calculation because they accountaccounted for approximately 2%3% of our employees, leaving an active U.S. based employee population of 16,069.(1)19,457. We used the total amount of salary and wages paid as reflected in our payroll records and reported to the Internal Revenue Service in Box 5 on Form W-2 for 20172022 to identify our median employee and two additional employees with compensation above and below the median employee.
Our median employee is eligible for an accrued benefitWe excluded employees from our frozen Pension Plan. Fewer than 25% of all of our employees have an accrued pension benefit, so we consider this atypical compensation for our employees. When reviewing the following countries: five employees with compensation closest tofrom Canada, 201 from China, four from France, four from Germany, 12 from Hong Kong, 14 from India, one from Japan, 28 from Singapore, one from Sweden, four from Taiwan, one from Turkey, three from the United Arab Emirates, and including374 from the compensation of the median employee, only the median employee had an accrued pension benefit. As permitted under SEC rules, the median employee we used to calculate the pay ratio is an employee with compensation that was closest to the median employee compensation, but with compensation deemed to be representative of our current compensation program.United Kingdom.
Finally, we calculated the identified median employee’s annual total compensation for 2017 using the requirements of Item 402(c)(2)(x) of Regulation S-K, and divided Mr. Nelms compensation of $10,248,162 by the median employees compensation of $48,155 to calculate the ratio of 213:1.
____________________
| | | | | |
Discover | 2024 Proxy Statement | 105 |
| | | | | |
| EXECUTIVE COMPENSATION |
| (1)
| We excluded employees from the following countries: four from Canada, 180 from China, four from France, two from Germany, five from India, one from Japan, eight from Singapore, one from Sweden, one from Switzerland, one from Turkey, one from the United Arab Emirates, and 150 from the United Kingdom.
40
BENEFICIAL OWNERSHIP OF COMPANY COMMON STOCK
We encourage our directors, officers and employees to own our Common Stock as owning our Common Stock aligns their interests with shareholders. All Executive Committee members, including our NEOs, are subject to share ownership guidelines and share retention requirements as described above in "Compensation Discussion and Analysis." This commitment ties a portion of their net worth to the Company's stock price and provides a continuing incentive for them to work towards superior long-term stock performance.Pay versus performance
The following table sets forth information regarding the beneficial ownershipCompany’s performance and the “compensation actually paid” to our NEOs, as calculated in accordance with SEC disclosure rules:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | John B. Owen | | Roger Hochschild | Average summary compensation table total for non-PEO NEOs(2) | Average compensation actually paid to non-PEO NEOs(3) | Value of initial fixed $100 investment based on(4) | | | Company selected measure (Adjusted PBTR, dollars in millions)(7) |
Fiscal year(1) | Summary compensation table total for PEO(2) | Compensation actually paid to PEO(3) | Summary compensation table total for PEO(2) | Compensation actually paid to PEO(3) | Total shareholder return | Peer group total shareholder return(5) | Net income (dollars in millions)(6) |
| 2023 | | $ | 2,188,651 | | | $ | 2,262,056 | | | $ | 10,891,514 | | | $ | 3,227,680 | | | $ | 4,512,219 | | | $ | 3,423,238 | | | $ | 145.98 | | | $ | 122.48 | | | $ | 2,940 | | | $ | 5,478 | |
| 2022 | | n/a | | n/a | | $ | 10,642,075 | | | $ | 8,307,975 | | | $ | 4,773,473 | | | $ | 3,834,511 | | | $ | 123.49 | | | $ | 111.41 | | | $ | 4,374 | | | $ | 6,495 | |
| 2021 | | n/a | | n/a | | $ | 12,087,218 | | | $ | 32,400,442 | | | $ | 4,789,858 | | | $ | 9,568,003 | | | $ | 142.87 | | | $ | 127.11 | | | $ | 5,422 | | | $ | 5,208 | |
| 2020 | | n/a | | n/a | | $ | 10,357,259 | | | $ | 2,792,909 | | | $ | 4,109,333 | | | $ | 2,028,719 | | | $ | 110.08 | | | $ | 95.90 | | | $ | 1,125 | | | $ | 3,934 | |
(1)The CEO, Mr. Hochschild, served as the Principal Executive Officer (“PEO”) for 2023 through August 14, 2023, and for the entirety of 2022, 2021 and 2020. Mr. Owen served as the PEO from August 15, 2023, through the remainder of 2023. The Company’s other NEOs for the applicable years were as follows:
•2023: Mr. Greene, Ms. Mehlman, and Messrs. Capozzi, Toney, Minetti, and Arooni.
•2022: Messrs. Greene, Arooni, and Capozzi, and Ms. Offereins.
•2021: Messrs. Greene, Minetti, Capozzi, and Ms. Offereins.
•2020: Messrs. Greene and Minetti, Ms. Offereins, and Ms. Julie Loeger, our Common Stock,then EVP, President - US Cards.
(2)Amounts reported in this column represent (i) the total compensation reported in the Summary Compensation Table for the applicable year for the CEOs, Mr. Hochschild and Mr. Owen, and (ii) the average of the total compensation reported in the Summary Compensation Table for the applicable year for the Company’s NEOs reported for the applicable year other than the CEOs.
(3)To calculate compensation actually paid, adjustments were made to the amounts reported in the Summary Compensation Table for the applicable year. A reconciliation of the adjustments for Mr. Hochschild, Mr. Owen and for the average of the other NEOs is set forth following the footnotes to this table.
(4)Pursuant to applicable SEC disclosure rules, the comparison assumes $100 was invested on December 31, 2019. Historic stock price performance is not necessarily indicative of future stock price performance.
(5)The TSR Peer Group consists of the S&P 500 Financial Index, the industry group that is used in our annual report.
(6)The results presented in fiscal years 2020, 2021, and 2022 have been restated to reflect immaterial corrections to the financial statements. See Note 26: “Immaterial Restatement of Prior Period Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
(7)The Compensation Committee selected Adjusted PBTR. Adjusted PBTR is derived by adjusting PBTR for one or more unusual or extraordinary items which the Compensation Committee, in its sole discretion, has determined should be added to or subtracted from PBTR. 2023 PBTR was adjusted for prior period impacts from the card misclassification matter, 2022 PBTR was adjusted for losses on certain equity investments, 2021 PBTR was adjusted for gains on certain equity investments, and 2020 PBTR was adjusted for software write-offs and facilities dispositions. Adjusted PBTR amounts presented for fiscal years 2020, 2021, and 2022 have not been restated for the effects of immaterial corrections to the financial statements referred to in footnote 6. Adjusted PBTR is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the company’s reported results. Please see “Annex A” for a reconciliation of Adjusted PBTR to net income, as well as the impact that prior period restatements would have had on each of these measures for fiscal years 2020, 2021, and 2022.
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| 106 | Discover | 2024Proxy Statement |
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Fiscal year(1) | Summary compensation table total ($)(a) | (Minus) Change in accumulated benefits under defined benefit and actuarial pension plans ($)(b) | Plus Service costs under defined benefit and actuarial pension plans ($)(c) | (Minus) Grant date fair value of stock awards granted in fiscal year ($)(d) | Plus Fair value at fiscal year-end of outstanding and unvested stock awards granted in fiscal year ($)(e) | Plus/(Minus) Change in fair value of outstanding and unvested stock awards granted in prior fiscal years ($)(f) | Plus Fair value at vesting of stock awards granted in fiscal year that vested during fiscal year ($)(g) | Plus/(Minus) Change in fair value as of vesting date of stock awards granted in prior years for which applicable vesting conditions were satisfied during fiscal year ($)(h) | (Minus) Fair value as of prior fiscal year-end of stock awards granted in prior fiscal years that failed to meet applicable vesting conditions during fiscal year ($)(i) | Equals Compensation actually paid ($)(j) |
| PEO (Owen) |
| 2023 | | $ | 2,188,651 | | | $ | — | | | $ | — | | | $ | (670,011) | | | $ | 746,898 | | | $ | — | | | $ | (3,482) | | | $ | — | | | $ | — | | | $ | 2,262,056 | |
| PEO (Hochschild) |
| 2023 | | $ | 10,891,514 | | | $ | (15,554) | | | $ | — | | | $ | (9,425,219) | | | $ | — | | | $ | (44,052) | | | $ | 1,820,991 | | | $ | — | | | $ | — | | | $ | 3,227,680 | |
| 2022 | | $ | 10,642,075 | | | $ | — | | | $ | — | | | $ | (8,000,133) | | | $ | 8,744,275 | | | $ | (3,579,325) | | | $ | 431,835 | | | $ | 69,248 | | | $ | — | | | $ | 8,307,975 | |
| 2021 | | $ | 12,087,218 | | | $ | — | | | $ | — | | | $ | (7,600,006) | | | $ | 12,893,421 | | | $ | 15,011,729 | | | $ | (81,682) | | | $ | 89,761 | | | $ | — | | | $ | 32,400,442 | |
| 2020 | | $ | 10,357,259 | | | $ | (49,654) | | | $ | — | | | $ | (7,350,078) | | | $ | 4,333,881 | | | $ | (3,412,450) | | | $ | (1,086,049) | | | $ | — | | | $ | — | | | $ | 2,792,909 | |
Other NEOs (Average)(k) |
| 2023 | | $ | 4,512,219 | | | $ | (2,080) | | | $ | — | | | $ | (2,072,026) | | | $ | 1,384,155 | | | $ | (39,561) | | | $ | — | | | $ | 344,896 | | | $ | (704,366) | | | $ | 3,423,238 | |
| 2022 | | $ | 4,773,473 | | | $ | — | | | $ | — | | | $ | (2,551,413) | | | $ | 2,408,103 | | | $ | (858,145) | | | $ | 16,469 | | | $ | 46,024 | | | $ | — | | | $ | 3,834,511 | |
| 2021 | | $ | 4,789,858 | | | $ | — | | | $ | — | | | $ | (2,275,118) | | | $ | 3,647,786 | | | $ | 3,398,600 | | | $ | 21,354 | | | $ | (14,477) | | | $ | — | | | $ | 9,568,003 | |
| 2020 | | $ | 4,109,333 | | | $ | (39,577) | | | $ | — | | | $ | (2,389,093) | | | $ | 1,633,833 | | | $ | (809,758) | | | $ | — | | | $ | (476,018) | | | $ | — | | | $ | 2,028,719 | |
(a)Represents Total Compensation as reported in the Summary Compensation Table for the indicated fiscal year. With respect to the other NEOs, amounts shown represent averages.
(b)Represents the aggregate change in the actuarial present value of the accumulated benefits under all defined benefit and actuarial pension plans reported in the Summary Compensation Table for the indicated fiscal year.
(c)Represents the sum of the actuarial present value of the benefits under all defined benefit and actuarial pension plans attributable to services rendered during the indicated fiscal year, calculated using the same methodology as used in the Company’s financial statements under generally accepted accounting principles.
(d)Represents the grant date fair value of the stock awards granted during the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes.
(e)Represents the fair value as of February 22, 2018, by the personsindicated fiscal year-end of the outstanding and groups specified below. Exceptunvested stock awards granted during such fiscal year, computed in accordance with the methodology used for financial reporting purposes.
(f)Represents the 5% beneficial owners,change in fair value during the percentageindicated fiscal year of calculations below areeach stock award that was granted in a prior fiscal year and that remained outstanding and unvested as of the last day of the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes and, for awards subject to performance-based vesting conditions, based on the numberprobable outcome of shares of Common Stock outstandingsuch performance-based vesting conditions as of February 22, 2018.the last day of the fiscal year. Excludes the change in value of Mr. Hochschild’s deferred RSUs since such awards were fully vested prior to January 1, 2020, see the table “2023 Nonqualified deferred compensation” for additional information. For Mr. Hochschild and the “Other NEOs,” the PSU values from 2020, 2021, and 2022 were adjusted from those disclosed in our 2023 proxy statement to reflect the actual dividends accrued within the fiscal year, whereas they previously reflected cumulative accrued dividends.
(g)Represents the fair value at vesting of the stock awards that were granted and vested during the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes.
(h)Represents the change in fair value, measured from the prior fiscal year-end to the vesting date, of each stock award that was granted in a prior fiscal year and which vested during the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes. For Mr. Hochschild and the “Other NEOs”, the PSU values from 2020, 2021, and 2022 were adjusted from those disclosed in our 2023 proxy statement to reflect the actual dividends accrued within the fiscal year, whereas they previously reflected cumulative accrued dividends.
(i)Represents the fair value as of the last day of the prior fiscal year of the stock awards that were granted in a prior fiscal year and which failed to meet the applicable vesting conditions in the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes.
(j)Based on the SEC’s Compliance and Disclosure Interpretations, excludes dividends paid on unvested RSU awards that were previously disclosed in our 2023 proxy statement because dividends are reflected in the fair value of awards.
(k)See footnote 1 above for the NEOs included in the average for each year.
|
| | | | | |
| 5% Beneficial Owners | Shares of Discover Common Stock Beneficially Owned (1) | | Percentage of Discover Common Stock Outstanding |
BlackRock Inc., 55 East 52nd Street, New York, New York 10055(2) | 23,915,199 |
| | 6.75 | % |
The Vanguard Group, 100 Vanguard Boulevard, Malvern, Pennsylvania 19355(3) | 24,952,013 |
| | 7.04 | % |
| Executive Officers and Directors | | | |
David W. Nelms(4) | 1,205,202 |
| | * |
|
Roger C. Hochschild(5) | 711,288 |
| | * |
|
| R. Mark Graf | 30,741 |
| | * |
|
Diane E. Offereins(6) | 130,638 |
| | * |
|
Carlos Minetti(6) | 160,739 |
| | * |
|
Jeffrey S. Aronin(7) | 61,886 |
| | * |
|
Mary K. Bush(8) | 54,425 |
| | * |
|
Gregory C. Case(9) | 61,886 |
| | * |
|
Candace H. Duncan(10) | 6,870 |
| | * |
|
| Joseph F. Eazor | 3,213 |
| | * |
|
| Cynthia A. Glassman | 50,193 |
| | * |
|
Richard H. Lenny(11) | 17,138 |
| | * |
|
Thomas G. Maheras(12) | 46,811 |
| | * |
|
Michael H. Moskow(13) | 48,042 |
| | * |
|
Mark A. Thierer(14) | 9,811 |
| | * |
|
Lawrence A. Weinbach(15) | 46,698 |
| | * |
|
Directors and executive officers as a group (23 persons)(16) | 2,867,494 |
| | * |
|
| | | | |
| | | | | |
Discover | 2024 Proxy Statement | 107 |
Relationship between pay and performance
We believe the “compensation actually paid” (CAP) in each of the years reported above and over the three-year cumulative period are reflective of the Compensation Committee’s emphasis on “pay-for-performance” as the compensation actually paid fluctuated year-over-year, generally due to the result of our stock performance and our varying levels of achievement against pre-established performance goals related to Adjusted PBTR, EPS (for the PSU portion of the LTI program), and other performance factors.
CAP and TSR alignment
As shown in the chart below, changes in the PEO CAP for Mr. Hochschild and other NEOs’ CAP amounts are aligned with changes to the Company’s TSR for 2020 through 2022. In 2023, the PEO CAP to Mr. Hochschild was reduced as a result of his resignation, where he forfeited eligibility for his 2023 equity award, which comprised 74% of his target compensation. Additionally in 2023, the PEO CAP for Mr. Hochschild and the average CAP to our other NEOs (shown as “NEO CAP” in the table below) was impacted due to changes in our PSU forecasts based on EPS.
| | | | | | | | | | | | | | | | | |
| n | PEO CAP - Owen | n | PEO CAP - Hochschild | n | NEO CAP |
* | Represents beneficial ownership of less than 1%.DFS TSR | | Peer Group TSR | | |
| | | | | |
| 108 | Discover | 2024Proxy Statement |
CAP, net income, and adjusted PBTR alignment
PBTR is a critical measure of the core operating performance of the business and focuses on factors the Company’s incentive-eligible employees are most able to directly impact and influence. As a result of the Compensation Committee’s decision to approve management’s recommendation to recognize the prior period impacts of the card misclassification matter in the 2023 performance year, our 2023 net income and PBTR results decreased from the prior year, in line with the 2023 CAP to Mr. Hochschild and the average CAP to the other NEOs.
| | | | | | | | | | | | | | | | | |
| n | PEO CAP - Owen | n | PEO CAP - Hochschild | n | NEO CAP |
(1) | Does not include shares underlying unvested RSUs unless otherwise noted.Net Income | | Adjusted PBTR | | |
Performance Measures Used to Link Company Performance and Compensation Actually Paid to the NEOs
The following is a list of financial performance measures, which in our assessment represents the most important financial performance measures used by the Company to link CAP to the NEOs for 2023. In addition to the metrics noted below, the Company’s decision making process also incorporates annual objectives relating to other performance factors. Please see the CD&A for a further description of the metrics used in the Company’s executive compensation program.
| | |
| Unranked listing of most important performance measures |
(2) | Based on a Schedule 13G/A filed on January 29, 2018 by BlackRock Inc. regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of December 31, 2017. The Schedule 13G/A discloses that BlackRock Inc. had sole voting power as to 20,618,182 shares and sole dispositive power as to 23,915,199 shares. The ownership percentage is based on the assumption that BlackRock Inc. continued to own the number of shares reflected in the table on February 22, 2018. |
| Adjusted PBTR |
(3) | Based on a Schedule 13G/A filed on February 9, 2018 by The Vanguard Group regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of December 31, 2017. The Schedule 13G/A discloses that The Vanguard Group had sole voting power as to 514,620 shares, shared voting power as to 90,562 shares, sole dispositive power as to 24,364,221 shares, and shared dispositive power as to 587,792 shares. The ownership percentage is based on the assumption that The Vanguard Group continued to own the number of shares reflected in the table on February 22, 2018. |
| EPS |
(4) | Includes 502,557 shares underlying vested RSUs that would convert following a termination of service, 32,584 shares underlying RSUs that would vest and convert following a termination of service, and 199 shares of Common Stock that Mr. Nelms is expected to acquire within 60-days pursuant to his participation in Company Employee Stock Purchase Plan.
Relative TSR |
| | | | | |
(5)Discover | 2024 Proxy Statement | Includes 430,763 shares underlying vested RSUs that would convert following a termination of service.
109 |
| |
(6) | Includes 20,391 shares underlying RSUs that would vest and convert following a termination of service.
|
| |
(7) | Includes 57,307 shares underlying vested RSUs that would convert following a termination of service.
|
| |
(8) | Includes 52,075 shares underlying vested RSUs that would convert following a termination of service.
|
| |
(9) | Includes 61,886 shares underlying vested RSUs that would convert following a termination of service.
|
| |
(10) | Includes 6,870 shares underlying vested RSUs that would convert following a termination of service.
|
41
| |
(11) | Includes 17,138 shares underlying vested RSUs that would convert following a termination of service.
|
| |
(12) | Includes 38,638 shares underlying vested RSUs that would convert following a termination of service.
|
| |
(13) | Includes 44,990 shares underlying vested RSUs that would convert following a termination of service.
|
| |
(14) | Includes 9,811 shares underlying vested RSUs that would convert following a termination of service.
|
| |
(15) | Includes 46,698 shares underlying vested RSUs that would convert following a termination of service.
|
| |
(16) | Includes 1,268,733 shares underlying vested RSUs that would convert following a termination of service and 94,556 shares underlying RSUs that would vest and convert following a termination of service.
|
PROPOSAL 2. ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
What are shareholders being asked to approve?
Pursuant to SEC rules, we must conduct an advisory, non-binding vote on the compensation of our NEOs at least once every three years. At our 2017 annual meeting, we recommended, and our shareholders overwhelmingly supported an annual frequency for this advisory, non-binding vote. As such, the Board has determined that the Company will continue to hold this advisory, non-binding vote on the compensation of our NEOs each year.
Therefore, we are asking you to approve the compensation of our NEOs as disclosed in the "Compensation Discussion and Analysis" (beginning on page 17), the compensation tables (beginning on page 33), and any related material contained in this Proxy Statement. This proposal, commonly known as a "Say-on-Pay" proposal, gives you, as a shareholder, the opportunity to endorse or not endorse our executive pay program and policies through the following resolution:
"Resolved, that the shareholders approve, on an advisory, non-binding basis, the compensation of our NEOs, as disclosed in the 'Compensation Discussion and Analysis,' the compensation tables and any related narrative contained in this Proxy Statement."
What is the Board's recommendation on voting on this proposal?
The Board unanimously recommends a vote "FOR" approval of the NEO compensation as disclosed pursuant to Item 402 of SEC Regulation S-K, including in the "Compensation Discussion and Analysis," the compensation tables, and any related information contained in this Proxy Statement. Proxies solicited by the Board will be voted "FOR" this proposal unless otherwise instructed.
As previously described in detail in the "Compensation Discussion and Analysis" (beginning on Page on 17), our compensation program for our NEOs is substantially performance based and designed to attract, retain and motivate our NEOs, who are critical to our success. The compensation our NEOs earned in 2017 reflected Company performance and remained consistent with our balanced compensation structure and commitment to aligning NEO's interests with those of our shareholders. The Board continues to believe the compensation program for our NEOs are effective in achieving the desired results.
Is the shareholder advisory vote to approve NEO compensation binding on the Company?
No. Under the SEC rules, your vote is advisory and will not be binding upon the Company or the Board. However, the Compensation Committee values the opinions of our shareholders and will review and consider the voting results when considering future executive compensation arrangements.
How many votes are required to approve this proposal?
This advisory vote requires the affirmative vote of a majority of the shares of Common Stock represented at the Annual Meeting and entitled to vote thereon. You may "abstain" from voting on this proposal. Shares voting "abstain" on this proposal will be counted as present at the Annual Meeting for purposes of this proposal and your abstention will have the effect of a vote against this proposal.
PROPOSAL 3. RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has the sole authority and responsibility to appoint, compensate, retain, oversee, evaluate and, when appropriate, replace the independent public accounting firm. Each year the Audit Committee evaluates the qualifications and performance of the independent public accounting firm and considers, as appropriate, the rotation of the independent audit firm. Based on this evaluation, the Board of Directors and the Audit Committee recommend that youshareholders approve the ratification of the appointment of Deloitte & Touche LLP ("Deloitte") to serve as our independent
42
registered public accounting firm for the 20182024 year. The BoardAudit Committee intends to carefully consider the results of Directorsthe vote. If shareholders do not ratify the appointment of Deloitte, the committee will reconsider Deloitte’s selection. Even if the selection is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if the committee determines that such a change would be in the best interests of the Company and our shareholders.
The Board and the Audit Committee believe the continued retention of Deloitte is in the best interest of the Company and its shareholders. Deloitte has served as the independent registered public accounting firm for the Company since 2007 and its former parent company, Morgan Stanley, prior to that time. Consistent with the regulations adopted pursuant to the Sarbanes-Oxley Act of 2002 and the Audit Committee'sCommittee’s Charter, the lead audit partner having primary responsibility for the audit and the concurring audit partner are rotated every five years. In connection with this mandated rotation, the Audit Committee and its chairChair are directly involved in the selection of any new lead engagementaudit partner. The current lead Deloitte audit partner was designated commencing with the 20172022 audit. A representative of Deloitte will be present at the Annual Meeting, will have the opportunity to make a statement, if desired, and will be available to respond to appropriate questions.
Our Board recommends a vote "FOR"
Selection and engagement of audit firm
The Audit Committee understands and appreciates the ratificationimportance of Deloitte's appointment as ourmaintaining an independent relationship with the Company’s external auditor, both in fact and appearance. As such, the Audit Committee takes seriously its responsibilities of appointing, compensating, retaining, overseeing, and evaluating the Company’s independent auditor. As such, the Audit Committee routinely meets with Deloitte, both with and without management; tracks performance against Deloitte’s annual engagement letter; and oversees the annual evaluation of Deloitte. The Audit Committee is directly involved in the selection of new lead audit partners.
| | | | | |
| 110 | Discover | 2024Proxy Statement |
Policy regarding pre-approval of independent registered public accounting firm for the 2018 year. Proxies solicited by the Board will be voted "FOR" this ratification unless otherwise instructed.services
Independent Registered Public Accounting Firm Fees
The Audit Committee approves the audit fees associated with the Company's retention of Deloitte. The following table summarizes the aggregate fees (including related expenses) for professional services provided by Deloitte related to 2017 and 2016 (amounts in thousands).
|
| | | | | | | |
| | 2017 | | 2016 |
Audit Fees(1) | $ | 5,256 |
| | $ | 5,190 |
|
Audit-Related Fees(2) | 1,507 |
| | 1,412 |
|
| Tax Fees | — |
| | — |
|
All Other Fees(3) | 4 |
| | 31 |
|
| Total | $ | 6,767 |
| | $ | 6,633 |
|
| | | | |
| |
(1) | Audit Fees services include: (i) the audit of our consolidated financial statements included in our Annual Report on Form 10-K and services attendant to, or required by, statute or regulation; (ii) accounting consultation attendant to the audit; (iii) reviews of the interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q; (iv) consents and other services related to SEC and other regulatory filings; and (v) statutory or financial audits of subsidiaries. |
| |
(2) | Audit-Related Fees services include: (i) data verification and agreed-upon procedures related to asset securitizations; (ii) assessment and testing of internal controls and risk management processes beyond the level required as part of the audit pursuant to Statement on Standards for Attestation Engagements No. 16; (iii) agreed-upon procedures related to XBRL tagging of our consolidated financial statements included in our Annual Report on Form 10-K and our interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q; and (iv) other consultations on financial accounting and reporting matters not classified as audit. |
| |
(3) | All Other Fees include fees for Deloitte's accounting research tool and, in 2016 only, expenses related to a review of cybersecurity. |
Policy Regarding Pre-Approval of Independent Registered Public Accounting Firm Services
In order to assure the continued independence of our independent registered public accounting firm, the Audit Committee has adopted a policy requiring pre-approval of audit and non-audit services performed by our independent registered public accounting firm. Under that policy, the Audit Committee pre-approves a list of audit, audit-related, and permitted non-audit services that may be provided by the independent registered public accounting firm without obtaining specific pre-approval from the Audit Committee. In addition, the Audit Committee sets pre-approved fee levels for the pre-approvedpre-approved services. Any type of service that is not included on the list of pre-approved services or that exceeds pre-approved fee levels must be specifically pre-approved by the Audit Committee. The Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve any audit or permitted non-audit service to be performed by the independent registered public accounting firm, provided that such approvals are presented to the full Audit Committee at the next scheduled meeting and that estimated fees for such services are not in excess of certain limits. The Audit Committee reviews its pre-approval policy annually for purposes of assuring its continued appropriateness and compliance with applicable law and listing standards. All audit and permitted non‑audit services listed above were pre‑approved.
Independent registered public accounting firm fees
43
The Audit Committee Reportapproves the audit fees associated with the Company’s retention of Deloitte. The following table summarizes the aggregate fees (including related expenses) for professional services provided by Deloitte related to 2023 and 2022 (amounts in thousands).
| | | | | | | | |
| 2023 ($) | 2022 ($) |
Audit Fees(1) | 6,954 | | 6,234 | |
Audit-Related Fees(2) | 1,866 | | 1,899 | |
Tax Fees(3) | 16 | | 5 | |
All Other Fees(4) | 125 | | 5 | |
| Total | 8,961 | | 8,143 | |
(1)Audit Fees services include: (i) the audit of our consolidated financial statements included in our Annual Report on Form 10-K and services required by statute or regulation; (ii) comfort letter procedures for debt issuances; (iii) reviews of the interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q; and (iv) statutory or financial audits of subsidiaries.
(2)Audit-Related Fees services include: (i) data verification and agreed-upon procedures related to asset securitizations; (ii) assessment and testing of internal controls and risk management processes beyond the level required as part of the audit pursuant to Statement on Standards for Attestation Engagements No. 18; (iii) agreed-upon procedures related to XBRL tagging of our consolidated financial statements included in our Annual Report on Form 10-K and our interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q; and (iv) other consultations on financial accounting and reporting matters not classified as audit.
(3)Tax Fees include tax compliance services rendered for certain foreign entities.
(4)All Other Fees include fees for research tools and consulting services.
| | | | | |
Discover | 2024 Proxy Statement | 111 |
Report of the audit committee
The Audit Committee of the Discover Financial Services Board is comprised of fournon-management directors, each of whom is independent under New York Stock Exchange rulesthe listing standards of the NYSE, where the Company’s securities are listed, and applicable securities laws. The Board of Directors has determined that each member of the Audit Committee is "financially literate"“financially literate” as required under New York Stock ExchangeNYSE rules, has “banking or related financial management expertise” as defined by the FDIC, and is an "audit“audit committee financial expert"expert” as defined by the SEC. The Audit Committee operates under a written charter adopted by the Board.Board, which is reviewed and assessed annually to ensure the document is consistent with the listing standards of the NYSE and the provisions of the Sarbanes-Oxley Act of 2002. The Audit Committee charter is available through the investor relationsInvestor Relations page of our internet site, www.discover.com.www.discover.com. It is within the Audit Committee’s authority to engage independent counsel and other advisors as necessary to carry out its duties.
The Audit Committee oversees the Company'sCompany’s financial reporting process on behalf of the Board of Directors.Board. The Audit Committee assists the Board with the oversight overof the quality and integrity of the Company’s financial statements, compliance with legal and regulatory requirements, and ethical standards adopted by the Company, as well as the system of internal controls. As part of the Audit Committee’s oversight of compliance with legal and regulatory requirements, it reviews certain reports, correspondence, and inquiries from the Company’s regulators. The Audit Committee has oversight responsibility for the Company’s Internal Audit function, including approval of the appointment and, when and if appropriate, replacement of the Company’s Chief Audit Executive; review and approval of the charter, audit plan, and overall risk assessment methodology; and approval of annual performance and compensation of the Chief Audit Executive. The Audit Committee is responsible for the appointment, compensation, oversight, evaluation, and retention of the independent auditors with respect to the issuance of the report on the Company’s financial statements and internal controls over financial reporting. In connection with required rotations, the Audit Committee makes the selection of the lead audit partner and the advisory partner. Additionally, the Audit Committee annually reviews and evaluates the qualifications, performance, and independence of the firm includingand the lead audit partnerpartner. Deloitte has served as the independent registered public accounting firm for the Company since 2007 and makesits former parent company, Morgan Stanley, prior to that time. The Audit Committee believes the selectioncontinued retention of anyDeloitte is in the best interests of the Company and its shareholders. In assessing the benefits of retaining Deloitte as the Company’s auditors, the Committee considers the firm’s institutional knowledge of the Company and its familiarity with the Company’s businesses, key risks, accounting policies, financial systems, and internal controls. The Committee also considers the time and expense that would be incurred by management and staff to onboard a new partners onauditor, as well as the engagement team. It is withinimpacts to the Audit Committee’s authority to engage independent counselefficiency and other advisors as necessary to carry out its duties.effectiveness of the audit.
In addition, the Audit Committee’s activities include responsibility for establishing procedures for receipt, retention, and treatment forof complaints regarding accounting, internal controls, and auditing matters from employees and others; taking into account the Board’s allocation of risk among the various committees, receiving and reviewing risk reporting; and periodically meeting in joint session with the Risk Oversight and the Compensation Committees of the Board of Directors.Board.
Throughout the year, the Audit Committee met with and received reports from the Company’s CRO, Chief RiskAudit Executive, Chief Legal Officer head of Internal Audit,and General Counsel, Chief Financial Officer,CFO, Chief Accounting Officer, Chief InformationCISO, Anti-Money Laundering Compliance and Sanctions Officer, and Chief Compliance Officer, among others. These meetings, reports, and reportsdiscussions covered a wide variety of topics including cybersecurity, risk management, financial results, new accounting and regulatory guidance, ESG matters, regulatory compliance matters, the card product misclassification matter, and the Company’s AML/BSA program.Anti-Money Laundering/Bank Secrecy Act programs. The Audit Committee also metmeets with the Company’s independent auditors 10 times overin executive session regularly throughout the course of the year.
Management is responsible for the Company'sCompany’s financial reporting process, including establishing and maintaining adequate internal controls over financial reporting and the preparation of financial statements. The Company'sAs the Company’s independent registered public accounting firm, Deloitte is responsible for performing an independent audit of the Company'sCompany’s consolidated financial statements and expressing an opinion on the conformity of the Company'sCompany’s audited financial statements with generally accepted
| | | | | |
| 112 | Discover | 2024Proxy Statement |
accounting principles as well as a separate opinion on the effectiveness of the Company'sCompany’s internal controls over financial reporting. The Company is responsible for providing appropriate funding for audit fees, compensation for advisors engaged by the Audit Committee, and the ordinary administrative expenses of the Audit Committee. The Audit Committee relies, without independent verification, on the information provided to it and on the representations made by management, the internal auditor, and Deloitte.
Consistent with its charter responsibilities, the Audit Committee has reviewed and discussed with management and Deloitte the Company'sCompany’s audited financial statements for the 20172023 fiscal year. This included a review of the Company’s critical accounting policies, the reasonableness of significant accounting estimates and judgments, and the clarity of disclosures in the Company’s financial statements. The Audit Committee has reviewed and discussed with Deloitte the matters required to be discussed relating toby the applicable requirements of the PCAOB and the SEC, including the overall audit scope, approach, and strategy as set forth in accordancethe terms of their engagement letter; critical audit matters (“CAMs”) that arose during the current period audit; and any issues encountered. The Audit Committee concurs with applicable audit standards.Deloitte’s assessment and identification of CAMs contained in its Annual Report included within Company’s 2023 Annual Report on Form 10-K.
Deloitte has also provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight BoardPCAOB regarding communication with the Audit Committee concerning independence. The Audit Committee discussed with Deloitte the firm'sfirm’s independence and considered whether the provision of services to the Company by Deloitte and compensation received by Deloitte for such services, including non-audit services, when applicable, is consistent with maintaining the firm'sfirm’s independence. In addition to annually reviewing Deloitte’s independence, the Audit Committee annually reviews Deloitte’s qualifications and performance in connection with the determination as to whether to select Deloitte as the Company’s independent registered public accounting firm. In conducting its review, the Audit Committee considers among other things, historical and recent performance of the current independent auditor, the auditor’s tenure, an analysis of known significant legal or regulatory proceedings related to the auditor, whether the auditor has the necessary expertise and resources, the appropriateness of the auditor’s fees on an absolute basis and as compared with fees paid by certain peer firms, the auditor’s professional skepticism, the auditor’s ideas to improve efficiency and effectiveness, and external data including PCAOB reports.
44
Based upon the discussions and reviews described above, and subject to the limitations on the Audit Committee'sCommittee’s role and responsibilities referred to above and in the Audit Committee charter, the Audit Committee recommended to the Board that the Company'sCompany’s audited consolidated financial statements for the 20172023 fiscal year be included in the Company'sCompany’s Annual Report on Form 10-K. The Audit Committee also selected Deloitte as the Company'sCompany’s independent registered public accounting firm for the 20182024 fiscal year and is presenting the selection to the Company'sCompany’s shareholders for ratification.
Submitted by the Audit Committee of the Board of Directors:
Cynthia A. Glassman (Chair)
Candace H. Duncan
Joseph F. Eazor
Lawrence A. Weinbach
| | | | | | | | | | | |
| Candace H. Duncan (Chair) | Joseph F. Eazor | Daniela O’Leary-Gill | Beverley A. Sibblies |
45 | | | | | |
Discover | 2024 Proxy Statement | 113 |
Stock ownership information
SHAREHOLDER PROPOSAL
Beneficial ownership of company common stock
We encourage our directors, officers, and employees to own our Common Stock as doing so aligns their interests with shareholders. All executive officers, including our NEOs, are subject to Discover’s share ownership guidelines. This commitment ties a portion of their net worth to the Company’s stock price and provides a continuing incentive for them to work towards superior long-term stock performance.
The textfollowing tables set forth the beneficial ownership of the shareholder proposal and supporting statement appears exactlyour Common Stock, as receivedof March 11, 2024, by the Company,persons and groups specified below. Except for the 5% beneficial owners, the percentage of calculations below are based on the number of shares of Common Stock outstanding as of March 11, 2024.
Directors and executive officers
| | | | | | | | |
| Name of Beneficial Owner | Shares of Discover common stock beneficially owned(1) | Percentage of Discover common stock outstanding |
John B. Owen(2) | 21,136 | | * |
| John T. Greene | 19,091 | | * |
| Hope D. Mehlman | 3,084 | | * |
| Daniel P. Capozzi | 49,825 | | * |
| Keith E. Toney | 30,511 | | * |
Roger C. Hochschild(3) | 622,992 | | * |
Carlos M. Minetti(3) | 155,663 | | * |
Amir S. Arooni(3) | 26,312 | | * |
| Michael G. Rhodes | 783 | | * |
Jeffrey S. Aronin(4) | 76,638 | | * |
Gregory C. Case(5) | 76,638 | | * |
Candace H. Duncan(6) | 21,622 | | * |
Joseph F. Eazor(7) | 13,244 | | * |
Kathy L. Lonowski(8) | 1,235 | | * |
Thomas G. Maheras(9) | 61,563 | | * |
Daniela O’Leary-Gill(10) | 1,331 | | * |
David L. Rawlinson II(11) | 5,093 | | * |
J. Michael Shepherd(12) | 1,243 | | * |
Beverley A. Sibblies(13) | 1,774 | | * |
Mark A. Thierer(14) | 24,563 | | * |
Jennifer L. Wong(15) | 10,054 | | * |
Directors and executive officers as a group (24 persons)(16) | 1,244,761 | | * |
* Represents beneficial ownership of less than 1%.
(1)Does not include shares underlying unvested RSUs unless otherwise noted. All statements contained
(2)Includes 14,550 shares underlying vested RSUs that would convert following a termination of service, and 1,774 shares underlying RSUs that are scheduled to vest within 60-days of March 11, 2024.
(3)Ownership calculations for Messrs. Hochschild, Minetti, and Arooni reflect their holdings disclosed in their respective Director & Officer Questionnaires, generally as of December 31, 2023, given they are no longer employed by the Company.
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| 114 | Discover | 2024Proxy Statement |
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STOCK OWNERSHIP INFORMATION | |
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(4)Includes 57,307 shares underlying vested RSUs that would convert following a termination of service, and 1,774 shares underlying RSUs that are scheduled to vest within 60-days of March 11, 2024.
(5)Includes 74,864 shares underlying vested RSUs that would convert following a termination of service, and 1,774 shares underlying RSUs that are scheduled to vest within 60-days of March 11, 2024.
(6)Includes 19,848 shares underlying vested RSUs that would convert following a termination of service, and 1,774 shares underlying RSUs that are scheduled to vest within 60-days of March 11, 2024.
(7)Includes 2,925 shares underlying vested RSUs that would convert following a termination of service, and 1,774 shares underlying RSUs that are scheduled to vest within 60-days of March 11, 2024.
(8)Includes 0 shares underlying vested RSUs that would convert following a termination of service, and 1,235 shares underlying RSUs that are scheduled to vest within 60-days of March 11, 2024.
(9)Includes 48,691 shares underlying vested RSUs that would convert following a termination of service, and 1,774 shares underlying RSUs that are scheduled to vest within 60-days of March 11, 2024.
(10)Includes 0 shares underlying vested RSUs that would convert following a termination of service, and 1,331 shares underlying RSUs that are scheduled to vest within 60-days of March 11, 2024.
(11)Includes 3,319 shares underlying vested RSUs that would convert following a termination of service, and 1,774 shares underlying RSUs that are scheduled to vest within 60-days of March 11, 2024.
(12)Includes 0 shares underlying vested RSUs that would convert following a termination of service, and 1,243 shares underlying RSUs that are scheduled to vest within 60-days of March 11, 2024.
(13)Includes 0 shares underlying vested RSUs that would convert following a termination of service, and 1,774 shares underlying RSUs that are scheduled to vest within 60-days of March 11, 2024.
(14)Includes 18,965 shares underlying vested RSUs that would convert following a termination of service, and 1,774 shares underlying RSUs that are scheduled to vest within 60-days of March 11, 2024.
(15)Includes 8,280 shares underlying vested RSUs that would convert following a termination of service, and 1,774 shares underlying RSUs that are scheduled to vest within 60-days of March 11, 2024.
(16)Includes 248,749 shares underlying vested RSUs that would convert following a termination of service, 152 shares of Common Stock that Executive Officers are expected to acquire pursuant to their participation in the shareholder proposalCompany’s Employee Stock Purchase Plan, and supporting statement21,549 shares underlying RSUs that are scheduled to vest and convert within 60-days of March 11, 2024. The aforementioned amounts as well as the sole responsibilitytotal amount of 1,244,761 shares are reflective of shares beneficially owned by our Executive Officers and Directors as of March 11, 2024.
Owners of more than 5% of Discover common stock
The following table sets forth those persons known to Discover to be the beneficial owners of more than 5% of the proponent.Company’s Common Stock based on information disclosed in SEC filings.
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| Name and Address of Beneficial Owner | Shares of Discover common stock beneficially owned | Percentage of Discover common stock outstanding |
BlackRock, Inc. 50 Hudson Yards, New York, New York 10001(1) | 18,704,528 | | 7.5 | % |
Capital World Investors 333 South Hope Street, 55th Floor, Los Angeles, California 90071(2) | 20,666,552 | | 8.3 | % |
The Vanguard Group 100 Vanguard Boulevard, Malvern, Pennsylvania 19355(3) | 32,330,796 | 12.93 | % |
(1)Based on a Schedule 13G/A filed on January 26, 2024 by BlackRock, Inc. regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of December 31, 2023. The shareholder proposal may contain assertions about the Company or other mattersSchedule 13G/A discloses that the Company believes are incorrect, but the Company has not attemptedBlackRock, Inc. had sole voting power as to refute all such assertions. All website links included in the shareholder proposal, supporting statement,16,818,931 shares, and statement in opposition are not part of the Proxy Statement.sole dispositive power as to 18,704,528 shares. The Board recommends a vote against the shareholder proposalownership percentage is based on the reasons set forthassumption that BlackRock, Inc. continued to own the number of shares reflected in the Board's statementtable on March 11, 2024.
(2)Based on a Schedule 13G/A filed on February 9, 2024 by Capital World Investors regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of December 31, 2023. The Schedule 13G/A discloses that Capital World Investors had sole voting power as to 20,554,308 shares, and sole dispositive power as to 20,666,552 shares. The ownership percentage is based on the assumption that Capital World Investors continued to own the number of shares reflected in opposition which follows the shareholder proposal.table on March 11, 2024.
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(3)Based on a Schedule 13G/A filed on February 13, 2024 by The nameVanguard Group regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of December 31, 2023. The Schedule 13G/A discloses that The Vanguard Group had shared voting power as to 315,916 shares, sole dispositive power as to 31,231,319 shares, and shareshared dispositive power as to 1,099,477 shares. The ownership percentage is based on the assumption that The Vanguard Group continued to own the number of shares reflected in the shareholder proponent is set forth below. table on March 11, 2024.
Insider trading information
General
The addressDiscover Insider Trading Policy governs the purchase, sale, and other disposition of the proponent,our securities by directors, officers, employees, and the nameCompany. Under this policy, it is prohibited from any such entity to trade in Discover securities while in possession of material, nonpublic information. The policy also includes prohibitions on tipping. Directors and share ownershipofficers are subject to additional requirements under the policy.
Prohibitions against hedging and pledging
This Insider Trading Policy also includes prohibitions against hedging and pledging of Discover securities by directors and Section 16 officers. No directors or Section 16 officers have any co-filer, are available, and will be provided promptly, upon request by calling (224) 405-0900hedged or by sending a request to Discover Financial Services, Attention: Secretary and General Counsel, 2500 Lake Cook Road, Riverwoods, Illinois 60015.
PROPOSAL 4. ADVISORY VOTE ON A SHAREHOLDER PROPOSAL RELATING TO SIMPLE MAJORITY VOTE
Myra K. Young has notified thepledged Company that she intends to submit the following proposal at this year's Annual Meeting of Shareholders. As explained below, the Board recommends that you vote AGAINST this shareholder proposal. The proponent states that she beneficially owns 50 shares of Discover's common stock, and there were 353,550,463 shares outstanding as of the Record Date (excluding treasury stock).
The proponent is responsible for the content of the following proposal, for which the Company and the Board accept no responsibility:
Shareholder Proposal
Proposal 4 - Simple Majority Vote
RESOLVED, Discover Financial Services shareholders request that our board take each step necessary so that each voting requirement in our charter and bylaws that calls for a greater than simple majority vote be eliminated, and replaced by a requirement for a majority of the votes cast for and against applicable proposals, or a simple majority in compliance with applicable laws. This means the closest standard to a majority of the votes cast for and against such proposals consistent with applicable laws. It is important that our company take each step necessary to adopt this proposal topic. It is also important that our company take each step necessary to avoid a failed vote on this proposal topic.
Supporting Statement: Shareowners are willing to pay a premium for shares of companies that have excellent corporate governance. Supermajority voting requirements have been found to be one of six entrenching mechanisms that are negatively related to company performance according to “What Matters in Corporate Governance” by Lucien Bebchuk, Alma Cohen and Allen Ferrell of the Harvard Law School (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=593423).
Supermajority requirements are used to block initiatives supported by most shareowners but opposed by a status quo management. The majority of S&P 500 and S&P 1500 companies have no supermajority voting requirements. Additionally, unlike the majority of S&P 500 and S&P 1500 companies, our company prohibits shareholders from calling special meetings.
This proposal topic won from 74% to 99% support at Weyerhaeuser, Alcoa, Waste Management, Goldman Sachs, FirstEnergy, McGraw-Hill, Macy’s, Ferro Arconic, and Cognizant Technology Solutions. Currently a 1%-minority can frustrate the will of our 66%-shareholder majority. In other words a 1%-minority could have the power to prevent shareholders from improving our corporate governance.
Please vote to enhance shareholder value:
Simple Majority Vote - Proposal 4
securities.
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The Board's Statement in Opposition
The Board of Directors has carefully consideredQuestions and answers about the proposalannual meeting and believes that the existing voting standards under the Company’s Certificate of Incorporation and Bylaws are appropriate and necessary. These voting standards, only one of which exceeds the simple majority standard advocated by the proponent, are designed to benefit all shareholders. Where the Company has supermajority voting provisions—only with respect to the amendment or repeal of the Company’s Bylaws—the Board believes that, in this limited circumstance, the higher voting requirements help to ensure broad shareholder support for any changes that could address significant matters related to the Company’s corporate governance.
Benefit to Shareholders of Supermajority Provisions
Delaware law permits companies to adopt supermajority voting requirements, and a number of publicly-traded companies have adopted these provisions to preserve and maximize long-term value for all shareholders. Supermajority voting requirements on fundamental corporate matters help to protect shareholders against the self-interested actions of a few large shareholders, who may have an agenda opposed to the long-term value of the Company. These voting standards ensure that fundamental changes to our Company are only enacted when the shareholders have reached a broad consensus to take action.
Discover has a Strong Corporate Governance Structure
The Company’s Board of Directors is committed to strong and prudent corporate governance practices, which are described in this Proxy Statement. We regularly review our practices in light of current circumstances and take action when it is advisable to do so. Our Board has adopted a range of practices and procedures that promote effective Board oversight. Some of the Company’s strong governance policies and practices include:
directors are elected annually by a majority of votes cast in uncontested elections;
the Nominating and Governance Committee evaluates each director and makes a recommendation to the Board on his or her nomination for election;
shareholders have the right to nominate directors and have those nominations included in the Company’s Proxy Statement; and
the Board has appointed an independent Lead Director who also chairs our Nominating and Governance Committee and presides over regular executive sessions and other meetings of the independent directors on the Board.
Consistent with its current practice, the Board will continue to evaluate the future implementation of appropriate corporate governance measures. However, after careful consideration of this proposal, the Board has determined that retention of the supermajority voting requirements related to the amendment or repeal of the Company’s Bylaws remains in the long-term, best interests of the Company and its shareholders.
The Board unanimously recommends a vote "AGAINST" the shareholder proposal relating to a simple majority vote. Proxies solicited by the Board will be voted "AGAINST" this proposal unless otherwise instructed.
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
Why did I receive these materials?
Discover’s Board is soliciting proxies for use at the 2024 Annual Meeting of Shareholders, and any adjournments and postponements thereof.
This Proxy Statement provides notice of the Annual Meeting, describes the proposals presented for shareholder action, and includes information required to be disclosed to shareholders. The Proxy Cardproxy card provides shareholders with a way to vote on the described proposals without having to attend the virtual Annual Meeting in person.Meeting. Shareholders of the Company at the close of business on the Record Date are entitled to vote at the Annual Meeting.
CanHow can I enroll in electronic delivery of future proxy materials?
We encourage you to enroll in electronic delivery of proxy materials. Enrolling in future electronic delivery provides convenient access to proxy materials and helps us reduce paper usage and printing and mailing expenses. If you are a registered shareholder, please sign up at computershare.com/investor. If you are a beneficial owner, please contact your Broker for instructions.
How can I register for and attend the annual meeting?
Our 2024 Annual Meeting?
Yes. To gain admissionMeeting will be a completely virtual meeting, which will be conducted exclusively by audio webcast. You are entitled to participate in the Annual Meeting only if you will need to show that you arewere a shareholder of the Company. All shareholdersCompany as of the close of business on the Record Date, or if you hold a valid proxy for the Annual Meeting. No physical in-person meeting will be held.
The online meeting will begin promptly at 9:00 a.m. Central Time. We encourage you to access the meeting prior to the start time leaving ample time for the check in. You will be able to attend the Annual Meeting, vote, and submit your questions during the meeting by visiting www.meetnow.global/MH7YUMP.
Individuals who were not shareholders as of the Record Date or do not provide the required information set forth below may still attend the Annual Meeting as a guest. Guests may attend the Annual Meeting but are not permitted to show valid, government-issued, picture identificationsubmit questions or vote.
Technical assistance will be available for attendees who experience an employee badge issued byissue accessing the Company. Annual Meeting. Contact information for technical support will appear on the Annual Meeting website prior to the start of the meeting.
Registered shareholders
If your shares are registered in your name (i.e., you hold your shares registered in your name through the Company’s transfer agent, Computershare), you are a “registered shareholder” or “shareholder of record” and do not need to register to attend the Annual Meeting virtually on the Internet. Please follow the instructions on the proxy card or Notice that you received with this Proxy Statement to attend the meeting. If you cannot locate your notice or proxy card but would like to attend the meeting, you can enter as a guest. Guest attendees will not be comparedallowed to the list of registeredvote or ask questions.
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Beneficial shareholders to verify your share ownership.
If your shares are held in the name of your brokerBroker, you are considered a “beneficial shareholder” and must register in advance to attend the Annual Meeting. To register in advance, you must submit a copy of the voting instruction form you received from your Broker, a copy of a brokerage statement validating your
holdings as of the Record Date, or bank, you will need to bring evidencea Legal Proxy that reflects proof of your share ownership, suchproxy power. The Legal Proxy will show your Discover holdings with your name. Please forward a copy of one of these documents, along with your email address, to Computershare. Requests for registration should be directed to Computershare through one of the following:
•By email: legalproxy@computershare.com; or
•By mail: Computershare, Discover Financial Services Legal Proxy, P.O. Box 43001, Providence, RI 02940-3001.
Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m. Eastern Time on May 6, 2024. You will receive a confirmation of your most recent brokerage account statement or a legal proxy fromregistration by email after Computershare receives your broker.registration materials. If you dodid not have valid picture identification and proof that you own Company shares,submit a Legal Proxy, but did submit a voting instruction form or brokerage statement, you will not be admittedable to vote at the Annual Meeting. In the interest of security, all packagesmeeting. You will, however, be able to attend and bags are subject to inspection. Please arrive before the start of the Annual Meeting to allow time for identity verification. You may also listen to a live audio webcast of the Annual Meeting through the investor relations page of our internet site, www.discover.com.ask questions.
What proposals am I being asked to vote on, and how does the Board of Directorsboard recommend that I vote?vote, and how many votes are required to approve the proposals?
You are asked to vote on the following matters at the annual meeting:
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| Proposal | Our board’s recommendation | Effect of abstentions and broker non-votes | Vote required for approval |
| 1 | |
Proposal | Our Board’s Recommendation |
Proposal 1.Election of Directors
directors | "FOR"“FOR” the election of each director nominee | Abstentions and Broker non-votes have no effect | The number of votes cast “for” each nominee’s election exceeds the total number of vote cast “against” such nominee’s election* |
Proposal 2.2
| Advisory Votevote to Approve Named Executive Officer Compensationapprove named executive officer compensation | “FOR” | Abstentions have the effect of a vote against; Broker non-votes have no effect | "FOR"A majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the proposal |
Proposal 3.3
| Ratification of Appointmentappointment of Independent Registered Public Accounting Firmindependent registered public accounting firm | "FOR"“FOR” | Abstentions have the effect of a vote against | A majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the proposal |
| Proposal 4. Advisory Vote on One Shareholder Proposal, if properly presented
| "AGAINST"
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What does it mean* As set forth in our Bylaws, provided that if, I receive more than one setas of materials?
This means you hold sharesthe 10th day preceding the date the Company first mails its notice of meeting for such meeting to the shareholders of the Company, in more than one way. For example, you may own some shares directly asthe number of nominees exceeds the number of directors to be elected, the directors shall be elected by the vote of a "registered holder" and other shares through a broker or you may own shares through more than one broker. In these situations you may receive multiple sets of proxy materials. In order to vote allplurality of the shares you own, you must follow the voting procedures on each Notice of Internet Availability of Proxy Materials that you receive or sign and return each of the Proxy Cards that you receive. Each Proxy Card you receive comes with its own prepaid return envelope. If you vote by mail, make sure you return each Proxy Card in the return envelope which accompanied that Proxy Card.
Does my vote matter?
YES! We are required to obtain shareholder approval for the election of directors and other important matters. Each share of Common Stock is entitled to one vote on each matter voted upon at the meeting. In order for the Company to obtain the necessary shareholder approval of proposals, a "quorum" of shareholders (i.e., a majority of the issued and outstanding shares entitled to vote, excluding treasury stock) must be represented at the Annual Meeting in person or by proxy. If a quorum is not obtained, the Company must postpone the Annual Meeting and solicit additional proxies; this is an expensive and time-consuming process that is not in the best interests of the Company or its shareholders. Since few shareholders typically attend shareholder meetings in person, voting by proxy is important to obtain a quorum and complete the shareholder vote.
How do I vote?
You may vote using any of the following methods:
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By Internet or telephone. The Internet and telephone voting procedures we have established for shareholders of record are designed to authenticate your identity, allow you to give your voting instructions and confirm that these instructions have been properly recorded. The availability of Internet and telephone voting for beneficial owners will depend on the voting processes of your broker, bank or nominee. Therefore, we recommend that you follow the voting instructions in the materials you receive.
Annual Proxy Card. Be sure to complete, sign and date the card and return it in the prepaid envelope. If you are a shareholder of record and you return your signed Proxy Card without indicating your voting preferences, the persons named in the Proxy Card will vote FOR the election of directors, FOR the approval on an advisory, non-binding basis, of NEO compensation, FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018, and AGAINST the shareholder proposal. By voting by Internet or telephone, or by returning your signed and dated Proxy Card in time to be received for the Annual Meeting, you authorize Kathryn McNamara Corley and Jennifer Schott (the "Proxies") to act as your proxies to vote your shares of Common Stock as instructed in the proxy card.
In person at the Annual Meeting. All shareholders may vote in person at the Annual Meeting. If you are a beneficial owner of shares, you must obtain a legal proxy from your broker, bank or nominee and present it to the Company’s inspectors of elections (the "Inspector of Elections") with your ballot when you vote at the meeting.
How many votes are required to approve a proposal?cast.
Each director will be elected by a majority of the votes cast with respect to such director. A "majority“majority of the votes cast"cast” means that the number of votes cast "for"“for” a given director exceeds the number of votes cast “against” that director. Under Delaware law, if a director is not elected at the Annual Meeting, the director will continue to serve on the Board as a "holdover“holdover director."” As required by the Company’s Bylaws, each current directornominee has submitted an irrevocable letter of resignation as a director that becomes effective if he or she is not elected by the shareholders and if the Board accepts such resignation. If a director is not elected, the Nominating and GovernanceNGPR Committee will consider the director’s resignation and recommend to the Board whether to accept or reject the resignation. The Board will decide whether to accept or reject the resignation and publicly disclose its decision and, if it rejects the resignation, the rationale behind such decision, within 90 days after the election results for the Annual Meeting are certified.
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The advisory, nonbindingnon-binding vote to approve NEO compensation and the advisory vote to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018, and the advisory vote on the shareholder proposal2024 each requiresrequire the affirmative vote of a majority of the voting power of the shares of Common Stockpresent in person or represented by proxy at the Annual Meetingmeeting and entitled to vote thereon.on the proposal.
You may "abstain"“abstain” from voting on any of the proposals in this Proxy Statement. Shares voting “abstain” on any nominee for director will be excluded entirely from the vote and will have no effect on the election of directors. Shares voting "abstain"“abstain” on the advisory, nonbinding vote to approve NEO compensation, the advisory vote to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018, and the advisory vote on the shareholder proposalany other matter will be counted as present at the Annual Meeting for purposes of each such applicable proposal, and your abstention will have the effect of a vote against the applicable vote or proposal.
What does it mean if I receive more than one set of materials?
This means you hold shares of the Company in more than one way. For example, you may own some shares directly as a “registered holder” and other shares through a Broker, or you may own shares through more than one Broker. In these situations you may receive multiple sets of proxy materials. In order to vote all of the shares you own, you must follow the voting procedures on each Notice of Internet Availability of Proxy Materials that you receive or sign and return each of the proxy cards that you receive. Each proxy card comes with its own prepaid return envelope. If you vote by mail, make sure you return each proxy card in the return envelope that accompanied that proxy card.
Does my vote matter?
YES! We are required to obtain shareholder approval for the election of directors and other important matters. Each share of Common Stock is entitled to one vote on each matter voted upon at the meeting. In order for the Company to obtain the necessary shareholder approval of proposals, a “quorum” of shareholders (i.e., a majority of the voting power of the issued and outstanding shares entitled to vote, excluding treasury stock) must be represented at the Annual Meeting in person or by proxy. If a quorum is not obtained, the Company must postpone the Annual Meeting and solicit additional proxies, which is an expensive and time-consuming process that is not in the best interests of the Company or its shareholders. Because few shareholders typically attend shareholder meetings in person, voting by proxy is important to obtain a quorum and complete the shareholder vote. Virtual attendance at our Annual Meeting constitutes presence in person for purposes of the vote required under our Bylaws.
How do I vote?
You may vote using any of the following methods:
By Internet or telephone. The Internet and telephone voting procedures we have established for shareholders of record are designed to authenticate your identity, allow you to give your voting instructions, and confirm that these instructions have been properly recorded. The availability of Internet and telephone voting for beneficial owners will depend on the voting processes of your Broker or nominee. Therefore, we recommend that you follow the voting instructions in the materials you receive.
Annual proxy card. Shareholders can complete, sign, and date the card and return it in the prepaid envelope. If you are a shareholder of record and you return your signed proxy card without indicating your voting preferences, the persons named in the proxy card will vote in accordance with the Board’s recommendations.
At the annual meeting. Shareholders may vote at the Annual Meeting. If your shares are registered in your name, you will need your 15-digit Control Number provided with the Notice of the Meeting or on your proxy card. If you are a beneficial shareholder, please refer to “How can I register for and attend the Annual Meeting?” above for information on how to register to attend the Annual Meeting in order to vote your shares at the meeting.
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By voting by Internet or telephone, or by returning your signed and dated proxy card in time to be received for the Annual Meeting, you authorize Hope D. Mehlman, Efie Vainikos, and Kevin M. Coleman, and each of them, with full power of substitution (the “Proxies”), to act as your proxies to vote your shares of Common Stock as instructed.
What is the effect of not voting?
The effect of not voting depends on how ownership of your shares is registered and the proposalproposals to be voted upon. If you own shares as a registered holder, rather than through a broker,Broker, your unvoted shares will not be represented at the Annual Meeting, and will not count toward the quorum requirement. Except as described below, assuming a quorum is obtained, your unvoted sharesrequirement, and will not affect whether a proposal is approved or rejected.have no effect on any of this year’s proposals.
If you own shares through a brokerBroker and do not vote, your brokerBroker may represent your shares at the Annual Meeting for purposes of obtaining a quorum. Asquorum as described in the answer to the following question in the absence of your voting instructions, your broker may or may not vote your shares.and answer.
If I don’tdo not vote, will my broker vote for me?
If you own your shares through a brokerBroker and you don'tdo not vote, your brokerBroker may vote your shares at its discretion on certain "routine“routine matters."” The ratification of the appointment of Deloitte and Touche LLP as our independent registered public accounting firm for 20182024 is a "routine matter"“routine matter” on which brokersBrokers will be permitted to vote any unvoted shares. All
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of theThe other proposals set forth in this Proxy Statement are "non-discretionary"“non-discretionary” items, and your brokerBroker may not be able to vote your shares for you. The aggregate number of unvoted shares is reported as the "broker“broker non-vote." "Broker non-vote" shares are counted toward” Broker non-votes with respect to any nominee for director will be excluded entirely from the quorum requirement but they do not affectvote and will have no effect on the determinationelection of whether a matter is approved.directors. Broker non-votes will also have no effect on the advisory, non-binding vote to approve NEO compensation.
If I own my shares through a broker, how is my vote recorded?
Brokers typically hold shares of Common Stock for many shareholders. In this situation, the registered holder on the Company’s stock register is the brokerBroker or its nominee. This often is referred to as holding shares in "street“street name."” The "beneficial owners"beneficial owners do not appear in the Company’s shareholder register. Therefore, for shares held in street name, distributing the proxy materials and tabulating votes are both two-step processes. Brokers will inform the Company how many of their clients are beneficial owners and the Company will provide the brokerBroker with that number of proxy materials. Each brokerBroker will then forward the proxy materials to its clients who are beneficial owners to obtain their votes. When you receive proxy materials from your broker,Broker, they will provide instructions for sending your vote to your broker.Broker. Before the Annual Meeting, each brokerBroker will total the votes it has received and submit a Proxy Cardproxy card reflecting the aggregate votes of the beneficial owners for whom it holds shares.
Are my votes confidential?
Yes. The vote of any shareholder will not be revealed to anyone other than a non-employee tabulator of votes or the independent Inspector of Elections, except (i) as necessary to meet legal requirements or to assist in the pursuit or defense of legal action; (ii) if the Company concludes in good faith that a bona fide dispute exists as to the authenticity of one or more proxies, ballots, or votes, or as to the accuracy of any tabulation of such proxies, ballots, or votes; (iii) in the event of a proxy contest or other solicitation in opposition to the voting recommendation of the Board; or (iv) if you request, or consent to, disclosure of your vote or if you write comments on your Proxy Cardproxy card or ballot.
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Can I revoke my proxy and change my vote?
Yes. You have the right to revoke your proxy at any time prior to the time your shares are voted. If you are a registered holder, your proxy can be revoked in several ways: (i) by timely delivery of a written revocation to the Corporate Secretary; (ii) by submitting another valid proxy bearing a later date (including by voting on the Internet or telephone or mailing a new Proxy Card)proxy card); or (iii) by attendingvoting during your attendance at the virtual Annual Meeting and giving notice to the Inspector of Elections that you intend to vote your shares in person.Meeting. If you are the beneficial owner of shares held by a broker,Broker, you must contact your brokerBroker in order to revoke your proxy.
Will any other business be transacted at the Annual Meeting?annual meeting? If so, how will my proxy be voted?
Management does not know of any businessmatters to be transactedpresented at the Annual Meeting other than those included in the mattersNotice of Annual Meeting of Shareholders and described in this Proxy Statement. The period specified in the Company’s Bylaws for submitting additional proposals to be considered at the Annual Meeting has passed, and there are no such proposals to be considered. However, shouldShould, however, any other matters properly come before the 2024 Annual Meeting, or any adjournments and postponements thereof, shares to which voting authority has been granted to the Proxies will be voted by the Proxies in accordance with their judgment.
Who counts the votes?
Votes will be counted and certified by the Inspector of Elections, who are employees of Computershare Shareowner Services (“Computershare”).Computershare. If you are a registered holder, your executed Proxy Cardproxy card is returned directly to Computershare for tabulation. As noted above, if you hold your shares through a broker,Broker, your brokerBroker returns one Proxy Cardproxy card to Computershare on behalf of all its clients.
How much does the proxy solicitation cost?
The largest expense in the proxy process is printing and mailing the proxy materials. We also reimburse brokers,Brokers, fiduciaries, and custodians for their costs in forwarding proxy materials to beneficial owners of our Common Stock. Proxies may be solicited on behalf of the Company by directors, officers, or employees of the Company in person or by mail, telephone, over the Internet, or facsimile transmission. No additional compensation will be paid to such directors, officers, or employees for soliciting proxies. The Company will bear the entire cost of solicitation of proxies, including the preparation, assembly, printing, and mailing of this Proxy Statement and the accompanying Proxy Card,proxy card, Notice of Annual Meeting, and Annual Report to Shareholders. The Company has retained Georgeson Inc. to assist with the solicitation of proxies from certain shareholders for a fee of approximately $7,500$9,500 plus reimbursement for certain expenses.
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Other matters
OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Based on a review of reports filed with the SEC and written representations that no other reports were required under Section 16(a) of the Exchange Act, the Company believes that all required reports have been timely filed by its directors, officers and beneficial owners of more than 10% of its Common Stock except: (i) two transactions in 2017 by Mr. Schneider that were not timely filed on a Form 4 due to administrative error; (ii) one transaction in 2014 by Mr. Lenny that was not timely filed on a Form 4 due to administrative error; and (iii) one transaction in 2017 by each of Messrs. Graf, Hochschild, Hughes, McGrogan, Minetti, Nelms, Panzarino and Rose, and Mmes. Corley, Loeger and Offereins that was not timely filed on Form 4 due to administrative error. All of the transactions were subsequently reported on Form 4, and all transactions are reflected in this Proxy Statement.
Code of Ethics and Business Conduct
The Company maintains a Code of Ethics and Business Conduct applicable to all directors, officers and employees, including senior financial officers. The Code of Ethics and Business Conduct is available without charge through the investor relations page of our internet site, www.discover.com, or by writing to the attention of: Investor Relations, Discover Financial Services, 2500 Lake Cook Road, Riverwoods, Illinois 60015. Any waivers of the provisions of this Code of Ethics and Business Conduct for directors or executive officers may be granted only in exceptional circumstances by the Board, or an authorized committee thereof, and will be promptly disclosed to the Company's shareholders as may be required under SEC or NYSE rules.
Certain Transactionstransactions
Certain of our directors and officers and(and certain members of their immediate familiesfamilies) have received, from time to time, extensions of credit from us in connection with mortgage loans, credit card transactions, and lines of credit. TheSuch extensions of credit (i) were made in the ordinary course of businessbusiness; (ii) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons not related to usus; and (iii) did not involve more than normal risk of collectability or present other unfavorable terms.
We or one of our subsidiaries may occasionally enter into transactions with certain "related“related persons."” Related persons include our executive officers, directors, nominees for directors, beneficial owners of 5% or more of our Common Stock, and immediate family members of these persons. We refer to transactions involving amounts in excess of $120,000 and in which the related person has a direct or indirect material interest as "related“related person transactions." Each” Proposed related person transactiontransactions must be approved or ratified in accordance withby the Company'sNGPR Committee pursuant to our written Related Person Transactions Policy as follows: (i) proposed related person transactions involving executive officers (and/or their immediate family members) other than our CEO or our General Counsel will be referred to our CEO and our General Counsel for approval or ratification, as applicable; (ii) proposed related person transactions involving our General Counsel (and/or the General Counsel's immediate family members) will be referred to our CEO for approval; and (iii) proposed related person transactions involving 5% Company shareholders, directors, director nominees or our CEO (and/or their immediate family members) will be referred to the Nominating and Governance. The NGPR Committee for approval or, if the Nominating and Governance Committee determines that the approval or ratification of such related person transaction should be considered by all disinterested members of the Board, by the vote of a majority of such disinterested members. Those reviewing proposed related person transactions shall be provided with full details of the proposed related person transaction. All determinations by our CEO and our General Counsel under the Related Person Transactions Policy shall be reported to the Nominating and Governance Committee at its next regularly scheduled meeting.
The determinations made under the Related Person Transactions Policy considerNGPR Committee considers all relevant factors when determining whether to approve a related person transaction including, without limitation, the following:
•the commercial reasonableness of the terms of the proposed transaction;
•the benefit to the Company;
•the availability and/or opportunity costs of alternate transactions;
•the materiality and character of the related person’s direct or indirect interest;
•whether the transaction would, or would be perceived to, present an improper conflict of interest for the related person, taking into account: (i) the business of the Company; (ii) the size of the transaction; (iii) the overall financial position of the related person; (iv) the direct or indirect nature of the related person'sperson’s interest
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in the transaction; (v) whether the transaction is of an ongoing nature; and (vi) any other relevant factors; and
•if the related person is a director (or an immediate family member of a director), the impact on the director'sdirector’s independence.
The NGPR Committee will approve a related person transaction only if it determines, upon consideration of all relevant information, that the transaction is not inconsistent with the best interests of the Company and its shareholders and complies with applicable law. Other Business
Management doesThe Company is not knowaware of any matters to be presented at the Annual Meeting other than those mentionedrelated person transaction as defined in the Notice of Annual Meeting of Shareholders. However, if other matters come before the Annual Meeting, it is the intentionItem 404 of the persons named in the accompanying proxy to vote said proxy in accordance with their judgment on such matters.SEC’s Regulation S-K.
Family relationships
There are no immediate family relationships between any of our directors or executive officers and any other directors or executive officers.
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| 122 | Discover | 2024Proxy Statement |
Shareholder Proposalsproposals and Director Nominationsdirector nominations for the 2019 Annual Meeting2025 annual meeting
Shareholders intending to presentsubmit a proposal, atincluding nominations for directorship or items of business as part of the 20192025 Annual Meeting, should review the following table, which summarizes the processes. The following table is qualified in its entirety by reference to SEC Rules 14a-8 and have it included in14a-19 and our proxy statement for that meeting mustBylaws.
| | | | | | | | | | | |
| Proposals submitted for inclusion in our 2025 proxy statement (i.e., SEC rule 14a-8) | Nominees submitted for inclusion in our 2025 proxy statement (i.e., proxy access) | Nominees and other proposals outside SEC rule 14a-8 to be presented at our 2025 annual meeting (i.e., advance notice) |
| Description of the type of proposal | SEC rules permit shareholders to submit proposals to us for inclusion in our Proxy Statement by satisfying the requirements set forth in SEC Rule 14a-8. | Shareholders meeting the requirements set forth in the Company’s Bylaws may submit nominees to be included in the Company’s Proxy Statement. Primary among these requirements is that the shareholder (or group of up to 20 shareholders) must have held 3% of our outstanding Common Stock for at least three years. Such shareholder(s) may nominate up to the greater of (i) two Board seats or (ii) 20% of the Board. | The Company’s Bylaws permit shareholders to present nominees or proposals directly at the Company’s annual meeting (and not for inclusion in the Company’s Proxy Statement) by satisfying the requirements set forth in our Bylaws. |
| When the proposal must be received* | Under SEC Rule 14a-8, the proposal typically must be received not less than 120 calendar days before the first anniversary of the date of the Proxy Statement released to shareholders for the prior year’s annual meeting. This means, for the 2025 Annual Meeting, no later than November 15, 2024. | Pursuant to the Company’s Bylaws, a proxy access nomination must be received not later than the close of business on the 120th day nor earlier than the close of business on the 150th day prior to the first anniversary of the date that the Company first mailed its Proxy Statement for the annual meeting of the previous year. This means, for the 2025 Annual Meeting, such notice must be received between October 16, 2024 and November 15, 2024. | Pursuant to the Company’s Bylaws, nominations and other proposals outside SEC Rule 14a-8 must be received not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year’s annual meeting. This means, for the 2025 Annual Meeting, such notice must be received between January 9, 2025 and February 10, 2025. |
| What to include in the proposal | The information necessary to be in compliance with SEC Rule 14a-8; however, submission of a proposal does not guarantee inclusion within our Proxy Statement. | The information set forth in the Company’s Bylaws. | The information set forth in the Company’s Bylaws. |
| Where to send the proposal | Discover Financial Services, c/o Corporate Secretary 2500 Lake Cook Road, Riverwoods, Illinois 60015 |
* Should the proposal in writing to Kathryn McNamara Corley, Secretary, 2500 Lake Cook Road, Riverwoods, Illinois 60015. We must receive the proposal no later than November 16, 2018.
Shareholders intending to nominate a person for election as a director at the 20192025 Annual Meeting and have the candidate included in our proxy statement and form of proxy for that meeting under the proxy access provisions in Section 2.08 of our Bylaws must comply with the requirements set forth in our Bylaws. The Bylaws require, among other things, that our Secretary receive written notice from the record shareholderbe advanced or group of shareholders of such nomination nodelayed more than 15030 days and no less than 120 days prior tofrom the first anniversary of the date thatof the proxy statement was first mailed to shareholders in connection with the previous year’s annual meeting. Therefore, the Company must receive notice of such a nomination for the 20192024 Annual Meeting, no earlier than the close of business on October 17, 2018 and no later than the close of business on November 16, 2018. The notice must contain the information required by the Bylaws, a copy of which is available upon request to our Secretary at the above address.then alternate deadlines apply.
Shareholders intending to present a proposal or to nominate a person for election as a director under the advance notice provisions in Section 2.07 of our Bylaws at the 2019 Annual Meeting, but not to include the proposal or director candidate in our proxy statement and form of proxy, must comply with the requirements set forth in our Bylaws. The Bylaws require, among other things, that our Secretary receive written notice from the record shareholder of intent to present such proposal or nomination no more than 120 days and no less than 90 days prior to the anniversary of the preceding year’s annual meeting. Therefore, the Company must receive notice of such a proposal or nomination for the 2019 Annual Meeting no earlier than January 2, 2019 and no later than February 1, 2019. The notice must contain the information required by the Bylaws, a copy of which is available upon request to our Secretary at the above address.This Proxy Statement is provided to you at the direction of the Board of Directors. | | | | | |
Discover | 2024 Proxy Statement | 123 |
Forward-looking statements
This Proxy Statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which speak to our expected business and financial performance, among other matters, contain words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “forecast,” and similar expressions. Such statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements. These forward-looking statements speak only as of the date of this Proxy Statement and there is no undertaking to update or revise them as more information becomes available.
Additional factors that could cause the Company’s results to differ materially from those described in the forward-looking statements can be found under “Risk Factors,” “Business - Competition,” “Business - Supervision and Regulation” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which is filed with the SEC and available at the SEC’s internet site (www.sec.gov).
Information not incorporated by reference into this proxy statement
The “Report of the compensation and leadership development committee” and the “Report of the audit committee,” each contained in this Proxy Statement, are not deemed filed with the SEC and shall not be deemed incorporated by reference into any prior or future filings made by the Company under the Exchange Act, except to the extent we specifically incorporate such information by reference. Information contained on or accessible throughout website, including but not limited to our various ESG reporting, is not and shall not be deemed to be a part of this Proxy Statement by reference or otherwise incorporated into any other filings we make with the SEC, except to the extent we specifically incorporate such information by reference. Some of these statements and reports contain cautionary statements regarding forward-looking information that should be carefully considered. Our statements and reports about our objectives may include statistics or metrics that are estimates, make assumptions based on developing standards that may change, and provide aspirational goals that are not intended to be promises or guarantees. The statements and reports may also change at any time, and we undertake no obligation to update them, expect as required by law.
Service mark, trademark, and copyright information
We own or have rights to use the trademarks, trade names, and service marks that we use in conjunction with the operation of our business, including, but not limited to: Discover®, PULSE®, and Diners Club International®. All other trademarks, trade names and service marks included in this Proxy Statement are the property of their respective owners.
© 2024 Discover Financial Services
| | Kathryn McNamara Corley | | | |
| 124 | | Executive Vice President, General Counsel and SecretaryDiscover | 2024Proxy Statement |
Glossary
| | | | | |
| Acronym or term | Definition |
| ASC | Accounting Standards Codification |
| Board | Board of Directors of Discover Financial Services |
| Broker | Brokerage firms, banks, trustees, other nominees, or similar entities |
| CAMs | Critical Audit Matters |
| CD&A | Compensation Discussion and Analysis |
| Compensation Committee | Compensation and Leadership Development Committee |
| CEO | Chief Executive Officer |
| CISO | Chief Information Security Officer |
| CFO | Chief Financial Officer |
| Company | Discover Financial Services |
| Computershare | Computershare Limited |
| COO | Chief Operating Officer |
| CRO | Chief Risk Officer |
| DEI | Diversity, Equity, and Inclusion |
| Deloitte | Deloitte & Touche LLP |
| Discover | Discover Financial Services |
| EBITDA | Earnings Before Interest, Taxes, Depreciation, and Amortization |
| EPS | Earnings Per Share |
| ESG | Environmental, Social, and Governance |
| Exchange Act | Securities Exchange Act of 1934, as amended |
| FASB | Financial Accounting Standards Board |
| FDIC | Federal Deposit Insurance Corporation |
| Federal Reserve | The Board of Governors of the Federal Reserve System |
| FP&A | Financial Planning and Analysis |
| GAAP | Generally Accepted Accounting Principles in the United States |
| Georgeson | Georgeson LLC |
| GHG | Greenhouse gases |
| GRI | Global Reporting Initiative |
| IRS | Internal Revenue Service |
| LTI | Long-Term Incentive |
| NEO | Named Executive Officer |
| NGPR Committee | Nominating, Governance and Public Responsibility Committee |
| NYSE | New York Stock Exchange |
| PAC | Political Action Committee |
| PBTR | Profit before Taxes and Reserves |
| PCAOB | Public Company Accounting Oversight Board |
| PEO | Principal Executive Officer |
| PSUs | Performance Stock Units |
| Record Date | March 11, 2024 |
| ROE | Return on Equity |
| RSUs | Restricted Stock Units |
| SARs | Stock Appreciation Rights |
| SASB | Sustainability Accounting Standards Board |
| SEC | U.S. Securities and Exchange Commission |
| STI | Short-Term Incentive |
| TSR | Total Shareholder Return |
| U.S. | United States of America |
52 | | | | | |
Discover | 2024 Proxy Statement | 125 |
Annex A
Reconciliation of GAAP to Non-GAAP Financial Measures
|
| | | | |
| | 2017 | 2016 | 2015 | 3-Year Cumulative |
| Diluted EPS | $5.42 | $5.77 | $5.13 | $16.32 |
| Adjusted for: | | | | |
| Employee compensation one-time bonus | 0.03 | | | 0.03 |
| Tax related one-time items | 0.49 | | | 0.49 |
Tax-Adjusted diluted EPS1 | $5.94 | $5.77 | $5.13 | $16.84 |
(1) Tax-adjusted diluted earnings per share (excluding one-time items) is a non-GAAP financial measure which should be viewed in addition to, and not as a substitutemeasures
| | | | | | | | | | | | | | |
| (in millions) | 2023 ($) | 2022 ($) | 2021 ($) | 2020 ($) |
Net income-GAAP(1) | 2,940 | | 4,374 | | 5,422 | | 1,125 | |
| Change in the allowance for credit losses | 1,977 | | 552 | | (1,404) | | 2,382 | |
| Liability for expected credit losses on unfunded commitments | (1) | | (10) | | (9) | | 17 | |
Income tax expenses(1) | 886 | | 1,344 | | 1,606 | | 289 | |
| Profit before taxes and reserves-non-GAAP | 5,802 | | 6,260 | | 5,615 | | 3,813 | |
Discretionary adjustments(2) | (324) | | 211 | | (443) | | 100 | |
Impact of prior period restatements on PBTR-non-GAAP(3) | — | | 24 | | 36 | | 21 | |
| Adjusted profit before taxes and reserves-non-GAAP | 5,478 | | 6,495 | | 5,208 | | 3,934 | |
(1)The amounts for the years ended December 31, 2022, 2021, and 2020 have been restated to reflect immaterial corrections to the financial statements. See Note 26: “Immaterial Restatement of Prior Period Financial Statements” in the Company’s reporting results. Management believes this information provides investors with useful metrics to evaluateAnnual Report on Form 10-K for the ongoing operating performanceyear ended December 31, 2023.
(2)2023 PBTR was adjusted for prior period impacts from the card misclassification matter, 2022 PBTR was adjusted for losses on certain equity investments, 2021 PBTR was adjusted for gains on certain equity investments, and 2020 PBTR was adjusted for software write-offs and facilities dispositions.
(3)For the years ended December 31, 2022, 2021, and 2020, the impact of prior period restatements on PBTR was not part of the Company.
measure of Adjusted PBTR evaluated by the Compensation Committee as part of their compensation decision-making.
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IMPORTANT ANNUAL MEETING INFORMATION
Vote by Internet
Go to www.investorvote.com/dfs
Or scan the QR code with your smartphone
Follow the steps outlined on the secure website
Shareholder Meeting Notice
Important Notice Regarding the Availability of Proxy Materials for the Discover Financial Services Shareholder Meeting to be Held on May 2, 2018
Under Securities and Exchange Commission rules, you are receiving this notice that the proxy materials for the annual shareholders’ meeting are available on the Internet. Follow the instructions below to view the materials and vote online or request a copy. The items to be voted on and the location of the annual meeting are on the reverse side. Your vote is important!
This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting. The proxy statement and annual report to shareholders are available at
www.investorvote.com/dfs
Easy Online Access - A Convenient Way to View Proxy Materials and Vote
When you go online to view materials, you can also vote your shares.
Step 1: Go to www.investorvote.com/dfs.
Step 2: Click on the icon on the right to view current meeting materials.
Step 3: Return to the investorvote.com window and follow the instructions on the screen to log in.
Step 4: Make your selection as instructed on each screen to select delivery preferences and vote.
When you go online, you can also help the environment by consenting to receive electronic delivery of future materials.
Obtaining a Copy of the Proxy Materials
If you want to receive a paper or email copy of these documents, you must request one. There is no charge to you for requesting a copy. Please make your request for a copy as instructed on the reverse side on or before April 18, 2018 to facilitate timely delivery.
Shareholder Meeting Notice
The Discover Financial Services Annual Meeting of Shareholders will be held on May 2, 2018 at the Company’s corporate headquarters located at 2500 Lake Cook Road, Riverwoods, IL 60015, at 9:00 a.m. local time for holders of record as of the close of business on March 5, 2018. Proposals to be voted on at the meeting are listed below along with the Board of Directors’ recommendations. Proposals to be voted on at the meeting are listed below along with the Board of Directors' recommendations.
Discover Financial Services’ Board recommends a vote "for" each nominee listed below and "for" Proposals 2 and 3:
1. Election of Directors: For Against Abstain
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| 126 | | | |
01 - Jeffrey S. Aronin | 02 - Mary K. Bush | 03 - Gregory C. Case | 04 - Candace H. Duncan |
| | | |
05 - Joseph F. Eazor | 06 - Cynthia A. Glassman | 07 - Thomas G. Maheras | 08 - Michael H. Moskow |
| | | |
09 - David W. Nelms | 10 - Mark A. Thierer | 11 - Lawrence A. Weinbach | Discover | 2024Proxy Statement |
2. Advisory vote to approve named executive officer compensation: For Against Abstain
3. To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm: For Against Abstain
Discover Financial Services’ Board recommends a vote "against" Proposal 4:
4. Advisory vote on a shareholder proposal regarding simple majority vote in the Company's governing documents, if properly presented: For Against Abstain
5. To transact any other business as may properly come before the meeting, or any adjournment or postponement of the meeting.
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PLEASE NOTE - YOU CANNOT VOTE BY RETURNING THIS NOTICE. To vote your shares you must vote online, by telephone, by mail or in person. You may vote by mail by requesting a paper copy of the proxy materials which will include a proxy card. If you wish to attend and vote at the meeting, please bring this notice with you.
Here’s how to order a copy of the proxy materials and select a future delivery preference:
Paper copies: Current and future paper delivery requests can be submitted via the telephone, Internet or email options below.
Email copies: Current and future email delivery requests must be submitted via the Internet following the instructions below. If you request an email copy of current materials you will receive an email with a link to the materials.
PLEASE NOTE: You must use the number in the shaded bar on the reverse side when requesting a set of proxy materials.
Internet - Go to www.investorvote.com/dfs. Follow the instructions to log in and order a copy of the current meeting materials and submit your preference for email or paper delivery of future meeting materials.
Telephone - Call us free of charge at 1-866-641-4276 and follow the instructions to log in and order a paper copy of the materials by mail for the current meeting. You can also submit a preference to receive a paper copy for future meetings.
Email - Send an email to investorvote@computershare.com with “Proxy Materials Discover Financial Services” in the subject line. Include in the message your full name and address, plus the number located in the shaded bar on the reverse side, and state in the email that you want a paper copy of current meeting materials. You can also state your preference to receive a paper copy for future meetings. To facilitate timely delivery, all requests for a paper copy of the proxy materials must be received by April 18, 2018.
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IMPORTANT ANNUAL MEETING INFORMATION
Electronic Voting Instructions
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one
of the voting methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the Internet or telephone must be received by
11:59 PM Eastern Time, on May 1, 2018.
Vote by Internet
Go to www.investorvote.com/dfs
Or scan the QR code with your smartphone
Follow the steps outlined on the secure website
Vote by telephone Call toll free 1-800-652-VOTE (8683) within the USA,
US territories & Canada on a touch tone telephone.
Follow the instructions provided by the recorded message
Annual Meeting Proxy Card
IF YOU HAVE NOT VOTED VIA THE INTERNEW OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
A - Proposals
Discover Financial Services’ Board recommends a vote "for" each nominee listed below and "for" Proposals 2 and 3:
1. Election of Directors: For Against Abstain.
|
| | | |
01 - Jeffrey S. Aronin | 02 - Mary K. Bush | 03 - Gregory C. Case | 04 - Candace H. Duncan |
| | | |
05 - Joseph F. Eazor | 06 - Cynthia A. Glassman | 07 - Thomas G. Maheras | 08 - Michael H. Moskow |
| | | |
09 - David W. Nelms | 10 - Mark A. Thierer | 11 - Lawrence A. Weinbach | |
2. Advisory vote to approve named executive officer compensation: For Against Abstain.
3. To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm: For Against Abstain.
Discover Financial Services’ Board recommends a vote "against" Proposal 4:
4. Advisory vote on a shareholder proposal regarding simple majority vote in the Company's governing documents, if properly presented: For Against Abstain
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B - Authorized Signatures - This section must be completed for your vote to be counted. Date and sign below. Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
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| | | | |
| | | | |
| Signature 1 | | Signature 2 | |
| | | | |
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| Date (mm/dd/yyyy) - Please print date | | | |
Proxy - DISCOVER FINANCIAL SERVICES
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS, MAY 2, 2018
The undersigned hereby appoints Kathryn McNamara Corley and Jennifer Schott, and each of them, attorneys and proxies with full power of substitution, to represent and to vote on behalf of the undersigned all of the shares of common stock of Discover Financial Services that the undersigned is entitled in any capacity to vote if personally present at the Annual Meeting of Shareholders to be held on May 2, 2018 and at any adjournments or postponements thereof, in accordance with the instructions set forth on the reverse and with the same effect as though the undersigned were present in person and voting such shares. The proxies are authorized in their discretion to vote for the election of a person to the Board of Directors if any nominee named herein becomes unable to serve or for good cause will not serve, upon all matters incident to the conduct of the meeting, and upon such other business as may properly come before the meeting.
PLEASE RETURN THIS PROXY CARD AFTER SIGNING AND DATING IT. THIS PROXY WILL BE VOTED AS DIRECTED. IF THIS PROXY IS SIGNED, BUT NO DIRECTION IS MADE, IT WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF DISCOVER FINANCIAL SERVICES’ BOARD OF DIRECTORS.
C - Non-Voting Items
Change of Address - Please print new address below. Comments - Please print your comments below.
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